<PAGE>

                                                                    EXHIBIT 10.7

                                LOAN AGREEMENT

          THIS LOAN AGREEMENT (the "Agreement") is entered into as of October
29, 1999, by and between Mattel, Inc., a Delaware corporation ("Lender") and
Adrienne Fontanella ("Borrower").  Borrower and Lender are sometimes referred to
in this Agreement as a "Party" or, collectively, as the "Parties."

                                   RECITALS
                                   --------

          WHEREAS, Borrower desires to obtain from Lender a loan in the
principal amount of One Million Dollars ($1,000,000.00) (the "Loan"); and

          WHEREAS, as an additional incentive to retain Borrower in the employ
of Lender for a period of at three years from the date hereof, Lender desires to
grant Borrower the Loan.

          NOW, THEREFORE, in consideration of the terms and conditions herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                                   AGREEMENT
                                   ---------

          1.  Loan Terms.
              ----------

              (a)   Principal Amount. Lender shall pay to the order of Borrower,
                    ----------------
on October 29, 1999, the principal sum of One Million Dollars ($1,000,000.00)
(the "Principal").

          (b) Interest.  Interest shall accrue on the outstanding Principal
              --------
amount at the rate of seven percent (7%) per annum, compounded annually.

          (c) Promissory Note.  Borrower's obligation to repay the Loan shall be
              ---------------
evidenced by a promissory note substantially in the form attached as Exhibit A
                                                                     ---------
hereto (the "Note").  Borrower shall execute and deliver to Lender the Note
concurrently with execution and delivery of this Agreement.

          (d) Repayment.  Borrower shall pay to the order of Lender the
              ---------
Principal and accrued interest under the Note on October 30, 2002, provided,
however, that all Principal and accrued but unpaid interest shall become
immediately due and payable thirty (30) days after the date of Borrower's
termination of employment with Lender for any reason prior to October 30, 2002,
unless Borrower commences arbitration with respect to the grounds for such
termination of employment within such thirty (30) day period, in which case all
Principal and accrued but unpaid interest shall be due and payable five (5) days
after notice to Borrower of the entry of a final judgement in such arbitration.
Interest shall continue to accrue during any such arbitration. The Loan shall be
subject to forgiveness as provided below.  The Loan shall be unsecured but with
full recourse against Borrower.
<PAGE>

          (e) Forgiveness.  The Loan, and Borrower's obligation to repay all
              -----------
outstanding Principal and accrued interest thereunder, shall be forgiven and
cancelled by Lender and the Note shall be cancelled on October 29, 2002 if
Borrower is employed by Lender on October 29, 2002, or earlier upon the date of
the termination of Borrower's employment with Lender prior to October 29, 2002
if such termination is by Lender without Cause (as defined below), by Borrower
for Good Reason (as defined below) or by reason of Borrower's death or
Disability (as defined below).  In addition, if the Loan is forgiven pursuant to
the preceding sentence and if Borrower is employed by Lender on October 29, 2002
and continues to be employed by Lender, on April 1, 2003, or such earlier date
as Borrower shall be required to pay federal, state or local income taxes with
respect to the forgiveness of the Loan, Lender shall pay Borrower an additional
payment (the "Gross-Up Payment") in an amount required to fully reimburse
Borrower with respect to all federal, state and local income taxes and
employment taxes with respect to the forgiveness of the Loan and with respect to
such taxes, such that upon receipt of the Gross-Up Payment Borrower shall have
no remaining obligations with respect to such taxes.   In addition, the Loan
shall be forgiven by Lender on the date of a Change of Control (as defined
below) of Lender if Borrower is employed by Lender on such date and Lender shall
pay Borrower the Gross-Up Payment with respect to the forgiveness of the Loan on
April 1, of the year following the year of the Change of Control, or such
earlier date as Borrower shall be required to pay federal, state or local income
taxes with respect to the forgiveness of the Loan.

          (f) Definitions.  For purposes of this Agreement, the following
              -----------
terms shall have the meanings indicated below:

          "Cause" shall mean a reasonable determination of the Chief Executive
Officer of Lender that at least one of the following has occurred: (i) one or
more factually substantiated willful acts of dishonesty on Borrower's part which
are intended to result in Borrower's substantial personal enrichment at the
expense of Lender; (ii) repeated violations by Borrower of Borrower's employment
obligations to Lender which are demonstrably willful and deliberate on
Borrower's part and which resulted in material injury to Lender; (iii) conduct
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 Lender'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 in connection with
the business or affairs of Lender, regardless of whether said conduct is
designed to defraud Lender or others; provided that, in each case, Borrower 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.

          "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 Lender, any trustee or other fiduciary
holding securities under an employee benefit plan of Lender) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Lender representing 20% or more of the combined
voting power of Lender's then outstanding voting securities;

                                       2
<PAGE>

                    (ii) during any period of 24 consecutive months,
individuals, who at the beginning of such period constitute the Board of
Directors of Lender, and any new director whose election by the Board of
Directors, or whose nomination for election by Lender's stockholders, was
approved by a vote of at least one-half (1/2) of the directors then in office
(other than in connection with a contested election), cease for any reason to
constitute at least a majority of the Board of Directors;

                    (iii) the stockholders of Lender approve (I) a plan of
complete liquidation of Lender or (II) the sale or other disposition by Lender
of all or substantially all of Lender'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 Lender
with any other entity other than:

                         (I)  a merger or consolidation which results in the
voting securities of Lender 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 Lender (who were directors immediately prior thereto)
continuing to constitute at least 50% of all directors of the surviving entity
immediately after such merger or consolidation.

              In this paragraph (iv), "surviving entity" shall mean only an
entity in which all of Lender'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 Lender (who were directors
immediately prior thereto)" shall include only individuals who were directors of
Lender at the beginning of the 24 consecutive month period preceding the date of
such merger or consolidation.

              "Disability" shall mean that Borrower suffers a disability due to
illness or injury which substantially and materially limits Borrower from
performing each of the essential functions of Borrower's job, even with
reasonable accommodation and becomes entitled to receive disability benefits
under Lender's Long-Term Disability Plan for exempt employees.

              "Good Reason" shall mean the good faith determination by Borrower
that any one or more of the following have occurred:

                    (i)  without the express written consent of Borrower, any
change(s) in any of the employment duties, authority, or responsibilities of
Borrower which is (are) inconsistent in any substantial respect with Borrower's
position, authority, duties, or responsibilities as of the date of this
Agreement;

                                       3
<PAGE>

                    (ii)  any failure by Lender to pay Borrower Borrower's
salary or earned bonuses, other than an insubstantial and inadvertent failure
remedied by Lender promptly after receipt of notice thereof given by Borrower;
or

                    (iii)  transferring Borrower outside of the greater Los
Angeles, California area without Borrower's express written consent.

              (g) Notwithstanding any other provision in this Agreement, in the
event Borrower and Lender enter into an employment agreement after the date of
this Agreement, the definition of "Cause," "Change of Control," "Disability,"
and "Good Reason" as provided in such employment agreement (or any amendments
thereto) shall supercede the definitions in Section 1(f) of this Agreement.

          2.  Transfer of Notes.   Borrower shall not assign or transfer any of
              -----------------
Borrower's benefits or obligations arising under the Notes.   Lender reserves
the right to assign or transfer all or any part of, or any interest in, Lender's
rights and benefits under this Agreement or the Note to any successor to all or
part of its business or assets so long as any assignee or transferee expressly
agrees to assume and perform this Agreement in the same manner and to the same
extent as Lender would be required to perform if no such assignment or transfer
had taken place.

          3.  Amendment; Waiver.  This Agreement and the Note contain 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
Parties.  No provision of this Agreement or the Note 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.

          4.  Choice of Law.  This Agreement shall be construed in accordance
              -------------
with and governed by the internal laws of the State of California, without
reference to principles of conflict of laws.

          5.  Headings.  The paragraph headings contained in this Agreement are
              --------
for reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.

          6.  Notices.  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 Lender:
          ------------
                              MATTEL, INC.
                              333 Continental Blvd.
                              El Segundo, CA 90245


                                       4
<PAGE>

          If to Borrower:
          --------------
                              Ms. Adrienne Fontanella
                              MATTEL, INC.
                              333 Continental Blvd.
                              El Segundo, CA 90245

                              and

                              Ms. Jennifer Freeman, Esq.
                              Freeman Forrest & Levy LLP
                              415 Madison Avenue
                              New York, NY 10017

or to such other address as either party shall have furnished to the other in
writing in accordance herewith.

          7.  Counterparts.  This Agreement may be executed in one or more
              ------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.

          8.  Severability.  If any provision in or obligation under this
              ------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.

          9.  No Third-Party Beneficiary Rights.  The Parties do not intend to
              ---------------------------------
confer and this Agreement shall not be construed to confer any rights or
benefits to any person, firm, group, corporation or entity other than the
Parties.



                           [Signature Page Follows]

                                       5
<PAGE>

          IN WITNESS WHEREOF, this Agreement has been duly executed by the
Parties on the date first written above.


                              LENDER



                              By: /s/ Alan Kaye
                                 -------------------------------------------

                              Its:  Senior Vice President, Human Resources
                                  ------------------------------------------


                              BORROWER


                               /s/ Adrienne Fontanella
                               ---------------------------------------------
                                   Adrienne Fontanella



                                      S-1
<PAGE>

                                   EXHIBIT A
                                   ---------

                                Promissory Note


$1,000,000.00                                            Date:  October 29, 1999

          Mattel, Inc. (herein referred to as "Holder") has agreed to advance to
Adrienne Fontanella (herein referred to as "Maker") on October 29, 1999,
$1,000,000.00, and for said value received Maker promises to repay to the order
of Holder, the principal sum of $1,000,000.00 on or before October 30, 2002.
Maker shall owe to Holder interest on the principal sum in an amount equal to 7%
per annum, commencing on October 29, 1999, compounded annually, payable with
principal on October 30, 2002.

          If Maker fails to make any payment set forth above when due, Holder
may elect to declare the entire unpaid principal amount, including all unpaid
interest, immediately due and payable with or without notice.

          In the event of the termination of Maker's employment with Holder for
any reason, all outstanding principal and accrued interest hereunder is
immediately due and payable, with or without notice, thirty (30) days after the
date of such termination  unless Maker commences arbitration as provided in that
certain Loan Agreement (the "Loan Agreement"), dated as of October 29, 1999,
between Holder and Maker, unless this note and the loan it evidences shall have
been cancelled and forgiven pursuant to the terms of the Loan Agreement.

          In the event of commencement of legal action to enforce payment of
this note, the non-prevailing party agrees to pay the prevailing party's
reasonable attorney's fees and court costs in connection therewith.



                              By: /s/ Adrienne Fontanella    12/21/99
                                 ----------------------------------------
                                      Adrienne Fontanella      Date

Witnessed by:

  /s/ Alan Kaye       12-21-99
----------------------------------
                        Date