EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into on
October 18, 2000 and is effective as of May 16, 2000 (the "Effective Date")
between Mattel, Inc., a Delaware corporation ("Mattel") and Xxxxxx X. Xxxxxx
(the "Executive").
1. Employment Period. Mattel hereby agrees to employ and continue in its
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employ the Executive, and the Executive hereby accepts such employment and
agrees to remain in the employ of Mattel, for the period commencing on the
Effective Date and ending on June 30, 2003, subject to earlier termination as
provided herein; provided that commencing on June 30, 2000, the term of this
Agreement shall be extended automatically for one (1) additional day for each
day that has then elapsed since the Effective Date, unless, at any time
thereafter, either the Board of Directors of Mattel (the "Board"), on behalf of
Mattel, or the Executive gives written notice to the other, in accordance with
Section 14(b), below, that such automatic extension of the term of this
Agreement shall cease. Any such notice shall be effective immediately upon
delivery. The initial term of this Agreement, plus any extension by operation of
this Section 1, shall be hereinafter referred to as the "Term."
2. Duties.
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(a) Executive's Positions and Titles. During the Term, the Executive's
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positions and titles shall be Chairman of the Board and Chief Executive Officer,
Mattel, Inc. He shall also be nominated for election as a director of Mattel at
the earliest opportunity.
(b) Executive's Duties. Executive shall report directly to the Board of
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Directors. Throughout the Term, the Executive's duties, responsibilities and
authority shall include all of the duties, responsibilities, and authority
normally performed by the Chairman and Chief Executive Officer of Mattel, with
such additions or modifications thereto which are consistent with his position,
responsibilities and authority hereunder, as the Board may, from time to time,
in its discretion and acting in good faith after consultation with the
Executive, adopt. In no event shall the duties, responsibilities and authority
of Executive be less than those initially performed by him. The Executive's
services shall be performed in the greater Los Angeles, California, area at
Mattel's headquarters, and, without the Executive's consent, he shall not be
transferred outside such area, other than for normal business travel and
temporary assignments.
(c) Full Time. The Executive agrees to devote the Executive's full
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business time to the business and affairs of Mattel and to use the Executive's
best efforts to perform faithfully and efficiently the duties and
responsibilities assigned to the Executive hereunder, subject to periods of
vacation and sick leave to which he is entitled. Notwithstanding the foregoing,
Executive may serve on civic or charitable boards or committees and manage his
personal investments and affairs to the extent such activities do not materially
interfere with the performance of his duties and responsibilities. After
consultation with the Board or the Executive Committee thereof as to
appropriateness with regard to the Executive's duties and responsibilities to
Mattel, the Executive may also serve on corporate boards of directors of
corporations which do not directly compete with Mattel. In no event will
Executive invest in any business which directly competes with Mattel, nor will
he engage in any outside business activity of any nature, including, but not
limited to, activity as a consultant, agent, partner, officer or provider of
business services of any nature, directly or indirectly to a corporation or
other business enterprise. Nothing in this Agreement shall be construed to
prohibit the Executive from investing in up to 1% of the stock of any
corporation which does not directly compete with Mattel and whose stock is
listed on a national securities exchange or on the Nasdaq National Market
system.
3. Compensation and Benefits.
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(a) Base Salary. During the Term, the Executive shall receive a base
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salary ("Base Salary"), paid bi-weekly, at an annual rate of at least
$1,250,000. The Base Salary shall be reviewed from time to time in accordance
with Mattel's policies and practices, but no less frequently than once every
eighteen (18) months and may be increased at any time and from time to time by
action of the Board 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.
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(b) Sign-On Bonus and Corporate Loan.
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(i) Initial Bonus Payment. Mattel has paid the Executive an initial
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bonus payment of $2,784,874 in cash, which payment constitutes a sign-on
bonus.
(ii) Corporate Loan. Mattel has provided the Executive a loan in the
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amount of $5,500,000, in accordance with the Loan Agreement attached hereto
as Exhibit A.
(c) Annual Bonus Programs. In addition to the Base Salary, the Executive
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shall be eligible to participate throughout the Term in such annual bonus plans
and programs ("Annual Bonus Programs"), such as Mattel's Management Incentive
Plan (the "MIP"), as may be in effect from time to time in accordance with
Mattel's compensation practices and the terms and provisions of any such plans
or programs as in effect from time to time; provided that the Executive's
eligibility for and participation in each of the Annual Bonus Programs shall be
at a level and on terms and conditions consistent with those for other senior
executives of Mattel. Executive shall have a target annual bonus under such
Annual Bonus Programs equal to at least 100% of Base Salary and a maximum annual
bonus equal to at least 200% of Base Salary. Unless Executive's employment is
terminated for Cause prior to the normal annual bonus payment date for the 2000
year under Mattel's compensation practices, Executive shall receive an annual
bonus for such year equal to at least the target annual bonus of $1,250,000,
without proration.
(d) Long Term Incentive Programs. In addition to the Base Salary and
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participation in the Annual Bonus Programs, the Executive shall be eligible to
participate throughout the Term in such long term bonus plans and programs
("Long Term Bonus Programs"), such as Mattel's Long Term Incentive Plan
("LTIP"), as may be in effect from time to time in accordance with Mattel's
compensation practices and the terms and provisions of any such plans or
programs as in effect from time to time; provided that the Executive's
participation in each Long Term Bonus Program shall be at a level and on terms
and conditions consistent with competitive pay practices and with participation
by other senior executives of Mattel. Executive's long term incentive bonus for
the 2000-2002 performance cycle shall be at least $2,000,000 for performance at
the threshold level, $4,000,000 at the target level, and $8,000,000 at the
maximum level, prorated for the period from the Effective Date through the end
of the year 2002.
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(e) Equity Based Incentive Compensation.
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(i) Initial Option Grant. Executive was awarded on the Effective Date
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an initial grant of ten-year options ("Initial Option Grant") with respect
to 3,000,000 shares of the common stock of Mattel to vest (i) 750,000
shares on the Effective Date, and (ii) 750,000 shares on each of the first
three anniversaries of the Effective Date. The exercise price for the
options was $11.25, the closing NYSE price on May 16, 2000, the date the
Executive accepted employment with Mattel. The Initial Option Grant is
otherwise subject to the terms and conditions of Mattel's Amended and
Restated 1996 Stock Option Plan.
(ii) Initial Restricted Stock Unit Grant. The Executive was awarded on
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the Effective Date an initial grant of 685,468 shares of deferable
restricted stock units ("Initial Restricted Stock Unit Grant") to vest 25%
on June 30, 2000, 25% on January 31, 2001, 25% on January 31, 2002, and 25%
on June 30, 2008. The shares issuable as a result of the vesting of such
restricted stock units shall be delivered by Mattel to the Executive by the
earlier of: (A) April 1 of the year that next follows the end of the
calendar year during which the Executive ceases to be employed by Mattel;
or (B) thirteen (13) months following the earliest date when the entire
payment would be tax deductible under all pertinent federal tax laws,
including Section 162(m) of the Internal Revenue Code, without affecting
the deductibility of $1 million of the Executive's Base Salary in any year,
as determined by the reasonable belief of the Board's Compensation
Committee.
(iii) Participation In Mattel's Stock Incentive Plans. During the Term,
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the Executive shall be entitled to participate in Mattel's stock option
plans and other stock incentive programs in a manner consistent with
competitive pay practices and in accordance with the policies and practices
of Mattel as in effect from time to time with respect to senior executives
employed by Mattel so as to reflect the Executive's responsibilities.
(f) Other Incentive Plans. During the Term, the Executive shall be
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eligible to participate, subject to the terms and conditions thereof, in all
incentive plans and programs, including, but not limited to, such cash and
deferred bonus programs as may be in effect from time to time with respect to
senior executives employed by Mattel so as to reflect the Executive's
responsibilities.
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(g) Supplemental Retirement Benefits.
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(i) Age 60 Pension. Upon termination of employment, the Executive
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will be entitled to receive from Mattel a supplemental retirement benefit
which, when expressed as a single life annuity and added to any benefits
payable under all qualified and nonqualified defined benefit retirement
plans of Mattel (also expressed as a single life annuity), will produce an
aggregate annual pension benefit at age 60 (the "Age 60 Pension") which is
not less than 35% of (i) the Executive's average annual compensation or, if
greater, (ii) $2,500,000, the sum of the Executive's initial annual Base
Salary under Section 3(a) and initial target annual bonus under Section
3(c), subject to the possible reductions described in paragraph (ii),
below. For purposes hereof, except as provided below, the Executive's
"average annual compensation" shall be equal to the sum of (A) the average
of the Executive's final three years of annual base salary, plus (B) the
average of the greatest two of the five most recent Annual Bonus Program
bonuses earned by the Executive. In the event the Executive has completed
fewer than three or five years of employment with Mattel at the time of
termination of employment, then such average amounts shall be based upon
such shorter period.
(ii) Pre-Age 60 Termination. In the event of termination of
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employment prior to age 60 for any reason other than termination by Mattel
for Cause or resignation by the Executive without Good Reason, the
Executive will be entitled to the Age 60 Pension. If the Executive's
employment is terminated under circumstances which entitle him to receive
severance benefits under Section 5(d)(i)(C) below, then for the purpose of
determining the Executive's average annual compensation in calculating such
Age 60 Pension, the Executive's average annual compensation shall be
calculated as if the Executive had remained employed by Mattel for three
(3) additional years and had received for each of those years Base Salary
at the rate in effect at the time the Notice of Termination is given and a
Bonus as determined under Section 5(d)(i)(B), below, but without proration
and, in each case, without regard to any contributions by Mattel for the
Executive's benefit to any retirement or other investment plan. In the
event of the Executive's resignation without Good Reason or termination by
Mattel for Cause prior to age 60, the amount of the Age 60 Pension will be
calculated as above and then such amount shall be reduced by (i) 3% of such
amount multiplied by (ii) the number of full years during the period
between such resignation or termination and the Executive's 60th birthday;
and in the event of such a resignation or termination prior to the fifth
anniversary of the Effective Date, the amount of the Age 60 Pension, as
reduced under the preceding clause, will be further prorated by multiplying
it by a fraction the numerator of which is the number of months the
Executive was actively employed by Mattel and the denominator of which is
60.
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(iii) Early Commencement of Supplemental Pension. In the event
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Executive's employment with Mattel is terminated prior to age 60, the
Age 60 Pension may be commenced early, subject to a reduction of 3%
for each full year that the pension commences prior to age 60. In the
event of a Change of Control, the 3% discount for early commencement
will be measured from age 55.
(iv) Form of Payment of Supplemental Pension and Survivor
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Benefits. The Age 60 Pension may be paid in any form permitted under
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Mattel's Supplemental Executive Retirement Plan. In the event of the
Executive's death before the Age 60 Pension becomes payable, his wife
will receive, commencing immediately, a survivor annuity for her life
equal to 50% of the amount which would have been payable to the
Executive if he had terminated his employment for Good Reason
immediately prior to the date of his death and elected to commence his
Age 60 Pension immediately. Any such survivor benefit will be reduced
by the amount of any pre-retirement survivor benefit payable to the
Executive's wife under Mattel's qualified and nonqualified defined
benefit retirement plans.
(h) Other Pension and Welfare Benefit Plans. During the Term, the
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Executive and/or the Executive's dependents, as the case may be, shall be
eligible to participate in, subject to the terms and conditions thereof, all
pension and similar benefit plans (qualified, non-qualified and supplemental),
profit sharing, ESOP, 401(k), medical and dental, disability, group and/or
executive life, accidental death and travel accident insurance, and all similar
benefit plans and programs of Mattel as in effect from time to time with respect
to senior executives employed by Mattel so as to reflect the Executive's
responsibilities. In the event of any applicable waiting periods with respect to
Mattel's group health plan, Executive shall be entitled to receive an additional
payment equal to Executive's premiums for continuation of group health coverage
for Executive and his family under the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA) or similar law for the period of time prior
to the date Executive and his family become entitled to coverage under Mattel's
group health plan without any further waiting periods, and that additional
payment shall be "grossed-up" for all applicable taxes.
(i) Additional Life Insurance Benefit. In addition to any group
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and/or executive life insurance benefits, Mattel shall maintain life insurance
which will pay to the Executive's beneficiaries a death benefit equal to three
times the Executive's initial Base Salary.
(j) Expenses. During the Term, the Executive shall be entitled to
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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. Mattel will pay all reasonable professional expenses incurred
by the Executive in connection with the negotiation and preparation of this
Agreement.
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(k) Fringe Benefits. During the Employment Period, the Executive shall be
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entitled to fringe benefits at a level at or above those available to other
senior executives of Mattel, including a leased automobile, car and driver (at
his disposal whenever required by him), personal and home security, and related
expenses as well as first class travel expenses, the use of a company-issued
gasoline credit card, club memberships and related expenses, and financial
counseling and tax preparation services in accordance with the policies of
Mattel as in effect from time to time with respect to senior executives employed
by Mattel.
(l) Vacation. During the Employment Period, the Executive shall be
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entitled to paid vacation in accordance with the policies and practices of
Mattel as in effect from time to time with respect to senior executives employed
by Mattel.
(m) Certain Amendments. Nothing herein shall be construed to prevent
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Mattel from amending, altering, eliminating or reducing any plans, benefits or
programs so long as the Executive continues to receive compensation and benefits
consistent with Sections 3(a) through (k).
(n) Relocation Expenses. Mattel will pay all costs of relocation of the
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Executive and his family to California in accordance with Mattel's relocation
policy, supplemented as follows to the extent such benefits are not provided
under that policy:
(i) Mattel shall reimburse the Executive for reasonable temporary
living expenses for the Executive and his family in the Los Angeles
metropolitan area for a period not to exceed one year from the date hereof;
(ii) Mattel shall make available to the Executive the opportunity to
sell his present primary residence at appraised value through Mattel's
relocation firm; and
(iii) Mattel shall pay the Executive, in addition to all relocation
payments otherwise required pursuant to this Section 3(n), an amount such
that after payment by the Executive of all of the Executive's applicable
federal, state and local taxes on such amount, the Executive will retain an
amount sufficient to pay the total of the Executive's applicable federal,
state and local taxes arising due to the other payments under this Section
3(n).
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4. Termination.
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(a) Death or Disability. This Agreement shall terminate automatically
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upon the Executive's death; provided that the Executive's Base Salary will be
continued and paid for a period of six months thereafter. Mattel may terminate
this Agreement, after having established the Executive's Disability, by giving
to the Executive written notice of its intention to terminate the Executive's
employment, and the Executive's employment with Mattel shall terminate effective
on the 90th day after receipt of such notice (the "Disability Effective Date").
For purposes of this Agreement, the Executive's "Disability" shall occur and
shall be deemed to have occurred only in the event that the Executive suffers a
disability due to illness or injury which substantially and materially limits
the Executive from performing each of the essential functions of the Executive's
job, even with reasonable accommodation, and he 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
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"Cause" as defined below exists and if at least two-thirds (2/3) of the
nonmanagement members of the Board of Directors make a good faith determination
that termination is appropriate. For purposes of this Agreement, "Cause" means
(i) one or more factually substantiated willful acts of dishonesty on the
Executive's part which are intended to result in the Executive's substantial
personal enrichment at the expense of Mattel; (ii) repeated violations by the
Executive of the Executive's obligations under Section 2 of this Agreement which
are demonstrably willful and deliberate on the Executive's part and which
resulted in material injury to Mattel; (iii) conduct by the Executive of a
factually substantiated criminal nature (commonly defined as a "felony" in
criminal statutes) which has or which is more likely than not to have a material
adverse effect on Mattel's reputation or standing in the community or on its
continuing relationships with its customers or those who purchase or use its
products; or (iv) factually substantiated fraudulent conduct by the Executive in
connection with the business or affairs of Mattel, regardless of whether said
conduct is designed to defraud Mattel or others; provided that, in each case,
the Executive has received written notice of the described activity, has been
afforded a reasonable opportunity to cure or correct the activity described in
the notice, and has failed to substantially cure, correct or cease the activity,
as appropriate.
(c) Good Reason. The Executive may terminate the Executive's employment
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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 this Agreement;
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(ii) any failure by Mattel to comply with any of the provisions of
Section 3 of this Agreement, other than an insubstantial and inadvertent
failure remedied by Mattel promptly after receipt of notice thereof given
by the Executive, so long as Mattel reimburses Executive for cash payments
due to the Executive and not theretofore paid, together with interest
thereon at prevailing rates;
(iii) any proposed termination by Mattel of the Executive's employment
other than as permitted by this Agreement;
(iv) any failure by Mattel to obtain the assumption and agreement to
perform this Agreement by a successor as contemplated by Section 12(b);
(v) 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 the greater Los Angeles, California area, or at an office other
than Mattel's headquarters, except for travel reasonably required in the
performance of the Executive's responsibilities; or
(vi) Mattel giving notice to the Executive to stop further operation
of the evergreen feature described in Section 1, above.
(d) Termination by Executive Without Good Reason. Executive may, at any
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time without Good Reason, by at least 30 days prior written notice, voluntarily
terminate this Agreement without liability.
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(e) Change of Control. "Change of Control" means:
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(i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
Mattel, including the shares of common stock of Mattel issuable upon an
exchange of Softkey Exchangeable Shares that are not owned by Mattel or any
corporation controlled by Mattel (the "Outstanding Company Common Stock")
or (ii) the combined voting power of the then outstanding voting securities
of Mattel entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following shall not constitute a
Change of Control: (a) any acquisition directly from Mattel, (b) any
acquisition by Mattel or any corporation controlled by Mattel, (c) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by Mattel or any corporation controlled by Mattel, (d) any
acquisition by a Person of 20% of either the Outstanding Company Common
Stock or the Outstanding Company Voting Securities as a result of an
acquisition of common stock of Mattel by Mattel or of Softkey Exchangeable
Shares by Softkey which, by reducing the number of shares of common stock
of Mattel or Softkey Exchangeable Shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20% or
more of either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities; provided, however, that if a Person shall become
the beneficial owner of 20% or more of either the Outstanding Company
Common Stock or the Outstanding Company Voting Securities by reason of a
share acquisition by Mattel or by Softkey as described above and shall,
after such share acquisition by Mattel or Softkey, become the beneficial
owner of any additional shares of common stock of Mattel, then such
acquisition shall constitute a Change of Control or (e) any acquisition
pursuant to a transaction which complies with clauses (a), (b) and (c) of
subsection (iii) of this Section 4(e); provided, further, however, that for
purposes of this subsection (i) any Investing Person (as such term is
defined in the Rights Agreement) shall be deemed not to be a beneficial
owner of any Investment Shares (as such term is defined in the Rights
Agreement) and the holder of the Mattel Special Voting Preferred Share (as
such term is defined in the Rights Agreement) shall be deemed not to be a
beneficial owner of such Mattel Special Voting Preferred Share; or
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(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
Mattel's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board; or
(iii) consummation by Mattel of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of Mattel or the acquisition of assets of another entity (a
"Business Combination"), in each case, unless, following such Business
Combination, (a) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction
owns Mattel or all or substantially all of Mattel's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (b) no Person (excluding any employee benefit plan (or
related trust) of Mattel or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding share of common stock of the corporation
resulting from such Business Combination or the combined voting power of
the then outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business Combination and
(c) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or
of the action of the Board, providing for such Business Combination; or
(iv) approval by the shareholders of Mattel of a complete liquidation
or dissolution of Mattel.
For the purposes of this Section 4(e), (a) "Rights Agreement" means the
Rights Agreement, dated as of February 7, 1992, as amended by an amendment dated
as of May 13, 1999 and an amendment dated as of November 4, 1999 by and between
Mattel and BankBoston N.A., a national banking association, formerly, The First
National Bank of Boston, and not
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giving effect to any amendments subsequent to November 4, 1999, (b) "Softkey"
means Softkey Software Products Inc., an Ontario corporation, and (c) "Softkey
Exchangeable Shares" means the Exchangeable Shares in the capital stock of
Softkey.
(f) Notice of Termination. Any termination of the Executive's
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employment by Mattel for Disability or for Cause or following a Change of
Control or by the Executive for or without Good Reason shall be communicated by
a Notice of Termination to the other party hereto given in accordance with
Section 14(b). 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).
(g) Date of Termination. "Date of Termination" means the date of actual
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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; (iii) if the
Executive's employment is terminated due to the Executive's death, the Date of
Termination shall be the date of death; and (iv) if the Executive's employment
is terminated by the Executive without Good Reason, the Date of Termination is
the date thirty (30) days after the giving of the Notice of Termination, unless
the parties otherwise agree in writing.
5. Obligations of Mattel upon Termination. Other than as specifically set
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forth or referenced in this Agreement, the Executive shall not be entitled to
any benefits on or after the Date of Termination.
(a) Death. If the Executive's employment is terminated by reason of the
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Executive's death, this Agreement shall terminate without further obligations by
Mattel to the Executive's legal representatives under this Agreement, except as
set forth in this Section 5(a) or as contained in an applicable Mattel plan or
program which takes effect at the date of his death, but in no event shall
Mattel's obligations be less than those provided by this Agreement.
(i) As of the Date of Termination, the Executive's family shall be
entitled to health care coverage and financial counseling benefits until
the third anniversary of the Date of Termination;
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(ii) From and after the Date of Termination, the
Executive's legal representatives shall be entitled to
receive those benefits payable to the Executive's surviving
spouse or other named beneficiaries under the provisions of
any applicable Mattel plan or program and/or as provided for
under Section 3(g), above, including, without limitation,
any benefits commencing immediately upon the Executive's
death;
(iii) On the Date of Termination, all options to
purchase stock of Mattel theretofore granted to the
Executive ("Options") and not exercised by the Executive
shall become fully vested and shall be exercisable by his
legal representatives for a period of ten (10) years from
the date each such Option was granted; and
(iv) On the Date of Termination, all restricted stock
units and restricted stock, including, without limitation,
any restricted stock units granted as part of the Initial
Restricted Stock Unit Grant described in Section 3(e)(ii),
above, granted by Mattel to the Executive prior to the Date
of Termination which had not vested prior to such date,
shall become fully vested and nonforfeitable.
(b) Disability. If the Executive's employment is terminated
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by reason of the Executive's Disability, the Executive shall be entitled to
receive after the Disability Effective Date:
(i) disability benefits, if any, at least equal to
those then provided by Mattel to disabled executives and/or
their families;
(ii) until the earlier of the third anniversary of
the Date of Termination or the date the Executive accepts
other employment, those other benefits described in Section
5(d)(v), on the terms set forth therein;
(iii) all supplemental retirement benefits for which
the Executive is or shall become eligible shall be
immediately available;
(iv) on the Disability Effective Date, all Options
theretofore granted to the Executive and not exercised by
the Executive shall become fully vested and shall be
exercisable for a period of ten (10) years from the date
each such Option was granted; and
(v) On the Disability Effective Date, all restricted
stock units and restricted stock, including, without
limitation, any restricted stock units granted as part of
the Initial Restricted Stock Unit Grant described in Section
3(e)(ii), above, granted by Mattel to the Executive prior to
the Disability Effective Date which had not vested prior to
such date, shall become fully vested and nonforfeitable.
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(c) Cause/Other Than for Good Reason. If the Executive's employ-
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ment is terminated for Cause or if the Executive terminates the Executive's
employment without Good Reason, Mattel shall pay the Executive all Accrued
Obligations, all unvested portions of the Initial Option Grant and the
Initial Restricted Stock Unit Grant shall be forfeited, and Mattel shall
have no further obligations to the Executive under this Agreement. For
purposes of this Section 5(c), the term "Accrued Obligations" shall mean,
as of the Date of Termination, the sum of (i) the Executive's full Base
Salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given to the extent not theretofore paid, (ii) the
amount of any bonus, incentive compensation, deferred compensation
(including, but not limited to, any supplemental retirement benefits) and
other cash compensation earned by the Executive as of the Date of
Termination to the extent not theretofore paid and (iii) any vacation pay,
expense reimbursements and other cash entitlements accrued by the Executive
as of the Date of Termination to the extent not theretofore paid. For
purposes of determining an Accrued Obligation under this Section 5(c),
amounts shall be deemed to accrue ratably over the period during which they
are earned, but no discretionary compensation shall be deemed earned or
accrued until it is specifically approved by the Board in accordance with
the applicable plan, program or policy.
(d) Good Reason; Other Than for Cause or Disability. If Mattel
-----------------------------------------------
terminates the Executive's employment other than for Cause or Disability or
the Executive terminates the Executive's employment for Good Reason:
(i) Mattel shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
(A) if not theretofore paid, the Executive's Base
Salary through the Date of Termination at the rate in effect
at the time of Notice of Termination was given;
(B) a current year bonus (the "Bonus") equal to the
greatest of: (x) the average of the two highest annual
bonuses received by the Executive under the MIP, or any
successor plan, in the three years prior to the Date of
Termination, including any years in which the Executive was
paid no bonus (the "Average Annual Bonus"), and prorated to
reflect the total number of full months the Executive is
employed on an active and full time basis in the year in
which termination occurs; (y) the annual bonus, if any, paid
to the Executive under the MIP or any successor plan, but
excluding for this purpose any bonus paid under Section
3(b)(i), for the 2000 or 2001 calendar year, whichever is
greater, without proration; or (z) the target annual bonus
(100%of Base Salary) for the Executive under the MIP for the
2000 calendar year;
14
(C) three times the sum of (I) the Executive's
annual Base Salary at the rate in effect at the time
the Notice of Termination is given, and (II) the Bonus
defined in Section 5(d)(i)(B), but without proration
(and, in each such case, without regard to any
contributions by Mattel for the Executive's benefit to
any retirement or other investment plans).
(ii) Mattel shall pay the Executive a portion of any
long-term incentive compensation that Executive would have
received under the LTIP with respect to any performance
period which is pending as of the Executive's Date of
Termination as if the Executive had remained employed for
the entire performance period, prorated based on the number
of full months of Executive's employment during the
performance period over the total number of months in the
performance period, which amount shall be payable at the end
of the period in accordance with the terms of the LTIP and
shall be net of any interim payments previously made to the
Executive.
(iii) Any Options theretofore granted to the Executive
under Mattel's stock option plans, other than Mattel's 1997
Premium Price Stock Option Plan or any successor thereto,
shall become immediately exercisable and the Executive shall
have until the date which is ten (10) years from the date
each such Option was granted to exercise each such Option.
(iv) On the Date of Termination, all restricted stock
units and restricted stock, including, without limitation,
any restricted stock units granted as part of the Initial
Restricted Stock Unit Grant described in Section 3(e)(ii),
above, granted by Mattel to the Executive prior to the Date
of Termination which had not vested prior to such date,
shall become fully vested and nonforfeitable.
(v) 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(j)
if the Executive's employment had not terminated.
(vi) Until the earlier of (x) the third anniversary
of the Date of Termination or (y) the date the Executive
becomes gainfully employed in a substantially similar
employment position, Mattel shall provide to the Executive
at Mattel's expense:
(A) coverage under Mattel's medical, dental,
prescription drug and vision care group insurance as in
effect from time to time on the same terms and
conditions as such insurance is available to active
employees of Mattel (the last 18 months of the
Executive's coverage under such insurance shall be
deemed to be participation under an election to
continue such benefits under the Consolidated Omnibus
Budget Reconciliation Act at Mattel's expense);
15
(B) outplacement services at the expense of
Mattel commensurate with those provided to terminated
executives of comparable level and made available
through and at the facilities of a reputable and
experienced vendor;
(C) financial counseling and tax preparation
services through the vendor engaged and paid for by
Mattel;
(D) automobile benefits; provided however, that
if such automobile is leased by Mattel, such benefits
shall expire upon expiration of such lease. Upon
expiration of the automobile benefits, at which time
the Executive may purchase the car for either $100, if
the automobile benefits terminate at the end of the
lease term, or Mattel's book value, if the automobile
benefits terminate on either the third anniversary of
the Date of Termination or the date on which the
Executive accepts other employment. As of the Date of
Termination, all expenses related to such automobile,
including but not limited to insurance, repairs,
maintenance, gasoline, and car phone and associated
expenses, shall be the sole responsibility of the
Executive; and
(E) membership in one city or country club and
related expenses. Mattel shall cause the membership to
be transferred to the Executive at no cost to the
Executive.
(vii) For purposes of the Mattel Supplemental
Executive Retirement Plan, the Mattel Deferred Compensation
Plan and/or the Mattel Retiree Medical Plan (if and to the
extent the Executive is a participant in such plans), the
Executive shall be given credit for three years of service
(in addition to actual service) and for three years of
attained age to be added to the Executive's actual age for
purposes of computing any service and age-related benefits
for which the Executive is eligible under such plans.
(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, or if within the 30-day
period immediately following the six (6) month anniversary of a Change
of Control the Executive terminates the Executive's employment for any
reason, the Executive shall be entitled to all of the payments, rights
and benefits described in Section 5(d); provided, however, Section
5(d)(ii) (relating to the LTIP) shall not apply because, in lieu
thereof, the Executive will have received the long term incentive
compensation payments described in Section 6, below. If a Change of
Control occurs during the Term, then (regardless of when the Term
would otherwise end under any other provision of this Agreement) this
Section 5(e), and all other parts of this Agreement which relate to
this Section 5(e), shall continue to apply to the Executive for 18
months after the Change of Control.
16
6. Long Term Incentive Compensation Plan Payments After a Change of Control.
------------------------------------------------------------------------
(a) In the event of a Change of Control during the Term, Mattel shall
pay the Executive a cash payment as provided under the provisions of the LTIP,
as in effect immediately prior to the Change of Control.
(b) In addition, in the event of a Change of Control during the Term,
within thirty (30) days after the date of such Change of Control, Mattel shall
pay the Executive any unpaid amounts to which the Executive is entitled with
respect to any performance period under the LTIP, or any other successor long-
term incentive compensation plan of Mattel, that has been completed as of the
date of the Change of Control.
7. 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.
8. No Set Off, Payment of Fees. Except as provided herein, Mattel's
---------------------------
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation any set-off, counterclaim, recoupment, defense or
other right which Mattel may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amount payable to the Executive under any of
the provisions of this Agreement, and such amounts shall not be reduced whether
or not the Executive obtains other employment. Mattel agrees to pay, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by Mattel or others of the validity or enforceability of, or liability under,
any provision of this Agreement other than expenses relating to a claim by the
Executive that the Executive terminated for Good Reason or that a termination
for Cause was improper, in which case such fees and expenses shall be paid only
if the Executive prevails in whole or in part. In the event the Executive shall
in good faith give a Notice of Termination for Good Reason and it shall
thereafter be determined that Good Reason did not exist, the employment of the
Executive shall, unless Mattel and the Executive shall otherwise mutually agree,
be deemed to have terminated at the Date of Termination specified in such
purported Notice of Termination by mutual consent of Mattel and the Executive
and thereupon, the Executive shall be entitled to receive only those payments
and benefits which the Executive would have been entitled to receive at such
date.
17
9. Arbitration of Disputes.
-----------------------
(a) The parties agree that any disputes, controversies or claims which
arise out of or relate to this Agreement, the Executive's employment or the
termination of the Executive's employment, including, but not limited to, any
claim relating to the purported validity, interpretation, enforceability or
breach of this Agreement, and/or any other claim or controversy arising out of
the relationship between the Executive and Mattel (or the nature of the
relationship) or the continuation or termination of that relationship,
including, but not limited to, claims that a termination was for Cause, or for
Good Reason, claims for breach of covenant, breach of an implied covenant of
good faith and fair dealing, wrongful termination, breach of contract, or
intentional infliction of emotional distress, defamation, breach of right of
privacy, interference with advantageous or contractual relations, fraud,
conspiracy or other tort or property claims of any kind, which are not settled
by agreement between the parties, shall be settled by expedited arbitration
under the then applicable arbitration rules of JAMS/Endispute (or any other
mutually agreed arbitrator) before a board of three arbitrators, as selected
thereunder.
One arbitrator shall be selected by the Executive, one by Mattel and
the third by the two persons so selected, all in accordance with the then
applicable arbitration rules of JAMS/Endispute then in effect. In the event
that the arbitrator selected by the Executive and the arbitrator selected by
Mattel are unable to agree upon a third arbitrator, then the third arbitrator
shall be selected from a list of seven (each of whom shall be a member of the
"Independent List" of retired judges with experience in resolving employment
disputes) provided by the Los Angeles office of JAMS/Endispute with the parties
striking names in order and the party striking first to be determined by the
flip of a coin. The arbitration shall be held in a location mutually agreed
upon by the parties. In the absence of agreement, the arbitration shall be held
in Los Angeles, California.
(b) In consideration of the parties' agreement to submit to arbitration
all disputes with regard to this Agreement and/or with regard to any alleged
contract, or any other claim arising out of their conduct, the relationship
existing hereunder or the continuation or termination of that relationship, and
in further consideration of the anticipated expedition and the minimizing of
expense resulting from this arbitration remedy, the arbitration provisions of
this Agreement shall provide the exclusive remedy, and each party expressly
waives any right to seek redress in any other forum.
(c) Any claim which either party has against the other party which could
be submitted for resolution pursuant to this Section 8 must be presented in
writing by the claiming party to the other within the period of the applicable
statue of limitations.
18
(d) Mattel will pay all costs and expenses of the arbitration.
(e) Any decision and award or order of a majority of the arbitrators shall
be binding upon the parties hereto and judgment thereon may be entered in the
Superior Court of the State of California or any other court having
jurisdiction.
(f) Each of the above terms and conditions of this Section 8 shall have
separate validity, and the invalidity of any part thereof shall not affect
the remaining parts.
(g) Any decision and award or order of a majority of the arbitrators shall
be final and binding between the parties as to all claims which were raised in
connection with the dispute to the full extent permitted by law. In all other
cases, the parties agree that a decision of a majority of arbitrators shall be a
condition precedent to the institution or maintenance of any legal, equitable,
administrative, or other formal proceeding by Mattel or the Executive in
connection with the dispute, and that the decision and opinion of the board of
arbitrators may be presented in any other forum on the merits of the dispute.
10. 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
Term, and all amounts to which the Executive shall be entitled whether during
the term of employment or upon termination thereof. The Executive also
acknowledges and agrees that the Executive's right to receive severance pay and
other benefits pursuant to subsections (b), (d) and (e) of Section 5 of this
Agreement is contingent upon the Executive's compliance with the covenants set
forth in Section 11 of this Agreement and the Executive's execution and
acceptance of the terms and conditions of, and the effectiveness of the General
Release of All Claims (the "Release") attached hereto as Exhibit "B." If the
Executive fails to comply with the covenants set forth in Section 11 or if the
Executive fails to execute the Release within twenty-one (21) days of receipt of
such Release, then the Executive shall not be entitled to any severance payments
or other benefits to which the Executive would otherwise be entitled under
subsections (b), (d) and (e) of Section 5 of this Agreement.
19
11. Executive's Covenants.
---------------------
(a) The Executive shall not, at any time during the Term or thereafter,
make use of or disclose, directly or indirectly, to any person any (i) trade
secret or other confidential or secret information of Mattel or any of its
subsidiaries, affiliates or customers or (ii) other technical, business,
proprietary or financial information of Mattel or any of its subsidiaries,
affiliates or customers not available to the public generally or the competitors
of Mattel or the competitors of any of its subsidiaries or affiliates, in each
case that the Executive obtained as a result of his employment by Mattel or any
of its subsidiaries or affiliates ("Confidential Information"), except to the
extent that such Confidential Information (1) is used by the Executive during
the Term in the proper performance of his duties pursuant to this Agreement, (2)
is disclosed by the Executive to his legal counsel in connection with legal
services performed by such counsel for the Executive, provided that such
disclosure is made on a confidential basis, (3) becomes a matter of public
record or is published in a newspaper, magazine or other periodical available to
the general public, or has otherwise become generally known in the markets in
which Mattel does business and to which the Confidential Information other than
as a result of any act or omission of the Executive outside the proper
performance of his duties pursuant to this Agreement, or (4) is required to be
disclosed by any law, regulation or order of any court or regulatory commission,
department or agency. Promptly following the termination of the Term, the
Executive shall surrender to Mattel all records, memoranda, notes, plans,
reports, computer media and software and other documents and data which
constitute Confidential Information which he may then possess or have under his
control (together with all copies thereof); provided, however, the Executive may
retain personal diaries and notes and copies of such documents as are necessary
for the preparation of his federal or state income tax returns. Executive
further agrees to affirm and recognize his continuing obligations with respect
to the use and disclosure of Confidential Information by entering into an
Executive Patent and Confidence Agreement, substantially in the form attached
hereto as Exhibit C.
20
(b) The Executive acknowledges that in his capacity in management, the
Executive has had and will have a great deal of exposure and access to
Confidential Information. Therefore, if the termination of the Executive's
employment occurs prior to a Change of Control, the Executive agrees that
eligibility for severance payments and other benefits under this Agreement
are contingent upon the Executive's agreement and compliance with Mattel's
requirement that the Executive does not accept employment nor an engagement
as a consultant with a competitor whereupon such position is comparable to
the position the Executive held with Mattel and where the Executive cannot
reasonably satisfy Mattel that the new employer is prepared to and/or does
take adequate steps to preclude and to prevent disclosure of Confidential
Information, as prohibited under Mattel's policies with respect to the use
and disclosure of confidential and proprietary information, as set forth in
Mattel's form Executive Patent and Confidence Agreement, attached hereto
as Exhibit C. If the Executive accepts employment or a consulting
relationship with a competitor as described above, no further payments nor
eligibility for benefits continuation will be available to the Executive as
of the date the Executive commences such employment/consulting. It is a
specific condition of this Agreement that until the earlier of (i) 12
months after the last date on which the Executive receives any payments or
benefits under this Agreement with respect to a termination of the
Executive's employment prior to a Change of Control or (ii) three years
after such termination of employment, the Executive is obligated to
immediately notify Mattel as to the specifics of the new position that the
Executive is planning to commence as an employee or consultant for any
company which is a competitor of Mattel.
(c) The Executive agrees that until the earlier of (i) 12 months after the
last date on which the Executive receives any payments or benefits under this
Agreement or (ii) three years after the termination of Executive's employment,
the Executive will not participate in recruiting any of Mattel's employees or in
the solicitation of Mattel's employees, and the Executive will not communicate
to any other person or entity about the nature, quality or quantity of work, or
any special knowledge or personal characteristics, of any person employed by
Mattel. If the Executive should wish to discuss possible employment with any
then-current Mattel employee during the period set forth above, the Executive
may request written permission to do so from the senior human resources officer
of Mattel who may, in his/her discretion, grant a written exception to the no
solicitation agreement set forth above; provided, however, the Executive agrees
that the Executive will not discuss any such employment possibility with such
employees prior to securing Mattel's permission. If Mattel should decline to
grant such permission, the Executive agrees that the Executive will not at any
time, either during or after the non-solicitation period set forth above, advise
the employee concerned that he/she was the subject of a request under this
paragraph or that Mattel refused to grant the Executive the right to discuss an
employment possibility with him/her.
21
12. 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.
13. Amendment; Waiver. This Agreement contains the entire agreement between
-----------------
the parties with respect to the subject matter hereof and may be amended,
modified or changed only by a written instrument executed by the Executive and
Mattel. No provision of this Agreement may be waived except by a writing
executed and delivered by the party sought to be charged. Any such written
waiver will be effective only with respect to the event or circumstance
described therein and not with respect to any other event or circumstance,
unless such waiver expressly provides to the contrary.
14. Certain Additional Payments by Mattel.
-------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any Payment (as
defined below) would be subject to the Excise Tax (as defined below), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 14(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Parachute Value of Payments (as defined below)
does not exceed 110% of the Safe Harbor Amount (as defined below), then no
Gross-Up Payment shall be made to the Executive and the Agreement Payments (as
defined below), in the aggregate, shall be reduced (but not below zero) such
that the Parachute Value of all Payments equals the Safe Harbor Amount,
determined in such a manner as to maximize the Value of all Payments (as defined
below) actually made to the Executive.
22
(b) Subject to the provisions of Section 14(c), all determinations
required to be made under this Section 14, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers LLP or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to Mattel and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by Mattel.
All fees and expenses of the Accounting Firm shall be borne solely by Mattel.
Subject to Section 14(e) below, any Gross-Up Payment, as determined pursuant to
this Section 14, shall be paid by Mattel to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon Mattel and the Executive. As a result of
the uncertainty in the application of Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by Mattel should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Mattel
exhausts its remedies pursuant to Section 14(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Mattel to or for the benefit of the
Executive.
(c) The Executive shall notify Mattel in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Mattel of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise Mattel of the nature of such claim
and the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to Mattel (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If Mattel
notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) give Mattel any information reasonably requested by Mattel
relating to such claim,
(ii) take such action in connection with contesting such claim as
Mattel shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by Mattel;
23
(iii) cooperate with Mattel in good faith in order to effectively
contest such claim, and
(iv) permit Mattel to participate in any proceedings relating to such
claim;
provided, however, that Mattel shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 14(c), Mattel shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and xxx for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Mattel shall determine;
provided, however, that if Mattel directs the Executive to pay such claim and
xxx for a refund, Mattel shall advance the amount of such payment to the
Executive, on an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, Mattel's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by Mattel
pursuant to Section 14(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to Mattel's complying
with the requirements of Section 14(c)) promptly pay to Mattel the amount of
such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by Mattel pursuant to Section 14(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
Mattel does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
24
(e) Notwithstanding any other provision of this Section 14, Mattel may
withhold and pay over to the Internal Revenue Service for the benefit of the
Executive all or any portion of the Gross-Up Payment that Mattel determines in
good faith that it is or may be in the future required to withhold, and the
Executive hereby consents to such withholding.
(f) The following terms shall have the following meanings for purposes of
this Section 14.
(i) An "Agreement Payment" shall mean a Payment paid or payable
pursuant to this Agreement (disregarding this Section 14) and any payment
relating to the Loan Agreement.
(ii) "Excise Tax" shall mean the excise tax imposed by Section 4999
of the Code, together with any interest or penalties imposed with respect
to such excise tax.
(iii) The "Net After-Tax Amount" of a Payment shall mean the Value of
a Payment net of all taxes imposed on the Executive with respect thereto
under Sections 1 and 4999 of the Code and applicable state and local law,
determined by applying the highest marginal rates that are expected to
apply to the Executive's taxable income for the taxable year in which the
Payment is made.
(iv) "Parachute Value" of a Payment shall mean the present value, as
of the date of the change of control for purposes of Section 280G of the
Code, of the portion of such Payment that constitutes a "parachute payment"
under Section 280G(b)(2), as determined by the Accounting Firm for purposes
of determining whether and to what extent the Excise Tax will apply to such
Payment.
(v) A "Payment" shall mean any payment or distribution in the
nature of compensation (within the meaning of Section 280G(b)(2) of the
Code) to or for the benefit of the Executive, whether paid or payable
pursuant to this Agreement or otherwise.
(vi) The "Safe Harbor Amount" means the maximum Parachute Value of
all Payments that the Executive can receive without any Payments being
subject to the Excise Tax.
(vii) "Value" of a Payment shall mean the economic present value of a
Payment as of the date of the change of control for purposes of Section
280G of the Code, as determined by the Accounting Firm using the discount
rate required by Section 280G(d)(4) of the Code.
25
15. Miscellaneous.
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(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
(b) All notices and other communications hereunder shall be in writing;
shall be delivered by hand delivery to the other party or mailed by registered
or certified mail, return receipt requested, postage prepaid; shall be deemed
delivered upon actual receipt; and shall be addressed as follows:
If to Mattel:
------------
MATTEL, INC.
000 Xxxxxxxxxxx Xxxx.
Xx Xxxxxxx, XX 00000
If to Executive:
---------------
Xx. Xxxxxx X. Xxxxxx
MATTEL, INC.
000 Xxxxxxxxxxx Xxxx.
Xx Xxxxxxx, XX 00000
or to such other address as either party shall have furnished to the other in
writing in accordance herewith.
(c) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction will, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
(d) Mattel may withhold from any amounts payable under this Agreement such
Federal, state or local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first set forth above.
26
EXECUTIVE:
XXXXXX X. XXXXXX
/s/ Xxxxxx X. Xxxxxx
--------------------
MATTEL:
MATTEL, INC., a Delaware corporation
By:/s/ Xxxx Xxxx
-------------
Its:SVP HR
ATTEST:
/s/ Xxxxxxxxxxx X'Xxxxx
-----------------------
Assistant Secretary
27
