UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 1996 Commission File Number 1-11605
THE WALT DISNEY COMPANY
Incorporated in Delaware I.R.S. Employer Identification
No. 95-4545390
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
There were 675,133,968 shares of common stock outstanding as of February
6, 1997.
<PAGE>
PART I. FINANCIAL INFORMATION
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
In millions, except per share data (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
---------------------------
<S> <C> <C>
1996 1995
----------- -----------
REVENUES $ 6,278 $ 3,837
COSTS AND EXPENSES (4,851) (2,974)
GAIN ON SALE OF KCAL 135 -
---------- ----------
OPERATING INCOME 1,562 863
CORPORATE ACTIVITIES AND OTHER (90) (86)
NET INTEREST EXPENSE (171) (13)
---------- ----------
INCOME BEFORE INCOME TAXES 1,301 764
INCOME TAXES (552) (268)
---------- ----------
NET INCOME $ 749 $ 496
---------- ----------
---------- ----------
EARNINGS PER SHARE $ 1.09 $ 0.93
---------- ----------
---------- ----------
Average number of common and common equivalent
shares outstanding 686 534
---------- ----------
---------- ----------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
In millions, except share data
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, September 30,
1996 1996
----------- --------------
(unaudited)
ASSETS
Cash and cash equivalents $ 707 $ 278
Investments 483 454
Receivables 4,131 3,343
Inventories 808 951
Film and television costs 4,148 3,912
Theme parks, resorts and other property,
net of accumulated depreciation
of $4,564 and $4,448 8,270 8,031
Intangible assets, net of accumulated
amortization of $415 and $301 17,864 17,978
Other assets 2,266 2,359
-------- ---------
$ 38,677 $ 37,306
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and taxes payable and accrued $ 7,543 $ 6,956
liabilities
Borrowings 12,364 12,342
Deferred income taxes 902 743
Unearned royalty and other advances 1,076 1,179
Stockholders' equity
Preferred stock, $.01 par value
Authorized - 100 million shares
Issued - none
Common stock, $.01 par value
Authorized - 1.2 billion shares
Issued - 683 million shares and 682 8,623 8,576
million shares
Retained earnings 8,607 7,933
Cumulative translation and other adjustments 27 39
Less treasury shares, at cost - 8 (465) (462)
million shares
-------- ---------
16,792 16,086
-------- ---------
$ 38,677 $ 37,306
-------- ---------
-------- ---------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
THE WALT DISNEY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31
---------------------------
<S> <C> <C>
1996 1995
----------- -----------
NET INCOME $ 749 $ 496
-------- --------
OPERATING ITEMS NOT REQUIRING CASH OUTLAYS
Amortization of film and television costs 1,159 441
Depreciation 174 159
Amortization of intangibles 114 -
Gain on sale of KCAL (135) -
Other 29 11
CHANGES IN
Investments in trading securities - 41
Receivables (813) (623)
Inventories 143 40
Other assets (108) (7)
Accounts and taxes payable and accrued 615 323
liabilities
Deferred income taxes 161 79
Unearned royalty and other advances (103) 9
-------- --------
1,236 473
-------- --------
CASH PROVIDED BY OPERATIONS 1,985 969
-------- --------
INVESTING ACTIVITIES
Film and television costs (1,427) (639)
Investments in theme parks, resorts and (424) (375)
other property
Proceeds from sale of investments 8 228
Proceeds from sale of KCAL 377 -
Other (44) (10)
-------- --------
(1,510) (796)
-------- --------
FINANCING ACTIVITIES
Borrowings 439 -
Proceeds from formation of REIT 842 -
Reduction of borrowings (1,270) (219)
Dividends (75) (47)
Other 18 13
-------- -------
(46) (253)
-------- -------
Increase (Decrease) in Cash and Cash Equivalents 429 (80)
Cash and Cash Equivalents, Beginning of Period 278 1,077
-------- -------
Cash and Cash Equivalents, End of Period $ 707 $ 997
-------- -------
-------- -------
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
THE WALT DISNEY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. These condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have
been reflected in these condensed consolidated financial
statements. Operating results for the quarter are not
necessarily indicative of the results that may be expected for
the year ending September 30, 1997. Certain reclassifications
have been made in the 1996 financial statements to conform to
the 1997 presentation. For further information, refer to the
consolidated financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1996.
2. The Company sold KCAL, a Los Angeles television station, for $387 million
in cash on November 22, 1996, resulting in a pre-tax gain of $135 million.
A trust has retained $10 million of the sales price to cover certain
contingencies, and will remit any unutilized amount to the Company.
3. During the quarter, the Company established a real estate
investment trust (REIT) and issued equity interests in the
REIT to third-party investors in exchange for $842 million.
The Company also received proceeds of approximately $439
million through other financing arrangements with effective
interest rates ranging from 4.4% to 5.4% and maturities in
fiscal 2000 through fiscal 2012. Certain of these financing
arrangements are denominated in foreign currencies for which
the Company has entered into cross-currency swap agreements
effectively converting these obligations into U.S. dollar
denominated LIBOR-based variable rate debt instruments.
The proceeds from these transactions were used to retire commercial paper
borrowings. Commercial paper outstanding as of December 31, 1996 totaled $3
billion with maturities of up to one year and an average interest rate of
5.4%. The outstanding commercial paper borrowings are supported by bank
facilities totaling $5 billion, which expire in one to five years and allow
for borrowings at various maturities.
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
During February 1997, the Company received $752 million from various other
financing transactions. These proceeds were also used to retire commercial
paper borrowings.
4. Dividends per share for the quarters ended December 31, 1996
and 1995 were $0.11 and $0.09, respectively.
5. The unaudited pro forma information below for the quarter
ended December 31, 1995 presents combined results of
operations as if the Company's prior-year acquisition of
Capital Cities/ABC, Inc. had occurred at the beginning of such
period. The unaudited pro forma information is not
necessarily indicative of the results of operations of the
combined company had the acquisition occurred at the beginning
of such period.
<TABLE>
<CAPTION>
<S> <C>
(in millions, except per
share data)
Quarter Ended
December 31, 1995
-------------------------
Revenues $5,893
Net income 565
Earnings per share 0.82
</TABLE>
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations
SEASONALITY
The Company's businesses are subject to the effects of seasonality.
Consequently, the operating results for the quarter ended December 31, 1996 for
each line of business, and for the Company as a whole, are not necessarily
indicative of results for the full year.
Creative Content revenues fluctuate based upon the timing of theatrical
and home video releases and seasonal consumer purchasing behavior. Release dates
for theatrical product are determined by several factors, including timing of
vacation and holiday periods and competition in the market.
Broadcasting revenues are influenced by advertiser demand and the seasonal
nature of programming, and generally peak in the spring and fall.
Theme Parks and Resorts revenues fluctuate with changes in theme park
attendance and resort occupancy resulting from the nature of vacation travel.
Peak attendance and resort occupancy generally occur during the summer months
when school vacations occur and during early-winter and spring holiday periods.
RESULTS OF OPERATIONS
For the Quarter Ended December 31, 1996
On February 9, 1996, the Company acquired Capital Cities/ABC, Inc.
("ABC"). The Company's results of operations have incorporated ABC's activity
since that date. To enhance comparability, certain information for the quarter
ended December 31, 1995 has been presented on a "pro forma" basis and reflects
the acquisition of ABC as though it had occurred at the beginning of such
period. The Company believes prior-year pro forma results provide more
meaningful information for comparing net income, changes in net income and
earnings trends, as the pro forma presentation includes the results of the
Company and its acquired ABC operations for the quarter. Accordingly, the
discussion of fiscal 1997 results below reflects comparisons to the Company's
pro forma fiscal 1996 operating results. The pro forma results are not
necessarily indicative of the combined results that would have occurred had the
acquisition actually occurred at the beginning of such period.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
The Company's fiscal 1997 as reported results and fiscal 1996 pro forma
amounts reflect the impacts of the acquisition including the use of purchase
accounting as well as significant increases in amortization of intangible
assets, interest expense, the effective income tax rate and shares outstanding
resulting from the acquisition.
Consolidated Results
<TABLE>
<CAPTION>
For the Quarter Ended December 31,
(unaudited; in millions, except per share data)
<S> <C> <C> <C> <C>
1995 % 1995
1996 (Pro forma) Change (As reported)
---- ----------- ------ -----------
Revenues $6,278 $5,893 7% $3,837
Costs and Expenses (4,851) (4,700) (3)% (2,974)
Gain on Sale of KCAL 135 - n/m -
--- -- --
Operating Income 1,562 1,193 31% 863
Corporate Activities and Other (90) (24) n/m (86)
Net Interest Expense (171) (167) (2)% (13)
---- ---- ---
Income Before Income Taxes 1,301 1,002 30% 764
Income Taxes (552) (437) (26)% (268)
---- ---- ----
Net Income $ 749 $ 565 33% $ 496
=== === ===
Net Income Excluding KCAL Gain $ 669 $ 565 18% $ 496
=== === ===
Earnings Per Share $ 1.09 $ 0.82 33% $ 0.93
==== ==== ====
Earnings Per Share
Excluding KCAL Gain $ 0.98 $ 0.82 20% $ 0.93
====== ====== ======
Amortization of Intangible
Assets Included in
Operating Income $ 114 $ 114 -
===== =====
</TABLE>
Net income for the quarter increased 33% to $749 million. These results
were driven by increased operating income in all business segments, including a
gain of $135 million from the sale of KCAL, a Los Angeles television station.
Earnings per share increased 33% to $1.09. Excluding the gain on the sale of
KCAL, operating income increased 20% to $1.4 billion, net income increased 18%
to $669 million, and earnings per share increased 20% to $0.98.
Corporate Activities and Other was impacted by certain non-recurring items
in both the current and prior-year quarters. The current quarter reflects a
severance payment to a former senior executive and the prior-year quarter
reflects certain gains at ABC, primarily related to the sale of an investment in
a cellular communications company.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Business Segment Results
<TABLE>
<CAPTION>
For the Quarter Ended December 31,
(Unaudited; in millions)
<S> <C> <C> <C> <C>
1995 1995
1996 (Pro forma) %Change As reported)
---- --------- ------- ------------
Revenues:
Creative Content $3,235 $3,076 5% $2,720
Broadcasting 1,893 1,823 4% 123
Theme Parks & Resorts 1,150 994 16% 994
----- --- ---
Total $6,278 $5,893 7% $3,837
===== ===== =====
Operating Income: (1)
Creative Content $ 719 $ 656 10% $ 649
Broadcasting 470 341 38% 18
Theme Parks & Resorts 238 196 21% 196
--- --- ---
1,427 1,193 20% 863
Gain on Sale of KCAL 135 - n/m -
--- --- ---
Total $ 1,562 $ 1,193 31% $ 863
===== ===== ===
(1) Includes depreciation and amortization
(excluding film costs) of:
Creative Content $ 50 $ 46
Broadcasting 133 131
Theme Parks & Resorts 97 83
--- ---
$ 280 $ 260
=== ===
</TABLE>
Creative Content
Revenues increased 5% or $159 million to $3.2 billion, driven by growth of
$94 million in the Disney Stores, $73 million in character merchandise licensing
and $39 million in home video, partially offset by reductions in television
distribution revenues of $34 million and theatrical revenues of $27 million.
Growth at the Disney Stores reflects an increase in comparable store sales of 2%
driven by strong domestic holiday sales, and a revenue increase of $87 million
due to continued worldwide expansion. During the quarter, the Company opened 30
new stores, bringing the total number of stores to 560. Character merchandise
licensing reflects the strength of film and television properties domestically
including 101 Dalmatians, Toy Story, Winnie the Pooh and The Hunchback of Notre
Dame and standard characters internationally. Home video revenues reflect the
worldwide release of Toy Story and the international success of Pocahontas.
Television distribution revenues declined due to a greater number of titles in
domestic pay television in the prior year. The decline in theatrical revenues
reflects a greater number of theatrical releases in the prior year including the
success of Toy Story domestically and Pocahontas internationally, partially
offset by the box office successes
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Creative Content (continued)
in the current year of Ransom, 101 Dalmatians and The English
Patient domestically and The Hunchback of Notre Dame
internationally.
Operating income increased 10% or $63 million to $719 million, reflecting
improved results for character merchandise licensing, the Disney Stores, and
theatrical distribution, partially offset by a reduction in home video results
which faced difficult comparisons due to the prior year success of Cinderella
domestically and The Lion King internationally. Costs and expenses, which
consist primarily of production cost amortization, distribution and selling
expenses, product cost, labor and occupancy, increased 4% or $96 million. The
increase is primarily due to the expansion of the Disney Stores and increases in
and production cost amortization and participation expense in the home video
markets, partially offset by decreases in distribution expenses and amortization
of production costs in the theatrical markets.
Broadcasting
Revenues increased 4% or $70 million to $1.9 billion, primarily driven by
a $63 million increase in revenues at ESPN and The Disney Channel and an
increase of $18 million at the television stations. The revenue growth at ESPN
was due primarily to higher advertising revenues and affiliate fees resulting
from continued growth and improved advertising and subscriber rates. The revenue
increase at the television stations was due primarily to increased political
advertising. These increases were partially offset by a $13 million decrease in
revenues at the television network, primarily due to lower ratings.
Excluding the gain on the sale of KCAL, operating income increased 38% or
$129 million to $470 million, reflecting revenue increases at ESPN, The Disney
Channel, and the television stations, and decreased costs and expenses at the
television network. Costs and expenses, which consist primarily of programming,
selling, general and administrative costs decreased 4% or $59 million. This
decrease reflected reduced program amortization at the television network,
primarily attributable to the acquisition, partially offset by increased program
rights and production costs driven by growth at ESPN.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Theme Parks and Resorts
Revenues increased 16% or $156 million to $1.2 billion, driven by the Walt
Disney World Resort, which had growth of $69 million from higher guest spending,
$36 million due to record attendance and $17 million from increased occupied
room nights. Guest spending growth included $23 million at the Disney Village
Marketplace, most of which was attributable to the October 1996 opening of the
World of Disney, the world's largest Disney retail outlet. The remaining growth
in guest spending resulted from pricing and improved market penetration in
merchandise and food and beverage sales. Attendance gains were driven by
increased domestic tourist visitation primarily attributable to the resort's
25th Anniversary celebration. Increased occupied room nights reflected higher
occupancy, as well as more available rooms resulting from the opening of
Disney's BoardWalk Resort during the fourth quarter of the prior year.
Disneyland's revenue grew by $14 million, reflecting higher guest spending.
Operating income increased 21% or $42 million to $238 million, reflecting
the impact of higher attendance and guest spending. Costs and expenses, which
consist principally of labor, costs of merchandise, food and beverages sold,
depreciation, repairs and maintenance, entertainment, and marketing and sales
expenses, increased 14% or $114 million. The increase was primarily due to
higher operating costs resulting from increased attendance and resort expansion,
increased marketing and sales efforts including those related to the Walt Disney
World Resort's 25th Anniversary celebration, and increased merchandise costs due
to higher guest spending levels.
FINANCIAL CONDITION
For the quarter ended December 31, 1996, cash provided by operations
increased $1.0 billion to $2.0 billion, which includes the impact of the ABC
acquisition.
Borrowings increased $22 million to $12.4 billion. During the quarter, the
Company received $1.3 billion from new borrowings and the formation of a real
estate investment trust, which was used to repay commercial paper borrowings.
Commercial paper borrowings outstanding as of December 31, 1996 totaled $3
billion with maturities of up to one year, and are supported by bank facilities
totaling $5 billion, which expire in one to five years and allow for borrowings
at various interest rates. The Company continues to replace some of the
remaining commercial paper with longer-term financing and may utilize, among
other options, a U.S. shelf registration statement filed in March 1996 and a
Euro Medium-Term Note Program established in June 1996, which collectively will
permit the future issuance of up to approximately $3.3 billion of additional
debt.
<PAGE>
The Walt Disney Company
Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
FINANCIAL CONDITION (continued)
During the quarter, the Company invested $1.4 billion to produce and
acquire film and television properties. These costs are higher than the
prior-year quarter due primarily to the inclusion in fiscal 1997 of spending at
the acquired ABC operations.
The Company expects the ABC Television Network, ESPN and the Company's
television and radio stations to continue to enter into programming commitments
to purchase the broadcast rights for various feature films, sports and other
programming. Total commitments to purchase broadcast programming approximated
$3.9 billion at December 31, 1996. Substantially all of this amount is payable
over the next five years.
The Company announced in January 1997 it was beginning to explore
strategic options with respect to the publishing operations obtained in the ABC
acquisition. Those options could include selling the publishing operations in
whole or part, distributing the operations to the Company's shareholders or
retaining the operations.
The Company believes that its financial condition is strong and that its
cash, other liquid assets, operating cash flows, access to equity capital
markets and borrowing capacity, taken together, provide adequate resources to
fund ongoing operating requirements and future capital expenditures related to
the expansion of existing businesses and development of new projects.
<PAGE>
PART II. OTHER INFORMATION
THE WALT DISNEY COMPANY
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Agreement, dated as of December 27, 1996, between
registrant and Michael S. Ovitz.
10.2 Employment agreement, dated as of January 8, 1997,
between registrant and Michael D. Eisner.
(b) Reports on Form 8-K
None
<PAGE>
THE WALT DISNEY COMPANY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WALT DISNEY COMPANY
(Registrant)
By /s/ Richard D. Nanula
Richard D. Nanula
Senior Executive Vice President
and Chief Financial Officer
February 14, 1997
Burbank, California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet and condensed consolidated statement of
income found on the Company's Form 10-Q for the three months ended December
31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 707
<SECURITIES> 483
<RECEIVABLES> 4,131
<ALLOWANCES> 0
<INVENTORY> 808
<CURRENT-ASSETS> 0
<PP&E> 12,834
<DEPRECIATION> 4,564
<TOTAL-ASSETS> 38,677
<CURRENT-LIABILITIES> 0
<BONDS> 12,364
0
0
<COMMON> 8,623
<OTHER-SE> 8,169
<TOTAL-LIABILITY-AND-EQUITY> 38,677
<SALES> 6,278
<TOTAL-REVENUES> 6,278
<CGS> 0
<TOTAL-COSTS> 4,716
<OTHER-EXPENSES> 90
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 1,301
<INCOME-TAX> 552
<INCOME-CONTINUING> 749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 749
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
December 27, 1996
Mr. Michael Ovitz
c/o Robert L. Adler, Esq.
Munger, Tolles & Olson
355 S. Grand Avenue, 35th Floor
Los Angeles, California 90071
Dear Michael:
Reference is made to my letter to you dated December 12, 1996. By our mutual
agreement this letter will supersede and replace my prior letter.
This will confirm the terms of your agreement with the Company as follows:
1. The Term of your employment under your existing Employment Agreement
with The Walt Disney Company will end at the close of business today.
Consequently, your signature confirms the end of your service as an officer, and
your resignation as a director, of the Company and its affiliates.
2. This letter will for all purposes of the Employment Agreement be
treated as a "Non-Fault Termination." By our mutual agreement, the total amount
payable to you under your Employment Agreement, including the amount payable
under Section 11(c) in the event of a "Non-Fault Termination," is
$38,888,230.77, net of withholding required by law or authorized by you. By your
signature on this letter, you acknowledge receipt of all but $1,000,000 of such
amount. Pursuant to our mutual agreement, this will confirm that payment of the
$1,000,000 balance has been deferred until February 5, 1997, pending final
settlement of accounts.
3. This letter will further confirm that the option to purchase 3,000,000
shares of the Company's Common Stock granted to you pursuant to Option A
described in your Employment Agreement will vest as of today and will expire in
accordance with its terms on September 30, 2002.
Please confirm your agreement to the foregoing by countersigning below.
Sincerely,
/s/ Sanford M. Litvack
Sanford M. Litvack
AGREED:
/s/ Michael Ovitz
Michael Ovitz
<PAGE>
GENERAL RELEASE
THIS GENERAL RELEASE (this "Release") is executed as of December 27,
1996, by the undersigned Releasor in favor of The Walt Disney Company, a
Delaware corporation (the "Company"), and the other Releasees referred to
herein, in connection with the following:
A. Releasor and the Company are parties to an Employment
Agreement dated as of October 1, 1995 (the "Employment Agreement").
B. Simultaneously with the execution and delivery of this Release,
the Company and Releasor are executing and delivering a letter agreement (the
"Letter Agreement") that ends the employment Term set forth in the Employment
Agreement and that treats the Letter Agreement and the ending of such Term as a
"Non-Fault Termination" under the Employment Agreement.
C. Pursuant to the terms of the Letter Agreement and the Employment
Agreement, the Company has: (i) paid to Releasor the sum called for by the
Letter Agreement, except for the sum of $1,000,000 which has been deferred in
accordance with the terms of the Letter Agreement (the "Deferred Amount"), (ii)
vested the option to purchase 3,000,000 shares of the Company's Common Stock
granted to Releasor pursuant to Option A described in the Employment Agreement
(the "Option"), and (iii) confirmed that such Option will expire in accordance
with its terms on September 30, 2002.
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged by Releasor, the undersigned Releasor hereby agrees as follows:
1. Release. Except as expressly set forth below, Releasor hereby
releases, remises, acquits and forever discharges (a) the Company, (b) each of
the Company's parents, subsidiaries, affiliated companies, divisions,
predecessors, successors and assigns, (c) each of the foregoing's officers,
directors, representatives, employees, agents and shareholders in their
respective capacities as such, and (d) all persons acting by, through, under or
in concert with any of them (all of the persons and entities referred to above
being collectively referred to as the "Releasees"), from any and all charges,
complaints, claims, liabilities, obligations, promises, agreements,
controversies, damages, actions, causes of action, suits, rights, demands,
costs, losses, debts and expenses (including attorneys' fees and costs actually
incurred) of any nature whatsoever, known or unknown, suspected or unsuspected,
including but not limited to, rights arising out of alleged violations of any
contracts, express or implied, any covenant of good faith and fair dealing,
express or implied, or any tort or any legal restrictions related to the end of
Releasor's employment by the Company, or any Federal, state or other
governmental statute, regulation or ordinance, including, without limitation,
the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of
1964, as amended, and the California Fair Employment and Housing Act (each of
the foregoing being referred to individually as a "Claim" and collectively as
"Claims"), that Releasor now has, or has ever had, or ever will have, against
each or any of the Releasees, by reason of any and all acts, omissions, events,
circumstances or facts existing or occurring up to the date hereof. With respect
to Claims that are released under this Paragraph 1, Releasor represents that he
has not filed any complaints or charges or lawsuits of any kind whatsoever
against any of the Releasees with any governmental agency or any court and
further represents and agrees that he will not do so at any time hereafter.
Without limiting the generality of the foregoing, Releasor acknowledges that,
except for matters that are expressly excluded below from the release set forth
herein, the payments called for by the Letter Agreement, the vesting of the
Option, and the exercisability of the Option through September 30, 2002 in
accordance with, and subject to, its terms and the stock option plan pursuant to
which it was granted, are in lieu of and in full and final discharge of any
obligations to Releasor for compensation, salary, bonus, vacation pay, floating
holidays, severance payments, or any other expectations of payment,
remuneration, or continued coverage or benefit of any nature for or in favor of
Releasor arising out of or in connection with his employment with the Company,
or under any agreement, arrangement, commitment, plan, program, practice or
policy of the Company or any affiliate thereof or otherwise.
<PAGE>
2. Scope of Release. Except for those matters that are expressly
excluded from the Release set forth herein, this Release is intended as a
release of all Claims that the Releasor may have against the Releasees or any of
them, whether now known or unknown. In furtherance thereof, the Releasor
expressly waives and relinquishes all rights and benefits afforded by California
Civil Code Section 1542 and does so understanding and acknowledging the
significance of such specific waiver of Section 1542. Section 1542 states as
follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Thus, notwithstanding the provisions of Section 1542, and for the purposes of
implementing a full and complete release and discharge of the Releasees,
Releasor expressly acknowledges that this Release is intended to include in its
effect, without limitation, all Claims that Releasor does not know or suspect to
exist in Releasor's favor at the time of execution hereof, and this Release
contemplates the extinguishment of any such Claim or Claims except to the extent
expressly set forth herein.
3. Age Discrimination Claims. Releasor hereby acknowledges that
insofar as the Claims that are the subject of release include any Claim arising
under the federal Age Discrimination Act of 1967, as amended ("Age
Discrimination Claim"), the following terms apply:
a. Releasor has been advised in writing to consult with
an attorney prior to agreeing to and signing this Release.
b. Releasor has been advised that he has a period of 21 days
within which to consider the terms of this Release prior to signing this
Release; however, Releasor may voluntarily choose to sign prior to the end
of the 21-day period.
c. Releasor has been advised that he has a period of 7 days
immediately following his signing of this Release (the "Revocation
Period") in which to revoke this entire Release and that any such
revocation must be in writing, signed by Releasor, and hand delivered
during the revocation period to the Senior Vice President and Chief of
Corporate Operations of the Company.
d. In furtherance of the foregoing and notwithstanding any
other provision hereof, Releasor agrees not to exercise all or any part of
the Option for a period of eight (8) days following Releasor's execution
of this Release.
If Releasor chooses to exercise his right during the Revocation Period to revoke
this Release, then, in order to place the Company and Releasor in the positions
they were in prior to the Letter Agreement, Releasor shall, within 24 hours of
the revocation, return to the Company all amounts paid to Releasor pursuant to
the Letter Agreement and any other benefits whatsoever conferred upon Releasor
in the Letter Agreement, including the vesting of the Option referred to
therein. Releasor shall take all reasonably required steps, including execution
of such documents as may be required by the Company, to effectuate such return
of payments and other consideration. Upon such timely return of such payments
and other consideration, Releasor shall reserve whatever rights and claims he
held prior to the Letter Agreement and this Release. However, in the event that
Releasor fails or refuses, following revocation during the Revocation Period, to
effect a timely and complete return of all such payments and other consideration
to the Company, then the Option shall expire, lapse and become non-exercisable,
notwithstanding any of the provisions of the Employment Agreement, the Letter
Agreement, the stock option agreement evidencing the Option or the stock option
plan pursuant to which the Option was granted.
<PAGE>
4. Exclusions. Notwithstanding the foregoing, nothing in this
Release shall operate, or shall be construed or interpreted, as a release,
acquittal, discharge or waiver of any of the following, and none of the
following shall be included in the Claims that are the subject of this
Release:
a. Such rights of Releasor as are unconditionally vested in
him as of the date hereof under the terms of any (i) applicable employee pension
plan of the Company to which Releasor may be subject, or (ii) any other
applicable employee welfare benefit plans of the Company or its affiliates,
Releasor hereby acknowledging that all such rights referred to in clauses (i)
and (ii) shall be provided only in accordance with, and subject to, the terms
and provisions of the relevant plans as in effect from time to time which are
applicable to Releasor.
b. The right of Releasor and his dependents to the
continuation of health care coverage as is required under, and subject to,
applicable law, of which Releasor understands he will be notified after the date
hereof, Releasor hereby acknowledging that such rights are subject to Releasor's
timely exercise and that all payments for any such continued health care
coverage will be paid by him.
c. Releasor's right to the return of any tangible personal
property of his that is currently in the possession of the Company, Releasor
acknowledging that nothing herein or in the documents referred to herein has
waived or limited the Company's right to the return from Releasor of tangible
personal property of the Company that is in Releasor's possession, all of which
tangible personal property shall be returned to the Company or the Releasor, as
the case may be, as soon as reasonably practicable, but in no event later than
January 29, 1997.
d. Releasor's right to reimbursement of business expenses
incurred through the date hereof, in accordance with and subject to the terms of
Section 7 of the Employment Agreement, including requests for reimbursement
submitted prior to or after the date hereof, provided that in order for a
request to be eligible for reimbursement it must be submitted on or before
January 29, 1997, and provided further that requests for reimbursement of bills
actually received by Releasor prior to September 30, 1996 must be submitted
prior to the date hereof.
e. Any right which Releasor now has or may have to claim
indemnity (including advancement of expenses) for liabilities in connection with
his activities as a director, officer or employee of the Company pursuant to the
terms of any applicable statute, under any insurance policy, pursuant to the
certificate of incorporation or bylaws of any Releasee, or pursuant to the terms
of any applicable indemnification agreement to which Releasor and the Company or
any affiliate of the Company are or have been parties.
f. Except as provided in Paragraph 3 above, any right of
Releasor, whether arising under the Employment Agreement, the Letter Agreement,
the Stock Option Agreement of the Company with respect to the Option, any stock
option plan of the Company, or otherwise, in respect of the grant, issuance,
validity, enforceability, vesting, or exercise of the Option, or the entitlement
of the Releasor to Common Stock of the Company upon the exercise of all or any
portion of the Option in accordance with and subject to its terms, up to its
date of expiration on September 30, 2002.
g. Any Claim of entitlement by Releasor to the Deferred
Amount.
5. General. Releasor hereby confirms that: (a) Releasor's execution
of this Release is a material inducement to the Company's entering into the
Letter Agreement and making the payments at the time called for therein; (b)
Releasor has had the opportunity to consult, and has in fact consulted with,
legal counsel concerning this Release; (c) except for the provisions of this
Release and agreements between the Releasor and the Company referred to in this
Release, no statements, representations or promises have been made to Releasor,
or relied upon by Releasor, in executing this Release; (d) notwithstanding any
other term or provision hereof or of the Letter Agreement, Sections 8(b) and 19
of the Employment Agreement and any provisions of the Employment Agreement that
are expressly designated therein to survive the expiration or earlier
termination of the Term of employment shall remain in full force and effect in
accordance with their terms; and (e) this Release shall be governed by the laws
of the State of California without giving effect to conflicts of law principles.
<PAGE>
IN WITNESS WHEREOF, Releasor has executed this Release as of the day
and year first above written.
/s/ Michael S. Ovitz
Michael S. Ovitz
EMPLOYMENT AGREEMENT
BETWEEN
THE WALT DISNEY COMPANY
AND
MICHAEL D. EISNER
Michael D. Eisner ("Executive") and The Walt Disney Company, a Delaware
corporation ("Company"), hereby agree as follows:
1. Term
The term of this Agreement shall commence on January 8, 1997 and shall
terminate on September 30, 2006.
2. Duties
Executive shall be employed by Company as its Chairman and Chief Executive
Officer. Executive shall report directly and solely to the Company's Board of
Directors ("Board"). Executive shall devote his full time and best efforts to
the Company. Company agrees to nominate Executive for election to the Board as a
member of the management slate at each annual meeting of stockholders during his
employment hereunder at which Executive's director class comes up for election.
Executive agrees to serve on the Board if elected.
3. Salary
Executive shall receive an annual base salary of $750,000. The Board, in
its discretion, may increase the base salary based upon relevant circumstances.
4. Bonus
(a) Executive shall, as provided in, and subject to, Sections 4(e) and
4(f) below, receive an incentive bonus for Company's fiscal years ending
September 30, 1997 and September 30, 1998, pursuant to Company's 1997 Cash Bonus
Performance Plan for Executive Officers (the "Executive Cash Bonus Performance
Plan"), which plan shall be submitted to the shareholders of
Company as provided in Section 4(f) hereof.
(b) Executive shall, as provided in, and subject to, Sections 4(c),4(e)
and 4(f) below, receive an incentive bonus for each fiscal year of Company which
shall end after September 30, 1998 and on or before the termination of this
Agreement and for such additional periods as are provided in Section 4(e) below,
in an amount determined in accordance with the bonus formula set forth on
Exhibit 1 hereto. Such bonus formula shall be submitted to the shareholders of
Company as provided in Section 4(f) hereof.
(c) Both parties acknowledge that the bonus formula set forth on Exhibit A
hereto may produce inequitable results in the future, particularly since the
contract covers an extended period of time and the Company has grown very large
with worldwide activities in a very dynamic industry. Combination with another
company, capital restructuring, material changes in accounting rules or tax
laws, severe or prolonged recession or inflation and other circumstances, both
intrinsic and extrinsic to Company operations and/or the applicability of the
formula could create such inequitable results and materially frustrate the
intent of the bonus formula. In the event that the parties shall agree that
circumstances have occurred which make such bonus formula unfair and
inequitable, the parties will, at the request of either party, negotiate a
substitute formula which will provide a fair and realistic incentive under the
then current and anticipated circumstances and, in general, yield an equitable
and comparable result. Upon completion of such negotiations, this Agreement
shall be terminated and the parties shall enter into a new agreement which shall
replace such bonus formula with a substitute formula and which shall otherwise
be substantially identical to this Agreement. If the parties cannot agree upon
such substitute formula, or if the parties cannot agree as to whether or not
circumstances exist which would give rise to the right of either party to
request negotiation pursuant to the foregoing, the parties shall submit such
matter to arbitration by a qualified individual with expertise and at least ten
years experience in the field of executive compensation. Said individual shall
not have had dealings with either party during the preceding five years. Upon
failure to agree upon the selection of the arbitrator, each party shall submit a
panel of five qualified arbitrators, the other party may strike three from the
other's list, and the arbitrator shall be selected by lot from the remaining
four names. The arbitrator shall have the authority only to determine (i)
whether circumstances described above have occurred so as to make the matter
arbitrable and (ii) the substitute formula that will provide a fair and
realistic incentive and yield an equitable and comparable result in accordance
with the foregoing. After such determination shall have been made by the
arbitrator, this Agreement shall be terminated and the parties shall enter into
a new agreement which shall be substantially identical to this Agreement except
for the substitute formula which will replace the bonus formula set forth on
Exhibit A hereto. In all cases hereunder, Company shall be permitted to seek
shareholder approval or take such other steps as are reasonably necessary to
claim the deductibility by Company of any compensation paid to Executive
pursuant to any substitute formula hereunder. Notwithstanding any other term or
provision hereof, the implementation of any substitute formula hereunder shall
be effectuated on a prospective basis only (i.e., such substitute formula shall
not be applicable to any year as to which the applicable deadline under any
Federal tax law relating to deductibility of taxes by Company for the
establishment of a performance-based compensation plan shall have passed).
(d) Each incentive bonus shall be payable (i) 30 days following the date
Company's audited consolidated statement of income for the applicable fiscal
year becomes available or (ii) on the January 2 following the end of that fiscal
year, whichever is later (the "Bonus Payment Date").
(e) Executive shall be entitled to receive the bonus provided for in
paragraph (a) or paragraph (b) above, as the case may be, for each fiscal year
during which he is employed hereunder and, in addition, for the next twenty-four
months following the fiscal year during which Executive's employment is
terminated hereunder, except that said post-termination bonus coverage (i) shall
only extend for twelve months after termination if Executive takes employment
(other than as an independent producer) with another major entertainment company
within twelve months of termination and (ii) shall not apply if this Agreement
is terminated for good cause. The bonus provided for in Section 4(a) above shall
be applicable to any part or all of any period prior to October 1, 1998 in
respect of which a post-termination bonus is payable, and the bonus formula set
forth on Exhibit 1 hereto above shall be applicable to any part or all of any
period after September 30, 1998 in respect of which a post-termination bonus is
payable. If the bonus formula set forth on Exhibit 1 is used to determine a
post-termination bonus for fiscal 2007 or 2008, the Bonus Percentage (as defined
in Exhibit 1 hereto) shall be .35 for fiscal 2007 and .30 for fiscal 2008; the
payment of any bonus or bonuses for fiscal 2007 and 2008 in accordance with the
foregoing shall be made no earlier than thirty days following the date upon
which such payment is no longer subject to Section 162(m) of the Internal
Revenue Code. If such bonus formula shall no longer be applicable pursuant to
Section 4(f)(1) hereof, the post-termination bonuses shall be determined in
accordance with Section 4(f)(1) and paid during the time period applicable to
payments made pursuant to such bonus formula; provided, however, that any bonus
payable in respect of either the first or second twelve-month period of such
twenty-four month period shall not be less than the average of the total bonuses
paid to Executive hereunder in respect of the two fiscal years immediately prior
to the fiscal year in which termination of Executive's employment occurs. All
bonus payments hereunder shall be in cash.
(f) The bonus formula set forth on Exhibit 1 shall be submitted to the
shareholders of Company, together with the Executive Cash Bonus Performance
Plan, at Company's annual shareholders meeting to be held in 1997. In the event
that the Executive Cash Bonus Performance Plan is not approved by the
shareholders, this Agreement shall remain in effect, subject to the provisions
of this Section 4(f) set forth below, and Executive's bonuses for fiscal years
1997 and 1998 shall be determined in a manner consistent with the way the
Company shall determine bonuses for all other executives of the Company subject
to Section 162(m) of the Internal Revenue Code. In the event that the bonus
formula set forth on Exhibit 1 is not approved by shareholders at such meeting,
Company and Executive shall, for a period of thirty (30) days following such
shareholders meeting, use their best efforts to negotiate a bonus formula to
substitute for such disapproved formula, and if such substitute formula is
agreed upon, it shall be submitted to the shareholders of Company for approval
at Company's 1998 annual shareholders meeting. If no agreement is reached by
Company and Executive during such thirty-day period, or if shareholder approval
of any such agreement is not obtained at Company's 1998 shareholders meeting,
all of the terms and provisions of this Agreement shall remain in full force and
effect except that, notwithstanding any other term or provision hereof:
(1) The bonus formula set forth on Exhibit 1 hereto shall be of no
force or effect and Executive's annual bonuses hereunder for fiscal years
of Company ending on or after September 30, 1999 shall be determined at
the discretion of the Board of Directors of Company and may not comply
with Section 162(m) of the Internal Revenue Code; and
(2) Executive may terminate this Agreement and his employment
hereunder by delivering to Company, at any time on or after October 1,
1998, written notice setting forth a date of termination of this Agreement
which shall be at least twelve months later than the date upon which such
notice is delivered to Company.
5. Stock Options
(a) In connection with this Agreement Executive has been granted stock
options on September 30, 1996, to purchase (i) 5,000,000 shares of Company
common stock having an exercise price equal to the per share fair market value
(determined in accordance with the applicable provisions of the Company's 1995
Stock Incentive Plan (the "Plan")) of Company common stock on September 30, 1996
(the "A Options") and (ii) 3,000,000 shares of Company common stock of which
1,000,000 shall have an exercise price equal to 125% of the per share fair
market value of the Company common stock on such date ("Group 1"), 1,000,000
shall have an exercise price equal to 150% of the per share fair market value of
the Company common stock on such date ("Group 2"), and 1,000,000 shall have an
exercise price equal to 200% of the per share fair market value of the Company
common stock on such date ("Group 3") ("Groups 1, 2 and 3 are collectively
referred to herein as the B Options"). The A Option shall vest on September 30,
2003. Group 1 of the B Options shall vest on September 30, 2004. Group 2 of the
B Options shall vest on September 30, 2005. Group 3 of the B Options shall vest
on September 30, 2006. The A Option shall expire on September 30, 2008, and the
B Options shall expire on September 30, 2011. Such options shall be subject to,
and governed by, the terms and provisions of the Plan except to the extent of
modifications of such options which are permitted by the Plan and which are
expressly provided for in this Agreement.
(b) In accordance with the Plan, Executive will enter into a stock option
agreement with Company containing the terms and provisions of such options set
forth herein together with such other terms and conditions as counsel for the
Company requires to assure compliance with applicable federal or state law and
stock exchange requirements in connection with the issuance of shares of Company
common stock upon exercise of options to be granted as provided herein, or as
may be required to comply with the Plan.
(c) If Company has not already done so, Company shall register Executive's
shares pursuant to the appropriate form of registration statement under the
Securities Act of 1933 and shall maintain such registration statement's
effectiveness at all required times.
(d) Company shall, to the extent permitted by law, make loans to Executive
in reasonable amounts on reasonable terms and conditions during his employment
by Company to facilitate the exercise of the options granted to him as described
above.
6. Benefits
Executive shall be entitled to receive all benefits generally made
available to executives of Company. In addition, Company shall provide a death
benefit to Executive's estate having an after-tax value of $3,000,000 in the
event of Executive's death during the term hereof.
7. Reimbursement for Expenses
Executive shall be expected to incur various business expenses customarily
incurred by persons holding like positions, including but not limited to
traveling, entertainment and similar expenses incurred for the benefit of
Company. Subject to Company's policy regarding the reimbursement of such
expenses (which does not necessarily provide for reimbursement of all such
expenses), Company shall reimburse Executive for such expenses from time to
time, at Executive's request, and Executive shall account to Company for such
expenses.
8. Protection of Company's Interests
(a) During the term of this Agreement Executive shall not directly or
indirectly engage in competition with, or own any interest in any business which
competes with, any business of Company or any of its subsidiaries; provided,
however, that the provisions of this Section 8 shall not prohibit his ownership
of not more than 5% of voting stock of any publicly held corporation.
(b) Except for actions taken in the course of his employment hereunder, at
no time shall Executive divulge, furnish or make accessible to any person any
information of a confidential or proprietary nature obtained by him while in the
employ of Company. Upon termination of his employment by Company, Executive
shall return to the Company all such information which exists in written or
other physical form and all copies thereof in his possession or under his
control.
(c) Company and its successors and assigns shall, in addition to
Executive's services, be entitled to receive and own all of the results and
proceeds of said services (including, without limitation, literary material and
other intellectual property) produced or created during the term of Executive's
employment hereunder except with respect to any book or writing autobiographical
in nature. Executive will, at the request of Company, execute such assignments,
certificates or other instruments as Company may from time to time deem
necessary or desirable to evidence, establish, maintain, protect, enforce or
defend its right or title in or to any such material.
(d) Executive recognizes that the services to be rendered by him hereunder
are of a character giving them peculiar value, the loss of which cannot be
adequately compensated for in damages, and in the event of a breach of this
Agreement by Executive, Company shall be entitled to equitable relief by way of
injunction or any other legal or equitable remedies.
9. Termination by Company
(a) Company shall have the right to terminate this Agreement under the
following circumstances:
(i) Upon the death of Executive.
(ii) Upon notice from Company to Executive in the event of an illness
or other disability which has incapacitated him from performing his duties
for six consecutive months as determined in good faith by the Board.
(iii) For good cause upon notice from Company. Termination by Company
of Executive's employment for "good cause" as used in this Agreement shall
be limited to gross negligence or malfeasance by Executive in the
performance of his duties under this Agreement or the voluntary
resignation by Executive as an employee of Company without the prior
written consent of Company.
(b) If this Agreement is terminated pursuant to Section 9(a) above,
Executive's rights and Company's obligations hereunder shall forthwith terminate
except as expressly provided in this Agreement.
(c) If this Agreement is terminated pursuant to Section 9(a)(i) or (ii)
hereof, Executive or his estate shall be entitled to receive a cash payment
equal to the present value (based on Company's then current cost of borrowing
for the remainder of the term hereof) of his base salary for the balance of the
term of this Agreement, payable within 30 days of the date of termination.
Executive shall also be entitled to receive the bonus payments provided for in
Section 4(e) hereof for the fiscal year in which the termination occurred plus
the twenty-four months following such fiscal year. All stock options granted to
Executive in accordance with Section 5 hereof shall also immediately vest upon
such termination and remain exerciseable until the earlier of the fifth
anniversary of the date of such termination or the expiration of such options on
the scheduled expiration dates set forth in Section 5(a) hereof.
(d) Whenever compensation is payable to Executive hereunder during a time
when he is partially or totally disabled and such disability (except for the
provisions hereof) would entitle him to disability income or to salary
continuation payments from Company according to the terms of any plan now or
hereafter provided by Company or according to any Company policy in effect at
the time of such disability, the compensation payable to him hereunder shall be
inclusive of any such disability income or salary continuation and shall not be
in addition thereto. If disability income is payable directly to Executive by an
insurance company under an insurance policy paid for by Company, the amounts
paid to him by said insurance company shall be considered to be part of the
payments to be made by Company to him pursuant to this Section 9, and shall not
be in addition thereto.
10. Termination by Executive
(a) Executive shall have the right to terminate his employment under this
Agreement upon 30 days' notice to Company given within 60 days following the
occurrence of any of the following events, each of which shall constitute "good
reason" for such termination:
(i) Executive is not elected or retained as Chairman and Chief
Executive Officer and a director of Company.
(ii) Company acts to materially reduce Executive's duties and
responsibilities hereunder. Executive's duties and responsibilities shall
not be deemed materially reduced for purposes hereof solely by virtue of
the fact that Company is (or substantially all of its assets are) sold to,
or is combined with, another entity provided that (a) Executive shall
continue to have the same duties and responsibilities with respect to
Company's business as of January 8, 1997, including but not limited to,
entertainment and recreation, broadcasting, cable, direct broadcast
satellite, filmed entertainment, consumer products, etc. and (b) Executive
shall report directly to the chief executive officer and/or board of
directors of the entity (or individual) that acquires Company or its
assets.
(iii) Company acts to change the geographic location of the performance
of Executive's duties from Los Angeles California Metropolitan area.
(b) Notwithstanding any other term or provision hereof, in the event that
Executive's employment shall terminate pursuant to Section 4(f)(2) hereof,
Executive's stock options referred to in Section 5 hereof shall remain
exercisable until the earlier of twelve months from the effective date of
termination or the scheduled expiration dates of such options set forth in
Section 5(a) hereof, and, for the purpose of establishing the period during
which vesting may continue to occur with respect to such options (and for no
other purpose whatsoever), Executive's employment shall not be deemed to
terminate until three months after the effective date of termination of
Executive's employment hereunder. In addition, Company's obligation to make the
bonus payments required by Section 4(e) hereof in the event of termination
pursuant to Section 4(f)(2) hereof in respect of the twenty-four month period
following the fiscal year during which termination of Executive's employment
hereunder shall occur shall remain in full force and effect, and in no event
shall the bonus payable in respect of either the first or second twelve-month
period of such twenty-four month period be less than the average of the total
bonuses paid to Executive hereunder for the two fiscal years immediately prior
the fiscal year in which the effective date of termination shall occur. Except
as provided above in this Section 10(b), a termination of this Agreement
pursuant to Section 4(f)(2) shall be treated as a voluntary resignation by
Executive as an Employee of Company without the prior written consent of Company
under Section 9(a)(iii).
11. Consequences of Breach by Company
If this Agreement is terminated pursuant to Section 10 hereof, or if
Company shall terminate Executive's employment under this Agreement in any other
way that is a breach of this Agreement by Company, the following shall apply:
(i) Executive shall receive a cash payment equal to the present value
(based on Company's then current cost of borrowing for the remainder of
the term hereof) of Executive's base salary hereunder for the remainder of
the term, payable within 30 days of the date of such termination.
(ii) Executive shall be entitled to bonus payments as provided in
Section 4 hereof for the remainder of the term hereof plus twenty-four
months.
(iii) All stock options granted by Company to Executive under the Plan
or granted by Company to Executive prior to the date hereof shall
accelerate and become immediately exercisable and thereafter remain
exercisable until the earlier of the fifth anniversary of the date of such
termination or the scheduled expiration dates for such options set forth
in Section 5(a) hereof.
12. Post-Termination Consulting Services
Upon expiration of this Agreement on September 30, 2006 (i.e., after the
completion of the full term of service by Executive hereunder), Executive shall
serve as a consultant to Company at a fee to be mutually agreed upon which shall
be at least $1.00 per year plus continuation of the same benefits and/or
perquisites provided to Executive during his term as Chief Executive Officer of
Company, excluding, however, any items which would conflict with any laws,
regulations and/or tax qualifications applicable to group health, pension and
employee welfare plans of Company and, except as otherwise provided herein with
respect to certain specified continuing obligations of Company to Executive,
salary, bonuses and/or stock options. The consulting arrangement shall continue
until notice is given as provided below following the earlier of: (i) acceptance
by Executive of full-time employment with a third party, (ii) the rendering by
Executive of any services to a competitor of Company or (iii) Executive's
disability for a period of six months which shall render him substantially
incapable of performing any consulting services for Company. If notice is given
pursuant to clauses (i) and (ii) above, the consulting arrangement shall
terminate three business days after the giving of such notice, and if such
notice is given pursuant to clause (iii), such termination shall occur three
months after the giving of such notice.
13. Remedies
Company recognizes that because of Executive's special talents, stature
and opportunities in the entertainment industry, and because of the special
creative nature of and compensation practices of said industry and the material
impact that individual projects can have on an entertainment company's results
of operations, in the event of termination by Company hereunder (except under
Section 9(a)), or in the event of termination by Executive under Section 10,
before the end of the agreed term, Company and Executive acknowledge and agree
that the provisions of this Agreement regarding further payments of base salary,
bonuses and the exercisability of stock options constitute fair and reasonable
provisions for the consequences of such termination, do not constitute a
penalty, and such payments and benefits shall not be limited or reduced by
amounts Executive might earn or be able to earn from any other employment or
ventures during the remainder of the agreed term of this Agreement.
14. Binding Agreement
This Agreement shall be binding upon and inure to the benefit of
Executive, his heirs, distributees and assigns and Company, its successors and
assigns. Executive may not, without the express written permission of the
Company, assign or pledge any rights or obligations hereunder to any person,
firm or corporation.
15. Amendment; Waiver
This Agreement contains the entire agreement of the parties with respect
to the employment of Executive by Company and upon execution of this Agreement
supersedes, on and as of January 8, 1997, the Employment Agreement dated as of
January 10, 1989 between Company and Executive (it being understood, however,
that this Agreement shall not affect any stock options granted to Executive by
Company prior to the date hereof). No amendment or modification of this
Agreement shall be valid unless evidenced by a written instrument executed by
the parties hereto. No waiver by either party of any breach by the other party
of any provision or condition of this Agreement shall be deemed a waiver of any
similar or dissimilar provision or condition at the same or any prior or
subsequent time.
16. Governing Law
(a) This Agreement shall be governed by and construed under and in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws; and the laws of that state shall govern all of the rights
remedies, liabilities, powers and duties of the parties under this Agreement and
of any arbitrator or arbitrators to whom any matter hereunder may be submitted
for resolution by the parties hereto, as contemplated by and pursuant to Title
6, Section 2708 of the Delaware Code.
(b) Any legal action or proceeding with respect to this Agreement shall be
brought exclusively in the federal or state courts of the State of Delaware, and
by execution and delivery of this Agreement, Executive and Company irrevocably
consent to the jurisdiction of those courts. Executive and Company irrevocably
waive any objection, including any objection to the laying of venue or based on
the grounds of forum non conveniens, which either may now or hereafter have to
the bringing of any action or proceeding in such jurisdiction in respect of this
Agreement or any transaction related hereto. Executive and Company acknowledge
and agree that any service of legal process by mail in the manner provided for
notices under this Agreement constitutes proper legal service of process under
applicable law in any action or proceeding under or in respect of this
Agreement.
(c) The parties agree that this Agreement (together with the stock option
agreement referred to in Section 5(b) hereof and any other documents or
agreements specifically referred to herein) shall constitute the sole and
conclusive basis for establishing Executive's compensation for all services
provided by him hereunder.
17. Notices
All notices which a party is required or may desire to give to the other
party under or in connection with this Agreement shall be given in writing by
addressing the same to the other party as follows:
If to Executive to:
Michael D. Eisner
283 Bel Air Road
Los Angeles, California 90024 and
<PAGE>
If to Company, to:
The Walt Disney Company
500 South Buena Vista Street
Burbank, California 91521
Attn: Senior Executive Vice President
and Chief of Operations
or at such other place as may be designated in writing by like notice. Any
notice shall be deemed to have been given within 48 hours after being addressed
as required herein and deposited, first-class postage prepaid, in the United
States mail.
IN WITNESS WHEREOF, the parties have executed this Agreement on this 8th day of
January 1997.
THE WALT DISNEY
COMPANY
/s/ Michael D. Eisner By:_/s/ Raymond L. Watson
Michael D. Eisner Name: Raymond L. Watson
Title:Chairman of the
Executive Committee
<PAGE>
Bonus Formula
The bonus payable pursuant for each applicable fiscal year of the Company
shall be the amount of Bonus EPS multiplied by Outstanding Shares with the
result multiplied by the Bonus Percentage.
In determining such bonus, the following definitions shall apply:
(1) "Bonus EPS" shall be the amount by which the EPS for the
applicable fiscal year exceeds Threshold EPS.
(2) "EPS" means the primary earnings per share of Company as reported
in its annual consolidated financial statements after any extraordinary
items set forth therein.
(3) "Base EPS" shall be the average of the EPS of the Company for the
fiscal years 1997 and 1998 (rounded to the nearest cent), but in no event
less than $2.75 or more than $3.25 if the average is below or above such
figures, respectively.
(4) "Threshold EPS" shall be based on a compounded annual growth rate
of 7.5% calculated on Base EPS (and rounded to the nearest cent). For
fiscal year 1999 it shall be determined by multiplying Base EPS by 1.075.
For each succeeding fiscal year it shall be determined by multiplying the
previous fiscal year's Threshold EPS by 1.075.
(5) "Outstanding Shares" means the number of common shares of the
Company outstanding based on the same figures used by the Company in
calculating EPS for the applicable fiscal year.
(6) The "Bonus Percentage" for each applicable fiscal year shall be
the following:
<TABLE>
<S> <C> <C> <C>
Year Percentage Year Percentage
1999 5.75 2003 0.75
2000 2.75 2004 0.55
2001 1.60 2005 0.45
2002 1.10 2006 0.40
</TABLE>
