-----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, HmAPhT35+rI/NNCV0BCtQ4OoRMz2zkC3YQQ3VP0r6yAJ+LSkRRLS2XrbY+2HRmjS fYmFk9qhiCfLXpRbSMxmOA== 0000063276-96-000040.txt : 19961118 0000063276-96-000040.hdr.sgml : 19961118 ACCESSION NUMBER: 0000063276-96-000040 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE SROS: PSE 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05647 FILM NUMBER: 96664626 BUSINESS ADDRESS: STREET 1: 333 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3102522000 10-Q 1 3RD QUARTER 1996 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-05647 ---------------------------------- MATTEL, INC. ------------ (Exact name of registrant as specified in its charter) Delaware 95-1567322 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Continental Boulevard, El Segundo, California 90245-5012 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (310) 252-2000 -------------- (Former name, former address and former fiscal year, None if changed since last report) -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Number of shares outstanding of registrant's common stock as of November 8, 1996: Common Stock - $1 par value -- 271,784,790 shares PART I -- FINANCIAL INFORMATION ------------------------------- MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
Sept. 30, Sept. 30, Dec. 31, (In thousands) 1996 1995 1995 - -------------- ----------- ----------- ----------- ASSETS Current Assets Cash $ 97,094 $ 84,221 $ 466,082 Marketable securities - 16,596 17,375 Accounts receivable, net 1,232,905 1,313,760 679,283 Inventories 477,571 463,037 350,841 Prepaid expenses and other current assets 205,039 201,380 177,238 ----------- ----------- ----------- Total current assets 2,012,609 2,078,994 1,690,819 ----------- ----------- ----------- Property, Plant and Equipment Land 28,387 25,997 25,724 Buildings 206,117 192,293 192,323 Machinery and equipment 399,643 348,943 354,469 Capitalized leases 24,271 24,271 24,271 Leasehold improvements 57,868 50,978 51,629 ----------- ----------- ----------- 716,286 642,482 648,416 Less: accumulated depreciation 292,920 269,936 265,885 ----------- ----------- ----------- 423,366 372,546 382,531 Tools, dies and molds, net 139,186 114,030 116,783 ----------- ----------- ----------- Property, plant and equipment, net 562,552 486,576 499,314 ----------- ----------- ----------- Other Noncurrent Assets Intangible assets, net 399,927 424,654 422,796 Sundry assets 111,246 72,260 82,580 ----------- ----------- ----------- $ 3,086,334 $ 3,062,484 $ 2,695,509 =========== =========== =========== See accompanying notes to consolidated financial information.
2 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
Sept. 30, Sept. 30, Dec. 31, (In thousands, except share data) 1996 1995 1995 - --------------------------------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 318,104 $ 243,390 $ 15,520 Current portion of long-term liabilities 105,216 31,939 33,215 Accounts payable 226,647 233,863 250,401 Accrued liabilities 414,227 470,058 410,362 Income taxes payable 191,510 229,752 138,183 ----------- ----------- ----------- Total current liabilities 1,255,704 1,209,002 847,681 ----------- ----------- ----------- Long-Term Liabilities 6-7/8% Senior Notes due 1997 - 99,713 99,752 6-3/4% Senior Notes due 2000 100,000 100,000 100,000 Medium-Term Notes 220,000 220,000 220,000 Mortgage note 44,245 44,693 44,585 Other 116,540 105,746 108,322 ----------- ----------- ----------- Total long-term liabilities 480,785 570,152 572,659 ----------- ----------- ----------- Shareholders' Equity Preference stock - 9 - Common stock $1.00 par value, 600.0 million shares authorized with 279.1 million shares issued (a) 279,058 223,254 279,058 Additional paid-in capital 116,354 233,750 103,512 Treasury stock at cost; 8.8 million shares, 2.7 million shares and 3.6 million shares, respectively (a) (228,039) (53,489) (75,574) Retained earnings (b) 1,256,406 939,992 1,041,735 Currency translation and other adjustments (b) (73,934) (60,186) (73,562) ----------- ----------- ----------- Total shareholders' equity 1,349,845 1,283,330 1,275,169 ----------- ----------- ----------- $ 3,086,334 $ 3,062,484 $ 2,695,509 =========== =========== =========== (a) Share data for September 1995 have been restated for the effect of the five-for-four stock split declared in February 1996. (b) Since December 26, 1987. See accompanying notes to consolidated financial information.
3 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For the For the Three Months Ended Nine Months Ended ---------------------- ---------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, (In thousands, except per share amounts) 1996 1995 1996 1995 - ---------------------------------------- ---------- ---------- ---------- ---------- Net Sales $1,232,179 $1,176,484 $2,595,413 $2,483,528 Cost of sales 592,909 593,535 1,291,812 1,274,865 ---------- ---------- ---------- ---------- Gross Profit 639,270 582,949 1,303,601 1,208,663 Advertising and promotion expenses 187,291 182,355 369,947 367,673 Other selling and administrative expenses 173,542 159,359 471,085 432,775 Interest expense 21,795 22,734 52,491 51,804 Other expense (income), net 7,735 (9,025) 18,693 (13,169) ---------- ---------- ---------- ---------- Income Before Income Taxes 248,907 227,526 391,385 369,580 Provision for income taxes 80,900 76,200 127,200 123,800 ---------- ---------- ---------- ---------- Net Income 168,007 151,326 264,185 245,780 Preference stock dividend requirements - 1,099 - 3,297 ---------- ---------- ---------- ---------- Net Income Applicable to Common Shares $ 168,007 $ 150,227 $ 264,185 $ 242,483 ========== ========== ========== ========== Primary Income Per Common And Common Equivalent Share - ------------------------------------ Net income $ 0.61 $ 0.53 $ 0.95 $ 0.86 ========== ========== ========== ========== Average number of common and common equivalent shares 276,939 281,904 279,395 280,964 ========== ========== ========== ========== Dividends Declared Per Common Share $ 0.060 $ 0.048 $ 0.180 $ 0.144 ========== ========== ========== ========== See accompanying notes to consolidated financial information.
4 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended ----------------------- Sept. 30, Sept. 30, (In thousands) 1996 1995 - -------------- ---------- ---------- Cash Flows From Operating Activities: - ------------------------------------- Net income $ 264,185 $ 245,780 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 110,130 93,290 Gain on sale of business - (9,142) Deferred compensation (5,053) 6,918 (Increase) in accounts receivable (564,832) (557,433) (Increase) in inventories (129,353) (123,383) (Increase) in prepaid expenses and other current assets (1,740) (20,825) Increase in accounts payable, accrued liabilities and income taxes payable 54,313 13,637 Other, net 12,310 (8,491) ---------- ---------- Net cash flows used for operating activities (260,040) (359,649) ---------- ---------- Cash Flows From Investing Activities: - ------------------------------------- Purchases of tools, dies and molds (70,235) (69,893) Purchases of other property, plant and equipment (85,613) (83,478) Purchases of marketable securities (8,000) (28,014) Purchase of other long-term investment (25,050) - Proceeds from sale of business - 21,129 Proceeds from sales of other property, plant and equipment 2,226 3,179 Proceeds from sales of marketable securities 25,315 31,588 Contingent consideration - investment in acquired business (8,625) (8,625) Other, net (91) 730 ---------- ---------- Net cash flows used for investing activities (170,073) (133,384) ---------- ---------- Cash Flows From Financing Activities: - ------------------------------------- Short-term borrowings 303,826 245,258 Issuance of Medium-Term Notes - 139,500 Payment of Medium-Term Notes (30,000) - Long-term foreign borrowing (3,610) (923) Tax benefit of employee stock options exercised 18,128 7,713 Exercise of stock options 43,407 24,521 Purchase of treasury stock (222,273) (40,002) Dividends paid on common and preference stock (46,378) (40,633) Other, net (338) (216) ---------- ---------- Net cash flows from financing activities 62,762 335,218 Effect of Exchange Rate Changes on Cash (1,637) 2,936 ---------- ---------- (Decrease) in Cash (368,988) (154,879) Cash at Beginning of Period 466,082 239,100 ---------- ---------- Cash at End of Period $ 97,094 $ 84,221 ========== ========== See accompanying notes to consolidated financial information.
5 MATTEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL INFORMATION ------------------------------------------- 1. The accompanying unaudited consolidated financial statements and related disclosures have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position and interim results as of and for the periods presented have been included. Certain amounts in the financial statements for prior periods have been reclassified to conform with the current year presentation. Because the Company's business is seasonal, results for interim periods are not necessarily indicative of those which may be expected for a full year. The financial information included herein should be read in conjunction with the Company's consolidated financial statements and related notes in its 1995 Annual Report to Shareholders. 2. Accounts receivable are shown net of allowances for doubtful accounts of $15.3 million (September 30, 1996), $14.8 million (September 30, 1995) and $10.8 million (December 31, 1995). 3. Inventories are comprised of the following:
Sept. 30, Sept. 30, Dec. 31, (In thousands) 1996 1995 1995 - -------------- --------- --------- --------- Raw materials and work in progress $ 71,867 $ 72,748 $ 52,528 Finished goods 405,704 390,289 298,313 --------- --------- --------- $ 477,571 $ 463,037 $ 350,841 ========= ========= =========
4. Supplemental disclosure of cash flow information:
For the Nine Months Ended ------------------------- Sept. 30, Sept. 30, (In thousands) 1996 1995 - -------------- ---------- ----------- Cash paid during the period for: Income taxes $ 50,714 $ 54,807 Interest 41,452 43,187 Noncash investing and financing activities: Issuance of stock warrant 26,444 - - ---------------------------------------------------------------------
6 5. In June 1996, the Company entered into a license agreement with The Walt Disney Company for an expanded strategic alliance, which guarantees the Company worldwide toy rights for all upcoming Disney television and film properties. The agreement spans three years, with the Company having the right for two additional years to market merchandise from film properties produced during the third year. The initial term of the agreement may be renewed for an additional three-year period upon mutual agreement. Pursuant to the agreement, the Company committed to certain guaranteed royalty payments and issued Disney a warrant to purchase 3.0 million shares of the Company's common stock. The fair value of the warrant will be charged to income as a component of royalty expense at the time the related revenues are recognized. 6. In the current quarter, the Board of Directors declared cash dividends of $0.060 per common share, compared to $0.048 per common share in the third quarter of 1995. 7. Share and per share data presented in these financial statements reflect the retroactive effects of the five-for-four stock split declared in February 1996. Income per common share is computed by dividing earnings available to common shareholders by the average number of common and common equivalent shares outstanding during each period. Weighted average share computations assume the exercise of dilutive stock options and warrants, reduced by the number of shares which could be repurchased at average market prices with proceeds from exercise. 7 MATTEL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- THE FOLLOWING CAUTIONARY STATEMENT IS INCLUDED IN THIS QUARTERLY REPORT PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY WHICH ARE INCLUDED HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH STATEMENTS. THESE INCLUDE WITHOUT LIMITATION: THE COMPANY'S DEPENDENCE ON THE TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF NEW PRODUCTS; POSSIBLE WEAKNESSES OF INTERNATIONAL MARKETS; THE IMPACT OF COMPETITION ON REVENUES AND MARGINS; THE EFFECT OF CURRENCY FLUCTUATIONS ON REPORTABLE INCOME; AND OTHER RISKS AND UNCERTAINTIES AS MAY BE DETAILED FROM TIME TO TIME IN THE COMPANY'S PUBLIC ANNOUNCEMENTS AND SEC FILINGS. Mattel, Inc. (the "Company") designs, manufactures, markets and distributes a broad variety of toy products on a worldwide basis. The Company's business is dependent in great part on its ability each year to redesign, restyle and extend existing core products and product lines and to design and develop innovative new toys and product lines. New products have limited lives, ranging from one to three years, and generally must be updated and refreshed each year. Core brands have historically provided the Company with relatively stable growth. The Company's principal core brands are: i) BARBIE fashion dolls and doll clothing and accessories; ii) FISHER-PRICE toys and juvenile products, including the POWER WHEELS line of battery-powered, ride-on vehicles; iii) the Company's Disney-licensed toys; and iv) die-cast HOT WHEELS vehicles and playsets; each of which has broad worldwide appeal. Additional product lines consist of large dolls, including CABBAGE PATCH KIDS; preschool toys, including SEE `N SAY talking toys; the UNO and SKIP- BO card games; the SCRABBLE game, which the Company owns in markets outside of the United States and Canada; and other toy products. 8 RESULTS OF OPERATIONS --------------------- The Company's business is seasonal, and, therefore, results of operations are comparable only with corresponding periods. Following is a percentage analysis of operating results:
For the For the Three Months Ended Nine Months Ended ------------------------ ------------------------ Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Net sales 100% 100% 100% 100% =========== =========== =========== =========== Gross profit 52% 50% 50% 49% Advertising and promotion expenses 15 16 14 15 Other selling and administrative expenses 15 13 19 17 ----------- ----------- ----------- ----------- Operating profit 22 21 17 17 Interest expense 2 2 2 2 ----------- ----------- ----------- ----------- Income before income taxes 20% 19% 15% 15% =========== =========== =========== ===========
THIRD QUARTER - ------------- Net sales in the third quarter of 1996 increased $55.7 million or 5% over the 1995 third quarter, reflecting increased demand for the Company's principal core products, partially offset by a decrease in other product lines. Worldwide revenues from principal core products represented 86% of the Company's third quarter gross revenues compared to 82% in the third quarter of 1995. The Company's principal core brands increased 11%, mainly due to greater demand for BARBIE and BARBIE-related products, which increased 26%, and HOT WHEELS vehicles and playsets, which increased 29%. These increases were partially offset by a 7% decrease in Fisher-Price. In addition, sales of other products decreased $43.4 million, primarily due to lower 1996 third quarter sales of POLLY POCKET and Nickelodeon toys, partially offset by an increase in CABBAGE PATCH KIDS sales. Net sales to customers within the United States grew 6% and accounted for 63% of consolidated sales in the 1996 and 1995 third quarters. Net sales to customers outside the United States increased 2%, including an unfavorable effect of $7.4 million from the generally stronger US dollar relative to the year-ago quarter. At comparable foreign currency exchange rates, net sales internationally grew 4%. Gross profit as a percentage of net sales increased two percentage points to 52% over the year-ago quarter, principally as a result of lower resin and other commodity prices and improved product mix. Advertising and promotion expenses decreased as a percentage of net sales compared to the third quarter of 1995. The decrease reflects the Company's ongoing effort to manage expense growth relative to increasing revenue growth. As a percentage of net sales, other selling and administrative expenses increased two percentage points to 15%. This growth reflects higher design and development expenses related to new products, increased sales and marketing expenditures to support development of the Company's brands, and higher depreciation expense related to increased investment in fixed assets. In addition, other expense, net, increased $16.8 million, principally due to nonrecurring third quarter 1995 gains recognized on the sale of the non-toy business and trademark rights related to Corgi, and foreign currency transactions. 9 Interest expense decreased $0.9 million or 4% compared to the third quarter of 1995 primarily as a result of lower worldwide short-term interest rates. NINE MONTHS - ----------- Net sales increased $111.9 million or 5% over 1995, reflecting continued worldwide demand for the Company's principal core products, partially offset by a decrease in other product lines. Worldwide principal core product sales accounted for 86% of year-to-date gross sales compared to 83% during 1995. The Company's principal core brands increased 9%, mainly due to greater demand for BARBIE and BARBIE-related products, which increased 18%, and HOT WHEELS vehicles and playsets, which increased 17%. Sales of other products decreased $55.5 million, primarily due to lower 1996 sales of POLLY POCKET and Nickelodeon toys, partially offset by an increase in CABBAGE PATCH KIDS sales. Net sales to customers within the United States increased 7% and accounted for 64% of consolidated net sales compared to 63% in 1995. Net sales to customers outside the United States increased 1%, including an unfavorable effect of $18.8 million from the generally stronger US dollar relative to the year-ago period. At comparable foreign currency exchange rates, net sales internationally grew 3%. Gross profit, as a percentage of net sales, increased one percentage point to 50% over the year-ago period, primarily due to lower resin and other commodity prices and a favorable product mix. Advertising and promotion expenses decreased as a percentage of net sales to 14%, compared to 15% in the year-ago period. The decrease reflects the Company's ongoing effort to manage expense growth relative to increasing revenue growth. As a percentage of net sales, other selling and administrative expenses increased two percentage points to 19%, reflecting higher design and development expenses related to new products, increased sales and marketing expenditures to support development of the Company's brands, and higher depreciation expense related to increased investment in fixed assets. In addition, other expense, net, increased $31.9 million, principally due to nonrecurring 1995 gains recognized on the sale of the non-toy business and trademark rights related to Corgi, a Mexican insurance claim, and foreign currency transactions. Interest expense increased $0.7 million or 1% from 1995 levels, which reflects higher average levels of domestic seasonal borrowings to support increased sales volume, partially offset by lower short-term interest rates. FINANCIAL CONDITION ------------------- The Company's financial position remained strong as of September 30, 1996 as a result of profitable operating results. The Company's cash position, including marketable securities, as of September 30, 1996 was $97.1 million, compared to $100.8 million as of the third quarter 1995. Cash decreased $386.4 million since December 31, 1995 primarily due to funding of seasonal working capital needs, purchases of treasury stock, and repayment of $30.0 million in Medium-Term Notes. 10 Accounts receivable decreased $80.9 million over the year-ago quarter, reflecting higher sales of certain trade receivables in 1996, partially offset by increased sales during the period. Since year end, accounts receivable increased $553.6 million mainly due to current year sales volume and seasonal customer payment patterns, partially offset by the sale of certain trade receivables. Inventory balances increased $126.7 million since year end and $14.5 million over the 1995 quarter end, primarily due to a continuing trend toward just-in-time ordering by retailers, and level loading of the Company's factories in order to maximize production efficiency. Short-term borrowings increased $74.7 million compared to the 1995 quarter end and $302.6 million since year end in order to fund the Company's seasonal working capital requirements. Seasonal financing needs for the next twelve months are expected to be satisfied through internally generated cash, issuance of commercial paper, sale of certain trade receivables, and use of the Company's various short-term bank lines of credit. Details of the Company's capitalization are as follows:
(In millions) Sept. 30, 1996 Sept. 30, 1995 Dec. 31, 1995 - ------------- ---------------------------------------------- 6-3/4% Senior notes $ 100.0 5% $ 100.0 6% $ 100.0 6% Medium-Term Notes 220.0 12 220.0 12 220.0 12 6-7/8% Senior notes - - 99.7 5 99.8 5 Other long-term debt obligations 55.2 3 63.6 3 61.1 3 ----------------------------------------------- Total long-term debt 375.2 20 483.3 26 480.9 26 Other long-term liabilities 105.6 6 86.9 5 91.7 5 Shareholders' equity 1,349.8 74 1,283.3 69 1,275.2 69 ---------------------------------------------- $1,830.6 100% $1,853.5 100% $1,847.8 100% ==============================================
Total long-term debt decreased as a percentage of total capitalization compared to the year-ago quarter, primarily due to the reclassification of 6-7/8% Senior Notes to current portion of long-term liabilities, and the increase in shareholders' equity. Future long-term capital needs are expected to be satisfied through retention of corporate earnings and the issuance of long-term debt instruments. In February 1996, the Company filed a universal shelf registration statement which will allow for the issuance of up to $350 million of debt and equity securities, which could include Medium-Term Notes. Shareholders' equity increased $74.6 million since December 31, 1995 and $66.5 million over the 1995 third quarter principally as a result of the Company's profitable operating results, exercises of employee stock options, and issuance of a stock warrant in connection with a license agreement with The Walt Disney Company, partially offset by treasury stock purchases and dividends declared to common shareholders. In addition, the increase over the 1995 third quarter was partially offset by the repurchase of Series F Preference Stock from the International Games, Inc. Employee Stock Ownership Plan. 11 PART II -- OTHER INFORMATION ---------------------------- ITEM 1. Legal Proceedings - -------------------------- The Greenwald Litigation and Related Matters - -------------------------------------------- On October 13, 1995, Michelle Greenwald filed a complaint (Case No. YC 025 008) against the Company in Superior Court of the State of California, County of Los Angeles (the "Greenwald Action"). The plaintiff is a former Mattel employee who was terminated by the Company in July 1995. The complaint seeks $50 million in general and special damages, plus punitive damages, for (i) breach of oral, written and implied contract, (ii) wrongful termination in violation of public policy, and (iii) violation of California Labor Code Section 970. The plaintiff claims that her termination resulted from complaints made by her to management concerning (i) general allegations that Mattel did not account properly for sales and certain costs associated with sales; and (ii) more specific allegations that Mattel failed to account properly for certain royalty obligations to The Walt Disney Company ("Disney"). On September 26, 1996, a hearing was held regarding the Company's motion for summary adjudication of the plaintiff's public policy claim. The hearing was continued until December 5, 1996 pending deposition by the plaintiff of a former Mattel officer. The Company believes the allegations of the complaint in the Greenwald Action are without merit and intends to defend the action vigorously. In April 1996, the Audit Committee of the Company's Board of Directors commenced an investigation with the assistance of the law firm of Davis Polk & Wardwell ("Davis Polk") and the accounting firm of Ernst & Young. In July 1996, Davis Polk and Ernst & Young issued a report to the Audit Committee in which they stated that they had found no evidence that Mattel accounted for sales and costs associated with sales in a manner which is inconsistent with generally accepted accounting principles ("GAAP"). With respect to Disney royalty obligations, Davis Polk and Ernst & Young concluded that Mattel's accounting treatment for the Disney royalties represented a reasonable application of GAAP given the facts and circumstances as they existed at the time the accounting decisions were made. The Securities and Exchange Commission (the "Commission") has made inquiries of the Company regarding certain of Ms. Greenwald's allegations and the matters that are the subject of the report prepared for the Audit Committee, including in connection with a review of the Company's Annual Report on Form 10-K for the year ended December 31, 1995. On November 6, 1996, the staff of the Division of Corporation Finance of the Commission sent a letter to the Company questioning the Company's decisions not to accrue for certain royalty shortfalls and requesting supplemental information from the Company. The Company believes that its accounting treatment, in which Price Waterhouse LLP, the Company's independent auditors, concurred, was proper. The same conclusion was reached by Davis Polk and Ernst & Young in the report they prepared for the Audit Committee. However, had the Company made the accruals in question, the effect would have been to reduce the Company's net income by $7.7 million in 1994 (3.0% of net income) and $1.3 million in 1995 (0.4% of net income). 12 The staff of the Division of Corporation Finance has also requested further information from the Company concerning the foregoing subjects. The Company intends to respond to the staff's requests. The Lewis Action - ---------------- On April 23, 1996, a purported class and derivative action entitled Lewis v. Vogelstein et al. (Case No. 14954) was commenced in the Delaware Court of Chancery, New Castle County (the "Lewis Action") against the Company and its directors. The plaintiff alleges that the directors of the Company breached their fiduciary duties by causing the Company to adopt the Mattel 1996 Stock Option Plan (the "1996 Plan"). Specifically, the plaintiff alleges that the formula option grants to non-employee directors as permitted by the 1996 Plan constitute corporate waste. The complaint seeks (i) to have the case certified as a class action, (ii) to have the 1996 Plan declared void, (iii) a preliminary and permanent injunction enjoining the grant of stock options to non-employee directors under the 1996 Plan, and (iv) attorney's fees. The 1996 Plan was approved by the Company's stockholders on May 8, 1996. Mattel's motion to dismiss the Lewis Action was heard on October 29, 1996. The court has taken the motion under advisement. The Company believes the allegations of the complaint in the Lewis Action are without merit and intends to defend the action vigorously. 13 ITEM 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits -------- 10.1 Receivables Purchase Agreement dated September 13, 1996 among the Company, Mattel Sales Corp., Fisher-Price, Inc., and Bank of America N.T.S.A. 10.2 Mattel, Inc. Amended & Restated 1996 Stock Option Plan 10.3 Form of Option Agreement for Outside Directors under the Mattel, Inc Amended & Restated 1996 Stock Option Plan 11.0 Computation of Income per Common and Common Equivalent Share 27.0 Financial Data Schedule (EDGAR filing only) (b) Reports on Form 8-K ------------------- Mattel, Inc. filed the following Current Reports on Form 8-K during the quarterly period ended September 30, 1996: Financial Date of Report Items Reported Statements Filed --------------- -------------- ---------------- July 2, 1996 5, 7 None July 17, 1996 5, 7 None July 18, 1996 5, 7 None July 22, 1996 5 None August 8, 1996 5, 7 None August 22, 1996 5, 7 None 14 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MATTEL, INC. ------------ (Registrant) Date: As of November 14, 1996 By: /s/ Kevin M. Farr ----------------------- ----------------------- Kevin M. Farr Senior Vice President and Controller 15 EX-10.1 2 RECEIVABLES PURCHASE AGMT EXHIBIT 10.1 RECEIVABLES PURCHASE AGREEMENT This Receivables Purchase Agreement is entered into as of September 13, 1996 among Mattel Sales Corp., a California corporation ("Mattel Sales"), as seller, Fisher-Price, Inc., a Delaware corporation ("Fisher-Price"), as seller (Fisher-Price and Mattel Sales, in their capacities as sellers, being referred to herein collectively as the "Sellers" and individually as a "Seller"), Mattel, Inc., a Delaware corporation ("Mattel"), as servicer (the "Servicer") and as guarantor (the "Guarantor"), and Bank of America National Trust and Savings Association, a national banking association ("Bank of America"), as purchaser (in such capacity, together with its successors and assigns in such capacity, the "Purchaser"). Certain terms that are capitalized and used herein are defined in Exhibit I. For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. AMOUNTS AND TERMS OF THE PURCHASES Section 1.1. Purchase Facility. On the terms and conditions hereinafter set forth, the Purchaser hereby agrees to purchase from each Seller, without recourse (except as expressly provided herein), undivided percentage ownership interests in such Seller's Listed Receivables and other items included in the related Purchased Interest. Section 1.2. Making Purchases. (a) Each purchase of undivided percentage ownership interests hereunder shall be made upon the Servicer's irrevocable written notice, substantially in the form of Exhibit VIII hereto (a "Purchase Notice"), delivered to the Purchaser in accordance with Section 4.2 (which Purchase Notice must be received by the Purchaser not later than 9:00 a.m., Los Angeles time) on the second Business Day prior to the related Purchase Date. Each Purchase Notice shall specify, with respect to each Seller, (A) the aggregate outstanding principal balances of such Seller's Eligible Receivables with respect to which such Seller proposes to sell an undivided percentage ownership interest to the Purchaser and (B) the proposed date (which must be a Business Day) on which each Seller proposes to sell to the Purchaser such undivided percentage ownership interest (each such date, a "Purchase Date"). No day shall be selected as a Purchase Date if the related Due Date would occur after the Facility Termination Date. Not later than 9:00 a.m. (Los Angeles time) on the Business Day following its receipt of each Purchase Notice, the Purchaser shall send to the Servicer a notice setting forth a calculation of the Purchased Interest relating to each Seller, including a description of (i) the amount to be paid by the Purchaser with respect to such Purchased Interest to the Servicer on the related Purchase Date for the account of the applicable Seller (such amount with respect to such Purchased Interest being referred to as the "Purchaser's Investment") and (ii) the aggregate Yield to accrue with respect to such Purchased Interest for the actual number of days in the Yield Period commencing on the applicable Purchase Date (such aggregate Yield with respect to such Purchased Interest being referred to as the "Yield -1- Reserve"), it being understood and agreed that the calculation of the Yield Reserve shall not limit the effect of the proviso to the definition of Yield in Exhibit I or the effect of Exhibit VII. The Purchaser shall calculate the Purchaser's Investment with respect to a Purchased Interest as an amount which, when added to the related Yield Reserve, is as close is as reasonably practicable to (but not in excess of) the aggregate outstanding principal balance of the related Eligible Receivables set forth in the related Purchase Notice; it being understood and agreed that the aggregate outstanding Purchaser's Investments shall not exceed the Purchaser's Investment Limit and that this sentence shall not limit any other provision of this Agreement (including Exhibit VII). Each Seller shall send to the Purchaser for receipt by the Purchaser not later than the Business Day prior to the related Purchase Date, a list of such Seller's Receivables the outstanding principal balances of which were reflected in the related Purchase Notice (such Receivables being referred to as the "Listed Receivables"), which list shall identify 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). (b) On each Purchase Date, the Purchaser shall, upon satisfaction of the applicable conditions set forth in Exhibit II hereto, pay to the Servicer, for the account of the related Seller, in same day funds, an amount equal to the Purchaser's Investment relating to the undivided percentage ownership interest then being purchased from such Seller, by remitting such funds to Bank of America National Trust and Savings Association, ABA No. 121000358, Account No. 1233112850, reference "Mattel Sales Receivables", or to such other account as the Sellers may designate in writing to the Purchaser. (c) On each Purchase Date, effective upon the payment contemplated by Section 1.2(b) (and without the necessity of any formal or other instrument of assignment or other further action), each Seller hereby severally sells and assigns to the Purchaser an undivided percentage ownership interest in (i) each Listed Receivable of such Seller, (ii) all Related Security with respect to such Receivables, (iii) all Collections with respect to such Receivables (including Collections received on and after the date on which the related Purchase Notice is sent to the Purchaser and prior to the related Purchase Date), and (iv) all proceeds of, and all amounts received or receivable under any or all of, the foregoing. (d) To secure all of the obligations (monetary or otherwise) of each Seller Party 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, each Seller hereby severally grants to the Purchaser a security interest in all of such Seller's right, title and interest (including any undivided interest of such Seller) in, to and under all of the following, whether now or hereafter owned, existing or arising: (A) all Listed Receivables of such Seller, (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 Purchaser 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. The Purchaser shall have, with respect to the property described in this Section 1.2(d), and in addition to all the other rights and remedies available to the Purchaser, all the rights and remedies of a secured party under any applicable UCC. Section 1.3. Servicing and Settlement Procedures. The servicing, administering and collection of the Listed Receivables shall be conducted in accordance with Exhibit VI hereto. Each Seller shall provide to the Servicer on a timely basis all information needed for such servicing, -2- administration and collection, including notice of the occurrence of any Termination Event Day. Subject to paragraph (c)(iv) of Exhibit VI, the Servicer shall hold in trust (and, during the continuance of a Termination Event, at the request of the Purchaser, segregate) for the Purchaser, from Collections received by each Seller or the Servicer with respect to such Seller's Listed Receivables, the percentage of such Collections represented by the related Purchased Interest. On each Due Date, the Servicer shall (x) deposit into the Purchaser's Account the amount of Collections required to be held for the Purchaser pursuant to the preceding sentence and (y) pay to the applicable Seller the remaining portion, if any, of Collections then held by the Servicer. Section 1.4. Payments and Computations, Etc. All amounts to be paid or deposited by a Seller Party hereunder shall be paid or deposited no later than noon (Los Angeles time) on the day when due in same day funds to the Purchaser's Account. All amounts received after noon (Los Angeles time) will be deemed to have been received on the immediately succeeding Business Day. Each Seller and Mattel, solely in its capacity as the Servicer, as the case may be, shall, to the extent permitted by law, pay interest on any amount not paid or deposited by such Person which is required to be paid or deposited by such Person hereunder when due hereunder, at the Termination Rate (without duplication), payable on demand. All computations of interest, Yield and other amounts hereunder 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 Purchaser hereunder on account of a Purchased Interest shall be applied by the Purchaser first to pay itself accrued Yield with respect to the related Purchaser's Investment and second to repay such Purchaser's Investment. Section 1.5. Facility Termination Date. The "Facility Termination Date" means the later of (i) March 31, 1997 and (ii) any subsequent date agreed upon from time to time by the parties hereto in accordance with this Section 1.5. During the thirty (30) day period ending on the thirtieth (30th) day before the then existing Facility Termination Date, the Servicer, the Sellers and the Guarantor may, by sending a letter substantially in the form of Exhibit IX to the Purchaser, request that the Facility Termination Date be extended for an additional 364 days. The Purchaser may, in its sole discretion, agree to extend such Facility Termination Date or decline to extend such Facility Termination Date. If the Purchaser agrees to extend such Facility Termination Date, then it shall sign a copy of such letter and send the same to the Servicer and the Facility Termination Date shall be extended to, and shall be deemed to have been amended to be, the applicable date specified in such letter. If the Purchaser does not sign a copy of such letter and send the same to the Servicer prior to the then existing Facility Termination Date, then the Purchaser shall be deemed to have declined to extend (and to have declined to amend) the Facility Termination Date. ARTICLE II. REPRESENTATIONS AND WARRANTIES; COVENANTS; INDEMNIFICATION Section 2.1. Representations and Warranties; Covenants. The Seller Parties hereby severally make the representations and warranties, and hereby agree to perform and observe the covenants, set forth in Exhibits III and IV, respectively, hereto. -3- Section 2.2. Indemnities by the Sellers. Each Seller shall pay and indemnify the Indemnified Parties in accordance with Exhibit VII hereto. ARTICLE III. GUARANTY Section 3.1. Guaranty of Obligations. For valuable consideration, the Guarantor unconditionally, absolutely and irrevocably guarantees and promises to pay to the Purchaser on demand, in lawful money of the United States and in immediately available funds, any and all present or future payment and performance obligations of the Sellers hereunder owing to the Purchaser (such guarantee and promise being referred to as this "Guaranty"). The phrase "payment and performance obligations of the Sellers" (hereinafter collectively referred to in this Article III as the "Obligations") is used herein in its most comprehensive sense and includes any and all advances, debts, obligations, and liabilities of the Sellers, now or hereafter made, incurred, or created, whether voluntarily or involuntarily, and however arising, including any and all reasonable attorneys' fees, costs, charges, Yield or interest (including interest at the Termination Rate as contemplated by Section 1.4, it being understood and agreed that the reference in Section 1.4 to Mattel in its capacity as the Servicer shall not limit the effect of this Article III) owed by the Sellers to the Purchaser, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether the Sellers may be liable individually or jointly with others, whether recovery upon such advances, debts, obligations or liabilities may be or hereafter becomes barred by any statute of limitations or whether such advances, debts, obligations or liabilities may be or hereafter become otherwise unenforceable. Section 3.2. Guaranty Continuing. This Guaranty is a continuing guaranty which relates to any Obligations, including those which arise under successive transactions which shall either cause the Sellers to incur new Obligations, continue the Obligations from time to time, or renew them after they have been satisfied. The Guarantor agrees that nothing shall discharge or satisfy its obligations created hereunder except for the full payment of the Obligations with interest as applicable. Any payment by the Guarantor shall not reduce its maximum obligation hereunder. Section 3.3. Guarantor Directly Liable. The Guarantor agrees that it is directly and primarily liable to the Purchaser, that its obligations hereunder are independent of the Obligations of the Sellers, or of any other guarantor, and that a separate action or actions may be brought and prosecuted against the Guarantor, whether action is brought against a Seller or whether a Seller is joined in any such action or actions. The Guarantor agrees that any releases which may be given by the Purchaser to a Seller or any other guarantor shall not release it from this Guaranty. Section 3.4. No Impairment. The obligations of the Guarantor under this Guaranty shall not be affected, modified or impaired upon the occurrence from time to time of any of the following, whether or not with notice to or the consent of the Guarantor: (a) the compromise, settlement, change, modification, amendment (whether material or otherwise) or partial termination of any or all of the Obligations; (b) the failure to give notice to the Guarantor of the occurrence of any Termination Event under the terms and provisions of this Agreement; (c) the waiver of the payment, performance or observance of any of the Obligations; (d) the taking or omitting to take any actions referred to in this Agreement or of any action under this Guaranty; (e) any failure, omission or delay -4- on the part of the Purchaser to enforce, assert or exercise any right, power or remedy conferred in this Agreement or any other indulgence or similar act on the part of the Purchaser in good faith and in compliance with applicable law; (f) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all of the assets, marshalling of assets, receivership, insolvency, bankruptcy, readjustment, assignment for the benefit of creditors, or other similar proceedings which affect the Guarantor, any other guarantor of any of the Obligations of either Seller or any of the assets of any of them, or any allegation of invalidity or contest of the validity of this Guaranty in any such proceeding; or (g) to the extent permitted by law, the release or discharge of any other guarantors of the Obligations from the performance or observance of any obligation, covenant or agreement contained in any guaranties of the Obligations by operation of law. To the extent any of the foregoing refers to any actions which the Purchaser may take, the Guarantor hereby agrees that the Purchaser may take such actions in such manner, upon such terms, and at such times as the Purchaser, in its discretion, deems advisable, without, in any way or respect, impairing, affecting, reducing or releasing the Guarantor from its undertakings hereunder and the Guarantor hereby consents to each and all of the foregoing actions, events and occurrences. Section 3.5. Waiver. The Guarantor hereby waives: (a) any and all rights to require the Purchaser to prosecute or seek to enforce any remedies against either Seller or any other Person liable to the Purchaser on account of the Obligations; (b) any right to assert against the Purchaser any defense (legal or equitable), set-off, counterclaim, or claim which the Guarantor may now or at any time hereafter have against the Sellers or any other Person liable to the Purchaser in any way or manner under this Agreement; (c) all defenses, counterclaims and offsets of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity or enforceability of this Agreement and the security interest granted pursuant hereto; (d) any defense arising by reason of any claim or defense based upon an election of remedies by the Purchaser, including any direction to proceed by judicial or nonjudicial foreclosure or by deed in lieu thereof, which in any manner impairs, affects, reduces, releases, destroys or extinguishes the Guarantor's subrogation rights, rights to proceed against the Sellers for reimbursement, or any other rights of the Guarantor to proceed against the Sellers, against any other guarantor, or against any other security, with the Guarantor understanding that the exercise by the Purchaser of certain rights and remedies may offset or eliminate the Guarantor's right of subrogation against the Sellers, and that the Guarantor may therefore incur partially or totally nonreimbursable liability hereunder; (e) all presentments, demands for performance, notices of non-performance, protests, notices of protest, notices of dishonor, notices of default, notice of acceptance of this Guaranty, and notices of the existence, creation, or incurring of new or additional advances, debts, obligations or liabilities, and all other notices or formalities to which the Guarantor may be entitled; and (f) without limiting the generality of the foregoing, the Guarantor hereby expressly waives any and all benefits of (i) California Civil Code Sections 2809, 2810, 2819, 2825, 2839, 2845 through 2850, 2899 and 3433 and (ii) California Code of Civil Procedure Sections 580(a), 580(b) and 726. Section 3.6. Subrogation. The Guarantor hereby agrees that, unless and until all Obligations have been paid to the Purchaser in full, it shall not have any rights of subrogation, reimbursement or contribution as against the Sellers or any other guarantor, if any, and shall not seek to assert or enforce the same. The Guarantor understands that the exercise by the Purchaser of certain rights and remedies contained in this Agreement may affect or eliminate the Guarantor's right of subrogation, if any, against the Sellers and that the Guarantor may therefore incur a partially or totally non-reimbursable liability hereunder; nevertheless, the Guarantor hereby authorizes and empowers the Purchaser to exercise, in its sole discretion, any right or remedy, or any combination thereof, which -5- may then be available, since it is the intent and purpose of the Guarantor that the obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. Section 3.7. Information. The Guarantor is presently informed of the financial condition of the Sellers and of all other circumstances which diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. The Guarantor hereby covenants that it will continue to keep itself informed of the financial condition of the Sellers and of all other circumstances which bear upon such risk of nonpayment. The Guarantor hereby waives its right, if any, to require the Purchaser to disclose to it any information which the Purchaser may now or hereafter acquire concerning such condition or circumstances including the release of any other guarantor. Section 3.8. Evidence of Obligations. The Purchaser's books and records evidencing the Obligations shall be admissible in any action or proceeding and shall be binding upon the Guarantor for the purpose of establishing the terms set forth therein and shall constitute prima facie proof thereof. ARTICLE IV. MISCELLANEOUS Section 4.1. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by any Seller Party herefrom shall be effective unless in a writing signed by the Purchaser (including any successor or assign to the extent such amendment or waiver directly affects the interest of such successor or assign in the Listed Receivables), and, in the case of any amendment, by such Seller Party and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Purchaser to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. Section 4.2. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and sent or delivered, to each party hereto, at its address set forth under its name on Schedule I hereto (except that Purchase Notices shall be sent to the address set forth in the form of Purchase Notice attached as Exhibit VIII) or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by first class mail), and notices and communications sent by other means shall be effective when received. Section 4.3. Assignability. This Agreement and the Purchaser's rights and obligations herein (including ownership of each Purchased Interest) shall be assignable, in whole or in part, by the Purchaser and its successors and assigns to an Eligible Assignee in a minimum amount of twenty-five million dollars ($25,000,000); provided that unless a Termination Event has occurred and is continuing, no such assignment shall be effective without the prior written consent of Mattel, which consent shall not be unreasonably withheld; provided, however, that no consent of Mattel shall be required in connection with any assignment by the Purchaser or its successors and assigns to an Affiliate of the Purchaser which is otherwise an Eligible Assignee (each such assignee, an -6- "Assignee"); provided, further, however, that the Seller Parties may continue to deal solely and directly with the Purchaser in connection with the interest so assigned to an Assignee until written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Servicer by the Purchaser and the Assignee. From and after the date that such notice and information shall have been so given, the Assignee shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it, shall have the rights and obligations of the Purchaser under the Transaction Documents, and (ii) the Purchaser shall, to the extent that rights and obligations hereunder and under the other Transaction Documents have been assigned by it, relinquish its rights and be released from its obligations under the Transaction Documents. No Seller Party may assign its rights or delegate its obligations hereunder or any interest herein without the prior written consent of the Purchaser, except as expressly provided for in Exhibit VI with respect to the Servicer. Section 4.4. Survival of Termination. The provisions of Sections 4.4 and 4.5, and the provisions of Article III and Exhibit VII, shall survive any termination of this Agreement. Section 4.5. Mattel Credit Agreement. Sections 10.1(f), 10.4, 10.5, 10.7, 10.11, 10.12 and 10.14 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: (i) all references to "the Company" shall be deemed to be references to each Seller Party, individually; (ii) all references to "Notes" or "Loan Documents" shall be deemed to be references to the Transaction Documents; (iii) all references to "Agent" or "Bank" shall be deemed to be references to the Purchaser; (iv) all references to "Event of Default" shall be deemed to be references to a Termination Event; (v) the reference to "Section 2.13" shall be deemed to be a reference to this Agreement; (vi) all references to "Obligations" shall be deemed to be references to the obligations of any Seller Party under any Transaction Document; (vii) all references to "Loans" shall be deemed to be deleted; (viii) the reference to "any Bank Affiliate" shall be deemed to be a reference to any Affiliate; and (ix) all references to "this Agreement" shall be deemed to be references to this Agreement. -7- Section 4.6. Entire Agreement. This Agreement embodies the entire agreement and understanding among the parties hereto, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof, it being understood and agreed that this sentence shall not limit the incorporation by reference of terms of the Mattel Credit Agreement to the extent such terms are specifically incorporated by reference herein. The Exhibits and Schedules hereto are incorporated by reference herein. [SIGNATURES FOLLOW] -8- IN WITNESS WHEREOF, the parties have caused this Receivables Purchase Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. MATTEL SALES CORP., as a Seller By:/s/ William Stavro -------------------------------- William Stavro Senior Vice President, Treasurer FISHER-PRICE, INC., as a Seller By:/s/ William Stavro -------------------------------- William Stavro Senior Vice President, Treasurer MATTEL, INC., as the Servicer and as the Guarantor By:/s/ William Stavro -------------------------------- William Stavro Senior Vice President, Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Purchaser By:/s/ Robert W. Troutman -------------------------- Robert W. Troutman Managing Director -9- EXHIBIT I DEFINITIONS As used in the Receivables Purchase Agreement dated as of September 13, 1996 among Mattel Sales Corp., as Seller, Fisher-Price, Inc., as Seller, Mattel, Inc., as Servicer, and Bank of America National Trust and Savings Association, as Purchaser (as the same may be amended, amended and restated, or otherwise modified from time to time, this "Agreement" or this "Receivables Purchase Agreement"), including its Exhibits, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). Unless otherwise indicated, all Section, Exhibit and Schedule references in this Agreement (including in this Exhibit) are to Sections of and Exhibits and Schedules to this Agreement. Unless the context otherwise requires, capitalized terms used without definition in this Agreement have the meanings set forth in the Mattel Credit Agreement. "Adverse Claim" means a lien, security interest or other charge or encumbrance, or any other type of right or claim, it being understood and agreed that a lien, security interest or other charge or encumbrance, or any other type of right or claim, in favor of the Purchaser shall not constitute an Adverse Claim. "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978 (11 U.S.C. Section 101, et seq.), as amended from time to time. "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in Los Angeles, California are authorized or required by law to close and, if the applicable Business Day relates to the Eurodollar Rate, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Collections" means, with respect to any Listed Receivable, (a) all funds which are received by the related Seller or the 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 Obligor or any other Person directly or indirectly liable for the 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 Obligor becomes or is obligated to make payment in respect of such Listed Receivable. "Credit and Collection Policy" means those receivables credit and collection policies and practices of the Sellers in effect on the date of this Agreement, as amended from time to time to the extent permitted herein. I-1 "Dilution" means any adjustment in the outstanding principal balance of a Listed Receivable attributable to any credits, rebates, billing errors, sales or similar taxes, discounts, setoffs, disputes, chargebacks, returns, allowances or similar items. "Due Date" means, with respect to any Purchase Date, the numerically corresponding day in the third month immediately following the month in which such Purchase Date occurs; provided, however, that if such day in such third month is not a Business Day, then the Due Date shall be the next Business Day after such day; provided, further, however that if such next Business Day falls in the month after such third month, then the Due Date shall be the Business Day immediately preceding the numerically corresponding day referred to earlier in this sentence. "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" 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 Obligor enforceable against the 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; (vii) which was generated in the ordinary course of the related Seller's business; and (viii) which was generated by the applicable Seller at such time as the Obligor had long- term, unsecured debt rated at least A+ by S&P and A1 by Moody's. "Eurodollar Rate" means, for any Yield Period, an interest rate per annum (rounded upward to the nearest 1/16th of 1%) determined pursuant to the following formula: Eurodollar Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means, for any Yield Period, the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in effect on the date LIBOR for such Yield Period is determined under regulations issued from time to time by the Federal Reserve Board 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") having a term comparable to such Yield Period; and "LIBOR" means the rate of interest per annum determined by the Purchaser to be the rate of interest at which dollar deposits in the approximate amount of the Purchaser's Investment associated with such Yield Period would be offered to major banks in the London interbank market at their request at or about 11:00 a.m. (London time) on the second Business Day prior to the commencement of such Yield Period. "Event of Default" has the meaning set forth in the Mattel Credit Agreement. I-2 "Facility Termination Date" has the meaning set forth in Section 1.5. "Guarantor" has the meaning set forth in the preamble. "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 Purchaser and its Affiliates and their respective employees, agents, successors, transferees and assigns. "Insolvency Proceeding" means (a) any case, action or proceeding before any court or other Governmental Person relating to bankruptcy, reorganization, insolvency, liquidations, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; and in the case of clause (a) or (b), undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Listed Receivables" has the meaning set forth in Section 1.2(a). "Listed Receivables Balance" means, with respect to a Purchased Interest and the related Seller, the outstanding principal balance, as of the date the related Purchase Notice is sent to the Purchaser, of the related Listed Receivables. "Material Adverse Effect" means a material adverse effect upon (i) the business, operations, properties, assets, business prospects or condition (financial or otherwise) of Mattel and its Subsidiaries, taken as a whole, or (ii) a material impairment of the ability of Mattel to perform its obligations under this Agreement. "Mattel Credit Agreement" means the 1995 Credit Agreement (as defined below), as amended or amended and restated from time to time. The "1995 Credit Agreement" means the Credit Agreement dated as of March 10, 1995, among Mattel, the Banks named therein, and Bank of America, as Agent. In the event that any term of or section number in the 1995 Credit Agreement that is incorporated by reference in this Agreement (including pursuant to Section 4.5 of this Agreement or pursuant to paragraph (b) of Exhibit VII of this Agreement) is changed by any amendment or amendment and restatement of the 1995 Credit Agreement (e.g., an amendment and restatement that renumbers Section 10.14 of the 1995 Credit Agreement as Section 10.16 of the amended and restated agreement), the parties hereto will 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. "Obligor" means Wal-Mart Stores, Inc. "Purchase Date" has the meaning set forth in Section 1.2(a). "Purchase Notice" has the meaning set forth in Section 1.2(a). I-3 "Purchased Interest" means, at any time, with respect to a Seller, the undivided percentage ownership interest of the Purchaser acquired pursuant to this Agreement from such Seller in such Seller's Listed Receivables, 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 Purchaser's Investment with respect to such Seller at the related Purchase Date. YR = the Yield Reserve of such Purchased Interest at the related Purchase Date; and LRB = the related Listed Receivables Balance as of the date the related Purchase Notice is sent to the Purchaser. Each Purchased Interest with respect to a Seller shall be computed in accordance with Section 1.2(a) and shall remain constant until such time as the related Purchaser's Investment and accrued Yield thereon shall have been paid in full. Upon payment of the items described in the preceding sentence the related Purchased Interest shall be zero. "Purchaser" has the meaning set forth in the preamble to this Agreement. "Purchaser Rate" means a rate per annum equal to the Eurodollar Rate plus one-quarter of one percent (0.25%). The Purchaser Rate for a Yield Period shall be established on the applicable day contemplated by the definition of LIBOR. "Purchaser's Account" means Account No. 12331-83980, reference "Mattel Receivables Payment", ABA No. 121000358, maintained at the Purchaser, or any other account designated in writing by the Purchaser to the Servicer and the Sellers from time to time. "Purchaser's Investment" has the meaning set forth in Section 1.2(a). The amount of each Purchaser's Investment shall be reduced by payments received by the Purchaser and applied on account of such Purchaser's Investment pursuant to this Agreement. "Purchaser's Investment Limit" means one hundred million dollars ($100,000,000). "Receivable" means any indebtedness and other obligations owed to a Seller or any right of a Seller to payment from or on behalf of the Obligor whether constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale or lease of goods or the rendering of services by such Seller, and includes, without limitation, the obligation to pay any finance charges, fees and other charges with respect thereto. I-4 "Related Security" means with respect to any Listed Receivable: (i) all of the related Seller'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 the 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. "Seller Party" means each of the Sellers and Mattel (in its capacity as the Servicer or the Guarantor). "Sellers" has the meaning set forth in the preamble to this Agreement. A reference to the "related" Seller means (i) with respect to a Receivable, that such Receivable by its original terms was owed to such Seller, and (ii) with respect to a Purchased Interest, that such Purchased Interest pertains to an investment in such Receivables. "Servicer" has the meaning set forth in the preamble to this Agreement. "Termination Event" has the meaning specified in Exhibit V. "Termination Event Day" means a day on which a Termination Event exists. "Termination Rate" means a rate per annum equal to the Base Rate plus two percent (2.0%). "Transaction Documents" means this Agreement and all certificates, instruments, UCC financing statements, reports, notices, letters, agreements and documents executed or delivered by any Seller Party under or in connection with this Agreement (including notices and letter agreements based on Exhibit VIII or Exhibit IX), thereby excluding, for example, the Mattel Credit 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 to paragraph (c) of Exhibit VI. "Yield", for any Purchased Interest for each day in a related Yield Period, means an amount determined as follows: PR x PI x 1/360 where: PR = the Purchaser Rate for such Yield Period; and I-5 PI = the Purchaser's Investment with respect to such Purchased Interest during such Yield Period; provided that if one or more Termination Event Days shall occur during any Yield Period, the Yield for such Purchased Interest for each such Termination Event Day in such Yield Period shall be deemed to accrue in accordance with the following formula: TR x PI x 1/360 where: TR = the Termination Rate on such Termination Event Day; and PI = the Purchaser's Investment with respect to such Purchased Interest on such Termination Event Day. It is hereby agreed and understood no provision of this Agreement shall require the payment or permit the collection of Yield in excess of the maximum permitted by applicable law. "Yield Period" means each period from and including a Purchase Date to but excluding the related Due Date. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. 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, "or" means "and/or", and "including" (and with correlative meaning "include" and "includes") means including without limiting the generality of any description preceding such term. I-6 EXHIBIT II CONDITIONS OF PURCHASES 1. Conditions Precedent to Initial Purchase. The initial purchase under this Agreement is subject to the conditions precedent that the Purchaser shall have received on or before the related Purchase Date the following, each in form and substance (including the date thereof) satisfactory to the Purchaser: (a) a counterpart of this Agreement duly executed by the Seller Parties; (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; (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 Purchaser may conclusively rely until such time as the Purchaser 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 Delaware or California, as the case may be) and 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 (x) issued by the Secretary of State of California with respect to Mattel Sales and (y) issued by the Secretary of State of Delaware with respect to Fisher-Price and Mattel; and (d) UCC-1 financing statements (x) signed by Mattel Sales in form for filing with the Secretary of State of California and (y) signed by Fisher-Price in form for filing with the Department of State of New York, it being understood and agreed that such financing statements are to be filed only in the circumstances contemplated by paragraph (c) of Exhibit VI. 2. Conditions Precedent to All Purchases. Each purchase (including the initial purchase) hereunder shall be subject to the further conditions precedent that: (a) on the date of 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 Sellers that such statements are then true): (i) the representations and warranties contained in Exhibit III are true and correct on and as of the date of such purchase 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); and (ii) no event has occurred and is continuing, or would result from such purchase, that constitutes a Termination Event or that would constitute a Termination Event but for the requirement that notice be given or time elapse or both; (b) after giving effect to the payment contemplated by Section 1.2 on the date of such purchase, the aggregate outstanding Purchaser's Investments shall not exceed the Purchaser's Investment Limit; (c) the Purchaser shall have received a fee of three thousand dollars ($3,000) with respect to such purchase on or before the date of such purchase; (d) the Purchaser shall have received a list of Eligible Receivables from each Seller in accordance with the last paragraph of Section 1.2(a); and (e) the related Due Date is on or prior to the Facility Termination Date. II-1 EXHIBIT III REPRESENTATIONS AND WARRANTIES Each Seller Party severally represents and warrants, as to itself alone, as applicable, to the Purchaser 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. 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 Governmental Person 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, it being understood and agreed that the Purchaser has the right to file UCC-1 financing statements pursuant to Exhibit VI. (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, 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, 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 each Seller, such Seller is the legal and beneficial owner of its Listed Receivables (and all Related Security) free and clear of any Adverse Claim; upon each purchase, the Purchaser shall have a valid and enforceable first priority (and, on and after the UCC Filing Date, perfected) undivided percentage ownership interest or security interest in each such III-1 Listed Receivable and in the Related Security and Collections and other proceeds with respect thereto, in each case free and clear of any Adverse Claim. No effective financing statement or other instrument similar in effect covering any related Contract or any such Receivable or the Related Security or Collections with respect thereto is on file in any recording office other than any financing statement or similar instrument in favor of the Purchaser. (g) All exhibits, financial statements, documents, books, records, other information or reports furnished or to be furnished at any time by or on behalf of such Seller Party to the Purchaser in connection with this Agreement are or will be accurate in all material respects as of their respective dates or (except as otherwise disclosed to the Purchaser at such time) as of the date so furnished, and no such item contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, 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 Purchaser prior to the date of this Agreement. (h) With respect to each Seller, the principal place of business and chief executive office (as such terms are used in the UCC) of such Seller and the office where such Seller keeps its records concerning the Listed Receivables are located at the address referred to in paragraph (b) of Exhibit IV. (i) Such Seller Party is not in violation of any order of any court, arbitrator or Governmental Person, which violation would have a Material Adverse Effect. (j) With respect to each Seller, no proceeds of any purchase from such Seller will be used for any purpose that violates any applicable law, rule or regulation, including Regulations G or 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. (l) With respect to each Seller, such Seller 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 principles. (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 each Seller, such Seller's complete corporate name is set forth in the preamble to this Agreement, and such Seller does not use and has not during the last five years used any other corporate name, trade name, doing business name or fictitious name, except as set forth on Schedule II and except for names first used after the date of this Agreement and set forth in a notice delivered to the Purchaser pursuant to paragraph (b) of Exhibit IV. III-2 EXHIBIT IV COVENANTS Until the latest of (i) the date on which no Purchaser's Investment of or Yield in respect of any Purchased Interest shall be outstanding, (ii) the date all other amounts owed by the Sellers or the Servicer under this Agreement to the Purchaser and any other Indemnified Party shall be paid in full and (iii) the Facility Termination Date: (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. (b) Offices, Records and Books of Account; Etc. Each Seller (i) shall keep its 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 such Seller set forth under its name on Schedule I to this Agreement or, upon at least 15 days' prior written notice of a proposed change to the Purchaser, at any other locations (provided that, if the UCC Filing Date has occurred, then, prior to making such a change, such Seller shall have taken all actions in any applicable jurisdiction that may be requested by the Purchaser in accordance with paragraph (d) of this Exhibit); and (ii) shall provide the Purchaser with at least 15 days' written notice prior to making any change in such Seller's name or making any other change in such Seller'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 (provided that, if the UCC Filing Date has occurred, then, prior to making such a change, such Seller shall have taken all actions in any applicable jurisdiction that may be requested by the Purchaser in accordance with paragraph (d) of this Exhibit); each notice to the Purchaser pursuant to this sentence shall set forth the applicable change and the effective date thereof. Each Seller 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 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. Each Seller shall, at its expense, take all action necessary or desirable to establish and maintain a valid, enforceable and first priority (and, after the IV-1 UCC Filing Date, perfected) security interest in the items described in Section 1.2(d), free and clear of any Adverse Claim, in favor of the Purchaser, including taking such action to protect (and, on and after the UCC Filing Date, to perfect) or more fully evidence the interest of the Purchaser under this Agreement as the Purchaser may request. (e) Sales, Liens, Etc. Neither Seller shall 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, any item described in Section 1.2(d) (including such Seller's undivided interest in any Listed Receivable, Related Security, or Collections), or upon or with respect to any account to which any Collections of any Listed Receivables are sent (except 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 paragraph (e). (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. (g) Change in Business or Credit and Collection Policy. No Seller Party shall make any material change in the character of its business, or in the Credit and Collection Policy, that would result in a Material Adverse Effect. Neither Seller shall make any other change in the Credit and Collection Policy without the prior written consent of the Purchaser. (h) Audits. Each Seller Party shall, from time to time during regular business hours (and with reasonable advance notice) as requested by the Purchaser, permit the Purchaser, 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 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 Receivable that is a Listed Receivable, such Seller Party shall inform such third party that the applicable Seller has sold an undivided percentage ownership interest in such Listed Receivable to the Purchaser. (j) Reporting Requirements. IV-2 (x) If a Purchaser's Investment with respect to an undivided interest purchased by the Purchaser on a Purchase Date remains outstanding on the related Due Date after giving effect to Section 1.3, then the related Seller or the Servicer shall provide to the Purchaser on a weekly basis a report, in form and substance satisfactory to the Purchaser, with respect to the related Listed Receivables (including with respect to collection efforts pertaining thereto). (y) Each Seller Party shall provide to the Purchaser 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. (z) Each Seller Party shall provide to the Purchaser such other information respecting its Listed Receivables or the condition or operations, financial or otherwise, of such Seller or any of its Affiliates as the Purchaser may from time to time reasonably request. IV-3 EXHIBIT V TERMINATION EVENTS Each of the following shall be a "Termination Event": (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 the related Purchased Interest (including, in the case of the Servicer, failing to deliver to the Purchaser on any Due Date an amount equal to the Purchaser's Investments plus accrued Yield 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 or (b) Any representation or warranty made or deemed made by any Seller Party (or any of its officers) under or in connection with any Transaction Document or any material information or report delivered by any Seller Party pursuant to any Transaction Document shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or (c) Any Event of Default shall have occurred; or (d) The Purchaser shall fail to have a valid and enforceable first priority (and, on and after the UCC Filing Date, perfected) undivided percentage ownership interest or security interest in each Receivable and the Related Security and Collections and other proceeds with respect thereto, free and clear of any Adverse Claim; or (e) There shall have occurred any event not otherwise covered by this Exhibit which has or will have a Material Adverse Effect. V-1 EXHIBIT VI ADMINISTRATION AND COLLECTION (a) Appointment of Servicer. 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 Purchaser, delegate any or all of its duties and obligations as Servicer under this Agreement to an Affiliate of Mattel; provided, however, that 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 paragraph (b) below with respect to the Listed Receivables of Fisher-Price. Mattel acknowledges that the Purchaser has relied on the agreement of Mattel to act as the Servicer hereunder in making its decision to execute and deliver this Agreement. Accordingly, Mattel agrees that it will not voluntarily resign as the Servicer. (b) 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. Each Seller shall deliver to the Servicer and the Servicer shall hold for the benefit of such Seller and the Purchaser in accordance with their respective interests, all records and documents (including computer tapes or disks) with respect to such Seller's Listed Receivables. Notwithstanding anything to the contrary contained herein, the Purchaser 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 and (y) the Purchaser believes 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. (c) Enforcement Rights. Notwithstanding any other provision of this Agreement, during the continuation of a Termination Event: (i) at any time and from time to time the Purchaser may direct the Obligor that payment of all amounts payable under any Listed Receivable be made directly to the Purchaser or its designee; (ii) at any time and from time to time the Purchaser may instruct each Seller to give notice of the Purchaser's Interest in such Seller's Listed Receivables to the Obligor, which notice shall direct that payments be made directly to the Purchaser or its designee, and upon such instruction from the Purchaser such Seller shall give such notice at the expense of such Seller; (iii) at any time and from time to time the Purchaser may request each Seller Party to, and upon such request such Seller Party shall, assemble all of the records necessary or VI-1 desirable to collect such the Listed Receivables and the Related Security, and transfer or license the use of, to the Purchaser, all software necessary or desirable to collect such Listed Receivables and the Related Security, and make the same available to the Purchaser or its designee at a place selected by the Purchaser; (iv) at any time and from time to time the Purchaser may request each Seller Party to, and upon such request such Seller Party shall as soon as is practicable and in any event within five Business Days of such request, segregate all cash, checks and other instruments received by it from time to time constituting Collections with respect to the Listed Receivables in a manner acceptable to the Purchaser and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Purchaser or its designee; (v) at any time and from time to time the Purchaser may request the Sellers to, and upon such request the Sellers shall, sign and deliver to the Purchaser UCC financing statements with respect to the items described in Section 1.2(d), in form and substance satisfactory to the Purchaser, and the Purchaser shall have the right to file such financing statements (and the UCC financing statements delivered pursuant to Exhibit II) in such jurisdictions as it deems to be necessary or appropriate to protect its interest in such items; and (vi) each Seller Party hereby authorizes the Purchaser, and irrevocably appoints the Purchaser as its attorney-in-fact with full power of substitution and with full authority in the place and stead of such Seller Party, which appointment is coupled with an interest, to take any and all steps in the name of such Seller Party and on behalf of such Seller Party necessary or desirable, in the determination of the Purchaser, to collect any and all amounts or portions thereof due under any and all of the Listed Receivables or Related Security, including endorsing the name of such Seller Party on checks and other instruments representing Collections and enforcing such Listed Receivables, Related Security and the related Contracts. Notwithstanding anything to the contrary contained in this paragraph, none of the powers conferred upon such attorney-in-fact pursuant to the immediately preceding sentence shall subject such attorney-in-fact to any liability if any action taken by it shall prove to be inadequate or invalid, nor shall they confer any obligations upon such attorney-in-fact in any manner whatsoever. (d) Responsibilities of the Sellers. Anything herein to the contrary notwithstanding, each Seller shall (x) perform all of its obligations under the Contracts related to its Listed Receivables to the same extent as if interests in such Listed Receivables had not been transferred hereunder and the exercise by the Purchaser of its rights hereunder shall not relieve such Seller from such obligations, and (y) pay when due any taxes, including any sales taxes payable in connection with the Listed Receivables and their creation and satisfaction. The Purchaser shall not have any obligation or liability with respect to any Listed Receivable, any Related Security or any related Contract, nor shall the Purchaser be obligated to perform any of the obligations of a Seller under any of the foregoing. VI-2 EXHIBIT VII INDEMNIFICATION (a) Indemnification. Without limiting any other rights that the Indemnified Parties may have hereunder or under applicable law, each Seller hereby severally 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 relating to such Seller, or any interest therein, or in respect of any Receivable of such Seller 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 Purchaser with respect to Listed Receivables, Collections, Related Security or this Agreement to be true and correct; (ii) the failure of any representation or warranty or statement made or deemed made by such Seller 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 Exhibit VII, in determining whether any such representation or warranty or statement was true and correct in all respects when made, any qualification in Exhibit III as to materiality or to a Material Adverse Effect or to limitations on enforcement shall be disregarded); (iii) the failure by such Seller or the Servicer to comply with any applicable law, rule or regulation with respect to any Listed Receivable of such Seller or the related Contract, or the failure of any Listed Receivable of such Seller or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest in the Purchaser a valid and enforceable first priority perfected (A) undivided percentage ownership interest, to the extent of the related Purchased Interest, in the Listed Receivables of such Seller and the Related Security and Collections with respect thereto and (B) security interest in the items described in Section 1.2(d), 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 of the Obligor) of the Obligor to the payment of any Listed Receivable of such Seller (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 of such Seller (whether or not contemplated by Exhibit VI), excluding, however, adjustments required as a matter of law because the Obligor is a party to an 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 such Seller or the Servicer to perform its duties or obligations in accordance with the provisions of this Agreement, or to perform its duties or obligations under any Contract (it being understood and agreed that for purposes of this Exhibit VII, in determining whether a Seller or the Servicer has performed its duties or obligations in accordance with the provisions of this Agreement or has performed its duties or obligations under any Contract, any qualification in Exhibit IV or Exhibit VI 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 Contract relating to such Seller's Listed Receivables; (viii) the commingling of Collections of such Seller's 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 VII-1 Receivable of such Seller or any Related Security or Contract in respect thereof; (x) the occurrence of any Termination Event and the resulting increase in Yield with respect to the Purchased Interest relating to such Seller; (xi) the failure of any Purchased Interest relating to that Seller to be less than or equal to one hundred percent (100%); (xii) the failure of any of such Seller's Listed Receivables to be Eligible Receivables; (xiii) the failure of such Seller or the Servicer to comply with the terms of the Credit and Collection Policy; (xiv) the failure of any Contract relating to such Seller's Listed Receivables to have terms that are consistent with customary terms for such Seller's industry and type of Receivable; (xv) the failure of such Seller to complete the sale and delivery of the goods (or the performance of the services, if any) which are the subject of any of such Seller's Listed Receivables; (xvi) the existence of any contingent performance requirements of such Seller in respect of any of its Listed Receivables; or (xvii) any action or inaction by such Seller or the Servicer which impairs the interest of the Purchaser in such Seller's Listed Receivables. Without limiting the foregoing, the parties hereto agree that if (A) the Purchaser is paid less than the Purchaser's Investments plus accrued Yield thereon on a Due Date pursuant to Section 1.3 (the difference between (x) the amount so paid on such Due Date and (y) such Purchaser's Investments plus such Yield being referred to as the "deficiency amount"), and (B) the deficiency amount did not result from the Obligor being a party to an Insolvency Proceeding, then for each day following such Due Date until the Purchaser shall have received an amount equal to the deficiency amount, the Indemnified Amounts shall include an amount equal to the amount of interest (determined by the Purchaser) that the Purchaser would have earned on such day on the deficiency amount had such amount been paid to the Purchaser on such Due Date; provided, however, that this sentence shall not limit the applicable Seller's obligation to pay the deficiency amount to the Purchaser to the extent that the deficiency amount otherwise would be so payable pursuant to this Exhibit. Notwithstanding the first sentence of this paragraph, no Seller shall be obligated to indemnify any Indemnified Party for (x) Receivables which are uncollectible because the Obligor is a party to an Insolvency Proceeding, it being understood and agreed that this clause (x) shall not limit any Seller's obligations under this Exhibit arising out of or relating to any other event, occurrence or circumstance which would give rise to an obligation of such Seller pursuant to this Exhibit (to the extent that such event, occurrence or circumstance adversely affects repayment of the Purchaser's Investments plus accrued Yield thereon during or in connection with 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 the Obligor becomes a party to any Insolvency Proceeding: (i) each Seller Party shall promptly (and in any event not later than thirty days) after receipt provide to the Purchaser 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 the 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 Purchaser shall have sent a notice to the Servicer to the effect that the Purchaser desires that the Seller Parties comply with this clause (i); (ii) the Servicer, as agent for each Seller, shall file Proofs of Claim, at the request and direction of the Purchaser, 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 Purchaser, it being understood and agreed that the Purchaser shall reimburse the Servicer for its reasonable expenses in making such filing to the extent that such expenses relate to the Listed VII-2 Receivables; and (iii) the Purchaser, as agent for each Seller, 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 Purchaser shall not file such a Proof of Claim until the earlier to occur of (x) the sixtieth day following the date on which the Purchaser has sent a written request to the Sellers requesting such Sellers 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. As used herein, "Proof of Claim" shall refer individually, and "Proofs of Claim" shall refer collectively, to 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. Without limiting the foregoing, if and to the extent the Purchaser shall be required for any reason to pay over to any Seller, the Servicer or an Obligor (or any trustee, receiver, custodian or similar official in any Insolvency Proceeding) any amount received by the Purchaser hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Sellers and, accordingly, the Purchaser shall have a claim against the applicable Seller for such amount, payable on demand. (b) Capital Adequacy, Etc. Sections 3.1(a)-(e), 3.2, 3.3(a) and (b), 3.4, 3.5 (excluding the first sentence thereof) and 3.6 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: (i) all references to "the Company" shall be deemed to be references to each Seller, individually; (ii) all references to "Bank", "Agent" or "Reference Banks" shall be deemed to be references to the Purchaser; (iii) all references to "Lending Office" shall be deemed to be a reference to the office of the Purchaser identified on the signature page 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 Purchaser's Investments; (vi) all references to "Eurodollar Rate Loans" shall be deemed to be references to Purchaser's Investments with respect to which Yield would then be calculated based on the Eurodollar Rate; (vii) all references to "Base Rate Loans" shall be deemed to be references to Purchaser's Investments with respect to which Yield would then be calculated based on the Termination Rate; (viii) all references to "CD Rate" or "CD Rate Loans" shall be deemed to have been deleted; (ix) all references to "interest" shall be deemed to be references to Yield; and (x) the following words in Section 3.3(b) of the Mattel Credit Agreement, "pursuant to Section 2.4, either on the last day of the Interest Period thereof if the Bank may lawfully continue to maintain such Eurodollar Rate Loans to such day, or promptly, if the Bank may not lawfully continue to maintain such Eurodollar Rate Loans", shall be deemed to be replaced by the word "promptly". VII-3 EXHIBIT VIII [FORM OF] PURCHASE NOTICE [Date] VIA FACSIMILE (510-675-7531 or 510-675-7532) - -------------------------------------------- Bank of America National Trust and Savings Association 1850 Gateway Boulevard Global Payments Operations #5693 Concord, California 94520 Attention: Cheryl Davidson Ladies and Gentlemen: This Purchase Notice is being delivered to you pursuant to Section 1.2 of the Receivables Purchase Agreement dated as of September 13, 1996 (as amended, amended and restated or otherwise modified from time to time in accordance with its terms, the "Receivables Purchase Agreement") among Mattel Sales Corp., Fisher-Price, Inc., Mattel, Inc., and Bank of America National Trust and Savings Association. Capitalized terms used herein without definition shall have the meanings assigned thereto in the Receivables Purchase Agreement. The Servicer hereby notifies the Purchaser that each Seller proposes to sell to the Purchaser on [insert date] (the "Purchase Date") an undivided percentage ownership interest in such Seller's Eligible Receivables and other items contemplated by Section 1.2(c) of the Receivables Purchase Agreement. As of the date of this Purchase Notice, the aggregate outstanding principal balances of the Eligible Receivables of Mattel Sales with respect to which Mattel Sales proposes to sell an undivided percentage ownership interest to the Purchaser is $ , ------------- and the aggregate outstanding principal balances of the Eligible Receivables of Fisher-Price with respect to which Fisher-Price proposes to sell an undivided percentage ownership interest to the Purchaser is $ . ------------- Very truly yours, MATTEL, INC., as the Servicer By: ------------------------------ Name: ---------------------------- Title: --------------------------- VIII-1 EXHIBIT IX [FORM OF] REQUEST TO EXTEND FACILITY TERMINATION DATE [Date] Bank of America National Trust and Savings Association Credit Products #5618 555 S. Flower Street Los Angeles, California 90071 Attention: Robert W. Troutman Ladies and Gentlemen: This letter is being delivered to you pursuant to Section 1.5 of the Receivables Purchase Agreement dated as of September 13, 1996 (as amended, amended and restated or otherwise modified from time to time in accordance with its terms, the "Receivables Purchase Agreement") among Mattel Sales Corp., Fisher-Price, Inc., Mattel, Inc., and Bank of America National Trust and Savings Association. Capitalized terms used herein without definition shall have the meanings assigned thereto in the Receivables Purchase Agreement. The current Facility Termination Date is [insert date]. The undersigned hereby request that the Facility Termination Date be extended to (and amended to be) [insert date], which is 364 days after the current Facility Termination Date. If you agree to such extension (and amendment), please sign a copy of this letter where indicated below and return such copy to the Servicer. Very truly yours, MATTEL SALES CORP., as a Seller By: ------------------------------ Name: ---------------------------- Title: --------------------------- FISHER-PRICE, INC., as a Seller By: ------------------------------ Name: ---------------------------- Title: --------------------------- MATTEL, INC., as the Servicer and as the Guarantor By: ------------------------------ Name: ---------------------------- Title: --------------------------- IX-1 Agreed and Acknowledged: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the Purchaser By: ------------------------------ Name: ---------------------------- Title: --------------------------- IX-2 SCHEDULE I ADDRESSES FOR NOTICES --------------------- Bank of America National Trust and Savings Association Credit Products #5618 555 S. Flower Street Los Angeles, California 90071 Attention: Robert W. Troutman Telephone: (213) 228-3866 Facsimile: (213) 623-7923 Mattel, Inc. 333 Continental Blvd. El Segundo, California 90245 Attention: William Stavro Telephone: (310) 252-3202 Facsimile: (310) 252-3861 or (310) 252-2179 Mattel Sales Corp. 333 Continental Blvd. El Segundo, California 90245 Attention: William Stavro Telephone: (310) 252-3202 Facsimile: (310) 252-3861 or (310) 252-2179 Fisher-Price, Inc. 636 Girard Avenue East Aurora, New York 14052 Attention: Mary Casey Telephone: (716) 687-3000 Facsimile: (716) 687-3660 with a copy to: William Stavro Mattel, Inc. 333 Continental Blvd. El Segundo, California 90245 Telephone: (310) 252-3202 Facsimile: (310) 252-3861 or (310) 252-2179 SCHEDULE II TRADE NAMES ----------- Mattel Sales Corp. - ------------------ Mattel Sales Mattel Fisher-Price, Inc. - ------------------ Fisher-Price FPI, Inc. EX-10.2 3 MATTEL AMENDED & RESTATED 1996 STOCK OPTION PLAN EXHIBIT 10.2 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-10.3 4 FORM OF OPTION AGMT FOR O/S DIRECTORS EXHIBIT 10.3 =========================================================================== NOTICE OF GRANT OF STOCK MATTEL, INC. OPTIONS AND GRANT AGREEMENT ID: 95-1567322 333 Continental Boulevard El Segundo, California 90245 - --------------------------------------------------------------------------- - ----------------------- Name of Optionee - ----------------------- Address - ----------------------- City, State Zip Code ID: - - --- -- ---- You have been granted an option to buy Mattel, Inc. Common Stock as follows: ------------------------------------------------------------ |NON-QUALIFIED STOCK OPTION GRANT NO. | | |----------------------------------------------------------| |DATE OF GRANT | | |----------------------------------------------------------| |STOCK OPTION PLAN | 1996 | |----------------------------------------------------------| | | | |OPTION PRICE PER SHARE | $ | |----------------------------------------------------------| |TOTAL NUMBER OF SHARES GRANTED | | |----------------------------------------------------------| |TOTAL PRICE OF SHARES GRANTED | $ | ------------------------------------------------------------ - --------------------------------------------------------------------------- By signing your name below, you and Mattel, Inc. agree that (a) this option is granted under and governed by the terms and conditions of the Grant Agreement referenced above, which is attached hereto and made a part of this document, and (b) both of these documents are subject to the terms of the above referenced Stock Option Plan. - - - ----------------------- ---------------------- Full Legal Name (Print) Social Security Number Current Address: ______________________ ______________________ =========================================================================== - --------------------------------------------- ------------------------- For MATTEL, INC. Date - --------------------------------------------- ------------------------- Optionee Date GRANT AGREEMENT FOR A NON-QUALIFIED STOCK OPTION UNDER THE MATTEL 1996 STOCK OPTION PLAN This is an Option Agreement between Mattel, Inc. (the "Company") and the individual (the "Option Holder") named in the Notice of Grant of Stock Option (the "Notice") attached hereto as the cover page of this agreement. RECITALS - -------- The Company has adopted the Mattel 1996 Stock Option Plan (the "Plan") for the purpose of, among other things, granting to Outside Directors options to purchase shares of Common Stock of the Company. Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Plan. OPTION - ------ 1. TERMS. The Company grants to the Option Holder the right and option to purchase, on the terms and conditions hereinafter set forth, all or any part of the aggregate number of shares set forth in the Notice of Common Stock exercisable in accordance with the provisions of this Option during a period expiring ten years from the date of the Notice (the "Expiration Date"), unless terminated prior to that date pursuant to Section 5 or 6 below. This Option is a Non-Qualified Stock Option. 2. EXERCISABILITY. This Stock Option is immediately exercisable in full. 3. METHOD OF EXERCISING. Each exercise of this Option shall be by means of a written notice of exercise delivered to the office of the Secretary of the Company, specifying the number of whole shares to be purchased, accompanied by payment of the full purchase price of the shares to be purchased. The payment shall be in the form of cash or such other forms of consideration as the Committee shall deem acceptable, such as the surrender of outstanding shares of Common Stock owned by the Option Holder or by withholding shares that would otherwise be issued upon the exercise of the Option. The Option Holder may exercise this Option by the delivery to the Company or its designated agent of an irrevocable written notice of exercise form together with irrevocable instructions to 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 this Option. 4. WITHHOLDING. Upon exercise, the Option Holder shall pay, or make provisions satisfactory to the Company or its Subsidiary for payment of any federal, state and local taxes required to be withheld. 5. CANCELLATION OF GRANTS. Option Holder specifically acknowledges that this Option is subject to the provisions of Section 20 of the Plan, entitled "Cancellation of Grants," which can cause the forfeiture of this Option, or the rescission of Common Stock acquired upon the exercise of this Option. As a condition of the exercise of this Option, the Option Holder shall certify on a form acceptable to the Committee that he or she is in compliance with the terms and conditions of the Plan, including Section 20 thereof, entitled "Cancellation of Grants." 6. TERM. This Option shall terminate sixty (60) days after the Option Holder ceases to be a member of the Board, for whatever reason. 7. COMPLIANCE WITH LAW. No shares issuable upon the exercise of this Option shall be issued and delivered unless and until all applicable registration requirements of the Securities Act of 1933, all applicable listing requirements of any national securities exchange on which Common Stock is then listed, and all other requirements of law or of any regulatory bodies having jurisdiction over such issuance and delivery, shall have been complied with. In particular, the Committee may require certain investment (or other) representations and undertakings in connection with the issuance of securities in connection with the Plan in order to comply with applicable law. 8. ASSIGNABILITY. Except as may be effected by will or by the laws of descent and distribution, any attempt to assign this Option shall be of no effect. 9. CERTAIN CORPORATE TRANSACTIONS. In the event of any change in the Common Stock by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or similar event, the Committee may adjust proportionately the number of shares and the stock price of the Common Stock subject to this Option. In the event of any other change affecting the Common Stock or any distribution (other than normal cash dividends) to holders of Common Stock, the Committee may make such adjustments as it may deem equitable (including adjustments to avoid fractional shares) in order to give proper effect to such event. In the event of a corporate merger, consolidation, acquisition of property or stock, spinoff, reorganization or liquidation, the Committee may substitute a new option for this Option or provide for the assumption of this Option by the other corporation that is a party to the transaction. 10. RIGHTS AS A STOCKHOLDER. Neither the Option Holder nor any other person legally entitled to exercise this Option shall be entitled to any of the rights or privileges of a stockholder of the Company in respect of any shares issuable upon any exercise of this Option unless and until a certificate or certificates representing such shares shall have been actually issued and delivered to the Option Holder. 11. COMPLIANCE WITH PLAN. This Option is subject to, and the Company and Option Holder agree to be bound by all of the terms and conditions of the Plan, as it shall be amended from time-to-time. No amendment to the Plan shall adversely affect this Option without the consent of the Option Holder. In the case of a conflict between the terms of the Plan and this Option, the terms of the Plan shall govern. -2- 12. GOVERNING LAW. This Option has been granted, executed and delivered with effect from the date of Notice, at El Segundo, California, and interpretation, performance and enforcement of this Option shall be governed by the laws of the State of Delaware. -3- EX-11.0 5 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0 (Page 1 of 2) COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE ------------------------------------------------------------ (In thousands, except per share amounts)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED ---------------------- ---------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, PRIMARY 1996 1995 1996 1995 - ------- --------- --------- --------- --------- Net income $ 168,007 $ 151,326 $ 264,185 $ 245,780 Deduct: Dividends on convertible preference stock - (1,099) - (3,297) --------- --------- --------- --------- Net income applicable to common shares $ 168,007 $ 150,227 $ 264,185 $ 242,483 ========= ========= ========= ========= Applicable Shares for Computation of Income per Share: - ------------------------------------------------------ Weighted average common shares outstanding 272,160 276,786 274,329 276,465 Weighted average common equivalent shares arising from: Dilutive stock options 3,203 3,648 3,489 3,128 Fisher-Price warrants 983 952 985 917 Nonvested stock 593 518 592 454 --------- --------- --------- --------- Weighted average number of common and common equivalent shares 276,939 281,904 279,395 280,964 ========= ========= ========= ========= Income Per Common Share: - ------------------------ Net income per common share $ 0.61 $ 0.53 $ 0.95 $ 0.86 ========= ========= ========= =========
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0 (Page 2 of 2) COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE ------------------------------------------------------------ (In thousands, except per share amounts)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED ---------------------- ---------------------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, FULLY DILUTED 1996 (a) 1995 (b) 1996 (a) 1995 (b) - ------------- --------- --------- --------- --------- Net income applicable to common shares $ 168,007 $ 151,326 $ 264,185 $ 245,780 ========= ========= ========= ========= Applicable Shares for Computation of Income per Share: - ------------------------------------------------------ Weighted average common shares outstanding 272,160 276,786 274,329 276,465 Weighted average common equivalent shares arising from: Dilutive stock options 3,210 3,789 3,504 4,074 Fisher-Price warrants 983 959 985 958 Assumed conversion of convertible preference stock - 923 - 923 Nonvested stock 627 541 708 541 --------- --------- --------- --------- Weighted average number of common and common equivalent shares 276,980 282,998 279,526 282,961 ========= ========= ========= ========= Income Per Common Share: - ------------------------ Net income per common share $ 0.61 $ 0.53 $ 0.95 $ 0.87 ========= ========= ========= ========= (a) - This calculation is submitted in accordance with Regulation S-K, Item 601 (b)(11), although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. (b) - This calculation is submitted in accordance with Regulation S-K, Item 601 (b)(11), although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result.
EX-27.0 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 97,094 0 1,248,246 15,341 477,571 2,012,609 855,472 292,920 3,086,334 1,255,704 375,150 279,058 0 0 1,070,787 3,086,334 2,595,413 2,595,413 1,291,812 1,291,812 859,725 0 52,491 391,385 127,200 264,185 0 0 0 264,185 0.95 0.95 Notes - Per share data reflects the effects of a five-for-four stock split distributed to shareholders in March 1996. Previously submitted financial data schedules have not been restated for this recapitalization. Fully diluted earnings per share for the nine months ended Sept. 30, 1996 has been submitted in accordance with Regulation S-K, Item 601 (b)(11), although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
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