<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended August 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For transition period from to
Commission file number: 1-9244
KING WORLD PRODUCTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2565808
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 Broadway
New York, New York 10019
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 212-315-4000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- -----------------------
<S> <C>
Common Stock, New York Stock Exchange
$.01 par value
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports 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
--- ---
<PAGE> 2
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. / /
The aggregate market value of the Common Stock of the
registrant held by non-affiliates as of November 8, 1995 was approximately $1.0
billion.
As of November 8, 1995, there were 36,872,613 outstanding
shares of the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its 1996
annual meeting of stockholders (which is to be filed pursuant to Regulation 14A
not later than December 29, 1995) is incorporated by reference into Part III of
this Form 10-K.
<PAGE> 3
PART I
Item 1. BUSINESS
GENERAL
King World was founded in 1964 by the late Charles and Lucille
King to distribute or syndicate feature length films and television programs to
television stations. King World currently distributes programming to
approximately 400 television stations in over 200 of the 211 designated
television markets in the United States (as defined by A.C. Nielsen Co.
("Nielsen")) and in Canada and a number of other foreign countries directly and
through sales agents and subdistributors. Three of Mr. and Mrs. King's children,
namely Roger King, King World's Chairman of the Board, Michael King, King
World's President and Chief Executive Officer, and Diana King, a Vice President
and the Secretary of King World, are actively involved in the management of King
World. In addition, one other child of King World's founders, Richard King,
serves as a director of the Company and another, Robert King, is Senior Vice
President for Strategic Planning/Acquisitions.
King World Productions, Inc., a Delaware corporation, was
incorporated in October 1984 and is the successor to a corporation incorporated
in 1964 under the laws of the State of New Jersey. King World's corporate
headquarters are located at 1700 Broadway, New York, New York 10019 ((212)
315-4000). Except as otherwise indicated or as implied by the context,
references to "King World" or the "Company" include King World Productions,
Inc., its consolidated subsidiaries and its predecessor corporation.
The Company operates in only one business segment: production
and distribution of television programming in the United States, Canada and a
number of other foreign countries, and related operations.
PROGRAMMING AND RELATED OPERATIONS
First-run Television Syndication
King World's revenues currently are derived primarily from the
first-run strip syndication of the television series The Oprah Winfrey Show,
Wheel of Fortune, Jeopardy! and Inside Edition. These series are four of the
top ten series in national syndication, as reported in the July 1995 Nielsen
Designated Market Area Ranking Report. Wheel of Fortune and Jeopardy! had the
two highest ratings among all syndicated television shows and The Oprah Winfrey
Show had the highest ratings among all national television talk shows.
According to Nielsen, Wheel of Fortune has had the highest ratings among shows
in national syndication for the last 47 consecutive sweeps periods, Jeopardy!
has had the
<PAGE> 4
second highest ratings among such shows for each of the last 40 consecutive
sweeps periods and The Oprah Winfrey Show has had the third highest ratings
among such shows for 28 of the last 36 sweeps periods. Based primarily on the
success of The Oprah Winfrey Show, Wheel of Fortune and Jeopardy!, King World's
revenues have grown from $80.6 million in fiscal 1985 to $574.2 million in
fiscal 1995 and its net income has increased from $9.8 million in fiscal 1985 to
$117.3 million in fiscal 1995. Revenues derived from The Oprah Winfrey Show,
Wheel of Fortune, Jeopardy! and Inside Edition (including revenues derived from
the sale of retained advertising time) accounted for approximately 84% of King
World's revenues for the fiscal year ended August 31, 1995.
In the fourth quarter of the 1994 fiscal year, the Company
adopted a change in accounting for revenue recognition which was accounted for
prospectively as a change in accounting estimate as opposed to a change in
accounting principle. Under the modified practice, license fees from first-run
syndicated television properties are recognized at the commencement of the
license period pursuant to noncancelable agreements and as each show is made
available to the licensee via satellite transmission, rather than at the time
the show is produced. The results of operations set forth herein relating to
the Company's 1995 fiscal year and the fourth quarter of fiscal 1994 are
presented on the modified basis. See Note 1 of Notes to Consolidated Financial
Statements.
At present, King World distributes television programming
primarily to network-owned-and-operated stations and network-affiliated
stations. First-run syndicated programming distributed by the Company competes
primarily with other first-run syndicated programming, network reruns and
programming produced by local television stations.
The United States television market is served primarily by
network-owned-and-operated stations, network-affiliated stations, independent
stations and cable operators. During hours commonly referred to as
"prime-time" (currently, with limited exceptions, 8 p.m. to 11 p.m. in the
Eastern and Pacific time zones and 7 p.m. to 10 p.m. in the Central and
Mountain time zones), stations owned and operated by the four major broadcast
networks (the ABC Television Network, the CBS Television Network, the NBC
Television Network and the Fox Broadcasting Company), and stations affiliated
with those networks, broadcast schedules consisting primarily of programming
produced for initial exhibition by the networks. In non-prime time, such
stations broadcast network programming, off-network programming (reruns),
programming produced by the local stations themselves or by independent
producers and first-run syndicated programming (programming produced for
initial distribution on a syndicated basis). Independent television stations,
during both prime and non-prime
2
<PAGE> 5
time, broadcast their own programming, off-network programming and first-run
syndicated programming; some of such stations are affiliated with the WB or the
United Paramount Network, each of which currently supplies its respective
affiliates with prime-time programming two evenings per week and with several
hours per week of non-prime-time programming. Some cable operators, in
addition to other services that they offer, telecast syndicated programming.
Nielsen divides the United States into 211 designated market
areas and approximately 29 additional special market areas that, on the basis
of size and the other Nielsen criteria, do not qualify as designated market
areas. The approximately 240 Nielsen designated and special market areas are
referred to below as the "Nielsen market areas".
In the 1983-1984 broadcast season, King World introduced a
syndicated version of Wheel of Fortune, which had premiered on daytime network
television in 1975. For the 1994-1995 broadcast season, Wheel of Fortune was
licensed to television stations in 201 Nielsen market areas in the United
States, covering approximately 99% of total domestic television households, and
for the current broadcast season has been licensed to television stations in 202
Nielsen market areas, covering approximately 99% of total domestic television
households.
For the 1984-1985 broadcast season, the Company introduced
Jeopardy!, a remake of the successful game show originally broadcast on network
television between 1964 and 1975. For both the 1994-1995 broadcast season and
the current broadcast season, Jeopardy! was licensed to television stations in
195 Nielsen market areas in the United States, covering approximately 98% of
total domestic television households.
For the 1986-1987 broadcast season, King World introduced into
national television syndication The Oprah Winfrey Show, a talk show hosted by
Oprah Winfrey which, until October 1988, was produced by WLS-TV, an ABC
owned-and-operated station. Commencing in October 1988, Harpo, Inc. ("Harpo"),
an entity controlled by Ms. Winfrey, assumed production of the series. For the
1994-1995 broadcast season, The Oprah Winfrey Show was licensed to television
stations in 210 Nielsen market areas in the United States, covering more than
99% of total domestic television households, and for the current broadcast
season has been licensed to stations in 207 Nielsen market areas, covering more
than 99% of total domestic television households.
Inside Edition, a half-hour first-run syndicated newsmagazine
series hosted by Deborah Norville that is produced and distributed by King
World, premiered in January 1989. It is the first television series produced
by King World. Inside Edition is produced at the Company's production facility
in New
3
<PAGE> 6
York and has a correspondent bureau in Los Angeles to enhance the ability of the
program to provide nationwide coverage. For the 1994-1995 broadcast season,
Inside Edition was licensed to television stations in 163 Nielsen market areas,
covering approximately 93% of total domestic television households, and for the
current broadcast season, the series has been licensed to television stations in
158 Nielsen market areas, covering approximately 92% of total domestic
television households.
American Journal, a half-hour first-run syndicated newsmagazine
series that is also produced by King World in New York, premiered in September
1993. American Journal is anchored by Nancy Glass, the Emmy Award-winning
former senior correspondent of Inside Edition. For the 1994-1995 broadcast
season, American Journal was licensed to television stations in 127 Nielsen
market areas, covering approximately 88% of total domestic television
households, and for the current broadcast season, the series has been licensed
to television stations in 122 Nielsen market areas, covering approximately 86%
of total domestic television households.
Rolonda, a daytime talk show that is also produced by King
World in New York, premiered in January 1994. It is hosted by Rolonda Watts, a
popular broadcast journalist. For the 1994-1995 broadcast season, Rolonda was
licensed to television stations in 88 Nielsen market areas, covering
approximately 74% of total domestic television households. For the current
broadcast season, Rolonda has been licensed to television stations in 72
Nielsen market areas, covering approximately 67% of total domestic television
households.
Each of The Oprah Winfrey Show, Wheel of Fortune, Jeopardy!,
Inside Edition, and American Journal has been licensed to television stations
for exhibition in the current and in future broadcast seasons, commencing with
the 1996-1997 broadcast season and extending, in certain cases, as far into the
future as the 1999-2000 broadcast season. Revenues and related expenses under
such license agreements will not be recognized until the license periods
thereunder have begun and certain other conditions are satisfied. As of
October 24, 1995, the gross amount of license fees under such agreements
approximated $1.8 billion, of which approximately $1.04 billion is payable to
producers and others and is to be recognized as an expense. The recognition of
such amounts in the consolidated financial statements of the Company in fiscal
years subsequent to August 31, 1995 is subject to the satisfaction of several
conditions, including, with respect to amounts attributable to The Oprah
Winfrey Show, the commitment of the producer and Ms. Winfrey to continue to
produce and host the show after the 1997-1998 television season (which they are
not contractually obligated to do). Such amounts do not include sales of
advertising time retained during the broadcast of such program material or
foreign license fees and do not
4
<PAGE> 7
reflect the production costs to be incurred for programming produced by King
World.
There can be no assurance that any of these programs will be
licensed for additional years through renewal of existing licenses or issuance
of new licenses or, if so licensed, that the terms of the license agreements
will be as favorable to King World as those of the existing licenses. There
can be no assurance that the key personalities on such programs, such as Oprah
Winfrey, Pat Sajak, Vanna White and Alex Trebek, will continue to participate
in the production of their respective programs. If for any reason they do not
do so, there could be a material adverse effect on the Company's business.
Acquisition and Development of Properties for Distribution
King World's business is dependent on obtaining new television
programs and series for distribution. King World may acquire properties for
domestic, foreign or worldwide television distribution by entering into
distribution agreements with independent producers, by producing its own
programs, by co-producing programs in association with others, or by purchasing
distribution rights.
The terms under which the Company obtains the right to
distribute programming from independent producers vary in each instance. The
Company distributes The Oprah Winfrey Show pursuant to an agreement with Harpo,
the producer of the series. Under the terms of the agreement currently in
effect, the Company has been granted the exclusive right, and has agreed, to
distribute episodes of The Oprah Winfrey Show produced through the 1999-2000
broadcast season, subject to Harpo's and Ms. Winfrey's right to decline to
produce and host the series in any season after the 1995-1996 season. In October
1995, Harpo and Ms. Winfrey committed to produce and host the series through the
1997-1998 season. It is uncertain whether Harpo and Ms. Winfrey will elect to
produce and host the series for seasons beyond the 1997-1998 season. Their
failure to do so would have a material adverse effect on the Company's results
of operations.
The Company's agreement with Harpo establishes, among other
things, the production fees payable to Harpo through the 1996-1997 broadcast
season and commits the Company to guaranty payments to Harpo at levels which,
commencing with the 1995-1996 season, are substantially higher than those
previously in effect. In addition, in the 1997-1998 season and thereafter,
profit sharing arrangements between Harpo and the Company currently in effect
will terminate and the Company will instead receive distribution fees based on
a percentage of gross revenues derived from the series. After the 1999-2000
television season, Harpo will not be obligated to distribute the series through
the Company.
5
<PAGE> 8
Under the terms of the agreement with Harpo, Ms. Winfrey is
subject until the 2000-2001 television season to certain restrictions on her
ability to appear in television shows with the same or similar format as The
Oprah Winfrey Show. In the event of certain corporate transactions
constituting a "change in control" of the Company under the amended agreement,
Harpo has the right to terminate such restrictions and, under certain
circumstances, receive additional consideration for producing the series.
The financial arrangements in the amended agreement with Harpo
are less favorable to the Company than those contained in prior agreements
between the Company and Harpo and, unless offset by significant increases in
license fees paid by television stations for the series in forthcoming seasons,
increased barter revenues from the series, or both, the Company's net profits
derived from The Oprah Winfrey Show will decline in the coming years.
The Company's agreements with Columbia TriStar Television
(formerly Merv Griffin Enterprises), the producer of Wheel of Fortune and
Jeopardy!, provide that King World shall be the exclusive distributor for each
such series so long as the Company has obtained sufficient broadcast
commitments to cover the production and distribution costs of that series and
that the Company may not, unless otherwise agreed by Columbia TriStar
Television, distribute game shows for first-run strip syndication so long as
the Company is distributing Wheel of Fortune or Jeopardy!.
In acquiring new programming, King World has attempted, based
on research concerning television programs currently being broadcast, to
identify programs and series that King World believes will have broad-based
audience appeal and satisfy the programming needs of television stations for
particular time periods. Historically, the Company had relied on independent
producers for new programming. In recent years, however, in order to satisfy
what King World believes to be audience demands and station programming needs,
the Company has, for the most part, been developing and producing original
programming on its own or in cooperation with others.
In addition to Inside Edition, the Company is currently
producing American Journal and Rolonda for first-run strip syndication.
The introduction of new television programs requires
substantial capital investment to fund programming development costs, the
production of pilot programs and the production, distribution and promotion of
the initial episodes of programming for syndication. The Company has funded
and intends to continue
6
<PAGE> 9
to fund such capital investments out of its internal cash resources.
License and Distribution Fees
For certain first-run syndicated programming produced by
independent companies for distribution by King World, the Company earns
distribution fees that are based on a percentage of the license fees paid by
television stations for the right to broadcast programs and the amounts paid by
national advertisers for advertising time retained by the Company and sold in
connection with such programs. The Company also recoups certain distribution
expenses that it incurs in connection with the distribution of these series,
which consist principally of advertising, promotion, satellite and tape costs
and related expenses. Amounts remaining in excess of King World's distribution
fees and expenses are remitted to the producers of such series.
In other cases, the Company's fees for distributing first-run
syndicated programming produced by independent companies are based upon a
negotiated percentage of the profits derived from the exploitation of the
programming after recoupment of the production, advertising, promotion and
other distribution fees and expenses of the programming. In such cases, the
Company generally finances all or a substantial portion of the production costs
and may commit itself to advancing the producer and/or talent fixed minimum
amounts as advances against their participation fees, irrespective of the
amount of license fees and other revenues that may actually be generated by the
programming. In acquiring distribution rights for new programming from
independent producers, King World has generally tried to limit its risk by not
making major commitments to independent producers until it has obtained
commitments from a substantial number of television station licensees.
In recent years, the new shows introduced by the Company in
first-run syndication have been developed and produced by the Company itself.
In such cases, the Company hires a production team, leases production
facilities, engages talent, assumes all of the costs and expenses of
developing, producing, advertising, promoting and distributing the programming
and, after any required payments to the production team and talent, retains the
net profits derived from the exploitation of the programming.
License fees payable by stations for the rights to broadcast
television programs and series are payable in the form of cash, retained
advertising time or both. A television station that enters into a license
agreement for a particular program or series becomes obligated to pay the
contracted license fee (which will often depend on the time period in which the
program is
7
<PAGE> 10
aired by that station) and provide advertising time, if applicable, upon the
delivery by the Company of the programming in question. Advertising time
retained by King World in connection with program distribution is sold to
national advertisers by a wholly-owned subsidiary of the Company. See "Sale of
Advertising Time".
In the 1995 fiscal year, approximately 14% of the Company's
revenues were derived from license fees under contracts with television
stations owned by Capital Cities/ABC, Inc. No other television station,
broadcast group or advertiser accounted for ten percent or more of the
Company's revenues in the fiscal year.
Marketing
In the United States, there are approximately 240 Nielsen
designated and special market areas containing commercial and/or public
television stations. Sales to domestic television stations are made by the
Company through a sales force that numbered 11 persons as of November 1, 1995.
The Company's marketing strategy concentrates on a select number of programs
that the Company considers to have good prospects for high audience ratings and
expects will meet television stations' programming needs for specific time
periods.
Although the Company has been dependent upon the active
participation of members of the King family since its formation in 1964, the
Company believes that it has significantly lessened its reliance on certain key
executive officers by adding experienced executive, programming and marketing
personnel. Nevertheless, the loss of key personnel might have an adverse
effect on the Company's operations.
Sale of Advertising Time
Camelot Entertainment Sales, Inc. ("Camelot"), a wholly-owned
subsidiary of King World, sells advertising time within television programs.
As of November 1, 1995, Camelot employed eight salespersons.
The value of advertising on any particular program varies
significantly depending on the audience ratings and demographics for such
program and conditions in the market for television advertising time in
general. In order for advertising time on a particular syndicated television
program to be valuable to national advertisers, the program must, as a general
rule, be broadcast in television markets covering at least 70% of the total
domestic television households. For the 1995-1996 broadcast season, The Oprah
Winfrey Show has been licensed to stations covering more than 99% of the total
domestic television households; Wheel of Fortune and Jeopardy! have been
licensed to
8
<PAGE> 11
stations covering approximately 99% and 98%, respectively, of the total
domestic television households; Inside Edition has been licensed to stations
covering approximately 92% of the total domestic television households;
American Journal has been licensed to stations covering approximately 86% of
the total domestic television households; and Rolonda has been licensed to
stations covering approximately 67% of the total domestic television
households.
Fees for advertising time are established on the basis of
household audience ratings or, more frequently, on the basis of the delivery of
a certain demographic category of the viewing audience. The desired household
rating or demographic delivery, as the case may be, is negotiated in advance
with the advertiser or its agency. If the television program does not deliver
at least the agreed-upon audience coverage, Camelot is obligated either to make
available, at no additional cost, additional advertising time within the same
program or other programs that are expected to deliver at least the agreed-upon
audience coverage, or to refund that portion of the advertising fee
attributable to the underdelivery.
Generally, a portion of the Company's contracts for the sale
of its advertising time may be cancelled by the advertiser upon 90 days'
notice. Each television station is obligated to broadcast advertising time
retained by King World even if the program or episode on which the time was
retained is preempted by the station.
Historically, Camelot has sold advertising time primarily on
television programs distributed by King World. However, a portion of Camelot's
revenues has in recent years been attributable to commissions earned on sales
of advertising time on television programs distributed by companies other than
King World. Camelot has agreements currently in effect with, among others,
Western International Syndication to sell advertising time in It's Showtime at
the Apollo, a variety program.
Foreign Sales
The Company licenses episodes of Wheel of Fortune, Jeopardy!,
The Oprah Winfrey Show and Inside Edition in Canada and certain other
English-speaking foreign territories. The Company also licenses the production
of foreign versions of Wheel of Fortune and Jeopardy! in a number of other
major foreign territories, including, among others, Australia, Germany and
Poland. Under licenses from King World, Unilever, N.V. licenses the production
of local versions of Wheel of Fortune and Jeopardy! for broadcast in a number
of Western European markets. In addition, the Company has recently become more
active in acquiring rights for the distribution of television programming
solely outside the United States. Revenues from foreign sales (includ-
9
<PAGE> 12
ing Canada) accounted for approximately 8% of King World's revenues in fiscal
1995.
Merchandising and Film Library
The Company has granted licenses to others to produce Wheel of
Fortune and Jeopardy! boxed board games and to exploit certain of its
merchandising rights in The Little Rascals. King World also distributes its
own library of over 60 feature length films and over 200 television programs,
including 14 Sherlock Holmes, 13 The East Side Kids, 9 Mr. Moto and 11 Charlie
Chan feature length films and episodes from The Little Rascals, Topper, Branded
and The Guns of Will Sonnett television series. In acquiring feature length
films and television programs for its own library, the Company has attempted to
emphasize classic programming -- films and television series with broad and
enduring audience appeal. King World holds long-term television and related
distribution rights to the properties in its library. The Company is not
generally required to make any material royalty or similar payments with
respect to the properties in its library. Revenues from merchandising and the
film library accounted for less than 1% of the Company's revenues in fiscal
1995.
Direct Response Marketing
The Company operates King World Direct Inc., a direct response
marketing subsidiary. King World Direct handles key aspects of direct response
marketing campaigns, including production, order fulfillment and media
placement.
King World Direct has developed direct response telemarketing
campaigns for, among others, the Wild America video series and Sears Craftsman
Robogrip pliers. Revenue from direct response marketing activities accounted
for approximately 1% of the Company's revenues in fiscal 1995.
Competition
The production and distribution of television programming and
the sale of associated advertising time is a highly competitive business. King
World competes with many companies that have resources substantially greater
than those of King World.
The most important competitive factors in television program
distribution are marketing, quality and variety of programming and research and
promotional services. King World's success is highly dependent upon those
factors as well as the continuing availability of writers, performers and other
creative talent and the viewing preferences of television audiences. King
World has attempted to concentrate on the distribution of pro-
10
<PAGE> 13
grams that it believes will have broad or enduring audience appeal in order to
reduce its exposure to changes in viewer preferences. King World has also
developed an experienced television syndication sales organization as well as
strong programming acquisition, research and advertising and promotion
departments. See "Marketing" above.
Regulation of the Television Industry
Prime-Time Access Rule/Financial Interest and Syndication Rule
A rule promulgated by the Federal Communications Commission
("FCC") in the 1970's and known as the "prime-time access rule" prohibits
(subject to certain significant exceptions) network-owned and
network-affiliated television stations in the 50 largest television markets
from broadcasting more than a total of three hours per day of programming
supplied by or previously aired on a network during the prime-time period
(defined under the rule as 7-11 p.m. Eastern and Pacific time and 6-10 p.m.
Central and Mountain time). Due to the rule, network-owned and
network-affiliated stations often acquired either one hour or one-half hour of
program material for exhibition during the prime-time access period from
independent television producers and syndicators such as the Company.
On October 20, 1994, the FCC initiated proceedings looking
toward reconsideration or modification of the prime-time access rule. On July
29, 1995, the FCC issued a decision concluding that the prime-time access rule
no longer serves the public interest because the networks now lack market power
sufficient to foreclose access by independent producers and syndicators of
first-run programming to the prime-time access period. In order to permit an
orderly transition, the FCC held that programming supplied by or previously
aired on a network may not be aired during the prime-time access period for 12
months from the August 1995 effective date of its decision, but during such
period stations subject to the rule are permitted to enter into contracts
providing for the airing of such programming in the access period after August
1996.
Pursuant to consent decrees entered into in the mid to late
1970's between the three largest television networks (the ABC Television
Network, the CBS Television Network and the NBC Television Network) and the
United States Department of Justice (the "Consent Decrees"), such networks
were, until mid-November 1993 (when the Decrees were lifted), prohibited from
domestically syndicating television programs and from acquiring financial
interests in such programs or in network programming (other than the right to
network exhibitions) produced by independent production companies. In the mid
1970's, the FCC implemented rules (the "Rules") that substantially paralleled
the prohibitions of
11
<PAGE> 14
the Consent Decrees. The Rules enhanced the Company's ability to license its
programs to stations owned and operated by the major television networks
(licensees that are, in most instances, very important to the success of a
series distributed through first-run syndication).
In May 1991, the FCC issued a decision (the "1991 Decision")
to modify, but not to repeal, the Rules. The modified Rules substantially
relaxed the restrictions upon the ability of a network (as defined under the
Rules) to acquire financial interests in, and to syndicate, television programs
previously aired by that network (a sector of programming in which King World
has not to date had substantial involvement). The 1991 Decision retained
stringent limitations on network involvement in first-run syndication
activities.
In April 1993, after further proceedings, the FCC voted to
further modify the Rules (the "1993 Decision"), but to retain the 1991
restrictions on network involvement in first-run syndication activities. In
the 1993 Decision, the FCC stated that it would conduct a review of the
remaining Rules 18 months after the lifting of Consent Decrees (which in fact
occurred in November 1993). On August 6, 1995, the FCC concluded its review of
the remaining Rules, holding that the Rules, including the restrictions on
network entry into first-run syndication activities, are no longer necessary.
By the terms of the FCC order, the Rules expired in August 1995.
As a result of the repeal of the prime-time access rule and the
elimination of the remaining restrictions of the financial interest and
syndication rules, the Company anticipates that it will have more difficulty
licensing its programming to stations owned and operated by the three major
television networks and that, even if the Company is able to so license its
programming, the profitability of such programming to the Company will, as a
result of terms imposed by such stations, be likely to be reduced.
Other FCC Rules and Legislative Proposals Affecting the
Television Industry
FCC rules currently permit the common ownership of, in most
circumstances, up to twelve television stations, subject (in the case of station
groups) to certain limitations based on audience reach. The rules also prohibit
the common ownership of stations if certain defined service contours overlap. In
May 1992, the FCC initiated proceedings requesting comments on various proposals
to relax the ownership restrictions placed on television broadcasters and
networks. The FCC is considering proposals to increase the number of stations
that a network or station group may control and/or to relax the audience reach
limitations; it is also considering relaxing the limitations on
12
<PAGE> 15
the number of stations with overlapping service contours that may be under
common ownership. The United States Congress is also considering legislative
proposals for repeal, or substantial relaxation, of these ownership
limitations. King World is unable to predict the outcome of any of these
proposals. King World believes that increases in the concentration of
television station ownership, either by the networks or by broadcast groups,
will tend to increase the power of the networks and the broadcast groups in the
market for television programming and, consequently, could adversely affect
King World's bargaining position vis-a-vis its customers.
A federal district court has held unconstitutional, on First
Amendment grounds, provisions of the 1992 Cable Act that require the FCC to
prescribe rules and regulations establishing "reasonable limits on the number
of cable subscribers" that a cable operator is authorized to reach through
cable systems it owns or controls. The U.S. Justice Department has appealed
this determination. However, the rationale for this decision (if ultimately
affirmed) may implicate the constitutionality of other FCC structural
regulations, including the rules that limit the number of television stations
that a television network or station group may own.
In June 1995, the FCC initiated two proceedings in which it is
considering repeal or relaxation of certain of its regulations restricting or
forbidding certain contractual arrangements between a network and its
affiliates. Among the matters under examination are: a rule that forbids a
network from entering into a contract with any affiliate that either enables
the network to reserve any time on the affiliate's station before the network
has committed to use the time, or requires the station to make time available
for network programming in substitution for programming already scheduled by
the affiliate ("Time Optioning Rule"); a rule that forbids a network from
penalizing affiliated stations for rejecting network programming and
substituting programming deemed by the station to be of greater local or
national interest; and a rule that forbids stations from affiliating with any
network organization that operates more than one network. Separately, the FCC
is re-examining a rule that prohibits a network from directly or indirectly
controlling the advertising rates charged by an affiliate in connection with
the broadcast of non-network programming ("Station Rates Rule") and a rule that
forbids a network from acting as a sales representative for affiliated stations
for the sale of advertising time in connection with non-network programming
("Station Rep Rule").
The Company is unable to predict the outcome of these
proceedings. Although the Company believes that certain of the conduct
prohibited by the FCC's rules, such as the Station Rates Rule, are proscribed
or curtailed under the anti-trust laws, the
13
<PAGE> 16
Company anticipates that repeal or substantial relaxation of the Time Optioning
Rule and the Station Rep Rule will tend to increase the power of the networks in
the market for television programming and for the sale of advertising time and
will consequently adversely affect King World's bargaining position vis-a-vis
network-affiliated stations, and the sale of King World's barter time.
Other Regulatory and Legislative Matters
In October 1992, Congress enacted legislation imposing certain
new regulations on the cable television industry. The legislation includes
provisions that require each local television station (as defined) to make an
election between demanding carriage on any cable system within its service area
on a "must-carry" basis (for which the station receives no compensation) or
demanding that such cable system obtain the consent of the station and pay
compensation (and/or furnish other consideration) to the station for the right
to carry its signal. The election made by the station as to each such cable
system remains in effect for three years. Since the advent of these
"retransmission consent" provisions, which became operative in October 1993, a
small number of cable systems have refused to or failed to reach carriage
agreements with particular local television stations and consequently ceased
the carriage of such stations, thus resulting in decreased audience for King
World programming aired on those stations, and in the future other cable
systems could refuse or fail to reach such agreements. The Company has
suffered no discernible adverse impact to date.
Turner Broadcasting System and a number of cable television
networks and cable systems have brought or joined in lawsuits challenging the
constitutionality of the retransmission consent and "must carry" provisions of
the legislation. In April 1993, a three-judge district court, by a divided
vote, upheld the must-carry provisions of the 1992 Cable Act. In June 1994,
the United States Supreme Court overturned that decision and remanded the case
to the District Court for a trial. The burden of proving that the must-carry
rules do not infringe upon cable operators' rights under the First Amendment
has been placed upon those who seek to justify the rules. The must-carry rules
will remain in effect during the pendency of the trial. In a lawsuit that is
related to, but separate from, the litigation concerning must-carry, the
retransmission consent provisions of the 1992 Cable Act were upheld by the
United States Court of Appeals for the District of Columbia; this decision was
not disturbed by the United States Supreme Court.
Legislation governing the cable television industry, and FCC
implementing regulations, impose significant limits on the ability of a local
telephone company to enter into the business of creating and of distributing
video programming within
14
<PAGE> 17
its franchised telephone service area. In August 1993, a federal district court
in Virginia held that these restrictions are unconstitutional on First Amendment
grounds. The Department of Justice, which is responsible for the defense of
this action, has appealed this determination.
The United States Congress is considering legislative
proposals to allow telephone companies to engage in the production, packaging
and distribution of television programming over facilities owned by such
companies, subject to certain regulatory restrictions. Also, in 1992, the FCC
adopted regulations which permit telephone companies to make their common
carrier facilities available for the carriage of video programming ("video
dialtone"). As promulgated, the rules severely limited the ability of a local
telephone company to acquire financial interests in video programming
distributed over its own telephone facilities. In October of 1994, the FCC
revised its video dialtone rules but retained the restrictions on a telephone
company's acquisition of financial interests in programming transmitted over
its own telephone facilities. Judicial appeals of this determination are
pending.
King World is unable to predict the outcome of any of these
proposals or proceedings. However, to the extent that telephone companies are
permitted to engage in the production and distribution of video programming (or
to acquire financial interests in video programming distributed over telephone
company facilities), the position of over-the-air television stations in the
video marketplace could be substantially weakened, thus resulting in decreased
audiences for King World programming aired on those stations.
The FCC has initiated proceedings, and the United States
Congress is considering legislative proposals, relating to the deployment of
Advanced Television Technologies ("ATV"). These technologies would, among
other things, enable television stations to simultaneously broadcast more than
one program at the same time; and the FCC has tentatively concluded that it
will permit the use of the additional channel capacity resulting from ATV to be
used for entertainment programming purposes. Because the evolution of ATV
technology and the formulation of regulations governing its deployment and uses
is in formative stages, the Company is unable to predict the outcome of these
developments or their impact upon the Company, if any.
Employees
As of November 1, 1995, the Company employed approximately 430
persons. Of this number, approximately 300 are involved in the production of
Inside Edition, American Journal and Rolonda. Twenty-four of the Company's
employees are covered by collective bargaining agreements.
15
<PAGE> 18
Item 2. DESCRIPTION OF PROPERTIES
The Company's corporate headquarters are located in New York,
New York, where it leases office space for executive offices, the operations of
Camelot and the Company's eastern U.S. and foreign sales staff. The Company's
accounting, contract administration and research departments are located in
leased offices in Short Hills, New Jersey. The Company also leases office
space in Los Angeles for executive offices, its creative services department,
program development and direct response marketing operations and its western
U.S. sales staff, and in Chicago, West Palm Beach and Dallas for regional sales
offices.
The Company leases office and production facilities in New
York and Los Angeles for its internally produced programming.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than
routine litigation incidental to the conduct of its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE> 19
PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
King World's Common Stock is listed and traded on the New York
Stock Exchange under the symbol KWP. The following table sets forth, for the
fiscal periods indicated, the range of high and low closing sale prices for the
Common Stock as reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal 1994
First Quarter Ended
November 30, 1993 . . . . . . . . . . 42 5/8 36 1/4
Second Quarter Ended
February 28, 1994 . . . . . . . . . . 42 3/8 37
Third Quarter Ended
May 31, 1994 . . . . . . . . . . . . . 42 33 5/8
Fourth Quarter Ended
August 31, 1994 . . . . . . . . . . . 44 37 1/4
Fiscal 1995
First Quarter Ended
November 30, 1994 . . . . . . . . . . 39 1/8 34 5/8
Second Quarter Ended
February 28, 1995 . . . . . . . . . . 36 7/8 32 3/4
Third Quarter Ended
May 31, 1995 . . . . . . . . . . . . . 43 35 1/8
Fourth Quarter Ended
August 31, 1995 . . . . . . . . . . . 43 3/8 37 1/2
</TABLE>
As of the close of business on October 24, 1995, there were
748 holders of record of the Company's Common Stock.
The Company has not paid cash dividends since 1979. The
Company has no present intention to pay dividends on its Common Stock. The
Company requires substantial amounts to fund development, production and
promotion costs for its programming, and intends to use its cash reserves and
future earnings to finance such expenses and the development and expansion of
its business. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Liquidity and Capital Resources".
17
<PAGE> 20
Item 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from
the consolidated financial statements of King World and its subsidiaries for
the five years ended August 31, 1995, which have been audited and reported upon
by Arthur Andersen LLP, independent public accountants. The unaudited 1995 and
1994 pro forma data presents selected financial data assuming that a change in
accounting for revenue recognition adopted prospectively in the fourth quarter
of fiscal 1994 had not been made. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Consolidated Financial Statements
and the Notes thereto included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Statements of Income: Year Ended August 31,
------------------------------------------------------------------------------------------------
1995 1994
1995(1) Pro forma(1) 1994(1) Pro forma(1) 1993 1992 1991
---- --------- ---- --------- ---- ---- ----
(unaudited) (unaudited)
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . $574,186 $575,732 $480,659 $541,390 $474,312 $503,174 $475,909
Income from opera-
tions . . . . . . . . 162,416 162,736 127,578 148,151 150,950 152,481 154,084
Income before provi-
sion for income
taxes . . . . . . . . . 183,258 183,578 140,839 161,412 162,592 164,725 154,028
Net income . . . . . . . 117,312 117,490 88,300 101,196 101,936 94,880(2) 90,591(3)
======== ======== ======== ======== ======== ======= ========
Primary earnings per
share . . . . . . . . . $3.14 $3.15 $2.33 $2.67 $2.65 $2.43(2) $2.31(3)
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Balance Sheets: August 31,
------------------------------------------------------------------------------------------------
1995 1994
1995(1) Pro forma(1) 1994(1) Pro forma(1) 1993 1992 1991
---- --------- ---- --------- ---- ---- ----
(unaudited) (unaudited)
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and invest-
ments . . . . . . . . . $529,025 $529,025 $430,048 $430,048 $384,489 $355,612 $241,915
Working capital . . . . . 477,794 477,972 294,336 307,232 286,348 273,086 126,489(4)
Total assets . . . . . . 686,786 688,332 569,562 630,293 535,546 498,240 500,834
Long-term debt . . . . . -- -- -- -- -- -- 97,238(4)
Stockholders'
equity . . . . . . . . 575,737 575,915 459,077 471,973 394,173 342,919 241,655
======== ======== ======== ======== ======== ======== ========
</TABLE>
18
<PAGE> 21
1. The results of operations for fiscal 1995 and fiscal 1994 reflect a
change in accounting for revenue recognition adopted prospectively in
the fourth quarter of fiscal 1994. The one-time impact of adopting
such change was to cause revenues, income from operations, income
before provision for income taxes, net income and primary earnings per
share in the fourth quarter of fiscal 1994 to be approximately $60.7
million, $20.6 million, $20.6 million, $12.9 million and $.34 lower,
respectively, than they would have been under the Company's prior
revenue recognition practice. Such revenues were recognized in fiscal
1995 under the modified accounting practice. The results of operations
for fiscal 1995 would have been substantially the same as that actually
reported if the Company's prior revenue recognition practice had been
in effect for all of fiscal 1995. The unaudited 1995 and 1994 pro
forma data are presented for comparison purposes only and represent the
results of operations and balance sheet information assuming the
Company's prior revenue recognition practice had been in effect in the
fourth quarter of fiscal 1994 and in fiscal 1995. See Note 1 of Notes
to Consolidated Financial Statements.
2. Net income and primary earnings per share include the effect of a net
loss from the deconsolidated operations of Buffalo Broadcasting Co.
Inc. ("Buffalo"), a former subsidiary of the Company, of approximately
$7.7 million and $.20, respectively. See Note 8 of Notes to
Consolidated Financial Statements.
3. Net income and primary earnings per share include the effect of an
extraordinary loss of approximately $2.6 million and $.07,
respectively, in fiscal 1991, as a result of the write-off of King
World's investment in Financial News Network, Inc.
4. Working capital in fiscal 1991 reflects the reduction of $97.2 million
of long-term debt, which was reclassified as a current liability.
Such long-term debt was collateralized by all of the assets of Buffalo
and King World's stock in Buffalo. Such long-term debt was
restructured in fiscal 1992, as a result of which Buffalo was
deconsolidated from King World's financial statements. See Note 8 of
Notes to Consolidated Financial Statements.
19
<PAGE> 22
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
The Company's revenues consist principally of fees from the
licensing of syndicated television programs and series which may be in the form
of cash, retained advertising time or both. In addition, revenues include fees
from the sale of advertising time on programs distributed to television
stations by others.
Historically, King World had followed a practice of
recognizing license fees from the distribution of first-run syndicated
television properties at the commencement of the license period and as each
show was produced (even though the particular show may not have been broadcast
by a television station for several months). This practice had the effect of
creating variations in the Company's reported revenues and earnings from
quarter to quarter, corresponding to the greater or smaller number of shows
that were produced in a particular quarter, which were not necessarily
indicative of longer-term trends in the Company's business.
In the fourth quarter of the 1994 fiscal year, the Company
adopted a change in accounting for revenue recognition which was accounted for
prospectively as a change in accounting estimate as opposed to a change in
accounting principle. Under the modified practice, license fees from first-run
syndicated television properties are recognized at the commencement of the
license period pursuant to noncancelable agreements and as each show is made
available to the licensee via satellite transmission, rather than at the time
the show is produced. Because transmission to the satellite takes place, on
the average, no more than two to three days prior to the broadcast of the
programming and in some cases several months after the programming is produced,
the effect of adopting the modified practice is to cause revenues from certain
series to be recognized closer to the air date than under the prior practice.
In addition, the accounting change eliminates the quarterly revenue and
earnings fluctuations that were attributable to variations in production
schedules.
The one-time impact of adopting the change was to cause fourth
quarter fiscal 1994 revenues, net income and earnings per share to be
approximately $60.7 million, $12.9 million and $.34 lower, respectively, than
they would have been under the prior practice, with no impact on cash flow.
Such revenues were recognized in fiscal 1995 under the modified accounting
practice. The results of operations for fiscal 1995 would have been
substantially the same as that actually reported if the Company's prior revenue
recognition practice had been in effect for all of fiscal 1995.
20
<PAGE> 23
The Company typically receives a portion of the fees derived
from the licensing of syndicated television programming in the form of retained
advertising time, which is sold to advertisers by Camelot Entertainment Sales,
Inc. ("Camelot"), a wholly-owned subsidiary of the Company. Such revenues are
recognized at the same time as the cash portion of the license fees derived
from such programming is recognized, in amounts adjusted for expected ratings.
That portion of recognized revenue that is to be paid to the producers and
owners of the licensed program material is accrued as the license fees are
earned. See Note 1 of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL 1995 AND FISCAL 1994
Revenues
Revenues for fiscal 1995 increased by approximately 19%
compared to fiscal 1994 due to the adoption of a change in accounting for
revenue recognition on a prospective basis in the fourth quarter of fiscal
1994. Had revenues been recognized in fiscal 1995 and the fourth quarter of
fiscal 1994 on a basis comparable to that of the first nine months of fiscal
1994, revenues in fiscal 1995 would have been approximately 6% higher than the
prior year, due primarily to increased cash license fees from The Oprah Winfrey
Show and, to a lesser extent, an increase in revenues derived from the sale of
retained advertising time in Wheel of Fortune and Jeopardy! as a result of the
retention of one additional 30-second advertising spot per episode commencing
with the 1994-1995 television season.
The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside
Edition accounted for approximately 37%, 21%, 18% and 8%, respectively, of the
Company's revenues for fiscal 1995 compared to 41%, 17%, 15% and 9%,
respectively, for fiscal 1994. American Journal accounted for approximately 4%
of the Company's revenues for fiscal 1995 and 5% for fiscal 1994. Rolonda,
which debuted in January 1994, accounted for approximately 3% of the Company's
revenues for fiscal 1995 and 2% for fiscal 1994. The Les Brown Show, which was
cancelled in January 1994, accounted for approximately 2% of the Company's
revenues for fiscal 1994. Had the prior method of revenue recognition been
employed in fiscal 1995 and the fourth quarter of fiscal 1994, The Oprah
Winfrey Show, Wheel of Fortune, Jeopardy! and Inside Edition would have
accounted for approximately 37%, 21%, 18% and 8%, respectively, of the
Company's revenues for fiscal 1995, and 36%, 21%, 18% and 8%, respectively, for
fiscal 1994. American Journal and Rolonda would have accounted for
approximately 4% and 3%, respectively, of the Company's revenues for fiscal
1995 and 4% and 2%, respec-
21
<PAGE> 24
tively, for fiscal 1994. The Les Brown Show would have accounted for
approximately 1% of the Company's revenues in fiscal 1994.
Producers' fees, programming and other direct operating costs
Producers' fees, programming and other direct operating costs
primarily include the producers' share of both cash license fees from the sale
of programming to television stations and revenues derived from the sale of
retained advertising time to advertisers with respect to programming
distributed by the Company; participation payments payable by the Company to
producers and talent; and production and distribution costs for first-run
syndicated programming. The share of revenues payable by the Company to
producers, talent and others is generally paid as cash license fees and
revenues derived from the sale of retained advertising time are received from
television stations and advertisers.
Producers' fees, programming and other direct operating costs
increased by approximately 22% in fiscal 1995 compared to fiscal 1994.
Because the recognition of these costs generally coincides with the recognition
of the revenues with which they are associated, the adoption of the modified
accounting practice in the fourth quarter of fiscal 1994 caused such costs to
be substantially lower in the fourth quarter of fiscal 1994 than they would
have been under the prior revenue recognition practice. On a basis of
accounting comparable to that employed prior to the fourth quarter of fiscal
1994, producers' fees, programming and other direct operating costs would have
increased by approximately 7% in fiscal 1995 over the prior fiscal year,
primarily as a result of the higher level of revenues generated by The Oprah
Winfrey Show, Wheel of Fortune and Jeopardy! (a portion of which is payable to
the producers of such series) and, to a lesser extent, increased production
costs associated with Inside Edition, American Journal and Rolonda.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by
approximately 5% in fiscal 1995 from the prior fiscal year primarily due to
lower advertising and promotion costs. On a basis of accounting comparable to
that employed prior to the fourth quarter of fiscal 1994, such expenses would
have been substantially the same as that actually reported.
In December 1993, the Company entered into new employment
agreements with four executive officers. The agreements provide, among other
things, for new bonuses intended to qualify as "performance based compensation"
(within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended), including bonuses payable upon the introduction of new shows and
bonuses contingent upon the Company's Common Stock achieving
22
<PAGE> 25
specified target prices during pre-established measurement periods.
As of May 31, 1995, the performance targets associated with
certain stock and stock appreciation units granted in December 1993 to Roger
King, the Company's Chairman of the Board, and Michael King, the Company's
President and Chief Executive Officer, were achieved, resulting in the payment
by the Company subsequent to May 31 of a lump-sum pre-tax cash bonus to each of
them of approximately $5 million. These units had become eligible for
redemption on August 31, 1994 and each of the subsequent fiscal quarters
through the third quarter of fiscal 1995, subject to the achievement of the
specified performance goals. The performance goals specified for the units
that became eligible for redemption on August 31, 1995 were not achieved and
the units expired on such date.
Net income and primary earnings per share
The Company's operating income for fiscal 1995 increased by
approximately 27% compared to the prior year, primarily due to the change in
accounting for revenue recognition. Had the prior method of revenue
recognition been employed in fiscal 1995 and the fourth quarter of fiscal 1994,
the Company's operating income would have been approximately 10% higher in
fiscal 1995 than in fiscal 1994. Reported net income for fiscal 1995 increased
by 33% compared to the prior year. Absent the accounting change, net income
would have been approximately $16.3 million (or 16%) higher than fiscal 1994,
reflecting higher operating income, higher interest income earned on the
Company's cash and investments (due primarily to an increase in interest rates
over the prior year), and a lower effective tax rate for fiscal 1995. Primary
earnings per share, which were $.81 higher in fiscal 1995 compared to fiscal
1994, would have been $.48 (or 18%) higher in fiscal 1995 compared with fiscal
1994 had the prior method of revenue recognition been employed, due to the
increase in net income and a smaller number of shares outstanding as a result
of the Company's ongoing stock repurchase program.
The Company's results of operations are highly dependent upon
the viewing preferences of television audiences and the Company's ability to
acquire distribution rights to, or itself produce, television programming that
achieves broad and enduring audience acceptance. The success of the Company's
programming could be significantly affected by changes in viewer preferences or
the unavailability of new programming or talent. Moreover, the amount of
revenue derived from the sale of retained advertising time is dependent upon a
large number of factors, such as household ratings, the demographic composition
of the viewing audience and economic conditions in general and in the
advertising business in particular.
23
<PAGE> 26
Due to the success of the shows distributed by the Company and
in order to mitigate the influence of some of the factors referred to above,
the Company has been obtaining multi-year licenses and license renewals from
television stations for its principal distribution properties, extending as far
into the future as the 1999-2000 broadcast season. In general, these licenses
and renewals have been at rates as favorable or more favorable to the Company
than the rates applicable to the 1993-1994 and 1994-1995 broadcast seasons.
All such licenses and renewals are contingent upon the continued production of
the series by their respective producers through the broadcast seasons for
which the licenses run.
The Company believes that the impact of inflation on its
operations has not been significant.
COMPARISON OF FISCAL 1994 AND FISCAL 1993
Revenues
Due to the adoption of the accounting change referred to
above, the Company's revenues for the fiscal year ended August 31, 1994
increased by 1% over the prior year. Had revenues in the fourth quarter of
fiscal 1994 been recognized on a basis comparable to prior periods, revenues
for fiscal 1994 would have been approximately 14% higher than fiscal 1993, due
primarily to the introduction of new shows produced and distributed by the
Company (American Journal, which debuted in September 1993, Rolonda, which
debuted in January 1994, and The Les Brown Show, which debuted in September
1993 and was cancelled in January 1994), increased cash license fees from The
Oprah Winfrey Show and Inside Edition and, to a lesser extent, an increase in
revenues derived from the sale of retained advertising time on Wheel of
Fortune, Jeopardy! and Inside Edition.
The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside
Edition accounted for approximately 41%, 17%, 15% and 9%, respectively, of the
Company's revenues for fiscal 1994, compared to 39%, 24%, 20% and 8%,
respectively, for the prior year. American Journal, Rolonda and The Les Brown
Show accounted for approximately 5%, 2% and 2%, respectively, of the Company's
revenues for fiscal 1994. The decreases in the relative contributions of Wheel
of Fortune and Jeopardy! to the Company's fiscal 1994 revenues are primarily
attributable to the impact of the accounting change, which had the effect of
decreasing fourth quarter revenues derived from these two series. On a basis
of accounting comparable to that employed prior to the fourth quarter of fiscal
1994, The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside Edition
would have accounted for approximately 36%, 21%, 18% and 8%, respectively, of
the Company's revenues for fiscal 1994. American Journal, Rolonda and The Les
24
<PAGE> 27
Brown Show would have accounted for approximately 4%, 2%, and 1%, respectively,
of the Company's revenues for fiscal 1994.
Producers' fees, programming and other direct operating costs
Producers' fees, programming and other direct operating costs
increased by approximately 5% for fiscal 1994 compared with fiscal 1993.
Because the recognition of these costs and expenses generally coincides with
the recognition of the revenues with which they are associated, the adoption of
the modified accounting practice in the fourth quarter of fiscal 1994 caused
the increase in producers' fees, programming and other direct operating costs
in fiscal 1994 to be substantially lower than it would have been under the
prior revenue recognition practice. On a basis of accounting comparable to
that employed prior to the fourth quarter of fiscal 1994, producers' fees,
programming and other direct operating costs would have increased by
approximately 20% in fiscal 1994 over the prior year, primarily as a result of
production costs associated with American Journal, Rolonda and The Les Brown
Show, and as a result of the higher level of revenues generated by The Oprah
Winfrey Show, of which the producer was entitled to a greater percentage in the
1993-1994 broadcast season compared with the prior season.
Selling, general and administrative expenses
Selling, general and administrative expenses for fiscal 1994
increased by approximately 27% over the prior year. The increase is primarily
attributable to advertising and promotion costs associated with American
Journal, Rolonda and The Les Brown Show and higher promotion expenditures for
The Oprah Winfrey Show. (During fiscal 1993, no new shows were introduced.)
To a lesser extent, the increase is attributable to payment of the new show
bonuses and reserves for the performance-based executive bonuses discussed
above.
As of August 31, 1994, the first measurement date for the
performance-based executive bonuses, the applicable target prices of the
Company's Common Stock for certain of such bonuses had not been met. However,
as of such date, the Company provided for the probability that such target
prices would be met in future measurement periods and that such bonuses would
eventually be paid.
Net income and primary earnings per share
The Company's operating income for fiscal 1994 decreased by
approximately 15% compared to the prior year, primarily due to the change in
accounting practice adopted by the Company in the fourth quarter of fiscal
1994. But for such change, the Company's operating income would have been
slightly less than 2% below the prior year. The accounting change further
25
<PAGE> 28
resulted in a 13% decrease in net income, which, but for the accounting change,
would have been approximately equal to that of the prior year, reflecting higher
interest income earned on the Company's cash and investments due to a higher
level of investments in fiscal 1994 and moderate increases in interest rates
over the prior year, offset by a slight decrease in operating income. Primary
earnings per share, which decreased by $.34 due to the accounting change, would
have been slightly higher than fiscal 1993 had the prior method of revenue
recognition been employed in the fourth quarter of fiscal 1994, due to a smaller
number of shares outstanding as a result of the Company's ongoing stock
repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital resources to fund development,
production and promotion costs of independently produced programming,
including, in some instances, advances to producers and talent, to produce its
own programs and to acquire distribution rights to new programming. In
acquiring distribution rights from independent producers, King World has tried
to avoid making significant capital commitments to such producers until it has
obtained broadcast commitments from a substantial number of television
stations. As a result of this strategy and the success of its existing
syndication properties, to date, King World has funded substantially all
programming acquisition, development and production costs and advances from its
operations.
As King World has developed and produced its own programming
for syndication, it has assumed a greater portion of the risk associated with
the introduction of new series. The introductions of American Journal and The
Les Brown Show at the commencement of the 1993-1994 broadcast season, and
Rolonda, which premiered in January 1994, have necessitated the expenditure by
King World of substantial amounts to fund development, production and promotion
costs. The Company has funded and intends to continue to fund such costs out
of its internal cash resources.
The distribution of television programming is highly
competitive and the Company may be obliged to offer, among other things,
guarantees and cash advances to acquire, renew or extend distribution rights.
In connection with the extension for the 1993-1994 and 1994-1995 broadcast
seasons of the commitment by Harpo, Inc. ("Harpo"), the producer of The Oprah
Winfrey Show, to produce The Oprah Winfrey Show for those seasons, the Company
made an interest-free loan to Harpo and became obligated to pay Harpo certain
minimum amounts against its participation payments for such periods,
irrespective of the amount of revenues generated by the series in such periods.
Harpo's participation payments for the 1993-1994 broadcast season exceeded such
minimum amounts
26
<PAGE> 29
for the 1993-1994 and 1994-1995 broadcast seasons. The loan was repayable in
two installments of $8,625,000 each, one of which was paid in July 1994 and the
other of which was paid in June 1995.
Under the terms of the Company's agreement with Harpo, the
Company has the exclusive right, and has agreed, to distribute episodes of The
Oprah Winfrey Show produced through the 1999-2000 television season, subject to
Harpo's and Ms. Winfrey's right to decline to produce and host the show in any
season after the 1995-1996 season. To date, Harpo and Ms. Winfrey have
committed to produce and host the show through the 1997-1998 broadcast season.
Under the agreement, the Company has, among other things, agreed to pay Harpo
production fees and to guaranty participation payments to Harpo at levels
which, commencing with the 1995-1996 season, are substantially higher than
those previously in effect. In addition, in the 1997-1998 season and
thereafter, profit sharing arrangements between Harpo and the Company currently
in effect will terminate and the Company will instead receive distribution fees
based on a percentage of gross revenues derived from the series. The Company
has paid Harpo a $60 million advance against its minimum participation payments
for the 1995-1996 broadcast season, and, subsequent to August 31, 1995, will be
obligated to pay advances of $65 million against its minimum participation
payments for each of the 1996-1997 and 1997-1998 broadcast seasons. Based on
the license agreements in place for the seasons covered by such advances, the
Company believes that revenues from the series will be sufficient to enable the
Company to recoup such advances. Such advances are refundable to the Company
by Harpo and Ms. Winfrey if King World terminates the agreement due to Harpo's
failure to deliver episodes of the series.
From time to time, the Company has used cash reserves and/or
borrowed funds to make acquisitions of and investments in broadcast and related
properties in the entertainment field, to repurchase shares of its Common Stock
and to fund development and production of new programming. The Company
continues to evaluate opportunities in these areas, and may seek to raise
capital in public or private securities markets to finance such activities if
it considers it advantageous to do so.
In December 1992, the Company announced that the Board of
Directors had approved a program to repurchase up to 2,000,000 shares of its
Common Stock from time to time in the open market and in privately negotiated
transactions. In the fiscal years ended August 31, 1994 and 1993, 753,100 and
765,200 shares, respectively, of Common Stock were repurchased in open market
transactions, for aggregate consideration of approximately $28.9 million (or
approximately $38.40 per share) and $24.8 million (or approximately $32.40 per
share), respectively. In the first quarter of fiscal 1995, the Company
repurchased an aggregate
27
<PAGE> 30
40,000 shares for aggregate consideration of approximately $1.4 million (or
approximately $36.00 per share), and in the second quarter of fiscal 1995, the
Company repurchased an additional 140,500 shares for aggregate consideration of
approximately $4.7 million (or approximately $33.25 per share). No repurchases
were made by the Company in either the third or fourth quarters of fiscal 1995.
As of October 24, 1995, there remained 301,200 shares available for repurchase
under such program. The Company intends to continue to repurchase shares of
Common Stock in the open market and in privately negotiated transactions if and
when it deems it advantageous to do so.
The Company has entered into agreements with television
stations for the future distribution of program material in television seasons
commencing with the 1995-1996 season and extending as far into the future as
the 1999-2000 broadcast season, under which the revenues and related expenses
will not be recognized until the license periods thereunder have begun and
certain other conditions are satisfied. As of October 24, 1995, the gross
amount of license fees under such agreements approximated $1.8 billion, of
which approximately $1.04 billion is payable to producers and others and is to
be recognized as an expense. The recognition of such amounts in the
consolidated financial statements of the Company in fiscal years subsequent to
August 31, 1995 is subject to the satisfaction of several conditions,
including, with respect to amounts attributable to The Oprah Winfrey Show, the
agreement of the producer and Ms. Winfrey to continue to produce and host the
show after the 1997-1998 television season (which they are not contractually
obligated to do). Such amounts do not include sales of advertising time
retained during the broadcast of such program material or foreign license fees
and do not reflect the production costs to be incurred for programming produced
by King World.
On May 25, 1995, the Company announced its agreement to sell
WIVB-TV, the CBS-affiliated VHF television station in Buffalo, New York, to LIN
Television Corporation for $95 million in cash. As a result of this
transaction, which closed in October 1995, the Company will realize a pre-tax
gain of approximately $9 million in fiscal 1996.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Supplementary Data listed in
the accompanying Index to Consolidated Financial Statements which appear
elsewhere in this Annual Report. Information required by the schedules called
for under Regulation S-X is either not applicable or is included in the
consolidated financial statements or notes thereto.
28
<PAGE> 31
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
29
<PAGE> 32
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants . . . . . . . . 31
Consolidated Balance Sheets as of August 31, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Income for the years
ended August 31, 1995, 1994 and 1993 . . . . . . . . . 34
Consolidated Statements of Stockholders' Equity for
the years ended August 31, 1995, 1994 and 1993 . . . . 35
Consolidated Statements of Cash Flows for the years
ended August 31, 1995, 1994 and 1993 . . . . . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . 37
</TABLE>
30
<PAGE> 33
Report of Independent Public Accountants
To King World Productions, Inc.:
We have audited the accompanying consolidated balance sheets
of King World Productions, Inc. (a Delaware corporation) and subsidiaries as of
August 31, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1995. 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 in accordance with generally accepted
auditing standards. Those standards 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.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of King World
Productions, Inc. and subsidiaries as of August 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1995, in conformity with generally accepted
accounting principles.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen LLP
New York, New York
October 24, 1995
31
<PAGE> 34
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31,
----------------------
1995 1994
-------- --------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $446,896 $341,857
Accounts receivable (net of
allowance for doubtful accounts
of $4,196 and $4,412 in 1995 and
1994, respectively) . . . . . . . . . . . . . . . . . . . . . 51,356 41,231
Producer loans, advances and
deferred costs . . . . . . . . . . . . . . . . . . . . . . . 90,085 21,314
Other current assets . . . . . . . . . . . . . . . . . . . . . 506 419
-------- --------
Total current assets . . . . . . . . . . . . . . . . . . . . 588,843 404,821
-------- --------
LONG-TERM INVESTMENTS, at
cost, which approximates market . . . . . . . . . . . . . . . 82,129 88,191
-------- --------
FIXED ASSETS, at cost:
Furniture and office equipment . . . . . . . . . . . . . . . . 7,558 7,028
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 2,775 1,959
Film and videotape masters . . . . . . . . . . . . . . . . . . 2,622 1,644
-------- --------
12,955 10,631
Less-accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . (9,703) (9,099)
-------- --------
3,252 1,532
-------- --------
PRODUCER ADVANCES
AND OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . 12,562 75,018
-------- --------
$686,786 $569,562
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these balance sheets.
32
<PAGE> 35
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
August 31,
----------------------
1995 1994
-------- --------
(Dollars in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,070 $ 14,780
Payable to producers and others . . . . . . . . . . . . . . . . 74,349 69,647
Income taxes payable:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,986 23,506
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . 1,644 2,552
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . 111,049 110,485
-------- --------
COMMITMENTS AND CONTINGENCIES
(Note 4)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $.01 par value;
75,000,000 shares authorized,
49,893,745 shares and 49,722,218
shares issued in 1995 and 1994,
respectively . . . . . . . . . . . . . . . . . . . . . . . . 499 497
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 87,628 82,171
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 782,651 665,339
Treasury stock, at cost; 13,141,394
and 12,960,894 shares in 1995 and
1994, respectively . . . . . . . . . . . . . . . . . . . . . (295,041) (288,930)
-------- --------
575,737 459,077
-------- --------
$686,786 $569,562
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these balance sheets.
33
<PAGE> 36
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------------
1995(1) 1994(1) 1993
-------- -------- --------
(Dollars in thousands except
per share data)
<S> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . $574,186 $480,659 $474,312
-------- -------- --------
EXPENSES:
Producers' fees, programming and
other direct operating costs . . . . . . . 341,536 279,465 265,357
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . 70,234 73,616 58,005
-------- -------- --------
411,770 353,081 323,362
-------- -------- --------
Income from operations . . . . . . . . . . . 162,416 127,578 150,950
INTEREST AND DIVIDEND INCOME . . . . . . . . . 20,842 13,261 11,642
-------- -------- --------
Income before provision for
income taxes . . . . . . . . . . . . . . . 183,258 140,839 162,592
PROVISION FOR INCOME TAXES . . . . . . . . . . 65,946 52,539 60,656
-------- -------- --------
Net income . . . . . . . . . . . . . . . . . $117,312 $ 88,300 $101,936
======== ======== ========
PRIMARY EARNINGS PER SHARE . . . . . . . . . . $3.14 $2.33 $2.65
======== ======== ========
</TABLE>
- --------------------
(1) The results of operations for fiscal 1995 and fiscal 1994 reflect a change
in accounting for revenue recognition adopted prospectively in the fourth
quarter of fiscal 1994. See Note 1.
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
34
<PAGE> 37
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------- Paid-in Retained Treasury
Shares $ Capital Earnings Stock
---------- ---------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance -
August 31, 1992 . . . . . . . . . . . . . . . 47,373,692 $ 474 $ 29,396 $ 475,103 $ (162,054)
Amortization of deferred
compensation . . . . . . . . . . . . . . . -- -- 2,898 -- --
Exercise of stock
options . . . . . . . . . . . . . . . . . . 2,131,671 21 44,353 -- --
Purchase of treasury stock . . . . . . . . . -- -- -- -- (97,954)
Net income . . . . . . . . . . . . . . . . . -- -- -- 101,936 --
---------- ---------- ---------- ---------- ----------
Balance -
August 31, 1993 . . . . . . . . . . . . . . . 49,505,363 495 76,647 577,039 (260,008)
Exercise of stock options . . . . . . . . . . 216,855 2 5,524 -- --
Purchase of treasury stock . . . . . . . . . -- -- -- -- (28,922)
Net income . . . . . . . . . . . . . . . . . -- -- -- 88,300 --
---------- ---------- ---------- ---------- ----------
Balance -
August 31, 1994 . . . . . . . . . . . . . . . 49,722,218 497 82,171 665,339 (288,930)
Exercise of stock options . . . . . . . . . . 171,527 2 5,457 -- --
Purchase of treasury stock . . . . . . . . . -- -- -- -- (6,111)
Net income . . . . . . . . . . . . . . . . . -- -- -- 117,312 --
---------- ---------- ---------- ---------- ----------
Balance -
August 31, 1995 . . . . . . . . . . . . . . . 49,893,745 $ 499 $ 87,628 $ 782,651 $ (295,041)
========== ========== ========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
35
<PAGE> 38
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------------------
1995 1994 1993
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117,312 $ 88,300 $ 101,936
Items not affecting cash:
Depreciation and amortization . . . . . . . . . . . . . . . . . 606 577 1,845
Non-current deferred income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 2,001
Amortization of deferred
compensation . . . . . . . . . . . . . . . . . . . . . . . . -- -- 2,898
Change in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (10,095) 60,298 (2,862)
Producer loans, advances
and deferred costs . . . . . . . . . . . . . . . . . . . . (6,271) (49,589) (1,092)
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . . . . . . . . . . . (3,710) 6,948 466
Payable to producers and
others . . . . . . . . . . . . . . . . . . . . . . . . . . 4,702 (39,369) 1,733
Income taxes payable . . . . . . . . . . . . . . . . . . . . (428) 1,533 (16,147)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (163) 824 867
--------- --------- ---------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,953 69,522 91,645
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in investments . . . . . . . . . . . . . . . . 6,062 (3,921) (47,240)
Additions to fixed assets . . . . . . . . . . . . . . . . . . . . . (2,324) (567) (1,688)
--------- --------- ---------
Net cash provided by (used in)
investing activities . . . . . . . . . . . . . . . . . . . . . . 3,738 (4,488) (48,928)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,459 5,526 44,374
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . (6,111) (28,922) (97,954)
--------- --------- ---------
Net cash used in financing activities . . . . . . . . . . . . . . . (652) (23,396) (53,580)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . 105,039 41,638 (10,863)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . 341,857 300,219 311,082
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 446,896 $ 341,857 $ 300,219
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
36
<PAGE> 39
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies
Principles of consolidation
The accompanying consolidated financial statements include the
accounts of King World Productions, Inc. and its subsidiaries. All significant
intercompany transactions have been eliminated. Unless the context suggests
otherwise, the "Company", as used herein, means King World Productions, Inc.
("King World") and its consolidated subsidiaries.
Revenue recognition
Historically, King World had followed a practice of recognizing
license fees from the distribution of first-run syndicated television properties
at the commencement of the license period and as each show was produced (even
though the particular show may not have been broadcast by a television station
for several months). This practice had the effect of creating variations in the
Company's reported revenues and earnings from quarter to quarter, corresponding
to the greater or smaller number of shows that were produced in a particular
quarter, which were not necessarily indicative of longer term trends in the
Company's business.
In the fourth quarter of the 1994 fiscal year, the Company adopted a
change in accounting for revenue recognition which was accounted for
prospectively as a change in accounting estimate as opposed to a change in
accounting principle. Under the modified practice, license fees from first-run
syndicated television properties are recognized at the commencement of the
license period pursuant to noncancelable agreements and as each show is made
available to the licensee via satellite transmission, rather than at the time
the show is produced. Because transmission to the satellite takes place, on the
average, no more than two to three days prior to the broadcast of the
programming and in some cases up to three months after the programming is
produced, the effect of adopting the modified practice is to cause revenues from
certain series to be recognized closer to the air date than under the prior
practice. In addition, the accounting change eliminates the quarterly revenue
and earnings fluctuations that were attributable to variations in production
schedules.
The one-time impact of adopting the change was to cause fourth quarter
fiscal 1994 revenues, net income and earnings per share to be approximately
$60.7 million, $12.9 million and $.34 lower, respectively, than they would have
been under the prior
37
<PAGE> 40
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
practice, with no impact on cash flow. Such revenues were recognized in fiscal
1995 under the modified accounting practice. The results of operations for
fiscal 1995 would have been substantially the same as that actually reported if
the Company's prior revenue recognition practice had been in effect for all of
fiscal 1995.
The following pro forma financial information assumes the Company's
prior revenue recognition practice was in effect for fiscal 1995 and the fourth
quarter of fiscal 1994:
<TABLE>
<CAPTION>
Year Ended August 31,
-----------------------------------------------------
1995 Pro forma 1994 Pro forma 1993
-------------- -------------- --------
(unaudited) (unaudited)
(Dollars in thousands except per share data)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . $575,732 $541,390 $474,312
Income from operations . . . . . . . . . 162,736 148,151 150,950
Income before provision for
income taxes . . . . . . . . . . . . . 183,578 161,412 162,592
Net income . . . . . . . . . . . . . . . 117,490 101,196 101,936
======== ======== ========
Primary earnings per
share . . . . . . . . . . . . . . . . . $3.15 $2.67 $2.65
======== ======== ========
</TABLE>
The Company typically receives a portion of the fees derived from the
licensing of syndicated television programming in the form of retained
advertising time, which is sold to advertisers by Camelot Entertainment Sales,
Inc. ("Camelot"), a wholly-owned subsidiary of the Company. Such revenues are
recognized at the same time as the cash portion of the license fees derived from
such programming is recognized, in amounts adjusted for expected ratings. That
portion of recognized revenue that is to be paid to the producers and owners of
the licensed program material is accrued as the license fees are earned.
License fees for non-first-run syndicated properties are recognized at
the gross contract amount (net of discount to present value for license periods
greater than one year) at the commencement of the license period.
The Company's principal properties are licenses to distribute The
Oprah Winfrey Show, Wheel of Fortune and Jeopardy!; and Inside Edition, a
first-run syndicated series produced and distributed by the Company. The Oprah
Winfrey Show accounted for approximately 37%, 41% and 39% of revenues in fiscal
1995, 1994 and 1993, respectively. Wheel of Fortune accounted for approximately
21%, 17% and 24% of revenues in fiscal 1995, 1994
38
<PAGE> 41
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
and 1993, respectively. Jeopardy! accounted for approximately 18%, 15% and 20%
of revenues in fiscal 1995, 1994 and 1993, respectively. Inside Edition
accounted for approximately 8%, 9% and 8% of revenues in fiscal 1995, 1994 and
1993, respectively. American Journal, which debuted in September 1993, and
Rolonda, which debuted in January 1994, accounted for approximately 4% and 3%,
respectively, of the Company's revenues for fiscal 1995 and 5% and 2%,
respectively, of the Company's revenues for fiscal 1994. The Les Brown Show
accounted for approximately 2% of the Company's revenues in fiscal 1994. On a
basis of accounting comparable to that employed prior to the fourth quarter of
fiscal 1994, The Oprah Winfrey Show, Wheel of Fortune, Jeopardy!, and Inside
Edition would have accounted for approximately 37%, 21%, 18% and 8%,
respectively, of the Company's revenues for fiscal 1995 and 36%, 21%, 18% and
8%, respectively, of the Company's revenues for fiscal 1994. American Journal
and Rolonda would have accounted for approximately 4% and 3%, respectively, of
the Company's revenues for fiscal 1995, and 4% and 2%, respectively, of the
Company's revenues for fiscal 1994. The Les Brown Show would have accounted for
approximately 1% of the Company's revenues in fiscal 1994.
The Company distributes The Oprah Winfrey Show pursuant to an
agreement with Harpo, Inc. ("Harpo"), the producer of the series. Under the
terms of the Company's agreement with Harpo, the Company has the exclusive
right, and has agreed, to distribute episodes of The Oprah Winfrey Show produced
through the 1999-2000 television season, subject to Harpo's and Ms. Winfrey's
right to decline to produce and host the show in any season after the 1995-1996
season. To date, Harpo and Ms. Winfrey have committed to produce and host the
show through the 1997-1998 broadcast season. Under the agreement, the Company
has, among other things, agreed to pay Harpo production fees and to guaranty
participation payments to Harpo at levels which, commencing with the 1995-1996
season, are substantially higher than those previously in effect. In addition,
in the 1997-1998 season and thereafter, profit sharing arrangements between
Harpo and the Company currently in effect will terminate and the Company will
instead receive distribution fees based on a percentage of gross revenues
derived from the series.
The Company's agreements with Columbia TriStar Television (formerly
Merv Griffin Enterprises) provide that the Company shall be the exclusive
distributor for Wheel of Fortune and Jeopardy! so long as the Company has
obtained sufficient broadcast commitments to cover such series' respective
production and distribution costs and that the Company may not, unless otherwise
39
<PAGE> 42
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
agreed by Columbia TriStar Television, distribute game shows for "strip"
first-run syndication so long as the Company is distributing Wheel of Fortune or
Jeopardy!.
Producers' fees, programming and other direct operating costs
Producers' fees, programming and other direct operating costs
primarily include the producers' share of both cash license fees from the sale
of programming to television stations and revenues derived from the sale of
retained advertising time to advertisers with respect to programming distributed
by the Company; participation payments payable to producers and talent; and
production and distribution costs for first-run syndicated programming. The
share of revenues payable by the Company to producers, talent and others is
generally paid as cash license fees and revenues derived from the sale of
retained advertising time are received from television stations and advertisers.
Selling, general and administrative expenses
Selling, general and administrative expenses include advertising and
promotion costs associated with programming distributed by the Company, which
amounted to $28,084,000, $29,824,000 and $22,783,000 in fiscal 1995, 1994 and
1993, respectively. Had the prior method of revenue recognition been employed in
fiscal 1995 and the fourth quarter of fiscal 1994, such costs would have
amounted to $27,831,000 and $31,184,000 in fiscal 1995 and 1994, respectively.
These amounts include the producers' share of such costs.
Cash equivalents
Cash equivalents are comprised principally of short-term municipal
obligations, money market funds, money market preferred investments, commercial
paper and United States Treasury and other agency obligations, and are carried
at amortized cost, which approximates market. For purposes of the consolidated
statements of cash flows, the Company considers its highly liquid short-term
investments purchased with a maturity of generally three months or less to be
cash equivalents.
Producer loans, advances and deferred costs
Producer advances and deferred costs includes production and promotion
costs, as well as talent and producer participation advances, in connection with
certain first-run syndicated
40
<PAGE> 43
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
programs distributed by the Company for broadcast during seasons subsequent to
August 31, 1995. Such costs are charged to expense as the revenues from such
programs are earned. Advances are recouped from the share of revenues payable
by the Company to producers, talent and others.
In connection with the extension for the 1993-1994 and 1994-1995
broadcast seasons of the commitment by Harpo to produce The Oprah Winfrey Show
for those seasons, the Company made an interest-free loan to Harpo and became
obligated to pay Harpo certain minimum amounts against its participation
payments for such periods, irrespective of the amount of revenues generated by
the series in such periods. Harpo's participation fees for the 1993-1994
broadcast season exceeded such minimum amounts for the 1993-1994 and 1994-1995
broadcast seasons. The loan was repayable in two installments of $8,625,000
each, one of which was paid in July 1994 and the other of which was paid in June
1995.
In connection with the extension of Harpo's commitment to produce The
Oprah Winfrey Show for the 1995-1996 broadcast season, the Company paid Harpo an
advance against its minimum participation payments for such season in the amount
of $60 million. Based on the license agreements in place for such broadcast
season, the revenues from the series will be sufficient to enable the Company to
recoup such advance. Such advance will be recouped by the Company during fiscal
1996 and, accordingly, was reclassified to current assets as of August 31, 1995.
Subsequent to August 31, 1995, the Company will be obligated to pay Harpo
advances of $65 million against its minimum participation payments for each of
the 1996-1997 and 1997-1998 broadcast seasons and believes, based on license
agreements in place for such seasons, that the revenues from the series will be
sufficient to enable the Company to recoup such advances. Such advances are
refundable to the Company by Harpo and Ms. Winfrey if King World terminates the
agreement due to Harpo's failure to deliver episodes of the series.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Company
believes that the impact of adopting SFAS No. 121 will not be significant.
Long-term investments
Long-term investments are comprised principally of intermediate-term
municipal obligations and United States Trea-
41
<PAGE> 44
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
sury and other agency obligations whose maturities are in excess of one year.
In fiscal 1995, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Under the provisions of SFAS
No. 115, the Company's investments have been classified as "held to maturity"
and, accordingly, are recorded at amortized cost, which approximates market. The
effect of adopting SFAS No. 115 was not material.
Fixed assets
Fixed assets are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method for financial reporting purposes and accelerated methods for tax
purposes, with estimated useful lives of 3 to 5 years for furniture and office
equipment and 5 years for film and videotape masters. Leasehold improvements are
amortized over the shorter of their useful lives and the lease term.
Depreciation and amortization expense was approximately $606,000, $527,000 and
$1,437,000 in fiscal 1995, 1994 and 1993, respectively.
Stockholders' equity
Primary earnings per share has been computed using the weighted
average number of common shares outstanding of 37,343,000, 37,862,000 and
38,408,000 for the fiscal years ended August 31, 1995, 1994 and 1993,
respectively, which includes the dilutive effect from the assumed exercise of
vested and unvested stock options outstanding as of the end of each year
reported. The difference between primary and fully diluted earnings per share
for each such fiscal year was not significant.
The Company is authorized to issue 5,000,000 shares of Preferred
Stock, $.01 par value. The Board of Directors is empowered, without further
stockholder approval, to establish from time to time one or more series of
Preferred Stock and to determine the powers, preferences and special rights of
any unissued series of Preferred Stock, including voting rights, dividend
rights, terms of redemption, liquidation preferences, conversion rights and the
designation of any such series.
42
<PAGE> 45
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of significant accounting policies (continued)
Industry segments and customers
The Company operates in one business segment, television programming.
The Company's major customers and principal facilities are located within the
United States. In the 1995, 1994 and 1993 fiscal years, approximately 14%, 11%
and 13%, respectively, of the Company's revenues were derived from license fees
under contracts with a single broadcast group.
(2) Pension and profit sharing plans
The Company maintains the King World Productions, Inc. Retirement
Savings Plan with an employee pre-tax salary deferral contribution program under
Section 401(k) of the Internal Revenue Code. Under the plan, employer matching
contributions may not exceed 3% of annual compensation per employee and employer
fixed contributions are limited to 3% of annual salary per employee, subject to
a maximum total employer contribution of approximately $9,000 per employee for
fiscal 1995. The plan covers substantially all of the Company's employees.
Contributions by the Company to the plan were approximately $650,000,
$576,000 and $516,000 in fiscal 1995, 1994 and 1993, respectively.
(3) Income taxes
The components of the Company's provision for income taxes are
summarized as follows:
<TABLE>
<CAPTION>
Year Ended August 31,
-----------------------------------
1995 1994 1993
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . . . . . $ 56,741 $ 51,176 $47,480
Deferred . . . . . . . . . . . . (858) (7,867) 1,939
-------- -------- -------
55,883 43,309 49,419
-------- -------- -------
State and local:
Current . . . . . . . . . . . . . 10,113 9,777 11,091
Deferred . . . . . . . . . . . . (50) (547) 146
-------- -------- -------
10,063 9,230 11,237
-------- -------- -------
Total . . . . . . . . . . . . $ 65,946 $ 52,539 $60,656
======== ======== =======
</TABLE>
The Company reports income tax data in accordance with SFAS No. 109,
"Accounting for Income Taxes". The impact of the Company's adopting this
Statement in fiscal 1993 on the consolidated financial statements was not
significant.
43
<PAGE> 46
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred income taxes and benefits are provided for any income and
expense items that are recognized in different years for tax return and
financial reporting purposes. For fiscal years prior to 1994, such deferred
income taxes arose primarily due to differences in the revenue recognition
methods employed by the Company with respect to license fee income. As of August
31, 1993, the tax effect of this temporary difference, which gives rise to a
deferred tax liability, amounted to approximately $7.3 million. As discussed in
Note 1, in the fourth quarter of fiscal 1994 the Company prospectively adopted a
change in accounting for revenue recognition. As a result of such change,
license fees are now recognized in the same year for tax return and financial
reporting purposes. Accordingly, as of August 31, 1994, no temporary difference
existed with respect to this item. No other individual temporary difference
gives rise to significant deferred tax assets or liabilities.
The current provision in each period presented above does not include
reductions to income taxes payable attributable to the exercise of stock
options. See Note 5.
As part of the Revenue Reconciliation Act of 1993, the Federal tax
rate on large corporations was increased from 34% to 35% effective retroactively
as of January 1, 1993. For fiscal 1993, this resulted in a blended rate for the
Company of 34.67%. Following is a reconciliation of the Company's provision for
income taxes to the tax computed at the U.S. statutory rate:
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------
1995 1994 1993
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Tax at U.S. statutory rate . . . . . . $ 64,140 $ 49,293 $ 56,371
State tax provision, net
of Federal benefit . . . . . . . . . 6,541 6,000 7,341
Tax-exempt interest and
dividend income . . . . . . . . . . (4,799) (3,367) (2,723)
Other, net . . . . . . . . . . . . . . 64 613 (333)
-------- -------- --------
$ 65,946 $ 52,539 $ 60,656
======== ======== ========
</TABLE>
Income taxes paid approximated $64.6 million, $49.8 million and $62.1
million in fiscal 1995, 1994 and 1993, respectively.
44
<PAGE> 47
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Commitments and contingencies
License fees
The Company has entered into agreements with television stations for
the future distribution of program material in television seasons commencing
with the 1995-1996 season and extending as far into the future as the 1999-2000
broadcast season, under which the revenues and related expenses will not be
recognized until the license periods thereunder have begun and certain other
conditions are satisfied. As of October 24, 1995, the gross amount of license
fees under such agreements approximated $1.8 billion, of which approximately
$1.04 billion is payable to producers and others and is to be recognized as an
expense. The recognition of such amounts in the consolidated financial
statements of the Company in fiscal years subsequent to August 31, 1995 is
subject to the satisfaction of several conditions, including, with respect to
amounts attributable to The Oprah Winfrey Show, the commitment of the producer
and Ms. Winfrey to continue to produce and host the show after the 1997-1998
television season (which they are not contractually obligated to do). Such
amounts do not include sales of advertising time retained during the broadcast
of such program material or foreign license fees and do not reflect the
production costs to be incurred for programming produced by King World.
Operating leases
Rent expense under operating leases covering office facilities,
production studios and equipment amounted to $2,548,000, $2,599,000 and
$2,908,000 for fiscal 1995, 1994 and 1993, respectively. Office and studio
leases are subject to price escalations for certain costs. Aggregate future
minimum rental commitments for these leases as of August 31, 1995 were as
follows:
<TABLE>
<CAPTION>
Year Ending August 31,
----------------------
(Dollars in thousands)
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,120
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,287
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 968
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 933
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 932
</TABLE>
Employment and production agreements
As of August 31, 1995, the Company had entered into employment
agreements and agreements with independent contractors relating to programming
being or to be produced by King World
45
<PAGE> 48
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Commitments and contingencies (continued)
which provide for aggregate minimum annual compensation as follows:
<TABLE>
<CAPTION>
Year Ending August 31,
----------------------
(Dollars in thousands)
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . $15,067
1997 . . . . . . . . . . . . . . . . . . . . . . . 2,081
1998 . . . . . . . . . . . . . . . . . . . . . . . 570
1999 . . . . . . . . . . . . . . . . . . . . . . . 120
2000 . . . . . . . . . . . . . . . . . . . . . . . --
</TABLE>
In December 1993, the Company entered into new employment agreements
with four executive officers. The agreements provide, among other things, for
new bonuses intended to qualify as "performance based compensation" (within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended),
including bonuses payable upon the introduction of new shows and bonuses
contingent upon the Company's Common Stock achieving specified target prices
during preestablished measurement periods.
As of May 31, 1995, the performance targets associated with certain
stock and stock appreciation units granted in December 1993 to Roger King, the
Company's Chairman of the Board, and Michael King, the Company's President and
Chief Executive Officer, were achieved, resulting in the payment by the Company
subsequent to May 31 of a lump-sum pre-tax cash bonus to each of them of
approximately $5 million. These units had become eligible for redemption on
August 31, 1994 and each of the subsequent fiscal quarters through the third
quarter of fiscal 1995, subject to the achievement of the specified performance
goals. The performance goals specified for the units that became eligible for
redemption on August 31, 1995 were not achieved and the units expired on such
date.
The employment agreements for Roger King and Michael King, the
Company's Chairman of the Board and President and Chief Executive Officer,
respectively, terminated on August 31, 1995, but each such officer has, pending
the negotiation and execution of an agreement extending the term of his
respective employment agreement, continued in the employ of the Company on
substantially the same terms and conditions in effect during the last year of
such employment agreement (excluding stock price-based bonuses).
46
<PAGE> 49
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Commitments and contingencies (continued)
Legal matters
The Company is subject to legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
material adverse effect on the financial position of the Company.
(5) Stock plans
In fiscal 1994, the Company adopted the Amended and Restated Stock
Option and Restricted Stock Purchase Plan (the "Option/Stock Plan"), which
amended and restated the Company's 1989 Stock Option and Restricted Stock
Purchase Plan and reserved 1,500,000 additional shares for grants and awards
thereunder. The Option/Stock Plan provides for grants of incentive stock options
("ISOs") and non-qualified stock options, as well as awards of shares of
restricted stock, subject to certain conditions. The Option/Stock Plan is
currently administered by the Compensation Committee of the Board of Directors.
For ISOs granted pursuant to the Option/Stock Plan, the exercise price
of options may not be less than the fair market value of the shares on the date
of grant and the options may not have a term in excess of ten years. The
Compensation Committee has the power to determine the vesting periods for
options granted under the Option/Stock Plan. Only full-time employees of the
Company and its subsidiaries may be granted ISOs under the Option/Stock Plan.
ISOs granted under the Option/Stock Plan are intended to qualify as "incentive
stock options" within the meaning of Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code").
For non-qualified options granted pursuant to the Option/Stock Plan,
the exercise price of options may be more than, less than or equal to the fair
market value of the shares on the date of grant (in the discretion of the
Compensation Committee), and the options may be immediately exercisable (in the
discretion of the Compensation Committee) and may not have a term in excess of
ten years and one day. Employees, directors and officers of, and consultants or
suppliers to, the Company and its subsidiaries may be granted non-qualified
options under the Option/Stock Plan.
Awards of restricted stock may be granted under the Option/Stock Plan
to purchase shares of Common Stock for a price per share that may be more than,
equal to or less than the fair
47
<PAGE> 50
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Stock plans (continued)
market value of such shares on the date of the award. The Compensation Committee
has the right to determine vesting provisions, transfer restrictions and other
conditions or restrictions with respect to each award. To date, no awards of
restricted stock have been granted under the Option/Stock Plan or its
predecessor plans.
In fiscal 1989, the Company adopted the Incentive Equity Plan for
Senior Executives, pursuant to which an aggregate 2,550,000 shares of Common
Stock were reserved for issuance to the Company's Chairman of the Board,
President and Chief Executive Officer, and Executive Vice President and Chief
Operating Officer, upon the exercise of options granted thereunder. Each of the
Chairman of the Board and the President and Chief Executive Officer was granted
non-qualified stock options to purchase 1,200,000 shares of Common Stock,
975,000 at an exercise price of $15.75 (the approximate fair market value on the
date of grant) and 225,000 at an exercise price of $.01; the Executive Vice
President was granted non-qualified stock options to purchase 150,000 shares of
Common Stock, 120,000 at an exercise price of $15.75 and 30,000 at an exercise
price of $.01. No additional options may be granted under the Executive Plan.
The following tables set forth options outstanding as well as options
exercisable and available for grant at August 31, 1994 and 1995, and options
forfeited and exercised during fiscal 1994 and 1995, together with the option
prices:
<TABLE>
<CAPTION>
Option/Stock
Plan
---------------------------------
Non-Qualified Executive
Fiscal 1994 ISOs Options Plan
----------- --------------------------------- ---------
<S> <C> <C> <C>
Granted . . . . . . . . . . . . . . . . 2,500 1,111,250 --
Prices ranging:
From . . . . . . . . . . . . . . . $ 37.25 $ 25.38 --
To . . . . . . . . . . . . . . . . $ 37.25 $ 41.38 --
Forfeited . . . . . . . . . . . . . . . 2,250 259,400 --
Exercised . . . . . . . . . . . . . . . 9,000 207,855 --
Prices ranging:
From . . . . . . . . . . . . . . . $ 15.75 $ 10.17 --
To . . . . . . . . . . . . . . . . $ 33.63 $ 34.50 --
Outstanding at
August 31, 1994 . . . . . . . . . . . 101,800 1,863,729 510,000
Prices ranging:
From . . . . . . . . . . . . . . . $ 7.05 $ .01 $ .01
To . . . . . . . . . . . . . . . . $ 37.25 $ 41.38 $ 15.75
Exercisable at
August 31, 1994 . . . . . . . . . . . 42,237 527,892 510,000
Prices ranging:
From . . . . . . . . . . . . . . . $ 7.05 $ .01 $ .01
To . . . . . . . . . . . . . . . . $ 24.17 $ 36.38 $ 15.75
Available for
grant at
August 31, 1994 . . . . . . . . . . . 968,098 --
------------------------------- --------
</TABLE>
48
<PAGE> 51
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Stock plans (continued)
<TABLE>
<CAPTION>
Option/Stock
Plan
---------------------------------
Non-Qualified Executive
Fiscal 1995 ISOs Options Plan
----------- --------------------------------- ---------
<S> <C> <C> <C>
Granted . . . . . . . . . . . . . . . . -- 91,000 --
Prices ranging:
From . . . . . . . . . . . . . . . $ -- $ 35.50 --
To . . . . . . . . . . . . . . . . $ -- $ 40.13 --
Forfeited . . . . . . . . . . . . . . . -- 170,600 --
Exercised . . . . . . . . . . . . . . . 9,000 162,527 --
Prices ranging:
From . . . . . . . . . . . . . . . $ 15.75 $ 10.00 --
To . . . . . . . . . . . . . . . . $ 26.59 $ 36.38 --
Outstanding at
August 31, 1995 . . . . . . . . . . . 92,800 1,621,602 510,000
Prices ranging:
From . . . . . . . . . . . . . . . $ 7.05 $ .01 $ .01
To . . . . . . . . . . . . . . . . $ 37.25 $ 40.88 $ 15.75
Exercisable at
August 31, 1995 . . . . . . . . . . . 50,237 746,865 510,000
Prices ranging:
From . . . . . . . . . . . . . . . $ 7.05 $ .01 $ .01
To . . . . . . . . . . . . . . . . $ 37.25 $ 40.88 $ 15.75
Available for
grant at
August 31, 1995 . . . . . . . . . . . 1,047,698 --
------------------------------- --------
</TABLE>
In addition, in connection with the extensions of the Company's rights
to distribute The Oprah Winfrey Show for the 1993-1994, 1994-1995 and 1995-1996
broadcast seasons, the Company granted options to the principals of Harpo to
purchase an aggregate 1.5 million shares of Common Stock, all of which were
fully vested as of August 31, 1994. Options to purchase one million such shares
bear exercise prices of $25.50 per share and the remainder bear exercise prices
of $33.625 per share. On October 6, 1995, in connection with Harpo's and Ms.
Winfrey's commitment to continue to produce and host the show for the 1996-1997
and 1997-1998 broadcast seasons, the Company granted options to the principals
of Harpo to purchase an aggregate 500,000 shares of Common Stock, which options
are exercisable at a price of $36.00 per share (the closing market price of the
Common Stock on the date of grant). The Company has agreed to grant the
principals of Harpo options to purchase 250,000 additional shares of Common
Stock if Harpo and Ms. Winfrey elect to produce and host The Oprah Winfrey Show
for distribution by the Company in the 1998-1999 broadcast season, and 250,000
additional shares if they elect to produce and host the show for distribution by
the Company in the 1999-2000 broadcast season. The exercise prices of such
options will be the closing market prices of the Common Stock on the date on
which the election to produce and host the series for the additional season in
question is made.
For non-qualified options, the difference between the market price of
the Common Stock at the date of grant and the exercise price is treated as
deferred compensation and amortized to expense generally over a five year
vesting period. Deferred
49
<PAGE> 52
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Stock plans (continued)
compensation is classified as a component of paid-in capital and is recorded at
the date of the grant of the option(s). The amount of deferred compensation
arising from such grants and included in paid-in capital at August 31, 1995 and
1994 was not significant. Compensation expense relating to stock option grants
of $2,898,000 was recorded in fiscal 1993.
The Company realizes a tax benefit in respect of non-qualified stock
options based on the difference between the market price of the Common Stock and
the exercise price on the date of exercise. Tax deductions related to
compensation expense in excess of that taken for financial reporting purposes
are added to paid-in capital in the period of the tax deduction. The amount of
such tax deductions added to paid-in capital approximated $1,758,000, $1,162,000
and $12,765,000 in fiscal 1995, 1994 and 1993, respectively.
(6) Stock repurchases
On December 18, 1992, the Company purchased an aggregate 2,252,000
shares of Common Stock from certain executive officers of the Company at a price
per share of $32.50, the closing price of the Common Stock on the New York Stock
Exchange on December 17, 1992. The aggregate consideration paid by the Company
to such officers (net of the proceeds from option exercises) was approximately
$47.1 million. Such purchases were financed out of the Company's available cash
and liquid investments.
In December 1992, the Company announced that the Board of Directors
had approved a program to repurchase up to 2,000,000 shares of its Common Stock
from time to time in the open market and in privately negotiated transactions.
In the fiscal years ended August 31, 1994 and 1993, 753,100 and 765,200 shares,
respectively, of Common Stock were repurchased in open market transactions, for
aggregate consideration of approximately $28.9 million (or approximately $38.40
per share) and $24.8 million (or approximately $32.40 per share), respectively.
In the first quarter of fiscal 1995, the Company repurchased an aggregate 40,000
shares for aggregate consideration of approximately $1.4 million (or
approximately $36.00 per share), and in the second quarter of fiscal 1995, the
Company repurchased an additional 140,500 shares for aggregate consideration of
approximately $4.7 million (or approximately $33.25 per share). No repurchases
were made by the Company in either the third or fourth quarters of fiscal 1995.
As of October 24, 1995, there remained 301,200 shares available for repurchase
under such program. The Company
50
<PAGE> 53
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Stock repurchases (continued)
intends to continue to repurchase shares of Common Stock in the open market and
in privately negotiated transactions if and when it deems it advantageous to do
so.
(7) Quarterly financial summaries (unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
--------- -------- -------- -------- --------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Fiscal 1995:
- -----------
Revenues . . . . . . . . . $147,084 $143,732 $142,632 $140,738 $574,186
Revenues less
direct costs . . . . . . 58,646 58,398 58,368 57,238 232,650
Income before
provision
for income
taxes . . . . . . . . . . 44,555 45,716 45,600 47,387 183,258
Net income . . . . . . . . 27,868 29,891 29,221 30,332 117,312
Primary earnings
per share . . . . . . . . $0.75 $0.80 $0.78 $0.81 $3.14
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Fiscal 1995
Pro forma:
- ---------
Revenues . . . . . . . . . $202,429 $145,069 $117,326 $110,908 $575,732
Revenues less
direct costs . . . . . . 83,803 57,943 48,415 43,177 233,338
Income before
provision
for income
taxes . . . . . . . . . . 66,216 45,330 36,258 35,774 183,578
Net income . . . . . . . . 41,385 29,646 23,563 22,896 117,490
Primary earnings
per share . . . . . . . .
$1.11 $0.80 $0.63 $0.61 $3.15
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Fiscal 4th Quarter Fiscal Year
Quarter Quarter Quarter Quarter Year Pro forma Pro forma
------- ------- ------- ------- -------- ----------- -----------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 1994:
- -----------
Revenues . . . . . . . . . $193,045 $137,138 $111,861 $38,615 $480,659 $99,346 $541,390
Revenues less
direct costs . . . . . . 81,202 55,841 46,197 17,954 201,194 39,230 222,470
Income before
provision
for income
taxes . . . . . . . . . . 61,463 39,237 31,331 8,808 140,839 29,381 161,412
Net income . . . . . . . . 38,722 24,287 19,511 5,780 88,300 18,676 101,196
Primary earnings
per share . . . . . . . . $1.02 $.64 $.52 $.15 $2.33 $.50 $2.67
======== ======== ======== ======== ======== ======= ========
</TABLE>
Commencing with the fourth quarter of fiscal 1994, the Company's
results of operations employ a modified revenue recognition practice pursuant to
which license fees from first-run syndicated television properties are
recognized at the commence-
51
<PAGE> 54
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Quarterly financial summaries (unaudited) (continued)
ment of the license period pursuant to noncancelable agreements and as each show
is made available to the licensee via satellite transmission, rather than at the
time the show is produced. The results of operations for the first three
quarters of fiscal 1994 employ the practice of recognizing license fees from the
distribution of first-run syndicated television properties at the commencement
of the license period and as each show was produced (even though the particular
show may not have been broadcast by a television station for several months).
The unaudited 1994 and 1995 pro forma data are presented for comparison purposes
only and represent the results of operations assuming the Company's prior
revenue recognition practice had been in effect in fiscal 1995 and the fourth
quarter of fiscal 1994. See Note 1.
The one-time impact of adopting the accounting change was to cause
fourth quarter fiscal 1994 revenues, net income and earnings per share to be
approximately $60.7 million, $12.9 million and $.34 lower, respectively, than
they would have been under the prior practice. The results of operations for
fiscal 1995 would have been substantially the same as that actually reported if
the Company's prior revenue recognition practice had been in effect for all of
fiscal 1995.
(8) Buffalo Broadcasting Co. Inc.
On May 25, 1995, the Company announced its agreement to sell WIVB-TV,
the CBS-affiliated VHF television station in Buffalo, New York, to LIN
Television Corporation for $95 million in cash. As a result of this transaction,
which closed in October 1995, the Company will realize a pre-tax gain of
approximately $9 million in fiscal 1996.
The Company acquired Buffalo Broadcasting Co. Inc. ("Buffalo") in
December 1988 in a highly leveraged transaction. In April 1992, the Company and
Buffalo's lenders entered into an agreement providing for a financial
restructuring of Buffalo effective August 4, 1992. As a result of such
restructuring, Buffalo ceased to be a consolidated subsidiary of King World. The
Company's investment in Buffalo subsequent to the restructuring was carried at
cost.
52
<PAGE> 55
PART III
The information required by Part III of Form 10-K is incorporated by
reference from the registrant's definitive proxy statement for its 1996 annual
meeting of stockholders, which is to be filed pursuant to Regulation 14A not
later than December 29, 1995.
PART IV
Item 10. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1 and 2) Financial Statements. See Index to Consolidated Financial
Statements which appears on page 30 of this Annual Report.
(3) Exhibits:
Exhibit
Number Description
- ------ -----------
3.1. Registrant's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement No.
2-93987).
3.2. Certificate of Amendment to the Registrant's Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement No. 33-8357).
3.3. Registrant's By-laws, as amended April 28, 1988 (incorporated by
reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 31, 1993).
10.1. Agreement dated July 12, 1984 between Leo A. Gutman, Inc. and the
Registrant with exhibits (incorporated by reference to Exhibit 10.3 to
the Registrant's Registration Statement No. 2-93987).
10.2. Agreements dated August 6, 1970, July 31, 1970, and May 29, 1969,
between Hal Roach Studios, Inc. and the Registrant, with amendment
dated June 8, 1983 and exhibits (incorporated by reference to Exhibit
10.5 to the
53
<PAGE> 56
Registrant's Registration Statement No. 2-93987).
10.3.* Distribution Agreement dated December 15, 1982, between Califon
Productions, Inc. and the Registrant, with amendment dated July 8, 1983
(incorporated by reference to Exhibit 10.7 to the Registrant's
Registration Statement No. 2-93987).
10.4.* Amendment, dated April 23, 1990, to the Distribution Agreement dated
December 15, 1982, between Califon Productions, Inc. and the
Registrant.
10.5.* Distribution Agreement dated November 1, 1983, between Califon
Productions, Inc. and the Registrant, with amendment dated March 26,
1984 (incorporated by reference to Exhibit 10.9 to the Registrant's
Registration Statement No. 2-93987).
10.6. Employment or consulting agreements between the Registrant and the
individuals named below (incorporated by reference to Exhibit 10.6 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994):
<TABLE>
<CAPTION>
Name of Employee
or Consultant Date of Agreement
---------------- -----------------
<S> <C>
Roger King. . . . . . . . . . . . . . . December 23, 1993
Michael King. . . . . . . . . . . . . . December 23, 1993
Stephen W. Palley . . . . . . . . . . . December 23, 1993
Steven Hirsch . . . . . . . . . . . . . December 23, 1993
</TABLE>
10.7. King World Productions, Inc. Retirement Savings Plan dated September
17, 1992 (incorporated by reference to Exhibit 10.7 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1993).
10.8. Amended and Restated Stock Option and Restricted Stock Purchase Plan of
the Registrant (incorporated by reference to the
- --------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
54
<PAGE> 57
Registrant's Registration Statement No. 33-54691).
10.9. Incentive Equity Compensation Plan for Senior Executives of the
Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement No. 33-30695).
10.10. Agreement dated as of May 1, 1991, among the Registrant and the
stockholders named therein (incorporated by reference to Exhibit 10.1
to the Registrant's Current Report on Form 8-K dated May 6, 1991).
10.11. Form of Indemnification Agreement between the Registrant and the
Registrant's directors (incorporated by reference to Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1992).
10.12.* Agreement dated January 30, 1987 between the Registrant and Harpo, Inc.
and amendment thereto dated July 29, 1988 (incorporated by reference to
Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1993)
10.13.* Amendment dated as of October 15, 1989 to the Agreement dated January
30, 1987 between the Registrant and Harpo, Inc.
10.14.* Agreement dated as of January 28, 1991 between the Registrant and
Harpo, Inc. (incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1991).
10.15.* Agreement dated as of March 17, 1994 between the Registrant and Harpo,
Inc. (incorporated by reference to Exhibit 99.2 to the Registrant's
Current Report on Form 8-K/A dated May 18, 1994).
- --------------------
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment.
55
<PAGE> 58
10.16.** Agreement dated as of October 6, 1995 between the Registrant and Harpo,
Inc.
10.17. Stock Option Agreement dated as of January 28, 1991 between the
registrant and Oprah Winfrey (incorporated by reference to Exhibit 10.2
to the Registrant's Registration Statement No. 33-71696).
10.18. Stock Option Agreement, dated as of January 28, 1991 between the
registrant and Jeffrey D. Jacobs (incorporated by reference to Exhibit
10.3 to the Registrant's Registration Statement No. 33-71696).
10.19. Form of Stock Option Agreement between the registrant and Oprah
Winfrey.
10.20. Form of Stock Option Agreement between the registrant and Jeffrey D.
Jacobs.
10.21.* Agreement dated as of June 2, 1988 between King World F.S.C.
Corporation and Unilever N.V. and amendment thereto dated as of June
13, 1989 (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10- K for the fiscal year ended
August 31, 1994).
10.22.* Amendment dated as of September 19, 1991 to the Agreement dated as of
June 2, 1988 between King World F.S.C. Corporation and Unilever N.V.
(incorporated by reference to Exhibit 10.20 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1992).
10.23* Amendment dated June 13, 1994 to the Agreement dated June 2, 1988, as
amended as of June 13, 1989 and September 19, 1991, between King World
F.S.C. Corporation and Unilever N.V. (incorporated by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1994).
10.24** Amendment dated as of July 11, 1995 to the Agreement dated June 2,
1988, as amended as of June 13, 1989, September 19, 1991 and as of June
13, 1994 between King World F.S.C. Corporation and Unilever N.V.
56
<PAGE> 59
10.25. Restructuring Agreement dated as of April 30, 1992 among Buffalo
Broadcasting Co. Inc., the Holders named therein and Buffalo Management
Enterprises Co., Inc., together with Exhibits thereto (incorporated by
reference to Exhibit 2 to the Registrant's Current Report on Form 8-K
dated August 18, 1992).
10.26. Letter Agreements dated December 18, 1992 between the Registrant and
each of Roger King and Michael King and Cross Receipt dated December
18, 1992 (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993).
21.1. List of Subsidiaries of the Registrant.
23.1. Consent of Independent Public Accountants.
- -------------------
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment.
** Certain information in this exhibit is deleted pursuant to a request to
the Securities and Exchange Commission for confidential treatment.
(b) Reports on Form 8-K filed during the last quarter of the fiscal
year ended August 31, 1995:
None.
57
<PAGE> 60
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of
1933, as amended, the undersigned registrant hereby undertakes as follows,
which undertaking shall be incorporated by reference into registrant's
Registration Statements on Form S-8 Nos. 33-30694 and 33-30695 (filed
August 24, 1990) and No. 33-54691 (filed on July 22, 1994):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than for the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
58
<PAGE> 61
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.
Date: November 16, 1995 KING WORLD PRODUCTIONS, INC.
By /s/ Stephen W. Palley
--------------------------------------
Stephen W. Palley
Executive Vice President and
Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
President and November 16, 1995
Director (principal
/s/ Michael King executive officer)
- ----------------------
Michael King
/s/ Roger King Director November 16, 1995
- ----------------------
Roger King
/s/ Stephen W. Palley Director November 16, 1995
- ----------------------
Stephen W. Palley
/s/ Diana King Director November 16, 1995
- ----------------------
Diana King
/s/ Richard King Director November 16, 1995
- ----------------------
Richard King
/s/ Ronald S. Konecky Director November 16, 1995
- ----------------------
Ronald S. Konecky
/s/ James M. Rupp Director November 16, 1995
- ----------------------
James M. Rupp
</TABLE>
59
<PAGE> 62
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Joel Chaseman Director November 16, 1995
- ----------------------
Joel Chaseman
/s/ Steven A. LoCascio Interim Chief Financial November 16, 1995
- ---------------------- Officer (principal
Steven A. LoCascio financial officer)
/s/ Steven A. LoCascio Vice President and November 16, 1995
- ---------------------- Controller
Steven A. LoCascio (principal accounting
officer)
</TABLE>
60
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C>
3.1. Registrant's Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement No. 2-93987).
3.2. Certificate of Amendment to the Registrant's Restated
Certificate of Incorporation (incorporated by reference to
Exhibit 3.3 to the Registrant's Registration Statement No.
33-8357).
3.3. Registrant's By-laws, as amended April 28, 1988 (incorporated
by reference to Exhibit 3.3 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended August 31, 1993)
10.1. Agreement dated July 12, 1984 between Leo A. Gutman, Inc. and
the Registrant with exhibits (incorporated by reference to
Exhibit 10.3 to the Registrant's Registration Statement No.
2-93987).
10.2. Agreements dated August 6, 1970, July 31, 1970, and May 29,
1969, between Hal Roach Studios, Inc. and the Registrant, with
amendment dated June 8, 1983 and exhibits (incorporated by
reference to Exhibit 10.5 to the Registrant's Registration
Statement No. 2-93987).
10.3.* Distribution Agreement dated December 15, 1982, between Califon
Productions, Inc. and the Registrant, with amendment dated July
8, 1983 (incorporated by reference to Exhibit 10.7 to the
Registrant's Registration Statement No. 2-93987).
10.4.* Amendment, dated April 23, 1990, to the Distribution Agreement
dated December 15, 1982, between Califon Productions, Inc. and
the Registrant.
</TABLE>
- ----------------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
<PAGE> 64
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C>
10.5.* Distribution Agreement dated November 1, 1983, between Califon
Productions, Inc. and the Registrant, with amendment dated March 26,
1984 (incorporated by reference to Exhibit 10.9 to the Registrant's
Registration Statement No. 2-93987).
10.6. Employment or consulting agreements between the Registrant and the
individuals named below (incorporated by reference to Exhibit 10.6 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994):
</TABLE>
<TABLE>
<CAPTION>
Name of Employee
or Consultant Date of Agreement
---------------- -----------------
<S> <C>
Roger King. . . . . . . December 23, 1993
Michael King. . . . . . December 23, 1993
Stephen W. Palley . . . December 23, 1993
Steven Hirsch . . . . . December 23, 1993
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
10.7. King World Productions, Inc. Retirement Savings Plan dated September
17, 1992 (incorporated by reference to Exhibit 10.7 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1993).
10.8. Amended and Restated Stock Option and Restricted Stock Purchase Plan of
the Registrant (incorporated by reference to the Registrant's
Registration Statement No. 33-54691).
10.9. Incentive Equity Compensation Plan for Senior Executives of the
Registrant (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement No. 33-30695).
10.10. Agreement dated as of May 1, 1991, among the Registrant and the
stockholders named therein (incorporated by reference to Exhibit 10.1
to the Registrant's Current Report on Form 8-K dated May 6, 1991).
</TABLE>
- -------------------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
2
<PAGE> 65
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C>
10.11. Form of Indemnification Agreement between the Registrant and the
Registrant's directors (incorporated by reference to Exhibit 10.15 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1992).
10.12.* Agreement dated January 30, 1987 between the Registrant and Harpo, Inc.
and amendment thereto dated July 29, 1988 (incorporated by reference to
Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1993)
10.13.* Amendment dated as of October 15, 1989 to the Agreement dated January
30, 1987 between the Registrant and Harpo, Inc.
10.14.* Agreement dated as of January 28, 1991 between the Registrant and
Harpo, Inc. (incorporated by reference to Exhibit 10.18 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1991).
10.15.* Agreement dated as of March 17, 1994 between the Registrant and Harpo,
Inc. (incorporated by reference to 8-K/A dated May 18, 1994).
10.16.** Agreement dated as of October 6, 1995 between the Registrant and Harpo,
Inc.
10.17. Stock Option Agreement dated as of January 28, 1991 between the
registrant and Oprah Winfrey (incorporated by reference to Exhibit 10.2
to the Registrant's Registration Statement No. 33-71696).
10.18. Stock Option Agreement dated as of January 28, 1991 between the
registrant and Jeffrey D. Jacobs (incorporated by reference to Exhibit
10.3 to the Registrant's Registration Statement No. 33-71696).
</TABLE>
- ---------------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
3
<PAGE> 66
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C>
10.19. Form of Stock Option Agreement between the registrant and Oprah
Winfrey.
10.20. Form of Stock Option Agreement between the registrant and Jeffrey D.
Jacobs.
10.21.* Agreement dated as of June 2, 1988 between King World F.S.C.
Corporation and Unilever N.V. and amendment thereto dated as of June
13, 1989 (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994).
10.22.* Amendment dated as of September 19, 1991 to the Agreement dated as of
June 2, 1988 between King World F.S.C. Corporation and Unilever N.V.
(incorporated by reference to Exhibit 10.20 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1992).
10.23* Amendment dated June 13, 1994 to the Agreement dated June 2, 1988, as
amended as of June 13, 1989 and September 19, 1991, between King World
F.S.C. Corporation and Unilever N.V. (incorporated by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1994).
10.24** Amendment dated as of July 11, 1995 to the Agreement dated June 2,
1988, as amended as of June 13, 1989, September 19, 1991 and as of June
13, 1994 between King World F.S.C. Corporation and Unilever N.V.
10.25. Restructuring Agreement dated as of April 30, 1992 among Buffalo
Broadcasting Co. Inc., the Holders named therein and Buffalo Management
Enterprises Co., Inc., together with Exhibits thereto (incorporated by
reference to Exhibit 2 to the Registrant's Current Report on Form 8-K
dated August 18, 1992).
10.26. Letter Agreements dated December 18, 1992 between the Registrant and
each of Roger King and Michael King and Cross Receipt dated December
18, 1992 (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1993).
</TABLE>
4
<PAGE> 67
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C>
21.1. List of Subsidiaries of the Registrant.
23.1. Consent of Independent Public Accountants.
</TABLE>
- -------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment.
** Certain information in this exhibit is deleted pursuant to a request to
the Securities and Exchange Commission for confidential treatment.
5
<PAGE> 1
EXHIBIT 10.04
[KINGWORLD LOGO]
This agreement, made as of this April 23, 1990, between Califon
Productions, Inc. (herein referred to as the "Owner") and King World
Productions, Inc. (herein referred to as the "Distributor") with respect to the
television game show program produced for initial telecast in syndication
entitled "WHEEL OF FORTUNE" (herein referred to as the "Program").
Reference is hereby made to the agreement between the Owner and
Distributor dated as of December 15, 1982, as amended (herein referred to as the
"Distribution Agreement").
For good and valuable consideration, the parties have agreed to amend
and modify the Distribution Agreement as hereinbelow set forth. In all other
respects all of the provisions of the Distribution Agreement shall continue in
full force and effect as therein set forth.
***
***
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the day and year first above written.
KING WORLD PRODUCTIONS, INC. CALIFON PRODUCTIONS, INC.
By: /s/ Stephen W. Palley By: /s/ Robert Murphy
______________________________ ____________________________
Chief Operating Officer President
<PAGE> 1
EXHIBIT 10.13
[KINGWORLD LETTERHEAD]
As of October 15, 1989
Harpo, Inc.
110 N. Carpenter
Chicago, Illinois 60607
Gentlemen:
This letter, when accepted by you, shall constitute an amendment to the
agreement, dated as of January 20, 1987, as amended on July 29, 1988, between
you and us (the "Agreement"). Unless otherwise expressly defined in this
letter, each capitalized term herein shall have the meaning ascribed to such
term in the Agreement.
1. Paragraph 13 of the Agreement is amended by adding the following
provisions thereto as subparagraph (d) thereof:
"(d) Notwithstanding any other provisions of paragraph 13 of
this Agreement, ******************** to which Harpo is
entitled with respect to the Episodes of the Series produced during the
Fourth Period ("Fourth Period Episodes") shall be payable to Harpo as
follows:
(i) ********************
************************
(ii) *******************
************************
<PAGE> 2
(iii) ********************
********************
(iv) (A) The payments contemplated by this subparagraph (d) shall be
in lieu of the payments **** that would otherwise have been required to be made
by KW with respect to all periods through and including the period ending
August 31, 1990, attributable to the Fourth Period Episodes. Any amount of
***************** attributable to Fourth Period Episodes to which Harpo remains
entitled in excess of the payments referred to in clauses (d)(i), (ii) and
(iii) above shall be payable to Harpo in accordance with paragraph 13(a) of
this Agreement.
(B) Notwithstanding any other provision of this subparagraph (d),
either KW or Harpo may, if it so elects, terminate KW's prospective obligations
to make the payments required under clauses (i), (ii) or (iii) above, effective
on not less than 30 days' prior written notice. In such event, KW shall,
notwithstanding the provisions of the first sentence of clause (iv)(A) above,
resume payments of Harpo's *************** following the effective date of such
termination in accordance with paragraph 13(a) of this Agreement, subject to
KW's rights of recoupment as set forth in this Agreement.
(v) In the event of Winfrey's death, or if there occurs an incapacity
or refusal or other failure by Winfrey to perform in the Series that entitles
KW to invoke its rights under paragraph 18 of this Agreement, ***************
*********
Alternatively, if, after giving effect to the accounting of with respect
to Fourth *******************
2
<PAGE> 3
Period Episodes rendered by KW with respect to all periods through
and including the period ending August 31, 1990, KW has recouped
less than the entire amount of *********** to the extent so
unrecouped, shall be payable by Harpo within ten (10) days following
Harpo's receipt of such accounting."
2. Harpo hereby confirms that the provisions of paragraph 11 of the
Agreement fully apply to the payments contemplated by this amendment.
3. Except as modified hereby, the Agreement remains in full force and
effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By: /s/ Stephen W. Palley
------------------------
Stephen W. Palley
Chief Operating Officer
ACCEPTED AND AGREED:
HARPO, INC.
By: /s/ Oprah Winfrey
------------------------
Oprah Winfrey, President
I hereby confirm that all of the representations, warranties and
agreements made by me in the acknowledgement, dated January 30, 1987, apply to
the foregoing letter agreement.
Dated: 11/8/89 /s/ Oprah Winfrey
--------------------------- --------------------------------
3
<PAGE> 1
EXHIBIT 10.16
HARPO, INC. [HARPO LOGO]
110 North Carpenter Street
Chicago, Illinois 60607
312.633.1000 Fax 312.633.1111
Oprah Winfrey
Chairman of the Board
October 6, 1995
Mr. Steve Palley
King World Productions, Inc.
1700 Broadway
New York, NY 10019
Dear Steve:
As you know, today is the mutually agreed upon extended deadline for HARPO's
decision to elect to continue to produce and host The Oprah Winfrey Show for
the upcoming television season.
I am pleased to inform you that, after great personal deliberation, I have
decided to continue to produce and host The Oprah Winfrey Show for Year 11 (the
1996/97 television season) and Year 12 (the 1997/98 television season).
*******************************************************************************
*******************************************************************************
This option exercise for Years 11 and 12 involves certain issues pursuant to
Paragraphs 4 and 5(b) of the March 17, 1994 amendment which you should discuss
with Jeff Jacobs at your earliest convenience.
The price of King World for the purpose of options to which we are entitled
pursuant to this exercise shall be at the closing market price of King World as
of October 6, 1995.
Very truly yours,
ACCEPTED AND APPROVED
HARPO, INC. King World Productions, Inc.
By: /s/ Oprah Winfrey By: /s/ Stephen W. Palley
-------------------- ---------------------
Oprah Winfrey Steve Palley, VP & COO
Date: 10/6/95 Date: 10/6/95
----------- -----------
cc: Jeffrey D. Jacobs
<PAGE> 1
EXHIBIT 10.19
THE TRANSFER OF THE OPTION EVIDENCED BY THIS AGREEMENT
IS SUBJECT TO RESTRICTIONS CONTAINED HEREIN. THE OPTION
HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF
THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION
THEREOF. NEITHER THE OPTION NOR THE SHARES ISSUABLE UPON
THE EXERCISE OF THE OPTION HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933.
THIS OPTION, AND THE OPTION SHARES ISSUABLE UPON EXERCISE
IN ACCORDANCE WITH THE TERMS CONTAINED HEREIN, ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND A LIEN IN FAVOR OF KING WORLD
PRODUCTIONS, INC. (THE "COMPANY") TO SECURE CERTAIN OBLIGA-
TIONS OF HARPO, INC. ("HARPO") TO THE COMPANY PURSUANT TO AN AGREEMENT DATED AS
OF JANUARY 30, 1987, AS AMENDED THROUGH
_______________ BETWEEN THE COMPANY AND HARPO.
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
Ms. Oprah Winfrey As of _______________
c/o Harpo, Inc.
110 North Carpenter Street
Chicago, Illinois 60607
Dear Ms. Winfrey:
This is the stock option agreement referred to in the
amendment (the "Harpo Amendment") dated as of March 17, 1994, to the Agreement
dated as of January 30, 1987 (the "Original Agreement"), as previously amended
to the date hereof (the Original Agreement, as amended to the date hereof and
by the Harpo Amendment, being herein called the "Harpo Agreement") between
Harpo, Inc. ("Harpo") and the undersigned (the "Company"). As partial
consideration for Harpo to enter into the Harpo Amendment, and as an inducement
for you to render services with respect to the production of the Show (as such
term is defined in the Harpo Amendment), the Company hereby grants to you an
option (the "Option") to purchase __________________ thousand (___,000) shares
of the Company's Common Stock, $.01 par value ("Common Stock"; such shares of
Common Stock, as the same may be adjusted as described in Section 6 below,
being herein referred to as the "Option Shares"). The terms and conditions of
the Option are set out below.
<PAGE> 2
The Option will be treated as and shall constitute a
"non-qualified stock option" for Federal income tax purposes. The Option will
not constitute or be treated either by you or by the Company as an "incentive
stock option" as defined under Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code").
1. Date of Grant. The Option is granted to you on the
date hereof.
2. Termination of the Option. Your right to exercise
the Option (and to purchase the Option Shares) shall expire and terminate in
all events on (i) _______________, or (ii) such earlier date provided in
Section 7 below.
3. Option Price. The purchase price to be paid upon the
exercise of the Option (the "Option Price") will be $_____ per Option Share.
4. Vesting Provisions -- Entitlement to Exercise the
Option and Purchase Option Shares.The Option shall be exercisable by you, in
whole or part, at any time prior to expiration and termination pursuant to
Section 2 above.
5. Exercise of Option.
(a) To exercise the Option, you must deliver a completed
copy of the attached Option Exercise Form to the address indicated on the Form,
specifying the number of Option Shares being purchased as a result of such
exercise, together with payment of the full Option Price for the Option Shares
being purchased.
(b) Payment of the Option Price must be made in cash.
(c) In the event of any exercise of the Option, a
certificate or certificates representing the Option Shares so purchased,
registered in your name, shall be delivered to you within a reasonable time.
(d) You agree that Option Shares shall be held by you for
investment and may not be resold unless registered under the Securities Act of
1933, as amended (the "Securities Act"), or an exemption from registration is
available, and that the Option Shares will bear a legend referring to such
limitation, to the restrictions on transfer of the Option Shares referred to
elsewhere in this Agreement and to any security interests encumbering the
Option Shares.
6. Adjustments. If the total outstanding shares of
Common Stock of the Company shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corpora-
2
<PAGE> 3
tion through reorganization, merger or consolidation, recapitalization, stock
split, combination or exchange of shares or declaration of any dividends
payable in stock or other corporate transaction, then the number of Option
Shares subject to the unexercised portion of the Option (and the Option Price
per share) shall be appropriately adjusted (to the nearest possible full share)
by the Board of Directors of the Company.
7. Default under the Harpo Agreement.
(a) In the event that you die, or the term of the Harpo
Agreement terminates for any other reason except a material breach by Harpo,
then the Option may be exercised by you or your estate only within the nine (9)
month period following your death or the termination of the term of the Harpo
Agreement.
(b) In the event that the term of the Harpo Agreement
terminates by reason of a material breach thereof by Harpo, then your right to
exercise the Option as to any and all Option Shares that have not theretofore
been issued shall terminate simultaneously with the termination of such term.
(c) In the event that the Company exercises its rights
pursuant to paragraph 17 or 18 of the Original Agreement and the term of the
Harpo Agreement is suspended, then your right to exercise the Option pursuant
to Section 4 hereof shall be sus- pended during the period that the term of the
Harpo Agreement is suspended.
(d) Notwithstanding any provision contained herein to the
contrary, in no event may the Option be exercised to any extent after
_______________.
8. Representations.
(a) You represent and warrant that you are acquiring the
Option and the Option Shares for investment purposes only and not with a view
towards the public distribution thereof.
(b) You understand that neither the Options nor the
Option Shares have been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements thereof
pursuant to Section 4(2) of the Securities Act.
(c) You represent and warrant that (i) you have the
financial ability to bear the economic risk of investment in the Option and the
Option Shares and (ii) you, together with the financial advisers who have
assisted you in acquiring the Option, have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of an investment in the Option and the Option Shares and have had suffi-
3
<PAGE> 4
cient opportunity to obtain, and have obtained, all information regarding the
Company as you have deemed relevant in order to evaluate the merits and risks
of such investment.
(d) You represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares.
9. Covenants of the Company. The Company will at all
times reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of issue upon the exercise of the Option,
such number of shares of Common Stock as shall then be issuable upon the
exercise of the Option. The Company covenants that all Option Shares, when
issued in accordance with the terms hereof, shall be duly and validly issued,
fully paid and nonassessable. The Company will take all such action as may be
necessary to assure that all Option Shares may be so issued without violation
of any applicable law or regulation, or of any requirements of any national
securities exchange upon which the Common Stock of the Company may then be
listed. The Company will not take any action which results in any adjustment
of the Option Price if the total number of Option Shares issued and issuable
after such action would exceed the total number of shares of Common Stock then
authorized by the Company's Certificate of Incorporation. The Company has not
granted and will not grant any right of first refusal with respect to the
Option Shares, and there are no preemptive rights associated with such shares.
10. Required Registration.
(a) At any time you may by notice to the Company (the
"Registration Notice") request that it register for sale under the Securities
Act, in the manner specified in your Registration Notice, all or any portion of
the Option Shares and any other shares of Common Stock that have been issued or
are issuable to you and/or Jeffrey D. Jacobs upon the exercise of stock options
granted or to be granted pursuant to the Harpo Agreement, including any prior or
subsequent amendment to that agreement (collectively, together with the Option
Shares, the "Agreement Shares"), and that have been purchased, or will be
purchased on or before the effective date of such registration statement, or,
provided that deferral of the date of purchase to the closing date of sale of
such shares in the manner contemplated by the proposed registration will not
disqualify the offering from registration on Form S-3 (or any successor to such
form), then on such closing date pursuant to such exercise.
(b) Promptly following receipt of your Registration
Notice, the Company shall commence to prepare and, unless it
4
<PAGE> 5
elects to purchase all of the Agreement Shares specified in such Registration
Notice through the procedures specified in Section 10(f) below, shall file a
registration statement under the Securities Act for the sale of the Agreement
Shares specified in such Registration Notice (less any shares to be purchased
pursuant to Section 10(f) below) and shall use its best efforts to cause such
registration statement to become effective and remain in effect for the Required
Effective Period for public sale in accordance with the method of disposition
specified by you, provided, however, that the Company shall not be required to
file a "shelf" registration except on Form S-3 (or any successor to such Form).
The "Required Effective Period" shall be the greater of (A) the 180-day period
following the effective date of such registration statement; and (B) unless the
proposed plan of distribution involves a firm commitment underwritten public
offering, the period required to dispose of all of the shares included in such
registration statement assuming the sale in each three-month period of the
maximum number of shares permitted to be sold under the limitations of Section
14 of this Agreement. If such method of disposition shall be an underwritten
public offering, the Company may designate the managing underwriter of such
offering. If, in the good faith opinion of the Board of Directors of the
Company, registration would materially interfere with pre-existing contractual
obligations to which the Company is then subject or financing arrangements or
other material transactions involving the Company or any of its subsidiaries are
pending at the time the Registration Notice is given, or are under active
consideration by the Company, the Company may elect to defer registration for
such period of time, in no event in excess of one hundred twenty (120) days from
the date on which the Registration Notice was given, as in the good faith
judgment of the Board of Directors of the Company is necessary in order to
preclude adverse impact upon such financing or other transaction. In the event
of such deferral, if the shares to be registered are to be acquired on exercise
of this Option following the date of such Registration Notice, the date on which
the Option was exercised shall, for purposes of Section 2 and 7(d) hereof, be
deemed to be the date on which the Registration Notice was given. The
obligation of the Company under this Section 10 shall be deemed satisfied only
when a registration statement covering all Agreement Shares specified in your
Registration Notice and not purchased by the Company pursuant to Section 10(f)
below shall have become effective and, (X) if the method of disposition you
specify is a firm commitment underwritten public offering, all such Agreement
Shares shall have been sold pursuant thereto; or (Y) if it is not such an
offering, has remained in effect for the Required Effective Period specified
herein or until the distribution of the Agreement Shares covered thereby is
completed, whichever is shorter.
5
<PAGE> 6
(c) The Company shall not be obligated to register Agreement
Shares pursuant to this Section 10 (i) more than once; (ii) in any period of
twelve consecutive months in which any Agreement Shares have been registered
pursuant to the exercise of a demand registration right granted pursuant to any
other agreement between the Company and you or Jeffrey D. Jacobs; or (iii) at
any time when the registration, offering or sale of Option Shares would violate
any law, rule or regulation. For purposes of the foregoing sentence, (X) a
registration under this Option or the corresponding provisions of the option
agreement issued to Jeffrey D. Jacobs on the date hereof shall be aggregated (so
that a registration initiated by you pursuant to this Section 10 shall decrease
by one the number of demand registrations available to each of you and Jeffrey
D. Jacobs pursuant said corresponding provisions, and vice versa) and (Y) any
request for registration given by Jeffrey D. Jacobs pursuant the corresponding
provisions of the option agreement issued to him shall, as a condition to its
effectiveness, be confirmed in writing by you (provided that you are then
competent to give such confirmation). If any Agreement Shares included in a
registration statement filed pursuant to this Section 10 were issued upon the
exercise of any other stock option granted to you or Jeffrey D. Jacobs pursuant
to the Harpo Agreement, the number of "demand" registration rights granted to
you and to Jeffrey D. Jacobs pursuant to such stock option or stock options
shall each be reduced by one.
(d) The Company shall be entitled to include in any
registration statement referred to in this Section 10, for sale in accordance
with the method of disposition you specify, shares of Common Stock to be sold by
the Company for its own account or by other security holders of the Company for
their accounts, or both, except as and to the extent that, in the opinion of the
managing underwriter (if such method of disposition shall be an underwritten
public offering), such inclusion would adversely affect the marketing of the
Agreement Shares to be sold.
(e) The procedures for registration of Agreement Shares
under this Section 10 shall conform to the following:
(1) Obligations of the Company. If and whenever
the Company is required by the provisions of Section 10 or 11 to effect the
registration of Agreement Shares, the Company will:
(i) Prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
Required Effective Period or until the securities covered by such registration
statement
6
<PAGE> 7
have been sold in accordance with the method of disposition specified by you in
your Registration Notice, whichever is shorter, and prepare and file with the
Commission such amendments or supplements to such registration statement and
supplements to the prospectus contained therein as may be necessary to keep such
registration statement effective for the Required Effective Period or until the
shares covered by such registration statement have been sold in accordance with
such method of disposition, whichever is shorter;
(ii) If the offering is to be underwritten
in whole or in part, enter into a written underwriting agreement in
form and substance reasonably satisfactory to the managing underwriter or
underwriters of the public offering of such securities;
(iii) Furnish to the shareholders
participating in such registration and to the underwriters of the securities
being registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public offering
of such securities;
(iv) Use its best efforts to register or
qualify the shares covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as you may reasonably request
within 20 days following the original filing of such registration statement,
except that the Company shall not for any purpose be required to execute a
general consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(v) Notify you promptly after it shall
receive notice thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(vi) Notify you promptly of any request by
the Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;
(vii) Prepare and file with the Commission,
promptly upon your request, any amendments or supplements to such registration
statement or prospectus which, in the opinion of your counsel, are required
under the Securities Act or the rules and regulations thereunder in connection
with the distribution of the Option Shares by you;
(viii) Prepare and promptly file with the
Commission and promptly notify you of the filing of such
7
<PAGE> 8
amendment or supplement to such registration statement or prospectus as
may be necessary to correct any statements or omissions if, at the time when a
prospectus relating to such shares is required to be delivered under the
Securities Act, any event shall have occurred as the result of which any such
prospectus or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading;
(ix) In case you or any underwriters for you
is required to deliver a prospectus at a time when the prospectus then in effect
may no longer be used under the Securities Act, prepare promptly upon request
such amendment or amendments to such registration statement and such prospectus
or prospectus as may be necessary to permit compliance with the requirements of
the Securities Act;
(x) Advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement; or
the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(xi) If such registration is by way of an
underwritten public offering and if you so request, use its best efforts to
cause counsel and the independent certified public accountants to the Company to
furnish on the effective date of the registration statement and at the closing
provided for in the underwriting agreement, (i) an opinion dated such date, of
the counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to you, covering such matters with
respect to the registration statement and prospectus and each amendment or
supplement thereto, proceedings under state and federal securities laws and
other matters relating to the Company, the securities included in the
registration statement and the offer and sale of such securities as are
customarily the subject of opinions of issuer's counsel provided to underwriters
at or about the time such registration statement becomes effective and the sale
is closed; and (ii) a letter dated each such date, from the independent
certified public accountants of the Company, addressed to the underwriters, if
any, and to you, stating that they are independent certified public accountants
within the meaning of the Securities Act and providing such assurances as are
customarily provided by the independent certified public accountants for an
issuer in connection with the registration of securities, including information
as to the period ending not more than five business days prior to the
8
<PAGE> 9
date of such letter with respect to the registration statement and prospectus,
as the underwriters or you may reasonably request. If the furnishing of such
opinion and/or letter causes Company to incur any additional cost or expense,
you agree to reimburse Company therefor at the closing provided for in the
underwriting agreement.
(2) Obligations of Option Holder. It shall be a
condition to the inclusion of any Agreement Shares in a registration statement
that the holder thereof shall cooperate in the execution and filing of the
registration statement and any necessary state securities law filings, and if
the offering is to be underwritten, that such holder become a party to the
underwriting agreement and, if so requested by the managing underwriter, execute
and deliver Powers of Attorney and/or custodial agreements or other suitable
arrangements as the managing underwriter deems reasonably necessary in order to
insure orderly sale of the shares.
As among the holders of shares included in any registration
statement, decisions respecting the terms and conditions of any underwriting
agreements shall be made by the party initiating the registration; so that in
the case of a registration required pursuant to a request by you under Section
10, determinations with respect to the underwriting agreement shall be made by
you, in your reasonable judgment, after appropriate consultation with the
Company and with other persons whose shares are to be included in such offering;
and if you are party to a registration statement pursuant to Section 11, you
shall not have the right to make such determinations, but shall be informed of
them, and consulted with respect thereto.
(f) Within ten (10) business days following receipt of a
Registration Notice, the Company may elect, by written notice to you, to
purchase all or any portion of the Agreement Shares specified by you in such
Registration Notice for a purchase price equal to the closing price of the
Common Stock on the date such notice was given. In the event that the Company
elects to purchase any of the Agreement Shares specified by you in such notice,
the delivery of such Agreement Shares against payment therefor shall take place
on the fifth business day following receipt by you of the Company's election
notice. In the event that the Company does not elect to purchase all of the
Agreement Shares specified by you in such Registration Notice, the Company shall
register under the Securities Act all the Agreement Shares not so purchased, in
the manner provided above.
11. Incidental Registration. If the Company at any time
(other than pursuant to Section 10 hereof) proposes to register any of its
Common Stock under the Securities Act for sale to the
9
<PAGE> 10
public, whether for its own account or for the account of other security
holders or both (except with respect to registration statements on Forms S-4 or
S-8 or another form not available for registering the Option Shares for sale to
the public), it will give written notice at such time to you of its intention
to do so. Upon your written request, given within 30 days after receipt of any
such notice by the Company, to register any of the Option Shares that you have
purchased, or will purchase on or before the effective date of such
registration statement, pursuant to the exercise of the Option (which request
shall state the intended method of disposition thereof), the Company will use
its best efforts to cause such Option Shares to be included in the securities
to be covered by the registration statement proposed to be filed by the
Company, all to the extent requisite to permit the sale or other disposition by
you of the Option Shares so registered. In the event that any registration
pursuant to this Section 11 shall be, in whole or in part, an underwritten
public offering of Common Stock, any request by you pursuant to this Section 11
to register Option Shares shall specify that either (i) such Option Shares are
to be included in the underwriting on the same terms and conditions as the
shares of Common Stock otherwise being sold through underwriters under such
registration; or (ii) such Option Shares are to be sold in the open market
without any underwriting, on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances.
The number of Option Shares to be included in such an underwriting may be
reduced if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold therein by the Company or other security holders of the
Company.
Notwithstanding anything to the contrary contained in this
Section 11, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Option Shares and you do not elect to sell any Option Shares to the
underwriters of the Company's securities in connection with such offering, you
agree to refrain from selling any Option Shares during the period of
distribution of the Company's securities by such underwriters and the period in
which the underwriting syndicate participates in the after market; provided,
however, that you shall, in any event, be entitled to sell Option Shares
commencing on the 150th day after the effective date of such registration
statement.
12. Expenses.
(a) The expenses incurred by the Company in complying
with the registration pursuant to Section 10 and all registrations pursuant to
Section 11 hereof shall be paid as follows:
(i) all registration and filing fees, printing expenses,
fees and disbursements of counsel and independent public
10
<PAGE> 11
accountants for the Company, fees of the National Association of Securities
Dealers, Inc. and/or the New York Stock Exchange, transfer taxes, fees of
transfer agents and registrars, costs of insurance and other costs not described
in (ii) below shall be paid by the Company; and
(ii) fees and expenses of your counsel, and all
underwriting discounts and selling commissions applicable to the sale of
Agreement Shares sold by you, and any additional cost or expense incurred by the
Company pursuant to your request under Section (10)(e)(1)(xi), shall be paid by
you.
13. Indemnification. In the event of a registration of
Agreement Shares under the Securities Act pursuant to Section 10 or 11 hereof,
the Company will indemnify and hold you harmless against any losses, claims,
damages or liabilities, joint or several, to which you may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Option Shares were registered under
the Securities Act pursuant to Section 10 or 11, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse you for any legal or
other expenses reasonably incurred in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished in writing by you for inclusion
in such registration statement.
In the event of a registration of any of the Agreement Shares
under the Securities Act pursuant to Section 10 or 11 hereof, you will
indemnify and hold harmless the Company and each person, if any, who controls
the Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement, each director of the Company,
each underwriter and each person who controls any underwriter within the
meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer or director
or underwriter or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement under which such Agreement Shares were registered under the
Securities Act pursuant to Section 10 or 11, any preliminary prospectus or
11
<PAGE> 12
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that you will be liable hereunder in any such case if and only to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information furnished to the
Company by you in writing for inclusion in such registration statement.
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party other than under this Section 13.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 13 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected;
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party, or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified party
shall have the right to select a separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall
have the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party
12
<PAGE> 13
shall have failed to retain counsel for the indemnified person as aforesaid or
(ii) the indemnifying party and such indemnified party shall have mutually
agreed to the retention of such counsel. It is understood that the
indemnifying party shall not, in connection with any action or related actions
in the same jurisdiction, be liable for the fees and disbursements of more than
one separate firm qualified in such jurisdiction to act as counsel for the
indemnified party. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two
paragraphs of this Section 13 is unavailable or insufficient to hold harmless
an indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
you, on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or actions as well as any
other relevant equitable considerations, including the failure to give any
notice under the third paragraph of this Section 13. The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact relates to information supplied by
the Company, on the one hand, or you, on the other, and to the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and you agree that it would
not be just and equitable if contributions pursuant to this paragraph were
determined by pro rata allocation or by any other method of allocation which
did not take account of the equitable considerations referred to above in this
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or action in respect thereof, referred
to above in this paragraph, shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
The indemnification of underwriters provided for in this
Section 13 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters. Upon your reasonable
request, or upon the reasonable request of any
13
<PAGE> 14
underwriter of Agreement Shares, the Company shall obtain, if reasonably
available, an insurance policy covering the risks described above in this
Section 13 in an amount and with a deductible reasonably requested by you or
such underwriter and naming you, any underwriter of such stock and any person
controlling you or such underwriter as beneficiaries. The costs of obtaining
and maintaining any such insurance shall be borne by the Company.
14. Sale of Option Shares.
(a) You hereby agree to limit your sales of Agreement
Shares so that, except for sales pursuant to underwritten, firm commitment
public offerings, your sales of Agreement Shares, aggregated with sales of
Agreement Shares by Jeffrey D. Jacobs, shall not exceed in any three-month
period the greater of (i) one percent of the outstanding shares of Common Stock
of the Company, as disclosed in its public report most recently filed with the
Securities and Exchange Commission before the date of any sale and (ii) the
average weekly reported volume of trading in Common Stock of the Company on the
New York Stock Exchange and all other national securities exchanges during the
four calendar weeks preceding the date of any sale; provided however, that upon
any "Change in Control" (as such term is defined in Exhibit B of the Harpo
Amendment) of the Company, the foregoing restriction shall be reduced or
eliminated to the extent that any volume restrictions on resales of Common
Stock that then apply to Roger King and/or any other person who was an
executive officer of the Company prior to such Change in Control are more
favorable than those afforded to you pursuant to this Option. Notwithstanding
anything to the contrary contained in this Agreement, you shall not be entitled
to register, sell or dispose of any Agreement Shares that are subject to any
liens, claims, security interests and other encumbrances of any kind, unless
and until the same are removed (or will be removed in conjunction with their
sale).
(b) In order to secure the repayment to the Company of
the Secured Amount (as defined in the Harpo Amendment) pursuant to the Harpo
Agreement, you hereby grant to the Company a first priority lien and security
interest (the "Security Interest") in (i) your rights under this Option, (ii)
all Option Shares now or hereafter issuable or issued pursuant to the exercise
of the Option and (iii) all proceeds thereof (collectively, the "Stock Option
Collateral"), provided that, unless and until the Company notifies you that the
amount of Harpo's Share of Revenues (as defined in the Harpo Amendment) which
the Company reasonably projects at the time of such notice will be payable to
Harpo would be inadequate to fully secure the Secured Amount (an "Additional
Security Notice"; such notice specifying, in reasonable detail, the amount of
such inadequacy (the "Security Shortfall")), you may exercise the Option, sell
the Option Shares issued to you upon such exercise and retain the proceeds
thereof without restriction. The Security Interest shall, in any event, be
limited to such number of shares
14
<PAGE> 15
of Common Stock (and to the Option to the extent corresponding to such shares)
that, as of the date of such Additional Security Notice, would, upon sale at a
price per share equal to the closing price of the Common Stock on the New York
Stock Exchange, generate Net Realizable Value equal to the projected amount
of the Security Shortfall. The Net Realizable Value of an Option Share at any
time shall be the fair market value of such share at such time less the sum of
(i) the Option Price for such Option Share, and (ii) a provision for taxes
equal to the difference between such fair market value and such Option Price
(the "Option Gain") multiplied by the highest rate of federal and state income
tax to which the Option Gain will be subject (with offset for deductibility
of such state taxes). At any time that any Stock Option Collateral is subject
to the Security Interest, you may obtain its release from the Security Interest
by substituting alternate collateral, as more fully set forth in the Security
and Pledge Agreement dated as of ______________ among you, the Company, Harpo,
Jacobs & Company and Jeffrey D. Jacobs (the "Security and Pledge Agreement").
You hereby agree to take such steps as are reasonably requested by the Company
to perfect the Security Interest, including the execution and filing of UCC-1
financing statements in such form as reasonably requested by the Company, the
delivery to the Company of the certificates evidencing the Option Shares, the
delivery to such third-party financial intermediaries as may from time to time
be requested by the Company of written notice confirming the Security Interest
and obtaining the written confirmation and agreement of any such financial
intermediaries that such Option Shares and the proceeds thereof are subject to
the Security Interest, and that such financial intermediaries shall hold the
Option Shares and the proceeds thereof as agent for the Company, as pledgee,
subject to such written confirmation and agreement. Upon the occurrence of an
Event of Default (as such term is defined in the Security and Pledge
Agreement), the Company shall have all of the rights and remedies of a secured
party under the Uniform Commercial Code in all relevant jurisdictions with
respect to the Stock Option Collateral.
15. Defaults. It shall constitute a breach of this
Agreement by either party if such party shall fail or refuse to fully perform
any of its obligations under this Agreement and shall not have cured such
failure or refusal within 30 days after receipt from the other party of written
notice advising it of such failure or refusal, or, in the event that such
failure or refusal is of a nature that cannot be cured within 30 days, then if
such party shall not begin to cure the same within such 30-day period and
thereafter diligently prosecute such cure to completion.
16. Successors; No Assignment. Each of the covenants,
terms, provisions and agreements contained herein shall be binding upon and
inure to the benefit of the parties' successors and assigns. Neither the
Option, nor any of the rights granted to you pursuant hereto, may be
transferred or assigned (including, without
15
<PAGE> 16
limitation, by operation of law), except by will or the laws of descent and
distribution.
17. Withholding Taxes. In the event that the Company is
required to withhold any Federal, state or local taxes in respect of the grant
of the Option or in respect of the acquisition of any Option Shares, the
Company may deduct from any payments of any kind otherwise due to you under the
Harpo Agreement the aggregate amount of such Federal, state or local taxes
required to be so withheld or, if such payments are insufficient to satisfy
such Federal, state or local taxes or if no such payments are due or to become
due, then, you will be required to pay to the Company, or to make other
arrangements satisfactory to the Company regarding payment to the Company of,
the aggregate amount of any such taxes. All matters with respect to the total
amount of taxes to be withheld shall be determined by the Company in its sole
discretion.
18. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York. If any one
or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
16
<PAGE> 17
Please acknowledge receipt of this Option Agreement and
agreement with the terms hereof by signing the enclosed copy of this Option
Agreement in the space provided below.
KING WORLD PRODUCTIONS, INC.
By__________________________
Accepted and Agreed:
___________________________
Oprah Winfrey
17
<PAGE> 18
King World Productions, Inc.
OPTION EXERCISE FORM
Oprah Winfrey hereby exercises her right to purchase ________
shares of Common Stock, $.01 par value, of King World Productions, Inc. pursuant
to the option granted to her on March 17, 1994, memorialized in the Option
Agreement, dated as of _______________, between her and King World Productions,
Inc.
Date:__________________ __________________________
Oprah Winfrey
Send a completed copy of this Option Exercise Form to:
Vice President - Finance
King World Productions, Inc.
c/o King World Corporation
830 Morris Turnpike
Short Hills, New Jersey 07078
18
<PAGE> 1
EXHIBIT 10.20
THE TRANSFER OF THE OPTION EVIDENCED BY THIS AGREEMENT
IS SUBJECT TO RESTRICTIONS CONTAINED HEREIN. THE OPTION
HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF
THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION
THEREOF. NEITHER THE OPTION NOR THE SHARES ISSUABLE UPON
THE EXERCISE OF THE OPTION HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933.
THIS OPTION, AND THE OPTION SHARES ISSUABLE UPON EXERCISE
IN ACCORDANCE WITH THE TERMS CONTAINED HEREIN, ARE SUBJECT
TO CERTAIN RESTRICTIONS ON TRANSFER AND A LIEN IN FAVOR OF KING WORLD
PRODUCTIONS, INC. (THE "COMPANY") TO SECURE CERTAIN OBLIGA-
TIONS OF HARPO, INC. ("HARPO") TO THE COMPANY PURSUANT TO AN AGREEMENT DATED AS
OF JANUARY 30, 1987, AS AMENDED THROUGH
_______________ BETWEEN THE COMPANY AND HARPO.
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
Mr. Jeffrey D. Jacobs As of _______________
c/o Harpo, Inc.
110 North Carpenter Street
Chicago, Illinois 60607
Dear Mr. Jacobs:
This is the stock option agreement referred to in the amendment (the
"Harpo Amendment") dated as of March 17, 1994, to the Agreement dated as of
January 30, 1987 (the "Original Agreement"), as previously amended to the date
hereof (the Original Agreement, as amended to the date hereof and by the Harpo
Amendment, being herein called the "Harpo Agreement") between Harpo, Inc.
("Harpo") and the undersigned (the "Company"). As partial consideration for
Harpo to enter into the Harpo Amendment, and as an inducement for you to render
services with respect to the production of the Show (as such term is defined
in the Harpo Amendment), the Company hereby grants to you an option (the
"Option") to purchase _____ thousand (__,000) shares of the Company's Common
Stock, $.01 par value ("Common Stock"; such shares of Common Stock, as the
same may be adjusted as described in Section 6 below, being herein referred to
as the "Option Shares"). The terms and conditions of the Option are set out
below.
1
<PAGE> 2
The Option will be treated as and shall constitute a
"non-qualified stock option" for Federal income tax purposes. The Option will
not constitute or be treated either by you or by the Company as an "incentive
stock option" as defined under Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code").
1. Date of Grant. The Option is granted to you on the
date hereof.
2. Termination of the Option. Your right to exercise
the Option (and to purchase the Option Shares) shall expire and terminate in all
events on (i) _______________, or (ii) such earlier date provided in Section 7
below.
3. Option Price. The purchase price to be paid upon the
exercise of the Option (the "Option Price") will be $_____ per Option Share.
4. Vesting Provisions -- Entitlement to Exercise the
Option and Purchase Option Shares.The Option shall be exercisable by you, in
whole or part, at any time prior to expiration and termination pursuant to
Section 2 above.
5. Exercise of Option.
(a) To exercise the Option, you must deliver a completed
copy of the attached Option Exercise Form to the address indicated on the Form,
specifying the number of Option Shares being purchased as a result of such
exercise, together with payment of the full Option Price for the Option Shares
being purchased.
(b) Payment of the Option Price must be made in cash.
(c) In the event of any exercise of the Option, a
certificate or certificates representing the Option Shares so purchased,
registered in your name, shall be delivered to you within a reasonable time.
(d) You agree that Option Shares shall be held by you for
investment and may not be resold unless registered under the Securities Act of
1933, as amended (the "Securities Act"), or an exemption from registration is
available, and that the Option Shares will bear a legend referring to such
limitation, to the restrictions on transfer of the Option Shares referred to
elsewhere in this Agreement and to any security interests encumbering the Option
Shares.
6. Adjustments. If the total outstanding shares of
Common Stock of the Company shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corpora-
2
<PAGE> 3
tion through reorganization, merger or consolidation, recapitalization, stock
split, combination or exchange of shares or declaration of any dividends payable
in stock or other corporate transaction, then the number of Option Shares
subject to the unexercised portion of the Option (and the Option Price per
share) shall be appropriately adjusted (to the nearest possible full share) by
the Board of Directors of the Company.
7. Default under the Harpo Agreement.
(a) In the event that you die, or the term of the Harpo
Agreement terminates for any other reason except a material breach by Harpo,
then the Option may be exercised by you or your estate only within the nine (9)
month period following your death or the termination of the term of the Harpo
Agreement.
(b) In the event that the term of the Harpo Agreement
terminates by reason of a material breach thereof by Harpo, then your right to
exercise the Option as to any and all Option Shares that have not theretofore
been issued shall terminate simultaneously with the termination of such term.
(c) In the event that the Company exercises its rights
pursuant to paragraph 17 or 18 of the Original Agreement and the term of the
Harpo Agreement is suspended, then your right to exercise the Option pursuant to
Section 4 hereof shall be suspended during the period that the term of the
Harpo Agreement is suspended.
(d) Notwithstanding any provision contained herein to the
contrary, in no event may the Option be exercised to any extent after
_______________.
8. Representations.
(a) You represent and warrant that you are acquiring the
Option and the Option Shares for investment purposes only and not with a view
towards the public distribution thereof.
(b) You understand that neither the Options nor the
Option Shares have been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements thereof
pursuant to Section 4(2) of the Securities Act.
(c) You represent and warrant that (i) you have the
financial ability to bear the economic risk of investment in the Option and the
Option Shares and (ii) you, together with the financial advisers who have
assisted you in acquiring the Option,
3
<PAGE> 4
have such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of an investment in the Option and
the Option Shares and have had sufficient opportunity to obtain, and have
obtained, all information regarding the Company as you have deemed relevant in
order to evaluate the merits and risks of such investment.
(d) You represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares.
9. Covenants of the Company. The Company will at all
times reserve and keep available out of its authorized and unissued shares of
Common Stock, solely for the purpose of issue upon the exercise of the Option,
such number of shares of Common Stock as shall then be issuable upon the
exercise of the Option. The Company covenants that all Option Shares, when
issued in accordance with the terms hereof, shall be duly and validly issued,
fully paid and nonassessable. The Company will take all such action as may be
necessary to assure that all Option Shares may be so issued without violation of
any applicable law or regulation, or of any requirements of any national
securities exchange upon which the Common Stock of the Company may then be
listed. The Company will not take any action which results in any adjustment of
the Option Price if the total number of Option Shares issued and issuable after
such action would exceed the total number of shares of Common Stock then
authorized by the Company's Certificate of Incorporation. The Company has not
granted and will not grant any right of first refusal with respect to the Option
Shares, and there are no preemptive rights associated with such shares.
10. Required Registration.
(a) At any time you may by notice to the Company (the
"Registration Notice") request that it register for sale under the
Securities Act, in the manner specified in your Registration Notice,
all or any portion of the Option Shares and any other shares of Common
Stock that have been issued or are issuable to you and/or Oprah
Winfrey upon the exercise of stock options granted or to be granted
pursuant to the Harpo Agreement, including any prior or subsequent
amendment to that agreement (collectively, together with the Option
Shares, the "Agreement Shares"), and that have been purchased, or will
be purchased on or before the effective date of such registration
statement, or, provided that deferral of the date of purchase to the
closing date of sale of such shares in the manner contemplated by the
proposed registration will not disqualify
4
<PAGE> 5
the offering from registration on Form S-3 (or any successor to such
form), then on such closing date pursuant to such exercise.
(b) Promptly following receipt of your Registration
Notice, the Company shall commence to prepare and, unless it elects to
purchase all of the Agreement Shares specified in such Registration
Notice through the procedures specified in Section 10(f) below, shall
file a registration statement under the Securities Act for the sale of
the Agreement Shares specified in such Registration Notice (less any
shares to be purchased pursuant to Section 10(f) below) and shall use
its best efforts to cause such registration statement to become
effective and remain in effect for the Required Effective Period for
public sale in accordance with the method of disposition specified by
you, provided, however, that the Company shall not be required to file
a "shelf" registration except on Form S-3 (or any successor to such
Form). The "Required Effective Period" shall be the greater of (A)
the 180-day period following the effective date of such registration
statement; and (B) unless the proposed plan of distribution involves a
firm commitment underwritten public offering, the period required to
dispose of all of the shares included in such registration statement
assuming the sale in each three- month period of the maximum number of
shares permitted to be sold under the limitations of Section 14 of
this Agreement. If such method of disposition shall be an
underwritten public offering, the Company may designate the managing
underwriter of such offering. If, in the good faith opinion of the
Board of Directors of the Company, registration would materially
interfere with pre-existing contractual obligations to which the
Company is then subject or financing arrangements or other material
transactions involving the Company or any of its subsidiaries are
pending at the time the Registration Notice is given, or are under
active consideration by the Company, the Company may elect to defer
registration for such period of time, in no event in excess of one
hundred twenty (120) days from the date on which the Registration
Notice was given, as in the good faith judgment of the Board of
Directors of the Company is necessary in order to preclude adverse
impact upon such financing or other transaction. In the event of such
deferral, if the shares to be registered are to be acquired on
exercise of this Option following the date of such Registration
Notice, the date on which the Option was exercised shall, for purposes
of Section 2 and 7(d) hereof, be deemed to be the date on which the
Registration Notice was given. The obligation of the Company under
this Section 10 shall be deemed satisfied only when a registration
statement covering all Agreement Shares specified in your Registration
5
<PAGE> 6
Notice and not purchased by the Company pursuant to Section 10(f)
below shall have become effective and, (X) if the method of
disposition you specify is a firm commitment underwritten public
offering, all such Agreement Shares shall have been sold pursuant
thereto; or (Y) if it is not such an offering, has remained in effect
for the Required Effective Period specified herein or until the
distribution of the Agreement Shares covered thereby is completed,
whichever is shorter.
(c) The Company shall not be obligated to register Agreement
Shares pursuant to this Section 10 (i) more than once; (ii) in any
period of twelve consecutive months in which any Agreement Shares have
been registered pursuant to the exercise of a demand registration
right granted pursuant to any other agreement between the Company and
you or Oprah Winfrey; or (iii) at any time when the registration,
offering or sale of Option Shares would violate any law, rule or
regulation. For purposes of the foregoing sentence, (X) a
registration under this Option or the corresponding provisions of the
option agreement issued to Oprah Winfrey on the date hereof shall be
aggregated (so that a registration initiated by you pursuant to this
Section 10 shall decrease by one the number of demand registrations
available to each of you and Oprah Winfrey pursuant said corresponding
provisions, and vice versa) and (Y) any request for registration given
by you shall, as a condition to its effectiveness, be confirmed in
writing by Oprah Winfrey (provided that she is then competent to give
such confirmation). If any Agreement Shares included in a
registration statement filed pursuant to this Section 10 were issued
upon the exercise of any other stock option granted to you or Oprah
Winfrey pursuant to the Harpo Agreement, the number of "demand"
registration rights granted to you and to Oprah Winfrey pursuant to
such stock option or stock options shall each be reduced by one.
(d) The Company shall be entitled to include in any
registration statement referred to in this Section 10, for sale in
accordance with the method of disposition you specify, shares of
Common Stock to be sold by the Company for its own account or by other
security holders of the Company for their accounts, or both, except as
and to the extent that, in the opinion of the managing underwriter (if
such method of disposition shall be an underwritten public offering),
such inclusion would adversely affect the marketing of the Agreement
Shares to be sold.
(e) The procedures for registration of Agreement Shares
under this Section 10 shall conform to the following:
6
<PAGE> 7
(1) Obligations of the Company. If and whenever
the Company is required by the provisions of Section 10 or 11 to
effect the registration of Agreement Shares, the Company will:
(i) Prepare and file with the Commission a
registration statement with respect to such securities and use its
best efforts to cause such registration statement to become and remain
effective for the Required Effective Period or until the securities
covered by such registration statement have been sold in accordance
with the method of disposition specified by you in your Registration
Notice, whichever is shorter, and prepare and file with the Commission
such amendments or supplements to such registration statement and
supplements to the prospectus contained therein as may be necessary to
keep such registration statement effective for the Required Effective
Period or until the shares covered by such registration statement have
been sold in accordance with such method of disposition, whichever is
shorter;
(ii) If the offering is to be underwritten
in whole or in part, enter into a written underwriting agreement in
form and substance reasonably satisfactory to the managing underwriter
or underwriters of the public offering of such securities;
(iii) Furnish to the shareholders
participating in such registration and to the underwriters of the
securities being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and
such other documents as such underwriters may reasonably request in
order to facilitate the public offering of such securities;
(iv) Use its best efforts to register or
qualify the shares covered by such registration statement under such
state securities or blue sky laws of such jurisdictions as you may
reasonably request within 20 days following the original filing of
such registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(v) Notify you promptly after it shall
receive notice thereof, of the time when such registration statement
has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
7
<PAGE> 8
(vi) Notify you promptly of any request by
the Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(vii) Prepare and file with the Commission,
promptly upon your request, any amendments or supplements to such
registration statement or prospectus which, in the opinion of your
counsel, are required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of the
Option Shares by you;
(viii) Prepare and promptly file with the
Commission and promptly notify you of the filing of such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when
a prospectus relating to such shares is required to be delivered under
the Securities Act, any event shall have occurred as the result of
which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading;
(ix) In case you or any underwriters for you
is required to deliver a prospectus at a time when the prospectus then
in effect may no longer be used under the Securities Act, prepare
promptly upon request such amendment or amendments to such
registration statement and such prospectus or prospectus as may be
necessary to permit compliance with the requirements of the Securities
Act;
(x) Advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of such
registration statement; or the initiation or threatening of any
proceeding for that purpose and promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued;
(xi) If such registration is by way of an
underwritten public offering and if you so request, use its best
efforts to cause counsel and the independent certified public
accountants to the Company to furnish on the effective date of the
registration statement and at the closing provided for in the
underwriting agreement, (i) an opinion dated such date, of the counsel
representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to you, covering such
matters with respect to the regis-
8
<PAGE> 9
tration statement and prospectus and each amendment or supplement
thereto, proceedings under state and federal securities laws and other
matters relating to the Company, the securities included in the
registration statement and the offer and sale of such securities as
are customarily the subject of opinions of issuer's counsel provided
to underwriters at or about the time such registration statement
becomes effective and the sale is closed; and (ii) a letter dated each
such date, from the independent certified public accountants of the
Company, addressed to the underwriters, if any, and to you, stating
that they are independent certified public accountants within the
meaning of the Securities Act and providing such assurances as are
customarily provided by the independent certified public accountants
for an issuer in connection with the registration of securities,
including information as to the period ending not more than five
business days prior to the date of such letter with respect to the
registration statement and prospectus, as the underwriters or you may
reasonably request. If the furnishing of such opinion and/or letter
causes Company to incur any additional cost or expense, you agree to
reimburse Company therefor at the closing provided for in the
underwriting agreement.
(2) Obligations of Option Holder. It shall be a
condition to the inclusion of any Agreement Shares in a registration
statement that the holder thereof shall cooperate in the execution and
filing of the registration statement and any necessary state
securities law filings, and if the offering is to be underwritten,
that such holder become a party to the underwriting agreement and, if
so requested by the managing underwriter, execute and deliver Powers
of Attorney and/or custodial agreements or other suitable arrangements
as the managing underwriter deems reasonably necessary in order to
insure orderly sale of the shares.
As among the holders of shares included in any registration
statement, decisions respecting the terms and conditions of any
underwriting agreements shall be made by the party initiating the
registration; so that in the case of a registration required pursuant
to a request by you under Section 10, determinations with respect to
the underwriting agreement shall be made by you, in your reasonable
judgment, after appropriate consultation with the Company and with
other persons whose shares are to be included in such offering; and if
you are party to a registration statement pursuant to Section 11, you
shall not have the right to make such determinations, but shall be
informed of them, and consulted with respect thereto.
9
<PAGE> 10
(f) Within ten (10) business days following receipt of a
Registration Notice, the Company may elect, by written notice to you,
to purchase all or any portion of the Agreement Shares specified by you
in such Registration Notice for a purchase price equal to the closing
price of the Common Stock on the date such notice was given. In the
event that the Company elects to purchase any of the Agreement Shares
specified by you in such notice, the delivery of such Agreement Shares
against payment therefor shall take place on the fifth business day
following receipt by you of the Company's election notice. In the
event that the Company does not elect to purchase all of the Agreement
Shares specified by you in such Registration Notice, the Company shall
register under the Securities Act all the Agreement Shares not so
purchased, in the manner provided above.
11. Incidental Registration. If the Company at any time
(other than pursuant to Section 10 hereof) proposes to register any of
its Common Stock under the Securities Act for sale to the public,
whether for its own account or for the account of other security
holders or both (except with respect to registration statements on
Forms S-4 or S-8 or another form not available for registering the
Option Shares for sale to the public), it will give written notice at
such time to you of its intention to do so. Upon your written request,
given within 30 days after receipt of any such notice by the Company,
to register any of the Option Shares that you have purchased, or will
purchase on or before the effective date of such registration
statement, pursuant to the exercise of the Option (which request shall
state the intended method of disposition thereof), the Company will use
its best efforts to cause such Option Shares to be included in the
securities to be covered by the registration statement proposed to be
filed by the Company, all to the extent requisite to permit the sale or
other disposition by you of the Option Shares so registered. In the
event that any registration pursuant to this Section 11 shall be, in
whole or in part, an underwritten public offering of Common Stock, any
request by you pursuant to this Section 11 to register Option Shares
shall specify that either (i) such Option Shares are to be included in
the underwriting on the same terms and conditions as the shares of
Common Stock otherwise being sold through underwriters under such
registration; or (ii) such Option Shares are to be sold in the open
market without any underwriting, on terms and conditions comparable to
those normally applicable to offerings of common stock in reasonably
similar circumstances. The number of Option Shares to be included in
such an underwriting may be reduced if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold therein by
the Company or other security holders of the Company.
10
<PAGE> 11
Notwithstanding anything to the contrary contained in this
Section 11, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Option Shares and you do not elect to sell any Option Shares to the
underwriters of the Company's securities in connection with such offering, you
agree to refrain from selling any Option Shares during the period of
distribution of the Company's securities by such underwriters and the period in
which the underwriting syndicate participates in the after market; provided,
however, that you shall, in any event, be entitled to sell Option Shares
commencing on the 150th day after the effective date of such registration
statement.
12. Expenses.
(a) The expenses incurred by the Company in complying
with the registration pursuant to Section 10 and all registrations pursuant to
Section 11 hereof shall be paid as follows:
(i) all registration and filing fees, printing expenses,
fees and disbursements of counsel and independent public accountants
for the Company, fees of the National Association of Securities
Dealers, Inc. and/or the New York Stock Exchange, transfer taxes, fees
of transfer agents and registrars, costs of insurance and other costs
not described in (ii) below shall be paid by the Company; and
(ii) fees and expenses of your counsel, and all
underwriting discounts and selling commissions applicable to the sale
of Agreement Shares sold by you, and any additional cost or expense
incurred by the Company pursuant to your request under Section
(10)(e)(1)(xi), shall be paid by you.
13. Indemnification. In the event of a registration of
Agreement Shares under the Securities Act pursuant to Section 10 or 11 hereof,
the Company will indemnify and hold you harmless against any losses, claims,
damages or liabilities, joint or several, to which you may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Option Shares were registered under
the Securities Act pursuant to Section 10 or 11, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse you for any legal or other
expenses reasonably incurred in connection with
11
<PAGE> 12
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing by
you for inclusion in such registration statement.
In the event of a registration of any of the Agreement Shares
under the Securities Act pursuant to Section 10 or 11 hereof, you will indemnify
and hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer or director or underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such Agreement
Shares were registered under the Securities Act pursuant to Section 10 or 11,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that you will be liable hereunder in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information furnished to the Company by you in writing for
inclusion in such registration statement.
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party other than under this Section 13. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof,
12
<PAGE> 13
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 13 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party, or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall have
the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two paragraphs
of this Section 13 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such
13
<PAGE> 14
proportion as appropriate to reflect the relative fault of the Company, on the
one hand, and you, on the other, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or actions as well
as any other relevant equitable considerations, including the failure to give
any notice under the third paragraph of this Section 13. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact relates to information supplied by
the Company, on the one hand, or you, on the other, and to the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and you agree that it would not be just
and equitable if contributions pursuant to this paragraph were determined by pro
rata allocation or by any other method of allocation which did not take account
of the equitable considerations referred to above in this paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities or action in respect thereof, referred to above in this
paragraph, shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentations
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
The indemnification of underwriters provided for in this
Section 13 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters. Upon your reasonable
request, or upon the reasonable request of any underwriter of Agreement Shares,
the Company shall obtain, if reasonably available, an insurance policy covering
the risks described above in this Section 13 in an amount and with a deductible
reasonably requested by you or such underwriter and naming you, any underwriter
of such stock and any person controlling you or such underwriter as
beneficiaries. The costs of obtaining and maintaining any such insurance shall
be borne by the Company.
14. Sale of Option Shares.
(a) You hereby agree to limit your sales of Agreement
Shares so that, except for sales pursuant to underwritten, firm commitment
public offerings, your sales of Agreement Shares, aggregated with sales of
Agreement Shares by Oprah Winfrey, shall not exceed in any three-month period
the greater of (i) one percent of the outstanding shares of Common Stock of the
Company, as disclosed in its public report most recently filed with the
Securities and Exchange Commission before the date of any sale and (ii) the
average weekly reported volume of trading in Common Stock of the
14
<PAGE> 15
Company on the New York Stock Exchange and all other national securities
exchanges during the four calendar weeks preceding the date of any sale;
provided however, that upon any "Change in Control" (as such term is defined in
Exhibit B of the Harpo Amendment) of the Company, the foregoing restriction
shall be reduced or eliminated to the extent that any volume restrictions on
resales of Common Stock that then apply to Roger King and/or any other person
who was an executive officer of the Company prior to such Change in Control are
more favorable than those afforded to you pursuant to this Option.
Notwithstanding anything to the contrary contained in this Agreement, you shall
not be entitled to register, sell or dispose of any Agreement Shares that are
subject to any liens, claims, security interests and other encumbrances of any
kind, unless and until the same are removed (or will be removed in conjunction
with their sale).
(b) In order to secure the repayment to the Company of
the Secured Amount (as defined in the Harpo Amendment) pursuant to the Harpo
Agreement, you hereby grant to the Company a first priority lien and security
interest (the "Security Interest") in (i) your rights under this Option, (ii)
all Option Shares now or hereafter issuable or issued pursuant to the exercise
of the Option and (iii) all proceeds thereof (collectively, the "Stock Option
Collateral"), provided that, unless and until the Company notifies you that the
amount of Harpo's Share of Revenues (as defined in the Harpo Amendment) which
the Company reasonably projects at the time of such notice will be payable to
Harpo would be inadequate to fully secure the Secured Amount (an "Additional
Security Notice"; such notice specifying, in reasonable detail, the amount of
such inadequacy (the "Security Shortfall")), you may exercise the Option, sell
the Option Shares issued to you upon such exercise and retain the proceeds
thereof without restriction. The Security Interest shall, in any event, be
limited to such number of shares of Common Stock (and to the Option to the
extent corresponding to such shares) that, as of the date of such Additional
Security Notice, would, upon sale at a price per share equal to the closing
price of the Common Stock on the New York Stock Exchange, generate Net
Realizable Value equal to the projected amount of the Security Shortfall. The
Net Realizable Value of an Option Share at any time shall be the fair market
value of such share at such time less the sum of (i) the Option Price for such
Option Share, and (ii) a provision for taxes equal to the difference between
such fair market value and such Option Price (the "Option Gain") multiplied by
the highest rate of federal and state income tax to which the Option Gain will
be subject (with offset for deductibility of such state taxes). At any time
that any Stock Option Collateral is subject to the Security Interest, you may
obtain its release from the Security Interest by substituting alternate
collateral, as more fully set forth in the Security and Pledge Agreement dated
as of
15
<PAGE> 16
______________ among you, the Company, Harpo, Jacobs & Company and Oprah
Winfrey (the "Security and Pledge Agreement"). You hereby agree to take such
steps as are reasonably requested by the Company to perfect the Security
Interest, including the execution and filing of UCC-1 financing statements in
such form as reasonably requested by the Company, the delivery to the Company of
the certificates evidencing the Option Shares, the delivery to such third-party
financial intermediaries as may from time to time be requested by the Company of
written notice confirming the Security Interest and obtaining the written
confirmation and agreement of any such financial intermediaries that such Option
Shares and the proceeds thereof are subject to the Security Interest, and that
such financial intermediaries shall hold the Option Shares and the proceeds
thereof as agent for the Company, as pledgee, subject to such written
confirmation and agreement. Upon the occurrence of an Event of Default (as such
term is defined in the Security and Pledge Agreement), the Company shall have
all of the rights and remedies of a secured party under the Uniform Commercial
Code in all relevant jurisdictions with respect to the Stock Option Collateral.
15. Defaults. It shall constitute a breach of this
Agreement by either party if such party shall fail or refuse to fully perform
any of its obligations under this Agreement and shall not have cured such
failure or refusal within 30 days after receipt from the other party of written
notice advising it of such failure or refusal, or, in the event that such
failure or refusal is of a nature that cannot be cured within 30 days, then if
such party shall not begin to cure the same within such 30-day period and
thereafter diligently prosecute such cure to completion.
16. Successors; No Assignment. Each of the covenants,
terms, provisions and agreements contained herein shall be binding upon and
inure to the benefit of the parties' successors and assigns. Neither the
Option, nor any of the rights granted to you pursuant hereto, may be transferred
or assigned (including, without limitation, by operation of law), except by will
or the laws of descent and distribution.
17. Withholding Taxes. In the event that the Company is
required to withhold any Federal, state or local taxes in respect of the grant
of the Option or in respect of the acquisition of any Option Shares, the Company
may deduct from any payments of any kind otherwise due to you under the Harpo
Agreement the aggregate amount of such Federal, state or local taxes required to
be so withheld or, if such payments are insufficient to satisfy such Federal,
state or local taxes or if no such payments are due or to become due, then, you
will be required to pay to the Company, or to make other arrangements
satisfactory to the Company regarding payment to
16
<PAGE> 17
the Company of, the aggregate amount of any such taxes. All matters with
respect to the total amount of taxes to be withheld shall be determined by the
Company in its sole discretion.
18. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York. If any one
or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
17
<PAGE> 18
Please acknowledge receipt of this Option Agreement and
agreement with the terms hereof by signing the enclosed copy of this Option
Agreement in the space provided below.
KING WORLD PRODUCTIONS, INC.
By__________________________
Accepted and Agreed:
___________________________
Jeffrey D. Jacobs
18
<PAGE> 19
King World Productions, Inc.
OPTION EXERCISE FORM
Jeffrey D. Jacobs hereby exercises his right to purchase
________ shares of Common Stock, $.01 par value, of King World Productions,
Inc. pursuant to the option granted to him on March 17, 1994, memorialized in
the Option Agreement, dated as of _______________, between him and King World
Productions, Inc.
Date:__________________ __________________________
Jeffrey D. Jacobs
Send a completed copy of this Option Exercise Form to:
Vice President - Finance
King World Productions, Inc.
c/o King World Corporation
830 Morris Turnpike
Short Hills, New Jersey 07078
19
<PAGE> 1
EXHIBIT 10.24
KING WORLD F.S.C. CORPORATION
830 Morris Turnpike
Short Hills, New Jersey 07078
Dated as of July 11, 1995
Unilever NV
c/o Mr. Pierre-Marie Guiollot
President - Director General
E.C. Television Paris
115 rue de Bac
75007 Paris
France
Dear Pierre:
Reference is made to the agreement between Unilever NV ("Unilever"),
through its then agent Lintas International Limited ("Lintas"), and King World
F.S.C. Corporation ("KW"), through its then agent Buena Vista International,
Inc. ("BVI"), dated June 2, 1988, as amended as of June 13, 1989, as of
September 19, 1991 and as of June 13, 1994 (the "Original Agreement"). Unless
otherwise specified herein, all defined terms herein shall have the meanings
set forth in the Original Agreement. All Dollar amounts shall mean United
States Dollars. The amendments to the Original Agreement hereunder shall become
effective on the commencement of the Second Extended Renewal Period (as defined
in Paragraph A below). Unilever and KW agree to amend the Original Agreement
as follows:
A. The License Term shall be extended for the period January 1, 1996
through December 31, 1996 (the "Second Extended Renewal Period").
B. The guaranteed minimum license fee during the Second Extended
Renewal Period shall be equal to *********************************************
******************************************************************************
.
C. With respect to telecasts of Wheel in France, the royalty payable
to KW by Unilever for each telecast of each episode of Wheel during the Second
Extended Renewal Period shall be *********************************************
.
<PAGE> 2
D. With respect to telecasts of Wheel in Spain, the royalty payable to
KW by Unilever shall be an amount equal to ************************************
E. With respect to telecasts of Wheel in Italy, the royalty payable to
KW by Unilever shall be an amount equal to ************************************
F. (a) With respect to telecasts of Jeopardy in Germany, Austria,
Lichtenstein and Alto Adige, as well as German-speaking Luxembourg and
German-speaking Switzerland (collectively, the "German Speaking Territories"),
the royalty payable to KW by Unilever for each telecast of each episode of
Jeopardy during the Second Extended Renewal Period (the "German Royalty")
shall be **********************************************************************
(b) The German Royalty shall not be subject to any other
increases, adjustments or premiums; provided, however, that in the event that
Unilever's licensee receives any advertising from Jeopardy telecasts in any
of the German Speaking Territories (other than Germany), then, in addition to
the applicable German Royalty, Unilever shall pay an additional royalty to KW
calculated as follows: ******************************************************
G. Except with respect to telecasts of Wheel in France (the royalties
for which are set forth in Paragraph C above), telecasts of Wheel in Spain (the
royalties for which are set forth in Paragraph D above), telecasts of Wheel in
Italy (the royalties for which are set forth in Paragraph E above), and
telecasts of Jeopardy in the German Speaking Territories (the royalties for
which are set forth in Paragraph F above), with respect to all countries within
Territory A, the Royalty Rate for each such country during the Second Extended
Renewal Period shall be ******************************************************
- 2 -
<PAGE> 3
*******************************************************************************
*******************************************************************************
H. Unilever shall consult with KW on a meaningful basis on any and all
sales presentations made by Unilever, and KW shall be informed by Unilever of
any and all discussions regarding the launch or license renewal of either
Series. Without limitation of the foregoing, in the event that Unilever
licenses either Series in any country in the Territory to a new telecaster-
licensee for a new production, or that the production entity of any existing
production of either Series is proposed to be changed, then, Unilever shall
cause KW to be afforded a right of first negotiation to produce or co-produce
such production. In the event that KW does not itself produce or co-produce
such production, KW shall have the right to approve the production entity for
such production, which approval shall not be unreasonably withheld or delayed
(any failure by KW to respond within 10 business days to a request by Unilever
for such approval to be deemed approval of such request by KW).
Except as modified hereunder, the Original Agreement shall remain in
full force and effect.
Very truly yours,
KING WORLD F.S.C. CORPORATION
By: /s/ Jonathan Birkhahn
--------------------------------
ACCEPTED AND AGREED TO:
UNILEVER NV
By: E.C. TELEVISION INC.
By: /s/ Pierre-Marie Guiollot
------------------------------
- 3 -
<PAGE> 4
SCHEDULE A
WHEEL OF FORTUNE and JEOPARDY!
License Fee Schedule For Calendar Year 1996
(Royalty Payment In US Dollars Per Episode Per Telecast)
<TABLE>
<CAPTION>
Territories WHEEL JEOPARDY
<S> <C> <C>
Belgium ***** ***
Denmark ***** ***
Finland ***** ***
France ***** ***
German-Speaking Territories ***** ***
Greece ***** ***
Italy ***** ***
Netherlands ***** ***
Portugal ***** ***
Spain ***** ***
Sweden & Norway ***** ***
United Kingdom ***** ***
</TABLE>
TBD Territories
Andorra
Iceland
Ireland
Luxembourg
Malta
Monaco
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries of the Registrant
American Journal Inc., a New York corporation.
Buffalo Management Enterprises Co. Inc., a New York corporation
Camelot Entertainment Sales of Delaware, Inc., a Delaware
corporation.
Four Crowns Inc., a Delaware corporation
Inside Edition Inc., a New York corporation.
K.W.M., Inc., a Delaware corporation.
King World Corporation, a Delaware corporation
King World Direct Inc., a Delaware corporation
King World FSC Corporation, a Virgin Islands corporation.
King World/RWS Inc., a New York corporation
King World/LBS Inc., a New York corporation
King World Merchandising, Inc., a Delaware corporation.
Quickstead Inc., a California corporation.
Topper Productions Inc., a California corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated October 31, 1995 included in this Form 10-K, into the
Company's previously filed Registration Statements File No. 33-30694, No.
33-30695, No. 33-71696 and No. 33-54691.
ARTHUR ANDERSEN LLP
New York, New York /s/ Arthur Andersen LLP
November , 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 46,896
<SECURITIES> 0
<RECEIVABLES> 55,552
<ALLOWANCES> 4,196
<INVENTORY> 0
<CURRENT-ASSETS> 588,843
<PP&E> 12,955
<DEPRECIATION> (9,703)
<TOTAL-ASSETS> 686,786
<CURRENT-LIABILITIES> 111,049
<BONDS> 0
<COMMON> 499
0
0
<OTHER-SE> 575,238
<TOTAL-LIABILITY-AND-EQUITY> 686,786
<SALES> 0
<TOTAL-REVENUES> 574,186
<CGS> 0
<TOTAL-COSTS> 341,536
<OTHER-EXPENSES> 70,234
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 183,258
<INCOME-TAX> 65,946
<INCOME-CONTINUING> 117,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,312
<EPS-PRIMARY> 3.14
<EPS-DILUTED> 3.14
</TABLE>
