Mattel 2002 Annual Report Download - page 41

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Litigation
Litigation Related to Learning Company
Following Mattel’s announcement in October 1999 of the expected results of its Learning Company division
for the third quarter of 1999, various Mattel stockholders filed purported class action complaints naming Mattel
and certain of its present and former officers and directors as defendants. The complaints generally alleged,
among other things, that the defendants made false or misleading statements, in the joint proxy statement for the
merger of Mattel and Learning Company and elsewhere, that induced Mattel’s shareholders to vote to approve
the merger and artificially inflated the price of Mattel’s common stock.
These shareholder complaints were consolidated into two lead cases: Thurber v. Mattel, Inc., et al.
(containing claims under §10(b) of the 1934 Securities Exchange Act (“Act”)) and Dusek v. Mattel, Inc., et al.
(containing claims under §14(a) of the Act). Both of these federal lawsuits are pending in the United States
District Court for the Central District of California. In November 2002, the Court permitted the actions to
proceed as class actions.
Several stockholders filed derivative complaints purportedly on behalf of and for the benefit of Mattel,
alleging, among other things, that Mattel’s directors breached their fiduciary duties, wasted corporate assets, and
grossly mismanaged Mattel in connection with Mattel’s acquisition of Learning Company and its approval of
severance packages to certain former executives. Some of the derivative suits were consolidated into one lawsuit
filed in Los Angeles Superior Court in California, which was dismissed for failure to make pre-suit demand on
the board of directors, and is currently on appeal. Another derivative suit was filed in the Court of Chancery in
Delaware, and was dismissed without prejudice in August 2002. A third derivative suit, filed in federal court in
the Central District of California, was dismissed in July 2002, and re-filed in November 2002 as part of the
settlement described below.
In November 2002, with a court-appointed mediator acting as a neutral facilitator, the parties negotiated and
thereafter memorialized an agreement in principle to resolve all of the federal lawsuits in exchange for payment
of $122.0 million and Mattel’s agreement to adopt certain corporate governance procedures. Under the terms of
the settlement, Mattel and its directors and officers liability insurers have deposited the settlement funds into an
escrow account pending completion of a final written settlement agreement and court approval of the settlement.
The settlement is conditioned upon court approval of the terms of the settlement, entry of final judgments
dismissing the federal lawsuits, and dismissal or withdrawal of the appeal in the California state court derivative
action.
At the time of the lawsuits, Mattel maintained directors and officers liability insurance with a maximum
coverage of $120 million through several different carriers. One of those carriers, Reliance Insurance Company,
had become insolvent, and was unable to meet its coverage obligation for its $20 million excess layer. As a
result, Mattel contributed this $20 million layer to the settlement fund, and has made a claim against the
California Insurance Guarantee Association (“CIGA”) to recoup the full $20 million of the Reliance layer. CIGA
disputes that it has to pay this amount, and has taken the position that it has to pay only $0.5 million.
The total amount that Mattel expects to incur in connection with the Learning Company litigation is
$25.4 million on a pre-tax basis, consisting of the uninsured portion of the settlement and legal and professional
fees in excess of insurance coverage. Mattel recorded this amount in its results of operations in the fourth quarter
of 2002.
Litigation Related to Greiner & Hausser
In December 2001, Mattel was served with a lawsuit that had been filed in the Geschaeftsstelle des
Landgerichts Nuernberg-Fuerth, a German lower court, on May 9, 2001 by Greiner & Hausser GmbH i.L.
(“G&H”), a German toy company that had filed for bankruptcy in 1983 and ceased operations by 1985. The
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