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<SEC-DOCUMENT>0000898430-99-001297.txt : 19990402
<SEC-HEADER>0000898430-99-001297.hdr.sgml : 19990402
ACCESSION NUMBER: 0000898430-99-001297
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 16
CONFORMED PERIOD OF REPORT: 19981231
FILED AS OF DATE: 19990331
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: MATTEL INC /DE/
CENTRAL INDEX KEY: 0000063276
STANDARD INDUSTRIAL CLASSIFICATION: DOLLS & STUFFED TOYS [3942]
IRS NUMBER: 951567322
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-05647
FILM NUMBER: 99580210
BUSINESS ADDRESS:
STREET 1: 333 CONTINENTAL BLVD
CITY: EL SEGUNDO
STATE: CA
ZIP: 90245
BUSINESS PHONE: 3102522000
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998.
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 001-05647
----------------
MATTEL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-1567322
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
333 Continental Boulevard
El Segundo, California 90245-5012
(Address of principal executive offices)
(310) 252-2000
(Registrant's telephone number)
----------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $1.00 par value (and the
associated New York Stock Exchange
Preference Share Purchase Rights) Pacific Exchange, Inc.
Depositary Shares, each representing one
twenty-fifth New York Stock Exchange
of a share of Series C Mandatorily
Convertible
Redeemable Preferred Stock
6 3/4% Senior Notes Due 2000 (None)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
(None)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on March 19, 1999 was $7,029,080,861.
Number of shares outstanding of registrant's common stock, $1.00 par value, as
of March 19, 1999: 286,171,231 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Mattel, Inc. Annual Report to Stockholders for the year
ended December 31, 1998 (Incorporated into Parts I, II and IV).
2. Portions of the Mattel, Inc. 1999 Notice of Annual Meeting of Stockholders
and Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days after the close of the registrant's fiscal year
(Incorporated into Part III).
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
Item 1. Business
Mattel designs, manufactures, and markets a broad variety of children's
products on a worldwide basis through both sales to retailers and direct to
consumers. The Company's business is dependent in great part on its ability
each year to redesign, restyle and extend existing core products and product
lines, to design and develop innovative new products and product lines, and to
expand its marketing capability. The Company plans to continue to focus on its
portfolio of brands which have fundamental play patterns and have historically
had worldwide appeal, have been sustainable, and have delivered consistent
profitability. The Company's portfolio of brands can be grouped in the
following four categories:
. Girls--including Barbie(R) fashion dolls and accessories, collector
dolls, software, Fashion Magic(R), American Girl(R), Cabbage Patch
Kids(R), and Polly Pocket(R);
. Infant and Preschool--including Fisher-Price(R), Disney preschool and
plush, Power Wheels(R), Sesame Street(R), See 'N Say(R), Magna
Doodle(R), and View-Master(R);
. Entertainment--including Disney, Nickelodeon(R), games, and puzzles; and
. Wheels--including Hot Wheels(R), Matchbox(R), Tyco(R) Electric Racing,
and Tyco(R) Radio Control.
Beginning in 1997, the Company began to take a number of important steps
designed to better position the Company for the future. In March 1997, the
Company completed its merger with Tyco Toys, Inc., which at the time was the
third largest toy company in the US. As a result of the merger, the Company
added the Matchbox(R), Tyco(R) Electric Racing, Tyco(R) Radio Control, Sesame
Street(R), Magna Doodle(R), and View-Master(R) brands to its portfolio. The
merger was accounted for as a pooling of interests, which means that for
accounting and financial reporting purposes, the two companies were treated as
if they had always been combined. In connection with the merger, the Company
also commenced a significant integration and restructuring plan, which has
since been substantially completed.
In June 1998, the Company acquired Bluebird Toys PLC, a company organized in
the United Kingdom, from which Mattel previously licensed the product designs
for its Polly Pocket(R) and Disney Tiny Collections brands, as well as the
Polly Pocket(R) trademarks. In July 1998, the Company completed its
acquisition of Pleasant Company, a Wisconsin-based direct marketer of books,
dolls, clothing, accessories and activity products included under the American
Girl(R) brand name.
Most recently, on December 13, 1998, the Company entered into a merger
agreement with The Learning Company, Inc. under which Learning Company will be
merged into the Company, with Mattel remaining as the surviving corporation.
Learning Company develops and publishes a broad range of high quality branded
consumer software for personal computers that educates across every age
category, from young children to adults and is one of the world's largest
consumer software companies. Learning Company's primary emphasis is in
education and productivity software, but it also offers a selection of
lifestyle and, to a lesser extent, entertainment products, both in North
America and internationally. The merger would add the Carmen Sandiego(TM),
Reader Rabbit(R), The Oregon Trail(R), National Geographic(R), American
Greetings(R), The Print Shop(R), Riven(R) and Myst(R) brands to the Company's
portfolio.
The completion of the merger depends on satisfying a number of conditions,
including the approval of the merger agreement by the stockholders of both
companies. It is expected that the merger will be accounted for as a pooling
of interests. The number of shares of Mattel common stock to be issued to
Learning Company's common and preferred stockholders, together with the Mattel
common stock to be issued upon the exchange of the exchangeable shares of
Learning Company's Canadian subsidiary, is expected to represent between
approximately 27% and 30% of Mattel's outstanding voting power after the
merger, depending on the actual exchange ratio at the time of the merger. See
"Risk Factors."
2
<PAGE>
As used herein, unless the context requires otherwise, "Mattel" or the
"Company" refers to Mattel, Inc. and its subsidiaries, and "Fisher-Price"
refers to Fisher-Price, Inc., a Delaware corporation and wholly-owned
subsidiary of Mattel.
Mattel was incorporated in California in 1948 and reincorporated in Delaware
in 1968. Its executive offices are located at 333 Continental Boulevard, El
Segundo, California 90245-5012, telephone (310) 252-2000.
Competition and Industry Background
Competition in the toy industry is based primarily on price, quality and
play value. In recent years, the toy industry has experienced rapid
consolidation driven, in part, by the desire of industry competitors to offer
a range of products across a broader variety of categories. In the US, the
Company competes with several large toy companies, including Hasbro, Inc., as
well as a number of smaller toy companies. The larger toy companies have
pursued a strategy of focusing on core product lines. Core product lines are
those lines that are expected to be marketed for an extended period of time,
and that historically have provided relatively consistent growth in sales and
profitability. By focusing on core product lines, toy manufacturers have been
able to reduce their reliance on new product introductions and the associated
risk and volatility. The juvenile products market, in which Fisher-Price is
one of the leading companies, is more fragmented.
The toy industry is also experiencing a shift toward greater consolidation
of retail distribution channels, such as large specialty toy stores and
discount retailers, including Toys R Us, Wal-Mart, Kmart and Target, which
have increased their overall share of the retail market. This consolidation
has resulted in an increased reliance among retailers on the large toy
companies because of their financial stability and ability to support products
through advertising and promotion and to distribute products on a national
basis. These retailers' growing acceptance of electronic data interchange has
provided toy manufacturers with an ability to more closely monitor consumers'
acceptance of a particular product or product line and has provided retailers
with the ability to more closely monitor their inventory levels.
Over the last ten years, toy companies based in the US have expanded their
international marketing and manufacturing operations. The Company believes a
strong international distribution system can add significantly to the sales
volume of core product lines and extend the life cycles of newly-developed
products.
Seasonality
Sales of toy products at retail are seasonal, with a majority of retail
sales occurring during the period from September through December.
Consequently, shipments of toy products to retailers are typically greater in
the third and fourth quarters than in each of the first and second quarters
combined. As the large toy retailers become more efficient in their control of
inventory levels, this seasonality increases. See "Risk Factors."
In anticipation of this seasonal increase in retail sales, the Company
significantly increases its production in advance of the peak selling period,
resulting in a corresponding build-up of inventory levels in the first three
quarters of the year. In addition, the Company and others in the toy industry
develop sales, advertising, promotion and merchandising programs with the
retailers to encourage them to purchase merchandise in periods other than the
peak holiday selling season. These programs, together with seasonal shipping
patterns, result in significant peaks in the third and fourth quarters in the
respective levels of inventories and accounts receivable, which result in
seasonal working capital financing requirements. See "Seasonal Financing."
In the fourth quarter of 1998, the Company experienced unanticipated
cutbacks in buying by retailers due to a continuing shift by these retailers
to just-in-time inventory management systems. See "Risk Factors." Under just-
in-time inventory management systems, retailers are timing reorders so that
they are being filled by suppliers closer to the time of purchase by
consumers, rather than maintaining large on-hand inventories to meet consumer
demand. To respond to such shifts, the Company took appropriate actions to
adjust its own shipping to more of a just-in-time pattern. As a result,
products that would have previously been shipped in advance of expected
consumer demand will be shipped closer to the time they are expected to be
purchased by the consumer.
3
<PAGE>
Products
The Company has historically achieved consistent sales and earnings growth
by focusing on a number of core brands supplemented by various new product
introductions. The Company's principal core brands are grouped in the
following four categories:
. Girls--including Barbie(R) fashion dolls and accessories, collector
dolls, software, Fashion Magic(R), American Girl(R), Cabbage Patch
Kids(R), and Polly Pocket(R);
. Infant and Preschool--including Fisher-Price(R), Disney preschool and
plush, Power Wheels(R), Sesame Street(R), See 'N Say(R), Magna
Doodle(R), and View-Master(R);
. Entertainment--including Disney, Nickelodeon(R), games, and puzzles; and
. Wheels--including Hot Wheels(R), Matchbox(R), Tyco(R) Electric Racing,
and Tyco(R) Radio Control.
Core brands are expected to be marketed for an extended period of time and
historically have provided relatively consistent growth in sales and
profitability. In order to provide greater flexibility in the manufacturing
and delivery of products, and as part of a continuing effort to reduce
manufacturing costs, the Company has concentrated production of most of its
core brands in Company-owned facilities and generally uses independent
contractors for the production of non-core products.
With respect to new product introductions, the Company's strategy is to
begin production on a limited basis until a product's initial success has been
proven in the marketplace. The production schedule is then modified to meet
anticipated demand. The Company further limits its risk by generally having
independent contractors manufacture new product lines in order to minimize
capital expenditures associated with new product introductions. This strategy
has reduced inventory risk and significantly limited the potential loss
associated with new product introductions.
New product introductions for 1998 included:
. Kelly(R) and Tommy(TM) dolls and their battery-operated Power Wheels(R)
vehicle
. Barbie(R) Riding Club and Barbie(R) Nail Designer(TM) CD-ROMS
. Barbie(R) Photo Designer Digital Camera with CD-ROM
. NASCAR(R) Barbie(R) doll
. Hot Wheels(R) Pro-Racing vehicles
. Hot Wheels Collectibles(R) vehicles for the adult collector
. Hot Wheels(R) Stunt Truck Driver(TM) CD-ROM
. Cabbage Patch Kids(R) 15th Anniversary doll, a reproduction of the doll
that started the 1983 craze
. the addition of a series of action figures and playsets based on the
Disney/Pixar movie "A Bug's Life"
. Bounce Around Tigger, battery-operated talking plush with bouncing
feature
. Fisher-Price(R) Prop 'N Carry(TM) infant carrier
. Fisher-Price(R) Rescue Heroes(TM) playset and action figures
. Fisher-Price(R) Shop & Cook(TM) kitchen playcenter
. Tyco(R) R/C Revolver(TM) and Tyco(R) R/C TMH Psycho(TM) radio control
vehicles
. Blue's Clues(TM) plush toys and puzzles based on Nickelodeon's popular
TV show
. Rugrats(TM) line of dolls, plush toys, games and puzzles based on
Nickelodeon's popular TV show and movie
. Reintroduction of the famous 1960 Chatty Cathy(TM) doll with pull-string
talking mechanism
4
<PAGE>
New product introductions planned for 1999 include:
. Intel Play(TM) line of PC-enhanced products
. Generation Girl(TM) Barbie(R) and friends that are positioned as trendy
teens with exciting adventures via dolls, books and CD-ROM
. Barbie(R) newborn baby sister Krissy doll
. Working Woman Barbie(R) CD-ROM with print features for letterhead,
business cards, labels and other office-themed activities
. Rosie O'Donnell doll
. Barbie CD-ROM programs for Nintendo Game Boy
. Barbie(R) Frankie Sinatra Gift Set
. Bob Mackie Porcelain Tango Barbie(R)
. Millenium Barbie(R) doll
. Hot Wheels(R) Ferrari products of various categories (Mattel is the
worldwide exclusive licensee)
. Hot Wheels(R) Formula One die cast vehicles
. Hot Wheels Collectibles(R) Jay Leno and Reggie Jackson car sets
. Hot Wheels(R) Crash CD-ROM game
. Hot Wheels(R) NBA vehicles with figures
. Pooh Friendly Place miniature playsets featuring Pooh and friends
. a line of action figures, plush toys, games, puzzles and collector dolls
based on the Disney/Pixar movie "Toy Story 2"
. Chat Pals(TM), a line of plush toys that "come to life" with microphone
and radio frequency technology
. Holiday Chatty Cathy(TM) doll
. Relaunch of Polly Pocket(R) line of dolls and playsets with themes for
the new millennium
. Polly Pocket(R) 3 1/2" doll with fashions
. NBA collectible figures
. Fisher-Price(R) Infant-to-Toddler Soothing Rocker
. Fisher-Price(R) Bounce 'n Play Activity Dome
. Fisher-Price(R) Child Locator
. Fisher-Price(R) 2-in-1 RC Truck(TM)
. Fisher-Price(R) Harley-Davidson(R) Power Wheels(R)
. Fisher-Price(R) Peaceful Planet(TM) line of toys
. Pleasant Company's Amelia(TM), a feisty, funny, make-believe author and
illustrator of Amelia's notebooks along with Amelia(TM) school supplies,
clothing and an interactive CD-ROM
. Bitty Baby(R) line of baby dolls with special outfits accompanied with
Bitty Bear(R) with poseable arms and legs
. History Mysteries(TM), a new line of suspenseful stories featuring 11-12
year old heroines who solve compelling mysteries at important times in
America's past.
5
<PAGE>
International Operations
Revenues from the Company's international operations represented
approximately 34% of total consolidated gross sales in 1998. Generally,
products marketed internationally are the same as those marketed domestically,
although some are developed or adapted for particular international markets.
The Company's products are sold directly in most European, Asian and Latin
American countries, and through agents and distributors in those countries
where the Company has no direct presence. See "Licenses and Distribution
Agreements." For a description of a number of the risks associated with the
Company's international operations, see "Risk Factors."
The strength of the US dollar relative to other currencies can significantly
affect the revenues and profitability of the Company's international
operations. From time to time, the Company enters into foreign currency
forward exchange and option contracts primarily as hedges of inventory
purchases, sales and other intercompany transactions denominated in foreign
currencies to limit the effect of exchange rate fluctuations on the results of
operations and cash flows. See "Financial Instruments." For financial
information by geographic area, see Note 8 to the Consolidated Financial
Statements in the Annual Report to Stockholders, incorporated herein by
reference.
Product Design and Development
Through its product design and development group, the Company regularly
refreshes, redesigns and extends existing product lines and develops
innovative new product lines. The Company's success is dependent on its
ability to continue this activity. See "Risk Factors." Product design and
development are principally conducted by a group of professional designers and
engineers employed by the Company.
License agreements with third parties permit the Company to utilize the
trademark, character, or product of the licensor in its product line. A
principal licensor is The Walt Disney Company, which licenses many of its
characters and entertainment properties for use on the Company's products. The
Company also has entered into license agreements with, among others:
Children's Television Workshop relating to its Sesame Street(R) properties;
Viacom International, Inc. relating to its Nickelodeon(R) properties; NBA
Properties, Inc. for master toy licenses for the NBA, WNBA and USA Basketball;
Ferrari for use of the Ferrari trademark; and Original Appalachian Artworks,
Inc. for Cabbage Patch Kids(R). A number of these licenses relate to product
lines that are significant to the Company's business and operations.
Independent toy designers and developers bring products to the Company and
are generally paid a royalty on the net selling price of products licensed by
the Company. These independent toy designers may also create different
products for other toy companies.
The Company devotes substantial resources to product design and development.
During the years ended December 31, 1998, 1997 and 1996, the Company spent
approximately $178 million, $156 million, and $147 million, respectively, in
connection with the design and development of products, exclusive of royalty
payments. See Note 10 to the Consolidated Financial Statements in the Annual
Report to Stockholders, incorporated herein by reference.
Advertising and Promotion
The Company supports its product lines with extensive advertising and
consumer promotions. Advertising continues at varying levels throughout the
year and peaks during the Christmas season. Advertising includes television
and radio commercials, and magazine and newspaper ads. Promotions include in-
store displays, coupons, merchandising materials and major events focusing on
products and tie-ins with various consumer product companies. To further
promote the Company and its products, the Company sponsors the attractions
"It's A Small World" at Disneyland and Walt Disney World and "Autopia" and
"Storybook Land" at Disneyland Paris under a ten and one-half year agreement
with The Walt Disney Company. The Company also participates in toy stores in
Disneyland, near Disneyland Paris and in the Disney Village Market Place near
Walt Disney World. Separately, a total of twenty-eight BARBIE Boutiques are
located in F.A.O. Schwarz toy stores, including the "BARBIE on Madison"
boutique at the F.A.O. Schwarz flagship store in New York City.
6
<PAGE>
In November 1998, the Company opened its first flagship store, American Girl
Place(TM), in Chicago featuring children's products from Pleasant Company.
During the years ended December 31, 1998, 1997 and 1996, Mattel spent
approximately $813 million (17.0% of net sales), $779 million (16.1% of net
sales) and $779 million (17.2% of net sales) respectively, on worldwide
advertising and promotion.
Marketing and Sales
The Company's products are sold throughout the world. In the US, the
Company's products are distributed directly to large retailers, including
discount and free-standing toy stores, chain stores, department stores, other
retail outlets and, to a limited extent, wholesalers. Discount toy stores
continue to increase their market share. During the year ended December 31,
1998, Wal-Mart and Toys R Us accounted for approximately 16.5% and 15.3%,
respectively, of worldwide consolidated net sales and were the only customers
accounting for 10% or more of consolidated net sales. See "Risk Factors."
The Company has also been focusing increasingly on direct-to-consumer sales,
through both its direct-to-consumer catalogue business and by taking advantage
of e-commerce over the Internet. During 1998, the Company introduced websites
that support its numerous core products. Consumers can purchase many of the
Company's products over the Internet, including Barbie(R) collector dolls,
Mattel Media(R) software products, and Hot Wheels(R) and Matchbox(R)
collectibles. The Company believes that increasing its focus on direct-to-
consumer sales will help to maximize sales of its products and create a better
balance between direct-to-consumer sales and sales to traditional retailers.
During 1998, the Company acquired Pleasant Company, a Wisconsin-based direct
marketer of products under the American Girl(R) brand name. The Company also
expects to be able to use the infrastructure provided by Learning Company to
take many of Mattel's brands directly to the consumer.
In general, the Company's major domestic and international customers review
its product lines and product concepts for the upcoming year at showings
beginning in late summer. The Company also participates in domestic and
international toy industry trade fairs in the first quarter of the year. In
the fourth quarter of 1998, the Company experienced unanticipated cutbacks in
buying by retailers due to a continuing shift by these retailers to just-in-
time inventory management systems. Under just-in-time inventory management
systems, retailers are timing reorders so that they are being filled by
suppliers closer to the time of purchase by consumers, rather than maintaining
large on-hand inventories to meet consumer demand. To respond to such shifts,
the Company took appropriate actions to adjust its own shipping to more of a
just-in-time pattern. As a result, products that would have previously been
shipped in advance of expected consumer demand will be shipped closer to the
time they are expected to be purchased by the consumer. Historically, the
greater proportion of shipments of products to retailers occurs during the
third and fourth quarters of the year. See "Seasonality" and "Risk Factors."
Through its marketing research departments, the Company conducts basic
consumer research and product testing and monitors demographic factors and
trends. This information assists the Company in evaluating consumer acceptance
of products, including whether there is increasing or decreasing demand for
its products.
The Company bases its production schedules on customer orders, modified by
historical trends, results of market research and current market information.
The actual shipments of products ordered and the order cancellation rate are
affected by consumer acceptance of the product line, the strength of competing
products, marketing strategies of retailers and overall economic conditions.
Unexpected changes in these factors can result in a lack of product
availability or excess inventory in a particular product line.
Manufacturing
The Company's products are manufactured in Company-owned facilities and by
independent contractors. Products are also purchased from unrelated entities
that design, develop and manufacture the products. In order to provide greater
flexibility in the manufacture and delivery of products, and as part of a
continuing effort to
7
<PAGE>
reduce manufacturing costs, the Company has concentrated production of most of
its core products in the Company's facilities and generally uses independent
contractors for the production of non-core products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Manufacturing Risk" in the Annual Report to Stockholders, incorporated herein
by reference.
Mattel's manufacturing facilities are located in the states of Kentucky,
Georgia, and Oregon, and in Mexico, China, Indonesia, Malaysia, Thailand and
Italy. The Company also utilizes independent contractors to manufacture
products in the US, Europe, Mexico, the Far East and Australia. To help avoid
disruption of its product supply due to political instability, civil unrest,
economic instability, changes in government policies and other risks, the
Company produces many of its key products in more than one facility.
All foreign countries in which the Company's products are manufactured
(principally China, Indonesia, Malaysia and Mexico) currently enjoy "normal
trade relations" ("NTR") status under US tariff laws, which provides a
favorable category of US import duties. As a result of continuing concerns in
the US Congress regarding China's human rights policies, and disputes
regarding Chinese trade policies, including the country's inadequate
protection of US intellectual property rights, there has been, and may be in
the future, opposition to the extension of NTR status for China.
The loss of NTR status for China would result in a substantial increase in
the import duty for toys manufactured in China and imported into the US and
would result in increased costs for the Company and others in the toy
industry. See "Risk Factors." The impact of such an event on the Company could
be somewhat mitigated by the Company's ability to source product for the US
market from countries other than China and ship products manufactured in China
to markets outside the US. As a result, the Company has expanded its
production capacity in other countries. Other factors, including the Company's
ability to pass along the added costs through price increases and the pricing
policies of vendors in China, could also mitigate the impact of a loss of
China's NTR status.
With the implementation of the Uruguay Round agreement effective January 1,
1995, all US duties on dolls and traditional toys were completely eliminated.
Canada also eliminated its tariffs on dolls and most toy categories in 1995,
with the exception of certain toy sets and board games that will have their
duties eliminated over ten years. Meanwhile, both the European Union and Japan
began implementing Uruguay Round tariff reductions that, by 1999, will lower
the tariffs on dolls by over 40% in the European Union and by 15% in Japan.
The European Union and Japan are fully eliminating tariffs on several other
toy categories over a period of ten years.
Commitments
In the normal course of business, the Company enters into contractual
arrangements for future purchases of goods and services to ensure availability
and timely delivery, and to obtain and protect the Company's right to create
and market certain products. Certain of these commitments routinely contain
provisions for guaranteed or minimum expenditures during the term of the
contracts. Current and future commitments for guaranteed payments reflect the
Company's focus on expanding its product lines through alliances with
businesses in other industries, such as television and motion picture
entertainment companies.
As of December 31, 1998, the Company had outstanding commitments for 1999
purchases of inventory of approximately $60 million. Licensing and similar
agreements with terms extending through the year 2003 contain provisions for
future guaranteed minimum payments aggregating approximately $371 million. In
addition, under a certain licensing agreement, the Company may have additional
commitments of up to $37.8 million in the year 2000 payable over three years.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Commitments" and Note 6 to the Consolidated Financial
Statements in the Annual Report to Stockholders, incorporated herein by
reference.
8
<PAGE>
Licenses and Distribution Agreements
License agreements with third parties permit the Company to utilize the
trademark, character or product of the licensor in its product line. The
Company's level of licensing activity has expanded in recent years. Royalty
expense during the years ended December 31, 1998, 1997 and 1996 was
approximately $201 million, $194 million and $155 million, respectively. See
"Product Design and Development" and Note 6 to the Consolidated Financial
Statements in the Annual Report to Stockholders, incorporated herein by
reference.
The Company distributes finished products that are independently designed
and manufactured. The Company also licenses a number of its trademarks,
characters and other property rights to others for use in connection with the
sale of non-toy and other products that do not compete with the Company's
products.
Financial Instruments
To limit the impact associated with the exposure to currency exchange rate
fluctuations, the Company enters into foreign currency forward exchange and
option contracts primarily to hedge its purchase of inventory, sales and other
intercompany transactions denominated in foreign currencies. These contracts
are intended to fix a portion of the Company's product cost and intercompany
cash flows, and thereby limit the effect of foreign currency fluctuations on
the Company's results of operations and cash flows. The Company does not trade
in financial instruments for speculative purposes.
For additional information regarding foreign currency contracts, see
"International Operations" above and Note 6 to the Consolidated Financial
Statements in the Annual Report to Stockholders, incorporated herein by
reference.
Seasonal Financing
The Company's financing of seasonal working capital typically grows
throughout the first half of the year and peaks in the third or fourth
quarter, when accounts receivable are at their highest due to increased sales
volume and Company sales programs, and when inventories are at their highest
in anticipation of expected second half sales volume. See "Seasonality." The
Company expects to finance its seasonal working capital requirements for the
coming year by using existing and internally generated cash, issuing
commercial paper, selling certain trade receivables and using various short-
term bank lines of credit. In addition, the Company avails itself of
individual short-term foreign credit lines with a number of banks, which will
be used as needed to finance seasonal working capital requirements of certain
foreign affiliates.
The Company maintains and periodically amends or replaces an unsecured
committed revolving credit agreement with a commercial bank group that is used
as the primary source of financing the seasonal working capital requirements
of its domestic and certain foreign affiliates. The agreement in effect during
1998 consisted of a committed unsecured facility providing a total of $1.0
billion in seasonal financing. Within the facility, up to $700.0 million was a
standard revolving credit line available for advances and backup for
commercial paper issuances (a five-year facility that expires in 2003).
Interest was charged at various rates selected by the Company, ranging from
market commercial paper rates to the bank reference rate. The remaining $300.0
million (a five-year facility that expires in 2003) was available for
nonrecourse purchases of certain trade accounts receivable of the Company by
the commercial bank group providing the credit line. The agreement required
the Company to comply with certain financial covenants for consolidated debt-
to-capital and interest coverage, and the Company was in compliance with such
covenants during 1998. This agreement will continue to be in effect during
1999. In addition, the Company avails itself of uncommitted domestic
facilities provided by certain banks to issue short-term money market loans.
The Company believes the amounts available under its committed revolving
credit facility, its uncommitted money market facility and its foreign credit
lines will be adequate to meet its seasonal financing requirements.
9
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Raw Materials
Virtually all of the Company's raw materials are available from numerous
suppliers. Pricing is relatively low and stable due to excess capacities
resulting from the Asian business crises.
The Company believes that, as large companies that sell various materials
continue to consolidate, less efficient plants will be closed reducing
availability. However, this should have little impact on the Company in 1999.
Trademarks, Copyrights, and Patents
Most of the Company's products are sold under trademarks, trade names and
copyrights and a number of those products incorporate patented devices or
designs. Trade names and trademarks are significant assets of the Company in
that they provide product recognition and acceptance worldwide.
The Company customarily seeks patent, trademark or copyright protection
covering its products, and it owns or has applications pending for US and
foreign patents covering many of its products. A number of these trademarks
and copyrights relate to product lines that are significant to the Company's
business and operations. The Company believes its rights to these properties
are adequately protected but there can be no assurance that its rights can be
successfully asserted in the future or will not be invalidated, circumvented
or challenged. See "Risk Factors."
The Company also licenses a number of its trademarks, characters and other
property rights to others for use in connection with the sale of non-toy and
other products that do not compete with the Company's products.
Government Regulations
The Company's products are subject to the provisions of the Consumer Product
Safety Act, the Federal Hazardous Substances Act and the Flammable Fabrics
Act, and the regulations promulgated thereunder. The Consumer Product Safety
Act and the Federal Hazardous Substances Act enable the Consumer Product
Safety Commission to exclude from the market consumer products that fail to
comply with applicable product safety regulations or otherwise create a
substantial risk of injury, and articles that contain excessive amounts of a
banned hazardous substance. The Flammable Fabrics Act enables the Consumer
Product Safety Commission to regulate and enforce flammability standards for
fabrics used in consumer products. The Consumer Product Safety Commission may
also require the repurchase by the manufacturer of articles that are banned.
Similar laws exist in some states and cities and in various international
markets. See "Item 3. Legal Proceedings"
Fisher-Price's car seats are subject to the provisions of the National
Highway Transportation Safety Act, which enables the National Highway Traffic
Safety Administration to promulgate performance standards for child restraint
systems. Fisher-Price conducts periodic tests to ensure that its child
restraint systems meet applicable standards. A Canadian agency, Transport
Canada, also regulates child restraint systems sold for use in Canada. As with
the Consumer Product Safety Commission, the National Highway Transportation
Safety Administration and Transport Canada can require the recall and
repurchase or repair of products that do not meet their respective standards.
The Company maintains a quality control program to ensure product safety
compliance with the various federal, state and international requirements.
The Company is subject to various other federal, state and local laws and
regulations applicable to its business. The Company believes that it is in
substantial compliance with these laws and regulations.
Effects of Inflation
Inflation rates in the US and in major foreign countries where the Company
does business have not had a significant impact on its results of operations
or financial condition during the three years ended December 31, 1998. The US
Consumer Price Index increased 1.6% in 1998, 1.7% in 1997 and 3.3% in 1996.
The Company
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receives some protection from the impact of inflation from high turnover of
inventories and its ability to pass on higher prices to customers.
Employees
The total number of persons employed by the Company and its subsidiaries at
any one time varies because of the seasonal nature of its manufacturing
operations. At December 31, 1998, the Company's total number of employees,
including its international operations, was approximately 29,000. Headcount at
December 31, 1998 increased over the amount reported at year-end 1997 due the
addition of employees of acquired companies and employees at our new
manufacturing facilities in Thailand, Indonesia and Mexico.
Risk Factors
This Risk Factors section is written to be responsive to the Security and
Exchange Commission's recently enacted "Plain English" guidelines. In this
section the words "we", "our", "ours" and "us" refer only to Mattel, Inc. and
its subsidiaries and not any other person.
We may not realize the expected benefits from the merger with Learning
Company, such as cost savings, operating efficiencies, revenue enhancements
and other synergies, due to difficulties integrating Mattel and Learning
Company.
We entered into the merger agreement with Learning Company with the
expectation that the merger will result in a number of benefits, including
cost savings, operating efficiencies, revenue enhancements and other
synergies. Integrating the operations and personnel of Mattel and Learning
Company will be a complex process, and we cannot assure you that the
integration will be completed rapidly or will result in the realization of the
anticipated benefits of the merger. The successful integration of the two
companies will require, among other things, integration of their sales and
marketing groups and coordination of their research and development efforts.
The diversion of the attention of our management and any difficulties
encountered in the process of combining the companies could cause the
disruption of, or a loss of momentum in, the activities of our business.
Further, the process of combining the companies could negatively affect
employee morale and our ability to retain some key employees after the merger.
In addition, the announcement and completion of the merger could cause
customers to delay or change orders for Learning Company's products as a
result of uncertainty over the integration of its software products. The
inability to successfully integrate the operations and personnel of the
companies, or any significant delay in achieving integration, could have a
material adverse effect on our business, financial condition and results of
operations after the merger.
As a result of the merger, we will incur transaction costs that may exceed our
estimates and significant consolidation and integration expenses that we
cannot accurately estimate at this time.
We estimate that, as a result of the merger, Mattel and Learning Company
will incur aggregate transaction costs of approximately $75 million to $85
million, including investment banking, legal and accounting fees, and
contractual incentive benefits. In addition, we expect that we will incur
significant consolidation and integration expenses which we cannot accurately
estimate at this time. We expect to charge the majority of such costs and
expenses to operations in fiscal 1999. The amount of the transaction costs is
a preliminary estimate and is subject to change. Actual transaction costs may
substantially exceed our estimates and, when combined with the expenses
incurred in connection with the consolidation and integration of the
companies, could have an adverse effect on our financial condition and results
of operations.
Many of our significant customers have shifted to just-in-time inventory
management systems, which may limit our ability to accurately forecast
reorders of our products by retailers and reduce or delay sales of our
products.
Many of our significant customers have recently shifted to "just-in-time"
inventory management systems to track sales of particular products. Such
customers are timing reorders so that they are being filled by suppliers
11
<PAGE>
closer to the time of purchase by consumers, rather than maintaining large on-
hand inventories to meet consumer demand. While these systems reduce a
retailer's investment in inventory, they increase pressure on suppliers like
us to fill orders promptly and shift a significant portion of inventory risk
and carrying costs to the supplier. These systems may also limit our ability
to accurately forecast reorders and create potential volatility in our
operating results. The limited inventory carried by retailers may also reduce
or delay retail sales. This in turn could impair our ability to obtain
reorders of our products in quantities necessary to permit us to achieve
planned sales and income growth. In addition, we may be required to incur
substantial additional expenses to fill late reorders in order to ensure that
our products are available at retail locations prior to the peak holiday
buying season. The failure of anticipated reorders to materialize could have a
material adverse effect on our business, financial condition and results of
operations. The recent shift to just-in-time inventory management by one of
our largest customers, Toys R Us, Inc., resulted in an approximately $250
million decrease in our net sales in 1998 as compared to 1997. Because many of
our customers have only recently shifted to just-in-time inventory management
systems, the full impact of this shift is uncertain. It is not clear if more
of our customers will shift to just-in-time inventory management systems or
the extent to which those retailers that have shifted will ultimately reduce
their overall inventories of our products.
The toy business is seasonal and therefore our annual operating results will
depend, in large part, on our sales during the relatively brief holiday
season.
Sales of toy products at retail are seasonal, with a majority of retail
sales occurring during the period from September through December. This
seasonality is increasing as large toy retailers become more efficient in
their control of inventory levels through the just-in-time inventory
management systems described in the preceding paragraph. As a result, our
annual operating results will depend, in large part, on our sales during the
relatively brief holiday season. This seasonal pattern requires significant
use of working capital mainly to manufacture inventory during the year, prior
to the holiday season, and requires accurate forecasting of demand for
products during the holiday season. Failure to accurately predict and respond
to consumer demand may have a material adverse effect on our business,
financial condition and results of operations.
Our business is dependent on our two largest customers, which together
accounted for approximately 31.8% of Mattel's net sales in fiscal 1998.
A small number of our customers account for a large share of our net sales.
For the year ended December 31, 1998, Wal-Mart Stores, Inc. accounted for
approximately 16.5% of our net sales, Toys R Us, Inc. accounted for
approximately 15.3% of net sales, and our ten largest customers in the
aggregate accounted for approximately 52.9% of net sales. If some of these
customers were to cease doing business with us, or to significantly reduce the
amount of their purchases from us, it could have a material adverse effect on
our business, financial condition and results of operations.
Consumer preferences are difficult to predict and the introduction of new
products is critical in the toy industry.
Our business and operating results depend largely upon the appeal of our
products. Our continued success in the toy industry will depend on our ability
to redesign, restyle and extend our existing core products and product lines
and to develop, introduce and gain customer acceptance of new products and
product lines. However, consumer preferences in the toy industry are
continuously changing and are difficult to predict. Individual products
typically have short life cycles. There can be no assurance that:
. any of our current toy products or product lines will continue to be
popular for any significant period of time;
. any new products and product lines introduced by us will achieve an
adequate degree of market acceptance; or
. any new products' life cycles will be sufficient to permit us to recover
development, manufacturing, marketing and other costs of the products.
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<PAGE>
A decline in the popularity of our existing toy products and product lines or
the failure of new toy products and product lines to achieve and sustain
market acceptance and to produce acceptable margins could have a material
adverse effect on our business, financial condition and results of operations.
Our sales and manufacturing operations outside the US subject us to risks
normally associated with international operations.
For the year ended December 31, 1998, our international gross sales
comprised approximately 34% of our total consolidated gross sales. We expect
our international sales to continue to account for a significant and growing
portion of our revenues. Additionally, we own and operate manufacturing
facilities and utilize third-party manufacturers principally in China,
Indonesia, Malaysia and Mexico. Such sales and manufacturing operations are
subject to the risks normally associated with international operations,
including:
. currency conversion risks and currency fluctuations;
. limitations, including taxes, on the repatriation of earnings;
. political instability, civil unrest and economic instability;
. greater difficulty enforcing intellectual property rights and weaker
laws protecting such rights;
. greater difficulty and expense in conducting business abroad;
. complications in complying with foreign laws and changes in governmental
policies;
. transportation delays and interruptions; and
. the imposition of tariffs.
These risks could negatively impact our international sales and manufacturing
operations, which could have a material adverse effect on our business,
financial condition and results of operations.
All foreign countries in which our products are manufactured currently enjoy
"normal trade relations" status under US tariff laws, which provides a
favorable category of US import duties. As a result of continuing concerns in
the US Congress regarding China's human rights policies, and disputes
regarding Chinese trade policies, including the country's inadequate
protection of US intellectual property rights, there has been, and may be in
the future, opposition to the extension of "normal trade relations" status for
China. The loss of "normal trade relations" status for China would result in a
substantial increase in the import duty of toys manufactured in China and
imported into the US and would result in increased costs. Such increases in
import duties and costs could have a material adverse effect on our business,
financial condition and results of operations.
We are dependent on our intellectual property rights and we cannot assure you
that we will be able to successfully protect such rights.
We rely on a combination of trade secret, copyright, trademark, patent and
other proprietary rights laws to protect our rights to valuable intellectual
property related to our core brands. We also rely on license and other
agreements to establish ownership rights and to maintain confidentiality. We
cannot assure you that such intellectual property rights can be successfully
asserted in the future or will not be invalidated, circumvented or challenged.
Technological developments and the Internet may create new risks to our
ability to protect our intellectual property. In addition, laws of certain
foreign countries in which our products may be sold do not protect
intellectual property rights to the same extent as the laws of the US. The
failure to protect our proprietary information and any successful intellectual
property challenges or infringement proceedings against us could have a
material adverse effect on our business, financial condition and results of
operations.
13
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Executive Officers of the Registrant
The current executive officers of the Company, all of whom are appointed
annually by the board of directors and serve at the pleasure of the board, are
as follows:
<TABLE>
<CAPTION>
Executive
Officer
Name Age Position Since
---- --- -------- ---------
<C> <C> <S> <C>
Jill E. Barad............... 47 Chairman of the Board and 1984
Chief Executive Officer
Pleasant T. Rowland......... 58 Vice Chairman of the Board and 1998
President, Pleasant Company
Astrid Autolitano........... 60 President, Mattel 1996
International
Matthew C. Bousquette....... 40 President, Boys/Entertainment 1999
Adrienne Fontanella......... 40 President, Girls/Barbie 1999
Neil B. Friedman............ 51 President, Fisher-Price brands 1999
Joseph C. Gandolfo.......... 56 President, Worldwide 1990
Manufacturing Operations and
a Director of Mattel, Inc.
David Haddad................ 36 President, Mattel Media 1999
Ned Mansour................. 50 President, Corporate 1992
Operations, General Counsel
and a Director of Mattel,
Inc.
Harry J. Pearce............. 54 Chief Financial Officer 1997
Francesca Luzuriaga......... 44 Executive Vice President, 1995
Worldwide Business Planning
and Resources
Kevin M. Farr............... 41 Senior Vice President and 1996
Corporate Controller
William Stavro.............. 59 Senior Vice President and 1993
Treasurer
</TABLE>
Ms. Barad has been Chairman of the Board and Chief Executive Officer since
October 1997 and a member of the Board of Directors since November 1991. From
January 1997 to October 1997, she was President and Chief Executive Officer.
From August 1992 until December 1996, she was President and Chief Operating
Officer. From December 1989 until August 1992, she was President, Mattel USA.
Prior to that she served in various executive positions in the Marketing,
Product Design and Product Development areas.
Ms. Rowland has been Vice Chairman of the Board and President, Pleasant
Company since July 1998. Ms. Rowland has been President of Pleasant Company
since 1986 when she founded that company.
Ms. Autolitano has been President, Mattel International since September
1996. From August 1995 to September 1996, she served as Executive Vice
President-Latin America and Mexico. From December 1989 to August 1995, she
served as Senior Vice President-Latin America and Mexico.
Mr. Bousquette has been President, Boys/Entertainment since March 1999. From
May 1998 to March 1999, he was Executive Vice President and General Manager-
Boys Toys. From 1995 to 1998, he was General Manager. He joined Mattel in
December 1993, as Senior Vice President-Marketing for Activity Toys, and had
previously worked for the Company from 1984 to 1988 in Boys Toys marketing.
Ms. Fontanella has been President, Girls/Barbie since March 1999. From
November 1998 to March 1999, she was General Manager and Senior Vice
President-Worldwide Barbie Licensing and Collectibles. From February to
November 1998, she was Senior Vice-President-Worldwide Barbie New Licensing
Venture. She joined Mattel in May 1996 as Vice President. Prior to joining
Mattel, she held senior positions within the cosmetics industry, including
chairman of January Productions from 1995 to 1996.
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Mr. Friedman has been President, Fisher-Price brands since March 1999. From
August 1996 to March 1999, he was President-Tyco Preschool. For more than five
years prior to that time, he was President of MCA/Universal Merchandising and
President of Aviva/Hasbro.
Mr. Gandolfo has been President, Worldwide Manufacturing Operations since
April 1990 and a member of the Board of Directors since May 1997.
Mr. Haddad has been President, Mattel Media since March 1999. From August
1997 to March 1999, he served as General Manager-Mattel Media and Senior Vice-
President-Barbie Collectibles. From July 1991 to August 1997, he was with The
Walt Disney Company, where he held a number of positions within the publishing
unit.
Mr. Mansour has been President, Corporate Operations and a member of the
Board of Directors since August 1996. He has been General Counsel since
November 1997. From April 1991, he served in several senior managerial
positions at Mattel, including President, Mattel-USA, Chief Administrative
Officer and Secretary.
Mr. Pearce has been Chief Financial Officer since May 1997. From 1973 to May
1997, he served as Chief Financial Officer of Tyco Toys, Inc. In 1993, he was
also named Vice Chairman of Tyco Toys, Inc.
Ms. Luzuriaga has been Executive Vice President, Worldwide Business Planning
and Resources since May 1997. From December 1995 to May 1997, she served as
Executive Vice President and Chief Financial Officer. From March 1989 to
December 1995, she served in several senior managerial positions at Mattel,
including Controller, Treasurer and Executive Vice President Finance.
Mr. Farr has been Senior Vice President and Corporate Controller since
September 1996. From June 1993 to September 1996, he served as Vice President,
Tax. Prior to that he served as Senior Director, Taxes from August 1992 to
June 1993.
Mr. Stavro has been Senior Vice President and Treasurer since May 1995. From
November 1993 to May 1995, he was Vice President & Treasurer. From March 1992
to November 1993, he was Vice President & Assistant Treasurer. Prior to that
he was Assistant Treasurer for more than five years.
Item 2. Properties
The Company owns its corporate headquarters in El Segundo, California,
consisting of 335,000 square feet, which is subject to a $45.0 million
mortgage, and an adjacent 55,000 square foot office building. The Company also
leases buildings in El Segundo consisting of approximately 250,000 square
feet, which are primarily used for its design and development and audio visual
departments. Fisher-Price owns its headquarters facilities in East Aurora, New
York, consisting of approximately 390,000 square feet. Pleasant Company owns
its headquarters facilities in Middleton, Wisconsin, consisting of
approximately 395,000 square feet.
The Company maintains sales offices in California, Illinois, New York, North
Carolina and Texas, and warehouse and distribution facilities in California,
Georgia, Indiana, Kentucky and Texas. The Company owns a computer facility in
Phoenix, Arizona. Internationally, the Company has its principal offices
and/or warehouse space in Australia, Canada, France, Hong Kong, Italy, Mexico,
The Netherlands, and the United Kingdom. The Company's principal manufacturing
facilities are located in China, Indonesia, Italy, Malaysia, Mexico, Thailand
and the US. See "Manufacturing."
Most of the Company's facilities are occupied under leases and, for the most
part, are fully utilized, although excess manufacturing capacity exists from
time to time based on product mix and demand. With respect to leases that are
scheduled to expire during the next twelve months, the Company may negotiate
new lease agreements, renew leases or utilize alternative facilities. See Note
6 to the Consolidated Financial Statements in the Annual Report to
Stockholders, incorporated herein by reference.
15
<PAGE>
Item 3. Legal Proceedings
Power Wheels(R) Recall and Related Matters
On October 22, 1998, the Company announced that Fisher-Price, in cooperation
with the Consumer Product Safety Commission, would conduct a voluntary recall
involving up to 10 million battery-powered Power Wheels(R) ride-on vehicles.
The recall did not result from any serious injury, and involves the
replacement of electronic components that may overheat, particularly when
consumers make alterations to the product. The recall involves vehicles sold
nationwide since 1984 under nearly 100 model names.
As a result of the voluntary recall, in September 1998, the Company
recognized a $38.0 million pre-tax ($27.2 million after-tax) charge. The
Company believes the amount reserved will be sufficient to cover all costs
associated with the recall.
Greenwald Litigation and Related Matters
On October 13, 1995, Michelle Greenwald filed a complaint (Case No. YC 025
008) against the Company in Superior Court of the State of California, County
of Los Angeles. Ms. Greenwald is a former employee whom the Company terminated
in July 1995. Her complaint sought $50 million in general and special damages,
plus punitive damages, for breach of oral, written and implied contract,
wrongful termination in violation of public policy and violation of California
Labor Code Section 970. Ms. Greenwald claimed that her termination resulted
from complaints she made to management concerning general allegations that the
Company did not account properly for sales and certain costs associated with
sales and more specific allegations that the Company failed to account
properly for certain royalty obligations to The Walt Disney Company. On
December 5, 1996, the Company's motion for summary adjudication of Ms.
Greenwald's public policy claim was granted. On March 7, 1997, the Company
filed a motion for summary judgment on the remaining causes of action. On
December 9, 1997, the Company's motion for summary judgment of Ms. Greenwald's
remaining claims was granted. On February 4, 1998, Ms. Greenwald filed a
notice of appeal. Ms. Greenwald's opening brief on appeal is due on March 23,
1999. The Company intends to defend the action vigorously, including her
appeal.
Toys R Us and Related Matters
On September 25, 1997, an administrative law judge of the Federal Trade
Commission issued his initial decision in the matter In re Toys R Us, Inc.
(FTC Docket No. 9278). The administrative law judge made findings of fact and
conclusions of law that the toy retailer Toys R Us, Inc. had violated federal
antitrust laws and entered into vertical and horizontal arrangements with
various toy manufacturers, including Mattel, whereby the manufacturers would
refuse to do business with warehouse clubs, or would do business with
warehouse clubs only on terms acceptable to Toys R Us. On October 13, 1998,
the Federal Trade Commission issued an opinion and a final order affirming the
findings and conclusions of the administrative law judge. Toys R Us has now
filed a notice of appeal in the United States Court of Appeals for the Seventh
Circuit.
Following the announcement of the administrative law judge's decision, the
Company was named as a defendant, along with certain other toy manufacturers,
in a number of antitrust actions in various states related to the Toys R Us
matter. On October 2, 1997, the Attorney General of the State of New York
filed in the United States District Court, Eastern District of New York (Case
No. CV 97 5714), an action against Toys R Us and certain toy manufacturers,
including the Company, seeking treble damages, expenses and attorneys' fees,
on behalf of all natural persons in the State of New York who purchased toy
products from retailers from 1989 to the present. The complaint alleges that
Toys R Us orchestrated an illegal conspiracy with various toy manufacturers,
including the Company, to cut off supplies of popular toys to warehouse clubs
and low margin retailers that compete with Toys R Us. The attorneys general
from forty-three other states, the District of Columbia and the Commonwealth
of Puerto Rico joined this action on or about November 17, 1997.
Following the filing of the New York action, a series of private treble
damage class actions under the federal antitrust laws have been filed in
various federal district courts. The Company is aware of a total of twenty-
seven
16
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actions which are currently pending and name Mattel as a defendant: fourteen
actions in the United States District Court, District of New Jersey; five
actions in the United States District Court, Northern District of California;
one action in the United States District Court, District of Illinois; one
action in the United States District Court, District of Maryland; one action
in the United States District Court, District of Vermont; and five actions in
the United States District Court, Eastern District of New York. While the
allegations and relief sought are substantially the same as those in the New
York action, the defendants differ from action to action, as does the alleged
conspiracy period. On January 23, 1998, at a hearing before the Judicial Panel
on Multidistrict Litigation, the parties agreed to have these related actions
transferred to the Eastern District of New York before the Honorable Nina
Gershon. A transfer order was issued by the Judicial Panel on Multidistrict
Litigation on February 11, 1998.
Since May 1998, Mattel has participated in settlement negotiations conducted
with the aid of the Honorable Charles B. Renfrew, a former United States
District Judge. Judge Renfrew was appointed to serve as a mediator in Wilson
v. Toys R Us, No. CV 96-574 (Tuscaloosa County, Alabama). His appointment has
been broadened by agreement to include all of the parens patriae state actions
described above, and all of the named class plaintiffs actions, including
state actions in California and Alabama, and each of the defendants. The
Company has entered into an agreement in principle to settle each of the
actions subject to mediation before Judge Renfrew, and is awaiting the
submission of a Final Settlement Agreement and Release for execution. The
settlement agreement will require a preliminary approval by the United States
District Court, Eastern District of New York, as transferee court in what has
been designated as MDL 1211, In re Toys R Us Antitrust Litigation, and will be
subject to final court approval pending class notice.
The Company is also aware of four class action complaints filed in state
court in California naming Toys R Us as a defendant and the Company and
various other toy manufacturers as nondefendant co-conspirators. These actions
have been coordinated in Superior Court of the State of California, County of
Alameda, and allege violations of state antitrust laws, seek unspecified
damages and are based on substantially similar allegations to those in the
Federal Trade Commission administrative proceeding. On February 2, 1999, the
Company was added as a party defendant pursuant to a Second Amended and
Restated Class Action Complaint filed in the Circuit Court for Tuscaloosa
County, Alabama. The allegations are substantially similar to those contained
in the above-described state class action complaints, and those of the Federal
Trade Commission administrative proceeding. It is anticipated that this action
will be disposed of as part of the settlement agreement that will result from
the mediation proceeding before Judge Renfrew.
Pursuant to the mediation proceeding before Judge Renfrew, all proceedings,
including those in state court, have been stayed pursuant to stipulation and
order. It is anticipated that a settlement agreement disposing of all of the
above discussed matters will be executed within 60-90 days, subject to court
approval. Until such time as these matters are concluded by the entry of
appropriate court orders, the Company intends to vigorously defend the
litigation in which it is named involving Toys R Us.
In connection with the proposed settlement agreement, the Company recognized
a $6.0 million pre-tax charge in the fourth quarter of 1998. The proposed
settlement agreement calls for the Company to make cash and toy contributions
prior to November 1999.
Environmental
Fisher-Price. Fisher-Price has executed a consent order with the State of
New York involving a remedial action/feasibility study for voluntary cleanup
of contamination at one of its manufacturing plants. The ultimate liability
associated with this cleanup presently is estimated to be less than
$1,425,000, approximately $1,010,500 of which has been incurred through
December 31, 1998.
Beaverton, Oregon. The Company operates a manufacturing facility on a leased
property in Beaverton, Oregon that was acquired as part of the Tyco merger. In
March 1998, samples of groundwater used by the facility for process water and
drinking water disclosed elevated levels of certain chemicals, including
trichloroethylene
17
<PAGE>
("TCE"). The Company immediately closed the water supply and self-reported the
sample results to the Oregon Department of Environmental Quality ("DEQ") and
Oregon Health Division. The Company also implemented an employee communication
and medical screening program.
In November 1998, the Company and another potentially responsible party
entered into a consent order with the DEQ to conduct a remedial
investigation/feasibility study at the facility, to propose an interim
remedial action measure and to continue the community outreach program to
employees, former employees and surrounding landowners. It is not presently
possible to estimate the cost to the Company related to the DEQ's
investigation and any subsequent orders for future work.
Litigation Related to Pending Business Combination
On December 16, 21, and 23, 1998, several stockholders of Learning Company
filed six separate purported class action complaints in the Court of Chancery
of the State of Delaware in and for New Castle County against Learning Company
and Learning Company's board of directors for alleged breaches of fiduciary
duties in connection with the proposed merger. The six complaints have since
been consolidated. The consolidated complaint seeks the certification as a
class of all Learning Company stockholders, an injunction against the merger,
rescission if the merger is consummated, damages, costs and disbursements,
including attorneys' fees. The consolidated complaint alleges that Learning
Company's board of directors breached their fiduciary duties to Learning
Company's stockholders by, among other things, failing to conduct due
diligence sufficient to have discovered material, adverse information
concerning Mattel's anticipated operational and financial results and agreeing
to an exchange ratio that failed to protect Learning Company stockholders
against a decline in the value of Mattel common stock. The consolidated
complaint names Mattel as an additional defendant, claiming that Mattel aided
and abetted the alleged breaches of fiduciary duty. Mattel will aggressively
defend itself against the action and will continue to pursue the merger.
General
The Company is also involved in various other litigation and legal matters,
including claims related to intellectual property, product liability and
labor, which the Company is addressing or defending in the ordinary course of
business. Management believes that any liability which may potentially result
upon resolution of such matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
18
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
For information regarding the markets in which the Company's common stock,
par value $1.00 per share, is traded, see the cover page hereof, and for
information regarding the high and low closing prices of the common stock for
the last two calendar years, see Note 9 to the Consolidated Financial
Statements in the Annual Report to Stockholders, incorporated herein by
reference.
As of March 19, 1999, the Company had approximately 48,000 holders of record
of its common stock.
The Company paid dividends on its common stock of $0.06 per share in January
1997, $0.07 per share in April, July and October 1997 and January 1998 and
$0.08 per share in April, July and October 1998. The payment of dividends on
common stock is at the discretion of the Company's board of directors and is
subject to customary limitations.
Item 6. Selected Financial Data
The information under the caption "Five-Year Financial Summary" on page 25
in the Annual Report to Stockholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 26 through 32 in the
Annual Report to Stockholders is incorporated herein by reference.
The information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Foreign Currency Risk" on pages
30 and 31 in the Annual Report to Stockholders and Note 6 to the Consolidated
Financial Statements in the Annual Report to Stockholders are incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of Mattel, Inc. and its subsidiaries,
together with the report of PricewaterhouseCoopers LLP dated February 1, 1999,
included on pages 33 through 52 in the Annual Report to Stockholders are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
19
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required under this Item relating to members of the Company's
board of directors is incorporated by reference herein from its 1999 Notice of
Annual Meeting of Stockholders and Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after December 31, 1998.
The information with respect to the executive officers of the Company appears
under the heading "Executive Officers of the Registrant" in Part I herein.
Item 11. Executive Compensation
The information required under this Item is incorporated by reference herein
from the Company's 1999 Notice of Annual Meeting of Stockholders and Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after December 31, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this Item is incorporated by reference herein
from the Company's 1999 Notice of Annual Meeting of Stockholders and Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after December 31, 1998.
Item 13. Certain Relationships and Related Transactions
The information required under this Item is incorporated by reference herein
from the Company's 1999 Notice of Annual Meeting of Stockholders and Proxy
Statement to be filed with the Securities and Exchange Commission within 120
days after December 31, 1998.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Annual Report
Page Number(1)
--------------
<S> <C>
(1) Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and 1997.. 33
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996............................. 34
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996............................. 35
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996....................... 36
Notes to Consolidated Financial Statements.................... 37-51
Report of PricewaterhouseCoopers LLP, Independent Accountants
to the Company............................................... 52
</TABLE>
- --------
(1) Incorporated by reference from the indicated pages of the Annual Report to
Stockholders for the year ended December 31, 1998. With the exception of
the information incorporated by reference in Items 1, 5, 6, 7, 8 and 14 of
this report, the Annual Report to Stockholders is not deemed filed as part
of this report.
21
<PAGE>
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders
Tyco Toys, Inc.
Mount Laurel, New Jersey
We have audited the consolidated statements of operations, stockholders'
equity, and cash flows of Tyco Toys, Inc. and subsidiaries for the year ended
December 31, 1996, not separately presented herein. Those financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on those financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Tyco Toys, Inc.
and subsidiaries for the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 4, 1997 except for note 15,
as to which the date is March 27, 1997
22
<PAGE>
(2) Financial Statement Schedule for the years ended December 31, 1998, 1997
and 1996(1)
Report of Independent Accountants on Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Allowances
(3) Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K)
<TABLE>
<C> <S>
2.0 Agreement and Plan of Merger, dated as of December 13, 1998, between
the Company and The Learning Company, Inc. (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K, dated
December 15, 1998)
2.1 Stock Option Agreement, dated as of December 13, 1998, between the
Company and The Learning Company, Inc. (incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K, dated
December 15, 1998)
3.0 Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.0 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993)
3.1 Certificate of Amendment of Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit B to the Company's
Proxy Statement dated March 23, 1996)
3.2 Certificate of Amendment of Restated Certificate of Incorporation of
the Company (incorporated by reference to Exhibit B to the Company's
Proxy Statement dated March 30, 1998)
3.3 By-laws of the Company, as amended to date (incorporated by reference
to Exhibit 4.3 to the Company's Registration Statement on Form S-3
dated September 26, 1997)
4.0 Rights Agreement, dated as of February 7, 1992, between the Company
and The First National Bank of Boston, as Rights Agent (incorporated
by reference to Exhibit 1 to the Company's Registration Statement on
Form 8-A, dated February 12, 1992)
4.1 Specimen Stock Certificate with respect to the Company's Common Stock
(incorporated by reference to the Company's Report on Form 8-A, dated
February 28, 1996)
4.2 Certificate of Designation of Series C Preferred Stock dated March 26,
1997 (incorporated by reference to Exhibit 4.7 to the Company's
Registration Statement on Form S-3 dated August 21, 1997)
4.3 Deposit Agreement dated June 24, 1996 among Tyco Toys, Inc., Midlantic
Bank, N.A., as Depositary, and all holders from time to time of
depositary receipts issued thereunder (incorporated by reference to
Exhibit 4.2 to Tyco Toys, Inc.'s Registration Statement on Form S-3
dated June 20, 1996)
4.4 Amendment to Deposit Agreement dated as of March 27, 1997 between the
Company, as
successor to Tyco and The First National Bank of Boston (incorporated
by reference to Exhibit 4.9 to the Company's Registration Statement
on Form S-3 dated September 26, 1997)
4.5 Indenture dated as of February 15, 1996 between the Company and
Chemical Trust Company of California, as Trustee (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated April 11, 1996)
4.6* Warrant to Purchase Shares of Common Stock of Mattel, Inc., dated as
of June 27, 1996
4.7* Stock Subscription Warrant dated as of June 28, 1991 between Fisher-
Price, Inc. and certain investors (incorporated by reference to
Exhibit 4(c) to Fisher-Price's Report on Form 10-K for the transition
period from July 1, 1991 to December 29, 1991)
(The Company has not filed certain long-term debt instruments under
which the principal amount of securities authorized to be issued does
not exceed 10% of its total assets. Copies of such agreements will be
provided to the Securities and Exchange Commission upon request.)
</TABLE>
(1) All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
23
<PAGE>
<TABLE>
<C> <S>
10.0 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 (incorporated by
reference to Exhibit 99.0 to the Company's Current Report on Form
8-K dated August 21, 1998)
10.1 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 (incorporated by reference to
Exhibit 99.1 to the Company's Current Report on Form 8-K dated
August 21, 1998)
10.2 Distribution Agreement dated November 12, 1997 among the Company,
Morgan Stanley & Co. Incorporated and Credit Suisse First Boston
Corporation (incorporated by reference to Exhibit 1.0 to the
Company's Current Report on Form 8-K dated November 12, 1997)
Executive Compensation Plans and Arrangements of the Company
10.3 Form of Indemnity Agreement between Mattel and its directors and
certain of its executive officers (incorporated by reference to
Exhibit B to Notice of Annual Meeting of Stockholders of the
Company dated March 24, 1987)
10.4 Amended and Restated Employment Agreement dated January 1, 1997
between the Company and Jill E. Barad (incorporated by reference to
Exhibit 10.0 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997)
10.5 Employment Agreement dated May 5, 1997 between the Company and Gary
S. Baughman (incorporated by reference to Exhibit 99.2 to the
Company's Current Report on Form 8-K dated August 21, 1998)
10.6 Amended and Restated Employment Agreement dated September 9, 1996
between the Company and Joseph C. Gandolfo (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996)
10.7 Amended and Restated Employment Agreement dated July 29, 1996
between the Company and Ned Mansour (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.8* Amended and Restated Employment Agreement dated April 14, 1997
between the Company and Harry J. Pearce
10.9 Employment Agreement dated December 20, 1996 between the Company and
Bruce L. Stein (incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996)
10.10 Mattel, Inc. Management Incentive Plan (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
10.11 Mattel, Inc. Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
10.12* Mattel, Inc. Deferred Compensation Plan for Non-Employee Directors
10.13 Mattel, Inc. Amended & Restated Supplemental Executive Retirement
Plan as of May 1, 1996 (incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996)
10.14* Mattel, Inc. Deferred Compensation Plan
10.15 The Fisher-Price, Inc. Pension Plan (1989 Restatement) (incorporated
by reference to Exhibit 10(l) to Fisher-Price's Registration
Statement on Form 10 dated June 28, 1991)
</TABLE>
24
<PAGE>
<TABLE>
<C> <S>
10.16 The Fisher-Price Section 415 Excess Benefit Plan (incorporated by
reference to Exhibit 10(n) to Fisher-Price's Registration Statement
on Form 10 dated June 28, 1991)
10.17 Mattel, Inc. Personal Investment Plan, April 1, 1997 Restatement
(incorporated by reference to Exhibit 99.3 to the Company's Current
Report on Form 8-K dated August 21, 1998)
10.18* Mattel, Inc. PIP Excess Plan
10.19* Pleasant Company Retirement Savings Plan and Trust Agreement, dated
July 1, 1995
10.20 Amended and Restated Mattel, Inc. 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996)
10.21 Amendment to Amended and Restated Mattel, Inc. 1996 Stock Option
Plan (incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-8 dated March 26, 1999)
10.22 Form of Option Agreement for Outside Directors under the 1996 Stock
Option Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
10.23* Form of Option Agreement under the 1996 Stock Option Plan
10.24 Mattel, Inc. 1997 Premium Price Stock Option Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement dated March
30, 1998)
10.25 First Amendment to the Mattel, Inc. 1997 Premium Price Stock Option
Plan (incorporated by reference to Exhibit 10.0 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
10.26* Second Amendment to the Mattel, Inc. 1997 Premium Price Stock Option
Plan
10.27 Form of Option and TLSAR Agreement under the Mattel, Inc. 1997
Premium Price Stock Option Plan (25% Premium Grant), as amended
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
10.28 Form of Option and TLSAR Agreement under the Mattel, Inc. 1997
Premium Price Stock Option Plan (33 1/3% Premium Grant), as amended
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998)
11.0* Computation of Income per Common and Common Equivalent Share
12.0* Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock Dividends
13.0* Pages 24 through 54 of the Mattel, Inc. Annual Report to
Stockholders for the year ended December 31, 1998
21.0* Subsidiaries of the Registrant
23.0* Consent of PricewaterhouseCoopers LLP
23.1* Consent of Deloitte & Touche LLP
24.0* Power of Attorney (on page 27 of Form 10-K)
27.0* Financial Data Schedule (EDGAR filing only)
</TABLE>
- --------
* Filed herewith.
25
<PAGE>
(b) Reports on Form 8-K
Mattel, Inc. filed the following Current Reports on Form 8-K during the
quarterly period ended December 31, 1998:
<TABLE>
<CAPTION>
Financial
Items Statements
Date of Report Reported Filed
-------------- -------- ----------
<S> <C> <C>
October 29, 1998....................................... 5 None
November 16, 1998...................................... 5 None
December 15, 1998...................................... 5, 7 None
</TABLE>
(c) Exhibits Required by Item 601 of Regulation S-K
See Item (3) above
(d) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Allowances
Copies of Form 10-K (which includes Exhibit 24.0), Exhibits 11.0, 12.0,
13.0, 21.0, 23.0 and 23.1 and the Annual Report to Stockholders are
available to stockholders of the Company without charge. Copies of other
Exhibits can be obtained by stockholders of the Company upon payment of
twelve cents per page for such Exhibits. Written requests should be sent to
Secretary, Mattel, Inc., 333 Continental Boulevard, El Segundo, California
90245-5012.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MATTEL, INC.
Registrant
/s/ Kevin M. Farr
By: _________________________________
Kevin M. Farr
Senior Vice President and
Corporate Controller
Date: As of March 31, 1999
POWER OF ATTORNEY
We, the undersigned directors and officers of Mattel, Inc. do hereby
severally constitute and appoint Jill E. Barad, Ned Mansour, Robert Normile,
Lee B. Essner, and John L. Vogelstein, and each of them, our true and lawful
attorneys and agents, to do any and all acts and things in our name and behalf
in our capacities as directors and officers and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or any of them, may deem necessary or advisable to
enable said Corporation to comply with the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Annual Report on Form 10-K,
including specifically, but without limitation, power and authority to sign
for us or any of us, in our names in the capacities indicated below, any and
all amendments hereto; and we do each hereby ratify and confirm all that said
attorneys and agents, or any one of them, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jill E. Barad Chairman of the Board, March 31, 1999
____________________________________ President and Chief
Jill E. Barad Executive Officer
/s/ Harry J. Pearce Chief Financial Officer March 31, 1999
____________________________________ (principal financial
Harry J. Pearce officer)
/s/ Kevin M. Farr Senior Vice President and March 31, 1999
____________________________________ Corporate Controller
Kevin M. Farr (principal accounting
officer)
/s/ Harold Brown Director March 31, 1999
____________________________________
Harold Brown
/s/ Tully M. Friedman Director March 31, 1999
____________________________________
Tully M. Friedman
/s/ Joseph C. Gandolfo Director and President, March 31, 1999
____________________________________ Worldwide Manufacturing
Joseph C. Gandolfo Operations
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ronald M. Loeb Director March 31, 1999
____________________________________
Ronald M. Loeb
/s/ Ned Mansour Director, President, March 31, 1999
____________________________________ Corporate Operations and
Ned Mansour General Counsel
/s/ Andrea L. Rich Director March 31, 1999
____________________________________
Andrea L. Rich
/s/ William D. Rollnick Director March 31, 1999
____________________________________
William D. Rollnick
/s/ Pleasant T. Rowland Vice Chairman of the Board March 31, 1999
____________________________________ and President, Pleasant
Pleasant T. Rowland Company
/s/ Christopher A. Sinclair Director March 31, 1999
____________________________________
Christopher A. Sinclair
Director
____________________________________
Bruce L. Stein
/s/ John L. Vogelstein Director March 31, 1999
____________________________________
John L. Vogelstein
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Mattel, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 1, 1999 appearing on page 52 of the December 31, 1998
Annual Report to Stockholders of Mattel, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the Financial Statement Schedule listed
in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 1, 1999
29
<PAGE>
SCHEDULE II
MATTEL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance
Beginning Charged to Net at End
of Year Operations Deductions of Year
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Year Ended December 31, 1998...... $30,737 $34,780 $(24,313)(a) $41,204
Year Ended December 31, 1997...... 21,009 21,036 (11,308)(a) 30,737
Year Ended December 31, 1996...... 13,119 21,381 (13,491)(a) 21,009
Allowance for Inventory
Obsolescence
Year Ended December 31, 1998...... $33,774 $65,251 $(41,703)(b) $57,322
Year Ended December 31, 1997...... 35,645 52,312 (54,183)(b) 33,774
Year Ended December 31, 1996...... 30,620 73,004 (67,979)(b) 35,645
</TABLE>
- --------
(a) Includes write-offs, recoveries of previous write-offs, and currency
translation adjustments. Increase in net deductions over 1997 is due to
beginning balances from acquired companies ($1.4 million) and transfers to
legal reserve for insolvent customers ($11.6 million).
(b) Primarily represents relief of previously established reserves resulting
from the disposal of related inventory, raw materials, write-downs and
currency translation adjustments.
30
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.6
<SEQUENCE>2
<DESCRIPTION>WARRANT TO PURCHASE SHARES
<TEXT>
<PAGE>
EXHIBIT 4.6
THIS WARRANT IS NON-TRANSFERABLE OTHER THAN TO THE WALT DISNEY COMPANY OR ANY OF
ITS DIRECTLY OR INDIRECTLY WHOLLY-OWNED SUBSIDIARIES PRIOR TO THE COMMENCEMENT
DATE (AS DEFINED HEREIN). THIS WARRANT CONTAINS CERTAIN ADDITIONAL RESTRICTIONS
ON ITS TRANSFER AND EXERCISE ON AND SUBSEQUENT TO THE COMMENCEMENT DATE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION
THEREFROM. THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE RIGHTS OF THE
HOLDER HEREOF ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OTHER
RESTRICTIONS, AND THE HOLDER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
(INCLUDING ANY FUTURE HOLDER) IS BOUND BY THE TERMS OF A WARRANT PURCHASE
AGREEMENT BETWEEN THE ORIGINAL PURCHASER AND THE COMPANY (COPIES OF WHICH MAY
BE OBTAINED FROM THE COMPANY).
WARRANT TO PURCHASE 3,000,000 SHARES OF COMPANY STOCK OF
MATTEL, INC.
This certifies that the holder hereof (the "Holder"), for value received is
------
entitled to purchase from Mattel, Inc., a Delaware corporation (the "Company"),
-------
three million (3,000,000) fully paid and nonassessable shares (the "Warrant
-------
Shares") of the Company's Common Stock, par value $1.00 per share (the "Common
- ------ ------
Stock"), at a price of $27.375 per share (the "Stock Purchase Price") (such
- ----- --------------------
price determined as the closing price for the Company's Common Stock on the New
York Stock Exchange on Apri 1, 1996, the date specified by the Company and
Purchaser upon their execution of that certain letter of intent with respect to
- ---------
the transactions contemplated by the Warrant Purchase Agreement between the
Company and Purchaser dated June 27, 1996 (the "Warrant Purchase Agreement") and
--------------------------
the License Agreement referred to therein), at any time on or after the
-----------------
Commencement Date (as defined below) up to and including 5:00 p.m. (Pacific
time) on the Expiration Date (as defined below), upon surrender to the Company
at its principal offices at 333 Continental Boulevard, El Segundo, California
90245 (or at such other location as the Company may advise the Holder in
writing) of this Warrant properly endorsed with the Form of Subscription
attached hereto duly completed and signed and either (a) upon payment by wire
transfer of immediately available funds of the aggregate Stock Purchase Price
for the Warrant Shares or (b) at the election of the Holder (such election
referred to herein as "Cashless Exercise" of this Warrant), as provided for in
-------- --------
Section 1(B) below. The exercise of this Warrant is hereby expressly conditioned
upon the accuracy of all representations and warranties contained in such Form
of Subscription. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.
"Commencement Date" shall mean April 2, 1999, whether or not a business day.
-----------------
"Expiration Date" shall mean April 2, 2004 (or, in the event that April 2, 2004
---------------
is not a business day, the next succeeding business day); provided, however,
that if the Company's use of the rights granted under the License Agreement is
not extended for three years from its initial term, in accordance with the
provisions of Subparagraph 1(R) of the License Agreement, then the "Expiration
Date" for this Warrant shall mean April 2, 2001 (or, in the event that April 2,
2001 is not a business day, the next succeeding business day); and provided,
further, that if the Company's use of the rights granted under the License
Agreement is extended for five years from its initial term, in accordance with
the provisions of Subparagraph
1
<PAGE>
2(K) of the License Agreement, then the "Expiration Date" for this Warrant shall
mean April 2, 2006 (or, in the event that April 2, 2006 is not a business day,
the next succeeding business day); and provided, further, the "Expiration Date",
as so established, with respect to the exercise of this Warrant for Registrable
Securities, may be extended for up to the specified number of additional days
pursuant to the provisions of Section 5(E)(iii) of the Warrant Purchase
Agreement. Notwithstanding the above, this Warrant shall terminate immediately
in the event that the License Agreement has been terminated by the Company as a
result of a material breach by Purchaser. Termination by Purchaser as a result
of a material breach by the Company shall not result in termination of the
Warrant.
At any time prior to the Expiration Date, at the election of the Holder
hereof, this Warrant, which represents the Holder's right to purchase three
million (3,000,000) fully-paid and non-assessable shares of the Company's Common
Stock at the Stock Purchase Price (the "Original Warrant"), may be divided into
two equal Warrants (each, a "One-half Warrant"), each One-half Warrant
----------------
representing the right to purchase one and one-half million (1,500,000) fully-
paid and non-assessable shares of the Company's Common Stock at the Stock
Purchase Price. Except for such number of shares issuable upon exercise thereof,
each One-half Warrant shall have the same terms and provisions, and be subject
to the same conditions, notice provisions and restrictions on exercise and
transfer, and be identical in all other respects, to the Original Warrant. From
and after the time the Original Warrant becomes divided into two One-half
Warrants, all references herein and in the Warrant Purchase Agreement (as
defined below) to (x) the "Holder" of this Warrant shall be deemed to refer to
the rightful holder of each One-half Warrant and (y) this "Warrant" shall be
deemed to refer to each One-half Warrant.
This Warrant (or One-half Warrant, as the case may be) may only be
exercised as a whole and may not be exercised in part or from time to time.
This Warrant is issued pursuant to, and subject of the provisions of, the
Warrant Purchase Agreement and, by its acceptance of this Warrant, the Holder
expressly agrees to comply with the provisions of the Warrant Purchase Agreement
applicable to this Warrant (including, without limitation, the provisions
contained in Section 5(C) relating to subsequent transfers of this Warrant and
in Section 5 (E) relating to the exercise procedure applicable to this Warrant).
Terms used but not defined in this Warrant shall have the respective meanings
assigned to them in the Warrant Purchase Agreement, to which reference is
hereby made.
This Warrant is subject to the following further terms and conditions:
1. Exercise.
(A) Exercise Procedure; Issuance of Certificates; Payment for Shares.
This Warrant is exercisable at the option of the Holder at any time on or after
the Commencement Date and prior to or on the Expiration Date for the Warrant
Shares which may be purchased hereunder. The Company agrees that the Warrant
Shares purchased under this Warrant shall be and are deemed to be issued to the
Holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares. Subject to the provisions of Section 2 hereof, certificates for the
Warrant Shares to be purchased, together with any other securities or property
to which the Holder is entitled upon such exercise, shall be delivered to the
Holder by the Company's transfer agent at the Company's expense within a
reasonable time after the rights represented by this Warrant have been
exercised. Each stock certificate so delivered shall be in such denominations of
Warrant Shares as may be requested by the Holder and shall be registered in the
name of the Holder.
2
<PAGE>
The Holder further agrees to comply with the provisions of Section
5(E) of the Warrant Purchase Agreement respecting any proposed exercise of this
Warrant.
(B) Cashless Exercise of this Warrant. The Holder may, at its
election, exercise its right to receive shares of Common Stock on a net basis
such that, without the exchange of any funds and upon surrender of this
Warrant, the Holder receives shares of Common Stock equal to the value (as
determined below) of this Warrant by surrender of this Warrant to the Company at
its principal offices (at the above address) together with notice of such
election, in which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:
X = Y x (A-B)
---------
A
where:
X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock subject to this
Warrant
A = the market price of a share of Common Stock for the date
of exercise (the market price determined, for any date, as the average of the
closing prices of the Common Stock on the New York Stock Exchange (or such other
principal securities exchange or automated quotation system upon which the
Common Stock may then be listed for public trading) for the five immediately
preceding trading days on such exchange)
B = the then current Stock Purchase Price
2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees that all Warrant Shares which may be issued upon the exercise of this
Warrant will, upon issuance, be validly issued, fully paid and nonassessable and
free from all preemptive or any similar rights of any stockholder of the Company
and free of any liens or encumbrances arising through the Company. The Company
further covenants and agrees that during the period within which this Warrant
may be exercised the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of this Warrant, a sufficient
number of authorized but unissued shares of Common Stock, when and as required
to provide for the exercise of the rights represented by this Warrant. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange or automated quotation system upon which the Common Stock may be
listed.
3. Adjustment of Stock Purchase Price; Number of Shares. The Stock Purchase
Price and the number of Warrant Shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3; provided, however, that if a certain
event shall cause the Stock Purchase Price to be adjusted to a price less than
the par value of the Common Stock, the Company prior to such event shall
decrease the par value of the Common Stock so that the Stock Purchase Price
shall not be less than the par value of the Common Stock following the
occurrence of such event.
(A) Adjustment of Purchase Price. In the event that the Company at any
time or from time to time after the issuance of this Warrant shall declare or
pay, without consideration, any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock for no consideration, or shall
effect a subdivision of the outstanding shares of
3
<PAGE>
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Stock
Purchase Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that the Company shall declare or pay,
without consideration, any dividend on the Common Stock payable in any right to
acquire Common Stock for no consideration, then the Company shall be deemed to
have made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock. Upon each adjustment of the Stock Purchase Price pursuant to this Section
3(A), the Holder of this Warrant shall thereafter be entitled to purchase, at
the Stock Purchase Price resulting from such adjustment, the number of shares of
Common Stock obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares of COmmon Stock
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
(B) Adjustment for Reorganization, Reclassification, Consolidation,
Merger or Sale. If any capital reorganization or reclassification of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected (other than as provided for in Section
3(A)) in such a way that holders of Common Stock shall be entitled to receive
cash, stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Holder shall thereafter have the right to purchase and receive upon
the basis and upon the terms and conditions specified in this Warrant upon
exercise of this Warrant and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such cash, shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of such Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, and in any such case appropriate provision shall
be made with respect to the rights and interest of the Holder that the
provisions thereof shall hereafter be applicable, as nearly as may be, in
relation to any shares of cash, stock, securities or assets thereafter
deliverable upon the exercise hereof.
(C) Notice of Adjustment. Upon any adjustment of the Stock Purchase
Price or any increase or decrease in the number of shares of Common Stock
purchasable upon the exercise this Warrant, the Company shall within ten
business days give written notice thereof, by first class mail, postage prepaid,
addressed to the Holder at the address of the Holder as shown on the books of
the Company. The notice shall be signed by the Company's chief financial officer
and shall state the Stock Purchase Price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
4. Issue Tax. The issuance of certificates in the name of the Holder
for the Warrant Shares upon the exercise of this Warrant shall be made without
charge to the Holder of this Warrant for any issue tax in respect thereof.
Notwithstanding the foregoing, the Holder shall be responsible for payment of
all stock transfer taxes, if any, in respect of any transfer of this Warrant or
any Warrant Shares.
5. No Voting or Dividend Rights; Limitation of Liability. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors
4
<PAGE>
of the Company or any other matters or any rights whatsoever as a stockholder of
the Company. Except for the adjustment to the Stock Purchase Price pursuant to
Section 3(A) hereof in the event of a dividend on the Common Stock payable in
shares of Common Stock, no dividends or interest shall be payable or accrued in
respect of this Warrant or the interest represented hereby or the shares
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised.
6. Restrictions on Transferability of Securities; Compliance With
Securities Act.
(A) Restrictions on Transferability of the Warrant Shares. The
Warrant Shares shall not be transferable except upon the conditions specified in
the Warrant Purchase Agreement.
(B) Restrictions on Transferability of this Warrant; Company Right of
First Refusal; Transfers Not Permitted to Significant Competitors of the
Company.
(i) This Warrant shall not be transferable prior to the Commencement
Date. On and after the Commencement Date, this Warrant shall not be
transferable, except (a) as a whole Warrant (or whole One-half Warrant) to a
single transferee (where not more than one person or entity has a beneficial
interest in this Warrant or One-half Warrant, as the case may be), and (b) only
to a person or entity that is not a Significant Competitor (as defined in the
----------------------
License Agreement), and (c) only upon the conditions specified in the Warrant
Purchase Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act and applicable "blue sky" laws and (d) only in
accordance with the other provisions of this Section 6.
(ii) By acceptance of this Warrant, the Holder agrees to provide to
the Company five (5) business days' prior written notice of the Holder's
intention, directly or indirectly, to sell, offer or contract to sell, pledge or
otherwise dispose or transfer (collectively, "transfer") this Warrant, which
--------
notice shall include (a) the identity, in reasonable and specific detail, of the
proposed direct or indirect transferee (including, if the proposed transferee is
a broker or dealer, the identity, in reasonable and specific detail, of any
subsequent transferee to whom such broker or dealer intends or expects to
transfer this Warrant following its receipt hereof), (b) a copy of a binding
agreement (subject only to the Company's right of first refusal discussed
below), executed by the Holder, as the proposed transferor, and the proposed
transferee, (c) in the event the amount of the agreed upon consideration for the
proposed sale of this Warrant is all cash (such amount, the "Warrant Transfer
Cash Price"), the Warrant Transfer Cash Price and a certification that the
Warrant Transfer Cash Price was determined on the basis of bona fide arms'
length negotiations between the parties to such agreement, (d) in the event that
some or all of the agreed upon consideration for the proposed sale of this
Warrant is property (tangible or intangible) other than cash, a reasonably
specific description of such property intended as consideration for the transfer
and (e) all other material terms of the proposed transaction (such notice shall
be referred to herein as a "Holder's Notice of Proposed Transfer of Warrant").
-----------------------------------------------
(iii) Prior to the time and date of the proposed transfer set forth
in a Holder's Notice of Proposed Transfer of Warrant, the Company may elect to
exercise a right of first refusal to purchase the Warrant at the Right of First
Refusal Price by providing the Holder with written notice of such election. If
the Company so notifies the Holder of its election to exercise such right of
first refusal, then the Company shall tender to the Holder as payment for this
Warrant a wire transfer of immediately available funds in the amount of the
Right of First Refusal Price, and the closing with respect to the purchase of
this Warrant a shall occur (a) in the event the proposed consideration is all
cash, no later than ten (10) business days after the Company receives the
Holder's Notice of Proposed Transfer of Warrant and (b) in the event the
proposed consideration is other than all cash, within the later of (w) ten (10)
business days after the Company receives the Holder's Notice of Proposed
Transfer of Warrant and (x) three (3) business days following the
5
<PAGE>
Company's receipt from the investment banking firm referred to below of a letter
setting forth the price determined by such firm to be fair (including a
reasonable description of the basis for such determination) and evidence of the
Holder's payment of fees and disbursements of such investment banking firm as
provided below. If the Company does not so notify the Holder of its election to
exercise such right of first refusal, then the Holder may transfer the Warrant
on the terms and to the persons set forth in the Notice of Proposed Transfer of
Warrant within 45 days of the date of such Notice, subject to the limitations
set forth elsewhere in this Warrant and in the Warrant Purchase Agreement. In
the event that such transfer is not made within such 45-day period, any
subsequent transfer shall be subject to the right of first refusal contained in
this Section 5(B). The "Right of First Refusal Price" shall be calculated as (y)
----------------------------
in the event the proposed consideration is all cash, the Warrant Transfer Cash
Price or (z) in the event the proposed consideration is other than all cash, a
price determined to be fair by a nationally-recognized investment banking firm
chosen by the Company to value the aggregate consideration which is the subject
of such proposed transfer (provided, however, that the Holder shall be obligated
to pay all fees and disbursements of such investment banking firm incurred in
connection with such valuation and any matters related thereto).
(C) Restrictive Legend. Each certificate representing this Warrant or
the Warrant Shares (collectively, the "Securities") or any other securities
----------
issued in respect of Securities upon any such stock split, stock dividend,
reclassification or reorganization shall (unless otherwise permitted by the
provisions of the Warrant Purchase Agreement) be stamped or otherwise imprinted
with a legend substantially in the following form (in addition to any legend
required under applicable federal or state securities laws or the Company's
Certificate of Incorporation):
In the case of this Warrant:
---------------------------
THIS WARRANT IS NON-TRANSFERABLE OTHER THAN TO THE WALT DISNEY COMPANY OR
ANY OF ITS DIRECTLY OR INDIRECTLY WHOLLY-OWNED SUBSIDIARIES PRIOR TO THE
COMMENCEMENT DATE (AS DEFINED HEREIN). THIS WARRANT CONTAINS CERTAIN
ADDITIONAL RESTRICTIONS ON ITS TRANSFER AND EXERCISE ON AND SUBSEQUENT TO
THE COMMENCEMENT DATE.
In the case of the Warrant Shares:
---------------------------------
THE SECURITIES ARE NON-TRANSFERABLE PRIOR TO THE COMMENCEMENT DATE (AS
DEFINED HEREIN).
In the case of this Warrant and Warrant Shares:
----------------------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN
EXEMPTION THEREFROM. THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE
RIGHTS OF THE HOLDER HEREOF ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
OTHER RESTRICTIONS, AND THE HOLDER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE (INCLUDING ANY FUTURE HOLDER) IS BOUND BY THE TERMS OF A WARRANT
PURCHASE AGREEMENT BETWEEN THE ORIGINAL PURCHASER AND THE COMPANY (COPIES OF
WHICH MAY BE OBTAINED FROM THE COMPANY).
6
<PAGE>
7. Modification and Waiver. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
8. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
the Holder at its address as shown on the books of the Company or to the Company
at the address indicated therefor in the first paragraph of this Warrant.
9. Descriptive Headings and Governing Law. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Delaware without regard
to conflict of laws.
10. Lost Warrants or Stock Certificates. The Company represents and
warrants to the Holder that upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of any Warrant or
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity and, if requested, bond reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Warrant or stock certificate, the Company at its expense will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
11. Fractional Shares. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the Holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the market price of the Common Stock (the market price
determined, for any date, as the average of the closing prices of the Common
Stock on the New York Stock Exchange (or such other principal securities
exchange or automated quotation system upon which the Common Stock may then be
listed for public trading) for the five immediately preceding trading days on
such exchange).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers, thereunto duly authorized this 27th day of June 1996.
Mattel, Inc.
/s/ Ned Mansour
-----------------------------
By: Ned Mansour
Title: President, Mattel USA
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>3
<DESCRIPTION>EMPLOYMENT AGREEMENT FOR HARRY PEARCE 4/14/97
<TEXT>
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") between Mattel, Inc., a
Delaware corporation ("Mattel"), and HARRY J. PEARCE (the "Executive"), dated as
of the 14th day of April, 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
<PAGE>
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. Executive is herewith appointed Chief
Financial Officer of Mattel, Inc., reporting to the CEO, with overall
responsibility, authority and accountability for financial matters relating to
the business of the corporation and any of its subsidiaries. It is further
provided that Executive shall be the next insider appointed to serve as a member
of the Board of Directors of Mattel, Inc., immediately following Gary Baughman's
appointment, or unrealized appointment as the case may be.
(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
-2-
<PAGE>
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 Committee thereof or any
individual having authority to take such action in accordance with Mattel's
regular practices. Any increase in the Base Salary shall not serve to limit or
reduce any other obligation of Mattel hereunder and, after any such increase,
the Base Salary shall not be reduced.
(b) Bonus Programs. In addition to the Base Salary, the Executive
--------------
shall 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-Term Incentive Plan
("LTIP") as they may be modified from time to
-3-
<PAGE>
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 at a target award level of $1,500,000 and 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 Management Incentive Plan ("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.
-4-
<PAGE>
(c) 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, upon commencement of Executive's
employment, shall grant to Executive an initial grant of 200,000 stock options
under the terms of the 1996 Mattel Stock Option Plan. Over the initial 3-year
period of Executive's employment, it is agreed that Executive shall receive
stock option grants of not less than an aggregate of 500,000 stock options
issued under the terms of the 1996 Mattel Stock Option Plan or any successor
plan. In ensuing years, Executive shall receive annual grants of stock options
under one or more of Mattel's Stock Option Plans as in effect from time to time
in accordance with Mattel's policies and practices for other executives. It is
further provided that 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
-5-
<PAGE>
thereupon for a service-related component in the computation of Executive's
eligibility for benefits and/or the receipt thereof.
(d) 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, 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.
(e) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the policies and practices of Mattel as in
effect from time to time with respect to executives employed by Mattel.
(f) 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
-6-
<PAGE>
effect from time to time with respect to executives employed by Mattel.
(g) 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.
(h) 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 (g).
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
-7-
<PAGE>
(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 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
-8-
<PAGE>
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 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 Los Angeles, California except for travel reasonably required in the
performance of the Executive's responsibilities;
-9-
<PAGE>
(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).
(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
-10-
<PAGE>
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 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.
-11-
<PAGE>
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 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).
-12-
<PAGE>
(f) Date of Termination. "Date of Termination" means the date of
-------------------
actual receipt of the Notice of Termination or any later date specified therein
(but not more than fifteen (15) days after the giving of the Notice of
Termination), as the case may be; provided that (i) if the Executive's
employment is terminated by Mattel for any reason other than Cause or
Disability, the Date of Termination is the date on which Mattel notifies the
Executive of such termination; (ii) if the Executive's employment is terminated
due to Disability, the Date of Termination is the Disability Effective Date; and
(iii) if the Executive's employment is terminated due to the Executive's death,
the Date of Termination shall be the date of death.
5. Obligations of Mattel upon Termination. Other than as specifically set
--------------------------------------
forth or referenced in this Agreement, the Executive shall not be entitled to
any benefits on or after the Date of Termination.
(a) Death. If the Executive's employment is terminated by reason of
-----
the Executive's death, this Agreement shall terminate without further
obligations by Mattel to the Executive's legal representatives under this
Agreement other than those obligations accrued hereunder or under the terms of
the applicable Mattel plan or program which takes effect at the date of his
death or as otherwise provided in Section 4(a) or this
-13-
<PAGE>
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 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
-14-
<PAGE>
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, except that if Executive is duly vested under
the express terms of the SERP, he shall be entitled to receive SERP benefits in
accordance with the terms and conditions of the SERP.
(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
-15-
<PAGE>
Annual Bonus") and if Executive has been eligible to receive only one prior MIP
bonus, the latter shall serve as the sole basis for determining the Average
Annual Bonus. The applicable Average Annual Bonus shall then be prorated to
reflect the total number of full months the Executive was 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
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
-16-
<PAGE>
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 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
-17-
<PAGE>
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 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/representa-tive" 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
-18-
<PAGE>
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
(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
-19-
<PAGE>
Executive Retirement Plan (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.
(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
-20-
<PAGE>
category as the Executive pursuant to the Bonus Programs provided in Section
3(b) 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 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)
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<PAGE>
(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 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,
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<PAGE>
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.
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 here-in, Mattel's
---------------------------
obligation to make the payments provided for in this
-23-
<PAGE>
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including without limitation any set-off,
counterclaim, recoupment, defense or other right which Mattel may have against
the Executive or others. Mattel agrees to pay, to the full extent permitted by
law, all legal fees and expenses which the Executive may reasonably incur as a
result of any contest (regardless of the outcome thereof) by Mattel or others of
the validity or enforceability of, or liability under, any provision of this
Agreement other than expenses relating to a claim by the Executive that 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
-24-
<PAGE>
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, 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
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<PAGE>
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 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
-26-
<PAGE>
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 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.
-27-
<PAGE>
(e) Any decision and award or order of a majority of the arbitrators
shall be binding upon the parties hereto and judgment thereon may be entered in
the Superior Court of the State of California or any other court having
jurisdiction.
(f) Each of the above terms and conditions of this Section 8 shall
have separate validity and the invalidity of any part thereof shall not affect
the remaining parts.
(g) Any decision and award or order of a majority of the arbitrators
shall be final and binding between the parties as to all claims which were
raised in connection with the dispute to the full extent permitted by law. In
all other cases, the parties agree that a decision of a majority of arbitrators
shall be a condition precedent to the institution or maintenance of any legal,
equitable, administrative, or other formal proceeding by 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
-28-
<PAGE>
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 (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
-29-
<PAGE>
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, 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
-30-
<PAGE>
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."
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.
-31-
<PAGE>
11. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of Mattel shall not be assignable by the Executive otherwise
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Mattel and its successors. Mattel shall require any successor to all or
substantially all of the business and/or assets of Mattel, whether direct or
indirect, by purchase, merger, consolidation, acquisition of stock, or
otherwise, by an agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent as Mattel would be required to perform if no such succession
had taken place.
12. Amendment; Waiver. This Agreement contains the entire agreement
--------- ------
between the parties with respect to the subject matter hereof and may be
amended, modified or changed only by a written instrument executed by the
Executive and Mattel. No provision of this Agreement may be waived except by a
writing executed and delivered by the party sought to be charged. Any such
written waiver will be effective only with respect to the event or
-32-
<PAGE>
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 provisions
hereof and shall have no force or effect.
(b) All notices and other communications hereunder shall be in
writing; shall be delivered by hand delivery to the other party or mailed by
registered or certified mail, return receipt requested, postage prepaid; shall
be deemed delivered upon actual receipt; and shall be addressed as follows:
if to the Executive:
--------------------
Harry J. Pearce
c/o Mattel, Inc.
333 Continental Blvd.
El Segundo, CA 90245
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.
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<PAGE>
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
(d) Mattel may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first set forth above.
EXECUTIVE:
/s/ Harry J. Pearce
-----------------------------------
Harry J. Pearce
MATTEL: MATTEL, INC.,
a Delaware corporation
By: /s/ Ned Mansour
-------------------------------
Ned Mansour
President, Corporate Operations
ATTEST:
/s/ Mary L. Waller
- ---------------------------------
Assistant Secretary
-34-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>4
<DESCRIPTION>DEF. COMP. PLAN FOR NON-EMPLOYEE DIRECTORS
<TEXT>
<PAGE>
EXHIBIT 10.12
MATTEL, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Eligibility......................................................... 1
2. Participation....................................................... 1
(a) Election to Participate.................................... 1
(b) Enrollment Form............................................ 1
3. Deferred Compensation Accounts...................................... 2
(a) Investment Election........................................ 2
(b) Stock Equivalent Account................................... 2
(i) Determination of Credited Amounts.................. 2
(ii) Recapitalization or Reorganization of
Company............................................ 3
(iii) Shares Subject to Plan............................. 3
(c) Interest Accrual Account................................... 3
(d) Change of Investment Elections............................. 3
(i) Future Deferrals................................... 3
(ii) Prior Deferrals.................................... 3
(iii) Transition Election................................ 4
(e) Administrative Discretion.................................. 4
4. Distribution........................................................ 4
(a) Distribution Election...................................... 4
(b) Distribution Options....................................... 4
(c) Form of Distributions...................................... 4
(d) Competitive Activity....................................... 5
(e) Death...................................................... 5
(f) Installment Distributions.................................. 5
(g) Prior Agreements Superseded................................ 5
(h) Withdrawals................................................ 5
5. Miscellaneous....................................................... 6
(a) Assignment Prohibited...................................... 6
(b) Benefits Unfunded.......................................... 6
(c) Grantor Trust.............................................. 6
(d) Plan Year.................................................. 7
(e) Nonforfeitable Benefit..................................... 7
(f) Amendment.................................................. 7
(g) Termination................................................ 7
(h) Withholding................................................ 7
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(i) Governing Law.............................................. 8
(j) Gender, Tense, and Headings................................ 8
(k) Successors and Assigns..................................... 8
(l) Receipt or Release......................................... 8
(m) Plan Administrator......................................... 8
6. Definitions......................................................... 9
(a) Account.................................................... 9
(b) Administrator.............................................. 9
(c) Assumed Accounts........................................... 9
(d) Beneficiary................................................ 9
(e) Board...................................................... 9
(f) Change in Control.......................................... 9
(g) Combined Voting Power......................................10
(h) Company....................................................10
(i) Deferrals..................................................10
(j) Effective Date.............................................10
(k) Enrollment Form............................................10
(l) Exchange Act...............................................10
(m) Independent Plan Administrator.............................10
(n) Participant................................................10
(o) Person.....................................................11
(p) Plan.......................................................11
(q) Plan Year..................................................11
(r) Prior Agreement............................................11
(s) Severance..................................................11
(t) Transaction................................................11
(u) Valuation Date.............................................11
(v) Voting Securities..........................................11
</TABLE>
-ii-
<PAGE>
MATTEL, INC.
DEFERRED COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Eligibility
Each member of the Board of Mattel, Inc. ("Company") who is not an
employee of the Company, or of any of its subsidiaries, is eligible to
participate in this Deferred Compensation Plan for Non-Employee Directors
("Plan"). This Plan includes account balances attributable to certain Directors
who, prior to the date of adoption of this Plan, were parties to individual
deferred compensation agreements with the Company under the terms of a Prior
Agreement. This Plan constitutes an amendment and restatement that supersedes
any such Prior Agreements and the obligations to any Director under any such
Prior Agreement shall be assumed under this Plan ("Assumed Accounts"). Any such
Director previously covered by an individual agreement who has Assumed Accounts
under this Plan shall continue to accrue amounts attributable to dividends and
appreciation on any hypothetical shares of Common Stock in the Stock Equivalent
Account portion as provided in this Plan and to accrue interest on any Interest
Accrual Account portion, notwithstanding that such Director is ineligible to or
does not otherwise participate in this Plan.
2. Participation
(a) Election to Participate. Prior to the beginning of any calendar
-----------------------
year, or, in the case of newly elected Directors, within 30 days of such
election, each eligible Director may elect to participate in the Plan by
directing that all or any part of the compensation which would otherwise have
been payable currently for services as a Director (including fees payable for
services as a member of a committee of the Board) during such calendar year, or,
in the case of newly elected Directors, during the remainder of such calendar
year, shall be credited to a deferred compensation account ("Account") subject
to the terms of the Plan. With respect to calendar year 1998, the year this
Plan is adopted, each eligible Director shall have a period of 60 days after the
adoption of this Plan to elect to participate in the Plan with respect to
compensation payable after the date of election.
(b) Enrollment Form. Such an election to participate in the Plan
---------------
shall be in the form of an enrollment form ("Enrollment Form") executed by the
Director and the Company and filed with the Secretary of the Company or his or
her delegate. The specifications of this Plan that apply to any participating
Director are contained in such separate Enrollment Form executed by the Company
and the Participant. The Enrollment Form constitutes a part of this Plan and
its terms are incorporated into the Plan. An election related to fees otherwise
payable currently in any calendar year shall become irrevocable on the last day
prior to the beginning of such calendar year, or, in the case of new Directors,
on the 30th day after becoming a Director. An election shall continue until a
Director ceases to be a Director or until he or she terminates or modifies such
election by written notice. Any such termination or modification shall become
effective as of the end of the calendar year in which such notice is given with
respect to all fees otherwise payable in subsequent calendar years. A Director
who has filed a
<PAGE>
termination of election may thereafter again file an election to
participate for any calendar year or years subsequent to the filing of such
election.
3. Deferred Compensation Accounts
(a) Investment Election. At the time of election to participate in
-------------------
the Plan under Section 2(a) above, a Director shall also designate the
percentage of such Deferrals to be credited to the Stock Equivalent Account
portion of the Director's Account and the percentage to be credited to the
Interest Accrual Account portion of such Account.
(b) Stock Equivalent Account.
------------------------
(i) Determination of Credited Amounts. Deferrals credited to the
---------------------------------
Stock Equivalent Account portion of a Director's Account shall be applied on the
last business day of the month in which occurs the date the related compensation
is or would be otherwise paid to the hypothetical purchase of whole shares of
Common Stock determined by dividing the amount of such compensation by the price
of a share of the Company's common stock, par value $1.00 per share (the "Common
Stock"). Amounts remaining after the hypothetical purchase of whole shares of
Common Stock shall be credited to the Interest Accrual Account until the next
Valuation Date when the remaining principal amount shall be credited to the
Stock Equivalent Account and applied to the hypothetical purchase of Common
Stock. The Director's Account (including any portion of an Assumed Account
represented by the Stock Equivalent Account) shall also be credited on the last
business day of the month in which cash dividends are paid with a hypothetical
number of shares of Common Stock equivalent to any cash dividend payment on the
number of shares of Common Stock equal to the number of hypothetical shares of
Common Stock in the Director's Stock Equivalent Account on the record date for
such dividend. Such amount shall then be converted to a number of additional
hypothetical shares determined by dividing such amount by the price of a share
of Common Stock. The price of a share of Common Stock on the last day of the
month in which occurs any compensation or dividend payment date shall be the
closing price of a share of Common Stock for the last trading day in that month.
The closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Common Stock is
not listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Common Stock is listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the Common
Stock is not quoted by any such organization, the average of the closing bid and
asked prices as furnished by the professional market maker making a market in
the Common Stock.
<PAGE>
(ii) Recapitalization or Reorganization of Company. In the
---------------------------------------------
event of any change in outstanding Common Stock by reason of any stock dividend
or split, recapitalization, merger, consolidation, combination or exchange of
shares, spin-off or other similar corporate change, the Board shall make such
adjustments, if any, that it deems appropriate in the number of hypothetical
shares of Common Stock then credited to Directors' Accounts (including any
portion of an Assumed Account represented by the Stock Equivalent Account). Any
and all such adjustments shall be conclusive and binding upon all parties
concerned.
(iii) Shares Subject to Plan. The maximum number of
----------------------
hypothetical shares of Common Stock that may be maintained in the Stock
Equivalent Account portion of all Directors' Accounts may not exceed two million
shares (including any portion of an Assumed Account represented by the Stock
Equivalent Account). This number is subject to adjustment to take into
consideration adjustment in the number of outstanding shares of Common Stock as
described in the preceding Section 3(b)(ii).
(c) Interest Accrual Account. Deferrals credited to the Interest
------------------------
Accrual Account portion of a Director's Account (including any portion of an
Assumed Account represented by the Interest Accrual Account) shall bear interest
from the last day of the month in which occurs the date the related compensation
is or would otherwise be paid. The interest credited will be compounded monthly
and credited at the end of each Valuation Date. For all amounts, whenever
credited, the rate of interest credited thereon, as of the end of each Valuation
Date ending after the date of adoption of this Plan by the Board, shall be
determined by and may be changed by the Administrator, in its sole discretion,
from time to time. The initial interest rate credited to the Interest Accrual
Account shall be equal to 125% of the average annual yield as of the beginning
of the calendar year for U. S. Treasury notes with maturities of ten years. The
applicable Treasury interest rate shall be determined annually by the Chief
Financial Officer or Controller of the Company as of the beginning of the
calendar year, based on an official publication of a U. S. government agency.
Any change in such interest rate or the manner of determining the interest rate
shall take effect only for accruals of interest after the change is approved by
the Administrator.
(d) Change of Investment Elections.
------------------------------
(i) Future Deferrals. An election to invest Deferrals in a
----------------
Stock Equivalent Account or an Interest Accrual Account may be changed
prospectively once each year, in the manner and at the time specified by the
Administrator, by giving not less than ten (10) days advance notice in writing
of such election to the Secretary of the Company on a form designated by the
Plan Administrator for such purpose. Such change, if timely, shall be effective
with respect to amounts deferred following the month in which such election is
received and thereafter.
(ii) Prior Deferrals. Except as permitted in Section
---------------
3(d)(iii) hereof, no part of the amounts previously credited to a Director's
Stock Equivalent Account or Interest Accrual Account may be transferred between
Accounts.
<PAGE>
(iii) Transition Election. Notwithstanding anything to the
-------------------
contrary in Section 3(d)(ii) hereof, any Director previously covered by an
individual agreement who has Assumed Accounts under this Plan shall have a
period of 60 days after the adoption of this Plan to transfer amounts previously
credited to such Director's Interest Accrual Account to such Director's Stock
Equivalent Account.
(e) Administrative Discretion. The Administrator may determine at
-------------------------
any time in its sole discretion that no additional Deferrals shall be credited
to the Stock Equivalent Account of any Director. In the event all Stock
Equivalent Accounts are frozen, additional Deferrals will be credited to the
Interest Accrual Account until such time as the Administrator permits a change
in election.
4. Distribution
(a) Distribution Election. At the time of election to participate in
---------------------
the Plan, a Director shall also make elections with respect to the timing and
method of distribution (during the Director's lifetime or in the event of the
Director's death) of amounts deferred under the Plan, plus accumulated earnings.
Such elections shall be contained in the document referred to in Section 2(b),
executed by the Director and filed with the Secretary of the Company, or his or
her delegate. The election with respect to the method of distribution during
the Director's lifetime of fees for any calendar year shall become irrevocable
on the last day prior to the beginning of such calendar year. The election
related to the distribution in the event of the Director's death, including the
designation of a Beneficiary or Beneficiaries, may be changed by the Director at
any time, by filing the appropriate document with the Secretary of the Company.
(b) Distribution Options. A Director may elect to receive amounts
--------------------
credited to his or her Account in one payment or in ten (10) equal annual
installments; provided, however, that the number of annual installments may not
extend beyond the life expectancy of the Director, determined as of the date the
first installment is paid. The election shall direct that the first installment
(or the single payment if the Director has so elected) be paid no later than
March 30 of the Plan Year following either (i) the Plan Year in which the
Director has a Severance and ceases to be a Director of the Company, or (ii the
later of (i) above or the year in which the Director attains the age specified
in such election, which age shall not be later than age 72. Each distribution
shall be made pro-rata from amounts credited to the Interest Accrual Account
portion and to the Stock Equivalent Account portion of the Director's Account on
the applicable payment date. Each distribution shall be determined by
multiplying the value of the Director's Account by a fraction. The numerator of
the fraction shall be 1 and the denominator of the fraction shall be the number
of annual installments remaining to be paid.
(c) Form of Distributions. All distributions from the Interest
---------------------
Accrual Account shall be in cash. All distributions from the Stock Equivalent
Account shall be in shares of Common Stock equal in value to the value of the
Stock Equivalent Account. For this purpose, the value of the Stock Equivalent
Account distributed on any payment date shall be determined
<PAGE>
by multiplying the number of such hypothetical shares of Common Stock allocated
to the Stock Equivalent Account by the price of a share of Common Stock, as
determined pursuant to Section 3(b)(i) with respect to the valuation period
ending coincident with or immediately prior to the date of the distribution. In
no event shall the Company be required to issue fractional shares in connection
with a distribution of a Director's Stock Equivalent Account. The value of
fractional hypothetical shares of Common Stock shall be distributed in cash.
(d) Competitive Activity. Notwithstanding an election pursuant to
--------------------
Section 4(a), in the event a Director engages in any competitive activity, as
determined in accordance with and pursuant to the terms and conditions of the
Company's non-competition guidelines, the entire balance in the Director's
Account, including earnings, shall be paid immediately in a single payment.
(e) Death. A Director may elect that, in the event the Director
-----
should die before full payment of all amounts credited to the Director's
Account, the balance of the Account shall be distributed according to the method
designated by the Director pursuant to Section 4(a) hereof to the Beneficiary or
Beneficiaries designated in writing by the Director, or if no designation has
been made, to the estate of the Director. The first installment (or the single
payment if the Director has so elected) shall be paid on the first day of the
calendar year following the year of death. The Board or the
Compensation/Options Committee thereof may, in its sole discretion, decide to
accelerate the timing of such payments in any manner deemed appropriate. In
connection with such decision, the Board or the Committee may (but shall not be
required to) take into consideration the desire(s) of the Beneficiary or
Beneficiaries of such deceased Director.
(f) Installment Distributions. Installments subsequent to the first
-------------------------
installment to the Director, or to a Beneficiary or to the Director's estate,
shall be paid on the first business day of each succeeding calendar year until
the entire amount credited to the Director's Account shall have been paid. The
balance of the Account held pending distribution shall continue to be credited
with earnings, determined in accordance with Section 3.
(g) Prior Agreements Superseded. Payments of amounts credited to a
---------------------------
Director's Account under this Plan shall not be duplicative of payments, if any,
received by a Director under any Prior Agreement that became subject to this
Plan as Assumed Accounts which payments shall be a complete offset to any
payments under this Plan. The Board may, as a prerequisite to the commencement
of any installments or lump-sum payment to any Director or Beneficiary under
this Plan, obtain a written acknowledgment, in a form reasonably satisfactory to
the Board, that such installments or payment represent a complete satisfaction
of any amounts deferred or earnings accrued under the prior individual deferred
compensation agreement.
(h) Withdrawals. A Director (or former Director) participating in
-----------
the Plan may at any time elect to receive a distribution of all or any portion
of the Interest Accrual Account credited to his or her Account under the Plan
(less a substantial penalty). Amounts credited to the Stock Equivalent Account
shall not be available for distribution under this Subsection (h).
<PAGE>
Requests for distributions shall be submitted in writing (on a form approved for
that purpose) to the Secretary of the Company or his or her delegate specifying
the amount to be withdrawn. Distributions from the Director's (or former
Director's) Interest Accrual Account under the Plan pursuant to this Subsection
(h) will at all times be subject to (i) reduction for applicable state or
federal income tax withholdings, if any, and (ii a substantial penalty equal to
at least six percent (6%) of the amount of the requested withdrawal. The
Administrator, upon reasonable notice to Participants, may change the penalty
percentage to which withdrawals are subject, provided such penalty shall never
be less than six percent (6%). The amount of any penalty shall be treated as a
forfeiture and shall not be subject to reinstatement. Distributions pursuant to
this Subsection (h) shall be payable in a single lump sum, in cash, within
thirty (30) days of submission of the completed distribution form. The Company
and the Administrator shall be released from any further liability for the
withdrawn benefit amount and the penalty amount. In addition, a Participant who
makes a withdrawal shall not be eligible to make additional Deferrals to this
Plan during the calendar year in which the withdrawal is made and the next
following calendar year.
5. Miscellaneous
(a) Assignment Prohibited. The right of a Director to any deferred
---------------------
fees and/or earnings thereon shall not be subject to assignment by the Director.
(b) Benefits Unfunded. Except as provided in Section 5(c), the
-----------------
benefits provided by this Plan shall be unfunded. All amounts payable under
this Plan to the participating Directors shall be paid from the general assets
of the Company, and nothing contained in this Plan shall require the Company to
set aside or hold in trust any amounts or assets for the purpose of paying
benefits to any Director. This Plan shall create only a contractual obligation
on the part of the Company, and participating Directors shall have the status of
a general unsecured creditor with respect to the benefit obligations hereunder
or any other obligation of the Company to pay benefits pursuant hereto. Any
funds of the Company available to pay benefits pursuant to the Plan shall be
subject to the claims of general creditors of the Company, and may be used for
any purpose by the Company.
(c) Grantor Trust. Although the Company is responsible for the
-------------
payment of all benefits under the Plan, the Company may, in its discretion,
contribute funds or assets (including insurance policies on the life of any or
all Participants and securities issued by the Company) to a grantor trust for
the purpose of paying benefits under this Plan and to assist it in accumulating
shares of Common Stock and cash needed to fulfill its obligations under this
Plan in the event of a Change in Control. Such trust may be irrevocable, but
assets of the trust shall be subject to the claims of creditors of the Company
or any adopting affiliate. To the extent any benefits provided under the terms
of the Plan are actually paid from the trust, the Company or such adopting
affiliate shall have no further obligation with respect thereto. To the extent
any benefits provided under the terms of the Plan are not paid from the trust,
such benefits shall remain the obligation of and shall be paid by the Company or
the adopting affiliate. References to payments by the Company shall be deemed
to include payments by the Company or by an adopting affiliate, as the context
may require. The participating Directors
<PAGE>
shall have the status of unsecured creditors insofar as their legal claim for
benefits under the Plan and the participating Directors shall have no security
interest or preferred claim in or to the assets of any such grantor trust.
(d) Plan Year. The period with respect to which the records of the
---------
Plan are maintained (the "Plan Year") shall be the twelve consecutive month
period ending December 31. The Controller of the Company shall, at least
annually at the end of each Plan Year, prepare and distribute written reports to
the participating Directors and to the Compensation/Options Committee of the
Board that set forth the amounts or the number of hypothetical shares of Common
Stock credited to each Director's Account.
(e) Nonforfeitable Benefit. A participating Director's interest in
----------------------
his Account shall at all times be 100% vested and nonforfeitable.
(f) Amendment. The Company shall have the right to amend this Plan
---------
in whole or in part from time to time by resolution of the Board, and to amend
and cancel any amendments; provided, however, that no action under this Section
shall cancel or reduce the amount of the Director's previously accrued vested
benefits. An amendment shall be in writing and be adopted by the Board. The
action of the Board adopting any amendment may, but is not required to, be
evidenced by the execution of such amendment by a duly authorized officer of the
Company. The participating Directors shall be bound thereby.
(g) Termination. The Company expects to continue this Plan
-----------
indefinitely, but does not obligate itself to do so. The Company reserves the
right to discontinue and terminate the Plan at any time, for any reason
(including a change, or an impending change, in the tax laws of the United
States or of any state), by resolution of the Board. Termination of the Plan
shall be binding on the participating directors, but in no event may such
termination reduce the Directors' previously accrued vested benefits. If this
Plan is terminated, the Directors' previously accrued vested benefits shall be
paid as soon as reasonably practicable after the first day of the month
following the termination.
(h) Withholding. If the whole or any part of any Director's benefit
-----------
shall become liable for the payment of any estate, inheritance, income,
employment or other tax which the Company is required to pay or withhold, the
Company shall have the full power and authority to withhold and pay such tax out
of any monies or other property in its hand for the benefit of the Director
whose benefits hereunder are so liable. Prior to making any payment, the
Company may require such releases or other documents from any lawful taxing
authority as it shall deem necessary. To the extent benefits paid hereunder are
wages or compensation, the Company shall be entitled to deduct, withhold and pay
any applicable income or employment taxes from amounts otherwise payable to a
participating Director hereunder.
<PAGE>
(i) Governing Law. This Plan shall be construed, administered, and
-------------
governed in all respects in accordance with the laws of the State of California.
If any provisions of this instrument shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
(j) Gender, Tense, and Headings. In this Plan, whenever the context
---------------------------
so indicates, the singular or plural number and the masculine, feminine, or
neuter gender shall be deemed to include the other. Headings and subheadings in
this Plan are inserted for convenience of reference only and are not considered
in the construction of the provisions hereof.
(k) Successors and Assigns. This Plan shall inure to the benefit of,
----------------------
and be binding upon, the parties hereto and their successors and assigns;
provided, however, subject to the provisions of applicable law regarding
domestic relations orders, that the benefits hereunder shall not be assignable
or transferable and, except as provided by Section 5(h), any purported transfer,
assignment, encumbrance, or attachment thereof shall be void and of no effect.
In the event of a dispute involving any individual's right to receive the
benefit hereunder, the Company may enter an interpleader action. Payment of
the benefit to a court of competent jurisdiction with proper notice to the
appropriate parties in dispute shall be in full satisfaction of all claims
against the Company as to the Plan, and shall be equivalent to a receipt and
release.
(l) Receipt or Release. Any payment to a Director or Beneficiary in
------------------
accordance with the provisions of this Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Company, and the Administrator may
require such Participant, as a condition precedent to such payment, to execute a
receipt and release to such effect. Amounts owed to the Company by any
participating Director may be setoff from the benefits distributed under this
Plan, provided the Administrator designates the amount and description of the
setoff amounts and any such setoff shall be treated as a distribution that
satisfies the corresponding distribution obligation under this Plan.
(m) Plan Administrator. The Compensation/Options Committee of the
------------------
Board shall be the Plan Administrator and shall have discretionary authority to
construe and interpret the Plan terms and to make all determinations relating to
its administration, including the determination of disputed benefit claims.
Action of the Administrator may be taken with or without a meeting; provided,
however, that any action shall be taken only upon the vote or other affirmative
expression of a majority of the Committee members qualified to vote with respect
to such action. If a member of the Committee is a participant whose benefits
are subject to the Plan, such member shall not participate in any decision which
solely affects his
<PAGE>
or her status as a participant. In the event the Compensation/Options Committee
becomes deadlocked on the determination of any disputed benefit claim, the
determination of such claim shall be determined by the full Board. The Committee
or the Board, as the case may be, shall be authorized to adopt rules and
procedures relating to its duties under the Plan. If the Company creates a trust
as described in Section 6.2 hereof, and, if such trust provides for an
Independent Plan Administrator, then, following a Change in Control of the
Company, the Independent Plan Administrator (or any successor Independent Plan
Administrator) under the trust shall serve as Administrator of this Plan, so
long as such entity is serving as Independent Plan Administrator under the
trust.
6. Definitions
(a) Account. The record maintained by the Administrator to determine
-------
each Participant's interest under this Plan. Such Account may be divided into
subaccounts and shall be reflected as a book reserve entry in the Company's
accounting records.
(b) Administrator. The Compensation/Options Committee of the Board
-------------
designated pursuant to Section 5(m) to manage and administer the Plan.
(c) Assumed Accounts. The amount of deferred compensation credited
----------------
under a Prior Agreement that is automatically credited to and governed by the
terms of this Plan.
(d) Beneficiary. The person or persons (natural or otherwise)
-----------
designated by a Participant in accordance with Section 4(a) to receive any
undistributed benefits under the Plan at the time of the Participant's death.
(e) Board. The Board of Directors of the Company or the Compensation
-----
and Options Committee of the Board of Directors.
(f) Change in Control. A "Change in Control" shall be deemed to have
-----------------
occurred on:
(i) The "Distribution Date" as that term is defined in Section
1(h) of the Company's Rights Agreement dated February 7, 1992, as it may be
amended from time to time. The definition of "Distribution Date" contained in
the Company's Rights Agreement shall continue to apply, notwithstanding the
expiration or termination of that agreement; or
(ii) The date (during any period of two consecutive calendar
years) that individuals who at the beginning of such period constituted the
Company's Board cease for any reason (other than natural causes, including
death, disability or retirement) to constitute a majority thereof; or
(iii) The date the stockholders of the Company approve:
(A) A plan of complete liquidation of the Company;
<PAGE>
(B) An agreement for the sale or disposition of all or
substantially all of the assets of the Company; or
(C) A merger, consolidation, or reorganization of the
Company with or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting stock of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting stock of the surviving
entity) at least eighty percent (80%) of the combined voting power of the stock
that is outstanding immediately after the merger, consolidation, or
reorganization, unless the Board of the Company determines by a majority vote
prior to the merger, consolidation, or reorganization that no Change in Control
will occur as a result of such transaction; or
(iv) The date a "Change in Control" occurs within the meaning of
the term defined in the grantor trust agreement established under Section 6.2
hereof.
(g) Combined Voting Power. The aggregate votes entitled to be cast
---------------------
generally in the election of directors of a corporation by holders of then
outstanding Voting Securities of such corporation.
(h) Company. Mattel, Inc., a Delaware corporation.
-------
(i) Deferrals. The amount credited to the Participant's Account under
---------
this Plan to reflect his interest in the Plan attributable to his elective
deferrals of Directors' fees.
(j) Effective Date. The Effective Date of this Plan shall be July 1,
--------------
1998.
(k) Enrollment Form. The form executed by the Company and the
---------------
Participant which sets forth the Participant's Deferral elections and other
specifications of this Plan applicable to the Participant.
(l) Exchange Act. The Securities Exchange Act of 1934, as amended
------------
from time to time, or any successor statute.
(m) Independent Plan Administrator. A person, persons or entity
------------------------------
which, prior to a Change in Control has accepted in writing the position of
Independent Plan Administrator under the grantor trust agreement established
under Section 5(c) hereof. The appointment of the Independent Plan
Administrator shall be determined under the provisions of the grantor trust
agreement established under Section 5(c) hereof.
(n) Participant. A Director of the Company or any participating
-----------
affiliate that has adopted the Plan who completes an Enrollment Form and has not
received a complete distribution of the amounts credited to his Account.
<PAGE>
(o) Person. Any individual, entity (including, without limitation, any
------
corporation, partnership, trust, joint venture, association or governmental
body) or group (as defined in (S) 14(d)(3) or (S) 15(d)(2) of the Exchange Act
and the rules and regulations thereunder); provided, however, that Person shall
not include the Company, any of its subsidiaries, or any employee benefit plan
of the Company or any of its majority-owned subsidiaries or any entity
organized, appointed or established by the Company or such subsidiary for or
pursuant to the terms of any such plan.
(p) Plan. The Mattel, Inc. Deferred Compensation Plan for Non-Employee
----
Directors as described herein and in the Enrollment Form entered into between
the Company and the Director designated therein, as such Plan and Enrollment
Form may hereafter be amended.
(q) Plan Year. The period with respect to which the records of the
---------
Plan are maintained which shall be the twelve consecutive month period ending
December 31.
(r) Prior Agreement. An unfunded, nonqualified, deferred compensation
---------------
agreement entered into by and between the Company and an individual Director
prior to the Effective Date of this Plan. This Plan constitutes an amendment
and restatement of any such Prior Agreement.
(s) Severance. A Participant's voluntary or involuntary termination of
---------
service as a Director with the Company for any reason at any time.
(t) Transaction. Any merger, consolidation or recapitalization of the
-----------
Company (or, if the capital stock of the Company is affected, any subsidiary of
the Company); or any sale, lease, or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single plan)
of all or substantially all of the assets of the Company.
(u) Valuation Date. The last day of each month within the Plan Year
--------------
and such other dates as may be determined by the Administrator for valuing
Participant Accounts.
(v) Voting Securities. All securities of a corporation having the
-----------------
right under ordinary circumstances to vote in an election of the board of
directors of such corporation.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officer.
MATTEL, INC.
Dated: August 17, 1998 By: /s/ Alan Kaye
-------------------- --------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>5
<DESCRIPTION>MATTEL, INC. DEFERRED COMPENSATION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.14
MATTEL, INC.
DEFERRED COMPENSATION PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. GENERAL.................................................... 1
1.1 Purpose.................................................... 1
1.2 Enrollment Form............................................ 1
SECTION 2. DEFINITIONS................................................ 1
2.1 Account.................................................... 1
2.2 Administrator.............................................. 1
2.3 Beneficiary................................................ 1
2.4 Board of Directors......................................... 1
2.5 Change in Control.......................................... 1
2.6 Code....................................................... 2
2.7 Combined Voting Power...................................... 2
2.8 Company.................................................... 2
2.9 Company Matching Credits................................... 2
2.10 Compensation............................................... 2
2.11 Deferrals.................................................. 3
2.12 Disability................................................. 3
2.13 Effective Date............................................. 3
2.14 Enrollment Form............................................ 3
2.15 ERISA...................................................... 3
2.16 Exchange Act............................................... 3
2.17 Independent Plan Administrator............................. 4
2.18 Investment Funds........................................... 4
2.19 Late Retirement Date....................................... 4
2.20 Normal Retirement Date..................................... 4
2.21 Participant................................................ 4
2.22 Person..................................................... 4
2.23 Personal Investment Plan................................... 4
2.24 PIP Excess Plan............................................ 4
2.25 Plan....................................................... 4
2.26 Plan Year.................................................. 5
2.27 Predecessor Plan........................................... 5
2.28 Severance.................................................. 5
2.29 Transaction................................................ 5
2.30 Transfer Credits........................................... 5
2.31 Valuation Date............................................. 5
2.32 Voting Securities.......................................... 5
2.33 Year of Service............................................ 5
</TABLE>
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<PAGE>
Page
----
SECTION 3. PARTICIPATION.............................................. 5
3.1 Eligibility................................................ 5
3.2 Deferral Election.......................................... 6
3.3 Time and Manner of Election................................ 6
(a) Base Salary.......................................... 6
(b) Short-Term Incentive Bonuses......................... 6
(c) Long-Term Incentive Bonuses.......................... 6
(d) Cash Award Payments.................................. 6
(e) Form of Election..................................... 7
3.4 Change of Deferral Election................................ 7
3.5 Investment Funds - Election and Change..................... 7
SECTION 4. ACCOUNTS................................................... 8
4.1 Establishment of Accounts.................................. 8
4.2 Accounting for Participant's Interests..................... 8
(a) Base Salary Deferral Subaccount...................... 8
(b) Short-Term Incentive Bonus Subaccount................ 8
(c) Long-Term Incentive Bonus Subaccount................. 8
(d) Transfer Credits Subaccount.......................... 8
(e) Cash Award Payments Subaccount....................... 9
(f) Adjustments to Subaccounts........................... 9
4.3 Vesting of a Participant's Account......................... 9
SECTION 5. BENEFITS................................................... 9
5.1 Distribution of Participant's Account...................... 9
(a) Distribution at End of Deferral Period or
Upon Severance....................................... 9
(b) Distribution Upon Retirement......................... 9
(c) Election of Optional Distribution Forms.............. 10
(d) Election of Optional Distribution Dates.............. 10
5.2 Withdrawals................................................ 11
(a) Manner of Making Withdrawals......................... 11
(b) Substantial Penalty.................................. 11
(c) Limitations on Withdrawals........................... 11
5.3 Death Benefits............................................. 11
5.4 Acceleration of Distributions.............................. 12
SECTION 6. BENEFITS UNFUNDED.......................................... 12
6.1 Benefits Unfunded.......................................... 12
6.2 Grantor Trust.............................................. 12
SECTION 7. THE ADMINISTRATOR.......................................... 13
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.1 Members.................................................... 13
7.2 Action..................................................... 13
7.3 Right and Duties........................................... 13
7.4 Compensation, Indemnity and Liability...................... 14
7.5 Taxes...................................................... 14
SECTION 8. CLAIMS PROCEDURE........................................... 14
8.1 Claims for Benefits........................................ 14
8.2 Appeals.................................................... 15
SECTION 9. AMENDMENT AND TERMINATION.................................. 15
9.1 Amendments................................................. 15
9.2 Discontinuance of Plan..................................... 15
SECTION 10. MISCELLANEOUS.............................................. 16
10.1 Limitation on Participant's Rights......................... 16
10.2 Other Plans................................................ 16
10.3 Receipt, Release or Setoff................................. 16
10.4 Governing Law.............................................. 16
10.5 Gender, Tense, and Headings................................ 16
10.6 Successors and Assigns..................................... 16
</TABLE>
-iii-
<PAGE>
MATTEL, INC.
DEFERRED COMPENSATION PLAN
SECTION 1. GENERAL
1.1 Purpose. Mattel, Inc., a Delaware corporation, hereby amends
-------
and restates the deferred compensation plan set forth below to provide
Participants with a vehicle to implement financial planning strategies for the
future by allowing for deferral of all or a portion of their Compensation and
providing benefits for their retirement. This Plan and the related Enrollment
Form are intended to be an unfunded arrangement maintained by the Company
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees within the meaning of Sections
201, 301 and 401 of ERISA.
1.2 Enrollment Form. The specifications of this Plan that apply to
---------------
any Participant are contained in a separate Enrollment Form executed by the
Company and the Participant. The Enrollment Form constitutes a part of this
Plan and its terms are incorporated into the Plan.
SECTION 2. DEFINITIONS
2.1 Account. The record maintained by the Administrator to
-------
determine each Participant's interest under this Plan. Such Account may be
divided into subaccounts and shall be reflected as a book reserve entry in the
Company's accounting records.
2.2 Administrator. The person, persons or entity appointed by the
-------------
Board of Directors pursuant to Article 7 to manage and administer the Plan.
2.3 Beneficiary. The person or persons (natural or otherwise)
-----------
designated by a Participant in accordance with Section 5.3 to receive any
undistributed benefits under the Plan at the time of the Participant's death.
2.4 Board of Directors. The Board of Directors of the Company or
------------------
the Compensation and Options Committee of the Board of Directors.
2.5 Change in Control. A "Change in Control" shall be deemed to
-----------------
have occurred on:
(a) The "Distribution Date" as that term is defined in Section
1(h) of the Company's Rights Agreement dated February 7, 1992, as it may be
amended from time to time. The definition of "Distribution Date" contained in
the Company's Rights Agreement shall continue to apply, notwithstanding the
expiration or termination of that agreement; or
<PAGE>
(b) The date (during any period of two consecutive calendar
years) that individuals who at the beginning of such period constituted the
Company's Board of Directors cease for any reason (other than natural causes,
including death, disability or retirement) to constitute a majority thereof; or
(c) The date the stockholders of the Company approve:
(1) A plan of complete liquidation of the Company;
(2) An agreement for the sale or disposition of all or
substantially all of the assets of the Company; or
(3) A merger, consolidation, or reorganization of the
Company with or involving any other corporation, other than a merger,
consolidation, or reorganization that would result in the voting stock of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting stock of the surviving
entity) at least eighty percent (80%) of the combined voting power of the stock
that is outstanding immediately after the merger, consolidation, or
reorganization, unless the Board of Directors of the Company determines by a
majority vote prior to the merger, consolidation, or reorganization that no
Change in Control will occur as a result of such transaction; or
(d) The date a "Change in Control" occurs within the meaning
of the term defined in the grantor trust agreement established under Section 6.2
hereof.
2.6 Code. The Internal Revenue Code of 1986, as amended from time
----
to time, or any successor statute.
2.7 Combined Voting Power. The aggregate votes entitled to be cast
---------------------
generally in the election of directors of a corporation by holders of then
outstanding Voting Securities of such corporation.
2.8 Company. Mattel, Inc., a Delaware corporation.
-------
2.9 Company Matching Credits. The amount credited to the
------------------------
Participant's PIP Excess Plan Account by the Company pursuant to Section 4.2(c)
of the PIP Excess Plan, based on the amount of the Participant's elective
deferrals designated in an Enrollment Form under this Plan that are treated as
deferrals subject to the terms and conditions of the PIP Excess Plan.
2.10 Compensation. Four categories of compensation are included as
------------
Compensation for purposes of the Plan: Base Salary, Short-Term Incentive Bonus,
Long-Term Incentive Bonus and Cash Award Payments. Base Salary is the gross
amount of a Participant's base salary that is regularly scheduled to be paid to
the Participant at specified
-2-
<PAGE>
intervals during any Plan Year, including amounts attributable to Base Salary
deferred to this Plan, the Personal Investment Plan, or the PIP Excess Plan
that, absent the election to defer, would have been payable to the Participant
during such Plan Year and including salary reduction amounts excluded from
income under Section 125 of the Code. Base Salary shall also include short-term
disability payments from the Company until the earlier of a Participant's
qualification for long-term disability benefits, Severance, or the end of the
six-month period after the Participant's Disability commences. Short-Term
Incentive Bonus is the amount subject to payment under the terms of the
Company's Management Incentive Plan and Long-Term Incentive Bonus is the amount
subject to payment under the terms of the Company's Long-Term Incentive Plan.
Cash Award Payments are the amount of any compensation payment or award
(hereinafter referred to as an "Award") that is authorized or approved by action
of the Compensation and Options Committee of the Board of Directors for payment
to an individual who is eligible to participate in the Plan, which Award
specifically provides for an election to defer all or part of such Award under
the Terms of the Plan, the Predecessor Plan or the Mattel Executive Deferred
Compensation Plan. Base Salary, Short-Term Incentive Bonuses, Long-Term
Incentive Bonuses and Cash Award Payments are all included in the definition of
Compensation eligible to be deferred under this Plan.
2.11 Deferrals. The amount credited to the Participant's Account
---------
under this Plan to reflect his interest in the Plan attributable to his elective
deferrals of Compensation.
2.12 Disability. Unless otherwise defined in a disability plan or
----------
insurance policy sponsored by the Company and covering the Participant, the
inability of the Participant to perform his usual duties for the Company for an
extended period by reason of mental or physical illness or injury. The
Administrator may rely on the payment of benefits under any such disability plan
or insurance policy as a determination of the Participant's Disability for
purposes of this Plan. If the Participant is not covered by any such disability
plan or insurance policy, the Administrator shall determine the Participant's
Disability after receiving competent medical advice using nondiscriminatory
standards.
2.13 Effective Date. The Effective Date of this Plan shall be
--------------
January 1, 1994. The Effective Date of this amendment and restatement shall be
the date of execution specified at the end hereof.
2.14 Enrollment Form. The form executed by the Company and the
---------------
Participant which sets forth the Participant's Deferral elections and other
specifications of this Plan applicable to the Participant.
2.15 ERISA. The Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, or any successor statute.
2.16 Exchange Act. The Securities Exchange Act of 1934, as amended
------------
from time to time, or any successor statute.
-3-
<PAGE>
2.17 Independent Plan Administrator. A person, persons or entity
------------------------------
which, prior to a Change in Control has accepted in writing the position of
Independent Plan Administrator under the grantor trust agreement established
under Section 6.2 hereof. The appointment of the Independent Plan Administrator
shall be determined under the provisions of the grantor trust agreement
established under Section 6.2 hereof.
2.18 Investment Funds. The mutual funds, insurance policies,
----------------
investment indexes or other measures of performance identified by the
Administrator which shall be used to determine the return increments to be
credited to each Participant's Account. The Investment Funds may be changed by
the Plan Administrator, in its sole discretion, from time to time.
2.19 Late Retirement Date. A Severance after the Normal Retirement
--------------------
Date.
2.20 Normal Retirement Date. The later of the date upon which a
----------------------
Participant attains age 55 and completes five Years of Service.
2.21 Participant. A key management or highly compensated employee
-----------
of the Company or any participating affiliate that is a participating Company as
defined under the Personal Investment Plan who is employed as a Vice-President
or higher employee classification who completes an Enrollment Form and has not
received a complete distribution of the amounts credited to his Account.
2.22 Person. Any individual, entity (including, without limitation,
------
any corporation, partnership, trust, joint venture, association or governmental
body) or group (as defined in (S) 14(d)(3) or (S) 15(d)(2) of the Exchange Act
and the rules and regulations thereunder); provided, however, that Person shall
not include the Company, any of its subsidiaries, or any employee benefit plan
of the Company or any of its majority-owned subsidiaries or any entity
organized, appointed or established by the Company or such subsidiary for or
pursuant to the terms of any such plan.
2.23 Personal Investment Plan. The Mattel, Inc. Personal Investment
------------------------
Plan, as amended from time to time. The Personal Investment Plan is a separate
tax-qualified retirement plan and trust with a cash or deferred feature that
satisfies the requirements of Code Sections 401(a), 401(k) and 501(a).
2.24 PIP Excess Plan. The Mattel, Inc. PIP Excess Plan, as amended
---------------
from time to time. The PIP Excess Plan is a separate unfunded nonqualified
deferred compensation plan.
2.25 Plan. The Mattel, Inc. Deferred Compensation Plan as described
----
herein and in the Enrollment Form entered into between the Company and the
Participant designated therein, as such Plan and Enrollment Form may hereafter
be amended.
-4-
<PAGE>
2.26 Plan Year. The period with respect to which the records of the
---------
Plan are maintained which shall be the twelve consecutive month period ending
December 31.
2.27 Predecessor Plan. The Mattel, Inc. Personal Investment Plan
----------------
Restoration Plan/Executive Deferred Compensation Plan, an unfunded,
nonqualified, deferred compensation plan maintained by the Company prior to the
Effective Date of this Plan.
2.28 Severance. A Participant's voluntary or involuntary
---------
termination of employment with the Company for any reason at any time.
2.29 Transaction. Any merger, consolidation or recapitalization of
-----------
the Company (or, if the capital stock of the Company is affected, any subsidiary
of the Company); or any sale, lease, or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single plan)
of all or substantially all of the assets of the Company.
2.30 Transfer Credits. The amount of deferred compensation credited
----------------
under the Predecessor Plan that is automatically credited to the PIP Excess
Plan, unless prior to the Effective Date, a one-time transitional election is
made to defer such amounts under the terms of this Plan.
2.31 Valuation Date. The last day of each month within the Plan
--------------
Year and such other dates as may be determined by the Administrator for valuing
Participant Accounts.
2.32 Voting Securities. All securities of a corporation having the
-----------------
right under ordinary circumstances to vote in an election of the board of
directors of such corporation.
2.33 Year of Service. A period of service during which the
---------------
Participant is credited with a year of service under the terms of the Personal
Investment Plan.
SECTION 3. PARTICIPATION
3.1 Eligibility. Any management or highly compensated employee
-----------
employed as a Vice-President or higher position classification shall be eligible
to participate upon the execution of an Enrollment Form. For each Plan Year,
the Enrollment Form shall specify the amount of the Participants's Deferral
election. Employees who were participants in the Predecessor Plan also shall be
eligible to participate in this Plan if a transitional election is made prior to
the Effective Date specifying that Transfer Credits are to be credited to the
Participant's Account under this Plan. An eligible employee shall become a
Participant when amounts are credited to his Account.
-5-
<PAGE>
3.2 Deferral Election. Subject to the limitations of Section 3.3
-----------------
hereof, each Participant may elect to defer any amount or percentage of his
Compensation in the manner prescribed by Section 3.3. A separate Deferral
election shall be required for each category of the Participant's Compensation
(Base Salary, Short-Term Incentive Bonus and Long-Term Incentive Bonus) that
would be received (absent the Deferral election) by the Participant during the
Plan Year for which the elections are effective. Any amount of Compensation
deferred hereunder by a Participant shall be allocated to the Participant's
Deferral Subaccount.
3.3 Time and Manner of Election.
---------------------------
(a) Base Salary. When a Participant of the Company first
-----------
becomes eligible to participate in the Plan, he may enter into an Enrollment
Form and make a prospective election to defer Base Salary Compensation at any
time within 30 days after the date on which he becomes eligible. However, such
election must be made prior to the period of service for which the Compensation
subject to the deferral election would otherwise be payable. Any subsequent
deferral election by the Participant must be made not later than 10 days prior
to the beginning of the period of service for which the Base Salary subject to
the deferral election would otherwise be payable. The maximum Deferral election
shall not exceed 90% of Base Salary Compensation. Except as provided in Section
4.2(a), Base Salary Deferral elections made on an Enrollment Form under this
Plan automatically will be credited to the PIP Excess Plan to the extent
required to obtain the maximum Company Matching Credit. Any deferrals that are
automatically credited to the PIP Excess Plan will be subject to the terms and
conditions of the PIP Excess Plan.
(b) Short-Term Incentive Bonuses. A Participant may enter
----------------------------
into an Enrollment Form and elect to defer all or part of any Short-Term
Incentive Bonus. A Short-Term Incentive Bonus Deferral election must be
submitted to the Administrator no later than 10 days prior to the end of the
Plan Year preceding the Plan Year the bonus is required to be paid, or such
earlier date determined by the Plan Administrator.
(c) Long-Term Incentive Bonuses. A Participant may enter into
---------------------------
an Enrollment Form and elect to defer all or part of any Long-Term Incentive
Bonus award. A Long-Term Incentive Bonus Deferral election must be submitted to
the Administrator no later than 10 days prior to the end of the Plan Year
preceding the Plan Year in which any installment of any Long-Term Incentive
Bonus award is required to be paid, or such earlier date determined by the Plan
Administrator.
(d) Cash Award Payments. A Participant may enter into an
-------------------
Enrollment Form and elect to defer all or part of any Cash Award Payments. A
Cash Award Payments Deferral election must be submitted to the Administrator no
later than 10 days prior to the end of the Plan Year preceding the Plan Year in
which any installment of Cash Award Payments is required to be paid, or such
earlier date determined by the Plan Administrator that
-6-
<PAGE>
is prior to the date the Participant would be entitled to payment in the absence
of an election to defer.
(e) Form of Election. An election to defer Compensation must
----------------
be made in writing on an Enrollment Form and must be filed with the Plan
Administrator for each Plan Year. The Enrollment Form must specify the
percentage or dollar amount to be deferred, the period of deferral and the
category of Compensation to be deferred. If an Eligible Employee fails to file
an Enrollment Form with the Plan Administrator by the prescribed time, he will
be deemed to have elected to not defer any Compensation under this Plan. Except
as provided in Section 3.4 of this Plan, a Participant may not, after the
applicable election date specified in (a), (b), (c) or (d) of this Section,
discontinue his election to participate or change the percentage of Compensation
for a Year for which he elects to defer.
3.4 Change of Deferral Election. Unless terminated, as provided
---------------------------
below, the Participant's Deferral election shall continue in effect for the
remainder of the Plan Year for which the Deferral election is made. A
Participant may not increase or decrease his Deferral election for the Plan Year
after the applicable date for making the Deferral elections specified in Section
3.3 (the "applicable date"). However, the Plan Administrator, in its sole
discretion, may provide for a one-time prospective increase or decrease in any
Participant's Base Salary Deferral election for the Plan Year after the
applicable date. A Participant may at any time terminate an election and
discontinue future Deferrals of Compensation under this Plan in any Plan Year by
providing written notice to the Administrator not less than ten days prior to
the start of the next period of service for which Compensation will be payable.
In such event, Compensation earned for services subsequent to such termination
will be paid directly to the Participant and will not be subject to his prior
Deferral election. A Participant who elects to discontinue Deferrals under the
Plan for a Plan Year may not recommence Deferrals under the Plan until the
following Plan Year, at which time a new Enrollment Form must be completed.
3.5 Investment Funds - Election and Change. When a Participant
--------------------------------------
enters into an Election Form to defer Compensation in the manner prescribed by
Section 3.3, the Participant shall specify on the Enrollment Form, in the manner
indicated on the Enrollment Form, the allocation of the Participant's deferred
amounts among the designated Investment Funds. A Participant can elect to
change the Investment Fund allocation of the Participant's Accounts or
subaccounts once each year (including inter-fund transfers of previously
deferred amounts), in the manner and at the time specified by the Administrator;
provided, however, that no part of the amounts previously credited to an
Investment Fund that is a Stock Equivalent Account may be transferred to any
other Investment Fund. Such change, if timely, shall be effective with respect
to amounts deferred for the next period of service for which Compensation will
be payable following the period of service in which such election is received
and thereafter. For purposes of this Section a "Stock Equivalent Account" is an
Investment Fund that is credited with the hypothetical purchase of whole shares
of the Company's common stock, par value $1.00 per share (the "Common Stock").
Any amounts credited or allocated to an Investment Fund that is a Stock
Equivalent Account will be
-7-
<PAGE>
distributed in the form of Common Stock. In no event shall the Company be
required to issue fractional shares in connection with a distribution of a
Participant's Stock Equivalent Account. The value of fractional hypothetical
shares of Common Stock shall be distributed in cash. The Plan Administrator may
determine at any time in its sole discretion that no additional deferred amounts
shall be credited to a Stock Equivalent Account for any Participant. In the
event all Stock Equivalent Accounts are frozen, the Plan Administrator my permit
any affected Participant to change his Investment Fund allocation with respect
to additional deferred amounts.
SECTION 4. ACCOUNTS
4.1 Establishment of Accounts. The Plan Administrator shall open
-------------------------
and maintain an Account for each Participant. Separate records shall be
maintained of each Participant's Base Salary Deferral Subaccount, Short-Term
Incentive Bonus Subaccount, Long-Term Incentive Bonus Subaccount, Cash Award
Payments Subaccount and Transfer Credit Subaccount.
4.2 Accounting for Participant's Interests.
--------------------------------------
(a) Base Salary Deferral Subaccount. Each Participant's Base
-------------------------------
Salary Deferral Subaccount shall be credited with the amounts of Compensation
deferred by the Participant pursuant to the Deferral election specified in his
Enrollment Form. However, amounts of Compensation that the Participant elects to
defer under the Plan will automatically be treated as deferrals that are
credited under and subject to the terms and conditions of the PIP Excess Plan to
the extent required to obtain the maximum Company Matching Credit; provided,
however, that an employee who elects to defer Compensation under the terms of
the Plan may elect on the Enrollment Form that the Compensation deferred under
the Plan, in whole or in part, shall not be treated as deferrals under the PIP
Excess Plan. Deferrals will be credited on the first Valuation Date coincident
with or next following the time such amounts would otherwise be payable to the
Participant. The Base Salary Deferral Subaccount shall also be credited with the
adjustments provided by Section 4.2(f) below.
(b) Short-Term Incentive Bonus Subaccount. On each Valuation
-------------------------------------
Date, the Short-Term Incentive Bonus Subaccount of each Participant shall be
credited with the amount of any Deferrals of Short-Term Incentive Bonus. The
Short-Term Incentive Bonus Subaccount shall also be credited with the
adjustments provided by Section 4.2(f) below.
(c) Long-Term Incentive Bonus Subaccount. On each Valuation
------------------------------------
Date, the Long-Term Incentive Bonus Subaccount of each Participant shall be
credited with the amount of any Deferrals of Long-Term Incentive Bonus. The
Long-Term Incentive Bonus Subaccount shall also be credited with the adjustments
provided by Section 4.2(f) below.
(d) Transfer Credits Subaccount. The Transfer Credits
---------------------------
Subaccount shall be credited with all Transfer Credits attributable to the
amount of any
-8-
<PAGE>
deferred compensation credited under the Predecessor Plan, plus the adjustments
provided by Section 4.2(f) below. Amounts attributable to the Predecessor Plan
shall be treated as Transfer Credits that will become subject to all the terms
and conditions of this Plan, if prior to the Effective Date, a one-time
transitional election is made to defer such amounts under the terms of this Plan
instead of the PIP Excess Plan. Such transitional election shall be made by
executing a form prescribed by the Administrator of the PIP Excess Plan.
(e) Cash Award Payments Subaccount. On each Valuation Date,
------------------------------
the Cash Award Payments Subaccount of each Participant shall be credited with
the amount of any Deferrals of Cash Award Payments. The Cash Award Payments
Subaccount shall also be credited with the adjustments provided by Section
4.2(f) below.
(f) Adjustments to Subaccounts. On each Valuation Date, each
--------------------------
Participant's subaccounts shall be adjusted:
(1) to reflect any gain or loss in the Investment Fund or
Funds in which the Participant's subaccounts are deemed to be invested for the
purpose of determining the returns on the Participant's subaccounts since the
preceding Valuation Date; and
(2) to reflect any deferrals or withdrawals since the
preceding Valuation Date.
4.3 Vesting of a Participant's Account. Except as provided by
----------------------------------
Section 5.2, a Participant's interest in his Account at all times shall be 100%
vested and nonforfeitable.
SECTION 5. BENEFITS
5.1 Distribution of Participant's Account.
-------------------------------------
(a) Distribution at End of Deferral Period or Upon Severance.
--------------------------------------------------------
In the event the deferral period designated on a Participant's Enrollment Form
requires a distribution at a specified time prior to the Participant's
Severance, or if the Participant has a Severance for any reason, including
death, Disability or retirement upon the Participant's Normal Retirement Date or
Late Retirement Date, except as provided in Section 5.1(b), the Plan
Administrator shall pay the Participant the vested amount of his Account under
the Plan. The value of the Participant's Account, as determined as of the
Valuation Date immediately preceding the distribution (as adjusted to reflect
any deferrals or withdrawals since the preceding Valuation Date) shall be paid
by the Company in a lump sum payment no later than March 30 of the Plan Year
following the earlier of the end of the deferral period specified on the
Participant's Enrollment Form (the "scheduled distribution date") or the
Participant's Severance.
-9-
<PAGE>
(b) Distribution Upon Retirement. A Participant who has a
----------------------------
Severance due to retirement upon the Participant's Normal Retirement Date or
Late Retirement Date, shall be entitled to elect a distribution under one of the
following optional forms of distribution:
(1) In a lump sum payment no later than March 30 of the
Plan Year following the Participant's Severance;
(2) In five (5) annual installment payments commencing no
later than March 30 of the Plan Year following the Participant's
Severance; or
(3) In ten (10) annual installment payments commencing no
later than March 30 of the Plan Year following the Participant's
Severance.
For the purpose of determining the amount of any distribution to a Participant,
the value of the Participant's Account or any subaccount therein shall be
determined as of the Valuation Date immediately preceding the distribution (as
adjusted to reflect any deferrals or withdrawals since the preceding Valuation
Date). The amount of any installment distribution shall be determined by
dividing the value of the Participant's Account or any subaccount therein by the
number of remaining installments (including the current installment).
(c) Election of Optional Distribution Forms. The method of
---------------------------------------
retirement distribution under Section 5.1(b) shall be selected by the
Participant on the initial Enrollment Form prescribed by the Administrator. Once
elected, the method of retirement distribution selected by the Participant on
the initial Enrollment Form is irrevocable, except as provided herein. If the
method of retirement distribution selected by the Participant on the initial
Enrollment Form is a lump sum payment described in Section 5.1(b)(1), the
Participant may make a one-time election to change the method of distribution to
an installment method described in Section 5.1(b)(2) or Section 5.1(b)(3). Such
one-time election may be made at any time that is not less than one year prior
to the Participant's Severance due to retirement upon the Participant's Normal
Retirement Date or Late Retirement Date (a "retirement Severance"). An election
made less than one year prior to such retirement Severance shall be void and
shall not have any force or effect. In such event, the Participant's Account
will be distributed as a lump sum payment pursuant to Section 5.1(b)(1). In the
event that a Participant for any reason fails to select a method of distribution
on the initial Enrollment Form, the Participant shall be deemed to have selected
a lump sum payment.
(d) Election of Optional Distribution Dates. Once elected,
---------------------------------------
the timing of distribution to a Participant who selected a Deferral period that
ends prior to the Participant's Severance is irrevocable, except as provided
herein. If the timing of distribution selected by the Participant on the initial
Enrollment Form is a specified period that ends prior to the Participant's
Severance, the Participant may make a one-time election to change the timing of
the distribution to a later date. Such one-time election may be made at any time
that is not less than one year prior to the Participant's scheduled distribution
date. An election
-10-
<PAGE>
made less than one year prior to such scheduled distribution date shall be void
and shall not have any force or effect. In such event, the Participant's Account
will be distributed according to the scheduled distribution date specified on
the initial Enrollment Form or upon his earlier Severance.
5.2 Withdrawals.
-----------
(a) Manner of Making Withdrawals. Upon reasonable notice, a
----------------------------
Participant shall be permitted to withdraw at any time all or a portion of the
amount credited to his Account (less a substantial penalty) by filing a written
request with the Plan Administrator specifying the amount to be withdrawn.
(b) Substantial Penalty. Any withdrawal pursuant to this
-------------------
Section 5.2 shall subject the Participant to a substantial penalty equal to at
least six percent (6%) of the amount of the requested withdrawal. The
Administrator, upon reasonable notice to Participants, may change the penalty
percentage to which withdrawals are subject, provided such penalty shall never
be less than six percent (6%). The amount of any penalty shall be treated as a
forfeiture and shall not be subject to reinstatement. The Company and the
Administrator shall be released from any further liability for the withdrawn
benefit amount and the penalty amount. In addition, a Participant who makes a
withdrawal shall not be eligible to make additional Deferrals or to receive
additional Company credits in this Plan during the Plan Year in which the
withdrawal is made and the next following Plan Year.
(c) Limitations on Withdrawals. The Administrator may
--------------------------
prescribe nondiscriminatory rules and procedures limiting the frequency with
which a Participant may make a withdrawal under the Plan and the minimum amount
a Participant may withdraw on any single occasion.
5.3 Death Benefits. In the event the Participant dies prior to a
--------------
Severance, the Company agrees to pay the amount due under Section 5.1 to the
Participant's designated Beneficiary no later than March 30 of the Plan Year
following the Participant's death. If the Participant dies after Normal
Retirement Date at a time when installment payments have commenced, the
remaining installments will be paid to the Participant's Beneficiary in a lump
sum no later than March 30 of the year following death. For the purpose of
determining the amount of any Death Benefit distribution, the value of the
Participant's Account or any subaccount therein shall be determined as of the
Valuation Date immediately preceding the distribution (as adjusted to reflect
any deferrals or withdrawals since the preceding Valuation Date). Such Death
Benefit shall be payable to the Beneficiary designated by the Participant in a
written Beneficiary designation filed with the Company; or if no designation
shall be in effect at the time of Participant's death or if all designated
Beneficiaries shall have predeceased the Participant, then the Beneficiary shall
be the following (in the priority of the order listed):
(a) The Participant's surviving spouse;
-11-
<PAGE>
(b) The Participant's surviving children, including adopted
children;
(c) The Participant's surviving parents; or
(d) The Participant's estate.
The determination by the Administrator as to which persons, if any, qualify
within the foregoing categories shall be final and conclusive upon all persons.
Written consent of the Participant's spouse is required for the Participant's
initial or subsequent designation of a Beneficiary other than the Participant's
spouse, unless the Participant establishes to the satisfaction of the
Administrator that such written consent cannot be obtained because there is no
spouse, or because the spouse cannot be located. The designation of Beneficiary
and spousal consent shall be made in writing on the Enrollment Form and may be
changed at any time, without regard to the restrictions applicable to the timing
and frequency of Deferral Elections.
5.4 Acceleration of Distributions. The Administrator, in its sole
-----------------------------
discretion, may elect to accelerate payment of any or all Participant Accounts,
without regard to any Participant elections.
SECTION 6. BENEFITS UNFUNDED
6.1 Benefits Unfunded. The benefits provided by this Plan shall be
-----------------
unfunded. All amounts payable under this Plan to the Participant shall be paid
from the general assets of the Company, and nothing contained in this Plan shall
require the Company to set aside or hold in trust any amounts or assets for the
purpose of paying benefits to Participant. This Plan shall create only a
contractual obligation on the part of the Company, and Participant shall have
the status of a general unsecured creditor with respect to the benefit
obligations hereunder or any other obligation of the Company to pay benefits
pursuant hereto. Any funds of the Company available to pay benefits pursuant to
the Plan shall be subject to the claims of general creditors of the Company, and
may be used for any purpose by the Company.
6.2 Grantor Trust. Although the Company is responsible for the
-------------
payment of all benefits under the Plan, the Company may, in its discretion,
contribute funds or assets (including insurance policies on the life of any or
all Participants and securities issued by the Company) to a grantor trust for
the purpose of paying benefits under this Plan. Such trust may be irrevocable,
but assets of the trust shall be subject to the claims of creditors of the
Company or any adopting affiliate. To the extent any benefits provided under
the terms of the Plan are actually paid from the trust, the Company or such
adopting affiliate shall have no further obligation with respect thereto. To
the extent any benefits provided under the terms of the Plan are not paid from
the trust, such benefits shall remain the obligation of and shall be paid
-12-
<PAGE>
by the Company or the adopting affiliate. References to payments by the Company
shall be deemed to include payments by the Company or by an adopting affiliate,
as the context may require. The Participants shall have the status of unsecured
creditors insofar as their legal claim for benefits under the Plan and the
Participants shall have no security interest or preferred claim in or to the
assets of any such grantor trust.
SECTION 7. THE ADMINISTRATOR
7.1 Members. The Administrator shall consist of a committee, an
-------
individual, an entity appointed by the Board of Directors to serve at its
pleasure, or the Company. The Administrator, or any member thereof, shall not
be required to be an employee of the Company. The Administrator may resign by
giving notice, in writing, filed with the Board of Directors. If no
Administrator has been appointed by the Company, or if the person designated as
Administrator by the Company is not serving as such for any reason, the Company
shall be deemed to be the Administrator of the Plan. Notwithstanding the prior
provisions of this Section 7.1, if the Company creates a trust as described in
Section 6.2 hereof, and, if such trust provides for an Independent Plan
Administrator, then, following a Change in Control of the Company, the
Independent Plan Administrator (or any successor Independent Plan Administrator)
under the trust shall serve as Administrator of this Plan, so long as such
entity is serving as Independent Plan Administrator under the trust.
7.2 Action. Action of the Administrator may be taken with or
------
without a meeting; provided, however, that any action shall be taken only upon
the vote or other affirmative expression of a majority of the committee members
qualified to vote with respect to such action. If a member of the committee,
the appointed individual or entity is the Participant subject to the Plan, such
Participant shall not participate in any decision which solely affects the
Participant. The Administrator shall for purposes of administering the Plan
choose a secretary who shall keep minutes of the Administrator's proceedings and
all records and documents pertaining to the administration of this Plan. The
secretary may execute any certificate or any other written direction on behalf
of the Administrator.
7.3 Right and Duties. The Administrator, on behalf of the
----------------
Participants, shall administer the Plan and shall have all powers necessary to
accomplish that purpose, including (but not limited to) the following:
(a) to construe, interpret, and administer this Plan;
(b) to make determinations required by this Plan, and to
maintain records regarding Participants' benefits;
(c) to compute and certify to the Company the amount and kinds
of benefits payable to Participant or Participant's Beneficiaries, and
to determine the time and manner in which such benefits are to be
paid;
-13-
<PAGE>
(d) to authorize all disbursements by the Company pursuant to
this Plan;
(e) to maintain all the necessary records of the administration
of this Plan; and
(f) to make and publish such rules for the regulation of this
Plan as are not inconsistent with the terms hereof.
Any construction, interpretation, determination or application of the Plan
provisions by the Administrator shall be final, conclusive and binding on all
parties. All actions by the Administrator shall be applied in a uniform manner
to similarly situated persons. The Administrator shall have no power to add to,
subtract from or modify the terms of the Plan, or to change or add to any
benefits provided by the Plan, or to waive or fail to apply any requirements of
eligibility for a benefit under the Plan.
7.4 Compensation, Indemnity and Liability. The Administrator shall
-------------------------------------
serve as such without compensation for services hereunder. All expenses of the
Administrator shall be paid by the Company. If the Administrator is a
committee, no member of the committee shall be liable for any act or omission of
any other member of the committee, nor for any act or omission on his own part,
excepting his own willful misconduct or gross negligence. The Company shall
indemnify and hold harmless the Administrator and each member of the committee,
if any, against any and all expenses and liabilities arising out of his
membership on the committee, excepting only expenses and liabilities arising out
of his own willful misconduct or gross negligence. The Company, as a condition
of its indemnification obligation, shall have the right, directly or through its
designated representatives, to assume and control the defense of any action with
respect to which indemnification is required and to consent to the terms of any
settlement.
7.5 Taxes. If the whole or any part of any Participant's benefit
-----
shall become liable for the payment of any estate, inheritance, income,
employment or other tax which the Company is required to pay or withhold, the
Company shall have the full power and authority to withhold and pay such tax out
of any monies or other property in its hand for the benefit of the Participant
whose benefits hereunder are so liable. Prior to making any payment, the
Company may require such releases or other documents from any lawful taxing
authority as it shall deem necessary. To the extent benefits paid hereunder are
wages or compensation, the Company shall be entitled to deduct, withhold and pay
any applicable income or employment taxes from amounts otherwise payable to
Participant hereunder.
-14-
<PAGE>
SECTION 8. CLAIMS PROCEDURE
8.1 Claims for Benefits. If the Participant or Beneficiary
-------------------
(hereunder, "Applicant") does not receive timely payment of any benefits which
Applicant believes are due and payable under the Plan, Applicant may make a
claim for benefits to the Administrator. The claim for benefits must be in
writing and addressed to the Administrator or to the Company. If the claim for
benefits is denied, the Administrator shall notify the Applicant in writing
within 90 days after the Plan Administrator initially received the benefit
claim, unless special circumstances require an extension of time. If such an
extension of time is required, written notice of the extension and the special
circumstances shall be given to the Applicant prior to the termination of the
initial 90-day period. In no event shall such extension exceed a period of 90
days from the end of such initial period. Claims not acted upon within the time
prescribed herein shall be deemed denied for purposes of proceeding to the
review stage. Any notice of a denial of benefits shall advise the Applicant, in
a manner calculated to be understood by the Applicant, of the basis for the
denial, specific reference to pertinent Plan provisions on which the denial is
based, a description of any additional material or information necessary for the
Applicant to perfect his claim and an explanation of why such material or
information is necessary, and the steps which the Applicant must take to have
his claim for benefits reviewed.
8.2 Appeals. Each Applicant whose claim for benefits has been
-------
denied may file a written request for a review of his claim by the
Administrator. The request for review must be filed by the Applicant within 60
days after receipt of the written notice denying the claim. The decision of the
Administrator will be made within 60 days after receipt of a request for review
and shall be communicated in writing to the Applicant. Such written notice
shall set forth the basis for the Administrator's decision. If there are
special circumstances (such as the need to hold a hearing) which require an
extension of time for completing the review, the Administrator's decision shall
be rendered not later than 120 days after receipt of a request for review. If
such an extension of time is required, written notice of the extension and the
special circumstances shall be given to the Applicant prior to the termination
of the initial 60-day period. In no event shall such extension exceed a period
of 60 days from the end of such initial period. The Administrator may designate
a representative to receive, review and decide claims in accordance with Section
8.1 hereof. However, the Administrator will receive, review and decide all
appeals in accordance with this Section 8.2.
SECTION 9. AMENDMENT AND TERMINATION
9.1 Amendments. The Company shall have the right to amend this
----------
Plan in whole or in part from time to time by resolution of the Board of
Directors, and to amend and cancel any amendments; provided, however, that no
action under this Section shall cancel or reduce the amount of the Participant's
previously accrued vested benefits. An amendment shall be in writing and be
adopted by the Board of Directors. The action of the Board of Directors
adopting any amendment may, but is not required to, be evidenced by the
execution
-15-
<PAGE>
of such amendment by a duly authorized officer of the Company. The Participant
shall be bound thereby.
9.2 Discontinuance of Plan. The Company expects to continue this
----------------------
Plan indefinitely, but does not obligate itself to do so. The Company reserves
the right to discontinue and terminate the Plan at any time, for any reason
(including a change, or an impending change, in the tax laws of the United
States or the State of California), by resolution of the Board of Directors. If
the Plan is terminated, the Administrator shall be notified of such action in a
writing executed by a duly authorized officer of the Company, and the Plan shall
be terminated at the time therein set forth. Termination of the Plan shall be
binding on the Participant, but in no event may such termination reduce the
Participant's previously accrued vested benefits. If this Plan is terminated,
the Participant's previously accrued vested benefits shall be paid as soon as
reasonably practicable after the first day of the month following the
termination.
SECTION 10. MISCELLANEOUS
10.1 Limitation on Participant's Rights. This Plan shall not give
----------------------------------
any Participant the right to be retained in the Company's employ or any right or
interest to any assets of the Company other than as herein provided. The
Company reserves the right to terminate the employment of any Participant
without any liability for any claim against the Company except to the extent
provided herein.
10.2 Other Plans. This Plan shall not affect the right of
-----------
Participant to participate in and receive benefits under and in accordance with
the provisions of any other employee benefit plans which are now or hereafter
maintained by the Company, unless the terms of such other employee benefit plan
or plans specifically provide otherwise.
10.3 Receipt, Release or Setoff. Any payment to a Participant in
--------------------------
accordance with the provisions of this Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Administrator and the Company, and
the Administrator may require such Participant, as a condition precedent to such
payment, to execute a receipt and release to such effect. Amounts owed to the
Company by any Participant may be setoff from the benefits distributed under
this Plan, provided the Administrator designates the amount and description of
the setoff amounts and any such setoff shall be treated as a distribution that
satisfies the corresponding distribution obligation under this Plan.
10.4 Governing Law. Except to the extent preempted by ERISA, this
-------------
Plan shall be construed, administered, and governed in all respects in
accordance with the laws of the State of California. If any provisions of this
instrument shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully
effective.
-16-
<PAGE>
10.5 Gender, Tense, and Headings. In this Plan, whenever the
---------------------------
context so indicates, the singular or plural number and the masculine, feminine,
or neuter gender shall be deemed to include the other. Headings and subheadings
in this Plan are inserted for convenience of reference only and are not
considered in the construction of the provisions hereof.
10.6 Successors and Assigns. This Plan shall inure to the benefit
----------------------
of, and be binding upon, the parties hereto and their successors and assigns;
provided, however, subject to the provisions of applicable law regarding
domestic relations orders, that the benefits hereunder shall not be assignable
or transferable and, except as provided by Section 7.5, any purported transfer,
assignment, encumbrance, or attachment thereof shall be void and of no effect.
In the event of a dispute involving any individual's right to receive the
benefit hereunder, the Administrator or the Company may enter an interpleader
action. Payment of the benefit to a court of competent jurisdiction with proper
notice to the appropriate parties in dispute shall be in full satisfaction of
all claims against the Administrator and the Company as to the Plan, and shall
be equivalent to a receipt and release pursuant to Section 10.3.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer.
MATTEL, INC.
Dated: August 17, 1998 By: /s/ Alan Kaye
_________________ __________________________
-17-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>6
<DESCRIPTION>MATTEL, INC. PIP EXCESS PLAN
<TEXT>
<PAGE>
EXHIBIT 10.18
MATTEL, INC.
PIP EXCESS PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. GENERAL.................................................... 1
1.1. Purpose.................................................. 1
1.2. Enrollment Form.......................................... 1
SECTION 2. DEFINITIONS................................................ 1
2.1. Account.................................................. 1
2.2. Administrator............................................ 1
2.3. Applicable Limitations................................... 1
2.4. Beneficiary............................................. 1
2.5. Board of Directors...................................... 1
2.6. Change in Control....................................... 2
2.7. Code.................................................... 2
2.8. Combined Voting Power................................... 2
2.9. Company................................................. 2
2.10. Company Automatic Credits............................... 3
2.11. Company Matching Credits................................ 3
2.12. Compensation............................................ 3
2.13. Deferrals............................................... 3
2.14. Deferred Compensation Plan.............................. 3
2.15. Disability.............................................. 3
2.16. Effective Date.......................................... 3
2.17. Enrollment Form......................................... 3
2.18. ERISA................................................... 3
2.19. Exchange Act............................................ 4
2.20. Independent Plan Administrator.......................... 4
2.21. Investment Funds........................................ 4
2.22. Late Retirement Date.................................... 4
2.23. Normal Retirement Date.................................. 4
2.24. Participant............................................. 4
2.25. Person.................................................. 4
2.26. Personal Investment Plan................................ 4
2.27. Plan.................................................... 4
2.28. Plan Year............................................... 5
2.29. Predecessor Plan........................................ 5
2.30. Severance............................................... 5
2.31. Transaction............................................. 5
2.32. Transfer Credits........................................ 5
2.33. Valuation Date.......................................... 5
2.34. Voting Securities....................................... 5
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
2.35. Year of Service......................................... 5
SECTION 3. PARTICIPATION.............................................. 5
3.1. Eligibility............................................. 5
3.2. Deferral Election....................................... 6
3.3. Time and Manner of Election............................. 6
3.4. Change of Election...................................... 6
3.5. Investment Funds - Election and Change.................. 6
SECTION 4. ACCOUNTS................................................... 7
4.1. Establishment of Accounts............................... 7
4.2. Accounting for Participant's Interests.................. 7
(a) Deferral Subaccount................................ 7
(b) Company Automatic Credits Subaccount............... 7
(c) Company Matching Credits Subaccount................ 8
(d) Transfer Credits Subaccount........................ 8
(e) Adjustments to Subaccounts......................... 9
4.3. Vesting of a Participant's Account...................... 9
SECTION 5. BENEFITS................................................... 9
5.1. Distribution of Participant's Account................... 9
(a) Distribution Upon Severance........................ 9
(b) Distribution Upon Retirement....................... 9
(c) Election of Optional Distribution Forms............ 10
5.2. Withdrawals............................................. 10
(a) Manner of Making Withdrawals....................... 10
(b) Substantial Penalty................................ 10
(c) Limitations on Withdrawals......................... 10
5.3. Death Benefits.......................................... 10
5.4. Acceleration of Distributions........................... 11
SECTION 6. BENEFITS UNFUNDED.......................................... 11
6.1. Benefits Unfunded....................................... 11
6.2. Grantor Trust........................................... 12
SECTION 7. THE ADMINISTRATOR.......................................... 12
7.1. Members................................................. 12
7.2. Action.................................................. 12
7.3. Right and Duties........................................ 12
7.4. Compensation, Indemnity and Liability................... 13
7.5. Taxes................................................... 13
SECTION 8. CLAIMS PROCEDURE........................................... 13
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
8.1. Claims for Benefits..................................... 13
8.2. Appeals................................................. 14
SECTION 9. AMENDMENT AND TERMINATION.................................. 14
9.1. Amendments.............................................. 14
9.2. Discontinuance of Plan.................................. 14
SECTION 10. MISCELLANEOUS............................................. 14
10.1. Limitation on Participant's Rights...................... 14
10.2. Other Plans............................................. 14
10.3. Receipt or Release...................................... 15
10.4. Governing Law........................................... 15
10.5. Gender, Tense, and Headings............................. 15
10.6. Successors and Assigns.................................. 15
</TABLE>
-iii-
<PAGE>
MATTEL, INC.
PIP EXCESS PLAN
SECTION 1. GENERAL
1.1 Purpose. Mattel, Inc., a Delaware corporation, hereby adopts
-------
the deferred compensation plan set forth below to provide Participants with a
vehicle to make deferrals and provide benefits for their retirement in excess of
the Applicable Limitations under the Code applicable to the Personal Investment
Plan (as defined below). This Plan and the related Enrollment Form are intended
to be an unfunded arrangement maintained by the Employer primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees within the meaning of Sections 201, 301 and 401 of
ERISA.
1.2 Enrollment Form. The specifications of this Plan that apply to
---------------
any Participant are contained in a separate Enrollment Form executed by the
Company and the Participant. The Enrollment Form constitutes a part of this
Plan and its terms are incorporated into the Plan.
SECTION 2. DEFINITIONS
2.1 Account. The record maintained by the Administrator to
-------
determine each Participant's interest under this Plan. Such Account shall be
reflected as a book reserve entry in the Company's accounting records. Each
Participant's Account shall consist of a Participant Deferral Subaccount, a
Company Automatic Credit Subaccount, a Company Matching Credit Subaccount and a
Transfer Credit Subaccount. Each subaccount may be allocated among designated
Investment Funds offered by the Administrator.
2.2 Administrator. The person, persons or entity appointed by the
-------------
Board of Directors pursuant to Article 7 to manage and administer the Plan.
2.3 Applicable Limitations. The provisions of Code Sections
----------------------
415(c), 401(a)(17), 401(k)(3) and 401(m) that limit the amount of deferrals and
contributions that can be allocated to accounts of participants under the
Personal Investment Plan.
2.4 Beneficiary. The person or persons (natural or otherwise)
-----------
designated by a Participant in accordance with Section 5.3 to receive any
undistributed benefits under the Plan at the time of the Participant's death.
2.5 Board of Directors. The Board of Directors of the Company.
------------------
<PAGE>
2.6 Change in Control. A "Change in Control" shall be deemed to
-----------------
have occurred on:
(a) The "Distribution Date" as that term is defined in Section 1(h)
of the Company's Rights Agreement dated February 7, 1992, as it may be amended
from time to time. The definition of "Distribution Date" contained in the
Company's Rights Agreement shall continue to apply, notwithstanding the
expiration or termination of that agreement; or
(b) The date (during any period of two consecutive calendar years)
that individuals who at the beginning of such period constituted the Company's
Board of Directors cease for any reason (other than natural causes, including
death, disability or retirement) to constitute a majority thereof; or
(c) The date the stockholders of the Company approve:
(1) A plan of complete liquidation of the Company;
(2) An agreement for the sale or disposition of all or
substantially all of the assets of the Company; or
(3) A merger, consolidation, or reorganization of the Company with
or involving any other corporation, other than a merger, consolidation, or
reorganization that would result in the voting stock of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting stock of the surviving entity) at
least eighty percent (80%) of the combined voting power of the stock that is
outstanding immediately after the merger, consolidation, or reorganization,
unless the Board of Directors of the Company determines by a majority vote prior
to the merger, consolidation, or reorganization that no Change in Control will
occur as a result of such transaction; or
(d) The date a "Change in Control" occurs within the meaning of the
term defined in the grantor trust agreement established under Section 6.2
hereof.
2.7 Code. The Internal Revenue Code of 1986, as amended from time
----
to time, or any successor statute.
2.8 Combined Voting Power. The aggregate votes entitled to be cast
---------------------
generally in the election of directors of a corporation by holders of then
outstanding Voting Securities of such corporation.
2.9 Company. Mattel, Inc., a Delaware corporation.
-------
-2-
<PAGE>
2.10 Company Automatic Credits. The amount credited to the
-------------------------
Participant's Account by the Company pursuant to the terms of Section 4.2(b)
without regard to the Participant's Deferrals.
2.11 Company Matching Credits. The amount credited to the
------------------------
Participant's Account by the Company pursuant to Section 4.2(c), based on the
amount of the Participant's Deferrals under this Plan.
2.12 Compensation. The gross amount of a Participant's base salary
------------
that is regularly scheduled to be paid to the Participant at specified intervals
during any Plan Year, including amounts attributable to base salary deferred to
this Plan, the Personal Investment Plan, or the Deferred Compensation Plan that,
absent the election to defer, would have been payable to the Participant during
such Plan Year and including salary reduction amounts excluded from income under
Sections 125 and 129 of the Code. Compensation shall also include short-term
disability payments from the Company until the earlier of a Participant's
qualification for long-term disability benefits, Severance, or the end of the
six-month period after the Participant's Disability commences. Short-term and
long-term incentive bonuses are excluded from the definition of Compensation.
2.13 Deferrals. The amount credited to the Participant's Account to
---------
reflect his interest in the Plan attributable to his elective deferrals of
Compensation.
2.14 Deferred Compensation Plan. The Mattel, Inc. Deferred
--------------------------
Compensation Plan, as amended from time to time. The Deferred Compensation Plan
is a separate unfunded nonqualified deferred compensation plan.
2.15 Disability. Unless otherwise defined in a disability plan or
----------
insurance policy sponsored by the Company and covering the Participant, the
inability of the Participant to perform his usual duties for the Company for an
extended period by reason of mental or physical illness or injury. The
Administrator may rely on the payment of benefits under any such disability plan
or insurance policy as a determination of the Participant's Disability for
purposes of this Plan. If the Participant is not covered by any such disability
plan or insurance policy, the Administrator shall determine the Participant's
Disability after receiving competent medical advice using nondiscriminatory
standards.
2.16 Effective Date. The Effective Date of this Plan shall be
--------------
January 1, 1994.
2.17 Enrollment Form. The form executed by the Company and the
---------------
Participant which sets forth the Participant's Deferral elections and other
specifications of this Plan applicable to the Participant.
2.18 ERISA. The Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, or any successor statute.
-3-
<PAGE>
2.19 Exchange Act. The Securities Exchange Act of 1934, as amended
------------
from time to time, or any successor statute.
2.20 Independent Plan Administrator. A person, persons or entity
------------------------------
which, prior to a Change in Control has accepted in writing the position of
Independent Plan Administrator under the grantor trust agreement established
under Section 6.2 hereof. The appointment of the Independent Plan Administrator
shall be determined under the provisions of the grantor trust agreement
established under Section 6.2 hereof.
2.21 Investment Funds. The mutual funds, insurance policies,
----------------
investment indexes or other measures of performance identified by the
Administrator which shall be used to determine the return increments to be
credited to each Participant's Account. The Investment Funds may be changed by
the Plan Administrator, in its sole discretion, from time to time.
2.22 Late Retirement Date. A Severance after the Normal Retirement
--------------------
Date.
2.23 Normal Retirement Date. The later of the date upon which a
----------------------
Participant attains age 55 and completes five Years of Service.
2.24 Participant. A key management or highly compensated employee
-----------
of the Company or any participating affiliate that is a participating company as
defined under the Personal Investment Plan who is employed as a Vice-President
or higher employee classification who either completes an Enrollment Form or is
credited with allocations to his Account and has not received a complete
distribution of the amounts credited to his Account.
2.25 Person. Any individual, entity (including, without limitation,
------
any corporation, partnership, trust, joint venture, association or governmental
body) or group (as defined in (S) 14(d)(3) or (S) 15(d)(2) of the Exchange Act
and the rules and regulations thereunder); provided, however, that Person shall
not include the Company, any of its subsidiaries, or any employee benefit plan
of the Company or any of its majority-owned subsidiaries or any entity
organized, appointed or established by the Company or such subsidiary for or
pursuant to the terms of any such plan.
2.26 Personal Investment Plan. The Mattel, Inc. Personal Investment
------------------------
Plan, as amended from time to time. The Personal Investment Plan is a separate
tax-qualified retirement plan and trust with a cash or deferred feature that
satisfies the requirements of Code Sections 401(a), 401(k) and 501(a).
2.27 Plan. The Mattel, Inc. PIP Excess Plan as described herein and
----
in the Enrollment Form entered into between the Company and the Participant
designated therein, as such Plan and Enrollment Form may hereafter be amended.
-4-
<PAGE>
2.28 Plan Year. The period with respect to which the records of the
---------
Plan are maintained which shall be the twelve consecutive month period ending
December 31.
2.29 Predecessor Plan. The Mattel, Inc. Personal Investment Plan
----------------
Restoration Plan/Executive Deferred Compensation Plan, an unfunded,
nonqualified, deferred compensation plan maintained by the Company prior to the
Effective Date of this Plan.
2.30 Severance. A Participant's voluntary or involuntary
---------
termination of employment with the Company for any reason at any time.
2.31 Transaction. Any merger, consolidation or recapitalization of
-----------
the Company (or, if the capital stock of the Company is affected, any subsidiary
of the Company); or any sale, lease, or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single plan)
of all or substantially all of the assets of the Company.
2.32 Transfer Credits. The amount of deferred compensation credited
----------------
under the Predecessor Plan that is automatically credited to this Plan, unless
prior to the Effective Date, a one-time transitional election is made to defer
such amounts under the terms of the Deferred Compensation Plan.
2.33 Valuation Date. The last day of each month within the Plan
--------------
Year and such other dates as may be determined by the Administrator for valuing
Participant Accounts.
2.34 Voting Securities. All securities of a corporation having the
-----------------
right under ordinary circumstances to vote in an election of the board of
directors of such corporation.
2.35 Year of Service. A period of service during which the
---------------
Participant is credited with a year of service under the terms of the Personal
Investment Plan.
SECTION 3. PARTICIPATION
3.1 Eligibility. Any management or highly compensated employee
-----------
employed as a Vice-President or higher position classification shall be eligible
to participate upon the execution of an Enrollment Form under this Plan or the
Deferred Compensation Plan. For each Plan Year, the Enrollment Form shall
specify the amount of the Participants's Deferral election. Employees who were
participants in the Predecessor Plan also shall be eligible to participate in
this Plan if Transfer Credits are credited to the Participant's Account under
this Plan. An eligible employee shall become a Participant when amounts are
credited to his Account.
-5-
<PAGE>
3.2 Deferral Election. Each Participant may elect to defer any
-----------------
amount or percentage of his Compensation, up to a maximum of 15% of
Compensation, in the manner prescribed by Section 3.3. The Deferral election
shall apply to each item of Compensation that cannot be deferred to the Personal
Investment Plan because of Applicable Limitations under the Code and that would
be received (absent the Deferral election) by the Participant during the Plan
Year for which the election is effective. Any amount of Compensation deferred
hereunder by a Participant shall be allocated to the Participant's Deferral
Subaccount.
3.3 Time and Manner of Election. When a Participant of the Company
---------------------------
first becomes eligible to participate in the Plan, he may enter into an
Enrollment Form and make a prospective election to defer Compensation at any
time within 30 days after the date on which he becomes eligible. However, such
election must be made prior to the period of service for which the Compensation
subject to the deferral election would otherwise be payable. Any subsequent
deferral election by the Participant must be made not later than 10 days prior
to the beginning of the Plan Year for which the Compensation subject to the
deferral election would otherwise be payable. An election to defer Compensation
must be made in writing on an Enrollment Form and must be filed with the Plan
Administrator. The Enrollment Form must specify the percentage or dollar amount
of Compensation to be deferred. If an Eligible Employee fails to file an
Enrollment Form with the Plan Administrator by the prescribed time, he will be
deemed to have elected to not defer any Compensation under this Plan. Except as
provided in Section 3.4 of this Plan, a Participant may not discontinue his
election to participate or change the percentage of Compensation for a Year for
which he elects to defer after the applicable date for making elections
specified herein.
3.4 Change of Election. Upon written notice to the Administrator
------------------
delivered not less than ten days prior to the beginning of the period of service
in which the Participant's Compensation cannot be deferred to the Personal
Investment Plan because of Applicable Limitations under the Code, a Participant
may increase, decrease, or discontinue his existing Deferral election for the
Plan Year. Absent any such election change, the Participant's existing Deferral
election shall continue in effect for subsequent Plan Years. In addition, a
Participant may at any time terminate an election and discontinue future
Deferrals of Compensation under this Plan in a Plan Year by providing written
notice to the Administrator not less than ten days prior to the start of the
next period of service for which Compensation will be payable. In such event,
Compensation earned for services subsequent to such termination will be paid
directly to the Participant and will not be subject to his prior Deferral
election. A Participant who elects to discontinue Deferrals under the Plan for
a Plan Year may not recommence Deferrals under the Plan until the following Plan
Year, at which time a new Enrollment Form must be completed.
3.5 Investment Funds - Election and Change. When a Participant
--------------------------------------
enters into an Election Form to defer Compensation in the manner prescribed by
Section 3.3, the Participant shall specify on the Enrollment Form, in the manner
indicated on the Enrollment Form, the allocation of the Participant's deferred
amounts among the designated Investment
-6-
<PAGE>
Funds. A Participant can elect to change the Investment Fund allocation of the
Participant's Accounts or subaccounts once each year (including inter-fund
transfers of previously deferred amounts), in the manner and at the time
specified by the Administrator; provided, however, that no part of the amounts
previously credited to an Investment Fund that is a Stock Equivalent Account may
be transferred to any other Investment Fund. Such change, if timely, shall be
effective with respect to amounts deferred for the next period of service for
which Compensation will be payable following the period of service in which such
election is received and thereafter. For purposes of this Section a "Stock
Equivalent Account" is an Investment Fund that is credited with the hypothetical
purchase of whole shares of the Company's common stock, par value $1.00 per
share (the "Common Stock"). Any amounts credited or allocated to an Investment
Fund that is a Stock Equivalent Account will be distributed in the form of
Common Stock. In no event shall the Company be required to issue fractional
shares in connection with a distribution of a Participant's Stock Equivalent
Account. The value of fractional hypothetical shares of Common Stock shall be
distributed in cash. The Plan Administrator may determine at any time in its
sole discretion that no additional deferred amounts shall be credited to a Stock
Equivalent Account for any Participant. In the event all Stock Equivalent
Accounts are frozen, the Plan Administrator my permit any affected Participant
to change his Investment Fund allocation with respect to additional deferred
amounts.
SECTION 4. ACCOUNTS
4.1 Establishment of Accounts. The Plan Administrator shall open
-------------------------
and maintain an Account for each Participant. Separate records shall be
maintained of each Participant's Deferral Subaccount, Company Automatic Credits
Subaccount, Company Matching Credits Subaccount and Transfer Credit Subaccount.
4.2 Accounting for Participant's Interests.
--------------------------------------
(a) Deferral Subaccount. Each Participant's Deferral Subaccount shall
-------------------
be credited with the amounts of Compensation deferred by the Participant
pursuant to the Deferral election specified in his Enrollment Form. In
addition, amounts of Compensation that the Participant elects to defer under the
Deferred Compensation Plan will automatically be treated as Deferrals that are
credited under and subject to the terms and conditions of this Plan to the
extent required to obtain the maximum Company Matching Credit under Section
4.2(c); provided, however, that an employee who elects to defer Compensation
under the terms of the Deferred Compensation Plan may elect, according to the
terms of the Deferred Compensation Plan, that the Compensation deferred under
the Deferred Compensation Plan, in whole or in part, shall not be treated as
Deferrals under this Plan. Deferrals will be credited at the time such amounts
would otherwise be payable to the Participant. The Deferral Subaccount shall
also be credited with the adjustments provided by Section 4.2(e) below.
-7-
<PAGE>
(b) Company Automatic Credits Subaccount. On each Valuation Date, the
------------------------------------
Company Automatic Credits Subaccount of each Participant shall be credited with
the Company Automatic Credit amount. The Company Automatic Credit amount shall
be determined by subtracting the amount of the Company contribution allocated to
the Participant's Company contribution account under the Personal Investment
Plan from the amount determined under the following schedule, according to the
Participant's attained age as of the preceding Valuation Date, as follows:
Participant's Age at Percentage of
Last Valuation Date Compensation
------------------- ------------
20 1/2 but less than 30 years 3%
30 but less than 40 years 4%
40 but less than 45 years 5%
45 but less than 50 years 6%
50 but less than 50 years 7%
55 years and older 8%
The maximum Company Automatic Credit pursuant to this Section 4.2(b) shall be an
amount determined by the schedule above, reduced by Company contributions
allocated to the Participant's Company contribution account under the Personal
Investment Plan. The Company Automatic Credits Subaccount shall also be
credited with the adjustments provided by Section 4.2(e) below.
(c) Company Matching Credits Subaccount. On each Valuation Date, the
-----------------------------------
Company Matching Credits Subaccount of each Participant shall be credited with
the Company Matching Credit amount determined by subtracting the amount of the
Company matching contributions allocated to the Participant's Company matching
account under the Personal Investment Plan from the amount which is the sum of
the amounts in (1) and (2) below:
(1) An amount equal to 100% of Deferrals equal to the first
two percent (2%) of Compensation.
(2) An amount equal to 50% of Deferrals equal to the next
four percent (4%) of Compensation.
The maximum Company Matching Credit pursuant to this Section 4.2(c) shall be an
amount equal to the sum of amounts in (1) and (2) above reduced by the Company
matching contributions allocated to the Participant's Company matching account
under the Personal Investment Plan. The Company Matching Credit Subaccount
shall also be credited with the adjustments provided by Section 4.2(e) below.
-8-
<PAGE>
(d) Transfer Credits Subaccount. The Transfer Credits Subaccount shall
---------------------------
be credited with all Transfer Credits attributable to the amount of any deferred
compensation credited under the Predecessor Plan, plus the adjustments provided
by Section 4.2(e) below. Amounts attributable to the Predecessor Plan shall be
treated as Transfer Credits that will become subject to all the terms and
conditions of this Plan, unless prior to the Effective Date, a one-time
transitional election is made to defer such amounts under the terms of the
Deferred Compensation Plan. Such transitional election shall be made by
executing a form prescribed by the Administrator.
(e) Adjustments to Subaccounts. On each Valuation Date, each
--------------------------
Participant's designated Investment Fund subaccounts shall be increased (or
decreased) by an amount equal to the product of (1) the applicable rate of
return of the designated Investment Funds and (2) the amount in the
Participant's Accounts attributable to each designated Investment Fund
subaccount as of the immediately preceding Valuation Date, reduced by any
distributions therefrom.
4.3 Vesting of a Participant's Account. Except as provided by
----------------------------------
Section 5.2, a Participant's interest in his Account at all times shall be 100%
vested and nonforfeitable.
SECTION 5. BENEFITS
5.1 Distribution of Participant's Account.
-------------------------------------
(a) Distribution Upon Severance. In the event the Participant has a
---------------------------
Severance for any reason, including death, Disability or retirement upon the
Participant's Normal Retirement Date or Late Retirement Date, except as provided
in Section 5.1(b), the Plan Administrator shall pay the Participant the vested
amount of his Account under the Plan. The value of the Participant's Account
shall be paid by the Company in a lump sum payment no later than March 30 of the
Plan Year following the Participant's Severance.
(b) Distribution Upon Retirement. A Participant who has a Severance
----------------------------
due to retirement upon the Participant's Normal Retirement Date or Late
Retirement Date, shall be entitled to elect a distribution under one of the
following optional forms of distribution:
(1) In a lump sum payment no later than March 30 of the
Plan Year following the Participant's Severance;
(2) In five (5) substantially equal annual installment
payments commencing no later than March 30 of the Plan Year following the
Participant's Severance; or
-9-
<PAGE>
(3) In ten (10) substantially equal annual installment
payments commencing no later than March 30 of the Plan Year following the
Participant's Severance.
(c) Election of Optional Distribution Forms. The method of retirement
---------------------------------------
distribution under Section 5.1(b) shall be selected by the Participant on the
initial Enrollment Form prescribed by the Administrator. Once elected, the
method of retirement distribution selected by the Participant on the initial
Enrollment Form is irrevocable, except as provided herein. If the method of
retirement distribution selected by the Participant on the initial Enrollment
Form is a lump sum payment described in Section 5.1(b)(1), the Participant may
make a one-time election to change the method of distribution to an installment
method described in Section 5.1(b)(2) or Section 5.1(b)(3). Such one-time
election may be made at any time that is not less than one year prior to the
Participant's Severance due to retirement upon the Participant's Normal
Retirement Date or Late Retirement Date (a "retirement Severance"). An election
made less than one year prior to such retirement Severance shall be void and
shall not have any force or effect. In such event, the Participant's Account
will be distributed as a lump sum payment pursuant to Section 5.1(b)(1). In the
event that a Participant for any reason fails to select a method of distribution
on the initial Enrollment Form, the Participant shall be deemed to have selected
a lump sum payment.
5.2 Withdrawals.
-----------
(a) Manner of Making Withdrawals. Upon reasonable notice, a
----------------------------
Participant shall be permitted to withdraw at any time all or a portion of the
amount credited to his Account (less a substantial penalty) by filing a written
request with the Plan Administrator specifying the amount to be withdrawn.
(b) Substantial Penalty. Any withdrawal pursuant to this Section 5.2
-------------------
shall subject the Participant to a substantial penalty equal to at least six
percent (6%) of the amount of the requested withdrawal. The Administrator, upon
reasonable notice to Participants, may change the penalty percentage to which
withdrawals are subject, provided such penalty shall never be less than six
percent (6%). The amount of any penalty shall be treated as a forfeiture and
shall not be subject to reinstatement. The Company and the Administrator shall
be released from any further liability for the withdrawn benefit amount and the
penalty amount. In addition, a Participant who makes a withdrawal shall not be
eligible to make additional Deferrals or to receive additional Company credits
in this Plan during the Plan Year in which the withdrawal is made and the next
following Plan Year.
(c) Limitations on Withdrawals. The Administrator may prescribe
--------------------------
nondiscriminatory rules and procedures limiting the frequency with which a
Participant may make a withdrawal under the Plan and the minimum amount a
Participant may withdraw on any single occasion.
5.3 Death Benefits. In the event the Participant dies prior to a
--------------
Severance, the Company agrees to pay the amount due under Section 5.1 to the
Participant's designated
-10-
<PAGE>
Beneficiary no later than March 30 of the Plan Year following the Participant's
death. If the Participant dies after Normal Retirement Date at a time when
installment payments have commenced, the remaining installments will be paid to
the Participant's Beneficiary in a lump sum no later than March 30 of the year
following death. Such Death Benefit shall be payable to the Beneficiary
designated by the Participant in a written Beneficiary designation filed with
the Company; or if no designation shall be in effect at the time of
Participant's death or if all designated Beneficiaries shall have predeceased
the Participant, then the Beneficiary shall be the following (in the priority of
the order listed):
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted
children;
(c) The Participant's surviving parents; or
(d) The Participant's estate.
The determination by the Administrator as to which persons, if any, qualify
within the foregoing categories shall be final and conclusive upon all persons.
Written consent of the Participant's spouse is required for the Participant's
initial or subsequent designation of a Beneficiary other than the Participant's
spouse, unless the Participant establishes to the satisfaction of the
Administrator that such written consent cannot be obtained because there is no
spouse, or because the spouse cannot be located. The designation of Beneficiary
and spousal consent shall be made in writing on the Enrollment Form and may be
changed at any time, without regard to the restrictions applicable to the timing
and frequency of Deferral Elections.
5.4 Acceleration of Distributions. If as a result of a failure by
-----------------------------
the Company to satisfy the terms of any covenant in one or more of its bank loan
agreements, any lender exercises a right to accelerate any bank loan outstanding
to the Company, the Administrator, in its sole discretion, may elect to
accelerate payment of any or all Participant Accounts, without regard to any
Participant elections.
SECTION 6. BENEFITS UNFUNDED
6.1 Benefits Unfunded. The benefits provided by this Plan shall be
-----------------
unfunded. All amounts payable under this Plan to the Participant shall be paid
from the general assets of the Company, and nothing contained in this Plan shall
require the Company to set aside or hold in trust any amounts or assets for the
purpose of paying benefits to Participant. This Plan shall create only a
contractual obligation on the part of the Company, and Participant shall have
the status of a general unsecured creditor with respect to the benefit
obligations hereunder or any other obligation of the Company to pay benefits
pursuant hereto. Any funds of the Company available to pay benefits pursuant to
the Plan shall be subject to the
-11-
<PAGE>
claims of general creditors of the Company, and may be used for any purpose by
the Company.
6.2 Grantor Trust. Although the Company is responsible for the
-------------
payment of all benefits under the Plan, the Company may, in its discretion,
contribute funds or assets (including insurance policies on the life of any or
all Participants and securities issued by the Company) to a grantor trust for
the purpose of paying benefits under this Plan. Such trust may be irrevocable,
but assets of the trust shall be subject to the claims of creditors of the
Company or any adopting affiliate. To the extent any benefits provided under
the terms of the Plan are actually paid from the trust, the Company or such
adopting affiliate shall have no further obligation with respect thereto. To
the extent any benefits provided under the terms of the Plan are not paid from
the trust, such benefits shall remain the obligation of and shall be paid by the
Company or the adopting affiliate. References to payments by the Company shall
be deemed to include payments by the Company or by an adopting affiliate, as the
context may require. The Participants shall have the status of unsecured
creditors insofar as their legal claim for benefits under the Plan and the
Participants shall have no security interest or preferred claim in or to the
assets of any such grantor trust.
SECTION 7. THE ADMINISTRATOR
7.1 Members. The Administrator shall consist of a committee, an
-------
individual, an entity appointed by the Board of Directors to serve at its
pleasure, or the Company. The Administrator, or any member thereof, shall not
be required to be employees of the Company. The Administrator may resign by
giving notice, in writing, filed with the Board of Directors. If no
Administrator has been appointed by the Company, or if the person designated as
Administrator by the Company is not serving as such for any reason, the Company
shall be deemed to be the Administrator of the Plan.
7.2 Action. Action of the Administrator may be taken with or
------
without a meeting; provided, however, that any action shall be taken only upon
the vote or other affirmative expression of a majority of the committee members
qualified to vote with respect to such action. If a member of the committee,
the appointed individual or entity is the Participant subject to the Plan, such
Participant shall not participate in any decision which solely affects the
Participant. The Administrator shall for purposes of administering the Plan
choose a secretary who shall keep minutes of the Administrator's proceedings and
all records and documents pertaining to the administration of this Plan. The
secretary may execute any certificate or any other written direction on behalf
of the Administrator.
7.3 Right and Duties. The Administrator, on behalf of the
----------------
Participants, shall administer the Plan and shall have all powers necessary to
accomplish that purpose, including (but not limited to) the following:
(a) to construe, interpret, and administer this Plan;
-12-
<PAGE>
(b) to make determinations required by this Plan, and to
maintain records regarding Participants' benefits;
(c) to compute and certify to the Company the amount and kinds
of benefits payable to Participant or Participant's Beneficiaries, and
to determine the time and manner in which such benefits are to be
paid;
(d) to authorize all disbursements by the Company pursuant to
this Plan;
(e) to maintain all the necessary records of the administration
of this Plan; and
(f) to make and publish such rules for the regulation of this
Plan as are not inconsistent with the terms hereof.
7.4. Compensation, Indemnity and Liability. The Administrator shall
-------------------------------------
serve as such without bond and without compensation for services hereunder. All
expenses of the Administrator shall be paid by the Company. If the
Administrator is a committee, no member of the committee shall be liable for any
act or omission of any other member of the committee, nor for any act or
omission on his own part, excepting his own willful misconduct or gross
negligence. The Company shall indemnify and hold harmless the Administrator and
each member of the committee, if any, against any and all expenses and
liabilities arising out of his membership on the committee, excepting only
expenses and liabilities arising out of his own willful misconduct or gross
negligence.
7.5. Taxes. If the whole or any part of any Participant's benefit
-----
shall become liable for the payment of any estate, inheritance, income,
employment or other tax which the Company is required to pay or withhold, the
Company shall have the full power and authority to withhold and pay such tax out
of any monies or other property in its hand for the benefit of the Participant
whose benefits hereunder are so liable. Prior to making any payment, the
Company may require such releases or other documents from any lawful taxing
authority as it shall deem necessary. To the extent benefits paid hereunder are
wages or compensation, the Company shall be entitled to deduct, withhold and pay
any applicable income or employment taxes from amounts otherwise payable to
Participant hereunder.
SECTION 8. CLAIMS PROCEDURE
8.1. Claims for Benefits. If the Participant or Beneficiary
-------------------
(hereunder, "Applicant") does not receive timely payment of any benefits which
Applicant believes are due and payable under the Plan, Applicant may make a
claim for benefits to the Administrator. The claim for benefits must be in
writing and addressed to the Administrator or to the Company. If the claim for
benefits is denied, the Administrator shall notify the Applicant in writing
within 90 days after the Plan Administrator initially received the benefit
claim. Any
-13-
<PAGE>
notice of a denial of benefits shall advise the Applicant of the basis for the
denial, any additional material or information necessary for the Applicant to
perfect his claim and the steps which the Applicant must take to have his claim
for benefits reviewed.
8.2. Appeals. Each Applicant whose claim for benefits has been
-------
denied may file a written request for a review of his claim by the
Administrator. The request for review must be filed by the Applicant within 60
days after receipt of the written notice denying the claim. The decision of the
Administrator will be made within 60 days after receipt of a request for review
and shall be communicated in writing to the Applicant. Such written notice
shall set forth the basis for the Administrator's decision. If there are
special circumstances (such as the need to hold a hearing) which require an
extension of time for completing the review, the Administrator's decision shall
be rendered not later than 120 days after receipt of a request for review.
SECTION 9. AMENDMENT AND TERMINATION
9.1. Amendments. The Company shall have the right to amend this
----------
Plan in whole or in part from time to time by resolution of the Board of
Directors, and to amend and cancel any amendments; provided, however, that no
action under this Section shall cancel or affect in any way the amount of the
Participant's previously accrued vested benefits. An amendment shall be in
writing and executed by a duly authorized officer of the Company. The
Participant shall be bound thereby.
9.2. Discontinuance of Plan. The Company expects to continue this
----------------------
Plan indefinitely, but does not obligate itself to do so. The Company reserves
the right to discontinue and terminate the Plan at any time, for any reason
(including a change, or an impending change, in the tax laws of the United
States or the State of California), by resolution of the Board of Directors. If
the Plan is terminated, the Administrator shall be notified of such action in a
writing executed by a duly authorized officer of the Company, and the Plan shall
be terminated at the time therein set forth. Termination of the Plan shall be
binding on the Participant, but in no event may such termination cancel or
otherwise affect in any way the Participant's previously accrued vested
benefits. If this Plan is terminated, the Participant's previously accrued
vested benefits shall be paid within 90 days after the first day of the month
following the termination.
SECTION 10. MISCELLANEOUS
10.1. Limitation on Participant's Rights. This Plan shall not give
----------------------------------
Participant the right to be retained in the Company's employ or any right or
interest to any assets of the Company other than as herein provided. The
Company reserves the right to terminate the employment of Participant without
any liability for any claim against the Company except to the extent provided
herein.
-14-
<PAGE>
10.2. Other Plans. This Plan shall not affect the right of
-----------
Participant to participate in and receive benefits under and in accordance with
the provisions of any other employee benefit plans which are now or hereafter
maintained by the Company, unless the terms of such other employee benefit plan
or plans specifically provide otherwise.
10.3. Receipt or Release. Any payment to a Participant in accordance
------------------
with the provisions of this Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Administrator and the Company, and the
Administrator may require such Participant, as a condition precedent to such
payment, to execute a receipt and release to such effect.
10.4. Governing Law. This Plan shall be construed, administered, and
-------------
governed in all respects in accordance with the laws of the State of California.
If any provisions of this instrument shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
10.5. Gender, Tense, and Headings. In this Plan, whenever the
---------------------------
context so indicates, the singular or plural number and the masculine, feminine,
or neuter gender shall be deemed to include the other. Headings and subheadings
in this Plan are inserted for convenience of reference only and are not
considered in the construction of the provisions hereof.
10.6. Successors and Assigns. This Plan shall inure to the benefit
----------------------
of, and be binding upon, the parties hereto and their successors and assigns;
provided, however, subject to the provisions of applicable law regarding
domestic relations orders, that the benefits hereunder shall not be assignable
or transferable and, except as provided by Section 7.5, any purported transfer,
assignment, encumbrance, or attachment thereof shall be void and of no effect.
In the event of a dispute involving any individual's right to receive the
benefit hereunder, the Administrator or the Company may enter an interpleader
action. Payment of the benefit to a court of competent jurisdiction with proper
notice to the appropriate parties in dispute shall be in full satisfaction of
all claims against the Administrator and the Company as to the Plan, and shall
be equivalent to a receipt and release pursuant to Section 10.3.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officer.
MATTEL, INC.
Dated: August 17, 1998 By: /s/ Alan Kaye
_________________ __________________________
-15-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>7
<DESCRIPTION>PLEASANT CO. RETIREMENT SAVINGS PLAN 7/1/95
<TEXT>
<PAGE>
EXHIBIT 10.19
PLEASANT COMPANY
RETIREMENT SAVINGS PLAN AND TRUST AGREEMENT
JULY 1, 1995
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. ELIGIBILITY AND PARTICIPATION. . . . . . . . . . . . . . . . . . . . . 23
2.01 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.02 ELIGIBILITY BREAK IN SERVICE RULES. . . . . . . . . . . . . . . . . . . . . . . . . 24
2.03 EFFECT OF LEAVE OF ABSENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.04 TRANSFER TO ELIGIBLE CLASS OR
REINSTATEMENT OF INELIGIBLE PARTICIPANT. . . . . . . . . . . . . . . . . . . . . . . 26
2.05 DETERMINATION OF ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.06 MANNER OF BECOMING A PARTICIPANT . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.07 OMISSION OF ELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.08 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.09 ELECTION NOT TO PARTICIPATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE III. CONTRIBUTIONS AND ALLOCATIONS. . . . . . . . . . . . . . . . . . . . . 28
3.01 CONTRIBUTIONS BY THE EMPLOYER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.02 PARTICIPANT'S SALARY REDUCTION ELECTION. . . . . . . . . . . . . . . . . . . . . . . 29
3.03 TIME OF PAYMENT OF CONTRIBUTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.04 ALLOCATION OF CONTRIBUTIONS AND EARNINGS. . . . . . . . . . . . . . . . . . . . . . . 34
3.05 ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . . . . . . . . . . .40
3.06 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS. . . . . . . . . . . . . . . . . . . . 44
3.07 ACTUAL CONTRIBUTION PERCENTAGE TESTS. . . . . . . . . . . . . . . . . . . . . . . . . 46
3.08 ADJUSTMENTS TO ACTUAL CONTRIBUTION PERCENTAGE TESTS. . . . . . . . . . . . . . . . . 49
3.09 MAXIMUM ANNUAL ADDITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
3.10 MULTIPLE PLAN REDUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
3.11 ADJUSTMENT FOR EXCESS ANNUAL ADDITIONS. . . . . . . . . . . . . . . . . . . . . . . . 59
3.12 TERMINATION OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
3.13 RESTORATION OF ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
3.14 VALUATION OF THE TRUST FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
3.15 VALUATION OF PARTICIPANT'S ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . .61
3.16 ALLOCATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
3.17 DIRECTED INVESTMENT ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
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<TABLE>
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ARTICLE IV. VESTING...................................................................62
ARTICLE V. DISTRIBUTIONS OF BENEFITS ACCRUED ON AND AFTER
JANUARY 1, 1995...........................................................63
5.01 RETIREMENT.............................................................................63
5.02 DISTRIBUTION UPON DEATH................................................................63
5.03 PROOF OF DEATH.........................................................................65
5.04 DESIGNATION OF BENEFICIARY.............................................................66
5.05 DISTRIBUTION IN THE EVENT OF DISABILITY................................................64
5.06 DISTRIBUTION IN THE EVENT OF TERMINATION OF EMPLOYMENT.................................67
5.07 TIME AND MANNER OF PAYMENT.............................................................68
5.08 TRANSITIONAL RULE......................................................................72
5.09 LIMITATION ON DISTRIBUTION DUE TO QUALIFIED DOMESTIC
RELATIONS ORDER........................................................................72
5.10 WITHDRAWAL FOR SERIOUS FINANCIAL HARDSHIP..............................................72
ARTICLE VI. DISTRIBUTIONS OF BENEFITS ACCRUED PRIOR TO
JANUARY 1, 1995...........................................................74
6.01 RETIREMENT.............................................................................74
6.02 DETERMINATION OF BENEFITS UPON DEATH...................................................75
6.03 DISTRIBUTION OF BENEFITS UPON DEATH....................................................76
6.04 PROOF OF DEATH.........................................................................79
6.05 DETERMINATION OF BENEFITS IN THE EVENT OF
DISABILITY.............................................................................80
6.06 DETERMINATION OF BENEFITS UPON TERMINATION.......................................80
6.07 TIME AND MANNER OF PAYMENT.............................................................80
6.08 TRANSITIONAL RULE......................................................................86
6.09 LIMITATION ON DISTRIBUTION DUE TO QUALIFIED DOMESTIC
RELATIONS ORDER........................................................................87
6.10 WITHDRAWAL FOR SERIOUS FINANCIAL HARDSHIP..............................................87
ARTICLE VII. TOP HEAVY PROVISIONS......................................................89
7.01 TOP HEAVY PLAN REQUIREMENTS............................................................89
7.02 DETERMINATION OF TOP HEAVY STATUS......................................................89
</TABLE>
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<TABLE>
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ARTICLE VIII. TRUST FUND AND TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . 94
8.01 ESTABLISHMENT AND ACCEPTANCE OF TRUST. . . . . . . . . . . . . . . . . . . . . . . . . 94
8.02 RESPONSIBILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94
8.03 APPOINTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
8.04 POWERS OF TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
8.05 SCOPE OF TRUSTEE'S AUTHORITY AND VOTING. . . . . . . . . . . . . . . . . . . . . . . . 99
8.06 PAYMENTS FROM THE TRUST FUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
8.07 COMMINGLED FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
8.08 PAYMENT OF COMPENSATION, EXPENSES, AND TAXES. . . . . . . . . . . . . . . . . . . . . 100
8.09 ACCOUNTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
8.10 COMMUNICATION FROM EMPLOYER AND PLAN
ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101
8.11 INSURANCE AND BONDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
8.12 LIABILITY FOR BREACH OF CO-FIDUCIARY. . . . . . . . . . . . . . . . . . . . . . . . . 102
8.13 PROHIBITED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103
8.14 DISQUALIFICATION FROM FIDUCIARY SERVICE . . . . . . . . . . . . . . . . . . . . . . . 103
8.15 REMOVAL, RESIGNATION, AND APPOINTMENT OF A SUCCESSOR TRUSTEE. . . . . . . . . . . . . 103
ARTICLE IX. CLAIMS PROCEDURE AND PLAN ADMINISTRATION . . . . . . . . . . . . . . . .104
9.01 DETERMINATION OF ELIGIBILITY AND CLAIM FOR BENEFITS . . . . . . . . . . . . . . . . .104
9.02 REVIEW PROCEDURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
9.03 DESIGNATION OF PLAN ADMINISTRATOR. . . . . . . . . . . . . . . . . . . . . . . . . . .106
9.04 RESIGNATION AND REMOVAL OF PLAN ADMINISTRATOR;
APPOINTMENT OF SUCCESSOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106
9.05 ALLOCATION AND DELEGATION OF RESPONSIBILITIES . . . . . . . . . . . . . . . . . . . . 107
9.06 DUTIES AND RESPONSIBILITY OF PLAN ADMINISTRATOR . . . . . . . . . . . . . . . . . . . 107
9.07 INVESTMENT ADVISERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
9.08 EXPENSES AND COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111
9.09 INFORMATION FROM EMPLOYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
ARTICLE X. AMENDMENT AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . 112
10.01 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
10.02 TERMINATION OR DISCONTINUANCE OF CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . .113
10.03 MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
</TABLE>
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<TABLE>
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ARTICLE XI. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .114
11.01 PARTICIPANTS' RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
11.02 NONALIENATION OF BENEFIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
11.03 DELEGATION OF AUTHORITY BY EMPLOYER. . . . . . . . . . . . . . . . . . . . . . . . . 115
11.04 EXERCISE OF DISCRETION BY CORPORATE TRUSTEE. . . . . . . . . . . . . . . . . . . . . .115
11.05 CONTROL OF TRADES OR BUSINESSES BY OWNER-EMPLOYEE. . . . . . . . . . . . . . . . . . .116
11.06 CONSTRUCTION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
11.07 GENDER, NUMBER, AND HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
11.08 QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
11.09 PROHIBITION OF DIVERSION OF FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . .118
11.10 ROLLOVERS AND TRANSFERS FROM QUALIFIED PLANS. . . . . . . . . . . . . . . . . . . . . 119
11.11 PORTABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121
</TABLE>
<PAGE>
PLEASANT COMPANY RETIREMENT SAVINGS PLAN
AND TRUST AGREEMENT
PLEASANT COMPANY, a Wisconsin corporation, hereinafter referred to as
"Employer", hereby amends and restates its 401(K) Profit Sharing Plan heretofore
adopted effective January 1, 1989, with such amendment and restatement effective
January 1, 1995 unless otherwise provided herein.
WITNESSETH:
WHEREAS, the Employer desires to promote in its employees a strong interest
in the successful operation of its business and to provide an opportunity for an
accumulation of funds for their retirement and financial security; and
WHEREAS, to attain that end, the Employer heretofore formulated a 401(k)
Profit Sharing Plan and now desires to amend and restate said 401(k) Profit
Sharing Plan as is more particularly set forth hereafter.
WHEREAS, the amendment and restatement embodied herein has been approved by
the Board of Directors of the Employer.
NOW, THEREFORE, the Employer hereby constitutes, establishes, and adopts
the following Profit Sharing Plan, and the Employer and Trustee agree to the
following provisions:
ARTICLE I.
DEFINITIONS
1.01 "Accrued Benefit" shall mean the value of a Participant's individual
accounts which are derived from Employer contributions and Employee
contributions, if any, to this Plan.
If a portion of the Participant's individual accounts is invested in
separate savings or time instruments or other segregated assets, the value of
that portion is the value
<PAGE>
of those instruments or other segregated assets at the date of distribution less
any applicable liquidation fees or penalties.
If a portion of the Participant's individual accounts is invested in non-
segregated investments, the value of that portion is the balance of that portion
as of the Valuation Date coinciding with or immediately preceding the date of
distribution. However, the value of the individual account shall be increased
to reflect that Participant's share of any contribution made after that
Valuation Date and shall be decreased to reflect any distribution made to the
Participant after that Valuation Date.
1.02 "Aggregation Group" shall mean a Required Aggregation Group or a
Permissive Aggregation Group as defined in Section 7.02(D).
1.03 "Aggregate Account" shall mean, with respect to each Participant,
the value of all accounts maintained on behalf of a Participant, whether
attributable to Employer or Employee contributions, subject to the provisions of
Section 7.02 (Determination of Top-Heavy Status).
1.04 "Agreement" shall mean this instrument and any amendments or
supplements thereto.
1.05 "Alternate Payee" shall mean any spouse, former spouse, child, or
other dependent of a Participant who is recognized by a Domestic Relations Order
as having a right to receive all, or a portion of, the benefits payable under
the Plan with respect to such Participant.
1.06 "Beneficiary" or "Beneficiaries" shall mean the person or persons,
including a trustee or an estate, to whom a deceased Participant's account is
payable as provided in the Plan subject to the provisions of Articles V and VI.
For the purposes of determining whether the Plan is a top heavy Plan, a
beneficiary
2.
<PAGE>
of a deceased Participant shall be considered as a Key Employee if the
Participant was a Key Employee or a Non-Key Employee if the Participant was a
Non-Key Employee.
1.07 "Break in Service" and "One-Year Break in Service" shall mean a Plan
Year during which an Employee has not completed more than five hundred (500)
Hours of Service. An Employee shall not incur a One-Year Break in Service for
the Plan Year in which he or she becomes a Participant, dies, retires or suffers
Total and Permanent Disability. Further, solely for the purpose of determining
whether a Participant has incurred a One-Year Break in Service, Hours of Service
shall be recognized for "authorized leaves of absence" and "maternity and
paternity leaves of absence".
For purposes of this definition, an "authorized leave of
absence" shall mean an unpaid, temporary cessation from active employment with
the Employer pursuant to an established nondiscriminatory policy, whether
occasioned by illness, military service, or any other reason.
For purposes of this definition, a "maternity or paternity leave of
absence" shall mean, for Plan Years beginning after December 31, 1984, an
absence from work for any period by reason of the Employee's pregnancy, birth of
the Employee's child, placement of a child with the Employee in connection with
the adoption of such child, or any absence for the purpose of caring for such
child during a period immediately following such birth or placement. For this
purpose, Hours of Service shall be credited for the computation period in which
the absence from work begins, only if credit therefore is necessary to prevent
the Employee from incurring a One-Year Break in Service, or, in any other case,
in the immediately following computation period. The Hours of Service credited
for a "maternity or paternity leave of absence" shall be those which would
normally have been credited but for such absence, or, in any case in which the
Plan Administrator is unable to determine such hours normally credited, eight
(8) Hours of Service per day. The total Hours of
3.
<PAGE>
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed five hundred one (501).
For purposes of Section 2.02, the period for calculating a Break in Service
begins on the employment date and each anniversary thereafter.
1.08 "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.09 "Compensation" shall mean all of each Participant's compensation as
that term is defined in Code Section 415(c)(3) and Regulation Section 1.414(s)-
1(c)(3). For any self-employed individual covered under the Plan, compensation
will mean earned income. Compensation shall include only that compensation
which is actually paid to the Participant during the applicable period. Except
as provided elsewhere in this Plan, the applicable period shall be the Plan
Year. In all cases, compensation shall include only Compensation paid while a
Participant.
For purposes of this Section, the determination of Compensation shall be
made by:
(a) excluding (even if includible in gross income) reimbursements or
other expense allowances, fringe benefits (cash or noncash), moving
expenses, deferred compensation and welfare benefits.
(b) including amounts which are contributed by the Employer pursuant
to a salary deferral agreement and which are not includable in the gross
income of the Employee under Code Sections 125, 402(e)(3), 402(h), 403(b)
or 457, and Employee contributions described in Code Section 414(h)(2) that
are treated as Employer contributions.
For Plan Years beginning on or after January 1, 1989, the annual
compensation of each Participant taken into account under the Plan for any year
shall not exceed Two Hundred Thousand Dollars ($200,000.00), as adjusted by the
Secretary at the same time and in the same manner as under Code Section 415(d).
In
4.
<PAGE>
determining the compensation of a Participant for purposes of this limitation,
the rules of Code Section 414(q)(6) shall apply, except in applying such rules,
the term "family" shall include only 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
$200,000 limitation is exceeded, then (except for purposes of determining the
portion of compensation up to the integration level if this plan provides for
permitted disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's compensation as determined
under this section prior to the application of this limitation.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93
annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
compensation for that prior determination period is subject to the OBRA '93
annual
5.
<PAGE>
compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
1.10 "Deferred Compensation" shall mean the amount of a Participant's total
Compensation which has been contributed to the Plan in accordance with the
Participant's deferral election pursuant to Section 3.02 excluding any such
amounts distributed as excess "annual additions" pursuant to Section 3.11.
1.11 "Determination Date" shall mean the last day of the preceding Plan
Year, or in the case of the first Plan Year, the last day of such Plan Year.
1.12 "Early Retirement Date": the Plan does not provide for an early
retirement date.
1.13 "Elective Contribution" shall mean the Employer's contributions to
the Plan of Deferred Compensation excluding any such amounts distributed as
excess "annual additions" pursuant to Section 3.11. In addition, any Employer
Qualified Non-Elective Contribution made pursuant to Section 3.06 shall be
considered an Elective Contribution for purposes of the Plan. Any such
contributions deemed to be Elective Contributions shall be subject to the
requirements of Sections 3.02(B) and (C) and shall further be required to
satisfy the discrimination requirements of Regulation 1.401(k)-1(b)(5), the
provisions of which are specifically incorporated herein by reference.
1.14 "Eligible Employee" shall mean any Employee, other than a Leased
Employee, who has satisfied the provisions of Section 2.01. Notwithstanding the
foregoing, Leased Employees shall be Eligible Employees if exclusion of such
Leased Employees shall cause the Plan to fail to meet any participation or other
qualification requirements pursuant to Code Section 401(a).
6.
<PAGE>
1.15 "Employee" shall mean any person who is employed by the Employer,
including any self-employed individuals and all employees of any employer
aggregated with the Employer under Code Sections 414(b), (c) or (m), and any
individuals required to be considered Employees of any such Employer under Code
Section 414(n) or under regulations under Code Section 414(o). A person who is
an active member of a collective bargaining unit represented by a labor
organization with an agreement which the Secretary of Labor would find to be a
collective bargaining agreement shall be deemed not to be an Employee hereunder
if retirement benefits were the subject of good faith bargaining between the
labor organization and the Employer. A person who is a non-resident alien and
who receives no earned income (within the meaning of Code Section 991(d)(2))
from the Employer which constitutes income from sources within the United States
(within the meaning of Code Section 861(a)(3)).
1.16 "Employee Retirement Income Security Act of 1974" (hereinafter
"ERISA") shall mean the federal legislation of September 2, 1974, all amendments
thereto, and all federal regulations promulgated pursuant thereto.
1.17 "Employer" shall mean PLEASANT COMPANY and any successor who by
merger, consolidation, purchase or otherwise, assumes the obligations of the
Plan. A partnership is considered to be the Employer of each of the partners
and a sole proprietorship to be the Employer of a sole proprietor.
1.18 "Employer Contribution" shall mean the amount contributed by the
Employer each year pursuant to Article III.
1.19 "Employer Contribution Account" shall mean an account established
for a Participant's share of the Employer's contribution pursuant to Article IV.
7.
<PAGE>
1.20 "Entry Date" shall mean the Effective Date and each date thereafter
specified in Section 2.01 as of which an Employee may become a Participant.
1.21 "Excess Aggregate Contributions" shall mean, with respect to any
Plan Year, the excess of the aggregate amount of the Employer matching
contributions made pursuant to Section 3.01(B) and any qualified non-elective
contributions or elective deferrals taken into account pursuant to Section
3.07(C) on behalf of Highly Compensated Participants for such Plan Year, over
the maximum amount of such contributions permitted under the limitations of
Section 3.07(A).
1.22 "Excess Contributions" shall mean, with respect to a Plan Year, the
excess of Elective Contributions made on behalf of Highly Compensated
Participants for the Plan Year over the maximum amount of such contributions
permitted under Section 3.05(A). Excess contributions shall be treated as an
"annual addition" pursuant to Section 3.09.
1.23 "Excess Deferred Compensation" means, with respect to any taxable
year of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 3.02(F)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an
"annual addition" pursuant to Section 3.09 when contributed to the Plan unless
distributed to the affected Participant no later than the first April 15th
following the close of the Participant's taxable year. Additionally, for
purposes of Sections 7.02 and 3.04(G), Excess Deferred Compensation shall
continue to be treated as Employer contributions even if distributed pursuant to
Section 3.02(F). However, Excess Deferred Compensation of Non-Highly Compensated
Participants is not taken into account for purposes of Section
8.
<PAGE>
3.05(A) to the extent such Excess Deferred Compensation occurs pursuant to
Section 3.02(D).
1.24 "Family Member" shall mean, with respect to an Employee, such
Employee's spouse and lineal ascendants or descendants and the spouses of such
lineal ascendants or descendants.
1.25 "Fiscal Year" shall mean the twelve (12) month period January 1
through December 31.
1.26 "Forfeiture": the Plan does not provide for forfeitures.
1.27 "Former Participant" shall mean a person who has been a Participant,
but who has ceased to be a Participant for any reason.
1.28 "414(s) Compensation" with respect to any Participant shall mean
such Participant's "415 Compensation" paid during a Plan Year. The amount of
"414(s) compensation with respect to any Participant shall include "414(s)
Compensation" for the entire twelve (12) month period ending on the last day of
such Plan Year, except that "414(s) Compensation" shall only be recognized for
that portion of the Plan Year during which an Employee was a Participant in the
Plan.
For purposes of this Section, the determination of "414(s) Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
"414(s) Compensation" in excess of $200,000 shall be disregarded. Such
amount shall be adjusted at the same time and in such manner as permitted under
Code Section 415(d), except
9.
<PAGE>
that the dollar increase in effect on January 1 of any calendar year shall be
effective for the Plan Year beginning with or within such calendar year and the
first adjustment to the $200,000 limitation shall be effective on January 1,
1990. For any short Plan Year the "414(s) Compensation" limit shall be an amount
equal to the "414(s) Compensation" limit for the calendar year in which the Plan
Year begins multiplied by the ratio obtained by dividing the number of full
months in the short Plan Year by twelve (12). In applying this limitation, the
family group of a Highly Compensated Participant who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) because such Participant is
either a "five percent owner" of the Employer or one of the ten (10) Highly
Compensated Employees paid the greatest "415 Compensation" during the year,
shall be treated as a single Participant, except that for this purpose Family
Members shall include only the affected Participant's spouse and any lineal
descendants who have not attained age nineteen (19) before the close of the
year.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limits. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93
annual compensation limit set forth in this provision.
10.
<PAGE>
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
If, in connection with the adoption of this amendment and restatement, the
definition of "414(s) Compensation" has been modified, then, for Plan Years
prior to the Plan Year which includes the adoption date of this amendment and
restatement, "414(s) Compensation" means compensation determined pursuant to the
Plan then in effect.
1.29 "415 Compensation" shall mean compensation as defined in Section
3.09(D).
1.30 "Highly Compensated Employee" shall mean Highly Compensated Active
Employees and Highly Compensated Former Employees.
A Highly Compensated Active Employee includes any Employee who performs
services for the Employer during the determination year and who, during the
look-back year: (i) received compensation from the Employer in excess of
Seventy-Five Thousand Dollars ($75,000.00) (as adjusted pursuant to Code Section
415(d)); (ii) received compensation from the Employer in excess of Fifty
Thousand Dollars ($50,000.00) (as adjusted pursuant to Code Section 415(d)) and
was a member of the top-paid group for such year; or (iii) was an officer of the
Employer and received compensation during such year that is greater than fifty
percent (50%) of the dollar limitation in effect under Code Section
415(b)(1)(A). The term Highly Compensated Employee also includes: (i) Employees
who are both described in the preceding sentence if the term "determination
year" is substituted for the
11.
<PAGE>
term "look-back year" and the Employee is one of the one hundred (100) Employees
who received the most compensation from the Employer during the determination
year; and (ii) Employees who are five percent (5%) owners at any time during the
look-back year or determination year.
If no officer has satisfied the compensation requirement of (iii) above
during either a determination year or look-back year, the highest paid officer
for such year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the twelve-month period immediately preceding the
determination year.
A Highly Compensated Former Employee includes any Employee who separated
from service (or was deemed to have separated) prior to the determination year,
performs no service for the Employer during the determination year, and was a
Highly Compensated Active Employee for either the separation year or any
determination year ending on or after the Employee's fifty-fifth (55th)
birthday.
If an Employee is, during a determination year or look-back year, a Family
Member of either a five percent (5%) owner who is an active or former Employee
or a Highly Compensated Employee who is one of the ten (10) most Highly
Compensated Employees ranked on the basis of compensation paid by the Employer
during such year, then the Family Member and the five percent (5%) owner or top-
ten Highly Compensated Employee shall be aggregated. In such case, the Family
Member and the five percent (5%) owner or top-ten Highly Compensated Employee
shall be treated as a single Employee receiving compensation and Plan
contributions or benefits equal to the sum of such compensation and
contributions or benefits of the Family Member and five percent (5%) owner or
top-ten Highly Compensated Employee.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top one hundred (100)
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Employees, the number of Employees treated as officers and the compensation that
is considered, will be made in accordance with Code Section 414(q) and
regulations thereunder. The top paid group shall be the top twenty percent (20%)
of employees when ranked on the basis of Compensation during the Plan Year,
excluding those Employees allowed to be excluded under Code Section 414(q)(8).
Compensation shall mean Code Section 415(c)(3) Compensation determined without
regard to Code Sections 125, 402(a)(8), 402(h)(1)(B) and 403(b) as they relate
to salary deferral or salary reduction contributions.
Code Sections 414(b), (c), (m), (n) and (o) shall be applied before the
application of this Section.
1.31 "Highly Compensated Participant" shall mean any Highly Compensated
Employee who is eligible to participate in the Plan.
1.32 "Hour of Service" shall mean each hour (i) for which an Employee is
paid, or entitled to payment, for the performance of duties for the Employer
during the applicable computation period; or (ii) for which an Employee is paid,
or entitled to payment, by the Employer on account of a period of time during
which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity
(including disability), lay-off, jury duty, military duty, or leave of absence.
However, non-hourly Employees may be credited with forty-five (45) Hours of
Service per week for weeks in which the Employee would be credited with Hours of
Service for purposes of eligibility, vesting, benefit accrual, or Breaks in
Service. Notwithstanding the preceding sentence, no more than five hundred one
(501) Hours of Service shall be credited under clause (ii) above to an Employee
on account of any single continuous period during which the Employee performs no
duties (whether or not such period occurs in a single computation period).
Hours of Service credited for periods during which the Employee performs no
duties shall be credited in
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accordance with Department of Labor Regulations, Sections 2530.200b-2(b) and
(c). In addition thereto, to the extent an Employee is not otherwise credited
with an Hour of Service in accordance with the provisions of this paragraph, an
Employee shall be entitled to be credited with an Hour of Service in the year
earned, for each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer. All questions of interpretation
of "Hour of Service" are to be settled in the Employee's favor.
1.33 "Investment Adviser" shall mean any person or persons,
organization, partnership or corporation appointed as provided in Section 9.07.
The Investment Adviser shall either be registered as an investment adviser under
the Investment Advisers Act of 1940; or it shall be a bank as defined in said
Act; or it shall be an insurance company qualified under the laws of one or more
states to perform services consisting of the management, acquisition or
disposition of any assets of the Plan.
1.34 "Key Employee" shall mean any Participant as defined in Code Section
416(i) and the regulations thereunder. Generally, Key Employee shall mean any
Participant or Former Participant (and each of his or her beneficiaries) who, at
any time during the Plan Year or any of the preceding four (4) Plan Years has
been included in any one of the following categories:
(A) An officer of the Employer (as that term is defined within the meaning
of the regulations under Code Section 416) having "415 Compensation" for the
Plan Year greater than fifty percent (50%) of the amount in effect under Code
Section 415(b)(1)(A) for such Plan Year. Only those Employers which are
incorporated shall be considered as having officers.
(B) One of the ten (10) Employees having annual "415 Compensation" from
the Employer of more than the dollar limitation in effect under Code Section
415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or
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considered as owning within the meaning of Code Section 318) both more than one-
half percent (0.5%) interest and the largest interests in all employers required
to be aggregated under Code Sections 414(b), (c), and (m).
(C) A "five percent owner" of the Employer. "Five percent owner" shall
mean any person who owns (or is considered as owning within the meaning of Code
Section 318) more than five percent (5%) of the outstanding stock of the
Employer or stock possessing more than five percent (5%) of the total combined
voting power of all stock of the Employer, or, in the case of an unincorporated
business, any person who owns more than five percent (5%) of the capital or
profits interest in the Employer. In determining percentage ownership
hereunder, employers that would otherwise be aggregated under Code Sections
414(b), (c) and (m) shall be treated as separate employers.
(D) A "one percent owner" of the Employer having an annual "415
Compensation" as defined in Section 3.09(D) from the Employer of more than One
Hundred Fifty Thousand Dollars ($150,000.00). "One percent owner" shall mean
any person who owns (or is considered as owning within the meaning of Code
Section 318) more than one percent (1%) of the outstanding stock of the Employer
or stock possessing more than one percent (1%) of the total combined voting
power of all stock of the Employer, or, in the case of an unincorporated
business, any person who owns more than one percent (1%) of the capital or
profits of the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Code Sections 414(b), (c) and
(m) shall be treated as separate employers. However, in determining whether an
individual has "415 Compensation" of more than One Hundred Fifty Thousand
Dollars ($150,000.00), Compensation from each employer required to be aggregated
under Code Sections 414(b),(c) and (m) shall be taken into account.
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1.35 "Leased Employee" shall mean any person (other than an employee of
the recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one (1)
year, and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
leased employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer.
A leased employee shall not be considered an employee of the recipient if:
(1) such employee is covered by a money purchase pension plan providing: (i) a
nonintegrated employer contribution rate of at least ten percent (10%) of
compensation, as defined in Code Section 415(c)(3), but including amounts
contributed pursuant to a salary reduction agreement which are excludable from
the employee's gross income under Code Sections 125, 402(a)(8), 402(h) or
403(b), (ii) immediate participation, and (iii) full and immediate vesting; and
(2) leased employees do not constitute more than twenty percent (20%) of the
recipient's nonhighly compensated workforce.
1.36 "Limitation Year" shall mean the Plan Year.
1.37 "Non-Elective Contribution" shall mean the Employer's contributions
to the Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 3.02 and any Qualified Non-Elective
Contribution.
1.38 "Non-Highly Compensated Employee" shall mean any Employee who is
neither a Highly Compensated Employee or a Family Member.
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1.39 "Non-Highly Compensated Participant" shall mean any Participant who
is neither a Highly Compensated Employee nor a Family Member.
1.40 "Non-Key Employee" shall mean any Employee who is not a Key
Employee.
1.41 "Normal Retirement Age" shall mean age Sixty Five (65). If the
Employer enforces a mandatory retirement age, the Normal Retirement Age is the
lesser of that mandatory age or the age specified in this Section.
1.42 "Normal Retirement Date" shall mean the first day of the calendar
month next following the date the Participant attains Normal Retirement Age.
1.43 "Owner-Employee" shall mean a sole proprietor who owns the entire
interest in the Employer or a partner who owns more than ten percent (10%) of
either the capital interest or the profits interest in the Employer and who
receives income for personal services from the Employer. For purposes of this
Plan, an Owner-Employee shall be considered an Employee.
1.44 "Participant" shall mean any Employee who becomes a Participant in
the Plan in accordance with the provisions of Article II and shall include any
former Employee who is receiving or is eligible to receive benefits under the
Plan.
1.45 "Participant's Account" shall mean the account established and
maintained by the Plan Administrator for each Participant with respect to his or
her total interest in the Plan and Trust resulting from the Employer's Non-
Elective Contributions.
A separate account shall be maintained with respect to that portion of the
Participant's Account attributable to Employer
17.
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matching contributions made pursuant to Section 3.01(B) and Employer
discretionary contributions made pursuant to Section 3.01(C).
1.46 "Participant's Combined Account" shall mean the total aggregate amount
of each Participant's Elective Account and Participant's Account.
1.47 "Participant's Elective Account" shall mean the account established
and maintained by the Plan Administrator for each Participant with respect to
his or her total interest in the Plan and Trust resulting from the Employer's
Elective Contributions. A separate accounting shall be maintained with respect
to that portion of the Participant's Elective Account attributable to Elective
Contributions pursuant to Section 3.02 and any Employer Qualified Non-Elective
Contributions.
1.48 "Plan" shall mean the Plan and Trust Agreement embodied in this
instrument and any amendments or supplements thereto and shall be known as the
PLEASANT COMPANY RETIREMENT SAVINGS PLAN AND TRUST AGREEMENT.
1.49 "Plan Administrator" shall mean the Employer or such other person as
shall be named by the Employer pursuant to Section 9.03 to administer the Plan
on behalf of the Employer. The Plan Administrator shall be responsible for
compliance with the provisions of ERISA.
1.50 "Plan Year" shall mean the twelve (12) consecutive month period
January 1 through December 31.
1.51 "Qualified Non-Elective Contribution" shall mean the Employer's
contributions to the Plan that are made pursuant to Section 3.06. Such
contributions shall be considered an Elective
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Contribution for the purposes of the Plan and used to satisfy the "Actual
Deferral Percentage" tests.
In addition, the Employer's contributions to the Plan that are made
pursuant to Section 3.08(H) which are used to satisfy the "Actual Contribution
Percentage" tests shall be considered Qualified Non-Elective Contributions and
be subject to the provisions of Sections 3.02(B) and 3.02(C).
1.52 "Related Employers" shall mean all employers who are members of a
controlled group of corporations (as defined in Code Section 414(b)), commonly
controlled trades or businesses (as defined in Code Section 414(c)), or
affiliated service groups (as defined in Code Section 414(m)) or other group as
determined pursuant to Code Section 414(o), of which the Employer is a member.
1.53 "Rollover Contribution" shall mean any rollover amount or rollover
contribution as defined in Code Sections 402(a)(5) 403(a)(4) (relating to
certain lump sum distributions from an employer trust or employee annuity plan)
or Code Section 408(d)(3)(A)(ii) (relating to certain distributions from an
individual retirement account or individual retirement annuity). Amounts
transferred directly from another qualified plan or individual retirement
account pursuant to Section 11.10 shall be considered as Rollover Contributions.
1.54 "Self-Employed Individual" shall mean any individual (including
Owner-Employees) who receives earned income from an unincorporated Employer (or
who would have received such but for the fact that the trade or business carried
on by such Employer did not have net profits for the taxable year). For
purposes of the Plan, a Self-Employed Individual shall be considered to be an
Employee.
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1.55 "Shareholder-Employee" shall mean an Employee who owns, or is
considered to own within the meaning of Code Section 318(a)(1), more than five
percent (5%) of the outstanding stock of the Employer where the Employer is a
Subchapter S corporation.
1.56 "Super Top Heavy Plan" shall mean, for Plan Years commencing after
December 31, 1983, that, as of the Determination Date, (i) the present value of
Accrued Benefits of Key Employees, and (ii) the sum of the Aggregate Accounts of
Key Employees under this Plan and all plans of an Aggregation Group, exceeds
ninety percent (90%) of the present value of Accrued Benefits and the Aggregate
Accounts of all Participants under this Plan and any plan of an Aggregation
Group.
1.57 "Taxable Wage Base" or "Maximum Taxable Wage Base" shall mean, with
respect to any taxable year, the maximum amount of earnings which may be
considered wages for such year under Code Section 3121(a)(1), as in effect at
the beginning of the Plan Year.
1.58 "Termination of Employment" shall mean the cessation of an
individual's status as an Employee of the Employer for any reason other than the
death of such Employee. An Employee who does not return to work for the
Employer on or before the expiration of an authorized leave of absence from such
Employer shall be deemed to have incurred a Termination of Employment when such
leave ends.
1.59 "Top Heavy Plan" shall mean, for Plan Years commencing after
December 31, 1983, that, as of the Determination Date, (i) the present value of
Accrued Benefits of Key Employees, and (ii) the sum of the Aggregate Accounts of
Key Employees under this Plan and any plan of an Aggregation Group, exceeds
sixty percent (60%) of the present value of Accrued Benefits and the Aggregate
20.
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Accounts of all Participants under this Plan and any plan of an Aggregation
Group.
1.60 "Top Heavy Plan Year" shall mean any Plan Year commencing after
December 31, 1983, during which the Plan is a Top Heavy Plan.
1.61 "Trust" shall mean the Trust, the terms of which are contained in
this instrument and any amendments or supplements thereto.
1.62 "Trust Fund" or "Fund" shall mean and include all cash, securities,
contracts, and other property, real, personal, or mixed at any time and from
time to time held by the Trustees without distinguishing between principal and
income.
1.63 "Trustee" or "Trustees" shall mean the individual, individuals, or
entity appointed pursuant to Section 8.03 who accepts such appointment in
writing, and any duly appointed successor trustee as provided in Section 8.15.
Trustee shall mean "custodian" in the event the individual or entity named as
Trustee does not have full trust powers.
1.64 "Valuation Date" shall mean the last day of the Plan Year and any
such other date designated by the Plan Administrator which is selected in a
uniform and nondiscriminatory manner when the assets of the Fund are valued at
their then fair market value.
1.65 "Year of Credited Service" shall mean any Plan Year or part thereof,
whether or not the Employee was as yet a Participant under the Plan, in which
the Employee has at least one thousand (1,000) Hours of Service with the
Employer. Years of Credited Service with any corporation, trade or business
which is a member of a controlled group of corporations or under common
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control (as defined by Internal Revenue Code Sections 414(b) and 414(c)) or is a
member of an affiliated service group (as defined by Code Section 414(m)) or
other group as determined pursuant to Code Section 414(o), shall be recognized.
If the plan herein is a plan of a predecessor employer, service for such
predecessor shall be treated as service for the Employer; if the plan herein is
not a plan maintained by a predecessor employer, service for such predecessor
shall be treated as service for the Employer only to the extent required under
treasury regulations.
1.66 "Year of Participation" shall mean any Plan Year in which a
Participant has at least one thousand (1,000) Hours of Service with the
Employer.
1.67 "Year of Service" shall mean the twelve (12) month period during
which the Employee completes not less than one thousand (1,000) Hours of
Service. Such twelve (12) month period shall begin with the date the Employee
commences employment and, in the event that an Employee does not complete one
thousand (1,000) Hours of Service during the initial twelve (12) month period,
computation shall then be made by reference to the first day of the Plan Year
which began after the individual was first employed or any subsequent Plan Year
during which the Employee completes not less than one thousand (1,000) Hours of
Service. A Year of Service for continued eligibility to participate in the Plan
shall be based upon the Plan Year which includes the last day of the eligibility
computation period in which the Employee first completed the service requirement
for participation in the Plan. Years of Service with any corporation, trade or
business which is a member of a controlled group of corporations or under common
control (as defined by Code Sections 414(b) and 414(c)), or is a member of an
affiliated service group (as defined by Code Section 414(m)), or is required to
be aggregated under Code Section 414(o), shall be recognized. If the plan
herein is a plan of a predecessor employer, service for such predecessor
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shall be treated as service for the Employer; if the plan herein is not a plan
maintained by a predecessor employer, service for such predecessor shall be
treated as service for the Employer only to the extent required under treasury
regulations. Years of Service and Breaks in Service will be measured on the same
eligibility computation period.
ARTICLE II.
ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY.
(A) For those employed on or before June 30, 1995. Any Employee shall
---------------------------------------------
become a Participant upon both attaining age 21 and working at least 500 Hours
of Service during the 6-month period following his or her first day of
employment. Any Employee who does not complete 500 Hours of Service during the
6-month period following his or her first day of employment must thereafter
complete 1,000 Hours of Service during a Plan Year, whether such Plan Year be
the one in which the Employee's first 6-month period of employment ends or a
subsequent Plan Year. An Employee shall become a Participant in either case on
the Entry Date first succeeding satisfaction of both the age and service
requirements. The Entry Dates are January 1 and July 1 of each year. Provided,
however, that any Employee normally scheduled to work at least 20 hours per week
who satisfies the age requirement on or before January 1, 1989, and is still
employed on that date, shall become a Participant on January 1, 1989.
(B) For those employed on or after July 1, 1995. Any Eligible Employee
-------------------------------------------
shall be eligible to participate in this Plan after the Employee completes one
(1) Year of Service and has attained the age of twenty-one (21). Any Employee
who becomes eligible to participate in this Plan shall commence participation in
the Plan, if he or she is not separated from the service of the Employer, on the
earlier of the first day of the Plan Year
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beginning after the Employee has satisfied the minimum age and service
requirements of this Section or the first day of the seventh month of such Plan
Year coinciding with or next following the date such Employee met the
eligibility requirements of this section. The entry dates for this Plan are
January 1 and July 1. Temporary absence of the Employee due to vacation,
sickness, medical leave of absence for no longer than twelve (12) months, strike
or seasonal lay-off for less than one (1) year shall not constitute a separation
from the service of the Employer for the purposes of commencing participation.
The foregoing notwithstanding, for purposes of determining the amount and
allocation of the Employer Contributions for any Plan Year, "Compensation" shall
include only Compensation paid while an Employee is a Participant of the Plan,
with the commencement of participation to be as provided in this Section.
(C) Each Employee who was a Participant of the Plan prior to this Amendment
and Restatement shall continue as a Participant of this Plan.
2.02 ELIGIBILITY BREAK IN SERVICE RULES. For purposes of determining an
Employee's eligibility for participation in the Plan, Years of Service with the
Employer shall be taken into account subject to the following provisions:
(A) Plans with Immediate Full Vesting. If an Employee has at least a One-
---------------------------------
Year Break in Service, and if the Employee has not satisfied the length of
service requirement before the break in service, then service before the break
shall not be taken into account.
(B) Vested Participants. If an Employee has at least a One-Year Break in
-------------------
Service, then service before such break shall not be taken into account until
the completion of one (1) Year of Service after such Employee's return.
However, if the length of service requirement is less than one (1) Year of
Service the Employee shall be eligible to participate upon completion of the
length of service requirement after the reemployment date.
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Participation shall be retroactive to the reemployment commencement date.
(C) Non-Vested Employees. If an Employee has at least a One-Year Break in
--------------------
Service and has no vested percentage in such Employee's Accrued Benefit derived
from Employer contributions, or if such Employee was never a Participant in the
Plan, then Years of Service before such break shall not be taken into account if
the number of consecutive One-Year Breaks in Service equals or exceeds the
greater of five (5) years or the aggregate number of Years of Service before the
break. Such aggregate number of Years of Service will not include any Years of
Service disregarded under the preceding sentence by reason of prior Breaks in
Service. If service before such break is required to be taken into account
under this paragraph (C), such service before such break shall not be taken into
account until the completion of one (1) Year of Service after such Employee's
return to employment with the Employer. Participation shall be retroactive to
the reemployment commencement date.
For purposes of applying paragraphs (B) and (C), a Year of Service shall
commence on an Employee's reemployment commencement date and, if necessary,
shall include Plan Years beginning with the Plan Year which includes the first
anniversary of the reemployment commencement date.
2.03 EFFECT OF LEAVE OF ABSENCE. A leave of absence authorized by the
Employer shall not be deemed a Break in Service. An Employee upon such
authorized leave on the last day of the Plan Year shall be considered employed
by the Employer. Any Employee who leaves the actual service of the Employer to
enter the Armed Forces of the United States of America during a period of
national emergency or enters such Armed Forces at any time through the operation
of a compulsory military service law shall be deemed on a leave of absence
authorized by the Employer during the period of his or her service in such Armed
25.
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Forces and during any period after release or discharge from such Armed Forces
while such Employee's reemployment rights are guaranteed by law. In connection
with the company's leave of absence policy, all Employees will be treated alike
in similar circumstances. No period of lay-off shall continue to be an
authorized leave of absence after a period of one (1) year.
2.04 TRANSFER TO ELIGIBLE CLASS OR REINSTATEMENT OF INELIGIBLE
PARTICIPANT. In the event an Employee becomes ineligible to participate under
Section 2.01 because he or she is no longer a member of an eligible class of
Employees, but has not incurred a break in service, such Employee shall
participate immediately upon his or her return to an eligible class of
Employees. If such Employee incurs a break in service, his or her eligibility
to participate shall be determined by Section 2.02.
In the event an Employee who is not a member of the eligible class of
Employees becomes a member of the eligible class, such Employee shall
participate immediately if such Employee has satisfied the service requirement
and would have previously become a Participant had he or she been in the
eligible class.
2.05 DETERMINATION OF ELIGIBILITY. The Plan Administrator shall
determine the eligibility of each Employee for participation in the Plan. Such
determination shall be conclusive and binding upon all persons except as
otherwise provided herein or by law.
2.06 MANNER OF BECOMING A PARTICIPANT. The Plan Administrator shall
notify each Employee who becomes eligible to participate under this Plan and
shall furnish any application form, enrollment forms or other documents which
are required of Participants. The Employee shall execute such forms or
documents and make available such information as may be required in the
administration of the Plan. Such Employee must perform all acts
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required within thirty (30) days of the date on which he or she is notified of
his or her eligibility.
All Participants shall be bound by the terms of the Plan, including all
amendments made in the manner authorized herein. Participants shall also be
entitled to all of the rights and privileges afforded under the Plan, including
those specifically granted by ERISA.
2.07 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by the Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to the Employee had he or she not been omitted. Such contribution shall
be made regardless of whether or not it is deductible in whole or in part in any
taxable year under applicable provisions of the Code.
2.08 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as
a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has been
made, the Employer shall not be entitled to recover the contribution made with
respect to the ineligible person regardless of whether or not a deduction is
allowable with respect to such contribution.
2.09 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate
must be communicated to the Employer, in writing, at least thirty (30) days
before the beginning of a Plan Year.
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ARTICLE III.
CONTRIBUTIONS AND ALLOCATIONS
3.01 CONTRIBUTIONS BY THE EMPLOYER.
For each Plan Year, the Employer shall contribute to the Plan:
(A) The amount of the total salary reduction elections of all
Participants made pursuant to Section 3.02(A), which amount shall be deemed
an Employer's Elective Contribution.
(B) On behalf of each Participant who is eligible to share in matching
contributions for the Plan Year, a discretionary matching contribution
equal to a percentage of each such Participant's Deferred Compensation, the
exact percentage to be determined each year by the Employer, which amount
shall be deemed an Employer' Non-Elective Contribution.
(C) A discretionary amount, which amount shall be deemed an Employer's
Non-Elective Contribution. Subject to the right of the Employer to alter,
amend, or terminate the Plan, the Employer shall make a contribution to the
Trust Fund in an amount to be determined by resolution of the Board of
Directors of the Employer on or before the last day of the Fiscal Year of
the Employer or such other time as may be appropriate. The Employer's
determination of such contribution shall be binding upon all Participants
and the Employer. In the event that the Board of Directors of the Employer
shall not determine that any amount is to be contributed to the Plan, the
Employer shall be under no obligation to make any contribution.
(D) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of the Code
Section 404. All
28.
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contributions by the Employer shall be made in cash or in such property
as is acceptable to the Trustee.
(E) Except, however, to the extent necessary to provide the top heavy
minimum allocations, the Employer shall make a contribution even if it
exceeds the amount which is deductible under Code Section 404.
3.02 PARTICIPANT'S SALARY REDUCTION ELECTION
(A) Each Participant may elect to defer his or her compensation which
would have been received in the Plan Year, but for the deferral election,
by up to Fifteen Percent (15%). A deferral election (or modification of an
earlier election) may not be made with respect to Compensation which is
currently available on or before the date the Participant executed such
election.
The amount by which Compensation is reduced shall be that
Participant's Deferred Compensation and be treated as an Employer Elective
Contribution and allocated to that Participant's Elective Account.
(B) The balance in each Participant's Elective Account shall be fully
Vested at all times and shall not be subject to Forfeiture for any reason.
(C) Amounts held in the Participant's Elective Account may not be
distributable earlier than:
(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the establishment or
existence of a "successor plan", as that term is described in
Regulation 1.401(k)-1(d)(3);
(4) the date of disposition by the Employer to an entity that is
not a Related Employer of substantially all of the assets (within the
meaning of Code Section 409(d)(2) used in a trade or business of such
corporation if such corporation continues to maintain
29.
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this Plan after the disposition with respect to a Participant who
continues employment with the corporation acquiring such assets;
(5) the date of disposition by the Employer or a Related Employer
who maintains the Plan of its interest in a subsidiary (within the
meaning of Code Section 409(d)(3)) to an entity which is not a Related
Employer but only with respect to a Participant who continues
employment with such subsidiary; or
(6) the proven financial hardship of a Participant, subject to
the limitations of Sections 5.10 and 6.10.
(D) For each Plan Year beginning after December 31, 1987, a
Participant's Deferred Compensation made under this Plan and all other
plans, contracts or arrangements of the Employer maintaining this Plan
shall not exceed, during any taxable year of the Participant, the
limitation imposed by Code Section 402(g), as in effect at the beginning of
such taxable year. If such dollar limitation is exceeded, a Participant
will be deemed to have notified the Plan Administrator of such excess
amount which shall be distributed in a manner consistent with Section
3.02(F). The dollar limitation shall be adjusted annually pursuant to the
method provided in Code Section 415(d) in accordance with Regulations.
(E) In the event a Participant has received a hardship distribution
from his or her participant's Elective Account pursuant to Sections 5.10 or
6.10 or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from any other plan
maintained by the Employer, then such Participant shall not be permitted to
elect to have Deferred Compensation contributed to the Plan on his or her
behalf for a period of Twelve (12) months following the receipt of the
distribution. Furthermore, the dollar limitation under Code Section 402(g)
shall be reduced, with respect to the Participant's taxable year
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following the taxable year in which the hardship distribution was made, by
the amount of such Participant's Deferred Compensation, if any, pursuant to
the Plan (and any other plan maintained by the Employer) for the taxable
year of the hardship distribution.
(F) If a Participant's Deferred Compensation under this Plan together
with any elective deferrals (as defined in Regulation 1.402(g)-1(b) under
another qualified cash or deferred arrangement (as defined in Code Section
401(k)), a simplified employee pension (as defined in Code Section 408(k)),
a salary reduction arrangement (within the meaning of Code Section
3121(a)(5)(D)), a deferred compensation plan under Code Section 457, or a
trust described in Code Section 501(c)(18) cumulatively exceed the
limitation imposed by Code Section 402(g) (as adjusted annually in
accordance with the method provided in Code Section 415(d) pursuant to
Regulations) for such Participant's taxable year, the Participant may, not
later than March 1 following the close of the Participant's taxable year,
notify the Plan Administrator in writing of such excess and request that
his or her Deferred Compensation under this Plan be reduced by an amount
specified by the Participant. In such event, the Plan Administrator may
direct the Trustee to distribute such excess amount (and any income
allocable to such excess amount) to the Participant no later than the first
April 15th following the close of the Participant's taxable year.
Distributions in accordance with this paragraph may be made for any taxable
year of the Participant which begins after December 31, 1986. Any
distribution of less than the entire amount of Excess Deferred Compensation
and income shall be treated as a pro rata distribution of Excess Deferred
Compensation and income. The amount distributed shall not exceed the
Participant's Deferred Compensation under the Plan for the taxable year.
Any distribution on or before the
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last day of the Participant's taxable year must satisfy each of the
following conditions:
(1) the distribution must be made after the date on which the
Plan received the Excess Deferred Compensation;
(2) the Participant shall designate the distribution as Excess
Deferred Compensation; and
(3) the Plan must designate the distribution as a distribution of
Excess Deferred Compensation.
Any distribution made pursuant to this Section shall be made
simultaneously from Deferred Compensation and matching contributions which
relate to such Deferred Compensation.(G) Notwithstanding Section 3.02(F)
above, a Participant's Excess Deferred Compensation shall be reduced, but
not below zero, by any distribution of Excess Contributions pursuant to
Section 3.06(A) for the Plan Year beginning with or within the taxable year
of the Participant.
(G) At Normal Retirement Date, or such other date when the Participant
shall be entitled to receive benefits, the fair market value of the
Participant's Elective Account shall be used to provide additional benefits
to the Participant or his or her Beneficiary.
(H) All amounts allocated to a Participant's Elective Account may be
treated as a Directed Investment Account pursuant to Section 3.17.
(I) Employer Elective Contributions made pursuant to this Section may
be segregated into a separate account for each Participant in a federally
insured savings account, certificate of deposit in a bank or savings and
loan association, money market certificate, or other short-term debt
security acceptable to the Trustee until such time as the allocations
pursuant to Section 3.04 have been made.
(J) The Employer and the Plan Administrator shall implement the salary
reduction elections provided for herein in accordance with the following:
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(1) A Participant may commence making elective deferrals to the
Plan only after first satisfying the eligibility and participation
requirements specified in Article II. However, the Participant must
make his or her initial salary deferral election within a reasonable
time, not to exceed thirty (30) days, after entering the Plan. If the
Participant fails to make an initial salary deferral election within
such time, then such Participant may thereafter make an election in
accordance with the rules governing modifications. The Participant
shall make such an election by entering into a written salary
reduction agreement with the Employer and filing such agreement with
the Plan Administrator. Such election shall initially be effective
beginning with the pay period following the acceptance of the salary
reduction agreement by the Plan Administrator, shall not have
retroactive effect and shall remain in force until revoked.
(2) A Participant may modify a prior election during the Plan
Year and concurrently make a new election by filing a written notice
with the Plan Administrator within a reasonable time before the pay
period for which such modification is to be effective. However,
modifications to a salary deferral election shall only be permitted
semi-annually, during election periods established by the Plan
Administrator. Any modification shall not have retroactive effect and
shall remain in force until revoked.
(3) A Participant may elect to prospectively revoke his or her
salary reduction agreement in its entirety at any time during the Plan
Year by providing the Plan Administrator with thirty (30) days written
notice of such revocation (or upon such shorter notice period as may
be acceptable to the Plan Administrator). Such revocation shall become
effective as of the
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beginning of the first pay period coincident with or next following
the expiration of the notice period. Furthermore, the termination of
the Participant's employment, or the cessation of participation for
any reason, shall be deemed to revoke any salary reduction agreement
then in effect, effective immediately following the close of the pay
period within which such termination or cessation occurs.
3.03 TIME OF PAYMENT OF CONTRIBUTIONS. The Employer shall pay the
contribution for each Plan Year to the Trustees within the time prescribed by
law, including any extension of time for the filing of a federal income tax
return for such year or within such period as provided by the Internal Revenue
Code of 1986 as amended.
However, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general assets,
but in any event within ninety (90) days from the date on which such amounts
would otherwise have been payable to the Participant in cash. The provisions of
Department of Labor regulations 2510.3-102 are incorporated herein by reference.
Furthermore, any additional Employer contributions which are allocable to the
Participant's Elective Account for a Plan Year shall be paid to the Plan no
later than the twelve-month period immediately following the close of such Plan
Year.
3.04 ALLOCATION OF CONTRIBUTIONS AND EARNINGS.
(A) The Plan Administrator shall establish and maintain an account in the
name of each Participant to which the Plan Administrator shall credit all
amounts allocated to each such Participant as set forth herein.
(B) The Employer shall provide the Plan Administrator with all information
required by the Plan Administrator to make a
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proper allocation of the Employer's contributions for each Plan Year. Within a
reasonable period of time after the date of receipt by the Plan Administrator of
such information the Plan Administrator shall allocate such contributions as
follows:
(1) With respect to the Employer's Elective Contribution made pursuant
to Section 3.01(A), to each Participant's Elective Account in an amount
equal to each such Participant's Deferred Compensation for the year.
(2) With respect to the Employer's Non-Elective Contribution made
pursuant to Section 3.01(B), to each Participant's Account in accordance
with Section 3.01(B). Only Participants who are actively employed on the
last day of the Plan Year or whose employment terminated because of death
or Total and Permanent Disability or after attainment of Normal Retirement
Age shall be eligible to share in the matching contribution for the year.
(3) With respect to the Employer's Non-Elective Contribution made
pursuant to Section 3.01(C), to each Participant's account as follows:
Step 1: Contributions and forfeitures will be allocated to each
Participant's account in the ratio that each Participant's total
Compensation bears to all Participants' total Compensation, but not in
excess of 3% of each Participant's Compensation.
Step 2: Any contributions and forfeitures remaining after the
allocation in Step 1 will be allocated to each Participant's account in the
ratio that each Participant's Compensation for the Plan Year in excess of
the Integration Level bears to the excess compensation of all Participants,
but not in excess of 3%.
Step 3: Any contributions and forfeitures remaining after the
allocation in Step 2 will be allocated to each Participant's account in the
ratio that the sum of each Participant's total Compensation and
Compensation in excess of the Integration Level bears to the sum of all
Participants' total Compensation and Compensation in excess of the
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Integration Level, but not in excess of the profit sharing maximum
disparity rate.
Step 4: Any remaining Employer contributions or forfeitures will be
allocated to each Participant's account in the ratio that each
Participant's total Compensation for the Plan Year bears to all
Participant's total Compensation for that year.
The Integration Level shall be equal to the taxable wage base. The taxable
wage base is the maximum amount of earnings which may be considered wages for a
year under Section 3121(a)(1) of the Code in effect as of the beginning of the
Plan Year.
The maximum profit sharing disparity rate is equal to the difference
between 3% and the greater of:
(a) 5.7 percentage points; or
(b) the percentage equal to the portion of the Code Section 3111(a)
tax attributable to Old Age Insurance.
Only Participants who have completed a Year of Service and who are actively
employed on the last day of the Plan Year or whose employment terminated because
of death or Total and Permanent Disability or after attainment of Normal
Retirement Age shall be eligible to share in the contribution for the year.
Notwithstanding the foregoing, Participants who have at least 500 Hours of
Service shall receive an allocation if the Plan would otherwise fail to meet the
participation and coverage requirements of Code Sections 401(a)(26) or 410(b) or
any other applicable Code Sections.
(C) For any Top Heavy Plan Year, Non-Key Employees not otherwise eligible
to share in the allocation of contributions as provided above, shall receive the
minimum allocation provided for in Section 3.04(G) if eligible pursuant to the
provisions of Section 3.04(I).
(D) The Trustee at such time as it may deem proper but not less frequently
than upon the last day of each Plan Year shall adjust the balances and the
accounts of all Participants upward or downward pro rata so that the total of
such balances will
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equal the net worth of the Trust Fund as of the last day of each Plan Year.
Directed Investment Accounts, as provided in Section 3.17, shall receive all
income earned and bear all expense or loss incurred, subject to uniform and
nondiscriminatory procedures for determining income or loss of a Directed
Investment Account in a manner which reasonably reflects investment directions
relating to pooled investment and investment directions occurring during a
valuation period. Participant Accounts other than Directed Investment Accounts
shall be increased by Fifty Percent (50%) of the contributions, if any,
allocated during the valuation period and decreased by the amounts, if any,
charged against such accounts during the valuation period for reasonable
administrative costs, insurance premiums, and the cash value of incidental
benefit insurance contracts. The net income, gain or loss since the last
Valuation Date shall then be allocated pro rata to the adjusted Participant
Accounts.
(E) MINIMUM ALLOCATIONS REQUIRED FOR TOP HEAVY PLAN YEARS: Notwithstanding
the foregoing, for any Top Heavy Plan Year, the sum of the Employer
Contributions allocated to the Participant's Account of each Non-Key Employee
shall be equal to at least three percent (3%) of such Non-Key Employee's
Compensation, reduced by contributions allocated to each Non-Key Employee in any
other defined contribution plan included with this plan in a required
Aggregation Group. However, if (i) the sum of the Employer Contributions
allocated to the Participant's Account of each Key Employee for such Top Heavy
Plan Year is less than three percent (3%) of each Key Employee's Compensation,
and (ii) this Plan is not required to be included in an Aggregation Group to
enable a defined benefit plan to meet the requirements of Code Section 401(a)(4)
or 410, the sum of the Employer Contributions allocated to the Participant's
Account of each Non-Key Employee shall be equal to the largest percentage
allocated to the Participant's Account of each Key Employee. Notwithstanding
the foregoing, no minimum allocation shall be required in this Plan for any Non-
Key Employee who participates in another defined contribution plan
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which is included with this Plan in a required Aggregation Group, and which plan
provides minimum allocations pursuant to Code Section 412.
(F) For purposes of the minimum allocations set forth above, the percentage
allocated to the Participant's Account of any Key Employee shall be equal to the
ratio of the sum of the Employer Contributions allocated on behalf of such Key
Employee divided by the "415 Compensation" of such Key Employee as defined in
Section 3.09(D).
(G) For any Top Heavy Plan Year, the minimum allocations set forth above
shall be allocated to the Participant's Account of all Non-Key Employees who are
Participants and who are employed by the Employer on the last day of the Plan
Year, including Non-Key Employees who (1) have failed to complete a Year of
Participation; (2) have declined to make mandatory contributions (if required)
to the Plan; or (3) have been excluded from participation because of their level
of Compensation.
(H) In lieu of the above, in any Plan Year in which a Non-Key Employee is a
Participant in both this Plan and a defined benefit pension plan included in a
Required Aggregation Group which is top heavy, the Employer shall not be
required to provide such Non-Key Employee with both the full separate defined
benefit plan minimum benefit and the full separate defined contribution plan
minimum allocation. Therefore for any Plan Year when the Plan is a Top Heavy
Plan, a Non-Key Employee who is participating in this Plan and a defined benefit
plan maintained by the Employer shall receive a minimum monthly accrued benefit
in the defined benefit plan equal to the product of (1) one-twelfth (1/12th) of
"415 Compensation" averaged over the five (5) consecutive "limitation years" (or
actual "limitation years", if less) which produce the highest average and (2)
the lesser of (i) two percent (2%) multiplied by years of service when the plan
is top heavy or (ii) twenty percent (20%). Further, the extra minimum
allocation required to provide higher limitations shall not be provided.
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(I) Notwithstanding anything herein to the contrary, Participants who
terminated employment for any reason during the Plan Year shall share in the
salary reduction contributions made by the Employer for the year of termination
without regard to the Hours of Service credited.
(J) Notwithstanding anything to the contrary, for Plan Years beginning
after December 31, 1989, if this is a Plan that would otherwise fail to meet the
requirements of Code Section 401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the
Regulations thereunder because Employer contributions would not be allocated to
a sufficient number or percentage of Participants for a Plan Year, then the
following rules shall apply:
(1) The group of participants eligible to share in the Employer's
contribution for the Plan Year shall be expanded to include the minimum
number of Leased Employees and Participants who would not otherwise be
eligible as are necessary to satisfy the applicable test specified above.
The specific Participants who shall become eligible under the terms of this
paragraph shall be those who are actively employed on the last day of the
Plan Year and, when compared to similarly situated Participants, have
completed the greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the applicable test
is still not satisfied, then the group of Participants eligible to share in
the Employer's contribution for the Plan Year shall be further expanded to
include the minimum number of Participants and Leased Employees who are not
actively employed on the last day of the Plan Year as are necessary to
satisfy the applicable test. The specific Participants who shall become
eligible to share shall be those Participants, when compared to similarly
situated Participants, who have completed the greatest number of Hours of
Service in the Plan Year before terminating employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts
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that have previously been allocated to Participants may not be reallocated
to satisfy these requirements. In such event, the Employer shall make an
additional contribution equal to the amount such affected Participants
would have received had they been included in the allocation, even if it
exceeds the amount which would be deductible under Code Section 404. Any
adjustment to the allocations pursuant to this paragraph shall be
considered a retroactive amendment adopted by the last day of the Plan
Year.
(4) Notwithstanding the foregoing, for any Top Heavy Plan Year
beginning after December 31, 1992, if the portion of the Plan which is not
a Code Section 401(k) or 401(m) plan would fail to satisfy Code Section
410(b) if the coverage tests were applied by treating those Participants
whose only allocation (under such portion of the Plan) would otherwise be
provided under the top heavy formula as if they were not currently
benefitting under the Plan, then, for purposes of this Section, such
Participants shall be treated as not benefitting and shall therefore be
eligible to be included in the expanded class of Participants who will
share in the allocation provided under the Plan's non top heavy formula.
3.05 ACTUAL DEFERRAL PERCENTAGE TESTS
(A) Maximum Annual Allocation: For Each Plan Year beginning after December
31, 1986, the annual allocation derived from Employer Elective Contributions for
a Participant's Elective Account shall satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral Percentage"
of the Non-Highly Compensated Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the Highly
Compensated Participant group over the "Actual Deferral Percentage" for the
Non-Highly Compensated Participant group shall not be more than two
percentage
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points. Additionally, the "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not exceed the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group multiplied by
2. The provisions of Code Section 401(k)(3) and Regulation 1.401(k)-1(b)
are incorporated herein by reference.
However, for Plan Years beginning after December 31, 1988, in order to
prevent the multiple use of the alternative method described in (2) above
and in Code Section 401(m)(9)(a), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 3.02 and to make
Employee contributions or to receive matching contributions under this Plan
or under any other plan maintained by the Employer or a Related Employer
shall have his or her actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2, the provisions of which are incorporated herein by
reference.
(B) For the purposes of this Section "Actual Deferral Percentage" means,
with respect to the Highly Compensated Participant group and Non-Highly
Compensated Participant group for a Plan Year, the average of the ratios,
calculated separately for each Participant in such group, of the amount of
Employer Elective Contributions allocated to each Participant's Elective Account
for such Plan Year, to such Participant's "414(s) Compensation" for such Plan
Year. The actual deferral ratio for each Participant and the "Actual Deferral
Percentage" for each group shall be calculated to the nearest one-hundredth of
one percent for Plan Years beginning after December 31, 1988. Employer Elective
Contributions allocated to each Non-Highly Compensated Participant's Elective
Account shall be reduced by Excess Deferred Compensation to the extent such
excess amounts are made under this Plan or any other plan maintained by the
Employer.
(C) For the purpose of determining the actual deferral ratio of a Highly
Compensated Employee who is subject to the Family Member aggregation rules of
Code Section 414(q)(6) because
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such Participant is either a "five percent owner" of the Employer or one of the
ten (10) Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual deferral ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall be determined
by aggregating Employer Elective Contributions and "414(s) Compensation" of
all eligible Family Members (including Highly Compensated Participants).
However, in applying the $200,000 limit to "414(s) Compensation", for Plan
Years beginning after December 31, 1988, Family Members shall include only
the affected Employee's spouse and any lineal descendants who have not
attained age 19 before the close of the Plan Year. Notwithstanding the
foregoing, with respect to Plan Years beginning prior to January 1, 1990,
compliance with the Regulations then in effect shall be deemed to be
compliance with this paragraph.
(2) The Employer Elective Contributions and "414(s) Compensation" of
all Family Members shall be disregarded for purposes of determining the
"Actual Deferral Percentage" of the Non-Highly Compensated Participant
group except to the extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of more
than one family group in a plan, all Participants who are members of those
family groups that include the Participant are aggregated as one family
group in accordance with paragraphs (1) and (2) above.
(D) For the purposes of Sections 3.05(A) and 3.06 , a Highly Compensated
Participant and a Non-Highly Compensated Participant shall include any Employee
eligible to make a deferral election pursuant to Section 3.02, whether or not
such deferral election was made or suspended pursuant to Section 3.02.
(E) For the purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(k), if two or more plans which include cash or deferred arrangements are
considered one plan for the
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purposes of Code Section 401(a)(4) or 410(b) (other than Code Section
410(b)(2)(A)(ii) as in effect for Plan Years beginning after December 31, 1988),
the cash or deferred arrangements included in such plans shall be treated as one
arrangement. In addition, two or more cash or deferred arrangements may be
considered as a single arrangement for purposes of determining whether or not
such arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In such a
case, the cash or deferred arrangements included in such plans and the plans
including such arrangements shall be treated as one arrangement and as one plan
for purposes of this Section and Code Sections 401(a)(4), 410(b) and 401(k).
Plans may be aggregated under this paragraph (E) for Plan Years beginning after
December 31, 1989 only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December 31,
1988, an employee stock ownership plan described in Code Section 4975(e)(7) or
409 may not be combined with this Plan for purposes of determining whether the
employee stock ownership plan or this Plan satisfies this Section and Code
Sections 401(a)(4), 410(b) and 401(k).
(F) For the purposes of this Section, if a Highly Compensated Participant
is a Participant under two or more cash or deferred arrangements (other than a
cash or deferred arrangement which is part of an employee stock ownership plan
as defined in Code Section 4975(e)(7) or 409 for Plan Years beginning after
December 31, 1988) of the Employer or a Related Employer, all such cash or
deferred arrangements shall be treated as one cash or deferred arrangement for
the purposes of determining the actual deferral ratio with respect to such
Highly Compensated Participant. However, for Plan Years beginning after December
31, 1988, if the cash or deferred arrangements have different plan years, this
paragraph shall be applied by treating all cash or deferred arrangements ending
with or within the same calendar year as a single arrangement.
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3.06 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions made pursuant to Section 3.04 do not satisfy one of the tests set
forth in Section 3.05(A) for Plan Years beginning after December 31, 1986, the
Plan Administrator shall adjust Excess Contributions pursuant to the options set
forth below:
(A) On or before the fifteenth day of the third month following the
end of each Plan Year, the Highly Compensated Participant having the
highest actual deferral ratio shall have his or her portion of Excess
Contributions distributed until one of the tests set forth in Section
3.05(A) is satisfied, or until his or her actual deferral ratio equals the
actual deferral ratio of the Highly Compensated Participant having the
second highest actual deferral ratio. This process shall continue until one
of the tests set forth in Section 3.05(A) is satisfied. For each Highly
Compensated Participant, the amount of Excess Contributions is equal to the
Elective Contributions on behalf of such Highly Compensated Participant
(determined prior to the application of this paragraph) minus the amount
determined by multiplying the Highly Compensated Participant's actual
deferral ratio (determined after application of this paragraph) by his or
her "414(S) Compensation". However, in determining the amount of Excess
Contributions to be distributed with respect to an affected Highly
Compensated Participant as determined herein, such amount shall be reduced
by any Excess Deferred Compensation previously distributed to such affected
Highly Compensated Participant for his or her taxable year ending with or
within such Plan Year.
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of the
Plan Year following the Plan Year to which they are allocable;
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(ii) shall be made simultaneously from Deferred
Compensation and matching contributions which relate to such
Deferred Compensation provided, however, that any such matching
contributions which are not Vested shall be forfeited in lieu of
distribution;
(iii) shall be adjusted for Income; and
(iv) shall be designated by the Employer as a distribution
of Excess Contributions (and Income).
(2) Any distribution of less than the entire amount of Excess
Contributions shall be treated as a pro rata distribution of Excess
Contributions and Income.
(3) The determination and correction of Excess Contributions of a
Highly Compensated Participant whose actual deferral ratio is
determined under the family aggregation rules shall be accomplished by
reducing the actual deferral ratio as required herein, and the Excess
Contributions of the family unit shall then be allocated among the
Family Members in proportion to the Elective Contributions of each
Family Member that were combined to determine the group actual
deferral ratio. Notwithstanding the foregoing, with respect to Plan
Years beginning prior to January 1, 1990, compliance with the
Regulations then in effect shall be deemed to be compliance with this
paragraph.
(B) Within twelve (12) months after the end of the Plan Year, the
Employer may make a special Qualified Non-Elective Contribution on behalf
of Non-Highly Compensated Participants in an amount sufficient to satisfy
one of the tests set forth in Section 3.05(A). Such contribution shall be
allocated to the Participant's Elective Account of each Non-Highly
Compensated Participant in the same proportion that each Non-Highly
Compensated Participant's Compensation
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for the year bears to the total Compensation of all Non-Highly Compensated
Participants.
(C) If during a Plan Year the projected aggregate amount of Elective
Contributions to be allocated to all Highly Compensated Participants under
this Plan would, by virtue of the tests set forth in Section 3.05(A), cause
the Plan to fail such tests, then the Plan Administrator may automatically
reduce proportionately or in the order provided in Section 3.06(A) each
affected Highly Compensated Participant's deferral election made pursuant
to Section 3.02 by an amount necessary to satisfy one of the tests set
forth in Section 3.06(A).
3.07 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(A) The "Actual Contribution Percentage" for Plan Years beginning after
December 31, 1986 for the Highly Compensated Participant group shall not exceed
the greater of:
(1) 125 percent of such percentage of the Non-Highly Compensated
Participant group; or
(2) the lesser of 200 percent of such percentage for the Non-Highly
Compensated Participant group, or such percentage for the Non-Highly
Compensated Participant group plus 2 percentage points. However, for Plan
Years beginning after December 31, 1988, in order to prevent the multiple
use of the alternative method described in this paragraph and in Code
Section 401(m)(9)(a), any Highly Compensated Participant eligible to make
elective deferrals pursuant to Section 3.02 or any other cash or deferred
arrangement maintained by the Employer or a Related Employer and to make
Employee contributions or to receive matching contributions under this Plan
or under any other plan maintained by the Employer or a Related Employer
shall have his or her actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2. The provisions of Code Section 401(m) and
Regulations 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by
reference.
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(B) For the purposes of this Section and Section 3.08 "Actual Contribution
Percentage" for a Plan Year means, with respect to the Highly Compensated
Participant group and Non-Highly Compensated Participant group, the average of
the ratios, calculated separately for each Participant in such group, of
(1) the sum of Employer matching contributions made pursuant to
Section 3.01(B) on behalf of each such Participant for such Plan Year;
to
(2) the Participant's "414(s) Compensation" for the such Plan
Year.
(C) For purposes of determining the "Actual Contribution Percentage" and
the amount of Excess Aggregate Contributions pursuant to Section 3.08(D), only
Employer matching contributions (excluding Employer matching contributions
distributed pursuant to Sections 3.02(F) and 3.06(A)) contributed to the Plan
prior to the end of the succeeding Plan Year shall be considered. In addition,
the Plan Administrator may elect to take into account, with respect to Employees
eligible to have Employer matching contributions pursuant to Section 3.01(B)
allocated to their accounts, elective deferrals (as defined in Regulation
1.402(g)-1(b) and qualified non-elective contributions (as defined in Code
Section 401(m)(C)) contributed to any plan maintained by the Employer. Such
elective deferrals and qualified non-elective contributions shall be treated as
Employer matching contributions subject to Regulation 1.401(m)-1(b)(5) which is
incorporated herein by reference. However, for Plan Years beginning after
December 31, 1988, the Plan Year must be the same as the plan year of the plan
to which the elective deferrals and the qualified non-elective contributions are
made.
(D) For the purpose of determining the actual contribution ratio of a
Highly Compensated Employee who is subject to the Family Member aggregation
rules of Code Section 414(q)(6) because such Participant is either a "five
percent owner" of the Employer or one of the ten (10) Highly Compensated
Employees paid the greatest "415 Compensation" during the year, the following
shall apply:
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(1) The combined actual contribution ratio for the family group (which
shall be treated as one Highly Compensated Participant) shall be determined
by aggregating Employer matching contributions made pursuant to Section
3.01(B) and "414(s) Compensation" of all eligible Family Members (including
Highly Compensated Participants). However, in applying the $200,000 limit
to "414(s) Compensation", for Plan Years beginning after December 31, 1988,
Family Members shall include only the affected Employee's spouse and any
lineal descendants who have not attained age 19 before the close of the
Plan Year. Notwithstanding the foregoing, with respect to Plan Years
beginning prior to January 1, 1990, compliance with the Regulations then in
effect shall be deemed to be compliance with this paragraph.
(2) The Employer matching contributions made pursuant to Section
3.01(B) and "414(s) Compensation" of all Family Members shall be
disregarded for purposes of determining the "Actual Contribution
Percentage" of the Non-Highly Compensated Participant group except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of more
than one family group in a plan, all Participants who are members of those
family groups that include the Participant are aggregated as one family
group in accordance with paragraphs (1) and (2) above.
(E) For the purposes of this Section and Code Sections 401(a)(4), 410(b)
and 401(m), if two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made are treated as one plan
for the purposes of Code Section 401(a)(4) or 410(b) (other than the average
benefits test under Code Section 410(b)(2)(A)(ii) as in effect for Plan Years
beginning after December 31, 1988), such plans shall be treated as one plan. In
addition, two or more plans of the Employer to which matching contributions,
Employee contributions, or both, are made may be considered as a single plan for
purposes
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of determining whether or not such plans satisfy Code Sections 401(a)(4), 410(b)
and 401(m). In such a case, the aggregated plans must satisfy this Section and
Code Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans were
a single plan. Plans may be aggregated under this paragraph (E) for Plan Years
beginning after December 31, 1989 only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning after December 31,
1988, an employee stock ownership plan described in Code Section 4975(e)(7) or
409 may not be aggregated with this Plan for purposes of determining whether the
employee stock ownership plan or this Plan satisfies this Section and Code
Sections 401(a)(4), 410(b) and 401(m).
(F) If a Highly Compensated Participant is a Participant under two or more
plans (other than an employee stock ownership plan as defined in Code Section
4975(e)(7) or 409 for Plan Years beginning after December 31, 1988) which are
maintained by the Employer or a Related Employer to which matching
contributions, Employee contributions, or both, are made, all such contributions
on behalf of such Highly Compensated Participant shall be aggregated for the
purposes of determining the actual contribution ratio with respect to such
Highly Compensated Participant. However, for Plan Years beginning after
December 31, 1988, if the plans have different plan years, this paragraph shall
be applied by treating all cash or deferred arrangements ending with or within
the same calendar year as a single plan.
(G) For purposes of Sections 3.07(A) and 3.08, a Highly Compensated
Participant and Non-Highly Compensated Participant shall include any Employee
eligible to have Employer matching contributions pursuant to Section 3.01(B)
(whether or not a deferral election was made or suspended pursuant to Section
3.02(E)) allocated to his or her account for the Plan Year.
3.08 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(A) In the event that, for Plan Years beginning after December 31, 1986,
the "Actual Contribution Percentage" for the
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Highly Compensated Participant group exceeds the Actual Contribution Percentage
for the Non-Highly Compensated Participant group pursuant to Section 3.07(A),
the Plan Administrator (on or before the fifteenth day of the third month
following the end of the Plan Year, but in no event later than the close of the
following Plan Year) shall direct the Trustee to distribute to the Highly
Compensated Participant having the highest actual contribution ratio, his or her
portion of Excess Aggregate Contributions (and income allocable to such
contributions) until either one of the tests set forth in Section 3.07(A) is
satisfied, or until his or her actual contribution ratio equals the actual
contribution ratio of the Highly Compensated Participant having the second
highest actual contribution ratio. This process shall continue until one of the
tests set forth in Section 3.07(A) is satisfied.
(B) Any distribution of less than the entire amount of Excess Aggregate
Contributions (and income) shall be treated as a pro rata distribution of Excess
Aggregate Contributions and income. Distribution of Excess Aggregate
Contributions shall be designated by the Employer as a distribution of Excess
Aggregate Contributions (and Income).
(C) Excess Aggregate Contributions shall be treated as Employer
contributions for purposes of Code Sections 404 and 415 even if distributed from
the Plan.
(D) For each Highly Compensated Participant, the amount of Excess
Aggregate Contributions is equal to the Employer matching contributions made
pursuant to Section 3.01(B) and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section 3.07(C) on behalf of
such Highly Compensated Participant (determined prior to the application of this
paragraph) minus the amount determined by multiplying the Highly Compensated
Participant's actual contribution ratio (determined after application of this
paragraph) by his or her "414(s) Compensation". However, in determining the
amount of Excess Contributions to be distributed with respect to an affected
Highly Compensated Participant as determined herein,
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such amount shall be reduced by any Excess Deferred Compensation previously
distributed to such affected Highly Compensated Participant for his or her
taxable year ending with or within such Plan Year. The actual contribution ratio
must be rounded to the nearest one-hundredth of one percent for Plan Years
beginning after December 31, 1988. In no case shall the amount of Excess
Aggregate Contribution with respect to any Highly Compensated Participant exceed
the amount of Employer matching contributions made pursuant to Section 3,01(B)
and any qualified non-elective contributions or elective deferrals taken into
account pursuant to Section 3.07(C) on behalf of such Highly Compensated
Participant for such Plan Year.
(E) The determination of the amount of Excess Aggregate Contributions with
respect to any Plan Year shall be made after first determining the Excess
Contributions, if any, to be treated as voluntary Employee contributions due to
recharacterization for the plan year of any other qualified cash or deferred
arrangement (as defined in Code Section 401(k)) maintained by the Employer that
ends with or within the Plan Year.
(F) If the determination and correction of Excess Aggregate Contributions
of a Highly Compensated Participant whose actual contribution ratio is
determined under the family aggregation rules, then the actual contribution
ratio shall be reduced and the Excess Aggregate Contributions for the family
unit shall be allocated among the Family Members in proportion to the sum of
Employer matching contributions made pursuant to Section 3.01(B) and any
qualified non-elective contributions or elective deferrals taken into account
pursuant to Section 3.07(C) of each Family Member that were combined to
determine the group actual contribution ratio. Notwithstanding the foregoing,
with respect to Plan Years beginning prior to January 1, 1990, compliance with
the Regulations then in effect shall be deemed to be compliance with this
paragraph.
(G) If during a Plan Year the projected aggregate amount of Employer
matching contributions to be allocated to all Highly Compensated Participants
under this Plan would, by virtue of the
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tests set forth in Section 3.07(A), cause the Plan to fail such tests, then the
Plan Administrator may automatically reduce proportionately or in the order
provided in Section 3.08(A) each affected Highly Compensated Participant's
projected share of such contributions by an amount necessary to satisfy one of
the tests set forth in Section 3.07(A).
(H) Notwithstanding the above, within twelve (12) months after the end of
the Plan Year, the Employer may make a special Qualified Non-Elective
Contribution on behalf of Non-Highly Compensated Participants in an amount
sufficient to satisfy one of the tests set forth in Section 3.07(A). Such
contribution shall be allocated to the Participant's Elective Account of each
Non-Highly Compensated Participant in the same proportion that each Non-Highly
Compensated Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants. A separate accounting
shall be maintained for the purpose of excluding such contributions from the
"Actual Deferral Percentage" tests pursuant to Section 3.05(A).
3.09 MAXIMUM ANNUAL ADDITION.
(A) The Annual Addition to a Participant's Account shall not exceed the
lesser of Thirty Thousand Dollars ($30,000.00) (or such greater amount as may be
determined by the Secretary of the Treasury) or twenty-five percent (25%) of the
Participant's Compensation (as defined in Code Section 415(c)(3) and such
regulations thereunder as may be promulgated) for that Plan Year.
(B) The term "Annual Addition" for any Limitation Year means the sum of:
(1) The Employer Contributions; and
(2) The Employee's allocable share of Forfeitures; and
(3) The Employee's contributions, for Limitation Years beginning
after December 31, 1986; and
(4) Amounts allocated after March 31, 1984, to an individual medical
account, as defined in Code Section
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415(1)(1), which is part of a pension or annuity plan maintained by the
Employer; and
(5) Amounts derived from contributions paid or accrued after December
31, 1985, in taxable years ending after such date which are attributable to
post-retirement medical benefits allocated to the separate account of a Key
Employee (as defined in Code Section 419A(d)(3)) under a welfare benefit
plan (as defined in Code Section 419(e)) maintained by the Employer.
(C) For purposes of applying the limitations of Code Section 415, the
following are not Annual Additions: (1) transfer of funds from one qualified
plan to another; (2) rollover contributions (as defined in Code Sections
402(a)(5), 403(a)(4), 408(d)(3) and 408(b)(3)(C)); (3) repayments of loans made
to a Participant from the Plan; (4) repayments of distributions received by an
Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (5) repayments of
distributions received by an Employee pursuant to Code Section 411(a)(3)(D)
(mandatory contributions); and (6) deductible Employee contributions to a
qualified Plan.
(D) For purposes of applying the limitations of Code Section 415, "415
Compensation" shall include the Participant's wages, salaries, fees for
professional service and other amounts for personal services actually rendered
in the course of employment with an Employer maintaining the Plan (including,
but not limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips and
bonuses and in the case of a Participant who is an Employee within the meaning
of Code Section 401(c)(1) and the regulations thereunder, the Participant's
earned income (as described in Code Section 401(c)(2) and the regulations
thereunder) paid during the Limitation Year. "415 Compensation" shall exclude:
(1)(A) contributions made by the Employer to a plan of deferred compensation to
the extent that, before the application of the Code Section 415 limitations to
the Plan, the contributions are not includable in the gross income of
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the Employee for the taxable year in which contributed, (B) Employer
contributions made on behalf of an Employee to a simplified employee pension
plan described in Code Section 408(k) to the extent such contributions are
deductible by the Employee under Code Section 219(a), (C) any distributions from
a plan of deferred compensation regardless of whether such amounts are
includable in the gross income of the Employee when distributed except any
amounts received by an Employee pursuant to an unfunded non-qualified plan to
the extent such amounts are includable in the gross income of the Employee; (2)
amounts realized from the exercise of a non-qualified stock option or when
restricted stock (or property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture; (3)
amounts realized from the sale, exchange or other disposition of stock acquired
under a qualified stock option; and (4) other amounts which receive special tax
benefits, such as premiums for group term life insurance (but only to the extent
that the premiums are not includable in the gross income of the Employee), or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of any annuity contract described in Code
Section 403(b) (whether or not the contributions are excludable from the gross
income of the Employee).
(E) For purposes of applying the limitations of Code Section 415, the
Limitation Year shall be the Plan Year.
(F) The dollar limitation under Code Section 415(b)(1)(A) stated in
paragraph (a)(1) above shall be adjusted annually as provided in Code Section
415(d) pursuant to regulations. The adjusted limitation is effective as of
January 1st of each calendar year and is applicable to Limitation Years ending
with or within that calendar year.
(G) For the purpose of this Section, all qualified defined benefit pension
plans (whether terminated or not) ever maintained by the Employer shall be
treated as one defined benefit plan, and all qualified defined contribution
plans (whether terminated or
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not) ever maintained by the Employer shall be treated as one defined
contribution plan.
(H) For the purpose of this Section, if the Employer is a member of a
controlled group of corporations, trades or businesses under common control (as
defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by
Code Section 414(h) or is a member of an affiliated service group (as defined by
Code Section 414(m)), all Employees of such Employers shall be considered to be
employed by a single Employer.
(I) For the purpose of this Section, if this Plan is a Code Section 413(c)
plan, all Employers of a Participant who maintain this Plan will be considered
to be a single Employer.
3.10 MULTIPLE PLAN REDUCTION. Subject to the exception in Section
3.10(E) below, if an Employee is (or has been) a Participant in one or more
defined benefit plans and one or more defined contribution plans maintained by
the Employer, the sum of the defined benefit plan fraction and the defined
contribution plan fraction for any limitation year may not exceed 1.0.
(A) Defined Benefit Plan Fraction:
-----------------------------
(1) The defined benefit plan fraction for any Limitation Year is a
fraction (a) the numerator of which is the "projected annual benefit" of
the Participant under the Plan (determined as of the close of the
Limitation Year), and (b) the denominator of which is the greater of (i)
the product of 1.25 multiplied by the "protected current accrued benefit"
or (ii) the lesser of (a) the product of 1.25 multiplied by the maximum
dollar limitation provided under Code Section 415(b)(1)(A) for such
limitation year, or (b) the product of 1.4 multiplied by the amount which
may be taken into account under Code Section 415(b)(1)(B) for such
Limitation Year.
(2) For purposes of applying the limitations of Code Section 415, the
"projected annual benefit" for any Participant is the benefit, payable
annually, under
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the terms of the Plan determined pursuant to Regulation Section 1.415-
7(b)(3).
(3) For purposes of applying the limitations of Code Section 415,
"protected current accrued benefit" for any Participant in a defined
benefit plan in existence on July 1, 1982 shall be the accrued benefit,
payable annually, provided for under question T-3 of Internal Revenue
Service Notice 83-10.
(B) Defined Contribution Plan Fraction:
----------------------------------
(1) The defined contribution plan fraction for any Limitation Year is
a fraction (a) the numerator of which is the sum of the Annual Additions to
the Participant's account as of the close of the Limitation Year and (b)
the denominator of which is the sum of the lesser of the following amounts
determined for such year and each prior year of service with the Employer:
(i) the product of 1.25 multiplied by the dollar limitation in effect under
Code Section 415(c)(1)(A) for such Limitation Year (determined without
regard to Code Section 415(c)(6)), or (ii) the product of 1.4 multiplied by
the amount which may be taken into account under Code Section 415(c)(1)(B)
for such Limitation Year.
(2) Notwithstanding the foregoing, the numerator of the defined
contribution plan fraction shall be adjusted pursuant to Regulation 1.415-
7(d)(1) and questions T-6 and T-7 of Internal Revenue Service Notice 83-10.
(3) For defined contribution plans in effect on or before July 1,
1982, the Plan Administrator may elect, for any Limitation Year ending
after December 31, 1982, that the amount taken into account in the
denominator for every Participant for all limitation years ending before
January 1, 1983 shall be an amount equal to the product of (a) the
denominator for the Limitation Year ending in 1982 determined under the law
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in effect for the Limitation Year ending in 1982 multiplied by (b) the
transition fraction.
(4) For purposes of the preceding paragraph, the term "transition
fraction" shall mean a fraction (a) the numerator of which is the lesser of
(i) Fifty-One Thousand Eight Hundred Seventy-Five and No/100 Dollars
($51,875.00), or (ii) 1.4 multiplied by twenty-five percent (25%) of the
Participant's Compensation for the Limitation Year ending in 1981, and (b)
the denominator of which is the lesser of (i) Forty-One Thousand Five
Hundred and No/100 Dollars ($41,500.00) or (ii) twenty-five percent (25%)
of the Participant's Compensation for the Limitation Year ending in 1981.
(5) Notwithstanding the foregoing, for any Limitation Year in which
the Plan is a Top Heavy Plan, Forty-One Thousand Five Hundred and No/100
Dollars ($41,500.00) shall be substituted for Fifty-One Thousand Eight
Hundred Seventy-Five and No/100 Dollars ($51,875.00) in determining the
transition fraction unless the extra minimum allocation is being provided
pursuant to Section 3.04. However, for any Limitation Year in which this
Plan is a Super Top Heavy Plan, Forty-One Thousand Five Hundred and No/100
Dollars ($41,500.00) shall be substituted for Fifty-One Thousand Eight
Hundred Seventy-Five and No/100 Dollars ($51,875.00) in any event.
(6) If the Employer maintained this Plan and a defined benefit plan on
May 6, 1986 and if both plans satisfied the requirements of Code Section
415 for the last limitation year beginning before January 1, 1987, the
numerator of the defined contribution fraction shall be reduced by an
amount equal to the product of:
(a) the sum of the defined contribution fraction plus the defined
benefit fraction as of the "determination date" minus one (1), times
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(b) the denominator of the defined contribution fraction as of
the "determination date".
The "determination date" is the day immediately preceding the first
limitation year beginning after 1986. The fractions in (a) and (b) above
shall be computed in accordance with Code Section 415 as amended by the Tax
Reform Act of 1986 and Section 1106(i)(3) of the Tax Reform Act of 1986.
The adjustment will be made only after any accruals in excess of the Tax
Reform Act of 1986 Section 415 limits are reduced as described in Q&A-13 of
IRS Notice 87-21. The adjustment to the defined contribution fraction will
be made after the elimination of any such excess accruals, or, if not
eliminated, ignoring any such excess accruals. Changes in the terms and
conditions of the plan made after May 5, 1986 shall not be recognized in
making the defined contribution fraction adjustment.
(C) TOP HEAVY AND SUPER TOP HEAVY ADJUSTMENT OF FRACTION. Notwithstanding
the foregoing, for any Limitation Year in which the Plan is a Top Heavy Plan,
1.0 shall be substituted for 1.25 in paragraphs (A)(1) and (B)(1) unless the
extra minimum allocation is being provided pursuant to Section 3.04. However,
for any Limitation Year in which the Plan is a Super Top Heavy Plan, 1.0 shall
be substituted for 1.25 in any event.
(D) EXCESS BENEFITS. If the sum of the defined benefit plan fraction and
the defined contribution plan fraction shall exceed 1.0 in any Limitation Year
for any Participant in this Plan for reasons other than described in (E) below,
the Plan Administrator shall limit, to the extent necessary, the Annual
Additions to such Participant's accounts for the Limitation Year. If, after
limiting the Annual Additions to such Participant's accounts for the Limitation
Year, the sum of the defined benefit plan fraction and the defined contribution
plan fraction still exceeds 1.0, the Plan Administrator shall then adjust the
numerator of the defined benefit plan fraction so that the sum of
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both fractions shall not exceed 1.0 in any Limitation Year for such Participant.
(E) EXCESS BENEFITS DUE TO TRANSITION FRACTION. If (1) the substitution of
1.0 for 1.25 and Forty-One Thousand Five Hundred Dollars ($41,500.00) for Fifty-
One Thousand Eight Hundred Seventy-Five Dollars ($51,875.00) above or (2) the
excess benefit accruals or Annual Additions provided for in Internal Revenue
Service Notice 82-19 cause the 1.0 limitation to be exceeded for any Participant
in any Limitation Year, such Participant shall be subject to the following
restrictions for each future Limitation Year until the 1.0 limitation is
satisfied: (1) the Participant's accrued benefit under the defined benefit plan
shall not increase, (2) no Annual Additions may be credited to a Participant's
accounts, and (3) no Employee contributions (voluntary or mandatory) shall be
made under any defined benefit plan or any defined contribution plan of the
Employer.
3.11 ADJUSTMENT FOR EXCESS ANNUAL ADDITIONS.
(A) If as a result of the allocation of Forfeitures, a reasonable error in
estimating a Participant's Compensation or other facts and circumstances to
which Regulation Section 1.415-6(b)(6) shall be applicable, the Annual Additions
under this Plan would cause the maximum Annual Addition to be exceeded for any
Participant, the Plan Administrator shall (1) return any Elective Contributions
credited for the Limitation Year to the extent that the return would reduce the
excess amount in the Participant's accounts, (2) hold any excess amount
remaining after the return of any Elective Contributions in a "Section 415
suspense account", (3) allocate and reallocate the "Section 415 suspense
account" in the next Limitation Year (and succeeding Limitation Years if
necessary) to all Participants in the Plan before any Employer or Employee
contributions which would constitute Annual Additions are made to the Plan for
such Limitation Year, and (4) reduce Employer Contributions to the Plan for
such Limitation Year by the amount of the "Section 415
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suspense account" allocated and reallocated during such Limitation Year.
(B) For purposes of this Article, "excess amount" for any Participant for a
Limitation Year shall mean the excess, if any, of (1) the Annual Additions which
would be credited to the Participant's account under the terms of the Plan
without regard to the limitations of Code Section 415 over (2) the maximum
Annual Additions determined pursuant to Section 3.09.
(C) For purposes of this Section, "Section 415 suspense account" shall mean
an unallocated account equal to the sum of excess amounts for all Participants
in the Plan during the Limitation Year. The "Section 415 suspense account"
shall not share in any earnings or losses of the Trust Fund.
(D) The Plan may not distribute "excess amounts" to Participants or former
Participants.
3.12 TERMINATION OF EMPLOYMENT. Upon termination of employment for any
reason other than death, disability, or normal retirement, and subject to the
provisions of Articles V and VI, a Participant's Accrued Benefits, if any, shall
be maintained in the Participant's Employer Contribution Account and shall
continue to receive income allocations pursuant to this Article III until
distributed pursuant to Articles V and VI. In the event of termination of
employment, the Participant shall not share in the Employer Contribution or for
the year in which termination occurred unless otherwise provided in Section
3.04.
3.13 RESTORATION OF ACCOUNT. If an Employee who has received a
distribution of all or a portion of the vested benefit is subsequently
reemployed, such Employee may at any time following reemployment but before the
earlier of (a) five (5) years after the date of reemployment or (b) the date
such Employee incurs five (5) consecutive One-Year Breaks in Service following
the date of distribution, repay the full amount of the distribution attributable
to Employer Contributions.
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3.14 VALUATION OF THE TRUST FUND. The Trustee as of the last day of each
Plan Year shall determine the net worth of the assets of the Trust Fund at the
fair market value of the assets as of the Valuation Date and report such value
to the Plan Administrator in writing. Such valuation shall not include any
contribution made by the Employer as of such Valuation Date.
3.15 VALUATION OF PARTICIPANT'S ACCOUNT. In making a valuation for the
purposes of computing the then value of a Participant's account upon termination
of employment or any termination described under Articles V or VI hereof,
valuation shall be made as of the last day of the Plan Year preceding the year
in which any such termination occurs, or at such other time as the Plan
Administrator shall determine in a uniform and nondiscriminatory basis. The
foregoing notwithstanding, in the event that a terminated Participant does not
receive a distribution of the Accrued Benefit during the Plan Year in which the
termination occurs, such Participant shall be entitled to a share of earnings or
losses on his or her account balance until the Accrued Benefit is actually
distributed.
3.16 ALLOCATION. The Trustee shall allocate respectively to each
Participant's Employer Contribution Account all items of income, investment
gains and losses, expenses, and similar credits or deductions attributable to
the investment elections made by each Participant.
3.17 DIRECTED INVESTMENT ACCOUNT.
(A) Participants may direct the Trustee as to the investment of all or a
portion of the vested interest in any one or more of their individual account
balances, including their voluntary contributions account, if any, and their
rollover account, if any. Participants may, subject to a procedure established
by the Plan Administrator and applied in a uniform nondiscriminatory manner,
direct the Trustees in writing to invest of their accounts in specific assets so
long as such
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investment is not otherwise prohibited by the terms of the Plan. To the extent
so directed, the Trustees are relieved of their fiduciary responsibilities as
provided in Section 404 of ERISA.
(B) A separate Directed Investment Account shall be established for each
Participant who has directed an investment. Transfers between the Participant's
Account and the Directed Investment Account shall be charged and credited as the
case may be to each account. The Directed Investment Account shall not share in
trust fund earnings, but shall be charged or credited as appropriate with the
net earnings, gains, losses and expenses as well as appreciation or depreciation
in market value during each Plan Year attributable to such account. Such
amounts shall not be considered in determining trust fund gains or losses.
(C) The Plan Administrator, Trustee or any other person shall be under no
duty to review any securities or other property selected as a Directed
Investment or to make any suggestion to a Participant concerning a Directed
Investment.
(D) Notwithstanding the foregoing, the Trustee shall not at any time after
December 31, 1981, invest any portion of a Directed Investment Account in
"Collectibles" within the meaning of that term as used in Code Section 408(m).
ARTICLE IV.
VESTING
4.01 VESTING. A Participant shall be fully vested in his or her Accrued
Benefit, and such Accrued Benefit shall not be subject to forfeiture.
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ARTICLE V.
DISTRIBUTIONS OF BENEFITS ACCRUED ON AND AFTER JANUARY 1, 1995
5.01 RETIREMENT. Every Participant may, upon reasonable notice to the
Employer, retire for the purposes of this Plan on his or her Normal Retirement
Date. If a Participant continues in the employment of the Employer after his or
her Normal Retirement Date, such Participant shall continue to be treated in all
respects as a Participant until actual retirement. Upon such actual
retirement, participation hereunder shall cease. The Employer, in accordance
with the provisions of Section 5.07 shall direct the Trustee to distribute such
Participant's Accrued Benefit to the Participant. The distribution of a
Participant's Accrued Benefit upon early retirement, normal retirement or actual
retirement after normal retirement shall, subject to Section 5.07, commence not
later than one hundred twenty (120) days after the last day of the Plan Year in
which such retirement occurs.
A Participant who continues in the employment of the Employer after his or
her Normal Retirement Date may, at the election of the Participant, take a
distribution of all or part of his or her account balance notwithstanding that
such Participant has not separated from service.
5.02 DISTRIBUTION UPON DEATH.
(A) Death Before Retirement or Termination of Service. Upon the death of a
-------------------------------------------------
Participant before retirement or other termination of employment, the Plan
Administrator shall direct the Trustee to distribute such Participant's Accrued
Benefit to any surviving beneficiary designated by the Participant, subject to
the restrictions of Section 5.04. The manner of payment shall be governed by
Section 5.07 and said distribution shall commence not later than one hundred
twenty (120) days after the end of the Plan Year in which proof of death is
received.
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(B) Death After Termination of Service. Upon the death of a former
----------------------------------
Participant in the Plan, the Plan Administrator shall direct the Trustee to
distribute any part of such former Participant's Accrued Benefit that has not
been distributed to the former Participant at the time of his or her death to
any surviving beneficiary designated by such former Participant, subject to the
restrictions of Section 5.04. The manner of payment shall be governed by
Section 5.07 and shall commence not later than one hundred twenty (120) days
after the end of the Plan Year in which proof of death is received. As used
herein, "former Participant" means any person who has ceased to be a Participant
hereunder because of termination of employment for any reason other than death.
(C) Required Distributions Upon Death.
---------------------------------
(1) If the distribution of a Participant's interest has begun in
accordance with a method selected in Section 5.07 and the Participant dies
before his or her entire interest has been distributed to such Participant,
the remaining portion of such interest shall be distributed at least as
rapidly as under the method of distribution selected pursuant to Section
5.07 as of the date of death.
(2) If a Participant dies before beginning to receive any
distributions of his or her interest under the Plan, the entire interest
shall be distributed to his or her beneficiaries within five (5) years
after the death of the Participant.
(3) The five (5) year distribution requirement of Section 5.02(C)(2)
shall not apply to any portion of the deceased Participant's interest which
is payable to or for the benefit of a designated beneficiary. In such
event, such portion may be distributed over the life of such designated
beneficiary (or over a period not extending beyond the life expectancy of
such designated beneficiary) provided such distribution begins not later
than one (1) year after the date of the Participant's death (or such later
date as may be prescribed by Treasury regulations).
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Except, however, in the event that the Participant's spouse is the
designated beneficiary, the requirement that distributions commence within
one (1) year of a Participant's death shall not apply. In lieu thereof,
such distribution must commence no later than the date on which the
deceased Participant would have attained age seventy and one-half (70 1/2).
If the surviving spouse dies before the distributions to such spouse begin,
then the five (5) year distribution requirement of Section 5.02(C)(2) shall
apply as if the spouse were a Participant.
(4) For the purposes of this Section, the life expectancy of a
Participant and a Participant's spouse (other than in the case of a life
annuity) may, at the election of the Participant or the Participant's
spouse, be redetermined in accordance with regulations. The election, once
made, shall be irrevocable. If no election is made by the time
distributions must commence, then the life expectancy of the Participant
and the Participant's spouse shall not be subject to recalculation. Life
expectancy and joint and last survivor expectancy shall be computed using
the return multiples in Tables V and VI of Regulation Section 1.72-9.
(5) The restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation to
have his or her death benefits paid in an alternative method acceptable
under Code Section 401(a) as in effect prior to the enactment of the Tax
Equity and Fiscal Responsibility Act of 1982. Any such written
designation made by a Participant shall be binding upon the Plan
Administrator notwithstanding the provisions of this Section.
5.03 PROOF OF DEATH. The Plan Administrator may require such proper
proof of death and evidence of the right of any person to receive payment of the
Accrued Benefits of the deceased Participant or former Participant as the Plan
Administrator may
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deem desirable. The Plan Administrator's determination of death and of the right
of any person to receive payment shall, subject to the claim provisions
contained in Sections 9.01 and 9.02, be conclusive.
5.04 DESIGNATION OF BENEFICIARY.
(A) Beneficiary if Participant is Married. Effective for Plan Years
-------------------------------------
beginning after December 31, 1984, unless otherwise elected in the manner
prescribed in this Section, the beneficiary of any death benefit payable on the
death of a married Participant shall be the Participant's spouse, unless the
spouse has validly waived his or her right to be the Participant's beneficiary
and has consented to a specific alternate beneficiary. The waiver and consent
by a spouse of his or her right to be the death benefit beneficiary shall be in
writing, shall acknowledge the effect of such election and shall be witnessed by
a Plan representative or a notary public. Such waiver and consent shall not be
required if it is established to the satisfaction of the Plan Administrator that
the required waiver cannot be obtained because there is no spouse, the spouse
cannot be located, or other circumstances that may be prescribed by Treasury
regulations. The waiver made by the Participant and the spouse may be revoked
by the Participant in writing without the consent of the spouse at any time.
Any new waiver must comply with the requirements of this paragraph. A
former spouse's waiver shall not be binding on a new spouse.
If a benefit is paid to the surviving spouse of a deceased Participant and
any part of such benefit is unpaid upon the death of the deceased Participant's
surviving spouse, such remaining benefit shall be paid to such person or trust
as is appointed by the deceased Participant's spouse, including his or her
estate.
In the event no valid designation of beneficiary exists at the time of the
Participant's death, the death benefit shall be payable to the Participant's
spouse, if any; if there is no spouse, or if the spouse cannot be located, the
death benefit shall be payable to the Participant's estate.
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(B) Beneficiary if Participant is not Married. If a Participant has no
-----------------------------------------
spouse, or the spouse cannot be located, or if the beneficiary designated is for
a period before the Plan Year beginning after December 31, 1984, then the
Participant may designate any person, trust, or entity as a beneficiary. Such
designation shall be made on a form satisfactory to the Plan Administrator. A
Participant may at any time revoke his or her designation of a beneficiary or
change the beneficiary by filing written notice of such revocation or change
with the Plan Administrator. If no valid designation of beneficiary exists at
the time of the Participant's death, the death benefit shall be payable to the
Participant's estate.
5.05 DISTRIBUTION IN THE EVENT OF DISABILITY. The Plan Administrator
shall direct the Trustee to distribute to a Participant his or her
nonforfeitable Accrued Benefits in the event the Participant becomes disabled.
The time and manner of payment shall be governed by Section 5.07. The payments
shall commence not later than one hundred twenty (120) days after the end of the
Plan Year in which the determination of Total and Permanent Disability is made.
"Total and Permanent Disability" means a physical or mental condition of a
Participant resulting from bodily injury, disease, or mental disorder which
renders such Participant incapable of continuing in the employment of the
Employer. The determination of Total and Permanent Disability of any
Participant shall be determined by the Employer in accordance with uniform
principles consistently applied upon the basis of such evidence as the Employer
deems necessary and desirable and such determination shall be communicated to
the Plan Administrator.
5.06 DISTRIBUTION IN THE EVENT OF TERMINATION OF EMPLOYMENT. A
Participant who terminates employment prior to the Normal Retirement Date (other
than as a result of death or disability) shall receive payment of his or her
nonforfeitable interest in the Plan at the time and in the manner specified in
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Section 5.07. However, if the adoption of this Plan amends an existing Plan,
nothing in this Agreement shall cause the Plan to retroactively reduce or
eliminate optional forms of benefits or any other Section 411(d)(6) protected
benefits, except as permitted pursuant to Treasury regulations.
5.07 TIME AND MANNER OF PAYMENT.
(A) The distribution of the nonforfeitable portion of a Participant's
Accrued Benefits shall not be deferred, unless the Participant elects in writing
to the Plan Administrator to defer receipt (though such an election may not
result in a death benefit that is more than incidental), beyond the sixtieth
(60th) day after the close of the Plan Year in which the latest of the following
events occur:
(1) The Participant attains Normal Retirement Age.
(2) The tenth (10th) anniversary of the year in which the Participant
commences participation in the Plan.
(3) The Participant terminates service with the Employer.
Notwithstanding any provision of this Plan to the contrary, distribution of
a Participant's benefits shall commence not later than April 1 of the calendar
year following the calendar year in which he or she attains age seventy and one-
half (70 1/2), except that for Participants who attained age seventy and one-
half (70 1/2) before January 1, 1988, distributions shall commence as follows:
(1) For Participants who are not five percent (5%) owners, not later
than April 1 of the calendar year following the later of (i) the calendar
year in which he or she attains age seventy and one-half (70 1/2), or (ii)
the calendar year in which the Participant retires.
(2) For Participants who are five percent (5%) owners, not later than
April 1 following the calendar
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year in which the Participant attains age seventy and one-half (70 1/2),
whether or not such Participant has terminated employment with the
Employer.
If distributions are made other than in a lump sum, distributions to a
Participant must begin no later than the April 1 following such calendar year
and must be made over the life of the Participant (or the lives of the
Participant and the Participant's designated beneficiary) or the life expectancy
of the Participant (or the life expectancies of the Participant and his or her
designated beneficiary). Such distributions shall be made in accordance with
the proposed regulations under Code Section 401(a)(9), including the minimum
distribution incidental benefit requirements of Section 1.401(a)(9)-2 of the
proposed regulations, unless and until such regulations are withdrawn or
superseded by subsequent regulations.
For the purposes of this Section, the life expectancy of a Participant and
a Participant's spouse (other than in the case of a life annuity) may, at the
election of the Participant or the Participant's spouse, be redetermined in
accordance with regulations. The election, once made, shall be irrevocable. If
no election is made by the time distributions must commence, then the life
expectancy of the Participant and the Participant's spouse shall not be subject
to recalculation. Life expectancy and joint and last survivor expectancy shall
be computed using the return multiples in Tables V and VI of Regulation Section
1.72-9.
In the event that the payment of benefits is not deferred as provided
herein, payment of benefits shall commence in accordance with Section 5.07, with
the manner of distribution to be in accordance with Section 5.07(B).
(B) The distribution shall be made in one or more of the following methods,
at the election of the Participant:
(1) A single lump sum payment.
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(2) There shall be no life annuity offered and any mode of
distribution selected will be such that the present value of the payments
to be made to the Participant is more than fifty percent (50%) of the
present value of the total payments to be made to the Participant and his
or her beneficiaries.
If the value of benefits payable under the Plan on the date benefits
commence is Three Thousand Five Hundred and No/100 Dollars ($3,500.00) or less
and has never exceeded Three Thousand Five Hundred and No/100 Dollars
($3,500.00), the Trustee shall distribute such amount in a single sum payment
without the consent of the Participant. If the value of benefits payable under
the Plan exceeds or has ever exceeded Three Thousand Five Hundred and No/100
Dollars ($3,500.00), a distribution may not be made without the Participant's
written consent. If the value of a Participant's vested account balance is zero
(0), the Participant shall be deemed to have received a distribution of such
vested account balance. A Participant's vested account balance shall not
include accumulated deductible employee contributions within the meaning of Code
Section 72(o)(5)(B) for Plan Years beginning prior to January 1, 1989.
(C) Distributions shall, subject to the limitations of this Section,
commence as soon as administratively feasible following the Participant's
separation from service. Notwithstanding the foregoing, distributions to
Participants who may be eligible for an additional allocation for the Plan Year
in which termination occurs shall not commence before such allocation is made.
(D) The amount of a Participant's distribution shall be determined as of
the Valuation Date immediately preceding the date of distribution.
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(E) Nothing in this Agreement shall cause the Plan to retroactively reduce
or eliminate optional forms of benefits or other Section 411(d)(6) protected
benefits, except as permitted pursuant to Treasury regulations.
(F) Upon termination of employment by a Participant for any reason
whatsoever and subject to the provisions of Section 5.07, if payment of the
vested portion of a Participant's benefits is made in other than a lump sum, the
Trustee, upon receipt of notice from the Plan Administrator of the Employee's
termination of employment, the reason for such termination, and the date the
Participant incurred a Break in Service (if applicable), may segregate the
aggregate vested amount of such Participant's account in a special account
invested separately from the general trust assets. Such segregated account
shall not share in any Employer Contribution except as may be authorized in
Section 3.04, and shall be charged or credited as appropriate with net earnings,
gains, losses and expenses as well as appreciation or depreciation in market
value during each Plan Year attributable to such account. The Trustee shall
have the same powers of investment and reinvestment with respect to a segregated
account as the Trustee has for all other assets of the trust. The Plan
Administrator shall notify the Trustee of each Participant's termination of
employment with the Employer not later than sixty (60) days after such
termination occurs.
Any person entitled to receive payments hereunder shall keep the Plan
Administrator advised of his or her address. If any payment is returned
unclaimed, the Plan Administrator shall send a registered letter to the last
address shown by its records of the individual entitled to payment stating such
individual's rights to such payment. If benefits are not claimed within one
(1) year of the date of such letter, the Trustee may deposit such amount in a
federally insured savings account in any financial institution located in the
Trustee's local metropolitan area, in trust for the individual, and upon such
deposit, the Trustee, Plan Administrator and Employer shall have no further
liability or responsibility for such funds.
71.
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5.08 TRANSITIONAL RULE. The restrictions imposed by this Section shall
not apply if a Participant has, prior to January 1, 1984, made a written
designation to have his or her retirement benefit paid in an alternative method
acceptable under Code Section 401(a) as in effect prior to the enactment of the
Tax Equity and Fiscal Responsibility Act of 1982. Any such written designation
made by a Participant shall be binding upon the Plan Administrator
notwithstanding any contrary provision of this Article VI.
5.09 LIMITATION ON DISTRIBUTION DUE TO QUALIFIED DOMESTIC RELATIONS
ORDER. All rights and benefits, including elections, provided to a Participant
in this Plan shall be subject to the rights afforded to any "alternate payee"
under a "qualified domestic relations order" as those terms are defined in Code
Section 414(p).
A distribution made to an alternate payee pursuant to a qualified domestic
relations order may be made without regard to the age or employment status of
the Participant to whose benefits the order applies.
5.10 WITHDRAWAL FOR SERIOUS FINANCIAL HARDSHIP. A Participant, upon
written application to the Plan Administrator, may request an emergency
distribution from his or her Participant's Combined Account due to the
occurrence of events which will inflict serious financial hardship on a
Participant. Such serious financial hardship must be shown by positive evidence
submitted to the Plan Administrator and must be of sufficient magnitude to
impair the Participant's financial security. The distribution shall not be less
than One Thousand and No/100 Dollars ($1,000.00) and shall not exceed the
Participant's interest in his or her Participant's Combined Account. The
distribution shall not exceed the amount of the immediate and heavy financial
need of the Participant (including amounts necessary to pay any federal, state
or local income taxes or any withholding or penalties reasonably anticipated to
result
72.
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from the distribution). Prior to becoming eligible for a hardship distribution,
the Participant must have obtained all distributions for which he or she is
eligible other than hardship distributions, and all non-taxable loans currently
available under this or any other plan maintained by the Employer. Withdrawals
shall be determined in a consistent and nondiscriminatory manner, and shall not
affect the Participant's right under the Plan to make additional withdrawals or
continue to be an active Participant. Notwithstanding the foregoing, any
Participant who is granted a hardship distribution shall have his or her right
to make savings and employee contributions suspended, beginning with the payroll
period following receipt of the hardship distribution and ending on the first
Election Date twelve (12) or more months thereafter, under this Plan and all
other qualified and nonqualified plans of deferred compensation maintained by
the Employer. Further, during the calendar year following the hardship
distribution, the savings contributions of such a Participant shall be limited
to the excess of the applicable limit under Code Section 402(g) for that
calendar year over the amount of the Participant's savings contributions for the
calendar year of the hardship distribution. Withdrawals made pursuant to this
Section may not be repaid.
For purposes of this Section, hardship shall include financial need due to:
(1) Expenses for medical care described in Code Section 213(d)
previously incurred by the Employee, the Employee's spouse, or any
dependents of the Employee (as defined in Code Section 152) or necessary
for these persons to obtain medical care described in Code Section 213(d);
(2) Costs directly related to the purchase of a principal residence
for the Employee (excluding mortgage payments);
(3) Payment of tuition and related educational expenses for the next
twelve (12) months of post-secondary education for the Employee or the
Employee's
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spouse, children or other dependents (as defined in Code Section 152);
(4) Payments necessary to prevent the eviction of the Employee from
his or her principal residence or foreclosure on the mortgage on such
residence;
(5) Costs of any other financial need previously announced by the
Commissioner as constituting a deemed immediate and heavy financial need.
ARTICLE VI.
DISTRIBUTIONS OF BENEFITS ACCRUED PRIOR TO JANUARY 1, 1995
6.01 RETIREMENT. Every Participant may, upon reasonable notice to the
Employer, retire for the purposes of this Plan on his or her Normal Retirement
Date. If a Participant continues in the employment of the Employer after his or
her Normal Retirement Date, such Participant shall continue to be treated in all
respects as a Participant until actual retirement. Upon such actual
retirement, participation hereunder shall cease. The Employer, in accordance
with the provisions of Section 6.07 shall direct the Trustee to distribute such
Participant's Accrued Benefit to the Participant. The distribution of a
Participant's accrued benefit upon early retirement, normal retirement or actual
retirement after normal retirement shall, subject to Section 6.07, commence not
later than one hundred twenty (120) days after the last day of the Plan Year in
which such retirement occurs.
A Participant who continues in the employment of the Employer after his or
her Normal Retirement Date may, at the election of the Participant, take a
distribution of all or part of his or her account balance notwithstanding that
such Participant has not separated from service.
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6.02 DETERMINATION OF BENEFITS UPON DEATH.
(A) Upon the death of a Participant before retirement or other termination
of employment, and within one hundred twenty (120) days after the end of the
Plan Year in which proof of death is received, the Plan Administrator shall
direct the Trustee, in accordance with the provisions of Section 6.03, to
distribute the value of the deceased Participant's account to the Participant's
beneficiary.
(B) Unless otherwise elected in the manner prescribed in Section 6.03, the
beneficiary of the death benefit shall be the Participant's spouse, who shall
receive such benefit in the form of a preretirement survivor annuity pursuant to
Section 6.03. Except, however, the Participant may designate a beneficiary other
than the spouse if:
(1) The Participant and spouse have validly waived the preretirement
survivor annuity in the manner prescribed in Section 6.03, and the spouse
has waived his or her right to be the Participant's beneficiary;
(2) The Participant has no spouse; or
(3) The spouse cannot be located.
In such event, the designation of a beneficiary shall be made on a form
satisfactory to the Plan Administrator. A Participant may at any time revoke
his or her designation of a beneficiary or change the beneficiary by filing
written notice of such revocation or change with the Plan Administrator.
However, the Participant's spouse must again consent in writing to any change or
revocation which results in the naming of a nonspouse beneficiary. In the event
no valid designation of beneficiary exists at the time of the Participant's
death, the death benefit shall be payable to the Participant's spouse, if any;
if there is no spouse, or if the spouse cannot be located, the death benefit
shall be payable to the Participant's estate. In the event no valid designation
of beneficiary exists at the time of the Participant's death, the death benefit
shall be payable to the Participant's spouse, if any; if there is no spouse, or
if the
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spouse cannot be located, the death benefit shall be payable to the
Participant's estate.
6.03 DISTRIBUTION OF BENEFITS UPON DEATH.
(A) Unless otherwise elected as provided below, a Participant who dies
before the annuity starting date and who has a surviving spouse shall have the
death benefit paid to his or her surviving spouse in the form of a preretirement
survivor annuity. The surviving spouse may direct that payment commence within
a reasonable time after the Participant's death. If the surviving spouse does
not so direct, payment of such benefits must commence by the date the
Participant would have attained Normal Retirement Age under the Plan, unless the
surviving spouse elects a later date.
(B) Any election to waive the preretirement survivor annuity before the
Participant's death must be made by the Participant in writing during the
election period and shall require the spouse's irrevocable consent in the same
manner provided for in Section 6.07(B)(2). Further, the spouse's consent must
acknowledge the specific nonspouse beneficiary.
(C) The election period to waive the preretirement survivor annuity shall
begin on the first day of the Plan Year in which the Participant attains age
thirty-five (35) and end on the date of the Participant's death. In the event a
vested Participant separates from service prior to the beginning of the election
period, the election period shall begin on the date of such separation from
service.
(D) With regard to the election, the Plan Administrator shall provide each
Participant within the period beginning with the first day of the Plan Year in
which the Participant attains age thirty-two (32) and ending with the close of
the Plan Year preceding the Plan Year in which the Participant attains age
thirty-five (35), a written explanation of the preretirement survivor annuity
containing comparable information to that required pursuant to Section
6.07(B)(5). If the Participant enters the Plan or if the qualified survivor
annuity requirements
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first apply to the Participant after the first day of the Plan Year in which the
Participant has attained age thirty-four (34), the Plan Administrator shall
provide notice during the one-year period following the entry of the Participant
into the Plan or the date the qualified preretirement survivor annuity
requirements first apply to the Participant. In the case of a Participant's
separation from service before age thirty-five (35), such explanation shall be
provided within one (1) year after separation.
(E) The preretirement survivor annuity provided for in this Section shall
apply only to Participants who are credited with an Hour of Service on or after
August 23, 1984. Former Participants who are not credited with an Hour of
Service on or after August 23, 1984 shall be provided with rights to the
preretirement survivor annuity in accordance with Section 303(e)(2) of the
Retirement Equity Act of 1984.
(F) If the value of the preretirement survivor annuity has never exceeded
Three Thousand Five Hundred and No/100 Dollars ($3,500.00), the Plan
Administrator shall direct the immediate distribution of such amount to the
Participant's spouse. No distribution may be made under the preceding sentence
after the annuity starting date unless the spouse consents in writing. If the
value exceeds, or has ever exceeded, Three Thousand Five Hundred and No/100
Dollars ($3,500.00), an immediate distribution of the entire amount may be made
to the surviving spouse, provided such spouse consents in writing to such
distribution.
(G)(1) In the event the death benefit is not paid in the form of a
preretirement survivor annuity, it shall be paid to the Participant's designated
beneficiary by either of the following methods, as elected by the beneficiary.
(i) One lump-sum payment; or
(ii) Payment in monthly, quarterly, semi-annual, or annual cash
installments over a period not to exceed the life expectancy of the
designated beneficiary, and in installments as nearly equal as practicable.
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(2) In the event the death benefit payable pursuant to Section 6.02 is
payable in installments, then, upon the death of the Participant, the Trustee
shall continue to invest the Participant's account as directed by the
Participant under Section 3.17, until further investment directions are provided
by the beneficiary.
(H) If the distribution of a Participant's interest has begun in accordance
with a method selected in Section 6.07(C) and the Participant dies before his or
her entire interest has been distributed, the remaining portion of such interest
shall be distributed at least as rapidly as under the method of distribution
selected pursuant to Section 6.07(C) as of the date of death.
(I) If a Participant dies before beginning to receive any distributions of
his or her interest under the Plan, the entire interest shall be distributed to
his or her beneficiaries within five (5) years after the death of the
Participant.
(J) The five (5) year distribution requirement of Section 6.03(I) shall not
apply to any portion of the deceased Participant's interest which is payable to
or for the benefit of a designated beneficiary. In such event, such portion may
be distributed over the life of such designated beneficiary (or over a period
not extending beyond the life expectancy of such designated beneficiary)
provided such distribution begins not later than one (1) year after the date of
the Participant's death (or such later date as may be prescribed by Treasury
regulations).
Except, however, in the event the Participant's spouse is the beneficiary,
the requirement that distributions commence within one (1) year of a
Participant's death shall not apply. In lieu thereof, such distribution must
commence no later than the date on which the deceased Participant would have
attained age seventy and one-half (70 1/2). If the surviving spouse dies before
the distributions to such spouse begin, then the five (5) year distribution
requirement of Section 6.03(I) shall apply as if the spouse were the
Participant.
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(K) For the purposes of this Section, the life expectancy of a Participant
and a Participant's spouse (other than in the case of a life annuity) may, at
the election of the Participant or the Participant's spouse, be redetermined in
accordance with regulations. The election, once made, shall be irrevocable. If
no election is made by the time distributions must commence, then the life
expectancy of the Participant and the Participant's spouse shall not be subject
to recalculation. Life expectancy and joint and last survivor expectancy shall
be computed using the return multiples in Tables V and VI of Regulation Section
1.72-9.
(L) The restrictions imposed by this Section shall not apply if a
Participant has, prior to January 1, 1984, made a written designation to have
his or her death benefits paid in an alternative method acceptable under Code
Section 401(a) as in effect prior to the enactment of the Tax Equity and Fiscal
Responsibility Act of 1982. Any such written designation made by a Participant
shall be binding upon the Plan Administrator notwithstanding the provisions of
this Section, subject to the consent of the Participant's spouse in the same
manner as provided in Section 6.07(B)(2).
(M) If a benefit is paid to the surviving spouse of a deceased Participant
and any part of such benefit is unpaid upon the death of the deceased
Participant's surviving spouse, such remaining benefit shall be paid to such
person or trust as is appointed by the deceased Participant's spouse, including
his or her estate.
6.04 PROOF OF DEATH. The Plan Administrator may require such proper
proof of death and such evidence of the right of any person to receive payment
of the value of the account of a deceased Participant or former Participant as
the Plan Administrator may deem desirable. The Plan Administrator's
determination of death and of the right of any person to receive payment shall
be conclusive, subject to the claim procedure of Sections 9.01 and 9.02.
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6.05 DETERMINATION OF BENEFITS IN THE EVENT OF DISABILITY. The Plan
Administrator shall direct the Trustee to distribute to a Participant his or her
entire accrued benefits in the event the Participant becomes disabled. The time
and manner of payment shall be governed by Section 6.07. The payments shall
commence not later than one hundred twenty (120) days after the end of the Plan
Year in which the determination of Total and Permanent Disability is made,
unless a later distribution is elected by the Participant. "Total and Permanent
Disability" means a physical or mental condition of a Participant resulting from
bodily injury, disease, or mental disorder which renders him incapable of
continuing in the employment of the Employer. The determination of Total and
Permanent Disability of any Participant shall be determined by the Employer in
accordance with uniform principles consistently applied upon the basis of such
evidence as the Employer deems necessary and desirable and such determination
shall be communicated to the Plan Administrator.
6.06 DETERMINATION OF BENEFITS UPON TERMINATION.
Upon the Participant's termination of employment, the Trustee shall
continue to invest the amounts in the Participant's accounts pursuant to
Sections 8.04 or 3.17, as applicable, until distribution in accordance with
Section 6.07.
6.07 TIME AND MANNER OF PAYMENT.
(A) The distribution of the nonforfeitable porti