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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-9334
TURNER BROADCASTING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 58-0950695
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization) 30303
ONE CNN CENTER (ZIP CODE)
ATLANTA, GEORGIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(404) 827-1700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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12% Senior Subordinated Debentures due October 15, 2001 American Stock Exchange
Class A Common Stock, $.0625 par value per share American Stock Exchange
Class B Common Stock, $.0625 par value per share American 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
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. /X/
The aggregate market value of voting stock held by non-affiliates of the
registrant as of January 31, 1994: $323,720,000 Class A Common Stock,
$922,253,000 Class B Common Stock, $252,247,000 Class C Convertible Preferred
Stock.
The number of shares outstanding of each of the registrant's classes of
common stock as of December 31, 1993: Class A Common Stock, par value
$0.0625 -- 68,330,388 shares and Class B Common Stock, par value
$0.0625 -- 120,887,672 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1993 (the "1993 Annual Report to Shareholders") are
incorporated by reference in Part I, Item 1 and Part II, Items 5-8 of this
Report, as more particularly described herein.
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PART I
ITEM 1. BUSINESS
BACKGROUND
Turner Broadcasting System, Inc. (the "Company") is a diversified
information and entertainment company which was incorporated in the State of
Georgia in 1965. Through its subsidiaries at December 31, 1993, the Company
owned and operated three domestic entertainment networks, three international
entertainment networks (together the "Entertainment Networks"), and three news
networks. The Company produces, finances and distributes entertainment and news
programming worldwide, with operations in motion picture, animation and
television production, video, television syndication, licensing and
merchandising, and publishing.
In December 1993, the Company acquired Castle Rock Entertainment ("Castle
Rock"), a motion picture and television production company, and in January 1994,
the Company completed its acquisition of New Line Cinema Corporation ("New
Line"), an independent producer and distributor of motion pictures.
Also in December 1993, the Company acquired the remaining 50% interest in
HB Holding Co., which owns over 3,000 one-half hours of animated programming.
BUSINESS SEGMENTS
As a result of the Company's recent acquisitions and expanded emphasis on
entertainment production and distribution, beginning with the 1993 year-end
reporting period and reclassified for prior periods, the Company's operations
were divided into two primary industry segments: Entertainment and News. The
Entertainment Segment consists of Entertainment Networks and Entertainment
Production and Distribution; the revenue generated by this segment (after
elimination of intersegment revenues) represented 60% of the Company's
consolidated revenue for the year ended December 31, 1993. The News Segment is
comprised of domestic and international news networks and generated 31% of the
Company's consolidated revenue for the year ended December 31, 1993.
For financial information about the Company's industry segments for each of
the three years ended December 31, 1993, see Note 14 of Notes to Consolidated
Financial Statements on page 47 in the Company's 1993 Annual Report to
Shareholders, which is incorporated herein by reference.
ENTERTAINMENT
The Company's Entertainment Segment consists of Entertainment Networks and
Entertainment Production and Distribution.
ENTERTAINMENT NETWORKS
At December 31, 1993, Entertainment Networks included three domestic
networks (TBS SuperStation, Turner Network Television ("TNT") and the Cartoon
Network) and three international networks (TNT Latin America, Cartoon Network
Latin America, and TNT & Cartoon Network Europe). For selected information
concerning household coverage, viewership and ratings of the Entertainment
Networks, refer to page 17 in the Company's 1993 Annual Report to Shareholders
incorporated herein by reference.
Domestic
TBS SuperStation is a 24-hour per day independent UHF television station
located in Atlanta, Georgia, which is transmitted over-the-air to the Atlanta
market and is also retransmitted by common carrier via satellite to cable
systems located in all 50 states, Puerto Rico and the Virgin Islands. TBS
SuperStation relies principally on advertising revenue and receives no
compensation for its signal from cable systems (other than indirectly from
copyright fees paid and allocated through the Federal Copyright Royalty Tribunal
("CRT")
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for Company-owned programs) or from Southern Satellite Systems, Inc.
("Southern"), the common carrier which delivers its signal to the cable systems.
Generally, the Company does not have contracts with the local cable systems
controlling coverage of the TBS SuperStation signal; nor does the Company have a
contract with Southern, which is a common carrier controlled by
Tele-Communications, Inc. (see Items 10, 12 and 13 of the amendment to this Form
10-K to be filed pursuant to General Instruction G(3) of Form 10-K), requiring
retransmission of the TBS SuperStation signal. Local cable systems contract with
Southern for use of the TBS SuperStation signal. This retransmission of the TBS
SuperStation signal could be discontinued by the carrier subject to Southern's
contracts with the local cable systems. In view of the substantial aggregate
fees received by Southern from the local cable systems for the TBS SuperStation
signal, the Company considers voluntary discontinuance of such retransmission by
Southern unlikely.
TNT is a 24-hour per day advertiser-supported cable television
entertainment program service that was launched in October 1988. The Cartoon
Network is a 24-hour per day advertiser-supported cable television animated
program service that was launched in October 1992. Both networks are transmitted
via satellite for distribution by cable television operators and other
distributors. They derive revenue primarily from two sources: the sale of
advertising time on the networks and the receipt of per-subscriber license fees
paid by cable operators and other distributors.
The sale of advertising time is affected by viewer demographics, viewer
ratings and market conditions. In order to evaluate the level of its viewing
audience, the Company makes use of the metered method of audience measurement.
This method, which provides a national sample through the use of meters attached
to television sets, produces a continuous measurement of viewing activity within
those households. The Company utilizes the services of A.C. Nielsen ("Nielsen"),
the metered estimates of which are widely accepted by advertisers as a basis for
determining advertising placement strategy and rates.
The rating measurements supplied by Nielsen are translated into advertising
revenues on the basis of the average cost per thousand homes charged for
advertising ("CPM"), which is negotiated by the advertiser and the telecaster.
The CPM will vary depending upon the type and schedule of the program that will
carry the advertisement, as some programs and time slots are viewed by
advertisers as delivering a more valuable audience segment than others. Total
advertising revenues are a function of the audience sold, the CPM charged to
advertisers and the number of advertising spots sold.
International
TNT Latin America, which was launched in January 1991, is a 24-hour per day
trilingual entertainment program service distributed principally to subscribing
cable systems in Latin America and the Caribbean. At December 31, 1993, TNT
Latin America was available in 30 countries and territories via satellite.
Revenues from this service are derived almost entirely from subscription fees
based on contracts with cable operators that specify minimum subscriber levels.
Cartoon Network Latin America is a 24-hour per day trilingual animated
program service which was launched in April 1993 and is distributed principally
to subscribing cable systems in Latin America and the Caribbean. Cartoon Network
Latin America is available via satellite in 24 countries and territories and
derives most of its revenue from subscription fees based on contracts with cable
operators.
TNT & Cartoon Network Europe is a 24-hour per day program service
consisting of European versions of the Cartoon Network and TNT, originating in
the United Kingdom and distributed throughout Europe. This dual programming
service features 14 hours of animated programming during the day and ten hours
of film product at night. Approximately 40% of its schedule is dubbed audio or
subtitled in six languages -- English, French, Spanish, Swedish, Norwegian and
Finnish. This service was launched in September 1993, and derives most of its
revenue from advertising sales and subscription revenues.
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Programming
The Entertainment Networks telecast 24-hours per day, 7 days per week. The
Company fulfills its programming needs through use of its copyright owned
libraries, syndicated programming, original productions and program rights to
sports events.
Copyright ownership consists chiefly of the world's largest film and
animation libraries: 3,400 films, 8,600 cartoon episodes and over 2,200 hours of
made-for-television programming. The Company also has the capability to produce
four of the most popular and universal types of programming: news, sports,
movies and cartoons.
The Company has acquired programming rights from the National Basketball
Association (the "NBA") to televise a certain number of regular season and
playoff games in each of the 1994-1995 through 1997-1998 seasons in return for
rights fees aggregating $352 million plus a share of the advertising revenues
generated under the agreement in excess of specified amounts. The Company also
entered into an agreement with the National Football League to televise a
certain number of pre-season and regular season Thursday and Sunday night games
in each of the 1994 through 1997 seasons in return for rights fees aggregating
$496 million.
In addition to basketball and football, the Company has acquired
programming rights to televise the 1994 Winter Olympics on TNT and to televise
the Atlanta Braves on TBS SuperStation. The Company will also produce and
telecast the Goodwill Games in 1994. The Goodwill Games is a quadrennial
international multi-sport event which provides approximately 128 hours of
programming for the Company.
The suppliers of substantially all programming telecast by TBS
SuperStation, other than programming owned by the Company, own or have rights to
the copyrights to such programming. The use and telecast of such programming by
TBS SuperStation is subject to TBS SuperStation's licensing agreements with
these suppliers and the Copyright Act of 1976, as amended (the "Copyright Act").
A small number of the licensing agreements contain provisions which restrict the
broadcast of the programming by TBS SuperStation to the Atlanta market. The
Company typically pays program suppliers a license fee significantly in excess
of the market rate for programming aimed at the Atlanta market alone. In
addition, the program suppliers collect copyright royalties from the CRT funded
by all cable operators that carry the TBS SuperStation signal. Although it is
possible that program suppliers could initiate legal action against the Company
alleging breach of licensing agreements, no such actions have been instituted to
date and the Company believes the probability of litigation against the Company
in this regard is remote. Furthermore, as a basis for the position that the
nationwide transmission of TBS SuperStation programming by Southern does not
infringe upon the rights of copyright owners or their licensees, the Company has
relied upon the Copyright Act which exempts certain secondary transmissions by
carriers from copyright liability. See "Business -- Regulation -- Copyright
License System."
Competition
TBS SuperStation, TNT and the Cartoon Network compete with other cable
programming services for distribution to viewers, and compete for viewers with
other forms of programming provided to cable subscribers, such as broadcast
networks and local over-the-air television stations, home video viewership,
movie theaters and all other forms of audio/visual entertainment, news and
information services. In the Atlanta market, TBS SuperStation vies for viewers
with affiliates of the four major networks, two other independent stations and
two affiliates of the Public Broadcasting System, in addition to other
programming available to local cable subscribers. The continued carriage of the
TBS SuperStation signal, or the addition of that signal to cable system
operators, could be adversely affected relative to other cable-delivered
programming by the requirement that cable operators pay copyright royalty fees
for each distant non-network signal carried by their systems. See
"Business -- Regulation -- Copyright License System."
Internationally, TNT Latin America, Cartoon Network Latin America and TNT &
Cartoon Network Europe compete with cable programming services for distribution
to viewers, and compete for viewers with other forms of programming provided to
cable subscribers, such as broadcast networks and local over-the-air
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television stations, home video viewership, movie theaters and all other forms
of audio/visual entertainment, news and information services.
ENTERTAINMENT PRODUCTION AND DISTRIBUTION
The Entertainment Production and Distribution companies are involved in the
creation of programming or the distribution of original and library product to
the Entertainment Networks or third parties.
Production companies include Turner Pictures, Inc., which produces original
movies for distribution in various markets; TBS Productions, which specializes
in non-fiction entertainment and documentary productions; Hanna-Barbera
Cartoons, Inc., an animation studio; and the newly acquired Castle Rock
Entertainment ("Castle Rock"), a motion picture and television production
company. Additionally, in January 1994 the Company purchased New Line Cinema
Corporation, a motion picture production and distribution company.
The Company owns two major copyright libraries. The Turner Entertainment
Co. library (the "TEC Library") contains approximately 3,400
Metro-Goldwyn-Mayer, Inc. ("MGM"), RKO Pictures, Inc. ("RKO") and pre-1950
Warner Bros. films, 3,000 short subjects and 1,850 cartoon episodes, and a
number of television shows. The Hanna-Barbera library (the "HB Library")
consists of over 3,000 half-hours of animation programming. Programming from
both libraries has been used to launch Entertainment Networks, such as TNT and
the Cartoon Network, and as cost-effective sources of on-going programming
needs.
The Company-owned programming is marketed and distributed in the domestic
theatrical, pay-per-view, home video, syndication and basic cable network
markets principally through its own organization, except for certain
pre-existing agreements related to the TEC Library and Castle Rock product.
Pursuant to a 1986 agreement with its predecessor, MGM became the
designated distributor in the home video market of the MGM and pre-1950 Warner
Bros. films in the TEC Library, both domestically and internationally. The
distribution agreement (the "Home Video Agreement") provides for a fifteen-year
term commencing June 6, 1986, with distribution fees payable based primarily on
the suggested retail price of the films sold. Under the agreement, TEC is
responsible for all recording and releasing costs and has significant
consultation rights with respect to marketing, distribution and exploitation of
the films. In November 1990, MGM entered into an agreement with Warner Home
Video, Inc. with respect to certain of MGM's obligations under the Home Video
Agreement.
Also, pursuant to a 1986 agreement with a term of 10 years with its
predecessor, MGM became the designated distributor in the theatrical and
non-theatrical exhibition markets of the TEC Library; however, the Company has
international distribution rights to certain RKO product in certain
international markets. In addition, the Company has licensed original TNT
productions for theatrical distribution through several distributors in various
countries outside the United States and has also entered into domestic licensed
theatrical distribution agreements.
After the expiration of pre-existing distribution agreements with Columbia
Pictures, Castle Rock product will become available for international home video
and theatrical distribution by the Company in 1995, domestic home video
distribution in 1996 and domestic theatrical distribution in 1998.
The Company's ancillary distribution capabilities include licensing and
merchandising, publishing, educational applications, video games and interactive
activities.
The licensing of the Company's programming is accomplished through sales
offices located in Atlanta, Chicago, Los Angeles and New York domestically, and
internationally in Argentina, Australia, Brazil, France, Hong Kong, Japan,
Mexico, the Netherlands, Puerto Rico and the United Kingdom.
Competition
Programming for television and the production of major motion pictures are
highly competitive businesses in which the main competitive factors are quality
and variety of product and marketing. Production companies compete with numerous
other motion picture and television production companies, and with
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television networks and pay cable systems, for the acquisition of literary
properties, the services of performing artists, directors, producers, and other
creative and technical personnel as well as for paying audiences.
NEWS
At December 31, 1993, the Company's News Segment consisted of two domestic
networks (Cable News Network ("CNN") and Headline News) and one international
network (Cable News Network International ("CNN International")) (all such
networks, the "News Networks"). For selected information concerning household
coverage, viewership and ratings of the News Networks, refer to page 23 in the
Company's 1993 Annual Report to Shareholders incorporated herein by reference.
DOMESTIC
CNN is a 24-hour per day cable television news service which was launched
in June 1980. CNN uses a format consisting of up-to-the minute national and
international news, sports news, financial news, science news, medical news,
weather, interviews, analysis and commentary. CNN obtains reports from 28 news
bureaus (as of December 31, 1993), of which nine are in the United States
(Atlanta, Chicago, Dallas, Detroit, Los Angeles, Miami, New York, San Francisco
and Washington, D.C.) and 19 are located outside the United States (Amman,
Bangkok, Beijing, Berlin, Brussels, Cairo, Jerusalem, London, Manila, Mexico
City, Moscow, Nairobi, New Delhi, Paris, Rio de Janeiro, Rome, Santiago, Seoul
and Tokyo). In addition to these permanent bureaus, CNN maintains satellite
newsgathering trucks in the United States, portable satellite up links
(flyaways) in the United States and abroad and a network of hundreds of
broadcast television affiliates in the United States and abroad which permit CNN
to report live from virtually anywhere in the world. The affiliate arrangements,
from which CNN derives substantial news coverage, are generally represented by
contracts having terms of one or more years. In addition, news is obtained
through wire news services, television news services and from free-lance
reporters and camera crews. CNN is also a member, together with other news
reporting companies, of various news pools including the White House pool which,
under certain conditions, provides coverage of Presidential activities and White
House events.
Headline News is a 24-hour per day cable television news service launched
in December 1981 which uses a concise, fast-paced format to provide constantly
updated half-hour newscasts. Although Headline News has its own studio and
transmission facilities, it utilizes CNN's newsgathering operations for the
accumulation of its own news stories.
Revenues for CNN and Headline News are derived from the sale of advertising
time and subscription sales of the services to cable system operators,
broadcasters, hotels and other clients as well as from distribution of the
service in the over-the-air markets. See "Entertainment -- Entertainment
Networks -- Domestic" for a discussion of the effects of the items affecting the
sale of advertising time.
The programming of CNN and Headline News is transmitted via satellite to
local cable systems and others which have contracted directly with CNN to obtain
these news program services. The fee structure is based upon (i) the level of
carriage on a cable system on which the program is retransmitted and (ii) the
penetration of the Company's other programming services on the cable system,
subject to a discount based upon the number of subscribers.
INTERNATIONAL
CNN International is a 24-hour per day television news service consisting
of programming produced by CNN and Headline News, as well as original
programming, which was distributed to cable systems, broadcasters, hotels and
other businesses on a network of 10 satellites outside the United States at
December 31, 1993. Subject to government and regulatory approval, at December
31, 1993 CNN International was available in over 200 countries and territories
on five continents.
CNN International is marketed by a wholly-owned subsidiary of the Company
throughout Europe, large portions of Africa and the Middle East, the Pacific Rim
and Central and South America.
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CNN International derives its revenues primarily from fees charged to cable
operators based on the number of subscribers and the level of carriage, fees
paid by other users (principally hotels and embassies) of the CNN International
signal, the sale of advertising time, and fees charged to international
over-the-air television stations for the use of the CNN International signal.
COMPETITION
CNN and Headline News compete nationally and CNN International competes
internationally with other cable program services for distribution to viewers,
and compete for viewers with other forms of programming provided to cable
subscribers, such as broadcast networks and local over-the-air television
stations, with home video viewership, newspapers, news magazines, movie theaters
and all other forms of audio/visual entertainment, news and information
services. For other factors relating to competition, see "Business
Segments -- Entertainment -- Competition."
OTHER BUSINESSES
In addition to its Entertainment and News Segments, the Company owns or has
an interest in a number of other businesses, among them ownership of
professional sports teams.
THE ATLANTA BRAVES
In January 1976, the Company acquired the Braves, a major league baseball
club, through a wholly-owned subsidiary, Atlanta National League Baseball Club,
Inc. ("ANLBC"). In addition to the Braves, ANLBC operates minor league farm
clubs in Richmond, Virginia; Greenville, South Carolina; and Macon, Georgia.
ANLBC also operates rookie league clubs in West Palm Beach, Florida and Pulaski,
Virginia, and utilizes facilities under player development contracts in Durham,
North Carolina and Idaho Falls, Idaho. The Braves lease office, locker room and
storage space and play all home games in the Atlanta-Fulton County Stadium in
Atlanta, Georgia.
ANLBC is a member of the National League of Professional Baseball Clubs
(the "National League"). ANLBC receives a pro-rata distribution of revenues
generated through contracts negotiated with television networks, certain other
broadcast revenues and a portion of gate receipts from games away from home.
During 1993, the Office of the Commissioner of Baseball entered into a new
agreement with Entertainment and Sports Programming Network ("ESPN") covering
the 1994 through 1999 seasons and entered into an agreement to form a joint
venture with American Broadcasting Company ("ABC") and National Broadcasting
Company ("NBC") to telecast certain major league games over six seasons
beginning in 1994. Due to National League expansion, a reduction in the annual
rights fees to be paid by ESPN, and the revenue sharing provisions contained in
the joint venture agreement with ABC and NBC, ANLBC is uncertain as to whether
its future pro-rata share of revenues related to these agreements will equal or
exceed its 1993 pro-rata revenues from the prior Columbia Broadcasting System
("CBS") and ESPN agreements. ANLBC is subject to payment of ongoing assessments
and dues to the National League and to compliance with the constitution and
bylaws of the National League, as the same may be modified from time to time by
the membership, as well as with rules promulgated by the Commissioner of
Baseball. These rules include standards of conduct for players and front office
personnel; methods of operation; procedures for drafting new players and for
purchasing, selling and trading player contracts; rules for implementing
disciplinary action relative to players, coaches and front office personnel; and
certain financial requirements.
In January 1985, an agreement was reached between ANLBC and the
Commissioner of Baseball relative to the nationwide television exposure afforded
the telecasts of the Braves games on TBS SuperStation. The agreement, extended
through the 1993 season, requires the Company to make rights fee payments into
the Major League Central Fund for equal distribution to all major league
baseball clubs including the Braves. In exchange for these fees, the
Commissioner of Baseball, among other things, will not seek to prohibit the
telecast of a specified number of Braves games on TBS SuperStation and the
accompanying nation-wide satellite distribution of the TBS SuperStation signal
by common carrier. TBS SuperStation expects to televise
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approximately 120 Braves games during 1994. Also, SportSouth Network, Ltd., an
unconsolidated entity in which the Company holds a 44% interest, intends to
telecast 34 games in 1994.
The baseball players under contract with clubs belonging to the National
League or to the American League of Professional Baseball Clubs (collectively,
the "Major Leagues") are represented for collective bargaining purposes by the
Major League Baseball Players' Association (the "Baseball Players'
Association"). On March 19, 1990, the Major Leagues and the Baseball Players'
Association agreed to a collective bargaining agreement to be in effect until
December 31, 1993. Under the terms of that agreement, once a player was drafted
and executed a contract with a club, the club retained exclusive rights to that
player until he had completed six years of Major League service. At the
conclusion of this period, if the club and the player could not reach agreement
as to the terms of his contract, the player became a free agent and could
negotiate and enter into a contract with another club. The club losing a free
agent to another club was entitled to compensation for such loss only in the
form of additional amateur draft rights. The agreement also allowed for all
players with three years of Major League service and 17% of players with between
two and three years of Major League service to enter into salary arbitration.
The opportunity for "free agent" status and the players' rights to salary
arbitration have resulted in increased payroll cost for the major league clubs,
including the Braves.
The agreement specifies that either the Major Leagues or the Baseball
Players' Association could reopen for negotiation certain provisions of the
agreement, specifically minimum salary levels, salary arbitration and free
agency issues, by providing written notice at least 30 days prior to January 10,
1993. In December 1992, the Major Leagues reopened the collective bargaining
agreement. At the present time, there is no agreement between the Major Leagues
and the Baseball Players' Association and, as a consequence, either party has
the right to take concerted action (i.e., a lock-out by the Major Leagues or a
strike by the Baseball Players' Association).
THE ATLANTA HAWKS
The Company, through Hawks Basketball, Inc., a wholly-owned subsidiary of
the Company, has a 96% limited partnership interest in the Atlanta Hawks, L.P.
(the "Hawks"), a member of the NBA. The Hawks play their home games in the
16,300-seat Omni Coliseum in Atlanta, Georgia, which is operated by a wholly-
owned subsidiary of the Company.
Professional basketball is organized in a manner similar to professional
baseball, except that there is presently only one league and basketball clubs do
not share in gate receipts from games away from home. The NBA, through its
constitution, has established rules governing club operations, including
drafting of players and trading player contracts.
A portion of the Hawks' revenues are from a pro-rata share of network
broadcast fees derived by the NBA, pursuant to its four-year broadcast rights
agreement awarded to NBC in 1989. A portion of the Hawks' future revenues will
be derived from a pro-rata share of the network broadcast rights fees derived by
the NBA, pursuant to a new four-year broadcast rights fee agreement covering the
1994-1995 through 1997-1998 seasons awarded to NBC in 1993.
The NBA has a separate agreement with the Company to televise a different
package of games. On November 29, 1989, the Company and the NBA entered into an
agreement for TNT to televise a certain number of regular season and playoff
games in each of the 1990-91 through 1993-94 seasons, in return for rights fees
aggregating $275 million. Pursuant to an agreement between the Company and the
Hawks dated June 1, 1978, as supplemented, TBS SuperStation has the right to
telecast some portion of the regular and post-season Hawks' games, as determined
by the NBA, not otherwise subject to agreements between the NBA and other
broadcasters. Pursuant to this agreement, TBS SuperStation televised 25 regular
season Hawks' games during the 1990-91 season and 30 regular season Hawks' games
during both the 1991-92 and the 1992-93 seasons. In addition, TBS SuperStation
intends to broadcast up to 30 regular season Hawks' games during the 1993-94
season. On September 22, 1993, the Company and the NBA entered into an agreement
whereby both TNT and TBS SuperStation will telecast a certain number of regular
season and playoff games in each of the 1994-1995 through 1997-1998 seasons in
return for rights fees aggregating
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$352 million plus a share of the advertising revenues generated in excess of
specified amounts. As a result of entering into this contract, TBS SuperStation
will discontinue its telecast of Hawks' games after completion of the 1993-1994
season.
NBA players are represented for collective bargaining purposes by the
National Basketball Players' Association (the "NBPA"). During June 1988, the NBA
and the NBPA agreed in principle to a new six-year collective bargaining
agreement, that, among other things, reduced the NBA draft to three rounds for
the 1988-89 season (two rounds in subsequent years), continued the salary cap
which ties a team's payroll to the league's gross revenues, as defined, and
altered free agency guidelines regarding the right of first refusal. A player
may, under certain circumstances, become a total free agent upon termination of
his contract.
SPORTSOUTH NETWORK
In May 1990, Turner Sports Programming, Inc. ("TSPI"), a wholly-owned
subsidiary of the Company, entered into an agreement with LMC Southeast Sports,
Inc. (formerly TCI Southeast Sports, Inc.) and Scripps Howard Production, Inc.
to form SportSouth Network, Ltd. ("SportSouth"). SportSouth and Wometco Cable
Corporation ("Wometco") entered into a separate agreement whereby Wometco agreed
to carry SportSouth Network on certain of its cable systems in exchange for a
future partnership interest in SportSouth, subject to the occurrence of certain
events. SportSouth Network, a regional sports network serving the Southeast
United States, was launched in August 1990. As of December 31, 1993, TSPI had a
44% interest in the partnership. SportSouth Network programming includes Braves
baseball, Hawks basketball and various programs from Prime Networks, a national
service offering sports programming to affiliated sports networks, cable
operators and home satellite dish owners. SportSouth's revenues are principally
derived from the sale of advertising time and the sale of its service to cable
operators. At December 31, 1993, SportSouth Network served approximately 4
million U.S. television households.
n-tv
The Company acquired a 27.5% interest in n-tv in March 1993. n-tv is a
24-hour per day German language news network currently reaching 17 million homes
in Germany and parts of Austria and Switzerland, primarily via cable systems.
Like TBS SuperStation in the United States, n-tv relies principally on
advertising revenues and receives no compensation for its signal from those
cable systems. The studio and offices of n-tv are located in the former Eastern
Berlin.
OTHER
The Company's corporate and news operations are headquartered in CNN
Center, a multi-use office, retail and hotel complex in Atlanta, Georgia. The
Airport Channel is a CNN produced service that provides newscasts to travelers
at airports across the United States. Through World Championship Wrestling
("WCW"), the Company produces wrestling programming for TBS SuperStation, the
domestic syndication markets, and pay-per-view television. It also stages live
wrestling events.
REGULATION
BROADCAST REGULATION
Television broadcasting is subject to the jurisdiction of the Federal
Communications Commission (the "FCC" or the "Commission") under the
Communications Act of 1934, as amended (the "Communications Act"). Among other
things, FCC regulations govern the issuance, term, renewal and transfer of
licenses which must be obtained by persons to operate any television station.
The current broadcast license of TBS SuperStation was renewed on April 15, 1992
and will expire on April 1, 1997. In addition, FCC regulations govern certain
programming practices.
On June 12, 1992, the FCC released a Notice of Proposed Rulemaking under
which it proposes to re-examine current regulations and ownership restrictions
on television broadcasters. Among other things, the
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FCC is proposing liberalizing the number of television stations a single entity
may own or altering the rule that currently prohibits an entity from owning more
than one station in a local market. Any regulatory change, if adopted, could
affect the Atlanta and national markets in which the Company operates. The
Company at this time cannot predict the outcome of this proceeding or the
overall effect it may have.
CABLE REGULATION
Cable television systems are regulated by municipalities or other local
government authorities. Municipalities generally have the jurisdiction to grant
and to review the transfer of franchises, to review rates charged to
subscribers, and to require public, educational, governmental or leased-access
channels, except to the extent that such jurisdiction is preempted by federal
law. Any such rate regulation or other franchise conditions could place downward
pressure on subscriber fees earned by the Company, and such regulatory carriage
requirements could adversely affect the number of channels available to carry
the Company's networks.
On October 5, 1992, the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Act") became law. The principal provisions of
the 1992 Act that may affect the Company's operations are discussed below. The
Company cannot predict the full effect that the 1992 Act will have on its
operations.
Rate Regulation
Section 623 of the Communications Act, as amended by the 1992 Act,
establishes a two-tier rate structure applicable to systems not found to be
subject to "effective competition" as defined by the statute. Rates for a
required "basic service tier" are subject to regulation by practically every
community. Rates for cable programming services other than those carried on the
basic tier are subject to regulation if, upon complaint, the FCC finds that such
rates are "unreasonable." Programming offered by a cable operator on a
per-channel or per-program basis, however, is exempt from rate regulation.
On April 1, 1993, the FCC adopted implementation regulations for Section
623. The text of its Report and Order was released on May 3, 1993. The FCC
adopted a benchmark approach to rate regulation. Rates above the benchmark would
be presumed to be unreasonable. Once established, cable operators could adjust
their rates based on appropriate factors and could pass through certain costs to
customers, including increased programming costs.
On February 22, 1994, the Commission adopted further regulations. Among
other things, the additional regulations will govern the offering of bona fide
"a la carte" channels that are exempted from rate regulation. The Commission
also adopted a methodology for determining rates when channels are added to or
deleted from regulated tiers. These regulations may adversely affect the
Company's ability to sell its existing or new networks to cable customers and/or
may adversely affect the prices the Company may charge for its services,
although at this time the Company cannot predict their full effect on its
operations.
On April 5, 1993, the FCC also froze rates for cable services subject to
regulation under the 1992 Act for 120 days. On June 11, 1993, the FCC deferred
the implementation of rate regulation from June 21, 1993 to October 1, 1993, and
extended the freeze on rates for cable services subject to regulation from
August 4, 1993 to November 15, 1993. On November 10, 1993, the Commission
further extended the freeze until February 15, 1994, and on February 8, 1994,
extended the expiration date of the freeze until May 15, 1994. On July 27, 1993,
the FCC moved the effective date of rate regulation back to September 1, 1993.
Additionally, among other things, the FCC permitted cable operators to structure
rates and service offerings up until September 1, 1993 without prior notice to
subscribers.
On July 16, 1993, the FCC issued a Notice of Proposed Rulemaking to add the
regulatory requirements to govern cost-of-service showings that cable operators
may submit under this provision to justify rates above the benchmarks. On
February 22, 1994, the Commission adopted interim rules to govern the cost of
service proceedings.
The constitutionality of these provisions has been challenged in litigation
filed in the United States District Court for the District of Columbia. On
September 27, 1993, the district court upheld the constitutionality of these
provisions. An appeal of that decision is pending in the U.S. Court of Appeals
for the
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District of Columbia Circuit. Appeals of the Commission's implementing
regulations have also been taken to the United States Court of Appeals for the
District of Columbia Circuit. The Company cannot predict the ultimate outcome of
the litigation.
Must Carry and Retransmission Consent
The 1992 Act contains provisions that would require cable television
operators to devote up to one-third of their channel capacity to the carriage of
local broadcast stations and provide certain channel position rights to the
local broadcast stations. The 1992 Act also includes provisions governing
retransmission of broadcast signals by cable systems, whereby retransmission of
broadcast signals would require the broadcaster's consent and provides each
local broadcaster the right to make an election between must carry and
retransmission consent. The retransmission consent provisions of the 1992 Act
became effective on October 5, 1993.
On March 11, 1993, the Commission adopted a Report and Order implementing
these provisions. The provisions could affect the ability and willingness of
cable systems to carry cable programming services. The Company has filed
litigation challenging the provision as unconstitutional, which is pending in
the United States Supreme Court (see "Legal Proceedings -- Turner Broadcasting
System, Inc. v. Federal Communications Commission and the United States of
America").
Program Access
On April 1, 1993, the Commission issued regulations implementing a
provision that, among other things, makes it unlawful for a cable network, in
which a cable operator has an attributable interest, to engage in certain unfair
methods of competition or unfair or deceptive acts or practices, the purpose and
effect of which is to hinder significantly or prevent any multichannel video
programming distributor from providing satellite cable programming or satellite
broadcast programming to cable subscribers or consumers. The provisions contain
an exemption for any contract that grants exclusive distribution rights to a
person with respect to satellite cable programming or that was entered into on
or before June 1, 1990. While the Company cannot predict the regulations' full
effect on its operations, they may affect the rates charged by the Company's
cable programming services to its customers and could affect the terms and
conditions of the contracts between the Company and its customers.
The constitutionality of this provision has been challenged in litigation
filed in the United States District Court for the District of Columbia. On
September 27, 1993, the district court upheld this provision. An appeal of that
decision is pending in the United States Court of Appeals for the District of
Columbia Circuit. Appeals of the Commission's implementing regulations have also
been taken to the United States Court of Appeals for the District of Columbia
Circuit. The Company cannot predict the ultimate outcome of the litigation.
Regulation of Carriage Agreements
The 1992 Act contains a provision that requires the FCC to establish
regulations governing program carriage agreements and related practices between
cable operators and video programming vendors, including provisions to prevent
the cable operator from requiring a financial interest in a program service as a
condition of carriage and provisions designed to prohibit a cable operator from
coercing a video programming vendor to provide exclusive rights as a condition
of carriage. On October 22, 1993, the Commission issued regulations implementing
this provision. The Company at this time cannot predict the effect of this
provision on its operations.
The constitutionality of this provision has been challenged in litigation
filed in the United States District Court for the District of Columbia. On
September 27, 1993, the district court upheld the constitutionality of this
provision. An appeal of that decision is pending in the United States Court of
Appeals for the District of Columbia Circuit. The Company cannot predict the
outcome of the litigation.
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Ownership Litigation
Section 11 of the 1992 Act directed the Commission to prescribe rules and
regulations establishing limits on the number of cable subscribers a person is
authorized to receive by cable systems owned by such person and the number of
channels that can be occupied by video programmers in which a cable operator has
an attributable interest. The Commission must also consider the necessity of
imposing limitations on the degree to which multichannel video programming
distributors may engage in the creation or production of video programming.
On December 28, 1992, the FCC issued a Notice of Proposed Rulemaking and
Notice of Inquiry with respect to these provisions. On October 22, 1993, the FCC
adopted a Second Report and Order that established a 40% limit on the number of
channels that may be occupied by programming services in which the particular
cable operator has an attributable interest. The Company is subject to this
provision. The FCC has also established a national limit of 30% on the number of
homes passed that any one person can reach through cable systems owned by such
person, but stayed the implementation of that provision pending judicial review
of its constitutionality. Petitions for reconsideration are pending. The Company
cannot at this time predict the effect of this provision or of these proposals
on its operations.
The constitutionality of these provisions has been challenged in litigation
filed in the United States District Court for the District of Columbia. On
September 27, 1993, the district court found the national limit on homes passed
unconstitutional, but upheld the constitutionality of the channel capacity
limits. An appeal of that decision is currently pending in the United States
Court of Appeals for the District of Columbia Circuit. Appeals of the
Commission's implementing regulations have also been taken to the United States
Court of Appeals for the District of Columbia Circuit. The Company cannot
predict the ultimate outcome of the litigation.
Sports Migration
The 1992 Act directs the FCC to submit an interim report by July 1, 1993
and a final report by July 1, 1994 to Congress on the migration of sports
programming from the broadcast networks to cable networks and cable
pay-per-view. The interim report was submitted on June 24, 1993.
CABLE NETWORK CROSS-OWNERSHIP
Under current FCC regulations, television broadcast networks are not
permitted to own cable systems. On June 17, 1992, the FCC voted to modify its
regulations to permit television broadcast networks to own cable systems so long
as a network's owned systems have less than 10% of cable subscribers nationally
and have less than 50% of the subscribers in an individual local market. The
Company cannot predict the effect, if any, of this change on its operations.
COPYRIGHT LICENSE SYSTEM
The Copyright Act provides for the grant to cable systems of compulsory
licenses for carriage of distant, non-network copyrighted programming (as
typically originally transmitted by a broadcast television station). The
Copyright Act also provides for payments of royalty fees by the cable systems
for the benefit of copyright owners or licensors, which fees are payable for the
privilege of retransmitting such programming to their subscribers. Under the
Copyright Act, the amount of such royalty payments is generally based upon a
formula utilizing the amount of the system's semi-annual gross receipts and the
number of distant non-network television signals carried by the system.
Therefore, cable systems that carry TBS SuperStation must contribute to the
Copyright Office for distribution. However, no royalties are paid by cable
systems in connection with their carriage of TNT, the Cartoon Network, CNN or
Headline News.
There have been several legislative initiatives in Congress during the past
several years to alter the present compulsory copyright license system provided
under the Copyright Act, but none have been adopted into law. In October 1988,
the FCC recommended that Congress phase out the compulsory license. The FCC, in
its July 1990 Report to Congress, also proposed that Congress should repeal the
compulsory copyright license
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under certain circumstances. The Company cannot predict the ultimate impact on
the competitive position of TBS SuperStation if legislation repealing the
compulsory license were enacted.
SATELLITE AND MICROWAVE REGULATION
The Company operates various satellite transmission and reception equipment
in the vicinity of its offices in Atlanta, at various bureau locations and at
the sites of special events such as sporting events and breaking news sites.
These radio transmission facilities are required to be licensed by the FCC prior
to use and their operation must comply with applicable FCC regulations.
EMPLOYEES
At December 31, 1993, the Company and its wholly-owned subsidiaries had
5,317 full-time employees.
In April 1987, CNN received a petition for a representation election filed
with the National Labor Relations Board ("NLRB") by Local 11 of National
Association of Broadcast Employees and Technicians ("NABET"). NABET sought a
representation election with respect to 61 production employees in CNN's New
York news bureau. Although the NLRB conducted a hearing in 1987 and 1988, it did
not render a decision as to the proper scope of the voting unit until January
29, 1993. Pursuant to the NLRB's decision, 88 employees would have been in the
voting unit. The NLRB directed that an election be conducted for such unit at a
date to be determined by it. Based on the substantial changes in the unit and
the business operation during the six years since the petition was initially
filed, CNN expected to file a Request for Review with the NLRB in Washington,
D.C. However, on April 8, 1993, NABET withdrew its petition for election,
bringing this matter to a close.
TEC and certain of its subsidiaries are signatories to collective
bargaining agreements with two unions. These agreements cover approximately 45
employees of TEC and its affected subsidiaries and expire in 1994. In addition,
certain subsidiaries of the Company are signatories to one or more of the
following collective bargaining agreements: the Writers Guild of America Basic
Agreement, the Directors Guild of America Basic Agreement, the Screen Actors
Guild Basic Agreement, the American Federation of Television and Radio Artists
Network Television Code, the International Alliance of Theatrical Stage
Employees Agreement, the American Federation of Musicians Basic Agreement, the
Union of British Columbia Performers Agreement, the British Actors Equity
Association Agreement and/or a member of the Alliance of the Motion Picture and
Television Producers.
ITEM 2. PROPERTIES
The Company owns CNN Center, a hotel and office complex in Atlanta,
Georgia, which houses the Company's corporate offices, the operations of CNN,
Headline News and CNN International and the operations of certain other
subsidiaries. CNN Center Ventures entered into a revolving credit agreement, as
subsequently amended, under which it could borrow up to $125 million with
borrowings to be guaranteed by the Company and secured by a first mortgage lien
on CNN Center and the adjacent parking deck facility. The $40 million balance
outstanding at December 31, 1992 was paid off in January 1993. The agreement was
terminated in December 1993. The Company subleases until December 27, 2043, a
parking facility next to the complex with approximately 2,000 parking spaces.
The Company also manages and operates the Omni Coliseum pursuant to an
operating agreement which expires in October 2002. The agreement requires the
Company to apply certain revenues generated by the operation of the Omni
Coliseum toward payment of the revenue bonds issued to finance the acquisition,
construction and equipping of the Omni Coliseum.
The Company owns buildings with approximately 205,000 square feet on
approximately 32 acres of land in Atlanta, Georgia. The primary building
currently houses the studios and offices of TBS SuperStation, TNT and the
Cartoon Network. In addition, adjacent to the primary building are twelve
seven-meter, two ten-meter, two eleven-meter and one fifteen-meter earth
stations used to transmit and monitor the signals of TBS SuperStation, TNT, the
Cartoon Network, CNN and Headline News to various satellites and to receive
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satellite feeds for use by CNN and Headline News, and five smaller operative
antennas for receiving backhaul from various satellites.
The Company also owns a building of approximately 85,000 square feet in
Atlanta, Georgia. A portion of the building is used for general purposes and the
remainder is available for lease to unaffiliated third parties.
The Company leases office or studio space in major cities around the United
States and abroad which is used by the Company for its news bureaus, for sales
of advertising time, for cable sales and marketing, for program production
operations, for film servicing operations and for program syndication
operations.
The Hawks currently play their home games and occupy office, locker room
and storage space at the Omni Coliseum. The space is rented from a wholly-owned
subsidiary of the Company which operates the Omni Coliseum for an amount equal
to 10% of net gate receipts.
ANLBC leases office, locker room and storage space (aggregating
approximately 70,000 square feet), and the Braves play all home games in the
Atlanta-Fulton County Stadium pursuant to a lease running through December 31,
1994. ANLBC has the option to extend the agreement through December 31, 1996.
This lease gives ANLBC priority in the scheduling of baseball games, exclusive
year-round concession rights in the stadium and the non-exclusive right to use
the stadium for other events. Lease payments are specified percentages of gate
receipts and concession sales with a minimum of $650,000 per year.
The Braves also lease facilities for use by its farm clubs in Richmond,
Virginia; Greenville, South Carolina; Macon, Georgia and its spring training
facility in West Palm Beach, Florida.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
Storer Cable Communications, et al. v. The City of Montgomery, Alabama, et al.
On September 6, 1990, Storer Cable Communications ("Storer"), ESPN, Inc.
and Satellite Services, Inc. commenced an action in the United States District
Court for the Middle District of Alabama, Northern Division, against the City of
Montgomery, Alabama, and Emory Folmar, in his capacity as Mayor of Montgomery.
In their Complaint, Plaintiffs claim that City of Montgomery Ordinance No. 9-90,
which attempts to regulate the construction, operation and control of cable
television systems in Montgomery, and City of Montgomery Ordinance No. 48-90,
which regulates competition among cable operators and franchisees in Montgomery,
are unconstitutional and violate various other provisions of federal and state
law. The Plaintiffs seek declaratory and injunctive relief, compensatory damages
in excess of $50,000 and attorney's fees.
On September 7, 1990, TNT moved to intervene in this action. The claims
asserted by TNT are similar to those asserted by Plaintiffs in the action
although TNT has only challenged the legality of Ordinance No. 48-90.
Additionally, TNT's Complaint-in-Intervention adds Montgomery Cablevision and
Entertainment, Inc. ("MCE") as a defendant.
On October 5, 1990, the State of Alabama moved to intervene in the action.
Additionally, on October 10, 1990, MCE also moved to intervene in the action.
MCE's proposed Answer-in-Intervention and Counterclaim alleges that
Tele-Communications, Inc., Storer, Mile Hi Cablevision, Inc. (d/b/a Satellite
Services, Inc.), the Company, TNT, Turner Cable Network Sales, Inc. ("TCNS") and
ESPN, Inc. have violated the Sherman Act by, among other things, entering into
exclusive distribution arrangements for the provision of programming in the
Montgomery area. In its Counterclaim, MCE seeks declaratory and injunctive
relief, an undisclosed amount of compensatory and punitive damages and
attorney's fees.
On November 27, 1990, the Court granted MCE's Motion to Intervene. On
December 19, 1990, the Court granted TNT's and the State of Alabama's Motion to
Intervene and, at the same time, the Court stayed any action on MCE's
Counterclaim until the main claim is decided. On January 4, 1991, TNT filed a
Motion
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for Summary Judgment on all counts. On February 25, 1991, all Defendants
responded and filed Cross Motions for Summary Judgment. Oral argument on these
motions was heard on April 11, 1991.
On October 9, 1992, the Court entered an Order on all outstanding Motions
for Summary Judgment. In its Order, the Court struck portions of Ordinance 48-90
and Ordinance 9-90, and denied summary judgment as to the remaining aspects of
the two ordinances. On October 23, 1992, the Court lifted the stay on MCE's
Counterclaim, which was amended on December 15, 1992. On February 4, 1993, the
Company, TNT and TCNS filed a Motion to Dismiss the Counterclaim and Amended
Counterclaim for failure to state a claim. On June 17, 1993, the Court entered
an order denying the Motion of the Company, TNT and TCNS to dismiss Montgomery
Cablevision and Entertainment, Inc.'s Counterclaim and Amended Counterclaim for
failure to state a claim. On or about September 24, 1993 this action was settled
with no payment by or adverse effect on the Company. On September 27, 1993, the
Court vacated its June 17, 1993 Order. A Joint Stipulation of Dismissal was
filed with the Court on October 20, 1993 and the litigation was dismissed with
prejudice by Order dated October 21, 1993.
United States of America v. Cable News Network, Inc. and Turner Broadcasting
System, Inc.
In October and November of 1990, CNN was involved in investigating and
reporting a story concerning potential government audio taping of telephone
calls made by General Manuel Noriega from his cell in the Miami Correctional
Center, including the taping of conversations with his attorneys and defense
team. CNN obtained copies of some of the alleged tapings and telecast segments
thereof. Judge William M. Hoeveler, United States District Court for the
Southern District of Florida, entered orders on November 8, 1990 and November 9,
1990 which temporarily prohibited the telecast of Noriega's privileged
attorney-client conversations. Judge Hoeveler has appointed a special
prosecutor, Robert F. Dunlap, to investigate whether CNN violated his Orders in
a telecast on November 9, 1990, and to prepare an application for an Order to
Show Cause "why those entities and individuals responsible for" the telecast
should not be held in contempt of the Court's Orders. To date, no Order to Show
Cause has been presented, contempt proceedings have not been initiated against
CNN or any other entities or individuals involved. On January 15, 1993 CNN was
advised by Special Prosecutor Dunlap that it was a target of a grand jury
investigation into these alleged contempts. CNN has responded to grand jury
subpoenas issued at that time. CNN has been informed by the court that criminal
information alleging contempt charges may be presented at the end of March 1994,
at which time the Company will enter a plea and a date for trial will be
selected. Fines and/or penalties of an undetermined amount could be imposed
against CNN as a result of these contempt proceedings. CNN denies it telecast
any privileged conversations and therefore denies that it violated or intended
to violate the Court Orders. CNN intends to vigorously defend the contempt
proceedings.
Turner Broadcasting System, Inc. v. Federal Communications Commission and
The United States of America
On October 5, 1992, the Company filed a lawsuit in the United States
District Court for the District of Columbia challenging the provisions of the
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Act") that would require cable television operators to devote up to one-third of
their channel capacity to the carriage of local broadcast stations and provide
certain channel positioning rights to local broadcast stations (see
"Business -- Regulation -- Cable Regulation -- Must Carry and Retransmission
Consent"). The Company's complaint alleges that these provisions violate the
First Amendment of the United States Constitution. The Company cannot predict
the outcome of the litigation at this time. Under a provision of the 1992 Act,
the case was heard by a three-judge court. On April 8, 1993, the Court upheld
the constitutionality of these provisions by a 2-1 vote. On May 3, 1993, the
Company filed its Notice of Appeal of that decision to the United States Supreme
Court. The Company filed its Jurisdictional Statement with the Supreme Court on
July 2, 1993. On September 28, 1993, the Supreme Court noted probable
jurisdiction and heard oral argument on this case on January 12, 1994. The
parties are awaiting a decision by the Supreme Court.
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Slovitt v. Turner Broadcasting System, Inc. et al, and Farrell Brokerage, Inc.
Pension Plan and Farrell Brokerage, Inc. Profit Sharing v. Turner Broadcasting
System, Inc. et al
On April 14, 1993, shareholder J. Slovitt filed suit in the Superior Court
of Fulton County, Georgia, and shareholders Farrell Brokerage, Inc. Pension Plan
and Farrell Brokerage, Inc. Profit Sharing filed suit in the Supreme Court of
the State of New York, County of New York. Each of these shareholders (the
"Plaintiffs") had the same legal counsel and purported to bring a class action
on behalf of all minority common shareholders of the Company who are similarly
situated to the Plaintiffs. The Defendants included the Company, all directors
of the Company, Time Warner, Inc. and Tele-Communications, Inc. (the
"Defendants"). Each class action made identical allegations that the Defendants
dominate and control the Company through their stock ownership, directorships
and management positions and have wrongfully utilized these positions to deprive
the Company's minority common shareholders of their investment. The Plaintiff's
allegations were allegedly based on public reports, including newspaper
articles. The Plaintiffs sought class action status, injunctive relief,
unspecified damages and a constructive trust for the benefit of class members.
The case filed by shareholder J. Slovitt was dismissed in December 1993. The
Plaintiffs in the Farrell suit initiated proceedings in March 1994 to dismiss
the suit.
MUSIC LICENSES
In the television industry, programming is usually obtained from suppliers
lacking the necessary license to perform publicly the music associated with the
programming. Those performance rights are traditionally secured by obtaining
blanket licenses to the entire repertories. Such blanket licenses are held by
music performance societies, principally the American Society of Composers,
Authors and Publishers ("ASCAP") and Broadcast Music, Inc. ("BMI").
As a local television station, TBS SuperStation has music licenses with
both ASCAP and BMI and has paid monies pursuant to those licenses. In 1986, in
connection with an audit for the years 1981 and 1982, ASCAP indicated that it
believed the Company owed an additional $800,000 under that license. The Company
denied that it had any additional liability, and the matter has remained in
negotiation. In January 1989, ASCAP threatened to pursue the same demand for
additional payments for the entire period 1981-88 and contended that the
additional payment would represent approximately $6 million. The Company again
denied any additional liability. The matter, if litigated, would raise novel and
unresolved legal questions.
In September 1988, the Company made formal applications for licenses from
ASCAP and BMI for all of its programming services. The Company currently has a
license with BMI. Under an antitrust consent decree, if any entity seeking a
license from ASCAP cannot reach agreement with ASCAP as to the fee associated
with that license, it is entitled to ask the United States District Court for
the Southern District of New York to establish such a fee. On January 13, 1989,
the Company filed an application asking that a fee be set for the period
commencing October 3, 1988. The Court has set interim fees as a result of the
Company's application.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By unanimous written consent dated as of December 15, 1993, the holders of
the Company's Class C Preferred Stock (12,396,976 shares) approved (i) the
issuance of an aggregate of 250,000 shares of the Company's Class B Common Stock
to the five principals of Castle Rock Entertainment in connection with the
acquisition of Castle Rock by the Company and the employment of such principals
following such acquisition and (ii) the issuance of an aggregate of 52,500
shares of the Company's Class B Common Stock to three of the Company's executive
officers in connection with the execution by such officers of employment
agreements with the Company.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table lists the executive officers of the Company, their ages
and their positions as of February 28, 1994*:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ----------------------------------------------------
<S> <C> <C>
R. E. Turner............... 55 Chairman of the Board of Directors and President
Christian L. Becken........ 40 Vice President and Treasurer
William S. Ghegan.......... 45 Vice President, Controller and Chief Accounting
Officer
William H. Grumbles**...... 44 Vice President -- Worldwide Distribution
Elahe Hessamfar............ 40 Vice President and Chief Information Officer
W. Thomas Johnson.......... 52 Director and Vice President -- News
Steven W. Korn............. 40 Vice President, General Counsel and Secretary
Terence F. McGuirk......... 42 Director and Executive Vice President
Wayne H. Pace.............. 47 Vice President -- Finance and Chief Financial
Officer
Scott M. Sassa............. 35 Director and Vice President -- Entertainment
Networks
William M. Shaw............ 49 Vice President -- Administration
Julia W. Sprunt**.......... 40 Vice President -- Marketing and Communications
</TABLE>
- ---------------
* Effective January 2, 1994, John M. Barbera resigned his position as Vice
President -- Sales. Effective January 31, 1994, Paul D. Beckham resigned his
position as Vice President -- Cable Sales.
** William H. Grumbles and Julia W. Sprunt are married to each other.
The executive officers of the Company are elected by the Board of Directors
to serve until their successors are elected and qualified. The following is a
brief description of the business experience of the executive officers of the
Company for at least the past five years.
R. E. Turner has been Chairman of the Board, President and controlling
shareholder of the Company since 1970.
Christian L. Becken joined the Company in December 1983 as Vice President
of Financial Planning and was promoted to Vice President and Treasurer in 1986.
William S. Ghegan, who joined the Company as Corporate Controller in 1985,
was promoted to Vice President, Controller and Chief Accounting Officer in 1987.
Formerly, he was a Senior Manager with Price Waterhouse, an international
accounting firm, from 1979 to 1985.
William H. Grumbles, who joined the Company in 1989 as Executive Vice
President of TCNS, was promoted to President of Turner International, Inc. in
1991 and Vice President -- International Sales of the Company in 1992. In 1993,
his title became Vice President -- Worldwide Distribution. Previously, he served
as Vice President -- Affiliate Relations for HBO.
Elahe Hessamfar joined the Company in 1993 as Vice President and Chief
Information Officer. Previously Ms. Hessamfar was Vice President, Information
Systems for PacBell Directory from 1987 until joining the Company.
W. Thomas Johnson joined the Company in 1990 as Vice President -- News. He
also serves as President of CNN. Previously, Mr. Johnson was Chairman of the Los
Angeles Times from 1989 until joining the Company, and also Vice Chairman of the
Times Mirror Company from 1987 until joining the Company. From 1980 he had
served as Publisher and Chief Executive Officer of the Los Angeles Times.
Steven W. Korn joined the Company in September 1983 as Assistant Vice
President and Deputy General Counsel. He became Vice President in 1986,
Secretary in 1987 and General Counsel in 1988. Formerly, he was an attorney with
the law firm of Troutman Sanders.
Terence F. McGuirk joined the Company in 1972 as an Account Executive. In
1975, he assumed the duties of Director of Cable Relations and three years later
became the Director of Special Projects. He was
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promoted to Vice President of the Company in 1979 and was elected as a director
in 1987. Mr. McGuirk was promoted to Executive Vice President in 1990. He also
serves as President of the Company's sports division.
Wayne H. Pace joined the Company in July 1993 as Vice President -- Finance
and Chief Financial Officer. From 1981 until July 1993, he was a partner with
Price Waterhouse, an international accounting firm.
Scott M. Sassa rejoined the Company in 1988 as Executive Vice President of
TNT, Inc. He became Vice President -- Entertainment Networks in 1990 and was
elected a director in 1992. Before rejoining the Company, Mr. Sassa served as
Vice President of New Business Development of Ohlmeyer Communications Company in
1987 and prior to that as Vice President of Network Management at Fox
Broadcasting Company.
William M. Shaw joined the Company in 1981 as Director of Personnel and was
promoted to Vice President -- Personnel in 1982. He was promoted to Vice
President -- Administration in 1991. Previously, he served as Director of
Personnel at Siemens-Allis Corp.
Julia W. Sprunt, who joined the Company in 1981 as a Marketing Manager of
TCNS, became Director -- Southeast Region of TCNS in 1985. She was promoted to
Vice President -- Western Region of TCNS in 1986 and became Senior Vice
President of TCNS in 1987. Ms. Sprunt was promoted to Vice
President -- Marketing of TBS SuperStation in 1989 before becoming Vice
President -- Corporate Marketing and Communications in 1990.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information regarding the principal markets on which the Company's two
classes of common stock are traded, the high and low sales price for the stock
on the American Stock Exchange for each quarterly period during the past two
years, the Company's dividend policy and the approximate number of holders of
each class of the common stock at December 31, 1993, is included under the
caption entitled "Investor Information" on page 54 of the 1993 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
A summary of selected financial data for the Company for the five years
ended December 31, 1993 is included under the caption entitled "Selected
Financial Data" on page 28 of the 1993 Annual Report to Shareholders and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company reported consolidated revenue of approximately $1.9 billion for
the year ended December 31, 1993, a 9% increase over the same period last year.
Operating profit, defined as income before interest expense, interest income,
income taxes, extraordinary items, and the cumulative effect of a change in
accounting principle, rose 4% over 1992 to $302 million. The Company incurred a
net loss of $244 million, which included a nonrecurring charge of $306 million
for the cumulative effect of a change in accounting for income taxes, and $11
million in extraordinary charges, net of tax benefits, for the early termination
of certain of the Company's bank credit facilities and the redemption of its
convertible debt due 2004. Income before these charges and the provision for
income taxes was $121 million, or a 21% increase over 1992.
The consolidated financial statements and all related information included
in the 1993 Annual Report to Shareholders incorporated herein by reference
should be read in conjunction with the following review. See the financial
statements set forth on pages 29 through 51 of the 1993 Annual Report to
Shareholders, incorporated herein by reference. For a discussion of regulatory
and legislative matters affecting the Company, refer to Part I -- Item 1,
"Business -- Regulation."
OVERVIEW
The Company's present operations and future prospects are influenced by
many factors, primarily the growth of the cable television industry and the
economic climate both in the United States and abroad, as well as the
availability of programming for its entertainment and news networks.
Additionally, governmental regulation and information technology changes
relating to the cable television industry also influence domestic and
international prospects. Because of the Company's recent acquisition of Castle
Rock and New Line, future prospects will also be influenced by the profitability
of the motion picture industry.
U.S. CABLE TELEVISION INDUSTRY
The growth of the Company's Entertainment and News Segments is influenced
by the growth of the U.S. cable industry since that medium represents the
principal distribution system for TBS SuperStation, TNT, the Cartoon Network,
CNN and Headline News. At the end of 1993, homes subscribing to cable television
service in the United States reached approximately 63 million, which represented
67% of all U. S. television households and a 1% increase over 1992. Homes served
by cable television are expected to grow through 1996 and are expected to
represent approximately 72% of all U.S. television households by the end of that
year. The growth of the Company's Entertainment and News Segments is also
influenced by the channel capacity of individual cable system operators.
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ECONOMIC CLIMATE
The state of the U.S. economy influences the results of the Entertainment
and News Segments as those segments derive a significant portion of their
revenues from advertising, which is sold largely within three to nine months of
airing and which, under certain conditions, can be cancelled by the buyers.
Overall, domestic advertising revenues totaled $828 million in 1993, $750
million in 1992 and $662 million in 1991, representing 43%, 42% and 45%,
respectively, of total revenues in those years.
The impact of changes in the economy is mitigated by the fact that the
Company derives a portion of its revenues from subscription fees, which are
relatively resistant to short-term domestic economic factors. Domestic
subscription fees from cable system operators, which totaled $502 million in
1993, $429 million in 1992 and $386 million in 1991, representing 26%, 24% and
26% of total revenues in those respective years, are generally received under
contracts with three to five year terms.
PROGRAMMING
The Company continues to make significant investments in original, sports
and licensed entertainment programming and in newsgathering capabilities to
increase the viewership of its Entertainment and News Networks. The
Entertainment Networks use high-profile original movies, specials and sporting
events to define identity and provide a base of highly promotable programming
from which to attract viewers to their entire slate of offerings. The Company
has acquired programming rights to two of the most promotable sporting
franchises available. Under a contract entered into in 1990, TNT telecast three
pre-season and nine regular season National Football League ("NFL") games in
1993 and 1992. The Company has reached an agreement with the NFL to telecast a
similar number of pre-season and regular season games each year over a four-year
period beginning in 1994. Since 1989, TNT has also telecast NBA regular season
and playoff games. The Company has entered into a new contract with the NBA
covering the 1994-1995 through 1997-1998 seasons. Under the new contract, TNT
and TBS SuperStation will telecast NBA regular season and playoff games. In
addition, affiliations with sporting events such as the 1992 and 1994 Winter
Olympics, telecast on TNT, and the Company's own Goodwill Games, telecast on TBS
SuperStation, provide exposure on an international level.
In 1990, the Company negotiated a long-term television license agreement
with MGM-Pathe Communications Co. (now Metro-Goldwyn-Mayer Inc. ("MGM")) for
approximately 1,000 feature films, over 300 cartoon shorts and selected
television series.
In December 1991, the Company acquired a 50% interest in HB Holding Co., a
newly-formed joint venture. The joint venture, through a merger, acquired
Hanna-Barbera, Inc. and the HB Library, which provided the Company access to a
library of over 3,000 half-hours of animated programming and afforded exposure
to a new facet of entertainment programming. Coupled with the 1,850 cartoon
episodes in the TEC Film Library, the Company now has access to a vast source of
animated programming. In October 1992, the Company used access to this
programming to launch the Cartoon Network, a 24-hour per day cable program
service which has revenue streams from both advertising and subscription fees.
On December 22, 1993, the Company acquired all of the equity interests in
Castle Rock, a motion picture and television production company, and on December
29, 1993, the Company acquired the remaining 50% interest in HB Holding Co. In
addition, on January 28, 1994, the Company completed the acquisition of New
Line, an independent producer and distributor of motion pictures. See Note 2 and
Note 16 of Notes to Consolidated Financial Statements in the 1993 Annual Report
to Shareholders incorporated herein by reference.
When combined with existing arrangements for programming and the extensive
library of feature films, cartoons and televisions series, these new
acquisitions continue to build core programming for the Entertainment Networks
and allow for control of programming from production through various stages of
distribution. The Company will continue to use this programming for new
networks, such as the launch of a 24-hour satellite and cable distributed family
entertainment network -- Turner Classic Movies -- during 1994.
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Programming costs in the News Segment primarily relate to personnel, travel
costs and satellite and communications access. CNN presently operates nine news
bureaus in the United States and 19 bureaus in countries outside the United
States. In the near future, the Company anticipates expanding staff and
facilities internationally, increasing staff working on breaking news stories,
and modifying its daily programming mix as necessary, all with the objective of
increasing viewership.
INTERNATIONAL
While most of the Company's revenues are derived from domestic distribution
of its products and services, the Company views the international market as an
important source for future revenue growth.
Historically, the Company has derived the majority of its international
revenues from syndication and licensing to television stations, the sale of home
videos of feature films from the TEC Film Library and, to a lesser degree, from
theatrical release of original productions made for TNT. These operations
continue to contribute an important revenue stream to the Company; in 1993
international syndication and licensing revenues (defined as broadcast fees,
syndication, home video and licensing and merchandising revenues), were $149
million, representing approximately 62% of total international revenue. This is
an increase of 2% over 1992.
The Company believes the greatest potential for growth internationally is
in the area of satellite delivered programming. Currently, CNN International is
the Company's predominant programming vehicle outside the United States. CNN
International is distributed via satellite primarily to cable systems,
broadcasters, hotels and private satellite dish owners. Subscription levels in
Europe grew from 12 million households at the end of 1991 to 45 million
households by the end of 1993. CNN International's programming is generally
either CNN product as viewed in the United States or in a reformatted version
which conforms to retransmission restrictions imposed by certain agreements
under which CNN collects international news stories from certain overseas
suppliers. It also includes segments specifically produced for the international
markets. Revenues, which are derived from subscriber fees, broadcast fees, and
advertising sales, are principally generated from Europe. Total revenues from
CNN International increased from $74 million in 1992 to $93 million in 1993. It
is anticipated that these revenues will continue to increase as the Company
capitalizes on the growing international reputation of CNN and the increased
international opportunities to market the service, both in terms of increases in
international advertising and in terms of overall growth in international
television media and markets.
In January 1991, the Company launched TNT Latin America, a 24-hour per day
trilingual entertainment program service serving Latin America and the Caribbean
via satellite. Relying largely on existing programming from the TEC Library,
this service allows the user to customize the service using Spanish, Portuguese
and English audio tracks and subtitles. Contracts for carriage of this service
are offered by the Company's sales and marketing organizations to operators of
cable systems and similar technologies. Revenues from this service, which in
many areas is being marketed together with CNN's news programming, are almost
entirely from subscription fees based on contracts with cable operators which
specify minimum subscription levels. Revenues for TNT Latin America continue to
increase with a 50% growth over 1992.
In March 1993, the Company acquired a 27.5% limited partnership interest in
n-tv, a 24-hour German language news channel. The partnership provides for
cooperation in newsgathering, exchange of news footage and cooperative access to
facilities.
In April 1993, the Company launched Cartoon Network Latin America, a
24-hour per day programming service in Latin America utilizing animated
programming from both the HB Library and TEC Library. In September 1993, the
Company also launched TNT & Cartoon Network Europe, which consists of European
versions of the Cartoon Network and TNT, originating in the United Kingdom, and
distributed throughout Europe. Both of these new networks have revenue streams
from advertising and subscription fees.
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The Company is also committed to a 50% joint venture interest in an
over-the-air television station in Moscow. Programming for this joint venture
will primarily be in the Russian language and will include classic films from
the TEC Library, sports and children's programming and CNN International
programming.
The Company is planning the launch in 1994 of a 24-hour movie and cartoon
network in Asia (TNT & Cartoon Asia). Programming for this new international
network will come primarily from the TEC Library and the HB Library.
The Company believes international markets provide substantial
opportunities for revenue growth in the future. Such growth will be
significantly influenced by, among other things, competition, governmental
regulation, access to satellite transmission facilities, improvements in
encryption technologies, the continued growth of distribution system
alternatives to over-the-air broadcast technology, the availability of effective
intellectual property protection and local market economic conditions in the
countries served.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
As part of its ongoing strategic plan, the Company has invested, and will
continue to invest, significant amounts of capital for network and television
programming development, filmed entertainment and programming acquisition.
Historically, the Company has relied primarily on debt to finance these
initiatives and as a result has maintained a high degree of financial leverage.
This approach continued in 1993 enabling the Company to implement its growth
plans. See Note 2, Note 5 and Note 16 of the Notes to Consolidated Financial
Statements included in the 1993 Annual Report to Shareholders incorporated
herein by reference. Additionally, see "Liquidity and Capital
Resources -- Credit Facilities and Financing Activities."
The Company expects that internally generated funds supplemented by
existing credit facilities and debt that may be issued pursuant to its shelf
registration filed in May 1993 will be sufficient to meet operating needs and
scheduled debt maturities through the end of 1994 and beyond.
Cash provided by operations for the year ended December 31, 1993,
aggregated $136 million, net of cash interest payments of $138 million, payments
of $75 million for accreted amounts upon redemption of the zero coupon notes due
2004 (the "Convertible Notes due 2004") completed in August 1993, and payment of
debt issue costs of $16 million related to the issuance of 8 3/8% Senior Notes
and the execution of the 1993 Credit Agreement, both of which occurred in July
1993. Other primary sources of cash included borrowings under the 1993 Credit
Agreement of $1.225 billion and approximately $297 million of gross proceeds
from the 8 3/8% Senior Notes. Cash was primarily utilized for the retirement of
indebtedness, including the Convertible Notes due 2004 ($216 million, net of
payments of accreted amounts) and amounts outstanding under the 1989 Credit
Agreement ($710 million) and the CNN Center Ventures Credit Agreement ($40
million). In addition, the Company acquired an equity interest in and advanced
funds to the German limited partnership, n-tv ($35 million), purchased the
remaining 50% interest in HB Holding Co. and its subsidiaries ($243 million, net
of cash) and acquired Castle Rock Entertainment ($314 million, net of cash).
Cash was also used during the period for additions to property and equipment
($51 million) and payments of cash dividends ($18 million).
See the Consolidated Statements of Cash Flows for details regarding sources
and uses of cash, Note 2 of Notes to Consolidated Financial Statements for a
detailed discussion of the acquisitions, and Note 5 of Notes to Consolidated
Financial Statements for a detailed discussion of definitions, terms and
restrictive covenants associated with the Company's indebtedness, all of which
are included in the 1993 Annual Report to Shareholders incorporated herein by
reference.
CREDIT FACILITIES AND FINANCING ACTIVITIES
The Company had approximately $2.3 billion of outstanding indebtedness at
December 31, 1993, of which $1.2 billion was outstanding under an unsecured
revolving credit facility with banks.
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On July 1, 1993, the Company entered into a credit agreement (the "1993
Credit Agreement") with a group of banks pursuant to which such banks extended a
$750 million unsecured revolving credit facility. On December 15, 1993, the 1993
Credit Agreement was amended, among other things, to increase the amount
available for borrowing to $1.5 billion. Amounts available for borrowing or
reborrowing under this revolving facility will automatically decrease by $75
million as of the last business day of the calendar quarters ending March 31,
1998, June 30, 1998, September 30, 1998, and December 31, 1998, and by $150
million as of the last business day of each quarter thereafter until December
31, 2000, at which time the revolving credit facility will terminate. Under the
1993 Credit Agreement, amounts repaid under the revolving credit facility may be
reborrowed subject to borrowing availability. The amount of borrowing
availability is subject to other provisions of the 1993 Credit Agreement,
including requirements that (a) minimum ratios, as from time to time are in
effect, of funded debt to cash flow, cash flow to interest expense and cash flow
to fixed charges be maintained; and (b) there does not exist, and that such
borrowing would not create, a default or event of default, as defined. Those
covenants are similar to, though generally less restrictive than, those provided
in the credit agreement entered into by the Company in 1989, as amended (the
"1989 Credit Agreement").
Approximately $1.2 billion of the Company's indebtedness bears interest on
a floating basis tied to short-term market indices. The Company has interest
rate swap agreements having a total notional principal amount of $780 million
with commercial banks to mitigate possible rising interest rates. The contracts
have expiration dates ranging from March 1994 to March 1995. The weighted
average receipt and payment rates associated with the swap agreements were 4.16%
and 9.07%, respectively, at December 31, 1993 and were 4.44% and 9.80%,
respectively, at December 31, 1992. The Company designates these interest rate
swaps as hedges of interest rates and the differential paid or received on
interest rate swaps is accrued as an adjustment to interest expense as interest
rates change. The Company has exposure to credit risk, but does not anticipate
nonperformance by the counterparties to these agreements.
On May 6, 1993, the Company filed a registration statement with the
Securities and Exchange Commission to allow the Company to offer for sale, from
time to time, up to $1.1 billion of unsecured senior debt securities or
unsecured senior subordinated debt securities (together, the "Debt Securities")
consisting of notes, debentures or other evidence of indebtedness. The Debt
Securities may be offered as a single series or as two or more separate series
in amounts, at prices and on terms to be determined at the time of the offering.
The Debt Securities may be sold to or through one or more agents designated from
time to time.
On July 8, 1993, the Company sold $300 million of 8 3/8% Senior Notes due
July 1, 2013 (the "Notes") under the registration statement. The net proceeds to
the Company were approximately $291 million after market and underwriting
discounts. The Notes bear interest at the rate of 8 3/8% per annum payable semi-
annually on January 1 and July 1 of each year, commencing January 1, 1994. The
Notes are not redeemable at the option of the Company. Each holder has the right
to require the Company to repurchase such holder's Notes in whole, but not in
part, upon the occurrence of certain triggering events, including, without
limitation, a change of control, certain restricted payments or certain
consolidations, mergers, conveyances or transfers of assets, each as defined in
the indenture relating to the Debt Securities. The covenants governing the Notes
limit the Company's ability to incur additional funded debt by requiring the
maintenance of a minimum consolidated interest coverage ratio, as defined.
On July 9, 1993, the Company called for redemption of all of its
Convertible Notes due 2004, of which $291 million, net of unamortized discount
of $409 million, was outstanding at August 9, 1993, to be funded by the issuance
of the Notes. The Convertible Notes due 2004 could have been converted into
shares of Class B Common Stock, par value $0.0625 per share, at any time before
the close of business on August 9, 1993, at the rate of 15 shares of Class B
Common Stock for each $1,000 principal amount at maturity. All Convertible Notes
due 2004 which were not converted into shares of Class B Common Stock were
redeemed on August 9, 1993, at a redemption price of $415.01 in cash for each
$1,000 principal amount at maturity. The price reflects accrued original issue
discount at the rate of 8% compounded semiannually to the redemption date.
On December 21, 1993, the Company cancelled a $125 million revolving credit
agreement governed by the CNN Center Ventures Credit Agreement that was
guaranteed by the Company and secured by a first mortgage lien on the CNN Center
and adjacent parking deck facility.
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The redemption of the Convertible Notes due 2004 and cancellation of the
1989 Credit Agreement and the CNN Center Ventures Credit Agreement resulted in
an extraordinary charge of $11 million, net of approximately $6 million of tax
benefits, representing the write-off of unamortized debt issue costs.
Scheduled principal payments for all outstanding debt for 1994 total
approximately $2 million, the majority of which relates to capital leases and
other debt.
On February 3, 1994, the Company sold $250 million of 7.4% Senior Notes due
2004 (the "Senior Notes") and $200 million of 8.4% Senior Debentures due 2024
(the "Senior Debentures") under the shelf registration dated May 6, 1993. The
Company used substantially all of the net proceeds to repay amounts outstanding
under the 1993 Credit Agreement incurred in connection with the acquisitions of
Castle Rock and the remaining 50% interest in HB Holding Co. See Note 2 and Note
16 of Notes to Consolidated Financial Statements in the 1993 Annual Report to
Shareholders incorporated herein by reference.
CAPITAL RESOURCES AND COMMITMENTS
During 1994, the Company anticipates making cash expenditures of
approximately $320 million for sports programming, primarily rights fees,
approximately $640 million for original entertainment programming (excluding
promotional and advertising costs) and approximately $85 million for licensed
programming. Also, during 1994, the Company expects to make total expenditures
of approximately $105 million for additional or replacement property and
equipment. Of the anticipated programming and capital expenditures described
above, firm commitments exist for approximately $520 million. Other capital
resource commitments consist primarily of lease obligations, some of which are
contingent on revenues derived from usage. Management expects to continue to
lease satellite facilities, sports facilities and office facilities not already
owned by the Company.
Management expects to finance these commitments from working capital
provided by operations and financing arrangements with lessors, vendors, film
suppliers and additional borrowings.
RESULTS OF OPERATIONS 1993 VS. 1992
ENTERTAINMENT SEGMENT
Entertainment Segment revenue increased 8%, or $84 million. Advertising
revenue contributed $56 million to the advance, which reflected an increase in
the amount charged per thousand viewing homes on TBS SuperStation and TNT.
Subscription revenue increased $49 million, through an increase in the monthly
amount charged and a higher number of subscribers for TNT. These advances were
offset somewhat by a $26 million decrease in 1993 in domestic and international
home video revenue. This decrease was due to a refinement of previously recorded
estimates resulting from the resolution of several uncertainties.
Operating profit (defined as income before interest expense, interest
income, income taxes, extraordinary items and the cumulative effect of changes
in accounting for income taxes) for the Entertainment Segment decreased 6%, or
$9 million, to $143 million, despite significant revenue advances in the core
networks. Operating losses of $25 million in 1993 associated with new networks
contributed to the operating profit decrease. New networks consist of the
Cartoon Network, which was launched in 1992, and Cartoon Network Latin America
and TNT & Cartoon Network Europe, which were launched in 1993. Also contributing
to the operating profit decrease were a $21 million increase in original
programming and related promotion and advertising costs, $15 million in costs
related to the theatrical release of "Gettysburg," and increased selling,
general and administrative costs. These higher costs were offset somewhat by a
$34 million decrease in home video costs, reflecting the related cost effects of
the refinement of previously recorded estimates and generally lower 1993 cost of
sales.
NEWS SEGMENT
News Segment revenue increased 13%, or $68 million, to $599 million.
Advertising revenue contributed $29 million to the increase, up 11% from 1992,
primarily from an increase in the amount charged per thousand
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viewing homes domestically. Subscription revenue contributed $31 million, up 16%
from 1992, due to an increase in the monthly amount charged for CNN and a higher
number of subscribers. CNN International contributed $93 million, or 16%, to
total 1993 News Segment revenue due primarily to continued global expansion.
Operating profit for the News Segment increased 19% to $212 million. This
increase was due to the advances in revenue, offset by an increase in total
costs of $34 million. The total cost increase arose from higher production
costs, expenses associated with covering events in Somalia and Bosnia and higher
international sales costs.
OTHER
Other Segment revenues remained constant at $182 million. Increased Braves
home game and broadcasting revenue in 1993 offset the non-recurring effects of
$12 million in Major League Baseball expansion fees received in 1992, as well as
a decline in WCW revenue.
Operating losses for this Segment declined to $33 million, a net decrease
of $4 million, primarily due to a $16 million charge related to discontinuance
of the Checkout Channel in 1992, offset somewhat by higher Braves team expenses
and other increases in general and administrative costs.
EQUITY (LOSS) IN UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION
Equity in the losses of unconsolidated entities increased $16 million over
1992 results to $20 million. This increase arose primarily from the Company's
investments in new international ventures.
In March 1993, the Company acquired a 27.5% interest in n-tv, a 24-hour
German news channel. The Company's share of 1993 losses was approximately $19
million. The Company is also committed to a 50% joint venture interest in an
over-the-air television station in Moscow. See Note 2 of Notes to Consolidated
Financial Statements in the 1993 Annual Report to Shareholders incorporated
herein by reference.
Extraordinary items represent $11 million, net of tax benefits, associated
with the early termination of certain of the Company's bank credit facilities
and the redemption of the Convertible Notes due 2004. The 1992 extraordinary
item of $44 million represents the utilization of operating loss carryforwards.
See Note 5 and Note 7 of Notes to Consolidated Financial Statements in the 1993
Annual Report to Shareholders incorporated herein by reference.
The Company also reflected a $306 million non-recurring charge for the
cumulative effect of adopting Statement of Financial Accounting Standards No.
109. This charge was primarily related to the TEC Library and, to a lesser
degree, the Company's 50% interest in the HB Holding Co.
As a result of the information discussed, the Company reported a net loss
of $244 million in 1993 ($0.92 net loss per common share and common share
equivalent). This compares to net income of $78 million in 1992 ($0.30 net
income per common share and common share equivalent).
RESULTS OF OPERATIONS 1992 VS. 1991
ENTERTAINMENT SEGMENT
Entertainment Segment revenue increased 24%, or $210 million. Advertising
revenue contributed $73 million to the increase, which reflected higher rates
charged per thousand viewing homes, the amount of national inventory sold and
the size of the viewing audience. Subscription revenue rose $35 million due to
an increase in the size of TNT's subscriber base and a rate increase effective
January 1, 1992. Businesses launched in late 1991, TNT Latin America,
Hanna-Barbera, Inc. and Turner Publishing, contributed $10 million, $15 million
and $12 million, respectively, to the increase in total revenue for 1992. In
addition, home video revenues grew by $72 million, primarily related to the
refinement of previously recorded estimates resulting from the resolution of
several uncertainties and increases in international revenues.
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Operating profit for the Entertainment Segment increased 4%, or $5 million,
to $152 million, despite much greater revenue advances in the core networks. TNT
Latin America, Hanna-Barbera, Inc. and Turner Publishing reflected an entire
year of operating expense in 1992 operating profit, or an additional $37 million
over 1991. Also contributing to the modest operating profit increase were $50
million in increased home video costs commensurate with revenue increases,
additional rights fees and production costs of $23 million associated with TNT's
telecast of the 1992 Winter Olympics and $21 million for the NFL games telecast
and increased selling, general and administrative costs.
NEWS SEGMENT
News Segment revenue increased 11%, or $53 million, to $531 million.
Advertising revenue rose $24 million and subscription revenues grew $26 million,
reflecting an increase in the number of subscribers and a rate increase as well
as overall growth experienced by CNN International. CNN International
contributed $23 million to the News Segment's total increase in revenues.
Operating profit for the News Segment increased 8%, to $178 million.
Revenue increases were offset by CNN International expansion and the related
increases in satellite and production costs. Higher domestic newsgathering costs
associated with political and election coverage were mitigated somewhat by
reduced international newsgathering costs due to the 1991 coverage of the
Persian Gulf crisis.
OTHER
Other Segment revenues increased 26%, or $37 million. The continued strong
performance of the Braves resulted in higher stadium attendance and concession
revenues. In addition, expansion fees from Major League Baseball contributed $12
million to the increase in revenues for the year.
Operating losses for these companies increased to $37 million, a net change
of $22 million, due to increased Braves' player salaries, the development of the
Airport Channel and $16 million of costs accrued in conjunction with the
termination of the Checkout Channel.
EQUITY (LOSS) IN UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION
Equity in the losses of unconsolidated entities increased $4 million. This
increase arose primarily from the Company's investment in HB Holding Co.
Extraordinary items represent the utilization of $44 million of net
operating loss carryforwards, compared to operating loss carryforwards reflected
in 1991 of $43 million.
As a result of the information discussed above, the Company reported net
income of $78 million in 1992 ($0.30 net income per common share and common
share equivalent). This compares to 1991 net income of $86 million ($0.24 net
income per common share and common share equivalent).
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-Employment
Benefits." This standard requires companies to recognize the obligation to
provide post-employment benefits (benefits provided to former or inactive
employees after employment but before retirement) if the obligation is
attributable to employees' services already rendered, employees' rights to these
benefits vest or accumulate and the payment of the benefits is probable and can
be estimated. The new standard, which the Company will adopt January 1, 1994, is
not anticipated to have a material impact on its financial position.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements and notes thereto for the Company and the
report of the independent accountants, which are included on pages 29 through 51
of the 1993 Annual Report to Shareholders under the following captions listed
below, are incorporated herein by reference.
Consolidated Statements of Operations for the three years ended December
31, 1993.
Consolidated Balance Sheets at December 31, 1993 and 1992.
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the three years ended December 31, 1993.
Consolidated Statements of Cash Flows for the three years ended December
31, 1993.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors of the Company will be filed by amendment
to this Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K.
Certain information concerning the executive officers of the Company is set
forth in Part I of this Report on Form 10-K pursuant to General Instruction G(3)
of Form 10-K under the caption entitled "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of officers and directors of the Company
will be filed by amendment to this Report on Form 10-K pursuant to General
Instruction G(3) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of certain of the Company's securities will
be filed by amendment to this Report on Form 10-K pursuant to General
Instruction G(3) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions with
the Company will be filed by amendment to this Report on Form 10-K pursuant to
General Instruction G(3) of Form 10-K.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The financial statements set forth on pages 29 through 51 of the 1993
Annual Report to Shareholders are incorporated herein by reference (see Exhibit
13).
(a)(2) Financial Statement Schedules for the three years ended December 31, 1993
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
- -------- -------------------------------------------------------------------------- ------
<S> <C> <C>
II Amounts receivable from related parties and underwriters, promoters and
employees other than related parties...................................... 36
VIII Valuation and qualifying accounts and reserves............................ 37
X Supplementary income statement information................................ 38
</TABLE>
The report of the Company's independent accountants with respect to the
above-referenced financial statement schedules appears on page 35 of this
report.
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(a)(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated October 15, 1993, by and among the Company, NL
Acquisition Co., and New Line Cinema Corporation (filed as Exhibit 2.1 to the
Company's Form 8-K dated October 15, 1993, and incorporated herein by reference).
2.2 Form of Purchase Agreement, dated as of December 22, 1993, by and among the Company,
CR Acquisition Co., Castle Rock Entertainment, Inc., Rain Productions, Padnick
Productions, Inc., Rob Reiner Productions, Inc., Scheinman Productions, Inc., Shafer
Productions, Inc., Castle Rock Holding, Inc. and Group W Investments, Inc., (filed
as Exhibit 2.1 to the Company's Form 8-K dated December 22, 1993, and incorporated
herein by reference).
2.3 Form of Stock Purchase Agreement, by and among the Company, Apollo Investment Fund,
L.P. and HB Holding Co. (filed as Exhibit 2.3 to the Company's Registration
Statement on Form S-4 (Registration No. 33-51739) filed with the Commission on
December 29, 1993, and incorporated herein by reference).
3.1 Restated Articles of Incorporation of the Company, as amended (the "Articles")
(filed as Exhibit 4.9 to Amendment No. 2 to the Company's Registration Statement on
Form S-2 (Registration No. 33-686), filed with the Commission on March 18, 1986, and
incorporated herein by reference).
3.1.2 Substitute Statement of Resolution Establishing and Designating the Series A
Cumulative Preferred Stock (filed as Exhibit 4.11 to the Company's Form 10-K for the
fiscal year ended December 31, 1985, and incorporated herein by reference).
3.1.3 Articles of Amendment, dated June 3, 1987, to Articles (filed as Exhibit 4 to the
Company's Form 8-K dated June 3, 1987, and incorporated herein by reference).
3.1.4 Articles of Amendment, dated August 25, 1987, to Articles (filed as Exhibit 2(a) to
Amendment No. 1 on Form 8 dated August 20, 1987 to the Company's Registration
Statement on Form 8-A filed with the Commission on August 13, 1987, and incorporated
herein by reference).
3.1.5 Articles of Amendment, dated July 15, 1988, to Articles (filed as Exhibit 3.1 to the
Company's Form 10-Q for the fiscal quarter ended June 30, 1988, and incorporated
herein by reference).
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
3.1.6 Articles of Amendment, dated July 23, 1990, (filed as Exhibit 3 to the Company's
Form 10-Q for the fiscal quarter ended June 30, 1990, and incorporated herein by
reference).
3.1.7 Articles of Amendment, dated June 5, 1992, to Articles, (filed as Exhibit 3.1.7 to
the Company's Form 10-K for the fiscal year ended December 31, 1992 (the "1992 Form
10-K"), and incorporated herein by reference).
3.2 Bylaws of the Company, as amended on and through November 13, 1990 (filed as Exhibit
3.2 to the Company's Form 10-K for the fiscal year ended December 31, 1991 (the
"1991 Form 10-K"), and incorporated herein by reference).
4.1 12% Senior Subordinated Debentures Indenture, dated as of October 15, 1989, between
the Company and United States Trust Company of New York, as Trustee (filed as
Exhibit 4.1 to Amendment No. 2 to the Company's Registration Statement on Form S-3
(Registration No. 33-30747), and incorporated herein by reference).
4.2 Liquid Yield Option Notes Indenture, dated as of February 13, 1992, between the
Company and Security Pacific National Bank, as Trustee (filed as Exhibit 4.4 to the
1991 Form 10-K, and incorporated herein by reference).
4.3.1 Form of Note relating to the Company's 8 3/8% Senior Notes due July 1, 2013 (filed
as Exhibit 4(d) to the Company's Form 8-K dated June 16, 1993, and incorporated
herein by reference).
4.3.2 Form of Officers' Certificate establishing the terms of the Company's 8 3/8% Senior
Notes due July 1, 2013 (filed as Exhibit 4(e) to the Company's Form 8-K dated June
16, 1993, and incorporated herein by reference).
4.4.1 Form of Senior Indenture ("Senior Indenture"), dated as of May 15, 1993, between the
Company and The First National Bank of Boston, relating to senior debt securities
consisting of notes, debentures or other evidence of indebtedness in the aggregate
amount of $1,100,000,000 (filed as Exhibit 4(a) to the Company's Registration
Statement on Form S-3 (Registration No. 33-62218) filed with the Commission on May
6, 1993, and incorporated herein by reference).
4.4.2 Form of Subordinated Indenture ("Subordinated Indenture"), relating to senior
subordinated debt securities consisting of notes, debentures or other evidence of
indebtedness in the aggregate amount of $1,100,000,000 (filed as Exhibit 4(b) to the
Company's Registration Statement on Form S-3 (Registration No. 33-62218) filed with
the Commission on May 6, 1993, and incorporated herein by reference).
4.4.3 Form of the Company's Standard Multiple-Series Indenture Provisions relating to the
Senior Indenture and the Subordinated Indenture (filed as Exhibit 4(c) to the
Company's Registration Statement on Form S-3 (Registration No. 33-62218) filed with
the Commission on May 6, 1993, and incorporated herein by reference).
4.5 Form of Officers' Certificate establishing the terms of the Company's 7.40% Senior
Notes due February 1, 2004 with form of Note attached (filed as Exhibit 4(f) to the
Company's Form 8-K dated January 27, 1994, and incorporated herein by reference).
4.6 Form of Officers' Certificate establishing the terms of the Company's 8.40% Senior
Debentures due February 1, 2024 with the form of Debenture attached (filed as
Exhibit 4(g) to the Company's Form 8-K dated January 27, 1994, and incorporated
herein by reference).
4.7.1 Credit Agreement, dated as of July 1, 1993 ("1993 Credit Agreement"), between the
Company and The Chase Manhattan Bank (National Association), as agent (filed as
Exhibit 4.9.1 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1993,
and incorporated herein by reference).
4.7.2 Form of Amendment No. 1, dated as of December 1, 1993, to the 1993 Credit Agreement
(filed as Exhibit 4.6.2 to the Company's Registration Statement on Form S-4
(Registration No. 33-51739) filed with the Commission on December 29, 1993, and
incorporated herein by reference).
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
4.7.3 Form of Amendment No. 2, dated as of December 15, 1993, to the 1993 Credit Agreement
(filed as Exhibit 4.6.3 to the Company's Registration Statement on Form S-4
(Registration No. 33-51739) filed with the Commission on December 29, 1993, and
incorporated herein by reference).
4.7.4 Form of Consent and Agreement, dated as of December 21, 1993, relating to the 1993
Credit Agreement (filed as Exhibit 4.6.4 to the Company's Registration Statement on
Form S-4 (Registration No. 33-51739) filed with the Commission on December 29, 1993,
and incorporated herein by reference).
10.1 Agreement between City of Atlanta and Fulton County Recreation Authority and
Milwaukee Braves, Inc., dated 1964, as amended by seven supplemental agreements and
assigned to Atlanta National League Baseball Club, Inc. (filed as Exhibit 10(b)(i)
to Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal year ended
December 31, 1980, and incorporated herein by reference).
10.2 License Agreement between City of Atlanta and Fulton County Recreation Authority and
Atlanta Hawks Basketball, Inc. dated January 26, 1971, as amended by several letter
agreements and as assigned to Atlanta Hawks, Ltd. (filed as Exhibit 10(b)(ii) to
Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal year ended
December 31, 1980, and incorporated herein by reference).
10.3 Limited Partnership Agreement of Atlanta Hawks, Ltd., as amended (filed as Exhibit
10(b)(iv) to Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal
year ended December 31, 1980, and incorporated herein by reference).
10.4 Turner Broadcasting System, Inc. 1988 Stock Option Plan (filed as Exhibit 10.1 to
the Company's Form 10-Q for the fiscal quarter ended June 30, 1988, and incorporated
herein by reference).*
10.5 Agreement, dated as of November 30, 1989, between the Company and the National
Basketball Association (filed as Exhibit 10.7 to the Company's Form 10-K for the
fiscal year ended December 31, 1989, and incorporated herein by reference).
10.6 Indemnification Agreement, dated as of March 11, 1986, by and between MGM/UA
Entertainment Co. and United Artists Corporation ("UA"), as supplemented by
Supplemental Indemnification Agreement, dated as of August 25, 1986, by and between
Turner Entertainment Co. and UA (filed as Exhibit 10.9 to the Company's Form 10-K
for the fiscal year ended December 31, 1989, and incorporated herein by reference).
10.7 Concession Agreement between Atlanta Braves, Inc. and Automatic Retailers of
America, Inc., dated November 1, 1965; Agreement Amending Concession Agreement dated
August 15, 1966; Supplement to Concession Agreement, as amended, dated January 10,
1969; two letter agreements with ARA Services, Inc., Atlanta/LaSalle Corporation and
Atlanta National League Baseball Club, Inc. ("ANLBC") dated January 28, 1976; letter
agreement between ARA Services, Inc. and ANLBC dated November 23, 1977; and
Promissory Note from ANLBC to ARA Services, Inc. dated November 30, 1977 (filed as
Exhibit 4(b)(vi) to Amendment No. 1 on Form 8 to the Company's 10-K for the fiscal
year ended December 31, 1980, and incorporated herein by reference).
10.8 Agreement, dated April 8, 1985, between TBS and Pacific-10 Conference, and
Television Right Agreement, dated April 10, 1985, between TBS and the Big Ten
Conference (filed as Exhibit 10(n) to the Company's Form S-1, filed on April 18,
1985, Registration Number 2-97132, and incorporated herein by reference).
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.9 Amended and Restated Joint Venture Agreement for Omni Ventures between ICC Ventures,
Inc. and Turner Omni Venture, Inc., dated May 28, 1985 (filed as Exhibit 10(n)(i) to
the Company's Amendment No. 2 to Form S-1, filed on June 19, 1985, Registration
Number 2-97132, and incorporated herein by reference).
10.10 Lease Agreement between the Company and Omni Ventures (now CNN Center Ventures),
dated May 28, 1985 (filed as Exhibit 10(n)(ii) to the Company's Amendment No. 2 to
Form S-1, filed on June 19, 1985, Registration Number 2-97132, and incorporated
herein by reference).
10.11 Sublease Agreement between the Company and DeFoor Properties Incorporated, dated May
28, 1985 (the "Sublease Agreement"), (filed as Exhibit 10(n)(iii) to the Company's
Amendment No. 2 to Form S-1, filed on June 19, 1985, Registration Number 2-97132,
and incorporated herein by reference).
10.12.1 First Amendment to the Sublease Agreement, dated as of November 15, 1985; Second
Amendment to the Sublease Agreement, dated as of July 31, 1986; Third Amendment to
the Sublease Agreement, dated as of December 31, 1986 (filed as Exhibit 10.16 to the
Company's Form 10-K for the fiscal year ended December 31, 1989, and incorporated
herein by reference).
10.12.2 Assignment and Assumption of Sublease Agreement, dated as of June 19, 1990, between
the Company and CNN Center Ventures (filed as Exhibit 10.16.2 to the Company's Form
10-K for the fiscal year ended December 31, 1990, and incorporated herein by
reference).
10.12.3 First Amendment to Memorandum of Sublease, dated as of June 22, 1990, between
Cousins Properties, Inc. and CNN Center Ventures (filed as Exhibit 10.16.3 to the
Company's Form 10-K for the fiscal year ended December 31, 1990, and incorporated
herein by reference).
10.13 Joint Venture Agreement, dated as of March 1986, between MGM/UA Entertainment Co.
and United Artists Corporation (filed as Exhibit 10.25 to the Company's Amendment
No. 2 to Form S-2, filed March 18, 1986, Registration Number 33-686, and
incorporated herein by reference).
10.14 Distribution Agreement, dated as of March 11, 1986, between United
Artists/Metro-Goldwyn-Mayer Distribution Co. and MGM/UA Entertainment Co. (filed as
Exhibit 10.26 to the Company's Amendment No. 2 to Form S-2, filed March 18, 1986,
Registration No. 33-686, and incorporated herein by reference).
10.15 Distribution Agreement, dated as of March 11, 1986, between United
Artists/Metro-Goldwyn-Mayer Distribution Co. and United Artists Corporation (filed
as Exhibit 10.27 to the Company's Amendment No. 2 to Form S-2, filed March 18, 1986,
Registration Number 33-686, and incorporated herein by reference).
10.16 Name and Logo Agreement, dated as of March 11, 1986, between MGM/UA Entertainment
Co. and United Artists Corporation (filed as Exhibit 10.28 to the Company's
Amendment No. 2 to Form S-2, filed March 18, 1986, Registration Number 33-686, and
incorporated herein by reference).
10.17 Distribution Agreement, dated as of March 11, 1986, between MGM/UA Entertainment Co.
and United Artists Corporation (filed as Exhibit 10.29 to the Company's Amendment
No. 2 to Form S-2, filed on March 18, 1986, Registration Number 33-686, and
incorporated herein by reference).
10.18 Distribution Agreement (New Pictures), dated August 25, 1986, between Turner
Entertainment Co. and United Artists Corporation (filed as Exhibit 10(b) to the
Company's Form 8-K dated August 25, 1986, and incorporated herein by reference).
10.19 Amended and Restated Distribution Agreement (Home Video), dated July 16, 1993,
between Turner Entertainment Co. and Metro-Goldwyn-Mayer Inc. (filed as Exhibit 10.5
to the Company's Form 10-Q for the fiscal quarter ended June 30, 1993, and
incorporated herein by reference).
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.20 License Agreement (RKO library) by and between Entertainment Acquisition Company,
Inc. and Turner Entertainment Co., dated December 16, 1987. (The Company hereby
agrees to furnish a copy of the Agreement to the Commission upon request).
10.21 Amended and Restated Subscription and Registration Rights Agreement, dated as of May
27, 1987, by and among the Company and the persons listed on the signature pages
thereof (filed as Exhibit 10.32 to the Company's Form 10-K for the fiscal year ended
December 31, 1987, and incorporated herein by reference).
10.22 Shareholders' Agreement, dated as of June 3, 1987 (the "Shareholders' Agreement"),
by and among the Company, R. E. Turner and the Original Investors (as defined)(filed
as Exhibit 10.33 to the Company's Form 10-K for the fiscal year ended December 31,
1987, and incorporated herein by reference).
10.23 Investors' Agreement, dated as of June 3, 1987, by and among the Company and the
Investors (as defined)(filed as Exhibit 10.34 to the Company's Form 10-K for the
fiscal year ended December 31, 1987, and incorporated herein by reference).
10.24 First Amendment, dated as of April 15, 1988, to the Shareholders' Agreement (filed
as Exhibit 10.2 to the Company's Form 10-Q for the fiscal quarter ended June 30,
1988, and incorporated herein by reference).
10.25 Memorandum of Understanding, dated as of February 17, 1989, between the Company,
Home Box Office, Inc. and Hughes Communications Galaxy, Inc. (The Company hereby
agrees to furnish a copy of this instrument to the Commission upon request).
10.26 Satellite Service Agreement, dated as of March 2, 1990, between the Company and GTE
Spacenet Corporation. (The Company hereby agrees to furnish a copy of this
instrument to the Commission upon request).
10.27 The Turner Incentive Plan (filed as Exhibit 19 to the Company's Form 10-Q for the
fiscal quarter ended September 30, 1989, and incorporated herein by reference).*
10.28 Letter Agreement, dated as of January 3, 1994, between the Company and the National
Football League.
10.29 Agreement, dated as of September 22, 1993, by and between the National Basketball
Association, the Company and Turner Network Television.
10.30 Letter Agreement, dated as of November 3, 1989, between TBS SuperStation, Turner
Network Television and Columbia Pictures Television, Inc. (filed as Exhibit 10.35 to
the Company's Form 10-K for the fiscal year ended December 31, 1989, and
incorporated herein by reference).
10.31 Letter Agreement between Turner Broadcasting System, Inc. ("TBS"), MGM/UA
Communications Co. ("MGM/UA CC"), Pathe Communications Corporation and MGM-Pathe
Communications Co., dated September 25, 1990 (as amending and incorporating by
reference the Letter Agreement, dated July 15, 1990, between TBS and MGM/UA CC), as
amended by Letter Agreements, dated October 1, 1990, October 8, 1990, October 22,
1990, October 24, 1990, October 26, 1990 and October 30, 1990 (filed as Exhibit 10
in the Company's Form 10-Q for the fiscal quarter ended September 30, 1990, and
incorporated herein by reference).
10.32 Assignment and Assumption Agreement, dated as of December 4, 1991, by and between HB
Distribution Co., Turner Broadcasting System, Inc., Great American Television and
Radio Company, Inc. and Great American Broadcasting Company (filed as Exhibit 9 in
the Company's Form 8-K dated December 4, 1991, and incorporated herein by
reference).
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
10.33 Participation Agreement, dated as of December 1, 1991, among Final Frontier
Partners, GATX Capital Corporation, Pittway Corporation, Wilmington Trust Company,
CIBC Leasing, Inc., Barclays Bank Inc., Ameritrust Company National Association and
Turner Broadcasting System, Inc. (The Company hereby agrees to furnish a copy of
this instrument to the Commission upon request).
10.34 Lease Agreement, dated as of December 1, 1991, between Wilmington Trust Company and
Turner Broadcasting System, Inc. (filed as Exhibit 10.46 to the 1991 Form 10-K, and
incorporated herein by reference).
10.35 Consent and Agreement, dated as of December l, 1991, Hughes Communication Galaxy,
Inc., Hughes Communications Satellite Services, Inc., Final Frontier Partners,
Wilmington Trust Company, Ameritrust Company National Association, CIBC Leasing Inc.
and Barclays Bank, PLC (filed as Exhibit 10.47 to the 1991 Form 10-K, and
incorporated herein by reference).
10.36 Turner Broadcasting System, Inc. Supplemental Benefit Plan (filed as Exhibit 10.48
to the 1992 Form 10-K, and incorporated herein by reference).*
10.37 Turner Broadcasting System, Inc. Supplemental Executive Retirement Plan (filed as
Exhibit 10.49 to the 1992 Form 10-K, and incorporated herein by reference).*
10.38 Turner Broadcasting System, Inc. 1993 Stock Option Plan.*
10.39 Employment Agreement, dated as of December 20, 1993, by and between the Company and
W. Thomas Johnson, as amended by agreement dated January 26, 1994.*
10.40 Employment Agreement, dated as of December 20, 1993 , by and between the Company and
Terence F. McGuirk, as amended by agreement dated January 26, 1994.*
10.41 Employment Agreement, dated as of January 1, 1994, by and between the Company and
Scott M. Sassa, as amended by agreement dated January 26, 1994.*
11 Computation of Earnings per Common and Common Equivalent Share.
13 Portions of the 1993 Annual Report to Shareholders expressly incorporated by
reference in Part I, Item 1 and Part II, Items 5, 6 and 8 of this Report.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K
On December 28, 1993, the Company filed a Form 8-K announcing that the
Company had acquired Castle Rock Entertainment ("Castle Rock") from Main Street
Partners, Sony Pictures Entertainment, Inc. and Group W Investments, Inc. for
$100 million in cash together with the repayment of the indebtedness of Castle
Rock, and submitted the following documents in connection with such acquisition:
Purchase Agreement, dated as of December 22, 1993, by and among the Company, CR
Acquisition Co., Castle Rock Entertainment, Inc., Rain Productions, Padnick
Productions, Inc., Rob Reiner Productions, Scheinman Productions, Inc., Shafer
Productions, Inc., Castle Rock Holding, Inc. and Group W Investment Inc.;
Audited Castle Rock Entertainment Consolidated Balance Sheets as of December 31,
1991 and 1992 and the related Consolidated Statements of Operations, Partners'
Equity and Cash Flows for the years then ended; Unaudited Castle Rock
Entertainment Condensed Consolidated Balance Sheet as of September 30, 1993 and
the Condensed Consolidated Statements of Operations and Cash Flows for the nine
months ended September 30, 1992 and 1993; Unaudited Company Pro Forma Condensed
Combined Balance Sheet as of September 30, 1993 and Unaudited Pro Forma
Condensed Combined Statement of Operations for the year ended December 31, 1992
and the nine months ended September 30, 1993.
32
<PAGE> 34
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.
TURNER BROADCASTING SYSTEM, INC.
(Registrant)
By: /s/ R. E. TURNER
---------------------
R. E. Turner
Chairman of the Board of
Directors and President
(Chief Executive Officer)
Dated: March 28, 1994
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
- ------------------------------------------ --------------------------------- ---------------
<C> <S> <C>
/s/ R. E. TURNER Chairman of the Board of March 28, 1994
- ------------------------------------------ Directors and President (Chief
R. E. Turner Executive Officer)
/s/ WAYNE H. PACE Vice President -- Finance March 28, 1994
- ------------------------------------------ (Chief Financial Officer)
Wayne H. Pace
/s/ WILLIAM S. GHEGAN Vice President and Controller March 28, 1994
- ------------------------------------------ (Chief Accounting Officer)
William S. Ghegan
/s/ HENRY L. AARON Director March 28, 1994
- ------------------------------------------
Henry L. Aaron
/s/ WILLIAM C. BARTHOLOMAY Director March 28, 1994
- ------------------------------------------
William C. Bartholomay
/s/ W. THOMAS JOHNSON Director March 28, 1994
- ------------------------------------------
W. Thomas Johnson
/s/ RUBYE M. LUCAS Director March 28, 1994
- ------------------------------------------
Rubye M. Lucas
/s/ TERENCE F. McGUIRK Director March 28, 1994
- ------------------------------------------
Terence F. McGuirk
/s/ BRIAN L. ROBERTS Director March 28, 1994
- ------------------------------------------
Brian L. Roberts
/s/ SCOTT M. SASSA Director March 28, 1994
- ------------------------------------------
Scott M. Sassa
/s/ JOSEPH J. COLLINS Director March 28, 1994
- ------------------------------------------
Joseph J. Collins
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
<C> <S> <C>
/s/ MICHAEL J. FUCHS Director March 24, 1994
- ------------------------------------------
Michael J. Fuchs
/s/ GERALD M. LEVIN Director March 25, 1994
- ------------------------------------------
Gerald M. Levin
/s/ BOB MAGNESS Director March 28, 1994
- ------------------------------------------
Bob Magness
/s/ JOHN C. MALONE Director March 28, 1994
- ------------------------------------------
John C. Malone
/s/ TIMOTHY P. NEHER Director March 28, 1994
- ------------------------------------------
Timothy P. Neher
Director
- ------------------------------------------
Fred A. Vierra
</TABLE>
34
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Turner Broadcasting System, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 15, 1994 appearing on page 51 of the 1993 Annual Report to
Shareholders of Turner Broadcasting System, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE
Atlanta, Georgia
February 15, 1994
35
<PAGE> 37
SCHEDULE II
TURNER BROADCASTING SYSTEM, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
END OF PERIOD
BALANCE AT ------------------
BEGINNING AMOUNTS NON
OF PERIOD ADDITIONS COLLECTED CURRENT CURRENT
---------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991:
Henry Aaron.................................. $158 $ 0 $ (15) $14 $ 129
---------- -- --------- ------- -------
TOTAL................................ $158 $ 0 $ (15) $14 $ 129
---------- -- --------- ------- -------
---------- -- --------- ------- -------
Year ended December 31, 1992:
Henry Aaron.................................. $143 $ 0 $ (15) $14 $ 114
---------- -- --------- ------- -------
TOTAL................................ $143 $ 0 $ (15) $14 $ 114
---------- -- --------- ------- -------
---------- -- --------- ------- -------
Year ended December 31, 1993:
Henry Aaron.................................. $128 $ 0 $ (16) $14 $ 98
---------- -- --------- ------- -------
TOTAL................................ $128 $ 0 $ (16) $14 $ 98
---------- -- --------- ------- -------
---------- -- --------- ------- -------
</TABLE>
Non-interest bearing advance secured by salary and earned deferred compensation
payable in 240 monthly installments beginning January 1, 1983.
36
<PAGE> 38
SCHEDULE VIII
TURNER BROADCASTING SYSTEM, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECOVERIES
CHARGED ON
TO ACCOUNTS
BALANCE AT COSTS PREVIOUSLY BALANCE
ALLOWANCE FOR DOUBTFUL BEGINNING AND WRITTEN AT END
ACCOUNTS RECEIVABLE OF PERIOD EXPENSES OFF WRITE-OFFS OTHER OF PERIOD
- -------------------------------------- ---------- -------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1991................... $ 31,525 $ 7,203 $ 0 $ (7,993) $ 1,060 $ 31,795
---------- -------- ---------- ---------- ------- ---------
---------- -------- ---------- ---------- ------- ---------
Year ended
December 31, 1992................... $ 31,795 $ 13,917 $ 22 $ (14,928) $(1,712) $ 29,094
---------- -------- ---------- ---------- ------- ---------
---------- -------- ---------- ---------- ------- ---------
Year ended
December 31, 1993................... $ 29,094 $ 16,978 $4,052 $ (16,601) $ 1,475 $ 34,998
---------- -------- ---------- ---------- ------- ---------
---------- -------- ---------- ---------- ------- ---------
</TABLE>
<TABLE>
<CAPTION>
CHARGED
TO
BALANCE AT COSTS BALANCE
VALUATION ALLOWANCE ON BEGINNING AND AT END
DEFERRED TAX ASSETS OF PERIOD EXPENSES WRITE-OFFS OTHER OF PERIOD
- -------------------------------------- ---------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1993................... $ 0 $ 8,723 $ 0 $ 0 $ 8,723
---------- -------- ---------- ------- ---------
---------- -------- ---------- ------- ---------
</TABLE>
37
<PAGE> 39
SCHEDULE X
TURNER BROADCASTING SYSTEM, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Advertising costs(1)........................................... $84,929 $86,903 $74,411
------- ------- -------
------- ------- -------
</TABLE>
- ---------------
(1) Costs relate primarily to advertising the Company's products and services in
a variety of media.
38
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------ -------------
<C> <S> <C>
10.28 Letter Agreement, dated as of January 3, 1994, between the Company and
the National Football League.
10.29 Agreement, dated as of September 22, 1993, by and between the National
Basketball Association, the Company, and Turner Network Television.
10.38 Turner Broadcasting System, Inc. 1993 Stock Option Plan.
10.39 Employment Agreement, dated as of December 20, 1993, by and between the
Company and W. Thomas Johnson, as amended by agreement dated January
26, 1994.
10.40 Employment Agreement, dated as of December 20, 1993, by and between the
Company and Terence F. McGuirk, as amended by agreement dated January
26, 1994.
10.41 Employment Agreement, dated as of January 1, 1994, by and between the
Company and Scott M. Sassa, as amended by agreement dated January 26,
1994.
11 Computation of Earnings per Common and Common Equivalent Share.
13 Portions of the 1993 Annual Report to Shareholders expressly incorporated
by reference in Part I, Item 1 and Part II, Items 5, 6 and 8 of this
Report.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse.
</TABLE>
<PAGE> 1
[Logo]
EXHIBIT 10.28
NATIONAL FOOTBALL LEAGUE
Paul Tagliabue
Commissioner
January 3, 1994
Mr. Terence F. McGuirk
Executive Vice President
Turner Broadcasting
One CNN Center
Atlanta, GA 30303
Dear Terry:
This letter will confirm the agreement reached on December 14, 1993
between the National Football League and Turner Broadcasting for the renewal of
our TNT cable television and broadcast television agreement for the four
seasons 1994 through 1997.
While we are prepared to forward a detailed renewal document to you
shortly, it would seem that a signed agreement on the financial terms is
desirable at this point.
It is our understanding that rights payments will be as follows:
1994 - $115 million
1995 - $120 million
1996 - $128 million
1997 - $133 million
Please confirm your agreement by executing this letter in the space
provided below.
Sincerely,
/s/ Paul Tagliabue
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PAUL TAGLIABUE
BY: Terence F. McGuirk
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(TURNER BROADCASTING)
DATE: January 5, 1994
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410 Park Avenue, New York, New York 10022 (212) 758-1500 FAX (212) 758-1742
<PAGE> 1
EXHIBIT 10.29
NBA/TBS AGREEMENT
-----------------
AGREEMENT, made this 22nd day of September, 1993, by and between the
NATIONAL BASKETBALL ASSOCIATION, as agent for its member teams ("NBA"), 645
Fifth Avenue, New York, New York 10022, and TURNER BROADCASTING SYSTEM, INC.
("TBS"), SUPERSTATION, INC. ("Superstation Inc.") and TURNER NETWORK
TELEVISION, INC. ("Turner Inc."), each of which is located at One CNN Center,
Atlanta, Georgia 30303.
TBS owns all of the issued and outstanding capital stock of
Superstation Inc. and Turner Inc. and owns or controls certain other
programming networks carried by cable television systems and other
non-broadcast television systems. Superstation Inc. is the holder of the
Federal Communications Commission license for WTBS, Channel 17, Atlanta,
Georgia, a commercial over-the-air television station whose signal is
distributed by common carrier or resale common carrier via satellite (or by
other similar means of distribution) to cable television systems or to other
nonbroadcast television distribution systems (e.g., DBS, MDS, SMATV) ("WTBS").
Turner Inc. owns the cable programming network known as Turner Network
Television ("TNT"), which is typically carried by cable television systems on
their basic or expanded basic tier of service.
Superstation Inc. and Turner Inc. (together, the "Telecasters" and
each a "Telecaster") wish to acquire the exclusive national cable network
television rights to games between the member teams of the NBA for telecast on
WTBS and TNT, respectively. To induce the NBA to grant those rights to
Superstation Inc. and Turner Inc., TBS wishes to cause those entities and
certain of its other affiliated programming networks to perform other
obligations relating to those rights.
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Accordingly, the parties have agreed as follows:
I. RIGHTS
------
A.1. Subject to Paragraphs I.B. and C. below, NBA hereby
grants to the Telecasters, for telecasting on WTBS and TNT, exclusive national
cable network television rights, during the Term (as defined in Paragraph II.
below), to NBA exhibition, regular season and playoff games, in accordance with
the terms and conditions more specifically set forth herein, within the United
States and those territories, commonwealths and possessions of the United
States located within the "satellite footprint" regularly used by the
Telecasters to cover the contiguous United States (the "Broadcast Area"). For
purposes of this Agreement, the term "cable network" shall include (i) any
national basic, expanded basic or premium cable television service (e.g., USA
Network, ESPN and HBO), (ii) any commercial over-the-air television station
licensed to broadcast an NBA game in a team's local broadcast area (which is
defined as the area of the team's home state and the area consisting of one
hundred fifty (150) miles from the corporate or unincorporated limits of the
city of operation (or other governmental entity) of the team whose signal is
distributed by common carrier or resale common carrier via satellite (or by
other similar means of distribution) to more than five (5) million television
households outside of such team's Territory (which is defined as the area
within seventy-five (75) air miles of the corporate or unincorporated limits of
the city of operation (or other governmental entity) of the team, as reported
by A C. Nielsen Co., and (iii) without limitation, those television services
and over-the-air stations listed on Exhibit A hereto.
2. The NBA games that the Telecasters shall be licensed
to telecast are referred to herein as "Games" and shall be either cablecast on
TNT or broadcast over-the-air on WTBS in accordance with the terms of this
Agreement. Subject to Paragraph IV.D. below, each
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Game telecast on either TNT or WTBS during the Term shall be telecast live and
in its entirety and shall include a pre-Game segment, a half-time segment, and
a post-Game segment, as more specifically described below. The Games telecast
by the TNT and by WTBS shall be distributed as part of the complete and entire
programming schedule of each such respective cable network for reception by any
type of viewer or subscriber who regularly subscribes to such cable network(s)
through a cable system or other non-broadcast television distribution system
without any additional payment or other action by a subscriber being required.
B. Except as specifically provided in this Agreement, as
between the NBA, on the one hand, and the Telecasters and TBS, on the other
hand, the NBA retains, without limitation, all rights to broadcast, telecast,
transmit or otherwise distribute or commercially exploit all NBA games,
including Games, and non-game NBA programming, by any and all forms of
television, radio, reproduction and other technologies and all other forms of
commercial distribution and exploitation, whether presently existing or not and
whether now known or hereafter developed; provided, however, that except as
specifically provided in this Paragraph I., the NBA shall not license, and none
of the member teams of the NBA shall be permitted to license, the telecast of
any NBA game to any national over-the-air network or cable network during the
Term.
C. Notwithstanding anything to the contrary in this
Agreement, in each Season during the Term the NBA retains the right to license
up to an aggregate of fifteen (15) regular season games, other than the Games,
for telecast on one (1) or more commercial over-the-air television stations(s)
licensed to broadcast NBA games in a team's local broadcast area whose signal
is distributed by common carrier or resale common carrier via satellite (or by
other similar means of distribution) to more than five (5) million television
households outside of such team's Territory, as reported by A. C. Nielsen Co.
(any such over-the-air station being a "broadcast cable
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network"); provided, however, that (i) the NBA shall not license the telecast
of any Game to a broadcast cable network other than WTBS, and (ii) the NBA
shall not license, and none of the member teams of the NBA shall be permitted
to license, an NBA game for telecast by a broadcast cable network during the
same night as the telecast of a Game.
D. TBS and the Telecasters acknowledge that the NBA is
party to an agreement dated April 27,1993 with NBC Sports, a division of the
National Broadcasting Company ("NBC Sports", in which the NBA granted NBC
Sports rights to telecast NBA games other than the Games. In the event that NBC
Sports advises the NBA that it intends to broadcast an NBA playoff game at the
same time that a Telecaster is scheduled to telecast a playoff Game, (i) NBA
shall notify the applicable Telecaster as to such decision as soon as
reasonably practicable, but in no event less than five (5) business days in
advance of such playoff Game, and (ii) the applicable Telecaster shall not
telecast such playoff Game during NBC Sports' playoff game broadcast; provided,
however, that the NBA represents that NBC Sports shall not broadcast more than
twenty-nine (29) playoff games, excluding the NBA Finals, during any Season,
unless an additional round is added to the NBA playoffs or an existing playoff
round is lengthened.
II. TERM
----
The term of this Agreement ("Term") shall be four (4)
basketball seasons, beginning with the commencement of the 1994-95 NBA season
and ending at the conclusion of the 1997-98 NBA season. Each such NBA season
shall commence with the first game of the exhibition season played between NBA
member teams after the commencement of player training camps (approximately 28
days prior to the start of the NBA regular season) and conclude with the last
Game of the NBA Finals (a "Season").
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III. FEES; ADVERTISING
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A. For all rights granted to the Telecasters hereunder,
the Telecasters shall pay to the NBA, in its capacity as agent for its member
teams, to be disbursed in such a manner as such member teams shall determine
among themselves, the sum of $352,000,000 (the "Base Amount"), together with
any additional amount that may be due under Paragraph III.C. below.
B.1. The Base Amount shall be paid to the NBA, as agent
for its member teams, in four (4) annual fees (each sometimes referred to as an
"Annual Fee") in accordance with the following:
<TABLE>
<S> <C> <C>
(i) for the 1994-95 season: $82,000,000
(ii) for the 1995-96 season: $86,000,000
(iii) for the 1996-97 season: $90,000,000
(iv) for the 1997-98 season: $94,000,000
</TABLE>
2. Each Annual Fee shall be payable in six (6) equal
consecutive monthly installments on the first day of each month, commencing
November 1 and ending April 1 of each Season. The Telecasters shall pay each
installment by a single wire transfer of immediately available funds to an
account designated by the NBA.
C. As additional consideration for the rights granted to
the Telecasters under this Agreement, the Telecasters shall pay to the NBA, as
agent for its member teams, an amount (the "Shared Advertising Revenues"), if
any, equal to one-half (1/2) of "Net Advertising Revenues" (as defined in
subparagraph III.D.1 below) in excess of the sum of $340,000,000. The amount of
Shared Advertising Revenues payable to the NBA, if any, shall be determined and
paid as follows:
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1. In the event that the amount of Net Advertising
Revenues (as defined below) as of July 15, 1996 ("Year 2 Net Advertising
Revenues") exceed $159,000,000, then the Telecasters shall pay to NBA as Shared
Advertising Revenues an amount equal to one-half (1/2) of the amount by which
Year 2 Net Advertising Revenues exceed $159,000,000, not later than September
1, 1996 by a single wire transfer of immediately available funds to an account
designated by the NBA. Subject to Paragraph III.C.2. below, in the event that
Year 2 Net Advertising Revenues equal or are less than $159,000,000, the
Telecasters shall not pay to the NBA any Shared Advertising Revenues on or
before September 1, 1996.
2. In the event that Net Advertising Revenues as of July
15, 1998 are less than $340,000,000, and the Telecasters have paid NBA any
Shared Advertising Revenues pursuant to subparagraph 1. above, then NBA shall
pay the Telecasters an amount equal to all Shared Advertising Revenues so paid
by Telecasters not later than September 1,1998, by a single wire transfer of
immediately available funds to an account designated by the Telecasters, the
amount to be disbursed between the Telecasters in such manner as they shall
determine among themselves. In the event that Net Advertising Revenues as of
July 15, 1998 exceed $340,000,000 but the amount of such excess is less than
two (2) times the sum of all Shared Advertising Revenues the Telecasters paid
to NBA pursuant to subparagraph 1. above, then NBA shall pay the Telecasters,
not later than September 1, 1998, by a single wire transfer of immediately
available funds to an account designated by the Telecasters, an amount (to be
disbursed between the Telecasters in such manner as they shall determine among
themselves) that results in the Telecasters receiving one-half (1/2) of Net
Advertising Revenues in excess of the sum of $340,000,000. In the event that
Net Advertising Revenues as of July 15, 1998 exceed $340,000,000 by an amount
in excess
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of two (2) times the sum of all Shared Advertising Revenues the Telecasters
paid to NBA pursuant to subparagraph 1. above, then the Telecasters shall pay
NBA, not later than September 1,1998 by wire transfer to an account designated
by the NBA, an amount that results in NBA receiving one-half (1/2) of Net
Advertising Revenues in excess of the sum of $340,000,000.
D.1. "Net Advertising Revenues," as used herein, shall mean:
(a) all gross revenues paid or payable to TBS,
either of the Telecasters or any of their respective sales affiliates (without
deduction or offset for any advertising agency commissions that may be payable
by any of them) with respect to either (i) the sale to advertisers and sponsors
of any commercial advertising time, insertions of such time and any
enhancements, entitlements and/or billboards in any Game, or (ii) promotional
consideration given or received by any of them during the Games (including all
replays of Games) telecast by TNT or WTBS, in either case for the period
beginning with the "pre-break" immediately following the program preceding each
Game (including any pre-Game segment) (the "Pre-pre-break") (or beginning
immediately following the Pre-pre-break if, during the Season in which the
Pre-pre-break is telecast, the commercial advertising time or promotional
consideration given or received with respect to the Pre-pre-break is not sold,
given or received as part of Game or NBA-related programming) and ending with
the commencement of the program following each Game (including any
end-of-program sponsored "tag" (e.g., airlines), including, without limitation,
all pre-Game, half-time, post-Game and "bridge" segments (the items described
in clauses (i) and (ii) being collectively referred to as "sales inventory");
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(b) plus, with respect to sales inventory not yet
telecast but for which sales orders have been received, all gross revenues that
will be paid or payable to TBS, either of the Telecasters or any of their
respective sales affiliates upon telecast of that sales inventory (without
deduction or offset for any advertising agency commissions that may be payable
by any of them) (the sum of subparagraphs III.D.1.(a) and (b) being "Gross
Revenues");
(c) less the actual advertising agency
commissions paid by TBS, either of the Telecasters or any of their respective
sales affiliates with respect to Gross Revenues (which commissions shall not
exceed then-standard industry commissions or 15%, whichever is less).
2. Within ten (10) days of the execution of this
Agreement, and at monthly intervals thereafter during the Term hereof, the NBA
shall cause representatives of NBA Properties, Inc. (or one of its
subsidiaries) (hereinafter "NBAP") to meet and confer with representatives of
TBS and the Telecasters to plan and coordinate their sales activities with
respect to NBA telecasts so as to develop a joint sales strategy for each
Season that reduces conflicts among sponsors, maximizes the revenues and other
mutual benefits to be derived by the parties from sponsor relationships, and
augments each other's sales activities with respect to sponsors or potential
sponsors for telecasts of the Games. During such meetings, NBAP, TBS and the
Telecasters shall use their best efforts to:
(a) advise each other of potential sponsors for
the Games, including sponsors for the pre-Game, post-Game and half-time
segments; and
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(b) jointly consider issues relating to the sale
of advertising time or sponsorship packages with respect to the Games,
including but not limited to, (i) the provision of ratings guarantees, (ii) the
provision of enhancements, billboards, entitlements, and make-goods, (iii) the
use of "bonus" commercials, (iv) the granting of sponsor category
exclusivities, (v) the use of advertising inventory with respect to overtime
periods in any Game(s), (vi) the creation of rate cards for use in the sale of
advertising time in the Games, (vii) procedures to be used for the sale of
remaining unsold inventory in a Game as the date of such Game approaches, and
(viii) the manner in which TBS, the Telecasters or any of their respective
affiliates packages NBA advertising inventory with advertising inventory from
programming not relating to the NBA.
3. TBS and the Telecasters shall furnish NBA during the
Term hereof with complete and accurate copies of the following documents as
soon as commercially feasible, but in no event later than three (3) business
days after any such document has been created or received by TBS, the
Telecaster or any of their respective sales affiliates:
(a) any "advance inventory status report," "sales
to date status report," "pre-log" and "post-log" for each Game, sponsorship or
advertising agreement, and/or sales order relating to the sale or placement of
advertising time in any Game;
(b) any agreement that provides for sponsorship
in any Game and sponsorship in any other programming not relating to the NBA,
including, but not limited to, programming on all cable networks and private
networks affiliated with TBS (e.g., TNT, WTBS, Cable News Network, Cartoon
Network, Airport Channel) (a "package agreement"); provided, however, that the
copy of any such package agreement provided to the NBA may be redacted to
eliminate any contractual terms and conditions that are
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not necessary for the NBA to determine the allocation of revenues or other
consideration under such package agreement allocable to the Games and to any
other programming not relating to the NBA that is packaged with advertising
time in any Games; and
(c) any memoranda, status report, correspondence
or other document created or received by TBS, the Telecasters or any of their
respective sales affiliates relating to the sale or placement of advertising
time in any Game, including any document necessary for the NBA to determine the
average unit prices and actual selling prices of advertising time and the
identity of advertisers within any program on TBS, either of the Telecasters or
any of their respective sales affiliates that is packaged with advertising time
in any Game.
4. (a) TBS and each of the Telecasters shall in good
faith act and use its best efforts so as to maximize Net Advertising Revenues
during, and with respect to, the Seasons. Neither TBS nor either of the
Telecasters shall take any action, the intent or the effect of which would be
to diminish Net Advertising Revenues or to benefit, at the expense of Net
Advertising Revenues, their other programs or operations or a third party. TBS
and each of the Telecasters shall endeavor, on a good faith basis, to conduct
its operations relating to the Games, including the sale of advertising time
therein, in a manner that would mutually benefit TBS and the Telecasters, on
the one hand, and NBA, on the other hand. TBS and each of the Telecasters also
shall sell all advertising time within the Games, including advertising time in
any pre-Game segment, half-time segment, and post-Game segment, on an
arm's-length basis. In selling advertising time, TBS and the Telecasters shall
use a sales staff, in number and experience, at least equal to the staff used
by TBS and the Telecasters with respect to the sale of advertising time
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in other major sports (e.g., National Football League games, Atlanta Braves
games and Goodwill Games).
(b) No advertising time in the Games shall be
given to sponsors free of charge, bartered or traded for or used for a
commercial or public service announcement for any sports league, team or
athletic organization; provided, however, that (i) "make-good" spots may be
granted in accordance with Paragraph III.D.6 below, and (ii) "tune-in"
promotional announcements for non-NBA sports leagues, teams or athletic
organizations may be included in a Game telecast so long as any telecast that
is the subject of the "tune-in" promotional announcement is not scheduled to
air during the time period that a Game telecast is scheduled to air. Any
"tune-in" promotional announcement in the Games for any non-NBA program may not
use or be accompanied by the name or logo of a corporate sponsor, except that
if the name of a corporate sponsor is part of the official name of the non-NBA
program (e.g., "Blockbuster Bowl"), such corporate sponsor's name, but not
logo, may be used in such "tune-in" promotional announcement.
5. (a) Subject to the provisions of this Paragraph
III.D, advertising time during the telecasts of the Games, including advertising
time in any pre-Game segment, half-time segment, and post-Game segment, shall
be sold by TBS and the Telecasters.
(b) TBS and the Telecasters shall not undertake,
implement or agree to grant any sponsor any advertising category exclusivity
with respect to the Games without obtaining the prior written consent of the
NBA (such consent not to be unreasonably withheld).
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(c) TBS and the Telecasters shall not include any
sponsored segments, enhancements or entitlements, altered screens (e.g.,
"shrunken screens", awards, vignettes, promotions or sponsor tie-ins with NBA
trademarks and service marks during the telecast of any Game or in the
promotion either of any Game or of the telecast of Games on TNT or WTBS,
without the prior written approval of the NBA (which approval shall not be
unreasonably withheld), except that NBA shall have the right, in its sole
discretion, to withhold its consent on seasonal or annual League-wide awards
during the telecast of any Game.
(d) TBS and the Telecasters shall not enter into
any package agreement that results in an allocation of revenues under such
package agreement in which: (i) any sponsor's commercial unit(s) within a Game
is valued at an amount less than the average commercial unit price for such
category for such Game; (ii) any sponsor's commercial unit(s) within a Game is
valued at an amount less than the average commercial unit price for such Game;
and/or (iii) any sponsor's commercial unit(s) within any other program is
valued at an amount greater than the average commercial unit price for such
program.
6. (a) In the event of either (i) the non-delivery
of any commercial spot in a Game for any reason ("non-delivery"), or (ii) the
underdelivery to any sponsor of gross ratings points in the Games, based on
ratings guarantees provided in writing to such sponsor ("underdelivery" by TBS
or the Telecasters, then TBS or the applicable Telecaster(s) shall notify NBA
as soon as is reasonably possible and such non-delivery or underdelivery shall
be "made good" as follows:
(1) In the event that the applicable
Telecaster(s) and NBA jointly agree:
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(i) any such non-delivery shall be made good by
the applicable Telecaster(s) in the same Game, if possible, or in the same type
of Game (i.e., regular season Game or playoff Game) in the same Season in which
the non-delivery occurred; and/or
(ii) any such underdelivery shall be made good by
the applicable Telecaster(s) in the same type of Game (i.e., regular season
Game or playoff Game) in the same Season in which the underdelivery occurred.
(2) If such joint agreement is not reached, or if no
unsold commercial inventory is available in which to place a make good
commercial spot in the same Game or in the same type of Game (i.e., a regular
season or playoff Game) in the same Season, the applicable Telecaster(s) and
NBA shall jointly determine, subject to the affected sponsor's approval, where
required, whether such non-delivery or underdelivery shall be made good by the
applicable Telecaster(s) in a regular season Game in the immediately next
Season, a playoff Game, or in other TBS programming with viewing audience
demographics similar to the Games. The applicable Telecaster(s) shall not
preempt paid commercial time in any Game, preempt any announcements promoting
its telecast of the Games, or, except as provided in Paragraph III.D.6(b) below,
forego selling commercial time to place such make good spots in any Game,
unless NBA specifically approves such preemption or forbearance in advance.
(b) In the event that there is unsold commercial
time in a Game telecast from the commencement of any Season through January 15
of such Season, and TBS is obligated to run or make good sponsor commercial
spot(s) from the telecast of a National Football League ("NFL") game played
during the then current NFL season, TBS, the
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applicable Telecaster(s) and NBA shall jointly determine, subject to the
affected sponsor's approval, where required, whether to place a make good spot
for such sponsor in the unsold commercial time within such Game. The applicable
Telecaster(s) shall in no event (i) place more than six (6) make-good spots
within any such Game, or (ii) preempt paid commercial time in any such Game, or
preempt any announcements promoting its telecast of the Games, to place such
sponsor's make good spots in any Game. In the event that TBS, the applicable
Telecaster(s) and NBA determine, in accordance with this subparagraph, to run
or make good within a Game a sponsor's commercial spot from an NFL game
telecast, then there shall be added to Net Advertising Revenues, for each such
spot run or made good in such Game, an amount equal to one-half (I/2) of the
average commercial unit price for such Game (unless NBA specifically approves a
lower commercial unit price). Notwithstanding anything to the contrary in this
subparagraph, if the NBA does not agree to allow the applicable Telecaster(s)
to run or make good within a Game a sponsor's commercial spot from an NFL game
telecast in accordance with this subparagraph, the NBA, subject to the
reasonable approval of the applicable Telecaster(s) (which may be withheld only
for reasons consistent with such Telecaster(s)' obligations under this
Agreement), shall purchase the unsold commercial time in the Game in which any
such make good spot was to run at a price equal to the average of the three (3)
lowest priced commercial units which have been sold in the Game, and the amount
paid by the NBA shall be added to Net Advertising Revenues.
IV. SCHEDULE AND FORMAT
-------------------
During each Season, TBS and the Telecasters: (i) shall cause
TNT or WTBS (as the case may be) to telecast those Games that it is to telecast
under this Paragraph
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IV, and shall not authorize any other party to televise any such game by any
means of broadcast or non-broadcast television; and (ii) shall not televise, or
authorize any other party to televise, and shall cause their respective
subsidiaries and affiliates not to televise or authorize any other party to
televise, any NBA game, other than the Games, by any means of broadcast or
non-broadcast television. Notwithstanding the preceding sentence, TBS shall be
permitted, subject to NBA rules and regulations, to (i) license any
over-the-air station in Atlanta, Georgia (other than WTBS) to broadcast in the
Atlanta Hawks' local broadcast area, NBA games played by the Atlanta Hawks and
(ii) authorize SportsSouth (or another other local cablecaster) to cablecast in
the Atlanta Hawks' Territory NBA games played by the Atlanta Hawks.
A. During each Season, TBS and the Telecasters shall
cause the telecast of Games on TNT or WTBS (as the case may be) in accordance
with the following:
1. The annual Hall of Fame pre-Season exhibition game
shall be telecast on TNT, unless such game is not played or is not made
available by the NBA for telecast, in which case TNT shall telecast at least
one (1) other pre-Season exhibition game to be determined by NBA (e.g.
exhibition game in London). The NBA shall use commercially reasonable efforts
to provide attractive team "match-ups" with respect to the exhibition games to
be telecast by TNT in accordance with the preceding sentence. Upon the mutual
agreement of the applicable Telecaster(s), and NBA, TNT and/or WTBS shall be
permitted to telecast additional pre-Season exhibition games. All advertising
revenues attributable to the telecast of any pre-Season exhibition Game shall
be included in Net Advertising Revenues.
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2. (a) Forty-five (45) regular season Games
(including, for each Season, at least one (1) Season opening game played
outside the United States, provided that such a game is played and made
available for telecast by the NBA) shall be telecast on TNT on Tuesday and
Friday nights and, on occasion, with the NBA's prior reasonable approval, other
nights of the week; provided, however, that in no event shall TNT be permitted
to telecast a regular season Game on any Sunday when NBC Sports telecasts
either an NBA doubleheader or an NBA game in prime time. Regular season Games
may be telecast on TNT as part of doubleheaders.
(b) Twenty-five (25) regular season Games shall
be telecast on WTBS on each Thursday night of the regular season, unless the
NBA decides, in its own discretion, not to telecast a Game on Thanksgiving Day,
Christmas Eve, Christmas Day, New Year's Eve or New Year's Day (collectively,
"Holidays"). In the event the NBA decides not to telecast a game in accordance
with the preceding sentence, or NBC Sports wishes to televise a Game on any
such Holiday, NBA and Superstation Inc. shall jointly schedule the telecast of
a Game on WTBS on an alternate date. Regular season Games may be telecast on
WTBS as part of doubleheaders.
3. (a) Unless impracticable due to WTBS programming
commitments entered into prior to the January 1 of a Season, any Playoff game
during that Season that is not scheduled for telecast on NBC Sports shall be
telecast on TNT or WTBS, and the NBA and the Telecasters jointly shall
determine, in accordance with this Paragraph IV.A.3, which Telecaster will
telecast the game. The Telecasters shall use their best efforts to avoid
entering into programming commitments that may make it impracticable for TNT or
WTBS to telecast a Playoff Game.
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(b) During each night of the first two rounds of
the Playoffs (i.e., through and including the Conference Semifinals), TNT shall
make available sufficient time in its programming schedule, beginning at 7:00,
7:30 or 8:00 P.M. Current New York Time ("CNYT"), as the NBA may determine, in
which to telecast a Playoff doubleheader.
(c) Subject to Paragraph IV.A.3(a) and Paragraph
I.D. above, TNT shall schedule for telecast:
(i) as many Playoff Games of the first
two rounds of the Playoffs as are available during the time periods described
in Paragraph IV.A.3(b) above in accordance with the Playoff schedule attached
hereto as Exhibit B; and
(ii) all Playoff Games of the Conference
Finals in accordance with the Playoff schedule attached hereto as Exhibit B.
(d) Subject to Paragraphs IV.A.3(a)-(c) above,
WTBS shall telecast any scheduled Playoff Game that is not telecast on TNT
because another Playoff Game is scheduled to air on TNT during any portion of
such Playoff Game. Playoff Games to be telecast by WTBS shall be telecast in
accordance with the Playoff schedule attached hereto as Exhibit B.
B.1. Unless mutually agreed to by the applicable
Telecaster(s) and NBA: (i) each Game telecast (other than the second game of a
doubleheader) shall be scheduled to start at 8:00 P.M. CNYT; and (ii) each Game
telecast that is a second game of a doubleheader shall be scheduled to start at
10:30 P.M. CNYT. Notwithstanding the preceding sentence, in the event NBC
Sports televises a Playoff triple-header on the same
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day as a Game telecast, such Game shall not be scheduled to start prior to 9:00
p.m. CNYT, unless mutually agreed to by the NBA and the applicable
Telecaster(s).
2. The NBA will use its best efforts to cause the home
team for each Game to adjust the starting time of such Game to accommodate the
reasonable scheduling requirements of TNT and WTBS and to comply with the NBA's
uniform game format. In connection with the preceding sentence, it is
understood that such scheduling requirements call for tip-off times ten (10)
minutes or forty (40) minutes after the hour.
3. Not more than one (1) time each Season, if requested
by the Telecasters, each NBA team in the Pacific and Mountain time zones shall
be required to schedule a Game on either TNT or WTBS (but not both) to start at
8:00 P.M. CNYT.
C.1. Subject to scheduling considerations beyond the
control of the NBA, on or before August 1 prior to each Season, the NBA will
provide the Telecasters with a final and complete schedule of the regular
season games to be played during the upcoming Season. The Telecasters shall
then, during the two-week period following receipt of such schedule from the
NBA, select the regular season Games to be telecast on TNT and WTBS, subject to
Paragraph IV.A.2. above, Paragraph IV.C.2. below and the approval of the NBA.
Notwithstanding the scheduling procedure set forth in this subparagraph, but
subject to Paragraph IV.A.2 above, Paragraph IV.C.2 below and the prior
approval of the NBA (which approval shall not be unreasonably withheld), the
Telecasters may, in the course of an NBA Season, substitute Games.
2. Each NBA team must be scheduled each Season to appear
in at least one (1) regular season Game telecast by either TNT or WTBS. No team
may participate in
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more than thirteen (13) regular season Games telecast by TNT and/or WTBS during
any Season. The number of "home" and "away" Games scheduled for each NBA team
during any Season shall be at the discretion of the NBA, although no more than
one-half (1/2) (not to exceed six (6)) of the Games involving a team may be
"home" games for such team. Notwithstanding the foregoing, if the ratings of
the regular season Games telecast on WTBS and TNT during a Season (as reported
by the A. C. Nielsen Co. with respect to cable television households in the
United States that receive WTBS or TNT, as the case may be) average less than
1.7, the maximum number of regular season Games that a team may participate in
during the immediately following Season shall be fourteen (14).
D.1. Each regular season or Playoff Game telecast by TNT
or by TBS that is scheduled to start at 8:00 P.M. CNYT may be re-telecast one
(1) time in its entirety by the same Telecaster that telecast such Game live
(i.e., on TNT or WTBS), provided that such re-telecast begins at the later of
(i) the completion of the live telecast of an NBA doubleheader (and any
NBA-related programming telecast following such doubleheader) telecast by
either of the Telecasters the same night such Game is played, or (ii) 1:00 A.M.
CNYT (a "Replay"). AlI advertising revenues attributable to any Replay shall be
included in Net Advertising Revenues.
2. Subject to Paragraph IV.D.1 above, the Telecasters
shall telecast the Games hereunder on a live basis, and in their entirety;
provided, however, that if a Playoff doubleheader is telecast on WTBS and the
starting times of the two Games selected do not permit telecast of both on a
live basis, then, upon the mutual agreement of Superstation Inc. and NBA, the
later-starting Game may be taped for telecast as the second Game of
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the doubleheader immediately following the live telecast of the first
(earlier-starting) Game.
E.1. Turner Inc. shall use commercially reasonable efforts
to produce and telecast on TNT, at its expense, on days that TNT telecasts one
(1) or more Playoff Games and WTBS does not telecast any overlapping Playoff
Games, a pre-Game show ("Pre-Game Show") of thirty (30) minutes in length,
featuring NBA statistics, highlights and personalities, immediately preceding
the first Game telecast on such day, including no more than five (5) national
commercial or promotional minutes and no more than one (1) local cable operator
commercial or promotional minute. All advertising revenues attributable to any
such Pre-Game Show, less the reasonable, actual, direct, out-of-pocket
production costs incurred by Turner Inc. solely for such Pre-Game Show, shall
be included in Net Advertising Revenues.
2. Provided that Game starting times are in accordance
with Paragraph IV.B.1. above, each of the Telecasters shall produce and
telecast, at its expense, a pre-Game segment of approximately ten (10) minutes
in length featuring NBA standings, statistics, highlights and personalities.
Such pre-Game segment shall be telecast immediately prior to each Game telecast
on TNT and WTBS as part of the Game telecast, except that no pre-Game segment
shall be telecast prior to the second Game of a doubleheader which has begun
before the completion of the first Game of the doubleheader. All advertising
revenues attributable to any such pre-Game segment shall be included in Net
Advertising Revenues.
F. Subject to the program schedule of TNT and WTBS (as
the case may be), each Telecaster shall produce and telecast, at its expense, a
post-Game or "bridge" segment following
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each Game ("post-Game segment") telecast on TNT and/or WTBS, featuring an
interview of a player who participated in the Game just telecast (provided such
player is available on reasonable terms), and a report of scores and highlights
of other NBA games played that day. Each such post-Game or bridge segment shall
contain no more than one-half (1/2) of a national commercial or promotional
minute within each two and one-half (2-1/2) minutes of program time. All
advertising revenues attributable to any such post-Game or "bridge" segment
shall be included in Net Advertising Revenues.
G. The commercial format of the segment telecast during
the half-time intermission of each Game ("half-time segment") shall be
determined jointly by the applicable Telecaster and the NBA. Substantially all
of the programming content during any "half-time-segment" shall be devoted to
NBA-related topics.
H. NBA shall use commercially reasonable efforts to
provide the Telecasters with access to officials, players, coaches and other
appropriate personnel for the purpose of providing the Telecasters with
material for use in connection with the Telecasters' promotional efforts
relating to the Games, and with conducting interviews during pre-Game,
half-time and post-Game segments.
I. The Telecasters shall use a commercial format for the
telecast of each Game (inclusive of pre-Game, half-time, and post-Game
segments) in accordance with Paragraphs IV. E2., F. and G. above and Paragraphs
IV.J. and K below and the following:
1. The commercial format for each regular season
Game on TNT shall contain twenty-five (25) national commercial or promotional
minutes (or twenty-three (23) such minutes, in the event that the Pre-pre-break
sales inventory is not included in Net
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Advertising Revenues for such Season), five (5) local cable operator commercial
or promotional minutes and five (5) 5-second "inverted" promotional
announcements in accordance with the commercial formats attached as Exhibit C
hereto.
2. The commercial format for each regular season
game on WTBS shall contain thirty (30) national commercial or promotional
minutes and five (5) 5-Second "inverted" promotional announcements in
accordance with the commercial format attached as Exhibit D hereto.
3. The commercial format for each Playoff Game
on TNT shall contain twenty-eight (28) national commercial or promotional
minutes (or twenty-six (26) such minutes, in the event that the Pre-pre-break
sales inventory is not included in Net Advertising Revenues for such Season),
five (5) local cable operator commercial or promotional minutes and five (5)
5-second "inverted" promotional announcements in accordance with the commercial
formats attached as Exhibit E hereto. Notwithstanding the preceding sentence,
if during the Term the NBA agrees to increase the number of national commercial
or promotional units contained in the commercial format used for the Playoff
Games telecast by NBC Sports, the number of national commercial or promotional
units contained in the commercial format for the Playoff Games on TNT shall be
increased by the same amount.
4. The commercial format for each Playoff Game
on WTBS shall contain thirty-three (33) national commercial or promotional
minutes and five (5) 5-second "inverted" promotional announcements in accordance
with the commercial formats attached as Exhibit F hereto.
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5. In the event of any overtime periods during a
Game on TNT or WTBS, each such period shall include no more than six (6)
one-minute commercial breaks, in which all units shall be national commercial
or promotional units, including one (1) 30-second unit that shall be made
available to the NBA, at no charge, during each overtime period in the second
one-minute break for a promotional spot, a public service announcement and/or
commercials for the direct sale of NBA-licensed merchandise in accordance with
the last two sentences of Paragraph IV.J.1. below. Notwithstanding the
preceding sentence, in the event of a second overtime period during a Game on
TNT, TNT may include one (1) minute of local cable operator commercial or
promotional advertising which shall be included in the commercial or
promotional time set forth in the preceding sentence.
J. Notwithstanding anything to the contrary in this
Agreement:
1. The Telecasters shall integrate in each Game
telecast (including half-time segment) two (2) minutes of NBA public service
announcements, promotional spots and/or commercials for NBA programming or the
direct sale of NBA-licensed merchandise (including, for example, advertisements
for NBA "Inside Stuff," NBA home videos, the NBA Encyclopedia, the All-Star
Game Program, and NBA merchandise) to be produced at the expense of, and
provided by, the NBA or one of its affiliates. All such announcements, spots,
and/or commercials shall be in addition to the minutes of national and local
cable operator commercial or promotional advertising referred to in Paragraph
IV.I. above. Any NBA public service announcement included in a Game telecast may
use or be accompanied by the name or logo of a corporate sponsor of the NBA,
provided that any such sponsor does not conflict with an exclusive sponsor of
the telecast of the Game. The Telecasters shall not share in any revenues
attributable to, and there shall be
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no fees charged to the NBA in connection with, the commercial or promotional
spots referred to in this Paragraph.
2. At least one (1) of the five (5) 5-second
"inverted" promotional announcements included in the commercial format of each
Game in accordance with Paragraph IV.I. above shall belong to the NBA to use in
its sole and absolute discretion.
3. The Telecasters shall integrate in all Game
telecasts, consistent with TBS program quality standards, audio and video
promotional references to the forthcoming schedule of Games on TNT and WTBS and
to the NBA standings.
K. During the Term, notwithstanding anything to the
contrary contained in this Agreement, the NBA shall authorize TBS to distribute
on the Airport Channel within the Broadcast Area the Games telecast on TNT and
WTBS. In the event that a regular season or Playoff Game on TNT is distributed
on the Airport Channel, the NBA shall be permitted to cause NBAP to sell, for
telecast on the Airport Channel, commercial announcements for NBA sponsors
during six (6) of the 30-second units of commercial or promotional advertising
time that would otherwise have been allocated to local cable operators under
Paragraph IV.I.1. and 3. above, provided that any such commercial announcements
do not conflict with an advertiser that has purchased an exclusive advertising
category in the Games. Upon the reasonable request of NBAP, TBS shall cause the
insertion of the commercial units described in the preceding sentence into the
telecast of the Game on the Airport ChanneL
V. MARKETING AND DISTRIBUTION
--------------------------
A. TBS and the Telecasters will market and telecast
the Games hereunder as part of the prime-time sports programming on TNT and
WTBS.
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B. The NBA shall make the timely notification required
under Chapter 1 of Title 47 Section 76.67 of the Code of Federal Regulations
("Section 76.67") so that all of the cable systems (and other forms of
television distribution) referred to thereunder and subject to Section 76.67
shall be required to delete carriage of all Games on WTBS covered by said
Section. TBS and Superstation Inc. shall provide all information within their
custody reasonably required by the NBA to comply with Section 76.67. In the
event that Section 76.67 is amended or legislation is enacted in such a manner
as to eliminate or reduce the carriage deletion presently required thereunder,
the Telecasters shall discuss with the NBA in good faith whether such
elimination or reduction has adversely affected, or will adversely affect, the
NBA's interest under this Agreement and, if so, appropriate measures of
compensating the NBA for the elimination or reduction in required carriage
deletion.
C. The Telecasters shall cause the "blackout" of all
Games (other than Replays) telecast on TNT (or on WTBS, in the event that WTBS
is a cable network that is not a commercial over-the-air television station)
within the area of thirty-five (35) miles from the home team's city of
operation. In the event that this "blackout" provision is violated by any cable
system(s) (or other form of television system), the Telecasters shall pay NBA
the sum of $10,000 for each violation by each such system (such amount payable
within thirty (30) days of the violation). In the event of a second violation
by any such system, the Telecasters shall prohibit such system from telecasting
any additional Games on TNT (or on WTBS, in the event that WTBS is a cable
network that is not a commercial over-the-air television station) during the
Term of this Agreement. The Telecasters shall take all necessary, lawful steps
to ensure absolute compliance with the preceding sentence. It is the intention
of the parties that the "blackout" hereunder will cover the same geographic
areas required by Section 76.67 with respect to the blackout of Games telecast
on WTBS.
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D.1. In the event that, at any time during the Term, the
number of cable television households in the United States that subscribe to
TNT (as reported by the A.C. Nielsen Co.) is less than 85% of the total number
of cable television households in the United States (as reported by A.C. Nielsen
Co.), then the parties hereto shall negotiate in good faith an equitable
adjustment, if appropriate, in the revenue-sharing provisions set forth in
Paragraph III.C to account for the fact that the number of cable television
households that subscribe to TNT is less than 85% of the total number of cable
television households in the United States.
2. In the event that, during the Term, WTBS becomes a
basic, expanded basic, tier or premium cable network that is not a broadcast
cable network, the parties shall in good faith confer with respect to an
appropriate adjustment to the commercial format set forth in Paragraphs
IV.I.2., 4. and 5. above; provided, however, that TBS shall use its best
efforts to ensure that the commercial format for a Game on WTBS does not
contain more local cable operator commercial or promotional minutes than the
format for a Game on TNT.
3. In the event that, at any time during the Term, the
number of cable television households in the United States to which WTBS is
available (as reported by the A.C. Nielsen Co.) is less than 85% of the total
number of cable television households in the United States (as reported by A.C.
Nielsen Co.), then the parties hereto shall negotiate in good faith an
equitable adjustment, if appropriate, in the revenue-sharing provisions set
forth in Paragraph III.C to account for the fact that the number of cable
television households to which WTBS is available is less than 85% of the total
number of cable television households in the United States.
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VI. PRODUCTION AND TRANSMISSION
---------------------------
A. The Telecasters shall be responsible during the Term
for all production of the Games (including pre-Game, half-time and post-Game
segments), origination, production and transmission of each Game, and shall use
state of the art technology and equipment to telecast a major broadcast network
quality audiovisual color signal for each Game. The Telecasters shall use their
respective best efforts to employ a graphics style that is consistent with
respect to Games telecast on both TNT and WTBS.
1. The Telecasters shall produce the pre-Game, half-time
and post-Game segments of the Games using technology, equipment and resources
at least equal in quality (e.g., state-of-the-art opening production pieces),
type (e.g., use of studio set and NBA coaches, General Managers and players as
guest studio analysts) and quantity (e.g., number of production crew members and
number of cameras, tape machines and graphic equipment) to the level of
technology, equipment and resources Turner Inc. used to produce such segments
on TNT during the 1992-93 NBA Season.
2. Without limiting the effect of Paragraph VI A.1.
above, with respect to each Game telecast, the Telecasters shall utilize no
fewer than six (6) manned cameras (including three (3) floor "mini cameras" and
one (1) roaming camera to be used predominantly in front of the announcer
table), one (1) "shot clock" and one (1) "game clock" camera, four (4) slow
motion, instant replay tape machines, one (1) state-of-the-art Chyron character
generator machine or equivalent graphics display system, one (1) telestrator,
full effects audio, and one (1) dual channel DVE.
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3. The Telecasters shall use commercially reasonable
efforts to provide "closed-captioning" for each Game telecast on TNT.
B.1. Pursuant to the reasonable requirements and
specifications of the Telecasters, the NBA represents that each NBA team from
whose home arena a Game originates, after consultation with the Telecasters,
shall furnish or shall cause the arena to furnish to the Telecasters, at the
Telecasters' cost, all necessary facilities (except for such electric power and
lighting as may be necessary for the Telecasters' telecast and an acceptable
mobile unit parking area, which shall be furnished at no cost to the
Telecasters) and security during the Games, including "set up time" and "tear
down time" for the installation and operation of any microphones, ground level
and other cameras, and related equipment. In addition, upon the reasonable prior
request of the Telecasters, each NBA team from whose home arena a Game
originates shall furnish or shall cause the arena to furnish to the
Telecasters, at no cost to the Telecasters, one (1) "low end-zone" fixed camera
location, and/or one (1) "reverse angle" camera location between the baselines
on the side of the arena where the player benches are located.
2. In the event a Game is telecast by (i) either TNT or
WTBS, (ii) a local telecaster licensed by the "home" team (the "Home Team
Telecaster"), and/or (iii) a local telecaster licensed by the "visiting" team
(the "Visiting Team Telecaster"), then upon the request of the Home Team
Telecaster and/or the Visiting Team Telecaster, the applicable Telecaster shall
provide, at no cost to either the Home Team Telecaster or the Visiting Team
Telecaster, a feed of its primary game ("play-by-play") coverage camera and
direct such camera to operate as if "on-line" throughout the Game telecast.
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3. NBA shall provide the Telecasters with center court
"floor" announcer locations at each Game.
4. Employees and agents of the Telecasters actually
required to telecast the Games shall be admitted to each arena for each Game at
the earliest practical time, free of charge, to exercise the rights granted
herein and the NBA shall provide the Telecasters with necessary credentials for
such purpose.
5. The rights granted to the Telecasters hereunder
include the right to telecast all events and activities relating to a Game and
taking place in and about the site of such Game which are open to the public,
and, upon the prior approval of the NBA, such other events and activities which
are not open to the public but which, in the opinion of the applicable
Telecaster, are relevant to or shall enhance the telecast of the Game
(e.g., post-Game press conferences).
---
C. Each Season, the Telecasters shall assign, from among
their employees, a Game producer, an NBA coordinating producer, and a director
and associate director, and shall assign from among their employees and/or will
engage, a play-by-play announcer, a color commentator and a studio host for
each Game telecast. The Telecasters shall consult with the NBA in advance of
making its Game producer, NBA coordinating producer and director selections.
The Telecasters' selection of the announcers, color commentators, studio hosts
and all other on-air talent to be used during the Games shall be subject to the
approval of NBA.
D. Subject to the provisions of Paragraph VI.B. above,
the Telecasters shall be responsible for all costs and expenses of production,
transmission and telecasting of the Games (including, without limitation, all
pre-Game, half-time and post-Game segments).
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E. If all NBA teams are required to "scramble" the
backhaul signals of their game telecasts, then, upon request of NBA, the
Telecasters, at their sole expense, shall scramble, in a manner mutually agreed
upon by the Telecasters and the NBA, the backhaul signals of all Games
transmitted by the Telecasters via satellite and shall provide access to such
scrambled signals to the NBA, any NBA team requesting access and any NBA
designees. The NBA represents that the Telecasters shall be reimbursed for any
out-of-pocket expenses they incur in providing the access referred to in the
preceding sentence.
VII. PROMOTION
---------
A. TBS and the Telecasters shall promote the telecast of
the Games on WTBS and TNT, at their sole expense, as follows:
1. During any Season, TBS, the Telecasters and
their affiliated networks shall provide NBA with promotional announcements and
other promotions at least equal in number and in type to the promotional
announcements and other promotions that TBS, the Telecasters and their
affiliated networks provides for any other major professional sport (e.g.,
National Football League) or team (e.g., Atlanta Braves).
2. During any Season in which TBS, the
Telecasters or their affiliated networks telecast any sports event (e.g., a
Game, an NFL game, an auto race or the Winter Olympics), they shall use their
best efforts to include a reasonable number of promotional announcements
relating to the NBA in each telecast of such sports event.
3. During any Season covered by this Agreement,
TBS, the Telecasters and their affiliated networks shall provide NBA with
audio/video promotional announcements ("promos") at least equal to the promos
they provided to NBA during the 1992-93 Season
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with respect to (i) the total number of promos placed in all TBS affiliated
cable networks and private networks (e.g., TNT, WTBS, CNN, Headline News,
Cartoon Network and Airport Channel), (ii) the gross ratings points of the
promos, (iii) the type and day part of programming in which the promos are
placed, (iv) the content of the promos and (v) the demographic group reached by
such promos. Without limiting the effect of the preceding sentence, TBS and
NBA shall in good faith confer with each other prior to October 15, 1993 to
determine the levels of promotion set forth in the preceding sentence that TBS
affiliated networks provided to NBA during the 1992-93 Season.
4. (a) During each Season, TBS, the
Telecasters and their affiliated networks shall use their best efforts to place
a minimum of one (1) promo in the programming of each TBS affiliated cable
network during the one-half (1/2) hour preceding the first Game telecast (or
Pre-Game Show, whichever is earlier) by each Telecaster on any day of such
Season.
(b) During each Season, TBS, the
Telecasters and their affiliated networks shall place a reasonable number of
promos and/or NBA public service announcements in the programming of each TBS
affiliated cable network.
5. In the event that during the Term a new TBS
affiliated cable network and/or private network is introduced, TBS shall cause
a reasonable number of promos to be placed in the programming of each such TBS
affiliated cable network and/or private network.
B. TBS shall use its best efforts to cause the Games to
be promoted during sports scoreboard segments and sports news programs telecast
on CNN and Headline News by identifying, with announcer voice-over and graphics
in a reasonable manner, (i) the Games that,
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have been, are currently being, or will be telecast by the Telecasters, (ii)
the Telecaster carrying such Games, and, (iii) with respect to Games that have
not yet been played, the starting telecast time of the Games.
C. TBS and the Telecasters will promote the Games in and
to the media (including, but not limited to, print and radio) in a reasonable
manner and in accordance with their normal practice with respect to other major
sports events telecast by TBS affiliated networks.
D. Prior to each Season, TBS and the Telecasters agree
to consult with the NBA as to the nature, type and content of all Game
"tune-in" advertisements, promotions, opening and closing animation, and
Chyron graphics and other visual effects to be telecast by any of them or by
other TBS affiliated networks during such Season.
E. Prior to the start of each Season during the Term,
TBS and the Telecasters shall use commercially reasonable efforts to
distribute, or to cause cable systems to distribute, copies of the NBA schedule
to subscribers of TBS affiliated cable networks and private networks.
VIII. RIGHT TO INSPECT BOOKS AND RECORDS
----------------------------------
NBA shall have the right, not more than five (5) times during
the Term hereof (and not more than two (2) times during any calendar year
covered by the Term hereof, by itself or by retaining an independent audit
firm, upon reasonable notice and during normal business hours, to inspect and
audit ("review") the books, records, correspondence, internal memoranda and
other documents of TBS and the Telecasters relating to (i) the sale of, billing
for, and/or collection regarding the advertising time or package agreements (as
defined in Paragraph III.D.3(b) above) with respect to the Games or any Game,
(ii) the calculation of Gross Revenues and Net Advertising Revenues (as defined
in Paragraph III.D. above), including, but not limited to, sales,
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billings, receipts, commissions, and reports from ratings services (e.g., A. C.
Nielsen Co. and Arbitron) and (iii) the production costs attributable to the
Pre-Game Shows. NBA shall be solely responsible for the cost of any review
conducted during the Term. NBA shall also have the right to conduct one (1)
additional review during the twenty-four (24) months following the expiration
of the Term. The entire cost of any such review shall be borne by NBA. All
information obtained during the course of a review which is not publicly
available shall be kept confidential and shall not be disclosed to non-NBA
personnel other than to the NBA's auditors, accountants and attorneys.
IX. TRADEMARK, NAME AND LIKENESS
----------------------------
A. Subject to the approval of TBS or the Telecasters (as
the case may be), which approval shall not be unreasonably withheld, NBA shall
have the night to use the trademarks, logos and service marks of each of the
Telecasters in promotional or other advertising material to promote or
advertise NBA programming telecast on WTBS and TNT.
B. Subject to subparagraphs IX.B.1.-3. below, the
Telecasters shall have the right to use (to the extent that the NBA has the
right to permit the Telecasters to use) the names, likenesses and biographical
material of the NBA, the participants in the Games, including the teams and
coaches thereof, the name or title of the Games and the name and logo of the
NBA and each of its member teams, but only (i) as news or information, or (ii)
in connection with the telecast of the Games and the production, exploitation,
advertising and promotion of the Games. No such uses shall be made without the
prior reasonable consent of NBA or NBAP, which shall not be unreasonably
withheld. Notwithstanding anything to the contray in this Agreement:
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1. Nothing shall be construed to require the NBA, NBAP
or any of the member teams of the NBA to breach any written agreement between
any member team and any participant in any game (including any Game), or any
written collective bargaining agreement to which the NBA is a party.
2. TBS and the Telecasters shall not have the right to
license or permit any local cable operator to use the name and/or logo of the
NBA and/or its member teams in connection with any sponsor or advertiser (e.g.,
entitlements, tie-ins and billboards), unless such use has the prior written
authorization of the NBA or NBAP, in its, or their, sole and absolute
discretion, and TBS and the Telecasters shall use commercially reasonable
efforts to prevent any such unauthorized use and to ensure that any local cable
operator that uses NBA footage or logos in any way (i) obtains the prior
approval of NBA or NBAP before such use and (ii) only uses NBA footage or logos
provided to such cable operator by the NBA, NBAP or the Telecasters.
3. Unless TBS and the Telecasters have been expressly
granted such right in writing by the NBA (the grant to be exercised by the NBA
in its sole and absolute discretion), none of them shall have the right to make
available, sell, assign or otherwise transfer to any person or entity any
rights to (i) any copyrighted telecasts (as defined in Paragraph XIII.A.
below), including any derivatives thereof, or (ii) any NBA or team name and/or
logo, or any other trademark, tradename or other identifying mark of the NBA or
its member teams.
X. SIGNAGE
-------
A. The NBA and each of its member teams shall have the
right to place banners, placards, billboards, rotating signs or other means of
advertising "Signage") containing
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commercial messages, trade names, trademarks, or identifying service marks for
any product, service or institution which are visible in the area of the
basketball court at the site of a Game telecast during the Term, provided that
any such Signage that is placed by the NBA (as opposed to any individual member
team) is sold on a NBA-wide basis for Games, and provided, further, that any
such Signage that is placed by the NBA (as opposed to any individual member
team) does not conflict with an advertiser designated by TBS or the Telecasters
as an "exclusive" advertiser of Game telecasts by notice given to the NBA not
later than August 1 of each year.
B. Notwithstanding Paragraph X.A. above:
1. Commencing with the first Playoff Game in the 1994-95
Season and continuing through the Term hereof:
(a) NBA shall be responsible for ensuring that
all non-NBA-wide Signage is either obscured or relocated so that it is not
visible in the area of the basketball court during the telecast of such Game;
provided, however, that the NBA shall not be responsible for controlling,
obscuring or replacing "permanent" banners, placards, billboards or other means
of advertising at the site of the Games. The NBA will advise the applicable
Telecaster reasonably in advance of each Game of what products, services and/or
institutions will be advertised on a permanent banner, placard, billboard or
other means of advertising.
(b) Subject to the approval of the arena in which
a Game is played, the applicable Telecaster shall be reasonably permitted to
display banners in and around the Game arena advertising TBS, the NBA on TBS
(or whichever of TNT or WTBS is owned by that
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<PAGE> 36
Telecaster) and/or Turner Sports; provided, however, that the applicable
Telecaster shall be permitted only to display banners advertising the NBA on
TBS (or on TNT or on WTBS, as the case may be) in the area around the court and
team benches.
2. With respect to any Playoff Game during the Term and
any regular season or pre-season Game following the conclusion of the 1994-95
Season, NBA shall permit (and cause its teams to permit) TBS to position a
manned hand-held camera in front of the scorer's table during the fourth
quarter, and any overtime period, of such Game.
XI. ASSIGNMENT AND TERMINATION
--------------------------
Neither party to this Agreement may assign any of its rights
or delegate any of its duties, in whole or in part, by contract or by operation
of law without the prior written consent of the other party, and any purported
assignment or delegation without such consent shall be null and void.
Notwithstanding the preceding sentence:
A. The NBA may assign any of its rights or delegate any
of its duties to NBAP or any of its subsidiaries or any other affiliate of the
NBA, and the NBA may assign its right to receive fees hereunder, in whole or in
part, to any person, firm or corporation so long as, notwithstanding any such
assignment of fees, NBA is not relieved of any obligation hereunder. Upon
request of the NBA, TBS will agree to pay any fees that have been assigned in
accordance with the preceding sentence directly to the assignee.
B. TBS and the Telecasters may assign their rights or
delegate their duties to any entity controlling, controlled by or under common
control with TBS, provided that the Games are telecast on TNT or WTBS in
accordance with the terms of this Agreement and TBS and the Telecasters are not
relieved of any obligations hereunder.
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<PAGE> 37
XII. SEPARATE ENTITIES
-----------------
Nothing in this Agreement shall create or be deemed to create
a joint venture, partnership, principal-agent, employer-employee or similar
relationship between TBS and/or either of the Telecasters, on the one hand, and
NBA, on the other hand. The parties hereto agree that each of TBS and the
Telecasters shall act solely as independent contractors hereunder. No officer,
employee, agent, servant or independent contractor of any party or its
respective subsidiaries or affiliates shall at any time be deemed to be an
employee, servant or agent of any other party for any purpose whatsoever, and
the parties shall use their best efforts to prevent any such misrepresentation.
XIII. REQUIRED ANNOUNCEMENTS AND COPYRIGHT
------------------------------------
A. It is understood and agreed by the parties that, for
all purposes, the NBA is, and shall be, the owner of the copyright to all NBA
game telecasts, including all telecasts of Games (including all pre-Game,
half-time and post-Game segments), Pre-Game Shows and any other program
telecasts licensed to the Telecasters by NBA (or its related entities) and to
all derivatives of those game telecasts or other telecasts (together,
"copyrighted telecasts"). TBS and the Telecasters hereby transfer to the NBA
any and all of their respective copyright and other property right interests in
all aspects of the copyrighted telecasts.
B. Except as expressly prohibited hereunder, the NBA has
the unrestricted and unencumbered right to use and reuse, or to assign,
license, sell or otherwise exploit, in whatever medium and for whatever
purposes it chooses, the copyright and other property right interests in the
copyrighted telecasts. Any and all proceeds derived therefrom shall be retained
solely by the NBA. TBS and the Telecasters shall have no rights with respect to
the copyrighted telecasts
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<PAGE> 38
except as specifically provided in this Agreement, and no use made by TBS or
either of the Telecasters of any copyrighted telecasts shall constitute a "fair
use, "except as expressly provided herein or by law.
C. The Telecasters shall affix a copyright notice in the
name of the NBA (Copyright 19______National Basketball Association), in
accordance with the requirements established by applicable laws and
regulations, at least once during, and at the close, of each Game telecast
hereunder in such form as NBA may require. In addition, the Telecasters shall
telecast an animated graphic containing the following announcement, or a
substantially similar announcement, at least once during each Game telecast:
This program is authorized under rights granted by
the National Basketball Association solely for the
entertainment of our audience and any publication,
reproduction or other use of the pictures, descriptions or
accounts of this Game without the express written consent of
the National Basketball Association is prohibited.
D. The Telecasters shall make such recording of the
Games as may be necessary to preserve the NBA's copyright therein, and, at
NBA's request, execute any affidavit necessary to confirm such recording.
38
<PAGE> 39
XIV. RECORDING
---------
A. The Telecasters shall record each Game. As used herein, the
term "record" shall mean and include any recording or recordings by tape, film,
disc, digital device or any other similar or dissimilar method of recording
aural and/or visual portions of television programs, whether known or hereafter
developed. The Telecasters shall retain each recording for no less than one (1)
year after the conclusion of the Game telecast, and longer if requested by the
NBA. All recordings shall be the sole and exclusive property of the NBA. The
Telecasters may use such recordings:
1. for use in their Game telecasts and in the
promotion of their telecast of any Games;
2. for use in perpetuity for file, reference,
audition, sales and publicity purposes;
3. to telecast excerpts of such recordings during the
Term as part of a CNN, TNT or WTBS news or sports news program at such
times and at such places and in such manner as the applicable
Telecaster, or CNN, may reasonably elect, provided that those excerpts
are telecast as part of a CNN news or sports new program within the
Broadcast Area only; and
4. for use in delayed telecasts as authorized in this
Agreement.
B. Upon request by the NBA, and at no cost to NBA, the
Telecasters will supply the NBA with a one inch (1") or one-half inch (1/2")
Beta SP or D-2 videotape (or any other industry standard videotape format
available to TBS), including international and announcer
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audio tracks, of each Game within twenty-four (24) hours of the conclusion of
such Game. In addition, upon request, the Telecasters will make available to
NBA, at no charge, its "ISO" reels, for duplication by NBA. NBA may utilize any
such videotape for any purposes it shall determine, provided such use is not
inconsistent with any express term of this Agreement.
C. 1. If the NBA requests, at no charge to NBA (except as
provided below), each Telecaster shall act as "host broadcaster" and
provide at the site of each Game it telecasts a continuous generic
broadcast quality feed, with international sound and graphics, for the
distribution, by the NBA and/or its designees, of any Game by any
alternate technology or non-English language network in the Broadcast
Area (to the extent such distribution does not compete with the
telecast rights granted by the NBA hereunder) and/or by any form of
international distribution.
2. If requested by the NBA, each Telecaster also shall provide
to the NBA and/or its designees, at no charge, a "dirty" final feed
(with graphics, announcers, international sound and features included
on its satellite feed) of each Game it telecasts for distribution by
any alternate technology in the Broadcast Area (to the extent such
distribution does not compete with the telecast rights granted by the
NBA hereunder) and/or by any form of international distribution. As
requested, the applicable Telecaster shall provide to the NBA's
international broadcasters such commentary and production equipment
and transmission facilities, at "rate card" (but only to the extent
that the Telecaster incurs out-of-pocket expenditures), as they may
reasonably require.
3. Notwithstanding anything to the contrary in this Agreement,
each Telecaster shall provide a continuous broadcast quality feed
(with graphics, announcers, and features), from the scheduled start to
the completion of each Game it telecasts, in
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connection with its obligations under this Paragraph XIV.C.,
including with respect to any Game telecast that, for any reason, must
be joined in progress or is subject to a cut-in (as described in
Paragraph XXII. below).
4. The Telecasters shall not be required under this Paragraph
XIV.C. to supply equipment and personnel not reasonably available to
them. If a Telecaster is required to provide additional personnel to
satisfy its "host broadcaster" obligations, the NBA represents that
the Telecaster shall be reimbursed for the out-of-pocket costs it
incurs with respect to such personnel.
XV. FORCE MAJEURE
-------------
A. If the playing, or if the recording or live pick-up, of any
Game on a telecast date is hindered or prevented, in whole or in substantial
part, or if the live telecast of any Game is preempted, in whole or in
substantial part, because of an act of God, inevitable accident, fire, labor
dispute, riot or civil commotion, act of public enemy, governmental act,
regulation or rule, failure of technical facilities or because of a day of
national mourning, an emergency announcement or news bulletin, or because of
any other reason beyond the control of NBA or the Telecaster of that Game or
Games that is generally regarded as force majeure (other than a "Work Stoppage,"
as defined below) then all other obligations of the parties shall continue and
when such force majeure has ceased, the Telecaster of that Game or Games may
telecast, at no additional cost, a substitute Game or Games, as the case may
be, on dates to be agreed upon by the parties. In the event that the parties
are unable to agree on a date or dates for a substitute Game or Games, then,
unless the force majeure is the result of a labor dispute at or affecting TBS
or either of the Telecasters or enabled the applicable Telecaster to substitute
for any Game(s) commercially sponsored programming of equal or greater value,
the parties shall in good faith
41
<PAGE> 42
negotiate an equitable reduction in the fees due hereunder, an adjustment to
the revenue sharing provisions set forth in Paragraph III.C., the placement of
the commercial inventory from the Game or Games preempted in other TBS
affiliated programming, or a substitute Game in future Seasons during the Term.
B. 1. In the event of a strike by the National Basketball
Players Association or a lock-out of NBA players by the NBA (in either case, a
"Work Stoppage") that causes the preemption of the playing, in whole or in part,
of any NBA game, an other obligations of the parties shall continue (subject to
Paragraph XV.B.2), including all obligations under Paragraph III above, and
when such Work Stoppage has ceased, if such Work Stoppage caused the
preemption, in whole or in part, of the live telecast of any Game, the parties
shall in good faith confer with each other to negotiate with respect to an
equitable reduction in the fees due hereunder, an adjustment to the revenue
sharing provisions set forth in Paragraph III.C. above, or a comparable
substitute Game for the Game not telecast.
2. Notwithstanding Paragraph XV.B.1 above, in the event
that a Work Stoppage in any Season causes one (1) or more regular season Games
not to be played, then TBS and the Telecasters shall be responsible for the two
(2) Annual Fee installment payments due under Paragraph III.B immediately
following the first such Game not played (the "Work Stoppage Installments") as
pre-payment for any subsequent comparable substitute Games, subject, if
appropriate, to any subsequent equitable adjustment to the fees due hereunder
or to the revenue-sharing provisions set forth in Paragraph III.C. that may be
agreed to by the parties in accordance with Paragraph XV.B.l.
3. Notwithstanding Paragraph XV.B.2, TBS and the
Telecasters shall be relieved of the responsibility of making the installment
payment (and any subsequent installment
42
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payments) immediately following the second Work Stoppage Installment (the
"Subsequent Installments") unless, prior to or within one week of the date that
any such Subsequent Installment is (or was) due, the Work Stoppage has ceased,
in which event TBS and the Telecasters shall be responsible for payment of that
Subsequent Installment on the later of two (2) business days after the Work
Stoppage has ceased or the date that the Subsequent Installment is due under
Paragraph III.B.
XVI. REPRESENTATIONS AND WARRANTIES: INDEMNITY
-----------------------------------------
A. NBA represents and warrants that:
1. It is free to enter into and fully perform
this Agreement and to grant the rights, licenses and
privileges granted hereunder;
2. It is the owner of the copyright to all
NBA game telecasts, including all telecasts of Games, pre-Game
Shows, pre-Game segments, half-time segments and post-Game
segments, and to all other telecasts licensed by NBA (or its
related entities) and to all derivatives of those game
telecasts or other telecasts.
B. NBA shall indemnify and hold harmless TBS,
the Telecasters, and their affiliated entities, including
their respective officers, directors and employees, from and
against any and an claims, damages, liabilities, costs and
expenses (including reasonable attorneys' fees and court
costs) caused by, or arising out of, (i) the exercise by the
Telecasters of any of the rights granted hereunder or the use
of any materials or services furnished to the Telecasters
pursuant hereto, and (ii) any breach by NBA of
43
<PAGE> 44
any warranty, representation or agreement of NBA hereunder;
provided, however, that the Telecasters will promptly notify
the NBA of any such claim or action.
C. TBS and the Telecasters jointly and severally
represent and warrant that:
1. Each is free to enter into and fully
perform this Agreement;
2. The sale of advertising time and
sponsorships constitutes the primary source of revenue earned
by TNT and WTBS with respect to the Games and NBA related
programming and will continue to constitute the primary source
of revenue earned by TNT and WTBS with respect to the Games
and NBA-relating programming during the Term;
3. TNT and WTBS (outside of the Atlanta local
broadcast area) are "basic", "expanded basic" or "tier" (but
not premium) cable networks, for which there are no
additional or special charges to cable television systems
(including STV, DBS, MDS or any similar service) and/or
subscribers for receiving the Games; and
4. TBS owns all of the issued and outstanding
shares of capital stock of Superstation Inc. and Turner Inc.
There are no outstanding options or rights of any kind to
acquire any interest of any nature in Superstation Inc. or
Turner Inc., nor are there any obligations to issue any such
options or rights. There are no existing arrangements that
require or permit any voting on matters rebating to
Superstation Inc. and Turner Inc. by or at the discretion of
any person other than TBS.
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<PAGE> 45
5. Superstation Inc. owns all right, title
and interest in and to the FCC license for, and assets used in
the operation of, WTBS. Turner Inc. owns all right, title and
interest in and to TNT.
D. TBS and the Telecasters jointly and severally
shall indemnify and hold harmless the NBA, its member clubs, NBAP,
each of the affiliates of the NBA and NBAP, and the governors,
officers, directors and employees of each of the foregoing, from and
against any and all claims, damages, liabilities, costs and expenses
(including reasonable attorneys' fees and court costs) caused by, or
arising out of, (i) any breach by TBS, either of the Telecasters or
any of their affiliates or subsidiaries of any warranty,
representation or agreement made by or in the name of any of them
hereunder, (ii) the telecast of the Games on TNT or WTBS, and (iii)
the advertising for the Games or any other materials including,
advertising or promotional copy, inserted in any Game telecast (but
excluding advertising or promotional copy or announcements supplied to
TNT or WTBS by NBA); provided, however, that NBA will promptly notify
TBS of any such claims.
E. Termination of this Agreement shall not affect the
continuing obligations of each of the parties hereto as indemnitor
hereunder. Upon the written request of an indemnitee, the indemnitor
will assume the defense of any claim, demand or action against such
indemnitee and will, upon request of the indemnitee, allow the
indemnitee to participate in the defense thereof, such participation
to be at the expense of the indemnitee. Settlement by the indemnitee
without the indemnitor's prior written consent shall release the
indemnitor from the indemnity as to the claim, demand or action so
settled.
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<PAGE> 46
XVII. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such State.
XVIII. MISCELLANEOUS
-------------
A. No waiver by either party hereto of any breach of this
Agreement by the other shall be valid unless contained in a writing signed by
an authorized signatory of the waiving party which, in the case of the NBA,
shall be limited to the NBA Commissioner and Deputy Commissioner, and, in the
case of TBS and the Telecasters, shall be limited to the Executive Vice
President of TBS. A waiver by either party of any breach of the terms and
conditions of this Agreement shall not be deemed a waiver of any preceding or
succeeding breach thereof.
B. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter thereof, and
supersedes all prior agreements, arrangements and understandings relating to the
subject matter hereof. This Agreement shall not be modified other than in
writing, signed by each of the parties hereto. If any term or provision (or
part of any provision) of this Agreement as applied to either party or to any
circumstance shall be adjudged by a court to be void or unenforceable, this
Agreement shall be construed and enforced as if such void or unenforceable term
or provision (or part thereof) was not contained herein.
XIX. NOTICE
------
An notices hereunder shall be in writing and shall be by
personal delivery, facsimile transmission or by registered or certified mail,
at the respective addresses of the parties
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set forth below, or such other address or addresses as may be
designated by either party: to the NBA: National Basketball Association, 645
Fifth Avenue, New York, New York 10022, facsimile No. (212) 888-7931,
Attention: Commissioner, with copies to the Deputy Commissioner and to the
Office of the General Counsel; to TBS or either of the Telecasters: Turner
Broadcasting System, Inc., One CNN Center, Box 10366, Atlanta, Georgia
30348-5366, facsimile No. (404) 827-1339, Attention: President, Turner Sports,
with a copy to the Office of the General Counsel. Such notice shall be deemed
to have been given upon being sent, if by facsimile (with confirmation of
receipt), or upon delivery to the other party, if by personal delivery or by
registered or certified mail.
XX. FEDERAL COMMUNICATIONS COMMISSION
---------------------------------
To the extent applicable, the NBA shall conform to the
requirements of Section 507 of the Federal Communications Act ("Section 507")
concerning broadcast matter and disclosures required thereunder, insofar as
that Section applies to persons furnishing program material for television
broadcasting. The NBA shall submit to the Telecasters in writing such reports
as the Telecasters may in conformity with such requirements reasonably request
from time to time upon forms provided by the Telecasters. The NBA warrants and
represents that no Game or related activity includes or shall include any
matter for which any money, service or other valuable consideration is directly
or indirectly paid, or promised to, or charged or accepted by the NBA. If
applicable, the NBA shall exercise reasonable diligence to inform its
employees, and other persons with whom the NBA deals directly in connection
with the Games and related activities, of the requirements of Section 507;
provided, however, that no act of any such employee or of any independent
contractor connected with any of the Games or related activities shall
constitute a breach of the provisions of this paragraph unless the NBA has
actual notice
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thereof. As used in this paragraph, the term "service or other valuable
consideration" shall not include any service or property furnished by a sponsor
or without charge or at a nominal charge for use in or in connection with the
Games or related activities "unless it is so furnished in consideration for an
identification in a broadcast of any person, product, service, trademark or
brand name beyond an identification which is reasonably related to the use of
such service or property on the broadcast", as such terms are used in Section
507. No inadvertent failure by the NBA to comply with this paragraph shall be
deemed a breach of this Agreement.
XXI. TICKETS
-------
NBA agrees to provide TBS, upon request, with ten (10)
tickets, "best available" seats, for each Game. In addition, if requested by
TBS, on a "best efforts" basis, NBA agrees to attempt to provide TBS with up to
four (4) additional tickets for "best remaining" seats for each Game.
XXII. CUT-INS
-------
A Telecaster may, in accordance with the terms of this
Paragraph, join (i.e., "cut-in") any local NBA over-the-air or cable telecast of
an NBA game during its simultaneous NBA coverage on TNT or WTBS of a Game.
A. There shall be no more than three (3) cut-ins from any game
(or from any part thereof). Such cut-ins may be taken by the Telecaster, at its
discretion, in accordance with the following:
1. Two (2) cut-ins may be taken prior to the final six minutes
of play in the fourth quarter of a game for up to three (3) minutes ("real"
time, not "game clock" time, not including the duration of "full" time-outs);
and
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<PAGE> 49
2. Either:
(a) One (1) cut-in may be taken during the
fourth quarter of a game, but prior to the start of the last
(2) minutes of the quarter, for up to three (3) minutes
("real" time, not "game clock" time, not including the
duration of "full" time-outs); or
(b) One (1) cut-in may be taken with two (2)
minutes or less remaining in a game, for the duration of the
game (including overtime).
3. The Telecaster shall give (a) at least one (1) oral
"courtesy" to the announcers of the game during each "cut-in"; (b) at least one
(1) visual "courtesy" every three (3) minutes of the "cut-in"; and (c) one (1)
visual "courtesy" during the closing sequence of telecast of the game.
B. The Telecasters shall not assign, transfer or otherwise
convey the right to cut-in to any other party and any attempted assignment,
transfer or conveyance shall be void.
XXIII. FIRST NEGOTIATION AND FIRST REFUSAL
-----------------------------------
A.l. If the NBA has not first exercised its rights under
Paragraph XXIII.A.2. below and TBS and the Telecasters desire to extend this
Agreement beyond the 1997-98 Season, then TBS and the Telecasters shall notify
the NBA to such effect on or before September 15, 1997 and the NBA shall
negotiate exclusively and in good faith for a period of thirty (30) days,
commencing no later than October 1, 1997, with respect to such extension (such
thirty (30) day period being referred to as the "Exclusive Negotiating Period).
A.2. If TBS and the Telecasters have not first exercised their
rights under Paragraph XXIII.A.1. above and the NBA desires to exercise, or
grant any third party the right to exercise, the cablecast rights granted to
TBS and the Telecasters hereunder with respect to the
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<PAGE> 50
Season following the 1997-98 Season, then the NBA shall notify TBS and the
Telecasters in writing, except that the NBA shall not give such notice prior to
March 1, 1997. If TBS and the Telecasters desire to extend this Agreement
beyond the 1997-98 Season, then they shall notify the NBA within ten (10) days
of receipt of the NBA's notice, and they and the NBA shall then enter into an
Exclusive Negotiating Period commencing five (5) days following receipt by NBA
of such extension notice. If TBS and the Telecasters do not give such extension
notice during such ten (10) day period, they shall have no further rights with
respect to any period after the term.
A.3. Notwithstanding Paragraphs XXIII.A.1. and 2. above (and
without limiting the NBA's rights during an Exclusive Negotiating Period),
nothing in this Agreement shall require the NBA to grant (or offer to grant)
the right to telecast NBA games on both WTBS and TNT.
B. If the parties fail to reach agreement by the end of the
Exclusive Negotiating Period, the NBA shall give a notice stating the terms and
conditions upon which it is then willing to extend this Agreement to TBS and
the Telecasters (or whichever of them it wishes to contract with) (the
recipients of the notice being the "Offerees"). Such notice shall contain an
offer in writing (herein called the "Offer") to contract on such terms and
conditions. The Offerees shall have a period of seven (7) business days in
which to accept the Offer. If the Offerees do not accept the Offer and the NBA
desires to enter into an agreement with a national cable network with respect
to the telecast of NBA games, the NBA may do so, but in no instance on terms
and conditions less favorable to the NBA than those contained in the Offer
without in each such instance notifying the Offerees of such less favorable
terms and conditions. Each such notice shall contain an offer in writing
(herein called a "Revised Offer") to contract with the Offerees on such terms.
The Offerees shall have four (4) business days in which to accept such Revised
Offer. If the Offerees do not accept a Revised Offer, the NBA may enter into an
agreement with a
50
<PAGE> 51
national cable network with respect to the telecast of NBA games if the terms
and conditions are no less favorable to the NBA than those contained in the
Revised Offer.
XXIV. PERFORMANCE BY TELECASTERS AND AFFILIATES
-----------------------------------------
Without limiting the obligations of any party under this
Agreement, TBS shall cause each of the Telecasters, and TBS and the Telecasters
shall cause their respective affiliates, subsidiaries and divisions including,
but not limited to, WTBS and TNT), to comply with and perform all terms and
obligations of this Agreement applicable to (or in the name of) each of them.
51
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
TURNER BROADCASTING SYSTEM, INC.
By /s/ Terence McGuirk
-----------------------------
SUPERSTATION, INC.
By /s/ Terence McGuirk
-----------------------------
TURNER NETWORK TELEVISION, INC.
By /s/ Terence McGuirk
-----------------------------
NATIONAL BASKETBALL ASSOCIATION
By /s/ David J. Stern
-----------------------------
52
<PAGE> 1
EXHIBIT 10.38
TURNER BROADCASTING SYSTEM, INC.
1993 STOCK OPTION PLAN
Section 1. Purpose
-------
The purpose of the Plan is to promote the interests of the
Company and its shareholders by providing a means for selected Key Employees to
acquire a proprietary interest in the Company, thereby strengthening the
Company's ability to attract capable management personnel and providing an
inducement for Key Employees to remain in the employ of the Company or its
Subsidiaries and to perform at their maximum levels. It is intended that
Options granted pursuant to this Plan may constitute Incentive Stock Options or
Nonqualified Stock Options, as hereinafter set forth.
Section 2. Definitions
-----------
Unless the context clearly indicates otherwise, the following
terms, when used in this Plan, shall have the meanings set forth below:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as it may be amended from time to time.
(c) "Committee" shall mean the Stock Option and
Compensation Committee of the Board, appointed by the Board to
administer the Plan and perform the functions set forth in Section 3
of this Plan.
(d) "Common Stock" shall mean the Class B Common Stock,
par value $.0625 per share, of the Company, and any other stock or
securities resulting from the adjustment thereof or substitution
therefor as described in Section 14 of this Plan.
(e) "Company" shall mean Turner Broadcasting System,
Inc., a Georgia corporation.
(f) "Fair Market Value" with respect to the Common Stock
as of any date shall mean (i) in the event the Common Stock is listed
on a national securities exchange, the closing price as reported for
composite transactions on that date, or, if no sales occurred on that
date, then the closing price on the next preceding date on which such
sales
<PAGE> 2
of Common Stock occurred; (ii) in the event the Common Stock is not
listed on a national securities exchange, the mean between the high
bid and low asked prices reported for shares of Common Stock traded
over-the-counter on that date, or, if no bid and asked prices were
reported on that date, then the mean between the high bid and low
asked prices on the next preceding date on which such prices were
reported; or (iii) in the event there are no over-the-counter prices
for the Common Stock and it is not listed on a national securities
exchange, the fair market value as determined by the Committee in its
discretion.
(g) "Incentive Stock Option" shall mean an Option granted
under the Plan and designated as such by the Committee which meets the
requirements of Section 422 of the Code.
(h) "Key Employee" shall mean a regular employee, whether
or not a director, of the Company or a Subsidiary who is an officer or
holds a managerial or other key position, as determined by the
Committee, and who, in the judgment of the Committee, has demonstrated
a capacity for making a substantial contribution to the success of the
business of the Company or a Subsidiary.
(i) "Nonqualified Stock Option" shall mean an Option
granted under the Plan other than an Incentive Stock Option.
(j) "Option" shall mean, unless otherwise specifically
limited under any provision of this Plan, both an Incentive Stock
Option and a Nonqualified Stock Option granted pursuant to this Plan.
(k) "Option Price" shall mean the price at which Common
Stock may be purchased under an Option, as provided in Section 7(d) of
this Plan.
(l) "Optionee" shall mean a Key Employee granted an
Option under the Plan.
(m) "Parent" shall mean any corporation which qualifies
as a parent corporation of the Company within the meaning of Section
424(e) of the Code.
(n) "Plan" shall mean the Turner Broadcasting System,
Inc. 1993 Stock Option Plan.
(o) "Stock Option Agreement" shall mean the written
agreement between an Optionee and the Company evidencing the grant of
an Option and setting forth the terms and conditions of the grant.
2
<PAGE> 3
(p) "Subsidiary" shall mean any corporation which
qualifies as a subsidiary corporation of the Company within the
meaning of Section 424(f) of the Code.
(q) "Surrender Right" shall mean a right to surrender to
the Company for cancellation all or a portion of an Option granted
under the Plan and to receive in exchange therefor shares of the
Company's Common Stock, as hereinafter provided in Section 9 of this
Plan.
(r) "Ten Percent Shareholder" shall mean an Optionee who,
at the time an Incentive Stock Option is to be granted to him, owns
stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of its Parent
(if any) or Subsidiaries (as such ownership is defined in Section
424(d) of the Code).
Section 3. Administration of the Plan
--------------------------
(a) Committee. The Plan shall be administered by the
---------
Committee, which shall consist of two or more directors of the Company
appointed by the Board. The members of the Committee shall not be
eligible to receive Options and shall be "disinterested persons" as
defined in Rule 16b-3(c)(2)(i) promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The members of the
Committee shall serve at the pleasure of the Board, which shall have
the power, at any time and from time to time, to remove members from
the Committee or to add members thereto. Vacancies on the Committee
shall be filled by action of the Board.
(b) Duties and Powers of the Committee. The Committee
----------------------------------
shall have the full power and authority, in its sole and absolute
discretion, but subject to and not inconsistent with the express
provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the
Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority (i) to grant Options
which have received any requisite approval of the Board and to
determine which Options shall constitute Incentive Stock Options and
which Options shall constitute Nonqualified Stock Options; (ii) to
determine the employees to whom, and the time or times at which,
Options shall be granted; (iii) to determine the number of shares of
Common Stock to be covered by each Option; (iv) to determine which
Options (if any) shall be accompanied by Surrender Rights; (v) to
determine the Option Price of Common Stock subject to an Option; (vi)
to determine the duration of the exercise period of Options and the
time or times at which Options may be exercised and the extent of
exercisability of Options;
3
<PAGE> 4
(vii) to determine the terms and provisions of Stock Option Agreements
(which need not be identical) entered into in connection with Options
granted under the Plan, including such terms and provisions as shall
in the judgment of the Committee be necessary or advisable in order to
conform to any applicable laws or regulations, as the same may be
amended from time to time; and (viii) to make all other determinations
necessary or advisable for the administration of the Plan. Subject to
the express provisions of the Plan, the Committee may correct any
defect or supply any omission or reconcile any inconsistency in the
Plan or in any Stock Option Agreement in such manner and to the extent
it shall determine in order to carry out the purposes of the Plan.
The Committee shall have full power and authority to construe
and interpret the Plan and the respective Stock Option Agreements and
to establish, amend or rescind such rules, regulations and procedures
as the Committee deems necessary or appropriate for the proper
administration of the Plan.
The determinations of the Committee on the foregoing matters
and any other matters arising in connection with the construction,
administration, interpretation and effect of the Plan and of the
Committee's rules and regulations thereunder shall (except as
otherwise specifically provided in the Plan) be final, binding and
conclusive.
(c) Committee Meetings and Actions. The Committee may
------------------------------
select one of its members as Chairman. The Committee shall hold its
meetings at such times and places as it shall determine. All
decisions and determinations of the Committee shall be made by not
less than the affirmative vote of a majority of its members. Actions
may be taken by the Committee at a duly convened meeting (including a
meeting by telephone conference call) or by unanimous written consent.
Section 4. Eligibility
-----------
Options under the Plan may be granted only to Key Employees of
the Company and its Subsidiaries. A director of the Company or of a Subsidiary
who is not also a Key Employee shall not be eligible to receive an Option under
this Plan. More than one Option may be granted to the same Optionee and be
outstanding concurrently hereunder; provided, however, that the aggregate
number of shares of Common Stock for which Options may be granted to any
individual during any calendar year may not, subject to adjustment as provided
in Section 14 hereof, exceed ( )% of the shares of Common Stock reserved for the
purposes of the Plan in accordance with the provisions of Section 5 hereof.
4
<PAGE> 5
Section 5. Shares Subject to the Plan
--------------------------
(a) Aggregate Number of Shares Available. Subject to the
------------------------------------
adjustments provided for in Section 14 of this Plan, the aggregate
number of shares of Common Stock for which Options may be granted
under the Plan shall be 5,000,000 shares. Shares delivered by the
Company pursuant to exercises of Options or Surrender Rights may be
authorized but unissued shares of Common Stock, issued shares of
Common Stock which have been reacquired by the Company, or a
combination thereof, as the Board or the Committee shall from time to
time determine.
(b) Effect of Expiration of Options. In the event that
-------------------------------
any outstanding Option under the Plan for any reason expires or is
terminated without having been exercised in full or surrendered in
full in connection with the exercise of a related Surrender Right, the
shares of Common Stock subject to but not issued under such Option
shall again be available for the granting of Options under the Plan.
(c) Effect of Exercises. If all or any portion of an
-------------------
Option is exercised or is surrendered pursuant to the exercise of a
Surrender Right, the shares with respect to which such Option or such
Surrender Right is exercised shall not thereafter be available for the
granting of other Options under the Plan. Shares of Common Stock
delivered by the Company upon the exercise of a Surrender Right shall
not be charged against the number of shares of Common Stock available
for the grant of Options.
Section 6. Stock Option Agreements
-----------------------
Each Option shall be evidenced by a written Stock Option
Agreement which shall be executed by the Company and the Optionee, containing
such terms and conditions, not inconsistent with the Plan, as shall be
determined by the Committee. Stock Option Agreements evidencing Incentive
Stock Options shall contain such terms and conditions, among others, as may be
necessary in the opinion of the Committee to qualify them as incentive stock
options under the Code.
Section 7. Terms and Conditions of Options
-------------------------------
Each Option granted under the Plan shall comply with and be
subject to the following terms and conditions, as well as such other terms and
conditions as may be determined by the Committee and specified in the related
Stock Option Agreement:
(a) Number of Shares. The number of shares of Common
----------------
Stock to which an Option relates shall be determined by the
5
<PAGE> 6
Committee and specified in the related Stock Option Agreement.
(b) Type of Option. Each Stock Option Agreement shall
--------------
specify the type of Option granted and evidenced thereby, i.e.,
whether the Option is an Incentive Stock Option or a Nonqualified
Stock Option.
(c) Date of Grant; Exercise Period. The date of grant of
------------------------------
any Option shall be the date on which the Committee shall award the
Option (or the earlier date, if applicable, that the Board
specifically approves such grant) if an immediate grant of such Option
is contemplated, or the date contemplated as the date of grant if the
Committee imposes a condition on the granting of such Option. Options
granted under the Plan shall be for such periods as may be determined
by the Committee and set forth in the related Stock Option Agreements,
subject to the provisions of Section 10 hereof regarding early
termination upon the occurrence of certain events and subject to the
further provisions of this paragraph (c). The exercise period of an
Incentive Stock Option shall not exceed ten (10) years from the date
of grant of such Option; provided, however, that in the case of an
Incentive Stock Option granted to a Ten Percent Shareholder, such
period shall not exceed five (5) years from the date of grant.
Subject to the further provisions of this paragraph (c)
regarding Incentive Stock Options, the Committee shall have authority
to prescribe in any Stock Option Agreement that the Option evidenced
thereby may be exercised in full or in part as to any number of shares
subject thereto at any time or from time to time during the term of
the Option, or in such installments at such times during said term as
the Committee may prescribe. The aggregate Fair Market Value
(determined at the time an Incentive Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an Optionee during any calendar year
(under the Plan and all other plans of the Company and its Parent (if
any) and Subsidiaries) shall not exceed $100,000.
Except as otherwise provided in Section 10 of this Plan, an
Option may not be exercised in whole or in part unless the Optionee
is, at the time of such exercise, an employee of the Company or a
Subsidiary.
(d) Option Price. The Option Price per share of the
------------
Common Stock subject to an Option granted under the Plan shall be
determined by the Committee at the time the Option is granted, and
shall be subject to the following conditions:
6
<PAGE> 7
(i) Nonqualified Stock Options - The Option Price
--------------------------
per share of Common Stock subject to a Nonqualified Stock
Option may be less than the Fair Market Value per share of the
Common Stock on the date of grant, but shall not be less than
the par value per share of Common Stock.
(ii) Incentive Stock Options - The Option Price per
-----------------------
share of Common Stock subject to an Incentive Stock Option
shall not be less than the greater of (a) 100% of the Fair
Market Value per share of the Common Stock on the date of
grant, or (b) the par value per share of the Common Stock;
provided, however, that in the case of an Incentive Stock
Option granted to a Ten Percent Shareholder, the Option Price
per share shall not be less than the greater of (x) 110% of
the Fair Market Value per share of Common Stock on the date of
grant, or (y) the par value per share of the Common Stock.
Section 8. Method of Exercise; Payment of Option Price
-------------------------------------------
(a) Method of Exercise. An Option may be exercised as to
------------------
any or all full shares of Common Stock as to which the Option has
become exercisable in accordance with the terms of the related Stock
Option Agreement and the provisions of this Plan by delivering to the
Company written notice of such exercise in the manner hereinafter
specified in Section 19; provided, however, that an Option may not be
exercised at any one time as to less than l,000 shares (or such number
of shares as to which the Option is then exercisable if such number of
shares is less than 1,000 shares). Such written notice shall specify
the number of shares of Common Stock with respect to which the Option
is being exercised and shall be accompanied by payment in full of the
Option Price for such shares. The date of exercise of an Option or
portion thereof shall be the date of receipt by the Company of such
written notice as determined in accordance with the provisions of
Section 19 of the Plan.
(b) Payment of Option Price. Payment for shares
-----------------------
purchased upon exercise of an Option may be made
(i) in cash (including a certified check, bank
draft or money order), or
(ii) with the approval of the Committee, by
delivering to the Company shares of Common Stock already owned
by the Optionee ("Previously Held Shares") having a Fair
Market Value (determined as of the day preceding the date on
which the Option is
7
<PAGE> 8
exercised) equal to the cash Option Price of the shares of
Common Stock as to which the Option is being exercised, or
(iii) with the approval of the Committee, by a
combination of the methods described in (i) and (ii) above, or
(iv) with the approval of the Committee, by any
other method or in any other form authorized by the Committee
and reflected in the related Stock Option Agreement or in any
written notice relative thereto as may be from time to time
delivered by the Committee to the Optionee.
Section 9. Surrender Rights
----------------
(a) Grant of Surrender Rights. The Committee shall have
-------------------------
the authority to grant Surrender Rights to Optionees with respect to
all or any portion of an Option (the "Related Option"). If the
Related Option is a Nonqualified Stock Option, a Surrender Right may
be granted either at the time the Related Option is granted or at any
time thereafter prior to the exercise, termination or cancellation of
such Related Option. If the Related Option is an Incentive Stock
Option, a Surrender Right may be granted only at the time the Related
Option is granted. Surrender Rights shall be evidenced either by the
Stock Option Agreement entered into in connection with the grant of
the Related Option or by a separate agreement between the Company and
an Optionee.
(b) Exercises of Surrender Rights. A Surrender Right
-----------------------------
shall entitle the Optionee to surrender to the Company for
cancellation all or a portion of the Related Option and to receive in
payment therefor that number of shares of Common Stock (rounded to the
nearest whole number) having an aggregate Fair Market Value equal to
the excess, if any, of the Fair Market Value of the shares of Common
Stock subject to the Related Option or portion thereof surrendered
over the aggregate Option Price of the shares of Common Stock subject
to the Related Option or portion thereof surrendered. The Fair Market
Value of the shares covered by the surrendered portion of a Related
Option shall be determined as of the day preceding the date of the
exercise of the Surrender Right, and any shares of Common Stock
delivered by the Company in payment pursuant to this Section 9 shall
be valued at their Fair Market Value on the day preceding the date of
such exercise.
A Surrender Right shall be exercisable only at the same time
or times and to the same extent and subject to the same conditions as
the Related Option, except that the
8
<PAGE> 9
Committee may prescribe additional conditions and limitations on the
exercise of a Surrender Right. In addition, in the case of a
Surrender Right granted in respect of an Incentive Stock Option, such
Surrender Right shall be exercisable only when the Fair Market Value
per share of Common Stock exceeds the Option Price per share. A
Surrender Right shall be exercisable only by delivering written notice
to the Company of such exercise in the manner hereinafter specified in
Section 19. The date of exercise of a Surrender Right or portion
thereof shall be the date of receipt by the Company of such notice as
determined in accordance with the provisions of Section 19 of the
Plan.
(c) Effect of Exercise of Surrender Right or Related
------------------------------------------------
Option. Upon the exercise of a Surrender Right, the Related Option
------
shall cease to be exercisable to the extent of the shares of Common
Stock with respect to which such Surrender Right is exercised, but
shall be considered to have been exercised to that extent for purposes
of determining the number of shares of Common Stock available for the
grant of further Options pursuant to the Plan. Upon the exercise or
termination of a Related Option, the Surrender Right with respect to
such Related Option shall terminate to the extent of the shares of
Common Stock with respect to which the Related Option was exercised or
terminated.
Section 10. Death, Disability or Other Termination of Employment
----------------------------------------------------
(a) Death. In the event an Optionee dies (i) while in
-----
the employ of the Company or a Subsidiary or (ii) within three (3)
months of the termination of such employment (other than termination
for cause or voluntary termination without the consent of the Company
or the Subsidiary, as the case may be), his Option may be exercised,
solely to the extent that the Optionee was entitled to exercise the
Option at the date of his death or, if earlier, the date of his
termination, by his beneficiary as designated in writing by the
Optionee pursuant to Section 15 of the Plan, or, if no such
designation has been made, by the person or persons to whom Optionee's
rights under the Option shall pass by will or the laws of descent and
distribution, at any time or from time to time within one (l) year
after the date of Optionee's death or prior to the expiration of the
period for which the Option was granted, whichever is the shorter
period.
(b) Disability. In the event an Optionee's employment by
----------
the Company or a Subsidiary is terminated because of the Optionee's
permanent disability, the Optionee may exercise his Option, solely to
the extent that he was entitled to do so at the date of termination of
his employment, at any time or from time to time within one (l)
9
<PAGE> 10
year after the date of such termination of employment or prior to the
expiration of the period for which the Option was granted, whichever
is the shorter period.
(c) Other Termination of Employment. In the event the
-------------------------------
Optionee's employment by the Company or a Subsidiary is terminated
other than by death or permanent disability as provided by paragraphs
(a) and (b), respectively, of this Section 10 and other than for cause
or by the voluntary action of the Optionee without the consent of the
Company or Subsidiary employing the Optionee, the Optionee may
exercise his Option, solely to the extent that he was entitled to do
so at the date of termination of his employment, at any time or from
time to time within ninety (90) days after the date of such
termination of employment or prior to the expiration of the period for
which the Option was granted, whichever is the shorter period. In the
event the Optionee's employment by the Company or a Subsidiary is
terminated for cause or by the voluntary action of the Optionee
without the consent of the Company or Subsidiary employing the
Optionee, his Option shall terminate at the date of termination of his
employment.
(d) Committee Discretion. Notwithstanding the provisions
--------------------
of paragraphs (a), (b) or (c) of this Section 10, the Committee, in
its sole and absolute discretion, may, at the date an Option is
granted or thereafter, establish different terms and conditions
pertaining to the effect on that Option of the death, disability or
other termination of employment of the Optionee, to the extent
permitted by applicable federal and state law.
(e) Failure to Exercise. To the extent an Option or any
-------------------
portion thereof is not exercised within the limited period provided in
paragraphs (a), (b), (c) or (d) of this Section 10, whichever is
applicable, all rights pursuant to such Option will cease and
terminate at the expiration of such period.
(f) Matters Relating to Termination of Employment. The
---------------------------------------------
Committee in its absolute discretion shall determine the effect of all
matters and questions relating to the termination of employment of an
Optionee, including, but not limited to, questions as to whether a
termination of employment resulted from permanent disability or was
voluntary or involuntary on the part of the Optionee and questions of
whether particular leaves of absence constitute terminations of
employment.
10
<PAGE> 11
Section 11. Modification, Extension and Renewal of Options
----------------------------------------------
Subject to the terms and conditions and within the
limitations of the Plan, the Committee in its discretion may modify, extend,
or renew outstanding Options granted under the Plan, or accept the surrender
of outstanding Options (to the extent not theretofore exercised) and authorize
the granting of new Options hereunder in substitution therefor. A
modification granting a Surrender Right shall not be deemed to be the grant of
a new Option for purposes of the Plan. Notwithstanding the foregoing, however,
no modification (other than adjustments as provided by Section 14 hereof) of
an Option shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Option theretofore granted to such Optionee.
If the terms of an Incentive Stock Option are "modified,
extended or renewed" within the meaning of Section 424(h) of the Code and
interpretations thereunder, such modification, extension or renewal shall be
considered the granting of a new Incentive Stock Option.
Section 12. Withholding Taxes
-----------------
The Company shall be entitled to require, as a condition to its
delivery of shares of Common Stock upon the exercise of an Option or Surrender
Right, that the Optionee pay to the Company an amount sufficient to satisfy all
present or estimated future federal, state and local withholding tax
requirements related thereto.
Subject to the further provisions of this Section 12 and to the
disapproval of the Committee, an Optionee may elect to satisfy applicable
withholding tax liabilities by (i) having the Company withhold from the shares
of Common Stock otherwise issuable to the Optionee upon his exercise of an
Option or Surrender Right that number of shares of Common Stock having a Fair
Market Value on the day preceding the date of such exercise sufficient to
satisfy the amount of such tax liabilities or (ii) delivering to the Company
that number of Previously Held Shares having a Fair Market Value on the day
preceding the date of such exercise sufficient to satisfy the amount of such
tax liabilities. Any such election will be irrevocable and must be made prior
to the date the Option or Surrender Right exercise becomes taxable. In
addition, if the Optionee is a director or an officer of the Company within the
meaning of Section 16(b) of the 1934 Act, such election may not be made within
six months of the grant of the Option (except that this limitation will not
apply in the event of the death or disability of the Optionee prior to the
expiration of the six-month period), and such election shall be made either in
11
<PAGE> 12
the ten-day "window period" following the release of the Company's quarterly or
annual summary earnings statement as provided by Rule 16b-3(e)(3) under the
1934 Act, or at least six months prior to the date the Option or Surrender
Right exercise becomes taxable.
The Company intends that this Section 12 shall comply with the
requirements of Rule 16b-3 under the 1934 Act, as the same may be interpreted
or amended from time to time during the term of the Plan. Should any provision
of this Section 12 not be necessary to comply with the requirements of the Rule
or should any additional provisions be necessary for this Section 12 to so
comply, the Committee may amend the Plan to add to or modify the provisions of
the Plan accordingly.
Section 13. Investment Representation
-------------------------
Each Stock Option Agreement shall provide that the Committee
may require the Optionee (or any person exercising the Optionee's rights
pursuant to Section 10(a) of the Plan) to furnish to the Company, as a
condition precedent to any exercise of the Option or Surrender Right (if
available), a written agreement in such form as the Committee shall prescribe
in which the Optionee or such other person represents and agrees that any and
all shares of Common Stock to be acquired upon such exercise are being acquired
for investment and not with a view to the resale or distribution thereof and
makes such further representations as may in the judgment of the Committee be
necessary or appropriate to ensure compliance with applicable federal or state
securities laws. Certificates for shares of Common Stock to be delivered to an
Optionee upon his exercise of an Option or Surrender Right may, when issued,
bear such legends or statements referring to the foregoing representations and
agreements as the Committee, in its discretion, shall deem necessary or
appropriate.
Section 14. Adjustment Upon Changes in Capitalization
-----------------------------------------
The total number and character of shares available for Options
under the Plan, the number and character of shares subject to outstanding
Options and the Option Price shall be appropriately adjusted by the Committee
in the event of any change in the number or character of outstanding shares of
Common Stock resulting from a stock dividend, subdivision or combination of
shares, or reclassification. In the event of a merger or consolidation of the
Company or a tender offer for shares of Common Stock, the Committee may make
such adjustments with respect to Options under the Plan and take such other
action as it deems necessary or appropriate to reflect, or in anticipation of,
such merger, consolidation or tender offer, including without limitation the
substitution of new Options, the adjustment of
12
<PAGE> 13
outstanding Options, the acceleration of Options, or the removal of limitations
or restrictions on outstanding Options.
Section 15. Nontransferability
------------------
No Option granted under the Plan shall be transferable by an
Optionee otherwise than by will or by the laws of descent and distribution, and
an Option may be exercised, during the lifetime of the Optionee, only by the
Optionee. An Optionee may during his or her lifetime designate in writing a
beneficiary to receive his or her Option in the event of Optionee's death prior
to exercise of the Option.
Section 16. No Right to Continued Employment
--------------------------------
Nothing in this Plan or in any Option granted hereunder shall
confer upon an Optionee any right to continue in the employ of the Company or a
Subsidiary nor interfere or affect in any way the right of the Company or a
Subsidiary to terminate an Optionee's employment at any time for any reason.
Section 17. Rights as a Shareholder
-----------------------
An Optionee shall have no rights as a shareholder with respect
to any shares of Common Stock subject to his Option until the date of issuance
to him of a stock certificate or certificates for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 14 hereof.
Section 18. Compliance with Law and Other Conditions
----------------------------------------
The obligation of the Company to issue or deliver shares of
Common Stock upon the exercise of Options or Surrender Rights shall be subject
to all applicable laws, regulations, rules and approvals of applicable
governmental and regulatory authorities. Notwithstanding any other provisions
of this Plan or any Stock Option Agreements, the Company shall not be required
to issue or deliver any certificate or certificates for shares of Common Stock
purchased upon the exercise of an Option or Surrender Right prior to the
fulfillment of the following conditions:
(i) The listing, or approval for listing upon
notice of issuance, of such shares on the American Stock
Exchange, Inc. or such other securities exchange on which the
Common Stock is then listed;
(ii) The registration or other qualification of
such shares under any state or federal securities law
13
<PAGE> 14
or regulation which the Committee shall, in its absolute
discretion upon the advice of counsel, deem necessary or
advisable; and
(iii) The obtaining of any other consent, approval,
permit or other clearance from any state or federal
governmental or regulatory agency which the Committee shall,
in its absolute discretion upon the advice of counsel,
determine to be necessary or advisable.
With respect to Options and Surrender Rights granted to any
Optionee who is an officer of the Company or is otherwise subject to Section 16
of the 1934 Act, the Committee may, in its absolute discretion at the time of
the granting of an Option or Surrender Right or the exercise thereof, make such
provisions as may be necessary to assure compliance with Rule 16b-3 under the
1934 Act.
Section 19. Notices
-------
Whenever any notice is required or permitted to be given under
the Plan or any Stock Option Agreement, such notice must be in writing and
personally delivered or sent by courier or by mail. Any such notice shall be
deemed effectively given or delivered upon personal delivery or twenty-four
hours after delivery to a courier service which guarantees overnight delivery
or five (5) days after deposit with the U.S. Post Office, by registered or
certified mail, return receipt requested, postage prepaid, addressed to the
person who is to receive such notice at the address which such person has
theretofore specified by written notice delivered in accordance herewith. The
Company or an Optionee may change, at any time and from time to time, by
written notice to the other, the address which it or he had theretofore
specified for receiving notices. Until changed in accordance herewith, the
Company and each Optionee shall specify as its or his address for receiving
notices the address set forth in the Stock Option Agreement pertaining to the
shares of Common Stock to which such notice relates.
Section 20. Amendment, Suspension or Termination of the Plan
------------------------------------------------
The Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the Board
or the Committee; provided, however, that the Board or the Committee shall
not, without the approval of the holders of a majority of the outstanding
shares of the Company's stock entitled to vote thereon, effect any change to
the Plan (other than through adjustment for changes in capitalization as
hereinbefore provided by Section 14) which would
14
<PAGE> 15
(i) materially increase the aggregate number of shares as to
which Options may be granted under the Plan;
(ii) materially increase the benefits accruing to Optionees
under the Plan;
(iii) materially modify the requirements as to eligibility for
participation in the Plan.
Further, no such amendment, suspension or termination, other than adjustments
for changes in capitalization as provided in Section 14 hereof, shall adversely
affect or impair any outstanding Option without the written consent of the
Optionee affected thereby.
Section 21. Effective Date; Duration
------------------------
(a) Effective Date. The Plan shall become effective upon
--------------
the date of its adoption by the Board.
(b) Duration. Unless earlier terminated by the Board or
--------
the Committee pursuant to the provisions of the Plan, the Plan shall
terminate on the tenth anniversary of its effective date as
hereinbefore specified. No Options shall be granted under the Plan
after such termination date.
Section 22. Governing Law
-------------
This Plan and all rights hereunder shall be construed and
interpreted in accordance with the laws of the State of Georgia, to the extent
not superseded by the laws of the United States.
15
<PAGE> 1
EXHIBIT 10.39
EMLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into as of the 20th day
of December, 1993, by and between W. THOMAS JOHNSON, an individual resident of
the State of Georgia (hereinafter referred to as "Employee"), and TURNER
BROADCASTING SYSTEM, INC., a corporation organized under the laws of the State
of Georgia (hereinafter referred to as the "Company");
W I T N E S S E T H:
WHEREAS, Employee is presently employed by the Company;
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") recognizes that Employee's contribution to the growth and success
of the Company has been substantial and desires to provide for the continued
employment of Employee and to make certain changes in Employee's employment
arrangements with the Company that the Board of Directors has determined will
reinforce and encourage Employee's continued attention and dedication to the
affairs of the Company;
WHEREAS, Employee is willing to commit himself to continue to serve
the Company on the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and Employee
wish to enter into an employment agreement on the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
Section 1. Scope of Employment.
1.1 Employment. Subject to terms hereof, the Company hereby agrees
to the continued employment of Employee, and Employee hereby accepts such
continued employment. Employee shall hold the office(s) set forth on Schedule
1.1(a) hereto and, as such, shall perform the executive-level services
(collectively, "Services") described on Schedule 1.1(b) hereto. Employee shall
report directly to the Chief Executive Officer of the Company, currently Mr.
R.E. Turner. Employee shall devote substantially all of Employee's productive
business time, energy and skill (except on vacation days and holidays) to
performing his obligations hereunder and shall perform his obligations
hereunder diligently, faithfully and to the best of Employee's abilities.
Notwithstanding the foregoing provisions, Employee shall be entitled to serve
on the board of directors of any civic,
<PAGE> 2
charitable or professional organization, provided that such service does not
materially interfere or conflict with Employee's provision of the Services or
his fulfillment of any of his other obligations under this Agreement.
1.2 Place of Performance. During the term of his continued
employment hereunder (the "Term"), Employee shall be based in Atlanta, Georgia
at the principal executive offices of the Company, except for reasonably
required travel on business.
1.3 Compliance with Policies. Subject to the terms of this
Agreement, during the Term, Employee shall comply in all material respects with
all policies and procedures applicable to senior executives of the Company
generally and to Employee specifically, including, without limitation, the
Company's Code of Ethics and Business Conduct.
Section 2. Term. The Term shall commence on the date of this
Agreement and continue until the earlier to occur of the following: (a) the
date that is four (4) years after the date of this Agreement; or (b) in the
event Employee's employment is terminated pursuant to Section 6 with an
effective date that is prior to the date set forth in (a), then the effective
date of such termination. References in this Agreement to the "Four-Year Term"
shall refer to the period of time from the date of this Agreement to the date
that is four (4) years after the date of this Agreement.
Section 3. Cash Compensation; Expenses.
3.1 Base Salary. Employee shall be paid a base salary (the "Base
Salary") during the Term as described on Schedule 3.2 hereof. The Base Salary
(and all other payments to be made to Employee pursuant to this Section 3)
shall be (a) payable on the schedule that the Company may implement from time
to time for such payments, and (b) subject to any withholdings and deductions
required by applicable law.
3.2 Bonus. During the Term, Employee shall be paid an annual bonus
(the "Annual Bonus"), if earned, as set forth on Schedule 3.2 hereof. The
Annual Bonus shall be earned, paid, administered and governed by the terms and
conditions of the Turner Incentive Plan (the "TIP") and any plan that is a
successor thereto, provided, however, that the bonus amounts set forth on
Schedule 3.2 are the maximum annual bonus amounts for Employee notwithstanding
the terms and conditions of the TIP. Notwithstanding the foregoing, if the TIP
is terminated by the Company, Employee will continue to remain eligible to
receive the Annual Bonus on terms and conditions substantially similar to those
of the TIP during the last year that Employee's Annual Bonus was administered
and governed by the TIP.
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3.3 Long-Term Incentive Plan. During the Term, Employee shall be
entitled to participate in the Long-Term Incentive Plan (together with any
successor plan, "LTIP"). All awards under the LTIP shall be made in accordance
with and subject to the terms of all relevant LTIP documentation and shall be
based upon the LTIP cycle in effect at the time of the award. The LTIP shall
continue in effect during the Term.
3.4 Expense Reimbursement. The Company shall pay or reimburse
Employee for all reasonable business expenses incurred or paid by Employee in
the course of performing his duties hereunder (it being agreed by the parties
hereto that business expenses incurred by Employee shall be deemed to be
reasonable if such expenses would have been reimbursed under current practices
or the expense reimbursement policy of the Company that is applicable to
Employee on the date hereof). As a condition to such payment or reimbursement,
however, Employee shall maintain and provide to the Company, upon the Company's
request, reasonable documentation and receipts for such expenses.
Section 4. Stock-Based Compensation; Special Bonus.
4.1 Stock Option Plan. During the Term, Employee shall be entitled
to participate in the Turner Broadcasting System, Inc. 1988 Stock Option Plan
and any successor stock-based employee incentive plans (collectively, the "Stock
Option Plan"). Contemporaneously with the execution of this Agreement (or as
soon thereafter as reasonably practicable), Employee will be granted the shares
of the Company's Class B Common Stock (the "Grant Shares") and the options to
purchase shares of the Company's Class B Common Stock (the "Option Shares")
under the Stock Option Plan in the number of shares described on Schedule 3.2
hereof. Contemporaneously with the execution of this Agreement, the Company
and the Employee shall enter into a Stock Option Agreement in the form of
Exhibit A hereto with respect to the Option Shares (the "Option Agreement"). For
purposes of Employee's future participation for possible additional grants of
stock options or grants under the Stock Option Plan, he will be reviewed and
considered for a grant at the same time as, and on a basis and subject to terms
that are consistent with, the basis and terms that govern grants to other
senior executive officers of the Company, taking into account Employee's
position and responsibilities.
4.2 Special Bonus. In addition to any payments made by the Company
to Employee hereunder or otherwise, contemporaneously with the transfer of the
Grant Shares to Employee pursuant to Section 4.1, the Company shall pay to
Employee the Special Bonus described on Schedule 3.2, less any withholding and
deductions required under applicable law.
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Section 5. Additional Employee Benefits.
5.1 Benefit Plans. During the Term, Employee shall be entitled to
participate in all other employee benefit plans and executive compensation
arrangements listed on Schedule 5.1, together with any additional plans or
arrangements available to employees generally or to executives or senior
executives of the Company as a group, subject in each case to terms and
conditions set forth in the plan or program documentation (collectively, the
"Benefit Plans"). During the Term, the Company agrees not to modify or amend
any material terms of the Benefit Plans or LTIP in any respect that would cause
the benefit that Employee would otherwise receive thereunder to be materially
reduced unless the Company makes up for such reduction by providing Employee
with supplemental benefits (or, in the Company's discretion, cash) with a value
that is substantially equivalent to the reduction.
5.2 Vacation. Employee shall be entitled to at least four (4) paid
weeks of vacation per year during the Term, to be accrued and taken in
accordance with a policy that is no less favorable for Employee than the
Company's normal vacation policy applicable to senior executive employees.
5.3 Automobile Allowance; Travel Benefits. The Company shall pay
Employee no less than Eight Hundred Fifty Dollars ($850.00) per month during
the Term as an automobile allowance. To the extent such benefits are normally
extended to other executive officers of the Company, during the Term, Employee
shall be entitled to first class air travel for all employment-related air
travel, subject to availability of first class seating on a particular flight.
5.4 Memberships. During the Term, the Company shall continue to
reimburse Employee for all costs and expenses associated with the maintenance
of Employee's current memberships in those business and social clubs and
associations for which he is as of the date of this Agreement being reimbursed
by the Company. In addition, the Company shall reimburse Employee for all costs
and expenses associated with Employee's obtaining and maintaining membership in
one additional club or association.
5.5 Financial Counseling. During the Term, the Company shall
reimburse Employee for up to $5,000 per year for costs and expenses incurred by
Employee in connection with financial and tax counseling and tax return
preparation.
5.6 Company-Paid Life Insurance. In combination with life
insurance currently provided at the Company's expense, during the Term,
Employee shall be provided with life insurance coverage equal to 2.5 times his
then current Base Salary.
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5.7 Long-Term Disability Salary Replacement. During the Term,
regardless of the limitations on the maximum salary level covered in the
current Long-Term Disability Plan or any future plan (collectively, the
"Disability Plan"), Employee shall, subject to the other provisions of the
Disability Plan, be entitled to purchase insurance under the Disability Plan
providing disability compensation of up to two-thirds of his then current Base
Salary for no more than the maximum annual cost (adjusted on a pro rata basis
to reflect the percentage increase in coverage over the standard coverage) as
currently in effect under the Disability Plan. In the event that the
Disability Plan does not permit the purchase of coverage of up to two-thirds of
Employee's then current Base Salary or coverage is otherwise not reasonably
available, the Company shall purchase or otherwise provide Employee with
supplemental coverage to the extent of any shortfall (up to a maximum
additional coverage to be provided by the Company of $200,000) in such coverage
that may be purchased by Employee under the Disability Plan. Disability
payments will commence three (3) months after Employee becomes disabled and
shall continue until Employee reaches 65 years of age (whether or not Employee
has retired previously) in accordance with the terms of the current Disability
Plan. The disability triggering Employee's rights under this Section 5.7 must
occur prior to the date of any Notice of Termination hereunder. Notwithstanding
anything to the contrary in this Agreement, the Company shall be entitled to
deduct without duplication from the aggregate of compensation related or
similar payments otherwise payable to Employee pursuant to this Agreement an
amount equal to all disability payments received by Employee pursuant to any
disability insurance, and worker's compensation and social security policies
maintained by the Company.
5.8 Post Retirement Medical Benefits. Each year commencing on the
date (the "Retirement Date") after (a) Employee becomes 65 years of age or (b)
Employee retires from the Company by giving notice to the Company that the
Employee intends to retire and does not intend to seek other full-time
employment, whichever occurs first, the Company shall reimburse Employee an
amount (the "Annual Premium Amount") of up to an aggregate of Three Thousand
Dollars ($3,000.00) (an amount which shall be increased each year in the manner
as set forth below) for insurance premiums with respect to medical insurance
covering Employee, his spouse and dependents, if any. Immediately prior to the
Retirement Date, the Annual Premium Amount shall be adjusted by multiplying the
Annual Premium Amount by a fraction (expressed a percentage), the numerator of
which is the most recently published "CPI" (as hereinafter defined) as of the
Retirement Date and the denominator of which shall be the most recently
published CPI as of the date of this Agreement. In addition, at the beginning
of each calendar year thereafter, the Annual Premium Amount shall be adjusted
by multiplying the then current Annual Premium Amount by a fraction (expressed
as a percentage), the numerator of which shall be the most recently published
CPI as of the end of the immediately preceding year and the denominator of
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which shall be the numerator used in the calculation relating to the previous
calendar year. For the purposes of this Agreement, "CPI" shall mean the
Consumer Price Index for All Urban Consumers, U.S. City Average, Medical Care
Index (1982-84 = 100) (unadjusted) published by the Bureau of labor Statistics,
United States Department of Labor. Notwithstanding anything to the contrary in
this Agreement, the benefits covered by this Section 5.8 shall not be available
to Employee if Employee is terminated by the Company for "Good Cause."
5.9 Indemnification. The Company shall indemnify and hold harmless
Employee if Employee is made a party, or is threatened to be made a party, to
any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, whether formal or informal,
including any action or suit by or in the right of the Company (for purposes of
this Section 5.9, collectively, a "Proceeding") because he is or was an
officer, employee, or agent of the Company, against any judgment, settlement,
penalty, fine, or reasonable expenses (including, but not limited to,
attorneys' fees and disbursements, court costs, and expert witness fees)
incurred with respect to the Proceeding (for purposes of this Section 5.9, a
"Liability"), if he acted in a manner he believed in good faith to be in or not
opposed to the best interests of the Company, and, in the case of any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
Company shall indemnify Employee to the maximum extent permitted by Georgia
law.
Section 6. Termination.
6.1 Termination by the Company. Employee's employment hereunder
may be terminated by the Company under the circumstances set forth in (a), (b)
and (c) below.
(a) Death or Total Disabilitv. The Company may terminate
Employee's employment hereunder upon the death of Employee or Employee's total
disability (total disability meaning the inability of Employee to perform
substantially all of his current duties as required hereunder for a continuous
period of 183 days because of a mental or physical condition, illness or
injury).
(b) Good Cause. The Company may terminate Employee's
employment hereunder for "Good Cause." For the purposes of this Agreement, the
Company shall have "Good Cause" for termination of Employee's employment only
(i) if Employee is convicted of or pleads guilty to any felony (except if
committed upon advice from counsel to the Company), or (ii) if Employee has
engaged in conduct or activities involving moral turpitude materially damaging
to the business or reputation of the Company or any Affiliate of the Company,
or (iii) if Employee habitually engages in the immoderate use of alcoholic
beverages or engages in the illegal use of a controlled substance; or (iv) if
Employee
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violates any law, rule, regulation or order of any governmental authority,
thereby exposing the Company or any Affiliate of the Company (as defined in
Section 9.1(a)) to potential material civil or criminal penalties unless the
Employee has done so upon advice from counsel to the Company; or (v) in the
event of Employee's default, gross misfeasance, fraud, embezzlement in the
performance of his obligations hereunder or if Employee breaches or fails to
observe the terms of this Agreement in any material respect and fails to cure
such breach or failure within ten (10) days after notice thereof from the
Company or if any representation or warranty of Employee in this Agreement
shall be incorrect in any material respect, or (vi) if Employee persistently
and willfully fails or refuses to obey any proper written direction of the
Board of Directors or Chief Executive Officer of the Company, or (vii) if
Employee knowingly, and with intent, misappropriates for his own purpose and
benefit, any property of the Company or any Affiliate of the Company or
unlawfully appropriates any corporate opportunity of the Company or any
Affiliate of the Company.
(c) Discretionarv Termination. The Company shall have the
right at any point during the Term to terminate the employment of Employee
hereunder for any reason or for no reason; provided, however, that the Company's
termination of Employee pursuant to Section 6.1(a) or 6.1(b) shall not, for any
purpose, also be construed as a termination pursuant to this Section 6.1(c).
If the Company commits a breach of any of its material obligations under this
Agreement and fails to cure the breach within ten (10) days of being provided
written notice of the breach by Employee, then if Employee so chooses (and
indicates such choice in such ten-day written notice), the Company shall be
deemed to have exercised its right to terminate Employee's employment pursuant
to this Section 6.1(c).
6.2 Change in Control Termination by Employee. Employee may
terminate his employment for any reason within ninety (90) days after the
occurrence of a Change of Control of the Company. For all purposes under this
Agreement, a "Change of Control" of the Company shall be deemed to have
occurred if any of the following events have occurred (a) both of the following
events have occurred: (i) R.E. Turner is no longer the Chief Executive Officer
of the Company and its consolidated operations; and (ii) "Continuing Common
Stock Directors" (as defined below) no longer constitute (except by reason of a
temporary vacancy lasting no longer than six months among the Common Stock
Directors) a majority of the Company's Board of Directors; or (b) the Company
shall sell, transfer or otherwise dispose of all or substantially all of the
assets of the Company or the assets, if any, identified on Schedule 6.2 hereof;
or (c) the shareholders and the Board of Directors shall have approved any plan
or proposal for liqidation or dissolution of the Company; or (d) R.E. Turner
dies. For purposes of this Section 6.2, "Continuing Common Stock Directors"
shall include only (i) all persons who are initially elected (if elected at a
shareholders meeting) or appointed (if filling a vacancy on the Company's Board
of Directors) to the
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Company's Board of Directors as Common Stock Directors (as defined in Article
XII, Section 2(b) of the Company's By-laws) and at a time when R.E. Turner owns
in excess of 50% of the voting power of all classes of the outstanding Common
Stock of the Company; and (ii) all persons who are initially nominated for
election (if elected at a shareholders meeting) or appointed (if filling a
vacancy on the Company's Board of Directors) by at least a majority of the
Common Stock Directors described in (i) then serving on the Company's Board of
Directors; and (iii) all persons who are initially nominated for election (if
elected at a shareholders meeting) or appointed (if filling a vacancy on the
Board) by at least a majority of the Common Stock Directors and persons then
serving on the Company's Board of Directors who would constitute Continuing
Common Stock Directors under either (i) or (ii). A person shall no longer be a
Continuing Common Stock Director after his or her service on the Company's
Board of Directors is terminated unless reelected or reappointed in the manner
described in (i) - (iii) above. Until Article XII of the Company's By-laws is
amended or eliminated in such a way as to eliminate the two classes of the
Company's directors, of which Common Stock Directors constitute one, then all
Continuing Common Stock Directors must be Common Stock Directors. For purposes
of this Section 6.2, reference to the Company or the Company's Board of
Directors includes the current corporation on the date hereof and any
corporation which is the legal successor to the current corporation by virtue
of common stock merger or share exchange, provided that such successor
corporation is not the subsidiary of, or 50% or more of its common stock is not
beneficially owned by, any person, corporation or legal entity other than R.E.
Turner.
6.3 Termination by Employee for "Good Reason." Employee may
terminate his employment hereunder for "Good Reason" (assuming he has not
given the Company notice of his intention to terminate pursuant to Section 6.2)
within ninety (90) days after the occurrence of any of the following events
prior to the end of the Term: (i) Employee is not reelected to or is removed
(other than for cause) from any of the offices set forth on Schedule 1.1(a); or
(ii) Employee is not reelected to or is removed (other than for cause) from the
Board of Directors of the Company; or (iii) action is taken by the Company or
the Board of Directors of the Company that has the effect of divesting
Employee, or materially interfering with the exercise by Employee, of authority
to perform the Services; or (iv) Employee or the Company's executive offices
are relocated more than thirty (30) miles from the Company's current executive
offices located at One CNN Center, Atlanta, Georgia; or (v) the Company fails
to obtain the written assumption of this Agreement by any successor of the
Company or any assignee of all or substantially all of its assets at or prior
to such succession or assignment; or (vi) the Company breaches or fails to
observe any of the terms of this Agreement in any material respect and fails to
cure such breach or failure within ten (10) days after the Company has received
written notice thereof from Employee, or any representation or warranty of the
Company in this Agreement shall be incorrect in
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any material respect. Notwithstanding anything to the contrary in this
Agreement, Employee shall not be entitled to terminate for Good Reason if the
Company at such time is entitled to (and has not otherwise waived its right or
indicated its election not to) terminate Employee pursuant to Section 6.1(a) or
6.1(b) unless one hundred twenty (120) days has elapsed since the first date
the Company could have terminated Employee pursuant to Section 6.1(a) or
6.1(b).
6.4 Other Termination by Employee. If Employee's responsibilities
no longer include reporting directly to R. E. Turner, Employee may elect to
terminate his employment.
6.5 Termination Date and Notice of Termination.
(a) Any termination of Employee's employment by the
Company or by Employee (other than termination upon the death of Employee)
shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated.
(b) "Termination Date" shall mean (i) if Employee's
employment is terminated by his death, the date of his death, (ii) if
Employee's employment is terminated pursuant to Section 6.1(a) hereof as a
result of Employee's total disability, thirty (30) days after Notice of
Termination is given (provided that, with respect to a termination pursuant to
Section 6.1(a) as a result of Employee's total disability, Employee shall not
have returned to the performance of duties on a full-time basis during such
thirty (30) day period), (iii) if Employee's employment is terminated pursuant
to Section 6.1(b) hereof, the date on which such Notice of Termination is
given, (iv) if Employee's employment is terminated by Employee for Good Reason
or by the Company pursuant to Section 6.1(c), thirty (30) days after Notice of
Termination is given by Employee, and (v) if Employee's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
Section 7. Compensation Uon Termination
or During Disability.
7.1 Incapacity. During any period in which Employee fails to
perform his duties hereunder as a result of incapacity due to physical or
mental injury or illness, Employee shall continue to receive his then current
full Base Salary, including the minimum increases thereto contemplated in
Section 3.1, for such period until his employment is terminated pursuant to
Section 6.1(a).
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7.2 Termination by the Company Due to Death or Total Disability.
If Employee's employment is terminated as a result of his death or his total
disability under Section 6.1(a), the Company shall, in the case of Employee's
death, pay to Employee's wife, or such different person as Employee designates
in writing, and, in the case of Employee's total disability, pay to Employee
(a) an amount equal to his then current full Base Salary, including the minimum
increases thereto set forth on Schedule 3.2, through the Termination Date and
during the remainder of the Four-Year Term, (b) if the Termination Date occurs
prior to the end of any LTIP cycle during which Employee is participating in
the LTIP, an "Adjusted LTIP Award," which shall consist of an award of cash
equal to (i) the amount of cash that would have been awarded to Employee if
Employee's Termination Date had coincided with the end of the then current LTIP
cycle less (ii) a prorated amount attributable to the unexpired portion of the
then current LTIP cycle, and (c) an "Adjusted Annual Bonus," with respect to
the fiscal year that includes the Temination Date, which Adjusted Annual Bonus
shall consist of an amount equal to the Annual Bonus that would otherwise be
due and payable hereunder with respect to such fiscal year multiplied by a
fraction, the numerator of which is the total number of days during the fiscal
year that Employee was employed hereunder and the denominator of which is 365.
In addition to the above payments, if Employee's employment is terminated as a
result of his total disability pursuant to Section 6.1(a), the Company shall
provide Employee during the remainder of the Four-Year Term with benefits
substantially similar to the benefits Employee would be entitled to receive
under the Benefit Plans had Employee not been terminated (or, in lieu of
providing Employee such benefits, the Company may provide Employee with cash
equal to the value of such benefits). Notwithstanding any provision contained
herein to the contrary, the Company shall have the right to offset any amount
to be paid to or benefit to be provided to Employee by the Company pursuant to
clause (a) of this Section 7.2 during any particular month against amounts that
will be paid to Employee during such month under the Company's Disability Plan.
7.3 Termination by Company for Good Cause. If the Employee's
employment is terminated for Good Cause pursuant to Section 6.1(b), the Company
shall pay Employee his then current full Base Salary through the Termination
Date and such other benefits (including stock grants, stock options, LTIP, and
Adjusted Annual Bonus) as are otherwise vested and due to Employee as of the
Termination Date (calculated as provided in Section 7.2).
7.4 Termination by Employee After a Change in Control. If Employee
terminates his employment pursuant to Section 6.2 following a Change in Control
or pursuant to Section 6.4, the Company shall pay Employee all earned and
vested rights as of the Termination Date, including, without limitation, his
then current Base Salary through the Termination Date, an Adjusted Annual Bonus
(calculated as provided in Section 7.2), an Adjusted LTIP Award
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(calculated as provided in Section 7.2) and all vested stock grants or stock
options.
7.5 Termination by Employee with Good Reason or by the Company
Pursuant to Section 6.1(c). If Employee shall terminate his employment for Good
Reason pursuant to Section 6.3 or the Company shall terminate Employee pursuant
to Section 6.1(c), the following provisions shall govern:
(i) Base Salary Equivalent. The Company shall pay
Employee an amount equal to Employee's Base Salary as shown on
Schedule 3.2 for the respective years, after the Termination Date for
a period equal to the greater of (A) the number of months (and partial
months) otherwise remaining in the Four-Year Term as of the
Termination Date or (B) thirty-six (36) months from the Termination
Date. To any extent that the period in the preceding clause (B)
extends past December 20, 1997, the annual amount payable pursuant to
this Section 7.5(i) shall be equal to the base salary for 1997 shown
on Schedule 3.2. Except as may be elected by either party pursuant to
Section 9.9, payments pursuant to this Section 7.5(i) shall be at such
times and in accordance with such procedures as apply to payments
governed by Section 3.
(ii) Annual Bonus Equivalent. The Company shall pay
Employee an amount equal to Employee's bonus as shown on Schedule
3.2 for the respective years after the Termination Date for a period
equal to the greater of (A) the number of months (and partial months)
otherwise remaining in the Four-Year Term as of the Termination Date
or (B) thirty-six (36) months from the Termination Date, with such
Annual Bonus equivalents to be prorated to reflect any partial year
falling within the period specified in (A) or (B), as the case may be.
To any extent that the period in the preceding clause (B) extends past
December 20, 1997, the annual amount payable pursuant to this Section
7.5(ii) shall be equal to the bonus amount for 1997 shown on Schedule
3.2.
(iii) Adjusted LTIP Award. The Company shall pay Employee
an Adjusted LTIP Award (calculated as provided in Section 7.2) if the
Termination Date occurs prior to the end of any LTIP cycle during
which Employee is participating in the LTIP.
(iv) Acceleration of Stock Option Vesting. The Company
shall cause the vesting of any Company stock options held by Employee
to be accelerated to the Termination Date and provide that Employee
shall be entitled to give notice of exercise of all such options for
thirty (30) days after the Termination Date.
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(v) Vested Plan Benefits. The Company shall pay or make
available to Employee all vested benefits accrued or available under
any Benefit Plan in accordance with and subject to the terms of such
Benefit Plans.
(vi) Miscellaneous Health, Death and Disability Benefits.
The Company shall provide Employee with life insurance and other death
benefits, health and medical benefits and long term disability
benefits substantially similar to those benefits provided to Employee
prior to the Termination Date under the Benefit Plans on Schedule
7.5(vi) after the Termination Date for a period equal to the greater
of (A) the number of months (including partial months) otherwise
remaining in the Four-Year Term as of the Termination Date or (B)
thirty-six (36) months from the Termination Date.
(vii) Supplemental Compensation Benefits. The Company shall
provide supplemental compensation benefits (current and deferred) to
Employee substantially similar to those provided to Employee under the
Benefit Plans listed on Schedule 7.5(vii) (which supplemental benefits
shall be determined as if Employee had continued after the
Termination Date to receive the same level of total compensation as in
effect immediately before the Termination Date) until the end of the
period equal to the greater of (A) the number of months (including
partial months) otherwise remaining in the Four-Year Term as of the
Termination Date or (B) thirty-six (36) months from the Termination
Date, and such supplemental benefits shall be provided to him at the
same time and in the same manner as a benefit that would be payable to
him under each such Benefit Plan had Employee actually continued to
work until the end of such period.
(viii) Office Space. The Company shall furnish Employee with
office space, secretarial assistance and such other facilities and
services as are provided to senior executives of the Company for a
period of twelve (12) months following the Termination Date; provided,
however, the Company shall not be required to continue to provide
Employee with the items set forth in this clause (viii) in the event
that Employee begins other full time employment during such
twelve-month period.
(ix) Placement Services. The Company shall provide
Employee with the assistance of a nationally recognized executive
placement firm for a period of twelve months following the Termination
Date; provided, however, the Company shall not be required to continue
to provide Employee with such assistance in the event that Employee
begins other full time employment during such period.
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7.6 Discontinuation of Benefits. Notwithstanding anything to the
contrary in this Agreement, after the Termination Date, the Company shall not
be required to continue to provide Employee with any benefits pursuant to
Section 7.5(vi) and (vii) if and to the extent that Employee has obtained new
employment and the new employer provides Employee with equal or better coverage
at no or comparable cost to Employee. Nothing in this Agreement is intended to
permit Employee to receive, after the Termination Date, a greater package of
benefits than he would have been entitled to receive during the same period
from the Company had his employment not terminated.
7.7 Conditional Receipt of Benefits. Employee acknowledges and
agrees that his right to any compensation or benefits as provided in this
Agreement is conditioned on his compliance with all of his obligations in
Section 9. Accordingly, Employee agrees that if he fails to comply with any
covenant of his contained in Section 9 (regardless of whether such
non-compliance occurs during or after the Term), he will not be entitled to any
further payment by the Company of compensation or benefits (including those
that have vested as of the date of such non-compliance).
7.8 No Duty to Mitigate. Employee shall not be required to
mitigate the amount of any payment provided for in this Section 7 by seeking
other employment or otherwise. Except as otherwise expressly set forth in this
Section 7, no amounts due to Employee by the Company under this Section 7 shall
be reduced or offset by any compensation whatsoever received by Employee from
any other employment of Employee.
Section 8. Representations of the Parties. The Company
represents and warrants to Employee that (a) this Agreement and the Option
Agreement have been duly executed and delivered by the Company, (b) the
execution, delivery and performance of this Agreement and the Option Agreement
by the Company has been duly authorized by all necessary corporate action on
the part of the Company including all applicable committees of the Board of
Directors or otherwise, (c) this Agreement and the Option Agreement constitute
the legal, valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, (d) the execution, delivery and
performance of this Agreement and the Option Agreement by the Company do not
and will not conflict with, violate, or constitute a breach of or default
under, (i) the Articles of Incorporation or By-laws of the Company or any of
its subsidiaries, (ii) any provision of law or regulations applicable to the
Company or any of its subsidiaries, (iii) any provision of any indenture,
agreement or other instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or
affected, with respect to which any such conflict, violation, breach or default
would render this Agreement unenforceable or would have a material adverse
effect on the financial condition of
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<PAGE> 14
the Company or any of its subsidiaries, or (iv) the Company's 1988 Stock Option
Plan, (e) the Option Shares are and at all times during the period of the
Option Agreement shall be available under the Plan and there is and will be no
violation of Section 5(a) of the Plan with respect to the Option Shares, and
(f) the Company has not received any legal advice contrary to the Company's
representations and warranties set forth in this Section 8. Employee represents
and warrants to the Company that (A) his execution, delivery and performance of
this Agreement do not and will not conflict with, violate, or constitute a
breach of or default under any provision of law or regulation applicable to him
or any provision of any agreement, contract or other instrument to which he is
a party or otherwise bound, (B) this Agreement constitutes the legal, valid and
binding obligation of Employee, enforceable against Employee in accordance with
its terms, and (C) he has not received any legal advice contrary to his
representations and warranties set forth in this Section 8.
Section 9. Certain Covenants.
9.1 Definitions. For the purposes of this Agreement, the following
definitions shall apply:
(a) "Affiliate of the Company" shall mean any corporation,
partnership or other entity or enterprise which, directly or indirectly, is
controlled by the Company and, if the Company becomes wholly-owned by any other
corporation, partnership or other entity or enterprise ("Parent"), then
"Affiliate of the Company" shall also include Parent and any corporation,
partnership or other entity or enterprise which, directly or indirectly,
controls, is controlled by, or is under common control with the Company or
Parent. For purposes of the preceding sentence, the word "control" (including
the terms "controlling," "controlled by" and "under common control with") shall
mean the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of an entity or enterprise, whether
through the ownership of voting securities or partnership interests, by
contract or otherwise.
(b) "Business" shall mean, to the extent engaged in by
Turner during the Employment Term, and together with any other business engaged
in by Turner during the Employment Term, any one or more of the following
businesses, provided that such business is a material part of Turner's business
at the date of Termination: ownership, creation, production and/or distribution
of audio-visual, audio or visual programming, whether fixed on film, videotape
or otherwise ("Programming") by any and all means, whether now known or
hereafter created, including, without limitation, satellite transmission (of
any kind), over-the-air broadcast, VHF or UHF television, microwave, wire,
video cassette, radio, computer, telephone or any combination of the foregoing
for ultimate viewing by the public (in public or private, with or without
charges); ownership and operation of a television station; ownership, operation
and distribution of cable television
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<PAGE> 15
entertainment program services; ownership, operation and distribution of cable
television news services; syndication and licensing of films or television
Programming; production and/or syndication of theatrical motion pictures;
ownership of a professional baseball club; ownership of an interest in a
professional basketball club; ownership of an interest in a multimedia sports
network; ownership or operation of a sports or entertainment stadium or arena,
the sale or marketing of Programming to distributors of Programming, such as
cable television system operators, the sale of advertising time in and adjacent
to Programming; the merchandising and licensing of consumer products derived
from Programming; and the book publishing business.
(c) "Competitive Position" shall mean: (i) Employee's
direct or indirect equity ownership (excluding equity ownership of less than
five percent (5%)) or control of any portion of any entity or enterprise (other
than the Company or any Affiliate of the Company) engaged, wholly or partly, in
any Business or (ii) any employment, consulting, partnership, joint venture,
advisory, directorship, agency, promotional or independent contractor
arrangement between Employee and any entity or enterprise (other than the
Company or any Affiliate of the Company) engaged, wholly or partly, in any
Business whereby Employee is required to or does perform services similar to
the "Services" (as defined in Section 1.1) on behalf of or for the benefit of
such an entity or enterprise.
(d) "Confidential Information" shall mean valuable,
non-public, competitively sensitive data and information relating to Turner's
business, other than Trade Secrets (as defined in Section 9.1(j).
(e) "Employment Term" shall mean the entire duration of
Employee's employment with the Company, including Employee's employment prior
to and during the Term through the Termination Date.
(f) "Employment Territory" shall mean the entire
continental United States. Given Employee's high level of executive
responsibility with respect to Turner's business and the fact that Turner's
business extends throughout the world, Employee acknowledges that Employee will
be expected to perform the Services throughout the entire continental United
States and beyond.
(g) "Parties" shall mean collectively the Company and
Employee.
(h) "Trade Secrets" shall mean information or data of or
about Turner, including, but not limited to, technical or non-technical data,
formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, products plans, or lists
of actual or potential
15
<PAGE> 16
customers, clients, distributees, or licenses, that: (i) derive economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from their disclosure or use; and (ii) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To the extent
that the foregoing definition is inconsistent with a definition of
"trade secret" mandated under applicable law, the latter definition shall
govern for purposes of interpreting Employee's obligations under this Agreement.
(i) "Turner" shall mean, collectively, the Company and all
Affiliates of the Company.
(j) "Work Product" shall mean work product, property,
data, documentation or information or materials prepared, conceived,
discovered, developed or created by Employee in connection with performing the
Services or any other of his employment responsibilities during the Employment
Term.
9.2 Limitation on Competition. Employee agrees that during the
Employment Term, Employee will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
conjunction with or in furtherance of a Competitive Position (other than action
to reject an offer of a Competitive Position) except with the prior written
permission of the Company. Employee agrees that Employee will not, anywhere in
the Employment Territory, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
conjunction with or in furtherance of a Competitive Position (other than action
to reject an offer of a Competitive Position and except with the prior written
permission of the Company) for a period of twelve (12) months after the
Termination Date if Employee is terminated by the Company for Good Cause
pursuant to Section 6.1(b)(iii), (v), (vi) or (vii) or Employee terminates his
employment pursuant to Section 6.2 or Section 6.3; provided, however, that
Employee may accept a Competitive Position or other position in the print media
without violating this Section 9.2. There shall be no limitation on competition
if either (i) Employee terminates his employment pursuant to Section 6.4 or
(ii) notwithstanding any other provision of this Agreement, the entity
controlling the Company after a Change of Control is not a Class C stockholder
of the Company as of the date of this Agreement or an entity 100% owned by such
a Class C stockholder.
9.3 Limitation on Soliciting Personnel. Employee agrees that,
except to the extent that Employee is required to do so in connection with his
employment responsibilities on behalf of the Company or except with the
Company's prior, written permission, during the Term, Employee will not, either
directly or indirectly, alone or in conjunction with any other party, solicit
or attempt to solicit any employee, consultant, contractor or other personnel
of Turner to terminate, alter or lessen that
16
<PAGE> 17
party's affiliation with Turner or to violate the terms of any agreement or
understanding between such employee, consultant, contractor or other person and
Turner. Employee agrees that, unless he has received the Company's prior
written permission to do so, Employee will not, either directly or indirectly,
alone or in conjunction with any other party, solicit or attempt to solicit any
"key" (as that term is defined in the next sentence) employee, consultant,
contractor or other personnel of Turner residing at the time of the
solicitation in the Employment Territory to terminate, alter or lessen that
party's affiliation with Turner or to violate the terms of any agreement or
understanding between such employee, consultant, contractor or other person and
Turner for a period of twelve (12) months after the Termination Date if
Employee is terminated by the Company for Good Cause pursuant to Section
6.1(b)(iii), (v), (vi), or (vii) or if Employee terminates his employment
pursuant to Sections 6.2 or 6.3. For purposes of the preceding sentence, "key"
employees, consultants, contractors or other personnel are those with knowledge
of or access to Trade Secrets and Confidential Information.
9.4 Trade Secrets and Confidential Information.
(a) Rights to Work Product. Except as expressly provided
in this Agreement, the Company alone shall be entitled to all benefits, profits
and results arising from or incidental to Employee's performance of the
Services. To the greatest extent possible, any Work Product shall be deemed to
be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. Section
101 et seq., as amended) and owned exclusively by the Company. Employee hereby
unconditionally and irrevocably transfers and assigns to the Company all
intellectual property or other rights, title and interest Employee may
currently have (or in the future may have) by operation of law or otherwise in
or to any Work Product. Employee agrees to execute and deliver to the Company
any transfers, assignments, documents or other instruments which the Company
may deem necessary or appropriate to vest complete title and ownership of any
Work Product, and all associated rights, exclusively in the Company.
(b) Non-disclosure Covenant. Through exercise of his
rights and performance of his obligations under this Agreement Employee will be
exposed to Trade Secrets and Confidential Information. Employee acknowledges
and agrees that any unauthorized disclosure or use of any of the Trade Secrets
or Confidential Information would be wrongful and would likely result in
immediate and irreparable injury to Turner. Except as required to perform his
obligations under this Agreement or except with Company's prior written
permission, Employee shall not, without the express prior written consent of
the Company, redistribute, market, publish, disclose or divulge to any other
person or entity, or use or modify for use, directly or indirectly in any way
for any person or entity: (i) any Trade Secrets at any time (during or after
the Term) during which such information or data shall continue to constitute a
"trade secret" under applicable
17
<PAGE> 18
law; and (ii) any Confidential Information during the Term and until the later
of (A) for a period of twelve (12) months after the Termination Date if
Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)
or if Employee terminates his employment pursuant to Sections 6.2, 6.3 or 6.4;
or (B) the last day following the Termination Date on which the Employee is
receiving severance benefits under Section 7.5. Employee agrees to cooperate
with any reasonable confidentiality requirements of the Company. Employee shall
immediately notify the Company of any unauthorized disclosure or use of any
Trade Secrets or Confidential Information of which Employee becomes aware.
9.5 Acknowledqment. The Parties acknowledge and agree that the
covenants of Employee in this Section 9 (collectively, the "Protective
Covenants") are reasonable as to time, scope and territory given Turner's need
to protect its substantial investment in its Confidential Information, Trade
Secrets and Customer relationships, and particularly given (a) the generous
compensation and benefits that are to be provided Employee both before and
after the Term, (b) Turner's investment of time, effort and capital in enhancing
Employee's business skills and opportunities, (c) the complexity and
competitive nature of the Company, and (d) that Employee has sufficient skills
to find alternative, commensurate employment or consulting work in Employee's
field of expertise that would not entail a violation of the Protective
Covenants. The Parties further acknowledge and agree that if the nature of
Employee's responsibilities for or on behalf of the Company and the
geographical areas in which Employee must fulfill them materially change, the
Parties will execute appropriate amendments to the scope of the Protective
Covenants. The Parties also acknowledge that the Company shall have the
discretion at any point to waive, in writing, Employee's full or partial
compliance with any one or more of the Protective Covenants. The Company agrees
to make appropriate executive officers available (before and after the Term) to
review and discuss the Protective Covenants with Employee. Employee represents
and warrants to the Company that during the Employment Term (up to the date of
this Agreement) he has not taken any action or failed to take any action that
could reasonably be construed as a breach of his covenants in this Section 9
(assuming for purposes of this sentence that the covenants in this Section 9
applied during the duration of the Employment Term).
9.6 Tolling. The running of the applicable time period of any
Protective Covenant shall be tolled: (a) during the continuation of any breach
by Employee of the Protective Covenant; and (b) during the pendency of any
litigation involving a good faith claim by the Company that Employee has
breached the Protective Covenant.
9.7 Return of Materials. At any point during the Term at the
specific request of the Company, or, in any event, as promptly as practicable
after Employee's employment hereunder has been terminated Employee will return
to the Company all Work
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<PAGE> 19
Product (including any copies or reproductions thereof and any materials
constituting or containing Trade Secrets or Confidential Information of the
Company that are in Employee's possession or control.
9.8 Remedies.
(a) Notwithstanding anything to the contrary in this
Agreement, in the event of a breach by Employee of any provision of this
Agreement, the Company shall have the right to set-off against any sums the
Company owes Employee the amount any damages incurred or suffered by the
Company as a result of the breach. Any such set-off shall not be presumed to be
in full satisfaction of or as liquidated damages for or as a release of any
claim for damages against Employee that may accrue to the Company as a result
of the breach. Notwithstanding Section 10 below, the Parties further
acknowledge that any breach or threatened breach of a Protective Covenant by
Employee is reasonably likely to result in irreparable injury to the Company,
and therefore, in addition to all remedies provided at law or in equity (which
remedies shall be cumulative and not mutually exclusive), Employee agrees that
the Company shall be entitled to file suit in a court of competent
jurisdiction, to seek a temporary restraining order and a permanent injunction
to prevent a breach or contemplated breach of the Protective Covenant. The
existence of any claim, demand, action or cause of action of Employee against
Turner, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of any of Employee's
obligations under this Agreement.
(b) The payments and benefits provided to Employee
pursuant to this Agreement shall constitute Employee's sole and exclusive
remedy against the Company in the event of any claim of Employee arising out of
any termination of his employment by the Company. The parties agree that such
payments and benefits shall constitute liquidated damages for any liability of
the Company as a result of such termination, and that the value of such
payments and benefits is a reasonable forecast of damages that the Employee
would sustain as a result of a wrongful termination of Employee's employment.
Accordingly, Employee hereby releases and discharges the Company and any of its
past, current or future directors, officers or employees or other personnel
from any and all liabilities, whether known or unknown, whether currently
existing or arising in the future, relating to or arising out of the
termination of Employee's employment with the Company, except for the Company's
stated obligations under this Agreement.
9.9 Cash Out. At the end of the twelve month noncompete period
pursuant to Section 9.2, either the Company or the Employee may elect, by
notice within thirty (30) days of such date, to pay or receive, as the case may
be, the present value of all then remaining cash payments and benefits to be
paid or made available to Employee pursuant to this Agreement. The present
value shall be calculated by using as a discount factor the yield
19
<PAGE> 20
of U.S. Treasury obligations as of the date such noncompete period ends having
maturities most closely approximating the last date on which such cash payments
or benefits would otherwise have been paid or made available pursuant to this
Agreement. The value of all benefits other than cash payments shall be
determined by Towers, Perrin or such other expert in employee benefits as may
be acceptable to the parties and such value converted to present value in
accordance with this Section 9.9.
Section 10. Arbitration. Any controversy or claim arising from,
out of or relating to this Agreement, or the breach thereof (other than
controversies or claims arising from, out of or relating to the provisions in
Section 9), shall be determined by final and binding arbitration in Atlanta,
Georgia, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association, by a panel of one (1) arbitrator appointed by
the American Arbitration Association. The decision of the arbitrator may be
entered and enforced in any court of competent jurisdiction by either the
Company or Employee.
The parties indicate their acceptance of the foregoing arbitration
requirement by initialing below:
/s/ WHP /s/ WTJ
--------------------------- ---------------------------
For the Employee
Company
Section 11. Miscellaneous.
11.1 Bindinq Effect. This Agreement shall inure to the benefit of
and shall be binding upon Employee and his executor, administrator, heirs,
personal representative and assigns, and the Company and its successors and
assigns; provided, however, neither party hereto shall be entitled to assign
any of its rights, or delegate any of its duties (except, in the case of
Employee, customary delegation of executive authority not inconsistent with
this Agreement; and except, in the case of the Company, and subject to
Employee's right to terminate pursuant to Section 6.2, to any person or entity
acquiring all or substantially all of the assets of the Company), hereunder
without the prior written consent of the other party. The Parties intend that
each Affiliate of the Company shall be the beneficiary of all the Company's
rights under this Agreement.
11.2 Governinq Law. This Agreement shall be deemed to be made in,
and in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of Georgia.
11.3 Certain Fees and Expenses. The Company shall pay, following
submission of statements therefor, the reasonable fees and expenses of counsel
incurred by Employee in connection with the negotiation and preparation of this
Agreement and the arrangements contemplated hereby. In the event of any
20
<PAGE> 21
arbitration, litigation or dispute whatsoever arising from a claim brought by
Employee to enforce the provisions of Section 7 of this Agreement, if Employee
prevails the Company shall pay, or reimburse Employee for, all reasonable legal
fees and expenses incurred by Employee in connection with such litigation or
dispute. Employee shall be deemed to have prevailed if he substantially obtains
the relief sought, either through a judgment or the Company's voluntary action
before arbitration (after it is scheduled), trial or judgment.
11.4 Headinqs. The section and subsection headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
11.5 Notices. Unless otherwise agreed to in writing by the parties
hereto, all communications provided for hereunder shall be in writing and shall
be deemed to be given when delivered if delivered in person or by telecopy or
five (5) business days after being sent by first-class mail, registered or
certified, return receipt requested, with proper postage prepaid, and
(a) If to Employee, addressed to:
W. Thomas Johnson
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
with a copy to:
Walter W. Driver, Jr., Esquire
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
(b) If to the Company, addressed to:
Mr. R.E. Turner
Chairman and President
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
with a copy to:
Steven W. Korn, Esq.
Vice President and General Counsel
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
21
<PAGE> 22
or to such other person or address as shall be furnished in writing by any
party to the other prior to the giving of the applicable notice or
communication.
11.6 Schedules. All Schedules to this Agreement are attached and
are hereby made a part of this Agreement by this reference.
11.7 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
11.8 Entire Agreement. This Agreement is intended by the parties
hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement may be modified only by a written
instrument signed by each of the parties hereto.
11.9 Severability. All provisions of this Agreement are severable
from one another, and the unenforceability or invalidity of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement; provided, however, that should any judicial body
interpreting this Agreement deem any provision to be unreasonably broad in
time, territory, scope or otherwise, the Company and Employee intend for the
judicial body, to the greatest extent possible, to reduce the breadth of the
provision to the maximum legally allowable parameters rather than deeming such
provision totally unenforceable or invalid.
11.10 Waiver. The waiver by either the Company or Employee to this
Agreement of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any prior or subsequent breach of the same
provision by the other party or a waiver of a breach of another provision of
this Agreement by the other party. No waiver or modification of any provision
of this Agreement shall be valid unless in writing and duly executed by the
party to be charged with the waiver or modification.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ Wayne H. Pace
------------------------------
Name: Wayne H. Pace
------------------------
Title: Vice President &
-----------------------
Chief Financial Officer
Attest: /s/ Steven W. Korn -----------------------
-------------------------------
Name: Steven W. Korn
---------------------------------
Title: Vice President
-------------------------------
EMPLOYEE
/s/ W. Thomas Johnson
------------------------------
W. Thomas Johnson
23
<PAGE> 24
W. THOMAS JOHNSON
EMPLOYMENT CONTRACT
SCHEDULE 1.1 (a)
President, Cable News Network, Inc.
Vice-President-News, Turner Broadcasting System, Inc.
Director, Turner Broadcasting System, Inc.
<PAGE> 25
W. THOMAS JOHNSON
EMPLOYMENT CONTRACT
SCHEDULE 1.1 (b)
In charge of Headline News and CNN International.
Responsible for all news divisions of Turner Broadcasting System,
Inc., including overseeing newsgathering, news presentations, news
standards and all operations of news divisions (accounting, finance,
promotion, marketing, new technology, business news, sports news,
production, operations, international news, domestic news offices,
anchors, all bureaus, CNN public affairs).
Reporting directly to Ted Turner, Chairman and President of Turner
Broadcasting System, Inc.
<PAGE> 26
W. THOMAS JOHNSON
EMPLOYMENT CONTRACT
SCHEDULE 3.2
Salary:
1994 - $700,000
1995 - $735,000
1996 - $770,000
1997 - $810,000
Bonus:
1994 - $350,000
1995 - $365,000
1996 - $385,000
1997 - $405,000
Special Bonus:
$299,000
Stock Grant:
13,800 shares Class B common stock
Stock Options:
300,000 shares Class B common stock at 27-1/8 dollars per
share, vesting in four equal installments, 75,000 shares on
December 20, 1994 and 75,000 shares on December 20 of each of
1995, 1996 and 1997.
<PAGE> 27
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made and
entered into as of the 26th day of January, 1994 by and between W. Thomas
Johnson, an individual resident of the State of Georgia (hereinafter referred
to as "Employee"), and Turner Broadcasting System, Inc., a corporation
organized under the laws of the State of Georgia (hereinafter referred to as
the "Company");
W I T N E S S E T H:
WHEREAS, Employee and the Company are parties to that certain
employment agreement of December 20, 1993 (the "Employment Agreement");
WHEREAS, the parties desire to enter into this Amendment to amend the
Employment Agreement so as to accurately reflect their original understanding
and intentions with respect to a certain aspect of the Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree to amend the Employment Agreement as follows:
1. All of the second sentence of Section 3.2 of the Employment Agreement
beginning with the underlined phrase "provided, however," is hereby deleted and
------------------
is replaced with the following: "the provision in the TIP which affords
eligible employees the opportunity to earn up to 150% of their Target Award
under certain circumstances shall be applicable hereunder. Accordingly,
pursuant to TIP, Employee shall be eligible to earn up to 150% of the Annual
Bonus set forth on Schedule 3.2 of the Employment Agreement."
2. Except as expressly amended hereby, the terms and conditions of the
Employment Agreement shall remain in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ Wayne H. Pace
----------------------------
Its: Vice President - Finance
----------------------------
ATTEST: /s/ Steven W. Korn
-------------------------
NAME: Steven W. Korn
-------------------------
TITLE: Vice President
-------------------------
EMPLOYEE
/s/ W. Thomas Johnson
--------------------------------
W. Thomas Johnson
<PAGE> 1
EXHIBIT 10.40
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into as of the 20th day
of December, 1993, by and between TERENCE F. MCGUIRK, an individual resident
of the State of Georgia (hereinafter referred to as "Employee"), and TURNER
BROADCASTING SYSTEM, INC., a corporation organized under the laws of the State
of Georgia (hereinafter referred to as the "Company");
W I T N E S S E T H:
WHEREAS, Employee is presently employed by the Company;
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") recognizes that Employee's contribution to the growth and success
of the Company has been substantial and desires to provide for the continued
employment of Employee and to make certain changes in Employee's employment
arrangements with the Company that the Board of Directors has determined will
reinforce and encourage Employee's continued attention and dedication to the
affairs of the Company;
WHEREAS, Employee is willing to commit himself to continue to serve
the Company on the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and Employee
wish to enter into an employment agreement on the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
Section 1. Scope of Employment.
1.1 Employment. Subject to terms hereof, the Company hereby agrees
to the continued employment of Employee, and Employee hereby accepts such
continued employment. Employee shall hold the office(s) set forth on Schedule
l.l(a) hereto and, as such, shall perform the executive-level services
(collectively, "Services") described on Schedule l.l(b) hereto. Employee shall
report directly to the Chief Executive Officer of the Company, currently Mr.
R.E. Turner. Employee shall devote substantially all of Employee's productive
business time, energy and skill (except on vacation days and holidays) to
performing his obligations hereunder and shall perform his obligations
hereunder diligently, faithfully and to the best of Employee's abilities.
Notwithstanding the foregoing provisions, Employee shall be entitled to serve
on the board of directors of any civic,
<PAGE> 2
charitable or professional organization, provided that such service does not
materially interfere or conflict with Employee's provision of the Services or
his fulfillment of any of his other obligations under this Agreement.
1.2 Place of Performance. During the term of his continued
employment hereunder (the "Term"), Employee shall be based in Atlanta, Georgia
at the principal executive offices of the Company, except for reasonably
required travel on business.
1.3 Compliance with Policies. Subject to the terms of this
Agreement, during the Term, Employee shall comply in all material respects with
all policies and procedures applicable to senior executives of the Company
generally and to Employee specifically, including, without limitation, the
Company's Code of Ethics and Business Conduct.
Section 2. Term. The Term shall commence on the date of this
Agreement and continue until the earlier to occur of the following: (a) the
date that is four (4) years after the date of this Agreement; or (b) in the
event Employee's employment is terminated pursuant to Section 6 with an
effective date that is prior to the date set forth in (a), then the effective
date of such termination. References in this Agreement to the "Four-Year Term"
shall refer to the period of time from the date of this Agreement to the date
that is four (4) years after the date of this Agreement.
Section 3. Cash Compensation; Expenses.
3.1 Base Salary. Employee shall be paid a base salary (the "Base
Salary") during the Term as described on Schedule 3.2 hereof. The Base Salary
(and all other payments to be made to Employee pursuant to this Section 3)
shall be (a) payable on the schedule that the Company may implement from time
to time for such payments, and (b) subject to any withholdings and deductions
required by applicable law.
3.2 Bonus. During the Term, Employee shall be paid an annual bonus
(the "Annual Bonus"), if earned, as set forth on Schedule 3.2 hereof. The
Annual Bonus shall be earned, paid, administered and governed by the terms and
conditions of the Turner Incentive Plan (the "TIP") and any plan that is a
successor thereto, provided, however, that the bonus amounts set forth on
Schedule 3.2 are the maximum annual bonus amounts for Employee notwithstanding
the terms and conditions of the TIP. Notwithstanding the foregoing, if the TIP
is terminated by the Company, Employee will continue to remain eligible to
receive the Annual Bonus on terms and conditions substantially similar to those
of the TIP during the last year that Employee's Annual Bonus was administered
and governed by the TIP.
-2-
<PAGE> 3
3.3 Long-Term Incentive Plan. During the Term, Employee shall be
entitled to participate in the Long-Term Incentive Plan (together with any
successor plan, "LTIP"). All awards under the LTIP shall be made in accordance
with and subject to the terms of all relevant LTIP documentation and shall be
based upon the LTIP cycle in effect at the time of the award. The LTIP shall
continue in effect during the Term.
3.4 Expense Reimbursement. The Company shall pay or reimburse
Employee for all reasonable business expenses incurred or paid by Employee in
the course of performing his duties hereunder (it being agreed by the parties
hereto that business expenses incurred by Employee shall be deemed to be
reasonable if such expenses would have been reimbursed under current practices
or the expense reimbursement policy of the Company that is applicable to
Employee on the date hereof). As a condition to such payment or reimbursement,
however, Employee shall maintain and provide to the Company, upon the Company's
request, reasonable documentation and receipts for such expenses.
Section 4. Stock-Based Compensation; Special Bonus.
4.1 Stock Option Plan. During the Term, Employee shall be entitled
to participate in the Turner Broadcasting System, Inc. 1988 Stock Option Plan
and any successor stock-based employee incentive plans (collectively, the
"Stock Option Plan"). Contemporaneously with the execution of this Agreement
(or as soon thereafter as reasonably practicable), Employee will be granted the
shares of the Company's Class B Common Stock (the "Grant Shares") and the
options to purchase shares of the Company's Class B Common Stock (the "Option
Shares") under the Stock Option Plan in the number of shares described on
Schedule 3.2 hereof. Contemporaneously with the execution of this Agreement,
the Company and the Employee shall enter into a Stock Option Agreement in the
form of Exhibit A hereto with respect to the Option Shares (the "Option
Agreement"). For purposes of Employee's future participation for possible
additional grants of stock options or grants under the Stock Option Plan, he
will be reviewed and considered for a grant at the same time as, and on a basis
and subject to terms that are consistent with, the basis and terms that govern
grants to other senior executive officers of the Company, taking into account
Employee's position and responsibilities.
4.2 Special Bonus. In addition to any payments made by the Company
to Employee hereunder or otherwise, contemporaneously with the transfer of the
Grant Shares to Employee pursuant to Section 4.1, the Company shall pay to
Employee the Special Bonus described on Schedule 3.2, less any withholding and
deductions required under applicable law.
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Section 5. Additional Employee Benefits.
5.1 Benefit Plans. During the Term, Employee shall be entitled to
participate in all other employee benefit plans and executive compensation
arrangements listed on Schedule 5.1, together with any additional plans or
arrangements available to employees generally or to executives or senior
executives of the Company as a group, subject in each case to terms and
conditions set forth in the plan or program documentation (collectively, the
"Benefit Plans"). During the Term, the Company agrees not to modify or amend
any material terms of the Benefit Plans or LTIP in any respect that would cause
the benefit that Employee would otherwise receive thereunder to be materially
reduced unless the Company makes up for such reduction by providing Employee
with supplemental benefits (or, in the Company's discretion, cash) with a value
that is substantially equivalent to the reduction.
5.2 Vacation. Employee shall be entitled to at least four (4) paid
weeks of vacation per year during the Term, to be accrued and taken in
accordance with a policy that is no less favorable for Employee than the
Company's normal vacation policy applicable to senior executive employees.
5.3 Automobile Allowance; Travel Benefits. The Company shall pay
Employee no less than Eight Hundred Fifty Dollars ($850.00) per month during
the Term as an automobile allowance. To the extent such benefits are normally
extended to other executive officers of the Company, during the Term, Employee
shall be entitled to first class air travel for all employment-related air
travel, subject to availability of first class seating on a particular flight.
5.4 Memberships. During the Term, the Company shall continue to
reimburse Employee for all costs and expenses associated with the maintenance
of Employee's current membership in those business and social clubs and
associations for which he is as of the date of this Agreement being reimbursed
by the Company. In addition, the Company shall reimburse Employee for all costs
and expenses associated with Employee's obtaining and maintaining membership in
one additional club or association.
5.5 Financial Counseling. During the Term, the Company shall
reimburse Employee for up to $5,000 per year for costs and expenses incurred by
Employee in connection with financial and tax counseling and tax return
preparation.
5.6 Company-Paid Life Insurance. In combination with life
insurance currently provided at the Company's expense, during the Term,
Employee shall be provided with life insurance coverage equal to 2.5 times his
then current Base Salary.
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5.7 Long-Term Disability Salary Replacement. During the Term,
regardless of the limitations on the maximum salary level covered in the
current Long-Term Disability Plan or any future plan (collectively, the
"Disability Plan"), Employee shall, subject to the other provisions of the
Disability Plan, be entitled to purchase insurance under the Disability Plan
providing disability compensation of up to two-thirds of his then current Base
Salary for no more than the maximum annual cost (adjusted on a pro rata basis
to reflect the percentage increase in coverage over the standard coverage) as
currently in effect under the Disability Plan. In the event that the
Disability Plan does not permit the purchase of coverage of up to two-thirds of
Employee's then current Base Salary or coverage is otherwise not reasonably
available, the Company shall purchase or otherwise provide Employee with
supplemental coverage to the extent of any shortfall (up to a maximum
additional coverage to be provided by the Company of $200,000) in such coverage
that may be purchased by Employee under the Disability Plan. Disability
payments will commence three (3) months after Employee becomes disabled and
shall continue until Employee reaches 65 years of age (whether or not Employee
has retired previously) in accordance with the terms of the current Disability
Plan. The disability triggering Employee's rights under this Section 5.7 must
occur prior to the date of any Notice of Termination hereunder. Notwithstanding
anything to the contrary in this Agreement, the Company shall be entitled to
deduct without duplication from the aggregate of compensation related or
similar payments otherwise payable to Employee pursuant to this Agreement an
amount equal to all disability payments received by Employee pursuant to any
disability insurance, and worker's compensation and social security policies
maintained by the Company.
5.8 Post Retirement Medical Benefits. Each year commencing on the
date (the "Retirement Date") after (a) Employee becomes 65 years of age or (b)
Employee retires from the Company by giving notice to the Company that the
Employee intends to retire and does not intend to seek other full-time
employment, whichever occurs first, the Company shall reimburse Employee an
amount (the "Annual Premium Amount ") of up to an aggregate of Three Thousand
Dollars ($3,000.00) (an amount which shall be increased each year in the manner
as set forth below) for insurance premiums with respect to medical insurance
covering Employee, his spouse and dependents, if any. Immediately prior to the
Retirement Date, the Annual Premium Amount shall be adjusted by multiplying the
Annual Premium Amount by a fraction (expressed a percentage), the numerator of
which is the most recently published "CPI" (as hereinafter defined) as of the
Retirement Date and the denominator of which shall be the most recently
published CPI as of the date of this Agreement. In addition, at the beginning
of each calendar year thereafter, the Annual Premium Amount shall be adjusted
by multiplying the then current Annual Premium Amount by a fraction (expressed
as a percentage), the numerator of which shall be the most recently published
CPI as of the end of the immediately preceding year and the denominator of
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which shall be the numerator used in the calculation relating to the previous
calendar year. For the purposes of this Agreement, "CPI" shall mean the
Consumer Price Index for All Urban Consumers, U.S. City Average, Medical Care
Index (1982-84 = 100) (unadjusted) published by the Bureau of labor Statistics,
United States Department of Labor. Notwithstanding anything to the contrary in
this Agreement, the benefits covered by this Section 5.8 shall not be available
to Employee if Employee is terminated by the Company for "Good Cause."
5.9 Indemnification. The Company shall indemnify and hold harmless
Employee if Employee is made a party, or is threatened to be made a party, to
any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, whether formal or informal,
including any action or suit by or in the right of the Company (for purposes of
this Section 5.9, collectively, a "Proceeding") because he is or was an
officer, employee, or agent of the Company, against any judgment, settlement,
penalty, fine, or reasonable expenses (including, but not limited to,
attorneys' fees and disbursements, court costs, and expert witness fees)
incurred with respect to the Proceeding (for purposes of this Section 5.9, a
"Liability"), if he acted in a manner he believed in good faith to be in or not
opposed to the best interests of the Company, and, in the case of any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
Company shall indemnify Employee to the maximum extent permitted by Georgia
law.
Section 6. Termination.
6.1 Termination by the Company. Employee's employment hereunder
may be terminated by the Company under the circumstances set forth in (a), (b)
and (c) below.
(a) Death or Total Disability. The Company may terminate
Employee's employment hereunder upon the death of Employee or Employee's total
disability (total disability meaning the inability of Employee to perform
substantially all of his current duties as required hereunder for a continuous
period of 183 days because of a mental or physical condition, illness or
injury).
(b) Good Cause. The Company may terminate Employee's
employment hereunder for "Good Cause." For the purposes of this Agreement, the
Company shall have "Good Cause" for termination of Employee's employment only
(i) if Employee is convicted of or pleads guilty to any felony (except if
committed upon advice from counsel to the Company), or (ii) if Employee has
engaged in conduct or activities involving moral turpitude materially damaging
to the business or reputation of the Company or any Affiliate of the Company,
or (iii) if Employee habitually engages in the immoderate use of alcoholic
beverages or engages in the illegal use of a controlled substance; or (iv) if
Employee
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violates any law, rule, regulation or order of any governmental authority,
thereby exposing the Company or any Affiliate of the Company (as defined in
Section 9.1(a)) to potential material civil or criminal penalties unless the
Employee has done so upon advice from counsel to the Company; or (v) in the
event of Employee's default, gross misfeasance, fraud, embezzlement in the
performance of his obligations hereunder or if Employee breaches or fails to
observe the terms of this Agreement in any material respect and fails to cure
such breach or failure within ten (10) days after notice thereof from the
Company or if any representation or warranty of Employee in this Agreement
shall be incorrect in any material respect, or (vi) if Employee persistently
and willfully fails or refuses to obey any proper written direction of the
Board of Directors or Chief Executive Officer of the Company, or (vii) if
Employee knowingly, and with intent, misappropriates for his own purpose and
benefit, any property of the Company or any Affiliate of the Company or
unlawfully appropriates any corporate opportunity of the Company or any
Affiliate of the Company.
(c) Discretionary Termination. The Company shall have the
right at any point during the Term to terminate the employment of Employee
hereunder for any reason or for no reason; provided, however, that the
Company's termination of Employee pursuant to Section 6.1(a) or 6.1(b) shall
not, for any purpose, also be construed as a termination pursuant to this
Section 6.1(c). If the Company commits a breach of any of its material
obligations under this Agreement and fails to cure the breach within ten (10)
days of being provided written notice of the breach by Employee, then if
Employee so chooses (and indicates such choice in such ten-day written notice),
the Company shall be deemed to have exercised its right to terminate Employee's
employment pursuant to this Section 6.1(c).
6.2 Change in Control Termination by Employee. Employee may
terminate his employment for any reason within ninety (90) days after the
occurrence of a "Change of Control" of the Company. For all purposes under this
Agreement, a "Change of Control" of the Company shall be deemed to have
occurred if any of the following events have occurred (a) both of the following
events have occurred: (i) R.E. Turner is no longer the Chief Executive Officer
of the Company and its consolidated operations; and (ii) "Continuing Common
Stock Directors" (as defined below) no longer constitute (except by reason of a
temporary vacancy lasting no longer than six months among the Common Stock
Directors) a majority of the Company's Board of Directors; or (b) the Company
shall sell, transfer or otherwise dispose of all or substantially all of the
assets of the Company or the assets, if any, identified on Schedule 6.2 hereof;
or (c) the shareholders and the Board of Directors shall have approved any plan
or proposal for liquidation or dissolution of the Company; or (d) R.E. Turner
dies. For purposes of this Section 6.2, "Continuing Common Stock Directors"
shall include only (i) all persons who are initially elected (if elected at a
shareholders meeting) or appointed (if filling a vacancy on the Company's Board
of Directors) to the
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Company's Board of Directors as Common Stock Directors (as defined in Article
XII, Section 2(b) of the Company's By-laws) and at a time when R.E. Turner owns
in excess of 50% of the voting power of all classes of the outstanding Common
Stock of the Company; and (ii) all persons who are initially nominated for
election (if elected at a shareholders meeting) or appointed (if filling a
vacancy on the Company's Board of Directors) by at least a majority of the
Common Stock Directors described in (i) then serving on the Company's Board of
Directors; and (iii) all persons who are initially nominated for election (if
elected at a shareholders meeting) or appointed (if filling a vacancy on the
Board) by at least a majority of the Common Stock Directors and persons then
serving on the Company's Board of Directors who would constitute Continuing
Common Stock Directors under either (i) or (ii). A person shall no longer be a
Continuing Common Stock Director after his or her service on the Company's
Board of Directors is terminated unless reelected or reappointed in the manner
described in (i) - (iii) above. Until Article XII of the Company's By-laws is
amended or eliminated in such a way as to eliminate the two classes of the
Company's directors, of which Common Stock Directors constitute one, then all
Continuing Common Stock Directors must be Common Stock Directors. For purposes
of this Section 6.2, reference to the Company or the Company's Board of
Directors includes the current corporation on the date hereof and any
corporation which is the legal successor to the current corporation by virtue
of common stock merger or share exchange, provided that such successor
corporation is not the subsidiary of, or 50% or more of its common stock is not
beneficially owned by, any person, corporation or legal entity other than R.E.
Turner.
6.3 Termination by Employee for "Good Reason." Employee may
terminate his employment hereunder for "Good Reason" (assuming he has not given
the Company notice of his intention to terminate pursuant to Section 6.2)
within ninety (90) days after the occurrence of any of the following events
prior to the end of the Term: (i) Employee is not reelected to or is removed
(other than for cause) from any of the offices set forth on Schedule l.l(a); or
(ii) Employee is not reelected to or is removed (other than for cause) from the
Board of Directors of the Company; or (iii) action is taken by the Company or
the Board of Directors of the Company that has the effect of divesting
Employee, or materially interfering with the exercise by Employee, of authority
to perform the Services; or (iv) Employee or the Company's executive offices
are relocated more than thirty (30) miles from the Company's current executive
offices located at One CNN Center, Atlanta, Georgia; or (v) the Company fails
to obtain the written assumption of this Agreement by any successor of the
Company or any assignee of all or substantially all of its assets at or prior
to such succession or assignment; or (vi) the Company breaches or fails to
observe any of the terms of this Agreement in any material respect and fails to
cure such breach or failure within ten (10) days after the Company has received
written notice thereof from Employee, or any representation or warranty of the
Company in this Agreement shall be incorrect in
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any material respect. Notwithstanding anything to the contrary in this
Agreement, Employee shall not be entitled to terminate for Good Reason if the
Company at such time is entitled to (and has not otherwise waived its right or
indicated its election not to) terminate Employee pursuant to Section 6.1(a) or
6.1(b) unless one hundred twenty (120) days has elapsed since the first date
the Company could have terminated Employee pursuant to Section 6.1(a) or
6.1(b).
6.4 Other Termination by Employee. If Employee's responsibilities
no longer include reporting directly to R. E. Turner, Employee may elect to
terminate his employment.
6.5 Termination Date and Notice of Termination.
(a) Any termination of Employee's employment by the
Company or by Employee (other than termination upon the death of Employee)
shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated.
(b) "Termination Date" shall mean (i) if Employee's
employment is terminated by his death, the date of his death, (ii) if
Employee's employment is terminated pursuant to Section 6.1(a) hereof as a
result of Employee's total disability, thirty (30) days after Notice of
Termination is given (provided that, with respect to a termination pursuant to
Section 6.1(a) as a result of Employee's total disability, Employee shall not
have returned to the performance of duties on a full-time basis during such
thirty (30) day period), (iii) if Employee's employment is terminated pursuant
to Section 6.1(b) hereof, the date on which such Notice of Termination is
given, (iv) if Employee's employment is terminated by Employee for "Good
Reason" or by the Company pursuant to Section 6.1(c), thirty (30) days after
Notice of Termination is given by Employee, and (v) if Employee's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
Section 7. Compensation Upon Termination or During Disability.
7.1 Incapacity. During any period in which Employee fails to
perform his duties hereunder as a result of incapacity due to physical or
mental injury or illness, Employee shall continue to receive his then current
full Base Salary, including the minimum increases thereto contemplated in
Section 3.1, for such period until his employment is terminated pursuant to
Section 6.1(a).
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7.2 Termination by the Company Due to Death or Total Disability.
If Employee's employment is terminated as a result of his death or his total
disability under Section 6.1(a), the Company shall, in the case of Employee's
death, pay to Employee's wife, or such different person as Employee designates
in writing, and, in the case of Employee's total disability, pay to Employee
(a) an amount equal to his then current full Base Salary, including the minimum
increases thereto set forth on Schedule 3.2, through the Termination Date and
during the remainder of the Four-Year Term, (b) if the Termination Date occurs
prior to the end of any LTIP cycle during which Employee is participating in
the LTIP, an "Adjusted LTIP Award," which shall consist of an award of cash
equal to (i) the amount of cash that would have been awarded to Employee if
Employee's Termination Date had coincided with the end of the then current LTIP
cycle less (ii) a prorated amount attributable to the unexpired portion of the
then current LTIP cycle, and (c) an "Adjusted Annual Bonus," with respect to
the fiscal year that includes the Termination Date, which Adjusted Annual Bonus
shall consist of an amount equal to the Annual Bonus that would otherwise be
due and payable hereunder with respect to such fiscal year multiplied by a
fraction, the numerator of which is the total number of days during the fiscal
year that Employee was employed hereunder and the denominator of which is 365.
In addition to the above payments, if Employee's employment is terminated as a
result of his total disability pursuant to Section 6.1(a), the Company shall
provide Employee during the remainder of the Four-Year Term with benefits
substantially similar to the benefits Employee would be entitled to receive
under the Benefit Plans had Employee not been terminated (or, in lieu of
providing Employee such benefits, the Company may provide Employee with cash
equal to the value of such benefits). Notwithstanding any provision contained
herein to the contrary, the Company shall have the right to offset any amount
to be paid to or benefit to be provided to Employee by the Company pursuant to
clause (a) of this Section 7.2 during any particular month against amounts that
will be paid to Employee during such month under the Company's Disability Plan.
7.3 Termination by Company for Good Cause. If the Employee's
employment is terminated for Good Cause pursuant to Section 6.1(b), the Company
shall pay Employee his then current full Base Salary through the Termination
Date and such other benefits (including stock grants, stock options, LTIP, and
Adjusted Annual Bonus) as are otherwise vested and due to Employee as of the
Termination Date (calculated as provided in Section 7.2).
7.4 Termination by Employee After a Change in Control. If Employee
terminates his employment pursuant to Section 6.2 following a Change in Control
or pursuant to Section 6.4, the Company shall pay Employee all earned and
vested rights as of the Termination Date, including, without limitation, his
then current Base Salary through the Termination Date, an Adjusted Annual Bonus
(calculated as provided in Section 7.2), an Adjusted LTIP Award
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(calculated as provided in Section 7.2) and all vested stock grants or stock
options.
7.5 Termination by Employee with Good Reason or by the Company
Pursuant to Section 6.1(c). If Employee shall terminate his employment for Good
Reason pursuant to Section 6.3 or the Company shall terminate Employee pursuant
to Section 6.1(c), the following provisions shall govern:
(i) Base Salary Equivalent. The Company shall pay
Employee an amount equal to Employee's Base Salary as shown on
Schedule 3.2 for the respective years, after the Termination Date for
a period equal to the greater of (A) the number of months (and partial
months) otherwise remaining in the Four-Year Term as of the
Termination Date or (B) thirty-six (36) months from the Termination
Date. To any extent that the period in the preceding clause (B)
extends past December 20, 1997, the annual amount payable pursuant to
this Section 7.5(i) shall be equal to the base salary for 1997 shown
on Schedule 3.2. Except as may be elected by either party pursuant to
Section 9.9, payments pursuant to this Section 7.5(i) shall be at such
times and in accordance with such procedures as apply to payments
governed by Section 3.
(ii) Annual Bonus Equivalent. The Company shall pay
Employee an amount equal to Employee's bonus as shown on Schedule
3.2 for the respective years after the Termination Date for a period
equal to the greater of (A) the number of months (and partial months)
otherwise remaining in the Four-Year Term as of the Termination Date
or (B) thirty-six (36) months from the Termination Date, with such
Annual Bonus equivalents to be prorated to reflect any partial year
falling within the period specified in (A) or (B), as the case may be.
To any extent that the period in the preceding clause (B) extends past
December 20, 1997, the annual amount payable pursuant to this Section
7.5(ii) shall be equal to the bonus amount for 1997 shown on Schedule
3.2.
(iii) Adjusted LTIP Award. The Company shall pay Employee
an Adjusted LTIP Award (calculated as provided in Section 7.2) if the
Termination Date occurs prior to the end of any LTIP cycle during
which Employee is participating in the LTIP.
(iv) Acceleration of Stock Option Vesting. The Company
shall cause the vesting of any Company stock options held by Employee
to be accelerated to the Termination Date and provide that Employee
shall be entitled to give notice of exercise of all such options for
thirty (30) days after the Termination Date.
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(v) Vested Plan Benefits. The Company shall pay or make
available to Employee all vested benefits accrued or available under
any Benefit Plan in accordance with and subject to the terms of such
Benefit Plans.
(vi) Miscellaneous Health, Death and Disability Benefits.
The Company shall provide Employee with life insurance and other death
benefits, health and medical benefits and long term disability
benefits substantially similar to those benefits provided to Employee
prior to the Termination Date under the Benefit Plans on Schedule
7.5(vi) after the Termination Date for a period equal to the greater
of (A) the number of months (including partial months) otherwise
remaining in the Four-Year Term as of the Termination Date or (B)
thirty-six (36) months from the Termination Date.
(vii) Supplemental Compensation Benefits. The Company shall
provide supplemental compensation benefits (current and deferred) to
Employee substantially similar to those provided to Employee under the
Benefit Plans listed on Schedule 7.5(vii) (which supplemental benefits
shall be determined as if Employee had continued after the Termination
Date to receive the same level of total compensation as in effect
immediately before the Termination Date) until the end of the period
equal to the greater of (A) the number of months (including partial
months) otherwise remaining in the Four-Year Term as of the
Termination Date or (B) thirty-six (36) months from the Termination
Date, and such supplemental benefits shall be provided to him at the
same time and in the same manner as a benefit that would be payable to
him under each such Benefit Plan had Employee actually continued to
work until the end of such period.
(viii) Office Space. The Company shall furnish Employee with
office space, secretarial assistance and such other facilities and
services as are provided to senior executives of the Company for a
period of twelve (12) months following the Termination Date; provided,
however, the Company shall not be required to continue to provide
Employee with the items set forth in this clause (viii) in the event
that Employee begins other full time employment during such
twelve-month period.
(ix) Placement Services. The Company shall provide
Employee with the assistance of a nationally recognized executive
placement firm for a period of twelve months following the Termination
Date; provided, however, the Company shall not be required to continue
to provide Employee with such assistance in the event that Employee
begins other full time employment during such period.
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7.6 Discontinuation of Benefits. Notwithstanding anything to the
contrary in this Agreement, after the Termination Date, the Company shall not
be required to continue to provide Employee with any benefits pursuant to
Section 7.5(vi) and (vii) if and to the extent that Employee has obtained new
employment and the new employer provides Employee with equal or better coverage
at no or comparable cost to Employee. Nothing in this Agreement is intended to
permit Employee to receive, after the Termination Date, a greater package of
benefits than he would have been entitled to receive during the same period
from the Company had his employment not terminated.
7.7 Conditional Receipt of Benefits. Employee acknowledges and
agrees that his right to any compensation or benefits as provided in this
Agreement is conditioned on his compliance with all of his obligations in
Section 9. Accordingly, Employee agrees that if he fails to comply with any
covenant of his contained in Section 9 (regardless of whether such
non-compliance occurs during or after the Term), he will not be entitled to any
further payment by the Company of compensation or benefits (including those
that have vested as of the date of such non-compliance).
7.8 No Duty to Mitigate. Employee shall not be required to
mitigate the amount of any payment provided for in this Section 7 by seeking
other employment or otherwise. Except as otherwise expressly set forth in this
Section 7, no amounts due to Employee by the Company under this Section 7 shall
be reduced or offset by any compensation whatsoever received by Employee from
any other employment of Employee.
Section 8. Representations of the Parties. The Company
represents and warrants to Employee that (a) this Agreement and the Option
Agreement have been duly executed and delivered by the Company, (b) the
execution, delivery and performance of this Agreement and the Option Agreement
by the Company has been duly authorized by all necessary corporate action on
the part of the Company including all applicable committees of the Board of
Directors or otherwise, (c) this Agreement and the Option Agreement constitute
the legal, valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, (d) the execution, delivery and
performance of this Agreement and the Option Agreement by the Company do not
and will not conflict with, violate, or constitute a breach of or default
under, (i) the Articles of Incorporation or By-laws of the Company or any of
its subsidiaries, (ii) any provision of law or regulations applicable to the
Company or any of its subsidiaries, (iii) any provision of any indenture,
agreement or other instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or
affected, with respect to which any such conflict, violation, breach or default
would render this Agreement unenforceable or would have a material adverse
effect on the financial condition of
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the Company or any of its subsidiaries, or (iv) the Company's 1988 Stock Option
Plan, (e) the Option Shares are and at all times during the period of the
Option Agreement shall be available under the Plan and there is and will be no
violation of Section 5(a) of the Plan with respect to the Option Shares, and
(f) the Company has not received any legal advice contrary to the Company's
representations and warranties set forth in this Section 8. Employee represents
and warrants to the Company that (A) his execution, delivery and performance of
this Agreement do not and will not conflict with, violate, or constitute a
breach of or default under any provision of law or regulation applicable to him
or any provision of any agreement, contract or other instrument to which he is
a party or otherwise bound, (B) this Agreement constitutes the legal, valid and
binding obligation of Employee, enforceable against Employee in accordance with
its terms, and (C) he has not received any legal advice contrary to his
representations and warranties set forth in this Section 8.
Section 9. Certain Covenants.
9.1 Definitions. For the purposes of this Agreement, the following
definitions shall apply:
(a) "Affiliate of the Company" shall mean any
corporation, partnership or other entity or enterprise which, directly or
indirectly, is controlled by the Company and, if the Company becomes
wholly-owned by any other corporation, partnership or other entity or
enterprise ("Parent"), then "Affiliate of the Company" shall also include
Parent and any corporation, partnership or other entity or enterprise which,
directly or indirectly, controls, is controlled by, or is under common control
with the Company or Parent. For purposes of the preceding sentence, the word
"control" (including the terms "controlling", "controlled by" and "under common
control with") shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of an entity or
enterprise, whether through the ownership of voting securities or partnership
interests, by contract or otherwise.
(b) "Business" shall mean, to the extent engaged in by
Turner during the Employment Term, and together with any other business engaged
in by Turner during the Employment Term, any one or more of the following
businesses, provided that such business is a material part of Turner's business
at the date of Termination: ownership, creation, production and/or distribution
of audio-visual, audio or visual programming, whether fixed on film, videotape
or otherwise ("Programming") by any and all means, whether now known or
hereafter created, including, without limitation, satellite transmission (of
any kind), over-the-air broadcast, VHF or UHF television, microwave, wire,
video cassette, radio, computer, telephone or any combination of the foregoing
for ultimate viewing by the public (in public or private, with or without
charges); ownership and operation of a television station; ownership, operation
and distribution of cable television
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<PAGE> 15
entertainment program services; ownership, operation and distribution of cable
television news services; syndication and licensing of films or television
Programming; production and/or syndication of theatrical motion pictures;
ownership of a professional baseball club; ownership of an interest in a
professional basketball club; ownership of an interest in a multimedia sports
network; ownership or operation of a sports or entertainment stadium or arena,
the sale or marketing of Programming to distributors of Programming, such as
cable television system operators, the sale of advertising time in and adjacent
to Programming; the merchandising and licensing of consumer products derived
from Programming; and the book publishing business.
(c) "Competitive Position" shall mean: (i) Employee's
direct or indirect equity ownership (excluding equity ownership of less than
five percent (5%)) or control of any portion of any entity or enterprise (other
than the Company or any Affiliate of the Company) engaged, wholly or partly, in
any Business or (ii) any employment, consulting, partnership, joint venture,
advisory, directorship, agency, promotional or independent contractor
arrangement between Employee and any entity or enterprise (other than the
Company or any Affiliate of the Company) engaged, wholly or partly, in any
Business whereby Employee is required to or does perform services similar to
the "Services" (as defined in Section l.l) on behalf of or for the benefit of
such an entity or enterprise.
(d) "Confidential Information" shall mean valuable,
non-public, competitively sensitive data and information relating to Turner's
business, other than Trade Secrets (as defined in Section 9.1(j).
(e) "Employment Term" shall mean the entire duration of
Employee's employment with the Company, including Employee's employment prior
to and during the Term through the Termination Date.
(f) "Employment Territory shall mean the entire
continental United States. Given Employee's high level of executive
responsibility with respect to Turner's business and the fact that Turner's
business extends throughout the world, Employee acknowledges that Employee will
be expected to perform the Services throughout the entire continental United
States and beyond.
(g) "Parties" shall mean collectively the Company and
Employee.
(h) "Trade Secrets" shall mean information or data of or
about Turner, including, but not limited to, technical or non-technical data,
formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, products plans, or lists
of actual or potential
-15-
<PAGE> 16
customers, clients, distributees, or licenses, that: (i) derive economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from their disclosure or use; and (ii) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To the extent
that the foregoing definition is inconsistent with a definition of
"trade secret" mandated under applicable law, the latter definition shall
govern for purposes of interpreting Employee's obligations under this Agreement.
(i) "Turner" shall mean, collectively, the Company and
all Affiliates of the Company.
(j) "Work Product" shall mean work product, property,
data, documentation or information or materials prepared, conceived,
discovered, developed or created by Employee in connection with performing the
Services or any other of his employment responsibilities during the Employment
Term.
9.2 Limitation on Competition. Employee agrees that during the
Employment Term, Employee will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
conjunction with or in furtherance of a Competitive Position (other than action
to reject an offer of a Competitive Position) except with the prior written
permission of the Company. Employee agrees that Employee will not, anywhere in
the Employment Territory, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
conjunction with or in furtherance of a Competitive Position (other than action
to reject an offer of a Competitive Position and except with the prior written
permission of the Company) for a period of twelve (12) months after the
Termination Date if Employee is terminated by the Company for Good Cause
pursuant to Section 6.1(b)(iii), (v), (vi) or (vii) or Employee terminates his
employment pursuant to Section 6.2 or Section 6.3; provided, however, that
Employee may accept a Competitive Position or other position in the print media
without violating this Section 9.2. There shall be no limitation on competition
if either (i) Employee terminates his employment pursuant to Section 6.4 or
(ii) notwithstanding any other provision of this Agreement, the entity
controlling the Company after a Change of Control is not a Class C stockholder
of the Company as of the date of this Agreement or an entity 100% owned by such
a Class C stockholder.
9.3 Limitation on Soliciting Personnel. Employee agrees that,
except to the extent that Employee is required to do so in connection with his
employment responsibilities on behalf of the Company or except with the
Company's prior, written permission, during the Term, Employee will not, either
directly or indirectly, alone or in conjunction with any other party, solicit
or attempt to solicit any employee, consultant, contractor or other personnel
of Turner to terminate, alter or lessen that
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<PAGE> 17
party's affiliation with Turner or to violate the terms of any agreement or
understanding between such employee, consultant, contractor or other person and
Turner. Employee agrees that, unless he has received the Company's prior
written permission to do so, Employee will not, either directly or indirectly,
alone or in conjunction with any other party, solicit or attempt to solicit any
"key" (as that term is defined in the next sentence) employee, consultant,
contractor or other personnel of Turner residing at the time of the
solicitation in the Employment Territory to terminate, alter or lessen that
party's affiliation with Turner or to violate the terms of any agreement or
understanding between such employee, consultant, contractor or other person and
Turner for a period of twelve (12) months after the Termination Date if
Employee is terminated by the Company for Good Cause pursuant to Section
6.1(b)(iii), (v), (vi), or (vii) or if Employee terminates his employment
pursuant to Sections 6.2 or 6.3. For purposes of the preceding sentence, "key"
employees, consultants, contractors or other personnel are those with knowledge
of or access to Trade Secrets and Confidential Information.
9.4 Trade Secrets and Confidential Information.
(a) Rights to Work Product. Except as expressly provided
in this Agreement, the Company alone shall be entitled to all benefits, profits
and results arising from or incidental to Employee's performance of the
Services. To the greatest extent possible, any Work Product shall be deemed to
be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. Section
101 et seq., as amended) and owned exclusively by the Company. Employee hereby
unconditionally and irrevocably transfers and assigns to the Company all
intellectual property or other rights, title and interest Employee may
currently have (or in the future may have) by operation of law or otherwise in
or to any Work Product. Employee agrees to execute and deliver to the Company
any transfers, assignments, documents or other instruments which the Company
may deem necessary or appropriate to vest complete title and ownership of any
Work Product, and all associated rights, exclusively in the Company.
(b) Non-disclosure Covenant. Through exercise of his
rights and performance of his obligations under this Agreement Employee will be
exposed to Trade Secrets and Confidential Information. Employee acknowledges
and agrees that any unauthorized disclosure or use of any of the Trade Secrets
or Confidential Information would be wrongful and would likely result in
immediate and irreparable injury to Turner. Except as required to perform his
obligations under this Agreement or except with Company's prior written
permission, Employee shall not, without the express prior written consent of
the Company, redistribute, market, publish, disclose or divulge to any other
person or entity, or use or modify for use, directly or indirectly in any way
for any person or entity: (i) any Trade Secrets at any time (during or after
the Term) during which such information or data shall continue to constitute a
"trade secret" under applicable
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<PAGE> 18
law; and (ii) any Confidential Information during the Term and until the later
of (A) for a period of twelve (12) months after the Termination Date if
Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)
or if Employee terminates his employment pursuant to Sections 6.2, 6.3 or 6.4;
or (B) the last day following the Termination Date on which the Employee is
receiving severance benefits under Section 7.5. Employee agrees to cooperate
with any reasonable confidentiality requirements of the Company. Employee shall
immediately notify the Company of any unauthorized disclosure or use of any
Trade Secrets or Confidential Information of which Employee becomes aware.
9.5 Acknowledgment. The Parties acknowledge and agree that the
covenants of Employee in this Section 9 (collectively, the "Protective
Covenants") are reasonable as to time, scope and territory given Turner's need
to protect its substantial investment in its Confidential Information, Trade
Secrets and Customer relationships, and particularly given (a) the generous
compensation and benefits that are to be provided Employee both before and
after the Term, (b) Turner's investment of time, effort and capital in
enhancing Employee's business skills and opportunities, (c) the complexity and
competitive nature of the Company, and (d) that Employee has sufficient skills
to find alternative, commensurate employment or consulting work in Employee's
field of expertise that would not entail a violation of the Protective
Covenants. The Parties further acknowledge and agree that if the nature of
Employee's responsibilities for or on behalf of the Company and the
geographical areas in which Employee must fulfill them materially change, the
Parties will execute appropriate amendments to the scope of the Protective
Covenants. The Parties also acknowledge that the Company shall have the
discretion at any point to waive, in writing, Employee's full or partial
compliance with any one or more of the Protective Covenants. The Company agrees
to make appropriate executive officers available (before and after the Term) to
review and discuss the Protective Covenants with Employee. Employee represents
and warrants to the Company that during the Employment Term (up to the date of
this Agreement) he has not taken any action or failed to take any action that
could reasonably be construed as a breach of his covenants in this Section 9
(assuming for purposes of this sentence that the covenants in this Section 9
applied during the duration of the Employment Term).
9.6 Tolling. The running of the applicable time period of any
Protective Covenant shall be tolled: (a) during the continuation of any breach
by Employee of the Protective Covenant; and (b) during the pendency of any
litigation involving a good faith claim by the Company that Employee has
breached the Protective Covenant.
9.7 Return of Materials. At any point during the Term at the
specific request of the Company, or, in any event, as promptly as practicable
after Employee's employment hereunder has been terminated Employee will return
to the Company all Work
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<PAGE> 19
Product (including any copies or reproductions thereof and any materials
constituting or containing Trade Secrets or Confidential Information of the
Company that are in Employee's possession or control.
9.8 Remedies.
(a) Notwithstanding anything to the contrary in this Agreement, in
the event of a breach by Employee of any provision of this Agreement, the
Company shall have the right to set-off against any sums the Company owes
Employee the amount any damages incurred or suffered by the Company as a
result of the breach. Any such set-off shall not be presumed to be in full
satisfaction of or as liquidated damages for or as a release of any claim for
damages against Employee that may accrue to the Company as a result of the
breach. Notwithstanding Section 10 below, the Parties further acknowledge that
any breach or threatened breach of a Protective Covenant by Employee is
reasonably likely to result in irreparable injury to the Company, and
therefore, in addition to all remedies provided at law or in equity (which
remedies shall be cumulative and not mutually exclusive), Employee agrees that
the Company shall be entitled to file suit in a court of competent
jurisdiction, to seek a temporary restraining order and a permanent injunction
to prevent a breach or contemplated breach of the Protective Covenant. The
existence of any claim, demand, action or cause of action of Employee against
Turner, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of any of Employee's
obligations under this Agreement.
(b) The payments and benefits provided to Employee pursuant to
this Agreement shall constitute Employee's sole and exclusive remedy against
the Company in the event of any claim of Employee arising out of any
termination of his employment by the Company. The parties agree that such
payments and benefits shall constitute liquidated damages for any liability of
the Company as a result of such termination, and that the value of such
payments and benefits is a reasonable forecast of damages that the Employee
would sustain as a result of a wrongful termination of Employee's employment.
Accordingly, Employee hereby releases and discharges the Company and any of its
past, current or future directors, officers or employees or other personnel
from any and all liabilities, whether known or unknown, whether currently
existing or arising in the future, relating to or arising out of the
termination of Employee's employment with the Company, except for the Company's
stated obligations under this Agreement.
9.9 Cash Out. At the end of the twelve month noncompete period
pursuant to Section 9.2, either the Company or the Employee may elect, by
notice within thirty (30) days of such date, to pay or receive, as the case may
be, the present value of all then remaining cash payments and benefits to be
paid or made available to Employee pursuant to this Agreement. The present
value shall be calculated by using as a discount factor the yield
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<PAGE> 20
of U.S. Treasury obligations as of the date such noncompete period ends having
maturities most closely approximating the last date on which such cash payments
or benefits would otherwise have been paid or made available pursuant to this
Agreement. The value of all benefits other than cash payments shall be
determined by Towers, Perrin or such other expert in employee benefits as may
be acceptable to the parties and such value converted to present value in
accordance with this Section 9.9.
Section 10. Arbitration. Any controversy or claim arising from,
out of or relating to this Agreement, or the breach thereof (other than
controversies or claims arising from, out of or relating to the provisions in
Section 9), shall be determined by final and binding arbitration in Atlanta,
Georgia, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association, by a panel of one (l) arbitrator appointed by
the American Arbitration Association. The decision of the arbitrator may be
entered and enforced in any court of competent jurisdiction by either the
Company or Employee.
The parties indicate their acceptance of the foregoing arbitration
requirement by initialing below:
/s/ WHP /s/ TFM
-------------------------- ------------------------
For the Employee
Company
Section 11. Miscellaneous.
11.1 Binding Effect. This Agreement shall inure to the benefit of
and shall be binding upon Employee and his executor, administrator, heirs,
personal representative and assigns, and the Company and its successors and
assigns; provided, however, neither party hereto shall be entitled to assign
any of its rights, or delegate any of its duties (except, in the case of
Employee, customary delegation of executive authority not inconsistent with
this Agreement; and except, in the case of the Company, and subject to
Employee's right to terminate pursuant to Section 6.2, to any person or entity
acquiring all or substantially all of the assets of the Company), hereunder
without the prior written consent of the other party. The Parties intend that
each Affiliate of the Company shall be the beneficiary of all the Company's
rights under this Agreement.
11.2 Governing Law. This Agreement shall be deemed to be made in,
and in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of Georgia.
11.3 Certain Fees and Expenses. The Company shall pay, following
submission of statements therefor, the reasonable fees and expenses of counsel
incurred by Employee in connection with the negotiation and preparation of this
Agreement and the arrangements contemplated hereby. In the event of any
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<PAGE> 21
arbitration, litigation or dispute whatsoever arising from a claim brought by
Employee to enforce the provisions of Section 7 of this Agreement, if Employee
prevails the Company shall pay, or reimburse Employee for, all reasonable legal
fees and expenses incurred by Employee in connection with such litigation or
dispute. Employee shall be deemed to have prevailed if he substantially obtains
the relief sought, either through a judgment or the Company's voluntary action
before arbitration (after it is scheduled), trial or judgment.
11.4 Headings. The section and subsection headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
11.5 Notices. Unless otherwise agreed to in writing by the parties
hereto, all communications provided for hereunder shall be in writing and shall
be deemed to be given when delivered if delivered in person or by telecopy or
five (5) business days after being sent by first-class mail, registered or
certified, return receipt requested, with proper postage prepaid, and
(a) If to Employee, addressed to:
Terence F. McGuirk
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
with a copy to:
Walter W. Driver, Jr., Esquire
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
(b) If to the Company, addressed to:
Mr. R.E. Turner
Chairman and President
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
with a copy to:
Steven W. Korn, Esq.
Vice President and General Counsel
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
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<PAGE> 22
or to such other person or address as shall be furnished in writing by any
party to the other prior to the giving of the applicable notice or
communication.
11.6 Schedules. All Schedules to this Agreement are attached and
are hereby made a part of this Agreement by this reference.
11.7 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
11.8 Entire Agreement. This Agreement is intended by the parties
hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement may be modified only by a written
instrument signed by each of the parties hereto.
11.9 Severability. All provisions of this Agreement are severable
from one another, and the unenforceability or invalidity of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement; provided, however, that should any judicial body
interpreting this Agreement deem any provision to be unreasonably broad in
time, territory, scope or otherwise, the Company and Employee intend for the
judicial body, to the greatest extent possible, to reduce the breadth of the
provision to the maximum legally allowable parameters rather than deeming such
provision totally unenforceable or invalid.
11.10 Waiver. The waiver by either the Company or Employee to this
Agreement of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any prior or subsequent breach of the same
provision by the other party or a waiver of a breach of another provision of
this Agreement by the other party. No waiver or modification of any provision
of this Agreement shall be valid unless in writing and duly executed by the
party to be charged with the waiver or modification.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ Wayne H. Pace
---------------------------------------
Name: Wayne H. Pace
----------------------------------
Title: Vice President &
---------------------------------
Chief Financial Officer
---------------------------------
Attest: /s/ Steven W. Korn
-----------------------------
Name: Steven W. Korn
-------------------------------
Title: Vice President
------------------------------
EMPLOYEE
/s/ Terence F. McGuirk
----------------------------------
Terence F. McGuirk
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<PAGE> 24
TERENCE F. MCGUIRK
EMPLOYMENT CONTRACT
SCHEDULE 1.1 (a)
Executive Vice President, Turner Broadcasting System, Inc.
President, Turner Sports, Inc.
Director, Turner Broadcasting System, Inc.
<PAGE> 25
TERENCE F. MCGUIRK
EMPLOYMENT CONTRACT
SCHEDULE 1.1 (b)
For Turner Broadcasting System, Inc.:
Responsibility for and supervision of:
national and international sales and marketing for all
Turner networks; cable affiliate and other distribution
sales for all Turner networks; advertising sales divisions
for all Turner networks; finance, accounting, treasury and
legal departments; goverment affairs department; research
department; public relations department; marketing department;
advertising department; administrative operations; real estate
operations; technological developments; satellite usage and
purchases.
For Turner Sports, Inc.:
Responsibility for and supervision of:
all sports programming for all Turner television networks;
television production of all Turner Sports programming;
acquisitions and rights negotiations for all Turner sports
rights; all business and player personnel operations of
Atlanta Braves and Atlanta Hawks.
In both capacities, the senior executive officer (other than the chief
executive officer) of Turner Broadcasting System, Inc., reporting directly
to Ted Turner, Chairman and President of Turner Broadcasting System, Inc.
<PAGE> 26
TERENCE F. MCGUIRK
EMPLOYMENT CONTRACT
SCHEDULE 3.2
Salary:
1994 - $855,000
1995 - $895,000
1996 - $940,000
1997 - $990,000
Bonus:
1994 - $645,000
1995 - $680,000
1996 - $715,000
1997 - $750,000
Special Bonus:
$476,000
Stock Grant:
22,000 shares Class B common stock
Stock Options -
500,000 shares Class B common stock at 27-1/8 dollars per
share, vesting in four equal installments, 125,000 shares on
December 20, 1994 and 125,000 shares on December 20 of each
of 1995, 1996 and 1997.
<PAGE> 27
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made and
entered into as of the 26th day of January, 1994 by and between Terence F.
McGuirk, an individual resident of the State of Georgia (hereinafter referred
to as "Employee"), and Turner Broadcasting System, Inc., a corporation
organized under the laws of the State of Georgia (hereinafter referred to as
the "Company");
W I T N E S S E T H:
WHEREAS, Employee and the Company are parties to that certain
employment agreement of December 20, 1993 (the "Employment Agreement");
WHEREAS, the parties desire to enter into this Amendment to amend the
Employment Agreement so as to accurately reflect their original understanding
and intentions with respect to a certain aspect of the Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree to amend the Employment Agreement as follows:
1. All of the second sentence of Section 3.2 of the Employment Agreement
beginning with the underlined phrase "provided, however," is hereby deleted and
------------------
is replaced with the following: "the provision in the TIP which affords
eligible employees the opportunity to earn up to 150% of their Target Award
under certain circumstances shall be applicable hereunder. Accordingly,
pursuant to TIP, Employee shall be eligible to earn up to 150% of the Annual
Bonus set forth on Schedule 3.2 of the Employment Agreement."
2. Except as expressly amended hereby, the terms and conditions of the
Employment Agreement shall remain in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ Wayne H. Pace
----------------------------
Its: Vice President - Finance
----------------------------
ATTEST: /s/ Steven W. Korn
-------------------------
NAME: Steven W. Korn
-------------------------
TITLE: Vice President
-------------------------
EMPLOYEE
/s/ Terence F. McGuirk
--------------------------------
Terence F. McGuirk
<PAGE> 1
EXHIBIT 10.41
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into as of the 1st day
of January, 1994, by and between SCOTT M. SASSA, an individual resident of the
State of Georgia (hereinafter referred to as "Employee"), and TURNER
BROADCASTING SYSTEM, INC., a corporation organized under the laws of the State
of Georgia (hereinafter referred to as the "Company");
W I T N E S S E T H:
WHEREAS, Employee is presently employed by the Company;
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") recognizes that Employee's contribution to the growth and success
of the Company has been substantial and desires to provide for the continued
employment of Employee and to make certain changes in Employee's employment
arrangements with the Company that the Board of Directors has determined will
reinforce and encourage Employee's continued attention and dedication to the
affairs of the Company;
WHEREAS, Employee is willing to commit himself to continue to serve
the Company on the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and Employee
wish to enter into an employment agreement on the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
Section 1. Scope of Employment.
1.1 Employment. Subject to terms hereof, the Company hereby agrees
to the continued employment of Employee, and Employee hereby accepts such
continued employment. Employee shall hold the office(s) set forth on Schedule
1.1(a) hereto and, as such, shall perform the executive-level services
(collectively, "Services") described on Schedule 1.1(b) hereto. Employee shall
report directly to the Chief Executive Officer of the Company, currently Mr.
R.E. Turner. Employee shall devote substantially all of Employee's productive
business time, energy and skill (except on vacation days and holidays) to
performing his obligations hereunder and shall perform his obligations
hereunder diligently, faithfully and to the best of Employee's abilities.
Notwithstanding the foregoing provisions, Employee shall be entitled to serve
on the board of directors of any civic,
<PAGE> 2
charitable or professional organization, provided that such service does not
materially interfere or conflict with Employee's provision of the Services or
his fulfillment of any of his other obligations under this Agreement.
1.2 Place of Performance. During the term of his continued
employment hereunder (the "Term"), Employee shall be based in Atlanta, Georgia
at the principal executive offices of the Company, except for reasonably
required travel on business.
1.3 Compliance with Policies. Subject to the terms of this
Agreement, during the Term, Employee shall comply in all material respects with
all policies and procedures applicable to senior executives of the Company
generally and to Employee specifically, including, without limitation, the
Company's Code of Ethics and Business Conduct.
Section 2. Term. The Term shall commence on the date of this
Agreement and continue until the earlier to occur of the following: (a) the
date that is four (4) years after the date of this Agreement; or (b) in the
event Employee's employment is terminated pursuant to Section 6 with an
effective date that is prior to the date set forth in (a), then the effective
date of such termination. References in this Agreement to the "Four-Year Term"
shall refer to the period of time from the date of this Agreement to the date
that is four (4) years after the date of this Agreement.
Section 3. Cash Compensation; Expenses.
3.1 Base Salary. Employee shall be paid a base salary (the "Base
Salary") during the Term as described on Schedule 3.2 hereof. The Base Salary
(and all other payments to be made to Employee pursuant to this Section 3)
shall be (a) payable on the schedule that the Company may implement from time
to time for such payments, and (b) subject to any withholdings and deductions
required by applicable law.
3.2 Bonus. During the Term, Employee shall be paid an annual bonus
(the "Annual Bonus"), if earned, as set forth on Schedule 3.2 hereof. The
Annual Bonus shall be earned, paid, administered and governed by the terms and
conditions of the Turner Incentive Plan (the "TIP") and any plan that is a
successor thereto, provided, however, that the bonus amounts set forth on
Schedule 3.2 are the maximum annual bonus amounts for Employee notwithstanding
the terms and conditions of the TIP. Notwithstanding the foregoing, if the TIP
is terminated by the Company, Employee will continue to remain eligible to
receive the Annual Bonus on terms and conditions substantially similar to those
of the TIP during the last year that Employee's Annual Bonus was administered
and governed by the TIP.
2
<PAGE> 3
3.3 Long-Term Incentive Plan. During the Term, Employee shall be
entitled to participate in the Long-Term Incentive Plan (together with any,
successor plan, "LTIP"). All awards under the LTIP shall be made in accordance
with and subject to the terms of all relevant LTIP documentation and shall be
based upon the LTIP cycle in effect at the time of the award. The LTIP shall
continue in effect during the Term.
3.4 Expense Reimbursement. The Company shall pay or reimburse
Employee for all reasonable business expenses incurred or paid by Employee in
the course of performing his duties hereunder (it being agreed by the parties
hereto that business expenses incurred by Employee shall be deemed to be
reasonable if such expenses would have been reimbursed under current practices
or the expense reimbursement policy of the Company that is applicable to
Employee on the date hereof). As a condition to such payment or reimbursement,
however, Employee shall maintain and provide to the Company, upon the Company's
request, reasonable documentation and receipts for such expenses.
Section 4. Stock-Based Compensation; Special Bonus.
4.1 Stock Option Plan. During the Term, Employee shall be entitled
to participate in the Turner Broadcasting System, Inc. 1988 Stock Option Plan
and any successor stock-based employee incentive plans (collectively, the
"Stock Option Plan"). Contemporaneously with the execution of this Agreement
(or as soon thereafter as reasonably practicable), Employee will be granted the
shares of the Company's Class B Common Stock (the "Grant Shares") and the
options to purchase shares of the Company's Class B Common Stock (the "Option
Shares") under the Stock Option Plan in the number of shares described on
Schedule 3.2 hereof. Contemporaneously with the execution of this Agreement,
the Company and the Employee shall enter into a Stock Option Agreement in the
form of Exhibit A hereto with respect to the Option Shares (the "Option
Agreement"). For purposes of Employee's future participation for possible
additional grants of stock options or grants under the Stock Option Plan, he
will be reviewed and considered for a grant at the same time as, and on a basis
and subject to terms that are consistent with, the basis and terms that govern
grants to other senior executive officers of the Company, taking into account
Employee's position and responsibilities.
4.2 Special Bonus. In addition to any payments made by the Company
to Employee hereunder or otherwise, contemporaneously with the transfer of the
Grant Shares to Employee pursuant to Section 4.1, the Company shall pay to
Employee the Special Bonus described on Schedule 3.2, less any withholding and
deductions required under applicable law.
3
<PAGE> 4
Section 5. Additional Employee Benefits.
5.1 Benefit Plans. During the Term, Employee shall be entitled to
participate in all other employee benefit plans and executive compensation
arrangements listed on Schedule 5.1, together with any additional plans or
arrangements available to employees generally or to executives or senior
executives of the Company as a group, subject in each case to terms and
conditions set forth in the plan or program documentation (collectively, the
"Benefit Plans"). During the Term, the Company agrees not to modify or amend
any material terms of the Benefit Plans or LTIP in any respect that would cause
the benefit that Employee would otherwise receive thereunder to be materially
reduced unless the Company makes up for such reduction by providing Employee
with supplemental benefits (or, in the Company's discretion, cash) with a value
that is substantially equivalent to the reduction.
5.2 Vacation. Employee shall be entitled to at least four (4) paid
weeks of vacation per year during the Term, to be accrued and taken in
accordance with a policy that is no less favorable for Employee than the
Company's normal vacation policy applicable to senior executive employees.
5.3 Automobile Allowance; Travel Benefits. The Company shall pay
Employee no less than Eight Hundred Fifty Dollars ($850.00) per month during
the Term as an automobile allowance. To the extent such benefits are normally
extended to other executive officers of the Company, during the Term, Employee
shall be entitled to first class air travel for all employment-related air
travel, subject to availability of first class seating on a particular flight.
5.4 Memberships. During the Term, the Company shall continue to
reimburse Employee for all costs and expenses associated with the maintenance
of Employee's current memberships in those business and social clubs and
associations for which he is as of the date of this Agreement being reimbursed
by the Company. In addition, the Company shall reimburse Employee for all costs
and expenses associated with Employee's obtaining and maintaining membership in
one additional club or association.
5.5 Financial Counseling. During the Term, the Company shall
reimburse Employee for up to $5,000 per year for costs and expenses incurred by
Employee in connection with financial and tax counseling and tax return
preparation.
5.6 Company-Paid Life Insurance. In combination with life
insurance currently provided at the Company's expense, during the Term,
Employee shall be provided with life insurance coverage equal to 2.5 times his
then current Base Salary.
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5.7 Long-Term Disability Salary Replacement. During the Term,
regardless of the limitations on the maximum salary level covered in the
current Long-Term Disability Plan or any future plan (collectively, the
"Disability Plan"), Employee shall, subject to the other provisions of the
Disability Plan, be entitled to purchase insurance under the Disability Plan
providing disability-compensation of up to two-thirds of his then current Base
Salary for no more than the maximum annual cost (adjusted on a pro rata basis
to reflect the percentage increase in coverage over the standard coverage) as
currently in effect under the Disability Plan. In the event that the Disability
Plan does not permit the purchase of coverage of up to two-thirds of Employee's
then current Base Salary or coverage is otherwise not reasonably available, the
Company shall purchase or otherwise provide Employee with supplemental coverage
to the extent of any shortfall (up to a maximum additional coverage to be
provided by the Company of $200,000) in such coverage that may be purchased by
Employee under the Disability Plan. Disability payments will commence three (3)
months after Employee becomes disabled and shall continue until Employee
reaches 65 years of age (whether or not Employee has retired previously) in
accordance with the terms of the current Disability Plan. The disability
triggering Employee's rights under this Section 5.7 must occur prior to the date
of any Notice of Termination hereunder. Notwithstanding anything to the
contrary in this Agreement, the Company shall be entitled to deduct without
duplication from the aggregate of compensation related or similar payments
otherwise payable to Employee pursuant to this Agreement an amount equal to all
disability payments received by Employee pursuant to any disability insurance,
and worker's compensation and social security policies maintained by the
Company.
5.8 Post Retirement Medical Benefits. Each year commencing on the
date (the "Retirement Date") after (a) Employee becomes 65 years of age or (b)
Employee retires from the Company by giving notice to the Company that the
Employee intends to retire and does not intend to seek other full-time
employment, whichever occurs first, the Company shall reimburse Employee an
amount (the "Annual Premium Amount") of up to an aggregate of Three Thousand
Dollars ($3,000.00) (an amount which shall be increased each year in the manner
as set forth below) for insurance premiums with respect to medical insurance
covering Employee, his spouse and dependents, if any. Immediately prior to the
Retirement Date, the Annual Premium Amount shall be adjusted by multiplying the
Annual Premium Amount by a fraction (expressed a percentage), the numerator of
which is the most recently published "CPI" (as hereinafter defined) as of the
Retirement Date and the denominator of which shall be the most recently
published CPI as of the date of this Agreement. In addition, at the beginning
of each calendar year thereafter, the Annual Premium Amount shall be adjusted
by multiplying the then current Annual Premium Amount by a fraction (expressed
as a percentage), the numerator of which shall be the most recently published
CPI as of the end of the immediately preceding year and the denominator of
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which shall be the numerator used in the calculation relating to the previous
calendar year. For the purposes of this Agreement, "CPI" shall mean the
Consumer Price Index for All Urban Consumers, U.S. City Average, Medical Care
Index (1982-84 = 100) (unadjusted) published by the Bureau of labor Statistics,
United States Department of Labor. Notwithstanding anything to the contrary in
this Agreement, the benefits covered by this Section 5.8 shall not be available
to Employee if Employee is terminated by the Company for "Good Cause."
5.9 Indemnification. The Company shall indemnify and hold harmless
Employee if Employee is made a party, or is threatened to be made a party, to
any threatened, pending or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, whether formal or informal,
including any action or suit by or in the right of the Company (for purposes of
this Section 5.9, collectively, a "Proceeding") because he is or was an
officer, employee, or agent of the Company, against any judgment, settlement,
penalty, fine, or reasonable expenses (including, but not limited to,
attorneys' fees and disbursements, court costs, and expert witness fees)
incurred with respect to the Proceeding (for purposes of this Section 5.9, a
"Liability"), if he acted in a manner he believed in good faith to be in or not
opposed to the best interests of the Company, and, in the case of any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
Company shall indemnify Employee to the maximum extent permitted by Georgia law.
Section 6. Termination.
6.1 Termination by the Company. Employee's employment hereunder
may be terminated by the Company under the circumstances set forth in (a), (b)
and (c) below.
(a) Death or Total Disability. The Company may terminate
Employee's employment hereunder upon the death of Employee or Employee's total
disability (total disability meaning the inability of Employee to perform
substantially all of his current duties as required hereunder for a continuous
period of 183 days because of a mental or physical condition, illness or
injury).
(b) Good Cause. The Company may terminate Employee's
employment hereunder for "Good Cause." For the purposes of this Agreement, the
Company shall have "Good Cause" for termination of Employee's employment only
(i) if Employee is convicted of or pleads guilty to any felony (except if
committed upon advice from counsel to the Company), or (ii) if Employee has
engaged in conduct or activities involving moral turpitude materially damaging
to the business or reputation of the Company or any Affiliate of the Company,
or (iii) if Employee habitually engages in the immoderate use of alcoholic
beverages or engages in the illegal use of a controlled substance; or (iv) if
Employee
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violates any law, rule, regulation or order of any governmental authority,
thereby exposing the Company or any Affiliate of the Company (as defined in
Section 9.1(a)) to potential material civil or criminal penalties unless the
Employee has done so upon advice from counsel to the Company; or (v) in the
event of Employee's default, gross misfeasance, fraud, embezzlement in the
performance of his obligations hereunder or if Employee breaches or fails to
observe the terms of this Agreement in any material respect and fails to cure
such breach or failure within ten (10) days after notice thereof from the
Company or if any representation or warranty of Employee in this Agreement
shall be incorrect in any material respect, or (vi) if Employee persistently
and willfully fails or refuses to obey any proper written direction of the
Board of Directors or Chief Executive Officer of the Company, or (vii) if
Employee knowingly, and with intent, misappropriates for his own purpose and
benefit, any property of the Company or any Affiliate of the Company or
unlawfully appropriates any corporate opportunity of the Company or any
Affiliate of the Company.
(c) Discretionary Termination. The Company shall have the
right at any point during the Term to terminate the employment of Employee
hereunder for any reason or for no reason; provided, however, that the
Company's termination of Employee pursuant to Section 6.1(a) or 6.1(b) shall
not, for any purpose, also be construed as a termination pursuant to this
Section 6.1(c). If the Company commits a breach of any of its material
obligations under this Agreement and fails to cure the breach within ten (10)
days of being provided written notice of the breach by Employee, then if
Employee so chooses (and indicates such choice in such ten-day written notice),
the Company shall be deemed to have exercised its right to terminate Employee's
employment pursuant to this Section 6.1(c).
6.2 Change in Control Termination by Employee. Employee may
terminate his employment for any reason within ninety (90) days after the
occurrence of a "Change of Control" of the Company. For all purposes under this
Agreement, a "Change of Control" of the Company shall be deemed to have
occurred if any of the following events have occurred (a) both of the following
events have occurred: (i) R.E. Turner is no longer the Chief Executive Officer
of the Company and its consolidated operations; and (ii) "Continuing Common
Stock Directors" (as defined below) no longer constitute (except by reason of a
temporary vacancy lasting no longer than six months among the Common Stock
Directors) a majority of the Company's Board of Directors; or (b) the Company
shall sell, transfer or otherwise dispose of all or substantially all of the
assets of the Company or the assets, if any, identified on Schedule 6.2 hereof;
or (c) the shareholders and the Board of Directors shall have approved any plan
or proposal for liquidation or dissolution of the Company; or (d) R.E. Turner
dies. For purposes of this Section 6.2, "Continuing Common Stock Directors"
shall include only (i) all persons who are initially elected (if elected at a
shareholders meeting) or appointed (if filling a vacancy on the Company's Board
of Directors) to the
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Company's Board of Directors as Common Stock Directors (as defined in Article
XII, Section 2(b) of the Company's By-laws) and at a time when R.E. Turner owns
in excess of 50% of the voting power of all classes of the outstanding Common
Stock of the Company; and (ii) all persons who are initially nominated for
election (if elected at a shareholders meeting) or appointed (if filling a
vacancy on the Company's Board of Directors) by at least a majority of the
Common Stock Directors described in (i) then serving on the Company's Board of
Directors; and (iii) all persons who are initially nominated for election (if
elected at a shareholders meeting) or appointed (if filling a vacancy on the
Board) by at least a majority of the Common Stock Directors and persons then
serving on the Company's Board of Directors who would constitute Continuing
Common Stock Directors under either (i) or (ii). A person shall no longer be a
Continuing Common Stock Director after his or her service on the Company's
Board of Directors is terminated unless reelected or reappointed in the manner
described in (i) - (iii) above. Until Article XII of the Company's By-laws is
amended or eliminated in such a way as to eliminate the two classes of the
Company's directors, of which Common Stock Directors constitute one, then all
Continuing Common Stock Directors must be Common Stock Directors. For purposes
of this Section 6.2, reference to the Company or the Company's Board of
Directors includes the current corporation on the date hereof and any
corporation which is the legal successor to the current corporation by virtue
of common stock merger or share exchange, provided that such successor
corporation is not the subsidiary of, or 50% or more of its common stock is not
beneficially owned by, any person, corporation or legal entity other than R.E.
Turner.
6.3 Termination by Employee for "Good Reason." Employee may
terminate his employment hereunder for "Good Reason" (assuming he has not given
the Company notice of his intention to terminate pursuant to Section 6.2)
within ninety (90) days after the occurrence of any of the following events
prior to the end of the Term: (i) Employee is not reelected to or is removed
(other than for cause) from any of the offices set forth on Schedule 1.1(a); or
(ii) Employee is not reelected to or is removed (other than for cause) from the
Board of Directors of the Company; or (iii) action is taken by the Company or
the Board of Directors of the Company that has the effect of divesting
Employee, or materially interfering with the exercise by Employee, of authority
to perform the Services; or (iv) Employee or the Company's executive offices
are relocated more than thirty (30) miles from the Company's current executive
offices located at One CNN Center, Atlanta, Georgia; or (v) the Company fails
to obtain the written assumption of this Agreement by any successor of the
Company or any assignee of all or substantially all of its assets at or prior
to such succession or assignment; or (vi) the Company breaches or fails to
observe any of the terms of this Agreement in any material respect and fails to
cure such breach or failure within ten (10) days after the Company has received
written notice thereof from Employee, or any representation or warranty of the
Company in this Agreement shall be incorrect in
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any material respect. Notwithstanding anything to the contrary in this
Agreement, Employee shall not be entitled to terminate for Good Reason if the
Company at such time is entitled to (and has not otherwise waived its right or
indicated its election not to) terminate Employee pursuant to Section 6.1(a) or
6.1(b) unless one hundred twenty (120) days has elapsed since the first date
the Company could have terminated Employee pursuant to Section 6.1(a) or
6.1(b).
6.4 Other Termination by Employee. If Employee's responsibilities
no longer include reporting directly to R. E. Turner, Employee may elect to
terminate his employment.
6.5 Termination Date and Notice of Termination.
(a) Any termination of Employee's employment by the
Company or by Employee (other than termination upon the death of Employee)
shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated.
(b) "Termination Date" shall mean (i) if Employee's
employment is terminated by his death, the date of his death, (ii) if
Employee's employment is terminated pursuant to Section 6.1(a) hereof as a
result of Employee's total disability, thirty (30) days after Notice of
Termination is given (provided that, with respect to a termination pursuant to
Section 6.1(a) as a result of Employee's total disability, Employee shall not
have returned to the performance of duties on a full-time basis during such
thirty (30) day period), (iii) if Employee's employment is terminated pursuant
to Section 6.1(b) hereof, the date on which such Notice of Termination is given,
(iv) if Employee's employment is terminated by Employee for "Good Reason" or by
the Company pursuant to Section 6.1(c), thirty (30) days after Notice of
Termination is given by Employee, and (v) if Employee's employment is
terminated for any other reason, the date on which a Notice of Termination is
given.
Section 7. Compensation Upon Termination
or During Disability.
7.1 Incapacity. During any period in which Employee fails to
perform his duties hereunder as a result of incapacity due to physical or
mental injury or illness, Employee shall continue to receive his then current
full Base Salary, including the minimum increases thereto contemplated in
Section 3.1, for such period until his employment is terminated pursuant to
Section 6.1(a).
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7.2 Termination by the Company Due to Death or Total Disability.
If Employee's employment is terminated as a result of his death or his total
disability under Section 6.1(a), the Company shall, in the case of Employee's
death, pay to Employee's wife, or such different person as Employee designates
in writing, and, in the case of Employee's total disability, pay to Employee
(a) an amount equal to his then current full Base Salary, including the minimum
increases thereto set forth on Schedule 3.2, through the Termination Date and
during the remainder of the Four-Year Term, (b) if the Termination Date occurs
prior to the end of any LTIP cycle during which Employee is participating in
the LTIP, an "Adjusted LTIP Award," which shall consist of an award of cash
equal to (i) the amount of cash that would have been awarded to Employee if
Employee's Termination Date had coincided with the end of the then current LTIP
cycle less (ii) a prorated amount attributable to the unexpired portion of the
then current LTIP cycle, and (c) an "Adjusted Annual Bonus," with respect to
the fiscal year that includes the Termination Date, which Adjusted Annual Bonus
shall consist of an amount equal to the Annual Bonus that would otherwise be
due and payable hereunder with respect to such fiscal year multiplied by a
fraction, the numerator of which is the total number of days during the fiscal
year that Employee was employed hereunder and the denominator of which is 365.
In addition to the above payments, if Employee's employment is terminated as a
result of his total disability pursuant to Section 6.1(a), the Company shall
provide Employee during the remainder of the Four-Year Term with benefits
substantially similar to the benefits Employee would be entitled to receive
under the Benefit Plans had Employee not been terminated (or, in lieu of
providing Employee such benefits, the Company may provide Employee with cash
equal to the value of such benefits). Notwithstanding any provision contained
herein to the contrary, the Company shall have the right to offset any amount
to be paid to or benefit to be provided to Employee by the Company pursuant to
clause (a) of this Section 7.2 during any particular month against amounts that
will be paid to Employee during such month under the Company's Disability Plan.
7.3 Termination by Company for Good Cause. If the Employee's
employment is terminated for Good Cause pursuant to Section 6.1(b), the Company
shall pay Employee his then current full Base Salary through the Termination
Date and such other benefits (including stock grants, stock options, LTIP, and
Adjusted Annual Bonus) as are otherwise vested and due to Employee as of the
Termination Date (calculated as provided in Section 7.2).
7.4 Termination by Employee After a Change in Control. If Employee
terminates his employment pursuant to Section 6.2 following a Change in Control
or pursuant to Section 6.4, the Company shall pay Employee all earned and
vested rights as of the Termination Date, including, without limitation, his
then current Base Salary through the Termination Date, an Adjusted Annual Bonus
(calculated as provided in Section 7.2), an Adjusted LTIP Award
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(calculated as provided in Section 7.2) and all vested stock grants or stock
options.
7.5 Termination by Employee with Good Reason or by the Company
Pursuant to Section 6.1(c). If Employee shall terminate his employment for Good
Reason pursuant to Section 6.3 or the Company shall terminate Employee pursuant
to Section 6.1(c), the following provisions shall govern:
(i) Base Salary Equivalent. The Company shall pay
Employee an amount equal to Employee's Base Salary as shown on
Schedule 3.2 for the respective years, after the Termination Date for
a period equal to the greater of (A) the number of months (and partial
months) otherwise remaining in the Four-Year Term as of the
Termination Date or (B) thirty-six (36) months from the Termination
Date. To any extent that the period in the preceding clause (B)
extends past January 1, 1998, the annual amount payable pursuant to
this Section 7.5(i) shall be equal to the base salary for 1997 shown
on Schedule 3.2. Except as may be elected by either party pursuant to
Section 9.9, payments pursuant to this Section 7.5(i) shall be at such
times and in accordance with such procedures as apply to payments
governed by Section 3.
(ii) Annual Bonus Equivalent. The Company shall pay
Employee an amount equal to Employee's bonus as shown on Schedule 3.2
for the respective years after the Termination Date for a period equal
to the greater of (A) the number of months (and partial months)
otherwise remaining in the Four-Year Term as of the Termination Date
or (B) thirty-six (36) months from the Termination Date, with such
Annual Bonus equivalents to be prorated to reflect any partial year
falling within the period specified in (A) or (B), as the case may be.
To any extent that the period in the preceding clause (B) extends
past January 1, 1998, the annual amount payable pursuant to this
Section 7.5(ii) shall be equal to the bonus amount for 1997 shown on
Schedule 3.2.
(iii) Adjusted LTIP Award. The Company shall pay Employee
an Adjusted LTIP Award (calculated as provided in Section 7.2.) if the
Termination Date occurs prior to the end of any LTIP cycle during
which Employee is participating in the LTIP.
(iv) Acceleration of Stock Option Vesting. The Company
shall cause the vesting of any Company stock options held by Employee
to be accelerated to the Termination Date and provide that Employee
shall be entitled to give notice of exercise of all such options for
thirty (30) days after the Termination Date.
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(v) Vested Plan Benefits. The Company shall pay or make
available to Employee all vested benefits accrued or available under
any Benefit Plan in accordance with and subject to the terms of such
Benefit Plans.
(vi) Miscellaneous Health, Death and Disability Benefits.
The Company shall provide Employee with life insurance and other death
benefits, health and medical benefits and long term disability
benefits substantially similar to those benefits provided to Employee
prior to the Termination Date under the Benefit Plans on Schedule
7.5(vi) after the Termination Date for a period equal to the greater
of (A) the number of months (including partial months) otherwise
remaining in the Four-Year Term as of the Termination Date or (B)
thirty-six (36) months from the Termination Date.
(vii) Supplemental Compensation Benefits. The Company shall
provide supplemental compensation benefits (current and deferred) to
Employee substantially similar to those provided to Employee under the
Benefit Plans listed on Schedule 7.5(vii) (which supplemental benefits
shall be determined as if Employee had continued after the Termination
Date to receive the same level of total compensation as in effect
immediately before the Termination Date) until the end of the period
equal to the greater of (A) the number of months (including partial
months) otherwise remaining in the Four-Year Term as of the
Termination Date or (B) thirty-six (36) months from the Termination
Date, and such supplemental benefits shall be provided to him at the
same time and in the same manner as a benefit that would be payable to
him under each such Benefit Plan had Employee actually continued to
work until the end of such period.
(viii) Office Space. The Company shall furnish Employee with
office space, secretarial assistance and such other facilities and
services as are provided to senior executives of the Company for a
period of twelve (12) months following the Termination Date; provided,
however, the Company shall not be required to continue to provide
Employee with the items set forth in this clause (viii) in the event
that Employee begins other full time employment during such
twelve-month period.
(ix) Placement Services. The Company shall provide
Employee with the assistance of a nationally recognized executive
placement firm for a period of twelve months following the Termination
Date; provided, however, the Company shall not be required to continue
to provide Employee with such assistance in the event that Employee
begins other full time employment during such period.
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7.6 Discontinuation of Benefits. Notwithstanding anything to the
contrary in this Agreement, after the Termination Date, the Company shall not
be required to continue to provide Employee with any benefits pursuant to
Section 7.5(vi) and (vii) if and to the extent that Employee has obtained new
employment and the new employer provides Employee with equal or better coverage
at no or comparable cost to Employee. Nothing in this Agreement is intended to
permit Employee to receive, after the Termination Date, a greater package of
benefits than he would have been entitled to receive during the same period
from the Company had his employment not terminated.
7.7 Conditional Receipt of Benefits. Employee acknowledges and
agrees that his right to any compensation or benefits as provided in this
Agreement is conditioned on his compliance with all of his obligations in
Section 9. Accordingly, Employee agrees that if he fails to comply with any
covenant of his contained in Section 9 (regardless of whether such
non-compliance occurs during or after the Term), he will not be entitled to any
further payment by the Company of compensation or benefits (including those
that have vested as of the date of such non-compliance).
7.8 No Duty to Mitigate. Employee shall not be required to
mitigate the amount of any payment provided for in this Section 7 by seeking
other employment or otherwise. Except as otherwise expressly set forth in this
Section 7, no amounts due to Employee by the Company under this Section 7 shall
be reduced or offset by any compensation whatsoever received by Employee from
any other employment of Employee.
Section 8. Representations of the Parties. The Company
represents and warrants to Employee that (a) this Agreement and the Option
Agreement have been duly executed and delivered by the Company, (b) the
execution, delivery and performance of this Agreement and the Option Agreement
by the Company has been duly authorized by all necessary corporate action on
the part of the Company including all applicable committees of the Board of
Directors or otherwise, (c) this Agreement and the Option Agreement constitute
the legal, valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, (d) the execution, delivery and
performance of this Agreement and the Option Agreement by the Company do not
and will not conflict with, violate, or constitute a breach of or default
under, (i) the Articles of Incorporation or By-laws of the Company or any of
its subsidiaries, (ii) any provision of law or regulations applicable to the
Company or any of its subsidiaries, (iii) any provision of any indenture,
agreement or other instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound or
affected, with respect to which any such conflict, violation, breach or default
would render this Agreement unenforceable or would have a material adverse
effect on the financial condition of
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the Company or any of its subsidiaries, or (iv) the Company's 1988 Stock Option
Plan, (e) the Option Shares are and at all times during the period of the Option
Agreement shall be available under the Plan and there is and will be no
violation of Section 5(a) of the Plan with respect to the Option Shares, and
(f) the Company has not received any legal advice contrary to the Company's
representations and warranties set forth in this Section 8. Employee represents
and warrants to the Company that (A) his execution, delivery and performance of
this Agreement do not and will not conflict with, violate, or constitute a
breach of or default under any provision of law or regulation applicable to him
or any provision of any agreement, contract or other instrument to which he is
a party or otherwise bound, (B) this Agreement constitutes the legal, valid and
binding obligation of Employee, enforceable against Employee in accordance with
its terms, and (C) he has not received any legal advice contrary to his
representations and warranties set forth in this Section 8.
Section 9. Certain Covenants.
9.1 Definitions. For the purposes of this Agreement, the following
definitions shall apply:
(a) "Affiliate of the Company" shall mean any
corporation, partnership or other entity or enterprise which, directly or
indirectly, is controlled by the Company and, if the Company becomes
wholly-owned by any other corporation, partnership or other entity or
enterprise ("Parent"), then "Affiliate of the Company" shall also include
Parent and any corporation, partnership or other entity or enterprise which,
directly or indirectly, controls, is controlled by, or is under common control
with the Company or Parent. For purposes of the preceding sentence, the word
"control" (including the terms "controlling", "controlled by" and "under common
control with") shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of an entity or
enterprise, whether through the ownership of voting securities or partnership
interests, by contract or otherwise.
(b) "Business" shall mean, to the extent engaged in by
Turner during the Employment Term, and together with any other business engaged
in by Turner during the Employment Term, any one or more of the following
businesses, provided that such business is a material part of Turner's business
at the date of Termination: ownership, creation, production and/or distribution
of audio-visual, audio or visual programming, whether fixed on film, videotape
or otherwise ("Programming) by any and all means, whether now known or
hereafter created, including, without limitation, satellite transmission (of
any kind), over-the-air broadcast, VHF or UHF television, microwave, wire,
video cassette, radio, computer, telephone or any combination of the foregoing
for ultimate viewing by the public (in public or private, with or without
charges); ownership and operation of a television station; ownership, operation
and distribution of cable television
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entertainment program services; ownership, operation and distribution of cable
television news services; syndication and licensing of films or television
Programming; production and/or syndication of theatrical motion pictures;
ownership of a professional baseball club; ownership of an interest in a
professional basketball club; ownership of an interest in a multimedia sports
network; ownership or operation of a sports or entertainment stadium or arena,
the sale or marketing of Programming to distributors of Programming, such as
cable television system operators, the sale of advertising time in and adjacent
to Programming; the merchandising and licensing of consumer products derived
from Programming; and the book publishing business.
(c) "Competitive Position" shall mean: (i) Employee's
direct or indirect equity ownership (excluding equity ownership of less than
five percent (5%)) or control of any portion of any entity or enterprise (other
than the Company or any Affiliate of the Company) engaged, wholly or partly, in
any Business or (ii) any employment, consulting, partnership, joint venture,
advisory, directorship, agency, promotional or independent contractor
arrangement between Employee and any entity or enterprise (other than the
Company or any Affiliate of the Company) engaged, wholly or partly, in any
Business whereby Employee is required to or does perform services similar to
the "Services" (as defined in Section 1.1) on behalf of or for the benefit of
such an entity or enterprise.
(d) "Confidential Information" shall mean valuable,
non-public, competitively sensitive data and information relating to Turner's
business, other than Trade Secrets (as defined in Section 9.1(j).
(e) "Employment Term" shall mean the entire duration of
Employee's employment with the Company, including Employee's employment prior
to and during the Term through the Termination Date.
(f) "Employment Territory" shall mean the entire
continental United States. Given Employee's high level of executive
responsibility with respect to Turner's business and the fact that Turner's
business extends throughout the world, Employee acknowledges that Employee will
be expected to perform the Services throughout the entire continental United
States and beyond.
(g) "Parties" shall mean collectively the Company and
Employee.
(h) "Trade Secrets" shall mean information or data of or
about Turner, including, but not limited to, technical or non-technical data,
formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, products plans, or lists
of actual or potential
15
<PAGE> 16
customers, clients, distributees, or licenses, that: (i) derive economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from their disclosure or use; and (ii) are the subject of efforts that are
reasonable under the circumstances to maintain their secrecy. To the extent
that the foregoing definition is inconsistent with a definition of
"trade secret" mandated under applicable law, the latter definition shall
govern for purposes of interpreting Employee's obligations under this Agreement.
(i) "Turner" shall mean, collectively, the Company and
all Affiliates of the Company.
(j) "Work Product" shall mean work product, property,
data, documentation or information or materials prepared, conceived,
discovered, developed or created by Employee in connection with performing the
Services or any other of his employment responsibilities during the Employment
Term.
9.2 Limitation on Competition. Employee agrees that during the
Employment Term, Employee will not, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
conjunction with or in furtherance of a Competitive Position (other than action
to reject an offer of a Competitive Position) except with the prior written
permission of the Company. Employee agrees that Employee will not, anywhere in
the Employment Territory, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
conjunction with or in furtherance of a Competitive Position (other than action
to reject an offer of a Competitive Position and except with the prior written
permission of the Company) for a period of twelve (12) months after the
Termination Date if Employee is terminated by the Company for Good Cause
pursuant to Section 6.1(b)(iii), (v), (vi) or (vii) or Employee terminates his
employment pursuant to Section 6.2 or Section 6.3; provided, however, that
Employee may accept a Competitive Position or other position in the print media
without violating this Section 9.2. There shall be no limitation on competition
if either (i) Employee terminates his employment pursuant to Section 6.4 or
(ii) notwithstanding any other provision of this Agreement, the entity
controlling the Company after a Change of Control is not a Class C stockholder
of the Company as of the date of this Agreement or an entity 100% owned by such
a Class C stockholder.
9.3 Limitation on Soliciting Personnel. Employee agrees that,
except to the extent that Employee is required to do so in connection with his
employment responsibilities on behalf of the Company or except with the
Company's prior, written permission, during the Term, Employee will not, either
directly or indirectly, alone or in conjunction with any other party, solicit
or attempt to solicit any employee, consultant, contractor or other personnel
of Turner to terminate, alter or lessen that
16
<PAGE> 17
party's affiliation with Turner or to violate the terms of any agreement or
understanding between such employee, consultant, contractor or other person and
Turner. Employee agrees that, unless he has received the Company's prior
written permission to do so, Employee will not, either directly or indirectly,
alone or in conjunction with any other party, solicit or attempt to solicit any
"key" (as that term is defined in the next sentence) employee, consultant,
contractor or other personnel of Turner residing at the time of the
solicitation in the Employment Territory to terminate, alter or lessen that
party's affiliation with Turner or to violate the terms of any agreement or
understanding between such employee, consultant, contractor or other person and
Turner for a period of twelve (12) months after the Termination Date if
Employee is terminated by the Company for Good Cause pursuant to Section
6.1(b)(iii), (v), (vi), or (vii) or if Employee terminates his employment
pursuant to Sections 6.2 or 6.3. For purposes of the preceding sentence, "key"
employees, consultants, contractors or other personnel are those with knowledge
of or access to Trade Secrets and Confidential Information.
9.4 Trade Secrets and Confidential Information.
(a) Rights to Work Product. Except as expressly provided
in this Agreement, the Company alone shall be entitled to all benefits, profits
and results arising from or incidental to Employee's performance of the
Services. To the greatest extent possible, any Work Product shall be deemed to
be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. Section
101 et seq., as amended) and owned exclusively by the Company. Employee hereby
unconditionally and irrevocably transfers and assigns to the Company all
intellectual property or other rights, title and interest Employee may
currently have (or in the future may have) by operation of law or otherwise in
or to any Work Product. Employee agrees to execute and deliver to the Company
any transfers, assignments, documents or other instruments which the Company
may deem necessary or appropriate to vest complete title and ownership of any
Work Product, and all associated rights, exclusively in the Company.
(b) Non-disclosure Covenant. Through exercise of his
rights and performance of his obligations under this Agreement Employee will be
exposed to Trade Secrets and Confidential Information. Employee acknowledges
and agrees that any unauthorized disclosure or use of any of the Trade Secrets
or Confidential Information would be wrongful and would likely result in
immediate and irreparable injury to Turner. Except as required to perform his
obligations under this Agreement or except with Company's prior written
permission, Employee shall not, without the express prior written consent of
the Company, redistribute, market, publish, disclose or divulge to any other
person or entity, or use or modify for use, directly or indirectly in any way
for any person or entity: (i) any Trade Secrets at any time (during or after
the Term) during which such information or data shall continue to constitute a
"trade secret" under applicable
17
<PAGE> 18
law; and (ii) any Confidential Information during the Term and until the later
of (A) for a period of twelve (12) months after the Termination Date if
Employee is terminated by the Company for Good Cause pursuant to Section 6.1(b)
or if Employee terminates his employment pursuant to Sections 6.2, 6.3 or 6.4;
or (B) the last day following the Termination Date on which the Employee is
receiving severance benefits under Section 7.5. Employee agrees to cooperate
with any reasonable confidentiality requirements of the Company. Employee shall
immediately notify the Company of any unauthorized disclosure or use of any
Trade Secrets or Confidential Information of which Employee becomes aware.
9.5 Acknowledgment. The Parties acknowledge and agree that the
covenants of Employee in this Section 9 (collectively, the "Protective
Covenants") are reasonable as to time, scope and territory given Turner's need
to protect its substantial investment in its Confidential Information, Trade
Secrets and Customer relationships, and particularly given (a) the generous
compensation and benefits that are to be provided Employee both before and
after the Term, (b) Turner's investment of time, effort and capital in enhancing
Employee's business skills and opportunities, (c) the complexity and
competitive nature of the Company, and (d) that Employee has sufficient skills
to find alternative, commensurate employment or consulting work in Employee's
field of expertise that would not entail a violation of the Protective
Covenants. The Parties further acknowledge and agree that if the nature of
Employee's responsibilities for or on behalf of the Company and the
geographical areas in which Employee must fulfill them materially change, the
Parties will execute appropriate amendments to the scope of the Protective
Covenants. The Parties also acknowledge that the Company shall have the
discretion at any point to waive, in writing, Employee's full or partial
compliance with any one or more of the Protective Covenants. The Company agrees
to make appropriate executive officers available (before and after the Term) to
review and discuss the Protective Covenants with Employee. Employee represents
and warrants to the Company that during the Employment Term (up to the date of
this Agreement) he has not taken any action or failed to take any action that
could reasonably be construed as a breach of his covenants in this Section 9
(assuming for purposes of this sentence that the covenants in this Section 9
applied during the duration of the Employment Term).
9.6 Tolling. The running of the applicable time period of any
Protective Covenant shall be tolled: (a) during the continuation of any breach
by Employee of the Protective Covenant; and (b) during the pendency of any
litigation involving a good faith claim by the Company that Employee has
breached the Protective Covenant.
9.7 Return of Materials. At any point during the Term at the
specific request of the Company, or, in any event, as promptly as practicable
after Employee's employment hereunder has been terminated Employee will return
to the Company all Work
18
<PAGE> 19
Product (including any copies or reproductions thereof and any materials
constituting or containing Trade Secrets or Confidential Information of the
Company that are in Employee's possession or control.
9.8 Remedies.
(a) Notwithstanding anything to the contrary in this Agreement, in
the event of a breach by Employee of any provision of this Agreement, the
Company shall have the right to set-off against any sums the Company owes
Employee the amount any damages incurred or suffered by the Company as a
result of the breach. Any such set-off shall not be presumed to be in full
satisfaction of or as liquidated damages for or as a release of any claim for
damages against Employee that may accrue to the Company as a result of the
breach. Notwithstanding Section 10 below, the Parties further acknowledge that
any breach or threatened breach of a Protective Covenant by Employee is
reasonably likely to result in irreparable injury to the Company, and
therefore, in addition to all remedies provided at law or in equity (which
remedies shall be cumulative and not mutually exclusive), Employee agrees that
the Company shall be entitled to file suit in a court of competent
jurisdiction, to seek a temporary restraining order and a permanent injunction
to prevent a breach or contemplated breach of the Protective Covenant. The
existence of any claim, demand, action or cause of action of Employee against
Turner, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of any of Employee's
obligations under this Agreement.
(b) The payments and benefits provided to Employee pursuant to
this Agreement shall constitute Employee's sole and exclusive remedy against
the Company in the event of any claim of Employee arising out of any
termination of his employment by the Company. The parties agree that such
payments and benefits shall constitute liquidated damages for any liability of
the Company as a result of such termination, and that the value of such
payments and benefits is a reasonable forecast of damages that the Employee
would sustain as a result of a wrongful termination of Employee's employment.
Accordingly, Employee hereby releases and discharges the Company and any of its
past, current or future directors, officers or employees or other personnel
from any and all liabilities, whether known or unknown, whether currently
existing or arising in the future, relating to or arising out of the
termination of Employee's employment with the Company, except for the Company's
stated obligations under this Agreement.
9.9 Cash Out. At the end of the twelve month noncompete period
pursuant to Section 9.2, either the Company or the Employee may elect, by
notice within thirty (30) days of such date, to pay or receive, as the case may
be, the present value of all then remaining cash payments and benefits to be
paid or made available to Employee pursuant to this Agreement. The present
value shall be calculated by using as a discount factor the yield
19
<PAGE> 20
of U.S. Treasury obligations as of the date such noncompete period ends having
maturities most closely approximating the last date on which such cash payments
or benefits would otherwise have been paid or made available pursuant to this
Agreement. The value of all benefits other than cash payments shall be
determined by Towers, Perrin or such other expert in employee benefits as may
be acceptable to the parties and such value converted to present value in
accordance with this Section 9.9.
Section 10. Arbitration. Any controversy or claim arising from,
out of or relating to this Agreement, or the breach thereof (other than
controversies or claims arising from, out of or relating to the provisions in
Section 9), shall be determined by final and binding arbitration in Atlanta,
Georgia, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association, by a panel of one (1) arbitrator appointed by
the American Arbitration Association. The decision of the arbitrator may be
entered and enforced in any court of competent jurisdiction by either the
Company or Employee.
The parties indicate their acceptance of the foregoing arbitration
requirement by initialing below:
/s/ Wayne H. Pace /s/ Scott Sassa
--------------------------- ---------------------------
For the Employee
Company
Section 11. Miscellaneous.
11.1 Binding Effect. This Agreement shall inure to the benefit of
and shall be binding upon Employee and his executor, administrator, heirs,
personal representative and assigns, and the Company and its successors and
assigns; provided, however, neither party hereto shall be entitled to assign
any of its rights, or delegate any of its duties (except, in the case of
Employee, customary delegation of executive authority not inconsistent with
this Agreement; and except, in the case of the Company, and subject to
Employee's right to terminate pursuant to Section 6.2, to any person or entity
acquiring all or substantially all of the assets of the Company), hereunder
without the prior written consent of the other party. The Parties intend that
each Affiliate of the Company shall be the beneficiary of all the Company's
rights under this Agreement.
11.2 Governing Law. This Agreement shall be deemed to be made in,
and in all respects shall be interpreted, construed and governed by and in
accordance with, the laws of the State of Georgia.
11.3 Certain Fees and Expenses. The Company shall pay, following
submission of statements therefor, the reasonable fees and expenses of counsel
incurred by Employee in connection with the negotiation and preparation of this
Agreement and the arrangements contemplated hereby. In the event of any
20
<PAGE> 21
arbitration, litigation or dispute whatsoever arising from a claim brought by
Employee to enforce the provisions of Section 7 of this Agreement, if Employee
prevails the Company shall pay, or reimburse Employee for, all reasonable legal
fees and expenses incurred by Employee in connection with such litigation or
dispute. Employee shall be deemed to have prevailed if he substantially obtains
the relief sought, either through a judgment or the Company's voluntary action
before arbitration (after it is scheduled), trial or judgment.
11.4 Headings. The section and subsection headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
11.5 Notices. Unless otherwise agreed to in writing by the parties
hereto, all communications provided for hereunder shall be in writing and shall
be deemed to be given when delivered if delivered in person or by telecopy or
five (5) business days after being sent by first-class mail, registered or
certified, return receipt requested, with proper postage prepaid, and
(a) If to Employee, addressed to:
Scott M. Sassa
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
with a copy to:
Walter W. Driver, Jr., Esquire
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
(b) If to the Company, addressed to:
Mr. R.E. Turner
Chairman and President
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
with a copy to:
Steven W. Korn, Esq.
Vice President and General Counsel
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30348
21
<PAGE> 22
or to such other person or address as shall be furnished in writing by any
party to the other prior to the giving of the applicable notice or
communication.
11.6 Schedules. All Schedules to this Agreement are attached and
are hereby made a part of this Agreement by this reference.
11.7 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
11.8 Entire Agreement. This Agreement is intended by the parties
hereto to be the final expression of their agreement with respect to the
subject matter hereof and is the complete and exclusive statement of the terms
thereof, notwithstanding any representations, statements or agreements to the
contrary heretofore made. This Agreement may be modified only by a written
instrument signed by each of the parties hereto.
11.9 Severability. All provisions of this Agreement are severable
from one another, and the unenforceability or invalidity of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement; provided, however, that should any judicial body
interpreting this Agreement deem any provision to be unreasonably broad in
time, territory, scope or otherwise, the Company and Employee intend for the
judicial body, to the greatest extent possible, to reduce the breadth of the
provision to the maximum legally allowable parameters rather than deeming such
provision totally unenforceable or invalid.
11.10 Waiver. The waiver by either the Company or Employee to this
Agreement of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any prior or subsequent breach of the same
provision by the other party or a waiver of a breach of another provision of
this Agreement by the other party. No waiver or modification of any provision
of this Agreement shall be valid unless in writing and duly executed by the
party to be charged with the waiver or modification.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ Wayne H. Pace
--------------------------------------------
Name: Wayne H. Pace
---------------------------------------
Title: Vice President
--------------------------------------
Attest: /s/ Steven W. Korn
----------------------------------------
Name: Steven W. Korn
------------------------------------------
Title: Vice President
-----------------------------------------
EMPLOYEE
/s/ Scott Sassa
-----------------------------------
Scott M. Sassa
23
<PAGE> 24
SCOTT M. SASSA
EMPLOYMENT CONTRACT
SCHEDULE 1.1 (a)
Turner Entertainment Group - President
CR Acquisition Co. - Director and President
The Cartoon Network, Inc. - Director and President
The Cartoon Network Limited - Director
Castle Rock Entertainment, Inc. - Director and President
HB Holding Co. - Director
Hanna Barbera Cartoons, Inc. - Vice President
Hanna Barbera Entertainment Co., Inc. - Director
Hanna Barbera Productions, Inc. - Director
NL Acquisition Co. - Director and President
Superstation, Inc. - President
Turner Broadcasting System, Inc. - Director and Vice President
Entertainment Networks
Turner Entertainment Co. - Chairman
Turner Entertainment Networks International Limited - Director
Turner Management Co., UK Limited - Director
Turner Management Co., UK Limited - Director
Turner Network Television, Inc. - Director and President
Turner Network Television Limited - Director
Turner Pictures, Inc. - Director and President
Turner Publishing, Inc. - Director and President
<PAGE> 25
SCOTT M. SASSA
EMPLOYMENT CONTRACT
SCHEDULE 1.1 (b)
Employee shall be responsible for the day to day operations which will include
the hiring and firing of employees, control of creative decisions, and profit
and loss responsibility for the following areas:
Turner Entertainment Networks, which includes TBS, TNT, The Cartoon
Network, Turner Classic Movies, TNT Latin America, Cartoon Network
Latin America, TNT/Cartoon Network Europe, TNT/Cartoon Network Asia
and any additional entertainment based networks.
TBS Productions, Turner Pictures, Hanna Barbera Productions, Turner
Entertainment Company and Hanna Barbera Entertainment Company.
Turner Home Entertainment, which includes Turner Home Video, Turner
Licensing and Merchandising, Turner Publishing, Turner New Media and
Turner Interactive.
Employee shall be a member of the management committee that oversees the
company's feature film activities.
<PAGE> 26
SCOTT M. SASSA
EMPLOYMENT CONTRACT
SCHEDULE 3.2
Salary:
1994 - $805,000
1995 - $845,000
1996 - $890,000
1997 - $940,000
Bonus:
1994 - $645,000
1995 - $680,000
1996 - $715,000
1997 - $750,000
Special Bonus:
$383,555
Stock Grant:
16,700 shares Class B common stock
Stock Options -
500,000 shares Class B common stock at 27-1/8 dollars per share,
vesting in four equal installments, 125,000 shares on January 1,
1995 and 125,000 shares on January 1 of each of 1996, 1997 and 1998.
<PAGE> 27
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") is made and
entered into as of the 26th day of January, 1994 by and between Scott M.
Sassa, an individual resident of the State of Georgia (hereinafter referred
to as "Employee"), and Turner Broadcasting System, Inc., a corporation
organized under the laws of the State of Georgia (hereinafter referred to as
the "Company");
W I T N E S S E T H:
WHEREAS, Employee and the Company are parties to that certain
employment agreement of January 1, 1994 (the "Employment Agreement");
WHEREAS, the parties desire to enter into this Amendment to amend the
Employment Agreement so as to accurately reflect their original understanding
and intentions with respect to a certain aspect of the Employment Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements contained herein, the parties hereto, intending to be legally
bound, hereby agree to amend the Employment Agreement as follows:
1. All of the second sentence of Section 3.2 of the Employment Agreement
beginning with the underlined phrase "provided, however," is hereby deleted and
------------------
is replaced with the following: "the provision in the TIP which affords
eligible employees the opportunity to earn up to 150% of their Target Award
under certain circumstances shall be applicable hereunder. Accordingly,
pursuant to TIP, Employee shall be eligible to earn up to 150% of the Annual
Bonus set forth on Schedule 3.2 of the Employment Agreement."
2. Except as expressly amended hereby, the terms and conditions of the
Employment Agreement shall remain in full force and effect.
3. This Amendment shall be governed by and construed in accordance with
the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ Wayne H. Pace
----------------------------
Its: Vice President - Finance
----------------------------
ATTEST: /s/ Steven W. Korn
-------------------------
NAME: Steven W. Korn
-------------------------
TITLE: Vice President
-------------------------
EMPLOYEE
/s/ Scott M. Sassa
--------------------------------
Scott M. Sassa
<PAGE> 1
Exhibit 11
Page 1 of 2
TURNER BROADCASTING SYSTEM, INC.
Computation of Primary Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended
December 31, 1993
-----------------
<S> <C>
Net loss applicable to common stock.............................. $ (244,248)
===========
Net loss applicable to Class A Common Stock...................... $ (63,112)
===========
Net loss applicable to Class B Common Stock...................... $ (181,136)
===========
Weighted average number of shares outstanding during the period.. 188,550
Add: Common equivalent shares issuable assuming conversion of
Class C Convertible Preferred Stock............... 74,382
Shares issuable upon exercise of stock options............... 5,472
Subtract: Shares which would have been purchased with proceeds
from exercise of such stock options.............. (3,961)
-----------
Weighted average number of common stock, common stock
equivalents and converted shares outstanding................. 264,443
==========
Weighted average number of Class A common shares and common
stock equivalents............................................ 68,330
==========
Weighted average number of Class B common shares and common
stock equivalents.......................................... 196,113
==========
Loss per share and common stock equivalent of Class A
and Class B common stock..................................... $ (0.92)
===========
</TABLE>
<PAGE> 2
Exhibit 11
Page 2 of 2
TURNER BROADCASTING SYSTEM, INC.
Computation of Fully-Diluted Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended
December 31, 1993
-----------------
<S> <C>
Net loss applicable to common stock............................... $ (244,248)
Add: Interest expense on zero coupon subordinated convertible
notes due 2004............................................. 13,507
Interest expense on zero coupon subordinated convertible
notes due 2007............................................. 15,759
Extraordinary loss on early extinguishment of debt,
net of tax................................................. 4,456
Subtract: Additional income taxes................................ (11,681)
----------
Adjusted net loss applicable to common stock...................... $ (222,207)
===========
Net loss applicable to Class A Common Stock....................... $ (54,500)
==========
Net loss applicable to Class B Common Stock....................... $ (167,707)
==========
Weighted average number of common stock, common stock
equivalents and converted shares outstanding.................. 264,798 (a)
Add: Shares issuable assuming conversion of zero coupon
convertible notes due 2004................................. 6,358
Shares issuable assuming conversion of zero coupon
convertible notes due 2007................................. 7,440
----------
Weighted average number of common shares, common stock
equivalents and convertible shares, assuming full dilution... 278,596
==========
Weighted average number of Class A common shares, common stock
equivalents and convertible shares assuming full dilution..... 68,330
==========
Weighted average number of Class B common shares, common stock
equivalents and convertible shares assuming full dilution..... 210,266
==========
Loss per share of Class A and Class B common stock
assuming full dilution......................................... $ (0.80)
===========
</TABLE>
This calculation is submitted in accordance with the rules and regulations of
the Securities and Exchange Commission. Under generally accepted accounting
principles this presentation would not be made because it is anti-dilutive.
(a) The weighted average number of common stock, common stock equivalents and
converted shares outstanding is not the same as the balance on the primary
earnings per share calculation as the market price at the close of the
period was used in place of the average price in order to reflect maximum
dilution.
<PAGE> 1
ENTERTAINMENT SEGMENT FINANCIAL DATA EXHIBIT 13
<TABLE>
<CAPTION>
(in thousands) 1993 1992(2) 1991(2)
---------- ----------------------------
<S> <C> <C> <C>
Total revenue $1,162,282 $1,078,567 $869,018
Total operating profit(1) 143,245 151,838 146,469
Advertising revenue 554,585 498,250 425,476
Subscription revenue 318,804 269,577 234,281
</TABLE>
ENTERTAINMENT SEGMENT OPERATIONAL DATA
<TABLE>
<CAPTION>
1993 1992 1991
------ ------------------------
<S> <C> <C> <C>
U.S. Coverage Households (in thousands)(3)
TBS SuperStation 61,525 60,032 57,457
TNT 60,876 58,312 55,641
Cartoon Network 8,861 -- --
------ ------------------------
U.S. Cable Television Household Penetration(3)
TBS SuperStation 94% 94% 94%
TNT 95 94 93
Cartoon Network 13 -- --
------ ------------------------
U.S. Television Household Penetration(3)
TBS SuperStation 65% 64% 62%
TNT 65 63 60
Cartoon Network 9 -- --
------ ------------------------
U.S. Average Viewing Households (in thousands)(4)
TBS SuperStation 815 803 793
TNT 552 560 509
Cartoon Network 56 -- --
------ ------------------------
U.S. 24-hour Ratings(4)
TBS SuperStation 1.3% 1.4% 1.4%
TNT 0.9 1.0 0.9
Cartoon Network 0.9 -- --
------ ------------------------
U.S. Share of Viewing
Households 24-hour basis(4)
TBS SuperStation 4.2% 4.3% 4.4%
TNT 2.9 3.1 3.0
Cartoon Network 2.7 -- --
------ ------------------------
Household Distribution (in thousands)(5)
TNT Latin America 1,462 929 142
Cartoon Network Latin American 997 -- --
TNT & Cartoon Network Europe 16,660 -- --
</TABLE>
(1) Operating profit is defined as income before interest expense, interest
income, income taxes, extradinary items and the cumulative effect of a
change in accounting for income taxes.
(2) Certain amounts prior to 1993 have been reclassified to
conform to the current year presentation.
(3) Measured as of the December rating period in each year
indicated. Data for Cartoon Network was not available until January
1993.
(4) Represents the average number of viewing households for the respective
sevice at any given time based upon an average for each 24-hour period
in the 12 rating periods in each year indicated.
(5) Information supplied by Turner International, Inc.
(Photo) (Photo) (Photo)
17
<PAGE> 2
NEWS SEGMENT FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands) 1993 1992 (2) 1991 (2)
-------- -----------------------
<S> <C> <C> <C>
Total revenue $599,352 $531,071 $478,302
Total operating profit(1) 212,202 178,404 165,313
Advertising revenue 302,873 274,093 249,888
Subscription revenue 227,115 196,096 170,416
International revenue 92,974 74,416 51,297
</TABLE>
NEWS SEGMENT OPERATIONAL DATA
<TABLE>
<CAPTION>
1993 1992 1991
------ ---------------------
<S> <C> <C> <C>
U.S. Coverage Households (in thousands)(3)
CNN 62,420 61,172 58,877
Headline News 54,219 51,354 48,223
------ ---------------------
U.S. Cable Television Household Penetration(3)
CNN 97% 97% 97%
Headline News 85 82 80
------ ---------------------
U.S. Television Household Penetration(3)
CNN 66% 66% 64%
Headline News 58 55 52
------ ---------------------
U.S. Average Viewing Households (in thousands)(4)
CNN 369 400 685(5)
Headline News 181 172 182
------ ---------------------
U.S. 24-hour Ratings(4)
CNN 0.6% 0.7% 1.2%(5)
Headline News 0.3 0.3 0.4
------ ---------------------
U.S. Share of Viewing Households
24-hour basis(4)
CNN 1.9% 2.1% 3.7%(5)
Headline News 1.1 1.1 1.2
------ ---------------------
Household Distribution (in thousands) (6)
CNN International 45,100 34,700 15,500
</TABLE>
(1) Operating profit is defined as income before interest expense,
interest income, income taxes, extraordinary items and the
cumulative effect of a change in accounting for income taxes.
(2) Certain amounts prior to 1993 have been reclassified to conform to
the current year presentation.
(3) Measured as of the December rating period in each year indicated.
(4) Represents the average number of viewing households for the
respective service at any given time based upon an average for each
24-hour period in the 12 rating periods in each year indicated.
(5) Increase primarily due to Persian Gulf War coverage.
(6) Information supplied by Turner International, Inc. An additional 29
million and 28 million homes received CNN International at least 5
hours per day in 1993 and 1992, respectively.
CNN International's competitive position is ensured not only by a superior
editorial product, but also by the best world wide distribution arrangements
possible. In the growing Asian and Pacific Rim markets, Turner has formed an
alliance with leading programmers in the area to coordinate satellite
distribution strategies, encryption, compression technology, DTH marketing and a
variety of regional policy issues. Among the group's common interests are
transponder agreements with APSTAR-1,
(Photo) (Photo) (Photo)
23
<PAGE> 3
SELECTED FINANCIAL DATA
Turner Broadcasting System, Inc.
The following table summarizes certain consolidated financial data of
Turner Broadcasting System, Inc. (the "Company") for the years
indicated which, with respect to the latest three years, is qualified in its
entirety by the accompanying Consolidated Financial Statements and Notes to
Consolidated Financial Statements. Also see Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations in the accompanying
1993 Turner Broadcasting System, Inc. Form 10-K.
<TABLE>
<CAPTION>
in thousands, except per share data and current ratio Year ended December 31,
1993 1992 1991 1990 1989
---------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenue $1,921,606 $1,769,892 $1,480,243 $1,393,521 $1,065,051
Operating profit (1) 302,140 289,382 297,121 201,265 266,052
Dividends on minority interest (2) - - - - 16,603
Interest expense, net of interest income 181,571 189,637 196,139 189,741 192,824
Income (loss) before extraordinary items
and the cumulative effect of a change
in accounting for income taxes 72,445 34,061 42,936 (15,578) 27,632
Extraordinary items (3) (10,693) 43,561 43,000 20,200 (98,279)
Cumulative effect of change in accounting
for income taxes (4) (306,000) - - - -
Net income (loss) (244,248) 77,622 85,936 4,622 (70,647)
Earnings (loss) per common share (5)
Income (loss) before extraordinary items
and the cumulative effect of a change
in accounting for income taxes 0.27 0.13 0.06 (0.42) (0.13)
Net income (loss) (0.92) 0.30 0.24 (0.28) (0.80)
BALANCE SHEET DATA (at end of year)
Working capital $ 660,585 $ 475,397 $ 378,680 $ 264,796 $ 221,101
Current ratio 2.60 2.26 2.09 1.76 1.54
Total assets 3,244,862 2,523,573 2,397,227 2,152,617 2,114,763
Long-term debt, less current portion (6) 2,294,557 1,709,051 1,968,937 1,855,619 1,688,548
Redeemable preferred stock (7) - - 4,855 334,160 324,996
Cash dividends (8) 18,407 13,589 5,356 - -
Stockholders' equity (deficit) (1,103) 233,101 (37,603) (473,092) (431,649)
Total capitalization (9) 2,293,454 1,942,152 1,936,189 1,716,687 1,581,895
========== ====================================================
</TABLE>
(1) Operating profit is defined as income before interest expense, interest
income, dividends on minority interest, income taxes, extraordinary items
and the cumulative effect of a change in accounting for income taxes.
(2) In 1989, the Class A Cumulative Exchangeable Preferred Stock of Cable News
Network, Inc. ("CNN") was redeemed.
(3) The amount in 1993 represents a $16,946,000 loss on early extinguishment
of indebtedness, net of the income tax benefit of $6,253,000. The amounts
in 1992, 1991 and 1990 represent utilization of operating loss
carryforwards. In 1989, the amount represents a $123,191,000 loss on early
extinguishment of indebtedness, net of the income tax benefit of
$24,912,000.
(4) The cumulative effect of adopting Statement of Financial Accounting
Standards No. 109 ("FAS 109") was a non-recurring charge to the 1993
Consolidated Statement of Operations of $306,000,000. This charge was
primarily related to the 1986 acquisition of the Turner Entertainment Co.
Film Library (the "TEC Library") and, to a lesser degree, the
Company's 50% interest in Hanna-Barbera Holding Company. In both
transactions there were substantial differences between amounts recorded
for financial reporting purposes and for income tax purposes.
(5) The earnings (loss) per share calculations for 1993, 1992 and 1991 include
common stock equivalents. Per share amounts prior to 1990 have been
restated to reflect the three-for-one stock split declared July 23, 1990
and paid September 4, 1990.
(6) See Note 5 of Notes to Consolidated Financial Statements for information
regarding repayment terms of and collateral for outstanding long-term
debt.
(7) The amounts represent the accreted value of the Class B Cumulative
Preferred Stock outstanding at each year end. See Note 9 of Notes to
Consolidated Financial Statements.
(8) Amounts in 1992 and 1991 include dividends on preferred stock. See Note 9
and Note 10 of Notes to Consolidated Financial Statements for additional
information.
(9) Total capitalization is defined as stockholders' equity (deficit),
long-term debt less current portion, Class B Cumulative Preferred Stock
and minority interest.
28
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
Year ended December 31,
in thousands, except per share data 1993 1992 1991
----------- ------------------------
<S> <C> <C> <C>
Revenue
Unaffiliated $1,536,112 $1,398,667 $1,201,771
Affiliated 385,494 371,225 278,472
---------- ------------------------
1,921,606 1,769,892 1,480,243
---------- ------------------------
Cost of operations 1,023,045 984,630 802,915
Selling, general and administrative 537,108 442,270 349,475
Depreciation of property and equipment and amortization of intangible assets 39,273 33,586 30,910
Interest expense, net of interest income 181,571 189,637 196,139
Equity in (income) loss of unconsolidated entities 20,040 4,024 (178)
Estimated loss on termination of the Checkout Channel - 16,000 -
---------- ------------------------
1,801,037 1,670,147 1,379,261
---------- ------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEMS AND THE
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 120,569 99,745 100,982
Provision for income taxes 48,124 65,684 58,046
---------- ------------------------
INCOME BEFORE EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 72,445 34,061 42,936
Extraordinary items (10,693) 43,561 43,000
---------- ------------------------
INCOME BEFORE THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR
INCOME TAXES 61,752 77,622 85,936
Cumulative effect of a change in accounting for income taxes (306,000) - -
---------- ------------------------
NET INCOME (LOSS) $ (244,248) $ 77,622 $ 85,936
========== ========================
Net income (loss) applicable to common stock
Net income (loss) $ (244,248) $ 77,622 $ 85,936
Less: Preferred stock dividends and accretion of discount - 1,292 28,522
---------- ------------------------
Net income (loss) applicable to common stock $ (244,248) $ 76,330 $ 57,414
========== ========================
Net income (loss) applicable to Class A Common Stock $ (63,112) $ 20,416 $ 16,473
Net income (loss) applicable to Class B Common Stock $ (181,136) $ 55,914 $ 40,941
========== ========================
Earnings (loss) per common share and common stock equivalent
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes $ 0.27 $ 0.13 $ 0.06
Extraordinary items (0.03) 0.17 0.18
Cumulative effect of a change in accounting for income taxes (1.16) - -
---------- ------------------------
Net income (loss) $ (0.92) $ 0.30 $ 0.24
========== ========================
Weighted average number of common shares outstanding, including
conversion of common stock equivalents
Class A Common Stock 68,330 68,330 68,330
Class B Common Stock 196,113 187,143 169,827
========== ========================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
29
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
December 31,
in thousands, except share data 1993 1992
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 162,858 $ 126,256
Accounts receivable, less allowance of $23,083 and $17,088
Unaffiliated 378,228 314,580
Affiliated 94,011 81,453
Film costs 314,637 243,544
Installment contracts receivable, less allowance of $11,915 and $12,006 56,563 46,552
Prepaid expense and other current assets 68,196 39,798
---------- ----------
Total current assets 1,074,493 852,183
Film costs, less current portion 1,633,731 1,186,624
Property and equipment, less accumulated depreciation 225,228 212,817
Installment contracts receivable, less discount of $1,123 and $3,123 15,077 28,259
Other assets 296,333 243,690
---------- ----------
TOTAL ASSETS $3,244,862 $2,523,573
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable and accrued expenses $ 168,975 $ 153,749
Deferred income 106,496 47,816
Participants' share and royalties payable 33,922 20,436
Interest payable 32,128 19,807
Film contracts payable 28,096 26,654
Current portion of long-term debt 2,051 76,959
Other current liabilities 42,240 31,365
---------- ----------
Total current liabilities 413,908 376,786
Long-term debt, less current portion 2,294,557 1,709,051
Deferred income taxes 395,668 -
Other long-term liabilities 141,832 204,635
---------- ----------
TOTAL LIABILITIES 3,245,965 2,290,472
---------- ----------
Commitments and contingencies
Stockholders' equity (deficit)
Class C Convertible Preferred Stock, par value $0.125; authorized 12,600,000 shares;
issued and outstanding 12,396,976 shares 260,438 260,438
Class A Serial Preferred Stock, par value $0.10; authorized 500,000 shares - -
Class D Serial Preferred Stock, par value $0.0625; authorized 100,000,000 shares - -
Class A Common Stock, par value $0.0625; authorized 75,000,000 shares;
issued and outstanding 68,330,388 shares 4,271 4,271
Class B Common Stock, par value $0.0625; authorized 300,000,000 shares;
issued and outstanding 120,887,672 and 119,845,121 shares 7,555 7,490
Capital in excess of par value 731,042 702,791
Accumulated deficit (1,004,409) (741,889)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (1,103) 233,101
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $3,244,862 $2,523,573
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
30
<PAGE> 6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
December 31,
in thousands, except share data 1993 1992 1991
--------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS C CONVERTIBLE PREFERRED STOCK,
PAR VALUE $0.125
Balance at beginning and end of
year 12,396,976 $ 260,438 12,396,976 $ 260,438 12,396,976 $ 260,438
=========== ----------- =========== ----------- =========== ----------
CLASS A COMMON STOCK, PAR VALUE $0.0625
Balance at beginning of year 68,330,388 4,271 68,330,388 4,271 68,328,636 4,328
Exercise of stock options - - - - 1,752 -
Other - - - - - (57)
-------------------------------------------------------------------------------
Balance at end of year 68,330,388 4,271 68,330,388 4,271 68,330,388 4,271
=========== ----------- =========== ----------- =========== ----------
CLASS B COMMON STOCK, PAR VALUE $0.0625
Balance at beginning of year 119,845,121 7,490 107,865,957 6,742 80,883,697 5,112
Issuance of Class B Common Stock 287,930 18 11,500,000 719 - -
Exercise of stock options 754,621 47 479,164 30 437,764 27
Stock dividends - - - - 2,306,478 144
Exchange of shares for Class B
Cumulative Preferred Stock - - - - 24,238,018 1,515
Other - - - (1) - (56)
-------------------------------------------------------------------------------
Balance at end of year 120,887,672 7,555 119,845,121 7,490 107,865,957 6,742
=========== ----------- =========== ----------- =========== ----------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year 702,791 496,568 120,066
Issuance of Class B Common Stock 7,449 203,925 -
Exercise of stock options 7,443 2,298 1,332
Tax benefit from exercise of stock options 13,359 - -
Stock dividends - - 32,723
Exchange of shares for Class B
Cumulative Preferred Stock - - 342,334
Other - - 113
----------- ----------- ----------
Balance at end of year 731,042 702,791 496,568
----------- ----------- ----------
ACCUMULATED DEFICIT
Balance at beginning of year (741,889) (805,622) (863,036)
Net income (loss) (244,248) 77,622 85,936
Cash dividends (18,407) (12,597) -
Accretion of discount and
dividends on Class B
Cumulative Preferred Stock - (1,292) (28,522)
Other 135 - -
----------- ----------- -----------
Balance at end of year (1,004,409) (741,889) (805,622)
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) $ (1,103) $ 233,101 $ (37,603)
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1993 1992 1991
------------- -------------------------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income (loss) $ (244,248) $ 77,622 $ 85,936
Adjustments to net income (loss)
Equity in (income) loss of unconsolidated entities 20,040 4,024 (178)
Cumulative effect of a change in accounting for income taxes 306,000 - -
Depreciation of property and equipment and amortization
of intangible assets 39,273 33,586 30,910
Interest expense, net of interest income 181,571 189,637 196,139
Pretax loss on early extinguishment of debt 16,946 - -
Change in assets and liabilities, net of effects from acquisitions
Net increase in accounts receivable (30,914) (49,916) (22,125)
Net (increase) decrease in installment contracts receivable 15,246 (968) 13,841
Change in film costs and liabilities, net
Purchased program rights 74,398 70,846 46,214
Produced programming (38,375) (13,200) 26,245
Licensed program rights 7,223 (49,755) (122,040)
Net increase (decrease) in accounts payable and accrued expenses 2,376 22,288 (9,576)
Increase in deferred tax liability 24,440 - -
Other, net (9,307) 19,592 16,298
------------ -------------------------
Cash provided by operations before interest payments 364,669 303,756 261,664
Interest payments, net of interest received (137,664) (150,229) (176,717)
Payments of accreted amounts upon redemption of related securities (74,683) - -
Debt issue costs (16,322) (6,756) -
------------ -------------------------
Net cash provided by operations 136,000 146,771 84,947
------------ -------------------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Acquisitions (592,275) - (116,493)
Additions to property and equipment (50,570) (47,231) (35,911)
Net proceeds from sale of assets - 45,000 -
------------ -------------------------
Net cash used for investing activities (642,845) (2,231) (152,404)
------------ -------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Borrowings 1,522,372 300,052 261,000
Payments of debt (968,008) (543,942) (167,596)
Commercial paper activity, net - (40,850) 12,873
Payments of cash dividends (18,407) (13,589) (5,356)
Proceeds from exercise of stock options 7,490 2,328 1,359
Proceeds from issuance of common stock - 204,644 -
Redemption of preferred stock - (5,483) -
------------ -------------------------
Net cash provided by (used for) financing activities 543,447 (96,840) 102,280
------------ -------------------------
Net increase in cash and cash equivalents 36,602 47,700 34,823
Cash and cash equivalents at beginning of period 126,256 78,556 43,733
------------ -------------------------
Cash and cash equivalents at end of period $ 162,858 $ 126,256 $ 78,556
============ =========================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
NOTE 1 SUMMARY OF
SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Turner
Broadcasting System, Inc. and its subsidiaries (the "Company"). The Company's
investments in unconsolidated entities where the ability to exercise
significant influence is present are accounted for by the equity method.
All significant intercompany accounts and transactions are eliminated in
consolidation. Certain amounts in the consolidated financial statements prior
to 1993 have been reclassified to conform to the current year presentation.
Amortization of film costs and participants' share and royalties expense are
recorded in cost of operations in the Consolidated Statements of Operations.
CASH EQUIVALENTS
All highly liquid investments, consisting primarily of treasury bills and
commercial paper with an original maturity of 90 days or less, are reported as
cash equivalents. Cash equivalents are reported at their cost basis, which
approximates market value, and totaled $131,006,000 and $94,433,000 at December
31, 1993 and 1992, respectively.
FILM COSTS
Film costs include purchased program rights, produced programming and licensed
program rights. Film costs are stated at the lower of cost less accumulated
amortization or estimated net realizable value.
Purchased program rights, representing purchased costs allocated to films
that have been exhibited at least once in both primary (defined as the first
markets in which such films are to be exploited) and secondary (defined as all
other) markets, are amortized to expense using the greater of the ratio that
the current period's gross revenues bear to the total estimated gross revenues
to be derived from all sources (the "individual film forecast computation
method") or straight-line over 20 years. See Note 2 of Notes to Consolidated
Financial Statements. Royalties and obligations to profit participants in the
films are accrued using a method which approximates the individual film
forecast computation method. Purchased program rights expected to be amortized
within one year are classified as current assets.
Motion picture, episodic television and animated produced programming costs
consist of direct production costs, profit participations and residuals,
production overhead, capitalized interest, and print and exploitation costs
(such as advertising), net of accumulated amortization. Distribution fees are
charged to expense when the corresponding revenues are recognized. These film
costs are amortized using the individual film forecast computation method. Such
estimates are revised periodically and estimated losses, if any, are provided
for in full at the time determined. Motion picture, episodic television and
animated produced programming costs classified as current assets include, net
of amortization, the cost of completed theatrical films, television programs or
animated produced programming that have been allocated to domestic and
international primary markets. All other motion picture, episodic television
and animated produced programming film costs are classified as noncurrent.
Rights fees and other costs relating to sports events are generally expensed
when the events are telecast. Substantially all other produced programming
costs are charged to cost of operations when each production is aired or
syndicated. Other produced programming costs expected to be expensed within one
year are classified as current assets.
Licensed program rights represent amounts paid or payable to program
suppliers for the limited right to broadcast the suppliers' programming and
distribution rights to entertainment product. New licensed film contracts are
recorded when available for use at cost less an amount representing imputed
interest; imputed interest is amortized to expense over the payment periods of
the related obligations using the interest method (rates ranging from 9.75% to
10.75%). Exhibition rights under the licenses are generally limited to a
contract period or a specific number of showings. Accordingly, licensed
program rights are amortized to expense monthly at the greater of the
straight-line rate or a rate based on actual usage. Rights expected to be
amortized within one year are classified as current assets. Distribution
rights are generally amortized over the term of the agreement.
33
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Expenditures for improvements that add to the productive capacity or extend the
useful life of an asset are capitalized. Expenditures for maintenance and
repairs are expensed when incurred. When depreciable properties are retired or
otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and the resultant gain or loss is included in the
Consolidated Statements of Operations. Depreciation is provided over the
estimated useful lives of the individual assets using the straight-line method
for financial reporting purposes.
REVENUE RECOGNITION
Advertising revenues are recognized in the period during which the spots are
aired. Subscription revenues are recognized in the period to which they pertain
or when the programming event to which they relate is aired. Syndication
revenues are recognized in the period in which the agreement is executed,
provided certain conditions of sale have been met, including availability of
the product for broadcast or sale. Motion picture revenues are recognized as
films are exhibited. Certain distribution contracts provide for receipt of
nonrefundable minimum guarantees which are recognized when the film is
available for exhibition, providing other conditions of sale have been met.
Revenues in excess of the nonrefundable guarantees are not recognized until
earned.
INTEREST
Interest expense is shown net of interest income of $13,864,000, $11,466,000
and $10,533,000 for the years ended December 31, 1993, 1992 and 1991,
respectively.
Costs associated with the refinancing and issuance of debt as well as debt
discounts, if any, are expensed as interest using the interest method over the
appropriate term of the related debt agreement.
The Company enters into interest rate swap agreements with commercial banks
to mitigate possible rising interest rates. These agreements are designated as
hedges of interest rates, and the differential to be paid or received on
interest rate swaps is accrued as an adjustment to interest expense as interest
rates change.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"), effective January 1, 1993.
Differences in recording certain income and expenses for financial reporting
and income tax purposes relate principally to amortization of film costs,
recognition of revenue on syndication contracts and depreciation of fixed
assets. Investment tax credits are accounted for on the "flow-through" method.
See Note 7 of Notes to Consolidated Financial Statements.
NET INCOME (LOSS)
PER COMMON SHARE
Net income (loss) per common share and common share equivalent is computed by
dividing net income (loss) applicable to common stock by the weighted average
number of outstanding shares of common stock and common stock equivalents
during 1993, 1992 and 1991. Common stock equivalents are principally the
incremental shares associated with the Class C Convertible Preferred Stock (the
"Class C Preferred Stock") and outstanding stock options. Fully diluted income
(loss) per share amounts are similarly computed, but include the effect, when
dilutive, of the Company's other potentially dilutive securities. The Company's
zero coupon subordinated convertible notes due 2004 and 2007 are excluded from
the 1993, 1992 and 1991 calculations of net income (loss) per common share due
to their anti-dilutive effect. The difference between the primary and fully
diluted earnings per share is not significant. See Note 5 and Note 10 of Notes
to Consolidated Financial Statements.
NOTE 2 ACQUISITIONS
In December 1991, the Company invested $48,750,000 in a newly formed
joint venture (the "Joint Venture"), of which $30,000,000 related to a 50%
common stock interest and $18,750,000 related to a preferred stock interest.
The other investors were Apollo Investment Fund, L.P. ("Apollo") and its
affiliate, Altus Finance, S.A. ("Altus" and, together with Apollo, the
"Investors"). The Joint Venture acquired, for $262,500,000 in cash, all of the
stock of The Great American Entertainment Company ("GAEC"), the subsidiaries of
which owned Hanna-Barbera Productions, Inc. and the Hanna-Barbera Film Library
34
<PAGE> 10
(the "HB Library"), which consists of over 3,000 half-hours of animated
programming. The purchase price for GAEC was financed in part through bank
borrowings of $180,000,000 by the Joint Venture and investments aggregating
$97,500,000 in the Joint Venture by the Investors and the Company. Pursuant to
the merger, the name of GAEC, the surviving corporation and as a result a
wholly-owned subsidiary of the Joint Venture, was changed to Hanna-Barbera
Entertainment Co., Inc.
Concurrently with the acquisition, wholly-owned subsidiaries of the Company
acquired, for $50,000,000, worldwide television distribution rights to the HB
Library and certain related receivables from Worldvision Enterprises, Inc., an
affiliate of GAEC. The Company expects to receive approximately $13,950,000 for
the receivables purchased from Worldvision Enterprises, Inc., of which
$11,079,000 and $8,584,000 had been received at December 31, 1993 and 1992,
respectively. The remaining $36,050,000 of distribution assets is being
amortized on a straight-line basis over a period of 20 years. In addition, the
Company acquired for $7,500,000, plus the assumption of certain liabilities,
the animated entertainment production business and animated projects in
development of GAEC and its subsidiaries.
On December 29, 1993, the Company acquired the remaining 50% interest in
the Joint Venture in a transaction consisting of the purchase of the common
stock held by Apollo for approximately $68,000,000 in cash, the acquisition for
$33,000,000 of a senior note of the Joint Venture from Altus and the repayment
of all indebtedness and the assumption of liabilities of the Joint Venture. The
acquisition of the Joint Venture was accounted for by the purchase method of
accounting.
On December 22, 1993, the Company acquired from Main Street Partners, Sony
Pictures Entertainment, Inc. and Group W Investments, Inc. the equity interests
in Castle Rock Entertainment ("Castle Rock"), a motion picture and television
production company, for approximately $100,000,000 in cash and approximately
$284,000,000 for the repayment of certain outstanding indebtedness, other
liabilities assumed and other acquisition costs. The acquisition of Castle
Rock was also accounted for by the purchase method of accounting. Goodwill in
the amount of $98,529,000 was recognized as the excess of total purchase price
over net assets acquired in the transaction, and is being amortized on a
straight-line basis over 20 years.
See Note 16 of Notes to Consolidated Financial Statements for discussion of
a business combination completed after the end of the year and the unaudited
pro forma statements of operations for the years ended December 31, 1993 and
1992 which give effect to that acquisition and to the acquisition by the
Company of Castle Rock together with the acquisition by the Company of the
remaining 50% interest in the Joint Venture (together, the "Acquisitions") for
those periods assuming that the Acquisitions had occurred at the beginning of
the periods presented.
In March 1993, the Company acquired a 27.5% limited partnership interest in
n-tv, a 24-hour German language news channel, for $19,205,000 of which
$11,654,000 was determined to be goodwill. During the period from purchase
through December 31, 1993, the Company also contributed $16,054,000 in
additional capital or advances convertible into capital, all of which was
determined to be goodwill. This goodwill is being amortized on a straight-line
basis over 20 years. The Company has committed to additional capital and
advances to the limited partnership of $6,053,000 in 1994.
The Company's ownership percentage in n-tv was 25.8% at December 31, 1993.
The Company is accounting for this investment using the equity method and its
share of the undistributed net loss of n-tv for the year ended December 31,
1993 was $18,622,000. The summarized financial position and results of
operations of n-tv follow:
<TABLE>
<CAPTION>
December 31,
in thousands 1993
- ----------------------------------------------------------------------------
<S> <C>
Current assets $ 6,335
Noncurrent assets 20,115
Current liabilities 36,588
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended
December 31,
in thousands 1993
- ----------------------------------------------------------------------------
<S> <C>
Revenue $ 8,222
Operating loss (84,169)
Net loss (85,815)
============================================================================
</TABLE>
The Company's other unconsolidated subsidiaries and 50% or less owned
entities are insignificant.
35
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
NOTE 3 FILM COSTS
The following table sets forth the components of unamortized film costs:
<TABLE>
<CAPTION>
December 31,
in thousands 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Purchased program rights $1,172,921 $ 936,582
Produced programming
Released 166,768 30,595
Completed and not released 17,654 21,987
In process 153,630 71,138
Episodic television 89,077 21,462
Licensed program rights 231,385 207,442
Prepaid licensed
program rights 116,933 140,962
- ---------------------------------------------------------------------------
1,948,368 1,430,168
Less current portion 314,637 243,544
- ---------------------------------------------------------------------------
$1,633,731 $1,186,624
===========================================================================
</TABLE>
Episodic television includes serial television episode program costs.
Prepaid licensed program rights represent licensed program rights for which
payments have been made but the films are currently unavailable for use. As
these programs become available for use they are reclassified to licensed
program rights. See Note 1 of Notes to Consolidated Financial Statements.
On the basis of the Company's anticipated total gross revenue estimates,
over 83% of released and episodic television produced programming costs at
December 31, 1993, will be amortized within the three-year period ending
December 31, 1996.
Film costs included in Cost of Operations is composed of the following:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased program rights $ 75,814 $ 79,554 $ 69,112
Produced programming 360,511 333,087 289,548
Licensed program rights 71,503 65,960 50,632
Participants' share
and royalties 32,072 21,992 13,740
- ---------------------------------------------------------------------------
$539,900 $500,593 $423,032
===========================================================================
</TABLE>
NOTE 4 PROPERTY
AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31, Estimated
in thousands 1993 1992 useful lives
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Buildings $138,332 $125,019 10-50 years
Equipment and
furniture 210,985 184,175 3-15 years
Transponders 46,053 44,954 11-13 years
Land 21,019 11,019
Other 18,462 15,608 6-15 years
- ---------------------------------------------------------------------------
434,851 380,775
Less accumulated
depreciation 209,623 167,958
- ---------------------------------------------------------------------------
$225,228 $212,817
===========================================================================
</TABLE>
Buildings include capital leases of $19,920,000 at December 31, 1993 and
$21,314,000 at December 31, 1992. Accumulated depreciation related to capital
leases was $17,037,000 and $15,691,000, respectively. Depreciation expense
related to capital leases was $1,346,000, $1,595,000 and $1,441,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
In 1989, the Company, acting through a joint venture arrangement with Home
Box Office, Inc. ("HBO"), negotiated an agreement with Hughes Communications
Galaxy, Inc. ("Hughes") for the purchase of five transponders, with an option to
purchase three additional transponders. The option to purchase one of the
additional transponders has since been cancelled. In December 1991, the Company
entered into a sale/leaseback transaction with respect to four of these
satellite transponders to be effective when the transponders were ready for
commercial operation following the satellite's launch. The four transponders
were sold by the Company at fair market value to an unaffiliated third party
that agreed to lease such transponders back to the Company pursuant to an
operating lease. The Company received $45,000,000 in net cash proceeds from the
sale on May 8, 1992, the date the transponders were ready for commercial
operation. The Company deferred the gain on the transaction and is recognizing
it as a reduction of the rental expense over the term of the lease, which is
approximately 8 1/2 years. The above table includes $9,107,000 in 1993 and
$8,602,000 in 1992 of progress payments towards the construction of the
remaining Company-owned transponder.
36
<PAGE> 12
The Company has long-term noncancellable operating lease commitments
for vehicles, sports facilities, satellite transmission facilities and office
space. Total rental expense for these operating leases is summarized as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Total rental expense $78,137 $66,658 $58,581
Contingent rental expense 9,218 17,057 23,776
- ---------------------------------------------------------------------------
</TABLE>
Future minimum rental payments at December 31, 1993 for noncancellable
operating leases with remaining terms in excess of one year aggregate
$335,555,000 and are payable as follows: 1994 - $56,725,000; 1995 -
$48,463,000; 1996 - $45,060,000; 1997 - $40,696,000; 1998 - $35,905,000; 1999
and thereafter in the aggregate - $108,706,000.
NOTE 5 LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31,
in thousands 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank credit facilities $1,225,000 $ 710,000
Payable to banks by CNN Center Ventures - 40,000
12% Senior subordinated debentures due October 15, 2001,
net of unamortized discount of $3,268 and $3,551 536,732 536,449
8 3/8% Senior Notes due July 1, 2013, net of unamortized discount of $2,675 in 1993 297,325 -
Zero coupon subordinated convertible notes, 8% yield, due
October 26, 2004, net of unamortized discount of $422,970 in 1992 - 277,030
Zero coupon subordinated convertible notes, 7.25% yield, due February 13, 2007,
net of unamortized discount of $353,368 and $369,088 228,688 212,968
Obligations under capital leases due in varying amounts through 1999,
net of imputed interest of $1,075 and $1,384 6,353 7,274
Other debt, net of imputed interest of $29 and $139, due in varying amounts
through 1994, interest at fixed rates ranging from 6.00% to 9.49% 2,510 2,289
- ---------------------------------------------------------------------------------------------------------------------
2,296,608 1,786,010
Less current portion 2,051 76,959
- ---------------------------------------------------------------------------------------------------------------------
$2,294,557 $1,709,051
=====================================================================================================================
</TABLE>
BANK CREDIT FACILITIES
On July 1, 1993, the Company entered into a credit agreement (the "1993 Credit
Agreement") with a group of banks pursuant to which such banks extended a
$750,000,000 unsecured revolving credit facility. On December 15, 1993, the
1993 Credit Agreement was amended, among other things, to increase the amount
available for borrowing to $1,500,000,000. Amounts available for borrowing or
reborrowing under this revolving facility will automatically decrease by
$75,000,000 as of the last business day of the calendar quarters ending March
31, 1998, June 30, 1998, September 30, 1998 and December 31, 1998, and by
$150,000,000 as of the last business day of each quarter thereafter until
December 31, 2000, at which time the revolving credit facility will terminate.
Under the 1993 Credit Agreement, amounts repaid under the revolving credit
facility may be reborrowed subject to borrowing availability. The amount of
borrowing availability is subject to other provisions of the 1993 Credit
Agreement, including requirements that (a) minimum ratios be maintained, as
from time to time are in effect, of funded debt to cash flow, cash flow to
interest expense and cash flow to fixed charges; and (b) there does not exist,
and that such borrowing would not create, a default or event of default, as
defined. These covenants are similar to, though generally less restrictive
than, the covenants in the credit agreement entered into by the Company in
1989, as amended (the "1989 Credit Agreement").
Simultaneous with the execution of the 1993 Credit Agreement in July 1993,
the Company cancelled a $360,000,000 and a $200,000,000 unsecured revolving
credit facility governed by the 1989 Credit Agreement. On
37
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
December 21, 1993, the remaining facilities under the 1989 Credit Agreement, a
$700,000,000 and a $140,000,000 unsecured term loan, were repaid and cancelled.
Amounts outstanding under the 1989 and 1993 Credit Agreements bear interest
at varying rates on the basis of different rate indices and the Company's
operating performance. Interest is payable quarterly or at three-month
intervals. The interest rates of the credit agreements ranged from 4.07% to
6.00% and 4.44% to 6.13% during the years ended December 31, 1993 and 1992,
respectively. The Company pays fees of 3/8 of 1% per annum on the average
unborrowed portion of the total amount available for borrowing.
Approximately $1,225,000,000 and $750,000,000 of the Company's indebtedness
bore interest on a floating basis tied to short-term market indices at December
31, 1993 and 1992, respectively. At December 31, 1993 and 1992, the weighted
average interest rates associated with this indebtedness were 4.69% and 4.45%,
respectively. The Company has interest rate swap agreements having a total
notional principal amount of $780,000,000 and $650,000,000 at December 31,
1993 and 1992, respectively, with commercial banks. The increase in the
notional principle amount of $130,000,000 was assumed by the Company in
connection with the acquisition of the remaining 50% interest in the Joint
Venture. See Note 2 of Notes to Consolidated Financial Statements. No swap
agreements were terminated in 1993 or 1992. The notional amounts of the
contracts that will expire in 1994 and 1995 are $300,000,000 and $480,000,000,
respectively. The weighted average receipt and payment rates associated with
the swap agreements were 4.16% and 9.07%, respectively, at December 31, 1993
and were 4.44% and 9.80%, respectively, at December 31, 1992. The Company has
exposure to credit risk but does not anticipate nonperformance by the
counterparties to these agreements.
The 1993 Credit Agreement contains restrictive covenants (regarding, among
other things, additional indebtedness, liens, guarantees, dispositions,
investments and dividend payments), and requires the maintenance of specified
levels of operating cash flow and certain ratios of operating cash flow to
funded debt, operating cash flow to fixed charges and operating cash flow to
interest expense, as defined. Furthermore, the terms of the 1993 Credit
Agreement, the 12% senior subordinated debentures, the 8 3/8% Senior Notes and
the zero coupon subordinated convertible notes due 2007 provide each holder of
such securities with the right, at the holder's option, to require the Company
to purchase all or any portion of the holder's securities in the event of a
change in control. A change in control is deemed to occur when neither R. E.
Turner and his estate, heirs and legatees, those parties who beneficially owned
the Company's Class C Preferred Stock at the date of refinancing nor any
combination thereof have the power to vote at least a majority of the voting
power of the Company's voting securities.
CNN CENTER VENTURES
CREDIT AGREEMENT
On December 21, 1993, the Company cancelled a $125,000,000 revolving credit
agreement governed by the CNN Center Ventures Credit Agreement that was
guaranteed by the Company and secured by a first mortgage lien on the CNN
Center and adjacent parking deck facility.
12% SENIOR SUBORDINATED DEBENTURES
The 12% senior subordinated debentures (the "Debentures") are redeemable at the
Company's option at par plus 4.5%, 3.0% and 1.5% of the principal amount after
October 15, 1994, 1995 and 1996, respectively, and at par on and after October
15, 1997, in each case together with accrued interest to the redemption date.
The Company is required to redeem $137,500,000 principal amount on both October
15, 1999 and October 15, 2000, at par plus accrued interest to the redemption
date. Interest on the Debentures is paid semi-annually. The Debentures contain
restrictive covenants similar to those discussed under the 1993 Credit
Agreement and, in addition, require the Company to maintain a minimum net
worth, as defined.
SHELF REGISTRATION
On May 6, 1993, the Company filed a registration statement with the Securities
and Exchange Commission (the "Shelf Registration") to allow the Company to
offer, from time to time, the sale of up to $1,100,000,000 of unsecured senior
debt or unsecured senior subordinated debt securities, consisting of notes,
debentures, or other evidence of indebtedness.
38
<PAGE> 14
8 3/8% SENIOR NOTES
On July 8, 1993, the Company sold $300,000,000 of 8 3/8% Senior Notes due July
1, 2013 (the "Notes") under the Shelf Registration. The net proceeds to the
Company were approximately $291,445,000, after market and underwriting
discounts. The Notes bear interest at the rate of 8 3/8% per annum payable
semi-annually on January 1 and July 1 of each year, commencing January 1, 1994.
The Notes are not redeemable at the option of the Company. Each holder has the
right to require the Company to repurchase such holder's Notes in whole, but not
in part, upon the occurrence of certain triggering events, including, without
limitation, a change of control, certain restricted payments or certain
consolidations, mergers, conveyances or transfers of assets, each as defined in
the indenture relating to the Notes. The Company is not required to make
mandatory redemption or sinking fund payments with respect to the Notes prior
to maturity. The covenants governing the Notes limit the Company's ability to
incur additional funded debt by requiring the maintenance of a minimum
consolidated interest coverage ratio, as defined.
ZERO COUPON
SUBORDINATED CONVERTIBLE
NOTES DUE 2004
On July 9, 1993, the Company called for redemption all of its zero coupon
subordinated convertible notes due 2004 (the "Convertible Notes due 2004"), of
which $290,507,000, net of unamortized discount of $409,493,000, was
outstanding at August 9, 1993. The Convertible Notes due 2004 could have been
converted into shares of Class B Common Stock, par value $0.0625 per share, at
any time before the close of business on August 9, 1993, at the rate of 15
shares of Class B Common Stock for each $1,000 principal amount at maturity.
All Convertible Notes due 2004 which were not converted into shares of Class B
Common Stock were redeemed on August 9, 1993, at a redemption price of $415.01
in cash for each $1,000 principal amount at maturity. The price reflects
accrued original issue discount at the rate of 8% compounded semi-annually to
the redemption date.
ZERO COUPON
SUBORDINATED CONVERTIBLE
NOTES DUE 2007
The zero coupon subordinated convertible notes due February 13, 2007 (the
"Convertible Notes due 2007") were issued at $343.61 per $1,000 principal amount
at maturity with no periodic payments of interest. The issue price of the
Convertible Notes due 2007 represents a yield to maturity of 7.25% annually.
Each $1,000 principal amount at maturity is convertible at the option of the
holder, at any time on or prior to maturity, into 12.783 shares of Class B
Common Stock. The conversion rate will not be adjusted for accrued original
issue discount but will be subject to adjustment upon the occurrence of certain
events affecting Class B Common Stock and, upon conversion, the holder will not
receive any cash payment representing accrued original issue discount. The
Convertible Notes due 2007 are redeemable on or after February 13, 1995, at the
option of the Company, at redemption prices equal to the issue price plus
accrued original issue discount to the date of redemption. Each holder of
Convertible Notes due 2007 will have the option of requiring the Company to
purchase such holder's Convertible Notes due 2007 on February 13, 1997, for a
purchase price of $490.58 (the issue price plus accrued original issue discount
to such date) per $1,000 principal amount at maturity to be paid, at the option
of the Company, in cash or shares of Class B Common Stock or any combination
thereof.
OTHER
Maturities of long-term debt, including debt discount, for each of the five
years following December 31, 1993, are: $2,392,000; $1,365,000; $1,336,000;
$1,345,000; and $26,364,000, respectively, and $2,624,221,000 after 1998.
Included in the maturities of long-term debt are obligations under capital
leases of $1,279,000; $1,275,000; $1,284,000; $1,288,000; and $1,301,000 for
each of the five years following December 31, 1993, respectively, and
$1,001,000 after 1998. Obligations for film contracts payable and obligations
under employment agreements, including imputed interest, for each of the five
years following December 31, 1993, are: $33,958,000; $24,594,000; $16,210,000;
$12,592,000; and $1,335,000, respectively, and $12,654,000 after 1998.
The redemption of the Convertible Notes due 2004 and cancellation of the
1989 Credit Agreement and the CNN Center Ventures Credit Agreement resulted in
an extraordinary charge in 1993 of $10,693,000, net of approximately
$6,253,000 of tax benefit, representing the write-off of unamortized debt
issue costs.
39
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate such value. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques.
The following methods and assumptions were used by the Company to estimate
the fair value of its significant financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount reported as of December 31, 1993 and 1992 approximates fair
value.
INSTALLMENT CONTRACTS RECEIVABLE
Installment contracts receivable are recorded net of discount and as such the
carrying amount reported as of December 31, 1993 and 1992 approximates fair
value.
FILM CONTRACTS PAYABLE
Film contracts payable are recorded net of discount and as such the carrying
amount reported as of December 31, 1993 and 1992 approximates fair value.
LONG-TERM DEBT
The borrowings at December 31, 1993 under the Company's 1993 Credit Agreement
and at December 31, 1992 under the 1989 Credit Agreement and the CNN Center
Ventures Credit Agreement have floating interest rates and, therefore,
approximate fair value. The fair value at December 31, 1993 of the Debentures,
the Notes and the Convertible Notes due 2007 and at December 31, 1992 of the
Debentures, the Convertible Notes due 2004 and the Convertible Notes due 2007
is based on quoted market values on the respective dates. See Note 5 of Notes
to Consolidated Financial Statements.
INTEREST RATE
SWAP AGREEMENTS
The fair value of the interest rate swap agreements is the amount the
counterparties would charge the Company to terminate the swap agreements on
that date. See Note 5 of Notes to Consolidated Financial Statements.
The carrying amounts and estimated fair values of the Company's long-term
debt, net of obligations under capital leases, including amounts related to the
interest rate swap agreements of $30,800,000 and $61,900,000 at December 31,
1993 and 1992, respectively, are as follows:
<TABLE>
<CAPTION>
December 31,
in thousands 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Fair value $ 2,386,000 $ 1,923,000
Carrying amount 2,290,000 1,779,000
- ---------------------------------------------------------------------------
</TABLE>
The excess of fair value over carrying value of long-term debt, net of
obligations under capital leases, is principally due in both years to a decline
in market interest rates since the original issuance of the Debentures and the
Convertible Notes due 2007 and the inception of the interest rate swap
agreements.
NOTE 7 INCOME TAXES
Effective January 1, 1993, the Company adopted FAS 109. The adoption of FAS 109
changes the Company's method of accounting for income taxes from the deferred
method pursuant to Accounting Principles Board Opinion No. 11, to an asset and
liability approach. FAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Using the enacted tax
rates in effect for the year in which the differences are expected to reverse,
deferred tax liabilities and assets are determined based on the differences
between the financial reporting and the tax basis of an asset or liability.
The cumulative adjustment for income taxes as a result of the adoption of
FAS 109 on January 1, 1993 was a non-recurring charge to earnings of
$306,000,000 and is reflected in the 1993 Consolidated Statement of Operations
as a cumulative effect of a change in accounting for income taxes. The amount
relates primarily to the 1986 acquisition of the TEC Library where there
were substantial differences between amounts recorded for financial reporting
purposes and for income tax purposes. The FAS 109 cumulative adjustment
includes $45,000,000 representing the Company's 50% share of the FAS 109
cumulative adjustment recorded by Hanna-Barbera Entertainment Company, now
Hanna-Barbera Holding Company, which was acquired in 1991. See Note 2 of Notes
to Consolidated Financial Statements.
40
<PAGE> 16
The provisions (benefits) for income taxes for the three years ended December
31, 1993 consist of the following:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 12,646 $ 45,105 $ 42,642
State and local 9,381 11,743 8,693
International 12,720 8,836 6,711
Deferred
Federal 18,147 - -
Increase in federal tax rate 6,788 - -
State and local (6,691) - -
International (4,867) - -
- ---------------------------------------------------------------------------
Provision for income taxes
before extraordinary item 48,124 65,684 58,046
Extraordinary item -
realization of operating
loss carryforwards
Federal - (41,308) (39,985)
State - (2,253) (3,015)
- ---------------------------------------------------------------------------
Net provision for
income taxes $ 48,124 $ 22,123 $ 15,046
===========================================================================
</TABLE>
The provision for income taxes differs from the amount computed by applying
the applicable U.S. statutory federal income tax rate (35% in 1993 and 34% in
1992 and 1991) to pretax income from continuing operations as a result of the
following items:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax provision on
pretax income before
extraordinary items at
statutory federal
income tax rate $42,199 $33,913 $34,334
Increase (decrease) due to:
Increase in federal
income tax rate 6,788 - -
State and local taxes,
net of federal benefit 1,749 7,750 5,739
Equity in income of
unconsolidated entity (3,686) - -
Purchased film costs
and related intangibles - 10,705 9,801
International taxes - 8,836 6,711
Other 1,074 4,480 1,461
- ---------------------------------------------------------------------------
Provision for income taxes
before extraordinary item $48,124 $65,684 $58,046
===========================================================================
</TABLE>
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
December 31,
in thousands 1993
- ------------------------------------------------------------
<S> <C>
Deferred tax assets
Accruals and reserves $ 43,478
Tax credits and net operating losses 39,682
Fixed assets 3,547
Other 25,924
- ------------------------------------------------------------
112,631
- ------------------------------------------------------------
Valuation allowance on deferred tax assets (8,723)
- ------------------------------------------------------------
Deferred tax liabilities
Film costs and related intangibles (417,018)
Accounts receivable (44,247)
Other (18,620)
- ------------------------------------------------------------
(479,885)
- ------------------------------------------------------------
$(375,977)
============================================================
</TABLE>
Current income taxes payable in the amount of $28,800,000 is included in
other current liabilities.
At December 31, 1993, investment tax credit ("ITC") carryforwards of
approximately $4,100,000 and foreign tax credit ("FTC") carryforwards of
approximately $3,100,000 were available to offset future federal income tax.
For tax purposes, the ITC carryforwards will expire from 1998 through 2001; and
the FTC carryforwards will expire in 1997. Additionally, an alternative minimum
tax credit of approximately $6,000,000 is available to offset the Company's
regular tax liability in future years.
In connection with the Company's 1986 purchase of Metro-Goldwyn-Mayer
Inc./United Artists ("MGM/UA") the Company also acquired certain ITC
carryforwards which can only be used to reduce the federal income tax liability
of Turner Entertainment Co. ("TEC"), a wholly-owned subsidiary of the Company.
As of December 31, 1993, approximately $16,700,000 of ITC carryforwards remain
available to offset the future tax liability of TEC. The realization of tax
benefits from the utilization of the remaining TEC carryforwards is dependent on
TEC having future taxable income. The unused ITC carryforwards will begin
expiring in 1998.
In connection with the Company's 1993 purchase of the remaining 50% of the
Joint Venture, the Company also acquired certain net operating loss ("NOL") and
FTC carryforwards which can only be used to reduce the federal income tax
liability of the Joint Venture. As of December 31, 1993, approximately
$31,700,000 of NOL carryforwards and approximately $1,100,000 of FTC
carryforwards remain available to offset the future tax liability of the Joint
Venture.
41
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
The Company's tax liability has been reduced by approximately $13,359,000 in
1993 representing realization of the tax benefits associated with the exercise
of stock options. This benefit has been recorded as an increase to the
Company's capital in excess of par value.
NOTE 8 COMMITMENTS
AND CONTINGENCIES
COMMITMENTS
In addition to long-term noncancellable operating lease commitments for
vehicles, sports facilities, satellite transmission facilities and office
space, the Company's principal revenue-producing operations enter into extended
commitments integral to their respective operations.
At December 31, 1993, the Company was obligated to make future payments of
approximately $308,196,000 under contracts for licensed film rights not
currently available for use and, therefore, not included in the consolidated
balance sheet. The Company also has commitments under contracts for rights to
or production of other programming not yet produced of approximately
$1,113,191,000 of which $958,664,000 relates to sports programming. Amounts
payable for all of the above noted items are as follows: 1994 - $398,467,000;
1995 - $296,857,000; 1996 - $299,130,000; 1997 - $273,015,000; and 1998 and
thereafter - $153,918,000.
The Company has contracted for newsgathering services and technical support
at bureaus and overland transmission services. Minimum commitments for these
services with terms in excess of one year aggregate approximately $9,041,000
and are payable in varying amounts through 2019. In June 1990, the Company
entered into an exclusive domestic syndication and licensing agreement, as
amended, under which the Company committed to make up to a $10,000,000 advance,
recoupable against sales over the five-year period beginning September 1997, to
the extent that the Company generates less than $72,000,000 of gross sales less
distribution costs, as defined, over the five-year period beginning September
1992.
Long-term employment contracts currently in effect provide for, among other
items, aggregate annual compensation for baseball players and other employees
of the Company with extended contracts of approximately $44,991,000 in 1994,
$39,013,000 in 1995, $31,882,000 in 1996, $25,367,000 in 1997 and $132,658,000
in 1998 and thereafter. These amounts represent the maximum possible
obligation, including potential incentive compensation (although certain
incentive compensation cannot be earned by more than one player per season)
that can be earned under the terms of the contracts.
CONTINGENCIES AND
PENDING LITIGATION
Because of the nature of its principal revenue-producing activities, the
Company is, in the routine operation of its business, subject to litigation,
claims, assessments and various legal matters. In the opinion of management,
none of these matters is expected to result in a judgment having a material
adverse effect on the Company's consolidated financial position or results of
operations.
Pursuant to an Indemnification Agreement (the "Indemnification Agreement"),
as executed in connection with the Company's acquisition of MGM/UA and as
supplemented at the time the Company sold certain assets to United Artists
Corporation on August 25, 1986, the Company assumed responsibility for a
variety of lawsuits and claims from MGM/UA. Generally, these lawsuits and
claims arose in the normal course of MGM/UA's business. The Company believes
that the resolution of the suits and claims for which it assumed responsibility
pursuant to the Indemnification Agreement will not have a material adverse
impact on the consolidated financial position or operating results of the
Company.
NOTE 9 CLASS B CUMULATIVE
PREFERRED STOCK
On June 3, 1987, the Company issued to a group of investors (the "Units
Investors") an aggregate of 12,396,976 units of its securities (the "Units
Offering"), each unit composed of one share of the Company's Class B Cumulative
Preferred Stock (the "Class B Preferred Stock") and one share of the Company's
Class C Preferred Stock, for an aggregate consideration of approximately
$568,194,000, or $45.8333 per unit. See Note 10 of Notes to Consolidated
Financial Statements.
42
<PAGE> 18
The terms of the Class B Preferred Stock provided for redemption at the
option of the Company any time after the second dividend payment date, with
mandatory redemption in 1999. The carrying value of the Class B Preferred Stock
was being accreted to its redemption value ($30.8333 per share plus accrued
dividends) using the interest method. Dividends on each share of Class B
Preferred Stock accrued cumulatively at the rate of 10% per annum to April 30,
1991, and thereafter at the rate of 12% per annum. Accrued dividends were
payable annually on April 30th.
In March 1991, the Company offered the holders of the Company's Class B
Preferred Stock the option of reinvesting their 1991 cash dividend by
purchasing shares of Class B Common Stock at $14.25 per share. On April 30,
1991, the Company paid dividends of $38,224,000 on the Class B Preferred Stock.
Holders representing 86% of the outstanding shares of Class B Preferred Stock
elected the option offered by the Company and endorsed their dividend checks,
aggregating approximately $32,867,000, to the Company in payment of the
purchase price of an aggregate of 2,306,478 shares of Class B Common Stock.
On June 27, 1991, the Company offered to exchange its Class B Common Stock
for any and all of its Class B Preferred Stock at an exchange ratio of 1.927
shares of Class B Common Stock for each share of Class B Preferred Stock, plus
such additional shares of Class B Common Stock valued at $16.00 per share as
were necessary to satisfy all accrued dividends through the date of exchange
(the "Exchange Offer"). The Exchange Offer expired on July 26, 1991. Holders of
98.6% of the outstanding Class B Preferred Stock, which had an aggregate
liquidation value of $376,900,000, exchanged their shares for 24,238,018 shares
of Class B Common Stock. Net income per common share for both the Class A
Common Stock and Class B Common Stock in 1991 would have been $0.34 if the
issuance of the 24,238,018 shares of Class B Common Stock in the Exchange Offer
and the 2,306,478 shares of Class B Common Stock issued in relation to the
stock dividend had occurred on January 1, 1991.
On December 29, 1992, the Company elected to redeem all of the remaining
outstanding shares of the Class B Preferred Stock at the redemption price of
$33.34 per share. The total redemption price of $5,929,000 included $446,000 of
accrued dividends.
NOTE 10 STOCKHOLDERS'
EQUITY (DEFICIT)
COMMON STOCK
Prior to June 1992, each share of Class A and Class B common stock was
identical in all respects except for cash dividends and voting privileges. In
the case of cash dividends, the amount of such dividends payable on Class A
Common Stock was 90% of the amount payable per share on the Class B Common
Stock. In June 1992, the Company amended its Articles of Incorporation to
permit the payment of equal cash dividends per share on the Class A Common
Stock and Class B Common Stock. The Class A Common stockholders are entitled to
one vote per share and the Class B Common stockholders are entitled to
one-fifth vote per share.
In February 1992, the Board of Directors, acting through its Finance
Committee, declared a quarterly cash dividend upon the Company's outstanding
shares of Class A Common Stock and Class B Common Stock, payable at the rate of
$0.01125 for each share of Class A Common Stock held and $0.0125 for each share
of Class B Common Stock held. In addition, holders of the Company's outstanding
Class C Preferred Stock were entitled to an equivalent cash dividend ($0.0750
for each share held) based on the number of underlying shares of Class B Common
Stock. The cash dividend, aggregating approximately $3,049,000 was paid on
March 19, 1992, to shareholders of record at the close of business on March 3,
1992. Following the amendment of the Company's Articles of Incorporation to
permit the payment of equal cash dividends per share on the Class A Common
Stock and the Class B Common Stock, the Finance Committee declared dividends
payable for each of the remaining quarters in 1992 at the rate of $0.0125 for
each outstanding share of Class A Common Stock and Class B Common Stock and
$0.0750 for each share of Class C Preferred Stock. Cash dividends of
$3,134,000, $3,139,000 and $3,275,000, respectively, were paid each quarter
pursuant to these dividend declarations.
In 1993, the Board of Directors declared cash dividends on the Company's
outstanding shares of Class A Common Stock and Class B Common Stock, payable at
the rate of $0.0175 for each share held on the respective
43
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
record dates each quarter. In addition, holders of the Company's outstanding
Class C Preferred Stock were entitled to equivalent cash dividends of $0.105
for each share held on the record date each quarter based on the number of
shares of Class B Common Stock which would be receivable upon conversion of
each share of Class C Preferred Stock. Cash dividends of $4,596,000,
$4,597,000, $4,606,000 and $4,608,000, respectively, were paid each quarter
pursuant to these dividend declarations.
The Company's ability to pay cash dividends to holders of shares of the
Class A and Class B Common Stock and the Class C Preferred Stock is subject to
certain covenants in the Company's outstanding debt instruments, currently the
most restrictive of which limits the maximum aggregate amount of dividends
permitted to be paid annually to such holders to $30,000,000.
During 1993, 287,930 shares of Class B Common Stock were issued to certain
officers and employees and in conjunction with the redemption of the
Convertible Notes due 2004. See Note 5 of Notes to Consolidated Financial
Statements.
On September 30, 1992, the Company issued 11,500,000 shares of Class B
Common Stock through a public offering, resulting in net proceeds of
approximately $204,644,000.
CLASS C CONVERTIBLE
PREFERRED STOCK
In connection with the Company's Units Offering, the Company issued 12,396,976
shares of Class C Preferred Stock. See Note 9 of Notes to Consolidated
Financial Statements. The terms of the Class C Preferred Stock provide for
conversion to Class B Common Stock, at the option of the holder, at a current
rate of six shares of Class B Common Stock for every one share of Class C
Preferred Stock at any date prior to redemption. The Class C Preferred
stockholders are entitled to vote as though they held the Class B Common Stock
underlying the Class C preferred shares and are entitled to vote as a separate
class for seven members of the Company's 15 member board of directors. In
addition, holders of the Class C Preferred Stock are entitled to dividends
(non-cumulative) based on the number of underlying shares of Class B Common
Stock. If the number of outstanding shares of Class C Preferred Stock is less
than 4,000,000, the right of the Class C preferred stockholders to vote as a
separate class for seven directors ceases and the Company may redeem the then
outstanding shares at a redemption price per share equal to the common stock
equivalent price on the redemption date.
STOCK OPTIONS
The Company has two stock option plans under which options may be granted to
certain key employees at prices determined by the Stock Option and Compensation
Committee. The 1983 Stock Option Plan (the "1983 Plan") expired in 1993; no
options were granted, exercised, cancelled or expired under this plan in 1992 or
1993. Under the 1988 Stock Option Plan (the "1988 Plan"), options may not be
granted at less than par value on the date of grant but may be granted at less
than the fair market value ("FMV") on the date of grant, except for an incentive
stock option. The option price per share subject to an incentive stock option
may not be less than the greater of 100% of the FMV per share on the grant
date, or the par value per share; however, in the case of an incentive stock
option granted to a 10% shareholder, the option price per share may not be less
than the greater of 110% of FMV per share on the date of grant or the par value
per share. All options granted under the 1988 Plan have been granted at FMV. At
December 31, 1993, the total number of shares available for the grant of
options under the 1988 Plan was 2,883,690 Class B common shares.
Under the 1993 Stock Option Plan (the "1993 Plan"), adopted November 15,
1993, options may not be granted at less than par value on the date of grant
but may be granted at less than the FMV on the date of grant, except for an
incentive stock option. The option price per share subject to an incentive
stock option may not be less than the greater of 100% of the FMV per share on
the grant date, or the par value per share; however, in the case of an
incentive stock option granted to a 10% shareholder, the option price per share
may not be less than the greater of 110% of FMV per share on the date of grant
or the par value per share. At December 31, 1993, the total number of shares
available for the grant of options under the 1993 Plan was 5,000,000 Class B
common shares; no options had been granted.
44
<PAGE> 20
Transactions relating to rights to purchase stock under the 1983 Plan and
1988 Plan for the three years ended December 31, 1993, are summarized below:
<TABLE>
<CAPTION>
Number Exercise Price Class A Exercise Price Class B
of shares Common Stock Common Stock (1)
--------------------------------------------------------------------------------
in thousands, except share data Class A Class B Per share Aggregate Per share Aggregate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 1,752 4,052,505
Granted - 683,100
Exercised (1,752) (437,764) $2.854 $5 (2) $1,355
Cancelled or expired - (38,238)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 - 4,259,603
Granted 649,550
Exercised (479,164) (2) $2,328
Cancelled or expired (85,869)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 4,344,120
Granted 2,070,300
Exercised (754,621) (2) $7,490
Cancelled or expired (188,025)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 5,471,774
=====================================================================================================================
</TABLE>
(1) The rights outstanding at December 31, 1993, are exercisable at prices
ranging from $2.792 to $27.125 per share for a total exercise price of
$97,455,000. The majority of the stock options are exercisable at $13.170
(1,482,351 shares), $25.625 (1,135,300 shares), $27.125 (800,000 shares),
$2.792 (724,438 shares), $19.125 (558,000 shares) and $19.500 (470,384
shares).
(2) Options exercised under the 1983 Plan and 1988 Plan for the three years
ended December 31, 1993, are summarized as follows:
<TABLE>
<CAPTION>
Exercise Price
--------------------------------------------
in thousands, except share data Number of shares Per share Aggregate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
391,912 $ 2.792 $1,094
1,752 2.854 5
29,500 4.500 133
14,600 8.416 123
- -----------------------------------------------------------------------------------------------------------------
Options exercised 1991: Class B Common Stock 437,764 $1,355
=================================================================================================================
368,921 $ 2.792 $1,030
14,750 4.500 66
5,400 8.416 45
90,093 13.170 1,187
- -----------------------------------------------------------------------------------------------------------------
Options exercised 1992: Class B Common Stock 479,164 $2,328
=================================================================================================================
287,445 $ 2.792 $ 802
8,000 11.334 91
339,996 13.170 4,478
3,000 14.000 42
1,333 14.125 19
1,666 15.125 25
3,000 15.250 46
30,000 16.667 500
33,333 17.500 583
25,000 19.125 478
21,848 19.500 426
- -----------------------------------------------------------------------------------------------------------------
Options exercised 1993: Class B Common Stock 754,621 $7,490
=================================================================================================================
</TABLE>
The Company has reserved shares of common stock for issuance upon exercise
of outstanding stock options, conversion of the Class C Preferred Stock and the
Convertible Notes due 2007.
45
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
NOTE 11 RETIREMENT
SAVINGS PLANS
The Company has four domestic defined contribution retirement plans. The Turner
Broadcasting System, Inc. Retirement Savings Plan is a tax qualified savings
plan with matching Company contributions, which covers essentially all
employees of the Company, except the Atlanta National League Baseball Club,
Inc., employees based outside the United States and employees subject to
collective bargaining agreements. A non-qualified supplemental savings plan
with matching Company contributions covers employees with compensation in
excess of the amount taken into consideration by the tax qualified savings plan
and a non-qualified retirement plan covers certain key employees. The Atlanta
Braves Retirement Savings Plan is a tax qualified savings plan without a
matching Company contribution, which covers non-uniformed employees of the
Atlanta National League Baseball Club, Inc.
The Company has a defined benefit retirement plan which covers non-uniformed
personnel of the Atlanta National League Baseball Club, Inc. The Company also
has a defined contribution retirement plan which is tax qualified in the United
Kingdom and covers essentially all employees in London.
The Company's total contribution for all plans described above was
$10,279,000, $9,484,000, and $7,333,000 for 1993, 1992 and 1991, respectively.
NOTE 12 RELATED
PARTY TRANSACTIONS
Most of the investors in the Company's Units Offering have ongoing business
relationships with the Company, primarily as operators, directly or through
affiliates, of cable television systems which receive and distribute to their
subscribers programming provided by the Company's cable television operations.
See Note 9 of Notes to Consolidated Financial Statements.
The Company recorded subscription fees from the Unit Investors for the
delivery of such cable services (CNN, Headline News, TNT and Cartoon Network),
before deductions for advertising allowances, of approximately $274,317,000 for
1993, $252,257,000 for 1992 and $233,142,000 for 1991. These amounts
constituted approximately 54%, 57% and 56% of the Company's total subscription
revenue for CNN, Headline News, TNT and Cartoon Network during each respective
year. At December 31, 1993 and 1992, the receivables from the Unit Investors
aggregated approximately $94,011,000 and $81,453,000, respectively. Advertising
revenues received by the Company during 1993 were also indirectly dependent to
a substantial degree on cable television systems operated by the Unit Investors
or their affiliates since subscribers to those systems constituted
approximately 67%, 66%, 67%, 66% and 63% of the cable audience coverage as of
December 1993 for TBS SuperStation, CNN, Headline News, TNT and Cartoon
Network, respectively.
Pursuant to a 1986 agreement with Metro-Goldwyn-Mayer Inc.'s ("MGM")
predecessor, MGM became the designated distributor in the home video market of
most MGM and pre-1950 Warner Bros. films in the TEC Library, both
domestically and internationally, and certain RKO films internationally. The
distribution agreement, (the "Home Video Agreement") as subsequently amended,
provides for a 15-year term commencing June 6, 1986 with distribution fees
payable based primarily on the suggested retail price of the films sold. In
November 1990, MGM entered into an agreement with Warner Home Video, Inc.
("WHV"), a wholly-owned subsidiary of Time Warner Inc. ("TWI"), wherein WHV
agreed to service certain MGM obligations under the Home Video Agreement.
Revenues recorded in 1993, 1992 and 1991 pursuant to this agreement were
$81,723,000, $105,729,000 and $36,500,000, respectively.
TWI and its subsidiaries have entered into license agreements with the
Company pursuant to which the Company has acquired broadcast rights to certain
television and theatrical product. The Company paid an aggregate of
approximately $13,933,000, $13,196,000 and $6,800,000 for license fees during
1993, 1992 and 1991, respectively, under these agreements and is committed to
pay $37,417,000 through 2001 under these agreements. Additionally, TWI has an
ownership interest in n-tv. See Note 2 of Notes to Consolidated Financial
Statements.
46
<PAGE> 22
NOTE 13 SUPPLEMENTAL
CASH FLOW INFORMATION
Supplemental disclosure of cash flow information and non-cash investing and
financing activities include:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1993 1992 1991
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for income taxes $18,405 $12,778 $ 8,829
Disposal of fixed assets 16,327 - -
===========================================================================
</TABLE>
In 1993, the Company purchased Castle Rock and the remaining 50% of the
Joint Venture and assumed liabilities as of December 31, 1993 (in thousands) as
follows:
<TABLE>
<S> <C>
Fair value of assets acquired $644,028
Less: cash paid for capital stock and debt 258,505
cash paid for partnership interest,
debt and other acquisition costs 318,923
- ---------------------------------------------------------------------------
Liabilities assumed $ 66,600
===========================================================================
</TABLE>
In 1991, the Company purchased the production business of GAEC and its
subsidiaries, now Hanna-Barbera Inc., and assumed liabilities as of
December 31, 1991 (in thousands) as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $35,089
Less: cash paid for capital stock 7,500
- ---------------------------------------------------------------------------
Liabilities assumed $27,589
===========================================================================
</TABLE>
NOTE 14 BUSINESS
SEGMENT INFORMATION
The Company is a diversified entertainment and information company whose
primary business segments include Entertainment and News. Through its
subsidiaries, the Company owns and operates three domestic entertainment
networks, three international entertainment networks and three news networks.
The Company produces, finances and distributes entertainment programming
worldwide, with operations in motion pictures, animation and television
production, video, television syndication, licensing and merchandising, and
publishing.
The table on page 48 summarizes the Company's operating results by business
segment. Revenues by business segment include revenues between business
segments which are accounted for on substantially the same basis as revenues
from unaffiliated customers. Intersegment revenues are primarily fees for
production services billed by Entertainment or News, and for lease rentals and
facility services billed by the Other Segment.
47
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1993 1992 1991
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue
Entertainment $1,162,282 $1,078,567 $ 869,018
News 599,352 531,071 478,302
Other 182,339 180,678 143,957
Less intersegment revenue (22,367) (20,424) (11,034)
- ----------------------------------------------------------------------------------------
$1,921,606 $1,769,892 $1,480,243
========================================================================================
Operating profit (loss) (1)
Entertainment $ 143,245 $ 151,838 $ 146,469
News 212,202 178,404 165,313
Other (33,267) (36,836) (14,839)
Equity in income (loss) of unconsolidated
entities (2) (20,040) (4,024) 178
- ----------------------------------------------------------------------------------------
$ 302,140 $ 289,382 $ 297,121
========================================================================================
Depreciation and amortization expense (3)
Entertainment $ 6,953 $ 3,976 $ 4,995
News 11,147 9,107 9,022
Other 21,173 20,503 16,893
- ----------------------------------------------------------------------------------------
$ 39,273 $ 33,586 $ 30,910
========================================================================================
Identifiable assets at end of year
Entertainment $2,711,971 $1,921,572 $1,851,133
News 218,040 170,663 152,202
Other 314,851 431,338 393,892
- ----------------------------------------------------------------------------------------
$3,244,862 $2,523,573 $2,397,227
========================================================================================
Capital expenditures
Entertainment $ 12,356 $ 9,800 $ 5,638
News 14,479 9,959 13,995
Other 23,735 27,472 16,278
- ----------------------------------------------------------------------------------------
$ 50,570 $ 47,231 $ 35,911
========================================================================================
</TABLE>
(1) Operating profit (loss) is defined as income (loss) before interest
expense, interest income, income taxes, extraordinary items and the
cumulative effect of a change in accounting for income taxes.
(2) Equity in income (loss) of unconsolidated entities includes the results
of a 50% interest in Hanna-Barbera Holding Company; a 27.5% interest in
n-tv acquired in March 1993; a 96% interest in the Atlanta Hawks; a 44%
interest in the SportSouth Network; a one-third interest in a joint
venture which operates a computerized ticket sales agency; and costs
associated with a commitment for a 50% joint venture interest in Moscow.
(3) Includes depreciation on property and equipment and amortization
associated with other intangible assets.
The Company derives export sales revenues from the transmission of its
entertainment and news program services in international markets. In addition,
the Company distributes, either directly or through third-party distributors,
motion pictures and other filmed entertainment product internationally in the
theatrical, home video, pay television, basic cable and over-the-air markets.
Total revenues from the export sale of the Company's products and services
amounted to approximately $240,000,000, $222,000,000 and $140,000,000 for the
years ended December 31, 1993, 1992 and 1991, respectively. Approximately 45%,
24% and 23% of the 1993 export sales were from customers in Europe, Latin
America and Asia, respectively. Approximately 58% and 20% of the 1992 export
sales were from customers in Europe and Asia.
48
<PAGE> 24
NOTE 15 UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1993 Three months ended
in thousands, except per share data Mar. 31 June 30 Sept. 30 Dec. 31 (3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 398,424 $ 486,861 $501,289 $535,032
Operating profit (1) 80,250 97,167 59,948 64,775
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes 20,135 31,071 7,154 14,085
Cumulative effect of a change in accounting for income taxes (306,000) -- -- --
Net income (loss)(2) (285,865) 31,071 1,018 9,528
Net income (loss) applicable to Class A Common Stock (73,891) 8,031 263 2,485
Net income (loss) applicable to Class B Common Stock (211,974) 23,040 755 7,043
Earnings per common share
Income before extraordinary items and the cumulative
effect of a change in accounting for income taxes $ 0.08 $ 0.12 $ 0.02 $ 0.05
Net income (loss) $ (1.08) $ 0.12 $ 0.00 $ 0.04
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1992 Three months ended
in thousands, except per share data Mar. 31 June 30 Sept. 30 Dec. 31 (3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 365,170 $ 409,869 $456,397 $538,456
Operating profit (1) 51,070 89,529 64,105 84,678
Income (loss) before extraordinary item (644) 18,918 5,119 10,668
Net income (2) 731 34,693 12,499 29,699
Net income applicable to Class A Common Stock (4) 149 9,330 3,333 7,490
Net income applicable to Class B Common Stock (4) 404 25,184 8,988 21,454
Earnings per common share
Income before extraordinary item $ 0.00 $ 0.07 $ 0.02 $ 0.04
Net income $ 0.00 $ 0.14 $ 0.05 $ 0.11
=====================================================================================================================
</TABLE>
(1) Operating profit is defined as income (loss) before interest expense,
interest income, income taxes, extraordinary items and the cumulative
effect of a change in accounting for income taxes.
(2) Extraordinary losses on early extinguishments of debt of $10,051,000 and
$6,895,000, net of income tax benefits of $3,926,000 and $2,327,000,
respectively, for the three months ended September 30, 1993 and December
31, 1993, respectively, and extraordinary income tax benefits related to
the utilization of NOL carryforwards of $1,375,000, $15,775,000,
$7,380,000 and $19,031,000 for the three months ended March 31, 1992,
June 30, 1992, September 30, 1992 and December 31, 1992, respectively,
are included in the calculation of net income.
(3) The three-month period ended December 31, 1993 includes a $16,000,000
increase in operating profit due primarily to changes in certain
estimates based on additional financial information obtained during such
period. The three-month period ended December 31, 1992 includes a
$16,000,000 estimated charge related to the termination of the Checkout
Channel and $12,000,000 in revenue from Major League Baseball related to
the addition of two teams to the league.
(4) Net income (loss) applicable to common stockholders is reduced by
accretion of discount and dividends on Class B Preferred Stock.
49
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Turner Broadcasting System, Inc.
NOTE 16 SUBSEQUENT EVENTS
On February 3, 1994, the Company sold $250,000,000 of 7.4% Senior Notes due
2004 (the "Senior Notes") and $200,000,000 of 8.4% Senior Debentures due 2024
(the "Senior Debentures" and, together with the Senior Notes, the "Securities")
under the Shelf Registration. See Note 5 of Notes to Consolidated Financial
Statements. The net proceeds to the Company were approximately $246,282,000 and
$196,680,000, respectively, after market and underwriting discounts. The Senior
Notes and the Senior Debentures bear interest at the rate of 7.4% and 8.4% per
annum, respectively, payable semi-annually on February 1 and August 1 of each
year, commencing on August 1, 1994. The Senior Notes are not redeemable at the
option of the Company. The Senior Debentures are redeemable, at the Company's
option, at any time after February 1, 2004, at a redemption price of 104.161%
of the principal amount, plus accrued and unpaid interest to the date of
redemption, which redemption price reduces over 10 years to a redemption price
of 100% of the principal amount in 2014 and thereafter. Each holder has the
right to require the Company to repurchase such holder's Securities in whole,
but not in part, at a redemption price, payable in cash, equal to 101% of the
principal amount, plus accrued and unpaid interest to the date fixed for
redemption, upon the occurrence of certain triggering events, including,
without limitation, a change in control, certain restricted payments or certain
consolidations, mergers, conveyances or transfers of assets, each as defined in
the indenture. The Company is not required to make mandatory redemption or
sinking fund payments with respect to the Securities prior to maturity.
The Company used substantially all of the net proceeds to repay amounts
outstanding under the 1993 Credit Agreement incurred in connection with the
acquisitions of Castle Rock and the remaining 50% interest in the Joint
Venture.
The Company and New Line Cinema Corporation ("New Line") completed a merger
of New Line with a wholly-owned subsidiary of the Company on January 28, 1994
(the "Merger"). As a result of the Merger, each share of New Line Common Stock
has been converted into the right to receive 0.96386 of a share of the Company's
Class B Common Stock. The valuations used by New Line and the Company for
purposes of arriving at the exchange ratio were $20 per share of New Line
Common Stock and $20.75 per share of the Company's Class B Common Stock. The
maximum number of Class B common shares issuable pursuant to the Merger is
approximately 21,312,000 valued at approximately $442,000,000. Cash will be
distributed in lieu of any fractional shares. Additionally, the Company
assumed liabilities and incurred other acquisition costs of approximately
$240,000,000 in connection with the Merger.
The Merger was accounted for by the purchase method of accounting. Goodwill
and other intangible assets in the amount of approximately $260,000,000 was
recognized in the transaction, and will be amortized using a straight-line
basis over 40 years. The Company has not received any appraisals or valuations
from independent third parties of the assets or properties of New Line. The pro
forma information presented below may be adjusted once complete information on
the fair value of all of New Line's assets and liabilities is developed and once
a more thorough review of New Line's operating and accounting policies and
procedures has been completed.
The following unaudited pro forma financial information is not intended to
reflect results of operations which would have actually resulted had the
transactions described above been effective on the dates indicated. Moreover,
this pro forma information is not intended to be indicative of results of
operations which may be obtained in the future. The unaudited pro forma
condensed balance sheet at December 31, 1993 presents the pro forma condensed
financial position of the Company, which includes the Acquisitions and the
Merger assuming the Company acquired all of the outstanding stock of New Line
pursuant to the Merger at December 31, 1993, and the Company adjusted its
historical balance sheet as of such date to reflect the pro forma effects of
the Merger.
50
<PAGE> 26
The unaudited pro forma condensed balance sheet of the Company as adjusted
for the pro forma effects of the above is as follows:
<TABLE>
<CAPTION>
Unaudited
December 31,
in thousands 1993
- ----------------------------------------------
<S> <C>
Current assets $1,309,716
Film costs 1,784,584
Other assets 868,626
- ----------------------------------------------
Total assets $3,962,926
==============================================
Current liabilities $ 471,239
Long-term debt less current portion 2,421,357
Other liabilities 629,209
Stockholders' equity 441,121
- ----------------------------------------------
Total liabilities and stockholders'
equity $3,962,926
==============================================
</TABLE>
The unaudited pro forma condensed statements of operations for the years
ended December 31, 1993 and 1992 present the pro forma results of the
continuing operations of the Company, the Acquisitions and the Merger for those
periods assuming the Acquisitions and the Merger occurred at the beginning of
the periods presented. See Note 2 of Notes to Consolidated Financial
Statements.
The unaudited pro forma results of operations for the Company as adjusted
for the pro forma effects of the above are as follows:
<TABLE>
<CAPTION>
Unaudited
Year ended December 31,
in thousands, except per share data 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Revenue $2,444,457 $2,163,103
===========================================================================
Income (loss) before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes $ 35,632 $ (8,104)
Net income (loss) $ (281,061) $ 28,103
===========================================================================
Income (loss) per share of
Class A and B Common Stock
Income (loss) before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes $ 0.12 $ (0.03)
Net income (loss) $ (0.98) $ 0.10
===========================================================================
</TABLE>
===========================================================================
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Turner Broadcasting System, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
stockholders' equity (deficit) present fairly, in all material respects, the
financial position of Turner Broadcasting System, Inc. and its subsidiaries at
December 31, 1993 and 1992 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993, 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
audit 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 7 to the Consolidated Financial Statements, the Company
changed its method of accounting for income taxes in 1993.
PRICE WATERHOUSE
Atlanta, Georgia
February 15, 1994
51
<PAGE> 27
BOARD OF DIRECTORS
Turner Broadcasting System, Inc.
R. E. TURNER
Chairman of the Board of Directors
and President of the Company
W. THOMAS JOHNSON
Vice President - News of the Company
President - Cable News Network, Inc.
TERENCE F. MCGUIRK
Executive Vice President of the Company
President - Turner Sports
HENRY L. AARON
Vice President - Community Relations of the Company;
Senior Vice President - Player Development of Atlanta
National League Baseball Club, Inc. (Atlanta Braves)
GERALD M. LEVIN
Chairman of the Board of Directors,
President and Chief Executive Officer -
Time Warner Inc.
TIMOTHY P. NEHER
Vice Chairman of the Board of Directors -
Continental Cablevision, Inc.
WILLIAM C. BARTHOLOMAY
President - Near North National Group
RUBYE M. LUCAS
Director of the Atlanta Project for
the Company
President - William D. Lucas Fund, Inc.
BRIAN L. ROBERTS
Director and President -
Comcast Corporation
JOSEPH J. COLLINS
Chairman of the Board and Chief Executive Officer -
American Television and Communications Corporation
BOB MAGNESS
Chairman of the Board of Directors -
Tele-Communications, Inc.
SCOTT M. SASSA
Vice President - Entertainment Networks
of the Company President - Turner Entertainment Group
MICHAEL J. FUCHS
Chairman of the Board and
Chief Executive Officer - Home Box Office, Inc.
JOHN C. MALONE
Director, President and Chief Executive
Officer - Tele-Communications, Inc.
FRED A. VIERRA
Executive Vice President -
Tele-Communications, Inc.
52
<PAGE> 28
CORPORATE INFORMATION
Turner Broadcasting System, Inc.
EXECUTIVE OFFICERS
R. E. TURNER
Chairman of the Board of Directors and President
CHRISTIAN L. BECKEN
Vice President and Treasurer
WILLIAM S. GHEGAN
Vice President, Controller and Chief Accounting Officer
WILLIAM H. GRUMBLES*
Vice President - Worldwide Distribution
ELAHE HESSAMFAR
Vice President - Chief Information Officer
W. THOMAS JOHNSON
Vice President - News and a director
STEVEN W. KORN
Vice President, General Counsel and Secretary
TERENCE F. MCGUIRK
Executive Vice President and a director
WAYNE H. PACE
Vice President - Finance and Chief Financial Officer
SCOTT M. SASSA
Vice President - Entertainment Networks and a director
WILLIAM M. SHAW
Vice President - Administration
JULIA W. SPRUNT*
Vice President - Marketing and Communications
* William H. Grumbles and Julia W. Sprunt are married.
CORPORATE
HEADQUARTERS
One CNN Center
Atlanta, Georgia 30303
(404) 827-1700
OUTSIDE COUNSEL
Troutman Sanders
5200 NationsBank Plaza
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
INDEPENDENT
ACCOUNTANTS
Price Waterhouse
50 Hurt Plaza
Atlanta, Georgia 30303
53
<PAGE> 29
INVESTOR INFORMATION
Turner Broadcasting System, Inc.
COMMON STOCK TRANSFER AGENT AND REGISTRAR
First Union National Bank of North Carolina
Shareholders Services Group
Two First Union Center
Charlotte, North Carolina 28288-1154
(800) 729-8432
TRUSTEES AND PAYING AGENTS
Credit Agreement
The Chase Manhattan Bank, N.A.
90 William Street
New York, New York 10081
12% Senior Subordinated Debentures*
United States Trust Company of New York
45 Wall Street
New York, New York 10005
8 3/8% Senior Notes due 2013
The First National Bank of Boston
P.O. Box 1618
Boston, Massachusetts 02105
Zero Coupon Subordinated Convertible Notes due 2007
Security Pacific National Bank
2 Rector Street
New York, New York 10006
* Listed on the American Stock Exchange.
PRICE RANGE OF COMMON STOCK
The Class A Common Stock trades on the American Stock Exchange ("AMEX") under
the symbol "TBS.A" and the Class B Common Stock trades on the AMEX under the
symbol "TBS.B".
The following table sets forth, for the periods indicated, the high and
low closing sales prices per share of common stock on the AMEX Composite Tape.
<TABLE>
<CAPTION>
Calendar Year
-------------------------------------------------
1993 1992
High Low High Low
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter
Class A $23 3/4 $19 1/2 $26 7/8 $22 1/8
Class B 23 1/2 19 1/4 27 22 3/8
Second quarter
Class A 23 3/4 20 23 3/4 20
Class B 23 5/8 20 22 7/8 19
Third quarter
Class A 26 5/8 19 7/8 21 1/2 18 3/8
Class B 26 7/8 20 3/8 19 3/4 17 7/8
Fourth quarter
Class A 29 1/4 24 1/8 22 7/8 18 7/8
Class B 29 24 1/4 22 17 3/4
- ----------------------------------------------------------------------------------------
</TABLE>
STOCKHOLDERS
The approximate number of holders of record of Class A Common Stock and Class B
Common Stock as of December 31, 1993 was 1,741 and 1,686, respectively. This
number does not include all individuals with beneficial interests in the stock.
DIVIDEND POLICY
Prior to 1992, the Company had not paid a cash dividend on its common equity
since 1975. The following table sets forth the amount of cash dividends paid on
the common shares in 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
Dividends Dividends
Per Share Per Share
--------------------------------------------------
Class A Class B Class A Class B(1)
Common Common Common Common
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter $0.01750 $0.01750 $0.01125 $0.0125
Second Quarter 0.01750 0.01750 0.01250 0.0125
Third Quarter 0.01750 0.01750 0.01250 0.0125
Fourth Quarter 0.01750 0.01750 0.01250 0.0125
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Holders of the Company's Class C Preferred Stock were entitled to an
equivalent cash dividend of $0.105 and $0.0750, respectively, for each
share held based on the number of underlying shares of Class B Common
Stock.
In June 1992, the Company amended its Articles of Incorporation to permit
the payment of equal cash dividends per share on the Class A Common Stock and
the Class B Common Stock.
The Indentures governing the 12% Senior Subordinated Debentures and the
8 3/8% Senior Notes, and the Company's bank credit agreements contain provisions
limiting the ability of the Company to pay cash dividends to the holders of its
common shares. Currently, the most restrictive covenant limits the maximum
aggregate amount of dividends permitted to be paid annually to such holders to
$30 million. In any event, the declaration of dividends on common shares is
within the discretion of the Board of Directors of the Company and is therefore
subject to many considerations, including financial covenants, operating
results, business and capital requirements and other factors.
RESTRICTIONS ON STOCK
OWNERSHIP
The Communications Act of 1934 provides that no broadcast license may be held
by a corporation in which more than 20% of the capital stock is owned of record
or voted by non-U.S. citizens. The Communications Act further prohibits,
without Federal Communications Commission approval, the holding by a
corporation of the capital stock of another corporation owning a broadcast
license if more than 25% of the capital stock of such parent corporation is
owned of record or voted by non-U.S. citizens. The Company's Articles of
Incorporation incorporate these restrictions on non-U.S. ownership so that such
restrictions are applied separately to each class of the Company's capital
stock. The Company has reserved the right to refuse to transfer shares of its
capital stock which would result in a violation of these restrictions.
FORM 10-K REQUESTS
The Company will provide copies of its 1993 Form 10-K upon written request
directed to:
Kitsie Bassett Riggall
Assistant Vice President - Investor Relations
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30303
54
<PAGE> 1
EXHIBIT 21
LIST A
TURNER BROADCASTING SYSTEM, INC.
------------------------------------
(Wholly-Owned Subsidiaries)
<TABLE>
<S> <C>
1. Atlanta National League Baseball Club, Inc. ("ANLBC")
ANLBC Subs: a. Atlanta Braves, Inc.
----------- b. Braves Productions, Inc.
c. The Stadium Club, Inc.
2. CR Acquisition Co.
3. Cable News Network, Inc. ("CNN")
CNN Subs: a. CNN America, Inc.
--------- b. CNN Business News International, Inc.
c. CNN Germany, Inc.
d. Cable News International, Inc.
4. The Cartoon Network, Inc.
*5. Castle Rock Entertainment, Inc. ("CR")
CR Subs: *a. All Night Productions, Inc.
------- *b. Burmat Limited
*c. Castle Rock Enterprises, Inc.
*d. Castle Rock Pictures, Inc.
*e. Castle Rock Productions, Limited
*f. G.S.E. Enterprises, Inc.
*g. Needful Productions, Ltd.
*h. Sam Productions, Inc.
*i. Signal Hill Production, Ltd.
*j. Train Wreck Productions, Inc.
6. Goodwill Games, Inc. ("GWG")
GWG Subs: a. Gamma Productions, Inc.
-------- b. Turner Leasing Company Inc.
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
7. HB Holding Co. ("HBC")
HBC Sub: a. Hanna-Barbera Entertainment Co., Inc. ("HBEC")
--------
HBEC Subs: 1. Hanna-Barbera Enterprises, Inc.
--------- 2. Hanna-Barbera Enterprises (S/C) Ltd.
3. Hanna-Barbera Enterprises (U.K.) Limited
4. Hanna-Barbera Home Video, Inc.
5. Hanna-Barbera Productions, Inc. ("HBPI")
HBPI Subs: a. Fil-Cartoons, Inc.
---------- b. Hanna-Barbera B.V.
c. Hanna-Barbera France, S.A.
6. Hanna-Barbera Music Corp.
7. Hanna-Barbera Retail, Inc.
8. R-S Pictures, Inc.
9. Raby-Spar Enterprises, Inc.
8. Hanna-Barbera, Inc. ("HB")
HB Subs: a. Barhanna Music, Inc.
-------- b. Hanna-Barbera Cartoons, Inc. ("HBCI")
HBCI Subs: 1. Bedrock Productions, Inc.
---------- 2. The Endangered Film Company, Inc.
c. Hanna-Barbera Character Art Services, Inc.
d. Newbar Music, Inc.
e. Vineland Productions, Inc.
9. Hawks Basketball, Inc.
10. ICC Ventures, Inc.
11. New Line Cinema Corporation ("NL")
NL Subs: a. Alex Entertainment, Inc.
-------- b. Juno Pix, Inc.
c. Katja Motion Picture Corp.
d. Lampline, Inc.
e. Mitchell Entertainment, Inc.
f. New Line Distribution, Inc.
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
g. New Line Home Video, Inc.
h. New Line International Releasing, Inc.
i. New Line Productions, Inc.
j. New Line Realty of New York, Inc.
k. New Line Television International Limited
l. Nicolas Entertainment, Inc.
m. Sargasso Productions Ltd.
12. RET Corporation
13. RET Music, Inc.
14. Soviet-American Trading Corporation
15. Superstation, Inc.
16. TBS Productions, Inc. ("TBSP")
TBSP Subs: a. North Center Productions, Inc.
---------- b. Ten 50 Productions, Inc.
17. TBS Properties Inc.
18. T.I.C. Leasing Corp.
19. Turner Arena Productions and Sales, Inc. ("TAPS")
TAPS Subs: a. Atlanta Coliseum, Inc.
--------- b. The Omni Promotions Management Company ("OPMC")
OPMC Sub: 1. Techwood Entertainment, Inc.
--------
c. Seats, Inc.
20. Turner Broadcasting Sales, Inc.
21. Turner Cable Network Sales, Inc. ("TCNS")
TCNS Sub: a. Turner Educational Services, Inc.
---------
*22. Turner Classic Movies, Inc.
23. Turner Entertainment Co. ("TEC")
TEC Subs: a. Clarington Productions, Inc.
--------- b. Elstree Ltd.
c. Entertainment Film and Tape Services Co.
d. Filmland Data Processing Co.
e. Filmland Production Co.
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
f. H-B Distribution Co.
g. Premier Record Corporation
h. TEC Bounty Exhibition, Inc.
i. Turner Affiliated Music, Inc.
j. Turner Entertainment Associated, Inc.
k. Turner Entertainment Film Co.
l. Turner Entertainment Manila, Inc.
m. Turner Entertainment Co. (de Mexico)
n. Turner Entertainment Oriental Co., Inc.
o. Turner Entertainment Pictures of Canada Limited
p. Turner Music, Inc.
q. Turner Pictures (UK) Limited ("TPL")
TPL Subs: 1. TBS Programmes International Limited
--------- 2. Turner Productions International Limited
3. Turner Television Productions Limited
r. Turner Tape Storage Co.
24. Turner Home Entertainment, Inc.
THE Sub: a. World Championship Wrestling, Inc.
--------
25. Turner International, Inc.. ("TI")
TI Subs: a. Turner Czech, Inc.
-------- b. Turner Entertainment Co. (de Puerto Rico)
c. Turner International Argentina S.A.
d. Turner International Australia Pty. Limited
e. Turner International do Brasil Ltda.
f. Turner International Broadcasting Russia, Inc.
g. Turner International Far East Limited
h. Turner International Holding Company
i. Turner International Japan, Inc.
j. Turner International Netherlands B.V.
k. Turner International Television Licensing Co., Inc.
l. Turner Management Co. UK Limited
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
("TMCUK")
TMCUK Subs: *1. Turner Entertainment Networks
----------- International limited (TENI)
TENI Subs *a. The Cartoon Network Limited
--------- *b. Turner Network Television Limited
*2. Turner Home Entertainment UK Limited
*3. Turner International Advertising Sales Limited
*4. Turner International Network Sales Limited ('TINSL")
TINSL Sub: a. Turner Broadcasting International Limited
----------
*5. Turner International Television Licensing Limited
*m. Turner Productions S.A.
n. Turner Slovakia, Inc.
26. Turner Marketing, Inc.
27. Turner Music Publishing, Inc.,
28. Turner Network Television, Inc. ('TNT')
TNT Subs: a. The Awakening, Inc.
--------- b. Retro, Inc.,
c. Spanish Creek Productions, Inc.
d. TNT Music Publishing, Inc.
e. Techwood Music, Inc.
f. Techwood Productions, Inc.
g. Turner Pictures, Inc. ("TPI")
TPI Sub: 1. Colbath, Inc.
--------
29. Turner Omni Venture, Inc.
30. Turner Private Networks, Inc. ("TPNI")
TPNI Subs: a. AC Holdings, Inc.
---------
b. COC Holdings, Inc.
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C>
31. Turner Program Services, Inc.
32. Turner Publishing, Inc.
33. Turner Reciprocal Advertising Corporation
34. Turner Retail Company
35. Turner Security, Inc.
36. Turner Sports, Inc.
37. Turner Sports Programming, Inc.
38. Turner Teleport, Inc.
</TABLE>
*New Subsidiary
Revised: 3/22/94
6
<PAGE> 7
LIST B
TURNER BROADCASTING SYSTEM, INC.
ALPHABETICAL LIST OF SUBSIDIARIES
---------------------------------
<TABLE>
<S> <C>
1. AC Holdings, Inc. (30a)
* 2. Alex Entertainment, Inc. (11a)
* 3. All Night Productions Inc. (5a)
4. Atlanta Braves, Inc. (1a)
5. Altanta Coliseum, Inc. (19a)
6. Atlanta National League Baseball Club, Inc. (1)
7. The Awakening, Inc. (28a)
8. Barhanna Music, Inc. (8a)
9. Bedrock Productions, Inc. (8b1)
10. Braves Productions, Inc. (1b)
*11. Burmat Limited (5b)
12. CNN America, Inc. (3a)
13. CNN Business News International, Inc. (3b)
14. CNN Germany, Inc. (3c)
15. COC Holdings, Inc. (30b)
16. CR Acquisition Co. (2)
17. Cable News International, Inc. (3d)
18. Cable New Network, Inc. (3)
19. The Cartoon Network, Inc. (4)
*20. The Cartoon Network Limited (2511a)
*21. Castle Rock Entertainment, Inc. (5)
*22. Castle Rock Enterprises, Inc. (5c)
*23. Castle Rock Pictures, Inc. (5d)
*24. Castle Rock Productions, Limited (5e)
25. Clarington Productions Inc. (23a)
26. Colbath, Inc. (28g1)
27. Elstree Ltd. (23b)
28. The Endangered Film Company, Inc. (8b2)
29. Entertainment Film and Tape Services Co. (23c)
30. Fil-Cartoons, Inc. (7a5a)
31. Filmland Data Processing Co. (23d)
32. Filmland Production Co. (23e)
*33. G.S.E. Enterprises, Inc. (5f)
34. Gamma Productions, Inc. (6a)
35. Goodwill Games, Inc. (6)
36. H-B Distribution Co. (23f)
37. HB Holding Co. (7)
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
38. Hanna-Barbera B.V. (75b)
39. Hanna-Barbera Cartoons, Inc. (8b)
40. Hanna-Barbera Character Art Services, Inc. (8c)
41. Hanna-Barbera Enterprises, Inc. (7a1)
42. Hanna-Barbera Enterprises (S/C) Ltd. (7a2)
43. Hanna-Barbera Enterprises (U.K.) Limited (7a3)
44. Hanna-Barbera Entertaiment Co., Inc. (7a)
45. Hanna-Barbera France, S.A. (7a5c)
46. Hanna-Barbera Home Video, Inc. (7a4)
47. Hanna-Barbera, Inc. (8)
48. Hanna-Barbera Music Corp. (7a6)
49. Hanna-Barbera Productions, Inc. (7a5)
50. Hanna-Barbera Retail, Inc. (7a7)
51. Hawks Basketball, Inc. (9)
52. ICC Ventures, Inc. (10)
*53. Juno Pix, Inc. (11b)
*54. Katja Motion Picture Corp. (11c)
*55. Lampline, Inc. (11d)
*56. Mitchell Entertainment, Inc. (11e)
*57. Needful Productions, Ltd. (5g)
58. Newbar Music, Inc. (8d)
*59. New Line Cinema Corporation (11)
*60. New Line Distribution, Inc., (11f)
*61. New Line Home Video, Inc. (11g)
*62. New Line International Releasing, Inc. (11h)
*63. New Line Productions, Inc. (11i)
*64. New Line Realty of New York, Inc. (11j)
*65. New Line Television International Limited (11k)
*66. Nicolas Entertainment Inc. (11l)
67. North Center Productions, Inc. (16a)
68. The Omni Promotions Management Company (19b)
69. Premier Record Corporation (23g)
70. RET Corporation (12)
71. RET Music, Inc. (13)
72. R-S Pictures, Inc. (7a8)
73. Raby-Spar Enterprises, Inc. (7a9)
74. Retro, Inc. (28b)
*75. Sam Productions Inc. (5h)
*76. Sargasso Productions Ltd. (11m)
77. Seats, Inc. (19c)
*78. Signal Hill Productions, Ltd. (5i)
79. Soviet-America Trading Corporation (14)
80. Spanish Creek Productions, Inc. (28c)
81. The Stadium Club, Inc. (1c)
</TABLE>
2
<PAGE> 9
<TABLE>
<S> <C>
82. Superstation Inc. (15)
83. TBS Productions, Inc. (16)
84. TBS Programmes International Limited (23q1)
85. TBS Properties, Inc. (17)
86. TEC Bounty Exhibition, Inc. (23h)
87. T.I.C. Leasing Corp. (18)
88. TNT Music Publishing, Inc. (28d)
89. Techwood Entertainment, Inc. (19b1)
90. Techwood Music, Inc. (28e)
91. Techwood Productions, Inc. (28f)
*92. Ten 50 Productions, Inc. (16b)
*93. Train Wreck Productions, Inc. (5j)
94. Turner Affiliated Music, Inc. (23i)
95. Turner Arena Productions and Sales, Inc. (19)
96. Tuner Broadcasting International Limited (2514a)
97. Turner Broadcasting Sales, Inc. (20)
98. Turner Cable Network Sales, Inc. (21)
*99. Turner Classic Movies, Inc. (22)
*100. Turner Czech, Inc.. (25a)
101. Turner Educational Services, Inc. (21a)
102. Turner Entertainment Associated, Inc. (23j)
103. Turner Entertainment Co. (23)
104. Turner Entertainment Co. (de Mexico) (23m)
105. Turner Entertainment Co. (de Puerto Rico) (25b)
106. Turner Entertainment Film Co. (23k)
107. Turner Entertainment Manila, Inc. (23l)
*108. Turner Entertainment Networks International Limited (2511)
109. Turner Entertainment Oriental Co., Inc. (23n)
110. Turner Entertainment Pictures of Canada Limited (23o)
111. Turner Home Entertainment, Inc. (24)
*112. Turner Home Entertainment UK Limited (2512)
*113. Turner International Advertising Sales Limited (25l3)
*114. Turner International Argentina S.A. (25c)
115. Turner International Australia Pty. Limited (25d)
116. Turner International Broadcasting Russia, Inc. (25f)
117. Turner International do Brasil Ltda, (25c)
118. Turner International Far East Limited (25g)
*119. Turner International Holding Company (25h)
120. Turner International, Inc. (25)
121. Turner International Japan, Inc. (25i)
122. Turner International Netherlands B.V. (25j)
123. Turner International Network Sales Limited (2514)
124. Turner International Television Licensing Co., Inc. (25k)
*125. Turner International Television Licensing Limited (2515)
</TABLE>
3
<PAGE> 10
<TABLE>
<S> <C>
126. Turner Leasing Company, Inc. (6b)
*127. Turner Management Co. UK Limited (251)
128. Turner Marketing, Inc. (26)
129. Turner Music, Inc. (23p)
130. Turner Music Publishing, Inc. (27)
131. Turner Network Television, Inc. (28)
*132. Turner Network Television Limited (2511b)
133. Turner Omni Venture, Inc. (29)
134. Turner Pictures, Inc. (28g)
135. Turner Pictures (UK) Limited (23q)
136. Turner Private Networks, Inc. (30)
137. Turner Productions International Limited (23q2)
*138. Turner Productions S.A. (25m)
139. Turner Program Services, Inc. (31)
140. Turner Publishing, Inc. (32)
141. Turner Reciprocal Advertising Corporation (33)
*142. Turner Retail Company (34)
143. Turner Security, Inc. (35)
*144. Turner Slovakia, Inc. (25n)
145. Turner Sports, Inc. (36)
146. Turner Sports Programming, Inc. (37)
147. Turner Tape Storage Co. (23r)
148. Turner Teleport, Inc. (38)
149. Turner Television Productions Limited (23q3)
150. Vineland Productions, Inc. (8e)
151. World Championship Wrestling, Inc. (24a)
</TABLE>
4
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-24191 and No. 33-52173) and in the
Prospectuses constituting part of the Registration Statements on
Form S-3 (No. 33-62218) and Form S-4 (No. 33-51739) of Turner
Broadcasting System, Inc. of our report dated February 15, 1994
appearing on page 51 of the 1993 Annual Report to Shareholders which
is incorporated in this Annual Report on Form 10-K. We also consent
to the incorporation by reference of our report on the Financial
Statement Schedules, which appears on page 35 of this Form 10-K.
/s/ Price Waterhouse
--------------------
PRICE WATERHOUSE
Atlanta, Georgia
March 28, 1994
