-----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, KcWxDdeJJCpO3FxFj0fcGkOAaJHj00tqNV5tmsBfxw+CYGystOaUdJyZ0mQeZXH1 SH1iW7CSlzcSwvWjrTUhIA== 0000898430-98-003111.txt : 19980824 0000898430-98-003111.hdr.sgml : 19980824 ACCESSION NUMBER: 0000898430-98-003111 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980821 ITEM INFORMATION: FILED AS OF DATE: 19980821 SROS: NYSE SROS: PCX 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: 8-K SEC ACT: SEC FILE NUMBER: 001-05647 FILM NUMBER: 98695812 BUSINESS ADDRESS: STREET 1: 333 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3102522000 8-K 1 FORM 8-K DATED AUGUST 21, 1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report: August 21, 1998 MATTEL, INC. ------------ (Exact name of registrant as specified in its charter) Delaware 001-05647 95-1567322 - ------------------------------------------------------------------------------ (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File No.) 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 ---------------------------- N/A - ------------------------------------------------------------------------------ (Former name or former address, if changed since last report) Information to be included in the Report ---------------------------------------- Item 7. Financial Statements and Exhibits - ------- --------------------------------- (a) Financial statements of businesses acquired: None (b) Pro forma financial information: None (c) Exhibits: 99.0 Second Amended and Restated Credit Agreement dated as of March 11, 1998 among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as Agent 99.1 Receivables Purchase Agreement dated as of March 11, 1998 among the Company, Mattel Factoring, Inc., the Banks named therein and NationsBank of Texas, N.A., as Agent 99.2 Employment Agreement dated May 5, 1997 between the Company and Gary S. Baughman 99.3 Mattel, Inc. Personal Investment Plan, April 1, 1997 Restatement SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MATTEL, INC. Registrant By: /s/ Robert Normile ------------------------- Robert Normile Date: August 21, 1998 Vice President, --------------- Associate General Counsel and Secretary EX-99.0 2 SECOND AMENDED AND RESTATED CREDIT AGREEMENT EXHIBIT 99.0 ================================================================================ - -------------------------------------------------------------------------------- SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of March 11, 1998 among MATTEL, INC., THE BANKS NAMED HEREIN, and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent [LOGO OF BANK OF AMERICA] Arranged by BancAmerica ROBERTSON STEPHENS - -------------------------------------------------------------------------------- ================================================================================ MATTEL INC. SECOND AMENDED AND RESTATED CREDIT AGREEMENT TABLE OF CONTENTS SECTION 1. DEFINITIONS.............................................................. 1 1.1 CERTAIN DEFINED TERMS....................................................... 1 1.2 OTHER DEFINITIONAL PROVISIONS............................................... 12 SECTION 2. THE COMMITMENTS.......................................................... 12 2.1 THE AGGREGATE FACILITIES COMMITMENT......................................... 12 2.2 LOAN ACCOUNTS AND NOTES..................................................... 12 2.3 BORROWING PROCEDURE......................................................... 13 2.4 CONVERSION AND CONTINUATION ELECTIONS....................................... 13 2.5 ADJUSTMENTS OF AGGREGATE LOAN COMMITMENT AND PURCHASERS' INVESTMENT LIMIT... 15 2.6 VOLUNTARY PREPAYMENTS....................................................... 16 2.7 REPAYMENT OF LOANS.......................................................... 16 2.8 INTEREST ON THE LOANS....................................................... 16 2.9 FEES........................................................................ 16 2.10 CALCULATION OF INTEREST AND FEES............................................ 17 2.11 PAYMENTS BY THE COMPANY..................................................... 17 2.12 PAYMENTS BY THE BANKS TO THE AGENT.......................................... 18 2.13 SHARING OF PAYMENTS, ETC.................................................... 19 SECTION 3. PAYMENTS IN GENERAL...................................................... 20 3.1 TAXES....................................................................... 21 3.2 CAPITAL ADEQUACY............................................................ 21 3.3 ILLEGALITY.................................................................. 22 3.4 INCREASED COSTS AND REDUCTION OF RETURN..................................... 22 3.5 FUNDING LOSSES.............................................................. 23 3.6 INABILITY TO DETERMINE RATES................................................ 23 3.7 SURVIVAL.................................................................... 23 SECTION 4. CONDITIONS PRECEDENT..................................................... 24 4.1 CONDITIONS TO EFFECTIVENESS................................................. 24 4.2 CONDITIONS TO ALL LOANS..................................................... 25 SECTION 5. REPRESENTATIONS AND WARRANTIES........................................... 26 5.1 ORGANIZATION AND POWERS..................................................... 26 5.2 GOOD STANDING............................................................... 26 5.3 MATERIAL SUBSIDIARIES....................................................... 26 5.4 AUTHORIZATION OF BORROWING.................................................. 26 5.5 NO CONFLICT................................................................. 26 5.6 GOVERNMENTAL CONSENTS....................................................... 27 5.7 BINDING OBLIGATION.......................................................... 27 5.8 FINANCIAL CONDITION......................................................... 27 5.9 CHANGES, ETC................................................................ 27 5.10 TITLE TO PROPERTIES......................................................... 27 5.11 LITIGATION; ADVERSE FACTS................................................... 27 5.12 PAYMENT OF TAXES............................................................ 28 5.13 AGREEMENTS.................................................................. 28 5.14 PERFORMANCE................................................................. 28 5.15 GOVERNMENTAL REGULATION..................................................... 28 5.16 EMPLOYEE BENEFIT PLANS...................................................... 28 5.17 ENVIRONMENTAL MATTERS....................................................... 28
-i- 5.18 DISCLOSURE.................................................................. 29 5.19 SUBORDINATION AGREEMENTS.................................................... 29 SECTION 6. AFFIRMATIVE COVENANTS.................................................... 29 6.1 REPORTING AND INFORMATION REQUIREMENTS...................................... 29 6.2 CORPORATE EXISTENCE, ETC.................................................... 32 6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.............................. 32 6.4 MAINTENANCE OF PROPERTIES; INSURANCE........................................ 32 6.5 INSPECTION OF PROPERTY AND BOOKS AND RECORDS................................ 32 6.6 USE OF PROCEEDS OF LOANS.................................................... 33 6.7 ENVIRONMENTAL LAWS.......................................................... 33 6.8 SUBORDINATION AGREEMENTS.................................................... 33 SECTION 7. NEGATIVE COVENANTS....................................................... 33 7.1 SECURED INDEBTEDNESS........................................................ 33 7.2 LIENS....................................................................... 33 7.3 RESTRICTION ON FUNDAMENTAL CHANGES.......................................... 34 7.4 SALE OR DISCOUNT OF RECEIVABLES............................................. 34 7.5 CONSOLIDATED FUNDED INDEBTEDNESS TO TOTAL CAPITALIZATION.................... 35 7.6 INTEREST COVERAGE RATIO..................................................... 35 7.7 ERISA....................................................................... 35 7.8 MARGIN REGULATIONS.......................................................... 35 7.9 INDEPENDENCE OF COVENANTS................................................... 35 SECTION 8........................................................................... 36 8.1 EVENTS OF DEFAULT........................................................... 36 8.2 REMEDIES.................................................................... 38 8.3 RIGHTS NOT EXCLUSIVE........................................................ 38 SECTION 9. THE AGENT................................................................ 39 9.1 APPOINTMENT AND AUTHORIZATION............................................... 39 9.2 DELEGATION OF DUTIES........................................................ 39 9.3 LIABILITY OF AGENT.......................................................... 39 9.4 RELIANCE BY AGENT........................................................... 39 9.5 NOTICE OF DEFAULT........................................................... 40 9.6 CREDIT DECISION............................................................. 40 9.7 INDEMNIFICATION............................................................. 41 9.8 AGENT IN INDIVIDUAL CAPACITY................................................ 41 9.9 SUCCESSOR AGENT............................................................. 42 SECTION 10. MISCELLANEOUS........................................................... 42 10.1 ASSIGNMENTS, PARTICIPATIONS, ETC............................................ 42 10.2 SURVIVAL OF WARRANTIES AND OF CERTAIN AGREEMENTS............................ 44 10.3 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE....................... 44 10.4 FEES AND EXPENSES........................................................... 45 10.5 SET OFF..................................................................... 45 10.6 NOTICES..................................................................... 45 10.7 SEVERABILITY................................................................ 45 10.8 AMENDMENTS AND WAIVERS...................................................... 46 10.9 OBLIGATIONS SEVERAL......................................................... 46 10.10 CERTAIN CHANGES............................................................. 46 10.11 HEADINGS.................................................................... 47 10.12 APPLICABLE LAW.............................................................. 47 10.13 SUCCESSORS AND ASSIGNS...................................................... 47 10.14 COUNTERPARTS................................................................ 47 10.15 INDEMNITY................................................................... 47
-ii- 10.16 AMENDMENT AND RESTATEMENT................................................... 48 SIGNATURE PAGES S-1
-iii- EXHIBITS Form of: A Note B Notice of Borrowing C Notice of Conversion/Continuation D Officers' Certificate E Opinion of Assistant General Counsel of Company F-1 Fisher-Price Continuing Guaranty F-2 Mattel Sales Continuing Guaranty G-1 Fisher-Price Subordination Agreements G-2 Mattel Sales Subordination Agreements H Change in Commitments I Notice of Assignment and Acceptance SCHEDULES 1.1 Commitments and Pro Rata Shares 5.3 Material Subsidiaries of Company 5.11 Material Litigation 7.2 Certain Liens -iv- MATTEL, INC. SECOND AMENDED AND RESTATED CREDIT AGREEMENT This SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is dated as of March 11, 1998 and is entered into by and among MATTEL, INC., a Delaware corporation (the "Company"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (individually referred to herein as a "Bank" and collectively as the "Banks"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as the agent for the Banks (the "Agent"). PRELIMINARY STATEMENTS A. The Company, certain of the Banks and the Agent are parties to that certain Credit Agreement dated as of March 10, 1995, as amended and restated by a First Amended and Restated Credit Agreement dated as of March 13, 1997 (as so amended and restated, the "Existing Credit Agreement") pursuant to which the Banks agreed to make certain credit facilities available to the Company in accordance with the terms of the Existing Credit Agreement. B. The Company, the Banks and the Agent desire to further amend and restate the Existing Credit Agreement in its entirety on the terms and conditions set forth herein. In consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company, the Banks and the Agent agree to further amend and restate the Existing Credit Agreement in its entirety as follows: SECTION 1. DEFINITIONS. 1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings: "Affiliate", as applied to any Person, means any other Person directly or --------- indirectly controlling, controlled by or under common control with, that Person. For the purposes of this definition, "control" (including with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "Agent" has the meaning assigned to that term in the introduction to this ----- Agreement. "Agent-Related Persons" means Agent and any successor agent arising under --------------------- Section 9.9, together with their respective Affiliates (including, in the case of Bank of America, the Arranger), and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. -1- "Aggregate Facilities Commitment" means the amount set forth opposite ------------------------------- "Total" under "Facilities Commitments" on Schedule 1.1, as such amount may be adjusted pursuant to Section 2.5. "Aggregate Loan Commitment" means the amount set forth opposite "Total" ------------------------- under "Loan Commitment" on Schedule 1.1, as such amount may be adjusted pursuant to Section 2.5. "Agreement" means this Credit Agreement, as it may hereafter be amended, --------- supplemented, restated or otherwise modified from time to time. "Applicable Amount" means the commitment fee or the margin applicable to ----------------- Eurodollar Rate Loans (expressed in basis points per annum) set forth in the chart below opposite the second highest rating issued by S&P, Moody's or Duff & Phelps on Borrower's senior unsecured long-term debt:
SENIOR UNSECURED LONG-TERM COMMITMENT EURODOLLAR RATE DEBT RATINGS FEE LOANS + -------------------------------------------------------------------------------- A or higher by S&P 6.50 20.00 A2 or higher by Moody's A or higher by Duff & Phelps -------------------------------------------------------------------------------- A- or higher by S&P 7.50 22.50 A3 or higher by Moody's A- or higher by Duff & Phelps -------------------------------------------------------------------------------- BBB+ or higher by S&P 9.00 27.50 Baa1 or higher by Moody's BBB+ or higher by Duff & Phelps -------------------------------------------------------------------------------- BBB or higher by S&P 11.00 32.50 Baa2 or higher by Moody's BBB or higher by Duff & Phelps -------------------------------------------------------------------------------- BBB- or higher by S&P 15.00 37.50 Baa3 or higher by Moody's BBB- or higher by Duff & Phelps -------------------------------------------------------------------------------- None of above criteria satisfied 25.00 62.50 --------------------------------------------------------------------------------
Any change in the commitment fee or the margin applicable to Eurodollar Rate Loans shall become effective upon any public announcement of any change in the above ratings that requires such a change according to the above chart. -2- "Arranger" means BancAmerica Securities, Inc., a Delaware corporation. -------- "Availability Period" means the period from the Effective Date to but ------------------- excluding the Termination Date. "Bank" has the meaning assigned to that term in the introduction to this ---- Agreement. "Bank Affiliate" means a Person engaged primarily in the business of -------------- commercial banking and that is a Subsidiary of a Bank or of a Person of which a Bank is a Subsidiary. "Bank of America" means Bank of America National Trust and Savings --------------- Association. "Base Rate" means a fluctuating rate per annum which is the higher of (a) --------- the Federal Funds Rate plus one-half of one percent (1/2%) per annum and (b) the Reference Rate. "Base Rate Loans" means Loans made by the Banks bearing interest at rates --------------- determined by reference to the Base Rate. "Business Day" means any day other than a Saturday, Sunday or other day on ------------ which commercial banks in New York City, New York, San Francisco, California or Dallas, Texas are authorized or required by law to close and, if the applicable Business Day relates to any Eurodollar Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Capital Assets" means, as at any date of determination, those assets of a -------------- Person that would, in conformity with GAAP, be classified as property, plant or equipment on the balance sheet of that Person. "Capital Lease" as applied to any Person, means any lease of any property ------------- (whether real, personal or mixed) by that Person as lessee which would, in conformity with GAAP, be required to be accounted for as a capital lease on the balance sheet of that Person other than, in the case of the Company or any of its Subsidiaries, any such lease under which the Company or any of its Subsidiaries is the lessor. "Change in Commitment Notice" means a notice substantially in the form of --------------------------- Exhibit H hereto with respect to a reallocation of Commitments. "Combined Purchasers' Investments" means an amount equal to the sum of (a) -------------------------------- the Purchasers' Investments under the Receivables Purchase Agreement plus (b) ---- the analogous amount under Other Permitted Accounts Receivable Financing Facilities relating to the sales of accounts receivable of Domestic Subsidiaries (without duplication for accounts receivable sold to a Subsidiary of the Company and then sold to a third party purchaser). "Commitment" means the Aggregate Loan Commitment or the Purchasers' ---------- Investment Limit (collectively, the "Commitments"). ----------- "Consolidated Funded Indebtedness" means, at any date of determination, for -------------------------------- the Company and its Subsidiaries on a consolidated basis, the sum of (a) all obligations and -3- liabilities, whether current or long-term, for borrowed money, (b) that portion of obligations with respect to Capital Leases which is capitalized on the consolidated balance sheet of the Company and its Subsidiaries, and (c) all guaranties of unconsolidated funded obligations for borrowed money, all determined in conformity with GAAP. "Consolidated Net Income" for any period, means the net income (or loss) of ----------------------- the Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP. "Consolidated Tangible Net Worth" means, as at any date of determination, ------------------------------- the net worth of the Company and its Subsidiaries on a consolidated basis minus ----- foreign exchange currency translation adjustments and intangible assets, all determined in conformity with GAAP. "Contingent Obligation", as applied to any Person, means, without --------------------- duplication, any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof or (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings. Contingent Obligations shall include, without limitation, (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another and (b) any liability of such Person for the obligations of another through any agreement (contingent or otherwise) (x) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (y) to maintain the solvency or any balance sheet item, level of income or financial condition of another, if in the case of any agreement described under subclauses (x) or (y) of this sentence the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported. The amount of any Contingent Obligation denominated in a currency other than Dollars shall be equal to the Dollar Equivalent of such Contingent Obligation. "Contractual Obligation", as applied to any Person, means any provision of ---------------------- any security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Default" means any event or circumstance which, with the giving of notice, ------- the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars" means lawful money of the United States of America. ------- -4- "Domestic Subsidiary" means a Subsidiary of the Company that is ------------------- incorporated in a jurisdiction of the United States of America. "Duff & Phelps" means Duff & Phelps Credit Rating Co. ------------- "Effective Date" means the date on or after March 11, 1998 on which all the -------------- conditions in Section 4.1 are satisfied or waived. "Eligible Assignee" means (i) a commercial bank organized under the laws of ----------------- the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (ii) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; and (iii) a Person that is primarily engaged in the business of commercial banking and that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary. "Environmental Claims" means all claims, however asserted, by any -------------------- Governmental Person or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, ------------------ common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Person, in each case relating to environmental, health, safety and land use matters. "ERISA" means, at any time, the Employee Retirement Income Security Act of ----- 1974, as amended from time to time and any successor statute, and the rules and regulations promulgated thereunder. "ERISA Affiliate", as applied to any Person, means any trade or business --------------- (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of Section 414(b) and 414(c) of the Internal Revenue Code. "Eurodollar Rate Loans" means Loans bearing interest at rates determined by --------------------- reference to the Eurodollar Rate as provided in Section 2.8(a). "Eurodollar Rate" means, for each Interest Period for any Eurodollar Rate --------------- Loan, an interest rate per annum (rounded upward to the nearest 1/16 of one percent) determined pursuant to the following formula: Eurodollar Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, -5- "Eurodollar Reserve Percentage" means the maximum reserve percentage ----------------------------- (expressed as a decimal rounded upward to the next 1/100 of one percent) in effect on the date LIBOR for such Interest Period is determined (whether or not applicable to any Bank) 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 equal to such Interest Period; and "LIBOR" means the rate of interest per annum determined by the Agent ----- to be the arithmetic mean (rounded upward to the nearest 1/16th of 1%) of the rates of interest per annum notified to the Agent by each Reference Bank as the rate of interest at which dollar deposits in the approximate amount of the amount of the Loan to be made or continued as, or converted into, a Eurodollar Rate Loan by such Reference Bank and having a maturity comparable to such Interest 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 Interest Period. "Event of Default" means any of the events set forth in Section 8.1. ---------------- "Exchange Act" means, at any time, the Securities Exchange Act of 1934, as ------------ amended from time to time, and any successor statute, and the rules and regulations promulgated thereunder. "Existing Credit Agreement" has the meaning set forth in Recital A hereto. ------------------------- "Federal Funds Rate" means the weighted average of the rates on overnight ------------------ Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day of determination (or if such day of determination is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transaction received by the Agent from three Federal funds brokers of recognized standing selected by it. "Federal Reserve Board" means the Board of Governors of the Federal Reserve --------------------- System or any successor thereof. "Fisher-Price" means Fisher-Price, Inc., a Delaware corporation. ------------ "Fisher-Price Guaranty" means the First Amended and Restated Continuing --------------------- Guaranty signed by Fisher-Price substantially in the form of Exhibit F-1 hereto, as amended, supplemented, restated or otherwise modified from time to time. "Fisher-Price Subordination Agreement" means the First Amended and Restated ------------------------------------ Fisher-Price Subordination Agreement substantially in the form of Exhibit G-1 attached hereto signed by the Company and certain Affiliates of the Company with respect to which Fisher-Price has material outstanding obligations, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time. -6- "Funding Date" means the Business Day of the funding of a Loan. ------------ "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Governmental Person" means the government of the United States or the ------------------- government of any state or locality therein, any political subdivision or any governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body or entity, or other regulatory bureau, authority, body or entity of the United States or any state or locality therein, including the Federal Deposit Insurance Company, the Comptroller of the Currency or the Federal Reserve Board. "Governmental Rule" means any law, statute, rule, regulation, ordinance, ----------------- order, judgment, guidelines or decision of any Governmental Person. "Indebtedness", as applied to any Person, means (i) all indebtedness for ------------ borrowed money, (ii) that portion of obligations with respect to Capital Leases which is required to be capitalized on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services which purchase price is (y) due more than twelve months from the date of incurrence of the obligation in respect thereof, or (z) evidenced by a promissory note and (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is non-recourse to the credit of that Person. The amount of any Indebtedness shall be the principal amount of and all interest, premium, if any, and other fees and expenses accrued on any of the foregoing. "Ineligible Securities" means securities which may not be underwritten or --------------------- dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. (S) 24, Seventh), as amended. "Interest Payment Date" means, with respect to any Eurodollar Rate Loan, --------------------- the last day of each Interest Period applicable to such Loan and, with respect to any Base Rate Loan, the last day of each calendar quarter, and with respect to all Loans, the Termination Date; provided, however, that if any Interest -------- ------- Period for a Eurodollar Rate Loan exceeds three months, respectively, interest shall also be paid on the date which falls three months after the beginning of such Interest Period. "Interest Period" means, with respect to any Eurodollar Rate Loan, the --------------- period commencing on the Business Day the Eurodollar Rate Loan is disbursed or continued or on the date on which a Loan is converted into a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: -------- -7- (i) if any Interest Period pertaining to a Eurodollar Rate Loan would otherwise end on a day which is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period shall extend beyond the Termination Date. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended --------------------- to the date hereof and from time to time hereafter, and the rules and regulations promulgated thereunder. "Lending Office" means, with respect to any Bank, the office or offices of -------------- the Bank specified as its "Lending Office" or "Domestic Lending Office" or "Eurodollar Lending Office," as the case may be, opposite its name on Schedule 10.6 hereto, or such other office or offices of the Bank as it may from time to time specify to the Company and the Agent in writing. "Lien" means any lien, mortgage, pledge, security interest, charge or ---- encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any kind of security interest). "Loan Commitment" means, for each Bank, the amount set forth under "Loan --------------- Commitment" on Schedule 1.1, as such amount may be adjusted pursuant to Section 2.5. "Loan Documents" means this Agreement, any Notes, the Mattel Sales -------------- Guaranty, the Fisher-Price Guaranty, the Mattel Sales Subordination Agreement, the Fisher-Price Subordination Agreement and all documents and instruments delivered in connection therewith (other than the Receivables Purchase Agreement and the documents delivered pursuant thereto). "Loans" has the meaning set forth in Section 2.1. ----- "Margin Stock" has the meaning assigned to the term "Margin Stock" in ------------ Regulation U of the Federal Reserve Board as in effect from time to time. "Material Adverse Effect" means (i) a material adverse effect upon the ----------------------- business, operations, properties, assets, business prospects or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, or (ii) a material impairment of the ability of the Company to perform the Obligations or of the Banks to enforce the Obligations. "Material Subsidiary" means a Subsidiary of the Company, including its ------------------- Subsidiaries, which meets any of the following conditions: -8- (a) the Company's and its Subsidiaries' investments in, and advances to, the Subsidiary exceed 10 percent of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year (for a proposed business combination to be accounted for as a pooling of interest, this condition is also met when the number of common shares exchanged or to be exchanged by the Company exceeds 10 percent of its total common shares outstanding at the date the combination is initiated); or (b) the Company and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10 percent of the total assets of the Company and its Subsidiaries consolidated as of the end of the most recently completed fiscal year; or (c) the Company and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principles of the Subsidiary exceeds 10 percent of such income of the Company and its Subsidiaries consolidated for the most recently completed fiscal year. For purpose of meeting the prescribed income test the following guidance should be applied: (i) When a loss has been incurred by either the Company and its Subsidiaries consolidated or the tested Subsidiary, but not both, the equity in the income or loss of the tested Subsidiary should be excluded from the income of the Company and its Subsidiaries consolidated for purposes of the computation. (ii) If income of the Company and its Subsidiaries consolidated for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five years, such average income should be substituted for purposes of the computation. Any loss years should be omitted for purposes of computing average income. (iii) Where the test involves combined entities, as in the case of determining whether summarized financial data should be presented, entities reporting losses shall not be aggregated with entities reporting income. "Mattel Sales" means Mattel Sales Corp., a California corporation. ------------ "Mattel Sales Guaranty" means the First Amended and Restated Continuing --------------------- Guaranty signed by Mattel Sales substantially in the form of Exhibit F-2 hereto, as amended, supplemented, restated or otherwise modified from time to time. "Mattel Sales Subordination Agreement" means the First Amended and Restated ------------------------------------ Mattel Sales Subordination Agreement substantially in the form of Exhibit G-2 attached hereto signed by the Company and certain Affiliates of the Company with respect to which Mattel Sales has material outstanding obligations, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time. "Moody's" means Moody's Investors Service, Inc. ------- -9- "Multiemployer Plan" means a "multiemployer plan" as defined in Section ------------------ 4001(a)(3) of ERISA which is maintained for employees of the Company or any ERISA Affiliate of the Company. "Note" means a promissory note of the Company payable to the order of a ---- Bank substantially in the form of Exhibit A hereto, evidencing the Loans made by such Bank to the Company. "Notice of Borrowing" means a notice substantially in the form of Exhibit B ------------------- hereto with respect to a proposed borrowing pursuant to Section 2.3(a). "Notice of Conversion/Continuation" means a notice given by the Company to --------------------------------- the Agent pursuant to Section 2.4, in substantially the form of Exhibit C hereto. "Obligations" means all obligations of every nature of the Company, Fisher- ----------- Price and Mattel Sales from time to time owed to the Agent, the Banks or any other Person required to be indemnified hereunder, or any of them, under any Loan Document. "Officers' Certificate" means a certificate substantially in the form of --------------------- Exhibit D hereto executed on behalf of the Company by two different officers of the Company, one of which shall be (a) its Chairman of the Board (if an officer), one of its Presidents, one of its Executive Vice Presidents, or one of its Senior Vice Presidents, and the other one of which shall be (b) its Chief Financial Officer, its Treasurer, one of its Assistant Treasurers, or its Controller, delivered to the Banks by the Company pursuant to Section 6.1(c). "Other Permitted Accounts Receivable Financing Facility" means a financing ------------------------------------------------------ arrangement (other than the Receivables Purchase Agreement) entered into in the ordinary course of business under which accounts receivable of the Company, Mattel Sales, Fisher-Price or any other Subsidiary are periodically sold directly to third party purchasers, or sold to a Subsidiary of the Company formed for such purpose which in turn sells such accounts receivable to third party purchasers; provided, however, that in connection with any such financing -------- ------- arrangement: (a) there is no recourse to any seller of such accounts receivable on account of the creditworthiness of the obligor on such accounts receivable; and (b) no negative pledge or Lien is created on any accounts receivables not actually sold or discounted. "Participant" has the meaning set forth in Section 10.1. ----------- "Pension Plan" means any employee plan which is subject to Section 412 of ------------ the Internal Revenue Code and which is maintained for employees of the Company or any ERISA Affiliate of the Company other than a Multiemployer Plan. "Percentage" has the meaning set forth in the Receivables Purchase ---------- Agreement. -10- "Person" means any individual, partnership, corporation (including a ------ business trust), joint stock company, joint venture, trust, bank, trust company, unincorporated association or other entity or a government or any agency or political subdivision thereof. "Pro Rata Share" means with respect to each Bank the percentage set forth -------------- opposite such Bank's name on Schedule 1.1 hereto. "Purchasers" has the meaning set forth in the Receivables Purchase ---------- Agreement. "Purchaser Commitment" means, for each Bank, the amount set forth for each -------------------- Bank under "Purchaser Commitment" on Schedule 1.1, as such amount may be adjusted under Section 2.5 and the Receivables Purchase Agreement. "Purchasers' Investment" has the meaning set forth in the Receivables ---------------------- Purchase Agreement. "Purchasers' Investment Limit" means the amount set forth opposite "Total" ---------------------------- under "Purchaser Commitment" on Schedule 1.1, as such amount may be adjusted pursuant to Section 2.5. "Receivables Purchase Agent" means NationsBank of Texas, N.A. in its -------------------------- capacity as agent under the Receivables Purchase Agreement. "Receivables Purchase Agreement" means the Receivables Purchase Agreement ------------------------------ dated as of March 11, 1998, among Mattel Factoring, Inc., as transferor, the Company, as guarantor and servicer, the Purchasers and the Receivables Purchase Agent, as it may be amended, supplemented, restated or otherwise modified from time to time. "Reference Banks" means Bank of America and NationsBank of Texas, N.A. --------------- Subject to Section 3.6, in the event that at any time of determination only one Bank designated as a Reference Bank is providing rates for deposits referred to in the definition of "Eurodollar Rate," such Bank shall be the "Reference Banks" for purposes of this Agreement. "Reference Rate" means the rate of interest publicly announced from time to -------------- time by Bank of America in San Francisco as its reference rate, as in effect on such date of determination. The reference rate is set by Bank of America based on various factors including Bank of America's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Bank of America may make loans at, above or below the rate announced by it as its reference rate. "Regulation D" means Regulation D of the Federal Reserve Board as in effect ------------ from time to time. "Requisite Banks" means, as at any date of determination, Banks having at --------------- least 66-2/3% of the then aggregate unpaid principal amount of the Loans (or if no Loans are then outstanding, Banks having at least 66-2/3% of the Aggregate Loan Commitment), and the Requisite Purchasers (as defined in the Receivables Purchase Agreement). -11- "Securities Act" means, at any time, the Securities Act of 1933, as amended -------------- from time to time, and any successor statute, and the rules and regulations promulgated thereunder. "Section 20 Subsidiary" means the Subsidiary of the bank holding company --------------------- controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. "S&P" means Standard & Poor's Ratings Service, a division of McGraw-Hill, --- Inc., a corporation. "Subsidiary" means any corporation, association or other business entity of ---------- which more than 50% of the total voting power of shares of stock entitled to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Termination Date" means March 31, 2003. ---------------- 1.2 OTHER DEFINITIONAL PROVISIONS. References to "Sections" shall be to Sections of this Agreement unless otherwise specifically provided. Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference. SECTION 2. THE COMMITMENTS. 2.1 THE AGGREGATE FACILITIES COMMITMENT. Each Bank hereby severally agrees (a) to make advances to the Company ("Loans") on the terms and conditions set forth in this Agreement in an aggregate principal amount not exceeding such Bank's Pro Rata Share of the Aggregate Loan Commitment during the Availability Period and (b) to purchase receivables on the terms and conditions set forth in the Receivables Purchase Agreement in an amount not exceeding such Bank's Purchaser Commitment during the period from the Closing Date (as defined in the Receivables Purchase Agreement) to but excluding the Facility Termination Date (as defined in the Receivables Purchase Agreement); provided, however, that: -------- ------- (i) the outstanding principal amount of all Loans hereunder shall not exceed the Aggregate Loan Commitment; (ii) the aggregate amount of the Purchasers' Investments shall not exceed the Purchasers' Investment Limit; (iii) the Aggregate Loan Commitment and the Purchasers' Investment Limit shall not exceed the Aggregate Facilities Commitment; and (iv) each Bank's Pro Rata Share hereunder shall at all times be equal to such Bank's Percentage under, and as defined in, the Receivables Purchase Agreement. Within the limits of each Bank's Loan Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.1, prepay pursuant to Section 2.6 and reborrow pursuant to this Section 2.1. 2.2 LOAN ACCOUNTS AND NOTES. (a) Subject to Section 2.2(b), the Loans made by each Bank shall be evidenced by one or more loan accounts maintained by such Bank in the ordinary course of business. The loan accounts or records maintained by the Agent and each Bank shall be conclusive absent manifest error of the amount of the Loans made by the Banks to the Company and the interest and payments thereon. Any failure to record or any error in doing -12- so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans. (b) Upon the written request of any Bank made through the Agent, the Loans made by such Bank may be evidenced by one or more Notes, instead of loan accounts. Each such Bank shall endorse on the schedules annexed to its Note(s), the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. Each such Bank is irrevocably authorized by the Company to endorse its Note(s) and each Bank's record shall be conclusive absent manifest error; provided, however, that the -------- ------- failure of a Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Bank. 2.3 BORROWING PROCEDURE. (a) Whenever the Company desires to borrow hereunder, it shall deliver irrevocable telephonic notice to the Agent followed immediately by written notice in the form of a Notice of Borrowing, which telephonic notice must be received by the Agent no later than (i) 8:00 a.m. (San Francisco time) on the proposed Funding Date in the case of Base Rate Loans and (ii) 9:00 a.m. (San Francisco time) three Business Days in advance of the proposed Funding Date in the case of Eurodollar Rate Loans, specifying (A) the proposed Funding Date which shall be a Business Day, (B) the amount of the proposed borrowing, (C) whether the proposed borrowing shall consist of Base Rate Loans or Eurodollar Rate Loans, and (D) in the case of Eurodollar Rate Loans, the requested Interest Period. Base Rate Loans made on any Funding Date shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. Eurodollar Rate Loans made on any Funding Date shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $500,000 in excess of that amount. (b) Promptly (and normally within two hours) after receipt of a Notice of Borrowing (or telephone notice in lieu thereof), the Agent shall notify each Bank of the proposed borrowing. Each Bank shall make available to the Agent its Pro Rata Share of the amount (if any) by which the principal amount of the proposed borrowing exceeds the principal amount of the Loans (if any) maturing on the Funding Date, in same day funds, by remitting such funds to: Bank of America National Trust and Savings Association, ABA No. 121-000-358, Attn: Agency Management Services No. 5596 For credit to: BANCONTROL Account No. 12358-88449, Reference: Mattel, Inc. at the office of Bank of America located at 1850 Gateway Boulevard, Concord, California 94520, no later than 11:00 a.m. (San Francisco time) on the Funding Date. Upon satisfaction of the conditions set forth in Section 4.2, the Agent shall make available to the Company on such Funding Date the aggregate of the amounts (if any) so made available by the Banks by causing an amount of same day funds equal to such aggregate amount (if any) received by the Agent to be credited to the account of the Company at such office of Bank of America. To the extent that Eurodollar Rate Loans made by the Banks mature on any Funding Date, the Banks shall apply the proceeds of the Loans made on such Funding Date, to the extent thereof, to the repayment of such maturing Loans, such Loans and repayments intended to be a contemporaneous exchange. 2.4 CONVERSION AND CONTINUATION ELECTIONS. -13- (a) The Company may upon irrevocable written notice to the Agent: (i) elect to convert any Base Rate Loans (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $500,000 in excess thereof) on any Business Day into Eurodollar Rate Loans; (ii) elect to convert any Eurodollar Rate Loans (or any part thereof) on the last day of any Interest Period therefor into Base Rate Loans in an amount not less than $1,000,000 or an integral multiple of $500,000 in excess thereof; or (iii) elect to continue any Eurodollar Rate Loans (or any part thereof in an amount not less than $5,000,000 or an integral multiple of $500,000 in excess thereof) on the last day of any Interest Period therefor; provided, that if the aggregate amount of Eurodollar -------- Rate Loans shall have been reduced, by payment, prepayment, or conversion of part thereof to be less than $5,000,000, the Eurodollar Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as Eurodollar Rate Loans shall terminate. (b) Each conversion or continuation shall be made upon irrevocable telephonic notice to the Agent followed immediately by written notice in the form of a Notice of Conversion/ Continuation, which telephonic notice must be received by the Agent prior to (i) 9:00 a.m. (San Francisco time) at least three Business Days in advance of the conversion or continuation date, if the Loans are to be converted into or continued as Eurodollar Rate Loans and (ii) 9:00 a.m. (San Francisco time) on the conversion or continuation date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed conversion or continuation date; (B) the aggregate amount of Loans to be converted or continued; (C) the nature of the proposed conversion or continuation; and (D) the duration of the requested Interest Period, if applicable. (c) If upon the expiration of any Interest Period applicable to Eurodollar Rate Loans, the Company has failed to select a new Interest Period to be applicable to such Eurodollar Rate Loans or type of Loan or if any Default or Event of Default shall then exist, the Company shall be deemed to have elected to convert such Eurodollar Rate Loans into Base Rate Loans effective as of the expiration date of such current Interest Period. (d) Upon receipt of a Notice of Conversion/Continuation, the Agent will promptly notify each Bank thereof, or, if no timely notice is provided, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made pro rata according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (e) Unless the Requisite Banks shall otherwise agree, after the occurrence of and during the continuance of a Default or Event of Default, the Company may not elect to have a Loan be made as, or converted into or continued as, a Eurodollar Rate Loan. (f) Notwithstanding any other provision contained in this Agreement, after giving effect to any conversion or continuation of any Loans, there shall not be more than five different Interest Periods in effect. -14- 2.5 ADJUSTMENTS OF AGGREGATE LOAN COMMITMENT AND PURCHASERS' INVESTMENT LIMIT. (A) REDUCTION AND TERMINATION OF COMMITMENTS. The Company may from time to time, in accordance with Section 2.5(c), reduce or terminate the Aggregate Loan Commitment or the Purchasers' Investment Limit. Any reduction or termination of any Commitment pursuant to this Section 2.5(a) shall be permanent. (B) REALLOCATION OF COMMITMENTS. In addition, the Company may from time to time, in accordance with Section 2.5(c), (i) reallocate the Purchasers' Investment Limit to the Aggregate Loan Commitment and/or (ii) reallocate the Aggregate Loan Commitment to the Purchasers' Investment Limit; provided, -------- however, that (x) the Company may not deliver a Change in Commitment Notice to - ------- the Agent to reallocate Commitments pursuant to this Section 2.5(b) more than four times in any consecutive 12-month period, and, as a result of any reallocation, (y) the Purchasers' Investment Limit may not exceed the amount set forth opposite "Total" under "Purchaser Commitment" on Schedule 1.1 at any time, and (z) the Aggregate Loan Commitment may not be reduced to less than the amount set forth opposite "Total" under "Loan Commitment" on Schedule 1.1 pursuant to this Section 2.5(b) at any time. (C) PROCEDURES. (i) The Company may effect the termination, reduction or reallocation of the Aggregate Loan Commitment or the Purchasers' Investment Limit by delivering a fully completed Change in Commitment Notice to the Agent not less than three Business Days' prior to the date of the requested termination, reduction or reallocation. (ii) Promptly after receipt of any Change in Commitment Notice (and in no event later than the end of the following Business Day), the Agent shall notify each Bank and the Receivables Purchase Agent thereof. In the case of any reduction, termination or reallocation of the Purchasers' Investment Limit, the Agent shall directly contact the Receivables Purchase Agent for any relevant information. (iii) Any partial reduction or reallocation of a Commitment shall be in an aggregate minimum amount of $10,000,000 for each such Commitment, and integral multiples of $1,000,000 in excess of that amount for each such Commitment. Any reduction or reallocation of any Commitment shall be applied to each Bank in accordance with such Bank's Pro Rata Share thereof. All accrued commitment fees to, but not including the effective date of any termination of any Commitment, shall be paid on the effective date of such termination. (iv) No reduction, termination or reallocation of any Commitments shall be permitted if, after giving effect thereto and to any prepayments made on the effective date thereof, (A) the outstanding principal amount of the Loans hereunder would exceed the Aggregate Loan Commitment; or (B) the Purchasers' Investment would exceed the Purchasers' Investment Limit. -15- (v) Concurrently with any termination, reduction or reallocation of the Aggregate Loan Commitment, the Company shall sign such amended Notes as requested by the Banks through the Agent to reflect such change. 2.6 VOLUNTARY PREPAYMENTS. The Company may, upon not less than one Business Days' prior written or telephonic notice confirmed in writing to the Agent (in the case of a prepayment of a Base Rate Loan) or three Business Days' prior written or telephonic notice confirmed in writing to the Agent (in the case of a prepayment of a Eurodollar Rate Loan) (which notice the Agent will promptly transmit by telecopy, telex or telephone to each Bank), at any time and from time to time prepay (i) any Eurodollar Rate Loans in whole or in part in an aggregate minimum amount of $3,000,000 and integral multiples of $500,000 in excess of that amount so long as the unpaid balance is not less than $5,000,000; or (ii) any Base Rate Loans in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount; provided that in the event of any such prepayment of any Eurodollar Rate Loans, - -------- the Company shall be obligated to reimburse the Banks in respect thereof pursuant to Section 3.5. If such notice of prepayment does not specify how such prepayment shall be applied, it shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, as determined by the Agent. All prepayments of Eurodollar Rate Loans shall be applied to the payment of any interest that has accrued to the date of such prepayment before application to principal. Prepayments of Base Rate Loans shall be applied to principal only. 2.7 REPAYMENT OF LOANS. Each Loan shall mature and the Company shall repay the unpaid principal amount of each Loan on the Termination Date. 2.8 INTEREST ON THE LOANS. (a) Subject to Section 2.8(c), the Loans shall bear interest on the unpaid principal amount thereof from the Funding Date through maturity (whether by acceleration or otherwise) at a rate per annum equal to the (i) Eurodollar Rate plus the Applicable Amount or (ii) the Base Rate. ---- (b) Subject to Section 2.8(c), from and after the Effective Date, interest shall be payable in arrears on the Loans on each Interest Payment Date applicable to that Loan. Interest paid on the date of any partial prepayment of Loans hereunder shall be paid in respect of the portion of the Loans so prepaid. (c) Any principal payments on the Loans not paid when due and, to the extent permitted by applicable law, any interest payments on the Loans not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement. 2.9 FEES. (a) The Company agrees to pay a commitment fee equal to the Applicable Amount on the daily average unused portion of the Loan Commitment during the Availability Period. The Company shall pay the commitment fee to the Agent for distribution to each Bank in accordance with its Pro Rata Share. The commitment fee shall be calculated on the basis of a -16- 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on the last Business Day of each calendar quarter, for all amounts accrued to such date, and on the Termination Date; provided that, in -------- connection with any reduction or termination of the Loan Commitment pursuant to Section 2.5, the accrued fee calculated on the portion so terminated or reduced for the period ending on such date shall also be paid on the date of such reduction or termination. (b) The Company shall pay to the Agent and the Arranger other fees in accordance with a term sheet dated as of February 3, 1998 from the Arranger and Bank of America to the Company. (c) The Company shall pay to the Agent such fees as may from time to time be agreed upon between the Company and the Agent. 2.10 CALCULATION OF INTEREST AND FEES. (a) Interest on all Loans and fees payable under this Agreement shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of the Loan or the first day of an Interest Period, as the case may be, shall be included and the date of payment shall be excluded; provided that, if a Loan is repaid on -------- the same day on which it is made, one day's interest shall be paid on that Loan. (b) Any change in the interest rate on a Loan resulting from a change in the Applicable Amount, Reserve Percentage or Eurodollar Reserve Percentage shall become effective as of the opening of business on the day on which such change in the Applicable Amount or Eurodollar Reserve Percentage becomes effective. Each determination of an interest rate by the Agent pursuant hereto shall be conclusive and binding on the Company and the Banks in the absence of manifest error. 2.11 PAYMENTS BY THE COMPANY. (a) All payments of principal, interest and fees hereunder and under any Notes shall be made without setoff, counterclaim, recoupment or any other deduction, in same day funds and delivered to the Agent for credit to: Bancontrol Account No. 12358-88449 Reference: Mattel, Inc. 1850 Gateway Boulevard Concord, California 94520 for the account of the Banks or the Agent not later than 11:00 a.m. (San Francisco time) on the date due. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such principal, interest, fees or other amounts in like funds received. Any payment which is received by the Agent after that time shall be deemed to have been paid by the Company on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions in the definition of "Interest Period", whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. -17- (c) Unless the Agent shall have received notice from the Company prior to the date on which any payment is due to the Banks hereunder that the Company will not make such payment in full as and when required hereunder, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Company shall not have made such payment in full to the Agent, each Bank shall repay to the Agent on demand such amount distributed to such Bank, together with interest thereon for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate as in effect for each such day. 2.12 PAYMENTS BY THE BANKS TO THE AGENT. (a) Unless the Agent shall have received notice from a Bank on the Effective Date or, with respect to each borrowing after the Effective Date, by 12:00 noon (San Francisco time) one Business Day prior to the date of any proposed borrowing of Eurodollar Rate Loans, or by 10:00 a.m. (San Francisco time) on the date of any proposed borrowing of Base Rate Loans, that such Bank will not make available to the Agent as and when required hereunder for the account of the Company the amount of that Bank's Pro Rata Share of the borrowing, the Agent may assume that each Bank has made such amount available to the Agent in immediately available funds on the Funding Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Company such amount, that Bank shall on the next Business Day following the date of such borrowing make such amount available to the Agent, together with interest at the Federal Funds Rate for and determined as of each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this Section 2.12(a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the next Business Day following the date of such borrowing, the Agent shall notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such borrowing. (b) The failure of any Bank to make any Loan on any date of borrowing shall not relieve any other Bank of any obligation hereunder to make a Loan on the date of such borrowing, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on the date of any borrowing. 2.13 SHARING OF PAYMENTS, ETC. If, other than as expressly provided elsewhere herein, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share of payments on account of the Loans obtained by all the Banks, such Bank shall forthwith -18- (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them; provided, -------- however, that if all or any portion of such excess payment is thereafter - ------- recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's Pro Rata Share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 2.13 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased pursuant to this Section 2.13 and will in each case notify the Banks following any such purchases or repayments. SECTION 3 PAYMENTS IN GENERAL. 3.1 TAXES. (a) Subject to Section 3.1(d) and Section 3.1(g), any and all payments by the Company to each Bank or the Agent under this Agreement shall be made free and clear of, and without deduction or withholding for, any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Bank's or the Agent's net income by the jurisdiction under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a Lending Office or any political subdivision thereof (all such non- excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). (b) In addition, the Company shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents (hereinafter referred to as "Other Taxes"). (c) Subject to Section 3.1(g), the Company shall indemnify and hold harmless each Bank and the Agent for the full amount of Taxes or Other Taxes (including without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.1) paid by such Bank or the Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days from the date such Bank or the Agent makes written demand therefor. -19- (d) If the Company shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then, subject to Section 3.1(g): (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.1) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made; (ii) the Company shall make such deductions, and (iii) the Company shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (e) Within 30 days after the date of any payment by the Company of Taxes or Other Taxes, the Company shall furnish to the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Agent. (f) Each Bank which is a foreign person (i.e., a person other than a United States person for United States Federal income tax purposes) agrees that: (i) it shall, no later than the Effective Date (or, in the case of a Bank which becomes a party hereto after the Effective Date, the date upon which the Bank becomes a party hereto) deliver to the Company and the Agent: (A) if any Lending Office is located in the United States, two accurate and complete signed originals of Internal Revenue Service Form 4224 or any successor thereto ("Form 4224"), and (B) if any Lending Office is located outside the United States, two accurate and complete signed originals of Internal Revenue Service Form 1001 or any successor thereto ("Form 1001"), in each case indicating that the Bank is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such Lending Office or Offices under this Agreement free from withholding of United States Federal income tax; (ii) if at any time the Bank changes its Lending Office or Offices or selects an additional Lending Office as herein provided, it shall with reasonable promptness deliver to the Company and the Agent in replacement for, or in addition to, the forms previously delivered by it hereunder: (A) if such changed or additional Lending Office is located in the United States, two accurate and complete signed originals of Form 4224; or (B) otherwise, two accurate and complete signed originals of Form 1001, in each case indicating that the Bank is on the date of delivery thereof entitled to receive payments of principal, interest and fees for the account of such changed or additional Lending Office under this Agreement free from withholding of United States Federal income tax; (iii) it shall, before or promptly after the occurrence of any event (including the passing of time but excluding any event mentioned in (ii) above) requiring a change in the most recent Form 4224 or Form 1001 previously delivered by such Bank and if the delivery of the same be lawful, deliver to the Company and the Agent two accurate and complete original signed copies of Form 4224 or Form 1001 in replacement for the forms previously delivered by the Bank; and (iv) it shall, promptly upon the Company's reasonable request to that effect, deliver to the Company and the Agent such other forms or similar documentation as may be required from time to time by any applicable law, treaty, rule or regulation in order to establish such Bank's tax status for withholding purposes. (g) The Company will not be required to pay any additional amounts in respect of United States Federal income tax pursuant to Section 3.1(d) to any Bank for the account of any Lending Office of such Bank: (i) if the obligation to pay such additional amounts would not have arisen but for a failure by such Bank to comply with its obligations under Section 3.1(f) in respect of such Lending Office; (ii) if such Bank shall have delivered to the Company a -20- Form 4224 in respect of such Lending Office pursuant to Section 3.1(f)(i)(A), and such Bank shall not be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or in the official interpretation of such law or regulations by any Governmental Person charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 4224; or (iii) if the Bank shall have delivered to the Company a Form 1001 in respect of such Lending Office pursuant to Section 3.1(f)(i)(B), and such Bank shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company hereunder for the account of such Lending Office for any reason other than a change in United States law or regulations or any applicable tax treaty or regulations or in the official interpretation of any such law, treaty or regulations by any Governmental Person charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form 1001. (h) If, at any time, the Company requests any Bank to deliver any forms or other documentation pursuant to Section 3.1(f)(iv), then the Company shall, on demand of such Bank through the Agent, reimburse such Bank for any costs and expenses (including expenses of outside legal counsel and the allocated costs of in-house counsel) reasonably incurred by such Bank in the preparation or delivery of such forms or other documentation. (i) If the Company is required to pay additional amounts to any Bank or the Agent pursuant to Section 3.1(d), then such Bank shall use its reasonable best efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue if such change in the judgment of such Bank is not otherwise disadvantageous to such Bank. (j) The agreements and obligations of the Company contained in this Section 3.1 shall survive the payment in full of all other Obligations. 3.2 CAPITAL ADEQUACY. If (a) any adoption of or any change in or in the interpretation of any law, rule or regulation, or (b) compliance with any guideline, request or directive of any central bank or other Governmental Person or quasi-governmental authority exercising control over banks or financial institutions generally or any court (whether or not having the force of law), or (c) any change in the force or effectiveness of the regulations set forth at 12 C.F.R. Part 3 (Appendix A), 12 C.F.R. Part 225 (Appendix A), 12 C.F.R. Part 208 (Appendix A) or 12 C.F.R. Part 325 (Appendix A) requires that the commitments of any Bank hereunder (including, without limitation, commitments and obligations in respect of Loans) be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital to be maintained by such Bank or any corporation controlling such Bank (a "Change in Law"), the result of which is to reduce the rate of return on such Bank's capital as a consequence of such commitments to a level below that which such Bank could have achieved but for such Change in Law, taking into consideration such Bank's policies with respect to capital adequacy, by an amount which such Bank deems to be material, the Bank shall deliver to the Company a statement of the amount necessary to compensate such Bank for the reduction in the rate of return on its capital attributable to such commitments (the "Capital Compensation Amount"). The Bank shall determine the Capital Compensation Amount in good faith, using reasonable -21- attribution and averaging methods. The Bank shall from time to time notify the Company of the amount so determined. Such amount shall be due and payable by the Company to such Bank ten Business Days after such notice is given. As soon as practicable after any Change in Law, each Bank shall submit to the Company estimates of the Capital Compensation Amounts that would be payable as a function of such Bank's commitments hereunder. 3.3 ILLEGALITY. (a) If any Bank shall determine that any Governmental Rule or any change therein or in the interpretation or administration thereof has made it unlawful, or that any Governmental Person has asserted that it is unlawful, for any Bank or its Lending Office to make Eurodollar Rate Loans, then, on notice thereof by the Bank to the Company through the Agent, the obligation of the Bank to make Eurodollar Rate Loans shall be suspended until the Bank shall have notified the Agent and the Company that the circumstances giving rise to such determination no longer exists. (b) If a Bank shall determine that any Governmental Rule or any change therein or in the interpretation or administration thereof has made it unlawful, or that any Governmental Person has asserted that it is unlawful, for any Bank or its Lending Office to maintain any Eurodollar Rate Loan, the Company shall prepay all Eurodollar Rate Loans of the Bank then outstanding, together with interest accrued thereon, or convert all Eurodollar Rate Loans of the Bank then outstanding to Base Rate Loans 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, together with any amounts required to be paid in connection therewith pursuant to Section 3.5. (c) If the obligation of any Bank to make or maintain Eurodollar Rate Loans has been terminated, the Company may elect, by giving notice to the Bank through the Agent that all Loans which would otherwise be made by the Bank as Eurodollar Rate Loans shall be instead Base Rate Loans. (d) Before giving any notice to the Agent pursuant to this Section 3.3, the affected Bank shall designate a different Lending Office with respect to its Eurodollar Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. 3.4 INCREASED COSTS AND REDUCTION OF RETURN. If any Bank shall determine that, due to either (a) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Eurodollar Rate) in or in the interpretation of any law or regulation or (b) the compliance with any guideline or request from any Governmental Person (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans, then the Company shall be liable for, and shall from time to time, upon demand therefor by such Bank (with a copy of such demand to the Agent), pay to such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. Each -22- Bank agrees to notify the Company of the occurrence of such an increased cost event promptly after obtaining knowledge thereof. 3.5 FUNDING LOSSES. The Company agrees to reimburse each Bank and to hold each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make any payment or prepayment of principal of any Eurodollar Rate Loan (including payments made after any acceleration thereof); (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (c) the failure of the Company to make any prepayment after the Company has given a notice in accordance with Section 2.6; or (d) the prepayment of a Eurodollar Rate Loan on a day which is not the last day of the Interest Period with respect thereto; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Eurodollar Rate Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. Solely for purposes of calculating amounts payable by the Company to the Banks under this Section 3.3(b) and Sections 3.4 and 3.5, each Eurodollar Rate Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Eurodollar Rate used in determining the Eurodollar Rate for such Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan is in fact so funded. This covenant shall survive the payment in full of all other Obligations. 3.6 INABILITY TO DETERMINE RATES. If any two Reference Banks shall have determined that for any reason adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or if the Requisite Banks advise the Agent in writing that the Eurodollar Rate applicable for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Banks of funding such Loan, the Agent will forthwith give notice of such determination to the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain Eurodollar Rate Loans hereunder shall be suspended until the Agent upon the instruction of the Requisite Banks revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/ Continuation then submitted by it. If the Company does not revoke such notice with respect to Loans, the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Eurodollar Rate Loans. 3.7 SURVIVAL. The agreements and obligations of the Company in this Section 3 shall survive the payment of all other Obligations. -23- SECTION 4. CONDITIONS PRECEDENT. 4.1 CONDITIONS TO EFFECTIVENESS. This Agreement shall become effective only upon the Company delivering to the Agent and Banks (or to the Agent for the Banks with sufficient originally executed copies for each Bank, except for any Notes): (a) To the extent different from that delivered in connection with the Existing Credit Agreement, a copy of the Restated Certificate of Incorporation of the Company, together with evidence acceptable to Agent that the same has been filed with the Secretary of State of the State of Delaware; (b) To the extent different from that delivered in connection with the Existing Credit Agreement, copies of the Bylaws of the Company, certified as of the Effective Date by its corporate secretary or an assistant secretary; (c) Resolutions of the Board of Directors of the Company approving and authorizing the execution, delivery and performance of each Loan Document to which it is a party or which it is acknowledging and approving and authorizing the execution, delivery and payment of any Notes, certified as of the Effective Date by its corporate secretary or an assistant secretary; (d) A signature and incumbency certificate of the officers of the Company executing or acknowledging any Loan Document; (e) To the extent different from that delivered in connection with the Existing Credit Agreement, a copy of the Certificate of Incorporation of Fisher- Price, together with evidence acceptable to the Agent that the same has been filed with the Secretary of State of the State of Delaware; (f) To the extent different from that delivered in connection with the Existing Credit Agreement, copies of the Bylaws of Fisher-Price, certified as of the Effective Date by its corporate secretary or an assistant secretary; (g) To the extent different from that delivered in connection with the Existing Credit Agreement, a copy of the Articles of Incorporation of Mattel Sales, together with evidence acceptable to the Agent that the same has been filed with the Secretary of State of the State of California; (h) To the extent different from that delivered in connection with the Existing Credit Agreement, copies of the Bylaws of Mattel Sales, certified as of the Effective Date by its corporate secretary or an assistant secretary; (i) Executed copies of this Agreement and, as requested by any Bank, executed Notes drawn to the order of such Bank and with appropriate insertions; -24- (j) A certificate or other evidence from the Receivables Purchase Agent that the Receivables Purchase Agreement shall have been, or concurrently herewith is being, duly executed and delivered and all conditions precedent to the initial purchase thereunder shall have been, or concurrently herewith are being, satisfied or waived by the Banks; (k) Executed copies of one or more favorable written opinions of Leland P. Smith, Esq., Assistant General Counsel of the Company, dated as of the Effective Date, substantially in the form of Exhibit E hereto relating to the Company, Fisher-Price and Mattel Sales and as to such other matters as the Agent and the Banks may reasonably request; (l) A certificate signed by one of the officers authorized to deliver an Officers' Certificate, or other evidence satisfactory to the Agent, of the ratings on the Company's long-term unsecured Indebtedness by S&P, Moody's and Duff & Phelps; (m) Payment of all fees payable pursuant to Section 2.9(b); (n) An acknowledgement signed by Fisher-Price and Mattel Sales consenting to the amendment and restatement of the Existing Credit Agreement on the terms of this Agreement; and (o) The Company shall have performed in all material respects all agreements which this Agreement provides shall be performed by it on or before the Effective Date 4.2 CONDITIONS TO ALL LOANS. The obligation of each Bank to make any Loan is subject to the following further conditions precedent that, as of the applicable Funding Date: (a) The Agent shall have received on or before that Funding Date a Notice of Borrowing signed by the Chief Executive Officer, the Chief Financial Officer, the Treasurer or an Assistant Treasurer of the Company or any officer of the Company designated by any of the above described officers on behalf of the Company in writing delivered to the Agent; (b) The representations and warranties of the Company contained in any Loan Document (except the representation and warranty contained in Section 5.9 and, in the case of a borrowing of Loans where the aggregate principal amount of the Loans being made on that Funding Date equals or is less than the aggregate principal amount of Loans maturing on that Funding Date, the representation and warranty contained in Section 5.11), shall be true, correct and complete in all material respects on and as of that Funding Date, to the same extent as though made on and as of that Funding Date; and (c) No Default or Event of Default shall exist or shall result from such borrowing or continuation or conversion. Each Notice of Borrowing submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the Funding Date, that the conditions in Section 4.2 are satisfied. -25- SECTION 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks and the Agent to enter into this Agreement and to make any extension of credit hereunder, the Company represents and warrants to each Bank and the Agent that the following statements are true, correct and complete: 5.1 ORGANIZATION AND POWERS. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; and, except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, each of the Material Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; and each has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted and, in the case of the Company, to enter into this Agreement, a Fisher-Price Subordination Agreement and a Mattel Sales Subordination Agreement, to issue the Notes and to carry out the transactions contemplated hereby and thereby. 5.2 GOOD STANDING. The Company and, except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, each Material Subsidiary is in good standing wherever necessary to carry on its present business and operations, except in jurisdictions in which the failure to be in good standing has or will have no Material Adverse Effect. 5.3 MATERIAL SUBSIDIARIES. Except for changes in the ordinary course of business or as permitted or contemplated by this Agreement, Schedule 5.3 hereto correctly sets forth the name, jurisdiction of incorporation and ownership interest of the Company in each of its Material Subsidiaries as of the date hereof. 5.4 AUTHORIZATION OF BORROWING. The execution, delivery and performance of each Loan Document to which it is a party, and acknowledgement of the Fisher- Price Subordination Agreement and the Mattel Sales Subordination Agreement and the issuance, delivery and payment of the Notes have been duly authorized by all necessary corporate action by the Company. 5.5 NO CONFLICT. The execution, delivery and performance by the Company of this Agreement and the acknowledgement of the Fisher-Price Subordination Agreement, the Mattel Sales Subordination Agreement and the issuance, delivery and payment of the Notes do not and will not (a) violate the Restated Certificate of Incorporation or Bylaws of the Company, (b) violate any provision of law applicable to the Company, or any material order, judgment or decree of any court or other agency of government binding on the Company, the violation of which would result in a Material Adverse Effect, (c) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of the Company, (d) result in or require the creation or imposition of any material lien, security interest, charge or encumbrance of any nature whatsoever upon any of its material properties or assets, or (e) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of the Company. -26- 5.6 GOVERNMENTAL CONSENTS. The execution, delivery and performance by the Company of each Loan Document to which it is a party and each agreement, document, or instrument required hereunder, the acknowledgment of the Fisher- Price Subordination Agreement, Mattel Sales Subordination Agreement, and the issuance, delivery and payment of the Notes do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Federal, state or other governmental authority or regulatory body or other such person. 5.7 BINDING OBLIGATION. This Agreement is, and each other Loan Document to which it is a party, when executed and delivered hereunder will be, the legally valid and binding obligations of the Company, enforceable against it in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally. 5.8 FINANCIAL CONDITION. The Company has heretofore delivered to the Banks a consolidated balance sheet of the Company and its Subsidiaries for the fiscal year ended December 31, 1996 and related consolidated statements of income, shareholders' equity and changes in financial position of the Company and its Subsidiaries for such fiscal year, audited by Price Waterhouse. All such statements were prepared in accordance with GAAP and fairly present the consolidated financial position of the Company and its Subsidiaries as at the date thereof and the consolidated results of operations and statement of cash flow of the Company and its Subsidiaries for the period then ended. Neither the Company nor any of its Subsidiaries has any material Contingent Obligation, liability for taxes or long-term lease which as of the date of this Agreement, individually or in the aggregate, would, if it became absolute, result in a Material Adverse Effect which is not reflected in the foregoing statements or in the notes thereto. 5.9 CHANGES, ETC. Since December 31, 1996, there has been no event or events that have, either individually or in the aggregate, resulted in a Material Adverse Effect. 5.10 TITLE TO PROPERTIES. The Company and its Subsidiaries have good, sufficient and legal title to all the properties and assets reflected in the consolidated balance sheet referred to in Section 5.8 except as set forth in said balance sheet or in the notes thereto, except for assets acquired or disposed of in the ordinary course of business or as otherwise permitted by this Agreement since December 31, 1996 and except for immaterial defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. 5.11 LITIGATION; ADVERSE FACTS. Except as set forth on Schedule 5.11 hereto, there is no action, suit, proceeding or arbitration (whether or not purportedly on behalf of the Company or any of its Subsidiaries) at law or in equity or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries or any of the Company's or such Subsidiaries' properties which, in the reasonable judgment of the Company and its executive officers (assuming adverse determination of facts which the Company in good faith believes it would not successfully prove, and considering damages which in their best judgment is the maximum that would be awarded upon, and the likelihood of, an adverse determination of the claim or the amount which reflects their best judgment as to that required to be paid to settle the claims) would result in a Material -27- Adverse Effect and there is no basis known to such executive officers for any such action, suit or proceeding. Neither the Company nor any of its Subsidiaries is (i) in violation of any applicable law which could result in a Material Adverse Effect, or (ii) subject to or in default with respect to any final judgment, writ, injunction, decree, rule or regulation of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which could result in a Material Adverse Effect. There is no action, suit, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries which provides a reasonable basis for questioning the validity or the enforceability of any Loan Document. 5.12 PAYMENT OF TAXES. All tax returns and reports of the Company and its Material Subsidiaries required to be filed by any of them have been timely filed, and all taxes, assessments, fees and other governmental charges upon the Company and its Subsidiaries and upon their respective properties, assets, income and franchises which are due and payable have been paid when due and payable or bonded against, except to the extent permitted by Section 6.3. The Company knows of no proposed tax assessment against it or any of its Subsidiaries that would result in a Material Adverse Effect. 5.13 AGREEMENTS. Neither the Company nor any of its Subsidiaries is a party to or is subject to any material agreement or instrument or charter or other internal restriction which results in a Material Adverse Effect. 5.14 PERFORMANCE. Neither the Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation of the Company, and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default, except, in any such case, where the consequences, direct or indirect, of such default or defaults, if any, would not result in a Material Adverse Effect. 5.15 GOVERNMENTAL REGULATION. Neither the Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or to any Federal or state statute or regulation limiting its ability in any material way to incur Indebtedness for money borrowed. 5.16 EMPLOYEE BENEFIT PLANS. The Company and each of its ERISA Affiliates is in compliance in all material respects with any applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Pension Plans. Neither the Company nor any of its ERISA Affiliates has participated in or participates in any Multiemployer Plan the withdrawal from which may result in any liability to any party in an amount in excess of $1,000,000. 5.17 ENVIRONMENTAL MATTERS. The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. -28- 5.18 DISCLOSURE. No representation or warranty of the Company contained in this Agreement or any other document, certificate or written statement furnished to the Banks by the Company since January 1, 1997 for use in connection with the transactions contemplated by this Agreement as of the date of this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to the officers of the Company in the case of any document or fact not furnished by it) necessary in order to make the statements contained herein or therein not misleading except to the extent that any such statement or omission that was untrue or misleading at the time made or that subsequently became untrue or misleading has been superseded or corrected by information provided to the Banks prior to the date of this Agreement. The projections and pro forma financial information contained in such written materials are based upon good faith estimates and assumptions believed by the Company to be reasonable at the time made, it being recognized by the Banks that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There is no fact known to the officers of the Company as of the date of this Agreement (other than matters of a general economic nature) which materially adversely affects the business, operations, property, assets or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole, which has not been disclosed herein or in the written materials referred to in Section 5.8 other than as disclosed in writing to the Banks on or before the date hereof. 5.19 SUBORDINATION AGREEMENTS. Neither Fisher-Price nor Mattel Sales has any material outstanding obligations to any Affiliate of the Company which has not signed a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, respectively. SECTION 6 AFFIRMATIVE COVENANTS. The Company agrees from the Effective Date until payment in full of all Obligations and termination of the Aggregate Facilities Commitment and the Receivables Purchase Agreement, unless Requisite Banks shall otherwise give prior written consent, the Company will perform all covenants in this Section 6. 6.1 REPORTING AND INFORMATION REQUIREMENTS. The Company will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. The Company will deliver to the Agent and to each Bank: (a) as soon as practicable and in any event not later than 55 days after the end of each of the first three fiscal quarters of the Company, consolidated balance sheets of the Company and its Subsidiaries as at the end of such period and for the fiscal year to date and the related consolidated statements of income, consolidated statements of stockholders' equity and consolidated statements of cash flow all in reasonable detail and certified by the Chief Financial Officer, Executive Vice President Finance or the Treasurer of the Company that the consolidated statements (and to the best of his or her belief, the consolidating statements) and other materials required by this clause (a) fairly present the financial condition of the Company and its -29- Subsidiaries as at the dates indicated and the results of their operations for the periods indicated, subject to changes resulting from year-end audit and normal year-end adjustments; (b) as soon as practicable and in any event not later than 100 days after the end of each fiscal year of the Company, consolidated and consolidating balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated (and, as to statements of income only, consolidated and consolidating) statements of income, stockholders' equity and cash flow of the Company and its Subsidiaries for such fiscal year, setting forth in each case, in comparative form the consolidated figures for the previous year, all in reasonable detail and (i) in the case of such consolidated financial statements, accompanied by a report thereon of Price Waterhouse or other independent accountants of recognized national standing selected by the Company which report shall state that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flow for the periods indicated in conformity with GAAP and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards and (ii) in the case of such consolidating financial statements, certified by the chief financial or accounting officer of the Company; (c) together with each delivery of financial statements of the Company and its Subsidiaries pursuant to clauses (a) and (b) above, an Officers' Certificate (i) stating that the signers have reviewed the terms of this Agreement and the Notes and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of the Officers' Certificate, of any condition or event which constitutes an Event of Default or Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof, and (ii) demonstrating in reasonable detail compliance during (to the extent required) and at the end of such accounting periods with the restrictions contained in Sections 7.5 and 7.6. (d) together with each delivery of consolidated financial statements of the Company and its Subsidiaries pursuant to clause (b) above, a written statement by the independent accountants giving the report thereon (i) stating that their audit examination has included a review of the terms of this Agreement and the Notes as they relate to accounting matters, and (ii) stating whether, in connection with their audit examination, any condition or event which constitutes an Event of Default or Default has come to their attention, and if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not -------- be liable by reason of any failure to obtain knowledge of any such Event of Default or Default that would not be disclosed in the course of their audit examination. The Agent shall have the right, from time to time, to discuss the affairs of the Company directly with such independent certified public accountants; (e) promptly upon receipt thereof, copies of all reports submitted to the Company (including, without limitation, the Company's Board of Directors) by the Company's independent accountants in connection with each annual, interim or special audit of the -30- consolidated financial statements of the Company made by such accountants, including, without limitation, any comment letter submitted by such accountants to management in connection with their annual audit; (f) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its security holders or by any Subsidiary of the Company to its security holders other than the Company or another Subsidiary, and, promptly upon their becoming effective, and in any event within 15 days of filing, all regular and periodic reports and all registration statements and prospectuses that have been filed by the Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any Governmental Person succeeding to any of its functions, and all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning material developments in the business of the Company and its Subsidiaries; (g) promptly upon any executive officer of the Company obtaining knowledge (i) of any condition or event which constitutes an Event of Default or Default, or becoming aware that the Agent or any Bank has given any notice or taken any other action with respect to a claimed Event of Default or Default under this Agreement, (ii) of any condition or event which would be required to be disclosed in a current report filed by the Company with the Securities and Exchange Commission on Form 8-K (Items 1, 2, 4 and 6 of such Form as in effect on the date hereof) if the Company were required to file such reports under the Exchange Act, (iii) that any Person has given any notice to the Company or any Subsidiary of the Company or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 8.1, (iv) of the institution of any litigation involving an alleged liability of the Company or any of its Subsidiaries equal to or greater than $20,000,000 or any adverse determination in any litigation involving a potential liability of the Company or any of its Subsidiaries equal to or greater than $20,000,000, or (v) of a Material Adverse Effect, in each case an Officers' Certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default, Event of Default, Default, event or condition, and what action the Company has taken, is taking and proposes to take with respect thereto; (h) as soon as available but no later than March 31 of each year, copies of the Company's consolidated financial plan for the then current fiscal year as customarily prepared for internal use; (i) promptly after the acquisition of any Material Subsidiary, notice of such acquisition; (j) promptly upon any executive officer of the Company obtaining knowledge, notice of any change in the ratings on the Company's long-term unsecured Indebtedness by S&P, Moody's and, Duff & Phelps; and (k) with reasonable promptness, such other information and data with respect to the Company or any of its Subsidiaries as from time to time may be reasonably requested by -31- any Bank or the Agent, including any financial reports regularly prepared by the Company for internal use. 6.2 CORPORATE EXISTENCE, ETC. Except as permitted or not prohibited in Section 7.3, the Company will at all times preserve and keep in full force and effect its corporate existence and rights and franchises material to its business and those of each of its Material Subsidiaries; provided that the -------- corporate existence and the rights and franchises of any Material Subsidiary may be terminated or permitted to lapse if such termination or lapse is in the best interest of the Company, is approved by the Board of Directors of the Company and is not materially disadvantageous to the holder of any Note. 6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION. The Company will, and will cause each of its Material Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be -------- paid if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor. The Company will not, nor will it permit any Material Subsidiary to, file or consent to the filing of any consolidated income tax return with any Person (other than the Company or a Subsidiary of the Company). 6.4 MAINTENANCE OF PROPERTIES; INSURANCE. Except as permitted or not prohibited in Section 7.3, the Company will maintain or cause to be maintained in good repair, working order and condition all material properties (other than obsolete properties) used or useful in the business of the Company and its Material Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals, substitutions and replacements thereof. The Company will maintain or cause to be maintained, with financially sound and reputable insurers, insurance with respect to its properties and business and the properties and business of its Material Subsidiaries against loss or damage of the kinds customarily insured against by corporations of established reputation engaged in the same or similar businesses and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations; provided that the Company may maintain a program of self insurance for the Company and its Material Subsidiaries in accordance with sound business practices. 6.5 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company shall maintain and shall cause each of its Subsidiaries to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiaries. The Company will permit any authorized representatives designated by any Bank at the expense of that Bank, to visit and inspect any of the properties of the Company or any of its Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom (but not records relating to intellectual property), and to discuss its and -32- their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may be reasonably requested. 6.6 USE OF PROCEEDS OF LOANS. (a) The Company shall use the proceeds of Loans for general corporate purposes, including, without limitation, lending to its Subsidiaries and acquiring other Persons or businesses so long as the acquisition is approved by the board of directors of the Person being acquired. (b) The Company shall not, directly or indirectly, use any portion of the Loan proceeds (i) knowingly to purchase Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (ii) knowingly to purchase during the underwriting or placement period Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (iii) to make payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of the Company or any Affiliate of the Company. 6.7 ENVIRONMENTAL LAWS. The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.8 SUBORDINATION AGREEMENTS. If from time to time Fisher-Price or Mattel Sales has any material outstanding obligations owing to any Affiliate of the Company which has not signed a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, respectively, the Company shall cause such Affiliate to execute deliver a Fisher-Price Subordination Agreement or a Mattel Sales Subordination Agreement, as the case may be, and deliver to the Agent a signature and incumbency certificate of the officers of each such Affiliate and cause Fisher-Price or Mattel Sales, as the case may be, to acknowledge each such agreement. SECTION 7. NEGATIVE COVENANTS. The Company agrees from the Effective Date until payment in full of all Obligations and termination of the Aggregate Facilities Commitment and the Receivables Purchase Agreement, unless Requisite Banks shall otherwise give prior written consent, the Company will perform all covenants in this Section 7. 7.1 SECURED INDEBTEDNESS. Other than as permitted under Section 7.2, the Company will not, and will not permit any of its Material Subsidiaries to, directly or indirectly incur, assume, guaranty or otherwise become directly or indirectly liable with respect to any Indebtedness which (a) is senior to the Obligations, (b) has any priority of payment over the Obligations or (c) is secured by Liens on any of the Company's or any Subsidiary's assets. 7.2 LIENS. The Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of the Company or any Subsidiary except: -33- (a) Liens securing Indebtedness for borrowed money not exceeding $100,000,000 in the aggregate at any time; (b) Liens existing on the date hereof; (c) Liens securing Indebtedness under the Receivables Purchase Agreement; (d) Liens securing Indebtedness under Other Permitted Accounts Receivable Financing Facilities; (e) Liens listed on Schedule 7.2; and (f) Liens on newly-acquired Capital Assets; provided that such Liens -------- on Capital Assets located in the United States shall not secure Indebtedness for borrowed money in excess of $25,000,000. 7.3 RESTRICTION ON FUNDAMENTAL CHANGES. (a) The Company shall not, and shall not permit any of its Material Subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by it on the date hereof; provided, however, that the Company may engage in the -------- ------- production and sale of consumer software products related to the Company's existing lines of business. (b) the Company shall not, and shall not suffer or permit any of its Material Subsidiaries to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of whether in one transaction or in a series of transactions, all or substantially all, of its assets to or in favor of any Person, except: (i) any Material Subsidiary of the Company may merge with the Company, provided that the Company shall be the continuing or surviving corporation, or with any one or more Material Subsidiaries of the Company, provided that if any transaction shall be between a Subsidiary and a wholly-owned subsidiary, the wholly-owned subsidiary shall be the continuing or surviving corporation; and (ii) any Subsidiary of the Company may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Company or another Wholly-Owned Subsidiary of the Company. 7.4 SALE OR DISCOUNT OF RECEIVABLES. The Company will not, and will not permit any of its Domestic Subsidiaries to, directly or indirectly, sell with or without recourse, or discount or otherwise sell for less than the face value thereof any of its notes or accounts receivable, except: (a) discounts offered in the ordinary course of business for early payment of accounts receivable and negotiated settlements of bad debts and disputed accounts receivable in the ordinary course of business; (b) sales of accounts receivable under the Receivables Purchase Agreement and agreements entered into in connection therewith; -34- (c) sales of accounts receivable under Other Permitted Accounts Receivable Financing Facilities; and (d) sales of accounts receivable where the Company believes in good faith that the collectability of such accounts receivable is or may be jeopardized by the distressed financial condition of the obligor under such accounts receivable. 7.5 CONSOLIDATED FUNDED INDEBTEDNESS TO TOTAL CAPITALIZATION. The Company shall not permit the ratio of the sum of (a) Consolidated Funded Indebtedness plus (b) Combined Purchasers' Investments to the sum of (x) ---- Consolidated Funded Indebtedness plus (y) Combined Purchasers' Investments plus ---- ---- (z) Consolidated Tangible Net Worth to exceed 65% at the end of each of the first three fiscal quarters in each fiscal year and 55% at the end of each fiscal year. 7.6 INTEREST COVERAGE RATIO. The Company shall not permit, as of the last day of each fiscal quarter, the ratio of (a) the sum of (i) its net income from continuing operations, for the four consecutive fiscal quarters ending on such date, before (A) special items, (B) minority interest, (C) gains on reacquisition of debt, plus (ii) income taxes accrued for the four consecutive ---- fiscal quarters ending on such date, plus (iii) interest accrued for the four ---- consecutive fiscal quarters ending on such date, excluding capitalized interest and without regard to interest income plus (iv) depreciation and amortization ---- for the four consecutive fiscal quarters ending on such date to (b) interest incurred for the four consecutive fiscal quarters ending on such date, including capitalized interest and without regard to interest income, to be less than 3.5 to 1. 7.7 ERISA. The Company will not, and will not permit any of its ERISA Affiliates to, permit the actuarial present value of all benefit liabilities under all Pension Plans to exceed the fair market value of the assets of such Pension Plans (excluding Pension Plans with assets greater than vested benefits) allocable to such benefit liabilities by more than $10,000,000. As used in this Section 7.8, the terms "actuarial present value" and "benefit liabilities" have the meanings specified in Section 4001 of ERISA. 7.8 MARGIN REGULATIONS. No portion of the proceeds of any borrowing under this Agreement shall be used by the Company for the purpose of "purchasing" or "carrying" any Margin Stock or used in any manner which might cause such borrowing or the application of such proceeds to violate Regulation G, Regulation U, Regulation T, or Regulation X of the Federal Reserve Board or any other regulation of the Federal Reserve Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and the use of such proceeds. 7.9 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Default if such action is taken or condition exists. -35- SECTION 8. EVENTS OF DEFAULT. 8.1 EVENTS OF DEFAULT. Any of the following conditions or events shall constitute an "Event of Default:" (a) FAILURE TO MAKE PAYMENTS WHEN DUE. (i) Failure to pay any required payment of principal under this Agreement or the Receivables Purchase Agreement or of any Loan or any Notes, when due, whether at stated maturity, by acceleration, by notice of prepayment or otherwise, (ii) failure to pay any required payment of interest under this Agreement or the Receivables Purchase Agreement or on any Loan or any Note or any fees payable pursuant to Section 2 for a period of five days or more after the date such payment is due, or (iii) failure to pay any other amount due under this Agreement or the Receivables Purchase Agreement within 90 days after written notice thereof; or (b) DEFAULT IN OTHER AGREEMENTS. (i) Failure of the Company, Fisher- Price, Mattel Sales or any of its Material Subsidiaries to pay or any default in the payment of any principal or interest on any Indebtedness in an amount exceeding $15,000,000 or any default in any other obligation for the payment of money in an amount in excess of $15,000,000 beyond any period of grace allowed; or (ii) any breach or default (unless cured or waived) with respect to any other term of any evidence of such other Indebtedness for borrowed money in an amount exceeding $15,000,000 or of any loan agreement, mortgage, indenture or other agreement relating thereto, if the effect of such failure, default or breach is to cause such Indebtedness for borrowed money to become or be declared due prior to its stated maturity; or (c) BREACH OF CERTAIN COVENANTS. Failure of the Company to perform or comply with any term or condition contained in Sections 6.1(g), 6.2 or Section 7 of this Agreement; or (d) BREACH OF WARRANTY. Any of the Company's, Fisher-Price's or Mattel Sales' representations or warranties made in any Loan Document in writing pursuant hereto or in connection herewith shall be false in any material respect on the date as of which made; or (e) OTHER DEFAULTS UNDER LOAN DOCUMENTS OR RECEIVABLES PURCHASE AGREEMENT. Failure of the Company, Fisher-Price, Mattel Sales or Mattel Factoring, Inc., to perform or comply with any other term or condition contained in any Loan Document or the Receivables Purchase Agreement, in each case to the extent it is a party thereto, other than the conditions referred to in Subsections (a), (b), (c) and (d) above, and such default shall not have been remedied or waived within 30 days after receipt of notice from the Agent or any Bank of such default; or (f) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company or any of its Material Subsidiaries in an involuntary case under any applicable -36- bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed, or (ii) any other similar relief shall be granted under any applicable federal or state or applicable foreign law; a petition for an involuntary case shall be filed against the Company or any of its Material Subsidiaries under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Company or any of its Material Subsidiaries, or over all or substantially all of its property, shall have been entered; or an interim receiver, trustee or other custodian of the Company or any of its Material Subsidiaries for all or substantially all of the property of the Company or any of its Material Subsidiaries shall be appointed involuntarily; and the continuance of any such events in clause (ii) for 45 days unless dismissed, bonded or discharged; or (g) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. The Company or any of its Material Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in any involuntary case, or to the conversion from an involuntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, sequestrator, trustee or other custodian for all or substantially all of its property; the making by the Company or any of its Material Subsidiaries of any assignment for the benefit of creditors; or the inability or failure of the Company or any of its Material Subsidiaries, or the admission by the Company or any of its Material Subsidiaries in writing of its inability, to generally pay its debts as such debts become due; or the Board of Directors of the Company or any of its Material Subsidiaries adopts any resolution or otherwise takes action to approve any of the foregoing; or (h) JUDGMENTS. Any final money judgment involving in any case an amount in excess of $20,000,000 or in excess of $40,000,000 in the aggregate at any one time for all final judgments shall be entered or filed against the Company or any Material Subsidiary or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 45 days or in any event later than five days prior to the date of any proposed sale thereunder; or (i) DISSOLUTION. Any order, judgment or decree shall be entered against the Company or any Material Subsidiary decreeing the dissolution or split up of the Company and such order shall remain undischarged or unstayed for a period in excess of 30 days; or (j) ERISA. (i) any Pension Plan maintained by the Company or any of its ERISA Affiliates shall be terminated within the meaning of Title IV of ERISA, or (ii) a trustee shall be appointed by an appropriate United States district court to administer any Pension Plan, or (iii) the Pension Benefit Guaranty Corporation (or any successor thereto) shall institute proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan, or (iv) the Company or any of its ERISA Affiliates shall withdraw (under Section 4063 of ERISA) from a Pension Plan, if, as of the date of the event listed in clauses (i)-(iv) above or any subsequent date, any of the Company or its ERISA Affiliates has any liability (such liability to include, without limitation, any liability to the Pension Benefit Guaranty Corporation, or any successor thereto, or to any other party under Sections 4062, 4063 or 4064 of ERISA or any -37- other provision of law) resulting from or otherwise associated with the events listed in clauses (i)-(iv) above for unfunded guarantied vested benefits under the Pension Plans which exceeds the current value of assets accumulated in such Pension Plan by more than $10,000,000; or (k) LOSS OF PROPERTY. All, or a substantial part of, the property, assets or business of the Company or any Material Subsidiary shall be condemned or seized and such condemnation or seizure shall have (after taking into account any insurance or condemnation award) a Material Adverse Effect; or (l) CESSATION OF BUSINESS. The Company or any Material Subsidiary shall at any time voluntarily or involuntarily suspend its business or a substantial part thereof which would constitute a substantial part of, and would have a Material Adverse Effect; or (m) SERVICER DEFAULT OR TERMINATION EVENT. A Servicer Default or a Termination Event (as each is defined in the Receivables Purchase Agreement) (other than as set forth in Section 10.1(h) of the Receivables Purchase Agreement) shall occur and be continuing; 8.2 REMEDIES. If any Event of Default occurs, the Agent shall, at the request of, or may, with the consent of, the Requisite Banks, (a) declare the Loan Commitment of each Bank to make Loans to be terminated, whereupon such Loan Commitments shall forthwith be terminated; (b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable; without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, -------- however, that upon the occurrence of any event specified in paragraph (f) or (g) - ------- of Section 8.1 above (in the case of clause (ii) of paragraph (f) upon the expiration of the 45-day period mentioned therein), the obligation of each Bank to make Loans shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent or any Bank. 8.3 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. -38- SECTION 9. THE AGENT. 9.1 APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. 9.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 9.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or for the value of any Collateral or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent- Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the Properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 9.4 RELIANCE BY AGENT. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Requisite Banks as it deems appropriate and, if it -39- so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Requisite Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Sections 4.1 and 4.2, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank, unless an officer of the Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from the Bank prior to any borrowing specifying its objection thereto and either such objection shall not have been withdrawn by notice to the Agent to that effect or the Bank shall not have made available to the Agent the Bank's ratable portion of such borrowing. 9.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Banks and the Receivables Purchase Agent. The Agent shall take such action with respect to such Default or Event of Default as shall be requested by the Requisite Banks in accordance with Section 8; provided, however, that unless and until the Agent shall have received any -------- ------- such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks. 9.6 CREDIT DECISION. Each Bank expressly acknowledges that none of the Agent-Related Persons has made any representation or warranty to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon the Agent and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated thereby, and made its own decision to enter into this Agreement and extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon the Agent and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or -40- responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 9.7 INDEMNIFICATION. Whether or not the transactions contemplated hereby shall be consummated, the Banks shall indemnify upon demand the Agent- Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), ratably from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind whatsoever which may at any time (including at any time following the repayment of the Loans and the termination or resignation of the related Agent) be imposed on, incurred by or asserted against any such Person any way relating to or arising out of this Agreement or any document contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by any such Person under or in connection with any of the foregoing; provided, however, that no Bank shall be liable for the payment -------- ------- to the Agent-Related Persons of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including fees and expenses of counsel and the allocated cost of in-house counsel) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. Without limiting the generality of the foregoing, if the Internal Revenue Service or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered, was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including fees and expenses of counsel and the allocated cost of in-house counsel). The obligation of the Banks in this Section shall survive the payment of all Obligations hereunder. 9.8 AGENT IN INDIVIDUAL CAPACITY. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory or other business with the Company and its Subsidiaries and Affiliates as though Bank of America were not the Agent hereunder and without notice to or consent of the Banks. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent, and the terms "Bank" and "Banks" shall include Bank of America in its individual capacity. -41- 9.9 SUCCESSOR AGENT. The Agent may, and at the request of the Requisite Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent shall resign as Agent under this Agreement, the Requisite Banks shall appoint from among the Banks a successor agent for the Banks which successor agent shall be approved by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 9 and Sections 10.4 and 10.15 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Requisite Banks appoint a successor agent as provided for above. SECTION 10. MISCELLANEOUS. 10.1 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Bank may, with the advance written consent of the Company at all times other than during the existence of an Event of Default and the Agent, which consent of the Company shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no consent of the Company or the Agent shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee") -------- all, or any ratable part of all, of the Loans, the Commitments and the other rights and obligations of such Bank hereunder, in a minimum amount of $10,000,000 and such Bank shall concurrently therewith assign a ratable portion in the Receivables Purchase Agreement; provided, however, that the Company and -------- ------- the Agent may continue to deal solely and directly with such Bank in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered to the Company and the Agent a Notice of Assignment and Acceptance in the form of Exhibit I ("Notice of Assignment and Acceptance") --------- ----------------------------------- together with any Note or Notes subject to such assignment and (iii) the assignor Bank or Assignee has paid to the Agent a processing fee in the amount of $2,500. (b) From and after the date that the Agent notifies the assignor Bank that it has received (and provided its consent with respect to) an executed Notice of Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Notice of Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it -42- pursuant to such Notice of Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Within five Business Days after its receipt of notice by the Agent that it has received an executed Notice of Assignment and Acceptance and payment of the processing fee, (and provided that the consents to such assignment have been obtained in accordance with Section 10.01(a)), the Company shall execute and deliver to the Agent, any new Notes evidencing such Assignee's assigned Loans and Commitment and, if the assignor Bank has retained a portion of its Loans and its Commitments, any replacement Notes in the principal amount of the Loans retained by the assignor Bank (such Notes to be in exchange for, but not in payment of, the Notes held by such Bank). Immediately upon each Assignee's making its processing fee payment under the Notice of Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Bank pro tanto. --- ----- (d) Upon advance written notice to the Company, any Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating interests in any Loans, the Commitment ----------- of that Bank and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; provided, however, that (i) such -------- ------- Bank shall concurrently with any sale of a participation herein sell a ratable participation in the Receivables Purchase Agreement and thereafter cause any such participation herein to remain ratable with such participation in the Receivables Purchase Agreement, (ii) the originating Bank's obligations under this Agreement shall remain unchanged, (iii) the originating Bank shall remain solely responsible for the performance of such obligations, (iv) the Company and the Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (v) no Bank shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to this Agreement except to the extent such amendment, consent or waiver would require unanimous consent as described in the first proviso to Section 10.8. The Company hereby acknowledges and agrees that any such disposition will give rise to a direct obligation of the Company to the Participant and the Participant shall be entitled to the benefit of Sections 3.1, 3.4 and 10.15 as if it were a "Bank." In the case of any such participation, the Participant shall not have any rights under this Agreement, or any of the other Loan Documents, and all amounts payable by the Company hereunder shall be determined as if such Bank had not sold such participation, except that if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note(s) held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal -43- Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. (f) Each Bank agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to it by the Company or any Subsidiary of the Company, or by the Agent on such Company's or Subsidiary's behalf, in connection with this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement and the Receivables Purchase Agreement; except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however, that any Bank may disclose such -------- ------- information (A) at the request or pursuant to any requirement of any Governmental Person to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process and when required to do so in accordance with the provisions of any applicable Governmental Rule; provided, that a Bank shall disclose only -------- the information required by such request and shall notify the Company in advance of such disclosure so that the Company may seek an appropriate protective order, and (C) to such Bank's independent auditors and other professional advisors provided such Persons are obligated to keep such information confidential. Notwithstanding the foregoing, the Company authorizes each Bank to disclose to any Assignee or Participant and to any prospective Assignee or Participant, such financial and other information in such Bank's possession concerning the Company or its Subsidiaries which has been delivered to Agent or the Banks pursuant to this Agreement or which has been delivered to the Agent or the Banks by the Company in connection with the Banks' credit evaluation of the Company prior to entering into this Agreement; provided that, unless otherwise agreed by the -------- Company, such Assignee or Participant agrees in writing to such Bank to keep such information confidential to the same extent required of the Banks hereunder. 10.2 SURVIVAL OF WARRANTIES AND OF CERTAIN AGREEMENTS. (a) All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement, the making of the Loans hereunder and the execution and delivery of any Notes. (b) Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of the Company set forth in Sections 2.9, 3, 10.4 and 10.15 and the agreements of the Banks set forth in Sections 2.13, 9, 10.1(b) and 10.5 shall survive the payment of the Obligations by the Company and the termination of this Agreement. 10.3 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any Bank or any holder of any Note in the exercise of any power, right or privilege hereunder or under any Note shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement or any Notes are cumulative to and not exclusive of, any rights or remedies otherwise available. -44- 10.4 FEES AND EXPENSES. Whether or not the transactions contemplated hereby shall be consummated, the Company agrees to pay within 30 days after submission of an invoice therefor (a) all the actual and reasonable out-of- pocket costs and expenses of preparation of the Loan Documents and all the costs of furnishing all opinions by counsel for the Company (including without limitation any opinions requested by the Banks as to any legal matters arising hereunder), and of the Company's performance of and compliance with all agreements and conditions contained therein on its part to be performed or complied with; (b) the cost of delivering to the Banks any Notes pursuant to the provisions of this Agreement; (c) the reasonable fees, expenses and disbursements of the Agent and the Agent's counsel (including the allocated cost of Agent's inhouse counsel and staff) in connection with the negotiation, preparation, execution and administration of the Loan Documents and the Loans and any amendments and waivers hereto; and (d) after the occurrence of an Event of Default, all actual and reasonable out-of-pocket costs and expenses (including reasonable fees of law firms engaged by the Banks and the reasonable estimate of the allocable costs of counsel in the staff of legal departments of the Banks and costs of settlement) incurred by the Agent and each Bank in enforcing any Obligations or in collecting any payments due from the Company hereunder or under any Notes by reason of such Event of Default or in connection with any refinancing or restructuring of any Loan Document in the nature of a "work-out" or of any insolvency or bankruptcy proceeding. 10.5 SET OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of and during the continuance of any Event of Default (after the giving of any notice and the expiration of any grace period contained in the definition thereof), each Bank and each subsequent holder of any Note is hereby authorized by the Company at any time or from time to time, without notice to the Company, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate any and all deposits (including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured but not including trust accounts) and any other indebtedness at any time held or owing by that Bank or that subsequent holder or any Bank Affiliate thereof to or for the credit or the account of the Company and to apply any such amounts in accordance with the provisions of Section 2.13 irrespective of whether or not that Bank or that subsequent holder shall have made any demand hereunder and each such Bank Affiliate is hereby irrevocably authorized to permit such setoff and appropriation. 10.6 NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by United States mail and shall be deemed to have been given upon delivery in person, receipt of telecopy or telex or four Business Days after deposit in the United States mail, registered or certified, with postage prepaid and properly addressed. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 10.6) shall be as set forth under each party's name on Schedule 10.6 hereto. 10.7 SEVERABILITY. In case any provision in or obligation under this Agreement or any Notes shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. -45- 10.8 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Requisite Banks and the Company, and acknowledged by the Agent, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that -------- ------- no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company, and acknowledged by the Agent, do any of the following: (a) increase or extend any Bank's Loan Commitment or any Purchaser's Purchaser Commitment or subject any Bank to any additional obligations; (b) postpone or delay any date fixed for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or of any fees or other amounts payable hereunder or under any Loan Document; (d) change any Bank's Pro Rata Share of the Aggregate Loan Commitment or any Purchaser's Percentage of the Purchasers' Investment Limit or of the aggregate unpaid principal amount of any extension of credit which shall be required for the Banks or any of them to take any action hereunder; (e) amend this Section 10.8 or Section 2.13; (f) amend Section 2.1, the definitions of "Pro Rata Share" or "Requisite Banks;" or (g) discharge any Guarantor; provided further, that no amendment, waiver or consent shall (i), unless in - -------- ------- writing and signed by the Agent in addition to the Requisite Banks or all the Banks, as the case may be, affect the rights or duties of the Agent under any Loan Document, or (ii) have the effect of making any Bank's Pro Rata Share hereunder a different percentage than its Percentage under the Receivables Purchase Agreement. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.8 shall be binding upon each holder of any Notes at the time outstanding, each future holder of the Notes and, if signed by the Company, on the Company. 10.9 OBLIGATIONS SEVERAL. The obligation of each Bank hereunder is several, and no Bank shall be responsible for any obligation or commitment of any other Bank hereunder. Nothing contained in this Agreement and no action taken by Banks pursuant hereto shall be deemed to constitute Banks to be a partnership, an association, a joint venture or another entity. 10.10 CERTAIN CHANGES. If (a) any changes in accounting principles from those used in the preparation of the financial statements referred to in Section 5.8 hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or requested by the Financial Accounting Standards Board or the American Institute of Certified Public Accounts (or -46- successors thereto or agencies with similar functions) result in a change in the method of calculation of financial covenants, standards or terms found in Sections 1, 6 and 7, or (b) the Company changes the manner in which its fiscal year, fiscal quarters and fiscal months are determined, the parties hereto agree to enter into negotiations in order to amend the appropriate provisions of this Agreement so as to equitably reflect such changes with the desired result that the criteria for evaluating the Company's financial condition and operations or establishing limitations hereunder shall be the same after such changes as if such changes had not been made. 10.11 HEADINGS. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.12 APPLICABLE LAW. (a) This Agreement, any Notes and the other Loan Documents shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of California, without regard to conflicts of laws principles. (b) Any legal action or proceeding with respect to this Agreement and any other Loan Documents may be brought in the courts of the State of California or of the United States for the Central District of California, and by execution and delivery of this Agreement, each of the Company, the Agent and the Banks consents, for itself and in respect of its property, to the non- exclusive jurisdiction of those courts. Each of the Company, the Agent and the Banks irrevocably waives any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any document related hereto. The Company, the Agent and the Banks each waive personal service of any summons, complaint or other process, which may be made by any other means permitted by California law. 10.13 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Bank. No assignment or transfer of any Bank will be permitted if such assignment or transfer would result in any Bank's Pro Rata Share hereunder being a different percentage than its Percentage under the Receivables Purchase Agreement. 10.14 COUNTERPARTS. This Agreement and any amendments, waivers, consents, or supplements may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 10.15 INDEMNITY. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify and hold the Agent-Related Persons, and each Bank and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and ------------------ against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including reasonable fees and out-of-pocket expenses of counsel and the allocated cost of internal counsel) of any kind or nature whatsoever which may at any time (including at any time -47- following repayment of the Loans and the termination, resignation or replacement of the Agent or replacement of any Bank) be imposed on, incurred by or asserted against any such Person arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any proceeding of the type referred to in Section 8.1(f) or (g) or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified ----------- Liabilities"); provided, that the Company shall have no obligation hereunder to - ----------- -------- any Indemnified Person with respect to Indemnified Liabilities resulting from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 10.16 AMENDMENT AND RESTATEMENT. This Agreement amends and restates the Existing Agreement, and any loans and the revolving commitments outstanding under the Existing Agreement shall be deemed Loans and the Loan Commitment outstanding under this Agreement. Banks which are party to the Existing Credit Agreement consent to The Northern Trust Company becoming a party hereto. The Company represents and warrants that (a) there is no defense, counterclaim or offset of any type or nature under the Mattel Sales Subordination Agreement or the Fisher Price Subordination Agreement, (b) the same remain in full, force and effect after giving effect hereto, and (c) all references to "Credit Agreement" and "Loan Documents" therein shall be deemed references to this Agreement and "Loan Documents" as defined herein. -48- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. MATTEL, INC. By: /s/ William Stavro ------------------------------ William Stavro Senior Vice President and Treasurer S-1 AGENT: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ Janice Hammond ------------------------------ Janice Hammond Vice President BANKS: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Robert W. Troutman ------------------------------ Robert W. Troutman Managing Director S-2 NATIONSBANK OF TEXAS, N.A. By: /s/ Charles F. Lilygren ------------------------------ Charles F. Lilygren Title: Senior Vice President --------------------------- S-3 THE CHASE MANHATTAN BANK, N.A. By: /s/ Lenard Weiner ------------------------------ Title: Managing Director --------------------------- S-4 BANKBOSTON, N.A. By: /s/ Debra Zurka ------------------------------ Title: Director --------------------------- S-5 PNC BANK, NATIONAL ASSOCIATION By: /s/ Timothy J. Marchando ------------------------------ Timothy J. Marchando Title: Vice President --------------------------- S-6 TORONTO DOMINION (TEXAS), INC. By: /s/ Debbie A. Greene ------------------------------ Debbie A. Greene Title: Vice President --------------------------- S-7 ABN AMRO BANK N.V. By: /s/ Ellen M. Coleman ------------------------------ Ellen M. Coleman Title: Vice President/Director --------------------------- By: /s/ Heather F. Brandt ------------------------------ Heather F. Brandt Title: Vice President --------------------------- S-8 UNION BANK OF CALIFORNIA, N.A. By: /s/ Scott Lane ------------------------------ Title: Vice President --------------------------- S-9 BANQUE NATIONALE DE PARIS By: /s/ Clive Bettles ----------------------------------- Title: Senior Vice President & Manager -------------------------------- By: /s/ Mitchell M. Ozawa ----------------------------------- Title: Vice President -------------------------------- S-10 DRESDNER BANK AG, NEW YORK BRANCH AND GRAND CAYMAN BRANCH By: /s/ John W. Sweeney ------------------------------ Title: Assistant Vice President --------------------------- By: /s/ Christopher E. Sarisky ------------------------------ Title: Assistant Treasurer --------------------------- S-11 ISTITUTO BANCARIO SAN PAOLO di TORINO SpA By: /s/ Carlo Persico ------------------------------ Title: Deputy General Manager --------------------------- By: /s/ Ettore Viazzo ------------------------------ Title: Vice President --------------------------- S-12 MANUFACTURERS & TRADERS TRUST CO. By: /s/ Geoffrey R. Fenn ------------------------------ Title: Vice President --------------------------- S-13 CITICORP USA, INC. By: /s/ Deborah Ironson ------------------------------ Title: Attorney-In-Fact --------------------------- S-14 SOCIETE GENERALE By: /s/ Maureen E. Kelly ------------------------------ Title: Vice President --------------------------- S-15 THE INDUSTRIAL BANK OF JAPAN, LIMITED LOS ANGELES AGENCY By: /s/ Vicente L. Timiraos ------------------------------ Title: SVP & SDGM --------------------------- S-16 THE NORTHERN TRUST COMPANY By: /s/ John E. Burda ------------------------------ Title: Second Vice President --------------------------- S-17 EXHIBIT A SECOND AMENDED AND RESTATED PROMISSORY NOTE $__________________ Los Angeles, California March 11, 1998 FOR VALUE RECEIVED, MATTEL, INC., a Delaware corporation (the "Company"), promises to pay to the order of ________________ (the "Payee"), the principal amount of $____________ or, if different, the aggregate principal amount of Loans made by the Payee to the Company under the Credit Agreement referred to below outstanding on the Termination Date. The Company also promises to pay interest on the unpaid principal amount hereof from the date hereof until paid at the rates and at the times which shall be determined in accordance with the provisions of the Second Amended and Restated Credit Agreement dated as of March 11, 1998, among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as Agent (as amended from time to time, the "Credit Agreement"). This Note (this "Note") is one of the Company's Notes issued pursuant to and entitled to the benefits of the Credit Agreement to which reference is hereby made for a more complete statement of the terms and conditions under which the Loans evidenced hereby are made and are to be repaid. Capitalized terms used herein without definition shall have the meanings set forth in the Credit Agreement. If the Payee was a party to the Existing Credit Agreement, this Note amends and restates any promissory note executed and delivered by the Company in favor of Payee in connection with such Existing Credit Agreement. All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the office of Bank of America for credit to: BANCONTROL Account No. 12358-88449, reference: Mattel, Inc., at 1850 Gateway Boulevard, Concord, California 94520 or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Each of the Payee and any subsequent holder of this Note agrees that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided -------- that the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligation of the Company hereunder with respect to payments of principal or interest on this Note. This Note is subject to prepayment as provided in the Credit Agreement. Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement. The Company promises to pay all actual and reasonable costs and expenses, including reasonable attorneys' fees and the reasonably allocated cost of inhouse counsel and staff, incurred in the collection and enforcement of this Note. The Company and endorsers of this Note hereby A-1 consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand and notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder. THE CREDIT AGREEMENT AND THIS NOTE SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered by its duly authorized officer, as of the day and year and the place first above written. MATTEL, INC. By: --------------------------- Name: ------------------------- Title: ------------------------ A-2 TRANSACTIONS ON NOTE
Amount of End of interest or Balance Type of Amount of Interest principal principal Notation Date Loan Made Loan Made Period paid this date made by ---- --------- --------- ------ ---- --------- -------
A-1 EXHIBIT B NOTICE OF BORROWING TO: Bank of America National Trust and Savings Association, as Agent Gentlemen: Pursuant to Section 2.3 of that certain Second Amended and Restated Credit Agreement dated as of March 11,1998 (the "Credit Agreement"; capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement), among Mattel, Inc., a Delaware corporation (the "Company"), the Banks named therein (the "Banks") and Bank of America National Trust and Savings Association, as Agent (the "Agent"), this represents the Company's request to borrow on __________, 19__ from the Banks on a pro rata basis the aggregate principal amount of $__________ as [Base Rate] [Eurodollar Rate]. [The initial Interest period for such Eurodollar Rate Loan is requested to _________ month/day period]. The proceeds of such Loans are to be deposited in the Company's account at Bank of America. The undersigned officer, to the best of his knowledge, and the Company certifies that (i) the representations and warranties of the Company contained in the Credit Agreement are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof; (ii) no Default or Event of Default has occurred and is continuing under the Credit Agreement or will result from the proposed borrowing; and (iii) the Company has performed in all material respects all agreements and satisfied all conditions under the Credit Agreement required to be performed by it on or before the date hereof. DATED: -------------------- MATTEL, INC. By: --------------------------- Name: --------------------------- Title: --------------------------- B-1 EXHIBIT C NOTICE OF CONVERSION/CONTINUATION TO: Bank of America National Trust and Savings Association, as Agent Gentlemen: 1. CONVERSION SELECTION. Pursuant to Section 2.4 of that certain Second Amended and Restated Credit Agreement dated as of March 11, 1998 (the "Credit Agreement") among Mattel, Inc., a Delaware corporation (the "Company"), the Banks named therein (the "Banks") and Bank of America National Trust and Savings Association, as Agent (the "Agent"), please convert an aggregate of $________of existing [Base Rate, Eurodollar Rate] Loans, the final day of the current Interest Period (if applicable) of which is __________, 19__, to [Base Rate, Eurodollar Rate] Loans, as follows: Requested Interest Period Dollar Amount (Eurodollar Rate Loans) ------------- ----------------------- $________________ __________ months Maturing on _________, 19___ 2. CONTINUATION SELECTION. Pursuant to Section 2.4 of the Agreement, please continue an aggregate of $_______of existing Eurodollar Rate Loans, the final day of the current Interest Period of which is __________, 19____, as follows: Dollar Amount Requested Interest Period ------------- ------------------------- $________________ __________ months Maturing on _________, 19___ Unless otherwise defined herein, capitalized terms used herein have the meanings assigned to them in the Agreement. DATED: --------------------- MATTEL, INC. By: -------------------------- Name: -------------------------- Title: -------------------------- C-1 EXHIBIT D OFFICERS' CERTIFICATE THE UNDERSIGNED HEREBY CERTIFY THAT: (1) We are the duly elected [Chairman of the Board (if an officer), President, Executive Vice President, Senior Vice Presidents] and [Chief Financial Officer, Treasurer, Assistant Treasurer, Controller] of Mattel, Inc., a Delaware corporation (the "Company"); (2) We have reviewed the terms of the Second Amended and Restated Credit Agreement dated as of March 11, 1998, among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as Agent (the "Credit Agreement"; capitalized terms used herein without definition shall have the meanings assigned them in the Credit Agreement), and we have made, or have caused to be made under our supervision, a detailed review of the transactions and conditions of the Company and its Subsidiaries during the accounting period covered by the attached financial statements; and (3) The examinations described in paragraph (2) did not disclose, and we have no knowledge of, the existence of any condition or event which constitutes a Default or Event of Default (as defined in the Credit Agreement) during or at the end of the accounting period covered by the attached financial statements or as of the date of this Officers' Certificate, except as set forth below. Describe below (or in a separate attachment to this Officers' Certificate) the exceptions, if any, to paragraph (3) by listing, in detail, the nature of the condition or event and the period during which it has existed: ----------------------------- ----------------------------- ----------------------------- ----------------------------- D-1 The foregoing certifications, together with the computations set forth in Attachment No. 1 hereto and the financial statements delivered with this Officers' Certificate in support hereof, are made and delivered this _____ day of ______________, 19__ pursuant to subsection 6.1(c) of the Credit Agreement. MATTEL, INC. By: -------------------------- Name: ------------------------ Title: ----------------------- By: -------------------------- Name: ------------------------ Title: ----------------------- D-2
ATTACHMENT NO. I TO OFFICERS' CERTIFICATE As of (Date) ---------- ($000's Omitted Except Ratio Amounts) I. CONSOLIDATED FUNDED INDEBTEDNESS TO TOTAL CAPITALIZATION AS OF ABOVE DATE. (Section 7.5) A. Consolidated Funded Indebtedness: 1. Total liabilities for borrowed money: -Notes Payable $_____________ -Current Portion of Long-Term -Indebtedness: $_____________ -Term Loans: $_____________ -Subordinated Indebtedness: $_____________ -Senior Long-Term Indebtedness: $_____________ -Mortgages: $_____________ Total liabilities for borrowed money: $_____________ 2. Capital Leases: $_____________ 3. Guaranties of unconsolidated funded obligations for borrowed money: $_____________ 4. Total Consolidated Funded Indebtedness (Lines A1+A2+A3): $_____________ B. Combined Total Outstanding Investments: 1. Purchasers' Investments under Receivables $_____________ Purchase Agreement: 2. Amount analogous to " Purchasers' Investments" under Other $_____________ Permitted Accounts Receivable Financing Facilities relating to Domestic Subsidiaries (describe): 3. Combined Purchasers' Investments (Lines B1+B2): $_____________ C. Consolidated Funded Indebtedness plus Combined Purchasers' Investments (Lines A4+B3): $_____________ D. Consolidated Tangible Net Worth: 1. Net Worth: $_____________ 2 Foreign exchange currency translation adjustments: $_____________
-1- 3. Intangible assets: $______________ 4. Consolidated Tangible Net Worth (Line D1 - (D2+D3)): $ ============== E. Consolidated Funded Indebtedness plus Combined Purchasers' Investments plus $______________ Consolidated Tangible Net Worth (Lines C+D4): F. Actual percentage of Consolidated Funded Indebtedness plus Combined Purchasers' Investments to Consolidated Funded Indebtedness plus Combined Purchasers' Investments plus Consolidated Tangible Net Worth (Line CE): ________% G. Permitted maximum percentage of Consolidated Funded Indebtedness plus Combined Purchasers' Investments to Consolidated Funded Indebtedness plus Combined Purchasers' Investments plus Consolidated Tangible Net Worth: (55%) (65%) II. INTEREST COVERAGE RATIO AS OF ABOVE DATE. (Section 7.6) A. Company's net income 1. Company's net income from continuing operations, for the four consecutive fiscal quarters ending on such date: $______________ 2. Special items: $______________ 3. Minority interest $______________ 4. Gains on reacquisition of debt: $______________ 5. Total (Line A1 - Line A1+A2+A3): $______________ B. Income taxes accrued for the four consecutive fiscal quarters ending on such $______________ date: C. Interest accrued for the four consecutive fiscal quarters ending on such date, $______________ excluding capitalized interest and without regard to interest income: D. Depreciation and amortization for the four consecutive fiscal quarters ending on $______________ such date: E. Total (Lines A5+B+C+D): $______________ F. Interest incurred for the four consecutive fiscal quarters ending on such date, $______________ including capitalized interest and without regard to interest income: G. Actual Ratio (Line ELine F): __ to 1 H. Required Minimum Ratio 3.5 to 1
-2- EXHIBIT E OPINION OF ASSISTANT GENERAL COUNSEL OF COMPANY UPDATED FORM TO COME E-1 SCHEDULE A OPINION OF ASSISTANT [ALL BANKS PARTY TO CREDIT AGREEMENT] E-2 EXHIBIT F-1 FISHER-PRICE, INC. FIRST AMENDED AND RESTATED CONTINUING GUARANTY TO: Bank of America National Trust and Savings Association, as Agent PRELIMINARY STATEMENTS: A. Concurrently herewith, Mattel, Inc., a Delaware corporation (the "Company"), the Banks named therein (the "Domestic Banks") and Bank of America National Trust and Savings Association, as agent (the "Agent"), are entering into a First Amended and Restated Credit Agreement dated as of even date herewith (said agreement, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time, is referred to herein as the "Credit Agreement"; capitalized terms used herein without definition shall have the meanings assigned those terms in the Credit Agreement). B. Certain Subsidiaries of the Company that are incorporated in a jurisdiction outside of the United States of America (the "Foreign Subsidiaries") have entered into credit facilities with one or more Banks or foreign affiliates of the Banks (the "Foreign Banks"), and the Company has guarantied the obligations of such Foreign Subsidiaries under such credit facilities pursuant to one or more guaranties (the "Foreign Subsidiary Guaranties"), and it is contemplated that one or more Foreign Subsidiaries may hereafter enter into such credit facilities with one or more Foreign Banks, and that the Company may guaranty the obligations of such Foreign Subsidiaries thereunder pursuant to one or more Foreign Subsidiary Guaranties. C. It is a condition precedent to the effectiveness of the Credit Agreement that the Guarantor enter into this Continuing Guaranty guarantying all obligations of every nature of the Company and Mattel Sales from time to time owed under or in respect of (i) the Credit Agreement, the Loans, and the other Loan Documents (all such obligations are referred to herein as the "Domestic Bank Obligations"), (ii) the Foreign Subsidiary Guaranties (such obligations are referred to herein as the "Foreign Subsidiary Guaranty Obligations") and (iii) any letters of credit issued by a Bank in its individual capacity for the account of the Company outside the Credit Agreement (such obligations are referred to herein as the "Company Letter of Credit Obligations"). This Guaranty amends and restates the Continuing Guaranty dated as of March 10, 1995 delivered by the Guarantor. D. NOW, THEREFORE, the Guarantor agrees as follows: 1. For valuable consideration, the undersigned Guarantor unconditionally, absolutely and irrevocably guarantees and promises to pay to the Agent, or order, on demand, in lawful money of the United States and in immediately available funds, any and all present or future Domestic Bank Obligations, Foreign Subsidiary Guaranty Obligations and Company Letter of Credit Obligations owing to the Agent, the Domestic Banks, the Foreign Banks and the Agent (collectively, the "Guarantied Parties"). The terms Domestic Bank Obligations, Foreign Subsidiary Guaranty Obligations and Company Letter of Credit Obligations (hereinafter collectively referred to as the "Obligations") are used herein in their most comprehensive sense F-1-1 and include any and all advances, debts, obligations, and liabilities of the Company, now, or hereafter made, incurred, or created, whether voluntary or involuntarily, and however arising, including, without limitation, any and all attorneys' fees (including the allocated cost of inhouse counsel), costs, premiums, charges, or interest owed by the Company to the Guarantied Parties, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether the Company may be liable individually or jointly with others, whether recovery upon such indebtedness may be or hereafter becomes barred by any statute of limitations or whether such indebtedness may be or hereafter become otherwise unenforceable. 2. This Guaranty is a continuing guaranty which relates to any Obligations, including those which arise under successive transactions which shall either cause the Company 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. Any payment by the Guarantor shall not reduce its maximum obligation hereunder. 3. The Guarantor agrees that it is directly and primarily liable to the Agent for the benefit of the Guarantied Parties, that its obligations hereunder are independent of the Obligations of the Company, 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 the Company or whether the Company is joined in any such action or actions. The Guarantor agrees that any releases which may be given by the Agent and the Guarantied Parties to the Company or any other guarantor shall not release it from this Guaranty. 4. 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 Event of Default under the terms and provisions of the 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 any Loan Document or of any action under this Guaranty; (e) any failure, omission or delay on the part of the Agent and/or the Guarantied Parties to enforce, assert or exercise any right, power or remedy conferred in this Guaranty, the Credit Agreement, any other Loan Document or any other indulgence or similar act on the part of the Agent and/or the Guarantied Parties 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, assignment for the benefit of creditors or readjustment of, or other similar proceedings which affect the Guarantor, any other guarantor of any of the Obligations of the Company or any of the F-1-2 assets of any of them, or any allegation of invalidity or contest of the validity of this Guaranty in any such proceeding; (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; or (h) the default or failure of any other guarantors of the Obligations fully to perform any of their respective obligations set forth in any such guaranties of the Obligations. To the extent any of the foregoing refers to any actions which the Agent or the Guarantied Parties may take, the Guarantor hereby agrees that the Agent and/or the Guarantied Parties may take such actions in such manner, upon such terms, and at such times as the Agent or the Guarantied Parties, in their discretion, deem 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. 5. The Guarantor hereby waives: (a) any and all rights to require the Agent or the Guarantied Parties to prosecute or seek to enforce any remedies against the Company or any other party liable to the Agent or the Guarantied Parties on account of the Obligations; (b) any right to assert against the Agent or the Guarantied Parties any defense (legal or equitable), set-off, counterclaim, or claim which the Guarantor may now or at any time hereafter have against the Company or any other party liable to the Agent or the Guarantied Parties in any way or manner under the Credit Agreement; (c) all defenses, counterclaims and off-sets of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity or enforceability of any Loan Document and the security interest granted pursuant thereto; (d) any defense arising by reason of any claim or defense based upon an election of remedies by the Agent or the Guarantied Parties including, without limitation, 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 Company for reimbursement, or any other rights of the Guarantor to proceed against the Company, against any other guarantor, or against any other security, with the Guarantor understanding that the exercise by the Agent and/or the Guarantied Parties of certain rights and remedies may offset or eliminate the Guarantor's right of subrogation against the Company, and that the Guarantor may therefore incur partially or totally non-reimbursable 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 indebtedness, and all other notices or formalities to which the Guarantor may be entitled; and F-1-3 (f) without limiting the generality of the foregoing, the Guarantor hereby expressly waives any and all benefits of California Civil Code Sections 2809, 2810, 2819, 2825, 2839 and 2845 through 2850. 6. The Guarantor hereby agrees that unless and until all Obligations have been paid to the Agent and the Guarantied Parties in full, it shall not have any rights of subrogation, reimbursement or contribution as against the Company or any other guarantor, if any, and shall not seek to assert or enforce the same. Guarantor understands that the exercise by Agent of certain rights and remedies contained in the Loan Documents may affect or eliminate Guarantor's right of subrogation if any, against the Company and that Guarantor may therefore incur a partially or totally non-reimbursable liability hereunder; nevertheless, Guarantor hereby authorizes and empowers the Agent and the Guarantied Parties to exercise, in their sole discretion, any right and remedy, or any combination thereof, which may then be available, since it is the intent and purpose of Guarantor that the obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. 7. The Guarantor is presently informed of the financial condition of the Company and of all other circumstances which a 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 Company, the status of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment. The Guarantor hereby waives its right, if any, to require the Agent or the Guarantied Parties to disclose to it any information which the Agent or any Bank may now or hereafter acquire concerning such condition or circumstances including, but not limited to, the release of any other guarantor. 8. The Agent and each Bank'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. 9. Notwithstanding anything to the contrary contained herein, the Guarantor's liability pursuant to this Guaranty shall be limited to the greater of: (a) the 'reasonably equivalent value,' received by the Guarantor or any of its subsidiaries arising out of the Loan Documents (including, without limitation, repayment of intercompany or third party debt of, investments made in, and capital contributions, advances and loans made to, the Guarantor or any of its subsidiaries, directly or indirectly, by Company or any other subsidiary with, or as a direct or indirect result of obtaining, the proceeds of any credit extended under the Loan Documents) in exchange for or in connection with the Guarantor's guaranty of the Obligations, and (b) 95% of the excess of (i) a 'fair valuation' of the amount of the assets and other property of the Guarantor and its subsidiaries taken as a whole as of the applicable date of determination of the incurrence of the Guarantor's obligations hereunder over (ii) a 'fair ---- valuation' of the Guarantor's and its subsidiaries' debts taken as a whole as of such date, but excluding liabilities arising under this Guaranty and excluding all liabilities owing by Guarantor and its subsidiaries taken as a whole to the Company or any other Subsidiary or otherwise subordinated to the Guarantor's obligations hereunder, it being understood that a portion of such indebtedness owing to Company shall be discharged on a dollar-for-dollar basis in an amount equal to the amount paid by Guarantor hereunder. The meaning of the terms 'reasonably equivalent value' and 'fair valuation,' and the calculations of assets and other property and debts, shall be determined in F-1-4 accordance with the applicable federal and California state laws in effect on the date hereof governing the determination of the insolvency of a debtor and to further the intent of all parties hereto to maximize the amount payable by the Guarantor without rendering it insolvent or leaving it with an unreasonably small amount of capital in relation to its business, in either case, at the applicable date for the determination of the incurrence of its obligations hereunder; provided, however, the Guarantor agrees, to the maximum extent -------- ------- permitted by law, that 'fair valuation' of the Guarantor's and its subsidiaries' assets and other properties means the fair market sales price as would be obtained in an arms-length transaction between competent, informed and willing parties under no compulsion to sell or buy or collections thereof obtained in the ordinary course of business and 'fair valuation' of its debts means the amount, in light of the applicable circumstances, at the time, for which the Guarantor or its subsidiaries is liable for matured known liquidated liabilities or would reasonably be expected to become liable on contingent or unliquidated liabilities as they mature and taking into consideration the nature of any such contingency and the probability that liability would be imposed. 10. The Guarantor represents and warrants for and with respect to itself that: (a) The Guarantor is a corporation duly organized and existing under the laws of the state of California, and is properly licensed and in good standing in, and where necessary to maintain its rights and privileges have complied with the fictitious name statute of, every jurisdiction in which it is doing business, except where the failure to be licensed or be in good standing or comply with any such statute will not have a material adverse effect on the ability of the Guarantor to perform its obligations hereunder or under any instrument or agreement required hereunder; (b) The execution, delivery and performance of this Guaranty and any instrument or agreement required hereunder are within the power of the Guarantor, have been duly authorized by, and are not in conflict with the terms of any charter, by-law or other organization papers of, the Guarantor; (c) No approval, consent, exemption or other action by, or notice to or filing with, any governmental authority is necessary in connection with the execution, delivery, performance or enforcement of this Guaranty or any instrument or agreement required hereunder, except as may have been obtained and certified copies of which have been delivered to Agent and the Guarantied Parties; (d) There is no law, rule or regulation, nor is there any judgment, decree or order of any court or governmental authority binding on the Guarantor, which would be contravened by the execution, delivery, performance or enforcement of this Guaranty or any instrument or agreement required hereunder; (e) This Guaranty is a legal, valid and binding agreement of the Guarantor, enforceable against the Guarantor in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable, except where enforceability thereof may be limited by applicable law relating to bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally or by the application of general principles of equity; F-1-5 (f) There is no action, suit or proceeding pending against, or to the knowledge of the Guarantor, threatened against or affecting the Guarantor, before any court or arbitrator or any governmental body, agency or official which in any manner draws into question the validity or enforceability of this Guaranty; and (g) The execution, delivery and performance by the Guarantor of this Guaranty does not constitute, to the best knowledge of Guarantor, a "fraudulent conveyance," "fraudulent obligation" or "fraudulent transfer" within the meanings of the Uniform Fraudulent Conveyances Act or Uniform Fraudulent Transfer Act, as enacted in any jurisdiction. 11. Any one of the following events shall constitute an "Event of Bankruptcy:" (a) The Guarantor or the Company is generally not paying or admits in writing its inability to pay its debts as such debts become due, or files any petition or action for relief under any bankruptcy, reorganization, insolvency, or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors, or takes any corporate action in furtherance of any of the foregoing; (b) An involuntary petition is filed against the Guarantor or the Company under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Guarantor or the Company, unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of said filing or appointment. Upon the occurrence of an Event of Bankruptcy, without notice or demand, any and all of the Guarantor's obligations under this Guaranty shall become due, payable and enforceable against the Guarantor whether or not the Obligations are then due and payable. 12. All notices and other communications hereunder shall be delivered, in the manner and with the effect provided in the Credit Agreement and, in the case of the Guarantor, in care of the Company. 13. This Guaranty shall be binding upon the successors and assigns of the Guarantor and shall inure to the benefit of the Agent's and the Guarantied Parties' successors and assigns. This Guaranty cannot be assigned by the Guarantor without the prior written consent of the Agent and the Guarantied Parties which shall be in the Agent's and the Guarantied Parties' sole and absolute discretion. 14. No failure or delay by the Agent or the Guarantied Parties in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 15. The Guarantor shall pay (a) all reasonable out-of-pocket expenses of the Agent and the Guarantied Parties, including reasonable fees and disbursements of counsel (including the allocated cost of inhouse counsel and staff) for the Agent, in connection with any waiver or F-1-6 consent hereunder or any amendment hereof and (b) all out-of-pocket expenses incurred by the Agent and the Guarantied Parties, including fees and disbursements of counsel (including the allocated cost of inhouse counsel and staff), in connection with the enforcement of this Guaranty (whether or not suit is brought). 16. No modification of this Guaranty shall be effective for any purpose unless it is in writing and executed by an officer of the Agent authorized to do so. This Guaranty merges all negotiations, stipulations and provisions relating to the subject matter of this Guaranty which preceded or may accompany the execution of this Guaranty. 17. This Guaranty and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the laws of the State of California without reference to the principles of conflicts of laws thereof. 18. This Guaranty may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 19. Terms not defined herein shall have the meanings assigned to them in the Credit Agreement. 20. Any indebtedness of the Company now or hereafter held by Guarantor is hereby subordinated to the indebtedness of the Company to the Agent and the Guarantied Parties; and such indebtedness of the Company to the Guarantor if the Agent so requests shall be collected, enforced and received by Guarantor as trustee for the Agent and the Guarantied Parties and be paid over to the Agent on account of the indebtedness of the Company to the Agent and the Guarantied Parties but without reducing or affecting in any manner the liability of the Guarantor under the other provisions of this guaranty. 21. It is not necessary for the Guarantied Parties to inquire into the powers of any Guaranteed Party or of the officers, directors or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. Executed as of the 13th day of March 1997. FISHER-PRICE, INC. By: --------------------- Name: --------------------- Title: --------------------- BANK OF AMERICA NATIONAL TRUST SAVINGS ASSOCIATION, as Agent By: ------------------------- Vice President F-1-7 EXHIBIT F-2 MATTEL SALES CORP. FIRST AMENDED AND RESTATED CONTINUING GUARANTY TO: Bank of America National Trust and Savings Association, as Agent PRELIMINARY STATEMENTS: A. Concurrently herewith, Mattel, Inc., a Delaware corporation (the "Company"), the Banks named therein (the "Domestic Banks") and Bank of America National Trust and Savings Association, as agent (the "Agent"), are entering into a First Amended and Restated Credit Agreement dated as of even date herewith (said agreement, as it may hereafter be amended, supplemented, restated or otherwise modified from time to time, is referred to herein as the "Credit Agreement"; capitalized terms used herein without definition shall have the meanings assigned those terms in the Credit Agreement). B. Certain Subsidiaries of the Company that are incorporated in a jurisdiction outside of the United States of America (the "Foreign Subsidiaries") have entered into credit facilities with one or more Banks or foreign affiliates of the Banks (the "Foreign Banks"), and the Company has guarantied the obligations of such Foreign Subsidiaries under such credit facilities pursuant to one or more guaranties (the "Foreign Subsidiary Guaranties"), and it is contemplated that one or more Foreign Subsidiaries may hereafter enter into such credit facilities with one or more Foreign Banks, and that the Company may guaranty the obligations of such Foreign Subsidiaries thereunder pursuant to one or more Foreign Subsidiary Guaranties. C. It is a condition precedent to the effectiveness of the Credit Agreement that the Guarantor enter into this Continuing Guaranty guarantying all obligations of every nature of the Company and Fisher-Price from time to time owed under or in respect of (i) the Credit Agreement, the Loans, and the other Loan Documents (all such obligations are referred to herein as the "Domestic Bank Obligations"), (ii) the Foreign Subsidiary Guaranties (such obligations are referred to herein as the "Foreign Subsidiary Guaranty Obligations") and (iii) any letters of credit issued by a Bank in its individual capacity for the account of the Company outside the Credit Agreement (such obligations are referred to herein as the "Company Letter of Credit Obligations"). D. This Guaranty amends and restates the Continuing Guaranty dated as of March 10, 1995 delivered by the Guarantor. NOW, THEREFORE, the Guarantor agrees as follows: 1. For valuable consideration, the undersigned Guarantor unconditionally, absolutely and irrevocably guarantees and promises to pay to the Agent, or order, on demand, in lawful money of the United States and in immediately available funds, any and all present or future Domestic Bank Obligations, Foreign Subsidiary Guaranty Obligations and Company Letter of Credit Obligations owing to the Agent, the Domestic Banks, the Foreign Banks and the Agent (collectively, the "Guarantied Parties"). The terms Domestic Bank Obligations, Foreign F-2-1 Subsidiary Guaranty Obligations and Company Letter of Credit Obligations (hereinafter collectively referred to as the "Obligations") are used herein in their most comprehensive sense and include any and all advances, debts, obligations, and liabilities of the Company, now, or hereafter made, incurred, or created, whether voluntary or involuntarily, and however arising, including, without limitation, any and all attorneys' fees (including the allocated cost of inhouse counsel), costs, premiums, charges, or interest owed by the Company to the Guarantied Parties, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether the Company may be liable individually or jointly with others, whether recovery upon such indebtedness may be or hereafter becomes barred by any statute of limitations or whether such indebtedness may be or hereafter become otherwise unenforceable. 2. This Guaranty is a continuing guaranty which relates to any Obligations, including those which arise under successive transactions which shall either cause the Company 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. Any payment by the Guarantor shall not reduce its maximum obligation hereunder. 3. The Guarantor agrees that it is directly and primarily liable to the Agent for the benefit of the Guarantied Parties, that its obligations hereunder are independent of the Obligations of the Company, 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 the Company or whether the Company is joined in any such action or actions. The Guarantor agrees that any releases which may be given by the Agent and the Guarantied Parties to the Company or any other guarantor shall not release it from this Guaranty. 4. 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 Event of Default under the terms and provisions of the 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 any Loan Document or of any action under this Guaranty; (e) any failure, omission or delay on the part of the Agent and/or the Guarantied Parties to enforce, assert or exercise any right, power or remedy conferred in this Guaranty, the Credit Agreement, any other Loan Document or any other indulgence or similar act on the part of the Agent and/or the Guarantied Parties 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, F-2-2 assignment for the benefit of creditors or readjustment of, or other similar proceedings which affect the Guarantor, any other guarantor of any of the Obligations of the Company 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; (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; or (h) the default or failure of any other guarantors of the Obligations fully to perform any of their respective obligations set forth in any such guaranties of the Obligations. To the extent any of the foregoing refers to any actions which the Agent or the Guarantied Parties may take, the Guarantor hereby agrees that the Agent and/or the Guarantied Parties may take such actions in such manner, upon such terms, and at such times as the Agent or the Guarantied Parties, in their discretion, deem 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. 5. The Guarantor hereby waives: (a) any and all rights to require the Agent or the Guarantied Parties to prosecute or seek to enforce any remedies against the Company or any other party liable to the Agent or the Guarantied Parties on account of the Obligations; (b) any right to assert against the Agent or the Guarantied Parties any defense (legal or equitable), set-off, counterclaim, or claim which the Guarantor may now or at any time hereafter have against the Company or any other party liable to the Agent or the Guarantied Parties in any way or manner under the Credit Agreement; (c) all defenses, counterclaims and off-sets of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity or enforceability of any Loan Document and the security interest granted pursuant thereto; (d) any defense arising by reason of any claim or defense based upon an election of remedies by the Agent or the Guarantied Parties including, without limitation, 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 Company for reimbursement, or any other rights of the Guarantor to proceed against the Company, against any other guarantor, or against any other security, with the Guarantor understanding that the exercise by the Agent and/or the Guarantied Parties of certain rights and remedies may offset or eliminate the Guarantor's right of subrogation against the Company, and that the Guarantor may therefore incur partially or totally non-reimbursable 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, F-2-3 and notices of the existence, creation, or incurring of new or additional indebtedness, 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 California Civil Code Sections 2809, 2810, 2819, 2825, 2839 and 2845 through 2850. 6. The Guarantor hereby agrees that unless and until all Obligations have been paid to the Agent and the Guarantied Parties in full, it shall not have any rights of subrogation, reimbursement or contribution as against the Company or any other guarantor, if any, and shall not seek to assert or enforce the same. Guarantor understands that the exercise by Agent of certain rights and remedies contained in the Loan Documents may affect or eliminate Guarantor's right of subrogation if any, against the Company and that Guarantor may therefore incur a partially or totally non-reimbursable liability hereunder; nevertheless, Guarantor hereby authorizes and empowers the Agent and the Guarantied Parties to exercise, in their sole discretion, any right and remedy, or any combination thereof, which may then be available, since it is the intent and purpose of Guarantor that the obligations hereunder shall be absolute, independent and unconditional under any and all circumstances. 7. The Guarantor is presently informed of the financial condition of the Company and of all other circumstances which a 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 Company, the status of other guarantors, if any, and of all other circumstances which bear upon the risk of nonpayment. The Guarantor hereby waives its right, if any, to require the Agent or the Guarantied Parties to disclose to it any information which the Agent or any Bank may now or hereafter acquire concerning such condition or circumstances including, but not limited to, the release of any other guarantor. 8. The Agent and each Bank'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. 9. Notwithstanding anything to the contrary contained herein, the Guarantor's liability pursuant to this Guaranty shall be limited to the greater of: (a) the 'reasonably equivalent value,' received by the Guarantor or any of its subsidiaries arising out of the Loan Documents (including, without limitation, repayment of intercompany or third party debt of, investments made in, and capital contributions, advances and loans made to, the Guarantor or any of its subsidiaries, directly or indirectly, by Company or any other subsidiary with, or as a direct or indirect result of obtaining, the proceeds of any credit extended under the Loan Documents) in exchange for or in connection with the Guarantor's guaranty of the Obligations, and (b) 95% of the excess of (i) a 'fair valuation' of the amount of the assets and other property of the Guarantor and its subsidiaries taken as a whole as of the applicable date of determination of the incurrence of the Guarantor's obligations hereunder over (ii) a 'fair ---- valuation' of the Guarantor's and its subsidiaries' debts taken as a whole as of such date, but excluding liabilities arising under this Guaranty and excluding all liabilities owing by Guarantor and its subsidiaries taken as a whole to the Company or any other Subsidiary or otherwise subordinated to the Guarantor's obligations hereunder, it being understood that a portion of such indebtedness owing F-2-4 to Company shall be discharged on a dollar-for-dollar basis in an amount equal to the amount paid by Guarantor hereunder. The meaning of the terms 'reasonably equivalent value' and 'fair valuation,' and the calculations of assets and other property and debts, shall be determined in accordance with the applicable federal and California state laws in effect on the date hereof governing the determination of the insolvency of a debtor and to further the intent of all parties hereto to maximize the amount payable by the Guarantor without rendering it insolvent or leaving it with an unreasonably small amount of capital in relation to its business, in either case, at the applicable date for the determination of the incurrence of its obligations hereunder; provided, -------- however, the Guarantor agrees, to the maximum extent permitted by law, that - ------- 'fair valuation' of the Guarantor's and its subsidiaries' assets and other properties means the fair market sales price as would be obtained in an arms- length transaction between competent, informed and willing parties under no compulsion to sell or buy or collections thereof obtained in the ordinary course of business and 'fair valuation' of its debts means the amount, in light of the applicable circumstances, at the time, for which the Guarantor or its subsidiaries is liable for matured known liquidated liabilities or would reasonably be expected to become liable on contingent or unliquidated liabilities as they mature and taking into consideration the nature of any such contingency and the probability that liability would be imposed. 10. The Guarantor represents and warrants for and with respect to itself that: (a) The Guarantor is a corporation duly organized and existing under the laws of the state of California, and is properly licensed and in good standing in, and where necessary to maintain its rights and privileges have complied with the fictitious name statute of, every jurisdiction in which it is doing business, except where the failure to be licensed or be in good standing or comply with any such statute will not have a material adverse effect on the ability of the Guarantor to perform its obligations hereunder or under any instrument or agreement required hereunder; (b) The execution, delivery and performance of this Guaranty and any instrument or agreement required hereunder are within the power of the Guarantor, have been duly authorized by, and are not in conflict with the terms of any charter, by-law or other organization papers of, the Guarantor; (c) No approval, consent, exemption or other action by, or notice to or filing with, any governmental authority is necessary in connection with the execution, delivery, performance or enforcement of this Guaranty or any instrument or agreement required hereunder, except as may have been obtained and certified copies of which have been delivered to Agent and the Guarantied Parties; (d) There is no law, rule or regulation, nor is there any judgment, decree or order of any court or governmental authority binding on the Guarantor, which would be contravened by the execution, delivery, performance or enforcement of this Guaranty or any instrument or agreement required hereunder; (e) This Guaranty is a legal, valid and binding agreement of the Guarantor, enforceable against the Guarantor in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and F-2-5 enforceable, except where enforceability thereof may be limited by applicable law relating to bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally or by the application of general principles of equity; (f) There is no action, suit or proceeding pending against, or to the knowledge of the Guarantor, threatened against or affecting the Guarantor, before any court or arbitrator or any governmental body, agency or official which in any manner draws into question the validity or enforceability of this Guaranty; and (g) The execution, delivery and performance by the Guarantor of this Guaranty does not constitute, to the best knowledge of Guarantor, a "fraudulent conveyance," "fraudulent obligation" or "fraudulent transfer" within the meanings of the Uniform Fraudulent Conveyances Act or Uniform Fraudulent Transfer Act, as enacted in any jurisdiction. 11. Any one of the following events shall constitute an "Event of Bankruptcy:" (a) The Guarantor or the Company is generally not paying or admits in writing its inability to pay its debts as such debts become due, or files any petition or action for relief under any bankruptcy, reorganization, insolvency, or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any assignment for the benefit of creditors, or takes any corporate action in furtherance of any of the foregoing; (b) An involuntary petition is filed against the Guarantor or the Company under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Guarantor or the Company, unless such petition or appointment is set aside or withdrawn or ceases to be in effect within sixty (60) days from the date of said filing or appointment. Upon the occurrence of an Event of Bankruptcy, without notice or demand, any and all of the Guarantor's obligations under this Guaranty shall become due, payable and enforceable against the Guarantor whether or not the Obligations are then due and payable. 12. All notices and other communications hereunder shall be delivered, in the manner and with the effect provided in the Credit Agreement and, in the case of the Guarantor, in care of the Company. 13. This Guaranty shall be binding upon the successors and assigns of the Guarantor and shall inure to the benefit of the Agent's and the Guarantied Parties' successors and assigns. This Guaranty cannot be assigned by the Guarantor without the prior written consent of the Agent and the Guarantied Parties which shall be in the Agent's and the Guarantied Parties' sole and absolute discretion. 14. No failure or delay by the Agent or the Guarantied Parties in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. F-2-6 15. The Guarantor shall pay (a) all reasonable out-of-pocket expenses of the Agent and the Guarantied Parties, including reasonable fees and disbursements of counsel (including the allocated cost of inhouse counsel and staff) for the Agent, in connection with any waiver or consent hereunder or any amendment hereof and (b) all out-of-pocket expenses incurred by the Agent and the Guarantied Parties, including fees and disbursements of counsel (including the allocated cost of inhouse counsel and staff), in connection with the enforcement of this Guaranty (whether or not suit is brought). 16. No modification of this Guaranty shall be effective for any purpose unless it is in writing and executed by an officer of the Agent authorized to do so. This Guaranty merges all negotiations, stipulations and provisions relating to the subject matter of this Guaranty which preceded or may accompany the execution of this Guaranty. 17. This Guaranty and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the laws of the State of California without reference to the principles of conflicts of laws thereof. 18. This Guaranty may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. 19. Terms not defined herein shall have the meanings assigned to them in the Credit Agreement. 20. Any indebtedness of the Company now or hereafter held by Guarantor is hereby subordinated to the indebtedness of the Company to the Agent and the Guarantied Parties; and such indebtedness of the Company to the Guarantor if the Agent so requests shall be collected, enforced and received by Guarantor as trustee for the Agent and the Guarantied Parties and be paid over to the Agent on account of the indebtedness of the Company to the Agent and the Guarantied Parties but without reducing or affecting in any manner the liability of the Guarantor under the other provisions of this guaranty. F-2-7 21. It is not necessary for the Guarantied Parties to inquire into the powers of any Guaranteed Party or of the officers, directors or agents acting or purporting to act on its behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. Executed as of the 13th day of March 1997. MATTEL SALES CORP. By: --------------------------- Name: ------------------------- Title: ------------------------ BANK OF AMERICA NATIONAL TRUST SAVINGS ASSOCIATION, AS AGENT By: ---------------------------- Vice President F-2-8 EXHIBIT G-1 FISHER-PRICE, INC. FIRST AMENDED AND RESTATED SUBORDINATION AGREEMENT TO: Bank of America National Trust and Savings Association, as Agent Gentlemen: The undersigned, ___________________________, a _________________ corporation (hereinafter referred to as "Creditor") is a creditor of Fisher- Price, Inc., a Delaware corporation (hereinafter referred to as "Fisher- Price"). A. Concurrently herewith, Mattel, Inc. (the "Company"), the Banks named therein (the "Domestic Banks") and Bank of America, as agent (the "Agent"), are entering into a First Amended and Restated Credit Agreement dated as of even date herewith (said credit agreement, as it may hereafter be amended, continued, renewed, supplemented, restated or otherwise modified from time to time, is referred to herein as the "Credit Agreement"). Terms not defined herein have the meanings assigned to them in the Credit Agreement. B. Certain Subsidiaries of the Company that are incorporated in a jurisdiction outside of the United States of America (the "Foreign Subsidiaries") have entered, or may from time to time enter, into credit facilities with one or more Banks or foreign affiliates of the Banks (the "Foreign Banks"), and the Company has guarantied, or may from time to time guaranty, the obligations of such Foreign Subsidiaries thereunder pursuant to one or more guaranties (the Foreign Subsidiary Guaranties"). From time to time Banks in their individual capacity may issue letters of credit for the account of the Company outside the Credit Agreement (the "Company Letters of Credit"). The Domestic Banks and the Foreign Banks are collectively referred to herein as the "Banks." C. Concurrently herewith Fisher-Price is entering into a Continuing Guaranty dated as of even date herewith guarantying all obligations of every nature of the Company and Mattel Sales from time to time owed under or in respect of the Credit Agreement, the loans thereunder, the other Loan Documents (as defined therein) and the Foreign Subsidiary Guaranties and the Company Letters of Credit. D. This Agreement amends and restates the Subordination Agreement dated as of March 10, 1995 delivered by the Creditor. E. It is a condition precedent to the effectiveness of the Credit Agreement that Creditor enter into this Fisher-Price Subordination Agreement. For the purpose of inducing the Banks to grant, continue or renew such financial accommodations to the Company, and in consideration thereof, Creditor agrees as follows: 1. Any and all claims of Creditor against Fisher-Price, now or hereafter existing, are, and shall be at all times, subject and subordinate to any and all claims, now or hereafter existing G-1-1 which Banks or Agent may have against Fisher-Price (including any claim by Banks or Agent for interest accruing after any assignment for the benefit of creditors by Fisher-Price or the institution by or against Fisher-Price of any proceedings under the Bankruptcy Act, or any claim by Bank for any such interest which would have accrued in the absence of such assignment or the institution of such proceedings). 2. Creditor agrees not to sue upon, or to collect, or to receive payment of the principal or interest of any claim or claims now or hereafter existing which Creditor may hold against Fisher-Price, and not to sell, assign, transfer, pledge, hypothecate, or encumber such claim or claims except subject expressly to this Agreement, and not to file or join in any petition to commence any proceeding under the Bankruptcy Act, nor to take any lien or security on any of Fisher-Price' property, real or personal, so long as any claim of Banks or Agent against Fisher-Price shall exist. 3. In case of any assignment for the benefit of creditors by Fisher-Price or in case any proceedings under the Bankruptcy Act are instituted by or against Fisher-Price, or in case of the appointment of any receiver for Fisher-Price's business or assets, or in case of any dissolution or winding up of the affairs of Fisher-Price: (a) Creditor and any assignee, trustee in bankruptcy, receiver, debtor in possession or other person or persons in charge are hereby directed to pay to Agent on behalf of itself and the Banks the full amount of Banks' and Agent's claims against Fisher-Price (including interest to the date of payment) before making any payment of principal or interest to Creditor under any indebtedness, and insofar as may be necessary for that purpose, Creditor hereby assigns and transfers to Agent on behalf of itself and the Banks all security or the proceeds thereof and all rights to any payments, dividends or other distributions, and (b) Creditor hereby irrevocably constitutes and appoints Agent its true and lawful attorney to act in its name and stead: (i) to file the appropriate claim or claims on behalf of Creditor if Creditor does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if Agent elects at its sole discretion to file such claim or claims and (ii) to accept or reject any plan of reorganization or arrangement on behalf of Creditor, and to otherwise vote Creditor's claim in respect of any indebtedness now or hereafter owing from Fisher-Price to Creditor in any manner Agent deems appropriate for its and the Banks' benefit and protection. 4. Agent on behalf of itself and the Banks is hereby authorized by Creditor to from time to time: (a) renew, compromise, extend, accelerate or otherwise change the time of payment, or any other terms, of any existing or future claim of Banks against Fisher-Price or the Company or any part thereof, (b) increase or decrease any rate of interest payable thereon, (c) exchange, enforce, waive, release, or fail to perfect any security therefor, (d) apply such security and direct the order or manner of sale thereof in such manner as Agent acting on its behalf and on behalf of the Banks may at its discretion determine, (e) release Fisher-Price, the Company or any other guarantor of any indebtedness of the Company from liability, and (f) make optional future advances to the Company, all without notice to Creditor and without affecting the subordination provided by this Agreement. 5. Creditor acknowledges and agrees that Creditor shall have the sole responsibility for obtaining from Fisher-Price or the Company such information concerning Fisher-Price's or the Company's financial condition or business operations as Creditor may require, and that G-1-2 neither the Agent nor the Banks has any duty at any time to disclose to Creditor any information relating to the business operations or financial condition of Fisher-Price or the Company. 6. On request of Agent, Creditor shall deliver to the Agent the original of any promissory note or other evidence of any existing or future indebtedness of Fisher-Price to Creditor, and mark same with a conspicuous legend which reads substantially as follows: "THIS PROMISSORY NOTE IS SUBORDINATED TO ANY PRESENT OR FUTURE INDEBTEDNESS OWING FROM THE MAKER TO BANK OF AMERICA NT&SA, AS AGENT, AND ITS ASSIGNS, AND MAY BE ENFORCED ONLY IN ACCORDANCE WITH THAT CERTAIN SUBORDINATION AGREEMENT DATED MARCH 13, 1997 BETWEEN [CREDITOR] AND BANK OF AMERICA NT&SA, AS AGENT." 7. In the event that any payment or any cash or noncash distribution is made to Creditor in violation of the terms of this Agreement, Creditor shall receive same in trust for the benefit of Banks and Agent, and shall forthwith remit it to Agent in the form in which it was received, together with such endorsements or documents as may be necessary to effectively negotiate or transfer same to Agent and/or Banks. 8. For violation of this Agreement, Creditor shall be liable for all loss and damage sustained by reason of such breach, and upon any such violation Agent, acting on behalf of the Banks, may accelerate the maturity of any of its existing or future claims against Fisher-Price. 9. This Agreement shall be binding upon the heirs, successors and assigns of Fisher-Price, Creditor and Bank. This Agreement and any existing or future claim of Agent or the Banks against Fisher-Price may be assigned by Agent, the Banks, in whole or in part, without notice to Fisher-Price or Creditor. 10. Notwithstanding the provisions of Section 2, so long as there has been no occurrence of any default under any agreement between Fisher-Price or the Company and the Agent and the Banks, now existing or hereafter entered into, Creditor may receive regularly scheduled principal and interest payments on any indebtedness. -------------------------------- Creditor By: ----------------------------- G-1-3 ACCEPTANCE OF SUBORDINATION AGREEMENT BY FISHER-PRICE The undersigned being the company named in the foregoing Subordination Agreement, hereby accepts and consents thereto and agrees to be bound by all the provisions thereof and to recognize all priorities and other rights granted thereby to Bank of America National Trust and Savings Association, as Agent, and the Banks (as defined therein) and their respective successors and assigns, and to perform in accordance therewith. Dated:______________________ FISHER-PRICE, INC. By: ----------------------------- G-1-4 EXHIBIT G-2 MATTEL SALES CORP. FIRST AMENDED AND RESTATED SUBORDINATION AGREEMENT TO: Bank of America National Trust and Savings Association, as Agent Gentlemen: The undersigned, ___________________________, a _________________ corporation (hereinafter referred to as "Creditor") is a creditor of Mattel Sales Corp., a California corporation (hereinafter referred to as "Mattel Sales"). A. Concurrently herewith, Mattel, Inc. (the "Company"), the Banks named therein (the "Domestic Banks") and Bank of America, as agent (the "Agent"), are entering into a First Amended and Restated Credit Agreement dated as of even date herewith (said credit agreement, as it may hereafter be amended, continued, renewed, supplemented, restated or otherwise modified from time to time, is referred to herein as the "Credit Agreement"). Terms not defined herein have the meanings assigned to them in the Credit Agreement. B. Certain Subsidiaries of the Company that are incorporated in a jurisdiction outside of the United States of America (the "Foreign Subsidiaries") have entered, or may from time to time enter, into credit facilities with one or more Banks or foreign affiliates of the Banks (the "Foreign Banks"), and the Company has guarantied, or may from time to time guaranty, the obligations of such Foreign Subsidiaries thereunder pursuant to one or more guaranties (the Foreign Subsidiary Guaranties"). From time to time Banks in their individual capacity may issue letters of credit for the account of the Company outside the Credit Agreement (the "Company Letters of Credit"). The Domestic Banks and the Foreign Banks are collectively referred to herein as the "Banks." C. Concurrently herewith Mattel Sales is entering into a Continuing Guaranty dated as of even date herewith guarantying all obligations of every nature of the Company and Fisher-Price from time to time owed under or in respect of the Credit Agreement, the loans thereunder, the other Loan Documents (as defined therein) and the Foreign Subsidiary Guaranties and the Company Letters of Credit. D. This Agreement amends and restates the Subordination Agreement dated as of March 10, 1995 delivered by the Creditor. E. It is a condition precedent to the effectiveness of the Credit Agreement that Creditor enter into this Mattel Sales Subordination Agreement. For the purpose of inducing the Banks to grant, continue or renew such financial accommodations to the Company, and in consideration thereof, Creditor agrees as follows: 1. Any and all claims of Creditor against Mattel Sales, now or hereafter existing, are, and shall be at all times, subject and subordinate to any and all claims, now or hereafter existing G-2-1 which Banks or Agent may have against Mattel Sales (including any claim by Banks or Agent for interest accruing after any assignment for the benefit of creditors by Mattel Sales or the institution by or against Mattel Sales of any proceedings under the Bankruptcy Act, or any claim by Bank for any such interest which would have accrued in the absence of such assignment or the institution of such proceedings). 2. Creditor agrees not to sue upon, or to collect, or to receive payment of the principal or interest of any claim or claims now or hereafter existing which Creditor may hold against Mattel Sales, and not to sell, assign, transfer, pledge, hypothecate, or encumber such claim or claims except subject expressly to this Agreement, and not to file or join in any petition to commence any proceeding under the Bankruptcy Act, nor to take any lien or security on any of Mattel Sales' property, real or personal, so long as any claim of Banks or Agent against Mattel Sales shall exist. 3. In case of any assignment for the benefit of creditors by Mattel Sales or in case any proceedings under the Bankruptcy Act are instituted by or against Mattel Sales, or in case of the appointment of any receiver for Mattel Sales's business or assets, or in case of any dissolution or winding up of the affairs of Mattel Sales: (a) Creditor and any assignee, trustee in bankruptcy, receiver, debtor in possession or other person or persons in charge are hereby directed to pay to Agent on behalf of itself and the Banks the full amount of Banks' and Agent's claims against Mattel Sales (including interest to the date of payment) before making any payment of principal or interest to Creditor under any indebtedness, and insofar as may be necessary for that purpose, Creditor hereby assigns and transfers to Agent on behalf of itself and the Banks all security or the proceeds thereof and all rights to any payments, dividends or other distributions, and (b) Creditor hereby irrevocably constitutes and appoints Agent its true and lawful attorney to act in its name and stead: (i) to file the appropriate claim or claims on behalf of Creditor if Creditor does not do so prior to 30 days before the expiration of the time to file claims in such proceeding and if Agent elects at its sole discretion to file such claim or claims and (ii) to accept or reject any plan of reorganization or arrangement on behalf of Creditor, and to otherwise vote Creditor's claim in respect of any indebtedness now or hereafter owing from Mattel Sales to Creditor in any manner Agent deems appropriate for its and the Banks' benefit and protection. 4. Agent on behalf of itself and the Banks is hereby authorized by Creditor to from time to time: (a) renew, compromise, extend, accelerate or otherwise change the time of payment, or any other terms, of any existing or future claim of Banks against Mattel Sales or the Company or any part thereof, (b) increase or decrease any rate of interest payable thereon, (c) exchange, enforce, waive, release, or fail to perfect any security therefor, (d) apply such security and direct the order or manner of sale thereof in such manner as Agent acting on its behalf and on behalf of the Banks may at its discretion determine, (e) release Mattel Sales, the Company or any other guarantor of any indebtedness of the Company from liability, and (f) make optional future advances to the Company, all without notice to Creditor and without affecting the subordination provided by this Agreement. 5. Creditor acknowledges and agrees that Creditor shall have the sole responsibility for obtaining from Mattel Sales or the Company such information concerning Mattel Sales's or the Company's financial condition or business operations as Creditor may require, and that G-2-2 neither the Agent nor the Banks has any duty at any time to disclose to Creditor any information relating to the business operations or financial condition of Mattel Sales or the Company. 6. On request of Agent, Creditor shall deliver to the Agent the original of any promissory note or other evidence of any existing or future indebtedness of Mattel Sales to Creditor, and mark same with a conspicuous legend which reads substantially as follows: "THIS PROMISSORY NOTE IS SUBORDINATED TO ANY PRESENT OR FUTURE INDEBTEDNESS OWING FROM THE MAKER TO BANK OF AMERICA NT&SA, AS AGENT, AND ITS ASSIGNS, AND MAY BE ENFORCED ONLY IN ACCORDANCE WITH THAT CERTAIN SUBORDINATION AGREEMENT DATED MARCH 13, 1997 BETWEEN [CREDITOR] AND BANK OF AMERICA NT&SA, AS AGENT." 7. In the event that any payment or any cash or noncash distribution is made to Creditor in violation of the terms of this Agreement, Creditor shall receive same in trust for the benefit of Banks and Agent, and shall forthwith remit it to Agent in the form in which it was received, together with such endorsements or documents as may be necessary to effectively negotiate or transfer same to Agent and/or Banks. 8. For violation of this Agreement, Creditor shall be liable for all loss and damage sustained by reason of such breach, and upon any such violation Agent, acting on behalf of the Banks, may accelerate the maturity of any of its existing or future claims against Mattel Sales. 9. This Agreement shall be binding upon the heirs, successors and assigns of Mattel Sales, Creditor and Bank. This Agreement and any existing or future claim of Agent or the Banks against Mattel Sales may be assigned by Agent, the Banks, in whole or in part, without notice to Mattel Sales or Creditor. 10. Notwithstanding the provisions of Section 2, so long as there has been no occurrence of any default under any agreement between Mattel Sales or the Company and the Agent and the Banks, now existing or hereafter entered into, Creditor may receive regularly scheduled principal and interest payments on any indebtedness. --------------------------- Creditor By: ------------------------ G-2-3 ACCEPTANCE OF SUBORDINATION AGREEMENT BY MATTEL SALES The undersigned being the company named in the foregoing Subordination Agreement, hereby accepts and consents thereto and agrees to be bound by all the provisions thereof and to recognize all priorities and other rights granted thereby to Bank of America National Trust and Savings Association, as Agent, and the Banks (as defined therein) and their respective successors and assigns, and to perform in accordance therewith. Dated:___________________ MATTEL SALES CORP. By: --------------------------- G-2-1 EXHIBIT H CHANGE IN COMMITMENTS NOTICE For Credit Agreement and Receivables Purchase Agreement] TO: Bank of America National Trust and Savings Association, as Agent NationsBank of Texas, N.A., as Receivables Purchase Agent Gentlemen: Pursuant to (a) Section 2.5 of that certain Second Amended and Restated Credit Agreement dated as of March 11, 1998, as amended (the "Credit Agreement") among Mattel, Inc., a Delaware corporation (the "Company"), the Banks named therein (the "Banks") and Bank of America National Trust and Savings Association, as Agent (the "Agent") and/or [ (b)that certain Receivables Purchase Agreement dated as of March 11, 1998, as amended, among Mattel Sales Corp. and Fisher-Price, Inc., as transferors, the Company, as guarantor and servicer, the purchasers named therein, and NationsBank of Texas, N.A., as the Receivables Purchase Agent,] please effect the following changes in the Purchasers' Investment Limit and/or the Aggregate Loan Commitment: 1. EFFECTIVE DATE OF CHANGE: ____________________, 19__ 2. REQUESTED CHANGE: a. Please permanently reduce the [Purchasers' Investment Limit] ------ [Aggregate Loan Commitment] by $ __________ . --------------------- b. Please permanently terminate the [Purchasers' Investment --------- Limit] [Aggregate Loan Commitment]. c. Please reallocate $ _____ from the [Purchasers' ---------- ---------------- Investment Limit] [Aggregate Loan Commitment] to the [Aggregate Loan -- Commitment] [Purchasers' Investment Limit]. H-1 3. SUMMARY OF CHANGES:
BEFORE ABOVE CHANGES AFTER ABOVE CHANGES Aggregate Loan Commitment $________________ $________________ Aggregate Outstandings under $________________ $________________ Credit Agreement Purchasers' Investment Limit $________________ $________________ Purchasers' Investments $________________ $________________
Unless otherwise defined herein, capitalized terms used herein have the meanings assigned to them in the Agreement. DATED: MATTEL, INC. By: _________________________ Name: _________________________ Title: _____________________ *Signature required only MATTEL SALES CORP.* when Purchasers' Investment Limit changed By: _________________________ Name: _________________________ Title: ______________________ *Signature required only FISHER-PRICE, INC.* when Purchasers' Investment Limit changed By: _________________________ Name: ______________________ Title: ______________________ H-2 EXHIBIT I NOTICE OF ASSIGNMENT AND ACCEPTANCE _________, 19 TO: Bank of America National Trust and Savings Association, as Agent Reference is made to that certain Second Amended and Restated Credit Agreement dated as of March 11, 1998 (the "Credit Agreement"; capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement), among Mattel, Inc., a Delaware corporation (the "Company"), the Banks named therein (the "Banks") and Bank of America National Trust and Savings Association, as Agent (the "Agent"). 1. We hereby give you notice of, and request your consent to, the assignment by _____________ (the "Assignor") to _______________ (the "Assignee") of ____% of the right, title and interest of the Assignor in and to the Loan Documents, including without limitation the right, title and interest of the Assignor in and to the Loan Commitment of the Assignor, and all outstanding Loans made by the Assignor. Before giving effect to such assignment: (a) the aggregate amount of the Assignor's Loan Commitment is $___________; and (b) as of the above date, the aggregate principal amount of its outstanding Loans is $_____________. 2. The Assignor hereby represents and warrants that it has complied with the requirements of Section 10.1 of the Credit Agreement in connection with this assignment, including paying, or causing the payment of, the assignment fee thereunder to the Agent and concurrently assigning a ratable portion in the [Receivables Purchase Agreement]. 3. The Assignee agrees that, upon receiving your consent to such assignment and from and after ______________, the Assignee will be bound by the terms of the Loan Documents, with respect to the interest in the Loan Documents assigned to it as specified above, as fully and to the same extent as if the Assignee were the Bank originally holding such interest in the Loan Documents. 4. The following administrative details apply to the Assignee: (a) Designated Offshore Market Office:_____________________ I-1 IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and Acceptance to be executed by their respective duly authorized officials, officers or agents as of the date first above mentioned. Very truly yours, [NAME OF ASSIGNOR] By:___________________ Name:_________________ Title:________________ [NAME OF ASSIGNEE] By:___________________ Name:_________________ Title:________________ We hereby consent to the foregoing assignment: MATTEL, INC. By:___________________ Title:________________ BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By:___________________ Vice President I-2 SCHEDULE 1.1 ------------
BANK COMMITMENTS BANK Pro Rata Loan Purchaser Facilities Share Commitment Commitment Commitment Bank of America National Trust and Savings Association 12.00% $ 84,000,000 $ 36,000,000 $ 120,000,000 - ------------------------------------------------------------------------------------------------------------------- NationsBank of Texas, N.A. 9.00 63,000,000 27,000,000 90,000,000 The Chase Manhattan Bank 9.00 63,000,000 27,000,000 90,000,000 - ------------------------------------------------------------------------------------------------------------------- ABN AMRO Bank N.V. 7.50 52,500,000 22,500,000 75,000,000 BankBoston, N.A. 7.50 52,500,000 22,500,000 75,000,000 Citicorp USA, Inc. 7.50 52,500,000 22,500,000 75,000,000 Toronto Dominion (Texas), Inc. 7.50 52,500,000 22,500,000 75,000,000 - ------------------------------------------------------------------------------------------------------------------- Banque Nationale de Paris, Los Angeles Agency 5.00 35,000,000 15,000,000 50,000,000 Dresdner Bank AG, New York Branch and Grand Cayman Branch 5.00 35,000,000 15,000,000 50,000,000 Istituto Bancario San Paolo di Torino SpA 5.00 35,000,000 15,000,000 50,000,000 Manufacturers & Traders Trust Co. 5.00 35,000,000 15,000,000 50,000,000 PNC Bank, National Association 5.00 35,000,000 15,000,000 50,000,000 Societe Generale 5.00 35,000,000 15,000,000 50,000,000 Union Bank of California, N.A. 5.00 35,000,000 15,000,000 50,000,000 - ------------------------------------------------------------------------------------------------------------------- Northern Trust Company 2.50 17,500,000 7,500,000 25,000,000 The Industrial Bank of Japan, Limited, Los Angeles Agency 2.50 17,500,000 7,500,000 25,000,000 ===== ============ ============ ============= TOTAL 100% $700,000,000 $300,000,000 $1,000,000,00
1 SCHEDULE 5.3 MATERIAL SUBSIDIARIES OF THE COMPANY
Percentage of Voting Securities Subsidiaries/1/ Jurisdiction in Which Parent Owned Directly or Organized Indirectly By Parent - ----------------------------------------------------------------------------------------------------------- Arco Toys, Limited Hong Kong Mattel, Inc. 100% Fisher-Price, Inc. Delaware Mattel, Inc. 100% Mattel Europa B.V. The Netherlands Mattel, Inc. 100% Mattel Holding, Inc. Delaware Mattel, Inc. 100% Mattel Sales Corp. California Mattel, Inc. 100% Tyco Preschool Toys, Inc. Delaware Mattel, Inc. 100%
/1/All of the subsidiaries listed above are included in the Consolidated Financial Statements. These subsidiaries meet the criteria defined in Rule 1-02(w) of Regulation S-X. 1 SCHEDULE 5.11 MATERIAL LITIGATION 1. Greenwald v. Mattel, Inc. (Case No. YC 025 008) filed October 13, 1995 ------------------------ in the Superior Court of the State of California, County of Los Angeles. 2. Federal and state litigation related to In re Toys "R" Us, Inc. (FTC ---------------------- Docket No. 9278). 1 SCHEDULE 7.2 CERTAIN LIENS 1. Liens for taxes, assessments or governmental charges or claims the payment of which is not at the time required by Section 6.3; 2. Statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor; 3. Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); 4. Any attachment or judgment Lien, if the judgment or order it secures is less than $20,000,000, or $40,000,000 in the aggregate for all such judgments or orders in any calendar year; or any other attachment or judgment Lien, if the judgment or order it secures shall, within 45 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall have been discharged within 45 days after the expiration of any such stay; 5. Leases or subleases granted to others not interfering with the ordinary conduct of the business of the Company or any of its Subsidiaries; 6. Easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering with the ordinary conduct of the business of the Company or any of its Subsidiaries; and 7. Any interest or title of a lessor under any lease. -1- SCHEDULE 10.6 ADDRESSES FOR NOTICES AND LENDING OFFICES COMPANY Mattel, Inc. 333 Continental Blvd. El Segundo, California 90010 Attention: William Stavro Senior Vice President and Treasurer Telephone: (310) 252-3202 Facsimile: (310) 252-3215 with a copy to the Corporate Counsel BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS AGENT Notices of Borrowing and Notices of Conversion/Continuation): Bank of America National Trust and Savings Association Agency Management Services #5596 1850 Gateway Blvd., 5th Floor Concord, California 94520 Attention: Nancy Li Telephone: (510) 675-8445 Facsimile: (510) 675-8500 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Bank of America National Trust and Savings Association 555 South Flower Street, 11th Floor Los Angeles, CA 90071 Attention: Gina Meador Vice President Agency Management - Los Angeles #20529 Telephone: (213) 228-5245 Facsimile: (213) 228-2299 -1- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, AS A BANK Domestic and Eurodollar Lending Office: Payment Services Operations #5693 1850 Gateway Boulevard, Third Floor Concord, California 94520 Attention: Adria Carter Telephone:(510) 675-7154 Facsimile: (510) 675-7236 or (510) 675-7531 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Bank of America National Trust and Savings Association 555 Flower Street, 11th Floor Los Angeles, California 90071 Attention: Robert W. Troutman Managing Director Credit Products #5618 Telephone: (213) 228-3866 Facsimile: (213) 623-7923 -2- NATIONSBANK OF TEXAS, N.A. Domestic and Eurodollar Lending Office and Notices: NationsBank of Texas, N.A. 901 Main Street Dallas, Texas 75202-3714 Attention: Marie Lancaster Telephone: (214) 508-2158 Facsimile: (214) 508-2515 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): NationsBank of Texas, N.A. 444 S. Flower Street, Suite 1500 Los Angeles, California 90071 Attention: Tom Scharfenberg Senior Vice President Telephone: (213) 236-4923 Facsimile: (213) 624-5815 THE CHASE MANHATTAN BANK Domestic and Eurodollar Lending Office and Notices: The Chase Manhattan Bank 270 Park Avenue, 10th Floor New York, New York 10017 Attention: Miranda Chin Telephone: (212) 622-0836 Facsimile: (212) 622-0130 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): The Chase Manhattan Bank 101, California Street, Suite 2725 San Franscisco, CA 94111 Attention: Ted Swimmer Vice President-Finance Telephone: (415) 954-9552 Facsimile: (415) 954-9583 -3- BANKBOSTON, N.A. Domestic and Eurodollar Lending Office and Notices: BankBoston, N.A. U.S. Corporate Division, Mail Stop 01-09-06 100 Federal Street, 9th Floor Boston, Massachusetts 02110 Attention: Carol Flynn Telephone: (617) 434-5777 Facsimile: (617) 434-0630 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): BankBoston,. N.A. U.S. Corporate Division, Mail Stop 01-09-06 100 Federal Street, 9th Floor Boston, Massachusetts 02110 Attention: Debra L. Zurka Director Telephone: (617) 434-2683 Facsimile: (617) 434-0630 PNC BANK, NATIONAL ASSOCIATION Domestic and Eurodollar Lending Office and Notices: PNC Bank, National Association Corporate Banking Loan Services 249 Fifth Avenue, 6th Floor Mail Stop P-1-POPP-06-1 Pittsburgh, PA 15222-2707 Attention: Sally Hunter Telephone: (412) 768-3807 Facsimile: (412) 768-4586 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): PNC Bank, National Association Corporate Banking Department 249 Fifth Avenue, 2nd Floor Mail Stop P-1-POPP-02-2 Pittsburgh, PA 15222-2707 Attention: Timothy J. Marchando Vice President Telephone: (412) 762-7333 Facsimile: (412) 762-6484 -4- TORONTO DOMINION (TEXAS), INC. Domestic and Eurodollar Lending Office and Notices: Toronto Dominion (Texas), Inc. 909 Fannin Street, Suite 1700 Houston, Texas 77010 Attention: Dave Parker Telephone: (713) 653-8245 Facsimile: (713) 951-9921 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Toronto Dominion (Texas), Inc. 909 Fannin Street, Suite 1700 Houston, Texas 77010 Attention: John Geresi Director - Corporate Accounting Telephone: (713) 653-8207 Facsimile: (713) 652-2647 ABN AMRO BANK N.V. Domestic and Eurodollar Lending Office and Notices: ABN AMRO Bank N.V. Los Angeles International Branch 300 South Grand Avenue, Suite 1115 Los Angeles, California 90071 Attention: Hela Schmidt Loan Department Telephone: (213) 687-2026 Facsimile: (213) 687-2085 Kamel Ghurani Operations Manager Telephone: (213) 687-2065 Facsimile: (213) 687-2085 -5- Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): ABN AMRO Bank N.V. Los Angeles International Branch 300 South Grand Avenue, Suite 1115 Los Angeles, California 90071 Attention: Matthew S. Thompson Group Vice President/Director Telephone: (213) 687-2053 Facsimile: (213) 687-2061 UNION BANK OF CALIFORNIA, N.A. Domestic and Eurodollar Lending Office and Notices: Union Bank of California, N.A. 445 South Figueroa Street, 16th Floor Los Angeles, California 90071 Attention: Scott Jessup Telephone: (213) 236-4023 Facsimile: (213) 236-7814 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Union Bank of California, N.A. 550 S. Hope Street, 3rd Floor Los Angeles, California 90071 Attention: Scott M. Lane Vice President Telephone: (213) 243-3512 Facsimile: (213) 243-3503 BANQUE NATIONALE DE PARIS Domestic and Eurodollar Lending Office and Notices: Banque Nationale de Paris 725 South Figueroa Street, Suite 2090 Los Angeles, CA 90017 Attention: Mitchell Ozawa Vice President Telephone: (213) 688-6416 Facsimile: (213) 488-9602 -6- Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Banque Nationale de Paris 725 South Figueroa Street, Suite 2090 Los Angeles, CA 90017 Attention: Mitchell Ozawa Vice President Telephone: (213) 688-6416 Facsimile: (213) 488-9602 DRESDNER BANK AG, NEW YORK BRANCH AND Grand Cayman Branch Domestic and Eurodollar Lending Office and Notices: Dresdner Bank AG New York Branch 75 Wall Street New York, New York 10005-2889 Attention: Robert Reddington Credit Services Telephone: (212) 429-2269 Facsimile: (212) 429-2130 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Dresdner Bank AG Los Angeles Agency 333 S. Grand Avenue, Suite 1700 Los Angeles, CA 90017 Attention: Jon M. Bland Senior Vice President Telephone: (213) 473-5410 Facsimile: (213) 473-5450 -7- ISTITUTO BANCARIO SAN PAOLO DI TORINO SPA Domestic and Eurodollar Lending Office and Notices: Istituto Bancario San Paolo di Torino SpA New York Branch, 35th Floor 245 Park Avenue New York, New York 10167 Attention: Carmela Romanello-Schaden Telephone: (212) 692-3126 Facsimile: (212) 599-5303 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Istituto Bancario San Paolo di Torino SpA 444 S. Flower Street, Suite 4550 Los Angeles, California 90071 Attention: Donald Brown FVP and Representative Telephone: (213) 489-3105 Facsimile: (213) 622-2514 MANUFACTURERS & TRADERS TRUST CO. Domestic and Eurodollar Lending Office and Notices: Manufacturers & Traders Trust Co. One Fountain Plaza, 12th Floor Buffalo, New York 14203-1495 Attention: Patricia J. Gustina Telephone: (716) 848-7357 Facsimile: (716) 848-7318 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Manufacturers & Traders Trust Co. One Fountain Plaza, 12th Floor Buffalo, New York 14203-1495 Attention: Geoffrey R. Fenn Vice President Telephone: (716) 848-7335 Facsimile: (716) 848-7318 -8- THE INDUSTRIAL BANK OF JAPAN, LIMITED Los Angeles Agency Domestic and Eurodollar Lending Office: The Industrial Bank of Japan, Limited Los Angeles Agency 350 South Grand, Suite 1500 Los Angeles, CA 90071 Attention: Lynn Santos/Sue Tam Officer Telephone: (213) 893-6345/6498 Facsimile: (213) 688-7486 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): The Industrial Bank of Japan, Limited Los Angeles Agency 350 South Grand Avenue, Suite 1500 Los Angeles, CA 90071 Attention: Blake Seaton Vice President Telephone: (213) 893-6448 Facsimile: (213) 488-9840 CITICORP USA, INC. Domestic and Eurodollar Lending Office: Citibank, N.A. One Court Square, 7th Floor Long Island City, NY 11120 Attention: Mark Wrigley Telephone: (718) 248-5732 Facsimile: (718) 248-4845 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Citicorp Securities Markets, Inc. 725 South Figueroa Street, 5th Floor Los Angeles, CA 90017 Attention: Deborah Ironson Telephone: (213) 239-1424 Facsimile: (213) 623-3592 -9- THE NORTHERN TRUST COMPANY Domestic and Eurodollar Lending Office and Notices: The Northern Trust Company 50 South LaSalle Street, Station B-11 Chicago, IL 60675 Attention: Martin G. Alston Vice President Telephone: (312) 444-5058 Facsimile: (312) 444-5055 SOCIETE GENERALE Domestic and Eurodollar Lending Office: 2029 Century Park East, Suite 2029 Los Angeles, CA 90067 Attention: Hillary Adkins Telephone: (310) 788-7113 Facsimile: (310) 203-0539 Notices (other than Notices of Borrowing and Notices of Conversion/Continuation): Societe Generale 2029 Century Park East, Suite 2900 Los Angeles, CA 90067 Attention: Staley Stewart Vice President Telephone: (310) 788-7103 Facsimile: (310) 551-1537 -10- CONSENT OF MATTEL SALES CORP. AND FISHER PRICE, INC. TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT The undersigned Mattel Sales Corp. and Fisher-Price, Inc. hereby consent to the amendment and restatement of the First Amended and Restated Credit Agreement dated as of March 13, 1997 among Mattel, Inc., the Banks named therein and Bank of America National Trust and Savings Association, as Agent on the terms and conditions set forth in the Second Amended and Restated Credit Agreement dated as of March 11, 1998, among Mattel, Inc., the Banks named therein and Bank of America National Trust and Savings Association, as Agent (the "Amended Credit Agreement") and reaffirm their respective First Amended and Restated Continuing Guaranties, dated as of March 13, 1997 to which it is a party and their consents to the Mattel Sales Subordination Agreement and Fisher Price Subordination Agreement, respectively, (the "Subordination Agreements"), and represent and warrant that (a) there is no defense, counterclaim or offset of any type or nature under such Continuing Guaranties or the Subordination Agreements, (b) the same remain in full, force and effect after giving effect hereto, and (c) all references to "Credit Agreement" and "Loan Documents" in such Continuing Guaranties and the Subordination Agreements shall be deemed references to the Amended Credit Agreement and "Loan Documents" as defined in the Amended Credit Agreement. Dated: March 11, 1998 FISHER-PRICE, INC. By: ---------------------- Name: -------------------- Title: ------------------- MATTEL SALES CORP. By: ---------------------- Name: -------------------- Title: ------------------- -11- EX-99.1 3 RECEIVABLES PURCHASE AGREEMENT EXHIBIT 99.1 RECEIVABLES PURCHASE AGREEMENT among MATTEL FACTORING, INC., as Transferor MATTEL, INC., as Servicer and Guarantor THE FINANCIAL INSTITUTIONS PARTY HERETO as Purchasers and NATIONSBANK OF TEXAS, N.A., as Agent Dated as of March 11, 1998 RECEIVABLES PURCHASE AGREEMENT TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS............................................ 1 Section 1.1. Certain Defined Terms........................... 1 -------------------- Section 1.2. Other Terms..................................... 9 ----------- ARTICLE II. AMOUNTS AND TERMS OF THE PURCHASES.................... 9 Section 2.1. Purchase Facility............................... 9 ----------------- Section 2.2. Making Purchases................................ 9 ---------------- Section 2.3. Payments and Computations, Etc.................. 10 ------------------------------ Section 2.4. Collection Account.............................. 11 ------------------ Section 2.5. Facility Termination Date....................... 11 ------------------------- Section 2.6. Adjustment of Facility Limit.................... 12 ---------------------------- Section 2.7. Deficiency Advances............................. 12 ------------------- Section 2.8. Commitment and Other Fees. (a)................. 12 ------------------------- ARTICLE III. CONDITIONS OF PURCHASES.............................. 13 Section 3.1. Conditions Precedent to Initial Purchase......... 13 ---------------------------------------- Section 3.2. Conditions Precedent to All Purchases............ 13 ------------------------------------- ARTICLE IV. SERVICING AND SETTLEMENT PROCEDURES................... 14 Section 4.1. Appointment of Servicer.......................... 14 ----------------------- Section 4.2. Duties of Servicer............................... 14 ------------------ Section 4.3. Servicer Default................................. 15 ---------------- Section 4.4. Servicer Default Remedies........................ 15 ------------------------- Section 4.5. Responsibilities of the Transferor............... 15 ---------------------------------- ARTICLE V. REPRESENTATIONS AND WARRANTIES......................... 16 Section 5.1. Representations and Warranties................... 16 ------------------------------ ARTICLE VI. COVENANTS............................................. 18 Section 6.1. Covenants........................................ 18 --------- a. Compliance with Laws, Etc............................. 18 ------------------------- b. Offices, Records and Books of Account; Etc............ 18 ------------------------------------------
i c. Performance and Compliance with Contracts and Credit ---------------------------------------------------- and Collection Policy.............................. 19 --------------------- d. Ownership Interest, Etc............................... 19 ----------------------- e. Sales, Liens, Etc..................................... 19 ----------------- f. Extension or Amendment of Receivables................. 19 ------------------------------------- g. Change in Business or Credit and Collection Policy.... 19 -------------------------------------------------- h. Audits................................................ 19 ------ i. Status of Listed Receivables.......................... 20 ---------------------------- j. Reporting Requirements................................ 20 ---------------------- k. General Restrictions.................................. 20 -------------------- l. Mergers, Acquisitions, Sales, Investments, Etc........ 21 ---------------------------------------------- m. No Modification of the Purchase and Sale Agreement.... 21 -------------------------------------------------- ARTICLE VII. INDEMNIFICATION...................................... 21 Section 7.1. Indemnification Generally........................ 21 ------------------------- Section 7.2. Capital Adequacy, Etc............................ 23 --------------------- ARTICLE VIII. GUARANTY............................................ 24 Section 8.1. Guaranty of Obligations.......................... 24 ----------------------- Section 8.2. Guaranty Continuing.............................. 24 ------------------- Section 8.3. Guarantor Directly Liable........................ 25 ------------------------- Section 8.4. No Impairment.................................... 25 ------------- Section 8.5. Waiver........................................... 25 ------ Section 8.6. Subrogation...................................... 26 ----------- Section 8.7. Information...................................... 26 ----------- Section 8.8. Evidence of Obligations.......................... 26 ----------------------- ARTICLE IX. THE AGENT............................................. 26 Section 9.1. Appointment...................................... 26 ----------- Section 9.2. Attorneys-in-fact................................ 27 ----------------- Section 9.3. Limitation on Liability.......................... 27 ----------------------- Section 9.4. Reliance......................................... 27 -------- Section 9.5. Notice of Termination Event...................... 28 --------------------------- Section 9.6. No Representations............................... 28 ------------------ Section 9.7. Indemnification.................................. 28 --------------- Section 9.8. Purchaser........................................ 29 --------- Section 9.9. Resignation...................................... 29 ----------- Section 9.10. Sharing of Payments, etc........................ 29 ------------------------ Section 9.11. Independent Agreements.......................... 30 ---------------------- ARTICLE X. TERMINATION EVENTS AND TERMINATION EVENT REMEDIES...................................................... 30
ii Section 10.1. Termination Events Defined...................... 30 -------------------------- Section 10.2. Termination Event Remedies...................... 31 -------------------------- ARTICLE XI. MISCELLANEOUS......................................... 31 Section 11.1. Waivers; Amendments, Etc........................ 31 ------------------------ Section 11.2. Notices, Etc.................................... 32 ------------ Section 11.3. Governing Law; Integration...................... 32 -------------------------- Section 11.4. Severability; Counterparts...................... 32 -------------------------- Section 11.5. Successors and Assigns.......................... 32 ---------------------- Section 11.6. Confidentiality................................. 33 --------------- Section 11.7. Assignments; Participations..................... 33 --------------------------- Section 11.8. Termination of Prior Transfer and Administration ------------------------------------------------ Agreement....................................... 34 --------- Section 11.9. Set Off......................................... 35 -------
iii RECEIVABLES PURCHASE AGREEMENT This Receivables Purchase Agreement (as amended, supplemented or otherwise modified from time to time, the "Agreement") is entered into as of March 11, 1998, among Mattel Factoring, Inc., a Delaware corporation, as transferor (the "Transferor"), Mattel, Inc., a Delaware corporation ("Mattel"), as servicer (the - ----------- ------ "Servicer") and as guarantor (the "Guarantor"), the financial institutions party -------- --------- hereto from time to time as purchasers (together with any successors and assigns, the "Purchasers"), and NationsBank of Texas, N.A., a national banking ---------- association, as agent for the Purchasers (in such capacity, together with any successors and assigns, the "Agent"). For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I. DEFINITIONS Section 1.1 Certain Defined Terms. The following terms used in this --------------------- Agreement shall have the following meanings: "Adverse Claim" means a lien, security interest or other charge or ------------- encumbrance, or any other type of right or claim (other than a lien or other interest in favor of the Agent or the Purchasers pursuant to this Agreement). "Agent" has the meaning set forth in the preamble. ----- "Agent's Account" means Account No. 1292000883, reference "Mattel --------------- Factoring," ABA No. 111000025, Attention: Corporate Credit Services, maintained at the Agent, or any other account designated in writing by the Agent to the Purchasers, the Servicer and the Transferor, from time to time. "Applicable Margin" means, for each Obligor, that margin set forth in the ----------------- table below opposite the Obligor's second highest long-term unsecured debt ratings issued by S&P, Moody's or Duff & Phelps:
S&P/Moody's/Duff & Phelps Applicable Margin - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- AA-/Aa3/AA- or higher 17.0 - ---------------------------------------------------------------------------- A/A2/A or higher 21.0 - ---------------------------------------------------------------------------- A-/A3/A- or lower 24.0 - ----------------------------------------------------------------------------
The Applicable Margins as of the date hereof are 17.0 for Wal-Mart Stores, Inc. and 21.0 for Toys "R" Us, Inc. 1 "Assignee" shall have the meaning set forth in Section 11.7. -------- ------------ "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978 (11 --------------- U.S.C. (S) 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 Dallas, Texas, New York, New York, or San Francisco, 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. "Collection Account" has the meaning set forth in Section 2.4. ------------------ ----------- "Collections" means, with respect to any Listed Receivable, (a) all funds ----------- which are received by the Transferor, any Seller or the Servicer (or any sub- servicer) in payment of any amounts owed in respect of such Listed Receivable (including, without limitation, purchase price, finance charges, interest and all other charges), or applied to amounts owed in respect of such Listed Receivable (including, without limitation, insurance payments and net proceeds of the sale or other disposition of repossessed goods or other collateral or property of the applicable Obligor or any other Person directly or indirectly liable for the payment of such Listed Receivable and available to be applied thereon), and (b) all other proceeds of such Listed Receivable. "Commitment Fee" has the meaning set forth in Section 2.8. -------------- ----------- "Contract" means, with respect to any Listed Receivable, any and all -------- contracts, understandings, instruments, agreements, leases, invoices, notes, or other writings pursuant to which such Listed Receivable arises or which evidences such Listed Receivable or under which the applicable Obligor becomes or is obligated to make payment in respect of such Listed Receivable. "Credit and Collection Policy" means those receivables credit and ---------------------------- collection policies and practices of the Sellers in effect on the date of this Agreement, as amended from time to time to the extent not prohibited by this Agreement or the Purchase and Sale Agreement. "Deficiency Advance" has the meaning set forth in Section 2.7. ------------------ ----------- "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. "Dividend" means in respect of the Transferor, (i) cash distributions or -------- any other distributions on, or in respect of, any class of capital stock of the Transferor, and (ii) any and all funds, cash or other payments made in respect of the redemption, repurchase or acquisition of such stock. 2 "Due Date" means, with respect to any Purchase Date, a date selected by the -------- Transferor which shall not be later than ninety days thereafter, excluding the Purchase Date and including such Due Date. "Eligible 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 applicable Obligor enforceable against such Obligor in accordance with its terms and subject to no offset, counterclaim or other defense; (v) which, together with the Contract related thereto, does not contravene in any material respect any Governmental Rules applicable thereto and with respect to which no part of the Contract related thereto is in violation of any such Governmental Rule in any material respect; (vi) which satisfies all applicable requirements of the Credit and Collection Policy, including that the Receivable not be delinquent or defaulted; and (vii) which was generated in the ordinary course of the related Seller's business and which was purchased by the Transferor from such Seller in accordance with the Purchase and Sale Agreement. "Eurodollar Rate" means, for each Yield Period, a rate per annum (rounded --------------- upward to the nearest 1/16 of one percent) determined pursuant to the following formula: Eurodollar Rate = LIBOR ----------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means the maximum reserve percentage ----------------------------- (expressed as a decimal rounded upward to the next 1/100 of one percent) in effect on the date LIBOR for such Yield Period is determined (whether or not applicable to any Purchaser) 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 equal to such Yield Period; and "LIBOR" means the rate of interest per annum determined by the Agent ----- to be the arithmetic mean (rounded upward to the nearest 1/16th of 1%) of the rates of interest per annum notified to the Agent by each Reference Bank as the rate of interest at which dollar deposits in the approximate amount of the amount of the purchase to be made or continued as a Eurodollar Rate purchase by such Reference Bank and having a maturity comparable to 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. 3 "Facility Termination Date" means the earlier of (i) March 31, 2003, as ------------------------- such date may be extended pursuant to Section 2.5, or (ii) the date on which the ----------- Agent delivers a notice of termination as a result of a Termination Event in accordance herewith. "Fisher-Price" means Fisher-Price, Inc., a Delaware corporation. ------------ "Guarantor" has the meaning set forth in the preamble to this Agreement. --------- "Guaranty" has the meaning set forth in Section 8.1. -------- ----------- "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 Agent, the Purchasers and their respective ------------------- Affiliates, together with each of 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" means the Receivables the outstanding principal ------------------ balances of which were reflected in the applicable Purchase Notice and subsequently identified pursuant to Section 2.2(a)(iii). ------------------- "Material Adverse Effect" means (i) a material adverse effect upon the ----------------------- business, operations, properties, assets, business prospects or condition (financial or otherwise) of the Transferor or Mattel and its Subsidiaries, taken as a whole, or (ii) a material impairment of the ability of any Seller Party to perform its obligations under this Agreement. "Mattel" has the meaning set forth in the preamble to this Agreement. ------ "Mattel Credit Agreement" means the Second Amended and Restated Credit ----------------------- Agreement dated as of March 11, 1998, among Mattel, the financial institutions parties thereto, and Bank of America, as Agent, as such agreement may be amended, amended and restated or otherwise modified from time to time. In the event that any term of or section number in the Mattel Credit Agreement that is incorporated by reference in this Agreement (including pursuant to Section 7.2 ----------- of this Agreement) is changed by any amendment or amendment and restatement of the Mattel Credit Agreement (e.g., an amendment and restatement that renumbers Section 10.14 of the Mattel Credit Agreement as Section 10.16 of the amended and restated agreement), the parties hereto shall cooperate in good faith to amend this Agreement in order to correct the references 4 herein to the applicable terms and section numbers of the Mattel Credit Agreement incorporated by reference in this Agreement. In the event that the Mattel Credit Agreement shall cease to be in effect, then all references herein to the Mattel Credit Agreement shall be deemed to refer to the Mattel Credit Agreement as in effect immediately prior to such cessation. "Mattel Factoring" has the meaning set forth in the preamble to this ---------------- Agreement. "Mattel Sales" means Mattel Sales Corp., a California corporation. ------------ "Obligations" has the meaning set forth in Section 8.1. ----------- ----------- "Obligors" means Toys "R" Us, Inc., a Delaware corporation, and Wal-Mart -------- Stores, Inc., a Delaware corporation. "Participant" has the meaning set forth in Section 11.7. ----------- ------------ "Percentage" means, with respect to any Purchaser at any time, the ---------- percentage set forth next to its name on the signature page hereof, which is the equivalent of a fraction, the numerator of which is equal to such Purchaser's Purchaser Commitment, and the denominator of which is equal to the Purchasers' Investment Limit. "Permitted Accounts Receivable Financing Facilities" means this Agreement; -------------------------------------------------- the Purchase and Sale Agreement dated as of December 18, 1997, among Mattel Sales and Fisher-Price, as sellers, Mattel, as servicer, and Mattel Factoring, as buyer (as amended, supplemented or otherwise modified from time to time), with respect to the purchase of certain Wal-Mart Stores, Inc. Receivables; the Receivables Purchase Agreement dated as of December 18, 1997, among Mattel Factoring, as transferor, Mattel, as servicer and guarantor, and Bank of America, NT & SA, as purchaser (as amended, supplemented or otherwise modified from time to time), with respect to the sale of certain Wal-Mart Stores, Inc. Receivables; and the Other Permitted Accounts Receivable Financing Facilities. "Prior Transfer and Administration Agreement" means that certain Transfer ------------------------------------------- and Administration Agreement dated as of March 11, 1997, among Mattel Factoring, as transferor, Mattel, as guarantor and servicer, certain financial institutions party thereto from time to time, as purchasers, and NationsBank of Texas, N.A., as agent for such purchasers. "Proofs of Claim" mean collectively, proofs of claim under the Bankruptcy --------------- Code or any analogous or similar item or items which may or shall be filed by or on behalf of a creditor of any party to an Insolvency Proceeding. "Purchase and Sale Agreement" means the Purchase and Sale Agreement dated --------------------------- as of the date hereof (as amended, amended and restated or otherwise modified from time to time), among the Sellers, Mattel, as servicer thereunder, and the Transferor, as buyer thereunder. 5 "Purchase Date" means the proposed date on which the Transferor proposes to ------------- sell to the Purchasers an undivided percentage ownership interest in the Listed Receivables identified on the related Purchase Notice. "Purchase Notice" means a notice from the Servicer to the Agent --------------- substantially in the form attached hereto as Exhibit I. --------- "Purchased Interest" means, at any time the undivided percentage ownership ------------------ interest of the Purchasers acquired pursuant to this Agreement from the Transferor in the Listed Receivables reflected on the applicable Purchase Notice, Related Security with respect to such Receivables, Collections with respect to such Receivables, and proceeds of, and amounts received or receivable under any or all of, the foregoing. Such undivided percentage ownership interest shall be computed as PI+YR ----- LRB where: PI = the Purchasers' Investment with respect to such Purchased Interest at the related Purchase Date; YR = the Yield Reserve of such Purchased Interest at the related Purchase Date; and LRB = the outstanding principal balance of the related Listed Receivables as of the date the related Purchase Notice is sent to the Agent; provided, however, that the Purchased Interest shall never be more than 1.0. - ----------------- "Purchasers" has the meaning set forth in the preamble to this Agreement. ---------- "Purchase Rate" means a rate per annum equal to the Eurodollar Rate, plus ------------- ---- the Applicable Margin. The Purchase Rate for a Yield Period shall be established on the applicable day contemplated by the definition of Eurodollar Rate. "Purchaser Commitment" means, for each Purchaser, such Purchaser's -------------------- Percentage of the Purchasers' Investment Limit. "Purchasers' Investment" means the amount to be paid by the Purchasers for ---------------------- the account of the Transferor with respect to a Purchased Interest. "Purchasers' Investment Limit" means Three Hundred Million Dollars ---------------------------- ($300,000,000). "Receivable" means any indebtedness and other obligations owed to a Seller, ---------- or any right of a Seller to payment, from or on behalf of either Obligor (determined prior to giving effect to any purchase by the Transferor under the Purchase and Sale Agreement or to any purchase hereunder by the Purchasers) whether constituting an account, chattel paper, instrument or 6 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. "Reference Banks" means Bank of America National Trust and Savings --------------- Association and NationsBank of Texas, N.A. In the event that at any time of determination only one bank designated as "Reference Banks" are providing rates for deposits referred to in the definition of "Eurodollar Rate," that bank shall be the "Reference Banks" for purposes of this Agreement. "Related Security" means with respect to any Listed Receivable: (i) all of ---------------- the Transferor's interest in any goods (including returned goods), and documentation of title evidencing the shipment or storage of any goods (including returned goods), relating to any sale giving rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all UCC financing statements or similar filings signed by any Obligor relating thereto; and (iii) all guarantees, indemnities, insurance and other agreements (including the related Contract) or arrangements of whatever character from time to time supporting or securing payment of such Receivable or otherwise relating to such Receivable whether pursuant to the Contract related to such Receivable or otherwise, including, without limitation, all of the Transferor's rights with respect to such Receivables under the Purchase and Sale Agreement. "Requisite Purchasers" means, at any date of determination, Purchasers -------------------- having at least 66 2/3% of the aggregate Purchaser Commitments at such time. "Restricted Payments" has the meaning set forth in Section 6.1(k). ------------------- -------------- "Seller Party" means each of the Transferor and Mattel (in its capacity as ------------ the Servicer or the Guarantor). "Sellers" means, collectively, Mattel Sales and Fisher-Price. A reference ------- to the "related" Seller means with respect to a Receivable, that such Receivable by its original terms was owed to such Seller. "Servicer" has the meaning set forth in the preamble to this Agreement; -------- provided that following the appointment of a successor Servicer in accordance - -------- with this Agreement, all references herein to the Servicer shall be references to such successor Servicer. "Servicer Default" has the meaning set forth in Section 4.3. ---------------- ----------- "Solvent" means, as to any Person at any time, that (a) the fair value of ------- the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code and, in the alternative, for purposes of applicable state fraudulent conveyance law; (b) the present fair saleable value of the property of such Person is not less than the amount that shall be required to pay the probable liability of such Person on its 7 debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it shall, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Specified Assets" means, whether now or hereafter owned, existing or ---------------- arising: (A) Listed Receivables, (B) all Related Security with respect to such Receivables, (C) all Collections with respect to such Receivables (including Collections received on and after the date that the related Purchase Notice is sent to the Agent and prior to the related Purchase Date), and (D) all proceeds of, and all amounts received or receivable under any or all of, the foregoing. "Subordinated Note" has the meaning specified in the Purchase and Sale ----------------- Agreement. "Termination Event" has the meaning set forth in Section 10.1. ----------------- ------------ "Termination Event Day" means a day on which a Termination Event exists. --------------------- "Transaction Documents" means this Agreement, the Purchase and Sale --------------------- Agreement, the Subordinated Notes and all certificates, instruments, UCC financing statements, reports, notices, letters, agreements and documents executed or delivered by any Seller Party or a Seller under or in connection with this Agreement, thereby excluding, for example, the Mattel Credit Agreement, in each case as any such Transaction Documents may be amended, amended and restated, extended or otherwise modified from time to time. The Demand Note referred to in Section 3.1 to the Purchase and Sale Agreement will ----------- not be a Transaction Document for purposes of this Agreement. "Transferor" has the meaning set forth in the preamble to this Agreement. ---------- "UCC" means the Uniform Commercial Code as from time to time in effect in --- the applicable jurisdiction. "UCC Filing Date" means the first date on which any UCC financing statement --------------- is filed pursuant hereto. "Yield," for any Purchased Interest for the related Yield Period, means an ----- amount determined as follows: PR x YP x 1/360 where: PR = the Purchase Rate for such Yield Period; and YP = the number of days in such Yield Period. 8 "Yield Period" means each period from and including a Purchase Date to but ------------ excluding the related Due Date. "Yield Reserve" means the Yield with respect to an applicable Purchased ------------- Interest, times the applicable Purchasers' Investment; provided that no ----- -------- provision in this Agreement shall require the payment or permit the collection of Yield Reserve in excess of the maximum permitted by applicable law. Section 1.2 Other Terms. All accounting terms not specifically defined ----------- herein shall be construed in accordance with generally accepted accounting practices. All terms used in Division 9 of the UCC in the State of California, and not specifically defined herein, are used herein as defined in such Division 9. Unless the context otherwise requires, (i) "or" means "and/or," (ii) "including" (and with correlative meaning "include" and "includes") means including, without limiting the generality of any description preceding such term, (iii) the meanings of defined terms are equally applicable to the singular and plural forms of such defined terms, and (iv) all other terms not otherwise defined herein shall have the meanings assigned to such terms in the Mattel Credit Agreement. ARTICLE II. AMOUNTS AND TERMS OF THE PURCHASES Section 2.1 Purchase Facility. On the terms and conditions hereinafter ----------------- set forth, each Purchaser hereby agrees to purchase from time to time from the Transferor, without recourse (except as expressly provided herein), undivided percentage ownership interests in the Listed Receivables and other items included in the related Purchased Interest. Section 2.2 Making Purchases. ---------------- (a) (i) Each purchase of undivided percentage ownership interests hereunder shall be made upon the Servicer's delivery to the Agent of a Purchase Notice, which notice shall be irrevocable. Each Purchase Notice must be received by the Agent not later than 9:00 a.m., Los Angeles time, on the third Business Day prior to the related Purchase Date. A Purchase Notice shall specify for each Obligor (A) the aggregate amount of the Listed Receivables, (B) the Purchase Date (which must be a Business Day), (C) the related Due Date, and (D) the proposed amount of the Purchasers' Investment. (ii) Not later than 9:00 a.m. (Los Angeles time) on the second Business Day prior to the related Purchase Date, the Agent shall send to the Servicer a notice setting forth a calculation of the related Purchased Interest, including a description of the related Purchasers' Investment and the Yield Reserve. The Agent shall calculate the Purchasers' Investment with respect to a Purchased Interest as an amount which, when added to the related Yield Reserve, is as close as reasonably practicable to (but not in excess of) the aggregate outstanding principal balances of the related Eligible Receivables set forth in the related Purchase Notice; it being understood and agreed that the aggregate outstanding Purchasers' Investments shall not exceed the Purchasers' Investment Limit. 9 (iii) The Transferor shall send to the Agent for receipt by the Agent not later than the Business Day prior to the related Purchase Date, a schedule of the Listed Receivables, identifying the invoice number, outstanding principal balance and maturity date of each such Receivable (in each case as of the date of the related Purchase Notice). None of such Listed Receivables shall have been the subject of a prior Purchase Notice. (b) Promptly after receipt of a Purchase Notice, the Agent shall notify each Purchaser of the proposed purchase (such notice to normally be given within two hours of receipt by the Agent). Each Purchaser shall make available to the Agent its pro rata share of the Purchase Price by remitting such funds to the Agent's Account prior to 2:00 p.m., Dallas, Texas time on the Purchase Date. On each Purchase Date, the Agent shall, upon satisfaction of the applicable conditions set forth in Article III hereto, pay to the Servicer, for the account ----------- of the Transferor, in same day funds, an amount equal to the aggregate of the amounts so made available by the Purchasers. The Agent shall cause an amount of same-day funds equal to such aggregate amount received by the Agent to be credited to the Transferor's account at Bank of America National Trust & Savings Association, Account No. 1235906117, reference "Mattel Factoring," ABA No. 121000358, or any other account designated in writing by the Transferor or the Servicer to the Agent from time to time. No Purchaser shall be obligated to make a purchase in excess of its Purchase Commitment. (c) On each Purchase Date, effective upon the payment contemplated by Section 2.2(b) (and without the necessity of any formal or other instrument of assignment or other further action), the Transferor hereby sells and assigns to the Purchasers an undivided percentage ownership interest equal to the Purchased Interest in each related Listed Receivable reflected on the applicable Purchase Notice (and subsequently identified pursuant to Section 2.2(a)(iii)) and the other Specified Assets related thereto. (d) To secure all of the obligations (monetary or otherwise) of the Transferor under this Agreement and the other Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent, the Transferor hereby grants to the Agent for the benefit of the Agent and the Purchasers a security interest in, to and under all of the Transferor's right, title and interest (including any undivided interest of the Transferor) in all of the Specified Assets. The Agent, on behalf of itself and the Purchasers, shall have, with respect to the Specified Assets, and in addition to all the other rights and remedies available to the Agent, all the rights and remedies of a secured party under any applicable UCC. Section 2.3 Payments and Computations, Etc. All amounts to be paid or ------------------------------ deposited by a Seller Party hereunder shall be paid or deposited, without setoff, counterclaim or reduction of any kind, no later than 10:00 a.m. (Los Angeles time) on the day when due in same day funds to the Agent's Account. All amounts received after noon (Los Angeles time) shall be deemed to have been received on the immediately succeeding Business Day. The Transferor shall, to the extent permitted by Governmental Rule, pay to the Agent, for the benefit of the Purchasers, upon demand, interest on all amounts not paid or deposited when due to the Purchasers hereunder at a rate per annum equal to 2% in excess of the prime rate of interest announced by the Agent from 10 time to time, changing when and as said prime rate changes (such rate not necessarily being the lowest or best rate charged by the Agent). All computations of Yield and Commitment Fee 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 Agent or any Purchaser hereunder (other than the Commitment Fee) on account of a Purchased Interest shall be applied by the Agent, first to pay due and payable Yield Reserve with respect to the related Purchasers' Investment, second to pay all due and payable fees and expenses and other amounts due to the Purchasers and the Agent hereunder, and third, to repay any such Purchasers' Investment. The amount of each Purchasers' Investment shall be reduced by payments received by the Agent and applied on account of such Purchasers' Investment pursuant to this Agreement. Section 2.4 Collection Account. (a) At any time the second highest ------------------ long-term unsecured debt rating issued to the Servicer by S&P, Moody's or Duff & Phelps is lower than BBB-, Baa3 or BBB-, respectively, there shall be established and maintained, in the name of the Agent for the benefit of the Purchasers, a segregated account (the "Collection Account"), at NationsBank of ------------------ Texas, N.A., bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Purchasers. Any interest and earnings (net of losses and investment expenses) on funds on deposit in the Collection Account shall be retained in the Collection Account and be available to make any payments required to be made hereunder to the Agent or the Purchasers. Upon the earlier of (i) the Servicer's second highest long-term unsecured debt rating issued to the Servicer by S&P, Moody's or Duff & Phelps is BBB-, Baa3 or BBB-, respectively, or higher or (ii) the date on which the Purchasers' Investment is zero, any funds remaining on deposit in the Collection Account shall be released to the Transferor in same-day funds. (b) During such time that the second highest long-term unsecured debt rating issued to the Servicer by S&P, Moody's or Duff & Phelps is lower than BBB-, Baa3 or BBB-, respectively, the Servicer shall deposit within two Business Days all Collections it receives into the Collection Account. Such Collections shall be retained in the Collection Account by the Agent until the next succeeding Due Date, at which time such amounts shall be applied pursuant to the terms hereof. Section 2.5 Facility Termination Date. The Facility Termination Date may ------------------------- be extended to any subsequent date agreed upon from time to time by the parties hereto in accordance with this Section. During the thirty (30) day period ending on the thirtieth (30th) day before the then existing Facility Termination Date, the Servicer, the Transferor and the Guarantor may, by sending a letter to the Agent, request that the Facility Termination Date be extended for an additional period of time, not to exceed 365 days. The Purchasers may, in their sole discretion, agree to extend such Facility Termination Date. If the Agent and the Purchasers agree to extend such Facility Termination Date, then they shall sign a copy of such letter and send the same to the Servicer. The Facility Termination Date shall then be extended to, and shall be deemed to have been amended to be, the applicable date specified in such letter. If the Agent and 11 the Purchasers do not sign a copy of such letter and send the same to the Servicer prior to the then existing Facility Termination Date, then the Agent and the Purchasers shall be deemed to have declined to extend (and to have declined to amend) the Facility Termination Date. Section 2.6 Adjustment of Facility Limit. (a) The Transferor shall have ---------------------------- the right, at any time and from time to time, to terminate in whole or permanently reduce in part, without premium or penalty, the Purchasers' Investment Limit; provided that the Purchasers' Investment Limit, as reduced, -------- shall equal or exceed the total outstanding Purchasers' Investment as of the date of such reduction. (b) The Transferor shall give not less than three Business Days' prior written notice to the Agent designating the date (which shall be a Business Day) and the amount of such termination or reduction. Any partial reduction shall be in an aggregate minimum amount of $10,000,000 and integral multiples of $1,000,000 in excess of that amount. Promptly after receipt of a notice of such termination or partial reduction, the Agent shall notify each Purchaser and Bank of America National Trust and Savings Association as agent under the Mattel Credit Agreement of the proposed termination or reduction. Such termination or reduction shall be effective on the date specified in the Transferor's notice and shall terminate or reduce the dollar amount of each Purchaser's Purchase Commitment. Section 2.7 Deficiency Advances. No Purchaser shall be responsible for ------------------- any default of any other Purchaser in respect of such other Purchaser's obligation to fund any portion of a purchase hereunder, nor shall the commitment of any Bank hereunder be increased as a result of such default by any other Purchaser. Without limiting the generality of the foregoing, in the event any Purchaser shall fail to advance funds as provided herein, the Agent may, in its discretion but shall not be obligated to, advance as a Purchaser all or any portion of such amount (the "Deficiency Advance") and shall thereafter be ------------------ entitled to payments on such Deficiency Advance in the same manner and at the same rate(s) to which such other Purchaser would have been entitled had it made such advance itself; provided that, upon payment to the Agent from such other -------- Purchaser of the entire outstanding amount of such Deficiency Advance, together with interest thereon, at the Applicable Margin applicable to the related Purchase, then such payment shall be credited against the Agent's share of the total outstanding Purchaser' Investment in full payment of such Deficiency Advance. Acceptance by the Transferor of a Deficiency Advance from the Agent shall in no way limit the rights of the Transferor against the Purchaser failing to fund its pro rata portion (based on its Percentage) of the Purchase Price of any purchase hereunder. Section 2.8 Commitment and Other Fees. (a) The Transferor hereby agrees ------------------------- to pay to the Agent for the rateable benefit of the Purchasers, for the period from and including the date hereof through the Facility Termination Date, a non- refundable fee (the "Commitment Fee") equal to six and one-half basis points -------------- (0.065%) per annum on the excess of (i) the average Purchasers' Investment Limit over (ii) the average outstanding amount of the Purchasers' Investments on each day during each applicable period described below. The Commitment Fee shall be payable in arrears on the first Business Day of each calendar quarter occurring after the first Purchase Date, and on the Facility Termination Date; provided, -------- however, that the - ------- 12 Commitment fee shall increase to eight and one-half basis points (0.085%) at any time the second highest long-term unsecured debt rating of any Obligor issued by S&P, Moody's or Duff & Phelps is lower than A, A2 or A, respectively. (b) Mattel agrees to pay to the Agent on the date hereof and annually thereafter such fees as are described in that certain fee letter between the Agent and Mattel, dated January 29, 1998. ARTICLE III. CONDITIONS OF PURCHASES Section 3.1. Conditions Precedent to Initial Purchase. The initial purchase ---------------------------------------- of an undivided interest pursuant to this Agreement is subject to the conditions precedent that the Agent shall have received on or before the related Purchase Date the following, each in form and substance (including the date thereof) satisfactory to the Agent: (a) a counterpart of this Agreement and the Purchase and Sale Agreement duly executed by the Seller Parties and the Sellers, as the case may be; (b) favorable opinions of (x) the General Counsel or an Assistant General Counsel of Mattel, relating to the Seller Parties and (y) Latham & Watkins, special counsel to the Seller Parties; (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 Agent may conclusively rely until such time as the Agent shall receive a revised certificate meeting the requirements of this clause), (ii) that attached thereto is a true and correct copy of the certificate or articles of incorporation (certified by the Secretary of State of Delaware or California, as the case may be), by-laws of such Seller Party, in each case as in effect on the date of such certification, (iii) that attached thereto are true and complete copies of excerpts of resolutions adopted by the Board of Directors of such Seller Party, approving the execution, delivery and performance of this Agreement and all other Transaction Documents to which such Seller Party is a party; and (iv) that attached thereto are good standing certificates issued by the Secretary of State of Delaware with respect to Mattel and Mattel Factoring; (d) a UCC-1 financing statement signed by the Transferor in form for filing with the Secretary of State of California; (f) good standing certificates dated as of a recent date for each Seller Party from the Secretary of State of the States of Delaware and California; (g) copies of searches of financing statements filed with the (i) Secretary of State of the State of California, naming each of the Transferor and Mattel Sales as the debtor, and (ii) the Secretary of State of the State of New York, naming Fisher- Price as the debtor; (h) all accrued and outstanding amounts owing under the Prior Transfer and Administration Agreement which have been detailed in writing and delivered to the transferor or servicer thereunder shall have been paid in full, and (i) each other item to be delivered pursuant to Section 3.1 of the Purchase and Sale Agreement. Section 3.2. Conditions Precedent to All Purchases. Each purchase ------------------------------------- (including the initial purchase) of undivided interests pursuant to this Agreement shall be subject to the further conditions precedent that: (a) on the Purchase Date applicable to such purchase the following statements shall be true (and acceptance of the proceeds of such purchase shall be deemed a representation and warranty by the Transferor that such statements are then true): (i) the representations and warranties contained in Section 5.1 are true ----------- and correct on and as of such Purchase Date as though made on and as of such date (except to the extent any representation and 13 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 2.2 on the date of such purchase, the ----------- aggregate outstanding Purchasers' Investments shall not exceed the Purchasers' Investment Limit; (c) the Agent shall have received a list of Eligible Receivables in accordance with Section 2.2; (d) such Purchase Date is also a ----------- "Purchase Date" as defined in the Purchase and Sale Agreement; (e) the related Due Date is prior to the Facility Termination Date; and (f) after giving effect to the Yield Period in connection with such purchase, there are no other Yield Periods in effect. ARTICLE IV. SERVICING AND SETTLEMENT PROCEDURES Section 4.1. Appointment of Servicer. Until the Agent gives notice to the ----------------------- Transferor of the designation of a new Servicer in accordance with the last sentence of this Section, Mattel is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof; provided that, with respect to any group of Listed Receivables, Mattel -------- (solely in its capacity as Servicer) may, at any time, upon prior written notice to the Agent, designate any Affiliate of Mattel as sub-servicer hereunder; provided, however, that such Affiliate shall not become the Servicer and, - -------- ------- notwithstanding any such delegation, Mattel shall remain liable for the performance of the duties and obligations of the Servicer in accordance with the terms of this Agreement without diminution of such liability by virtue of such delegation and to the same extent and under the same terms and conditions as if Mattel alone were performing such duties and obligations. Subject to the foregoing, Mattel hereby delegates to Fisher-Price all of Mattel's duties and obligations under Section 4.2 below with respect to the Listed Receivables ----------- originated by Fisher-Price. Mattel acknowledges that the Agent and the Purchasers have relied on the agreement of Mattel to act as the Servicer hereunder in making their decision to execute and deliver this Agreement. Accordingly, Mattel agrees that it shall not voluntarily resign as the Servicer. In the event that a new "Servicer" has been designated pursuant to the Purchase and Sale Agreement or upon the occurrence of a Servicer Default as contemplated by Section 4.4, the Agent may designate as Servicer any Person (including the ----------- Agent) to succeed Mattel or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. Section 4.2. Duties of Servicer. The Servicer shall take or cause to be ------------------ taken all such action as may be necessary or advisable to collect each Listed Receivable from time to time, all in accordance with this Agreement and all applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy; provided, however, that the -------- ------- Servicer shall not extend the maturity of any Listed Receivable. The Transferor shall deliver to the Servicer and the Servicer shall hold for the benefit of the Transferor and the Agent for the benefit of the Purchasers in accordance with their respective interests, all records and documents (including computer tapes or disks) with respect to such Listed Receivables. Notwithstanding anything to the contrary contained herein, the Agent, with the consent or direction of the Requisite Purchasers, may direct the Servicer to commence or settle any legal action to enforce collection of any Listed Receivable or to foreclose upon or repossess any 14 Related Security; provided, however, that no such direction may be given unless -------- ------- (x) a Termination Event has occurred and is continuing, and (y) the Requisite Purchasers believe in good faith that failure to commence, settle, or effect such legal action, foreclosure or repossession could materially and adversely affect a material portion of the Listed Receivables. Subject to Section 2.4, the ----------- Servicer shall hold (and shall cause each sub-servicer to hold) in trust (and, during the continuance of a Termination Event, at the request of the Agent, segregate) for the Agent for the benefit of the Purchasers, from Collections received by the Transferor, any Seller or the Servicer (or any sub-servicer) with respect to the Listed Receivables, the percentage of such Collections represented by the related Purchased Interest. On each Due Date, the Servicer shall deposit into the Agent's Account the amount of Collections required to be held for the Agent for the benefit of the Purchasers pursuant to the preceding sentence. Section 4.3. Servicer Default. The occurrence of any one or more of ---------------- the following events shall constitute a Servicer Default hereunder: (a) (i) the Servicer shall fail to perform or observe any term, covenant or agreement hereunder (other than as referred to in this Section) and such failure shall remain unremedied for ten (10) Business Days or (ii) the Servicer shall fail to make any payment or deposit to be made by it hereunder when due; or (b) any representation, warranty, certification or statement made by the Servicer in this Agreement or in any other Transaction Document shall prove to have been incorrect in any material respect when made or deemed made; or (c) an Insolvency Proceeding shall have commenced and be continuing with respect to the Servicer; or (d) an Event of Default under and as defined in the Mattel Credit Agreement shall have occurred and be continuing. Section 4.4. Servicer Default Remedies. Notwithstanding any other ------------------------- provision of this Agreement, during the continuation of a Servicer Default, the Agent, upon the written request of the Requisite Purchasers, shall, by written notice to the Transferor, the Guarantor and the Servicer: (i) direct the Obligors that payment of all amounts payable under any Listed Receivable be made directly to the Agent or its designee; (ii) instruct the Transferor to give notice of the Purchasers' Interest in the Listed Receivables to the Obligors, which notice shall be given at the Transferor's expense and shall direct that payments be made directly to the Agent or its designee; or (iii) terminate and replace the Servicer. Section 4.5. Responsibilities of the Transferor. Anything herein to the ---------------------------------- contrary notwithstanding, the Transferor shall (x) perform all of its obligations (if any) under the Contracts related to Listed Receivables to the same extent as if interests in such Listed 15 Receivables had not been transferred hereunder and the exercise by the Agent of its rights hereunder shall not relieve any Seller or Seller Party from such obligations and (y) pay when due any taxes payable by the Transferor under applicable law, including any sales taxes payable in connection with the Listed Receivables and their creation and satisfaction. The Transferor shall provide to the Servicer on a timely basis all information needed for such servicing, administration and collection, including notice of the occurrence of any Termination Event Day. Neither the Agent nor any Purchaser shall have any obligation or liability with respect to any Listed Receivable, any Related Security or any related Contract, nor shall the Agent or any Purchaser be obligated to perform any of the obligations of any Seller or Seller Party under any of the foregoing. ARTICLE V. REPRESENTATIONS AND WARRANTIES Section 5.1. Representations and Warranties. Each Seller Party severally ------------------------------ represents and warrants, as to itself alone, as applicable, to the Agent and the Purchasers as follows: (a) Such Seller Party is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, and is duly qualified to do business, and is in good standing, as a foreign corporation in every jurisdiction where the nature of its business requires it to be so qualified, except in jurisdictions in which the failure to be qualified or in good standing has or will have no Material Adverse Effect. (b) The execution, delivery and performance by such Seller Party of this Agreement and the other Transaction Documents to which it is a party, including such Seller Party's use of the proceeds of purchases, (i) are within such Seller Party's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene or result in a default under or conflict with (1) such Seller Party's charter or by-laws, (2) any law, rule or regulation applicable to such Seller Party, the violation of which would result in a Material Adverse Effect, (3) any Contractual Obligation of such Seller Party the violation of which would have a Material Adverse Effect or (4) any order, writ, judgment, award, injunction or decree binding on or affecting such Seller Party or its property, the violation of which would result in a Material Adverse Effect, and (iv) do not result in or require the creation of any material Adverse Claim upon or with respect to any of its material properties or upon or with respect to the Listed Receivables (other than pursuant to the Transaction Documents). This Agreement and the other Transaction Documents to which it is a party have been duly executed and delivered by such Seller Party. (c) No authorization or approval or other action by, and no notice to or filing with any or other Person is required for the due execution, delivery and performance by such Seller Party of this Agreement or any other Transaction Document to which it is a party, other than UCC financing statements related hereto or to the Purchase and Sale Agreement. (d) This Agreement and the other Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of such Seller Party enforceable against such Seller Party in accordance with its terms, except as enforcement may be limited by bankruptcy, 16 insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally. (e) There is no pending or, to the knowledge of such Seller Party, threatened action or proceeding affecting such Seller Party or any of its Subsidiaries before any Governmental Person or arbitrator which, in the reasonable opinion of such Seller Party and its executive officers, would result in a Material Adverse Effect, or which affects or purports to affect the legality, validity or enforceability of this Agreement or the other Transaction Documents. (f) With respect to the Transferor, the Transferor is the legal and beneficial owner of the Listed Receivables and all other Specified Assets, free and clear of any Adverse Claim; upon each purchase, the Agent, for the benefit of itself and the Purchasers, shall have a valid and enforceable first priority, perfected undivided percentage ownership interest to the extent of the Purchased Interest or a valid and enforceable first priority, perfected security interest in each such Listed Receivable and other Specified Assets, in each case free and clear of any Adverse Claim. No effective UCC financing statement or other instrument similar in effect covering any of the Specified Assets is on file in any recording office other than any UCC financing statement filed pursuant to this Agreement in favor of the Agent. (g) All exhibits, financial statements, documents, books, records, Purchase Notices, other information or reports furnished or to be furnished at any time by or on behalf of such Seller Party to the Agent 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 Agent 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 Agent prior to the date of this Agreement. (h) With respect to the Transferor, the principal place of business and chief executive office (as such terms are used in the UCC) of the Transferor and the office where the Transferor keeps its records concerning the Listed Receivables are located at the address referred to in Section 6.1(b). -------------- (i) Each Seller Party is not in violation of any order of any court, arbitrator or Governmental Person, which violation would have a Material Adverse Effect. (j) With respect to the Transferor, no proceeds of any purchase from the Transferor shall be used for any purpose that violates any applicable law, rule or regulation, including 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. 17 (1) With respect to the Transferor, the Transferor has accounted for each sale of undivided percentage ownership interests in its Listed Receivables in its books and financial statements as sales, consistent with generally accepted accounting practices. (m) With respect to each Seller Party, such Seller Party has complied with all of the material terms, covenants and agreements contained in this Agreement and the other Transaction Documents and applicable to it, except, in any such case, where the consequences, direct or indirect, of any such noncompliance, if any, would not result in a Material Adverse Effect. (n) With respect to the Transferor, the Transferor's complete corporate name is set forth in the preamble to this Agreement. The Transferor (i) does not use, and has not during the last five years changed its name or used, any other corporate name, trade name, doing business name or fictitious name, except for names first used after the date of this Agreement and set forth in a notice delivered to the Agent pursuant to of Section 6.1(b), and (ii) has never merged -------------- with or into or consolidated with any other Person. ARTICLE VI. COVENANTS Section 6.1. Covenants. Until the latest of (i) the date on which no --------- Purchasers' Investment or Yield Reserve in respect of any Purchased Interest shall be outstanding and the Purchasers shall have no further obligation hereunder to purchase interests in Listed Receivables, (ii) the date all other amounts owed by the Transferor or the Servicer under this Agreement to the Agent, any Purchasers and any other Indemnified Party shall be paid in full and the Purchasers shall have no further obligation hereunder to purchase interests in Listed Receivables, and (iii) the date on which this Agreement has been terminated: a. Compliance with Laws, Etc. Each Seller Party shall comply in all ------------------------- material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not result in a Material Adverse Effect and not result in any Adverse Claim on the Listed Receivables. b. Offices, Records and Books of Account; Etc. The Transferor (i) shall ------------------------------------------- keep its principal place of business and chief executive office (as such terms are used in the UCC) and the office where it keeps its records concerning the Listed Receivables at the address of the Transferor set forth under its name on the signature page hereto or, upon at least 15 days' prior written notice of a proposed change to the Agent, at any other locations, so long as, prior to making such a change, the Transferor shall have taken all actions in any applicable jurisdiction that may be requested by the Agent in accordance with Section 6.1(d)); and (ii) shall provide the Agent with at least 15 days' written - --------------- notice prior to making any change in the Transferor's name or making any other change in the Transferor's identity or corporate structure (including a merger) which could render any UCC financing statement theretofore filed with respect to such Person by any other Person (including, if applicable, any UCC financing statements filed in connection with this Agreement) "seriously misleading" as such term is used in the UCC, so long as, prior to making such a change, the Transferor shall have taken all actions in any applicable 18 jurisdiction that may be requested by the Agent in accordance with Section ------- 6.1(d)); each notice to the Agent pursuant to this Section shall set forth - ------- the applicable change and the effective date thereof. The Transferor also will maintain and implement administrative and operating procedures (including an ability to recreate records evidencing Listed Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records, computer tapes and disks and other information reasonably necessary or advisable for the collection of all Listed Receivables (including records adequate to permit the daily identification of each Receivable and all Collections of and adjustments to each existing Listed Receivable). c. Performance and Compliance with Contracts and Credit and Collection ------------------------------------------------------------------- Policy. Each Seller Party shall, at its expense, timely and fully perform and - ------ comply in all material respects with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Listed Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy with regard to each such Listed Receivable and the related Contract. d. Ownership Interest, Etc. The Transferor shall, at its expense, take ----------------------- all action necessary or reasonably desirable to maintain a valid, enforceable and first priority, perfected security interest in the Specified Assets in favor of the Agent for the benefit of itself and the Purchasers, free and clear of any Adverse Claim, including taking such action to protect and perfect or more fully evidence the interest of the Agent and the Purchasers under this Agreement, as the Agent may request. e. Sales, Liens, Etc. The Transferor shall not sell, assign (by ----------------- operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any or all of its right, title or interest in, to or under the Specified Assets or upon or with respect to any account to which any Collections of any Listed Receivables are deposited (except as required by this Agreement or the rights of the depository institution that maintains such account), or assign any right to receive income in respect of any items contemplated by this Section. f. Extension or Amendment of Receivables. Except as expressly provided in ------------------------------------- this Agreement, no Seller Party shall adjust the outstanding principal balance of, or otherwise modify the terms of, any of the Listed Receivables, or amend, modify or waive any term or condition of any related Contract; provided that -------- notwithstanding any other provision of this Agreement, no Seller Party shall extend the maturity of any Listed Receivable. g. Change in Business or Credit and Collection Policy. No Seller Party -------------------------------------------------- shall make any change in the character of its business, or in the Credit and Collection Policy, that would result in a Material Adverse Effect. No Seller Party shall make any other change in the Credit and Collection Policy without the prior written consent of the Agent. h. Audits. Each Seller Party shall, from time to time during regular ------ business hours (and with reasonable advance notice) as requested by the Agent, permit the Agent, or its agents or representatives, (x) to examine and make copies of and abstracts from all books, records and 19 documents (including computer tapes and disks) in the possession or under the control of such Seller Party relating to Listed Receivables and the Related Security, including the related Contracts, and (y) to visit the offices and properties of such Seller Party for the purpose of examining such materials described in clause (x) above, and to discuss matters relating to Listed Receivables and the Related Security or such Seller Party's performance hereunder or under the Contracts with any of the officers, employees, agents or contractors of such Seller Party having knowledge of such matters. Without limiting the foregoing, such examinations, copies, abstracts, visits and discussions may cover, among other things, maturity dates, agings, past dues, charge-offs, and offsets with respect to the Listed Receivables. i. Status of Listed Receivables. In the event that any third party and ---------------------------- any Seller Party enter into negotiations or discussions regarding the provision of financing (whether in the form of a loan, purchase or otherwise) with respect to any Listed Receivable, such Seller Party shall inform such third party that the Transferor has sold an undivided percentage ownership interest in such Listed Receivable to the Purchasers. j. Reporting Requirements. ---------------------- (i) If a Purchasers' Investment with respect to an undivided interest purchased by the Purchasers remains outstanding on the applicable Due Date, then the Transferor or the Servicer shall provide to the Agent on a weekly basis a report, in form and substance satisfactory to the Agent, with respect to the related Listed Receivables (including with respect to collection efforts pertaining thereto). (ii) Each Seller Party shall provide to the Agent as soon as possible and in any event within five Business Days after the occurrence of each Termination Event or event which, with the giving of notice or lapse of time, or both, would constitute a Termination Event, a statement of the chief financial officer of such Seller Party setting forth details of such Termination Event or event and the action that such Seller Party has taken and proposes to take with respect thereto. (iii) The Servicer shall provide to the Agent the financial statements described in Section 6.1(a) and (b) of the Mattel Credit Agreement, pursuant to the terms of such Sections. (iv) Each Seller Party shall provide to the Agent such other information respecting Listed Receivables or the condition or operations, financial or otherwise, of the Transferor or any of its Affiliates as the Agent may from time to time reasonably request (including listings identifying the outstanding principal balance of each Listed Receivable). k. General Restrictions. (i) The Transferor shall not (A) pay or -------------------- declare any Dividend, (B) lend or advance any funds, or (C) repay any loans or advances to, for or from any Seller or other Affiliate of the Transferor (actions of the type described in clauses (A), (B) and (C) are herein collectively called "Restricted Payments"), unless (i) in the case of Dividends, such Dividends comply with applicable law, and (ii) in the case of any Restricted Payment, the 20 Transferor would be Solvent after giving effect to such Restricted Payment. l. Mergers, Acquisitions, Sales, Investments, Etc. The Transferor shall ----------------------------------------------- not: (i) be a party to any merger or consolidation, or directly or indirectly purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person; (ii) sell, transfer, convey or lease any of its assets, other than pursuant to or, as expressly permitted by this Agreement or any other Permitted Accounts Receivable Financing Facilities; or (iii) make, incur or suffer to exist any investment in, equity contribution to, loan or advance to, or payment obligation in respect of the deferred purchase price of property from, any other Person, (x) except as expressly contemplated by the Purchase and Sale Agreement or any Permitted Accounts Receivable Financing Facility and (y) except, in the case of loans, under the Demand Note described in Section 3 to the Purchase and Sale Agreement (or other similar demand notes delivered in connection with Permitted Accounts Receivable Financing Facilities). m. No Modification of the Purchase and Sale Agreement. The Transferor -------------------------------------------------- will not agree to any amendment, supplement, waiver, alternation or other modification of the Purchase and Sale Agreement which may have a material adverse effect on the Agent's right, title and interest in the Receivables or which may have a material adverse effect on the collectibility of the Receivables. ARTICLE VII. INDEMNIFICATION Section 7.1. Indemnification Generally. (a) Without limiting any other ------------------------- rights that the Indemnified Parties may have hereunder or under applicable law, the Transferor hereby agrees (x) to indemnify each Indemnified Party from and against any and all Indemnified Amounts awarded against or incurred by such Indemnified Party arising out of or resulting from this Agreement or the use of proceeds of purchases or the ownership of the Purchased Interest, or any interest therein, or in respect of any Listed Receivable or any related Contract, and (y) to pay within 15 days of demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against such Indemnified Amounts, including Indemnified Amounts relating to or resulting from any of the following: (i) the failure of any information provided to the Agent with respect to Listed Receivables or the other Specified Assets; (ii) the failure of any representation or warranty or statement made or deemed made by the Transferor or the Servicer under or in connection with this Agreement to have been true and correct in all respects when made (it being understood and agreed that for purposes of this Section, in determining whether any such representation or warranty or statement was true and correct in all respects when made, any qualification in Article V as to materiality or to a Material --------- Adverse Effect or to limitations on enforcement shall be disregarded); (iii) the failure by the Transferor or the Servicer to comply with any applicable law, rule or regulation with respect to any Listed Receivable or the related Contract, or the failure of any Listed Receivable or the related Contract 21 to conform to any applicable law, rule or regulation; (iv) the failure to vest in the Agent for the benefit of the Purchasers a valid and enforceable first priority perfected (A) undivided percentage ownership interest, to the extent of the related Purchased Interest, in the Specified Assets, and (B) security interest in the Specified Assets, in each case free and clear of any Adverse Claim; (v) any dispute, claim, counterclaim, offset or defense (other than discharge in an Insolvency Proceeding in which an Obligor is a debtor, which Insolvency Proceeding was Commenced prior to the Due Date for the applicable Listed Receivable) of such Obligor to the payment of such any Listed Receivable (including a defense based on such Listed Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), any Dilution or other adjustment with respect to a Listed Receivable (excluding, however, adjustments required as a matter of law because an Obligor is a debtor in any such Insolvency Proceeding), or any claim resulting from the sale of the goods or services related to such Listed Receivable or the furnishing or failure to furnish such goods or services or relating to collection activities with respect to such Listed Receivable; (vi) any failure of the Transferor or the Servicer to perform its duties or obligations in accordance with the provisions of this Agreement (including, without limitation, the failure to make any payment when due hereunder), or to perform its duties or obligations (if any) under any Contract (it being understood and agreed that for purposes of this Section, in determining whether the Transferor or the Servicer has performed its duties or obligations in accordance with the provisions of this Agreement or has performed its duties or obligations (if any) under any Contract, any qualification in Article V or --------- Article 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 Listed Receivables; (viii) the commingling of Collections of Listed Receivables at any time with other funds; (ix) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or the ownership of the related Purchased Interest or in respect of any Listed Receivable or any related Specified Asset in respect thereof; (x) subject to Section 7.1(b), the occurrence of any Termination Event; (xi) in the -------------- event any Purchased Interest is greater than 1.0; (xii) the failure of any Listed Receivables to be Eligible Receivables; (xiii) the failure of the Transferor or the Servicer to comply with the terms of the Credit and Collection Policy; (xiv) the failure of any Contract relating to Listed Receivables to have terms that are consistent with customary terms for the related Seller's industry and type of Receivable; (xv) the failure of any Seller to complete the sale and delivery of the goods (or the performance of the services, if any) which are the subject of any Listed Receivables; (xvi) the existence of any contingent performance requirements of any Seller in respect of any Listed Receivables; (xvii) subject to Section 7.1(b), the failure of an Obligor to make payment on -------------- the Listed Receivables prior to or as of the Due Date; or (xviii) any action or inaction by the Transferor or the Servicer which impairs the interest of the Agent or any Purchaser in any Listed Receivables or other Specified Assets. (b) Notwithstanding Section 7.1(a), the Transferor shall not be obligated -------------- to indemnify any Indemnified Party at any time for (x) Receivables which are uncollectible, or amounts paid over or repaid to any Person with respect to any Receivable, as a result of the applicable Obligor being a debtor in an Insolvency Proceeding Commenced as of or prior to the Due Date, it being 22 understood and agreed that this clause shall not limit the Transferor's obligations under this Section arising out of or relating to any other event, occurrence or circumstance which would give rise to an obligation of the Transferor pursuant to this Section (to the extent that such event, occurrence or circumstance adversely affects repayment of the Purchasers' Investments, plus accrued Yield Reserve thereon during or in connection with such Insolvency Proceeding), (y) any overall net income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof or (z) Indemnified Amounts resulting from the gross negligence or willful misconduct on the part of the Indemnified Party proposed to be indemnified. Notwithstanding any other provision of this Agreement, in the event that an Obligor becomes a debtor in an Insolvency Proceeding that was Commenced prior to an applicable Due Date for any Listed Receivables: (i) each Seller Party shall promptly (and in any event not later than thirty days) after receipt provide to the Agent a copy of any document, pleading, report, notice, information or other writing provided to such Seller Party, during or in connection with such Insolvency Proceeding, by or on behalf of such Obligor, any committee, court, other Governmental Person, trustee, receiver, liquidator, custodian or similar official in such Insolvency Proceeding, relating to the forms, procedures, bar date or other timing issues with respect to the filing of a Proof of Claim in such Insolvency Proceeding; provided, however, that this clause (i) shall not become effective until the - -------- ------- Agent shall have sent a notice to the Servicer to the effect that the Agent desires that the Seller Parties comply with this clause (i); (ii) the Servicer, as agent for the Transferor, shall file Proofs of Claim, at the request and direction of the Agent, with respect to the Listed Receivables with such court, other Governmental Person, trustee, receiver, liquidator, custodian or similar official, which Proofs of Claim shall be in form and substance reasonably satisfactory to the Agent, it being understood and agreed that the Agent and the Purchasers shall jointly and severally be liable for, and shall reimburse the Servicer for, the Servicer's reasonable expenses in making such filing to the extent that such expenses relate to the Listed Receivables; and (iii) the Agent, as agent for the Transferor, shall have the right but not the obligation to file Proofs of Claim with respect to the Listed Receivables with such court, other Governmental Person, trustee, receiver, liquidator or similar official, it being understood and agreed that the Agent shall not file such a Proof of Claim until the earlier to occur of (x) the sixtieth day following the date on which the Agent has sent a written request to the Transferor requesting the Transferor to file such a Proof of Claim and (y) the thirtieth day prior to the bar date or equivalent last day on which such a Proof of Claim may be filed in such Insolvency Proceeding. (c) If and to the extent the Agent or any Purchaser shall be required for any reason to pay over to the Transferor, any Seller, the Servicer or an Obligor (or any trustee, receiver, custodian or similar official in any Insolvency Proceeding) any amount received by such Person hereunder, such amount shall be deemed not to have been so received and, the Agent shall have a claim against the Transferor to the extent provided herein. Section 7.2. Capital Adequacy, Etc. Sections 3.1(a)-(e), 3.2, 3.3, 3.4, --------------------- ------------------- --- --- --- 3.5 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 the Transferor; (ii) all references to "Bank" or "Banks" shall be deemed to be references to "Purchaser" or "Purchasers," respectively; (iii) all references to 23 "Lending Office" shall be deemed to be a reference to the office of the Purchasers identified on the signature pages to this Agreement; (iv) all references to "this Agreement" or "Loan Documents" shall be deemed to be references to this Agreement or any other Transaction Documents; (v) all references to "Loans" shall be deemed to be references to the Purchasers' Investments; (vi) all references to "Eurodollar Rate Loans" shall be deemed to be references to Purchasers' Investments with respect to which Yield Reserve would then be calculated based on the Eurodollar Rate; (vii) all references to "CD Rate" or "CD Rate Loans" shall be deemed to have been deleted; (viii) all references to "interest" shall be deemed to be references to Yield and to any "Interest Period" shall be deemed to be references to a "Yield Period"; (ix) 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"; (x) Section 3.5(b) of the Mattel Credit Agreement shall be deemed to be replaced by the following: "(b) the failure of the Transferor to sell Listed Receivables after the Transferor has delivered the related Purchase Notice pursuant to this Agreement,"; and (xi) Section 3.5(c) of the Mattel Credit Agreement shall be deemed deleted. ARTICLE VIII. GUARANTY Section 8.1. Guaranty of Obligations. For valuable consideration, the ----------------------- Guarantor unconditionally, absolutely and irrevocably guarantees and promises to pay to the Agent for the benefit of the Agent and the Purchasers 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 Transferor hereunder owing to the Agent or the Purchasers (such guarantee and promise being referred to as this "Guaranty"). The phrase "payment and performance obligations -------- of the Transferor" (hereinafter collectively referred to in this Article as the "Obligations") is used herein in its most comprehensive sense and includes any ----------- and all advances, debts, obligations, and liabilities of the Transferor, now or hereafter made, incurred, or created, whether voluntarily or involuntarily, and however arising, including any and all reasonable attorneys' fees, costs, charges, Yield Reserve or interest owed by the Transferor to the Purchasers, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether the Transferor 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 8.2. 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 Transferor 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. 24 Section 8.3. Guarantor Directly Liable. The Guarantor agrees that it is ------------------------- directly and primarily liable to the Agent and the Purchasers, that its obligations hereunder are independent of the Obligations of the Transferor, 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 the Transferor or whether the Transferor is joined in any such action or actions. The Guarantor agrees that any releases which may be given by the Purchasers to the Transferor or any other guarantor shall not release it from this Guaranty. Section 8.4. 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 Mattel of the occurrence of any Termination Event or Servicer Default 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 on the part of the Agent 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 Agent 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 or the Transferor, any other guarantor of any of the Obligations of the Transferor 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 Agent or the Purchasers may take, the Guarantor hereby agrees that the Agent or the Purchasers may take such actions in such manner, upon such terms, and at such times as the Agent or any 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 8.5. Waiver. The Guarantor hereby waives: (a) any and ------ all rights to require the Agent or the Purchasers to prosecute or seek to enforce any remedies against the Transferor or any other Person liable to the Agent or the Purchasers on account of the Obligations; (b) any right to assert against the Agent or the Purchasers any defense (legal or equitable), set-off, counterclaim, or claim which the Guarantor may now or at any time hereafter have against the Transferor or any other Person liable to the Agent or the Purchasers 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 Agent or the Purchasers, including any direction to proceed by judicial or nonjudicial foreclosure or by deed 25 in lieu thereof, which in any manner impairs, affects, reduces, releases, destroys or extinguishes the Guarantor's subrogation rights, rights to proceed against the Transferor for reimbursement, or any other rights of the Guarantor to proceed against the Transferor, against any other guarantor, or against any other security, with the Guarantor understanding that the exercise by the Agent or the Purchasers of certain rights and remedies may offset or eliminate the Guarantor's right of subrogation against the Transferor, and that the Guarantor may therefore incur partially or totally nonreimbursable liability hereunder; (e) except as otherwise provided herein, 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, in each case, to which the Guarantor may be entitled; and (f) any and all benefits of California Civil Code Sections 2809, 2810, 2819, 2825, 2839, 2845-2850, 2899 and 3433. Section 8.6. Subrogation. The Guarantor hereby agrees that, unless and ----------- until this Agreement has been terminated and all Obligations have been paid to the Purchasers in full, it shall not have any rights of subrogation, reimbursement or contribution as against the Transferor or any other guarantor, if any, with respect to this Guaranty or any Obligations and shall not seek to assert or enforce the same. The Guarantor understands that the exercise by the Agent or the Purchasers of certain rights and remedies contained in this Agreement may affect or eliminate the Guarantor's right of subrogation, if any, against the Transferor and that the Guarantor may therefore incur a partially or totally nonreimbursable liability hereunder. Nevertheless, the Guarantor hereby authorizes and empowers the Agent and the Purchasers to exercise, in their respective sole discretion, any right or remedy, or any combination thereof, which 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 8.7. Information. The Guarantor is presently informed of the ----------- financial condition of the Transferor 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 Transferor and of all other circumstances which bear upon such risk of nonpayment. The Guarantor hereby waives its right, if any, to require the Agent or any Purchaser to disclose to it any information which such Person may now or hereafter acquire concerning such condition or circumstances including the release of any other guarantor. Section 8.8. Evidence of Obligations. The Agent'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 IX. THE AGENT Section 9.1. Appointment. Each Purchaser hereby irrevocably designates ----------- and appoints NationsBank of Texas, N.A., as the Agent of the Purchasers under this Agreement, and each of 26 the Purchasers hereby irrevocably authorizes NationsBank of Texas, N.A., as the Agent for such Purchaser, to take such action on its behalf under the provisions of this Agreement and to exercise such powers as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any of the Purchasers, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. Section 9.2. Attorneys-in-fact. The Agent may execute any of its duties ----------------- under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the gross negligence or willful misconduct of any agents or attorneys-in-fact selected by it with reasonable care. Section 9.3. Limitation on Liability. Neither the Agent nor any of its ----------------------- officers, directors, employees, agents or attorneys-in-fact shall be liable to the Purchasers for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement except for its or their own gross negligence or willful misconduct. Neither the Agent nor any of its Affiliates shall be responsible in any manner to any of the Purchasers for any recitals, statements, representations or warranties made by the Transferor, the Servicer or the Guarantor, or any officer or partner thereof contained in this Agreement, or in any certificate, report, statement or other document referred to or provided for in or received by the Agent under or in connection with this Agreement or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, or for any failure of the Transferor, the Servicer or the Guarantor to perform their obligations thereunder. The Agent shall not be under any obligation to any of the Banks to ascertain or to inquire as to the observance or performance of any of the terms, covenants or conditions of this Agreement on the part of the Transferor, the Servicer or the Guarantor or to inspect the properties, books or records of the Transferor, the Servicer or the Guarantor. Section 9.4. Reliance. The Agent shall be entitled to rely, and shall be -------- fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy or telex message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Transferor, the Servicer or the Guarantor), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive advice or concurrence of the Requisite Purchasers as provided in this Agreement (or from all of the Purchasers if so specified herein) or it shall first be indemnified to its satisfaction by the Purchasers against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Requisite Purchasers, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Purchasers. 27 Section 9.5. Notice of Termination Event. The Agent shall not be deemed --------------------------- to have knowledge or notice of the occurrence of any Termination Event or Servicer Default hereunder unless the Agent has failed to receive on account of any Purchaser such Purchaser's Purchasers' Investment, plus Yield Reserve, on or before the applicable Due Date or has received written notice from a Purchaser, the Transferor, the Servicer or the Guarantor, describing such Termination Event or Servicer Default. In the event that the Agent fails to receive such amount or receives such a notice, the Agent shall promptly give notice thereof to the Purchasers and Bank of America National Trust and Savings Association as agent under the Mattel Credit Agreement. Except as otherwise provided herein, the Agent shall take such action to enforce this Agreement as shall be directed by the Requisite Purchasers. In the event that any remedy is exercised pursuant to Sections 4.2, 4.4 or 10.2 of this Agreement, each Purchaser and the Agent shall - ------------------------- pursue remedies designated by the Requisite Purchasers to the same extent as though such demand was caused by the action of all Purchasers, and each Purchaser agrees to act as expeditiously as possible so as to maximize recovery. Each Purchaser agrees that no Purchaser shall have any right individually to take action with respect to the Purchased Interest, it being understood and agreed that such rights and remedies with respect to any portion of the Purchased Interest may be exercised by the Agent as directed by the Requisite Purchasers for the ratable benefit of the Purchasers. Section 9.6. No Representations. Each Purchaser expressly acknowledges ------------------ that neither the Agent nor any of its Affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including any review of the affairs of the Transferor or the Guarantor, shall be deemed to constitute any representation or warranty by the Agent to any Purchaser. Each Purchaser represents to the Agent that it has, independently and without reliance upon the Agent or any other Purchaser, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the financial condition, creditworthiness, affairs, status and nature of the Transferor and the Guarantor and made its own decision to enter into this Agreement. Each Purchaser also represents that it will, independently and without reliance upon the Agent or any other Purchaser, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and to make such investigation as its deems necessary to inform itself as to the status and affairs, financial or otherwise, of the Transferor and the Guarantor. Except for notices, reports and other documents expressly required to be furnished to the Purchasers by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Purchaser with any credit or other information concerning the affairs, financial condition or business of the Transferor and the Guarantor which may come into the possession of the Agent or any of its Affiliates. Section 9.7. Indemnification. The Purchasers agree to indemnify the Agent --------------- in its capacity as such (to the extent not reimbursed by the Transferor or the Guarantor and without limiting any obligations of the Transferor or the Guarantor so to do, ratably according to their respective Percentages as then in effect) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other document 28 contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Purchaser shall be liable for the payment of any -------- portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the termination of this Agreement. Section 9.8. Purchaser. The Agent and its Affiliates may make loans to, --------- accept deposits from and generally engage in any kind of business with any Obligor, the Transferor and the Guarantor as though it were not the Agent hereunder. With respect to its purchases hereunder, the Agent shall have the same rights and powers under this Agreement as any Purchaser and may exercise the same as though it were not the Agent, and the terms "Purchaser" and "Purchasers" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Section 9.9. Resignation. If the Agent shall resign as Agent under this ----------- Agreement, then the Requisite Purchasers may appoint a successor Agent for the Purchasers, which shall be a commercial Purchaser organized under the Governmental Rules of the United States or any state thereof, having a combined surplus and capital of not less than $500,000,000, whereupon such successor Agent shall succeed to the rights, powers and duties of the former Agent and the obligations of the former Agent shall be terminated and canceled, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. The former Agent's resignation shall not become effective until such successor Agent-has been appointed and has succeeded of record to all right, title and interest of the former Agent in the Purchased Interest; provided, however, that if the Requisite Purchasers cannot agree as to -------- ------- a successor Agent within ninety (90) days after such resignation, the Agent shall appoint a successor Agent and the parties hereto agree to execute whatever documents are necessary to effect such action under this Agreement or any other document executed pursuant to this Agreement; provided, further, however, in -------- ------- ------- such event all provisions of this Agreement shall remain in full force and effect. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any acaations taken or omitted to be taken by it while it was Agent under this Agreement. Section 9.10. Sharing of Payments, etc. The Purchasers agree that (i) ------------------------ with respect to all amounts received by each of them hereunder, whether in the nature of a return of any investment or discount, or amounts due to a particular Purchaser in respect of any commitment fees or facility fees hereunder, equitable adjustment will be made so that, in effect, all such amounts will be shared among the Purchasers in proportion to the portion of the obligations due each Purchaser hereunder shall be shared by the Purchasers in proportion to the amounts due them hereunder, whether received by voluntary payment, or by the exercise of the right of set-off or Purchaser's lien or secured claims under the Bankruptcy Code, as now or hereafter amended, altered, modified or replaced, by counterclaim or cross-action or by the enforcement of this Agreement; (ii) if any of them shall exercise any right of counterclaim, set-off, Purchaser's lien or otherwise or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receives payment or reduction of any amounts due to such Purchaser 29 hereunder, which is greater than the proportion received by any other Purchaser in respect of the amounts due hereunder to such other Purchaser, then the Purchaser receiving such proportionately greater payment shall (x) notify each other Purchaser and the Agent of such receipt and (y) purchase participations (which it shall be deemed to have done simultaneously upon the receipt of-such payment) in the amounts due hereunder to the other Purchasers so that all such recoveries of amounts due hereunder. If all or any portion of such payment is thereafter recovered from such Purchaser, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. Section 9.11. Independent Agreements. The provisions contained in ---------------------- Sections 9.1 through 9.8 and 9.10 of this Article constitute independent - --------------------------------- obligations and agreements of the Agent and the Purchasers, and the Transferor and the Guarantor shall not be deemed parties thereto nor bound thereby. The Transferor and the Guarantor do acknowledge the rights of the Purchasers and the Agent under Section 9.8. ----------- ARTICLE X. TERMINATION EVENTS AND TERMINATION EVENT REMEDIES Section 10.1. Termination Events Defined. The occurrence of any one or -------------------------- more of the following events shall constitute a Termination Event hereunder: (a) any Seller Party shall fail (i) to make when due any payment or deposit to be made by it under this Agreement with respect to any Purchased Interest (including, in the case of the Servicer, failing to deliver to the Agent on any Due Date an amount equal to the Purchasers' Investments plus accrued Yield Reserve thereon) or (ii) to perform or observe in any material respect, within 15 days after written notice thereof, any other material term, covenant or agreement contained in any Transaction Document on its part to be performed or observed; (b) any representation or warranty made or deemed made by any Seller Party (or 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; (c) an Event of Default or any other Servicer Default shall have occurred and be continuing; (d) an Insolvency Proceeding shall have been commenced and is continuing in which any Seller Party or Seller is the debtor; (e) an Insolvency Event shall have been commenced and is continuing in which either Obligor is the debtor; (f) the Transferor shall fail to have a valid and enforceable first priority, perfected (i) ownership interest in, or (ii) security interest in, each Listed Receivable and the other Specified Assets, in each case, free and clear of any Adverse Claim (other than a lien or other interest in favor of the Transferor pursuant to the Purchase and Sale Agreement); 30 (g) the Agent for the benefit of the Purchasers shall fail to have a valid and enforceable first priority, perfected (i) undivided percentage ownership interest in, or (ii) security interest in, each Listed Receivable and the other Specified Assets, in each case free and clear of any Adverse Claim; (h) a Seller Party shall merge with or into any other entity whereby it is not the surviving entity; (i) the second highest short-term unsecured debt rating assigned to an Obligor by S&P, Moody's or Duff & Phelps is less than A-1, P-1 or D-1, respectively, or the second highest long-term unsecured debt rating assigned to an Obligor by S&P, Moody's or Duff & Phelps is less than A-, A3 or A-, respectively; or (j) there shall have occurred any event not otherwise covered by this definition which has or will have a Material Adverse Effect. Section 10.2. Termination Event Remedies. Any time during a Termination -------------------------- Event, the Agent, upon the written request of the Requisite Purchasers, shall, by written notice to the Transferor, the Guarantor, the Servicer and the Purchasers, terminate the commitment of the Purchasers to purchase undivided interests in the Receivables from the Transferor. Notwithstanding the foregoing, upon the occurrence of a Termination Event described in Section 10.1(d), the --------------- commitment of the Purchasers to purchase undivided interests in the Receivables from the Transferor shall terminate automatically. ARTICLE XI. MISCELLANEOUS Section 11.1. Waivers; Amendments, Etc. No failure or delay on the part of ------------------------ the Agent or the Purchasers in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. No notice to or demand on the Transferor, the Servicer or the Guarantor in any case entitle the Transferor, the Servicer or the Guarantor, as the case may be, to any other or further notice or demand in similar or other circumstances. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by Governmental Rule. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by the Transferor, the Servicer, the Guarantor, the Agent and the Requisite Purchasers; provided, however, that no such waiver, amendment or consent shall, unless in - -------- ------- writing and signed by each of the affected Purchasers, the Transferor, the Servicer, the Guarantor and acknowledged by the Agent, (a) increase or extend such Purchaser's Purchaser Commitment or subject such Purchaser to additional obligations; (b) postpone or delay any date fixed for any payment of fees or any other amounts due to such Purchaser hereunder; (c) reduce any fees or other amounts payable to such Purchaser hereunder; (d) change such Purchaser's Percentage; (e) amend this Section or Section 9.10; or (f) release the Guarantor ------------ from any obligation undertaken by it pursuant to this Agreement. 31 Section 11.2. 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 the signature pages attached hereto (except that Purchase Notices shall be sent to the address set forth in the form of Purchase Notice attached as Exhibit I) or at such other address as shall be --------- designated by such party in a written notice to the other parties hereto. Notices and communications to either Seller shall made in accordance with Section 4.2 of the Purchase and Sale Agreement. 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 11.3. Governing Law; Integration. (a) This Agreement shall be -------------------------- governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of Governmental Rules provisions thereof. This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire Agreement among the parties hereto with respect to the subject matter hereto superseding all prior oral or written understandings. (b) Any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of California or of the United States for the Central District of California, and by execution and delivery of this Agreement, each of the Guarantor, the Transferor, the Agent and the Purchasers consents, for itself and in respect of its property, to the non-exclusive jurisdiction of those courts. Each of the Guarantor, the Transferor, the Agent and the Purchasers irrevocably waives any objection to the laying of forum non conveniens, which it may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any other Transaction Document. The Guarantor, the Transferor, the Agent and the Purchasers each waive personal service of any summons, complaint or other process, which may be made by any other means permitted by California law. Section 11.4. Severability; Counterparts. This Agreement may be executed -------------------------- in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Any provisions of the Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibitions or unenforceability without invalidating the remaining provisions hereof, any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 11.5. Successors and Assigns. This Agreement shall be binding on ---------------------- the parties hereto and their respective successors; provided, however, that, -------- ------- subject to Article IV (with respect to the Servicer) and Section 11.7, no party ---------- ------------ to this Agreement may assign any of its rights or delegate any of its duties hereunder. Any purported assignment in contravention of the foregoing shall be null and void. 32 Section 11.6. Confidentiality. (i) Each of the Agent and each of the --------------- Purchasers agrees to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information provided to it by the Guarantor or any Subsidiary of the Guarantor, or by any agent or representative thereof, or by the Agent on such Guarantor's or Subsidiary's behalf, in connection with this Agreement or any other Transaction Documents, except to the extent such information (i) was or becomes generally available to the public other than as a result of a disclosure by the Agent or a Purchaser, or (ii) was or becomes available on a non-confidential basis from a source other than the Guarantor, so long as such source is not bound by a confidentiality agreement with the Guarantor known to the Agent or Purchaser, as applicable. The Agent and any Purchaser, however, may disclose such information (A) at the request or pursuant to any requirement of any Governmental Person to which the Agent or such Purchaser, as applicable is subject or in connection with an examination of the Agent or such Purchaser, as applicable, by any such authority; (B) pursuant to subpoena or other court process and when required to do so in accordance with the provisions of any applicable Governmental Rule; provided, that the Agent or -------- such Purchaser, as applicable shall disclose only the information required by such request and shall notify the Guarantor in advance of providing such information so that the Guarantor may seek an appropriate protective order, and (C) to another Purchaser or the Agent or any Affiliate thereof and the independent auditors and other professional advisors of the Agent or such Purchaser, as applicable, so long as such Persons are obligated to keep such information confidential. Neither the Agent nor any Purchaser nor any of their respective Affiliates shall use any information provided to any of the by or on behalf of any Guarantor or any of its Subsidiaries for any purpose or in any manner other than pursuant to the terms contemplated by this Agreement. Notwithstanding the foregoing, the Guarantor authorizes each Purchaser to disclose to any Participant or Assignee and to any prospective Participant or Assignee, such financial and other information in such Purchaser's possession concerning the Guarantor or its Subsidiaries which has been delivered to the Agent or the Purchasers pursuant to this Agreement or which has been delivered to the Agent or the Purchasers by the Guarantor in connection with the Purchasers' credit evaluation of the Guarantor prior to entering into this Agreement; provided that, unless otherwise agreed by the Guarantor, such -------- Participant or Assignee agrees in writing to such Purchaser to keep such information confidential to the same extent required of the Purchasers hereunder. Section 11.7. Assignments; Participations. (a) Any Purchaser may, with the --------------------------- advance written consent of the Transferor at all times other than during the existence of a Termination Event, which consent of the Transferor shall not be unreasonably withheld, and the Agent, at any time assign and delegate to one or more Eligible Assignees (provided that no consent of the Transferor or the Agent shall be required in connection with any assignment and delegation by a Purchaser to an Eligible Assignee that is an Affiliate of such Purchaser) (each an "Assignee") all, or any ratable part of all, of the Purchased Interest and -------- the other rights and obligations of such Purchaser hereunder, in a minimum amount of $10,000,000 and such Purchaser shall concurrently therewith assign a ratable portion in the Mattel Credit Agreement; provided, however, that the -------- ------- Transferor and the Agent may continue to deal solely and directly with such Purchaser in connection with the interest so assigned to an Assignee until (i) written notice of 33 such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Transferor and the Agent by such Purchaser and the Assignee; (ii) such Purchaser and its Assignee shall have delivered to the Transferor and the Agent an executed assignment together with any note or notes subject to such assignment and (iii) the assignor Purchaser or Assignee has paid to the Agent a processing fee in the amount of $3,000. (b) From and after the date that the Agent notifies the assignor Purchaser that it has received (and provided its consent with respect to) an executed assignment and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such assignment, shall have the rights and obligations of a Purchaser under this Agreement, and (ii) the assignor Purchaser shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such assignment, relinquish its rights and be released from its obligations hereunder. (c) Upon advance written notice to the Transferor, each Purchaser shall have the right at any-time to sell or otherwise transfer participations in all or any part of their pro rata portion of the Purchased Interest, to one or more Affiliates of such Purchaser or to one or more commercial banks, merchant banks, savings and loan associations or any other institution (a "Participant"); ----------- provided that such Purchaser shall concurrently with any sale of a participation - -------- herein sell a ratable participation under the Credit Agreement and thereafter cause any such participation herein to remain ratable with such participation under the Credit Agreement. The Transferor hereby acknowledges and agrees that any such disposition will give rise to a direct obligation of the Transferor to the Participant and the Participant shall be entitled to the benefit of Section ------- 9.10 as if it were a "Purchaser"; provided further, that in the case of a - ---- -------- ------- participation, (i) the Purchaser's obligations under this Agreement shall remain unchanged, (ii) the Purchaser shall remain solely responsible for the performance of such obligations, (iii) the Transferor and the Agent shall continue to deal solely and directly with the Purchaser in connection with the Purchaser's rights and obligations under this Agreement, and (iv) no Purchaser shall transfer or grant any participating interest under which the Participant shall have rights to approve any amendment to, or any consent or waiver with respect to this Agreement except to the extent such amendment, consent or waiver would require unanimous consent. In the case of any such participation, the Participant shall not have any rights under this Agreement, or any documents related hereto, and all amounts payable by the Transferor hereunder shall be determined as if such Purchaser had not sold such participation, except that if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of a Termination Event, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Purchaser under this Agreement. Section 11.8. Termination of Prior Transfer and Administration Agreement. ---------------------------------------------------------- Certain of the Purchasers party hereto are all of the purchasers party to the Prior Transfer and Administration Agreement. Each of such purchasers hereby consent to the termination of such Transfer and Administration Agreement and agree to, and authorize and direct NationsBank of Texas, N.A., as agent thereunder, upon payment by the Transferor of all amounts due thereunder 34 and described in reasonable detail in writing to Transferor, to take any action necessary or reasonably requested by Mattel Factoring or Mattel to terminate such Transfer and Administration Agreement (except those provisions thereof which expressly survive). Section 11.9. Set Off. In addition to any rights now or hereafter granted ------- under applicable law and not by way of limitation of any such rights, upon the occurrence of and during the continuance of any Termination Event (after the giving of any notice and the expiration of any grace period contained in the definition thereof), each Purchaser is hereby authorized by each Seller Party at any time or from time to time, without notice to the Seller Parties or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate any and all deposits (including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other indebtedness at any time held or owing by that Purchaser or any Affiliate thereof to or for the credit or the account of a Seller Party and to apply any such amounts in accordance with the provisions of Section 9.10 irrespective of whether or not that shall have made ------------ any demand hereunder, and each such Purchaser or Affiliate is hereby irrevocably authorized to permit such set-off and appropriation. [SIGNATURES FOLLOW] 35 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Receivables Purchase Agreement as of the date first above written. MATTEL FACTORING, INC., as Transferor By:/s/ William Stavro ----------------------------------- Name: William Stavro Title: Senior Vice President and Treasurer Notice Address: M.S. 24-199 2043 East Mariposa El Segundo, CA 90245 Telecopy: MATTEL, INC., as Guarantor and Servicer By:/s/ William Stavro ----------------------------------- Name: William Stavro Title: Senior Vice President and Treasurer Notice Address: 333 Continental Blvd. El Segundo, CA 90245 Telecopy: NATIONSBANK OF TEXAS, N.A., as Agent By: /s/ Charles F. Lilygren ----------------------------------- Name: Charles F. Lilygren Title: Senior Vice President Notice Address: 444 S. Flower Street, Suite 4100 Los Angeles, California 90071 Telecopy: Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) -------------------- ------------------- 9.000000000 27,000,000 NATIONSBANK OF TEXAS, N.A. By:/s/ Charles F. Lilygren ----------------------- Name: Charles F. Lilygren Title:Senior Vice President Notice Address: 444 S. Flower Street, Suite 4100 Los Angeles, California 90071 Attn: Charles F. Lilygren Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) ----------------------- --------------------- 12.000000000 36,000,000 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By:/s/ Robert W. Troutman ---------------------- Name: Robert W. Troutman Title: Managing Director Notice Address: Credit Products Department #5618 555 S. Flower Street, 11th Floor Los Angeles, California 90071 Attn: Robert W. Troutman Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) ----------------------- ------------------------ 9.000000000 27,000,000 THE CHASE MANHATTAN BANK, N.A. By:/s/ Lenard Weiner ----------------- Name: Lenard Weiner Title:M.D. Notice Address: Banking & Corporate Finance 101 California Street, Suite 2725 San Francisco, California 94111 Attn: Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) --------------------- ---------------------------- 7.500000000 22,500,000 TORONTO DOMINION (TEXAS), INC. By:/s/ Debbie A. Greene -------------------- Name: DEBBIE A. GREENE Title: VICE PRESIDENT Notice Address: Houston Agency 900 Fanin Street, Suite 1700 Houston, Texas 77010 Attn: Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) ----------------------- ------------------------ 7.500000000 22,500,000 CITICORP USA, INC. By:/s/ Deborah Ironson ------------------- Name: Deborah Ironson Title:Attorney-In-Fact Notice Address: c/o Citicorp Securities, Inc. 725 South Figueroa Street, 5th Floor Los Angeles, California 90017 Attn: Deborah Ironson c/o Citibank, N.A. 2 Penn's Way, Suite 200 New Castle, Delaware 19720 Attn: Sally Schoenleber Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) ---------------------- ------------------------- 7.500000000 22,500,000 ABN AMRO BANK, N.V. Los Angeles International Branch By:/s/ Ellen M. Coleman -------------------- Name: ELLEN M. COLEMAN Title: VICE PRESIDENT/ DIRECTOR By:/s/ Heather F. Brandt ---------------------- Name: HEATHER F. BRANDT Title: VICE PRESIDENT Notice Address: Los Angeles International Branch 300 South Grand Avenue, Suite 1115 Los Angeles, California 90071 Attn: Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) --------------------- ------------------------ 7.500000000 22,500,000 BANKBOSTON, N.A. By:/s/ Debra L. Zurka ------------------ Name: Debra L. Zurka Title: Director Notice Address: U.S. Corporate Division Mail Stop 01-09-05 100 Federal Street Boston, Massaachusetts 02110 Attn: Debra L. Zurka Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) --------------------- -------------------------- 5.000000000 15,000,000 SOCIETE GENERALE By:/s/ J. Blaine Shaum ------------------- Name: J. Blaine Shaum Title:Regional Manager Notice Address: 2029 Century Park East, Suite 2900 Los Angeles, California 90067 Attn: J. Staley Stewart Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) ---------------------- ------------------------ 5.000000000 15,000,000 BANQUE NATIONALE DE PARIS By:/s/ Clive Bettles ------------------ Name: Clive Bettles Title: Senior Vice President & Manager By:/s/ Mitchell M. Ozawa --------------------- Name: Mitchell M. Ozawa Title: Vice President Notice Address: 725 South Figueroa Street, Suite 2090 Los Angeles, California 90017-5420 Attn: Mitchell M. Ozawa Dollar Amount of Percentage of Original Facility Percentage (%) Facility Limit ($) -------------------- ------------------------ 5.000000000 15,000,000 UNION BANK OF CALIFORNIA, N.A. By:/s/ Scott M. Lane ------------------- Name: Scott M. Lane Title: Vice President Notice Address: 550 South Hope Street, 3rd Floor Los Angeles, California 90071 Attn: Scott M. Lane Dollar Amount of Percentage of Original Facility Percentage (%) Facility Limit ($) --------------------- ------------------------- 5.000000000 15,000,000 PNC BANK, NATIONAL ASSOCIATION By:/s/ Timothy J. Marchando ------------------------- Name: Timothy J. Marchando Title: Vice President Notice Address: Mail Stop P-1-POPP-02-4 249 Fifth Avenue, 2nd Floor Pittsburgh, Pennsylvania 15222-2707 Attn: Timothy J. Marchando Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) --------------------- ---------------------- 5.000000000 15,000,000 MANUFACTURERS & TRADERS TRUST CO. By:/s/ Geoffrey R. Fenn ----------------------- Name: Geoffrey R. Fenn Title: Vice President Notice Address: 1 Fountain Plaza, 12th Floor Buffalo, New York 14203 Attn: Geoffrey R. Fenn Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) ----------------------- ----------------------- 5.000000000 15,000,000 ISTITUTO BANARIO SAN PAOLO DI TORINO SPA By:/s/ Carlo Persico ----------------- Name: Carlo Persico Title:Deputy Manager By:/s/ Wendell Jones ----------------- Name: Wendell Jones Title:Vice President Notice Address: 444 South Flower Street, Suite 4550 Los Angeles, California 90071 Attn: Donald W. Brown Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) --------------------- ----------------------- 5.000000000 15,000,000 DRESDNER BANK AG New York Branch and Grand Cayman Branch By:/s/ John W. Sweeney ------------------- Name: JOHN W. SWEENEY Title:ASSISTANT VICE PRESIDENT By:/s/ Brigitte Sacin ------------------- Name: BRIGITTE SACIN Title:ASSISTANT VICE PRESIDENT Notice Address: Los Angeles Agency 333 South Grand Avenue, Suite 1700 Los Angeles, California 90071-5439 Attn: Jon M. Bland Dollar Amount of Percentage of Original Percentage (%) Facility Limit ($) --------------------- ------------------------ 2.500000000 7,500,000 NORTHERN TRUST COMPANY By:/s/ Martin G. Alston -------------------- Name: Martin G. Alston Title:Vice President Notice Address: 50 South LaSalle Street Chicago, Illinois 60675 Attn: Dollar Amount of Percentage of Original Facility Percentage (%) Facility Limit ($) -------------------- ----------------------- 2.500000000 7,500,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED By:/s/ Vicente L. Timiraos -------------------------- Name: Vicente L. Timiraos Title:Senior Vice President & Senior Deputy General Manager Notice Address: 350 South Grand Avenue, Suite 1500 Los Angeles, California 90071 Attn: J. Blake Seaton EXHIBIT I [FORM OF] PURCHASE NOTICE [Date] VIA FACSIMILE - ------------- NationsBank of Texas, N.A. [Address] Attention: _________________ Facsimile: ______________ Ladies and Gentlemen: This Purchase Notice is being delivered to you pursuant to Section 2.2 of ----------- the Receivables Purchase Agreement dated as of March ___, 1998 (as amended, amended and restated or otherwise modified from time to time in accordance with its terms, the "Receivables Purchase Agreement") among Mattel Factoring, Inc., ------------------------------ Mattel, Inc., the financial institutions party thereto from time to time as Purchasers, and NationsBank of Texas, N.A., as agent for such Purchasers. Capitalized terms used herein without definition shall have the meanings assigned thereto in the Receivables Purchase Agreement. The Servicer hereby notifies the Agent that the Transferor proposes to sell to the Purchasers on [insert date] (the "Purchase Date") an undivided percentage ------------- ownership interest in the Eligible Receivables and other items contemplated by Section 2.2(c) of the Receivables Purchase Agreement, which Eligible Receivables - -------------- and other items shall be purchased by the I - 1 Transferor on such Purchase Date from the Sellers pursuant to the Purchase and Sale Agreement. The Due Date for such sale will be [insert date], and the proposed amount of the Purchasers' Investment would be $__________. As of the date of this Purchase Notice, the aggregate outstanding principal balances of such Eligible Receivables is $____________. Very truly yours, MATTEL, INC., as the Servicer By:_________________________________________ Name:_______________________________________ Title:______________________________________ I - 2 Attachment A to [Form of] Purchase Notice
Obligor ------------------------------------------------ Toys "R" Us, Inc. Wal-Mart Stores, Inc. ----------------------- ---------------------- Eligible Receivables: Mattel Sales Corp. $ $ ---------------------- --------------------- Fisher-Price, Inc. $ $ ---------------------- --------------------- Total Eligible Receivables: "A" $ $ ---------------------- --------------------- Purchase Date: ________ ________ Due Date: ________ ________ Yield Period in Number of Days: "B" ________ ________ Purchase Rate: Estimated LIBOR ____% ___% plus: Applicable Margin ________ ________ Total Purchase Rate: "C" ____% ___% Yield [(B x C)/360]: "D" ____% ___% Purchasers' Investments: "E" $ $ ---------------------- --------------------- Yield Reserve [D x E]: "F" ________ ________
I - 3
Purchased Interest [E + F)/A]: $ $ ---------------------- ---------------------
/*/ Purchasers' Investment shall be less than[A/(1+D)]. /*/ Total Purchasers' Investment cannot exceed the Purchasers' Investment Limit. /*/ Purchased Interest cannot be more than 1.0. I - 4 EX-99.2 4 EMPLOYMENT AGREEMENT EXHIBIT 99.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") between Mattel, Inc., a Delaware corporation ("Mattel"), and GARY BAUGHMAN (the "Executive"), dated as of the 5th day of May, 1997. 1. Employment Period. Mattel hereby agrees to employ and continue in its ----------------- employ the Executive, and the Executive hereby accepts such employment and agrees to remain in the employ of Mattel, for the period commencing on the date of this Agreement and ending on the third anniversary of such date (the "Employment Period"); provided that commencing on the first day of the month next following the effective date hereof, and on the first day of each month thereafter (the most recent of such dates is hereinafter referred to as the "Renewal Date"), the Employment Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to any Renewal Date Mattel or the Executive shall give notice to the other that the Employment Period shall not be so extended. 2. Duties. ------ (a) Executive's Position and Duties. During the Employment Period, the ------------------------------- Executive's position (including titles), authority and responsibilities shall be similar to, but no less than those held by the Executive on the date hereof with such additions and modifications consistent with responsibilities generally assigned to executive officers of Mattel as the Chief Executive Officer of Mattel ("CEO") may in her discretion and acting in good faith from time to time assign to the Executive. It is herein provided that Executive shall initially report to the CEO and upon an appropriate future date, most likely in and around the month of September, in the year 1997, Executive shall commence reporting to the Chief Operating Officer of Mattel ("COO"). During the initial period, while Executive is reporting to the CEO, he shall have responsibility over the Tyco Preschool group and the Fisher-Price Infant & Preschool lines of businesses, as well as other lines of businesses currently under the dominion of the Fisher-Price brand, including Power Wheels. Upon commencement of a reporting relationship to the COO as previously noted, Executive shall assume added responsibility for the balance of the Company's Infant & Preschool lines of businesses, including Disney Infant & Preschool, Pooh and See'N Say. The Executive's services shall be performed in the general area in which the Executive was employed on the date of this Agreement and the Executive will not be transferred outside the area without the Executive's consent, other than for normal business travel and temporary assignments. It is further agreed that Executive shall be the next Mattel employee duly appointed and slated for election to the Board of Directors of Mattel, Inc. pursuant to the next ensuing annual meeting of Mattel, Inc.'s shareholders. -2- (b) Full Time. The Executive agrees to devote his full business time --------- to the business and affairs of Mattel and to use his best efforts to perform faithfully and efficiently the responsibilities assigned to him hereunder to the extent necessary to discharge such responsibilities, except for (i) services on corporate, civic or charitable boards or committees not significantly interfering with the performance of such responsibilities; (ii) periods of vacation and sick leave to which he is entitled; and (iii) the management of personal investments and affairs. The Executive will not engage in any outside business activity (as distinguished from personal investment activity and affairs) including, but not limited to, activity as a consultant, agent, partner or officer, or provide business services of any nature directly or indirectly to a corporation or other business enterprise. 3. Compensation. ------------ (a) Base Salary. During the Employment Period, the Executive shall ----------- receive a base salary ("Base Salary") at a bi-weekly rate at least equal to the bi-weekly salary paid to the Executive by Mattel on the date of this Agreement ($21,154). The Base Salary shall be reviewed at least every 18 months and may be increased at any time and from time to time by action of the Board of Directors of Mattel or the Compensation/Options -3- Committee thereof or any individual having authority to take such action in accordance with Mattel's regular practices. Any increase in the Base Salary shall not serve to limit or reduce any other obligation of Mattel hereunder and, after any such increase, the Base Salary shall not be reduced. (b) Hiring Bonus. Executive shall be paid a hiring bonus in the lump sum ------------ amount of $1,100,000, less applicable taxes, as an inducement to join the Company and not one of its competitors following the merger of Tyco Toys, Inc. and Mattel, Inc., and such hiring bonus shall be paid to Executive not later than ten (10) days following the commencement of Executive's employment with the Company, and further Executive agrees to refrain for at least one year, from voluntarily resigning to join a competitor, lest he incur an obligation to promptly repay to the Company, the full amount of the proceeds as attributable to previous receipt of said hiring bonus. (c) Bonus Programs. In addition to the Base Salary, the Executive shall -------------- participate throughout the Employment Period in Mattel's cash or deferred bonus incentive plans and programs ("Bonus Programs") as may be in effect from time to time with respect to executives employed by Mattel at a participation level reflecting the Executive's responsibilities, including, but not limited to, the Management Incentive Plan ("MIP") and the Long- -4- Term Incentive Plan ("LTIP") as they may be modified from time to time and any plans or programs substituted therefor; provided that, except as provided in Section 5(f) hereof, the determination of the amounts to be paid pursuant to such plans or programs shall be made by the Board of Directors of Mattel or a committee thereof authorized to take such action and shall be made in accordance with Mattel's compensation practice and the terms and provisions of such plans or programs; provided further that the Executive's eligibility for and participation in each of the Bonus Programs shall be at a level and on terms and conditions no less favorable than those available to any other comparably situated executive or consultant. Notwithstanding the foregoing, it is expressly and specifically provided that Executive's participation in the Mattel 1996-1998 Long-Term Incentive Plan shall be on a full term, non-prorated basis as if Executive had been employed upon inception of this particular Plan, with the only exception and omission being the interim payment applicable to 1996 performance under the Plan, the latter having been previously disbursed to participants prior to execution of this Agreement. It is further provided that for the 1997 Plan year, Executive shall receive a guaranteed minimum "MIP" award of not less than $200,000, payable the earlier of: (i) on the date that such awards are distributed to other eligible participants at a comparable level as Executive, or (ii) on April 10, 1998, whichever occurs first. -5- (d) Incentive and Savings Plans. In addition to the Base Salary and --------------------------- participation in the Bonus Programs, during the Employment Period the Executive shall be entitled to participate in all incentive and savings plans and programs, including, but not limited, to stock option plans and retirement plans, as may be in effect from time to time with respect to executives employed by Mattel at the Executive's level so as to reflect the Executive's responsibilities. Notwithstanding the foregoing, it is expressly and specifically provided that the Company shall cause to be effected an initial grant of 200,000 stock options to Executive upon commencement of his employment with the Company and further, over the initial 3-year period of his employment, Executive shall receive grants of not less than an aggregate of 500,000 stock options, inclusive of the aforestated initial grant and pursuant to Executive's eligibility for annual grants of stock options. Executive shall be accorded full Mattel credit for all prior service accrued while in the employ of Tyco Toys, Inc., and such credit shall be applicable in the computation of all of Mattel's benefits-related plans and programs, specifically including the Mattel 1994 Supplemental Executive Retirement Plan ("SERP"), which provide thereupon for a service-related component in the computation of Executive's eligibility for benefits and/or receipt thereof. (e) Benefit Plans. The Executive and/or his family, as the case may be, ------------- shall be entitled to receive all amounts which he or his family is or would have been entitled to receive as benefits under all medical, dental, disability, group life, -6- accidental death and travel accident insurance plans and programs of Mattel in which the Executive is a participant as in effect from time to time with respect to executives employed by Mattel. (f) Expenses. During the Employment Period, the Executive shall be -------- entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and practices of Mattel as in effect from time to time with respect to executives employed by Mattel. (g) Fringe Benefits. The Executive shall be entitled to fringe benefits, --------------- commensurate with those available to comparable level executives, including an automobile and related expenses as well as the use of a company-issued gasoline credit card, club memberships and related expenses, and financial counseling, including tax preparation and a one-time estate planning service, in accordance with the policies of Mattel as in effect from time to time with respect to executives employed by Mattel. (h) Vacation. During the Employment Period, the Executive shall be -------- entitled to paid vacation in accordance with the policies of Mattel as in effect from time to time with respect to executives employed by Mattel. -7- (i) Certain Amendments. Nothing herein shall be construed to prevent ------------------ Mattel from amending, altering, eliminating or reducing any plans, benefits or programs so long as the Executive continues to have the opportunity to receive compensation and benefits consistent with Sections 3(a) through (h). 4. Termination. ----------- (a) Death or Disability. This Agreement shall terminate automatically ------------------- upon the Executive's death; provided that Base Salary, all bonuses and earned benefits will be continued and paid for a period of six (6) months thereafter, unless a longer period is otherwise specified. Mattel may terminate this Agreement, after having established the Executive's Disability, by giving to the Executive written notice of its intention to terminate his employment, and his employment with Mattel shall terminate effective on the 90th day after receipt of such notice (the "Disability Effective Date"). For purposes of this Agreement, the Executive's Disability shall occur and shall be deemed to have occurred only when the Executive becomes entitled to receive disability benefits under the Mattel Long-Term Disability Plan for exempt employees. (b) Cause. Mattel may terminate the Executive's employment for "Cause" ----- if a majority, consisting of at least 2/3 -8- of the non-management members of the Board of Directors of Mattel, determines that "Cause" exists. For purposes of this Agreement, "Cause" means (i) an act or acts of dishonesty on the Executive's part which are intended to result in his substantial personal enrichment at the expense of Mattel; (ii) repeated violations by the Executive of his obligations under Section 2 of this Agreement which are demonstrably willful and deliberate on the Executive's part and which resulted in material injury to Mattel; (iii) conduct of a criminal nature which has or which is more likely than not to have a material adverse effect on Mattel's reputation or standing in the community or on its continuing relationships with its customers or those who purchase or use its products; or (iv) fraudulent conduct in connection with the business or affairs of Mattel, regardless of whether said conduct is designed to defraud Mattel or others; provided that, in each case, the Executive has received written notice of the described activity, has been afforded a reasonable opportunity to cure or correct the activity described in the notice, and has failed to substantially cure, correct or cease the activity, as appropriate. (c) Good Reason. The Executive may terminate his employment at any ----------- time for Good Reason. For purposes of this Agreement, "Good Reason" means the good faith determination by -9- the Executive that any one or more of the following have occurred: (i) without the express written consent of the Executive, any change(s) in any of the duties, authority, or responsibilities of the Executive which is (are) inconsistent in any substantial respect with the Executive's position, authority, duties, or responsibilities as contemplated by Section 2 of this Agreement; (ii) any failure by Mattel to comply with any of the provisions of Section 3 of this Agreement, other than an insubstantial and inadvertent failure remedied by Mattel promptly after receipt of notice thereof given by the Executive; (iii) without the Executive's consent, any requirement by Mattel that Executive be based at any office or location other than an office or location in East Aurora, New York, except for travel reasonably required in the performance of the Executive's responsibilities; (iv) any proposed termination by Mattel of the Executive's employment otherwise than as permitted by this Agreement; or (v) any failure by Mattel to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 11(b). -10- (d) Change of Control. A "Change of Control" shall be deemed to have ----------------- occurred if: (i) any "Person," which shall mean a "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (other than Mattel, any trustee or other fiduciary holding securities under an employee benefit plan of Mattel) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Mattel representing 20% or more of the combined voting power of Mattel's then outstanding voting securities; (ii) during any period of 24 consecutive months, individuals, who at the beginning of such period constitute the Board of Directors of Mattel, and any new director whose election by the Board of Directors, or whose nomination for election by Mattel's stockholders, was approved by a vote of at least one- half (1/2) of the directors then in office (other than in connection with a contested election), cease for any reason to constitute at least a majority of the Board of Directors; (iii) the stockholders of Mattel approve (I) a plan of complete liquidation of Mattel or (II) the sale or other disposition by Mattel of all or substantially all of Mattel's assets unless the acquirer of the assets or its board of -11- directors shall meet the conditions for a merger or consolidation in subparagraphs (iv)(I) or (iv)(II) below; or (iv) the consummation of a merger or consolidation of Mattel with any other entity other than: (I) a merger or consolidation which results in the voting securities of Mattel outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the surviving entity's outstanding voting securities immediately after such merger or consolidation; or (II) a merger or consolidation which would result in the directors of Mattel (who were directors immediately prior thereto) continuing to constitute at least 50% of all directors of the surviving entity immediately after such merger or consolidation. In this paragraph (iv), "surviving entity" shall mean only an entity in which all of Mattel's stockholders immediately before such merger or consolidation (determined without taking into account any stockholders properly exercising appraisal or similar rights) become stockholders by the terms of such merger or consolidation, and the phrase "directors of Mattel (who were directors immediately prior thereto)" shall include only -12- individuals who were directors of Mattel at the beginning of the 24 consecutive month period preceding the date of such merger or consolidation. (e) Notice of Termination. Any termination of the Executive's --------------------- employment by Mattel for Cause following a Change of Control or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b). Any termination by Mattel due to Disability shall be given in accordance with Section 4(a). For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon; (ii) except in the event of a termination following a Change of Control, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii) specifies the Date of Termination (defined below). (f) Date of Termination. "Date of Termination" means the date of actual ------------------- receipt of the Notice of Termination or any later date specified therein (but not more than fifteen (15) days after the giving of the Notice of Termination), as the case may be; provided that (i) if the Executive's employment is terminated by Mattel for any reason other than Cause or Disability, the Date -13- of Termination is the date on which Mattel notifies the Executive of such termination; (ii) if the Executive's employment is terminated due to Disability, the Date of Termination is the Disability Effective Date; and (iii) if the Executive's employment is terminated due to the Executive's death, the Date of Termination shall be the date of death. 5. Obligations of Mattel upon Termination. Other than as specifically set -------------------------------------- forth or referenced in this Agreement, the Executive shall not be entitled to any benefits on or after the Date of Termination. (a) Death. If the Executive's employment is terminated by reason of the ----- Executive's death, this Agreement shall terminate without further obligations by Mattel to the Executive's legal representatives under this Agreement other than those obligations accrued hereunder or under the terms of the applicable Mattel plan or program which takes effect at the date of his death or as otherwise provided in Section 4(a) or this Section 5(a). As of the Date of Termination, the Executive's family shall be entitled to the Executive's benefits on the terms described in Section 5(d)(iv) (other than outplacement services and leased car benefits, which are excluded), except that healthcare insurance coverage and financial and legal counseling services shall terminate on the third anniversary of the Date of -14- Termination. The Executive's country club membership must be converted or sold, as the case may be, by the Executive's successor-in-interest within one year after the Date of Termination on the terms described in Section 5(d)(iv)(III); provided that no such conversion or sale shall be required and Mattel shall cause the membership to be transferred to the Executive's spouse at no cost to the spouse if the Executive has had the membership for at least three years. (b) Disability. If the Executive's employment is terminated by reason ---------- of the Executive's Disability, the Executive shall be entitled to receive after the Disability Effective Date (i) disability benefits, if any, at least equal to those then provided by Mattel to disabled employees and/or their families and (ii) other benefits on the terms described in Section 5(d)(iv). (c) Cause. If the Executive's employment is terminated for Cause or if ----- the Executive terminates his employment without Good Reason, Mattel shall pay the Executive his full Base Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, and Mattel shall have no further obligations to the Executive under this Agreement. -15- (d) Good Reason; Other Than for Cause or Disability. If Mattel ----------------------------------------------- terminates the Executive's employment other than for Cause or Disability, or the Executive terminates his employment for Good Reason (in each case, other than within 18 months following a Change of Control as provided in Section 5(e)): (i) Mattel shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) if not theretofore paid, the Executive's Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination was given; (B) a current year MIP bonus equal to the average of the greatest two out of the three most recent annual MIP bonuses received by the Executive (which two greatest MIP bonuses need not represent consecutive years) (the "Average Annual Bonus") and prorated to reflect the total number of full months the Executive is employed in the year in which termination occurs; (C) an LTIP payment reflective of the Executive's participation in the three-year plan, so that at the time that final performance under the LTIP is determinable and individual payouts calculated, the Executive shall promptly receive an amount equivalent to what he would have received if he -16- had remained employed through the date of such payouts, less any interim payments already made pursuant to the Executive's continuing eligibility for full participation in the LTIP; and (D) three times the sum of (x) the Executive's annual Base Salary at the rate in effect at the time the Notice of Termination is given and (y) if eligible, the Average Annual Bonus defined in Section 5(d)(i)(B), but without proration (and, in each such case, without regard to any contributions by Mattel for the Executive's benefit to the Mattel Personal Investment Plan ("PIP")). (ii) Options granted to the Executive under Mattel's stock option plans (the "Stock Option Plans") which options have been granted for more than six months shall become immediately exercisable and the Executive shall have a period of 90 days following the Date of Termination (but in no event past the expiration of the term of the option grant) to exercise all options granted under the Stock Option Plans then exercisable or which become exercisable pursuant to this clause (ii). In the event the Executive is age 52 or older on the Date of Termination, he will be treated as a retiree under the Stock Option Plans, which will enable the Executive to vest in and exercise stock options theretofore granted thereunder, at the election of the Executive, (x) in the manner described in the immediately preceding sentence, or (y) for a period of up to five -17- years after the Date of Termination (but in no event past the expiration of the term of the option grant). (iii) Mattel shall, promptly upon submission by the Executive of supporting documentation, pay or reimburse to the Executive any costs and expenses paid or incurred by the Executive which would have been payable under Section 3(e) if his employment had not terminated. (iv) Until the earlier of (x) the third anniversary of the Date of Termination or (y) the date the Executive accepts other employment, Mattel shall provide to the Executive at Mattel's expense: (I) medical, dental, prescription drug and vision care group insurance in accordance with the coverage in effect immediately prior to the Date of Termination (the last 18 months of the Executive's coverage under such insurance shall be deemed to be participation under an election to continue such benefits under the Consolidated Omnibus Budget Reconciliation Act at Mattel's expense); (II) outplacement services at the expense of Mattel commensurate with those provided to terminated executives of comparable level and made available through and at the facilities of a reputable and experienced vendor; and (III) continuation of country-club membership "signatory/representative" status as in effect immediately prior -18- to the Date of Termination; provided that within one year after Mattel ceases to provide such benefit, the Executive shall (a) convert the country-club membership from "signatory/representative" status under the membership provided and paid for by Mattel to sole and personal ownership status by paying to Mattel the fair market value of that membership as of the date Mattel ceases to provide such benefit, less any transfer/reconveyance fees that may be required by and paid directly to the country club by the Executive, or (b) comply with club rules in consummating a fair, reasonable and expeditious sale of the membership and any proceeds derived therefrom which are payable to the Executive shall belong to and must be promptly delivered to Mattel; provided further that no such conversion or sale shall be required and Mattel shall cause the membership to be transferred to the Executive at no cost to the Executive (but subject to tax reporting as imputed income applicable to the year in which the membership is transferred), if the Executive has had the membership for at least three years. For the three-year period after the Date of Termination, the Executive shall remain eligible for use of personal financial and legal counseling services through the vendor engaged and paid for by Mattel. The Executive may continue to use the car leased by Mattel that is in the Executive's possession on the Date of Termination until the earlier of (x) the end of the lease term or -19- (y) the third anniversary of the Date of Termination, at which time the Executive may purchase the car for $1.00 (if at the end of the lease term) or Mattel's book value (if on the third anniversary of the Date of Termination). As of the Date of Termination, all expenses related to such leased car, including but not limited to repairs, maintenance, gasoline, and car phone and associated expenses, shall be the sole responsibility of the Executive. (v) Credit shall be given for three years of service (in addition to actual service) and for three years of attained age to be added to the Executive's actual age for purposes of computing any service and age-related benefits for which the Executive is eligible under the plans and programs of Mattel, including but not limited to the 1994 Supplemental Executive Retirement Plan (including any successor plan thereto in which the Executive is a participant, the "SERP"), the Mattel Deferred Compensation Plan, the PIP, the Mattel Retiree Medical Plan, and the Stock Option Plans. Further, with regard to computing the Executive's benefit under the SERP, the formula described in Section 5(d)(i)(B) shall be utilized in calculating the maximum benefit, namely: the formula shall be 25% of the average of the final three years of annual Base Salary (including the calendar year in which the Date of Termination occurs), plus the average of the greatest two out of the three most recent annual MIP bonuses received by the Executive. -20- (e) Change of Control. If, within 18 months following a Change of ----------------- Control, the Executive terminates his employment for Good Reason or Mattel or the surviving entity terminates the Executive's employment other than for Cause or Disability: (i) Mattel shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: (A) if not theretofore paid, the Executive's Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination was given; (B) an amount equal to the MIP bonus that would have been payable to executives of Mattel in the same bonus category as the Executive pursuant to the Bonus Programs provided in Section 3(c) assuming, for purposes of calculating the amount of the bonus pool under the plan, that the "maximum" amount, as that term is used in the plan, was achieved for the current plan year (the "Maximum Annual Bonus"), with such amount prorated to reflect the number of full months the Executive is employed in the year in which termination occurs; (C) an LTIP payment for the current year, assuming achievement of the three-year maximum award, prorated to -21- reflect the total number of full months the Executive is employed in the year in which termination occurs; (D) three times the sum of (x) the Executive's annual Base Salary at the rate in effect at the time the Notice of Termination is given and (y) the Maximum Annual Bonus defined in Section 5(e)(i)(B), but without proration (and, in each such case, without regard to any contributions by Mattel for the Executive's benefit to the PIP); and (E) the full term payout for the three-year period of the LTIP, assuming for purposes of calculating the amount earned under the LTIP, achievement of the three-year maximum award (including the full amount of the premium), less any interim payments previously received by the Executive. (ii) If it is determined that any payment or distribution by Mattel to the Executive pursuant to Section 5(e) (determined without regard to any additional payments required pursuant to this sentence) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive with respect to each Payment an additional payment (a "Gross-Up Payment") in an -22- amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (iii) In addition, the Executive shall receive the amounts and be entitled to the benefits provided in clauses (ii), (iii), (iv) and (v) of Section 5(d). (f) Bonus During Cancellation Period. If Mattel notifies the Executive -------------------------------- that the Employment Period provided in Section 1 hereof will not be automatically extended as provided therein, the compensation of the Executive shall continue as provided in this Agreement for the period provided therein, except that the amount of MIP compensation payable under the Bonus Programs with respect to each fiscal year during such period (including the year in which the notice was given) shall be the Average Annual Bonus as determined in Section 5(d)(i)(B). Amounts payable with respect to the year in which the term specified in Section 1 expires shall be prorated based on a fraction the numerator of which is the number of full months from the beginning of such year until the date of the expiration of this Agreement and denominator of which is 12. -23- 6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or ------------------------- limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by Mattel and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option or other agreement with Mattel or any of its affiliated companies. Except as otherwise provided herein, amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of Mattel at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 7. No Set Off, Payment of Fees. Except as provided herein, Mattel's --------------------------- obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation any set-off, counterclaim, recoupment, defense or other right which Mattel may have against the Executive or others. Mattel agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by Mattel or others of the validity or enforceability of, or liability under, any provision of this -24- Agreement other than expenses relating to a claim by the Executive that he terminated for Good Reason or that the termination for Cause was improper, in which case such fees and expenses shall be paid only if the Executive prevails in whole or in part. All amounts provided herein shall include, in each case, interest, compounded quarterly, on the total unpaid amount determined to be payable under this Agreement, such interest to be calculated on the basis of the prime commercial lending rate announced by Bank of America National Trust and Savings Association in effect from time to time during the period of such nonpayment. In the event that the Executive shall in good faith give a Notice of Termination for Good Reason and it shall thereafter be determined that Good Reason did not exist, the employment of the Executive shall, unless Mattel and the Executive shall otherwise mutually agree, be deemed to have terminated at the Date of Termination specified in such purported Notice of Termination by mutual consent of Mattel and the Executive and thereupon, the Executive shall be entitled to receive only those payments and benefits which he would have been entitled to receive at such date. 8. Arbitration of Disputes ----------------------- (a) The parties agree that any disputes, controversies or claims which arise out of or relate to this Agreement, the Executive's employment or the termination of his employment, -25- including, but not limited to, any claim relating to the purported validity, interpretation, enforceability or breach of this Agreement, and/or any other claim or controversy arising out of the relationship between the Executive and Mattel (or the nature of the relationship) or the continuation or termination of that relationship, including, but not limited to, claims that a termination was for Cause, including the determination of Mattel's Board of Directors in accordance with Section 4(b), or for Good Reason, claims for breach of covenant, breach of an implied covenant of good faith and fair dealing, wrongful termination, breach of contract, or intentional infliction of emotional distress, defamation, breach of right of privacy, interference with advantageous or contractual relations, fraud, conspiracy or other tort or property claims of any kind, which are not settled by agreement between the parties, shall be settled by arbitration under the labor arbitration rules of the American Arbitration Association before a board of three arbitrators, as selected thereunder. One arbitrator shall be selected by the Executive, one by Mattel and the third by the two persons so selected, all in accordance with the labor arbitration rules of the American Arbitration Association then in effect. In the event that the arbitrator selected by the Executive and the arbitrator selected by Mattel are unable to agree upon a third arbitrator, then the -26- third arbitrator shall be selected from a list of seven provided by the office of the American Arbitration Association nearest to the Executive's residence with the parties striking names in order and the party striking first to be determined by the flip of a coin. The arbitration shall be held in a location to be mutually agreed upon by the parties. In the absence of agreement, the Chairman of the Board of Mattel shall determine the location. (b) In consideration of the parties' agreement to submit to arbitration all disputes with regard to this Agreement and/or with regard to any alleged contract, or any other claim arising out of their conduct, the relationship existing hereunder or the continuation or termination of that relationship, and in further consideration of the anticipated expedition and the minimizing of expense resulting from this arbitration remedy, the arbitration provisions of this Agreement shall provide the exclusive remedy, and each party expressly waives any right he or it may have to seek redress in any other forum. (c) Any claim which either party has against the other party which could be submitted for resolution pursuant to this Section 8 must be presented in writing by the claiming party to the other within one year of the date the claiming party knew or should have known of the facts giving rise to the claim, except -27- that claims arising out of or related to the termination of the Executive's employment must be presented by him within one year after the Date of Termination. Unless the party against whom any claim is asserted waives the time limits set forth above, any claim not brought within the time periods specified shall be waived and forever barred. (d) Mattel will pay all costs and expenses of the arbitration to the extent provided in this Section 8. In the event expenses are not paid by Mattel, and without diminishing the Executive's right to reimbursement as provided in this Section, costs and expenses shall be paid as follows: (x) the expenses of the neutral arbitrator and of a transcript of any arbitration proceeding shall be divided equally between the Executive and Mattel; and (y) each party shall bear the expenses of the arbitrator selected by it and of the witnesses it calls. (e) Any decision and award or order of a majority of the arbitrators shall be binding upon the parties hereto and judgment thereon may be entered in the Superior Court of the State of California or any other court having jurisdiction. (f) Each of the above terms and conditions of this Section 8 shall have separate validity and the invalidity of any part thereof shall not affect the remaining parts. -28- (g) Any decision and award or order of a majority of the arbitrators shall be final and binding between the parties as to all claims which were raised in connection with the dispute to the full extent permitted by law. In all other cases, the parties agree that a decision of a majority of arbitrators shall be a condition precedent to the institution or maintenance of any legal, equitable, administrative, or other formal proceeding by the Executive in connection with the dispute, and that the decision and opinion of the board of arbitrators may be presented in any other forum on the merits of the dispute. 9. General Release. The Executive acknowledges and agrees that this --------------- Agreement includes the entire agreement and understanding between the parties with regard to the Executive's employment, the termination thereof during the Employment Period, and all amounts to which the Executive shall be entitled whether during the term of employment or upon termination thereof. Accordingly, upon Mattel's fulfilling its obligations to the Executive hereunder, the Executive, on behalf of himself and his successors, assigns, heirs and any and all other persons claiming through the Executive, if any, and each of them, shall and does hereby forever relieve, release, and discharge Mattel and its respective predecessors, successors, assigns, owners, attorneys, representatives, affiliates, parent corporations, subsidiaries -29- (whether or not wholly-owned), divisions, partners and their officers, directors, agents, employees, servants, executors, administrators, accountants, investigators, insurers, and any and all other related individuals and entities, if any, and each of them, in any and all capacities, from any and all claims, debts, liabilities, demands, obligations, liens, promises, acts, agreements, costs and expenses (including, but not limited to, attorneys' fees), damages, actions and causes of action, of whatever kind or nature, including, without limitation, any statutory, civil or administrative claim, or any claim, arising out of acts or omissions occurring before the execution of this Agreement, whether known or unknown, suspected or unsuspected, fixed or contingent, apparent or concealed (collectively referred to as "claims"), including, but not limited to, any claims based on, arising out of, related to or connected with the subject matter of this Agreement, the Executive's employment or the termination thereof, and any and all facts in any manner arising out of, related to or connected with the Executive's employment with, or termination of employment from, Mattel or any of its related entities, including, but not limited to, any claims arising from rights under federal, state, and local laws prohibiting discrimination on the basis of race, national origin, sex, religion, age, marital status, pregnancy, handicap, ancestry, sexual orientation, or any other form of discrimination, and any common law claims of any kind, including, -30- but not limited to, contract, tort, and property rights including, but not limited to, breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with contract or current or prospective economic advantage, fraud, deceit, misrepresentation, defamation, wrongful termination, infliction of emotional distress, breach of fiduciary duty, and any other common law claim of any kind whatever. Upon Mattel's fulfilling its obligations to the Executive here-under, the Executive expressly waives any and all rights under Section 1542 of the Civil Code of the State of California, and all other federal or state statutory rights, rules, and principles of common law or equity, including without limitation those of any jurisdiction, government, or political subdivision thereof, similar to Section 1542 ("similar provision"). Thus the Executive may not invoke the benefits of Section 1542 or any similar provision in order to prosecute or assert in any manner any claims released hereunder. Section 1542 provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." -31- 10. Confidential Information. The Executive shall hold in a fiduciary ------------------------ capacity for the benefit of Mattel all secret or confidential information, knowledge or data relating to Mattel or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during his employment by Mattel or any of its affiliated companies and which shall not be public knowledge and will continue to be bound by the provisions of the Patent and Confidence Agreement previously executed by the Executive. After termination of the Executive's employment with Mattel, he shall not, without the prior written consent of Mattel, communicate or divulge any such information, knowledge or data to anyone other than Mattel and those designated by it. 11. Successors. ---------- (a) This Agreement is personal to the Executive and without the prior written consent of Mattel shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon Mattel and its successors. Mattel shall require -32- any successor to all or substantially all of the business and/or assets of Mattel, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as Mattel would be required to perform if no such succession had taken place. 12. Amendment; Waiver. This Agreement contains the entire agreement between --------- ------ the parties with respect to the subject matter hereof and may be amended, modified or changed only by a written instrument executed by the Executive and Mattel. No provision of this Agreement may be waived except by a writing executed and delivered by the party sought to be charged. Any such written waiver will be effective only with respect to the event or circumstance described therein and not with respect to any other event or circumstance, unless such waiver expressly provides to the contrary. 13. Miscellaneous. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of California, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisi ons hereof and shall have no force or effect. -33- (b) All notices and other communications hereunder shall be in writing; shall be delivered by hand delivery to the other party or mailed by registered or certified mail, return receipt requested, postage prepaid; shall be deemed delivered upon actual receipt; and shall be addressed as follows: if to the Executive: -------------------- Gary Baughman 471 Windrow Cluster Drive Moorestown, NJ 08057 if to Mattel: ------------- MATTEL, INC. 333 Continental Blvd. El Segundo, CA 90245 ATTENTION: Ned Mansour or to such other address as either party shall have furnished to the other in writing in accordance herewith. (c) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. -34- (d) Mattel may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. IN WITNESS WHEREOF, each of the parties hereto has duly executed this Agreement as of the date first set forth above. EXECUTIVE: /s/ Gary Baughman ----------------------------------- Gary Baughman MATTEL: MATTEL, INC., a Delaware corporation By:/s/ Ned Mansour ________________________________ Ned Mansour President, Corporate Operations ATTEST: /s/ Stephen Hartley - --------------------------------- Assistant Secretary -35- EX-99.3 5 MATTEL, INC. PERSONAL INVESTMENT PLAN EXHIBIT 99.3 MATTEL, INC. PERSONAL INVESTMENT PLAN APRIL 1, 1997 RESTATEMENT TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE I GENERAL 1.1 Plan Name............................................................. 1 1.2 Plan Purpose.......................................................... 1 1.3 Effective Date........................................................ 1 1.4 Plan Merger........................................................... 1 ARTICLE II DEFINITIONS 2.1 Accounts.............................................................. 3 2.2 Affiliated Company.................................................... 4 2.3 After-Tax Contributions............................................... 5 2.4 Before-Tax Contributions.............................................. 5 2.5 Beneficiary........................................................... 5 2.6 Reserved for Plan Modifications....................................... 5 2.7 Board of Directors.................................................... 6 2.8 Reserved for Plan Modifications....................................... 6 2.9 Reserved for Plan Modifications....................................... 6 2.10 Code.................................................................. 6 2.11 Committee............................................................. 6 2.12 Company............................................................... 6 2.13 Company Contributions................................................. 6 2.14 Company Matching Contributions........................................ 7 2.15 Company Stock......................................................... 7 2.16 Compensation.......................................................... 7 2.17 Deferral Limitation................................................... 10 2.18 Distributable Benefit................................................. 10 2.19 Early Retirement Date................................................. 11 2.20 Effective Date........................................................ 11 2.21 Eligible Employee..................................................... 11 2.22 Employee.............................................................. 12 2.23 Employment Commencement Date.......................................... 12 2.24 ERISA................................................................. 13
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PAGE 2.25 F-P Savings Plan...................................................... 13 2.26 Highly Compensated Employee........................................... 13 2.27 Hour of Service....................................................... 17 2.28 Investment Manager.................................................... 19 2.29 Normal Retirement..................................................... 19 2.30 Normal Retirement Date................................................ 19 2.31 Participant........................................................... 20 2.32 Participation Commencement Date....................................... 20 2.33 Participating Company................................................. 20 2.34 Period of Severance................................................... 20 2.35 Plan.................................................................. 20 2.36 Plan Administrator.................................................... 21 2.37 Plan Year............................................................. 21 2.38 Reserved for Plan Modifications....................................... 21 2.39 Severance Date........................................................ 21 2.40 Reserved for Plan Modifications....................................... 22 2.41 Reserved for Plan Modifications....................................... 22 2.42 Reserved for Plan Modifications....................................... 22 2.43 Reserved for Plan Modifications....................................... 22 2.44 Total and Permanent Disability........................................ 22 2.45 Trust and Trust Fund.................................................. 23 2.46 Trustee............................................................... 23 2.47 Valuation Date........................................................ 23 2.48 Year of Service....................................................... 23 ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility to Participate............................................. 26 3.2 Commencement of Participation.......................................... 26 3.3 Former Participants in F-P Savings Plan................................ 27 ARTICLE IV TRUST FUND 4.1 Trust Fund............................................................. 28 ARTICLE V EMPLOYEE CONTRIBUTIONS 5.1 Employee Contributions................................................. 29 5.2 Amount Subject to Election............................................. 29
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PAGE 5.3 Termination of, Change in Rate of, or Resumption of Deferrals................. 31 5.4 Limitation on Before-Tax Contributions by Highly Compensated Employees........ 32 5.5 Provisions for Disposition of Excess Before-Tax Contributions by Highly Compensated Employees...................................................... 37 5.6 Provisions for Return of Annual Before-Tax Contributions in Excess of the Deferral Limitation........................................................ 41 5.7 Character of Amounts Contributed as Before-Tax Contributions.................. 44 5.8 Participant Transfer/Rollover Contributions................................... 45 ARTICLE VI COMPANY CONTRIBUTIONS 6.1 General....................................................................... 47 6.2 Requirement for Net Profits................................................... 49 6.3 Special Limitations on After-Tax Contributions and Company Matching Contributions.............................................................. 49 6.4 Provision for Return of Excess After-Tax Contributions and Company Matching Contributions on Behalf of Highly Compensated Employees.................... 54 6.5 Forfeiture of Company Matching Contributions Attributable to Excess Deferrals or Contributions................................................. 58 6.6 Investment and Application of Plan Contributions.............................. 58 6.7 Irrevocability................................................................ 61 6.8 Company, Committee and Trustee Not Responsible for Adequacy of Trust Fund..... 62 ARTICLE VII PARTICIPANT ACCOUNTS AND ALLOCATIONS 7.1 General....................................................................... 63 7.2 Participants' Accounts........................................................ 63 7.3 Revaluation of Participants' Accounts......................................... 63 7.4 Treatment of Accounts Following Termination of Employment..................... 64 7.5 Accounting Procedures......................................................... 64 ARTICLE VIII VESTING; PAYMENT OF PLAN BENEFITS 8.1 Vesting....................................................................... 66 8.2 Distribution Upon Retirement.................................................. 67
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PAGE 8.3 Distribution Upon Death Prior to Termination of Employment................... 68 8.4 Death After Termination of Employment........................................ 69 8.5 Termination of Employment Prior to Normal Retirement Date.................... 70 8.6 Withdrawals.................................................................. 73 8.7 Form of Distribution......................................................... 79 8.8 Election for Direct Rollover of Distributable Benefit to Eligible Retirement Plan....................................................................... 80 8.9 Designation of Beneficiary................................................... 83 8.10 Facility of Payment.......................................................... 85 8.11 Requirement of Spousal Consent............................................... 85 8.12 Additional Documents......................................................... 86 8.13 Company Stock Distribution................................................... 86 8.14 Valuation of Accounts........................................................ 87 8.15 Forfeitures; Repayment....................................................... 90 8.16 Loans........................................................................ 90 8.17 Special Rule for Disabled Employees.......................................... 95 8.18 Election for Fully Vested Employees Transferred to Fisher-Price, Inc......... 97 8.19 Provision for Small Benefits................................................. 98 ARTICLE IX OPERATION AND ADMINISTRATION OF THE PLAN 9.1 Plan Administration.......................................................... 99 9.2 Committee Powers............................................................. 100 9.3 Investment Manager........................................................... 102 9.4 Periodic Review.............................................................. 103 9.5 Committee Procedure.......................................................... 103 9.6 Compensation of Committee.................................................... 104 9.7 Resignation and Removal of Members........................................... 105 9.8 Appointment of Successors.................................................... 105 9.9 Records...................................................................... 105 9.10 Reliance Upon Documents and Opinions......................................... 106 9.11 Requirement of Proof......................................................... 107 9.12 Reliance on Committee Memorandum............................................. 107 9.13 Multiple Fiduciary Capacity.................................................. 108
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PAGE 9.14 Limitation on Liability...................................................... 108 9.15 Indemnification.............................................................. 108 9.16 Reserved for Plan Modifications.............................................. 109 9.17 Allocation of Fiduciary Responsibility....................................... 119 9.18 Bonding...................................................................... 110 9.19 Reserved for Plan Modifications.............................................. 110 9.20 Reserved for Plan Modifications.............................................. 110 9.21 Reserved for Plan Modifications.............................................. 111 9.22 Prohibition Against Certain Actions.......................................... 111 9.23 Plan Expenses................................................................ 111 ARTICLE X SPECIAL PROVISIONS CONCERNING COMPANY STOCK EFFECTIVE AS OF OCTOBER 1,1992 10.1 Securities Transactions...................................................... 113 10.2 Valuation of Company Securities.............................................. 114 10.3 Allocation of Stock Dividends and Splits..................................... 115 10.4 Reinvestment of Dividends.................................................... 115 10.5 Voting of Company Stock...................................................... 116 10.6 Confidentiality Procedures................................................... 117 10.7 Securities Law Limitation.................................................... 117 ARTICLE XI MERGER OF COMPANY; MERGER OF PLAN 11.1 Effect of Reorganization or Transfer of Assets............................... 118 11.2 Merger Restriction........................................................... 118 ARTICLE XII PLAN TERMINATION AND DISCONTINUANCE OF CONTRIBUTIONS 12.1 Plan Termination............................................................. 120 12.2 Discontinuance of Contributions.............................................. 121 12.3 Rights of Participants....................................................... 122 12.4 Trustee's Duties on Termination.............................................. 122 12.5 Partial Termination.......................................................... 124 12.6 Failure to Contribute........................................................ 124 ARTICLE XIII APPLICATION FOR BENEFITS 13.1 Application for Benefits..................................................... 125 13.2 Action on Application........................................................ 125 13.3 Appeals...................................................................... 126 ARTICLE XIV LIMITATIONS ON CONTRIBUTIONS
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PAGE 14.1 General Rule................................................................ 128 14.2 Annual Additions............................................................ 128 14.3 Other Defined Contribution Plans............................................ 129 14.4 Combined Plan Limitation (Defined Benefit Plan)............................. 129 14.5 Adjustments for Excess Annual Additions..................................... 130 14.6 Disposition of Excess Amounts............................................... 133 14.7 Affiliated Company.......................................................... 133 ARTICLE XV RESTRICTION ON ALIENATION 15.1 General Restrictions Against Alienation..................................... 134 15.2 Nonconforming Distributions Under Court Order............................... 135 ARTICLE XVI PLAN AMENDMENTS 16.1 Amendments.................................................................. 138 16.2 Retroactive Amendments...................................................... 139 16.3 Amendment of Vesting Provisions............................................. 139 ARTICLE XVII TOP-HEAVY PROVISIONS 17.1 Minimum Company Contributions............................................... 141 17.2 Compensation................................................................ 142 17.3 Top-Heavy Determination..................................................... 142 17.4 Maximum Annual Addition..................................................... 146 17.5 Aggregation................................................................. 147 ARTICLE XVIII MISCELLANEOUS 18.1 No Enlargement of Employee Rights........................................... 148 18.2 Mailing of Payments; Lapsed Benefits........................................ 148 18.3 Addresses................................................................... 151 18.4 Notices and Communications.................................................. 151 18.5 Reporting and Disclosure.................................................... 151 18.6 Governing Law............................................................... 152 18.7 Interpretation.............................................................. 152 18.8 Certain Securities Laws Rules............................................... 152 18.9 Withholding for Taxes....................................................... 153 18.10 Limitation on Company; Committee and Trustee Liability...................... 153 18.11 Successors and Assigns...................................................... 153 18.12 Counterparts................................................................ 153
-vi- PERSONAL INVESTMENT PLAN ARTICLE I GENERAL 1.1 Plan Name. --------- This instrument evidences the terms of a tax-qualified retirement plan for the Eligible Employees of Mattel, Inc. and its participating affiliates to be known as the "Mattel, Inc. Personal Investment Plan" ("Plan"). 1.2 Plan Purpose. ------------ This Plan is intended to qualify under Code Section 401(a) as a profit sharing plan, although contributions may be made to the Plan without regard to profits, and with respect to the portion hereof intended to qualify as a Qualified Cash or Deferred Arrangement, to satisfy the requirements of Code Section 401(k). 1.3 Effective Date. -------------- The original effective date of this Plan is November 1, 1983. This amendment and restatement of the Plan reflects the provisions of the Plan as in effect as of April 1, 1997, except as otherwise expressly provided herein. 1.4 Plan Merger. ----------- Effective April 1, 1997, the Fisher-Price, Inc. Matching Savings Plan (the "F-P Savings Plan") has been merged with and into this Plan and the account balances under the former -1- F-P Savings Plan have been transferred to corresponding accounts under this Plan, as follows: F-P SAVINGS PLAN ACCOUNT CORRESPONDING PLAN ACCOUNT Employee Contribution Account Before-Tax Contributions Account Company Matching Account Company Matching Account Discretionary Contribution Account Company Matching Account Profit Sharing Account Transfer/Rollover Account Rollover Contributions Account Transfer/Rollover Account -2- ARTICLE II DEFINITIONS 2.1 Accounts. -------- "Accounts" or "Participant's Accounts" means the following Plan accounts maintained by the Committee for each Participant as required by Article VII: (a) "Before-Tax Contributions Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Participant Before-Tax Contributions, and any earnings thereon, in accordance with Article V. (b) "After-Tax Contributions Account" shall mean the account established and maintained for each Participant under Article VII to reflect amounts held in the Trust Fund on behalf of such Participant which are attributable to Participant After-Tax Contributions and any earnings thereon, in accordance with Article V. (c) "Company Matching Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Company Matching Contributions, and any earnings thereon, pursuant to Section 6.1(d). (d) "Company Contributions Account" shall mean the account established and maintained for each Participant -3- under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to Company Contributions, and any earnings thereon, pursuant to Section 6.1(a). (e) "Transfer/Rollover Account" shall mean the account established and maintained for each Participant under Article VII for purposes of holding and accounting for amounts held in the Trust Fund which are attributable to amounts distributed to the Participant from any other plan qualified under Code Section 401(a), or from an Individual Retirement Account attributable to employer contributions under another plan qualified under Code Section 401(a), and any earnings on such amounts, as provided in Section 5.8. 2.2 Affiliated Company. ------------------ "Affiliated Company" shall mean: (a) Any corporation that is included in a controlled group of corporations, within the meaning of Section 414(b) of the Code, that includes the Company, (b) Any trade or business that is under common control with the Company within the meaning of Section 414(c) of the Code, (c) Any member of an affiliated service group, within the meaning of Section 414(m) of the Code, that includes the Company, and -4- (d) Any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code. 2.3 After-Tax Contributions. ----------------------- "After-Tax Contributions" shall mean those contributions by a Participant to the Trust Fund in accordance with Article V which do not qualify as Before-Tax Contributions. 2.4 Before-Tax Contributions. ------------------------ "Before-Tax Contributions" shall mean those amounts contributed to the Plan as a result of a salary or wage reduction election made by the Participant in accordance with Article V, to the extent such contributions qualify for treatment as contributions made under a "qualified cash or deferred arrangement" within the meaning of Section 401(k) of the Code. 2.5 Beneficiary. ----------- "Beneficiary" or "Beneficiaries" shall mean the person or persons last designated by a Participant as set forth in Section 8.9 or, if there is no designated Beneficiary or surviving Beneficiary, the person or persons designated in Section 8.9 to receive the interest of a deceased Participant in such event. 2.6 Reserved for Plan Modifications. ------------------------------- -5- 2.7 Board of Directors. ------------------ "Board of Directors" shall mean the Board of Directors (or its delegate) of Mattel, Inc. as it may from time to time be constituted. 2.8 Reserved for Plan Modifications. -------------------------------- 2.9 Reserved for Plan Modifications. -------------------------------- 2.10 Code. ----- "Code" shall mean the Internal Revenue Code of 1986, as in effect on the date of execution of this Plan document and as thereafter amended from time to time. 2.11 Committee. ---------- "Committee" shall mean the Committee described in Article IX hereof. 2.12 Company. -------- "Company" shall mean Mattel, Inc., or any successor thereof, if its successor shall adopt this Plan. 2.13 Company Contributions. ---------------------- "Company Contributions" shall mean amounts paid by a Participating Company into the Trust Fund in accordance with Section 6.1(a). 2.14 Company Matching Contributions. ------------------------------- "Company Matching Contributions" shall mean amounts paid by a Participating Company into the Trust Fund in accordance with Section 6.1(d). -6- 2.15 Company Stock. -------------- "Company Stock" shall mean whichever of the following is applicable: (a) So long as the Company has only one class of stock, that class of stock. (b) In the event the Company at any time has more than one class of stock, the class (or classes) of the Company's stock constituting "employer securities" as that term is defined in Section 409(1) of the Code. 2.16 Compensation. ------------- (a) "Compensation" shall mean the full salary and wages (including overtime, shift differential and holiday, vacation and sick pay) and other compensation paid by a Participating Company during a Plan Year by reason of services performed by an Employee, subject, however, to the following special rules and to the provisions of Subsections 2.16(b) through (e): (i) Except as specified in (ii) below, fringe benefits and contributions by the Participating Company to and benefits under any employee benefit shall not be taken into account in determining compensation; (ii) Amounts deducted pursuant to authorization by an Employee or pursuant to requirements of law (including amounts of salary or wages deferred in accordance with the provisions of Section 5.1 and which qualify for treatment under Code Section 401(k) or amounts deducted pursuant to Code -7- Section 125 or 129) shall be included in "Compensation" except as specifically provided to the contrary elsewhere in this Plan; (iii) Amounts paid or payable by reason of services performed during any period in which an Employee is not a Participant under the Plan shall not be taken into account in determining Compensation; (iv) Amounts deferred by the Employee pursuant to non- qualified deferred compensation plans, regardless of whether such amounts are includable in the Employee's gross income for his current taxable year, shall not be taken into account in determining Compensation; (v) Amounts included in any Employee's gross income with respect to life insurance as provided by Code Section 79 shall not be taken into account in determining compensation; and (vi) Amounts paid to Employees as "bonuses" shall not be taken into account in determining compensation. (b) To the extent permitted by Code Section 415(c)(3), in the case of a Participant who ceases actively to perform services for a Participating Company prior to January 1, 1989 because such person has sustained a Total and Permanent Disability, such Participant shall be deemed to have "Compensation" to the extent provided in the provisions of Section 8.17(d), for the limited purposes of determining the amount of certain contributions to this Plan. -8- (c) The term "Compensation," for purposes of Article XIV of this Plan, shall mean wages as defined in Section 3401(a) and all other payments of compensation to an Employee by the Company (in the course of the Company's trade or business) for which the Company is required to furnish the Employee a written statement under Code Sections 6041(d) and 6051(a)(3). Compensation for purposes of this Subsection (c) shall be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). (d) In the event that this Plan is deemed a Top-Heavy Plan as set forth in Article XVII, the term "Compensation" shall not include amounts excluded by reason of and to the extent provided by Sections 17.1 and 17.2. (e) Effective for Plan Years commencing on and after January 1, 1994, the "Compensation" of any Employee taken into account under the Plan for any Plan Year shall not exceed $150,000 (or such adjusted amount as may be prescribed for such Plan Year pursuant to Section 401(a)(17) of the Code). In determining the Compensation of a Participant for purposes of this limitation, the rules of Section 414(q)(6) of the Code shall apply, except in applying such rules, the term "family" shall include only -9- the Spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the year. If, as a result of the application of such rules the adjusted $150,000 limitation is exceeded, then, the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this Subsection (e) prior to the application of this limitation. 2.17 Deferral Limitation. ------------------- "Deferral Limitation" shall mean the dollar limitation on the exclusion of elective deferrals from a Participant's gross income under Section 402(g) of the Code, as in effect with respect to the taxable year of the Participant. 2.18 Distributable Benefit. --------------------- "Distributable Benefit" shall mean the vested interest of a Participant in this Plan which is determined and distributable in accordance with the provisions of Article VIII following the termination of the Participant's employment. 2.19 Early Retirement Date. --------------------- "Early Retirement Date" shall mean the later of the Participant's 55th birthday or the date on which the Participant completes five Years of Service. 2.20 Effective Date. -------------- "Effective Date" shall mean November 1, 1983, which shall be the original effective date of this Plan. -10- 2.21 Eligible Employee. ----------------- "Eligible Employee" shall include any individual who (i) prior to April 1, 1997 is at least age twenty-one (21) or on or after April 1, 1997 is at least age twenty and one-half (20-1/2) and (ii) is employed by a Participating Company, except (a) any Employee who is covered by a collective bargaining agreement to which a Participating Company is a party if there is evidence that retirement benefits were the subject of good faith bargaining between the Participating Company and the collective bargaining representative, unless the collective bargaining agreement provides for coverage under this Plan, (b) any Employee who is a "leased employee," within the meaning of Code Section 414(n), or (c) any Employee who is classified as a temporary Employee, unless such temporary Employee has been an Employee for a twelve (12) consecutive month period. 2.22 Employee. -------- (a) "Employee" shall mean each person currently employed in any capacity by the Company or Affiliated Company any portion of whose income is subject to withholding of income tax and/or for whom Social Security contributions are made by the Company. The term "Employee" also includes a "leased employee," to the extent required by Code Section 414(n). -11- (b) Although Eligible Employees are the only class of Employees eligible to participate in this Plan, the term "Employee" is used to refer to persons employed in a non-Eligible Employee capacity as well as Eligible Employee category. Thus, those provisions of this Plan that are not limited to Eligible Employees, such as those relating to Hours of Service, apply to both Eligible and non-Eligible Employees. 2.23 Employment Commencement Date. ---------------------------- "Employment Commencement Date" shall mean each of the following: (a) The date on which an Employee first performs an Hour of Service in any capacity for the Company or an Affiliated Company with respect to which the Employee is compensated or is entitled to compensation by the Company or the Affiliated Company. (b) In the case of an Employee who has a one-year Period of Severance and who is subsequently reemployed by the Company or an Affiliated Company, the term "Employment Commencement Date" shall also mean the first day following such one-year Period of Severance on which the Employee performs an Hour of Service for the Company or an Affiliated Company with respect to which he is compensated or entitled to compensation by the Company or Affiliated Company. -12- 2.24 ERISA. ----- "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.25 F-P Savings Plan. ---------------- "F-P Savings Plan" shall mean the Fisher-Price, Inc. Matching Savings Plan, which was merged with and into this Plan effective April 1, 1997. 2.26 Highly Compensated Employee. --------------------------- (a) "Highly Compensated Employee" shall mean any Employee who (i) was a 5% owner during the Determination Year or the Look Back Year; (ii) received Compensation from the Company in excess of $75,000 during the Look Back Year; (iii) received Compensation from the Company in excess of $50,000 during the Look Back Year and was in the "top-paid group" of Employees for such Look Back Year; (iv) was at any time an officer during the Look Back Year and received Compensation greater than fifty percent (50%) of the amount in effect under Section 415(b)(1)(A) of the Code in such Look Back Year; or (v) was an Employee described in Paragraph (ii), (iii), or (iv) above for the Determination Year and was a member of the group consisting of the 100 Employees paid the greatest Compensation during the Determination Year. -13- (b) Determination of a Highly Compensated Employee shall be in accordance with the following definitions and special rules: (i) "Determination Year" means the Plan Year for which the determination of Highly Compensated Employee is being made. (ii) "Look Back Year" is the twelve (12) month period preceding the Determination Year. (iii) An Employee shall be treated as a 5% owner for any Determination Year or Look Back Year if at any time during such Year such Employee was a 5% owner (as defined in Section 17.3). (iv) An Employee is in the "top-paid group" of Employees for any Determination Year or Look Back Year if such Employee is in the group consisting of the top twenty percent (20%) of the Employees when ranked on the basis of Compensation paid during such Year. (v) For purposes of this Section, no more than fifty (50) Employees (or, if lesser, the greater of three (3) Employees or ten percent (10%) of the Employees) shall be treated as officers. To the extent required by Code Section 414(q), if for any Determination Year or Look Back Year no officer of the Company is described in this Section, the highest paid officer of the Company for such year shall be treated as described in this Section. -14- (vi) If any individual is a "family member" with respect to a 5% owner or of a Highly Compensated Employee in the group consisting of the ten (10) Highly Compensated Employees paid the greatest Compensation during the Determination Year or Look Back Year, then (A) such individual shall not be considered a separate Employee, and (B) any Compensation paid to such individual (and any applicable contribution or benefit on behalf of such individual) shall be treated as if it were paid to (or on behalf of) the 5% owner or Highly Compensated Employee. For purposes of this Paragraph (vi), the term "family member" means, with respect to any Employee, such Employee's spouse and lineal ascendants or descendants and the spouses of such lineal ascendants or descendants. (vii) For purposes of this Section the term "Compensation" means Compensation as defined in Code Section 415(c)(3), as set forth in Section 2.16(c), without regard to the limitations of Section 2.16(e); provided, however, the determination under this Paragraph (vi) shall be made without regard to Code Sections 125, 402(a)(8), and 401(h)(1)(B), and in the case of Participant contributions made pursuant to a salary reduction agreement, without regard to Code Section 403(b). (viii) For purposes of determining the number of Employees in the "top-paid" group under this Section, the following Employees shall be excluded: -15- (A) Employees who have not completed six (6) months of service, (B) Employees who normally work less than 17-1/2 hours per week, (C) Employees who normally work not more than six (6) months during any Plan Year, and (D) Employees who have not attained age 20-1/2, (E) Except to the extent provided in Treasury Regulations, Employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and the Company, and (F) Employees who are nonresident aliens and who receive no earned income (within the meaning of Code Section 911(d)(2) from the Company which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3)). The Company may elect to apply Subparagraphs (A) through (D) above by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or (as the case may be) than as specified in such Subparagraphs. (ix) A former Employee shall be treated as a Highly Compensated Employee if -16- (A) such Employee was a Highly Compensated Employee when such Employee incurred a severance, or (B) such Employee was a Highly Compensated Employee at any time after attaining age fifty-five (55). (x) Code Sections 414(b), (c), (m), and (o) shall be applied before the application of this Section. Also, the term "Employee" shall include "leased employees," within the meaning of Code Section 414(n), unless such leased Employee is covered under a "safe harbor" plan of the leasing organization and not covered under a qualified plan of the Affiliated Company. (c) To the extent permissible under Code Section 414(q), the Committee may determine which Employees shall be categorized as Highly Compensated Employees by applying a simplified method and calendar year election prescribed by the Internal Revenue Service. 2.27 Hour of Service. --------------- (a) "Hour of Service" of an Employee shall mean the following: (i) Each hour for which the Employee is paid by the Company or an Affiliated Company or entitled to payment for the performance of services as an Employee. (ii) Each hour in or attributable to a period of time during which the Employee performs no duties (irrespective of whether he has terminated his Employment) due to a vacation, holiday, illness, incapacity (including pregnancy or -17- disability), layoff, jury duty, military duty or a Leave of Absence, for which he is so paid or so entitled to payment, whether direct or indirect. However, no such hours shall be credited to an Employee if such Employee is directly or indirectly paid or entitled to payment for such hours and if such payment or entitlement is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, unemployment compensation or disability insurance laws or is a payment which solely reimburses the Employee for medical or medically related expenses incurred by him. (iii) Each hour for which he is entitled to back pay, irrespective of mitigation of damages, whether awarded or agreed to by the Company or an Affiliated Company, provided that such Employee has not previously been credited with an Hour of Service with respect to such hour under paragraphs (i) or (ii) above. (b) Hours of Service under Subsections (a)(ii) and (a)(iii) shall be calculated in accordance with Department of Labor Regulation 29 C.F.R. (S) 2530.200b-2(b). Hours of Service shall be credited to the appropriate computation period according to the Department of Labor Regulation (S) 2530.200b-2(c). However, an Employee will not be considered as being entitled to payment until the date when the Company or the Affiliated Company would normally make payment to the Employee for such Hour of Service. -18- 2.28 Investment Manager. ------------------ "Investment Manager" means the one or more Investment Managers, if any, that are appointed pursuant to Section 9.3. 2.29 Normal Retirement. ----------------- "Normal Retirement" shall mean a Participant's termination of employment on or after attaining the Plan's Normal Retirement Date. 2.30 Normal Retirement Date. ---------------------- "Normal Retirement Date" shall be the Participant's sixty-fifth birthday. 2.31 Participant. ----------- "Participant" shall mean any Eligible Employee who has satisfied the participation eligibility requirements set forth in Section 3.1 and has begun participation in this Plan in accordance with the provisions of Section 3.2. 2.32 Participation Commencement Date. ------------------------------- "Participation Commencement Date" shall mean the day on which an Employee's participation in this Plan may commence in accordance with the provisions of Article III. 2.33 Participating Company. --------------------- "Participating Company" shall mean Mattel, Inc., Mattel Sales, Inc. and each other Affiliated Company (or similar entity) that has been granted permission by the Board of Directors to participate in this Plan, provided that contributions are being made hereunder for the Employees of such Participating Company. Permission to become a Participating Company shall be granted -19- under such conditions and upon such conditions as the Board of Directors deems appropriate. Effective April 1, 1997, Fisher-Price, Inc. and each other adopting employer in the F-P Savings Plan shall be a Participating Company in this Plan. 2.34 Period of Severance. ------------------- "Period of Severance" shall mean the period of time commencing on the Participant's Severance Date and continuing until the first day, if any, on which the Participant completes one or more Hours of Service following such Severance Date. 2.35 Plan. ---- "Plan" shall mean the Mattel, Inc. Personal Investment Plan herein set forth, and as it may be amended from time to time. 2.36 Plan Administrator. ------------------ "Plan Administrator" shall mean the administrator of the Plan, within the meaning of Section 3(16)(A) of ERISA. The Plan Administrator shall be Mattel, Inc. 2.37 Plan Year. --------- "Plan Year" shall mean the fiscal year of the Company. Effective as of January 1, 1992, the fiscal year of the Company is the twelve consecutive month period ending each December 31. 2.38 Reserved for Plan Modifications. ------------------------------- 2.39 Severance Date. -------------- "Severance Date" shall mean the earlier of (a) the date on which an Employee quits, retires, is discharged, or dies; or -20- (b) the first anniversary of the first date of a period in which an Employee remains absent from service (with or without pay) with the Company or an Affiliated Company for any reason other than quit, retirement, discharge or death (such as vacation, holiday, sickness, disability, leave of absence or layoff). In the case of an Employee who has a maternity or paternity absence described in Code Sections 410(a)(5)(E) and 411(a)(6)(E), the Employee's Period of Severance will begin on the second anniversary of the date the Employee is first absent for a maternity or paternity leave, provided the Employee does not perform an Hour of Service during such period. The first one-year period of the absence will be included in the Employee's period of service and the second one- year period is neither part of the period of service nor part of the Period of Severance. The Committee may require that the Employee furnish such timely information as the Committee may reasonably require to establish that the absence from work is for such a maternity or paternity absence, and the number of days for which there was such an absence. 2.40 Reserved for Plan Modifications. ------------------------------- 2.41 Reserved for Plan Modifications. ------------------------------- 2.42 Reserved for Plan Modifications. ------------------------------- -21- 2.43 Reserved for Plan Modifications. ------------------------------- 2.44 Total and Permanent Disability. ------------------------------ An individual shall be considered to be suffering from a Total and Permanent Disability if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than 12 months. An individual's disabled status shall be determined by the Committee, based on such evidence as the Committee determines to be sufficient. The rules of this Section 2.44 shall be applied by the Committee in accordance with Treasury Regulations, if any, promulgated under Code Section 415 or Code Section 22(e)(3). 2.45 Trust and Trust Fund. -------------------- "Trust" or "Trust Fund" shall mean the one or more trusts created for funding purposes under the Plan. 2.46 Trustee. ------- "Trustee" shall mean the corporation appointed by the Company to act as Trustee of the Trust Fund, or any successor or other corporation acting as a trustee of the Trust Fund. 2.47 Valuation Date. -------------- "Valuation Date" shall mean the last day of each calendar month and such additional dates as may be determined in rules prescribed by the Committee. -22- 2.48 Year of Service. --------------- "Year of Service" means three hundred sixty five (365) days included in a period of service recognized under this Section 2.48. (a) Subject to the succeeding provisions of this Section 2.48, a Participant shall be credited with a period of service equal to the elapsed time between his Employment Commencement Date and his subsequent Severance Date. (b) A Participant additionally shall receive credit for a Period of Severance in computing his service hereunder if such Participant completes an Hour of Service prior to the first anniversary of his Severance Date. Except as provided in this Section 2.48(b), a Period of Severance shall not be included in a Participant's period of service hereunder. (c) If a Participant who does not have any vested interest in his accounts under the Plan has five (5) consecutive one-year Periods of Severance, any prior period of service shall be disregarded for all purposes of the Plan. Periods of service credited under this Section 2.48 before such five (5) consecutive one-year Periods of Severance shall not include any period or periods of service that are not required to be taken into account under this Section 2.48(c) by reason of any prior Periods of Severance. (d) The number of a Participant's Years of Service for vesting shall be determined by reference to each -23- three hundred sixty five day period of service recognized under this Section 2.48, whether or not consecutive. (e) Notwithstanding any other provision of this Plan, service performed by Employees for employers other than the Company or Affiliated Companies may be taken into account in computing service for any purpose of this Plan to the extent and in the manner determined by resolution of the Committee in its sole discretion. (f) Notwithstanding any other provision of this Plan, service performed for an Affiliated Company prior to such entity becoming an Affiliated Company may be taken into account for purposes of computing service for any purpose of this Plan to the extent and in the manner determined by resolution of the Board of Directors of the Company in its sole discretion. -24- ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility to Participate. -------------------------- (a) Every Eligible Employee shall become eligible to participate in the Plan on the date he becomes an Eligible Employee. (b) If an Eligible Employee ceases to be an Eligible Employee he shall again become eligible to participate in the Plan on the date he again becomes an Eligible Employee. (c) Notwithstanding the preceding rules of this Section 3.1, the actual date upon which an Employee will commence participation will be determined pursuant to the rules of Section 3.2. 3.2 Commencement of Participation. ----------------------------- (a) Each Eligible Employee shall be entitled automatically to commence participation in this Plan with respect to the Company Contributions described in Section 6.1(a) and (b). (b) From January 1, 1987 to June 30, 1988, each Eligible Employee shall be entitled to commence Employee contributions as set forth in Article V and Company Matching Contributions as set forth in Section 6.1(d) on the January 1 after their Employment Commencement Date. (c) Effective July 1, 1988, each Eligible Employee shall be entitled to commence After-Tax -25- Contributions and Company Matching Contributions as set forth in Section 6.1(d) as of the date he becomes an Eligible Employee. (d) Effective January 1, 1989, each Eligible Employee shall be entitled to commence Before-Tax Contributions and Company Matching Contributions as set forth in Section 6.1(d) as of the date he becomes an Eligible Employee. (e) The Committee may prescribe such rules as it deems necessary or appropriate regarding times and procedures for Participants to make elections to contribute a portion of Compensation as provided in Section 5.1. 3.3 Former Participants in F-P Savings Plan --------------------------------------- Notwithstanding anything in this Article to the contrary, any individual who was a participant in the F-P Savings Plan on March 31, 1997 shall automatically become a Participant in this Plan effective as of April 1, 1997. -26- ARTICLE IV TRUST FUND 4.1 Trust Fund. ---------- (a) The Company has entered into a Trust Agreement for the establishment of a Trust to hold the assets of the Plan. Simultaneously with the establishment of this Plan the Company shall pay to the Trustee a specified sum of money as its initial contribution to the Trust Fund. The Trustee shall acknowledge receipt of this contribution and shall agree to hold and administer this contribution together with such additional funds and assets that may be subsequently deposited with the Trustee pursuant to the terms of this Plan. (b) The Trust Fund is authorized to invest in either Company Stock or such other assets as the Committee or the Investment Manager (if applicable) may direct. Participants may direct the investment of the assets in their Accounts in the Trust Fund from among the acceptable investment alternatives which the Committee may from time to time make available. (c) The Committee shall not be required to engage in any transaction, including without limitation, directing the purchase or sale of Company Stock, which it determines in its sole discretion, might tend to subject itself, its members, the Plan, the Company, or any Participant to liability under federal or state securities law. -27- ARTICLE V EMPLOYEE CONTRIBUTIONS 5.1 Employee Contributions. ---------------------- In accordance with rules which the Committee shall prescribe from time to time, each Participant shall be given an opportunity to elect to have a percentage of his or her Compensation contributed to the Plan. A contribution election by a Participant shall remain in effect from year to year (notwithstanding salary or wage rate changes) until changed by the Participant. Effective January 1, 1987, at the election of the Participant, contributions shall be made as Before-Tax Contributions, After-Tax Contributions or a combination thereof. 5.2 Amount Subject to Election. -------------------------- (a) Effective for Plan Years commencing on and after January 1, 1989, but prior to January 1, 1997, and for the period January 1, 1997 through March 31, 1997, subject to the limitations of this Article V, the amount of an individual's Compensation that may be contributed subject to the election provided in Section 5.1 shall be a whole percentage of the individual's Compensation, which percentage is not less than one percent (1%) nor more than the difference between (i) the Participant's Company Contributions percentage determined under Section 6.1(a) and (ii) seventeen percent (17%). (b) Effective April 1, 1997, subject to the limitations of this Article V, the amount of a Participant's -28- Compensation that may be contributed subject to the election provided in Section 5.1 shall be a whole percentage of the Participant's Compensation, which percentage is not less than one percent (1%) nor more than: (i) in the case of a Participant employed by Fisher-Price, Inc. or Mattel Operations, Inc., fifteen percent (15%); and (ii) in the case of any other Participant, the difference between (x) the Participant's Company Contributions percentage determined under Section 6.1(a) and (y) seventeen percent (17%). (c) No Participant shall be permitted to make Before-Tax Contributions in excess of the Deferral Limitation. Any election by a Participant to make Before-Tax Contributions shall be deemed to include an election to automatically substitute After-Tax Contributions for such Before-Tax Contributions, effective for the period starting on the date immediately following the date the Participant's Before-Tax Contributions for a calendar year equal the Deferral Limitation and ending on the immediately following December 31. In the event a Participant's Before-Tax Contributions exceed the Deferral Limitation, excess contributions shall be subject to the provisions of Section 5.6. (d) For purposes of satisfying one of the tests described under Section 5.4 and Section 6.3, the Committee may prescribe such rules as it deems necessary or -29- appropriate regarding the maximum amount that a Participant may elect to contribute and the timing of such an election. These rules may prescribe a maximum percentage of Compensation that may be contributed, or may provide that the maximum percentage of Compensation that a Participant may contribute will be a lower percentage of his Compensation above a certain dollar amount of Compensation than the maximum deferral percentage below that dollar amount of Compensation. These rules shall apply to all individuals eligible to make the election described in Section 5.1, except to the extent that the Committee prescribes special or more stringent rules applicable only to Highly Compensated Employees. 5.3 Termination of, Change in Rate of, or Resumption of Deferrals. ------------------------------------------------------------- (a) A Participant may at any time submit a request to the Committee to terminate his contributions made pursuant to this Article V. (b) A Participant may at any time (but not more frequently than once every two weeks) submit a request to the Committee to alter the rate of, or resume his contributions made pursuant to this Article V. (c) A request for termination, alteration, or resumption or alteration of the rate of contributions shall be in form satisfactory to the Committee. The Committee may require at least thirty (30) days notice prior to -30- commencement of the payroll period for which such change is to be effective. 5.4 Limitation on Before-Tax Contributions by Highly Compensated Employees ---------------------------------------------------------------------- With respect to each Plan Year, Participant Before-Tax Contributions under the Plan for the Plan Year shall not exceed the limitations on contributions on behalf of Highly Compensated Employees under Section 401(k) of the Code, as provided in this Section. In the event that Before-Tax Contributions under this Plan on behalf of Highly Compensated Employees for any Plan Year exceed the limitations of this Section for any reason, such excess contributions and any income allocable thereto shall be returned to the Participant or recharacterized as Participant After-Tax Contributions, as provided in Section 5.5. (a) The Before-Tax Contributions by a Participant for a Plan Year shall satisfy the Average Deferral Percentage test set forth in (i)(A) below, or the alternative Average Deferral Percentage test set forth in (i)(B) below, and to the extent required by regulations under Code Section 401(m), also shall satisfy the test identified in (ii) below: (i) (A) The "Actual Deferral Percentage" for Eligible Employees who are Highly Compensated Employees shall not be more than the "Actual Deferral Percentage" of all other Eligible Employees multiplied by 1.25, or -31- (i) (B) The excess of the "Actual Deferral Percentage" for Eligible Employees who are Highly Compensated Employees over the "Actual Deferral Percentage" for all other Eligible Employees shall not be more than two percentage points, and the "Actual Deferral Percentage" for Highly Compensated Employees shall not be more than the "Actual Deferral Percentage" of all other Eligible Employees multiplied by 2.00. (ii) The Average Contribution Percentage for Highly Compensated Employees eligible to participate in this Plan and a plan of the Company or an Affiliated Company that is subject to the limitations of Section 401(m) of the Code including, if applicable, this Plan, shall be reduced in accordance with Section 6.4, to the extent necessary to satisfy the requirements of Treasury Regulations Section 1.401(m)-2. (b) For the purposes of the limitations of this Section 5.4, the following definitions shall apply: (i) "Actual Deferral Percentage" means, with respect to Eligible Employees who are Highly Compensated Employees and all other Eligible Employees for a Plan Year, the average of the ratios, calculated separately for each Eligible Employee in such group, of the amount of Before-Tax Contributions under the Plan allocated to each Eligible Employee for such Plan Year to such Employee's "Compensation" for such Plan Year. An Eligible Employee's Before-Tax Contributions may be taken into account for purposes of determining his Actual Deferral Percentage for a particular Plan Year only if such Before-Tax -32- Contributions relate to Compensation that either would have been received by the Eligible Employee in the Plan Year (but for the deferral election), or is attributable to services performed in the Plan Year and would have been received by the Eligible Employee within two and one-half (2 1/2) months after the close of the Plan Year (but for the deferral election), and such Before-Tax Contributions are allocated to the Eligible Employee as of a date within that Plan Year. For purposes of this rule, an Eligible Employee's Before-Tax Contributions shall be considered allocated as of a date within a Plan Year only if (A) the allocation is not contingent upon the Eligible Employee's participation in the Plan or performance of services on any date subsequent to that date, and (B) the Before-Tax Contribution is actually paid to the Trust no later than the end of the twelve month period immediately following the Plan Year to which the contribution relates. To the extent determined by the Committee and in accordance with regulations issued by the Secretary of the Treasury, contributions on behalf of an Eligible Employee that satisfy the requirements of Code Section 401(k)(3)(C)(ii) may also be taken into account for the purpose of determining the Actual Deferral Percentage of such Eligible Employee. (ii) "Compensation" means Compensation determined by the Committee in accordance with the requirements of Section 414(s) of the Code, including, to the extent elected by the Committee, amounts deducted from an Employee's wages or -33- salary that are excludable from income under Sections 125, 129, or 402(a)(8) of the Code. (c) In the event that as of the last day of a Plan Year this Plan satisfies the requirements of Section 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans which include arrangements under Code Section 401(k), then this Section 5.4 shall be applied by determining the Actual Deferral Percentages of Eligible Employees as if all such plans were a single plan, in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. (d) For the purposes of this Section, the Actual Deferral Percentage for any Highly Compensated Employee who is a participant under two or more Code Section 401(k) arrangements of the Company or an Affiliated Company shall be determined by taking into account the Highly Compensated Employee's Compensation under each such arrangement and contributions under each such arrangement which qualify for treatment under Code Section 401(k), in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. (e) If an Eligible Employee (who is also a Highly Compensated Employee) is subject to the family aggregation rules in Section 2.26(b)(vi), the combined Actual Deferral Percentage for the family group (which is treated as one Highly Compensated Employee) shall be the Actual Deferral -34- Percentage determined by combining the Before-Tax Contributions, amounts treated as Before-Tax Contributions under Code Section 401(k)(3)(D)(ii), and Compensation of all eligible family members. (f) For purposes of this Section, the amount of Before-Tax Contributions by a Participant who is not a Highly Compensated Employee for a Plan Year shall be reduced by any Before-Tax Contributions in excess of the Deferral Limitation which have been distributed to the Participant under Section 5.6, in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. (g) The determination of the Actual Deferral Percentage of any Participant shall be made after applying the provisions of Section 14.5 relating to certain limits on Annual Additions under Section 415 of the Code. (h) The determination and treatment of Before-Tax Contributions and the Actual Deferral Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (i) The Committee shall keep or cause to have kept such records as are necessary to demonstrate that the Plan satisfies the requirements of Code Section 401(k) and the regulations thereunder, in accordance with regulations prescribed by the Secretary of the Treasury. -35- 5.5 Provisions for Disposition of Excess Before-Tax Contributions by Highly ----------------------------------------------------------------------- Compensated Employees. --------------------- (a) The Committee shall determine, as soon as is reasonably possible following the close of each Plan Year, the extent, if any, to which deferral treatment under Code Section 401(k) may not be available for Before-Tax Contributions by Highly Compensated Employees. If, pursuant to the determination by the Committee, any or all of a Participant's Before- Tax Contributions are not eligible for tax-deferral treatment, then any excess Before-Tax Contributions shall be disposed of in accordance with (i) below or any Excess Before-Tax Contribution and any income for the Plan Year ("Non-Gap Period Income") allocable thereto shall be disposed of in accordance with (ii) below. (i) To the extent permissible under Section 6.3, excess Before-Tax Contributions by the Highly Compensated Employee in a Plan Year may be recharacterized as After-Tax Contributions for the Plan Year not later than two and one-half (2-1/2) months following the close of the Plan Year. Any recharacterization shall be effective retroactive to the date of the Highly Compensated Employee's earliest Before-Tax Contributions during the Plan Year in which the excess Before-Tax Contributions were made. To the extent required by Treas. Reg. Section 1-401(k)-1(f)(3), Before-Tax Contributions recharacterized as After-Tax Contributions shall continue to be treated as Before-Tax Contributions for purposes of Article VIII. -36- (ii) To the extent a Participant's Before-Tax Contributions cannot be recharacterized in accordance with (i) above, any excess Before-Tax Contributions (and any Non-Gap Period income allocable thereto) in a Plan Year shall, if administratively feasible, be distributed to the Participant not later than two and one-half (2-1/2) months following the close of the Plan Year in which such excess Before-Tax Contributions were made, but in any event no later than the close of the first Plan Year following the Plan Year in which such excess Before-Tax Contributions were made (after withholding any applicable income taxes due on such amounts). (b) For purposes of this Section, the amount of excess Before-Tax Contributions to be distributed to a Participant for a Plan Year or recharacterized shall be reduced by the amount of any Before-Tax Contributions in excess of the Deferral Limitation (for the Participant's taxable year that ends with or within the Plan Year) which have been distributed to the Participant under Section 5.6, in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(k) of the Code. (c) The Committee shall determine the amount of any excess Before-Tax Contributions by Highly Compensated Employees for a Plan Year by application of the leveling method set forth in Treasury Regulation Section 1.401(k)-1(f)(2) under which the Deferral Percentage of the Highly Compensated Employee who has the highest such percentage for -37- such Plan Year is reduced to the extent required (i) to enable the Plan to satisfy the Actual Deferral Percentage test, or (ii) to cause such Highly Compensated Employee's Deferral Percentage to equal the Deferral Percentage of the Highly Compensated Employee with the next highest Deferral Percentage. This process shall be repeated until the Plan satisfies the Actual Deferral Percentage test. For each Highly Compensated Employee, the amount of excess Before-Tax Contributions shall be equal to the total Before-Tax Contributions (plus any amounts treated as Before-Tax Contributions) made or deemed to be made by such Highly Compensated Employee (determined prior to the application of the foregoing provisions of this Subsection (c)) minus the amount determined by multiplying the Highly Compensated Employee's Deferral Percentage (determined after application of the foregoing provisions of this Subsection (c)) by his Compensation. (d) The determination and correction of excess Before-Tax Contributions of a Highly Compensated Employee whose Actual Deferral Percentage is determined under the family aggregation rules in Section 5.4(e) shall be accomplished by reducing the Actual Deferral Percentage as required under Subsections (a) and (b) above and allocating the excess Before-Tax Contributions for the family unit among family members in proportion to the Before-Tax -38- Contributions of each family member that are combined to determine the Actual Deferral Percentage. (e) For purposes of satisfying the Actual Deferral Percentage test, Non-Gap Period income allocable to a Participant's excess Before-Tax Contributions, as determined under (b) above, shall be determined in accordance with any reasonable method used by the Plan for allocating income to Participant Accounts, provided such method does not discriminate in favor of Highly Compensated Employees and is consistently applied to all Participants for all corrective distributions or recharacterizations under the Plan for a Plan Year. The Committee shall not be liable to any Participant (or his Beneficiary, if applicable) for any losses caused by misestimating the amount of any Before-Tax Contributions in excess of the limitations of this Article V and any income allocable to such excess. (f) To the extent required by regulations under Section 401(k) or 415 of the Code, any excess Before-Tax Contributions with respect to a Highly Compensated Employee shall be treated as Annual Additions under Article XIV for the Plan Year for which the excess Before-Tax Contributions were made, notwithstanding the distribution or recharacterization of such excess in accordance with the provisions of this Section. -39- 5.6 Provisions for Return of Annual Before-Tax Contributions in Excess of the ------------------------------------------------------------------------- Deferral Limitation. ------------------- (a) In the event that due to error or otherwise, a Participant's Before-Tax Contributions under this Plan exceed the Deferral Limitation for any calendar year (but without regard to amounts of compensation deferred under any other plan), the excess Before-Tax Contributions for the Plan Year, if any, together with any Non-Gap Period income allocable to such amount shall be distributed to the Participant on or before the first April 15 following the close of the calendar year in which such excess contribution is made. The amount of excess Before-Tax Contributions that may be distributed to a Participant under this Section for any taxable year shall be reduced by any excess Before-Tax Contributions previously distributed or recharacterized in accordance with Section 5.5 for the Plan Year beginning with or within such taxable year. (i) Income on Before-Tax Contributions in excess of the Deferral Limitation shall be calculated in accordance with Section 5.5(e), except calculations of allocable Non-Gap Period income shall be made with reference to the calendar year (if the Plan Year is not the calendar year). (ii) For the 1987 calendar year only, income shall be calculated on a reasonable and consistent basis; provided, however, if there is a loss allocable to the excess Before-Tax Contributions, the amount distributed shall be the excess amount adjusted to reflect such loss. -40- (iii) The Committee shall not be liable to any Participant (or his Beneficiary, if applicable) for any losses caused by misestimating the amount of any Before-Tax Contributions in excess of the limitations of this Article V and any income allocable to such excess. (b) If in any calendar year a Participant makes Before-Tax Contributions under this Plan and additional elective deferrals, within the meaning of Code Section 402(g)(3), under any other plan maintained by the Company or an Affiliated Company, and the total amount of the Participant's elective deferrals under this Plan and all such other plans exceed the Deferral Limitation, the Company and each Affiliated Company maintaining a plan under which the Participant made any elective deferrals shall notify the affected plans in writing, and corrective distributions of the excess elective deferrals, and any income allocable thereto, shall be made from one or more such plans, to the extent determined by the Company and each Affiliated Company. The determination of the amount of a Participant's elective deferrals for any calendar year shall be made after applying the provisions of Section 14.5 relating to certain limits on Annual Additions under Section 415 of the Code. All corrective distributions of excess elective deferrals shall be made on or before the first April 15 following the close of the calendar year in which the excess elective deferrals were made. -41- (c) In accordance with rules and procedures as may be established by the Committee, a Participant may submit a claim to the Committee in which he certifies in writing the specific amount of his Before-Tax Contributions for the preceding calendar year which, when added to amounts deferred for such calendar year under any other plans or arrangements described in Section 401(k), 408(k) or 403(b) of the Code (other than a plan maintained by the Company or an Affiliated Company), will cause the Participant to exceed the Deferral Limitation for the calendar year in which the deferral occurred. Any such claim must be submitted to the Committee no later than the March 1 of the calendar year following the calendar year of deferral. To the extent the amount specified by the Participant does not exceed the amount of the Participant's Before-Tax Contributions under the Plan for the applicable calendar year, the Committee shall treat the amount specified by the Participant in his claim as a Before-Tax Contribution in excess of the Deferral Limitation for such calendar year and return such excess and any income allocable thereto to the Participant, as provided in (a) above. In the event that for any reason such Participant's Before-Tax Contributions in excess of the Deferral Limitation for any calendar year are not distributed to the Participant by the time prescribed in (a) above, such excess shall be held in the Participant's -42- Before-Tax Contribution Account until distribution can be made in accordance with the provisions of this Plan. (d) To the extent required by regulations under Section 402(g) or 415 of the Code, Before-Tax Contributions with respect to a Participant in excess of the Deferral Limitation shall be treated as Annual Additions under Article XIV for the Plan Year for which the excess contributions were made, notwithstanding the distribution of such excess in accordance with the provisions of this Section. 5.7 Character of Amounts Contributed as Before-Tax Contributions. ------------------------------------------------------------ Unless otherwise specifically provided to the contrary in this Plan, amounts deferred pursuant to a Participant's election to make Before-Tax Contributions in accordance with Section 5.1 (and which qualify for treatment under Code Section 401(k) and are contributed to the Trust Fund pursuant to Article VI) shall be treated, for federal and state income tax purposes, as Participating Employer contributions. 5.8 Participant Transfer/Rollover Contributions. ------------------------------------------- Effective as of an Eligible Employee's Employment Commencement Date, or such later date as may be determined by the Administrator, amounts, if any, distributed to such Eligible Employee or payable to such Eligible Employee from another plan that satisfies the requirements of Code Section 401(a), or held in an individual retirement account which is attributable solely -43- to a rollover contribution within the meaning of Code Section 408(d)(3), may be transferred to this Plan, including by direct rollover from another plan that satisfies the requirements of Code Section 401(a), and credited to the Participant's Transfer/Rollover Account in accordance with Code Section 402 and rules which the Committee shall prescribe from time to time; provided, however, the Committee determines that the continued qualification of this Plan under Code Section 401(a) or 401(k) would not be adversely affected by such transfer, or would cause this Plan to become a "transferee plan," within the meaning of Code Section 401(a)(11). Any amounts transferred in accordance with this Section 5.8, which shall be in cash, shall not be subject to distribution to the Participant except as expressly provided under the terms of this Plan. An Eligible Employee who prior to April 1, 1997 has transferred employment to the Company (or other Participating Company) from Fisher-Price, Inc., and who has elected to transfer directly to this Plan his entire account balance in the Fisher-Price, Inc. Matching Savings Plan in accordance with the terms of such plan, shall be permitted to transfer such account balance directly to this Plan. The transfer must be made in cash, except that any promissory note evidencing an outstanding loan to such Eligible Employee from the Fisher- Price, Inc. Matching Savings Plan may be transferred to this Plan in kind. Any transferred promissory note shall thereafter be repayable by the Participant to the Plan in accordance with its terms. Any amounts -44- transferred from the Fisher-Price, Inc. Matching Savings Plan shall not be subject to distribution to the Participant except as expressly provided under the terms of this Plan. -45- ARTICLE VI COMPANY CONTRIBUTIONS 6.1 General. ------- Subject to the requirements and restrictions of this Article VI and Article XIV, and subject also to the amendment or termination of the Plan or the suspension or discontinuance of contributions as provided herein, a Participating Company shall contribute for each Participant who is an Employee of such Participating Company, as follows: (a) In the case of a Participating Company other than Fisher- Price, Inc., for each month of each Plan Year commencing on and after January 1, 1989 but prior to April 1, 1997, an amount to the Participant's Company Contributions Account equal to a percentage of the Participant's Compensation during such month according to the Participant's attained age as of the last day of the preceding month, as follows: Age as of Last Day Percentage of of Preceding Month Compensation ------------------ ------------- Under 40 2% 40 - 44 4% 45 - 49 5% 50 - 54 6% 55+ 7% (b) In the case of a Participating Company other than Fisher-Price, Inc. for each month of each Plan Year commencing on and after April 1, 1997, an amount to the Participant's Company Contributions Account equal to a percentage -46- of the Participant's Compensation during such month according to the Participant's attained age as of the last day of the preceding month, as follows: Age as of Last Day ------------------ of Preceding Month Percentage of Compensation ------------------ --------------------------- Under 30 3% 30 - 39 4% 40 - 44 5% 45 - 49 6% 50 - 54 7% 55+ 8% (c) An amount to the Participant's Before-Tax Contributions Account which is equal to the amount of the Participant's Before-Tax Contributions pursuant to Section 5.1 and which qualify for tax treatment under Code Section 401(k). (d) An amount to the Participant's Company Matching Account which is the sum of the amounts in (i) and (ii) below: (i) A dollar amount equal to the dollar amount of the first two percent (2%) of the sum of a Participant's Before-Tax and After-Tax Contributions pursuant to Section 5.1. (ii) A dollar amount equal to 50% of the dollar amount of the next four percent (4%) of the sum of a Participant's Before-Tax and After-Tax Contributions pursuant to Section 5.1. The maximum Company Matching Contribution pursuant to this Section 6.1(d) shall be four percent (4%) of the Participant's Compensation (such Compensation to be -47- determined prior to reduction for Before-Tax Contributions pursuant to Section 5.1). 6.2 Requirement for Net Profits. --------------------------- Contributions by a Participating Employer shall be made without regard to current or accumulated profits for the year; provided, however, that the Plan is intended to be designed to qualify as a profit sharing plan for purposes of Sections 401(a) et seq. of the Code. -- ---- 6.3 Special Limitations on After-Tax Contributions and Company Matching ------------------------------------------------------------------- Contributions. ------------- With respect to each Plan Year, After-Tax Contributions and Company Matching Contributions under the Plan for the Plan Year shall not exceed the limitations on contributions on behalf of Highly Compensated Employees under Section 401(m) of the Code, as provided in this Section. For purposes of this Section, excess Before-Tax Contributions recharacterized as After-Tax Contributions after the close of a Plan Year shall be treated as After-Tax Contributions in a Plan Year as provided in Section 5.5(a)(i). In the event that After-Tax Contributions and Company Matching Contributions under this Plan on behalf of Highly Compensated Employees for any Plan Year exceed the limitations of this Section for any reason, such excess contributions and any income allocable thereto shall be disposed of in accordance with Section 6.4. For purposes of this Section 6.3, the meaning of the term "Compensation" shall be as defined in Section 5.4(b). -48- (a) After-Tax Contributions and Company Matching Contributions on behalf of Participants under Section 6.1(c) for a Plan Year shall satisfy the Average Contribution Percentage test set forth in (i)(A) below, or the Average Contribution Percentage test set forth in (i)(B) below: (i) (A) The "Average Contribution Percentage" for Eligible Employees who are Highly Compensated Employees shall not be more than the "Average Contribution Percentage" of all other Eligible Employees multiplied by 1.25, or (i) (B) The excess of the "Average Contribution Percentage" for Eligible Employees who are Highly Compensated Employees over the "Average Contribution Percentage" for the other Eligible Employees shall not be more than two (2) percentage points, and the "Average Contribution Percentage" for Eligible Employees who are Highly Compensated Employees shall not be more than the "Average Contribution Percentage" of all other Eligible Employees multiplied by 2.00. (ii) The Average Contribution Percentage for Highly Compensated Employees eligible to participate in this Plan and a plan of the Company or an Affiliated Company that satisfies the requirements of Section 401(k) of the Code, including, if applicable, this Plan, shall be reduced to the extent necessary to satisfy the requirements of Treasury Regulations Section 1.401(m)-2 or similar such rule. -49- (b) For purposes of this Section, "Average Contribution Percentage" means, with respect to a group of Eligible Employees for a Plan Year, the average of the "Contribution Percentage," calculated separately for each Eligible Employee in such group. The "Contribution Percentage" for any Eligible Employee is determined by dividing the sum of After-Tax Contributions during the Plan Year and Company Matching Contributions under the Plan on behalf of each Eligible Employee for such Plan Year, by such Eligible Employee's Compensation for such Plan Year. "Company Matching Contributions" for purposes of the Average Contribution Percentage test shall include a Company Matching Contribution only if it is allocated to the Participant's Company Matching Contributions Account during the Plan Year and is paid to the Trust Fund by the end of the twelfth month following the close of the Plan Year. To the extent determined by the Committee and in accordance with regulations issued by the Secretary of the Treasury under Code Section 401(m)(3), the Before-Tax Contributions on behalf of an Eligible Employee and any "qualified nonelective contributions," within the meaning of Code Section 401(m)(4)(c), on behalf of an Eligible Employee may also be taken into account for purposes of calculating the Contribution Percentage of such Eligible Employee, but shall not otherwise be taken into account. However, any Company Matching Contributions taken into account for purposes of -50- determining the Actual Deferral Percentage of an Eligible Employee under Section 5.4(a) shall not be taken into account under this Section 6.3. (c) In the event that as of the last day of a Plan Year this Plan satisfies the requirements of Section 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Section 410(b) of the Code only if aggregated with this Plan, then this Section 6.3 shall be applied by determining the Contribution Percentages of Eligible Employees as if all such plans were a single plan, in accordance with regulations prescribed by the Secretary of the Treasury under Section 401(m) of the Code. (d) For the purposes of this Section, the Contribution Percentage for any Eligible Employee who is a Highly Compensated Employee under two or more Code Section 401(a) plans of the Company or an Affiliated Company to the extent required by Code Section 401(m), shall be determined in a manner taking into account the participant contributions and matching contributions for such Eligible Employee under each of such plans. (e) If an Eligible Employee (who is also a Highly Compensated Employee) is subject to the family aggregation rules in Section 2.26(b)(vi), the combined Average Contribution Percentage for the family group (which is treated as one Highly Compensated Employee) shall be the -51- Average Contribution Percentage determined by combining the After-Tax Contributions, Company Matching Contributions, amounts treated as Company Matching Contributions under Code Section 401(m)(3), and Compensation of all the eligible family members. (f) The determination of the Contribution Percentage of any Participant shall be made after first applying the provisions of Section 14.5 relating to certain limits on Annual Additions under Section 415 of the Code, then applying the provisions of Section 5.6 relating to the return of Before-Tax Contributions in excess of the Deferral Limitation, then applying the provisions of Section 5.5 relating to certain limits under Section 401(k) of the Code imposed on Pre-Tax Contributions of Highly Compensated Employees, and last, applying the provisions of Section 6.5 relating to the forfeiture of Company Matching Contributions attributable to excess Before-Tax or After-Tax Contributions. (g) The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (h) The Committee shall keep or cause to have kept such records as are necessary to demonstrate that the Plan satisfies the requirements of Code Section 401(m) and -52- the regulations thereunder, in accordance with regulations prescribed by the Secretary of the Treasury. 6.4 Provision for Return of Excess After-Tax Contributions and Company Matching --------------------------------------------------------------------------- Contributions on Behalf of Highly Compensated Employees . ------------------------------------------------------- - (a) The Committee shall determine, as soon as is reasonably possible following the close of the Plan Year, the extent (if any) to which After-Tax and Company Matching Contributions on behalf of Highly Compensated Employees may cause the Plan to exceed the limitations of Section 6.3 for such Plan Year. If, pursuant to the determination by the Committee, After-Tax and Company Matching Contributions on behalf of a Highly Compensated Employee may cause the Plan to exceed such limitations, then the Committee shall take the following steps: (i) First, any excess After-Tax Contributions that were not matched by Company Matching Contributions, and any Non-Gap Period income allocable thereto, shall be distributed to the Highly Compensated Employee (after withholding any applicable income taxes on such amounts). (ii) Second, if any excess remains after the provisions of (i) above are applied, to the extent necessary to eliminate the excess, Company Matching Contributions on behalf of the Highly Compensated Employee, and any Non-Gap Period income allocable thereto, shall be forfeited, to the extent forfeitable under the Plan, or distributed to the Highly Compensated Employee, to the extent non-forfeitable under the Plan (after -53- withholding any applicable income taxes on such amounts). Any corresponding After-Tax Contributions, and any Non-Gap Period income allocable thereto, shall be distributed to the Highly Compensated Employee (after withholding any applicable income taxes on such amounts). (iii) If administratively feasible, excess After-Tax Contributions and Company Matching Contributions which are nonforfeitable under the Plan, including any Non-Gap Period income allocable thereto, shall be distributed to Highly Compensated Employees, or, to the extent forfeitable, forfeited, within two and one-half (2-1/2) months following the close of the Plan Year for which the excess Contributions were made, but in any event no later than the end of the first Plan Year following the Plan Year for which the excess Contributions were made, notwithstanding any other provision in this Plan. Amounts of excess Company Matching Contributions forfeited by Highly Compensated Employees under this Section, including any income allocable thereto, shall be applied, to the maximum extent practicable, to reduce Company Matching Contributions for the Plan Year for which such excess Contributions were made and thereafter shall be applied as soon as possible to reduce Company Matching Contributions for succeeding Plan Years. (b) The Committee shall determine the amount of any excess After- Tax Contributions and Company Matching Contributions made by or on behalf of Highly Compensated Employees for a Plan Year by application of the leveling -54- method set forth in Proposed Treasury Regulation Section 1.401(m)-1(e)(2) under which the Contribution Percentage of the Highly Compensated Employee who has the highest such percentage for such Plan Year is reduced, to the extent required (i) to enable the Plan to satisfy the Average Contribution Percentage test, or (ii) to cause such Highly Compensated Employee's Contribution Percentage to equal the Contribution Percentage of the Highly Compensated Employee with the next highest Contribution Percentage. This process shall be repeated until the Plan satisfies the Average Contribution Percentage test. For each Highly Compensated Employee, the amount of excess After-Tax and Company Matching Contributions shall be equal to the total After-Tax and Company Matching Contributions (plus any amounts treated as Company Matching Contributions) made on behalf of such Highly Compensated Employee (determined prior to the application of the foregoing provisions of this Subsection (b)) minus the amount determined by multiplying the Highly Compensated Employee's Contribution Percentage (determined after the application of the foregoing provisions of this Subsection (b)) by his Compensation. (c) The determination and correction of excess After-Tax and Company Matching Contributions made by and on behalf of a Highly Compensated Employee whose Average Contribution Percentage is determined under the family aggregation rules in Section 6.3(e) shall be accomplished by -55- reducing the Average Contribution Percentage of the Highly Compensated Employee as required under Subsections (a) and (b) above and allocating the excess After-Tax and Company Matching Contributions for the family unit among the family members in proportion to the After-Tax and Company Matching Contributions of each family member that are combined to determine the Average Contribution Percentage. (d) For purposes of satisfying the Average Contribution Percentage test, Non-Gap Period income allocable to a Participant's excess After-Tax Contributions or Company Matching Contributions, as determined under (b) above, shall be determined by applying procedures comparable to those provided under Section 5.5. (e) To the extent required by regulations under Section 414(m) or 415 of the Code, any excess After-Tax Contributions or matching Company Contribution forfeited by or distributed to a Highly Compensated Employee in accordance with this Section shall be treated as an Annual Addition under Article XIV for the Plan Year for which the excess contribution was made, notwithstanding such forfeiture or distribution. 6.5 Forfeiture of Company Matching Contributions Attributable to Excess ------------------------------------------------------------------- Deferrals or Contributions. -------------------------- To the extent any Company Matching Contributions allocated to a Participant's Company Matching Contributions Account are attributable to excess Before-Tax Contributions -56- required to be distributed to the Participant in accordance with Section 5.5 or 5.6, or excess After-Tax Contributions required to be distributed to the Participant in accordance with Section 6.4, such Company Matching Contributions, including any Non-Gap Period income allocable thereto, shall be forfeited, notwithstanding that such Company Matching Contributions may otherwise be nonforfeitable under the terms of the Plan. Any Company Matching Contributions forfeited by a Participant in accordance with this Section 6.5 shall be applied to reduce Company Matching Contributions. 6.6 Investment and Application of Plan Contributions. ------------------------------------------------ (a) Subject to the provisions of Section 4.1(b), all contributions to the Trust Fund under Section 6.1 (including Before-Tax Contributions) and Participant After-Tax Contributions under Section 5.1 shall be invested as provided in this Section 6.6, subject to such rules as the Committee may adopt, in its sole discretion, to implement the provisions of this Section 6.6. The Committee may establish a choice of investment alternatives for Accounts from which each Participant may select in determining the manner in which his Account will be invested. In its sole discretion, the Committee may establish an investment alternative consisting of Company Stock. If investment alternatives are established in accordance with this Section 6.6, the following provisions of this Section 6.6 shall apply, including, in the event the Committee -57- establishes a Company Stock alternative, the limitations of (iv) below and the provisions of Article X relating to investments in Company Stock. (i) A Participant may elect at any time to change an investment election with respect to the allocation of future contributions made by him or on his behalf (such election to apply to all such contributions without regard to any distinction between Company contributions or Participant contributions) among the investment alternatives. The Committee may require at least thirty (30) days notice prior to the commencement of the payroll period for which such change is to be effective. Any such election shall be made in any whole percentage, subject to the provisions of Subsection (iv) below. (ii) Separate Trust Fund Subaccounts shall be established for each investment alternative selected by a Participant, and each such Subaccount shall be valued separately. (iii) A Participant may elect twice per calendar quarter to change the investment of his Accounts and reallocate such Accounts among the investment alternatives in any whole percentage, subject to the limitations of (iv) below. Subject to such rules as the Committee may prescribe, any such election to change shall be effective as soon as practical following receipt of the Participant's election. Any such change shall be implemented by the Committee in accordance with practices and procedures established by the Committee to provide for the orderly liquidation and/or purchase of investments. -58- (iv) If a Company Stock alternative is established by the Committee, each Participant may elect to invest up to a maximum of fifty percent (50%) of contributions made by him or on his behalf (such limitation to apply to all contributions without regard to any distinction between Company contributions and Participant contributions) in the Company Stock alternative in accordance with this Section 6.6; provided, however, that the 50% limitation shall not apply to Company Stock held in the F-P Savings Plan on March 31, 1997 and transferred to this Plan on April 1, 1997. Such a Participant may also elect to transfer amounts from his Accounts held in other investment alternatives to the Company Stock alternative in accordance with this Section 6.6, provided, however, that no such transfer shall be implemented to the extent that such transfer would result in the value of the Participant's interest in the Company Stock Fund exceeding fifty percent (50%) of the value of his interest in all investment alternatives held under the Plan. Notwithstanding the preceding sentence, neither the Company nor the Committee, nor any representative of the Company, the Committee or of the Plan shall have any obligation to monitor the value of a Participant's interest in the Company Stock Fund, or to manage said fund, and no person shall or shall have any authority to dispose of any Participant's interest in the Company Stock Fund except in accordance with a Participant's valid election or otherwise in accordance with express provisions of this Plan. -59- (v) In the case of a Participant who fails to make an effective election, for any reason whatsoever, as to how all or any portion of his interest therein shall be invested, the Committee shall prescribe rules which shall require that the Accounts of such Participant be invested in the stable asset fund. 6.7 Irrevocability. -------------- A Participating Company shall have no right or title to, nor interest in, the contributions made to the Trust Fund, and no part of the Trust Fund shall revert to the Participating Company except that on and after the Effective Date funds may be returned to a Participating Company as follows: (a) In the case of a Participating Company contribution which is made by a mistake of fact, that contribution may be returned to the Participating Company within one (1) year after it is made. (b) All contributions to the Trust Fund are conditioned on deductibility under Code Section 404. In the event deduction is disallowed for any such contribution, such contribution may be returned to the Participating Company. 6.8 Company, Committee and Trustee Not Responsible for Adequacy of Trust Fund. ------------------------------------------------------------------------- The Company, Committee and Trustee shall not be liable or responsible for the adequacy of the Trust Fund to meet and discharge any or all payments and liabilities hereunder. All -60- Plan benefits will be paid only from the Trust assets, and neither the Company, the Committee nor the Trustee shall have any duty or liability to furnish the Trust with any funds, securities or other assets except as expressly provided in the Plan. Except as required under the Plan or Trust or under Part 4 of Title I of ERISA, the Company shall not be responsible for any decision, act or omission of the Trustee, the Committee, or the Investment Manager (if applicable), and shall not be responsible for the application of any moneys, securities, investments or other property paid or delivered to the Trustee. -61- ARTICLE VII PARTICIPANT ACCOUNTS AND ALLOCATIONS 7.1 General. ------- (a) All contributions under this Plan shall be held in the Trust Fund. (b) All gains, losses, dividends and other property acquisitions and/or transfers that occur with respect to the Trust Fund shall be held, charged, credited, debited or otherwise accounted for under said fund on an unallocated basis until allocated to Participants' Accounts as of a Valuation Date as provided under this Plan or otherwise used or applied in accordance with the provisions of this Plan. 7.2 Participants' Accounts. ---------------------- In order to account for the allocated interest of each Participant in the Trust Fund, there shall be established and maintained the Accounts described in Section 2.1. 7.3 Revaluation of Participants' Accounts. ------------------------------------- As of each Valuation Date, the Accounts of each Participant shall be revalued so as to reflect a proportionate share in any increase or decrease in the fair market value of the assets in the Trust Fund as of that date as compared with the value of the assets in the Trust Fund as of the immediately preceding Valuation Date. The valuation and allocation provisions of this Section 7.3 shall be applied and implemented in accordance with the following rules: -62- (a) As of each Valuation Date the Accounts holding such assets shall be revalued so as to reflect to each such Account a proportionate share in the net income or loss of the assets since the immediately preceding Valuation Date. (b) The Company, Committee and Trustee do not in any manner or to any extent whatsoever warrant, guarantee or represent that the value of a Participant's Accounts shall at any time equal or exceed the amount previously contributed thereto. 7.4 Treatment of Accounts Following Termination of Employment. --------------------------------------------------------- Following a Participant's termination of employment, pending distribution of the Participant's Distributable Benefit pursuant to the provisions of Article VIII below, the Participant's Plan Accounts shall continue to be maintained and accounted for in accordance with all applicable provisions of this Plan. 7.5 Accounting Procedures. --------------------- The Committee and the Trustee shall establish accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants' Accounts provided for in this Article VII. From time to time the Committee and Trustee may modify such accounting procedures for the purpose of achieving equitable, nondiscriminatory, and administratively feasible allocations among the Accounts of Participants in -63- accordance with the general concepts of the Plan and the provisions of this Article VII. -64- ARTICLE VIII VESTING; PAYMENT OF PLAN BENEFITS 8.1 Vesting. ------- Each Participant's vested interest in his Accounts shall be determined as follows: (a) Each Participant shall at all times be one hundred percent (100%) vested in his Before-Tax Contributions Account, his After-Tax Contributions Account and his Transfer/Rollover Account under the Plan. (b) Except as provided in (c) and (d) below, each Participant shall become vested in his Company Matching Account and his Company Contributions Account according to the table set forth below:
Number of Vesting Years of Service Percentage ---------------- ---------- Less than 1 0 At least 1 but less than 2 0 At least 2 but less than 3 25 At least 3 but less than 4 50 At least 4 but less than 5 75 5 or more 100
(c) Notwithstanding the foregoing, each Participant who completed an Hour of Service prior to July 1, 1989 shall at all times be one hundred percent (100%) vested in his Company Contributions Account. (d) Notwithstanding the foregoing, each Participant who was eligible to participate in the F-P Savings Plan on March 31, 1997, shall at all times be one -65- hundred percent (100%) vested in his Company Matching Account. (e) Additionally a Participant shall become one hundred percent (100%) vested in his Company Matching Account and his Company Contributions Account upon attainment of Normal Retirement Date while an Employee, or in the event of death or Total and Permanent Disability while an Employee. 8.2 Distribution Upon Retirement. ---------------------------- (a) A Participant may retire from the employment of the Company on his Normal Retirement Date. Subject to the required distribution rules under (b) below, if the Participant continues in the service of the Company beyond his Normal Retirement Date, he shall continue to participate in the Plan in the same manner as Participants who have not reached their Normal Retirement Dates. At the subsequent termination of the Participant's employment on his late retirement date, his Distributable Benefit shall be based upon the value of his Accounts as of the applicable Valuation Date determined with reference to the date of distribution. After a Participant has reached his Normal Retirement Date, any termination of the Participant's employment (other than by reason of death or disability) shall be deemed a Normal Retirement. (b) Upon Normal Retirement a Participant shall be entitled to a distribution of his Distributable Benefit in -66- the Trust Fund. Such distribution shall be made or commence to be made as soon as practicable but no later than the sixtieth day after the close of the Plan Year in which occurs the Participant's termination of employment with the Company and all Affiliated Companies, unless a later date is specified by the Participant in a written election filed with the Plan Administrator on or after April 1, 1997. Notwithstanding the foregoing, in the case of a Participant who is a "5-percent owner" (within the meaning of Section 401(a)(9) of the Code) and, in the case of any Participant who attains age 70-1/2 after December 31, 1987, distribution shall be made or commence to be made not later than April 1 following the calendar year in which such Participant attains age 70-1/2, whether or not the Participant's employment has terminated. 8.3 Distribution Upon Death Prior to Termination of Employment. ---------------------------------------------------------- (a) Upon the death of a Participant during his employment the Committee shall direct the Trustee to make a distribution of the Participant's Distributable Benefit in the Trust Fund in a single lump sum to the Beneficiary designated by the deceased Participant, or as otherwise determined under Section 8.9. (b) Distribution as provided in Section 8.3(a) shall be made as soon as practicable but in no event later than sixty (60) days after the close of the Plan Year in which all facts required by the Committee to be established -67- as a condition of payment shall have been established to the satisfaction of the Committee (provided that, to the extent required by Section 401(a)(9) of the Code, his entire Distributable Benefit shall be distributed within five (5) years of such Participant's death). 8.4 Death After Termination of Employment. ------------------------------------- (a) Upon the death of a former Participant after his retirement or other termination of employment, but prior to the distribution of his entire Distributable Benefit in the Trust Fund to which he is entitled, the Committee shall direct the Trustee to make a distribution of the balance to which the deceased Participant was entitled, in a single lump sum, to the Beneficiary designated by the deceased Participant or as otherwise determined under Section 8.9. (b) Distribution as provided in Section 8.4(a) shall be made as soon as practicable but in no event later than sixty (60) days after the close of the Plan Year in which all facts required by the Committee to be established as a condition of payment shall have been established to the satisfaction of the Committee (provided that, to the extent required by Section 401(a)(9) of the Code, his entire Distributable Benefit shall be distributed within five (5) years of such Participant's death). -68- 8.5 Termination of Employment Prior to Normal Retirement Date. --------------------------------------------------------- (a) Subject to the provisions of Section 8.5(b) below, if a Participant's employment for the Company and all Affiliated Companies terminates prior to his Normal Retirement Date, his Distributable Benefit in the Trust Fund shall be paid as soon as administratively feasible following his Normal Retirement Date, unless a later date is specified by the Participant in a written election filed with the Plan Administrator on or after April 1, 1997. Unless elected otherwise, in no event shall such distribution be later than sixty (60) days after the close of the Plan Year in which occurs the Participant's Normal Retirement Date. Notwithstanding the foregoing, in the case of a Participant who is a "5-percent owner" (within the meaning of Section 401(a)(9) of the Code) and, in the case of any Participant who attains age 70-1/2 after December 31, 1987, distribution shall be made or commence to be made not later than April 1 following the calendar year in which such Participant attains age 70-1/2. (b) If the Participant makes a valid written election in accordance with (c) below, payment of his Distributable Benefit pursuant to this Section 8.5 may be made on an earlier date which is not later than sixty (60) days after the close of the Plan Year in which occurs the later of (i) the Participant's termination of employment with the Company and all Affiliated Companies, or (ii) a -69- date specified by the Participant in the valid written election filed by the Participant, on or after April 1, 1997, to the extent administratively feasible. For purposes of Section 72(t) of the Code, any distribution to a Participant in accordance with this Section 8.5 during or following the year in which he attains age fifty-five (55) shall be deemed to be on account of an event enumerated in Code Section 72(t)(2). (c) Effective as of January 1, 1989, any written election by a Participant to receive payment of his Distributable Benefit prior to Normal Retirement Date shall not be valid unless such election is made both (A) after the Participant receives a written notice advising him of his right to defer payment to Normal Retirement Date and (B) within the ninety (90) day period ending on the Participant's "Benefit Starting Date." The notice to the Participant advising him of his right to defer payment shall be given no less than thirty (30) nor more than ninety (90) days prior to the Participant's Benefit Starting Date. For purposes of this Subsection(c), "Benefit Starting Date" shall mean the first day of the first period for which the Participant's Distributable Benefit is paid. Notwithstanding the foregoing, payment of the Participant's Distributable Benefit may commence less than thirty (30) days after receipt of the notice, provided that the Plan Administrator clearly informs the Participant that the Participant has a -70- right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect to receive payment and the Participant, after receiving the notice, affirmatively elects to receive payment. (d) In the event a Participant is not fully vested in all of his Company Contributions Account or Company Matching Account under the Plan, the portion of such Accounts which is not vested shall be forfeited as of the earlier of the date the vested portion of such Accounts is completely distributed to him or the date he incurs five (5) consecutive one-year Periods of Severance. (e) Notwithstanding the foregoing, if a Participant ceases to be an Employee by reason of the disposition by the Company or an Affiliated Company of either (i) substantially all of the assets used by the Company or an Affiliated Company, as the case may be, in a trade or business, or (ii) the interest of the Company or an Affiliated Company, as the case may be, in a subsidiary, such Participant shall be entitled to distribution of his Distributable Benefit as if, for purposes of this Plan only, such event constitutes a termination of employment. 8.6 Withdrawals. ----------- (a) Subject to the succeeding provisions of this Section 8.6, while he is still an Eligible Employee, a Participant may withdraw amounts from his Accounts under the -71- Plan; provided, however, that not more than one withdrawal may be made by a Participant from his Accounts within any single quarter of a Plan Year and a withdrawal must be for at least $200 (or the entire amount available for withdrawal, if less). A withdrawal other than on account of Hardship shall be made from the Participant's Accounts in the following order, in each case up to the amount available for withdrawal in such Accounts (i) After- Tax Contributions Account; (ii) Transfer/Rollover Account; and (iii) Company Matching Account. Payment of a withdrawal shall be made only in cash and shall be allocated pro rata among the Participant's investment fund subaccounts, including any Company Stock subaccount. In no event may any amount be withdrawn by a Participant after he ceases to be an Eligible Employee. (b) A withdrawal from a Participant's Transfer/Rollover Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that, except in the case of a Participant who is determined to have a Total and Permanent Disability and who is ineligible to make further contributions under Section 5.1, no amount representing Employee contributions made within the preceding six months to the Mattel Investment Plan which were matched by Company matching contributions under said Plan may be withdrawn from such Account; and provided -72- further, that unless the Participant has completed an aggregate of at least sixty (60) months of participation in this Plan and the Mattel Investment Plan as of the date of withdrawal or has attained age 59-1/2 or is determined by the Committee to have a Total and Permanent Disability, the withdrawal shall not include amounts attributable to Company contributions made under the Mattel Investment Plan within the two (2) year period preceding withdrawal. (c) A withdrawal from a Participant's After-Tax Contribution Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that except in the case of a Participant who is determined to have a Total and Permanent Disability and who is ineligible to make further contributions under Section 5.1, no amount representing After-Tax Contributions made within the preceding six months to the Plan which were matched by Company Matching Contributions may be withdrawn from such Account. (d) A withdrawal from a Participant's Before-Tax Contributions Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that no Participant may make a withdrawal from his Before-Tax Contributions Account prior to attaining age 59-1/2, or a determination by the Committee that such Participant has a Total and Permanent Disability or that the withdrawal is necessary to relieve a -73- hardship of the Participant or his family. A Participant may receive a withdrawal due to hardship only if the withdrawal both is made due to an immediate and heavy financial need of the Participant within the meaning of (i) below and is necessary to satisfy such financial need within the meaning of (ii) below. (i) For purposes of this Section 8.6(d), a withdrawal will be considered to be on account of an immediate and heavy financial need of the Participant only if the withdrawal is for: (A) expenses for medical care described in Code Section 213(d) previously incurred by the Participant, or his Spouse or dependents (as defined in Code Section 152), or expenses which are necessary for such persons to obtain medical care (as defined above); (B) costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments); (C) payment of tuition, related educational fees, and room and board expenses for the next 12 months of post- secondary education for the Participant, or his Spouse, children, or dependents (as defined above); (D) payments necessary to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage on such residence; or (E) such other deemed immediate and heavy financial needs as are set forth by the Internal Revenue Service through the publication of revenue rulings, notices, and other documents of general applicability. -74- (ii) For purposes of this Section 8.6(d), a distribution shall be considered to be necessary to satisfy an immediate and heavy financial need of the Participant only if all of the following conditions are satisfied: (A) the distribution is not in excess of the amount of the immediate and heavy financial need of the Participant, which may include amounts necessary to pay federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution; (B) the Participant has obtained all distributions (other than hardship distributions) and all non-taxable loans (at the time of the loan) currently available under all plans maintained by the Company; (C) the Deferral Limitation for the Participant for the Participant's taxable year following the taxable year of the hardship distribution shall be reduced by the amount of the Participant's Before-Tax Contributions for the taxable year of the hardship distribution withdrawal; and (D) the Participant's Before-Tax Contributions and After-Tax Contributions to the Plan and employee contributions under all qualified and non-qualified plans of deferred compensation maintained by the Company, including a stock option, stock purchase, or similar plan, or a cash-or-deferred arrangement that is part of a cafeteria plan (within the meaning of Code Section 125), will be suspended under the terms of each such plan, or in accordance with the terms of an otherwise legally enforceable agreement, for twelve (12) months following the receipt of the hardship distribution. -75- Notwithstanding the foregoing, the amount of any hardship withdrawal shall not exceed a Participant's 'distributable amount,' which consists of the total of such Participant's Before-Tax Contributions as of the date of the hardship withdrawal, including earnings credited thereon before December 31, 1988 (if any), reduced by the amount of any previous hardship withdrawals. The Committee will determine whether a hardship withdrawal satisfies the foregoing standards in a uniform and nondiscriminatory manner consistent with Code Section 401(k) and the regulations promulgated thereunder. (e) A withdrawal from a Participant's vested interest in his Company Contributions Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that no participant may withdraw from his Company Contributions Account prior to attaining age 59-1/2 or a determination by the Committee that such Participant has a Total and Permanent Disability or that the withdrawal is necessary to relieve a hardship of the Participant or his family within the meaning of Section 8.6(d) of the Plan. (f) A withdrawal from the vested portion of a Participant's Company Matching Account may be made in accordance with rules of uniform application which the Committee may from time to time prescribe; provided, however, that unless the Participant has completed an aggregate of at least sixty (60) months of participation in -76- this Plan and the Mattel Investment Plan or the F-P Savings Plan as of the date of withdrawal or has attained age 59-1/2 or is determined by the Committee to have Total and Permanent Disability, any withdrawal from such Company Matching Account shall not include amounts attributable to Company contributions made within the two (2) year period preceding withdrawal. (g) If a Participant makes an in-service withdrawal from his Company Contributions Account or Company Matching Account at a time when the Participant does not have a one hundred percent (100%) vested interest in the value of such Account, and the Participant may increase his vested interest in the Account: (i) such Account shall be established as a separate Account as of the date of distribution, and (ii) at any relevant time the Participant's vested interest in the value of such separate Account shall be equal to an amount ("X") determined by the formula: X = P(AB + D) - D For purposes of applying the formula above: P is the nonforfeitable percentage at the relevant time, AB is the Account balance at the relevant time, and D is the amount of the withdrawal. (h) Disbursement of withdrawals shall be as soon as administratively practicable after the submission of a -77- request for withdrawal in form satisfactory to the Committee. 8.7 Form of Distribution. -------------------- (a) Unless a Participant makes a written election in accordance with Section 8.7(c) or 8.8 below, a Participant's Distributable Benefit shall be payable in the form of a single sum distribution. Except for any portion of such Distributable Benefit that is payable in the form of Company Stock in accordance with Section 8.13, such distribution shall be in cash. (b) In the case of any cash disbursement from a Participant's Accounts, such disbursement shall be made ratably from such investment funds or investment vehicles in which such Participant's Accounts affected by such disbursement are invested. (c) Effective April 1, 1997, a Participant who terminates employment on or after his Normal Retirement Date, Early Retirement Date or by reason of Total and Permanent Disability may elect to receive his benefit in installments payable monthly, quarterly or annually for a period of five, ten or fifteen years (but not longer than the Participant's life expectancy determined as of his Benefit Starting Date). The installments for each year shall not be less than the annual installment determined under the requirements of Section 401(a)(9) of the Code. All such installments shall be paid in cash or Company Stock -78- and the installment or installments for the year in which the Participant attains age 70-1/2 and all subsequent years shall be paid to the Participant on or before December 31 of such year. 8.8 Election for Direct Rollover of Distributable Benefit to Eligible ----------------------------------------------------------------- Retirement Plan. --------------- (a) Effective as of January 1, 1993, to the extent required by Section 401(a)(31) of the Code, a Participant who is eligible to receive payment of his Distributable Benefit shall be entitled to elect a direct rollover of all or part of the taxable portion of his Distributable Benefit to an "eligible retirement plan." For purposes of this Section, an "eligible retirement plan" shall mean any plan described in Code Section 402(c)(8)(B), except that such plan must be a defined contribution plan, the terms of which permit the acceptance of a direct rollover from a qualified plan. Any non-taxable portion of the Participant's Distributable Benefit shall be payable to the Participant in accordance with Section 8.7 above. (b) A Participant's direct rollover election under this Section shall be in writing and shall be made in accordance with rules and procedures established by the Committee. Such election shall specify the dollar or percentage amount of the Distributable Benefit to be rolled over, the name of the eligible retirement plan selected by the Participant, and such additional information as the -79- Committee deems necessary or appropriate in order to implement the election. It shall be the Participant's responsibility to confirm that the eligible retirement plan designated in his direct rollover election will accept the direct rollover of his Distributable Benefit. The Committee shall be entitled to direct the rollover based on its reasonable reliance on information provided by the Participant, and shall be not required to independently verify such information, unless it is clearly unreasonable not to do so. (c) At least thirty (30) days, but not more than ninety (90) days, prior to the date a Participant's Distributable Benefit becomes payable, the Participant shall be given written notice of any right he may have to elect a direct rollover of the taxable portion of his Distributable Benefit to an eligible retirement plan. Notwithstanding the foregoing, a direct rollover of the Participant's Distributable Benefit may be made less than thirty (30) days after receipt of the notice, provided that the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a direct rollover and the Participant, after receiving the notice, affirmatively elects a direct rollover. -80- (d) If a Participant who attained his Normal Retirement Date or whose Distributable Benefit does not exceed $3,500 fails to file a written election with the Committee within ninety (90) days after notice is given, or if the Committee cannot effect the direct rollover within a reasonable time after the election is filed due to the failure of the Participant to take such actions as may be required by the eligible retirement plan before it will accept the direct rollover, the Participant's Distributable Benefit shall be paid to him after withholding applicable income taxes. (e) If a Participant has made a direct rollover election with respect to any portion of his Distributable Benefit that is payable in Company Stock, as provided in Section 8.13, unless the eligible retirement plan specified by the Participant will accept a direct rollover of such Stock, the Stock will be distributed to the Participant, notwithstanding the Participant's direct rollover election. (f) To the extent required by Section 401(a)(31) of the Code, if all or a portion of a Participant's Distributable Benefit is payable to the Participant's surviving Spouse, or to a former Spouse in accordance with a "qualified domestic relations order," such surviving Spouse or former Spouse shall be entitled to elect a direct rollover of all or a portion of such distribution in accordance with the provisions of this Section. -81- 8.9 Designation of Beneficiary. -------------------------- (a) Subject to the provisions of Section 8.11, each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive his interest in the Trust Fund in the event of his death before receipt of his entire interest in the Trust Fund. This designation is to be made on the form prescribed by and delivered to the Committee. (b) Subject to the provisions of Section 8.11, a Participant shall have the right to change or revoke any such designation by filing a new designation or notice of revocation with the Committee. Subject to the provisions of Section 8.11, no notice to any Beneficiary nor consent by any Beneficiary shall be required to effect any such change or revocation. (c) If a deceased Participant shall have failed to designate a Beneficiary, or if the Company shall be unable to locate a designated Beneficiary after reasonable efforts have been made, or if for any reason the designation shall be legally ineffective, or if the Beneficiary shall have predeceased the Participant without effectively designating a successor Beneficiary, any distribution required to be made under the provisions of this Plan shall commence within three (3) years after the Participant's death to the person or persons included in the highest priority category among the following, in order of priority: -82- (i) The Participant's surviving spouse; (ii) The Participant's surviving children, including adopted children; (iii) The Participant's surviving parents; or (iv) The Participant's estate. The determination by the Committee as to which persons, if any, qualify within the foregoing categories shall be final and conclusive upon all persons. (d) In the event that the deceased Participant was not a resident of California at the date of his death, the Committee, in its discretion, may require the establishment of ancillary administration in California. In the event that a Participant shall predecease his Beneficiary and on the subsequent death of the Beneficiary a remaining distribution is payable under the applicable provisions of this Plan, the distribution shall be payable in the same order of priority categories as set forth above but determined with respect to the Beneficiary, subject to the same provisions concerning non-California residency, the unavailability of an estate representative and/or the absence of administration of the Beneficiary's estate as are applicable on the death of the Participant. 8.10 Facility of Payment. ------------------- If any payee under the Plan is a minor or if the Committee reasonably believes that any payee is legally incapable -83- of giving a valid receipt and discharge for any payment due him, the Committee may have the payment, or any part thereof, made to the person (or persons or institution) whom it reasonably believes is caring for or supporting the payee, unless it has received due notice of claim therefor from a duly appointed guardian or committee of the payee. Any payment shall be a payment from the Accounts of the payee and shall, to the extent thereof, be a complete discharge of any liability under the Plan to the payee. 8.11 Requirement of Spousal Consent. ------------------------------ Notwithstanding any Beneficiary designation submitted by a Participant, any distribution required to be made under the terms of the Plan by reason of the death of the Participant shall be paid in full to the Participant's surviving spouse, unless there is no surviving spouse or the spouse consents in writing to the beneficiary designation, acknowledging the effect of the election. Any such spousal consent, to be valid, must be witnessed by a plan representative or a notary public. The spousal consent requirement of this Section 8.11 shall be waived and the Participant's Beneficiary designation shall be made effective if the Participant establishes to the satisfaction of the Committee that the required consent cannot be obtained because there is no spouse or the spouse cannot be located. 8.12 Additional Documents. -------------------- (a) The Committee or Trustee, or both, may require the execution and delivery of such documents, papers -84- and receipts as the Committee or Trustee may determine necessary or appropriate in order to establish the fact of death of the deceased Participant and of the right and identity of any Beneficiary or other person or persons claiming any benefits under this Article VIII. (b) The Committee or the Trustee, or both, may, as a condition precedent to the payment of death benefits hereunder, require an inheritance tax release and/or such security as the Committee or Trustee, or both, may deem appropriate as protection against possible liability for state or federal death taxes attributable to any death benefits. 8.13 Company Stock Distribution. -------------------------- Except in the case of a withdrawal in accordance with Section 8.6, payment of any portion of a Participant's Distributable Benefit held in his Company Stock subaccount shall be paid in cash, unless the Participant elects in writing in accordance with procedures established by the Committee that payment shall be made in Company Stock in lieu of cash (which election may apply to a payment to the trustee of an "eligible retirement plan" in accordance with Section 8.8). Within a reasonable period of time prior to the date such Participant's Distributable Benefit is to be paid, the Committee shall notify the Participant of his right to elect to have payment of the value of his Company Stock subaccount made in the form of a cash distribution in lieu of a Company Stock distribution. Upon being -85- so notified, the Participant shall have a reasonable time (at least thirty (30) days) in which to file a written election to have such payment made in cash. Any such election shall be irrevocable and shall operate to require the Trustee to value such Company Stock as of the immediately following Valuation Date at the then prevailing purchase price. Neither the Company, the Committee, nor the Trustee shall be required to time the distribution or sale of Company Stock to anticipate fluctuations in the purchase price. If a Participant fails to file a written election to receive an in kind payment of the value of the portion of his Distributable Benefit attributable to his Company Stock subaccount within thirty (30) days of receiving notification, payment shall be made in cash. 8.14 Valuation of Accounts. --------------------- (a) For purposes of determining a Participant's Distributable Benefit under this Plan, the value of a Participant's Accounts shall be determined in accordance with rules prescribed by the Committee, subject, however, to the following provisions: (i) Unless the provisions of (ii) below apply, if a Participant's employment terminates for any reason other than death, the value of a Participant's Accounts shall be determined as of the Valuation Date coinciding with or next following the date on which a properly completed application for payment or transfer of the Participant's Distributable Benefit, and such other forms as may be required by the Committee in order -86- to process the distribution or transfer, are received by the Committee. (ii) If a Participant's employment terminates for any reason other than death and the Committee does not receive the Participant's properly completed application for the payment or transfer of the Participant's Distributable Benefit, and such other forms as may be required by the Committee to process the payment or transfer, and the value of such Participant's Accounts at the applicable Valuation Date does not exceed $3500, the applicable Valuation Date shall be the Valuation Date coinciding with or next following the expiration of a reasonable period of time after the Participant is furnished with such application and forms, including any tax notice required under Code Section 402(f). (iii) In the case of a Participant's death, the value of a Participant's Accounts for purposes of determining the Participant's Distributable Benefit shall be determined as of the Valuation Date coinciding with or next following the date on which the Committee has been furnished with all documents and information (including but not limited to proof of death, facts demonstrating the identity and entitlement of any Beneficiary or other payee, and any and all releases) necessary to distribute such Participant's Accounts. (iv) In the case of any withdrawal or loan, the value of a Participant's Accounts under the Plan shall be determined as of the Valuation Date coinciding with or next -87- following the date on which the Participant submits a request for such withdrawal or loan in a form satisfactory to the Committee and the withdrawal or loan is approved. (v) The value of a Participant's Accounts shall be increased or decreased (as appropriate) by any contributions, forfeitures, or distributions properly allocable under the terms of this Plan to his Accounts that occurred on or after the most recent Valuation Date or for any other reason were not otherwise reflected in the valuation of his Accounts on such Valuation Date. (b) Neither the Committee, the Company, nor the Trustee shall have any responsibility for any increase or decrease in the value of a Participant's Accounts as a result of any valuation made under the terms of this Plan after the date of his termination of employment and before the date of the distribution of his Accounts to him. Also, neither the Committee, the Company, nor the Trustee shall have any responsibility for failing to make any interim valuation of a Participant's Accounts between the date of distribution to the Participant of his Accounts and the applicable Valuation Date, even though the Plan assets may have been revalued in that interim for a purpose other than to revalue the Accounts under this Plan. -88- 8.15 Forfeitures; Repayment. ---------------------- (a) Amounts forfeited in accordance with Section 8.5(d) shall be applied as soon as practicable to reduce future Company contributions. (b) A Participant who elects to receive a distribution pursuant to Subsection 8.5(b) may, in the case of his reemployment as an Eligible Employee, repay the total amount distributed and shall in such case be fully restored in amounts forfeited in accordance with Section 8.5(d); provided, however, that no such repayment shall be permitted unless such repayment is made prior to the date the Participant incurs five (5) consecutive one-year Periods of Severance and prior to the second anniversary of his Employment Commencement Date following the Period of Severance. 8.16 Loans. ----- (a) From time to time, the Committee may adopt procedures whereby a Participant may borrow from his Accounts under the Plan. In no event may any amount be borrowed by a Participant after he ceases to be an Eligible Employee. In addition to such other requirements as may be imposed by applicable law, any such loan shall bear a reasonable rate of interest, shall be adequately secured by proper collateral, and shall be repaid within a specified period of time according to a written repayment schedule -89- that calls for substantially level amortization over the term of the loan. (b) In connection with the requirements set forth in Subsection (a) above, the Committee shall establish the applicable interest rate, which shall be reasonably equivalent to interest rates available commercially with respect to similar loans. Without prejudice to the right of any Participant and the Trustee to enter into other appropriate arrangements to secure repayment of a loan pursuant to this Section 8.16, a loan to a Participant hereunder may be secured by an interest in the Participant's vested interest in his Accounts under this Plan. Any loan shall by its terms require repayment within five (5) years in substantially level payments made no less frequently than quarterly, except that the repayment period may be up to a maximum of fifteen (15) years in the case of a loan certified by the Participant to be used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as a principal residence of the Participant. (c) In no event shall the principal amount of a loan hereunder, at the time the loan is made, together with the outstanding balance of all other loans to the Participant under this Plan, exceed the lesser of: (i) fifty percent (50%) of the value of the Participant's vested interest in his Accounts under this Plan -90- (provided, however, for loans granted or renewed prior to October 19, 1989, the amount determined under this Subsection 8.16(c)(i) shall not be less than the lesser of ten thousand dollars ($10,000) or the full value of all such Accounts of the Participant where such value is less than twenty thousand dollars ($20,000)), or (ii) fifty thousand dollars ($50,000), reduced by the highest outstanding loan balance of the Participant from the Plan during the 1- year period ending on the day before the date on which such loan was made. No loan less than two thousand dollars ($2,000) will be made. Unless otherwise determined by the Committee, no Participant may have more than one loan outstanding under this Plan on any date; provided, however, that a Participant who was a participant in the F-P Savings Plan on March 31, 1997 may apply for one additional loan on or before December 31, 1997, even if he then has one or more loans outstanding. (d) Each Participant desiring to enter into a loan arrangement pursuant to this Section 8.16 shall apply for a loan by submitting a loan request in form satisfactory to the Committee. The Committee shall notify the Participant within a reasonable time whether the request is approved or denied. Upon approval of the request by the Committee, the Participant shall enter into a loan agreement with the Trustee. Such a Participant shall execute such further written agreements as may be necessary or -91- appropriate to establish a bona fide debtor-creditor relationship between such Participant and the Trustee and to protect against the impairment of any security for said loan. (e) Any loan made to a Participant shall be secured by a pro rata portion of his vested investment fund subaccounts, including any Company Stock subaccount. Repayments of a loan by a Participant shall be invested among the Participant's investment fund subaccounts in accordance with the Participant's investment election then in effect under Section 6.6(a)(i). (f) Loans shall be repaid in accordance with the repayment schedule provided under the terms of the loan agreement. Notwithstanding the repayment schedule provided in a loan agreement, however, the amount of any outstanding loan shall be due and payable on the earlier to occur of (a) the date on which distribution is made or commences to be made of the participant's vested interest under the Plan or (b) the expiration of one hundred eighty (180) days following the date the Participant ceases to be an Employee. Following a Participant's Severance Date, any outstanding loan amount which has become due and payable under the foregoing rule or otherwise, and which is secured by the Participant's vested interest in his Accounts, shall be treated as distributed from the Plan to the Participant. -92- (g) In the event a Participant fails to repay a loan in accordance with the terms of a loan agreement, such loan shall be treated as in default. The date of the enforcement of the security interest due to a loan in default shall be determined by the Committee, provided no loss of principal or income shall result due to any delay in the enforcement of the security interest due to the default. As of the Participant's Severance Date, the Participant's Distributable Benefit shall be reduced by the outstanding amount of a loan which is then in default, including any accrued interest thereon, that is secured by the Participant's vested interest in his Accounts. Any reasonable costs related to collection of a loan made hereunder shall be borne by the Participant. (h) To the extent required to comply with the requirements of Section 401(a)(4) of the Internal Revenue Code, loans hereunder shall be made in a uniform and non-discriminatory manner. 8.17 Special Rule for Disabled Employees. ----------------------------------- (a) Subsection 8.17(b) shall apply to any Participant whose active performance of services for a Participating Company has ceased by reason of disability, and who has not subsequently resumed the active performance of such services. Subsections 8.17(c) and (d) shall apply only to a Participant whose active performance of services for a Participating Company ceases prior to January 1, 1989 -93- by reason of disability, and who has not subsequently resumed the active performance of such services. (b) In the case of a Participant to whom this Section 8.17(b) applies, so long as such Participant continues to receive Compensation from a Participating Company, but in no event for longer than a period of six (6) months commencing with the date of such Participant's cessation of active service, such Participant may continue to participate in this Plan in the same manner as any other Participant. (c) In the case of a Participant to whom this Section 8.17 applied by reason of a disability prior to January 1, 1989 and who, on or after expiration of the period described in Section 8.17(b) above, commences to receive payments under the long term disability benefit coverage provided by a Participating Company and who also is determined to be suffering from a Total and Permanent Disability, contributions shall be made by the Participating Company pursuant to Section 6.1(a) (relating to contributions to Participants' Company Contributions Accounts) with respect to the Participant's "Compensation" as defined in Subsection 8.17(d) below, but the Participant shall not be eligible to make any contributions with respect to his own Compensation, and shall not be entitled to share in any other Participating Company contributions to the Plan (including but not limited to contributions to the Company -94- Matching Account). Contributions by a Participating Company pursuant to this Section 8.17(c) shall be subject to amendment or termination of the Plan or other suspension or discontinuance of contributions, and in any event shall cease to be made with respect to any Participant after the earlier to occur of such Participant's death or termination of employment for any other reason, cessation of Total and Permanent Disability, or attainment of age sixty-five (65). (d) In the case of a Participant to whom Section 8.17 applied by reason of a disability prior to January 1, 1989 and who is eligible to share in contributions of a Participating Company as provided in Subsection 8.17(c) above, the Compensation of such Participant for a Plan Year shall be deemed to equal the amount of Compensation which the Participant was paid (and which was taken into account for purposes of Sections 5.1 and 6.1 hereof) immediately before sustaining such Total and Permanent Disability, provided, however, that such amounts shall be included in Compensation only upon the following conditions: (i) the Participant is not an officer, owner, or highly compensated individual (within the meaning of such terms under Code Section 415(c)(3)); (ii) the payments to such Participant under such long term disability benefit coverage shall be treated as "Compensation" only to the extent that such payments do not -95- exceed the Participant's wage or salary rate paid immediately before becoming disabled to an extent constituting a Total and Permanent Disability; and (iii) the Participant's accounts under the Plan, to the extent attributable to contributions made during a period of Total and Permanent Disability shall be nonforfeitable. (e) For purposes of this Plan, a Participant shall not be deemed to have terminated employment prior to his ceasing to be eligible for contributions under this Section 8.17, and upon such cessation of eligibility shall be deemed to have terminated employment only if he did not then begin or recommence employment for the Company or an Affiliated Company. 8.18 Election for Fully Vested Employees Transferred to Fisher-Price, Inc. -------------------------------------------------------------------- A fully vested Participant who prior to April 1, 1997 transfers employment from the Company (or other Participating Company) to Fisher-Price, Inc. and who is eligible to participate in the Fisher-Price, Inc. Matching Savings Plan may elect to transfer his entire vested account balance in the Plan to the Fisher-Price, Inc. Matching Savings Plan by filing an election form at the time and in the manner prescribed by the Committee. The transfer must be made in cash except that any promissory note evidencing an outstanding loan to the Participant from the Plan may be transferred in kind. Any transferred promissory note -96- shall thereafter be repayable by the Participant to the Fisher-Price, Inc. Matching Savings Plan in accordance with its terms. 8.19 Provision for Small Benefits. ---------------------------- Notwithstanding anything in this Article to the contrary, a Participant who terminates employment with the Company and all Affiliated Companies shall receive a distribution of his Distributable Benefit in a single lump sum payment no later than sixty (60) days after the close of the Plan Year in which the Participant's termination of employment occurs to the extent administratively feasible, provided that the value of such Distributable Benefit is equal to or less than $3,500, determined as of the Valuation Date coincident with or immediately preceding his termination of employment. -97- ARTICLE IX OPERATION AND ADMINISTRATION OF THE PLAN 9.1 Plan Administration. ------------------- (a) Authority to control and manage the operation and administration of the Plan shall be vested in a committee ("Committee") as provided in this Article IX. (b) The members of the Committee shall be appointed by the Board of Directors and shall hold office until resignation, death or removal by the Board of Directors. Members of the Committee may, but need not be, appointed by appropriate designation of a Committee heretofore constituted pursuant to the provisions of another employee benefit plan maintained by the Company. (c) For purposes of ERISA Section 402(a), the members of the Committee shall be the Named Fiduciaries of this Plan. (d) The Secretary of the Committee shall cause to be attached to the copy of the Plan maintained in the office of the Committee for the purpose of inspection an accurate schedule listing the names of all persons from time to time serving as the Named Fiduciaries of the Plan. (e) Notwithstanding the foregoing, a Trustee with whom Plan assets have been placed in trust or an Investment Manager appointed pursuant to Section 9.3 may be granted exclusive authority and discretion to manage and control all or any portion of the assets of the Plan. -98- 9.2 Committee Powers. ---------------- The Committee shall have all powers and discretion necessary to supervise the administration of the Plan and control its operations. In addition to any powers and authority conferred on the Committee elsewhere in the Plan or by law, the Committee shall have, by way of illustration but not by way of limitation, the following powers and authority: (a) To allocate fiduciary responsibilities (other than trustee responsibilities) among the Named Fiduciaries and to designate one or more other persons to carry out fiduciary responsibilities (other than trustee responsibilities). However, no allocation or delegation under this Section 9.2(a) shall be effective until the person or persons to whom the responsibilities have been allocated or delegated agree to assume the responsibilities. The term "trustee responsibilities" as used herein shall have the meaning set forth in Section 405(c) of ERISA. The preceding provisions of this Section 9.2(a) shall not limit the authority of the Committee to appoint one or more Investment Managers in accordance with Section 9.3. (b) To designate agents to carry out responsibilities relating to the Plan, other than fiduciary responsibilities. (c) To employ such legal, actuarial, medical, accounting, clerical and other assistance as it may deem appropriate in carrying out the provisions of this Plan, -99- including one or more persons to render advice with regard to any responsibility any Named Fiduciary or any other fiduciary may have under the Plan. (d) To establish rules and regulations from time to time for the conduct of the Committee's business and the administration and effectuation of this Plan. (e) To administer, interpret, construe and apply this Plan in its discretion and to decide all questions which may arise or which may be raised under this Plan by any Employee, Participant, former Participant, Beneficiary or other person whatsoever, including but not limited to all questions relating to eligibility to participate in the Plan, the amount of service of any Participant, and the amount of benefits to which any Participant or his Beneficiary may be entitled by reason of his service prior to or after the Effective Date hereof. (f) To determine the manner in which the assets of this Plan, or any part thereof, shall be disbursed. (g) To direct the Trustee, in writing, from time to time, to invest and reinvest the Trust Fund, or any part thereof, or to purchase, exchange, or lease any property, real or personal, which the Committee may designate. This shall include the right to direct the investment of all or any part of the Trust in any one security or any one type of securities permitted hereunder. Among the securities which the Committee may direct the Trustee to purchase are -100- "employer securities" as defined in Code Section 409(1) or any successor statute thereto. (h) To perform or cause to be performed such further acts as it may deem to be necessary, appropriate or convenient in the efficient administration of the Plan. Any action taken in good faith by the Committee in the exercise of authority conferred upon it by this Plan shall be conclusive and binding upon the Participants and their Beneficiaries. All discretionary powers conferred upon the Committee shall be absolute. 9.3 Investment Manager. ------------------ (a) The Committee, by action reflected in the minutes thereof, may appoint one or more Investment Managers, as defined in Section 3(38) of ERISA, to manage all or a portion of the assets of the Plan. (b) An Investment Manager shall discharge its duties in accordance with applicable law and in particular in accordance with Section 404(a) (1) of ERISA. (c) An Investment Manager, when appointed, shall have full power to manage the assets of the Plan for which it has responsibility, and neither the Company nor the Committee shall thereafter have any responsibility for the management of those assets. 9.4 Periodic Review. --------------- (a) At periodic intervals, not less frequently than annually, the Committee shall review the long-run and -101- short-run financial needs of the Plan and shall determine a funding policy for the Plan consistent with the objectives of the Plan and the minimum funding standards of ERISA, if applicable. In determining the funding policy the Committee shall take into account, at a minimum, not only the long-term investment objectives of the Trust Fund consistent with the prudent management of the assets thereof, but also the short-run needs of the Plan to pay benefits. (b) All actions taken by the Committee with respect to the funding policy of the Plan, including the reasons therefor, shall be fully reflected in the minutes of the Committee. 9.5 Committee Procedure. ------------------- (a) A majority of the members of the Committee as constituted at any time shall constitute a quorum, and any action by a majority of the members present at any meeting, or authorized by a majority of the members in writing without a meeting, shall constitute the action of the Committee. (b) The Committee may designate certain of its members as authorized to execute any document or documents on behalf of the Committee, in which event the Committee shall notify the Trustee of this action and the name or names of the designated members. The Trustee, Company, Participants, Beneficiaries, and any other party dealing with the Committee may accept and rely upon any document -102- executed by the designated members as representing action by the Committee until the Committee shall file with the Trustee a written revocation of the authorization of the designated members. 9.6 Compensation of Committee. ------------------------- (a) Members of the Committee shall serve without compensation unless the Board of Directors shall otherwise determine. However, in no event shall any member of the Committee who is an Employee receive compensation from the Plan for his services as a member of the Committee. (b) All members shall be reimbursed for any necessary or appropriate expenditures incurred in the discharge of duties as members of the Committee. (c) The compensation or fees, as the case may be, of all officers, agents, counsel, the Trustee, or other persons retained or employed by the Committee shall be fixed by the Committee. 9.7 Resignation and Removal of Members. ---------------------------------- Any member of the Committee may resign at any time by giving written notice to the other members and to the Board of Directors effective as therein stated. Any member of the Committee may, at any time, be removed by the Board of Directors. 9.8 Appointment of Successors. ------------------------- (a) Upon the death, resignation, or removal of any Committee member, the Board of Directors may appoint a successor. -103- (b) Notice of appointment of a successor member shall be given by the Secretary of the Company in writing to the Trustee and to the members of the Committee. (c) Upon termination, for any reason, of a Committee member's status as a member of the Committee, the member's status as a Named Fiduciary shall concurrently be terminated, and upon the appointment of a successor Committee member the successor shall assume the status of a Named Fiduciary as provided in Section 9.1. 9.9 Records. ------- (a) The Committee shall keep a record of all its proceedings and shall keep, or cause to be kept, all such books, accounts, records or other data as may be necessary or advisable in its judgment for the administration of the Plan and to properly reflect the affairs thereof. (b) However, nothing in this Section 9.9 shall require the Committee or any member thereof to perform any act which, pursuant to law or the provisions of this Plan, is the responsibility of the Plan Administrator, nor shall this Section relieve the Plan Administrator from such responsibility. 9.10 Reliance Upon Documents and Opinions. ------------------------------------ (a) The members of the Committee, the Board of Directors, the Company and any person delegated under the provisions hereof to carry out any fiduciary responsibilities under the Plan ("delegated fiduciary"), -104- shall be entitled to rely upon any tables, valuations, computations, estimates, certificates and reports furnished by any consultant, or firm or corporation which employs one or more consultants, upon any opinions furnished by legal counsel, and upon any reports furnished by the Trustee. The members of the Committee, the Board of Directors, the Company and any delegated fiduciary shall be fully protected and shall not be liable in any manner whatsoever for anything done or action taken or suffered in reliance upon any such consultant or firm or corporation which employs one or more consultants, Trustee, or counsel. (b) Any and all such things done or actions taken or suffered by the Committee, the Board of Directors, the Company and any delegated fiduciary shall be conclusive and binding on all Employees, Participants, Beneficiaries, and any other persons whomsoever, except as otherwise provided by law. (c) The Committee and any delegated fiduciary may, but are not required to, rely upon all records of the Company with respect to any matter or thing whatsoever, and may likewise treat those records as conclusive with respect to all Employees, Participants, Beneficiaries, and any other persons whomsoever, except as otherwise provided by law. 9.11 Requirement of Proof. -------------------- The Committee or the Company may require satisfactory proof of any matter under this Plan from or with respect to any -105- Employee, Participant, or Beneficiary, and no person shall acquire any rights or be entitled to receive any benefits under this Plan until the required proof shall be furnished. 9.12 Reliance on Committee Memorandum. -------------------------------- Any person dealing with the Committee may rely on and shall be fully protected in relying on a certificate or memorandum in writing signed by any Committee member or other person so authorized, or by the majority of the members of the Committee, as constituted as of the date of the certificate or memorandum, as evidence of any action taken or resolution adopted by the Committee. 9.13 Multiple Fiduciary Capacity. --------------------------- Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. 9.14 Limitation on Liability. ----------------------- (a) Except as provided in Part 4 of Title I of ERISA, no person shall be subject to any liability with respect to his duties under the Plan unless he acts fraudulently or in bad faith. (b) No person shall be liable for any breach of fiduciary responsibility resulting from the act or omission of any other fiduciary or any person to whom fiduciary responsibilities have been allocated or delegated, except as provided in Part 4 of Title I of ERISA. -106- (c) No action or responsibility shall be deemed to be a fiduciary action or responsibility except to the extent required by ERISA. 9.15 Indemnification. --------------- (a) To the extent permitted by law, the Company shall indemnify each member of the Board of Directors and the Committee, and any other Employee of the Company with duties under the Plan, against expenses (including any amount paid in settlement) reasonably incurred by him in connection with any claims against him by reason of his conduct in the performance of his duties under the Plan, except in relation to matters as to which he acted fraudulently or in bad faith in the performance of such duties. The preceding right of indemnification shall pass to the estate of such a person. (b) The preceding right of indemnification shall be in addition to any other right to which the Board member or Committee member or other person may be entitled as a matter of law or otherwise. 9.16 Reserved for Plan Modifications. ------------------------------- 9.17 Allocation of Fiduciary Responsibility. -------------------------------------- (a) Part 4 of Title I of ERISA permits the division, allocation and delegation between Plan fiduciaries of the fiduciary responsibilities owed to the Plan Participants. Under this concept, each fiduciary, including -107- a Named Fiduciary, is accountable only for his own functions, except to the extent of his co-fiduciary liability under Section 405 of ERISA. (b) Under the preceding provisions of this Article IX, the day- to-day operational, administrative and investment aspects of the Plan have been delegated to the Committee. Except to the extent expressly provided to the contrary in the Plan document, the responsibilities delegated to the Committee include, by way of illustration but not by way of limitation, such matters as: (i) Satisfying accounting and auditing requirements; (ii) Satisfying insurance and bonding requirements; (iii) Administering the Plan's claims procedure; and (iv) Appointing Investment Managers. 9.18 Bonding. ------- (a) Except as is prescribed by the Board of Directors, as provided in Section 412 of ERISA, or as may be required under any other applicable law, no bond or other security shall be required by any member of the Committee, or any other fiduciary under this Plan. (b) Notwithstanding the foregoing, for purposes of satisfying its indemnity obligations under Section 9.15, the Company may (but need not) purchase and pay premiums for -108- one or more policies of insurance. However, this insurance shall not release the Company of its liability under the indemnification provisions. 9.19 Reserved for Plan Modifications. ------------------------------- 9.20 Reserved for Plan Modifications. ------------------------------- 9.21 Reserved for Plan Modifications. ------------------------------- 9.22 Prohibition Against Certain Actions. ----------------------------------- (a) To the extent prohibited by law, in administering this Plan the Committee shall not discriminate in favor of any class of Employees and particularly it shall not discriminate in favor of highly compensated Employees, or Employees who are officers or shareholders of the Company. (b) The Committee shall not cause the Plan to engage in any transaction that constitutes a nonexempt prohibited transaction under Section 4975(c) of the Code or Section 406(a) of ERISA. (c) All individuals who are fiduciaries with respect to the Plan (as defined in Section 3(21) of ERISA) shall discharge their fiduciary duties in accordance with applicable law, and in particular, in accordance with the standards of conduct contained in Section 404 of ERISA. -109- 9.23 Plan Expenses. ---------------- (a) All expenses incurred in the establishment, administration and operation of the Plan, including but not limited to the expenses incurred by the members of the Committee in exercising their duties, shall be charged to the Trust Fund and allocated to Participants Accounts as determined by the Committee, but shall be paid by the Company if not paid by the Trust Fund. (b) Notwithstanding the foregoing, the cost of interest and normal brokerage charges which are included in the cost of securities purchased by the Trust Fund (or charged to proceeds in the case of sales) or other charges relating to specific assets of the Plan shall be charged and allocated in a fair and equitable manner to the Accounts to which the securities (or other assets) are allocated. -110- ARTICLE X SPECIAL PROVISIONS CONCERNING COMPANY STOCK EFFECTIVE AS OF OCTOBER 1, 1992 10.1 Securities Transactions. ----------------------- Subject to the limitations of Section 6.6(a)(iv), the Trustee shall acquire Company Stock in the open market or from the Company or any other person, including a party in interest, pursuant to a Participant's election to invest any Company contributions on his behalf (including Before-Tax Contributions), or Participant After-Tax Contributions, in the Company Stock alternative established by the Committee in accordance with Section 6.6, or to transfer amounts held in other investment alternatives to such Company Stock alternative. No commission will be paid in connection with the Trustee's acquisition of Company Stock from a party in interest. Pending acquisition of Company Stock and pursuant to a Participant's investment election, elected amounts shall be allocated to the Participant's Company Stock subaccount in cash and may be invested in any short-term interest fund of the Trustee. Neither the Company, nor the Committee, nor any Trustee have any responsibility or duty to time any transaction involving Company Stock in order to anticipate market conditions or changes in Company Stock value. Neither the Company, nor the Committee nor any Trustee have any responsibility or duty to sell Company Stock held in the Trust Fund in order to maximize return or minimize loss. -111- 10.2 Valuation of Company Securities. ------------------------------- When it is necessary to value Company Stock held by the Plan, the value will be the current fair market value of the Company Stock, determined in accordance with applicable legal requirements. If the Company Stock is publicly traded, fair market value will be based on the most recent closing price in public trading, as reported in The --- Wall Street Journal or any other publication of general circulation designated - ------------------- by the Committee, unless another method of valuation is required by the standards applicable to prudent fiduciaries. If the Company Stock cannot be valued on the basis of its closing price in recent public trading, fair market value will be determined by the Company in good faith based on all relevant factors for determining the fair market value of securities. Relevant factors include an independent appraisal by a person who customarily makes such appraisals, if an appraisal of the fair market value of the Company Stock as of the relevant date was obtained. In the case of a transaction between the Plan and a party in interest, the fair market value of the Company Stock must be determined as of the date of the transaction rather than as of some other Valuation Date occurring before or after the transaction. In other cases, the fair market value of the Company Stock will be determined as of the most recent Valuation Date. -112- 10.3 Allocation of Stock Dividends and Splits. ---------------------------------------- Company Stock received by the Trust as a result of a Company Stock split or Company Stock dividend on Company Stock held in Participants' Accounts will be allocated as of the Valuation Date coincident with or following the date of such split or dividend, to each Participant who has such an Account. The amount allocated will bear substantially the same proportion to the total number of shares received as the number of shares in the Participant's Account bears to the total number of shares allocated to such Accounts of all Participants immediately before the allocation. The shares will be allocated to the nearest thousandth of a share. 10.4 Reinvestment of Dividends. ------------------------- Upon direction of the Committee, cash dividends may be reinvested as soon as practicable by the Trustee in shares of Company Stock for Participants' Accounts. Cash dividends may be reinvested in Company Stock purchased as provided in Section 10.1 or purchased from the Accounts of Participants who receive cash distributions of a fractional share or a fractional interest therein. 10.5 Voting of Company Stock. ----------------------- The Trustee shall have no discretion or authority to vote Company Stock held in the Trust on any matter presented for a vote by the stockholders of the Company except in accordance with timely directions received by the Trustee from Participants, unless otherwise required by applicable law. -113- (a) Each Participant shall be entitled to direct the Trustee as to the voting of all Company Stock allocated and credited to his Account. (b) All Participants entitled to direct such voting shall be notified by the Company, pursuant to its normal communications with shareholders, of each occasion for the exercise of such voting rights within a reasonable time before such rights are to be exercised. Such notification shall include all information distributed to shareholders either by the Company or any other party regarding the exercise of such rights. If a Participant shall fail to direct the Trustee as to the exercise of voting rights arising under any Company Stock credited to his Accounts, or if any Company Stock held in the Plan has not been allocated to Participants' Accounts, the Trustee shall not be required to vote such Company Stock except as otherwise required by applicable law. The Trustee shall maintain confidentiality with respect to the voting directions of all Participants. (c) Each Participant shall be a Named Fiduciary (as that term is defined in ERISA Section 402(a)(2)) with respect to Company Stock for which he has the right to direct the voting under the Plan but solely for the purpose of exercising voting rights pursuant to this Section 10.5. -114- 10.6 Confidentiality Procedures. -------------------------- The Committee shall establish procedures intended to ensure the confidentiality of information relating to Participant transactions involving Company Stock, including the exercise of voting, tender and similar rights. The Committee shall also be responsible for ensuring the adequacy of the confidentiality procedures and monitoring compliance with such procedures. The Committee may, in its sole discretion, appoint an independent fiduciary to carry out any activities that it determines involve a potential for undue Company influence on Participants with respect to the exercise of their rights as shareholders. 10.7 Securities Law Limitation. ------------------------- Neither the Committee nor the Trustee shall be required to engage in any transaction, including, without limitation, directing the purchase or sale of Company Stock, which it determines in its sole discretion might tend to subject itself, its members, the Plan, the Company, or any Participant or Beneficiary to a liability under federal or state securities laws. -115- ARTICLE XI MERGER OF COMPANY; MERGER OF PLAN 11.1 Effect of Reorganization or Transfer of Assets. ---------------------------------------------- In the event of a consolidation, merger, sale, liquidation, or other transfer of the operating assets of the Company to any other company, the ultimate successor or successors to the business of the Company shall automatically be deemed to have elected to continue this Plan in full force and effect, in the same manner as if the Plan had been adopted by resolution of its Board of Directors, unless the successor(s), by resolution of its Board of Directors, shall elect not to so continue this Plan in effect, in which case the Plan shall automatically be deemed terminated as of the applicable effective date set forth in the board resolution. 11.2 Merger Restriction. ------------------ Notwithstanding any other provision in this Article, this Plan shall not in whole or in part merge or consolidate with, or transfer its assets or liabilities to any other plan unless each affected Participant in this Plan would receive a benefit immediately after the merger, consolidation, or transfer (if the Plan then terminated) which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated). -116- ARTICLE XII PLAN TERMINATION AND DISCONTINUANCE OF CONTRIBUTIONS 12.1 Plan Termination. ---------------- (a) (i) Subject to the following provisions of this Section 12.1, the Company may terminate the Plan and the Trust Agreements at any time by an instrument in writing executed in the name of the Company by an officer or officers duly authorized to execute such an instrument, and delivered to the Trustee. (ii) The Plan and Trust Agreements may terminate if the Company merges into any other corporation, if as the result of the merger the entity of the Company ceases, and the Plan is terminated pursuant to the rules of Section 11.1. (b) Upon and after the effective date of the termination, the Company shall not make any further contributions under the Plan and no contributions need be made by the Company applicable to the Plan year in which the termination occurs, except as may otherwise be required by law. (c) The rights of all affected Participants to benefits accrued to the date of termination of the Plan, to the extent funded as of the date of termination, shall automatically become fully vested as of that date. 12.2 Discontinuance of Contributions. ------------------------------- (a) In the event the Company decides it is impossible or inadvisable for business reasons to continue -117- to make contributions under the Plan, the Company by resolution of its Board of Directors may discontinue contributions to the Plan. Upon and after the effective date of this discontinuance, no Participating Company or Participant shall make any further contributions under the Plan and no contributions need be made by a Participating Company with respect to the Plan Year in which the discontinuance occurs, except as may otherwise be required by law. A Participant shall be released from any salary reduction agreement under the Plan as of the effective date of a discontinuance of contributions. (b) The discontinuance of contributions on the part of the Company shall not terminate the Plan as to the funds and assets then held by the Trustee, or operate to accelerate any payments of distributions to or for the benefit of Participants or Beneficiaries, and the Trustee shall continue to administer the Trust Fund in accordance with the provisions of the Plan until all of the obligations under the Plan shall have been discharged and satisfied. (c) However, if this discontinuance of contributions shall cause the Plan to lose its status as a qualified plan under Code Section 401(a), the Plan shall be terminated in accordance with the provisions of this Article XII. (d) On and after the effective date of a discontinuance of contributions, the rights of all affected -118- Participants to benefits accrued to that date, to the extent funded as of that date, shall automatically become fully vested as of that date. 12.3 Rights of Participants. ---------------------- In the event of the termination of the Plan, for any cause whatsoever, all assets of the Plan, after payment of expenses, shall be used for the exclusive benefit of Participants and their Beneficiaries and no part thereof shall be returned to the Company, except as provided in Section 6.7 of this Plan. 12.4 Trustee's Duties on Termination. ------------------------------- (a) On or before the effective date of termination of this Plan, the Trustee shall proceed as soon as possible, but in any event within six months from the effective date, to reduce all of the assets of the Trust Fund to cash and other securities in such proportions as the Committee shall determine (after approval by the Internal Revenue Service, if necessary or desirable, with respect to any portion of the assets of the Trust Fund held in common stock or securities of the Company). (b) After first deducting the estimated expenses for liquidation and distribution chargeable to the Trust Fund, and after setting aside a reasonable reserve for expenses and liabilities (absolute or contingent) of the Trust, the Committee shall make required allocations of items of income and expense to the Accounts. -119- (c) Following these allocations, the Trustee shall promptly, after receipt of appropriate instructions from the Committee, distribute in accordance with Section 8.7 to each former Participant in Company stock or cash an amount equal to the amount credited to his Accounts as of the date of completion of the liquidation. (d) The Trustee and the Committee shall continue to function as such for such period of time as may be necessary for the winding up of this Plan and for the making of distributions in accordance with the provisions of this Plan. (e) Notwithstanding the foregoing, distributions to Participants upon Plan termination in accordance with this Section 12.4 shall only be made if a "successor plan," within the meaning of regulations under Code Section 401(k)(10), is not established. In the event a "successor plan" is established prior to or subsequent to the termination of the Plan, the Committee shall direct the Trustee to continue to hold any assets of the Trust Fund not payable upon the termination until such assets may, at the direction of the Committee, be transferred to and held in the successor plan until distributable under the terms of that successor plan. 12.5 Partial Termination. ------------------- (a) In the event of a partial termination of the Plan within the meaning of Code Section 411(d)(3), the -120- interests of affected Participants in the Trust Fund, as of the date of the partial termination, shall become nonforfeitable as of that date. (b) That portion of the assets of the Plan affected by the partial termination shall be used exclusively for the benefit of the affected Participants and their Beneficiaries, and no part thereof shall otherwise be applied. (c) With respect to Plan assets and Participants affected by a partial termination, the Committee and the Trustee shall follow the same procedures and take the same actions prescribed in this Article XII in the case of a total termination of the Plan. 12.6 Failure to Contribute. --------------------- The failure of a Participating Company to contribute to the Trust in any year, if contributions are not required under the Plan for that year, shall not constitute a complete discontinuance of contributions to the Plan. -121- ARTICLE XIII APPLICATION FOR BENEFITS 13.1 Application for Benefits. ------------------------ The Committee may require any person claiming benefits under the Plan to submit an application therefor, together with such documents and information as the Committee may require. In the case of any person suffering from a disability which prevents the claimant from making personal application for benefits, the Committee may, in its discretion, permit another person acting on his behalf to submit the application. 13.2 Action on Application. --------------------- (a) Within ninety days following receipt of an application and all necessary documents and information, the Committee's authorized delegate reviewing the claim shall furnish the claimant with written notice of the decision rendered with respect to the application. (b) In the case of a denial of the claimant's application, the written notice shall set forth: (i) The specific reasons for the denial, with reference to the Plan provisions upon which the denial is based; (ii) A description of any additional information or material necessary for perfection of the application (together with an explanation why the material or information is necessary); and -122- (iii) An explanation of the Plan's claim review procedure. (c) A claimant who wishes to contest the denial of his application for benefits or to contest the amount of benefits payable to him shall follow the procedures for an appeal of benefits as set forth in Section 13.3 below, and shall exhaust such administrative procedures prior to seeking any other form of relief. 13.3 Appeals. ------- (a) (i) A claimant who does not agree with the decision rendered with respect to his application may appeal the decision to the Committee. (ii) The appeal shall be made, in writing, within sixty days after the date of notice of the decision with respect to the application. (iii) If the application has neither been approved nor denied within the ninety day period provided in Section 13.2 above, then the appeal shall be made within sixty days after the expiration of the ninety day period. (b) The claimant may request that his application be given full and fair review by the Committee. The claimant may review all pertinent documents and submit issues and comments in writing in connection with the appeal. (c) The decision of the Committee shall be made promptly, and not later than sixty days after the Committee's receipt of a request for review, unless special -123- circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty days after receipt of a request for review. (d) The decision on review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant with specific reference to the pertinent Plan provisions upon which the decision is based. -124- ARTICLE XIV LIMITATIONS ON CONTRIBUTIONS 14.1 General Rule. ------------ (a) Notwithstanding anything to the contrary contained in this Plan, the total Annual Additions under this Plan to a Participant's Plan Accounts for any Limitation Year shall not exceed the lesser of: (i) Thirty Thousand Dollars ($30,000) (or such greater amount as may be in effect for the Limitation Year under Section 415(c)(1)(A) and 415(d) of the Code; or (ii) Twenty-five percent of the Participant's total Compensation from the Company and any Affiliated Companies for the year, excluding amounts otherwise treated as Annual Additions under Section 14.2. (b) For purposes of this Article XIV, the Company has elected a "Limitation Year" corresponding to the Plan Year. 14.2 Annual Additions. ---------------- For purposes of Section 14.1, the term "Annual Additions" shall mean, for any Limitation Year, the sum of: (a) the amount credited to the Participant's Accounts from Company contributions for such Limitation Year; (b) any Employee contributions for the Limitation Year; and -125- (c) any amounts described in Section 415(l)(1) or 419(A)(d)(2) of the Code. Annual Additions for Limitation Years commencing prior to 1987 shall not be recalculated to take into account all Employee contributions. 14.3 Other Defined Contribution Plans. -------------------------------- If the Company or an Affiliated Company is contributing to any other defined contribution plan (as defined in Section 415(k) of the Code) for its Employees, some or all of whom may be Participants in this Plan, then contributions to the other plan shall be aggregated with contributions under this Plan for the purposes of applying the limitations of Section 14.1. 14.4 Combined Plan Limitation (Defined Benefit Plan). ----------------------------------------------- In the event a Participant hereunder also is a participant in any qualified defined benefit plan (within the meaning of Section 415(k) of the Code) of the Company or an Affiliated Company, then the benefit payable under such other defined benefit plan, or any of them, shall be reduced for so long and to the extent necessary to provide that the sum of the "defined benefit fraction" and the "defined contribution fraction," for any Limitation Year, as defined in Section 415(e) of the Code, shall not exceed one (1). 14.5 Adjustments for Excess Annual Additions. --------------------------------------- In general, the amount of excess for any Limitation Year under this Plan and any other defined contribution plan (as defined in Code Section 414(i)) or defined benefit plan (as -126- defined in Code Section 414(j)) maintained by the Company or an Affiliated Company will be determined so as to avoid Annual Additions in excess of the limitations set forth in Sections 14.1 through 14.4. However, if as a result of an administrative error, the Annual Additions to a Participant's Accounts under this Plan (after giving effect to the maximum permissible adjustments under the other plans) would exceed the applicable limitations described in Sections 14.1 through 14.4, the excess amount shall be subject to this Section 14.5. (a) For Plan Years commencing prior to January 1, 1993, the following rules shall apply: (i) If the Participant made any after-tax contributions to any defined contribution plan that is maintained by the Company or an Affiliated Company, which after-tax contributions were not matched by matching contributions, these contributions shall be returned to the Participant to the extent of any excess Annual Additions arising under Section 14.1(a)(ii). (ii) If excess Annual Additions remain after the application of the above rule, such excess amounts (if any) allocated to the Participant's Company Contributions Account shall be reduced to the extent necessary to eliminate (if possible) any remaining excess Annual Additions. (iii) If excess Annual Additions remain after the application of (i) and (ii) above, such excess amounts (if any) allocated to the Participant's Company Matching -127- Contribution Account shall be reduced to the extent necessary to eliminate (if possible) any remaining excess Annual additions. (iv) If any excess Annual Additions remain after the application of (i), (ii) and (iii) above, such excess amounts (if any) allocated to the Participant's Before-Tax Contributions Account shall be reduced to the extent necessary to eliminate (if possible) any remaining excess Annual Additions. (b) For Plan Years commencing on or after January 1, 1993, the following rules shall apply: (i) If the Participant made any after-tax contributions to this or any other defined contribution plan that is maintained by the Company or an Affiliated Company, which after-tax contributions were not matched by matching contributions, within the meaning of Code Section 401(m), such after- tax contributions and any earnings thereon shall be returned to the Participant to the extent of any excess Annual Additions. (ii) If excess Annual Additions remain after the application of the above rule, if the Participant made any Before-Tax Contributions for the Plan Year to this or any other defined contribution plan that is maintained by the Company or an Affiliated Company, which Before-Tax Contributions were not matched by matching contributions, within the meaning of Code Section 401(m), Before-Tax Contributions and any earnings thereon shall be returned to the Participant to the extent of any excess Annual Additions. -128- (iii) If excess Annual Additions remain after the application of the above rule, if the Participant made any after-tax contributions for the Plan Year to this or any other defined contribution plan that is maintained by the Company or an Affiliated Company, which after-tax contributions were matched by matching contributions, within the meaning of Code Section 401(m), any such after-tax contributions and any earnings thereon shall be returned to the Participant and any matching contributions attributable thereto shall be reduced to the extent necessary to eliminate any remaining excess Annual Additions. (iv) If excess Annual Additions remain after the application of the above rule, if the Participant made any Before-Tax Contributions for the Plan Year to this or any other defined contribution plan that is maintained by the Company or an Affiliated Company, which Before-Tax Contributions were matched by matching contributions, within the meaning of Code Section 401(m), any such Before-Tax Contributions and any earnings thereon shall be returned to the Participant and any matching contributions attributable thereto shall be reduced to the extent necessary to eliminate any remaining excess Annual Additions. (v) If excess Annual Additions remain after the application of the above rule, any other Company contributions for the Plan Year shall be reduced to the extent necessary to eliminate any remaining excess Annual Additions. -129- 14.6 Disposition of Excess Amounts. ----------------------------- Any excess amounts contributed by a Participating Company on behalf of a Participant for any Plan Year (other than Before-Tax Contributions) shall be held unallocated in a suspense account for the Plan Year and applied, to the extent possible, first to reduce the Participating Company contributions for the Plan Year, and next, to reduce the Participating Company contributions for the succeeding Plan Year, or Years, if necessary. No investment gains or losses shall be allocated to a suspense account. 14.7 Affiliated Company. ------------------ For purposes of this Article XIV, the status of an entity as an Affiliated Company shall be determined by reference to the percentage tests set forth in Code Section 415(h). -130- ARTICLE XV RESTRICTION ON ALIENATION 15.1 General Restrictions Against Alienation. --------------------------------------- (a) The interest of any Participant or Beneficiary in the income, benefits, payments, claims or rights hereunder, or in the Trust Fund shall not in any event be subject to sale, assignment, hypothecation, or transfer. Each Participant and Beneficiary is prohibited from anticipating, encumbering, assigning, or in any manner alienating his or her interest under the Trust Fund, and is without power to do so, except as may otherwise be provided for in the Trust Agreement. The interest of any Participant or Beneficiary shall not be liable or subject to his debts, liabilities, or obligations, now contracted, or which may be subsequently contracted. The interest of any Participant or Beneficiary shall be free from all claims, liabilities, bankruptcy proceedings, or other legal process now or hereafter incurred or arising; and the interest or any part thereof, shall not be subject to any judgment rendered against the Participant or Beneficiary. (b) In the event any person attempts to take any action contrary to this Article XV, that action shall not be effective, and all Participants and their Beneficiaries, may disregard that action and shall not suffer any liability for any disregard of that action, and shall be reimbursed on demand out of the Trust Fund for the amount of any loss, -131- cost or expense incurred as a result of disregarding or of acting in disregard of that action. (c) The preceding provisions of this Section 15.1 shall be interpreted and applied by the Committee in accordance with the requirements of Code Section 401(a)(13) as construed and interpreted by authoritative judicial and administrative rulings and regulations. (d) The provisions of Subsections 15.1(a) and 15.1(b) are expressly subject to qualified domestic relations orders, as provided in Code Section 401(a)(13)(B). 15.2 Nonconforming Distributions Under Court Order. --------------------------------------------- (a) In the event that a court with jurisdiction over the Plan and the Trust Fund shall issue an order or render a judgment requiring that all or part of a Participant's interest under the Plan and in the Trust Fund be paid to a spouse, former spouse and/or children of the Participant by reason of or in connection with the marital dissolution and/or marital separation of the Participant and the spouse, and/or some other similar proceeding involving marital rights and property interests, then notwithstanding the provisions of Section 15.1 the Committee may, in its absolute discretion, direct the applicable Trustee to comply with that court order or judgment and distribute assets of the Trust Fund in accordance therewith. Pending distribution to an alternate payee of any portion of a Participant's vested interest in the Trust Fund, pursuant to -132- a court order or judgment, such portion shall be segregated and invested in accordance with rules prescribed by the Committee, and neither the Participant nor the alternate payee shall be entitled to make an election with respect to the investment of such segregated portion. (b) The Committee's decision with respect to compliance with any such court order or judgment shall be made in its absolute discretion and shall be binding upon the Trustee and all Participants and their Beneficiaries; provided, however, that the Committee in the exercise of its discretion shall not make payments in accordance with the terms of an order which is not a qualified domestic relations order or which the Committee determines would jeopardize the continued qualification of the Plan and Trust under Section 401 of the Code. Notwithstanding the foregoing, the Committee may make a distribution to an alternate payee prior to the date the Participant attains age fifty (50), if such distribution is required by a qualified domestic relations order. (c) Neither the Plan, the Company, the Committee nor the Trustee shall be liable in any manner to any person, including any Participant or Beneficiary, for complying with any such court order or judgment. (d) Nothing in this Section 15.2 shall be interpreted as placing upon the Company, the Committee or any Trustee any duty or obligation to comply with any such -133- court order or judgment. The Committee may, if in its absolute discretion it deems it to be in the best interests of the Plan and the Participants, determine that any such court order or judgment shall be resisted by means of judicial appeal or other available judicial remedy, and in that event the Trustee shall act in accordance with the Committee's directions. (e) The Committee shall adopt procedures and provide notifications to a Participant and alternate payees in connection with a qualified domestic relations order, to the extent required under Code Section 414(p). -134- ARTICLE XVI PLAN AMENDMENTS 16.1 Amendments. ---------- The Board of Directors may at any time, and from time to time, amend the Plan by an instrument in writing executed in the name of the Company by an officer or officers duly authorized to execute such instrument, and delivered to the applicable Trustee. However, to the extent required by law, no amendment shall be made at any time, the effect of which would be: (a) To cause any assets of the Trust Fund to be used for or diverted to purposes other than providing benefits to the Participants and their Beneficiaries, and defraying reasonable expenses of administering the Plan, except as provided in Section 6.7; (b) To have any retroactive effect so as to deprive any Participant or Beneficiary of any accrued benefit to which he would be entitled under this Plan, in contravention of Code Section 411(d)(6), if his employment were terminated immediately before the amendment; (c) To eliminate or reduce an optional form of benefit to the extent so doing would contravene Code Section 411(d)(6); or (d) To increase the responsibilities or liabilities of a Trustee or an Investment Manager without his written consent. -135- 16.2 Retroactive Amendments. ---------------------- Notwithstanding any provisions of this Article XVI to the contrary, the Plan may be amended prospectively or retroactively (as provided in Section 401(b) of the Code) to make the Plan conform to any provision of ERISA, any Code provisions dealing with tax-qualified employees' trusts, or any regulation under either. 16.3 Amendment of Vesting Provisions. ------------------------------- Effective January 1, 1989, if the Plan is amended in any way that directly or indirectly affects the computation of a Participant's vested interest in his Accounts, each Participant who has completed at least three (3) Years of Service may elect, within a reasonable time after the adoption of the amendment, to continue to have his vested interest computed under the Plan without regard to such amendment. The period during which the election may be made shall commence when the date of the amendment is adopted and shall end on the latest of: (i) 60 days after the amendment is adopted; (ii) 60 days after the amendment is effective; or (iii) 60 days after the Participant is issued written notice of the amendment. In the event that the Plan's vesting schedule is amended, the nonforfeitable percentage of every Employee who is a Participant on the date the amendment is adopted, or the date the amendment is effective, if later, in his Company Matching Account and/or Company Contributions Account shall be not less than his -136- percentage computed under the Plan without regard to the amendment. -137- ARTICLE XVII TOP-HEAVY PROVISIONS 17.1 Minimum Company Contributions. ----------------------------- In the event that this Plan is deemed a Top-Heavy plan with respect to any Plan Year, each Non-Key Employee who is a Participant shall receive Company contributions that in the aggregate are at least equal to the lesser of three percent (3%) of Compensation or the percentage at which Company contributions are made for the Key Employee (under any plan required to be included in an Aggregation Group) for whom such percentage is the highest for the Plan Year, regardless of whether the Non-Key Employee elected to make Before-Tax Contributions to the Plan for the Plan Year, completed less than 1,000 Hours of Service during such Plan Year, or the Non-Key Employee's level of Compensation. For purposes of this Section 17.1, Company contributions shall include amounts considered contributed by Key Employees and which qualify for treatment under Code Section 401(k), and any Company contributions for Key Employees taken into account under Section 401(k)(3) or 401(m) of the Code, but shall not include such amounts considered as contributed by or for Non-Key Employees. Further, in determining the percentage at which Company contributions are made for the Plan Year for the Key Employee for whom such percentage is the highest, the contributions for a Key Employee shall be divided by so much of a Key Employee's compensation for the Plan Year as does not exceed -138- $200,000, as that amount is adjusted each year by the Secretary of the Treasury. In the event a Participant is covered by both a defined contribution and a defined benefit plan maintained by the Company, both of which are determined to be Top-Heavy Plans, the defined benefit minimum, offset by the benefits provided under the defined contribution plan, shall be provided under the defined benefit plan. 17.2 Compensation. ------------ For the purpose of calculating Company contributions to be made to a Participant for Plan Years commencing prior to January 1, 1989, the annual Compensation taken into account for any Employee shall not exceed $200,000 (increased by any adjustments made pursuant to Section 416(d)(2) of the Code or regulations thereunder) if the Plan is deemed a Top-Heavy Plan with respect to any Plan Year. 17.3 Top-Heavy Determination. ----------------------- This Plan shall be deemed a Top-Heavy Plan with respect to any Plan Year in which, as of the Determination Date: (a) the aggregate of the Accounts of Key Employees under the Plan exceeds 60% of the aggregate of the Accounts of all Employees; or (b) the aggregate of the Accounts of Key Employees under all defined contribution plans and the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans includable in an Aggregation Group exceed 60% of a similar sum for all employees in such group. As used above, the term -139- "Aggregation Group" includes all plans of Participating Companies having one or more Key Employees as Participants and any other defined contribution plan of a Participating Company that permits a plan of a Participating Company having one or more Key Employees to meet the qualification requirements of Sections 401(a)(4) or 410 of the Code. The present value of account balances under a defined contribution plan shall be determined as of the most recent valuation date that falls within or ends on the Determination Date. The present value of accrued benefits under a defined benefit plan shall be determined as of the same valuation date used for computing plan costs for minimum funding. The present value of the cumulative accrued benefits of a Non-Key Employee shall be determined under either: (i) the method, if any, that uniformly applies for accrual purposes under all plans maintained by affiliated companies, within the meaning of Code Sections 414(b), (c), (m) or (o); or (ii) if there is no such method, as if such benefit accrued not more rapidly than the lowest accrual rate permitted under the fractional accrual rate of Section 411(b)(1)(C) of the Code. For purposes of this Article XVII, "Determination Date" shall mean, with respect to any Plan Year, the last day of the preceding Plan Year, or, in the case of the first Plan Year, the last day of such Plan Year. -140- The term, "Key Employee" shall mean, for purposes of this Article XVII, any Employee or former Employee who, at any time during such Plan Year (or any of the 4 preceding Plan Years) is: (1) an officer of a Participating Company having an annual compensation in excess of 50 percent of the amount in effect under Section 415(b)(1)(A) of the Code for such Plan Year; (2) one of the 10 Employees having an annual compensation in excess of 150 percent of the amount in effect under Section 415(c)(1)(A) of the Code owning (or considered as owning within the meaning of Section 318 of the Code) the largest interests in a Participating Company; (3) a 5% owner of a Participating Company; or (4) 1% owner of a Participating Company having an annual compensation from a Participating Company of more than $150,000. For purposes of (1) above, no more than 50 Employees (or, if lesser, the greater of 3 or 10% of the Employees) shall be treated as officers. A 5% (or 1%, if applicable) owner means any person who owns (or is considered as owning within the meaning of Section 318 of the Code) more than 5% (1%) of the outstanding stock of the Participating Company or stock possessing more than 5% (1%) of the total combined voting power of all stock of the Participating Company. -141- For purposes of applying the constructive ownership rules under Section 318(a)(2) of the Code, subparagraph (C) of such Section shall be applied by substituting "5 percent" for "50 percent." For purposes of determining "5% owners" and/or "1% owners," the aggregating rules of Sections 414(b), (c) and (m) of the Code shall not apply. For purposes of determining whether an Employee has compensation of more than $150,000, however, compensation from each entity required to be aggregated under Sections 414(b), (c) and/or (m) of the Code shall be taken into account. For purposes of determining the amount of a Participant's Account for purposes of this Section 17.3, the amount shall include the aggregate distributions under the Plan made to the Participant during the five year period ending on the Determination Date. The following shall not be taken into account for purposes of determining whether this Plan is a Top-Heavy Plan: (1) any rollover to the Plan that is initiated by a Participant; (2) the account value of any Participant who is not a Key Employee with respect to any Plan Year but was a Key Employee with respect to any prior Plan Year; and (3) the account value of a Participant who has not received any compensation from any Participating Company under the Plan (other than benefits under the Plan) during the five year period ending on the Determination Date. -142- 17.4 Maximum Annual Addition. ----------------------- (a) Except as set forth below, in the case of any Top-Heavy Plan the rules of Section 14.4 shall be applied by substituting "1.0" for "1.25" in the defined benefit plan fraction and the defined contribution fraction. (b) The rule set forth in Subsection (a) above shall not apply if the requirements of both Paragraphs (i) and (ii), below, are satisfied. (i) The requirements of this Paragraph (i) are satisfied if the rules of Section 17.4(a) above would be satisfied after substituting "four percent (4%)" for "three percent (3%)" where it appears therein with respect to Participants covered only under a defined contribution plan. (ii) The requirements of this Paragraph (ii) are satisfied if the Plan would not be a Top-Heavy Plan if "ninety percent (90%)" were substituted for "sixty percent (60%)" each place it appears in Section 17.3(a)(ii). (c) The rules of Subsection (a) shall not apply with respect to any Employee as long as there are no -- (i) Company contributions, forfeitures, or voluntary nondeductible contributions allocated to the Employee under a defined contribution plan maintained by the Company, or (ii) Accruals by the Employee under a defined benefit plan maintained by the Company. -143- 17.5 Aggregation. ----------- Each Plan of a Participating Company required to be included in an "Aggregation Group" shall be treated as a Top-Heavy Plan if such group is a "Top-Heavy Group." For purposes of this Article XVII, an "Aggregation Group" shall mean: (i) each plan of a Participating Company in which a Key Employee is a Participant, and (ii) each other plan of a Participating Company which enables any plan described in (i) above to meet the requirements of Section 401(a)(4) or 410 of the Code. Any plan of a Participating Company that is not required to be included in an Aggregation Group may be treated as part of such group if such group would continue to meet the requirements of Section 401(a)(4) and 410 of the Code with such plan taken into account. For purposes of this Section 17.5, a "Top-Heavy Group" means any Aggregation Group if the sum (as of the Determination Date) of the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in such group and the aggregate of the accounts of Key Employees under all defined contribution plans included in such group exceed 60% of a similar sum determined for all Employees. -144- ARTICLE XVIII MISCELLANEOUS 18.1 No Enlargement of Employee Rights. --------------------------------- (a) This Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any Employee, or to be consideration for, or an inducement to, or a condition of, the employment of any Employee. (b) Nothing contained in this Plan or the Trust shall be deemed to give any Employee the right to be retained in the employ of the Company or to interfere with the right of the Company to discharge or retire any Employee at any time. (c) No Employee, nor any other person, shall have any right to or interest in any portion of the Trust Fund other than as specifically provided in this Plan. 18.2 Mailing of Payments; Lapsed Benefits. ------------------------------------ (a) All payments under the Plan shall be delivered in person or mailed to the last address of the Participant (or, in the case of the death of the Participant, to the last address of any other person entitled to such payments under the terms of the Plan) furnished pursuant to Section 18.3 below. (b) In the event that a benefit is payable under this Plan to a Participant or any other person and after reasonable efforts such person cannot be located for the -145- purpose of paying the benefit for a period of three (3) consecutive years, the Committee, in its sole discretion, may determine that such person conclusively shall be presumed dead and upon the termination of such three (3) year period the benefit shall be forfeited and as soon thereafter as practicable shall be applied to reduce future Company Contributions; provided, however, should any person entitled to such benefit thereafter claim such benefit, such benefit shall be restored. Alternatively, benefits that cannot be paid may escheat to the state in accordance with applicable state law. (c) For purposes of this Section 18.2, the term "Beneficiary" shall include any person entitled under Section 8.9 to receive the interest of a deceased Participant or deceased designated Beneficiary. It is the intention of this provision that the benefit will be distributed to an eligible Beneficiary in a lower priority category under Section 8.9 if no eligible Beneficiary in a higher priority category can be located by the Committee after reasonable efforts have been made. (d) The Accounts of a Participant shall continue to be maintained until the amounts in the Accounts are paid to the Participant or his Beneficiary. Notwithstanding the foregoing, in the event that the Plan is terminated, the following rules shall apply: -146- (i) All Participants (including Participants who have not previously claimed their benefits under the Plan) shall be notified of their right to receive a distribution of their interests in the Plan; (ii) All Participants shall be given a reasonable length of time, which shall be specified in the notice, in which to claim their benefits; (iii) All Participants (and their Beneficiaries) who do not claim their benefits within the designated time period shall be presumed to be dead. The Accounts of such Participants shall be forfeited at such time. These forfeitures shall be disposed of according to rules prescribed by the Committee, which rules shall be consistent with applicable law. (iv) The Committee shall prescribe such rules as it may deem necessary or appropriate with respect to the notice and forfeiture rules stated above. (e) Should it be determined that the preceding rules relating to forfeiture of benefits upon Plan termination are inconsistent with any of the provisions of the Code and/or ERISA, these provisions shall become inoperative without the need for a Plan amendment and the Committee shall prescribe rules that are consistent with the applicable provisions of the Code and/or ERISA. -147- 18.3 Addresses. --------- Each Participant shall be responsible for furnishing the Committee with his correct current address and the correct current name and address of his Beneficiary or Beneficiaries. 18.4 Notices and Communications. -------------------------- (a) All applications, notices, designations, elections, and other communications from Participants shall be in writing, on forms prescribed by the Committee and shall be mailed or delivered to the office designated by the Committee, and shall be deemed to have been given when received by that office. (b) Each notice, report, remittance, statement and other communication directed to a Participant or Beneficiary shall be in writing and may be delivered in person or by mail. An item shall be deemed to have been delivered and received by the Participant when it is deposited in the United States Mail with postage prepaid, addressed to the Participant or Beneficiary at his last address of record with the Committee. 18.5 Reporting and Disclosure. ------------------------ The Plan Administrator shall be responsible for the reporting and disclosure of information required to be reported or disclosed by the Plan Administrator pursuant to ERISA or any other applicable law. -148- 18.6 Governing Law. ------------- All legal questions pertaining to the Plan shall be determined in accordance with the provisions of ERISA and the laws of the State of California. All contributions made hereunder shall be deemed to have been made in California. 18.7 Interpretation. -------------- (a) Article and Section headings are for convenient reference only and shall not be deemed to be part of the substance of this instrument or in any way to enlarge or limit the contents of any Article or Section. Unless the context clearly indicates otherwise, masculine gender shall include the feminine, and the singular shall include the plural and the plural the singular. (b) The provisions of this Plan shall in all cases be interpreted in a manner that is consistent with this Plan satisfying: (i) The requirements (of Code Section 401(a) and related statutes) for qualification as a Profit Sharing Plan; and (ii) The requirements (of Code Section 401(k) and related statutes) for qualification as a Qualified Cash or Deferred Arrangement. 18.8 Certain Securities Laws Rules. ----------------------------- Any election or direction made under this Plan by an individual who is or may become subject to liability under Section 16 of the Securities Exchange Act of l934, as amended -149- (the "Exchange Act"), may be conditioned upon such restrictions as are necessary or appropriate to qualify for an applicable exemption under Section 16(b) of the Exchange Act, or any rule promulgated thereunder. To the extent required by Section 401(a)(4) of the Code, the rules under this Section 18.8 shall be administered in a non-discriminatory manner. 18.9 Withholding for Taxes. --------------------- Any payments out of the Trust Fund may be subject to withholding for taxes as may be required by any applicable federal or state law. 18.10 Limitation on Company; Committee and Trustee Liability. ------------------------------------------------------ Any benefits payable under this Plan shall be paid or provided for solely from the Trust Fund and neither the Company, the Committee nor the Trustee assume any responsibility for the sufficiency of the assets of the Trust to provide the benefits payable hereunder. 18.11 Successors and Assigns. ---------------------- This Plan and the Trust established hereunder shall inure to the benefit or, and be binding upon, the parties hereto and their successors and assigns. 18.12 Counterparts. ------------ This Plan document may be executed in any number of identical counterparts, each of which shall be deemed a complete original in itself and may be introduced in evidence or used for any other purpose without the production of any other counterparts. -150- IN WITNESS WHEREOF, in order to record the adoption of this Plan, Mattel, Inc. has caused this instrument to be executed by its duly authorized officers this 29th day of April 1998, -151- effective, however, as of April 1, 1997, except as otherwise expressly provided herein. MATTEL, INC. By: /s/ Alan Kaye ---------------------- Alan Kaye -152- -----END PRIVACY-ENHANCED MESSAGE-----