This excerpt taken from the MAT DEF 14A filed Apr 13, 2005.
APPROVAL OF THE MATTEL, INC. 2005 EQUITY COMPENSATION PLAN
On March 16, 2005, the Compensation Committee of the Board of Directors approved, subject to stockholder approval, the Mattel, Inc. 2005 Equity Compensation Plan (referred to in this Proposal as the Plan). The Board recommends that the stockholders vote to approve the Plan for the reasons indicated below.
The Plan is designed to promote the interests of Mattel and its stockholders by enabling Mattel and its subsidiaries and designated affiliates (collectively referred to in this Proposal as the Company) to offer an opportunity to acquire an equity interest in Mattel so as to better attract, retain, and reward employees, non-employee directors and other persons providing services to the Company and, accordingly, to strengthen the mutuality of interests between those persons and Mattels stockholders by providing those persons with a proprietary interest in pursuing the Companys long-term growth and financial success.
Mattel currently has two equity compensation plans in effect: the Mattel 1996 Stock Option Plan (referred to in this Proposal as the 1996 Plan), which was approved by the stockholders in May 1996; and the Mattel 1999 Stock Option Plan (referred to in this Proposal as the 1999 Plan), which was adopted in 1999 without stockholder approval. If the Plan is approved by the stockholders, no further grants will be made under the 1999 Plan or the 1996 Plan and the 1999 Plan and the 1996 Plan will each terminate as of the date the stockholders approve the Plan, except with regard to grants then outstanding under the 1999 Plan and the 1996 Plan.
The Compensation Committee and the Board of Directors believe that it is in the best interests of the Company and its stockholders to provide, through the Plan, a comprehensive equity compensation program designed to enable the Company to attract, retain and reward employees, non-employee directors and other persons providing services to the Company. The Plan provides for a broader range of types of awards than the 1996 Plan, to enable the Company to respond to market trends and to tailor incentives to its business goals. In particular, the Plan authorizes the grant of stock options, stock appreciation rights (referred to in this Proposal as SARs), restricted stock, restricted stock units (referred to in this Proposal as RSUs), dividend equivalents and bonus stock. The Compensation Committee anticipates that, if the Plan is approved by the stockholders, grants may be made during 2005 to employees in the form of a mix of (1) non-qualified stock options and (2) RSUs with dividend equivalents and/or restricted stock. Previously, non-qualified stock options have been the primary form of equity compensation used by Mattel. In reconsidering the previous approach and designing a new approach to equity compensation, the Compensation Committee considered new accounting rules that will require the expensing of stock options, received input from its independent compensation consultant with regard to competitive market practices and exercised its business judgment.
The Plan includes provisions regarding the grant of awards that vest based upon the achievement of performance goals established by the Committee (as such term is defined below under the heading Administration of the Plan) and, like the 1996 Plan, is designed so that awards can be exempted from the limitations on tax deductibility imposed by Section 162(m) of the Internal Revenue Code of 1986 (referred to in this Proposal as the Internal Revenue Code), as discussed in greater detail below under Certain Federal Income Tax ConsequencesLimits on the Companys Deductions.