-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJLHNAm7X6U8j47E9x130m79WZPUhRaOj1AU8TfBmB63OlhPJIkPRtWOTSAAf7/d t/tmBylU20s8J/mAOw9Nlw== 0000898430-02-001098.txt : 20020415 0000898430-02-001098.hdr.sgml : 20020415 ACCESSION NUMBER: 0000898430-02-001098 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTEL INC /DE/ CENTRAL INDEX KEY: 0000063276 STANDARD INDUSTRIAL CLASSIFICATION: DOLLS & STUFFED TOYS [3942] IRS NUMBER: 951567322 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05647 FILM NUMBER: 02591589 BUSINESS ADDRESS: STREET 1: 333 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3102522000 10-K 1 d10k.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- 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, 2001 [_] 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 ---------------- MATTEL, INC. (Exact name of registrant as specified in its charter) Delaware 95-1567322 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $1.00 par value New York Stock Exchange Pacific Exchange, Inc.
---------------- Securities registered pursuant to Section 12(g) of the Act: NONE ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] 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 22, 2002 was $9,109,214,827. Number of shares outstanding of registrant's common stock, $1.00 par value, (including 1,070,962 common shares issuable upon exchange of outstanding exchangeable shares of Softkey Software Products Inc.) as of March 22, 2002: 433,772,135 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the Mattel, Inc. 2002 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). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I Item 1. Business Mattel, Inc. ("Mattel") designs, manufactures, and markets a broad variety of toy products on a worldwide basis through sales both to retailers and direct to consumers. Mattel believes its products are among the most widely recognized toy products in the world. Mattel's portfolio of brands and products are grouped in the following categories: Girls--including Barbie(R) fashion dolls and accessories, collector dolls, Polly Pocket!(R), Diva Starz(TM), What's Her Face!(TM) and American Girl(R) Boys-Entertainment--including Hot Wheels(R), Matchbox(R), Hot Wheels(R) Electric Racing and Tyco(R) Radio Control vehicles and playsets (collectively "Wheels"), and Disney, Nickelodeon(R), Harry Potter(TM), Max Steel(TM) and games and puzzles (collectively "Entertainment") Infant & Preschool--including Fisher-Price(R), Power Wheels(R), Sesame Street(R), Disney preschool and plush, Winnie the Pooh(R), Blue's Clues(R), See "N Say(R), Magna Doodle(R) and View-Master(R) In 2000, Mattel's management articulated its overall company vision: to create and market "the world's premier toy brands for today and tomorrow." Management set five key company strategies: (i) improve execution of the existing toy business; (ii) globalize the brands; (iii) extend the brands; (iv) catch new trends; and (v) develop employees. In 2001, Mattel focused on executing these strategies. Among other key initiatives, Mattel sought to improve customer service levels by enhancing supply chain performance. Mattel also initiated significant employee development measures, including performance tracking, leadership classes, global employee surveys and follow-up action plans. In addition, in 2001, Mattel added two new independent directors to its Board of Directors. In 2001, Mattel continued to excecute its financial realignment plan, originally announced during the third quarter of 2000, designed to improve gross margin; selling and administrative expenses; operating profit; and cash flow. The plan will require a total pre-tax charge estimated at approximately $250 million, or $170 million on an after-tax basis. Through December 31, 2001, Mattel had recorded pre-tax charges totaling $175.4 million or approximately $119 million on an after-tax basis. Under the plan, Mattel expects to generate approximately $200 million of cumulative pre-tax cost savings over the three year duration of the plan. Mattel recognized savings of approximately $55 million in 2001 and expects to achieve savings of approximately $65 million in 2002. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations--2000 Financial Realignment Plan" and Item 8 "Financial Statements and Supplementary Data--Note 9 to the Consolidated Financial Statements." In 2000, Mattel implemented a two phase interactive media strategy, consisting of the disposition of the Learning Company division that had been acquired in 1999 and the licensing of Mattel's core brands to leading interactive companies. The disposition of the Learning Company division was completed in October 2000. Licensing agreements with Vivendi Universal Publishing for Barbie(R) and Fisher-Price(R) brands, and THQ, Inc. for Hot Wheels(R) and Matchbox(R) brands, were announced in January 2001. 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. 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 are divided on a geographic basis between domestic and international. The domestic segment is further divided into US Girls, US Boys- 2 Entertainment, and US Infant & Preschool. For additional information with respect to Mattel's business segment reporting, including revenue, profit and loss and assets, see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Continuing Operations--Business Segment Results" and Item 8 "Financial Statements and Supplementary Data--Note 10 to the Consolidated Financial Statements." For additional information regarding geographic areas, see Item 8 "Financial Statements and Supplementary Data--Note 10 to the Consolidated Financial Statements." Domestic Segment The Domestic segment develops toys that it markets and sells in the US Girls, US Boys-Entertainment and US Infant & Preschool segments. US Girls segment includes brands such as Barbie(R) fashion dolls and accessories, collector dolls, Polly Pocket!(R), Diva Starz(TM), What's Her Face!(TM) and American Girl(R). In 2002, Mattel expects to introduce Barbie(R) as Rapunzel(TM), a hair-play fashion doll and computer graphic imagery video, Fashion Polly(TM) Sparkle Style(TM) House and Malibu Barbie(R), a reissue of one of the most popular Barbie(R) dolls ever. US Boys-Entertainment segment includes Hot Wheels(R), Matchbox(R), Hot Wheels(R) Electric Racing and Tyco(R) Radio Control (collectively "Wheels") and Disney, Nickelodeon(R), Harry Potter(TM), Max Steel(TM) and games and puzzles (collectively "Entertainment") products. New Boys-Entertainment products in 2002 are expected to include Hot Wheels(R) Turbo Jet City(TM) Playset, Matchbox(R) Radio Rescue Playset, Harry Potter(TM) Polyjuice Potion Maker, Tyco(R) RC Extreme Stunt Scooter and a toy line based on Yu-Gi-Oh!(TM), the Japanese cartoon and card game property. US Infant & Preschool segment includes Fisher-Price(R), Power Wheels(R), Sesame Street(R), Disney preschool and plush, Winnie the Pooh(R), Blue's Clues(R), See N Say(R), Magna Doodle(R), and View-Master(R) brands. New product introductions for 2002 are expected to include Guess What Elmo, Magic Rattle(TM) Pooh, Blue's Clues(R) Music Studio, Rescue Heroes(TM) new Power Force figures, Pixter(TM) PRO digital creative system, Lightning PAC(TM) battery-powered kid scooter and a preschool Grow With Me(TM) Remote Control Raceway. International Segment Generally, products marketed by the International segment are the same as those developed and marketed by the Domestic segment, 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." Revenues from Mattel's International segment represented approximately 31% of total consolidated net sales in 2001. The strength of the US dollar relative to other currencies can significantly affect the revenues and profitability of Mattel's international operations. Mattel enters into foreign currency forward exchange and option contracts primarily to hedge its purchase and sale of inventory, and enters into other intercompany transactions denominated in foreign currencies to limit the effect of exchange rate fluctuations on its results of operations and cash flows. See Item 7a "Quantitative and Qualitative Disclosures About Market Risk" and Item 8 "Financial Statements and Supplementary Data--Note 8 to the Consolidated Financial Statements." For financial information by geographic area, see Item 8 "Financial Statements and Supplementary Data--Note 10 to the Consolidated Financial Statements." Manufacturing Mattel manufactures toy products both in company-owned facilities and through independent contractors. 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. 3 Mattel's principal manufacturing facilities are located in China, Indonesia, Italy, Malaysia, Mexico and Thailand. 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 and in 2001 announced plans to close a distribution and manufacturing facility in Murray, Kentucky. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations--2000 Financial Realignment Plan and 1999 Restructuring and Other Charges" and Item 8 "Financial Statements and Supplementary Data--Note 9 to the Consolidated Financial Statements." Mattel believes that its existing production capacity at its own and its independent contractors' manufacturing facilities is sufficient to handle expected volume in the foreseeable future. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Factors That May Affect Future Results." Mattel bases its production schedules for toy products on customer orders, taking into account historical trends, results of market research and current market information. Actual shipments of products ordered and order cancellation rates are affected by consumer acceptance of product lines, strength of competing products, marketing strategies of retailers and overall economic conditions. Unexpected changes in these factors could result in a lack of product availability or excess inventory in a particular product line. The foreign countries in which most of Mattel's products are manufactured (principally China, Indonesia, Thailand, Malaysia and Mexico) all enjoy permanent "normal trade relations" ("NTR") status under US tariff laws, which provides a favorable category of US import duties. China's NTR status became permanent on January 1, 2002, following enactment of a bill authorizing such status upon the country's accession to the World Trade Organization, which occurred in December 2001. This substantially reduces the possibility of China losing its NTR status, which would result in increased costs for Mattel and others in the toy industry. 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% and 15%, 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 but may be subject to fluctuations in price. Mattel has long-term agreements in place with major suppliers that allow the suppliers to pass on only their actual raw material cost increases. Competition and Industry Background Competition in the toy industry is intense and is based primarily on price, quality and play value. Mattel's US Girls and US Boys-Entertainment segments compete with several large toy companies, including Hasbro, Inc., and many smaller toy companies. The US Infant & Preschool market, which includes Fisher-Price, Inc. as one of the leading companies, is more fragmented. In the infant category, competitors include Kids II, V-Tech, Hasbro and The First Years. In the preschool category, competitors include Leap Frog, Hasbro and Learning Curve. In the plush category, competitors include Dan-Dee, Commonwealth and Hasbro. Mattel's International segment competes with global toy companies including Hasbro, Lego, Tomy and Bandai, as well as national and regional toy companies. Foreign national and regional toy markets may include competitors who are strong in a particular toy line or geographical area, but do not compete with Mattel and other international toy companies on a worldwide basis. 4 Seasonality Mattel's business is highly seasonal, with consumers making a large percentage of all toy purchases around the traditional holiday season in the fourth quarter. A significant portion of Mattel's customers' purchasing occurs in the third and fourth quarters in anticipation of such holiday buying. As a result of the seasonal purchasing patterns and production lead times, Mattel's business is subject to risks associated with the underproduction of popular toys and the overproduction of toys that do not match consumer demand. Retailers are also attempting to manage their inventories more tightly, requiring Mattel to ship products closer to the time the retailers expect to sell the products to consumers. These factors increase the risk that Mattel may not be able to meet demand for certain products at peak demand times, or that Mattel's own inventory levels may be adversely impacted by the need to pre- build products before orders are placed. Additionally, as retailers manage their inventories, Mattel experiences cyclical ordering patterns for products and product lines that may cause its sales to vary significantly from period to period. In anticipation of retail sales in the traditional holiday season, 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. 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." Product Design and Development 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 Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors That May Affect Future Results." Product design and development are principally conducted by a group of professional designers and engineers employed by Mattel. Independent toy designers and developers bring concepts and products to Mattel and are generally paid a royalty on the net selling price of products licensed to Mattel. These independent toy designers may also create different products for other toy companies. 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 limited the potential loss associated with new product introductions. Mattel devotes substantial resources to product design and development. During the years ended December 31, 2001, 2000 and 1999, Mattel spent approximately $176 million, $180 million and $172 million, respectively, in connection with the design and development of products, exclusive of royalty payments. See Item 8 "Financial Statements and Supplementary Data--Note 12 to the Consolidated Financial Statements." 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, sweepstakes, merchandising materials and major events focusing on products and tie-ins with various consumer products companies. Mattel has a retail store, American Girl(TM) Place, in Chicago featuring children's products from Mattel's Pleasant Company division. During the years ended December 31, 2001, 2000 and 1999, Mattel spent approximately $662 million (13.8% of net sales), $686 million (14.7% of net sales) and $685 million (14.9% of net sales), respectively, on worldwide advertising and promotion. 5 Mattel's products are sold throughout the world. Products within the Domestic 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. Mass merchandisers, such as Wal-Mart and Target, continue to increase their market share. Products within the International 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. During the year ended December 31, 2001, Mattel's three largest customers, Wal-Mart, Toys "R" Us and Target, accounted for approximately 50% of consolidated net sales. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations--Factors That May Affect Future Results" and Item 8 "Financial Statements and Supplementary Data--Note 8 to the Consolidated Financial Statements." In the International segment, there is also significant concentration of sales to certain large customers. The customers and the degree of concentration vary depending upon the region or nation. Licenses and Distribution Agreements Mattel has license agreements with third parties that permit Mattel to utilize the trademark, character, or inventions of the licensor in product lines that Mattel manufactures. A number of these licenses relate to product lines that are significant to Mattel's business and operations. An important licensor is Warner Bros., which licenses the Harry Potter(TM) book and movie property for use on Mattel's products. Mattel also has entered into license agreements with, among others: Disney Enterprises, Inc., relating to classic Disney characters such as Mickey Mouse(R), Winnie the Pooh(R) and the Disney Princesses; Sesame Workshop relating to its Sesame Street(R) properties; Viacom International, Inc. relating to its Nickelodeon(R) properties; and Lyons Partnership, L.P. relating to Barney(TM), the purple dinosaur, as well as Barney(TM) for Baby, for infant and preschool toys, feature plush, electronic learning aids, games and puzzles. In November 2001, Mattel entered into a license agreement with Nihon Ad Systems Inc. for the master toy license to the Yu-Gi-Oh!(TM) property worldwide, excluding Asia, for a term of four years, which includes the categories of action figures, vehicles, activity toys, games and puzzles. Royalty expense during the years ended December 31, 2001, 2000 and 1999 was approximately $220 million, $259 million and $220 million, respectively. See "Product Design and Development" and Item 8 "Financial Statements and Supplementary Data--Note 7 to the Consolidated Financial Statements." 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 products that do not compete with Mattel's products, in particular for consumer software products. Mattel distributes some third party finished products that are independently designed and manufactured. 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. 6 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, 2001, Mattel had outstanding commitments for 2002 purchases of inventory of approximately $121 million. Licensing and similar agreements with terms extending through the year 2010 contain provisions for future guaranteed minimum payments aggregating approximately $379 million. See Item 8 "Financial Statements and Supplementary Data--Note 7 to the Consolidated Financial Statements." Mattel ships products in accordance with delivery schedules specified by its customers, which usually request delivery within three to six months. In the toy industry, orders are subject to cancellation or change at any time prior to shipment. In recent years, a trend toward just-in-time inventory practices in the toy industry has resulted in fewer advance orders and therefore less backlog of orders. Mattel believes backlog orders at any given time may not accurately indicate future sales. Financial Instruments Mattel's results of operations and cash flow may be impacted by exchange rate fluctuations. 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 using foreign currency forward exchange and option contracts primarily to hedge its purchase and sale of inventory, and other intercompany transactions denominated in foreign currencies. These contracts generally have maturity dates of up to 18 months. In addition, Mattel manages its exposure through the selection of currencies used for international borrowings and intercompany invoicing. Mattel's results of operations can also be affected by the translation of foreign revenues and earnings into US dollars. Mattel does not trade in financial instruments for speculative purposes. For additional information regarding foreign currency contracts, see "International Segment" above, Item 7a "Quantitative and Qualitative Disclosures About Market Risk" and Item 8 "Financial Statements and Supplementary Data--Note 8 to the Consolidated Financial Statements." Seasonal Financing Mattel's financing of seasonal working capital, as well as that of the industry taken as a whole, 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 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, selling certain trade receivables under one of its committed domestic revolving credit facilities, and using various short- term bank lines of credit. In addition, Mattel avails itself of individual short-term foreign credit lines with a number of banks and enters into agreements with banks of its foreign subsidiaries for non-recourse sales of certain of its foreign subsidiary receivables, which arrangements will be used as needed to finance seasonal working capital requirements of certain foreign subsidiaries. Mattel's domestic unsecured committed revolving credit facility provides $1.0 billion in short-term borrowings from a commercial bank group. This facility was originally executed in 1998 for a term of five years, expiring in 2003. In March 2002, Mattel amended and restated this facility into a $1.060 billion, 3-year facility that expires in 2005 with substantially similar terms and conditions. In first quarter 2001, Mattel renewed its 364-day, $400.0 million unsecured committed credit facility, with essentially the same terms and 7 conditions as the $1.0 billion revolving credit facility. Mattel has elected not to renew this facility when it expires in March 2002, as it believes that cash on hand at the beginning of 2002 and its $1.060 billion domestic unsecured committed revolving credit facility will be sufficient to meet its seasonal working capital requirements in 2002. The unsecured credit facilities and another $200.0 million term loan currently in place require Mattel to meet financial covenants for consolidated debt-to-capital and interest coverage. Currently, Mattel is in compliance with such covenants. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources-Seasonal Financing" and Item 8 "Financial Statements and Supplementary Data--Note 4 to the Consolidated Financial Statements." To meet seasonal borrowing requirements of certain foreign subsidiaries, Mattel negotiates individual financing arrangements. Foreign credit lines total approximately $368 million. Mattel expects to extend these credit lines through 2002. In the fourth quarter of 2001, Mattel entered into a securitization agreement with a European bank to sell certain receivables of its French and German subsidiaries. Mattel also enters into agreements with banks of its foreign subsidiaries for non-recourse sales of certain of its foreign subsidiary receivables. Mattel believes the amounts available from financing sources outlined above will be adequate to meet its seasonal financing requirements for 2002. Government Regulations Mattel's toy products sold in the US are subject to the provisions of the Consumer Product Safety Act and the Federal Hazardous Substances Act, and may also be subject to the requirements of the Flammable Fabrics Act or the Food, Drug and Cosmetics Act, and the regulations promulgated pursuant to such statutes. 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, as well as 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. 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. In 2001, Fisher-Price announced plans to exit the car seat business. Mattel maintains a quality control program to ensure compliance with various US federal, state and applicable foreign product safety requirements. Notwithstanding the foregoing, there can be no assurance that all of Mattel's products are or will be free from defects or hazard-free. A product recall could have a material adverse effect on Mattel's results of operations and financial condition, depending on the product affected by the recall and the extent of the recall efforts required. A product recall could also negatively effect Mattel's reputation and the sales of other Mattel products. Mattel's advertising is subject to the Federal Trade Commission Act, The Children's Television Act of 1990, the rules and regulations promulgated by the Federal Trade Commission and the Federal Communications Commission as well as laws of certain countries that regulate advertising to children. In addition, Mattel's websites that are directed to children are subject to the Children's Online Privacy Protection Act. 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. 8 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, 2001, Mattel's total number of employees, including its international operations, was approximately 27,000. Executive Officers of the Registrant The current executive officers of Mattel, all of which are appointed annually by the board of directors and serve at the pleasure of the board, are as follows:
Executive Officer Name Age Position Since ---- --- -------- --------- Robert A. Eckert........ 47 Chairman of the Board of Directors and Chief Executive Officer 2000 Matthew C. Bousquette... 43 President, Boys/Entertainment 1999 Thomas A. Debrowski..... 51 Executive Vice President, Worldwide Operations 2000 Joseph F. Eckroth, Jr... 43 Chief Information Officer 2000 Kevin M. Farr........... 44 Chief Financial Officer 1996 Adrienne Fontanella..... 43 President, Girls/Barbie 1999 Neil B. Friedman........ 54 President, Fisher-Price Brands 1999 Alan Kaye............... 48 Senior Vice President, Human Resources 1997 Douglas E. Kerner....... 44 Senior Vice President and Corporate Controller 2001 Robert Normile.......... 42 Senior Vice President, General Counsel and Secretary 1999 William Stavro.......... 62 Senior Vice President and Treasurer 1993 Bryan Stockton.......... 48 Executive Vice President, Business Planning and Development 2000
Mr. Eckert has been Chairman of the Board of Directors and Chief Executive Officer since May 2000. He was formerly President and Chief Executive Officer of Kraft Foods, Inc., the largest packaged food company in North America and a subsidiary of Philip Morris Companies Inc., from October 1997 until May 2000. From 1995 to 1997, Mr. Eckert was Group Vice President of Kraft Foods, Inc. From 1993 to 1995, Mr. Eckert was President of the Oscar Mayer foods division of Kraft Foods, Inc. Mr. Eckert worked for Kraft Foods, Inc. for 23 years prior to joining Mattel. 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--Boys Toys. He joined Mattel in December 1993 as Senior Vice President-Marketing. Mr. Debrowski has been Executive Vice President, Worldwide Operations, since November 2000. From February 1992 until November 2000, he was Senior Vice President-Operations and a director of The Pillsbury Company. From September 1991 until February 1992, he was Vice President of Operations for The Baked Goods Division of The Pillsbury Company. Prior to that, he served as Vice President and Director of Grocery Operations for Kraft U.S.A. Mr. Eckroth has been Chief Information Officer since July 2000. From July 1998 until July 2000, he was Chief Information Officer of General Electric Company's Medical Systems unit. From November 1995 until June 1998, he served as Chief Information Officer of General Electric Company's Industrial Controls Systems division. Prior to that, he held several senior positions within Operations and Information Technology at the Northrop Grumman Corporation. 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. 9 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 and 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 1995 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. Kaye has been Senior Vice President of Human Resources since July 1997. From June 1996 to June 1997 he was President, Texas Division of Kaufman and Broad Homes, a home building company. From June 1991 to June 1996, he served as Senior Vice President, Human Resources for Kaufman and Broad Homes. Prior to that he worked for two years with the Hay Group, a compensation consulting firm and for 12 years with IBM in various Human Resources positions. Mr. Kerner has been Senior Vice President and Corporate Controller since April 2001, when he joined Mattel. Prior to joining Mattel, he served as Executive Vice President, Finance, of Premier Practice Management, Inc. from November 1998 to March 2001. From February to June 1998, he worked for FPA Medical Management, Inc., most recently serving as Vice President, Treasurer and Acting Chief Financial Officer. From 1991 to 1997 he worked for Total Petroleum (North America) Ltd., most recently as Vice President & Treasurer. 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 August 1994 to March 1999. 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. Mr. Stockton has been Executive Vice President, Business Planning and Development, since November 2000. From April 1998 until November 2000, he was President and Chief Executive Officer of Basic Vegetable Products, the largest manufacturer of vegetable ingredients in the world. For more than five years prior to that, he was employed by Kraft Foods, Inc., the largest packaged food company in North America, and was President of Kraft North American Food Service from August 1996 to March 1998. Mr. Stockton worked for Kraft Foods, Inc. for 22 years. Item 2. Properties Mattel owns its corporate headquarters in El Segundo, California, consisting of 335,000 square feet, which is subject to a $42 million mortgage, and an adjacent 55,000 square foot office building. Mattel also leases buildings in El Segundo consisting of approximately 327,000 square feet. All segments use these facilities. Mattel's Fisher-Price subsidiary owns its headquarters facilities in East Aurora, New York, consisting of approximately 535,000 square feet, which is used by the US Infant & Preschool segment. Pleasant Company owns its headquarters facilities in Middleton, Wisconsin, consisting of approximately 420,000 square feet, which is used by the US Girls segment. Mattel maintains leased sales offices in California, Illinois, New York, North Carolina, Arkansas, Michigan, Georgia and Texas used by the Domestic segment and leased warehouse and distribution facilities in California, Kentucky, New Jersey, Wisconsin and Texas, all of which are used by the Domestic segment. Mattel 10 owns a computer facility in Phoenix, Arizona used by all segments. Internationally, Mattel has its principal offices and/or warehouse space in Australia, Brazil, Canada, Chile, France, Germany, Hong Kong, Italy, Mexico, The Netherlands, Spain, and the United Kingdom, all of which are leased and which are used by the International segment. Mattel's principal manufacturing facilities are located in China, Indonesia, Italy, Malaysia, Mexico and Thailand. See Item 1 "Business--Manufacturing." 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 Item 8 "Financial Statements and Supplementary Data--Note 7 to the Consolidated Financial Statements." Mattel believes that its owned and leased facilities, in general, are suitable and adequate for its present and currently foreseeable needs. Item 3. Legal Proceedings See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations--Litigation" and Item 8 "Financial Statements and Supplementary Data--Note 7 to the Consolidated Financial Statements." 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. 11 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. For information regarding the high and low closing prices of the common stock for the last two calendar years, see Item 8 "Financial Statements and Supplementary Data--Note 11 to the Consolidated Financial Statements." As of March 22, 2002, Mattel had approximately 49,000 holders of record of its common stock. Mattel paid dividends on its common stock of $0.08 per share in January and April 1999, and $0.09 per share in July and October 1999 and January, April, July and October of 2000. As part of its financial realignment plan, Mattel announced during the third quarter of 2000 a change in its dividend policy consisting of a reduction in the annual cash dividend from $0.36 per share to $0.05 per share. In 2001, a $0.05 per share dividend was declared by the board of directors in November and paid in December. The payment of dividends on common stock is at the discretion of Mattel's board of directors and is subject to statutory and customary limitations. 12 Item 6. Selected Financial Data
For the Year Ended December 31, (a)(b) ---------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (In thousands, except per share and percentage information) Operating Results: Net sales............... $4,804,062 $4,669,942 $4,595,490 $4,698,337 $4,778,663 Gross profit............ 2,266,884 2,100,785 2,182,021 2,309,795 2,364,085 % of net sales........ 47.2% 45.0% 47.5% 49.2% 49.5% Operating profit (c).... 585,142 378,403 301,773 570,279 515,212 % of net sales........ 12.2% 8.1% 6.6% 12.1% 10.8% Income from continuing operations before income taxes, cumulative effect of change in accounting principles and extraordinary item..... 430,010 225,424 170,164 459,446 425,082 Provision for income taxes.................. 119,090 55,247 61,777 131,193 135,288 Income from continuing operations before cumulative effect of change in accounting principles and extraordinary item..... 310,920 170,177 108,387 328,253 289,794 Loss from discontinued operations (a)......... -- (601,146) (190,760) (122,200) (467,905) Cumulative effect of change in accounting principles............. (12,001) -- -- -- -- Extraordinary item-loss on early retirement of debt................... -- -- -- -- (4,610) Net income (loss)....... 298,919 (430,969) (82,373) 206,053 (182,721) Income (Loss) Per Common Share (d): Income (loss) per common share--Basic Income from continuing operations........... 0.72 0.40 0.25 0.82 0.76 Loss from discontinued operations (a)....... -- (1.41) (0.46) (0.31) (1.27) Cumulative effect of change in accounting principles........... (0.03) -- -- -- -- Extraordinary item.... -- -- -- -- (0.01) Net income (loss)..... 0.69 (1.01) (0.21) 0.51 (0.52) Income (loss) per common share--Diluted Income from continuing operations........... 0.71 0.40 0.25 0.76 0.74 Loss from discontinued operations (a)....... -- (1.41) (0.45) (0.29) (1.24) Cumulative effect of change in accounting principles........... (0.03) -- -- -- -- Extraordinary item.... -- -- -- -- (0.01) Net income (loss)..... 0.68 (1.01) (0.20) 0.47 (0.51) Dividends Declared Per Common Share (d)....... 0.05 0.27 0.35 0.31 0.27 As of Year End (a)(b) ---------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (In thousands) Financial Position: Total assets............ $4,540,561 $4,313,397 $4,673,964 $4,612,770 $3,915,059 Long-term liabilities... 1,205,122 1,407,892 1,145,856 1,124,756 808,297 Stockholders' equity.... 1,738,458 1,403,098 1,962,687 2,170,803 1,933,338
- -------- (a) Financial data for 1997 through 1999 reflect the retroactive effect of the merger, accounted for as a pooling of interests, with The Learning Company, Inc. ("Learning Company") in May 1999. As more fully described in Note 13 to the Consolidated Financial Statements, the Consumer Software segment, which was comprised primarily of Learning Company, was reported as a discontinued operation effective 13 March 31, 2000, and the consolidated financial statements were reclassified to segregate the net investment in, and the liabilities and operating results of the Consumer Software segment. (b) Consolidated financial information for 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. (c) Represents income from continuing operations before interest expense and provision for income taxes. (d) Per share data reflect the retroactive effect of 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 Factors That May Affect Future Results (Cautionary Statement Under the Private Securities Litigation Reform Act of 1995) Certain written and oral statements made or incorporated by reference from time to time by Mattel or its representatives in this Annual Report on Form 10- K, other filings or reports filed 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 and may include, but are not limited to, statements about sales levels, restructuring, special charges, other non-recurring charges, cost savings, operating efficiencies and profitability. 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. 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 similar words or phrases. Management cautions you that forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. In addition to the 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 past results or those suggested by any forward-looking statements. Competition and New Product Introductions Mattel's business and operating results depend largely upon the appeal of its toy products. Consumer preferences are continuously changing. In recent years there have been trends towards shorter life cycles for individual products, the phenomenon of children outgrowing toys at younger ages-- particularly in favor of interactive and high technology products--and an increasing use of high technology in toys. In addition, Mattel competes with many other companies, both large and small, which means that Mattel's market position is always at risk. Mattel's ability to maintain its current market share, and increase its market share or establish market share in new product categories, will depend on Mattel's ability to satisfy consumer preferences, enhance existing products, develop and introduce new products, and achieve market acceptance of such products. If Mattel does not successfully meet these challenges in a timely and cost-effective manner, demand for its products will decrease and Mattel's results of operations will suffer. Seasonality, Managing Production and Predictability of Orders Mattel's business is subject to risks associated with the underproduction of popular toys and the overproduction of toys that do not match consumer demand. Sales of toy products at retail are seasonal, with a majority of retail sales occurring during the period from September through December. As a result, Mattel's annual operating results will depend, in large part, on sales during the relatively brief holiday season. Retailers are attempting to manage their inventories better, requiring Mattel to ship products closer to the time the retailers expect to sell the products to consumers. This in turn results in shorter lead times for production. 14 Shortages of raw materials or components also may affect Mattel's ability to produce products in time to meet retailer demand. These factors increase the risk that Mattel may not be able to meet demand for certain products at peak demand times, or that Mattel's own inventory levels may be adversely impacted by the need to pre-build products before orders are placed. Adverse General Economic Conditions Mattel's results of operations may be negatively affected by adverse changes in general economic conditions in the US and internationally, including adverse changes in the retail environment. These adverse changes may be as a result of softening global economies, wavering consumer confidence caused by the threat or occurrence of terrorist attacks such as those in the US on September 11, 2001, or other factors affecting economic conditions generally. Such changes may negatively affect the sales of Mattel's products, increase exposure to losses for bad debt, or increase costs associated with manufacturing and distributing these products. Customer Concentration A small number of Mattel's customers account for a large share of net sales. For the year ended December 31, 2001, Mattel's three largest customers, Wal- Mart, Toys "R Us and Target, in the aggregate accounted for approximately 50% of net sales, and the ten largest customers in the aggregate accounted for approximately 64% of net sales. The concentration of Mattel's business with a relatively small number of customers may expose Mattel to a material adverse effect if one or more of Mattel's large customers were to significantly reduce purchases for any reason. In addition, some large chain retailers have begun to sell private-label toys designed and branded by the retailers themselves. Such toys may be sold at prices lower than comparable toys sold by Mattel, and may result in lower purchases of Mattel-branded products by such retailers. Rationalization of Mass Market Retail Channel and Bankruptcy of Key Customers Many of Mattel's key customers are mass market retailers. The mass market retail channel has experienced significant shifts in market share among competitors in recent years, causing some large retailers to experience liquidity problems. In 2001 and 2002, two large customers of Mattel filed for bankruptcy. Mattel's sales to customers are typically made on credit without collateral. There is a risk that customers will not pay, or that payment may be delayed, because of bankruptcy or other factors beyond the control of Mattel. This could increase Mattel's exposure to losses from bad debts. In addition, if these or other customers were to cease doing business as a result of bankruptcy, it could have a material adverse affect on Mattel's business, financial condition and results of operations. Litigation and Disputes Mattel is involved in a number of litigation matters, including purported securities class action claims stemming from the merger with The Learning Company and the performance of the Learning Company division in the second half of 1999. An unfavorable resolution of the pending litigation could have a material adverse effect on Mattel's financial condition. The litigation may result in substantial costs and expenses and significantly divert the attention of Mattel's management regardless of the outcome. There can be no assurance that Mattel 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. In addition, current and future litigation, governmental proceedings, labor disputes or environmental matters could lead to increased costs or interruptions of normal business operations of Mattel. Protection of Intellectual Property Rights The value of Mattel's business depends to a large degree on its ability to protect its intellectual property, including its trademarks, trade names, copyrights, patents and trade secrets in the US and around the world. 15 Any failure by Mattel to protect its proprietary intellectual property and information, including any successful challenge to Mattel's ownership of its intellectual property or material infringements of such property, could have a material adverse effect on Mattel's business, financial condition and results of operations. Political Developments, including Trade Relations, and the Threat or Occurrence of Terrorist Activities Mattel's business is worldwide in scope, including operations in 36 countries. The deterioration of the political situation in a country in which Mattel has significant sales or operations, or the breakdown of trade relations between the US and a foreign country in which Mattel has significant manufacturing facilities or other operations, could adversely affect Mattel's business, financial condition and results of operations. For example, a change in trade status for China could result in a substantial increase in the import duty of toys manufactured in China and imported into the US. In addition, the occurrence or threat of terrorist activities, and the responses to and results of such activities, could materially impact Mattel, its personnel and facilities, its customers and suppliers, retail and financial markets and general economic conditions. 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. Financial Realignment Plan Mattel announced a significant financial realignment plan in 2000, which was designed to improve gross margins; selling and administrative expenses; operating profit; and cash flow. See "2000 Financial Realignment Plan" and Item 8 "Financial Statements and Supplementary Data--Note 9 to the Consolidated Financial Statements." The financial realignment plan requires substantial management and financial resources to implement. The plan may not achieve intended cost reductions or adequately address significant operating issues. The failure of the plan to meet its objectives in whole or in part, or any delay in implementing the plan, could have a material adverse effect on Mattel's business, financial condition and results of operations. In 2002, as part of the financial realignment plan, Mattel will commence a long-term information technology strategy to help it better manage the business, while lowering costs in procurement, finance, distribution and manufacturing. The failure of this program to meet its objectives in whole or in part, or any delay in implementing the program, could have a material adverse effect on Mattel's business, financial condition and results of operations. Financing Matters Increases in interest rates, both domestically and internationally, could negatively affect Mattel's cost of financing both its operations and investments. Foreign currency exchange fluctuations may affect Mattel's reportable income. Reductions in Mattel's credit ratings may negatively impact the cost of satisfying Mattel's financing requirements. Advertising and Promotion Mattel's products are marketed worldwide through a diverse spectrum of advertising and promotional programs. Mattel's ability to sell products is dependent in part upon the success of such programs. If Mattel does not successfully market its products or if media or other advertising or promotional costs increase, these factors could have a material adverse affect on Mattel's business, financial condition and results of operations. 16 Success of New Initiatives Mattel has announced initiatives to improve the execution of its core business, globalize and extend Mattel's brands, catch new industry trends and develop employees. Successful implementation of Mattel's initiatives will require substantial resources and the attention of Mattel's management team. Failure to successfully implement any of these initiatives could have a material adverse effect on Mattel's business, financial condition and results of operations. Changes in Laws and Regulations Mattel operates in a highly regulated environment in the US and internationally. US federal, state and local governmental entities and foreign governments regulate many aspects of Mattel's business including its products and the importation and export of its products. Such regulations may include taxes, trade restrictions, regulations regarding financial matters, environmental regulations and other administrative and regulatory restrictions. Changes in laws or regulations may lead to increased costs or the interruption of normal business operations. Acquisition, Dispositions and Takeover Defenses Mattel may engage in acquisitions, mergers or dispositions, which may affect the profit, revenues, profit margins, debt-to-equity ratios, capital expenditures, or other aspects of Mattel's business. In addition, Mattel has certain anti-takeover provisions in its charter and by-laws that may make it more difficult for a third party to acquire Mattel without its consent, which may adversely affect Mattel's stock price. If any of the risks and uncertainties described in the cautionary factors listed above actually occur, Mattel's business, financial condition and results of operations could be materially and adversely affected. The factors listed above are not exhaustive. Other sections of this Annual Report on Form 10-K include additional factors that 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 factors emerge from time to time and it is not possible for management to predict the impact of all such 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 rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Annual Report on Form 10-K and any other public statement made by Mattel or its representatives may turn out to be wrong. Mattel expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise. Summary The following discussion should be read in conjunction with the consolidated financial statements and the related notes. See Item 8 "Financial Statements and Supplementary Data." Mattel's consolidated financial statements for all periods present the Consumer Software segment as a discontinued operation. See "Discontinued Operations." Unless otherwise indicated, the following discussion relates only to Mattel's continuing operations. Additionally, the segment and brand category information was restated from the prior year presentation to conform to the current management structure. See "Business Segment Results." Mattel designs, manufactures, and markets a broad variety of toy products on a worldwide basis through both sales to retailers (i.e., "customers") 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 that have historically had worldwide sustainable appeal, to create new brands utilizing its knowledge of children's play patterns and to 17 target customer and consumer preferences around the world. Mattel also intends to expand its core brands through the Internet, and licensing and entertainment partnerships. Mattel's portfolio of brands and products are grouped in the following categories: Girls--including Barbie(R) fashion dolls and accessories, collector dolls, Polly Pocket!(R), Diva Starz(TM), What's Her Face!(TM) and American Girl(R) Boys-Entertainment--including Hot Wheels(R), Matchbox(R), Hot Wheels(R) Electric Racing, and Tyco(R) Radio Control vehicles and playsets (collectively "Wheels"), and Disney, Nickelodeon(R), Harry Potter(TM), Max Steel(TM), and games and puzzles (collectively "Entertainment") Infant & Preschool--including Fisher-Price(R), Power Wheels(R), Sesame Street(R), Disney preschool and plush, Winnie the Pooh(R), Blue's Clues(R), See "N Say(R), Magna Doodle(R), and View-Master(R) Results of Continuing Operations 2001 Compared to 2000 Consolidated Results Net income from continuing operations for 2001 was $310.9 million or $0.71 per diluted share as compared to net income from continuing operations of $170.2 million or $0.40 per diluted share in 2000. Profitability in 2001 was negatively impacted by $50.2 million of charges related to the financial realignment plan and a $5.5 million charge related to a pre-tax loss on derivative instruments. The combined effect of these items resulted in pre-tax charges totaling $55.7 million, approximately $41 million after-tax or $0.10 per diluted share. Profitability in 2000 was negatively impacted by a $125.2 million pre-tax charge related to the initial phase of the financial realignment plan, a $53.1 million pre-tax charge for the departure of certain senior executives in the first quarter, and an $8.4 million pre-tax charge related to losses realized on the disposition of a portion of the stock received as part of the sale of CyberPatrol. These charges were partially offset by a $7.0 million reversal of the 1999 reserve related to restructuring and other charges. The combined effect of these items resulted in net pre-tax charges totaling $179.7 million, approximately $123 million after-tax or $0.29 per diluted share. The following table provides a comparison of the reported results and the results excluding charges (in millions):
For the Year ----------------------------------------------------- 2001 2000 -------------------------- -------------------------- Reported Results Reported Results Results Charges Ex. Chgs Results Charges Ex. Chgs -------- ------- -------- -------- ------- -------- Net sales........................ $4,804.1 $ -- $4,804.1 $4,669.9 $ -- $4,669.9 ======== ====== ======== ======== ======= ======== Gross profit..................... $2,266.9 $(28.2) $2,295.1 $2,100.8 $ (78.6) $2,179.4 Advertising and promotion expenses........................ 661.5 0.3 661.2 685.9 4.8 681.1 Other selling and administrative expenses........................ 936.1 1.5 934.6 967.0 59.0 908.0 Amortization of intangibles...... 51.1 -- 51.1 52.0 0.5 51.5 Restructuring and other charges.. 15.7 15.7 -- 15.9 15.9 -- Other expense (income), net...... 17.4 10.0 7.4 1.6 20.9 (19.3) -------- ------ -------- -------- ------- -------- Operating income................. 585.1 (55.7) 640.8 378.4 (179.7) 558.1 Interest expense................. 155.1 -- 155.1 153.0 -- 153.0 -------- ------ -------- -------- ------- -------- Income from continuing operations before income taxes............. $ 430.0 $(55.7) $ 485.7 $ 225.4 $(179.7) $ 405.1 ======== ====== ======== ======== ======= ========
18 The year 2001 presented substantial obstacles for Mattel. Global economies softened; the September 11th terrorist attacks eroded US consumer confidence; and as a result, several important US retailers cancelled holiday reorders as they intensified their focus on inventory management in light of uncertain consumer spending prospects. The difficult retail environment, combined with increased competitive pressures, resulted in a weakening in the financial strength of some major US retail industry participants. Kmart, the second largest US retailer, filed for bankruptcy in January 2002. On March 8, 2002, Kmart announced plans to close 284 stores. This action will likely have a negative impact on Mattel's US sales growth in 2002. Net sales from continuing operations for 2001 increased 3% to $4.8 billion, from $4.7 billion in 2000. In local currency, net sales were up 4% compared to 2000. Net sales within the US declined less than 1% from 2000 and accounted for 69% of consolidated net sales in 2001 compared to 71% in 2000. In 2001, net sales outside the US increased 11% from 2000. Excluding the unfavorable foreign currency exchange impact, international net sales increased 13% compared to 2000. Worldwide gross sales in the Girls category, which includes American Girl(R), increased 3%, or 4% in local currency, to $2.2 billion. Domestic sales declined by 4%, while international sales increased by 17%, or 20% in local currency. The growth in the Girls category was driven by Polly Pocket!(R), Diva Starz(TM), What's Her Face!(TM), American Girl(R) and international sales of Barbie(R). Worldwide Barbie(R) sales decreased 3% in both US dollars and in local currency. Barbie(R) sales in the US declined 12% in 2001 as compared to the strong growth recorded last year, when sales increased 9% over 1999. The decline in US Barbie(R) sales was largely due to lower shipments of Holiday Celebration(TM) Barbie(R) in response to lower demand at retail, lower sales of adult-targeted collector dolls resulting from a weakening retail climate for higher-priced collectible items, and continuing inventory management by retailers. International sales for Barbie(R) were up 12%, or 15% in local currency, reflecting the benefit of early product availability and stronger alignment of worldwide sales and marketing plans. Worldwide gross sales in the Boys-Entertainment category grew 6%, or 7% in local currency, to $1.3 billion. Domestic sales grew by 2%, while international sales increased by 13%, or 16% in local currency. The worldwide Wheels business increased 1% due to a 9% sales growth in Hot Wheels(R) products, which was partially offset by declines in the Matchbox(R) and Tyco(R) Radio Control brands. The Entertainment business grew 14%, largely due to the global introduction of Harry Potter(TM) products. Sales generated by the Harry Potter(TM) brand more than offset the decline of the Disney entertainment business, which will be completely phased out in 2002. In second quarter 2001, Mattel expanded its games business through the acquisition of Pictionary(R) Inc. ("Pictionary(R)"), worldwide owner of the Pictionary(R) game brand and associated rights. Beginning in January 2002, Mattel will manufacture, market and distribute Pictionary(R) to international markets. In the US and Canada, Mattel is the licensor of the property through an independent contractor. Worldwide sales in the Infant & Preschool category were $1.6 billion, down 1% both in US dollars and in local currency. Domestic sales were flat, while international sales decreased 4%, or 3% in local currency. Growth in sales of core Fisher-Price(R) and Power Wheels(R) products was offset by a decline in licensed character brands. In 2001, Mattel executed a worldwide license agreement to sell Barney(TM) products, the full impact of which will be included in 2002 sales of licensed character brands. Gross profit, as a percentage of net sales, was 47.2% in 2001 compared to 45.0% in 2000. Cost of sales in 2001 includes a $28.2 million charge, largely related to accelerated depreciation resulting from the planned closure of the Murray, Kentucky manufacturing facility ("North American Strategy") and termination of a licensing agreement as part of the financial realignment plan. Cost of sales in 2000 includes a $78.6 million charge related to the termination of a variety of licensing agreements and other contractual arrangements and elimination of product lines that did not deliver an adequate level of profitability. Excluding the financial realignment plan charges, gross profit, as a percentage of net sales, was up by 110 basis points to 47.8% in 2001 versus 46.7% a year ago. Gross profit was positively impacted by savings realized from the financial realignment plan and lower product costs achieved through the supply chain initiative, partially offset by the negative impact of foreign exchange. The supply chain initiative has focused on improving customer service 19 levels by partnering with retailers to get the right products in the right place at the right time, lowering costs by restructuring Mattel's manufacturing and distribution facilities, and improving processes such as launching fewer new SKU's by taking advantage of multi-lingual packaging. The multi-lingual packaging provides Mattel with increased distribution options for any given toy. Advertising and promotion expense was 13.8% of net sales for 2001, compared to 14.7% in 2000. Advertising and promotion expense for 2001 and 2000 includes $0.3 million and $4.8 million of charges, respectively, largely related to exiting certain product lines. Excluding these financial realignment charges, advertising and promotion expenses, as a percentage of net sales, declined from 14.6% in 2000 to 13.8% in 2001, largely due to lower prices charged by media companies on a cost per rating point basis. Mattel's 2001 media plan was actually stronger than last year's in terms of gross rating points. Mattel expects media costs for 2002 will remain at approximately the same level for the first half of the year, and will likely increase towards the second half of the year. Beginning in 2002, advertising and promotion expenses related to certain customer benefits will be recorded as an adjustment to net sales in accordance with Emerging Issues Task Force ("EITF") No. 01-09, Accounting for Consideration Given by a Vendor to a Customer. Prior years' results will be retroactively restated to reflect this change. See "New Accounting Pronouncements." Other selling and administrative expenses were $936.1 million or 19.5% of net sales in 2001 compared to $967.0 million or 20.7% of net sales in 2000. Other selling and administrative expenses in 2001 includes a $22.1 million charge recorded in the fourth quarter related to the bankruptcy filing of Kmart and a $1.5 million charge related to streamlining back office functions as part of the financial realignment plan. The $22.1 million charge for the Kmart bankruptcy represents approximately one-half of Mattel's outstanding pre- petition account receivable after offsetting customer benefits, which Mattel believes it is no longer obligated to pay to Kmart under the terms of its customer agreement. Mattel's remaining pre-petition account receivable from Kmart, after offsetting the reserve for bad debts and reserves for customer benefits that were not earned by Kmart, is $36.2 million. To estimate the net realizable value of the Kmart pre-petition account receivable, management considered the post-petition market price for the Kmart bank debt, bonds and trade receivables. Other selling and administrative expenses for 2000 includes a $5.9 million charge related to settlement of certain litigation matters and a $53.1 million charge related to termination costs for the departure of senior executives. Excluding the aforementioned charges, other selling and administrative expenses declined from 19.4% of net sales in 2000 to 19.0% of net sales in 2001. The improvement in other selling and administrative expenses, excluding the charges, is largely due to tight management of costs, savings realized from the financial realignment plan, and a reduction in management bonuses, partially offset by increased bad debt charges. Other expense (income), net in 2001 includes a $5.5 million loss on derivative instruments and $4.5 million of charges primarily related to asset writedowns and other costs associated with implementing the North American Strategy. Other expense (income), net in 2000 includes $12.5 million of charges primarily related to the writeoff of certain noncurrent assets and an $8.4 million charge related to losses realized on the disposition of a portion of the stock received as part of the sale of CyberPatrol. Excluding these charges, other expense (income), net decreased from income of $19.3 million in 2000 to expense of $7.4 million in 2001. The decline was primarily due to unfavorable foreign exchange, lower investment income and increased charitable contributions. Interest expense was $155.1 million in 2001 compared with $153.0 million in 2000. The increase was due to the allocation in 2000 of $36.4 million in interest to discontinued operations. In 2001, lower average borrowing rates and lower short-term seasonal borrowings resulted in a decrease in interest expense. For 2002, Mattel expects interest expense to decrease slightly compared to 2001, reflecting the anticipated lower average borrowings combined with increasing short-term interest rates beginning mid-year as Mattel moves towards its peak borrowing period for seasonal working capital financing. 20 Business Segment Results Mattel's reportable segments are separately managed business units and are divided on a geographic basis between domestic and international. The domestic segment is further divided into US Girls, US Boys-Entertainment, and US Infant & Preschool. The US Girls segment includes brands such as Barbie(R), Polly Pocket!(R), Diva Starz(TM), What's Her Face!(TM) and American Girl(R). The US Boys-Entertainment segment includes Hot Wheels(R), Matchbox(R), Hot Wheels(R) Electric Racing and Tyco(R) Radio Control (collectively "Wheels"), and Disney, Nickelodeon(R), Harry Potter(TM), Max Steel(TM) and games and puzzles (collectively "Entertainment") products. The US Infant & Preschool segment includes Fisher-Price(R), Disney preschool and plush, Power Wheels(R), Sesame Street(R) and other preschool products. The International segment sells products in all toy categories. Mattel's segments were revised in January 2001 to conform to the current management structure. Specifically, the results of Pleasant Company, which had been previously reported as part of Other, are now being reported as part of US Girls, which is consistent with management responsibility for this business. Additionally, Mattel's toy manufacturing unit is now being managed as a cost center instead of as a profit center; therefore, toy manufacturing is no longer being reported as a separate segment. Lastly, certain overhead costs incurred at the headquarters' level in El Segundo, including facilities, information technology, and other administration support costs, are now being allocated to the US Girls and US Boys-Entertainment segments, to more accurately reflect the costs associated with operating these businesses. These types of overhead costs were already being reported as part of the US Infant & Preschool and International segments since these businesses maintain their own, separate headquarters locations. All prior periods have been restated to reflect these changes. As used in this Form 10-K, "sales" or "gross sales" means sales excluding the impact of sales adjustments, such as trade discounts or other allowances. "Net sales" includes the impact of such sales adjustments. Business Segment Results should be read in conjunction with Item 8 "Financial Statements and Supplementary Data--Note 10 to the Consolidated Financial Statements." US Girls segment sales decreased by 4% in 2001 compared to 2000. A 12% decline in Barbie(R) sales was partially offset by increased sales of Polly Pocket!(R), Diva Starz(TM), What's Her Face!(TM) and American Girl(R). The decrease in US Barbie(R) sales compared to 2000 was primarily due to lower shipments of Holiday Celebration(TM) Barbie(R) in response to lower demand at retail, lower sales of adult-targeted collector dolls resulting from a weakening retail climate for higher-priced collectible items, and continuing inventory management by retailers. US Boys-Entertainment segment sales increased 2%. The US Entertainment business grew 6%, largely due to increased sales of Harry Potter(TM) products. The US Wheels business was flat with last year as increased sales of Hot Wheels(R) products were offset by declines in Tyco(R) Radio Control and Matchbox(R). US Infant & Preschool segment sales were flat with 2000. Growth in sales of core Fisher-Price(R) and Power Wheels(R) products was offset by a decline in sales of licensed character brand products. Management believes the difficult retail environment, especially combined with the events of September 11, 2001, caused its retail customers to curtail their orders across all of the US segments during the fourth quarter, resulting in an 8% decline in total US sales for the fourth quarter. However, despite weaker- than-expected shipments to retailers, all of Mattel's major brands showed strength with consumers and posted sales increases at retail. According to NPD industry data for toy sales at the consumer level, Mattel gained market share in the US in dolls, vehicles, action figures, games and puzzles and core infant and preschool categories. Mattel's market share of total traditional toys grew 1.2 percentage points to 23.5% in the US. International segment sales increased by 10% in 2001 compared to 2000. Excluding the unfavorable foreign exchange impact, sales grew by 13% due to double digit growth in Barbie(R), Polly Pocket!(R), core Fisher-Price(R) and Hot Wheels(R) products combined with the expansion of Diva Starz(TM) and Harry Potter(TM) products. Mattel also recorded strong market share gains outside the US, with market share growing in the five major European markets, as well as in Canada, Mexico and Australia. Improved product availability, better alignment of worldwide marketing and sales plans and strong product launches were the primary drivers for the growth in International segment sales and market share. 21 Operating profit in the US Girls segment decreased by 2%, primarily due to lower sales volume. Operating profit in the US Boys-Entertainment segment increased 39%, primarily due to increased sales volume and improved margins. Operating profit in the US Infant & Preschool segment increased 2%, primarily due to improved margins, partially offset by higher selling and administrative expenses to support certain new product lines. All the US segments benefited from lower costs per rating point for media purchases. The International segment operating profit increased 26%, largely due to increased sales volume and improved margins, partially offset by lower operating profit in certain Latin American countries and unfavorable foreign exchange. In Latin America, Mattel has appointed a new management team with the goal of converting sales growth into increased cash flow and profitability in this region. 2000 Compared to 1999 Consolidated Results Net income from continuing operations for 2000 was $170.2 million or $0.40 per diluted share as compared to net income from continuing operations of $108.4 million or $0.25 per diluted share in 1999. Profitability in 2000 was negatively impacted by a $125.2 million pre-tax charge related to the initial phase of the financial realignment plan, a $53.1 million pre-tax charge for the departure of certain senior executives in the first quarter, and an $8.4 million pre-tax charge related to losses realized on the disposition of a portion of the stock received as part of the sale of CyberPatrol. These charges were partially offset by a $7.0 million reversal of the 1999 reserve related to restructuring and other charges. The combined effect of theses items, resulted in a pre-tax net charge of $179.7 million, approximately $123 million after-tax or $0.29 per diluted share. Profitability in 1999 was negatively impacted by a $281.1 million charge, approximately $218 million after-tax or $0.51 per diluted share, related to restructuring and other charges. The following table provides a comparison of the reported results and the results excluding charges (in millions):
For the Year ------------------------------------------------------- 2000 1999 -------------------------- --------------------------- Reported Results Reported Results Results Charges Ex. Chgs Results Charges Ex. Chgs -------- ------- -------- -------- ------- -------- Net sales........................ $4,669.9 $ -- $4,669.9 $4,595.5 $ -- $4,595.5 ======== ======= ======== ======== ======= ======== Gross profit..................... $2,100.8 $ (78.6) $2,179.4 $2,182.0 $ -- $2,182.0 Advertising and promotion expenses........................ 685.9 4.8 681.1 684.5 -- 684.5 Other selling and administrative expenses........................ 967.0 59.0 908.0 867.9 867.9 Amortization of intangibles...... 52.0 0.5 51.5 52.0 -- 52.0 Restructuring and other charges.. 15.9 15.9 -- 281.1 281.1 -- Other expense (income), net...... 1.6 20.9 (19.3) (5.3) -- (5.3) -------- ------- -------- -------- ------- -------- Operating income................. 378.4 (179.7) 558.1 301.8 (281.1) 582.9 Interest expense................. 153.0 -- 153.0 131.6 -- 131.6 -------- ------- -------- -------- ------- -------- Income from continuing operations before income taxes............. $ 225.4 $(179.7) $ 405.1 $ 170.2 $(281.1) $ 451.3 ======== ======= ======== ======== ======= ========
Net sales from continuing operations for 2000 increased 2% to $4.7 billion, from $4.6 billion in 1999. In local currency, net sales were up 4% in 2000 compared to 1999. Net sales within the US increased 4% and accounted for 71% of consolidated net sales in 2000 compared to 70% in 1999. Net sales outside the US decreased 3% from 1999. Excluding the unfavorable exchange impact, international net sales increased 6% compared to 1999. Worldwide gross sales in the Girls category, which includes American Girl(R), increased 5%, or 8% in local currency, to $2.1 billion. Domestic sales increased by 10%, while international sales decreased by 4%. The worldwide growth in the Girls category was due to increased sales of Barbie(R) and American Girl(R) products, 22 partially offset by decreased sales of large dolls. Worldwide Barbie(R) sales increased 5%, up 9% in the US and down 1% in international markets. Excluding the unfavorable exchange impact, Barbie(R) sales were up 8% in international markets. Worldwide gross sales in the Boys-Entertainment category were flat, or up 2% in local currency. Domestic sales decreased by 4%, while international sales increased by 7%, or 14% in local currency. The Boys-Entertainment category was negatively impacted by lower sales of Toy Story 2 products in 2000 compared to 1999. Excluding the impact of Toy Story 2 and Harry Potter(TM) products, the Boys-Entertainment category grew 2% for the year. Worldwide Wheels sales decreased 2%, or were flat before the unfavorable impact of foreign exchange. Sales of Entertainment products increased 2% worldwide, driven by strength of Max Steel(TM), Mattel games and Harry Potter(TM) products, partially offset by lower sales of Toy Story 2 products. Worldwide gross sales in the Infant & Preschool category were flat, or up 3% in local currency. Domestic sales grew by 4%, while international sales decreased by 10%, or 2% in local currency. Worldwide sales of core Fisher- Price(R) products grew 26%, up 37% in the US and flat in international markets. Excluding the unfavorable exchange impact, core Fisher-Price(R) products were up 11% in international markets. Declines in worldwide sales for Sesame Street(R), Disney preschool and Winnie the Pooh(R) offset domestic growth in core Fisher-Price(R) products. Gross profit, as a percentage of net sales, was 45.0% in 2000 compared to 47.5% in 1999. Cost of sales in 2000 includes a $78.6 million charge related to the termination of a variety of licensing agreements and other contractual arrangements and elimination of product lines that did not deliver an adequate level of profitability. Excluding financial realignment plan charges, gross profit was 46.7% in 2000 compared to 47.5% in 1999 due to unfavorable product mix, unfavorable foreign exchange rates and higher shipping costs. Advertising and promotion expense was 14.7% of net sales in 2000 compared to 14.9% in 1999. Excluding the $4.8 million financial realignment plan charge, largely related to exiting certain product lines, advertising and promotion expenses, as a percentage of net sales, was 14.6% in 2000. The decrease was attributable to improved efficiencies of promotional spending. Other selling and administrative expenses were 20.7% of net sales in 2000 compared to 18.9% in 1999. Excluding the $5.9 million charge related to settlement of certain litigation matters and the $53.1 million charge related to termination costs for the departure of senior executives, other selling and administrative expenses were 19.4% of net sales in 2000. The increase was largely due to compensation costs incurred for the recruitment and retention of senior executives. Other expense (income), net in 2000 includes a $12.5 million charge primarily related to the writeoff of certain noncurrent assets and an $8.4 million charge related to losses realized on the disposition of a portion of the stock received as part of the sale of CyberPatrol. Excluding these charges, the $14.1 million increase in other expense (income), net was largely due to investment and interest income. Interest expense was $153.0 million in 2000 compared with $131.6 million in 1999, largely due to higher borrowings necessitated by the funding of Mattel's Consumer Software business. In addition, Mattel's overall interest rate was higher due to increased market rates and debt refinancing that occurred during the second half of the year. Business Segment Results US Girls segment sales increased by 10% in 2000 compared to 1999 due to a 9% increase in sales of Barbie(R) products and a 7% increase in sales of American Girl(R) products. US Boys-Entertainment segment sales decreased 4% due to a 3% decrease in sales of Wheels products and a 7% decrease in sales of Entertainment products. Within the Wheels category, Mattel gained market share. However, sales fell below 1999 levels as relatively high retail inventories were adjusted down throughout 2000. Within the Entertainment 23 category, growth from Max Steel(TM) and Mattel games were more than offset by lower sales of movie-related toy products relative to the 1999 strong sales of Toy Story 2 products. Excluding Harry Potter(TM) and Toy Story 2, Entertainment sales were up 10% in domestic markets. US Infant & Preschool segment sales increased 4%, largely due to increased sales of core Fisher-Price(R) and Power Wheels(R) products, partially offset by declines in sales of Sesame Street(R), Disney preschool and Winnie the Pooh(R) products. International segment sales decreased by 3% in 2000 compared to 1999. Excluding the unfavorable foreign exchange impact, sales grew by 6% in 2000 due to increased sales across all core categories, including Barbie(R), Fisher- Price(R), Wheels and Entertainment products. Operating profit in the US Girls segment increased by 9%, largely due to higher sales volume. The US Boys-Entertainment segment experienced a 26% decline in operating profit, largely due to lower sales volume and higher shipping costs. Operating profit in the US Infant & Preschool segment increased 7% due to greater sales of relatively higher margin core Fisher-Price(R) products. The International segment operating profit decreased 19%, largely due to unfavorable foreign exchange rates. 2000 Financial Realignment Plan During the third quarter of 2000, Mattel initiated a financial realignment plan designed to improve gross margin; selling and administrative expenses; operating profit; and cash flow. The financial realignment plan, together with the disposition of Learning Company, was part of management's strategic plan to focus on growing Mattel's core brands and lowering operating costs and interest expense. The plan will require a total pre-tax charge estimated at approximately $250 million or $170 million on an after-tax basis, of which approximately $100 million represents cash expenditures and $70 million represents non-cash writedowns. Total cash outlay will be funded from existing cash balances and internally generated cash flows from operations. Under the plan, Mattel expects to generate approximately $200 million of cumulative pre-tax cost savings over the three year duration of the plan. Mattel recognized savings of approximately $55 million in 2001 and expects to achieve savings of approximately $65 million in 2002. However, there is no assurance that Mattel will be able to successfully implement all phases of its financial realignment plan or that it will realize the anticipated cost savings and improved cash flows. Through December 31, 2001, Mattel has recorded pre-tax charges totaling $175.4 million, or approximately $119 million on an after-tax basis, related to this plan. Of the total charge, $125.2 million (approximately $84 million after-taxes) was recorded in 2000 and $50.2 million (approximately $35 million after-taxes) was recorded in 2001. In accordance with generally accepted accounting principles, future pre-tax implementation costs of approximately $75 million have not been accrued as of December 31, 2001. Management expects these costs will be recorded over approximately the next two years. The following are the major initiatives included in the financial realignment plan: . Reduce excess manufacturing capacity; . Terminate a variety of licensing and other contractual arrangements that do not deliver an adequate level of profitability; . Eliminate product lines that do not meet required levels of profitability; . Improve supply chain performance and economics; . Eliminate positions at US-based headquarters locations in El Segundo, Fisher-Price and Pleasant Company through a combination of layoffs, elimination of open requisitions, attrition and retirements; and . Close and consolidate certain international offices. 24 In April 2001, as part of the financial realignment plan, Mattel announced the closure of its Murray, Kentucky manufacturing facility (the "North American Strategy"). Production from this facility will be consolidated into other Mattel-owned and operated facilities in North America with the final shutdown of Murray operations occurring in 2002. This action is one of the realignment measures taken to lower costs. Mattel believes this action was necessary in order to maintain a competitive cost structure in today's global marketplace. In 2000, Mattel recorded a $22.9 million pre-tax restructuring charge as part of the initial phase of the financial realignment plan. This charge, combined with a $7.0 million adjustment to the 1999 restructuring plan, resulted in $15.9 million of net pre-tax restructuring and other charges in 2000. The $22.9 million charge related to the elimination of positions at headquarters locations in El Segundo, Fisher-Price and Pleasant Company, closure of certain international offices, and consolidation of facilities. During 2001, Mattel recorded a $15.7 million pre-tax restructuring charge as part of the financial realignment plan, largely related to the North American Strategy. Total worldwide headcount reduction as a result of the restructuring is planned to be approximately 1,700 employees, of which approximately 1,100 are related to the North American Strategy. From inception through December 31, 2001, a total of approximately $19 million has been incurred related to the termination of nearly 980 employees, of which approximately 640 were terminated during 2001. The components of the restructuring charges are as follows (in millions):
Balance Balance 2000 Amounts Dec. 31, 2001 Amounts Dec. 31, Charges Incurred 2000 Charges Incurred 2001 ------- -------- -------- ------- -------- -------- Severance and other compensation............. $19 $(3) $16 $ 9 $(16) $ 9 Asset writedowns.......... 2 (2) -- Lease termination costs... 1 -- 1 2 (1) 2 Other..................... 1 -- 1 5 (5) 1 --- --- --- --- ---- --- Total restructuring charge................... $23 $(5) $18 $16 $(22) $12 === === === === ==== ===
In January 2002, as part of the financial realignment plan, Mattel announced a further headcount reduction of approximately 240 positions at its domestic headquarters locations through a combination of layoffs, elimination of open requisitions, attrition and retirements. Additionally, in 2002, Mattel will commence a long-term information technology strategy aimed at achieving operating efficiencies and cost savings across all disciplines. The program is focused on simplifying Mattel's organization by defining common global processes based on industry best practices, streamlining its organization by eliminating redundancies, and upgrading its systems to have greater visibility to information and data on a global basis. 1999 Restructuring and Other Charges During 1999, Mattel initiated a restructuring plan for its continuing operations and incurred certain other charges totaling $281.1 million, approximately $218 million after-tax. The 1999 restructuring plan was aimed at leveraging global resources in the areas of manufacturing, marketing and distribution, eliminating duplicative functions worldwide and achieving improved operating efficiencies. As of December 31, 2000, the restructuring activities provided for by this charge were complete and substantially all amounts previously accrued had been paid as of December 31, 2001. Other charges incurred in 1999 principally related to the 1998 recall of Mattel's Power Wheels(R) vehicles and environmental remediation costs related to a former manufacturing facility on a leased property in Beaverton, Oregon. The liability remaining related to these charges was approximately $22 million and $24 million at December 31, 2001 and 2000, respectively. 25 Income Taxes The effective income tax rate on continuing operations was 27.7% in 2001 compared to 24.5% in 2000 and 36.3% in 1999. The difference in the overall tax rate on continuing operations between 1999, 2000 and 2001 was caused by the restructuring and other charges. In 1999, a significant portion of the restructuring expenses consisted of transactional expenses which were not deductible for tax purposes, resulting in a lower effective tax benefit on these restructuring charges, and a higher overall effective tax rate. In 2000 and 2001, most of the restructuring and other charges were deductible for tax purposes and provided a benefit at or near the effective US tax rate, resulting in a relatively lower overall effective tax rate for 2001 and 2000 as compared to 1999. The pre-tax income (loss) from US operations includes interest expense, amortization of intangibles and corporate headquarters expenses. Therefore, the pre-tax income (loss) 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. The Internal Revenue Service has completed its examination of the Mattel, Inc. federal income tax returns through December 31, 1994 and is currently examining Mattel's federal income tax returns for fiscal years 1995 through 1997. 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 continuing operations, long-term debt issuances and short-term seasonal borrowings. Cash flows from continuing operations could be negatively impacted by decreased demand for Mattel's products, which could result from factors such as adverse economic conditions and changes in public and consumer preferences, or increased costs associated with manufacturing and distribution of products or realized shortages in raw materials or component parts. Additionally, Mattel's ability to issue long-term debt and obtain seasonal borrowing could be adversely affected by factors such as an inability to meet its debt covenant requirements, which include maintaining consolidated debt-to-capital and interest coverage ratios, or a deterioration of Mattel's credit ratings. Mattel's ability to conduct its operations could be negatively impacted should these or other adverse conditions affect its primary sources of liquidity. Operating Activities Operating activities generated cash flows from continuing operations of $756.8 million during 2001, compared to $555.1 million in 2000 and $430.5 million in 1999. The increase in cash flows from operating activities in 2001 was largely due to increased income from continuing operations and increased cash collections. In addition, the disposition of Learning Company in the fourth quarter 2000 resulted in improved cash flows since Mattel was no longer required to fund this business. Investing Activities Mattel invested its cash flows during the last three years mainly in tooling to support new products and construction of new manufacturing facilities. In 2001, Mattel acquired Pictionary(R) for approximately $29 million, of which approximately $21 million was paid in 2001 and the remaining $8 million will be paid over the next 3 years. Financing Activities In 2001, as part of Mattel's goal to improve its debt-to-capital ratio, cash flows from operating activities were used to repay short-term borrowing obligations. Additionally, Mattel announced during the third quarter of 2000 a change in its dividend policy consisting of a reduction in the annual cash dividend from $0.36 per share 26 to $0.05 per share when and as declared by the board of directors. The $0.05 per share annual dividend rate under the new dividend policy became effective in December 2001. The reduction of the dividend resulted in annual cash savings of approximately $132 million, which Mattel used to reduce debt. During 2001, Mattel repaid $30.5 million of its medium-term notes, which became due in the fourth quarter. In 2000, Mattel received proceeds from the issuance of a term loan and Euro Notes, which were used to repay its 6-3/4% Senior Notes upon maturity and to support operating activities. In 1999, Mattel increased its short-term borrowings to support its operating activities and to fund the Consumer Software segment. During 1999, Mattel repaid $30.0 million of its medium-term notes. During 2001, 2000 and 1999, Mattel paid dividends on its common stock and, in 1999, Mattel repurchased treasury stock. In 2001 and 2000, Mattel did not repurchase treasury stock. 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, selling certain trade receivables and using various short-term bank lines of credit. Mattel's domestic unsecured committed revolving credit facility provides $1.0 billion in short-term borrowings from a commercial bank group. Within this facility, up to $300.0 million is available for non-recourse sales of certain trade accounts receivable to the bank group as an additional source of liquidity and to lower its borrowing cost. Such non-recourse sales are made pursuant to an arrangement whereby certain of Mattel's subsidiaries sell receivables to Mattel Factoring, Inc., which in turn sells those receivables to the commercial bank group. Mattel Factoring, Inc. is a separate special-purpose legal entity with its own assets and liabilities. This facility was executed in 1998 for a term of five years, expiring in 2003. In March 2002, Mattel amended and restated this facility into a $1.060 billion, 3-year facility that expires in 2005 with substantially similar terms and conditions. Additionally, during 2001, Mattel utilized a 364-day $400.0 million unsecured committed credit facility with essentially the same terms and conditions as the $1.0 billion revolving credit facility. Mattel has elected not to renew this facility when it expires in March 2002, as it believes that cash on hand at the beginning of 2002 and its $1.060 billion domestic unsecured committed revolving facility will be sufficient to meet its seasonal working capital requirements in 2002. Mattel also has a $200.0 million senior unsecured term loan that matures in July 2003. Interest is charged at various rates, ranging from a LIBOR-based rate to the bank reference rate (3.66% as of December 31, 2001). Both the unsecured credit facilities and term loan require Mattel to meet financial covenants for consolidated debt-to-capital and interest coverage. Mattel was in compliance with such covenants during 2001. 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 subsidiaries, Mattel negotiates individual financing arrangements, generally with the same group of banks that provided credit in the prior year. Foreign credit lines total approximately $368 million, a portion of which is used to support letters of credit. Mattel expects to extend these credit lines throughout 2002 and believes available amounts will be adequate to meet its seasonal financing requirements. Mattel also enters into agreements with banks of its foreign subsidiaries for non-recourse sales of certain of its foreign subsidiary receivables. In fourth quarter 2001, Mattel entered into a securitization agreement to sell certain receivables of its French and German subsidiaries with one of its European banks. 27 Mattel's accounts receivable sold or anticipated, and therefore excluded from its consolidated balance sheets, is summarized as follows (in millions):
As of Year End ------------- 2001 2000 ------ ------ Domestic factoring and anticipation.............................. $261.5 $347.5 Foreign factoring................................................ 237.2 196.9 ------ ------ Total factoring and anticipation................................. $498.7 $544.4 ====== ======
Financial Position Mattel's cash and short-term investments increased by $384.2 million to $616.6 million at year end 2001 compared to $232.4 million at year end 2000. The increase was primarily due to cash flows generated from operating activities. Accounts receivable, net decreased by $143.0 million to $696.6 million at year end 2001, reflecting improved cash collections and the bad debt write-off resulting from the bankruptcy of Kmart. Inventories decreased slightly to $487.5 million at year end 2001. Inventory levels were negatively impacted by lower than expected domestic fourth quarter sales and the pre-build initiative to prepare for the closing of the Murray, Kentucky plant in 2002 in connection with the North American Strategy. During 2002, Mattel plans to continue to build inventory levels for preschool products in conjunction with executing the North American Strategy. Mattel intends to continue its plan to move towards more optimal accounts receivable and inventory levels through its focus on improving its supply chain performance. Prepaid expenses and other current assets increased by $102.1 million to $291.9 million at year end 2001 compared to 2000, primarily due to increased prepaid income taxes and receivable collections deposits with banks. Property, plant and equipment, net decreased $21.1 million to $626.7 million at year end 2001, largely due to depreciation, partially offset by capital spending. Intangibles decreased $26.9 million to $1.1 billion at year end 2001, mainly due to goodwill amortization, partially offset by the acquisition of Pictionary(R) in June 2001. Other noncurrent assets declined by $54.3 million to $711.3 million at year end 2001, principally due to decreased noncurrent deferred tax assets. Short-term borrowings decreased $188.3 million to $38.1 million at year end 2001 compared to $226.4 million at year end 2000, due to the repayment of debt. Current portion of long-term debt increased by $177.4 million to $210.1 million at year end 2001, largely due to the reclassification of 200 million of Euro Notes from long-term debt since they mature in July 2002. A summary of Mattel's capitalization is as follows (in millions):
As of Year End -------------------------- 2001 2000 ------------ ------------ Medium-term notes................................... $ 480.0 17% $ 510.0 18% Senior notes........................................ 500.0 17 690.7 25 Other long-term debt obligations.................... 40.9 1 41.7 1 -------- --- -------- --- Total long-term debt................................ 1,020.9 35 1,242.4 44 Other long-term liabilities......................... 184.2 6 165.5 6 Stockholders' equity................................ 1,738.5 59 1,403.1 50 -------- --- -------- --- $2,943.6 100% $2,811.0 100% ======== === ======== ===
Total long-term debt decreased by $221.5 million at year end 2001 compared to year end 2000 due to the aforementioned reclassification of 200 million of Euro Notes and $30.0 million of medium-term notes maturing in the next twelve months to current portion of long-term debt. Mattel expects to satisfy its future long-term capital needs through the retention of corporate earnings and the issuance of long-term debt instruments. Stockholders' equity of $1.7 billion at year end 2001 increased $335.4 million from year end 2000, primarily as a result of income from continuing operations and cash received from exercise of employee stock options, partially offset by payment of common dividends and the unfavorable effect of foreign currency translation. 28 Mattel's total debt to capital ratio, including current portion of long-term debt, improved from 52% at year end 2000 to 42% at year end 2001 due to the repayment of debt combined with improvement in its operating results. Mattel continues to target a goal of reducing the year end ratio to approximately one- third of capital. Commitments In the normal course of business, Mattel enters into debt arrangements and 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 licensing payments. Certain of these commitments routinely contain provisions for guaranteed or minimum expenditures during the term of the contracts. Mattel's commitments for debt and other contractual arrangements is summarized as follows (in thousands):
Payments Due by Period ------------------------------------------------ Total 2002 2003 2004 Thereafter ---------- -------- -------- -------- ---------- Long-term debt................. $1,231,009 $210,090 $380,849 $ 50,939 $589,131 Licensing minimums............. 379,000 106,000 84,000 81,000 108,000 Inventory purchases............ 121,000 121,000 -- -- -- Operating leases............... 168,100 38,800 29,800 26,800 72,700 Capitalized leases............. 10,100 300 300 300 9,200 ---------- -------- -------- -------- -------- Total.......................... $1,909,209 $476,190 $494,949 $159,039 $779,031 ========== ======== ======== ======== ========
Discontinued Operations In May 1999, Mattel completed its merger with Learning Company, pursuant to which Learning Company was merged with and into Mattel, with Mattel being the surviving corporation. Due to substantial losses experienced in its Consumer Software segment, which was comprised primarily of Learning Company, Mattel's board of directors, on March 31, 2000, resolved to dispose of its Consumer Software segment. As a result of this decision, the Consumer Software segment was reported as a discontinued operation effective March 31, 2000, and the consolidated financial statements were reclassified to segregate the net investment in, and the liabilities and operating results of the Consumer Software segment. On October 18, 2000, Mattel disposed of Learning Company to an affiliate of Gores Technology Group in return for a contractual right to receive future consideration based on income generated from its business operations and/or the net proceeds derived by the new company upon the sale of its assets or other liquidation events, or 20% of its enterprise value at the end of five years. In the fourth quarter of 2001, Mattel received proceeds totaling $10.0 million from Gores Technology Group as a result of liquidation events related to Gores Technology's sale of the entertainment and education divisions. Mattel also incurred additional costs of approximately $10 million in 2001 related to the wind down of the Consumer Software segment. Accordingly, no income was recorded in the consolidated statement of operations for discontinued operations. With respect to Gores Technology Group's disposition of the education division, there is additional contingent consideration that may be received by Mattel. At December 31, 2001, Mattel had net obligations related to its discontinued Consumer Software segment of approximately $24 million. Mattel believes that it has adequately reserved for future obligations of this segment. Any additional proceeds that are recognized will be recorded as part of the discontinued operations. In December 2000 and January 2001, Mattel entered into worldwide, multi-year licensing agreements with Vivendi Universal Publishing and THQ, respectively, for the development and publishing of gaming, educational and productivity software based on Mattel's brands, which Mattel had previously developed and 29 sold directly through its Mattel Media division. These partnerships allow Mattel to provide the content from its library of brands, while Vivendi Universal Publishing and THQ provide software development and distribution expertise. Litigation Litigation Related to Learning Company Following Mattel's announcement in October 1999 of the expected results of its Learning Company division for the third quarter of 1999, several of Mattel's stockholders filed purported class action complaints naming Mattel and certain of its present and former officers and directors as defendants. The complaints generally allege, among other things, that the defendants made false or misleading statements, in the joint proxy statement for the merger of Mattel and Learning Company and elsewhere, that artificially inflated the price of Mattel's common stock. In March 2000, these shareholder complaints were consolidated into two lead cases: Thurber v. Mattel, Inc. et al. (containing claims under (S)10(b) of the 1934 Securities Exchange Act ("Act")) and Dusek v. Mattel, Inc. et al (containing claims under (S)14(a) of the Act). In January 2001, the Court granted defendants' motions to dismiss both Thurber and Dusek, and gave plaintiffs leave to amend. In December 2001, the Court denied defendants' motions to dismiss the amended complaints in both Thurber and Dusek. In each case, the plaintiffs have asked for compensatory damages. Both Thurber and Dusek are currently pending in the United States District Court for the Central District of California. Other purported class action litigation has been brought against Mattel as successor to Learning Company and the former directors of Learning Company on behalf of former stockholders of Broderbund Software, Inc. who acquired shares of Learning Company in exchange for their Broderbund common stock in connection with the Learning Company-Broderbund merger on August 31, 1998. The consolidated complaint in In re Broderbund generally alleges that Learning Company misstated its financial results prior to the time it was acquired by Mattel. The defendants' motion to dismiss the complaint in In re Broderbund was granted in May 2001, and the case was dismissed. The In re Broderbund plaintiffs appealed the dismissal, and the case is currently pending before the Ninth Circuit Court of Appeals. The plaintiffs have asked for compensatory damages. Several stockholders have filed derivative complaints on behalf and for the benefit of Mattel, alleging, among other things, 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 its approval of severance packages to certain former executives. These derivative actions have been filed in the Court of Chancery in Delaware, in Los Angeles Superior Court in California, and in the United States District Court for the Central District of California, and are all in a preliminary stage. The plaintiffs have asked for unspecified monetary damages. Plaintiffs filed an amended consolidated complaint in February 2002 in the California state court actions and defendants have filed a demurrer seeking dismissal of that action. Mattel believes that the actions 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 to implement a groundwater remediation system at one of its former manufacturing plants. The execution of the consent order was in response to the New York State Department of Environmental Conservation Record of Decision issued in March 2000. The Department approved a conceptual work plan in March 2001, with work scheduled to begin in 2001. However, in response to concerns expressed by a number of nearby residents, the Department has requested that Mattel postpone implementation of the groundwater remediation plan until 2002 after the 30 installation of a public water line to those residents is completed. The ultimate liability associated with this cleanup presently is estimated to be approximately $1.76 million, approximately $1.26 million of which has been incurred through December 31, 2001. Beaverton, Oregon Mattel previously operated a manufacturing facility on a leased property in Beaverton, Oregon that was acquired as part of the March 1997 merger with Tyco. 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. Mattel has recorded pre-tax charges totaling $19.0 million for environmental remediation costs related to this property, based on the completion and approval of the remediation plan and feasibility study. Approximately $3 million has been incurred through December 31, 2001, largely related to attorney fees, consulting work and an employee medical screening program. 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 resolving such matters is not likely to have a material adverse effect on Mattel's business, financial condition or results of operations. 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, 2001. The US Consumer Price Index increased 1.6% in 2001, 3.4% in 2000 and 2.7% in 1999. Mattel receives some protection from the impact of inflation from high turnover of inventories and its ability to pass on higher prices to consumers. Employee Savings Plan Certain employee savings plan provisions used by other companies can result in requirements to hold substantial portions of a participant's account balance in the stock of the sponsoring company, significantly increasing the exposure of the account to market risk associated with a single company's stock. However, the Mattel Personal Investment Plan is designed to allow participants to limit their exposure to market changes in Mattel's stock price. Mattel makes company contributions in cash and allows employees to allocate both individual and company contributions to a balanced variety of investment funds. Furthermore, Mattel's plan limits a participant's allocation to the Mattel Stock Fund, which is fully invested in Mattel stock, to 50% of the account balance. Participants may generally reallocate their account balances on a daily basis. This reallocation is only limited for participants classified as insiders who wish to change their investment in the Mattel Stock Fund. Insiders are limited to certain window periods for making a reallocation out of or into the Mattel Stock Fund. Critical Accounting Policies and Estimates Mattel makes certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. The accounting policies described below are those Mattel 31 considers critical in preparing its consolidated financial statements. These policies include significant estimates made by management using information available at the time the estimates are made. However, as described below, these estimates could change materially if different information or assumptions were used. Allowance for Doubtful Accounts The allowance for doubtful accounts represents adjustments to customer trade accounts receivable for amounts deemed partially or entirely uncollectible. The allowance for doubtful accounts is a reserve used to reduce gross trade receivables to their net realizable value. Mattel's reserve is based on management's assessment of the business environment, customers' financial condition, historical trends, receivable aging and customer disputes. Mattel's allowance for doubtful accounts increased from approximately $25 million at year end 2000 to $56 million at year end 2001. In 2001, bad debt expense increased by approximately $40 million to $58 million. As more fully discussed in the section entitled "Results of Continuing Operations--2001 Compared to 2000--Consolidated Results," in the fourth quarter of 2001, Mattel recorded a $22.1 million charge related to the Kmart bankruptcy filing announced in January 2002. Mattel also recorded approximately $9 million in bad debt expense in the third quarter 2001, primarily related to the bankruptcy declared by a US retailer during the quarter. The remaining increase in bad debt expense was due to exposure associated with various other retailers. The difficult domestic retail environment has resulted in bankruptcies of large customers and represents the underlying cause for the increased bad debt expense in 2001. Mattel will continue to proactively review its credit risks and adjust its customer terms to reflect the current environment. The increased level of risk associated with credit given to customers may result in a continuation of bad debt charges at higher levels than historically experienced or lower sales. Inventories Inventories, net of an allowance for excess quantities and obsolescence, are stated at the lower of cost or market. Inventory reserves are recorded for damaged, obsolete, excess and slow-moving inventory. Mattel's management uses estimates to record these reserves. Slow-moving inventory is reviewed by category and may be partially or fully reserved for depending on the type of product and the length of time the product has been included in inventory. Changes in public and consumer preferences and demand for product or changes in the buying patterns and inventory management of customers, could adversely impact the inventory valuation. Impairment of Long-Lived Assets Long-lived assets, identifiable intangibles and goodwill related to those assets have been reviewed for impairment based on Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of. This statement requires that an impairment loss be recognized whenever the sum of the expected future cash flows (undiscounted and without interest charges) resulting from the use and ultimate disposal of an asset is less than the carrying amount of the asset. Mattel's management reviews for indicators that might suggest an impairment loss exists. Testing long-lived assets, identifiable intangibles and goodwill for recoverability requires estimates of expected cash flows to be generated from the use of the assets. Various uncertainties, including changes in consumer preferences, deterioration in the political situation in a country or adverse changes in the general economic conditions in the US and internationally, could adversely impact the expected cash flows to be generated by an asset or group of assets. See discussion under "New Accounting Pronouncements" regarding SFAS No. 144, which supercedes SFAS No. 121 effective the first quarter of 2002. Deferred Tax Assets Mattel records valuation allowances against its deferred tax assets. In determining the requisite allowance, management considers all available evidence for certain tax credit, net operating loss, and capital loss carryforwards that would likely expire prior to their utilization. Management believes that it is more likely than 32 not that Mattel will generate sufficient taxable income in the appropriate carryforward periods to realize the benefit of its remaining net deferred tax assets. However, if the available evidence were to change in the future, an adjustment to the valuation allowances may be required. New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, Business Combinations, which supercedes Accounting Principles Board Opinion ("APB") No. 16, Business Combinations. This statement requires that all business combinations be accounted for by the purchase method and establishes specific criteria for the recognition of intangible assets separately from goodwill. The statement also requires unallocated negative goodwill to be written off immediately as an extraordinary gain. The provisions of the statement apply to business combinations initiated after June 30, 2001. For business combinations accounted for using the purchase method before July 1, 2001, the provisions of this statement will be effective in the first quarter of 2002. Mattel does not expect that the adoption of SFAS No. 141 will have a material effect on its consolidated financial position or results of operations. In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which supercedes APB Opinion No. 17, Intangible Assets. This statement addresses the accounting and reporting of goodwill and other intangible assets subsequent to their acquisition. The statement also provides specific guidance on testing goodwill and intangible assets for impairment. SFAS No. 142 provides that (i) goodwill and indefinite-lived intangible assets will no longer be amortized; (ii) impairment will be measured using various valuation techniques based on discounted cash flows; (iii) goodwill will be tested for impairment at least annually at the reporting unit level; (iv) intangible assets deemed to have an indefinite life will be tested for impairment at least annually; and (v) intangible assets with finite lives will be amortized over their useful lives. Goodwill and intangible assets acquired after June 30, 2001 were subjected to the provisions of this statement. All provisions of this statement will be effective in the first quarter of 2002. Mattel's goodwill amortization was approximately $46 million of the total $51.1 million in amortization of intangibles recorded in 2001. Mattel is in the process of evaluating the potential impact that the adoption of SFAS No. 142 will have on its consolidated financial position and results of operations. Based on preliminary results of its valuation study, Mattel anticipates that the total impairment to be recognized as a result of the transitional goodwill impairment test will be approximately $400 million pretax, relating entirely to the Pleasant Company reporting unit. In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. All provisions of this statement will be effective at the beginning of fiscal 2003. Mattel is in the process of determining the impact of this statement on its financial results when effective. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and amends APB No. 30, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. This statement requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long- lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. This statement also retains APB No. 30's requirement that companies report discontinued operations separately from continuing operations. All provisions of this statement will be effective in the first quarter of 2002. The adoption of this standard is not expected to have a significant impact on Mattel's consolidated financial position and results of operations. 33 Emerging Issues Task Force ("EITF") Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer, will be effective in the first quarter of 2002. This issue addresses (i) recognition, measurement, and income statement classification for sales incentives offered by a vendor without charge to a customer as a result of a single exchange transaction or as a result of attaining a specified cumulative level of transactions and (ii) whether certain consideration from a vendor to a reseller of the vendor's products is an adjustment to selling prices or cost. The following table presents the quarterly and full year restated balances, excluding charges, resulting from the implementation of EITF No. 01-09 (in millions):
First Second Third Fourth Full Quarter Quarter Quarter Quarter Year ------- ------- -------- -------- -------- Year Ended December 31, 2001 Net sales..................... $715.2 $836.2 $1,575.3 $1,561.2 $4,687.9 Gross profit.................. 316.6 367.6 745.5 747.4 2,177.1 % of net sales................ 44.3% 44.0% 47.3% 47.9% 46.4% Advertising and promotion expenses..................... 79.4 84.9 174.9 204.0 543.2 Year Ended December 31, 2000 Net sales..................... $679.6 $803.0 $1,549.6 $1,533.3 $4,565.5 Gross profit.................. 299.9 348.3 703.7 719.9 2,071.8 % of net sales................ 44.1% 43.4% 45.4% 47.0% 45.4% Advertising and promotion expenses..................... 76.8 83.0 186.5 227.2 573.5 Year Ended December 31, 1999 Net sales..................... $676.0 $791.5 $1,557.4 $1,477.8 $4,502.7 Gross profit.................. 300.1 343.4 744.5 679.2 2,067.2 % of net sales................ 44.4% 43.4% 47.8% 46.0% 45.9% Advertising and promotion expenses..................... 75.9 80.6 185.3 227.9 569.7
Item 7a. Quantitative and Qualitative Disclosures About Market Risk Risk Management Mattel's results of operations and cash flows may be impacted by exchange rate fluctuations. 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 using foreign currency forward exchange and option contracts primarily to hedge its purchase and sale of inventory, and other intercompany transactions denominated in foreign currencies. These contracts generally have maturity dates of up to 18 months. In addition, Mattel manages its exposure through the selection of currencies used for international borrowings and intercompany invoicing. Mattel's results of operations can also be affected by the translation of foreign revenues and earnings into US dollars. Mattel does not trade in financial instruments for speculative purposes. As of December 31, 2001, Mattel translated its Argentina peso denominated financial statements using the free floating market exchange rate as of January 11, 2002, of 1.6 pesos to the dollar. This translation did not have a significant impact on Mattel's results of operations in 2001 and management believes that the devaluation will have minimal impact to its results of operations in 2002. Mattel entered into a cross currency interest rate swap to convert the interest rate and principal amount from Euros to US dollars on its 200 million Euro Notes due July 2002. Interest is payable annually at the rate of Euro 6.625%. The weighted average interest rate after the swap is 9.0% in US dollars. 34 Mattel's foreign currency forward exchange contracts that were used to hedge firm foreign currency commitments as of December 31, 2001 are shown in the following table. 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, Thai baht, Brazilian real and Venezuelan bolivar contracts that are maintained by entities with either a rupiah, baht, real or bolivar functional currency.
Buy Sell -------------------------- -------------------------- Weighted Weighted Average Average (In thousands of US Contract Contract Fair Contract Contract Fair dollars) Amount Rate Value Amount Rate Value - ------------------- -------- -------- -------- -------- -------- -------- Euro*................... $128,041 0.88 $128,775 $346,861 0.90 $341,164 British pounds sterling*.............. 5,159 1.45 5,144 Canadian dollar*........ 4,375 0.63 4,399 31,478 0.65 30,646 Japanese yen............ 4,045 128 3,966 Australian dollar*...... 3,045 0.51 3,064 9,941 0.52 9,659 Swiss franc............. 3,052 1.69 3,083 Indonesian rupiah....... 27,300 11,219 28,197 New Zealand dollar*..... 619 0.42 607 Venezuelan bolivar...... 2,000 761 1,968 Singapore dollar........ 2,873 1.83 2,843 Hong Kong dollar........ 30,282 7.81 30,315 Brazilian real.......... 27,206 2.66 24,801 Polish zloty............ 2,091 3.97 2,211 Taiwanese dollar........ 3,352 34.87 3,326 Thai baht............... 3,970 44.49 3,938 -------- -------- -------- -------- $231,316 $230,538 $404,374 $397,568 ======== ======== ======== ========
* The currencies for these contracts are quoted in US dollar per local currency 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 2001. 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 2001. 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. In addition to the contracts involving the US dollar detailed in the above table, Mattel also had contracts to sell British pounds sterling for the purchase of Euros. As of December 31, 2001, these contracts had a notional amount of $79.5 million and a fair value of $80.7 million. Had Mattel not entered into hedges to limit the effect of exchange rate fluctuations on results of operations and cash flows, pre-tax income would have been reduced by approximately $10 million, $35 million, and $16 million for 2001, 2000 and 1999, respectively. In June 1998, the FASB issued SFAS 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 adopted SFAS No. 133 on January 1, 2001. Mattel recorded a one-time charge of approximately $12 million, net of tax, in the consolidated statements of operations for the quarter ended March 31, 2001, for the transition adjustment related to the adoption of SFAS No. 133. Interest Rate Sensitivity An assumed 50 basis point movement in interest rates affecting Mattel's variable rate borrowings would have had an immaterial impact on its 2001 results of operations. 35 Item 8. Financial Statements and Supplementary Data 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 74 present fairly, in all material respects, the financial position of Mattel, Inc. and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 74 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 of America, 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 our opinion. /s/ PricewaterhouseCoopers LLP Los Angeles, California January 30, 2002 36 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, --------------------- 2001 2000 ---------- ---------- (In thousands) ASSETS - ------ Current Assets Cash and short term investments........................ $ 616,604 $ 232,389 Accounts receivable, less allowances of $55.9 million at December 31, 2001 and $24.6 million at December 31, 2000.................................................. 696,572 839,567 Inventories............................................ 487,505 489,742 Prepaid expenses and other current assets.............. 291,915 189,799 ---------- ---------- Total current assets................................. 2,092,596 1,751,497 ---------- ---------- Property, Plant and Equipment Land................................................... 33,273 32,793 Buildings.............................................. 267,719 257,430 Machinery and equipment................................ 616,609 564,244 Capitalized leases..................................... 23,271 23,271 Leasehold improvements................................. 81,628 74,988 ---------- ---------- 1,022,500 952,726 Less: accumulated depreciation....................... 550,073 472,986 ---------- ---------- 472,427 479,740 Tools, dies and molds, net............................. 154,295 168,092 ---------- ---------- Property, plant and equipment, net................... 626,722 647,832 ---------- ---------- Other Noncurrent Assets Intangibles, net....................................... 1,109,910 1,136,857 Other assets........................................... 711,333 765,671 Net investment in discontinued operations.............. -- 11,540 ---------- ---------- $4,540,561 $4,313,397 ========== ==========
37 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--(continued)
December 31, ---------------------- 2001 2000 ---------- ---------- (In thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities Short-term borrowings................................ $ 38,108 $ 226,403 Current portion of long-term debt.................... 210,090 32,723 Accounts payable..................................... 334,247 338,966 Accrued liabilities.................................. 774,743 703,382 Income taxes payable................................. 239,793 200,933 ---------- ---------- Total current liabilities.......................... 1,596,981 1,502,407 ---------- ---------- Long-Term Liabilities Long-term debt....................................... 1,020,919 1,242,396 Other................................................ 184,203 165,496 ---------- ---------- Total long-term liabilities........................ 1,205,122 1,407,892 ---------- ---------- Stockholders' Equity 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 1.1 million and 1.9 million outstanding exchangeable shares in 2001 and 2000, respectively........................................ -- -- Common stock $1.00 par value, 1.0 billion shares authorized; 436.3 million shares and 435.6 million shares issued in 2001 and 2000, respectively........ 436,307 435,560 Additional paid-in capital........................... 1,638,993 1,706,614 Treasury stock at cost; 5.4 million shares and 9.6 million shares in 2001 and 2000, respectively....... (161,944) (288,622) Retained earnings (accumulated deficit).............. 132,900 (144,417) Accumulated other comprehensive loss................. (307,798) (306,037) ---------- ---------- Total stockholders' equity......................... 1,738,458 1,403,098 ---------- ---------- $4,540,561 $4,313,397 ========== ==========
The accompanying notes are an integral part of these statements. Commitments and Contingencies (See accompanying notes.) 38 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands, except per share amounts) Net Sales................................. $4,804,062 $4,669,942 $4,595,490 Cost of sales............................. 2,537,178 2,569,157 2,413,469 ---------- ---------- ---------- Gross Profit.............................. 2,266,884 2,100,785 2,182,021 Advertising and promotion expenses........ 661,504 685,877 684,519 Other selling and administrative expenses................................. 936,078 966,998 867,955 Restructuring and other charges........... 15,700 15,900 281,107 Amortization of intangibles............... 51,144 52,000 52,010 Interest expense.......................... 155,132 152,979 131,609 Other expense (income), net............... 17,316 1,607 (5,343) ---------- ---------- ---------- Income From Continuing Operations Before Income Taxes............................. 430,010 225,424 170,164 Provision for income taxes................ 119,090 55,247 61,777 ---------- ---------- ---------- Income From Continuing Operations......... 310,920 170,177 108,387 Discontinued Operations (See Note 13) Loss from discontinued operations......... -- (601,146) (190,760) ---------- ---------- ---------- Income (Loss) Before Cumulative Effect of Change in Accounting Principles.......... 310,920 (430,969) (82,373) Cumulative effect of change in accounting principles, net of tax................... (12,001) -- -- ---------- ---------- ---------- Net Income (Loss)......................... 298,919 (430,969) (82,373) Preferred stock dividend requirements..... -- -- 3,980 ---------- ---------- ---------- Net Income (Loss) Applicable to Common Shares................................... $ 298,919 $ (430,969) $ (86,353) ========== ========== ========== Basic Income (Loss) Per Common Share Income from continuing operations......... $ 0.72 $ 0.40 $ 0.25 Loss from discontinued operations......... -- (1.41) (0.46) Cumulative effect of change in accounting principles............................... (0.03) -- -- ---------- ---------- ---------- Net income (loss)......................... $ 0.69 $ (1.01) $ (0.21) ========== ========== ========== Weighted average number of common shares.. 430,983 426,166 414,186 ========== ========== ========== Diluted Income (Loss) Per Common Share Income from continuing operations......... $ 0.71 $ 0.40 $ 0.25 Loss from discontinued operations......... -- (1.41) (0.45) Cumulative effect of change in accounting principles............................... (0.03) -- -- ---------- ---------- ---------- Net income (loss)......................... $ 0.68 $ (1.01) $ (0.20) ========== ========== ========== Weighted average number of common and common equivalent shares................. 436,166 427,126 425,281 ========== ========== ========== Dividends Declared Per Common Share....... $ 0.05 $ 0.27 $ 0.35 ========== ========== ==========
The accompanying notes are an integral part of these statements. 39 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year ----------------------------- 2001 2000 1999 -------- --------- -------- (In thousands) Cash Flows From Operating Activities: Net income (loss).............................. $298,919 $(430,969) $(82,373) Deduct: loss from discontinued operations...... -- (601,146) (190,760) -------- --------- -------- Income from continuing operations.............. 298,919 170,177 108,387 Adjustments to reconcile income from continuing operations to net cash flows from operating activities: Cumulative effect of change in accounting principles, net of tax...................... 12,001 -- -- Noncash derivative loss...................... 5,532 -- -- Noncash restructuring and other charges...... 4,594 46,126 46,374 Depreciation................................. 201,012 192,638 187,455 Amortization................................. 61,496 63,751 58,555 Increase (decrease) from changes in assets and liabilities: Accounts receivable.......................... 125,598 143,920 (125,891) Inventories.................................. (14,144) (83,637) 118,703 Prepaid expenses and other current assets.... (120,019) (9,821) (23,707) Accounts payable, accrued liabilities and income taxes payable........................ 137,786 32,211 74,128 Deferred income taxes........................ 54,962 3,383 (7,151) Other, net................................... (10,944) (3,658) (6,390) -------- --------- -------- Net cash flows from operating activities of continuing operations......................... 756,793 555,090 430,463 -------- --------- -------- Cash Flows From Investing Activities: Purchases of tools, dies and molds............. (93,914) (85,258) (107,017) Purchases of other property, plant and equipment..................................... (100,737) (76,491) (94,158) Payment for businesses acquired................ (20,547) -- (1,091) Proceeds from sale of other property, plant and equipment..................................... 6,462 9,938 10,033 Investment in other long-term assets........... -- (877) (48,398) Other, net..................................... 15,548 1,462 (612) -------- --------- -------- Net cash flows used for investing activities of continuing operations......................... (193,188) (151,226) (241,243) -------- --------- -------- Cash Flows From Financing Activities: Short-term borrowings, net..................... (175,717) (134,997) 244,595 Proceeds from issuance of long-term debt....... -- 390,710 -- Payments of long-term debt..................... (31,261) (100,000) (30,254) Exercise of stock options...................... 53,516 25,189 51,207 Purchase of treasury stock..................... -- -- (75,507) Payment of dividends on common and preferred stock......................................... (21,602) (153,551) (125,673) Other, net..................................... -- (1,104) (572) -------- --------- -------- Net cash flows (used for) from financing activities of continuing operations........... (175,064) 26,247 63,796 -------- --------- -------- Net Cash Used for Discontinued Operations (See Note 13)...................................... (542) (444,173) (215,261) Effect of Exchange Rate Changes on Cash........ (3,784) (903) (2,855) -------- --------- -------- Increase (Decrease) in Cash and Short-term Investments................................... 384,215 (14,965) 34,900 Cash and Short-term Investments at Beginning of Year.......................................... 232,389 247,354 212,454 -------- --------- -------- Cash and Short-term Investments at End of Year.......................................... $616,604 $ 232,389 $247,354 ======== ========= ========
The accompanying notes are an integral part of these statements. 40 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained Accumulated Total Additional Earnings Other Stock- Preferred Common Paid-In Treasury Deferred (Accumulated Comprehensive holders' Stock Stock Capital Stock Compensation Deficit) Income (Loss) Equity --------- -------- ---------- --------- ------------ ------------ ------------- ---------- (In thousands) 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 Stock option exercises.. 1,447 13,018 14,465 Tax benefit of stock option exercises....... 15,000 15,000 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 Comprehensive (loss): Net (loss)............. (430,969) (430,969) Unrealized (loss) on securities: Unrealized holding losses.............. (25,118) (25,118) Less: reclassification adjustment for realized losses included in net (loss).............. 10,995 10,995 Minimum pension liability adjustment............ (1,782) (1,782) Currency translation adjustments........... (50,485) (50,485) ----- -------- ---------- --------- -------- -------- --------- ---------- Comprehensive (loss).... (430,969) (66,390) (497,359)
41 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY-- (continued)
Retained Accumulated Total Additional Earnings Other Stock- Preferred Common Paid-In Treasury Deferred (Accumulated Comprehensive holders' Stock Stock Capital Stock Compensation Deficit) Income (Loss) Equity --------- -------- ---------- --------- ------------ ------------ ------------- ---------- (In thousands) Issuance of treasury stock.................. (48,035) 73,224 25,189 Tax benefit of stock option exercises....... 2,300 2,300 Tax benefit of prior year stock option exercises.............. 19,200 19,200 Compensation cost related to stock option modifications.......... 382 382 Conversion of exchangeable shares.... 1,976 (1,976) -- Issuance of stock warrant................ 5,789 5,789 Shares issued for Learning Company treasury stock......... 21 (21) -- Dividends declared on common stock........... (115,090) (115,090) ---- -------- ---------- --------- ---- -------- --------- ---------- Balance, December 31, 2000................... -- 435,560 1,706,614 (288,622) -- (144,417) (306,037) 1,403,098 Comprehensive income: Net income............. 298,919 298,919 Unrealized holding losses................ (186) (186) Transition adjustment related to FAS 133.... 14,127 14,127 Net gain on derivative instruments........... 1,412 1,412 Minimum pension liability adjustment.. (2,518) (2,518) Currency translation adjustments........... (14,596) (14,596) ---- -------- ---------- --------- ---- -------- --------- ---------- Comprehensive income.... 298,919 (1,761) 297,158 Issuance of treasury stock.................. (73,162) 126,678 53,516 Tax benefit of stock option exercises....... 6,000 6,000 Compensation cost related to stock option modifications.......... 288 288 Conversion of exchangeable shares.... 747 (747) -- Dividends declared on common stock........... (21,602) (21,602) ---- -------- ---------- --------- ---- -------- --------- ---------- Balance, December 31, 2001................... $-- $436,307 $1,638,993 $(161,944) $-- $132,900 $(307,798) $1,738,458 ==== ======== ========== ========= ==== ======== ========= ==========
The accompanying notes are an integral part of these statements. 42 Note 1--Summary of Significant Accounting Policies Principles of Consolidation and Basis of Preparation The consolidated financial statements include the accounts of Mattel, Inc. and its subsidiaries ("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 to 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 1998 and 1999 reflect the retroactive effect of the merger, accounted for as a pooling of interests, with The Learning Company, Inc. ("Learning Company") in May 1999. As more fully described in Note 13, the Consumer Software segment, which was comprised primarily of Learning Company, was reported as a discontinued operation effective March 31, 2000, and the consolidated financial statements were reclassified to segregate the net investment in, and the liabilities and operating results of the Consumer Software segment. 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 consolidated 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 accumulated other comprehensive income (loss) within stockholders' equity. Gains and losses from unhedged foreign currency transactions resulting from receivables and payables that are denominated in a currency other than the applicable functional currency are recognized in the results of operations in the period in which the exchange rate changes. For the year ended 2001, transaction losses included in other expense (income), net totaled approximately $9 million, while in 2000 and 1999, transaction gains totaled approximately $3 million and $7 million, respectively. Cash and Short-Term Investments Cash includes cash equivalents, which are highly liquid investments with maturities of three months or less when purchased. Marketable Securities Marketable securities are comprised of investments in publicly-traded securities, classified as available-for-sale, and are recorded at market value with unrealized gains or losses reported as a component of accumulated other comprehensive income (loss) within stockholders' equity until realized. 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 43 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 3 years. 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. Substantially all goodwill is amortized over 20 to 40 years. Accumulated amortization was $383.3 million and $332.2 million as of December 31, 2001 and 2000, 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. In July 2001, the Financial Accounting Standards Boards ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, which supercedes Accounting Principles Board Opinion ("APB") No. 16, Business Combinations. This statement requires that all business combinations be accounted for by the purchase method and establishes specific criteria for the recognition of intangible assets separately from goodwill. The statement also requires unallocated negative goodwill to be written off immediately as an extraordinary gain. The provisions of the statement apply to business combinations initiated after June 30, 2001. For business combinations accounted for using the purchase method before July 1, 2001, the provisions of this statement will be effective in the first quarter of 2002. In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which supercedes APB Opinion No. 17, Intangible Assets. This statement addresses the accounting and reporting of goodwill and other intangible assets subsequent to their acquisition. The statement also provides specific guidance on testing goodwill and intangible assets for impairment. SFAS No. 142 provides that (i) goodwill and indefinite-lived intangible assets will no longer be amortized; (ii) impairment will be measured using various valuation techniques based on discounted cash flow; (iii) goodwill will be tested for impairment at least annually at the reporting unit level; (iv) intangible assets deemed to have an indefinite life will be tested for impairment at least annually; and (v) intangible assets with finite lives will be amortized over their useful lives. Goodwill and intangible assets acquired after June 30, 2001 are subject to the provisions of this statement. All provisions of this statement will become effective in the first quarter of 2002. Mattel's goodwill amortization was approximately $46 million of the total $51.1 million in amortization of intangibles recorded in 2001. Mattel is in the process of evaluating the potential impact that the adoption of SFAS No. 142 will have on its consolidated financial position and results of operations. Based on preliminary results of its valuation study, Mattel anticipates that the total impairment to be recognized as a result of the transitional goodwill impairment test will be approximately $400 million pre-tax, relating entirely to the Pleasant Company reporting unit. Revenue Recognition Revenue from the sale of toy products is recognized upon shipment or upon receipt of products by the customer, depending on customer terms. Accruals for customer discounts and rebates, and defective returns are recorded as the related revenues are recognized. 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 catalog production and mailing costs that are generally amortized within three months from the date catalogs are mailed. Advertising costs associated with customer benefit programs are accrued as the related revenues are recognized. 44 Emerging Issues Task Force Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer, will be effective in the first quarter of 2002. This issue addresses (i) recognition, measurement, and income statement classification for sales incentives offered by a vendor without charge to a customer as a result of a single exchange transaction or as a result of attaining a specified cumulative level of transactions and (ii) whether certain consideration from a vendor to a reseller of the vendor's products is an adjustment to selling prices or cost. The implementation of this issue results in reclassification of approximately $116 million, $104 million and $93 million from advertising and promotion expense to sales adjustments for the years ended 2001, 2000 and 1999, respectively, which will reduce net sales by a corresponding amount. The restatement will also result in a reclassification of approximately $2 million, $3 million and $22 million from advertising and promotion expense to cost of sales for the years ended 2001, 2000 and 1999, respectively. Research and Development Costs Research and development costs are charged to expense when incurred. Stock-Based Compensation Mattel has adopted the disclosure-only provisions of SFAS 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 1999 presented in these financial statements reflect the retroactive effect of the May 1999 Learning Company merger. 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. Dilutive securities are included in the calculation of weighted average shares outstanding for those periods in which Mattel recorded income from continuing operations. 45 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):
2001 2000 1999 ---------------- ---------------- ----------------- Earnings Shares Earnings Shares Earnings Shares -------- ------- -------- ------- -------- ------- Income from continuing operations................... $310,920 $170,177 $108,387 Less: preferred stock dividend requirements................. -- -- (3,980) -------- -------- -------- Earnings available to common stockholders................. $310,920 430,983 $170,177 426,166 $104,407 414,186 Dilutive securities: Dilutive stock options...... 4,765 960 3,920 Warrants.................... 418 -- 665 Preferred stock............. -- -- 6,510 -------- ------- -------- ------- -------- ------- Diluted earnings available to common stockholders.......... $310,920 436,166 $170,177 427,126 $104,407 425,281 ======== ======= ======== ======= ======== =======
Premium price stock options totaling 15.2 million and other nonqualified stock options totaling 13.8 million were excluded from the calculation of diluted earnings per share in 2001 because they were anti-dilutive. Premium price stock options totaling 16.3 million and other nonqualified stock options totaling 25.6 million were excluded from the calculation of diluted earnings per share in 2000 because they were anti-dilutive. Premium price stock options totaling 16.9 million, other nonqualified stock options totaling 23.2 million, convertible debt, and Series C preferred stock were excluded from the calculation of diluted earnings per share in 1999 because they were anti- dilutive. Warrants of 3.0 million shares were excluded from the calculation of diluted earnings per share in 2001, 2000 and 1999 because they were anti- dilutive. Derivative Instruments Mattel uses foreign currency forward exchange and option contracts as cash flow hedges to hedge its forecasted purchases and sales of inventory denominated in foreign currencies. Mattel uses fair value hedges to hedge intercompany loans and management fees and marketable securities denominated in foreign currencies. Mattel also entered into a cross currency interest rate swap to convert the interest and principal amounts from Euros to US dollars on its 200 million Euro Notes due 2002. At the inception of the contracts, Mattel designates its derivatives as either cash flow or fair value hedges and documents the relationship of the hedge to the underlying forecasted transaction, for cash flow hedges, or the recognized asset or liability, for fair value hedges. Hedge effectiveness is assessed at inception and throughout the life of the hedge to ensure the hedge qualifies for hedge accounting treatment. Changes in fair value associated with hedge ineffectiveness, if any, are recorded in Mattel's results of operations currently. Changes in fair value of Mattel's cash flow derivatives are deferred and recorded as part of accumulated other comprehensive income (loss) in stockholders' equity until the underlying transaction is settled. Upon settlement, any gain or loss resulting from the derivative is recorded in Mattel's results of operations. In the event that an anticipated transaction is no longer likely to occur, Mattel recognizes the change in fair value of the derivative in its results of operations currently. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting for its fair value hedges for intercompany loans and management fees. Changes in the fair value of these derivatives are recorded in Mattel's results of operations currently. As a result of adopting SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, Mattel recorded a one-time transition adjustment of $12.0 million, net of tax, (or $0.03 per share) as the cumulative effect of change in accounting principles related to unrealized losses on the CyberPatrol securities that had been previously deferred in accumulated other comprehensive income (loss). Mattel also recorded a 46 one-time transition adjustment of $2.1 million in accumulated other comprehensive income (loss) related to unrealized gains on derivative instruments. New Accounting Pronouncements In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. All provisions of this statement will be effective at the beginning of fiscal 2003. Mattel is in the process of determining the impact of this standard on its financial results when effective. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and amends APB No. 30, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. This statement requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long- lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. This statement also retains APB No. 30's requirement that companies report discontinued operations separately from continuing operations. All provisions of this statement will be effective the first quarter of 2002. The adoption of this statement is not expected to have a significant impact on Mattel's consolidated financial position and results of operations. Note 2--Income Taxes Consolidated income from continuing operations before income taxes consists of the following (in thousands):
For the Year ------------------------------ 2001 2000 1999 --------- --------- --------- US operations................................... $ 29,431 $(140,747) $(126,675) Foreign operations.............................. 400,579 366,171 296,839 --------- --------- --------- $ 430,010 $ 225,424 $ 170,164 ========= ========= =========
The provision for current and deferred income taxes consists of the following (in thousands):
For the Year ------------------------- 2001 2000 1999 -------- ------- ------- Current Federal............................................ $ 28,748 $ 2,860 $ 9,816 State.............................................. 4,700 3,500 7,400 Foreign............................................ 75,786 52,900 58,150 -------- ------- ------- 109,234 59,260 75,366 -------- ------- ------- Deferred Federal............................................ 787 (9,890) (30,109) State.............................................. 5,500 (13,400) 3,420 Foreign............................................ 3,569 19,277 13,100 -------- ------- ------- 9,856 (4,013) (13,589) -------- ------- ------- Total provision for income taxes..................... $119,090 $55,247 $61,777 ======== ======= =======
47 Deferred income taxes are provided principally for net operating loss carryforwards, research and development expenses, certain reserves, depreciation, employee compensation-related expenses, and certain other expenses that are recognized in different years for financial statement and income tax purposes. Mattel's deferred income tax assets (liabilities) are comprised of the following (in thousands):
As of Year End -------------------- 2001 2000 --------- --------- Operating loss and tax credit carryforwards............... $ 725,709 $ 797,216 Excess of tax basis over book basis....................... 130,077 21,841 Sales allowances and inventory reserves................... 89,834 75,785 Deferred compensation..................................... 43,397 45,371 Restructuring and other charges........................... 11,690 27,210 Postretirement benefits................................... 12,360 12,440 Other..................................................... 30,535 31,640 --------- --------- Gross deferred income tax assets........................ 1,043,602 1,011,503 --------- --------- Deferred intangible assets................................ (49,939) (40,374) Excess of book basis over tax basis....................... (30,249) (3,320) Retirement benefits....................................... (27,716) (20,872) Other..................................................... (26,810) (38,637) --------- --------- Gross deferred income tax liabilities................... (134,714) (103,203) Deferred income tax asset valuation allowances............ (374,448) (364,004) --------- --------- Net deferred income tax assets............................ $ 534,440 $ 544,296 ========= =========
Management considered all available evidence and determined that a valuation allowance of $374.4 million was required as of December 31, 2001, for certain tax credit, net operating loss, and capital loss carryforwards that would likely expire prior to their utilization. Management believes that 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 $534.4 million. Differences between the provision for income taxes for continuing operations at the US federal statutory income tax rate and the provision in the consolidated statements of operations are as follows (in thousands):
For the Year -------------------------- 2001 2000 1999 -------- ------- ------- Provision at federal statutory rates............... $150,504 $78,898 $59,557 Increase (decrease) resulting from: Losses without income tax benefit................ 13,623 12,777 21,170 Foreign earnings taxed at different rates, including withholding taxes..................... (37,774) (37,167) (62,488) State and local taxes, net of federal benefit.... 6,630 (6,435) 6,165 Non-deductible amortization and restructuring charges......................................... 2,092 2,093 25,986 Other............................................ (15,985) 5,081 11,387 -------- ------- ------- Total provision for income taxes................... $119,090 $55,247 $61,777 ======== ======= =======
Appropriate US and foreign income taxes have been provided for on 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 $1.9 billion at December 31, 2001. 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, 2001, Mattel has US net operating loss carryforwards totaling $889.6 million and credit carryforwards of $139.1 million for federal income tax purposes. The net operating loss carryforwards 48 expire during the years 2002 to 2020, while $133.8 million of the tax credits expire during the years 2002 to 2020 with the remainder having no expiration date. Utilization of these loss and credit carryforwards is subject to annual limitations, and Mattel has established a valuation allowance for the carryforwards, which are not expected to be utilized. Certain foreign subsidiaries have net operating loss carryforwards totaling $210.2 million ($118.1 million with no expiration date, $78.8 million expiring during the years 2002 to 2006, and $13.3 million expiring after 2006). 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 2001, 2000 and 1999, nonqualified stock options exercised resulted in credits to additional paid-in capital totaling $6.0 million, $2.3 million and $15.0 million, respectively. The Internal Revenue Service has completed its examination of the Mattel, Inc. federal income tax returns through December 31, 1994 and is currently examining Mattel's federal income tax returns for fiscal years 1995 through 1997. 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 $23.7 million, $31.6 million, and $18.6 million in 2001, 2000 and 1999, respectively. Expense for 2000 included $10.8 million for retirement benefits related to the departure of certain senior executives during the first quarter. 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 subsidiaries, 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 years ended December 31, 2001, 2000 and 1999, are detailed below (in thousands):
For the Year Ended ------------------------- 2001 2000 1999 ------- ------- ------- Service cost........................................ $ 2,897 $ 2,609 $ 2,829 Interest cost....................................... 12,857 12,173 14,655 Expected return on plan assets...................... (22,939) (23,843) (27,237) Amortization of: Unrecognized prior service cost................... 108 109 88 Unrecognized net asset............................ -- -- (1,284) Curtailment gain.................................... (700) -- -- Plan amendment loss................................. 1,944 -- 1,386 ------- ------- ------- Net pension income.................................. $(5,833) $(8,952) $(9,563) ======= ======= =======
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):
As of Year End --------------- 2001 2000 ------- ------- Funded status of the plan...................................... $37,699 $58,111 Unrecognized net loss (gain)................................... 22,764 (3,739) Unrecognized prior service cost................................ 863 1,121 ------- ------- Prepaid pension asset.......................................... $61,326 $55,493 ======= =======
49 Reconciliation of the assets and liabilities of Fisher-Price's domestic pension plan are as follows (in thousands):
As of Year End ------------------ 2001 2000 -------- -------- Change in Plan Assets Plan assets at fair value, beginning of year.............. $233,150 $222,793 Actual return on plan assets.............................. 9,631 18,391 Benefits paid............................................. (9,865) (8,034) -------- -------- Plan assets at fair value, end of year.................... $232,916 $233,150 ======== ======== Change in Projected Benefit Obligation Projected benefit obligation, beginning of year........... $175,039 $157,392 Service cost.............................................. 2,897 2,609 Interest cost............................................. 12,857 12,173 Plan amendments........................................... 1,932 -- Actuarial loss............................................ 12,357 10,899 Benefits paid............................................. (9,865) (8,034) -------- -------- Projected benefit obligation, end of year................. $195,217 $175,039 ======== ========
For the Year ---------------- 2001 2000 1999 ---- ---- ---- Assumptions: Weighted average discount rate................................ 7.0% 7.5% 8.0% Rate of future compensation increases......................... 4.0% 4.0% 4.0% Long-term rate of return on plan assets....................... 10.0% 11.0% 11.0%
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 makes company contributions in cash and allows participants to allocate both individual and company contributions to a balanced variety of investment funds. Furthermore, Mattel's plan limits a participant's allocation to the Mattel Stock Fund, which is fully invested in Mattel common stock, to 50% of the participants account balance. Mattel also maintains unfunded supplemental executive retirement plans that are nonqualified defined benefit plans covering certain key executives. For 2001, 2000 and 1999, the accumulated and vested benefit obligations and related expense of these plans were not significant. Deferred Compensation and Excess Benefit Plans Mattel provides a deferred compensation plan that 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, 2001 and 2000 was $36.8 million and $69.0 million, respectively. Mattel's contribution to these plans and the related administrative expense were not significant to the results of operations during any year. 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 $57.8 million and $56.6 million as of December 31, 2001 and 2000, respectively, are held in an irrevocable rabbi trust which is included in other assets in the consolidated balance sheets. 50 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 are as follows (in thousands):
For the Year -------------------- 2001 2000 1999 ------ ------ ------ Service cost.............................................. $ 273 $ 201 $ 224 Interest cost............................................. 2,808 2,886 2,531 Curtailment loss.......................................... 76 -- -- Recognized net actuarial loss............................. 303 202 -- ------ ------ ------ Net postretirement benefit cost........................... $3,460 $3,289 $2,755 ====== ====== ======
Amounts included in the consolidated balance sheets for this plan are as follows (in thousands):
As of Year End ---------------- 2001 2000 ------- ------- Current retirees............................................... $34,758 $31,468 Fully eligible active employees................................ 3,621 3,980 Other active employees......................................... 4,799 4,272 ------- ------- Accumulated postretirement benefit obligation................ 43,178 39,720 Unrecognized net actuarial loss................................ (12,974) (9,105) ------- ------- Accrued postretirement benefit liability....................... $30,204 $30,615 ======= =======
Reconciliation of the liabilities of Fisher-Price's postretirement health insurance plan is as follows (in thousands):
As of Year End ---------------- 2001 2000 ------- ------- Change in Accumulated Postretirement Benefit Obligation Accumulated postretirement benefit obligation, beginning of year...................................................... $39,720 $37,163 Service cost............................................... 273 201 Interest cost.............................................. 2,808 2,886 Actuarial loss............................................. 4,248 3,053 Benefits paid, net of participant contributions............ (3,871) (3,583) ------- ------- Accumulated postretirement benefit obligation, end of year...................................................... $43,178 $39,720 ======= =======
The discount rates used in determining the accumulated postretirement benefit obligation were 7.0% for 2001, 7.5% for 2000 and 8.0% for 1999. For all participants, the health care cost trend rate for expected claim costs was assumed to be as follows:
Pre- Post- Year 65 65 ---- ----- ----- 2002........................................................... 10.0% 12.0% 2003........................................................... 9.0% 10.5% 2004........................................................... 8.0% 9.0% 2005........................................................... 7.0% 7.5% 2006........................................................... 6.0% 6.0% 2007 and thereafter............................................ 5.5% 5.5%
51 A one percentage point increase/(decrease) in the assumed health care cost trend rate for each future year would impact the accumulated postretirement benefit obligation as of December 31, 2001 by $4.7 million and $(4.0) million, respectively, while a one percentage point increase/(decrease) would impact the service and interest cost recognized for the year ended December 31, 2001 by $0.3 million and $(0.3) million, respectively. 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 Mattel 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. For 2001 and 2000, $36.2 million and $33.7 million, respectively, were charged to operating expense for awards under these plans. No expense was recorded in 1999 for awards under these plans. In November 2000, the Compensation/Options Committee of the board of directors approved the Long-Term Incentive Plan covering certain key executives of Mattel, Inc. for the performance period from August 15, 2000 through December 31, 2002. Awards are based upon the financial performance of Mattel during the performance period and are paid in the quarter following the end of the performance period. For 2001 and 2000, $4.9 million and $8.3 million, respectively, were charged to operating expense for this plan. In June 1999, the stockholders approved the Amended and Restated Mattel Long-Term Incentive Plan. The Compensation/Options Committee of the board of directors terminated this plan in November 2000, and no expense was recorded related to this plan. For 2001 and 2000, $11.1 million and $11.6 million, respectively, was charged to operating expense for costs related to the recruitment and retention of senior executives. For 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. 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 subsidiaries. The agreement in effect during 2001 consisted of an unsecured committed revolving credit facility providing a total of $1.0 billion in seasonal financing available for advances and backup for the issuance of commercial paper (a five-year facility that expires in 2003). Interest was charged at various rates selected by Mattel, ranging from market commercial paper rates to the bank reference rate. Within this facility, up to $300.0 million is available for non-recourse sales of certain trade accounts receivable of Mattel to the commercial bank group providing the credit line. Such non-recourse sales are made pursuant to an arrangement whereby certain of Mattel's subsidiaries sell receivables to Mattel Factoring, Inc., which in turn sells those receivables to the commercial bank group. Mattel Factoring, Inc. is a separate special-purpose legal entity with its own assets and liabilities. In March 2002, Mattel amended and restated this facility into a $1.060 billion, 3- year facility that expires in 2005 with substantially similar terms and conditions. Additionally, during 2001, Mattel utilized a 364-day $400.0 million unsecured committed credit facility with essentially the same terms and conditions as the $1.0 billion revolving credit facility. Mattel has elected not to renew this facility when it expires in March 2002 since it believes that cash on hand at the beginning of 2002 and its $1.060 billion domestic unsecured committed revolving facility will be sufficient to meet its seasonal working capital requirements in 2002. 52 Mattel also has a $200.0 million senior unsecured term loan that matures in July 2003. Interest is charged at various rates, ranging from a LIBOR-based rate to the bank reference rate (3.66% as of December 31, 2001). The unsecured credit facilities and term loan require Mattel to meet financial covenants for consolidated debt-to-capital and interest coverage. Mattel was in compliance with such covenants during 2001. 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 subsidiaries, Mattel negotiates individual financing arrangements, generally with the same group of banks that provided credit in the prior year. Foreign credit lines total approximately $368 million, a portion of which is used to support letters of credit. Mattel expects to extend these credit lines throughout 2002 and believes available amounts will be adequate to meet its seasonal financing requirements. Mattel also enters into agreements with banks of its foreign subsidiaries for non-recourse sales of certain of its foreign subsidiary receivables. In fourth quarter 2001, Mattel entered into a securitization agreement to sell certain receivables of its French and German subsidiaries with one of its European banks. Information relating to Mattel's unsecured committed credit facilities, foreign credit lines and other short-term borrowings is summarized as follows (in thousands):
For the Year ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- Balance at end of year Domestic................................ $ -- $ 178,017 $ 293,744 Foreign................................. 38,108 48,386 75,805 Maximum amount outstanding Domestic................................ $1,028,090 $1,320,000 $1,207,000 Foreign................................. 64,158 85,905 117,000 Average borrowing Domestic................................ $ 694,900 $ 835,200 $ 573,100 Foreign................................. 43,168 79,561 40,000 Weighted average interest rate on average borrowing Domestic (computed daily)............... 4.6% 6.7% 5.5% Foreign (computed monthly).............. 17.5% 15.7% 33.0%
Mattel's accounts receivable sold or anticipated, and therefore excluded from its consolidated balance sheets, is summarized as follows (in millions):
As of Year End ----------------- 2001 2000 ------ ------ Domestic factoring and anticipation........................... $261.5 $347.5 Foreign factoring............................................. 237.2 196.9 ------ ------ Total factoring and anticipation............................ $498.7 $544.4 ====== ======
53 Long-Term Debt Mattel's long-term debt consists of the following (in thousands):
As of Year End --------------------------- 2001 2000 ---------- ---------- Euro notes due 2002................................. $ 177,900 $ 190,710 Unsecured term loan due 2003........................ 200,000 200,000 6% senior notes due 2003............................ 150,000 150,000 6-1/8% senior notes due 2005........................ 150,000 150,000 Medium-term notes................................... 510,000 540,500 10.15% mortgage note due 2005....................... 41,686 42,380 Other............................................... 1,423 1,529 ---------- ---------- 1,231,009 1,275,119 Less: current portion............................. (210,090) (32,723) ---------- ---------- Total long-term debt............................ $1,020,919 $1,242,396 ========== ==========
In 2000, Mattel completed an offering in Europe of Euro 200 million aggregate principal amount of notes due July 2002. Interest is payable annually at the rate of Euro 6.625%. Mattel entered into a cross currency interest rate swap to convert the interest and principal amounts from Euros to US dollars. Medium-term notes have maturity dates from 2002 through 2013 and bear interest at fixed rates from 6.50% to 8.55%. Mattel repaid its $100.0 million of 6-3/4% senior notes upon maturity in May 2000. Additionally, Mattel repaid $201.0 million of outstanding 5-1/2% senior convertible notes ("5-1/2% Notes") upon maturity in November 2000. Scheduled Maturities The aggregate amounts of long-term debt maturing in the next five years are as follows (in thousands):
Senior MT Mortgage Notes Notes Note Other Total -------- -------- -------- ------ ---------- 2002............................... $177,900 $ 30,000 $ 767 $1,423 $ 210,090 2003............................... 350,000 30,000 849 -- 380,849 2004............................... -- 50,000 939 -- 50,939 2005............................... 150,000 -- 39,131 -- 189,131 2006............................... -- 50,000 -- -- 50,000 Thereafter......................... -- 350,000 -- -- 350,000 -------- -------- ------- ------ ---------- Total............................ $677,900 $510,000 $41,686 $1,423 $1,231,009 ======== ======== ======= ====== ==========
Note 5--Stockholders' Equity Preference Stock and Preference Share Purchase Rights Mattel is authorized to issue up to 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 expired on February 17, 2002. 54 Preferred Stock Mattel is authorized to issue 3.0 million shares of $1.00 par value preferred stock, of which none is currently outstanding. Special Voting Preferred Stock and Related Exchangeable Shares 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 1.2 times the number of outstanding exchangeable shares of Softkey Software Products Inc. that 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 Canadian subsidiary, Softkey Software Products Inc., extends or accelerates the redemption date. As of December 31, 2001 and 2000, there were 935.1 thousand and 1.6 million outstanding exchangeable shares, respectively, that were not owned by Mattel, its subsidiaries or any entity controlled by Mattel. As a 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's common stock, plus cash equal to any unpaid dividends. The board of directors of 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 with respect to each exchangeable share multiplied by 1.2. 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. During 2001, 2000 and 1999, 622.5 thousand, 1.6 million and 1.9 million exchangeable shares, respectively, were converted by the holders into common stock at the rate of 1.2 common shares per exchangeable share. Series C Mandatorily Convertible Redeemable Preferred Stock ("Series C Preferred Stock") In 1999, all 771.9 thousand shares of Series C Preferred Stock outstanding (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. Stock Warrants In 2000, Mattel issued Warner Bros. Consumer Products a stock warrant to purchase 3.0 million shares of Mattel's common stock at an exercise price of $10.875 per share. This warrant expires on December 31, 2003. In 1996, Mattel issued Disney Enterprises, Inc. 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 on October 2, 2002. The fair value of these warrants is being amortized as a component of royalty expense when the related properties are introduced over the period the related revenues are recognized. During 2001, 2000 and 1999, $8.0 million, $10.4 million and $5.6 million, respectively, was recognized in the results of operations related to these warrants. 55 In 1999, holders exercised all remaining outstanding stock subscription warrants assumed in connection with previous mergers resulting in the issuance of 865.6 thousand common shares. 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. No shares were repurchased in 2001 and 2000 under this plan. During 1999, Mattel repurchased 4.0 million shares. Dividends As part of its financial realignment plan, Mattel announced during the third quarter of 2000 a change in its dividend policy consisting of a reduction in the annual cash dividend from $0.36 per share to $0.05 per share. In 2001, a $0.05 per share dividend was declared by the board of directors in November and paid in December. During 2000 and 1999, dividends totaling $0.27 per share and $0.35 per share were declared, respectively. The payment of dividends on common stock is at the discretion of Mattel's board of directors and is subject to statutory and customary limitations. Comprehensive Income (Loss) The changes in the components of other comprehensive income (loss) are as follows (in thousands):
For the Year Ended ------------------------------ 2001 2000 1999 -------- --------- --------- Income from continuing operations.............. $310,920 $ 170,177 $ 108,387 Loss from discontinued operations.............. -- (601,146) (190,760) Cumulative effect of change in accounting principles.................................... (12,001) -- -- -------- --------- --------- Net income (loss).............................. 298,919 (430,969) (82,373) Currency translation adjustments............... (14,596) (50,485) (33,790) Minimum pension liability adjustments.......... (2,518) (1,782) -- Net unrealized gain on derivative instruments: Unrealized gains............................. 13,997 -- -- Reclassification adjustment for realized gains included in net income................ (10,459) -- -- -------- --------- --------- 3,538 -- -- -------- --------- --------- Net unrealized gains (losses) on securities: Unrealized holding gains (losses)............ (186) (25,118) 3,184 Reclassification adjustment for realized (gains) losses included in net income (loss)...................................... 12,001 10,995 (11,143) -------- --------- --------- 11,815 (14,123) (7,959) -------- --------- --------- Comprehensive income (loss).................... $297,158 $(497,359) $(124,122) ======== ========= =========
The components of accumulated other comprehensive loss are as follows (in thousands):
As of Year End -------------------- 2001 2000 --------- --------- Currency translation adjustments......................... $(307,036) $(292,440) Unrealized holding loss.................................. -- (11,815) Minimum pension liability adjustment..................... (4,300) (1,782) Net unrealized gain on derivative instruments............ 3,538 -- --------- --------- $(307,798) $(306,037) ========= =========
56 Note 6--Stock Compensation Plans Mattel Stock Option Plans Under various plans, Mattel has the ability to grant incentive stock options, nonqualified stock options, stock appreciation rights, nonvested stock awards, and shares of common stock to officers, key employees, and other persons providing services to Mattel. In addition, nonqualified stock options are 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. Options granted at market price usually expire within ten years from the date of grant and vest on a schedule determined by the Compensation/Options Committee of the board of directors, generally over four years. Options granted at above market price expire five or ten years from the date of grant and vest based on whether the exercise price is achieved by a specified date. Mattel's current stock option plans, the 1997, 1996 and 1999 plans, expire on December 31, 2002, 2005 and 2009, respectively. All outstanding awards under plans that previously expired continue to be exercisable under the terms of their respective grant agreements. The aggregate number of shares of common stock available for grant under the 1997, 1996 and 1999 plans cannot exceed 24.0 million, 50.0 million and 12.8 million shares, 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):
2001 2000 1999 -------------- --------------- -------------- Number Price Number Price Number Price ------ ------ ------- ------ ------ ------ Outstanding at January 1........ 54,313 $25.70 49,152 $30.51 34,736 $36.16 Options granted............... 5,651 15.05 17,900 11.01 21,628 21.91 Options exercised............. (2,650) 12.33 (1,064) 10.79 (201) 20.93 Options canceled.............. (4,841) 30.23 (11,675) 24.40 (7,011) 37.76 ------ ------- ------ Outstanding at December 31...... 52,473 $24.82 54,313 $25.70 49,152 $30.51 ====== ======= ====== Exercisable at December 31...... 38,958 $27.38 35,017 $29.41 10,813 $23.89 ====== ======= ====== Available for grant at December 31............................. 21,775 16,277 16,292 ====== ======= ======
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, 2001 (options in thousands):
Options Options Outstanding Exercisable -------------------------------------- ------------------- Exercise Price Ranges Number Remaining Life Price Number Price - --------------------- ------ -------------- ------ ------ ------ $ 7.52--$ 7.52 7 0.12 $ 7.52 7 $ 7.52 8.41-- 10.38 6,630 7.93 10.37 2,908 10.36 10.50-- 11.88 6,286 8.19 11.46 4,220 11.56 12.00-- 14.86 9,260 8.18 14.29 4,553 13.88 15.00-- 22.50 5,903 5.54 19.40 4,102 18.77 24.00-- 25.75 6,783 4.84 25.31 6,775 25.31 26.13-- 42.00 4,036 5.16 37.62 2,825 37.01 42.31-- 42.31 6,833 1.03 42.31 6,833 42.31 44.87-- 44.87 6,735 1.04 44.87 6,735 44.87 ------ ------ $ 7.52--$44.87 52,473 5.34 $24.82 38,958 $27.88 ====== ======
57 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 option outstanding 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 acquisitions, all Learning Company stock options vested and became fully exercisable as a result of the 1999 merger. 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):
2001 2000 1999 -------------- -------------- -------------- Number Price Number Price Number Price ------ ------ ------ ------ ------ ------ Outstanding at January 1......... 2,674 $17.07 10,680 $16.19 17,626 $14.30 Options granted................ -- -- -- -- 1,415 21.12 Options exercised.............. (1,565) 13.33 (1,372) 9.99 (5,278) 10.99 Options canceled............... (984) 24.23 (6,634) 17.13 (3,083) 15.94 ------ ------ ------ Outstanding at December 31....... 125 $ 7.56 2,674 $17.07 10,680 $16.19 ====== ====== ====== Exercisable at December 31....... 125 $ 7.56 2,674 $17.07 9,473 $15.41 ====== ====== ====== Available for grant at December 31.............................. -- -- -- ====== ====== ======
The exercise price for Learning Company stock options outstanding as of December 31, 2001 ranges from $4.54 per share to $16.15 per share, with a weighted average of $7.56 per share. Compensation Cost Mattel 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. 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):
For the Year Ended ------------------------ 2001 2000 1999 ------ ------- ------- Net income (loss) As reported........................................ $298.9 $(431.0) $ (82.4) Stock option plans................................. (14.9) (34.6) (50.2) ------ ------- ------- Pro forma income (loss).......................... $284.0 $(465.6) $(132.6) ====== ======= ======= Income (loss) per share Basic As reported........................................ $ 0.69 $ (1.01) $ (0.21) Stock option plans................................. (0.03) (0.08) (0.12) ------ ------- ------- Pro forma basic income (loss).................... $ 0.66 $ (1.09) $ (0.33) ====== ======= ======= Diluted As reported........................................ $ 0.68 $ (1.01) $ (0.20) Stock option plans................................. (0.03) (0.08) (0.12) ------ ------- ------- Pro forma diluted income (loss).................. $ 0.65 $ (1.09) $ (0.32) ====== ======= =======
58 The pro forma amounts shown above are not indicative of the pro forma effect in future years since the estimated fair value of options is amortized to expense over the vesting period, and the number of options granted varies from year to year. 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:
2001 2000 1999 ----- ----- ----- Options granted at market price Expected life (in years)................................. 5.50 5.67 3.90 Risk-free interest rate.................................. 4.42% 5.03% 6.34% Volatility factor........................................ 16.76% 19.55% 18.46% Dividend yield........................................... 0.86% 0.83% 0.84% Options granted at above market price Expected life (in years)................................. -- 10.00 5.00 Risk-free interest rate.................................. -- 6.01% 5.16% Volatility factor........................................ -- 45.63% 39.90% Dividend yield........................................... -- 3.40% 0.89%
The weighted average fair value of Mattel options granted at market price during 2001, 2000 and 1999 were $3.52, $2.96 and $4.85, respectively. The weighted average fair value of Mattel options granted at above market price during 2000 and 1999 were $3.18 and $5.43, respectively. The fair value of Learning Company options granted prior to the 1999 merger was determined using the Black-Scholes pricing model, assuming an expected life of four years (using historical exercise patterns), a dividend yield of zero, a risk-free interest rate of 6.35%, and a volatility factor of 51.0%. The weighted average fair value of Learning Company options granted prior to the 1999 merger was $9.83. Nonvested Stock Mattel awarded 685.5 thousand deferrable nonvested stock units to its chief executive officer pursuant to the terms of his employment contract. These units vest at a rate of 25% annually in 2000, 2001 and 2002, with the remaining units vesting in 2008. The aggregate fair market value of the nonvested stock units is being amortized to compensation expense over the vesting period. The amount charged to operating expense related to the vesting of these units was $1.6 million and $4.5 million in 2001 and 2000, respectively. 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. 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 $11.8 million was charged to results of continuing operations in 1999. 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 1999, approximately 37 thousand shares were purchased by employees under this plan. As a result of the May 1999 merger, the 1997 Employee Stock Purchase Plan was terminated. 59 Note 7--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, 2001 (in thousands):
Capitalized Operating Leases Leases ----------- --------- 2002..................................................... $ 300 $ 38,800 2003..................................................... 300 29,800 2004..................................................... 300 26,800 2005..................................................... 300 20,700 2006..................................................... 300 16,200 Thereafter............................................... 8,600 35,800 ------- -------- $10,100(a) $168,100 ======= ========
(a) Includes $7.9 million of imputed interest. Rental expense under operating leases amounted to $60.9 million, $60.8 million and $59.9 million for 2001, 2000 and 1999, respectively, net of sublease income of $0.9 million, $0.7 million and $0.6 million in 2001, 2000 and 1999, 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 agreement with Disney Enterprises, Inc., which expires in December 2004. This licensing agreement, which contains annual minimum royalty guarantees, permits Mattel to produce toys based on classic Disney characters such as Mickey Mouse(R), Winnie the Pooh(R) and the Disney Princesses, as well as any new infant and preschool toys based on film and television properties created by Disney. Licensing and related agreements provide for terms extending from 2002 through 2010 and contain provisions for future minimum payments as shown in the following table (in thousands):
Minimum Payments -------- 2002................................................................... $106,000 2003................................................................... 84,000 2004................................................................... 81,000 2005................................................................... 28,000 2006................................................................... 23,000 Thereafter............................................................. 57,000 -------- $379,000 ========
60 Royalty expense for 2001, 2000 and 1999 was $220.3 million, $258.8 million and $219.9 million, respectively. As of December 31, 2001, Mattel had outstanding commitments for 2002 purchases of inventory of approximately $121 million. Insurance Mattel has a wholly-owned insurance subsidiary, Far West Insurance Company, Ltd. ("Far West"). The purpose of this subsidiary is to insure Mattel's workers' compensation, general and product liability, and automobile liability risks. Far West insures the first $0.5 million of the workers' compensation, general liability and automobile liability risks and the first $1.0 million of Mattel's product liability risks. Risks in excess of these amounts are reinsured by various insurance companies that have an "A" or better AM Best rating. Mattel's liabilities for unpaid and incurred but not reported claims at December 31, 2001 and 2000 were $22.7 million and $20.5 million, respectively, and were included in the consolidated balance sheets. Loss reserves are accrued based upon Mattel's estimates of the aggregate liability for claims incurred using a study prepared by an outside independent actuary. Litigation Litigation Related to Learning Company Following Mattel's announcement in October 1999 of the expected results of its Learning Company division for the third quarter of 1999, several of Mattel's stockholders filed purported class action complaints naming Mattel and certain of its present and former officers and directors as defendants. The complaints generally allege, among other things, that the defendants made false or misleading statements, in the joint proxy statement for the merger of Mattel and Learning Company and elsewhere, that artificially inflated the price of Mattel's common stock. In March 2000, these shareholder complaints were consolidated into two lead cases: Thurber v. Mattel, Inc. et al. (containing claims under (S)10(b) of the 1934 Securities Exchange Act ("Act")) and Dusek v. Mattel, Inc. et al (containing claims under (S)14(a) of the Act). In January 2001, the Court granted defendants' motions to dismiss both Thurber and Dusek, and gave plaintiffs leave to amend. In December 2001, the Court denied defendants' motions to dismiss the amended complaints in both Thurber and Dusek. In each case, the plaintiffs have asked for compensatory damages. Both Thurber and Dusek are currently pending in the United States District Court for the Central District of California. Other purported class action litigation has been brought against Mattel as successor to Learning Company and the former directors of Learning Company on behalf of former stockholders of Broderbund Software, Inc. who acquired shares of Learning Company in exchange for their Broderbund common stock in connection with the Learning Company-Broderbund merger on August 31, 1998. The consolidated complaint in In re Broderbund generally alleges that Learning Company misstated its financial results prior to the time it was acquired by Mattel. The defendants' motion to dismiss the complaint in In re Broderbund was granted in May 2001, and the case was dismissed. The In re Broderbund plaintiffs appealed the dismissal, and the case is currently pending before the Ninth Circuit Court of Appeals. The plaintiffs have asked for compensatory damages. Several stockholders have filed derivative complaints on behalf and for the benefit of Mattel, alleging, among other things, 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 its approval of severance packages to certain former executives. These derivative actions have been filed in the Court of Chancery in Delaware, in Los Angeles Superior Court in California, and in the United States District Court for the Central 61 District of California, and are all in a preliminary stage. The plaintiffs have asked for unspecified monetary damages. Plaintiffs filed an amended consolidated complaint in February 2002 in the California state court actions and defendants have filed a demurrer seeking dismissal of that action. Mattel believes that the actions 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 to implement a groundwater remediation system at one of its former manufacturing plants. The execution of the consent order was in response to the New York State Department of Environmental Conservation Record of Decision issued in March 2000. The Department approved a conceptual work plan in March 2001, with work scheduled to begin in 2001. However, in response to concerns expressed by a number of nearby residents, the Department has requested that Mattel postpone implementation of the groundwater remediation plan until 2002 after the installation of a public water line to those residents is completed. The ultimate liability associated with this cleanup presently is estimated to be approximately $1.76 million, approximately $1.26 million of which has been incurred through December 31, 2001. Beaverton, Oregon Mattel previously operated a manufacturing facility on a leased property in Beaverton, Oregon that was acquired as part of the March 1997 merger with Tyco. 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. Mattel has recorded pre-tax charges totaling $19.0 million for environmental remediation costs related to this property, based on the completion and approval of the remediation plan and feasibility study. Approximately $3 million has been incurred through December 31, 2001, largely related to attorney fees, consulting work and an employee medical screening program. 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 resolving such matters is not likely to have a material adverse effect on Mattel's business, financial condition or results of operations. Note 8--Financial Instruments Marketable Securities Marketable securities totaling $16.3 million were stated at fair value based on quoted market prices and were classified as securities available-for-sale as of December 31, 2000. These securities, which had a cost basis of $28.3 million as of December 31, 2000, were received by Mattel as part of the sale of CyberPatrol. Upon the adoption of SFAS No. 133 on January 1, 2001, Mattel recorded a one-time transition adjustment of $12.0 million, net of tax, (or $0.03 per share) as the cumulative effect of change in accounting principles related to unrealized losses on these securities that had been previously deferred in accumulated other comprehensive income (loss). 62 Mattel entered into a derivative transaction designed to limit the impact of market fluctuations in the fair value of the stock on Mattel's results of operations. During the first quarter of 2001, Mattel recorded a pre-tax loss of $5.5 million in other expense, net related to the decrease in fair value of the derivative. In the second quarter of 2001, these securities were tendered for debt repayment under the derivative agreement at fair market value, at no gain or loss to Mattel. Foreign Exchange Risk Management Mattel's results of operations and cash flows may be impacted by exchange rate fluctuations. 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's results of operations can also be affected by the translation of foreign revenues and earnings into US dollars. Mattel does not trade in financial instruments for speculative purposes. Mattel uses foreign currency forward exchange and option contracts as cash flow hedges, which generally have maturity dates of up to 18 months, to hedge its forecasted purchases and sales of inventory denominated in foreign currencies. Changes in fair value of Mattel's cash flow derivatives are deferred and recorded as part of accumulated other comprehensive income (loss) in stockholders' equity until the underlying transaction is settled. Upon settlement, any gain or loss resulting from the derivative is recorded in Mattel's results of operations. 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. Mattel entered into a cross currency interest rate swap to convert the interest and principal amounts from Euros to US dollars on its 200 million Euro Notes due 2002. The debt and related interest payable are marked-to- market as of each balance sheet date with the change in fair value of the derivative recorded in accumulated other comprehensive income (loss) within stockholders' equity until the loan and related interest are paid. The weighted average interest rate after the swap is 9.0% in US dollars. Mattel uses fair value hedges to hedge intercompany loans and management fees denominated in foreign currencies. Due to the short-term nature of the contracts involved, Mattel does not use hedge accounting for these contracts. Changes in fair value of these derivatives are recorded in Mattel's results of operations currently. As a result of adopting SFAS No. 133, Mattel recorded a one-time transition adjustment of $2.1 million in comprehensive income (loss) related to unrealized gains on derivative instruments. During 2001, the ineffectiveness related to cash flow hedges was not significant. The net gain reclassified from accumulated other comprehensive income (loss) to Mattel's results of operations was $10.5 million. As of December 31, 2001, $3.5 million of net unrealized gains related to derivative instruments have been recorded in accumulated other comprehensive income (loss). Mattel expects to reclassify these unrealized gains from accumulated other comprehensive income (loss) to its results of operations over the life of the contracts, generally 18 months or less. As of year end, Mattel held the following foreign exchange risk management contracts (in thousands):
2001 2000 ----------------- ----------------- Notional Exposure Notional Exposure Amount Hedged Amount Hedged -------- -------- -------- -------- Foreign exchange forwards.................. $715,175 $715,175 $569,173 $569,173 Cross-currency swaps....................... 190,710 190,710 190,710 190,710 -------- -------- -------- -------- $905,885 $905,885 $759,883 $759,883 ======== ======== ======== ========
63 Fair Value of Financial Instruments Mattel's financial instruments included cash, cash equivalents, marketable securities, investments, accounts receivable and payable, short-term borrowings, long-term debt, and foreign currency contracts as of December 31, 2001 and 2000. The fair values of cash, cash equivalents, accounts receivable and payable, and short-term borrowings approximated carrying values because of the short- term nature of these instruments. The estimated fair values of other financial instruments subject to fair value disclosure, determined based on broker quotes or rates for the same or similar instruments, and the related carrying amounts are as follows as of year end (in millions):
2001 2000 ----------------- ----------------- Book Fair Book Fair Value Value Value Value -------- -------- -------- -------- Long-term debt............................. $1,231.0 $1,206.5 $1,275.1 $1,170.9 Risk management contracts: Foreign exchange forwards................ 715.2 708.8 569.2 566.6 -------- -------- -------- -------- $1,946.2 $1,915.3 $1,844.3 $1,737.5 ======== ======== ======== ========
Credit Concentrations 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 three largest customers accounted for the following percentage of consolidated net sales and net accounts receivable:
2001 2000 1999 ---- ---- ---- Worldwide sales for the year ended............................... 50% 50% 43% Accounts receivable as of December 31............................ 28% 51% 43%
Note 9--Restructuring and Other Charges 2000 Financial Realignment Plan During the third quarter of 2000, Mattel initiated a financial realignment plan designed to improve gross margin; selling and administrative expenses; operating profit; and cash flow. The plan will require a total pre-tax charge estimated at $250 million, or $170 million on an after-tax basis, of which approximately $100 million represents cash expenditures and $70 million represents non-cash writedowns. Through December 31, 2001, Mattel has recorded pre-tax charges totaling $175.4 million, or approximately $119 million on an after-tax basis, related to this plan. Of the total charge, $125.2 million (approximately $84 million after-taxes) was recorded in 2000 and $50.2 million (approximately $35 million after-taxes) was recorded in 2001. In accordance with generally accepted accounting principles, future pre-tax implementation costs of approximately $75 million have not been accrued as of December 31, 2001. Management expects these costs will be recorded over approximately the next two years. The following are the major initiatives included in the financial realignment plan: . Reduce excess manufacturing capacity; . Terminate a variety of licensing and other contractual arrangements that do not deliver an adequate level of profitability; . Eiminate product lines that do not meet required levels of profitability; 64 . Improve supply chain performance and economics; . Eliminate positions at US-based headquarters locations in El Segundo, Fisher-Price and Pleasant Company through a combination of layoffs, elimination of open requisitions, attrition and retirements; and . Close and consolidate certain international offices. In April 2001, as part of the financial realignment plan, Mattel announced the closure of its Murray, Kentucky manufacturing facility (the "North American Strategy"). Production from this facility will be consolidated into other Mattel-owned and operated facilities in North America with the final shutdown of Murray operations occurring in 2002. This action is one of the realignment measures taken to lower costs. Mattel believes this action was necessary in order to maintain a competitive cost structure in today's global marketplace. In 2000, Mattel recorded a $22.9 million pre-tax restructuring charge as part of the initial phase of the financial realignment plan. This charge, combined with a $7.0 million adjustment to the 1999 restructuring plan, resulted in $15.9 million of net pre-tax restructuring and other charges in 2000. The $22.9 million charge related to the elimination of positions at headquarters locations in El Segundo, Fisher-Price and Pleasant Company, closure of certain international offices, and consolidation of facilities. During 2001, Mattel recorded a $15.7 million pre-tax restructuring charge as part of the financial realignment plan, largely related to the North American Strategy. Total worldwide headcount reduction as a result of the restructuring is planned to be approximately 1,700 employees, of which approximately 1,100 are related to the North American Strategy. From inception through December 31, 2001, a total of approximately $19 million has been incurred related to the termination of nearly 980 employees, of which approximately 640 were terminated during 2001. The components of the restructuring charges are as follows (in millions):
Balance Balance 2000 Amounts Dec. 31, 2001 Amounts Dec. 31, Charges Incurred 2000 Charges Incurred 2001 ------- -------- -------- ------- -------- -------- Severance and other compensation............. $19 $(3) $16 $ 9 $(16) $ 9 Asset writedowns.......... 2 (2) -- Lease termination costs... 1 -- 1 2 (1) 2 Other..................... 1 -- 1 5 (5) 1 --- --- --- --- ---- --- Total restructuring charge................. $23 $(5) $18 $16 $(22) $12 === === === === ==== ===
1999 Restructuring and Other Charges During 1999, Mattel initiated a restructuring plan for its continuing operations and incurred certain other nonrecurring charges totaling $281.1 million, approximately $218 million after-tax. The 1999 restructuring plan was aimed at leveraging global resources in the areas of manufacturing, marketing and distribution, eliminating duplicative functions worldwide and achieving improved operating efficiencies. As of December 31, 2000, the restructuring activities provided for by this charge were complete and substantially all amounts previously accrued had been paid as of December 31, 2001. Other charges incurred in 1999 principally related to the 1998 recall of Mattel's Power Wheels(R) vehicles and environmental remediation costs related to a former manufacturing facility on a leased property in Beaverton, Oregon. The liability remaining related to these charges was approximately $22 million and $24 million at December 31, 2001 and 2000, respectively. Note 10--Segment Information The tables below present information about segment revenues, operating profit and assets. Mattel's reportable segments are separately managed business units and are divided on a geographic basis between 65 domestic and international. The domestic segment is further divided into US Girls, US Boys-Entertainment, and US Infant & Preschool. The US Girls segment includes brands such as Barbie(R), Polly Pocket!(R), Diva Starz(TM), What's Her Face!(TM) and American Girl(R). The US Boys-Entertainment segment includes Hot Wheels(R), Matchbox(R), Hot Wheels(R) Electric Racing and Tyco(R) Radio Control (collectively "Wheels"), and Disney, Nickelodeon(R), Harry Potter(TM), Max Steel(TM) and games and puzzles (collectively "Entertainment") products. The US Infant & Preschool segment includes Fisher-Price(R), Disney preschool and plush, Power Wheels(R), Sesame Street(R) and other preschool products. The International segment sells products in all toy categories. Segment revenues do not include sales adjustments such as trade discounts and other allowances. However, such adjustments are included in the determination of segment income from operations. Segment income from operations represents income from continuing operations before interest expense and income taxes, while consolidated income from operations represents income from continuing operations before income taxes as reported in the consolidated statements of operations. The segment assets are comprised of accounts receivable and inventories, net of applicable reserves and allowances. Certain information presented in the tables below has been restated to conform to the current management structure as of January 2001. Specifically, the results and assets of Pleasant Company, which had been reported as part of Other, are now being reported as part of US Girls, which is consistent with management responsibility for this business. Additionally, Mattel's toy manufacturing unit is now being managed as a cost center instead of as a profit center; therefore, toy manufacturing is no longer being reported as a separate segment. Lastly, certain overhead costs incurred at the headquarters' level in El Segundo, including facilities, information technology, and other administration support costs, are now being allocated to the US Girls and US Boys-Entertainment segments, to more accurately reflect the costs associated with operating these businesses. These types of overhead costs were already being reported as part of the US Infant & Preschool and International segments since these businesses maintain their own headquarters locations.
For the Year ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Revenues Domestic: US Girls................................ $1,402,549 $1,457,444 $1,325,273 US Boys-Entertainment................... 768,005 753,149 786,578 US Infant & Preschool................... 1,234,169 1,232,992 1,185,484 Other................................... 8,878 6,484 28,187 ---------- ---------- ---------- Total Domestic............................ 3,413,601 3,450,069 3,325,522 International............................. 1,690,513 1,531,590 1,571,149 ---------- ---------- ---------- 5,104,114 4,981,659 4,896,671 Sales adjustments......................... (300,052) (311,717) (301,181) ---------- ---------- ---------- Net sales from continuing operations...... $4,804,062 $4,669,942 $4,595,490 ========== ========== ========== Operating Profit Domestic: US Girls................................ $ 355,319 $ 361,670 $ 331,187 US Boys-Entertainment................... 78,644 56,627 76,773 US Infant & Preschool................... 141,714 139,219 130,409 ---------- ---------- ---------- Total Domestic............................ 575,677 557,516 538,369 International............................. 184,351 146,776 182,043 ---------- ---------- ---------- 760,028 704,292 720,412 Interest expense.......................... (155,132) (152,979) (131,609) Corporate and other (a)................... (174,886) (325,889) (418,639) ---------- ---------- ---------- Income from continuing operations before income taxes............................. $ 430,010 $ 225,424 $ 170,164 ========== ========== ==========
66
For the Year -------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Depreciation/Amortization Domestic: US Girls.................................... $ 56,003 $ 75,030 $ 65,548 US Boys-Entertainment....................... 37,046 30,189 31,158 US Infant & Preschool....................... 45,206 45,978 44,855 ---------- ---------- ---------- Total Domestic................................ 138,255 151,197 141,561 International................................. 60,721 57,278 52,366 ---------- ---------- ---------- 198,976 208,475 193,927 Corporate and other........................... 63,532 47,914 52,083 ---------- ---------- ---------- Depreciation and amortization from continuing operations................................... $ 262,508 $ 256,389 $ 246,010 ========== ========== ========== As of Year End -------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Assets Domestic: US Girls (b)................................ $ 236,104 US Boys-Entertainment (b)................... 141,992 ---------- ---------- ---------- 378,096 $ 429,829 $ 536,235 US Infant & Preschool....................... 250,603 254,748 280,237 ---------- ---------- ---------- Total Domestic................................ 628,699 684,577 816,472 International................................. 488,352 555,988 556,103 ---------- ---------- ---------- 1,117,051 1,240,565 1,372,575 Corporate and other........................... 67,026 88,744 65,713 ---------- ---------- ---------- Accounts receivable and inventories from continuing operations........................ $1,184,077 $1,329,309 $1,438,288 ========== ========== ==========
(a) For the year ended December 31, 2001, corporate and other includes $50.2 million of charges related to the financial realignment plan (see Note 9) and a $5.5 million loss on derivative instruments. For the year ended December 31, 2000, corporate and other includes $125.2 million of charges related to the financial realignment plan, a $53.1 million charge related to the departure of certain senior executives, and an $8.4 million charge related to the losses realized on the disposition of a portion of the stock received as part of the sale of CyberPatrol, partially offset by a $7.0 million reversal of prior year restructuring charges. For the year ended December 31, 1999 corporate and other includes $281.1 million related to the 1999 restructuring plan and other charges (see Note 9). (b) Asset information was not maintained by individual segment in 1999 and 2000. Mattel sells a broad variety of toy products, which are grouped into three major categories: Girls, Boys-Entertainment and Infant & Preschool. The table below presents worldwide revenues by category:
For the Year ---------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Girls....................................... $2,193,174 $2,130,174 $2,024,258 Boys-Entertainment.......................... 1,269,142 1,195,811 1,200,130 Infant & Preschool.......................... 1,621,292 1,636,278 1,633,855 Other....................................... 20,506 19,396 38,428 ---------- ---------- ---------- 5,104,114 4,981,659 4,896,671 Sales adjustments........................... (300,052) (311,717) (301,181) ---------- ---------- ---------- Net sales from continuing operations........ $4,804,062 $4,669,942 $4,595,490 ========== ========== ==========
67 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.
For the Year -------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Net Sales United States.................................. $3,298,845 $3,312,162 $3,194,780 International.................................. 1,505,217 1,357,780 1,400,710 ---------- ---------- ---------- Consolidated total............................. $4,804,062 $4,669,942 $4,595,490 ========== ========== ========== As of Year End -------------------------------- 2001 2000 1999 ---------- ---------- ---------- (In thousands) Long-Lived Assets United States.................................. $1,134,991 $1,198,080 $1,242,786 International.................................. 588,247 593,563 673,635 ---------- ---------- ---------- 1,723,238 1,791,643 1,916,421 Corporate and other............................ 260,038 243,507 257,786 ---------- ---------- ---------- Consolidated total............................. $1,983,276 $2,035,150 $2,174,207 ========== ========== ==========
Note 11--Quarterly Financial Information (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- ---------- ---------- (In thousands, except per share amounts) Year Ended December 31, 2001 Net sales............................ $731,948 $854,266 $1,612,767 $1,605,081 Gross profit......................... 327,224 378,909 773,279 787,472 Advertising and promotion expenses... 96,898 103,366 212,885 248,355 Other selling and administrative expenses............................ 205,319 214,303 230,264 286,192 Restructuring and other charges...... -- 13,000 -- 2,700 Other expense, net................... 6,483 2,737 2,258 5,838 Income (loss) from continuing operations before income taxes...... (29,230) (6,792) 275,591 190,441 Income (loss) from continuing operations.......................... (22,038) (4,855) 199,835 137,978 Cumulative effect of change in accounting principles............... (12,001) -- -- -- Net income (loss) applicable to common shares....................... (34,039) (4,855) 199,835 137,978 Basic income (loss) per common share: Income (loss) from continuing operations........................ $ (0.05) $ (0.01) $ 0.46 $ 0.32 Cumulative effect of change in accounting principles............. (0.03) -- -- -- Net income (loss).................. $ (0.08) $ (0.01) $ 0.46 $ 0.32 Weighted average number of common shares............................ 429,936 430,909 431,250 431,813 Diluted income (loss) per common share: Income (loss) from continuing operations........................ $ (0.05) $ (0.01) $ 0.46 $ 0.31 Cumulative effect of change in accounting principles............. (0.03) -- -- -- Net income (loss).................. $ (0.08) $ (0.01) $ 0.46 $ 0.31 Weighted average number of common and common equivalent shares ..... 429,936 430,909 436,316 437,505 Dividends declared per common share.. $ -- $ -- $ -- $ 0.05 Common stock market price: High............................... $ 18.80 $ 18.92 $ 18.97 $ 19.75 Low................................ 13.70 15.44 15.19 15.24
68
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- ---------- ---------- (In thousands, except per share amounts) Year Ended December 31, 2000 Net sales.......................... $693,261 $817,797 $1,583,763 $1,575,121 Gross profit....................... 314,357 363,879 666,618 755,931 Advertising and promotion expenses.......................... 91,287 98,586 225,209 270,795 Other selling and administrative expenses.......................... 254,199 218,711 224,695 269,393 Restructuring and other charges.... -- (2,000) 17,900 -- Other (income) expense, net........ (6,373) (9,026) 7,656 9,350 Income (loss) from continuing operations before income taxes ... (61,644) 8,290 135,258 143,520 Income (loss) from continuing operations........................ (44,630) 6,005 103,694 105,108 Loss from discontinued operations (a)............................... (126,606) -- (440,560) (33,980) Net income (loss) applicable to common shares..................... (171,236) 6,005 (336,866) 71,128 Basic income (loss) per common share: Income (loss) from continuing operations...................... $ (0.10) $ 0.01 $ 0.24 $ 0.25 Loss from discontinued operations (a)............................. (0.30) -- (1.03) (0.08) Net income (loss)................ $ (0.40) $ 0.01 $ (0.79) $ 0.17 Weighted average number of common shares.......................... 425,495 425,818 426,394 426,949 Diluted income (loss) per common share: Income (loss) from continuing operations...................... $ (0.10) $ 0.01 $ 0.24 $ 0.25 Loss from discontinued operations (a)............................. (0.30) -- (1.03) (0.08) Net income (loss)................ $ (0.40) $ 0.01 $ (0.79) $ 0.17 Weighted average number of common and common equivalent shares ... 425,495 427,782 426,945 428,457 Dividends declared per common share............................. $ 0.09 $ 0.09 $ 0.09 $ -- Common stock market price: High............................. $ 13.75 $ 15.00 $ 13.81 $ 14.44 Low.............................. 9.06 10.50 9.89 10.81
(a) As more fully described in Note 13 to the Consolidated Financial Statements, the Consumer Software segment, which was comprised primarily of Learning Company, was reported as a discontinued operation effective March 31, 2000, and the consolidated financial statements were reclassified to segregate the net investment in, and the liabilities and operating results of the Consumer Software segment. 69 Note 12--Supplemental Financial Information
As of Year End --------------------- 2001 2000 ---------- ---------- (In thousands) Inventories include the following: Raw materials and work in process..................... $ 34,922 $ 34,357 Finished goods........................................ 452,583 455,385 ---------- ---------- $ 487,505 $ 489,742 ========== ========== Prepaid expenses and other current assets include the following: Prepaid income taxes.................................. $ 97,482 $ 53,608 Receivable collections deposits with banks............ 64,269 -- Other................................................. 130,164 136,191 ---------- ---------- $ 291,915 $ 189,799 ========== ========== Intangibles, net include the following: Goodwill.............................................. $1,089,362 $1,111,106 Other................................................. 20,548 25,751 ---------- ---------- $1,109,910 $1,136,857 ========== ========== Other assets include the following: Deferred income taxes................................. $ 464,689 $ 515,210 Other................................................. 246,644 250,461 ---------- ---------- $ 711,333 $ 765,671 ========== ========== Short-term borrowings include the following: Notes payable......................................... $ 38,108 $ 68,386 Commercial paper...................................... -- 158,017 ---------- ---------- $ 38,108 $ 226,403 ========== ========== Accrued liabilities include the following: Advertising and promotion............................. $ 131,393 $ 142,196 Receivable collections due to banks................... 131,399 -- Royalties............................................. 109,724 137,173 Restructuring and other charges....................... 45,360 64,661 Other................................................. 356,867 359,352 ---------- ---------- $ 774,743 $ 703,382 ========== ==========
70
For the Year -------------------------- 2001 2000 1999 -------- -------- -------- (In thousands) Selling and administrative expenses include the following: Research and development......................... $175,629 $179,525 $171,537 Bad debt expense................................. 57,746 18,280 19,050 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest......................................... $157,926 $168,591 $134,086 Income taxes..................................... 61,438 44,839 81,345 Noncash investing and financing activities: Marketable securities tendered for debt repayment....................................... $ 10,144 $ -- $ -- Liability for Pictionary(R) acquisition.......... 8,419 -- -- Receipt of marketable securities from sale of business........................................ -- 42,167 -- Issuance of stock warrant........................ -- 5,789 -- Common stock issued for acquisitions: Settlement of earn-out agreements.............. -- -- 5,547
Note 13--Discontinued Operations In May 1999, Mattel completed its merger with Learning Company, pursuant to which Learning Company was merged with and into Mattel, with Mattel being the surviving corporation. Learning Company had been a leading publisher of consumer software for home personal computers, including educational, productivity and entertainment software. 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., remained outstanding, but upon consummation of the merger became exchangeable for 1.2 shares of Mattel common stock. This transaction was accounted for as a pooling of interests. On March 31, 2000, Mattel's board of directors resolved to dispose of its Consumer Software segment, which was comprised primarily of Learning Company. As a result of this decision, the Consumer Software segment was reported as a discontinued operation effective March 31, 2000, and the consolidated financial statements were reclassified to segregate the net investment in, and the liabilities and operating results of the Consumer Software segment. On October 18, 2000, Mattel disposed of Learning Company to an affiliate of Gores Technology Group in return for a contractual right to receive future consideration based on income generated from its business operations and/or the net proceeds derived by the new company upon the sale of its assets or other liquidation events, or 20% of its enterprise value at the end of five years. In the fourth quarter of 2001, Mattel received proceeds totaling $10.0 million from Gores Technology Group as a result of liquidation events related to Gores Technology's sale of the entertainment and education divisions. Mattel also incurred additional costs of approximately $10 million in 2001 related to the wind down of the Consumer Software segment. Accordingly, no income was recorded in the consolidated statement of operations for discontinued operations. 71 Summary financial information for the discontinued operations is as follows (in millions):
For the Year ---------------- 2000 1999 ------- ------- Net sales.................................................... $ 337.9 $ 919.5 ======= ======= Loss before income taxes..................................... $(179.6) $(280.9) Benefit for income taxes..................................... (53.0) (90.1) ------- ------- Net loss................................................... (126.6) (190.8) ------- ------- Loss on disposal............................................. (406.8) -- Actual and estimated losses during phase-out period.......... (238.3) -- ------- ------- (645.1) -- Benefit for income taxes..................................... (170.6) -- ------- ------- Net loss on disposal....................................... (474.5) -- ------- ------- Total loss from discontinued operations...................... $(601.1) $(190.8) ======= =======
As of Year End -------------- 2000 -------------- Accounts receivable, net......................................... $33.1 Inventories...................................................... 4.0 Other current assets............................................. 1.8 Other noncurrent assets.......................................... 1.6 Current liabilities.............................................. (29.0) ----- Net investment in discontinued operations........................ $11.5 =====
Actual losses of the Consumer Software segment from the measurement date of March 31, 2000 as well as estimated losses through the date of disposal were recorded as part of the loss from discontinued operations for 2000. Transaction costs of approximately $24 million related to the disposal of the Consumer Software segment, primarily consisting of royalty commitments and severance, have been accrued as of December 31, 2001 and are included in accrued liabilities in the consolidated balance sheets. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 72 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 2002 Notice of Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2001. 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 2002 Notice of Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2001. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required under this Item is incorporated by reference herein from Mattel's 2002 Notice of Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2001. Item 13. Certain Relationships and Related Transactions The information required under this Item is incorporated by reference herein from Mattel's 2002 Notice of Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 2001. 73 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. Financial Statements
Page ----- Report of Independent Accountants...................................... 36 Consolidated Balance Sheets as of December 31, 2001 and 2000........... 37-38 Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 .................................................. 39 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999................................................... 40 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and 1999...................................... 41-42 Notes to Consolidated Financial Statements............................. 43-72
2. Financial Statement Schedule for the years ended December 31, 2001, 2000 and 1999(1) Schedule II--Valuation and Qualifying Accounts and Allowances 3. Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K) 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) 2.1 Sale and Purchase Agreement between Mattel and Alec E. Gores, Trustee of the Revocable Living Trust Agreement of Alec E. Gores, and GTG/Wizard, LLC (incorporated by reference to Exhibit 99.1 to Mattel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000) 2.2 Sale and Purchase Agreement Amendment No. 1 between Mattel and Alec E. Gores, Trustee of the Revocable Living Trust Agreement of Alec E. Gores, and GTG/Wizard, LLC (incorporated by reference to Exhibit 2.2 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 2.3 Amendment No. 2 to the Sale and Purchase Agreement between Mattel and Alec E. Gores, Trustee of the Revocable Living Trust Agreement of Alec E. Gores, and GTG/Wizard, LLC (incorporated by reference to Exhibit 2.3 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 3.0 Restated Certificate of Incorporation of Mattel (File No. 001-05647) (incorporated by reference to Exhibit 3.0 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 3.1* Certificate of Amendment of Restated Certificate of Incorporation of Mattel 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* Amended and Restated By-laws of Mattel 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* Specimen Stock Certificate with respect to Mattel's Common Stock
- -------- (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. 74 4.1* Indenture dated as of February 15, 1996 between Mattel and Chase Manhattan Bank and Trust Company, National Association, formerly Chemical Trust Company of California, as Trustee 4.2 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) 4.3 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) 4.4 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) 4.5 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 on Form 10-Q for the quarter ended March 31, 1999) 4.6 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 quarter ended March 31, 1999) 4.7 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) 4.8 Warrant Purchase Agreement dated July 26, 2000 between Mattel and Warner Bros., a division of Time Warner Entertainment Company, L.P. (incorporated by reference to Exhibit 99.0 of Mattel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000) 4.9 Warrant to Purchase 3,000,000, shares of Common Stock of Mattel, Inc., dated as of July 26, 2000 (incorporated by reference to Exhibit 4.13 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) (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* Amended and Restated Credit Agreement dated as of March 20, 2002 among Mattel, Inc., as Borrower, Bank of America, N.A. as Administrative Agent, and the financial institutions party thereto. 10.1* First Amended and Restated Receivables Purchase Agreement dated as of March 20, 2002 among Mattel Factoring, Inc., as Transferor, Mattel, Inc., as Servicer, Bank of America, N.A., as Administrative Agent, and the financial institutions party thereto 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) 10.3* Term Loan Agreement dated as of July 17, 2000 among Mattel, the Lenders (as defined) and The Industrial Bank of Japan, as agent 10.4* First Amendment to Term Loan Agreement dated August 17, 2000 among Mattel, the Lenders (as defined) and The Industrial Bank of Japan, as agent 10.5 Second Amendment to Term Loan Agreement among Mattel, the Lenders (as defined) and The Industrial Bank of Japan, as agent (incorporated by reference to Exhibit 99.4 to Mattel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000)
75 10.6* Master Agreement for the Transfer of Receivables dated 30th November, 2001 among Societe Generale Bank Nederland N.V., Mattel International Holdings B.V. as Depositor and Mattel France S.A. and Mattel GmbH as the Sellers 10.7* Amendment to Master Agreement for the Transfer of Receivables dated December 20, 2001 among Societe Generale Bank Nederland N.V., Mattel International Holdings B.V., Mattel France S.A. and Mattel GmbH. Executive Compensation Plans and Arrangements of Mattel 10.8 Form of Indemnity Agreement between Mattel and its directors and certain of its executive officers (incorporated by reference to Exhibit 10.9 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.9 Executive Employment Agreement dated October 18, 2000 between Mattel and Robert A. Eckert (incorporated by reference to Exhibit 10.10 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.10 Loan Agreement dated May 18, 2000 between Mattel and Robert A. Eckert (incorporated by reference to Exhibit 99.3 to Mattel's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 10.11 Executive Employment Agreement dated January 31, 2000 between Mattel and Adrienne Fontanella (incorporated by reference to Exhibit 10.6 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.12 Amendment to Employment Agreement dated July 20, 2000 between Mattel and Adrienne Fontanella (incorporated by reference to Exhibit 10.19 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.13 Loan Agreement dated October 29, 1999 between Mattel and Adrienne Fontanella (incorporated by reference to Exhibit 10.7 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.14 Loan Agreement dated April 7, 2000 between Mattel and Adrienne Fontanella (incorporated by reference to Exhibit 99.0 to Mattel's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 10.15 Amendment to Employment Agreement and Stock Option Grant Agreements between Mattel and Adrienne Fontanella dated February 10, 2000 (incorporated by reference to Exhibit 10.8 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.16 Executive Employment Agreement dated January 31, 2000 between Mattel and Matthew C. Bousquette (incorporated by reference to Exhibit 10.9 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.17 Amendment to Employment Agreement dated July 20, 2000 between Mattel and Matthew C. Bousquette (incorporated by reference to Exhibit 10.24 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.18 Loan Agreement dated October 29, 1999 between Mattel and Matthew C. Bousquette (incorporated by reference to Exhibit 10.10 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.19 Loan Agreement dated April 7, 2000 between Mattel and Matthew C. Bousquette (incorporated by reference to Exhibit 99.1 to Mattel's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 10.20 Amendment to Employment Agreement and Stock Option Grant Agreements between Mattel and Matthew C. Bousquette dated February 10, 2000 (incorporated by reference to Exhibit 10.11 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999)
76 10.21 Executive Employment Agreement dated January 31, 2000 between Mattel and Neil B. Friedman (incorporated by reference to Exhibit 10.12 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.22 Amendment to Employment Agreement dated November 14, 2000 between Mattel and Neil B. Friedman (incorporated by reference to Exhibit 10.29 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.23 Loan Agreement dated October 29, 1999 between Mattel and Neil B. Friedman (incorporated by reference to Exhibit 10.13 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.24 Loan Agreement dated April 7, 2000 between Mattel and Neil B. Friedman (incorporated by reference to Exhibit 99.2 to Mattel's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000) 10.25 Amendment to Employment Agreement and Stock Option Grant Agreements between Mattel and Neil B. Friedman dated February 10, 2000 (incorporated by reference to Exhibit 10.14 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.26 Amended and Restated Executive Employment Agreement dated March 28, 2000 between Mattel and Kevin M. Farr (incorporated by reference to Exhibit 10.33 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.27 Amendment to Employment Agreement and Stock Option Grant Agreements dated July 20, 2000 between Mattel and Kevin M. Farr (incorporated by reference to Exhibit 10.34 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.28 Loan Agreement dated as of February 3, 2000 between Mattel and Kevin M. Farr (incorporated by reference to Exhibit 10.35 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.29 Loan Agreement dated as of April 7, 2000 between Mattel and Kevin M. Farr (incorporated by reference to Exhibit 10.36 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.30* Amendment to Employment Agreement dated March 6, 2002 between Mattel and Kevin M. Farr 10.31 Mattel, Inc. Management Incentive Plan (incorporated by reference to Exhibit 10.37 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.32 Amendment No. 1 to Mattel, Inc. Management Incentive Plan (incorporated by reference to Exhibit 10.16 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.33 Amended and Restated Mattel Long-Term Incentive Plan (incorporated by reference to Appendix A to Mattel's Proxy Statement dated April 26, 1999) 10.34 Amendment No. 1 to Amended and Restated Mattel Long-Term Incentive Plan (incorporated by reference to Exhibit 10.19 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.35 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) 10.36 Amendment No. 1 to Mattel, Inc. Deferred Compensation Plan for Non- Employee Directors (incorporated by reference to Exhibit 10.43 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.37* Mattel, Inc. Amended & Restated Supplemental Executive Retirement Plan as of May 1, 1996 10.38 Amendment No. 1 to Mattel, Inc. Amended & Restated Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.22 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999)
77 10.39 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) 10.40 Amendment No. 1 to Mattel, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.24 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.41* The Fisher-Price, Inc. Pension Plan (1994 Restatement) 10.42 Fifth Amendment to The Fisher-Price Pension Plan (incorporated by reference to Exhibit 10.49 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.43* Sixth Amendment to The Fisher-Price Pension Plan 10.44 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) 10.45* Mattel, Inc. Personal Investment Plan, October 1, 2001 Restatement 10.46 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) 10.47 Amendment No. 1 to Mattel, Inc. PIP Excess Plan (incorporated by reference to Exhibit 10.29 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.48 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) 10.49* Mattel, Inc. Amended and Restated 1990 Stock Option Plan 10.50 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) 10.51 Amendment No. 2 to the Mattel, Inc. 1990 Stock Option Plan (incorporated by reference to Exhibit 10.57 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.52 Amendment No. 3 to the Amended and Restated Mattel, Inc. 1990 Stock Option Plan (incorporated by reference to Exhibit 10.34 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.53 Amendment No. 4 to the Amended and Restated Mattel, Inc. 1990 Stock Option Plan (incorporated by reference to Exhibit 99.0 to Mattel's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000) 10.54 Form of First Amendment to Award Agreement (incorporated by reference to Exhibit 10.60 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.55 Notice of Grant of Stock Options and Grant Agreement (incorporated by reference to Exhibit 10.61 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.56 Grant Agreement for a Non-Qualified Stock Option (incorporated by reference to Exhibit 10.62 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.57 Award Cancellation Agreement (incorporated by reference to Exhibit 10.63 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.58* Amended and Restated Mattel, Inc. 1996 Stock Option Plan (the "1996 Plan") 10.59 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)
78 10.60 Amendment No. 2 to Amended and Restated Mattel 1996 Stock Option Plan (incorporated by reference to Exhibit 10.42 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.61 Amendment No. 3 to Amended and Restated Mattel 1996 Stock Option Plan (incorporated by reference to Exhibit 99.1 to Mattel's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000) 10.62 Amendment No. 4 to Amended and Restated Mattel 1996 Stock Option Plan (incorporated by reference to Exhibit 10.68 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.63 Amendment No. 5 to Amended and Restated Mattel 1996 Stock Option Plan (incorporated by reference to Exhibit 99.1 to Mattel's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001) 10.64* Amendment to Amended and Restated Mattel 1996 Stock Option Plan 10.65 Form of Option Agreement for Outside Directors under the 1996 Plan, as amended (incorporated by reference to Exhibit 10.43 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.66 Form of Option Agreement under the 1996 Plan, as amended (incorporated by reference to Exhibit 10.44 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.67 Mattel, Inc. 1997 Premium Price Stock Option Plan (incorporated by reference to Exhibit A to Mattel's Proxy Statement dated March 30, 1998) 10.68 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) 10.69 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) 10.70 Amendment No. 3 to the Mattel, Inc. 1997 Premium Price Stock Option Plan (incorporated by reference to Exhibit 10.48 of Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.71 Amendment No. 4 to the Mattel, Inc. 1997 Premium Price Stock Option Plan (incorporated by reference to Exhibit 10.75 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000) 10.72 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) 10.73 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) 10.74 Mattel 1999 Stock Option Plan (incorporated by reference to Exhibit 10.51 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.75 Amendment No. 1 to Mattel 1999 Stock Option Plan (incorporated by reference to Exhibit 99.2 to Mattel's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000) 10.76 Amendment No. 2 to Mattel 1999 Stock Option Plan (incorporated by reference to Exhibit 10.80 to Mattel's Annual Report on Form 10-K for the year ended December 31, 2000)
79 10.77 Form of Option Agreement under the Mattel 1999 Stock Option Plan (Two Year Vesting) (incorporated by reference to Exhibit 10.52 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 10.78 Form of Option Agreement under the Mattel 1999 Stock Option Plan (Three Year Vesting) (incorporated by reference to Exhibit 10.53 to Mattel's Annual Report on Form 10-K for the year ended December 31, 1999) 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 81 of Form 10-K)
- -------- * Filed herewith (b) Reports on Form 8-K Mattel filed no Current Reports on Form 8-K during the quarterly period ended December 31, 2001. (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 are available to stockholders of Mattel without charge. Copies of other Exhibits can be obtained by stockholders of Mattel 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. 80 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 28, 2002 POWER OF ATTORNEY We, the undersigned directors and officers of Mattel, Inc. do hereby severally constitute and appoint Robert A. Eckert, 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.
Signature Title Date --------- ----- ---- /s/ Robert A. Eckert Chairman of the Board and March 28, 2002 ____________________________________ Chief Executive Officer Robert A. Eckert /s/ Kevin M. Farr Chief Financial Officer March 28, 2002 ____________________________________ (principal financial and Kevin M. Farr accounting officer) /s/ Eugene P. Beard Director March 28, 2002 ____________________________________ Eugene P. Beard /s/ Harold Brown Director March 28, 2002 ____________________________________ Harold Brown /s/ Tully M. Friedman Director March 28, 2002 ____________________________________ Tully M. Friedman /s/ Ronald M. Loeb Director March 28, 2002 ____________________________________ Ronald M. Loeb
81
Signature Title Date --------- ----- ---- /s/ Andrea L. Rich Director March 28, 2002 ____________________________________ Andrea L. Rich /s/ William D. Rollnick Director March 28, 2002 ____________________________________ William D. Rollnick /s/ Christopher A. Sinclair Director March 28, 2002 ____________________________________ Christopher A. Sinclair /s/ G. Craig Sullivan Director March 28, 2002 ____________________________________ G. Craig Sullivan /s/ John L. Vogelstein Director March 28, 2002 ____________________________________ John L. Vogelstein /s/ Kathy B. White Director March 28, 2002 ____________________________________ Kathy Brittain White /s/ Ralph V. Whitworth Director March 28, 2002 ____________________________________ Ralph V. Whitworth
82 SCHEDULE II MATTEL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES (In thousands)
Balance at Additions Balance Beginning Charged to Net at End of Year Operations Deductions of Year ---------- ---------- ---------- ------- Allowance for Doubtful Accounts Year Ended December 31, 2001.. $24,640 $57,746(a) $(26,474)(b) $55,912 Year Ended December 31, 2000.. 29,520 18,280 (23,160)(b) 24,640 Year Ended December 31, 1999.. 40,594 19,050 (30,124)(b) 29,520 Allowance for Inventory Obsolescence Year Ended December 31, 2001.. $58,559 $40,813 $(36,256)(c) $63,116 Year Ended December 31, 2000.. 35,327 61,313 (38,081)(c) 58,559 Year Ended December 31, 1999.. 57,322 48,530 (70,525)(c) 35,327
- -------- (a) Increase in bad debt expense charged to operations in 2001 compared to prior years is due to bankruptcy filings of Kmart and Ames, as well as exposure with other retailers. (b) Includes write-offs, recoveries of previous write-offs, and currency translation adjustments. (c) Primarily represents relief of previously established reserves resulting from the disposal of related inventory, raw materials, write-downs and currency translation adjustments. EX-3.1 3 dex31.txt AMENDED & RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF MATTEL, INC. PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE Mattel, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST. At a meeting of the Board of Directors of the Corporation duly called and held on February 8, 1996, resolutions were duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, declaring such amendment to be advisable and directing that such amendment be submitted to the stockholders of the Corporation for approval at an Annual Meeting of Stockholders to be held on May 8, 1996. Such resolutions recommended that the first paragraph of Article FOURTH of the Restated Certificate of Incorporation of the Corporation be amended and restated in its entirety as follows: "FOURTH. The Company is authorized to issue a total of six hundred twenty three million (623,000,000) shares of all classes of stock. Of such total number of authorized shares of stock, six hundred million (600,000,000) shares are Common Stock, each of which shares of Common Stock has a par value of One Dollar ($1.00), three million (3,000,000) shares are Preferred Stock, each of which shares of Preferred Stock has a par value of One Dollar ($1.00), and twenty million (20,000,000) shares of Preference Stock, each of which shares of Preference Stock has a par value of one cent ($0.01)." SECOND. At an Annual Meeting of Stockholders of the Corporation duly called and held on May 8, 1996, the affirmative vote of a majority of the votes permitted to be cast by the holders of the outstanding shares of the Corporation's common stock, par value $1.00 per share, was obtained in favor of such amendment with respect to Article FOURTH. THIRD. Said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. In Witness Whereof, Mattel, Inc. has caused this Certificate of Amendment to be signed by , its [President/Vice President], and attested by , its [Secretary/Assistant Secretary], this day of , 1996. _____________________________________ [President/Vice President] Attest: _______________________________ [Secretary/Assistant Secretary] B-1 EX-3.3 4 dex33.txt AMENDED & RESTATED BYLAWS Exhibit 3.3 Amended and restated on November 8, 2001 MATTEL, INC. AMENDED AND RESTATED 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 the voting power 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. 1 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 in accordance with the procedure established for the meeting. Each holder of common stock shall have one vote for every share of common 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 in person at the meeting, 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 taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. 2 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, at the principal place of business of the corporation. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any 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 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 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 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, (iv) any material interest of such stockholder in such business, and (v) if the stockholder intends to deliver a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry the proposal, a representation 3 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, without such stockholder having 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 (i) by or at the direction of the Board of Directors or (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 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 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 4 as described above. ("Public announcement" is defined in Section 9 herein.) Such stockholder's notice shall 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, (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 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 corporate 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). 5 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. ---------------------------- 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 6 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 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; 7 (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 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. 8 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. ARTICLE IV - OFFICERS Section 1. Generally. ---------------------- The officers shall consist of a Chief Executive Officer, 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 9 Directors. There may also be the following additional officers of the corporation: a President of the corporation and Presidents of business units of the corporation. 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. Presidents. ----------------------- The President of the corporation, if there is one, 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 such office. The Presidents of business units of the corporation, if there are any, shall have such duties and powers as may from time to time be delegated to them by the Board of Directors or the Chief Executive Officer. 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 of the corporation. 10 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 of the corporation. 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 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 of the corporation. 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. ------------------------------------------------------------- Unless otherwise directed by the Board of Directors, the Chief Executive Officer and the President of the corporation, 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 of the corporation 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 11 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 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. 12 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, 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 13 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 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 14 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 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 15 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 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 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 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 16 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 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. 17 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. 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. 18 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 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. 19 EX-4.0 5 dex40.txt SPECIMEN STOCK CERTIFICATE EXHIBIT 4.0 COMMON THIS CERTIFICATE IS TRANSFERABLE INCORPORATED UNDER IN THE CITY OF BOSTON, NEW YORK THE LAWS OF THE OR IN LOS ANGELES STATE OF DELAWARE ________________ ________________ | NUMBER | | SHARES | |NYS | | | |________________| |________________| SEE REVERSE SIDE FOR CERTAIN DEFINITIONS MATTEL, INC. CUSIP 577081 10 2 SEE REVERSE FOR RIGHTS LEGEND __________________________________________________________ |This certifies that | | | | | | | [Mattel logo] | | | | | | |is the record holder of | |__________________________________________________________| FULL PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $1.00 EACH OF THE COMMON STOCK OF Mattel, Inc., transferable on the share register of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the seal of the Corporation and the signatures of its duly authorized officers. [Mattel Corporate Seal] Dated /s/ Ned Mansour /s/ John W. Amerman SECRETARY CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: THE FIRST NATIONAL BANK OF BOSTON (BOSTON, MASS) TRANSFER AGENT AND REGISTRAR, BY /s/ M. Penezik AUTHORIZED SIGNATURE [from left to right across the top of the certificate] [Picture of girl with large doll] [Picture of boy with See 'N Say toy] [Picture of girl with Barbie doll] [Picture of boy with Hot Wheels track set] [from left to right in the bottom right hand corner of the certificate] [Picture of Mattel's corporate headquarters building] [Picture of girl with Barbie doll] MATTEL, INC. Mattel, Inc. will furnish without charge to each stockholder who so requests, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such information may be obtained from the Secretary of the corporation at 333 Continental Boulevard, El Segundo, CA 90245. This certificate also evidences and entitles the holder hereof to certain rights as set forth in a Rights Agreement between Mattel, Inc. and The First National Bank of Boston, dated as of February 7, 1992 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Mattel, Inc. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Mattel, Inc. will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. Under certain circumstances, as set forth in the Rights Agreement, Rights issued to any Person who becomes an Acquiring Person (as defined in the Rights Agreement) may become null and void. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - .............. Custodian ............. (Cust) (Minor) under Uniform Gifts to Minors Act .............................. (State) UNIF TRF MIN ACT - .............. Custodian (until age......) (Cust) .............. under Uniform Transfers (Minor) to Minors Act .......................... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ___________________ | | |___________________|________________________________________________________ (Please Print of Typewrite Name and Address, Including Zip Code, of Assignee) ______________________________________________________________________ Shares of Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________________________ Attorney to transfer the said shares on the books of the within-named Corporation with full power of substitution in the premises. Dated: ________________________, 19__. _________________________________ Signature _________________________________ Signature [along right hand margin, perpendicular to the transfer section] NOTICE: The signature to this assignment must correspond with the name(s) as written upon the face of the certificate in every particular without alteration or enlargement or any change whatever. EX-4.1 6 dex41.txt INDENTURE DATED 2/15/96 EXHIBIT 4.1 =============================================================================== MATTEL, INC. -------------------- INDENTURE Dated as of February 15, 1996 -------------------- CHEMICAL TRUST COMPANY OF CALIFORNIA Trustee ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE............ 1 SECTION 1.1 Definitions............................................ 1 SECTION 1.2 Other Definitions...................................... 7 SECTION 1.3 Incorporation by Reference of Trust Indenture Act...... 7 SECTION 1.4 Rules of Construction.................................. 8 ARTICLE II THE SECURITIES........................ 8 SECTION 2.1 Issuable in Series.................................... 8 SECTION 2.2 Establishment of Terms of Series of Securities........ 8 SECTION 2.3 Execution and Authentication.......................... 10 SECTION 2.4 Registrar and Paying Agent............................ 11 SECTION 2.5 Paying Agent to Hold Money in Trust................... 12 SECTION 2.6 Securityholder Lists.................................. 12 SECTION 2.7 Transfer and Exchange................................. 13 SECTION 2.8 Mutilated, Destroyed, Lost and Stolen Securities...... 13 SECTION 2.9 Outstanding Securities................................ 14 SECTION 2.10 Treasury Securities................................... 14 SECTION 2.11 Temporary Securities.................................. 15 SECTION 2.12 Cancellation.......................................... 15 SECTION 2.13 Defaulted Interest.................................... 15 SECTION 2.14 Global Securities..................................... 15 SECTION 2.15 CUSIP Numbers......................................... 17 ARTICLE III REDEMPTION............................. 17 SECTION 3.1 Notice to Trustees.................................... 17 SECTION 3.2 Selection of Securities to be Redeemed................ 17 SECTION 3.3 Notice of Redemption.................................. 17 SECTION 3.4 Effect of Notice of Redemption........................ 18 SECTION 3.5 Deposit of Redemption Price........................... 18 SECTION 3.6 Securities Redeemed in Part........................... 18 i ARTICLE IV COVENANTS.............................. 19 SECTION 4.1 Payment of Principal and Interest..................... 19 SECTION 4.2 SEC Reports........................................... 19 SECTION 4.3 Compliance Certificate................................ 19 SECTION 4.4 Stay, Extension and Usury Laws........................ 19 SECTION 4.5 Corporate Existence................................... 20 SECTION 4.6 Taxes................................................. 20 SECTION 4.7 Limitation on Liens................................... 20 SECTION 4.8 Limitation on Sale/Leaseback Transactions............. 21 ARTICLE V SUCCESSORS........................... 22 SECTION 5.1 When Company May Merge, Etc........................... 22 SECTION 5.2 Successor Corporation Substituted..................... 22 ARTICLE VI DEFAULTS AND REMEDIES....................... 23 SECTION 6.1 Events of Default.................................... 23 SECTION 6.2 Acceleration of Maturity; Rescission and Annulment... 24 SECTION 6.3 Collection of Indebtedness and Suits for Enforcement by Trustee......................................... 25 SECTION 6.4 Trustee May File Proofs of Claim..................... 26 SECTION 6.5 Trustee May Enforce Claims Without Possession of Securities......................................... 27 SECTION 6.6 Application of Money Collected....................... 27 SECTION 6.7 Limitation on Suits.................................. 28 SECTION 6.8 Unconditional Right of Holders to Receive Principal and Interest........................................ 28 SECTION 6.9 Restoration of Rights and Remedies................... 28 SECTION 6.10 Rights and Remedies Cumulative....................... 29 SECTION 6.11 Delay or Omission Not Waiver......................... 29 SECTION 6.12 Control by Holders................................... 29 SECTION 6.13 Waiver of Past Defaults.............................. 29 SECTION 6.14 Undertaking for Costs................................ 30 ARTICLE VII TRUSTEE................................ 30 SECTION 7.1 Duties of Trustee.................................... 30 SECTION 7.2 Rights of Trustee.................................... 31 SECTION 7.3 Individual Rights of Trustee......................... 32 ii SECTION 7.4 Trustee's Disclaimer................................. 32 SECTION 7.5 Notice of Defaults................................... 32 SECTION 7.6 Reports by Trustee to Holders........................ 33 SECTION 7.7 Compensation and Indemnity........................... 33 SECTION 7.8 Replacement of Trustee............................... 34 SECTION 7.9 Successor Trustee by Merger, etc..................... 35 SECTION 7.10 Eligibility; Disqualification........................ 35 SECTION 7.11 Preferential Collection of Claims Against Company.... 35 ARTICLE VIII SATISFACTION AND DISCHARGE.................. 35 SECTION 8.1 Satisfaction and Discharge of Indenture............... 35 SECTION 8.2 Application of Trust Funds; Indemnification........... 36 SECTION 8.3 Satisfaction, Discharge and Defeasance of Securities of any Series....................................... 37 SECTION 8.4 Defeasance of Certain Obligations..................... 39 SECTION 8.5 Repayment to Company.................................. 40 ARTICLE IX AMENDMENTS AND WAIVERS................... 40 SECTION 9.1 Without Consent of Holders............................ 40 SECTION 9.2 With Consent of Holders............................... 41 SECTION 9.3 Limitations........................................... 41 SECTION 9.4 Compliance with Trust Indenture Act................... 42 SECTION 9.5 Revocation and Effect of Consents..................... 42 SECTION 9.6 Notation on or Exchange of Securities................. 42 SECTION 9.7 Trustee Protected..................................... 42 ARTICLE X MISCELLANEOUS........................ 43 SECTION 10.1 Trust Indenture Act Controls.......................... 43 SECTION 10.2 Notices............................................... 43 SECTION 10.3 Communication by Holders with Other Holders........... 44 SECTION 10.4 Certificate and Opinion as to Conditions Precedent.... 44 SECTION 10.5 Statements Required in Certificate or Opinion......... 44 SECTION 10.6 Rules by Trustee and Agents........................... 44 SECTION 10.7 Legal Holidays........................................ 45 SECTION 10.8 No Recourse Against Others............................ 45 SECTION 10.9 Counterparts.......................................... 45 SECTION 10.10 Governing Laws........................................ 45 SECTION 10.11 No Adverse Interpretation of Other Agreements......... 45 iii SECTION 10.12 Successors........................................... 45 SECTION 10.13 Severability......................................... 45 SECTION 10.14 Table of Contents, Headings, Etc..................... 46 SECTION 10.15 Securities in a Foreign Currency or in ECU........... 46 SECTION 10.16 Judgment Currency.................................... 46 ARTICLE XI SINKING FUNDS......................... 47 SECTION 11.1 Applicability of Article............................. 47 SECTION 11.2 Satisfaction of Sinking Fund Payments with Securities......................................... 47 SECTION 11.3 Redemption of Securities for Sinking Fund............ 48 iv Indenture dated as of February 15, 1996 between Mattel, Inc., a Delaware corporation ("Company"), and Chemical Trust Company of California, a California corporation ("Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities issued under this Indenture. ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. ----------- "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities or by agreement or otherwise. "Agent" means any Registrar, Paying Agent or Service Agent. "Authorized Newspaper" means a newspaper in an official language of the country of publication customarily published at least once a day for at least five days in each calendar week and of general circulation in the place in connection with which the term is used. If it shall be impractical in the opinion of the Trustee to make any publication of any notice required hereby in an Authorized Newspaper, any publication or other notice in lieu thereof that is made or given by the Trustee shall constitute a sufficient publication of such notice. "Bearer" means anyone in possession from time to time of a Bearer Security. "Bearer Security" means any Security that does not provide for the identification of the Holder thereof. "Board of Directors" means the Board of Directors of the Company or any duly authorized committee thereof. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been adopted by the Board of Directors or pursuant to authorization by the Board of Directors and to be in full force and effect on the date of the certificate and delivered to the Trustee. "Capitalized Lease" means any lease of property where the obligations of the lessee thereunder are required to be classified and accounted for as a capitalized lease on a balance sheet of such lessee under generally accepted accounting principles. "Company" means the party named as such above until a successor replaces it and thereafter means the successor. "Company Order" means a written order signed in the name of the Company by two Officers, one of whom must be the Company's principal executive officer, principal financial officer or principal accounting officer. "Company Request" means a written request signed in the name of the Company by its Chairman of the Board, a President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Net Tangible Assets" means the total amount of assets of the Company and its Subsidiaries on a consolidated basis (less applicable depreciation, amortization and other valuation reserves), except to the extent resulting from write-ups occurring after January 1, 1988 of capital assets (excluding in any case write-ups in connection with accounting for acquisitions in conformity with generally accepted accounting principles), after deducting therefrom (i) all current liabilities of the Company and its Subsidiaries, (ii) all investments in unconsolidated Subsidiaries of the Company and in persons which are not Subsidiaries of the Company (except, in each case, investments in marketable securities) and (iii) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other intangible items, all as set forth on the most recently available consolidated balance sheet of the Company and its Subsidiaries, prepared in conformity with generally accepted accounting principles. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered. "Current Assets" means any asset of the Company or any of its Subsidiaries that would be classified as a current asset on an audited consolidated balance sheet of the Company prepared, in accordance with generally accepted accounting principles, on the date any Lien (as hereinafter defined) on such asset is incurred. "Default" means any event which is, or after notice or passage of time would be, an Event of Default. "Depository" means, with respect to the Securities of any Series issuable or issued in whole or in part in the form of one or more Global Securities, the person designated as Depository for such Series by the Company, which Depository shall be a clearing agency registered under the Exchange Act; and if at any time there is more than one such person, "Depository" as used with respect to the Securities of any Series shall mean the Depository with respect to the Securities of such Series. 2 "Discount Security" means any Security that provides for an amount less than the stated principal amount thereof to be due and payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.2. "Dollars" means the currency of the United States of America. "ECU" means the European Currency Unit as determined by the Commission of the European Union. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Foreign Currency" means any currency issued by a government other than the government of the United States of America. "Foreign Government Securities" means with respect to Securities of any Series that are denominated in a Foreign Currency, noncallable (i) direct obligations of the government that issued such Foreign Currency for the payment of which obligations its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of such government, the payment of which obligations is unconditionally guaranteed as a full faith and credit obligation of such government. "Global Security" or "Global Securities" means a Security or Securities, as the case may be, in the form established pursuant to Section 2.1 evidencing all or part of a Series of Securities, issued to the Depository for such Series or its nominee, and registered in the name of such Depository or nominee. "Holder" or "Securityholder" means a person in whose name a Security is registered or the holder of a Bearer Security. "Indebtedness" means, with respect to any person, and without duplication: (a) any liability of such person (A) for borrowed money, or (B) for any letter of credit for the account of such person supporting obligations of such person or other persons, or (C) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any businesses, properties or assets of any kind (other than a trade payable or a current liability arising in the ordinary course of business), or (D) for the payment of money relating to a Capitalized Lease; (b) any liability of others described in the preceding clause (a) that the person has guaranteed or that is otherwise its legal liability; and (c) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (a) and (b) above. 3 "Indenture" means this Indenture as amended from time to time and shall include the form and terms of particular Series of Securities established or contemplated hereunder. "Lien" means any lien, security interest, charge, mortgage, pledge or other encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "Maturity," when used with respect to any Security or installment of principal thereof, means the date on which the principal of such Security or such installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Officer" means the Chairman of the Board, any President, any Vice- President, the Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers, one of whom must be the Company's principal executive officer, principal financial officer or principal accounting officer. "Opinion of Counsel" means a written opinion of legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company. "Ordinary Course Lien" means (a) Liens of taxes, assessments or governmental charges or levies on the property of the Company or any of its Subsidiaries if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted accounting principles shall have been set aside on the books of the Company; (b) Liens imposed by law, such as carriers', warehousemen's, landlords', materialmen's and mechanics' liens and other similar liens, arising in the ordinary course of business which secure obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with generally accepted accounting principles shall have been set aside on the books of the Company; (c) Liens (other than any Lien imposed by the Employee Retirement Income Security Act of 1974, as amended) arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation; (d) Liens incurred or deposits made to secure the performance of tenders, bids, surety bonds or performance and return-of-money bonds incurred in the ordinary course of business; 4 (e) utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Company or any of its Subsidiaries, as the case may be; (f) Liens relating to a judgment or other court-ordered award or settlement as to which the Company has not exhausted its appellate rights. (g) Leases or subleases granted to or by the Company or any Subsidiary not pursuant to a Sale/Leaseback Transaction undertaken in the ordinary course of the business of the Company or any such Subsidiary and not for the purpose of providing a lien, security interest, charge, mortgage, pledge or other such encumbrance to secure another obligation. "person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "principal" of a Security means the principal of the Security plus, when appropriate, the premium, if any, on the Security. "Responsible Officer" when used with respect to the Trustee, means the chairman or the vice-chairman of the board of directors or trustees, the chairman or vice-chairman of the executive committee of the board of directors or trustees, the president, any vice-president, the treasurer, the secretary, any trust officer, any second or assistant vice-president or any officer or assistant officer of the Trustee other than those specifically above mentioned customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with a particular subject. "Sale/Leaseback Transaction" means any arrangement with any person (other than the Company or any of its Subsidiaries) providing for the leasing by the Company or any of its Subsidiaries of any property which has been or is to be sold or transferred by the Company or such Subsidiary to such person or to any person (other than the Company or any of its Subsidiaries) to which funds have been or are to be advanced by such person on the security of the leased property. "SEC" means the Securities and Exchange Commission. "Securities" means the debentures, notes or other debt instruments of the Company of any Series authenticated and delivered under this Indenture. "Series" or "Series of Securities" means each series of debentures, notes or other debt instruments of the Company created pursuant to Sections 2.1 and 2.2 hereof. 5 "Significant Subsidiary" means (i) any direct or indirect Subsidiary of the Company that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act of 1933, as amended, as such regulation is in effect on the date hereof, or (ii) any group of direct or indirect Subsidiaries of the Company that, taken together as a group, would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act of 1933, as amended, as such regulation is in effect on the date hereof, "Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" of any specified person means (i) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by such person or by such person and a subsidiary or subsidiaries of such person or by a subsidiary or subsidiaries of such person or (ii) any other person (other than a corporation) in which such person or such person and a subsidiary or subsidiaries of such person or a subsidiary or subsidiaries of such person directly or indirectly, at the date of determination thereof has at least majority ownership interest. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of this Indenture; provided, however, -------- ------- that in the event the Trust Indenture Act of 1939 is amended after such date, "TIA" means, to the extent required by any such amendment, the Trust Indenture Act as so amended. "Trustee" means the person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each person who is then a Trustee hereunder, and if at any time there is more than one such person, "Trustee" as used with respect to the Securities of any Series shall mean the Trustee with respect to Securities of that Series. "U.S. Government Obligations" means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America which are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation evidenced by such depository receipt. 6 SECTION 1.2 Other Definitions. ------------------ DEFINED IN TERM SECTION ---- ---------- "Bankruptcy Law".................. 6.1 "Custodian"....................... 6.1 "Event of Default"................ 6.1 "Journal"......................... 10.15 "Judgment Currency"............... 10.16 "Legal Holiday"................... 10.7 "mandatory sinking fund payment".. 11.1 "Market Exchange Rate"............ 10.15 "New York Banking Day"............ 10.16 "optional sinking fund payment"... 11.1 "Paying Agent".................... 2.4 "Registrar"....................... 2.4 "Required Currency"............... 10.16 "Service Agent"................... 2.4 SECTION 1.3 Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any successor obligor upon the Securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA and not otherwise defined herein are used herein as so defined. 7 SECTION 1.4 Rules of Construction. --------------------- Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles; (c) references to "generally accepted accounting principles" shall mean generally accepted accounting principles in effect as of the time when and for the period as to which such accounting principles are to be applied; (d) "or" is not exclusive; (e) words in the singular include the plural, and in the plural include the singular; and (f) provisions apply to successive events and transactions. ARTICLE II THE SECURITIES SECTION 2.1 Issuable in Series. ------------------ The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more Series. All Securities of a Series shall be identical except as may be provided in a Board Resolution and/or an Officers' Certificate detailing the adoption of the terms thereof pursuant to the Board Resolution or a supplemental indenture hereto. In the case of Securities of a Series to be issued from time to time, the Officers' Certificate may provide for the method by which specified terms (such as interest rate, maturity date, record date or date from which interest should accrue) are to be determined. Securities may differ between Series, in respect of any matters; provided that all Series of Securities shall be equally and ratably entitled to the benefits of the Indenture. SECTION 2.2 Establishment of Terms of Series of Securities. ---------------------------------------------- At or prior to the issuance of any Securities within a Series, the following shall be established (as to the Series generally, in the case of Subsections 2.2.1 and 2.2.2 and either as to such Securities within the Series or as to the Series generally in the case of Subsections 2.2.3 through 2.2.22) by either a Board Resolution, a supplemental indenture hereto or an Officers' Certificate pursuant to authority granted under a Board Resolution: 8 2.2.1 the title of the Series (which shall distinguish the Securities of that particular Series from the Securities of any other Series); 2.2.2 any limit upon the aggregate principal amount of the Securities of the Series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the Series pursuant to Section 2.7, 2.8 or 2.11); 2.2.3 the date or dates on which the principal of the Securities of the Series is payable; 2.2.4 the rate or rates and, if applicable, the method used to determine the rate including, but not limited to, any commodity, commodity index, stock exchange index or financial index, at which the Securities of the Series shall bear interest, if any, the date or dates from which such interest shall accrue, the dates on which such interest shall be payable and the record date for the interest payable on any interest payment date; 2.2.5 the place or places where the principal of and interest on the Securities of the Series shall be payable, or the method of such payment, if by wire transfer, mail or other means; 2.2.6 the period or periods within which, the price or prices at which and the terms and conditions upon which the Securities of the Series may be redeemed, in whole or in part, at the option of the Company; 2.2.7 the obligation, if any, of the Company to redeem or purchase the Securities of the Series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the Series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; 2.2.8 if other than denominations of $1,000 and any integral multiple thereof, the denominations in which the Securities of the Series shall be issuable; 2.2.9 if other than the principal amount thereof, the portion of the principal amount of the Securities of the Series that shall be payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.2; 2.2.10 the currency of denomination of the Securities of the Series, which may be Dollars, any Foreign Currency or composite currency, including, but not limited to, the ECU, and if such currency of denomination is a composite currency other than the ECU, the agency or organization, if any, responsible for overseeing such composite currency; 2.2.11 the designation of the currency or currencies in which payment of the principal of and interest on the Securities of the Series will be made, and the 9 designation, if any, of the currency or currencies in which payment of the principal of or interest on the Securities of the Series, at the election of a Holder thereof, may also be payable; 2.2.12 if the payments of principal of or interest on the Securities of the Series are to be made in a Foreign Currency other than the currency in which such Securities are denominated, the manner in which the exchange rate with respect to such payments shall be determined; 2.2.13 if the amount of payments of principal of or interest on the Securities of the Series may be determined with reference to an index based on a currency or currencies other than that in which the Securities are denominated or designated to be payable or determined by reference to a commodity, commodity index, stock exchange index or financial index, the manner in which such amounts shall be determined; 2.2.14 provisions, if any, granting special rights to the Holders of Securities of the Series upon the occurrence of such events as may be specified and the provisions, if any, relating to the subordination of the Securities of the Series to other obligations of the Company; 2.2.15 any provision for the conversion or exchange of Securities of the Series, either at the option of the Holder thereof or the Company, into or for another security or securities of the Company, the security or securities into or for which, the period or periods within which, the price or prices, including any adjustments thereto, at which and the other terms and conditions upon which any Securities of the Series shall be converted or exchanged, in whole or in part, pursuant to such obligation; 2.2.16 if the Securities of such Series are to be issued upon the exercise of warrants, the time, manner and place for such Securities to be authenticated and delivered; 2.2.17 the provisions, if any, relating to any security provided for the Securities of the Series; 2.2.18 any addition to or change in the Events of Default which applies to any Securities of the Series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 6.2; 2.2.19 any addition to or change in the covenants set forth in Article IV which applies to Securities of the Series; 2.2.20 any other terms of the Securities of the Series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 9.1); 10 2.2.21 the forms of the Securities of the Series in bearer or fully registered form (and, if in fully registered form, whether the Securities will be issuable as Global Securities); and 2.2.22 any depositories, interest rate calculation agents, exchange rate agents or other agents with respect to Securities of such Series if other than those appointed herein. All Securities of any one Series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided by or pursuant to the Board Resolution or Officers' Certificate referred to above or as set forth in a supplemental indenture hereto, and, unless otherwise provided, the authorized principal amount of any Series may be increased to provide for issuances of additional Securities of such Series. SECTION 2.3 Execution and Authentication. ---------------------------- One Officer shall sign the Securities for the Company by manual or facsimile signature. The Company's seal, which may be in facsimile form, shall be reproduced on the Securities. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall at any time, and from time to time, authenticate Securities for original issue in the principal amount provided in the Board Resolution or Officers' Certificate detailing the adoption of terms pursuant to the Board Resolution, upon receipt by the Trustee of a Company Order. If provided for in such procedures, such Company Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Company or its duly authorized agent or agents, which oral instructions shall be promptly confirmed in writing. Each Security shall be dated the date of its authentication unless otherwise provided by Board Resolution or supplemental indenture hereto. The aggregate principal amount of Securities of any Series outstanding at any time may not exceed any limit upon the maximum principal amount for such Series set forth in the Board Resolution or Officers' Certificate or supplemental indenture hereto delivered pursuant to Section 2.2, except as provided in Section 2.8. Prior to the issuance of Securities of any Series, the Trustee shall have received and (subject to Section 7.2) shall be fully protected in relying on: (a) the Board Resolution or Officers' Certificate detailing the adoption of terms pursuant to the Board Resolution or a supplemental indenture hereto establishing the form of the Securities of that Series or of Securities within that Series and the terms of the Securities of that Series or of Securities within 11 that Series, (b) an Officers' Certificate complying with Section 10.4, and (c) an Opinion of Counsel complying with Section 10.4. The Trustee shall have the right to decline to authenticate and deliver any Securities of such Series: (a) if the Trustee, being advised by counsel, determines that such action may not lawfully be taken; or (b) if the Trustee in good faith by its board of directors or trustees, executive committee or a trust committee of directors and/or vice-presidents shall determine that such action would expose the Trustee to personal liability to Holders of any then outstanding Series of Securities. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. SECTION 2.4 Registrar and Paying Agent. -------------------------- The Company shall maintain, with respect to each Series of Notes, at the place or places specified with respect to such Series pursuant to Section 2.2, an office or agency where Securities of such Series may be presented or surrendered for payment ("Paying Agent"), where Securities of such Series may be surrendered for registration of transfer or exchange ("Registrar") and where notices and demands to or upon the Company in respect of the Securities of such Series and this Indenture may be served ("Service Agent"). The Registrar shall keep a register with respect to each Series of Securities and to their transfer and exchange. The Company will give prompt written notice to the Trustee of the name and address, and any change in the name or address, of each Registrar, Paying Agent or Service Agent. If at any time the Company shall fail to maintain any such required Registrar, Paying Agent or Service Agent or shall fail to furnish the Trustee with the name and address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more co- registrars, additional paying agents or additional service agents and may from time to time rescind such designations; provided, however, that no such -------- ------- designation or rescission shall in any manner relieve the Company of its obligations to maintain a Registrar, Paying Agent and Service Agent in each place so specified pursuant to Section 2.2 for Securities of any Series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the name or address of any such co-registrar, additional paying agent or additional service agent. The term "Registrar" includes any co-registrar; the term "Paying Agent" includes any additional paying agent; and the term "Service Agent" includes any additional service agent. 12 The Company hereby appoints the Trustee the initial Registrar, Paying Agent and Service Agent for each Series unless another Registrar, Paying Agent or Service Agent, as the case may be, is appointed prior to the time Securities of that Series are first issued. SECTION 2.5 Paying Agent to Hold Money in Trust. ----------------------------------- The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust, for the benefit of Securityholders of any Series of Securities, or the Trustee, all money held by the Paying Agent for the payment of principal or interest on the Series of Securities, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of Securityholders of any Series of Securities all money held by it as Paying Agent. SECTION 2.6 Securityholder Lists. -------------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders of each Series of Securities and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least ten days before each interest payment date and at such other times as the Trustee may request in writing a list, in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Securityholders of each Series of Securities. SECTION 2.7 Transfer and Exchange. --------------------- Where Securities of a Series are presented to the Registrar or a co- registrar with a request to register a transfer or to exchange them for an equal principal amount of Securities of the same Series and date of maturity of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.11 or 9.6). Neither the Company nor the Registrar shall be required (a) to issue, register the transfer of, or exchange Securities of any Series for the period beginning at the opening of business fifteen days immediately preceding the mailing of a notice of redemption of Securities of that Series selected for redemption and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange Securities of any Series selected, called 13 or being called for redemption as a whole or the portion being redeemed of any such Securities selected, called or being called for redemption in part. SECTION 2.8 Mutilated, Destroyed, Lost and Stolen Securities. ------------------------------------------------ If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security, a new Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any Series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that Series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.9 Outstanding Securities. ---------------------- The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest on a Global Security effected by the Trustee in accordance with the provisions hereof and those described in this Section as not outstanding. 14 If a Security is replaced pursuant to Section 2.8, it ceases to be outstanding until the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds on the Maturity date of Securities of a Series money sufficient to pay such Securities payable on that date, then on and after that date such Securities of the Series cease to be outstanding and interest on them ceases to accrue. A Security does not cease to be outstanding because the Company or an Affiliate holds the Security. In determining whether the Holders of the requisite principal amount of outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of a Discount Security that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the Maturity thereof pursuant to Section 6.2. SECTION 2.10 Treasury Securities. ------------------- In determining whether the Holders of the required principal amount of Securities of a Series have concurred in any direction, waiver or consent, Securities of a Series owned by the Company or an Affiliate shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities of a Series that the Trustee knows are so owned shall be so disregarded. SECTION 2.11 Temporary Securities. -------------------- Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities upon a Company Order. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee upon request shall authenticate definitive Securities of the same Series and date of maturity in exchange for temporary Securities. Until so exchanged, temporary securities shall have the same rights under this Indenture as the definitive Securities. SECTION 2.12 Cancellation. ------------ The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for transfer, exchange, payment, replacement or cancellation and shall destroy such cancelled Securities (subject to the record retention requirement of the Exchange Act) and deliver a certificate of such destruction to the Company, unless the Company otherwise directs. The 15 Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. SECTION 2.13 Defaulted Interest. ------------------ If the Company defaults in a payment of interest on a Series of Securities, it shall pay the defaulted interest, plus, to the extent permitted by law, any interest payable on the defaulted interest, to the persons who are Securityholders of the Series on a subsequent special record date. The Company shall fix the record date and payment date. At least 30 days before the record date, the Company shall mail to the Trustee and to each Securityholder of the Series a notice that states the record date, the payment date and the amount of interest to be paid. The Company may pay defaulted interest in any other lawful manner. SECTION 2.14 Global Securities. ----------------- 2.14.1 Terms of Securities. A supplemental indenture to the ------------------- Indenture or a Board Resolution (and, to the extent not set forth in the Board Resolution, an Officers' Certificate detailing the adoption of terms pursuant to the Board Resolution) shall establish whether the Securities of a Series shall be issued in whole or in part in the form of one or more Global Securities and the Depository for such Global Security or Securities. 2.14.2 Transfer and Exchange. Notwithstanding any provisions to the --------------------- contrary contained in Section 2.7 of the Indenture and in addition thereto, any Global Security shall be exchangeable pursuant to Section 2.7 of the Indenture for securities registered in the names of Holders other than the Depository for such Security or its nominee only if (i) such Depository notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time such Depository ceases to be a clearing agency registered under the Exchange Act, and, in either case, the Company fails to appoint a successor Depository within 90 days of such event, (ii) the Company executes and delivers to the Trustee an Officers' Certificate to the effect that such Global Security shall be so exchangeable or (iii) an event shall have happened and be continuing which is or after notice or lapse of time or both, would be, an Event of Default with respect to the Securities represented by such Global Security. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as the Depository shall direct in writing in an aggregate principal amount equal to the principal amount of the Global Security with like tenor and terms. Except as provided in this Section 2.14.2, a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security to a nominee of such Depository, by a nominee of such Depository to such Depository or another nominee of such Depository or by the Depository or any such nominee to a successor Depository or a nominee of such a successor Depository. 16 2.14.3 Legend. Any Global Security issued hereunder shall bear a ------ legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of the Depository or a nominee of the Depository. This Security is exchangeable for Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and may not be transferred except as a whole by the Depository to a nominee of the Depository, by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such a successor Depository." 2.14.4 Acts of Holders. The Depository, as a Holder, may appoint --------------- agents and otherwise authorize participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take under the Indenture. 2.14.5 Payments. Notwithstanding the other provisions of this -------- Indenture, unless otherwise specified as contemplated by Section 2.2, payment of the principal of and interest on any Global Security shall be made to the person specified therein. 2.14.6 Consents, Declaration and Directions. Except as provided in ------------------------------------ Section 2.14.5, the Company, the Trustee and any Agent shall treat a person as the Holder of such principal amount of outstanding Securities of such Series represented by a Global Security as shall be specified in a written statement of the Depositary with respect to such Global Security, for purposes of obtaining any consents, declarations or directions required to be given by the Holders pursuant to this Indenture. SECTION 2.15 CUSIP Numbers. ------------- The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any -------- such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other elements of identification printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE III REDEMPTION SECTION 3.1 Notice to Trustees. ------------------ 17 The Company may, with respect to any Series of Securities, reserve the right to redeem and pay the Series of Securities or may covenant to redeem and pay the Series of Securities or any part thereof before maturity at such time and on such terms as provided for in such Securities. If a Series of Securities is redeemable and the Company wants or is obligated to redeem prior to the Stated Maturity thereof all or part of the Series of Securities pursuant to the terms of such Securities, it shall notify the Trustee of the redemption date and the principal amount of Series of Securities to be redeemed. The Company shall give the notice at least 60 days before the redemption date (or such shorter notice as may be acceptable to the Trustee). SECTION 3.2 Selection of Securities to be Redeemed. -------------------------------------- Unless otherwise indicated for a particular Series by Board Resolution or by a supplemental indenture hereto (or to the extent not set forth in such Board Resolution or supplemental indenture, in an Officers' Certificate so indicating pursuant to the Board Resolution), if less than all the Securities of a Series are to be redeemed, the Trustee shall select the Securities of the Series to be redeemed in any manner that the Trustee deems fair and appropriate. The Trustee shall make the selection from Securities of the Series outstanding not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities of the Series that have denominations larger than $1,000. Securities of the Series and portions of them it selects shall be in amounts of $1,000 or whole multiples of $1,000 or, with respect to Securities of any Series issuable in other denominations pursuant to Section 2.2.8, the minimum principal denomination for each Series and integral multiples thereof. Provisions of this Indenture that apply to Securities of a Series called for redemption also apply to portions of Securities of that Series called for redemption. SECTION 3.3 Notice of Redemption. -------------------- Unless otherwise indicated for a particular Series by Board Resolution or by a supplemental indenture hereto, at least 30 days but not more than 60 days before a redemption date, the Company shall mail a notice of redemption by first-class mail to each Holder whose Securities are to be redeemed and if any Bearer Securities are outstanding, publish on one occasion a notice in an Authorized Newspaper. The notice shall identify the Securities of the Series to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) the name and address of the Paying Agent; (d) that Securities of the Series called for redemption must be surrendered to the Paying Agent to collect the redemption price; 18 (e) that interest on Securities of the Series called for redemption ceases to accrue on and after the redemption date; and (f) any other information as may be required by the terms of the particular Series or the Securities of a Series being redeemed. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense. SECTION 3.4 Effect of Notice of Redemption. ------------------------------ Once notice of redemption is mailed or published as provided in Section 3.3, Securities of a Series called for redemption become due and payable on the redemption date and at the redemption price. A notice of redemption may not be conditional. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price plus accrued interest to the redemption date. SECTION 3.5 Deposit of Redemption Price. --------------------------- On or before the redemption date, the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date. SECTION 3.6 Securities Redeemed in Part. --------------------------- Upon surrender of a Security that is redeemed in part, the Trustee shall authenticate for the Holder a new Security of the same Series and the same maturity equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV COVENANTS SECTION 4.1 Payment of Principal and Interest. --------------------------------- The Company covenants and agrees for the benefit of each Series of Securities that it will duly and punctually pay the principal of and interest on the Securities of that Series in accordance with the terms of such Securities and this Indenture. SECTION 4.2 SEC Reports. ----------- The Company shall deliver to the Trustee within 15 days after it files them with the SEC copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company is required to file with the SEC pursuant to Section 13 or 19 15(d) of the Exchange Act. The Company also shall comply with the other provisions of TIA (S) 314(a). SECTION 4.3 Compliance Certificate. ---------------------- The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year of the Company, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge). The Company will, so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon becoming aware of (i) any Default, Event of Default or default in the performance of any covenant, agreement or condition contained in this Indenture or (ii) any event of default referred to in Section 6.1(e), an Officers' Certificate specifying such Default, Event of Default or default. SECTION 4.4 Stay, Extension and Usury Laws. ------------------------------ The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.5 Corporate Existence. ------------------- Subject to Article V, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each Significant Subsidiary in accordance with the respective organizational documents of each Significant Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its Significant Subsidiaries; provided, however, -------- ------- that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any Significant Subsidiary, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Holders. 20 SECTION 4.6 Taxes. ----- The Company shall, and shall cause each of its Significant Subsidiaries to, pay prior to delinquency all taxes, assessments and governmental levies, except as contested in good faith and by appropriate proceedings. SECTION 4.7 Limitation on Liens. ------------------- The Company shall not and shall not permit any of its Subsidiaries to, directly or indirectly, create, assume or otherwise cause or suffer to exist, except in favor of the Company, any Lien of or upon any of the properties or assets, real, personal or mixed (including stock and other securities of its Subsidiaries), of the Company or any of its Subsidiaries whether owned at the date of this Indenture or thereafter acquired, or of or upon any income or profits therefrom, except for: (a) Liens existing on the date hereof or arising under this Indenture; (b) any extension, renewal, or replacement (or successive extensions, renewals or replacements) of any Lien existing on the date hereof, if limited to the same property subject to, and securing not more than the amount secured by, the Lien extended, renewed or replaced; (c) Liens on Current Assets (or on any promissory note received in satisfaction of any accounts receivable of the Company or any of its Subsidiaries which, immediately prior to such satisfaction, was subject to such a Lien) securing Indebtedness incurred to finance working capital requirements, provided, however, that the Indebtedness secured by such Lien -------- ------- does not mature later than 36 months from the date incurred; (d) any Ordinary Course Lien arising, and only so long as continuing, in the ordinary course of the business of the Company or any of its Subsidiaries; (e) Liens upon any property hereafter acquired (including by reason of a merger or consolidation of another entity into the Company or a Subsidiary) existing thereon at the time of acquisition, provided that such -------- Liens (A) are not incurred in connection with, or in contemplation of, the acquisition of the property acquired, except as permitted under subsection (f) of this Section 4.7, and (B) do not extend to or cover any property or assets of the Company or any Subsidiary other than the property so acquired; (f) purchase money Liens upon or in any real or personal property (including fixtures and other equipment) acquired or held by the Company or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Indebtedness incurred solely for the purpose of financing or refinancing the acquisition or improvement of or construction costs related to such property, provided -------- 21 that no such Lien shall extend to or cover any property or assets of the Company or any Subsidiary other than the property being acquired or improved; (g) any interest or title of a lessor in the property subject to any Capitalized Lease or Sale/Leaseback Transaction that is permitted under Section 4.8; or (h) other Liens securing Indebtedness in an aggregate principal amount which, together with the aggregate outstanding principal amount of all other Indebtedness of the Company and its Subsidiaries secured by Liens permitted under the terms of this subsection (h), and the aggregate amount (before deducting expenses) of Sale/Leaseback Transactions which would otherwise be permitted under the provisions of Section 4.8(a), does not at the time such Liens are incurred exceed 10% of the Company's Consolidated Net Tangible Assets as shown on the most recent audited consolidated balance sheet of the Company and its Subsidiaries. SECTION 4.8 Limitation on Sale/Leaseback Transactions. ----------------------------------------- The Company shall not and shall not permit any of its Subsidiaries to, directly or indirectly, enter into any Sale/Leaseback Transaction unless either: (a) the Company or such Subsidiary would be permitted, pursuant to the terms of Section 4.7(h), to incur Indebtedness in an aggregate principal amount equal to or exceeding the aggregate amount (before deducting expenses) of the Sale/Leaseback Transaction secured by a Lien on the property subject to such Sale/Leaseback Transaction; or (b) the Company or such Subsidiary within 90 days of the effectiveness of such Sale/Leaseback Transaction applies or unconditionally agrees to apply to the retirement of Indebtedness an amount equal to the greater of (A) the net proceeds of the Sale/Leaseback Transaction or (B) the fair value, in the opinion of the Board of Directors of the Company, of the subject property of the Sale/Leaseback Transaction at the time of such transaction (in either case adjusted to reflect the remaining term of the lease subject to such Sale/Leaseback Transaction). ARTICLE V SUCCESSORS SECTION 5.1 When Company May Merge, Etc. --------------------------- The Company shall not consolidate or merge with or into, or sell, lease, convey or otherwise dispose of all or substantially all of its assets to, any person unless: (a) the Company is the surviving person or the person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, lease, conveyance or other disposition shall have been made, is a corporation organized 22 and existing under the laws of the United States, any state thereof or the District of Columbia; (b) the corporation formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, lease, conveyance or other disposition shall have been made, assumes by supplemental indenture all the obligations of the Company under the Securities and this Indenture; and (c) immediately after the transaction no Default or Event of Default exists. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture. SECTION 5.2 Successor Corporation Substituted. --------------------------------- Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.1, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, lease, conveyance or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor person has been named as the Company herein; provided, however, that the predecessor Company in the -------- ------- case of a sale, lease, conveyance or other disposition shall not be released from the obligation to pay the principal of and interest on the Securities. ARTICLE VI DEFAULTS AND REMEDIES SECTION 6.1 Events of Default. ----------------- "Event of Default," wherever used herein with respect to Securities of any Series, means any one of the following events, except the events set forth in clause (e) below, which shall not apply for the benefit of Securities of a Series as to which, pursuant to Section 2.2.18 or Section 2.2.20 in the establishing Board Resolution and Officers' Certificate or supplemental indenture hereto, it is provided that such Series shall not have the benefit of said Event of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any interest on any Security of that Series when it becomes due and payable, and continuance of such default for a period of 30 days; or 23 (b) default in the payment of the principal of any Security of that Series at its Maturity; or (c) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that Series; or (d) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of Series of Securities other than that Series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Securities of that Series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) a default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company (including a default with respect to Securities of any Series other than that Series) or any Subsidiary (or the payment of which is guaranteed by the Company or a Subsidiary), whether such Indebtedness or guarantee now exists or shall be created hereafter, if (a) either (i) such default results from the failure to pay any such Indebtedness at its stated final maturity or (ii) relates to an obligation other than the obligation to pay such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity and (b) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity or the maturity of which has been so accelerated, aggregates $25,000,000 or more at any one time outstanding; or (f) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is unable to pay its debts as the same become due; or 24 (g) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case, (ii) appoints a Custodian of the Company or any of its Significant Subsidiaries or for all or substantially all of its property, or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries, and the order or decree remains unstayed and in effect for 60 days. The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal or State law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. (h) any other Event of Default provided with respect to Securities of that Series. SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. -------------------------------------------------- If an Event of Default with respect to Securities of any Series at the time outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the outstanding Securities of that Series may declare the principal amount (or, if any Securities of that Series are Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) of all of the Securities of that Series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. If an Event of Default specified in Section 6.1(f) or (g) shall occur, the principal amount (or specified amount) of all outstanding Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after such a declaration of acceleration with respect to any Series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the outstanding Securities of that Series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all overdue interest on all Securities of that Series, 25 (ii) the principal of any Securities of that Series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefor in such Securities, (iii) to the extent that payment of such interest is lawful, interest upon any overdue principal and overdue interest at the rate or rates prescribed therefor in such Securities, and (iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (b) all Events of Default with respect to Securities of that Series, other than the non-payment of the principal of Securities of that Series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 6.13. No such rescission shall affect any subsequent Default or impair any right consequent thereon. SECTION 6.3 Collection of Indebtedness and Suits for Enforcement by Trustee. --------------------------------------------------------------- The Company covenants that if (a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 60 days, or (b) default is made in the payment of principal of any Security at the Maturity thereof, or (c) default is made in the deposit of any sinking fund payment when and as due by the terms of a Security, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal or any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or deemed to be payable in the manner provided by 26 law out of the property of the Company or any other obligor upon such Securities, wherever situated. If an Event of Default with respect to any Securities of any Series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such Series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 6.4 Trustee May File Proofs of Claim. -------------------------------- In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 27 SECTION 6.5 Trustee May Enforce Claims Without Possession of Securities. ----------------------------------------------------------- All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 6.6 Application of Money Collected. ------------------------------ Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: First: To the payment of all amounts due the Trustee under Section 7.7; and Second: To the payment of the amounts then due and unpaid for principal of and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest, respectively; and Third: To the Company. SECTION 6.7 Limitation on Suits. ------------------- No Holder of any Security of any Series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that Series; (b) the Holders of not less than 25% in principal amount of the outstanding Securities of that Series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and 28 (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Securities of that Series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 6.8 Unconditional Right of Holders to Receive Principal and Interest. ---------------------------------------------------------------- Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest on such Security on the Stated Maturity or Stated Maturities expressed in such Security (or, in the case of redemption, on the redemption date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 6.9 Restoration of Rights and Remedies. ---------------------------------- If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.10 Rights and Remedies Cumulative. ------------------------------ Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 2.8, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.11 Delay or Omission Not Waiver. ---------------------------- No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every 29 right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 6.12 Control by Holders. ------------------ The Holders of a majority in principal amount of the outstanding Securities of any Series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such Series, provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (c) subject to the provisions of Section 6.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. SECTION 6.13 Waiver of Past Defaults. ----------------------- The Holders of not less than a majority in principal amount of the outstanding Securities of any Series may on behalf of the Holders of all the Securities of such Series waive any past Default hereunder with respect to such Series and its consequences, except a Default (1) in the payment of the principal of or interest on any Security of such Series or (2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each outstanding Security of such Series affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.14 Undertaking for Costs. --------------------- All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of 30 the outstanding Securities of any Series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security on or after the Stated Maturity or Stated Maturities expressed in such Security (or, in the case of redemption, on or after the redemption date). ARTICLE VII TRUSTEE SECTION 7.1 Duties of Trustee. ----------------- (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others. (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon Officers' Certificates or Opinions of Counsel furnished to the Trustee and conforming to the requirements of this Indenture; however, in the ------- case of any such Officers' Certificates or Opinions of Counsel which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such Officers' Certificates and Opinions of Counsel to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) This paragraph does not limit the effect of paragraph (b) of this Section. (ii) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (iii) The Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it with respect to Securities of any Series in good faith in accordance with the direction of the Holders of a majority in principal amount of the outstanding Securities of such Series relating to the time, method and place of conducting any proceeding for any remedy available 31 to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such Series. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraph (a), (b) and (c) of this Section. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) No provision of this Indenture shall require the Trustee to risk its own funds or otherwise incur any financial liability in the performance of any of its duties, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk is not reasonably assured to it. (h) The Paying Agent, the Registrar and any authenticating agent shall be entitled to the protections, immunities and standard of care as are set forth in paragraphs (a), (b) and (c) of this Section with respect to the Trustee. SECTION 7.2 Rights of Trustee. ----------------- (a) The Trustee may rely on and shall be protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. No Depository shall be deemed an agent of the Trustee and the Trustee shall not be responsible for any act or omission by any Depository. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect 32 of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. SECTION 7.3 Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. SECTION 7.4 Trustee's Disclaimer. -------------------- The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than its authentication. SECTION 7.5 Notice of Defaults. ------------------ If a Default or Event of Default occurs and is continuing with respect to the Securities of any Series and if it is known to a Responsible Officer of the Trustee, the Trustee shall mail to each Securityholder of the Securities of that Series and, if any Bearer Securities are outstanding, publish on one occasion in an Authorized Newspaper, notice of a Default or Event of Default within 90 days after it occurs or, if later, after a Responsible Officer of the Trustee has knowledge of such Default or Event of Default. Except in the case of a Default or Event of Default in payment on any Security of any Series, the Trustee may withhold the notice if and so long as its corporate trust committee or a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of Securityholders of that Series. SECTION 7.6 Reports by Trustee to Holders. ----------------------------- Within 60 days after May 15 in each year, the Trustee shall transmit by mail to all Securityholders, as their names and addresses appear on the Security Register, and, if any Bearer Securities are outstanding, publish in an Authorized Newspaper, a brief report dated as of such May 15, in accordance with, and to the extent required under, TIA (S) 313. A copy of each report at the time of its mailing to Securityholders of any Series shall be filed with the SEC and each stock exchange on which the Securities of that Series are listed. The Company shall promptly notify the Trustee when Securities of any Series are listed on any stock exchange. 33 SECTION 7.7 Compensation and Indemnity. -------------------------- The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee (including the cost of defending itself) against any loss, liability or expense incurred by it except as set forth in the next paragraph in the performance of its duties under this Indenture as Trustee or Agent. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. This indemnification shall apply to officers, directors, employees, shareholders and agents of the Trustee. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee or by any officer, director, employee, shareholder or agent of the Trustee through negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities of any Series on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities of that Series. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(f) or (g) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.8 Replacement of Trustee. ---------------------- A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign with respect to the Securities of one or more Series by so notifying the Company. The Holders of a majority in principal amount of the Securities of any Series may remove the Trustee with respect to that Series by so notifying the Trustee and the Company. The Company may remove the Trustee with respect to Securities of one or more Series if: (a) the Trustee fails to comply with Section 7.10; 34 (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee with respect to the Securities of any one or more Series does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the Securities of the applicable Series may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee with respect to the Securities of any one or more Series fails to comply with Section 7.10, any Securityholder of the applicable Series may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee subject to the lien provided for in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee with respect to each Series of Securities for which it is acting as Trustee under this Indenture. A successor Trustee shall mail a notice of its succession to each Securityholder of each such Series and if any Bearer Securities are outstanding, publish such notice on one occasion in an Authorized Newspaper. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 hereof shall continue for the benefit of the retiring trustee with respect to expenses and liabilities incurred by it prior to such replacement. SECTION 7.9 Successor Trustee by Merger, etc. -------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10 Eligibility; Disqualification. ----------------------------- 35 This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee shall always have a combined capital and surplus of at least $10,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA (S) 310(b). SECTION 7.11 Preferential Collection of Claims Against Company. ------------------------------------------------- The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated. ARTICLE VIII SATISFACTION AND DISCHARGE SECTION 8.1 Satisfaction and Discharge of Indenture. --------------------------------------- This Indenture shall upon Company Order cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (a) either (i) all Securities theretofore authenticated and delivered (other than Securities that have been destroyed, lost or stolen and that have been replaced or paid) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee for cancellation (1) have become due and payable, or (2) will become due and payable at their Stated Maturity within one year, or (3) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, or (4) are deemed paid and discharged pursuant to Section 8.3, as applicable; and the Company, in the case of (1), (2) or (3) above, has deposited or caused to be deposited with the Trustee as trust funds in trust in an amount sufficient 36 for the purpose of paying and discharging the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Securities which become due and payable) or to the Stated Maturity or redemption date, as the case may be; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.7, and, if money shall have been deposited with the Trustee pursuant to clause (a) of this Section or if money or obligations shall have been deposited with or received by the Trustee pursuant to Section 8.3, the obligations of the Trustee under Section 8.2 and Section 8.5 shall survive. SECTION 8.2 Application of Trust Funds; Indemnification. ------------------------------------------- (a) Subject to the provisions of Section 8.5, all money deposited with the Trustee pursuant to Section 8.1, all money and U.S. Government Obligations or Foreign Government Securities deposited with the Trustee pursuant to Section 8.3 or 8.4 and all money received by the Trustee in respect of U.S. Government Obligations or Foreign Government Securities deposited with the Trustee pursuant to Section 8.3 or 8.4, shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the persons entitled thereto, of the principal and interest for whose payment such money has been deposited with or received by the Trustee or to make mandatory sinking fund payments or analogous payments as contemplated by Sections 8.3 or 8.4. (b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against U.S. Government Obligations or Foreign Government Securities deposited pursuant to Sections 8.3 or 8.4 or the interest and principal received in respect of such obligations other than any payable by or on behalf of Holders. (c) The Trustee shall deliver or pay to the Company from time to time upon Company Request any U.S. Government Obligations or Foreign Government Securities or money held by it as provided in Sections 8.3 or 8.4 which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such Obligations or Foreign Government Securities or money were deposited or received. 37 This provision shall not authorize the sale by the Trustee of any U.S. Government Obligations or Foreign Government Securities held under this Indenture. SECTION 8.3 Satisfaction, Discharge and Defeasance of Securities of any Series. ------------------------------------------------------------------ Unless this Section 8.3 is otherwise specified, pursuant to Section 2.2.20, to be inapplicable to Securities of any Series, the Company shall be deemed to have paid and discharged the entire indebtedness on all the outstanding Securities of any such Series on the 91st day after the date of the deposit referred to in subparagraph (d) hereof, and the provisions of this Indenture, as it relates to such outstanding Securities of any such Series, shall no longer be in effect (and the Trustee, at the expense of the Company, shall, at Company Request, execute proper instruments acknowledging the same), except as to: (a) the rights of Holders of Securities of such Series to receive, from the trust funds described in subparagraph (d) hereof, (i) payment of the principal of and each installment of principal of or interest on the outstanding Securities of such Series on the Stated Maturity of such principal or installment of principal or interest and (ii) the benefit of any mandatory sinking fund payments applicable to the Securities of such Series on the day on which such payments are due and payable in accordance with the terms of this Indenture and the Securities of such Series; (b) the Company's obligations with respect to such Securities of such Series under Sections 2.4, 2.7 and 2.8; and (c) the rights, powers, trust and immunities of the Trustee hereunder and the duties of the Trustee under Section 8.2 and the duty of the Trustee to authenticate Securities of such Series issued on registration of transfer or exchange; provided that, the following conditions shall have been satisfied: (d) the Company shall have deposited or caused to be deposited irrevocably with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for and dedicated solely to the benefit of the Holders of such Securities (i) in the case of Securities of such Series denominated in Dollars, cash in Dollars (or such other money or currencies as shall then be legal tender in the United States) and/or U.S. Government Obligations, or (ii) in the case of Securities of such Series denominated in a Foreign Currency (other than a composite currency), money and/or Foreign Government Securities in the same Foreign Currency, which through the payment of interest and principal in respect thereof, in accordance with their terms, will provide (and without reinvestment and assuming no tax liability will be imposed on such Trustee), not later than one day before the due date of any payment of money, an amount in cash, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge each installment of principal, (including mandatory sinking fund or analogous payments) of and any interest on all the Securities of such Series on the dates such installments of interest or principal are due; 38 (e) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (f) such provision would not cause any outstanding Securities of such Series then listed on the New York Stock Exchange or other securities exchange to be delisted as a result thereof; (g) no Default or Event of Default with respect to the Securities of such Series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date; (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel to the effect that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Securities of such Series will not recognize income, gain or loss for Federal income tax purposes as a result of such deposits, defeasance and discharge and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; (i) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of the Securities of such Series over any other creditors of the company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (j) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this Section have been complied with. SECTION 8.4 Defeasance of Certain Obligations. --------------------------------- Unless this Section 8.4 is otherwise specified pursuant to Section 2.2.20 to be inapplicable to Securities of any Series, on and after the 91st day after the date of the deposit referred to in subparagraph (a) hereof, the Company may omit to comply with any term, provision or condition set forth under Sections 4.2 (except as to corporate existence), 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, and 5.1 (and the failure to comply with any such provisions shall not constitute a Default or Event of Default under Section 6.1) and the occurrence of any event described in clause (e) of Section 6.1 shall not constitute a Default or Event of Default hereunder, with respect to the Securities of such Series, provided that the following conditions shall have been satisfied: (a) With reference to this Section 8.4, the Company has deposited or caused to be irrevocably deposited (except as provided in Section 8.3) with the Trustee as trust 39 funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities (i) in the case of Securities of such Series denominated in Dollars, cash in Dollars (or such other money or currencies as shall then be legal tender in the United States) and/or U.S. Government Obligations, or (ii) in the case of Securities of such Series denominated in a Foreign Currency (other than a composite currency), money and/or Foreign Government Securities in the same Foreign Currency, which through the payment of interest and principal in respect thereof, in accordance with their terms, will provide (and without reinvestment and assuming no tax liability will be imposed on such Trustee), not later than one day before the due date of any payment of money, an amount in cash, sufficient, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge each installment of principal (including mandatory sinking fund or analogous payments) of and any interest on all the Securities of such Series on the dates such installments of interest or principal are due; (b) Such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (c) No Default or Event of Default with respect to the Securities of such Series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date; (d) the Company shall have delivered to the Trustee an Opinion of Counsel confirming that Holders of the Securities of such Series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (e) the Company shall have delivered to the Trustee an Officers' Certificate stating the deposit was not made by the Company with the intent of preferring the Holders of the Securities of such Series over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (f) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the defeasance contemplated by this Section have been complied with. SECTION 8.5 Repayment to Company. -------------------- The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal and interest that remains unclaimed for two years. After that, Securityholders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person. 40 ARTICLE IX AMENDMENTS AND WAIVERS SECTION 9.1 Without Consent of Holders. -------------------------- The Company and the Trustee may amend or supplement this Indenture or the Securities of one or more Series without the consent of any Securityholder: (a) to cure any ambiguity, defect or inconsistency; (b) to comply with Article V; (c) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided that such amendment or -------- supplement does not adversely affect the rights of any Securityholders; (d) to make any change that does not adversely affect the rights of any Securityholder; (e) to provide for the issuance of and establish the form and terms and conditions of Securities of any Series as permitted by this Indenture; (f) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more Series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee; or (g) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. SECTION 9.2 With Consent of Holders. ----------------------- The Company and the Trustee may enter into a supplemental indenture with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities of each Series affected by such supplemental indenture, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Securityholders of each such Series. Except as provided in Section 6.13, the Holders of at least a majority in principal amount of the outstanding Securities of each Series affected by such waiver by notice to the Trustee may waive compliance by the Company with any provision of this Indenture or the Securities with respect to such Series. It shall not be necessary for the consent of the Holders of Securities under this Section 9.2 to approve the particular form of any proposed supplemental indenture or waiver, but it shall be sufficient if such consent approves the substance thereof. After a supplemental indenture or waiver under this section becomes effective, the Company shall mail to the Holders 41 of Securities affected thereby and, if any Bearer Securities affected thereby are outstanding, publish on one occasion in an Authorized Newspaper, a notice briefly describing the supplemental indenture or waiver. Any failure by the Company to mail or publish such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. SECTION 9.3 Limitations. ----------- Without the consent of each Securityholder affected, an amendment or waiver may not: (a) change the amount of Securities whose Holders must consent to an amendment, supplement or waiver; (b) reduce the rate of or extend the time for payment of interest (including default interest) on any Security; (c) reduce the principal or change the Stated Maturity of any Security or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation; (d) waive a Default or Event of Default in the payment of the principal of or interest on any Security (except a rescission of acceleration of the Securities of any Series by the Holders of at least a majority in aggregate principal amount of the then outstanding Securities of such Series and a waiver of the payment default that resulted from such acceleration); (e) make the Security payable in currency other than that stated in the Security; (f) make any change in Sections 6.8, 6.13, 9.3 (this sentence), 10.15 or 10.16; or (g) waive a redemption payment with respect to any Security or change any of the provisions with respect to the redemption of any Securities. SECTION 9.4 Compliance with Trust Indenture Act. ----------------------------------- Every amendment to this Indenture or the Securities of one or more Series shall be set forth in a supplemental indenture hereto that complies with the TIA as then in effect. SECTION 9.5 Revocation and Effect of Consents. --------------------------------- Until an amendment or waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent 42 Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. Any amendment or waiver once effective shall bind every Securityholder of each Series affected by such amendment or waiver unless it is of the type described in any of clauses (a) through (g) of Section 9.3. In that case, the amendment or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security. SECTION 9.6 Notation on or Exchange of Securities. ------------------------------------- The Trustee may place an appropriate notation about an amendment or waiver on any Security of any Series thereafter authenticated. The Company in exchange for Securities of that Series may issue and the Trustee shall authenticate upon request new Securities of that Series that reflect the amendment or waiver. SECTION 9.7 Trustee Protected. ----------------- In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 7.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee shall sign all supplemental indentures, except that the Trustee need not sign any supplemental indenture that adversely affects its rights. 43 ARTICLE X MISCELLANEOUS SECTION 10.1 Trust Indenture Act Controls. ---------------------------- If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required or deemed to be included in this Indenture by the TIA, such required or deemed provision shall control. SECTION 10.2 Notices. ------- Any notice or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person or mailed by first-class mail: if to the Company: Mattel, Inc. 333 Continental Boulevard El Segundo, California 90245-5012 Attention: Ned Mansour, President, Mattel USA if to the Trustee: Chemical Trust Company of California 50 California Street, 10th Floor San Francisco, California 94111 Attention: Paula Oswald, Assistant Vice President The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to a Securityholder shall be mailed by first-class mail to his address shown on the register kept by the Registrar and, if any Bearer Securities are outstanding, published in an Authorized Newspaper. Failure to mail a notice or communication to a Securityholder of any Series or any defect in it shall not affect its sufficiency with respect to other Securityholders of that or any other Series. If a notice or communication is mailed or published in the manner provided above, within the time prescribed, it is duly given, whether or not the Securityholder receives it. If the Company mails a notice or communication to Securityholders, it shall mail a copy to the Trustee and each Agent at the same time. 44 SECTION 10.3 Communication by Holders with Other Holders. ------------------------------------------- Securityholders of any Series may communicate pursuant to TIA (S) 312(b) with other Securityholders of that Series or any other Series with respect to their rights under this Indenture or the Securities of that Series or all Series. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). SECTION 10.4 Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 10.5 Statements Required in Certificate or Opinion. --------------------------------------------- Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S) 314(e) and shall include: (a) a statement that the person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 10.6 Rules by Trustee and Agents. --------------------------- The Trustee may make reasonable rules for action by or a meeting of Securityholders of one or more Series. Any Agent may make reasonable rules and set reasonable requirements for its functions. 45 SECTION 10.7 Legal Holidays. -------------- Unless otherwise provided by Board Resolution or supplemental indenture hereto for a particular Series, a "Legal Holiday" is a Saturday, a Sunday, or a day on which banking institutions are not required to be open. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 10.8 No Recourse Against Others. -------------------------- A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. SECTION 10.9 Counterparts. ------------ This Indenture may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 10.10 Governing Laws. -------------- THE INTERNAL LAWS OF THE STATE OF CALIFORNIA SHALL GOVERN THIS INDENTURE AND THE SECURITIES, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISION THEREOF. SECTION 10.11 No Adverse Interpretation of Other Agreements. --------------------------------------------- This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.12 Successors. ---------- All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 10.13 Severability. ------------ In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 46 SECTION 10.14 Table of Contents, Headings, Etc. -------------------------------- The Table of Contents, Cross-Reference Table, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 10.15 Securities in a Foreign Currency or in ECU. ------------------------------------------ Unless otherwise specified in an Officers' Certificate delivered pursuant to Section 2.2 of this Indenture with respect to a particular Series of Securities, whenever for purposes of this Indenture any action may be taken by the Holders of a specified percentage in aggregate principal amount of Securities of all Series or all Series affected by a particular action at the time outstanding and, at such time, there are outstanding Securities of any Series which are denominated in a coin or currency other than Dollars (including ECUs), then the principal amount of Securities of such Series which shall be deemed to be outstanding for the purpose of taking such action shall be that amount of Dollars that could be obtained for such amount at the Market Exchange Rate at such time. For purposes of this Section 10.15, "Market Exchange Rate" shall mean the noon Dollar buying rate in New York City for cable transfers of that currency as published by the Federal Reserve Bank of New York; provided, however, in -------- ------- the case of ECUs, Market Exchange Rate shall mean the rate of exchange determined by the Commission of the European Union (or any successor thereto) as published in the Official Journal of the European Union (such publication or any successor publication, the "Journal"). If such Market Exchange Rate is not available for any reason with respect to such currency, the Trustee shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York or, in the case of ECUs, the rate of exchange as published in the Journal, as of the most recent available date, or quotations or, in the case of ECUs, rates of exchange from one or more major banks in The City of New York or in the country of issue of the currency in question or, in the case of ECUs, in Luxemburg or such other quotations or, in the case of ECUs, rates of exchange as the Trustee, upon consultation with the Company, shall deem appropriate. The provisions of this paragraph shall apply in determining the equivalent principal amount in respect of Securities of a Series denominated in currency other than Dollars in connection with any action taken by Holders of Securities pursuant to the terms of this Indenture. All decisions and determinations of the Trustee regarding the Market Exchange Rate or any alternative determination provided for in the preceding paragraph shall be in its sole discretion and shall, in the absence of manifest error, be conclusive to the extent permitted by law for all purposes and irrevocably binding upon the Company and all Holders. SECTION 10.16 Judgment Currency. ----------------- The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of or interest or other amount on the Securities of any Series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the 47 Required Currency with the Judgment Currency on the day on which final unappealable judgment is entered, unless such day is not a New York Banking Day, then, to the extent permitted by applicable law, the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which final unappealable judgment is entered and (b) its obligations under this Indenture to take payments in the Required Currency (i) shall not be discharged or satisfied by any tender, any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable, and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in The City of New York on which banking institutions are authorized or required by law, regulation or executive order to close. ARTICLE XI SINKING FUNDS SECTION 11.1 Applicability of Article. ------------------------ The provisions of this Article shall be applicable to any sinking fund for the retirement of the Securities of a Series, except as otherwise permitted or required by any form of Security of such Series issued pursuant to this Indenture. The minimum amount of any sinking fund payment provided for by the terms of the Securities of any Series is herein referred to as a "mandatory sinking fund payment" and any other amount provided for by the terms of Securities of such Series is herein referred to as an "optional sinking fund payment." If provided for by the terms of Securities of any Series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 11.2. Each sinking fund payment shall be applied to the redemption of Securities of any Series as provided for by the terms of the Securities of such Series. SECTION 11.2 Satisfaction of Sinking Fund Payments with Securities. ----------------------------------------------------- The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such Series to be made pursuant to the terms of such Securities (1) deliver outstanding Securities of such Series to which such sinking fund payment is applicable (other than any of such Securities previously called for mandatory sinking fund redemption) and (2) apply as credit Securities of such Series to which such sinking fund payment is applicable and which have been redeemed either at the election of the Company pursuant to the terms of such Series of Securities (except pursuant to any mandatory sinking fund) or through the application of permitted optional sinking fund payments or other optional 48 redemptions pursuant to the terms of such Securities, provided that such Securities have not been previously so credited. Such Securities shall be received by the Trustee, together with an Officers' Certificate with respect thereto, not later than 15 days prior to the date on which the Trustee begins the process of selecting Securities for redemption, and shall be credited for such purpose by the Trustee at the price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Securities in lieu of cash payments pursuant to this Section 11.2, the principal amount of Securities of such Series to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Securities of such Series for redemption, except upon receipt of a Company Order that such action be taken, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall from time to --------- -------- time upon receipt of a Company Order pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that Series purchased by the Company having an unpaid principal amount equal to the cash payment required to be released to the Company. SECTION 11.3 Redemption of Securities for Sinking Fund. ----------------------------------------- Not less than 60 days (unless otherwise indicated in the Board Resolution or Officers' Certificate or supplemental indenture in respect of a particular Series of Securities) prior to each sinking fund payment date for any Series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that Series pursuant to the terms of that Series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that Series pursuant to Section 11.2, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and the Company shall thereupon be obligated to pay the amount therein specified. Not less than 45 days (unless otherwise indicated in the Board Resolution or Officers' Certificate or supplemental indenture in respect of a particular Series of Securities) before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 3.2 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.3. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 3.4, 3.5 and 3.6. 49 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. MATTEL, INC. (SEAL) By: /s/ WILLIAM STAVRO --------------------------- William Stavro Attest: Senior Vice President and Treasurer CHEMICAL TRUST COMPANY OF CALIFORNIA By: /s/ HANS H. HELLEY --------------------------- Hans H. Helley Assistant Vice President 50 EX-10.0 7 dex100.txt AMENDED & RESTATED CREDIT AGREEMENT DATED 3/20/2002 EXHIBIT 10.0 =============================================================================== Amended and Restated Credit Agreement Dated as of March 20, 2002 among MATTEL, INC., as Borrower BANK OF AMERICA, N.A., as Administrative Agent and The Financial Institutions Party Hereto BANC OF AMERICA SECURITIES LLC, as Sole Lead Arranger and Sole Book Manager CITICORP USA, INC., and FLEET NATIONAL BANK, as Syndication Agents SOCIETE GENERALE and BNP PARIBAS, as Documentation Agents =============================================================================== TABLE OF CONTENTS Section Page SECTION 1. DEFINITIONS........................................................1 1.01 Certain Defined Terms...........................................1 1.02 Other Definitional Provisions..................................14 SECTION 2. THE COMMITMENTS...................................................14 2.01 The Aggregate Facilities Commitment............................14 2.02 Loan Accounts and Notes........................................15 2.03 Borrowing Procedure............................................15 2.04 Conversion and Continuation Elections..........................16 2.05 Reduction or Termination of Aggregate Facilities Commitment....17 2.06 Voluntary Prepayments..........................................17 2.07 Repayment of Loans.............................................18 2.08 Interest on the Loans..........................................18 2.09 Fees...........................................................18 2.10 Calculation of Interest and Fees...............................19 2.11 Payments by the Company........................................19 2.12 Payments by the Lenders to the Administrative Agent............20 2.13 Sharing of Payments, Etc.......................................21 SECTION 3. PAYMENTS IN GENERAL...............................................21 3.01 Taxes..........................................................21 3.02 Capital Adequacy...............................................23 3.03 Illegality.....................................................23 3.04 Increased Costs and Reduction of Return........................24 3.05 Funding Losses.................................................24 3.06 Inability to Determine Rates...................................25 3.07 Survival.......................................................25 SECTION 4. CONDITIONS PRECEDENT..............................................25 4.01 Conditions to Effectiveness....................................25 4.02 Conditions to All Loans........................................27 SECTION 5. REPRESENTATIONS AND WARRANTIES....................................27 5.01 Organization and Powers........................................27 5.02 Good Standing..................................................28 5.03 Material Subsidiaries..........................................28 5.04 Authorization of Borrowing.....................................28 5.05 No Conflict....................................................28 5.06 Governmental Consents..........................................28 5.07 Binding Obligation.............................................28 5.08 Financial Condition............................................29 5.09 Changes, Etc...................................................29 5.10 Title to Properties............................................29 5.11 Litigation; Adverse Facts......................................29 5.12 Payment of Taxes...............................................30 5.13 Agreements.....................................................30 5.14 Performance....................................................30 5.15 Governmental Regulation........................................30 - i - Mattel, Inc. Amended and Restated Credit Agreement 5.16 Employee Benefit Plans.........................................30 5.17 Environmental Matters..........................................30 5.18 Disclosure.....................................................30 5.19 Subordination Agreements.......................................31 SECTION 6. AFFIRMATIVE COVENANTS.............................................31 6.01 Financial Statements...........................................31 6.02 Certificates; Other Information................................32 6.03 Notices........................................................33 6.04 Corporate Existence, etc.......................................34 6.05 Payment of Taxes and Claims; Tax Consolidation.................34 6.06 Maintenance of Properties; Insurance...........................34 6.07 Inspection of Property and Books and Records...................35 6.08 Use of Proceeds of Loans.......................................35 6.09 Environmental Laws.............................................35 6.10 Subordination Agreements.......................................35 6.11 Compliance with Laws...........................................35 SECTION 7. NEGATIVE COVENANTS................................................35 7.01 Indebtedness...................................................36 7.02 Liens..........................................................36 7.03 Restriction on Fundamental Changes.............................36 7.04 Sale or Discount of Receivables................................37 7.05 Consolidated Funded Indebtedness to Total Capitalization.......37 7.06 Interest Coverage Ratio........................................37 7.07 ERISA..........................................................38 7.08 Margin Regulations.............................................38 7.09 Independence of Covenants......................................38 SECTION 8. EVENTS OF DEFAULT.................................................38 8.01 Events of Default..............................................38 8.02 Remedies.......................................................41 8.03 Rights Not Exclusive...........................................41 SECTION 9. THE ADMINISTRATIVE AGENT..........................................41 9.01 Appointment and Authorization..................................41 9.02 Delegation of Duties...........................................41 9.03 Liability of Administrative Agent..............................41 9.04 Reliance by Administrative Agent...............................42 9.05 Notice of Default..............................................42 9.06 Credit Decision................................................43 9.07 Indemnification................................................43 9.08 Administrative Agent in Individual Capacity....................44 9.09 Successor Administrative Agent.................................44 9.10 Other Agents; Lead Managers....................................44 SECTION 10. MISCELLANEOUS................................................ ...45 10.01 Amendments and Waivers.........................................45 10.02 Notices and Other Communications; Facsimile Copies.............46 10.03 Failure or Indulgence Not Waiver; Remedies Cumulative..........47 10.04 Fees and Expenses..............................................47 10.05 Indemnity......................................................47 10.06 Set Off........................................................48 - ii - Mattel, Inc. Amended and Restated Credit Agreement 10.07 Survival of Warranties and of Certain Agreements...............48 10.08 Successors and Assigns.........................................49 10.09 Severability...................................................51 10.10 Obligations Several............................................52 10.11 Certain Changes................................................52 10.12 Headings.......................................................52 10.13 Counterparts...................................................52 10.14 Integration....................................................52 10.15 Tax Forms......................................................52 10.16 Applicable Law.................................................53 10.17 Waiver of Right to Trial by Jury...............................54 10.18 Amendment and Restatement......................................54 SIGNATURE PAGES S-1 EXHIBITS Form of: A Note B Notice of Borrowing C Notice of Conversion/Continuation D Officers' Certificate E Opinion of Assistant General Counsel or Senior Counsel of Company F-1 Fisher-Price Continuing Guaranty F-2 Mattel Sales Continuing Guaranty G-1 Fisher-Price Subordination Agreements G-2 Mattel Sales Subordination Agreements H Assignment and Assumption SCHEDULES 1.01 Commitments and Pro Rata Shares 5.03 Material Subsidiaries of Company 5.11 Material Litigation 7.02 Certain Liens 10.02 Address and Notice Information - iii - Mattel, Inc. Amended and Restated Credit Agreement MATTEL, INC. AMENDED AND RESTATED CREDIT AGREEMENT This AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is dated --------- as of March 20, 2002 and is entered into by and among MATTEL, INC., a Delaware corporation (the "Company"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE ------- PAGES HEREOF (individually referred to herein as a "Lender" and collectively as ------ the "Lenders"), BANK OF AMERICA, N.A., as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), BANC OF AMERICA SECURITIES LLC, -------------------- as sole lead arranger and sole book manager (in such capacity, the "Arranger"), -------- CITICORP USA, INC., and FLEET NATIONAL BANK, as syndication agents (in such capacity, the "Syndication Agents") and SOCIETE GENERALE, and BNP PARIBAS as ------------------ documentation agents (in such capacity, the "Documentation Agents"). -------------------- PRELIMINARY STATEMENTS A. The Company, certain of the Lenders and the Administrative Agent are parties to that certain Credit Agreement dated as of March 10, 1995 (as amended) as amended and restated by a First Amended and Restated Credit Agreement dated as of March 13, 1997 (as amended) as further amended and restated by a Second Amended and Restated Credit Agreement dated as of March 11, 1998 (as amended) (as so amended and restated, the "Existing Multi-Year ------------------- Credit Agreement") pursuant to which the Lenders agreed to make certain credit - ---------------- facilities available to the Company in accordance with the terms of the Existing Multi-Year Credit Agreement. B. The Company, the Lenders and the Administrative Agent desire to further amend and restate the Existing Multi-Year Credit Agreement in its entirety on the terms and conditions set forth herein. In consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company, the Lenders and the Administrative Agent agree to further amend and restate the Existing Multi-Year Credit Agreement in its entirety as follows: SECTION 1. DEFINITIONS 1.01 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "Administrative Agent" has the meaning assigned to that term in the -------------------- introduction to this Agreement. "Administrative Agent's Office" means the Administrative Agent's ----------------------------- address and, as appropriate, account identified as such on Schedule 10.02, or -------------- such other address or account as the Administrative Agent may from time to time notify to the Company and the Lenders. - 1 - Mattel, Inc. Amended and Restated Credit Agreement "Administrative Agent-Related Persons" means Administrative Agent and ------------------------------------ any successor administrative agent arising under Section 9.09, together with their respective Affiliates (including, in the case of Bank of America, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Affiliate", as applied to any Person, means any other Person directly --------- or indirectly controlling, controlled by or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Aggregate Facilities Commitment" means the combined Commitments of all ------------------------------- the Lenders and is the amount set forth opposite "Total" under "Aggregate Facilities Commitments" on Schedule 1.01, as such amount may be reduced from ------------- time to time in accordance with this Agreement. "Agreement" means this Credit Agreement, as it may hereafter be --------- amended, supplemented, restated or otherwise modified from time to time. - 2 - Mattel, Inc. Amended and Restated Credit Agreement "Applicable Amount" means the commitment fee, utilization fee or the ----------------- margin applicable to Loans (expressed in basis points per annum) set forth in the chart below opposite the second highest rating issued by S&P, Moody's or Fitch on the Company's senior unsecured long-term debt:
Utilization Fee --------------------------------------- Senior Unsecured Long-Term Debt Eurodollar Rate When Loans exceed When Loans exceed Ratings Loans Commitment Fee 33%/1/ 66%/1/ - ------------------------------------------------------------------------------------------------------------------ A or higher by S&P 30.0 10.0 12.5 25.0 A2 or higher by Moody's A or higher by Fitch - ------------------------------------------------------------------------------------------------------------------ A- by S&P A3 by Moody's 50.0 12.5 12.5 25.0 A- by Fitch - ------------------------------------------------------------------------------------------------------------------ BBB+ by S&P 62.5 15.0 12.5 25.0 Baa1 by Moody's BBB+ by Fitch - ------------------------------------------------------------------------------------------------------------------ BBB by S&P Baa2 by Moody's 75.0 17.5 12.5 25.0 BBB by Fitch - ------------------------------------------------------------------------------------------------------------------ BBB- by S&P Baa3 by Moody's 112.5 22.5 12.5 25.0 BBB- by Fitch - ------------------------------------------------------------------------------------------------------------------ None of above criteria satisfied 125.0 30.0 12.5 25.0 - ------------------------------------------------------------------------------------------------------------------
Any change in the commitment fee, utilization fee or the margin applicable to Loans shall become effective upon any public announcement of any change in the above ratings that requires such a change according to the above chart. "Arranger" means Banc of America Securities LLC, in its capacity as -------- sole lead arranger and sole book manager. "Availability Period" means the period from the Effective Date to but ------------------- excluding the Termination Date. "Assignment and Assumption" means an Assignment and Assumption ------------------------- substantially in the form of Exhibit H. --------- ------------------------- /1/The specified utilization fee applicable when the aggregate principal amount of outstanding Loans exceeds the indicated percentage of an amount equal to (i) the Aggregate Facilities Commitment less (ii) the ---- aggregate outstanding amount of the Purchasers' Investments. - 3 - Mattel, Inc. Amended and Restated Credit Agreement "Bank of America" means Bank of America, N.A. --------------- "Base Rate" means for any day a fluctuating rate per annum equal to the --------- higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate." Such rate is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Base Rate Loans" means Loans made by the Lenders bearing interest at --------------- rates determined by reference to the Base Rate. "Business Day" means any day other than a Saturday, Sunday or other day ------------ on which commercial banks are authorized to close under the laws of, or are in fact closed in, California or the state where the Administrative Agent's Office is located (which, as of the date hereof, is California) and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market. "Capital Assets" means, as at any date of determination, those assets -------------- of a Person that would, in conformity with GAAP, be classified as property, plant or equipment on the balance sheet of that Person. "Capital Lease" as applied to any Person, means any lease of any ------------- property (whether real, personal or mixed) by that Person as lessee which would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person other than, in the case of the Company or any of its Subsidiaries, any such lease under which the Company or any of its Subsidiaries is the lessor. "Change of Control" means, with respect to any Person, an event or ----------------- series of events by which: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire (such right, an "option ------ right"), whether such right is exercisable immediately or only after ----- the passage of time), directly or indirectly, of 33% or more of the equity securities of such Person entitled to vote for members of the board of directors or equivalent governing body of such Person on a partially-diluted basis (i.e., taking into account all such securities --- that such person or group has the right to acquire pursuant to any option right); or - 4 - Mattel, Inc. Amended and Restated Credit Agreement (b) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of such Person cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body. "Combined Purchasers' Investments" means an amount equal to the sum of -------------------------------- (a) the Purchasers' Investments under the Receivables Purchase Agreement plus ---- (b) the analogous amount under Other Permitted Accounts Receivable Financing Facilities relating to the sales of accounts receivable of Domestic Subsidiaries (without duplication for accounts receivable sold to a Subsidiary of the Company and then sold to a third party purchaser). "Commitment" means, as to each Lender, (a) its obligation to make Loans ---------- to the Company pursuant to Section 2.01 and (b) its Purchaser Commitment under ------------ the Receivables Purchase Agreement, in an aggregate amount equal to the amount set forth opposite such Lender's name on Schedule 1.01, as such amount may be ------------- reduced from time to time in accordance with this Agreement. "Company" means Mattel, Inc., a Delaware corporation. ------- "Company Party" means the Company, Mattel Sales, Fisher-Price and ------------- Mattel Factoring, Inc. "Consolidated Funded Indebtedness" means, at any date of determination, -------------------------------- for the Company and its Subsidiaries on a consolidated basis, the sum of (a) all obligations and liabilities, whether current or long-term, for borrowed money, (b) that portion of obligations with respect to Capital Leases which is capitalized on the consolidated balance sheet of the Company and its Subsidiaries, and (c) all guaranties of unconsolidated funded obligations for borrowed money, all determined in conformity with GAAP. "Consolidated Net Income" for any period, means the net income (or ----------------------- loss) of the Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP. "Contingent Obligation", as applied to any Person, means, without --------------------- duplication, any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof or (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for - 5 - Mattel, Inc. Amended and Restated Credit Agreement reimbursement of drawings. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another and (b) any liability of such Person for the obligations of another through any agreement (contingent or otherwise) (x) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (y) to maintain the solvency or any balance sheet item, level of income or financial condition of another, if in the case of any agreement described under subclauses (x) or (y) of this sentence the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. The amount of any Contingent Obligation denominated in a currency other than Dollars shall be equal to the Dollar Equivalent of such Contingent Obligation. "Contractual Obligation", as applied to any Person, means any provision ---------------------- of any security issued by that Person or of any material written indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Default" means any event or circumstance which, with the giving of ------- notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Default Rate" means an interest rate equal to the Base Rate plus 2% ------------ ---- per annum; provided, however, that with respect to the principal of a Eurodollar -------- ------- Rate Loan prior to the end of the Interest Period therefor, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Amount) otherwise applicable to such Loan plus 2% per annum, in each case to the fullest extent permitted by applicable laws. "Defaulting Lender" means any Lender that (a) has failed to fund any ----------------- portion of its Loans hereunder or Purchasers' Investment under the Receivables Purchase Agreement required to be funded by it within one Business Day of the date required to be funded by it, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder or under the Receivables Purchase Agreement within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent by the Federal Deposit Insurance Company, the Comptroller of the Currency or the Federal Reserve Board or become the subject of a bankruptcy or insolvency proceeding. "Dollars" means lawful money of the United States of America. ------- "Domestic Subsidiary" means a Subsidiary of the Company that is ------------------- incorporated in a jurisdiction of the United States of America. "Effective Date" means the date on or after March 20, 2002 on which all -------------- the conditions in Section 4.01 are satisfied or waived. ------------ - 6 - Mattel, Inc. Amended and Restated Credit Agreement "Eligible Assignee" has the meaning specified in Section 10.08(f). ----------------- ---------------- "Environmental Claims" means all claims, however asserted, by any -------------------- Governmental Person or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, ------------------ common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Person, in each case relating to environmental, health, safety and land use matters. "ERISA" means, at any time, the Employee Retirement Income Security Act ----- of 1974, as amended from time to time and any successor statute, and the rules and regulations promulgated thereunder. "ERISA Affiliate", as applied to any Person, means any trade or --------------- business (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of Section 414(b) and 414(c) of the Internal Revenue Code. "Eurodollar Rate Loans" means Loans bearing interest at rates --------------------- determined by reference to the Eurodollar Rate as provided in Section 2.08(a). --------------- "Eurodollar Rate" means for any Interest Period with respect to any --------------- Eurodollar Rate Loan, a rate per annum determined by Administrative Agent pursuant to the following formula: Eurodollar Base Rate Eurodollar Rate = -------------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Base Rate" means, for such Interest Period: -------------------- (a) the rate per annum equal to the rate determined by Administrative Agent to be the offered rate that appears on the page of the Telerate screen that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (b) in the event the rate referenced in the preceding subsection (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum equal to the rate determined by Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or - 7 - Mattel, Inc. Amended and Restated Credit Agreement (c) in the event the rates referenced in the preceding subsections (a) and (b) are not available, the rate per annum determined by Administrative Agent as the rate of interest (rounded upward to the next 1/100th of 1%) at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Administrative Agent (or its Affiliate) in its capacity as a Lender and with a term equivalent to such Interest Period would be offered by Bank of America's London Branch to major banks in the offshore Dollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period. "Eurodollar Reserve Percentage" means, for any day during any ----------------------------- Interest Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. The determination of the Eurodollar Reserve Percentage and the Eurodollar Base Rate by Administrative Agent shall be conclusive in the absence of manifest error. "Event of Default" means any of the events set forth in Section 8.01. ---------------- ------------ "Exchange Act" means, at any time, the Securities Exchange Act of 1934, ------------ as amended from time to time, and any successor statute, and the rules and regulations promulgated thereunder. "Existing Multi-Year Credit Agreement" has the meaning set forth in ------------------------------------ Recital A hereto. "Existing 364-Day Credit Agreement" means that certain Credit Agreement --------------------------------- (364-Day Facility) dated as of March 29, 2001, among the Company, the banks party thereto and Bank of America, N.A. as agent. "Federal Funds Rate" means, for any day, the rate per annum equal to ------------------ the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the -------- Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to Bank of America on such day on such transactions as determined by the Administrative Agent. "Federal Reserve Board" means the Board of Governors of the Federal --------------------- Reserve System or any successor thereof. - 8 - Mattel, Inc. Amended and Restated Credit Agreement "Fisher-Price" means Fisher-Price, Inc., a Delaware corporation. ------------ "Fisher-Price Guaranty" means the Amended and Restated Continuing --------------------- Guaranty signed by Fisher-Price substantially in the form of Exhibit F-1 hereto, ----------- as amended, supplemented, restated or otherwise modified from time to time. "Fisher-Price Subordination Agreement" means the Amended and Restated ------------------------------------ Fisher-Price Subordination Agreement substantially in the form of Exhibit G-1 ----------- attached hereto signed by the Company and certain Affiliates of the Company with respect to which Fisher-Price has material outstanding obligations, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time. "Fitch" means Fitch ICBA or any successor thereto. ----- "Foreign Lender" has the meaning specified in Section 10.15(a). -------------- ---------------- "Funding Date" means the Business Day of the funding of a Loan. ------------ "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Person" means the government of the United States or any ------------------- foreign government or the government of any state or locality therein, any political subdivision or any governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body or entity, or other regulatory bureau, authority, body or entity of the United States, any foreign government or any state or locality therein, including the Federal Deposit Insurance Company, the Comptroller of the Currency or the Federal Reserve Board. "Governmental Rule" means any law, statute, rule, regulation, ----------------- ordinance, order, judgment, guidelines or decision of any Governmental Person. "Indebtedness", as applied to any Person, means (i) all indebtedness ------------ for borrowed money, (ii) that portion of obligations with respect to Capital Leases which is required to be capitalized on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services which purchase price is (y) due more than twelve months from the date of incurrence of the obligation in respect thereof, or (z) evidenced by a promissory note and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person. The amount of any Indebtedness shall be the principal amount of and all interest, premium, if any, and other fees and expenses accrued on any of the foregoing. - 9 - Mattel, Inc. Amended and Restated Credit Agreement "Interest Payment Date" means, with respect to any Eurodollar Rate --------------------- Loan, the last day of each Interest Period applicable to such Loan and, with respect to any Base Rate Loan, the last Business Day of each calendar quarter, and with respect to all Loans, the Termination Date; provided, however, that if -------- ------- any Interest Period for a Eurodollar Rate Loan exceeds three months, interest shall also be paid on the date which falls three months after the beginning of such Interest Period. "Interest Period" means, with respect to any Eurodollar Rate Loan, the --------------- period commencing on the Business Day the Eurodollar Rate Loan is disbursed or continued or on the date on which a Loan is converted into a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: -------- (i) if any Interest Period pertaining to a Eurodollar Rate Loan would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period shall extend beyond the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as --------------------- amended to the date hereof and from time to time hereafter, and the rules and regulations promulgated thereunder. "Lender" has the meaning assigned to that term in the introduction to ------ this Agreement, together with any other financial institutions that become a party hereto as a "Lender" pursuant to Section 10.08. ------------- "Lending Office" means, with respect to any Lender, the office or -------------- offices of the Lender specified as its "Lending Office" under its name on Schedule 10.02 hereto, or such other office or offices of the Lender as it may - -------------- from time to time specify to the Company and the Administrative Agent in writing. "Lien" means any lien, mortgage, pledge, security interest, charge or ---- encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any kind of security interest). "Loan Documents" means this Agreement, any Notes, the Mattel Sales -------------- Guaranty, the Fisher-Price Guaranty, the Mattel Sales Subordination Agreement, the Fisher-Price Subordination Agreement and all documents and instruments delivered in connection herewith or therewith, but shall not include the Transaction Documents. - 10 - Mattel, Inc. Amended and Restated Credit Agreement "Loans" has the meaning set forth in Section 2.01. ----- ------------ "Margin Stock" has the meaning assigned to the term "Margin Stock" in ------------ Regulation U of the Federal Reserve Board as in effect from time to time. "Material Adverse Effect" means (i) a material adverse effect upon the ----------------------- business, operations, properties, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (ii) a material impairment of the ability of the Company to perform the Obligations or of the Lenders to enforce the Obligations. "Material Subsidiary" means Mattel Sales, Fisher-Price, or any other ------------------- Subsidiary of the Company which meets any of the following conditions: (a) the Company's and its Subsidiaries' investments in, and advances to, the Subsidiary exceed 10 percent of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year (for a proposed business combination to be accounted for as a pooling of interest, this condition is also met when the number of common shares exchanged or to be exchanged by the Company exceeds 10 percent of its total common shares outstanding at the date the combination is initiated); or (b) the Company and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10 percent of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (c) the Company and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principles of the Subsidiary exceeds 10 percent of such income of the Company and its Subsidiaries consolidated for the most recently completed fiscal year. For purpose of meeting the prescribed income test the following guidance should be applied: (i) When a loss has been incurred by either the Company and its Subsidiaries consolidated or the tested Subsidiary, but not both, the equity in the income or loss of the tested Subsidiary should be excluded from the income of the Company and its Subsidiaries consolidated for purposes of the computation. (ii) If income of the Company and its Subsidiaries consolidated for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five years, such average income should be substituted for purposes of the computation. Any loss years should be omitted for purposes of computing average income. (iii) Where the test involves combined entities, as in the case of determining whether summarized financial data should be presented, entities reporting losses shall not be aggregated with entities reporting income. "Mattel Sales" means Mattel Sales Corp., a California corporation. ------------ - 11 - Mattel, Inc. Amended and Restated Credit Agreement "Mattel Sales Guaranty" means the Amended and Restated Continuing --------------------- Guaranty signed by Mattel Sales substantially in the form of Exhibit F-2 hereto, ----------- as amended, supplemented, restated or otherwise modified from time to time. "Mattel Sales Subordination Agreement" means the Amended and Restated ------------------------------------ Mattel Sales Subordination Agreement substantially in the form of Exhibit G-2 ----------- attached hereto signed by the Company and certain Affiliates of the Company with respect to which Mattel Sales has material outstanding obligations, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time. "Moody's" means Moody's Investors Service, Inc. or any successor ------- thereto. "Multiemployer Plan" means a "multiemployer plan" as defined in Section ------------------ 4001(a)(3) of ERISA which is maintained for employees of the Company or any ERISA Affiliate of the Company. "Non-Priority Indebtedness" means Indebtedness which (a) is not senior ------------------------- to the Obligations, (b) does not have any priority of payment over the Obligations or (c) is not secured by Liens on any of the Company's or any Subsidiary's assets. "Note" means a promissory note of the Company payable to the order of a ---- Lender substantially in the form of Exhibit A hereto, evidencing the Loans made --------- by such Lender to the Company. "Notice of Borrowing" means a notice substantially in the form of ------------------- Exhibit B hereto with respect to a proposed borrowing pursuant to Section ------- 2.03(a). - ------- "Notice of Conversion/Continuation" means a notice given by the Company --------------------------------- to the Administrative Agent pursuant to Section 2.04, in substantially the form ------------ of Exhibit C hereto. --------- "Obligations" means (a) all obligations of every nature of the Company, ----------- Fisher-Price and Mattel Sales from time to time owed to the Administrative Agent, the Lenders or any other Person required to be indemnified hereunder, or any of them, under any Loan Document and (b) all obligations of every nature of any Seller Party (as defined in the Receivables Purchase Agreement) from time to time owed to the Administrative Agent, the Purchasers or any other Person required to be indemnified thereunder, or any of them, under any Transaction Document. "Officers' Certificate" means a certificate substantially in the form -------- of Exhibit D hereto executed on behalf of the Company by two different officers of the Company, one of which shall be (a) its Chairman of the Board (if an officer), one of its Presidents, one of its Executive Vice Presidents, or one of its Senior Vice Presidents, and the other one of which shall be (b) its Chief Financial Officer, its Treasurer, one of its Assistant Treasurers, or its Controller, delivered to the Lenders by the Company pursuant to Section 6.02(a). --------------- "Other Permitted Accounts Receivable Financing Facility" means a ------------------------------------------------------ financing arrangement (other than the Receivables Purchase Agreement and the Purchase and Sale Agreement) entered into in the ordinary course of business under which accounts receivable of - 12 - Mattel, Inc. Amended and Restated Credit Agreement the Company, Mattel Sales, Fisher-Price or any other Subsidiary are periodically sold directly to third party purchasers, or sold to a Subsidiary of the Company formed for such purpose which in turn sells such accounts receivable to third party purchasers; provided, however, that in connection -------- ------- with any such financing arrangement: (a) there is no recourse to the Company or any of its Subsidiaries on account of the creditworthiness of the obligor on such accounts receivable; and (b) no negative pledge or Lien is created on any accounts receivables not actually sold or discounted. "Participant" has the meaning set forth in Section 10.08(d). ----------- ---------------- "Pension Plan" means any employee plan which is subject to Section 412 ------------ of the Internal Revenue Code and which is maintained for employees of the Company or any ERISA Affiliate of the Company other than a Multiemployer Plan. "Percentage" has the meaning set forth in the Receivables Purchase ---------- Agreement. "Person" means any individual, partnership, corporation (including a ------ business trust), joint stock company, joint venture, trust, bank, trust company, unincorporated association or other entity or a government or any agency or political subdivision thereof. "Pro Rata Share" means with respect to each Lender the percentage set -------------- forth opposite such Lender's name on Schedule 1.01 hereto. Each Lender's Pro ------------- Rata Share shall at all times be equal to its Percentage as a Purchaser under the Receivables Purchase Agreement. "Purchase and Sale Agreement" means the First Amended and Restated --------------------------- Purchase and Sale Agreement dated as of even date herewith, among the sellers party thereto, the Company, as servicer and guarantor, and Mattel Factoring, Inc., as the buyer thereunder, as it may be amended, supplemented, restated or otherwise modified from time to time. "Purchasers" has the meaning set forth in the Receivables Purchase ---------- Agreement. "Purchaser Commitment" means, for each Lender, the amount set forth for -------------------- each Lender under "Purchaser Commitment" on Schedule 1.01, as such amount may be ------------- reduced from time to time in accordance with this Agreement and the Receivables Purchase Agreement. The Purchaser Commitment is part of, and not in addition to, the Commitment. "Purchasers' Investment" has the meaning set forth in the Receivables ---------------------- Purchase Agreement. "Purchasers' Investment Limit" has the meaning set forth in the ---------------------------- Receivables Purchase Agreement and shall be equal to the lesser of the Aggregate Facilities Commitment and $300,000,000, as such amount may be reduced pursuant to the Receivables Purchase Agreement. The Purchasers' Investment Limit is part of, and not in addition to, the Aggregate Facilities Commitment. - 13 - Mattel, Inc. Amended and Restated Credit Agreement "Receivables Purchase Agreement" means the First Amended and Restated ------------------------------ Receivables Purchase Agreement dated as of even date herewith, among Mattel Factoring, Inc., as transferor, the Company, servicer, the Purchasers and the Administrative Agent, as it may be amended, supplemented, restated or otherwise modified from time to time. "Requisite Lenders" means, as of any date of determination, Lenders ----------------- having at least 66-2/3% of the Aggregate Facilities Commitment or, if the Aggregate Facilities Commitment has been terminated, Lenders holding in the aggregate at least 66-2/3% of all Loans and Purchasers' Investment; provided -------- that the Commitment of, and the outstanding principal amount of any Loans and portion of Purchasers' Investment held by any Defaulting Lender shall be excluded for purposes of making a determination of Requisite Lenders. "Securities Act" means, at any time, the Securities Act of 1933, as -------------- amended from time to time, and any successor statute, and the rules and regulations promulgated thereunder. "S&P" means Standard & Poor's Ratings Services, a division of The --- McGraw-Hill Companies, Inc., or any successor thereto. "Subsidiary" means any corporation, association or other business ---------- entity of which more than 50% of the total voting power of shares of stock entitled to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Termination Date" means (a) March 31, 2005, or (b) such earlier date ---------------- upon which the Commitments are terminated in accordance with the terms hereof. At no time shall the Termination Date be earlier than the Facility Termination Date under and as defined in the Receivables Purchase Agreement. "Transaction Documents" has the meaning set forth in the Receivables --------------------- Purchase Agreement. 1.02 Other Definitional Provisions. References to "Sections" shall be to Sections of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.01 may, unless the context otherwise requires, ------------ be used in the singular or the plural depending on the reference. SECTION 2. THE COMMITMENTS 2.01 The Aggregate Facilities Commitment. Each Lender hereby severally agrees during the Availability Period (a) to make advances to the Company ("Loans") on the terms and conditions set forth in this Agreement and ----- (b) to purchase receivables on the terms and conditions set forth in the Receivables Purchase Agreement; provided, however, that: (i) the aggregate -------- ------- outstanding amount of all Loans and Purchasers' Investment shall not exceed the Aggregate Facilities Commitment; (ii) the aggregate outstanding Purchasers' Investments shall not exceed the Purchasers' Investment Limit; (iii) the aggregate outstanding principal amount of the Loans of any Lender, plus such ---- Lender's Percentage of the aggregate outstanding amount of - 14 - Mattel, Inc. Amended and Restated Credit Agreement Purchasers' Investment in its capacity as a Purchaser under the Receivables Purchase Agreement shall not exceed such Lender's Commitment; (iv) each Lender's Percentage of the aggregate outstanding amount of Purchasers' Investment in its capacity as a Purchaser under the Receivables Purchase Agreement shall not exceed its Purchaser Commitment; and (v) each Lender's Pro Rata Share hereunder shall at all times be equal to such Lender's Percentage under, and as defined in, the Receivables Purchase Agreement. Within the limits of each Lender's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.01, prepay pursuant to ------------ Section 2.06 and reborrow pursuant to this Section 2.01. - ------------ ------------ 2.02 LOAN ACCOUNTS AND NOTES. (a) Subject to Section 2.02(b), the Loans made by each Lender --------------- shall be evidenced by one or more loan accounts maintained by such Lender in the ordinary course of business. The loan accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Company and the interest and payments thereon. Any failure to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans. (b) Upon the written request of any Lender made through the Administrative Agent, the Loans made by such Lender may be evidenced by one or more Notes, instead of loan accounts. Each such Lender shall endorse on the schedules annexed to its Note(s), the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. Each such Lender is irrevocably authorized by the Company to endorse the schedules annexed to its Note(s) and each Lender's record shall be conclusive absent manifest error; provided, however, that the failure of a -------- ------- Lender to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Lender. 2.03 BORROWING PROCEDURE. (a) Whenever the Company desires to borrow hereunder, it shall deliver irrevocable telephonic notice to the Administrative Agent followed immediately by written notice in the form of a Notice of Borrowing, which telephonic notice must be received by the Administrative Agent no later than (i) 8:00 a.m. (California time) on the proposed Funding Date in the case of Base Rate Loans and (ii) 9:00 a.m. (California time) three Business Days in advance of the proposed Funding Date in the case of Eurodollar Rate Loans, specifying (A) the proposed Funding Date which shall be a Business Day, (B) the amount of the proposed borrowing, (C) whether the proposed borrowing shall consist of Base Rate Loans or Eurodollar Rate Loans, and (D) in the case of Eurodollar Rate Loans, the requested Interest Period. Base Rate Loans made on any Funding Date shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. Eurodollar Rate Loans made on any Funding Date shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $500,000 in excess of that amount. - 15 - Mattel, Inc. Amended and Restated Credit Agreement (b) Promptly (and normally within two hours) after receipt of a Notice of Borrowing (or telephone notice in lieu thereof), the Administrative Agent shall notify each Lender of the proposed borrowing. Each Lender shall make available to the Administrative Agent its Pro Rata Share of the amount (if any) by which the principal amount of the proposed borrowing exceeds the principal amount of the Loans (if any) maturing on the Funding Date, in same day funds, by remitting such funds to the Administrative Agent's Office no later than 11:00 a.m. (California time) on the Funding Date. Upon satisfaction of the conditions set forth in Section 4.02, the Administrative Agent shall ------------ make available to the Company on such Funding Date the aggregate of the amounts (if any) so made available by the Lenders by causing an amount of same day funds equal to such aggregate amount (if any) received by the Administrative Agent to be credited to the account of the Company at the Administrative Agent's Office. To the extent that Eurodollar Rate Loans made by the Lenders mature on any Funding Date, the Lenders shall apply the proceeds of the Loans made on such Funding Date, to the extent thereof, to the repayment of such maturing Loans, such Loans and repayments intended to be a contemporaneous exchange. 2.04 CONVERSION AND CONTINUATION ELECTIONS. (a) The Company may upon irrevocable written notice to the Administrative Agent: (i) elect to convert any Base Rate Loans (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $500,000 in excess thereof) on any Business Day into Eurodollar Rate Loans; (ii) elect to convert any Eurodollar Rate Loans (or any part thereof) on the last day of any Interest Period therefor into Base Rate Loans in an amount not less than $1,000,000 or an integral multiple of $500,000 in excess thereof; or (iii) elect to continue any Eurodollar Rate Loans (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $500,000 in excess thereof) on the last day of any Interest Period therefor; provided, that if the aggregate amount -------- of Eurodollar Rate Loans shall have been reduced, by payment, prepayment, or conversion of part thereof to be less than $5,000,000, the Eurodollar Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as Eurodollar Rate Loans shall terminate. (b) Each conversion or continuation shall be made upon irrevocable telephonic notice to the Administrative Agent followed immediately by written notice in the form of a Notice of Conversion/ Continuation, which telephonic notice must be received by the Administrative Agent prior to (i) 9:00 a.m. (California time) at least three Business Days in advance of the conversion or continuation date, if the Loans are to be converted into or continued as Eurodollar Rate Loans and (ii) 9:00 a.m. (California time) on the conversion or continuation date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed conversion or continuation date; (B) the aggregate amount of Loans to be converted or continued; (C) the nature of the proposed conversion or continuation; and (D) the duration of the requested Interest Period, if applicable. (c) If upon the expiration of any Interest Period applicable to Eurodollar Rate Loans, the Company has failed to select a new Interest Period to be applicable to such Eurodollar Rate Loans or type of Loan or if any Default or Event of Default shall then exist, the Company shall be deemed to have elected to convert such Eurodollar Rate Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. - 16 - Mattel, Inc. Amended and Restated Credit Agreement (d) Upon receipt of a Notice of Conversion/Continuation, the Administrative Agent will promptly notify each Lender thereof, or, if no timely notice is provided, the Administrative Agent will promptly notify each Lender of the details of any automatic conversion. All conversions and continuations shall be made pro rata according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Lender. (e) Unless the Requisite Lenders shall otherwise agree, after the occurrence of and during the continuance of a Default or Event of Default, the Company may not elect to have a Loan be made as, or converted into or continued as, a Eurodollar Rate Loan. (f) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Loans, there shall not be more than five different Interest Periods in effect. 2.05 REDUCTION OR TERMINATION OF AGGREGATE FACILITIES COMMITMENT. (a) The Company may, upon notice to the Administrative Agent, terminate the Aggregate Facilities Commitment, or permanently reduce the Aggregate Facilities Commitment to an amount not less than the then aggregate outstanding amount of all Loans and Purchasers' Investment; provided that (i) -------- any such notice shall be received by the Administrative Agent not later than 8:00 a.m. (California time) three Business Days prior to the date of termination or reduction, and (ii) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple of $1,000,000 in excess thereof. The Administrative Agent shall promptly notify the Lenders of any such notice of reduction or termination of the Aggregate Facilities Commitment. Once reduced in accordance with this Section, the Aggregate Facilities Commitment may not be increased. Any reduction of the Aggregate Facilities Commitment shall be applied to the Commitment of each Lender according to its Pro Rata Share. All commitment and utilization fees accrued until the effective date of any termination of the Aggregate Facilities Commitment shall be paid on the effective date of such termination. (b) Any reduction or termination of the Purchasers' Investment Limit pursuant to the Receivables Purchase Agreement shall automatically and concurrently reduce the Purchasers' Investment Limit (but not the Aggregate Facilities Commitment) for purposes of this Agreement to an amount equal to such Purchasers' Investment Limit, as so reduced, or terminate the Purchasers' Investment Limit, as the case may be. 2.06 Voluntary Prepayments. The Company may, upon not less than one Business Days' prior written or telephonic notice confirmed in writing to the Administrative Agent (in the case of a prepayment of a Base Rate Loan) or three Business Days' prior written or telephonic notice confirmed in writing to the Administrative Agent (in the case of a prepayment of a Eurodollar Rate Loan) (which notice the Administrative Agent will promptly transmit by telecopy, telex or telephone to each Lender), at any time and from time to time prepay (i) any Eurodollar Rate Loans in whole or in part in an aggregate minimum amount of $3,000,000 and integral multiples of $500,000 in excess of that amount so long as the unpaid balance is not less than $5,000,000; or (ii) any Base Rate Loans in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount; provided that in the event of any such prepayment of any Eurodollar Rate Loans, - -------- the Company shall be - 17 - Mattel, Inc. Amended and Restated Credit Agreement obligated to reimburse the Lenders in respect thereof pursuant to Section 3.05. ------------ If such notice of prepayment does not specify how such prepayment shall be applied, it shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, as determined by the Administrative Agent. All prepayments of Eurodollar Rate Loans shall be applied to the payment of any interest that has accrued to the date of such prepayment before application to principal. Prepayments of Base Rate Loans shall be applied to principal only. 2.07 Repayment of Loans. Each Loan shall mature and the Company shall repay the unpaid principal amount of each Loan on the Termination Date. 2.08 INTEREST ON THE LOANS. (a) Subject to Section 2.08(c), the Loans shall bear interest on --------------- the unpaid principal amount thereof from the Funding Date until paid in full at a rate per annum equal to (i) with respect to Eurodollar Rate Loans, the Eurodollar Rate plus the Applicable Amount for Eurodollar Rate Loans or (ii) ---- with respect to Base Rate Loans the Base Rate plus the Applicable Amount for Base Rate Loans. (b) Subject to Section 2.08(c), from and after the Effective Date, --------------- interest shall be payable in arrears on the Loans on each Interest Payment Date applicable to that Loan. Interest paid on the date of any partial prepayment of Loans hereunder shall be paid in respect of the portion of the Loans so prepaid. (c) Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payments on the Loans not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate equal to the Default Rate. Furthermore, while any Event of Default exists or after acceleration, the Company shall pay interest on the principal amount of all outstanding Loans at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Governmental Rule. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand. Notwithstanding the foregoing, interest shall not commence accruing at the Default Rate until the Administrative Agent, at the direction of the Requisite Lenders, has notified the Company thereof; provided, however, -------- ------- that upon the occurrence of an Event of Default specified in Section 8.01(f) or --------------- (g), the Default Rate shall thereupon automatically commence accruing and be - --- due and payable without further act of or demand by the Administrative Agent or any Lender. 2.09 FEES. (a) The Company agrees to pay a commitment fee equal to the Applicable Amount for the commitment fee on the daily actual unused portion of the Aggregate Facilities Commitment during the Availability Period. The Company shall pay the commitment fee to the Administrative Agent for distribution to each Lender in accordance with its Pro Rata Share. The commitment fee shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on the last Business Day of each calendar quarter, for all amounts accrued to such date, and on the Termination Date; provided that, in -------- - 18 - Mattel, Inc. Amended and Restated Credit Agreement connection with any reduction or termination of the Aggregate Facilities Commitment pursuant to Section 2.05, the accrued fee calculated on the portion ------------ so terminated or reduced for the period ending on such date shall also be paid on the date of such reduction or termination. (b) The Company agrees to pay a utilization fee equal to the Applicable Amount therefor on the daily actual principal amount of all outstanding Loans on each day that the aggregate principal amount of outstanding Loans exceeds 33.00% or 66.00% of an amount equal to (i) the Aggregate Facilities Commitment less (ii) the aggregate outstanding amount of ---- the Purchasers' Investments. The Company shall pay the utilization fee to the Administrative Agent for distribution to each Lender in accordance with its Pro Rata Share. The utilization fee shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on the last Business Day of each calendar quarter, for all amounts accrued to such date, and on the Termination Date; provided that, in connection -------- with any reduction or termination of the Aggregate Facilities Commitment pursuant to Section 2.05, the accrued utilization fee calculated on the portion ------------ so terminated or reduced for the period ending on such date shall also be paid on the date of such reduction or termination. (c) The Company shall pay an arrangement fee to the Arranger for the Arranger's own account, and shall pay an agency fee to the Administrative Agent for the Administrative Agent's own account, in the amounts and at the times specified in the letter agreement, dated February 6, 2002 (the "Agent/Arranger Fee Letter"), among the Company, the Arranger and the ------------------------- Administrative Agent. Such fees shall be fully earned when paid and shall be nonrefundable for any reason whatsoever. (d) The Company shall pay to the Administrative Agent such fees as may from time to time be agreed upon between the Company and the Administrative Agent. 2.10 CALCULATION OF INTEREST AND FEES. (a) Interest on all Loans and fees payable under this Agreement shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of the Loan or the first day of an Interest Period, as the case may be, shall be included and the date of payment shall be excluded; provided that, if a Loan is repaid on the same day on which it is -------- made, one day's interest shall be paid on that Loan. (b) Any change in the interest rate on a Loan resulting from a change in the Applicable Amount or Eurodollar Reserve Percentage shall become effective as of the opening of business on the day on which such change in the Applicable Amount or Eurodollar Reserve Percentage becomes effective. Each determination of an interest rate by the Administrative Agent pursuant hereto shall be conclusive and binding on the Company and the Lenders in the absence of manifest error. 2.11 PAYMENTS BY THE COMPANY. (a) All payments of principal, interest and fees hereunder and under any Notes shall be made in Dollars without setoff, counterclaim, recoupment or any other deduction, in same day - 19 - Mattel, Inc. Amended and Restated Credit Agreement funds and delivered to the Administrative Agent at the Administrative Agent's Office for the account of the Lenders or the Administrative Agent not later than 11:00 a.m. (California time) on the date due. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as expressly provided herein) of such principal, interest, fees or other amounts in like funds received. Any payment which is received by the Administrative Agent after that time shall be deemed to have been paid by the Company on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions in the definition of "Interest Period", whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Lenders hereunder that the Company will not make such payment in full as and when required hereunder, the Administrative Agent may assume that the Company has made such payment in full to the Administrative Agent on such date in immediately available funds and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Company shall not have made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate as in effect for each such day. 2.12 PAYMENTS BY THE LENDERS TO THE ADMINISTRATIVE AGENT. (a) Unless the Administrative Agent shall have received notice from a Lender on the Effective Date or, with respect to each borrowing after the Effective Date, by 12:00 noon (California time) one Business Day prior to the date of any proposed borrowing of Eurodollar Rate Loans, or by 10:00 a.m. (California time) on the date of any proposed borrowing of Base Rate Loans, that such Lender will not make available to the Administrative Agent as and when required hereunder for the account of the Company the amount of that Lender's Pro Rata Share of the borrowing, the Administrative Agent may assume that each Lender has made such amount available to the Administrative Agent in immediately available funds on the Funding Date and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to the Administrative Agent in immediately available funds and the Administrative Agent in such circumstances has made available to the Company such amount, that Lender shall on the next Business Day following the date of such borrowing make such amount available to the Administrative Agent, together with interest at the Federal Funds Rate for and determined as of each day during such period. A notice of the Administrative Agent submitted to any Lender with respect to amounts owing under this Section 2.12(a) shall be conclusive, absent manifest --------------- error. If such amount is so made available, such payment to the Administrative Agent shall constitute such Lender's Loan on the date of borrowing for all purposes of this Agreement. If such amount is not made available to the - 20 - Mattel, Inc. Amended and Restated Credit Agreement Administrative Agent on the next Business Day following the date of such borrowing, the Administrative Agent shall notify the Company of such failure to fund and, upon demand by the Administrative Agent, the Company shall pay such amount to the Administrative Agent for the Administrative Agent's account, together with interest thereon for each day elapsed since the date of such borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such borrowing. (b) The failure of any Lender to make any Loan on any date of borrowing shall not relieve any other Lender of any obligation hereunder to make a Loan on the date of such borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the date of any borrowing. 2.13 Sharing of Payments, Etc. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share of payments on account of the Loans obtained by all the Lenders, such Lender shall forthwith (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess -------- ------- payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's Pro Rata Share (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Company agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.13 may, to the fullest extent permitted by ------------ law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Company in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased pursuant to this Section 2.13 ------------ and will in each case notify the Lenders following any such purchases or repayments. SECTION 3. PAYMENTS IN GENERAL 3.01 TAXES. (a) Subject to Section 3.01(d) and Section 3.01(f), any and all --------------- --------------- payments by the Company to each Lender or the Administrative Agent under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Lender's or the Administrative Agent's net income by the jurisdiction under the laws of which such Lender or the Administrative Agent, as the case may be, is organized or maintains a Lending Office or any political subdivision - 21 - Mattel, Inc. Amended and Restated Credit Agreement thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). ----- (b) In addition, the Company shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents (hereinafter referred to as "Other Taxes"). ----------- (c) Subject to Section 3.01(f), the Company shall indemnify and --------------- hold harmless each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.01) paid by ------------ such Lender or the Administrative Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days from the date such Lender or the Administrative Agent makes written demand therefor. (d) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, then, subject to Section 3.01(f): (i) the --------------- sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.01) such Lender or the Administrative Agent, as the case may be, ------------ receives an amount equal to the sum it would have received had no such deductions been made; (ii) the Company shall make such deductions, and (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (e) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Administrative Agent. (f) The Company will not be required to pay any additional amounts in respect of Taxes pursuant to this Section 3.01 to any Lender for the account ------------ of any Lending Office of such Lender: (i) if the obligation to pay such additional amounts would not have arisen but for a failure by such Lender to comply with its obligations under Section 10.15 in respect of such Lending ------------- Office; or (ii) if such Lender shall have delivered to the Company the form(s) in respect of such Lending Office pursuant to Section 10.15, and such Lender ------------- shall not be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or in the official interpretation of such law or regulations by any Governmental Person charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such form(s). (g) If, at any time, the Company requests any Lender to deliver any forms or other documentation pursuant to Section 10.15, then the Company ------------- shall, on demand of such Lender through the Administrative Agent, reimburse such Lender for any costs and expenses (including - 22 - Mattel, Inc. Amended and Restated Credit Agreement expenses of outside legal counsel and the allocated costs of in-house counsel) reasonably incurred by such Lender in the preparation or delivery of such forms or other documentation. (h) If the Company is required to pay additional amounts to any Lender or the Administrative Agent pursuant to Section 3.01(d), then such Lender --------------- shall use its reasonable best efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue if such change in the judgment of such Lender is not otherwise disadvantageous to such Lender. (i) The agreements and obligations of the Company contained in this Section 3.01 shall survive the payment in full of all other Obligations. ------------ 3.02 Capital Adequacy. If (a) any adoption of or any change in or in the interpretation of any law, rule or regulation, or (b) compliance with any guideline, request or directive of any central bank or other Governmental Person or quasi-governmental authority exercising control over banks or financial institutions generally or any court (whether or not having the force of law), or (c) any change in the force or effectiveness of the regulations set forth at 12 C.F.R. Part 3 (Appendix A), 12 C.F.R. Part 225 (Appendix A), 12 C.F.R. Part 208 (Appendix A) or 12 C.F.R. Part 325 (Appendix A) requires that the commitments of any Lender hereunder (including, without limitation, commitments and obligations in respect of Loans) be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by such Lender or any corporation controlling such Lender (a "Change in Law"), the result of which is to reduce the rate of return ------------- on such Lender's capital as a consequence of such commitments to a level below that which such Lender could have achieved but for such Change in Law, taking into consideration such Lender's policies with respect to capital adequacy, by an amount which such Lender deems to be material, the Lender shall deliver to the Company a statement of the amount necessary to compensate such Lender for the reduction in the rate of return on its capital attributable to such commitments (the "Capital Compensation Amount"). The Lender shall determine the --------------------------- Capital Compensation Amount in good faith, using reasonable attribution and averaging methods. The Lender shall from time to time notify the Company of the amount so determined. Such amount shall be due and payable by the Company to such Lender ten Business Days after such notice is given. As soon as practicable after any Change in Law, each Lender seeking compensation under this Section shall submit to the Company estimates of the Capital Compensation Amounts that would be payable as a function of such Lender's commitments hereunder. 3.03 ILLEGALITY. (a) If any Lender shall determine that any Governmental Rule or any change therein or in the interpretation or administration there of has made it unlawful, or that any Governmental Person has asserted that it is unlawful, for any Lender or its Lending Office to make Eurodollar Rate Loans, then, on notice thereof by the Lender to the Company through the Administrative Agent, the obligation of the Lender to make Eurodollar Rate Loans shall be suspended until the Lender shall have notified the Administrative Agent and the Company that the circumstances giving rise to such determination no longer exists. - 23 - Mattel, Inc. Amended and Restated Credit Agreement (b) If a Lender shall determine that any Governmental Rule or any change therein or in the interpretation or administration thereof has made it unlawful, or that any Governmental Person has asserted that it is unlawful, for any Lender or its Lending Office to maintain any Eurodollar Rate Loan, the Company shall prepay all Eurodollar Rate Loans of the Lender then outstanding, together with interest accrued thereon, or convert all Eurodollar Rate Loans of the Lender then outstanding to Base Rate Loans pursuant to Section 2.04, either ------------ on the last day of the Interest Period thereof if the Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or promptly, if the Lender may not lawfully continue to maintain such Eurodollar Rate Loans, together with any amounts required to be paid in connection therewith pursuant to Section 3.05. ------------ (c) If the obligation of any Lender to make or maintain Eurodollar Rate Loans has been terminated, the Company may elect, by giving notice to the Lender through the Administrative Agent that all Loans which would otherwise be made by the Lender as Eurodollar Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Administrative Agent pursuant to this Section 3.03, the affected Lender shall designate a different Lending ------------ Office with respect to its Eurodollar Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Lender, be illegal or otherwise disadvantageous to the Lender. 3.04 Increased Costs and Reduction of Return. If any Lender shall determine that, due to either (a) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Eurodollar Rate) in or in the interpretation of any law or regulation or (b) the compliance with any guideline or request from any Governmental Person (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans, then the Company shall be liable for, and shall from time to time, upon demand therefor by such Lender (with a copy of such demand to the Administrative Agent), pay to such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs. Each Lender agrees to notify the Company of the occurrence of such an increased cost event promptly after obtaining knowledge thereof. 3.05 Funding Losses. The Company agrees to reimburse each Lender and to hold each Lender harmless from any loss or expense which the Lender may sustain or incur as a consequence of: (a) the failure of the Company to make any payment or prepayment of principal of any Eurodollar Rate Loan (including payments made after any acceleration thereof); (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (c) the failure of the Company to make any prepayment after the Company has given a notice in accordance with Section 2.06; or (d) the prepayment of a ------------ Eurodollar Rate Loan on a day which is not the last day of the Interest Period with respect thereto; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Eurodollar Rate Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. Solely for purposes of calculating amounts payable by the Company to the Lenders under Section 3.04 and this Section 3.05, each ------------ ------------ Eurodollar Rate Loan made by a Lender (and each - 24 - Mattel, Inc. Amended and Restated Credit Agreement related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Eurodollar Rate used in determining the Eurodollar Rate for such Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan is in fact so funded. This covenant shall survive the payment in full of all other Obligations. 3.06 Inability to Determine Rates. If the Administrative Agent shall have determined that for any reason adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or if the Requisite Lenders advise the Administrative Agent in writing that the Eurodollar Rate applicable for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will forthwith give notice of such determination to the Company and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans hereunder shall be suspended until the Administrative Agent upon the instruction of the Requisite Lenders revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/ Continuation then submitted by it. If the Company does not revoke such notice with respect to Loans, the Lenders shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Eurodollar Rate Loans. 3.07 Survival. The agreements and obligations of the Company in this Section 3 shall survive the payment of all other Obligations. --------- SECTION 4. CONDITIONS PRECEDENT 4.01 Conditions to Effectiveness. The effectiveness of the Agreement is subject to satisfaction of the following conditions precedent: (a) The Company shall deliver to the Administrative Agent and Lenders (or to the Administrative Agent for the Lenders with sufficient originally executed copies for each Lender, except for any Notes): (i) This Agreement, duly executed and delivered by the Company, the Administrative Agent and all Lenders; (ii) A Note, duly executed and delivered by the Company, drawn to the order of each Lender requesting a Note, with appropriate insertions; (iii) The Mattel Sales Guaranty and the Fisher-Price Guaranty, duly executed and delivered by Mattel Sales and Fisher-Price, respectively; (iv) The Mattel Sales Subordination Agreement and the Fisher-Price Subordination Agreement duly executed and delivered by the Company and each - 25 - Mattel, Inc. Amended and Restated Credit Agreement Affiliate of the Company to whom Mattel Sales or Fisher-Price owes any material outstanding obligations; (v) Copies of the resolutions of the board of directors or the executive committee of each Company Party approving and authorizing the execution, delivery and performance by such Company Party of each Loan Document to which it is a party, certified as of the Effective Date by the secretary or an assistant secretary of such Company Party; (vi) A certificate of the secretary or assistant secretary of each Company Party, certifying the names and true signatures of the officers of such Company Party authorized to execute and deliver the Loan Documents to which it is a party; (vii) The articles or certificate of incorporation or organization of each Company Party as in effect on the Effective Date, certified by the secretary of state of the state of its incorporation or formation as of a recent date, and the bylaws or operating agreement of each Company Party as in effect on the Effective Date, in each case, certified by the secretary or assistant secretary of such Company Party as of the Effective Date; (viii) A good standing certificate for each Company Party from the secretary of state of its state of incorporation or formation dated as of a recent date; (ix) Executed copies of one or more favorable written opinions of Christopher O'Brien, Esq., Assistant General Counsel of the Company, or a Senior Counsel of the Company, dated as of the Effective Date, substantially in the form of Exhibit E hereto --------- relating to the Company Parties and as to such other matters as the Administrative Agent and the Lenders may reasonably request; (x) A certificate signed by one of the officers authorized to deliver an Officers' Certificate certifying (A) that the conditions specified in Sections 4.01(c) and (d) have been ---------------- satisfied, (B) that there has been no event or circumstance since the date of the audited financial statements dated December 31, 2000 referred to in Section 5.08 which has a Material Adverse Effect; and ------------ (C) the current ratings on the Company's long-term unsecured Indebtedness by S&P, Moody's and Fitch; (xi) Evidence that all conditions precedent to the initial purchase under the Receivables Purchase Agreement have been, or concurrently herewith are being, satisfied or waived thereunder; and (xii) Evidence that the Existing 364-Day Credit Agreement is being terminated concurrently herewith. (b) The Company shall have paid all fees payable pursuant to Sections 2.09(c) and (d). - ---------------- --- - 26 - Mattel, Inc. Amended and Restated Credit Agreement (c) The representations and warranties of each Company Party contained in any Loan Document shall be true, correct and complete in all material respects on and as of the Effective Date. (d) No Default or Event of Default shall exist. (e) The Company shall have performed in all material respects all agreements which this Agreement provides shall be performed by it on or before the Effective Date 4.02 Conditions to All Loans. The obligation of each Lender to make any Loan is subject to the following further conditions precedent that, as of the applicable Funding Date: (a) The Administrative Agent shall have received on or before that Funding Date a Notice of Borrowing signed by the Chief Executive Officer, the Chief Financial Officer, the Treasurer or an Assistant Treasurer of the Company or any officer of the Company designated by any of the above described officers on behalf of the Company in writing delivered to the Administrative Agent; (b) The representations and warranties of the Company contained in any Loan Document (except the representation and warranty contained in Section ------- 5.09 and, in the case of a borrowing of Loans where the aggregate principal - ---- amount of the Loans being made on that Funding Date equals or is less than the aggregate principal amount of Loans maturing on that Funding Date, the representation and warranty contained in Section 5.11), shall be true, correct ------------ and complete in all material respects on and as of that Funding Date (except to the extent that such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date) to the same extent as though made on and as of that Funding Date; and (c) No Default or Event of Default shall exist or shall result from such borrowing or continuation or conversion. Each Notice of Borrowing submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the Funding Date, that the conditions in Section 4.02 are satisfied or waived. ------------ SECTION 5. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Administrative Agent to enter into this Agreement and to make any extension of credit hereunder, the Company represents and warrants to each Lender and the Administrative Agent that the following statements are true, correct and complete: 5.01 Organization and Powers. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and, except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, each of the Material Subsidiaries is a corporation duly organized, validly existing and in good - 27 - Mattel, Inc. Amended and Restated Credit Agreement standing under the laws of the jurisdiction of its incorporation; and each has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted and, in the case of the Company, to enter into this Agreement, a Fisher-Price Subordination Agreement and a Mattel Sales Subordination Agreement, to issue the Notes and to carry out the transactions contemplated hereby and thereby. 5.02 Good Standing. The Company and, except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, each Material Subsidiary is in good standing wherever necessary to carry on its present business and operations, except in jurisdictions in which the failure to be in good standing has or will have no Material Adverse Effect. 5.03 Material Subsidiaries. Except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, Schedule -------- 5.03 hereto correctly sets forth the name, jurisdiction of incorporation and - ---- ownership interest of the Company in each of its Material Subsidiaries as of the date hereof. 5.04 Authorization of Borrowing. The execution, delivery and performance of each Loan Document to which it is a party, and acknowledgement of the Fisher-Price Subordination Agreement and the Mattel Sales Subordination Agreement and the issuance, delivery and payment of the Notes have been duly authorized by all necessary corporate action by the Company. 5.05 No Conflict. The execution, delivery and performance by the Company of this Agreement and the acknowledgement of the Fisher-Price Subordination Agreement, the Mattel Sales Subordination Agreement and the issuance, delivery and payment of the Notes do not and will not (a) violate the Restated Certificate of Incorporation or Bylaws of the Company, (b) violate any provision of law applicable to the Company, or any material order, judgment or decree of any court or other agency of government binding on the Company, the violation of which would result in a Material Adverse Effect, (c) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company, (d) result in or require the creation or imposition of any material lien, security interest, charge or encumbrance of any nature whatsoever upon any of its material properties or assets, or (e) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company. 5.06 Governmental Consents. The execution, delivery and performance by the Company of each Loan Document to which it is a party and each agreement, document, or instrument required hereunder, the acknowledgment of the Fisher-Price Subordination Agreement, Mattel Sales Subordination Agreement, and the issuance, delivery and payment of the Notes do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Federal, state or other governmental authority or regulatory body or other such person. 5.07 Binding Obligation. This Agreement is, and each other Loan Document to which it is a party, when executed and delivered hereunder will be, the legally valid and binding obligations of the Company, enforceable against it in accordance with their respective terms, - 28 - Mattel, Inc. Amended and Restated Credit Agreement except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally. 5.08 Financial Condition. The Company has heretofore delivered to the Lenders a consolidated balance sheet of the Company and its Subsidiaries for the fiscal year ended December 31, 2000 and related consolidated statements of income, shareholders' equity and changes in financial position of the Company and its Subsidiaries for such fiscal year, audited by PriceWaterhouseCoopers. All such statements were prepared in accordance with GAAP and fairly present the consolidated financial position of the Company and its Subsidiaries as at the date thereof and the consolidated results of operations and statement of cash flow of the Company and its Subsidiaries for the period then ended. Neither the Company nor any of its Subsidiaries has any material Contingent Obligation, liability for taxes or long-term lease which as of the date of this Agreement, individually or in the aggregate, would, if it became absolute, result in a Material Adverse Effect which is not reflected in the foregoing statements or in the notes thereto. 5.09 Changes, Etc. Since December 31, 2000, there has been no event or events that have, either individually or in the aggregate, resulted in a Material Adverse Effect. 5.10 Title to Properties. The Company and its Subsidiaries have good, sufficient and legal title to all the properties and assets reflected in the consolidated balance sheet referred to in Section 5.08 except as set forth ------------ in said balance sheet or in the notes thereto, except for assets acquired or disposed of in the ordinary course of business or as otherwise permitted by this Agreement since December 31, 1996 and except for immaterial defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. 5.11 Litigation; Adverse Facts. Except as set forth on Schedule -------- 5.11 hereto, there is no action, suit, proceeding or arbitration (whether or - ---- not purportedly on behalf of the Company or any of its Subsidiaries) at law or in equity or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any of the Company's or such Subsidiaries' properties which, in the reasonable judgment of the Company and its executive officers (assuming adverse determination of facts which the Company in good faith believes it would not successfully disprove, and considering damages which in their best judgment is the maximum that would be awarded upon, and the likelihood of, an adverse determination of the claim or the amount which reflects their best judgment as to that required to be paid to settle the claims) would result in a Material Adverse Effect and there is no basis known to such executive officers for any such action, suit or proceeding. Neither the Company nor any of its Subsidiaries is (i) in violation of any applicable law which could result in a Material Adverse Effect, or (ii) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which could result in a Material Adverse Effect. There is no action, suit, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries which provides a reasonable basis for questioning the validity or the enforceability of any Loan Document. - 29 - Mattel, Inc. Amended and Restated Credit Agreement 5.12 Payment of Taxes. All tax returns and reports of the Company and its Material Subsidiaries required to be filed by any of them have been timely filed, and all taxes, assessments, fees and other governmental charges upon the Company and its Subsidiaries and upon their respective properties, assets, income and franchises which are due and payable have been paid when due and payable or bonded against, except to the extent permitted by Section 6.04. ------------ The Company knows of no proposed tax assessment against it or any of its Subsidiaries that would result in a Material Adverse Effect. 5.13 Agreements. Neither the Company nor any of its Subsidiaries is a party to or is subject to any material agreement or instrument or charter or other internal restriction which results in a Material Adverse Effect. 5.14 Performance. Neither the Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation of the Company, and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default, except, in any such case, where the consequences, direct or indirect, of such default or defaults, if any, would not result in a Material Adverse Effect. 5.15 Governmental Regulation. Neither the Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or to any Federal or state statute or regulation limiting its ability in any material way to incur Indebtedness for money borrowed. 5.16 Employee Benefit Plans. The Company and each of its ERISA Affiliates is in compliance in all material respects with any applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Pension Plans. Neither the Company nor any of its ERISA Affiliates has participated in or participates in any Multiemployer Plan the withdrawal from which may result in any liability to any party in an amount in excess of $100,000,000. 5.17 Environmental Matters. The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.18 Disclosure. No representation or warranty of the Company contained in this Agreement or any other document, certificate or written statement furnished to the Lenders by the Company since January 1, 2002 for use in connection with the transactions contemplated by this Agreement as of the date of this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to the officers of the Company in the case of any document or fact not furnished by it) necessary in order to make the statements contained herein or therein not misleading except to the extent that any such statement or omission that was untrue or misleading at the time made or that subsequently became untrue or misleading has been superseded or corrected by information provided to the Lenders prior to the date of this - 30 - Mattel, Inc. Amended and Restated Credit Agreement Agreement. The projections and pro forma financial information contained in such written materials are based upon good faith estimates and assumptions believed by the Company to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There is no fact known to the officers of the Company as of the date of this Agreement (other than matters of a general economic nature) which materially adversely affects the business, operations, property, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, which has not been disclosed herein or in the written materials referred to in Section 5.08 other ------------ than as disclosed in writing to the Lenders on or before the date hereof. 5.19 Subordination Agreements. Neither Fisher-Price nor Mattel Sales has any material outstanding obligations to any Affiliate of the Company which has not signed a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, respectively. SECTION 6. AFFIRMATIVE COVENANTS The Company agrees from the Effective Date until payment in full of all Obligations and termination of the Aggregate Facilities Commitment and the Receivables Purchase Agreement, unless Requisite Lenders shall otherwise give prior written consent, the Company will perform all covenants in this Section 6. --------- 6.01 Financial Statements. The Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. The Company will deliver to the Administrative Agent and to each Lender: (a) as soon as practicable and in any event not later than 55 days after the end of each of the first three fiscal quarters of the Company, consolidated balance sheets of the Company and its Subsidiaries as at the end of such period and for the fiscal year to date and the related consolidated statements of income, consolidated statements of stockholders' equity and consolidated statements of cash flow all in reasonable detail and certified by the Chief Financial Officer, Executive Vice President Finance or the Treasurer of the Company that the consolidated statements (and to the best of his or her belief, the consolidating statements) and other materials required by this clause (a) fairly present the financial condition of the Company and its Subsidiaries as at the dates indicated and the results of their operations for the periods indicated, subject to changes resulting from year-end audit and normal year-end adjustments; and (b) as soon as practicable and in any event not later than 100 days after the end of each fiscal year of the Company, consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated (and, as to statements of income only, consolidated and consolidating) statements of income, stockholders' equity and cash flow of the Company and its Subsidiaries for such fiscal year, setting forth in each case, in comparative form the consolidated figures for the previous year, all in reasonable detail and (i) in - 31 - Mattel, Inc. Amended and Restated Credit Agreement the case of such consolidated financial statements, accompanied by a report thereon of Price Waterhouse or other independent accountants of recognized national standing selected by the Company which report shall state that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flow for the periods indicated in conformity with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards and (ii) in the case of such consolidating financial statements, certified by the chief financial or accounting officer of the Company. 6.02 Certificates; Other Information. The Company will deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Requisite Lenders: (a) together with each delivery of financial statements of the Company and its Subsidiaries pursuant to Sections 6.01(a) and (b) above, an ---------------- --- Officers' Certificate (i) stating that the signers have reviewed the terms of this Agreement and the Notes and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof, and (ii) demonstrating in reasonable detail compliance during (to the extent required) and at the end of such accounting periods with the restrictions contained in Sections 7.05 and 7.06. ------------- ---- (b) together with each delivery of consolidated financial statements of the Company and its Subsidiaries pursuant to Section 6.01(b) --------------- above, a written statement by the independent accountants giving the report thereon (i) stating that their audit examination has included a review of the terms of this Agreement and the Notes as they relate to accounting matters, and (ii) stating whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Default has come to their attention, and if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such -------- accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Default that would not be disclosed in the course of their audit examination. The Administrative Agent shall have the right, from time to time, to discuss the affairs of the Company directly with such independent certified public accountants; (c) promptly upon receipt thereof, copies of all reports submitted to the Company (including, without limitation, the Company's Board of Directors) by the Company's independent accountants in connection with each annual, interim or special audit of the consolidated financial statements of the Company made by such accountants, including, without limitation, any comment letter submitted by such accountants to management in connection with their annual audit; and - 32 - Mattel, Inc. Amended and Restated Credit Agreement (d) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its security holders or by any Subsidiary of the Company to its security holders other than the Company or another Subsidiary, and, promptly upon their becoming effective, and in any event within 15 days of filing, all regular and periodic reports and all registration statements and prospectuses that have been filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any Governmental Person succeeding to any of its functions, and all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning material developments in the business of the Company and its Subsidiaries. Each document required to be delivered pursuant to Section 6.01(a) or --------------- (b) or Section 6.02(d) shall be deemed to have been delivered on the date on - --- --------------- which the Company posts such document on the Company's website on the Internet at the website address listed on Schedule 10.02, or when such document is -------------- posted on the Securities and Exchange Commission's website at www.sec.gov or on IntraLinks; provided that the Company shall deliver paper copies of all such -------- documents to the Administrative Agent or any Lender that requests the Company to deliver such paper copies until a request to cease delivering paper copies is given by the Administrative Agent or such Lender. The Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above in this paragraph, and in any event shall have no responsibility to monitor compliance by the Company with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents. 6.03 Notices. The Company will promptly notify the Administrative Agent and each Lender: (a) promptly upon any executive officer of the Company obtaining knowledge (i) of any condition or event which constitutes an Event of Default or Default, or becoming aware that the Administrative Agent or any Lender has given any notice or taken any other action with respect to a claimed Event of Default or Default under this Agreement, (ii) of any condition or event which would be required to be disclosed in a current report filed by the Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2, 4 and 6 of such Form as in effect on the date hereof) if the Company were required to file such reports under the Exchange Act, (iii) that any Person has given any notice to the Company or any Subsidiary of the Company or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 8.01, (iv) of the institution of any litigation involving an alleged - ------------ liability of the Company or any of its Subsidiaries equal to or greater than $20,000,000 or any adverse determination in any litigation involving a potential liability of the Company or any of its Subsidiaries equal to or greater than $20,000,000, or (v) of a Material Adverse Effect, in each case an Officers' Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default, Event of Default, Default, event or condition, and what action the Company has taken, is taking and proposes to take with respect thereto; - 33 - Mattel, Inc. Amended and Restated Credit Agreement (b) as soon as available but no later than March 31 of each year, copies of the Company's consolidated financial plan for the then current fiscal year as customarily prepared for internal use; (c) promptly after the acquisition of any Material Subsidiary, notice of such acquisition; (d) promptly upon any executive officer of the Company obtaining knowledge, notice of any change in the ratings on the Company's long-term unsecured Indebtedness by S&P, Moody's and, Fitch; and (e) with reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested by any Lender or the Administrative Agent, including any financial reports regularly prepared by the Company for internal use. 6.04 Corporate Existence, etc. Except as permitted or not prohibited in Section 7.03, the Company will at all times preserve and keep in ------------ full force and effect its corporate existence and rights and franchises material to its business and those of each of its Material Subsidiaries; provided that the corporate existence and the rights and franchises of any - -------- Material Subsidiary may be terminated or permitted to lapse if such termination or lapse is in the best interest of the Company, is approved by the Board of Directors of the Company and is not materially disadvantageous to the holder of any Note. 6.05 Payment of Taxes and Claims; Tax Consolidation. The Company will, and will cause each of its Material Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no -------- such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. The Company will not, nor will it permit any Material Subsidiary to, file or consent to the filing of any consolidated income tax return with any Person (other than the Company or a Subsidiary of the Company). 6.06 Maintenance of Properties; Insurance. Except as permitted or not prohibited in Section 7.03, the Company will maintain or cause to be ------------ maintained in good repair, working order and condition all material properties (other than obsolete properties) used or useful in the business of the Company and its Material Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals, substitutions and replacements thereof. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Material Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly - 34 - Mattel, Inc. Amended and Restated Credit Agreement situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations; provided that the Company may maintain a program of self insurance for the Company and its Material Subsidiaries in accordance with sound business practices. 6.07 Inspection of Property and Books and Records. The Company shall maintain and shall cause each of its Subsidiaries to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiaries. The Company will permit any authorized representatives designated by any Lender at the expense of that Lender, to visit and inspect any of the properties of the Company or any of its Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom (but not records relating to intellectual property), and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested. 6.08 Use of Proceeds of Loans. The Company shall use the proceeds of Loans for general corporate purposes, including, without limitation, lending to its Subsidiaries and acquiring other Persons or businesses so long as the acquisition is approved by the board of directors of the Person being acquired. 6.09 Environmental Laws. The Company shall maintain and shall cause each of its Subsidiaries to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.10 Subordination Agreements. If from time to time Fisher-Price or Mattel Sales has any material outstanding obligations owing to any Affiliate of the Company which has not signed a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, respectively, the Company shall cause such Affiliate to execute deliver a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, as the case may be, and deliver to the Administrative Agent a signature and incumbency certificate of the officers of each such Affiliate and cause Fisher-Price or Mattel Sales, as the case may be, to acknowledge each such agreement. 6.11 Compliance with Laws. The Company shall maintain and shall cause each of its Subsidiaries to, comply in all material respects with the requirements of all Governmental Rules applicable to it, except in such instances in which (i) such requirement of Governmental Rules is being contested in good faith by appropriate proceedings diligently conducted or a bona fide dispute exists with respect thereto; or (ii) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect. SECTION 7. NEGATIVE COVENANTS - 35 - Mattel, Inc. Amended and Restated Credit Agreement The Company agrees from the Effective Date until payment in full of all Obligations and termination of the Aggregate Facilities Commitment and the Receivables Purchase Agreement, unless Requisite Lenders shall otherwise give prior written consent, the Company will perform all covenants in this Section 7. --------- 7.01 Indebtedness. The Company will not, and will not permit any of its Material Subsidiaries to, directly or indirectly incur, assume, guaranty or otherwise become directly or indirectly liable with respect to any Indebtedness; except: ------ (a) Indebtedness permitted to be secured under Section 7.02; ------------ (b) Non-Priority Indebtedness of the Company; and (c) Non-Priority Indebtedness of Subsidiaries of the Company not exceeding 20% of Consolidated Net Worth in the aggregate at any time. 7.02 Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of the Company or any Subsidiary except: (a) Liens securing Indebtedness for borrowed money not exceeding, together with the aggregate outstanding face amount of sales or discounting of notes or receivables permitted under Section 7.04(e), $100,000,000 in aggregate --------------- principal amount at any time; (b) Liens existing on the date hereof; (c) Liens securing Indebtedness under the Receivables Purchase Agreement; (d) Liens securing Indebtedness under Other Permitted Accounts Receivable Financing Facilities or otherwise arising under transactions permitted pursuant to Section 7.04; ------------ (e) Liens listed on Schedule 7.02; and ------------- (f) Liens on newly-acquired Capital Assets; provided that such -------- Liens on Capital Assets located in the United States shall not secure Indebtedness for borrowed money in excess of $25,000,000. 7.03 Restriction on Fundamental Changes. (a) The Company shall not, and shall not permit any of its Material Subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by it on the date hereof. (b) the Company shall not, and shall not suffer or permit any of its Material Subsidiaries to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of whether in one transaction or in a series of transactions, all or substantially all, of its assets to or in favor of any Person, except: - 36 - Mattel, Inc. Amended and Restated Credit Agreement (i) (A) the Company may merge or consolidate with any other Person provided that the Company shall be the continuing or surviving corporation, and (B) any Material Subsidiary may merge or consolidate with any other Person provided that the Company or a Material Subsidiary shall be the continuing or surviving corporation; provided, further, that (1) if any transaction shall be between a -------- ------- Subsidiary and a wholly-owned Subsidiary, a wholly-owned Subsidiary shall be the continuing or surviving corporation, (2) no Default or Event of Default shall result from such merger or consolidation, and (3) except where a wholly-owned Subsidiary merges or consolidates with another wholly-owned Subsidiary or the Company, no Default or Event of Default shall exist prior to such merger or consolidation; and (ii) any Subsidiary of the Company may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Company or another Wholly-Owned Subsidiary of the Company. 7.04 Sale or Discount of Receivables. The Company will not, and will not permit any of its Domestic Subsidiaries to, directly or indirectly, sell with or without recourse, or discount or otherwise sell for less than the face value thereof any of its notes or accounts receivable, except: (a) discounts offered in the ordinary course of business for early payment of accounts receivable and negotiated settlements of bad debts and disputed accounts receivable in the ordinary course of business; (b) sales of accounts receivable under the Receivables Purchase Agreement and agreements entered into in connection therewith; (c) sales of accounts receivable under Other Permitted Accounts Receivable Financing Facilities; (d) sales of accounts receivable where the Company believes in good faith that the collectability of such accounts receivable is or may be jeopardized by the distressed financial condition of the obligor under such accounts receivable; and (e) sales or discounting of any other notes or receivables, the aggregate outstanding face amount of which does not exceed, together with the aggregate outstanding principal amount of secured Indebtedness permitted under Section 7.02(a), $100,000,000 in the aggregate at any time. - --------------- 7.05 Consolidated Funded Indebtedness to Total Capitalization. The Company shall not permit the ratio of the sum of (a) Consolidated Funded Indebtedness plus (b) Combined Purchasers' Investments to the sum of (x) ---- Consolidated Funded Indebtedness plus (y) Combined Purchasers' Investments plus ---- ---- (z) the consolidated net worth of the Company and its Subsidiaries on a consolidated basis determined in conformity with GAAP to exceed 60% at the end of each of the first three fiscal quarters in each fiscal year and 50% at the end of each fiscal year. 7.06 Interest Coverage Ratio. The Company shall not permit, as of the last day of each fiscal quarter, the ratio of (a) the sum of (i) its net income from continuing operations, for - 37 - Mattel, Inc. Amended and Restated Credit Agreement the four consecutive fiscal quarters ending on such date, before (A) special items, (B) minority interest, (C) gains on reacquisition of debt, plus (ii) ---- income taxes accrued for the four consecutive fiscal quarters ending on such date, plus (iii) interest accrued for the four consecutive fiscal quarters ---- ending on such date, excluding capitalized interest and without regard to interest income plus (iv) depreciation and amortization for the four ---- consecutive fiscal quarters ending on such date to (b) interest incurred for the four consecutive fiscal quarters ending on such date, including capitalized interest and without regard to interest income, to be less than 3.50 to 1. 7.07 ERISA. The Company will not, and will not permit any of its ERISA Affiliates to, permit the aggregate actuarial present value of all benefit liabilities under all Pension Plans to exceed the aggregate fair market value of the assets of such Pension Plans allocable to such benefit liabilities by more than $100,000,000, determined in accordance with the actuarial assumptions and liabilities set forth in the most recent actuarial valuation prepared with respect to such Pension Plans. 7.08 Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by the Company for the purpose of "purchasing" or "carrying" any Margin Stock in violation of Regulation U, of the Federal Reserve Board (or any other regulation of the Federal Reserve Board) or the Exchange Act, in each case as in effect on the date or dates of such borrowing and the use of such proceeds. 7.09 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Default if such action is taken or condition exists. SECTION 8. EVENTS OF DEFAULT 8.01 Events of Default. Any of the following conditions or events shall constitute an "Event of Default:" ---------------- (a) Failure to Make Payments When Due. (i) Failure by any Company Party to pay any required payment of principal under this Agreement or the Receivables Purchase Agreement or of any Loan or any Notes, when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise, (ii) failure by any Company Party to pay any required payment of interest under this Agreement or the Receivables Purchase Agreement or on any Loan or any Note or any fees payable pursuant to Section 2 for a period of five days or more after --------- the date such payment is due, or (iii) failure by any Company Party to pay any other amount due under this Agreement or the Receivables Purchase Agreement within 90 days after written notice thereof; or - 38 - Mattel, Inc. Amended and Restated Credit Agreement (b) Default in Other Agreements. (i) Failure of the Company or any of its Material Subsidiaries to pay or any default in the payment of any principal or interest on any Indebtedness in an amount exceeding $15,000,000 or any default in any other obligation for the payment of money in an amount in excess of $15,000,000 beyond any period of grace allowed; or (ii) any breach or default (unless cured or waived) with respect to any other term of any evidence of such other Indebtedness for borrowed money in an amount exceeding $15,000,000 or of any loan agreement, mortgage, indenture or other agreement relating thereto, and such breach or default continues after the applicable grace or notice period, if any, specified in the document relating thereto, if the effect of such failure, default or breach is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness for borrowed money to become or be declared due prior to its stated maturity; or (c) Breach of Certain Covenants. Failure of the Company to perform or comply with any term or condition contained in Sections 6.03(a), ---------------- 6.04 or Section 7 of this Agreement; or - ---- --------- (d) Breach of Warranty. Any of the Company's, Fisher-Price's or Mattel Sales' representations or warranties made in any Loan Document in writing pursuant hereto or in connection herewith shall be false in any material respect on the date as of which made; or (e) Other Defaults Under Loan Documents. Failure of any Company Party to perform or comply with any other term or condition contained in any Loan Document to which it is a party thereto, other than the conditions referred to in Subsections (a), (b), (c) and (d) above, and such default shall not have been remedied or waived within 30 days after receipt of notice from the Administrative Agent or any Lender of such default; or (f) Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its Material Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed, or (ii) any other similar relief shall be granted under any applicable federal or state or applicable foreign law; a petition for an involuntary case shall be filed against the Company or any of its Material Subsidiaries under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of its Material Subsidiaries, or over all or substantially all of its property, shall have been entered; or an interim receiver, trustee or other custodian of the Company or any of its Material Subsidiaries for all or substantially all of the property of the Company or any of its Material Subsidiaries shall be appointed involuntarily; and the continuance of any such events in clause (ii) for 45 days unless dismissed, bonded or discharged; or (g) Voluntary Bankruptcy; Appointment of Receiver, etc. The Company or any of its Material Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in any involuntary case, or to the conversion from an involuntary case, under any such law, or shall consent to the appointment of - 39 - Mattel, Inc. Amended and Restated Credit Agreement or taking possession by a receiver, liquidator, sequestrator, trustee or other custodian for all or substantially all of its property; the making by the Company or any of its Material Subsidiaries of any assignment for the benefit of creditors; or the inability or failure of the Company or any of its Material Subsidiaries, or the admission by the Company or any of its Material Subsidiaries in writing of its inability, to generally pay its debts as such debts become due; or the Board of Directors of the Company or any of its Material Subsidiaries adopts any resolution or otherwise takes action to approve any of the foregoing; or (h) Judgments. Any final money judgment involving in any case an amount in excess of $20,000,000 or in excess of $40,000,000 in the aggregate at any one time for all final judgments shall be entered or filed against the Company or any Material Subsidiary or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 45 days or in any event later than five days prior to the date of any proposed sale thereunder; or (i) Dissolution. Any order, judgment or decree shall be entered against the Company or any Material Subsidiary decreeing the dissolution or split up of the Company and such order shall remain undischarged or unstayed for a period in excess of 30 days; or (j) ERISA. (i) Any Pension Plan maintained by the Company or any of its ERISA Affiliates shall be terminated within the meaning of Title IV of ERISA, or (ii) a trustee shall be appointed by an appropriate United States district court to administer any Pension Plan, or (iii) the Pension Benefit Guaranty Corporation (or any successor thereto) shall institute proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan, or (iv) the Company or any of its ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension Plan, if, as of the date of the event listed in clauses (i)-(iv) above or any subsequent date, any of the Company or its ERISA Affiliates has any liability (such liability to include, without limitation, any liability to the Pension Benefit Guaranty Corporation, or any successor thereto, or to any other party under Sections 4062, 4063 or 4064 of ERISA or any other provision of law) resulting from or otherwise associated with the events listed in clauses (i)-(iv) above for unfunded guarantied vested benefits under the Pension Plans which exceeds the current value of assets accumulated in such Pension Plan by more than $100,000,000; or (k) Loss of Property. All, or a substantial part of, the property, assets or business of the Company or any Material Subsidiary shall be condemned or seized and such condemnation or seizure shall have (after taking into account any insurance or condemnation award) a Material Adverse Effect; or (l) Cessation of Business. The Company or any Material Subsidiary shall at any time voluntarily or involuntarily suspend its business or a substantial part thereof which would constitute a substantial part of, and would have a Material Adverse Effect; or (m) Servicer Default. A Servicer Default (as defined in the Receivables Purchase Agreement) shall occur and be continuing; or (n) Change of Control. There occurs any Change of Control. - 40 - Mattel, Inc. Amended and Restated Credit Agreement 8.02 Remedies. If any Event of Default occurs, the Administrative Agent shall, at the request of, or may, with the consent of, the Requisite Lenders, (a) declare the Commitment of each Lender to be terminated, whereupon such Commitments shall forthwith be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable; without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event -------- ------- specified in paragraph (f) or (g) of Section 8.01 above (in the case of clause ------------ (ii) of paragraph (f) upon the expiration of the 45-day period mentioned therein), the obligation of each Lender to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Lender. 8.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising, including without limitation, under the Transaction Documents. SECTION 9. THE ADMINISTRATIVE AGENT 9.01 Appointment and Authorization. Each Lender hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 9.02 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.03 Liability of Administrative Agent. None of the Administrative Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for - 41 - Mattel, Inc. Amended and Restated Credit Agreement any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or for the value of any Collateral or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Administrative Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the Properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 9.04 RELIANCE BY ADMINISTRATIVE AGENT. (a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Requisite Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Requisite Lenders or all Lenders, as applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in Sections 4.01 and 4.02, each Lender that has executed this ------------- ---- Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter either sent by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender, unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from the Lender prior to any borrowing specifying its objection thereto and either such objection shall not have been withdrawn by notice to the Administrative Agent to that effect or the Lender shall not have made available to the Administrative Agent the Lender's ratable portion of such borrowing. 9.05 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or the Company referring to this Agreement, describing such - 42 - Mattel, Inc. Amended and Restated Credit Agreement Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be requested by the Requisite Lenders in accordance with Section 8; provided, however, that unless and until the Administrative --------- -------- ------- Agent shall have received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders. 9.06 Credit Decision. Each Lender expressly acknowledges that none of the Administrative Agent-Related Persons has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated thereby, and made its own decision to enter into this Agreement and extend credit to the Company hereunder. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Administrative Agent-Related Persons. 9.07 Indemnification. Whether or not the transactions contemplated hereby shall be consummated, the Lenders shall indemnify upon demand the Administrative Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), ratably from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind whatsoever which may at any time (including at any time following the repayment of the Loans and the termination or resignation of the related Administrative Agent) be imposed on, incurred by or asserted against any such Person any way relating to or arising out of this Agreement or any document contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any such Person under or in connection with any of the foregoing; provided, -------- however, that no Lender shall be liable for the payment to the Administrative - ------- Agent-Related Persons of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or - 43 - Mattel, Inc. Amended and Restated Credit Agreement disbursements resulting from such Person's gross negligence or willful misconduct. The obligation of the Lenders in this Section shall survive the payment of all Obligations hereunder. 9.08 Administrative Agent in Individual Capacity. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory or other business with the Company and its Subsidiaries and Affiliates as though Bank of America were not the Administrative Agent hereunder and without notice to or consent of the Lenders. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include Bank of America in its individual capacity. 9.09 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Lenders; provided that any such resignation by Bank of America shall also constitute its resignation as Administrative Agent under the Receivables Purchase Agreement. If the Administrative Agent shall resign as Administrative Agent under this Agreement, the Requisite Lenders shall appoint from among the Lenders a successor administrative agent for the Lenders which successor administrative agent shall be consented to by the Company at all times other than during the existence of an Event of Default (which consent of the Company shall not be unreasonably withheld or delayed). If no successor administrative agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Company, a successor administrative agent from among the Lenders. Upon the acceptance of its appointment as successor administrative agent hereunder, the Person acting as such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent, and the term "Administrative Agent" shall mean such successor administrative agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 9 and Sections 10.04 and 10.05 shall inure to its benefit as to any - --------- -------------- ----- actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor administrative agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor agent as provided for above. 9.10 Other Agents; Lead Managers. None of the Lenders identified on the facing page or signature pages of this Agreement as a "syndication agent," "documentation agent," "co-agent" or "lead manager" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, none of the Lenders so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. - 44 - Mattel, Inc. Amended and Restated Credit Agreement SECTION 10. MISCELLANEOUS 10.01 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Requisite Lenders and the Company, and acknowledged by the Administrative Agent, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent -------- ------- shall, unless in writing and signed by each of the Lenders directly affected thereby and the Company, and acknowledged by the Administrative Agent, do any of the following: (a) increase or extend any Lender's Commitment or subject any Lender to any additional obligations; (b) postpone or delay any date fixed for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or of any fees or other amounts payable hereunder or under any Loan Document; (d) change the percentage of the Aggregate Facilities Commitment or of the aggregate unpaid principal amount of the Loans and Purchasers' Investment which is required for the Lenders or any of them to take any action hereunder without the written consent of all of the Lenders; (e) amend this Section 10.01 or Section 2.13; and ------------- ------------ (f) amend Section 2.01, the definitions of "Pro Rata Share" or ------------ "Requisite Lenders;" or (g) discharge any Guarantor; provided further, that no amendment, waiver or consent shall (i), unless in - ---------------- writing and signed by the Administrative Agent in addition to the Requisite Lenders or all the Lenders, as the case may be, affect the rights or duties of the Administrative Agent under any Loan Document, or (ii) have the effect of making any Lender's Pro Rata Share hereunder a different percentage than its Percentage under the Receivables Purchase Agreement. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.01 shall be binding upon each holder of any Notes at the time outstanding, each future holder of the Notes and, if signed by the Company, on the Company. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended nor the principal owing to such Lender be reduced without the consent of such Lender. - 45 - Mattel, Inc. Amended and Restated Credit Agreement 10.02 Notices and Other Communications; Facsimile Copies. (a) General. Unless otherwise expressly provided herein, all ------- notices and other communications provided for hereunder shall be in writing (including by facsimile transmission) and mailed, faxed or delivered, to the address, facsimile number or (subject to subsection (c) below) electronic mail address specified for notices on Schedule 10.02; or, in the case of the Company -------------- or the Administrative Agent, to such other address as shall be designated by such party in a notice to the other parties, and in the case of any other party, to such other address as shall be designated by such party in a notice to the Company or the Administrative Agent. All such notices and other communications shall be deemed to be given or made upon the earlier to occur of (i) actual receipt by the intended recipient and (ii) (A) if delivered by hand or by courier, when signed for by the intended recipient; (B) if delivered by mail, upon the earlier of receipt and four Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has been confirmed by telephone during a Business Day; and (D) if delivered by electronic mail (which form of delivery is subject to the provisions of subsection (c) below), when delivered; provided, however, that notices and -------- ------- other communications to the Administrative Agent pursuant to Section 2 shall not be effective until actually received by such Person. Any notice or other communication permitted to be given, made or confirmed by telephone hereunder shall be given, made or confirmed by means of a telephone call to the intended recipient at the number specified on Schedule 10.02, it being understood and -------------- agreed that a voicemail message shall in no event be effective as a notice, communication or confirmation hereunder. (b) Effectiveness of Facsimile Documents and Signatures. Loan --------------------------------------------------- Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Governmental Rule, have the same force and effect as manually-signed originals and shall be binding on all Loan Parties, the Administrative Agent and the Lenders. The Administrative Agent may also require that any such documents and signatures be confirmed by a manually-signed original thereof; provided, however, that the -------- ------- failure to request or deliver the same shall not limit the effectiveness of any facsimile document or signature. (c) Limited Use of Electronic Mail. Electronic mail and Internet ------------------------------ and intranet websites may be used only to distribute routine communications, such as financial statements and other information as provided in Section 6.02, ------------ and to distribute Loan Documents for execution by the parties thereto, and may not be used for any other purpose. (d) Reliance by Administrative Agent and Lenders. The -------------------------------------------- Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Notices of Borrowing and Notices of Conversion/Continuation) purportedly given by or on behalf of the Company even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Company shall indemnify each Administrative Agent-Related Person and each Lender from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Company. All telephonic notices to and other communications with the Administrative Agent pursuant to Section 2 may be --------- recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording. - 46 - Mattel, Inc. Amended and Restated Credit Agreement 10.03 Failure or Indulgence Not Waiver; Remedies Cumulative. No ----------------------------------------------------- failure or delay on the part of any Lender or any holder of any Note in the exercise of any power, right or privilege hereunder or under any Note shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement or any Notes are cumulative to and not exclusive of, any rights or remedies otherwise available. 10.04 Fees and Expenses. Whether or not the transactions ----------------- contemplated hereby shall be consummated, the Company agrees to pay within 30 days after submission of an invoice therefor (a) all the actual and reasonable out-of-pocket costs and expenses of preparation of the Loan Documents and all the costs of furnishing all opinions by counsel for the Company (including without limitation any opinions requested by the Lenders as to any legal matters arising hereunder), and of the Company's performance of and compliance with all agreements and conditions contained therein on its part to be performed or complied with; (b) the cost of delivering to the Lenders any Notes pursuant to the provisions of this Agreement; (c) the reasonable fees, expenses and disbursements of the Administrative Agent and the Administrative Agent's counsel (including the allocated cost of Administrative Agent's inhouse counsel and staff) in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans and any amendments and waivers hereto; and (d) after the occurrence of an Event of Default, all actual and reasonable out-of-pocket costs and expenses (including reasonable fees of law firms engaged by the Lenders and the reasonable estimate of the allocable costs of counsel in the staff of legal departments of the Lenders and costs of settlement) incurred by the Administrative Agent and each Lender in enforcing any Obligations or in collecting any payments due from the Company hereunder or under any Notes by reason of such Event of Default or in connection with any refinancing or restructuring of any Loan Document in the nature of a "work-out" or of any insolvency or bankruptcy proceeding. 10.05 Indemnity. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify and hold the Administrative Agent-Related Persons, and each Lender and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, ------------------ obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including reasonable fees and out-of-pocket expenses of counsel and the allocated cost of internal counsel) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans and the termination, resignation or replacement of the Administrative Agent or replacement of any Lender) be imposed on, incurred by or asserted against any such Person arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, the Commitments, the use or proposed use of the proceeds from the Loans, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any proceeding of the type referred to in Section 8.01(f) or (g) or appellate proceeding) related to or --------------- arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the Company shall ----------------------- -------- have no obligation hereunder to any Indemnified Person with respect to - 47 - Mattel, Inc. Amended and Restated Credit Agreement Indemnified Liabilities resulting from the gross negligence or willful misconduct of such Indemnified Person. No Indemnified Person shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Agreement; provided, that the Company shall -------- have no obligation hereunder to any Indemnified Person with respect to such damages resulting from the gross negligence or willful misconduct of such Indemnified Person. No Indemnified Person shall have any liability for any indirect or consequential damages relating to this Agreement or any other Loan Document or arising out of its activities in connection herewith or therewith (whether before or after the Closing Date). The agreements in this Section shall survive payment of all other Obligations. 10.06 Set Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of and during the continuance of any Event of Default (after the giving of any notice and the expiration of any grace period contained in the definition thereof), each Lender and each subsequent holder of any Note is hereby authorized by the Company at any time or from time to time, without notice to the Company, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate any and all deposits (including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured but not including trust accounts) and any other indebtedness at any time held or owing by that Lender or that subsequent holder to or for the credit or the account of the Company and to apply any such amounts in accordance with the provisions of Section 2.13 irrespective of ------------ whether or not that Lender or that subsequent holder shall have made any demand hereunder and whether or not such deposits or other indebtedness are otherwise fully secured and Lender and that subsequent holder is hereby irrevocably authorized to permit such setoff and appropriation. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender; provided, however, that the failure to give -------- ------- such notice shall not affect the validity of such set-off and application. 10.07 Survival of Warranties and of Certain Agreements. (a) All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Loans hereunder and the execution and delivery of any Notes. (b) Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company set forth in Sections 2.09, 3, ------------- - 10.04 and 10.05 and the agreements of the Lenders set forth in Sections 2.13, - ----- ----- ------------- 9, 10.06 and 10.08 shall survive the payment of the Obligations by the Company - - ----- ----- and the termination of this Agreement. - 48 - Mattel, Inc. Amended and Restated Credit Agreement 10.08 SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Company may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Company without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) From time to time following the Effective Date, each Lender may assign to one or more Eligible Assignees all or any portion of its Loan Commitment and outstanding Loans; provided that (i) such Lender concurrently -------- assigns a ratable portion of its Purchaser Commitment and its Percentage of the Purchasers' Investment under the Receivables Purchase Agreement, (ii) such assignment, if not to a Lender or an Affiliate of the assigning Lender, shall be consented to by the Company at all times other than during the existence of a Default or Event of Default and by the Administrative Agent (which approval of the Company shall not be unreasonably withheld or delayed), (iii) a copy of a duly signed and completed Assignment and Assumption shall be delivered to the Administrative Agent and the Company, (iv) except in the case of an assignment (A) to an Affiliate of the assigning Lender or to another Lender or an Approved Fund (as defined in subsection (g) of this Section) with respect to a Lender or (B) of the entire remaining Commitment of the assigning Lender, the portion of the Aggregate Facilities Commitment assigned shall not be less than $10,000,000, (v) the assigning Lender shall have delivered any Note or Notes subject to the assignment to the Administrative Agent and (vi) the effective date of any such assignment shall be as specified in the Assignment and Assumption, but not earlier than the date which is five Business Days after the date the Administrative Agent has received the Assignment and Assumption. Upon satisfaction of the conditions set forth in the prior sentence, any forms required by Section 10.15 and payment of the requisite fee described below, the ------------- assignee named therein shall be a Lender for all purposes of this Agreement effective as of the specified effective date to the extent of the Assigned Interest (as defined in such Assignment and Assumption), and the assigning Lender shall be released from any further obligations under this Agreement to the extent of such Assigned Interest. Until satisfaction of the conditions set forth herein to any assignment, the Company and Administrative Agent may continue to deal solely and directly with the assigning Lender in connection the Assigned Interest. Upon request following satisfaction of the conditions set forth herein to any assignment, the Company shall execute and deliver new or replacement Notes to the assigning Lender and the assignee Lender to evidence Loans made by them. The Administrative Agent's consent to any assignment shall not be deemed to constitute any representation or warranty by any Administrative Agent-Related Person as to any matter. (c) After receipt of a completed Assignment and Assumption, and receipt of an assignment fee of $3,500 (which fee includes any assignment fees in connection with the concurrent assignment of interests under the Receivables Purchase Agreement) from such Eligible Assignee or such assigning Lender (including in the case of assignments to Affiliates of -49- Mattel, Inc. Amended and Restated Credit Agreement assigning Lenders), the Administrative Agent shall, promptly following the effective date thereof, provide to the Company and Lenders a revised Schedule -------- 10.02 giving effect thereto. - ----- (d) Upon advance written notice to the Company, any Lender may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating interests in any Loans, the ----------- Commitment of that Lender and the other interests of that Lender (the "originating Lender") hereunder and under the other Loan Documents; provided, ------------------ -------- however, that (i) such Lender shall concurrently with any sale of a - ------- participation herein sell a ratable participation in the Receivables Purchase Agreement and thereafter cause any such participation herein to remain ratable with such participation in the Receivables Purchase Agreement, (ii) the originating Lender's obligations under this Agreement shall remain unchanged, (iii) the originating Lender shall remain solely responsible for the performance of such obligations, (iv) the Company and the Administrative Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (v) no Lender shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to this Agreement except to the extent such amendment, consent or waiver would require unanimous consent as described in the first proviso to Section 10.01. The ------------- Company hereby acknowledges and agrees that any such disposition will give rise to a direct obligation of the Company to the Participant with respect to, and the Participant shall be entitled to the benefit of, Sections 3.01, 3.02, 3.04, ------------- ---- ---- 3.05 and 10.05 as if it were a "Lender." To the extent permitted by law, each - ---- ----- Participant also shall be entitled to the benefits of Section 10.06 as though ------------- it were a Lender, provided such Participant agrees to be subject to Section ------- 2.13 as though it were a Lender. - ---- (e) A Participant shall not be entitled to receive any greater payment under Section 3.01, 3.02, 3.04, or 3.05 or 10.05 than the applicable ------------ ---- ---- ---- ----- Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Company is notified of the participation ------------ sold to such Participant and such Participant agrees, for the benefit of the Company, to comply with Section 10.15 as though it were a Lender. ------------- (f) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note(s) held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (g) As used herein, the following terms have the following meanings: "Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a ----------------- Lender; (iii) an Approved Fund; and (iv) any other Person (other than a natural person) approved by (A) the Administrative Agent and (B) unless an Event of Default has occurred and is continuing, the Company (each such approval not to be unreasonably withheld or -50- Mattel, Inc. Amended and Restated Credit Agreement delayed); provided that notwithstanding the foregoing, "Eligible -------- Assignee" shall not include the Company or any of the Company's Affiliates or Subsidiaries. "Fund" means any Person (other than a natural person) that is ---- (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "Approved Fund" means any Fund that is administered or managed ------------- by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender. (h) Each Lender agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to it by the Company or any Subsidiary of the Company, or by the Administrative Agent on such Company's or Subsidiary's behalf, in connection with this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement and the Receivables Purchase Agreement; except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by the Lender, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Lender; provided, however, that any Lender may disclose such information -------- ------- (A) at the request or pursuant to any requirement of any Governmental Person to which the Lender is subject or in connection with an examination of such Lender by any such authority; (B) pursuant to subpoena or other court process and when required to do so in accordance with the provisions of any applicable Governmental Rule; provided, that a Lender shall disclose only the information -------- required by such request and shall notify the Company in advance of such disclosure so that the Company may seek an appropriate protective order, (C) to such Lender's Affiliates and independent auditors and other professional advisors provided such Persons are obligated to keep such information confidential, (D) to any other party to this Agreement, and (E) if an Event of Default exists, in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to any Loan Document or Transaction Document or the enforcement of rights hereunder or thereunder. Notwithstanding the foregoing, the Company authorizes each Lender to disclose to any assignee or Participant and to any prospective assignee or Participant, such financial and other information in such Lender's possession concerning the Company or its Subsidiaries which has been delivered to Administrative Agent or the Lenders pursuant to this Agreement or which has been delivered to the Administrative Agent or the Lenders by the Company in connection with the Lenders' credit evaluation of the Company prior to entering into this Agreement; provided that, -------- unless otherwise agreed by the Company, such assignee or Participant agrees in writing to such Lender to keep such information confidential to the same extent required of the Lenders hereunder. 10.09 Severability. In case any provision in or obligation under this Agreement or any Notes 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. -51- Mattel, Inc. Amended and Restated Credit Agreement 10.10 Obligations Several. The obligation of each Lender hereunder is several, and no Lender shall be responsible for any obligation or commitment of any other Lender hereunder. Nothing contained in this Agreement and no action taken by Lenders pursuant hereto shall be deemed to constitute Lenders to be a partnership, an association, a joint venture or another entity. 10.11 Certain Changes. If (a) any changes in accounting principles from those used in the preparation of the financial statements referred to in Section 5.08 hereafter occasioned by the promulgation of rules, regulations, - ------------ pronouncements and opinions by or requested by the Financial Accounting Standards Board or the American Institute of Certified Public Accounts (or successors thereto or agencies with similar functions) result in a change in the method of calculation of financial covenants, standards or terms found in Sections 1, 6 and 7, or (b) the Company changes the manner in which its fiscal - ---------- - - year, fiscal quarters and fiscal months are determined, the parties hereto agree to enter into negotiations in order to amend the appropriate provisions of this Agreement so as to equitably reflect such changes with the desired result that the criteria for evaluating the Company's financial condition and operations or establishing limitations hereunder shall be the same after such changes as if such changes had not been made. 10.12 Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.13 Counterparts. This Agreement and any amendments, waivers, consents, or supplements may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 10.14 Integration. This Agreement, together with the other Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and thereof and supersedes all prior agreements, written or oral, on such subject matter. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control; provided that the inclusion of -------- supplemental rights or remedies in favor of the Administrative Agent or the Lenders in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. 10.15 Tax Forms. (a) Each Lender that is not a "United States person" within the meaning of Section 7701(a)(30) of the Code (a "Foreign ------- Lender") shall deliver to the Administrative Agent, prior to receipt of any - ------ payment subject to withholding under the Code (or upon accepting an assignment of an interest herein), two duly signed completed copies of either IRS Form W-8BEN or any successor thereto (relating to such Person and entitling it to an exemption from, or reduction of, withholding tax on all payments to be made to such Person by the Company pursuant to this Agreement) or IRS Form W-8ECI or any successor thereto (relating to all payments to be made to such Person by the Company pursuant to this Agreement) or such other evidence satisfactory to the Company and the Administrative Agent that such Person is entitled to an exemption from, or reduction of, U.S. withholding tax. Thereafter and from time to time, each such Person shall (i) promptly submit to the Administrative Agent such -52- Mattel, Inc. Amended and Restated Credit Agreement additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to the Company and the Administrative Agent of any available exemption from or reduction of, United States withholding taxes in respect of all payments to be made to such Person by the Company pursuant to this Agreement, (ii) promptly notify the Administrative Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction, and (iii) take such steps as shall not be materially disadvantageous to it, in the reasonable judgment of such Lender, and as may be reasonably necessary (including the re-designation of its Lending Office) to avoid any requirement of applicable Governmental Rules that the Company make any deduction or withholding for taxes from amounts payable to such Person. If such Person fails to deliver the above forms or other documentation, then the Administrative Agent may withhold from any interest payment to such Person an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. (b) Upon the request of the Administrative Agent, each Lender that is a "United States person" within the meaning of Section 7701(a)(30) of the Code shall deliver to the Administrative Agent two duly signed completed copies of IRS Form W-9. If such Lender fails to deliver such forms, then the Administrative Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable back-up withholding tax imposed by the Code, without reduction. (c) If any Governmental Authority asserts that the Administrative Agent did not properly withhold or backup withhold, as the case may be, any tax or other amount from payments made to or for the account of any Lender, such Lender shall indemnify the Administrative Agent therefor, including all penalties and interest, any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, and costs and expenses (including Attorney Costs) of the Administrative Agent; provided, that no -------- Lender shall have any obligation hereunder to the Administrative Agent with respect to amounts resulting from the gross negligence or willful misconduct of the Administrative Agent.. The obligation of the Lenders under this Section shall survive the termination of the Aggregate Facilities Commitment, repayment of all Obligations and the resignation of the Administrative Agent. 10.16 APPLICABLE LAW. (a) This Agreement, any Notes and the other Loan Documents shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of California, without regard to conflicts of laws principles. (b) Any legal action or proceeding with respect to this Agreement and any other Loan Documents may be brought in the courts of the State of California or of the United States for the Central District of California, and by execution and delivery of this Agreement, each of the Company, the Administrative Agent and the Lenders consents, for itself and in respect of its property, to the non-exclusive jurisdiction of those courts. Each of the Company, the Administrative Agent and the Lenders irrevocably waives any objection, including any objection -53- Mattel, Inc. Amended and Restated Credit Agreement to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related hereto. The Company, the Administrative Agent and the Lenders each waive personal service of any summons, complaint or other process, which may be made by any other means permitted by California law. 10.17 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 10.18 Amendment and Restatement. This Agreement amends and restates the Existing Multi-Year Agreement. All notes issued under the Existing Multi-Year Credit Agreement are hereby cancelled. -54- Mattel, Inc. Amended and Restated Credit Agreement IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Credit Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. MATTEL, INC. By: /s/ WILLIAM STAVRO ------------------------------------------------ William Stavro Senior Vice President and Treasurer S - 1 Mattel, Inc. Amended and Restated Credit Agreement BANK OF AMERICA, N.A., as Administrative Agent and a Lender By: /s/ CASEY COSGROVE ------------------------------------------------ Casey Cosgrove Vice President S - 2 Mattel, Inc. Amended and Restated Credit Agreement BNP PARIBAS, as a Documentation Agent and a Lender By: /s/ JANICE S.H. HO ------------------------------------------------ Name: Janice S.H. Ho Title: Director By: /s/ TJALLING TERPSTRA ------------------------------------------------ Name: Tjalling Terpstra Title: Director S - 3 Mattel, Inc. Amended and Restated Credit Agreement CITICORP USA, INC., as a Syndication Agent and a Lender By: /s/ WALT LARSEN ------------------------------------------------ Name Walt Larsen Title Vice President S - 4 Mattel, Inc. Amended and Restated Credit Agreement FLEET NATIONAL BANK, as a Syndication Agent and a Lender By: /s/ MARIO F. TEIXEIRA ------------------------------------------------ Name Mario F. Teixeira Title Vice President S - 5 Mattel, Inc. Amended and Restated Credit Agreement SOCIETE GENERALE, as a Documentation Agent and a Lender By: /s/ RICHARD BERNAL ------------------------------------------------ Name Richard Bernal Title Director, Corporate Banking S - 6 Mattel, Inc. Amended and Restated Credit Agreement THE BANK OF NOVA SCOTIA By: /s/ R.P. REYNOLDS ------------------------------------------------ Name: R. P. Reynolds Title: Director S - 7 Mattel, Inc. Amended and Restated Credit Agreement BARCLAYS BANK PLC By: /s/ NICHOLAS BELL ------------------------------------------------ Name: Nicholas Bell Title: Director S - 8 Mattel, Inc. Amended and Restated Credit Agreement CREDIT SUISSE FIRST BOSTON By: /s/ ROBERT HETU ------------------------------------------------ Name: Robert Hetu Title: Director By: /s/ MARK HERON ------------------------------------------------ Name: Mark Heron Title: Associate S - 9 Mattel, Inc. Amended and Restated Credit Agreement THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ VICENTE L. TIMIRAOS ------------------------------------------------ Name: Vicente L. Timiraos Title: Joint General Manager S - 10 Mattel, Inc. Amended and Restated Credit Agreement MANUFACTURERS & TRADERS TRUST COMPANY By: /s/ CHRISTOPHER KANIA ------------------------------------------------ Name: Christopher Kania Title: Vice President S - 11 Mattel, Inc. Amended and Restated Credit Agreement SANPAOLO IMI S.p.A. By: /s/ CARLO PERSICO ------------------------------------------------ Name: Carlo Persico Title: E.V.P./General Manager By: /s/ ETTORE VIAZZO ------------------------------------------------ Name: Ettore Viazzo Title: Vice President S - 12 Mattel, Inc. Amended and Restated Credit Agreement WELLS FARGO BANK, N.A. By: /s/ PEITTY CHOU ------------------------------------------------ Name: Peitty Chou Title: Vice President S - 13 Mattel, Inc. Amended and Restated Credit Agreement CREDIT LYONNAIS, Los Angeles Branch By: /s/ DIANNE M. SCOTT ------------------------------------------------ Name: Dianne M. Scott Title: Senior Vice President and Manager S - 14 Mattel, Inc. Amended and Restated Credit Agreement UNION BANK OF CALIFORNIA, N.A. By: /s/ GAIL I. BOYLE ------------------------------------------------ Name: Gail I. Boyle Title: Vice President S - 15 Mattel, Inc. Amended and Restated Credit Agreement FIRST UNION NATIONAL BANK By: /s/ DAVID SILANDER ------------------------------------------------ Name: David Silander Title: Director S - 16 Mattel, Inc. Amended and Restated Credit Agreement JPMORGAN CHASE BANK By: /s/ WILLIAM P. RINDFUSS ------------------------------------------------ Name: William P. Rindfuss Title: Vice President S - 17 Mattel, Inc. Amended and Restated Credit Agreement U.S. BANK NATIONAL ASSOCIATION By: /s/ JANET JORDAN ------------------------------------------------ Name: Janet E. Jordan Title: Vice President S - 18 Mattel, Inc. Amended and Restated Credit Agreement BANK OF TOKYO-MITSUBISHI TRUST COMPANY By: /s/ R. L. VAN DE BERGHE ------------------------------------------------ Name: R. L. Van de Berghe Title: Vice President S - 19 Mattel, Inc. Amended and Restated Credit Agreement EX-10.1 8 dex101.txt 1ST AMENDED & RESTATED RECEIVABLES PURCHASE AGRMNT. EXHIBIT 10.1 ================================================================================ First Amended and Restated Receivables Purchase Agreement (Receivables Purchase Subfacility) Dated as of March 20, 2002 among Mattel Factoring, Inc., as Transferor Mattel, Inc., as Servicer Bank of America, N.A., as Administrative Agent The Financial Institutions Party Hereto, as Purchasers and BANC OF AMERICA SECURITIES LLC, as Sole Lead Arranger and Sole Book Manager CITICORP USA, INC., and FLEET NATIONAL BANK, as Syndication Agents SOCIETE GENERALE and BNP PARIBAS, as Documentation Agents ================================================================================ TABLE OF CONTENTS SECTION.....................................................................PAGE SECTION 1. DEFINITIONS.........................................................1 1.01 Certain Defined Terms.............................................1 1.02 Other Terms......................................................10 SECTION 2. AMOUNTS AND TERMS OF THE PURCHASES.................................10 2.01 Purchase Facility................................................10 2.02 Making Purchases.................................................10 2.03 Payments and Computation, Etc....................................12 2.04 Collection Account...............................................12 2.05 Reduction or Termination of Purchasers' Investment Limit.........13 2.06 Deficiency Advances..............................................13 SECTION 3. CONDITIONS OF PURCHASES............................................13 3.01 Conditions Precedent to Initial Purchase.........................13 3.02 Conditions Precedent to All Purchases............................14 Section 4. SERVICING AND SETTLEMENT PROCEDURES................................16 4.01 Appointment of Servicer..........................................16 4.02 Duties of Servicer...............................................16 4.03 Servicer Default.................................................17 4.04 Servicer Default Remedies........................................17 4.05 Responsibilities of the Transferor...............................17 4.06 Servicing Fees...................................................18 SECTION 5. REPRESENTATIONS AND WARRANTIES.....................................18 5.01 Representations and Warranties...................................18 SECTION 6. COVENANTS..........................................................20 6.01 Covenants........................................................20 (a) Compliance with Laws, Etc................................20 (b) Offices, Records and Books of Account; Etc...............20 (c) Performance and Compliance with Contracts and Credit and Collection Policy.........................21 (d) Ownership Interest, Etc..................................21 (e) Sales, Liens, Etc........................................21 (f) Extension or Amendment of Receivables....................21 (g) Change in Business or Credit and Collection Policy.......22 (h) Audits...................................................22 (i) Status of Listed Receivables.............................22 (j) Reporting Requirements...................................22 (k) General Restrictions.....................................23 (l) Mergers, Acquisitions. Sales, Investments................23 (m) No Modification of the Purchase and Sale Agreement.......23 (n) Claim under Section 7.01 of the Purchase and Sale Agreement. SECTION 7. TERMINATION EVENTS AND TERMINATION EVENT REMEDIES................ 23 7.01 Termination Events Defined.......................................24 7.02 Termination Event Remedies.......................................25 - ii - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement 7.03 Rights Not Exclusive.............................................25 SECTION 8. THE ADMINISTRATIVE AGENT...........................................25 8.01 Appointment and Authorization....................................25 8.02 Delegation of Duties.............................................25 8.03 Liability of Administrative Agent................................25 8.04 Reliance by Administrative Agent.................................26 8.05 Notice of Termination Event or Servicer Default..................26 8.06 Credit Decision..................................................27 8.07 Indemnification..................................................27 8.08 Administrative Agent in its Individual Capacity..................28 8.09 Successor Administrative Agent...................................28 8.10 Other Administrative Agents; Lead Managers.......................29 8.11 Sharing of Payments, Etc.........................................29 8.12 Independent Agreements...........................................29 SECTION 9. INDEMNIFICATION....................................................30 9.01 Indemnification Generally........................................30 9.02 Capital Adequacy, Etc............................................33 SECTION 10. MISCELLANEOUS.....................................................33 10.01 Waivers; Amendments. Etc.........................................33 10.02 Notices, Etc.....................................................34 10.03 Governing Law; Integration.......................................35 10.04 Severability; Counterparts.......................................36 10.05 Successors and Assigns...........................................36 10.06 Amendment and Restatement........................................39 10.07 Set Off..........................................................39 10.08 Waiver of Right to Trial by Jury.................................39 EXHIBITS A Form of Purchase Notice B. Form of Opinion - iii - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement FIRST AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT (Receivables Purchase Subfacility) THIS FIRST AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT (as amended, supplemented or otherwise modified from time to time, the "Agreement") --------- is entered into as of March 20 2002, among MATTEL FACTORING, INC., a Delaware corporation, as transferor (the "Transferor"), MATTEL, INC., a Delaware ---------- corporation ("Mattel"), as servicer (the "Servicer"), THE FINANCIAL INSTITUTIONS ------ -------- PARTY HERETO FROM TIME TO TIME as purchasers (together with any successors and assigns, the "Purchasers"), and BANK OF AMERICA, N.A., a national banking ---------- association, as agent for the Purchasers (in such capacity, together with any successors and assigns, the "Administrative Agent"), BANC OF AMERICA SECURITIES -------------------- LLC, as sole lead arranger and sole book manager (in such capacity, the "Arranger"), CITICORP USA, Inc., and FLEET NATIONAL BANK, as syndication agents (in such capacity, the "Syndication Agents") and SOCIETE GENERALE, and BNP ------------------ PARIBAS as documentation agents (in such capacity, the "Documentation Agents"), -------------------- and amends and restates the Existing Receivables Purchase Agreement. For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.01 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "Administrative Agent" has the meaning set forth in the Preamble. -------------------- "Administrative Agent's Office" means the Administrative Agent's ----------------------------- address and, as appropriate, account identified as such on Schedule 9.02 to the ------------- Mattel Credit Agreement, or such other address or account as the Administrative Agent may from time to time notify to the Purchasers, the Servicer and the Transferor. "Administrative Agent-Related Persons" means the Administrative Agent ------------------------------------ and any successor agent arising under Section 10.02, together with their ------------- respective Affiliates (including, in the case of Bank of America, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Adverse Claim" means a lien, security interest or other charge or ------------- encumbrance, or any other type of right or claim (other than a lien or other interest in favor of the Administrative Agent or the Purchasers pursuant to this Agreement). "Applicable Margin" means, for each Obligor, that margin set forth in ----------------- the table below opposite the Obligor's second highest long-term unsecured debt ratings issued by S&P, Moody's or Fitch: - 1 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement Applicable S&P/Moody's/Fitch Margin ---------------------------------------- AA-/Aa3/AA- or higher 30.0 bps A/A2/A or higher 44.5 bps A-/A3/A- 52.5 bps "Assignment and Assumption" means an Assignment and Assumption ------------------------- substantially in the form of Exhibit H to the Mattel Credit Agreement. --------- "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978 --------------- (11 U.S.C.[sec][sec].101, et seq.), as amended from time to time. ------- "Business Day" means any day other than a Saturday, Sunday or other day ------------ on which commercial banks are authorized to close under the laws of, or are in fact closed in, California and the state where the Administrative Agent's Office is located (which, as of the date hereof, is California) and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market. "Collection Account" has the meaning set forth in Section 2.04. ---------- ------------ "Collections" means, with respect to any Listed Receivable, (a) all ----------- funds which are received by the Transferor, any Seller or the Servicer (or any sub-servicer) in payment of any amounts owed in respect of such Listed Receivable (including, without limitation, purchase price, finance charges, interest and all other charges), or applied to amounts owed in respect of such Listed Receivable (including, without limitation, insurance payments and net proceeds of the sale or other disposition of repossessed goods or other collateral or property of the applicable Obligor or any other person directly or indirectly liable for payment of such Listed Receivable and available to be applied thereon), and (b) all other proceeds of such Listed Receivable. "Contract" means, with respect to any Listed Receivable, any and all -------- contracts, understandings, instruments, agreements, leases, invoices, notes, or other writings pursuant to which such Listed Receivable arises or which evidences such Listed Receivable or under which the applicable Obligor becomes or is obligated to make payment in respect of such Listed Receivable. "Credit and Collection Policy" means those receivables credit and ---------------------------- collection polices and practices of the Sellers in effect on the date of this Agreement, as amended from time to time to the extent not prohibited by this Agreement or the Purchase and Sale Agreement. "Default Rate" means an interest rate equal to the Base Rate plus 2% ------------ ---- per annum; provided, however, that with respect to the Purchasers' Investment -------- ------- prior to the end of the Yield Period therefor, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Margin) otherwise applicable thereto plus 2% per annum, in each case to the fullest extent permitted by applicable laws. - 2 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement "Defaulting Purchaser" means any Purchaser that (a) has failed to fund -------------------- any portion of its Loans under the Mattel Credit Agreement or Purchasers' Investment hereunder required to be funded by it within one Business Day of the date required to be funded by it, (b) has otherwise failed to pay over to the Administrative Agent or any other Purchaser any other amount required to be paid by it hereunder or under the Mattel Credit Agreement within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent by the Federal Deposit Insurance Company, the Comptroller of the Currency or the Federal Reserve Board or become the subject of a bankruptcy or insolvency proceeding. "Deficiency Advance" has the meaning set forth in Section 2.06. ------------------ ------------ "Dilution" means any adjustment in the outstanding principal balance of -------- a Listed Receivable attributable to any credits, rebates, billing errors, discounts, setoffs, disputes, chargebacks, returns, allowances or similar items. "Dividend" means in respect of the Transferor, (i) cash distributions -------- or any other distributions on, or in respect of, any class of capital stock of the Transferor, and (ii) any and all funds, cash or other payments made in respect of the redemption, repurchase or acquisition of such stock. "Due Date" means, with respect to any Purchase Date, a date selected by -------- the Transferor which shall not be later than ninety days thereafter, excluding the Purchase Date and including such Due Date. "Eligible Assignee" has the meaning specified in Section 10.05(g). ----------------- ---------------- "Eligible Receivables" means, on an applicable Purchase Date, any -------------------- Receivable: (i) which has a stated maturity and which stated maturity is not later than the related Due Date; (ii) which is an "account" or "payment intangible" as defined in the UCC of any applicable jurisdiction; (iii) which is denominated and payable only in United States dollars in the United States; (iv) which, together with the Contract related thereto, is in full force and effect and constitutes the legal, valid and binding obligation of the applicable Obligor enforceable against such Obligor in accordance with its terms and subject to no offset, counterclaim or other defense; (v) which, together with the Contract related thereto, does not contravene in any material respect any Governmental Rules applicable thereto and with respect to which no part of the Contract related thereto is in violation of any such Governmental Rule in any material respect; (vi) which satisfies all applicable requirements of the Credit and Collection Policy, including that the Receivable not be delinquent or defaulted; and (vii) which was generated in the ordinary course of the related Seller's business and which was purchased by the Transferor from such Seller in accordance with the Purchase and Sale Agreement. "Eurodollar Rate" means for any Yield Period with respect to any --------------- Eurodollar Rate Loan, a rate per annum determined by Administrative Agent pursuant to the following formula: Eurodollar Rate = Eurodollar Base Rate ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, - 3 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement "Eurodollar Base Rate" means, for such Yield Period: -------------------- (a) the rate per annum equal to the rate determined by Administrative Agent to be the offered rate that appears on the page of the Telerate screen that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Yield Period) with a term equivalent to such Yield Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Yield Period, or (b) in the event the rate referenced in the preceding subsection (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum equal to the rate determined by Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Yield Period) with a term equivalent to such Yield Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Yield Period, or (c) in the event the rates referenced in the preceding subsections (a) and (b) are not available, the rate per annum determined by Administrative Agent as the rate of interest (rounded upward to the next 1/100th of 1%) at which deposits in Dollars for delivery on the first day of such Yield Period in same day funds in the approximate amount of the purchase to be made or continued by Administrative Agent (or its Affiliate) in its capacity as a Purchaser and with a term equivalent to such Yield Period would be offered by Bank of America's London Branch to major banks in the offshore Dollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Yield Period. "Eurodollar Reserve Percentage" means, for any day during any Yield ----------------------------- Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day, whether or not applicable to any Purchaser, under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. The determination of the Eurodollar Reserve Percentage and the Eurodollar Base Rate by Administrative Agent shall be conclusive in the absence of manifest error. "Existing Receivables Purchase Agreement" means that certain Receivables --------------------------------------- Purchase Agreement dated as of March 11, 1998, as amended, among the Transferor, Servicer, Guarantor, the Administrative Agent and the purchasers party thereto. - 4 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement "Facility Termination Date" means the earliest to occur of (a) March ------------------------- 31, 2005, (b) the date upon which the Purchaser Commitments are terminated in accordance with the terms hereof, and (c) the Termination Date under and as defined in the Mattel Credit Agreement. "Fisher-Price" means Fisher-Price, Inc., a Delaware corporation. ------------ "Fitch" means Fitch ICBA or any successor thereto. ----- "Guarantor" means Mattel as guarantor under the Purchase and Sale --------- Agreement. "Indemnified Amounts" means any and all claims, damages, costs, ------------------- expenses, losses and liabilities (including all reasonable fees and other charges of any law firm or other external counsel, the reasonable allocated cost of internal legal services and all reasonable other charges of internal counsel). "Indemnified Parties" means the Administrative Agent, the Purchasers ------------------- and their respective Affiliates, together with each of their respective employees, agents, successors, transferees and assigns. "Insolvency Proceeding" means, with respect to any Person, (a) (i) a --------------------- court having jurisdiction in the premises entering a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed, or (ii) any other similar relief being granted under any applicable federal or state or applicable foreign law; a petition for an involuntary case being filed against such Person under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over such Person, or over all or substantially all of its property, being entered; or an interim receiver, trustee or other custodian of such Person for all or substantially all of the property of such Person being appointed involuntarily; and the continuance of any such events in clause (ii) for 45 days unless dismissed, bonded or discharged; or (b) such Person having an order for relief entered with respect to it or commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consenting to the entry of an order for relief in any involuntary case, or to the conversion from an involuntary case, under any such law, or consenting to the appointment of or taking possession by a receiver, liquidator, sequestrator, trustee or other custodian for all or substantially all of its property; the making by such Person of any assignment for the benefit of creditors; or the inability or failure of such Person, or the admission by such Person in writing of its inability, to generally pay its debts as such debts become due; or the Board of Directors of such Person adopting any resolution or otherwise takes action to approve any of the foregoing. "Listed Receivables" means the Receivables the outstanding principal ------------------ balances of which were reflected in the applicable Purchase Notice and subsequently identified pursuant to Section 2.02(a)(iii). -------------------- "Material Adverse Effect" means (i) a material adverse effect upon the ----------------------- business, operations, properties, assets or condition (financial or otherwise) of the Transferor or Mattel and - 5 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement its Subsidiaries, taken as a whole, or (ii) a material impairment of the ability of any Seller Party to perform its obligations under this Agreement. "Mattel" has the meaning set forth in the preamble to this Agreement. ------ "Mattel Credit Agreement" means the Amended and Restated Credit ----------------------- Agreement dated as of even date herewith, among Mattel, the financial institutions parties thereto, and Bank of America, as Administrative Agent, as such agreement may be an amended, amended and restated or otherwise modified from time to time. In the event that any term of or section number in the Mattel Credit Agreement that is incorporated by reference in this Agreement (including pursuant to Section 9.02 of this Agreement) is changed by any amendment or ------------ amendment and restatement of the Mattel Credit Agreement (e.g., an amendment and restatement that renumbers Section 9.14 of the Mattel Credit Agreement as Section 9.16 of the amended and restated agreement), the parties hereto shall cooperate in good faith to amend this Agreement in order to correct the references herein to the applicable terms and section numbers of the Mattel Credit Agreement incorporated by reference in this Agreement. In the event that the Mattel Credit Agreement shall cease to be in effect, then all references herein to the Mattel Credit Agreement shall be deemed to refer to the Mattel Credit Agreement as in effect immediately prior to such cessation. "Mattel Factoring" has the meaning set forth in the preamble to this ---------------- Agreement. "Mattel Sales" means Mattel Sales Corp., a California corporation. ------------ "Obligors" means Wal-Mart Stores, Inc., a Delaware corporation, and -------- Target Corporation, a Minnesota corporation. "Participant" has the meaning set forth in Section 10.05(d). ----------- ---------------- "Percentage" means with respect to each Purchaser the percentage set ---------- forth opposite such Purchaser's name on Schedule 1.01 to the Mattel Credit ------------- Agreement. Each Purchaser's Percentage shall at all times be equal to its Pro Rata Share as a Lender under and as defined in the Mattel Credit Agreement. "Proofs of Claim" means collectively, proofs of claim under the --------------- Bankruptcy Code or any analogous or similar item or items which may or shall be filed by or on behalf of a creditor of any party to an Insolvency Proceeding. "Purchase and Sale Agreement" means the Purchase and Sale Agreement --------------------------- dated as of the date hereof (as amended, amended and restated or otherwise modified from time to time), among the Sellers, Mattel, as servicer and Guarantor thereunder, and the Transferor, as buyer thereunder. "Purchase Date" means the proposed date on which the Transferor ------------- proposes to sell to the Purchasers an undivided percentage ownership interest in the Listed Receivables identified on the related Purchase Notice. - 6 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement "Purchase Notice" means a notice from the Servicer to the --------------- Administrative Agent substantially in the form attached hereto as Exhibit A. --------- "Purchase Rate" means a rate per annum equal to the Eurodollar Rate, ------------- plus the Applicable Margin. The Purchase Rate for a Yield Period shall be - ---- established on the applicable day contemplated by the definition of Eurodollar Rate. "Purchasers" has the meaning set forth in the preamble to this ---------- Agreement. "Purchaser Commitment" means, for each Purchaser, such Purchaser's -------------------- Percentage of the Purchasers' Investment Limit. "Purchased Interest" means, at any time the undivided percentage ------------------ ownership interest of the Purchasers acquired pursuant to this Agreement from the Transferor in the Listed Receivables reflected on the applicable Purchase Notice, Related Security with respect to such Receivables, Collections with respect to such Receivables, and proceeds of, and amounts received or receivable under any or all of, the foregoing. Such undivided percentage ownership interest shall be computed as PI + YR ------- LRB where: PI = the Purchasers' Investment with respect to such Purchased Interest at the related Purchase Date; YR = the Yield Reserve of such Purchased Interest at the related Purchase Date; and LRB = the outstanding principal balance of the related Listed Receivables as of the date the related Purchase Notice is sent to the Administrative Agent; provided, however, that the Purchased Interest shall never be more than -------- ------- 1.0. "Purchasers' Investment" means the amount to be paid by the Purchasers ---------------------- for the account of the Transferor with respect to a Purchased Interest. "Purchasers' Investment Limit" means Three Hundred Million Dollars ---------------------------- ($300,000,000) as such amount may be reduced or terminated pursuant to Section ------- 2.05 or otherwise pursuant to the terms hereof. - ---- "Receivable" means any indebtedness and other obligations owed to a ---------- Seller, or any right of a Seller to payment, from or on behalf of either Obligor (determined prior to giving effect to any purchase by the Transferor under the Purchase and Sale Agreement or to any purchase hereunder by the Purchasers) whether constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale or lease of goods or the rendering of - 7 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement services by such Seller, and includes, without limitation, the obligation to pay any finance charges, fees and other charges with respect thereto. "Related Security" means with respect to any Listed Receivable: (i) all ---------------- of the Transferor's interest in any goods (including returned goods), and documentation of title evidencing the shipment or storage of any goods (including returned goods), relating to any sale giving rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all UCC financing statements or similar filings signed by any Obligor relating thereto; and (iii) all guarantees, indemnities, insurance and other agreements (including the related Contract) or arrangements of whatever character from time to time supporting or securing payment of such Receivable or otherwise relating to such Receivable whether pursuant to the Contract related to such Receivable or otherwise, including, without limitation, all of the Transferor's rights with respect to such Receivables under the Purchase and Sale Agreement. "Requisite Purchasers" means, as of any date of determination, -------------------- Purchasers having at least 66-2/3% of the Purchasers' Investment Limit or, if the Purchaser Commitments have been terminated, Purchasers holding in the aggregate at least 66-2/3% of all Loans and Purchasers' Investment; provided -------- that the Purchaser Commitment of, and the outstanding principal amount of any Loans and portion of Purchasers' Investment held by any Defaulting Purchaser shall be excluded for purposes of making a determination of Requisite Purchasers. "Restricted Payments" has the meaning set forth in Section 6.01(k)). ------------------- ---------------- "Seller Party" means each of the Transferor and the Servicer. ------------ "Sellers" means, collectively, Mattel Sales and Fisher-Price. A ------- reference to the "related" Seller means with respect to a Receivable, that such Receivable by its original terms was owed to such Seller. "Servicer" has, the meaning set forth in the preamble to this -------- Agreement; provided that following the appointment of a successor Servicer in -------- accordance with this Agreement, all references herein to the Servicer shall be references to such successor Servicer. "Servicer Default" has the meaning set forth in Section 4.03. ---------------- ------------ "Servicing Fee" has the meaning set forth in Section 4.06. ------------- ------------ "Solvent" means, as to any Person at any time, that (a) the fair value ------- of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code and, in the alternative, for purposes of applicable state fraudulent conveyance law; (b) the present fair saleable value of the property of such Person is not less than the amount that shall be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not - 8 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement believe that it shall, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Specified Assets" means, whether now or hereafter owned, existing or ---------------- arising: (A) Listed Receivables, (B) all Related Security with respect to such Receivables, (C) all Collections with respect to such Receivables (including Collections received on and after the date that the related Purchase Notice is sent to the Administrative Agent and prior to the related Purchase Date), and (D) all proceeds of, and all amounts received or receivable under any or all of, the foregoing. "Subordinated Note" has the meaning specified in the Purchase and Sale ----------------- Agreement. "Termination Event" has the meaning set forth in Section 7.01. ----------------- ------------ "Transaction Documents" means this Agreement, the Purchase and Sale --------------------- Agreement, the Subordinated Notes and all certificates, instruments, UCC financing statements, reports, notices, letters, agreements and documents executed or delivered by any Seller Party or a Seller under or in connection with this Agreement, in each case as any such Transaction Documents may be amended, amended and restated, extended or otherwise modified from time to time. The Loan Documents will not be Transaction Documents for purposes of this Agreement. The Demand Note dated March 11, 1998 made by Mattel to the Buyer in the amount of approximately $9,000,000 will not be a Transaction Document for purposes of this Agreement. "Transferor" has the meaning set forth in the preamble to this ---------- Agreement. "UCC" means the Uniform Commercial Code as from time to time in effect --- in the applicable jurisdiction. "UCC Filing Date" means the first date on which any UCC financing --------------- statement is filed pursuant hereto. "Unmatured Termination Event" means an event that, with the giving of --------------------------- any notice, the passage of time, or both, would be a Termination Event. "Yield" for any Purchased Interest for the related Yield Period, means ----- an amount determined as follows: PR x YP x 1/360 where: PR = the Purchase Rate for such Yield Period; and YP = the number of days in such Yield Period. - 9 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement "Yield Period" each period from and including a Purchase Date to but ------------ excluding the related Due Date. "Yield Reserve" means the Yield with respect to an applicable Purchased ------------- Interest, times the applicable Purchasers' Investment; provided that no ----- -------- provision in this Agreement shall require the payment or permit the collection of Yield Reserve in excess of the maximum permitted by applicable law. 1.02 Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting practices. All terms used in Division 9 of the UCC in the State of California, and not specifically defined herein, are used herein as defined in such Division 9. Unless the context otherwise requires, (i) "or" means "and/or," (ii) "including" (and with correlative meaning "include" and "includes") means including, without limiting the generality of any description preceding such term, (iii) the meanings of defined terms are equally applicable to the singular and plural forms of such defined terms, and (iv) all other terms not otherwise defined herein shall have the meanings assigned to such terms in the Mattel Credit Agreement. SECTION 2. AMOUNTS AND TERMS OF THE PURCHASES 2.01 PURCHASE FACILITY. On the terms and conditions hereinafter set forth, each Purchaser hereby agrees to purchase from time to time from the Transferor until the Facility Termination Date, without recourse (except as expressly provided herein), undivided percentage ownership interests in the Listed Receivables and other items included in the related Purchased Interest; provided, however, that: -------- ------- (a) the aggregate outstanding Purchasers' Investments shall not exceed the Purchasers' Investment Limit; (b) no Purchaser shall be obligated to make a purchase in excess of its Purchaser Commitment; (c) the aggregate outstanding Purchasers' Investment plus the aggregate outstanding principal amount of all ---- Loans outstanding under the Mattel Credit Agreement shall not exceed the Aggregate Facilities Commitment; and (d) each Purchaser's Percentage of the aggregate outstanding Purchasers' Investment plus the aggregate outstanding ---- principal amount of all Loans of each Purchaser in its capacity as a Lender under the Mattel Credit Agreement shall not exceed its Commitment thereunder. 2.02 MAKING PURCHASES. (a) (i) Each purchase of undivided percentage ownership interests hereunder shall be made upon the Servicer's delivery to the Administrative Agent of a Purchase Notice, which notice shall be irrevocable. Each Purchase Notice must be received by the Administrative Agent not later than 9:00 a.m. (California time) on the third Business Day prior to the related Purchase Date. There may not be more than four Purchase Dates in any 12-month period. A Purchase Notice shall specify for each Obligor (A) the aggregate amount of the Listed Receivables, (B) the Purchase Date (which must be a Business Day), (C) the related Due Date, and (D) the proposed amount of the Purchasers' Investment. - 10 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement (ii) Not later than 9:00 a.m. (California time) on the second Business Day prior to the related Purchase Date, the Administrative Agent shall send to the Servicer a notice setting forth a calculation of the related Purchased Interest, including a description of the related Purchasers' Investment and the Yield Reserve. The Administrative Agent shall calculate the Purchasers' Investment with respect to a Purchased Interest as an amount which, when added to the related Yield Reserve, is as close as reasonably practicable to (but not in excess of) the aggregate outstanding principal balances of the related Eligible Receivables set forth in the related Purchase Notice. (iii) The Transferor shall send to the Administrative Agent for receipt by the Administrative Agent not later than the Business Day prior to the related Purchase Date, a schedule of the Listed Receivables, identifying the invoice number, outstanding principal balance and maturity date of each such Receivable (in each case as of the date of the related Purchase Notice). None of such Listed Receivables shall have been the subject of a prior Purchase Notice. (b) Promptly after receipt of a Purchase Notice, the Administrative Agent shall notify each Purchaser of the proposed purchase (such notice to normally be given within two hours of receipt by the Administrative Agent). Each Purchaser shall make available to the Administrative Agent its Percentage of the purchase price by remitting such funds to the Administrative Agent's Office prior to 12:00 Noon (California time) on the Purchase Date. On each Purchase Date, the Administrative Agent shall, upon satisfaction of the applicable conditions set forth in Section 3 hereto, pay to the Servicer, for --------- the account of the Transferor, in same day funds, an amount equal to the aggregate of the amounts so made available by the Purchasers. The Administrative Agent shall cause an amount of same-day funds equal to such aggregate amount received by the Administrative Agent to be credited to the Transferor's account at the Administrative Agent's Office. (c) On each Purchase Date, effective upon the payment contemplated by Section 2.02(b) (and without the necessity of any formal or other instrument --------------- of assignment or other further action), the Transferor hereby sells and assigns to the Purchasers an undivided percentage ownership interest equal to the Purchased Interest in each related Listed Receivable reflected on the applicable Purchase Notice (and subsequently identified pursuant to Section 2.02(a)(iii)) -------------------- and the other Specified Assets related thereto. (d) To secure all of the obligations (monetary or otherwise) of the Transferor under this Agreement and the other Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent, the Transferor hereby grants to the Administrative Agent for the benefit of the Administrative Agent and the Purchasers a security interest in, to and under all of the Transferor's right, title and interest (including any undivided interest of the Transferor) in all of the Specified Assets and Transferor hereby authorizes the Administrative Agent to file a financing statement to perfect such interest. The Administrative Agent, on behalf of itself and the Purchasers, shall have, with respect to the Specified Assets, and in addition to all other rights and remedies available to the Administrative Agent, all the rights and remedies of a secured party under any applicable UCC. - 11 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement 2.03 Payments and Computation, Etc. All amounts to be paid or deposited by a Seller Party hereunder shall be paid or deposited, without setoff, counterclaim or reduction of any kind, no later than 10:00 a.m. (California time) on the day when due in same day funds to the Administrative Agent's Office. All amounts received after noon (California time) shall be deemed to have been received on the immediately succeeding Business Day. The Transferor shall, to the extent permitted by Governmental Rule, pay to the Administrative Agent, for the benefit of the Purchasers, upon demand, interest on all amounts not paid or deposited when due to the Purchasers hereunder at a rate per annum equal to the Default Rate. Notwithstanding the foregoing, interest shall not commence accruing at the Default Rate until the Administrative Agent, at the direction of the Requisite Purchasers, has notified the Transferor thereof; provided, however, that upon the occurrence of a -------- ------- Termination Event specified in Section 7.01(d), the Default Rate shall thereupon --------------- automatically commence accruing and be due and payable without further act of or demand by the Administrative Agent or any Purchaser. All computations of Yield shall be made on the basis of a year of 360 days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. All payments received by the Administrative Agent or any Purchaser hereunder on account of a Purchased Interest shall be applied by the Administrative Agent, first to pay due and ----- payable Yield Reserve with respect to the related Purchasers' Investment, second ------ to pay all due and payable fees and expenses and other amounts due to the Purchasers and the Administrative Agent hereunder, and third, to repay any such ----- Purchasers' Investment. The amount of each Purchasers' Investment shall be reduced by payments received by the Administrative Agent and applied on account of such Purchasers' Investment pursuant to this Agreement. 2.04 COLLECTION ACCOUNT. (a) At any time the second highest long-term unsecured debt rating issued to the Servicer by S&P, Moody's or Fitch is lower than BBB-, Baa3 or BBB-, respectively, there shall be established and maintained, in the name of the Administrative Agent for the benefit of the Purchasers, a segregated account (the "Collection Account"), at Administrative Agent's Office, bearing a ------------------ designation clearly indicating that the funds deposited therein are held for the benefit of the Purchasers. Any interest and earnings (net of losses and investment expenses) on funds on deposit in the Collection Account shall be retained in the Collection Account and be available to make any payments required to be made hereunder to the Administrative Agent or the Purchasers. Upon the earlier of (i) the Servicer's second highest long-term unsecured debt rating issued to the Servicer by S&P, Moody's or Fitch is BBB-, Baa3 or BBB-, respectively, or higher or (ii) the date on which the Purchasers' Investment is zero, any funds remaining on deposit in the Collection Account shall be released to the Transferor in same-day funds. (b) During such time that the second highest long-term unsecured debt rating issued to the Servicer by S&P, Moody's or Fitch is lower than BBB-, Baa 3 or BBB-, respectively, the Servicer shall deposit within two Business Days all Collections it receives into the Collection Account. Such Collections shall be retained in the Collection Account by the Administrative Agent until the next succeeding Due Date, at which time such amounts shall be applied pursuant to the terms hereof. - 12 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement 2.05 Reduction or Termination of Purchasers' Investment Limit. (a) The Transferor shall have the right, at any time and from time to time, to terminate in whole or permanently reduce in part, without premium or penalty, the Purchasers' Investment Limit; provided that the Purchasers' -------- Investment Limit, as reduced, shall equal or exceed the total outstanding Purchasers' Investment as of the date of such reduction. (b) The Transferor shall give not less than three Business Days' prior written notice to the Administrative Agent designating the date (which shall be a Business Day) and the amount of such termination or reduction. Any partial reduction shall be in an aggregate minimum amount of $10,000,000 and integral multiples of $1,000,000 in excess of that amount. Promptly after receipt of a notice of such termination or partial reduction, the Administrative Agent shall notify each Purchaser and the administrative agent under the Mattel Credit Agreement of the proposed termination or reduction. Such termination or reduction shall be effective on the date specified in the Transferor's notice and shall terminate or ratably reduce the dollar amount of each Purchaser's Purchaser Commitment. (c) Any reduction or termination of the Aggregate Facilities Commitment under the Mattel Credit Agreement to an amount less than the Purchasers' Investment Limit at such time shall automatically and concurrently reduce the Purchasers' Investment Limit to an amount equal to such Aggregate Facilities Commitment amount, as so reduced, or terminate the Purchasers' Investment Limit, as the case may be. Any such reduction shall be applied ratably to each Purchaser's Purchaser Commitment. 2.06 Deficiency Advances. No Purchaser shall be responsible for any default of any other Purchaser in respect of such other Purchaser's obligation to fund any portion of a purchase hereunder, nor shall the commitment of any Purchaser hereunder be increased as a result of such default by any other Purchaser. Without limiting the generality of the foregoing, in the event any Purchaser shall fail to advance funds as provided herein, the Administrative Agent may, in its discretion but shall not be obligated to, advance as a Purchaser all or any portion of such amount (the "Deficiency Advance") and shall ------------------ thereafter be entitled to payments on such Deficiency Advance in the same manner and at the same rate(s) to which such other Purchaser would have been entitled had it made such advance itself; provided that, upon payment to the -------- Administrative Agent from such other Purchaser of the entire outstanding amount of such Deficiency Advance, together with interest thereon, at the Applicable Margin applicable to the related Purchase, then such payment shall be credited against the Administrative Agent's share of the total outstanding Purchasers' Investment in full payment of such Deficiency Advance. Acceptance by the Transferor of a Deficiency Advance from the Administrative Agent shall in no way limit the rights of the Transferor against the Purchaser failing to fund its pro rata portion (based on its Percentage) of the purchase price of any purchase hereunder. SECTION 3. CONDITIONS OF PURCHASES 3.01 Conditions Precedent to Initial Purchase. The initial purchase of an undivided interest pursuant to this Agreement is subject to the conditions precedent that the Administrative - 13 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement Agent shall have received on or before the related Purchase Date the following, each in form and substance (including the date thereof) satisfactory to the Administrative Agent: (a) a counterpart of this Agreement and the Purchase and Sale Agreement duly executed by the Seller Parties and the Sellers, as the case may be; (b) favorable opinions of (x) the General Counsel or an Assistant General Counsel of Mattel, relating to the Seller Parties and (y) Latham & Watkins, special counsel to the Seller Parties, substantially in the form attached hereto as Exhibit B; ---------- (c) a certificate of the Assistant Secretary of each Seller Party certifying in each case (i) the names and signatures of its applicable officers that shall execute and deliver the Transaction Documents (on which certificate the Administrative Agent may conclusively rely until such time as the Administrative Agent shall receive a revised certificate meeting the requirements of this clause), (ii) that attached thereto is a true and correct copy of the certificate or articles of incorporation, certified by the secretary of state of the state of its incorporation or formation as of a recent date, and the by-laws of such Seller Party, in each case as in effect on the date of such certification, (iii) that attached thereto are true and complete copies of excerpts of resolutions adopted by the Board of Directors of such Seller Party, approving the execution, delivery and performance of this Agreement and all other Transaction Documents to which such Seller Party is a party; and (iv) that attached thereto are good standing certificates issued by the Secretary of State of Delaware with respect to Mattel and Mattel Factoring; (d) good standing certificates dated as of a recent date for each Seller Party from the Secretary of State of the States of Delaware and California; (e) an assignment of the Transferor's rights, title and interest in, to and under the obligations of the Transferor as "Buyer" under Section 9 of --------- the Purchase and Sale Agreement; (f) each other item to be delivered pursuant to Section 3.01 of the Purchase and Sale Agreement; (g) evidence that all conditions to the effectiveness of the Mattel Credit Agreement have been, or concurrently herewith are being, satisfied or waived thereunder; and (h) UCC-1 financing statements (a) signed by Mattel Sales as debtor and the Transferor as the secured party in form for filing with the Secretary of State of the State of California, (b) signed by Fisher-Price as debtor and the Transferor as the secured party in form for filing with the Secretary of State of the State of New York, and (c) signed by the Transferor as debtor and the Administrative Agent as secured party in form for filing with the Secretary of State of Delaware. 3.02 Conditions Precedent to All Purchases. Each purchase (including the initial purchase) of undivided interests pursuant to this Agreement shall be subject to the further conditions precedent that: - 14 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement (a) on the Purchase Date applicable to such purchase the following statements shall be true (and acceptance of the proceeds of such purchase shall be deemed a representation and warranty by the Transferor that such statements are then true): (i) the representations and warranties contained in Section 5.01 are true and correct on and as of such Purchase Date as ------------ though made on and as of such date (except to the extent any representation and warranty is expressly made as of an earlier date); (ii) the representations and warranties of Mattel contained in any Loan Document (except the representation and warranty contained in Section 5.09 of the Mattel Credit Agreement and, in the case of a ------------ purchase of where the aggregate Purchasers' Investment being made on that date equals or is less than the aggregate Purchasers' Investment maturing on that date, the representation and warranty contained in Section 5.11 of the Mattel Credit Agreement), shall be true, correct ------------ and complete in all material respects on and as of that Purchase Date (except to the extent that such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date) to the same extent as though made on and as of that Purchase Date; and (iii) no event has occurred and is continuing, or would result from such purchase, that constitutes a Termination Event or an Unmatured Termination Event that would constitute a Termination Event or an Unmatured Termination Event with respect to the Obligor in each case, other than a Termination Event or an Unmatured Termination Event as described in Sections 7.01(e) or (i) hereof with respect to an Obligor whose Receivables are not to be purchased on such Purchase Date on the Listed Receivables being purchased but for the requirement that notice be given or time elapse or both; (b) after giving effect to the payment contemplated by Section ------- 2.02 on the date of such purchase, the aggregate outstanding Purchaser's - ---- Investments shall not exceed the Purchasers' Investment Limit; (c) the Administrative Agent shall have received a list of Eligible Receivables in accordance with Section 2.02; ------------ (d) such Purchase Date is also a "Purchase Date" as defined in the Purchase and Sale Agreement; (e) the related Due Date is prior to the Facility Termination Date; and (f) after giving effect to the Yield Period in connection with such purchase, there are no other Yield Periods in effect. - 15 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement SECTION 4. SERVICING AND SETTLEMENT PROCEDURES 4.01 Appointment of Servicer. Until the Administrative Agent gives notice to the Transferor of the designation of a new Servicer in accordance with the last sentence of this Section, Mattel is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof; provided that, with respect to any group of Listed -------- Receivables, Mattel (solely in its capacity as Servicer) may, at any time, upon prior written notice to the Administrative Agent, designate any Affiliate of Mattel as sub-servicer hereunder; provided, however, that such Affiliate shall -------- ------- not become the Servicer and, notwithstanding any such delegation, Mattel shall remain liable for the performance of the duties and obligations of the Servicer in accordance with the terms of this Agreement without diminution of such liability by virtue of such delegation and to the same extent and under the same terms and conditions as if Mattel alone were performing such duties and obligations. Subject to the foregoing, Mattel hereby delegates to Fisher-Price all of Mattel's duties and obligations under Section 4.02 below with respect to ------------ the Listed Receivables originated by Fisher-Price, and Fisher-Price hereby accepts such delegation. Mattel acknowledges that the Administrative Agent and the Purchasers have relied on the agreement of Mattel to act as the Servicer hereunder in making their decision to execute and deliver this Agreement. Accordingly, Mattel agrees that it shall not voluntarily resign as the Servicer. In the event that a new "Servicer" has been designated pursuant to the Purchase and Sale Agreement or upon the occurrence of a Servicer Default as contemplated by Section 4.04, the Administrative Agent may designate as ------------ Servicer any Person (including the Administrative Agent) to succeed Mattel or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. 4.02 Duties of Servicer. The Servicer shall take or cause to be taken all such action as may be necessary or advisable to collect each Listed Receivable from time to time, all in accordance with this Agreement and all applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy; provided, however, that -------- ------- the Servicer shall not extend the maturity of any Listed Receivable. The Transferor shall deliver to the Servicer and the Servicer shall hold for the benefit of the Transferor and the Administrative Agent for the benefit of the Purchasers in accordance with their respective interests, all records and documents (including computer tapes or disks) with respect to such Listed Receivables. Notwithstanding anything to the contrary contained herein, the Administrative Agent, with the consent or direction of the Requisite Purchasers, may direct the Servicer to commence or settle any legal action to enforce collection of any Listed Receivable or to foreclose upon or repossess any Related Security; provided, however, that no such direction may be given -------- ------- unless (x) a Termination Event has occurred and is continuing (other than a Termination Event described in Section 7.01(e) or (i) hereof), and (y) the --------------------- Requisite Purchasers believe in good faith that failure to commence, settle, or effect such legal action, foreclosure or repossession could materially and adversely affect a material portion of the Listed Receivables. Subject to Section 2.04, the Servicer shall hold (and shall cause each sub-servicer to - ------------ hold) in trust (and, during the continuance of a Termination Event (other than a Termination Event described in Section 7.01(e) or (i) hereof), at the request ---------------------- of the Administrative Agent, segregate) for the Administrative Agent for the benefit of the Purchasers, from Collections received by the Transferor, any Seller or the Servicer (or any sub-servicer) with respect to the Listed - 16 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement Receivables, the percentage of such Collections represented by the related Purchased Interest. On each Due Date, the Servicer shall deposit into the account at Administrative Agent's Office the amount of Collections required to be held for the Administrative Agent for the benefit of the Purchasers pursuant to the preceding sentence. 4.03 Servicer Default. The occurrence of any one or more of the following events shall constitute a Servicer Default hereunder: (a) (i) the Servicer shall fail to perform or observe any term, covenant or agreement hereunder (other than as referred to in this Section) and such failure shall remain unremedied for ten (10) Business Days or (ii) the Servicer shall fail to make any payment or deposit to be made by it hereunder when due; or (b) any representation, warranty, certification or statement made by the Servicer in this Agreement or in any other Transaction Document shall prove to have been incorrect in any material respect when made or deemed made; or (c) an Insolvency Proceeding shall have commenced and be continuing with respect to the Servicer; or (d) an Event of Default under and as defined in the Mattel Credit Agreement shall have occurred and be continuing. 4.04 Servicer Default Remedies. Notwithstanding any other provision of this Agreement, during the continuation of a Servicer Default, the Administrative Agent, upon the written request of the Requisite Purchasers, shall, by written notice to the Transferor and the Servicer: (i) direct the Obligors that payment of all amounts payable under any Listed Receivable be made directly to the Administrative Agent or its designee; (ii) instruct the Transferor to give notice of the Purchasers' Interest in the Listed Receivables to the Obligors, which notice shall be given at the Transferor's expense and shall direct that payments be made directly to the Administrative Agent or its designee; or (iii) terminate and replace the Servicer. 4.05 Responsibilities of the Transferor. Anything herein to the contrary notwithstanding, the Transferor shall (x) perform all of its obligations (if any) under the Contracts related to Listed Receivables to the same extent as if interests in such Listed Receivables had not been transferred hereunder and the exercise by the Administrative Agent of rights hereunder shall not relieve any Seller or Seller Party from such obligations and (y) pay when due any taxes payable by the Transferor under applicable law, including any sales taxes payable in connection with the Listed Receivables and their creation and satisfaction. The Transferor shall provide to the Servicer on a timely basis all information needed for such servicing, administration and collection, including notice of the occurrence of any Termination Event. Neither the Administrative Agent nor any Purchaser shall have any obligation or liability - 17 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement with respect to any Listed Receivable, any Related Security or any related Contract, nor shall the Administrative Agent or any Purchaser be obligated to perform any of the obligations of any Seller or Seller Party under any of the foregoing. 4.06 Servicing Fees. In consideration of Mattel's agreement to act as Servicer hereunder, the Purchasers and the Administrative Agent hereby agree that, so long as Mattel shall perform as Servicer hereunder, the Transferor shall pay over to Mattel a fee (the "Servicing Fee"), payable quarterly in ------------- arrears on or before the tenth day of the following quarter, equal to 1.0% per annum times the face amount of the Listed Receivables, as compensation for its servicing activities. SECTION 5. REPRESENTATIONS AND WARRANTIES 5.01 Representations and Warranties. Each Seller Party severally represents and warrants, as to itself alone, as applicable, to the Administrative Agent and the Purchasers as follows: (a) Such Seller Party is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, and is duly qualified to do business, and is in good standing, as a foreign corporation in every jurisdiction where the nature of its business requires it to be so qualified, except in jurisdictions in which the failure to be qualified or in good standing has or will have no Material Adverse Effect. (b) The execution, delivery and performance by such Seller Party of this Agreement and the other Transaction Documents to which it is a party, including such Seller Party's use of the proceeds of purchases, (i) are within such Seller Party's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene or result in a default under or conflict with (1) such Seller Party's charter or by-laws, (2) any law, rule or regulation applicable to such Seller Party, the violation of which would result in a Material Adverse Effect, (3) any Contractual Obligation of such Seller Party the violation of which would have a Material Adverse Effect or (4) any order, writ, judgment, award, injunction or decree binding on or affecting such Seller Party or its property, the violation of which would result in a Material Adverse Effect, and (iv) do not result in or require the creation of any material Adverse Claim upon or with respect to any of its material properties or upon or with respect to the Listed Receivables (other than pursuant to the Transaction Documents). This Agreement and the other Transaction Documents to which it is a party have been duly executed and delivered by such Seller Party. (c) No authorization or approval or other action by, and no notice to or filing with any or other Person is required for the due execution, delivery and performance by such Seller Party of this Agreement or any other Transaction Document to which it is a party, other than UCC financing statements related hereto or to the Purchase and Sale Agreement. (d) This Agreement and the other Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of such Seller Party enforceable against such Seller Party in accordance with its terms, except as enforcement may be limited by bankruptcy, - 18 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally. (e) There is no pending or, to the knowledge of such Seller Party, threatened action or proceeding affecting such Seller Party or any of its Subsidiaries before any Governmental Person or arbitrator which, in the reasonable opinion of such Seller Party and its executive officers, would result in a Material Adverse Effect, or which affects or purports to affect the legality, validity or enforceability of this Agreement or the other Transaction Documents. (f) With respect to the Transferor, the Transferor is the legal and beneficial owner of the Listed Receivables and all other Specified Assets, free and clear of any Adverse Claim; upon each purchase, the Administrative Agent, for the benefit of itself and the Purchasers, shall have a valid and enforceable first priority, perfected undivided percentage ownership interest to the extent of the Purchased Interest or a valid and enforceable first priority, perfected security interest in each such Listed Receivable and other Specified Assets, in each case free and clear of any Adverse Claim. No effective UCC financing statement or other instrument similar in effect covering any of the Specified Assets is on file in any recording office other than any UCC financing statement filed pursuant to this Agreement in favor of the Administrative Agent. (g) No representation or warranty of any Seller Party contained in this Agreement or any other document, certificate or written statement furnished to the Purchasers by any Seller Party since January 1, 2002 for use in connection with the transactions contemplated by this Agreement as of the date of this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to the officers of any Seller Party in the case of any document or fact not furnished by it) necessary in order to make the statements contained herein or therein not misleading except to the extent that any such statement or omission that was untrue or misleading at the time made or that subsequently became untrue or misleading has been superseded or corrected by information provided to the Purchasers prior to the date of this Agreement. The projections and pro forma financial information contained in such written materials are based upon good faith estimates and assumptions believed by any Seller Party to be reasonable at the time made, it being recognized by the Purchasers that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There is no fact known to the officers of any Seller Party as of the date of this Agreement (other than matters of a general economic nature) which materially adversely affects the business, operations, property, assets or condition (financial or otherwise) of any Seller Party and their respective Subsidiaries, taken as a whole, which has not been disclosed herein or in the written materials referred to in Section 5.08 of the Mattel Credit Agreement other than as disclosed in writing to the Purchasers on or before the date hereof. (h) With respect to the Transferor, the principal place of business, chief executive office and state of organization (as such terms are used in the UCC) of the Transferor and the office where the Transferor keeps its records concerning the Listed Receivables are located at the address referred to in Section 6.01(b). --------------- (i) Each Seller Party is not in violation of any order of any court, arbitrator or Governmental Person, which violation would have a Material Adverse Effect. - 19 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement (j) With respect to the Transferor, no proceeds of any purchase from the Transferor shall be used for any purpose that violates any applicable law, rule or regulation, including Regulation U of the Federal Reserve Board. (k) No event has occurred and is continuing, or would result from a purchase in respect of the related Purchased Interest or from the application of the proceeds therefrom, which constitutes a Termination Event (excluding a --------- Termination Event described in Section 7.01(e) or (i)). --------------- (l) With respect to the Transferor, the Transferor has accounted for each sale of undivided percentage ownership interests in its Listed Receivables in its books and financial statements as sales, consistent with generally accepted accounting practices. (m) With respect to each Seller Party, such Seller Party has complied with all of the material terms, covenants and agreements contained in this Agreement and the other Transaction Documents and applicable to it, except, in any such case, where the consequences, direct or indirect, of any such noncompliance, if any, would not result in a Material Adverse Effect. (n) With respect to the Transferor, the Transferor's complete corporate name is set forth in the preamble to this Agreement. The Transferor (i) does not use, and has not during the last five years changed its name or used, any other corporate name, trade name, doing business name or fictitious name, except for names first used after the date of this Agreement and set forth in a notice delivered to the Administrative Agent pursuant to of Section ------- 6.01(b), and (ii) has never merged with or into or consolidated with any other - ------- Person. SECTION 6. COVENANTS 6.01 Covenants. Until the latest of (i) the date on which no Purchasers' Investment or Yield Reserve in respect of any Purchased Interest shall be outstanding and the Purchasers shall have no further obligation hereunder to purchase interests in Listed Receivables, (ii) the date all other amounts owed by the Transferor or the Servicer under this Agreement to the Administrative Agent, any Purchasers and any other Indemnified Party shall be paid in full and the Purchasers shall have no further obligation hereunder to purchase interests in Listed Receivables, and (iii) the date on which this Agreement has been terminated: (a) Compliance with Laws, Etc. Each Seller Party shall comply in all material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not result in a Material Adverse Effect and not result in any Adverse Claim on the Listed Receivables. (b) Offices, Records and Books of Account; Etc. The Transferor (i) shall keep its state of organization, principal place of business and chief executive office (as such terms are used in the UCC) and the office where it keeps its records concerning the Listed Receivables at the address of the Transferor set forth under its name on the signature page hereto or, upon at least 15 days' prior written notice of a proposed change to the Administrative Agent, at any other - 20 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement locations, so long as, prior to making such a change, the Transferor shall have taken all actions in any applicable jurisdiction that may be requested by the Administrative Agent to further assure and perfect the interests of the Administrative Agent and the Purchasers in the Listed Receivables; and (ii) shall provide the Administrative Agent with at least 15 days' written notice prior to making any change in the Transferor's name or making any other change in the Transferor's identity or corporate structure (including a merger) which could render any UCC financing statement theretofore filed with respect to such Person by any other Person (including, if applicable, any UCC financing statements filed in connection with this Agreement) "seriously misleading" as such term is used in the UCC, so long as, prior to making such a change, the Transferor shall have taken all actions in any applicable jurisdiction that may be requested by the Administrative Agent to further assure and perfect the interests of the Administrative Agent and the Purchasers in the Listed Receivables; each notice to the Administrative Agent pursuant to this Section shall set forth the applicable change and the effective date thereof. The Transferor also will maintain and implement administrative and operating procedures (including an ability to recreate records evidencing Listed Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records, computer tapes and disks and other information reasonably necessary or advisable for the collection of all Listed Receivables (including records adequate to permit the daily identification of each Receivable and all Collections of and adjustments to each existing Listed Receivable). (c) Performance and Compliance with Contracts and Credit and Collection Policy. Each Seller Party shall, at its expense, timely and fully perform and comply in all material respects with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Listed Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy with regard to each such Listed Receivable and the related Contract. (d) Ownership Interest, Etc. The Transferor shall, at its expense take all action necessary or reasonably desirable to maintain a valid, enforceable and first priority, perfected security interest in the Specified Assets in favor of the Administrative Agent for the benefit of itself and the Purchasers, free and clear of any Adverse Claim, including taking such action to protect and perfect or more fully evidence the interest of the Administrative Agent and the Purchasers under this Agreement, as the Administrative Agent may request. (e) Sales, Liens, Etc. The Transferor shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any or all of its right, title or interest in, to or under the Specified Assets or upon or with respect to any account to which any Collections of any Listed Receivables are deposited (except as required by this Agreement or the rights of the depository institution that maintains such account), or assign any right to receive income in respect of any items contemplated by this Section. (f) Extension or Amendment of Receivables. Except as expressly provided in this Agreement, no Seller Party shall adjust the outstanding principal balance of, or otherwise modify the terms of, any of the Listed Receivables, or amend, modify or waive any term or condition of any related Contract; provided that notwithstanding any other provision of this Agreement, -------- no Seller Party shall extend the maturity of any Listed Receivable. - 21 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement (g) Change in Business or Credit and Collection Policy. No Seller Party shall make any change in the character of its business, or in the Credit and Collection Policy, that would result in a Material Adverse Effect. No Seller Party shall make any other change in the Credit and Collection Policy without the prior written consent of the Administrative Agent. (h) Audits. Each Seller Party shall, from time to time during regular business hours (and with reasonable advance notice) as requested by the Administrative Agent, permit the Administrative Agent, or its agents or representatives, (x) to examine and make copies of and abstracts from all books, records and documents (including computer tapes and disks) in the possession or under the control of such Seller Party relating to Listed Receivables and the Related Security, including the related Contracts, and (y) to visit the offices and properties of such Seller Party for the purpose of examining such materials described in clause (x) above, and to discuss matters relating to Listed Receivables and the Related Security or such Seller Party's performance hereunder or under the Contracts with any of the officers, employees, agents or contractors of such Seller Party having knowledge of such matters. Without limiting the foregoing, such examinations, copies, abstracts, visits and discussions may cover, among other things, maturity dates, agings, past dues, charge-offs, and offsets with respect to the Listed Receivables. (i) Status of Listed Receivables. In the event that any third party and any Seller Party enter into negotiations or discussions regarding the provision of financing (whether in the form of a loan, purchase or otherwise) with respect to any Listed Receivable, such Seller Party shall inform such third party that the Transferor has sold an undivided percentage ownership interest in such Listed Receivable to the Purchasers. (j) Reporting Requirements. (i) If a Purchasers' Investment with respect to an undivided interest purchased by the Purchasers remains outstanding on the applicable Due Date, then the Transferor or the Servicer shall provide to the Administrative Agent on a weekly basis a report, in form and substance satisfactory to the Administrative Agent, with respect to the related Listed Receivables (including with respect to collection efforts pertaining thereto). (ii) Each Seller Party shall provide to the Administrative Agent as soon as possible and in any event within five Business Days after the occurrence of each Termination Event or event which, with the giving of notice or lapse of time, or both, would constitute a Termination Event, a statement of the chief financial officer of such Seller Party setting forth details of such Termination Event or event and the action that such Seller Party has taken and proposes to take with respect thereto. (iii) The Servicer shall provide to the Administrative Agent the financial statements described in Section 6.01(a) and (b) of the Mattel Credit Agreement, pursuant to the terms of such Sections, including Section 10.02 permitting facsimiles or email. ------------- (iv) Each Seller Party shall provide to the Administrative Agent such other information respecting Listed Receivables or the condition or operations, financial or - 22 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement otherwise, of the Transferor or any of its Affiliates as the Administrative Agent may from time to time reasonably request (including listings identifying the outstanding principal balance of each Listed Receivable). (k) General Restrictions. The Transferor shall not (i) pay or declare any Dividend, (ii) lend or advance any funds; or (iii) repay any loans or advances to, for or from any Seller or other Affiliate of the Transferor (actions of the type described in clauses (i), (ii) and (iii) are herein collectively called "Restricted Payments"), unless (A) in the case of Dividends, such Dividends comply with applicable law, and (B) in the case of any Restricted Payment, the Transferor would be Solvent after giving effect to such Restricted Payment. (l) Mergers, Acquisitions. Sales, Investments. The Transferor shall not: (i) be a party to any merger or consolidation, or directly or indirectly purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person; (ii) sell, transfer, convey or lease any of its assets, other than pursuant to or, as expressly permitted by this Agreement, the Purchase and Sale Agreement or any Other Permitted Accounts Receivable Financing Facility; or (iii) make, incur or suffer to exist any investment in, equity contribution to, loan or advance to, or payment obligation in respect of the deferred purchase price of property from, any other Person, (x) except as expressly contemplated by this Agreement, the Purchase and Sale Agreement or any Other Permitted Accounts Receivable Financing Facility and (y) except, in the case of loans, under the Demand Note dated March 11, 1998 made by Mattel to the Buyer in the amount of approximately $9,000,000 (or other similar demand notes delivered in connection with this Agreement, the Purchase and Sale Agreement or any Other Permitted Accounts Receivable Financing Facility). (m) No Modification of the Purchase and Sale Agreement. The Transferor will not agree to any amendment, supplement, waiver, alternation or other modification of the Purchase and Sale Agreement which may have a material adverse effect on the Administrative Agent's right, title and interest in the Receivables or which may have a material adverse effect on the collectibility of the Receivables or which may limit or adversely affect Mattel's obligations as Guarantor thereunder. (n) Claim under Section 7.01 of Purchase and Sale Agreement. If the Administrative Agent or the Purchasers makes a claim under Section 9.01, the Transferor agrees to promptly make a corresponding claim - ------------ against the Sellers under Section 7.01of the Purchase and Sale Agreement. If the Transferor fails to make such claim, the Transferor hereby irrevocably authorizes the Administrative Agent, on behalf of itself and the Purchasers, to make such claim thereunder in the name of the Transferor. SECTION 7. TERMINATION EVENTS AND TERMINATION EVENT REMEDIES - 23 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement 7.01 Termination Events Defined. The occurrence of any one or more of the following events shall constitute a Termination Event hereunder: (a) any Seller Party shall fail (i) to make when due any payment or deposit to be made by it under this Agreement with respect to any Purchased Interest (including, in the case of the Servicer, failing to deliver to the Administrative Agent on any Due Date an amount equal to the Purchasers' Investments plus accrued Yield Reserve thereon) or (ii) to perform or observe in any material respect, within 15 days after written notice thereof, any other material term, covenant or agreement contained in any Transaction Document on its part to be performed or observed; (b) any representation or warranty made or deemed made by any Seller Party or Seller (or any of its officers) under or in connection with any Transaction Document or any material information or report delivered by any Seller Party or Seller pursuant to any Transaction Document shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; (c) an Event of Default or any Servicer Default shall have occurred and be continuing; (d) an Insolvency Proceeding shall have been commenced and be continuing in which any Seller Party or Seller is the debtor; (e) an Insolvency Event shall have been commenced and is continuing in which either Obligor is the debtor; (f) the Transferor shall fail to have a valid and enforceable first priority, perfected (i) ownership interest in, or (ii) security interest in, each Listed Receivable and the other Specified Assets, in each case, free and clear of any Adverse Claim (other than a lien or other interest in favor of the Transferor pursuant to the Purchase and Sale Agreement); (g) the Administrative Agent for the benefit of the Purchasers shall fail to have a valid and enforceable first priority, perfected (i) undivided percentage ownership interest in, or (ii) security interest in, each Listed Receivable and the other Specified Assets, in each case free and clear of any Adverse Claim; (h) a Seller Party shall merge with or into any other entity whereby it is not the surviving entity; (i) any short-term unsecured debt rating assigned to an Obligor by S&P, Moody's or Fitch falls below "A-2," "P-2" or "F-2," respectively, or the second highest long-term unsecured debt rating assigned to an Obligor by S&P, Moody's or Fitch falls below "A-," "A3" or "A-," respectively; (j) there shall have occurred any event not otherwise covered by this definition which has or will have a Material Adverse Effect; or - 24 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement (k) the Commitments of the Lenders under the Mattel Credit Agreement shall have been terminated. 7.02 TERMINATION EVENT REMEDIES. Any time during a Termination Event, the Administrative Agent, upon the written request of the Requisite Purchasers, shall, by written notice to the Transferor, the Servicer and the Purchasers, terminate the Purchaser Commitments; provided, however, that with respect to a Termination Event -------- ------- described in Section 7.01(e) or (i), only the commitment of the Purchasers to --------------- --- purchase undivided interests in the Receivables of the affected Obligor may be terminated as aforesaid. Notwithstanding the foregoing, upon the occurrence of a Termination Event described in Section 7.01(d) or (k), the Purchaser Commitments --------------- --- shall terminate automatically. 7.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Transaction Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising, including without limitation, under the Transaction Documents. SECTION 8. THE ADMINISTRATIVE AGENT 8.01 Appointment and Authorization. Each Purchaser hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Transaction Document and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement or any other Transaction Document, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Transaction Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any of the Purchasers, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Transaction Document or otherwise exist against the Administrative Agent. 8.02 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the gross negligence or willful misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 8.03 Liability of Administrative Agent. None of the Administrative Agent-Related Persons shall (i) be liable to the Purchaser for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Transaction Document (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Purchasers for any recital, statement, representation or warranty made by the Transferor or the Guarantor, or any officer or partner thereof, contained in this Agreement or in any other - 25 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement Transaction Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Transaction Document, or for the value of any collateral or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Transaction Document, or for any failure of the Transferor or the Guarantor or any other to any Transaction Document to perform its obligations hereunder or thereunder. No Administrative Agent-Related Person shall be under any obligation to any Purchaser to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Transaction Document, or to inspect the properties, books or records of the Transferor, the Servicer or the Guarantor or any of their respective Subsidiaries or Affiliates. 8.04 RELIANCE BY ADMINISTRATIVE AGENT. (a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Transferor, Servicer or the Guarantor), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Transaction Document unless it shall first receive such advice or concurrence of the Requisite Purchasers as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Purchasers against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Transaction Document in accordance with a request or consent of the Requisite Purchasers and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Purchasers. (b) For purposes of determining compliance with the conditions specified in Sections 3.01 and 3.02, each Purchaser that has executed this ------------- ---- Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter either sent by the Administrative Agent to such Purchaser for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Purchaser, unless an officer of the Administrative Agent responsible for the transactions contemplated by the Transaction Documents shall have received notice from the Purchaser prior to any borrowing specifying its objection thereto and either such objection shall not have been withdrawn by notice to the Administrative Agent to that effect or the Purchaser shall not have made available to the Administrative Agent the Purchaser's ratable portion of such borrowing. 8.05 Notice of Termination Event or Servicer Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Termination Event or Servicer Default unless the Administrative Agent has failed to receive on account of any Purchaser such Purchaser's Purchasers' Investment, plus Yield Reserve, on or before the applicable Due Date, or unless the Administrative Agent shall have received written notice from a Purchaser, the Transferor, Servicer or the Guarantor referring to this Agreement, describing - 26 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement such Termination Event or Servicer Default and stating that such notice is a "notice of termination event and/or servicer default." In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Purchasers. The Administrative Agent shall take such action with respect to such Termination Event or Servicer Default as shall be requested by the Requisite Purchasers in accordance with Section 7; --------- provided, however, that unless and until the Administrative Agent shall have - -------- ------- received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Termination Event or Servicer Default as it shall deem advisable or in the best interest of the Purchasers. In the event that any remedy is exercised pursuant to Sections 4.02, 4.04 or 7.02 of this Agreement, ------------- ---- ---- each Purchaser and the Administrative Agent shall pursue remedies designated by the Requisite Purchasers to the same extent as though such demand was caused by the action of all Purchasers, and each Purchaser agrees to act as expeditiously as possible so as to maximize recovery. Each Purchaser agrees that no Purchaser shall have any right individually to take action with respect to the Purchased Interest, it being understood and agreed that such rights and remedies with respect to any portion of the Purchased Interest may be exercised by the Administrative Agent as directed by the Requisite Purchasers for the ratable benefit of the Purchasers. 8.06 Credit Decision. Each Purchaser expressly acknowledges that none of the Administrative Agent-Related Persons has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Transferor, Servicer or the Guarantor shall be deemed to constitute any representation or warranty by the Administrative Agent to any Purchaser. Each Purchaser represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Purchaser and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Transferor or Guarantor and their respective Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated thereby, and made its own decision to enter into this Agreement and extend credit hereunder. Each Purchaser also represents that it will, independently and without reliance upon the Administrative Agent or any other Purchaser, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Transaction Documents, and to make such investigation as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Transferor, Servicer or the Guarantor. Except for notices, reports and other documents expressly herein required to be furnished to the Purchasers by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Purchaser with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Transferor, Servicer or the Guarantor which may come into the possession of any of the Administrative Agent-Related Persons. 8.07 Indemnification. Whether or not the transactions contemplated hereby shall be consummated, the Purchasers shall indemnify upon demand the Administrative Agent-Related Persons (to the extent not reimbursed by or on behalf of the Transferor or the Guarantor and without limiting the obligation of the Transferor or the Guarantor to do so), ratably from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, - 27 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement costs, expenses and disbursements of any kind whatsoever which may at any time (including at any time following the repayment of the Purchased Interests and the termination or resignation of the related Administrative Agent) be imposed on, incurred by or asserted against any such Person any way relating to or arising out of this Agreement or any document contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any such Person under or in connection with any of the foregoing; provided, however, that no Purchaser shall be liable for the -------- ------- payment to the Administrative Agent-Related Persons of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Purchaser shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including fees and expenses of counsel and the allocated cost of in-house counsel) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Transaction Document, or any document contemplated by or referred to herein to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Transferor or the Guarantor. Without limiting the generality of the foregoing, if the Internal Revenue Service or any other governmental authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Purchaser (because the appropriate form was not delivered, was not properly executed, or because such Purchaser failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Purchaser shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, together with all costs and expenses (including fees and expenses of counsel and the allocated cost of in-house counsel). The obligation of the Purchasers in this Section shall survive the payment of all obligations hereunder. 8.08 Administrative Agent in its Individual Capacity. Bank of America and its Affiliates may make loans to, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory or other business with any Obligor, the Transferor or the Guarantor as though it were not the Administrative Agent hereunder and without notice to or consent of the Purchasers. With respect to its purchases hereunder, Bank of America shall have the same rights and powers under this Agreement as any other Purchaser and may exercise the same as though it were not the Administrative Agent, and the terms "Purchaser" and "Purchasers" shall include Bank of America in its individual capacity. 8.09 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Purchasers; provided that any such resignation by Bank of America shall also constitute its resignation as Administrative Agent under the Mattel Credit Agreement. If the Administrative Agent shall resign as Administrative Agent under this Agreement, then the Requisite Purchasers may appoint a successor Administrative Agent for the Purchasers, which shall be a commercial bank organized under the laws of the United States or any state thereof, having a combined surplus and capital of not less than - 28 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement $500,000,000, whereupon such successor Administrative Agent shall succeed to the rights, powers and duties of the former Administrative Agent and the obligations of the former Administrative Agent shall be terminated and canceled, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement. The former Administrative Agent's resignation shall not become effective until such successor Administrative Agent has been appointed and has succeeded of record to all right, title and interest of the former Administrative Agent in the Purchased Interest; provided, however, that if the Requisite Purchasers cannot -------- ------- agree as to a successor Administrative Agent within ninety (90) days after such resignation, the Administrative Agent shall appoint a successor Administrative Agent and the parties hereto agree to execute whatever documents are necessary to effect such action under this Agreement or any other document executed pursuant to this Agreement; provided, further, however, in such event all -------- ------- ------- provisions of this Agreement shall remain in full force and effect. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. 8.10 Other Administrative Agents; Lead Managers. None of the Purchasers identified on the facing page or signature pages of this Agreement as a "syndication agent," "documentation agent," "co-agent" or "lead manager" shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Purchasers as such. Without limiting the foregoing, none of the Purchasers so identified shall have or be deemed to have any fiduciary relationship with any Purchaser. Each Purchaser acknowledges that it has not relied, and will not rely, on any of the Purchasers so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. 8.11 Sharing of Payments, Etc. The Purchasers agree that (i) with respect to all amounts received by each of them hereunder, whether in the nature of a return of any investment or discount, or amounts due to a particular Purchaser in respect of any fees hereunder, equitable adjustment will be made so that, in effect, all such amounts will be shared among the Purchasers in proportion to the portion of the obligations due each Purchaser hereunder shall be shared by the Purchasers in proportion to the amounts due them hereunder, whether received by voluntary payment, or by the exercise of the right of set-off or Purchaser's lien or secured claims under the Bankruptcy Code, as now or hereafter amended, altered, modified or replaced, by counterclaim or cross-action or by the enforcement of this Agreement; (ii) if any of them shall exercise any right of counterclaim, set-off, Purchaser's lien or otherwise or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receives payment or reduction of any amounts due to such Purchaser hereunder, which is greater than the proportion received by any other Purchaser in respect of the amounts due hereunder to such other Purchaser, then the Purchaser receiving such proportionately greater payment shall (x) notify each other Purchaser and the Administrative Agent of such receipt and (y) purchase participations (which it shall be deemed to have done simultaneously upon the receipt of such payment) in the amounts due hereunder to the other Purchasers so that all such recoveries of amounts due hereunder. If all or any portion of such payment is thereafter recovered from such Purchaser, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 8.12 Independent Agreements. The provisions contained in Sections -------- 8.01 through 8.08 and 8.10 constitute independent obligations and agreements of - ---- --------------------- the Administrative Agent - 29 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement and the Purchasers, and the Transferor shall not be deemed parties thereto nor bound thereby. The Transferor acknowledge the rights of the Purchasers and the Administrative Agent under Section 8.08. ------------ SECTION 9. INDEMNIFICATION 9.01 INDEMNIFICATION GENERALLY. (a) Without limiting any other rights that the Indemnified Parties may have hereunder or under applicable law, the Transferor hereby agrees (x) to indemnify each Indemnified Party from and against any and all Indemnified Amounts awarded against or incurred by such Indemnified Party arising out of or resulting from this Agreement or the use of proceeds of purchases or the ownership of the Purchased Interest, or any interest therein, or in respect of any Listed Receivable or any related Contract, and (y) to pay within 15 days of demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against such Indemnified Amounts, including Indemnified Amounts relating to or resulting from any of the following: (i) the failure of any information provided to the Administrative Agent with respect to Listed Receivables or the other Specified Assets; (ii) the failure of any representation or warranty or statement made or deemed made by the Transferor or the Servicer under or in connection with this Agreement to have been true and correct in all respects when made (it being understood and agreed that for purposes of this Section, in determining whether any such representation or warranty or statement was true and correct in all respects when made, any qualification in Section 5 as to materiality --------- or to a Material Adverse Effect or to limitations on enforcement shall be disregarded); (iii) the failure by the Transferor or the Servicer to comply with any applicable law, rule or regulation with respect to any Listed Receivable or the related Contract, or the failure of any Listed Receivable or the related Contract to conform to any applicable law, rule or regulation; (iv) the failure to vest in the Administrative Agent for the benefit of the Purchasers a valid and enforceable first priority perfected (A) undivided percentage ownership interest, to the extent of the related Purchased Interest, in the Specified Assets, and (B) security interest in the Specified Assets, in each case free and clear of any Adverse Claim; (v) any dispute, claim, counterclaim, offset or defense (other than discharge in an Insolvency Proceeding in which an Obligor is a debtor, which Insolvency Proceeding was commenced prior to the Due Date for the applicable Listed Receivable) of such Obligor to the payment of such any Listed Receivable (including a defense based on such Listed Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), any Dilution or other adjustment with respect to a Listed Receivable (excluding, however, adjustments required - 30 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement as a matter of law because an Obligor is a debtor in any such Insolvency Proceeding), or any claim resulting from the sale of the goods or services related to such Listed Receivable or the furnishing or failure to furnish such goods or services or relating to collection activities with respect to such Listed Receivable; (vi) any failure of the Transferor or the Servicer to perform its duties or obligations in accordance with the provisions of this Agreement (including, without limitation, the failure to make any payment when due hereunder), or to perform its duties or obligations (if any) under any Contract (it being understood and agreed that for purposes of this Section, in determining whether the Transferor or the Servicer has performed its duties or obligations in accordance with the provisions of this . Agreement or has performed its duties or obligations (if any) under any Contract, any qualification in Section 5 or Section 6 as to materiality or to a --------- --------- Material Adverse Effect or to the rights of any depository institution that maintains any account to which any Collections of Listed Receivables are sent shall be disregarded); (vii) any breach of warranty, products liability or other claim, investigation, litigation or proceeding arising out of or in connection with goods or services which are the subject of any Listed Receivables; (viii) the commingling of Collections of Listed Receivables at any time with other funds; (ix) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or the ownership of the related Purchased Interest or in respect of any Listed Receivable or any related Specified Asset in respect thereof; (x) subject to Section 9.01(b), the occurrence of any --------------- Termination Event; (xi) in the event any Purchased Interest is greater than 1.0; (xii) the failure of any Listed Receivables to be Eligible Receivables; (xiii) the failure of the Transferor or the Servicer to comply with the terms of the Credit and Collection Policy; (xiv) the failure of any Contract relating to Listed Receivables to have terms that are consistent will customary terms for the related Seller's industry and type of Receivable; (xv) the failure of any Seller to complete the sale and delivery of the goods (or the performance of the services, if any) which are the subject of any Listed Receivables; (xvi) the existence of any contingent performance requirements of any Seller in respect of any Listed Receivables; (xvii) subject to Section 9.01(b), the failure of an Obligor --------------- to make payment on the Listed Receivables prior to or as of the Due Date; or - 31 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement (xviii) any action or inaction by the Transferor or the Servicer which impairs the interest of the Administrative Agent or any Purchaser in any Listed Receivables or other Specified Assets. (b) Notwithstanding Section 9.01(a), the Transferor shall not be --------------- obligated to indemnify any Indemnified Party at any time for (x) Receivables which are uncollectible, or amounts paid over or repaid to any Person with respect to any Receivable, as a result of the applicable Obligor being a debtor in an Insolvency Proceeding commenced as of or prior to the Due Date, it being understood and agreed that this clause shall not limit the Transferor's obligations under this Section arising out of or relating to any other event, occurrence or circumstance which would give rise to an obligation of the Transferor pursuant to this Section (to the extent that such event, occurrence or circumstance adversely affects repayment of the Purchasers' Investments, plus accrued Yield Reserve thereon during or in connection with any such Insolvency Proceeding), (y) any overall net income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof or (z) Indemnified Amounts resulting from the gross negligence or willful misconduct on the part of the Indemnified Party proposed to be indemnified. Notwithstanding any other provision of this Agreement, in the event that an Obligor becomes a debtor in an Insolvency Proceeding that was commenced prior to an applicable Due Date for any Listed Receivables: (i) each Seller Party shall promptly (and in any event not later than thirty days) after receipt provide to the Administrative Agent a copy of any document, pleading, report, notice, information or other writing provided to such Seller Party, during or in connection with such Insolvency Proceeding, by or on behalf of such Obligor, any committee, court, other Governmental Person, trustee, receiver, liquidator, custodian or similar official in such Insolvency Proceeding, relating to the forms, procedures, bar date or other timing issues with respect to the filing of a Proof of Claim in such Insolvency Proceeding; provided, however, that this -------- ------- clause (i) shall not become effective until the Administrative Agent shall have sent a notice to the Servicer to the effect that the Administrative Agent desires that the Seller Parties comply with this clause (i); (ii) the Servicer, as agent for the Transferor, shall file Proofs of Claim, at the request and direction of the Administrative Agent, with respect to the Listed Receivables with such court, other Governmental Person, trustee, receiver, liquidator, custodian or similar official, which Proofs of Claim shall be in form and substance reasonably satisfactory to the Administrative Agent, it being understood and agreed that the Administrative Agent and the Purchasers shall jointly and severally be liable for, and shall reimburse the Servicer for, the Servicer's reasonable expenses in making such filing to the extent that such expenses relate to the Listed Receivables; and (iii) the Administrative Agent, as agent for the Transferor, shall have the right but not the obligation to file Proofs of Claim with respect to the Listed Receivables with such court, other Governmental Person, trustee, receiver, liquidator or similar official, it being understood and agreed that the Administrative Agent shall not file such a Proof of Claim until the earlier to occur of (x) the sixtieth day following the date on which the Administrative Agent has sent a written request to the Transferor requesting the Transferor to file such a Proof of Claim and (y) the thirtieth day prior to the bar date or equivalent last day on which such a Proof of Claim may be filed in such Insolvency Proceeding. (c) If and to the extent the Administrative Agent or any Purchaser shall be required for any reason to pay over to the Transferor, any Seller, the Servicer or an Obligor (or any trustee, receiver, custodian or similar official in any Insolvency Proceeding) any amount received - 32 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement by such Person hereunder, such amount shall be deemed not to have been so received and, the Administrative Agent shall have a claim against the Transferor to the extent provided herein. (d) No Indemnified Party shall be liable for any damages arising from the use by others of any information or other materials obtained through IntraLinks or other similar information transmission systems in connection with this Agreement; provided, that the Transferor shall have no obligation -------- hereunder to any Indemnified Party with respect to such damages resulting from the gross negligence or willful misconduct of such Indemnified Party. No Indemnified Party shall have any liability for any indirect or consequential damages relating to this Agreement or any other Transaction Document or arising out of its activities in connection herewith or therewith (whether before or after the date hereof). 9.02 Capital Adequacy, Etc. Sections 3.01(a)-(e), 3.02, 3.03, 3.04, 3.05 and 3.06 of the Mattel Credit Agreement are hereby incorporated by reference as if set forth in full herein, except that for purposes of such incorporation by reference: except where direct quotations are made therefrom, (i) all references to "the Company" shall be deemed to be references to the Transferor; (ii) all references to "Lender" or "Lenders" shall be deemed to be references to "Purchaser" or "Purchasers," respectively; (iii) all references to "Lending Office" shall be deemed to be a reference to the office of the Purchasers identified on the signature pages to this Agreement; (iv) all references to "this Agreement" or "Loan Documents" shall be deemed to be references to this Agreement or any other Transaction Documents; (v) all references to "Loans" shall be deemed to be references to the Purchasers' Investments; (vi) all references to "Eurodollar Rate Loans" shall be deemed to be references to Purchasers' Investments with respect to which Yield Reserve would then be calculated based on the Eurodollar Rate; (vii) all references to " interest" shall be deemed to be references to Yield and to any "Interest Period" shall be deemed to be references to a "Yield Period;" (viii) the following words in Section 3.03(b) of the Mattel Credit Agreement, "pursuant to Section 2.04, either on the last day of the Interest Period thereof if the - ------------ Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or promptly, if the Lender may not lawfully continue to maintain such Eurodollar Rate Loans," shall be deemed to be replaced by the word "promptly;" (x) Section 3.05(b) of the Mattel Credit Agreement shall be deemed to be replaced by the following: "(b) the failure of the Transferor to sell Listed Receivables after the Transferor has delivered the related Purchase Notice pursuant to this Agreement;" and (xi) Section 3.05(c) of the Mattel Credit Agreement shall be deemed deleted. SECTION 10. MISCELLANEOUS 10.01 Waivers; Amendments. Etc. No failure or delay on the part of the Administrative Agent or the Purchasers in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. No notice to or demand on the Transferor or the Servicer in any case entitle the Transferor or the Servicer, as the case may be, to any other or further notice or demand in similar or other circumstances. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by Governmental Rule. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is - 33 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement signed by the Transferor, the Servicer, the Administrative Agent and the Requisite Purchasers; provided, however, that no such waiver, amendment or -------- ------- consent shall, unless in writing and signed by each of the affected Purchasers, the Transferor, the Servicer, and acknowledged by the Administrative Agent, (a) increase or extend such Purchaser's Purchaser Commitment or subject such Purchaser to additional obligations; (b) postpone or delay any date fixed for any payment of fees or any other amounts due to such Purchaser hereunder; (c) reduce any fees or other amounts payable to such Purchaser hereunder; (d) change such Purchaser's Percentage; (e) amend this Section or Section 8.10; ----------- (f) release the Guarantor from any obligation undertaken by it pursuant to the Purchase and Sale Agreement; (g) substitute or add Obligors; or (h) amend Section 7.01(i) of the Agreement to reduce the minimum debt ratings required as to any Obligor set forth therein. provided further, that no amendment, waiver or consent shall (i), unless in - -------- ------- writing and signed by the Administrative Agent in addition to the Requisite Purchasers or all the Purchasers, as the case may be, affect the rights or duties of the Administrative Agent under any Transaction Document, or (ii) have the effect of making any Purchaser's Percentage hereunder a different percentage than its Pro Rata Share under the Mattel Credit Agreement. No notice to or demand on any Seller Party in any case shall entitle any Seller Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.01 shall be binding upon each Purchaser at the time ------------- outstanding, each future Purchaser and, if signed by the Seller Parties, on the Seller Parties. Notwithstanding anything to the contrary herein, no Defaulting Purchaser shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Purchaser Commitment of such Purchaser may not be increased or extended nor the Purchaser Investment owing to such Purchaser be reduced without the consent of such Purchaser. 10.02 Notices, Etc. (a) General. Unless otherwise expressly provided ------- herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission) and mailed, faxed or delivered, to the address, facsimile number or (subject to subsection (c) below) electronic mail address specified for notices on Schedule 10.02 to the Mattel -------------- Credit Agreement; or, in the case of the Transfer or the Administrative Agent, to such other address as shall be designated by such party in a notice to the other parties, and in the case of any other party, to such other address as shall be designated by such party in a notice to Mattel or the Administrative Agent. All such notices and other communications shall be deemed to be given or made upon the earlier to occur of (i) actual receipt by the intended recipient and - 34 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement (ii) (A) if delivered by hand or by courier, when signed for by the intended recipient; (B) if delivered by mail, upon the earlier of receipt and four Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has been confirmed by telephone during the Business Day; and (D) if delivered by electronic mail (which form of delivery is subject to the provisions of subsection (c) below), when delivered; provided, however, that notices and other communications to the Administrative - -------- ------- Agent pursuant to Section 2 shall not be effective until actually received by --------- such Person. Any notice or other communication permitted to be given, made or confirmed by telephone hereunder shall be given, made or confirmed by means of a telephone call to the intended recipient at the number specified on Schedule -------- 10.02 to the Mattel Credit Agreement, it being understood and agreed that a - ----- voicemail message shall in no event be effective as a notice, communication or confirmation hereunder. (b) Effectiveness of Facsimile Documents and Signatures. --------------------------------------------------- Transaction Documents may be transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures shall, subject to applicable Governmental Rule, have the same force and effect as manually-signed originals and shall be binding on all Seller Parties, the Administrative Agent and the Purchasers. The Administrative Agent may also require that any such documents and signatures be confirmed by a manually-signed original thereof; provided, -------- however, that the failure to request or deliver the same shall not limit the - ------- effectiveness of any facsimile document or signature. (c) Limited Use of Electronic Mail. Electronic mail and Internet ----------------------------------------------- and intranet websites may be used only to distribute routine communications, such as financial statements and other information as provided in Section ------- 6.01(j), and to distribute Transaction Documents for execution by the parties - ------- thereto, and may not be used for any other purpose. (d) Reliance by Administrative Agent and Purchasers. The ----------------------------------------------- Administrative Agent and the Purchasers shall be entitled to rely and act upon any notices purportedly given by or on behalf of any Seller Party even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Transferor shall indemnify each Administrative Agent-Related Person and each Purchaser from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of any Seller Party. All telephonic notices to and other communications with the Administrative Agent pursuant to Section 2 --------- may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording. 10.03 Governing Law; Integration. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of Governmental Rules provisions thereof. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire Agreement among the parties hereto with respect to the subject matter hereto superseding all prior oral or written understandings. - 35 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement (b) Any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of California or of the United States for the Central District of California, and by execution and delivery of this Agreement, each of the Transferor, the Administrative Agent and the Purchasers consents, for itself and in respect of its property, to the non-exclusive jurisdiction of those courts. Each of the Transferor, the Administrative Agent and the Purchasers irrevocably waives any objection to the laying of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any other Transaction Document. The Transferor, the Administrative Agent and the Purchasers each waive personal service of any summons, complaint or other process, which may be made by any other means permitted by California law. 10.04 Severability; Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of the Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibitions or unenforceability without invalidating the remaining provisions hereof, any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.05 SUCCESSORS AND ASSIGNS. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Seller Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Purchaser (and any attempted assignment or transfer by any Seller Party without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) From time to time following the Effective Date, each Purchaser may assign to one or more Eligible Assignees all or any portion of its Purchaser Commitment and its Percentage of the Purchasers' Investment; provided -------- that (i) such Purchaser concurrently assigns a ratable portion of its Commitment and its Loans under the Mattel Credit Agreement, (ii) such assignment, if not to a Purchaser or an Affiliate of the assigning Purchaser, shall be consented to by the Transferor at all times other than during the existence of a Termination Event (other than a Termination Event described in Section 7.01(e) or (i)) or a Servicer Default and by the Administrative Agent - --------------- (which approval of the Transferor shall not be unreasonably withheld or delayed), (iii) a copy of a duly signed and completed Assignment and Assumption shall be delivered to the Administrative Agent and the Transferor, (iv) except in the case of an assignment (A) to an Affiliate of the assigning Purchaser or to another Purchaser or an Approved Fund (as defined in subsection (g) of this Section) with respect to a Purchaser or (B) of the entire remaining Purchaser Commitment of the assigning Purchaser, the portion of the Aggregate Facilities Commitment assigned shall not be less than $10,000,000, and (v) the effective date of any such assignment shall be as specified in the Assignment and Assumption, but not earlier than - 36 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement the date which is five Business Days after the date the Administrative Agent has received the Assignment and Assumption. Upon satisfaction of the conditions set forth in the prior sentence, any forms required by Section 10.15 of the ------------- Mattel Credit Agreement and payment of the requisite fee described below, the assignee named therein shall be a Purchaser for all purposes of this Agreement effective as of the specified effective date to the extent of the Assigned Interest (as defined in such Assignment and Assumption), and the assigning Purchaser shall be released from any further obligations under this Agreement to the extent of such Assigned Interest. Until satisfaction of the conditions set forth herein to any assignment, the Seller Parties and Administrative Agent may continue to deal solely and directly with the assigning Purchaser in connection the Assigned Interest. The Administrative Agent's consent to any assignment shall not be deemed to constitute any representation or warranty by any Administrative Agent-Related Person as to any matter. (c) After receipt of a completed Assignment and Assumption, and receipt of an assignment fee of $3,500 (which fee includes any assignment fees in connection with the concurrent assignment of interests under the Mattel Credit Agreement) from such Eligible Assignee or such assigning Purchaser (including in the case of assignments to Affiliates of assigning Purchasers), the Administrative Agent shall, promptly following the effective date thereof, provide to the Company and Purchasers a revised Schedule 10.02 to the Mattel -------------- Credit Agreement giving effect thereto. (d) Upon advance written notice to the Company, any Purchaser may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating interests in any ----------- Purchased Interest, the Purchaser Commitment of that Purchaser and the other interests of that Purchaser (the "originating Purchaser") hereunder and under --------------------- the other Transaction Documents; provided, however, that (i) such Purchaser -------- ------- shall concurrently with any sale of a participation herein sell a ratable participation in the Mattel Credit Agreement and thereafter cause any such participation herein to remain ratable with such participation in the Mattel Credit Agreement, (ii) the originating Purchaser's obligations under this Agreement shall remain unchanged, (iii) the originating Purchaser shall remain solely responsible for the performance of such obligations, (iv) the Seller Parties and the Administrative Agent shall continue to deal solely and directly with the originating Purchaser in connection with the originating Purchaser's rights and obligations under this Agreement and the other Transaction Documents, and (v) no Purchaser shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to this Agreement except to the extent such amendment, consent or waiver would require unanimous consent as described in the first proviso to Section 10.01. The Seller Parties hereby ------------- acknowledge and agree that any such disposition will give rise to a direct obligation of the Seller Parties to the Participant with respect to, and the Participant shall be entitled to the benefit of, Section 9 (other than --------- references to Sections 3.03 and 3.06 of the Credit Agreement) as if it were a ------------- ---- "Purchaser." To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.07 as though it were a Purchaser, ------------- provided such Participant agrees to be subject to Section 8.11 as though it ------------ were a Purchaser. (e) A Participant shall not be entitled to receive any greater payment under Section 3.01(a)-(e), 3.02, 3.04 or 3.05 of the Mattel Credit Agreement (as referred to in Section 9.02) herein than the applicable Purchaser ------------ would have been entitled to receive with respect to the - 37 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company's prior written consent. (f) Notwithstanding any other provision in this Agreement, any Purchaser may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note(s) held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR [double sect].203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (g) As used herein, the following terms have the following meanings: "Eligible Assignee" means (i) a Purchaser; (ii) an Affiliate ----------------- of a Purchaser; (iii) an Approved Fund; and (iv) any other Person (other than a natural person) approved by (A) the Administrative Agent and (B) unless a Termination Event has occurred and is continuing, the Transferor (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, -------- "Eligible Assignee" shall not include any Seller Party or any Affiliates or Subsidiaries of any Seller Party. "Fund" means any Person (other than a natural person) that is ---- (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "Approved Fund" means any Fund that is administered or managed ------------- by (i) a Purchaser, (ii) an Affiliate of a Purchaser or (iii) an entity or an Affiliate of an entity that administers or manages a Purchaser. (h) Each Purchaser agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to it by the Seller Parties or any Subsidiary of the Seller Parties, or by the Administrative Agent on a Seller Party's or Subsidiary's behalf, in connection with this Agreement or any other Transaction Document, and neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement and the Mattel Credit Agreement; except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by the Purchaser, or (ii) was or becomes available on a non-confidential basis from a source other than a Seller Party, provided that such source is not bound by a confidentiality agreement with a Seller Party known to the Purchaser; provided, however, that any Purchaser may disclose such -------- ------- information (A) at the request or pursuant to any requirement of any Governmental Person to which the Purchaser is subject or in connection with an examination of such Purchaser by any such authority; (B) pursuant to subpoena or other court process and when required to do so in accordance with the provisions of any applicable Governmental Rule; provided, that a Purchaser -------- shall disclose only the information required by such request and shall notify the Transferor in advance of such disclosure so that the Transferor may seek an appropriate protective order, (C) to such Purchaser's Affiliates and independent auditors and other professional advisors provided such Persons are obligated to keep such information confidential, (D) to any other party to this Agreement, and (E) if a Termination Event exists, in connection with the exercise of any remedies hereunder or any suit, action or - 38 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement proceeding relating to any Loan Document or Transaction Document or the enforcement of rights hereunder or thereunder. Notwithstanding the foregoing, the Seller Parties authorize each Purchaser to disclose to any assignee or Participant and to any prospective assignee or Participant, such financial and other information in such Purchaser's possession concerning the Seller Parties or their Subsidiaries which has been delivered to Administrative Agent or the Purchasers pursuant to this Agreement or which has been delivered to the Administrative Agent or the Purchasers by the Company in connection with the Purchasers' credit evaluation of the Company prior to entering into this Agreement; provided that, unless otherwise agreed by the Company, such assignee -------- or Participant agrees in writing to such Purchaser to keep such information confidential to the same extent required of the Purchasers hereunder. 10.06 AMENDMENT AND RESTATEMENT. This Agreement amends and restates the Existing Receivables Purchase Agreement and, subject to the Effectiveness Agreement Purchasers' Investment outstanding thereunder, shall be deemed continuing outstanding hereunder. 10.07 Set Off.In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of and during the continuance of any Termination Event (other than Termination Events described in Section 7.01(e) or (i) hereof and after the ---------------------- giving of any notice and the expiration of any grace period otherwise contained in the definition thereof), each Purchaser is hereby authorized by each Seller Party at any time or from time to time, without notice to the Seller Parties or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate any and all deposits (including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other indebtedness at any time held or owing by that Purchaser or any Affiliate thereof to or for the credit or the account of a Seller Party and whether or not such deposits or other indebtedness are otherwise fully secured and to apply any such amounts in accordance with the provisions of Section 8.10 irrespective of whether or not ------------ wthat shall have made any demand hereunder, and each such Purchaser or Affiliate is hereby irrevocably authorized to permit such set-off and appropriation. 10.08 Waiver of Right to Trial by Jury. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY TRANSACTION DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY TRANSACTION DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. - 39 - Mattel, Inc. First Amended and Restated Receivables Purchase Agreement IN WITNESS WHEREOF, the parties hereto have executed and delivered this First Amended and Restated Receivables Purchase Agreement as of the date first above written. MATTEL FACTORING, INC., as Transferor By: /s/ WILLIAM STAVRO -------------------------------------- Name: William Stavro Title: Senior Vice President and Treasurer MATTEL, INC., as Servicer By: /s/ WILLIAM STAVRO -------------------------------------- Name: William Stavro Title: Senior Vice President and Treasurer S-1 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement BANK OF AMERICA, N.A., as Administrative Agent and a Purchaser By: /s/ CASEY COSGROVE -------------------------------------- Casey Cosgrove Vice President S-2 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement BNP PARIBAS, as a Documentation Agent and a Purchaser By: /s/ JANICE S.H. HO -------------------------------------- Name: Janice S.H. Ho Title: Director By: /s/ TJALLING TERPSTRA -------------------------------------- Name: Tjalling Terpstra Title: Director S-3 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement CITICORP USA, INC., as a Syndication Agent and a Purchaser By: /s/ WALT LARSEN -------------------------------------- Name Walt Larsen Title Vice President S-4 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement FLEET NATIONAL BANK, as a Syndication Agent and a Purchaser By: /s/ MARIO F. TEIXEIRA -------------------------------------- Name Mario F. Teixeira Title Vice President S-5 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement SOCIETE GENERALE, as a Documentation Agent and a Purchaser By: /s/ RICHARD BERNAL -------------------------------------- Name Richard Bernal Title Director, Corporate Banking S-6 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement THE BANK OF NOVA SCOTIA By: /s/ R.P. REYNOLDS -------------------------------------- Name: R. P. Reynolds Title: Director S-7 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement BARCLAYS BANK PLC By: /s/ NICHOLAS BELL -------------------------------------- Name: Nicholas Bell Title: Director S-8 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement CREDIT SUISSE FIRST BOSTON By: /s/ ROBERT HETU -------------------------------------- Name: Robert Hetu Title: Director By: /s/ MARK HERON -------------------------------------- Name: Mark Heron Title: Associate S-9 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement THE INDUSTRIAL BANK OF JAPAN, LIMITED By: /s/ VICENTE L. TIMIRAOS -------------------------------------- Name: Vicente L. Timiraos Title: Joint General Manager S-10 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement MANUFACTURERS & TRADERS TRUST COMPANY By: /s/ CHRISTOPHER KANIA -------------------------------------- Name: Christopher Kania Title: Vice President S-11 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement SANPAOLO IMI S.p.A. By: /s/ ETTORE VIAZZO -------------------------------------- Name: Ettore Viazzo Title: Vice President By: /s/ CARLO PERSICO -------------------------------------- Name: Carlo Persico Title: E.V.P./General Manager S-12 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement WELLS FARGO BANK, N.A. By: /s/ PEITTY CHOU -------------------------------------- Name: Peitty Chou Title: Vice President S-13 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement CREDIT LYONNAIS, Los Angeles Branch By: /s/ DIANNE M. SCOTT -------------------------------------- Name: Dianne M. Scott Title: Senior Vice President and Manager S-14 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement UNION BANK OF CALIFORNIA, N.A. By: /s/ GAIL I. BOYLE -------------------------------------- Name: Gail I. Boyle Title: Vice President S-15 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement FIRST UNION NATIONAL BANK By: /s/ DAVID SILANDER -------------------------------------- Name: David Silander Title: Director S-16 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement JPMORGAN CHASE BANK By: /s/ WILLIAM P. RINDFUSS -------------------------------------- Name: William P. Rindfuss Title: Vice President S-17 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement U.S. BANK NATIONAL ASSOCIATION By: /s/ JANET JORDAN -------------------------------------- Name: Janet E. Jordan Title: Vice President S-18 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement BANK OF TOYKO-MITSUBISHI TRUST COMPANY By: /s/ R. L. VAN DE BERGHE -------------------------------------- Name: R. L. Van de Berghe Title: Vice President S-19 Mattel, Inc. First Amended and Restated Receivables Purchase Agreement EX-10.3 9 dex103.txt TERM LOAN AGREEMENT DATED 7/17/00 EXHIBIT 10.3 =============================================================================== Term Loan Agreement Dated as of July 17, 2000 among Mattel, Inc. The Lenders Party hereto The Industrial Bank of Japan, Limited, as Administrative Agent and Co-Syndication Agent and Bear, Stearns & Co. Inc., as Co-Syndication Agent Bear, Stearns & Co. Inc., Arranger and The Industrial Bank of Japan, Limited, Co-Arranger ================================================================================ MATTEL INC. TERM LOAN AGREEMENT TABLE OF CONTENTS SECTION 1. DEFINITIONS............................................................. 1 1.01 Certain Defined Terms.................................................. 1 1.02 Other Definitional Provisions.......................................... 13 SECTION 2. THE COMMITMENTS......................................................... 13 2.01 The Commitments........................................................ 13 2.02 Loan Accounts and Notes................................................ 13 2.03 Borrowing Procedure.................................................... 13 2.04 Conversion and Continuation Elections.................................. 14 2.05 Voluntary Prepayments.................................................. 15 2.06 Repayment of Loans..................................................... 15 2.07 Interest on the Loans.................................................. 15 2.08 Fees................................................................... 16 2.09 Calculation of Interest and Fees....................................... 16 2.10 Payments by the Company................................................ 16 2.11 Payments by the Lenders to the Administrative Agent.................... 17 2.12 Sharing of Payments, Etc............................................... 17 SECTION 3. PAYMENTS IN GENERAL..................................................... 18 3.01 Taxes.................................................................. 18 3.02 Capital Adequacy....................................................... 20 3.03 Illegality............................................................. 21 3.04 Increased Costs and Reduction of Return................................ 21 3.05 Funding Losses......................................................... 21 3.06 Inability to Determine Rates........................................... 22 3.07 Survival............................................................... 22 SECTION 4. CONDITIONS PRECEDENT.................................................... 22 4.01 Conditions to Effectiveness............................................ 22 4.02 Conditions to Funding of Loans......................................... 24 SECTION 5. REPRESENTATIONS AND WARRANTIES.......................................... 24 5.01 Organization and Powers................................................ 24 5.02 Good Standing.......................................................... 25 5.03 Material Subsidiaries.................................................. 25 5.04 Authorization of Borrowing............................................. 25 5.05 No Conflict............................................................ 25 5.06 Governmental Consents.................................................. 25 5.07 Binding Obligation..................................................... 25 5.08 Financial Condition.................................................... 25 5.09 Changes, Etc........................................................... 26 5.10 Title to Properties.................................................... 26 5.11 Litigation; Adverse Facts.............................................. 26 5.12 Payment of Taxes....................................................... 26 5.13 Agreements............................................................. 27 5.14 Performance............................................................ 27 5.15 Governmental Regulation................................................ 27 5.16 Employee Benefit Plans................................................. 27
-i- 5.17 Environmental Matters.................................................. 27 5.18 Disclosure............................................................. 27 5.19 Subordination Agreements............................................... 28 SECTION 6. AFFIRMATIVE COVENANTS................................................... 28 6.01 Reporting and Information Requirements................................. 28 6.02 Corporate Existence, Etc............................................... 30 6.03 Payment of Taxes and Claims; Tax Consolidation......................... 30 6.04 Maintenance of Properties; Insurance................................... 31 6.05 Inspection of Property and Books and Records........................... 31 6.06 Use of Proceeds of Loans............................................... 31 6.07 Environmental Laws..................................................... 31 6.08 Subordination Agreements............................................... 31 SECTION 7. NEGATIVE COVENANTS...................................................... 32 7.01 Senior or Secured Indebtedness......................................... 32 7.02 Liens.................................................................. 32 7.03 Restriction on Fundamental Changes..................................... 32 7.04 Sale or Discount of Receivables........................................ 33 7.05 Consolidated Funded Indebtedness to Total Capitalization............... 33 7.06 Interest Coverage Ratio................................................ 33 7.07 ERISA.................................................................. 34 7.08 Margin Regulations..................................................... 34 7.09 Independence of Covenants.............................................. 34 SECTION 8. EVENTS OF DEFAULT....................................................... 34 8.01 Events of Default...................................................... 34 8.02 Remedies............................................................... 36 8.03 Rights Not Exclusive................................................... 37 SECTION 9. THE ADMINISTRATIVE AGENT................................................ 37 9.01 Appointment and Authorization.......................................... 37 9.02 Delegation of Duties................................................... 37 9.03 Liability of Administrative Agent...................................... 37 9.04 Reliance by Administrative Agent....................................... 38 9.05 Notice of Default...................................................... 38 9.06 Credit Decision........................................................ 39 9.07 Indemnification........................................................ 39 9.08 Administrative Agent in Individual Capacity............................ 40 9.09 Successor Administrative Agent......................................... 40 9.10 Co-Syndication Agents, Documentation Agent, Arranger and Co-Arranger... 40 SECTION 10. MISCELLANEOUS.......................................................... 41 10.01 Assignments, Participations, Etc....................................... 41 10.02 Survival of Warranties and of Certain Agreements....................... 44 10.03 Failure or Indulgence Not Waiver; Remedies Cumulative.................. 44 10.04 Fees and Expenses...................................................... 44 10.05 Setoff................................................................. 44 10.06 Notices................................................................ 45 10.07 Severability........................................................... 45 10.08 Amendments and Waivers................................................. 45 10.09 Obligations Several.................................................... 46 10.10 Certain Changes........................................................ 46
-ii- 10.11 Headings............................................................... 46 10.12 Applicable Law......................................................... 46 10.13 Successors and Assigns................................................. 47 10.14 Counterparts........................................................... 47 10.15 Indemnity.............................................................. 47
EXHIBITS Form of: A Note B Notice of Borrowing C Notice of Conversion/Continuation D Officers' Certificate E Opinion of Assistant General Counsel of Company F-1 Fisher-Price Continuing Guaranty F-2 Mattel Sales Continuing Guaranty G-1 Fisher-Price Subordination Agreement G-2 Mattel Sales Subordination Agreement H Notice of Assignment and Acceptance I Notice of Prepayment J Joining Lender Agreement SCHEDULES 1.01 Commitments and Pro Rata Shares 5.03 Material Subsidiaries of Company 5.11 Material Litigation 7.02 Certain Liens 10.06 Addresses for Notices and Lending Offices MATTEL, INC. TERM LOAN AGREEMENT This TERM LOAN AGREEMENT (this "Agreement") is dated as of July 17, 2000 --------- and is entered into by and among MATTEL, INC., a Delaware corporation (the "Company"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF ------- (individually referred to herein as a "Lender" and collectively as the ------ "Lenders"), THE INDUSTRIAL BANK OF JAPAN, LIMITED, as administrative agent for ------- the Lenders (in such capacity, the "Administrative Agent") and as co-syndication -------------------- agent (in such capacity, a "Co-Syndication Agent"), and BEAR, STEARNS & CO. -------------------- INC., as co-syndication agent (in such capacity, a "Co-Syndication Agent"). -------------------- RECITAL The Company has requested that the Lenders provide a term loan facility, and the Lenders and the Administrative Agent are willing to do so on the terms and conditions set forth herein. In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: SECTION 1. DEFINITIONS. 1.01 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "Administrative Agent" has the meaning assigned to that term in the -------------------- introduction to this Agreement. "Administrative Agent's Office" means the Administrative Agent's address ----------------------------- and, as appropriate, account as set forth on Schedule 10.06 or such other -------------- address or account as the Administrative Agent hereafter may designate by written notice to the Company and the Lenders. "Administrative Agent-Related Persons" means the Administrative Agent and ------------------------------------ any successor agent arising under Section 9.09, together with their respective ------------ Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Affiliate", as applied to any Person, means any other Person directly or --------- indirectly controlling, controlled by or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agreement" means this Term Loan Agreement, as it may hereafter be amended, --------- supplemented, restated or otherwise modified from time to time. "Applicable Margin" means the margin applicable to Eurodollar Rate Loans ----------------- (expressed in basis points per annum) set forth in the chart below (i) opposite the second-highest rating issued from among S&P, Moody's and Fitch on the Company's senior unsecured long-term debt or (ii) if the Company's senior unsecured long-term debt is rated by only one of those three companies, opposite the rating issued by that company:
Senior Unsecured Long-Term Debt Applicable Ratings Margin - --------------------------------------------------- A or higher by S&P A2 or higher by Moody's 52.5 A or higher by Fitch - --------------------------------------------------- A- by S&P A3 by Moody's 72.5 A- by Fitch - --------------------------------------------------- BBB+ by S&P Baa1 by Moody's 100.0 BBB+ by Fitch - --------------------------------------------------- BBB by S&P Baa2 by Moody's 125.0 BBB by Fitch - --------------------------------------------------- BBB- by S&P Baa3 by Moody's 150.0 BBB- by Fitch - --------------------------------------------------- BB+ or lower by S&P 200.0 Ba1 or lower by Moody's BB+ or lower by Fitch unrated by S&P, Moody's and Fitch - ---------------------------------------------------
Any change in the Applicable Margin shall become effective upon any public announcement of any change in the above ratings that requires such a change according to the above chart. "Arranger" means Bear Stearns, in its capacity as arranger of the credit -------- facility provided pursuant to this Agreement. "Assignment and Acceptance" has the meaning set forth in Section 10.01(a). ------------------------- -------- "Base Rate" means a fluctuating rate per annum which is the higher of (a) --------- the Federal Funds Rate plus one-half of one percent (1/2%) per annum and (b) the rate of interest publicly -2- announced from time to time by IBJ as its prime rate, as in effect on such date of determination. Such prime rate is set by IBJ based on various factors including IBJ's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. IBJ may make loans at, above or below the rate announced by it as its prime rate. "Base Rate Loans" means Loans, or portions thereof, made by the Lenders --------------- bearing interest at rates determined by reference to the Base Rate. "Bear Stearns" means Bear, Stearns & Co. Inc., a Delaware corporation. ------------ "Business Day" means any day other than a Saturday, Sunday or other day on ------------ which commercial banks in New York City, New York or Los Angeles, California are authorized or required by law to close and, if the applicable Business Day relates to any Eurodollar Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Capital Assets" means, as at any date of determination, those assets of a -------------- Person that would, in conformity with GAAP, be classified as property, plant or equipment on the balance sheet of that Person. "Capital Lease", as applied to any Person, means any lease of any property ------------- (whether real, personal or mixed) by that Person as lessee which would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person other than, in the case of the Company or any of its Subsidiaries, any such lease under which the Company or any of its Subsidiaries is the lessor. "Co-Arranger" means IBJ, in its capacity as co-arranger of the credit ----------- facility provided pursuant to this Agreement. "Combined Purchasers' Investments" means an amount equal to the sum of (a) -------------------------------- the Purchasers' Investments under the Receivables Purchase Agreement plus (b) ---- the analogous amount under Other Permitted Accounts Receivable Financing Facilities relating to the sales of accounts receivable of Domestic Subsidiaries (without duplication for accounts receivable sold to a Subsidiary of the Company and then sold to a third-party purchaser). "Commitment" means, for each Lender, the amount set forth under ---------- "Commitment" on Schedule 1.01 or in any applicable Joining Lender Agreement. ------------- "Company Party" means the Company or any Person (except the Lenders, the ------------- Administrative Agent, the Co-Syndication Agents, the Documentation Agent, the Arranger and the Co-Arranger and any of their respective Affiliates) from time to time party to a Loan Document. "Consolidated Funded Indebtedness" means, at any date of determination, for -------------------------------- the Company and its Subsidiaries on a consolidated basis, the sum of (a) all obligations and liabilities, whether current or long-term, for borrowed money, (b) that portion of obligations with respect to Capital Leases which is capitalized on the consolidated balance sheet of the Company and its Subsidiaries, and (c) all guaranties of unconsolidated funded obligations for borrowed -3- money, all determined in conformity with GAAP. "Consolidated Net Income", for any period, means the net income (or loss) ----------------------- of the Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP. "Consolidated Net Worth" means, as at any date of determination, the net ---------------------- worth of the Company and its Subsidiaries on a consolidated basis as determined in conformity with GAAP. "Contingent Obligation", as applied to any Person, means, without --------------------- duplication, any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof or (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another and (b) any liability of such Person for the obligations of another through any agreement (contingent or otherwise) (x) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (y) to maintain the solvency or any balance sheet item, level of income or financial condition of another, if in the case of any agreement described under subclause (x) or (y) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. The amount of any Contingent Obligation denominated in a currency other than Dollars shall be equal to the Dollar Equivalent of such Contingent Obligation. "Contractual Obligation", as applied to any Person, means any provision of ---------------------- any security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Co-Syndication Agent" has the meaning assigned to that term in the -------------------- introduction to this Agreement. "Default" means any event or circumstance which, with the giving of notice, ------- the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Documentation Agent" means any Lender that is given the title of ------------------- "Documentation Agent," as agreed by the Company, IBJ and Bear Stearns, in such Lender's capacity as such. "Dollar Equivalent" means, with respect to any other currency, the ----------------- equivalent in Dollars -4- of such other currency determined by using the quoted spot rate at which IBJ's principal office in New York offers to exchange Dollars for such other currency in New York at 11:00 a.m. (New York time) two Business Days before the date on which such equivalent is to be determined. "Dollars" means lawful money of the United States of America. ------- "Domestic Subsidiary" means a Subsidiary of the Company that is ------------------- incorporated in a jurisdiction of the United States of America. "Effective Date" means the date on which all the conditions in Section 4.01 -------------- ------------ are satisfied or waived. "Eligible Assignee" means (i) a commercial bank organized under the laws of ----------------- the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such ---- country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the - -------- country in which it is organized or another country which is also a member of the OECD; (iii) a Person that is primarily engaged in the business of commercial banking and that is (A) a Subsidiary of a Lender, (B) a Subsidiary of a Person of which a Lender is a Subsidiary, or (C) a Person of which a Lender is a Subsidiary; (iv) an insurance company, investment fund or other financial institution that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and has total assets in excess of $100,000,000; and (v) any other Person approved by the Administrative Agent and, in the absence of any Event of Default, the Company. "Environmental Claims" means all claims, however asserted, by any -------------------- Governmental Person or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, ------------------ common law duties, rules, regulations, ordinances and codes, together with all administrative orders, requests, licenses, authorizations and permits of, and agreements with, any Governmental Person, in each case relating to environmental, health, safety and land-use matters. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time and any successor statute, and the rules and regulations promulgated thereunder. "ERISA Affiliate", as applied to any Person, means any trade or business --------------- (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of Section 414(b) and 414(c) of the Internal Revenue Code. "Eurodollar Rate Loans" means Loans, or portions thereof, bearing interest --------------------- at rates determined by reference to the Eurodollar Rate as provided in Section ------- 2.07(a). - ------- -5- "Eurodollar Rate" means for any Interest Period with respect to any --------------- Eurodollar Rate Loan, a rate per annum determined by the Administrative Agent pursuant to the following formula: Eurodollar Rate = Eurodollar Base Rate ------------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Base Rate" means, for such Interest Period: -------------------- (a) the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate that appears on the page of the Telerate screen that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (b) in the event the rate referenced in the preceding Subsection (a) does not appear on such page or service or such page or service shall cease to be available, the rate per annum equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service that displays an average British Bankers Association Interest Settlement Rate for deposits in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, or (c) in the event the rates referenced in the preceding Subsections (a) and (b) are not available, the rate per annum determined by the Administrative Agent as the rate of interest (rounded upward to the next 1/100th of 1%) at which deposits in Dollars for delivery on the first day of such Interest Period in same-day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by the Administrative Agent (or its Affiliate) in its capacity as a Lender and with a term equivalent to such Interest Period would be offered by IBJ's London Branch to major banks in the offshore Dollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period. "Eurodollar Reserve Percentage" means, for any day during any Interest ----------------------------- Period, the reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage. The determination of the Eurodollar Reserve Percentage and the Eurodollar Base -6- Rate by the Administrative Agent shall be conclusive in the absence of manifest error. "Event of Default" means any of the events set forth in Section 8.01. ---------------- ------------ "Exchange Act" means, at any time, the Securities Exchange Act of 1934, as ------------ amended from time to time, and any successor statute, and the rules and regulations promulgated thereunder. "Federal Funds Rate" means the weighted average of the rates on overnight ------------------ Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day of determination (or if such day of determination is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transaction received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve --------------------- System or any successor thereof. "Fee Letter" means the fee letter agreement dated June 13, 2000 among the ---------- Company, IBJ and Bear Stearns. "Fisher-Price" means Fisher-Price, Inc., a Delaware corporation. ------------ "Fisher-Price Guaranty" means the Continuing Guaranty signed by Fisher- --------------------- Price substantially in the form of Exhibit F-1 hereto, as amended, supplemented, restated or otherwise modified from time to time. "Fisher-Price Subordination Agreement" means a Fisher-Price Subordination ------------------------------------ Agreement substantially in the form of Exhibit G-1 attached hereto signed by Fisher-Price and any of certain Affiliates of the Company to which Fisher-Price has material outstanding obligations, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time. "Fitch" means Fitch, Inc. or any successor thereto. ----- "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Person" means the government of the United States or any ------------------- foreign government or the government of any state or locality therein, any political subdivision or any governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body or entity, or other regulatory bureau, authority, body or entity of the United States, any foreign government or any state or locality therein, including the Federal Deposit Insurance Company, the Comptroller of the Currency and the Federal Reserve Board. -7- "Governmental Rule" means any law, statute, rule, regulation, ordinance, ----------------- order, judgment, guideline or decision of any Governmental Person. "IBJ" means The Industrial Bank of Japan, Limited, a Japanese bank, or any --- successor thereto. "Indebtedness", as applied to any Person, means (i) all indebtedness for ------------ borrowed money, (ii) that portion of obligations with respect to Capital Leases which is required to be capitalized on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services which purchase price is (y) due more than twelve months from the date of incurrence of the obligation in respect thereof, or (z) evidenced by a promissory note and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person. The amount of any Indebtedness shall be the principal amount of and all interest, premium, if any, and other fees and expenses accrued on any of the foregoing. "Initial Funding Date" means the Business Day of the funding of the initial -------------------- Loan(s) hereunder. "Interest Payment Date" means, with respect to any Eurodollar Rate Loan, --------------------- the last day of each Interest Period applicable to such Loan and, with respect to any Base Rate Loan, the last day of each calendar quarter, and with respect to all Loans, the Maturity Date; provided, however, that if any Interest Period -------- ------- for a Eurodollar Rate Loan exceeds three months, interest shall also be paid on the date which falls three months after the beginning of such Interest Period. "Interest Period" means, with respect to any Eurodollar Rate Loan, the --------------- period commencing on the Business Day the Eurodollar Rate Loan is disbursed or continued or on the date on which a Loan is converted into a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: -------- (i) if any Interest Period pertaining to a Eurodollar Rate Loan would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period shall extend beyond the Maturity Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended --------------------- to the date hereof and from time to time hereafter, and the rules and regulations promulgated -8- thereunder. "Joining Lender" has the meaning set forth in Section 10.01(f). -------------- ---------------- "Joining Lender Agreement" means a Joining Lender Agreement signed by the ------------------------ Company and a Joining Lender and approved by the Administrative Agent, substantially in the form of Exhibit J hereto, as amended, supplemented, restated or otherwise modified from time to time. "Lender" has the meaning assigned to that term in the introduction to this ------ Agreement and includes any other financial institution that becomes a party hereto as a "Lender" pursuant to Section 10.01. ------------- "Lender Affiliate" means a Person engaged primarily in the business of ---------------- commercial banking and that is a Subsidiary of a Lender or of a Person of which a Lender is a Subsidiary. "Lending Office" means, with respect to any Lender, the office or offices -------------- of the Lender specified as its "Lending Office" under its name on Schedule -------- 10.06, or such other office or offices of the Lender as it may from time to time - ----- specify to the Company and the Administrative Agent in writing. "Lien" means any lien, mortgage, pledge, security interest, charge or ---- encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any kind of security interest). "Loan" means the amount initially advanced by a Lender to the Company ---- pursuant to this Agreement, whether pursuant to Section 2.01, 10.01(a) or ------------ -------- 10.01(f), as such amount may be decreased pursuant to Section 10.01(a) or - -------- ---------------- increased pursuant to Section 10.01(f). ---------------- "Loan Documents" means this Agreement, any Notes, the Mattel Sales -------------- Guaranty, the Fisher-Price Guaranty, all Mattel Sales Subordination Agreements, all Fisher-Price Subordination Agreements, the Fee Letter and all documents, certificates and instruments delivered in connection herewith or therewith; provided, however, that for the avoidance of doubt, "Loan Documents" shall not - -------- ------- include documents included in the definition of "Loan Documents" under (i) that certain Second Amended and Restated Credit Agreement dated as of March 11, 1998, among the Company, the banks from time to time party thereto and Bank of America, N.A., as agent thereunder, or (ii) that certain Credit Agreement (364- Day Facility) dated as of March 31, 2000, among the Company, the banks from time to time party thereto and Bank of America, N.A., as administrative agent thereunder, except to the extent that any document or instrument delivered in connection with either of those credit agreements is also delivered in connection herewith. "Margin Stock" has the meaning assigned to the term "Margin Stock" in ------------ Regulation U of the Federal Reserve Board as in effect from time to time. "Material Adverse Effect" means (i) a material adverse effect upon the ----------------------- business, operations, properties, assets, business prospects or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (ii) a material impairment of the ability of the Company to perform the Obligations or of the Lenders to enforce the Obligations. -9- "Material Subsidiary" means Mattel Sales, Fisher-Price, or any other ------------------- Subsidiary of the Company which meets any of the following conditions: (a) the Company's and its Subsidiaries' investments in, and advances to, the Subsidiary exceed 10 percent of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year (for a proposed business combination to be accounted for as a pooling of interests, this condition is also met when the number of common shares exchanged or to be exchanged by the Company exceeds 10 percent of its total common shares outstanding at the date the combination is initiated); or (b) the Company and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10 percent of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (c) the Company and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principles of the Subsidiary exceeds 10 percent of such income of the Company and its Subsidiaries consolidated for the most recently completed fiscal year; provided, however, that, notwithstanding the foregoing, TLC shall not be a - -------- ------- Material Subsidiary hereunder. For the purpose of meeting the prescribed income test the following guidance should be applied: (i) When a loss has been incurred by either the Company and its Subsidiaries consolidated or the tested Subsidiary, but not both, the equity in the income or loss of the tested Subsidiary should be excluded from the income of the Company and its Subsidiaries consolidated for purposes of the computation. (ii) If income of the Company and its Subsidiaries consolidated for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five years, such average income should be substituted for purposes of the computation. Any loss years should be omitted for purposes of computing average income. (iii) Where the test involves combined entities, as in the case of determining whether summarized financial data should be presented, entities reporting losses shall not be aggregated with entities reporting income. "Mattel Sales" means Mattel Sales Corp., a California corporation. ------------ "Mattel Sales Guaranty" means the Continuing Guaranty signed by Mattel --------------------- Sales substantially in the form of Exhibit F-2 hereto, as amended, supplemented, restated or otherwise modified from time to time. -10- "Mattel Sales Subordination Agreement" means a Mattel Sales Subordination ------------------------------------ Agreement substantially in the form of Exhibit G-2 attached hereto signed by Mattel Sales and any of certain Affiliates of the Company to which Mattel Sales has material outstanding obligations, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time. "Maturity Date" means July 17, 2003. ------------- "Moody's" means Moody's Investors Service, Inc. or any successor thereto. ------- "Multiemployer Plan" means a "multiemployer plan" as defined in Section ------------------ 4001(a)(3) of ERISA which is maintained for employees of the Company or any ERISA Affiliate of the Company. "Note" means a promissory note of the Company payable to the order of a ---- Lender substantially in the form of Exhibit A hereto, evidencing the Loan made by such Lender to the Company. "Notice of Borrowing" means a notice substantially in the form of Exhibit B ------------------- hereto with respect to a proposed borrowing pursuant to Section 2.03(a). --------------- "Notice of Conversion/Continuation" means a notice given by the Company to --------------------------------- the Administrative Agent pursuant to Section 2.04, in substantially the form of ------------ Exhibit C hereto. "Obligations" means all obligations of every nature of the Company, Fisher- ----------- Price and Mattel Sales from time to time owed to the Administrative Agent, the Lenders or any other Person required to be indemnified hereunder, or any of them, under any Loan Document. "Officers' Certificate" means a certificate substantially in the form of --------------------- Exhibit D hereto executed on behalf of the Company by two different officers of the Company, one of which shall be (a) its Chairman of the Board (if an officer), one of its Presidents, one of its Executive Vice Presidents, or one of its Senior Vice Presidents, and the other one of which shall be (b) its Chief Financial Officer, its Treasurer, one of its Assistant Treasurers, or its Controller, delivered to the Lenders by the Company pursuant to Section 6.01(c). --------------- "Other Permitted Accounts Receivable Financing Facility" means a financing ------------------------------------------------------ arrangement (other than the Receivables Purchase Agreement) entered into in the ordinary course of business under which accounts receivable of the Company, Mattel Sales, Fisher-Price or any other Subsidiary are periodically sold directly to third-party purchasers, or sold to a Subsidiary of the Company formed for such purpose which in turn sells such accounts receivable to third- party purchasers; provided, however, that in connection with any such financing -------- ------- arrangement: (a) there is no recourse to any seller of such accounts receivable on account of the creditworthiness of the obligor on such accounts receivable; and (b) no negative pledge or Lien is created on any accounts receivable not actually sold or discounted. -11- "Participant" has the meaning set forth in Section 10.01(c). ----------- ---------------- "Pension Plan" means any employee plan which is subject to Section 412 of ------------ the Internal Revenue Code and which is maintained for employees of the Company or any ERISA Affiliate of the Company other than a Multiemployer Plan. "Person" means any individual, partnership, corporation (including a ------ business trust), joint stock company, joint venture, trust, lender, trust company, unincorporated association or other entity or any Governmental Person. "Pro Rata Share" means with respect to each Lender the percentage set forth -------------- opposite such Lender's name on Schedule 1.01, as the same may be adjusted from ------------- time to time pursuant to Section 10.01. ------------- "Purchasers' Investment" has the meaning set forth in the Receivables ---------------------- Purchase Agreement. "Receivables Purchase Agreement" means the Receivables Purchase Agreement ------------------------------ dated as of March 11, 1998, among Mattel Factoring, Inc., as transferor, the Company, as guarantor and servicer, the purchasers party thereto and the Receivables Purchase Administrative Agent, as it may be amended, supplemented, restated or otherwise modified from time to time. "Regulation D" means Regulation D of the Federal Reserve Board as in effect ------------ from time to time. "Requisite Lenders" means, as at any date of determination, Lenders having ----------------- at least 51% of the then aggregate unpaid principal amount of the Loans (or if no Loans are then outstanding, Lenders having at least 51% of the combined Commitments). "Responsible Officer" means the Chief Executive Officer, the Chief ------------------- Financial Officer, the Treasurer or an Assistant Treasurer of the Company or any officer of the Company designated by any of the above. Any document or certificate hereunder that is signed by a Responsible Officer shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of the Company, and such Responsible Officer shall be conclusively presumed to have acted on behalf of the Company. "Securities Act" means, at any time, the Securities Act of 1933, as amended -------------- from time to time, and any successor statute, and the rules and regulations promulgated thereunder. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw- --- Hill Companies, Inc., or any successor thereto. "Subsidiary" means, with respect to any Person, any corporation, ---------- association or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. Unless otherwise specified herein, "Subsidiary" means a Subsidiary of the Company. -12- "TLC" means TLC Multimedia, Inc., a Minnesota corporation. --- 1.02 Other Definitional Provisions. References to "Sections" shall be to Sections of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.01 may, ------------ unless the context otherwise requires, be used in the singular or the plural depending on the reference. The words "include," "includes" and "including" shall be deemed to be followed by the words "without limitation." SECTION 2. THE COMMITMENTS. 2.01 The Commitments. Each Lender that becomes a party to this Agreement on or before the Initial Funding Date hereby agrees severally, on the terms and conditions set forth in this Agreement, to make a single advance to the Company on the Initial Funding Date in an amount not to exceed such Lender's Commitment. Upon the making of each such Lender's Loan pursuant to this Section 2.01, the ------------ unused portion, if any, of each such Lender's Commitment shall terminate. Amounts borrowed hereunder and repaid or prepaid may not be reborrowed. 2.02 Loan Accounts and Notes. (a) Subject to Section 2.02(b), the Loan made by each Lender shall be --------------- evidenced by a loan account maintained by such Lender in the ordinary course of business. The loan accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Company and the interest and payments thereon. Any failure to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans. (b) Upon the written request of any Lender made through the Administrative Agent, the Loan made by such Lender may be evidenced by a Note instead of by a loan account. Each such Lender shall endorse on the schedules annexed to its Note the date, amount and maturity of the Loan made by it and the amount of each payment of principal made by the Company with respect thereto. Each such Lender is irrevocably authorized by the Company to endorse the schedules annexed to its Note, and each Lender's record shall be conclusive absent manifest error; provided, however, that the failure of a Lender to make, or an error in making, - -------- ------- a notation thereon with respect to its Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Lender. 2.03 Borrowing Procedure. (a) When the Company desires to borrow pursuant to Section 2.01, it shall ------------ deliver irrevocable telephonic notice to the Administrative Agent followed immediately by written notice in the form of the Notice of Borrowing, which telephonic notice must be received by the Administrative Agent no later than (i) 11:00 a.m. (New York time) on the proposed Initial -13- Funding Date in the case of Base Rate Loans and (ii) 12:00 noon (New York time) three Business Days in advance of the proposed Initial Funding Date in the case of Eurodollar Rate Loans, specifying (A) the proposed Initial Funding Date, which shall be a Business Day, (B) the amount of the proposed borrowing, (C) whether the proposed borrowing shall consist of Base Rate Loans or Eurodollar Rate Loans, and (D) in the case of Eurodollar Rate Loans, the requested Interest Period. Base Rate Loans made on the Initial Funding Date shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. Eurodollar Rate Loans made on the Initial Funding Date shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $500,000 in excess of that amount. (b) Promptly after receipt of the Notice of Borrowing (or telephonic notice in lieu thereof), the Administrative Agent shall notify each Lender of the proposed borrowing. Each Lender shall make available to the Administrative Agent its Pro Rata Share of the amount of the proposed borrowing on the Initial Funding Date, in same-day funds, by remitting such funds to the Administrative Agent's Office no later than 2:00 p.m. (New York time) on the Initial Funding Date. Upon satisfaction of the conditions set forth in Section 4.02, the ------------ Administrative Agent shall make available to the Company on the Initial Funding Date the aggregate of the amounts so made available by the Lenders by causing an amount of same-day funds equal to such aggregate amount received by the Administrative Agent to be credited to the account of the Company designated thereby. 2.04 Conversion and Continuation Elections. (a) The Company may upon irrevocable written notice to the Administrative Agent: (i) elect to convert any Base Rate Loans (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $500,000 in excess thereof) on any Business Day into Eurodollar Rate Loans; (ii) elect to convert any Eurodollar Rate Loans (or any part thereof) on the last day of any Interest Period therefor into Base Rate Loans in an amount not less than $1,000,000 or an integral multiple of $500,000 in excess thereof; or (iii) elect to continue any Eurodollar Rate Loans (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $500,000 in excess thereof) on the last day of any Interest Period therefor; provided, that if the aggregate amount of Eurodollar -------- Rate Loans shall have been reduced, by payment, prepayment, or conversion of part thereof to be less than $5,000,000, the Eurodollar Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as Eurodollar Rate Loans shall terminate. (b) Each conversion or continuation shall be made upon irrevocable telephonic notice to the Administrative Agent followed immediately by written notice in the form of a Notice of Conversion/Continuation, which telephonic notice must be received by the Administrative Agent prior to (i) 12:00 noon (New York time) at least three Business Days in advance of the conversion or continuation date, if the Loans are to be converted into or continued as Eurodollar Rate Loans and (ii) 12:00 noon (New York time) on the conversion or continuation date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed conversion or continuation date; (B) the aggregate amount of Loans to be converted or continued; (C) the nature of the proposed conversion or continuation; and (D) the duration of the requested Interest Period, if applicable. -14- (c) If upon the expiration of any Interest Period applicable to Eurodollar Rate Loans, the Company has failed to select a new Interest Period to be applicable to such Eurodollar Rate Loans or a new type of Loan or if any Default or Event of Default shall then exist, the Company shall be deemed to have elected to convert such Eurodollar Rate Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. (d) Upon receipt of a Notice of Conversion/Continuation, the Administrative Agent will promptly notify each Lender thereof, or, if no timely notice is provided, the Administrative Agent will promptly notify each Lender of the details of any automatic conversion. All conversions and continuations shall be made pro rata according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Lender. (e) Unless the Requisite Lenders shall otherwise agree, after the occurrence of and during the continuance of a Default or Event of Default, the Company may not elect to have a Loan be made as, or converted into or continued as, a Eurodollar Rate Loan. (f) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Loans, there shall not be more than five different Interest Periods in effect. 2.05 Voluntary Prepayments. The Company may, upon not less than ten Business Days' prior written notice to the Administrative Agent in the form of Exhibit I hereto (which notice the Administrative Agent will promptly transmit by telecopier to each Lender), at any time and from time to time prepay (i) any Eurodollar Rate Loans in whole or in part in an aggregate minimum amount of $3,000,000 and integral multiples of $500,000 in excess of that amount so long as the unpaid balance is not less than $5,000,000; or (ii) any Base Rate Loans in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount; provided that in the event of -------- any such prepayment of any Eurodollar Rate Loans, the Company shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 3.05. If such ------------ notice of prepayment does not specify how such prepayment shall be applied, it shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, as determined by the Administrative Agent. All prepayments of Eurodollar Rate Loans shall be applied to the payment of any interest that has accrued to the date of such prepayment before application to principal. Prepayments of Base Rate Loans shall be applied to principal only. 2.06 Repayment of Loans. Each Loan shall mature, and the Company shall repay the unpaid principal amount of each Loan, on the Maturity Date. 2.07 Interest on the Loans. (a) Subject to Section 2.07(c), the Loans shall bear interest on the unpaid --------------- principal amount thereof from the Initial Funding Date through maturity (whether by acceleration or otherwise) at a rate per annum equal to (i) with respect to Eurodollar Rate Loans, the Eurodollar Rate plus the Applicable Margin or (ii) ---- with respect to Base Rate Loans, the Base Rate. (b) Subject to Section 2.07(c), from and after the Effective Date, interest --------------- shall be payable in arrears on each Loan on each Interest Payment Date applicable to that Loan. Interest -15- paid on the date of any partial prepayment of Loans hereunder shall be paid in respect of the portion of the Loans so prepaid. (c) Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payments on the Loans not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement. 2.08 Fees. The Company shall pay to the Administrative Agent, for the account of IBJ or Bear Stearns, as applicable, such fees as specified in the Fee Letter. 2.09 Calculation of Interest and Fees. (a) Interest on all Loans and fees payable under this Agreement shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of the Loan or the first day of an Interest Period, as the case may be, shall be included and the date of payment shall be excluded; provided -------- that, if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. (b) Any change in the interest rate on a Loan resulting from a change in the Applicable Margin or Eurodollar Reserve Percentage shall become effective as of the opening of business on the day on which such change in the Applicable Margin or Eurodollar Reserve Percentage becomes effective. Each determination of an interest rate by the Administrative Agent pursuant hereto shall be conclusive and binding on the Company and the Lenders in the absence of manifest error. 2.10 Payments by the Company. (a) All payments of principal, interest, fees and other amounts hereunder, under the Fee Letter and under any Notes shall be made without setoff, counterclaim, recoupment or any other deduction, in same-day funds, and delivered to the Administrative Agent at the Administrative Agent's Office not later than 12:00 noon (New York time) on the date due. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as expressly provided herein) of such principal, interest or other amounts in like funds received. Any payment which is received by the Administrative Agent after that time shall be deemed to have been paid by the Company on the next succeeding Business Day, and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions in the definition of "Interest Period", whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Lenders hereunder that the Company will not make such payment in full as and when required hereunder, the Administrative Agent may -16- assume that the Company has made such payment in full to the Administrative Agent on such date in immediately available funds, and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Company shall not have made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent on demand such amount distributed to such Lender, together with interest thereon for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate as in effect for each such day. 2.11 Payments by the Lenders to the Administrative Agent. (a) Unless the Administrative Agent shall have received notice from a Lender on the Initial Funding Date that such Lender will not make available to the Administrative Agent as and when required hereunder for the account of the Company the amount of that Lender's Pro Rata Share of the borrowing hereunder on the Initial Funding Date, the Administrative Agent may assume that each Lender has made such amount available to the Administrative Agent in immediately available funds on the Initial Funding Date, and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to the Administrative Agent in immediately available funds and the Administrative Agent in such circumstances has made available to the Company such amount, that Lender shall on the next Business Day following the Initial Funding Date make such amount available to the Administrative Agent, together with interest at the Federal Funds Rate for and determined as of each day during such period. A notice of the Administrative Agent submitted to any Lender with respect to amounts owing under this Section 2.11(a) shall be conclusive, absent manifest error. If such --------------- amount is so made available, such payment to the Administrative Agent shall constitute such Lender's Loan for all purposes of this Agreement. If such amount is not made available to the Administrative Agent on the next Business Day following the Initial Funding Date, the Administrative Agent shall notify the Company of such failure to fund and, upon demand by the Administrative Agent, the Company shall pay such amount to the Administrative Agent for the Administrative Agent's account, together with interest thereon for each day elapsed since the Initial Funding Date, at a rate per annum equal to the interest rate(s) applicable at the time to the Loans. (b) The failure of any Lender to make its Loan on the Initial Funding Date shall not relieve any other Lender of any obligation hereunder to make its Loan on the Initial Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the Initial Funding Date. 2.12 Sharing of Payments, Etc. If, other than as expressly provided elsewhere herein, any Lender shall obtain on account of the Loan made by it any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) in excess of its Pro Rata Share of payments on account of the Loans obtained by all the Lenders, such Lender shall forthwith (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, - -------- ------- -17- that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded, and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's Pro Rata Share (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Company agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.12 ------------ may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of the Company in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased pursuant to this Section 2.12 and will in each case notify the Lenders ------------ following any such purchases or repayments. SECTION 3. PAYMENTS IN GENERAL. 3.01 Taxes. (a) Subject to Section 3.01(d) and Section 3.01(g), any and all payments by --------------- --------------- the Company to each Lender or the Administrative Agent under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Lender's or the Administrative Agent's net income by the jurisdiction under the laws of which such Lender or the Administrative Agent, as the case may be, is organized or maintains a Lending Office or any political subdivision thereof (all such non- excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). ----- (b) In addition, the Company shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents (hereinafter referred to as "Other Taxes"). ----------- (c) Subject to Section 3.01(g), the Company shall indemnify and hold --------------- harmless each Lender and the Administrative Agent for the full amount of Taxes and Other Taxes (including any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.01) paid by such Lender or the ------------ Administrative Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto. Payment under this indemnification shall be made within 30 days from the date such Lender or the Administrative Agent makes written demand therefor. (d) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, then, subject to Section 3.01(g): (i) the sum payable --------------- shall be increased as necessary so -18- that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.01) such Lender or the ------------ Administrative Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made; (ii) the Company shall make such deductions, and (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (e) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish to the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Administrative Agent. (f) Each Lender that is a "foreign corporation, partnership or trust" within the meaning of the Internal Revenue Code shall deliver to the Administrative Agent, prior to receipt of any payment subject to withholding under the Internal Revenue Code (or after accepting an assignment of an interest herein), two duly signed completed copies of either IRS Form W-8BEN or any successor thereto (relating to such Lender and entitling it to an exemption from, or reduction of, withholding tax on all payments to be made to such Lender by the Company pursuant to this Agreement) or IRS Form W-8ECI or any successor thereto (relating to all payments to be made to such Lender by the Company pursuant to this Agreement) or such other evidence satisfactory to the Company and the Administrative Agent that such Lender is entitled to an exemption from U.S. withholding tax. Thereafter and from time to time, each such Lender shall (i) promptly submit to the Administrative Agent such additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to the Company and the Administrative Agent of any available exemption from or reduction of, United States withholding taxes in respect of all payments to be made to such Lender by the Company pursuant to this Agreement, (ii) promptly notify the Administrative Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction, and (iii) take such steps as shall not be materially disadvantageous to it, in the reasonable judgment of such Lender, and as may be reasonably necessary (including the re-designation of its Lending Office) to avoid any requirement of applicable laws that the Company make any deduction or withholding for taxes from amounts payable to such Lender. If such Lender fails to deliver the above forms or other documentation, then the Administrative Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Internal Revenue Code, without reduction. If any Governmental Person asserts that the Administrative Agent did not properly withhold any tax or other amount from payments made in respect of such Lender, such Lender shall indemnify the Administrative Agent therefor, including all penalties and interest, any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, and costs and expenses (including costs and expenses of attorneys to the Administrative Agent) of the Administrative Agent. The obligation of the Lenders under this Section shall survive the payment of all Obligations and the resignation or replacement of the Administrative Agent. (g) The Company will not be required to pay any additional amounts in respect of Taxes pursuant to Section 3.01(d) to any Lender for the account of --------------- any Lending Office of such Lender: (i) if the obligation to pay such additional amounts would not have arisen but for a -19- failure by such Lender to comply with its obligations under Section 3.01(f) in --------------- respect of such Lending Office; or (ii) if such Lender shall have delivered to the Company the form(s) in respect of such Lending Office pursuant to Section ------- 3.01(f), and such Lender shall not be entitled to exemption from deduction or - ------- withholding of United States Federal income tax in respect of payments by the Company hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or in the official interpretation of such law or regulations by any Governmental Person charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such form(s). (h) If, at any time, the Company requests any Lender to deliver any forms or other documentation pursuant to Section 3.01(f), then the Company shall, on --------------- demand of such Lender through the Administrative Agent, reimburse such Lender for any costs and expenses (including expenses of outside legal counsel and the allocated costs of in-house counsel) reasonably incurred by such Lender in the preparation or delivery of such forms or other documentation. (i) If the Company is required to pay additional amounts to any Lender or the Administrative Agent pursuant to Section 3.01(d), then such Lender shall use --------------- its reasonable best efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue if such change in the judgment of such Lender is not otherwise disadvantageous to such Lender. (j) The agreements and obligations of the Company contained in this Section ------- 3.01 shall survive the payment in full of all other Obligations. - ---- 3.02 Capital Adequacy. If (a) any adoption of or any change in or in the interpretation of any law, rule or regulation, or (b) compliance with any guideline, request or directive of any central bank or other Governmental Person or quasi-governmental authority exercising control over lenders or financial institutions generally or any court (whether or not having the force of law), or (c) any change in the force or effectiveness of the regulations set forth at 12 C.F.R. Part 3 (Appendix A), 12 C.F.R. Part 225 (Appendix A), 12 C.F.R. Part 208 (Appendix A) or 12 C.F.R. Part 325 (Appendix A) requires that the commitments of any Lender hereunder (including commitments and obligations in respect of Loans) be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by such Lender or any corporation controlling such Lender (a "Change in Law"), the result of which is to reduce ------------- the rate of return on such Lender's capital as a consequence of such commitments to a level below that which such Lender could have achieved but for such Change in Law, taking into consideration such Lender's policies with respect to capital adequacy, by an amount which such Lender deems to be material, the Lender shall deliver to the Company a statement of the amount necessary to compensate such Lender for the reduction in the rate of return on its capital attributable to such commitments (the "Capital Compensation Amount"). The Lender shall determine --------------------------- the Capital Compensation Amount in good faith, using reasonable attribution and averaging methods. The Lender shall from time to time notify the Company of the amount so determined. Such amount shall be due and payable by the Company to such Lender ten Business Days after such notice is given. As soon as practicable after any Change in Law, each Lender shall submit to the Company estimates of the Capital Compensation Amounts that would be payable as a function of such Lender's commitments hereunder. -20- 3.03 Illegality. (a) If any Lender shall determine that any Governmental Rule or any change therein or in the interpretation or administration thereof has made it unlawful, or that any Governmental Person has asserted that it is unlawful, for any Lender or its Lending Office to make Eurodollar Rate Loans, then, on notice thereof by the Lender to the Company through the Administrative Agent, the obligation of the Lender to make Eurodollar Rate Loans shall be suspended until the Lender shall have notified the Administrative Agent and the Company that the circumstances giving rise to such determination no longer exists. (b) If a Lender shall determine that any Governmental Rule or any change therein or in the interpretation or administration thereof has made it unlawful, or that any Governmental Person has asserted that it is unlawful, for any Lender or its Lending Office to maintain any Eurodollar Rate Loan, the Company shall prepay all Eurodollar Rate Loans of the Lender then outstanding, together with interest accrued thereon, or convert all Eurodollar Rate Loans of the Lender then outstanding to Base Rate Loans pursuant to Section 2.04, either on the last ------------ day of the Interest Period thereof if the Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or promptly, if the Lender may not lawfully continue to maintain such Eurodollar Rate Loans, together with any amounts required to be paid in connection therewith pursuant to Section 3.05. ------------ (c) If the obligation of any Lender to make or maintain Eurodollar Rate Loans has been terminated, the Company may elect, by giving notice to the Lender through the Administrative Agent, that all Loans which would otherwise be made by the Lender as Eurodollar Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Administrative Agent pursuant to this Section 3.03, the affected Lender shall designate a different Lending Office - ------------ with respect to its Eurodollar Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Lender, be illegal or otherwise disadvantageous to the Lender. 3.04 Increased Costs and Reduction of Return. If any Lender shall determine that, due to either (a) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Eurodollar Rate) in or in the interpretation of any law or regulation or (b) the compliance with any guideline or request from any Governmental Person (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans, then the Company shall be liable for, and shall from time to time, upon demand therefor by such Lender (with a copy of such demand to the Administrative Agent), pay to such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs. Each Lender agrees to notify the Company of the occurrence of such an increased cost event promptly after obtaining knowledge thereof. 3.05 Funding Losses. The Company agrees to reimburse each Lender for, and to hold each Lender harmless from, any loss or expense which the Lender may sustain or incur as a consequence of (a) the failure of the Company to make any payment or prepayment of principal -21- of any Eurodollar Rate Loan (including payments made after any acceleration thereof) when due, (b) the failure of the Company to borrow, continue or convert a Loan on the specified date after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation, (c) the failure of the Company to make any prepayment on the specified date after the Company has given a notice in accordance with Section 2.05 or (d) the prepayment ------------ of a Eurodollar Rate Loan for any reason on a day which is not the last day of the Interest Period with respect thereto; provided that any such loss or expense -------- shall include any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Eurodollar Rate Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. Solely for purposes of calculating amounts payable by the Company to the Lenders under Sections 3.03(b), 3.04 and 3.05, each Eurodollar Rate Loan made by a ---------------- ---- ---- Lender (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Eurodollar Base Rate used in determining the Eurodollar Rate for such Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan is in fact so funded. This covenant shall survive the payment in full of all other Obligations. 3.06 Inability to Determine Rates. If the Administrative Agent shall have determined that for any reason adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or if the Requisite Lenders advise the Administrative Agent in writing that the Eurodollar Base Rate applicable for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will forthwith give notice of such determination to the Company and each Lender. Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans hereunder shall be suspended until the Administrative Agent upon the instruction of the Requisite Lenders revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such notice with respect to Loans, the Lenders shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Eurodollar Rate Loans. 3.07 Survival. The agreements and obligations of the Company in this Section 3 shall survive the payment of all other Obligations. - --------- SECTION 4. CONDITIONS PRECEDENT. 4.01 Conditions to Effectiveness. The effectiveness of the Agreement is subject to satisfaction of the following conditions precedent: (a) The Company shall deliver to the Administrative Agent and Lenders (or to the Administrative Agent for the Lenders with sufficient originally executed copies for each Lender, except for any Notes): -22- (i) This Agreement, duly executed and delivered by the Company, the Administrative Agent and all Lenders; (ii) A Note, duly executed and delivered by the Company, drawn to the order of each Lender requesting a Note, with appropriate insertions; (iii) The Mattel Sales Guaranty and the Fisher-Price Guaranty, duly executed and delivered by Mattel Sales and Fisher-Price, respectively; (iv) Mattel Sales Subordination Agreements and Fisher-Price Subordination Agreements, duly executed and delivered by Mattel Sales or Fisher-Price, as applicable, and any and all Affiliates of the Company to which Mattel Sales or Fisher-Price owes any material outstanding obligations; (v) Copies of the resolutions of the board of directors or the executive committee of each Company Party approving and authorizing the execution, delivery and performance by such Company Party of each Loan Document to which it is a party, certified as of the Effective Date by the secretary or an assistant secretary of such Company Party; (vi) A certificate of the secretary or assistant secretary of each Company Party, certifying the names and true signatures of the officers of such Company Party authorized to execute and deliver the Loan Documents to which it is a party; (vii) The articles or certificate of incorporation or organization of each Company Party as in effect on the Effective Date, certified by the secretary of state of the state of its incorporation or formation as of a recent date, and the bylaws or operating agreement of each Company Party as in effect on the Effective Date, certified by the secretary or assistant secretary of such Company Party as of the Effective Date; (viii) A good-standing certificate for each Company Party from the secretary of state of its state of incorporation or formation dated as of a recent date; (ix) Executed copies of one or more favorable written opinions of Christopher O'Brien, Esq., Assistant General Counsel of the Company, dated as of the Effective Date, substantially in the form of Exhibit E hereto relating to the Company Parties and as to such other matters as the Administrative Agent and the Lenders may reasonably request; and (x) A certificate signed by one of the officers authorized to deliver an Officers' Certificate certifying (A) that the conditions specified in Sections 4.01(d) and (e) have been satisfied, (B) that there ---------------- --- has been no event or circumstance since the date of the unaudited financial statements dated March 31, 2000 referred to in Section 5.08 which has a ------------ Material Adverse Effect; and (C) the current ratings on the Company's long- term unsecured Indebtedness by S&P, Moody's and Fitch. (b) The Company shall have paid all fees payable pursuant to Section 2.08. ------------ -23- (c) The Company shall have performed in all material respects all agreements which this Agreement provides shall be performed by it on or before the Effective Date. (d) The representations and warranties of each Company Party contained in any Loan Document shall be true, correct and complete in all material respects on and as of the Effective Date. (e) No Default or Event of Default shall exist. 4.02 Conditions to Funding of Loans. The obligation of each Lender that becomes a party to this Agreement on or before the Initial Funding Date to fund its Loan on the Initial Funding Date is subject to the following further conditions precedent: (a) The Administrative Agent shall have received on or before the Initial Funding Date a Notice of Borrowing signed by a Responsible Officer on behalf of the Company in writing delivered to the Administrative Agent; (b) The representations and warranties of the Company contained in each Loan Document shall be true, correct and complete in all material respects on and as of the Initial Funding Date (except to the extent that such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date), to the same extent as though made on and as of the Initial Funding Date; and (c) No Default or Event of Default shall exist or shall result from the funding of the Loans on the Initial Funding Date. Submission of the Notice of Borrowing by the Company to the Administrative Agent hereunder shall constitute a representation and warranty by the Company hereunder, as of the Initial Funding Date, that the conditions in Section 4.02 ------------ are satisfied or waived. SECTION 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders and the Administrative Agent to enter into this Agreement and to make any extension of credit hereunder, the Company represents and warrants to each Lender and the Administrative Agent that the following statements are true, correct and complete: 5.01 Organization and Powers. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and, except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, each of the Material Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; and each has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted and, in the case of the Company, to enter into this Agreement, to issue the Notes and to carry out the transactions contemplated hereby and thereby. -24- 5.02 Good Standing. The Company and, except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, each Material Subsidiary is in good standing wherever necessary to carry on its present business and operations, except in jurisdictions in which the failure to be in good standing has or will have no Material Adverse Effect. 5.03 Material Subsidiaries. Except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, Schedule 5.03 ------------- correctly sets forth the name of, the jurisdiction of incorporation of, and the ownership interest of the Company in, each of its Material Subsidiaries as of the date hereof. 5.04 Authorization of Borrowing. The execution, delivery and performance of each Loan Document to which it is a party and the issuance, delivery and payment of the Notes have been duly authorized by all necessary corporate action by the Company. 5.05 No Conflict. The execution, delivery and performance by the Company of this Agreement and the issuance, delivery and payment of the Notes do not and will not (a) violate the Restated Certificate of Incorporation or Bylaws of the Company, (b) violate any Governmental Rule binding on the Company, or any material order, judgment or decree of any referee or arbitrator binding on the Company, the violation of which would result in a Material Adverse Effect, (c) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company, (d) result in or require the creation or imposition of any material Lien of any nature whatsoever upon any of its material properties or assets, or (e) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company. 5.06 Governmental Consents. The execution, delivery and performance by the Company of each Loan Document to which it is a party and each agreement, document, or instrument required hereunder and the issuance, delivery and payment of the Notes by the Company do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Person, referee or arbitrator. 5.07 Binding Obligation. This Agreement is, and each other Loan Document to which the Company is a party when executed and delivered hereunder will be, the legally valid and binding obligation of the Company, enforceable against it in accordance with the respective terms of such Loan Document, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally. 5.08 Financial Condition. The Company has heretofore delivered to the Lenders (a) a consolidated balance sheet of the Company and its Subsidiaries for the fiscal year ended December 31, 1999 and related consolidated statements of income, shareholders' equity and changes in financial position of the Company and its Subsidiaries for such fiscal year, audited by PricewaterhouseCoopers LLP, and (b) a consolidated balance sheet of the Company and its Subsidiaries for the fiscal quarter ended March 31, 2000 and related consolidated statements of income, shareholders' equity and changes in financial position of the Company and its Subsidiaries for such fiscal quarter, certified by the Chief Financial Officer, Executive Vice -25- President Finance or Treasurer of the Company. All such statements were prepared in accordance with GAAP and fairly present the consolidated financial position of the Company and its Subsidiaries as at the dates thereof and the consolidated results of operations and statement of cash flow of the Company and its Subsidiaries for the periods then ended. Neither the Company nor any of its Subsidiaries has any material Contingent Obligation, liability for taxes or long-term lease which as of the date of this Agreement, individually or in the aggregate, would, if it became absolute, result in a Material Adverse Effect which is not reflected in the foregoing statements or in the notes thereto. 5.09 Changes, Etc. Since March 31, 2000 there has been no event or events that have, either individually or in the aggregate, resulted in a Material Adverse Effect. 5.10 Title to Properties. The Company and its Subsidiaries have good, sufficient and legal title to all the properties and assets reflected in the consolidated balance sheet as of March 31, 2000 referred to in Section 5.08 ------------ except as set forth in said balance sheet or in the notes thereto, except for assets acquired or disposed of in the ordinary course of business or as otherwise permitted by this Agreement since March 31, 2000 and except for immaterial defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. 5.11 Litigation; Adverse Facts. Except as set forth on Schedule 5.11, ------------- there is no action, suit, proceeding, investigation or arbitration (whether or not purportedly on behalf of the Company or any of its Subsidiaries) before or by any Governmental Person, referee or arbitrator pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or an of the Company's or such Subsidiaries' properties which, in the reasonable judgment of the Company and its executive officers (assuming adverse determination of facts which the Company in good faith believes it would not successfully prove, and considering damages which in their best judgment are the maximum that would be awarded upon, and the likelihood of, an adverse determination of the claims or the amount which reflects their best judgment as to that required to be paid to settle the claims) would result in a Material Adverse Effect, and there is no basis known to such executive officers for any such action, suit, proceeding, investigation or arbitration. Neither the Company nor any of its Subsidiaries is (i) in violation of any applicable Governmental Rule which could result in a Material Adverse Effect, or (ii) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any Governmental Person, referee or arbitrator which could result in a Material Adverse Effect. There is no action, suit, proceeding, investigation or arbitration pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries which provides a reasonable basis for questioning the validity or the enforceability of any Loan Document. 5.12 Payment of Taxes. All tax returns and reports of the Company and its Material Subsidiaries required to be filed by any of them have been timely filed, and all taxes, assessments, fees and other governmental charges upon the Company and its Subsidiaries and upon their respective properties, assets, income and franchises which are due and payable have been paid when due and payable or bonded against, except to the extent permitted by Section 6.03. The ------------ Company knows of no proposed tax assessment against it or any of its Subsidiaries that would result in a Material Adverse Effect. -26- 5.13 Agreements. Neither the Company nor any of its Subsidiaries is a party to or is subject to any material agreement or instrument or charter or other internal restriction which results in a Material Adverse Effect. 5.14 Performance. Neither the Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation of the Company, and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default, except, in any such case, where the consequences, direct or indirect, of such default or defaults, if any, would not result in a Material Adverse Effect. 5.15 Governmental Regulation. Neither the Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or to any Governmental Rule limiting its ability in any material way to incur Indebtedness for money borrowed. 5.16 Employee Benefit Plans. The Company and each of its ERISA Affiliates is in compliance in all material respects with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Pension Plans. Neither the Company nor any of its ERISA Affiliates has participated in or participates in any Multiemployer Plan the withdrawal from which may result in any liability to any party in an amount in excess of $1,000,000. 5.17 Environmental Matters. The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on the business, operations and properties of it and its Subsidiaries, and as a result thereof the Company has reasonably concluded that such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.18 Disclosure. No representation or warranty of the Company contained in this Agreement or any other document, certificate or written statement furnished to the Lenders by the Company since April 1, 2000 for use in connection with the transactions contemplated by this Agreement contains, as of the date of this Agreement, any untrue statement of a material fact or omits to state a material fact (known to the officers of the Company in the case of any document or fact not furnished by it) necessary in order to make the statements contained herein or therein not misleading, except to the extent that any such statement or omission that was untrue or misleading at the time made or that subsequently became untrue or misleading has been superseded or corrected by information provided to the Lenders prior to the date of this Agreement. The projections and pro forma financial information contained in such written materials are based upon good faith estimates and assumptions believed by the Company to be reasonable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There is no fact known to the officers of the Company as of the date of this Agreement (other than matters of a general economic nature) which materially adversely affects the business, operations, properties, assets -27- or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, which has not been disclosed herein or in the written materials referred to in Section 5.08 other than as disclosed in writing to the Lenders on ------------ or before the date hereof. 5.19 Subordination Agreements. Neither Fisher-Price nor Mattel Sales has any material outstanding obligations to any Affiliate of the Company which has not signed a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, respectively. SECTION 6. AFFIRMATIVE COVENANTS. The Company agrees from the Effective Date until payment in full of all Obligations and termination of the Commitments, unless the Requisite Lenders shall otherwise give prior written consent, that the Company will perform all covenants in this Section 6. --------- 6.01 Reporting and Information Requirements. The Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. The Company will deliver to the Administrative Agent and to each Lender: (a) as soon as practicable and in any event not later than 55 days after the end of each of the first three fiscal quarters of the Company, consolidated balance sheets of the Company and its Subsidiaries as at the end of such period and for the fiscal year to date and the related consolidated statements of income, consolidated statements of stockholders' equity and consolidated statements of cash flow, all in reasonable detail and certified by the Chief Financial Officer, Executive Vice President Finance or Treasurer of the Company that the consolidated statements and other materials required by this clause (a) fairly present the financial condition of the Company and its Subsidiaries as at the dates indicated and the results of their operations for the periods indicated, subject to changes resulting from normal year-end audit adjustments; (b) as soon as practicable and in any event not later than 100 days after the end of each fiscal year of the Company, consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated (and, as to statements of income only, consolidating) statements of income, stockholders' equity and cash flow of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the consolidated figures for the previous year, all in reasonable detail and (i) in the case of such consolidated financial statements, accompanied by a report thereon of PricewaterhouseCoopers LLP or other independent certified public accountants of recognized national standing selected by the Company, which report shall state that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flow for the periods indicated in conformity with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards, and (ii) in the case of such consolidating financial statements, certified (to the best of his or her belief) by the chief financial officer or chief accounting officer of the Company; -28- (c) together with each delivery of financial statements of the Company and its Subsidiaries pursuant to clauses (a) and (b) above, an Officers' Certificate (i) stating that the signers have reviewed the terms of this Agreement and the Notes and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof, and (ii) demonstrating in reasonable detail compliance during (to the extent required) and at the end of such accounting periods with the restrictions contained in Sections 7.05 and 7.06. ------------- ---- (d) together with each delivery of consolidated financial statements of the Company and its Subsidiaries pursuant to clause (b) above, a written statement by the independent certified public accountants giving the report thereon (i) stating that their audit examination has included a review of the terms of this Agreement and the Notes as they relate to accounting matters, and (ii) stating whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Default has come to their attention, and if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not -------- be liable by reason of any failure to obtain knowledge of any such Event of Default or Default that would not be disclosed in the course of their audit examination. The Administrative Agent shall have the right, from time to time, to discuss the affairs of the Company directly with such independent certified public accountants; (e) promptly upon receipt thereof, copies of all reports submitted to the Company (including the Company's Board of Directors) by the Company's independent certified public accountants in connection with each annual, interim or special audit of the consolidated financial statements of the Company made by such accountants, including any comment letter submitted by such accountants to management in connection with their annual audit; (f) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its security holders or by any Subsidiary of the Company to its security holders other than the Company or another Subsidiary, and, promptly upon their becoming effective, and in any event within 15 days of filing, all regular and periodic reports and all registration statements and prospectuses that have been filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any Governmental Person succeeding to any of its functions, and all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning material developments in the business of the Company and its Subsidiaries; (g) promptly upon any executive officer of the Company obtaining knowledge (i) of any condition or event which constitutes an Event of Default or Default, or becoming aware that the Administrative Agent or any Lender has given any notice or taken any other action with respect to a claimed Event of Default or Default under this Agreement, (ii) of any condition or event required to be disclosed in a current report to be filed by the Company with the Securities -29- and Exchange Commission on Form 8-K (Items 1, 2, 4 and 6 of such Form as in effect on the date hereof), (iii) that any Person has given any notice to the Company or any Subsidiary of the Company or taken any other action with respect to a claimed default or event or condition of any type referred to in Section ------- 8.01, (iv) of the institution of any litigation involving an alleged liability - ---- of the Company or any of its Subsidiaries equal to or greater than $20,000,000 or any adverse determination in any litigation involving a potential liability of the Company or any of its Subsidiaries equal to or greater than $20,000,000, or (v) of a Material Adverse Effect, in each case an Officers' Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such Person and the nature of such claimed default, Event of Default, Default, event or condition, and what action the Company has taken, is taking and proposes to take with respect thereto; (h) as soon as available but no later than March 31 of each year, copies of the Company's consolidated financial plan for the then current fiscal year as customarily prepared for internal use; (i) promptly after the acquisition of any Material Subsidiary, notice of such acquisition; (j) promptly upon any executive officer of the Company obtaining knowledge of any such change, notice of any change in the ratings on the Company's long- term unsecured Indebtedness by S&P, Moody's or Fitch; and (k) with reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested by any Lender or the Administrative Agent, including any financial reports regularly prepared by the Company for internal use. 6.02 Corporate Existence, Etc. Except as permitted or not prohibited in Section 7.03, the Company will at all times preserve and keep in full force and - ------------ effect its corporate existence and the rights and franchises material to its business and those of each of its Material Subsidiaries; provided that the -------- corporate existence and the rights and franchises of any Material Subsidiary may be terminated or permitted to lapse if such termination or lapse is in the best interest of the Company, is approved by the Board of Directors of the Company and is not materially disadvantageous to any Lender. 6.03 Payment of Taxes and Claims; Tax Consolidation. The Company will, and will cause each of its Material Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if being contested -------- in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. The Company will not, nor will it permit any Material Subsidiary to, file or consent to the filing of -30- any consolidated income tax return with any Person other than the Company or a Subsidiary of the Company. 6.04 Maintenance of Properties; Insurance. Except as permitted or not prohibited in Section 7.03, the Company will maintain or cause to be maintained ------------ in good repair, working order and condition all material properties (other than obsolete properties) used or useful in the business of the Company and its Material Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals, substitutions and replacements thereof. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Material Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations; provided that the Company may maintain -------- a program of self insurance for the Company and its Material Subsidiaries in accordance with sound business practices. 6.05 Inspection of Property and Books and Records. The Company shall maintain, and shall cause each of its Subsidiaries to maintain, proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiaries. The Company will permit any authorized representatives designated by any Lender, at the expense of that Lender, to visit and inspect any of the properties of the Company or any of its Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom (but not records relating to intellectual property), and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested. 6.06 Use of Proceeds of Loans. The Company shall use the proceeds of Loans for general corporate purposes, including lending to its Subsidiaries and acquiring other Persons or businesses so long as the acquisition is approved by the board of directors of the Person being acquired. 6.07 Environmental Laws. The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.08 Subordination Agreements. If from time to time Fisher-Price or Mattel Sales has any material outstanding obligations owing to any Affiliate of the Company which has not signed a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, respectively, the Company shall cause such Affiliate to execute and deliver a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, as the case may be, and deliver to the Administrative Agent a signature and incumbency certificate of the officers of each such Affiliate and cause Fisher-Price or Mattel Sales, as the case may be, to acknowledge each such agreement. -31- SECTION 7. NEGATIVE COVENANTS. The Company agrees from the Effective Date until payment in full of all Obligations and termination of the Commitments, unless Requisite Lenders shall otherwise give prior written consent, that the Company will perform all covenants in this Section 7. --------- 7.01 Senior or Secured Indebtedness. Other than as permitted under Section ------- 7.02, the Company will not, and will not permit any of its Material Subsidiaries - ---- to, directly or indirectly incur, assume, guaranty or otherwise become directly or indirectly liable with respect to any Indebtedness which (a) is senior to the Obligations, (b) has any priority of payment over the Obligations or (c) is secured by Liens on any of the Company's or any Subsidiary's assets. 7.02 Liens. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of the Company or any Subsidiary except: (a) Liens securing Indebtedness for borrowed money not exceeding $100,000,000 in the aggregate at any time; (b) Liens existing on the date hereof; (c) Liens securing Indebtedness under the Receivables Purchase Agreement; (d) Liens securing Indebtedness under Other Permitted Accounts Receivable Financing Facilities; (e) Liens listed on Schedule 7.02; and ------------- (f) Liens on newly-acquired Capital Assets; provided that such Liens on -------- Capital Assets located in the United States shall not secure Indebtedness for borrowed money in excess of $25,000,000. 7.03 Restriction on Fundamental Changes. (a) The Company shall not, and shall not permit any of its Material Subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by it on the date hereof; provided, -------- however, that the Company may engage in the licensing, production and sale of - ------- consumer software products related to the Company's existing lines of business. (b) The Company shall not, and shall not suffer or permit any of its Material Subsidiaries to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of, whether in one transaction or in a series of transactions, all or substantially all of its assets to or in favor of, any Person, except: (i) (A) the Company may merge or consolidate with any other Person, provided that the Company shall be the continuing or surviving corporation, -------- and (B) any -32- Material Subsidiary may merge or consolidate with any other Person, provided that the Company or a Material Subsidiary shall be the -------- continuing or surviving corporation; provided, further, that (1) if any -------- ------- transaction shall be between a Subsidiary and a wholly-owned Subsidiary, the wholly-owned Subsidiary shall be the continuing or surviving corporation, (2) no Default or Event of Default shall result from such merger or consolidation, and (3) except where a wholly-owned Subsidiary merges or consolidates with another wholly-owned Subsidiary or the Company, no Default or Event of Default shall exist prior to such merger or consolidation; (ii) any Subsidiary of the Company may sell all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Company or another wholly- owned Subsidiary of the Company; and (iii) the Company may sell the assets and business that the Company has reported as Discontinued Operations in the Consolidated Statement of Operations in the Consolidated Financial Statements filed with the Securities and Exchange Commission in its Current Report on Form 8-K dated July 6, 2000. 7.04 Sale or Discount of Receivables. The Company will not, and will not permit any of its Domestic Subsidiaries to, directly or indirectly, sell with or without recourse, or discount or otherwise sell for less than the face value thereof, any of its notes receivable or accounts receivable, except: (a) discounts offered in the ordinary course of business for early payment of accounts receivable and negotiated settlements of bad debts and disputed accounts receivable in the ordinary course of business; (b) sales of accounts receivable under the Receivables Purchase Agreement and agreements entered into in connection therewith; (c) sales of accounts receivable under Other Permitted Accounts Receivable Financing Facilities; and (d) sales of accounts receivable where the Company believes in good faith that the collectibility of such accounts receivable is or may be jeopardized by the distressed financial condition of the obligor under such accounts receivable. 7.05 Consolidated Funded Indebtedness to Total Capitalization. The Company shall not permit the ratio of (a) the sum of (i) Consolidated Funded Indebtedness plus (ii) Combined Purchasers' Investments to (b) the sum of (i) ---- Consolidated Funded Indebtedness plus (ii) Combined Purchasers' Investments plus ---- ---- (iii) the Consolidated Net Worth of the Company and its Subsidiaries, all on a consolidated basis determined in conformity with GAAP, to exceed 60% at the end of any of the first three fiscal quarters of any fiscal year or 50% at the end of any fiscal year. 7.06 Interest Coverage Ratio. The Company shall not permit, as of the last day of any fiscal quarter, the ratio of (a) the sum of (i) its net income from continuing operations, for the four consecutive fiscal quarters ending on such day, before (A) special items, (B) minority -33- interest, and (C) gains on reacquisition of debt, plus (ii) income taxes accrued ---- for the four consecutive fiscal quarters ending on such day, plus (iii) interest ---- accrued for the four consecutive fiscal quarters ending on such day, excluding capitalized interest and without regard to interest income, plus (iv) ---- depreciation and amortization for the four consecutive fiscal quarters ending on such day to (b) interest incurred for the four consecutive fiscal quarters ending on such day, including capitalized interest and without regard to interest income, to be less than 3.50 to 1. 7.07 ERISA. The Company will not, and will not permit any of its ERISA Affiliates to, permit the actuarial present value of all benefit liabilities under all Pension Plans to exceed the fair market value of the assets of such Pension Plans (excluding Pension Plans with assets greater than vested benefits) allocable to such benefit liabilities by more than $10,000,000. As used in this Section 7.07, the terms "actuarial present value" and "benefit liabilities" have - ------------ the meanings specified in Section 4001 of ERISA. 7.08 Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by the Company for the purpose of "purchasing" or "carrying" any Margin Stock or used in any manner which might cause such borrowing or the application of such proceeds to violate Regulation U, Regulation T, or Regulation X of the Federal Reserve Board or any other regulation of the Federal Reserve Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and the use of such proceeds. 7.09 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Default if such action is taken or condition exists. SECTION 8. EVENTS OF DEFAULT. 8.01 Events of Default. Any of the following conditions or events shall constitute an "Event of Default": ---------------- (a) Failure to Make Payments When Due. (i) Failure by the Company to pay any required payment of principal under this Agreement or of any Loan or any Note, when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise, (ii) failure by the Company to pay any required payment of interest under this Agreement or on any Loan or any Note or any fees payable pursuant to Section 2 (including pursuant to the Fee Letter) for a period of five days or more after the date such payment is due, or (iii) failure by any Company Party to pay any other amount due under this Agreement within 90 days after written notice thereof; or (b) Default in Other Agreements. (i) Failure of the Company, Fisher-Price, Mattel Sales or any other Material Subsidiary to pay, or any default in the payment of, any principal or interest on any Indebtedness in an amount exceeding $15,000,000 or any default in any other obligation for the payment of money in an amount in excess of $15,000,000, beyond any period of grace allowed; or (ii) any breach or default (unless cured or waived) with respect to any other -34- term of any evidence of such Indebtedness in an amount exceeding $15,000,000 or of any loan agreement, mortgage, indenture or other agreement relating thereto, and such breach or default continues after the applicable grace or notice period, if any, specified in the document relating thereto, if the effect of such breach or default is to cause, or to permit the holder or holders or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become or be declared due prior to its stated maturity; or (c) Breach of Certain Covenants. Failure of the Company to perform or comply with any term or condition contained in Section 6.01(g), Section 6.02 or --------------- ------------ Section 7 of this Agreement; or - --------- (d) Breach of Warranty. Any of the Company's, Fisher-Price's or Mattel Sales' representations or warranties made in any Loan Document shall be false in any material respect on the date as of which made; or (e) Other Defaults Under Loan Documents or Receivables Purchase Agreement. Failure of the Company, Fisher-Price, Mattel Sales or Mattel Factoring, Inc. to perform or comply with any other term or condition contained in any Loan Document or the Receivables Purchase Agreement, in each case to the extent it is a party thereto, other than the terms and conditions referred to in Subsections (a), (b), (c) and (d) above, and such failure shall not have been remedied or waived within 30 days after receipt of notice from the Administrative Agent or any Lender of such failure; or (f) Involuntary Bankruptcy; Appointment of Receiver, Etc. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its Material Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; (ii) any other similar relief shall be granted under any applicable federal, state or foreign law; (iii) a petition for an involuntary case shall be filed against the Company or any of its Material Subsidiaries under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; (iv) a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of its Material Subsidiaries, or over all or substantially all of its property, shall have been entered; or (v) an interim receiver, trustee or other custodian of the Company or any of its Material Subsidiaries for all or substantially all of the property of the Company or any of its Material Subsidiaries shall be appointed involuntarily; provided that, in -------- the case of any of the events described in clause (ii), (iii), (iv) or (v) above, such event shall continue for 45 days without being dismissed, bonded or discharged; or (g) Voluntary Bankruptcy; Appointment of Receiver, Etc. (i) The Company or any of its Material Subsidiaries (A) shall have an order for relief entered with respect to it, (B) shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (C) shall consent to the entry of an order for relief in any involuntary case, or to the conversion from an involuntary case, under any such law, (D) shall consent to the appointment of or taking possession by a receiver, liquidator, sequestrator, trustee or other custodian for all or substantially all of its property, (E) shall make an assignment for the -35- benefit of creditors or (F) shall be unable, shall fail or shall admit in writing its inability to generally pay its debts as such debts become due; or (ii) the Board of Directors of the Company or any of its Material Subsidiaries shall adopt any resolution or otherwise take action to approve any of the foregoing; or (h) Judgments. Any final money judgment involving in any case an amount in excess of $20,000,000 or in excess of $40,000,000 in the aggregate at any one time for all final judgments shall be entered or filed against the Company or any Material Subsidiary or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 45 days or in any event later than five days prior to the date of any proposed sale thereunder; or (i) Dissolution. Any order, judgment or decree shall be entered against the Company or any Material Subsidiary decreeing the dissolution or split-up of the Company, and such order shall remain undischarged or unstayed for a period in excess of 30 days; or (j) ERISA. (i) Any Pension Plan maintained by the Company or any of its ERISA Affiliates shall be terminated within the meaning of Title IV of ERISA, or (ii) a trustee shall be appointed by an appropriate United States district court to administer any Pension Plan, or (iii) the Pension Benefit Guaranty Corporation (or any successor thereto) shall institute proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan, or (iv) the Company or any of its ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension Plan, if, as of the date of any of the events listed in clauses (i) through (iv) above or any subsequent date, any of the Company and its ERISA Affiliates has any liability (such liability to include any liability to the Pension Benefit Guaranty Corporation, or any successor thereto, or to any other party under Section 4062, 4063 or 4064 of ERISA or any other provision of law) resulting from or otherwise associated with the events listed in clauses (i) through (iv) above for unfunded guarantied vested benefits under all Pension Plans which exceeds the current value of assets accumulated in such Pension Plans by more than $10,000,000; or (k) Loss of Property. All, or a substantial part of, the property, assets or business of the Company or any Material Subsidiary shall be condemned or seized, and such condemnation or seizure shall have (after taking into account any insurance or condemnation award) a Material Adverse Effect; or (l) Cessation of Business. The Company or any Material Subsidiary shall at any time voluntarily or involuntarily suspend its business or a substantial part thereof (except as permitted by Section 7.03(b)), and such suspension shall have a Material Adverse Effect; or (m) Servicer Default. A Servicer Default (as defined in the Receivables Purchase Agreement) shall occur and be continuing. 8.02 Remedies. If any Event of Default occurs, the Administrative Agent shall at the request of, or may with the consent of, the Requisite Lenders (a) declare the Commitment of each Lender to make Loans to be terminated, whereupon such Commitments shall forthwith be terminated, (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued -36- and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company, and (c) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event -------- ------- specified in paragraph (f) or (g) of Section 8.01 above (and, in the case of any ------------ of clauses (ii), (iii), (iv) and (v) of paragraph (f), upon the expiration of the 45-day period mentioned in paragraph (f)), the obligation of each Lender to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Lender. 8.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. SECTION 9. THE ADMINISTRATIVE AGENT. 9.01 Appointment and Authorization. Each Lender hereby irrevocably appoints, designates and authorizes the Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document, and to exercise such powers and perform such duties, as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 9.02 Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in- fact that it selects with reasonable care. 9.03 Liability of Administrative Agent. None of the Administrative Agent- Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or -37- any other Loan Document, or for the value of any collateral or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Administrative Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 9.04 Reliance by Administrative Agent. (a) The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Requisite Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Requisite Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in Sections 4.01 and 4.02, each Lender that has executed this Agreement shall be - ------------- ---- deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter either sent by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender, unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from the Lender prior to any borrowing specifying its objection thereto, and either such objection shall not have been withdrawn by notice to the Administrative Agent to that effect or the Lender shall not have made available to the Administrative Agent the Lender's ratable portion of such borrowing. 9.05 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be requested by the Requisite Lenders in accordance -38- with Section 8; provided, however, that unless and until the Administrative --------- -------- ------- Agent shall have received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders. 9.06 Credit Decision. Each Lender expressly acknowledges that none of the Administrative Agent-Related Persons has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated thereby, and made its own decision to enter into this Agreement and extend credit to the Company hereunder. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of any Administrative Agent-Related Person. 9.07 Indemnification. Whether or not the transactions contemplated hereby shall be consummated, the Lenders shall indemnify upon demand the Administrative Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so) ratably from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind whatsoever which may at any time (including at any time following the repayment of the Loans and the termination or resignation of the related Administrative Agent) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any such Person under or in connection with any of the foregoing; provided, however, that no -------- ------- Lender shall be liable for the payment to any Administrative Agent-Related Person of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of all costs and out-of-pocket expenses (including fees and expenses of counsel and the allocated cost of in-house counsel) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in -39- respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Company. Without limiting the generality of the foregoing, if the Internal Revenue Service or any other Governmental Person of the United States or any other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, together with all costs and expenses (including fees and expenses of counsel and the allocated cost of in-house counsel). The obligation of the Lenders in this Section shall survive the payment of all Obligations hereunder. 9.08 Administrative Agent in Individual Capacity. IBJ and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory or other business with, the Company and its Subsidiaries and Affiliates as though IBJ were not the Administrative Agent hereunder and without notice to or consent of the Lenders. With respect to its Loans, IBJ shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include IBJ in its individual capacity. 9.09 Successor Administrative Agent. The Administrative Agent may, and at the request of the Requisite Lenders shall, resign as Administrative Agent upon 30 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement, the Requisite Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Company, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent, the term "Administrative Agent" shall mean such successor agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 9 and Sections --------- -------- 10.04 and 10.15 shall inure to its benefit as to any actions taken or omitted to - ----- ----- be taken by it while it was Administrative Agent under this Agreement. If no successor agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective, and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor agent as provided for above. 9.10 Co-Syndication Agents, Documentation Agent, Arranger and Co-Arranger. None of the Persons identified on the facing page or signature pages of this Agreement as Co- -40- Syndication Agent, Documentation Agent, Arranger or Co-Arranger shall have any right, power, obligation, liability, responsibility or duty under this Agreement other than, in the case of any such Person that is also a Lender, those applicable to all Lenders as such. Without limiting the foregoing, none of the Persons so identified as a Co-Syndication Agent, the Documentation Agent, the Arranger or the Co-Arranger shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder. SECTION 10. MISCELLANEOUS. 10.01 Assignments, Participations, Etc. (a) From time to time following the Effective Date, each Lender may assign to one or more Eligible Assignees all or any portion of its Commitment and/or outstanding Loans; provided that (i) such assignment, if not to a Lender or an -------- Affiliate of the assigning Lender, shall be consented to by the Company at all times other than during the existence of a Default or Event of Default and by the Administrative Agent (which approval of the Company shall not be unreasonably withheld or delayed), (ii) a copy of a duly signed and completed Notice of Assignment and Acceptance in the form of Exhibit H (an "Assignment and --------- -------------- Acceptance") shall be delivered to the Administrative Agent and the Company, - ---------- (iii) except in the case of an assignment (A) to an Affiliate of the assigning Lender or to another Lender or (B) of the entire remaining Commitment of the assigning Lender, the portion of the Commitment assigned shall not be less than $5,000,000, (iv) the assigning Lender shall have delivered any Note or Notes subject to the assignment to the Administrative Agent, and (v) the effective date of any such assignment shall be as specified in the Assignment and Acceptance, but not earlier than the date which is five Business Days after the date the Administrative Agent has received the Assignment and Acceptance. Upon satisfaction of the conditions set forth in the prior sentence, delivery of any forms required by Section 3.01(f) and payment of the requisite fee described --------------- below, the assignee named therein shall be a Lender for all purposes of this Agreement, effective as of the specified effective date to the extent of the Assigned Interest (as defined in such Assignment and Acceptance), and the assigning Lender shall be released from any further obligations under this Agreement to the extent of such Assigned Interest. Until satisfaction of the conditions set forth herein to any assignment, the Company and Administrative Agent may continue to deal solely and directly with the assigning Lender in connection the Assigned Interest. Upon request following satisfaction of the conditions set forth herein to any assignment, the Company shall execute and deliver new or replacement Notes to the assigning Lender and the assignee Lender to evidence Loans made by them. The Administrative Agent's consent to any assignment shall not be deemed to constitute any representation or warranty by any Administrative Agent-Related Person as to any matter. (b) After receipt of a completed Assignment and Acceptance, and receipt of an assignment fee of $3,500 from such Eligible Assignee or such assigning Lender (including cases of assignments to Affiliates of assigning Lenders but excluding cases of assignments by IBJ), the Administrative Agent shall, promptly following the effective date thereof, provide to the -41- Company and the Lenders a revised Schedule 10.06 giving effect thereto. -------------- (c) Upon advance written notice to the Company, any Lender may at any time sell to one or more commercial lenders or other Persons not Affiliates of the Company (a "Participant") participating interests in any Loans, the Commitment ----------- of that Lender and the other interests of that Lender (the "originating Lender") ------------------ hereunder and under the other Loan Documents; provided, however, that (i) the -------- ------- originating Lender's obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Company and the Administrative Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to, this Agreement except to the extent such amendment, consent or waiver would require unanimous consent as described in the first proviso to Section 10.08. The Company hereby ------------- acknowledges and agrees that any such disposition will give rise to a direct obligation of the Company to the Participant in respect of, and the Participant shall be entitled to the benefit of, Sections 3.01, 3.04 and 10.15 as if it were ------------- ---- ----- a "Lender." In the case of any such participation, except as provided in the preceding sentence, the Participant shall not have any rights under this Agreement or any of the other Loan Documents, and all amounts payable by the Company hereunder shall be determined as if such Lender had not sold such participation, except that if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (d) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note(s) held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Board or U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (e) Each Lender agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to it by the Company or any Subsidiary of the Company, or by the Administrative Agent on the Company's or such Subsidiary's behalf, in connection with this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement, except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by such Lender, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such -------- source is not bound by a confidentiality agreement with the Company known to such Lender; provided, however, that any Lender may disclose such information -------- ------- (A) at the request or pursuant to any requirement of any Governmental Person to which the Lender is subject or in connection with an examination of such Lender by any Governmental Person, (B) pursuant to subpoena or other court process (including of a -42- referee or arbitrator) and when required to do so in accordance with the provisions of any applicable Governmental Rule, provided that a Lender shall -------- disclose only the information required by such request and shall notify the Company in advance of such disclosure so that the Company may seek an appropriate protective order, and (C) to such Lender's Affiliates, independent auditors and other professional advisors, provided that such Persons are -------- obligated to keep such information confidential. Notwithstanding the foregoing, the Company authorizes each Lender to disclose to any Assignee or Participant and to any prospective Assignee or Participant such financial and other information in such Lender's possession concerning the Company or its Subsidiaries which has been delivered to the Administrative Agent or the Lenders pursuant to this Agreement or which has been delivered to the Administrative Agent or the Lenders by the Company in connection with the Lenders' credit evaluation of the Company prior to entering into this Agreement; provided that, -------- unless otherwise agreed by the Company, such Assignee or Participant shall agree in writing to such Lender to keep such information confidential to the same extent required of the Lenders hereunder. (f) At the request of the Company made to the Administrative Agent not later than October 17, 2000 and with the consent of the Administrative Agent, the aggregate principal amount of the Loans or, if the Initial Funding Date has not yet occurred, the aggregate Commitments may be increased by the joining of one or more additional Lenders to this Agreement or by the increase of the Loan or Commitment, as applicable, of an existing Lender (each a "Joining Lender"), -------------- in accordance with the terms of this Section 10.01(f). Any Joining Lender shall ---------------- be subject to the approval of the Administrative Agent and the Company and shall become a Joining Lender pursuant to a Joining Lender Agreement executed by such Joining Lender and the Company and approved by the Administrative Agent; provided that (i) any such Joining Lender must make a new Loan or have a new - -------- Commitment of, or must increase its existing Loan or Commitment by, at least $10,000,000 and (ii) in no event may the aggregate principal amount of the Loans or the aggregate Commitments, as applicable, exceed $300,000,000. Upon the execution and delivery of a Joining Lender Agreement by a Joining Lender and the other parties thereto, from and after the effective date determined pursuant to such Joining Lender Agreement such Joining Lender shall be a party hereto (if not already a party) and shall have the rights and obligations of a Lender hereunder (including the obligation to comply with Section 3.01(f)) with a new --------------- or increased Loan or Commitment, as applicable, as set forth in such Joining Lender Agreement. Any such Joining Lender Agreement shall be deemed to amend this Agreement only to the extent necessary to reflect the addition of such Joining Lender to this Agreement, if applicable, and the resulting adjustment of Pro Rata Shares resulting from the addition to or increase of the aggregate Loans or the aggregate Commitments, as applicable. If a Joining Lender becomes a party hereto (by execution of a Joining Lender Agreement) effective after the Initial Funding Date, then the Company, such Joining Lender and the Administrative Agent shall determine among themselves the timing and other procedures for the funding of such Joining Lender's new or increased Loan; provided, however, that such timing and other procedures shall be substantially - -------- ------- similar to those contained in Section 2. As conditions precedent to the making or increase of a Loan or Commitment by a Joining Lender effective after the Initial Funding Date, the Company shall, at its expense, execute and deliver to the Administrative Agent for such Joining Lender (i) a certificate of a Responsible Officer to the effect set forth in Sections 4.02(b) and (c) ---------------- --- (provided that such certification shall be made on and as of the date of funding -------- of such Joining Lender's new or increased Loan and in respect of such Loan) and (ii) if requested by such Joining Lender, an appropriate Note to the order of such -43- Joining Lender. 10.02 Survival of Warranties and of Certain Agreements. (a) All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Loans hereunder and the execution and delivery of any Notes. (b) Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company set forth in Sections 2.09, 3, 10.04 and ------------- - ----- 10.15 and the agreements of the Lenders set forth in Sections 2.12, 9, 10.01(a), - ----- ---- - -------- 10.01(e) and 10.05 shall survive the payment of the Obligations by the Company - -------- ----- and the termination of this Agreement. 10.03 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of any Lender or any holder of any Note in the exercise of any power, right or privilege hereunder or under any Note shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement or any Notes are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.04 Fees and Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to pay within 30 days after submission of an invoice therefor (a) all the actual and reasonable out-of- pocket costs and expenses of preparation of the Loan Documents; (b) all the costs of furnishing all opinions by counsel for the Company (including any opinions requested by the Lenders as to any legal matters arising hereunder), and of the Company's performance of and compliance with all agreements and conditions contained therein on its part to be performed or complied with; (c) the cost of delivering to the Lenders any Notes pursuant to the provisions of this Agreement; (d) the reasonable fees, expenses and disbursements of the Administrative Agent and the Administrative Agent's counsel (including the allocated cost of Administrative Agent's in-house counsel and staff) in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans and any amendments and waivers hereto; and (e) after the occurrence of an Event of Default, all actual and reasonable out-of- pocket costs and expenses (including reasonable fees of law firms engaged by the Lenders and the reasonable estimate of the allocable costs of counsel on the staff of legal departments of the Lenders and costs of settlement) incurred by the Administrative Agent and each Lender in enforcing any Obligations or in collecting any payments due from the Company hereunder or under any Notes by reason of such Event of Default or in connection with any refinancing or restructuring of any Loan Document in the nature of a "work-out" or of any insolvency or bankruptcy proceeding. 10.05 Setoff. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of and during the continuance of any Event of Default (after the giving of any notice and the expiration of any grace period contained in the definition thereof), each Lender and each subsequent holder of any Note is hereby authorized by the Company at any time or from time to time, without notice to the Company or to any other Person, any such notice being hereby expressly waived, to set off and -44- appropriate any and all deposits (including indebtedness evidenced by certificates of deposit, whether matured or unmatured but not including trust accounts) and any other indebtedness at any time held or owing by that Lender or that subsequent holder or any Lender Affiliate thereof to or for the credit or the account of the Company and to apply any such amounts in accordance with the provisions of Section 2.12 irrespective of whether or not that Lender or that ------------ subsequent holder shall have made any demand hereunder, and each such Lender Affiliate is hereby irrevocably authorized to permit such setoff and appropriation. 10.06 Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail and shall be deemed to have been given upon delivery in person, receipt of telecopy or telex or four Business Days after deposit in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 10.06) shall ------------- be as set forth under each party's name on Schedule 10.06. -------------- 10.07 Severability. In case any provision in or obligation under this Agreement or any Notes 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. 10.08 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Requisite Lenders and the Company, and acknowledged by the Administrative Agent, and any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in - -------- ------- writing and signed by all the Lenders and the Company, and acknowledged by the Administrative Agent, do any of the following: (a) increase or extend any Lender's Commitment or subject any Lender to any additional obligations, except as permitted by Section 10.01(f); ---------------- (b) postpone or delay any date fixed for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on, any Loan, or reduce any fees or other amounts payable hereunder or under any other Loan Document; (d) change any Lender's Pro Rata Share, except as provided in Section ------- 10.01(f), or the aggregate unpaid principal amount of any extension of credit - -------- which shall be required for the Lenders or any of them to take any action hereunder; (e) amend this Section 10.08 or Section 2.12; ------------- ------------ (f) amend Section 2.01 or the definition of "Pro Rata Share" or "Requisite ------------ Lenders"; or -45- (g) discharge any Guarantor; provided further, that no amendment, waiver or consent shall, unless in writing - -------- ------- and signed by the Administrative Agent in addition to the Requisite Lenders or all the Lenders, as the case may be, affect the rights or duties of the Administrative Agent under any Loan Document. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. Any amendment, waiver or consent effected in accordance with this Section 10.08 shall be binding upon each Lender ------------- at the time, each future Lender, each holder of any Notes at the time outstanding, each future holder of the Notes and, if signed by the Company, on the Company. 10.09 Obligations Several. The obligation of each Lender hereunder is several, and no Lender shall be responsible for any obligation or commitment of any other Lender hereunder. Nothing contained in this Agreement, and no action taken by the Lenders pursuant hereto, shall be deemed to constitute the Lenders to be a partnership, an association, a joint venture or another entity. 10.10 Certain Changes. If (a) any changes in accounting principles from those used in the preparation of the financial statements referred to in Section ------- 5.08 hereafter occasioned by the promulgation of rules, regulations, - ---- pronouncements and opinions by or requested by the Financial Accounting Standards Board or the American Institute of Certified Public Accounts (or successors thereto or agencies with similar functions) result in a change in the method of calculation of financial covenants, standards or terms found in Section 1, 6 or 7, or (b) the Company changes the manner in which its fiscal - --------- - - year, fiscal quarters and fiscal months are determined, the parties hereto agree to enter into negotiations in order to amend the appropriate provisions of this Agreement so as to equitably reflect such changes with the desired result that the criteria for evaluating the Company's financial condition and operations or establishing limitations hereunder shall be the same after such changes as if such changes had not been made. 10.11 Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.12 Applicable Law. (a) THIS AGREEMENT, ANY NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICTS-OF-LAWS PRINCIPLES. (b) Any legal action or proceeding with respect to this Agreement or any other Loan Document may be brought in the courts of the State of California or of the United States for the Central District of California, and by execution and delivery of this Agreement each of the Company, the Administrative Agent and the Lenders consents, for itself and in respect of its property, to the non- exclusive jurisdiction of those courts. Each of the Company, the Administrative Agent and the Lenders irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or -46- hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related hereto. The Company, the Administrative Agent and the Lenders each waive personal service of any summons, complaint or other process, which may be made by any other means permitted by California law. 10.13 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that (a) the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Lender and (b) the Lenders may assign or transfer any of their rights and obligations under this Agreement only in accordance with Section 10.01. ------------- 10.14 Counterparts. This Agreement and any related amendments, waivers, consents or supplements may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 10.15 Indemnity. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify the Administrative Agent-Related Persons, each Lender and each Lender's respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") ------------------ for, and hold each Indemnified Person harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including reasonable fees and out-of-pocket expenses of counsel and the allocated cost of internal counsel) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans and the termination, resignation or replacement of the Administrative Agent or replacement of any Lender) be imposed on, incurred by or asserted against any such Person arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any proceeding of the type referred to in Section 8.01(f) or (g) and any appellate proceeding) related to --------------- --- or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the ----------------------- -------- Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. -47- IN WITNESS WHEREOF, the parties hereto have caused this Term Loan Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. MATTEL, INC. By: /s/ William Stavro ------------------------- William Stavro Senior Vice President and Treasurer S-1 THE INDUSTRIAL BANK OF JAPAN, LIMITED, as Administrative Agent, Co-Syndication Agent and a Lender By: /s/ Vicente L. Timiraos --------------------------------------------- Name: Vicente L. Timiraos ------------------------------------------- Title: Joint General Manager ------------------------------------------ S-2 BEAR, STEARNS & CO. INC., as Co-Syndication Agent By: /s/ Don Mullen ------------------------------------------ Name: Don Mullen ---------------------------------------- Title: Senior Managing Director --------------------------------------- S-3 EX-10.4 10 dex104.txt 1ST AMEND. TO TERM LOAN AGRMNT. DATED 8/17/00 EXHIBIT 10.4 August 17, 2000 The Industrial Bank of Japan, Limited, as Administrative Agent and sole Lender 350 South Grand Avenue, Suite 1500 Los Angeles, California 90071 Attention: J. Blake Seaton Vice President Re: First Amendment to Term Loan Agreement Ladies and Gentlemen: We refer to the Term Loan Agreement dated as of July 17, 2000 (the "Loan ---- Agreement") among Mattel, Inc. (the "Company"), The Industrial Bank of Japan, - --------- ------- Limited, as sole lender thereunder (in such capacity, the "Lender"), The ------ Industrial Bank of Japan, Limited, as administrative agent for the Lender (in such capacity, the "Administrative Agent") and as co-syndication agent, and -------------------- Bear, Stearns & Co. Inc., as co-syndication agent. Terms defined in the Loan Agreement and not otherwise defined herein have the same respective meanings when used herein. 1. Effective as of the date of this letter amendment but subject to the terms and conditions hereof, the Loan Agreement is hereby amended as set forth below. The definition of "Requisite Lenders" in Section 1.01 of the Loan Agreement is amended in full to read as follows: "'Requisite Lenders' means, as at any date of determination, (a) so ----------------- long as IBJ has greater than 62.5% of the then aggregate unpaid principal amount of the Loans, Lenders having at least 85% of the then aggregate unpaid principal amount of the Loans, (b) so long as IBJ has greater than 47.5%, but less than or equal to 62.5%, of the then aggregate unpaid principal amount of the Loans, Lenders having at least 75% of the then aggregate unpaid principal amount of the Loans, (c) so long as IBJ has greater than 25%, but less than or equal to 47.5%, of the then aggregate unpaid principal amount of the Loans, Lenders having at least 66.7% of the then aggregate unpaid principal amount of the Loans and (d) so long as IBJ has less than or equal to 25% of the then aggregate unpaid principal amount of the Loans, Lenders having at least 51% of the then aggregate unpaid principal amount of the Loans." August 17, 2000 Page 2 2. The Company hereby represents and warrants for the benefit of the Lender and the Administrative Agent that no event has occurred and is continuing, or would result from the effectiveness of this letter amendment, that constitutes a Default or an Event of Default. 3. If you agree to the terms and conditions set forth herein, please evidence your agreement by executing and returning six counterparts of this letter amendment to the Administrative Agent. This letter amendment shall become effective as of the date first set forth above when and if (a) the Company and the Lender execute counterparts of this letter amendment and deliver them to the Administrative Agent and (b) Fisher-Price and Mattel Sales execute counterparts of this letter amendment, evidencing their consent hereto, and deliver them to the Administrative Agent. 4. On and after the effective date of this letter amendment, each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to "the Loan Agreement," "thereunder," "thereof," "therein" or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended by this letter amendment. The Loan Agreement, as amended by this letter amendment, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. 5. This letter amendment may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which counterparts shall be an original and all of which taken together shall constitute one and the same letter amendment. 6. THIS LETTER AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO THE CHOICE-OF-LAW PRINCIPLES THEREOF. Very truly yours, MATTEL, INC. By: /s/ William Stavro ----------------------------- William Stavro Senior Vice President and Treasurer August 17, 2000 Page 3 Agreed as of the date first written above: THE INDUSTRIAL BANK OF JAPAN, LIMITED, as Administrative Agent and sole Lender By: /s/ Vicente L. Timiraos --------------------------- Name: Vicente L. Timiraos ------------------------- Title: Joint General Manager ------------------------ Each of (i) FISHER-PRICE, INC., as guarantor under that certain Fisher-Price Continuing Guaranty dated as of July 17, 2000 and (ii) MATTEL SALES CORP., as guarantor under that certain Mattel Sales Corp. Continuing Guaranty dated as of July 17, 2000 (each a "Guaranty"), each in favor of The Industrial Bank of -------- Japan, Limited, as Administrative Agent, (the "Agent"), hereby consents to the ----- above letter amendment and hereby confirms and agrees that its Guaranty is and shall continue to be in full force and effect and is ratified and confirmed in all respects, except that, on and after the effective date of the letter amendment, each reference in such Guaranty to "the Loan Agreement," "thereunder," "thereof," "therein" or any other expression of like import referring to the Loan Agreement (as defined in the letter amendment) shall mean and be a reference to the Loan Agreement as amended by the letter amendment. FISHER-PRICE, INC By: /s/ William Stavro --------------------------- Name: William Stavro ------------------------- Title: Senior Vice President ------------------------ and Treasurer August 17, 2000 Page 4 MATTEL SALES CORP. By: /s/ William Stavro ---------------------------- Name: William Stavro -------------------------- Title: Senior Vice President and Treasurer ------------------------------------- EX-10.6 11 dex106.txt MASTER AGREEMENT DATED 11/30/01 Exhibit 10.6 AGREEMENT DATED 30th November, 2001 Between SOCIETE GENERALE BANK NEDERLAND N.V. as the Bank MATTEL INTERNATIONAL HOLDINGS B.V. as Depositor and MATTEL FRANCE S.A. and MATTEL GmbH as the Sellers -------------------------------- MASTER AGREEMENT FOR THE TRANSFER OF RECEIVABLES ------------------------------- - -------------------------------------------------------------------------------- CONTENTS
Clause Page 1. Definitions ...................................................... 1 2. Purpose and Commitment Duration .................................. 20 3. Nature of Obligations ............................................ 21 4. Conditions Precedent ............................................. 22 5. Transfer of Relevant Receivables ................................. 23 6. Collection Mandates and Notices of Transfer ...................... 25 7. Collection ....................................................... 26 8. Settlement and Payments .......................................... 28 9. Deemed Collections ............................................... 31 10. Representations Relating to Transferred Receivables 34 11. Representations Relating to Eligible Transferred Receivables ..... 35 12. General Representations .......................................... 35 13. Information Undertakings ......................................... 38 14. General Undertakings ............................................. 41 15. Events of Early Amortisation ..................................... 49 16. The Bank's Funding ............................................... 53 17. Cancellation of the Maximum Amount of the Bank's Funding ......... 56 18. Deposits ......................................................... 56 19. Transfer Fee ..................................................... 57 20. Commitment Fee ................................................... 61 21. Taxes ............................................................ 62 22. Increased Costs .................................................. 63 23. Indemnities ...................................................... 65 24. Interest on Late Payments ........................................ 67 25. Fees and Expenses ................................................ 67 26. Payments ......................................................... 67 27. Substitution and Agency .......................................... 68 28. Confidentiality .................................................. 68 29. Transferability .................................................. 69 30. Notices .......................................................... 69 31. Waivers and Remedies Cumulative .................................. 70 32. Authentication ................................................... 70 33. Severability ..................................................... 70 34. Jurisdiction and Waiver of Immunity .............................. 71 35. Governing Law .................................................... 71
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Schedules Page 1. Conditions Precedent Documents 2. Criteria for Relevant Receivables and Eligible Transferred Receivables Part I - Relevant Receivables Part II -Eligible Transferred Receivables 3. Form of Assessment Reports Part I - For use by Mattel GmbH Part II - For use by Mattel France S.A. 4. Form of Notice of Transfer 5. Form of Transfer Documents Part I - For use with French law Sales Contracts Part II - For use with German law Sales Contracts 6. Form of Transfer Request 7. Form of Mandate Letter 8. Form of Solvency Certificates Part I - Form of Auditors' Certificate Part II - Form of Officer's Certificate 9. Reservations Signatories
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS AGREEMENT is dated 30th November, 2001 and made BETWEEN: (1) MATTEL INTERNATIONAL HOLDINGS B.V., a limited liability company organised under the laws of the Netherlands, having its registered office at Gondel 1, 1186 MJ Amstelveen, The Netherlands, registered with the Commercial Register of the Chamber of Commerce and Industries at Amsterdam under number 33 297 747 (the "Depositor"); (2) MATTEL FRANCE S.A., a societe anonyme organised under the laws of France, having its registered office at 27-33 rue d'Antony SILIC 145, 94150 Rungis, France, and registered with the Trade and Companies Registry of Creteil under number 692 039 688; (3) MATTEL GmbH, a limited liability company organised under the laws of Germany, having its registered office at An der Trift 75, 63303 Dreieich, Germany, and registered with the commercial registry of the local court of Langen under number HRB3552, (each of (2) and (3) being a "Seller" and together the "Sellers"); and (4) SOCIETE GENERALE BANK NEDERLAND N.V., a limited liability company organised under the laws of the Netherlands and licensed as a credit institution, having its registered office at Amstelplein 1, 1096 HA Amsterdam, The Netherlands, registered with the Trade Register of the Chamber of Commerce at Amsterdam, The Netherlands under number 33 196 218 (the "Bank"). IT IS AGREED as follows: 1. DEFINITIONS 1.1 Interpretation In this Agreement: "Additional Deposit" means the additional deposit made by the Depositor with the Bank in accordance with the terms of Clause 18 (Deposits) and the Master Additional Deposit Agreement. "Adverse Claim" means any claim of ownership, lien, security interest, mortgage, charge, or encumbrance, or other right or claim by or of any person. "Affiliate" means a Subsidiary or a holding company of a person or any other Subsidiary of that holding company and for these purposes "holding company" in respect of a person means an entity of which that person is a Subsidiary. "Agreement Expiry Date" means the earlier of the following: - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- (a) the first Business Day after the Commitment Termination Date on which the Bank's Funding and all other amounts due to the Bank under this Agreement have been repaid or paid in full; or (b) the first anniversary of the Commitment Termination Date. "Amortisation Event" means an Event of Early Amortisation or any event which, with the giving of notice, expiration of any applicable grace period, determination of materiality or fulfilment of any other applicable condition (or any combination of the foregoing), would constitute an Event of Early Amortisation. "Amount Held by the Depositor" means, at any time, the aggregate amount representing the Bank's Share of Collections, which is standing to the credit of the Depositor's Account. "Amount Withheld by the Bank" means, at any time, the amount representing the Bank's Share of Collections, which is standing to the credit of the Bank's Account. "Antalis" means Antalis S.A., a company organised under French law, having its registered office at 127, rue Amelot - 75011 Paris, France, registered with the Companies Registry of Paris under n(degrees) B 335 076 220. "Assessment Date" means the last day of each calendar month or, in relation to any Initial Transfer Date, any other day agreed upon between the Bank and the Depositor (acting on behalf of the Obligors). "Assessment Report" means a report drawn up by a Seller or the Bank, as the case may be, on an Assessment Date or Interim Assessment Date, substantially in the form of the appropriate part of Schedule 3 for that Seller or in such other modified form as may be agreed between the Obligors and the Bank. "Associated Refinancing" means, in relation to any Tranche, a refinancing transaction the amount of which is applied exclusively to fund such Tranche. "Auditors' Certificate" means a certificate from a Seller's auditors substantially in the form of the appropriate part of Part I of Schedule 8. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- "Authorisation" means an authorisation, permit, authority, consent, approval, resolution, agreement, certificate, notarisation, licence, exemption, filing, registration or similar matter which may be required from any authority or person. "Average Term of Associated Refinancings" means, at any time, in relation to any Tranche, the number of days determined as being the weighted average of the number of days to elapse until the Maturity Date of each Associated Refinancing relating to such Tranche. "Average Term of Transferred Receivables" means, at any time, in relation to the Transferred Receivables, the number of days determined as being the weighted average of the number of days to elapse until the end of the month during which such Transferred Receivables become due and payable. "Bank's Account" means the account in the Bank's name opened by the Bank in the books of Societe Generale, Amsterdam branch, which shall record the Collections received by the Bank. "Bank's Funding" means, at any time, the aggregate outstanding amount at that time of Payments funded by the Bank out of its own resources (and not, for the avoidance of doubt, funded by either Deposit) which have not been repaid out of the allocation of Collections. "Bank's Percentage" means the percentage on each Initial Transfer Date and on each Information Date immediately preceding a Transfer Date which (a) the aggregate amount of the Bank's Funding on that date and the Subordinated Deposit on that date bears to (b) the Net Pool Balance (being the Net Pool Balance as at the immediately preceding Assessment Date or Interim Assessment Date, as the case may be). Such Bank's Percentage shall remain constant from the date it is calculated or recalculated until the next Information Date on which it is recalculated. "Bank's Share of Collections" means an amount initially equal to zero increased on each Settlement Date, by the amount equal to (i) the aggregate Euro Amount of Collections from the Collection Period ending on the immediately preceding Assessment Date multiplied by (ii) the Bank's Percentage as at the Initial Transfer Date or the Information Date occurring during that Collection Period (as appropriate) and which is allocated in accordance with Clause 8.2 (Allocation of Collections on Settlement Dates which are not Transfer Dates) or Clause 8.3 (Allocation of Collections on Settlement Dates which are Transfer Dates). "BT Rate" means the interest rate per annum applicable to the relevant tranche of billets de tresorerie, issued or to be issued from time to time by Antalis, and set in accordance with Clause 19.3 (Refinancing Rates). - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- "Business Day" means any day other than a Saturday or a Sunday on which banks are simultaneously open for business in Amsterdam, Paris and Frankfurt and which is a TARGET Day. "Closing Documents" means, this Agreement, the Master Subordinated Deposit Agreement, the Master Additional Deposit Agreement, each Transfer Document and each Mandate Letter and any other document designated as such by the Bank and the Obligors. "Collection Mandate" has the meaning ascribed to it in Clause 6.1 (Collection Mandates). "Collection Period" means the period commencing on any Assessment Date, excluded, and ending on the next following Assessment Date, included. "Collections" means, at any time, in relation to the Transferred Receivables the aggregate of: (a) all cash collections received by the Sellers or, as the case may be, by the Bank which have actually been paid by the Debtors or by any other person obliged to make payment in respect of such Transferred Receivables or as a result of the enforcement of the Related Security; (b) Deemed Collections; and (c) all payments made by the Sellers under Clause 5.5 (Transfer back of Transferred Receivables) or Clause 9.2 (Transfers and Deemed Collections). "Commercial Discount" means in relation to any Transferred Receivable, any decrease in the face value of such receivable resulting from the granting of any rebate or any discount for prompt payment, for quantity or as fidelity premium. "Commitment" means the commitment of the Bank to make Payments in accordance with this Agreement. "Commitment Fee" means the commitment fee to be paid in accordance with Clause 20 (Commitment Fee). - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- "Commitment Termination Date" means the earliest of the following dates: (a) 30th June, 2002 or, if that is not a Business Day, the immediately preceding Business Day, (as this date may be extended from time to time in accordance with Clause 2.2 (Duration of Commitment); or (b) the date on which the Commitment is terminated in accordance with Clauses 17.1 (Reduction of the Maximum amount of the Bank's Funding), 15.17 (Termination) or 21.1 (Gross up). "Consolidated Tranche" means any Tranche resulting from the consolidation of two or more initial Tranches in accordance with Clause 16.5 (Division and Consolidation of Tranches). "Controlling Owner of the Sellers" means a company that owns and controls (whether directly or indirectly) at least 90% of the issued and fully paid up share capital and voting rights of each Seller. "CP Rate" means the interest rate per annum applicable to the relevant tranche euro-commercial paper, issued or to be issued from time to time by Antalis, and set in accordance with Clause 19.3 (Refinancing Rates). "Credit Insurance Policy" means any credit insurance policy subscribed to by a Seller with a Credit Insurer in order to cover the insolvency risk of any Debtor. "Credit Insurer" means any insurance company with which a Seller enters into a Credit Insurance Policy in order to cover the insolvency risk of any Debtor under one or more Relevant Receivables. "Credit Note" means, in relation to any Transferred Receivable, any rebate on, or decrease in the face value of, such receivable granted by a Seller in accordance with the Sales Administration Guidelines. "Debtor" means the primary obligor in respect of one or more Relevant Receivables or Transferred Receivables. "Deemed Collections" means any amount that any Seller is deemed to have received in the circumstances set out in Clause 9 (Deemed Collections). - -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- "Default Base" means, in relation to any Collection Period (the "Relevant Collection Period"), the total amount of the Relevant Receivables which had a Maturity Date during the Collection Period which was two Collection Periods prior to the Relevant Collection Period. "Default Rate" means, in relation to any Collection Period, the ratio determined as of the Assessment Date related to such Collection Period by dividing (a) the aggregate Euro Amount of the Outstanding Amount of Relevant Receivables which became Defaulted Receivables during such Collection Period, by (b) the Default Base for such Collection Period. "Defaulted Receivable" means, at any time, any Relevant Receivable: (a) which remains unpaid by the relevant Debtor more than 60 days after the Maturity Date of such Relevant Receivable; (b) which is owed by a Debtor which has entered into Insolvency Proceedings and which has not been counted under (a) above; (c) for which, the relevant Debtor being doubtful, specific provisions have been made in the accounts of the relevant Seller or which has been written off in that Seller's accounts in accordance with applicable accounting principles (and which has not been counted for under (a) or (b) above). "Delinquency Rate" means, in relation to any Collection Period, the ratio determined as of the Assessment Date on which that Collection Period ends by dividing (a) the aggregate Euro Amount of Delinquent Receivables on such Assessment Date, by (b) the Euro Amount of the Outstanding Amount of Relevant Receivables on such Assessment Date. "Delinquent Receivable" means, at any time, any Relevant Receivable which: (a) remains unpaid by the relevant Debtor more than 30 days after the Maturity Date of such Relevant Receivable; and (b) is not a Defaulted Receivable. "Deposit" means the Additional Deposit or the Subordinated Deposit as the context so requires. "Depositor's Account" means the current account in the Depositor's name opened by the Depositor in the books of Societe Generale, Amsterdam branch, for the purposes of this Agreement. - -------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- "Dilution" means any Credit Notes, Commercial Discounts, decreases in the face value of any Transferred Receivables (including, without limitation, as a result of returned merchandise), discharges by way of set-off and exchange fees and expenses on any Transferred Receivables charged by a bank in connection with a payment made in any currency other than Euro. "Dilution Rate" means, in relation to any Collection Period, the ratio determined as of the Assessment Date relating to that Collection Period by dividing the amount of Dilutions arising in that Collection Period by the Euro Amount of the Outstanding Amount of Relevant Receivables on the Settlement Date immediately following the Assessment Date on which such Collection Period has begun. "Effective Date" means, in relation to any Associated Refinancing, the Business Day on which any amount raised under such Associated Refinancing is applied by the Bank to a Tranche. "Eligible Transferred Receivable" means a Transferred Receivable which satisfies the criteria set out in Part II of Schedule 2. "EONIA" means the reference rate known as the "Euro Overnight Index Average" in the form of the rate listed under the aegis of the European Central Bank and published at approximately 7.00 p.m. (Brussels time) by TELERATE (page 247) or REUTERS (page EONIA) (or whatever page that may be substituted therefor), and published (a) in relation to any Associated Refinancing based on the EONIA, one Business Day after the Effective Date of such Associated Refinancing, for the period of such Associated Refinancing and (b) in any other cases, one Business Day following the date when sums due shall bear interest at such rate. "Euro" or "(Euro)" means the currency of the participating member states of the European Communities in accordance with the definition given in the article 109-L-4 of the European Union Treaty and in the Council Regulation (EC) n(degrees) 974/98 of 3rd May, 1998 on the introduction of the euro. "Euro Amount" means, on any date: (a) in relation to any Receivable, (i) the amount of such Receivable if denominated in Euro or (ii) the amount changed into Euro of such Receivable if denominated in a Euro-Linked Currency; (b) in relation to any Collection, Credit Note or Commercial Discount, (i) the amount thereof in respect of Receivables denominated in Euro or (ii) the amount thereof changed into Euro in respect of Receivables denominated in a Euro-Linked Currency, - -------------------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- and for the purpose of this definition, a "Receivable" shall mean, as appropriate, a Relevant Receivable, a Transferred Receivable, a Delinquent Receivable, a Defaulted Receivable or an Eligible Transferred Receivable. "EURIBOR" means, in relation to any period of a whole number of months, the reference rate per annum known as the "European Inter-Bank Offered Rate" in the form of the rate listed under the aegis of the European Banking Federation and published at approximately 11.00 a.m. (Brussels time) on TELERATE (page 248 and 249) or REUTERS (page EURIBOR) (or whatever page that may be substituted therefor), two Business Days before the first day of that period for the offering of deposits in Euros for, and from the first day of, such period. "EURIBOR Plus Rate" means, in relation to a given period, the applicable EURIBOR for the whole number of months closest to that period, plus a margin of 0.25 per cent. per annum or any such other margin as may be agreed from time to time between the Bank and the Obligors. "Euro-Linked Currencies" means the national currency units of the member states of the European Communities that adopt or have adopted the Euro as their currency in accordance with legislation of the European Union relating to European Economic and Monetary Union. "Event of Early Amortisation" means any of the events set out in Clause 15 (Events of Early Amortisation). "Excess Concentration" means, on any Assessment Date the positive difference, if any, between: (a) the largest of the following amounts: (i) the Outstanding Amount of Eligible Transferred Receivables standing against the largest Debtor bearing a short term rating of A-1+, A1 or P1 or being subject to an equivalent credit risk appreciation, whether public or not, by the Rating Agencies; (ii) the Outstanding Amount of Eligible Transferred Receivables standing against the two largest Debtors bearing a short term rating of A-2 or P2 or being subject to an equivalent credit risk appreciation, whether public or not, by the Rating Agencies; (iii) the Outstanding Amount of Eligible Transferred Receivables standing against the three largest Debtors bearing a short term rating of A-3 or P3 or being subject to an equivalent credit risk appreciation, whether public or not, by the Rating Agencies; and (iv) the Outstanding Amount of Eligible Transferred Receivables standing against the five largest Debtors bearing no short term rating; - -------------------------------------------------------------------------------- 9 - -------------------------------------------------------------------------------- and (b) the Rate of Overcollateralisation multiplied by the Outstanding Amount of Eligible Transferred Receivables, provided that in relation to paragraph (a): (A) if a Debtor is an Affiliate of another Debtor, the Excess Concentration for such Debtors shall be calculated as if such Debtors were one Debtor; (B) if a Debtor is a member of a network, association or buying group, which is mainly active in the toys business and the main purpose of which is to purchase toys directly or indirectly, or to guarantee the liabilities of its members in connection with the purchase of toys or to negotiate on behalf of its members the terms of payments in relation to the purchase of toys, the Excess Concentration for that Debtor shall be calculated as if it, together with all the other Debtors member of the same such network, association or buying group were one Debtor; (C) in relation to Debtors which are members of: (1) Leclerc, the Excess Concentration of the 60 biggest of those Debtors shall be calculated as if those Debtors were one Debtor; (2) Systeme U or Intermarche, the Excess Concentration of the Debtors which are the two biggest purchasing centre operations and the three biggest hypermarket or supermarket operations amongst those Debtors shall be treated as one Debtor, and for these purposes of this paragraph (C), the size of the Debtors concerned shall be determined by the aggregate amount of Eligible Transferred Receivables owing by each such Debtor. "Excluded Tax" means any Tax arising other than by reason of a change of law, in any jurisdiction by reason of the Bank or any of its Affiliates: (a) being incorporated or resident in that jurisdiction; or (b) having or being deemed to have an office, branch or permanent establishment in that jurisdiction otherwise than by reason of: (i) any connection between any Obligor or its Affiliates and such jurisdiction; or (ii) the performance by the Bank of its obligations pursuant to or contemplated by this Agreement or any of the other Closing Documents; or (iii) the performance by any of the Obligors or their Affiliates of their obligations pursuant to or contemplated by this Agreement or any of the other Closing Documents, or any of their respective employees or officers, whether or not also employees or officers of any Obligor, acting in each case as principal, agent or representative of an Obligor, by reason of their involvement (if any) - -------------------------------------------------------------------------------- 10 - -------------------------------------------------------------------------------- in this Agreement and the transactions contemplated by the Closing Documents, but for the avoidance of doubt, the Parties agree that the Excluded Tax shall include (A) any Tax imposed on Societe Generale by reason of its involvement (if any) in this Agreement and the transactions contemplated by the Closing Documents and (B) any Tax imposed on the Bank, acting outside the Netherlands through Societe Generale or any of its Affiliates or any of their respective employees or officers, whether or not also employees or officers of the Bank, acting in each case as principal, agent or representative of the Bank, by reason of their involvement (if any) in this Agreement and the transactions contemplated by the Closing Documents. "Financial Indebtedness" means any indebtedness in respect of: (a) moneys borrowed at banks and other financial institutions; (b) any debenture, bond, note, loan stock or other security; (c) any acceptance or documentary credit; (d) receivables sold or discounted (otherwise than on a non- recourse basis); (e) the acquisition cost of any asset to the extent payable before or after the time of acquisition or possession by the party liable where the advance or deferred payment is arranged primarily as a method of raising finance or financing the acquisition of that asset; (f) any lease entered into primarily as a method of raising finance or financing the acquisition of the asset leased; (g) any currency swap or interest swap, cap or collar arrangement or any other derivative instrument; (h) any amount raised under any other transaction having the commercial effect of a borrowing or raising of money; or (i) any guarantee, indemnity or similar assurance against financial loss in relation to the indebtedness of any person. "Group" means the Depositor, each Seller and the Depositor's Subsidiaries. "Increase in the Additional Deposit" means, on any Transfer Date, the positive difference between: (a) the difference between (i) the nominal Euro Amount of Relevant Receivables to be transferred on such date, and (ii) the Euro Amount of Collections related to the latest Collection Period, and - -------------------------------------------------------------------------------- 11 - -------------------------------------------------------------------------------- (b) the sum of the Variation in the Bank's Funding and of the Variation in the Subordinated Deposit as calculated on such Transfer Date. "Increase in the Subordinated Deposit" means, on any Settlement Date, the positive difference, if any, between (a) the amount of the Subordinated Deposit on such date, calculated in accordance with Clause 18 (Subordinated Deposit), and (b) the amount of the Subordinated Deposit on the preceding Settlement Date. "Information Date" means the fourth Business Day following each Assessment Date. "Initial Transfer Date" means any Transfer Date on which the Bank's Funding is (without taking into account any Payment to be made on such Transfer Date) zero. "Insolvency Proceedings" means proceedings and circumstances of the type referred to in Clauses 15.6 (Insolvency) to 15.10 (Analogous proceedings) inclusive. "Interim Assessment Date" means, so long as any Tranche is outstanding, any Business Day determined by mutual agreement between the Obligors and the Bank. "Interim EONIA Rate" means the EONIA, plus a margin of 0.25 per cent. per annum (or such other margin as may be agreed for time to time between the Bank and the Obligors). "Mandate Letter" means each mandate letter substantially in the form of Schedule 7 executed by each Obligor in favour of Societe Generale containing the instructions of each Obligor for operation of its Seller's Account or the Depositor's Account (as appropriate). "Margin" means zero point one eight per cent. (0.18%) per annum (provided that if an Event of Early Amortisation is outstanding the Margin shall, from the date such event occurs until it is remedied, be two point five zero per cent. (2.50%) per annum). "Master Additional Deposit Agreement" means the agreement dated the date of this Agreement between the Bank and the Depositor, under which the Depositor makes the Additional Deposit with the Bank. "Master Subordinated Deposit Agreement" means the agreement dated the date of this Agreement between the Bank and the Depositor, under which the Depositor makes the Subordinated Deposit with the Bank. - -------------------------------------------------------------------------------- 12 - -------------------------------------------------------------------------------- "Material Adverse Effect" means a material adverse effect: (a) on the ability of any Obligor to comply with or perform its payment or other material obligations under the Closing Documents; or (b) on the legal effectiveness or validity of any of the Closing Documents; or (c) on the Bank's rights, title or interest in, or the collectability of Transferred Receivables (i) in an aggregate Euro Amount of (euro)5,000,000 or (if higher) (ii) the aggregate Euro Amount of which comprises 5 per cent. or more of the aggregate Euro Amount of all Transferred Receivables. "Material Seller Subsidiary" as to a Seller, means a direct or indirect Subsidiary, including its direct or indirect Subsidiaries, which meets any of the following conditions: (a) the Seller's and its other Subsidiaries' investments in and advances to the Subsidiary exceed 10 percent of the total assets of the Seller and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (b) the Seller and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10 percent of the total assets of the Seller and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (c) the Seller and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 10 percent of such income of the Seller and its Subsidiaries consolidated for the most recently completed fiscal year. "Mattel Wholly-Owned Subsidiary" means a company as to which the Parent owns and controls (whether directly or indirectly) the entirety (other than any minority holdings of share capital or voting rights by directors of such company as required by applicable law) of the issued and paid up share capital and voting rights of such company. "Maturity Date" means: (a) in relation to any Tranche and/or any Associated Refinancing, the date on which the principal amount of the Associated Refinancing falls due for repayment; and (b) in relation to any Transferred Receivable or Relevant Receivable, the date on which such Transferred Receivable or Relevant Receivable becomes due and payable by the relevant Debtor in accordance with the terms of the relevant Sales Contract. - -------------------------------------------------------------------------------- 13 - -------------------------------------------------------------------------------- "Maximum Amount of the Bank's Funding" means: (a) from 1st February to 31st July (both dates inclusive) in each year, (Euro)60,000,000; and (b) at any other time, (Euro)150,000,000. "Net Pool Balance" means, at any time, the Euro Amount of Eligible Transferred Receivables less the Excess Concentration. "Notice of Transfer" means any notice issued by the Bank to any Debtor in accordance with Clause 6.3 (Termination of Collection Mandates and Notices of Transfer), substantially in the form of Schedule 4 of this Agreement. "Obligor" means the Depositor and each Seller. "Officer's Certificate" means a certificate from an authorised signatory of the Depositor substantially in the form of Part II of Schedule 8. "Original Accounts" means the annual accounts of each Obligor (consolidated if available and audited in the case of each Seller) and the audited consolidated accounts of the Parent for the financial year ending 31st December, 2000. "Outstanding Amount" means, at any time in relation to Transferred Receivables or Eligible Transferred Receivables, the aggregate amount outstanding in respect of such Transferred Receivables or Eligible Transferred Receivables (as appropriate). "Parent" means Mattel Inc., a corporation organised under the laws of the state of Delaware, U.S.A. "Party" means a party to this Agreement. "Payment" means any payment made by the Bank to a Seller in accordance with Clause 5.3 (Payments and Transfers). - -------------------------------------------------------------------------------- 14 - -------------------------------------------------------------------------------- "Portion of Tranche" means any part of a Tranche. "Pro Rata Share" means, in relation to a Seller and a particular period, the average amount of Transferred Receivables transferred by that Seller to the Bank during that period expressed as a percentage of the average amount of the Transferred Receivables transferred to the Bank by all Sellers during that period. "Provisional Funding Rate" means, on any date, the interest rate per annum determined as the sum of: (a) EURIBOR for one month published on such date; and (b) 5 per cent. "Rate of Overcollateralisation" means the higher of the two following rates: (a) 15%; and (b) the ratio between: (i) the Worst Default Assumption; and (ii) the Outstanding Amount of Eligible Transferred Receivables as of the latest Assessment Date. "Rating Agencies" means each of Standard & Poor's Rating Services, a division of the McGraw-Hill Companies Inc., and Moody's France S.A., or such other entity to which it may transfer the whole of its credit rating business or with which it may consolidate, amalgamate or merge. "Reference Banks" means Credit Lyonnais, Credit Agricole Indosuez and BNP Paribas, each acting through its principal Paris office. "Refinancing Rate" means, in relation to any Associated Refinancing, any one of the following rates as determined in accordance with Clause 19.3 (Refinancing Rates): (a) the BT Rate; (b) the CP Rate; (c) the Interim EONIA Rate; or - -------------------------------------------------------------------------------- 15 - -------------------------------------------------------------------------------- (d) the Relevant EURIBOR Plus Rate (or the EURIBOR Plus Rate for one month EURIBOR where specified). "Related Rights" means, with respect to any Relevant Receivable, Transferred Receivable or Eligible Transferred Receivable (each a "Receivable") all of the Seller concerned's rights, privileges, benefits and claims of any nature whatsoever relating to that Receivable under the Sales Contract under which the Relevant Receivable, Transferred Receivable or Eligible Transferred Receivable arises (other than Related Security). "Related Security" means, with respect to any Relevant Receivable, Transferred Receivable or Eligible Transferred Receivable (each a "Receivable") or Sales Contract all Credit Insurance Policies (if any), security, deposits, guarantees, indemnities, letters of credit, bills of exchange, cheques, other negotiable instruments, warranties, retention of title, priority claims and other agreements and arrangements created or made by the relevant Debtor supporting or securing payment of such Receivable and all other rights and benefits attached to such Receivable. "Relevant EURIBOR Plus Rate" means, in relation to any Associated Refinancing based on billets de tresorerie or euro-commercial papers, the EURIBOR Plus Rate for the whole number of months which is the closest to the terms of such billets de tresorerie or euro-commercial papers. "Relevant Group" means the Depositor, each Seller, each company that is both a Controlling Owner of the Sellers and a subsidiary of the Depositor, and each Material Seller Subsidiary. "Relevant Percentage" means 90%. "Relevant Receivable" means a receivable satisfying the criteria set out in Part I of Schedule 2. "Reservations" means those reservations or qualifications as to matters of law referred to in Schedule 9. "Reserve for Future Transfer Fee" means in relation to any Tranche and on each Information Date, the amount of such Tranche multiplied by: (a) the Provisional Funding Rate; (b) the positive difference (if any) between (i) the Average Term of Transferred Receivables plus 20 and (ii) the Average Term of Associated Refinancings; and (c) 1/360. - -------------------------------------------------------------------------------- 16 - -------------------------------------------------------------------------------- "Reserve for Transfer Fee" means, at any time, in relation to any Tranche, the aggregate of: (a) any Transfer Fee which shall fall due on any Transfer Fee Payment Date related to any existing Associated Refinancing; and (b) the Reserve for Future Transfer Fee. "Residual Amount of the Reserve for Transfer Fee" means, at any time and in relation to any Tranche, the amount determined as the positive difference between: (a) the Reserve for Transfer Fee as calculated on the Information Date immediately preceding the latest Transfer Date; and (b) the aggregate amount of Transfer Fee paid under such Tranche out of the Reserve for Transfer Fee, since such Information Date in accordance with Clause 19.6 (Payment of Transfer Fee). "Sales Administration Guidelines" means the sales administration, credit management, recovery and collection procedures of each Seller described in the due diligence report (and appendices thereto) dated October 2001 prepared by the Bank in relation to this Agreement. "Sales Contract" means each contract in writing (or evidenced in writing by a purchase order or confirmation, delivery note or invoice in each case (excepting delivery notes) referring to or containing the Seller's standard terms and conditions of sale) between a Seller and a Debtor under which Relevant Receivables, Transferred Receivables or Eligible Transferred Receivables arise or are outstanding. "Seller's Account" means the current account opened by each Seller in its own name in the books of Societe Generale, Amsterdam branch for the purposes of this Agreement. "Sellers' Percentage" means one less the Bank's Percentage. "Sellers' Share of Collections" means an amount initially equal to zero increased, on each Settlement Date, by an amount equal to (i) the aggregate Euro Amount of Collections from the Collection Period ending on the immediately preceding Assessment Date multiplied by (ii) the Sellers' Percentage as at the Initial Transfer Date or the Information Date occurring during that Collection Period (as appropriate) and which is allocated in accordance with Clause 8.2 (Allocation of Collections on Settlement Dates which are not Transfer Dates) or Clause 8.3 (Allocation of Collections on Settlement Dates which are Transfer Dates). - -------------------------------------------------------------------------------- 17 - -------------------------------------------------------------------------------- "Settlement Date" means the seventh Business Day after an Assessment Date (or such other day as the Parties may agree from time to time). "Societe Generale" means the Societe Generale, a French credit institution, having its registered office at 29, boulevard Haussmann - 75009 Paris, France, registered with the Companies Registry of Paris under n(degrees) B 552 120 222. "Stamp Duty" means any stamp duty, stamp duty reserve tax, registration or other transaction or documentary tax (including, without limitation, any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same). "Subordinated Deposit" means the subordinated deposit made by the Depositor with the Bank in accordance with the terms of Clause 18.1 (Subordinated Deposit) and the Master Subordinated Deposit Agreement. "Subsidiary" means an entity from time to time of which a person has direct or indirect control or owns directly or indirectly 50 per cent. or more of the share capital or similar right of ownership. "TARGET Day" means a day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is operating. "Taxes" means all present and future transfer, value added and sales taxes, notarial and registration fees, Stamp Duties or other charge or withholdings in the nature or on account of income tax together with interest thereon and penalties with respect thereto, if any, and "Taxation" shall be construed accordingly. "Tranche" means all or a portion of the Bank's Funding. "Transfer Date" means, until the Commitment Termination Date, any Settlement Date on which the Relevant Receivables are transferred by a Seller to the Bank in accordance with the Agreement. "Transfer Document" means in relation to a transfer of Relevant Receivables arising under a Sales Contract governed by: - -------------------------------------------------------------------------------- 18 - -------------------------------------------------------------------------------- (a) French law, a Quittance Subrogative substantially in the form of Part I; (b) German law, an agreement substantially in the form of Part II, in each case of Schedule 5. "Transfer Fee" means the transfer fee to be paid in accordance with Clause 19 (Transfer Fee). "Transfer Fee Payment Date" means the last day of each Transfer Fee Period. "Transfer Fee Period" means, in relation to any Tranche, the period beginning on (a) a Settlement Date and ending on the next Settlement Date or (b) the Transfer Date when such Tranche was created and ending on first Settlement Date falling after such date. "Transfer Request" means any request made by a Seller to the Bank in the circumstances set out in Clause 5, substantially in the form of Schedule 6. "Transferred Receivable" means each Relevant Receivable which has been transferred by any Seller to the Bank pursuant to this Agreement by means of a Transfer Document and which has not been transferred back to any such Seller pursuant to Clause 5.5 (Transfer back of Transferred Receivables) or Clause 9.2 (Transfers and Deemed Collections). "Variation in the Bank's Funding" means, on any Settlement Date: (a) the amount of the increase in the Bank's Funding, if any, as calculated in accordance with Clause 16.3 (Increase in the Bank's Funding), on the Information Date immediately preceding such Settlement Date; or (b) the amount of the Bank's Share of Collections allocated by the Bank on such Settlement Date to the outstanding amount of the Bank's Funding, in accordance with Clauses 8.2(a)(i) and 8.3(a)(i) which will be used to repay the Tranches at the Maturity Dates of the Associated Refinancings. "Variation in the Subordinated Deposit" means, on any Settlement Date, the positive difference or, as the case may be, the negative difference, if any, between: (a) the amount of the Subordinated Deposit, as calculated on such date, in accordance with Clause 18.1 (Subordinated Deposit); and - -------------------------------------------------------------------------------- 19 - -------------------------------------------------------------------------------- (b) the amount of the Subordinated Deposit on the preceding Settlement Date. "Worst Default Assumptions" means, in relation to any Collection Period, (a) the aggregate amount of all Transferred Receivables (whether outstanding or paid) which originally had a Maturity Date falling between the date 60 days prior to the latest Assessment Date and the date 210 days after the latest Assessment Date, multiplied by (b) the highest amount of the three-month (on a rolling basis) average of the Default Rates on the last 12 Assessment Dates, multiplied by (c) 2.25. 1.2 Construction (a) In this Agreement, unless the contrary intention appears, a reference to: (i) an "amendment" includes a supplement, novation or re-enactment and "amended" is to be construed accordingly; "assets" includes present and future properties, revenues and rights of every description; "control" means the power to direct the management and policies of an entity, whether through the ownership of voting capital, by contract or otherwise; a "change in law" means the introduction of, or any change in, or any change in the interpretation or application of, any law or regulation after the date of this Agreement; a "month" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that: (1) if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that calendar month; or (2) if an Interest Period commences on the last Business Day of a calendar month, that Interest Period shall end on the last Business Day in the calendar month in which it is to end; a Party making a payment "out of its own resources" means that Party does not fund that payment by, or out of, Collections; a "person" includes any individual, company, unincorporated association or body of persons (including a partnership, joint venture or consortium), government, state, agency, international organisation or other entity; - -------------------------------------------------------------------------------- 20 - -------------------------------------------------------------------------------- a "regulation" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, inter-governmental or supranational body, agency, department or regulatory, self- regulatory or other authority or organisation; (ii) a provision of law is a reference to that provision as amended or re-enacted; (iii) a Clause or a Schedule is a reference to a clause of or a schedule to this Agreement; (iv) a person includes its permitted successors, transferees and assigns; (v) a Closing Document or another document is a reference to that Closing Document or other document as amended; (vi) a time of day is a reference to Amsterdam time; and (vii) the singular includes the plural and vice versa. (b) Unless the contrary intention appears, a term used in any other Closing Document or in any notice given under or in connection with any Closing Document has the same meaning in that Closing Document or notice as in this Agreement. (c) The index to and the headings in this Agreement are for convenience only and are to be ignored in construing this Agreement. (d) the Schedules form an integral part of this Agreement. 2. PURPOSE AND COMMITMENT DURATION 2.1 Purpose The Bank agrees to purchase Relevant Receivables from the Sellers, subject to and on the terms and conditions of this Agreement. 2.2 Duration of the Commitment (a) Unless terminated or cancelled earlier in accordance with this Agreement, the Commitment shall be cancelled in full on the Commitment Termination Date. (b) Subject to paragraph (c) below, at any time between 60 and 30 days before the Commitment Termination Date, the Depositor (on behalf of the Obligors) may request the Bank in writing to extend the Commitment Termination Date. The Bank may agree to extend the Commitment Termination Date by entering into an amendment letter relating to this Agreement with the Obligors to that effect, provided that the new Commitment Termination Date shall not be later than the earlier of: (i) 364 days from the date upon which such extension comes into effect; and (ii) the fifth anniversary date of the date of this Agreement. (c) Any agreement of the Bank under paragraph (b) above shall be subject to, inter alia, the condition that (i) the Rating Agencies have first been informed of such contemplated - -------------------------------------------------------------------------------- 21 - -------------------------------------------------------------------------------- extension and (ii) the Rating Agencies have first confirmed that the contemplated extension will not entail a deterioration or withdrawal of the current rating of the billets de tresorerie or the euro commercial paper issued by Antalis, or that the contemplated extension will reduce such deterioration (if any) or prevent such withdrawal (if any), and (iii) the Bank has first received (A) a new Auditors' Certificate in relation to each Seller and (B) a new Officer's Certificate in relation to the Depositor. (d) The Bank shall notify the Obligors (through the Depositor) of its decision on such extension on (or prior to) the later of (i) the date which is 15 days after the Obligors' request and (ii) the date which is 30 days prior to the existing Commitment Termination Date or, if either date is not a Business Day, the immediately succeeding Business Day (and if the Bank agrees to the extension, paragraph (a) of the definition of Commitment Termination Date shall be amended to refer to the new date applicable). 3. NATURE OF OBLIGATIONS (a) The obligations of each Seller under the Closing Documents are several. No Seller shall be liable for the obligations under the Closing Documents of any other Obligor. Failure of a Seller (or the Depositor) to carry out any of its obligations under the Closing Documents shall not relieve any other Obligor from its obligations under the Closing Documents. (b) The Depositor is jointly and severally liable with each Seller with regard to any and all payments (including, without limitation, indemnity payments) due from either Seller under the Closing Documents. (c) The Depositor waives all rights arising at law of subrogation, contribution or indemnity or otherwise against each Seller pursuant to any payment made by the Depositor under the Closing Documents pursuant to paragraph (b) above in respect of any amount initially due from a Seller until all of the principal, interest and any additional amounts required to be paid pursuant to the Closing Documents have been irrevocably paid in full. (d) The obligations of the Depositor under the Closing Documents (including, without limitation, paragraph (b) above) shall remain in full force and effect notwithstanding any dissolution or change in the structure or legal form of either Seller or in the intercompany relationship between the Obligors, any amendment or waiver relating to any Closing Document, any invalidity or unenforceability of the obligations of either Seller under the Closing Documents or any other act or omission, matter or thing, whether or not known to the Bank, which, but for this paragraph (d) would reduce, release or prejudice the Depositor's obligations under the Closing Documents (including, without limitation, paragraph (b) above) and shall benefit the Bank and its successors and assigns. (e) Until all amounts due to the Bank under the Closing Documents from the Obligors (or any of them) have been irrevocably paid in full, each Obligor undertakes not to claim, rank, prove or vote as a creditor of any other Obligor or its estate in competition with the Bank if to do so would result in any claim by the Obligor against another Obligor competing with a claim of the Bank against the latter Obligor in respect of an amount due from that Obligor to the Bank under the Closing Documents. - -------------------------------------------------------------------------------- 22 - -------------------------------------------------------------------------------- 4. CONDITIONS PRECEDENT 4.1 Documentary conditions precedent The Sellers may not deliver the first Transfer Request until the Bank has notified the Obligors that it has received all of the documents set out in Schedule 1 in form and substance satisfactory to the Bank. 4.2 Further conditions precedent The obligation of the Bank to make any Payment following a Transfer Request is subject to the further conditions precedent that: (a) on both the date of such Transfer Request and the Transfer Date referred to therein: (i) the representations and warranties in Clauses 10 relating to the receivables to be transferred and 12 made or (in the case of Clause 12) deemed to be repeated on those dates are true and accurate and will be true and accurate immediately after the Payment is made; and (ii) no Event of Early Amortisation or Amortisation Event has occurred and is continuing or will result from the Payment being made; (b) the Bank has received the Assessment Report for the Assessment Date immediately preceding the Transfer Date referred to in such Transfer Request; (c) the Bank's Percentage, as at the Information Date immediately preceding the Transfer Date referred to in such Transfer Request, was less than or equal to the Relevant Percentage (or, in the case of an Initial Transfer Date, is on that date less than or equal to the Relevant Percentage); (d) the Payment and the relevant Transfer Document do not violate any applicable law or regulation in force on the date of that Transfer Request; (e) the making of the Payment will not result in the Bank's Funding exceeding the then applicable Maximum Amount of the Bank's Funding; (f) the Transfer Date referred to in such Transfer Request does not fall after the Commitment Termination Date; (g) the amount of the Reserve for Transfer Fee is less than 2.5 per cent. of the Net Pool Balance as determined on the Assessment Date relating to the latest Assessment Report; (h) on the Transfer Date referred to in the Transfer Request (unless it is an Initial Transfer Date) each Seller shall have credited the amount of Collections received by it and Deemed Collections due from it, in each case in respect of the Collection Period immediately preceding that Transfer Date to the Bank's Account in accordance with Clause 8.4 (Payments); and (i) on the Transfer Date referred to in the Transfer Request, the Subordinated Deposit and the Additional Deposit have been duly made and (if required) increased by the - -------------------------------------------------------------------------------- 23 - -------------------------------------------------------------------------------- Depositor in accordance with Clause 18 (Deposits), the Master Additional Deposit Agreement and the Master Subordinated Deposit Agreement. 5. TRANSFER OF RELEVANT RECEIVABLES 5.1 Timing of transfer On each Initial Transfer Date and (until the Commitment Termination Date) on each other Transfer Date which is not an Initial Transfer Date, all of the Sellers shall together have the option to transfer to the Bank (in accordance with the relevant Transfer Document) not less than all Relevant Receivables to which they each hold title together with all Related Security and Related Rights in consideration for payment by the Bank of the amount specified in Clause 5.3(a)(ii). 5.2 Delivery of Transfer Requests A Seller intending to make a transfer of Relevant Receivables shall send to the Bank by no later than 11.00 a.m. on the Information Date immediately preceding the relevant Transfer Date a duly completed Transfer Request, setting out the aggregate nominal amount of the Relevant Receivables to be transferred. Each Transfer Request shall be irrevocable. 5.3 Payments and transfers (a) Following delivery of a Transfer Request on the relevant Transfer Date: (i) the Seller shall deliver to the Bank a duly completed and appropriate Transfer Document, duly signed by the Seller, vesting in the Bank all its title, ownership and rights in respect of the Relevant Receivables and all Related Security and Related Rights relating thereto in accordance with the law governing the Transfer Document and the relevant Sales Contracts; and (ii) subject to Clause 4.2 (Further Conditions Precedent), the Bank shall make a Payment to the Seller by crediting the Seller's Account for that Seller in an amount equal to the nominal Euro Amount of the Relevant Receivables to be transferred by that Seller referred to in the Transfer Request. (b) Each Transfer shall take effect upon the delivery of a Transfer Document and the making of the relevant Payment, and in this Clause 5.3 "Transfer" means the transfer to the Bank of: (i) the Relevant Receivables referred to in a Transfer Document, including in particular any change in the amount of those Relevant Receivables as a result of (i) the terms of such Relevant Receivables allowing such change occurring in accordance with Clause 14.14(b) (Amendments to Sales Contracts and Sales Administration Guidelines) or (ii) a material error, whether or not a new invoice has been issued due to such change or material error; and (ii) all Related Security (but, in the case of negotiable instruments, only to the extent required by Clause 14.10 (Promissory notes and negotiable instruments)) and Related Rights relating thereto, in each case in accordance with, and to the fullest extent permitted by, the governing law of the relevant Transfer Document or the law applicable to the Related Security and Related Rights (as appropriate). - -------------------------------------------------------------------------------- 24 - -------------------------------------------------------------------------------- 5.4 Transfer Documents (a) A Transfer Document shall not be regarded as having been duly completed unless it sets out a description of the Relevant Receivables, all Related Security and Related Rights in respect thereof in sufficient detail to enable: (i) the transfer of such Relevant Receivables, Related Security and Related Rights to the Bank under that Transfer Document; and (ii) an indisputable identification of such Relevant Receivables, in each case in accordance with, and for the purposes of, the governing law of that Transfer Document and is delivered with a computer disk containing a full list of the Relevant Receivables concerned, showing, in relation to each such receivable, the name and address of the Debtor, the amount due and the currency, the Maturity Date, invoice number and invoice date. (b) This Agreement shall apply automatically to all Transfer Documents and related electronic or magnetic supports delivered by any of the Sellers to the Bank, on each Transfer Date, provided that the Transfer Documents and such supports make specific reference to this Agreement. 5.5 Transfer back of Transferred Receivables (a) At any time a Seller may request the Bank to transfer back to that Seller all or part of the outstanding Transferred Receivables transferred by it provided that in the event of a transfer back of part, the remaining Net Pool Balance (taking into account the Transferred Receivables to be transferred back) is equal to or greater than (euro)20,000,000. (b) A Seller wishing to make a request under paragraph (a) above shall notify the Bank five Business Days before the date on which the Seller wishes the transfer back to take place. The Bank shall not be obliged to accept such request and shall notify the Seller concerned of its decision no later than three Business Days after receipt by the Bank of the Seller's notice. The Bank shall be deemed to have accepted the request if it has not expressly refused it within such period. (c) If the Bank accepts a request for the transfer back of Transferred Receivables, the Seller concerned shall, on the date of transfer back, before 11.00 a.m., pay to the Bank the Euro Amount of the Outstanding Amount of the relevant Transferred Receivables and the Bank shall deliver to the Seller such documents or instruments as are necessary to effect the transfer back to the Seller of such title ownership and rights in respect of the Transferred Receivables concerned and all Related Security and Related Rights attached thereto as the Bank has acquired from the Seller and has at the time of transfer back. The reasonable costs incurred by the Bank in the preparation, execution and delivery of such document or instrument shall be borne exclusively by the Seller concerned. (d) As from the date of such transfer back, the Bank shall pay back to the Seller concerned, as soon as practicable, any sum received by the Bank in respect of any Transferred Receivables (and any Related Security and/or Related Rights attaching thereto) which have been transferred back to a Seller under this Clause 5.5. - -------------------------------------------------------------------------------- 25 - -------------------------------------------------------------------------------- 5.6 Transfers by the Bank Other than pursuant to Clause 5.5 or Clause 9.2 (Transfers and Deemed Collections), the Bank will not enter into any assignment or transfer or subrogation of any description with any person (or purport or agree to do so) of any Transferred Receivable or any Related Security or Related Rights. 6. COLLECTION MANDATES AND NOTICES OF TRANSFER 6.1 Collection Mandates The Bank appoints each Seller as its agent to: (a) collect on behalf of the Bank the Transferred Receivables transferred by it to the Bank; and (b) take and to conduct on behalf of the Bank (but in the name of the Seller) all lawful steps and proceedings, other than court or arbitration proceedings (except as may otherwise be requested by the Bank pursuant to Clause 14.8(b)(iv) (Collection and Recovery)), for the recovery of such Transferred Receivables, provided that no Seller shall have, by reason of this Clause 6.1, any power to enter into or conclude any agreement on behalf of the Bank, to cause the Bank to assume any obligation to any person or otherwise to bind the Bank except as otherwise contemplated by Clause 14.14(b) (Amendments to Sales Contracts and Sales Administration Guidelines), (each such appointment being a "Collection Mandate) and each Seller accepts its Collection Mandate. 6.2 Remuneration for Collection Mandates No Seller shall receive any fee, commission or remuneration from the Bank for, or reimbursement by the Bank of any expense incurred by it in connection with, its Collection Mandates (other than to the extent required in relation to a particular Seller by any applicable law or regulation, in which case the Bank shall be entitled to withhold out of any amount due from the Bank to such Seller or the Depositor under the Closing Documents the amount of any such fee or reimbursement). To that end, each Seller shall bear its own costs and expenses incurred in the course of performing its Collection Mandate. 6.3 Termination of Collection Mandates and Notices of Transfer (a) The Bank may at any time following a Termination Event notify any Seller affected by that Termination Event that it wishes to terminate that Seller's Collection Mandate in whole or in part and to give a Notice of Transfer to the Debtors in respect of the Transferred Receivables transferred by that Seller. (b) A Seller's Collection Mandate shall automatically terminate on the date of the Bank's notice under paragraph (a) above and upon, and at any time after such termination, the Bank may give a Notice of Transfer to the Debtors concerned. (c) Upon and following the termination of its Collection Mandate, the Seller concerned shall promptly transfer to the Bank's Account any amount received from any Debtor in respect of the Transferred Receivables to which the termination relates. - -------------------------------------------------------------------------------- 26 - -------------------------------------------------------------------------------- (d) The termination of a Collection Mandate shall not affect the obligations of any Obligor under the Closing Documents (other than those of the relevant Seller relating to the collection of Transferred Receivables affected by the termination). (e) In this Clause 6.3 "Termination Event" in respect of a Seller means: (i) the occurrence of an Event of Early Amortisation (which is still continuing) in relation to that Seller under Clause 15.2 (Non-payment), Clauses 15.5 (Cross default) to 15.10 (Analagous proceedings) (inclusive) and Clause 15.13 (Cessation of business); (ii) (A) the occurrence of an Event of Early Amortisation under Clause 15.11 (The Parent) in relation to which the Bank has given a Termination Notice under Clause 15.17 (Termination) or (B) the occurrence of an Event of Early Amortisation (which is still continuing) in relation to the Parent under Clause 15.13 (Cessation of business); (iii) a material failure by that Seller to perform its Collection Mandate in accordance with reasonable skill and care, its customary business practices and its obligations under this Agreement; (iv) that Seller becomes unable lawfully to perform its Collection Mandate or the obligations of that Seller with respect to its Collection Mandate become invalid, unenforceable or ineffective for any reason or to any material extent; or (v) any event occurs in respect of that Seller which, in the opinion of the Bank (acting in good faith) is reasonably likely to prejudice that Seller's ability to perform, or the performance of, its Collection Mandate or that Seller's ability to make the payment referred to in Clause 8.4(a)(i) (Payments). 7. COLLECTION 7.1 Collection by the Sellers (a) For so long as its Collection Mandate has not been terminated in accordance with Clause 6.3 (Termination of Collection Mandates and Notices of Transfer), each Seller shall, promptly on receipt of the same, credit or cause to be credited to any bank account of that Seller each cash collection received by it which has actually been paid by a Debtor, or by any other person obliged to make payment, in respect of the Transferred Receivables to which its Collection Mandate relates (together the "Cash Collections"). (b) During each Collection Period, each Seller shall be entitled to use freely the amount of Cash Collections. (c) Subject to Clause 6.3 (Termination of Collection Mandates and Notices of Transfer) on each Settlement Date, each Seller shall credit or cause to be credited to the Bank's Account all Collections denominated in Euro or Euro-Linked Currencies arising in respect of the Collection Period ending on the Assessment Date immediately preceding such Settlement Date. (d) Subject to paragraph (e) below, any payment received by a Seller from one of its Debtors shall be applied in priority to the Transferred Receivables, unless that Debtor has given express instruction to the contrary. - -------------------------------------------------------------------------------- 27 - -------------------------------------------------------------------------------- (e) If a Debtor is in Insolvency Proceedings and a settlement payment or distribution is made in those Insolvency Proceedings in respect of both Transferred Receivables and other receivables owing by that Debtor to a Seller, the amount received by such Seller shall be applied pro rata to the nominal amount of each such Transferred Receivable and such other receivables. 7.2 Advanced Transfers and collection by the Bank (a) On any Business Day the Bank may require any Seller to transfer all or part of the Collections standing to the credit of any Seller's account (the "Advanced Transfer") to the Bank's Account on the following Business Day (the "Collections Transfer Date"). (b) Following the termination by the Bank of a Seller's Collection Mandate in accordance with Clause 6.3 (Termination of Collection Mandates and Notices of Transfer), the Bank shall: (i) promptly on receipt of the same, credit or cause to be credited to the Bank's Account the amount of each cash collection received by it which have actually been paid by Debtors, or by any other person obliged to make payment, in respect of the Transferred Receivables to which the terminated Collection Mandate would otherwise have related (together the "Bank Collections"); and (ii) draw up an Assessment Report on each Assessment Date and on each Interim Assessment Date. (c) If the Bank exercises its rights under paragraph (a) above, or if the Bank terminates a Seller's Collection Mandate, the Bank shall pay the Seller concerned a fee calculated on the basis of the amount of the Advanced Transfer or the aggregate amount of Bank Collections from time to time (as appropriate), at a rate of EONIA plus zero point two five per cent. (0.25%) per day elapsed from (and including) the Collections Transfer Date or the date on which Bank Collections are received (as appropriate) to either (and excluding): (i) the Transfer Date on which the Bank applies the Advanced Transfer or the Bank Collections towards the transfer of new Relevant Receivables; or (ii) if the Bank does not so apply the Advanced Transfer or Bank Collections, (A) the Maturity Dates of the Tranches or Associated Refinancings on which the Bank applies the Advanced Transfer or Bank Collections to the amortisation of the Bank's Funding, and (B) the Settlement Date on which the Bank applies the Advanced Transfer or Bank Collections to the repayment of the Additional Deposit or the Subordinated Deposit. (d) The fee referred to in paragraph (c) above is to compensate the Seller concerned for the inconveniences it suffers as a consequence of: (i) its inability to use the Cash Collections subject to the Advanced Transfer freely in accordance with Clause 7.1(b) (Collection by Sellers); (ii) the fact that Collections will not be applied to the repayment of the Bank's Funding until the Settlement Date falling immediately after the Assessment Date on which the Collection Period during which such Collections arose ends; and - -------------------------------------------------------------------------------- 28 - -------------------------------------------------------------------------------- (iii) its obligation to pay the Transfer Fee in respect of the Bank's Funding up to that Settlement Date. (e) All expenses incurred by the Bank in collecting Transferred Receivables shall be borne by it exclusively. 8. SETTLEMENT AND PAYMENTS 8.1 Calculations (a) On each Information Date, the Bank shall calculate and notify the Obligors of (in each case providing details of how such calculations have been made): (i) the fee due to each Seller in accordance with Clause 7.2(c) (Advanced Transfers and collection by the Bank); (ii) the Net Pool Balance as of the Assessment Date immediately preceding that Information Date; (iii) the Residual Amount of the Reserve for Transfer Fee; (iv) the amount of the Bank's Funding; (v) the amount of the Subordinated Deposit; (vi) the amount of the Additional Deposit; (vii) the new Bank's Percentage; and (viii) the new Sellers' Percentage, in each case as of the immediately succeeding Settlement Date and taking into account any transfer of Relevant Receivables to occur on that Settlement Date. (b) On each Settlement Date the Bank shall recalculate and notify the Obligors of (providing details of how such calculations have been made) the fee referred to in paragraph (a)(i) above where additional fee has accrued since the calculation made on the immediately preceding Information Date. 8.2 Allocation of Collections on Settlement Dates which are not Transfer Dates If a Settlement Date is not a Transfer Date, the Bank shall allocate on that Settlement Date the Collections in the order set out below: (a) the Bank's Share of Collections shall be allocated as follows: (i) first, towards the repayment of the outstanding amount of the Bank's Funding (whether or not any Tranche or Associated Refinancing has a Maturity Date which coincides with that Settlement Date); (ii) second, towards the payment of any sum due by any Obligor, out of its own resources, payable to the Bank under the Closing Documents and remaining unpaid on such Settlement Date; - ------------------------------------------------------------------------------- 29 - -------------------------------------------------------------------------------- (iii) third, towards the repayment of the Additional Deposit (subject to Clause 18 (Deposits)); (iv) fourth, towards the repayment of the Subordinated Deposit (subject to Clause 18 (Deposits)); and (v) fifth, the balance, if any, shall be paid to the Sellers; and (b) the Sellers' Share of Collections shall be allocated: (i) first, towards the payment of any sum due by any Seller, out of its own resources, payable to the Bank under the Closing Documents and remaining unpaid on such Settlement Date; (ii) second, towards the repayment of the Additional Deposit (subject to Clause 18 (Deposits)); and (iii) third, the balance, if any, shall be paid to the Sellers. 8.3 Allocation of Collections on Settlement Dates which are Transfer Dates If a Settlement Date is also a Transfer Date, the Bank shall allocate on that Settlement Date the Collections in the order set out below: (a) the Bank's Share of Collections shall be allocated as follows: (i) first, if the Bank's Funding is then greater than the Relevant Percentage multiplied by the Net Pool Balance (taking into account Eligible Transferred Receivables to be transferred on such date) less the amount of the Subordinated Deposit (taking into account Eligible Transferred Receivables to be transferred on such date), towards the repayment of the outstanding amount of the Bank's Funding (whether or not any Tranche or Associated Refinancing has a Maturity Date which coincides with that Settlement Date) in an amount equal to such excess; (ii) second, to the transfer of Relevant Receivables taking place on that Transfer Date; (iii) third, to the payment of any sum due by any Obligor, out of its own resources, payable to the Bank under the Closing Documents and remaining unpaid on such date; (iv) fourth, to the repayment of the Additional Deposit (subject to Clause 18 (Deposits)); (v) fifth, to the repayment of the Subordinated Deposit (subject to Clause 18 (Deposits)); and (vi) sixth, the balance, if any, shall be paid to the Sellers; and (b) the Sellers' Share of Collections shall be allocated as follows: - -------------------------------------------------------------------------------- 30 - -------------------------------------------------------------------------------- (i) first, to the transfer of Relevant Receivables taking place on such Transfer Date; (ii) second, to the payment of any sum due by any Obligor, out of its own resources, payable to the Bank under the Closing Documents and remaining unpaid on such date; (iii) third, to the repayment of the Additional Deposit (subject to Clause 18 (Deposits)); and (iv) fourth, the balance, if any, shall be paid to the Sellers. 8.4 Payments (a) On each Settlement Date and subject to the provisions of this Agreement the following payments shall be made: (i) each Seller shall credit the amount of Collections received by it and the Euro Amount of Deemed Collections occurring, in each case in respect of, or during, the Collection Period immediately preceding that Settlement Date to the Bank's Account; (ii) the Depositor shall pay to the Bank, out of its own resources, the amount corresponding to the Increase in the Subordinated Deposit and Increase in the Additional Deposit (in each case if any); (iii) the Bank shall make a Payment to the Sellers, in accordance with Clause 5.3 (Payments and Transfers), to the credit of each of the relevant Seller's Accounts; (iv) the Bank shall repay to the Depositor the Additional Deposit and the Subordinated Deposit; (v) the Bank shall pay to the Sellers, out of its own resources, the compensation determined in accordance with Clause 7.2(c) (Advanced Transfers and Collection by the Bank); and (vi) the Bank shall credit to the Depositor's Account the aggregate amount of Collections allocated to the repayment of the Bank's Funding which the Bank does not actually apply on that Settlement Date to the repayment of the Bank's Funding ("Unapplied Collections"), where appropriate, in an amount determined in accordance with Clause 8.2 (Allocation of Collections on Settlement Dates which are not Transfer Dates) or Clause 8.3 (Allocation of Collections on Settlement Dates which are Transfer Dates), as the case may be. (b) The Depositor shall, subject to paragraph (d) below, be entitled to use freely the amount of Unapplied Collections between the Settlement Date on which they are paid to the Depositor in accordance with paragraph (a)(vi) above and the Maturity Date of the Associated Refinancing on which they are applied to the repayment of the Bank's Funding in accordance with Clause 16.4 (Repayment of the Bank's Funding). (c) The Depositor shall pay to the Bank on the Maturity Date of each Associated Refinancing an amount equal to (i) the amount of Unapplied Collections paid to the Depositor in accordance with paragraph (a)(vi) above multiplied by (ii) the number of days between the Settlement - -------------------------------------------------------------------------------- 31 - -------------------------------------------------------------------------------- Date on which that payment is made and the Maturity Date of that Associated Refinancing multiplied by (c) the Refinancing Rate of that Associated Refinancing plus the Margin divided by 360. If the Depositor fails to pay all or part of such amount, the Bank shall be entitled to apply the Collections standing to the credit of the Bank's Account and corresponding to the Sellers' Share of Collections against any amount so unpaid up to the amount of the Residual Amount of the Reserve for Transfer Fee for the Tranche resulting from the portion of the Bank's Funding which is repaid on such Maturity Date. (d) On any Business Day the Bank may require the Depositor to transfer all or part of the amount of the Unapplied Collections paid to the Depositor in accordance with paragraph (a)(vi) above (the "Advanced Transfer") to the Bank's Account on the following Business Date (the "Collections Transfer Date"). (e) If the Bank exercises its rights under paragraph (e) above, the Bank shall pay the Depositor a compensation calculated on the basis of the amount of the Advanced Transfer, at a rate of EONIA plus 0.25% per annum per day elapsed from (and including) the Collections Transfer Date to (and excluding) the Maturity Date of any Associated Refinancing when such Collections are applied to the repayment of the Bank's Funding in accordance with Clause 16.4 (Repayment of the Bank's Funding). 9. DEEMED COLLECTIONS 9.1 Deemed Collections (a) If: (i) a Payment and/or a Transfer Document ceases to result in a perfect transfer of the Relevant Receivables concerned and all Related Security (in the case of negotiable instruments, to the extent required by Clause 14.10 (Promissory notes and negotiable instruments)) and Related Rights attached thereto; (ii) any representation and warranty in Clause 10 (Representations relating to Transferred Receivables) relating to any Transferred Receivable on any day would (if it were made or repeated on that day) not be true and accurate with respect to the receivables concerned (whether or not any such representation and warranty is in fact made or deemed to be repeated on that day); (iii) on an Assessment Date or Interim Assessment Date an outstanding Transferred Receivable, the amount of which was included within the aggregate amount of Eligible Transferred Receivables declared in an Assessment Report, then has a Maturity Date of more than 210 days and the immediately succeeding Settlement Date is not a Transfer Date; (iv) in an Assessment Report delivered in relation to a Transfer Date, the amount declared as being the aggregate amount of Eligible Transferred Receivables to be transferred on that Transfer Date is greater than the aggregate amount of Eligible Transferred Receivables actually transferred on that Transfer Date (such difference being the "Excess"); (v) any Credit Note or Commercial Discount referred to in Clause 14.14(c) (Amendments to Sales Contracts and Sales Administration Guidelines) is issued or applies in relation to any Transferred Receivable or any Debtor makes payment in - -------------------------------------------------------------------------------- 32 - -------------------------------------------------------------------------------- respect of any Transferred Receivable net of the amount of any anticipated Credit Note; (vi) any Sales Contract which gives rise to a Transferred Receivable is cancelled or terminated and the relevant goods have been billed but remained to be delivered by the Seller concerned on the termination date of such Sales Contract; (vii) any set-off is agreed by a Seller or arises by operation of law (including a Debtor exercising a right of set-off conferred on it by law) or as a result of a final court decision between debts owed by any Seller to any Debtor and the Transferred Receivables against such Debtor; (viii) any judicial or arbitration proceedings are commenced by a Debtor against a Seller in connection with the sale of the goods related to any Transferred Receivable, or the delivery or failure to deliver such goods, or the performance or the failure to perform by the Seller of any of its obligations to that Debtor in relation to the existence and/or the amount of a Transferred Receivable or a Transferred Receivable becomes irrecoverable by reason of the breach by a Seller of the relevant Sales Contract; (ix) any exchange fees or expenses are charged by a bank in connection with a payment made in any currency other than Euro in relation to a Transferred Receivable; (x) any Transferred Receivable has been cancelled, in whole or in part; or (xi) any conflict, claim or dispute arises resulting from the issue, remittance, delivery or endorsement of a negotiable instrument or promissory note (excluding, for the avoidance of doubt, a conflict, claim or dispute in relation to the Sales Contract to which such instrument or promissory note relates) and/or the notification by the Bank to a Debtor of a negotiable instrument or promissory note or the acceptance by a Debtor of a negotiable instrument or promissory note presented by the Bank, the Seller concerned shall be deemed to have received: (A) the amount of the receivables concerned in the case of paragraph (ii) above, or the amount of the Transferred Receivable in the case of paragraph (iii) above or the amount of the Excess (as appropriate); or (B) in each other case, the amount it would have collected if such event had not occurred, each such amount being a "Deemed Collection". (b) Subject to Clause 9.2(a) the Seller concerned shall transfer, out of its own resources, the Euro Amount of Deemed Collections in the following manner: (i) in accordance with Clause 8.4(a)(i), if the Seller's Collection Mandate has not been terminated in relation to the Transferred Receivable to which the Deemed Collection relates; and; and (ii) if the Seller's Collection Mandate has been terminated in relation to the Transferred Receivable to which the Deemed Collection relates, the amount of such Deemed Collection shall be immediately on its occurrence credited to the Bank's Account. - -------------------------------------------------------------------------------- 33 - -------------------------------------------------------------------------------- 9.2 Transfers and Deemed Collections (a) On each date on which the Euro Amount of a Deemed Collection is due from a Seller under Clause 9.1 (the "Due Date"), that Seller shall have the option, if the amount of that Deemed Collection is equal to the Outstanding Amount of the Transferred Receivable giving rise to the Deemed Collection, either to transfer the Euro Amount of the Deemed Collection to the Bank in accordance with Clause 9.1 or to direct the Bank to transfer the Transferred Receivable in relation to which the Deemed Collection has occurred to the Seller on the Due Date. If the Seller elects a transfer, on the Due Date: (i) the Seller shall notify the Bank of such election and simultaneously deliver to the Bank such documents or instruments (together the "Documents") for execution by the Bank as are necessary to effect the transfer to the Seller of such title ownership and rights in respect of the Transferred Receivable concerned and all Related Security and Related Rights attached thereto as the Bank originally acquired from the Seller pursuant to the Closing Documents; (ii) the Bank shall (subject to paragraph (b) below) execute the Documents; and (iii) the Seller shall pay out of its own resources and to the credit of the Bank's Account the Euro Amount of the Transferred Receivable concerned, following which, for the avoidance of doubt, the Seller shall have no liability to transfer the Euro Amount of the Deemed Collection to the Bank (unless for any reason the payment referred to in paragraph (iii) above is for any reason set aside or has to be returned by the Bank to the Seller or a liquidator of the Seller). (b) The Documents shall contain only such provisions as are necessary to effect the transfer referred to in paragraph (a)(i) above (and not, for the avoidance of doubt, any representations, warranties, undertakings or indemnities on the part of the Bank). The Bank shall not be obliged to execute any Document that does not comply with this paragraph (b) and may make such amendments to the Documents as the Bank deems appropriate in order that the Documents do so comply. Further the Bank may (acting in good faith), before executing the Documents, require the Seller to deliver a certificate (substantially in the form of an Officer's Certificate, mutatis mutandis) signed by two of its officers. (c) The reasonable cost incurred by the Bank in the execution and delivery of the Documents shall be borne exclusively by the Seller concerned. 9.3 Miscellaneous (a) Should the Seller concerned fail to pay the Deemed Collections out of its own resources or fail to make any payment referred to in Clause 9.2(a)(iii), the Bank may automatically set-off (i) the amount due to the Depositor under the Subordinated Deposit and the Additional Deposit against (ii) the amount due to the Bank by reason of the Deemed Collections or the amount of such payment (as appropriate). As soon as practicable, the Bank shall notify the Seller concerned after exercise of its right of set-off. (b) Any Deemed Collection shall remain outstanding until it has been paid in full by the Seller concerned either out of its own resources or by virtue of the operation of paragraph (a) above or by the Depositor. - -------------------------------------------------------------------------------- 34 - -------------------------------------------------------------------------------- (c) Where any event is a Deemed Collection under more than one paragraph of this Clause 9, the amount of that Deemed Collection shall only be counted once for the purposes of paragraphs this Clause and for the purpose of calculating the amount of Collections. 10. REPRESENTATIONS RELATING TO TRANSFERRED RECEIVABLES 10.1 Introduction Each Seller makes the following representations and warranties to the Bank with respect to each receivable referred to in a Transfer Document delivered by such Seller to the Bank: 10.2 Relevant Receivables Each such receivable: (a) exists and is a Relevant Receivable and the information provided in respect of each such receivable in such Transfer Document and any related magnetic or electronic support is complete and accurate in all material respects; and (b) comprises, in the case of Transferred Receivables transferred by (i) Mattel France S.A., a claim against the relevant Debtor which is a creance certaine and (ii) Mattel GmbH, a claim against the relevant Debtor which is ascertained (bestimmter Geldbetrag). 10.3 Third party rights No such receivable: (a) is or has been the subject of any prior transfer or assignment, subrogation, delegation, attachment or seizure whatsoever (whether in whole or in part), nor of any security interest, lien or encumbrance whatsoever and there exists no impediment to its assignment or transfer in accordance with the Closing Documents; (b) is subject to any right of set-off, counterclaim, deduction or withholding whatsoever or subject to any valid Adverse Claims of any nature. 10.4 Title Each Seller has, from the time of its origination up to and including the relevant Transfer Date, full title to and ownership of each such receivable and any Related Security and Related Rights relating thereto. 10.5 Compliance with Sales Contracts and applicable laws (a) Each Sales Contract under which any such receivable arises shall be the legal, valid binding and enforceable obligations of the Seller and the Debtor concerned and the relevant Debtor and the Seller are each in compliance with all of their respective obligations (except to the extent that any such obligation is of an immaterial and technical or administrative nature) under those Sale Contracts and all requirements of such Sales Contracts upon which payment by the Debtor may be dependent have been fulfilled in all respects. (b) Each Seller is in compliance in all material respects with the provisions of all laws and regulations which apply to (i) each such receivable and any Related Security and Related - -------------------------------------------------------------------------------- 35 - -------------------------------------------------------------------------------- Rights relating thereto and (ii) the relevant Sales Contracts and all Authorisations necessary for the execution and performance of such Sale Contracts have been obtained and are in full force and effect. 10.6 Related Security All Related Security and Related Rights relating to any such receivable is legally binding and enforceable in accordance with its applicable terms. 10.7 Times for making representations and warranties The representations and warranties set out in this Clause 10 are made with respect to such receivable on the Transfer Date for that receivable. 11. REPRESENTATIONS RELATING TO ELIGIBLE TRANSFERRED RECEIVABLES Each Seller represents and warrants to the Bank that all receivables comprising the aggregate amount of receivables stated by it in an Assessment Report to be Eligible Transferred Receivables, satisfy the criteria for Eligible Transferred Receivables set out in Part II of Schedule 2. The representation and warranty referred to in this Clause 11 shall be made by each Seller on the date of each Assessment Report delivered by it. 12. GENERAL REPRESENTATIONS 12.1 Introduction Each Obligor makes the representations and warranties set out in this Clause 12 to the Bank. 12.2 Status (a) It is a limited liability company duly incorporated and validly existing under the laws of its jurisdiction of incorporation; and (b) it has the power to own the assets recorded on its balance sheet and carry on its business as it is being conducted. 12.3 Powers and authority It has the power to enter into and perform, and has taken all necessary action to authorise the entry into, performance and delivery of, the Closing Documents to which it is or will be a party and the transactions contemplated by those Closing Documents. 12.4 Legal validity Each Closing Document to which it is or will be a party constitutes, or when executed in accordance with its terms will constitute, its legal, valid and binding obligation enforceable in accordance with its terms subject, in the case of enforceability, to the Reservations. 12.5 Authorisations All Authorisations required in connection with the entry into by it, its performance, the validity and enforceability against it of, and the transactions contemplated by, the Closing - -------------------------------------------------------------------------------- 36 - -------------------------------------------------------------------------------- Documents to which it is a party have been obtained or effected (as appropriate) and are in full force and effect subject, in the case of enforceability, to the Reservations. 12.6 Pari passu ranking Its obligations under the Closing Documents to which it is a party rank and will rank at least pari passu with all its other present and future unsecured and unsubordinated obligations (except for obligations which are mandatorily preferred by law applying to companies generally in the jurisdiction of its incorporation). 12.7 Taxes on payments All amounts of Transfer Fee, Commitment Fee and Collections payable by it under the Closing Documents may be made free and clear of and without deduction for or on account of any Tax (other than any applicable notarial fees) in France, Germany or the Netherlands. 12.8 Immunity (a) The execution by it of each of the Closing Documents to which it is party constitutes, and its exercise of its rights and performance of its obligations under each such Closing Document will constitute, private and commercial acts done and performed for private and commercial purposes; and (b) it will not be entitled to claim immunity from suit, execution, attachment or other legal process in any proceedings taken in the jurisdiction of its incorporation in relation to any Closing Document. 12.9 Non-conflict The entry into and performance by it of, and the transactions contemplated by, the Closing Documents to which it is a party do not and will not: (a) conflict in any material respect with any law or regulation or judicial or official order applicable to it (subject to the Reservation with respect to French Decree 96-1112 of 18th December, 1996 relating to out of court recovery); or (b) conflict with its constitutional documents; or (c) conflict in any material respect with any document which is binding upon it or any of its assets. 12.10 No default (a) No Event of Early Amortisation is outstanding in relation to it or could be reasonably expected to result from the performance of any transaction contemplated by this Agreement; and (b) no other event is outstanding which constitutes (or with the giving of notice, lapse of time, determination of materiality or the fulfilment of any other applicable condition or any combination of the foregoing, would constitute) a default under any document which is binding on it or any of its assets to an extent or in a manner which could reasonably be expected to have a Material Adverse Effect. - -------------------------------------------------------------------------------- 37 - -------------------------------------------------------------------------------- 12.11 Litigation (a) No litigation, arbitration or administrative proceedings are currently being taken against it or, to the best of its knowledge, pending or threatened, which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. (b) No proceedings of any nature are current or, to the best of its knowledge, pending or threatened, for its winding-up or dissolution of, or in respect of any insolvency proceeding of any nature relating to it. 12.12 Accounts Its accounts (consolidated if delivered and audited in the case of each Seller) and the audited consolidated accounts of the Parent, most recently delivered to the Bank (which at the date of this Agreement are the Original Accounts): (a) have been prepared in accordance with accounting principles and practices generally accepted in the jurisdiction of incorporation of the Obligor to which such accounts relate or in accordance with U.S. GAAP in the case of the Parent's accounts and any consolidated accounts relating to an Obligor, consistently applied; and (b) fairly represent its financial condition (consolidated if appropriate) or, as the case may be, the Parent's consolidated financial condition as at the date to which they were drawn up, and there has been no change in its financial condition (consolidated if appropriate) or, as the case may be, the Parent's consolidated financial condition since the date to which those accounts were drawn up which could reasonably be expected to have a Material Adverse Effect. 12.13 Information All factual information provided by it in writing to the Bank in connection with the Closing Documents is true and accurate in all material respects and not misleading in any material respect. 12.14 Compliance with laws It carries on its business in all material respects in accordance with all applicable laws and regulations (including, without limitation, those relating to the environment) where failure to do so could reasonably be expected to have a Material Adverse Effect. 12.15 Jurisdiction/governing law (a) Its: (i) irrevocable submission under Clause 34.1 (Jurisdiction) to the jurisdiction of the courts of Amsterdam; (ii) agreement that this Agreement is governed by the laws of the Netherlands; and (iii) agreement not to claim any immunity to which it or its assets may be entitled, - -------------------------------------------------------------------------------- 38 - -------------------------------------------------------------------------------- are legal, valid and binding under the laws of the jurisdiction of its incorporation subject to the Reservations. (b) Any judgement obtained in the Netherlands in legal proceedings based on or in connection with the Closing Documents will be recognised and enforced by the courts of the jurisdiction of its incorporation without re-examination or re-litigation of the matter thereby adjudicated (subject to the provisions of the Brussels Convention on jurisdiction and enforcement of judgements in civil and commercial matters, 1968). 12.16 Ownership (a) The Parent owns and controls (whether directly or indirectly) the entirety (other than any minority holdings of share capital or voting rights by directors of any Obligor as required by applicable law) of the issued and paid up share capital and voting rights of each Obligor. (b) The Depositor is a Controlling Owner of the Sellers. 12.17 Times for making representations and warranties The representations and warranties set out in this Clause 12: (a) are made on the date of this Agreement; and (b) (with the exception of Clause 12.7 (Taxes on payments)) are deemed to be repeated by each Obligor on each Transfer Date with reference to the facts and circumstances then existing. 13. INFORMATION UNDERTAKINGS 13.1 Duration The undertakings in this Clause 13.1 shall remain in force from the date of this Agreement until the Agreement Expiry Date. 13.2 Financial information (a) Each Obligor shall supply to the Bank as soon as the same are available (and in any event within 120 days (in the case of Mattel France S.A. and the Depositor) or 180 days (in the case of Mattel GmbH) of the end of each of its financial years) its accounts (consolidated if prepared and audited in the case of each Seller) for that financial year together with the report of its board of directors and auditors (in each case if any) relating thereto and an extract of the minutes of the annual general meeting approving the accounts. (b) The Depositor shall supply to the Bank as soon as the same are available (and in any event within 120 days of the end of each of the Parent's financial years) the audited consolidated accounts of the Parent for that financial year together with the report of its board of directors and auditors (in each case if any) relating thereto. (c) Each Obligor shall ensure that each set of accounts delivered by it pursuant to paragraph (a) above: (i) is prepared in accordance with accounting principles and practices generally accepted in the jurisdiction of incorporation of the Obligor to which such accounts relate or in - -------------------------------------------------------------------------------- 39 - -------------------------------------------------------------------------------- accordance with U.S. GAAP in the case of any consolidated accounts relating to an Obligor, and (as appropriate) on the same basis as was used in the preparation of its Original Accounts; (ii) shall give a true and fair view of the financial condition of the Obligor as at the end of the period to which those accounts relate and of the results of its operations during that period; and (iii) is (in the case of each Seller's accounts referred to in paragraph (a)(i) above) audited by an internationally recognised independent qualified firm of auditors. (d) Together with each set of accounts referred to in paragraph (a) above, the Seller shall deliver to the Bank an Auditors' Certificate and the Depositor shall deliver to the Bank an Officer's Certificate. 13.3 Information - miscellaneous (a) Each Obligor shall supply to the Bank: (i) all documents despatched by it to (A) its shareholders (or any class of them) concerning the convening of, agendas for and resolutions to be considered at shareholders meetings or involving or containing reports or information relating to its affairs and activities, or (B) by it to its creditors generally (or any class of them) at the same time as they are despatched; (ii) promptly upon becoming aware of them, details of any litigation, arbitration or administrative proceedings which are current, threatened or pending, and which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; and (iii) within a reasonable period of time following request therefor, any other information, documents and records in its possession, custody or control as the Bank may at any time reasonably request regarding its financial condition, operations or Relevant Receivables or which in the Bank's opinion (acting in good faith) will enable the Bank to verify the fulfilment by any Seller of its obligations under this Agreement with regard to the recovery of sums due under the Transferred Receivables. (b) Each Seller shall: (i) keep the Bank fully informed of the existence and material progress of any legal or arbitration proceedings relating to Transferred Receivables (including, without limitation for the purpose of recovering sums due under that Transferred Receivable), in respect of an amount of (Euro)1,000,000 or more (or the equivalent in other currencies); (ii) promptly upon becoming aware of the same, notify the Bank of any other event (including the loss or disappearance of any security interest or claim) which shall prejudice the payment of any sum in excess of (Euro) 1,000,000 (or the equivalent in other currencies) in respect of a Transferred Receivable; (iii) promptly (and to the fullest extent it is aware of the same) inform the Bank of all Related Security and Related Rights relating to each Transferred Receivable transferred by it and to co-operate with the Bank if and when the same are exercised; and - -------------------------------------------------------------------------------- 40 - -------------------------------------------------------------------------------- (iv) without prejudice to Clause 14.14 (Amendments to Sales Contracts and Sales Administration Guidelines) give prior notification to the Bank of any proposed change to its Sale Administration Guidelines. 13.4 Notification of Amortisation Events and compliance certificates (a) Each Obligor shall notify the Bank of any Amortisation Event (and the steps, if any, being taken to remedy it) promptly upon becoming aware of the same. (b) Each Obligor shall supply to the Bank: (i) together with its accounts under Clause 13.2(a) (Financial information); and (ii) promptly at any other time, if the Bank (acting in good faith) so requests, a certificate signed by two of its senior officers on its behalf certifying that no Amortisation Event relating to it is outstanding, or, if an Amortisation Event relating to it is outstanding, specifying the Amortisation Event and the steps, if any, being taken to remedy it. 13.5 Information relating to Transferred Receivables (a) Each Seller shall: (i) preserve all contractual documentation (including Sales Contracts and invoices) and the computer information underlying each Transferred Receivable and any Related Security and Related Rights; (ii) maintain full and proper accounts and records, showing clearly all transactions, payments and proceedings relating to each Transferred Receivable transferred by it since the date of its origination; (iii) ensure that all such contractual documentation, computer information, accounts and records referred to in paragraphs (i) and (ii) above are up-to-date; (iv) maintain an up to date list of the Transferred Receivables transferred by it under this Agreement on a form of electronic support (including material support) detailing the identity of the relevant Debtors, their addresses, the reference number of the relevant invoices, their invoice date and the maturity, currency and the face value of the receivables; (v) deliver to the Bank promptly on its request (provided such request is made within normal business hours) copies of (or, if the Bank so requests, allow the Bank or any person appointed by the Bank, during normal business hours, to have access to and to take copies of) the contractual documentation, computer information and supporting documentation referred to in paragraphs (i) and (ii) above. (b) Each Seller shall ensure that its accounts and records permit the identification of which of its receivables are Transferred Receivables. (c) Any costs incurred by the Sellers in connection with the entry into Transfer Documents, the preparation and maintenance of the support and the compliance with paragraph (a) above - -------------------------------------------------------------------------------- 41 - -------------------------------------------------------------------------------- shall be borne exclusively by the Sellers and neither the Bank nor any person appointed by it shall be under any obligation to reimburse any Seller in respect of such costs. 13.6 Assessment Reports (a) So long as its Collection Mandate has not been terminated by the Bank in accordance with Clause 6.3 (Termination of Collection Mandates and Notices of Transfer), each Seller shall transmit to the Bank before 11.00 a.m. on each Information Date (or as soon as practicable in the case of an Interim Assessment Date) an Assessment Report relating to the month ending on the immediately preceding Assessment Date or Interim Assessment Date (as appropriate). (b) Each Seller shall procure that each Assessment Report delivered by it: (i) identifies each Debtor which, as at the Assessment Date or Interim Assessment Date to which the Assessment Report relates, has outstanding against it: (A) in the case of Mattel France S.A. (1) Delinquent Receivables exceeding (Euro)2,000,000 (or the equivalent in other currencies), or (2) Defaulted Receivables exceeding (Euro)1,000,000 (or the equivalent in other currencies); and (B) in the case of Mattel GmbH (1) Delinquent Receivables exceeding (Euro)1,000,000 (or the equivalent in other currencies), or (2) Defaulted Receivables exceeding (Euro)500,000 (or the equivalent in other currencies); and (ii) does not contain misleading or inaccurate information (excluding any de-minimis errors). 13.7 Audit Each Seller shall, upon the Bank's reasonable request, arrange, at the Seller's cost, for an audit of the Relevant Receivables originated by it and the collection procedures applying in relation to such Relevant Receivables (provided that the Bank may not make such a request more than once in any period of 12 months). 14. GENERAL UNDERTAKINGS 14.1 Duration The undertakings in this Clause 14.1 shall remain in force from the date of this Agreement until the Agreement Expiry Date. 14.2 Authorisations Subject to the Reservation with respect to French Decree 96-1112 of 18th December, 1996 relating to out of court recovery, each Obligor shall promptly: (a) obtain, maintain and comply with the terms of; and (b) provide certified copies to the Bank of, any authorisation required under any law or regulation to enable it to perform any of its obligations under the Closing Documents to which it is a party, or for the validity or enforceability of, any Closing Document. - -------------------------------------------------------------------------------- 42 - -------------------------------------------------------------------------------- 14.3 Pari passu ranking Each Obligor shall procure that its obligations under the Closing Document do and will rank at least pari passu with all its other present and future unsecured and unsubordinated obligations (except for obligations which are mandatorily preferred by law applying to companies generally in the jurisdiction of its incorporation). 14.4 Insurance Each Obligor shall insure its assets with insurance companies to such an extent and against such risks as companies engaged in a similar business as that Obligor normally insure and each Seller shall comply with any material requirements as to insurance in place (if any) arising out of its capacity as collection agent for the Bank in respect of the Transferred Receivables (provided that this Clause 14.4 shall not have the effect of obliging any Obligor to take out and maintain any insurance policy relating to operational loss). 14.5 Maintenance of status Each Obligor shall: (a) do all such things as are necessary to maintain its corporate existence; and (b) ensure that it has the right and is duly qualified to conduct its business as it is conducted in all applicable jurisdictions. 14.6 Compliance with laws Each Obligor shall comply in all respects with all laws to which it is subject where failure to do so has, or could reasonably be expected to have, a Material Adverse Effect. 14.7 Transfer Documents and magnetic or electronic supports Each Seller shall procure that all information and particulars relating to Transferred Receivables appearing in each Transfer Document and each magnetic or electronic support relating to any Transfer Document delivered by it is accurate and complete in all material respects and does not omit any information and particulars which would result in any Transfer Document or supports related thereto being misleading in any material respect (and shall promptly notify the Bank upon it becoming aware that this is not in any instance the case). 14.8 Collection and recovery (a) Each Seller shall act in the recovery of the sums due under the Transferred Receivables transferred by it as would a prudent and informed businessman, and be no less diligent than it would have been in recovering sums due under Transferred Receivables if it had not transferred such receivables to the Bank. (b) Without prejudice to paragraph (a) above, each Seller shall: (i) apply to the recovery of sums due under Transferred Receivables transferred by it collection and recovery procedures that comply with all applicable laws and regulations and the relevant Sales Contracts and the Sales Administration Guidelines (except to the extent that the relevant provisions or elements of such Sales Contracts - -------------------------------------------------------------------------------- 43 - -------------------------------------------------------------------------------- or Sales Administration Guidelines are of an immaterial and technical or administrative nature); (ii) take all steps as are within its power as may be required to ensure that all Related Security and Related Rights relating to Transferred Receivables transferred by it remain in force and are exercised in a timely fashion; (iii) take all reasonable steps as are within its power to oppose any claim challenging the existence, validity, amount or maturity of any Transferred Receivables transferred by it or any Related Security or Related Rights; (iv) take such steps as are within its power (including, without limitation, legal or arbitration proceedings) as may reasonably be requested by the Bank or considered necessary or appropriate for the recovery of sums due under the Transferred Receivables transferred by it and any Related Security or Related Rights (including, without limitation, taking action against Credit Insurers); and (v) take all reasonable steps promptly to cause any attachment, seizure or any other enforcement measure levied or applied for against any Seller's Account or any Transferred Receivable to be released or withdrawn to the satisfaction of the Bank. (c) The Depositor shall take all reasonable steps promptly to cause any attachment, seizure or any other enforcement measure levied or applied for against the Depositor's Account to be released or withdrawn to the satisfaction of the Bank. 14.9 Taxes Each Seller shall collect and pay within any applicable time limit all applicable Taxes (other than Excluded Tax) in relation to the Transferred Receivables transferred by it and the Closing Documents as are required to be collected and paid by each Seller by applicable law. 14.10 Promissory notes and negotiable instruments Where a Relevant Receivable is evidenced by a negotiable instrument, no Seller shall endorse, deliver, release or negotiate that instrument to, or in favour of, any person other than the Bank (and each Seller concerned shall endorse, deliver, release or negotiate any such negotiable instrument to or in favour of the Bank promptly upon the Bank's request on a non recourse basis either (a) if to do so is necessary to confer title to the Relevant Receivable on the Bank or (b) following the termination of that Seller's Collection Mandate relating to that Relevant Receivable in accordance with Clause 6.3 (Termination of Collection Mandates and Notices of Transfer)). 14.11 Subsequent transfers No Seller shall enter into any subsequent assignment or transfer or subrogation of any description (or purport or agree to do so) of any Transferred Receivable or any Related Security or Related Rights or grant any security interest over or in relation to any Transferred Receivable or act in any way that might result in an Adverse Claim being made in respect of any Transferred Receivable. - -------------------------------------------------------------------------------- 44 - -------------------------------------------------------------------------------- 14.12 Rating Agencies (a) Subject to paragraph (b) below, each Obligor shall promptly comply with the requirements of the Rating Agencies (as notified by the Bank to the Obligors) with regard to the Relevant Receivables and the Closing Documents (including, without limitation, any requirements of the Rating Agencies relating to amendments to the Closing Documents or the provision of further information relating to the Obligors or legal opinions). (b) If any Obligor does not agree to any requirements of the Rating Agencies referred to in paragraph (a) above, the Sellers may (without premium or penalty and without obligation to indemnify the Bank for any costs or losses arising on such cancellation other than in respect of breakage costs under Clause 23.1 (Breakage costs), if any, but without prejudice to the Obligors continuing obligations under the Closing Documents with respect to Transferred Receivables) cancel the Maximum Amount of the Bank's Funding forthwith by notice to the Bank (and such cancellation shall take effect on the first Information Date after such notice is given). Any notice of cancellation under this Clause 14.12 shall be irrevocable and no amount of the Maximum Amount of the Bank's Funding cancelled under this Clause 14.12 shall be reinstated. 14.13 Further assurances Each Obligor shall, at its own expense, take whatever action the Bank may reasonably require to facilitate or effect the transfer of Relevant Receivables and Related Security and Related Rights pursuant to this Agreement and any Transfer Document, including the execution of any transfer, conveyance, assignment or assurance and the giving of any notice, order or direction and the making of any registration, which the Bank may, in its reasonable opinion, think necessary (including, without limitation, the endorsement of any negotiable instruments relating to Relevant Receivables to or in favour of the Bank or the delivery of any such negotiable instruments to the Bank, in each case to the fullest extent practicable and permitted by applicable law). 14.14 Amendments to Sales Contracts and Sales Administration Guidelines (a) No Seller shall: (i) subject to paragraphs (b) and (c), below make, or agree to make, any amendment or waiver to any Sales Contract which would have the effect of: (A) reducing the amount, place of payment or the originally applicable Maturity Date of any Transferred Receivable (other than to remedy a technical error so as to ensure compliance with the Sales Administration Guidelines); (B) waiving, impairing, invalidating or reducing the Related Security or Related Rights attached to any Transferred Receivable; (C) changing the governing law of the Sales Contract or introducing a restriction or prohibition on the transfers of Relevant Receivables contemplated by the Closing Documents; or (D) adversely affecting the collectability of any Transferred Receivable or the ability of the Seller concerned to perform any of its obligations, or the rights of the Bank, under the Closing Documents; or - -------------------------------------------------------------------------------- 45 - -------------------------------------------------------------------------------- (ii) make any material change to the Sale Administration Guidelines (including, without limitation, the collection procedures in operation thereunder at the date of this Agreement). (b) A Seller may in the context of Insolvency Proceedings relating to a Debtor, participate in, make proposals for, or agree to the terms of, a voluntary rescheduling of that Debtor's indebtedness (and may make proposals for that purpose) provided that: (i) its Collection Mandate with respect to Transferred Receivables owing by that Debtor has not been terminated by the Bank; (ii) the Seller at all times complies with its obligations under Clause 14.8 (Collection and recovery) with respect to its involvement in such rescheduling; (iii) the Seller keeps the Bank fully informed of the progress of such rescheduling; and (iv) if the aggregate amount of the Transferred Receivables subject to such rescheduling exceeds (euro) 5,000,000 (or its equivalent in other currencies), the Seller shall act in accordance with the Bank's instructions with respect to such rescheduling and shall not enter into any agreement with in relation thereto without the prior consent of the Bank, and such consent shall be deemed to have been given if not expressly refused by the Bank within five Business Days of the Seller's request. (c) Each Seller may issue Credit Notes or grant Commercial Discounts in accordance with its Sales Administration Guidelines in relation to any Transferred Receivable with respect to which its Collection Mandate has not been terminated, provided that, for the avoidance of doubt, any such Credit Note or Commercial Discount shall be a Deemed Collection. 14.15 Performance of Sales Contracts and related matters (a) Each Seller shall comply with its contractual obligations (except to the extent that the relevant obligations are of an immaterial and technical or administrative nature) under: (i) the Sales Contracts under which any Transferred Receivables is outstanding and shall in no event act in such a way that any Debtor is able to raise any valid set-off, counterclaim, deduction or withholding of any nature whatsoever or any valid defence that it is not obliged to make payment in full in cash in respect of any Transferred Receivable to the Bank on the originally applicable Maturity Date; and (ii) any applicable Credit Insurance Policy (if any) such that no insurance company is able to raise any claim or defence, set-off, counterclaim, deduction or withholding of any nature whatsoever that it is not obliged to make payment in full in cash under any such insurance policy. (b) No Seller shall use any Seller's Account for any purpose other than those provided for in the Closing Documents. (c) No Seller shall use software for the management of Transferred Receivables unless the software user license allows it to be used for the management of assets which are no longer owned by that Seller. - -------------------------------------------------------------------------------- 46 - -------------------------------------------------------------------------------- 14.16 Conduct of business No Seller shall conduct its business in a way that could reasonably be expected to materially adversely affect the collectability of the Transferred Receivables or otherwise have a Material Adverse Effect. 14.17 Accounts (a) No Obligor shall create or allow to subsist any security interest or encumbrance on or over its Seller's Account (in the case of the Sellers) or the Depositor's Account (in the case of the Depositor). (b) Each Obligor shall operate its Seller's Account (in the case of the Sellers) or the Depositor's Account (in the case of the Depositor) exclusively for the purpose of the Closing Documents or any agreement relating thereto. 14.18 Change of business Except with the prior written consent of the Bank (which consent shall not be unreasonably withheld or delayed) neither of the Sellers shall engage in any material line of business which is substantially different from the lines of business carried on by such Seller at the date of this Agreement. 14.19 Mergers and disposals (a) Except with the prior written consent of the Bank: (i) no Seller shall enter into any merger or demerger; provided, however, that without the Bank's consent a Seller may enter into any of the following transactions on a solvent basis with a Mattel Wholly-Owned Subsidiary: (A) a merger in which the Seller is the surviving entity; or (B) a partial contribution to the Seller of assets from another Mattel Wholly-Owned Subsidiary, whereby assets and liabilities comprising part of the business of such Mattel Wholly-Owned Subsidiary are transferred to the Seller in exchange for shares of the Seller, provided further, in this case, that the Depositor remains the Controlling Owner of the Seller, and provided further that: (1) the Bank is given prior notice of the transaction; (2) the Rating Agencies have confirmed that they have no objection to the transaction or any requirement of any Rating Agency with respect to such transaction has been fulfilled; and (3) the transaction does not have, and could not reasonably be expected to have, a Material Adverse Effect; (ii) no Seller shall, either in a single transaction or in a series of transactions, whether related or not and whether voluntarily or involuntarily, sell, transfer, grant, lease or - -------------------------------------------------------------------------------- 47 - -------------------------------------------------------------------------------- otherwise dispose of a material portion of its assets, if to do so has, or could reasonably be expected to have, a Material Adverse Effect; (iii) the Depositor shall not enter into any merger or demerger; provided, however, that without the Bank's consent the Depositor shall be permitted to enter into any of the following transactions on a solvent basis with a Mattel Wholly-Owned Subsidiary: (A) a merger in which the surviving entity is the Depositor; (B) a partial contribution to the Depositor of assets from another Mattel Wholly-Owned Subsidiary, whereby assets and liabilities comprising part of the business of such Mattel Wholly-Owned Subsidiary are transferred to the Depositor in exchange for shares of the Depositor; or (C) a merger in which the Depositor merges with and into another Mattel Wholly-Owned Subsidiary (other than the Sellers), with such Mattel Wholly-Owned Subsidiary as the surviving entity, provided that all of the following conditions are met: (1) the Depositor will cease to exist; and (2) the surviving entity will, by operation of law, acquire all rights and assume all obligations of the Depositor under the Closing Documents; and (3) the surviving entity will be a company duly incorporated and validly existing under the laws of the Netherlands; and (4) the surviving entity will be the Controlling Owner of the Sellers; and (5) the Bank first receives legal opinions in form reasonably satisfactory to the Bank and the Rating Agencies (if necessary) as to conditions (1) to (3) (inclusive) above, and a certificate from an authorised signatory of the Parent and/or the surviving entity reasonably satisfactory to the Bank as to condition (4) above, and provided further that (in the case of (A), (B) and (C) above): (I) the Bank is given prior notice of the transaction; (II) the Rating Agencies have confirmed that they have no objection to the transaction or any requirement of any Rating Agency with respect to such transaction has been fulfilled; and (III) the transaction does not have, and could not reasonably be expected to have, a Material Adverse Effect; and (iv) the Depositor shall not, in a single transaction or in a series of transactions, whether related or not and whether voluntary or involuntary, sell, transfer, grant, lease or otherwise dispose of a material portion of its assets; provided, however, that without the Bank's consent the Depositor may, on a solvent basis, (A) transfer its legal relationship (rechtsverhouding) with the Sellers and the Bank under the Closing Documents, being all of the rights and obligations of the Depositor, to a Mattel - -------------------------------------------------------------------------------- 48 - -------------------------------------------------------------------------------- Wholly-Owned Subsidiary or (B) transfer all of its assets and liabilities to a Mattel Wholly-Owned Subsidiary (an activa/passiva transactie), if in the case of either (A) or (B) all of the following conditions are met: (1) the transferee will, as a result of the transfer, acquire all rights and assume all obligations of the Depositor under the Closing Documents (upon which references in the Closing Documents to the Depositor shall refer to the transferee); and (2) the transferee will be a company duly incorporated and validly existing under the laws of the Netherlands; and (3) the transferee will, upon completion of the transfer and any related transactions, be the Controlling Owner of the Sellers; and (4) the Bank first receives legal opinions in form reasonably satisfactory to the Bank and the Rating Agencies (if necessary) as to conditions (1) and (2) above, and a certificate of the Parent and/or the surviving entity reasonably satisfactory to the Bank as to condition (3) above, and provided further that (I) the Bank is given prior notice of the transaction; (II) the Rating Agencies have confirmed that they have no objection to the transaction or any requirement of any Rating Agency with respect to such transaction has been fulfilled; and (III) the transaction does not have, and could not reasonably be expected to have, a Material Adverse Effect. (b) The Bank agrees: (i) to consider in good faith any request by an Obligor to enter into a transaction which is prohibited by this clause; and (ii) in accordance with Article 6:159 of the Netherlands Civil Code, to cooperate in advance with the Depositor and the Sellers with regard to any transaction referred to in this Clause 14.19 for which the Bank's consent is not required. (c) In this Clause 14.19, the expression "on a solvent basis" in relation to a transaction means that no company involved in that transaction is in Insolvency Proceedings at the time that transaction is to take place. (d) The Depositor (or its permitted successor or transferee) shall pay the reasonable costs and expenses of the Bank, including but not limited to the Bank's reasonable attorneys' fees, in connection with any of the following: (i) review by the Bank of any transaction pursuant to this Clause 14.19 as to which the Bank's consent is sought; (ii) review by the Bank of the opinion and the certificate mentioned in Clause 14.19(a)(iii)(C)(5) and Clause 14.19(a)(iv)(4) above; - -------------------------------------------------------------------------------- 49 - -------------------------------------------------------------------------------- (iii) the cooperation of the Bank pursuant to Clause 14.19(b); or (iv) any re-evaluation by the Rating Agencies due to any transaction pursuant to this Clause 14.19. 15. Events of Early Amortisation 15.1 Events of Early Amortisation Each of the events set out in this Clause 15 is an Event of Early Amortisation (whether or not caused by any reason whatsoever outside the control of any Obligor or any other person). 15.2 Non-payment An Obligor does not pay on the due date (or within two Business Days of the due date where the failure to pay is for administrative or technical reasons) any amount payable by it under the Closing Documents at the place at, and in the currency in, which it is expressed to be payable. 15.3 Breach of other obligations An Obligor does not comply with any provision of the Closing Documents (other than those referred to in Clause 15.2 (Non-payment) and the failure to comply, if it is (in the reasonable opinion of the Bank) capable of remedy, continues for seven Business Days after the date of its occurrence. 15.4 Misrepresentation (a) A representation, warranty or statement made or repeated in or in connection with any Closing Document or in any document delivered by or on behalf of any Obligor under or in connection with any Closing Document is incorrect in any material respect when made or deemed to be made or repeated and, if the facts or circumstances giving rise to the representation, warranty or statement being made or repeated incorrectly are (in the reasonable opinion of the Bank) capable of remedy or negation, such facts or circumstances are not remedied or negated within seven Business Days of the making or repetition of the representation, warranty or statement concerned. (b) Without prejudice to paragraph (a) above), any Obligor delivers to the Bank any document containing information concerning the Transferred Receivables which is inaccurate, misleading or incomplete in any material respect and, if the inaccuracy, misleading nature or incompleteness of the information concerned is (in the reasonable opinion of the Bank) capable of being remedied, it is not remedied within seven Business Days of the earlier of the date on which the Obligor concerned becomes aware of such matter and the date on which the Bank gives notice thereof to the Obligor concerned. 15.5 Cross-default (a) Any Financial Indebtedness of the Depositor at any time exceeding in aggregate U.S.$15,000,000 (or the equivalent in other currencies) in outstanding principal amount (i) is declared currently due and payable as a result of the occurrence and continuance of an event of default (howsoever described) with respect to that Financial Indebtedness, or (ii) is not paid - -------------------------------------------------------------------------------- 50 - -------------------------------------------------------------------------------- when due under the terms of the credit documentation relating to such Financial Indebtedness; or (b) any Financial Indebtedness of the Sellers (or either of them) at any time exceeding in aggregate U.S.$5,000,000 (or the equivalent in other currencies) in outstanding principal amount (i) is declared currently due and payable as a result of the occurrence and continuance of an event of default (howsoever described) with respect to that Financial Indebtedness, or (ii) is not paid when due under the terms of the credit documentation relating to such Financial Indebtedness. 15.6 Insolvency (a) Any member of the Relevant Group is, or is deemed for the purposes of any law to be, unable to pay its debts as they fall due or to be insolvent, or admits inability to pay its debts as they fall due; or (b) any member of the Relevant Group suspends making payments on all or any class of its debts or announces an intention to do so, or a moratorium is declared in respect of any of its indebtedness; or (c) any member of the Relevant Group, by reason of financial difficulties, begins negotiations with one or more of its creditors with a view to the readjustment or rescheduling of any of its indebtedness. 15.7 Insolvency proceedings (a) Any step (including petition, proposal or convening a meeting) is taken with a view to a composition, assignment or arrangement with any creditors of any member of the Relevant Group; or (b) a meeting of any member of the Relevant Group is convened for the purpose of considering any resolution for (or to petition for) its winding-up or for its administration or any such resolution is passed; or (c) any person presents a petition for the winding-up or for the administration of any member of the Relevant Group; or (d) an order for the winding-up or administration of any member of the Relevant Group is made; or (e) any other step (including petition, proposal or convening a meeting) is taken with a view to the rehabilitation, administration, custodianship, liquidation, winding-up or dissolution of any member of the Relevant Group or any other insolvency proceedings involving any member of the Relevant Group. 15.8 Appointment of receivers and managers (a) Any liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or the like is appointed in respect of any member of the Relevant Group or any part of its assets; or - -------------------------------------------------------------------------------- 51 - -------------------------------------------------------------------------------- (b) the directors of any member of the Relevant Group requests the appointment of a liquidator, trustee in bankruptcy, judicial custodian, compulsory manager, receiver, administrative receiver, administrator or the like; or (c) any other steps are taken to enforce any security interest or encumbrance over any part of the assets of any member of the Relevant Group. 15.9 Creditors' process / final judgement (a) Any attachment, sequestration, distress or execution affects: (i) any Seller's Account or the Depositor's Account; or (ii) any other material asset of a member of the Relevant Group and is not discharged within 14 days; (b) a final, non appealable judgment or court order for the payment of (euro)5,000,000 or more (or the equivalent in other currencies) is made against any member of the Relevant Group and continues unsatisfied for a period of 45 days after the date for payment set forth in the judgment or order. 15.10 Analogous proceedings There occurs, in relation to a member of the Relevant Group, any event anywhere which, in the reasonable opinion of the Bank, appears to be analogous to any of those mentioned in Clauses 15.6 (Insolvency) to 15.9 (Creditors' process) (inclusive). 15.11 The Parent (a) (i) A court having jurisdiction in respect of the Parent shall enter a decree or order for relief in respect of the Parent in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed, (ii) any other similar relief shall be granted in respect of the Parent under any applicable federal or state or applicable foreign law, (iii) a petition for an involuntary case is filed against the Parent under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (iv) a decree or order is made by a court having jurisdiction in respect of the Parent for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers in respect of the Parent, or in respect of all or substantially all of its property, or (v) an interim receiver, trustee or other custodian is appointed in respect of the Parent for all or substantially all of the property of the Parent shall be appointed involuntarily, and any such events referred to in (ii) to (v) continue for 45 days unless dismissed, bonded or discharged. (b) (i) An order for relief is entered with respect to the Parent or the Parent commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) the Parent consents to (A) the entry of an order for relief in respect of the Parent in any involuntary case, or (B) the conversion of an involuntary case in respect of the Parent to a voluntary case, under any such law, or (C) the appointment of a receiver, liquidator, sequestrator, trustee or other custodian for all or substantially all of its property or the taking of possession by any such officer of all or substantially all of its property, (iii) the Parent makes any assignment for the benefit of its creditors, (iv) the Parent fails or is unable, or admits in writing that it is unable, generally to pay its debts as such debts become due, or - -------------------------------------------------------------------------------- 52 - -------------------------------------------------------------------------------- (v) the Board of Directors of the Parent adopts any resolution or otherwise takes action to approve any of the foregoing. (c) Any Financial Indebtedness of the Parent in excess of U.S.$25,000,000 (or the equivalent in other currencies) in outstanding principal amount (i) is declared currently due and payable as a result of the occurrence and continuance of an event of default under or in respect of such Financial Indebtedness, or (ii) is not paid when due under the terms of the credit documentation relating to such Financial Indebtedness. 15.12 Unlawfulness and invalidity (a) It is or becomes unlawful for any Obligor to perform any of its material obligations under the Closing Documents (other than the Transfer Documents) or any of its obligations under the Transfer Documents, in each case to which it is party. (b) Any Closing Document (other than a Transfer Document) is not valid, enforceable or effective or is alleged by any Obligor to be invalid, unenforceable or ineffective for any reason or to any material extent or any Transfer Document is not valid, enforceable or effective or is alleged by any Obligor to be invalid, unenforceable or ineffective for any reason or to any extent. 15.13 Cessation of business Any Obligor or the Parent ceases, or states in writing its intention to cease, to carry on all or a substantial part of its business. 15.14 Transfer Documents Any Transfer Document does not operate so as to transfer to and vest in the Bank (without notice of the transfer being given to the relevant Debtor) full title and ownership to and of the receivables referred to therein together all Related Security and Related Rights relating thereto (including, without limitation, the right to receive any default interest for late payment) free and clear of any security interest, third party or other Adverse Claim whatsoever and, to the extent that such breach is capable of remedy, such breach is not remedied within a period of five Business Days following the date of the Transfer Document. 15.15 Program parameters (a) On any Assessment Date the three-month rolling average of the Delinquency Rate exceeds (i) from 1st August to 31st December in any year (both dates inclusive), 3 per cent., and (ii) at any other time, 5 per cent., or the three month rolling average of the Default Rate exceeds 8.25 per cent., or the three month rolling average of the Dilution Rate exceeds (i) from 1st July to 31st December in any year (both dates inclusive) 4.5 per cent., and (ii) at any other time, 7 per cent. (b) On any Settlement Date which is not a Transfer Date, the amount of the Bank's Funding plus the amount of the Subordinated Deposit is greater than the Relevant Percentage multiplied by the Net Pool Balance. (c) On any Settlement Date which is not a Transfer Date the ratio expressed as a percentage between (i) the Subordinated Deposit and (ii) the sum of the Bank's Funding and the Subordinated Deposit is less than the Rate of Overcollateralisation. - -------------------------------------------------------------------------------- 53 - -------------------------------------------------------------------------------- 15.16 Material adverse change Any event or series of events occurs which, in the reasonable opinion of the Bank (acting in good faith), has or could reasonably be expected to have a Material Adverse Effect. 15.17 Termination (a) Subject to paragraph (c) below, following the occurrence of an Event of Early Amortisation (with regard to any Obligor) and whilst the same is continuing, the Bank may send a termination notice to the Obligors (through the Depositor) (the "Termination Notice"). (b) On the date of the Termination Notice the Commitment of the Bank will be terminated (and the Bank may otherwise exercise all its rights under the Closing Documents or under applicable law). Following the giving of a Termination Notice, any Transfer Fee and principal amount in respect of any Tranche will be repaid respectively on the applicable Transfer Fee Payment Date and the Maturity Date of the Associated Refinancing related to such Tranche, in accordance with Clause 16.4 (Repayment of the Bank's Funding) and Clause 8 (Settlement and Payments) and provided that in the event that a Shortfall (as defined in Clause16.4) exists, the amount of such Shortfall shall only be refinanced by an Associated Refinancing based on the EURIBOR Plus Rate for one month EURIBOR or Interim EONIA Rate. (c) Where any event referred to in Clause 15.3 (Breach of other obligations), Clause 15.4 (Misrepresentation) or Clause 15.14 (Transfer Documents) also constitutes a Deemed Collection, such event shall not constitute an Event of Early Amortisation (provided that this paragraph shall cease to apply in relation to any Deemed Collection of the type referred to in this paragraph occurring during any Collection Period if the aggregate Euro Amount of all Deemed Collections of such type occurring in that Collection Period exceeds (Euro)3,000,000 (or the equivalent in other currencies)). 16. THE BANK'S FUNDING 16.1 Funding Payments Subject to the provisions of this Agreement, the Bank agrees to make Payments funded: (a) by the Deposits; and (b) out of the Bank's own resources (provided that the amount of the Bank's Funding shall at no time exceed the then applicable Maximum Amount of the Bank's Funding). 16.2 Amount of the Bank's Funding on each Initial Transfer Date (a) Subject to Clause 16.1, on each Initial Transfer Date, the amount of the Bank's Funding shall be equal to the lower of: (i) the Relevant Percentage multiplied by the Net Pool Balance taking into account Relevant Receivables to be transferred to the Bank on that Transfer Date, less the amount of the Subordinated Deposit calculated on such date; and (ii) the then applicable Maximum Amount of the Bank's Funding. - -------------------------------------------------------------------------------- 54 - -------------------------------------------------------------------------------- (b) Following the making of a Payment on an Initial Transfer Date, the then amount of the Bank's Funding shall constitute a new and separate Tranche. 16.3 Increase in the Bank's Funding (a) Subject to Clause 16.1, on each Transfer Date which is not an Initial Transfer Date, the Bank's Funding shall be increased (the "Increase") by an amount equal to: (i) the Relevant Percentage multiplied by the Net Pool Balance, calculated taking into account the Relevant Receivables to be transferred on that Transfer Date, less the amount of the Subordinated Deposit calculated on such date; minus (ii) the amount of the Bank's Funding outstanding on such date prior to any Payment being made. (b) Following the making of a Payment on that Transfer Date, the amount of the Increase shall constitute a new and separate Tranche. 16.4 Repayment of the Bank's Funding (a) The Bank's Funding and the Tranches shall be reduced at the Maturity Date of each Associated Refinancing, by a sum equal to the principal amount of the Associated Refinancing actually repaid out of the Bank's Share of Collections, in accordance with this Clause 16.4. (b) The amount of Collections allocated to the repayment of the Bank's Funding in accordance with Clauses 8.2(a)(i) and 8.3(a)(i) shall be allocated by the Bank to the Tranches. The amount allocated to each Tranche shall be the proportion of those Collections which the amount of the Tranche bears to the aggregate amount of all outstanding Tranches. (c) Each Associated Refinancing shall be repaid on its Maturity Date in an amount equal to the amount of Collections allocated under paragraph (b) above to the Tranche to which such Associated Refinancing relates and such repayment shall be made: (i) first, out of the Amount Withheld by the Bank; and (ii) second, out of the Amount Held by the Depositor, and where the amount applied under this paragraph to the repayment of an Associated Refinancing is less than that Associated Refinancing, the amount of the shortfall (the "Shortfall") shall constitute a new and separate Tranche and be refinanced on the relevant Maturity Date by one or more new Associated Refinancings. (d) To facilitate the repayment of principal on the Maturity Date of an Associated Refinancing: (i) three Business Days before that Maturity Date, the Bank shall give a notice to the Depositor stating the principal amount due on such Maturity Date and the amount which shall be paid out of the Amount Withheld by the Bank in accordance with paragraph (c)(i) above; (ii) two Business Days before that Maturity Date, the Depositor shall: - -------------------------------------------------------------------------------- 55 - -------------------------------------------------------------------------------- (A) calculate the amount to be paid out of the Amount Held by the Depositor in accordance with paragraph (c)(ii) above; and (B) issue to the Bank, before 3.00 p.m., a payment notice specifying (1) the amount determined under (A) above, and (2) the amount of the Shortfall, if any; and (iii) the Depositor shall pay, on that Maturity Date, and before 10.00 a.m., to the credit of the Bank's Account, the amount to be paid out of the Amount Held by the Depositor, as specified in the payment notice. 16.5 Division and consolidation of Tranches (a) Notwithstanding the other provisions of this Clause 16, the Bank may, at any time and without first obtaining the consent of the Obligors, but subject to paragraphs (b) and (c) below: (i) divide a Tranche into two or more Tranches (each a "Divided Tranche"); or (ii) consolidate two or more Tranches into one Tranche (each a "Consolidated Tranche"), and on the date of the division or consolidation each Divided Tranche or Consolidated Tranche shall constitute a new and separate Tranche. (b) The Bank may not divide Tranches unless each of the following conditions is fulfilled: (i) the aggregate amount of the Divided Tranches is equal to the amount of the Tranche divided and such division of Tranches does not result in the total number of Tranches exceeding five; (ii) each Associated Refinancing applicable to the divided Tranche applies to no more than one Divided Tranche, with the same amount, refinancing rate and Maturity Date, so that the Divided Tranches have the same refinancing terms as the Tranche; and (iii) the Residual Amount of the Reserve for Transfer Fee of the Tranche is divided and applied first to the Divided Tranches refinanced by Associated Refinancings based on the BT Rate or CP Rate up to the amount of Transfer Fee which shall fall due on the Transfer Fee Payment Dates related to such Associated Refinancings, and thereafter pari passu to each Divided Tranche in an amount so that the ratios which (x) the Residual Amount of the Reserve for Transfer Fee for each Divided Tranche bears to (y) the Reserve for Transfer Fee, on the date of division, for such Divided Tranche, are the same for all the Divided Tranches. (c) The Bank may not consolidate Tranches unless each of the following conditions is fulfilled: (i) the amount of the Consolidated Tranche is equal to the aggregate amount of the Tranches consolidated; (ii) each Associated Refinancing applicable to each Tranche consolidated applies to the Consolidated Tranche, with the same amount, refinancing rate and Maturity Date, so that the Consolidated Tranche has the same refinancing terms as the Tranches; and - -------------------------------------------------------------------------------- 56 - -------------------------------------------------------------------------------- (iii) the Residual Amount of the Reserve for Transfer Fee of the Consolidated Tranche is equal to the sum of the Residual Amount of the Reserve for Transfer Fee of each Tranche consolidated. (d) By no later than three Business Days after any division or consolidation of Tranches, the Bank shall notify the Obligors of (i) the amount of the Tranche that has been divided and of each Divided Tranche or the amount of each Tranche that has been consolidated and of the Consolidated Tranche, (ii) the amount, refinancing rate and Maturity Date of each Associated Refinancing applicable to each Divided Tranche or the Consolidated Tranche (as appropriate) and (iii) the Residual Amount of the Reserve for Transfer Fee of each Tranche and of each Divided Tranche or Consolidated Tranche (as appropriate). 17. CANCELLATION OF THE MAXIMUM AMOUNT OF THE BANK'S FUNDING (a) The Sellers may (in addition to their rights under Clause 14.12(b) (Rating Agencies) and Clause 22.1(e) (Increased costs)), by giving not less than 15 Business Day's prior notice to the Bank, reduce the Maximum Amount of the Bank's Funding in whole or in part (but if in part, in a minimum amount, and an integral multiple, of (Euro)10,000,000 and provided that the Maximum Amount of the Bank's Funding may not be reduced to below (Euro)20,000,000 (and if it is, the Commitment Termination Date shall be deemed to have occurred on the date the Maximum Amount of the Bank's Funding is so reduced)). (b) Any notice of reduction under paragraph (a) above shall be irrevocable and the reduction shall take effect on the date which is 15 days after the date of receipt by the Bank of such notice. No reduction in the Maximum Amount of the Bank's Funding shall be reinstated. 18. DEPOSITS Pursuant to the terms of the Master Additional Deposit Agreement and the Master Subordinated Deposit Agreement, the Depositor shall make the Additional Deposit and the Subordinated Deposit with the Bank. 18.1 Subordinated Deposit On each Transfer Date, the amount of the Subordinated Deposit shall be equal to the amount of the Bank's Funding (taking into account any Payment to be made on that date) multiplied by the Rate of Overcollateralisation, divided by one less the Rate of Overcollateralisation. 18.2 Additional Deposit (a) On each Initial Transfer Date, the amount of the Additional Deposit shall be equal to the positive difference between: (i) the nominal Euro Amount of Relevant Receivables to be transferred to the Bank on such Initial Transfer Date; and (ii) the amount of the Bank's Funding and Subordinated Deposit on such date. (b) On each Transfer Date other than an Initial Transfer Date, the variation in the Additional Deposit shall be equal to the positive or, if any, negative difference between the two following amounts: - -------------------------------------------------------------------------------- 57 - -------------------------------------------------------------------------------- (i) the difference between (A) the nominal Euro Amount of Relevant Receivables to be transferred to the Bank on that date, and (B) the Euro Amount of Collections related to the latest Collection Period; and (ii) the sum of the Variation in the Bank's Funding and the Variation in the Subordinated Deposit. 18.3 Pledge of Deposits The Additional Deposit and the Subordinated Deposit shall be pledged (eerste recht van pand) and applied as cash collateral by the Depositor in favour of the Bank in accordance with the terms of this Agreement, the Master Subordinated Deposit Agreement and the Master Additional Deposit Agreement and the law of the Netherlands, to secure the payment to the Bank of any sum due under the Closing Documents in respect of the Transferred Receivables and in respect of Collections. 18.4 Repayment of Deposits The repayment of the Additional Deposit and the Subordinated Deposit shall occur in the circumstances set forth in Clause 8 (Settlements and Payments) and in accordance with the terms of the Master Additional Deposit Agreement and of the Master Subordinated Deposit Agreement. 19. TRANSFER FEE 19.1 Transfer fee (a) In relation to each Tranche the Sellers shall pay to the Bank a Transfer Fee (determined in accordance with Clause 19.5(c)), which shall be the aggregate of: (i) the Margin applied to the amount of such Tranche; and (ii) the Refinancing Rate applicable to the Associated Refinancings or the rate determined in accordance with Clause 19.5 in the case of several Associated Refinancings applying in relation to a Tranche. (b) In no case shall any Tranche bear Transfer Fee after the Agreement Expiry Date. 19.2 Associated Refinancings (a) At any time each Tranche may be refinanced by one or more simultaneous or successive Associated Refinancings until the earlier of (i) the date on which such Tranche is fully repaid and (ii) the Agreement Expiry Date. In no case shall the Maturity Date of an Associated Refinancing extend beyond the Agreement Expiry Date. (b) The aggregate amount of the Associated Refinancings relating to a Tranche shall be equal to the amount of that Tranche (as that amount may be increased from time to time by the amount of accrued Transfer Fee in accordance with Clause 19.6 (Payment of Transfer Fee). (c) The Bank may elect to refinance a Tranche by more than one Associated Refinancing if the conditions prevailing in the interbank market or the conditions applicable to the provision of the BT Rate or the CP Rate are such that the Bank would be prevented from offering the Sellers a single Associated Refinancing in relation to that Tranche. The Transfer Fee - -------------------------------------------------------------------------------- 58 - -------------------------------------------------------------------------------- applicable to such Tranche shall be based on the weighted average of the Refinancing Rate applicable to each Associated Refinancing, plus the Margin. 19.3 Refinancing Rates (a) The Refinancing Rate for an Associated Refinancing shall be equal to one of the following rates: (i) the rate offered by Antalis to the Bank and declared by Antalis to be the same as it has accepted itself, whilst issuing on billets de tresorerie, one Business Day (the "BT Rate"), or euro-commercial paper, two Business Days (the "CP Rate"), before the Effective Date of the relevant Associated Refinancing, for a period of between 10 and 125 days, and for a minimum of (Euro)1,000,000 provided that such rate shall never exceed the Relevant EURIBOR Plus Rate; (ii) the Interim EONIA Rate; or (iii) the Relevant EURIBOR Plus Rate, as determined in accordance with Clause 19.4 (Determination of applicable Refinancing Rate). (b) If a billet de tresorerie or an euro-commercial paper is issued in a currency other than Euro, the BT Rate or the CP Rate offered to the Bank shall include the cost of the currency hedge agreement that shall be entered into by Antalis to convert the proceeds of such issuance into Euro. (c) In relation to the BT Rate and the CP Rate: (i) each Obligor acknowledges that the nature of the billets de tresorerie or the euro-commercial paper market is such that it does not allow the Bank to guarantee to the Obligors that: (A) there will always be sufficient funds available on such a market; (B) Antalis will always be able to obtain such funds even when other issuers have managed to do so; and (C) such funds will be effectively received by Antalis in case of euro-commercial paper; (ii) the Bank confirms to the Obligors that Antalis will issue an undertaking for the benefit of the Bank to the effect that Antalis will use its best endeavours to obtain funds on the market, on the best terms available to it, until the Agreement Expiry Date. To the best of the information available to the Bank at the date of this Agreement, the Bank is not aware of any reason to believe that Antalis will not be capable of fulfilling such undertaking and in the event the Bank becomes aware of any such reason, it shall promptly notify the Obligors. 19.4 Determination of applicable Refinancing Rate (a) If, before 12.00 on the Effective Date of the Associated Refinancing, the Bank has received from Antalis a BT Rate or a CP Rate which is less than or equal to the arithmetic average of 59 - -------------------------------------------------------------------------------- the Relevant EURIBOR Plus Rate offered one Business Day before that Effective Date, the Bank shall offer to the Sellers that BT Rate or CP Rate by sending a notice to the Obligors by no later than 12.00 noon on that Effective Date setting out the following: (i) the BT Rate or CP Rate received from Antalis; (ii) the period during which such BT Rate or CP Rate applies, which shall be between 10 and 125 days; and (iii) the Tranche or the Portion of Tranche refinanced at such BT Rate or CP Rate which shall be for a minimum of (Euro)1,000,000. (b) Following a notice under paragraph (a) above, the applicable Refinancing Rate shall be the BT Rate or CP Rate unless: (i) the Depositor notifies the Bank by no later than 1.00 p.m. on the Effective Date that it does not accept the BT Rate or CP rate; or (ii) the BT Rate or CP Rate is higher than the Relevant EURIBOR Plus Rate, in which case the Refinancing Rate for the Associated Refinancing for the relevant Tranche or the Portion of Tranche for the period referred to in paragraph (a)(ii) above shall be the Relevant EURIBOR Plus Rate. (c) If Antalis has not offered the Bank a BT Rate or a CP Rate under paragraph (a) above by 12.00 noon on the Effective Date of the Associated Refinancing, then the Refinancing Rate for that Associated Refinancing shall either be the Interim EONIA Rate or the EURIBOR Plus Rate for one month EURIBOR, as determined in accordance with paragraph (d) or (e) below. (d) (i) The Interim EONIA Rate shall apply to an Associated Refinancing if: (A) by 11.00 a.m. two Business Days before the Effective Date for that Associated Refinancing the Bank has not received any notification from Antalis that Antalis will not be able to offer to the Bank a BT Rate, a CP Rate or a EURIBOR Plus Rate; (B) the Sellers have, on their own initiative, requested the reorganisation of the payment schedule for the Associated Refinancings based on the BT Rate or a CP Rate; or (C) the conditions prevailing in Paris for the issue and placement of billets de tresorerie, and the conditions prevailing on the euro-commercial paper market for the issue and placement of euro-commercial paper, are temporarily disrupted. (ii) At no time shall an Associated Refinancing be based on the Interim EONIA Rate for more than five consecutive Business Days. (e) The EURIBOR Plus Rate for one month EURIBOR shall apply to an Associated Refinancing in any other case or where the Interim EONIA Rate has applied to an Associated Refinancing for five consecutive Business Days and the Bank has not at the end of that period obtained from Antalis a BT Rate or a CP Rate. - -------------------------------------------------------------------------------- 60 - -------------------------------------------------------------------------------- (f) If either the Interim EONIA Rate or EURIBOR Plus Rate for one month EURIBOR applies the Bank shall send a notice to the Obligors by no later than 12.00 noon on the Business Day before the Effective Date of the relevant Associated Refinancing setting out the following: (i) the Tranche or the Portion of Tranche to be refinanced at the Interim EONIA Rate or the EURIBOR Plus Rate for one month EURIBOR (as appropriate); and (ii) the reason why the Tranche or the Portion of Tranche is to be refinanced at the Interim EONIA Rate or the EURIBOR Plus Rate for one month EURIBOR (as appropriate). (g) If, at any time, EURIBOR or EONIA cannot be determined, then the Bank shall request each of the Reference Banks to quote an interest rate for an amount and period equivalent to those of the relevant Associated Refinancing. The Bank shall substitute the arithmetic average of the rates so obtained for EURIBOR or for EONIA (as applicable). In the event that any of the Reference Banks does not quote such a refinancing rate, then (i) the Bank's Funding shall remain available and (ii) the Refinancing Rate for such Associated Refinancing shall be equal to the refinancing costs, per annum, of the Bank at that time, as duly documented and evidenced. 19.5 Transfer Fee Period and amounts (a) Each Transfer Fee Period with respect to a Tranche shall extend from (and including) a Settlement Date to (but excluding) the next Settlement Date or from (and including) the Transfer Date when such Tranche was initially created to (but excluding) the next Settlement Date. (b) During any Transfer Fee Period, a Tranche shall bear a Transfer Fee at a rate equal to the aggregate of (i) the weighted average of the Refinancing Rates of the Associated Refinancings associated to such Tranche during such Transfer Fee Period and (ii) the Margin (the "Transfer Fee Rate"). (c) The Transfer Fee amount in relation to any Transfer Fee Period shall be equal to: (i) the amount of the Tranche on the first day of the Transfer Fee Period minus the amount of any Collection allocated to the repayment of such Tranche in accordance with Clauses 8.2(a)(i), 8.3(a)(i) and 16.4 (Repayment of the Bank's Funding); (ii) multiplied by the Transfer Fee Rate for such Transfer Fee Period; (iii) multiplied by the number of days of such Transfer Fee Period; and (iv) divided by 360. 19.6 Payment of Transfer Fee (a) Without prejudice to Clause 3 (Nature of Obligations), each Seller shall pay to the Bank on each Transfer Fee Payment Date, out of its own resources, its Pro Rata Share of the Transfer Fee for the Transfer Fee Period ending on that Transfer Fee Payment Date. (b) To facilitate payment of Transfer Fee on any Transfer Fee Payment Date: - -------------------------------------------------------------------------------- 61 - -------------------------------------------------------------------------------- (i) three Business Days before such Transfer Fee Payment Date, the Bank shall give a notice to the Obligors stating the Transfer Fee amount due on such Transfer Fee Payment Date from each Seller and the Residual Amount of the Reserve for Transfer Fee; (ii) two Business Days before such Transfer Fee Payment Date, each Seller shall issue to the Bank, before 3.00 p.m., a payment notice confirming the Transfer Fee amount due from it and which will be paid on such Transfer Fee Payment Date; and (iii) each Seller shall pay, on such Transfer Fee Payment Date, and before 10.00 a.m., to the credit of the Bank's Account the Transfer Fee amount due from it on such Transfer Fee Payment Date. (c) Should any Seller fail to pay all or part of the Transfer Fee due on a Tranche on any Transfer Fee Payment Date, the Bank shall be entitled to apply the Collections standing to the credit of the Bank's Account and corresponding to the Sellers' Share of Collections against the unpaid Transfer Fee, up to the amount of the Residual Amount of the Reserve for Transfer Fee for such Tranche. (d) Any Transfer Fee amount due and remaining unpaid on any Transfer Fee Payment Date (the "Shortfall") shall be capitalised on such Transfer Fee Payment Date. The amount of the Shortfall shall constitute a new and separate Tranche and shall be refinanced by one or more new Associated Refinancing(s) which shall bear Transfer Fee at the rate applicable to Tranches plus 2 per cent. per annum (and for the avoidance of doubt shall be payable on the Transfer Fee Payment Date relating to such new Associated Refinancings). 19.7 Taux Effectif Global (a) In order to fulfil the obligations imposed by Articles L 313-1 to L 313-6 of the French Consumer Code (Code de la Consommation), the Bank represents to Mattel France S.A., who accepts such representation, that the effective global rate (taux effectif global) calculated in accordance with the Clauses referred to above, on the basis of a 365 days year, is 4.0343 per cent. per annum. (b) The effective global rate referred to in this Clause 19.7 was calculated on the basis of utilisation of the Bank's Funding by Mattel France S.A. in the amount of (euro)100,000,000 for five years and EURIBOR for one month at 29th November, 2001 of 3.4490 per cent. Such rate is given on an indicative basis and shall not be binding on the Bank in the future. 20. COMMITMENT FEE Until the Commitment Termination Date, the Sellers shall pay to the Bank, a Commitment Fee at the rate of zero point three five per cent. (0.35%) per annum, applied to the then applicable Maximum Amount of the Bank's Funding. The Commitment Fee shall be calculated on each Assessment Date, on the number of days elapsed during the Collection Period ending on that Assessment Date and on the basis of a year of 360 days. Without prejudice to Clause 3 (Nature of Obligations), each Seller shall pay to the Bank on each Settlement Date, out of its own resources, its Pro Rata Share of the Commitment Fee for the Collection Period ending on the Assessment Date immediately preceding that Settlement Date. - -------------------------------------------------------------------------------- 62 - -------------------------------------------------------------------------------- 21. TAXES 21.1 Gross up (a) All payments to be made by any Obligor to the Bank under the Closing Documents shall be made without any deduction and free and clear of, and without deduction for or on account of Tax, unless an Obligor is required by applicable law to make such a payment subject to deduction or withholding of Tax. If any Tax, other than Excluded Tax, or amounts in respect of Tax must be deducted, or any other deductions must be made, from any amounts payable or paid by an Obligor under the Closing Documents, that Obligor shall pay such additional amounts as may be necessary to ensure that the Bank receives a net amount equal to the full amount which it would have received had payment not been made subject to such Tax or any other deduction. (b) If the payment of additional amounts under paragraph (a) above is contrary to any applicable law, the Bank and the Obligors shall negotiate in good faith for a period of 30 days from the date on which the such additional amounts fell due (the "Relevant Date") with a view to agreeing a compromise acceptable to all the Parties. From the Relevant Date until an agreement is reached, the Refinancing Rate for any new Associated Refinancing shall be based only on the Interim EONIA Rate or the EURIBOR Plus Rate for one month EURIBOR. (c) If no agreement is reached under paragraph (b) above, the Commitment shall be terminated on the date which is thirty days after the Relevant Date. Any Transfer Fee and principal amount in respect of any Tranche will be repaid respectively on the applicable Transfer Fee Payment Date and the Maturity Date of the Associated Refinancing related to such Tranche, in accordance with Clauses 8 (Settlement and Payments) and 16.4 (Repayment of the Bank's Funding), provided that in the event that a Shortfall (as defined in Clause 16.4(c)) exists, the amount of such Shortfall shall only be refinanced by an Associated Refinancing based on the EURIBOR Plus Rate for one month EURIBOR or Interim EONIA Rate. (d) In the event that any Obligor is required by applicable law to make any deduction or withholding from any payment under the Closing Documents in respect of Tax, other than Excluded Tax, then the Bank shall (without in any way limiting or reducing or otherwise qualifying that Obligor's obligations under paragraph (a) above) provide to that Obligor such documentation within the Bank's custody or control or which the Bank can in its opinion (acting reasonably) cause to be in its custody or control which is requested by the Obligor (acting reasonably) in order to enable it to make payments under the Closing Documents without (or with a reduced amount of) such deduction and free and clear of such Tax under the terms of any relevant double taxation treaty or other applicable tax credit provision unless to do so might (in the Bank's sole discretion, acting in good faith) prejudice the Bank and provided that nothing in this paragraph (d) shall interfere with the right of the Bank to arrange its affairs (Tax or otherwise) in whatever manner it thinks fit, oblige the Bank to investigate or claim any credit, relief, remission or repayment available to it in respect of Tax or oblige the Bank to disclose any information relating to its affairs (Tax or otherwise) or any computation in respect of any Tax where such information is, in the Bank's opinion confidential to the Bank or commercially sensitive. (e) Without prejudice to paragraph (d) above, if the Bank determines in its sole discretion that it has obtained a credit, relief, remission or repayment in respect of any Tax, other than Excluded Tax, that has given rise to an additional amount payable under paragraph (a) above, then to the extent that it can, without losing the benefit of such credit, relief, remission or repayment, promptly repay the relevant Obligor such part of that additional amount as the Bank considers in its sole discretion will leave it (after such reimbursement) in the same net - -------------------------------------------------------------------------------- 63 - -------------------------------------------------------------------------------- after tax position that it would have been in had no such Tax been required to be withheld. The Bank shall not be obliged to disclose to any Obligor, nor shall any Obligor be entitled to inspect, any of the books or records of the Bank nor shall anything contained in this paragraph (e) interfere with the right of the Bank to arrange its affairs (Tax or otherwise) in whatever manner it thinks fit, and in particular the Bank shall not be under any obligation to claim credit, relief or remission from or against its profits or similar tax liability in respect of the amount of such deduction as aforesaid in priority to any other claims, reliefs or deductions available to it. (f) If any Obligor is required to indemnify the Bank pursuant to Clause 21.2 (Sales taxes and duties) or (to the extent the indemnity relates to Tax) Clause 22 (Increased costs) or Clause 23.2 (Other indemnities) and the Bank determines (in its sole discretion, acting in good faith) that the Tax in respect of which the indemnity payment is to be made would reduce an amount of Excluded Tax payable by the Bank, the Bank shall notify that Obligor thereof and the indemnity payment shall be reduced by the amount so notified, provided that nothing in this paragraph (f) shall interfere with the right of the Bank to arrange its affairs (Tax or otherwise) in whatever manner it thinks fit, oblige the Bank to disclose to any Obligor, nor shall any Obligor be entitled to inspect, any of the books or records of the Bank or oblige the Bank to disclose any information relating to its affairs (Tax or otherwise) or any computation in respect of any Tax where such information is, in the Bank's opinion confidential to the Bank or commercially sensitive and in particular the Bank shall not be under any obligation to claim credit, relief or remission from or against its profits or similar tax liability in respect of the amount of any Tax in respect of which an indemnity payment is to be made pursuant to Clause 21.2 (Sales taxes and duties) in priority to any other claims, reliefs or deductions available to it. 21.2 Sales taxes and duties (a) The Obligors will pay on demand by the Bank any sales, excise, registration and other Taxes, duties and fees payable in connection with the execution, delivery, filing or recording of the Closing Documents, any Transfer Document or other documents to be delivered in connection with the Closing Documents or in connection with any transaction contemplated by this Agreement (excluding Excluded Tax). The Obligors will indemnify the Bank on demand against liabilities with respect to or resulting from any delay in paying or omission to pay such taxes, duties or fees. (b) The Obligors will, within three Business Days of demand by the Bank, indemnify the Bank against all liability which the Bank incurs for German trade or sales tax by reason of the Bank entering into the Closing Documents and performing the transactions contemplated thereby. 22. INCREASED COSTS 22.1 Increased Costs (a) Subject to paragraph (d) below and Clause 22.2 (Exceptions), the Obligors shall forthwith on demand by the Bank pay to the Bank the amount of any increased cost incurred by it or any of its Affiliates as a result of: (i) the introduction of, or any change in, or any change in the interpretation or application of, any law or regulation applicable generally to banks or financial institutions; or - -------------------------------------------------------------------------------- 64 - -------------------------------------------------------------------------------- (ii) compliance by the Bank or any person which has agreed to make funds available to the Bank in connection with the Closing Documents with any regulation made after the date of this Agreement, (including any law or regulation relating to taxation, change in currency of a country or reserve asset, special deposit, cash ratio, liquidity or capital adequacy requirements or any other form of banking or monetary control). (b) In this Agreement "increased cost" means: (i) an additional cost incurred by the Bank or any of its Affiliates as a result of it having entered into, or performing, maintaining or funding its obligations under, any Closing Document; (ii) an additional cost to the Bank in making, funding or maintaining any Payment and/or assuming, maintaining or funding the Commitment or otherwise giving effect to this Agreement; (iii) a reduction in any amount payable to the Bank or any of its Affiliates or in the effective return to the Bank or any of its Affiliates under this Agreement or (to the extent that it is attributable to this Agreement) on its capital; (iv) the amount of any payment made by the Bank or any of its Affiliates, or the amount of any interest or other return foregone by the Bank or any of its Affiliates, calculated by reference to any amount received or receivable by the Bank or any of its Affiliates from any other Party under this Agreement; or (v) the Bank becomes liable to make any payment on account of tax (except on account of tax imposed on its general income) or is obliged to forego any interest or other return, on or calculated by reference to the amount of this Agreement or any Payment or all or part of the Bank's Funding. (c) If the Bank wishes to make a claim under this Clause 22.1 it shall provide to the Obligors written details of the circumstances by reason of which it is entitled to do so and calculations evidencing in reasonable detail the increased cost claimed. (d) Without prejudice to Clause 3(b) (Nature of Obligations), each Seller shall liable for 50% of the amount of any increased cost due to the Bank unless the occurrence of such increased cost is referable to one Seller only, in which case that Seller shall be liable in full for that increased cost and the other Seller shall have no liability in relation thereto. (e) In the event of an increased cost arising, the Obligors may (without premium or penalty and without obligation to indemnify the Bank for any costs or losses arising on such cancellation other than in respect of breakage costs under Clause 23.1 (Breakage costs), if any, but without prejudice to the relevant Seller's obligation to pay any increased cost already incurred by the Bank and the Obligors continuing obligations under the Closing Documents with respect to Transferred Receivables) cancel the Maximum Amount of the Bank's Funding forthwith by notice to the Bank (and such cancellation shall take effect on the first Information Date after such notice is given). Any notice of cancellation under this Clause 22.1 shall be irrevocable and no amount of the Maximum Amount of the Bank's Funding cancelled under this Clause 22.1 shall be reinstated. - -------------------------------------------------------------------------------- 65 - -------------------------------------------------------------------------------- 22.2 Exceptions Clause 22.1 (Increased costs) does not apply to any increased cost: (a) compensated for by the operation of Clause 14.9 (Taxes) or Clause 21 (Taxes); or (b) attributable to any Excluded Tax; or (c) attributable to any change in the rate of, or change in the basis of calculating, Tax on the overall net income of the Bank (or the overall net income of a division or branch of the Bank) imposed in the jurisdiction in which its principal office is for the time being situated. 23. INDEMNITIES 23.1 Breakage costs Without prejudice to Clause 3(b) (Nature of Obligations), each Seller shall indemnify the Bank within five Business Days of demand by the Bank against any loss suffered or expense incurred by the Bank as a result of: (a) that Seller not transferring Relevant Receivables following a Transfer Request. In this case, the indemnity amount shall be equal to the positive difference between (a) the Transfer Fee the Seller concerned would have paid under the transfer of Relevant Receivables (excluding any amount of the Margin which is retained for the Bank's own account and not passed or paid on to those persons providing funding, or financial support to the Bank in connection with the Closing Documents) and (b) the return generated by the reinvestment of the monies raised by the Bank under the Bank's Funding at EONIA minus 0.125 per cent. for a period equal to the duration of the Associated Refinancing made in relation to the Relevant Receivables referred to in that Transfer Request; and (b) a partial or total principal payment being made by that Seller or by the Depositor in respect of any Tranche before the Maturity Date of any Associated Refinancing. In this case, the indemnity amount shall be equal to the positive difference between (a) the Transfer Fee the Seller concerned would have paid under the Tranche up to that Maturity Date (excluding any amount of the Margin which is retained for the Bank's own account and not passed or paid on to those persons providing funding or financial support to the Bank in connection with the Closing Documents) and (b) the return generated by the reinvestment of the monies raised by the Bank under the Bank's Funding at EONIA minus 0.125 per cent. for the period beginning on the second Business Day after the payment is received by the Bank and ending on that Maturity Date. 23.2 Other indemnities (a) Subject to paragraph (c) below, the Obligors shall indemnify the Bank within five Business Days of demand by the Bank against any loss, liability, damages, claims and related reasonable costs and expenses, including reasonable legal fees and disbursements (and, in each case, any value added tax thereon) that the Bank incurs (and which are not effectively compensated (i) by the payment of a Deemed Collection or (ii) by another Clause of this Agreement) as a consequence of: - -------------------------------------------------------------------------------- 66 - -------------------------------------------------------------------------------- (i) the occurrence of any Event of Early Amortisation or any payment by an Obligor under the Closing Documents or in respect of any Transferred Receivable being made in a currency other than Euro; (ii) the performance of the transactions contemplated by the Closing Documents and the ownership of the Transferred Receivables; (iii) the failure of a Transferred Receivable and Related Security to vest and remain in the Bank's ownership, free and clear of any Adverse Claim and/or (b) the endorsement or delivery of any negotiable instrument relating to Relevant Receivables to or in favour of any person other than the Bank; (iv) any dispute, claim, set-off, counterclaim, deduction or withholding of any nature whatsoever or defence raised by a Debtor in relation to the payment of any amount due under any receivable which is or purports to be a Transferred Receivable (including, without limitation, a defence based on a Transferred Receivable or the related Sales Contract not being a legal, valid, binding enforceable obligation of the Debtor) or any other claim resulting from the sale of the goods or services related to such Transferred Receivable or the delivery or failure to deliver such goods and services; (v) any products liability or environmental claim, or personal injury or property damage claim, or other similar or related claim or action of any sort whatsoever arising out of or in connection with goods, merchandise or services which are the subject of any Transferred Receivable or Sales Contract; (vi) the transfer of an ownership interest in any receivable which is not a Relevant Receivable. (b) The amount of any indemnity under this Clause 23.2 shall be determined by the Bank which shall notify the Obligors by delivering to the Depositor a certificate specifying such indemnity amount (and setting out calculations, in reasonable detail, evidencing such amount). The indemnity amount shall be paid by the Obligors out of their own respective resources, on the Settlement Date following the receipt of such certificate by the Depositor. (c) Without prejudice to Clause 3(a) (Nature of Obligations): (i) each Seller shall be liable for 50% of the amount of any amount due to the Bank under this Clause 23.2, unless the occurrence giving rise to the Bank's claim is referable to one Seller only, in which case that Seller shall be liable in full for that amount and the other Seller shall have no liability in relation thereto; and (ii) no Obligor shall be liable for any amount which would otherwise be due to the Bank under this Clause 23.2 to the extent that the occurrence giving rise to the Bank's claim has resulted from the negligence, act or omission or wilful default of the Bank. 23.3 Exceptions Clause 23.2 (Other indemnities) does not apply to any loss, liability, damage, claim or related cost and expense to the extent that it: (a) is effectively compensated for by the operation of Clause 14.9 (Taxes), Clause 21 (Taxes) or Clause 22 (Increased costs; or - -------------------------------------------------------------------------------- 67 - -------------------------------------------------------------------------------- (b) results from any Excluded Tax; or (c) results from any change in the rate of, or voluntary change in the basis of calculating, Tax on the overall net income of the Bank (or the overall net income of a division or branch of the Bank) imposed in the jurisdiction in which its principal office is for the time being situated. 24. INTEREST ON LATE PAYMENTS Any default by an Obligor in its payment obligations under this Agreement shall automatically entitle the Bank without prior notice, to receive interest on the amounts payable and unpaid, calculated from the date when such payment was due until the date of actual payment, at EONIA plus 2 per cent. per annum. Such interest shall be paid by the Obligor out of its own resources, on the Settlement Date following the date of actual payment. 25. FEES AND EXPENSES (a) The Depositor shall, out of its own resources, pay to the Bank the Up Front Fee as defined in the mandate letter signed between the Depositor and the Bank in relation to this Agreement dated 22nd June, 2001 on the date referred to therein. (b) The Depositor shall reimburse the Bank, out of its own respective resources, for all reasonable and duly documented costs and expenses (including legal fees and value added tax thereon) (i) arising out of any modification, waiver or amendment of any Closing Document requested by an Obligor, or (ii) incurred in connection with the preservation and/or enforcement of the rights of the Bank under any Closing Document. 26. PAYMENTS (a) The Seller's Accounts, the Depositor's Account and the Bank's Account shall be used exclusively for the purpose of the payment of any sum due under this Agreement. Such accounts will be used exclusively for the purpose of the Closing Documents or any agreement relating thereto. (b) At any time, the Bank shall be entitled to set-off any amount due and payable by the Bank to any Obligor under any Closing Document against any amount due and payable by any Obligor to the Bank under any Closing Document. (c) All payments from any Obligor shall be made without set-off or counterclaim. (d) The Transfer Fee, Commitment Fee and any other amounts, as are payable in accordance with this Agreement, shall be calculated on the exact number of days elapsed during the period where such Transfer Fee, Commitment Fee and other amounts have accrued and on the basis of a year of 360 days. (e) All payments falling due on a day which is not a Business Day shall instead fall due on the following Business Day. (f) All payments to be made under the Closing Documents shall be made in Euro (provided that amounts payable in respect of costs, expenses and taxes and the like are payable in the currency in which they are incurred). - -------------------------------------------------------------------------------- 68 - -------------------------------------------------------------------------------- 27. SUBSTITUTION AND AGENCY In addition to the matters set out in Clause 14.19 (Mergers and disposals), each Party shall have the right to be assisted by, to appoint or to substitute for itself one or more third parties in the performance of certain tasks provided that: (a) such Party has given written notice of the exercise of that right to the other Parties and the Rating Agencies (other than in the case of an appointment by a Seller of a bailiff or other similar collection agent for the recovery of payment in respect of a Transferred Receivable falling with that Seller's Collection Mandate); (b) such Party remains liable to the other Parties for the proper performance of those tasks and the relevant third party has expressly renounced any right to any contractual claim against the other Party; and (c) the relevant third party undertake to comply with all obligations binding upon such Party under this Agreement. 28. CONFIDENTIALITY (a) Each Party agrees to keep the Closing Documents and all information of any kind transmitted by any other Party (whether directly or through an Affiliate) as confidential. The Parties agree not to disclose such information to any other person and to ensure that their respective personnel similarly respect the confidential nature of such information provided that a Party may make any such disclosure: (i) to its auditors, accountants, legal counsel and tax advisers and to any other professional advisers (together "Advisers") under a professional or duty of confidentiality to it in respect of the relevant information; (ii) to any other third party where the Parties have previously agreed in writing that disclosure may be made to that third party; (iii) (in the case of the Bank) to any banking or other regulatory or examining authorities (whether governmental or otherwise) or fiscal administration authorities, in each case where such disclosure is requested by them and with whose requests the Bank has to comply under applicable law or regulation (or with whose requests banks in the relevant jurisdiction are accustomed to complying); (iv) pursuant to subpoena or other legal process, or in connection with any action, suit or proceeding relating to any of the Closing Documents, Transferred Receivables or Sales Contracts, notice of which is given to the other Parties; (v) pursuant to any law or regulation whether or not having the force of law, but, if not having the force of law, is a regulation in accordance with which a party is accustomed to act; (vi) (in the case of the Bank) in connection with the preservation of any rights under or with respect to any of the Closing Documents, Transferred Receivables or Sales Contracts; (vii) in the case of the Bank, to Societe Generale, Antalis or any other person which has agreed to make funds available to the Bank in connection with this Agreement if, in - -------------------------------------------------------------------------------- 69 - -------------------------------------------------------------------------------- each case, such disclosure is necessary for the purposes of the Bank performing its obligations under the Closing Documents, any Associated Refinancing or for such funds to be made available to the Bank by that person provided that any such person undertakes to keep such information confidential on terms no less stringent than those set out in this Clause 28; (viii) in the case of an Obligor, to any fiscal administration authorities where such disclosure is requested by them and with whose requests the Obligor has to comply under applicable law or regulation (or with whose requests companies in the relevant jurisdiction are accustomed to complying); or (ix) to a Rating Agency. (b) This Clause 28 shall not apply in relation to information: (i) which was lawfully known by a Party without any breach of any obligation of confidentiality of any person and where, at the time it become so known, such Party was not under any obligation of confidentiality in relation thereto; or (ii) which is or becomes publicly available without any breach of any obligation of confidentiality. (c) The obligation to preserve confidentiality set out in this Clause 28 shall remain valid for ten years from the Agreement Expiry Date. 29. Transferability Subject to the provisions of Clause 27 (Substitution and Agency), and except as provided in Clause 14.19 (Mergers and disposals), none of the Parties may transfer any of its respective rights, interests and/or obligations hereunder to any third party whatsoever, without the prior written consent of the other Parties. 30. NOTICES 30.1 Giving of notices (a) All notices or other communications under or in connection with the Closing Documents shall be given in writing and, unless otherwise stated, may be made by letter or facsimile. Any such notice will be deemed to be given as follows: (i) if by letter, when delivered personally or on actual receipt; and (ii) if by facsimile, when received in legible form. However, a notice given in accordance with the above but received on a non-working day or after business hours in the place of receipt will only be deemed to be given on the next working day in that place. All Parties may rely on any notice or document believed by it to be genuine and correct and to have been signed by, or with the authority of, the proper person. (b) Each Seller irrevocably authorises the Depositor to receive and make all notices and communications from the Bank to the Seller or the Seller to the Bank under the Closing Documents on its behalf and agrees that any such notice or communication received by the Depositor or received by the Bank from the Depositor shall be binding upon, and shall be - -------------------------------------------------------------------------------- 70 - -------------------------------------------------------------------------------- effective as if it had been delivered by the Bank directly to the Seller or by the Seller directly to the Bank. 30.2 Addresses for notices (a) The address and facsimile number of the Bank are: Societe Generale Bank Nederland N.V. Amstelplein 1 1096 HA Amsterdam The Netherlands For the attention of: Niek Volkers Fax: 00 31 20 463 5358 E-mail: niek.volkers@socgen.com, or such other as the Bank may notify to the Obligors by not less than five Business Days' notice. (b) The address and facsimile number of the Depositor are: Mattel International Holdings B.V. P.O. Box 576 1180 AN Amstelveen The Netherlands For the attention of: Joop van der Haar Fax: 00 31 20 50 30 415 E-mail: vanderhj@mattel.com, or such other as the Depositor may notify to the Bank by not less than five Business Days' notice. 31. WAIVERS AND REMEDIES CUMULATIVE The rights of Parties under the Closing Documents: (a) may be exercised as often as necessary; (b) are cumulative and not exclusive of its rights under the general law; and (c) may be waived only in writing and specifically. Delay in exercising or non-exercise of any such right is not a waiver of that right. 32. AUTHENTICATION The Parties agree that the execution of this Agreement by the Bank and the Obligors shall be legalised by a Notary Public in The Netherlands at the sole cost of the Obligors. 33. SEVERABILITY If a provision of any Closing Document is or becomes illegal, invalid or unenforceable in any - -------------------------------------------------------------------------------- 71 - -------------------------------------------------------------------------------- jurisdiction, the Parties agree that such event shall not affect (to the fullest extent possible under applicable law): (a) the legality, validity or enforceability in that jurisdiction of any other provision of the Closing Documents; or (b) the legality, validity or enforceability in other jurisdictions of that or any other provision of the Closing Documents. 34. JURISDICTION AND WAIVER OF IMMUNITY 34.1 Jurisdiction (a) Any dispute as to the validity, interpretation, performance or any other matter arising out of any Closing Document shall be subject to the jurisdiction of the competent courts of Amsterdam. (b) The designation of jurisdiction in this Clause 34 is entirely for the benefit of the Bank and the Bank shall have the right to elect to proceed against any Obligor before the courts of any other competent jurisdiction. 34.2 Waiver of immunity Each Obligor irrevocably and unconditionally: (a) agrees that if the Bank brings proceedings against it or its assets in relation to a Closing Document, no immunity from those proceedings (including, without limitation, suit, attachment prior to judgement, other attachment, the obtaining of judgement, execution or other enforcement) will be claimed by or on behalf of itself or with respect to its assets; (b) waives any such right of immunity which it or its assets now has or may subsequently acquire; and (c) consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with those proceedings, including, without limitation, the making, enforcement or execution against any assets whatsoever (irrespective of its use or intended use) of any order or judgement which may be made or given in those proceedings. 35. GOVERNING LAW (a) This Agreement shall be governed by the laws of the Netherlands. (b) Without prejudice to paragraph (a) above this Agreement is not intended to govern the actual transfer of title to Relevant Receivables by means of the execution of a Transfer Document and the proprietary effects of any such transfer (which in each case shall be governed by the law of the Transfer Document to the extent possible under the governing law of the Sales Contracts under which the Relevant Receivables to which the Transfer Document relates arise). - -------------------------------------------------------------------------------- 72 - -------------------------------------------------------------------------------- (c) The Bank accepts the law of the Netherlands as the law governing the powers of attorney issued by the Depositor and Mattel GmbH in favour of the person executing this Agreement on behalf of the Depositor and Mattel GmbH. THIS AGREEMENT has been entered into in Amsterdam, on 30th November, 2001 in four originals. - -------------------------------------------------------------------------------- [Schedules omitted.] SIGNATORIES Depositor MATTEL INTERNATIONAL HOLDINGS B.V. By: /s/ JOOP VAN DER HAAR Sellers MATTEL FRANCE S.A. By: /s/ JOOP VAN DER HAAR Power of Attorney MATTEL GmbH By: /s/ JOOP VAN DER HAAR Power of Attorney The Bank SOCIETE GENERALE BANK NEDERLAND N.V. By: /s/ NIEK VOLKERS EX-10.7 12 dex107.txt AMENDMENT TO MASTER AGRMNT. DATED 12/20/01 Exhibit 10.7 [letterhead of SGBN] To: The Obligors c/o Mattel International Holdings B.V. P.O. Box 576 1180 AN Amstelveen The Netherlands December 20, 2001 Dear Sirs, Master Agreement for the Transfer of Receivables dated 30th November, 2001 (the "Master Agreement") between Mattel International Holdings B.V., Mattel France S.A., Mattel GmbH and Societe Generale Bank Nederland N.V. We refer to the Master Agreement. Terms defined in the Master Agreement shall have the same meaning when used in this letter (unless otherwise defined herein). We write to set out certain amendments to the Master Agreement which are to be made, which are as follows: 1. In Clause 1.1 of the Master Agreement, the definition of Maximum Amount of the Bank's Funding shall be amended to read as follows: ""Maximum Amount of the Bank's Funding" means: (a) from the first Settlement Date in the month of February to the day preceding the first Settlement Date in the month of August (both dates inclusive) in each year, (Euro)60,000,000; and (b) at any other time,(Euro)150,000,000." 2. Clause 5.6 of the Master Agreement shall be amended to read as follows: "5.6 Transfers by the Bank Other than pursuant to Clause 5.5 or Clause 9.2 (Transfers and Deemed Collections), the Bank will not, without the prior written consent of the Obligors (which consent shall not be unreasonably withheld), enter into any assignment or transfer or subrogation of any description with any person (or purport or agree to do so) of any Transferred Receivable or any Related Security or Related Rights." Save as stated herein the Master Agreement shall remain unamended and in full force and effect. The Master Agreement will be amended as set out above upon your countersignature of this letter. Please confirm your agreement to the amendments referred to above by countersigning the enclosed copy of this letter where indicated and returning it to us. This letter shall be governed by Dutch law. Yours faithfully /s/ Nick Volkers - --------------------------- SOCIETE GENERALE BANK NEDERLAND N.V. Accepted and agreed /s/ Joop Van Der Haar - --------------------------- MATTEL INTERNATIONAL HOLDINGS B.V. /s/ Joop Van Der Haar - --------------------------- MATTEL FRANCE S.A. /s/ Joop Van Der Haar - --------------------------- MATTEL GmbH EX-10.30 13 dex1030.txt AMEND. TO EMPLOYMENT AGRMNT. DATED 3/6/02 EXHIBIT 10.30 March 6, 2002 Mr. Kevin M. Farr Chief Financial Officer Mattel, Inc. 333 Continental Boulevard El Segundo, California 90245-5012 Re: Amendment to Your Employment Agreement -------------------------------------- Dear Kevin: Pursuant to action taken by Mattel's Compensation/Options Committee on March 5, 2002, this letter agreement constitutes an amendment to your Amended and Restated Executive Employment Agreement (the "Employment Agreement") with Mattel. Each of Section 5(d)(vi) and Section 5(e)(vi) of your Employment Agreement is hereby amended and restated in its entirety as follows: "(vi) If the Executive is a participant in the Mattel Supplemental Executive Retirement Plan (the "SERP"), 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. Further, notwithstanding the terms of the SERP to the contrary, with regard to computing the Executive's benefit under the SERP, the normal retirement benefit formula shall be 35% of the sum of (a) the average of the Executive's final three years of annual Base Salary (including the calendar year in which the Date of Termination occurs, on an annualized basis) and (b) the average of the greatest two out of the three most recent annual bonuses received by the Executive under the MIP or any successor annual bonus plan." 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 Employment Agreement. Sincerely yours, MATTEL, INC. /s/ Alan Kaye By: ___________________________________ Alan Kaye, Senior Vice President Human Resources Agreed to and accepted by: /s/ Kevin M. Farr ________________________ Dated as of March 6, 2002 Kevin M. Farr 1 EX-10.37 14 dex1037.txt AMENDED & RESTATED SUPP. EXEC. RETIREMENT PLAN EXHIBIT 10.37 MATTEL, INC. AMENDED AND RESTATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN MAY 1, 1996 TABLE OF CONTENTS ------------------ Page ---- ARTICLE I - NAME AND PLAN PURPOSES.......................... 1 1.1 Name and Plan Purposes..................... 1 ARTICLE II - DEFINITIONS..................................... 2 2.1 Actuarial Equivalent or Actuarial Equivalence................................ 2 2.2 Administrative Committee................... 2 2.3 Beneficiary................................ 2 2.4 Board of Directors......................... 2 2.5 Cause...................................... 2 2.6 Change of Control.......................... 2 2.7 Code....................................... 3 2.8 Company.................................... 3 2.9 Compensation............................... 3 2.10 Disability................................. 4 2.11 Effective Date............................. 4 2.12 Employee................................... 4 2.13 Employer................................... 4 2.14 ERISA...................................... 5 2.15 Final Average Compensation................. 5 2.16 Month of Service............................ 5 2.17 Participant................................ 5 2.18 Plan....................................... 5 2.19 Plan Year.................................. 5 2.20 Related Company............................ 5 2.21 Service.................................... 5 2.22 Termination................................ 6 ARTICLE III - ELIGIBILITY AND PARTICIPATION................... 7 3.1 Eligibility to Participate................. 7 3.2 Effect of Participating in Plan............ 7 ARTICLE IV - FUNDING OF BENEFITS............................. 8 4.1 Funded Status of Benefits.................. 8 4.2 Rights of Participants..................... 8 4.3 No Participant Contributions............... 8 ARTICLE V - BENEFITS ....................................... 9 5.1 Benefit Accrual............................ 9 5.2 Normal Form of Distributions............... 9 5.3 Optional Forms of Distribution ............. 9 5.4 Vesting................................... 10 5.5 Change of Control......................... 10 TABLE OF CONTENTS ------------------ Page ---- ARTICLE VI - PAYMENT OF BENEFITS............................ 12 6.1 In-Service Withdrawals Prohibited......... 12 6.2 Loans..................................... 12 6.3 Distributions Following Termination....... 12 6.4 Death Benefits............................ 12 6.5 Disability................................ 13 6.6 Designation of Beneficiary................ 13 6.7 Mailing of Payments....................... 13 6.8 Payees under Legal Disability............. 13 6.9 Withholding For Taxes..................... 14 ARTICLE VII - OPERATION AND ADMINISTRATION OF THE PLAN....... 15 7.1 Administrative Committee Powers........... 15 7.2 Composition of Administrative Committee... 15 7.3 Administrative Committee Procedure........ 16 7.4 Reporting and Disclosure.................. 16 7.5 Notices and Communications................ 16 7.6 Indemnification........................... 16 ARTICLE VIII - APPLICATION FOR BENEFITS....................... 18 8.1 Application for Benefits.................. 18 8.2 Content of Denial......................... 18 8.3 Appeals................................... 18 8.4 Exhaustion of Remedies.................... 19 ARTICLE IX MISCELLANEOUS MATTERS.......................... 20 9.1 Amendment or Termination.................. 20 9.2 Effect of Merger of Company............... 20 9.3 No Enlargement of Employee Rights......... 20 9.4 Restrictions Against Alienation........... 21 9.5 Employment Agreements..................... 21 9.6 Interpretation............................ 21 ARTICLE I NAME AND PLAN PURPOSES ---------------------- 1.1 NAME AND PLAN PURPOSES. (a) The plan established and adopted hereunder shall be known as the Mattel, Inc. Amended and Restated Supplemental Executive Retirement Plan, dated as of May 1, 1996 (the "Plan"). This Plan amends and supercedes the Mattel, Inc. Supplemental Executive Retirement Plan, dated as of April 1, 1994. This Plan does not amend or supersede the Supplemental Executive Retirement Plan dated October 31, 1991 (the "1991 SERP"). However, as set forth in Section 3.2 hereof, the participants of the 1991 SERP who retire after April 1, 1994 shall have the option of receiving benefits under this Plan or the 1991 SERP. (b) The Plan was established for the purpose of providing pension benefits to a select group of executives or highly compensated employees. The benefits under the Plan shall be funded solely out of the general assets of the Company. Accordingly, it is intended that the Plan be exempt from the requirements of Parts II, III, and IV of Title I of ERISA pursuant to Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. It is expressly intended that ERISA preempt the application of state laws to this Plan, to the maximum extent permitted by Section 514 of ERISA. 1 ARTICLE II DEFINITIONS ----------- Whenever the following terms are used in this Plan, they shall have the meaning set forth in this Article II. 2.1 ACTUARIAL EQUIVALENT OR ACTUARIAL EQUIVALENCE. For purposes of determining the actuarial equivalence of optional forms of benefit payments the 1983 group annuity mortality tables (compiled on a unisex basis weighted 50% male and 50% female) shall be used, and for purposes of calculating the amount of a lump sum, interest equal to the yield on the thirty (30) year treasury bond with a maturity date closest to the calendar date on which the calculation is made shall be used. 2.2 ADMINISTRATIVE COMMITTEE. "Administrative Committee" shall mean the Mattel, Inc. Supplemental Executive Retirement Plan Administrative Committee described in Article VII. 2.3 BENEFICIARY. "Beneficiary" shall mean the person or persons designated under Section 6.6 to receive the benefit payable in the event of the death of a Participant. 2.4 BOARD OF DIRECTORS. "Board of Directors" shall mean the Board of Directors of the Company or any committee of the Board of Directors empowered to act on behalf of the Board of Directors. 2.5 CAUSE. "Cause" shall mean (a) an act or acts of dishonesty on the Participant's part that are intended to result in his substantial personal enrichment at the expense of the Employer (b) repeated violations by the Participant of his duties which are demonstrably willful and deliberate on the Participant's part and which resulted in material injury to the Employer, (c) conduct of a criminal nature which may or which is likely to have an adverse impact on the Employer's reputation or standing in the community or on its relationship with its customers or those who purchase or use its products, or (d) fraudulent conduct in connection with the business or affairs of the Employer, regardless of whether said conduct is designed to defraud the Employer or others. 2.6 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred on: (a) the "Distribution Date" as that term is defined in Section 1(h) of the Company's Rights Agreement dated February 7, 1992, as it may be amended from time to time. The definition of "Distribution Date" contained in the Company's Rights Agreement shall continue to apply, notwithstanding the expiration or termination of that agreement; or (b) the date (during any period of two (2) consecutive calendar years) that individuals who at the beginning of such period constituted the Company's Board of Directors, cease for any 2 reason (other than natural causes, including death, disability or retirement) to constitute a majority thereof; or (c) The date the stockholders of the Company approve: (i) a plan of complete liquidation of the Company; (ii) an agreement for the sale or disposition of all or substantially all the assets of the Company; or (iii) a merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) at least eighty percent (80%) of the combined voting power of the stock which is outstanding immediately after such merger, consolidation or reorganization, unless the Board of Directors of the Company determines by a majority vote prior to the merger, consolidation or reorganization that no Change in Control will occur as a result of such transaction. 2.7 CODE. "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time. Where the context requires, a reference to a particular Code section shall refer to a successor Code provision. 2.8 COMPANY. "Company" shall mean Mattel, Inc., and its successors and assigns. 2.9 COMPENSATION. "Compensation" means a Participant's Base Salary, Short Term Bonus and Special Achievement Bonus, as determined on the basis of the calendar year in accordance with the following rules. (a) "Base Salary" shall mean the full salary and wages (including overtime, shift differential and holiday, vacation and sick pay) paid by an Employer by reason of services performed by an Employee, subject however to the following special rules: (i) Except as specified in (ii) below, fringe benefits and contributions by the Employer to and benefits under any employee benefit shall not be taken into account in determining Compensation; (ii) Amounts deducted pursuant to authorization by an Employee or pursuant to requirements of law shall be included in "Compensation"; 3 (iii) Amounts deferred by the Employee pursuant to non- qualified deferred compensation plans, regardless of whether such amounts are includable in the Employee's gross income for his current taxable year, shall be taken into account in determining Compensation; provided, however, that amounts deferred more than three (3) years prior to Termination shall not be taken into account in determining Compensation; and (iv) Amounts included in any Employee's gross income with respect to fringe benefits, including but not limited to car allowances, life insurance and financial planning, shall not be taken into account in determining Compensation. (b) "Short Term Bonus" means the amount paid during the year under the Mattel, Inc. Management Incentive Plan. (c) "Special Achievement Bonus" means the amount paid during the year at the discretion of the Compensation/Options Committee of the Board of Directors. 2.10 DISABILITY. (a) A Participant will be deemed to be "Disabled" if there is a determination to that effect under the group long-term disability plan of the Company or a Related Company and the Participant is also approved for permanent disability benefits by the Social Security Administration. (b) 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-- (i) Intentionally self-inflicted injuries (while sane or insane), (ii) Alcohol or drug abuse, or (iii) A criminal act for which he is convicted or to which he pleads guilty or nolo contendere. 2.11 EFFECTIVE DATE. The effective date of the Plan is April 1, 1994. 2.12 EMPLOYEE. "Employee" shall mean each person qualifying as a common law employee of the Company or of a Related Company and scheduled to work full-time (at least forty (40) hours per week). 2.13 EMPLOYER. "Employer" means the Company and any Related Company which, with the approval of the Board of Directors, elects to become a party to the Plan by adopting, by a resolution of its board of directors, the Plan for the benefit of its employees, or any one or more of them, as the context indicates. 4 2.14 ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.15 FINAL AVERAGE COMPENSATION. "Final Average Compensation" means the average of the Participant's Compensation during the final three (3) years of employment with the Employer, or the entire period during which he was a Participant in the Plan, if less. 2.16 MONTH OF SERVICE. "Month of Service" shall mean a one (1) month period of Service (stated in terms of calendar months with credit given for the actual time served during partial months and not counted as full months). 2.17 PARTICIPANT. "Participant" shall mean any Employee who has been enrolled in this Plan in accordance with the provisions of Article III below. 2.18 PLAN. "Plan" shall mean the Mattel, Inc. Supplemental Executive Retirement Plan. 2.19 PLAN YEAR. The "Plan Year" shall mean the calendar year. 2.20 RELATED COMPANY. An entity shall be a "Related Company" if-- (a) Fifty percent (50%) or more of the interests in the entity are owned by the Company; and (b) The entity is so designated by the Board of Directors of the Company. 2.21 SERVICE. "Service" means the period of time (stated in terms of Months of Service) during which the employment relation between the Participant and an Employer has been maintained, and shall include periods of paid absence (not to exceed six (6) months) and unpaid leave of absence (not to exceed six (6) months) granted by the Employer (including leaves approved for military service or for birth or adoption of a child). Participants shall receive Service credit for prior Service for any period between a Termination and rehire of less than twelve (12) months and shall receive Service credit for prior Service for any period prior to a Termination so long as the rehire occurs within sixty (60) months of the date of Termination, provided such period does not exceed the original period of employment. However, periods of service as a consultant, independent contractor or part-time employee (scheduled to work less than forty (40) hours per week) shall not count as Service. An Employee shall, if approved by the Board of Directors, receive credit for service with a Related Company upon becoming a Participant hereunder, with credit measured from the date such Related Company was acquired, and may receive credit for periods of employment with prior employers, but only at the discretion of the Board of Directors and only if the Employee is made a Participant within ninety (90) days of the later of his date of hire or the date of acquisition of the Related Company. 5 2.22 TERMINATION. (a) "Termination" shall mean the termination of an Employee's employment with the Company or a Related Company by reason of the Employee's retirement, death, Disability, resignation, dismissal, or otherwise. (b) Subject to the provisions of Section 2.21, an Employee shall not be considered to have incurred a Termination by means of a leave of absence that is approved by the Company or a Related Company (whichever is applicable) and is for a period of less than two (2) years. 6 ARTICLE III ELIGIBILITY AND PARTICIPATION ----------------------------- 3.1 ELIGIBILITY TO PARTICIPATE. (a) The only Employees who are eligible to participate in the Plan are those executives or highly compensated employees of the Company or a Related Company that are designated by the Chief Executive Officer of the Company (or officer serving in a substantially similar capacity if there is no Chief Executive Officer). (b) An employee who becomes a Participant shall remain a Participant hereunder until all benefits under Article 5 have been paid. (c) In the event that it is determined that allowing any individual to continue participating in the Plan could cause the Plan to violate ERISA, the Committee may elect to pay the entire present value of the Participant's vested benefit to him in a lump sum distribution as soon as administratively possible. The amount of the lump sum distribution shall be the Actuarial Equivalent of the Participant's vested benefit. 3.2 EFFECT OF PARTICIPATING IN PLAN. A Participant may receive a benefit under this Plan only if he does not also receive a benefit under the Mattel Financial Security Plan or the 1991 SERP. Participants who have earned a benefit under either of such plans shall have the right to make an irrevocable election, at any time prior to Termination, to forfeit any benefit to which they may have become entitled under either or both such plans, and if such an election is made, shall thereupon become entitled instead to the benefit provided by this Plan. 7 ARTICLE IV FUNDING OF BENEFITS ------------------- 4.1 FUNDED STATUS OF BENEFITS. The benefits under the Plan shall not be funded, but shall be payable out of the general assets of the Company (or a Related Company) when due. 4.2 RIGHTS OF PARTICIPANTS. (a) No Participant shall have a preferred claim on, or a beneficial ownership interest in, any assets of the Company (or a Related Company) prior to the time such assets are paid to him in the form of benefits. (b) All rights created under the Plan shall be unsecured contractual rights of Participants against the Company or a Related Company. However, nothing in this document shall in any way diminish any rights of a Participant to pursue his rights as a general creditor of Company or a Related Company with respect to his benefits under the Plan. 4.3 NO PARTICIPANT CONTRIBUTIONS. No Participant contributions to the Plan are permitted. 8 ARTICLE V BENEFITS --------- 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 fifteen (15) years. Such monthly amount, determined as of any Determination Date (as defined below), shall equal one-twelfth (1/12th) of (a) times (b) below, rounded to the nearest dollar, where (a) is twenty-five percent (25%) of the Participant's Final Average Compensation, determined as of the Determination Date, and (b) 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). "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). 5.2 NORMAL FORM OF DISTRIBUTION. Unless a Participant elects otherwise as provided in Section 5.3, he shall receive his benefit for his life only in the form of a single life annuity paid in monthly installments in the amount determined under Section 5.1. 5.3 OPTIONAL FORMS OF DISTRIBUTIONS. In lieu of receiving the benefit described in Section 5.2, a Participant may irrevocably elect, at any time prior to Termination, to receive the Actuarial Equivalent of such benefit in one of the following optional period-certain and life benefit forms: (a) 15 year certain - A benefit paid in the form of monthly installments over a period of 15 years. If a Participant dies after receiving his first payment, the designated Beneficiary shall be entitled to such payments, if any, that remain to be made following the date of death. (b) 10 year certain - A benefit paid in the form of monthly installments over a period of 10 years. If a Participant dies after receiving his first payment, the designated Beneficiary shall be entitled to such payments, if any, that remain to be made following the date of death. (c) 100% Joint and Survivor Annuity - A benefit which is payable for the life of the Participant and upon the Participant's death, if such Participant is survived by the spouse to whom such Participant was married at the annuity starting date, for the life of such spouse, in an amount equal to 100% of the benefit payable to such Participant. The benefit payable to such spouse shall not be terminated on account of such spouse's subsequent remarriage. 9 (d) 50% Joint and Survivor Annuity - A benefit which is Payable for the life of the Participant and upon the Participant's death, if such Participant is survived by the spouse to whom such Participant was married at the annuity starting date, for the life of such spouse, in an amount equal to 50% of the benefit payable to such Participant. The benefit payable to such spouse shall not be terminated on account of such spouse's subsequent remarriage. Except as may be provided in Sections 3.1(c) and 5.5, Participants shall not be entitled to be paid their benefits in the form of lump sum distributions. Notwithstanding the preceding sentence, if the Actuarial Equivalent of the amount payable to a Participant or Beneficiary is fifty thousand dollars ($50,000) or less, it will automatically be paid in the form of a lump sum distribution. 5.4 VESTING. Each Participant shall fully vest in his benefits under Section 5.1 upon: (a) completing sixty (60) or more Months of Service with the Employer, and (b) attaining age fifty-five (55). A person whose employment with the Employer is terminated for any reason prior to fulfilling both requirements for vesting hereunder shall not receive a benefit. Any Participant who has his employment terminated for Cause shall forfeit any right to a benefit notwithstanding the fact that he may have attained a vested interest in that benefit. Any Participant who, in the opinion of the Administrative Committee and within five (5) years of Termination, competes in any way with the Company or a Related Company, either as an employee of a competitor, or as a consultant or advisor to a competitor, shall not receive any unpaid benefits. A Participant who is reclassified to a management level that is not eligible for participation under this Plan shall forfeit any entitlement to a benefit under this Plan, except that a vested Participant who is so reclassified may be entitled to the benefit described under Section 5.1, based on Months of Service and Compensation to the date of such reclassification, but only upon review and approval by the Administrative Committee. 5.5 CHANGE OF CONTROL. (a) All benefits under the Plan shall become vested upon a Change of Control of the Company. The provisions of this Section 5.5(a) shall only apply to those Participants who are employed by the Company or a Related Company on the date of the Change of Control. (b) Except as otherwise provided by resolutions adopted by the Board of Directors prior to the date of a Change of Control, all benefits payable to all Participants, (determined after the application of Section 5.5(a) above), shall become 10 payable no later than thirty (30) days following a Change of Control, in the form of a lump sum distribution. (i) The provisions of this Section 5.5(b) shall apply to all Participants, regardless of whether they-- (A) Are currently receiving benefits under the Plan, (B) Have terminated employment, but not yet commenced receiving benefits, or (C) Are still employed by the Company or a Related Company. (ii) The amount of the lump sum distribution payable to a Participant under this Section 5.5(b) shall be the Actuarial Equivalent of the Participant's vested benefit. This amount shall be reduced by the amount (if any) of the benefit that has already been paid to the Participant. (c) If the Board of Directors elects to delay or suspend payment of benefits following a Change in Control pursuant to Section 5.5(b), and a Participant whose benefits were fully vested upon such Change of Control pursuant to Section 5.5(a) is terminated without Cause within five (5) years following such Change of Control, then all benefits payable to such Participant shall become immediately payable in the form of a lump sum distribution. In calculating such benefit, the Participant shall receive credit for all Months of Service following such Change in Control. A Participant's employment will be considered to have been terminated for Cause within five (5) years following a Change of Control only if there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board of Directors. (i) This resolution must be adopted at a meeting of the Board of Directors called and held for such purpose after reasonable notice to the Participant. (ii) There must be an opportunity for the Participant, together with counsel, to be heard before the Board. (iii) The resolution must find that, in the good faith opinion of the Board of Directors, the Participant was terminated for Cause and specifying the particulars thereof in detail. (d) The provisions of Section 5.5(c) above shall not apply in determining whether a Participant has been terminated for Cause in a situation that is not subject to the provisions of this Section 5.5. 11 ARTICLE VI PAYMENT OF BENEFITS ------------------- 6.1 IN-SERVICE WITHDRAWALS PROHIBITED. Participants are not entitled to receive their benefits prior to Termination. 6.2 LOANS. Participants may not borrow funds from the Plan. 6.3 DISTRIBUTIONS FOLLOWING TERMINATION. A vested Participant may terminate employment and begin to receive a benefit in the unreduced amount specified in Section 5.1 upon or after attaining age sixty (60). A vested Participant who terminates employment prior to age sixty (60) but after age fifty-five (55) shall receive a benefit commencing the first day of the month following Termination, provided that the amount specified under Section 5.1 shall be reduced by 0.4167% for each month by which the Participant's age at commencement is less than age sixty (60). (See Example A attached hereto and incorporated herein by this reference.) (a) Payments may not commence until the first day of the month following the later of the Participant's-- (i) Termination, or (ii) Attainment of age fifty-five (55). (b) With the consent of the Administrative Committee, Participants may elect to defer the commencement of their benefits for up to one (1) year; provided, however, that the benefit paid shall be fixed at the time of deferral. 6.4 DEATH BENEFITS. If a Participant dies while employed by the Company or a Related Company at a time when he is at least age forty-five (45) with sixty (60) or more Months of Service, the Participant's designated Beneficiary shall be entitled to a monthly benefit for fifteen (15) years, commencing on the date as soon as practicable after the Participant's death, in an amount equal to fifty-five percent (55%) of the amount accrued to the Participant under Section 5.1; provided, however, that for every month of age over age forty-five (45), the benefit paid shall be increased by .1667% per Month of Service. (See Example B attached hereto and incorporated herein by this reference.) If a Participant dies while employed by the Company or a Related Company at a time when he has become vested under Section 5.4 above, the Participant's Beneficiary shall be entitled to a monthly benefit for fifteen (15) years, commencing on the date of death in an amount equal to one hundred percent (100%) of the amount accrued by the Participant under Section 5.1, reduced as provided in Section 6.3 for each month by which the first payment precedes the date upon which the Participant would have reached age sixty (60). If a Participant dies after Termination, then his surviving Beneficiary shall be entitled to the payments hereunder, if any, that 12 remain to be made during that portion of the original payout period (selected by the Participant prior to Termination) following the date of death. A designated Beneficiary entitled to any retirement death benefit under this Section 6.4 may elect, prior to commencement of payment, to receive Actuarial Equivalent installments for ten (10) years. 6.5 DISABILITY. If a Participant becomes Disabled at any time following attainment of age forty-five (45) and completion of sixty (60) Months of Service, then such Participant shall, in lieu of any other benefit described under this Plan, be entitled to a benefit commencing on the final day of the twenty-fourth month of disability without regard to the age of the Participant at the time of the disability calculated under Section 5.1 using Compensation at the time the Participant became disabled, in an amount equal to fifty-five percent (55%) of the amount accrued to the Participant under Section 5.1; provided, however, that for every month of age over age forty-five (45), the benefit paid shall be increased by .1667% per Month of Service. (See Example B attached hereto and incorporated herein by this reference.) 6.6 DESIGNATION OF BENEFICIARY. (a) In the event benefits are payable under the Plan on behalf of a deceased Participant who has a surviving spouse, the remaining benefits will be paid to another Beneficiary only if the spouse consents in writing to such designation. (b) If there is no designated Beneficiary or surviving spouse, the benefits will be paid to the Participant's estate. 6.7 MAILING OF PAYMENTS. (a) All payments under the Plan shall be delivered in person or mailed to the last address of the Participant (or, in the case of the death of the Participant, to the last address of his Beneficiary). (b) Each Participant shall be responsible for furnishing the Administrative Committee with-- (i) His current address, and (ii) The name and current address of his Beneficiary. 6.8 PAYEES UNDER LEGAL DISABILITY. Every person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally competent and of age until the Administrative Committee receives written notice, in a form and manner acceptable to it, that such person is incompetent or a minor, and that a guardian, conservator, statutory committee, or other person legally vested with the care of his estate has been appointed. In the event that the Administrative Committee finds that any person to whom a benefit is payable under the Plan is unable to properly care for his affairs, 13 or is a minor, then any payment due (unless a prior claim therefor shall have been made by a duly appointed legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Administrative Committee to have incurred expense for such person otherwise entitled to payment. In the event a guardian or conservator or statutory committee of the estate of any person receiving or claiming benefits under the Plan shall be appointed by a court of competent jurisdiction, payment shall be made to such guardian or conservator or statutory committee provided that proper proof of appointment is furnished in a form and manner suitable to the Administrative Committee. Any payment made under the provisions of this section shall be a complete discharge of liability therefor under the Plan. 6.9 WITHHOLDING FOR TAXES. Any payments out of the Plan shall be reported to the applicable taxing authorities and may be subject to withholding for taxes as may be required by any applicable federal, state or other law. 14 ARTICLE VII OPERATION AND ADMINISTRATION OF THE PLAN ---------------------------------------- 7.1 ADMINISTRATIVE COMMITTEE POWERS. The Administrative Committee shall have all powers necessary to supervise the administration of the Plan and control its operations. In addition to any powers and authority conferred on the Administrative Committee elsewhere in the Plan or by law, the Administrative Committee shall have the following powers and authority: (a) To designate agents to carry out responsibilities relating to the Plan; (b) To employ such legal, actuarial, accounting, clerical, and other assistance as it may deem appropriate in carrying out the provisions of this Plan; (c) To establish rules and procedures from time to time for the conduct of the Administrative Committee's business and the administration of this Plan; (d) To administer, interpret, and apply this Plan and to decide all questions which may arise under this Plan. All determinations by the Administrative Committee shall be binding upon all parties, to the maximum extent permitted by law; and (e) To perform or cause to be performed such further acts as it may deem to be necessary, appropriate, or convenient in the administration of the Plan. 7.2 COMPOSITION OF ADMINISTRATIVE COMMITTEE. (a) The members of the Administrative Committee (who may, but need not be Participants or even Employees) shall be appointed by the Board of Directors and shall hold office until termination of such status in accordance with the provisions of this Article VII. (b) The term of the office of each member of the Administrative Committee shall be determined in accordance with the following rules: (i) Any member of the Administrative Committee may resign at any time by giving written notice to the other members and to the Board of Directors, effective as of the date indicated therein. (ii) Any member of the Administrative Committee may be removed by the Board of Directors at any time. (iii) In the case of an Administrative Committee member who is also an Employee of the Company or a Related Company, his status as a Administrative Committee member shall terminate as of the date of his Termination, except as otherwise provided in resolutions of the Board of Directors. 15 (c) Upon the death, resignation, or removal of any member of the Administrative Committee, the Board of Directors may appoint a successor. Notice of appointment of a successor member shall be given by the Company in writing to the other members of the Administrative Committee. 7.3 ADMINISTRATIVE COMMITTEE PROCEDURE. (a) A majority of the members of the Administrative Committee as constituted at any time shall constitute a quorum. (b) Any action authorized by a majority of the members-- (i) Present at any meeting, or (ii) In writing without a meeting, shall constitute the actions of the Administrative Committee. (c) Any member of the Administrative Committee is authorized to execute any document or documents on behalf of the Administrative Committee. 7.4 REPORTING AND DISCLOSURE. The Company (and not the Administrative Committee) shall be responsible for the reporting and disclosure of information required to be reported or disclosed pursuant to ERISA or any other applicable law. 7.5 NOTICES AND COMMUNICATIONS. (a) All applications, notices, designations, elections, and other communications from Participants shall be in writing, on forms prescribed by the Administrative Committee. These documents shall be mailed or delivered to the office designated by the Administrative Committee, and shall be deemed to have been given when received by such office. (b) Each notice, report, remittance, statement, or other communication directed to a Participant or Beneficiary shall be in writing and may be delivered in person or by mail. An item shall be deemed to have been delivered and received by the Participant three (3) days after the date when it is deposited in the United States Mail with postage prepaid, addressed to the Participant or Beneficiary at his last address of record with the Administrative Committee. 7.6 INDEMNIFICATION. (a) To the maximum extent permitted by law, the Company shall indemnify each member of the Board of Directors and of the Administrative Committee, and every other Employee with duties under the Plan, against expenses (including any amount paid in settlement) reasonably incurred by him in connection with any claims against him by reason of the performance of his duties under the Plan. 16 (b) The right of indemnification specified in Section 7.6 (a) above shall not apply with respect to matters as to which the individual acted fraudulently or in bad faith. (c) Notwithstanding the above, the Company shall have the right to select counsel and to control the prosecution or defense of the suit. (d) Furthermore, the Company shall not be obligated to indemnify any person for any amount incurred through any settlement or compromise of any action unless the Company consents in writing to the settlement or compromise. 17 ARTICLE VIII APPLICATION FOR BENEFITS ------------------------ 8.1 APPLICATION FOR BENEFITS. (a) The Administrative Committee may require any person claiming benefits under the Plan (a "Claimant") to submit an application therefor, together with such other documents and information as the Administrative Committee may require. (b) Within ninety (90) days following receipt of the application and all necessary documents and information, the Administrative Committee's authorized delegate reviewing the claim shall furnish the Claimant with written notice of the decision rendered with respect to the application. (c) Should special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the expiration of the initial ninety (90) day period. (i) The notice shall indicate the-- (A) Special circumstances requiring an extension of time, and (B) The date by which a final decision is expected to be rendered. (ii) In no event shall the period of the extension exceed ninety (90) days from the end of the initial ninety (90) day period. 8.2 CONTENT OF DENIAL. In the case of a denial of the Claimant's claim for benefits, the written notice shall set forth: (a) The specific reasons for the denial; (b) References to the Plan provisions upon which the denial is based; (c) A description of any additional information or material necessary for perfection of the application (together with an explanation of why the material or information is necessary); and (d) An explanation of the Plan's claims review procedure. 8.3 APPEALS. (a) In order to appeal the decision rendered with respect to his application for benefits or with respect to the amount of his benefits, the Claimant must follow the appeal procedures set forth in this Section 8.3. 18 (b) The appeal must be made, in writing-- (i) In the case where the claim is expressly rejected, within sixty-five (65) days after the date of notice of the decision with respect to the application, or (ii) In the case where the claim has neither been approved nor denied within the applicable period provided in Section 8.1 above, within sixty-five (65) days after the expiration of the period. (c) The Claimant may request that his application be given full and fair review by the Administrative Committee. The Claimant may review all pertinent documents and submit issues and comments in writing in connection with the appeal. (d) The decision of the Administrative Committee shall be made promptly, and not later than sixty (60) days after the Administrative Committee's receipt of a request for review, unless special circumstances require an extension of time for processing. In such a case, a decision shall be rendered as soon as possible, but not later than one hundred twenty (120) days after receipt of the request for review. (e) The decision on review shall-- (i) Be in writing, (ii) Include specific reasons for the decision, (iii) Be written in a manner designed to be understood by the Claimant, and (iv) Contain specific references to the pertinent Plan provisions upon which the decision is based. 8.4 EXHAUSTION OF REMEDIES. No legal action for benefits under the Plan may be brought unless and until the Claimant has exhausted his remedies under this Article VIII. 19 ARTICLE IX MISCELLANEOUS MATTERS --------------------- 9.1 AMENDMENT OR TERMINATION. (a) The Board of Directors may amend or terminate the Plan at any time by an instrument in writing executed in the name of the Company. However, no amendment may be adopted that would (i) reduce the dollar value of a Participant's vested benefit (ii) eliminate a form of benefit payment, or (iii) delay the date on which a Participant's vested benefit becomes payable. A reduction in a Participant's benefit resulting from a change in the interest rate used in determining Actuarial Equivalence shall not be precluded by reason of the prior sentence. (b) After the occurrence of a Change in Control, no amendment may be adopted that would affect (i) Section 2.6, (ii) Section 5.5, or (iii) this Section 9.1(b). (c) In the event of the termination of the Plan, all Participants who are employed by the Company or a Related Company on that date become fully vested. However, termination of the Plan will not accelerate the date on which benefits become payable under the Plan, except as otherwise provided in-- (i) Section 5.5, or (ii) Resolutions of the Board of Directors. 9.2 EFFECT OF MERGER OF COMPANY. (a) In the event of a consolidation, merger, sale, liquidation, or other transfer of substantially all of the operating assets of the Company to any other company, the ultimate successor or successors to the business of the Company shall automatically be deemed to have elected to continue this Plan in full force and effect, in the same manner as if the Plan had been adopted by resolution of its board of directors. (b) The presumption set forth in Section 9.2(a) above shall not apply if the successor, by resolution of its board of directors, elects not to so continue this Plan in effect. In such a case, the Plan shall terminate as of the effective date set forth in the board resolution. 9.3 NO ENLARGEMENT OF EMPLOYEE RIGHTS. (a) This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company (or a Related Company) and any Employee, or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. (b) Nothing contained in the Plan shall be deemed to give any Employee the right to be retained in the employ of the Company (or a Related Company) or to interfere with the right of 20 the Company (or a Related Company) to discharge any Employee at any time. 9.4 RESTRICTIONS AGAINST ALIENATION. A Participant's benefit under the Plan may not be assigned or alienated, either voluntarily or involuntarily. However, the preceding sentence will not preclude the Plan from reducing a Participant's benefit by the amount he owes to the Company or a Related Company. Such a reduction will apply whether the benefit is payable to the Participant or to his Beneficiary. 9.5 EMPLOYMENT AGREEMENTS. In the case of a Participant whose terms of employment with the Company or a Related Company are subject to the provisions of an employment agreement, to the extent that the terms of the employment contract provide the Participant with greater benefits than would otherwise be determined under the provisions of the Plan, the terms of the employment contract shall prevail. 9.6 INTERPRETATION. (a) Article and Section headings are for reference only and shall not be deemed to be part of the substance of this instrument or to enlarge or limit the contents of any Article or Section. (b) Unless the context clearly indicates otherwise, masculine gender shall include the feminine, the singular shall include the plural, and the plural shall include the singular. (c) In the case of any ambiguity, the Plan shall be construed in such a manner so as to comply with the provisions of ERISA, including the fact that it is intended that the Plan be exempt from the requirements of Parts II, III, and IV of Title I of ERISA pursuant to Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. IN WITNESS WHEREOF, Mattel, Inc. has caused this instrument to be executed by its duly authorized officer. MATTEL, INC. BY: /s/ E. Joseph McKay ------------------------- ITS: Senior Vice President, Human Resources -------------------------- DATE: July 2, 1996 -------------------------- 21 EX-10.41 15 dex1041.txt FISHER-PRICE, INC. PENSION PLAN EXHIBIT 10.41 1994 RESTATEMENT FISHER-PRICE PENSION PLAN OFFICIAL TEXT effective January 1, 1989 (Composite Copy through Fifth Amendment) TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1 NAME, EFFECTIVE DATE AND DEFINITIONS........................................... 5 Section 1.1. Name....................................................................... 5 Section 1.2. Effective Dates............................................................ 5 Section 1.3. Plan Year.................................................................. 5 Section 1.4. Definitions................................................................ 5 Section 1.5. Rights of Employees and Obligations of Company............................. 9 ARTICLE 2 ELIGIBILITY FOR PARTICIPATION.................................................. 9 Section 2.1.............................................................................. 9 (a) Eligibility for Participation Prior to July 1, 1991............................. 9 (b) Eligibility for Participation After December 31, 1994........................... 9 (c) Eligibility for Participation After March 31, 2000.............................. 10 (d) Resumption by Non-Vested Employee with Forfeiture Period of Severance........... 10 (e) Regular Employees; Changes in Status............................................ 10 Section 2.2. Termination and Resumption of Participation................................ 11 Section 2.3. Transfers Prior to Spin-Off Date........................................... 11 (a) Transfer to Division............................................................ 11 (b) Transfer from Division.......................................................... 11 Section 2.4. Service with and Transfers Involving Affiliated Corporations............... 11 (a) Service with Affiliated Corporations............................................ 11 (b) Transfer of Employment.......................................................... 12 (c) Change to Eligible Status....................................................... 12 (d) Change from Eligible Status..................................................... 12 (e) Subsidiary...................................................................... 12 ARTICLE 3 RETIREMENT BENEFITS............................................................ 12 Section 3.1. Normal Retirement.......................................................... 12 Section 3.2. Deferred Retirement........................................................ 13 Section 3.3.............................................................................. 13 (a) Accrued Monthly Pension Benefit................................................. 13 (1) Accrued Benefit on December 31, 1986....................................... 13 (2) Profit Sharing Annuity Increase............................................ 13 (3) Accrued Benefit for Plan Years Beginning on and after January 1, 1987...... 13 (4) 1990 Retirement Incentive.................................................. 15 (5) 1998 Retirement Incentive.................................................. 15 (6) 2000 Retirement Incentive.................................................. 15 (b) Compensation.................................................................... 15 (c) OBRA `93 Annual Limits.......................................................... 16
i Section 3.4...................................................................... 16 (a) Early Retirement........................................................ 16 (b) Reduced Benefit......................................................... 16 Section 3.5...................................................................... 17 (a) Social Security Disability.............................................. 17 (b) [Reserved].............................................................. 17 (c) Limitation on Retroactive Payment....................................... 17 (d) Cessation of Disability................................................. 17 Section 3.6. Form of Benefit Payments........................................... 17 Section 3.7. No Other Death Benefit............................................. 17 Section 3.8. Benefit Accruals for Pre-January 1, 1989 Service................... 17 Section 3.9...................................................................... 18 (a) Preretirement Survivor Annuity for Active Vested Participants........... 18 (1) Surviving Spouse................................................... 18 (2) Dependents......................................................... 18 (b) Inactive Vested Participants............................................ 19 Section 3.10..................................................................... 19 (a) Maximum Benefit......................................................... 19 (b) Further Limitation on Benefits.......................................... 20 Section 3.11. Changes in Social Security Benefits............................... 20 Section 3.12. Reemployment of Retirees.......................................... 20 (a) Regular Employment...................................................... 20 (b) Other Employment........................................................ 21 Section 3.13. Increase in Benefits for Retirees and Beneficiaries............... 21 ARTICLE 4 NORMAL AND OPTIONAL FORMS OF BENEFIT................................... 21 Section 4.1...................................................................... 21 (a) Qualified Joint and Survivor Annuity.................................... 21 (b) Information to Be Provided Participant.................................. 22 (c) Election Period......................................................... 23 Section 4.2. Life Annuity Option................................................ 23 (a) Normal Form for Unmarried Participant................................... 23 Section 4.3. Ten Years Certain Option........................................... 23 Section 4.4. Small Benefit Cash-Outs............................................ 24 (a) Payment of Small Benefits............................................... 24 (b) Direct Rollovers........................................................ 24 (c) Eligible Rollover Distribution.......................................... 24 (d) Eligible Retirement Plan................................................ 24 (e) Distributee............................................................. 24 (f) Direct Rollover......................................................... 24 Section 4.5. Limitations on Benefit Distributions............................... 24 ARTICLE 5 TERMINATION OF EMPLOYMENT.............................................. 25 Section 5.1. Nonforfeitable Interest in Accrued Monthly Pension Benefit......... 25
ii
Section 5.2...................................................................... 26 (a) Years of Service........................................................ 26 (b) Years of Service Disregarded............................................ 26 (c) Hour of Service......................................................... 26 Section 5.3...................................................................... 27 (a) Form, Time and Manner of Payment........................................ 27 Section 5.4. Payment of Small Benefits......................................... 28 ARTICLE 6 FUNDING................................................................ 28 Section 6.1. Company Contributions............................................. 28 Section 6.2. Forfeitures Reduce Contributions.................................. 28 Section 6.3. Actuarial Valuations.............................................. 29 ARTICLE 7 ADMINISTRATION OF PLAN................................................. 29 Section 7.1. Plan Administrator................................................ 29 Section 7.2. Named Fiduciary................................................... 29 Section 7.3. Claims by Employees and Participants.............................. 29 ARTICLE 8 THE PENSION TRUST...................................................... 29 Section 8.1. Continuation of Trust............................................. 29 Section 8.2. Source of Payments................................................ 29 Section 8.3. Payment of Benefits and Expenses.................................. 29 ARTICLE 9 RIGHT TO ALTER OR AMEND................................................ 30 Section 9.1. Right to Alter or Amend........................................... 30 Section 9.2. Limitations on Power of Amendment................................. 30 Section 9.3. Form of Amendment................................................. 30 ARTICLE 10 TERMINATION OF PLAN AND TRUST......................................... 31 Section 10.1. Right to Terminate Fully Reserved................................. 31 Section 10.2..................................................................... 31 (a) Continuation of Plan by Successor....................................... 31 (b) Merger, Consolidation or Transfer of Assets............................. 31 (c) Merger After Change in Control.......................................... 31 Section 10.3. Distribution of Assets on Termination of Plan..................... 31 Section 10.4. Provisions to Prevent Discrimination.............................. 32 (a) Restriction of Benefits................................................. 32 (b) Restrictions on Distributions........................................... 32 (c) Restricted Employee..................................................... 32 (d) Restricted Benefit...................................................... 32 (e) Effective Date.......................................................... 33
iii Section 10.5. No Further Liability.............................................. 33 Section 10.6. Change in Control................................................. 33 (a) Five-Year Period........................................................ 33 (b) Two Year Period......................................................... 33 (c) Definitions............................................................. 34 (1) Change in Control.................................................... 34 (2) Excess Assets........................................................ 35 (3) Conditions of Employment............................................. 36 ARTICLE 11 MISCELLANEOUS PROVISIONS.............................................. 36 Section 11.1. New York and Applicable Federal Law Govern........................ 36 Section 11.2. Headings for Convenience Only..................................... 36 Section 11.3. Rights of All Parties Determined by the Terms of the Plan......... 36 Section 11.4..................................................................... 37 (a) Spendthrift Clause...................................................... 37 (b) Qualified Domestic Relations Orders..................................... 37 Section 11.5. Notice to Employees............................................... 37 Section 11.6. No Employment Rights Created...................................... 37 Section 11.7. Diversion from Employees Prohibited............................... 37 Section 11.8. Right to Judicial Accounting...................................... 38 Section 11.9. Masculine Gender to Include Feminine and Singular to Include Plural................................................... 38 Section 11.10. Forfeiture on Account of Inability to Locate Participant or Beneficiary...................................................... 38 Section 11.11. Assignment........................................................ 38 ARTICLE 12 TOP-HEAVY PROVISIONS.................................................. 38 Section 12.1. Application of Top-Heavy Rules.................................... 38 Section 12.2. Definition of Top-Heavy Plan...................................... 39 Section 12.3. Top Heavy Rules................................................... 40 (a) Nonforfeitable Benefit.................................................. 40 (b) Minimum Accrued Monthly Pension Benefit................................. 40 (c) Adjustments for Super Top-Heavy Plans................................... 41
iv ARTICLE 1 NAME, EFFECTIVE DATE AND DEFINITIONS ------------------------------------ Section 1.1. Name. The Plan maintained by this instrument shall be ----------- ---- called "Fisher-Price Pension Plan" and is sometimes herein referred to as the "Plan". The funds to provide benefits under the Plan shall be held, managed, invested and disbursed in accordance with the terms of this Plan and pursuant to a separate Agreement of Trust entered into with a Trustee to fund the benefits under the Plan which agreement is hereby incorporated into this Plan by reference. Section 1.2. Effective Dates. The original effective date of the Plan ----------- --------------- was January 1, 1976. The effective date of the 1989 restatement was January 1, 1989, except as otherwise specifically provided. This 1994 Restatement is intended to replace the 1989 Restatement in order to meet requirements of the Internal Revenue Service in obtaining a favorable determination letter and to meet statutory and regulatory requirements adopted since the date the 1989 Restatement was executed. Section 1.3. Plan Year. The "Plan Year" of the Plan and Trust is the ----------- --------- twelve-month period beginning each January 1 and ending on the following December 31. Section 1.4. Definitions. As used herein: ----------- ----------- (a) Beginning in January, 1995, the term "Company" means Fisher-Price, Inc. and Mattel Operations, Inc. Beginning in January, 1998 the term "Company" shall also include Tyco Preschool, Inc. Notwithstanding the preceding, for purposes of Article 9, the term "Company" shall mean Fisher-Price, Inc. (b) "Division" means the Fisher-Price Division of The Quaker Oats Company. As of the Spin-off Date, the term "Division" shall have the same meaning as the term "Company;" as of such date, both of these terms mean Fisher- Price, Inc. (c) "Spin-off Transaction" means the corporate transaction whereby The Quaker Oats Company transfers assets and liabilities associated with the business of the Division to a newly formed wholly owned corporation known as Fisher-Price, Inc. following which the common stock of Fisher-Price, Inc. is subsequently distributed to the shareholders of The Quaker Oats Company. (d) "Spin-off Date" means the effective date of the distribution to Fisher-Price, Inc., on which assets and liabilities associated with the business of the Division are to be transferred to Fisher-Price, Inc. (e) "Trustee" means the trustee appointed and serving from time to time under the separate Agreement of Trust. 5 (f) "Regular employee" means a common-law employee, excluding any employee who is hired on a seasonal basis or who otherwise has an irregular work schedule. (g) "Affiliated corporation" means any corporation which is a member of a controlled group of corporations, as defined in Section 414(b) of the Code, which includes the Company. This term shall also include any other trade or business (whether or not incorporated) which is under common control, as defined in Section 414(c) of the Code, with the Company, as well as any service organization which is a member of any affiliated service group which includes the Company and any other entity required to be aggregated with the Company pursuant to Sections 414(m) and (o) of the Code. (h) "Covered compensation" for each Plan Year means the average (without indexing) of the taxable wage bases in effect for each calendar year during the 35-year period ending with the current Plan Year. "Covered Compensation" shall be automatically adjusted each Plan Year. For purposes of this definition, the term "taxable wage base" means the contribution and benefit base under Section 230 of the Social Security Act. (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (j) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. (k) For purposes of Section 3.9, the term "dependent" means a dependent as defined in Section 152 of the Code with respect to whom the Participant or his estate is entitled to a Federal income tax exemption under Section 151 of the Code for the taxable year of the Participant's death. (l) "Vested Participant" means any Participant who has a nonforfeitable right to an accrued benefit under the Plan. (m) "Participant" means an employee of the Company who has met the eligibility requirement under Article 2 and who has become a Participant under the terms of Article 2. (n) "Year of service" means a year of service as defined in Section 5.2(a). (o) "Hour of service" means an hour of service as defined in Section 5.2(c). (p) Except as otherwise specifically provided, the term "compensation" means compensation as defined in Section 3.3(b). (q) "Profit Sharing Plan" means the Fisher-Price Profit Sharing and Retirement Savings Plan, as amended from time to time. (r) "Entry Date" means January 1 and July 1 of each year. 6 (s) "Date of Hire" means the date on which an employee first completes an Hour of Service. (t) "Look-back Year", for purposes determining who is a highly compensated employee, in accordance with Code Section 414(q) and the Regulations issued thereunder, shall be the Plan Year for which testing is being performed. (No separate determination year calculation is required). (u) "Forfeiture Period of Severance" means a Period of Severance of sixty (60) or more consecutive months in duration. A Period of Severance that begins with a Parental Leave, however, must be at least seventy-two (72), rather than sixty (60), consecutive months in duration in order to constitute a Forfeiture Period of Severance. (v) "Period of Service" of an individual means the period beginning on the individual's Date of Hire or Re-Employment Commencement Date and ending on the individual's next succeeding Severance from Service Date. (w) "Period of Severance" of an individual means the period beginning immediately following the individual's Severance from Service Date and ending immediately prior to the individual's next Re-Employment Commencement Date (if any). (x) "Qualifying Period of Severance" of an individual means a Period of Severance that: (i) begins immediately following a Severance from Service Date described in Section 1.4(y)(i); and (ii) does not exceed twelve (12) consecutive months in duration. If the Severance from Service Date described in Section 1.4(y)(i) occurred while the individual was absent from employment as described in Section 1.4(y)(ii), however, the Period of Severance will not be a Qualifying Period of Severance unless it ends by the first anniversary of the date on which such absence from employment began. (y) "Severance from Service Date" means the date on which an individual's employment with the Company and all Affiliated Corporations terminates. Such date is considered to be the earlier of: (i) the date on which the individual quits, retires, is discharged or dies; or (ii) the first anniversary of the date on which the individual is first absent from employment (with or without pay) for any other reason (for example, vacation, holiday, sickness, Parental Leave, disability, leave of absence or layoff). 7 Notwithstanding the foregoing, an individual who terminates employment with an Affiliated Corporation to enter the military service of the United States shall not experience a Severance from Service Date if (A) the individual's right to re-employment by the Affiliated Corporation is protected by federal law and (B) the individual returns to employment with the Affiliated Corporation within the period required by law to preserve the individual's right to re-employment. (z) "Parental Leave" of an Affiliated Corporation employee means the employee's absence from work with an Affiliated Corporation (i) which begins after 1984 and (ii) which is by reason of the pregnancy of the employee, the birth of a child of the employee or the placement of a child with the employee in connection with the employee's adoption of the child or is for purposes of caring for the child over a period beginning immediately following such birth or placement of the child. In order for an absence to qualify as a Parental Leave, the reasons therefor and the length thereof must be established by the employee to the reasonable satisfaction of the Company at such time and pursuant to such procedures as the Company shall establish for such purpose. While an employee's Parental Leave shall entitle the employee to be credited with service to the limited extent specifically provided in the Plan, such Parental Leave shall not constitute a parental leave of absence for any non-Plan purposes, or entitle the employee to any non-Plan benefits or reemployment following such Parental Leave, except to the extent, if any, provided under the employment practices and policies of the Affiliated Corporation who employed the employee at the time of the Parental Leave, applied without regard to the Plan. (aa) "Re-Employment Commencement Date" means the date on which an individual first performs an Hour of Service following a Period of Severance. (bb) "Vesting Service," with respect to a Participant, means the sum of the Participant's Periods of Service and Qualifying Periods of Severance. The determination of Vesting Service shall also be subject to the following rules: (i) Vesting Service shall be expressed as years, with a year consisting of three hundred sixty-five (365) days. In such regard, to determine Vesting Service, the Participant's Period(s) of Service and (if any) Qualifying Period(s) of Severance shall be totaled, expressing any Period of Service or Qualifying Period of Severance as days, and the resulting total divided by three hundred sixty-five (365). Any fractional year of Vesting Service shall not be rounded up or down. In determining Vesting Service, in no event shall the same day be counted more than once. (A similar procedure shall be followed for the purposes of determining whether a Period of Severance is a Qualifying Period of Severance or a Forfeiture Period of Severance.) (ii) If a Participant has a Forfeiture Period of Severance, any Vesting Service for Periods of Service and Qualifying Periods of Severance that occur after the Forfeiture Period of Severance shall not be taken into account for purposes of determining whether the Participant is a Vested Participant under this Plan at the time of, or at any time before, the Forfeiture Period of Severance. 8 (iii) If a Participant who has never been a Vested Participant under this Plan incurs a Forfeiture Period of Severance, any Vesting Service prior to the Forfeiture Period of Severance shall be disregarded. In the application of this subsection, there shall be disregarded any Period of Service or Qualifying Period of Severance previously disregarded by reason of the application of this subsection to a prior Forfeiture Period of Severance (or by reason of a comparable prior provision of the Plan or any of its predecessors in interest). (iv) If a Participant participated in the Plan prior to April 1, 2000, the Participant's Vesting Service for time before April 1, 2000 shall mean (and be limited to) the Participant's "Years of Service" under and as defined in Section 5.2(a) of the Plan as of March 31, 2000. (v) A Participant's Vesting Service shall include employment with an employer that is not an Affiliated Corporation, or with an employer before it becomes an Affiliated Corporation, but only if, to the extent and in the manner provided by a resolution of the Board of Directors in its sole discretion or by an amendment to the Plan. Section 1.5. Rights of Employees and Obligations of Company. Except ----------- ---------------------------------------------- as expressly provided herein, the rights of employees of the Company covered under the Plan who have retired or have otherwise terminated their employment with the Company prior to the effective date of this restated Plan and the obligations of the Company on any date prior to the effective date of the restated Plan shall be governed by the terms of the Plan as in effect as of such date. After December 31, 1988, the rights of employees who retire or otherwise terminate their service with the Company and the obligations of the Company shall be only as set forth herein or as the Plan shall hereafter be amended from time to time. ARTICLE 2 ELIGIBILITY FOR PARTICIPATION ----------------------------- Section 2.1. ----------- (a) Eligibility for Participation Prior to July 1, 1991. Each employee --------------------------------------------------- of the Company who was a Participant in this Plan prior to the effective date of the restatement shall remain a Participant hereunder. With respect to Plan participation prior to July 1, 1991, each other regular employee of the Company shall become a Participant in the Plan after eight weeks of employment with the Division. If an employee is not hired as a regular employee but becomes a regular employee thereafter, he shall become a Participant after eight weeks of employment as a regular employee. No other employee shall be eligible for participation in the Plan prior to July 1, 1991. (b) Eligibility for Participation After December 31, 1994. Each ----------------------------------------------------- regular employee of Fisher-Price, Inc. who became a Participant in the Plan prior to January 1, 1995 and who continued as an employee of Fisher-Price, Inc. or Mattel Operations, Inc. following December 31, 1994 shall continue as an active Participant hereunder as a result of the 9 maintenance of this Plan by Fisher-Price, Inc. and Mattel Operations, Inc. thereafter, so long as such employee continues in an eligible status. Each other regular employee of the Company who is employed in an eligible status shall become a Participant on the first Entry Date coincident with or following his or her completion of one Year of Participation Service with the Company. For purposes of this Article, "Year of Participation Service" means: (1) the 12 consecutive month period commencing with an employee's Date of Hire and ending on the last day before the anniversary of his or her Date of Hire, or (2) a Plan Year commencing after the employee's Date of Hire, during which he or she completes at least 1,000 hours of service. (c) Eligibility for Participation After March 31, 2000. A regular -------------------------------------------------- employee of the Company who is employed in an eligible status and who is not described in Section 2.1(a) or (b) (regarding pre-April 1, 2000 Participants in the Plan) shall become a Participant in the Plan on the first Entry Date coincident with or following the date the employee's Periods of Service and Qualifying Periods of Severance (including any Period of Service or Qualifying Period of Severance then in progress) equals one (1) year. (d) Resumption by Non-Vested Employee with Forfeiture Period of ----------------------------------------------------------- Severance. If (1) a Participant who, upon his separation from the service of the - --------- Company, has not acquired a nonforfeitable right under Article 5 to his accrued monthly pension benefit or (2) an employee who separates from the service of the Company prior to satisfying the service requirement set forth in subsection (c) incurs a Forfeiture Period of Severance, such Participant shall not be eligible to resume active participation in the Plan until he satisfies the service requirement set forth in subsection (c) after the Forfeiture Period of Severance. In determining if such individual satisfies the service requirement set forth in subsection (c) after the Forfeiture Period of Severance, he shall be treated as if (i) he is a new employee under subsection (c) and (ii) his or her Employment Commencement Date is the date on which he or she completes the first Hour of Service after the Forfeiture Period of Severance. (e) Regular Employees; Changes in Status. Each regular employee of the ------------------------------------ Company who has completed the service requirement but who is separated from the service of the Company prior to his or her Entry Date or who is not employed in an eligible status on such date shall become a Participant immediately upon his or her return to the service of the Company as a regular employee in an eligible status unless subsection (d) applies. Notwithstanding the preceding sentence, an employee shall not in any event commence participation in the Plan prior to the Entry Date which otherwise would have applied had the employee not separated from the service of the Company. An employee who is not a regular employee employed in an eligible status shall not become a Participant hereunder. If an employee of the Company who is not a Participant becomes a regular employee in an eligible status, he or she shall commence participation in the Plan on the later of the date on which he or she became a regular employee in an eligible status or the first Entry Date coincident with or following the date the employee's 10 Periods of Service and Qualifying Periods of Severance (including any Period of Service or Qualifying Period of Severance then in progress) equals one (1) year. For purposes of this Plan, an employee of the Company is employed in an eligible status if he or she is employed: (i) by Fisher-Price, Inc., excluding for periods prior to January 1, 1999 any employee of Fisher-Price, Inc. who was eligible to receive an automatic contribution under the Mattel, Inc. Personal Investment Plan; (ii) by Mattel Operations, Inc. in the Mattel Operations - East Aurora, Mattel Operations - Medina or Mattel Operations - Murray divisions; and (iii) by Tyco Preschool, Inc. for periods beginning January 1, 1998. Section 2.2. Termination and Resumption of Participation. Upon ----------- ------------------------------------------- separation from service with the Company, an employee shall cease to be an active Participant in the Plan. If a former Participant is reemployed by the Company in an eligible status, he shall resume participation in the Plan immediately upon reemployment unless Section 2.1(d) applies. Section 2.3. Transfers Prior to Spin-Off Date. ----------- -------------------------------- (a) Transfer to Division. An employee who transfers from the Company -------------------- (other than the Division) or any Affiliated corporation to the Division as a regular employee prior to the Spin-off Date shall become a Participant in the Plan upon completion of eight weeks of employment with the Company (including service with any Affiliated corporation) or the date of his transfer to the Division, whichever is later. For purposes of Article 5 (but not for benefit accrual under Article 3), such employee shall be credited with hours of service with the Division under Section 5.2(c) for hours of service as defined in such Section completed with the Company or any Affiliated corporation. (b) Transfer from Division. For purposes of Article 5 (but not for ---------------------- purposes of benefit accrual under Article 3), an employee who transfers from the Division to another division of the Company or any Affiliated corporation shall be credited with hours of service with the Division under Section 5.2(c) for hours of service as defined in such Section completed with the Company or any such affiliate prior to the Spin-off Date. Section 2.4. Service with and Transfers Involving Affiliated ----------- ------------------------------------ ---------- Corporations. ------------ (a) Service with Affiliated Corporations. Hours of Service completed ------------------------------------ by a Participant with an Affiliated corporation shall be credited for eligibility and vesting purposes under this Plan under Articles 2 and 5, but not for purposes of benefit accrual under Article 3, except as specifically provided hereunder. With respect to employees who transfer to the Company after November 30, 1993 directly from Mattel, Inc. or any Subsidiary, the service credited under this subsection shall 11 include all service with such Subsidiary or with Mattel, Inc., including service prior to the date the Subsidiary or Mattel, Inc. became an Affiliated corporation, unless at the time of the event at which a Subsidiary became an Affiliated corporation, the Board of Directors of Fisher-Price, Inc. specifically provides otherwise. The amount of service to be credited under the preceding sentence shall be based on the terms of a qualified plan maintained by Mattel, Inc. or the Subsidiary under which the transferred employee was participating immediately prior to the transfer or under the terms of this Plan for crediting service for eligibility and vesting if the employee was not participating in such a plan. Notwithstanding the foregoing, the Board of Directors of Fisher-Price, Inc. may also specifically provide for the crediting of service under this Section with a predecessor employer or any entity other than a Subsidiary prior to the date such predecessor employer or other entity was acquired by an Affiliated corporation or otherwise became an Affiliated corporation. (b) Transfer of Employment. If a Participant transfers employment ---------------------- from the Company or any business entity that has adopted or is maintaining this Plan to any Affiliated corporation that has not adopted or is not maintaining this Plan, such transfer shall not be considered a separation from service or termination of employment under this Plan. Such Participant shall continue to be credited with Hours of Service as provided in subsection (a). If a person transfers employment from any Affiliated corporation that has not adopted the Plan to the Company or any business entity that has adopted or is maintaining this Plan, he or she shall immediately commence active participation in the Plan if such person is employed in an eligible status, has satisfied the age and service requirements under the Plan and if the Entry Date that would otherwise apply to such person has already occurred. (c) Change to Eligible Status. If the employment status of an person ------------------------- changes so that he or she is eligible for participation hereunder as a result of a transfer from ineligible status, he or she shall immediately commence active participation in the Plan following the date of his or her change in employment status if such person has satisfied the age and service requirements hereunder and if the Entry Date that would otherwise apply to such person has already occurred. (d) Change from Eligible Status. If the employment status of a --------------------------- Participant changes so that he or she is no longer in an eligible status under the Plan but he or she is still in the service of the Company, he or she shall be credited with Hours of Service for vesting purposes for Hours of Service with the Company after the change in employment status. (e) Subsidiary. The term "Subsidiary" means any corporation included ---------- in a chain of corporations connected through stock ownership with a common parent corporation as defined under Section 1563(a)(1) of the Code where the common parent is Mattel, Inc. ARTICLE 3 RETIREMENT BENEFITS ------------------- Section 3.1. Normal Retirement. Each Participant may retire from ----------- ----------------- active service with the Company as of the end of his normal work day on his normal retirement date, 12 which shall be the last day of the month in which his sixty-fifth birthday falls, and shall be entitled to an accrued monthly pension benefit, determined under Section 3.3, commencing on the first day of the month following his normal retirement date. Section 3.2. Deferred Retirement. If a Participant continues in the ----------- ------------------- active service of the Company after his normal retirement date, he shall continue as a participant under the Plan until the date of his actual retirement. Such Participant may continue to accrue benefits after his normal retirement date, subject to the provisions of this Article, until the date of his actual retirement. Upon his actual retirement, the Participant shall be entitled to an accrued monthly pension benefit determined under Section 3.3 commencing on the first day of the month following his actual retirement date. Such benefit shall not be actuarially increased on account of deferred commencement of payment. Section 3.3. ----------- (a) Accrued Monthly Pension Benefit. A Participant's accrued monthly ------------------------------- pension benefit on retirement or other termination of employment shall be an amount equal to the sum of (1), (2) and (3) and, if applicable, the amount described in (4), (5) or (6) as follows: (1) Accrued Benefit on December 31, 1986. The Participant's ------------------------------------ accrued monthly pension benefit as determined under the terms of the Plan as in effect on December 31, 1986. Such accrued benefit is calculated under the provisions of Sections 3.3, 3.8 and 5.1 as in effect on such date and as set forth in Schedule A. (2) Profit Sharing Annuity Increase. A monthly benefit amount ------------------------------- calculated separately for each Participant based on participation in the Plan from 1976 through 1983 as set forth in Schedule B. (3) Accrued Benefit for Plan Years Beginning on and after January ------------------------------------------------------------- 1, 1987. One-twelfth of the sum of (i), (ii), (iii), and (iv) below and subject - ------- to the limitation of (vi) below: (i) For a Participant during the 1987 Plan Year-- (A) 1.1% multiplied by his Plan Year Compensation up to $15,600, plus (B) 1.8% multiplied by his Plan Year compensation in excess of $15,600. (ii) For a Participant during the 1988 Plan Year-- (A) 1.1% multiplied by his Plan Year compensation up to $16,800, plus 13 (B) 1.8% multiplied by his Plan Year compensation in excess of $16,800. (iii) For a Participant during the 1989 Plan Year, the sum of-- (A) 1.4% multiplied by his Plan Year compensation up to the integration level for the Plan Year, plus (B) 1.8% multiplied by his Plan Year compensation in excess of the integration level for the Plan Year. Notwithstanding the foregoing, the benefit accrual for any Participant, other than a Participant who is a highly compensated employee within the meaning of Section 414(q)(1)(A) or (B) of the Code, shall not be less than the sum of 1.1% multiplied by his Plan Year compensation up to $15,708 plus 1.8% multiplied by his Plan Year compensation in excess of $15,708. (iv) For a Participant for Plan Years after December 31, 1989 items (A) and (B) shall be calculated for each Plan Year. The sum of such annual Plan Year calculations will equal the benefit accrued under this subsection (iv). Each annual Plan Year calculations shall include: (A) 1.4% multiplied by his compensation for such Plan Year up to the integration level, plus (B) 1.8% multiplied by his compensation for such Plan Year in excess of the integration level for the Plan Year. Notwithstanding the foregoing, the benefit accrual for any Participant, other than a Participant who is a highly compensated employee within the meaning of Section 414(q)(1)(A) or (B) of the Code, for the 1990 and 1991 Plan Years shall not be less than: (1) for the 1990 Plan Year, the sum of 1.1% multiplied by his Plan Year compensation up to $16,968, plus 1.8% multiplied by his Plan Year compensation in excess of $16,968, and (2) for the 1991 Plan Year, the sum of 1.1% multiplied by his Plan Year compensation up to $18,312, plus 1.8% multiplied by his Plan Year compensation in excess of $18,312. (v) For purposes of this subsection, the term "integration level" means 150.1% of Covered compensation for the Plan Year, as defined in Section 1.4(h), rounded to the next highest multiple of $100. (vi) Notwithstanding the provisions of (iii) and (iv) above, once a Participant accrues benefits under the Plan for 43 Plan Years, the accruals for each Plan Year after 43 shall be 1.4% multiplied by his compensation for such Plan Year. 14 (4) 1990 Retirement Incentive. A monthly benefit amount ------------------------- calculated under Schedule E for each Participant who meets the eligibility requirements set forth in Schedule E. (5) 1998 Retirement Incentive. A monthly benefit amount ------------------------- calculated under Schedule F for each Participant who meets the eligibility requirements set forth in Schedule F. (6) 2000 Retirement Incentive. A monthly benefit amount ------------------------- calculated under Schedule G for each Participant who meets the eligibility requirements set forth in Schedule G. Notwithstanding the foregoing, the benefits described in (2) above shall be payable only to a Participant who was actively employed by the Division or the Company on December 11, 1987 or a Participant who terminated his employment during 1987 after (i) both the attainment of age 55 and completion of five years of service, (ii) completion of 25 years of service, (iii) death, or (iv) disability retirement under Section 3.5. The benefit described in (2) above shall also be payable to a Participant whose disability retirement date occurred in 1986 but whose benefit from the Plan was not payable until 1987. The calculation of benefits under (3) shall be based only on compensation paid to a Participant as a regular employee. In all cases, there shall be no reduction of accrued benefits as a result of amendments made in the formula for calculating accrued benefits under this restated Plan. (b) Compensation. The term "compensation" of a Participant for any ------------ period means the total amount of "wages" as defined in Section 3401(a) of the Code, without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code), which are paid to such Participant by the Company during such period plus any contributions made on a salary reduction basis under Sections 125 or 402(a)(8) of the Code which are not otherwise included as wages under Section 3401 of the Code. Notwithstanding the preceding sentence, compensation shall not include amounts representing cash or merchandise prizes awarded for suggestions or ideas, commissions, special allowances, expense reimbursements, severance pay, pay for inactive status pending retirement, any profits under stock plans, any payments out of the short term or long term disability plans or sickness and accident plans, any compensation the receipt of which is deferred pursuant to a plan or contract, or any amounts representing benefits under the Profit Sharing Plan. Any questions as to whether any other amount paid to a Participant are compensation shall be determined by the Company. The compensation of each Participant taken into account under the Plan for any Plan Year shall not exceed $200,000. Such $200,000 limitation shall be adjusted at the same time and in the same manner as permitted under Section 415(d) of the Code. 15 (c) OBRA `93 Annual Limits. In addition to other applicable ---------------------- limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, for Plan Years beginning on or after January 1, 1994, the annual Compensation of each Participant taken into account under the Plan shall not exceed the "OBRA `93 annual compensation limit." The "OBRA `93 annual compensation limit" is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA `93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For Plan Years beginning on or after January 1, 1994, any reference in this Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA `93 annual compensation limit set forth in this provision. If compensation for any prior determination period is taken into account in determining a Participant's benefits accruing in the current Plan Year, the compensation for that prior determination period is subject to the OBRA `93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first Plan Year beginning on or after January 1, 1994, the OBRA annual compensation limit is $150,000. Section 3.4. ----------- (a) Early Retirement. A Participant may retire as of the first day ---------------- of any month before his normal retirement date and after he has attained age 55 and has completed at least 5 years of Vesting Service. Such Participant's accrued monthly pension benefit, determined under Section 3.3, shall be payable on the first day of the month coincident with or following his sixty-fifth birthday, unless the Participant elects otherwise under subsection (b). (b) Reduced Benefit. A Participant who has retired under this --------------- Section may elect to receive a reduced benefit to begin the first day of any month prior to his normal retirement date. Such reduced benefit shall be equal to his benefit otherwise computed under Section 3.3, reduced by one-half of one percent (.005) per month for each month by which the date benefit payments begin precedes the first day of the month coincident with or following such Participant's sixty-fifth (65th) birthday. 16 Section 3.5. ----------- (a) Social Security Disability. If a Participant in the active -------------------------- service of the Company or on an approved leave of absence becomes permanently and totally disabled and he is eligible for and receives disability benefits under the Social Security Act, he shall be retired for disability, and his disability retirement date shall be the first day of the month coincident with or immediately following the date of permanent disability as established by the Social Security Administration. Such Participant shall be entitled to his accrued monthly pension benefit determined under Section 3.3, commencing on his disability retirement date. (b) [Reserved] (c) Limitation on Retroactive Payment. Benefit payments under this --------------------------------- Section shall commence as of a Participant's disability retirement date, and payments shall be made retroactively if the determination of disability occurs in a month subsequent to the month in which such retirement date occurs. Notwithstanding the preceding sentence or any other provision of this Section, no retroactive payments shall be made with respect to any month for which the Participant has received any payment from any plan, fund or program maintained by the Company on account of disability. (d) Cessation of Disability. With respect to any retirement under ----------------------- this Section, the Company may require that a Participant certify his continuing eligibility to receive disability benefits under the Social Security Act or submit to a reexamination by a physician or physicians selected by the Company not more often than semi-annually as shall be necessary for the Company to determine the continuing eligibility of such Participant to receive benefits under this Section. If a Participant who retires under this Section recovers from such disability at any time prior to his normal retirement date, benefit payments under this Section shall cease and he shall not be entitled to any benefit accrual hereunder or be credited with years of service under Section 5.2 after the date his disability retirement began. Such Participant shall be entitled to an adjusted benefit under Article 5, based on his benefit accrual and years of service as of the date he last retired under this Section adjusted to take into account prior benefit payments made to the Participant hereunder. Notwithstanding the preceding, if such Participant recovers from disability and is immediately reemployed by the Company, the period of his disability under this Section and years of service credited immediately preceding such disability shall be considered years of active service for purposes of vesting under Article 5 of this Plan. Section 3.6. Form of Benefit Payments. The accrued monthly pension ----------- ------------------------ benefit payable under Sections 3.1, 3.2, 3.4 or 3.5 shall be paid in accordance with the normal form of benefit under Sections 4.1 or 4.2, or in accordance with an optional form of benefit selected by a Participant under Section 4.3. Section 3.7. No Other Death Benefit. Except for Sections 3.9, 4.1 or ----------- ---------------------- 4.3, there shall be no death benefit payable on account of the Participant's participation in this Plan. Section 3.8. Benefit Accruals for Pre-January 1, 1989 Service. In all ----------- ------------------------------------------------ cases where benefits are payable to Participants who were Participants prior to January 1, 1989, the 17 amount of benefit accrual shall be determined under the provisions of the Plan in effect prior to January 1, 1989. The accrual of benefits for service after December 31, 1988 shall be determined under the terms of this restated Plan. Section 3.9. ----------- (a) Preretirement Survivor Annuity for Active Vested Participants. In ------------------------------------------------------------- the case of a Vested Participant who dies while in active service with the Company and prior to the commencement of benefit payments under the Plan, and who has a surviving spouse, such spouse shall be entitled to a preretirement survivor annuity, as hereafter defined. Notwithstanding the preceding, a preretirement survivor annuity shall also be paid to the dependents of an unmarried Vested Participant who dies while in the active service of the Company. For purposes of this subsection, the term "preretirement survivor annuity" means a monthly benefit payable in accordance with the following: (1) Surviving Spouse. If the Vested Participant is survived by ---------------- a spouse, the spouse shall be entitled to receive for such spouse's life a monthly benefit equal to 50% of the Participant's nonforfeitable accrued monthly pension benefit determined under Sections 3.3 and 5.1 at the date of his death. Such monthly benefit shall commence at the first day of the month coincident with or next following the Participant's date of death. (2) Dependents. In the case of a Vested Participant who is not ---------- survived by a spouse but is survived by one or more dependents, as defined in this Section, the total monthly benefit shall be equal to the dollar amount determined in paragraph (1) above and shall be paid to such dependent or divided equally among each of such dependents in accordance with the following rules: (i) Any benefits payable hereunder to a dependent other than a surviving spouse shall cease upon the earlier of: (A) the death of the recipient; or (B) the distribution of the 120th monthly payment to such recipient. (C) Notwithstanding (A) and (B), in the case of a child, monthly payments shall be paid until the earlier of the 23rd birthday of the child or such child's death. (ii) If a benefit payable under this Section ceases to be paid to a recipient for any reason, the benefit payable to any other recipient shall not be increased. 18 (b) Inactive Vested Participants. In the case of a Vested ---------------------------- Participant who has retired or separated from service and who dies prior to the commencement of benefit payments, the surviving spouse of such Participant will be entitled to a preretirement survivor annuity commencing on the first day of the month coincident with or immediately following the later of (1) the deceased Participant's earliest retirement age under the Plan (but only if such spouse is living on such date) or (2) the Participant's date of death, and continuing during the spouse's lifetime. However, the preretirement survivor annuity will not be paid if the deceased Participant had not been married to such spouse during the entire twelve-month period ending on the date of the Participant's death. The amount of the preretirement survivor annuity under this subsection shall be the amount which would have been payable as a survivor annuity under the joint and survivor annuity provision of the Plan in Section 4.1(a) assuming: (1) in the case of a Participant who dies after the date on which the Participant attained the earliest retirement age, such Participant had retired with an immediate benefit under Section 4.1(a) on the day before the Participant's date of death, or (2) in the case of a Participant who dies on or before the date on which the Participant would have attained the earliest retirement age, such Participant had separated from service on his date of death, survived to the earliest retirement age, retired with an immediate benefit under Section 4.1(a) at the earliest retirement age, and died on the day after the day on which he would have attained the earliest retirement age. Section 3.10. ------------ (a) Maximum Benefit. If a Participant's accrued monthly pension --------------- benefit exceeds one-twelfth of his maximum annual benefit, as hereinafter defined, his accrued monthly pension benefit shall be reduced until it does not exceed one-twelfth of such maximum annual benefit. The maximum annual benefit of a Participant under this Plan at any time shall equal the lesser of: (1) $90,000, plus cost of living adjustments provided in Section 415(d) of the Code, or such actuarial equivalent amount determined under regulations prescribed by the Secretary of the Treasury if the benefit hereunder begins before or after the Participant's Social Security retirement age, adjusted in the case of a Participant with fewer than ten years of participation in the Plan by multiplying the dollar amount determined under this paragraph by the number of the Participant's years of participation under the Plan and dividing the product obtained by ten; or (2) the greater of (A) 100% of the Participant's compensation for his high three consecutive years of service, divided by three; or (B) $10,000 if the Participant has not at any time participated in a defined contribution plan, as defined in Section 414(i) of the Code, maintained by the Company or an affiliated corporation. 19 In the case of a Participant with fewer than ten years of service with the Company the amounts determined in (2)(A) or (2)(B) shall be adjusted by multiplying such amounts by the number of the Participant's years of service with the Company and dividing the product obtained by ten. For purposes of this Section, the term "compensation" means wages within the meaning of Section 3401(a) of the Code, for purposes of income tax withholding at the source, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code). The term "limitation year" means the Plan Year. In determining the single life annuity equivalence of a form of benefit where the entire benefit constitutes a qualified joint and survivor annuity as defined for purposes of Section 401(a)(11) of the Code, the benefit payable to the spouse shall be ignored so that the single life annuity actuarial equivalent shall be the amount payable to the Participant. (b) Further Limitation on Benefits. The limitations described in ------------------------------ subsection (a) are intended to impose the limitations of Section 415 of the Code, the terms of which are hereby incorporated by reference. To the extent that any provision in subsection (a) is inconsistent with the requirements of Section 415 of the Code or the regulation issued thereunder, the provisions of the Code or the regulations shall control. With respect to any Participant in this Plan who has been credited with any annual additions, as defined in Section 415 of the Code, under any defined contribution plan maintained by the Company, the limitations of Section 415(e) of the Code may further reduce the benefits payable hereunder. In the event that the sum of a Participant's defined benefit fraction and defined contribution fraction, as defined in Section 415(e) of the Code, exceed 1.0, the accrued monthly pension benefit under this Plan shall be reduced until such sum is equal to 1.0. For purposes of applying the limitations of this Section and Section 415 of the Code, all defined benefit plans of the Company (whether or not terminated) are to be treated as one defined benefit plan, and all defined contribution plans of the Company (whether or not terminated) are to be treated as one defined contribution plan. The limitation in this Section 3.10(b) shall not apply to any Plan Year beginning on or after January 1, 2000. Section 3.11. Changes in Social Security Benefits. The benefit of a ------------ ----------------------------------- Participant or beneficiary or the benefit of a Participant who has separated from the service of the Company with a nonforfeitable right to a deferred benefit shall not be decreased by reason of any increase in the benefit levels under Title II of the Social Security Act. Section 3.12. Reemployment of Retirees. ------------ ------------------------ (a) Regular Employment. If a Participant has retired under this ------------------ Article and is subsequently reemployed by the Company as a regular employee, the payment of his or her retirement benefits under this Plan shall cease during the period of such reemployment. Such 20 Participant shall continue to accrue benefits subject to the provisions of this Article. Upon subsequent retirement after the period of reemployment, such Participant shall be entitled to an adjusted accrued monthly pension benefit determined under this Article as if such subsequent retirement was the Participant's initial retirement hereunder. Benefits upon such retirement may be paid in a form the Participant shall choose under the terms of the Plan, but the accrued monthly pension benefit prior to adjustment, if any, for forms of benefit payment shall not be less than such benefit in effect prior to reemployment. (b) Other Employment. If a Participant has retired under this ---------------- Article and is subsequently reemployed by the Company or an Affiliated corporation in part-time, casual, seasonal or other employment not constituting "Section 203(a)(3)(B) service" as described in Section 2530.203-3(c) of the Department of Labor Regulations, there shall be no suspension or interruption of retirement payments under the Plan. Such Participant shall not be entitled to accrue any additional benefits during the period of such reemployment. If the Participant's employment becomes "Section 203(a)(3)(B) service," his status under the Plan shall then be determined under subsection (a). Section 3.13. Increase in Benefits for Retirees and Beneficiaries. ------------ --------------------------------------------------- As a result of amendments adopted under the Plan and effective January 1, 1988, the monthly benefit payable to each Participant or beneficiary that was in pay status prior to January 1, 1987 was increased by the greater of $10 per month or 37% of the monthly benefit being paid immediately before January 1, 1988. This same increase was applicable to the benefit of any Participant who retired under the early retirement provisions of the Plan as in effect before January 1, 1987 but who had not yet begun to receive benefits before January 1, 1987 and the beneficiary or beneficiaries of a Participant who died before January 1, 1987 but the benefit payable as a result of his death had not began before January 1, 1987. With respect to such early retirees or beneficiaries, the percentage benefit increase described under this Section was based on the benefit amount being paid immediately before January 1, 1988 or the accrued monthly pension benefit if the early retirement benefit was not in pay status before January 1, 1988. ARTICLE 4 NORMAL AND OPTIONAL FORMS OF BENEFIT ------------------------------------ Section 4.1. ----------- (a) Qualified Joint and Survivor Annuity. Unless a Participant ------------------------------------ elects otherwise in accordance with subsection (b), if the Participant is married on the first day of the first period for which an amount is payable as an annuity (or in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to such benefit), which date is hereafter referred to as the "annuity starting date," the accrued monthly pension benefit to which the Participant is entitled for normal, deferred, early or disability retirement or termination of employment under Sections 3.1, 3.2, 3.4, 3.5 or 5.1 will be actuarially adjusted and paid in the form of a qualified joint and survivor annuity. 21 The term, "qualified joint and survivor annuity" means a monthly benefit that commences immediately on the annuity starting date and which is actuarially equivalent to the accrued monthly pension benefit payable in the normal form for an unmarried Participant in Section 4.2 and provided for under Sections 3.1, 3.2, 3.4, 3.5 or 5.1 and which is payable for the life of the Participant and upon the Participant's death, if such Participant is survived by the spouse to whom such Participant was married at the annuity starting date, for the life of such spouse, in an amount equal to 50% of the benefit payable to such Participant. In calculating the actuarial equivalent of the accrued monthly pension benefit to which the Participant is entitled at his annuity starting date, equivalence shall be determined on the basis of the factors set forth in Schedule C. The benefit payable to such spouse shall not be terminated on account of such spouse's subsequent remarriage. (b) Information to Be Provided Participant. No less than 30 days and -------------------------------------- no more than 90 days before a Participant's annuity starting date, the Plan Administrator shall furnish or cause to be furnished to each Participant (by mail or by personal delivery) a general explanation of the joint and survivor annuity provisions of the Plan. Such notice shall describe the terms and conditions of the qualified joint and survivor annuity, explain the right to elect to waive the joint and survivor annuity and the effect of such election, explain the rights of the Participant's spouse under the Plan, explain the right to revoke an election to waive the joint and survivor annuity and the effect of such revocation, and explain the relative values of the various optional forms of benefit under the Plan. A Participant may elect (with applicable spousal consent) to waive any requirement that such written explanation be provided at least thirty (30) days prior to the Participant's annuity starting date provided the payment of benefits commences more than seven (7) days after such written explanation is provided. The Plan Administrator shall also furnish such employee with notice of the availability of: (1) a written explanation of the terms and conditions of a joint and survivor annuity; and (2) Information concerning the financial effect upon the particular Participant's benefit of making an election not to receive his or her benefit in such form. After receiving such notice, the Participant may request the additional information and such information shall be mailed or personally delivered to him or her within 30 days of such request. A Participant may request such additional information only once. Any election made under this Section shall be made in writing and shall clearly indicate that the Participant is electing to receive his benefit under the Plan in a specific form other than that of a joint and survivor annuity. Such election shall specifically identify nonspouse beneficiaries, including any class of beneficiaries or contingent beneficiaries. Any election not to take benefits in the form of a joint and survivor annuity shall not take effect unless the Participant's spouse consents in writing to such election and the spouse's consent acknowledges the effect of such election and is witnessed by a plan representative or a notary public. Such a consent shall not be required if it is established to the satisfaction of the Plan Administrator that the otherwise required consent may not be obtained because there is no spouse, because the spouse cannot be located, or because of other circumstances as provided in 22 applicable Treasury Regulations. The election may be revoked during the election period in writing before the annuity starting date, and another election (including the election of a qualified joint and survivor annuity) may be made prior to the annuity starting date. (c) Election Period. The election period with respect to a --------------- Participant under this Section shall be the 90 day period ending on the Participant's annuity starting date. If a Participant requests the additional information under subsection (b), benefits shall not commence less than 90 calendar days after the date on which such additional information is personally delivered or mailed to the Participant. If the commencement of payment of benefits to a Participant is delayed beyond such Participant's normal retirement date, benefits shall be paid retroactively to his normal retirement date. For purposes of this Section, a person who terminates his employment with the Company and has a nonforfeitable right to any portion of an accrued monthly pension benefit will be considered a Participant. Section 4.2. Life Annuity Option. ----------- ------------------- (a) Normal Form for Unmarried Participant. Unless a Participant ------------------------------------- elects otherwise in accordance with the procedures established by the Company, if a Participant is not married on the date his retirement benefit begins, he shall receive his accrued monthly pension benefit in the form of monthly payments for his life only in the amount determined under the applicable sections of Articles 3 or 5. (b) Optional Form for Married Participants. A married Participant, in -------------------------------------- accordance with Section 4.1, may elect the life annuity form of benefit described in Section 4.2(a) as an optional form of benefit. Section 4.3. Ten Years Certain Option. In addition, a Participant ----------- ------------------------ may elect to receive a retirement benefit payable monthly during his lifetime and terminating with the monthly payment coinciding with or next preceding the date of his death, with the provision that 120 monthly payments shall be made in any event to him or such beneficiary or beneficiaries as he may have designated. Such election shall be by written notice to the Company. The reduced retirement benefit shall be determined under Schedule C. If a Participant and his beneficiary or beneficiaries die after the Participant has retired but before a total of 120 monthly payments have been made to the Participant and his beneficiary, a commuted lump sum payment shall be made to the estate of the last survivor of the Participant and his beneficiary or beneficiaries. The calculation of such commuted lump sum value shall be made based on the interest rate assumption set forth in Section 5.4. The designation of a beneficiary or beneficiaries under this option may be changed at any time, and a beneficiary receiving payments under this option may designate a beneficiary other than his estate. 23 Section 4.4. Small Benefit Cash-Outs. ----------- ----------------------- (a) Payment of Small Benefits. Notwithstanding any other provision ------------------------- in this Article, if the present value of the accrued monthly pension benefit, as determined in accordance with the assumptions set forth in Section 5.4, to which a Participant is entitled is not in excess of five thousand dollars ($5,000), such value shall be paid to such Participant in a single lump sum. (b) Direct Rollovers. This subsection applies to distributions made ---------------- on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's options under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. (c) Eligible Rollover Distribution. An eligible rollover ------------------------------ distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (d) Eligible Retirement Plan. An eligible retirement plan is an ------------------------ individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (e) Distributee. A distributee includes a Participant or former ----------- Participant. In addition, the Participant's or former Participant's surviving spouse and the Participant's or former Participant's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (f) Direct Rollover. A direct rollover is a payment by the Plan to --------------- the eligible retirement plan specified by the distributee. Section 4.5. Limitations on Benefit Distributions. Notwithstanding ----------- ------------------------------------ any other provision of this Plan, all benefit distributions hereunder shall meet the requirements of this Section. 24 (a) In no event shall the Plan Administrator authorize the payment of benefits in any manner unless the form, time and manner of benefit distribution results in the distribution of the entire interest of the Participant - (1) commencing no later than the required beginning date, and (2) in accordance with applicable Treasury regulations, over the life of the Participant or over the lives of such Participant and a designated beneficiary (or over a period not extending beyond the life expectancy of such Participant or the life expectancy of such Participant and a designated beneficiary). (b) For purposes of this Section, the term "required beginning date" means April 1 following the later of the calendar year in which the Participant (A) attains age 70 1/2 or (B) terminates employment with the Company and an Affiliated Corporation. Distribution to a Participant who is employed by the Company or its Affiliates and who is a key employee within the meaning of Section 416(i)(1)(A)(iii) of the Code shall be made no later than the April 1 following the calendar year in which the Participant attains age seventy and one-half (70 1/2). (c) Notwithstanding the election of any optional form of benefit payment hereunder other than a qualified joint and survivor annuity, including a single life annuity or a ten year certain and life annuity, benefit payment shall commence no later than the Participant's required beginning date. (d) For purposes of this Section, the term "required beginning date" means April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2. ARTICLE 5 TERMINATION OF EMPLOYMENT ------------------------- Section 5.1. Nonforfeitable Interest in Accrued Monthly Pension ----------- -------------------------------------------------- Benefit. A Participant shall have a nonforfeitable right to an accrued monthly - ------- pension benefit equal to the amount of such benefit multiplied by the percentage opposite his years of Vesting Service according to the applicable vesting schedule below: The vesting schedule applicable to Participants who are credited with at least one Hour of Service after March 31, 2000 is as follows: Years of Vesting Service Nonforfeitable Percentage ------------------------ ------------------------- Less than 3 0% 3 or more 100% The vesting schedule applicable to Participants who are credited with at least one Hour of Service after December 31, 1988 but who are not credited with any Hours of Service after March 31, 2000 is as follows: 25 Years of Service Nonforfeitable Percentage ---------------- ------------------------- Less than 4 0% 4 or more 100% Notwithstanding the preceding, a Participant shall be entitled to 100% of his accrued monthly pension benefit upon attainment of age 65 while an employee. Section 5.2. ----------- (a) Years of Service. The term "years of service" for purposes of this Article means the sum of: (1) His years of service credited through December 31, 1986 under the terms of the Plan as in effect on such date. (2) One year of service for each Plan Year after December 31, 1986 in which the employee completes at least 1,000 hours of service, as hereafter defined. (b) Years of Service Disregarded. Notwithstanding subsection (a), ---------------------------- years of service before at least a one-year break in service, as hereafter defined, shall be excluded in the case of an employee who does not have any nonforfeitable right to his accrued monthly pension benefit and who incurs a number of consecutive one-year breaks in service equal to or in excess of six. For purposes of this Plan, the term "one-year break in service" means any Plan Year during which an employee does not complete any hours of service. (c) Hour of Service. For all purposes of this Plan, "hours of --------------- service" shall be credited to employees as follows: (1) one hour of service for each hour for which an employee is paid or entitled to payment by the Company for performance of duties during a computation period; (2) one hour of service for each hour for which an employee is paid or entitled to such payment by the Company for reasons other than for the performance of duties during a computation period, including but not limited to, payment for vacation, sickness, or disability; (3) one hour of service for each hour for which an employee receives back pay (irrespective of mitigation of damages) for hours of service for which he has not otherwise received credit under this Section. Such hours of service shall be credited to the computation period to which the back pay pertains. 26 Crediting of hours of service under (2) above, or under (3) above with respect to periods described in (2), shall be limited to a maximum of 501 hours with respect to any single continuous period during which the employee performs no duties, regardless of whether such period occurs in a single computation period. No hours shall be credited under (2) or (3) if payment is made or due to the employee under a plan maintained solely for the purpose of complying with applicable worker's compensation, unemployment compensation or disability insurance laws, or if such payment solely reimburses an employee for medical or medically-related expenses incurred by such employee. Where an employee is credited with hours of service under (2) above, the number of hours to be credited and the computation period to which such hours shall be credited shall be determined under Title 29, Code of Federal Regulations, Section 2530.200b-2(b) and (c), which regulation is hereby incorporated into this Plan by reference. An employee will be credited with hours of service based on his standard work schedule while he is on a Company approved leave of absence or on layoff status (not in excess of one year). Such absences may be granted for sickness, temporary disability, education, or similar reasons. In granting leaves of absence, all employees under similar circumstances shall be treated alike. Any employee who interrupts his service with the Company to become, and who does become, a member of the armed forces of the United States and who has reemployment rights under applicable laws and complies with the requirements of such laws as to reemployment, and is reemployed in accordance with such laws shall be credited with hours of service based on his standard work schedule during the period of such interruption in service. The Company shall also take such action as is necessary to have the Plan comply with Section 414(u) of the Code (regarding the reemployment of military veterans), and in such regard, and notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. Section 5.3. ----------- (a) Form, Time and Manner of Payment. Payment of an accrued monthly -------------------------------- pension benefit to which a Participant has a nonforfeitable right under this Article shall begin no later than the first day of the month following the terminated Participant's normal retirement date, unless he elects otherwise under subsection (b). A benefit under this Section shall be payable in accordance with the normal form under Sections 4.1 or 4.2, or in accordance with an optional form of benefit selected by a Participant under Section 4.3. (b) Reduced Benefits. If he has completed five years of service, as ---------------- defined in Section 5.2, such terminated Participant may elect, by application to the Company, to receive a reduced accrued monthly pension benefit, determined under the second sentence of Section 3.4(b), to begin on the first day of any month coincident with or following his fifty-fifth birthday. 27 (c) No Death Benefit. If an unmarried employee terminates his ---------------- employment with the Company and dies before payment of his benefit begins, no benefit shall be payable under the Plan to any party. Section 5.4. Payment of Small Benefits. If upon termination of ----------- ------------------------- employment the present value of a Participant's accrued monthly pension benefit does not exceed $5,000, the Company shall direct the Trustee to pay to the Participant the actuarial equivalent of his entire accrued monthly pension benefit and the Participant's accrued benefit shall be cancelled. For purposes of this Section, actuarial equivalence shall be determined as the average of the appropriate actuarial factors for a male and a female based on the following assumptions: Mortality Table - The "applicable mortality table," as such term is defined --------------- in Section 417(e)(3) of the Code, as amended by the Retirement Protection Act of 1994. Interest Rate - The "applicable interest rate" as defined in Section ------------- 417(e)(3) of the Code, as amended by the Retirement Protection Act of 1994. The "lookback month" (within the meaning of Treasury Regulation (S) 1.417(e)-1T(d)(4)(iii)) for the determination of the applicable interest rate for any payment made under this Section during a Plan Year shall be the immediately preceding October. The "stability period" (within the meaning of Treasury Regulation (S) 1.417(e)-1T(d)(4)(ii)) during which the applicable interest rate remains constant shall be the Plan Year immediately succeeding the lookback month. Notwithstanding the foregoing, if a Participant is reemployed by the Company before he has incurred six consecutive breaks in service years, such Participant may repay to the Trustee the amount paid to him under the preceding sentence within five years after resuming employment with the Company, together with interest at the rate of five percent per annum, or such other rate as adjusted by the Secretary of the Treasury under Section 411(c)(2) of the Code, compounded annually to the date of repayment, and his accrued benefit forfeited under the preceding sentence shall be restored. ARTICLE 6 FUNDING ------- Section 6.1. Company Contributions. The Company shall pay all costs ----------- --------------------- to provide benefits under the Plan. The Company shall pay over to the Trustee, under the Trust created pursuant to Article 8, an amount actuarially determined to satisfy the minimum funding standards of ERISA. There shall be no employee contributions. Section 6.2. Forfeitures Reduce Contributions. Any forfeitures ----------- -------------------------------- arising from the termination of employment or death of a Participant or for any other reason shall be applied against the contributions otherwise required under the Plan and shall not be applied to increase the benefit any Participant would otherwise receive under the Plan at any time. 28 Section 6.3. Actuarial Valuations. In determining the amount required ----------- -------------------- to be contributed in order to meet the minimum funding standards of ERISA, the Pension Committee, relying on an actuarial certification of an "enrolled actuary," as defined in Section 7701 of the Code, shall certify to the Company the amount necessary to be contributed by the Company for each year. ARTICLE 7 ADMINISTRATION OF PLAN ---------------------- Section 7.1. Plan Administrator. The Company shall be the Plan ----------- ------------------ Administrator of the Plan. Section 7.2. Named Fiduciary. The Company shall be the named ----------- --------------- fiduciary of the Plan. The Company by action of its Board of Directors or Executive Committee thereof (a) may designate persons other than itself to carry out fiduciary responsibilities (other than trustee responsibilities) under the Plan, and (b) may appoint one or more investment managers to control and manage (including the power to acquire and dispose of) all or any part of the Trust assets. Section 7.3. Claims by Employees and Participants. The Company shall ----------- ------------------------------------ make all determinations as to the right of any Participant or beneficiary to a benefit. Any denial of a claim for a benefit shall be stated in writing and shall set forth the specific reasons for the denial in a manner that may be understood by the claimant. The Company shall afford a reasonable opportunity to any Participant or beneficiary whose claim has been denied for a full and fair review of the decision denying the claim. ARTICLE 8 THE PENSION TRUST ----------------- Section 8.1. Continuation of Trust. In accordance with the terms of ----------- --------------------- this Plan, the Company shall continue the separate Agreement of Trust, establishing a trust under the Plan consisting of such sums of money and such other property acceptable to the Trustee as heretofore were and hereafter shall be paid or delivered to the Trustee, together with the earnings and profits thereon. All such money and other property, all investments made therewith and the proceeds thereof, and all earnings and profits thereon, less the payments made by the Trustee, are referred to herein as the "Trust." Section 8.2. Source of Payments. Except for payments made by the ----------- ------------------ Pension Benefit Guaranty Corporation, if any, benefits payable under this Plan shall be payable only from assets of the Trust created under Section 8.1 and then only to the extent that such assets are sufficient and in accordance with the terms of the Agreement of Trust. Section 8.3. Payment of Benefits and Expenses. The Company shall ----------- --------------------------------- direct the Trustee as to the manner and time of all benefit payments to be made from the Trust. Expenses 29 of administration of the Plan shall be paid from the Trust at the discretion of the Company, unless the Company shall itself expressly assume such expenses. ARTICLE 9 RIGHT TO ALTER OR AMEND ----------------------- Section 9.1. Right to Alter or Amend. Subject to Section 9.2, the ----------- ----------------------- Company by action of its Board of Directors or the Executive Committee thereof reserves the right to amend, alter, modify or suspend, in whole or in part, any provision or provisions of this instrument at any time, retroactively or otherwise. Section 9.2. Limitations on Power of Amendment. No amendment, ----------- --------------------------------- alteration, modification or suspension shall (a) increase the duties or responsibilities of the Trustee without the Trustee's consent in writing; (b) vest in the Company any right, title or interest in or to any property or funds held hereunder; (c) divert any part of the Trust for purposes other than the exclusive benefit of the Participants or their beneficiaries; (d) amend the provisions of Section 10.6 after a Change in Control, as defined therein; (e) reduce the accrued benefit of any Participant or decrease a Participant's vested interest; (f) eliminate or reduce an early retirement benefit, if any, or eliminate an optional form of benefit with respect to benefits attributable to service before the effective date of such amendment, alteration, modification or suspension; (g) amend the provisions of Section 10.1 within three years from the Spin-off Date; or (h) reduce the rate at which Participants accrue a monthly pension for service during the three-year period following the Spin-off Date to a rate less than the applicable rate in effect on the Spin-off Date. Section 9.3. Form of Amendment. Any such amendment, alteration, ----------- ----------------- modification or suspension shall be set forth in a written instrument adopted by the Board of Directors of the Company or the Executive Committee thereof. 30 ARTICLE 10 TERMINATION OF PLAN AND TRUST ----------------------------- Section 10.1. Right to Terminate Fully Reserved. Subject to the ------------ --------------------------------- provisions of Section 10.6 and the last sentence of this Section 10.1, the Company reserves the right to revoke or terminate this Plan and the Trust created pursuant thereto, with respect to its employees in whole or in part, at any time, or to reduce, suspend or discontinue its contribution hereunder. Such revocation or termination shall become effective in accordance with the provisions and regulations of Title IV of ERISA. Notwithstanding the first sentence of this Section 10.1, the Company has no right during the three-year period following the Spin-off Date to (a) revoke or terminate this Plan and the Trust created pursuant thereto, in whole or in part; (b) divert the use of any assets of this Plan held in the Trust in a manner not provided for by the Plan in effect on the Spin-off Date (except to the extent permitted in accordance with Code Sections 401(h) and 420 for purposes of providing for the payment of benefits for sickness, accident, hospitalization, and medical expenses of retired employees, their spouses and their dependents); or (c) merge or consolidate the Plan with, or transfer assets and liabilities to, any other Plan. Section 10.2. ------------ (a) Continuation of Plan by Successor. The Plan and the Trust --------------------------------- hereunder may be continued by any other organization succeeding to the business of the Company if some or all of the Participants are employed by such successor organization and if such entity agrees to assume the liabilities of this Plan as to such Participants. (b) Merger, Consolidation or Transfer of Assets. The Plan shall not be ------------------------------------------- merged, consolidated with, or transfer its assets or liabilities to, any other plan unless each Participant in the Plan would receive (if the Plan then terminated) a benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if the Plan then terminated). (c) Merger After Change in Control. Any merger, consolidation or ------------------------------ transfer occurring after a Change in Control of the Company shall be subject to the provisions of Section 10.6. Section 10.3. Distribution of Assets on Termination of Plan. ------------ --------------------------------------------- (a) Upon termination or partial termination of the Plan, the rights of all affected employees to benefits accrued to the date of termination or partial termination to the extent then funded, shall be nonforfeitable. The assets held in trust under the Plan and separate Agreement of Trust shall be allocated in accordance with Section 4044 of ERISA to the extent of the sufficiency of such assets. 31 (b) Subject to the provisions of Section 10.6, any assets remaining after the satisfaction of all liabilities to employees and their beneficiaries due to erroneous actuarial assumptions shall be distributed to the Company. (c) The allocations referred to in Section 4044 of ERISA may be implemented through the continuance of the existing Trust, through a new trust instrument for that purpose, through the purchase of an insurance company annuity contract or contracts or by a combination of the above. Section 10.4. Provisions to Prevent Discrimination. ------------ ------------------------------------ (a) Restriction of Benefits. Notwithstanding any other provision of ----------------------- this Plan, in the event of plan termination, the benefit of any highly compensated employee (and any highly compensated former employee) shall be limited to a benefit that is nondiscriminatory under Code Section 401(a)(4) and the regulations issued thereunder. (b) Restrictions on Distributions. Annual benefit payments to any ----------------------------- "restricted employee," as defined below, are restricted to an amount equal to the payment that would be made on behalf of the employee under a single life annuity that is the actuarial equivalent of the sum of the employee's accrued benefit under the Plan and the employee's other benefits under the Plan. The restrictions in this subsection do not apply, however, if: (1) After payment to a restricted employee of his "restricted benefits", as defined below, the value of plan assets equals or exceeds 110% of the value of current liabilities of the Plan, as defined in Code Section 412(1)(7), (2) The value of restricted benefits to be paid to a restricted employee is less than 1% of such current liabilities of the Plan before distribution, or (3) The value of the benefits payable to the restricted employee does not exceed five thousand dollars ($5,000). (c) Restricted Employee. For purposes of this Section, the term ------------------- "restricted employee" shall include all highly compensated employees and highly compensated former employees, as defined in Code Section 414(q). Notwithstanding the foregoing, the total number of employees whose benefits are subject to restriction under this Section in any Plan Year shall be limited to a group not to exceed 25 such employees or former employees. The employees included in such limited group shall consist of the 25 highly compensated employees and highly compensated former employees having the greatest compensation, as determined for purposes of the Plan under Section 3.10(a)(2) in the current or any prior year. (d) Restricted Benefit. For purposes of this Section, the term ------------------ "restricted benefits" shall include a Participant's accrued monthly pension benefit, any loans in excess of the amounts set forth in Code Section 72(p)(2)(A), any periodic income or withdrawal values payable to a living employee and not otherwise included in the Participant's accrued monthly pension benefit, and any death benefits not provided for by insurance on the Participant's life. 32 (e) Effective Date. The terms of this Section shall be in effect as -------------- of the effective date of Section 1.401(a)(4)-5 of the Treasury Regulations. For periods prior to such effective date, the terms of the Plan adopted to comply with Section 1.401-4 of the Treasury Regulations as included in the Plan immediately prior to January 1, 1989 shall remain in effect. Section 10.5. No Further Liability. Subject to the provisions of ------------ -------------------- Section 10.6, upon the termination of the Plan, the payment to a Participant of the amount to which he is entitled under Section 10.3 shall be full satisfaction of any liability to him under any other provisions of this Plan. Section 10.6. Change in Control. ------------ ----------------- (a) Five-Year Period. The following provisions of this subsection ---------------- (a) shall be applicable for the period commencing on the date on which a Change in Control (as defined below) occurs and ending on the earlier of the first date thereafter on which the Plan does not have Excess Assets (as defined below) or the fifth anniversary of such date (the "Change-in-Control 5-Year Period"): (1) The rate at which Participants accrue a monthly pension for service during the Change-in-Control 5-Year Period shall not be less than the applicable rate in effect immediately prior to the Change in Control. (2) in the event of any merger or consolidation of the Plan with, or transfer of assets and liabilities to, any other plan, during the Change-in- Control 5-Year Period, the accrued monthly pension of each Participant and the amount payable to or on account of any retired or deceased Participant shall be increased to the extent that, immediately prior to the date of such merger, consolidation or transfer, there are no Excess Assets. Subject to the provisions of Section 3.10, such increases shall be made by allocating the Excess Assets to the Participant's accrued benefits on a basis that would not be deemed discriminatory were the Plan not merged or consolidated, or its assets transferred. (3) In the event that the Plan is terminated during the Change-in-Control 5-Year Period, no Plan assets shall directly or indirectly revert to the Company. To the extent that Excess Assets remain after satisfaction of all liabilities to or on account of Plan Participants, the accrued benefit of each Participant and the amount payable to or on account of any retired or deceased Participant shall be increased. Subject to the provisions of Section 3.10, such increases shall be made by allocating the Excess Assets to the Participants' accrued benefits on a basis that would not be deemed discriminatory were the Plan not terminated. (b) Two Year Period. The provisions of this subsection (b) shall be --------------- applicable for the period commencing on the date on which a Change in Control (as defined below) occurs and ending on the second anniversary of such date (the "Change in Control 2-Year Period"). Any Participant whose employment with the Company during the Change in Control 2-Year Period is either involuntarily terminated (other than a discharge for gross misconduct) or is 33 terminated in lieu of the Participant accepting continued employment with the Company which involves a significant change in the Participant's terms and conditions of employment (as defined below) shall: (1) be deemed to have 5 years of Service for purposes of Article 5; (2) receive an increase in accrued benefit, in addition to any other amounts otherwise accrued pursuant to the Plan but subject to the provisions of Section 3.10, equal to .0025 multiplied by the Participant's compensation for the last calendar year (as used to determine the Participant's amount of monthly pension benefit under Article 3), multiplied by the Participant's years of service, unreduced, pursuant to Section 3.4, because of a benefit commencement prior to the Participant's 65th birthday; (3) if the Participant at the time of termination has 10 or more years of service and is at least age 50 but less than age 55, receive an increase in accrued benefit, in addition to any other amounts otherwise accrued pursuant to the Plan (including the increase under subsection (b)(2)) but subject to the provisions of Section 3.10, equal to $240 per year multiplied by the Participant's years of service. An increase in accrued benefit pursuant to this subparagraph shall be unreduced pursuant to Section 3.4, because of a benefit commencement prior to the Participant's 65th birthday, and shall not apply to retirement income payable to a Participant or a Participant's beneficiary after the Participant's 65th birthday; and (4) if the Participant at the time of termination has 10 or more years of service and is age 55 or over, receive an increase in accrued benefit, in addition to any other amounts otherwise accrued pursuant to the Plan (including the increase under subsection (b)(2)) but subject to the provisions of Section 3.10, equal to $360 per year multiplied by the Participant's years of service. An increase in accrued benefit pursuant to this subparagraph shall be unreduced pursuant to Section 3.4, because of a benefit commencement prior to the Participant's 65th birthday, and shall not apply to retirement income payable to a Participant or a Participant's beneficiary after the Participant's 65th birthday. (c) Definitions. ----------- (1) Change in Control. A "change in control" shall be deemed to ----------------- have occurred if: (A) any "Person", which shall mean a "person" as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13D-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding voting securities; 34 (B) during any period of 24 consecutive months, individuals, who at the beginning of such period constitute the Company's Board of Directors ("Board"), and any new director whose election by the Board, or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the directors (other than in connection with a contested election) before the beginning of the period cease for any reason to constitute at least a majority thereof; (C) the stockholders of the Company approve (i) a plan of complete liquidation of the Company or (ii) the sale or disposition by the Company of all or substantially all of the Company's assets unless the acquirer of the assets or its directors shall meet the Conditions for a merger or consolidation in subparagraphs (D)(i) or (D)(ii); or (D) the stockholders of the Company approve a merger or consolidation of the Company with any other company other than: (i) such a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 70% of the combined voting power of the Company's or such surviving entity's outstanding voting securities immediately after such merger or consolidation; or (ii) such a merger or consolidation which would result in the directors of the Company who were directors immediately prior thereto continuing to constitute at least 50% of the directors of the surviving entity immediately after such merger or consolidation. In this subparagraph (D), "surviving entity" shall mean only an entity in which all of the Company's stockholders immediately before such merger or consolidation become stockholders by the terms of such merger or consolidation, and the phrase "directors of the Company who were directors immediately prior thereto" shall include only individuals who were directors of the Company at the beginning of the 24 consecutive month period preceding the date of such merger or consolidation, or who were new directors (other than any director designated by a Person who has entered into an agreement with the Company to effect a transaction described in subparagraph (A), (C)(ii), (D)(i) or (D)(ii) of this paragraph) whose election by the Board, or whose nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the directors before the beginning of such period. (2) Excess Assets. The term "Excess Assets" means Plan assets ------------- to the extent that the fair market value of such assets exceeds the lesser of (i) the present value of all liabilities of the Plan determined on a termination basis, using the assumptions used by the Pension Benefit Guaranty Corporation, or (ii) the present value of all liabilities of the Plan 35 determined on the basis of the assumptions in effect on that date for purposes of determining actuarial equivalencies under the Plan. (3) Conditions of Employment. A "significant change in a ------------------------ Participant's terms and conditions of employment" shall be deemed to have occurred when during a Change in Control 2-Year Period: (i) there is any reduction of the total of the Participant's salary and incentive bonus, based upon the amounts equal to the Participant's salary immediately prior to the Change in Control 2-Year Period, and the most recent incentive bonus paid, or fully accrued and payable, to the Participant immediately prior to the Change in Control 2-Year Period; (ii) the location of continued employment is beyond a 30- mile radius of the Participant's location of employment immediately prior to the Change in Control 2-Year Period; or (iii) the Participant is to be paid on an hourly basis. (d) Notwithstanding any other provisions of the Plan, the provisions of this Section 10.6 may not be amended during a Change-in-Control 5-Year Period in a manner which would reduce payments, benefits or benefit accruals for any Participant. ARTICLE 11 MISCELLANEOUS PROVISIONS ------------------------ Section 11.1. New York and Applicable Federal Law Govern. This Plan ------------ ------------------------------------------ shall be construed according to the law of the State of New York and applicable federal law and all provisions hereof shall be administered according to the law of such state and applicable federal law. Section 11.2. Headings for Convenience Only. The headings and ------------ ----------------------------- subheadings of the Plan are inserted for convenience and reference only, and are not to be used in construing this Plan or any provision thereof. Section 11.3. Rights of All Parties Determined by the Terms of the ------------ ---------------------------------------------------- Plan. The Plan and Trust thereunder are purely voluntary on the part of ---- the Company. The Trust shall be the sole source of benefits and in no event shall the Company be liable or responsible therefor. This Plan shall be binding upon the parties hereto and all Participants under the Plan, and upon their respective heirs, executors, administrators, successors and assigns, and upon all persons having or claiming to have any interest of any kind or nature in or under this Plan or the Trust thereunder. 36 Section 11.4. ------------ (a) Spendthrift Clause. Except to the extent permitted by law, none ------------------ of the benefits, payments or proceeds arising out of or by virtue of this Plan shall be subject to any claim of or any legal process by any creditor of any Participant, Retirement Participant or beneficiary thereof, and no Participant, Retirement Participant or beneficiary thereof shall have any right to anticipate, alienate, encumber or assign any right or benefit arising out of or by virtue of this Plan. (b) Qualified Domestic Relations Orders. Notwithstanding anything in ----------------------------------- subsection (a), upon receipt of a domestic relations order made pursuant to a State domestic relations law, the Plan Administrator shall: (1) promptly notify the Participant and any other alternate payee, as defined by Section 414(p)(8) of the Code, of the receipt of such order and the Plan's procedures for determining the qualified status of the domestic relations order; (2) determine within a reasonable period after receipt of such order, whether the domestic relations order is a qualified domestic relations order, as defined in Section 414(p) of the Code, and notify the Participant and any other alternate payee of such determination; and (3) hold in a separate account under the Plan the amounts which would have been payable to the alternate payee during such period of determination, as specified in paragraph (2), if the order had been determined to be a qualified domestic relations order. If the Plan Administrator determines that the order is a qualified domestic relations order, then it shall direct the Trustee to comply with the terms of the order and shall release the amount held in the separate account to the alternative payee. Section 11.5. Notice to Employees. Notice of the existence and the ------------ ------------------- provisions of this Plan and amendments thereto shall be communicated to all persons who are or who become employees of the Company who become eligible to participate in the Plan. Section 11.6. No Employment Rights Created. The creation and ------------ ---------------------------- maintenance of this Plan shall not confer any right to continued employment on any employee, and all employees shall remain subject to discharge to the same extent as if it had never been established. Section 11.7. Diversion from Employees Prohibited. Neither the ------------ ----------------------------------- corpus nor the income of the Trust, nor any part thereof, shall be diverted for any purpose other than for the benefit of the Participants hereunder or their beneficiaries, except: (a) In the case of a contribution made by the Company by a mistake of fact, such contribution may be returned to the Company within one year after its payment in accordance with Section 403(c)(2)(A) of ERISA; and 37 (b) All contributions made by the Company are conditioned on the deductibility of such amount under Section 404 of the Code, and shall be returned to the Company to the extent of any disallowance of such a deduction within one year after the disallowance. Section 11.8. Right to Judicial Accounting. Nothing contained in ------------ ---------------------------- this Plan shall be construed as depriving the Trustee of the right to have a judicial settlement of its accounts. Upon any proceeding by the Trustee for a judicial settlement of its accounts or for instructions, the only necessary party thereto in addition to the Trustee shall be the Company. None of the Participants or other beneficiaries of the Plan shall have any right to compel an accounting, judicial or otherwise, by the Trustee, and all of them shall be bound with respect to all accounts submitted by the Trustee to the Company as provided by this Plan and Agreement of Trust. Section 11.9. Masculine Gender to Include Feminine and Singular to ------------ ---------------------------------------------------- Include Plural. Whenever any words are used herein in the masculine gender - -------------- they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and whenever any words are used herein in the singular form they shall be construed as though they were used in the plural form in all cases where they would so apply. Section 11.10. Forfeiture on Account of Inability to Locate ------------- -------------------------------------------- Participant or Beneficiary. Notwithstanding any other provision of this Plan, - -------------------------- if a benefit becomes payable to a Participant or his beneficiary and if the Company, after all reasonable efforts, is unable to locate such Participant or beneficiary within one year of the date such benefit became payable, the benefit payable to the Participant or beneficiary shall be forfeited. If, after such forfeiture occurs, the Participant or his beneficiary makes a claim for such benefit, such benefit shall then be reinstated and paid in accordance with such claim. Section 11.11. Assignment. On or prior to the Spin-off Date, The ------------- ---------- Quaker Oats Company ("Quaker") and Fisher-Price, Inc. anticipate they will enter into a Distribution Agreement which, by its terms, is expected to provide for Quaker's assignment of all rights and responsibilities under this Plan to Fisher-Price, Inc. Pursuant to the Distribution Agreement, and in accordance with this Plan, Fisher-Price, Inc. will assume all obligations, perform all undertakings, and abide by the covenants imposed by this Plan from and after the Spin-off Date. ARTICLE 12 TOP-HEAVY PROVISIONS -------------------- Section 12.1. Application of Top-Heavy Rules. If this Plan is a Top- ------------ ------------------------------ Heavy Plan, as described below, with respect to a Plan Year, the provisions of Section 12.3 shall become applicable for such Plan Year, notwithstanding any other provision of the Plan to the contrary. 38 Section 12.2. Definition of Top-Heavy Plan. ------------ ---------------------------- (a) This Plan shall be considered a "Top-Heavy" Plan for a Plan Year (beginning with the 1984 Plan Year) if on the last day of the preceding Plan Year ("Determination Date") the "Cumulative Accrued Benefits", as hereafter defined, of "Key Employees", as hereafter defined, exceed 60% of the Cumulative Accrued Benefits, of all Participants under the Plan or under all plans included in an Aggregation Group, as hereafter defined, if the Plan is included in an Aggregation Group. (b) For purposes of subsection (a), the terms listed below shall have the meaning indicated: (1) The term "Key Employee" means any employee (including a beneficiary of such employee) who is a Key Employee as defined in Section 416(i) of the Code and the regulations thereunder. (2) The term "Cumulative Accrued Benefit" with respect to any Participant means the present value of the Participant's Accrued Benefit under the Plan, determined based on the actuarial assumptions promulgated by the Pension Benefit Guaranty Corporation for the purpose of determining the sufficiency of a plan's assets if it were terminated on the Valuation Date. For purposes of this Section, the term "Cumulative Accrued Benefit" shall not include the value of the accounts nor the present value of the cumulative accrued benefits of any Participant who has not performed services for the Company at any time during the five-year period ending on the Determination Date, plus the sum of the value of the defined contribution accounts for such Participant under all defined contribution plans included in an Aggregation Group. An Aggregation Group shall include (i) each plan of the Company in which a Key Employee is a Participant, and (ii) each other plan of the Company which enables any plan in which a Key Employee participates to meet the requirements of Sections 401(a)(4) and 410 of the Code. Any other plan of the Company may be included in an Aggregation Group if such Aggregation Group would continue to meet the requirements of Sections 401(a)(4) and 410 of the Code with respect to such plan being taken into account. In computing such present value, any distribution made with respect to a Participant from the Plan during the five- year period ending on the Determination Date and any distribution under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group shall be added to the amount determined under the preceding sentence, except to the extent that any such distributions made after the Valuation Date and before the Determination Date are included in the Cumulative Accrued Benefit. For purposes of this Section, if an Aggregation Group includes two or more defined benefit plans, the same actuarial assumptions as prescribed in this Section shall be used with respect to all such plans. (3) The term "Accrued Benefit" means the accrued monthly pension benefit to which a Participant would be entitled under Article 3, at normal retirement date if he terminated his employment on the Valuation Date immediately preceding the Determination Date with respect to which such Accrued Benefit is to be calculated. 39 (4) Valuation Date. The term "Valuation Date" means, with respect to each Plan Year, January 1. Section 12.3. Top Heavy Rules. If the Plan is top-heavy for a Plan ------------ --------------- Year, the following rules shall apply during such Plan Year notwithstanding any provision of the Plan to the contrary: (a) Nonforfeitable Benefit. If a Participant terminates his ---------------------- employment prior to his death or retirement during a Plan Year in which the Plan is a Top-Heavy Plan, he shall have a nonforfeitable right to his accrued monthly pension benefit under Article 3 in accordance with the following schedule: Years of Services Nonforfeitable Percentage ----------------- ------------------------- 2 but less than 3 20% 3 but less than 4 40% 4 or more 100% If the Plan ceases to be a Top-Heavy Plan, the nonforfeitable percentage of each Participant who completed at least three years of service as of the end of the last Plan Year in which the Plan was a Top-Heavy Plan shall continue to be determined under this subsection. With respect to other Participants, only the Participant's accrued monthly pension benefit at the end of the last Plan Year in which the Plan was a Top-Heavy Plan shall be subject to this subsection. (b) Minimum Accrued Monthly Pension Benefit. The minimum accrued --------------------------------------- monthly pension benefit of a Participant shall be equal to: (1) 2% of his or her average monthly compensation during his five highest paid consecutive calendar years of service with the Company or an affiliated corporation, multiplied by (2) each of the first ten years of service in which the Plan is a Top-Heavy Plan. Notwithstanding the preceding, "3%" shall be substituted for "2%" above for any Plan Year during which any Participant in the Plan receives any allocation of employer contributions, forfeitures or voluntary nondeductible contributions in a defined contribution plan maintained by the Company or an affiliated corporation. For purposes of this Section, "compensation" has the same meaning as defined in Code Section 415(c)(3) and Section 1.415-2(d) of the Treasury Regulations, but including amounts contributed by the Company pursuant to a salary reduction agreement which are excludible from the Participant's gross income under Code Section 125, 402(a)(8), 402(h) or 403(b). 40 (c) Adjustments for Super Top-Heavy Plans. If the Plan is a "super ------------------------------------- top-heavy plan" for a Plan Year, "1.0" shall be substituted for "1.25" in calculating plan fractions in accordance with Section 415(e) of the Code. A plan is a super top-heavy plan if, as of the determination date, the plan would meet the definition in this Section for a Top-Heavy Plan if 90% were substituted for 60% in such definition. IN WITNESS WHEREOF, Fisher-Price, Inc. has executed this Plan by its duly authorized officer on the date indicated. FISHER-PRICE, INC. Attest: By: /s/ Alan Kaye Date: 10/13/00 ------------------------ --------------- ----------------------- 41 SCHEDULE A ---------- Section 3.3. ------------ (a) Accrued Monthly Pension Benefit. A Participant's accrued monthly ------------------------------- pension benefit on retirement or other termination of employment shall be an amount equal to the sum of: (1) one and one-half percent (1.5%) of his final average monthly compensation as computed under subsection (b) below as of December 31, 1986, less one and one-half percent (1.5%) of his primary Social Security amount as defined in subsection (d) below multiplied by the Participant's Benefit Accrual Years, determined under Section 3.8(a) of this Schedule A as of December 31, 1986; and (2) three-fourths percent (0.75%) of his final average monthly compensation as computed under subsection (b) below as of December 31, 1986 less three-fourths percent (0.75%) of his primary Social Security amount as defined in subsection (d) below, multiplied by the Participant's Past Credited Service, as defined in Section 3.8(b) of this Schedule A. (b) Final Average Monthly Compensation. The term "final average monthly ---------------------------------- compensation" for a Participant means the amount determined by adding the monthly compensation paid to him over the 60 consecutive calendar months in which he has received his highest monthly compensation during the 120 calendar months ending on December 31, 1986 and by dividing the total so determined by 60, or in the case of a Participant who has received such compensation over fewer than 60 months, by dividing his total compensation by the months over which he has received such compensation. For a Participant who receives compensation over at least 60 months, monthly compensation shall be determined for the Plan Year in which the Participant retires or otherwise terminates employment by his actual compensation for each such calendar month, and for the months of each preceding Plan Year by dividing the Participant's annual compensation for such year by twelve. If for any of the months used to determine a Participant's final average monthly compensation such Participant was employed on a regular part- time schedule, the compensation rate of such Participant for that period shall be multiplied by a full-time schedule. (c) Compensation. The term "compensation" of a Participant for any period ------------ means the total amount of wages as defined in Section 3121 of the Code, without regard to the dollar limitation of Section 3121(a) of the Code, which are paid to such Participant by the Division during such period. Notwithstanding the preceding sentence, compensation shall not include amounts representing cash or merchandise prizes awarded for suggestions or ideas, commissions, special allowances, expense reimbursements, severance pay, pay for inactive status pending retirement, any profits under stock option plans, any payments out of the short term or long term disability 42 plans or sickness and accident plans, any compensation the receipt of which is deferred pursuant to a plan or contract, or any amounts representing benefits under the Profit Sharing Plan. (d) Primary Social Security Amount. The term "primary Social Security ------------------------------ amount" shall mean the amount payable under the Old Age, Survivor's, and Disability Income Act to a Participant at age 65 without regard to any benefit payable to his spouse on account of his employment. Such benefit shall be calculated under the provisions of the law as in effect in 1986, assuming that the Participant had no earnings taken into account for purposes of such calculation after December 31, 1986, and further assuming that earnings between 1982 and 1986 shall be actual earnings taken into account under the Plan and that earnings for years prior to 1982 shall be estimated on the basis of increases in the average national wage as determined by the Social Security Administration, using as a starting point for such calculation the average of the Participant's earnings between 1982 and 1986; provided, however, that if a Participant had no earnings in any year during such period, such year shall not be included in the calculation of the average. In lieu of the Social Security amount calculated hereunder, a Participant shall have the right to furnish the Plan Administrator with adequate evidence of his earnings history for Social Security purposes and the Plan Administrator shall calculate an actual Social Security benefit based on the law as in effect in 1986 and assuming no earnings after 1986. Such evidence must be presented to the Plan Administrator within a reasonable time following the later of the date of separation of service or the date the Participant is notified of the benefit to which he is entitled. Section 3.8. ------------ (a) Benefit Accrual Years. A Participant shall be credited with Benefit --------------------- Accrual Years and fractions thereof for service on and after January 1, 1976 (computed to the nearest one-tenth (1/10th)) as follows: (1) One Benefit Accrual Year for each Plan Year in which he completes at least 1,600 hours of service, as defined in Section 5.2(c); (2) A fraction of a Benefit Accrual Year for each Plan Year in which he completes less than 1,600 hours of service, the numerator of which is his total hours of service, as defined in Section 5.2(c), completed in such year and the denominator of which is 1,600. (b) Past Credited Service. For purposes of this Article, a Participant --------------------- hired as a regular employee prior to January 1, 1976 and who was a regular employee on such date shall be credited with Past Credited Service in terms of years and fractions thereof (computed to the nearest one-tenth (1/10th)) for the period beginning with his most recent date of hire and ending on December 31, 1975. (c) Disregarding Years of Service. Notwithstanding subsections (a) and ----------------------------- (b), Benefit Accrual Years, Past Service Credit and fractions thereof earned during years of service disregarded under Section 5.2(b), shall be disregarded under this Section. 43 Section 5.1. Nonforfeitable Interest in Accrued Monthly Pension ------------ -------------------------------------------------- Benefit. A Participant shall have a nonforfeitable right to an accrued monthly - ------- pension benefit equal to the amount of such benefit multiplied by the percentage below opposite his years of service according to the vesting table below: Nonforfeitable Years of Service Percentage less than 4 0% 4 but less than 5 40% 5 but less than 6 50% 6 but less than 7 60% 7 but less than 8 70% 8 but less than 9 80% 9 but less than 10 90% 10 or more 100% Notwithstanding the preceding, a Participant shall be entitled to 100% of his accrued monthly pension benefit upon attainment of age 65. 44 SCHEDULE B ---------- Profit Sharing Annuity Increase - ------------------------------- The accrued benefit referred to in Section 3.3(a)(2) shall be separately calculated for Participants as follows: (1) An amount will be calculated only for a Participant who received an allocation under the Profit Sharing Plan for any of the years from 1976 through 1983 and who is (1) actively employed by the Division or the Company on December 11, 1987 or (2) a Participant who terminated his employment during 1987 after (i) both the attainment of age 55 and the completion of five years of service, (ii) completion of 25 years of service, (iii) death, or (iv) disability retirement under Section 3.5. (2) For each year from 1976 through 1983 for which a Participant identified in (1) above received an allocation in the Profit Sharing Plan, there shall be calculated an amount equal to the additional amount that would have been allocated to such Participant if Division Profits under the Profit Sharing Plan had been calculated with no reduction for contributions to this Plan. (3) There shall then be calculated a hypothetical accumulated account balance for each Participant hereunder based on the assumption that each Participant has a hypothetical account to which there is credited the amounts calculated in (2) above as of the January 1 immediately following the Plan Year with respect to which the contribution was made plus interest on such amount compounded annually at a rate equivalent to the blended rate of return for the Guaranteed Interest Rate Fund within the Profit Sharing Plan for each year through December 31, 1986. (4) The hypothetical account balance calculated under (3) above shall be converted as of December 31, 1986 to an additional accrued monthly pension benefit hereunder which is actuarially equivalent to the lump sum amount in the hypothetical account on December 31, 1986 based on the 1984 Unisex Pension Mortality Table (set back two years) and an interest assumption of 7%. 45 SCHEDULE C ---------- Actuarial equivalents for benefit options: Qualified Joint and 50% Survivor Annuity. The reduced pension payable to the - ---------------------------------------- Participant shall be 92% of the accrued monthly pension benefit plus 0.4% for each year to the nearest year that the contingent annuitant is older than the Participant or minus 0.4% for each year to the nearest year that the contingent annuitant is younger than the Participant. Ten Year Certain Option. The reduced pension payable to the Participant shall - ----------------------- be 93% of the accrued monthly pension benefit plus 0.5% for each year to the nearest year that the Participant is younger than age 65 (not to exceed 100%) or minus 1.0% for each year to the nearest year that the Participant is older than age 65. 46 SCHEDULE D ---------- Reduction Factors for Disability Benefits - ----------------------------------------- Reduction Factors for disability benefit under Section 3.5(b) for benefits starting prior to age 55:
Benefit Benefit Starting Reduction Starting Reduction Age Factor Age Factor 54 .340 29 .028 53 .280 28 .025 52 .238 27 .023 51 .215 26 .021 50 .195 25 .019 49 .176 24 .018 48 .160 23 .016 47 .145 22 .015 46 .132 21 .014 45 .120 20 .013 44 .109 43 .099 42 .090 41 .082 40 .075 39 .068 38 .062 37 .057 36 .052 35 .047 34 .043 33 .040 32 .036 31 .033 30 .030
47 SCHEDULE E ---------- 1990 Retirement Incentive - ------------------------- An additional accrued benefit shall be separately calculated and payable for certain eligible Participants as follows: (1) An additional accrued benefit shall be payable only for a Participant who meets the following requirements: (a) As of May 1, 1990, the Participant is a salaried employee of the Division and is located at the Division's headquarters in East Aurora, New York; (b) As July 31, 1990, the Participant will have attained at least age 55, and completed at least five years of service, as defined in Section 5.2 (the age and service requirements for early retirement under Section 3.4); (c) The Participant is not a highly compensated employee, within the meaning of Code Section 414(q), during the Plan Year ending December 31, 1990 (without consideration of the preceding Plan Year) for purposes of making determination as otherwise provided for in Code Section 414(q); and (d) The Participant either: (i) Terminates employment on or before June 28, 1990; or (ii) (A) Submits to the Company on or before June 28, 1990, a written election in accordance with procedures established by the Company that he will terminate employment on or before July 31, 1990; and (B) Terminates employment on or before July 31, 1990. (2) For each Participant identified in (1) above, his accrued monthly pension benefit for all Plan purposes except as otherwise herein provided, shall include the amount equal to the sum of (a) and (b), adjusted in accordance with (c), and reduced by (d) as follows: (a) The Participant's accrued monthly benefit determined in accordance with Section 3.3 as of July 31, 1990 and without regard to the provisions of this Schedule E. (b) One-third (four times one-twelfth) of: (i) 1.1% multiplied by his compensation up to covered compensation, as defined in Section 1.4, for the Plan Year ended in December 31, 1989, plus 48 (ii) 1.8% multiplied by his compensation in excess of covered compensation, as defined in Section 1.04, for the Plan year ended December 31, 1989. (c) The sum of (a) and (b) above shall be reduced by one-half percent (.5%) per month for each month by which August 1, 1994 precedes the first day of the month coincident with or following such Participant's sixty-fifth (65th) birthday. (d) The amount determined pursuant to (a) above reduced by one-half percent (.5%) per month by which August 1, 1990 precedes the first day of the month coincident with or following such Participant's sixty-fifth (65th) birthday. (3) The amount determined pursuant to (2) above shall be payable commencing effective as of August 1, 1990, without further adjustment under Section 3.4(b). (4) The amount determined pursuant to (2) above shall be considered a change in the benefit structure of the Plan for purposes applying the provisions of Section IV of Model Amendment I of the Plan, as adopted in accordance with Internal Revenue Service Notice 87-2. (5) In addition to the normal form of benefits provided under Section 4.1 and 4.2 (immediate joint and survivor annuity for married Participants and immediate straight life annuity for unmarried participants), the Participant may also elect to receive the amount determined pursuant to (2) above as an immediate lump sum payment, and for married participants as an immediate life annuity described in Section 4.2(a), subject to the election, notice, and waiver requirements provided for in Section 4.1 and 4.2 with respect to electing an optional form of benefit. No other optional forms of benefits provided under the Plan shall apply to such amount. For purposes of the foregoing, the lump sum value shall be determined using the 1971 Group Annuity Mortality Tables (compiled on a unisex basis weighted 60% male and 40% female) and the interest rate shall be such rate as of the date of the distribution used by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution of plan termination. 49 SCHEDULE F ---------- 1998 RETIREMENT INCENTIVE An additional accrued benefit under the East Aurora Retirement Incentive Program or the Murray Retirement Incentive Program shall be separately calculated and payable for certain eligible Participants as follows: East Aurora Retirement Incentive Program - ---------------------------------------- (1) An additional accrued benefit shall be payable only for a Participant who meets the following requirements: (a) As of February 16, 1998, the Participant is an employee of Fisher-Price, Inc. or Mattel Operations-East Aurora; (b) As of April 30, 1998, the Participant will have attained at least age 55, and completed at least five years of service, as defined in Section 5.2 (the age and service requirements for early retirement under Section 3.4); (c) The Participant is not a highly compensated employee, within the meaning of Code Section 414(q), for the Plan Year ending December 31, 1998; and (d) The Participant either: (i) Terminates employment on or before April 30, 1998; or (ii) Submits to the Company on or before April 30, 1998, a written election in accordance with procedures established by the Company that he or she will terminate employment on or before April 30, 1998. (2) For each Participant identified in (1) above, his or her accrued monthly pension benefit for all Plan purposes except as otherwise herein provided, shall include the amount equal to the sum of (a) and (b), adjusted in accordance with (c), and reduced by (d) as follows: (a) The Participant's accrued monthly benefit determined in accordance with Section 3.3 as of April 30, 1998, without regard to the provisions of this Schedule F. (b) One-Fourth (three times one-twelfth) of: (i) 1.4% multiplied by his compensation up to covered compensation, as defined in Section 1.4, for the Plan Year ended December 31, 1997, plus 50 (ii) 1.8% multiplied by his compensation in excess of covered compensation, as defined in Section 1.04, for the Plan year ended December 31, 1997. (c) The sum of (a) and (b) above shall be reduced by one-half percent (.5%) per month for each month by which May 1, 2001 precedes the first day of the month coincident with or following such Participant's sixty-fifth (65th) birthday. (d) The amount determined pursuant to (a) above reduced by one- half percent (.5%) per month by which May 1, 1998 precedes the first day of the month coincident with or following such Participant's sixty-fifth (65th) birthday. (3) The amount determined pursuant to (2) above shall be payable commencing effective as of May 1, 1998, without further adjustment under Section 3.4(b). (4) In addition to the normal form of benefits provided under Section 4.1 and 4.2 (immediate joint and survivor annuity for married Participants and immediate straight life annuity for unmarried participants), the Participant may also elect to receive the amount determined pursuant to (2) above as an immediate lump sum payment, and for married participants as an immediate life annuity described in Section 4.2(a), subject to the election, notice, and waiver requirements provided for in Section 4.1 and 4.2 with respect to electing an optional form of benefit. No other optional forms of benefits provided under the Plan shall apply to such amount. For purposes of the foregoing, the lump sum value shall be determined using the 1971 Group Annuity Mortality Tables (compiled on a unisex basis weighted 60% male and 40% female) and the interest rate shall be such rate as of January 1, 1998 used by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination. Murray Retirement Incentive Program - ----------------------------------- (1) An additional accrued benefit shall be payable only for a Participant who meets the following requirements: (a) As of May 1, 1998, the Participant is an employee of Mattel Operations - Murray; (b) As of October 31, 1998, the Participant will have attained at least age 55, and completed at least five years of service, as defined in Section 5.2 (the age and service requirements for early retirement under Section 3.4); (c) The Participant is not a highly compensated employee, within the meaning of Code Section 414(q), for Plan Year ending December 31, 1998; and (d) The Participant either: (i) Terminates, employment on or before October 31, 1998; or 51 (ii) Submits to the Company on or before October 9, 1998, a written election in accordance with procedures established by the Company that he or she will terminate employment on or before October 31, 1998. (2) For each Participant identified in (1) above, his or her accrued monthly pension benefit for all Plan purposes except as otherwise herein provided, shall include the amount equal to the sum of (a) and (b), adjusted in accordance with (c), and reduced by (d) as follows: (a) The Participant's accrued monthly benefit determined in accordance with Section 3.3 as of October 31, 1998 and without regard to the provisions of this Schedule F . (b) One-Fourth (three times one-twelfth) of: (i) 1.4% multiplied by his compensation up to covered compensation, as defined in Section 1.4, for the Plan Year ended December 31, 1997, plus (ii) 1.8% multiplied by his compensation in excess of covered compensation, as defined in Section 1.04, for the Plan year ended December 31, 1997. (c) The sum of (a) and (b) above shall be reduced by one-half percent (.5%) per month for each month by which November 1, 2001 precedes the first day of the month coincident with or following such Participant's sixty- fifth (65th) birthday. (d) The amount determined pursuant to (a) above reduced by one- half percent (.5%) per month by which November 1, 1998 precedes the first day of the month coincident with or following such Participant's sixty-fifth (65th) birthday. (3) The amount determined pursuant to (2) above shall be payable commencing effective as of November 1, 1998, without further adjustment under Section 3.4(b). (4) In addition to the normal form of benefits provided under Section 4.1 and 4.2 (immediate joint and survivor annuity for married Participants and immediate straight life annuity for unmarried participants), the Participant may also elect to receive the amount determined pursuant to (2) above as an immediate lump sum payment, and for married participants as an immediate life annuity described in Section 4.2(a), subject to the election, notice, and waiver requirements provided for in Section 4.1 and 4.2 with respect to electing an optional form of benefit. No other optional forms of benefits provided under the Plan shall apply to such amount. For purposes of the foregoing, the lump sum value shall be determined using the 1971 Group Annuity Mortality Tables (compiled on a unisex basis weighted 60% male and 40% female) and the interest rate shall be such rate as of January 1, 1998 used by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination. 52 SCHEDULE G ---------- 2000 RETIREMENT INCENTIVE An additional benefit under the Fisher-Price Voluntary Early Retirement Incentive Program shall be separately calculated and payable for certain eligible Participants as follows: (1) The additional benefit shall be payable only for a Participant who meets the following requirements: (a) As of September 11, 2000, the Participant is an employee of Fisher-Price, Inc. or Mattel Operations-East Aurora; (b) As of December 31, 2000, the Participant will have attained at least age 52, and completed at least five years of Vesting Service, as defined in Section 1.4(bb); (c) The Participant is not a highly compensated employee, within the meaning of Code Section 414(q), for the Plan Year ending December 31, 2000; and (d) The Participant: (i) Terminates employment on or before December 31, 2000; and (ii) Submits to the Company on or before December 6, 2000 a written election and general release in accordance with procedures established by the Company that he or she will terminate employment on or before December 31, 2000 and does not thereafter revoke such election and general release. (2) For each Participant identified in (1) above, his or her monthly pension benefit for all Plan purposes, except as otherwise herein provided, shall include an "Enhanced Retirement Benefit" and a "REMBA Benefit." An eligible Participant's Enhanced Retirement Benefit shall be equal to the sum of (a) and (b) below, adjusted in accordance with (c) below, and offset by (d) below. An eligible Participant's "REMBA Benefit" shall be equal to the amount described in (e) below. (a) The Participant's accrued monthly benefit determined in accordance with Section 3.3 as of December 31, 2000, without regard to the provisions of this Schedule G. ---------- (b) One-fourth (three times one-twelfth) of: (i) 1.4% multiplied by the Participant's "Adjusted Incentive Compensation" (as defined below) up to 150.1% of Covered Compensation, as defined in Section 1.4(h), rounded to the next highest multiple of $100, for the Plan Year ended December 31, 1999, plus 53 (ii) 1.8% multiplied by the Participant's Adjusted Incentive Compensation in excess of 150.1% of Covered Compensation, as defined in Section 1.4(h), rounded to the next highest multiple of $100, for the Plan Year ended December 31, 1999. For purposes of this paragraph (b), a Participant's "Adjusted Incentive Compensation" means the Participant's compensation as defined in Section 3.3(b) for the Plan Year ended December 31, 1999 multiplied by 103%. (c) The sum of (a) and (b) above shall be reduced by one-half percent (.5%) per month for each month by which January 1, 2004 precedes the first day of the month coincident with or following such Participant's sixty- fifth (65th) birthday. (d) The amount determined pursuant to (a) above reduced by one-half percent (.5%) per month by which January 1, 2001 precedes the first day of the month coincident with or following such Participant's sixty-fifth (65th) birthday; provided, however, (i) in no event shall the amount -------- ------- determined pursuant to (a) above be reduced by more than 60% and (ii) the offset described in this paragraph (d) shall apply only for the period from and after the date the Participant attains age 55. (e) An additional monthly annuity benefit payable as of January 1, 2001 which is actuarially equivalent to 130% of the lump sum amount that would otherwise have been credited to the Participant's REMBA Plan Account if the Participant had remained employed through, and retired as of, December 31, 2003. For purposes of the foregoing, such lump sum amount shall be converted to a monthly annuity benefit based on the 1983 Group Annuity Mortality Table (compiled on a unisex basis weighted 50% male and 50% female) and an interest assumption of 5.72%. (3) An eligible Participant's Enhanced Retirement Benefit and REMBA Benefit shall be payable commencing effective as of January 1, 2001, without further adjustment under Section 3.4(b). (4) In addition to the normal form of benefits provided under Section 4.1 and 4.2 (immediate joint and survivor annuity for married Participants and immediate straight life annuity for unmarried Participants), the Participant may also elect to receive his or her Enhanced Retirement Benefit and REMBA Benefit as an immediate lump sum payment, and for married Participants as an immediate life annuity described in Section 4.2(a), subject to the election, notice, and waiver requirements provided for in Section 4.1 and 4.2 with respect to electing an optional form of benefit. An eligible Participant shall be entitled to make separate method of payment elections for the Participant's Enhanced Retirement Benefit and REMBA Benefit. No other optional forms of benefits provided under the Plan shall apply to a Participant's Retirement Benefit and REMBA Benefit. For purposes of the foregoing, the lump sum value of an eligible Participant's Enhanced Retirement Benefit and REMBA Benefit shall be determined using the 1983 Group Annuity Mortality Table (compiled on a unisex basis weighted 50% male and 50% female) and an interest assumption of 5.72%, the rate for 30-year U.S. Treasury bonds for August, 2000. 54 EX-10.43 16 dex1043.txt 6TH AMENDMENT TO FISHER-PRICE PENSION PLAN EXHIBIT 10.43 SIXTH AMENDMENT TO THE FISHER-PRICE PENSION PLAN WHEREAS, Mattel, Inc. ("Mattel") sponsors the Fisher-Price Pension Plan for the benefit of eligible employees of Fisher-Price, Inc. and certain other subsidiaries; and WHEREAS, the provisions of the Plan are set forth in a 1994 Restatement, as amended by a Fifth Amendment thereto; and WHEREAS, Mattel desires to amend the Plan to (i) reflect recent legislative and regulatory changes in the federal pension laws and (ii) meet other current needs; and WHEREAS, in Section 9.1 of the Plan, Mattel reserved the right to amend the Plan at any time in whole or in part; NOW, THEREFORE, to effect the foregoing, Mattel does hereby declare that the Plan be, and hereby is, amended as follows: 1. Section 1.4(f) of the Plan is amended effective as of October 1, 2001 to read as follows: "(f) "Regular employee" means a common-law employee, except any employee who is an intern, toy tester, department aide or in the following pay groups: AFL, MAG or RB2." 2. Section 3.3(b) of the Plan is amended effective as of January 1, 2001 by deleting the phrase "Sections 125 or 402(a)(8) of the Code" and by substituting in lieu thereof the phrase "Sections 125, 132(f)(4) or 402(a)(8) of the Code." 3. Section 3.3 of the Plan is amended effective as of January 1, 2002 by adding the following new subsection (d) to the end thereof: "(d) Increase in Compensation Limit. The annual Compensation of ------------------------------ each Participant taken into account in determining benefit accruals in any Plan Year beginning after December 31, 2001, shall not exceed $200,000. Such limit shall be adjusted for cost-of-living increases in accordance with Section 401(a)(17)(B) of the Code. The cost-of- living adjustment in effect for a calendar year applies to annual Compensation for the determination period that begins with or within such calendar year." 4. The first sentence of Section 3.4(a) of the Plan is amended effective as of April 1, 2001 by deleting the phrase "age 55 and has completed at least 5 years of Vesting Service" and by substituting in lieu thereof the phrase "age 55 and has completed at least 3 years of Vesting Service." 5. Section 5.1 of the Plan is amended effective as of April 3, 2001 by adding the following new paragraph to the end thereof: "Notwithstanding the foregoing, each Participant who was employed at the Mattel Operations - Murray division of the Company on April 3, 2001 shall be entitled to 100% of his accrued monthly pension benefit." 6. Section 12.3(b) of the Plan is amended effective as of January 1, 2001 by deleting the phrase "Code Sections 125, 402(a)(8), 402(h) or 403(b)" and by substituting in lieu thereof the phrase "Code Section 125, 132(f)(4), 402(a)(8), 402(h) or 403(b)." 7. Except as expressly or by necessary implication amended hereby, the Plan shall continue in full force and effect. IN WITNESS WHEREOF, Mattel has caused this instrument to be executed by its duly authorized officer this 8th day of November, 2001. MATTEL, INC. By: /s/ Alan Kaye -------------------------- Name: Alan Kaye ------------------------ Title: Senior Vice President Human Resources -------------------------------------- 2 EX-10.45 17 dex1045.txt PERSONAL INVESTMENT PLAN EXHIBIT 10.45 MATTEL, INC. PERSONAL INVESTMENT PLAN October 1, 2001 Restatement TABLE OF CONTENTS Page ---- ARTICLE I GENERAL..............................................................1 1.1 Plan Name............................................................1 1.2 Plan Purpose.........................................................1 1.3 Effective Date.......................................................1 1.4 Plan Mergers.........................................................1 ARTICLE II DEFINITIONS.........................................................3 2.1 Accounts.............................................................3 2.2 Affiliated Company...................................................5 2.3 After-Tax Contributions..............................................5 2.4 Before-Tax Contributions.............................................5 2.5 Beneficiary..........................................................6 2.6 Board of Directors...................................................6 2.7 Code.................................................................6 2.8 Committee............................................................6 2.9 Company..............................................................6 2.10 Company Contributions................................................6 2.11 Company Matching Contributions.......................................6 2.12 Company Stock........................................................6 2.13 Compensation.........................................................7 2.14 Deferral Limitation..................................................8 2.15 Distributable Benefit................................................9 2.16 Early Retirement Date................................................9 2.17 Effective Date.......................................................9 2.18 Eligible Employee....................................................9 2.19 Employee.............................................................9 2.20 Employment Commencement Date........................................10 2.21 ERISA...............................................................10 2.22 Fort Wayne Plan.....................................................10 2.23 F-P Savings Plan....................................................10 2.24 Highly Compensated Employee.........................................10 2.25 Hour of Service.....................................................13 2.26 Investment Manager..................................................14 2.27 Murray Hourly Employee..............................................14 2.28 Normal Retirement...................................................14 2.29 Normal Retirement Date..............................................14 2.30 Participant.........................................................14 2.31 Participation Commencement Date.....................................14 2.32 Participating Company...............................................14 2.33 Period of Severance.................................................15 2.34 Plan................................................................15 2.35 Plan Administrator..................................................15 2.36 Plan Year...........................................................15 2.37 Pleasant Plan.......................................................15 i 2.38 PrintPaks Plan......................................................15 2.39 Severance Date......................................................15 2.40 Total and Permanent Disability......................................16 2.41 Trust or Trust Fund.................................................16 2.42 Trustee.............................................................16 2.43 Tyco Plan...........................................................16 2.44 Valuation Date......................................................16 2.45 Year of Service.....................................................17 ARTICLE III ELIGIBILITY AND PARTICIPATION.....................................18 3.1 Eligibility to Participate..........................................18 3.2 Commencement of Participation.......................................18 3.3 Former Participants in F-P Savings Plan.............................19 3.4 Former Participants in Tyco Plan....................................19 3.5 Former Participants in PrintPaks Plan...............................19 3.6 Former Participants in Pleasant Plan................................19 ARTICLE IV TRUST FUND.........................................................20 4.1 Trust Fund..........................................................20 ARTICLE V EMPLOYEE CONTRIBUTIONS..............................................20 5.1 Employee Contributions..............................................20 5.2 Amount Subject to Election..........................................21 5.3 Termination of, Change in Rate of, or Resumption of Deferrals.......22 5.4 Limitation on Before-Tax Contributions by Highly Compensated Employees.........................................................23 5.5 Provisions for Disposition of Excess Before-Tax Contributions by Highly Compensated Employees......................................26 5.6 Provisions for Return of Annual Before-Tax Contributions in Excess of the Deferral Limitation.................................28 5.7 Character of Amounts Contributed as Before-Tax Contributions........30 5.8 Participant Transfer/Rollover Contributions.........................30 ARTICLE VI COMPANY CONTRIBUTIONS..............................................31 6.1 General.............................................................31 6.2 Requirement for Net Profits.........................................33 6.3 Special Limitations on After-Tax Contributions and Company Matching Contributions............................................33 6.4 Provision for Return of Excess After-Tax Contributions and Company Matching Contributions on Behalf of Highly Compensated Employees..36 6.5 Forfeiture of Company Matching Contributions Attributable to Excess Deferrals or Contributions........................................38 6.6 Investment and Application of Plan Contributions....................38 6.7 Irrevocability......................................................40 6.8 Company, Committee and Trustee Not Responsible for Adequacy of Trust Fund.......................................................40 ARTICLE VII PARTICIPANT ACCOUNTS AND ALLOCATIONS..............................41 7.1 General.............................................................41 7.2 Participants' Accounts..............................................41 7.3 Revaluation of Participants' Accounts...............................41 7.4 Treatment of Accounts Following Termination of Employment...........41 7.5 Accounting Procedures...............................................42 ii ARTICLE VIII VESTING; PAYMENT OF PLAN BENEFITS................................42 8.1 Vesting.............................................................42 8.2 Distribution Upon Retirement........................................44 8.3 Distribution Upon Death Prior to Termination of Employment..........45 8.4 Death After Termination of Employment...............................46 8.5 Termination of Employment Prior to Normal Retirement Date...........46 8.6 Withdrawals.........................................................48 8.7 Form of Distribution................................................52 8.8 Election for Direct Rollover of Distributable Benefit to Eligible Retirement Plan...................................................52 8.9 Designation of Beneficiary..........................................54 8.10 Facility of Payment.................................................55 8.11 Requirement of Spousal Consent......................................56 8.12 Additional Documents................................................56 8.13 Company Stock Distribution..........................................56 8.14 Valuation of Accounts...............................................57 8.15 Forfeitures; Repayment..............................................58 8.16 Loans...............................................................59 8.17 Special Rule for Disabled Employees.................................61 8.18 Election for Fully Vested Employees Transferred to Fisher-Price, Inc. ...............................................................63 8.19 Provision for Small Benefits........................................63 8.20 Special Provisions Applicable to Tyco Plan Accounts.................63 8.21 Special Provisions Applicable to PrintPaks Plan Accounts............64 8.22 Special Provisions Applicable to Fort Wayne Plan Accounts...........65 8.23 Special Provisions Applicable to Pleasant Plan Nonelective Account..65 ARTICLE IX OPERATION AND ADMINISTRATION OF THE PLAN...........................66 9.1 Plan Administration.................................................66 9.2 Committee Powers....................................................66 9.3 Investment Manager..................................................68 9.4 Periodic Review.....................................................68 9.5 Committee Procedure.................................................68 9.6 Compensation of Committee...........................................69 9.7 Resignation and Removal of Members..................................69 9.8 Appointment of Successors...........................................69 9.9 Records.............................................................70 9.10 Reliance Upon Documents and Opinions................................70 9.11 Requirement of Proof................................................71 9.12 Reliance on Committee Memorandum....................................71 9.13 Multiple Fiduciary Capacity.........................................71 9.14 Limitation on Liability.............................................71 9.15 Indemnification.....................................................71 9.16 Allocation of Fiduciary Responsibility..............................72 9.17 Bonding.............................................................72 9.18 Against Certain Actions.............................................73 9.19 Plan Expenses.......................................................73 iii ARTICLE X SPECIAL PROVISIONS CONCERNING COMPANY STOCK EFFECTIVE AS OF OCTOBER 1, 1992................................................73 10.1 Securities Transactions.............................................73 10.2 Valuation of Company Securities.....................................74 10.3 Allocation of Stock Dividends and Splits............................74 10.4 Reinvestment of Dividends...........................................75 10.5 Voting of Company Stock.............................................75 10.6 Confidentiality Procedures..........................................76 10.7 Securities Law Limitation...........................................76 ARTICLE XI MERGER OF COMPANY; MERGER OF PLAN..................................76 11.1 Effect of Reorganization or Transfer of Assets......................76 11.2 Merger Restriction..................................................76 ARTICLE XII PLAN TERMINATION AND DISCONTINUANCE OF CONTRIBUTIONS..............77 12.1 Plan Termination....................................................77 12.2 Discontinuance of Contributions.....................................77 12.3 Rights of Participants..............................................78 12.4 Trustee's Duties on Termination.....................................78 12.5 Partial Termination.................................................79 12.6 Failure to Contribute...............................................79 ARTICLE XIII APPLICATION FOR BENEFITS.........................................80 13.1 Application for Benefits............................................80 13.2 Action on Application...............................................80 13.3 Appeals.............................................................80 ARTICLE XIV LIMITATIONS ON CONTRIBUTIONS......................................81 14.1 General Rule........................................................81 14.2 Annual Additions....................................................82 14.3 Other Defined Contribution Plans....................................82 14.4 Combined Plan Limitation (Defined Benefit Plan).....................82 14.5 Adjustments for Excess Annual Additions.............................83 14.6 Disposition of Excess Amounts.......................................85 14.7 Affiliated Company..................................................85 ARTICLE XV RESTRICTION ON ALIENATION..........................................85 15.1 General Restrictions Against Alienation.............................85 15.2 Nonconforming Distributions Under Court Order.......................86 ARTICLE XVI PLAN AMENDMENTS...................................................87 16.1 Amendments..........................................................87 16.2 Retroactive Amendments..............................................88 16.3 Amendment of Vesting Provisions.....................................88 ARTI15.2 VII TOP-HEAVY PROVISIONS.............................................88 17.1 Minimum Company Contributions.......................................88 17.2 Compensation........................................................89 17.3 Top-Heavy Determination.............................................89 17.4 Aggregation.........................................................91 ARTICLE XVIII MISCELLANEOUS...................................................92 18.1 No Enlargement of Employee Rights...................................92 18.2 Mailing of Payments; Lapsed Benefits................................92 iv 18.3 Addresses..........................................................94 18.4 Notices and Communications.........................................94 18.5 Reporting and Disclosure...........................................94 18.6 Governing Law......................................................94 18.7 Interpretation.....................................................94 18.8 Certain Securities Laws Rules......................................95 18.9 Withholding for Taxes..............................................95 18.10 Limitation on Company; Committee and Trustee Liability.............95 18.11 Successors and Assigns.............................................95 18.12 Counterparts.......................................................95 v PERSONAL INVESTMENT PLAN ARTICLE I GENERAL 1.1 Plan Name. --------- This instrument evidences the terms of a tax-qualified retirement plan for the Eligible Employees of Mattel, Inc. and its participating affiliates to be known as the "Mattel, Inc. Personal Investment Plan" ("Plan"). 1.2 Plan Purpose. ------------ This Plan is intended to qualify under Code Section 401(a) as a profit sharing plan, although contributions may be made to the Plan without regard to profits, and with respect to the portion hereof intended to qualify as a Qualified Cash or Deferred Arrangement, to satisfy the requirements of Code Section 401(k). 1.3 Effective Date. -------------- The original effective date of this Plan is November 1, 1983. This amendment and restatement of the Plan reflects the provisions of the Plan as in effect as of October 1, 2001, except as otherwise expressly provided herein. 1.4 Plan Mergers. ------------ Effective April 1, 1997, the Fisher-Price, Inc. Matching Savings Plan (the "F-P Savings Plan") has been merged with and into this Plan and the account balances under the former F-P Savings Plan have been transferred to corresponding accounts under this Plan as follows:
F-P Savings Plan Account Corresponding Plan Account Employee Contribution Account Before-Tax Contributions Account Company Matching Account Company Matching Account Discretionary Contribution Account Company Matching Account Profit Sharing Account Transfer/Rollover Account Rollover Contributions Account Transfer/Rollover Account
1 Effective January 2, 1998, the Tyco Toys, Inc. 401(k) Savings Plan ("Tyco Plan") has been merged with and into this Plan and the account balances under the former Tyco Plan have been transferred to corresponding accounts under this Plan as follows:
Tyco Plan Account Corresponding Plan Account Deferral Contributions Account Tyco Before-Tax Contributions Account Regular Matching Contributions Account Tyco Company Matching Account Rollover Contribution Account Transfer/Rollover Account
Effective June 30, 2000, the PrintPaks, Inc. 401(k) Plan ("PrintPaks Plan") has been merged with and into this Plan and the account balances under the former PrintPaks Plan have been transferred to corresponding accounts under this Plan as follows:
PrintPaks Plan Account Corresponding Plan Account Elective Deferrals Account PrintPaks Before-Tax Contributions Account Matching Contributions Account PrintPaks Company Matching Account Rollover Contributions Account Transfer/Rollover Account
Effective December 15, 2000, the Mattel-Fort Wayne Hourly 401(k) Plan (the "Fort Wayne Plan") has been merged with and into this Plan and the account balances under the former Fort Wayne Plan have been transferred to corresponding accounts under this Plan as follows:
Fort Wayne Plan Account Corresponding Plan Account Elective Deferrals Account Fort Wayne Plan Before-Tax Contributions Account Matching Contributions Account Fort Wayne Plan Company Matching Account Nonelective Contributions Account Fort Wayne Plan Nonelective Account Rollover Contributions Account Transfer/Rollover Account
2 Effective October 1, 2001, the Pleasant Company Retirement Savings Plan (the "Pleasant Plan") has been merged with and into this Plan and the account balances under the former Pleasant Plan have been transferred to corresponding accounts under this Plan as follows:
Pleasant Plan Account Corresponding Plan Account Employer Nonelective Contributions Pleasant Plan Nonelective Account Account Rollover Contributions Account Transfer/Rollover Account
ARTICLE II DEFINITIONS 2.1 Accounts. -------- "Accounts" or "Participant's Accounts" means the following Plan accounts maintained by the Committee for each Participant as required by Article VII: (a) "Before-Tax Contributions Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Participant Before-Tax Contributions, and any earnings thereon, in accordance with Article V. (b) "After-Tax Contributions Account" shall mean the account established and maintained for each Participant under Article VII to reflect amounts held in the Trust Fund on behalf of such Participant which are attributable to Participant After-Tax Contributions and any earnings thereon, in accordance with Article V. (c) "Company Matching Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Company Matching Contributions, and any earnings thereon, pursuant to Section 6.1(d). (d) "Company Contributions Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Company Contributions, and any earnings thereon, pursuant to Section 6.1(a). 3 (e) "Transfer/Rollover Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to amounts distributed to the Participant from any other plan qualified under Code Section 401(a), or from an Individual Retirement Account attributable to employer contributions under another plan qualified under Code Section 401(a), and any earnings on such amounts, as provided in Section 5.8. (f) "Tyco Before-Tax Contributions Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Participant before-tax contributions to the Tyco Plan, and any earnings thereon, in accordance with Article V. (g) "Tyco Company Matching Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to matching contributions to the Tyco Plan, and any earnings thereon, in accordance with Article V. (h) "PrintPaks Before-Tax Contributions Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Participant before-tax contributions to the PrintPaks Plan, and any earnings thereon, in accordance with Article V. (i) "PrintPaks Company Matching Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to matching contributions to the PrintPaks Plan, and any earnings thereon, in accordance with Article V. (j) "Fort Wayne Plan Before-Tax Contributions Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Participant before-tax contributions to the Fort Wayne Plan, and any earnings thereon, in accordance with Article V. 4 (k) "Fort Wayne Plan Company Matching Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to matching contributions to the Fort Wayne Plan, and any earnings thereon, in accordance with Article V. (l) "Fort Wayne Plan Nonelective Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to nonelective contributions to the Fort Wayne Plan, and any earnings thereon, in accordance with Article V. (m) "Pleasant Plan Nonelective Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to nonelective contributions to the Pleasant Plan, and earnings thereon, in accordance with Article V. 2.2 Affiliated Company. ------------------ "Affiliated Company" shall mean: (a) Any corporation that is included in a controlled group of corporations, within the meaning of Section 414(b) of the Code, that includes the Company, (b) Any trade or business that is under common control with the Company within the meaning of Section 414(c) of the Code, (c) Any member of an affiliated service group, within the meaning of Section 414(m) of the Code, that includes the Company, and (d) Any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code. 2.3 After-Tax Contributions. ----------------------- "After-Tax Contributions" shall mean those contributions by a Participant to the Trust Fund in accordance with Article V which do not qualify as Before- Tax Contributions. 2.4 Before-Tax Contributions. ------------------------ "Before-Tax Contributions" shall mean those amounts contributed to the Plan as a result of a salary or wage reduction election made by the Participant in accordance with Article V, to 5 the extent such contributions qualify for treatment as contributions made under a "qualified cash or deferred arrangement" within the meaning of Section 401(k) of the Code. 2.5 Beneficiary. ----------- "Beneficiary" or "Beneficiaries" shall mean the person or persons last designated by a Participant as set forth in Section 8.9 or, if there is no designated Beneficiary or surviving Beneficiary, the person or persons designated in Section 8.9 to receive the interest of a deceased Participant in such event. 2.6 Board of Directors. ------------------ "Board of Directors" shall mean the Board of Directors (or its delegate) of Mattel, Inc. as it may from time to time be constituted. 2.7 Code. ---- "Code" shall mean the Internal Revenue Code of 1986, as in effect on the date of execution of this Plan document and as thereafter amended from time to time. 2.8 Committee. --------- "Committee" shall mean the Committee described in Article IX hereof. 2.9 Company. ------- "Company" shall mean Mattel, Inc., or any successor thereof, if its successor shall adopt this Plan. 2.10 Company Contributions. --------------------- "Company Contributions" shall mean amounts paid by a Participating Company into the Trust Fund in accordance with Section 6.1(a). 2.11 Company Matching Contributions. ------------------------------ "Company Matching Contributions" shall mean amounts paid by a Participating Company into the Trust Fund in accordance with Section 6.1(d). 2.12 Company Stock. ------------- "Company Stock" shall mean whichever of the following is applicable: (a) So long as the Company has only one class of stock, that class of stock. 6 (b) In the event the Company at any time has more than one class of stock, the class (or classes) of the Company's stock constituting "employer securities" as that term is defined in Section 409(1) of the Code. 2.13 Compensation. ------------ (a) "Compensation" shall mean the full salary and wages (including overtime, shift differential and holiday, vacation and sick pay) and other compensation paid by a Participating Company during a Plan Year by reason of services performed by an Employee, subject, however, to the following special rules and to the provisions of Subsections 2.13(b) through (e): (i) Except as specified in (ii) below, fringe benefits and contributions by the Participating Company to and benefits under any employee benefit shall not be taken into account in determining compensation; (ii) Amounts deducted pursuant to authorization by an Employee or pursuant to requirements of law (including amounts of salary or wages deferred in accordance with the provisions of Section 5.1 and which qualify for treatment under Code Section 401(k) or amounts deducted pursuant to Code Section 125, 129 or 132(f)(4)) shall be included in "Compensation" except as specifically provided to the contrary elsewhere in this Plan; (iii) Amounts paid or payable by reason of services performed during any period in which an Employee is not a Participant under the Plan shall not be taken into account in determining Compensation; (iv) Amounts deferred by the Employee pursuant to non-qualified deferred compensation plans, regardless of whether such amounts are includable in the Employee's gross income for his current taxable year, shall not be taken into account in determining Compensation; (v) Amounts included in any Employee's gross income with respect to life insurance as provided by Code Section 79 shall not be taken into account in determining compensation; and (vi) Amounts paid to Employees as "bonuses" shall not be taken into account in determining compensation. 7 (b) To the extent permitted by Code Section 415(c)(3), in the case of a Participant who ceases actively to perform services for a Participating Company prior to January 1, 1989 because such person has sustained a Total and Permanent Disability, such Participant shall be deemed to have "Compensation" to the extent provided in the provisions of Section 8.17(d), for the limited purposes of determining the amount of certain contributions to this Plan. (c) The term "Compensation," for purposes of Article XIV of this Plan, shall mean wages as defined in Section 3401(a) and all other payments of compensation to an Employee by the Company (in the course of the Company's trade or business) for which the Company is required to furnish the Employee a written statement under Code Sections 6041(d) and 6051(a)(3). Compensation for purposes of this Subsection (c) shall be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). (d) In the event that this Plan is deemed a Top-Heavy Plan as set forth in Article XVII, the term "Compensation" shall not include amounts excluded by reason of and to the extent provided by Sections 17.1 and 17.2. (e) Effective for Plan Years commencing on and after January 1, 1994, the "Compensation" of any Employee taken into account under the Plan for any Plan Year shall not exceed $150,000 (or such adjusted amount as may be prescribed for such Plan Year pursuant to Section 401(a)(17) of the Code). Effective for Plan Years commencing on and after January 1, 2002, the "Compensation" of any Employee taken into account under the Plan for any Plan Year shall not exceed $200,000 (or such adjusted amount as may be prescribed for such Plan Year pursuant to Section 401(a)(17) of the Code). 2.14 Deferral Limitation. ------------------- "Deferral Limitation" shall mean the dollar limitation on the exclusion of elective deferrals from a Participant's gross income under Section 402(g) of the Code, as in effect with respect to the taxable year of the Participant, or such greater limitation on the exclusion of elective deferrals permitted under Section 5.2(f) and Section 414(v) of the Code, if applicable. 8 2.15 Distributable Benefit. --------------------- "Distributable Benefit" shall mean the vested interest of a Participant in this Plan which is determined and distributable in accordance with the provisions of Article VIII following the termination of the Participant's employment. 2.16 Early Retirement Date. --------------------- "Early Retirement Date" shall mean the later of the Participant's 55th birthday or the date on which the Participant completes three Years of Service. 2.17 Effective Date. -------------- "Effective Date" shall mean November 1, 1983, which shall be the original effective date of this Plan. 2.18 Eligible Employee. ----------------- "Eligible Employee" shall include any individual who (i) prior to October 1, 2001 is at least age twenty and one-half (20-1/2) or on or after October 1, 2001 is at least age twenty (20) and (ii) is employed by a Participating Company, except (a) any Employee who is covered by a collective bargaining agreement to which a Participating Company is a party if there is evidence that retirement benefits were the subject of good faith bargaining between the Participating Company and the collective bargaining representative, unless the collective bargaining agreement provides for coverage under this Plan, (b) any Employee who is a "leased employee," within the meaning of Code Section 414(n), (c) any Employee who is an intern, toy tester, department aide, associate retail services representative or in the following pay groups: AFL or MAG, or (d) Contracted Labor. 2.19 Employee. -------- (a) "Employee" shall mean each person currently employed in any capacity by the Company or Affiliated Company any portion of whose income is subject to withholding of income tax and/or for whom Social Security contributions are made by the Company. The term "Employee" also includes a "leased employee," to the extent required by Code Section 414(n). 9 (b) Although Eligible Employees are the only class of Employees eligible to participate in this Plan, the term "Employee" is used to refer to persons employed in a non-Eligible Employee capacity as well as Eligible Employee category. Thus, those provisions of this Plan that are not limited to Eligible Employees, such as those relating to Hours of Service, apply to both Eligible and non-Eligible Employees. 2.20 Employment Commencement Date. ---------------------------- "Employment Commencement Date" shall mean each of the following: (a) The date on which an Employee first performs an Hour of Service in any capacity for the Company or an Affiliated Company with respect to which the Employee is compensated or is entitled to compensation by the Company or the Affiliated Company. (b) In the case of an Employee who has a one-year Period of Severance and who is subsequently reemployed by the Company or an Affiliated Company, the term "Employment Commencement Date" shall also mean the first day following such one-year Period of Severance on which the Employee performs an Hour of Service for the Company or an Affiliated Company with respect to which he is compensated or entitled to compensation by the Company or Affiliated Company. 2.21 ERISA. ----- "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.22 Fort Wayne Plan. --------------- "Fort Wayne Plan" shall mean the Mattel-Fort Wayne Hourly 401(k) Plan, which was merged with and into this Plan effective December 15, 2000. 2.23 F-P Savings Plan. ---------------- "F-P Savings Plan" shall mean the Fisher-Price, Inc. Matching Savings Plan, which was merged with and into this Plan effective April 1, 1997. 2.24 Highly Compensated Employee. --------------------------- (a) "Highly Compensated Employee" shall mean any Employee who performs services for the Company or an Affiliated Company during the Determination Year (as defined below) and who: 10 (i) was at any time during the Determination Year or the Look Back Year a five percent (5%) owner described in Section 17.3; or (ii) for the Look Back Year: (A) received Compensation from the Company or an Affiliated Company in excess of eighty thousand dollars ($80,000) (adjusted for any cost-of-living increase as permitted by Section 414(q) of the Code); and (B) was in the "top-paid group." The determination of which Employees are Highly Compensated Employees shall be made in accordance with the provisions of Section 414(q) of the Code. (b) Determination of a Highly Compensated Employee shall be in accordance with the following definitions and special rules: (i) "Determination Year" means the Plan Year for which the determination of Highly Compensated Employee is being made. (ii) "Look Back Year" is the twelve (12) month period preceding the Determination Year. (iii) An Employee shall be treated as a 5% owner for any Determination Year or Look Back Year if at any time during such Year such Employee was a 5% owner (as defined in Section 17.3). (iv) An Employee is in the "top-paid group" of Employees for any Determination Year or Look Back Year if such Employee is in the group consisting of the top twenty percent (20%) of the Employees when ranked on the basis of Compensation paid during such Year. (v) For purposes of this Section the term "Compensation" means Compensation as defined in Code Section 415(c)(3), as set forth in Section 2.13(c), without regard to the limitations of Section 2.13(e); provided, however, the determination under this Paragraph (vi) shall be made without regard to Code Sections 125, 132(f)(4), 402(a)(8), and 401(h)(1)(B), and in the case of Participant contributions made pursuant to a salary reduction agreement, without regard to Code Section 403(b). (vi) For purposes of determining the number of Employees in the "top-paid" group under this Section, the following Employees shall be excluded: 11 (A) Employees who have not completed six (6) months of service, (B) Employees who normally work less than 17 1/2 hours per week, (C) Employees who normally work not more than six (6) months during any Plan Year, and (D) Employees who have not attained age 20, (E) Except to the extent provided in Treasury Regulations, Employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and the Company, and (F) Employees who are nonresident aliens and who receive no earned income (within the meaning of Code Section 911(d)(2)) from the Company which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)). The Company may elect to apply Subparagraphs (A) through (D) above by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or (as the case may be) than as specified in such Subparagraphs. (vii) A former Employee shall be treated as a Highly Compensated Employee if (A) such Employee was a Highly Compensated Employee when such Employee incurred a severance, or (B) such Employee was a Highly Compensated Employee at any time after attaining age fifty-five (55). (viii) Code Sections 414(b), (c), (m) and (o) shall be applied before the application of this Section. Also, the term "Employee" shall include "leased employees," within the meaning of Code Section 414(n), unless such leased Employee is covered under a "safe harbor" plan of the leasing organization and not covered under a qualified plan of the Affiliated Company. 12 (c) To the extent permissible under Code Section 414(q), the Committee may determine which Employees shall be categorized as Highly Compensated Employees by applying a simplified method and calendar year election prescribed by the Internal Revenue Service. 2.25 Hour of Service. --------------- (a) "Hour of Service" of an Employee shall mean the following: (i) Each hour for which the Employee is paid by the Company or an Affiliated Company or entitled to payment for the performance of services as an Employee. (ii) Each hour in or attributable to a period of time during which the Employee performs no duties (irrespective of whether he has terminated his Employment) due to a vacation, holiday, illness, incapacity (including pregnancy or disability), layoff, jury duty, military duty or a Leave of Absence, for which he is so paid or so entitled to payment, whether direct or indirect. However, no such hours shall be credited to an Employee if such Employee is directly or indirectly paid or entitled to payment for such hours and if such payment or entitlement is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation or disability insurance laws or is a payment which solely reimburses the Employee for medical or medically related expenses incurred by him. (iii) Each hour for which he is entitled to back pay, irrespective of mitigation of damages, whether awarded or agreed to by the Company or an Affiliated Company, provided that such Employee has not previously been credited with an Hour of Service with respect to such hour under paragraphs (i) or (ii) above. (b) Hours of Service under Subsections (a)(ii) and (a)(iii) shall be calculated in accordance with Department of Labor Regulation 29 C.F.R. (S) 2530.200b-2(b). Hours of Service shall be credited to the appropriate computation period according to the Department of Labor Regulation (S) 2530.200b-2(c). However, an Employee will not be considered as being entitled to payment until the date when the Company or the 13 Affiliated Company would normally make payment to the Employee for such Hour of Service. 2.26 Investment Manager. ------------------ "Investment Manager" means the one or more Investment Managers, if any, that are appointed pursuant to Section 9.3. 2.27 Murray Hourly Employee. ---------------------- "Murray Hourly Employee" shall mean an Employee at the Murray, Kentucky location of Mattel Operations, Inc. who is compensated on a per hour basis. 2.28 Normal Retirement. ----------------- "Normal Retirement" shall mean a Participant's termination of employment on or after attaining the Plan's Normal Retirement Date. 2.29 Normal Retirement Date. ---------------------- "Normal Retirement Date" shall be the Participant's sixty-fifth birthday. 2.30 Participant. ----------- "Participant" shall mean any Eligible Employee who has satisfied the participation eligibility requirements set forth in Section 3.1 and has begun participation in this Plan in accordance with the provisions of Section 3.2. 2.31 Participation Commencement Date. ------------------------------- "Participation Commencement Date" shall mean the day on which an Employee's participation in this Plan may commence in accordance with the provisions of Article III. 2.32 Participating Company. --------------------- "Participating Company" shall mean Mattel, Inc., Mattel Sales, Inc. and each other Affiliated Company (or similar entity) that has been granted permission by the Board of Directors to participate in this Plan, provided that contributions are being made hereunder for the Employees of such Participating Company. Permission to become a Participating Company shall be granted under such conditions and upon such conditions as the Board of Directors deems appropriate. Effective April 1, 1997, Fisher-Price, Inc. and each other adopting employer in the F-P Savings Plan shall be a Participating Company in this Plan. Effective January 2, 1998, Tyco Toys, Inc. and each other adopting employer in the Tyco Plan shall be a Participating Company 14 in this Plan. Effective March 1, 1998, PrintPaks, Inc. and each other adopting employer in the PrintPaks Plan shall be a Participating Company in this Plan. Effective October 1, 2001, Pleasant Company and such other adopting employer in the Pleasant Plan shall be a Participating Company in this Plan. 2.33 Period of Severance. ------------------- "Period of Severance" shall mean the period of time commencing on the Participant's Severance Date and continuing until the first day, if any, on which the Participant completes one or more Hours of Service following such Severance Date. 2.34 Plan. ---- "Plan" shall mean the Mattel, Inc. Personal Investment Plan herein set forth, and as it may be amended from time to time. 2.35 Plan Administrator. ------------------ "Plan Administrator" shall mean the administrator of the Plan, within the meaning of Section 3(16)(A) of ERISA. The Plan Administrator shall be Mattel, Inc. 2.36 Plan Year. --------- "Plan Year" shall mean the fiscal year of the Company. Effective as of January 1, 1992, the fiscal year of the Company is the twelve consecutive month period ending December 31. 2.37 Pleasant Plan. ------------- "Pleasant Plan" shall mean the Pleasant Company Retirement Savings Plan, which was merged with and into this Plan effective October 1, 2001. 2.38 PrintPaks Plan. -------------- "PrintPaks Plan" shall mean the PrintPaks, Inc. 401(k) Plan, which was merged with and into this Plan effective June 30, 2000. 2.39 Severance Date. -------------- "Severance Date" shall mean the earlier of (a) the date on which an Employee quits, retires, is discharged, or dies; or (b) the first anniversary of the first date of a period in which an Employee remains absent from service (with or without pay) with the Company or an Affiliated Company for any reason other than quit, retirement, discharge or death (such as vacation, holiday, sickness, disability, leave of absence or layoff). 15 In the case of an Employee who has a maternity or paternity absence described in Code Sections 410(a)(5)(E) and 411(a)(6)(E), the Employee's Period of Severance will begin on the second anniversary of the date the Employee is first absent for a maternity or paternity leave, provided the Employee does not perform an Hour of Service during such period. The first one-year period of the absence will be included in the Employee's period of service and the second one- year period is neither part of the period of service nor part of the Period of Severance. The Committee may require that the Employee furnish such timely information as the Committee may reasonably require to establish that the absence from work is for such a maternity or paternity absence, and the number of days for which there was such an absence. 2.40 Total and Permanent Disability. ------------------------------ An individual shall be considered to be suffering from a Total and Permanent Disability if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months. An individual's disabled status shall be determined by the Committee, based on such evidence as the Committee determines to be sufficient. The rules of this Section 2.44 shall be applied by the Committee in accordance with Treasury Regulations, if any, promulgated under Code Section 415 or Code Section 22(e)(3). 2.41 Trust or Trust Fund. ------------------- "Trust" or "Trust Fund" shall mean the one or more trusts created for funding purposes under the Plan. 2.42 Trustee. ------- "Trustee" shall mean the corporation appointed by the Company to act as Trustee of the Trust Fund, or any successor or other corporation acting as a trustee of the Trust Fund. 2.43 Tyco Plan. --------- "Tyco Plan" shall mean the Tyco Toys, Inc. 401(k) Savings Plan, which was merged with and into this Plan effective January 2, 1998. 2.44 Valuation Date. -------------- "Valuation Date" shall mean the last day of each calendar month and such additional dates as may be determined in rules prescribed by the Committee. 16 2.45 Year of Service. --------------- "Year of Service" means three hundred sixty five (365) days included in a period of service recognized under this Section 2.45. (a) Subject to the succeeding provisions of this Section 2.45, a Participant shall be credited with a period of service equal to the elapsed time between his Employment Commencement Date and his subsequent Severance Date. (b) A Participant additionally shall receive credit for a Period of Severance in computing his service hereunder if such Participant completes an Hour of Service prior to the first anniversary of his Severance Date. Except as provided in this Section 2.45(b), a Period of Severance shall not be included in a Participant's period of service hereunder. (c) If a Participant who does not have any vested interest in his accounts under the Plan has five (5) consecutive one-year Periods of Severance, any prior period of service shall be disregarded for all purposes of the Plan. Periods of service credited under this Section 2.45 before such five (5) consecutive one-year Periods of Severance shall not include any period or periods of service that are not required to be taken into account under this Section 2.45(c) by reason of any prior Periods of Severance. (d) The number of a Participant's Years of Service for vesting shall be determined by reference to each three hundred sixty five day period of service recognized under this Section 2.45, whether or not consecutive. (e) Notwithstanding any other provision of this Plan, service performed by Employees for employers other than the Company or Affiliated Companies may be taken into account in computing service for any purpose of this Plan to the extent and in the manner determined by resolution of the Committee in its sole discretion. (f) Notwithstanding any other provision of this Plan, service performed for an Affiliated Company prior to such entity becoming an Affiliated Company may be taken into account for purposes of computing service for any purpose of this Plan to the extent and in the manner determined by resolution of the Board of Directors of the Company in its sole discretion. (g) In the case of a Participant who was actively employed by Tyco Toys, Inc. or its affiliates on the date of acquisition of Tyco Toys, Inc. by the Company, service performed by such Participant for Tyco Toys, Inc. and its affiliates for periods prior to 17 the date of such acquisition shall be taken into account for purposes of determining such Participant's vested interest in his Accounts under this Plan. (h) In the case of a Participant who was actively employed by PrintPaks, Inc. or its affiliates on the date of acquisition of PrintPaks, Inc. by the Company, service performed by such Participant for PrintPaks, Inc. and its affiliates for periods prior to the date of such acquisition shall be taken into account for purposes of determining such Participant's vested interest in his Accounts under this Plan. (i) In the case of a Participant who was actively employed by Pleasant Company or its affiliates on the date of acquisition of Pleasant Company by the Company, service performed by such Participant for Pleasant Company and its affiliates for periods prior to the date of such acquisition shall be taken into account for purposes of determining such Participant's vested interest in his Accounts under this Plan. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility to Participate. -------------------------- (a) Every Eligible Employee who is not a Murray Hourly Employee shall become eligible to participate in the Plan on the date he becomes an Eligible Employee. Every Eligible Employee who is a Murray Hourly Employee shall become eligible to participate in the Plan on the later of (i) the date he becomes an Eligible Employee or (ii) the date he completes ninety (90) days of service. (b) If an Eligible Employee ceases to be an Eligible Employee he shall again become eligible to participate in the Plan on the date he again becomes an Eligible Employee. (c) Notwithstanding the preceding rules of this Section 3.1, the actual date upon which an Employee will commence participation will be determined pursuant to the rules of Section 3.2. 3.2 Commencement of Participation. ----------------------------- (a) Each Eligible Employee shall be entitled automatically to commence participation in this Plan with respect to the Company Contributions described in Section 6.1(a) and (b). 18 (b) From January 1, 1987 to June 30, 1988, each Eligible Employee shall be entitled to commence Employee contributions as set forth in Article V and Company Matching Contributions as set forth in Section 6.1(d) on the January 1 after their Employment Commencement Date. (c) Effective July 1, 1988, each Eligible Employee shall be entitled to commence After-Tax Contributions and Company Matching Contributions as set forth in Section 6.1(d) as of the date he becomes an Eligible Employee. (d) Effective January 1, 1989, each Eligible Employee shall be entitled to commence Before-Tax Contributions and Company Matching Contributions as set forth in Section 6.1(d) as of the date he becomes an Eligible Employee. (e) The Committee may prescribe such rules as it deems necessary or appropriate regarding times and procedures for Participants to make elections to contribute a portion of Compensation as provided in Section 5.1. 3.3 Former Participants in F-P Savings Plan. --------------------------------------- Notwithstanding anything in this Article to the contrary, any individual who was a participant in the F-P Savings Plan on March 31, 1997 shall automatically become a Participant in this Plan effective as of April 1, 1997. 3.4 Former Participants in Tyco Plan. -------------------------------- Notwithstanding anything in this Article to the contrary, any individual who was a participant in the Tyco Plan on December 31, 1997, shall automatically become a Participant in this Plan effective as of January 1, 1998. 3.5 Former Participants in PrintPaks Plan. ------------------------------------- Notwithstanding anything in this Article to the contrary, any individual who was a participant in the PrintPaks Plan on February 28, 1998, shall automatically become a Participant in this Plan effective as of March 1, 1998. 3.6 Former Participants in Pleasant Plan. ------------------------------------ Notwithstanding anything in this Article to the contrary, any individual who was a participant in the Pleasant Plan on September 30, 2001, shall automatically become a Participant in this Plan effective as of October 1, 2001. 19 ARTICLE IV TRUST FUND 4.1 Trust Fund. ---------- (a) The Company has entered into a Trust Agreement for the establishment of a Trust to hold the assets of the Plan. Simultaneously with the establishment of this Plan the Company shall pay to the Trustee a specified sum of money as its initial contribution to the Trust Fund. The Trustee shall acknowledge receipt of this contribution and shall agree to hold and administer this contribution together with such additional funds and assets that may be subsequently deposited with the Trustee pursuant to the terms of this Plan. (b) The Trust Fund is authorized to invest in either Company Stock or such other assets as the Committee or the Investment Manager (if applicable) may direct. Participants may direct the investment of the assets in their Accounts in the Trust Fund from among the acceptable investment alternatives which the Committee may from time to time make available. (c) The Committee shall not be required to engage in any transaction, including without limitation, directing the purchase or sale of Company Stock, which it determines in its sole discretion, might tend to subject itself, its members, the Plan, the Company, or any Participant to liability under federal or state securities law. ARTICLE V EMPLOYEE CONTRIBUTIONS 5.1 Employee Contributions. ---------------------- In accordance with rules which the Committee shall prescribe from time to time, each Participant shall be given an opportunity to elect to have a percentage of his or her Compensation contributed to the Plan. A contribution election by a Participant shall remain in effect from year to year (notwithstanding salary or wage rate changes) until changed by the Participant. Effective January 1, 1987, at the election of the Participant, contributions shall be made as Before-Tax Contributions, After-Tax Contributions or a combination thereof. 20 5.2 Amount Subject to Election. -------------------------- (a) Effective for Plan Years commencing on and after January 1, 1989, but prior to January 1, 1997, and for the period January 1, 1997 through March 31, 1997, subject to the limitations of this Article V, the amount of an individual's Compensation that may be contributed subject to the election provided in Section 5.1 shall be a whole percentage of the individual's Compensation, which percentage is not less than one percent (1%) nor more than the difference between (i) the Participant's Company Contributions percentage determined under Section 6.1(a) and (ii) seventeen percent (17%). (b) Effective April 1, 1997, but prior to January 1, 2002, subject to the limitations of this Article V, the amount of a Participant's Compensation that may be contributed subject to the election provided in Section 5.1 shall be a whole percentage of the Participant's Compensation, which percentage is not less than one percent (1%) nor more than: (i) in the case of a Participant employed by Fisher-Price, Inc. or the Mattel Operations-East Aurora, Mattel Operations-Medina or Mattel Operations- Murray divisions, fifteen percent (15%); and (ii) in the case of any other Participant, the difference between (x) the Participant's Company Contributions percentage determined under Section 6.1(a) and (y) seventeen percent (17%). (c) Effective January 1, 2002, subject to the limitations of Article V, the amount of a Participant's Compensation that may be contributed subject to the election provided in Section 5.1 shall be a whole percentage of the Participant's Compensation, which percentage is not less than one percent (1%) nor more than (i) in the case of a Highly Compensated Employee, twenty percent (20%) or (ii) in the case of a Participant who is not a Highly Compensated Employee, eighty percent (80%). (d) No Participant shall be permitted to make Before-Tax Contributions in excess of the Deferral Limitation. Any election by a Participant to make Before-Tax Contributions shall be deemed to include an election to automatically substitute After-Tax Contributions for such Before-Tax Contributions, effective for the period starting on the date immediately following 21 December 31. In the event a Participant's Before-Tax Contributions exceed the Deferral Limitation, excess contributions shall be subject to the provisions of Section 5.6. (e) For purposes of satisfying one of the tests described under Section 5.4 and Section 6.3, the Committee may prescribe such rules as it deems necessary or appropriate regarding the maximum amount that a Participant may elect to contribute and the timing of such an election. These rules may prescribe a maximum percentage of Compensation that may be contributed, or may provide that the maximum percentage of Compensation that a Participant may contribute will be a lower percentage of his Compensation above a certain dollar amount of Compensation than the maximum deferral percentage below that dollar amount of Compensation. These rules shall apply to all individuals eligible to make the election described in Section 5.1, except to the extent that the Committee prescribes special or more stringent rules applicable only to Highly Compensated Employees. (f) Notwithstanding the foregoing, all employees who are eligible to make Before-Tax Contributions under this Plan and who have attained age fifty (50) before the close of a Plan Year shall be eligible to make catch- up contributions during such Plan Year in accordance with, and subject to the limitations of, Code Section 414(v). Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Section 402(g) and 415 of the Code. The Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b) or 416 of the Code, as applicable, by reason of the making of such catch-up contributions. 5.3 Termination of, Change in Rate of, or Resumption of Deferrals. ------------------------------------------------------------- (a) A Participant may at any time submit a request to the Committee to terminate his contributions made pursuant to this Article V. (b) A Participant may at any time (but not more frequently than once every two weeks) submit a request to the Committee to alter the rate of, or resume his contributions made pursuant to this Article V. (c) A request for termination, alteration, or resumption or alteration of the rate of contributions shall be in form satisfactory to the Committee. The Committee may 22 require at least thirty (30) days notice prior to commencement of the payroll period for which such change is to be effective. 5.4 Limitation on Before-Tax Contributions by Highly Compensated Employees. ---------------------------------------------------------------------- With respect to each Plan Year, Participant Before-Tax Contributions under the Plan for the Plan Year shall not exceed the limitations on contributions on behalf of Highly Compensated Employees under Section 401(k) of the Code, as provided in this Section. In the event that Before-Tax Contributions under this Plan on behalf of Highly Compensated Employees for any Plan Year exceed the limitations of this Section for any reason, such excess contributions and any income allocable thereto shall be returned to the Participant or recharacterized as Participant After-Tax Contributions, as provided in Section 5.5. (a) The Before-Tax Contributions by a Participant for a Plan Year shall satisfy the Average Deferral Percentage test set forth in (i)(A) below, or the alternative Average Deferral Percentage test set forth in (i)(B) below. To the extent required by regulations under Code Section 401(m), the Before-Tax Contributions by a Participant for any Plan Year ending prior to January 1, 2002, also shall satisfy the test identified in (ii) below. (i) (A) The "Actual Deferral Percentage" for Eligible Employees who are Highly Compensated Employees for a Plan Year shall not be more than the "Actual Deferral Percentage" of all other Eligible Employees for the Comparison Year multiplied by 1.25, or (i) (B) The excess of the "Actual Deferral Percentage" for Eligible Employees who are Highly Compensated Employees for a Plan Year over the "Actual Deferral Percentage" for all other Eligible Employees for the Comparison Year shall not be more than two (2) percentage points, and the "Actual Deferral Percentage" for Eligible Employees who are Highly Compensated Employees for a Plan Year shall not be more than the "Actual Deferral Percentage" of all other Eligible Employees for the Comparison Year multiplied by 2.00. (ii) The Average Contribution Percentage for any Plan Year ending prior to January 1, 2002 for Highly Compensated Employees eligible to participate in this Plan and a plan of the Company or an Affiliated 23 Company that is subject to the limitations of Section 401(m) of the Code including, if applicable, this Plan, shall be reduced in accordance with Section 6.4, to the extent necessary to satisfy the requirements of Treasury Regulations Section 1.401(m)-2. The multiple use test described in Treasury Regulations Section 1.401(m)-2 shall not apply for Plan Years beginning after December 31, 2001. The "Comparison Year" is the Plan Year being tested. (b) For the purposes of the limitations of this Section 5.4, the following definitions shall apply: (i) "Actual Deferral Percentage" means, with respect to Eligible Employees who are Highly Compensated Employees and all other Eligible Employees for a Plan Year, the average of the ratios, calculated separately for each Eligible Employee in such group, of the amount of Before-Tax Contributions under the Plan allocated to each Eligible Employee for such Plan Year to such Employee's "Compensation" for such Plan Year. An Eligible Employee's Before-Tax Contributions may be taken into account for purposes of determining his Actual Deferral Percentage for a particular Plan Year only if such Before-Tax Contributions relate to Compensation that either would have been received by the Eligible Employee in the Plan Year (but for the deferral election), or is attributable to services performed in the Plan Year and would have been received by the Eligible Employee within two and one-half (2 1/2) months after the close of the Plan Year (but for the deferral election), and such Before-Tax Contributions are allocated to the Eligible Employee as of a date within that Plan Year. For purposes of this rule, an Eligible Employee's Before-Tax Contributions shall be considered allocated as of a date within a Plan Year only if (A) the allocation is not contingent upon the Eligible Employee's participation in the Plan or performance of services on any date subsequent to that date, and (B) the Before-Tax Contribution is actually paid to the Trust no later than the end of the twelve month period immediately following the Plan Year to which the contribution relates. To the extent determined by the Committee and in accordance with regulations issued by the Secretary of the Treasury, contributions on behalf of an 24 Eligible Employee that satisfy the requirements of Code Section 401(k)(3)(C)(ii) may also be taken into account for the purpose of determining the Actual Deferral Percentage of such Eligible Employee. (ii) "Compensation" means Compensation determined by the Committee in accordance with the requirements of Section 414(s) of the Code, including, to the extent elected by the Committee, amounts deducted from an Employee's wages or salary that are excludable from income under Sections 125, 129, 132(f)(4) or 402(a)(8) of the Code. (c) In the event that as of the last day of a Plan Year this Plan satisfies the requirements of Section 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans which include arrangements under Code Section 401(k), then this Section 5.4 shall be applied by determining the Actual Deferral Percentages of Eligible Employees as if all such plans were a single plan, in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. (d) For the purposes of this Section, the Actual Deferral Percentage for any Highly Compensated Employee who is a participant under two or more Code Section 401(k) arrangements of the Company or an Affiliated Company shall be determined by taking into account the Highly Compensated Employee's Compensation under each such arrangement and contributions under each such arrangement which qualify for treatment under Code Section 401(k), in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. (e) For purposes of this Section, the amount of Before-Tax Contributions by a Participant who is not a Highly Compensated Employee for a Plan Year shall be reduced by any Before-Tax Contributions in excess of the Deferral Limitation which have been distributed to the Participant under Section 5.6, in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. (f) The determination of the Actual Deferral Percentage of any Participant shall be made after applying the provisions of Section 14.5 relating to certain limits on Annual Additions under Section 415 of the Code. 25 (g) The determination and treatment of Before-Tax Contributions and the Actual Deferral Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (h) The Committee shall keep or cause to have kept such records as are necessary to demonstrate that the Plan satisfies the requirements of Code Section 401(k) and the regulations thereunder, in accordance with regulations prescribed by the Secretary of the Treasury. 5.5 Provisions for Disposition of Excess Before-Tax Contributions by Highly ----------------------------------------------------------------------- Compensated Employees. --------------------- (a) The Committee shall determine, as soon as is reasonably possible following the close of each Plan Year, the extent, if any, to which deferral treatment under Code Section 401(k) may not be available for Before-Tax Contributions by Highly Compensated Employees. If, pursuant to the determination by the Committee, any or all of a Participant's Before- Tax Contributions are not eligible for tax-deferral treatment, then any excess Before-Tax Contributions shall be disposed of in accordance with (i) below or any Excess Before-Tax Contribution and any income for the Plan Year ("Non-Gap Period Income") allocable thereto shall be disposed of in accordance with (ii) below. (i) To the extent permissible under Section 6.3, excess Before- Tax Contributions by the Highly Compensated Employee in a Plan Year may be recharacterized as After-Tax Contributions for the Plan Year not later than two and one-half (2-1/2) months following the close of the Plan Year. Any recharacterization shall be effective retroactive to the date of the Highly Compensated Employee's earliest Before-Tax Contributions during the Plan Year in which the excess Before-Tax Contributions were made. To the extent required by Treas. Reg. Section 1.401(k)-1(f)(3), Before-Tax Contributions recharacterized as After- Tax Contributions shall continue to be treated as Before-Tax Contributions for purposes of Article VIII. (ii) To the extent a Participant's Before-Tax Contributions cannot be recharacterized in accordance with (i) above, any excess Before-Tax Contributions (and any Non-Gap Period income allocable thereto) in a Plan Year 26 shall, if administratively feasible, be distributed to the Participant not later than two and one-half (2-1/2) months following the close of the Plan Year in which such excess Before-Tax Contributions were made, but in any event no later than the close of the first Plan Year following the Plan Year in which such excess Before-Tax Contributions were made after withholding any applicable income taxes due on such amounts. (b) For purposes of this Section, the amount of excess Before-Tax Contributions to be distributed to a Participant for a Plan Year or recharacterized shall be reduced by the amount of any Before-Tax Contributions in excess of the Deferral Limitation (for the Participant's taxable year that ends with or within the Plan Year) which have been distributed to the Participant under Section 5.6, in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. (c) The Committee shall determine the aggregate amount of any excess Before-Tax Contributions by Highly Compensated Employees for a Plan Year by application of the leveling method set forth in Treasury Regulation Section 1.401(k)-1(f)(2) under which the Deferral Percentage of the Highly Compensated Employee who has the highest Deferral Percentage for such Plan Year is reduced to the extent required (i) to enable the Plan to satisfy the Actual Deferral Percentage test, or (ii) to cause such Highly Compensated Employee's Deferral Percentage to equal the Deferral Percentage of the Highly Compensated Employee with the next highest Deferral Percentage. The recharacterization or distribution (as the case may be) of any excess Before-Tax Contributions shall be made on the basis of the dollar amounts (rather than the individual Deferral Percentages) of the Before-Tax Contributions by Highly Compensated Employees, beginning with the highest such amount. (d) For purposes of satisfying the Actual Deferral Percentage test, Non-Gap Period income allocable to a Participant's excess Before-Tax Contributions, as determined under (b) above, shall be determined in accordance with any reasonable method used by the Plan for allocating income to Participant Accounts, provided such method does not discriminate in favor of Highly Compensated Employees and is consistently applied to all Participants for all corrective distributions or recharacterizations under the Plan for a Plan Year. The Committee shall not be liable to 27 any Participant (or his Beneficiary, if applicable) for any losses caused by misestimating the amount of any Before-Tax Contributions in excess of the limitations of this Article V and any income allocable to such excess. (e) To the extent required by regulations under Section 401(k) or 415 of the Code, any excess Before-Tax Contributions with respect to a Highly Compensated Employee shall be treated as Annual Additions under Article XIV for the Plan Year for which the excess Before-Tax Contributions were made, notwithstanding the distribution or recharacterization of such excess in accordance with the provisions of this Section. 5.6 Provisions for Return of Annual Before-Tax Contributions in Excess of the ------------------------------------------------------------------------- Deferral Limitation. ------------------- (a) In the event that due to error or otherwise, a Participant's Before-Tax Contributions under this Plan exceed the Deferral Limitation for any calendar year (but without regard to amounts of compensation deferred under any other plan), the excess Before-Tax Contributions for the Plan Year, if any, together with any Non-Gap Period income allocable to such amount shall be distributed to the Participant on or before the first April 15 following the close of the calendar year in which such excess contribution is made. The amount of excess Before-Tax Contributions that may be distributed to a Participant under this Section for any taxable year shall be reduced by any excess Before-Tax Contributions previously distributed or recharacterized in accordance with Section 5.5 for the Plan Year beginning with or within such taxable year. (i) Income on Before-Tax Contributions in excess of the Deferral Limitation shall be calculated in accordance with Section 5.5(e), except calculations of allocable Non-Gap Period income shall be made with reference to the calendar year (if the Plan Year is not the calendar year). (ii) For the 1987 calendar year only, income shall be calculated on a reasonable and consistent basis; provided, however, if there is a loss allocable to the excess Before-Tax Contributions, the amount distributed shall be the excess amount adjusted to reflect such loss. (iii) The Committee shall not be liable to any Participant or his Beneficiary, if applicable, for any losses caused by misestimating the amount of 28 any Before-Tax Contributions in excess of the limitations of this Article V and any income allocable to such excess. (b) If in any calendar year a Participant makes Before-Tax Contributions under this Plan and additional elective deferrals, within the meaning of Code Section 402(g)(3), under any other plan maintained by the Company or an Affiliated Company, and the total amount of the Participant's elective deferrals under this Plan and all such other plans exceed the Deferral Limitation, the Company and each Affiliated Company maintaining a plan under which the Participant made any elective deferrals shall notify the affected plans in writing, and corrective distributions of the excess elective deferrals, and any income allocable thereto, shall be made from one or more such plans, to the extent determined by the Company and each Affiliated Company. The determination of the amount of a Participant's elective deferrals for any calendar year shall be made after applying the provisions of Section 14.5 relating to certain limits on Annual Additions under Section 415 of the Code. All corrective distributions of excess elective deferrals shall be made on or before the first April 15 following the close of the calendar year in which the excess elective deferrals were made. (c) In accordance with rules and procedures as may be established by the Committee, a Participant may submit a claim to the Committee in which he certifies in writing the specific amount of his Before-Tax Contributions for the preceding calendar year which, when added to amounts deferred for such calendar year under any other plans or arrangements described in Section 401(k), 408(k) or 403(b) of the Code (other than a plan maintained by the Company or an Affiliated Company), will cause the Participant to exceed the Deferral Limitation for the calendar year in which the deferral occurred. Any such claim must be submitted to the Committee no later than the March 1 of the calendar year following the calendar year of deferral. To the extent the amount specified by the Participant does not exceed the amount of the Participant's Before-Tax Contributions under the Plan for the applicable calendar year, the Committee shall treat the amount specified by the Participant in his claim as a Before-Tax Contribution in excess of the Deferral Limitation for such calendar year and return such excess and any income allocable thereto to the Participant, as provided in (a) above. In the event that for any reason such Participant's Before-Tax Contributions in excess of the Deferral Limitation 29 for any calendar year are not distributed to the Participant by the time prescribed in (a) above, such excess shall be held in the Participant's Before-Tax Contribution Account until distribution can be made in accordance with the provisions of this Plan. (d) To the extent required by regulations under Section 402(g) or 415 of the Code, Before-Tax Contributions with respect to a Participant in excess of the Deferral Limitation shall be treated as Annual Additions under Article XIV for the Plan Year for which the excess contributions were made, notwithstanding the distribution of such excess in accordance with the provisions of this Section. 5.7 Character of Amounts Contributed as Before-Tax Contributions. ------------------------------------------------------------ Unless otherwise specifically provided to the contrary in this Plan, amounts deferred pursuant to a Participant's election to make Before-Tax Contributions in accordance with Section 5.1 (and which qualify for treatment under Code Section 401(k) and are contributed to the Trust Fund pursuant to Article VI) shall be treated, for federal and state income tax purposes, as Participating Company contributions. 5.8 Participant Transfer/Rollover Contributions. ------------------------------------------- Effective as of an Eligible Employee's Employment Commencement Date, or such later date as may be determined by the Administrator, amounts, if any, distributed to such Eligible Employee or payable to such Eligible Employee from another plan that satisfies the requirements of Code Section 401(a), or held in an individual retirement account which is attributable solely to a rollover contribution within the meaning of Code Section 408(d)(3), may be transferred to this Plan, including by direct rollover from another plan that satisfies the requirements of Code Section 401(a), and credited to the Participant's Transfer/Rollover Account in accordance with Code Section 402 and rules which the Committee shall prescribe from time to time; provided, however, the Committee determines that the continued qualification of this Plan under Code Section 401(a) or 401(k) would not be adversely affected by such transfer, or would cause this Plan to become a "transferee plan," within the meaning of Code Section 401(a)(11). Effective January 1, 2002, amounts, if any, distributed to such Eligible Employee or payable to such Eligible Employee from (i) a qualified plan described in Section 401(a) or 403(a) of the Code (including after-tax employee contributions), (ii) an annuity contract described in Section 403(b) of the Code (excluding after-tax employee contributions), (iii) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency 30 or instrumentality of a state or political subdivision of a state, and (iv) an individual retirement account or annuity described in Section 408(a) or 408(b) of the Code that is eligible to be rolled over and would otherwise be includable in gross income, may be transferred to this Plan and credited to the Participant's Transfer/Rollover Account in accordance with Code Section 402 and rules which the Committee shall prescribe from time to time. Any amounts transferred in accordance with this Section 5.8, which shall be in cash, shall not be subject to distribution to the Participant except as expressly provided under the terms of this Plan. An Eligible Employee who prior to April 1, 1997 has transferred employment to the Company (or other Participating Company) from Fisher-Price, Inc., and who has elected to transfer directly to this Plan his entire account balance in the Fisher-Price, Inc. Matching Savings Plan in accordance with the terms of such plan, shall be permitted to transfer such account balance directly to this Plan. The transfer must be made in cash, except that any promissory note evidencing an outstanding loan to such Eligible Employee from the Fisher-Price, Inc. Matching Savings Plan may be transferred to this Plan in kind. Any transferred promissory note shall thereafter be repayable by the Participant to the Plan in accordance with its terms. Any amounts transferred from the Fisher-Price, Inc. Matching Savings Plan shall not be subject to distribution to the Participant except as expressly provided under the terms of this Plan. ARTICLE VI COMPANY CONTRIBUTIONS 6.1 General. ------- Subject to the requirements and restrictions of this Article VI and Article XIV, and subject also to the amendment or termination of the Plan or the suspension or discontinuance of contributions as provided herein, a Participating Company shall contribute for each Participant who is an Employee of such Participating Company, as follows: (a) In the case of a Participating Company other than Fisher-Price, Inc. and the Mattel Operations-East Aurora, Mattel Operations-Medina and Mattel Operations-Murray divisions, for each month of each Plan Year commencing on and after January 1, 1989 but prior to April 1, 1997, an amount to the Participant's Company Contributions Account equal to a percentage of the Participant's Compensation during such month 31 according to the Participant's attained age as of the last day of the preceding month, as follows: Age as of Last Day Percentage of of Preceding Month Compensation ------------------ ------------ Under 40 2% 40 - 44 4% 45 - 49 5% 50 - 54 6% 55+ 7% (b) In the case of a Participating Company other than Fisher-Price, Inc., the Mattel Operations-East Aurora, Mattel Operations-Medina and Mattel Operations-Murray divisions and the Pleasant Company, for each month of each Plan Year commencing on and after April 1, 1997, an amount to the Participant's Company Contributions Account equal to a percentage of the Participant's Compensation during such month according to the Participant's attained age as of the last day of the preceding month, as follows: Age as of Last Day of Preceding Month Percentage of Compensation ------------------ -------------------------- Under 30 3% 30 - 39 4% 40 - 44 5% 45 - 49 6% 50 - 54 7% 55+ 8% (c) An amount to the Participant's Before-Tax Contributions Account which is equal to the amount of the Participant's Before-Tax Contributions pursuant to Section 5.1 and which qualify for tax treatment under Code Section 401(k). (d) An amount to the Participant's Company Matching Account which is the sum of the amounts in (i) and (ii) below: (i) A dollar amount equal to the dollar amount of the first two percent (2%) of the sum of a Participant's Before-Tax and After-Tax Contributions pursuant to Section 5.1. 32 (ii) A dollar amount equal to 50% of the dollar amount of the next four percent (4%) of the sum of a Participant's Before-Tax and After-Tax Contributions pursuant to Section 5.1. The maximum Company Matching Contribution pursuant to this Section 6.1(d) shall be four percent (4%) of the Participant's Compensation (such Compensation to be determined prior to reduction for Before-Tax Contributions pursuant to Section 5.1). 6.2 Requirement for Net Profits. --------------------------- Contributions by a Participating Company shall be made without regard to current or accumulated profits for the year; provided, however, that the Plan is intended to be designed to qualify as a profit sharing plan for purposes of Sections 401(a) et. seq. of the Code. --- ---- 6.3 Special Limitations on After-Tax Contributions and Company Matching ------------------------------------------------------------------- Contributions. ------------- With respect to each Plan Year, After-Tax Contributions and Company Matching Contributions under the Plan for the Plan Year shall not exceed the limitations on contributions on behalf of Highly Compensated Employees under Section 401(m) of the Code, as provided in this Section. For purposes of this Section, excess Before-Tax Contributions recharacterized as After-Tax Contributions after the close of a Plan Year shall be treated as After-Tax Contributions in a Plan Year as provided in Section 5.5(a)(i). In the event that After-Tax Contributions and Company Matching Contributions under this Plan on behalf of Highly Compensated Employees for any Plan Year exceed the limitations of this Section for any reason, such excess contributions and any income allocable thereto shall be disposed of in accordance with Section 6.4. For purposes of this Section 6.3, the meaning of the term "Compensation" shall be as defined in Section 5.4(b). (a) After-Tax Contributions and Company Matching Contributions on behalf of Participants under Section 6.1(d) for a Plan Year shall satisfy the Average Contribution Percentage test set forth in (i)(A) below, or the Average Contribution Percentage test set forth in (i)(B) below: (i) (A) The "Average Contribution Percentage" for Eligible Employees who are Highly Compensated Employees for a Plan Year shall not be more than the "Average Contribution Percentage" of all other Eligible Employees for the Comparison Year multiplied by 1.25, or 33 (i) (B) The excess of the "Average Contribution Percentage" for Eligible Employees who are Highly Compensated Employees for a Plan Year over the "Average Contribution Percentage" for all other Eligible Employees for the Comparison Year shall not be more than two (2) percentage points, and the "Average Contribution Percentage" for Eligible Employees who are Highly Compensated Employees for a Plan Year shall not be more than the "Average Contribution Percentage" of all other Eligible Employees for the Comparison Year multiplied by 2.00. The "Comparison Year" is the Plan Year being tested. (ii) The Average Contribution Percentage for any Plan Year ending prior to January 1, 2002 for Highly Compensated Employees eligible to participate in this Plan and a plan of the Company or an Affiliated Company that satisfies the requirements of Section 401(k) of the Code, including, if applicable, this Plan, shall be reduced to the extent necessary to satisfy the requirements of Treasury Regulations Section 1.401(m)-2 or similar such rule. The multiple test described in Treasury Regulations Section 1.401(m)-2 shall not apply for Plan Years beginning after December 31, 2001. (b) For purposes of this Section, "Average Contribution Percentage" means, with respect to a group of Eligible Employees for a Plan Year, the average of the "Contribution Percentage," calculated separately for each Eligible Employee in such group. The "Contribution Percentage" for any Eligible Employee is determined by dividing the sum of After-Tax Contributions during the Plan Year and Company Matching Contributions under the Plan on behalf of each Eligible Employee for such Plan Year, by such Eligible Employee's Compensation for such Plan Year. "Company Matching Contributions" for purposes of the Average Contribution Percentage test shall include a Company Matching Contribution only if it is allocated to the Participant's Company Matching Contributions Account during the Plan Year and is paid to the Trust Fund by the end of the twelfth month following the close of the Plan Year. To the extent determined by the Committee and in accordance with regulations issued by the Secretary of the Treasury under Code Section 401(m)(3), the Before-Tax Contributions on behalf 34 of an Eligible Employee and any "qualified nonelective contributions," within the meaning of Code Section 401(m)(4)(c), on behalf of an Eligible Employee may also be taken into account for purposes of calculating the Contribution Percentage of such Eligible Employee, but shall not otherwise be taken into account. However, any Company Matching Contributions taken into account for purposes of determining the Actual Deferral Percentage of an Eligible Employee under Section 5.4(a) shall not be taken into account under this Section 6.3. (c) In the event that as of the last day of a Plan Year this Plan satisfies the requirements of Section 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Section 410(b) of the Code only if aggregated with this Plan, then this Section 6.3 shall be applied by determining the Contribution Percentages of Eligible Employees as if all such plans were a single plan, in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(m) of the Code. (d) For the purposes of this Section, the Contribution Percentage for any Eligible Employee who is a Highly Compensated Employee under two or more Code Section 401(a) plans of the Company or an Affiliated Company to the extent required by Code Section 401(m), shall be determined in a manner taking into account the participant contributions and matching contributions for such Eligible Employee under each of such plans. (e) The determination of the Contribution Percentage of any Participant shall be made after first applying the provisions of Section 14.5 relating to certain limits on Annual Additions under Section 415 of the Code, then applying the provisions of Section 5.6 relating to the return of Before-Tax Contributions in excess of the Deferral Limitation, then applying the provisions of Section 5.5 relating to certain limits under Section 401(k) of the Code imposed on Pre-Tax Contributions of Highly Compensated Employees, and last, applying the provisions of Section 6.5 relating to the forfeiture of Company Matching Contributions attributable to excess Before-Tax or After-Tax Contributions. 35 (f) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (g) The Committee shall keep or cause to have kept such records as are necessary to demonstrate that the Plan satisfies the requirements of Code Section 401(m) and the regulations thereunder, in accordance with regulations prescribed by the Secretary of the Treasury. 6.4 Provision for Return of Excess After-Tax Contributions and Company Matching --------------------------------------------------------------------------- Contributions on Behalf of Highly Compensated Employees. ------------------------------------------------------- (a) The Committee shall determine, as soon as is reasonably possible following the close of the Plan Year, the extent (if any) to which After- Tax and Company Matching Contributions on behalf of Highly Compensated Employees may cause the Plan to exceed the limitations of Section 6.3 for such Plan Year. If, pursuant to the determination by the Committee, After- Tax and Company Matching Contributions on behalf of a Highly Compensated Employee may cause the Plan to exceed such limitations, then the Committee shall take the following steps: (i) First, any excess After-Tax Contributions that were not matched by Company Matching Contributions, and any Non-Gap Period income allocable thereto, shall be distributed to the Highly Compensated Employee (after withholding any applicable income taxes on such amounts). (ii) Second, if any excess remains after the provisions of (i) above are applied, to the extent necessary to eliminate the excess, Company Matching Contributions on behalf of the Highly Compensated Employee, and any Non-Gap Period income allocable thereto, shall be forfeited, to the extent forfeitable under the Plan, or distributed to the Highly Compensated Employee, to the extent non-forfeitable under the Plan (after withholding any applicable income taxes on such amounts). Any corresponding After-Tax Contributions, and any Non-Gap Period income allocable thereto, shall be distributed to the Highly Compensated Employee (after withholding any applicable income taxes on such amounts). (iii) If administratively feasible, excess After-Tax Contributions and Company Matching Contributions which are nonforfeitable under the Plan, 36 including any Non-Gap Period income allocable thereto, shall be distributed to Highly Compensated Employees, or, to the extent forfeitable, forfeited, within two and one-half (2-1/2) months following the close of the Plan Year for which the excess Contributions were made, but in any event no later than the end of the first Plan Year following the Plan Year for which the excess Contributions were made, notwithstanding any other provision in this Plan. Amounts of excess Company Matching Contributions forfeited by Highly Compensated Employees under this Section, including any income allocable thereto, shall be applied, to the maximum extent practicable, to reduce Company Matching Contributions for the Plan Year for which such excess Contributions were made and thereafter shall be applied as soon as possible to reduce Company Matching Contributions for succeeding Plan Years. (b) The Committee shall determine the amount of any excess After-Tax Contributions and Company Matching Contributions made by or on behalf of Highly Compensated Employees for a Plan Year by application of the leveling method set forth in Treasury Regulation Section 1.401(m)-1(e)(2) under which the Contribution Percentage of the Highly Compensated Employee who has the highest such Contribution Percentage for such Plan Year is reduced, to the extent required (i) to enable the Plan to satisfy the Average Contribution Percentage test, or (ii) to cause such Highly Compensated Employee's Contribution Percentage to equal the Contribution Percentage of the Highly Compensated Employee with the next highest Contribution Percentage. The distribution or forfeiture (as the case may be) of any excess After-Tax Contributions or Company Matching Contributions shall be made on the basis of dollar amounts (rather than the individual Contribution Percentages) of the After-Tax Contributions and Company Matching Contributions by Highly Compensated Employees beginning with the highest such amounts. (c) For purposes of satisfying the Average Contribution Percentage test, Non-Gap Period income allocable to a Participant's excess After-Tax Contributions or Company Matching Contributions, as determined under (b) above, shall be determined by applying procedures comparable to those provided under Section 5.5. 37 (d) To the extent required by regulations under Section 414(m) or 415 of the Code, any excess After-Tax Contributions or matching Company Contribution forfeited by or distributed to a Highly Compensated Employee in accordance with this Section shall be treated as an Annual Addition under Article XIV for the Plan Year for which the excess contribution was made, notwithstanding such forfeiture or distribution. 6.5 Forfeiture of Company Matching Contributions Attributable to Excess ------------------------------------------------------------------- Deferrals or Contributions. -------------------------- To the extent any Company Matching Contributions allocated to a Participant's Company Matching Contributions Account are attributable to excess Before-Tax Contributions required to be distributed to the Participant in accordance with Section 5.5 or 5.6, or excess After-Tax Contributions required to be distributed to the Participant in accordance with Section 6.4, such Company Matching Contributions, including any Non- Gap Period income allocable thereto, shall be forfeited, notwithstanding that such Company Matching Contributions may otherwise be nonforfeitable under the terms of the Plan. Any Company Matching Contributions forfeited by a Participant in accordance with this Section 6.5 shall be applied to reduce Company Matching Contributions. 6.6 Investment and Application of Plan Contributions. ------------------------------------------------ (a) Subject to the provisions of Section 4.1(b), all contributions to the Trust Fund under Section 6.1 (including Before-Tax Contributions) and Participant After-Tax Contributions under Section 5.1 shall be invested as provided in this Section 6.6, subject to such rules as the Committee may adopt, in its sole discretion, to implement the provisions of this Section 6.6. The Committee may establish a choice of investment alternatives for Accounts from which each Participant may select in determining the manner in which his Account will be invested. In its sole discretion, the Committee may establish an investment alternative consisting of Company Stock. If investment alternatives are established in accordance with this Section 6.6, the following provisions of this Section 6.6 shall apply, including, in the event the Committee establishes a Company Stock alternative, the limitations of (iv) below and the provisions of Article X relating to investments in Company Stock. (i) A Participant may elect at any time to change an investment election with respect to the allocation of future contributions made by him or on 38 his behalf (such election to apply to all such contributions without regard to any distinction between Company contributions or Participant contributions) among the investment alternatives. The Committee may require at least thirty (30) days notice prior to the commencement of the payroll period for which such change is to be effective. Any such election shall be made in any whole percentage, subject to the provisions of Subsection (iv) below. (ii) Separate Trust Fund Subaccounts shall be established for each investment alternative selected by a Participant, and each such Subaccount shall be valued separately. (iii) A Participant may elect twice per calendar quarter to change the investment of his Accounts and reallocate such Accounts among the investment alternatives in any whole percentage, subject to the limitations of (iv) below. Subject to such rules as the Committee may prescribe, any such election to change shall be effective as soon as practical following receipt of the Participant's election. Any such change shall be implemented by the Committee in accordance with practices and procedures established by the Committee to provide for the orderly liquidation and/or purchase of investments. (iv) If a Company Stock alternative is established by the Committee, each Participant may elect to invest up to a maximum of fifty percent (50%) of contributions made by him or on his behalf (such limitation to apply to all contributions without regard to any distinction between Company contributions and Participant contributions) in the Company Stock alternative in accordance with this Section 6.6; provided, however, that the 50% limitation shall not apply to Company Stock held in the F-P Savings Plan on March 31, 1997 and transferred to this Plan on April 1, 1997. Such a Participant may also elect to transfer amounts from his Accounts held in other investment alternatives to the Company Stock alternative in accordance with this Section 6.6, provided, however, that no such transfer shall be implemented to the extent that such transfer would result in the value of the Participant's interest in the Company Stock Fund exceeding fifty percent (50%) of the value of his interest in all investment alternatives held under the Plan. Notwithstanding the preceding 39 sentence, neither the Company nor the Committee, nor any representative of the Company, the Committee or of the Plan shall have any obligation to monitor the value of a Participant's interest in the Company Stock Fund, or to manage said fund, and no person shall or shall have any authority to dispose of any Participant's interest in the Company Stock Fund except in accordance with a Participant's valid election or otherwise in accordance with express provisions of this Plan. (v) In the case of a Participant who fails to make an effective election, for any reason whatsoever, as to how all or any portion of his interest therein shall be invested, the Committee shall prescribe rules which shall require that the Accounts of such Participant be invested in the stable asset fund. 6.7 Irrevocability. -------------- A Participating Company shall have no right or title to, nor interest in, the contributions made to the Trust Fund, and no part of the Trust Fund shall revert to the Participating Company except that on and after the Effective Date funds may be returned to a Participating Company as follows: (a) In the case of a Participating Company contribution which is made by a mistake of fact, that contribution may be returned to the Participating Company within one (1) year after it is made. (b) All contributions to the Trust Fund are conditioned on deductibility under Code Section 404. In the event deduction is disallowed for any such contribution, such contribution may be returned to the Participating Company. 6.8 Company, Committee and Trustee Not Responsible for Adequacy of Trust Fund. ------------------------------------------------------------------------- The Company, Committee and Trustee shall not be liable or responsible for the adequacy of the Trust Fund to meet and discharge any or all payments and liabilities hereunder. All Plan benefits will be paid only from the Trust assets, and neither the Company, the Committee nor the Trustee shall have any duty or liability to furnish the Trust with any funds, securities or other assets except as expressly provided in the Plan. Except as required under the Plan or Trust or under Part 4 or Title I of ERISA, the Company shall not be responsible for any decision, act or omission of the Trustee, the Committee, or the Investment Manager (if applicable), and shall not 40 be responsible for the application of any moneys, securities, investments or other property paid or delivered to the Trustee. ARTICLE VII PARTICIPANT ACCOUNTS AND ALLOCATIONS 7.1 General. ------- (a) All contributions under this plan shall be held in the Trust Fund. (b) All gains, losses, dividends and other property acquisitions and/or transfers that occur with respect to the Trust Fund shall be held, charged, credited, debited or otherwise accounted for under said fund on an unallocated basis until allocated to Participants' Accounts as of a Valuation Date as provided under this Plan or otherwise used or applied in accordance with the provisions of this Plan. 7.2 Participants' Accounts. ---------------------- In order to account for the allocated interest of each Participant in the Trust Fund, there shall be established and maintained the Accounts described in Section 2.1. 7.3 Revaluation of Participants' Accounts. ------------------------------------- As of each Valuation Date, the Accounts of each Participant shall be revalued so as to reflect a proportionate share in any increase or decrease in the fair market value of the assets in the Trust Fund as of that date as compared with the value of the assets in the Trust Fund as of the immediately preceding Valuation Date. The valuation and allocation provisions of this Section 7.3 shall be applied and implemented in accordance with the following rules: (a) As of each Valuation Date the Accounts holding such assets shall be revalued so as to reflect to each such Account a proportionate share in the net income or loss of the assets since the immediately preceding Valuation Date. (b) The Company, Committee and Trustee do not in any manner or to any extent whatsoever warrant, guarantee or represent that the value of a Participant's Accounts shall at any time equal or exceed the amount previously contributed thereto. 7.4 Treatment of Accounts Following Termination of Employment. --------------------------------------------------------- Following a Participant's termination of employment, pending distribution of the Participant's Distributable Benefit pursuant to the provisions of Article VIII below, the 41 Participant's Plan Accounts shall continue to be maintained and accounted for in accordance with all applicable provisions of this Plan. 7.5 Accounting Procedures. --------------------- The Committee and the Trustee shall establish accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants' Accounts provided for in this Article VII. From time to time the Committee and Trustee may modify such accounting procedures for the purpose of achieving equitable, nondiscriminatory, and administratively feasible allocations among the Accounts of Participants in accordance with the general concepts of the Plan and the provisions of this Article VII. ARTICLE VIII VESTING; PAYMENT OF PLAN BENEFITS 8.1 Vesting. ------- Each Participant's vested interest in his Accounts shall be determined as follows: (a) Each Participant shall at all times be one hundred percent (100%) vested in his Before-Tax Contributions Account, his After-Tax Contributions Account and his Transfer/Rollover Account under the Plan. (b) Except as provided in (c) and (d) below, each Participant shall become vested in his Company Matching Account and his Company Contributions Account according to the applicable table set forth below: Except as provided in the next paragraph, the applicable table is as follows (the "3-Year Vesting Schedule"): Number of Vesting Years of Service Percentage ---------------- ---------- Less than 3 0% 3 or more 100% provided, however, if the Participant was eligible to participate in the -------- ------- Plan before April 1, 2000 and has two (2) Years of Service as of April 1, 2000, the 3-Year Vesting Schedule shall be modified as follows: 42 Number of Vesting Years of Service Percentage ---------------- ---------- Less than 2 0% 2 25% 3 or more 100% Notwithstanding the foregoing, if the Participant participated in the Plan before April 1, 2000 and is not an Employee on April 1, 2000, the Participant's vested interest (if any) in his Company Matching Account and his Company Contributions Account shall be determined under the following table (the "5-Year Vesting Schedule"): Number of Vesting Years of Service Percentage ---------------- ---------- Less than 2 0% 2 25% 3 50% 4 75% 5 or more 100% The 3-Year Vesting Schedule shall not apply to such Participant until such Participant resumes employment as an Employee after April 1, 2000, in which event: (i) The 3-Year Vesting Schedule shall apply to the portion of his Company Matching Account and his Company Contributions Account that is attributable to his post-March 31, 2000 participation in the Plan (if any); and (ii) The 3-Year Vesting Schedule shall apply to the remainder of his Company Matching Account and his Company Contributions Account only (A) if the 5-Year Vesting Schedule had not been applied to forfeit any of his Company Matching Account or his Company Contributions Account prior to his resumption of employment or (B) if the 5-Year Vesting Schedule had been so applied, there has been a restoration of the resulting forfeited amount pursuant to Section 8.15(b) following his resumption of employment. (c) Notwithstanding the foregoing, each Participant who completed an Hour of Service prior to July 1, 1989 shall at all times be one hundred percent (100%) vested in his Company Contributions Account. (d) Notwithstanding the foregoing, each Participant who was eligible to participate in the F-P Savings Plan on March 31, 1997, shall at all times be one hundred percent (100%) vested in his Company Matching Account. 43 (e) Additionally a Participant shall become one hundred percent (100%) vested in his Company Matching Account and his Company Contributions Account upon attainment of Normal Retirement Date while an Employee, or in the event of death or Total and Permanent Disability while an Employee. (f) Notwithstanding the foregoing, each Participant who was a participant in the Tyco Plan on January 1, 1998, shall at all times be one hundred percent (100%) vested in his Tyco Before-Tax Contributions Account and his Tyco Company Matching Account. (g) Notwithstanding the foregoing, each Participant who was a participant in the PrintPaks Plan on January 31, 1999, shall at all times be one hundred percent (100%) vested in his PrintPaks Before-Tax Contributions Account and his PrintPaks Company Matching Account. (h) Notwithstanding the foregoing, each Participant who was a participant in the Fort Wayne Plan on December 14, 2000, shall at all times be one hundred percent (100%) vested in his Fort Wayne Plan Before-Tax Contributions Account, his Fort Wayne Plan Company Matching Account and his Fort Wayne Plan Nonelective Account. (i) Notwithstanding the foregoing, each Participant who was a participant in the Pleasant Plan on September 30, 2001, shall at all times be one hundred percent (100%) vested in his Pleasant Plan Nonelective Contributions Account. (j) Additionally, each Participant who (i) was employed at the Mattel- Customer Care Center, Phoenix, Arizona division of the Company on March 27, 2001, (ii) was employed at the Mattel Operations-Murray division of the Company on April 3, 2001 or (iii) was employed at the Mattel-Hebron, Kentucky division of the Company on April 24, 2001 shall at all times be one hundred percent (100%) vested in his Company Matching Account and his Company Contributions Account. 8.2 Distribution Upon Retirement. ---------------------------- (a) A Participant may retire from the employment of the Company on his Normal Retirement Date. Subject to the required distribution rules under (b) below, if the Participant continues in the service of the Company beyond his Normal Retirement Date, he shall continue to participate in the Plan in the same manner as Participants who have not reached their Normal Retirement Dates. At the subsequent termination of the 44 Participant's employment on his late retirement date, his Distributable Benefit shall be based upon the value of his Accounts as of the applicable Valuation Date determined with reference to the date of distribution. After a Participant has reached his Normal Retirement Date, any termination of the Participant's employment (other than by reason of death or disability) shall be deemed a Normal Retirement. (b) Upon Normal Retirement a Participant shall be entitled to a distribution of his Distributable Benefit in the Trust Fund. Such distribution shall be made or commence to be made as soon as practicable but no later than the sixtieth day after the close of the Plan Year in which occurs the Participant's termination of employment with the Company and all Affiliated Companies, unless a later date is specified by the Participant in a written election filed with the Plan Administrator on or after April 1, 1997. Notwithstanding the foregoing, in the case of a Participant who is a "5-percent owner" (within the meaning of Section 401(a)(9) of the Code) distribution shall be made or commence to be made not later than April 1 following the calendar year in which such Participant attains age 70-1/2, whether or not the Participant's employment has terminated. (c) With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2002, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed on January 17, 2001, notwithstanding any provision of the Plan to the contrary. This provision shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Section 401(a)(9) or such other date as may be specified in guidance published by the Internal Revenue Service. 8.3 Distribution Upon Death Prior to Termination of Employment. ---------------------------------------------------------- (a) Upon the death of a Participant during his employment the Committee shall direct the Trustee to make a distribution of the Participant's Distributable Benefit in the Trust Fund in a single lump sum to the Beneficiary designated by the deceased Participant, or as otherwise determined under Section 8.9. (b) Distribution as provided in Section 8.3(a) shall be made as soon as practicable but in no event later than sixty (60) days after the close of the Plan Year in 45 which all facts required by the Committee to be established as a condition of payment shall have been established to the satisfaction of the Committee (provided that, to the extent required by Section 401(a)(9) of the Code, his entire Distributable Benefit shall be distributed within five (5) years of such Participant's death). 8.4 Death After Termination of Employment. ------------------------------------- (a) Upon the death of a former Participant after his retirement or other termination of employment, but prior to the distribution of his entire Distributable Benefit in the Trust Fund to which he is entitled, the Committee shall direct the Trustee to make a distribution of the balance to which the deceased Participant was entitled, in a single lump sum, to the Beneficiary designated by the deceased Participant or as otherwise determined under Section 8.9. (b) Distribution as provided in Section 8.4(a) shall be made as soon as practicable but in no event later than sixty (60) days after the close of the Plan Year in which all facts required by the Committee to be established as a condition of payment shall have been established to the satisfaction of the Committee (provided that, to the extent required by Section 401(a)(9) of the Code, his entire Distributable Benefit shall be distributed within five (5) years of such Participant's death). 8.5 Termination of Employment Prior to Normal Retirement Date. --------------------------------------------------------- (a) Subject to the provisions of Section 8.5(b) below, if a Participant's employment for the Company and all Affiliated Companies terminates prior to his Normal Retirement Date, his Distributable Benefit in the Trust Fund shall be paid as soon as administratively feasible following his Normal Retirement Date, unless a later date is specified by the Participant in a written election filed with the Plan Administrator on or after April 1, 1997. Unless elected otherwise, in no event shall such distribution be later than sixty (60) days after the close of the Plan Year in which occurs the Participant's Normal Retirement Date. Notwithstanding the foregoing, in the case of a Participant who is a "5-percent owner" (within the meaning of Section 401(a)(9) of the Code) distribution shall be made or commence to be made not later than April 1 following the calendar year in which such Participant attains age 70-1/2. (b) If the Participant makes a valid written election in accordance with (c) below, payment of his Distributable Benefit pursuant to this Section 8.5 may be made 46 on an earlier date which is not later than sixty (60) days after the close of the Plan Year in which occurs the later of (i) the Participant's termination of employment with the Company and all Affiliated Companies, or (ii) a date specified by the Participant in the valid written election filed by the Participant, on or after April 1, 1997, to the extent administratively feasible. For purposes of Section 72(t) of the Code, any distribution to a Participant in accordance with this Section 8.5 during or following the year in which he attains age fifty-five (55) shall be deemed to be on account of an event enumerated in Code Section 72(t)(2). (c) Effective as of January 1, 1989, any written election by a Participant to receive payment of his Distributable Benefit prior to Normal Retirement Date shall not be valid unless such election is made both (A) after the Participant receives a written notice advising him of his right to defer payment to Normal Retirement Date and (B) within the ninety (90) day period ending on the Participant's "Benefit Starting Date." The notice to the Participant advising him of his right to defer payment shall be given no less than thirty (30) nor more than ninety (90) days prior to the Participant's Benefit Starting Date. For purposes of this Subsection (c), "Benefit Starting Date" shall mean the first day of the first period for which the Participant's Distributable Benefit is paid. Notwithstanding the foregoing, payment of the Participant's Distributable Benefit may commence less than thirty (30) days after receipt of the notice, provided that the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect to receive payment and the Participant, after receiving the notice, affirmatively elects to receive payment. (d) In the event a Participant is not fully vested in all of his Company Contributions Account or Company Matching Account under the Plan, the portion of such Accounts which is not vested shall be forfeited as of the earlier of the date the vested portion of such Accounts is completely distributed to him or the date he incurs five (5) consecutive one-year Periods of Severance. (e) Notwithstanding the foregoing, if a Participant ceases to be an Employee by reason of the disposition by the Company or an Affiliated Company of either (i) substantially all of the assets used by the Company or an Affiliated Company, as the 47 case may be, in a trade or business, or (ii) the interest of the Company or an Affiliated Company, as the case may be, in a subsidiary, such Participant shall be entitled to distribution of his Distributable Benefit as if, for purposes of this Plan only, such event constitutes a termination of employment. 8.6 Withdrawals. ----------- (a) Subject to the succeeding provisions of this Section 8.6, while he is still an Eligible Employee, a Participant may withdraw amounts from his Accounts under the Plan; provided, however, that not more than one withdrawal may be made by a Participant from his Accounts within any single quarter of a Plan Year and a withdrawal must be for at least $200 (or the entire amount available for withdrawal, if less). A withdrawal other than on account of Hardship shall be made from the Participant's Accounts in the following order, in each case up to the amount available for withdrawal in such Accounts (i) After-Tax Contributions Account; (ii) Transfer/Rollover Account; and (iii) Company Matching Account. Payment of a withdrawal shall be made only in cash and shall be allocated pro rata among the Participant's investment fund subaccounts, including any Company Stock subaccount. In no event may any amount be withdrawn by a Participant after he ceases to be an Eligible Employee. (b) A withdrawal from a Participant's Transfer/Rollover Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that, except in the case of a Participant who is determined to have a Total and Permanent Disability and who is ineligible to make further contributions under Section 5.1, no amount representing Employee contributions made within the preceding six months to the Mattel Investment Plan which were matched by Company matching contributions under said Plan may be withdrawn from such Account; and provided further, that unless the Participant has completed an aggregate of at least sixty (60) months of participation in this Plan and the Mattel Investment Plan as of the date of withdrawal or has attained age 59-1/2 or is determined by the Committee to have a Total and Permanent Disability, the withdrawal shall not include amounts attributable to Company contributions made under the Mattel Investment Plan within the two (2) year period preceding withdrawal. 48 (c) A withdrawal from a Participant's After-Tax Contribution Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that except in the case of a Participant who is determined to have a Total and Permanent Disability and who is ineligible to make further contributions under Section 5.1, no amount representing After-Tax Contributions made within the preceding six months to the Plan which were matched by Company Matching Contributions may be withdrawn from such Account. (d) A withdrawal from a Participant's Before-Tax Contributions Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that no Participant may make a withdrawal from his Before-Tax Contributions Account prior to attaining age 59-1/2, or a determination by the Committee that such Participant has a Total and Permanent Disability or that the withdrawal is necessary to relieve a hardship of the Participant or his family. A Participant may receive a withdrawal due to hardship only if the withdrawal both is made due to an immediate and heavy financial need of the Participant within the meaning of (i) below and is necessary to satisfy such financial need within the meaning of (ii) below. (i) For purposes of this Section 8.6(d), a withdrawal will be considered to be on account of an immediate and heavy financial need of the Participant only if the withdrawal is for: (A) expenses for medical care described in Code Section 213(d) previously incurred by the Participant, or his Spouse or dependents (as defined in Code Section 152), or expenses which are necessary for such persons to obtain medical care (as defined above); (B) costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (C) payment of tuition, related educational fees, and room and board expenses for the next 12 months of post-secondary education for the Participant, or his Spouse, children, or dependents (as defined above); (D) payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage on such residence; or (E) such other deemed immediate and heavy financial needs as are set forth by the Internal Revenue 49 Service through the publication of revenue rulings, notices, and other documents of general applicability. (ii) For purposes of this Section 8.6(d), a distribution shall be considered to be necessary to satisfy an immediate and heavy financial need of the Participant only if all of the following conditions are satisfied: (A) the distribution is not in excess of the amount of the immediate and heavy financial need of the Participant, which may include amounts necessary to pay federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution; (B) the Participant has obtained all distributions (other than hardship distributions) and all non-taxable loans (at the time of the loan) currently available under all plans maintained by the Company; (C) the Deferral Limitation for the Participant for the Participant's taxable year following the taxable year of the hardship distribution shall be reduced by the amount of the Participant's Before-Tax Contributions for the taxable year of the hardship distribution withdrawal; and (D) the Participant's Before-Tax Contributions and After-Tax Contributions to the Plan and employee contributions under all qualified and non-qualified plans of deferred compensation maintained by the Company, including a stock option, stock purchase, or similar plan, or a cash-or-deferred arrangement that is part of a cafeteria plan (within the meaning of Code Section 125), will be suspended under the terms of each such plan, or in accordance with the terms of an otherwise legally enforceable agreement, for twelve (12) months (six (6) months effective January 1, 2002) following the receipt of the hardship distribution. Notwithstanding the foregoing, the amount of any hardship withdrawal shall not exceed a Participant's `distributable amount,' which consists of the total of such Participant's Before-Tax Contributions as of the date of the hardship withdrawal, including earnings credited thereon before December 31, 1988 (if any), reduced by the amount of any previous hardship withdrawals. The Committee will determine whether a hardship withdrawal satisfies the foregoing standards in a uniform and nondiscriminatory manner consistent with Code Section 401(k) and the regulations promulgated thereunder. (e) A withdrawal from a Participant's vested interest in his Company Contributions Account may be made in accordance with rules of uniform application 50 which the Committee may from time to time prescribe; provided, however, that no participant may withdraw from his Company Contributions Account prior to attaining age 59-1/2 or a determination by the Committee that such Participant has a Total and Permanent Disability or that the withdrawal is necessary to relieve a hardship of the Participant or his family within the meaning of Section 8.6(d) of the Plan. (f) A withdrawal from the vested portion of a Participant's Company Matching Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that unless the Participant has completed an aggregate of at least sixty (60) months of participation in this Plan and the Mattel Investment Plan, the F-P Savings Plan, the Tyco Plan, the PrintPaks Plan or the Pleasant Plan as of the date of withdrawal or has attained age 59-1/2 or is determined by the Committee to have Total and Permanent Disability, any withdrawal from such Company Matching Account shall not include amounts attributable to Company contributions made within the two (2) year period preceding withdrawal. (g) Notwithstanding anything in this Article to the contrary, a Participant can elect to receive all or any portion of his vested Accounts once such Participant attains age 70-1/2. (h) If a Participant makes an in-service withdrawal from his Company Contributions Account or Company Matching Account at a time when the Participant does not have a one hundred percent (100%) vested interest in the value of such Account, and the Participant may increase his vested interest in the Account: (i) such account shall be established as a separate Account as of the date of distribution, and (ii) at any relevant time the Participant's vested interest in the value of such separate Account shall be equal to an amount ("X") determined by the formula: X = P (AB + D) - D For purposes of applying the formula above: P is the nonforfeitable percentage at the relevant time, AB is the Account balance at the relevant time, and D is the amount of the withdrawal. 51 (i) Disbursement of withdrawals shall be as soon as administratively practicable after the submission of a request for withdrawal in form satisfactory to the Committee. 8.7 Form of Distribution. -------------------- (a) Unless a Participant makes a written election in accordance with Section 8.7 (c) or 8.8 below, a Participant's Distributable Benefit shall be payable in the form of a single sum distribution. Except for any portion of such Distributable Benefit that is payable in the form of Company Stock in accordance with Section 8.13, such distribution shall be in cash. (b) In the case of any cash disbursement from a Participant's Accounts, such disbursement shall be made ratably from such investment funds or investment vehicles in which such Participant's Accounts affected by such disbursement are invested. (c) Effective April 1, 1997, a Participant who terminates employment on or after his Normal Retirement Date, Early Retirement Date or by reason of Total and Permanent Disability may elect to receive his benefit in installments payable monthly, quarterly or annually for a period of five, ten or fifteen years (but no longer than the Participant's life expectancy determined as of his Benefit Starting Date). The installments for each year shall not be less than the annual installment determined under the requirements of Section 401(a)(9) of the Code. All such installments shall be paid in cash or Company Stock and the installment or installments for the year in which the Participant attains age 70-1/2 and all subsequent years shall be paid to the Participant on or before December 31 of such year. 8.8 Election for Direct Rollover of Distributable Benefit to Eligible ----------------------------------------------------------------- Retirement Plan. --------------- (a) To the extent required by Section 401(a)(31) of the Code, a Participant who is eligible to receive payment of his Distributable Benefit shall be entitled to elect a direct rollover of all or part of his Distributable Benefit. For purposes of this Section, an "eligible retirement plan" shall mean any plan described in Code Section 402(c)(8)(B), including an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred to such plan from the Plan, 52 the terms of which permit the acceptance of a direct rollover from a qualified plan. The portion of a Participant's Distributable Benefit consisting of after-tax contributions which are not includible in income shall be eligible for a direct rollover in accordance with the provisions of this Section. However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code, that agrees to separately account for amounts so transferred, including separately accounting for the portion of such Distributable Benefit which is includible in gross income and the portion of such Distributable Benefit which is not so includible in gross income. (b) A Participant's direct rollover election under this Section shall be in writing and shall be made in accordance with rules and procedures established by the Committee. Such election shall specify the dollar or percentage amount of the Distributable Benefit to be rolled over, the name of the eligible retirement plan selected by the Participant, and such additional information as the Committee deems necessary or appropriate in order to implement the election. It shall be the Participant's responsibility to confirm that the eligible retirement plan designated in his direct rollover election will accept the direct rollover of his Distributable Benefit. The Committee shall be entitled to direct the rollover based on its reasonable reliance on information provided by the Participant, and shall be not required to independently verify such information, unless it is clearly unreasonable not to do so. (c) At least thirty (30) days, but not more than ninety (90) days, prior to the date a Participant's Distributable Benefit becomes payable, the Participant shall be given written notice of any right he may have to elect a direct rollover of the taxable portion of his Distributable Benefit to an eligible retirement plan. Notwithstanding the foregoing, a direct rollover of the Participant's Distributable Benefit may be made less than thirty (30) days after receipt of the notice, provided that the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a direct rollover and the Participant, after receiving the notice, affirmatively elects a direct rollover. 53 (d) If a Participant who attained his Normal Retirement Date or whose Distributable Benefit does not exceed $5,000 fails to file a written election with the Committee within ninety (90) days after notice is given, or if the Committee cannot effect the direct rollover within a reasonable time after the election is filed due to the failure of the Participant to take such actions as may be required by the eligible retirement plan before it will accept the direct rollover, the Participant's Distributable Benefit shall be paid to him after withholding applicable income taxes. (e) If a Participant has made a direct rollover election with respect to any portion of his Distributable Benefit that is payable in Company Stock, as provided in Section 8.13, unless the eligible retirement plan specified by the Participant will accept a direct rollover of such Stock, the Stock will be distributed to the Participant, notwithstanding the Participant's direct rollover election. (f) To the extent required by Section 401(a)(31) of the Code, if all or a portion of a Participant's Distributable Benefit is payable to the Participant's surviving Spouse, or to a former Spouse in accordance with a "qualified domestic relations order," such surviving Spouse or former Spouse shall be entitled to elect a direct rollover of all or a portion of such distribution in accordance with the provisions of this Section. (g) Notwithstanding the foregoing, a Participant's direct rollover shall not include any hardship withdrawal described in Section 8.6(d) of the Plan and Code Section 401(k)(2)(B), and the Participant may not elect to have any portion of such a distribution paid directly to an eligible retirement plan. 8.9 Designation of Beneficiary. -------------------------- (a) Subject to the provisions of Section 8.11, each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive his interest in the Trust Fund in the event of his death before receipt of his entire interest in the Trust Fund. This designation is to be made on the form prescribed by and delivered to the Committee. (b) Subject to the provisions of Section 8.11, a Participant shall have the right to change or revoke any such designation by filing a new designation or notice of revocation with the Committee. Subject to the provisions of Section 8.11, no notice to any Beneficiary nor consent by any Beneficiary shall be required to effect any such change or revocation. 54 (c) If a deceased Participant shall have failed to designate a Beneficiary, or if the Company shall be unable to locate a designated Beneficiary after reasonable efforts have been made, or if for any reason the designation shall be legally ineffective, or if the Beneficiary shall have predeceased the Participant without effectively designating a successor Beneficiary, any distribution required to be made under the provisions of this Plan shall commence within three (3) years after the Participant's death to the person or persons included in the highest priority category among the following, in order of priority: (i) The Participant's surviving spouse; (ii) The Participant's surviving children, including adopted children; (iii) The Participant's surviving parents; or (iv) The Participant's estate. The determination by the Committee as to which persons, if any, qualify within the foregoing categories shall be final and conclusive upon all persons. (d) In the event that the deceased Participant was not a resident of California at the date of his death, the Committee, in its discretion, may require the establishment of ancillary administration in California. In the event that a Participant shall predecease his Beneficiary and on the subsequent death of the Beneficiary a remaining distribution is payable under the applicable provisions of this Plan, the distribution shall be payable in the same order of priority categories as set forth above but determined with respect to the Beneficiary, subject to the same provisions concerning non-California residency, the unavailability of an estate representative and/or the absence of administration of the Beneficiary's estate as are applicable on the death of the Participant. 8.10 Facility of Payment. ------------------- If any payee under the Plan is a minor or if the Committee reasonably believes that any payee is legally incapable of giving a valid receipt and discharge for any payment due him, the Committee may have the payment, or any part thereof, made to the person (or persons or institution) whom it reasonably believes is caring for or supporting the payee, unless it has received due notice of claim therefor from a duly appointed guardian or committee of the payee. Any payment shall be a payment from the Accounts of the payee and shall, to the extent thereof, be a complete discharge of any liability under the Plan to the payee. 55 8.11 Requirement of Spousal Consent. ------------------------------ Notwithstanding any Beneficiary designation submitted by a Participant, any distribution required to be made under the terms of the Plan by reason of the death of the Participant shall be paid in full to the Participant's surviving spouse, unless there is no surviving spouse or the spouse consents in writing to the beneficiary designation, acknowledging the effect of the election. Any such spousal consent, to be valid, must be witnessed by a plan representative or a notary public. The spousal consent requirement of this Section 8.11 shall be waived and the Participant's Beneficiary designation shall be made effective if the Participant establishes to the satisfaction of the Committee that the required consent cannot be obtained because there is no spouse or the spouse cannot be located. 8.12 Additional Documents. -------------------- (a) The Committee or Trustee, or both, may require the execution and delivery of such documents, papers and receipts as the Committee or Trustee may determine necessary or appropriate in order to establish the fact of death of the deceased Participant and of the right and identity of any Beneficiary or other person or persons claiming any benefits under this Article VIII. (b) The Committee or the Trustee, or both, may, as a condition precedent to the payment of death benefits hereunder, require an inheritance tax release and/or such security as the Committee or Trustee, or both, may deem appropriate as protection against possible liability for state or federal death taxes attributable to any death benefits. 8.13 Company Stock Distribution. -------------------------- Except in the case of a withdrawal in accordance with Section 8.6, payment of any portion of a Participant's Distributable Benefit held in his Company Stock subaccount shall be paid in cash, unless the Participant elects in writing in accordance with procedures established by the Committee that payment shall be made in Company Stock in lieu of cash (which election may apply to a payment to the trustee of an "eligible retirement plan" in accordance with Section 8.8). Within a reasonable period of time prior to the date such Participant's Distributable Benefit is to be paid, the Committee shall notify the Participant of his right to elect to have payment of the value of his Company Stock subaccount made in the form of a cash distribution in lieu of a Company Stock distribution. Upon being so notified, the Participant shall have a 56 reasonable time (at least thirty (30) days) in which to file a written election to have such payment made in cash. Any such election shall be irrevocable and shall operate to require the Trustee to value such Company Stock as of the immediately following Valuation Date at the then prevailing purchase price. Neither the Company, the Committee, nor the Trustee shall be required to time the distribution or sale of Company Stock to anticipate fluctuations in the purchase price. If a Participant fails to file a written election to receive an in kind payment of the value of the portion of his Distributable Benefit attributable to his Company Stock subaccount within thirty (30) days of receiving notification, payment shall be made in cash. 8.14 Valuation of Accounts. --------------------- (a) For purposes of determining a Participant's Distributable Benefit under this Plan, the value of a Participant's Accounts shall be determined in accordance with rules prescribed by the Committee, subject, however, to the following provisions: (i) Unless the provisions of (ii) below apply, if a Participant's employment terminates for any reason other than death, the value of a Participant's Accounts shall be determined as of the Valuation Date coinciding with or next following the date on which a properly completed application for payment or transfer of the Participant's Distributable Benefit, and such other forms as may be required by the Committee in order to process the distribution or transfer, are received by the Committee. (ii) If a Participant's employment terminates for any reason other than death and the Committee does not receive the Participant's properly completed application for the payment or transfer of the Participant's Distributable Benefit, and such other forms as may be required by the Committee to process the payment or transfer, and the value of such Participant's Accounts at the applicable Valuation Date does not exceed $5,000, the applicable Valuation Date shall be the Valuation Date coinciding with or next following the expiration of a reasonable period of time after the Participant is furnished with such application and forms, including any tax notice required under Code Section 402(f). (iii) In the case of a Participant's death, the value of a Participant's Accounts for purposes of determining the Participant's Distributable Benefit shall be determined as of the Valuation Date coinciding with or next following the date 57 on which the Committee has been furnished with all documents and information (including but not limited to proof of death, facts demonstrating the identity and entitlement of any Beneficiary or other payee, and any and all releases) necessary to distribute such Participant's Accounts. (iv) In the case of any withdrawal or loan, the value of a Participant's Accounts under the Plan shall be determined as of the Valuation Date coinciding with or next following the date on which the Participant submits a request for such withdrawal or loan in a form satisfactory to the Committee and the withdrawal or loan is approved. (v) The value of a Participant's Accounts shall be increased or decreased (as appropriate) by any contributions, forfeitures, or distributions properly allocable under the terms of this Plan to his Accounts that occurred on or after the most recent Valuation Date or for any other reason were not otherwise reflected in the valuation of his Accounts on such Valuation Date. (b) Neither the Committee, the Company, nor the Trustee shall have any responsibility for any increase or decrease in the value of a Participant's Accounts as a result of any valuation made under the terms of this Plan after the date of his termination of employment and before the date of the distribution of his Accounts to him. Also, neither the Committee, the Company, nor the Trustee shall have any responsibility for failing to make any interim valuation of a Participant's Accounts between the date of distribution to the Participant of his Accounts and the applicable Valuation Date, even though the Plan assets may have been revalued in that interim for a purpose other than to revalue the Accounts under this Plan. 8.15 Forfeitures; Repayment. ---------------------- (a) Amounts forfeited in accordance with Section 8.5(d) shall be applied as soon as practicable to reduce future Company contributions. (b) A Participant who elects to receive a distribution pursuant to Subsection 8.5(b) may, in the case of his reemployment as an Eligible Employee, repay the total amount distributed and shall in such case be fully restored in amounts forfeited in accordance with Section 8.5(d); provided, however, that no such repayment shall be permitted unless such repayment is made prior to the date the Participant incurs five (5) 58 consecutive one-year Periods of Severance and prior to the second anniversary of his Employment Commencement Date following the Period of Severance. 8.16 Loans. ----- (a) From time to time, the Committee may adopt procedures whereby a Participant may borrow from his Accounts under the Plan. In no event may any amount be borrowed by a Participant after he ceases to be an Eligible Employee. In addition to such other requirements as may be imposed by applicable law, any such loan shall bear a reasonable rate of interest, shall be adequately secured by proper collateral, and shall be repaid within a specified period of time according to a written repayment schedule that calls for substantially level amortization over the term of the loan. (b) In connection with the requirements set forth in Subsection (a) above, the Committee shall establish the applicable interest rate, which shall be reasonably equivalent to interest rates available commercially with respect to similar loans. Without prejudice to the right of any Participant and the Trustee to enter into other appropriate arrangements to secure repayment of a loan pursuant to this Section 8.16, a loan to a Participant hereunder may be secured by an interest in the Participant's vested interest in his Accounts under this Plan. Any loan shall by its terms require repayment within five (5) years in substantially level payments made no less frequently than quarterly, except that the repayment period may be up to a maximum of fifteen (15) years in the case of a loan certified by the Participant to be used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the Participant. (c) In no event shall the principal amount of a loan hereunder, at the time the loan is made, together with the outstanding balance of all other loans to the Participant under this Plan, exceed the lesser of: (i) fifty percent (50%) of the value of the Participant's vested interest in his Accounts under this Plan (provided, however, for loans granted or renewed prior to October 19, 1989, the amount determined under this Subsection 8.16(c)(i) shall not be less than the lesser of ten thousand dollars ($10,000) or the full value of all such Accounts of the Participant where such value is less than twenty thousand dollars ($20,000)), or 59 (ii) fifty thousand dollars ($50,000), reduced by the highest outstanding loan balance of the Participant from the Plan during the 1-year period ending on the day before the date on which such loan was made. No loan less than two thousand dollars ($2,000) will be made. Unless otherwise determined by the Committee, no Participant may have more than one loan outstanding under this Plan on any date; provided, however, that a Participant who was a participant in the F-P Savings Plan on March 31, 1997 may apply for one additional loan on or before December 31, 1997, even if he then has one or more loans outstanding. (d) Each Participant desiring to enter into a loan arrangement pursuant to this Section 8.16 shall apply for a loan by submitting a loan request in form satisfactory to the Committee. The Committee shall notify the Participant within a reasonable time whether the request is approved or denied. Upon arrival of the request by the Committee, the Participant shall enter into a loan agreement with the Trustee. Such a Participant shall execute such further written agreements as may be necessary or appropriate to establish a bona fide debtor-creditor relationship between such Participant and the Trustee and to protect against the impairment of any security for said loan. (e) Any loan made to a Participant shall be secured by a pro rata portion of his vested investment fund subaccounts, including any Company Stock subaccount. Repayments of a loan by a Participant shall be invested among the Participant's investment fund subaccounts in accordance with the Participant's investment election then in effect under Section 6.6(a)(i). (f) Loans shall be repaid in accordance with the repayment schedule provided under the terms of the loan agreement. Notwithstanding the repayment schedule provided in a loan agreement, however, the amount of any outstanding loan shall be due and payable on the earlier to occur of (a) the date on which distribution is made or commences to be made of the participant's vested interest under the Plan or (b) the expiration of one hundred eighty (180) days following the date the Participant ceases to be an Employee. Following a Participant's Severance Date, any outstanding loan amount which has become due and payable under the foregoing rule or otherwise, and which is secured by the Participant's vested interest in his Accounts, shall be treated as distributed from the Plan to the Participant. 60 (g) In the event a Participant fails to repay a loan in accordance with the terms of a loan agreement, such loan shall be treated as in default. The date of the enforcement of the security interest due to a loan in default shall be determined by the Committee, provided no loss of principal or income shall result due to any delay in the enforcement of the security interest due to the default. As of the Participant's Severance Date, the Participant's Distributable Benefit shall be reduced by the outstanding amount of a loan which is then in default, including any accrued interest thereon, that is secured by the Participant's vested interest in his Accounts. Any reasonable costs related to collection of a loan made hereunder shall be borne by the Participant. (h) To the extent required to comply with the requirements of Section 401(a)(4) of the Internal Revenue Code, loans hereunder shall be made in a uniform and non-discriminatory manner. 8.17 Special Rule for Disabled Employees. ----------------------------------- (a) Subsection 8.17(b) shall apply to any Participant whose active performance of services for a Participating Company has ceased by reason of disability, and who has not subsequently resumed the active performance of such services. Subsections 8.17(c) and (d) shall apply only to a Participant whose active performance of services for a Participating Company ceases prior to January 1, 1989 by reason of disability, and who has not subsequently resumed the active performance of such services. (b) In the case of a Participant to whom this Section 8.17(b) applies, so long as such Participant continues to receive Compensation from a Participating Company, but in no event for longer than a period of six (6) months commencing with the date of such Participant's cessation of active service, such Participant may continue to participate in this Plan in the same manner as any other Participant. (c) In the case of a Participant to whom this Section 8.17 applied by reason of a disability prior to January 1, 1989 and who, on or after expiration of the period described in Section 8.17(b) above, commences to receive payments under the long term disability benefit coverage provided by a Participating Company and who also is determined to be suffering from a Total and Permanent Disability, contributions shall be made by the Participating Company pursuant to Section 6.1(a) (relating to contributions 61 to Participants' Company Contributions Accounts) with respect to the Participant's "Compensation" as defined in Subsection 8.17(d) below, but the Participant shall not be eligible to make any contributions with respect to his own Compensation, and shall not be entitled to share in any other Participating Company contributions to the Plan (including but not limited to contributions to the Company Matching Account). Contributions by a Participating Company pursuant to this Section 8.17(c) shall be subject to amendment or termination of the Plan or other suspension or discontinuance of contributions, and in any event shall cease to be made with respect to any Participant after the earlier to occur of such Participant's death or termination of employment for any other reason, cessation of Total and Permanent Disability, or attainment of age sixty- five (65). (d) In the case of a Participant to whom Section 8.17 applied by reason of a disability prior to January 1, 1989 and who is eligible to share in contributions of a Participating Company as provided in Subsection 8.17(c) above, the Compensation of such Participant for a Plan Year shall be deemed to equal the amount of Compensation which the Participant was paid (and which was taken into account for purposes of Sections 5.1 and 6.1 hereof) immediately before sustaining such Total and Permanent Disability, provided, however, that such amounts shall be included in Compensation only upon the following conditions: (i) the Participant is not an officer, owner, or highly compensated individual (within the meaning of such terms under Code Section 415(c)(3)); (ii) the payments to such Participant under such long term disability benefit coverage shall be treated as "Compensation" only to the extent that such payments do not exceed the Participant's wage or salary rate paid immediately before becoming disabled to an extent constituting a Total and Permanent Disability; and (iii) the Participant's accounts under the Plan, to the extent attributable to contributions made during a period of Total and Permanent Disability shall be nonforfeitable. (e) For purposes of this Plan, a Participant shall not be deemed to have terminated employment prior to his ceasing to be eligible for contributions under this 62 Section 8.17, and upon such cessation of eligibility shall be deemed to have terminated employment only if he did not then begin or recommence employment for the Company or an Affiliated Company. 8.18 Election for Fully Vested Employees Transferred to Fisher-Price, Inc. --------------------------------------------------------------------- A fully vested Participant who prior to April 1, 1997 transfers employment from the Company (or other Participating Company) to Fisher-Price, Inc. and who is eligible to participate in the Fisher-Price, Inc. Matching Savings Plan may elect to transfer his entire vested account balance in the Plan to the Fisher- Price, Inc. Matching Savings Plan by filing an election form at the time and in the manner prescribed by the Committee. The transfer must be made in cash except that any promissory note evidencing an outstanding loan to the Participant from the Plan may be transferred in kind. Any transferred promissory note shall thereafter be repayable by the Participant to the Fisher- Price, Inc. Matching Savings Plan in accordance with its terms. 8.19 Provision for Small Benefits. ---------------------------- Notwithstanding anything in this Article to the contrary, a Participant who terminates employment with the Company and all Affiliated Companies shall receive a distribution of his Distributable Benefit in a single lump sum payment no later than sixty (60) days after the close of the Plan Year in which the Participant's termination of employment occurs to the extent administratively feasible, provided that the value of such Distributable Benefit is equal to or less than $5,000, determined as of the Valuation Date coincident with or immediately preceding his termination of employment. Effective January 1, 2002, for purposes of this Section 8.19, the value of a Participant's Distributable Benefit shall be determined without regard to that portion of the Participant's Distributable Benefit that is attributable to the Participant's Transfer/Rollover Account. If the value of the Participant's Distributable Benefit as so determined is $5,000 or less, the Participant shall receive a distribution of his Distributable Benefit in a single lump sum payment. 8.20 Special Provisions Applicable to Tyco Plan Accounts. --------------------------------------------------- The provisions of this Section 8.20 shall apply to the balance of a Participant's Tyco Before-Tax Contributions Account and Tyco Company Matching Account ("Tyco Accounts"). (a) While he is still an Eligible Employee, a Participant may withdraw amounts from his Tyco Before-Tax Contributions Account to the extent that the 63 Participant would be permitted to make a withdrawal from his Before-Tax Contributions Account in accordance with Section 8.6 and a Participant may withdraw amounts from his Tyco Company Matching Account to the extent that the Participant would be permitted to make a withdrawal from his Company Matching Account in accordance with Section 8.6. For this purpose, a Participant shall be deemed to have incurred a Total and Permanent Disability if because of a physical or mental disability, he will be unable to perform the duties of his customary position of employment (or is unable to engage in any substantial activity) for an indefinite period which the Committee considers will be of long continued duration. (b) A Participant may, in addition to the other forms of payment available under Section 8.7, elect to receive distribution of any amount payable from the Participant's Tyco Accounts or Transfer/Rollover Account paid in the form of either monthly, quarterly or annual installments over a fixed period of time not to exceed the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant's Beneficiary. A Beneficiary of a deceased Participant may, in addition to the other forms of payment available under Section 8.3 or 8.4, elect to receive distribution of any amount payable from the Participant's Tyco Accounts or Transfer/Rollover Account paid in the form of either monthly, quarterly or annual installments over a fixed reasonable period of time not to exceed the life expectancy of the Beneficiary. Any distribution made under this Section 8.20(b) shall be subject to the limitations of Section 401 (a)(9) of the Code. 8.21 Special Provisions Applicable to PrintPaks Plan Accounts. --------------------------------------------------------- The provisions of this Section 8.21 shall apply to the balance of a Participant's PrintPaks Before-Tax Contributions Account and PrintPaks Company Matching Account ("PrintPaks Accounts"). (a) While he is still an Eligible Employee, a Participant may withdraw amounts from his PrintPaks Before-Tax Contributions Account to the extent that the Participant would be permitted to make a withdrawal from his Before-Tax Contributions Account in accordance with Section 8.6 and a Participant may withdraw amounts from his PrintPaks Company Matching Account to the extent that the Participant would be permitted to make a withdrawal from his Company Matching Account in accordance with 64 Section 8.6. A Participant who has reached age 55 shall also be eligible to withdraw amounts from his PrintPaks Company Matching Account while he is an Eligible Employee to the extent otherwise permitted by Section 8.6. (b) A Participant may, in addition to the other forms of payment available under Section 8.7, elect to receive distribution of any amount payable from the Participant's PrintPaks Accounts or Transfer/Rollover Account paid in the form of either monthly, quarterly or annual installments over a fixed reasonable period of time not to exceed the life expectancy of the Participant or the joint life and last survivor expectancy of the Participant and the Participant's Beneficiary. A Beneficiary of a deceased Participant may, in addition to the other forms of payment available under Section 8.3 or 8.4, elect to receive distribution of any amount payable from the Participant's PrintPaks Account or Transfer/Rollover Account paid in the form of either monthly, quarterly or annual installments over a fixed reasonable period of time not to exceed the life expectancy of the Beneficiary. Any distribution made under this Section 8.21(b) shall be subject to the limitations of Section 401(a)(9) of the Code. 8.22 Special Provisions Applicable to Fort Wayne Plan Accounts. ---------------------------------------------------------- With respect to the balance of a Participant's Fort Wayne Plan Before-Tax Contributions Account, Fort Wayne Plan Company Matching Account and Fort Wayne Plan Nonelective Account ("Fort Wayne Plan Accounts"), while the Participant is still an Eligible Employee, a Participant may withdraw amounts from his Fort Wayne Plan Before-Tax Contributions Account to the extent that the Participant would be permitted to make a withdrawal from his Before-Tax Contributions Account in accordance with Section 8.6 and a Participant may withdraw amounts from his Fort Wayne Plan Company Matching Account to the extent that the Participant would be permitted to make a withdrawal from his Company Matching Account in accordance with Section 8.6. 8.23 Special Provisions Applicable to Pleasant Plan Nonelective Account. ------------------------------------------------------------------- With respect to the balance of a Participant's Pleasant Plan Nonelective Account, while the Participant is still an Eligible Employee, a Participant may withdraw amounts from his Pleasant Plan Nonelective Account to the extent that the Participant would be permitted to make a withdrawal from his Company Matching Account in accordance with Section 8.6. 65 ARTICLE IX OPERATION AND ADMINISTRATION OF THE PLAN 9.1 Plan Administration. ------------------- (a) Authority to control and manage the operation and administration of the Plan shall be vested in a committee ("Committee") as provided in this Article IX. (b) The members of the Committee shall be appointed by the Board of Directors and shall hold office until resignation, death or removal by the Board of Directors. Members of the Committee may, but need not be, appointed by appropriate designation of a Committee heretofore constituted pursuant to the provisions of another employee benefit plan maintained by the Company. (c) For purposes of ERISA Section 402(a), the members of the Committee shall be Named Fiduciaries of this Plan. (d) The Secretary of the Committee shall cause to be attached to the copy of the Plan maintained in the office of the Committee for the purpose of inspection an accurate schedule listing the names of all persons from time to time serving as the Named Fiduciaries of the Plan. (e) Notwithstanding the foregoing, a Trustee with whom Plan assets have been placed in trust or an Investment Manager appointed pursuant to Section 9.3 may be granted exclusive authority and discretion to manage and control all or any portion of the assets of the Plan. 9.2 Committee Powers. ---------------- The Committee shall have all powers and discretion necessary to supervise the administration of the Plan and control its operations. In addition to any powers and authority conferred on the Committee elsewhere in the Plan or by law, the Committee shall have, by way of illustration but not by way of limitation, the following powers and authority: (a) To allocate fiduciary responsibilities (other than trustee responsibilities) among the Named Fiduciaries and to designate one or more other persons to carry out fiduciary responsibilities (other than trustee responsibilities). However, no allocation or delegation under this Section 9.2(a) shall be effective until the person or persons to whom the responsibilities have been allocated or delegated agree to assume the responsibilities. The term "trustee responsibilities" as used herein shall have the meaning set forth in 66 Section 405(c) of ERISA. The preceding provisions of this Section 9.2(a) shall not limit the authority of the Committee to appoint one or more Investment Managers in accordance with Section 9.3. (b) To designate agents to carry out responsibilities relating to the Plan, other than fiduciary responsibilities. (c) To employ such legal, actuarial, medical, accounting, clerical and other assistance as it may deem appropriate in carrying out the provisions of this Plan, including one or more persons to render advice with regard to any responsibility any Named Fiduciary or any other fiduciary may have under the Plan. (d) To establish rules and regulations from time to time for the conduct of the Committee's business and the administration and effectuation of this Plan. (e) To administer, interpret, construe and apply this Plan in its discretion and to decide all questions which may arise or which may be raised under this Plan by any Employee, Participant, former Participant, Beneficiary or other person whatsoever, including but not limited to all questions relating to eligibility to participate in the Plan, the amount of service of any Participant, and the amount of benefits to which any Participant or his Beneficiary may be entitled by reason of his service prior to or after the Effective Date hereof. (f) To determine the manner in which the assets of this Plan, or any part thereof, shall be disbursed. (g) To direct the Trustee, in writing, from time to time, to invest and reinvest the Trust Fund, or any part thereof, or to purchase, exchange, or lease any property, real or personal, which the Committee may designate. This shall include the right to direct the investment of all or any part of the Trust in any one security or any one type of securities permitted hereunder. Among the securities which the Committee may direct the Trustee to purchase are "employer securities" as defined in Code Section 409(1) or any successor statute thereto. (h) To perform or cause to be performed such further acts as it may deem to be necessary, appropriate or convenient in the efficient administration of the Plan. (i) Effective as of December 12, 1994, to take such action as is necessary to have the Plan comply with Section 414(u) of the Code (regarding the reemployment of 67 military veterans), and in such regard, and notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. Any action taken in good faith by the Committee in the exercise of authority conferred upon it by this Plan shall be conclusive and binding upon the Participants and their Beneficiaries. All discretionary powers conferred upon the Committee shall be absolute. 9.3 Investment Manager. ------------------ (a) The Committee, by action reflected in the minutes thereof, may appoint one or more Investment Managers, as defined in Section 3(38) of ERISA, to manage all or a portion of the assets of the Plan. (b) An Investment Manager shall discharge its duties in accordance with applicable law and in particular in accordance with Section 404(a)(1) of ERISA. (c) An Investment Manager, when appointed, shall have full power to manage the assets of the Plan for which it has responsibility, and neither the Company nor the Committee shall thereafter have any responsibility for the management of those assets. 9.4 Periodic Review. --------------- (a) At periodic intervals, not less frequently than annually, the Committee shall review the long-run and short-run financial needs of the Plan and shall determine a funding policy for the Plan consistent with the objectives of the Plan and the minimum funding standards of ERISA, if applicable. In determining the funding policy the Committee shall take into account, at a minimum, not only the long-term investment objectives of the Trust Fund consistent with the prudent management of the assets thereof, but also the short-run needs of the Plan to pay benefits. (b) All actions taken by the Committee with respect to the funding policy of the Plan, including the reasons therefor, shall be fully reflected in the minutes of the Committee. 9.5 Committee Procedure. ------------------- (a) A majority of the members of the Committee as constituted at any time shall constitute a quorum, and any action by a majority of the members present at any 68 meeting, or authorized by a majority of the members in writing without a meeting, shall constitute the action of the Committee. (b) The Committee may designate certain of its members as authorized to execute any document or documents on behalf of the Committee, in which event the Committee shall notify the Trustee of this action and the name or names of the designated members. The Trustee, Company, Participants, Beneficiaries, and any other party dealing with the Committee may accept and rely upon any document executed by the designated members as representing action by the Committee until the Committee shall file with the Trustee a written revocation of the authorization of the designated members. 9.6 Compensation of Committee. ------------------------- (a) Members of the Committee shall serve without compensation unless the Board of Directors shall otherwise determine. However, in no event shall any member of the Committee who is an Employee receive compensation from the Plan for his services as a member of the Committee. (b) All members shall be reimbursed for any necessary or appropriate expenditures incurred in the discharge of duties as members of the Committee. (c) The compensation or fees, as the case may be, of all officers, agents, counsel, the Trustee, or other persons retained or employed by the Committee shall be fixed by the Committee. 9.7 Resignation and Removal of Members. ---------------------------------- Any member of the Committee may resign at any time by giving written notice to the other members and to the Board of Directors effective as therein stated. Any member of the Committee may, at any time, be removed by the Board of Directors. 9.8 Appointment of Successors. ------------------------- (a) Upon the death, resignation, or removal of any Committee member, the Board of Directors may appoint a successor. (b) Notice of appointment of a successor member shall be given by the Secretary of the Company in writing to the Trustee and to the members of the Committee. (c) Upon termination, for any reason, of a Committee member's status as a member of the Committee, the member's status as a Named Fiduciary shall concurrently 69 be terminated, and upon the appointment of a successor Committee member the successor shall assume the status of a Named Fiduciary as provided in Section 9.1. 9.9 Records. ------- (a) The Committee shall keep a record of all its proceedings and shall keep, or cause to be kept, all such books, accounts, records, or other data as may be necessary or advisable in its judgment for the administration of the Plan and to properly reflect the affairs thereof. (b) However, nothing in this Section 9.9 shall require the Committee or any member thereof to perform any act which, pursuant to law or the provisions of this Plan, is the responsibility of the Plan Administrator, nor shall this Section relieve the Plan Administrator from such responsibility. 9.10 Reliance Upon Documents and Opinions. ------------------------------------ (a) The members of the Committee, the Board of Directors, the Company and any person delegated under the provisions hereof to carry out any fiduciary responsibilities under the Plan ("delegated fiduciary"), shall be entitled to rely upon any tables, valuations, computations, estimates, certificates and reports furnished by any consultant, or firm or corporation which employs one or more consultants, upon any opinions furnished by legal counsel, and upon any reports furnished by the Trustee. The members of the Committee, the Board of Directors, the Company and any delegated fiduciary shall be fully protected and shall not be liable in any manner whatsoever for anything done or action taken or suffered in reliance upon any such consultant or firm or corporation which employs one or more consultants, Trustee, or counsel. (b) Any and all such things done or actions taken or suffered by the Committee, the Board of Directors, the Company and any delegated fiduciary shall be conclusive and binding on all Employees, Participants, Beneficiaries, and any other persons whomsoever, except as otherwise provided by law. (c) The Committee and any delegated fiduciary may, but are not required to, rely upon all records of the Company with respect to any matter or thing whatsoever, and may likewise treat those records as conclusive with respect to all Employees, Participants, Beneficiaries, and any other persons whomsoever, except as otherwise provided by law. 70 9.11 Requirement of Proof. -------------------- The Committee or the Company may require satisfactory proof of any matter under this Plan from or with respect to any Employee, Participant, or Beneficiary, and no person shall acquire any rights or be entitled to receive any benefits under this Plan until the required proof shall be furnished. 9.12 Reliance on Committee Memorandum. -------------------------------- Any person dealing with the Committee may rely on and shall be fully protected in relying on a certificate or memorandum in writing signed by any Committee member or other person so authorized, or by the majority of the members of the Committee, as constituted as of the date of the certificate or memorandum, as evidence of any action taken or resolution adopted by the Committee. 9.13 Multiple Fiduciary Capacity. --------------------------- Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. 9.14 Limitation on Liability. ----------------------- (a) Except as provided in Part 4 of Title I of ERISA, no person shall be subject to any liability with respect to his duties under the Plan unless he acts fraudulently or in bad faith. (b) No person shall be liable for any breach of fiduciary responsibility resulting from the act or omission of any other fiduciary or any person to whom fiduciary responsibilities have been allocated or delegated, except as provided in Part 4 of Title I of ERISA. (c) No action or responsibility shall be deemed to be a fiduciary action or responsibility except to the extent required by ERISA. 9.15 Indemnification. --------------- (a) To the extent permitted by law, the Company shall indemnify each member of the Board of Directors and the Committee, and any other Employee of the Company with duties under the Plan, against expenses (including any amount paid in settlement) reasonably incurred by him in connection with any claims against him by reason of his conduct in the performance of his duties under the Plan, except in relation to 71 matters as to which he acted fraudulently or in bad faith in the performance of such duties. The preceding right of indemnification shall pass to the estate of such a person. (b) The preceding right of indemnification shall be in addition to any other right to which the Board member or Committee member or other person may be entitled as a matter of law or otherwise. 9.16 Allocation of Fiduciary Responsibility. -------------------------------------- (a) Part 4 of Title I of ERISA permits the division, allocation and delegation between Plan fiduciaries of the fiduciary responsibilities owed to the Plan Participants. Under this concept, each fiduciary, including a Named Fiduciary, is accountable only for his own functions, except to the extent of his co-fiduciary liability under Section 405 of ERISA. (b) Under the preceding provisions of this Article IX, the day-to-day operational, administrative and investment aspects of the Plan have been delegated to the Committee. Except to the extent expressly provided to the contrary in the Plan document, the responsibilities delegated to the Committee include, by way of illustration but not by way of limitation, such matters as: (i) Satisfying accounting and auditing requirements; (ii) Satisfying insurance and bonding requirements; (iii) Administering the Plan's claims and procedure; and (iv) Appointing Investment Managers. 9.17 Bonding. ------- (a) Except as is prescribed by the Board of Directors, as provided in Section 412 of ERISA, or as may be required under any other applicable law, no bond or other security shall be required by any member of the Committee, or any of her fiduciary under this Plan. (b) Notwithstanding the foregoing, for purposes of satisfying its indemnity obligations under Section 9.15, the Company may (but need not) purchase and pay premiums for one or more policies of insurance. However, this insurance shall not release the Company of its liability under the indemnification provisions. 72 9.18 Prohibition Against Certain Actions. ----------------------------------- (a) To the extent prohibited by law, in administering this Plan the Committee shall not discriminate in favor of any class of Employees and particularly it shall not discriminate in favor of highly compensated Employees, or Employees who are officers or shareholders of the Company. (b) The Committee shall not cause the Plan to engage in any transaction that constitutes a nonexempt prohibited transaction under Section 4975(c) of the Code or Section 406(a) of ERISA. (c) All individuals who are fiduciaries with respect to the Plan (as defined in Section 3(21) of ERISA) shall discharge their fiduciary duties in accordance with applicable law, and in particular, in accordance with the standards of conduct contained in Section 404 of ERISA. 9.19 Plan Expenses. ------------- (a) All expenses incurred in the establishment, administration and operation of the Plan, including but not limited to the expenses incurred by the members of the Committee in exercising their duties, shall be charged to the Trust Fund and allocated to Participants Accounts as determined by the Committee, but shall be paid by the Company if not paid by the Trust Fund. (b) Notwithstanding the foregoing, the cost of interest and normal brokerage charges which are included in the cost of securities purchased by the Trust Fund (or charged to proceeds in the case of sales) or other charges relating to specific assets of the Plan shall be charged and allocated in a fair and equitable manner to the Accounts to which the securities (or other assets) are allocated. ARTICLE X SPECIAL PROVISIONS CONCERNING COMPANY STOCK EFFECTIVE AS OF OCTOBER 1, 1992 10.1 Securities Transactions. ----------------------- Subject to the limitations of Section 6.6(a)(iv), the Trustee shall acquire Company Stock in the open market or from the Company or any other person, including a party in interest, pursuant to a Participant's election to invest any Company contributions on his behalf (including 73 Before-Tax Contributions), or Participant After-Tax Contributions, in the Company Stock alternative established by the Committee in accordance with Section 6.6, or to transfer amounts held in other investment alternatives to such Company Stock alternative. No commission will be paid in connection with the Trustee's acquisition of Company Stock from a party in interest. Pending acquisition of Company Stock and pursuant to a Participant's investment election, elected amounts shall be allocated to the Participant's Company Stock subaccount in cash and may be invested in any short-term interest fund of the Trustee. Neither the Company, nor the Committee, nor any Trustee have any responsibility or duty to time any transaction involving Company Stock in order to anticipate market conditions or changes in Company Stock value. Neither the Company, nor the Committee nor any Trustee have any responsibility or duty to sell Company Stock held in the Trust Fund in order to maximize return or minimize loss. 10.2 Valuation of Company Securities. ------------------------------- When it is necessary to value Company Stock held by the Plan, the value will be the current fair market value of the Company Stock, determined in accordance with applicable legal requirements. If the Company Stock is publicly traded, fair market value will be based on the most recent closing price in public trading, as reported in The Wall -------- Street Journal or any other publication of general circulation designated by the - -------------- Committee, unless another method of valuation is required by the standards applicable to prudent fiduciaries. If the Company Stock cannot be valued on the basis of its closing price in recent public trading, fair market value will be determined by the Company in good faith based on all relevant factors for determining the fair market value of securities. Relevant factors include an independent appraisal by a person who customarily makes such appraisals, if an appraisal of the fair market value of the Company Stock as of the relevant date was obtained. In the case of a transaction between the Plan and a party in interest, the fair market value of the Company Stock must be determined as of the date of the transaction rather than as of some other Valuation Date occurring before or after the transaction. In other cases, the fair market value of the Company Stock will be determined as of the most recent Valuation Date. 10.3 Allocation of Stock Dividends and Splits. ---------------------------------------- Company Stock received by the Trust as a result of a Company Stock split or Company Stock dividend on Company Stock held in Participants' Accounts will be allocated as of the 74 Valuation Date coincident with or following the date of such split or dividend, to each Participant who has such an Account. The amount allocated will bear substantially the same proportion to the total number of shares received as the number of shares in the Participant's Account bears to the total number of shares allocated to such Accounts of all Participants immediately before the allocation. The shares will be allocated to the nearest thousandth of a share. 10.4 Reinvestment of Dividends. ------------------------- Upon direction of the Committee, cash dividends may be reinvested as soon as practicable by the Trustee in shares of Company Stock for Participants' Accounts. Cash dividends may be reinvested in Company Stock purchased as provided in Section 10.1 or purchased from the Accounts of Participants who receive cash distributions of a fractional share or a fractional interest therein. 10.5 Voting of Company Stock. ----------------------- The Trustee shall have no discretion or authority to vote Company Stock held in the Trust on any matter presented for a vote by the stockholders of the Company except in accordance with timely directions received by the Trustee from Participants, unless otherwise required by applicable law. (a) Each Participant shall be entitled to direct the Trustee as to the voting of all Company Stock allocated and credited to his Account. (b) All Participants entitled to direct such voting shall be notified by the Company, pursuant to its normal communications with shareholders, of each occasion for the exercise of such voting rights within a reasonable time before such rights are to be exercised. Such notification shall include all information distributed to shareholders either by the Company or any other party regarding the exercise of such rights. If a Participant shall fail to direct the Trustee as to the exercise of voting rights arising under any Company Stock credited to his Accounts, or if any Company Stock held in the Plan has not been allocated to Participants' Accounts, the Trustee shall not be required to vote such Company Stock except as otherwise required by applicable law. The Trustee shall maintain confidentiality with respect to the voting directions of all Participants. (c) Each Participant shall be a Named Fiduciary (as that term is defined in ERISA Section 402(a)(2)) with respect to Company Stock for which he has the right to 75 direct the voting under the Plan but solely for the purpose of exercising voting rights pursuant to this Section 10.5. 10.6 Confidentiality Procedures. -------------------------- The Committee shall establish procedures intended to ensure the confidentiality of information relating to Participant transactions involving Company Stock, including the exercise of voting, tender and similar rights. The Committee shall also be responsible for ensuring the adequacy of the confidentiality procedures and monitoring compliance with such procedures. The Committee may, in its sole discretion, appoint an independent fiduciary to carry out any activities that it determines involve a potential for undue Company influence on Participants with respect to the exercise of their rights as shareholders. 10.7 Securities Law Limitation. ------------------------- Neither the Committee nor the Trustee shall be required to engage in any transaction, including, without limitation, directing the purchase or sale of Company Stock, which it determines in its sole discretion might tend to subject itself, its members, the Plan, the Company, or any Participant or Beneficiary to a liability under federal or state securities laws. ARTICLE XI MERGER OF COMPANY; MERGER OF PLAN 11.1 Effect of Reorganization or Transfer of Assets. ---------------------------------------------- In the event of a consolidation, merger, sale, liquidation, or other transfer of the operating assets of the Company to any other company, the ultimate successor or successors to the business of the Company shall automatically be deemed to have elected to continue this Plan in full force and effect, in the same manner as if the Plan had been adopted by resolution of its Board of Directors, unless the successor(s), by resolution of its Board of Directors, shall elect not to so continue this Plan in effect, in which case the Plan shall automatically be deemed terminated as of the applicable effective date set forth in the board resolution. 11.2 Merger Restriction. ------------------ Notwithstanding any other provision in this Article, this Plan shall not in whole or in part merge or consolidate with, or transfer its assets or liabilities to any other plan unless each affected Participant in this Plan would receive a benefit immediately after the merger, consolidation, or transfer (if the Plan then terminated) which is equal to or greater than the 76 benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated). ARTICLE XII PLAN TERMINATION AND DISCONTINUANCE OF CONTRIBUTIONS 12.1 Plan Termination. ---------------- (a) (i) Subject to the following provisions of this Section 12.1, the Company may terminate the Plan and the Trust Agreements at any time by an instrument in writing executed in the name of the Company by an officer or officers duly authorized to execute such an instrument, and delivered to the Trustee. (ii) The Plan and Trust Agreements may terminate if the Company merges into any other corporation, if as the result of the merger the entity of the Company ceases, and the Plan is terminated pursuant to the rules of Section 11.1. (b) Upon and after the effective date of the termination, the Company shall not make any further contributions under the Plan and no contributions need be made by the Company applicable to the Plan year in which the termination occurs, except as may otherwise be required by law. (c) The rights of all affected Participants to benefits accrued to the date of termination of the Plan, to the extent funded as of the date of termination, shall automatically become vested as of that date. 12.2 Discontinuance of Contributions. ------------------------------- (a) In the event the Company decides it is impossible or inadvisable for business reasons to continue to make contributions under the Plan, the Company by resolution of its Board of Directors may discontinue contributions to the Plan. Upon and after the effective date of this discontinuance, no Participating Company or Participant shall make any further contributions under the Plan and no contributions need to be made by a Participating Company with respect to the Plan Year in which the discontinuance occurs, except as may otherwise be required by law. A Participant shall be released from any salary reduction agreement under the Plan as of the effective date of a discontinuance of contributions. 77 (b) The discontinuance of contributions on the part of the Company shall not terminate the Plan as to the funds and assets then held by the Trustee, or operate to accelerate any payments of distributions to or for the benefit of Participants or Beneficiaries, and the Trustee shall continue to administer the Trust Fund in accordance with the provisions of the Plan until all of the obligations under the Plan shall have been discharged and satisfied. (c) However, if this discontinuance of contributions shall cause the Plan to lose its status as a qualified plan under Code Section 401(a), the Plan shall be terminated in accordance with the provisions of this Article XII. (d) On and after the effective date of a discontinuance of contributions, the rights of all affected Participants to benefits accrued to that date, to the extent funded as of that date, shall automatically become fully vested as of that date. 12.3 Rights of Participants. ---------------------- In the event of the termination of the Plan, for any cause whatsoever, all assets of the Plan, after payment of expenses, shall be used for the exclusive benefit of Participants and their Beneficiaries and no part thereof shall be returned to the Company, except as provided in Section 6.7 of this Plan. 12.4 Trustee's Duties on Termination. ------------------------------- (a) On or before the effective date of termination of this Plan, the Trustee shall proceed as soon as possible, but in any event within six months from the effective date, to reduce all of the assets of the Trust Fund to cash and other securities in such proportions as the Committee shall determine (after approval by the Internal Revenue Service, if necessary or desirable, with respect to any portion of the assets of the Trust Fund held in common stock or securities of the Company). (b) After first deducting the estimated expenses for liquidation and distribution chargeable to the Trust Fund, and after setting aside a reasonable reserve for expenses and liabilities (absolute or contingent) of the Trust, the Committee shall make required allocations of items of income and expense to the Accounts. (c) Following these allocations, the Trustee shall promptly, after receipt of appropriate instructions from the Committee, distribute in accordance with Section 8.7 to 78 each former Participant in Company stock or cash an amount equal to the amount credited to his Accounts as of the date of completion of the liquidation. (d) The Trustee and the Committee shall continue to function as such for such period of time as may be necessary for the winding up of this Plan and for the making of distributions in accordance with the provisions of this Plan. (e) Notwithstanding the foregoing, distributions to Participants upon Plan termination in accordance with this Section 12.4 shall only be made if a "successor plan," within the meaning of regulations under Code Section 401(k)(10), is not established. In the event a "successor plan" is established prior to or subsequent to the termination of the Plan, the Committee shall direct the Trustee to continue to hold any assets of the Trust Fund not payable upon the termination until such assets may, at the direction of the Committee, be transferred to and held in the successor plan until distributable under the terms of that successor plan. 12.5 Partial Termination. ------------------- (a) In the event of a partial termination of the Plan within the meaning of Code Section 411(d)(3), the interests of affected Participants in the Trust Fund, as of the date of the partial termination, shall become nonforfeitable as of that date. (b) That portion of the assets of the Plan affected by the partial termination shall be used exclusively for the benefit of the affected Participants and their Beneficiaries, and no part thereof shall otherwise be applied. (c) With respect to Plan assets and Participants affected by a partial termination, the Committee and the Trustee shall follow the same procedures and take the same actions prescribed in this Article XII in the case of a total termination of the Plan. 12.6 Failure to Contribute. --------------------- The failure of a Participating Company to contribute to the Trust in any year, if contributions are not required under the Plan for that year, shall not constitute a complete discontinuance of contributions to the Plan. 79 ARTICLE XIII APPLICATION FOR BENEFITS 13.1 Application for Benefits. ------------------------ The Committee may require any person claiming benefits under the Plan to submit an application therefor, together with such documents and information as the Committee may require. In the case of any person suffering from a disability which prevents the claimant from making personal application for benefits, the Committee may, in its discretion, permit another person acting on his behalf to submit the application. 13.2 Action on Application. --------------------- (a) Within ninety days following receipt of an application and all necessary documents and information, the Committee's authorized delegate reviewing the claim shall furnish the claimant with written notice of the decision rendered with respect to the application. (b) In the case of a denial of the claimant's application, the written notice shall set forth: (i) The specific reasons for the denial, with reference to the Plan provisions upon which the denial is based; (ii) A description of any additional information or material necessary for perfection of the application (together with an explanation why the material or information is necessary); and (iii) An explanation of the Plan's claim review procedure. (c) A claimant who wishes to contest the denial of his application for benefits or to contest the amount of benefits payable to him shall follow the procedures for an appeal of benefits as set forth in Section 13.3 below, and shall exhaust such administrative procedures prior to seeking any other form of relief. 13.3 Appeals. ------- (a) (i) A claimant who does not agree with the decision rendered with respect to his application may appeal the decision to the Committee. (ii) The appeal shall be made, in writing, within sixty days after the date of notice of the decision with respect to the application. 80 (iii) If the application has neither been approved nor denied within the ninety day period provided in Section 13.2 above, then the appeal shall be made within sixty days after the expiration of the ninety day period. (b) The claimant may request that his application be given full and fair review by the Committee. The claimant may review all pertinent documents and submit issues and comments in writing in connection with the appeal. (c) The decision of the Committee shall be made promptly, and not later than sixty days after the Committee's receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty days after receipt of a request for review. (d) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant with specific reference to the pertinent Plan provisions upon which the decision is based. ARTICLE XIV LIMITATIONS ON CONTRIBUTIONS 14.1 General Rule. ------------ (a) Except to the extent permitted under Section 5.2(f) of the Plan and Section 414(v) of the Code, the total Annual Additions under this Plan to a Participant's Plan Accounts shall not exceed: (i) for any Limitation Year ending before January 1, 2002, the lesser of (A) Thirty Thousand Dollars ($30,000) (as adjusted for increases in the cost-of-living under Section 415(d) of the Code) or (B) twenty-five percent (25%) of the Participant's total Compensation from the Company and any Affiliated Companies for the year, excluding amounts otherwise treated as Annual Additions under Section 14.2; and (ii) for any Limitation Year beginning after December 31, 2001, the lesser of (A) Forty Thousand Dollars ($40,000) (as adjusted for increases in the cost-of-living under Section 415(d) of the Code) or (B) one hundred percent (100%) of the Participant's total Compensation from 81 the Company and any Affiliated Companies for the year, excluding amounts otherwise treated as Annual Additions under Section 14.2. The limitation in Section 14.1(a)(ii)(B) shall not apply to any contribution for medical benefits after separation from Service (within the meaning of Section 401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as an Annual Addition." (b) For purposes of this Article XIV, the Company has elected a "Limitation Year" corresponding to the Plan Year. 14.2 Annual Additions. ---------------- For purposes of Section 14.1, the term "Annual Additions" shall mean, for any Limitation Year, the sum of: (a) the amount credited to the Participant's Accounts from Company contributions for such Limitation Year; (b) any Employee contributions for the Limitation Year; and (c) any amounts described in Section 415(1)(1) or 419(A)(d)(2) of the Code. Annual Additions for Limitation Years commencing prior to 1987 shall not be recalculated to take into account all Employee contributions. 14.3 Other Defined Contribution Plans. -------------------------------- If the Company or an Affiliated Company is contributing to any other defined contribution plan (as defined in Section 415(k) of the Code) for its Employees, some or all of whom may be Participants in this Plan, then contributions to the other plan shall be aggregated with contributions under this Plan for the purposes of applying the limitations of Section 14.1. 14.4 Combined Plan Limitation (Defined Benefit Plan). ----------------------------------------------- In the event a Participant hereunder also is a participant in any qualified defined benefit plan (within the meaning of Section 415(k) of the Code) of the Company or an Affiliated Company, then the benefit payable under such other defined benefit plan, or any of them, shall be reduced for so long and to the extent necessary to provide that the sum of the "defined benefit fraction" and the "defined contribution fraction," for any Limitation Year, as defined in Section 415(e) of the Code, shall not exceed one (1). The limitation of this Section 14.4 shall not apply to any Plan Year beginning on or after January 1, 2000. 82 14.5 Adjustments for Excess Annual Additions. --------------------------------------- In general, the amount of excess for any Limitation Year under this Plan and any other defined contribution plan (as defined in Code Section 414(i)) or defined benefit plan (as defined in Code Section 414(j)) maintained by the Company or an Affiliated Company will be determined so as to avoid Annual Additions in excess of the limitations set forth in Sections 14.1 through 14.4. However, if as a result of an administrative error, the Annual Additions to a Participant's Accounts under this Plan (after giving effect to the maximum permissible adjustments under the other plans) would exceed the applicable limitations described in Sections 14.1 through 14.4, the excess amount shall be subject to this Section 14.5. (a) For Plan Years commencing prior to January 1, 1993, the following rules shall apply: (i) If the Participant made any after-tax contributions to any defined contribution plan that is maintained by the Company or an Affiliated Company, which after-tax contributions were not matched by matching contributions, these contributions shall be returned to the Participant to the extent of any excess Annual Additions arising under Section 14.1(a)(ii). (ii) If excess Annual Additions remain after the application of the above rule, such excess amounts (if any) allocated to the Participant's Company Contributions Account shall be reduced to the extent necessary to eliminate (if possible) any remaining excess Annual Additions. (iii) If excess Annual Additions remain after the application of (i) and (ii) above, such excess amounts (if any) allocated to the Participant's Company Matching Contribution Account shall be reduced to the extent necessary to eliminate (if possible) any remaining excess Annual additions. (iv) If any excess Annual Additions remain after the application of (i), (ii) and (iii) above, such excess amounts (if any) allocated to the Participant's Before-Tax Contributions Account shall be reduced to the extent necessary to eliminate (if possible) any remaining excess Annual Additions. (b) For Plan Years commencing on or after January 1, 1993, the following rules shall apply: 83 (i) If the Participant made any after-tax contributions to this or any other defined contribution plan that is maintained by the Company or an Affiliated Company, which after-tax contributions were not matched by matching contributions, within the meaning of Code Section 401(m), such after-tax contributions and any earnings thereon shall be returned to the Participant to the extent of any excess Annual Additions. (ii) If excess Annual Additions remain after the application of the above rule, if the Participant made any Before-Tax Contributions for the Plan Year to this or any other defined contribution plan that is maintained by the Company or an Affiliated Company, which Before- Tax Contributions were not matched by matching contributions, within the meaning of Code Section 401(m), Before-Tax Contributions and any earnings thereon shall be returned to the Participant to the extent of any excess Annual Additions. (iii) If excess Annual Additions remain after the application of the above rule, if the Participant made any after-tax contributions for the Plan Year to this or any other defined contribution plan that is maintained by the Company or an Affiliated Company, which after-tax contributions were matched by matching contributions, within the meaning of Code Section 401(m), any such after-tax contributions and any earnings thereon shall be returned to the Participant and any matching contributions attributable thereto shall be reduced to the extent necessary to eliminate any remaining excess Annual Additions. (iv) If excess Annual Additions remain after the application of the above rule, if the Participant made any Before-Tax Contributions for the Plan Year to this or any other defined contribution plan that is maintained by the Company or an Affiliated Company, which Before- Tax Contributions were matched by matching contributions, within the meaning of Code Section 401(m), any such Before-Tax Contributions and any earnings thereon shall be returned to the Participant and any matching contributions attributable thereto shall be reduced to the extent necessary to eliminate any remaining excess Annual Additions. 84 (v) If excess Annual Additions remain after the application of the above rule, any other Company contributions for the Plan Year shall be reduced to the extent necessary to eliminate any remaining excess Annual Additions. 14.6 Disposition of Excess Amounts. ----------------------------- Any excess amounts contributed by a Participating Company on behalf of a Participant for any Plan Year (other than Before-Tax Contributions) shall be held unallocated in a suspense account for the Plan Year and applied, to the extent possible, first to reduce the Participating Company contributions for the Plan Year, and next, to reduce the Participating Company contributions for the succeeding Plan Year, or Years, if necessary. No investment gains or losses shall be allocated to a suspense account. 14.7 Affiliated Company. ------------------ For purposes of this Article XIV, the status of an entity as an Affiliated Company shall be determined by reference to the percentage tests set forth in Code Section 415(h). ARTICLE XV RESTRICTION ON ALIENATION 15.1 General Restrictions Against Alienation. --------------------------------------- (a) The interest of any Participant or Beneficiary in the income, benefits, payments, claims or rights hereunder, or in the Trust Fund shall not in any event be subject to sale, assignment, hypothecation, or transfer. Each Participant and Beneficiary is prohibited from anticipating, encumbering, assigning, or in any manner alienating his or her interest under the Trust Fund, and is without power to do so, except as may otherwise be provided for in the Trust Agreement. The interest of any Participant or Beneficiary shall not be liable or subject to his debts, liabilities or obligations, now contracted, or which may be subsequently contracted. The interest of any Participant or Beneficiary shall be free from all claims, liabilities, bankruptcy proceedings, or other legal process now or hereafter incurred or arising; and the interest or any part thereof, shall not be subject to any judgment rendered against the Participant or Beneficiary. (b) In the event any person attempts to take any action contrary to this Article XV, that action shall not be effective, and all Participants and their Beneficiaries, may disregard that action and shall not suffer any liability for any disregard of that action, and 85 shall be reimbursed on demand out of the Trust Fund for the amount of any loss, cost or expense incurred as a result of disregarding or of acting in disregard of that action. (c) The preceding provisions of this Section 15.1 shall be interpreted and applied by the Committee in accordance with the requirements of Code Section 401(a)(13) as construed and interpreted by authoritative judicial and administrative rulings and regulations. (d) The provisions of Subsections 15.1(a) and 15.1(b) are expressly subject to qualified domestic relations orders, as provided in Code Section 401(a)(13)(B). 15.2 Nonconforming Distributions Under Court Order. --------------------------------------------- (a) In the event that a court with jurisdiction over the Plan and the Trust Fund shall issue an order or render a judgment requiring that all or part of a Participant's interest under the Plan and in the Trust Fund be paid to a spouse, former spouse and/or children of the Participant by reason of or in connection with the marital dissolution and/or marital separation of the Participant and the spouse, and/or some other similar proceeding involving marital rights and property interests, then notwithstanding the provisions of Section 15.1 the Committee may, in its absolute discretion, direct the applicable Trustee to comply with that court order or judgment and distribute assets of the Trust Fund in accordance therewith. Pending distribution to an alternate payee of any portion of a Participant's vested interest in the Trust Fund, pursuant to a court order or judgment, such portion shall be segregated and invested in accordance with rules prescribed by the Committee, and neither the Participant nor the alternate payee shall be entitled to make an election with respect to the investment of such segregated portion. (b) The Committee's decision with respect to compliance with any such court order or judgment shall be made in its absolute discretion and shall be binding upon the Trustee and all Participants and their Beneficiaries; provided, however, that the Committee in the exercise of its discretion shall not make payments in accordance with the terms of an order which is not a qualified domestic relations order or which the Committee determines would jeopardize the continued qualification of the Plan and Trust under Section 401 of the Code. Notwithstanding the foregoing, the Committee may make a distribution to an alternate payee prior to the date the Participant attains age fifty (50), if such distribution is required by a qualified domestic relations order. 86 (c) Neither the Plan, the Company, the Committee nor the Trustee shall be liable in any manner to any person, including any Participant or Beneficiary, for complying with any such court order or judgment. (d) Nothing in this Section 15.2 shall be interpreted as placing upon the Company, the Committee or any Trustee any duty or obligation to comply with any such court order or judgment. The Committee may, if in its absolute discretion it deems it to be in the best interests of the Plan and the Participants, determine that any such court order or judgment shall be resisted by means of judicial appeal or other available judicial remedy, and in that event the Trustee shall act in accordance with the Committee's directions. (e) The Committee shall adopt procedures and provide notifications to a Participant and alternate payees in connection with a qualified domestic relations order, to the extent required under Code Section 414(p). ARTICLE XVI PLAN AMENDMENTS 16.1 Amendments. ---------- The Board of Directors may at any time, and from time to time, amend the Plan by an instrument in writing executed in the name of the Company by an officer or officers duly authorized to executed such instrument, and delivered to the applicable Trustee. However, to the extent required by law, no amendment shall be made at any time, the effect of which would be: (a) To cause any assets of the Trust Fund to be used for or diverted to purposes other than providing benefits to the Participants and their Beneficiaries, and defraying reasonable expenses of administering the Plan, except as provided in Section 6.7; (b) To have any retroactive effect so as to deprive any Participant or Beneficiary of any accrued benefit to which he would be entitled under this Plan, in contravention of Code Section 411(d)(6), if his employment were terminated immediately before the amendment; (c) To eliminate or reduce an optional form of benefit to the extent so doing would contravene Code Section 411(d)(6); or 87 (d) To increase the responsibilities or liabilities of a Trustee or an Investment Manager without his written consent. 16.2 Retroactive Amendments. ---------------------- Notwithstanding any provisions of this Article XVI to the contrary, the Plan may be amended prospectively or retroactively (as provided in Section 401(b) of the Code) to make the Plan conform to any provision of ERISA, any Code provisions dealing with tax-qualified employees' trusts, or any regulation under either. 16.3 Amendment of Vesting Provisions. ------------------------------- Effective January 1, 1989, if the Plan is amended in any way that directly or indirectly affects the computation of a Participant's vested interest in his Accounts, each Participant who has completed at least three (3) Years of Service may elect, within a reasonable time after the adoption of the amendment, to continue to have his vested interest computed under the Plan without regard to such amendment. The period during which the election may be made shall commence when the date of the amendment is adopted and shall end on the latest of: (i) 60 days after the amendment is adopted; (ii) 60 days after the amendment is effective; or (iii) 60 days after the Participant is issued written notice of the amendment. In the event that the Plan's vesting schedule is amended, the nonforfeitable percentage of every Employee who is a Participant on the date the amendment is adopted, or the date the amendment is effective, if later, in his Company Matching Account and/or Company Contributions Account shall be not less than his percentage computed under the Plan without regard to the amendment. ARTICLE XVII TOP-HEAVY PROVISIONS 17.1 Minimum Company Contributions. ----------------------------- In the event that this Plan is deemed a Top-Heavy plan with respect to any Plan Year, each Non-Key Employee who is a Participant shall receive Company contributions that in the aggregate are at least equal to the lesser of three percent (3%) of Compensation or the percentage at which Company contributions are made for the Key Employee (under any plan required to be included in an Aggregation Group) for whom such percentage is the highest for the Plan Year, regardless of whether the Non-Key Employee elected to make Before-Tax Contributions to the 88 Plan for the Plan Year, completed less than 1,000 Hours of Service during such Plan Year, or the Non-Key Employee's level of Compensation. For purposes of this Section 17.1, Company contributions shall include (i) amounts considered contributed by Key Employees and which qualify for treatment under Code Section 401(k) and (ii) any Company contributions for Key Employees or Non-Key Employees taken into account under Section 401(k)(3) or 401(m) of the Code. For purposes of this Section 17.1, Company contributions shall not include amounts considered as contributed by Non-Key Employees and which qualify for treatment under Code Section 401(k). Further, in determining the percentage at which Company contributions are made for the Plan Year for the Key Employee for whom such percentage is the highest, the contributions for a Key Employee shall be divided by so much of a Key Employee's compensation for the Plan Year as does not exceed $200,000, as that amount is adjusted each year by the Secretary of the Treasury. In the event a Participant is covered by both a defined contribution and a defined benefit plan maintained by the Company, both of which are determined to be Top-Heavy Plans, the defined benefit minimum, offset by the benefits provided under the defined contribution plan, shall be provided under the defined benefit plan. 17.2 Compensation. ------------ For the purpose of calculating Company contributions to be made to a Participant for Plan Years commencing prior to January 1, 1989, the annual Compensation taken into account for any Employee shall not exceed $200,000 (increased by any adjustments made pursuant to Section 416(d)(2) of the Code or regulations thereunder) if the Plan is deemed a Top-Heavy Plan with respect to any Plan Year. 17.3 Top-Heavy Determination. ----------------------- This Plan shall be deemed a Top-Heavy Plan with respect to any Plan Year in which, as of the Determination Date: (a) the aggregate of the Accounts of Key Employees under the Plan exceeds 60% of the aggregate of the Accounts of all Employees; or (b) the aggregate of the Accounts of Key Employees under all defined contribution plans and the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans includable in an Aggregation Group exceed 60% of a similar sum for all employees in such group. As used above, the term "Aggregation Group" includes all plans of Participating Companies having one or more Key Employees as Participants and any other defined contribution plan of a Participating 89 Company that permits a plan of a Participating Company having one or more Key Employees to meet the qualification requirements of Sections 401(a)(4) or 410 of the Code. The present value of account balances under a defined contribution plan shall be determined as of the most recent valuation date that falls within or ends on the Determination Date. The present value of accrued benefits under a defined benefit plan shall be determined as of the same valuation date used for computing plan costs for minimum funding. The present value of the cumulative accrued benefits of a Non-Key Employee shall be determined under either: (i) the method, if any, that uniformly applies for accrual purposes under all plans maintained by affiliated companies, within the meaning of Code Sections 414(b), (c), (m) or (o); or (ii) if there is no such method, as if such benefit accrued not more rapidly than the lowest accrual rate permitted under the fractional accrual rate of Section 411(b)(1)(C) of the Code. For purposes of this Article XVII, "Determination Date" shall mean, with respect to any Plan Year, the last day of the preceding Plan Year, or, in the case of the first Plan Year, the last day of such Plan Year. The term, "Key Employee" shall mean, for purposes of this Article XVII, any Employee or former Employee (including any deceased Employee) who, at any time during the Plan Year that includes the Determination Date was: (1) an officer of a Participating Company having annual compensation in excess of $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002); (2) a 5% owner of a Participating Company; or (3) a 1% owner of a Participating Company having annual compensation in excess of than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c) of the Code. For purposes of (1) above, no more than 50 Employees (or, if lesser, the greater of 3 or 10% of the Employees) shall be treated as officers. 90 A 5% (or 1%, if applicable) owner means any person who owns (or is considered as owning within the meaning of Section 318 of the Code) more than 5% (1%) of the outstanding stock of the Participating Company or stock possessing more than 5% (1%) of the total combined voting power of all stock of the Participating Company. For purposes of applying the constructive ownership rules under Section 318(a)(2) of the Code, subparagraph (C) of such Section shall be applied by substituting "5 percent" for "50 percent." For purposes of determining "5% owners" and/or "1% owners," the aggregating rules of Sections 414(b), (c) and (m) of the Code shall not apply. For purposes of determining whether an Employee has compensation of more than $150,000, however, compensation from each entity required to be aggregated under Sections 414(b), (c) and/or (m) of the Code shall be taken into account. For purposes of determining the amount of a Participant's Account for purposes of this Section 17.3, the amount shall include the aggregate distributions under the Plan made to or with respect to the Participant during the one year period ending on the Determination Date. In the case of a distribution made for a reason other than separation from Service, death or disability, this paragraph shall be applied by substituting "five year period" for "one year period." The following shall not be taken into account for purposes of determining whether this Plan is a Top-Heavy Plan: (1) any rollover to the Plan that is initiated by a Participant; (2) the account value of any Participant who is not a Key Employee with respect to any Plan Year but was a Key Employee with respect to any prior Plan Year; and (3) the account value of a Participant who has not performed services for any Participating Company during the one year period ending on the Determination Date. 17.4 Aggregation. ----------- Each Plan of a Participating Company required to be included in an "Aggregation Group" shall be treated as a Top-Heavy Plan if such group is a "Top-Heavy Group." For purposes of this Article XVII, an "Aggregation Group" shall mean: (i) each plan of a Participating Company in which a Key Employee is a Participant, and (ii) each other plan of a Participating Company which enables any plan described in (i) above to meet the requirements of Section 401(a)(4) or 410 of the Code. 91 Any plan of a Participating Company that is not required to be included in an Aggregation Group may be treated as part of such group if such group would continue to meet the requirements of Section 401(a)(4) and 410 of the Code with such plan taken into account. For purposes of this Section 17.4, a "Top-Heavy Group" means any Aggregation Group if the sum (as of the Determination Date) of the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in such group and the aggregate of the accounts of Key Employees under all defined contribution plans included in such group exceed 60% of a similar sum determined for all Employees. ARTICLE XVIII MISCELLANEOUS 18.1 No Enlargement of Employee Rights. --------------------------------- (a) This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Employee, or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. (b) Nothing contained in this Plan or the Trust shall be deemed to give any Employee the right to be retained in the employ of the Company or to interfere with the right of the Company to discharge or retire any Employee at any time. (c) No Employee, nor any other person, shall have any right to or interest in any portion of the Trust Fund other than as specifically provided in this Plan. 18.2 Mailing of Payments; Lapsed Benefits. ------------------------------------ (a) All payments under the Plan shall be delivered in person or mailed to the last address of the Participant (or, in the case of the death of the Participant, to the last address of any other person entitled to such payments under the terms of the Plan) furnished pursuant to Section 18.3 below. (b) In the event that a benefit is payable under this Plan to a Participant or any other person and after reasonable efforts such person cannot be located for the purpose of paying the benefit for a period of three (3) consecutive years, the Committee, in its sole discretion, may determine that such person conclusively shall be presumed dead and upon the termination of such three (3) year period the benefit shall be forfeited and as 92 soon thereafter as practicable shall be applied to reduce future Company Contributions; provided, however, should any person entitled to such benefit thereafter claim such benefit, such benefit shall be restored. Alternatively, benefits that cannot be paid may escheat to the state in accordance with applicable state law. (c) For purposes of this Section 18.2, the term "Beneficiary" shall include any person entitled under Section 8.9 to receive the interest of a deceased Participant or deceased designated Beneficiary. It is the intention of this provision that the benefit will be distributed to an eligible Beneficiary in a lower priority category under Section 8.9 if no eligible Beneficiary in a higher priority category can be located by the Committee after reasonable efforts have been made. (d) The Accounts of a Participant shall continue to be maintained until the amounts in the Accounts are paid to the Participant or his Beneficiary. Notwithstanding the foregoing, in the event that the Plan is terminated, the following rules shall apply: (i) All Participants (including Participants who have not previously claimed their benefits under the Plan) shall be notified of their right to receive a distribution of their interests in the Plan; (ii) All Participants shall be given a reasonable length of time, which shall be specified in the notice, in which to claim their benefits; (iii) All Participants (and their Beneficiaries) who do not claim their benefits within the designated time period shall be presumed to be dead. The Accounts of such Participants shall be forfeited at such time. These forfeitures shall be disposed of according to rules prescribed by the Committee, which rules shall be consistent with applicable law. (iv) The Committee shall prescribe such rules as it may deem necessary or appropriate with respect to the notice and forfeiture rules stated above. (e) Should it be determined that the preceding rules relating to forfeiture of benefits upon Plan termination are inconsistent with any of the provisions of the Code and/or ERISA, these provisions shall become inoperative without the need for a Plan amendment and the Committee shall prescribe rules that are consistent with the applicable provisions of the Code and/or ERISA. 93 18.3 Addresses. --------- Each Participant shall be responsible for furnishing the Committee with his correct current address and the correct current name and address of his Beneficiary or Beneficiaries. 18.4 Notices and Communications. -------------------------- (a) All applications, notices, designations, elections, and other communications from Participants shall be in writing, on forms prescribed by the Committee and shall be mailed or delivered to the office designated by the Committee, and shall be deemed to have been given when received by that office. (b) Each notice, report, remittance, statement and other communication directed to a Participant or Beneficiary shall be in writing and may be delivered in person or by mail. An item shall be deemed to have been delivered and received by the Participant when it is deposited in the United States Mail with postage prepaid, addressed to the Participant or Beneficiary at his last address of record with the Committee. 18.5 Reporting and Disclosure. ------------------------ The Plan Administrator shall be responsible for the reporting and disclosure of information required to be reported or disclosed by the Plan Administrator pursuant to ERISA or any other applicable law. 18.6 Governing Law. ------------- All legal questions pertaining to the Plan shall be determined in accordance with the provisions of ERISA and the laws of the State of California. All contributions made hereunder shall be deemed to have been made in California. 18.7 Interpretation. -------------- (a) Article and Section headings are for convenient reference only and shall not be deemed to be part of the substance of this instrument or in any way to enlarge or limit the contents of any Article or Section. Unless the context clearly indicates otherwise, masculine gender shall include the feminine, and the singular shall include the plural and the plural the singular. (b) The provisions of this Plan shall in all cases be interpreted in a manner that is consistent with this Plan satisfying: 94 (i) The requirements (of Code Section 401(a) and related statutes) for qualification as a Profit Sharing Plan; and (ii) The requirements (of Code Section 401(k) and related statutes) for qualification as a Qualified Cash or Deferred Arrangement. 18.8 Certain Securities Laws Rules. ----------------------------- Any election or direction made under this Plan by an individual who is or may become subject to liability under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), may be conditioned upon such restrictions as are necessary or appropriate to qualify for an applicable exemption under Section 16(b) of the Exchange Act, or any rule promulgated thereunder. To the extent required by Section 401(a)(4) of the Code, the rules under this Section 18.8 shall be administered in a non-discriminatory manner. 18.9 Withholding for Taxes. --------------------- Any payments out of the Trust Fund may be subject to withholding for taxes as may be required by any applicable federal or state law. 18.10 Limitation on Company; Committee and Trustee Liability. ------------------------------------------------------ Any benefits payable under this Plan shall be paid or provided for solely from the Trust Fund and neither the Company, the Committee nor the Trustee assume any responsibility for the sufficiency of the assets of the Trust to provide the benefits payable hereunder. 18.11 Successors and Assigns. ---------------------- This Plan and the Trust established hereunder shall inure to the benefit or, and be binding upon, the parties hereto and their successors and assigns. 18.12 Counterparts. ------------ This Plan document may be executed in any number of identical counterparts, each of which shall be deemed a complete original in itself and may be introduced in evidence or used for any other purpose without the production of any other counterparts. 95 IN WITNESS WHEREOF, in order to record the adoption of this Plan, Mattel, Inc. has caused this instrument to be executed by its duly authorized officers this 8th day of November, 2001, effective, however, as of October 1, 2001, except as otherwise expressly provided herein. MATTEL, INC. By: /s/ Alan Kaye --------------------------- Alan Kaye, Senior Vice President Human Resources 96 EX-10.49 18 dex1049.txt AMENDED & RESTATED 1990 STOCK OPTION PLAN EXHIBIT 10.49 AMENDED AND RESTATED MATTEL 1990 STOCK OPTION PLAN Effective 5/10/95 1. Objectives. The purpose of the MATTEL 1990 Stock Option Plan (the "Plan") is to promote the long-term success of the Company and the creation of incremental stockholder value by (a) encouraging Participants to focus on critical long-range objectives, (b) attracting and retaining Participants with exceptional qualifications and (c) linking Participants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Stock Options, Stock Appreciation Rights and stock or cash awards, which may be issued in combination or in tandem or may constitute incentive stock options or nonstatutory stock options. The Plan was adopted by the Board on May 10, 1989, subject to approval by the Company's stockholders. In the event of such approval this Plan replaces the 1978 Stock Option Plan and 1982 Stock Option and Restricted Stock Award Plan, but awards under such plans shall continue to be administered in accordance with the applicable plan. 2. Definitions. (a) "Award" The grant of any form of stock option, stock appreciation right, stock or cash award whether granted singly, in combination or in tandem to a Participant pursuant to such terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. (b) "Award Agreement" An agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to an Award. (c) "Board" The Board of Directors of Mattel, Inc. (d) "Capital Stock" or "stock" Authorized and issued or unissued Capital Stock of the Company. (e) "Code" The Internal Revenue Code of 1986, as amended from time-to- time. (f) "Committee" The Compensation/Options Committee of the Board, or such other committee of the Board that is designated by the Board to administer the Plan. The Committee shall be constituted to permit the Plan to comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934 or any successor rule and shall initially consist of not less than three members of the Board, all of whom shall be "disinterested persons" within the meaning of said Rule 16b-3. (g) "Company" Mattel, Inc. and its subsidiaries including subsidiaries of subsidiaries. (h) "Fair Market Value" Unless a different method or a different value is determined by the Committee, the Fair Market Value for purposes of this Plan shall be the closing price of the Capital Stock as reported on the New York Stock Exchange Composite Tape for that day or, if the New York Stock Exchange 1 is closed on the date in question, then the next preceding date on which the New York Stock Exchange was open. (i) "Participant" An employee of the Company to whom an Award has been made under the Plan. (j) "Retirement Date" The date a Participant has accumulated five years of continuous service with the Company and has reached his/her 55th birthday. 3. Eligibility. Employees of the Company eligible for an Award under the Plan are those who hold positions of responsibility and whose performance, in the judgment of the Committee or the management of the Company, can have a significant effect on the success of the Company. 4. Capital Stock Available for Awards. Up to 1% of the outstanding Capital Stock as determined on December 31 of the preceding year shall be available for Awards granted wholly or partly in stock during each calendar year in which the Plan is in effect; provided, however, an additional 3,000,000 and 1,375,000 shares of Capital Stock (collectively, the "Additional Awards") shall be available for such Awards for the years 1993 and 1994, respectively. From time-to-time, the Board of Directors and appropriate officers of the Company shall take whatever actions are necessary to file required documents with governmental authorities and stock exchanges to make shares of Capital Stock available for issuance pursuant to Awards. Capital Stock related to Awards that are forfeited, terminated, expire unexercised, settled in cash in lieu of stock or in such manner, that all or some of the Capital Stock covered by an Award are not issued to a Participant, or are exchanged for Awards that do not involve Capital Stock, shall immediately become available for Awards. Any Capital Stock not so used, as well as any unused portion of the percentage limit in any calendar year or of the Additional Award Shares, shall be carried forward and available for Awards in succeeding calendar years. 5. Administration. The Plan shall be administered by the Committee which shall have full and exclusive power to interpret the Plan, to grant waivers of Plan restrictions and to adopt such rules, regulations and guidelines for carrying out the Plan as it may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of the Plan. These powers include, but are not limited to, the adoption of modifications, amendments, procedures, subplans and the like as are necessary to comply with provisions of the laws of other countries in which the Company may operate in order to assure the viability of Awards granted under the Plan and to enable Participants employed in such other countries to receive advantages and benefits under the Plan and such laws. 6. Delegation of Authority. The Board may delegate to a member of the Board who is an officer of the Company authority to act between meetings of the Committee to grant options under the Plan pursuant to such conditions or limitations as the Board may establish, except that only the Committee may select Participants and grant Awards to Participants who are subject to Section 16 of the Securities Exchange Act of 1934. 2 7. Awards. The Committee shall determine the type or types of Award(s) to be made to each Participant and shall set forth in the related Award Agreement the terms, conditions and limitations applicable to each Award. Awards may include but are not limited to those listed in this Section 7. Awards may be granted singly, in combination or in tandem. Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to, grants or rights under any other employee plan of the Company, including the plan of any acquired entity. (a) Stock Option. A grant of a right to purchase a specified number of shares of Capital Stock at not less than 100% of Fair Market Value on the date of grant during a specified period as determined by the Committee. A stock option may be in the form of an incentive stock option ("ISO") which, in addition to being subject to applicable terms, conditions and limitations established by the Committee, complies with Section 422A of the Code. The number of shares of Capital Stock that shall be available for ISO's granted under the Plan is limited to 500,000. (b) Stock Appreciation Right. A right to receive a payment, in cash and/or Capital Stock, equal to the excess of the Fair Market Value or other specified valuation of a specified number of shares of Capital Stock on the date the stock appreciation right (SAR) is exercised over the Fair Market Value or other specified valuation on the date of grant of the SAR as set forth in the applicable Award Agreement. (c) Stock Award. An Award made in stock or denominated in units of stock. All or part of any stock award may be subject to conditions established by the Committee, and set forth in the Award Agreement, which may include, but are not limited to, continuous service with the Company, achievement of specific business objectives, increases in specified indices, attaining growth rates and other measurements of performance. Such Awards may be based on Fair Market Value or other specified valuation. (d) Cash Award. An Award denominated in cash or denominated in units with a cash value with the eventual payment amount subject to such restrictions and conditions as may be established by the Committee, and as set forth in the Award Agreement, which may include, but are not limited to, continuous service with the Company, achievement of specific business objectives, increases in specified indices, attaining growth rates and other measurements of performance. 8. Payment of Awards. Payment of Awards may be made in the form of cash, stock or combinations thereof and may include such restrictions as the Committee shall determine, including in the case of stock, restrictions on transfer and forfeiture provisions. When transfer of stock is so restricted or subject to forfeiture, it is referred to as "Restricted Stock." Further, with Committee approval, payments may be deferred, either in the form of installments or a future lump sum payment. The Committee may permit selected Participants to elect to defer payments of some or all types of Awards in accordance with procedures established by the Committee to assure that such deferrals comply with applicable requirements of the Code including, at the choice of Participants, the capability to make further deferrals for payment after retirement. Any deferred payment, whether elected by the Participant or specified by the Award Agreement or by the Committee, may require the payment be forfeited in accordance with the provisions of Section 13 of the Plan. Dividends or dividend 3 equivalent rights may be extended to and made part of any Award denominated in stock or units of stock, subject to such terms, conditions and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and dividend equivalents for deferred payments denominated in stock or units of stock. At the discretion of the Committee, a Participant may be offered an election to substitute an Award for another Award or Awards of the same or different type. 9. Stock Option Exercise. The exercise price of shares of Capital Stock issuable upon exercise of a stock option shall be paid in full at the time of the exercise in cash or, if permitted by the Committee, by means of tendering Capital Stock (including shares of Capital Stock issuable upon the exercise of the subject stock option) or surrendering another Award, including Restricted Stock, valued at Fair Market Value on the date of exercise, or any combination thereof. The Committee shall determine acceptable methods for tendering Capital Stock or other Awards and may impose such conditions on the use of Capital Stock or other Awards to exercise a stock option as it deems appropriate. In the event shares of Restricted Stock are tendered as consideration for the exercise of a stock option, a number of the shares issued upon the exercise of the stock option, equal to the number of shares of Restricted Stock used as consideration therefor, may be subject to the same restrictions as the Restricted Stock so submitted plus any additional restrictions that may be imposed by the Committee. An Award involving a stock option or similar right is only exercisable during a Participant's lifetime only by the Participants or the Participant's legal guardian but in no event shall such an Award be exercisable for at least six months after grant unless death or disability of the Participant should occur within such six-month period. 10. Tax Withholding. The Company shall have the right to deduct applicable taxes from any Award payment and withhold, at the time of delivery or vesting of shares under the Plan, an appropriate number of shares for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. If Capital Stock is used to satisfy tax withholding, such stock shall be valued based on the Fair Market Value of the Capital Stock on the date the applicable tax is required to be withheld. 11. Amendment, Modification, Suspension or Discontinuance of this Plan. The Board may amend, modify, suspend or terminate the Plan for the purpose of meeting or addressing any changes in requirements or for any other purpose permitted by law and if required by law or the rules of any national securities exchange, any such amendment or modification shall be approved by the holders of a majority of shares voting on the question; provided that at least 50% of the outstanding shares entitled to vote, vote on the question. 12. Termination of Employment. If the employment of a Participant terminates, other than pursuant to paragraphs (a) through (c) of this Section 12, all unexercised, deferred and unpaid Awards shall be cancelled immediately, unless the Award Agreement provides otherwise. 4 (a) Retirement. When a Participant's employment terminates on or after the Participant's Retirement Date, the Committee may permit Awards to continue in effect beyond the date of such termination in accordance with the applicable Award Agreement or such shorter period as the Committee may determine and the exercisability and vesting of any Award may be accelerated. (b) Resignation in the Best Interests of the Company. When a Participant resigns from the Company and, in the judgment of the Chief Executive Officer or other senior officer designated by the Committee, the acceleration and/or continuation of outstanding Awards would be in the best interests of the Company, the Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of Awards granted prior to such termination and (ii) permit the exercise, vesting and payment of such Awards for such period as may be set forth in the applicable Award Agreement, subject to earlier cancellation pursuant to Section 13 or at such time as the Committee shall deem that the continuation of all or any part of the Participant's Awards are not in the Company's best interests. (c) Death or Disability of a Participant. In the event of a Participant's death or disability, the Committee may permit awards to continue in effect beyond the date of such death or disability whether or not in accordance with the applicable Award Agreement or for such shorter period as the Committee may determine and the exercisability and vesting and payment of an Award may be accelerated. (i) In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period up to one year, but not beyond the expiration date specified in the Award Agreement, within which to exercise any outstanding Award held by the Participant under such terms as may be specified in the applicable Award Agreement. Rights to any such outstanding Awards shall pass by will or the laws of descent and distribution. (ii) In the event a Participant is deemed by the Company to be disabled and eligible for benefits pursuant to the terms of the Mattel, Inc., Personal Investment Plan or any successor plan, Awards and rights to any such Awards may be paid to or exercised by the Participant, if legally competent, or such legally designated guardian or representative if the Participant is legally incompetent by virtue of such disability. 13. Cancellation and Rescission of Awards. Unless the Award Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred Awards at any time if the Participant is not in compliance with all applicable provisions of the Award Agreement and the Plan including the following conditions: (a) A Participant shall not render services for any organization or engage directly or indirectly in any business which, 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 5 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 5 percent equity interest in the organization or business. (b) A Participant shall not, without prior written authorization from the Company, disclose to anyone outside the Company, or use in other than the Company's business, any confidential information or material, as those terms are used in the Company's Employee Patent and Confidence Agreement, relating to the business of the Company, acquired by the Participant either during or after employment with the Company. (c) A Participant, pursuant to the Company's Employee Patent and Confidence Agreement, shall disclose promptly and assign to the Company all right, title, and interest in any invention or idea, patentable or not, made or conceived by the Participant during employment by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company and shall do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in foreign countries. (d) Upon exercise, payment or delivery pursuant to an 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 13 prior to, or during the six months after, any exercise, payment or delivery pursuant to an Award shall cause such exercise, payment or delivery to be rescinded. The Company shall notify the Participant in writing of any such rescission within two years after such exercise, payment or delivery. Within ten 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 Capital Stock that the Participant received in connection with the rescinded exercise, payment or delivery. 14. Assignability and Dispositions. Except pursuant to paragraph (c) of Section 12, no Award or any other benefit under the Plan shall be assignable or transferable, or payable to or exercisable by anyone other than the Participant to whom it was granted. 15. Adjustments. In the event of any change in the outstanding Capital Stock of the Company by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or similar event, the Committee shall adjust proportionally (a) the number of shares of Capital Stock (i) reserved under the Plan, (ii) available for ISO's and (iii) covered by outstanding Awards denominated in stock or units of stock; (b) the stock prices related to outstanding Awards; and (c) the appropriate Fair Market Value and other price determinations for such Awards. In the event of any other change affecting the Capital Stock or any distribution (other than normal cash dividends) to holders of Capital Stock, such adjustments as may be deemed equitable by the Committee, including adjustments to avoid fractional shares, shall be made to give 6 proper effect to such event. In the event of a corporate merger, consolidation, acquisition of property or stock, or reorganization where Mattel is the survivor, the Committee shall be authorized to issue or assume stock options, whether or not in a transaction to which Section 425(a) of the Code applies, by means of substitution of new options for previously issued options or an assumption of previously issued options. 16. Notice. Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the Corporate Secretary of the Company, and shall become effective when it is received by the office of the Corporate Secretary. 17. Unfunded Plan. Insofar as it provides for Awards of cash and Capital Stock, the Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Capital Stock or rights thereto under the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Capital Stock or rights thereto, nor shall the Plan be construed as providing for such segregation, nor shall the Company nor the Board nor the Committee be deemed to be a trustee of any cash, Capital Stock or rights thereto to be granted under the Plan. Any liability of the Company to any Participant with respect to a grant of cash, Capital Stock or rights thereto under the Plan shall be based solely upon any contractual obligations that may be created by the Plan and any Award Agreement; no such obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. Neither the Company nor the Board nor the Committee shall be required to give any security or bond for the performance of any obligation that may be created by the Plan. 18. Employment. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain employed by the Company. The Company reserves the right to terminate the employment of any employee at any time, with or without cause, subject only to a written employment agreement (if any). 19. Effect of Change in Control. The Committee, at its sole discretion, may determine, at the time of granting an Award or thereafter, that in the event that a Change of Control occurs with respect to the Company, such Award shall become fully exercisable in the case of stock options and SAR's as to all Capital Stock subject to such stock option and SAR, and all restrictions and conditions shall be deemed to have been met or lapsed in the case of Stock Awards and Cash Awards as to all Capital Stock or cash subject to such Stock Awards or Cash Awards. A Change of Control shall be determined by reference to the Company's Rights Agreement adopted by the Board of Directors on November 6, 1986 and shall be deemed to have occurred on the Distribution Date as defined in the Rights Agreement or, if the Rights have been redeemed on the date the Distribution Date would have occurred under Section 23 of the Rights Agreement had the Rights not been redeemed. 20. Governing Law. 7 The Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the Code or the securities laws of the United States, shall be governed by the laws of the State of California and construed accordingly. 21. Effective and Termination Dates. The Plan shall become effective upon its adoption by the Board; provided, however, that if the Plan is not approved by the stockholders of the Company at or before the Annual Meeting of Stockholders to be held in 1990, the Plan and all Awards granted hereunder shall be of no effect. Stockholder approval shall be obtained, at a meeting held to take such action at which a quorum is present, by the affirmative vote of the holders of a majority of the shares of Capital Stock of the Company present in person or by proxy and entitled to vote. The Plan shall terminate ten years later, subject to earlier termination by the Board pursuant to Section 11. 8 EX-10.58 19 dex1058.txt AMENDED & RESTATED 1996 STOCK OPTION PLAN EXHIBIT 10.58 AMENDED AND RESTATED MATTEL 1996 STOCK OPTION PLAN 1. Purpose. The purpose of the Amended and Restated Mattel, Inc. 1996 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, directors, and other persons providing services 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) "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. (c) "Committee" means the Compensation/Options Committee of the Board, or such other committee of the Board that is designated by the Board to administer the Plan. In the event that one or more members of the Committee do not comply with the eligibility requirements of Rule 16b-3 or Code Section 162(m), then the entire Board may serve as the Committee for purposes of this Plan. (d) "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. (e) "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. (f) "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. 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. (g) "Exchange Act" means the Securities Exchange Act of 1934, as amended and in effect from time to time, or any successor statute. 1 (h) "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. In the case of an Incentive Stock Option, "Fair Market Value" shall be determined without reference to any restriction other than one that, by its terms, will never lapse. (i) "Grant" means an award of an Option or Restricted Stock. (j) "Incentive Stock Option" means an option to purchase Common Stock that is intended to be and is specifically designated as an incentive stock option under Section 422 of the Code. (k) "Insider" means a person or entity that is subject to the provisions of Section 16 of the Exchange Act. (l) "Non-Qualified Stock Option" means an option to purchase Common Stock that is intended not to be and is specifically designated as not being an Incentive Stock Option. (m) "Option" means an Incentive Stock Option or a Non-Qualified Stock Option. (n) "Outside Director" means a director who is not also an employee of the Company. In the case of an individual who was formerly an employee of the Company, the individual will not be considered to be an Outside Director for purposes of Section 14 below until the first anniversary of his Severance. Such an individual shall be eligible to receive Grants pursuant to Section 14 below on the first day on which the individual is again elected to the Board of Directors after such anniversary. (o) "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). (p) "Participant" means a person who has received a Grant. (q) "Plan" means this Amended and Restated Mattel, Inc. 1996 Stock Option Plan, as it may be amended from time to time. (r) "Restricted Stock" means shares of Common Stock issued pursuant Section 11 below that are subject to restrictions on ownership. (s) "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act and as amended from time to time. 2 (t) "Severance" means, with respect to a Participant, the termination of his or her provision of services to the Company as an employee, director, or independent contractor, whether by reason of death, disability, resignation, dismissal, or any other reason. For purposes of determining the exercisability of an Incentive Stock Option, a Participant who is on a leave of absence that exceeds ninety (90) days will be considered to have incurred a Severance on the ninety-first (91st) day of the leave of absence, unless his or her rights to reemployment are guaranteed by statute or contract. 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). (u) "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 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. (v) "Subsidiary" shall mean 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). (w) For purposes of the rules relating to Incentive Stock Options, "Ten Percent Stockholder" means any person who owns (after taking into account the constructive ownership rules of Section 424(d) of the Code) more than ten percent (10%) of the capital stock of the Company or of any of its Parents or Subsidiaries. 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. 3 (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 January 1, 1996, and was approved by the Company's stockholders on May 8, 1996. If either of the items set forth below are changed, the approval of the stockholders must again be obtained to preserve the ability of Incentive Stock Options to qualify for favorable tax treatment: (i) The class of employees entitled to receive Incentive Stock Options; and (ii) The aggregate number of shares of Common Stock that may be issued under the Plan, except as adjusted pursuant to Section 18 below. (b) Unless terminated earlier pursuant to Section 19, this Plan shall terminate on December 31, 2005, except with respect to Options, Restricted Stock, and Stock Appreciation Rights then outstanding. 5. Number of Shares. (a) The maximum number of shares of Common Stock for which Grants may be awarded under the Plan in a calendar year during any part of which the Plan is effective shall be one and a half percent (1.5%) of the total outstanding shares of the capital stock of the Company as of the first day of that calendar year. Any unused portion of the percentage limit for any calendar year shall be carried forward and be made available for Grants in succeeding calendar years. However, in no event shall more than fifty million (50,000,000) shares of Common Stock be cumulatively available for Grants under the Plan. 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. 4 (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, directors, and other persons providing services to the Company. However, Incentive Stock Options may only be granted to employees. (b) 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, taking into account the limitations of Code Section 424(a) in the case of a Substitute Option that is intended to be an Incentive Stock Option. 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) above, the exercise price of a Non-Qualified Stock 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. Except in the case of Options subject to the provisions of Section 6(b) above, the exercise price of an Incentive Stock Option, determined on the date of the Grant, shall be no less than: (i) One hundred ten percent (110%) of the Fair Market Value of the Common Stock in the case of a Ten Percent Stockholder; or (ii) One hundred percent (100%) of the Fair Market Value of the Common Stock in the case of any other employee. (b) Except in the case of Options subject to the provisions of Section 6(b) above, the aggregate Fair Market Value (determined as of the date of Grant) of the number of shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year shall not exceed one hundred thousand dollars ($100,000) or such other limit as may be required by Code Section 422. (c) 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 5 currently or only when the Option is exercised, and whether any interest accrues on any unpaid dividend equivalent rights. In deciding whether to grant dividend equivalent rights to an individual, the Committee shall take into consideration the impact (if any) under Code Section 162(m) of granting such rights in connection with the Option. 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. 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: (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) The date that is sixty (60) 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 6 of death, 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. (b) 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. 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., an Incentive Stock Option or 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. Furthermore, Reload Options will not be available with respect to the exercise of Options issued pursuant to Section 14 below (relating to Outside Directors). 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 stockholder of the 7 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 a Non-Qualified Stock Option, such rights may be granted either at or after the time of the Grant of the Option. In the case of an Incentive Stock Option, the rights may be granted only at the time of the Grant of the Incentive Stock 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. Furthermore, Stock Appreciation Rights issued to Insiders may only be exercised in accordance with Rule 16b-3. 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. Outside Directors. Outside Directors may participate in the Plan only in accordance with this Section 14. (a) Upon the date of the commencement of an individual's service as an Outside Director, the individual shall receive a Non-Qualified Stock Option to purchase fifteen thousand (15,000) shares of Common Stock. In the case of an individual who already was a member of the Board on the date of stockholder approval of the Plan, that individual will receive a similar Grant on that date. The exercise price will be the Fair Market Value of the stock on the date on which the individual is elected to the Board, or the date of stockholder approval of the Plan in the case of an individual who was a director before the date of stockholder approval of the Plan. The Option will be immediately exercisable, and it will expire on the tenth anniversary of the date of its Grant. (b) Upon the date of each subsequent re-election to the Board, each Outside Director shall receive a Non-Qualified Stock Option in the amount of shares corresponding to his or her years of service as set forth in the table below. The exercise price will be the Fair Market Value of the stock 8 on the date on which such individual is re-elected to the Board. In calculating years of service, partial years of service shall be counted as whole years of service. YEARS OF AMOUNT OF SERVICE OPTION -------- --------- 1-5 5,000 6+ 10,000 This Option shall vest at the rate of twenty-five percent (25%) per year of service, and shall expire on the tenth anniversary of the date of its Grant. (c) Except as otherwise required to conform to the requirements of applicable laws, the provisions of this Section 14 may not be amended more than once every six (6) months. 15. Bonus Grants and Grants In Lieu Of Compensation. (a) 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. (b) The Committee is authorized to grant shares of Common Stock to members of the Board, including members of the Committee, in lieu of all or a lesser percentage of their compensation for service on the Board or any committee of the Board. Such shares of Common Stock shall be valued at the Fair Market Value on the date of grant, which shall be the date such compensation would otherwise have been paid by the Company in cash. Such grants of Common Stock shall be upon such terms and conditions as the Committee shall deem appropriate. 16. Modification of Options. (a) The Committee may modify an existing Option, including the right to: (i) Accelerate the right to exercise it; (ii) Extend or renew it; or (iii) 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. The Committee may make similar modifications to Grants of Restricted Stock. (b) In the event that the Board amends the terms of an Option so that it no longer qualifies as an Incentive Stock Option under Code Section 422, the limitations imposed upon the Option under the 9 Code and the Plan solely by virtue of it (formerly) qualifying as an Incentive Stock Option shall no longer apply, to the extent specified in the amendment. (c) Whether a modification of an existing Incentive Stock Option will be treated as the issuance of a new Incentive Stock Option will be determined in accordance with the rules of Code Section 424(h). (d) Whether a modification of an existing Option granted to an Insider will be treated as a new Option for purposes of Section 16 of the Exchange Act will be determined in accordance with Rule 16b-3. 17. Non-transferability of Grants. (a) During the lifetime of the Participant, Incentive Stock Options are exercisable only by the Participant. Incentive Stock Options are not assignable or transferable except by will or the laws of descent and distribution. (b) Except to the extent specified in the Grant, Non-Qualified Stock Options will be subject to the same restrictions on non-transferability that apply to Incentive Stock Options. The Committee shall prescribe such rules and procedures as it deems appropriate regarding the transfer of Non- Qualified Stock 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. (c) 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. 10 (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) of the Company, all Options and Stock Appreciation Rights then outstanding shall become fully exercisable as of the date of the Change in Control, 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, and the Plan shall terminate as of the date of the Change in Control. (b) A "Change in Control" shall be deemed to have occurred on: (i) The "Distribution Date," as that term is defined in Section 1(h) of the Company's Rights Agreement dated February 7, 1992, as it may be amended from time to time. The definition of "Distribution Date" contained in the Company's Rights Agreement shall continue to apply, notwithstanding the expiration or termination of that agreement; or (ii) The date (during any period of two (2) consecutive calendar years) that individuals who at the beginning of such period constituted the Company's Board of Directors, cease for any reason (other than natural causes, including death, disability, or retirement) to constitute a majority thereof; or (iii) The date the stockholders of the Company approve: (A) A plan of complete liquidation of the Company; (B) An agreement for the sale or disposition of all or substantially all of the assets of the Company; or (C) A merger, consolidation, or reorganization of the Company with or involving any other corporation, other than a merger, consolidation, or reorganization that would result in the voting stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting stock of the surviving entity) at least eighty percent (80%) of the combined voting power of the stock that is outstanding immediately after the merger, consolidation, or reorganization, unless the Board of Directors of the Company determines by a majority vote prior to the merger, consolidation, or reorganization that no Change in Control will occur as a result of such transaction. 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. 11 (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. (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. 12 21. Notice of Disqualifying Disposition. A Participant must notify the Company if the Participant disposes of stock acquired pursuant to the exercise of an Incentive Stock Option issued under the Plan prior to the expiration of the holding periods required to qualify for long-term capital gains treatment on the sale. 22. Amendments and Termination. Except as set forth in Section 14(c), 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. 24. No Additional Rights. (a) Neither the adoption of this Plan nor the granting of any Option or Restricted Stock shall: (i) Affect or restrict in any way the power of the Company to undertake any corporate action otherwise permitted under applicable law; or (ii) Confer upon any Participant the right to continue performing services for the Company, nor shall it interfere in any way with the right of the Company to terminate the services of any Participant at any time, with or without cause. (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. 13 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 thereunder shall be governed by and construed in accordance with the laws of the State of Delaware. To signify its adoption of this Plan, the Company has caused its execution. MATTEL, INC., a Delaware Corporation /s/ E. Joseph McKay -------------------------------------- E. Joseph McKay Senior Vice President, Human Resources Date: November 8, 1996 ---------------- 14 EX-10.64 20 dex1064.txt AMENDMENT TO 1996 STOCK OPTION PLAN EXHIBIT 10.64 AMENDMENT TO THE AMENDED AND RESTATED MATTEL 1996 STOCK OPTION PLAN Pursuant to authority granted by the Board of Directors of Mattel, Inc. (the "Company") in resolutions adopted on May 15, 2000, the Amended and Restated Mattel 1996 Stock Option Plan (the "Plan") is hereby amended, effective as of May 15, 2000, as set forth below. 1. Section 3 of the Plan is hereby amended by adding a new Paragraph (f), reading in its entirety as follows: (f) Notwithstanding the foregoing and Section 5(a), the Board shall have the authority to grant to Robert A. Eckert an Option to acquire 3,000,000 shares as an inducement to enter into an employment agreement with the Company as the Chief Executive Officer. * * * 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 HR Date: March 4, 2002 EX-11.0 21 dex110.txt COMPUTATION OF INCOME EXHIBIT 11.0 (Page 1 of 2) MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except per share amounts)
For the Year Ended December 31, (a)(b) ---------------------------------------------------- BASIC 2001 2000 1999 1998 1997 - ----- -------- --------- --------- --------- --------- Income from continuing operations.............. $310,920 $ 170,177 $ 108,387 $ 328,253 $ 289,794 Loss from discontinued operations.............. -- (601,146) (190,760) (122,200) (467,905) Deduct: Dividends on convertible preferred stock................... -- -- (3,980) (7,960) (10,505) -------- --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principles and extraordinary item for computation of income per share............... 310,920 (430,969) (86,353) 198,093 (188,616) Cumulative effect of change in accounting principles.............. (12,001) -- -- -- -- Extraordinary item....... -- -- -- -- (4,610) -------- --------- --------- --------- --------- Net income (loss) applicable to common shares.................. $298,919 $(430,969) $ (86,353) $ 198,093 $(193,226) ======== ========= ========= ========= ========= Applicable Shares for Computation of Income (Loss) per Share: Weighted average common shares outstanding.... 430,983 426,166 414,186 390,210 369,870 ======== ========= ========= ========= ========= Basic Income (Loss) Per Common Share: Income from continuing operations............ $ 0.72 $ 0.40 $ 0.25 $ 0.82 $ 0.76 Loss from discontinued operations............ -- (1.41) (0.46) (0.31) (1.27) Cumulative effect of change in accounting principles............ (0.03) -- -- -- -- Extraordinary item..... -- -- -- -- (0.01) -------- --------- --------- --------- --------- Net income (loss) per common share........ $ 0.69 $ (1.01) $ (0.21) $ 0.51 $ (0.52) ======== ========= ========= ========= =========
- -------- (a) Consolidated financial information for 1997-1999 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. As more fully described in Note 13 to the Consolidated Financial Statements, the Consumer Software segment, which was comprised primarily of Learning Company, was reported as a discontinued operation effective March 31, 2000, and the consolidated financial statements were reclassified to segregate the net investment in, and the liabilities and operating results of the Consumer Software segment. Consolidated financial information for 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 the mergers with Learning Company and Tyco in 1999 and 1997, respectively. EXHIBIT 11.0 (Page 2 of 2) MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE (In thousands, except per share amounts)
For the Year Ended December 31, (a)(b) ---------------------------------------------------- DILUTED 2001 2000 1999 1998 1997 - ------- -------- --------- --------- --------- --------- Income from continuing operations.............. $310,920 $ 170,177 $ 108,387 $ 328,253 $ 289,794 Loss from discontinued operations.............. -- (601,146) (190,760) (122,200) (467,905) Add: Interest savings, net of tax, applicable to: Assumed conversion of 7% Notes.............. -- -- -- -- 479 Deduct: Dividends on convertible preferred stock................... -- -- (3,980) (7,960) (10,505) -------- --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principles and extraordinary item for computation of income per share............... 310,920 (430,969) (86,353) 198,093 (188,137) Cumulative effect of change in accounting principles.............. (12,001) -- -- -- -- Extraordinary item....... -- -- -- -- (4,610) -------- --------- --------- --------- --------- Net income (loss) applicable to common shares.................. $298,919 $(430,969) $ (86,353) $ 198,093 $(192,747) ======== ========= ========= ========= ========= Applicable Shares for Computation of Income (Loss) Per Share: Weighted average common shares outstanding.... 430,983 426,166 414,186 390,210 369,870 Weighted average common equivalent shares arising from: Dilutive stock options............. 4,765 960 3,920 8,501 5,665 Assumed conversion of convertible preferred stock..... -- -- 6,510 18,000 1,438 Assumed conversion of notes............... -- -- -- -- 589 Stock subscription and other warrants.. 418 -- 606 4,812 1,165 Nonvested stock...... -- -- 59 184 -- -------- --------- --------- --------- --------- Weighted average number of common and common equivalent shares....... 436,166 427,126 425,281 421,707 378,727 ======== ========= ========= ========= ========= Diluted Income (Loss) Per Common Share: Income from continuing operations............ $ 0.71 $ 0.40 $ 0.25 $ 0.76 $ 0.74 Loss from discontinued operations............ -- (1.41) (0.45) (0.29) (1.24) Cumulative effect of change in accounting principles............ (0.03) -- -- -- -- Extraordinary item..... -- -- -- -- (0.01) -------- --------- --------- --------- --------- Net income (loss) per common share.......... $ 0.68 $ (1.01) $ (0.20) $ 0.47 $ (0.51) ======== ========= ========= ========= =========
- -------- (a) Consolidated financial information for 1997-1999 has been restated retroactively for the effects of the May 1999 merger with Learning Company, accounted for as a pooling of interests. As more fully described in Note 13 to the Consolidated Financial Statements, the Consumer Software segment, which was comprised primarily of Learning Company, was reported as a discontinued operation effective March 31, 2000, and the consolidated financial statements were reclassified to segregate the net investment in, and the liabilities and operating results of the Consumer Software segment. Consolidated financial information for 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 the mergers with Learning Company and Tyco in 1999 and 1997, respectively. EX-12.0 22 dex120.txt COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.0 (Page 1 of 2) MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Amounts in thousands, except ratios)
For the Year Ended December 31, (a)(b) ------------------------------------------------ 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Earnings available for fixed charges: Income from continuing operations before income taxes, cumulative effect of change in accounting principles and extraordinary item........ $430,010 $225,424 $170,164 $459,446 $425,082 Less (plus) minority interest and undistributed income (loss) of less- than-majority-owned affiliates, net........... 170 440 145 (165) (144) Add: Interest expense......... 155,132 152,979 131,609 110,833 90,130 Appropriate portion of rents (c)............... 14,923 14,748 11,974 16,262 17,665 -------- -------- -------- -------- -------- Earnings available for fixed charges........... $600,235 $393,591 $313,892 $586,376 $532,733 ======== ======== ======== ======== ======== Fixed charges: Interest expense........... $155,132 $152,979 $131,609 $110,833 $ 90,130 Capitalized interest....... 6 507 527 993 991 Appropriate portion of rents (c)................. 14,923 14,748 11,974 16,262 17,665 -------- -------- -------- -------- -------- Fixed charges.............. $170,061 $168,234 $144,110 $128,088 $108,786 ======== ======== ======== ======== ======== Ratio of earnings to fixed charges..................... 3.53x 2.34x 2.18x 4.58x 4.90x ======== ======== ======== ======== ========
- -------- (a) Although Mattel merged with The Learning Company, Inc. ("Learning Company") in May 1999, the results of operations of Learning Company have not been included in this calculation since the Consumer Software segment was reported as a discontinued operation effective March 31, 2000. (b) The ratio of earnings to fixed charges for 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. EXHIBIT 12.0 (Page 2 of 2) MATTEL, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Amounts in thousands, except ratios)
For the Year Ended December 31, (a)(b) ------------------------------------------------ 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Earnings available for fixed charges: Income from continuing operations before income taxes, cumulative effect of change in accounting principles and extraordinary item........ $430,010 $225,424 $170,164 $459,446 $425,082 Less (plus) minority interest and undistributed income (loss) of less- than-majority-owned affiliates, net........... 170 440 145 (165) (144) Add: Interest expense......... 155,132 152,979 131,609 110,833 90,130 Appropriate portion of rents (c)............... 14,923 14,748 11,974 16,262 17,665 -------- -------- -------- -------- -------- Earnings available for fixed charges........... $600,235 $393,591 $313,892 $586,376 $532,733 ======== ======== ======== ======== ======== Fixed charges: Interest expense........... $155,132 $152,979 $131,609 $110,833 $ 90,130 Capitalized interest....... 6 507 527 993 991 Dividends--Series B preferred stock........... -- -- -- -- 2,537 Dividends--Series C preferred stock........... -- -- 3,980 7,960 7,968 Appropriate portion of rents (c)................. 14,923 14,748 11,974 16,262 17,665 -------- -------- -------- -------- -------- Fixed charges.............. $170,061 $168,234 $148,090 $136,048 $119,291 ======== ======== ======== ======== ======== Ratio of earnings to combined fixed charges and preferred stock dividends............. 3.53x 2.34x 2.12x 4.31x 4.47x ======== ======== ======== ======== ========
- -------- (a) Although Mattel merged with Learning Company in May 1999, the results of operations of Learning Company have not been included in this calculation since the Consumer Software segment was reported as a discontinued operation effective March 31, 2000. (b) The ratio of earnings to combined fixed charges and preferred stock dividends for 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. EX-21.0 23 dex210.txt SUBSIDIARIES Exhibit 21.0 SUBSIDIARIES OF MATTEL, INC. ----------------------------
Percentage of Voting Securities Jurisdiction Owned Directly in Which or Indirectly Subsidiaries/1/ Organized By Parent/2/ - ------------------------------------------------------------------- ----------------------------- ------------------- Fisher-Price, Inc. Delaware 100% Mattel International Holdings B.V. The Netherlands 100% Mattel Investment, Inc. Delaware 100% Mattel Overseas, Inc. California 100% Mattel Sales Corp. California 100% Pleasant Company Wisconsin 100%
______________________ /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. EX-23.0 24 dex230.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.0 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in each of the thirteen 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, No. 333-79099 and No. 333-64984), and in the Registration Statements on Form S-3 (No. 333-68017 and No. 333-73177) of Mattel, Inc. and its subsidiaries of our report dated January 30, 2002 relating to the financial statements and financial statement schedule, which appears in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP Los Angeles, California March 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----