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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1997 Commission File Number 1-11605
[LOGO OF THE WALT DISNEY COMPANY]
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Incorporated in Delaware I.R.S. Employer
Identification No.
500 South Buena Vista Street, Burbank, California 91521
(818) 560-1000 95-4545390
Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange
Title of Each Class on Which Registered
New York Stock Exchange
Common Stock, $.01 par value Pacific Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None.
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of November 30, 1997, the aggregate market value of registrant's common
stock held by non-affiliates (based on the closing price on such date as
reported on the New York Stock Exchange-Composite Transactions) was $62.1
billion. All executive officers and directors of registrant and all persons
filing a Schedule 13D with the Securities and Exchange Commission in respect
to registrant's common stock have been deemed, solely for the purpose of the
foregoing calculation, to be "affiliates" of the registrant.
There were 677,912,655 shares of common stock outstanding as of December 17,
1997 (including 170 shares held by TWDC Stock Compensation Fund, an affiliate
of the Company).
Documents Incorporated by Reference
Certain information required for Part III of this report is incorporated
herein by reference to an amendment to this report on Form 10-K/A to be filed
within 120 days after the end of the fiscal year covered by this report.
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PART I
ITEM 1. BUSINESS
The Walt Disney Company, together with its subsidiaries, is a diversified
worldwide entertainment company with operations in three business segments:
Creative Content, Broadcasting and Theme Parks and Resorts. Information on
revenues, operating income, identifiable assets and supplemental revenue of
the Company's business segments appears in Note 11 to the Consolidated
Financial Statements included in Item 8 hereof. The Company employs
approximately 108,000 people.
On February 9, 1996, the Company completed its acquisition of ABC, Inc.
("ABC"). Information on the acquisition appears in Note 2 to the Consolidated
Financial Statements included in Item 8 hereof. As a result of the
acquisition, a new parent company, with the name "The Walt Disney Company,"
replaced the old parent company of the same name. For convenience, the term
"Company" is used in this report to refer to both the old and the new parent
company. Unless the context otherwise requires, the term is also used to refer
collectively to the parent company and the subsidiaries through which its
various businesses are actually conducted.
CREATIVE CONTENT
The Creative Content segment produces live-action and animated motion
pictures, television programs and musical recordings, licenses the Company's
characters and other intellectual property for use in connection with
merchandise and publications, and publishes books and magazines. Within the
segment, films and characters are often promoted through the release of
audiocassettes and compact discs, children's books and magazines. In addition,
television programs have been created that contain characters originated in
animated films. Character merchandising and publications licensing promote the
Company's films and television programs, as well as the Company's other
operations. The Company also operates the Disney Stores, which are direct
retail distribution outlets for products based on the Company's characters and
films. The Company is also engaged directly in the home video and television
distribution of its film and television library.
The Company is an industry leader in producing and acquiring live-action and
animated motion pictures for distribution to the theatrical, television and
home video markets, and producing original television programming for the
network and first-run syndication markets. In addition, the Company produces
music recordings and live stage plays. The Company licenses the name "Walt
Disney," as well as the Company's characters, visual and literary properties
and songs and music, to various consumer manufacturers, retailers, show
promoters and publishers throughout the world. Company subsidiaries also
engage in direct retail distribution through The Disney Stores; publish books,
magazines and comics in the United States and Europe; and produce popular
music, children's audio products and computer software for all markets, as
well as film and video products for the educational marketplace.
THEATRICAL FILMS
Walt Disney Pictures and Television, a subsidiary of the Company, produces
and acquires live-action motion pictures that are distributed under the
banners Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures and
Caravan Pictures. Another subsidiary, Miramax Film Corp., acquires and
produces motion pictures that are primarily distributed under the Miramax
banner. The Company also produces and distributes animated motion pictures
under the banner Walt Disney Pictures. In addition, the Company distributes
films produced or acquired by certain independent production companies.
The Company is in the process of implementing a new motion pictures
strategy, which is being phased-in over the next several years. The Company
intends to release fewer films, but increase per film expenditures.
Accordingly, total film expenditures are expected to approximate current
levels.
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During 1998, the Company expects to distribute approximately 20 feature films
under the Company's various banners and approximately 30 additional films
under the Miramax banner, including several live-action family feature films
and one to two full-length animated films, with the remainder targeted to
teenagers and adults. In addition, the Company periodically reissues
previously released animated films. As of September 30, 1997, the Company had
released 480 full-length live-action features (primarily color), 35 full-
length animated color features and approximately 476 cartoon shorts.
The Company distributes and markets its filmed products principally through
its own distribution and marketing companies in the United States and major
foreign markets. In 1997, the Company's international distributor, Buena Vista
International, became the first international distribution company to gross
more than $1 billion at the box office for three consecutive years.
HOME VIDEO
The Company directly distributes home video releases from each of its
banners in the domestic market. In the international market, the Company
distributes both directly and through foreign distribution companies. In
addition, the Company develops, acquires and produces original programming for
direct-to-video release. In 1997, the Company distributed seven of the ten
top-selling home videos. As of September 30, 1997, approximately 1,100
produced and acquired titles, including 531 feature films and 408 cartoon
shorts and animated features, were available to the domestic marketplace.
Approximately 880 produced and acquired titles, including 468 feature films
and 415 cartoon shorts and animated features, were available to the
international home entertainment market.
TELEVISION PRODUCTION AND DISTRIBUTION
The Company develops, produces and distributes television programming to
broadcasters, cable and satellite operators, including the major television
networks, The Disney Channel and other cable broadcasters, under the Buena
Vista Television, Touchstone Television and Walt Disney Television labels.
Program development is carried out in collaboration with a number of
independent writers, producers and creative teams under various development
arrangements. The Company focuses on the development, production and
distribution of half-hour comedies and one-hour dramas for network prime-time
broadcast. The fall 1997 series included renewals of the half-hour comedies
Home Improvement, Ellen, Boy Meets World and Spin City. New half-hour series
premiering in fall 1997 included Soul Man, Hiller and Diller and Teen Angel.
The Company is also producing 18 original television movies for the relaunch
of The Wonderful World of Disney, which began airing on ABC Sunday evenings in
fall 1997. The 1997-98 television season features the launch of Disney's One
Saturday Morning on ABC. One Saturday Morning is a two-hour live-action show
comprised of audience participation segments, cartoons and pre-recorded comedy
segments that "wrap-around" the weekly series Brand Spankin' New Doug,
Disney's Recess and Disney's Pepper Ann. Other television Animation series on
ABC include 101 Dalmatians: The Series, Jungle Cubs and The New Adventures of
Winnie The Pooh.
The Company also provides a variety of prime-time specials for exhibition on
network television. Additionally, the Company produces first-run animated and
live-action syndicated programming. The Disney Afternoon is a 1 1/2 hour
block, airing five days per week, including 101 Dalmatians, Quack Pack, Mighty
Ducks and Ducktales. Live-action programming includes Live! With Regis and
Kathie Lee, a daily talk show; The Keenen Ivory Wayans Show, a daily late-
night talk show; Honey, I Shrunk the Kids, a weekly family action hour; Siskel
& Ebert, a weekly motion picture review program; Disney Presents, Bill Nye the
Science Guy, and Sing Me a Story with Belle, weekly educational programs for
children as well as daily game shows on cable including Debt, Make Me Laugh,
and Win Ben Stein's Money.
The Company licenses the theatrical and television film library to the
domestic television syndication market. Television programs in off-network
syndication or cable include Home Improvement, Boy Meets World, Blossom,
Dinosaurs, Golden Girls and Empty Nest. Major packages of the Company's
feature films and television programming have been licensed for broadcast over
several years.
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The Company also licenses its theatrical and television properties in a
number of foreign television markets. In addition, certain of the Company's
television programs are syndicated by the Company abroad, including The Disney
Club, a weekly series that the Company produces for foreign markets.
The Company has licensed to the Encore pay television service, over a multi-
year period, exclusive domestic pay television rights to certain films
released under the Miramax, Touchstone, Hollywood and Walt Disney Pictures
banners.
AUDIO PRODUCTS AND MUSIC PUBLISHING
The Company also produces and distributes compact discs, audiocassettes and
records, consisting primarily of soundtracks for animated films and read-along
products, directed at the children's market in the United States, France and
the United Kingdom, and licenses the creation of similar products throughout
the rest of the world. In addition, the Company commissions new music for its
motion pictures, television programs and records and exploits the song
copyrights created for the Company by licensing others to produce and
distribute printed music, records, audiovisual devices and public
performances.
Domestic retail sales of compact discs, audiocassettes and records are the
largest source of music-related revenues, while direct marketing, which
utilizes catalogs, coupon packages and television, is a secondary means of
music distribution for the Company.
The Company's Hollywood Records subsidiary develops, produces and markets
recordings from new talent across the spectrum of popular music, as well as
soundtracks from certain of the Company's live-action motion pictures. The
Company also has a Nashville-based music label, Lyric Street Records.
In September 1997, the Company purchased Mammoth Records, which develops,
produces and markets a diverse group of artists in the popular and alternative
music fields.
WALT DISNEY THEATRICAL PRODUCTIONS
In 1994, the Company produced an adaptation of its animated feature film
Beauty and the Beast for the Broadway stage. The production celebrated its
fourth anniversary on Broadway this year and is currently touring the United
States. The show has also been produced in six countries around the world. In
November 1997, the Broadway production of The Lion King opened at the newly
renovated New Amsterdam Theatre.
CHARACTER MERCHANDISE AND PUBLICATIONS LICENSING
The Company's worldwide licensing activities generate royalties, which are
usually based on a fixed percentage of the wholesale or retail selling price
of the licensee's products. The Company licenses characters based upon both
traditional and newly created film properties. Character merchandise
categories that have been licensed include apparel, watches, toys, gifts,
housewares, stationery, sporting goods and domestic items such as sheets and
towels. Publication categories that have been licensed include continuity-
series books, book sets, art and picture books and magazines.
In addition to receiving licensing fees, the Company is actively involved in
the development and approval of licensed merchandise and in the
conceptualization, development, writing and illustration of licensed
publications. The Company continually seeks to create new characters to be
used in licensed products.
THE DISNEY STORES
The Company markets Disney-related products directly through its retail
facilities operated under "The Disney Store" name. These facilities are
generally located in leading shopping malls and similar retail complexes. The
stores carry a wide variety of Disney merchandise and promote other businesses
of the Company. During fiscal 1997, the Company opened 58 new stores in the
United States and Canada, 19 in Europe and 29 in the Asia-Pacific area,
bringing the total number of stores to 636 as of
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September 30, 1997. The Company expects to open additional stores in the
future in selected markets throughout the United States, as well as in Asia-
Pacific, European and Latin American countries.
BOOKS AND MAGAZINES
The Company has book imprints in the United States offering books for
children and adults. The Company also produces several magazines including W,
Jane, Los Angeles, Family Fun, Disney Adventures as well as Discover, a
general science magazine. In addition, the Company is a partner in a joint
venture which produces children's books and magazines and computer software
magazines in France.
MULTIMEDIA
Disney Interactive is a software business that licenses, develops and
markets entertainment and educational computer software and video game titles
for home and school. The Disney Online business develops, publishes and
distributes content for narrow-band on-line services, the interactive software
market, interactive television platforms, Internet web sites, including
Disney.com and Disney's Daily Blast, and other emerging technology ventures.
OTHER ACTIVITIES
The Company produces audiovisual materials for the educational market,
including videocassettes and film strips. It also licenses the manufacture and
sale of posters and other teaching aids. The Company markets and distributes,
through various channels, animation cel art and other animation-related
artwork and collectibles.
COMPETITIVE POSITION
The success of the Creative Content operations is heavily dependent upon
public taste, which is unpredictable and subject to change. In addition,
filmed entertainment operating results fluctuate due to the timing and
performance of theatrical and home video releases. Release dates are
determined by several factors, including timing of vacation and holiday
periods and competition. Operating results for the licensing and retail
distribution business are influenced by seasonal consumer purchasing behavior
and by the timing and performance of animated theatrical releases.
The Company's Creative Content businesses compete with all forms of
entertainment. A significant number of companies produce and/or distribute
theatrical and television films, exploit products in the home video market,
provide pay television programming services, sponsor live theater, and/or
produce interactive software. The Company also competes to obtain creative
talents, story properties, advertiser support, broadcast rights and market
share, which are essential to the success of all of the Company's Creative
Content businesses.
The Company competes in its character merchandising and other licensing,
publishing and retail activities with other licensers, publishers and
retailers of character, brand and celebrity names. Although public information
is limited, the Company believes it is the largest worldwide licenser of
character-based merchandise and producer/distributor of children's audio and
film-related products.
BROADCASTING
TELEVISION AND RADIO NETWORKS
The Company operates the ABC Television Network, which as of September 30,
1997 had 223 primary affiliated stations operating under long-term agreements
reaching 99.9% of all U.S. television households. The ABC Television Network
broadcasts programs in "dayparts" and types as follows: Monday through Friday
Early Morning, Daytime and Late Night, Monday through Sunday Prime Time and
News, Children's and Sports. The Company also operates the ABC Radio Networks,
which reach more than 140 million domestic listeners weekly and consists of
over 7,200 program affiliations on more than 2,900 radio stations. During
1997, the Company launched Radio Disney, a 24-hour
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children's radio network. The ABC Radio Networks also produce and distribute a
number of radio program series for radio stations nationwide and can be heard
in more than 90 countries worldwide.
Generally, the networks pay the cost of producing their own programs or
acquiring broadcast rights from other producers for network programming and
pay varying amounts of compensation to affiliated stations for broadcasting
the programs and commercial announcements included therein. Substantially all
revenues from network operations are derived from the sale to advertisers of
time in network programs for commercial announcements. The ability to sell
time for commercial announcements and the rates received are dependent on many
factors, primarily the quantitative and qualitative audience that the network
can deliver to the advertiser, as well as overall advertiser demand for time
in the network marketplace.
TELEVISION AND RADIO STATIONS
The Company owns nine very high frequency (VHF) television stations, five of
which are located in the top ten markets in the United States; one ultra high
frequency (UHF) television station; eleven standard (AM) radio stations; and
fifteen frequency modulation (FM) radio stations. All of the television
stations are affiliated with the ABC Television Network, and 21 of the 26
radio stations are affiliated with the ABC Radio Networks. The Company's
television stations reach 24% of the nation's television households,
calculated using the multiple ownership rules of the Federal Communications
Commission (FCC). The Company's radio stations reach more than 14 million
people weekly in the top twenty United States advertising markets. Markets,
frequencies and other station details are set forth in the following tables:
TELEVISION STATIONS
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EXPIRATION TELEVISION
DATE OF FCC MARKET
STATION AND MARKET CHANNEL AUTHORIZATION RANKING (1)
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WABC-TV (New York, NY)................... 7 Jun. 1, 1999 1
KABC-TV (Los Angeles, CA)................ 7 Dec. 1, 1998 2
WLS-TV (Chicago, IL)..................... 7 (2) 3
WPVI-TV (Philadelphia, PA)............... 6 Aug. 1, 1999 4
KGO-TV (San Francisco, CA)............... 7 Dec. 1, 1998 5
KTRK-TV (Houston, TX).................... 13 Aug. 1, 1998 11
WTVD-TV (Raleigh-Durham, NC)............. 11 Dec. 1, 2004 29
KFSN-TV (Fresno, CA)..................... 30 Dec. 1, 1998 55
WJRT-TV (Flint, MI)...................... 12 Oct. 1, 2005 63
WTVG-TV (Toledo, OH)..................... 13 Oct. 1, 2005 66
RADIO STATIONS
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FREQUENCY EXPIRATION RADIO
AM-KILOHERTZ DATE OF FCC MARKET
STATION AND MARKET FM-MEGAHERTZ AUTHORIZATION RANKING (3)
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WABC (New York, NY)...................... 770 K Jun. 1, 1998 1
KABC (Los Angeles, CA)................... 790 K (2) 2
KTZN (Los Angeles, CA)................... 710 K (2) 2
WLS (Chicago, IL)........................ 890 K Dec. 1, 2004 3
KGO (San Francisco, CA).................. 810 K (2) 4
KSFO (San Francisco, CA)................. 560 K (2) 4
WJR (Detroit-MI)......................... 760 K Oct. 1, 2004 6
WBAP (Dallas-Fort Worth, TX)............. 820 K Aug. 1, 2005 7
WMAL (Washington, DC).................... 630 K Oct. 1, 2003 8
WDWD (Atlanta, GA)....................... 590 K Apr. 1, 2004 12
KDIZ (Minneapolis-St.Paul, MN)........... 1440 K Apr. 1, 2005 16
WPLJ (FM) (New York, NY)................. 95.5 M Jun. 1, 1998 1
KLOS (FM) (Los Angeles, CA).............. 95.5 M (2) 2
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FREQUENCY EXPIRATION RADIO
AM-KILOHERTZ DATE OF FCC MARKET
STATION AND MARKET FM-MEGAHERTZ AUTHORIZATION RANKING (3)
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WXCD (FM) (Chicago, IL).................. 94.7 M (2) 3
WPLT (FM) (Detroit, MI).................. 96.3 M Oct. 1, 2004 6
WDRQ (FM) (Detroit, MI).................. 93.1 M Oct. 1, 2001 6
KSCS (FM) (Dallas-Fort Worth, TX)........ 96.3 M Aug. 1, 2005 7
WRQX (FM) (Washington, DC)............... 107.3 M Oct. 1, 2003 8
WJZW (FM) (Washington, DC)............... 105.9 M Oct. 1, 2001 8
WKHX (FM) (Atlanta, GA).................. 101.5 M Apr. 1, 2004 12
WYAY (FM) (Atlanta, GA).................. 106.7 M Apr. 1, 2004 12
KQRS (FM) (Minneapolis-St.Paul, MN)...... 92.5 M Apr. 1, 2005 16
KXXR (FM) (Minneapolis-St.Paul, MN)...... 93.7 M Apr. 1, 2005 16
KZNR (FM) (Minneapolis-St.Paul, MN))..... 105.1 M Apr. 1, 2005 16
KZNT (FM) (Minneapolis-St.Paul, MN)...... 105.3 M Apr. 1, 2005 16
KZNZ (FM) (Minneapolis-St.Paul, MN)...... 105.7 M Apr. 1, 2005 16
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(1) Based on Nielsen U.S. Television Household Estimates, September 1997
(2) See "Federal Regulation" and "Renewals"
(3) Based on 1996 Arbitron Radio Market Rank
CABLE AND INTERNATIONAL BROADCAST
The Company's cable and international broadcast operations are principally
involved in the production and distribution of cable television programming,
the licensing of programming to domestic and international markets and
investment in joint ventures in foreign-based television operations and
television production and distribution entities. The Company owns The Disney
Channel, 80% of ESPN Inc., 37.5% of the A&E Television Networks, 50% of
Lifetime Entertainment Services, 34.4% of E! Entertainment Television and has
various other international investments. During the first quarter of 1998, the
Company acquired the Classic Sports Network.
The Disney Channel, which has approximately 30 million domestic and 7
million international subscribers, is a cable and satellite television
service. New shows developed for original use by The Disney Channel include
dramatic, adventure, comedy and educational series, as well as documentaries
and first-run television movies. In addition, entertainment specials include
shows originating from both the Walt Disney World Resort(R) and Disneyland
Park(R). The balance of the programming consists of products acquired from
third parties and products from the Company's theatrical film and television
programming library. The Disney Channel Taiwan and U.K. premiered in 1995,
followed by the launch of The Disney Channel Australia in 1996. The Company
began broadcasting The Disney Channel Malaysia in October 1996, The Disney
Channel France in March 1997 and The Disney Channel Middle East in April 1997.
Planned launches in 1998 include, The Disney Channel Italy and Spain. The
Company continues to explore the development of The Disney Channel in other
countries around the world.
ESPN Inc. operates ESPN, a cable and satellite sports programming service
reaching 72 million subscribers domestically and 152 million households in 190
countries internationally, ESPN2, which reaches 50 million domestic
subscribers, and in 1997 began broadcasting ESPNews, a 24-hour sports news
cable channel, that reaches approximately 5 million subscribers nationwide.
ESPN also owns 33% of Eurosport, a pan-European satellite-delivered cable and
direct-to-home sports programming service, 25% of Sportsvision Australia and
50% of ESPN Brazil. ESPN owns a 50% interest in the ESPN STAR joint venture
which delivers sports programming throughout most of Asia and 33% of the Net
Star venture which owns The Sports Network, among other media properties in
Canada.
The A&E Television Network is a cable programming service devoted to
cultural and entertainment programming reaching 78 million subscribers. The
History Channel, which is owned by A&E, reaches 36 million subscribers.
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Lifetime Entertainment Services owns Lifetime Television, which reaches 69
million cable subscribers and is devoted to women's lifestyle programming.
The Classic Sports Network is a cable programming service devoted to
memorable sporting events reaching 10 million subscribers.
The Company's share of the financial results of the cable and international
broadcast services, other than The Disney Channel and ESPN Inc., are reported
under the heading "Corporate activities and other" in the Company's
consolidated statements of income.
COMPETITIVE POSITION
The ABC Television Network, The Disney Channel, ESPN and other broadcasting
affiliates primarily compete for viewers with the other television networks,
independent television stations, other video media such as cable television,
satellite television program services and videocassettes. In the sale of
advertising time, the broadcasting operations compete with other television
networks, independent television stations, suppliers of cable television
programs and other advertising media such as newspapers, magazines and
billboards. Substantial competition also exists for exclusive broadcasting
rights for television programs such as Monday Night Football. The ABC Radio
Networks likewise compete with other radio networks and radio programming
services, independent radio stations and other advertising media.
The Company's television and radio stations are in competition with other
television and radio stations, cable television systems, satellite television
program services, videocassettes and other advertising media such as
newspapers, magazines and billboards. Such competition occurs primarily in
individual market areas. A television station in one market does not compete
directly with other stations in other market areas.
FEDERAL REGULATION
Television and radio broadcasting are subject to the jurisdiction of the FCC
under the Communications Act of 1934, as amended (the "Communications Act").
The Communications Act empowers the FCC, among other things, to issue, revoke
or modify broadcasting licenses, determine the location of stations, regulate
the equipment used by stations, adopt such regulations as may be necessary to
carry out the provisions of the Communications Act and impose certain
penalties for violation of its regulations.
FCC regulations also restrict the ownership of stations and cable operations
in certain circumstances, and regulate the practices of network broadcasters,
cable providers and competing services. Such laws and regulations are subject
to change, and the Company generally cannot predict whether new legislation or
regulations, or a change in the extent of application or enforcement of
current laws and regulations, would have an adverse impact on the Company's
operations.
RENEWALS
Broadcasting licenses are granted for a maximum period of eight years, and
are renewable upon application therefor if the Commission finds that the
public interest would be served thereby. During certain periods when a renewal
application is pending, other parties may file petitions to deny the
application for renewal of a license. Renewal applications are now pending for
WLS-TV, KABC, KTZN, KGO, KSFO, KLOS (FM) and WXCD (FM). All of the Company's
other owned stations have been granted license renewals by the FCC for maximum
terms.
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THEME PARKS AND RESORTS
The Company operates the Walt Disney World Resort in Florida and the
Disneyland Park and two hotels in California. The Company also earns royalties
on revenues generated by the Tokyo Disneyland(R) theme park and has an
ownership interest in Disneyland Paris.
WALT DISNEY WORLD RESORT
The Walt Disney World Resort is located on approximately 30,500 acres of
land owned by Company subsidiaries 15 miles southwest of Orlando, Florida. The
resort includes three theme parks (the Magic Kingdom, Epcot and the Disney-MGM
Studios), hotels and villas, an entertainment complex, a shopping village,
conference centers, campgrounds, golf courses, water parks and other
recreational facilities designed to attract visitors for an extended stay. A
fourth theme park, Disney's Animal Kingdom, will open in spring 1998 and will
feature thrill rides, exotic landscapes and close encounters with wild
animals.
The Company markets the entire Walt Disney World destination resort through
a variety of national, international and local advertising and promotional
activities. The Walt Disney World Resort began a 15-month-long celebration of
its 25th Anniversary in October 1996 with a series of promotional and special
events. A number of attractions in each of the theme parks are sponsored by
corporate participants through long-term participation agreements.
MAGIC KINGDOM - The Magic Kingdom, which opened in 1971, consists of seven
principal areas: Main Street U.S.A., Liberty Square, Frontierland, New
Tomorrowland, Fantasyland, Adventureland and Mickey's Toontown Fair. These
areas feature themed rides and attractions, restaurants, refreshment stands
and merchandise shops.
EPCOT - Epcot, which opened in 1982, consists of two major themed areas:
Future World and World Showcase. Future World dramatizes certain historical
developments and addresses the challenges facing the world today through major
pavilions devoted to high-tech products of the future ("Innoventions"),
communication and technological exhibitions ("Spaceship Earth"), and energy,
transportation, imagination, life and health, the land and seas. World
Showcase presents a community of nations focusing on the culture, traditions
and accomplishments of people around the world. World Showcase includes as a
central showpiece the American Adventure pavilion, which highlights the
history of the American people. Other nations represented are Canada, China,
France, Germany, Italy, Japan, Mexico, Morocco, Norway and the United Kingdom.
Both areas feature themed rides and attractions, restaurants and merchandise
shops.
DISNEY-MGM STUDIOS - The Disney-MGM Studios, which opened in 1989, consists
of a theme park, an animation studio and a film and television production
facility. The park centers around Hollywood as it was during the 1930's and
1940's and features Disney animators at work and a backstage tour of the film
and television production facilities in addition to themed food service and
merchandise facilities and other attractions. The production facility consists
of three sound stages, merchandise shops and a back lot area and currently
hosts both feature film and television productions.
RESORT FACILITIES - As of September 30, 1997, the Company owned and operated
13 resort hotels and a complex of villas and suites at the Walt Disney World
Resort, with a total of approximately 16,700 rooms and 318,000 square feet of
conference meeting space. Included among the resort hotels is Disney's
Coronado Springs Resort, a 1,967 room moderately priced hotel and convention
center themed around Mexico and the American Southwest, which opened in August
1997. Currently under development is phase three of Disney's All-Star Resorts
with an additional 1,920 rooms expected to be completed in 1999. In addition,
Disney's Fort Wilderness camping and recreational area offers approximately
1,200 campsites and wilderness homes. The resort also offers professional
development and personal enrichment programs at The Disney Institute.
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Recreational activities available at the resort facilities include five
championship golf courses, miniature golf courses, full-service spas, an
animal sanctuary, tennis, sailing, water skiing, swimming, horseback riding
and a number of other noncompetitive sports and leisure time activities. The
resort also operates three water parks: Blizzard Beach, River Country and
Typhoon Lagoon.
The Company has also developed a 120-acre shopping facility and
entertainment complex known as Downtown Disney, which consists of the Disney
Village Marketplace, Pleasure Island and The West Side. In addition to more
than 20 specialty retail shops and restaurants, the Disney Village Marketplace
is home to the 50,000-square-foot World of Disney, which opened in October
1996 and is the largest Disney retail outlet. Pleasure Island, an
entertainment center adjacent to the Disney Village Marketplace, includes
restaurants, night clubs and shopping facilities. The West Side, with phased-
in openings that began in fall 1997, is situated on 66 acres on the west side
of Pleasure Island and includes several third-party operations, including the
House of Blues, a New Orleans-style restaurant and live entertainment
facility; Wolfgang Puck's Cafe, a California cuisine restaurant; Virgin
Records Megastore, a music, video and book showplace; Cirque du Soleil, a high
energy acrobatics and modern dance show; Bongos Cuban Cafe, a cafe/night club;
and an AMC theater complex, the largest theater complex in Florida.
The recently opened Disney's Wide World of Sports is an international sports
complex providing professional caliber training and competition, festival and
tournament events and interactive sports activities. The complex's venues
accommodate more than 30 different sporting events, including baseball,
basketball, softball, track and field, football and soccer. Its 7,500-seat
stadium will be the spring training site for the Atlanta Braves. In addition,
the Harlem Globetrotters use the facility for their official training site and
holiday-season 12-game series. The Amateur Athletic Union hosts more than 30
events a year at the facility and guests are able to enjoy various retail
stores and food outlets.
Currently under development are Celebration, a 4,900-acre town, and Disney
Cruise Line, a cruise vacation line that will include two 85,000-ton ships--
Disney Magic and Disney Wonder. The maiden voyage of Disney Magic is scheduled
for spring 1998. Both ships will cater to children, families and adults, with
distinctly themed areas for each group, and will feature 875 staterooms which
offer 25% more living space than the current cruise line industry average.
Disney Wonder is expected to enter service at the end of calendar 1998. Each
cruise vacation will include a visit to Disney's Castaway Cay, a 1,000-acre
private Bahamian island in the Abacos. The Company plans to package cruise
vacations with visits to the Walt Disney World Resort.
At the Disney Village Marketplace Hotel Plaza, seven independently operated
hotels are situated on property leased from the Company. These hotels have a
capacity of approximately 3,700 rooms. Additionally, two hotels--the Walt
Disney World Swan and the Walt Disney World Dolphin, with an aggregate
capacity of approximately 2,300 rooms--are independently operated on property
leased from the Company near Epcot.
DISNEYLAND
The Company owns 330 acres and has under long-term lease an additional 39
acres of land in Anaheim, California. Disneyland, which opened in 1955,
consists of eight principal areas: Toontown, Fantasyland, Adventureland,
Frontierland, Tomorrowland, New Orleans Square, Main Street and Critter
Country. These areas feature themed rides and attractions, restaurants,
refreshment stands and merchandise shops. A number of the Disneyland
attractions are sponsored by corporate participants. The Company markets
Disneyland through international, national and local advertising and
promotional activities. The Company also owns and operates the 1,100-room
Disneyland Hotel and the 500-room Disneyland Pacific Hotel near Disneyland.
During 1997, the Company began the renovation of Tomorrowland, which is
scheduled to reopen with new rides and attractions in the spring of 1998.
-9-
<PAGE>
The Company has begun construction on a new theme park, Disney's California
Adventure, projected to open in the year 2001. The new theme park will be
constructed on property adjacent to the park. Disney's California Adventure
will celebrate the many attributes of the state of California and will feature
Disneyland Center, a themed complex of shopping, dining and entertainment
venues; the Grand Californian, a deluxe 750-room hotel located inside the
park; and an assortment of California-themed areas with associated rides and
attractions.
DISNEY VACATION CLUB
In 1995, the Company completed the 497-unit Disney Old Key West Resort at
the Walt Disney World Resort. In addition, 175 units in Vero Beach, Florida
opened in October 1995, and 102 units on Hilton Head Island, South Carolina
and 383 villas located at Disney's BoardWalk Resort opened in 1996. Available
units at each facility are intended to be sold under a vacation ownership plan
and operated partially as rental property until the units are sold.
DISNEY REGIONAL ENTERTAINMENT
The Company is developing a variety of new entertainment concepts to be
located in metropolitan and suburban locations in the United States and around
the world. These businesses may include sports concepts, interactive
entertainment venues, family play centers and other operations that are based
on Disney brands and creative properties.
In February 1997, the Company opened its first Club Disney, a 25,000-square-
foot community playsite oriented toward creative activities for children and
their grownups. Club Disney offers an array of diverse environments designed
to entertain and educate, as well as a cafe, unique retail merchandise and
themed birthday party rooms. Additional Club Disney openings are planned in
various suburban markets.
The Company is also developing The ESPN Zone, a sports-themed dining and
entertainment venue. The first facility is expected to open in the summer of
1998 in Baltimore, Maryland.
Also expected to open in the summer of 1998 is the Company's first
DisneyQuest, an indoor entertainment venue for guests of all ages. DisneyQuest
combines the magic of Disney with interactive technologies and classic story-
telling in four distinct environments, as well as retail merchandise and food
areas. The initial facility will be at the Walt Disney World Resort's Downtown
Disney complex.
TOKYO DISNEYLAND
The Company earns royalties on revenues generated by the Tokyo Disneyland
theme park, which is owned and operated by Oriental Land Co., Ltd. (OLC), an
unrelated Japanese corporation. The park, which opened in 1983, is similar in
size and concept to Disneyland and is located approximately six miles from
downtown Tokyo, Japan.
In November 1997, OLC announced its intent to proceed with the construction
of a second theme park designed by the Company, which will be called Tokyo
DisneySea, together with a 500-room Disney-branded hotel and monorail system.
Tokyo DisneySea is scheduled to open in fall 2001.
OLC is also in the preliminary stages of developing a retail, dining and
entertainment complex adjacent to Tokyo Disneyland in what is known as the
Maihama Station Area, which will include a 500-room Disney-branded hotel owned
and operated by OLC under license from a Company subsidiary.
Construction costs on the development projects are being borne by OLC, which
is also reimbursing the Company for its design, technical and operational
assistance costs. Under the Company's agreements with OLC, the Company will be
entitled to royalties from Tokyo DisneySea and the new hotels.
-10-
<PAGE>
DISNEYLAND PARIS
Disneyland Paris is located on a 4,800-acre site at Marne-la-Vallee,
approximately 20 miles east of Paris, France. The theme park, which opened in
April 1992, features 42 attractions in its five themed lands. Seven themed
hotels, with a total of approximately 5,800 rooms, are part of the resort
complex, together with an entertainment center offering a variety of retail,
dining and show facilities. The project has been developed pursuant to a 1987
master agreement with French governmental authorities by Euro Disney S.C.A., a
publicly held French company in which the Company holds a 39% equity interest
and which is managed by a subsidiary of the Company. The financial results of
the Company's investment in Euro Disney are reported under the heading
"Corporate activities and other" in the Company's consolidated statements of
income.
WALT DISNEY IMAGINEERING
Walt Disney Imagineering provides master planning, real estate development,
attraction and show design, engineering support, production support, project
management and other development services for the Company's operations.
ANAHEIM SPORTS, INC.
The Company owns and operates a National Hockey League franchise, the Mighty
Ducks of Anaheim. In addition, the Company manages the Anaheim Angels Major
League Baseball team, owning a 25% general partnership interest, with an
option to purchase the entire team at a later date.
COMPETITIVE POSITION
All of the theme parks and most of the associated resort facilities are
operated on a year-round basis. Historically, the theme parks and resorts
business experiences fluctuations in 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.
The Company's theme parks and resorts compete with all other forms of
entertainment, lodging, tourism and recreational activities. The profitability
of the leisure-time industry is influenced by various factors which are not
directly controllable, such as economic conditions, amount of available
leisure time, oil and transportation prices and weather patterns.
ITEM 2. PROPERTIES
The Walt Disney World Resort, Disneyland Park and other properties of the
Company and its subsidiaries are described in Item 1 under the caption Theme
Parks and Resorts. Film library properties are described in Item 1 under the
caption Creative Content. Radio and television stations owned by the Company
are described under the caption Broadcasting.
A subsidiary of the Company owns approximately 51 acres of land in Burbank,
California on which the Company's studios and executive offices are located.
The studio facilities are used for the production of both live-action and
animated motion pictures and television products. In addition, Company
subsidiaries lease office and warehouse space for certain studio and corporate
activities. Other properties include a 400,000 square foot office building in
Burbank, California, which is used for the Company's operations.
A subsidiary of the Company owns approximately 1.8 million square feet of
office buildings on approximately 96 acres in Glendale, California. The
buildings are used for the Company's operations and also contain space leased
to third parties.
The Company's broadcasting segment corporate offices are located in a
Company-owned building in New York City. The Company also owns the ABC
Television Center adjacent to the corporate offices and ABC Radio Networks'
studios, also in New York City.
-11-
<PAGE>
Subsidiaries of the Company own the ABC Television Center and lease the ABC
Television Network offices in Los Angeles, the ABC News Bureau facility in
Washington, DC and a computer facility in Hackensack, New Jersey, under leases
expiring on various dates through 2034. The Company's 80%-owned subsidiary
ESPN owns ESPN Plaza in Bristol, Connecticut, from which it conducts its
technical operations. The Company owns the majority of its other broadcast
studios and offices and broadcast transmitter sites elsewhere, and those which
it does not own are occupied under leases expiring on various dates through
2039.
A U.K. subsidiary of the Company owns buildings on a four-acre parcel under
long-term lease in London, England. The mixed-use development consists of
140,000 square feet of office space occupied by subsidiary operations, a
27,000 square foot building leased to a third party and 65,000 square feet of
retail space. A second phase of this development is under construction, due to
be completed in 1998, including a 142,000 square foot office building to be
occupied by Company subsidiaries. Company subsidiaries also lease office space
in other parts of Europe and Asia.
The Disney Stores and Disney Regional Entertainment lease retail space for
their operations.
It is the Company's practice to obtain United States and foreign legal
protection for its theatrical and television product and its other original
works, including the various names and designs of the animated characters and
the publications and music which have been created in connection with the
Company's filmed products. The Company owns all rights to the name, likeness
and portrait of Walt Disney.
ITEM 3. LEGAL PROCEEDINGS
The Company, together with, in some instances, certain of its directors and
officers, is a defendant or co-defendant in various legal actions involving
copyright, breach of contract and various other claims incident to the conduct
of its businesses. Management does not expect the Company to suffer any
material liability by reason of such actions.
On January 3, 1997, two purported stockholders, Richard and David Kaplan,
filed a putative derivative action in the Superior Court of the State of
California, Los Angeles County (the "California Court"), alleging that certain
current and former directors of the Company breached their fiduciary duties of
loyalty and care and wasted corporate assets in connection with entering into
and terminating the Company's employment agreement with its former president,
Michael S. Ovitz. On January 7, 1997, two other purported stockholders,
William and Geraldine Brehm, filed a substantially identical complaint in the
Court of Chancery for the State of Delaware, New Castle County (the "Delaware
Court"), and another purported stockholder, Michael Grening, filed a similar
complaint in the Delaware Court. On January 14, 1997, Mr. Grening, together
with other purported stockholders Michelle De Benedictis, Peter Lawrence and
Judith B. Wohl, filed a similar complaint in the California Court. On February
7, 1997, other purported stockholders, Thomas Malloy, Richard Kaser, Carol
Kaser, Melvyn Zupnick, Michael Caesar, Robert S. Goldberg and Michael Shores,
filed a similar claim in the California Court.
On May 28, 1997, all these claimants together filed an amended complaint in
the Delaware Court, which names as defendants all of the Company's current
directors, together with Mr. Ovitz and Stephen F. Bollenbach, the Company's
former Chief Financial Officer and a former director. The complaint seeks,
among other things, a declaratory judgment that Mr. Ovitz's employment
agreement was void or, alternatively, that Mr. Ovitz's termination should be
deemed a termination "for cause" and any severance payments to him forfeited ,
and compensatory or rescissory damages and injunctive and other equitable
relief from the named defendants. It also seeks class action status to pursue
a claim for damages and invalidation of the 1997 election of directors, based
upon allegations of insufficient disclosures concerning, among other things,
Mr. Ovitz's termination and Mr. Eisner's compensation.
The Company believes that the allegations in the complaint are without
merit.
-12-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected each year at the
organizational meeting of the Board of Directors which follows the annual
meeting of the stockholders and at other meetings as appropriate. Each of the
executive officers has been employed by the Company in the position or
positions indicated in the list and pertinent notes below. Messrs. Eisner,
Disney, Litvack and Murphy have been employed by the Company as executive
officers for more than five years.
At September 30, 1997, the executive officers were as follows:
<TABLE>
<CAPTION>
Executive
Officer
Name Age Title Since
------------------ --- ------------------------------------------ ---------
<C> <C> <S> <C>
Michael D. Eisner 55 Chairman of the Board and Chief Executive 1984
Officer
Roy E. Disney 67 Vice Chairman of the Board 1984
Sanford M. Litvack 61 Senior Executive Vice President and Chief 1991
of Corporate Operations
Richard D. Nanula 37 Senior Executive Vice President and Chief 1996
Financial Officer /1/
John F. Cooke 55 Executive Vice President-Corporate Affairs /2/ 1995
Lawrence P. Murphy 45 Executive Vice President and Chief 1985
Strategic Officer and Chairman of
Disney Cruise Line
</TABLE>
- --------
/1/ Mr. Nanula joined the Company's strategic planning operation in 1986 and
was named Vice President-Treasurer of the Company in January 1990. He was
named Senior Vice President and Chief Financial Officer in August 1991,
Executive Vice President in February 1994 and President of The Disney
Stores, Inc. in November 1994, where he served until assuming his present
position in February 1996.
/2/ Mr. Cooke served as President of the The Disney Channel from 1985 until
assuming his present position in February 1995.
-13-
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York and Pacific stock
exchanges (NYSE symbol DIS). The following sets forth the high and low
composite closing sale prices for the fiscal periods indicated.
<TABLE>
<CAPTION>
Sale Prices
------------------
High Low
--------- --------
<S> <C> <C>
1997
4th Quarter........................................... $80 15/16 $75 3/16
3rd Quarter........................................... 84 1/2 71 1/8
2nd Quarter........................................... 78 1/8 67 3/8
1st Quarter........................................... 76 62 1/2
1996
4th Quarter........................................... $63 5/8 $53 3/8
3rd Quarter........................................... 65 5/8 58 1/4
2nd Quarter........................................... 69 3/4 59 1/2
1st Quarter........................................... 62 7/8 55 3/8
</TABLE>
The Company declared a first quarter dividend of $.11 per share and three
subsequent quarterly dividends of $.1325 per share in 1997, and in 1996,
declared a first quarter dividend of $.09 per share and three subsequent
quarterly dividends of $.11 per share.
As of September 30, 1997, the approximate number of record holders of the
Company's common stock was 588,000.
-14-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In millions, except per share data)
<TABLE>
<CAPTION>
1997(1) 1996(2),(3) 1995 1994 1993(4)
------- ----------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statements of income
Revenues $22,473 $18,739 $12,151 $10,090 $ 8,531
Operating income 4,447 3,033 2,466 1,972 1,722
Income before cumulative
effect of accounting changes 1,966 1,214 1,380 1,110 671
Cumulative effect of
accounting changes -- -- -- -- (371)
Net income 1,966 1,214 1,380 1,110 300
Per share
Earnings before cumulative
effect of accounting changes $ 2.86 $ 1.96 $ 2.60 $ 2.04 $ 1.23
Cumulative effect of
accounting changes -- -- -- -- (.68)
Earnings 2.86 1.96 2.60 2.04 .55
Dividends .51 .42 .35 .29 .24
Balance sheets
Total assets $37,776 $36,626 $14,606 $12,826 $11,751
Borrowings 11,068 12,342 2,984 2,937 2,386
Stockholders' equity 17,285 16,086 6,651 5,508 5,031
Statements of cash flows
Cash provided by operations $ 7,064 $ 4,625 $ 3,510 $ 2,808 $ 2,145
Investing activities (5,901) (13,464) (2,288) (2,887) (2,660)
Financing activities (1,124) 8,040 (332) (97) 113
</TABLE>
- --------
(1) 1997 results include a $135 million gain from the sale of KCAL-TV. The
earnings per share impact of the gain was $.11. See Note 2 to the
Consolidated Financial Statements.
(2) These amounts reflect the impact of the acquisition of ABC. See Note 2 to
the Consolidated Financial Statements.
(3) 1996 results include a $300 million non-cash charge pertaining to the
implementation of SFAS 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and a $225 million
charge for costs related to the acquisition of ABC. The earnings per share
impacts of these charges were $.30 and $.22, respectively. See Notes 2 and
11 to the Consolidated Financial Statements.
(4) In 1993, the Company changed its accounting policy for project-related
pre-opening costs, adopted SFAS 106 Employers' Accounting for
Postretirement Benefits Other Than Pensions and adopted SFAS 109
Accounting for Income Taxes. The cumulative effect of these accounting
changes on the 1993 results follows.
<TABLE>
<CAPTION>
Earnings
Net per
income share
------ --------
<S> <C> <C>
Expense pre-opening costs as incurred $(271) $(.50)
Adopt SFAS 106 (130) (.24)
Adopt SFAS 109 30 .06
----- -----
$(371) $(.68)
===== =====
</TABLE>
Operating and net income for 1993 also reflect a $350 million charge to
fully reserve the Company's outstanding receivables from Euro Disney and the
Company's commitment to help fund Euro Disney for a limited period. The
earnings per share impact of the charge, net of income tax benefit, was
$.40.
-15-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company acquired the operations of ABC, Inc. ("ABC") on February 9, 1996
and completed its final purchase price allocation and determination of the
related intangible assets during the second quarter of 1997. To enhance
comparability, certain information for 1996 and 1995 is presented on a "pro
forma" basis, which assumes the ABC acquisition and the related final purchase
price allocation occurred at the beginning of these periods. 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 these
periods.
The Company's 1997 results, prior-year pro forma amounts and as reported
results since the date of the ABC acquisition 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.
CONSOLIDATED RESULTS
(in millions, except per share data)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED (unaudited)
------------------------- ----------------
1997 1996 1995 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Creative Content $10,937 $10,159 $ 7,736 $10,607 $ 9,086
Broadcasting 6,522 4,078 414 6,129 5,862
Theme Parks and Resorts 5,014 4,502 4,001 4,502 4,001
------- ------- ------- ------- -------
Total $22,473 $18,739 $12,151 $21,238 $18,949
======= ======= ======= ======= =======
Operating income: (1)
Creative Content $ 1,882 $ 1,561 $ 1,531 $ 1,555 $ 1,565
Broadcasting 1,294 782 76 1,100 982
Theme Parks and Resorts 1,136 990 859 990 859
Gain on sale of KCAL 135 -- -- -- --
Accounting change -- (300) -- (300) --
------- ------- ------- ------- -------
Total 4,447 3,033 2,466 3,345 3,406
Corporate activities and other (367) (309) (239) (249) (255)
Net interest expense (693) (438) (110) (698) (775)
Acquisition-related costs -- (225) -- -- --
------- ------- ------- ------- -------
Income before income taxes 3,387 2,061 2,117 2,398 2,376
Income taxes (1,421) (847) (737) (1,067) (1,069)
------- ------- ------- ------- -------
Net income $ 1,966 $ 1,214 $ 1,380 $ 1,331 $ 1,307
======= ======= ======= ======= =======
Earnings per share $ 2.86 $ 1.96 $ 2.60 $ 1.93 $ 1.91
======= ======= ======= ======= =======
Net income excluding non-
recurring items (2) $ 1,886 $ 1,534 $ 1,380 $ 1,514 $ 1,307
======= ======= ======= ======= =======
Earnings per share excluding
non-recurring items (2) $ 2.75 $ 2.48 $ 2.60 $ 2.20 $ 1.91
======= ======= ======= ======= =======
Amortization of intangible
assets included in operating
income $ 439 $ 301 $ -- $ 476 $ 476
======= ======= ======= ======= =======
Average number of common and
common equivalent shares
outstanding 687 619 530 689 685
======= ======= ======= ======= =======
- --------
(1) Includes depreciation and amortization (excluding film cost) of:
Creative Content $ 222 $ 186 $ 107 $ 230 $ 199
Broadcasting 508 382 8 521 510
Theme Parks and Resorts 408 358 335 358 335
------- ------- ------- ------- -------
$ 1,138 $ 926 $ 450 $ 1,109 $ 1,044
======= ======= ======= ======= =======
</TABLE>
-16-
<PAGE>
(2) The 1997 results include a $135 million gain from the sale of KCAL-TV. See
Note 2 to the Consolidated Financial Statements. The 1996 results include
two non-recurring charges. The Company adopted Statement of Financial
Accounting Standards No. 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, which resulted in the
Company recognizing a $300 million non-cash charge. In addition, the
Company recognized a $225 million charge for costs related to the
acquisition of ABC. See Notes 2 and 11 to the Consolidated Financial
Statements.
The following discussion of 1997 versus 1996 and 1996 versus 1995
performance is primarily based on pro forma results for 1996 and 1995. The
Company believes pro forma results represent the best comparative standard for
assessing net income, changes in net income and earnings trends, as the pro
forma presentation combines a full year of the results of the Company and its
acquired ABC operations. The discussion of consolidated results also includes
"as reported" comparisons to the extent there have been material changes in
reported amounts. The discussion of Theme Parks and Resorts segment results is
on an as reported basis since the pro forma adjustments did not impact this
segment.
CONSOLIDATED RESULTS
1997 VS. 1996
Compared to 1996 pro forma results, revenues increased 6% to $22.5 billion,
reflecting growth in all business segments. Net income and earnings per share,
excluding non-recurring items, increased 25% to $1.9 billion and $2.75,
respectively. These results were driven by increased operating income across
all business segments, partially offset by an increase in corporate activities
and other driven by certain non-recurring items in both the current and prior
year. The current year reflects settlements with former senior executives and
the prior year reflects certain gains at ABC, primarily related to the sale of
an investment in a cellular communications company.
The effective income tax rate compared to 1996 pro forma results decreased
in 1997 primarily as a result of a reduction in the ratio of nondeductible
amortization of intangible assets to total income before income taxes.
As reported revenues increased 20%, reflecting increases in all business
segments and the impact of the acquisition of ABC. Net income, excluding the
non-recurring items, increased 23% driven by increased operating income for
each business segment. Earnings per share, excluding non-recurring items,
increased 11%, reflecting net income growth, partially offset by the impact of
additional shares issued in connection with the acquisition. Results for 1997
included a full period of ABC's operations.
1996 VS. 1995
Pro forma revenues increased 12% to $21.2 billion, reflecting growth in all
business segments. Net income, excluding non-recurring charges, increased 16%
to $1.5 billion, and earnings per share increased 15% to $2.20. These results
were driven by increased operating income at the Theme Parks and Resorts and
Broadcasting segments.
Pro forma net interest expense decreased 10% to $698 million reflecting
lower interest rates and a reduction in net borrowings (the Company's
borrowings less cash and liquid investments).
As reported revenues increased 54% to $18.7 billion, reflecting increases in
all business segments and the impact of the acquisition of ABC. Net income,
excluding the non-recurring charges, increased 11% to $1.5 billion driven by
increased operating income for each business segment. Earnings per share,
excluding the non-recurring charges, decreased 5% to $2.48, reflecting the
impact of additional shares issued in connection with the acquisition.
As reported corporate activities and other increased 29% to $309 million,
reflecting higher corporate general and administrative costs and a $55 million
gain in 1995 related to the sale of a portion of the Company's investment in
Euro Disney. Net interest expense increased to $438 million, reflecting new
borrowings in connection with the acquisition, partially offset by lower
interest rates.
-17-
<PAGE>
BUSINESS SEGMENT RESULTS
CREATIVE CONTENT
1997 VS. 1996
Revenues increased 3% or $330 million compared with pro forma 1996 to $10.9
billion, driven by growth of $210 million in the Disney Stores, $143 million
in character merchandise licensing, $104 million in television distribution
and $88 million in home video, partially offset by declines in publishing
revenues of $187 million. Growth at the Disney Stores reflected continued
worldwide expansion with 106 new stores opening in 1997, bringing the total
number of stores worldwide to 636. New stores contributed $109 million in
revenues in the current year. Increases in character merchandise licensing
reflected the strength of Winnie the Pooh and Toy Story domestically, and
standard characters and 101 Dalmatians worldwide. The increase in television
revenues was driven by an increase in the distribution of film and television
product in the international television market. Home video results reflected
the successful performance of Toy Story, The Hunchback of Notre Dame and 101
Dalmatians worldwide and Bambi and Sleeping Beauty domestically. The decline
in publishing revenues related to the operations disposed of during the year.
Operating income increased 21% or $327 million compared with pro forma 1996
to $1.9 billion, reflecting improved results for theatrical distribution,
character merchandise licensing and television distribution, partially offset
by a reduction in home video results. Costs and expenses, which consist
primarily of production cost amortization, distribution and selling expenses,
product cost, labor and leasehold expense, were flat at $9.1 billion,
reflecting increased amortization in the home video market and continued
expansion of the Disney Stores, offset by a reduction in distribution costs in
the domestic theatrical market, lower overall costs resulting from the
disposition of certain publishing businesses during the year and the write-off
of certain theatrical development projects in the prior year.
1996 VS. 1995
Pro forma revenues increased 17% or $1.5 billion to $10.6 billion, driven by
growth of $500 million in home video, $274 million in theatrical, $197 million
in the Disney Stores and $151 million in character merchandise licensing. Home
video revenues reflected Pocahontas, Cinderella and The Aristocats animated
titles and The Santa Clause, While You Were Sleeping and Crimson Tide live-
action titles domestically, as well as The Lion King and the animated version
of 101 Dalmatians internationally. Theatrical revenues reflected the worldwide
box office performance of Toy Story, The Rock and The Hunchback of Notre Dame,
the international performance of Pocahontas and the domestic performance of
Phenomenon. Revenues growth at the Disney Stores was driven by the opening of
101 new stores in 1996, bringing the total number of stores to 530. Comparable
store sales declined 2%, primarily due to the strength of The Lion King
merchandise in 1995, and new stores contributed $103 million of sales growth.
Merchandise licensing revenues increased due to the strength of standard
characters worldwide and the success of targeted marketing programs.
Television revenues from program distribution were comparable to 1995,
reflecting the success of live-action titles in pay television, offset by the
syndication sale of Home Improvement in 1995.
Pro forma operating income remained flat at $1.6 billion, reflecting
improved results in home video and worldwide merchandise licensing offset by
lower theatrical results. Costs and expenses increased 20% or $1.5 billion.
The increase was primarily due to higher theatrical distribution and home
video selling costs, higher production cost amortization, expansion of the
Disney Stores and the write-off of certain theatrical development projects.
BROADCASTING
1997 VS. 1996
Revenues increased 6% or $393 million compared with pro forma 1996 to $6.5
billion, driven by increases of $336 million at ESPN and The Disney Channel,
and $74 million at the television network. The increases at ESPN and The
Disney Channel were due primarily to higher advertising revenues
-18-
<PAGE>
and affiliate fees due primarily to expansion, subscriber growth and improved
advertising rates. Growth in revenues at the television network was primarily
the result of improved performance of sports, news and latenight programming,
partially offset by a decline in prime time ratings.
Operating income increased 18% or $194 million compared with pro forma 1996
to $1.3 billion, reflecting increases in revenues at ESPN and The Disney
Channel, as well as improved results at the television stations, partially
offset by decreases at the television network. Results at the television
network reflected the impact of lower ratings, partially offset by benefits
arising from current period sporting events, improvements in children's
programming, continued strength in the advertising market and decreased
program amortization. Costs and expenses increased 4% or $199 million. This
increase reflected increased programming rights and production costs, driven
by international growth at ESPN and increases at the television network,
partially offset by benefits arising from reductions in program amortization
and other costs at the television network, primarily attributable to the
acquisition.
The Company has continued to invest in its existing cable television
networks and in new cable ventures to diversify and expand the available
distribution channels for acquired and Company programming. During 1997, the
Company acquired an equity stake in E! Entertainment Television, an
entertainment-related network, invested in a number of international cable
ventures and continued its worldwide expansion of The Disney Channel with
launches in France and the Middle East. During the first quarter of 1998, the
Company acquired the Classic Sports Network, a cable network devoted to
memorable sporting events.
The Company's cable operations continue to provide strong earnings growth.
The Company's results for 1997 reflect an increase in income before income
taxes of $182 million or 28% for mature cable properties compared with pro
forma 1996 results, which include the Company's share of earnings from ESPN,
The Disney Channel, A&E Television and Lifetime Television. These increases
were partially offset by the Company's recognition of its proportionate share
of losses associated with start-up cable ventures. Start-up cable ventures are
generally operations that are in the process of establishing distribution
channels and a subscriber base and that have not reached their full level of
normalized operations. These include various ESPN and Disney Channel start-up
cable ventures. Overall, the Company's cable results increased 29% compared
with pro forma 1996.
The financial results of ESPN and The Disney Channel are included in
Broadcasting operating income. The Company's share of all other cable
operations and the ESPN minority interest deduction are reported in "Corporate
activities and other" in the consolidated statements of income.
1996 VS. 1995
Pro forma revenues increased 5% or $267 million to $6.1 billion, reflecting
a $309 million increase in revenues at ESPN and The Disney Channel, resulting
from higher advertising revenues and affiliate fees due primarily to
expansion, subscriber growth and improved advertising rates. Increases in
revenues were partially offset by a $61 million decrease at the television
network and stations due to the impact of ratings deterioration and the
absence of the Super Bowl in 1996.
Pro forma operating income increased 12% or $118 million to $1.1 billion,
reflecting decreased costs and expenses at the television network, increased
revenues at ESPN and The Disney Channel and lower program write-offs at KCAL.
Costs and expenses increased 3% or $149 million, reflecting increased program
rights and production costs driven by growth at ESPN and The Disney Channel
internationally, partially offset by significantly decreased program
amortization at the television network, primarily attributable to the
acquisition, and lower program write-offs at KCAL.
-19-
<PAGE>
THEME PARKS AND RESORTS
1997 VS. 1996
Revenues increased 11% or $512 million to $5.0 billion, reflecting growth at
the Walt Disney World Resort, which celebrated its 25th Anniversary. Growth at
the resort included $272 million from greater guest spending, $111 million
from increased occupied rooms and $97 million due to record theme park
attendance. Higher guest spending reflected increased merchandise and food and
beverage sales, higher admission prices and increased room rates at hotel
properties. Increased merchandise spending reflected sales of the 25th
Anniversary products and the performance of the World of Disney, the largest
Disney retail outlet, which opened in October 1996. The increase in occupied
rooms reflected higher occupancy and a complete year of operations at Disney's
BoardWalk Resort, which opened in the fourth quarter of 1996. Occupied rooms
also increased due to the opening of Disney's Coronado Springs Resort in
August 1997. Record theme park attendance resulted from growth in domestic
tourist visitation. Disneyland's revenues for the year were flat due to higher
guest spending offset by reduced attendance from the prior-year's record
level.
Operating income increased 15% or $146 million to $1.1 billion, resulting
primarily from higher guest spending, increased occupied rooms and record
theme park attendance at the Walt Disney World Resort. 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 10% or $366 million. Increased operating costs were
associated with growth in theme park attendance and occupied rooms, higher
guest spending and increased marketing and sales expenses primarily associated
with Walt Disney World Resort's 25th Anniversary celebration. Additional cost
increases resulted from theme park and resort expansions including Disney's
Animal Kingdom and Disney Cruise Line, which will begin operations in 1998.
1996 VS. 1995
Revenues increased 13% or $501 million to $4.5 billion, reflecting growth of
$191 million due to record theme park attendance, $148 million from greater
guest spending, and $52 million due to increased occupied rooms, primarily at
the Walt Disney World Resort. Record theme park attendance at both the Walt
Disney World Resort and Disneyland Park in 1996 reflected growth in domestic
and international tourist visitation. Increased guest spending resulted from
higher admission prices, increased sales of food and beverages due to pricing
and expanded locations, and higher room rates at hotel and resort properties.
The increase in occupied rooms at the Walt Disney World Resort resulted from
higher occupancy and a complete year of operations at Disney's All-Star Music
Resort, which opened in phases during 1995. Occupied rooms also increased due
to the opening of Disney's BoardWalk Resort in the fourth quarter of 1996.
Operating income increased 15% or $131 million to $990 million, resulting
primarily from higher theme park attendance, increased guest spending and
increased occupied rooms at the Walt Disney World Resort. Costs and expenses
increased 12% or $370 million, primarily due to increased operating hours in
response to higher attendance, expansion of theme park attractions and
resorts, increased marketing and sales expenses and increased costs associated
with higher guest spending and increased occupied rooms.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates significant cash from operations and has substantial
borrowing capacity to meet its operating and discretionary spending
requirements. Cash provided by operations increased 53% or $2.4 billion to
$7.1 billion in 1997, which includes a full-year's impact of ABC's operations.
In 1997, the Company invested $5.1 billion to develop, produce and acquire
rights to film and television properties and $1.9 billion to design and
develop new theme park attractions, resort properties, real estate
developments and other properties. 1996 investments totaled $3.7 billion and
$1.7 billion, respectively.
-20-
<PAGE>
The $1.4 billion increase in investment in film and television properties
was primarily driven by a full year of ABC's television spending.
The $177 million increase in investment in theme parks, resorts and other
properties resulted primarily from initiatives including Disney's Animal
Kingdom, Disney's Coronado Springs Resort and Disney's California Adventure.
Capital spending is expected to increase in 1998 from continued spending at
Disney's Animal Kingdom as well as increases related to Disney Cruise Line,
Disney's California Adventure, Disney Regional Entertainment and phase three
of the Disney All-Star Resort at Walt Disney World.
The Company acquires shares of its stock on an ongoing basis and is
authorized as of September 30, 1997 to purchase up to an additional 88 million
shares. During 1997, a subsidiary of the Company acquired 8 million shares of
the Company's common stock for $633 million. The Company also used $342
million to fund dividend payments during the year.
Since the acquisition of ABC, the Company has reduced its total borrowings
and replaced a substantial portion of its commercial paper with longer-term
financing. During 1997, total borrowings decreased $1.3 billion to $11.1
billion. The Company borrowed approximately $1.2 billion in 1997 with
effective interest rates ranging from 4.4% to 5.9% and maturities in fiscal
1999 through fiscal 2057. Certain of these financing agreements 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
Company also established two real estate investment trusts (REITs) and issued
equity interests in the REITs to third-party investors in exchange for $1.3
billion. During the fourth quarter of 1997, the Company dissolved one of the
REITs and repaid investors $468 million. During the second quarter of 1997,
the Company issued approximately $1.2 billion in debt secured by certain
assets of its newspaper operations. The secured debt has an interest rate
based on one-month LIBOR and a maturity date of September 15, 1999. During the
third quarter, $990 million of this debt was assumed by Knight-Ridder, Inc. in
connection with the disposition of certain of the Company's newspaper
operations. The Company has the capacity to issue up to $2.0 billion in
additional debt under a U.S. shelf registration filed in March 1996, and $936
million under a European medium-term note program established in June 1996.
The Company's financial condition remains strong. The Company believes that
its cash, other liquid assets, operating cash flows and access to capital
markets, 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.
MARKET RISK
The Company is exposed to the impact of interest rate changes, foreign
currency fluctuations and changes in the market value of its investments.
POLICIES AND PROCEDURES
In the normal course of business, the Company employs established policies
and procedures to manage its exposure to changes in interest rates and
fluctuations in the value of foreign currencies using a variety of financial
instruments.
The Company's objective in managing its exposure to interest rate changes is
to limit the impact of interest rate changes on earnings and cash flows and to
lower its overall borrowing costs. To achieve its objectives, the Company
primarily uses interest rate swaps to manage net exposure to interest rate
changes related to its portfolio of borrowings. The Company maintains fixed
rate debt as a percentage of its net debt between a minimum and maximum
percentage, which is set by policy.
The Company's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management
-21-
<PAGE>
to focus its attention on its core business issues and challenges.
Accordingly, the Company enters into various contracts which change in value
as foreign exchange rates change to protect the value of its existing foreign
currency assets, liabilities, commitments and anticipated foreign currency
revenues. The Company uses option strategies which provide for the sale of
foreign currencies to hedge probable, but not firmly committed, revenues. The
principal currencies hedged are the Japanese yen, French franc, German mark,
British pound, Canadian dollar, Italian lira and Spanish peseta. By policy,
the Company maintains hedge coverage between minimum and maximum percentages
of its anticipated foreign exchange exposures for each of the next five years.
The gains and losses on these contracts offset changes in the value of the
related exposures.
It is the Company's policy to enter into foreign currency and interest rate
transactions only to the extent considered necessary to meet its objectives as
stated above. The Company does not enter into foreign currency or interest
rate transactions for speculative purposes.
VALUE AT RISK
The Company utilizes a "Value-at-Risk" (VAR) model to determine the maximum
potential one-day loss in the fair value of its interest rate and foreign
exchange sensitive financial instruments. The VAR model estimates were made
assuming normal market conditions and a 95% confidence level. There are
various modeling techniques which can be used in the VAR computation. The
Company's computations are based on the interrelationships between movements
in various currencies and interest rates (a "variance/co-variance" technique).
These interrelationships were determined by observing interest rate and
foreign currency market changes over the preceding quarter for the calculation
of VAR amounts at yearend and over each of the four quarters for the
calculation of average VAR amounts during the year. The model includes all of
the Company's debt as well as all interest rate and foreign exchange
derivatives contracts. The value of foreign exchange options do not change on
a one-to-one basis with the underlying currency, as exchange rates vary.
Therefore, the hedge coverage assumed to be obtained from each option has been
adjusted to reflect its respective sensitivity to changes in currency values.
Anticipated transactions, firm commitments and receivables and accounts
payable denominated in foreign currencies, which certain of these instruments
are intended to hedge, were excluded from the model.
The VAR model is a risk analysis tool and does not purport to represent
actual losses in fair value that will be incurred by the Company, nor does it
consider the potential effect of favorable changes in market factors. (See
Note 12 to the Consolidated Financial Statements regarding the Company's
financial instruments at September 30, 1997 and 1996).
The estimated maximum potential one-day loss in fair value, calculated using
the VAR model, follows (in millions):
<TABLE>
<CAPTION>
Interest Rate Currency
Sensitive Financial Sensitive Financial Combined
Instruments Instruments Portfolio
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
VAR as of September 30, 1997 $27 $24 $33
Average VAR during the year 31 22 34
ended September 30, 1997
</TABLE>
Since the Company utilizes currency sensitive derivative instruments for
hedging anticipated foreign currency transactions, a loss in fair value for
those instruments is generally offset by increases in the value of the
underlying anticipated transactions.
-22-
<PAGE>
OTHER MATTERS
The Company is currently working to resolve the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Based on
preliminary information, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future periods.
However, if the Company, its customers or vendors are unable to resolve such
processing issues in a timely manner, it could result in a material financial
risk. Accordingly, the Company plans to devote the necessary resources to
resolve all significant year 2000 issues in a timely manner.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Supplemental Data on page 30.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-23-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS
Information regarding directors appearing under the caption ELECTION OF
DIRECTORS in the Company's Proxy Statement for the 1998 Annual Meeting of
Stockholders (the "1998 Proxy Statement") is hereby incorporated by reference.
Information regarding executive officers is included in Part I of this Form
10-K as permitted by General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the captions DIRECTORS' REMUNERATION; ATTENDANCE
and EXECUTIVE COMPENSATION in the 1998 Proxy Statement is hereby incorporated
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information setting forth the security ownership of certain beneficial
owners and management appearing under the caption STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS and STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS in
the 1998 Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain related transactions appearing under the
caption RELATED TRANSACTIONS in the 1998 Proxy Statement is hereby
incorporated by reference.
-24-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statements and Schedules
(1) Financial Statements and Schedules
See Index to Financial Statements and Supplemental Data at page 30.
(2) Exhibits
3(a) Restated Certificate of Incorporation of the Company, filed as
Exhibit 3(a) to the Form 8-B/A, dated January 23, 1996, is hereby
incorporated by reference.
3(b) Amended Bylaws of the Company, dated November 24, 1997.
4(a) Form of Registration Rights Agreement entered into or to be
entered into with certain stockholders of the Company, filed as
Exhibit B to Exhibit 2.1 to the Current Report on Form 8-K, dated
July 31, 1995, of Disney Enterprises, Inc., is hereby incorporated
by reference.
4(b) Rights Agreement dated as of November 8, 1995 between the Company
and The Bank of New York, as rights agent, filed as Exhibit 4.2 to
the Registration Statement on Form S-4, dated November 13, 1995,
(No. 33-64141), is hereby incorporated by reference.
4(c) Five-Year Credit Agreement, dated October 30, 1996, among the
Company, as Borrower, Citicorp USA, Inc., as Administrative Agent,
Credit Suisse and Bank of America National Trust and Savings
Association, as Co-Administrative Agents and the Financial
Institutions named therein, filed as exhibit 4(d) to the Company's
Annual Report on Form 10-K for the year ended September 30, 1996,
is hereby incorporated by reference.
4(d) Indenture, dated as of November 30, 1990, between Disney
Enterprises, Inc. and Bankers Trust Company, as Trustee, with
respect to certain senior debt securities of Disney Enterprises,
Inc., filed as Exhibit 2 to Disney Enterprises, Inc.'s Current
Report on Form 8-K, dated January 14, 1991, is hereby incorporated
by reference.
4(e) Indenture, dated as of March 7, 1996, between the Company and
Citibank, N.A., as Trustee, with respect to certain senior debt
securities of the Company, filed as Exhibit 4.1(a) to the
Company's Current Report on Form 8-K, dated March 7, 1996, is
hereby incorporated by reference.
4(f) Other long-term borrowing instruments issued by the Company are
omitted pursuant to Item 601(b) (4) (iii) of Regulation S-K. The
Company undertakes to furnish copies of such instruments to the
Commission upon request.
10(a) (i) Agreement on the Creation and the Operation of Euro Disneyland
en France, dated March 25, 1987, and (ii) Letter relating thereto
of Michael D. Eisner, Chairman Disney Enterprises, Inc., dated
March 24, 1987, filed as Exhibits 10(b) and 10(a), respectively,
to Disney Enterprises, Inc.'s Current Report on Form 8-K dated
April 24, 1987, are hereby incorporated by reference.
10(b) Composite Limited Recourse Financing Facility Agreement, dated as
of April 27, 1988, between Disney Enterprises, Inc., and TDL
Funding Company, as amended.
10(c) Employment Agreement, dated as of January 8, 1997, between the
Company and Michael D. Eisner, filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
December 31, 1996, is hereby incorporated by reference.
10(d) (i) Contract, dated December 14, 1979, with E. Cardon Walker, to
purchase a 2% interest in certain motion pictures to be produced
by Disney Enterprises, Inc. and to acquire an additional 2% profit
participation; and (ii) Amendment thereto, dated August 8, 1980,
filed as Exhibits 1 and 3, respectively, to Disney Enterprises,
Inc.'s Annual Report on Form 10-K for the year ended September 30,
1980, are hereby incorporated by reference.
-25-
<PAGE>
10(e) Form of Indemnification Agreement entered into or to be entered
into by certain officers and directors of Disney Enterprises, Inc.
as determined from time to time by the Board of Directors,
included as Annex C to the Proxy Statement for Disney Enterprises,
Inc.'s 1988 Annual Meeting of Stockholders, is hereby incorporated
by reference.
10(f) 1995 Stock Option Plan for Non-Employee Directors, filed as
Exhibit 20 to Disney Enterprises, Inc.'s Registration Statement on
Form S-8 (No. 33-57811), dated February 23, 1995, is hereby
incorporated by reference.
10(g) (i) 1990 Stock Incentive Plan and Rules, filed as Exhibits 28(a)
and 28(b), respectively, to Disney Enterprises, Inc.'s
Registration Statement on Form S-8 (No. 33-39770), dated April 5,
1991, and (ii) Amended and Restated 1990 Stock Incentive Plan and
Rules, attached as Appendix B-2 to Disney Enterprises, Inc.'s
Joint Proxy Statement/Prospectus included in the Registration
Statement on Form S-4, dated November 13, 1995 (No. 33-64141), is
hereby incorporated by reference.
10(h) 1995 Stock Incentive Plan and Rules, attached as Appendix B-1 to
Disney Enterprises, Inc.'s Joint Proxy Statement/Prospectus
included in the Registration Statement on Form S-4, dated November
13, 1995 (File No. 33-64141), is hereby incorporated by reference.
10(i) (i) 1987 Stock Incentive Plan and Rules, (ii) 1984 Stock Incentive
Plan and Rules, (iii) 1981 Incentive Plan and Rules and (iv) 1980
Stock Option Plan, all as set forth as Exhibits 1(a), 1(b), 2(a),
2(b), 3(a), 3(b) and 4, respectively, to the Prospectus contained
in Part I of Disney Enterprises, Inc.'s Registration Statement on
Form S-8 (No. 33-26106), dated December 20, 1988, are hereby
incorporated by reference.
10(j) Contingent Stock Award Rules under Disney Enterprises, Inc.'s 1984
Stock Incentive Plan, filed as Exhibit 10(t) to Disney
Enterprises, Inc.'s Annual Report on Form 10-K for the year ended
September 30, 1986, is hereby incorporated by reference.
10(k) 1996 Cash Bonus Performance Plan, filed as Exhibit 10(m) to Disney
Enterprises, Inc.'s Annual Report on Form 10-K for the year ended
September 30, 1995, is hereby incorporated by reference.
10(l) 1997 Cash Bonus Performance Plan for Executive Officers, filed as
Annex 1 to the Proxy Statement dated January 9, 1997, for the
Company's 1997 Annual Meeting of Stockholders, is hereby
incorporated by reference.
10(m) Annual Bonus Performance Plan for Executive Officers.
10(n) 1997 Non-Employee Directors Stock and Deferred Compensation Plan.
10(o) Performance-Based Compensation Plan for the Company's Chief
Executive Officer, included in the Proxy Statement, dated January
9, 1997, for the Company's 1997 Annual Meeting of Stockholders, is
hereby incorporated by reference.
10(p) The Walt Disney Company and Associated Companies Key Employees
Deferred Compensation and Retirement Plan, filed as Exhibit 10(u)
to Disney Enterprises, Inc.'s Annual Report on Form 10-K for the
year ended September 30, 1985, is hereby incorporated by
reference.
10(q) Disney Salaried Savings and Investment Plan, as amended and
restated, filed as Exhibit 10(s) to Disney Enterprises, Inc.'s
Annual Report on Form 10-K for the year ended September 30, 1995,
is hereby incorporated by reference.
10(r) First Amendment to the Disney Salaried Savings and Investment
Plan.
10(s) Second Amendment to the Disney Salaried Savings and Investment
Plan.
10(t) ABC, Inc. Savings and Investment Plan, restated and effective as
of June 1, 1994, and amendments thereto filed as Exhibit 4.3 to
the Company's Registration Statement on Form S-8 (No. 333-00287),
dated January 18, 1996, is hereby incorporated by reference.
10(u) Amendments to ABC, Inc. Savings and Investment Plan effective as
of January 1, 1989, December 1, 1996, January 18, 1996, January
26, 1996 and December 26, 1996.
10(v) Employee Stock Option Plan of Capital Cities/ABC, Inc., as amended
through December 15, 1987, filed as Exhibit 10(f) to Capital
Cities/ABC, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1992, is hereby incorporated by reference.
-26-
<PAGE>
10(w) Amended and Restated 1991 Stock Option Plan of Capital Cities/ABC,
Inc., filed as Exhibit 6(a)(i) to the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1996, is hereby
incorporated by reference.
10(x) Group Personal Excess Liability Insurance Plan.
10(y) Family Income Assurance Plan (summary description).
10(z) Agreement, dated as of December 27, 1996, between the Company and
Michael S. Ovitz filed as exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended December 31, 1996, is
hereby incorporated by reference.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse LLP, the Company's independent
accountants, is included herein at page 31.
27 Financial Data Schedule.
99 Pro forma financial information for certain 1997 events.
(b) Reports on Form 8-K
(i) Report on Form 8-K, dated August 21, 1997, with respect to the
unaudited pro forma combined condensed consolidated statement of income
of the Company for the year ended September 30, 1996.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: December 19, 1997 By: MICHAEL D. EISNER
-----------------------------------------------------
(Michael D. Eisner, Chairman of the Board and Chief
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officer December 19, 1997
MICHAEL D. EISNER Chairman of the Board and
- ---------------------------------- Chief Executive Officer
(Michael D. Eisner)
Principal Financial and Accounting
Officers
RICHARD D. NANULA Senior Executive Vice President December 19, 1997
- ---------------------------------- President and Chief Financial Officer
(Richard D. Nanula)
JOHN J. GARAND Senior Vice President- December 19, 1997
- ---------------------------------- Planning and Control
(John J. Garand)
Directors
ROY E. DISNEY Director December 19, 1997
- ----------------------------------
(Roy E. Disney)
MICHAEL D. EISNER Director December 19, 1997
- ----------------------------------
(Michael D. Eisner)
STANLEY P. GOLD Director December 19, 1997
- ----------------------------------
(Stanley P. Gold)
SANFORD M. LITVACK Director December 19, 1997
- ----------------------------------
(Sanford M. Litvack)
IGNACIO E. LOZANO, JR. Director December 19, 1997
- ----------------------------------
(Ignacio E. Lozano, Jr.)
GEORGE J. MITCHELL Director December 19, 1997
- ----------------------------------
(George J. Mitchell)
THOMAS S. MURPHY Director December 19, 1997
- ----------------------------------
(Thomas S. Murphy)
RICHARD A. NUNIS Director December 19, 1997
- ----------------------------------
(Richard A. Nunis)
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
LEO J. O'DONOVAN, S.J. Director December 19, 1997
- ---------------------------
(Leo J. O'Donovan, S.J.)
SIDNEY POITIER Director December 19, 1997
- ---------------------------
(Sidney Poitier)
IRWIN E. RUSSELL Director December 19, 1997
- ---------------------------
(Irwin E. Russell)
ROBERT A.M. STERN Director December 19, 1997
- ---------------------------
(Robert A.M. Stern)
E. CARDON WALKER Director December 19, 1997
- ---------------------------
(E. Cardon Walker)
RAYMOND L. WATSON Director December 19, 1997
- ---------------------------
(Raymond L. Watson)
GARY L. WILSON Director December 19, 1997
- ---------------------------
(Gary L. Wilson)
</TABLE>
-29-
<PAGE>
THE WALT DISNEY COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<S> <C>
Page
----
Report of Independent Accountants and Consent of Independent Accountants.. 31
Consolidated Financial Statements of The Walt Disney Company and
Subsidiaries
Consolidated Statements of Income for the Years Ended September 30,
1997, 1996 and 1995.................................................... 32
Consolidated Balance Sheets as of September 30, 1997 and 1996........... 33
Consolidated Statements of Cash Flows for the Years Ended September 30,
1997, 1996 and 1995.................................................... 34
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1997, 1996 and 1995...................................... 35
Notes to Consolidated Financial Statements.............................. 36
Quarterly Financial Summary............................................. 52
</TABLE>
Schedules other than those listed above are omitted for the reason that they
are not applicable or the required information is included in the financial
statements or related notes.
-30-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of The Walt Disney Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of The Walt Disney Company and its subsidiaries (the "Company") at
September 30, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1997,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standard Board's Statement
of Financial Accounting Standards 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," in fiscal 1996.
PRICE WATERHOUSE LLP
Los Angeles, California
November 18, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-26106,
33-35405 and 33-39770) and Form S-3 (Nos. 33-49891 and 33-62777) of The Walt
Disney Company of our report dated November 18, 1997 which appears above.
PRICE WATERHOUSE LLP
Los Angeles, California
December 19, 1997
-31-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
<TABLE>
<CAPTION>
Year Ended September 30 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 22,473 $ 18,739 $12,151
Costs and expenses (18,161) (15,406) (9,685)
Gain on sale of KCAL 135 -- --
Accounting change -- (300) --
-------- -------- -------
Operating income 4,447 3,033 2,466
Corporate activities and other (367) (309) (239)
Net interest expense (693) (438) (110)
Acquisition-related costs -- (225) --
-------- -------- -------
Income before taxes 3,387 2,061 2,117
Income taxes (1,421) (847) (737)
-------- -------- -------
Net income $ 1,966 $ 1,214 $ 1,380
======== ======== =======
Earnings per share $ 2.86 $ 1.96 $ 2.60
======== ======== =======
Average number of common and common equivalent
shares outstanding 687 619 530
======== ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
-32-
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In millions)
<TABLE>
<CAPTION>
September 30 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 317 $ 278
Receivables 3,726 3,343
Inventories 942 951
Film and television costs 4,401 3,259
Investments 1,897 1,009
Theme parks, resorts and other property, at cost
Attractions, buildings and equipment 11,787 11,019
Accumulated depreciation (4,857) (4,448)
------- -------
6,930 6,571
Projects in process 1,928 1,342
Land 93 118
------- -------
8,951 8,031
Intangible assets, net 16,011 18,045
Other assets 1,531 1,710
------- -------
$37,776 $36,626
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued liabilities $ 5,577 $ 5,694
Income taxes payable 995 582
Borrowings 11,068 12,342
Unearned royalty and other advances 1,172 1,179
Deferred income taxes 1,679 743
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 million shares 8,534 8,576
Retained earnings 9,557 7,933
Cumulative translation and other (12) 39
------- -------
18,079 16,548
Treasury stock, at cost, 8 million shares (462) (462)
Shares held by TWDC Stock Compensation Fund, at cost,
4 million shares (332) --
------- -------
17,285 16,086
------- -------
$37,776 $36,626
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
-33-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Year Ended September 30 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 1,966 $ 1,214 $ 1,380
ITEMS NOT REQUIRING CASH OUTLAYS
Amortization of film and television costs 3,781 2,762 1,383
Depreciation 738 672 470
Amortization of intangible assets 439 301 --
Gain on sale of KCAL (135) -- --
Accounting change -- 300 --
Other (15) 22 133
CHANGES IN
Investments in trading securities -- 85 1
Receivables (386) (426) (122)
Inventories (6) (95) (156)
Other assets (169) (160) (288)
Accounts and taxes payable and accrued liabilities 566 (246) 415
Unearned royalty and other advances (7) 274 161
Deferred income taxes 292 (78) 133
------- -------- -------
5,098 3,411 2,130
------- -------- -------
CASH PROVIDED BY OPERATIONS 7,064 4,625 3,510
------- -------- -------
INVESTING ACTIVITIES
Proceeds from disposal of KCAL 387 -- --
Proceeds from disposal of publishing operations 1,214 -- --
Acquisition of ABC, net of cash acquired -- (8,432) --
Film and television costs (5,054) (3,678) (1,886)
Investments in theme parks, resorts and other
property (1,922) (1,745) (896)
Investment in and loan for E! Entertainment (321) -- --
Purchases of marketable securities (56) (18) (1,033)
Proceeds from sales of marketable securities 31 409 1,460
Other (180) -- 67
------- -------- -------
(5,901) (13,464) (2,288)
------- -------- -------
FINANCING ACTIVITIES
Borrowings 2,437 13,560 786
Proceeds from formation of REITs 1,312 -- --
Reduction of borrowings (4,078) (4,872) (772)
Repurchases of common stock (633) (462) (349)
Dividends (342) (271) (180)
Exercise of stock options and other 180 85 183
------- -------- -------
(1,124) 8,040 (332)
------- -------- -------
Increase (Decrease) in Cash and Cash Equivalents 39 (799) 890
Cash and Cash Equivalents, Beginning of Year 278 1,077 187
------- -------- -------
Cash and Cash Equivalents, End of Year $ 317 $ 278 $ 1,077
======= ======== =======
Supplemental disclosure of cash flow information:
Interest paid $ 777 $ 379 $ 123
======= ======== =======
Income taxes paid $ 958 $ 689 $ 557
======= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements
-34-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions, except per share data)
<TABLE>
<CAPTION>
TWDC
Cumulative Stock
Common Retained Translation Treasury Compensation
Shares Stock Earnings and Other Stock Fund Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1994 524 $ 945 $5,790 $ 59 $(1,286) $ -- $ 5,508
Exercise of stock
options, net 8 281 -- -- -- -- 281
Common stock
repurchased, net (8) -- -- -- (317) -- (317)
Dividends ($.35 per
share) -- -- (180) -- -- -- (180)
Cumulative translation
and other -- -- -- (21) -- -- (21)
Net income -- -- 1,380 -- -- -- 1,380
--- ------ ------ ---- ------- ----- -------
BALANCE AT
SEPTEMBER 30, 1995 524 1,226 6,990 38 (1,603) -- 6,651
ABC acquisition impact 155 7,206 -- -- 1,603 -- 8,809
Exercise of stock
options, net 3 144 -- -- -- -- 144
Common stock
repurchased (8) -- -- -- (462) -- (462)
Dividends ($.42 per
share) -- -- (271) -- -- -- (271)
Cumulative translation
and other -- -- -- 1 -- -- 1
Net income -- -- 1,214 -- -- -- 1,214
--- ------ ------ ---- ------- ----- -------
BALANCE AT
SEPTEMBER 30, 1996 674 8,576 7,933 39 (462) -- 16,086
Exercise of stock
options, net 5 (42) -- -- -- 301 259
Common stock
repurchased (8) -- -- -- -- (633) (633)
Dividends ($.51 per
share) -- -- (342) -- -- -- (342)
Cumulative translation
and other -- -- -- (51) -- -- (51)
Net income -- -- 1,966 -- -- -- 1,966
--- ------ ------ ---- ------- ----- -------
BALANCE AT
SEPTEMBER 30, 1997 671 $8,534 $9,557 $(12) $ (462) $(332) $17,285
=== ====== ====== ==== ======= ===== =======
</TABLE>
See Notes to Consolidated Financial Statements
-35-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollars in millions, except per share amounts)
1 Description of the Business and Summary of Significant Accounting Policies
The Walt Disney Company, together with its subsidiaries (the "Company"), is
a diversified international entertainment organization with operations in the
following businesses.
CREATIVE CONTENT
The Company produces and acquires live-action and animated motion pictures
for distribution to the theatrical, home video and television markets. The
Company also produces original television programming for the network and
first-run syndication markets. The Company distributes its filmed product
through its own distribution and marketing companies in the United States and
most foreign markets.
The Company licenses the name "Walt Disney," as well as the Company's
characters, visual and literary properties and songs and music, to various
consumer manufacturers, retailers, show promoters and publishers throughout
the world. The Company also engages in direct retail distribution principally
through the Disney Stores, and produces books and magazines for the general
public in the United States and Europe. In addition, the Company produces
audio products for all markets, as well as film, video and computer software
products for the educational marketplace.
BROADCASTING
The Company operates the ABC Television Network which has affiliated
stations providing coverage to U.S. television households. The Company also
owns television and radio stations, most of which are affiliated with the ABC
Television Network and the ABC Radio Networks. The Company's cable and
international broadcast operations are principally involved in the production
and distribution of cable television programming, the licensing of programming
to domestic and international markets and investing in joint ventures in
foreign-based television operations and television production and distribution
entities. The primary domestic cable programming services, which operate
principally through joint ventures, are ESPN, the A&E Television Networks,
Lifetime Television and E! Entertainment Television. The Company provides
programming for and operates The Disney Channel, a cable and satellite
television programming service.
THEME PARKS AND RESORTS
The Company operates the Walt Disney World Resort(R) in Florida, and
Disneyland Park(R), the Disneyland Hotel and the Disneyland Pacific Hotel in
California. The Walt Disney World Resort includes the Magic Kingdom, Epcot and
the Disney-MGM Studios, thirteen resort hotels and a complex of villas and
suites, a nighttime entertainment complex, a shopping village, conference
centers, campgrounds, golf courses, water parks and other recreational
facilities. The Company earns royalties on revenues generated by the Tokyo
Disneyland(R) theme park near Tokyo, Japan, which is owned and operated by an
unrelated Japanese corporation. The Company also has an investment in Euro
Disney S.C.A. ("Euro Disney"), a publicly held French corporation that
operates Disneyland Paris. The Company's Walt Disney Imagineering unit designs
and develops new theme park concepts and attractions, as well as resort
properties. The Company also manages and markets vacation ownership interests
in the Disney Vacation Club. Included in Theme Parks and Resorts are the
Company's National Hockey League franchise, the Mighty Ducks of Anaheim, and
its ownership interest in the Anaheim Angels, a Major League Baseball team.
SIGNIFICANT ACCOUNT POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
The Walt Disney Company and its subsidiaries after elimination of intercompany
accounts and transactions.
-36-
<PAGE>
Accounting Changes
During 1997, the Company adopted SFAS 123 Accounting for Stock-Based
Compensation ("SFAS 123"), which requires disclosure of the fair value and
other characteristics of stock options (see Note 9). The Company has chosen
under the provisions of SFAS 123 to continue using the intrinsic-value method
of accounting for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to
Employees ("APB 25").
During 1996, the Company adopted SFAS 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121")
(see Note 11).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
Revenue Recognition
Revenues from the theatrical distribution of motion pictures are recognized
when motion pictures are exhibited. Revenues from video sales are recognized
on the date that video units are made widely available for sale by retailers.
Revenues from the licensing of feature films and television programming are
recorded when the material is available for telecasting by the licensee and
when certain other conditions are met.
Broadcast advertising revenues are recognized when commercials are aired.
Revenues from television subscription services related to the Company's
primary cable programming services are recognized as services are provided.
Revenues from participants and sponsors at the theme parks are generally
recorded over the period of the applicable agreements commencing with the
opening of the related attraction.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities
with original maturities of three months or less.
Investments
Debt securities that the Company has the positive intent and ability to hold
to maturity are classified as "held-to-maturity" and reported at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as either "trading" or "available-for-sale," and are
recorded at fair value with unrealized gains and losses included in earnings
or stockholders' equity, respectively. All other equity securities are
accounted for using either the cost method or the equity method. The Company's
share of earnings or losses in its equity investments accounted for under the
equity method is included in "Corporate activities and other" in the
consolidated statements of income.
Inventories
Carrying amounts of merchandise, materials and supplies inventories are
generally determined on a moving average cost basis and are stated at the
lower of cost or market.
Film and Television Costs
Film and television production and participation costs are expensed based on
the ratio of the current period's gross revenues to estimated total gross
revenues from all sources on an individual production basis. Estimates of
total gross revenues can change significantly due to the level of market
acceptance of film and television products. Accordingly, revenue estimates are
reviewed periodically
-37-
<PAGE>
and amortization is adjusted. Such adjustments could have a material effect on
results of operations in future periods.
Television broadcast program licenses and rights and related liabilities are
recorded when the license period begins and the program is available for use.
Television network and station rights for theatrical movies and other long-
form programming are charged to expense primarily on accelerated bases related
to the usage of the program. Television network series costs and multi-year
sports rights are charged to expense based on the flow of anticipated revenue.
Theme Parks, Resorts and Other Property
Theme parks, resorts and other property are carried at cost. Depreciation is
computed on the straight-line method based upon estimated useful lives ranging
from three to fifty years.
Intangible/Other Assets
Intangible assets are amortized over periods ranging from two to forty
years. The Company continually reviews the recoverability of the carrying
value of these assets using the methodology prescribed in SFAS 121. The
Company also reviews long-lived assets and the related intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Recoverability of these assets
is determined by comparing the forecasted undiscounted net cash flows of the
operation to which the assets relate, to the carrying amount including
associated intangible assets of such operation. If the operation is determined
to be unable to recover the carrying amount of its assets, then intangible
assets are written down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets.
Risk Management Contracts
In the normal course of business, the Company employs a variety of off-
balance-sheet financial instruments to manage its exposure to fluctuations in
interest and foreign currency exchange rates, including interest rate and
cross-currency swap agreements, forward, option, swaption and spreadlock
contracts.
The Company designates and assigns the financial instruments as hedges for
specific assets, liabilities or anticipated transactions. When hedged assets
or liabilities are sold or extinguished or the anticipated transactions being
hedged are no longer expected to occur, the Company recognizes the gain or
loss on the designated hedging financial instruments.
The Company classifies its derivative financial instruments as held or
issued for purposes other than trading. Option premiums and unrealized losses
on forward contracts and the accrued differential for interest rate and cross-
currency swaps to be received under the agreements are recorded in the balance
sheet as other assets. Unrealized gains on forward contracts and the accrued
differential for interest rate and cross-currency swaps to be paid under the
agreements are included in accounts payable and other accrued liabilities.
Gains and losses from hedges are classified in the income statement consistent
with the accounting treatment of the items being hedged. Cash flows from
hedges are classified in the statement of cash flows under the same category
as the cash flows from the related assets, liabilities or anticipated
transactions.
The Company accrues the differential for interest rate and cross-currency
swaps to be paid or received under the agreements as interest and exchange
rates shift as adjustments to interest income or expense over the life of the
swaps. Gains and losses on the termination of swap agreements, prior to their
original maturity, are deferred and amortized over the remaining term of the
underlying hedged transactions.
Gains and losses arising from foreign currency forward and option contracts
are recognized as offsets of gains and losses resulting from the items being
hedged.
-38-
<PAGE>
Earnings Per Share
Earnings per share amounts are based upon the weighted average number of
common and common equivalent shares outstanding during the year. Common
equivalent shares are excluded from the computation in periods in which they
have an anti-dilutive effect.
In February 1997, the Financial Accounting Standards Board issued SFAS 128
Earnings per Share ("SFAS 128"), which specifies the computation,
presentation, and disclosure requirements for earnings per share ("EPS"). It
replaces the presentation of primary and fully diluted EPS with basic and
diluted EPS. Basic EPS excludes all dilution. It is based upon the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The Company will adopt SFAS 128 as of the first quarter of fiscal 1998 and
restate all previously reported per share amounts to conform to the new
presentation. (See Note 8 regarding the impact of SFAS 128 on the Company's
reported EPS.)
Reclassifications
Certain reclassifications have been made in the 1996 and 1995 financial
statements to conform to the 1997 presentation including the reclassification
of certain equity investments out of other assets into investments in the
consolidated balance sheets.
2 Acquisition and Dispositions
On February 9, 1996, the Company completed its acquisition of ABC. The
aggregate consideration paid to ABC shareholders consisted of $10.1 billion in
cash and 155 million shares of Company common stock valued at $8.8 billion
based on the stock price as of the date the transaction was announced.
The acquisition has been accounted for as a purchase and the acquisition
cost of $18.9 billion was allocated to the assets acquired and liabilities
assumed based on estimates of their respective fair values. Assets acquired
totaled $4.0 billion (of which $1.5 billion was cash) and liabilities assumed
were $4.3 billion. A total of $19.0 billion, representing the excess of
acquisition cost over the fair value of ABC's net tangible assets, was
allocated to intangible assets and is being amortized over forty years. The
Company completed its final purchase price allocation and determination of
related goodwill, deferred taxes and other accounts during the second quarter
of 1997. At that time, the Company also reclassified certain provisions for
acquired broadcast programming out of accrued liabilities into film and
television costs in the consolidated balance sheets.
In connection with the acquisition, all common shares of the Company
outstanding immediately prior to the effective date of the acquisition were
canceled and replaced with new common shares and all treasury shares were
canceled and retired.
The Company's consolidated results of operations have incorporated ABC's
activity from the effective date of the acquisition. The unaudited pro forma
information below presents combined results of operations as if the
acquisition had occurred at the beginning of the respective years presented.
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 the years presented, nor is it necessarily indicative of
future results.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 21,238 $ 18,949
Net income (a) 1,331 1,307
Earnings per share (a) 1.93 1.91
</TABLE>
- --------
(a) 1996 includes the impact of a $300 million non-cash charge related to the
initial adoption of a new accounting standard (see Note 11). The charge
reduced earnings per share by $0.27 for the year.
-39-
<PAGE>
During the second quarter of 1996, the Company recognized a $225 million
charge for costs related to the acquisition, which is not included in the
above pro forma amounts. Acquisition-related costs consist principally of
interest costs related to imputed interest for the period from the effective
date of the acquisition until March 14, 1996, the date that cash and stock
consideration was issued to ABC shareholders.
As a result of the ABC acquisition, the Company sold its independent Los
Angeles television station KCAL during the first quarter of 1997 for $387
million, resulting in a gain of $135 million.
During the third and fourth quarters of 1997, the Company disposed of most
of the publishing businesses acquired with ABC to various third parties for
consideration approximating their carrying amount. Proceeds consisted of $1.2
billion in cash, $1.0 billion in debt assumption and preferred stock
convertible to common stock with a market value of $660 million. Results of
operations for the publishing businesses included in the Creative Content
segment were as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1997 1996 (a)
---- --------
<S> <C> <C>
Revenues $839 $714
Operating income 189 93
</TABLE>
- --------
(a) 1996 amounts reflect the publishing operations from the date of the ABC
acquisition.
3 Investment in Euro Disney
Euro Disney operates the Disneyland Paris theme park and resort complex on a
4,800-acre site near Paris, France. The Company accounts for its 39% ownership
interest in Euro Disney using the equity method of accounting. As of September
30, 1997, the Company's recorded investment in Euro Disney was $355 million.
The quoted market value of the Company's Euro Disney shares at September 30,
1997 was approximately $415 million.
In connection with the financial restructuring of Euro Disney in 1994, Euro
Disney Associes S.N.C. ("Disney SNC"), a wholly owned affiliate of the
Company, entered into a lease arrangement with a noncancelable term of 12
years (the "Lease") related to substantially all of the Disneyland Paris theme
park assets, and then entered into a 12-year sublease agreement (the
"Sublease") with Euro Disney. Remaining lease rentals at September 30, 1997 of
FF 9.1 billion ($1.6 billion) receivable from Euro Disney under the Sublease
approximate the amounts payable by Disney SNC under the Lease. At the
conclusion of the Sublease term, Euro Disney will have the option to assume
Disney SNC's rights and obligations under the Lease. If Euro Disney does not
exercise its option, Disney SNC may purchase the assets, continue to lease the
assets or elect to terminate the Lease, in which case Disney SNC would make a
termination payment to the lessor equal to 75% of the lessor's then
outstanding debt related to the theme park assets, estimated to be $1.3
billion; Disney SNC could then sell or lease the assets on behalf of the
lessor to satisfy the remaining debt, with any excess proceeds payable to
Disney SNC.
Also as part of the restructuring, the Company agreed to arrange for the
provision of a 10-year unsecured standby credit facility of approximately $185
million, upon request, bearing interest at PIBOR. As of September 30, 1997,
Euro Disney had not requested the Company establish this facility. The Company
also agreed, as long as any of the restructured debt is outstanding, to
maintain ownership of at least 34% of the outstanding common stock of Euro
Disney until June 1999, at least 25% for the subsequent five years and at
least 16.67% for an additional term thereafter.
Euro Disney's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in France ("French GAAP"). U.S.
generally accepted accounting principles ("U.S. GAAP") differ in certain
significant respects from French GAAP applied by Euro Disney, principally as
they relate to accounting for leases and the calculation of interest expense
relating to debt affected by Euro Disney's financial restructuring. The
Company records its equity share of Euro Disney's operating results calculated
in accordance with U.S. GAAP.
-40-
<PAGE>
4 Film and Television Costs
<TABLE>
<S> <C> <C>
1997 1996
- -------------------------------------------
Theatrical film costs
Released, less amortization $1,691 $1,419
In-process 1,855 1,472
------ ------
3,546 2,891
------ ------
Television costs
Released, less amortization 276 246
In-process 279 96
------ ------
555 342
------ ------
Television broadcast rights 300 26
------ ------
$4,401 $3,259
====== ======
</TABLE>
Based on management's total gross revenue estimates as of September 30, 1997,
approximately 79% of unamortized film and television costs (except in-process)
are expected to be amortized during the next three years.
5 Borrowings
<TABLE>
<CAPTION>
Effective Fiscal
Interest Year
Rate Maturity 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper (a) 6.2% 1998 $ 2,019 $ 4,185
U.S. dollar notes and debentures (b) 6.5 1998-2093 5,796 4,399
Dual currency and foreign notes (c) 5.4 1998-2001 1,854 1,987
Senior participating notes (d) 6.3 2000-2001 1,145 1,099
Other 8.2 1998-2027 254 672
------- -------
6.3 $11,068 $12,342
======= =======
</TABLE>
- --------
(a) The Company has established bank facilities totaling $3.2 billion which
expire in four years. Under the bank facilities, the Company has the
option to borrow at various interest rates. The effective interest rate
reflects the effect of interest rate swaps entered into with respect to
certain of these borrowings.
(b) Includes an $821 million minority interest in a real estate investment
trust established by the Company and $300 million of borrowings due in
2093. The effective interest rate reflects the effect of interest rate
swaps entered into with respect to certain of these borrowings.
(c) Denominated principally in U.S. dollars, Japanese yen, Australian dollars
and Italian lira. The effective interest rate reflects the effect of
interest rate and cross-currency swaps entered into with respect to
certain of these borrowings.
(d) The average coupon rate is 2.7% on $1.3 billion face value of notes.
Additional interest may be paid based on the performance of designated
portfolios of films.
Borrowings, excluding commercial paper, have the following scheduled
maturities:
<TABLE>
<S> <C>
1998 $ 844
1999 1,472
2000 1,360
2001 2,026
2002 --
Thereafter 3,347
</TABLE>
-41-
<PAGE>
The Company capitalizes interest on assets constructed for its theme parks,
resorts and other property, and on theatrical and television productions in
process. In 1997, 1996 and 1995, respectively, total interest costs incurred
were $841 million, $545 million and $236 million, of which $100 million, $66
million and $58 million were capitalized.
6 Income Taxes
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------
Income before income taxes
<S> <C> <C> <C>
Domestic (including U.S. exports) $ 3,193 $ 1,822 $1,908
Foreign subsidiaries 194 239 209
------- ------- ------
$ 3,387 $ 2,061 $2,117
======= ======= ======
Income tax provision
Current
Federal $ 1,023 $ 389 $ 325
State 203 101 68
Foreign (including withholding) 190 235 184
------- ------- ------
1,416 725 577
------- ------- ------
Deferred
Federal 21 106 170
State (16) 16 (10)
------- ------- ------
5 122 160
------- ------- ------
$ 1,421 $ 847 $ 737
======= ======= ======
<CAPTION>
Components of Deferred Tax Assets and
Liabilities 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Accrued liabilities $(1,129) $(1,622)
Other, net (35) (111)
------- -------
Total deferred tax assets (1,164) (1,733)
------- -------
Deferred tax liabilities
Depreciable, amortizable and other property 2,266 1,907
Licensing revenues 179 215
Leveraged leases 258 254
Investment in Euro Disney 90 50
------- -------
Total deferred tax liabilities 2,793 2,426
------- -------
Net deferred tax liability before valuation
allowance 1,629 693
Valuation allowance 50 50
------- -------
Net deferred tax liability $ 1,679 $ 743
======= =======
<CAPTION>
Reconciliation of Effective Income Tax Rate 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
Nondeductible amortization of intangible assets 4.4 5.1 --
State taxes, net of federal income tax benefit 3.6 3.7 1.9
Other, net (1.0) (2.7) (2.1)
------- ------- ------
42.0% 41.1% 34.8%
======= ======= ======
</TABLE>
In 1997, 1996 and 1995, income tax benefits attributable to employee stock
option transactions of $81 million, $44 million and $90 million, respectively,
were allocated to stockholders' equity.
-42-
<PAGE>
7 Pension and Other Benefit Programs
The Company maintains pension plans and postretirement medical benefit plans
covering most of its domestic employees not covered by union or industry-wide
plans. Employees hired after January 1, 1994 are not eligible for the
postretirement medical benefits. Pension benefits are generally based on years
of service and/or compensation. The following chart summarizes the balance
sheet impact, as well as the benefit obligations, assets, funded status and
rate assumptions associated with the pension and postretirement medical
benefit plans.
<TABLE>
<CAPTION>
Postretirement
Pension Plans Benefit Plans
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Reconciliation of funded status of the
plans and the amounts included in the
Company's consolidated balance
sheets:
Projected benefit obligations
Beginning obligations $(1,402) $ (604) $ (271) $ (162)
ABC's plans at acquisition -- (774) -- (99)
Service cost (73) (68) (10) (12)
Interest cost (106) (81) (21) (16)
Gains 9 88 5 10
Benefits paid 62 37 9 8
Other 72 -- (5) --
------- ------- ------- -------
Ending obligations (1,438) (1,402) (293) (271)
------- ------- ------- -------
Fair value of plans' assets
Beginning fair value 1,442 632 138 107
ABC's plans at acquisition -- 631 -- --
Actual return on plans' assets 304 149 27 20
Contributions 111 74 6 23
Benefits paid (71) (44) (9) (12)
Other (60) -- -- --
------- ------- ------- -------
Ending fair value 1,726 1,442 162 138
------- ------- ------- -------
Funded status of the plans 288 40 (131) (133)
Unrecognized net gain (219) (42) (20) (9)
Unrecognized prior service benefit (2) (2) (34) (75)
Other 28 -- -- --
------- ------- ------- -------
Net balance sheet asset (liability) $ 95 $ (4) $ (185) $ (217)
======= ======= ======= =======
Rate assumptions
Discount rate 7.8% 7.8% 7.8% 7.8%
Rate of return on plans' assets 10.5% 10.0% 10.5% 10.0%
Salary increases 5.4% 5.6% N/A n/a
Annual increase in cost of benefits N/A n/a 6.7% 7.0%
</TABLE>
The annual increase in cost of postretirement benefits of 6.7% is assumed to
decrease .3ppts per year until stabilizing at 5.5%. An increase in the assumed
benefits cost trend of 1ppt for each year would increase the postretirement
benefit obligation at September 30, 1997 by $51 million.
The Company's accumulated pension benefit obligation at September 30, 1997
was $1.3 billion, of which 97.8% was vested. The accumulated postretirement
benefit obligation for all plans at September 30, 1997 comprised 48% retirees,
18% fully eligible active participants and 34% other active participants.
-43-
<PAGE>
The income statement cost of the pension plans for 1997, 1996 and 1995
totaled $45 million, $58 million and $33 million, respectively. The income
statement credit for the postretirement benefit plans for the same years was
$18 million, $16 million and $43 million, respectively. The discount rate,
salary increase rate, rate of return on plans' assets and annual increase in
cost of benefits were 7.5%, 5.8%, 9.5%, and 7.0%, respectively, in 1995.
8 Stockholders' Equity
The Company has historically attempted to increase the long-term value of
its shares by the acquisition of its stock. As of September 30, 1997, the
Company's share repurchase program authorized the purchase of up to 88 million
shares. In December 1996, the Company established the TWDC Stock Compensation
Fund pursuant to the repurchase program to acquire shares of the Company for
the purpose of funding certain stock-based compensation. Any shares acquired
by the fund that are not utilized must be disposed of by December 31, 1999.
In the first quarter of 1998, the Company will adopt the provisions of SFAS
128, which will require the presentation of diluted and basic EPS. Early
adoption of SFAS 128 is not permitted. Diluted EPS under the new standard does
not differ from the Company's current EPS. If SFAS 128 had been adopted for
the periods presented, the basic EPS amounts would have been $2.92, $1.98 and
$2.65 for 1997, 1996 and 1995, respectively.
The Company has a stockholder's rights plan, which becomes operative in
certain events involving the acquisition of 25% or more of the Company's
common stock by any person or group in a transaction not approved by the
Company's Board of Directors. Upon the occurrence of such an event, each
right, unless redeemed by the Board, entitles its holder to purchase for $350
an amount of common stock of the Company, or in certain circumstances the
acquirer, having a $700 market value. In connection with the rights plan, 7
million shares of preferred stock were reserved.
9 Stock Incentive Plans
Under various plans, the Company may grant stock options and other awards to
key executive, management and creative personnel at exercise prices equal to
or exceeding the market price at the date of grant. In general, options become
exercisable over a five-year period from the grant date and expire 10 years
after the date of grant. In certain cases for senior executives, options
become exercisable over periods up to 10 years and expire up to 15 years after
date of grant. Shares available for future option grants at September 30,
1997, totaled 45 million.
The following table summarizes information about stock option transactions
(shares in millions):
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 63 $47.51 35 $33.60 39 $27.73
Awards canceled (6) 57.95 (2) 51.29 (4) 35.99
Awards granted 9 76.93 32 58.90 8 49.42
Awards exercised (5) 33.41 (3) 31.59 (8) 22.02
Awards transferred (ABC) -- 1 33.15 --
--- --- ---
Outstanding at September 30 61 $52.32 63 $47.51 35 $33.60
=== === ===
Exercisable at September 30 21 $35.31 17 $28.21 15 $24.58
=== === ===
</TABLE>
-44-
<PAGE>
The following table summarizes information about stock options outstanding at
September 30, 1997 (shares in millions):
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Range of Number Years of Average Number Average
Exercise of Options Contactual Exercise of Options Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$13-$ 20 8 1.27 $17.70 7 $17.70
$20-$ 30 4 3.31 26.16 3 26.04
$30-$ 40 3 5.06 36.30 2 35.33
$40-$ 50 7 6.48 42.95 4 42.81
$50-$ 60 8 7.82 56.46 4 56.82
$60-$ 70 20 9.17 63.45 1 62.89
$70-$ 80 7 10.23 76.52 --
$80-$ 90 2 9.73 81.44 --
$90-$127 2 14.00 110.80 --
--- ---
61 21
=== ===
</TABLE>
During fiscal year 1997, the Company adopted SFAS 123 and under the
provisions of the new standard has elected to continue using the intrinsic-
value method of accounting for stock-based awards granted to employees in
accordance with APB 25. Accordingly, the Company has not recognized
compensation expense for its stock-based awards to employees. The following
table reflects pro forma net income and earnings per share had the Company
elected to adopt the fair value approach of SFAS 123:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Net income:
As reported $1,966 $1,214
Pro forma 1,870 1,185
Earnings per share:
As reported 2.86 1.96
Pro forma 2.73 1.91
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years.
The weighted average fair values of options at their grant date during 1997
and 1996, where the exercise price equals the market price on the grant date,
were $27.26 and $23.01, respectively. The weighted average fair value of
options at their grant date during 1996, where the exercise price exceeds the
market price on the grant date, was $18.61. No such options were granted
during 1997. The estimated fair value of each option granted is calculated
using the Black-Scholes option-pricing model. The following summarizes the
weighted average of the assumptions used in the model:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Risk-free interest rate 6.4% 6.2%
Expected years until exercise 6.1 7.1
Expected stock volatility 23% 23%
Dividend yield .71% .69%
</TABLE>
-45-
<PAGE>
10 Detail of Certain Balance Sheet Accounts
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Receivables
Trade, net of allowances $ 3,104 $ 2,875
Other 622 468
------- -------
$ 3,726 $ 3,343
======= =======
Accounts payable and other accrued liabilities
Accounts payable $ 4,609 $ 4,835
Payroll and employee benefits 847 757
Other 121 102
------- -------
$ 5,577 $ 5,694
======= =======
Intangible assets
Cost in excess of ABC's net assets acquired $14,307 $16,079
Trademark 1,100 1,100
FCC licenses 1,100 1,100
Other 211 79
Accumulated amortization (707) (313)
------- -------
$16,011 $18,045
======= =======
</TABLE>
-46-
<PAGE>
11 Segments
<TABLE>
<CAPTION>
Business Segments 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Revenues
Creative Content $10,937 $10,159 $ 7,736
Broadcasting 6,522 4,078 414
Theme Parks and Resorts 5,014 4,502 4,001
------- ------- -------
$22,473 $18,739 $12,151
======= ======= =======
Operating income
Creative Content $ 1,882 $ 1,561 $ 1,531
Broadcasting 1,294 782 76
Theme Parks and Resorts 1,136 990 859
KCAL gain 135 -- --
Accounting change -- (300) --
------- ------- -------
$ 4,447 $ 3,033 $ 2,466
======= ======= =======
Capital expenditures
Creative Content $ 301 $ 359 $ 232
Broadcasting 152 113 8
Theme Parks and Resorts 1,266 1,196 635
Corporate 203 77 21
------- ------- -------
$ 1,922 $ 1,745 $ 896
======= ======= =======
Depreciation expense
Creative Content $ 187 $ 163 $ 107
Broadcasting 104 104 8
Theme Parks and Resorts 408 358 335
Corporate 39 47 20
------- ------- -------
$ 738 $ 672 $ 470
======= ======= =======
Identifiable assets
Creative Content $ 8,832 $ 8,837 $ 5,232
Broadcasting 19,036 19,576 564
Theme Parks and Resorts 8,051 7,066 6,149
Corporate 1,857 1,147 2,661
------- ------- -------
$37,776 $36,626 $14,606
======= ======= =======
Supplemental revenues data
Creative Content
Theatrical product $ 5,540 $ 5,306 $ 4,453
Consumer products 2,992 2,597 2,120
Broadcasting
Advertising 4,937 3,092 98
Theme Parks and Resorts
Merchandise, food and beverage 1,754 1,555 1,424
Admissions 1,603 1,493 1,346
</TABLE>
-47-
<PAGE>
<TABLE>
<CAPTION>
Geographic Segments 1997 1996 1995
- ------------------------------------------------
<S> <C> <C> <C>
Revenues
United States $17,868 $14,422 $ 8,876
United States export 874 746 608
Europe 2,073 2,086 1,677
Rest of world 1,658 1,485 990
------- ------- -------
$22,473 $18,739 $12,151
======= ======= =======
Operating income
United States $ 3,712 $ 2,229 $ 1,665
Europe 499 633 486
Rest of world 397 382 402
Unallocated expenses (161) (211) (87)
------- ------- -------
$ 4,447 $ 3,033 $ 2,466
======= ======= =======
Identifiable assets
United States $35,985 $34,762 $13,438
Europe 1,275 1,495 1,060
Rest of world 516 369 108
------- ------- -------
$37,776 $36,626 $14,606
======= ======= =======
</TABLE>
During the second quarter of 1996, the Company implemented SFAS 121. This
new accounting standard changes the method that companies use to evaluate the
carrying value of such assets by, among other things, requiring companies to
evaluate assets at the lowest level at which identifiable cash flows can be
determined. The implementation of SFAS 121 resulted in the Company recognizing
a $300 million non-cash charge related principally to certain assets included
in the Theme Parks and Resorts segment.
12 Financial Instruments
Investments
As of September 30, 1997 and 1996, the Company held $137 million and $104
million, respectively, of securities classified as available-for-sale. In 1997
and 1996, realized gains and losses on available-for-sale securities,
determined principally on an average cost basis, and unrealized gains and
losses on available-for-sale securities were not material.
Interest Rate Risk Management
The Company is exposed to the impact of interest rate changes. The Company's
objective is to manage the impact of interest rate changes on earnings and
cash flows and on the market value of its investments and borrowings. The
Company maintains fixed rate debt as a percentage of its net debt between a
minimum and maximum percentage, which is set by policy.
The Company uses interest rate swaps and other instruments to manage net
exposure to interest rate changes related to its borrowings and to lower its
overall borrowing costs. Significant interest rate risk management instruments
held by the Company at September 30, 1997 and 1996 included pay-floating and
pay-fixed swaps and swaption contracts. Pay-fixed swaps effectively converted
floating rate obligations to fixed rate instruments. Pay-floating swaps
effectively converted medium-term obligations and senior participating notes
to commercial paper or LIBOR-based variable rate instruments. These swap
agreements expire in one to 15 years. Swaption contracts were designated as
hedges of floating rate debt and expire within one year.
-48-
<PAGE>
The following table reflects incremental changes in the notional or
contractual amounts of the Company's interest rate contracts during 1997 and
1996. Activity representing renewal of existing positions is excluded.
<TABLE>
<CAPTION>
September 30, Maturities/ September 30,
1996 Additions Expirations Terminations 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pay-floating swaps $1,520 $2,479 $ -- $(1,913) $2,086
Pay-fixed swaps 900 850 (200) (600) 950
Swaption contracts -- 1,100 -- (800) 300
Option contracts -- 593 -- (593) --
Spreadlock contracts -- 470 (470) -- --
------ ------ ----- ------- ------
$2,420 $5,492 $(670) $(3,906) $3,336
====== ====== ===== ======= ======
<CAPTION>
September 30, Maturities/ September 30,
1995 Additions Expirations Terminations 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pay-floating swaps $ 719 $1,195 $(115) $ (279) $1,520
Pay-fixed swaps 4,680 1,460 -- (5,240) 900
Forward contracts -- 93 (93) -- --
Futures contracts 123 6 -- (129) --
Option contracts 102 12 (40) (74) --
------ ------ ----- ------- ------
$5,624 $2,766 $(248) $(5,722) $2,420
====== ====== ===== ======= ======
</TABLE>
The impact of interest rate risk management activities on income in 1997 and
1996 and the amount of deferred gains and losses from interest rate risk
management transactions at September 30, 1997 and 1996 were not material.
Foreign Exchange Risk Management
The Company transacts business in virtually every part of the world and is
subject to risks associated with changing foreign exchange rates. The
Company's objective is to reduce earnings and cash flow volatility associated
with foreign exchange rate changes to allow management to focus its attention
on its core business issues and challenges. Accordingly, the Company enters
into various contracts which change in value as foreign exchange rates change
to protect the value of its existing foreign currency assets and liabilities,
commitments and anticipated foreign currency revenues. By policy, the Company
maintains hedge coverage between minimum and maximum percentages of its
anticipated foreign exchange exposures for each of the next five years. The
gains and losses on these contracts offset changes in the value of the related
exposures.
It is the Company's policy to enter into foreign currency transactions only
to the extent considered necessary to meet its objectives as stated above. The
Company does not enter into foreign currency transactions for speculative
purposes.
The Company uses option strategies which provide for the sale of foreign
currencies to hedge probable, but not firmly committed, revenues. While these
hedging instruments are subject to fluctuations in value, such fluctuations
are offset by changes in the value of the underlying exposures being hedged.
The principal currencies hedged are the Japanese yen, French franc, German
mark, British pound, Canadian dollar, Italian lira and Spanish peseta. The
Company also uses forward contracts to hedge foreign currency assets,
liabilities and foreign currency payments the Company is committed to make in
connection with the construction of two cruise ships (see Note 13). Cross-
currency swaps are used to hedge foreign currency-denominated borrowings.
-49-
<PAGE>
At September 30, 1997 and 1996, the notional amounts of the Company's
foreign exchange risk management contracts, net of notional amounts of
contracts with counterparties against which the Company has a legal right of
offset, the related exposures hedged and the contract maturities are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
NOTIONAL EXPOSURES FISCAL YEAR Notional Exposures Fiscal Year
AMOUNT HEDGED MATURITY Amount Hedged Maturity
-------- --------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Option contracts $3,460 $1,633 1998-1999 $5,563 $3,386 1997-1999
Forward contracts 2,284 1,725 1998-1999 1,981 1,174 1997-1999
Cross-currency swaps 1,812 1,812 1998-2001 2,308 2,536 1997-2001
------ ------ ------ ------
$7,556 $5,170 $9,852 $7,096
====== ====== ====== ======
</TABLE>
Gains and losses on contracts hedging anticipated foreign currency revenues
and foreign currency commitments are deferred until such revenues are
recognized or such commitments are met, and offset changes in the value of the
foreign currency revenues and commitments. At September 30, 1997 and 1996, the
Company had deferred gains of $486 million and $335 million, respectively, and
deferred losses of $220 million and $307 million, respectively, related to
foreign currency hedge transactions. Deferred amounts to be recognized can
change with market conditions and will be substantially offset by changes in
the value of the related hedged transactions. The impact of foreign exchange
risk management activities on operating income in 1997 was a net gain of $166
million and in 1996 was not material.
Fair Value of Financial Instruments
At September 30, 1997 and 1996, the Company's financial instruments included
cash, cash equivalents, investments, receivables, accounts payable, borrowings
and interest rate and foreign exchange risk management contracts.
At September 30, 1997 and 1996, the fair values of cash and cash
equivalents, receivables, accounts payable and commercial paper approximated
carrying values because of the short-term nature of these instruments. The
estimated fair values of other financial instruments subject to fair value
disclosures, determined based on broker quotes or quoted market prices or
rates for the same or similar instruments, and the related carrying amounts
are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investments $ 769 $ 1,174 $ 148 $ 148
Borrowings (10,313) (10,290) (12,342) (12,270)
Risk management contracts 257 437 466 460
-------- -------- -------- --------
$ (9,287) $ (8,679) $(11,728) $(11,662)
======== ======== ======== ========
</TABLE>
Credit Concentrations
The Company continually monitors its positions with, and the credit quality
of, the financial institutions which are counterparties to its financial
instruments and does not anticipate nonperformance by the counterparties. The
Company would not realize a material loss as of September 30, 1997 in the
event of nonperformance by any one counterparty. The Company enters into
transactions only with financial institution counterparties which have a
credit rating of A- or better. The Company's current policy in agreements with
financial institution counterparties is generally to require collateral in the
event credit ratings fall below A- or in the event aggregate exposures exceed
limits as defined by contract. In addition, the Company limits the amount of
credit exposure with any one institution. At September 30, 1997, financial
institution counterparties posted collateral of $210 million to the Company,
and the Company was not required to collateralize its financial instrument
obligations.
-50-
<PAGE>
The Company's trade receivables and investments do not represent significant
concentrations of credit risk at September 30, 1997, due to the wide variety
of customers and markets into which the Company's products are sold, their
dispersion across many geographic areas, and the diversification of the
Company's portfolio among instruments and issuers.
13 Commitments and Contingencies
During 1995, the Company entered into agreements with a shipyard to build
two cruise ships for its Disney Cruise Line. Under the agreements, the Company
is committed to make payments totaling approximately $625 million through
1999.
At September 30, 1997, the Company is committed to the purchase of broadcast
rights for various feature films, sports and other programming aggregating
approximately $5.2 billion. This amount is substantially payable over the next
six years.
The Company has various real estate operating leases including retail
outlets for the distribution of consumer products and office space for general
and administrative purposes. Future minimum lease payments under these non-
cancelable operating leases totaled $1.8 billion at September 30, 1997,
payable as follows:
<TABLE>
<S> <C>
1998 $229
1999 222
2000 209
2001 195
2002 179
Thereafter 741
</TABLE>
Rental expense for the above operating leases, including overages, common-
area maintenance and other contingent rentals, during 1997, 1996 and 1995 was
$327 million, $233 million and $135 million, respectively.
The Company, together with, in some instances, certain of its directors and
officers, is a defendant or co-defendant in various legal actions involving
copyright, breach of contract and various other claims incident to the conduct
of its businesses. Management does not expect the Company to suffer any
material liability by reason of such actions, nor does it expect that such
actions will have a material effect on the Company's liquidity or operating
results.
-51-
<PAGE>
QUARTERLY FINANCIAL SUMMARY
(In millions, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
December 31 March 31 June 30 September 30
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Revenues $6,278 $5,481 $5,194 $5,520
Operating income (/1/) 1,562 864 1,060 961
Net income (/1/) 749 333 473 411
Earnings per share (/1/) 1.09 .49 .69 .60
1996 (/2/)
Revenues $3,837 $4,543 $5,087 $5,272
Operating income (/3/) 863 356 956 858
Net income (loss) (/3/) 497 (25) 406 336
Earnings (loss) per share (/3/) .93 (.04) .59 .49
</TABLE>
- --------
(1) Reflects a $135 million gain on the sale of KCAL in the first quarter. The
earnings per share impact of this gain was $.11. See Note 2 to the
Consolidated Financial Statements.
(2) Results after February 9, 1996 reflect the impact of the acquisition of
ABC. See Note 2 to the Consolidated Financial Statements.
(3) Operating and net income (loss) reflect a $300 million non-cash charge in
the second quarter pertaining to the implementation of SFAS 121. Net
income (loss) was also affected in the second quarter by a $225 million
charge for costs related to the acquisition of ABC. The earnings per share
impacts of these charges were $.30 and $.22, respectively. See Notes 2 and
11 to the Consolidated Financial Statements.
-52-
<PAGE>
[LOGO OF PRINTED ON RECYCLED PAPER]
<PAGE>
AMENDED AS OF
November 24, 1997
AMENDED BYLAWS
OF
THE WALT DISNEY COMPANY
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the
--------- -----------------
Corporation shall be in the City of Wilmington, County of New Castle, Delaware.
Section 2. Principal Place of Business. The principal place of
--------- ---------------------------
business of the Corporation is hereby fixed and located at 500 South Buena Vista
Street, Burbank, California 91521.
Section 3. Other Offices. The Corporation may also have offices at
--------- -------------
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
--------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors (and in the case of a special
meeting, by the Board of Directors or the person calling the special meeting as
authorized by Section 3 of this Article II) and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders
--------- ---------------
shall be held on such date and at such time and place as may be fixed by the
Board of Directors and stated in the notice of the meeting, for the purpose of
electing directors and for the transaction of such other business as is properly
brought before the meeting in accordance with these Bylaws.
-1-
<PAGE>
To be properly brought before the Annual Meeting, business must be
either (i) specified in the notice of Annual Meeting (or any supplement or
amendment thereto) given by or at the direction of the Board of Directors, (ii)
otherwise brought before the Annual Meeting by or at the direction of the Board
of Directors, or (iii) otherwise (a) properly be requested to be brought before
the Annual Meeting by a stockholder of record entitled to vote in the election
of directors generally, and (b) constitute a proper subject to be brought before
such meeting. In addition to any other applicable requirements, for business to
be properly brought before an Annual Meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at 500 South Buena Vista Street, Burbank, California 91521,
not less than 50 days nor more than 75 days prior to the meeting; provided,
however, that in the event that less than 65 days' notice or prior public
disclosure of the date of the Annual Meeting is given or made to stockholders,
notice by a stockholder to be timely must be so received not later than the
close of business on the 12th day following the day on which such notice of the
date of the Annual Meeting was mailed or such public disclosure was made,
whichever first occurs. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the Annual Meeting
(i) a brief description of the business desired to be brought before the Annual
Meeting and the reasons for conducting such business at the Annual Meeting, (ii)
the name and record address of the stockholder proposing such business, (iii)
the class, series and number of shares of the Corporation which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder in
such business. Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at the Annual Meeting except in accordance with the
procedures set forth in this Article II, Section 2. The person presiding at an
Annual Meeting shall, if the facts warrant, determine and declare to the Annual
Meeting that business was not properly brought before the Annual Meeting in
accordance with the provisions of this Article II, Section 2, and if he should
so determine, he shall so declare to the Annual Meeting and any such business
not properly brought before the meeting shall not be transacted. Written notice
of the Annual Meeting stating the place, date and hour of the Annual Meeting
shall be given to each stockholder entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting.
Section 3. Special Meetings. Special meetings of stockholders, for
--------- ----------------
any purpose or purposes, may be called by the Board of Directors, the Chairman
of the Board of Directors, or the President. Special meetings of stockholders
may not be called by any other person or persons. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than 10 nor
more than 60 days before the date of the meeting to each stockholder entitled to
vote at such meeting, and only such business as is stated in such notice shall
be acted upon thereat. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors, or (b) by a stockholder of the
Corporation who is entitled to vote at the meeting and who complies with the
notice provisions contained in Section 2 of this Article II.
-2-
<PAGE>
Section 4. Quorum. Except as may be otherwise provided by law or by
--------- ------
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, a minority of
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than 30 days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the Certificate
--------- ------
of Incorporation or these Bylaws, (i) at all meetings of stockholders for the
election of directors, a plurality of votes cast shall be sufficient to elect,
and (ii) any other question brought before any meeting of stockholders shall be
decided by the vote of the holders of a majority of the stock represented and
entitled to vote thereon. Unless otherwise provided in the Certificate of
Incorporation, each stockholder represented at a meeting of stockholders shall
be entitled to cast one vote for each share of the capital stock entitled to
vote thereat held by such stockholder. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such meeting
shall be cast by written ballot.
Section 6. Organization.
--------- ------------
(a) All meetings of the stockholders shall be presided over by the
Chairman of the Board of Directors or, if he is not present, by the Vice
Chairman of the Board of Directors, and if he is not present, by such officer or
director as is designated by the Board of Directors. The Secretary of the
Corporation or, if he is not present, any Assistant Secretary or other person
designated by the presiding officer shall act as secretary of the meeting.
(b) The date and time of the opening and the closing of the polls
for each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting by the person presiding over the meeting. The Board of
Directors may adopt by resolution such rules and regulations for the conduct of
the meeting of stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of stockholders shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following (i) the establishment of an agenda or
order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
Corporation, their duly authorized and constituted proxies or such
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other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
Section 7. List of Stockholders Entitled to Vote. The officer of
--------- -------------------------------------
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall
--------- ------------
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Inspectors of Election. Before any meeting of
--------- ----------------------
stockholders, the Board of Directors shall appoint one or more inspectors to act
at the meeting and make a written report thereof. The Board of Directors may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
The inspectors shall:
(a) ascertain the number of shares outstanding and the voting
power of each,
(b) determine the shares represented at the meeting and the
validity of proxies and ballots,
(c) count all votes and ballots,
(d) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination made by the inspectors,
and
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(e) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist
the inspectors in the performance of the duties of the inspectors. In
determining the validity and counting of proxies and ballots, the inspectors
shall act in accordance with applicable law.
ARTICLE III
DIRECTORS
---------
Section 1. Number and Election of Directors. Subject to the rights,
--------- --------------------------------
if any, of holders of preferred stock of the Corporation to elect directors of
the Corporation, the Board of Directors shall consist of not less than nine nor
more than 21 members with the exact number of directors to be determined from
time to time solely by resolution duly adopted by the Board of Directors.
Directors shall be elected by a plurality of the votes cast at Annual Meetings
of stockholders, and each director so elected shall hold office as provided by
Article FIFTH of the Certificate of Incorporation. A director may be removed
from office only as provided by Article SIXTH of the Certificate of
Incorporation. Any director may resign at any time effective upon giving
written notice to the Corporation, unless the notice specifies a later time for
the effectiveness of such resignation. Directors need not be stockholders.
Section 2. Nomination of Directors. Only persons who are nominated
--------- -----------------------
in accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation at the Annual Meeting may be made at such meeting by or at the
direction of the Board of Directors, by any committee or persons appointed by
the Board of Directors or by any stockholder of the Corporation entitled to vote
for the election of directors at the meeting who complies with the notice
procedures set forth in this Article III, Section 2. Such nominations by any
stockholder shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than 50 days nor more than 75 days prior to the meeting; provided, however,
that in the event that less than 65 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made, whichever first
occurs. Such stockholder's notice to the Secretary shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director, (a) the name, age, business address and residence address of the
person, (b) the principal occupation or employment of the person, (c) the class
and number of shares of capital stock of the Corporation which are beneficially
owned by the person, and (d) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to the Rules and Regulations of the Securities and Exchange
Commission under Section 14 of the Securities Exchange Act of 1934, as amended;
and (ii) as to the stockholder giving the notice (a) the name
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and record address of the stockholder and (b) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director of the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The officer of the Corporation presiding at an Annual Meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.
Section 3. Vacancies. Any vacancy on the Board of Directors,
--------- ---------
howsoever resulting, may be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.
Section 4. Duties and Powers. The business of the Corporation shall
--------- -----------------
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Section 5. Meetings. The Board of Directors of the Corporation may
--------- --------
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, the President, or by a majority of the
Board of Directors. Notice thereof, stating the place, date and hour of the
meeting, shall be given to each director either by mail not less than four days
before the date of the meeting, or personally or by telephone, telegram, telex
or similar means of communication on 12 hours notice, or on such shorter notice
as the person or persons calling such meeting may deem necessary or appropriate
in the circumstances.
Section 6. Quorum; Action of Board of Directors. Except as may be
--------- ------------------------------------
otherwise specifically provided by law, the Certificate of Incorporation or
these Bylaws, at all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 7. Action by Written Consent. Any action required or
--------- -------------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent
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thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
Section 8. Meetings by Means of Conference Telephone. Members of
--------- -----------------------------------------
the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 8 shall
constitute presence in person at such meeting.
Section 9. Committees. The Board of Directors may, by resolution
--------- ----------
passed by a majority of the whole Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. The Board of
Directors shall have the power to prescribe the manner in which proceedings of
any such committee shall be conducted. In the absence of any such prescription,
such committee shall have the power to prescribe the manner in which its
proceedings shall be conducted. Unless the Board of Directors or such committee
shall otherwise provide, regular and special meetings and other actions of any
such committee shall be governed by the provisions of this Article III
applicable to meetings and actions of the Board of Directors. Each committee
shall keep regular minutes and report to the Board of Directors when required.
Section 10. Fees and Compensation. Directors and members of
---------- ---------------------
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board of
Directors.
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ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be chosen
--------- -------
by the Board of Directors and shall be a Chairman of the Board of Directors (who
must be a director), a President, a Secretary and a Treasurer. The Board of
Directors, in its sole discretion, may also choose a Vice Chairman of the Board
of Directors (who must be a director), one or more Executive Vice Presidents,
Senior Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Certificate of Incorporation or
these Bylaws.
Section 2. Election. The Board of Directors at its first meeting
--------- --------
held after each Annual Meeting of stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time solely
by the Board of Directors, which determination may be by resolution of the Board
of Directors or in any bylaw provision duly adopted or approved by the Board of
Directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the Board of Directors with or without cause. Any vacancy occurring in
any office of the Corporation may be filled only by the Board of Directors.
Section 3. Chairman of the Board of Directors. The Chairman of the
--------- ----------------------------------
Board of Directors shall be the Chief Executive Officer of the Corporation,
shall preside at all meetings of the Board of Directors and of stockholders and
shall, subject to the provisions of the Bylaws and the control of the Board of
Directors, have general and active management, direction, and supervision over
the business of the Corporation and over its officers. He shall perform all
duties incident to the office of chief executive and such other duties as from
time to time may be assigned to him by the Board of Directors. He shall have
the right to delegate any of his powers to any other officer or employee.
Section 4. President. The President shall report and be responsible
--------- ---------
to the Chairman of the Board. The President shall have such powers and perform
such duties as from time to time may be assigned or delegated to him by the
Board of Directors or are incident to the office or President.
During the absence, disability, or at the request of the Chairman of
the Board of Directors, the President shall perform the duties and exercise the
powers of the Chairman of the Board of Directors. In the absence or disability
of both the President and the Chairman of the Board of Directors, the person
designated by the Board of Directors shall perform the duties and exercise the
powers of the President, and unless otherwise determined by the Board, the
duties and powers of the Chairman.
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<PAGE>
Section 5. Executive Vice Presidents. The Executive Vice Presidents
--------- -------------------------
shall have such powers and perform such duties as from time to time may be
prescribed for them respectively by the Board of Directors or are incident to
the office of Executive Vice President.
Section 6. Senior Vice Presidents. The Senior Vice Presidents shall
--------- ----------------------
have such powers and perform such duties as from time to time may be prescribed
for them respectively by the Board of Directors or are incident to the office of
Senior Vice President.
Section 7. Vice Presidents. The Vice Presidents shall have such
--------- ---------------
powers and perform such duties as from time to time may be prescribed for them
respectively by the Board of Directors or are incident to the office of Vice
President.
Section 8. Secretary. The Secretary shall keep or cause to be kept,
--------- ---------
at the principal executive office or such other place as the Board of Directors
may order, a book of minutes of all meetings of stockholders, the Board of
Directors and its committees, with the time and place of holding, whether
regular or special, and if special, how authorized, the notice thereof given,
the names of those present at Board of Directors and committee meetings, the
number of shares present or represented at stockholders' meetings, and the
proceedings thereof. The Secretary shall keep, or cause to be kept, a copy of
the Bylaws of the Corporation at the principal executive office or business
office of the Corporation.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, if one be appointed, a stock register, or a duplicate stock register,
showing the names of the stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors and any committees thereof
required by these Bylaws or by law to be given, shall keep the seal of the
Corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors.
Section 9. Treasurer. The Treasurer shall have the custody of the
--------- ---------
corporate funds and securities of the Corporation and shall keep and maintain,
or cause to be kept and maintained, adequate and correct accounts of the
properties and business transactions of the Corporation, and shall send or cause
to be sent to the stockholders of the Corporation such financial statements and
reports as are by law or these Bylaws required to be sent to them.
The Treasurer shall deposit all moneys and valuables in the name and
to the credit of the Corporation with such depositaries as may be designated by
the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all
transactions and of the financial condition of the Corporation, and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors.
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Section 10. Other Officers. Such other officers or assistant
---------- --------------
officers as the Board of Directors may choose shall perform such duties and have
such powers as from time to time may be assigned to them by the Board of
Directors. The Board of Directors may delegate to any other officer of the
Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
Section 11. Execution of Contracts and Other Documents. Each officer
---------- ------------------------------------------
of the Corporation may execute, affix the corporate seal and/or deliver, in the
name and on behalf of the Corporation, deeds, mortgages, notes, bonds,
contracts, agreements, powers of attorney, guarantees, settlements, releases,
evidences of indebtedness, conveyances, or any other document or instrument
which is authorized by the Board of Directors or is required to be executed in
the ordinary course of business, except in cases where the execution, affixation
of the corporate seal and/or delivery thereof shall be expressly and exclusively
delegated by the Board of Directors to some other officer or agent of the
Corporation.
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, the
President or any Executive Vice President, Senior Vice President or Vice
President and (ii) by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i)
--------- ----------
a transfer agent or (ii) a registrar, any other signature on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a
--------- -----------------
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
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Section 4. Transfers. Transfers of shares of capital stock of the
--------- ---------
Corporation shall be made only on the stock record of the Corporation by the
holder of record thereof or by his attorney thereunto authorized by the power of
attorney duly executed and filed with the Secretary of the Corporation or the
transfer agent thereof, and only on surrender of the certificate or certificates
representing such shares, properly endorsed or accompanied by a duly executed
stock transfer power. The Board of Directors may make such additional rules and
regulations as it may deem expedient concerning the issue and transfer of
certificates representing shares of the capital stock of the Corporation.
Section 5. Record Date.
--------- -----------
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than 60 days nor less than 10 days before the date
of such meeting, nor more than 60 days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
(b) Notwithstanding Section 5(a) of Article V of these Bylaws, the
record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting shall be as fixed by the Board of
Directors or as otherwise established under this Section 5(b). Any person
seeking to have the stockholders authorize or take corporate action by written
consent without a meeting shall, by written notice addressed to the Secretary
and delivered to the Corporation, request that a record date be fixed for such
purpose. The Board of Directors may fix a record date for such purpose which
shall be no more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board and shall not precede the date such
resolution is adopted. If the Board of Directors fails within 10 days after the
Corporation receives such notice to fix a record date for such purpose, the
record date shall be the day on which the first written consent is delivered to
the Corporation in the manner described in Section 5(c) below unless prior
action by the Board of Directors is required under the General Corporation Law
of the State of Delaware, in which event the record date shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
(c) Every written consent purporting to take or authorizing the
taking of corporate action and/or related revocations (each such written consent
and related revocation is referred to in this Section 5(c) of Article V of the
Bylaws as a "Consent") shall bear the date of signature of each stockholder who
signs the Consent, and no Consent shall be effective to take the corporate
action referred to therein unless, within 60 days of the earliest dated Consent
delivered in the manner required by this Section 5(c), Consents signed by a
sufficient number of stockholders to take such action are so delivered to the
Corporation.
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A Consent shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery to the
Corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
In the event of the delivery to the Corporation of a Consent, the
Secretary of the Corporation shall provide for the safe-keeping of such Consent
and shall promptly conduct such ministerial review of the sufficiency of the
Consents and of the validity of the action to be taken by stockholder consent as
he deems necessary or appropriate, including, without limitation, whether the
holders of a number of shares having the requisite voting power to authorize or
take the action specified in the Consent have given consent; provided, however,
that if the corporate action to which the Consent relates is the removal or
replacement of one or more members of the Board of Directors, the Secretary of
the Corporation shall promptly designate two persons, who shall not be members
of the Board of Directors, to serve as inspectors with respect to such Consent
and such inspectors shall discharge the functions of the Secretary of the
Corporation under this Section 5(c). If after such investigation the Secretary
or the inspectors (as the case may be) shall determine that the Consent is valid
and that the action therein specified has been validly authorized, that fact
shall forthwith be certified on the records of the Corporation kept for the
purpose of recording the proceedings of meetings of stockholders, and the
Consent shall be filed in such records, at which time the Consent shall become
effective as stockholder action. In conducting the investigation required by
this Section 5(c), the Secretary or the inspectors (as the case may be) may, at
the expense of the Corporation, retain special legal counsel and any other
necessary or appropriate professional advisors, and such other personnel as they
may deem necessary or appropriate to assist them, and shall be fully protected
in relying in good faith upon the opinion of such counsel or advisors.
Section 6. Beneficial Owners. The Corporation shall be entitled to
--------- -----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by law, the
--------- -------
Certificate of Incorporation or these Bylaws, to be given to any director or
stockholder, such notice may be given by mail, addressed to such director or
stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Written notice
may also be given personally or by telegram, telex, cable or facsimile
transmission followed, if required by law, by deposit in the United States mail,
with postage prepaid.
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Section 2. Waivers of Notice. Whenever any notice is required by
--------- -----------------
law, the Certificate of Incorporation or these Bylaws, to be given to any
director or stockholder, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Disbursements. All checks or demands for money and notes
--------- -------------
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
fixed by resolution of the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
--------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman of the Board of Directors or
the President or any other officer or officers authorized by the Board of
Directors, the Chairman of the Board of Directors or the President, and any such
officer may, in the name of and on behalf of the Corporation, vote, represent
and exercise on behalf of the Corporation all rights incident to any and all
shares of any other corporation or corporations standing in the name of the
Corporation and take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any corporation
in which the Corporation may own securities and at any such meeting shall
possess and may exercise any and all rights and power incident to the ownership
of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1. General. The Corporation shall indemnify to the full
--------- -------
extent authorized or permitted by law (as now or hereafter in effect) any person
made, or threatened to be made, a defendant or witness to any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
he, his testator or intestate, is or was a director or officer of the
Corporation or by reason of the fact that such director or officer, at the
request of the Corporation, is or was serving any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, in
any capacity. Nothing contained herein shall affect any rights
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to indemnification to which employees other than directors and officers may be
entitled by law. No amendment or repeal of this Section 1 shall apply to or have
any effect on any right to indemnification provided hereunder with respect to
any acts or omissions occurring prior to such amendment or repeal.
Section 2. Further Assurance. In furtherance and not in limitation
--------- -----------------
of the powers conferred by statute:
(a) the Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of law; and
(b) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar arrangements), as well as enter into
contracts providing indemnification to the full extent authorized or permitted
by law and including as part thereof provisions with respect to any or all of
the foregoing to ensure the payment of such amounts as may become necessary to
effect indemnification as provided therein, or elsewhere.
ARTICLE IX
AMENDMENTS
----------
Section 1. General. These Bylaws may be altered, amended or
--------- -------
repealed, in whole or in part, or new Bylaws may be adopted by either the
holders of 66-2/3% of the outstanding capital stock entitled to vote thereon or
by the Board of Directors.
-14-
<PAGE>
ARTICLE X
EMERGENCY PROVISIONS
--------------------
Section 1. General. The provisions of this Article X shall be
--------- -------
operative only during a national emergency declared by the President of the
United States or the person performing the President's functions, or in the
event of a nuclear, atomic or other attack on the United States or a disaster
making it impossible or impracticable for the Corporation to conduct its
business without recourse to the provisions of this Article X. Said provisions
in such event shall override all other Bylaws of the Corporation in conflict
with any provisions of this Article X, and shall remain operative so long as it
remains impossible or impracticable to continue the business of the Corporation
otherwise, but thereafter shall be inoperative; provided that all actions taken
in good faith pursuant to such provisions shall thereafter remain in full force
and effect unless and until revoked by action taken pursuant to the provisions
of the Bylaws other than those contained in this Article X.
Section 2. Unavailable Directors. All directors of the Corporation
--------- ---------------------
who are not available to perform their duties as directors by reason of physical
or mental incapacity or for any other reason or who are unwilling to perform
their duties or whose whereabouts are unknown shall automatically cease to be
directors, with like effect as if such persons had resigned as directors, so
long as such unavailability continues.
Section 3. Authorized Number of Directors. The authorized number of
--------- ------------------------------
directors shall be the number of directors remaining after eliminating those who
have ceased to be directors pursuant to Section 2 of this Article X, or the
minimum number required by law, whichever number is greater.
Section 4. Quorum. The number of directors necessary to constitute
--------- ------
a quorum shall be one-third of the authorized number of directors as specified
in Section 3 of this Article X, or such other minimum number as, pursuant to the
law or lawful decree then in force, it is possible for the Bylaws of a
Corporation to specify.
Section 5. Creation of Emergency Committee. In the event the number
--------- -------------------------------
of directors remaining after eliminating those who have ceased to be directors
pursuant to Section 2 of this Article X is less than the minimum number of
authorized directors required by law, then until the appointment of additional
directors to make up such required minimum, all the powers and authorities which
the Board of Directors could by law delegate including all powers and
authorities which the Board of Directors could delegate to a committee, shall be
automatically vested in an emergency committee, and the emergency committee
shall thereafter manage the affairs of the Corporation pursuant to such powers
and authorities and shall have all other powers and authorities as may by law or
lawful decree be conferred on any person or body of persons during a period of
emergency.
Section 6. Constitution of Emergency Committee. The emergency
--------- -----------------------------------
committee shall consist of all the directors remaining after eliminating those
who have ceased to be directors
-15-
<PAGE>
pursuant to Section 2 of this Article X, provided that such remaining directors
are not less than three in number. In the event such remaining directors are
less than three in number, the emergency committee shall consist of three
persons, who shall be the remaining director or directors and either one or two
officers or employees of the Corporation, as the remaining director or directors
may in writing designate. If there is no remaining director, the emergency
committee shall consist of the three most senior officers of the Corporation who
are available to serve, and if and to the extent that officers are not
available, the most senior employees of the Corporation. Seniority shall be
determined in accordance with any designation of seniority in the minutes of the
proceedings of the Board, and in the absence of such designation, shall be
determined by rate of remuneration. In the event that there are no remaining
directors and no officers or employees of the Corporation available, the
emergency committee shall consist of three persons designated in writing by the
stockholder owning the largest number of shares of record as of the date of the
last record date.
Section 7. Powers of Emergency Committee. The emergency committee,
--------- -----------------------------
once appointed, shall govern its own procedures and shall have power to increase
the number of members thereof beyond the original number, and in the event of a
vacancy or vacancies therein, arising at any time, the remaining member or
members of the emergency committee shall have the power to fill such vacancy or
vacancies. In the event at any time after its appointment all members of the
emergency committee shall die or resign or become unavailable to act for any
reason whatsoever, a new emergency committee shall be appointed in accordance
with the foregoing provisions of this Article X.
Section 8. Directors Becoming Available. Any person who has ceased
--------- ----------------------------
to be a director pursuant to the provisions of Section 2 of this Article X and
who thereafter becomes available to serve as a director shall automatically
become a member of the emergency committee.
Section 9. Election of Board of Directors. The emergency committee
--------- ------------------------------
shall, as soon after its appointment as is practicable, take all requisite
action to secure the election of a board of directors, and upon such election
all the powers and authorities of the emergency committee shall cease.
Section 10. Termination of Emergency Committee. In the event, after
---------- ----------------------------------
the appointment of an emergency committee, a sufficient number of persons who
ceased to be directors pursuant to Section 2 of this Article X become available
to serve as directors, so that if they had not ceased to be directors as
aforesaid, there would be enough directors to constitute the minimum number of
directors required by law, then all such persons shall automatically be deemed
to be reappointed as directors and the powers and authorities of the emergency
committee shall be at an end.
-16-
<PAGE>
EXHIBIT 10(b)
Note: This is a composite text of the Limited Recourse Financing Facility
Agreement as amended by an amendment to be dated as of April 30, 1997 and as
such agreement will be in effect on that date. This text has been prepared for
informational purposes only and does not purport to create any legal rights or
liabilities of the parties named herein who are and will be bound only by the
Agreement and amendments thereto.
COMPOSITE DRAFT
LIMITED RECOURSE FINANCING FACILITY AGREEMENT
DATED AS OF APRIL 27, 1988
between
DISNEY ENTERPRISES, INC.
and
TDL FUNDING COMPANY
As amended through
April 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1: DEFINITIONS.......................................................................................... 1
SECTION 2: THE FACILITY......................................................................................... 6
2.01 Agreement to Make Advances........................................................................... 6
2.02 Drawing Procedures................................................................................... 6
2.03 Recovery of Advances................................................................................. 6
2.04 Interest............................................................................................. 8
2.05 Cancellation of Commitment; Prepayment............................................................... 8
2.06 Payments............................................................................................. 9
2.07 Security Agreement................................................................................... 10
2.08 Facility Account..................................................................................... 10
SECTION 3: DISNEY'S LIABILITIES................................................................................. 10
3.01 Limited Recourse Liability........................................................................... 10
3.02 Shortfall Indemnities................................................................................ 11
3.03 Basic Agreement Indemnities.......................................................................... 13
3.04 Facility Agreement Indemnities....................................................................... 14
3.05 Other Parties' Liabilities........................................................................... 14
3.06 Expenses Included.................................................................................... 15
SECTION 4: YIELD PROTECTION..................................................................................... 15
4.01 Taxes................................................................................................ 15
4.02 Compliance Costs; Illegality........................................................................ 16
4.03 Mitigation........................................................................................... 17
4.04 Yield Protection Prepayment.......................................................................... 17
4.05 Yen Transaction...................................................................................... 17
SECTION 5: FEES AND EXPENSES.................................................................................... 18
5.01 Management Fee....................................................................................... 18
5.02 Expenses............................................................................................. 18
SECTION 6: REPRESENTATIONS AND WARRANTIES....................................................................... 18
6.01 Organization, Power and Authority.................................................................... 19
6.02 Compliance with Law and Other Agreements............................................................. 19
6.03 Authorization........................................................................................ 19
6.04 Registrations and Approvals.......................................................................... 19
6.05 Agreement Binding.................................................................................... 19
6.06 Other Obligations.................................................................................... 20
6.07 Litigation........................................................................................... 20
6.08 Information Memorandum; Financial Statements......................................................... 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
6.09 Basic Agreement...................................................................................... 21
6.10 Designated Receivables............................................................................... 21
6.11 Records.............................................................................................. 22
SECTION 7: COVENANTS............................................................................................ 22
7.01 Performance of Obligations........................................................................... 22
7.02 Financial Statements; Other Information.............................................................. 22
7.03 Performance and Notice............................................................................... 23
7.04 Mortgages; Liens..................................................................................... 23
7.05 Maintenance and Continuity of Business............................................................... 24
7.06 Maintenance of Governmental Approvals................................................................ 25
7.07 Taxes................................................................................................ 25
7.08 ERISA................................................................................................ 25
7.09 Maintenance of Records............................................................................... 26
7.10 Protection of the Company's Interest................................................................. 26
7.11 Basic Agreement...................................................................................... 27
SECTION 8: CONDITIONS PRECEDENT
8.01 Conditions Precedent................................................................................. 28
SECTION 9: TERMINATION EVENTS................................................................................... 31
9.01 Termination Events................................................................................... 31
SECTION 10: COLLECTION AGENT.................................................................................... 33
10.01 Appointment of Collection Agent..................................................................... 33
10.02 Collections......................................................................................... 33
10.03 Change of Collection Agent.......................................................................... 34
10.04 Application of Collections.......................................................................... 34
10.05 Compensation of Collection Agent.................................................................... 34
10.06 Termination of Collection Agency.................................................................... 35
SECTION 11: MISCELLANEOUS....................................................................................... 35
11.01 Term................................................................................................ 35
11.02 Entire Agreement.................................................................................... 35
11.03 Waiver; Cumulative Rights........................................................................... 35
11.04 Assignment.......................................................................................... 36
11.05 Governing Law....................................................................................... 37
11.06 Submission to Jurisdiction.......................................................................... 37
11.07 Notices............................................................................................. 38
11.08 Confidentiality..................................................................................... 39
11.09 Severability........................................................................................ 39
11.10 Counterparts........................................................................................ 40
SCHEDULE 1 - Designated Receivables
EXHIBIT A - Disney Acknowledgment
</TABLE>
<PAGE>
EXHIBIT B - Lock Box Notice
EXHIBIT C - Pledge Agreement
-2-
<PAGE>
THIS AGREEMENT is made as of the 27th day of April, 1988 by and among:
DISNEY ENTERPRISES, INC., a corporation organized and existing under
the laws of the State of Delaware in the United States of America with its
principal office located at 500 South Buena Vista Street, Burbank, California
91521 (hereinafter referred to as "Disney");
TDL FUNDING COMPANY, a company organized and existing under the laws
of the Cayman Islands with its registered office located c/o Caledonian Bank and
Trust Limited, P.O. Box 1043, Caledonian House, Grand Cayman, Cayman Islands
(hereinafter referred to as the "Company"); and
The Company as manager of the limited recourse financing established
hereunder (hereinafter referred to in such capacity as the "Manager").
W I T N E S S E T H:
WHEREAS, pursuant to an agreement with Oriental Land Co., Ltd. Disney
is entitled to receive certain royalty payments relating to the operations of
the Tokyo Disneyland theme park; and
WHEREAS, Disney desires to receive certain advances from the Company
and to grant to the Company a security interest in collections of a portion of
such royalties to secure the Company's advances, the principal amount of which
advances, together with accrued interest, is to be recovered by the Company on a
limited recourse basis from the collection of such royalties, subject to the
terms and conditions of this Agreement; and
WHEREAS, the Company is prepared, subject to the terms and conditions
of this Agreement, to make such advances to Disney;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
SECTION 1: DEFINITIONS
The following terms shall have the meanings set forth below:
1.1 "Advance" shall mean, with respect to each Quarterly Receivables
Period and the Designated Receivables for such Quarterly Receivables Period, the
amount set forth on Schedule 1 annexed hereto under the heading "Advance" for
such Quarterly Receivables Period, and "Advances" shall mean, where the context
so requires, the aggregate amount of such Advances for all Quarterly Receivables
Periods during the term of this Agreement. The aggregate Advances received by
Disney on the Drawing Date equalled (Yen)90,592,014,000.
1.2 "Affiliate" shall mean, with respect to Disney or the Company,
any Person
<PAGE>
controlling, controlled by or under common control with Disney or the Company,
as the case may be. As used herein, the term "control" shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
1.3 "Annual Receivables Period" shall mean the Quarterly Receivables
Period during which the Drawing Date occurs and the three consecutive Quarterly
Receivables Periods thereafter, and each period of four consecutive Quarterly
Receivables Periods occurring thereafter during the term of this Agreement.
1.4 "Basic Agreement" shall mean the agreement made as of April 30,
1979 by and between Oriental Land (as hereinafter defined) and Walt Disney
Productions (Walt Disney Productions having been subsequently renamed Disney
Enterprises, Inc.) as amended by a letter agreement dated April 7, 1983
providing for the construction and operation of Tokyo Disneyland Park, Amendment
No. 1 dated April 7, 1983, Amendment No. 2 dated November 2, 1994, Amendment No.
3 dated April 30, 1996 and as such agreements may be amended or otherwise
modified from time to time.
1.5 "Business Day" shall mean a day on which banks are not authorized
or required to close in (i) Tokyo, Japan, (ii) Los Angeles, California and (iii)
New York, New York.
1.6 "Collateral" shall mean, with respect to any Designated
Receivables, all collections and other proceeds of such Designated Receivables
or, where the context so requires, the aggregate collections and other proceeds
of the Designated Receivables for all Quarterly Receivables Periods during the
term of this Agreement.
1.7 "Collection Agent" shall mean the Person from time to time
appointed pursuant to Section 10.01 to collect the Tokyo Disneyland Receivables
and the Designated Receivables and to make distributions therefrom in accordance
with the terms and conditions of this Agreement.
1.8 "Commitment" shall mean the obligation of the Company to make
Advances subject to the terms and conditions of this Agreement.
1.9 "Conditions Precedent Date" shall have the meaning set forth in
Section 8.01.
1.10 "Designated Receivables" shall mean, with respect to each
Quarterly Receivables Period, that portion of the Tokyo Disneyland Receivables
identified in Schedule 1 annexed hereto as the "Designated Receivables" for such
Quarterly Receivables Period or, where the context so requires, the aggregate
amount of such Designated Receivables for all Quarterly Receivables Periods
during the term of this Agreement.
1.11 "Disney Acknowledgment" shall mean the acknowledgment by Disney
of
-2-
<PAGE>
the Company's granting of a security interest in this Agreement to certain
institutions, which acknowledgment shall be in the form of Exhibit A annexed
hereto.
1.12 "Disney Agreements" shall have the meaning set forth in Section
6.01.
1.13 "Drawing Date" shall mean April 30, 1988 or such other date as
Disney and the Company shall agree in writing as the date on which Disney shall
draw the Advances.
1.14 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
1.15 "Indebtedness" shall mean, in regard to any Person, all
indebtedness (including guarantees and other contingent obligations) with
respect to borrowed money or for the deferred purchase price of property or
services, all indebtedness of others secured by or benefiting from any charge
against, or any encumbrance on or with respect to, properties, contract rights
or revenues of such Person, whether or not such Person has become liable for
such indebtedness.
1.16 "Information Memorandum" shall mean the undated ten page
information memorandum entitled "Information memorandum: Limited Recourse
Financing for Disney Enterprises, Inc. relating to royalties for Tokyo
Disneyland" regarding Disney, Tokyo Disneyland Park and the transactions
contemplated by this Agreement, but shall not include the separate summary of
the Basic Agreement referred to therein.
1.17 "Lock Box Account" shall mean account no. 009-007873-026 standing
in the name of Disney Enterprises, Inc. at The Hongkong and Shanghai Banking
Corporation Limited, Kyobashi Itchome Building, 13-1, Kyobashi 1-chome, Chuo-ku,
Tokyo 104, Japan into which Disney has instructed Oriental Land to deposit the
Tokyo Disneyland Receivables in accordance with the terms and conditions of this
Agreement and the Basic Agreement.
1.18 "Lock Box Notice" shall mean a notice from Disney to the bank at
which the Lock Box Account is maintained, which notice shall be in the form of
Exhibit B annexed hereto.
1.19 "Long Term Prime Lending Rate" shall mean the interest rate per
---
annum from time to time announced by The Long-Term Credit Bank of Japan, Limited
- -----
as its long term prime lending rate in Japan for Yen loans with a tenor
exceeding one year extended to prime corporate customers.
1.20 "Mortgage" shall have the meaning set forth in Section 7.04(a).
1.21 "Oriental Land" shall mean Oriental Land Co., Ltd., a kabushiki
---------
kaisha organized and existing under the laws of Japan with its principal office
- ------
located at 1-1, Maihama,
-3-
<PAGE>
Urayasu-shi, Chiba Prefecture, 272-01 Japan, its
successors and its permitted assigns under the Basic Agreement.
1.22 "Other Taxes" shall have the meaning set forth in Section
4.01(b).
1.23 "Person" shall mean an individual, a corporation, a partnership,
an association, a trust or any other entity or organization (including a
government or political subdivision or an agency or instrumentality thereof) and
the equivalent of any such juridical entity or organization under the laws of
any relevant jurisdiction.
1.24 "Pledge Agreement" shall mean a pledge agreement under the laws
of Japan pledging the Lock Box Account to the Company as security for Disney's
obligations hereunder, which pledge agreement shall be in the form of Exhibit C
annexed hereto.
1.25 "Quarterly Receivables Period" shall mean each of the calendar
quarters commencing on January lst, April 1st, July 1st and October lst in each
year during the term of this Agreement, commencing with the calendar quarter
during which the Drawing Date occurs.
1.26 "Records" shall mean the Basic Agreement and other documents,
books, records and other information (including without limitation computer
programs, tapes, discs, punch cards, data processing software and related
property and rights) maintained by Disney with respect to the Tokyo Disneyland
Receivables.
1.27 "Restricted Subsidiary" shall have the meaning set forth in
Section 7.04(a).
1.28 "Settlement Date" shall mean, with respect to each Quarterly
Receivables Period and the Designated Receivables for such Quarterly Receivables
Period, the date thirty (30) days following the last day of such Quarterly
Receivables Period.
1.29 "Subsidiary" means any corporation of which more than fifty
percent (50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether capital stock of any other class shall or might have voting power upon
the occurrence of any contingency) is at the time directly or indirectly owned
by Disney, by Disney and one or more of such corporations, or by one or more of
such corporations.
1.30 "Tangible Property" shall have the meaning set forth in Section
7.04(a).
1.31 "Taxes" shall have the meaning set forth in Section 4.01(a).
1.32 "Termination Event" shall have the meaning set forth in Section
9.01.
1.33 "Theme Park Asset" shall have the meaning set forth in Section
7.04(a).
-4-
<PAGE>
1.34 "Tokyo Disneyland Park" shall mean the theme park known as Tokyo
Disneyland Park located at Maihama, Urayasu, Higashi-Katsushika-gun, Chiba,
Japan which is owned and operated by Oriental Land pursuant to the Basic
Agreement.
1.35 "Tokyo Disneyland Receivables" shall mean all royalties
receivable by Disney from Oriental Land during the period commencing on the
Drawing Date and to and including April 30, 2008 pursuant to Paragraphs 11.1.1
and 11.1.2 of the Basic Agreement after deduction by Oriental Land of Japanese
withholding tax from such royalties. Tokyo Disneyland Receivables shall not
include any deferred royalties receivable by Disney from Oriental Land pursuant
to Paragraph 11.1.1 of the Basic Agreement with respect to any period prior to
the date of this Agreement and shall not include any payments due under the
Basic Agreement with respect to the reimbursement of costs incurred by Disney in
rendering services to Oriental Land pursuant to the Basic Agreement.
1.36 "Yen" and the symbol "(Yen)" shall mean Yen in the lawful
currency of Japan.
1.37 "Yen Equivalent" shall mean the amount of Yen obtained by
converting the amount of other currency involved in such computation into Yen at
the spot rate for the purchase of Yen with such other currency as quoted by the
principal Tokyo branch of Citibank, N.A. at approximately 11:00 a.m. (Tokyo
time) on the day two (2) Business Days prior to any determination thereof.
1.38 "Yen Lenders" shall mean the financial institutions that are
parties to the Yen Loan Agreement.
1.39 "Yen Loan Agreement" shall mean any agreement providing for
borrowing secured (in whole or in part) by the obligations of Disney under this
Agreement. Without limiting the generality of the foregoing, such term shall
include the DWARFS Secured Yen Loan Agreement (the "DWARFS Loan Agreement"),
dated as of April 24, 1997, among the Company, The Hongkong and Shanghai Banking
Corporation Limited, as Collateral Agent and as Administrative Agent, and the
financial institutions listed on Schedule I thereto as Lenders .
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles in the
United States, consistently applied. Terms not specifically defined herein
which are defined in the Uniform Commercial Code as in effect on the date hereof
in the State of New York shall, unless the context otherwise requires, have the
meanings set forth therein.
SECTION 2: THE FACILITY
2.1 Agreement to Make Advances
--------------------------
In reliance upon Disney's representations and warranties and subject
to the terms
-5-
<PAGE>
and conditions of this Agreement, the Company hereby agrees to make the Advances
to Disney and Disney hereby grants to the Company a security interest in the
Collateral to secure the recovery of the principal amount of such Advances and
accrued interest thereon. The Company shall recover the aggregate principal
amount of such Advances and accrued interest thereon from the collection of the
Designated Receivables and with recourse to Disney with respect to the recovery
of such amounts, but only to the extent hereinafter expressly provided.
2.2 Drawing Procedures
------------------
(a) Disney may utilize the Commitment in whole but not in part in a
single drawing on the Drawing Date. The Company shall not have any obligation
hereunder to made the Advances after the Drawing Date.
(b) Subject to the satisfaction by Disney on the Drawing Date of all
applicable conditions precedent (including without limitation the filing of all
required financial statements (Form UCC-1) in accordance with the provisions of
this Agreement), the Company shall, not later than 11:00 a.m. (Tokyo time) on
the Drawing Date, make the Advances to Disney.
2.3 Recovery of Advances
--------------------
(a) Each Advance made by the Company to Disney hereunder with respect
to a Quarterly Receivables Period and accrued interest thereon shall be
recovered from the collection of the Designated Receivables for such Quarterly
Receivables Period. Following receipt by Disney (or, in the event that a
Collection Agent shall have been appointed pursuant to Section 10.01, then the
Collection Agent) of any Tokyo Disneyland Receivables to the Lock Box Account,
Disney (or the Collection Agent, as the case may be) shall, on the next
succeeding Settlement Date (or, if the, date of such receipt is a Settlement
Date, then on such Settlement Date), apply the amounts so received as follows:
(i) first, to any other account which Disney may designate, the
-----
amount of any Tokyo Disneyland Receivables or any other amounts received in
the Lock Box Account other than the Designated Receivables relating to such
Settlement Date;
(ii) second, to the Company, an amount equal to interest accrued
------
on the Advance for the Quarterly Receivables Period to which such
Settlement Date relates, from the Drawing Date to such Settlement Date in
accordance with Section 2.04;
(iii) third, to the Company, an amount equal to the Advance for
-----
the Quarterly Receivables Period to which such Settlement Date relates; and
(iv) fourth, to any other account which Disney may designate, any
------
balance then remaining in the Lock Box Account (other than any overpayment
or prepayment of Tokyo Disneyland Receivables by Oriental Land which is
subject to the
-6-
<PAGE>
provisions of Section 2.03(b)).
(b) Should Oriental Land make payment of any Tokyo Disneyland
Receivables on a date later than that provided in the Basic Agreement for such
payment to be made, Disney (or the Collection Agent, as the case may be) shall,
on the date of receipt of such payment in the Lock Box Account, apply the
amounts so received in accordance with Section 2.03(a) as if such payment had
been made on the Settlement Date by which such payment was due. Any overpayment
of Tokyo Disneyland Receivables by Oriental Land to the Lock Box Account shall
be refunded by Disney (or the Collection Agent, as the case may be) to Oriental
Land without interest. Any prepayment of Tokyo Disneyland Receivables by
Oriental Land to the Lock Box Account shall be held in the Lock Box Account
until the Settlement Date by which such payment would otherwise be due from
Oriental Land and interest shall accrue thereon to such Settlement Date in
accordance with Section 2.03(d).
(c) In the event that Oriental Land makes a late payment to the Lock
Box Account relating to a Quarterly Receivables Period or an Annual Receivables
Period with respect to which Disney has made an indemnity payment to the Company
pursuant to Section 3.02, the amount of such late payment by Oriental Land shall
be applied by Disney (or the Collection Agent, as the case may be), on the date
of report of such payment to the Lock Box Account, first (i) to the Company to
the extent, if any, that the sum of (A) the Designated Receivables with respect
to such Quarterly Receivables Period or Annual Receivables Period actually
received from Oriental Land prior to the receipt of such late payment and (B)
any indemnity payment made by Disney to the Company pursuant to Section 3.02
with respect to such Quarterly Receivables Period or Annual Receivables Period
(other than a payment of interest pursuant to Section 3.02(c)) is less than the
Designated Receivables as set forth on Schedule 1 with respect to such Quarterly
Receivables Period or Annual Receivables Period and the deferred shortfall
amounts, if any, payable pursuant to Section 3.02(d) (without reference to the
limitations on such payments set forth therein) with respect to such Quarterly
Receivables Period or Annual Receivables Period, and, second (ii) to Disney and
the Company, in accordance with Section 2.03(a).
(d) Disney (or the Collection Agent, as the case may be) shall, to the
extent permitted by applicable law and prevailing banking practice, cause the
bank at which the Lock Box Account is maintained to pay overnight interest on
amounts on deposit in the Lock Box Account, and the interest so paid shall be
added to the amounts on deposit in the Lock Box Account. Any such interest on
deposit in the Lock Box Account on any Settlement Date shall be paid over to
Disney on such Settlement Date.
2.4 Interest
--------
Each Advance shall bear interest at the rate of two and ninety and
one-half hundredths percent (2.905%) per annum (based on a year of 365 days and
---------
four quarters of equal duration, in accordance with the calculation of the
Advances set forth on Schedule 1) from and
-7-
<PAGE>
including April 30, 1997 to but excluding the Settlement Date for the Quarterly
Receivables Period to which such Advance relates. The interest amount so due on
any Settlement Date shall be equal to the difference between the amounts of the
Designated Receivables and the Advance set forth on Schedule 1 for the Quarterly
Receivables Period to which such Settlement Date relates. Such interest shall be
recoverable by the Company in accordance with the provisions of Section 2.03.
2.5 Cancellation of Commitment; Prepayment
--------------------------------------
(a) Disney may, upon five (5) Business Days' notice to the Company,
cancel the Commitment in whole but not in part. Upon such cancellation Disney
shall pay to the Company the sum of all reasonable expenses, including
reasonable fees and expenses of counsel, printing, communication, travel and all
other out-of-pocket expenses incurred by the Company in connection with the
preparation, negotiation and execution of this Agreement and the documentation
required hereunder, less any amount previously paid to the Company in
reimbursement of expenses hereunder pursuant to Section 5.02(a).
(b) Disney shall have the right to prepay the Advances in whole or in
part (in a minimum amount of (Yen)1,000,000,000) on any Settlement Date upon
fifteen (15) days prior written notice to the Company by the payment on such
Settlement Date of (i) the Advances to be prepaid on such Settlement Date and
(ii) accrued interest thereon calculated at the rate set forth in Section 2.04
from and including April 30, 1997 to but excluding the date of Disney's payment
to the Company hereunder. Upon such prepayment, the Company shall, subject to
applicable legal requirements, prepay its corresponding obligations under the
Yen Loan Agreement. Disney's right to prepay in accordance with the preceding
sentence shall include the right to prepay the Advances in whole or in part (in
a minimum amount of (Yen)1,000,000,000) on fifteen (15) days prior written
notice by giving to the Company an irrevocable instruction to prefinance all or
part of the obligations of Disney through the Company to the Yen Lenders; a
prefinancing shall, for the purposes hereof, be a prepayment within the meaning
of this section if (i) it is arranged pursuant to a structure and documents to
be approved by Disney and the Company; (ii) the payment obligations of the
Company pursuant to the Yen Loan Agreement as to which the direction to
prefinance has been given are refinanced; (iii) such payment obligations
continue to be secured by an assignment and security interest in the Designated
Receivables; and (iv) the benefit of any reduction of interest rate or financing
charges realized by the Company in such refinancing is passed on to Disney.
2.6 Payments
--------
(a) All sums payable to Disney by the Company hereunder or under any
document contemplated hereby shall be payable in Tokyo, Japan in Yen and in
immediately available funds (or such other Yen funds as may then be customary
for the settlement of international banking transactions denominated in Yen) not
later than 11:00 a.m. (Tokyo time) on the day in question to the account of
Disney (account no. 14297-025) at Bank of America,
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<PAGE>
Tokyo.
(b) All sums payable to the Company or the Manager hereunder or under
any document contemplated hereby, including without limitation the recovery of
Advances and accrued interest, indemnity payments by Disney pursuant to Section
3, the management fee and costs and expenses, shall be payable in Tokyo, Japan
in Yen and in immediately available funds (or such other Yen funds as may then
be customary for the settlement of international banking transactions
denominated in Yen) not later than 11:00 a.m. (Tokyo time) on the day in
question, to its account at The Hongkong and Shanghai Banking Corporation
Limited, Kyobashi Itchome Building, 13-1, Kyobashi 1-chome, Chuo-ku, Tokyo 104,
Japan.
(c) If Disney shall fail to make any payment when due of any sum
hereunder, other than a payment with respect to which recourse is limited to the
Collateral, Disney shall pay default interest on the unpaid amount, to the
extent permitted by applicable law, from and including such due date until the
payment of said sum in full (after as well as before judgment) at the rate that
is two percent (2%) per annum above the rate set forth in Section 2.04. Such
--- -----
interest shall be payable on the Company's demand therefor.
(d) Except as otherwise expressly provided in this Agreement, any
payments made to the Company and the Manager hereunder or under any document
contemplated hereby shall be applied first against costs and expenses due
hereunder, then against fees due to the Manager, then against interest on past
due amounts, then against unrecovered interest which is due and payable pursuant
to Section 2.04, then against unrecovered Advances and thereafter to Disney's
indemnity obligations pursuant to Section 3.
2.7 Security Agreement
------------------
This Agreement shall constitute a security agreement between Disney
and the Company, and Disney hereby grants to the Company a security interest in
the Collateral to secure the recovery by the Company of the Advances and accrued
interest thereon. It is the intention of the parties hereby to create a
security interest in the Collateral consisting of the cash collections and other
cash proceeds of the Designated Receivables and in the proceeds of such
Collateral, and such security interest shall not constitute a security interest
in the Basic Agreement or any of the Tokyo Disneyland Receivables (including the
Designated Receivables).
2.8 Facility Account
----------------
The Company shall open and maintain on its books a facility account in
Disney's name and showing the making of Advances, the accrual of interest, the
recovery of Advances and accrued interest, and other amounts due and sums paid
hereunder. Such facility account shall be prima facie evidence as to the
amounts at any time due hereunder, absent manifest error.
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SECTION 3: DISNEY'S LIABILITIES
3.1 Limited Recourse Liability
--------------------------
The liability of Disney under this Agreement with respect to the
recovery of Advances and accrued interest thereon shall, except as otherwise
expressly provided in this Section 3, be limited to the Designated Receivables
actually received from Oriental Land under the Basic Agreement (whether such
payments shall be received from Oriental Land by collection in the ordinary
course of business, by legal proceedings to enforce Oriental Land's payment
obligations under the Basic Agreement or otherwise). In the event that Oriental
Land shall not, under the terms of the Basic Agreement or by reason of the
termination of the Basic Agreement, be obligated to make payment of any
Designated Receivables, Disney shall have no liability to the Company with
respect thereto except as otherwise expressly provided in this Section 3. The
obligations of Disney hereunder, other than with respect to the Advances and
accrued interest thereon, are general obligations of Disney ranking pari passu
---- -----
in priority of payment and in all other respects with all other unsecured and
unsubordinated Indebtedness of Disney.
3.2 Shortfall Indemnities
---------------------
(a) QUARTERLY SHORTFALL PAYMENTS. If, on the Settlement Date for any
Quarterly Receivables Period, the amount of the Designated Receivables which has
actually been received from Oriental Land is less than the Designated
Receivables set forth on Schedule 1 annexed hereto with respect to such
Quarterly Receivables Period, then Disney shall make a payment to the Company on
such Settlement Date in an amount equal to the lesser of (i) the amount of such
shortfall and (ii) twenty percent (20%) of the Designated Receivables set forth
on Schedule 1 annexed hereto with respect to such Quarterly Receivables Period,
provided, however, that the aggregate amount payable pursuant to this Section
- -------- -------
3.02 (other than any amount payable pursuant to Section 3.02(b)(ii)(C)) shall
not exceed twenty percent (20%) of the aggregate Advances received by Disney on
the Drawing Date.
(b) ANNUAL ADJUSTMENT OF QUARTERLY SHORTFALL PAYMENTS. If, on the
Settlement Date for the fourth Quarterly Receivables Period in any Annual
Receivables Period, the sum of (A) the Designated Receivables with respect to
such Annual Receivables Period which have actually been received from Oriental
Land and (B) the quarterly shortfall indemnity payments made by Disney to the
Company pursuant to Section 3.02(a) during such Annual Receivables Period is
less than the aggregate Designated Receivables set forth on Schedule 1 annexed
hereto with respect to such Annual Receivables Period, then Disney shall make a
payment to the Company equal to the lesser of (i) the amount of such shortfall
and accrued interest thereon pursuant to Section 3.02(c) and (ii) the sum of (C)
the Tokyo Disneyland Receivables in excess of the Designated Receivables
actually received by Disney in each of the Quarterly Receivables Periods during
such Annual Receivables Period and (D) twenty percent (20%) of the Designated
Receivables set forth on Schedule 1 annexed hereto with respect to such Annual
Receivables Period, as such sum is reduced by (E) the quarterly shortfall
indemnity
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<PAGE>
payments previously made by Disney to the Company pursuant to Section 3.02(a)
during such Annual Receivables Period, provided, however, that the aggregate
-------- -------
amount payable by Disney pursuant to this Section 3.02 (other than any amount
payable pursuant to Section 3.02(b)(ii)(C)) shall not exceed twenty percent
(20%) of the aggregate Advances received by Disney on the Drawing Date. Payments
pursuant to this Section 3.02(b) shall be made by Disney to the Company not
later than five (5) Business Days following the Company's written demand
hereunder, which demand shall set forth the Company's calculations as to the
amounts so due, such calculations to be conclusive and binding on the parties
hereto absent manifest error.
(c) INTEREST ON ANNUAL ADJUSTMENT PAYMENTS. For any Annual
Receivables Period with respect to which an annual adjustment payment is due
pursuant to Section 3.02(b), the annual adjustment payment so due shall, for the
purpose of the determination of interest due pursuant thereto and to this
Section 3.02(c), be allocated to each Settlement Date with respect to such
Annual Receivables Period on which the sum of the Designated Receivables
actually received from Oriental Land and the quarterly shortfall indemnity
payment made by Disney to the Company on such Settlement Date pursuant to
Section 3.02(a) was less than the Designated Receivables set forth on Schedule 1
annexed hereto for the Quarterly Receivables Period to which such Settlement
Date relates (the amount of such deficiency for each such Settlement Date being
hereinafter sometimes referred to as the "residual quarterly shortfall"), such
allocation of the amount of the annual adjustment payment to each such
Settlement Date being in the amount of such residual quarterly shortfall,
provided, however, that if the limitations set forth in Section 3.02(b) on the
- -------- -------
amount of such annual adjustment payment result in the amount of such payment
being less than the aggregate amount of the residual quarterly shortfalls with
respect to such Annual Receivables Period, the annual adjustment payment shall
be allocated to the residual quarterly shortfalls for the earliest Settlement
Dates with respect to such Annual Receivables Period until fully allocated.
Interest shall be payable on such residual quarterly shortfalls, for the period
from and including the relevant Settlement Date to but excluding the date on
which payment of the relevant annual adjustment payment hereunder is made by
Disney, at the Long Term Prime Lending Rate prevailing during such period,
subject to the limitations set forth in Section 3.02(b).
(d) DEFERRED SHORTFALL PAYMENTS. In the event that Disney shall have
made payments to the Company pursuant to Sections 3.02(a) and (b) with respect
to any four consecutive Quarterly Receivables Periods to the full extent of the
twenty percent (20%) limitations for such Quarterly Receivables Periods
(including the annual adjustment payments attributable to such Quarterly
Receivables Periods in accordance with Section 3.02(c)) as set forth in Sections
3.02(a)(ii) and 3.02(b)(ii)(D) and, during such period of four consecutive
Quarterly Receivables Periods Tokyo Disneyland Park or any substantial portion
thereof shall have been closed to the public for more than thirty (30)
consecutive days for any reason whatsoever other than normal public holidays and
regularly scheduled maintenance, then the aggregate amount of (i) the residual
quarterly shortfalls for such four consecutive Quarterly Receivables Periods or
(ii) if greater, the residual quarterly shortfalls for the four consecutive
Quarterly Receivables Periods commencing with the Quarterly Receivables Period
immediately
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<PAGE>
following that in which the first day of such thirty (30) day closure period
fell, which residual quarterly shortfalls in either case remain after Disney's
quarterly shortfall payments and annual adjustment payments attributable to such
Quarterly Receivables Periods pursuant to Sections 3.02(a) and (b), as
determined on the Settlement Date at the end of the last Annual Receivables
Period in which such Quarterly Receivables Periods fall (such aggregate amount
being hereinafter sometimes referred to as the "deferred shortfall amount"),
shall be payable by Disney to the Company in equal quarterly installments on
each Settlement Date thereafter, together with accrued interest thereon from the
Settlement Date at the end of the Annual Receivables Period on which the
deferred shortfall amount is determined at the rate which is three-tenths-of-one
percent (3/10%) per annum in excess of the Long Term Prime Lending Rate
--- -----
prevailing on such Settlement Date. In the event that a deferred shortfall
amount is payable pursuant to the provisions of the preceding sentence, Disney
shall also pay to the Company the deferred shortfall amount for the four
consecutive Quarterly Receivables Periods immediately following the four
Quarterly Receivables Period for which the original deferred shortfall amount
was determined (the "Second Period"), which deferred shortfall amount shall be
calculated and payable on a deferred basis and with interest thereon as
specified in the preceding sentence (i.e., to the extent that for each of the
Quarterly Receivables Periods in the Second Period, a residual shortfall amount
for each quarter during such Second Period remains after Disney has made all
payments to the full extent of the 20% limitation for each such quarter). It is
understood that recovery of all deferred shortfall amounts determined under this
Section 3.02(d) shall be made solely on the same terms and subject to the same
limits as to recourse and recovery as Advances hereunder are recoverable in
accordance with this Agreement. The amount of any deferred shortfall amount
payable hereunder shall be subject to the quantitative limitations on payments
by Disney which are set forth in Sections 3.02(a) and (b), as such limitations
shall be modified in accordance with the provisions of this Section 3.02(d).
During any Annual Receivables Period in which a deferred shortfall amount is
payable hereunder (without reference to such quantitative limitations), all
references in Sections 3.02(a) and (b) to "the Designated Receivables set forth
on Schedule 1 annexed hereto" shall be read as references to the relevant
Designated Receivables as so set forth increased by the deferred shortfall
amounts due on the same Settlement Date(s) as such Designated Receivables, and
Disney's payment obligations thereunder (encompassing its payment obligations
under this Section 3.02(d) and its interest payment obligations under Section
3.02(c)) shall be determined accordingly, subject always to the limitation that
all payments by Disney pursuant to Section 3.02 (other than its payment
obligations pursuant to Section 3.02(b)(ii)(C)), including payments under this
Section 3.02(d), shall not exceed in the aggregate twenty percent (20%) of the
aggregate Advances received by Disney on the Drawing Date. The provisions of
this Section 3.02(d) shall be triggered only once, and shall operate only with
reference to up to two consecutive periods of four consecutive Quarterly
Receivables Periods to which the conditions to the operation of this Section (as
set forth in the first sentence hereof) apply.
(e) SHORTFALL CALCULATIONS. For the purposes of all calculations to
be made pursuant to this Section 3.02, any payment by Disney to the Company
hereunder shall be deemed to have been made to the full extent of the Tokyo
Disneyland Receivables in excess of the
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<PAGE>
Designated Receivables actually received by Disney on any relevant Settlement
Date(s) before any payment by Disney shall be deemed to have been made under the
other provisions of Section 3.02(a) or (b) which are subject to the twenty
percent (20%) limitations set forth therein.
(f) PAYMENTS APPLICATION. Payments received by the Company under this
Section 3.02 (other than any interest paid pursuant to Section 3.02(c)) shall be
applied by the Company to the recovery of the Advances with respect to the
Quarterly Receivables Periods to which payments hereunder relate and to the
recovery of accrued interest on such Advances pursuant to Section 2.03.
3.3 Basic Agreement Indemnities
---------------------------
(a) In the event that Oriental Land reduces (by means of set-off or
otherwise), or does not make payment of, any of the Designated Receivables or
terminates the Basic Agreement on the basis, in any such event, that Disney has
defaulted in the performance of any of its obligations to Oriental Land under
the Basic Agreement or on the basis that Disney has withheld or withdrawn
certain material intellectual property licenses pursuant to Paragraph 13.9 of
the Basic Agreement, Disney agrees to indemnify the Company and to hold the
Company harmless against any cost, expense, damage or liability arising out of
or resulting from such reduction, non-payment or termination. Disney's
liability with respect to any such reduction or non-payment of any of the
Designated Receivables, if paid on the date each of such Designated Receivables
would otherwise have been paid in full by Oriental Land, shall not exceed the
amount by which the Designated Receivables (if any) actually received from
Oriental Land is less than the Designated Receivables for the relevant Quarterly
Receivables Period set forth on Schedule 1. Upon termination of the Basic
Agreement by Oriental Land on the basis of any such default, withholding or
withdrawal, Disney shall pay to the Company in settlement of Disney's
obligations under this Section 3.03(a), and the Company agrees to accept in
settlement of such obligations, an amount equal to the sum of (i) the Advances
then outstanding and (ii) accrued interest thereon calculated at the rate set
forth in Section 2.04 from and including the Drawing Date to but excluding the
date of Disney's payment to the Company hereunder.
(b) Payments pursuant to this Section 3.03 shall be made by Disney to
the Company not later than the date which is five (5) Business Days following
the Company's written demand hereunder, which demand shall set forth the
Company's calculations as to the amounts so due.
(c) Payments received by the Company under this Section 3.03 shall be
applied by the Company in accordance with Section 2.06(d).
3.4 Facility Agreement Indemnities
------------------------------
(a) Disney agrees to indemnify the Company and to hold the Company
harmless against any cost, expense, damage or liability directly arising out of
or resulting from
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<PAGE>
(i) any representation or warranty made by Disney in this Agreement or in any
certificate or other document delivered pursuant to this Agreement having been
incorrect in any material respect when made or (ii) any Termination Event other
than a Termination Event pursuant to Section 9.01(a).
(b) Payments pursuant to this Section 3.04 shall be made by Disney to
the Company not later than the date which is five (5) Business Days following
the Company's written demand hereunder, which demand shall set forth the
Company's calculations as to the amounts so due, such calculations to be
conclusive and binding on the parties hereto absent manifest error.
(c) Payments received by the Company under this Section 3.04 shall be
applied by the Company in accordance with Section 2.06(d).
3.5 Other Parties' Liabilities
--------------------------
No obligation or liability of Disney to Oriental Land or any other
third party (including without limitation any governmental authority in Japan)
under or with respect to the Basic Agreement is assumed by the Company, the
Manager or any Collection Agent by reason of the execution, delivery or
performance of this Agreement and the transactions contemplated hereby, and any
such assumption is hereby expressly disclaimed. Disney shall indemnify and hold
harmless each of the Company, the Manager and any Collection Agent against any
cost, expense, damage or liability arising out of or resulting from any
assertion or determination that any of such parties has assumed any such
obligation or liability (other than any cost, expense, damage or liability
arising out of or resulting from the negligence or wilful misconduct of the
Company, the Manager or such Collection Agent).
3.6 Expenses Included
-----------------
Indemnification pursuant to the provisions of this Section 3 shall
include without limitation reasonable counsel fees and expenses and other out-
of-pocket expenses, including expenses of investigation, incurred in connection
with the matter or transaction giving rise to a claim for indemnification.
SECTION 4: YIELD PROTECTION
4.1 Taxes
-----
(a) To the extent that the amount of any Designated Receivables
actually received by Disney from Oriental Land with respect to any Quarterly
Receivables Period and available for application by Disney (or the Collection
Agent, as the case may be) in payment of Disney's obligations to the Company
hereunder is less than the Designated Receivables for such Quarterly Receivables
Period as set forth on Schedule 1 by virtue of such Designated
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<PAGE>
Receivables received by Disney from Oriental Land being subject to any present
or future withholding taxes, or any liabilities with respect thereto, imposed by
Japan or any political subdivision or taxing authority thereof or therein (all
such taxes being hereinafter referred to as "Taxes") at a rate greater than ten
percent, Disney shall pay such additional amounts to the Company hereunder as
may be required to indemnify the Company for the reduction in such amount
received by Disney from Oriental Land which is attributable to Japanese tax
being payable thereon at a rate in excess of ten percent.
(b) In addition, Disney agrees to pay any present or future stamp or
documentary taxes or any excise or property taxes, charges or similar levies
which arise from any payment made hereunder or from the execution, delivery,
registration, performance or enforcement of, or otherwise with respect to, this
Agreement or any other documents contemplated hereby (hereinafter referred to as
"Other Taxes", which term shall not include any Taxes as heretofore defined),
provided, however, that (i) Disney shall have no liability under any provision
- -------- -------
of this Agreement for Other Taxes arising solely by reason of the assignment or
transfer by the Company or any of its assignees of all or any portion of their
interest hereunder to any other Person, and (ii) Disney's liability hereunder
with respect to Other Taxes applicable through the Drawing Date shall not exceed
Fifty Thousand United States dollars ($50,000).
(c) Disney shall indemnify the Company for the full amount of Taxes or
Other Taxes (including without limitation any Taxes or Other Taxes imposed on
amounts payable under this Section 4.01) paid by the Company or any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. Such indemnification shall be made within thirty (30) days from the
date the Company makes written demand therefor. The Company shall use
reasonable efforts to cooperate with Disney in seeking a refund of any such
Taxes or Other Taxes paid which, in the opinion of Disney's independent
certified public accountants, has not been correctly and legally asserted,
provided that the Company shall be entitled to prompt reimbursement from Disney
- --------
with respect to reasonable costs and expenses (including without limitation
reasonable counsel fees and expenses) incurred by the Company in such refund
application and proceedings.
(d) Within thirty (30) days after the date of any payment of Taxes or
any other tax, levy, impost, deduction, charge or withholding with respect to
any payment hereunder, Disney or the Collection Agent, as the case may be, shall
furnish to the Company the original or a certified copy of a receipt evidencing
payment thereof, if available.
(e) Without prejudice to the survival of any other agreement of Disney
hereunder, the agreements and obligations of Disney contained in this Section
4.01 shall survive the recovery in full of the Advances and accrued interest
thereon.
(f) The provisions of Section 7.02(a) and 7.03 of the DWARFS Loan
Agreement (including all defined terms therein) shall be incorporated by
reference herein and shall apply, mutatis mutandis, to payments made by Disney
----------------
on the Advances. For purposes of
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this Agreement, each reference in Section 7.02(a) and Section 7.03 of the DWARFS
Loan Agreement to the Company as payor under the Loans or otherwise shall be
treated as a reference to Disney as payor under the Advances. In addition, if
the Company is obligated to make any payment under Section 7.02 or 7.03 of the
DWARFS Loan Agreement, then upon submission to Disney of the notice or other
evidence establishing the requirement for and amount of such gross up payment,
Disney shall reimburse and indemnify the Company for such payments and shall, so
long as such requirement shall continue, make such gross up payments to the
Company.
4.2 Compliance Costs; Illegality
-----------------------------
(a) If (i) compliance by the Company with any law, regulation or
condition imposed after the date hereof by the United States or Japan or any
political subdivision or authority thereof or therein with respect to this
Agreement, the Commitment, the unrecovered Advances or any funds obtained by the
Company to meet or maintain its obligations hereunder and any restraint,
guideline or policy not having the force of law of any central bank or
governmental monetary authority (other than a change in any reserve or deposit
requirement or rate of interest payable by the Company or such funding sources
in respect of their obligations related to this transaction), or (ii) any change
imposed by a taxing authority in Japan or any political subdivision thereof
(other than changes in the rate of tax or a tax or charge having the effect of a
tax which is a capital, consumption or franchise tax or is imposed on the income
of the Company or such funding sources) shall (A) result in an increase (net of
any related tax reduction) in the cost to the Company of advancing or
maintaining the Commitment or the unrecovered Advances, or (B) result in a net
reduction of any amount received or receivable by the Company hereunder, then
the Company shall furnish to Disney a statement of the nature and amount of such
cost or reduction and Disney shall pay to the Company on demand from time to
time such additional amounts as may be necessary to compensate the Company for
such additional cost or reduction.
(b) In the event that it shall become unlawful under the laws of the
United States or Japan or any political subdivision thereof or therein for the
Company to honor the Commitment or to fund or maintain the Commitment or the
unrecovered Advances, then the Commitment shall be canceled and, if the Advances
have been made, Disney shall pay to the Company within forty-five (45) days of
the Company's written demand hereunder or on such earlier date as payment may be
required to cure such illegality in settlement of Disney's obligations under
this Section 4.02(b), and the Company agrees to accept in settlement of such
obligations, an amount equal to the sum of (i) the Advances then outstanding,
and (ii) accrued interest thereon calculated at the rate set forth in Section
2.04 from and including the Drawing Date to but excluding the date of Disney's
payment to the Company hereunder. Upon the occurrence of any event giving rise
to the application of this Section 4.02(b), the Company shall promptly notify
Disney thereof and shall furnish Disney evidence certified by the Company as to
such illegality.
4.3 Mitigation
----------
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<PAGE>
The Company shall act in good faith to mitigate the consequences to
the Company and Disney of any yield protection payment which becomes due under
Section 4.01 or Section 4.02(a) or of any illegality under Section 4.02(b)
including without limitation, if appropriate, the assignment of its rights and
obligations hereunder with Disney's consent to an Affiliate of the Company or to
any other Person upon Disney's indemnifying the Company for any reasonable costs
and expenses incurred or liabilities assumed by the Company with respect to such
assignment.
4.4 Yield Protection Prepayment
---------------------------
If Disney is required to pay any amount to the Company pursuant to
Section 4.01 (other than any immaterial stamp or documentary tax payable under
Section 4.01(b)) or Section 4.02, Disney shall have the right on any Settlement
Date within one hundred twenty (120) days of the date of such payment, upon not
less than thirty (30) days' prior written notice to the Company (which notice
shall be irrevocable), to prepay the Advances then outstanding, either in whole
or in part, with accrued interest thereon calculated at the rate set forth in
Section 2.04 from and including the Drawing Date to but excluding the Date of
Disney's payment to the Company hereunder.
4.5 Yen Transaction
---------------
This is an international financial transaction in which the
specification of Yen and payment in Tokyo, Japan are of the essence, and Yen
shall be the currency of account and of payment in all events. The payment
obligations hereunder shall not be discharged by an amount paid in another
currency or in another place, whether pursuant to a judgment or otherwise, to
the extent that the amount so paid on prompt conversion to Yen and transfer to
Tokyo, Japan under normal banking procedures does not yield the amount of Yen
due hereunder. In the event that any payment, whether pursuant to a judgment or
otherwise, upon such conversion and transfer does not result in payment of such
amount of Yen in Tokyo, Japan, the Company shall be entitled to demand immediate
payment of, and shall have a separate cause of action for, the Yen deficiency in
respect of the payment due to it.
SECTION 5: FEES AND EXPENSES
5.1 Management Fee
--------------
Disney shall pay to the Manager a management fee for services to be
rendered during the first year of the term of this Agreement in an amount as
separately agreed between Disney and the Manager. The management fee shall be
payable on the Drawing Date.
5.2 Expenses
--------
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<PAGE>
(a) Within thirty (30) days of the Company's invoice therefor, Disney
shall, whether or not the Commitment is utilized, promptly reimburse the Company
for all reasonable expenses, including reasonable fees and expenses of counsel,
printing, communication, publicity, travel and all other out-of-pocket expenses
incurred by the Company (i) up to a maximum of the Yen Equivalent of One Hundred
Thousand United States dollars ($100,000) in connection with the negotiation,
preparation and execution of this Agreement and the documentation required
hereunder, and (ii) in connection with any amendments, waivers or consents
relating to this Agreement or the transactions or any document contemplated
hereby required during the term hereof.
(b) Disney shall also reimburse the Company on demand for all
reasonable expenses incurred by the Company (including without limitation fees
and expenses of counsel and other professional advisors) (i) in the
determination that there has occurred a Termination Event or an event that, with
the giving of notice or the passing of time, or both, would constitute a
Termination Event, and (ii) in the administration and enforcement of this
Agreement from and after the occurrence of such a Termination Event or event.
Such expenses shall be reimbursed whether or not they arise during the term of
this Agreement and whether or not the Company gives notice of such Termination
Event or event or takes other action to enforce the provisions of this Agreement
or any related documentation.
SECTION 6: REPRESENTATIONS AND WARRANTIES
Disney hereby represents and warrants to, and covenants with, the
Company as follows:
6.1 Organization, Power and Authority
---------------------------------
Disney is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware in the United States of America
and has full legal right, power and authority to execute, deliver and perform
its obligations under this Agreement, the Disney Acknowledgment, the Pledge
Agreement, the Lock Box Notice and the Form UCC-1 financing statement to be
delivered hereunder (hereinafter referred to collectively as the "Disney
Agreements"). Disney is duly qualified to do business and is in good standing
in the State of California.
6.2 Compliance with Law and Other Agreements
----------------------------------------
There is no law, regulation, decree or similar authority binding on
Disney, no provision of the Certificate of Incorporation or By-laws of Disney
and no provision of any existing contract, agreement or instrument to which
Disney is a party or by which any of its properties or assets is bound which has
been or would be contravened, or which (other than the Disney Agreements) would
result in the imposition of any mortgage, lien, charge or encumbrance on any of
its properties or assets, by reason of the execution and delivery of any of
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the Disney Agreements by Disney or by reason of the performance or observance by
Disney of any of the terms and conditions hereof or thereof.
6.3 Authorization
-------------
The execution, delivery and performance by Disney of each of the
Disney Agreements have been duly authorized by all appropriate corporate action
on the part of Disney.
6.4 Registrations and Approvals
---------------------------
All consents, approvals, licenses and authorizations of, and all
filings and registrations with, any governmental agency or authority necessary
for the due execution and delivery of this Agreement by Disney have been
obtained, and all consents, approvals, licenses, authorizations, filings and
registrations necessary for the due execution and delivery of the other Disney
Agreements by Disney and for the performance or enforceability hereof and
thereof by or against Disney shall have been obtained and shall be in full force
and effect prior to the date on which Disney gives the Notice of Drawing to the
Company hereunder.
6.5 Agreement Binding
-----------------
This Agreement constitutes, and each of the other Disney Agreements
when executed and delivered hereunder will constitute, the legal, valid and
binding obligations of Disney, enforceable in accordance with their respective
terms, except as such enforcement may be limited (i) by bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' right generally and (ii) by the application or general
equitable principles (regardless of whether considered in a proceeding in equity
or at law). Disney's obligations under each of the Disney Agreements, other than
those obligations with respect to which recourse is limited to the Collateral,
are general Indebtedness of Disney ranking pari passu in priority of payment and
---- -----
in all other respects with all other unsecured and unsubordinated Indebtedness
of Disney.
6.6 Other Obligations
-----------------
Disney is not in default under any agreement, obligation or duty to
which it is a party or by which it or any of its properties or assets is bound
which would have a material adverse effect on the ability of Disney to perform
its obligations under any of the Disney Agreements.
6.7 Litigation
----------
There are no pending or, to the knowledge of Disney, threatened legal
actions, arbitration or other legal or administrative proceedings which, if
adversely determined, would (i) materially impair the ability of Disney to carry
on its business as now conducted or materially affect the consolidated financial
condition of Disney, (ii) adversely affect the ability of Oriental
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Land (to the best of Disney's knowledge), Disney or any Collection Agent to pay
any amounts due under the Basic Agreement or any of the Disney Agreements or
(iii) adversely affect the validity or enforceability of the Basic Agreement or
any of the Disney Agreements against Oriental Land (to the best of Disney's
knowledge) or Disney.
6.8 Information Memorandum; Financial Statements
--------------------------------------------
The information contained in the Information Memorandum relating to
Disney, Tokyo Disneyland Park and the Basic Agreement, taken as a whole, is
true, complete and accurate in all material respects, contains no misleading
statement of a material fact and does not omit to state any material fact
necessary to make the statements therein not misleading, provided, however, that
-------- -------
with respect to estimates and projections contained therein (including without
limitation projected Tokyo Disneyland Receivables and projected Designated
Receivables during the term of this Agreement) Disney represents and warrants
only that such estimates and projections have been made in good faith in
reliance upon information which Disney reasonably believes to be complete and
accurate. The audited consolidated financial statements of Disney as set forth
in its most recent Annual Report to Shareholders are complete and correct and
fairly present the consolidated financial condition and results of operations of
Disney as at the dates stated therein and for the periods then ended in
accordance with generally accepted accounting principles in the United States,
consistently applied. Since the date of the latest financial statements set
forth in such Annual Report to Shareholders, there has been no material adverse
change in the consolidated financial condition or results of operations of
Disney.
6.9 Basic Agreement
---------------
The copy of the Basic Agreement heretofore delivered by Disney to the
Company is a true and correct copy of the Basic Agreement as in effect on the
date of this Agreement, and there exists no other agreement between Disney and
Oriental Land regarding their respective rights and obligations with respect to
the Tokyo Disneyland Receivables. The Basic Agreement constitutes the legal,
valid and binding obligation of the parties thereto, enforceable in accordance
with its terms, except as such enforcement may be limited (i) by bankruptcy,
insolvency, liquidation, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' right generally and (ii) by the
application or general equitable principles (regardless of whether considered in
a proceeding in equity or at law). All consents, approvals, licenses and
authorizations of, and all filings and registrations with, any governmental
agency or authority with respect to the Basic Agreement or to the parties'
performance of their respective obligations thereunder have been duly obtained
and continue in full force and effect. To the knowledge of Disney, no event has
occurred and no circumstance or condition exists which would entitle (or, with
the giving of notice or the passing of time, or both, would entitle) either
party to the Basic Agreement to terminate the Basic Agreement, to seek damages
thereunder against the other party, to give notice of an event of force majeure
or of a condition of material business or economic hardship, to suspend its
performance thereunder, to reduce any
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Tokyo Disneyland Receivables otherwise payable thereunder or to withhold or
withdraw any intellectual property rights licensed thereunder. No substantial
dispute exists between Disney and Oriental Land with respect to the Basic
Agreement or any of their respective rights and obligations thereunder or with
respect to Tokyo Disneyland Park which could affect adversely the payment of the
Designated Receivables by Oriental Land under the Basic Agreement. None of
Disney's rights under the Basic Agreement is the subject of any mortgage, lien,
pledge or other security interest or of any segregation of proceeds or other
preferential arrangement other than the security interest in the Collateral in
favor of the Company established pursuant to the terms and conditions of this
Agreement.
6.10 Designated Receivables
----------------------
Disney owns each of the Designated Receivables, free and clear of any
adverse claim. On making the Advances (assuming the Lock Box Notice has been
duly acknowledged by the depositary bank at which the Lock Box Account is
maintained) and upon Oriental Land making payment into the Lock Box Account of
any Designated Receivables constituting Collateral hereunder, the Company shall
acquire a valid and perfected security interest in such Collateral. No
effective financing statement or other instrument similar in effect covering the
Basic Agreement, any Designated Receivables or the proceeds thereof is or shall
at any time during the term of this Agreement be on file in any relevant
recording office except the financing statement in favor of the Company with
respect to this Agreement and the other Disney Agreements.
6.11 Records
-------
The chief place of business and chief executive offices of Disney and
the office at which the Records are kept are located in the State of California
in the United States of America.
SECTION 7: COVENANTS
In addition to the other undertakings herein, Disney hereby covenants
with the Company that during the term of this Agreement Disney shall act as
follows and shall perform the following obligations:
7.1 Performance of Obligations
--------------------------
Disney shall punctually pay all amounts due from Disney under this
Agreement and the other Disney Agreements at the places and times and on the
dates specified herein or therein. Disney shall perform all of its other
obligations, undertakings and covenants under each of the Disney Agreements and
under, and with respect to, the Basic Agreement to the extent non-performance of
any such obligations, undertakings or covenants would entitle Oriental Land to
reduce (by means of set-off or otherwise), or not to make payment of, any of the
Designated
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Receivables or to terminate the Basic Agreement.
7.2 Financial Statements; Other Information
---------------------------------------
Disney shall maintain an accounting system in accordance with
generally accepted accounting principles in the United States consistently
applied and shall furnish to the Company the following:
(a) as soon as available but not later than one hundred twenty (120)
days after the end of each of its fiscal years, consolidated financial
statements of The Walt Disney Company (each including, at least, a balance
sheet, a statement of income and a statement of sources and application of funds
with related notes specifying significant accounting policies and their impact
on such financial statements and all related schedules) as at and for the
accounting period then ended, audited and certified by independent certified
public accountants of international standing;
(b) promptly upon receipt, a copy of each statement of account
submitted by Oriental Land to Disney pursuant to Paragraph 11.1.6 of the Basic
Agreement;
(c) as soon as available but not later than one hundred twenty (120)
days after the end of each of its fiscal years, a statement certified by
Disney's independent certified public accountants setting forth, on the basis of
their audit examination of Disney, the Tokyo Disneyland Receivables for such
fiscal year and further setting forth a reconciliation of receipts and
disbursements from the Lock Box Account for such fiscal year;
(d) not later than September 15th in each year, projections prepared
by Disney setting forth projected Tokyo Disneyland Receivables and projected
receipts with respect to Designated Receivables for the following fiscal year
which projections shall contain at least the same items of information as
Oriental Land is required to provide in each statement of account pursuant to
Paragraph 11.1.6 of the Basic Agreement; and
(e) such other information respecting the business, properties,
condition or operations, financial or otherwise, of Disney as Disney discloses
to the public from time to time and, with respect to Tokyo Disneyland Park, such
other information respecting its business, properties, condition or operations,
financial or otherwise, as the Company may from time to time reasonably request.
Disney shall permit representatives of the Company from time to time during
Disney's normal business hours to inspect, audit and make copies of any and all
Records.
7.3 Performance and Notice
----------------------
Disney shall give notice to the Company promptly after Disney has
knowledge of (i) any substantial dispute between Disney and Oriental Land with
respect to the Basic Agreement which could adversely affect the payment of any
Tokyo Disneyland Receivables by
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Oriental Land, (ii) any substantial labor dispute affecting the continued normal
business operations of Tokyo Disneyland Park, (iii) any loss or damage to the
properties or assets of Tokyo Disneyland Park resulting from any casualty if the
initial estimated cost of replacement is in excess of Four Billion Five Hundred
Million Yen ((Yen)4,500,000,000) or its then equivalent in any currency, (iv)
any notice received from Oriental Land or given by Disney to Oriental Land under
the Basic Agreement regarding a default or alleged default thereunder or the
bankruptcy, etc. (as therein defined) of either of the parties, regarding the
occurrence of an event of force majeure or of any condition of material business
or economic hardship as contemplated by Paragraph 21 of the Basic Agreement,
regarding the imposition of foreign exchange controls or regarding the
withholding or withdrawal by Disney of certain intellectual property rights
licensed under the Basic Agreement, (v) any proposed amendment to, or other
modification of, the Basic Agreement, (vi) the commencement of any litigation or
proceeding (whether by service of process or by attachment or arrest of any
property or asset) involving total claims against Disney in excess of Twelve
Billion Eight Hundred Million Yen ((Yen)12,800,000,000) or its then equivalent
in any currency, or (vii) the occurrence of any Termination Event or event that,
with the giving of notice or the passing of time, or both, would constitute a
Termination Event.
7.4 Mortgages; Liens
----------------
(a) Neither Disney nor any Restricted Subsidiary (as hereinafter
defined) shall create, issue, assume, guarantee or allow to be secured any bonds
or other instruments for Indebtedness issued or sold privately or to the public
which:
(i) are or are intended to be quoted, listed or dealt in on any
stock exchange or over-the-counter market; and
(ii) are secured by a mortgage, lien, security interest or other
encumbrance ("Mortgage") upon (a) any Tangible Property (as hereinafter
defined) except any Theme Park Asset (as hereinafter defined) or (b) any
shares of stock or Indebtedness of any Restricted Subsidiary;
unless Disney's Indebtedness hereunder is secured equally and ratably with such
Indebtedness. The foregoing restrictions shall not apply to Mortgages on
property of a corporation existing at the time such corporation becomes a
Restricted Subsidiary or is merged into or consolidated with Disney or a
Restricted Subsidiary.
"Restricted Subsidiary" means any Subsidiary substantially all of the
property of which is located, or substantially all of the business of which is
carried on, within the United States of America and which owns Tangible
Property. "Tangible Property" means any land, building, machinery or equipment
or leasehold interest or improvement which would be reflected on a consolidated
balance sheet of Disney or Disney and its consolidated Subsidiaries prepared in
accordance with United States generally accepted accounting principles,
excluding (i) in the case of Disney, all such Tangible Property located outside
the United States of America, (ii) all
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intangible assets of any nature whatsoever as reflected on a consolidated
balance sheet of Disney or Disney and its consolidated Subsidiaries prepared in
accordance with United States generally accepted accounting principles, and
(iii) all films, programs, and film and program rights. "Theme Park Asset" means
any Tangible Property which forms a part of or is used, operated or employed by
Disney and its Subsidiaries in connection with Disneyland, Magic Kingdom or
Epcot Center or any other theme park, resort or attraction owned or operated by
Disney and its Subsidiaries (whether now or hereafter in existence).
(b) Notwithstanding the foregoing, Disney shall not create, assume,
incur or suffer to exist, or permit to be created, assumed, incurred or suffered
to exist, any mortgage, lien, pledge, security interest or other charge or
encumbrance or other preferential arrangement of any kind upon or with respect
to the Basic Agreement, any of the Tokyo Disneyland Receivables or the
Designated Receivables or in any proceeds of any of the foregoing, other than
the security interest in the Collateral in favor of the Company established
pursuant to the terms and conditions of this Agreement, without the prior
written consent of the Company.
7.5 Maintenance and Continuity of Business
--------------------------------------
Disney shall maintain its corporate existence, rights, privileges and
franchises under and in compliance with all applicable corporate and tax laws
and shall conduct its business, in all material respects, in compliance with all
applicable laws and with all regulations and governmental guidelines having the
force of law.
7.6 Maintenance of Governmental Approvals
-------------------------------------
Disney shall maintain in full force and effect all necessary
governmental consents, approvals, licenses, authorizations, filings and
registrations obtained in connection with the Basic Agreement, this Agreement or
any of the other Disney Agreements, and shall take all such additional action as
may be necessary in connection therewith. Disney undertakes to obtain and to
effect any new or additional consents, approvals, licenses, authorizations,
filings and registrations in connection with the performance by Disney and the
enforceability of the terms and conditions of each such agreement, document and
instrument, which consents, approvals, licenses, authorizations, filings and
registrations are necessary to prevent the reduction or non-payment of any Tokyo
Disneyland Receivables or the termination of the Basic Agreement.
7.7 Taxes
-----
Disney shall pay and discharge all taxes and governmental charges upon
it or any of its properties or assets prior to the date after which penalties
attach for failure to pay, the non-payment of which might have a material
adverse effect on the business or financial condition of Disney on a
consolidated basis, except to the extent that Disney shall be contesting in good
faith its obligation to pay such taxes or charges, adequate reserves having been
set aside for the payment thereof. Disney shall make timely filings of all tax
returns and governmental reports
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required to be filed or submitted under any applicable laws or regulations.
7.8 ERISA
-----
(a) Disney shall pay and discharge promptly, but in no event later
than such time as is required by ERISA or as is required pursuant to any
notification assessing such liability, any liability imposed upon it pursuant to
the provisions of Title IV of ERISA, provided, however, that Disney shall not be
-------- -------
required to pay any such liability if (i) the amount, applicability or validity
thereof shall be diligently contested in good faith by appropriate proceedings,
and (ii) Disney shall have set aside on its books adequate reserves with respect
thereto.
(b) Disney shall not (i) without the prior written consent of the
Company terminate any employee pension benefit plan (as defined in Section 3(2)
of ERISA) which is subject to Title IV of ERISA in a "distress termination"
under Section 4041 of ERISA, (ii) permit the "amount of unfunded benefit
commitments" (as defined in Section 4001(a)(18) of ERISA) under all employee
pension benefit plans which are subject to Title IV of ERISA (excluding employee
pension benefit plans with assets greater than vested benefits) to exceed
Twenty-Five Million United States dollars ($25,000,000), or (iii) incur any
withdrawal liability under Section 4201 of ERISA in an aggregate amount greater
than Twenty-Five Million United States dollars ($25,000,000) to all
multiemployer plans (as defined in Section 4001(a)(3) of ERISA) for
contributions that Disney may be required to make under any agreement relating
to such multiemployer plans or any law pertaining thereto.
(c) For purposes of Section 7.08 of this Agreement, the term "Disney"
shall mean Disney, any Affiliate of Disney and each trade or business (whether
or not incorporated) which together with Disney would be treated as a single
employer under the provisions of Title I or IV of ERISA.
7.9 Maintenance of Records
----------------------
(a) Subject to Section 10.03(a), Disney shall maintain all such
Records as may be necessary or advisable for the administration, servicing and
collection of all Designated Receivables (including without limitation duplicate
records and/or system redundancy so as to enable the reconstruction of essential
records in the event of any reasonably foreseeable casualty).
(b) Subject to Section 10.03(a), Disney shall hold in trust for the
Company the Records and shall maintain and mark the Records in a manner such
that the Designated Receivables are segregated from all other accounts and
receivables and are readily identifiable.
7.10 Protection of the Company's Interest
------------------------------------
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(a) Disney shall, from time to time, do and perform any and all acts
and execute any and all documents (including without limitation the execution,
amendment or supplementation of any financing statements and continuation
statements for filing under the provisions of the Uniform Commercial Code of any
applicable jurisdiction and of any documents appropriate for filing under the
provisions of applicable law to perfect and protect the Company's interest in
the Collateral in any jurisdiction in which the Uniform Commercial Code is not
in effect, the execution, amendment or supplementation of any instrument of
transfer and the making of notations in the Records) as may be necessary, or as
may be reasonably requested by the Company, in order to effect the purposes of
the Disney Agreements, to protect the Company's interest in the Collateral and
to effect collection of the Designated Receivables upon Disney's failure to
effect such collection in accordance will the provisions of this Agreement.
Disney hereby irrevocably constitutes and appoints the Company as its true and
lawful attorney-in-fact, with full power of substitution, during the term of
this Agreement to execute and deliver any and all documents and to do and
perform any and all acts referred to in, or contemplated by, this Section 7.10
in Disney's name, place and stead, Disney hereby ratifying and confirming all
that its said attorney-in-fact shall lawfully do hereunder and pursuant hereto.
Disney acknowledges that its said attorney-in-fact shall have no duty, by virtue
of this Section 7.10, to execute and deliver any of such documents or to do and
perform any of such acts and that the failure of said attorney-in-fact to do so
shall not excuse Disney of its obligations hereunder with respect to such
documents and acts. The Company hereby agrees that it shall not initiate any
legal or arbitral proceedings against Oriental Land in the name of Disney to
enforce collection of any Designated Receivables due from Oriental Land pursuant
to the Basic Agreement except upon the occurrence of a Termination Event
hereunder and that the Company shall give Disney thirty (30) days' prior notice
of the initiation of any such proceeding unless in the opinion of the Company
such delay in the initiation of proceedings may result in irreparable injury to
its interests hereunder (in which event the initiation of such proceedings shall
not require such prior notice to Disney).
(b) Disney shall not change its name, identity or corporate structure
(within the meaning of Section 9-402(7) of the Uniform Commercial Code) unless
it shall have given the Company at least thirty (30) days' prior notice thereof.
(c) Disney shall not relocate its chief place of business, chief
executive offices or any office where Records are kept unless it has given the
Company at least thirty (30) days' prior notice thereof.
(d) To the fullest extent permitted by applicable law, the Company
shall be permitted to sign and file financing and continuation statements with
respect to its interest in the Collateral and amendments thereto without
Disney's execution thereof. The Company shall promptly send to Disney copies of
any such documents so signed and filed, provided that no failure by the Company
to send such copies to Disney shall affect the validity or effectiveness of any
such document.
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(e) Disney does not have, at no time has had, and at no time during
the term of this Agreement or the DWARFS Loan Agreement will have, any permanent
establishment in Japan. No Advance extended under this Agreement was used
within Japan.
7.11 Basic Agreement
---------------
(a) Disney shall use its best efforts to ensure the performance by
Oriental Land of its obligations under the Basic Agreement to make timely
payments of the Designated Receivables to the Lock Box Account.
(b) Disney shall not, with respect to the Basic Agreement as it
relates to Tokyo Disneyland Park, (i) amend, otherwise modify or waive the
benefit of any of the provisions of Paragraph 3 entitled "Term", Paragraph 9.3
entitled "WDP Participation in Operations", Paragraph 11 entitled "Payments to
WDP and Financial Reporting" (other than the provisions of Paragraphs 11.1.3,
11.1.4 and 11.1.5), Paragraph 20 entitled "Termination", Paragraph 21 entitled
"Business or Economic Hardship", Paragraph 25 entitled "Force Majeure" or
Paragraph 30.11 entitled "Successors and Assigns" of the Basic Agreement, (ii)
amend, otherwise modify or waive the benefit of any other of the provisions of
the Basic Agreement which could have a material adverse effect on the Company's
interest in or collection of any of the Designated Receivables or any portion
thereof, or (iii) consent to any sublicense, assignment, delegation, mortgage or
hypothecation of any of Oriental Land's rights, privileges, duties or
obligations under the Basic Agreement pursuant to Paragraph 30.11 thereof,
without in each such case obtaining the prior written consent of the Company.
The foregoing provisions of this Section 7.11(b) shall not restrict the right of
Disney and Oriental Land to amend, otherwise modify or waive the benefit of any
provision of the Basic Agreement to the extent that such amendment, modification
or waiver does not relate to Tokyo Disneyland Park. In the event that Disney
shall undertake, on such terms and conditions as shall be reasonably
satisfactory to the Company, that all obligations hereunder with respect to the
recovery of the Advances, the payment of accrued interest thereon and the
payment of all other amounts due hereunder and under the other Disney Agreements
shall be general recourse obligations of Disney, Disney shall have the
unrestricted right to amend, otherwise modify or waive the benefit of any
provision of the Basic Agreement and the foregoing restrictions contained in
this Section 7.11(b) shall be of no further force or effect.
(c) Disney shall not exercise any right of termination under the Basic
Agreement, consent to a termination of the Basic Agreement by Oriental Land or
take any other enforcement or remedial action thereunder (including giving
notice of any event of force majeure or of any condition of material business or
economic hardship or of any disposition of funds on the imposition of foreign
exchange controls) without the prior written consent of the Company. Disney
shall not assign any of its rights or obligations under the Basic Agreement
without the prior consent of the Company (which consent shall not unreasonably
be withheld).
(d) Disney shall give prompt notice to the Company, upon becoming
aware
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thereof, that any of the Designated Receivables will not be timely paid in full
by Oriental Land, and such notice shall state, to the best of Disney's
knowledge, the reasons such Designated Receivables will not be timely paid in
full.
(e) Upon the occurrence of a default by Oriental Land in the
performance of any of its obligations under the Basic Agreement which, in the
reasonable opinion of the Company, will or is likely to cause Oriental Land to
fail to pay or to reduce any of the Designated Receivables, Disney shall take
such enforcement or remedial action with respect to the collection of the
Designated Receivables for the Company's benefit as the Company may reasonably
request.
(f) During the term of this Agreement, Disney shall irrevocably direct
Oriental Land to make all payments of Tokyo Disneyland Receivables due under the
Basic Agreement in Yen to the Lock Box Account. Should Oriental Land make any
payment with respect to the Tokyo Disneyland Receivables or any Designated
Receivables directly to Disney rather than to the Lock Box Account, Disney shall
immediately deposit such payment, or cause such payment to be deposited, to the
Lock Box Account. Disney shall not use the Lock Box Account or permit the Lock
Box Account to be used for any purpose other than the receipt of Tokyo
Disneyland Receivables and the application of such payments in accordance with
the provisions of this Agreement.
(g) Disney shall extend the initial term of the Basic Agreement to
expire on March 31, 2008 in accordance with the provisions of Paragraph 3 of the
Basic Agreement.
SECTION 8: CONDITIONS PRECEDENT
8.1 Conditions Precedent
--------------------
The obligation of the Company to make available the Advances on the
Drawing Date is subject to the fulfillment, as determined by the Company and its
counsel, of the following conditions precedent three (3) Business Days prior to
the Drawing Date (the "Conditions Precedent Date") (except as otherwise
indicated below).
(a) AUTHORIZATIONS. The Company shall have received, in form and
substance satisfactory to it and to its counsel:
(i) certified copies of the Certificate of Incorporation of
Disney together with a good standing certificate from the Secretary of
State of the State of Delaware, each to be dated with a recent date prior
to the Conditions Precedent Date;
(ii) a copy of the By-laws of Disney, certified as of the
Conditions Precedent Date by the Secretary or an Assistant Secretary of
Disney;
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(ii) a copy of the resolutions of the Board of Directors of
Disney authorizing the execution, delivery and performance of the Disney
Agreements, certified as of the Conditions Precedent Date by the Secretary
or an Assistant Secretary of Disney; and
(iv) a certificate of the Secretary or an Assistant Secretary of
Disney certifying as of the Conditions Precedent Date the names and
specimen signatures of each person duly authorized to execute and deliver
any of the Disney Agreements on behalf of Disney and to execute any
notices, statements or certificates required hereunder or thereunder. The
Company shall be entitled to rely on the authenticity of such
authorization, and Disney shall be bound by the signature of any such
person regardless of the actual powers of such person, unless the Company
has actual knowledge to the contrary.
(b) DISNEY ACKNOWLEDGEMENT. The Company shall have received on or
prior to the Drawing Date the Disney Acknowledgement, duly executed by Disney.
(c) PLEDGE AGREEMENT. The Company shall have received on or prior to
the Drawing Date the Pledge Agreement, duly executed.
(d) LOCK BOX NOTICE. The Company shall have received on or prior to
the Drawing Date a Lock Box Notice to the depositary bank at which the Lock Box
Account is maintained, which Lock Box Notice shall have been duly acknowledged
by such depositary bank.
(e) UNIFORM COMMERCIAL CODE REQUIREMENTS. The Company shall have
received, in form and substance satisfactory to it and to its counsel:
(i) acknowledgement copies of proper financing statements (Form
UCC- 1), naming Disney as the debtor with respect to the Collateral and the
Company as the secured party, and such other similar instruments or
documents as may be necessary or reasonably desirable in the opinion of the
Company under the laws of any jurisdiction in order to perfect the
Company's security interest in the Collateral; and
(ii) certified copies of Requests for Information or Copies (Form
UCC-11), dated a date reasonably near to the Drawing Date, listing all
effective financing statements (including those referred to in Section
8.01(e)(i)) which name Disney as debtor and which are filed in the
jurisdictions in which filings are made pursuant to Section 8.01(e)(i),
together with copies of such financing statements or such other similar
instruments or documents, none of which (other than those filed pursuant to
Section 8.01(e)(i)) shall cover the Basic Agreement or any of the Tokyo
Disneyland Receivables or the Designated Receivables or any of the proceeds
of any of the foregoing.
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(f) GOVERNMENT APPROVALS. The Company shall have received, in form
and substance reasonably satisfactory to it and to its counsel, certified copies
of each consent, approval, license or authorization of, and each filing or
registration with, any relevant government agency (if any) necessary in
connection with the execution, delivery and performance by Disney of each of the
Disney Agreements.
(g) BASIC AGREEMENT. The Company shall have received (i) a copy of
the Basic Agreement, certified as of the Drawing Date by the Secretary or an
Assistant Secretary of Disney, and (ii) evidence reasonably satisfactory to the
Company that Disney has directed Oriental Land to make payments of the Tokyo
Disneyland Receivables to the Lock Box Account.
(h) LEGAL OPINIONS. The Company shall have received on or prior to
the Drawing Date:
(i) the legal opinion of White & Case, special United States
counsel to Disney, dated as of the Drawing Date, in the form of Exhibit D
annexed hereto;
(ii) the legal opinion of Blakemore & Mitsuki, special Japanese
counsel to Disney, dated as of the Drawing Date, in the form of Exhibit E
annexed hereto;
(ii) the legal opinion of Nishi, Tanaka & Takahashi, special
Japanese counsel to the Company, dated as of the Drawing Date, in form and
substance satisfactory to the Company; and
(iv) the legal opinion of Coudert Brothers, special United States
counsel to the Company, dated as of the Drawing Date, in form and substance
satisfactory to the Company.
(i) BOOK ENTRIES. The Company shall have received evidence, in form
and substance satisfactory to it and to its counsel, of the establishment by
Disney of the book entry system to record beneficial interests held in this
Agreement as required by Section 11.04(b), and there shall be recorded in such
book entry system on the Drawing Date the beneficial interests of the financial
institutions identified in the Disney Acknowledgment.
(j) REPRESENTATIONS AND WARRANTIES. Disney's representations and
warranties contained in this Agreement shall remain true and correct as of the
Conditions Precedent Date and as of the Drawing Date.
(k) NO TERMINATION EVENT. No Termination Event and no event that,
with the giving of notice or the passing of time, or both, would constitute a
Termination Event shall have occurred and be continuing.
(l) DRAWING DATE CERTIFICATE. The Company shall have received a
certificate
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from Disney, dated as of the Drawing Date, certifying that all conditions
precedent required by this Section 8.01 which have been previously delivered to
the Company or otherwise fulfilled continue in full force and effect on the
Drawing Date.
SECTION 9: TERMINATION EVENTS
9.1 Termination Events
------------------
If any of the following events (hereinafter referred to as a
"Termination Event") shall have occurred and be continuing:
(a) Disney shall fail to perform any obligation under the Basic
Agreement or there shall occur any event, circumstance or condition which would
entitle (or, with the giving of notice or the passing of time, or both, would
entitle) Oriental Land to terminate the Basic Agreement, to receive damages
thereunder against Disney, to suspend its performance under the Basic Agreement
or to reduce any Tokyo Disneyland Receivables otherwise payable thereunder;
(b) Disney shall fail to make any payment hereunder on the due date
and such default continues for a period of thirty (30) days after written notice
thereof has been given to Disney by the Company;
(c) Disney shall default in the performance of any agreement or
undertaking hereunder (other than as provided in Section 9.01(a) above) and such
default shall continue unremedied for thirty (30) days after written notice
thereof has been given to Disney by the Company, provided that with respect to
any such default, the continuation of such default for thirty (30) days or
longer after such notice shall not constitute a Termination Event if such
failure is curable but cannot be cured within thirty (30) days and Disney, to
the reasonable satisfaction of the Company, institutes curative action as
promptly as practicable and diligently pursues such action to completion within
a reasonable period;
(d) any representation, warranty, certification or statement made by
Disney in this Agreement or in any certificate or other document delivered
pursuant to this Agreement shall prove to have been incorrect in any material
respect when made;
(e) any material governmental consent, approval, license or
authorization and any registration or filing required in connection with the
Basic Agreement or any of the Disney Agreements expires or is terminated or
revoked or materially and adversely modified or restricted;
(f) it becomes unlawful for Disney to perform any obligation under any
of the Disney Agreements or the Basic Agreement or Disney shall seek to
repudiate its obligations under any of the Disney Agreements or the Basic
Agreement;
-31-
<PAGE>
(g) if any other loan, guarantee or other Indebtedness for money
borrowed of Disney or any of its Subsidiaries becomes due and repayable
prematurely by reason of an event of default in relation thereto or Disney or
any of its Subsidiaries fails to make any payment in respect thereof on the due
date for such payment as extended by any applicable grace period or the security
for any such other loan, guarantee or other Indebtedness for money borrowed
becomes subject to foreclosure or other enforcement action, provided, that the
--------
aggregate amount of Indebtedness affected by all or any of the foregoing events
exceeds Ten Million United States dollars ($10,000,000) or its then equivalent
in any other currency; the expression "money borrowed" as used herein means
money borrowed and premium and interest in respect thereof and liabilities under
acceptance credit or under any bond, note, debenture or other security issued as
consideration for assets or services but excluding such liabilities incurred
solely in relation to the acquisition of goods and services in the ordinary
course of business; or
(h) Disney shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; or
(i) an involuntary case or other proceeding shall be commenced against
Disney seeking liquidation, reorganization or other relief with respect to it or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain undismissed
and unstayed for a period of ninety (90) days, or an order for relief shall be
entered against Disney under the federal bankruptcy laws in the United States as
now or hereafter in effect;
then, and in any such event,
(x) if such event is a Termination Event specified in Section 9.01(h)
or (1) above, the Commitment shall automatically terminate, without any notice
to Disney or any other action by the Company, and
(y) if such an event is any other Termination Event, the Company may
by notice to Disney declare the Commitment terminated, in which event the
Commitment shall thereupon terminate.
SECTION 10: COLLECTION AGENT
10.1 Appointment of Collection Agent
-------------------------------
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<PAGE>
The collection and application of the Tokyo Disneyland Receivables and
the Designated Receivables shall be performed in accordance with Section 2.03 by
Disney. If at any time after the Drawing Date either (i) a Termination Event
pursuant to Section 9.01(h) or (i) shall occur, or (ii) any other Termination
Event shall occur and Disney shall have thereafter failed to act in accordance
with the reasonable instructions of the Company with respect to the collection
and application of the Tokyo Disneyland Receivables and the Designated
Receivables, the Company may or at any time after the Drawing Date and after
obtaining the prior written consent of the Company, Disney may appoint a
Collection Agent (which shall be the Company, The Hongkong and Shanghai Banking
Corporation Limited, Tokyo Branch or an affiliate of any of them) to perform
such collection and application functions in substitution for the performance of
such functions by Disney. Disney and the Company, to the extent of their
respective interests in the Tokyo Disneyland Receivables and the Designated
Receivables, hereby authorize the Collection Agent to exercise as their agent
the rights and powers conferred upon the Collection Agent in this Agreement.
10.2 Collections
-----------
The Collection Agent shall endeavor to collect or cause to be
collected from Oriental Land under the Basic Agreement, as and when due, all
amounts payable thereunder and the Collection Agent may take or permit to be
taken such action with respect thereto as it may deem advisable or as it may be
directed by the Company. The Collection Agent shall comply with all applicable
legal requirements in the performance of its functions hereunder. In the event
of a default in the payment of any Designated Receivables, the Collection Agent
shall be entitled to sue thereon in the name of Disney. The Collection Agent
shall not grant, or permit to be granted to Oriental Land under the Basic
Agreement, any rebate, refund, credit or other adjustment with respect to any
Designated Receivables without the prior written consent of the Company. The
Collection Agent shall agree that, prior to the initiation of any legal or
arbitral proceedings against Oriental Land in the name of Disney to enforce
collection of any Designated Receivables due from Oriental Land pursuant to the
Basic Agreement, the Collection Agent shall give Disney thirty (30) days' prior
notice thereof, unless in the opinion of the Company such delay in the
initiation of proceedings may result in irreparable injury to its interests
hereunder, in which event the initiation of such proceedings by the Collection
Agent shall not require such prior notice to Disney.
10.3 Change of Collection Agent
--------------------------
If at any time a Collection Agent shall be appointed pursuant to
Section 10.01:
(i) Disney shall deliver to the Collection Agent, and the
Collection Agent shall hold in trust for Disney and the Company, all such
Records as the Collection Agent may request.
-33-
<PAGE>
(ii) Disney shall, as promptly as practicable thereafter, cause
to be transmitted and delivered directly to the Collection Agent, forthwith
upon receipt and in the exact form received, cash, checks, drafts and other
instruments for the payment of money (properly endorsed, where required,
for collection) which may be received by it as payment on account or
otherwise in respect of any of the Tokyo Disneyland Receivables or the
Designated Receivables. Disney hereby irrevocably constitutes and appoints
the Collection Agent as its true and lawful attorney-in-fact, with full
power of substitution, to take in the name of Disney all steps necessary or
advisable to endorse, negotiate or otherwise realize on any instrument or
other writing in connection with any of the Tokyo Disneyland Receivables or
the Designated Receivables.
(iii) The Collection Agent shall be entitled to notify Oriental
Land to make payment directly to the Collection Agent of amounts payable in
respect of any of the Tokyo Disneyland Receivables and the Designated
Receivables. Upon the request of the Company, Disney shall so notify
Oriental Land in its own name.
10.4 Application of Collections
--------------------------
The Collection Agent shall apply all amounts received with respect to
the Tokyo Disneyland Receivables and the Designated Receivables and interest
thereon (if any) in accordance with the provisions of Section 2.03.
10.5 Compensation of Collection Agent
--------------------------------
In the event a Collection Agent is appointed in accordance with
Section 10.01, Disney shall be obligated to pay all reasonable expenses,
including the agreed compensation of such Collection Agent and any legal
expenses, thereafter incurred in the performance of the collection and
application functions specified herein, as well as all reasonable expenses
incurred in effecting the transfer of such functions from Disney to such
Collection Agent. Such amounts shall be payable on each Settlement Date with
respect to the Quarterly Receivables Period to which such Settlement Date
relates and may be withheld by the Collection Agent from any amount otherwise
payable to the account of Disney pursuant to Section 2.03.
10.6 Termination of Collection Agency
--------------------------------
The rights and powers granted to any Collection Agent appointed from
time to time under this Agreement shall be irrevocable by Disney and the Company
during the term of this Agreement. Upon termination of this Agreement in
accordance with its terms, such appointment shall terminate without further
action by any party to this Agreement. Upon such termination, the Collection
Agent shall return to Disney all Records held by it, and such Collection Agent
and the Company shall do such further acts and things, and execute such further
documents and instruments, at the request and expense of Disney, as may be
reasonably required to evidence such termination.
-34-
<PAGE>
SECTION 11: MISCELLANEOUS
11.1 Term
----
The term of this Agreement shall commence on the date first set forth
above and shall end on the date of termination of the Commitment hereunder or,
if later, upon the recovery by the Company in full of the Advances and interest
accrued thereon and the payment in full of all other sums payable by Disney
hereunder. The indemnities of Disney set forth in Sections 3 and 4 shall
survive the recovery of the Advances and interest accrued thereon.
11.2 Entire Agreement
----------------
This Agreement and the documents referred to herein constitute the
entire obligation of the parties hereto with respect to the subject matter
hereof and shall supersede any prior expressions of intent or understandings
with respect to this transaction. This Agreement may be amended only by an
instrument in writing signed by the parties hereto.
11.3 Waiver; Cumulative Rights
-------------------------
The failure or delay of the Company or the Manager to require
performance by Disney or Oriental Land of any provision of any of the Disney
Agreements or the Basic Agreement shall not affect its right to require
performance of such provision unless and until such performance has been waived
in writing by the Company or the Manager, as the case may be, in accordance with
the terms hereof. Each and every right granted to the Company or the Manager
hereunder or under any other document or instrument delivered hereunder or in
connection herewith, or allowed to it at law or in equity, shall be cumulative
and may be exercised in part or in whole from time to time.
11.4 Assignment
----------
(a) This Agreement shall be binding upon and shall be enforceable by
Disney, the Company, the Manager and their respective successors and assigns,
except that Disney shall have no right to assign or otherwise transfer its
rights or obligations hereunder without the prior written consent of the
Company. The Company or the Manager may assign or otherwise transfer all or any
portion of its rights and obligations hereunder, and any such assignment shall
be effective and binding upon Disney as of the date of such assignment or
transfer upon Disney's written consent thereto and, in the case of an assignment
or transfer by the Company, the Company and Disney having complied with the
requirements of Sections 11.04(b) and (c) unless Disney shall have waived such
provisions to be complied with by the Company by written consent. Upon any such
assignment or transfer by the Company, the assignee or transferee shall be
entitled, to the extent of the interest transferred, to the benefit of the
indemnities, the covenants and the yield protection provisions pursuant to the
provisions of this Agreement as
-35-
<PAGE>
fully as if a party hereto. The acts of the Company and the Manager or the
failure of the Company or the Manager to act hereunder shall in all
circumstances be conclusive and binding on any assignee or transferee of the
Company's or the Manager's interest hereunder.
(b) It is agreed that Disney shall have the right to consent to any
transfer of any interest in this Agreement. Disney shall not unreasonably
withhold its consent to any assignment, provided that Disney has received from
the Company, the transferor and the transferee such information, representations
and warranties which in its commercially reasonable judgment are appropriate for
such transfer. Such consent or the procedures for obtaining such consent may be
included in any consent given by Disney to assignments or transfers hereunder.
Disney shall, during the term of this Agreement, maintain on its books a record
of the beneficial interests held in this Agreement based on the information
which the Company is required to provide pursuant to this Section 11.04(b).
Disney shall have no liability to the Company or any such assignee or transferee
for any error in the recordation of such information on its books.
(c) Upon any further assignment or other transfer of an interest in
this Agreement by an assignee or transferee of the Company hereunder, the
assignor or transferor with respect to such further assignment or transfer shall
provide to the Company such information and undertakings from its assignee or
transferee as will permit the Company to comply with the requirements of
Sections 11.04(a) and (b), which requirements shall apply equally to any such
further assignment or transfer as to the original assignment or transfer from
the Company to its assignee or transferee. Notwithstanding the foregoing, the
prior written consent of Disney shall not be required with respect to any such
further assignment or transfer within twelve months of the Drawing Date by any
of the financial institutions holding beneficial interests in the Advances on
the Drawing Date (as set forth in the book entry system maintained pursuant to
Section 11.04(b)) which assignment or transfer creates a security interest in
the assignor's or transferor's rights hereunder solely to secure its obligations
with respect to its funding of its interest in the Advances and which assignment
or transfer, prior to foreclosure of the security interest constituted thereby,
does not convey any beneficial interest in the Advances to the assignee or
transferee.
11.5 Governing Law
-------------
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York in the United States of America.
11.6 Submission to Jurisdiction
--------------------------
(a) Disney hereby irrevocably consents that any legal action or
proceeding against it or any of its properties or assets with respect to any of
the obligations arising under or relating to any of the Disney Agreements may be
brought in any court of the State of New York or any Federal court of the United
States of America located in the City and State of New York, United States of
America, or in the Tokyo District Court, Tokyo, Japan, as the Company or the
-36-
<PAGE>
Manager may elect, and by execution and delivery of this Agreement Disney hereby
irrevocably submits to and accepts with regard to any such action or proceeding,
for itself and in respect of its properties and assets, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Disney
hereby irrevocably designates, appoints and empowers (i) Disney Enterprises,
Inc., presently located at 114 Fifth Avenue, New York, New York 10011 Attn:
Kenneth E. Newman, as its agent to receive for and on its behalf service of
process in the State of New York in any such legal action or proceeding with
respect to any of the Disney Agreements and (ii) Disney Enterprises, Inc., c/o
Walt Disney Enterprises of Japan, Ltd. presently located at No. 32 Kowa
Building, 5-2-32 Minami-Azabu, Minato-ku, Tokyo 106, Japan Attn: Vice President
- - Counsel, as its agent to receive for and on its behalf service of process in
Japan in any such legal action or proceeding with respect to any of the Disney
Agreements. A copy of any such process served on such agent shall be promptly
forwarded by airmail by the person commencing such proceeding to Disney at its
address set forth in Section 11.07, but the failure of Disney to receive such
copy shall not affect in any way the service of such process as aforesaid.
Disney further irrevocably consents to the service of process in any such action
or proceeding by the mailing of copies thereof by registered or certified
airmail, postage prepaid, to Disney at its address set forth in Section 11.07.
The foregoing, however, shall not limit the rights of the Company or the Manager
to serve process in any other manner permitted by law or to bring any legal
action or proceeding or to obtain execution of judgment in any jurisdiction.
(b) Disney hereby irrevocably waives any objection which it may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to any of the Disney Agreements in the State of New
York and hereby further irrevocably waives any claim that the State of New York
is not a convenient forum for any such suit, action or proceeding.
11.7 Notices
-------
Any notice required or permitted to be given hereunder shall be in
writing and shall be (i) personally delivered, (ii) transmitted by postage
prepaid registered mail (airmail if international), (iii) transmitted by
internationally recognized courier service, or (iv) transmitted by telex or
facsimile to the parties as follows, as elected by the party giving such notice:
To Disney: Disney Enterprises, Inc.
500 South Buena Vista Street
Burbank, California 91521
U.S.A.
Telex: 674480
Answerback: DISNEY BUBK A
Facsimile: (818) 840-1930
Attention: Legal Department
-37-
<PAGE>
with copies to:
--------------
Vice President - Assistant Treasurer
Facsimile: (818) 563-1682
To the Company
or the Manager: TDL Funding Company
c/o Caledonian Bank and Trust Limited
P.O. Box 1043
Caledonian House
Grand Cayman, Cayman Islands
Facsimile: (809) 949-8062
Attention: David Sargison
with copies to:
--------------
The Hongkong and Shanghai Banking Corporation
Limited,
Tokyo
Branch
as Collateral Agent
Kyobashi Itchome Building
13-1, Kyobashi 1-chome
Chuo-ku, Tokyo 104, Japan
Except as otherwise specified herein, all notices and other communications shall
be deemed to have been duly given on (i) the date of receipt if delivered
personally or if transmitted by facsimile, (ii) the date ten (10) days after
posting if transmitted by mail or, if earlier, the date of receipt, (iii) the
date three (3) days after delivery to the courier if sent by internationally
recognized courier service, or (iv) the date of transmission with confirmed
answerback if transmitted by telex, whichever shall first occur. Each party may
change its address for purposes hereof by notice to the other. All notices
hereunder and all documents or instruments delivered in connection with this
transaction shall be in the English language.
11.8 Confidentiality
---------------
The Company shall hold all non-public information obtained from Disney
pursuant to the requirements of this Agreement and which has been identified as
such by Disney in accordance with the Company's customary procedures for
handling confidential information
-38-
<PAGE>
of such a nature and in accordance with safe and sound banking practices,
provided, that the Company may disclose any such information to any potential
- --------
assignee or other transferee of any of its interest hereunder pursuant to
Section 11.04, as required or requested by any governmental authority or
pursuant to legal process. The Company shall obtain from any such potential
assignee or transferee a confidentiality undertaking in favor of Disney on terms
substantially identical to this Section 11.08.
11.9 Severability
------------
If any one or more of the provisions contained in this Agreement or
any document executed in connection herewith shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired.
11.10 Counterparts
------------
This Agreement may be signed in any number of counterparts. Any
single counterpart or a set of counterparts signed, in either case, by all the
parties hereto shall constitute a full and original agreement for all purposes.
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized signatories as of the day and
year first written above.
DISNEY ENTERPRISES, INC.
By:
----------------------------
Name:
Title:
TDL FUNDING COMPANY
By:
-----------------------------
Name:
Title:
-40-
<PAGE>
SCHEDULE 1
<PAGE>
EXHIBIT A
DISNEY ACKNOWLEDGMENT
[Date]
Disney Enterprises, Inc.
500 South Buena Vista Street
Burbank, California 91521
U.S.A.
Re: Tokyo Disneyland Receivables Facility
-------------------------------------
Gentlemen:
We write to notify you by this letter that, under that certain
Beneficial Assignment and Security Agreement dated as of April __, 1997 between
TDL Funding Company (hereinafter referred to with its successors and assigns as
"the Company") and The Hongkong and Shanghai Banking Corporation Limited as
collateral agent (the "Collateral Agent"), the Company has granted to the
Collateral Agent on its own behalf and on behalf of certain financial
institutions (hereinafter referred to with their respective successors and
assigns as the "Lenders") a first priority security interest in and to, among
other things, (i) the rights of the Company under the limited recourse agreement
dated as of April 27, 1988 (as amended at any time and from time to time, the
"Facility Agreement") among Disney Enterprises, Inc. (hereinafter referred to
with its successors and assigns as "Disney") and the Company, (ii) the
Collateral (as therein defined), and (iii) the Lock Box Account.
Please acknowledge receipt of this notification by signing the
enclosed copy of this letter. This acknowledgment evidences (i) Disney's
consent to the granting of the above-referenced security interest, (ii) Disney's
acknowledgment that it has not received any prior notice of assignment or of the
creation of a security interest in the Company's rights under the Facility
Agreement or with respect to the Collateral, and (iii) Disney's agreement, given
irrevocably as of the date hereof, that upon the written or telex certification
by the Collateral Agent (which shall be binding and conclusive) that an Event of
Default has occurred under the terms of that certain DWARFS Secured Yen Loan
Agreement dated as of April 30, 1997 among the Company, HSBC Markets Limited, as
Administrative Agent, the Collateral Agent and the Lenders, Disney will consider
the Collateral Agent and the Lenders as entitled to exercise all of the rights
of the Company under the Facility Agreement and with respect to the Collateral
to the exclusion of the Company. Upon receipt of the certification of the
Collateral Agent referred to in this paragraph, Disney's only obligation with
respect to the Facility Agreement and the Designated Receivables shall be toward
the Collateral Agent and its assigns and the Lenders and their assigns and
Disney shall have no further obligation to the Company in respect thereto.
In addition, this acknowledgment evidences Disney's renunciation of
all rights of
<PAGE>
set-off which Disney may enjoy under the laws of the State of New York or
otherwise with respect to the debts owing by Disney under the Facility Agreement
to the Company, the Collateral Agent or any Lender against sums owing by the
Company, the Collateral Agent or any Lender to Disney.
This letter shall be governed by and interpreted in accordance with
the laws of the State of New York.
Yours faithfully,
TDL FUNDING COMPANY
By:
---------------------------
Name:
Title:
THE HONGKONG AND SHANGHAI BANKING
CORPORATION LIMITED
By:
---------------------------
Name:
Title:
Acknowledged and agreed this _____
day of ______, 1988
DISNEY ENTERPRISES, INC.
By:
------------------
Name:
Title:
A-2
<PAGE>
EXHIBIT B
LOCK BOX NOTICE
[Date]
The Hongkong and Shanghai Banking Corporation
Limited
Kyobashi 1-chome
Chuo-ku
Tokyo 104, Japan
Gentlemen:
This notice is given to you by the undersigned, pursuant to the
facility agreement dated as of April 27, 1988 (as amended to date, the "Facility
Agreement") among Disney Enterprises, Inc. ("Disney") and TDL Funding Company
(the "Company") in connection with your maintenance of Disney's account no.
[_________] at your head office located at Kyobashi 1-chome, Chuo-ku, Tokyo 104,
Japan (the "Lock Box Account").
Pursuant to the terms of the Facility Agreement and a pledge agreement
dated April 24, 1997 between Disney and the Company executed thereunder (the
"Pledge Agreement"), Disney has assigned the Lock Box Account and all moneys
from time to time deposited therein to the Company as security for Disney's
obligations to the Company under the Facility Agreement. A copy of the Pledge
Agreement, as executed by Disney and the Company, is being delivered to you with
this notice.
Upon receipt of a written notice from the Company that a termination
event has occurred under the Facility Agreement, you shall (i) transfer all or
any portion of the amounts then on deposit in, or thereafter deposited to, the
Lock Box Account to such other account as the Company may designate or to such
account as may be designated by any collection agent named by the Company in its
written notice to you and (ii) otherwise act in accordance with such written
instructions relating to the Lock Box Account as the Company or such collection
agent may from time to time deliver to you.
We hereby request you to issue each time when any deposit is made in
the Lock Box Account a written consent to the pledge prescribed in the Pledge
Agreement with an officially established date of such consent in the form of
Annex A hereto.
Please confirm your receipt of this notice and the copy of the Pledge
Agreement annexed hereto and your agreement to the terms hereof by
countersigning this letter below. Such countersignature will also constitute
your confirmation that (i) you have received no prior notice
<PAGE>
of the assignment or pledge of, or the creation of any other security interest
in or any attachment in respect of, the Lock Box Account and (ii) all payments
from the Lock Box Account shall be made by you irrespective of, and without
deduction for, any counterclaim, defense, recoupment or set-off and shall be
final, and you will not seek to recover from either of us for any reason any
such payment once made.
Very truly yours,
DISNEY ENTERPRISES, INC.
By:
_______________________
Name:
Title:
TDL FUNDING COMPANY
By:
_______________________
Name:
Title:
B-2
<PAGE>
enc.
Acknowledged and agreed to this
___ day of April, 1997
THE HONGKONG AND SHANGHAI BANKING CORPORATION,
LIMITED
By:
_______________________
Name:
Title:
Kyobashi 1-chome
Chuo-ku
Tokyo 104, Japan
( )
------------------------
Confirmed date of Japanese
Notary
(kakutei hizuke)
------- ------
<PAGE>
ANNEX A
CONSENT AND ACKNOWLEDGEMENT
Disney Enterprises, Inc.
500 South Buena Vista Street
Burbank, California 91521
U.S.A.
TDL Funding Company
c/o Caledonian Bank and Trust Limited
P.O. Box 1043
Caledonian House
Grand Cayman, Cayman Islands
Dear Sirs,
Reference is hereby made to the Pledge Agreement made between Disney
Enterprises, Inc. ("Disney") and TDL Funding Company (the "Company") and dated
as of April 24, 1997 (the "Pledge Agreement") and the letter issued by Disney
and the Company to our Bank and dated April 24, 1997 containing, inter alia,
notice by Disney and the Company and acknowledgment by our Bank of the pledge of
the Lock Box Account (as referred to therein) (the "Letter").
Pursuant to the terms of the Pledge Agreement and the Letter, our Bank
hereby gives consent to and acknowledges the pledge to the Company of the
deposit existing in the Lock Box Account in the amount of [Amount] as of [Date]
19__, as security for the due performance of the secured obligations
respectively set out in the Pledge Agreement.
Very truly yours,
THE HONGKONG AND SHANGHAI
BANKING CORPORATION LIMITED
Kyobashi 1-chome
Chuo-ku
Tokyo 104, Japan
By:
_____________________________
Name:
Title:
(Confirmed date of Japanese
Notary) (kakutei hizuke)
------- ------
<PAGE>
EXHIBIT C
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement") made between TDL FUNDING COMPANY
(the "Company") and DISNEY ENTERPRISES, INC. ("Disney") whereby the parties
agree as follows:
1. So as to secure the due performance of the monetary obligations
as stated in Schedule A attached hereto, Disney hereby assigns to the Company
all deposits from time to time in the deposit account described in Schedule B
attached hereto (the "Account") and the right to withdraw and receive all such
-------
deposits.
2. Disney hereby irrevocably appoints the Company as an attorney-in-
fact for Disney and authorizes the Company to take the following actions on
behalf of Disney:
a. to obtain at the time of the establishment of the Account and
thereafter each time when any deposit is made therein a written consent of the
bank maintaining the Account (the "Bank") to the pledge of all deposits from
----
time to time in the Account with an officially established date of such
consent; and
b. to take any action necessary for or incidental to the foregoing.
3. In furtherance of the foregoing, Disney and the Company shall
cause notice of the pledge hereby established to be given to the Bank in the
form of the Lock Box Notice appended hereto as Annex 1 and shall cause the Bank
to countersign such Lock Box Notice.
4. This Agreement shall be governed by and construed in accordance
with the laws of Japan.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate, and the parties hereto shall hold one copy each thereof.
DATED: April 24, 1997
TDL FUNDING COMPANY
By:________________________
Name:
Title:
DISNEY ENTERPRISES, INC.
By:________________________
Name:
Title:
C-2
<PAGE>
SCHEDULE A TO PLEDGE AGREEMENT
Monetary Obligations
All amounts from time to time payable by Disney with respect to the
Advances and accrued interest thereon pursuant to the limited recourse agreement
dated as of April 27, 1988 between Disney and the Company relating to the
limited recourse financing of royalty receipts from the Tokyo Disneyland Park.
<PAGE>
SCHEDULE B TO PLEDGE AGREEMENT
Pledged Deposits
Any and all deposits, whether present or future, in the following
account:
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Account: Disney Enterprises, Inc.
Number of Account: [____________]
Location of Account: The Hongkong and Shanghai Banking Corporation
Limited
Kyobashi 1-chome
Chuo-ku
Tokyo 104, Japan
</TABLE>
<PAGE>
ANNEX 1 TO PLEDGE AGREEMENT
LOCK BOX NOTICE
[Date]
The Hongkong and Shanghai Banking Corporation
Limited
Kyobashi 1-chome
Chuo-ku
Tokyo 104, Japan
Gentlemen:
This notice is given to you by the undersigned, pursuant to the
facility agreement dated as of April 27, 1988 (as amended to date, the "Facility
Agreement") among Disney Enterprises, Inc. ("Disney") and TDL Funding Company
(the "Company") in connection with your maintenance of Disney's account no.
[_________] at your head office located at Kyobashi 1-chome, Chuo-ku, Tokyo 104,
Japan (the "Lock Box Account").
Pursuant to the terms of the Facility Agreement and a pledge agreement
dated April 24, 1997 between Disney and the Company executed thereunder (the
"Pledge Agreement"), Disney has assigned the Lock Box Account and all moneys
from time to time deposited therein to the Company as security for Disney's
obligations to the Company under the Facility Agreement. A copy of the Pledge
Agreement, as executed by Disney and the Company, is being delivered to you with
this notice.
Upon receipt of a written notice from the Company that a termination
event has occurred under the Facility Agreement, you shall (i) transfer all or
any portion of the amounts then on deposit in, or thereafter deposited to, the
Lock Box Account to such other account as the Company may designate or to such
account as may be designated by any collection agent named by the Company in its
written notice to you and (ii) otherwise act in accordance with such written
instructions relating to the Lock Box Account as the Company or such collection
agent may from time to time deliver to you.
We hereby request you to issue each time when any deposit is made in
the Lock Box Account a written consent to the pledge prescribed in the Pledge
Agreement with an officially established date of such consent in the form of
Annex A hereto.
Please confirm your receipt of this notice and the copy of the Pledge
Agreement
<PAGE>
annexed hereto and your agreement to the terms hereof by countersigning this
letter below. Such countersignature will also constitute your confirmation that
(i) you have received no prior notice of the assignment or pledge of, or the
creation of any other security interest in or any attachment in respect of, the
Lock Box Account and (ii) all payments from the Lock Box Account shall be made
by you irrespective of, and without deduction for, any counterclaim, defense,
recoupment or set-off and shall be final, and you will not seek to recover from
either of us for any reason any such payment once made.
Very truly yours,
DISNEY ENTERPRISES, INC.
By:
_______________________
Name:
Title:
TDL FUNDING COMPANY
By:
_________________________
Name:
Title:
-2-
<PAGE>
enc.
Acknowledged and agreed to this
___ day of April, 1997
THE HONGKONG AND SHANGHAI BANKING CORPORATION,
LIMITED
By:
________________________
Name:
Title:
Kyobashi 1-chome
Chuo-ku
Tokyo 104, Japan
( )
------------------------
Confirmed date of Japanese
Notary
(kakutei hizuke)
------- ------
-3-
<PAGE>
ANNEX A
CONSENT AND ACKNOWLEDGMENT
Disney Enterprises, Inc.
500 South Buena Vista Street
Burbank, California 91521
U.S.A.
TDL Funding Company
c/o Caledonian Bank and Trust Limited
P.O. Box 1043
Caledonian House
Grand Cayman, Cayman Islands
Dear Sirs,
Reference is hereby made to the Pledge Agreement made between Disney
Enterprises, Inc. ("Disney") and TDL Funding Company (the "Company") and dated
as of April 24, 1997 (the "Pledge Agreement") and the letter issued by Disney
and the Company to our Bank and dated April 24, 1997 containing, inter alia,
notice by Disney and the Company and acknowledgment by our Bank of the pledge of
the Lock Box Account (as referred to therein) (the "Letter").
Pursuant to the terms of the Pledge Agreement and the Letter, our Bank
hereby gives consent to and acknowledges the pledge to the Company of the
deposit existing in the Lock Box Account in the amount of [Amount] as of [Date]
19__, as security for the due performance of the secured obligations
respectively set out in the Pledge Agreement.
Very truly yours,
THE HONGKONG AND SHANGHAI
BANKING CORPORATION LIMITED
Kyobashi 1-chome
Chuo-ku
Tokyo 104, Japan
By:
_____________________________
Name:
Title:
(Confirmed date of Japanese
Notary) (kakutei hizuke)
------- ------
<PAGE>
EXHIBIT 10M
THE WALT DISNEY COMPANY
ANNUAL BONUS PERFORMANCE PLAN
FOR EXECUTIVE OFFICERS
SECTION 1. PURPOSE OF PLAN
The purpose of the Plan is to promote the success of the Company by
providing to participating executives bonus incentives that qualify as
performance-based compensation within the meaning of Section 162(m) of the Code.
SECTION 2. DEFINITIONS AND TERMS
2.1 Accounting Terms. Except as otherwise expressly provided or the
----------------
context otherwise requires, financial and accounting terms are used as defined
for purposes of, and shall be determined in accordance with, generally accepted
accounting principles, as from time to time in effect, as applied and reflected
in the consolidated financial statements of the Company, prepared in the
ordinary course of business.
2.2 Specific Terms. The following words and phrases as used herein
--------------
shall have the following meanings unless a different meaning is plainly required
by the context:
"Base Salary" in respect of any Performance Period means the aggregate
-----------
base annualized salary of a Participant from the Company and all affiliates of
the Company at the time Participant is selected to participate for that
Performance Period, exclusive of any commissions or other actual or imputed
income from any Company-provided benefits or perquisites, but prior to any
reductions for salary deferred pursuant to any deferred compensation plan or for
contributions to a plan qualifying under Section 401(k) of the Code or
contributions to a cafeteria plan under Section 125 of the Code.
"Base Salary Multiple" means an amount equal to ten times Base Salary
--------------------
or, in the case of the Chief Executive Officer, twenty times Base Salary.
"Bonus" means a cash payment or a payment opportunity as the context
-----
requires.
"Business Criteria" means any one or any combination of Net Income,
-----------------
Return on Equity, Return on Assets, or EPS.
1
<PAGE>
"CapCities Acquisition" means the acquisition of Capital Cities/ABC,
---------------------
Inc by the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Committee" means the Executive Performance Plan Committee which has
---------
been established to administer the Plan in accordance with Section 3.1 and
Section 162(m) of the Code.
"Company" means The Walt Disney Company and any successor, whether by
-------
merger, ownership of all or substantially all of its assets, or otherwise.
"EPS" for any Year means earnings per share of the Company, as
---
reported in the Company's Consolidated Statement of Income set forth in the
audited annual financial statements of the Company for the Year.
"Executive" means a key employee (including any officer) of the
---------
Company who is (or in the opinion of the Committee may during the applicable
Performance Period become) an "executive officer" as defined in Rule 3b-7 under
the Securities Exchange Act of 1934.
"Net Income" for any Year means the consolidated net income of the
----------
Company, as reported in the audited financial statements of the Company for the
Year.
"Participant" means an Executive selected to participate in the Plan
-----------
by the Committee.
"Performance Period" means the Year or Years with respect to which the
------------------
Performance Targets are set by the Committee.
"Performance Target(s)" means the specific objective goal or goals
---------------------
(which may be cumulative and/or alternative) that are timely set in writing by
the Committee for each Executive for the Performance Period in respect of any
one or more of the Business Criteria.
"Plan" means this Annual Bonus Performance Plan for Executive Officers
----
of the Company, as amended from time to time.
"Return on Assets" means Net Income divided by the average of the
----------------
total assets of the Company at the end of the four fiscal quarters of the Year,
as reported by the Company in its consolidated financial statements.
2
<PAGE>
"Return on Equity" means the Net Income divided by the average of the
----------------
common stockholders equity of the Company at the end of each of the four fiscal
quarters of the Year, as reported by the Company in its consolidated financial
statements.
"Section 162(m)" means Section 162(m) of the Code, and the regulations
--------------
promulgated thereunder, all as amended from time to time.
"Shares" means shares of common stock of the Company or any securities
------
or property, including rights into which the same may be converted by operation
of law or otherwise.
"Year" means any one or more fiscal years of the Company commencing on
----
or after October 1, 1996 that represent(s) the applicable Performance Period and
end(s) no later than September 30, 2001.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 The Committee. The Plan shall be administered by a Committee
-------------
consisting of at least three members of the Board of Directors of the Company,
duly authorized by the Board of Directors of the Company to administer the Plan,
who (i) are not eligible to participate in the Plan and (ii) are "outside
directors" within the meaning of Section 162(m).
3.2 Powers of the Committee. The Committee shall have the sole
-----------------------
authority to establish and administer the Performance Target(s) and the
responsibility of determining from among the Executives those persons who will
participate in and receive Bonuses under the Plan and, subject to Sections 4 and
5 of the Plan, the amount of such Bonuses, and the time or times at which and
the form and manner in which Bonuses will be paid (which may include elective or
mandatory deferral alternatives) and shall otherwise be responsible for the
administration of the Plan, in accordance with its terms. The Committee shall
have the authority to construe and interpret the Plan (except as otherwise
provided herein) and any agreement or other document relating to any Bonus under
the Plan, may adopt rules and regulations governing the administration of the
Plan, and shall exercise all other duties and powers conferred on it by the
Plan, or which are incidental or ancillary thereto. For each Performance
Period, the Committee shall determine, at the time the Business Criteria and the
Performance Target(s) are set, those Executives who are selected as Participants
in the Plan.
3
<PAGE>
3.3 Requisite Action. A majority (but not fewer than two) of the
----------------
members of the Committee shall constitute a quorum. The vote of a majority of
those present at a meeting at which a quorum is present or the unanimous written
consent of the Committee shall constitute action by the Committee.
3.4 Express Authority (and Limitations on Authority) to Change Terms
----------------------------------------------------------------
and Conditions of Bonus; Acceleration or Deferral of Payment. Without limiting
- ------------------------------------------------------------
the Committee's authority under other provisions of the Plan, but subject to any
express limitations of the Plan and Section 5.8, the Committee shall have the
authority accelerate a Bonus (after the attainment of the applicable Performance
Target(s)) and to waive restrictive conditions for a Bonus (including any
forfeiture conditions, but not Performance Target(s)), in such circumstances as
the Committee deems appropriate. In the case of any acceleration of a Bonus
after the attainment of the applicable Performance Target(s), the amount payable
shall be discounted to its present value using an interest rate equal to Moody's
Average Corporate Bond Yield for the month preceding the month in which such
acceleration occurs. Any deferred payment shall be subject to Section 4.9 and,
if applicable, Section 4.10.
SECTION 4. BONUS PROVISIONS.
4.1 Provision for Bonus. Each Participant may receive a Bonus if and
--------------------
only if the Performance Target(s) established by the Committee, relative to the
applicable Business Criteria, are attained. The applicable Performance Period
and Performance Target(s) shall be determined by the Committee consistent with
the terms of the Plan and Section 162(m). Notwithstanding the fact that the
Performance Target(s) have been attained, the Company may pay a Bonus of less
than the amount determined by the formula or standard established pursuant to
Section 4.2 or may pay no Bonus at all, unless the Committee otherwise expressly
provides by written contract or other written commitment.
4.2 Selection of Performance Target(s). The specific Performance
----------------------------------
Target(s) with respect to the Business Criteria must be established by the
Committee in advance of the deadlines applicable under Section 162(m) and while
the performance relating to the Performance Target(s) remains substantially
uncertain within the meaning of Section 162(m). At the time the Performance
Target(s) are selected, the Committee shall provide, in terms of an objective
formula or standard for each Participant, and for any person who may become a
Participant after the Performance Target(s) are set, the method of computing the
specific amount that will represent the maximum amount of Bonus payable to the
Participant if the Performance Target(s) are attained, subject to Sections 4.1,
4.3, 4.7, 5.1 and 5.8.
4
<PAGE>
4.3 Maximum Individual Bonus. Notwithstanding any other provision
------------------------
hereof, no Executive shall receive a Bonus under the Plan for the Year in excess
of $15 million, or, if less, his or her Base Salary Multiple. No Executive
shall receive aggregate bonuses under this Plan in excess of $75 million in the
case of the Chief Executive Officer or $50 million in the case of any other
Executive. The foregoing limits shall be subject to adjustments consistent with
Section 3.4.
4.4 Selection of Participants. For each Performance Period, the
-------------------------
Committee shall determine, at the time the Business Criteria and the Performance
Target(s) are set, those Executives who will participate in the Plan.
4.5 Effect of Mid-Year Commencement of Service. To the extent
------------------------------------------
compatible with Sections 4.2 and 5.8, if services as an Executive commence after
the adoption of the Plan and the Performance Target(s) are established for a
Performance Period, the Committee may grant a Bonus that is proportionately
adjusted based on the period of actual service during the Year; the amount of
any Bonus paid to such person shall not exceed that proportionate amount of the
applicable maximum individual bonus under Section 4.3.
4.6 Changes Resulting From Material Acquisitions, Dispositions or
-------------------------------------------------------------
Recapitalizations; Extraordinary Items; Accounting Changes. Subject to Section
- ----------------------------------------------------------
5.8, if, after the Performance Target(s) are established for a Performance
Period, a change occurs in the applicable accounting principles or practices,
the amount of the Bonuses paid under this Plan for such Performance Period shall
be determined without regard to such change.
4.7 Committee Discretion to Determine Bonuses. The Committee has the
-----------------------------------------
sole discretion to determine the standard or formula pursuant to which each
Participant's Bonus shall be calculated (in accordance with Section 4.2),
whether all or any portion of the amount so calculated will be paid, and the
specific amount (if any) to be paid to each Participant, subject in all cases to
the terms, conditions and limits of the Plan and of any other written commitment
authorized by the Committee. To this same extent, the Committee may at any time
establish additional conditions and terms of payment of Bonuses (including but
not limited to the achievement of other financial, strategic or individual
goals, which may be objective or subjective) as it may deem desirable in
carrying out the purposes of the Plan and may take into account such other
factors as it deems appropriate in administering any aspect of the Plan. The
Committee may not, however, increase the maximum amount permitted to be paid to
any individual under Section 4.2 or 4.3 of the Plan or award a Bonus under this
Plan if the applicable Performance Target(s) have not
5
<PAGE>
been satisfied.
4.8 Committee Certification. No Executive shall receive any payment
-----------------------
under the Plan unless the Committee has certified, by resolution or other
appropriate action in writing, that the amount thereof has been accurately
determined in accordance with the terms, conditions and limits of the Plan and
that the Performance Target(s) and any other material terms previously
established by the Committee or set forth in the Plan were in fact satisfied.
4.9 Time of Payment; Deferred Amounts. Any Bonuses granted by the
---------------------------------
Committee under the Plan shall be paid as soon as practicable following the
Committee's determinations under this Section 4 and the certification of the
Committee's findings under Section 4.8. Any such payment shall be in cash or
cash equivalent or in such other form of equal value on such payment date
(including Shares or share equivalents as contemplated by Section 4.10) as the
Committee may approve or require, subject to applicable withholding requirements
and Section 4.10. Notwithstanding the foregoing, the Committee, in its sole
discretion (but subject to any prior written commitments and to any conditions
consistent with Sections 3.4, 4.3, 4.10 and 5.8 that it deems appropriate),
defer the payout or vesting of any Bonus and/or provide to Participants the
opportunity to elect to defer the payment of any Bonus under a nonqualified
deferred compensation plan and as contemplated by Section 4.10. In the case of
any deferred payment of a Bonus after the attainment of the applicable
Performance Target(s), any amount in excess of the amount otherwise payable
shall be based on either Moody's Average Corporate Bond Yield over the deferral
period or one or more predetermined actual investments (including Shares) such
that the amount payable at the later date will be based upon actual returns,
including any decrease or increase in the value of the investment(s), unless the
alternative deferred payment is otherwise exempt from the limitations under
Section 162(m).
4.10 Share Payouts. Any Shares payable under the Plan shall be
-------------
pursuant to a combined Award under the Plan and the Company's 1995 Stock
Incentive Plan, as amended or another stockholder approved stock incentive plan
of the Company (the "Stock Plan"). The number of Shares or stock units (or
similar deferred award representing a right to receive Shares) awarded in lieu
of all or any portion of a cash bonus under the Plan shall be equal to the
largest whole number of Shares which have an aggregate fair market value no
greater than the amount of cash otherwise payable as of the date such cash
payment would have been paid. For this purpose, "fair market value" shall mean
the average of the high and low prices of Company common stock on such date.
Any stock units (or similar rights) shall thereafter be
6
<PAGE>
subject to adjustments as contemplated by the Stock Plan. Dividend equivalent
rights as earned may be accrued and payable in additional stock units, cash or
Shares or any combination thereof, in the Committee's discretion.
SECTION 5. GENERAL PROVISIONS
5.1 No Right to Bonus or Continued Employment. Neither the
-----------------------------------------
establishment of the Plan nor the provision for or payment of any amounts
hereunder nor any action of the Company (including, for purposes of this Section
5.1, any predecessor or subsidiary), the Board of Directors of the Company or
the Committee in respect of the Plan, shall be held or construed to confer upon
any person any legal right to receive, or any interest in, a Bonus or any other
benefit under the Plan, or any legal right to be continued in the employ of the
Company. The Company expressly reserves any and all rights to discharge an
Executive in its sole discretion, without liability of any person, entity or
governing body under the Plan or otherwise. Notwithstanding any other provision
hereof and notwithstanding the fact that the Performance Target(s) have been
attained and/or the individual maximum amounts pursuant to Section 4.2 have been
calculated, the Company shall have no obligation to pay any Bonus hereunder nor
to pay the maximum amount so calculated or any prorated amount based on service
during the period, unless the Committee otherwise expressly provides by written
contract or other written commitment.
5.2 Discretion of Company, Board of Directors and Committee. Any
-------------------------------------------------------
decision made or action taken by the Company or by the Board of Directors of the
Company or by the Committee arising out of or in connection with the creation,
amendment, construction, administration, interpretation and effect of the Plan
shall be within the absolute discretion of such entity and shall be conclusive
and binding upon all persons. No member of the Committee shall have any
liability for actions taken or omitted under the Plan by the member or any other
person.
5.3 Absence of Liability. A member of the Board of Directors of the
--------------------
Company or a member of the Committee of the Company or any officer of the
Company shall not be liable for any act or inaction hereunder, whether of
commission or omission.
5.4 No Funding of Plan. The Company shall not be required to fund or
------------------
otherwise segregate any cash or any other assets which may at any time be paid
to Participants under the Plan. The Plan shall constitute an "unfunded" plan of
the Company. The Company shall not, by any provisions of the Plan, be deemed to
be a trustee of any property, and any obligations of the Company to any
Participant under the Plan shall be those of a
7
<PAGE>
debtor and any rights of any Participant or former Participant shall be no
greater than those of a general unsecured creditor.
5.5 Non-Transferability of Benefits and Interests. Except as
---------------------------------------------
expressly provided by the Committee, no benefit payable under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any such attempted action be void and no such
benefit shall be in any manner liable for or subject to debts, contracts,
liabilities, engagements or torts of any Participant or former Participant.
This Section 5.5 shall not apply to an assignment of a contingency or payment
due after the death of the Executive to the deceased Executive's legal
representative or beneficiary.
5.6 Law to Govern. All questions pertaining to the construction,
-------------
regulation, validity and effect of the provisions of the Plan shall be
determined in accordance with the laws of the State of California.
5.7 Non-Exclusivity. Subject to Section 5.8, the Plan does not limit
---------------
the authority of the Company, the Board or the Committee, or any subsidiary of
the Company to grant awards or authorize any other compensation under any other
plan or authority, including, without limitation, awards or other compensation
based on the same Performance Target(s) used under the Plan. In addition,
Executives not selected to participate in the Plan may participate in other
plans of the Company.
5.8 Section 162(m) Conditions; Bifurcation of Plan. It is the intent
----------------------------------------------
of the Company that the Plan and Bonuses paid hereunder satisfy and be
interpreted in a manner, that, in the case of Participants who are or may be
persons whose compensation is subject to Section 162(m), satisfies any
applicable requirements as performance-based compensation. Any provision,
application or interpretation of the Plan inconsistent with this intent to
satisfy the standards in Section 162(m) of the Code shall be disregarded.
Notwithstanding anything to the contrary in the Plan, the provisions of the Plan
may at any time be bifurcated by the Board or the Committee in any manner so
that certain provisions of the Plan or any Bonus intended (or required in order)
to satisfy the applicable requirements of Section 162(m) are only applicable to
persons whose compensation is subject to Section 162(m).
8
<PAGE>
SECTION 6. AMENDMENTS, SUSPENSION OR TERMINATION OF PLAN
The Board of Directors or the Committee may from time to time amend,
suspend or terminate in whole or in part, and if suspended or terminated, may
reinstate, any or all of the provisions of the Plan. Notwithstanding the
foregoing, no amendment may be effective without Board of Directors and/or
shareholder approval if such approval is necessary to comply with the applicable
rules of Section 162(m) of the Code.
9
<PAGE>
EXHIBIT 10N
- --------------------------------------------------------------------------------
THE WALT DISNEY COMPANY
1997 NON-EMPLOYEE DIRECTORS STOCK
AND
DEFERRED COMPENSATION PLAN
- --------------------------------------------------------------------------------
<PAGE>
1997 NON-EMPLOYEE DIRECTORS STOCK
AND
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 PURPOSES AND AUTHORIZED SHARES.............................................................. 1
SECTION 2 DEFINITIONS................................................................................. 1
SECTION 3 PARTICIPATION............................................................................... 3
SECTION 4 SHARE OR DEFERRAL ELECTIONS................................................................. 3
4.1 Time and Types of Elections........................................................... 3
4.2 Permitted Amounts; Elections.......................................................... 4
SECTION 5 DEFERRAL ACCOUNTS........................................................................... 4
5.1. Cash Account.......................................................................... 4
5.2. Stock Unit Account.................................................................... 4
5.3. Share Accounts........................................................................ 5
5.4. Dividend Equivalent Credits to Stock Unit Accounts.................................... 5
5.5. Immediate Vesting and Accelerated Crediting........................................... 5
5.6. Distribution of Cash or Shares........................................................ 6
5.7. Adjustments in Case of Changes in Common Stock........................................ 7
SECTION 6 ADMINISTRATION.............................................................................. 8
6.1. The Administrator..................................................................... 8
6.2. Committee Action...................................................................... 8
6.3. Rights and Duties..................................................................... 8
SECTION 7 PLAN CHANGES AND TERMINATION................................................................ 9
7.1. Amendments............................................................................ 9
7.2. Term.................................................................................. 9
SECTION 8 MISCELLANEOUS............................................................................... 9
8.1. Limitation on Eligible
Directors' Rights..................................................................... 9
8.2. Beneficiaries......................................................................... 10
</TABLE>
i
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<TABLE>
<C> <S> <C>
8.3. Benefits Not Transferable; Obligations Binding Upon Successors........................ 10
8.4. Governing Law; Severability........................................................... 10
8.5. Compliance With Laws.................................................................. 10
8.6. Plan Construction..................................................................... 11
8.7. Headings Not Part of Plan................................................................... 11
8.8. Relationship to the Existing Director........................
Deferred Compensation Plan..................................................... 11
</TABLE>
ii
<PAGE>
1997 NON-EMPLOYEE DIRECTORS STOCK
AND
DEFERRED COMPENSATION PLAN
1. PURPOSES AND AUTHORIZED SHARES
The purposes of The Walt Disney Company 1997 Non-Employee Directors Stock
and Deferred Compensation Plan (the "Plan") are to attract, motivate and retain
eligible directors of the Company who elect to participate in this Plan by
offering them opportunities to defer compensation and to encourage eligible
directors to increase their stock ownership in the Company. An aggregate number
not to exceed 50,000 treasury shares of Common Stock (subject to adjustments
contemplated by Section 5.7) may be delivered pursuant to this Plan.
2. DEFINITIONS
Whenever the following terms are used in this Plan they shall have the
meaning specified below unless the context clearly indicates to the contrary:
ACCOUNT or ACCOUNTS means one or more of the Participant's Cash Account(s),
Stock Unit Account(s) or Share Account, as the context requires.
APPLICABLE PERCENTAGE means the percentage of Eligible Compensation subject
to deferral or payment in Shares.
AVERAGE FAIR MARKET VALUE means the average of the Fair Market Values of a
share of Common Stock during the last 10 trading days preceding the applicable
Award Date.
AWARD DATE means, in the case of Cash Account deferrals, each date on which
cash would otherwise have been paid; in the case of Unit Account deferrals, the
last day of each calendar quarter, except as provided in Section 5.5; in the
case of Share elections under Section 4.1(a), the last day of each Year, except
as provided in Section 5.5; and in the case of Rollover Accounts, December 31,
1997.
BOARD means the Board of Directors of the Company.
CASH ACCOUNT means the bookkeeping account maintained by the Company on
behalf of a Participant who elects to defer his or her Compensation in cash
pursuant to Section 4.
CODE means the Internal Revenue Code of 1986, as amended.
COMMON STOCK means the Common Stock of the Company, subject to adjustment
pursuant to Section 5.7.
COMMITTEE means the Board or a Committee of the Board acting under
delegated authority from the Board.
1
<PAGE>
COMPANY means The Walt Disney Company, a Delaware corporation, and its
successors and assigns.
DIVIDEND EQUIVALENT means the amount of cash dividends or other cash
distributions paid by the Company on that number of shares of Common Stock which
is equal to the number of Stock Units then credited to a Participant's Stock
Unit Account on the applicable measurement date which amount shall be allocated
as additional Stock Units to the Participant's Stock Unit Account, as provided
in Section 5.4.
EFFECTIVE DATE means December 15, 1997.
ELIGIBLE COMPENSATION means retainer and meeting fees for services as a
director.
ELIGIBLE DIRECTOR means a member of the Board who is not an officer or
employee of the Company or a subsidiary and who is compensated in the capacity
as a director and (with reference to any outstanding Account balance under this
Plan) any person who has an Account balance under this Plan by reason of his or
her prior status as an Eligible Director or Section 8.8.
EXCHANGE ACT means the Securities Exchange Act of 1934, as amended from
time to time.
FAIR MARKET VALUE means on any date the average of the high and low prices
of the Common Stock on the Composite Tape, as published in the Western Edition
of The Wall Street Journal or otherwise reliably reported, of the principal
securities exchange or market on which the Common Stock is so listed, admitted
to trade, or quoted or, if there is no trading of the Common Stock on such date,
then the average of the high and low prices of the Common Stock as quoted on
such Composite Tape on the next preceding date on which there was trading in
such shares. If the Common Stock is not so listed, admitted or quoted, the
Committee may designate such other exchange, market or source of data as it
deems appropriate for determining such value for purposes of this Plan.
INTEREST RATE means an annual rate equal to the Moody's Average Corporate
(Industrial) Bond Yield as of the most recent date for which such yield is
published prior to the beginning of the applicable quarter, or such other
reasonable rate of interest as the Board by resolution may from time to time
establish for any Year no later than the end of the preceding year.
PARTICIPANT means any person who elects to participate in this Plan or
otherwise has an Account balance under this Plan.
PLAN means The Walt Disney Company 1997 Non-Employee Directors Stock and
Deferred Compensation Plan.
ROLLOVER ACCOUNT means the bookkeeping account maintained by the Company on
behalf of an Eligible Director with respect to his or her prior account balance
under the Company's 1984 Deferred Compensation Plan for Outside Directors (the
"1984 Plan") which has been
2
<PAGE>
converted into a Cash Account or Stock Unit Account under this Plan pursuant to
Section 8.8.
SHARES means shares of Common Stock.
SHARE ACCOUNT means an Account established under Section 5.3 pursuant to an
election under Section 4.1(a).
STOCK UNIT OR UNIT means a non-voting unit of measurement which is deemed
for bookkeeping and payment purposes to represent one outstanding share of
Common Stock of the Company solely for purposes of this Plan.
STOCK UNIT ACCOUNT means the bookkeeping account maintained by the Company
on behalf of each Participant which is credited with Stock Units in accordance
with Section 5.2.
YEAR means each calendar year during the term of this Plan, commencing with
the year 1998.
3. PARTICIPATION
Each Eligible Director may elect to defer under and subject to Section 4 of
this Plan his or her Eligible Compensation for any Year.
4. SHARE OR DEFERRAL ELECTIONS
4.1 Time and Types of Elections. On or before the December 30 immediately
---------------------------
preceding each Year (or, in the case of a person who first becomes an Eligible
Director during the Year, within 30 days after becoming an Eligible Director),
each Eligible Director may make an irrevocable election, subject to Section 4.2,
(a) to receive his or her Eligible Compensation for the Year in Shares and/or
(b) to defer:
(1) In a Cash Account the Eligible Compensation not otherwise deferred
in Stock Units for services to be rendered by the Eligible Director during
the next Year (or remainder of the Year, as the case may be); or
(2) In a Stock Unit Account the Eligible Compensation not otherwise
deferred in a Cash Account and payable to the Eligible Director for
services to be rendered during the next Year (or remainder of the Year, as
the case may be).
4.2 Permitted Amounts; Elections. The portions of the Eligible
----------------------------
Compensation subject to deferral or payment in Shares shall be limited to
increments of 25%, 50%, 75% or 100% (the "Applicable Percentage"). All
elections shall be in writing on forms provided by the Company. If an election
is made under this Section 4 and is not revoked or changed with respect to the
following Year by the end of the applicable Year, the election will be deemed a
continuing one.
3
<PAGE>
5. DEFERRAL ACCOUNTS
5.1 CASH ACCOUNT.
If an Eligible Director has made a cash election under Section 4.1(b)(1),
the Company shall establish and maintain a Cash Account for the Participant
under this Plan, which Account shall be a memorandum account on the books of the
Company. An Eligible Director's Cash Account shall be credited as follows:
(a) As of the date the Eligible Compensation would have been otherwise
payable, the Company shall credit the Participant's Cash Account with an
amount equal to the Applicable Percentage of the Eligible Compensation; and
(b) As of the last day of each calendar quarter, the Participant's Cash
Account shall be credited with interest on the balance credited to such
account as of the last day of the preceding quarter, plus interest from the
applicable date of crediting under Section 5.1(a) on any additional amounts
deferred during the current quarter, at the Interest Rate (adjusted for the
applicable period of accrual).
5.2 STOCK UNIT ACCOUNT.
(a) Elective Deferrals.
------------------
(1) Ongoing Elections. If an Eligible Director has made a Stock
-----------------
Unit election under Section 4.1(b)(2), the Committee shall,
as of the last day of each calendar quarter in which the
Eligible Compensation was earned and would otherwise be
paid, credit the Participant's Stock Unit Account with a
number of Units determined by dividing an amount which is
equal to the Applicable Percentage of the Participant's
Eligible Compensation (after crediting any interest that
would have been credited as of such date if the amount had
been deferred into a Cash Account under Section 5.1) by the
Average Fair Market Value of a share of Common Stock as of
the Award Date.
(2) One-Time Rollover Election. If an Eligible Director has
--------------------------
made a Stock Unit election under Section 8.8, the Committee
shall, as of December 31, 1997, credit the Participant's
Stock Unit Account with a number of Units determined by
dividing the Applicable Percentage of the Rollover Account
(after crediting any interest that would have been credited
as of such date under the 1984 Plan) by the Average Fair
Market Value of a share of Common Stock as of the Award
Date.
(b) Limitations on Rights Associated with Units. An Eligible
-------------------------------------------
Director's Stock Unit Account shall be a memorandum account on the books of
the Company. The Units credited to an Eligible Director's Stock Unit
Account shall be used solely as a device for the
4
<PAGE>
determination of the number of shares of Common Stock to be eventually
distributed to the Participant in accordance with this Plan. The Units
shall not be treated as property or as a trust fund of any kind. No
Participant shall be entitled to any voting or other stockholder rights
with respect to Units granted or credited under this Plan. The number of
Units credited (and the number of Shares to which the Participant is
entitled under this Plan) shall be subject to adjustment in accordance with
Section 5.7 and the terms of this Plan.
5.3 SHARE ACCOUNTS.
If an Eligible Director has made a Share election under Section 4.1(a), an
amount equal to the Applicable Percentage of the Eligible Compensation shall be
credited to a Share Account, payable as soon as practicable after the end of the
applicable Year or any earlier termination of service. The amount of the Share
Account shall accrue interest from the date the Eligible Compensation deferred
would otherwise have been paid until the Year-end (or earlier date of
termination) at the Interest Rate (adjusted for the applicable period of
accrual).
5.4 DIVIDEND EQUIVALENT CREDITS TO STOCK UNIT ACCOUNT.
As of the end of each quarter, an Eligible Director's Stock Unit Account
shall be credited with additional Units in an amount equal to the Dividend
Equivalents representing dividends paid during the quarter on a number of shares
equal to the aggregate number of Stock Units in the Participant's Stock Unit
Account as of the end of the preceding quarter divided by the Average Fair
Market Value of a share of Common Stock as of the applicable crediting date.
5.5 IMMEDIATE VESTING AND ACCELERATED CREDITING.
(a) Units and Other Amounts Vest Immediately. All Units or other
----------------------------------------
amounts credited to one or more of an Eligible Director's Accounts shall be
at all times fully vested and not subject to a risk of forfeiture.
(b) Acceleration of Crediting of Accounts. The crediting of the rights
-------------------------------------
to payment of each Participant in respect of Accounts shall be accelerated
if an Eligible Director ceases to serve as a director of the Company. In
such case, the amount of interest at the Interest Rate (adjusted for the
applicable period of accrual), Units or Shares credited for the quarter in
which the termination of services occurs shall be prorated based on the
number of days of service during the applicable quarter. For these
purposes, the Award Date shall be deemed to be the date of termination of
service.
5
<PAGE>
5.6 DISTRIBUTION OF CASH OR SHARES.
(a) Time and Manner of Distribution of Accounts.
-------------------------------------------
(1) Cash Accounts and Stock Units Account. The cash or Shares
-------------------------------------
respectively payable under this Plan in respect of Cash Accounts or
Stock Unit Accounts shall be distributed to the Participant (or, in
the event of his or her death, the Participant's Beneficiary), subject
to Section 8.8, at such time and in such manner as elected by the
Participant and set forth in the Participant's Election Agreement. A
Participant may elect any of the distribution commencement dates and
methods of distribution (lump sum or annual installments) set forth in
the form of Election Agreement approved by the Committee from time to
time, initially the form of Exhibit A attached hereto.
Notwithstanding the foregoing, if after a termination of service the
balance remaining in an Eligible Director's Cash Account is less than
$10,000 or, if the number of Units remaining in the Participant's
Stock Unit Accounts is less than 100, then such remaining balances
shall be distributed in a lump sum.
(2) Share Account. The Shares payable under this Plan in respect of
-------------
Share Accounts under Section 5.3 shall be delivered as soon as
practicable after completion of the Year (or shorter service period,
in the event of termination of service), but no later than 30 business
days following (x) the end of the Year or (y) the date of termination
of service, if applicable. The number of Shares deliverable shall be
determined by (i) dividing the amount of the Share Account (after
crediting all amounts contemplated hereby) by the "Average Annual Fair
Market Value" of the Company's Common Stock during the Year or other
applicable service period, and (ii) rounding the number of Shares
determined down to the nearer whole number of such Shares. The
"Average Annual Fair Market Value" means the sum of the Fair Market
Values of the Common Stock on the last day of each quarter during the
applicable service period (i.e., the calendar year or applicable
----
shorter period) divided by the number of measurement dates during such
service period.
(b) Change in Manner of Distribution of Cash Accounts or Stock Unit
---------------------------------------------------------------
Accounts. A Participant may change the manner of any distribution election
--------
from a lump sum to annual installments (or vice versa) with respect to
amounts credited under a Cash Account or Stock Unit Account by filing a
written election with the Committee on a form provided by the Committee;
provided, however, that no such election shall be effective until at least
-------- -------
12 months after such election is filed with the Committee, and no such
election shall be effective with respect to any Account after benefits with
respect to such Account have commenced. An election made pursuant to this
Section 5.6(b) shall not affect the date of the commencement of benefits.
(c) Change in Time of Distribution of Cash Accounts or Stock Unit
-------------------------------------------------------------
Accounts. A Participant may elect to further defer the commencement of any
--------
distribution to be made with respect to amounts credited under any Cash or
Stock Unit Account by filing a new written election with the Committee on a
form approved by the Committee; provided, however, that (1) no such
-------- -------
election shall be effective until 12 months after such election is
6
<PAGE>
filed with the Committee, and (2) no such new election shall be effective
with respect to any Account after benefits with respect to the Account
shall have commenced. An election made pursuant to this Section 5.6(c)
shall not affect the manner of distribution (i.e., lump sum versus
----
installments), the terms of which shall be subject to Section 5.6(b) above.
(d) Form of Distribution of Cash Accounts or Stock Unit Accounts.
------------------------------------------------------------
Stock Units credited to an Eligible Director's Stock Unit Account shall be
distributed in an equivalent whole number of shares of the Company's Common
Stock. Any fractional share interests shall be accumulated and paid in
cash with the last distribution. All amounts credited to an Eligible
Director's Cash Account shall be distributed in cash.
(e) Acceleration of Share Account Distribution on Termination of
------------------------------------------------------------
Service. Notwithstanding Sections 5.6(a) (2) if a Participant's service
-------
terminates, a Participant's Share Account (including accelerated benefits
under Section 5.5(b)), if any, shall be distributed as soon as practicable,
but no later than 30 business days thereafter, and the number and valuation
of the Shares will be based on the amount in the Account, plus interest (on
a per diem basis) based on the Interest Rate (adjusted for the applicable
accrual period), divided by the Average Annual Fair Market Value.
(f) Acceleration. The Board by declaration may accelerate any payment
------------
date (using for valuation purposes the date of its decision and prior
retainer payment dates in the applicable period) in extraordinary
circumstances where it determines that such action is necessary or
advisable to prevent a forfeiture or permit the realization of intended
benefits and is otherwise fair to the director and the Company.
5.7 ADJUSTMENTS IN CASE OF CHANGES IN COMMON STOCK.
If there shall occur any change in the outstanding shares of the Company's
Common Stock by reason of any stock dividend, stock split, recapitalization,
merger, consolidation, combination or other reorganization, exchange of shares,
sale of all or substantially all of the assets of the Company, split-up, split-
off, spin-off, extraordinary redemption, liquidation or similar corporate change
or change in capitalization or any distribution to holders of the Company's
Common Stock (other than cash dividends and cash distributions), the Committee
shall make such proportionate and equitable adjustments consistent with the
effect of such event on stockholders generally (but without duplication of
benefits if Dividend Equivalents are credited), as the Committee determines to
be necessary or appropriate, in the number, kind and/or character of shares of
Common Stock or other securities, property and/or rights contemplated hereunder,
including any appropriate adjustments to the market prices used in the
determination of the number of Shares and Units, and in rights in respect of
Stock Unit Accounts and Share Accounts credited under this Plan so as to
preserve the benefits intended.
7
<PAGE>
6. ADMINISTRATION
6.1 THE ADMINISTRATOR.
The Administrator of this Plan shall be the Board as a whole or a Committee
as appointed from time to time by the Board to serve as administrator of this
Plan. The participating members of any Committee so acting shall include, as to
decisions in respect of participants who are subject to Section 16 of the
Exchange Act, only those members who are Non-Employee Directors (as defined in
Rule 16b-3 promulgated under the Exchange Act). Members of the Committee shall
not receive any additional compensation for administration of this Plan.
6.2 COMMITTEE ACTION.
A member of the Committee shall not vote or act upon any matter which
relates solely to himself or herself as a Participant in this Plan. Action of
the Committee with respect to the administration of this Plan shall be taken
pursuant to a majority vote or (assuming compliance with Section 6.1) by
unanimous written consent of its members.
6.3 RIGHTS AND DUTIES; DELEGATION AND RELIANCE; DECISIONS BINDING.
Subject to the limitations of this Plan, the Committee shall be charged
with the general administration of this Plan and the responsibility for carrying
out its provisions, and shall have powers necessary to accomplish those
purposes, including, but not by way of limitation, the following:
(1) To construe and interpret this Plan;
(2) To resolve any questions concerning the amount of benefits payable
to a Participant (except that no member of the Committee shall participate
in a decision relating solely to his or her own benefits);
(3) To make all other determinations required by this Plan;
(4) To maintain all the necessary records for the administration of
this Plan; and
(5) To make and publish forms, rules and procedures for the
administration of this Plan.
The determination of the Committee made in good faith as to any disputed
question or controversy and the Committee's determination of benefits payable to
Participants, including decisions as to adjustments under Section 5.7, shall be
conclusive and binding for all purposes of this Plan. In performing its duties,
the Committee shall be entitled to rely on information, opinions, reports or
statements prepared or presented by: (i) officers or employees of the Company
whom the Committee believes to be reliable and competent as to such matters; and
(ii) counsel (who may be employees of the Company), independent accountants and
other persons as to matters which the Committee believes to be within such
persons' professional or expert competence. The Committee
8
<PAGE>
shall be fully protected with respect to any action taken or omitted by it in
good faith pursuant to the advice of such persons. The Committee may delegate
ministerial, bookkeeping and other non-discretionary functions to individuals
who are officers or employees of the Company.
7. PLAN CHANGES AND TERMINATION
7.1 AMENDMENTS.
The Board shall have the right to amend this Plan in whole or in part from
time to time or may at any time suspend or terminate this Plan; provided,
however, that, except as contemplated by Section 5.7, no amendment or
termination shall cancel or otherwise adversely affect in any way, without his
or her written consent, any Participant's rights with respect to then
outstanding Accounts (and the right to interest (the specific rate of which may
be changed from time to time by the Board as above provided) or Dividend
Equivalent credits thereon so long as the Account is outstanding). Any
amendments authorized hereby shall be stated in an instrument in writing, and
all Participants shall be bound by upon receipt of notice the amendment.
7.2 TERM.
It is the current expectation of the Company that this Plan shall continue
indefinitely, but, in the case of the crediting of the Stock Units and/or Share
Accounts, subject to the continued availability of treasury shares. Continuance
of this Plan, however, is not assumed as a contractual obligation of the
Company. If the Board of Directors decides to discontinue or terminate this
Plan, it shall notify the Committee and Participants in this Plan of its action
in writing, and this Plan shall be terminated at the time set forth on the
notice. All Participants shall be bound thereby. No benefits shall accrue in
respect of Eligible Compensation earned after a discontinuance or termination of
this Plan.
8. MISCELLANEOUS
8.1. LIMITATION ON PARTICIPANTS' RIGHTS.
Participation in this Plan shall not give any person the right to serve as
a member of the Board or any rights or interests other than as herein provided.
This Plan shall create only a contractual obligation on the part of the Company
as to such amounts and shall not be construed as creating a trust. This Plan,
in and of itself, has no assets. Participants shall have only the rights of a
general unsecured creditor of the Company with respect to amounts credited and
benefits payable, if any, on their Cash Accounts, and rights no greater than the
right to receive the Common Stock (or equivalent value as a general unsecured
creditor) with respect to Stock Units or Share Accounts. Participants shall not
be entitled to receive actual dividends or to vote Shares until after delivery
of a certificate representing the Shares.
9
<PAGE>
8.2. BENEFICIARIES.
(a) Beneficiary Designation. Upon forms provided by and subject to
-----------------------
conditions imposed by the Company, each Participant may designate in writing the
Beneficiary or Beneficiaries (as defined in Section 8.2(b)) whom such
Participant desires to receive any amounts payable under this Plan after his or
her death. The Company and the Committee may rely on the Participant's
designation of a Beneficiary or Beneficiaries last filed in accordance with the
terms of this Plan.
(b) Definition of Beneficiary. A Participant's "Beneficiary" or
-------------------------
"Beneficiaries" shall be the person, persons, trust or trusts (or similar
entity) designated by the Participant or, in the absence of a designation,
entitled by will or the laws of descent and distribution to receive the
Participant's benefits under this Plan in the event of the Participant's death,
and shall mean the Participant's executor or administrator if no other
Beneficiary is identified and able to act under the circumstances.
8.3. BENEFITS NOT TRANSFERABLE; OBLIGATIONS BINDING UPON SUCCESSORS.
Benefits of a Participant under this Plan shall not be assignable or
transferable and any purported transfer, assignment, pledge or other encumbrance
or attachment of any payments or benefits under this Plan, or any interest
therein, other than by operation of law or pursuant to Section 8.2, shall not be
permitted or recognized. Shares deliverable under this Plan may be subject to
restrictions on transfer under applicable securities laws, unless the Shares are
duly registered prior to issuance. Obligations of the Company under this Plan
shall be binding upon successors of the Company.
8.4. GOVERNING LAW; SEVERABILITY.
The validity of this Plan or any of its provisions shall be construed,
administered and governed in all respects under the laws of the State of
Delaware. If any provisions of this Plan shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
8.5. COMPLIANCE WITH LAWS.
This Plan and the offer, issuance and delivery of shares of Common Stock
and/or the payment of money through the deferral of compensation under this Plan
are subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law) and
to such approvals by any listing, agency or any regulatory or governmental
authority as may, in the opinion of counsel for the Company, be necessary or
advisable in connection therewith. Any securities delivered under this Plan
shall be subject to prior registration or such restrictions as the Company may
deem necessary or desirable to assure compliance with all applicable legal
requirements, and the person acquiring such securities shall, if requested by
the Company, provide such assurances and representations to the Company as it
may reasonably request to assure such compliance.
10
<PAGE>
8.6. PLAN CONSTRUCTION.
It is the intent of the Company that transactions pursuant to this Plan
satisfy and be interpreted in a manner that satisfies the applicable conditions
for exemption under Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3")
so that to the extent elections are timely made, elective deferrals (including
the crediting of Units and Dividend Equivalents and the distribution of Shares
hereunder) will be entitled to the benefits of Rule 16b-3 or other exemptive
rules under Section 16 of the Exchange Act and will not be subjected to
avoidable liability thereunder. The Committee may, subject to Sections 8.5,
permit elections by individual directors that would not qualify for exemption
under Section 16(b) of the Exchange Act, so long as the availability of any
exemption thereunder for other Directors under this Plan is not compromised.
8.7. HEADINGS NOT PART OF PLAN.
Headings and subheadings in this Plan are inserted for reference only and
are not to be considered in the construction of the provisions hereof.
8.8. RELATIONSHIP TO THE 1984 DEFERRED COMPENSATION PLAN FOR OUTSIDE
DIRECTORS (THE "1984 PLAN").
This Plan supersedes in its entirety the 1984 Plan effective December 31,
1997. On that date, accrued balances under the 1984 Plan for the benefit of any
current Eligible Director shall be credited to a Cash Account or, at the
irrevocable election of the director submitted in the form of Exhibit B and
received by the Company prior to December 30, 1997, a Stock Unit Account under
this Plan. The Account thereafter shall be credited and payable in accordance
with the provisions of this Plan applicable to Stock Unit Accounts and/or Cash
Accounts, as the case may be.
<PAGE>
EXHIBIT 10(r)
FIRST AMENDMENT
---------------
DISNEY SALARIED SAVINGS AND INVESTMENT PLAN
-------------------------------------------
WHEREAS, The Walt Disney Company ("Company") maintains the Disney Salaried
Savings and Investment Plan, as amended and restated effective January 1, 1987
(the "Plan"); and
WHEREAS, Article 11 of the Plan authorizes the Committee under the Plan to
make certain Plan amendments, and this First Amendment may be made by the
Committee in accordance with such authorization; and
WHEREAS, the Committee adopted certain amendments to the Plan at its
meetings held on September 7, 1995 and December 5, 1995; and
WHEREAS, the Committee authorized the officers of the Company, and each of
them, to take any and all actions deemed necessary to effectuate the intent of
said Plan amendments and one of said acts is the drafting and execution of
formal plan amendments pursuant to said intent.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective as of December 5, 1995, Section 7.02(b) of the Plan is
amended by deleting the third sentence thereof in its entirety and substituting
the following therefor:
Such shares that are unallocated, if any, as of any voting record
date, and such shares as to which the Trustee receives no written
instructions from Participants, shall be voted by the Trustee on each
matter in accordance with directions received from a fiduciary
independent of the Trustee and the Company. Such independent
fiduciary shall be appointed by the Committee for the purpose of
instructing the Trustee as to each such matter.
2. Effective as of September 7, 1995, Section 11.01 is amended in
its entirety to read as follows:
11.01 AMENDMENT OF PLAN
The Company, acting through the Board of Directors reserves the
right at any time and from time to time, and retroactively if
deemed necessary or appropriate, to amend in whole or in part any
or all of the provisions of the Plan. Effective as of November
21, 1994, the Committee may also amend
<PAGE>
the Plan provided that any amendment adopted by the Committee may
not have an impact on the Company's annual expense of more than
five million dollars, except that such five million dollar
limitation shall not apply to amendments necessary to comply with
laws or regulations. However, no amendment shall make it possible
for any part of the funds of the Plan to be used for, or diverted
to, purposes other than for the exclusive benefit of persons
entitled to benefits under the Plan. No amendment shall be made
which has the effect of decreasing the accrued benefits of any
Participant or of reducing the nonforfeitable percentage of the
accrued benefits of a Participant below the nonforfeitable
percentage computed under the Plan as in effect on the date on
which the amendment is adopted or, if later, the date on which
the amendment becomes effective. Any action required or permitted
to be taken by the Board of Directors or the Committee under the
Plan shall be by resolution adopted by the Board of Directors or
the Committee at a meeting held either in person or by telephone
or other electronic means, or by unanimous written consent in
lieu of a meeting.
3. Effective as of September 7, 1995, Section 11.05(c) is amended in
its entirety to read as follows:
(c) After providing for payment of any expenses properly
chargeable against the Trust Fund, the Committee may direct
the Trustee to distribute assets remaining in the Trust
Fund. Assets in any Suspense Account must be returned to the
Employers in kind. Distributions to Participants or
Beneficiaries may be in cash or in kind and are not subject
to the regular distribution provisions of this Plan except
distributions must be in a form that the Committee
determines consistent with statutory requirements. Except as
specifically provided by law, the Committee's determination
is conclusive on all persons.
4. Effective as of September 7, 1995, Section 11.07 is deleted in
its entirety.
<PAGE>
EXHIBIT 10(s)
UNANIMOUS WRITTEN CONSENT
OF THE
INVESTMENT AND ADMINISTRATIVE COMMITTEE
OF THE WALT DISNEY COMPANY SPONSORED QUALIFIED
BENEFIT PLANS AND KEY EMPLOYEES DEFERRED
COMPENSATION AND RETIREMENT PLAN
The undersigned, being all of the members of the Investment and
Administrative Committee of the Walt Disney Company Sponsored Qualified Benefit
Plans and Key Employees Deferred Compensation Retirement Plan (the "Committee"),
hereby takes the following action on written consent with the same effect as if
such action were taken at a duly held meeting of the Committee:
WHEREAS, The Walt Disney Company (the "Corporation") maintains the Disney
Salaried Savings and Investment Plan, as amended and restated effective January
1, 1987 (the "Plan"); and
WHEREAS, Article 11 of the Plan authorizes the Committee under the Plan to
make certain Plan amendments.
NOW, THEREFORE, BE IT RESOLVED, that the Second Amendment to the Plan be
and hereby is adopted effective December 1, 1996 as follows; and
1. Section 7.02(b) of the Plan is hereby amended by deleting the third and
fourth sentences thereof in their entirety and substituting the following
therefor:
Such shares that are unallocated, if any, as of any voting record
date, and such shares as to which the Trustee receives no written
instructions from Participants, shall be voted by the Trustee on each
matter in the same proportion (for, against, and abstention) as it
votes those shares for which the Trustee received voting
<PAGE>
directions from Participants. Notwithstanding the above, in the event
of a tender offer, the Trustee shall vote such shares as determined in
the prior sentence in accordance with voting directions received from
the Company.
FURTHER RESOLVED, that Christopher Zyda and Barbara Kellams of the
Corporation and any officer of the Corporation be, and each hereby is,
authorized to take any and all actions deemed necessary or appropriate to
effectuate the intent of the foregoing resolutions, including, but not limited
to, adopting amendments to the Trust Agreement between Fidelity Management Trust
Company and The Walt Disney Company consistent with the foregoing resolution.
<PAGE>
EXHIBIT 10(u)
Capital Cities/ABC, Inc.
Savings & Investment Plan
-------------------------
RESOLVED, that the Capital Cities/ABC, Inc. Savings & Investment Plan be
amended as follows, effective January 1, 1989:
1. Section 1.1(aa)(1) is amended to read as follows:
"compensation" means compensation within the meaning of Treasury
Regulation Section 1.415-2(d)(2) and (3), plus all elective or salary-
reduction contributions to a cafeteria plan or deferred arrangement;
2. Section 6.07(c)(1) is amended by deleting "(determined in accordance
with Section 401(k)(8)(B) of the Code)" and replacing it with
"(determined in accordance with paragraph (3), below)."
3. Section 6.07(c)(1) is amended by adding the following at the end
thereof:
The gains or losses on excess contributions shall be determined by
multiplying the total annual earnings (positive or negative) for the
Plan Year in the Member's Pre-Tax Contribution Account by a fraction,
the numerator of which is the amount of the excess contributions and
the denominator of which is the value of the Member's Pre-Tax
Contribution Account as of the last day of the Plan Year, reduced by
any positive earnings (or increased by any negative earnings) credited
to the Member's Pre-Tax Contribution Account for the Plan Year.
4. Section 6.07(c) is amended by adding the following immediately after
paragraph (2) thereof:
(3) The amount of the excess contributions for a Highly
Compensated Employee for a Plan Year is the amount (if any) by
which his Pre-Tax Contributions must be reduced in order for
his actual deferral ratio to equal the highest permitted
deferral ratio under the plan. To calculate the highest
permitted deferral ratio under the Plan, the actual deferral
ratio of the Highly Compensated Employee with the highest
actual deferral ratio is reduced by the amount required to
cause his actual deferral ratio to equal the actual deferral
ratio of the Highly Compensated Employee with the next highest
actual deferral ratio. If a lesser reduction would enable the
Plan to satisfy the actual deferral percentage test, only the
lesser reduction may be made. This process shall be repeated
until the Plan satisfies the
<PAGE>
actual deferral percentage test. The highest actual deferral
ratio remaining under the Plan after the foregoing leveling
process has been completed shall be the highest permitted
actual deferral ratio. This paragraph (3) shall be interpreted
and applied in accordance with Treasury Regulation Section
1.401(k)-1(f)(2).
5. Section 6.07(e)(1) is amended by deleting "(determined in accordance
with Section 401(m)(6)(B))" and replacing it with "(determined in
accordance with paragraph (3), below)."
6. Section 6.07(e)(1) is amended by adding the following at the end
thereof:
The gains or losses on excess aggregate contributions shall be
determined by multiplying the total annual earnings (positive or
negative) for the Plan Year in the Member's After-Tax Contribution and
Company Matching Accounts by a fraction, the numerator of which is the
amount of the excess aggregate contributions and the denominator of
which is the value of the Member's After-Tax Contribution and Company
Matching Accounts as of the last day of the Plan Year, reduced by any
positive earnings (or increased by any negative earnings) credited to
the Member's After-Tax Contribution and Matching Contribution Accounts
for the Plan Year.
7. Section 6.07(e) is amended by adding the following immediately after
paragraph (2) thereof:
(3) The amount of the excess aggregate contributions for a Highly
Compensated Employee for a Plan Year is the amount (if any)
by which his After-Tax and Company Matching Contributions
must be reduced in order for his actual contribution ratio to
equal the highest permitted actual contribution ratio under
the Plan. To calculate the highest permitted actual
contribution ratio under the Plan, the actual contribution
ratio of the Highly Compensated Employee with the highest
actual contribution ratio is reduced by the amount required
to cause his actual contribution ratio to equal the actual
contribution ratio of the Highly Compensated Employee with
the next highest actual contribution ratio. If a lesser
reduction would enable the Plan to satisfy the actual
contribution percentage test, only the lesser reduction may
be made. This process shall be repeated until the Plan
satisfies the actual contribution percentage test. The
highest actual contribution ration remaining under the Plan
after the foregoing leveling process has been completed shall
be the
<PAGE>
highest permitted actual contribution ratio. This paragraph
(3) shall be interpreted and applied in accordance with
Treasury Regulation Section 1.401(m)-1(e)(2)(i).
And it is further
RESOLVED, that the appropriate officers of this Corporation be and are
hereby authorized to take all actions necessary or appropriate to implement the
preceding resolutions for each of the above plans.
<PAGE>
UNANIMOUS WRITTEN CONSENT
OF THE
BOARD OF DIRECTORS
OF ABC, INC.
The undersigned, being all of the members of the Board of Directors of
ABC, Inc. (the "Board"), hereby takes the following action on written consent
with the same effect as if such action were taken at a duly held meeting of the
Board:
WHEREAS, ABC, Inc. (the "Corporation") maintains the ABC, Inc.
Savings and Investment Plan (the "Plan"); and
WHEREAS, Article XV of the Plan authorizes the Board to amend the
Plan.
NOW, THEREFORE, BE IT RESOLVED, that the Plan be amended as follows,
effective December 1, 1996:
1. Section 8.01(a) of the Plan is amended by deleting the last
two sentences thereof in their entirety and substituting the following
therefor:
With respect to the shares of Common Stock reflecting a Member's
proportional interest in The Walt Disney Company Common Stock Fund for
which it has received no directions from the Member, the Trustee shall
vote such shares in the same proportion (for, against and abstention)
on each issue as it votes those shares reflecting Members'
proportional interests in The Walt Disney Common Stock Fund for which
the Trustee received voting directions from Members. Notwithstanding
the above, with respect to such shares for which the Trustee has
received no voting directions, in the event of a tender offer, the
Trustee shall vote such shares in accordance with voting directions
received from the Corporation.
2. Section 8.01(b) of the Plan is amended in its entirety to read
as follows:
<PAGE>
The Trustee shall vote that number of shares of Common Stock that are
not reflected in the Members' proportional interests in The Walt
Disney Company Common Stock Fund in the same ratio (for, against and
abstention) on each issue as it votes those shares reflecting Members'
proportional voting interests in The Walt Disney Company Common Stock
Fund for which it receives voting directions from Members.
Notwithstanding the above, in the event of a tender offer, the Trustee
shall vote such unallocated shares in accordance with voting
directions received from the Corporation.
FURTHER RESOLVED, that the appropriate officers of the Corporation be
and hereby are authorized to take all action necessary or appropriate to
effectuate the intent of the foregoing resolutions, including but not limited
to, adopting amendments to the Trust Agreement between Fidelity Management Trust
Company and ABC, Inc. consistent with the foregoing resolution.
<PAGE>
Capital Cities/ABC, Inc.
Savings & Investment Plan
-------------------------
RESOLVED, that the Capital Cities/ABC, Inc. Savings & Investment Plan
be amended as follows, effective immediately following the date on which the
merger of Capital Cities/ABC, Inc. with DCB Merger Corp. becomes effective (and
this Resolution shall not become effective unless and until such merger becomes
effective); provided that paragraph 6, below, and paragraph 10 of Schedule XXII,
below, shall become effective on January 18, 1996:
1. All references in the Plan (as amended by the preceding paragraphs) to the
"Capital Cities/ABC, Inc. Common Stock Fund" shall be changed to "The Walt
Disney Company Common Stock Fund."
2. Section 1.01(a) is amended to read in its entirety as follows:
(a) "Account" - a Member's After-Tax Contribution Account, Pre-Tax
-------
Contribution Account, Company Matching Account, and, if applicable,
old Company Matching Account, maintained in accordance with Section
7.07.
3. Section 1.01(k) is amended to read in its entirety as follows:
(k) "Common Stock" - the common stock of Disney.
------------
4. Section 1.01(m) is amended to read in its entirety as follows:
(m) "Company Matching Account" - the bookkeeping account, maintained in
------------------------
accordance with Section 7.07, that reflects the current value of the
Company Matching Contributions made with respect to the Member on or
after the Merger Date.
5. The following Section 1.01(s-1) is added to the Plan immediately after
Section 1.01(s):
(s-1) "Disney" - The Walt Disney Company, a Delaware corporation.
------
6. The following Sections 1.01(kk-1) and 1.01(kk-2) are added to the Plan
immediately after Section 1.01(kk):
<PAGE>
(kk-1) "Merger" - the merger of the Corporation with DCB Merger Corp.,
------
a Delaware corporation.
(kk-2) "Merger Date" - the effective date of the Merger.
-----------
7. The following Section 1.01(mm-1) is added to the Plan immediately after
Section 1.01(mm):
(mm-1) "Old Company Matching Account" - the bookkeeping account,
----------------------------
maintained in accordance with Section 7.07, that reflects the current value
of the Company Matching Contributions made with respect to the Member
before the Merger Date.
8. Section 4.04 is amended by adding the following subsection (f) immediately
following subsection (e) thereof:
(f) For purposes of this Section 4.04, all references to the Member's
Company Matching Account shall be deemed to refer both to the Member's
Company Matching Account and to the Member's Old Company Matching
Account, if any.
9. The last sentence of Section 5.04(b) is amended to read as follows:
Company Matching Contributions made on behalf of a Member shall be
credited to his Old Company Contribution Account (for Company Matching
Contributions made before the Merger Date) or to his Company Matching
Account (for Company Matching Contributions made on or after the Merger
Date) as soon as practicable after the Company Matching Contributions are
received by the Trustee.
10. The third and fourth sentences of Section 7.03(a)(1) of the Plan are
deleted and replaced by the following:
The Trustee shall regularly purchase, or cause to be purchased, Common
Stock in the open market in accordance with a non-discretionary purchasing
program.
11. Section 7.07(a) is amended to read in its entirety as follows:
(a) A Pre-Tax Contribution Account, an After-Tax Contribution Account, and
a Company Matching Account shall be established for each Member. In
addition, an Old Company Matching Account shall be established for
each Member or Beneficiary for whom immediately before the Merger
Date, there was in effect a Company Matching Account (as that term was
defined
<PAGE>
by the Plan immediately before the Merger Date). The Member's interest
in each Investment Fund that is allocable to the Pre-Tax Contributions
made on behalf of the Member shall be credited to his Pre-Tax
Contribution Account. The Member's interest in each Investment Fund
that is allocable to the Member's After-Tax Contributions shall be
credited to his After-Tax Contribution Account. The Member's interest
in each Investment Fund that is allocable to Company Matching
Contributions made before the Merger Date shall be credited to his Old
Company Matching Account. The Member's interest in The Walt Disney
Company Common Stock Fund that is allocable to Company Matching
Contributions with respect to the Member made on or after the Merger
Date shall be credited to his Company Matching Account. The Member's
interest in each Investment Fund that is allocable to any Rollover
Contribution with respect to the Member shall be credited to the
Member's Pre-Tax Contribution Account, After-Tax Contribution Account,
Old Company Matching Account, and/or Company Matching Account, as
determined by the Committee in its discretion.
12. Section 9.03(b) is amended by adding the following at the end thereof:
Any amount restored or repaid pursuant to this Section 9.03(b) shall
be credited to the Account to with such amount was credited when it was
previously forfeited or distributed, as the case may be.
13. Article IX is amended by adding the following Section 9.04 immediately
after Section 9.03:
9.04 Old Company Matching Account. On and after the Merger Date, all
----------------------------
references in this Article IX to a Member's Company Matching Account shall
be deemed to refer both to the Member's Company Matching Account and to the
Member's Old Company Matching Account, if any.
14. Section 11.03(a) is amended to read in its entirety as follows:
(a) Subject to the restrictions imposed by this Article XI, if a Member
satisfies the requirements of subsections (b) and (c), below, the
Member may withdraw all or part of the Value of his Pre-Tax
Contribution Account (excluding any gains on Pre-Tax Contributions
other than gains credited to his Pre-Tax Contribution Account as of
December 31, 1988) and his nonforfeitable interest in the Value of his
Company Matching Account and his Old Company Matching Account, if any.
<PAGE>
15. Section 11.06(c) is deleted and replaced by the following:
(c) then, from the Member's Old Company Matching Account (to the extent of
the Member's nonforfeitable interest therein) pursuant to Section
11.03 (to the extent then available), and
(d) last, from the Member's Company Matching Account (to the extent of the
Member's nonforfeitable interest therein) pursuant to Section 11.03
(to the extent then available).
16. The following Schedule XXII is added to the Plan immediately following
Schedule XXI:
SCHEDULE XXII
MERGER WITH THE WALT DISNEY COMPANY
-----------------------------------
1. This Schedule governs the disposition of the Capital Cities/ABC, Inc.
Common Stock Fund and the treatment of each Member's Old Company Matching
Account and Company Matching Account following the Merger. For purposes of
this Schedule, the term "Capital Cities/ABC, Inc. Common Stock Fund" shall
have the meaning given to that term by the Plan as in effect immediately
before the Merger Date.
2. Each Member with an interest in the Capital Cities/ABC, Inc. Common Stock
Fund shall have the right to instruct the Trustee whether such Member
wishes to make a Standard Election, a Stock Election, or a Cash Election
for each share of Common Stock represented by the Member's interest in the
Capital Cities/ABC, Inc. Common Stock Fund. The terms and conditions under
which a Member may provide such an instruction to the Trustee shall be
determined by the Trustee in its discretion. If a Member does not provide
such an instruction to the Trustee in accordance with such terms and
conditions, the Member's interest in the Capital Cities/ABC, Inc. Common
Stock Fund shall be governed by the Cash Election. For purposes of this
Schedule, the terms "Standard Election," "Stock Election," and "Cash
Election" shall have the meanings given to them by the Amended and Restated
Agreement and Plan of Reorganization, dated as of July 31, 1995 by and
between The Walt Disney Company and the Corporation.
3. The Trustee shall make a Standard Election, a Stock Election, and/or a Cash
Election with respect to the shares of Common Stock in the Capital
Cities/ABC, Inc. Common Stock Fund in accordance with the instructions it
has received (or is deemed to have received) from Members in accordance
with paragraph 2 of this Schedule.
<PAGE>
4. Any cash received by the Trustee as a result of the Merger in respect of
the Member's interest in the Capital Cities/ABC, Inc. Common Stock Fund
shall be transferred to the Fidelity Retirement Money Market Fund described
in Section 7.03(a)(2) of the Plan.
5. Any Common Stock received by the Trustee as a result of the Merger in
respect of the Member's interest in the Capital Cities/ABC, Inc. Common
Stock Fund shall be held initially in The Walt Disney Company Common Stock
Fund.
6. Any cash and Common Stock received by the Trustee as a result of the Merger
in respect of a Member's interest in the Capital Cities/ABC, Inc. Common
Stock Fund shall be credited to the Member's Old Company Matching Account
to the extent that the Member's interest in the Capital Cities/ABC, Inc.
Common Stock Fund was credited to the Member's Company Matching Account
immediately before the Merger.
7. Any cash and Common Stock received by the Trustee as a result of the Merger
in respect of a Member's interest in the Capital Cities/ABC, Inc. Common
Stock Fund shall be credited to the Member's After-Tax Contribution Account
or Pre-Tax Contribution Account to the extent that the Member's interest in
the Capital Cities/ABC, Inc. Common Stock Fund was credited to the Member's
After-Tax Contribution Account or Pre-Tax Contribution Account, as the case
may be, immediately before the Merger.
8. Changes in the allocation of amounts credits to a Member's Old Company
Matching Account (adjusted to reflect subsequent investment experience)
among the Investment Funds shall be governed by the provisions of Section
7.05 of the Plan.
9. Notwithstanding any provision of the Plan to the contrary, Pre-Tax
contributions, After Tax Contributions, and Rollover Contributions for the
month preceding the month in which the Merger Date occurs, to the extent
such contributions otherwise would have been allocated to the Capital
Cities/ABC, Inc. Common Stock Fund, and all Company Matching Contributions
for the month preceding the month in which the Merger Date occurs, shall be
allocated to the Fidelity Retirement Money Market Fund described in Section
7.03(a)(2) of the Plan. Changes in the allocation of such contributions
(adjusted to reflect subsequent investment experience) shall be governed by
the provisions of Section 7.05 of the Plan.
10. Notwithstanding any provision of the Plan to the contrary, the Committee
may suspend, curtail, or postpone certain Plan operations (including, but
not limited to, distributions, withdrawals, and loans from the Plan)
following approval of the
<PAGE>
Merger by the shareholders of the Company to the extent that the Committee
determines that such action is necessary or appropriate to take into
account the unavailability of the Plan of complete, accurate, and current
information regarding Capital Cities/ABC, Inc. Common Stock Fund and The
Walt Disney Company Common Stock Fund during the period following approval
of the Merger by the shareholders of the Company.
<PAGE>
UNANIMOUS WRITTEN CONSENT IN LIEU
OF A MEETING
OF THE BOARD OF DIRECTORS
OF CAPITAL CITIES/ABC, INC.
The undersigned, being all of the members of the Board of Directors of
Capital Cities/ABC, Inc., hereby take the following action on unanimous written
consent, with the same effect as if such action were taken at a duly held
meeting of the Board of Directors:
...RESOLVED, that Capital Cities/ABC, Inc. Savings & Investment Plan
be and hereby is amended, effective January 26, 1996, by adding a new Schedule
XXII in the form attached hereto, immediately following Schedule XXI; and be it
further
SCHEDULE XXII
-------------
SPECIAL PROVISIONS APPLICABLE
TO EMPLOYEES OF
INTERNATIONAL MEDICAL NEWS GROUP
Each Member who was employed by the International Medical News Group
of Capital Cities Media, Inc. on January 26, 1996, shall be fully vested in his
Account as of January 26, 1996.
<PAGE>
ABC, INC.
CONSENT OF DIRECTORS
AS OF DECEMBER 26, 1996
The undersigned, being all of the members of the Board of Directors of ABC,
Inc., a New York corporation (the "Corporation"), hereby take the following
actions and consents to the adoption of the following resolutions pursuant to
the Bylaws of the Corporation:
...RESOLVED, that each employee benefit plan of the Corporation
(collectively, the "Plans") be, and each of them hereby is, amended by
substituting "ABC, Inc." for "Capital Cities/ABC, Inc." wherever the latter term
appears in either the title or the text of each Plan; and further
<PAGE>
EXHIBIT 10(O)
EXCESS LIABILITY INSURANCE PLAN
SUMMARY DESCRIPTION
The Walt Disney Company provides certain key employees with personal
liability insurance coverage up to five million dollars. Benefits supplement
each such employee's personal homeowner's and automobile liability insurance
coverage.
Attached hereto is a representative sample of the insurance policy provided
to a participant under the Excess Liability Insurance Plan.
<PAGE>
EXHIBIT 10(o)
CNA
FOR ALL THE COMMITMENTS YOU MAKE EXCESS LIABILITY POLICY DECLARATION
<TABLE>
<S> <C> <C> <C>
Policy Issued by COLUMBIA CASUALTY COMPANY Symbol Policy Number
CNA Insurance Companies GPE
CNA Plaza 157335834
Chicago, IL 60685
- ------------------------------------------------------------------------------------------------------------------------------------
Producer's Name and Seabury & Smith Producer Code
Address 700 North Brand Boulevard, #1100 975-945824
Glendale, CA 91203-1238
- ------------------------------------------------------------------------------------------------------------------------------------
Named Insured The Chairman & Chief Executive Officer, President and Chief Operation Officer, Senior Vice Presidents
and above of Business Unit (a) reporting directly to the Chairman and President (b) All other
Executives of The Walt Disney Company and as per Endt. No. 1 (a-b)
- ------------------------------------------------------------------------------------------------------------------------------------
Sponsoring Organization and The Walt Disney Company
Address 500 South Buena Vista Street
Burbank, California 91521
- ------------------------------------------------------------------------------------------------------------------------------------
Policy Period From May 01, 1997 through May 01, 1999
12:01 a.m. Standard Time at the Address of the Sponsoring Organization as stated herein.
- ------------------------------------------------------------------------------------------------------------------------------------
Limit of Liability $ See Endt. No. 2 Each Occurrence
- ------------------------------------------------------------------------------------------------------------------------------------
Retained Limits $500.00 Each Occurrence
- ------------------------------------------------------------------------------------------------------------------------------------
The Named Insured Agrees to Maintain during the term of the policy at least the following underlying coverages and minimum required
underlying limits for the Automobile Liability (Cars or Recreational Vehicles) and Comprehensive Personal Liability. If exposure
exists, the Named Insured further agrees to maintain at least the following underlying coverages and minimum Required Underlying
Limits for Watercraft and Employers Liability.
- ------------------------------------------------------------------------------------------------------------------------------------
EXPOSURES COVERAGES MINIMUM REQUIRED U/L LIMIT
------------------------------------------------------------------------------------------------------
Automobile (Cars and Bodily Injury $250,000 Per Person, $500,000 Per
Recreational Vehicles Property Damage Occurrence $50,000 Per Occurrence
except snowmobiles)
-----------------------------------------------------------------------------------------------------
-or- $300,000 Per Occurrence
Combined Single Limit ($325,000 in Texas)
------------------------------------------------------------------------------------------------------
Homeowners Combined Single Limit $100,000 Per Occurrence
Personal Liability (Required for all property
owned or rented)
------------------------------------------------------------------------------------------------------
Schedule of Required Watercraft Liability Bodily Injury/Property Damage $100,000 Per Occurrence
Underlying Limits or Combined Single Limit
------------------------------------------------------------------------------------------------------
Employers Liability Combined Single Limit $100,000 Per Occurrence
------------------------------------------------------------------------------------------------------
Snowmobile Liability Bodily Injury $100,000 Per Person, $300,000 Per
Property Damage Occurrence $25,000 Per Occurrence
-------------------------------------------------------------------------
-or- $300,000 Per Occurrence
Combined Single Limit
------------------------------------------------------------------------------------------------------
UM/UIM (only Bodily Injury $250,000 Per Person, $500,000 Per
when coverage is Property Damage Occurrence $50,000 Per Occurrence
provided under this
policy) -------------------------------------------------------------------------
-or- $300,000 Per Occurrence
Combined Single Limit ($325,000 in Texas)
- ------------------------------------------------------------------------------------------------------------------------------------
Premium $62,105.00 Advance Premium payable at inception
- ------------------------------------------------------------------------------------------------------------------------------------
Endorsements Forming a part of this policy at inception. Endorsement No. 1-(a-b)5
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Dated at New York, NY this 15 day of May, 1997
Countersigned by:
_________________________
Chairman of the Board
<PAGE>
EXHIBIT 10(o)
EXCESS LIABILITY POLICY
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
Various provisions in this policy restrict coverage. Read the entire policy
carefully to determine rights, duties and what is and is not covered.
Throughout this policy the words "you" and "your" refer to the "Named Insured"
shown in the declarations. "Named Insured" means the person shown as the Named
Insured in the Policy Declarations and that person's spouse, if he or she lives
in the same household.
Wherever used in this policy, "we," "us" and "our" refer to the company
providing this insurance.
- --------------------------------------------------------------------------------
INSURING AGREEMENT
- --------------------------------------------------------------------------------
If the Sponsoring Organization pays the premium, and you and the Sponsoring
Organization comply with policy terms, we agree with you as follows:
We will pay all sums, more fully defined by the term Net Loss, that the Insured
becomes legally obligated to pay for Personal Injury or Property Damage in
excess of the Required Underlying Limit or in excess of the Retained Limit, if
applicable.
This insurance applies to Personal Injury and Property Damage only if:
1. The Personal Injury or Property Damage is caused by an Occurrence that
takes place in the Policy Territory; and
2. The Personal Injury or Property Damage occurs during the policy period.
- --------------------------------------------------------------------------------
WHAT WE DO NOT COVER
- --------------------------------------------------------------------------------
We do not provide coverage for:
1. Personal Injury or Property Damage caused intentionally by any person.
This does not apply to:
(a) any act by an Insured while trying to prevent or eliminate danger in
the use of Cars or watercraft; or
(b) while trying to protect persons or property;
2. Personal Injury or Property Damage arising out of the ownership,
maintenance or use of any aircraft or hovercraft. This does not apply to:
(a) model airplanes of the hobby type which do not carry people or cargo.
(b) an aircraft chartered with crew by an Insured.
3. Personal Injury or Property Damage arising out of any watercraft you own,
rent or use, or is in your care custody or control if it is:
(a) powered by an inboard or inboard/outboard motor of more than 50
horsepower;
(b) a sailing vessel (with or without auxiliary power) 26 feet or more in
overall length;
(c) powered by any outboard motor(s), singly or in combination, of more
than 25 total horsepower.
This restriction does not apply to such watercraft if they are covered by
required underlying liability Insurance. We will not pay for or defend any
claims that are, or should be, covered under any kind of maritime statutes.
4. Personal Injury or Property Damage arising out of the use of any Car or
watercraft in any prearranged or organized race, speed contest, other
competition or practice. However, this exclusion does not apply to
sailboats.
<PAGE>
EXHIBIT 10(o)
5. Personal Injury or Property damage resulting from any act or failure to act
by any Insured as a director or officer of any organization. This does not
apply to:
(a) positions in a non-profit organization for which the Insured does not
receive pay.
(b) coverage up to $1,000,000 aggregate limit of liability to the
Sponsoring Organization, and it's Insureds against loss arising from
any claim which is made against the Insureds and reported to the
Insurer during the policy term by reason of any Wrongful Act, relative
to the administration of this excess policy.
Condition: The Insured agrees to provide the insurer with copies of any written
communication sent to members of the Defined Group (as shown on the policy
declarations) regarding this excess liability coverage PRIOR to distribution.
The Insurer retains the right to review, modify, or amend the communication as
deemed appropriate. Failure to conform to this condition shall void any
coverage extended.
6. Personal Injury or Property Damage for providing or failing to provide
professional services by:
(a) the Insured or;
(b) any person for whom the Insured is legally responsible.
7. Personal injury or Property Damage resulting from your Business Activity or
business property. This exclusion does not apply to:
(a) housing property you rent out or are holding for rental for use as a
place to live. But such property; must be covered by required
underlying limits. By "housing property", we mean 1,2,3, or 4 family
houses, and any smaller detached structures on the property such as a
garage or storage shed, the grounds, and private roads on the
property. Housing property also includes that part of any other
dwelling that you are occupying as your residence. Those parts of any
housing property that you are renting out or holding for rental as a
place to live are not considered business property unless more than
three roomers or boarders per family are living there. Parts of
housing property that you rent out or hold for rental for use as
private garages are not considered business property.
(b) activities which are described in an endorsement attached to this
policy;
(c) the use of any Private Passenger Car provided it is not used to carry
persons or property for a fee. This exclusion does not apply to a
share-the-expense ride.
(d) volunteer work for charity.
(e) incidental business activities which generate less than $5,000 in
gross annual revenues.
8. Personal Injury or Property Damage covered by a nuclear energy liability
policy or that would have been covered by any such policy if its limit had
not been exceeded.
9. Personal Injury arising out of the transmission of, or threat of
transmission of, a communicable sickness or disease by an Insured.
10. Any obligation for which an Insured may be held liable under any workers
compensation, non-occupational disability, unemployment compensation, or
similar law.
11. Property Damage to:
(a) property owned by an Insured.
(b) any other property which is rented to, used by, occupied by, or in the
care, custody, or control of an Insured. However, this only applies
to the extent that the Insured has agreed in writing to provide
insurance for this property.
12. The owner or lessee of a Car or watercraft loaned to or hired by you.
13. Sums which an Insured is entitled to recover from the owner or operator of
an "Uninsured Motor Vehicle."
<PAGE>
EXHIBIT 10(o)
- --------------------------------------------------------------------------------
DEFENSE OF SUITS NOT COVERED BY OTHER INSURANCE
- --------------------------------------------------------------------------------
DEFENSE
We will defend any suit for damages which is not covered by the types of
polices described in the Schedule of Underlying Limits of the Declarations
or any other available insurance. This applies only if the basis of the
suit is covered by this policy. We will settle or defend any claim or suit
as we feel appropriate with counsel approved by us. Our duty to settle or
defend ends when our limit of liability has been exhausted.
The Insured must reimburse us for any amount within the Retained Limit.
If the law does not permit us to comply with this agreement, we will pay
any expense that is incurred with our consent.
SUPPLEMENTARY PAYMENTS
In addition to our limit of liability, we will pay on behalf of an Insured:
1. The cost of bail bonds required because of an occurrence. This
includes related traffic law violations, resulting in Bodily Injury or
Property Damage covered under this policy.
2. All costs taxed against an Insured.
3. Premiums on appeal bonds and bonds to release attachments in any suit
we defend.
4. Interest accruing after a judgment is entered in any suit we defend.
Our duty to pay interest ends when we offer to pay that part of the
judgment which does not exceed our limit of liability for this
coverage.
5. Other reasonable expenses incurred at our request. This does include
loss of earnings up to $100 per day or a maximum of $5,000.
The amounts we pay for defense, and the other supplementary payments
described above, will not reduce the limits of insurance.
- --------------------------------------------------------------------------------
LIMITS OF LIABILITY
- --------------------------------------------------------------------------------
The limit of liability shown in the Declarations is the amount you have selected
and is the maximum amount that we will pay for all damages for Personal Injury
and Property Damage from any one Occurrence. This amount is the most we will
pay and will not be added to in any way, multiplied by any factor, or otherwise
increased for any reason, regardless of the number of:
. Insureds suits brought claims made
. premiums charged or premiums shown, either separately or collectively, in the
Declarations, or in any other document attached to or made part of your
policy.
. Cars or watercraft owned or involved in the Occurrence.
We will be liable only for the Net Loss resulting from any one Occurrence:
1. in excess of your Required Underlying Limit or
2. if applicable, in excess of your Retained Limit or
3. in excess of valid and collectible insurance, or the Retained Limit,
whichever is greater, if the Occurrence arises from the use of a Car
or motorcycle which is hired by you or loaned to you for a period of
thirty (30) days or less. Any Car or motorcycle hired by you or
loaned to you for a period of more than thirty (30) days shall be
subject to the Required Underlying Limit for Automobile Liability on
the Policy Declarations.
4. in excess of valid and collectible insurance or the Retained Limit,
whichever is greater, if the Occurrence arises from the use of a
watercraft which is hired by you or loaned to you for a period of
thirty (30) days or less. Any watercraft hired by you or loaned to
you for a period of more than thirty (30) days shall be subject to the
Required Underlying Limit for watercraft liability on the Policy
Declarations.
<PAGE>
EXHIBIT 10(o)
- --------------------------------------------------------------------------------
GENERAL CONDITIONS
- --------------------------------------------------------------------------------
DUTIES AFTER AN OCCURRENCE
As soon after an injury or Occurrence takes place that is likely to involve
coverage under this policy, we must be notified promptly. You or the
Sponsoring Organization should tell us how, when and where the Occurrence
happened. You or the Sponsoring Organization should also include the names
and address of any injured persons and of any witnesses.
A person seeking any coverage must:
1. cooperate with the underlying insurers, as required by their policies,
and with us in the investigation, settlement or defense of any claim
or suit.
2. promptly tell us if a claim is made or a suit is brought. That person
must also send to us or the underlying insurer copies of any notices
of legal papers received concerning the Occurrence.
3. attend hearings and trials.
4. cooperate in securing and giving evidence.
5. cooperate in having witnesses attend.
6. At our request, enforce any right of contribution or indemnity against
any person or organization who may be liable to the Insured, because
of a loss covered under this policy.
APPEALS
If the Insured or any underlying insurer elects not to appeal a judgment
which exceeds the underlying or Retained Limit, we may elect to do so. We
shall be responsible for all costs, taxes, expenses and interests on
judgments incidental to the appeal.
WHEN LOSS PAYABLE
The Insured may make claim for payment after the Net Loss has been
determined in excess of:
1. the Required Underlying Limit or
2. the Retained Limit, if applicable.
This will be determined after a trial or by written agreement of the
Insured, the claimant and us.
LEGAL ACTION AGAINST US
No legal action shall be brought against us:
1. unless the Insured has fully complied with all the terms of this
policy; and
2. until the amount of the Insured's Ultimate Net Loss in excess of the
Retained Limit has been finally settled.
This amount may be determined either by judgment against the Insured, or by
written agreement signed by the Insured, the claimant and us.
Anyone who has secured such a judgment or written agreement may then recover
under this policy to the extent of the insurance it provides. No one has any
right under this policy to join us as a party to any action against the Insured
to determine the Insured's liability; nor shall an Insured or his legal
representative sue us.
If any Insured becomes bankrupt or insolvent during the policy period, we shall
not be relieved of our obligations. However, the policy, unless cancelled,
shall cover the Insured's legal representative for the remainder of the term.
OTHER INSURANCE
Our coverage is excess over any other collectible insurance. This means all
insurance which covers you or any Insured, whether it is shown in the Schedule
or not. Only when all such insurance has been exhausted will this policy apply.
The only insurance over which this policy may not be excess is insurance
purchased to apply in excess of the sum of the Retained Limit and the limit of
liability of this policy.
<PAGE>
EXHIBIT 10(o)
OUR RIGHT TO RECOVER PAYMENT
1. If we make a payment under this policy, we will share recovery rights
with the Insured and any underlying insurer. If the person to or for
whom payment was made has a right to recover damages from another we
shall be subrogated to that right. That person shall:
(a) do whatever is necessary to enable us to exercise our rights and
(b) do nothing after the loss to prejudice them.
2. If we make a payment under this policy and the person to or for whom
payment is made recovers damages from another, that person shall hold
in trust for us the proceeds of the recovery. That person shall
reimburse us to the extent of our payment.
3. Recoveries shall be applied:
(a) first to reimburse any party (including the Insured) that may have
been paid any amount in excess of our limit of liability;
(b) then to reimburse us up to the amount paid;
(c) last, to reimburse any interests (including the Insured) that may
have been paid any amount either under underlying policies or
otherwise.
A different sharing may be made by a written agreement signed by all
interested parties. Any expenses incurred in making recoveries shall be
shared by interested parties in the ratio of their respective losses.
CHANGES
This policy contains all the agreements between you and us. Its terms may not
be changed or waived except by endorsement issued by us. If a change requires a
premium adjustment, we will adjust the premium as of the effective date of
change.
TRANSFER OF YOUR INTEREST IN THIS POLICY
Your rights and duties under this policy except as provided for the
Sponsoring Organization in this policy may not be assigned without our
written consent. However, if a Named Insured shown in the Policy
Declarations dies, coverage will be provided until the annual anniversary
date of the policy for:
1. the surviving spouse if resident in the same household at the time of
death; or
2. any member of your household who is covered under this policy at the
time of your death, but only while a resident of the premises insured
by this policy;
3. the liability of your property and premises, your legal
representative; or until a legal representative is appointed and
qualified, the person who has proper temporary custody of your
property and premises.
IF YOU GO BANKRUPT
Bankruptcy or insolvency of any Insured does not relieve us of any of our
obligations under this policy.
LIBERALIZATION
We may extend or broaden the insurance provided under this policy, without
premium charge, by amendment or substitution of form. If we do this during
the period that this policy is in force or within 45 days prior to its
effective date, then the extended or broadened insurance shall apply to
your policy.
CONFORMITY WITH STATE STATUTES
If any provision of this policy is in conflict with the laws of the state
in which you reside, this policy is amended to conform to the requirements
of the laws.
KEEPING REQUIRED UNDERLYING INSURANCE IN FORCE
If you fail to keep Required Underlying policies in force for the full amount of
the Required Underlying Limits, we will not provide coverage unless and until
the amount of all claims resulting from a single Occurrence exceed the Required
Underlying Limits. If any underlying policy has an aggregate limit which is not
reinstated after a loss, you must try, within reason, to have coverage
reinstated promptly.
<PAGE>
EXHIBIT 10(o)
FALSE INFORMATION
We may refuse to make payments under this policy if you or someone on your
behalf has given us false information:
1. in the application, or
2. in any other notice regarding underlying insurance.
PREMIUM
The Sponsoring Organization is responsible for the payment of all premiums
to us. All return premiums, if any, will be sent to the Sponsoring
Organization.
NOTICE OF CANCELLATION OR COVERAGE TERMINATION:
Cancellation:
1. The Sponsoring Organization may cancel the coverage afforded by this
policy at any time. To do so, the Sponsoring Organization must notify
us in advance of the date cancellation is to take place and return
this policy to us.
2. We may cancel this policy at any time by giving the Sponsoring
Organization at the address shown on the Policy Declarations written
notice:
(a) at least 15 days in advance of the date cancellation is to take
effect, if cancellation is for non-payment of premium, or
(b) at least 60 days in advance of the date cancellation is to take
effect for any reason other than non-payment of premium.
3. We may deliver any notice of cancellation instead of mailing it.
Proof of mailing any notice shall be sufficient proof of notice.
4. If the policy is canceled, a return premium may be due. This refund
will be promptly forwarded to the Sponsoring Organization. No refunds
will be made by us to individual Named Insureds. Should the policy be
canceled, at the request of the Sponsoring Organization, the amount to
be refunded will be computed at 90% of pro-rata. However, making or
offering to make the refund is not a condition of cancellation.
Termination:
Should an individual for ANY reason no longer qualify as a Named
Insured as defined in the Policy Declarations or other provisions of
this policy, coverage will cease at the annual anniversary date of the
policy or cancellation date whichever comes first. Again, no refunds
will be made by us to individual Named Insureds.
- --------------------------------------------------------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
Bodily Injury means bodily injury, sickness or disease sustained by a person,
including death resulting from any of these at any time.
Business Activity means any full or part time gainful employment, trade,
profession, or occupation of the Insured, other than Farming as defined in the
policy. Business Activity does not mean part time jobs of Insureds who are
students under the age of 25 or activities which are ordinarily incidental to
non-business pursuits.
Business Property means property on which a business is conducted and property,
or any part of it, rented to others or held for rental.
Car means a land motor vehicle designed for travel on public roads or subject to
motor vehicle registration, including trailers, or semi-trailers, farm tractors,
trailers and implements.
Private Passenger Car means a private passenger, sports utility, mini-van, pick-
up truck, station wagon, jeep type auto or motorcycle.
Your Car means any Car or motorcycle owned or hired by you, or loaned to you.
Farming means agricultural operations or the raising of animals which produced
$5,000 or less in gross annual revenues.
<PAGE>
EXHIBIT 10(o)
Insured means:
1. you or any Relative:
2.a any person:
(1) using Your Car or watercraft, or
(2) having custody of any of your animals.
2.b such person must:
(1) have your permission for such use of custody, and
(2) limit the use of custody as you may require.
3. any other person or organization.
Coverage is only for the legal responsibility for acts or omissions of those
persons for whom coverage is afforded above.
Named Insured(s) means individuals who are members of the group as defined in
the Policy Declarations.
Net Loss means the sum actually paid or payable due to a claim for which the
Insured is liable either by a settlement we agreed to or a final judgment. Such
sums will include proper adjustment for recoveries and salvage.
Occurrence means an accident including continuous or repeated exposure to
substantially the same conditions neither expected nor intended by the Insured
except to protect persons or property.
Occupying means in, upon, getting in, on, out of or off.
Personal Injury means:
1. bodily injury, shock, mental anguish, mental injury, sickness or
disease, including death resulting therefrom;
2. injury because of false arrest, detention or imprisonment, malicious
prosecution, wrongful entry or eviction, humiliation, libel, slander,
defamation of character or invasion of privacy.
Policy Period means the time the policy is in effect.
Policy Territory means anywhere in the world.
Property Damage means physical injury to or destruction of tangible property.
This includes loss of use of such property.
Recreational Vehicle means a motorized land vehicle that:
1. is designed for recreational use off public roads; and
2. is not subject to motor vehicle registration.
This includes all-terrain vehicles, antique vehicles, classes of special
interest vehicles, dune buggies, motor homes, replica vehicles, snowmobiles,
motorscooters, trail bikes, mopeds, motorized bikes, mini-bikes and pedacycles.
A golf cart is a Recreational Vehicle; except that for the purposes of
underlying insurance, the Required Underlying Limit for golf carts is equivalent
to the Required Underlying Limit for Homeowners Personal Liability in the Policy
Declarations.
Relative means a person related to you by blood, marriage or adoption who is a
resident of your household. This includes a ward or foster child, or child held
in joint custody, or other person under the age of 25 who is in your care.
Required Underlying Limit means the minimum limits you are required to maintain
in force for the types of insurance and exposures described in the Schedule of
Required Underlying Limits in the Policy Declarations.
Retained Limit means the amount stated in the Policy Declarations, if underlying
insurance does not cover the Occurrence, or an amount applying to specific
circumstances outlined in items 3 and 4 of the Limits of Liability section of
the policy.
Sponsoring Organization means the company, corporation, association, partnership
or sole proprietorship which sponsors and defines the criteria for qualification
as a Named Insured. For the purpose of this policy, the Sponsoring Organization
shall be the agent of the Named Insured.
<PAGE>
EXHIBIT 10(o)
Uninsured Motor Vehicle means a car or motorcycle:
1. for which no liability bond or policy applies at the time of the
Occurrence;
2. that is an Underinsured Motor Vehicle. An Underinsured Motor Vehicle
is a car or motorcycle for which a Bodily Injury liability bond or
policy applies at the time of an Occurrence but the amount paid under
that bond or policy to an Insured is not enough to pay the full amount
the Insured is legally entitled to recover as damages caused by the
Occurrence.
3. for which an insuring or bonding company denies coverage or is or
becomes insolvent: or
4. that is a hit-and-run vehicle and neither the driver nor owner can be
identified. The vehicle must:
(a)hit you or any Relative, Your Car or a vehicle you or any Relative
are Occupying; or
(b)cause an Occurrence resulting in Bodily Injury to you or any
relative without hitting you, any Relative, Your Car or a vehicle you
or any Relative are Occupying.
If there is no physical contact with the hit-and-run vehicle, the facts of the
Occurrence must be proved. We will accept only competent evidence other than
the testimony of a person making claims under this or any similar coverage.
However, Uninsured Motor Vehicle does not include any vehicle:
1. owned or operated by a self-insurer under any applicable motor vehicle
law except a self-insurer who is or becomes insolvent and cannot
provide the amounts required by that motor vehicle law;
2. owned by a governmental unit or agency;
3. designed for use mainly off public roads while not on public roads; or
4. owned by or furnished or available for the regular use of you or any
Relative.
Wrongful Act means any breach of duty, neglect, error, misstatement, misleading
statement, omission or other act done relative to the administration of this
personal excess liability coverage provided to the Named Insured.
In Witness Whereof, we have caused this policy to be executed and attested, and,
if required by state law, this policy shall not be valid unless countersigned by
our authorized representative.
Secretary Chairman of the Board
<PAGE>
EXHIBIT 10(p)
FAMILY INCOME ASSURANCE PLAN
SUMMARY DESCRIPTION
The Walt Disney Company (the "Company") has in effect a Family Income
Assurance Plan for certain key executives. Coverage under this self-insured
plan provides that in the event of the death of a participating key executive
while employed by the Company, the eligible spouse, same sex domestic partner,
or dependent child is entitled to receive an amount equal to 100% of the
executives salary in effect at the date of death for the first year after such
date of death, 75% thereof during the second year, and 50% thereof during the
third year.
<PAGE>
EXHIBIT 21
THE WALT DISNEY COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Name of subsidiary State of Incorporation
- ------------------ -----------------------
<S> <C>
ABC, Inc. New York
ABC Holding Company Inc. Delaware
American Broadcasting Companies, Inc. Delaware
Buena Vista Home Video, Inc. California
Buena Vista International, Inc. California
Buena Vista Television California
Disney Enterprises, Inc. Delaware
Disney Magic Corporation Delaware
Disney Wonder Corporation Delaware
Lake Buena Vista Communities, Inc. Delaware
MDMP Corporation Delaware
Miramax Film Corp. New York
The Disney Channel California
The Disney Store, Inc. California
Walt Disney Pictures and Television California
Walt Disney World Co. Delaware
WCO Parent Corporation Delaware
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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-K FOR THE TWELVE MONTHS ENDED SEPTEMBER
30, 1997 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> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 317
<SECURITIES> 1,897
<RECEIVABLES> 3,726
<ALLOWANCES> 0
<INVENTORY> 942
<CURRENT-ASSETS> 0
<PP&E> 13,808
<DEPRECIATION> 4,857
<TOTAL-ASSETS> 37,776
<CURRENT-LIABILITIES> 0
<BONDS> 11,068
0
0
<COMMON> 8,534
<OTHER-SE> 8,751
<TOTAL-LIABILITY-AND-EQUITY> 37,776
<SALES> 22,473
<TOTAL-REVENUES> 22,473
<CGS> 0
<TOTAL-COSTS> 18,026
<OTHER-EXPENSES> 367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 693
<INCOME-PRETAX> 3,387
<INCOME-TAX> 1,421
<INCOME-CONTINUING> 1,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,966
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 2.86
</TABLE>
<PAGE>
Exhibit 99
----------
Pro Forma Financial Information for Certain 1997 Events
During the second quarter of fiscal 1996, registrant completed its acquisition
of ABC, Inc. (ABC) (formerly Capital Cities/ABC, Inc.). During the first quarter
of fiscal 1997, registrant sold KCAL, a Los Angeles television station. The
purchase price allocation related to the ABC acquisition was finalized during
the second quarter of fiscal 1997.
During the third and fourth quarter of fiscal 1997, registrant disposed of
certain of its publishing assets (the "Disposition") that were acquired in
registrant's acquisition of ABC.
The following unaudited pro forma condensed consolidated statement of income
presents registrant's results of operations for the year ended September 30,
1997 as if the Disposition, final ABC purchase price allocation and the sale of
KCAL had occurred at the beginning of the period presented.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1997
(iN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
--------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues $ 22,473 $ (839)/(1)/ $ 21,613
(21)/(2)/
Costs and expenses (18,161) 650 /(1)/ (17,499)
17 /(2)/
(5)/(3)/
Gain on sale of KCAL 135 (135)/(2)/ -
-------- ------- --------
Operating income 4,447 (333) 4,114
Corporate activities and other (367) - (367)
Net interest expense (693) - (693)
-------- ------- --------
Income before income taxes 3,387 (333) 3,054
Income taxes (1,421) 139 /(4)/ (1,282)
-------- ------- --------
Net income $ 1,966 $ (194) $ 1,772
======== ======= ========
Earnings per share $ 2.86 $ 2.58
======== ========
Average number of common and common
equivalent shares outstanding 687 687
======== ========
- --------------------------------------------------------------------------------------------------------------------
Other Data:
Net income excluding
non-recurring items/(a)/ $ 1,886 $ (114) $ 1,772
======== ======= ========
Earnings per share excluding
non-recurring items/(a)/ $ 2.75 $ 2.58
======== ========
</TABLE>
/(a)/ Historical results for 1997 include a non-recurring gain from the sale of
KCAL-TV
<PAGE>
Pro forma adjustments giving effect to the Disposition, the final ABC purchase
price allocation, and the sale of KCAL reflected in the unaudited pro forma
condensed consolidated statement of income are as follows:
(1) Eliminate revenues and costs and expenses of the disposed publishing assets
as if the Disposition had occurred at the beginning of the year.
(2) Eliminate the revenues, costs and expenses and gain on the sale of KCAL as
if the sale of KCAL occurred at the beginning of the year.
(3) Increase amortization of intangible assets to reflect the final ABC purchase
price allocation as if final determination of these amounts had occurred at
the beginning of the year.
(4) Income tax effect of pro forma adjustments, which excludes the amortization
of intangible assets that is not deductible for tax purposes.
<PAGE>
QUARTERLY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following supplemental quarterly data are provided for additional
information purposes and have been prepared on a basis consistent with the
unaudited pro forma condensed consolidated statement of income for the year
ended September 30, 1997. In addition, the quarterly data for the year ended
September 30, 1996 reflect the acquisition of ABC as if it had occurred at the
beginning of the year.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------- Fiscal
Quarter Ended - 1997 Dec 31 Mar 31 Jun 30 Sep 30 Year
- -------------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Creative Content $2,962 $2,487 $2,004 $2,645 $10,098
Broadcasting 1,872 1,528 1,609 1,492 6,501
Theme Parks and Resorts 1,150 1,203 1,369 1,292 5,014
------------------------------------------- -------
$5,984 $5,218 $4,982 $5,429 $21,613
=========================================== =======
Operating income
Creative Content $ 668 $ 354 $ 257 $ 414 $ 1,693
Broadcasting 469 238 337 241 1,285
Theme Parks and Resorts 238 236 390 272 1,136
------------------------------------------- -------
1,375 828 984 927 4,114
Corporate activities and other (90) (108) (69) (100) (367)
Net interest expense (171) (184) (185) (153) (693)
------------------------------------------- -------
Income before income taxes 1,114 536 730 674 3,054
Income taxes (473) (220) (305) (284) (1,282)
------------------------------------------- -------
Net income $ 641 $ 316 $ 425 $ 390 $ 1,772
=========================================== =======
Earnings per share $ 0.93 $ 0.46 $ 0.62 $ 0.57 $ 2.58
=========================================== =======
</TABLE>
<PAGE>
QUARTERLY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------- Fiscal
Quarter Ended - 1996 Dec 31 Mar 31 Jun 30 Sep 30 Year
- -------------------------------------------------------------------------------------------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Creative Content $2,812 $2,287 $2,034 $2,431 $ 9,564
Broadcasting 1,790 1,369 1,499 1,351 6,009
Theme Parks and Resorts 994 1,055 1,249 1,204 4,502
------------------------------------------- -------
$5,596 $4,711 $4,782 $4,986 $20,075
=========================================== =======
Operating Income
Creative Content $ 618 $ 233 $ 249 $ 335 $ 1,435
Broadcasting 341 198 309 236 1,084
Theme Parks and Resorts 196 202 350 242 990
------------------------------------------- -------
1,155 633 908 813 3,509
Accounting change (1) 0 (300) 0 0 (300)
------------------------------------------- -------
1,155 333 908 813 3,209
Corporate activities and other (24) (98) (66) (61) (249)
Net interest expense (167) (189) (171) (171) (698)
------------------------------------------- -------
Income before income taxes 964 46 671 581 2,262
Income taxes (418) (31) (289) (250) (988)
------------------------------------------- -------
Net income $ 546 $ 15 $ 382 $ 331 $ 1,274
=========================================== =======
Earnings per share $ 0.79 $ 0.04 $ 0.55 $ 0.48 $ 1.85
=========================================== =======
</TABLE>
(1) During the second quarter of the fiscal year ended September 30, 1996,
registrant adopted SFAS 121 Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed of ("SFAS 121"). The
adoption of SFAS 121 resulted in a $300 million non-cash charge to
operating income. The following summarizes net income and earning per share
excluding the impact of the accounting change:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------- Fiscal
Quarter Ended - 1996 Dec 31 Mar 31 Jun 30 Sep 30 Year
- ------------------------------------------------------------------------------------- -----
<S> <C> <C> <C> <C> <C>
Net income excluding accounting change $ 546 $ 198 $ 382 $ 331 $1,457
========================================= ======
Earnings per share excluding
accounting change $ 0.79 $ 0.29 $ 0.55 $ 0.48 $ 2.11
========================================= ======
</TABLE>
