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
For the fiscal year ended August 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI-
TIES EXCHANGE ACT OF 1934
For transition period from to
Commission file number: 1-9244
KING WORLD PRODUCTIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-2565808
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12400 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 310-826-1108
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, New York Stock Exchange
$.01 par value
Securities registered pursuant to Section 12(g) of the Act:
None
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(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 ____
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the Common Stock of the registrant held
by non-affiliates as of November 10, 1998 was approximately $ 1.7 billion.
As of November 10, 1998, there were 71,553,731 outstanding shares of
the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its 1999 annual
meeting of stockholders (which is to be filed pursuant to Regulation 14A not
later than December 29, 1998) is incorporated by reference into Part III of this
Form 10-K.
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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 Vice Chairman and Chief Executive Officer, and Diana King, a Vice
President and the Secretary of King World, are directors of the Company and are
actively involved in its management. 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 12400 Wilshire Boulevard, Suite 1200, Los Angeles, California
90025. 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.
This Report contains certain forward-looking statements covering the
Company's objectives, planned or expected activities and anticipated financial
performance. These forward-looking statements may generally be identified by
words such as "expects", "anticipates", "believes", "plans", "should", "will",
"may", "projects" (or variants of these words or phrases), or similar language
indicating the expression of an opinion or view concerning the future with
respect to the Company's financial position, results of operations, prospects or
business. The Company's actual results may differ significantly from the results
described in or suggested by such forward-looking statements.
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Programming and Related Operations
FIRST-RUN TELEVISION SYNDICATION
In general terms, television syndication is a process by which
a company, such as King World, sells programming on a market-by-market basis to
television stations (whether network affiliates or independents); "first-run"
refers to programming that airs initially in syndication (in contrast to "off
network" programming, which airs initially on a network); and "strip" refers to
programming that airs Monday through Friday at the same time of day. 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 first-run
series in national syndication, as reported in the July 1998 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 (based on original
telecasts). According to Nielsen, WHEEL OF FORTUNE has had the highest ratings
among shows in national syndication for the last 59 consecutive sweeps periods,
JEOPARDY! has had the second highest ratings among such shows for each of the
last 52 consecutive sweeps periods and THE OPRAH WINFREY SHOW has had the third
highest ratings among such shows for 40 of the last 47 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
$683.9 million in fiscal 1998 and its net income has increased from $9.8 million
in fiscal 1985 to $136.0 million in fiscal 1998. 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
88% of King World's revenues for the fiscal year ended August 31, 1998. The
Company distributes two other first-run syndicated shows, HOLLYWOOD SQUARES and
THE ROSEANNE SHOW, both of which premiered in September 1998.
The United States market for television programming is
currently comprised principally of four components: (i) the major broadcast
television networks (ABC, CBS, NBC, FOX and two emerging networks, UPN and WB)
in conjunction with their respective affiliated stations; (ii) independent
broadcast television stations (that is, stations that are not affiliated with
such networks); (iii) basic cable services (such as USA Network, The Discovery
Channel, MTV and Nickelodeon); and (iv) pay cable services (such as HBO and
Showtime). Although this market is still dominated by the broadcast networks,
each of which has affiliations with television stations that enable such
networks to reach virtually all of the significant television markets in the
United States, cable television networks (the most successful of which reach
more than 70% of all U.S. television households) have generally been achieving
increasing ratings in recent years. Recently developed digital compression
technology, combined with fiber optics or small-sized satellite dishes may in
coming years permit cable companies or direct broadcast satellite systems (which
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carry, among other programming, many cable television networks) to expand the
domestic television market to hundreds of channels.
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, and stations affiliated with
those networks, broadcast schedules consisting primarily of programming produced
for initial exhibition by the networks. (The WB and the UPN each currently
supplies its respective affiliates with prime-time programming five evenings per
week and with several hours per week of non-prime-time programming.) 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 time, broadcast their own programming,
off-network programming and first-run syndicated programming; some of such
stations are affiliated with the WB or the UPN. Some cable operators, in
addition to other services that they offer, telecast syndicated programming.
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 for available time
periods primarily with other first-run syndicated programming, network reruns
and programming produced by local television stations.
Nielsen divides the United States into 211 designated market areas and
approximately 30 additional special market areas that, on the basis of size and
the other Nielsen criteria, do not qualify as designated market areas. The 241
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 1997-1998 broadcast season, WHEEL OF FORTUNE was licensed to
television stations in 207 Nielsen market areas in the United States, covering
over 99% of total domestic television households, and for the current broadcast
season has been licensed to television stations in 204 Nielsen market areas,
also covering over 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 the 1997-1998 broadcast season, JEOPARDY! was
licensed to television stations in 200 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
198 Nielsen market areas, also covering approximately 99% 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 originally 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 1997-1998 broadcast
season, THE OPRAH WINFREY SHOW was licensed to television stations in 208
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 television stations in 206 Nielsen market areas, also 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 was the first television series produced by King
World. INSIDE EDITION is produced at the Company's production facility in New
York and has a correspondent bureau in Los Angeles to enhance the ability of the
program to provide nationwide coverage. For the 1997-1998 broadcast season,
INSIDE EDITION was licensed to television stations in 148 Nielsen market areas,
covering approximately 90% of total domestic television households, and for the
current broadcast season, the series has been licensed to television stations in
130 Nielsen market areas, covering approximately 85% of total domestic
television households.
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HOLLYWOOD SQUARES, a new half-hour strip version of the popular game
show featuring Whoopi Goldberg as the "Center Square," premiered in September
1998. For the current broadcast season, HOLLYWOOD SQUARES has been licensed to
television stations in 159 Nielsen market areas, covering approximately 90% of
total domestic television households.
THE ROSEANNE SHOW, an hour-long strip talk show hosted by Roseanne,
premiered in September 1998. For the current broadcast season, THE ROSEANNE SHOW
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 was produced by King World, premiered in September 1993. For the 1997-1998
broadcast season, AMERICAN JOURNAL was licensed to television stations in 104
Nielsen market areas, covering approximately 82% of total domestic television
households. The distribution of AMERICAN JOURNAL ceased at the end of that
season.
Each of THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE, JEOPARDY!, INSIDE
EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW has been licensed to television
stations for exhibition in the current and in future broadcast seasons. The
licenses for future seasons commence with the 1999-2000 broadcast season and
extend, in certain cases, as far into the future as the 2004-2005 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 November 10, 1998, the gross amount of license
fees under such agreements approximated $2.0 billion, of which approximately
$1.3 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, 1998 is
subject to several conditions, including the Company's continued distribution of
such programming. Such amounts do not include sales of advertising time
retained during the broadcast of such programming or foreign license fees.
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, Alex Trebek, Whoopi Goldberg and Roseanne 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 or creating 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 2001- 2002 broadcast
season. In October 1995, Harpo and Ms. Winfrey committed to produce and host the
series through the 1997-1998 season; in September 1997, Harpo and Ms. Winfrey
committed to continue to produce and host the series through the 1999-2000
broadcast season; and in September 1998, Harpo and Ms. Winfrey committed to
continue to produce and host the series through the 2001-2002 broadcast season.
Under the terms of its agreement with Harpo, following the 1996- 1997
broadcast season, the profit sharing arrangements between Harpo and the Company
previously in effect were terminated and, in the 1997-1998 broadcast season and
thereafter, the Company instead receives distribution fees based on a percentage
of gross revenues derived from the series. These arrangements are less favorable
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to the Company than those contained in prior agreements between the Company and
Harpo. As a result of these changes, the Company's net profits and cash flow
have declined. Also, the distribution fees payable to the Company for the
2000-2001 and 2001-2002 broadcast seasons are significantly lower than those
applicable to seasons through the 1999-2000 broadcast season, and, as a result,
the contribution of THE OPRAH WINFREY SHOW to the Company's net profits and cash
flow will further decline.
After the 2001-2002 broadcast season, Harpo will not be obligated to
distribute the series through the Company, if it elects to produce the series at
all, and Ms. Winfrey will no longer be subject to any contractual restrictions
with the Company on her ability to appear in television shows with the same or
similar format as THE OPRAH WINFREY SHOW. See Item 7, "Management's Discussion
and Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources".
The Company's agreements with Columbia TriStar Television, the
producer of WHEEL OF FORTUNE and JEOPARDY!, provide that King World will 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 other game shows for first-run strip syndication
so long as the Company is distributing WHEEL OF FORTUNE or JEOPARDY!.
The Company has an agreement with Columbia TriStar Television to
co-produce a new strip version of HOLLYWOOD SQUARES for distribution by the
Company in first-run syndication. This series premiered in September 1998. As of
November 10, 1998, the series had been licensed for the 1998-1999, 1999-2000 and
2000-2001 broadcast seasons to televisions stations covering approximately 80%
of the total domestic television viewing households.
The Company also has an agreement with Full Moon & High Tide
Productions, Inc., a company controlled by Roseanne, to co-produce THE ROSEANNE
SHOW, an hour-long, strip talk show hosted by Roseanne and distributed by the
Company in first-run syndication. The series premiered in September 1998. Under
the terms of the agreement, the Company has the exclusive right to distribute
the show through the 2003-2004 broadcast season. As of November 10, 1998, the
series had been licensed for the 1998-1999 and 1999-2000 broadcast seasons to
televisions stations covering approximately 86% of total domestic television
viewing households.
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,
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for the most part, been developing and producing original programming on its own
or in cooperation with others.
For several years, the Company has been, and is now, in the process of
developing new television shows for syndication that it hopes will gain
widespread audience appeal and generate significant revenues and income for the
Company. The Company has entered into an agreement with Dolshor Productions,
Inc., a company controlled by Martin Short, to co-produce THE MARTIN SHORT SHOW,
a talk/variety show to be hosted by Martin Short and distributed by the Company
in first-run syndication. The series is scheduled to premiere in the Fall of
1999. Under the terms of that agreement, the Company will have the exclusive
right to distribute the show through the 2004-2005 broadcast season.
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 to fund such capital investments out of its internal cash resources.
LICENSE AND DISTRIBUTION FEES
For certain first-run syndicated programs 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 the program and the amounts paid by national
advertisers for advertising time retained by the Company and sold in connection
with such program. The Company also recoups some or all of the 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 recouped 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.
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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 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 becomes obligated to pay the contracted license fee (which
will often depend on the time period in which the program is aired by that
station) and provide advertising time, if applicable, upon the delivery by the
Company of the program in question. By licensing a program to television
stations throughout the United States, the Company creates, in effect, an "ad
hoc" network of stations that have agreed to carry the program. The creation of
this ad hoc network, typically representing a penetration of at least 70% of
total U.S. television households, enables the Company to sell the resulting
commercial inventory to sponsors desiring national coverage. (See "Sale of
Advertising Time".)
In the 1998 fiscal year, approximately 14% of the Company's revenues
were derived from license fees under contracts with television stations owned by
ABC, Inc. No other television station, broadcast group or advertiser accounted
for ten percent or more of the Company's revenues in such fiscal year.
MARKETING
Sales to domestic television stations are made by the Company through
a sales force that numbered 11 persons as of November 10, 1998. 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
King World Media Sales Inc. ("KWM"), a wholly-owned subsidiary of King
World, sells advertising time within television programs. As of November 10,
1998, KWM (formerly known as Camelot Entertainment Sales, Inc.) employed 8
salespersons.
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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 1998-1999 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 each been licensed to
stations covering approximately 99% of the total domestic television households;
INSIDE EDITION has been licensed to stations covering approximately 85% of the
total domestic television households; HOLLYWOOD SQUARES has been licensed to
stations covering approximately 90% of the total domestic television households;
and THE ROSEANNE SHOW has been licensed to stations covering approximately 92%
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, KWM 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
under delivery.
Generally, a portion of the Company's contracts for the sale of its
advertising time may be canceled 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, KWM has sold advertising time primarily on television
programs distributed by King World. However, a portion of KWM'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. KWM
has agreements currently in effect with, among others, Western International
Syndication, Don Cornelius Productions, Inc. and Allied Communications
Incorporated to sell advertising time in IT'S SHOWTIME AT THE APOLLO and SOUL
TRAIN, variety programs, and the "Film Leader" package of films, respectively.
FOREIGN SALES
The number of outlets for television programming outside the United
States has been increasing with the worldwide proliferation of broadcast, cable
and satellite delivery systems. In recent years, many European governments have
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privatized television systems. The Company believes that privatized systems are
more likely to broadcast U.S. programming than government-owned networks. In
addition, both the number of pay and satellite television systems in Europe and
the number of subscribers to these systems have increased. Pay television and
satellite distribution systems are also developing in other geographic areas,
including many Asian and South American markets. In some international markets,
suppliers of programming may, however, be subject to local content and quota
requirements that prohibit or limit the amount of U.S. programming that may be
acquired.
The Company licenses episodes of WHEEL OF FORTUNE, JEOPARDY!, THE
OPRAH WINFREY SHOW, INSIDE EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW in
Canada and in certain other English-speaking foreign territories (or to
English-speaking channels in non-English-speaking territories). The Company also
licenses the production of local versions of WHEEL OF FORTUNE and JEOPARDY! in a
number of other major foreign territories. 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 (including Canada) accounted for
approximately 6% of King World's revenues in fiscal 1998.
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 the Sears
Craftsman line of hardware. Revenue from direct response marketing activities
accounted for approximately 1% of the Company's revenues in fiscal 1998.
MERCHANDISING AND FILM LIBRARY
The Company has granted licenses to others to produce WHEEL OF FORTUNE
and JEOPARDY! non-electronic boxed board games and to exploit certain of its
merchandising rights in THE LITTLE RASCALS and HOLLYWOOD SQUARES. King World
also distributes its own library of over 60 feature length films and over 200
television programs, including feature length films from Sherlock Holmes, The
East Side Kids, Mr. Moto and Charlie Chan series 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
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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 1998.
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 programs 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
Legislation and Other FCC Rules and Proposals Affecting the
Television Industry Generally
The Telecommunications Act of 1996 (the "1996 Act"), signed in
February 1996, among other things, requires the Federal Communications
Commission (the "FCC") to relax its regulation (the "Multiple Ownership Rules")
limiting the aggregate number of television stations that may be under common
ownership. Prior to passage of the 1996 Act, the Multiple Ownership Rules
permitted common ownership of, in most circumstances, up to twelve television
stations, subject (in the case of station groups) to certain limitations based
upon audience reach. As required by the 1996 Act, the FCC (in March 1996)
eliminated the numerical limitation on common ownership and relaxed the audience
reach limitation to 35% of domestic television households.
The 1996 Act also requires the FCC to re-examine provisions of the
Multiple Ownership Rules that prohibit the common ownership of stations serving
the same market. In proceedings now pending before it, the FCC is considering
relaxing the existing restrictions on common ownership of television stations
serving the same market and permitting, subject to certain restrictions, joint
venture (including joint programming) arrangements between independently owned
stations in circumstances where common ownership would otherwise be prohibited.
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The 1996 Act further requires the FCC to review its broadcast ownership rules
every two years to "determine whether any of such rules are necessary in the
public interest as a result of competition" and to repeal or modify any rules
that are deemed no longer to serve the public interest. Pursuant to this
requirement, in March 1998, the FCC began a formal inquiry to review those rules
relating to broadcast ownership that were not either modified by the 1996 Act or
already under consideration in pending FCC proceedings. Among other things, this
inquiry solicits comments on the rules that prohibit common ownership of a
broadcast television station and daily newspaper, or of a broadcast television
station and cable system, serving the same market. In addition, the FCC has
asked whether further relaxation of the national audience reach cap is warranted
and whether competition warrants relaxation of the dual network rule, which, as
revised by the 1996 Act, forbids common ownership of multiple broadcast networks
by the four major broadcast networks (ABC, CBS, NBC and Fox) or by any of these
four networks in combination with one of the two "emerging" broadcast networks
(the WB and UPN). The FCC has stated that if, in its review, it determines that
any of its broadcast ownership rules were no longer in the public interest, it
would subsequently commence appropriate rulemaking proceedings to modify or
repeal the rule or rules in question. During the pendency of these various
proceedings, the FCC has granted waivers of the existing restrictions on common
ownership of television stations serving the same market but it has not
otherwise waived or granted exceptions to any other broadcast ownership
restrictions.
King World is unable to predict the outcome of these proceedings. King
World believes that increases in the concentration of television station
ownership by broadcast groups will tend to increase the relative power of the
broadcast groups in the market for television programming and, consequently,
could adversely affect King World's bargaining position vis-a-vis its principal
customers.
The 1996 Act requires that all television sets manufactured or
imported into the United States be equipped with a device (the "V-chip") that
will enable viewers to block display of certain programs based upon content. The
1996 Act afforded the program production and distribution industries a period of
twelve months (until February 1997) within which to establish voluntary rules
for identifying and rating video programming that contains sexual, violent or
other indecent material and to agree to voluntarily transmit such ratings in a
format capable of being read by the V-chip technology. If a voluntary code was
not established (or if such a code was not acceptable to the FCC) within that
time frame, then the FCC was to be required, in consultation with an advisory
committee, to establish and enforce a rating code. The Company has participated
actively in industry efforts to establish the voluntary code. In January 1997,
the industry submitted to the FCC its proposal for a voluntary rating system,
and, in August 1997, the industry submitted a revised proposal that added to the
rating categories originally proposed. The revised proposal changed the
descriptions used to identify certain age group categories and, in some
situations, added symbols to indicate the nature of violence or sexual
situations depicted, or language used, in certain programs. In March 1998, the
FCC adopted an order finding the revised code acceptable; the FCC also
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adopted technical rules requiring television receivers (and computers) with
picture screens 13" or greater to be equipped with the V-chip technology. That
technology is, under the FCC's rules, required to be compatible with the
approved code; however, manufacturers are encouraged, but not required, to
market technology that is compatible with other potential rating systems. Under
the rules, all television receivers manufactured after January 1, 2000 to which
the rule applies must meet the V-chip requirements. The programming industry
has established an oversight monitoring board to ensure that the rating
guidelines are applied accurately and consistently to television programming.
The Company does not believe that these requirements will have a material
adverse effect on its revenues or profits. However, to the extent that any
program series (or episodes of such series) produced or distributed by King
World are subjected to restrictive ratings, there may be an adverse effect on
the distribution and/or viewing of such series.
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 broadcast 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 Company anticipates that repeal or substantial
relaxation of the Time Optioning Rule and the Station Rep Rule will tend to
increase the relative 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 sales of its
programming to network-affiliated stations, as well as the sale of King World's
barter time.
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PRIME-TIME ACCESS RULE/FINANCIAL INTEREST AND SYNDICATION RULE
Until August 1996, a rule promulgated by the FCC in the 1970's and
known as the "prime-time access rule" prohibited (subject to certain significant
exceptions) television stations owned by or affiliated with the three major
broadcast networks (ABC, CBS and NBC) 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.
In July 1995, following proceedings looking toward reconsideration or
modification of the prime-time access rule, the FCC issued a decision concluding
that the rule no longer served the public interest because the networks no
longer had 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 were 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 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 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). However, the 1991 Decision retained stringent limitations on
network involvement in first-run syndication activities, which remained in
place after the FCC further relaxed the Rules in 1993.
In August 1995, upon further review of the remaining Rules, the FCC
held that the Rules, including the restrictions on network entry into
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first-run syndication activities, were no longer necessary. Under the resulting
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 may have more difficulty licensing its
programming to stations owned and operated by the three major television
networks and anticipates that, even if the Company is able to so license its
programming, the profitability of such programming to the Company may, as a
result of terms imposed by such stations, be reduced.
OTHER REGULATORY AND LEGISLATIVE MATTERS
In October 1992, Congress enacted legislation imposing certain new
regulations on the cable television industry (the "1992 Cable Act"). 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. In March 1997, the United
States Supreme Court, after protracted litigation and by a 5 to 4 vote, upheld
the constitutionality of the "must carry" rules, against a First Amendment
challenge initiated by cable interests. Under regulations promulgated by the
FCC, stations were required to make an election between "must carry" and
"retransmission consent" in October 1998, with the election to take effect as of
January 1, 1999. Since the advent of the "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. The Company has suffered no discernible adverse impact to date from
such provisions.
In April 1997, the FCC adopted comprehensive regulations relating to
the deployment of Advanced Television Technologies ("ATV"), as required by the
1996 Act. ATV technologies will, among other things, enable existing television
stations to broadcast more than one program at the same time; and the FCC has
concluded that stations will be permitted to use the additional channel capacity
resulting from ATV for entertainment programming purposes, including
subscription programming, so long as at least one of the additional channels is
used for free, over-the-air broadcasting. The rules adopted by the FCC provide
that stations owned by or affiliated with the four major broadcast networks
(ABC, CBS, Fox and NBC) in each of the top ten markets must complete
construction of ATV facilities by May 1, 1999, that stations in markets 11-30
affiliated with those four networks must complete construction of ATV facilities
by November 1, 1999 and that all other commercial television stations must
complete construction of ATV facilities by May 1, 2002. Under the FCC rules,
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television stations will not be required to simultaneously broadcast programming
on both a conventional analog channel and any ATV channel until 2003;
thereafter, each station will be required to broadcast simultaneously on its
analog channel specified percentages of programming carried on its ATV channel
until the expected expiration of analog broadcasting, in 2006. Under the 1996
Act, the additional channels resulting from ATV technology will have "must
carry/retransmission consent" rights.
In July 1998, the FCC initiated a proceeding in which it is
considering the implementation of the must carry/retransmission consent options
in application to ATV technology. The FCC has proposed a series of implementing
options, ranging from a rule that would require cable operators to immediately
recognize the must carry/retransmission consent rights of broadcasters with
respect to the ATV channels when those channels come on the air to one under
which the question of must carry would be deferred until at least the expiration
of the ATV transition period (2006) (which latter rule would effectively require
broadcasters to rely exclusively upon their retransmission consent rights to
negotiate arrangements with cable operators with respect to the carriage of
their ATV channels during the transition period). As a part of this proceeding,
the FCC has, among other issues, raised a question of whether its "program
exclusivity rules" should be repealed. Under these rules, stations may, with the
consent of the copyright owner/distributor, require a cable system not to carry
(that it, to "blackout") a particular program or program series that is aired on
a distant television station carried by the cable system. King World has, as a
general rule, granted its station licensees the right to exercise these blackout
rights. The FCC has invited comment on whether these blackout rights might be
equally well protected through negotiations between stations and cable systems
under the retransmission consent procedures. King World has submitted comments
to the FCC contending that, under the 1992 Cable Act, any repeal of the program
exclusivity rules would not relieve broadcasters of their obligations, or expand
their rights, under existing or future program licensing agreements between them
and King World. King World is unable to predict the outcome of this proceeding.
Moreover, because the deployment of ATV technologies and the availability to
consumers of television receivers capable of delivering ATV channels to
consumers remain uncertain, the Company is unable to predict the outcome of
these developments or their impact on the Company, if any.
The 1996 Act repealed provisions of the Communications Act that
prohibited any telephone company from acquiring financial interests in video
programming and from distributing video programming in the same geographic area
in which such telephone company provides telephone service. Under the 1996 Act,
telephone companies are permitted, in most circumstances, to own and operate
cable television systems, in which event they are subject to all of the
requirements applicable to such systems including the "must
carry"/retransmission consent requirements of the 1992 Cable Act. Alternatively,
the 1996 Act permits telephone companies to directly enter the multi-channel
video distribution business on a quasi-common carrier basis ("Open Video
Systems"), pursuant to which the Open Video System operator leases channel
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<PAGE>
capacity to programmers on a non-discriminatory basis; each such operator is
required to reserve, in cases where demand exceeds channel capacity, up to
two-thirds of its channel capacity for programmers with which such operator is
not affiliated. The statute also requires that Open Video System operators
extend "must carry"/ retransmission consent rights to over-the-air television
stations in the market served. The FCC has adopted rules to implement these
requirements, but the Company cannot predict the extent of telephone company
entry into the program delivery market. However, to the extent that telephone
company entry into the production and distribution of video programming weakens
the position of over-the-air television stations in the video marketplace or
increases the cost to such stations of access to audience, this could result in
decreased audience for King World programming aired on those stations, or a
reduction in the profitability to King World of such programming.
The 1996 Act, among other requirements, directed the FCC to establish
rules requiring that new video programming be closed captioned for the hearing
impaired, and to establish timetables for implementing those captioning
obligations. The FCC adopted closed captioning rules in August 1997, which took
effect on January 1, 1998. The regulations require that all video programming
first aired after January 1, 1998, that is not exempt pursuant to the rules be
closed captioned. Legal responsibility generally falls on the "video programming
distributors," including television stations. Program producers and
distributors, however, are expected to cooperate in the process, and
distributors will be able to rely on certifications from their programming
sources indicating that the programming supplied is either captioned or exempt
under the FCC rules. All of the programming currently produced or distributed by
the Company, as well as all advertising programming produced by King World
Direct that is more than five minutes in length, will be subject to the
captioning requirements. However, the Company does not anticipate that
compliance with these new rules will have a material adverse effect on the
profitability of this programming to King World.
EMPLOYEES
As of November 10, 1998, the Company employed approximately 418
persons. Of this number, approximately 230 are involved in the production of
INSIDE EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW. Approximately 21 of the
Company's employees are covered by collective bargaining agreements.
Item 2. DESCRIPTION OF PROPERTIES
The Company's corporate headquarters are located in Los Angeles,
California, where the Company maintains executive offices, its advertising and
promotion department, programming development, direct response marketing and
licensing operations and its Western U.S. sales staff. The Company leases office
space in New York City for executive offices, the operations of KWM and the
Company's Eastern U.S. and foreign sales staff. The Company's accounting and
finance, contract administration and research departments are located in leased
offices in Short Hills, New Jersey. The Company also leases office space in
Chicago, Boca Raton 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.
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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.
HIGH LOW
Fiscal 1997
First Quarter Ended
November 30, 1996............ 19 3/8 17 3/8
Second Quarter Ended
February 28, 1997............ 20 18 1/16
Third Quarter Ended
May 31, 1997................. 19 3/16 17 5/8
Fourth Quarter Ended
August 31, 1997.............. 20 1/4 17 3/16
Fiscal 1998
First Quarter Ended
November 30, 1997............ 28 9/16 19 17/32
Second Quarter Ended
February 28, 1998............ 29 19/32 26 1/2
Third Quarter Ended
May 31, 1998................. 30 1/4 25 5/16
Fourth Quarter Ended
August 31, 1998.............. 30 1/16 21
As of the close of business on November 10, 1998, there were 568
holders of record of the Company's Common Stock.
On February 17, 1998, the Company effected a two-for-one stock split
(the "1998 Stock Split") in the form of a 100% stock dividend, which was paid to
stockholders of record on February 3, 1998. In connection with the stock split,
the Company increased the number of authorized shares of Common Stock from 75
million to 150 million, which increase was approved by the stockholders of the
Company in January 1998. All share and per share data presented herein have been
adjusted for all periods presented to reflect the stock split.
In May 1997, a special dividend distribution of $1.00 per share was
paid to stockholders of record on April 25, 1997. The Company used approximately
$74.8 million of its cash and liquid investments to pay the special dividend.
The Company has no present plan to declare additional cash dividends in the
foreseeable future. The Company requires capital resources 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 Item 7, "Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Liquidity and Capital
Resources".
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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, 1998, which have been audited and reported upon by
Arthur Andersen LLP, independent public accountants. The unaudited 1995 and 1994
pro forma information 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.
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<TABLE>
<CAPTION>
Statements of Income: Year Ended August 31,
1995 1994
1998 1997 1996 1995(1) PRO FORMA(1) 1994(1) PRO FORMA(1)
---- ---- ---- ---- --------- ---- ---------
(unaudited) (unaudited)
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $683,869 $671,277 $663,426 $574,186 $575,732 $480,659 $541,390
Income from operations............ 176,267 192,281 191,585 162,416 162,736 127,578 148,151
Income before provision
for income taxes................ 205,407 221,926 231,610(2) 183,258 183,578 140,839 161,412
Net income........................ 136,048 143,382 150,000(2) 117,312 117,490 88,300 101,196
======== ======== ======== ======== ======== ======== ========
Basic earnings per share.......... $1.86 $1.93 $2.02(2) $1.60 $1.60 $1.19 $1.36
======== ======== ======== ======== ======== ======== ========
Diluted earnings per share........ $1.79 $1.91 $1.99(2) $1.57 $1.58 $1.17 $1.34
======== ======== ======== ======== ======== ======== ========
Special dividend per share........ -- $1.00 -- -- -- -- --
======== ======== ======== ======== ======== ======== ========
Balance Sheets: August 31,
1995 1994
1998 1997 1996 1995(1) PRO FORMA(1) 1994(1) PRO FORMA(1)
---- ---- ---- ---- --------- ---- ---------
(unaudited) (unaudited)
(Dollars in thousands)
Cash and investments.............. $ 747,509 $730,049 $644,380 $529,025 $529,025 $430,048 $430,048
Advances to producers............. 130,000 65,000 130,000 60,000 60,000 60,000 60,000
Working capital................... 310,941 586,075 519,613 477,972 477,972 294,336 307,232
Total assets...................... 1,023,598 902,067 854,141 686,786 688,332 569,562 630,293
Stockholders' equity.............. 881,211 784,082 737,885 575,737 575,915 459,077 471,973
========= ======== ======== ======== ======= ======== ========
</TABLE>
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- -----------------------
1. The results of operations for fiscal 1995 and 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, basic earnings per share and diluted 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, $.17 and $.17, 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.
2. Income before provision for income taxes, net income, basic earnings per
share and diluted earnings per share include a nonrecurring gain of
approximately $14.1 million, $10.3 million, $.14 and $.14, respectively, as
a result of the Company's sale of Buffalo Broadcasting Co. Inc. to LIN
Television Corporation in October 1995. See Note 8 of Notes to Consolidated
Financial Statements.
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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.
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 King World Media Sales Inc.
("KWM"), 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. See Note 1
of Notes to Consolidated Financial Statements.
All share (excluding treasury shares) and per share data have been
adjusted to give effect to a two-for-one stock split, effected in the form of a
100% stock dividend, which was paid by the Company on February 17, 1998.
The discussion herein contains certain forward-looking statements
covering the Company's objectives, planned or expected activities and
anticipated financial performance. These forward-looking statements may
generally be identified by words such as "expects", "anticipates", "believes",
"plans", "should", "will", "may", "projects" (or variants of these words or
phrases), or similar language indicating the expression of an opinion or view
concerning the future with respect to the Company's financial position, results
of operations, prospects or business. The Company's actual results may differ
significantly from the results described in or suggested by such forward-looking
statements.
RESULTS OF OPERATIONS
Comparison of Fiscal 1998 and Fiscal 1997
REVENUES
Revenues for fiscal 1998 increased by approximately 2% compared to
fiscal 1997, primarily due to increased revenues from the sale of retained
advertising time on and increased cash license fees from THE OPRAH WINFREY SHOW,
WHEEL OF FORTUNE and JEOPARDY!, offset by lower revenues from ROLONDA, a
first-run syndicated talk-show produced and distributed by the Company (due to
the discontinuation of the show), and King World Direct, the Company's wholly
owned, direct response marketing subsidiary. The decrease in revenues from King
World Direct was attributable to significantly lower sales of the WILD AMERICA
video series and the Company's reduced participation in the revenues from Sears
Craftsman Robogrip pliers.
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The principal components of the Company's revenues for fiscal 1998 and
1997 are as follows:
1998 1997
---- ----
THE OPRAH WINFREY SHOW 42% 40%
WHEEL OF FORTUNE 21% 20%
JEOPARDY! 18% 17%
INSIDE EDITION 7% 8%
AMERICAN JOURNAL (1) 4% 4%
ROLONDA (2) -- 1%
King World Direct 1% 4%
(1) The production of AMERICAN JOURNAL was discontinued after the 1997-1998
broadcast season.
(2) The production of ROLONDA was discontinued after the 1996-1997 broadcast
season.
PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS
Producers' fees, programming and other direct operating costs include
primarily 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 program ming
distributed by the Company; participation payments payable by the Company to
producers and talent; production and distribution costs for first-run syndicated
programming; and the direct operating costs of King World Direct. That portion
of any recognized revenue that is to be paid to producers and owners of
programming is accrued as such revenues are earned. 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.
Under the terms of its agreement with Harpo, Inc. ("Harpo"), the
producer of THE OPRAH WINFREY SHOW, following the 1996-1997 broadcast season,
the profit sharing arrangements between Harpo and the Company previously in
effect were terminated and, in the 1997-1998 broadcast season and thereafter,
the Company instead receives distribution fees based on a percentage of gross
revenues derived from the series. These arrangements are less favorable to the
Company than those contained in prior agreements between the Company and Harpo.
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As a result of these changes, the contribution of THE OPRAH WINFREY SHOW to the
Company's net profits and cash flow has declined.
Producers' fees, programming and other direct operating costs
increased by approximately 9% in fiscal 1998 compared to fiscal 1997. The
increase was primarily due to the greater portion of revenues payable to Harpo,
as discussed above, as well as the increase in revenues generated by THE OPRAH
WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY! (a portion of which is payable to
the producer of each such series). These effects were partially offset by the
lower operating costs of King World Direct and a decrease in production costs
due to the discontinuation of ROLONDA.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company has entered into employment agreements with its Chairman
of the Board, its Vice Chairman and Chief Executive Officer and certain other
executive officers. Certain of such agreements provide, among other things, for
performance-based bonuses, including bonuses payable upon the introduction of
new shows and bonuses which vary depending on the Company's net income and
Common Stock price during pre-established measurement periods. As a result, the
Company's compensation expense will increase if the Company introduces a new
series in syndication, if the Company's net income increases or if the Company's
Common Stock price exceeds the specified levels during the applicable
measurement periods. The Company has recognized the impact of certain of these
bonuses in its operating results for fiscal 1998, which include all amounts
payable in accordance with the terms of such employment agreements.
Selling, general and administrative expenses for fiscal 1998 decreased
by approximately 8% from fiscal 1997. The decrease was primarily due to a
decrease in advertising and promotion costs for THE OPRAH WINFREY SHOW, ROLONDA
and AMERICAN JOURNAL, a first-run syndicated newsmagazine produced and
distributed by the Company, partially offset by an increase in the cost of
programming under development and greater costs incurred in connection with the
sales of programs distributed by the Company.
NET INCOME AND EARNINGS PER SHARE
Due to the factors discussed above, the Company's operating income for
fiscal 1998 decreased by approximately 8% compared to fiscal 1997.
Net income decreased by approximately $7.3 million, or 5%, for fiscal
1998 compared to fiscal 1997, reflecting the decrease in operating income and
slightly lower interest income earned on the Company's cash and investments,
partially offset by a lower effective tax rate for fiscal 1998. Basic earnings
per share decreased by approximately 4%, from $1.93 per share in fiscal 1997 to
$1.86 per share in fiscal 1998 as a result of the decrease in net income, offset
by a decrease in the weighted average shares of Common Stock outstanding
resulting from the Company's stock repurchase program. Diluted earnings per
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share decreased by 6% from $1.91 per share in fiscal 1997 to $1.79 per share in
fiscal 1998, due primarily to a higher average Common Stock price during fiscal
1998 (which resulted in a greater dilutive effect of outstanding stock options
under the method used by the Company to calculate diluted earnings per share).
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.
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 2004-2005 broadcast season. In general, these licenses
and renewals have been at rates as favorable or more favorable to the Company as
the rates applicable to the 1997-1998 broadcast season. 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 state of readiness with regard to the
year 2000 compliance of its various information systems is adequate. Also, the
Company is communicating with its significant customers and vendors to
understand their year 2000 issues and, to date, no significant customers or
vendors have informed the Company that a material year 2000 issue exists.
The Company believes that the impact of inflation on its operations
has not been significant.
Comparison of Fiscal 1997 and Fiscal 1996
REVENUES
Revenues for fiscal 1997 increased by approximately 1% compared to
fiscal 1996, primarily due to increased cash license fees from THE OPRAH WINFREY
SHOW, WHEEL OF FORTUNE and, to a lesser extent, JEOPARDY!, offset by lower
revenues derived from the sale of retained advertising time on INSIDE EDITION,
AMERICAN JOURNAL and ROLONDA.
24
<PAGE>
The principal components of the Company's revenues for fiscal 1997 and
1996 are as follows:
1997 1996
---- ----
THE OPRAH WINFREY SHOW 40% 39%
WHEEL OF FORTUNE 20% 19%
JEOPARDY! 17% 17%
INSIDE EDITION 8% 8%
AMERICAN JOURNAL 4% 4%
ROLONDA 1% 2%
King World Direct 4% 4%
PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS
Producers' fees, programming and other direct operating costs for
fiscal 1997 were comparable to fiscal 1996, decreasing by less than 1%,
primarily as a result of a significant decrease in operating costs of King World
Direct, offset by a modest increase in revenues generated by THE OPRAH WINFREY
SHOW, WHEEL OF FORTUNE and, to a lesser extent, JEOPARDY! (a portion of which
revenues is payable to the producer of each such series).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for fiscal 1997 increased
by approximately 12% from fiscal 1996. Such increase was primarily due to higher
compensation costs associated principally with the hiring of new executives and
additional personnel and a general increase in advertising and promotion costs.
In addition, selling, general and administrative expenses for fiscal 1997 were
impacted by increased activity with respect to programming under development.
NET INCOME AND EARNINGS PER SHARE
Due to the factors discussed above, the Company's operating income for
fiscal 1997 was comparable to fiscal 1996, increasing by less than 1%. Reported
net income for fiscal 1997 decreased by approximately $6.6 million compared to
fiscal 1996 as a result of the Company recording a nonrecurring gain of
approximately $14.1 million on the sale of Buffalo Broadcasting Co. Inc.
("Buffalo") to LIN Television Corporation during the first quarter of fiscal
1996. Reported basic earnings per share decreased for fiscal 1997 to $1.93 per
share from $2.02 per share for fiscal 1996, and reported diluted earnings per
25
<PAGE>
share decreased for fiscal 1997 to $1.91 per share from $1.99 per share for
fiscal 1996, as a result of the nonrecurring gain from the sale of Buffalo.
Absent the nonrecurring gain on the sale of Buffalo, net income
increased by approximately $3.7 million, or 3%, for fiscal 1997 in comparison
to fiscal 1996, reflecting the slight increase in operating income, higher
interest income earned on the Company's cash and investments and a marginally
lower effective tax rate for fiscal 1997 compared with fiscal 1996. Absent the
nonrecurring gain on the sale of Buffalo, basic earnings per share increased by
$.05 per share, or approximately 3%, for fiscal 1997 compared to fiscal 1996,
and diluted earnings per share increased by $.06 per share, or approximately 3%,
for fiscal 1997 compared to fiscal 1996, as a result of the increase in net
income.
LIQUIDITY AND CAPITAL RESOURCES
For several years, the Company has been, and is now, in the process of
developing new television shows for syndication that it hopes will gain
widespread audience appeal, generate significant profits and cash flow for the
Company, and reduce the significance of any one broadcast property on the
Company's operating results. Two such shows, THE ROSEANNE SHOW and a new version
of the game show HOLLYWOOD SQUARES, premiered in September 1998, and a
variety/talk show hosted by Martin Short is being developed for distribution by
the Company, with a possible premiere in Fall 1999.
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,
production and promotion costs and advances from its operations.
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. Under the terms of
King World's previous agreement with Harpo, King World was the exclusive
distributor of THE OPRAH WINFREY SHOW through the 1999-2000 broadcast season.
Such agreement was amended in September 1998 to provide for Harpo and Ms.
Winfrey to produce and host the show for the 2000-2001 and 2001-2002 broadcast
seasons and to extend the engagement of King World as the exclusive distributor
of the show for those seasons.
Under the amended agreement, King World will continue to receive
distribution fees based on a percentage of the gross revenues generated by the
show. Such distribution fees are significantly less than those applicable
26
<PAGE>
to seasons through the 1999-2000 broadcast season, and, as a result, the
contribution of THE OPRAH WINFREY SHOW to King World's net profits and cash flow
will decline.
In January 1996, the Company paid Harpo a $65 million advance against
Harpo's guaranteed share of gross revenues for the 1997-1998 broadcast season,
which was fully recouped as of August 31, 1998. In September 1997, the Company
made advances to Harpo in the aggregate amount of $130 million against Harpo's
guaranteed share of gross revenues for the 1998-1999 and 1999-2000 broadcast
seasons, none of which had been recouped as of August 31, 1998. Subsequent to
August 31, 1998, the Company paid an advance to Harpo of $75 million against
Harpo's guaranteed share of gross revenues for the 2000-2001 broadcast season
and agreed to pay, in June 2000, an additional $75 million against Harpo's
guaranteed share of gross revenues for the 2001-2002 broadcast season. Based on
the license agreements in place for the 1998-1999 through the 2001-2002
broadcast seasons, the Company believes that revenues from the series will be
sufficient to enable the Company to recoup the advances for such seasons. All of
the advances paid to Harpo are refundable to the Company by Harpo and Ms.
Winfrey if King World terminates its agreement with Harpo due to Harpo's failure
to deliver episodes of THE OPRAH WINFREY SHOW.
The Company has used its cash reserves 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 the cost of development,
production and promotion 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.
On April 15, 1997, the Company announced that the Board of Directors
had approved a program to repurchase up to 10,000,000 shares of its Common Stock
from time to time in the open market and in privately negotiated transactions.
Through November 10, 1998, 4,923,100 shares of its Common Stock had been
repurchased in open market transactions for aggregate consideration of
approximately $113.6 million, or approximately $23.07 per share. The Company
intends to continue to repurchase shares of its Common Stock in the open market
and in privately negotiated transactions if and when it deems it advantageous
to do so. Purchases under the share repurchase program will be financed out of
the Company's available cash and liquid investments.
In May 1997, a special dividend distribution of $1.00 per share was
paid to stockholders of record on April 25, 1997. The Company used approximately
$74.8 million of its cash and liquid investments to pay the special dividend.
The Company has no present plan to declare additional cash dividends in the
foreseeable future.
In January 1998, the Company's Board of Directors declared a
two-for-one stock split, effected in the form of a 100% stock dividend, which
was paid on February 17, 1998 to stockholders of record on February 3,
27
<PAGE>
1998. In connection with the stock split, the Company increased the number of
authorized shares of Common Stock from 75 million to 150 million, which increase
was approved by the stockholders of the Company in January 1998. The par value
of the additional 36,738,470 shares of Common Stock issued in connection with
the stock split was credited to Common Stock and a like amount was charged to
paid-in capital.
The Company has entered into agreements with television stations for
the future distribution of programming commencing with the 1998-1999 broadcast
season and extending as far into the future as the 2004-2005 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 November 10, 1998, the gross amount of license fees under such
agreements approximated $2.0 billion, of which approximately $1.3 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, 1998 is subject to the
Company's continued distribution of such programming. Such amounts do not
include sales of advertising time retained during the broadcast of such
programming or foreign license fees.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements 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.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants . . . . . . . . 32
Consolidated Balance Sheets as of August 31, 1998
and 1997 . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Income for the years
ended August 31, 1998, 1997 and 1996 . . . . . . . . . 35
Consolidated Statements of Stockholders' Equity for
the years ended August 31, 1998, 1997 and 1996 . . . . 36
Consolidated Statements of Cash Flows for the years
ended August 31, 1998, 1997 and 1996 . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . 38
29
<PAGE>
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, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
New York, New York
October 16, 1998
30
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
AUGUST 31,
1998 1997
(Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents.............. $ 188,778 $ 317,782
Short-term investments................. 88,016 234,677
Accounts receivable (net of
allowance for doubtful accounts
of $3,301 and $4,101 in 1998
and 1997, respectively).............. 75,423 75,092
Producer advances and
deferred costs....................... 99,965 74,652
Other current assets................... 1,146 1,857
--------- --------
Total current assets................. 453,328 704,060
--------- --------
LONG-TERM INVESTMENTS, at cost,
which approximates market value...... 470,715 177,590
--------- --------
FIXED ASSETS, at cost:
Office and transportation equipment.... 20,304 12,522
Furniture, leaseholds and other
improvements......................... 8,371 6,255
Film and videotape masters............. 2,678 2,678
--------- --------
31,353 21,455
Less-accumulated depreciation and
amortization......................... (13,613) (11,706)
---------- --------
17,740 9,749
---------- --------
PRODUCER ADVANCES
AND OTHER ASSETS....................... 81,815 10,668
---------- --------
$1,023,598 $902,067
========== ========
The accompanying Notes to Consolidated
Financial Statements are an integral part
of these balance sheets.
31
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
AUGUST 31,
1998 1997
(Dollars in thousands)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities.......................... $ 15,913 $ 18,014
Payable to producers and others........ 96,118 69,599
Income taxes payable................... 30,356 30,372
---------- ---------
Total current liabilities.......... 142,387 117,985
---------- ---------
COMMITMENTS AND CONTINGENCIES
(Note 4)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued.......................... -- --
Common stock, $.01 par value;
150,000,000 shares authorized,
88,650,301 and 87,664,828
shares issued in 1998 and 1997,
respectively......................... 887 877
Paid-in capital........................ 138,219 124,130
Retained earnings...................... 1,137,238 1,001,190
Treasury stock, at cost; 16,284,794
and 14,413,594 shares in 1998 and
1997, respectively................... (395,133) (342,115)
---------- ---------
881,211 784,082
---------- ---------
$1,023,598 $ 902,067
========== =========
The accompanying Notes to Consolidated
Financial Statements are an integral part
of these balance sheets.
32
<PAGE>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED AUGUST 31,
1998 1997 1996
(Dollars in thousands except
per share data)
REVENUES............................... $683,869 $671,277 $663,426
-------- -------- --------
EXPENSES:
Producers' fees, programming and
other direct operating costs....... 430,653 395,489 397,494
Selling, general and admini-
strative expenses.................. 76,949 83,507 74,347
-------- -------- --------
507,602 478,996 471,841
-------- -------- --------
Income from operations............... 176,267 192,281 191,585
INTEREST AND DIVIDEND INCOME........... 29,140 29,645 25,965
NONRECURRING GAIN - Sale of
Buffalo Broadcasting Co. Inc......... -- -- 14,060
-------- ------- --------
Income before provision for
income taxes....................... 205,407 221,926 231,610
PROVISION FOR INCOME TAXES............. 69,359 78,544 81,610
-------- ------- --------
Net income........................... $136,048 $143,382 $150,000
======== ======== ========
BASIC EARNINGS PER SHARE............... $1.86 $1.93 $2.02
======== ======== ========
DILUTED EARNINGS PER SHARE............. $1.79 $1.91 $1.99
======== ======== ========
The accompanying Notes to Consolidated
Financial Statements are an integral
part of these statements.
33
<PAGE>
<TABLE>
<CAPTION>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Paid-in Retained Treasury
Shares $ Capital Earnings Stock
---------- ----- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance -
August 31, 1995........................ 85,373,896 $855 $ 87,261 $ 782,651 $(295,041)
Exercise of stock options.............. 1,681,988 16 23,038 -- --
Purchase of treasury stock............. -- -- -- -- (10,898)
Net income............................. -- -- -- 150,000 --
---------- ---- -------- ---------- ---------
Balance-
August 31, 1996 87,055,884 871 110,299 932,651 (305,939)
Exercise of stock options.............. 608,944 6 13,831 -- --
Purchase of treasury stock............. -- -- -- -- (36,176)
Special dividend....................... -- -- -- (74,843) --
Net income............................. -- -- -- 143,382 --
---------- ---- -------- ---------- ---------
Balance -
August 31, 1997........................ 87,664,828 877 124,130 1,001,190 (342,115)
Exercise of stock options.............. 985,473 10 14,089 -- --
Purchase of treasury stock ............ -- -- -- -- (53,018)
Net income ............................ -- -- -- 136,048 --
---------- ---- -------- ---------- ---------
Balance -
August 31, 1998........................ 88,650,301 $887 $138,219 $1,137,238 $(395,133)
========== ==== ======== ========== =========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31,
1998 1997 1996
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $136,048 $143,382 $150,000
Items not affecting cash:
Gain on sale of Buffalo
Broadcasting Co. Inc............................................ -- -- (14,060)
Depreciation and amortization..................................... 1,907 1,203 800
Change in assets and liabilities:
Accounts receivable............................................... (331) (14,597) (9,022)
Producer advances and
deferred costs.................................................. (92,480) 60,173 (46,740)
Accounts payable and accrued
liabilities..................................................... (2,101) 2,777 4,167
Payable to producers and
others.......................................................... 26,519 (2,321) 1,829
Income taxes payable.............................................. (16) 1,273 3,469
Other, net........................................................ (3,269) (965) 3,391
-------- -------- --------
Net cash provided by operating
activities........................................................... 66,277 190,925 93,834
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investments................................................ (146,464) (112,653) (217,485)
Proceeds from sale of Buffalo
Broadcasting Co. Inc................................................. -- -- 9,802
Additions to fixed assets.............................................. (9,898) (8,071) (429)
-------- -------- --------
Net cash used in
investing activities................................................. (156,362) (120,724) (208,112)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock................................................................ 14,099 13,834 23,046
Purchase of treasury stock............................................. (53,018) (36,176) (10,898)
Payment of special dividend............................................ -- (74,843) --
-------- -------- --------
Net cash (used in) provided by
financing activities................................................. (38,919) (97,185) 12,148
-------- -------- --------
NET DECREASE IN CASH
AND CASH EQUIVALENTS................................................... (129,004) (26,984) (102,130)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR...................................................... 317,782 344,766 446,896
-------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR............................................................ $188,778 $317,782 $344,766
======== ======== ========
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
</TABLE>
35
<PAGE>
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. All share (excluding treasury
shares) and per share data presented in these Consolidated Financial Statements
have been adjusted to give effect to a two-for-one stock split, effected in the
form of a 100% stock dividend, which was paid by the Company on February 17,
1998.
REVENUE RECOGNITION
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. Because transmission to the satellite takes place, on the average,
no more than two to three days prior to the broadcast of the programming,
revenues are recognized on or about the air date.
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 King World Media Sales Inc.
("KWM"), 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.
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 and
when certain other conditions are satisfied.
PRINCIPAL PROPERTIES
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.
36
<PAGE>
(1) Summary of significant accounting policies
The contribution of each program to the Company's total revenues for
fiscal 1998, 1997 and 1996 was as follows:
1998 1997 1996
---- ---- ----
THE OPRAH WINFREY SHOW 42% 40% 39%
WHEEL OF FORTUNE 21% 20% 19%
JEOPARDY! 18% 17% 17%
INSIDE EDITION 7% 8% 8%
The Company distributes THE OPRAH WINFREY SHOW pursuant to an
agreement with Harpo, Inc. ("Harpo"), the producer of the series. Under the
terms of King World's previous agreement with Harpo, King World was the
exclusive distributor of THE OPRAH WINFREY SHOW through the 1999-2000 broadcast
season. Such agreement was amended in September 1998 to provide for Harpo and
Ms. Winfrey to produce and host the show for the 2000-2001 and 2001-2002
broadcast seasons and to extend the engagement of King World as the exclusive
distributor of the show for those seasons.
Under the terms of its agreement with Harpo, following the 1996-1997
broadcast season, the profit sharing arrangements between Harpo and the Company
previously in effect were terminated and, in the 1997-1998 broadcast season and
thereafter, the Company instead receives distribution fees based on a percentage
of gross revenues derived from the series. These arrangements are less favorable
to the Company than those contained in prior agreements between the Company and
Harpo. As a result of these changes, the Company's net profits and cash flow
have declined. Also, the distribution fees payable for the 2000-2001 and
2001-2002 broadcast seasons are significantly less than those applicable to
seasons through the 1999-2000 season, and as a result, the contribution of THE
OPRAH WINFREY SHOW to the Company's net profits and cash flow will further
decline.
The Company's agreements with Columbia TriStar Television 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 agreed by Columbia TriStar Television,
distribute game shows for syndication so long as the Company is distributing
WHEEL OF FORTUNE or JEOPARDY!.
For several years, the Company has been, and is now, in the process of
developing new television shows for syndication that it hopes will gain
widespread audience appeal, generate significant profits and cash flows for the
Company and reduce the significance of any one broadcast property on the
Company's operating results. Two such shows, THE ROSEANNE SHOW and a new version
37
<PAGE>
(1) Summary of significant accounting policies
of the game show HOLLYWOOD SQUARES, premiered in September 1998, and a
variety/talk show hosted by Martin Short is being developed for distribution by
the Company, with a possible premiere in Fall 1999.
In September 1997, the Company and Columbia TriStar Television
announced their agreement to co-produce a new version of the game show HOLLYWOOD
SQUARES, which is distributed by the Company in first-run syndication and
debuted in September 1998.
The Company has entered into an agreement with Full Moon & High Tide
Productions, Inc., a company controlled by Roseanne, to co-produce THE ROSEANNE
SHOW, an hour-long strip talk show hosted by Roseanne and distributed by the
Company in first-run syndication. The series premiered in September 1998. Under
the terms of the agreement, the Company will have the exclusive right to
distribute the show through the 2003-2004 broadcast season.
PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS
Producers' fees, programming and other direct operating costs include
primarily 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 fees payable by the Company to
producers and talent; production and distribution costs for first-run syndicated
programming; and the direct operating costs of King World Direct, the Company's
wholly-owned direct response marketing subsidiary. That portion of any
recognized revenue that is to be paid to producers and owners of programming is
accrued as such revenues are earned. The share of revenues payable by the
Company to such producers 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 $22,876,000, $33,150,000 and $31,329,000 in fiscal 1998, 1997 and
1996, respectively. These amounts include the producers' share of such costs.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents and short-term investments are comprised principally
of municipal obligations, money market funds, money market preferred
investments, commercial paper and United States Treasury and other agency
obligations whose maturities are one year or less and are carried at amortized
cost, which approximates market value. The Company considers its highly liquid
38
<PAGE>
(1) Summary of significant accounting policies
short-term investments purchased with a maturity of three months or less to be
cash equivalents.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument be
recorded in the balance sheet and measured at its fair value. This statement
also requires that changes in the derivative's fair value be recognized
currently in earnings. To date, the Company has not, and has no present
intention, to invest in any derivative instruments or participate in any hedging
activities. Accordingly, the adoption of SFAS 133 will not have any effect on
the Company.
PRODUCER ADVANCES AND DEFERRED COSTS
Producer advances and deferred costs include pre-production,
production and promotion costs, as well as talent and producer participation
advances, in connection with certain first-run syndicated programs distributed
by the Company for broadcast during seasons subsequent to August 31, 1998. 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 January 1996, the Company paid Harpo a $65 million advance against
Harpo's guaranteed share of gross revenues for the 1997-1998 broadcast season,
which was fully recouped as of August 31, 1998. In September 1997, the Company
made advances to Harpo in the aggregate amount of $130 million against Harpo's
guaranteed share of gross revenues for the 1998-1999 and 1999-2000 broadcast
seasons, none of which had been recouped as of August 31, 1998. Subsequent to
August 31, 1998, the Company paid an advance to Harpo of $75 million against
Harpo's guaranteed share of gross revenues for the 2000-2001 broadcast season
and agreed to pay, in June 2000, an additional $75 million against Harpo's
guaranteed share of gross revenues for the 2001-2002 broadcast season. Based on
the license agreements in place for the 1998-1999 through the 2001-2002
broadcast seasons, the Company believes that revenues from the series will be
sufficient to enable the Company to recoup the advances for such seasons. All of
the advances paid to Harpo are refundable to the Company by Harpo and Ms.
Winfrey if King World terminates its agreement with Harpo due to Harpo's failure
to deliver episodes of THE OPRAH WINFREY SHOW.
LONG-TERM INVESTMENTS
Long-term investments are comprised principally of intermediate-term
municipal obligations and United States Treasury and other agency obligations
whose maturities are between one and seven years and are carried at amortized
cost which approximates market value.
39
<PAGE>
(1) Summary of significant accounting policies
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, office and
transportation equipment and 5 years for film and videotape masters. Leaseholds
and other improvements are amortized over the shorter of their useful lives and
the lease term. Depreciation and amortization expense was approximately
$1,907,000, $1,203,000 and $800,000 in fiscal 1998, 1997 and 1996, respectively.
STOCKHOLDERS' EQUITY
In the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 requires the presentation of "basic" earnings per share, which excludes any
common stock equivalents and their related dilution, and "diluted" earnings per
share, which includes the potential dilution from all common stock equivalents
including options, warrants and convertible securities. Basic earnings per share
has been computed using the weighted average shares of Common Stock outstanding
of 73,157,000, 74,180,000 and 74,343,000 for the fiscal years ended August 31,
1998, 1997 and 1996, respectively. Diluted earnings per share which includes the
dilutive effect of the assumed exercise of vested and unvested stock options
outstanding as of the end of each period reported, has been computed using the
weighted average shares of Common Stock outstanding of 76,078,000, 74,992,000
and 75,368,000 for the fiscal years ended August 31, 1998, 1997 and 1996,
respectively. Reported earnings per share in prior periods have been restated to
conform with the provisions of SFAS 128.
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.
INDUSTRY SEGMENTS AND CUSTOMERS
The Company operates in one business segment, television program ming.
The Company's major customers and principal facilities are located within the
United States. In the 1998, 1997 and 1996 fiscal years, approximately 14%, 13%
and 12%, respectively, of the Company's revenues were derived from license fees
under contracts with a single broadcast group.
40
<PAGE>
(1) Summary of significant accounting policies
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(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 $10,000 per employee for
fiscal 1998. The plan covers substantially all of the Company's employees other
than those involved in the production of programming produced by the Company.
Contributions by the Company to the plan were approximately $709,000,
$576,000 and $491,000 in fiscal 1998, 1997 and 1996, respectively.
(3) Income taxes
The components of the Company's provision for income taxes are
summarized as follows:
YEAR ENDED AUGUST 31,
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Federal:
Current..................... $59,076 $64,824 $71,525
Deferred.................... 2,081 1,562 (2,293)
------- ------- -------
61,157 66,386 69,232
------- ------- -------
State and local:
Current..................... 8,115 12,067 12,511
Deferred.................... 87 91 (133)
------- ------- -------
8,202 12,158 12,378
------- ------- -------
Total................... $69,359 $78,544 $81,610
======= ======= =======
Deferred income taxes and benefits are provided for any income and
expense items that are recognized in different years for tax return and
41
<PAGE>
financial reporting purposes. No 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.
Following is a reconciliation of the Company's provision for income
taxes to the tax computed at the U.S. statutory rate:
YEAR ENDED AUGUST 31,
1998 1997 1996
---- ---- ----
(Dollars in thousands)
Tax at U.S. statutory
rate........................... $71,892 $77,674 $81,064
State tax provision, net
of Federal benefit............. 5,331 7,903 8,046
Tax-exempt interest and
dividend income................ (7,780) (6,892) (5,370)
Other, net....................... (84) (141) (2,130)
------- ------- -------
$69,359 $78,544 $81,610
======= ======= =======
Income taxes paid approximated $67.5 million, $73.3 million and $76.8
million in fiscal 1998, 1997 and 1996, respectively.
(4) Commitments and contingencies
LICENSE FEES
The Company has entered into agreements with television stations for
the future distribution of programming in broadcast television seasons
commencing with the 1998-1999 season and extending as far into the future as the
2004-2005 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 November 10, 1998, the gross amount of
license fees under such agreements approximated $2.0 billion, of which
approximately $1.3 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,
1998 is subject to the Company's continued distribution of such programming.
Such amounts do not include sales of advertising time retained during the
broadcast of such programming or foreign license fees.
OPERATING LEASES
Rent expense under operating leases covering office facilities,
production studios and equipment amounted to approximately $4,078,000,
$2,849,000 and $2,559,000 for fiscal 1998, 1997 and 1996, respectively. Office
and studio leases are subject to price escalations for certain costs.
42
<PAGE>
Aggregate future minimum rental commitments for these leases as of August 31,
1998 were as follows:
YEAR ENDING AUGUST 31,
(Dollars in thousands)
1999......................... $6,519
2000......................... 5,742
2001......................... 1,845
2002......................... 1,435
2003......................... 872
EMPLOYMENT AND PRODUCTION AGREEMENTS
As of August 31, 1998, the Company had entered into employment
agreements and agreements with independent contractors relating to programming
being or to be produced by King World which provide for aggregate minimum annual
compensation as follows:
YEAR ENDING AUGUST 31,
(Dollars in thousands)
1999......................... $33,531
2000......................... 12,548
2001......................... 1,223
2002......................... 156
2003......................... 0
The Company has entered into employment agreements with its Chairman
of the Board, its Vice Chairman and Chief Executive Officer and certain other
executive officers. Certain of such agreements provide, among other things, for
performance-based bonuses, including bonuses payable upon the introduction of
new shows and bonuses which vary depending on the Company's net income and
Common Stock price during pre-established measurement periods. The Company has
recognized the impact of certain of these bonuses in its operating results for
fiscal 1998, which include all amounts payable in accordance with the terms of
such employment agreements.
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 such actions will not have a
material adverse effect on the results of operations and financial position of
the Company.
(5) Stock plans
In fiscal 1998, the Company, reserved 2,000,000 additional shares for
grants and awards under the 1996 Amended and Restated Stock Option and
Restricted Stock Purchase Plan (the "Option/Stock Plan"). As of August 31, 1998
there were 1,806,862 shares available for grant under the Option/Stock
43
<PAGE>
Plan. 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 stock 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 have a term in excess of ten
years. Employees, directors and officers of, and consultants or suppliers to,
the Company and its subsidiaries may be granted non-qualified stock 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 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 1997, the Company also adopted the Salesforce Bonus Plan
(the "Salesforce Plan"), and reserved 1,000,000 shares for grants of options
thereunder. The Salesforce Plan provides for grants of non-qualified stock
options and certain cash bonuses, subject to certain conditions. The Salesforce
Plan is currently administered by the Board of Directors and by the Chairman of
the Board of the Company, who is also the head of the Company's salesforce. Any
person employed by, or performing services for, the sales department of the
Company or any subsidiary of the Company on a full-time basis (excluding
directors and officers of the Company) is eligible to receive stock options and
cash bonuses under the Salesforce Plan.
The exercise price of options granted under the Salesforce Plan must
be equal to the fair market value of the shares on the date of grant, and the
options shall vest at a rate of 20% at the end of each of the first three
44
<PAGE>
years from the date of grant and 40% at the end of the fifth year from grant and
shall expire on the date ten years from the date of grant.
In fiscal 1989, the Company adopted the Incentive Equity Plan for
Senior Executives, pursuant to which an aggregate 5,100,000 shares of Common
Stock were reserved for issuance to the Company's Chairman of the Board,
President and Chief Executive Officer (who is now its Vice Chairman 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 2,400,000 shares of Common Stock, 1,950,000 at an
exercise price of $7.88 (the approximate fair market value on the date of grant)
and 450,000 at an exercise price of $.01; the Executive Vice President was
granted non-qualified stock options to purchase 300,000 shares of Common Stock,
240,000 at an exercise price of $7.88 and 60,000 at an exercise price of $.01.
No additional options may be granted under the Executive Plan.
In connection with the extensions of the Company's rights to
distribute THE OPRAH WINFREY SHOW through the 1999-2000 broadcast season, the
Company previously granted to the principals of Harpo options to purchase an
aggregate 5,000,000 shares of Common Stock. As of August 31, 1998, 3,900,000 of
such options were outstanding and exercisable. In addition, on September 24,
1998, in connection with Harpo's and Ms. Winfrey's commitment to continue to
produce and host the show for the 2000-2001 and 2001-2002 broadcast seasons,
the Company granted to the principals of Harpo (including some key production
executives) options to purchase an aggregate 1,130,000 million shares of Common
Stock. All of such options were fully vested at the time of grant and have a
term of ten years.
The following table summarizes stock option activity at August 31 and
for the fiscal years then ended:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 15,183,206 $17.31 13,341,974 $17.21 7,440,804 $13.85
Granted 1,833,040 $22.27 2,955,334 $18.05 7,855,000 $19.52
Exercised (1,104,640) $11.05 (598,102) $16.40 (1,692,830) $19.80
Canceled (570,200) $18.56 (516,000) $20.02 (261,000) $19.03
---------- ---------- ----------
Outstanding at
end of year 15,341,406 $18.31 15,183,206 $17.31 13,341,974 $17.21
========== ========== ==========
Exercisable at
end of year 10,069,736 $17.46 8,014,872 $15.85 6,897,374 $15.07
=========== ========== ==========
</TABLE>
45
<PAGE>
The following table summarizes stock options outstanding and
exercisable at August 31, 1998:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Life Exercise Exercise
Prices Shares (in years) Price Shares Price
$ .01 to $ 7.88 480,000 0.5 $ 6.40 480,000 $ 6.40
$ 7.89 to $14.25 1,251,700 2.3 $12.52 1,251,700 $12.52
$14.26 to $19.70 6,864,866 6.9 $18.07 4,661,668 $18.03
$19.71 to $29.43 6,744,840 7.4 $20.46 3,676,368 $19.86
---------- ---------
15,341,406 10,069,736
========== ==========
In October 1995, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). As permitted under SFAS 123, the Company accounts
for employee stock compensation arrangements in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, compensation cost is recognized only when employee
stock options are granted at an exercise price lower than that of the market
price of the stock on the date of grant. The Company generally does not
recognize compensation expense with respect to stock option grants.
For stock options granted by the Company after August 31, 1995, SFAS
123 requires that pro forma information regarding net income and earnings per
share be disclosed as if the Company had accounted for its options under the
fair value method outlined in SFAS 123, which requires a compensation charge to
earnings for all options granted during the period. The fair value of the
Company's options was estimated using the Black-Scholes option valuation model.
The Black-Scholes option valuation model requires the use of highly subjective
assumptions, including the expected stock price volatility and expected life of
such options. Because the Company's stock options granted to employees have
characteristics significantly different from those of traded options (for which
the Black-Scholes model was created) and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of Company stock options granted to employees.
46
<PAGE>
The fair value of the Company's stock options granted to employees
was estimated using the following weighted average assumptions at August 31:
1998 1997 1996
---------- ---------- ----------
Expected life (in years) 6.50 6.50 6.50
Risk-free interest rate 5.25% 6.50% 6.50%
Volatility 30.00% 30.00% 30.00%
Dividend yield 0.00% 0.00% 0.00%
The weighted average estimated fair value of employee stock options
granted during fiscal 1998, 1997 and 1996 was $9.41, $8.13 and $8.80 per share,
respectively. For purposes of the pro forma disclosures, the estimated fair
value of the options is generally amortized to compensation expense over the
options' vesting period. The Company's pro forma net income, basic earnings per
share and diluted earnings per share compared to that actually reported at
August 31 are as follows:
1998 1997 1996
-------- -------- --------
Net income (in thousands) As reported $136,048 $143,382 $150,000
Pro forma 121,011 134,720 139,762
Basic earnings per share As reported $1.86 $1.93 $2.02
Pro forma 1.65 1.82 1.88
Diluted earnings per share As reported $1.79 $1.91 $1.99
Pro forma 1.59 1.80 1.85
The effects on the pro forma disclosures of applying SFAS 123 to
fiscal 1998, 1997 and 1996 are not likely to be representative of the effects on
pro forma disclosures of future years. Because SFAS 123 is applicable only to
options granted subsequent to August 31, 1995, and the estimated fair value of
the options is generally amortized over the five-year vesting period of the
Company's employee stock options, the pro forma effect will not be fully
reflected until fiscal 2000.
The Company realizes a tax benefit in respect of non-qualified stock
options based on the difference between the exercise price of the Common Stock
subject to the option and the market price thereof 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 $1,898,000, $3,976,000 and $1,342,000 in fiscal 1998, 1997 and
1996, respectively.
47
<PAGE>
(6) Dividends and stock repurchases
In May 1997, a special dividend distribution of $1.00 per share was
paid to stockholders of record on April 25, 1997. The Company used approximately
$74.8 million of its cash and liquid investments to pay the special dividend.
In April 1997, the Company announced that the Board of Directors had
approved a program to repurchase up to 10,000,000 shares of its Common Stock
from time to time in the open market and in privately negotiated transactions.
Through November 10, 1998, 4,923,100 shares of Common Stock were repurchased in
open market transactions for aggregate consideration of approximately $113.6
million or approximately $23.07 per share. The Company intends to continue to
repurchase shares of its Common Stock in the open market and in privately
negotiated transactions if and when it deems it advantageous to do so. Purchases
under the share repurchase program will be financed out of the Company's
available cash and liquid investments.
In January 1998, the Company's Board of Directors declared a
two-for-one stock split, effected in the form of a 100% stock dividend, which
was paid on February 17, 1998 to stockholders of record on February 3, 1998. In
connection with the stock split, the Company increased the number of authorized
shares of Common Stock from 75 million to 150 million, which increase was
approved by the stockholders of the Company in January 1998. The par value of
the additional 36,738,470 shares of Common Stock issued in connection with the
stock split was credited to Common Stock and a like amount was charged to
paid-in capital.
(7) Quarterly financial summaries (unaudited)
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
(Dollars in thousands except per share data)
FISCAL 1998:
Revenues............... $172,926 $173,916 $167,968 $169,059 $683,869
Gross margin........... 65,691 63,222 61,458 62,845 253,216
Income before
provision
for income
taxes................ 52,544 51,285 50,514 51,064 205,407
Net income............. 34,369 33,578 34,202 33,899 136,048
Basic earnings
per share............ $.47 $.46 $.47 $.47 $1.86
======== ======== ======== ======== ========
Diluted earnings
per share............. $.45 $.44 $.45 $.45 $1.79
======== ======== ======== ======== ========
48
<PAGE>
1st 2nd 3rd 4th Fiscal
Quarter Quarter Quarter Quarter Year
(Dollars in thousands except per share data)
FISCAL 1997:
Revenues...............$164,287 $175,169 $166,751 $165,070 $671,277
Gross margin........... 65,481 71,405 69,006 69,896 275,788
Income before
provision
for income
taxes................ 53,923 57,185 54,890 55,928 221,926
Net income............. 34,967 36,677 35,705 36,033 143,382
Basic earnings
per share............. $.47 $.49 $.48 $.49 $1.93
======== ======== ======== ======== ========
Diluted earnings
per share............. $.46 $.48 $.48 $.49 $1.91
======== ======== ======== ======== ========
(8) Buffalo Broadcasting Co. Inc.
In October 1995 the Company closed 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, the
Company recorded a nonrecurring gain of approximately $14.1 million, of which
approximately $9.8 million represents cash proceeds to the Company from the
sale. The remaining $4.3 million of such gain represents the reversal of
previously recognized accounting losses (with no associated income tax effect)
in excess of the Company's original investment.
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.
49
<PAGE>
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 1999 annual
meeting of stockholders, which is to be filed pursuant to Regulation 14A not
later than December 29, 1998.
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 31 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. Certificate of Amendment to the Registrant's Restated
Certificate of Incorporation (incorporated by reference to
Exhibit 3(i) to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended May 31,1998).
3.4. Registrant's By-laws, as amended through May 8, 1998
(incorporated by reference to Exhibit 3(ii) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended May 31, 1998).
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).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
50
<PAGE>
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 (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995).
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 Agreement, dated December 20, 1995, between Mr. Roger King
and the Registrant (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 29, 1996).
10.7. Employment Agreement, dated December 20, 1995, between Mr. Michael
King and the Registrant (incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 29, 1996).
10.8. Employment Agreement, dated as of June 6, 1997 between Jules Haimovitz
and the Registrant (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 31, 1997).
10.9. Employment Agreements between the Registrant and the individuals named
below:
Name of Employee
OR CONSULTANT DATE OF AGREEMENT
Steven Hirsch . . . . . September 3, 1996
Jonathan Birkhahn . . . September 1, 1996
Michael Spiessbach. . . September 3, 1996
Robert V. Madden. . . . September 3, 1996
(incorporated by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August
31, 1996).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
51
<PAGE>
10.10. 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).
10.11. 1996 Amended and Restated Stock Option and Restricted Stock Purchase
Plan of the Registrant (incorporated by reference to Exhibit 10.11 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.12. 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).
10.13. Form of Indemnification Agreement between the Registrant and the
Registrant's directors (incorporated by reference to Exhibit 10.13 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.14.* 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).
10.15.* Amendment dated as of October 15, 1989 to the Agreement dated January
30, 1987 between the Registrant and Harpo, Inc. (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual Report on Form
10-K for the fiscal year ended August 31, 1995).
10.16.* Agreement dated as of March 17, 1994 between the Registrant and
Harpo, Inc. (incorporated by reference to Form 8-K/A dated May 18,
1994).
10.17.* Agreement dated as of October 6, 1995 between the Registrant and
Harpo, Inc. (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter
ended February 29, 1996).
10.18. 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).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
52
<PAGE>
10.19. 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).
10.20. Form of Stock Option Agreement between the registrant and Oprah
Winfrey (incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995).
10.21. Form of Stock Option Agreement between the registrant and Jeffrey D.
Jacobs (incorporated by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1995).
10.22.* Settlement Agreement, dated as of September 15, 1997, by and among
Califon Productions, Inc. on Jeopardy Productions, Inc., Sony Pictures
Entertainment Inc., The Game Show Network, L.P. and the Registrant
(incorporated by reference to Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1997).
10.23.* Letter Agreement, dated October 1, 1991, between Orion Pictures
Corporation and the Registrant, under which Orion Picture Corporation
transferred to the Registrant trademark, copyright and other property
rights as more fully described therein to the television series
entitled "Hollywood Squares" with accompanying Security Agreement and
Assignment (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.24* Agreement made and entered into on the 14th day of May, 1997, by and
between K.W.M., Inc. and Full Moon & High Tide Productions, Inc.,
providing the services of Roseanne (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1997).
10.25.* 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).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
53
<PAGE>
10.26.* 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 10.26 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1997).
10.27* 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).
10.28* 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.
(incorporated by reference to Exhibit 10.24 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1995).
10.29* Amendment dated as of September 1, 1996 to the Agreement dated June
2, 1988, as amended as of June 13, 1989, September 19, 1991, June 13,
1994 and July 11, 1995 between King World F.S.C. Corporation and
Unilever N.V. (incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996).
10.30** Agreement dated March 2, 1998 between the Registrant and MGM Domestic
Television Distribution Inc.
10.31** Agreement dated as of September 16, 1998 between the Registrant and
Harpo, Inc.
10.32 Employment Agreement, dated May 27, 1997, between the Registrant and
Fred Cohen, as amended.
10.33 Employment Agreement, dated September 28, 1995, between the Registrant
and Andrew Friendly, as amended.
10.34 Employment Agreement, dated June 23, 1989, between the Registrant and
Don Prijatel, as amended.
10.35 Employment Agreement, dated September 1, 1988, between the Registrant
and Stuart Stringfellow, as amended.
21.1. List of Subsidiaries of the Registrant.
23.1. Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
54
<PAGE>
(b) Reports on Form 8-K filed during the last quarter of the fiscal
year ended August 31, 1998:
On July 27, 1998, the Company filed a current report on Form 8-K
announcing that Jules Haimovitz, the Company's President and Chief Operating
Officer, had left the Company.
For the purposes of complying with the amendments to the rules
governing Form S-8 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
Statement on Form S-8 No. 33-30695 (filed August 24, 1990):
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.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: November 24, 1998 KING WORLD PRODUCTIONS, INC.
By /s/ Steven A. LoCascio
Steven A. LoCascio
Senior Vice President and
Chief Financial 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.
SIGNATURE TITLE DATE
/S/ MICHAEL KING Vice Chairman and November 24, 1998
- --------------------
Michael King Chief Executive Officer
and Director (principal
executive officer)
/S/ ROGER KING Director November 24, 1998
Roger King
/S/ DIANA KING Director November 24, 1998
Diana King
/S/ RICHARD KING Director November 24, 1998
Richard King
/S/ JOEL CHASEMAN Director November 24, 1998
Joel Chaseman
56
<PAGE>
/S/ FREDRIC D. ROSEN Director November 24, 1998
- --------------------
Fredric D. Rosen
/S/ RAYMOND G. CHAMBERS Director November 24, 1998
- ------------------------
Raymond G. Chambers
/S/ AVRAM MILLER Director November 24, 1998
Avram Miller
/S/ STEVEN A. LOCASCIO November 24, 1998
- ------------------------ Senior Vice President
Steven A. LoCascio and Chief Financial
Officer (principal
financial and accounting
officer)
57
<PAGE>
EXHIBIT INDEX
Exhibit
NO. DESCRIPTION PAGE
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. Certificate of Amendment to the Registrant's Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3(i) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended May 31, 1998).
3.4. Registrant's By-laws, as amended through May 8, 1998 (incorporated by
reference to Exhibit 3.3 to the Registrant's Annual Report on Form
10-K for the quarterly period ended May 31, 1998).
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 (incorporated by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1995).
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).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
58
<PAGE>
Exhibit
NO. DESCRIPTION PAGE
10.6. Employment Agreement, dated December 20, 1995, between Mr. Roger King
and the Registrant (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 29, 1996).
10.7. Employment Agreement, dated December 20, 1995, between Mr. Michael
King and the Registrant (incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 29, 1996).
10.8. Employment Agreement, date as of June 6, 1997 between Jules Haimovitz
and the Registrant (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended May 31, 1997).
10.9. Employment Agreements between the Registrant and the individuals named
below:
Name of Employee
Or Consultant DATE OF AGREEMENT
Steven Hirsch . . . . . September 3, 1996
Jonathan Birkhahn . . . September 1, 1996
Michael Spiessbach. . . September 3, 1996
Robert V. Madden. . . . September 3, 1996
(incorporated by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August
31, 1996).
10.10. 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).
10.11. 1996 Amended and Restated Stock Option and Restricted Stock Purchase
Plan of the Registrant (incorporated by reference to Exhibit 10.11 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
59
<PAGE>
Exhibit
NO. DESCRIPTION PAGE
10.12. 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).
10.13. Form of Indemnification Agreement between the Registrant and the
Registrant's directors (incorporated by reference to Exhibit 10.13 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.14.* 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).
10.15.* Amendment dated as of October 15, 1989 to the Agreement dated January
30, 1987 between the Registrant and Harpo, Inc. (incorporated by
reference to Exhibit 10.13 to the Registrant's Annual report on Form
10-K for the fiscal year ended August 31, 1995).
10.16.* Agreement dated as of March 17, 1994 between the Registrant and
Harpo, Inc. (incorporated by reference to 8- K/A dated May 18, 1994).
10.17.* Agreement dated as of October 6, 1995 between the Registrant and
Harpo, Inc. (incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter
ended February 29, 1996).
10.18. 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).
10.19. 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).
10.20. Form of Stock Option Agreement between the registrant and Oprah
Winfrey (incorporated by reference to Exhibit
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
60
<PAGE>
Exhibit
NO. DESCRIPTION PAGE
10.19 to the Registrant's Annual report on Form 10-K for the fiscal
year ended August 31, 1995).
10.21. Form of Stock Option Agreement between the registrant and Jeffrey D.
Jacobs (incorporated by reference to Exhibit 10.20 to the Registrant's
Annual report on Form 10-K for the fiscal year ended August 31, 1995).
10.22.* Settlement Agreement, dated as of September 15, 1997, by and among
Califon Productions, Inc. on Jeopardy Productions, Inc., Sony Pictures
Entertainment Inc., The Game Show Network, L.P. and the Registrant
(incorporated by reference to Exhibit 10.22 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended August 31, 1997).
10.23* Letter Agreement, dated October 1, 1991, between Orion Pictures
Corporation and the Registrant, under which Orion Picture Corporation
transferred to the Registrant trademark, copyright and other property
rights as more fully described therein to the television series enti-
tled "Hollywood Squares" with accompanying Security Agreement and
Assignment (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997).
10.24* Agreement made and entered into on the 14th day of May, 1997, by and
between K.W.M., Inc. and Full Moon & High Tide Productions, Inc.,
providing the services of Roseanne (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1997).
10.25.* 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).
10.26.* 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 10.26 to the Registrant's Annual
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
61
<PAGE>
Exhibit
NO. DESCRIPTION PAGE
Report on Form 10-K for the fiscal year ended August 31, 1997).
10.27* 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).
10.28* 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.
(incorporated by reference to Exhibit 10.24 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended August 31, 1995).
10.29* Amendment dated as of September 1, 1996 to the Agreement dated June
2, 1988, as amended as of June 13, 1989, September 19, 1991, June 13,
1994 and July 11, 1995 between King World F.S.C. Corporation and
Unilever N.V. (incorporated by reference to Exhibit 10.28 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996).
10.30** Agreement dated March 2, 1998 between the Registrant and MGM Domestic
Television Distribution Inc.
10.31** Agreement dated as of September 16, 1998 between the Registrant and
Harpo, Inc.
10.32 Employment Agreement, dated May 27, 1997, between the Registrant and
Fred Cohen, as amended.
10.33 Employment Agreement, dated September 28, 1995, between the Registrant
and Andrew Friendly, as amended.
10.34 Employment Agreement, dated June 23, 1989, between the Registrant and
Don Prijatel, as amended.
10.35 Employment Agreement, dated September 1, 1988, between the Registrant
and Stuart Stringfellow, as amended.
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
62
<PAGE>
Exhibit
NO. DESCRIPTION PAGE
21.1. List of Subsidiaries of the Registrant.
23.1. Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
- --------------------------
* Certain information in this exhibit is deleted pursuant to an order of
the Securities and Exchange Commission granting confidential treatment. Such
deleted information has been filed separately with the Securities and Exchange
Commission.
** Certain information in this exhibit is deleted pursuant to a request to the
Securities and Exchange Commission for confidential treatment. Such deleted
information has been filed separately with the Securities and Exchange
Commission.
63
EXHIBIT 21.1
List of Subsidiaries of the Registrant
--------------------------------------
American Journal Inc., a New York corporation
King World Media Sales 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/GSN Inc., a Delaware corporation
King World/LR Inc., a California corporation
King World Merchandising, Inc., a Delaware corporation
King World Studios West Inc., a California corporation
Topper Productions Inc., a California corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated October 16, 1998 included in this Form 10-K, into the Company's
previously filed Registration Statements File No. 33-30695, No. 333-8969, No.
333-11363 and No. 45299.
/s/ ARTHUR ANDERSEN LLP
New York, New York
November 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Operations and Consolidated Balance Sheets of King
World Productions, Inc. and its Subsidiaries and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 188,778
<SECURITIES> 558,731
<RECEIVABLES> 78,724
<ALLOWANCES> 3,301
<INVENTORY> 0
<CURRENT-ASSETS> 453,328
<PP&E> 31,353
<DEPRECIATION> (13,613)
<TOTAL-ASSETS> 1,023,598
<CURRENT-LIABILITIES> 142,387
<BONDS> 0
0
0
<COMMON> 887
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,023,598
<SALES> 683,869
<TOTAL-REVENUES> 683,869
<CGS> 430,653
<TOTAL-COSTS> 507,602
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 205,407
<INCOME-TAX> 69,359
<INCOME-CONTINUING> 136,048
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,048
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.79
</TABLE>
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
Exhibit 10.30
March 2, 1998
King World Productions, Inc.
1700 Broadway
New York, New York 10019-5983
Att: Jonathan Birkhahn
Re: HOLLYWOOD SQUARES
Gentlemen:
The following will confirm the terms of the agreement between MGM Domestic
Television Distribution Inc. ("MGM"), successor in interest to Orion Pictures
Corporation ("Orion"), on the one part, and King World Productions, Inc. ("KW"),
on the other part, with respect to HOLLYWOOD SQUARES ("HS"). For purposes of
this agreement ("Agreement"), reference is made to the agreement dated as of
October 1, 1991 between Orion and KW with respect to HS (the "Orion-KW
Agreement"), and all capitalized terms used in this Agreement but not otherwise
defined in this Agreement shall have the meanings ascribed to them in the
Orion-KW Agreement. MGM warrants and represents that MGM is the sole owner of
Orion's interest in HS, that neither MGM nor Orion has heretofore assigned to
any party (other than Orion's assignment to MGM) any of the rights in HS
retained by Orion under the Orion-KW Agreement, and that MGM has the right to
enter into this Agreement and grant the rights granted herein. MGM and KW agree
as follows:
1. MGM and KW acknowledge that KW plans to produce a new HS series based on
the Rights ("New Series").
<PAGE>
2
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
2. Conditioned upon KW's material performance of KW's obligations under this
paragraph 2, MGM hereby waives and relinquishes, as of the date hereof,
MGM's participation in any share of KW's "Net Profits" that would otherwise
be payable to MGM (as successor-in-interest to Orion) pursuant to paragraph
3 of the Orion-KW Agreement. In consideration for MGM's aforesaid waiver,
KW agrees as follows:
(a) KW shall pay to MGM the sum of [*] within five business days after
execution of this Agreement by MGM and KW;
(b) If the New Series is produced for a fourth consecutive series year
(i.e., the series year commencing in September 2001), KW will pay to
MGM [*] on or before December 15, 2001;
(c) If the New Series is produced for a fifth consecutive series year
(i.e., the series year commencing in September 2002), KW will pay to
MGM [*] on or before December 15, 2002;
(d) If the New Series is produced for a sixth consecutive series year
(i.e., the series year commencing in September 2003), KW will pay to
MGM [*] on or before December 15, 2003.
(e) If the New Series is produced for a seventh consecutive series year
(i.e., the series year commencing in September 2004), KW will pay to
MGM [*] on or before December 15, 2004; and
(f) KW waives and relinquishes any right to recoupment of the Advance (as
set forth in paragraph 3 of the Orion-KW Agreement), i.e., all of the
monies set forth in subparagraphs (a) through (e), above, are net sums
payable to MGM and are in addition to the Advance previously paid to
Orion.
3. MGM and KW agree with respect to the Existing Episodes that MGM shall have
the exclusive right to license the Existing Episodes to the Game Show
Network ("GSN") on such terms as are agreed between MGM and GSN (it being
understood that KW and GSN have previously reached agreement with respect
to the terms on which GSN may enter into such license agreement with MGM;
however, MGM shall have no liability for GSN's failure to comply with the
agreement between GSN and KW). MGM shall be entitled to retain all of the
proceeds from MGM's aforesaid license of the Existing Episodes to GSN,
<PAGE>
3
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
and MGM shall indemnify KW in connection with such license on the same
basis as KW shall, as set forth below in this paragraph 3, indemnify MGM in
connection with KW's usage of "Existing Clips," as defined below. MGM shall
not have the right to license or otherwise exploit the Existing Episodes in
any other manner (i.e., other than to GSN) expect as set forth in the
Orion-KW Agreement, i.e., by written agreement of both MGM and KW.
Notwithstanding the foregoing, MGM agrees that KW may utilize clips of the
Existing Episodes ("Existing Clip[s]") in and as part of the New Series,
and MGM hereby grants to KW a nonexclusive license with respect to the
Existing Episodes for such purposes. For each Existing Clip utilized in any
episode of the New Series ("New Series Episode[s]") or in any promotional
material for the New Series ("New Series Promotion"), KW shall pay MGM a
license fee in the amount of [*] per minute, or fraction of a minute, of
usage of each Existing Clip for each such usage in a New Series Episode or
in a New Series Promotion. The minimum license fee to MGM for the use of
each Existing Clip in any New Series Episode or in any New Series Promotion
will be [*]. Usage of multiple Existing Clips used in any New Series
Episode will not be aggregated, but will be treated individually as
separate licenses, and usage of the same Existing Clip(s) in multiple New
Series Episodes or in multiple New Series Promotions or in both a New
Series Episode and a New Series Promotion will be treated individually as
separate licenses for each such usage. The aforesaid license fees to MGM
for usage of Existing Clips shall be payable on a monthly basis, within 30
days after the end of each month, for all Existing Clips utilized during
the prior month. It is understood that KW shall be solely responsible for
all clearances in connection with any usage of the Existing Clips (e.g.,
performers, directors, writers, music, etc.), and that KW hereby
indemnifies and holds harmless MGM and its parents, subsidiaries,
affiliated entities, and their respective officers, directors, and
employees, from and against any costs, damages, liability, and expenses
(including reasonable attorneys' fees) arising out of any usage of the
Existing Clips by or under authorization of KW. The aforesaid right of KW
to utilize the existing Clips is personal to KW and is not assignable
except in connection with a sale or assignment of all of KW's interest in
the New Series, and, in any event, is limited to the New Series only.
4. If MGM desires to sell, assign, transfer, or otherwise dispose of MGM's
interest in the Existing Episodes to any third party (except as part of a
sale, assignment, or transfer of all or substantially all of MGM's
television distribution assets), MGM agrees to advise KW in writing of
MGM's aforesaid desire, and MGM agrees to negotiate exclusively with KW
with respect thereto for a period of [*] after MGM's aforesaid notice to
KW. In the event that MGM and KW do not enter into an agreement within said
<PAGE>
4
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
exclusive negotiation period (as such period may be extended by the
agreement of MGM and KW), MGM shall be free to sell, assign, transfer, or
otherwise dispose of MGM's rights in the Existing Episodes, which rights
shall at all times remain subject to KW's rights as provided in the
Orion-KW Agreement, as amended by this Agreement. It is understood that MGM
shall have no obligation to notify KW or to negotiate with KW with respect
to MGM's interest in the Existing Episodes if MGM's interest in the
Existing Episodes is to be sold, assigned, transferred, or otherwise
disposed of as part of a sale, assignment, or transfer of all or
substantially all of MGM's television distribution assets.
5. MGM hereby waives its right of reversion with respect to the Rights, as set
forth in paragraph 8 of the Orion-KW Agreement, i.e., the provisions of
said paragraph 8 of the Orion-KW Agreement after the first two sentences of
said paragraph are deemed deleted.
6. Except as set forth in this Agreement, all terms and conditions in the
Orion-KW Agreements are reaffirmed by MGM, as successor-in-interest to
Orion, on the one part, and KW, on the other part.
Please confirm your agreement to the foregoing by signing below where indicated.
Very truly yours,
____________________________
Albert Spevak
Accepted and agreed:
King World Productions, Inc.
By:_______________________________
Date:______________________________
<PAGE>
5
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
Accepted and agreed:
MGM Domestic Television Distribution Inc.
By:________________________________
Date:_______________________________
<PAGE>
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
Exhibit 10.31
King World Productions, Inc.
1700 Broadway
New York, New York 10019
Harpo, Inc.
110 North Carpenter
Chicago, Illinois 60607
Attn: Jeffrey D. Jacobs
Dated: September 23, 1998,
as of September 16, 1998
Re: "The Oprah Winfrey Show"
Dear Jeff:
The following (sometimes herein referred to as the "1998 Amendment")
shall serve as an amendment to the existing agreement as amended to date (as
further amended hereby, sometimes referred to as the "Agreement") between the
parties King World Productions, Inc. ("King World") and Harpo, Inc. ("Harpo").
As used herein, all capitalized terms, except as otherwise indicated, shall have
the respective meanings ascribed to them in the Agreement.
For good and valuable consideration as set forth herein, the parties
agree as follows:
1. Harpo agrees to produce an additional two (2) television seasons of
the Show, namely the 2000/2001 television season ("Year 15") and the 2001/2002
television season ("Year 16"). The Year 15 episodes will be produced for initial
telecast between September 1, 2000 and August 31, 2001 and the Year 16 episodes
will be produced for initial telecast between September 1, 2001 and August 31,
2002, with the Term of the Agreement deemed extended through August 31, 2002.
Harpo shall, for all purposes of the Agreement, be deemed to have exercised an
option to produce the Show for Year 15 and Year 16 and thus, inter alia, the End
Date shall mean August 31, 2002. Harpo confirms that King World shall have the
right to license the Year 15 and Year 16 episodes of the Show to domestic and
international markets in accordance with the Agreement. King World and Harpo
shall discuss in good faith King World's possible inclusion of a second telecast
<PAGE>
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
of the episodes of the Show in the station telecast licenses for the Show issued
by King World for Year 13 forward. Harpo may engage Harpo Productions, Inc. to
produce the Show and shall furnish the personal services of Oprah Winfrey to
host 180 new episodes of the Show for Year 15 and 170 new episodes of the Show
for Year 16.
2. Paragraph 1 of the March 17, 1994 amendment constituting a part of
the Agreement (the "1994 Amendment") is amended so that the references to "Year
8" in the 7th, 9th, and 10th lines of Page 2 thereof shall be changed to "Year
13." Paragraph 2 of the 1994 Amendment is amended so that, with respect to Year
15 and Year 16 only, Harpo shall deliver 180 newly produced episodes of the Show
for Year 15 and 170 newly produced episodes of the Show for Year 16.
3. Paragraph 4 of the 1994 Amendment is amended to provide that the
Guarantees payable by King World to Harpo shall be $120 million for Year 15 and
$125 million for Year 16. The Year 15 Guarantee shall be deposited into a "Rabbi
trust" (as described below) pursuant to the following schedule: (A) $75 million,
within 30 days following the date of this 1998 Amendment (provided that such
installment shall bear interest, at the Applicable Federal Rate from time to
time in effect, from such date until King World's payment of such installment),
(B) $22,500,000 on or before September 1, 2000, and (C) $22,500,000 on or before
January 2, 2001. The Year 16 Guarantee shall be payable (A) $75 million, on or
before June 1, 2000, (B) $25 million, on or before September 1, 2001 and (C) $25
million, on or before January 2, 2002. The Returnable Portion of the Guarantee
for each of Year 15 and Year 16 shall be $75 million. The Guarantees shall be
paid by King World for the benefit of Harpo into a so-called "Rabbi trust"
pursuant to a trust agreement in a form generally utilized for similar trusts,
to be negotiated in good faith by Harpo and King World promptly following the
execution of this 1998 Amendment.
4. Paragraph 5 of the 1994 Amendment is amended to provide that, in
consideration of Harpo's agreement to produce the Show for Years 15 and 16, King
World hereby grants to the individuals listed below (each, a "Purchaser")
options to purchase the number of shares of King World common stock set forth
below:
Number of
Purchaser Shares
Oprah Winfrey 900,000
Jeffrey D. Jacobs 100,000
Timothy Bennett 50,000
Dianne Hudson 50,000
Douglas Pattison 30,000
2
<PAGE>
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
Said options shall be exercisable at the price of $26 7/16 per share (the
closing market price of King World common stock on September 16, 1998, the date
on which Harpo and King World reached an agreement in principle with respect to
this transaction) and shall be exercisable immediately. The shares subject to
the options shall be publicly registered. The final stock option agreements,
which will definitively govern said options, will be presented promptly after
the execution of this 1998 Amendment to each of the Purchasers for signature,
and will, except as set forth to the contrary in this 1998 Amendment, be
consistent with the terms of the existing agreements governing stock option
grants by King World to Oprah Winfrey and Jeffrey D. Jacobs, including, without
limitation, the provisions regarding sales volume limitations contained therein.
5. Paragraph 10 of the 1994 Amendment is amended to provide that King
World's and Harpo's respective shares of revenues attributable to the
distribution of the Show in Years 15 and 16 shall be determined in the same
manner as for Year 14 (i.e., in accordance with subparagraph 10(b) of the 1994
Amendment), except that: (A) King World's distribution fee for each of Years 15
and 16 shall be [*] of Gross Receipts and (B) King World's Recoupable
Distribution Costs for each of Years 15 and 16 shall not, without Harpo's
approval, include so-called "co-op advertising costs" in excess of the co-op
advertising budget applicable for Year 13 [*]. "Harpo's Share of Revenues" with
respect to Years 15 and 16 shall mean the share of Gross Receipts payable to
Harpo with respect to such Years pursuant to Paragraph 10 of the 1994 Amendment
(as amended hereby).
6. Paragraph 11 of the 1994 Amendment is amended as follows:
(a) Except as set forth in Paragraphs 11(a), 11(b)(i) and
11(b)(ii) of the 1994 Amendment, as amended hereby, King World relinquishes, as
of the date hereof, to Harpo all of King World's right, title and interest (such
King World right, title and interest being valued at [*] in and to the Library,
including King World's share of any revenue therefrom.
(b) Paragraphs 11(a)(i)(A), 11(b)(i) and 11(b)(ii) of the 1994
Amendment are amended to provide that, commencing January 1, 2000, Harpo may
exercise distribution rights in and to the Library for exhibition in the United
States and Canada in all media other than free over-the-air television (for
clarification, the proviso in Paragraph 11(b)(i) of the 1994 Amendment shall not
restrict Harpo's rights under this Paragraph 6(b)), provided that:
(i) Harpo shall not authorize any exhibitions of the Library
episodes prior to the End Date between the hours of [*] local time in any
television market;
3
<PAGE>
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
(ii) Harpo shall not authorize the exhibition of any Library
episode prior to the first anniversary of the initial telecast of such episode
as distributed by King World pursuant to the Agreement;
(iii) Harpo shall not authorize the exhibition prior to the
End Date of more than one telecast of one Library episode per day in any
television market.
[*]
7. Notwithstanding anything to the contrary contained in the
Agreement, in the event that Roger King at any time ceases to serve as the
senior executive on behalf of King World responsible for supervising King
World's distribution of the Show, and the Show has not at that time already been
licensed for Years 15 and 16 to television stations representing at least 70% of
United States television households (as measured by Nielsen NSI reports), then
King World promptly shall notify Harpo in writing of such cessation, and Harpo
shall have the right, by written notice to King World within ten days following
Harpo's receipt of that notice, prospectively to terminate King World's
distribution rights for such Years, provided that King World shall remain fully
entitled to its Distribution Fees arising from any licenses issued by King World
prior to such termination, including, without limitation, a pro-rata share of
any barter advertising sales revenue based on the percentage of United States
television households (measured as above) represented by the television stations
licensing the Show under license from King World as a percentage of the total
percentage of such households represented by all television stations licensing
the Show. In no event shall King World's distribution rights for any Years prior
to Year 15 be subject to the conditions set forth in this paragraph.
8. Paragraph 12(a)(i) of the 1994 Amendment is amended by deleting the
phrase "at any time during the 2:00 pm to 5:00 pm (local time) time period"
therein and replacing it with the phrase "on any day Monday through Friday at
any time during the 2:00 pm to 6:00 pm (local time) time period."
9. Paragraph 12(a)(ii) of the 1994 Amendment is amended to provide
that, solely for purposes of such Paragraph 12(a)(ii), a series of television
programs telecast not more than once monthly adapted from the so-called "book
club episodes" of the Show shall not be deemed to be a television series with
the same format or a substantially similar format as the Show.
10. Paragraphs 12(b)(i) and 12(b)(ii) of the 1994 Amendment are
deleted, and Paragraph 12(b)(iii) of the 1994 Amendment is amended by deleting
the phrase "After the end of Year 14" therein.
4
<PAGE>
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
11. Paragraph 13(a)(ii)(A) of the 1994 Amendment is hereby deleted.
12. Except as expressly modified by this 1998 Amendment, the Agreement
(a) constitutes the sole and entire agreement between the parties, and
supersedes all communications oral or written, with respect to the subject
matter thereof, (b) shall remain in full force and effect and (c) shall not be
subject to modification or waiver except in a writing signed by both parties.
For purposes of construing this 1998 Amendment, this 1998 Amendment will be
deemed to have been jointly drafted by the parties.
This 1998 Amendment may be executed in one or more counterparts.
If the foregoing meets with your approval, please so indicate by
signing in the space provided below.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:_____________________________
ACCEPTED AND APPROVED:
HARPO, INC.
By:____________________________
5
<PAGE>
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
GUARANTEE
King World Productions, Inc.
1700 Broadway
New York, New York 10019
I refer to the agreement as amended to date (the "Agreement"), including the
amendment thereto dated September 23, 1998, as of September 16, 1998 (the "1998
Amendment"), between King World Productions, Inc. ("King World") and HARPO, Inc.
("HARPO"). All capitalized terms used herein shall have the respective meanings
ascribed to them in the Agreement.
As an inducement to King World to enter into the 1998 Amendment, I hereby
guarantee the full performance by HARPO of its past, current and prospective
obligations and agreements (including without limitation the representations,
warranties and agreements set forth in Paragraphs 12 and 15 of the March 17,
1994 amendment constituting part of the Agreement and the repayment of any
Guarantees which become repayable to King World) under the Agreement. Insofar as
this is a guarantee of HARPO's monetary obligations, it constitutes a guarantee
of payment and not collection.
As an additional inducement to King World to enter into the 1998 Amendment, I
hereby represent, warrant and agree as follows:
(A) That I have heretofore looked and shall hereafter look solely to
HARPO for all compensation to be paid to me for all services and obligations
performed or to be performed by me and all rights, licenses and privileges
granted or to be granted by me;
(B) That I waive any claims against King World for compensation of any
kind for any services which I have heretofore rendered or may hereafter render
pursuant to the Agreement;
(C) That I am familiar with each and all of the terms, covenants and
conditions of the Agreement, and consent and agree to the execution and delivery
of the Agreement including the 1998 Amendment by HARPO; that I shall render all
services, grant all rights and perform all other obligations to be performed by
me as provided for in the Agreement;
<PAGE>
*[Deleted pursuant to a request for Confidential Treatment and filed
separately with the Securities and Exchange Commission]
(D) That I shall comply with all of the terms, covenants and
conditions of the Agreement on my part to be complied with; that I am under no
obligation or disability created by law or otherwise which would or might
prevent or restrict me from so doing;
(E) That in no event shall any amendment or termination of the
agreement which I now have or any agreement which I may hereafter have with
HARPO or any breach of any such agreement by HARPO limit or affect any of the
obligations or any of the rights, privileges or remedies of King World provided
for in the Agreement and, in such event, I shall look solely to HARPO for any
remedies arising out of such breach or the failure to perform, and that I shall
continue to perform all services and obligations to be performed by me under the
Agreement and that King World shall continue to have all rights, privileges and
remedies specified therein; and
(F) That, in the event of a breach of threatened breach of the
Agreement by HARPO, King World shall be entitled to seek equitable relief by way
of injunction or otherwise or legal relief against HARPO, and equitable relief
by way of injunction or otherwise or legal relief against me under this
Guarantee, without the necessity of first resorting to or exhausting any rights
or remedies which King World may have against HARPO. I acknowledge, for this
purpose only, that the rights I have granted to HARPO are of a special, unique,
unusual and extraordinary and intellectual character giving them peculiar value,
the loss of which cannot be reasonably or adequately compensated in damages.
Dated:____________________
________________________________
OPRAH WINFREY
2
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
May 27, 1997
Mr. Fred Cohen
c/o King World Productions, Inc.
1700 Broadway
New York, New York 10019
Dear Fred:
This letter, when accepted by you, shall constitute an agreement
between you and King World Productions, Inc. (the "Company") with respect to
your employment by the Company for the Employment Period (as hereinafter
defined).
1. (a) The Company hereby agrees to employ you as President of its
International Division (the "Division") for the period commencing on September
1, 1997 and terminating on August 31, 1999 (the "Employment Period"). You hereby
agree to accept such employment, to diligently, faithfully and competently
perform such services as shall from time to time be reasonably assigned to you
by the Company's Board of Directors or its senior management (including, without
limitation, services in connection with the development and production of
animated, game show and other programming and in connection with merchandising),
and to diligently, faithfully and competently devote your entire business time,
skill and attention to the performance of your duties and responsibilities to
the Company. As a condition of your employment by the Company, you hereby affirm
and represent that you are under no obligation to any current or former employer
or other party that is in any way inconsistent with, or that imposes any
restriction upon, your acceptance of employment hereunder with the Company, the
employment of you by the Company, or your undertakings under this Agreement.
Your base of operations shall be located in the New York City metropolitan area,
although you acknowledge that your services under this Agreement will require
such travel as the Company may reasonably require. You will report directly to
the Chairman of the Board of Directors, Chief Executive Officer and Chief
Operating Officer of the Company.
(b) You hereby grant to the Company options to extend the Employment
Period for three additional twelve-month periods (the "Option Periods") to
commence on September 1, 1999 and to end on August 31, 2000, in the case of the
first Option Period, to commence on September 1, 2000 and to end on August 31,
2001, in the case of the second Option Period and to commence September 1, 2001
and to end on August 31, 2002, in the case of the third Option Period. The
<PAGE>
Company may exercise each option by giving you written notice to such effect not
later than the May 1st preceding the commencement of each Option Period. In the
event that the Company elects to exercise any of such options, the terms and
provisions of this Agreement shall remain in effect and shall apply during the
Employment Period as so extended.
2. (a) The Company shall pay to you, and you shall accept, for your
services performed for the Company and its subsidiaries and affiliates during
the Employment Period, salary compensation at the annual rate of (i) $410,000
for the period commencing September 1, 1997 and ending August 31, 1998; (ii)
$425,000 for the period commencing September 1, 1998 and ending August 31, 1999;
(iii) subject to the Company's exercising the option for the first Option
Period, $450,000 during such Option Period; (iv) subject to the Company's
exercising the option for the second Option Period, $475,000 during such Option
Period; and subject to the Company's exercising the option for the third Option
Period, $500,000 during such Option Period. Any compensation payable pursuant to
this paragraph 2(a) shall be paid in accordance with the Company's normal
payroll policy at the time in effect.
(b) You shall also be entitled to receive a bonus equal to 0.1%
of the first $45,000,000 of gross revenues (as hereinafter defined) of the
Division, plus 0.15% of all gross revenues of the Division in excess of
$45,000,000, during each entire fiscal year of the Company during the Employment
Period. For the purposes of this Agreement, the "gross revenues" of the Division
shall be determined on a basis consistent with the publicly reported financial
statements of the Company. Payment of any bonus payable to you pursuant to this
paragraph 2(b) shall be made within thirty (30) days following the issuance by
the Company of certified financial statements for the fiscal year with respect
to which any such bonus is payable. With respect to any fiscal year of the
Company during which your employment terminates, you shall be entitled to a pro
rata share of the bonus compensation for such year provided for in this
paragraph 2(b) in an amount equal to the product of the gross revenues of the
Division for such entire fiscal year and a fraction the numerator of which is
the number of days during which you were employed by the Company in such fiscal
year and the demoninator of which is 365.
(c) Subject to the provisions of this paragraph (c), the Company
hereby grants to you a "non-qualified stock option" under the Company's 1996
Amended and Restated Stock Option and Restricted Stock Purchase Plan (the
"Plan") to purchase 55,000 shares of the Company's Common Stock, $.01 par value
(the "Common Stock"), at an exercise price per share equal to $38.00, the
closing price of the Common Stock on the New York Stock Exchange on the date
hereof. You understand and agree with respect to such stock option that:
(i) your right to exercise such option shall vest over a five year
period as follows: 20% on August 31, 1998; 20% on August 31, 1999; 20% on August
31, 2000; and 40% on August 31, 2002; and
(ii) if you should cease to be a full-time employee of the Company and
any of its subsidiaries or affiliates, then you shall only have the right to
exercise the unexercised portion of such option within one month after the date
on which you ceased to be so employed and then only to the extent that such
portion was vested (pursuant to the foregoing vesting schedule) on the date you
ceased to be so employed, and you shall forfeit all other rights to and under
<PAGE>
such option, provided, however, that if your full-time employment ceases by
reason of your death or "disability" (within the meaning of Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended), then such one month period shall
instead be a one-year period following the cessation of your employment.
The foregoing, as well as such other terms and conditions as the
Company shall deem appropriate, shall be set forth in a definitive stock option
agreement. Your rights as an optionee shall be governed by the terms and
conditions of such agreement and the Plan.
3. (a) You shall be entitled to participate, on the same basis as the
other employees of the Company, in any pension, life insurance, health insurance
or hospitalization plan generally in effect with respect to all such other
employees. You shall be entitled to reimbursement of expenses reasonably
incurred by you in connection with the performance of your duties hereunder,
provided that you promptly furnish documentation therefor reasonably
satisfactory to the Company.
(b) You shall be entitled to stay in first-class hotel
accommodations and to utilize first-class air travel (if available and if used)
in connection with your performance of services under this Agreement.
4. (a) In the event of your death, the Employment Period shall
automatically terminate, effective upon the date of your death.
(b) In the event that you are unable to perform the duties
required of you pursuant to this Agreement, for (i) ninety (90) days during any
consecutive twelve-month period during the Employment Period (whether or not
such ninety (90) days are consecutive) or (ii) any thirty (30) consecutive days
during the Employment Period, by reason of illness or other physical incapacity,
the Company may, after the expiration of such ninety (90) or thirty (30) days
and subject to applicable law, terminate the Employment Period.
5. (a) Except as required in connection with the performance of your
services for the Company, you shall not, during or after the termination of the
Employment Period, use or disclose to any person, firm, partnership or
corporation any confidential or proprietary information or trade secrets of the
Company or any of its subsidiaries or affiliates obtained or learned by you
during the Employment Period, including, without limitation, the type and nature
of the contracts entered into by the Company or any of its subsidiaries or
affiliates in connection with the acquisition of television programming or the
acquisition of distribution rights with respect to any such programming
(including, without limitation, the acquisition of advertising time within any
television programming or acting as sales agent for any such advertising time,
irrespective of whether the Company or any of its subsidiaries or affiliates
<PAGE>
distributes such programming to television stations ("Advertising Time")), the
sale or other distribution of television programming (including, without
limitation, Advertising Time), or the basis upon which the Company or any of its
subsidiaries or affiliates elects to acquire television programming or
distribution rights with respect to any such programming (including, without
limitation, Advertising Time) for sale or other distribution.
(b) You also agree that during and for a period of two (2) years
following the termination of the Employment Period, you will not work for, or
render services to or for the benefit of, or otherwise be interested in (whether
as an employee, consultant, independent contractor, proprietor, investor, lender
or in any other manner), any business or portion of a business of any person,
firm, partnership, corporation or other entity which supplied television
programming (including, without limitation, Advertising Time) to, or which
entered into a distribution (including, without limitation, sales agency)
agreement for television programming with, the Company or any of its
subsidiaries or affiliates at any time within the two (2) year period preceding
the termination of the Employment Period; provided, however, that (i) for the
purposes of the foregoing paragraph the supplier of "Wheel of Fortune" and
"Jeopardy!" shall be deemed to be the Columbia Pictures Television division of
Sony Entertainment Pictures; (ii) the foregoing non-competition restrictions
shall not apply to any such entity if its first contractual relationship with
the Company was initiated by you; and (iii) the provisions of this paragraph
shall not apply to investments by you in corporations whose shares of stock are
traded on a national securities exchange or on the national over-the-counter
market, and which shall, at the time of acquisition, have an aggregate market
value of less than $100,000 and constitute less than 1% of the outstanding
shares of such corporation's stock.
6. You hereby agree that during and for a period of two (2) years
following the termination of the Employment Period, you shall not (a) induce,
directly or indirectly, any person, firm, partnership, corporation or other
entity from whom or from which the Company or any of its subsidiaries or
affiliates acquired television programming or distribution (including, without
limitation, sales agency) rights with respect thereto (including, without
limitation, Advertising Time) during the Employment Period to terminate its
agreement with the Company or such subsidiary or affiliate with respect to such
programming or distribution rights (including any such Advertising Time), to
elect not to renew any such agreement or not to furnish to the Company or any
such subsidiary or affiliate any other television programming or distribution
rights (including, without limitation, Advertising Time) or (b) induce, directly
or indirectly, any employee of the Company or any of its subsidiaries or
affiliates to terminate his or her employment with the Company or any such
subsidiary or affiliate.
7. You hereby agree that all ideas, creations, improvements and other
works of authorship created, developed, written or conceived by you at any time
during the Employment Period are works for hire within the scope of your
employment and shall be the property of the Company free of any claim whatever
by you or any person claiming any rights or interests through you.
Notwithstanding any other provision of this Agreement that may be to the
contrary, nothing contained in this Agreement shall require the Company to
utilize your services under this Agreement, the Company's only obligation to you
being payment of your compensation and reimbursable expenses under this
Agreement during the Employment Period.
8. (a) You hereby agree to indemnify and hold the Company harmless
from and against any and all loss, damage, liability, cost and expense,
including reasonable attorneys' fees, incurred by the Company as a result of,
arising out of or in connection with a violation of any term or condition of
this Agreement required to be performed or observed by you.
<PAGE>
(b) The Company hereby agrees to indemnify and hold you harmless
from and against any and all loss, damage, liability, cost and expense,
including reasonable attorneys' fees, incurred by you as a result of, arising
out of or in connection with a violation of any term or condition of this
Agreement required to be performed or observed by the Company.
9. (a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
The failure of a party to insist upon strict compliance with any provision of
this Agreement shall not be deemed to be a waiver of such provision or of any
other provision of this Agreement. No waiver or modification of the terms or
conditions hereof shall be valid unless in writing signed by the party to be
charged and only to the extent therein set forth. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
successors, assigns, heirs, administrators and executors.
(b) Any legal suit, action or proceeding arising out of or based
upon this Agreement may be instituted in the federal courts of the United States
of America or the courts of the State of New York, in each case located in the
City and County of New York (collectively, the "Specified Courts"), and each
party irrevocably submits to the exclusive jurisdiction (except for proceedings
instituted in regard to the enforcement of a judgment of any such court, as to
which such jurisdiction is non-exclusive) of such courts in any such suit,
action or proceeding. Service of any process, summons, notice or document by
mail to such party's address set forth above shall be effective service of
process for any suit, action or other proceeding brought in any such court. The
parties irrevocably and unconditionally waive any objection to the laying of
venue of any suit, action or other proceeding in the Specified Courts and
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
Yours very truly,
KING WORLD PRODUCTIONS, INC.
By:_______________________________
ACCEPTED:
- -------------------------
Fred Cohen
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
September 28, 1995
Mr. Andrew Friendly
c/o David Nochimson, Esq.
Ziffren, Brittenham, Branca & Fischer
2121 Avenue of the Stars
Los Angeles, CA 90067
Dear Andy:
This letter, when accepted by you, shall constitute an agreement
between you and King World Productions, Inc. (the "Company") with respect to
your employment by the Company for the Employment Period (as hereinafter
defined).
1. (a) The Company hereby agrees to employ you as Executive Vice
President of Programming and Production for the three-year period commencing on
the date (the "Start Date") selected by you, of which you shall notify the
Company in writing at least two weeks prior thereto, and terminating on the
third anniversary of the day prior to the Start Date (the "Employment Period");
provided, however, that the Start Date may not be a date later than November 6,
1995. This Agreement shall terminate and be of no further force and effect if
the Start Date does not occur by November 6, 1995. You hereby agree to accept
such employment, to diligently, faithfully and competently perform such services
as shall from time to time be reasonably assigned to you by the Company's Board
of Directors or by its Chairman of the Board, President and Chief Executive
Officer or Executive Vice President and Chief Operating Officer and to
diligently, faithfully and competently devote your entire business time, skill
and attention to the performance of your duties and responsibilities to the
Company; provided, however, that you shall have the right to consult with CNBC
with respect to matters dealing with your former employment by CNBC for up to
ninety (90) days after termination of your employment with CNBC; provided
further, however, that any such consultation does not interfere with, or
otherwise constitute a breach of, your obligations under this Agreement. Your
duties shall extend to, and you shall, subject to your reporting
responsibilities, have responsibility for, the development and production of
programming for all modes of television distribution including, without
limitation, syndication, network and cable. The Company agrees that during the
Employment Period you will be required to report only to its Chairman of the
Board, President and Chief Executive Officer and Executive Vice President and
Chief Operating Officer. During the Employment Period, your base of operations
<PAGE>
shall be located at the Company's corporate headquarters in the New York City
metropolitan area, currently located at 1700 Broadway, New York, New York,
although it is understood that you will have the right to spend a portion of
your time working from the Company's offices in Los Angeles, California, as
coordinated with the Company, for up to an average of ten working days per
month.
(b) As a condition to your employment by the Company, you hereby
affirm and represent that you are under no obligation to any current or former
employer or other party which is in any way inconsistent with, or which imposes
any restriction upon, your acceptance of employment hereunder with the Company,
the employment of you by the Company or your agreements and undertakings
contained in this Agreement.
2. (a) The Company shall pay to you, and you shall accept, for your
services performed for the Company and its subsidiaries and affiliates during
the Employment Period, salary compensation at the annual rate of (i) $525,000
during the first year of the Employment Period, (ii) $550,000 during the second
year of the Employment Period, and (iii) $575,000 during the third year of the
Employment Period, it being understood and agreed that $25,000 of each year's
salary compensation (collectively, the "Advances") shall be considered an
advance against, and shall be recoupable from, the first payments that otherwise
would be made to you pursuant to the provisions of paragraph 2(c) of this
Agreement. Any compensation payable pursuant to this paragraph 2(a) shall be
paid in accordance with the Company's normal payroll policy at the time in
effect.
(b) Subject to the provisions of this paragraph (b), as soon as
practicable after the commencement of the Employment Period, the Company will
grant to you a "non-qualified stock option" under the Company's Amended and
Restated Stock Option and Restricted Stock Purchase Plan (the "Plan") to
purchase 100,000 shares of the Company's Common Stock, $.01 par value (the
"Common Stock"), at an exercise price per share equal to the closing price of
the Common Stock on the New York Stock Exchange on the Start Date. You
understand and agree with respect to such stock option that:
(i) your right to exercise such option shall vest over a five year
period as follows: 20% on each of the first, second and third anniversaries of
the day prior to the Start Date and 40% on the fifth anniversary of the day
prior to the Start Date; and
(ii) if you should cease to be a full-time employee of the Company and
any of its subsidiaries or affiliates, then you shall only have the right to
exercise the unexercised portion of such option within one month after the date
on which you ceased to be so employed and then only to the extent that such
portion was vested (pursuant to the foregoing vesting schedule) on the date you
ceased to be so employed, and you shall forfeit all other rights to and under
such option, provided, however, that if your full-time employment ceases by
reason of your death or "disability" (within the meaning of Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended), then such one month period shall
instead be a one-year period following the cessation of your employment.
<PAGE>
The foregoing, as well as such other terms and conditions as the
Company shall deem appropriate, shall be set forth in a definitive stock option
agreement. Your rights as an optionee shall be governed by the terms and
conditions of such agreement and the Plan.
(c) (i) You shall also be entitled to receive contingent
compensation in an amount equal to 5% of the Net Profits (as hereinafter
defined), if any, from each Covered Series (as hereinafter defined). "Net
Profits" from any Covered Series shall be determined on a cumulative basis from
the inception of such Series, shall not be cross-collateralized with the Net
Profits from any other Covered Series and shall mean all "Gross Revenues"
(defined as all money actually received by or credited to the Company in the
United States from the distribution of such Series and all rights therein less
refunds and security deposits or other revenue subject to refund, and net of
agency commissions, in the event of any barter sales revenues), less (1) a
distribution fee to the Company of thirty-five percent (35%) of Gross Revenues
from sources within the United States, provided that such fee shall be five
percent (5%) of Gross Revenues in the case of distribution via United States
network television (over the air or "free" or "pay" cable), and forty percent
(40%) of Gross Revenues from distribution outside the United States (all of such
distribution fees to be inclusive of fees to any subdistributors engaged by the
Company); (2) all out-of-pocket distribution expenses (including without
limitation any promotion and advertising expenses) incurred by the Company in
connection with such Series; (3) recoupment by the Company of all out-of-pocket
development and production costs of such Series; (4) interest on all the
foregoing costs from the time expended, at the prime rate from time to time in
effect at The Bank of New York, New York, New York or any successor thereto; and
(5) any residual or reuse fees, royalties or other fixed or contingent
compensation of any nature payable to any third parties as a result of the
exploitation of such Series. For the purposes of this Agreement, "Covered
Series" shall mean any television series initially produced by the Company
during the Employment Period, it being understood and agreed that the term
"Covered Series" shall not include (A) any series produced by an entity not
affiliated with the Company, including, without limitation, "The Oprah Winfrey
Show," "Wheel of Fortune" and "Jeopardy!"; (B) any series currently produced by
the Company, including, without limitation, "Inside Edition", "American Journal"
and "Rolonda"; (C) the series currently in development by the Company and
currently referred to as "Planet Hollywood Squares"; (D) the series currently in
development by the Company and currently referred to as "Love Triangle"; and (E)
the "dance/young adult lifestyles" series currently in development by the
Company. For the purposes of this paragraph 2(c), the term "Company" shall
include all subsidiaries of the Company.
(ii) Within sixty (60) days after the close of each quarterly
period ending on November 30, February 28, May 31 and August 31 of each year,
commencing with the first television exhibition of any Covered Series, if any,
the Company shall furnish to you a written statement which reflects the amount
of Net Profits, if any, payable to you hereunder and a check payable to your
order in the appropriate amount; provided, that (A) there shall first be
deducted from any amount otherwise owed to you any then-unrecouped Advances and
(B) the Company shall not be required to furnish you a statement with respect to
any quarterly period during which there were no Gross Revenues. Any such
statement shall be deemed accepted by you unless (i) you notify the Company in
writing within two (2) years from the date of such statement setting forth your
specific objections thereto and (ii) you commence a lawsuit to contest such
statement within three (3) years from the date of such statement. You or your
designated representative shall have the right, at your expense, at the
<PAGE>
Company's usual place of business, during normal business hours and on a
reasonable notice to the Company (but in no event more than once annually), to
examine the Company's books and records to confirm the accuracy of any such
statements not otherwise deemed accepted.
(d) During each year of the Employment Period, you may also be
entitled to a bonus if the Board of Directors of the Company, in its sole and
absolute discretion, shall so determine.
3. (a) You shall be entitled to participate, on the same basis as
other senior executives of the Company, in any pension, profit-sharing, life
insurance, health insurance or hospitalization plan in effect with respect to
such other executives. The health insurance coverage currently offered by the
Company provides for elective contributory family coverage; however, it is
understood and agreed by you that the offering by the Company of this or any
other plan or benefit currently in effect does not require the Company to
maintain any such plan or benefit or prohibit the Company from amending or
deleting any such plan or benefit. You shall be entitled to reimbursement of
expenses reasonably incurred by you in connection with the performance of your
duties hereunder, provided that you promptly furnish documentation therefor
reasonably satisfactory to the Company.
(b) You shall be entitled to four (4) weeks of vacation during
each year of the Employment Period.
(c) The Company shall furnish you with executive office space
commensurate with your title and responsibilities in New York and Los Angeles, a
dedicated secretary in New York and access to adequate secretarial services and
paid parking at its Los Angeles office.
(d) You shall be entitled to stay in first-class hotel
accommodations and to utilize first-class travel and ground transportation in
connection with your performance of services under this Agreement. During each
year of the Employment Period, we shall furnish you, on an as-used basis, with
up to ten (10) first-class round trip air tickets between Los Angeles and New
York, and related ground transportation, for Pat Friendly.
4. You shall be entitled to receive a production credit with respect
to all episodes of each Covered Series produced during the Employment Period.
Such credit shall be substantially in the form of "Executive Vice President of
Programming and Production for King World--Andy Friendly." Your credit on any
Covered Series shall be on a separate card if credits are not in crawl form and
shall be after any credit for Roger King and/or Michael King as the Executive
Producer(s) of such Series and shall immediately follow, and be the same size
as, the producer, co-executive producer or executive producer credit, which
shall immediately follow any credit for Roger King and/or Michael King, for the
senior production executive(s) with day-to-day responsibility for such Series;
provided, however, that you shall not be entitled to any credit on any episode
of a Covered Series on which no other individual receives credit.
<PAGE>
5. The Company shall submit to you for your review and approval, which
approval shall not be unreasonably withheld, a press release relating to your
employment by the Company.
6. (a) In the event of your death, the Employment Period shall
automatically terminate, effective upon the date of your death.
(b) In the event that you are unable to perform the duties
required of you pursuant to this Agreement, for (i) one hundred twenty (120)
days during the Employment Period (whether or not such one hundred twenty (120)
days are consecutive) or (ii) any forty-five (45) consecutive days during the
Employment Period, by reason of illness or other physical incapacity, the
Company may, after the expiration of such one hundred twenty (120) or forty-five
(45) days, terminate the Employment Period.
7. (a) Except as required in connection with the performance of your
services for the Company, you shall not, during or after the termination of the
Employment Period, use or disclose to any person, firm, partnership or
corporation any confidential or proprietary information or trade secrets of the
Company or any of its subsidiaries or affiliates obtained or learned by you
during the Employment Period, including, without limitation, the type and nature
of the contracts entered into by the Company or any of its subsidiaries or
affiliates in connection with the acquisition of television programming or the
acquisition of distribution rights with respect to any such programming
(including, without limitation, the acquisition of advertising time within any
television programming or acting as sales agent for any such advertising time,
irrespective of whether the Company or any of its subsidiaries or affiliates
distributes such programming to television stations ("Advertising Time")), the
sale or other distribution of television programming (including, without
limitation, Advertising Time), or the basis upon which the Company or any of its
subsidiaries or affiliates elects to acquire television programming or
distribution rights with respect to any such programming (including, without
limitation, Advertising Time) for sale or other distribution.
(b) You also agree that during and for a period of two (2) years
following the termination of the Employment Period, you will not work for, or
render services to or for the benefit of, or otherwise be interested in (whether
as an employee, consultant, independent contractor, proprietor, investor, lender
or in any other manner), the production unit of any Covered Series, "The Oprah
Winfrey Show," "Wheel of Fortune," "Jeopardy!" or "Planet Hollywood Squares."
8. You hereby agree that during and for a period of eighteen (18)
months following the termination of the Employment Period, you shall not (a)
induce, directly or indirectly, any person, firm, partnership, corporation or
other entity from whom or from which the Company or any of its subsidiaries or
affiliates acquired television programming or distribution (including, without
limitation, sales agency) rights with respect thereto (including, without
<PAGE>
limitation, Advertising Time) during the Employment Period to terminate its
agreement with the Company or such subsidiary or affiliate with respect to such
programming or distribution rights (including any such Advertising Time), to
elect not to renew any such agreement or not to furnish to the Company or any
such subsidiary or affiliate any other television programming or distribution
rights (including, without limitation, Advertising Time) or (b) induce, directly
or indirectly, any employee of the Company or any of its subsidiaries or
affiliates to terminate his or her employment with the Company or any such
subsidiary or affiliate.
9. You hereby agree that all ideas, creations, improvements and other
works of authorship created, developed, written or conceived by you at any time
during the Employment Period are works for hire within the scope of your
employment and shall be the property of the Company free of any claim whatever
by you or any person claiming any rights or interests through you.
10. (a) You hereby agree to indemnify and hold the Company harmless
from and against any and all loss, damage, liability, cost and expense,
including reasonable attorneys' fees, incurred by the Company as a result of,
arising out of or in connection with a violation of any term or condition of
this Agreement required to be performed or observed by you.
(b) The Company hereby agrees to indemnify and hold you harmless
from and against any and all loss, damage, liability, cost and expense,
including reasonable attorneys' fees (collectively, "Your Losses") incurred by
you (i) as a result of, arising out of or in connection with a violation of any
term or condition of this Agreement required to be performed or observed by the
Company or (ii) in respect of the development, production or distribution by the
Company of any programming (except in the case of any of Your Losses that arise
from a violation by you of any term or condition of this Agreement required to
be performed or observed by you).
11. Any notice or other communication under this Agreement shall be in
writing and shall be considered given when delivered personally or mailed by
certified mail, return receipt requested, to the relevant party at the address
set forth above or at such other address as a party may specify by notice to the
other in the manner herein provided.
12. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
The failure of a party to insist upon strict compliance with any provision of
this Agreement shall not be deemed to be a waiver of such provision or of any
other provision of this Agreement. No waiver or modification of the terms or
conditions hereof shall be valid unless in writing signed by the party to be
charged and only to the extent therein set forth. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
successors, assigns, heirs, administrators and executors.
Yours very truly,
KING WORLD PRODUCTIONS, INC.
By:_______________________________
ACCEPTED:
- -------------------------
Andrew Friendly
<PAGE>
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
August 12, 1996
Mr. Andrew Friendly
c/o David Nochimson, Esq.
Ziffren, Brittenham, Branca & Fischer
2121 Avenue of the Stars
Los Angeles, CA 90067
Dear Andy:
This letter, when accepted by you, shall constitute an amendment (the
"Amendment") to the letter agreement (the "Letter Agreement"), dated September
28, 1995, between King World Productions, Inc. (the "Company") and you. All of
the definitions of the Letter Agreement shall govern this Amendment. The Company
and you hereby agree that the last sentence of paragraph 1 of the Letter
Agreement shall be amended to read in its entirety as follows:
"During the Employment Period, your base of operations shall be
located at the Company's offices in the Los Angeles, California metropolitan
area, although you acknowledge that your services under this Agreement will
require substantial travel as the Company may require."
The Company reserves the right, on ten days' written notice to you, to
cancel this Amendment and to reinstate the original provisions in the last
sentence of paragraph 1 of the Letter Agreement.
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:__________________________________
ACCEPTED:
- --------------------------
Andrew Friendly
<PAGE>
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
July 21, 1998
Mr. Andrew Friendly
c/o David Nochimson, Esq.
Ziffren, Brittenham, Branca & Fischer
1801 Century Park West
Los Angeles, CA 90067
Dear Andy:
This letter, when accepted by you, shall constitute an amendment (the
"Second Amendment") to the letter agreement, dated September 28, 1995, as
amended August 12, 1996 (as so amended, the "Letter Agreement"), between King
World Productions, Inc. (the "Company") and you. All of the definitions of the
Letter Agreement shall govern this Second Amendment. The Company and you hereby
agree as follows:
1. The Employment Period, which commenced on November 13, 1995 and
would otherwise end on November 12, 1998, shall be extended and shall
terminate on November 12, 2001. Effective as of the date of this
Second Amendment, you shall be employed as President, First-Run
Programming and Production.
2. The fourth sentence of paragraph 1 of the Letter Agreement shall be
amended to read in its entirety as follows:
"Your duties shall extend to, and you shall, subject to your
reporting responsibilities, have responsibility for the
development and production of game show, talk show, news magazine
and other reality-based, non-scripted, non-children's television
programming, expressly excluding, without limitation, long-form
television, situation comedy, dramatic series, animated,
children's and all other scripted programming."
3. Your salary compensation for the period (a) from November 13, 1998
through November 12, 1999 shall be payable at the annual rate of
$650,000, (b) from November 13, 1999 through November 12, 2000 shall
be payable at the annual rate of $700,000 and (c) from November 13,
2000 through November 12, 2001 shall be payable at the annual rate of
$750,000.
4. The third paragraph of the amendment, dated August 12, 1996, is
hereby deleted and of no further force and effect.
<PAGE>
5. Subject to the provisions of this paragraph 5, the Company will
grant to you an additional "non-qualified stock option" under the
Company's Amended and Restated Stock Option and Restricted Stock
Purchase Plan (the "Plan") to purchase 120,000 shares of the Company's
Common Stock, $.01 par value (the "Common Stock"), at an exercise
price equal to $29 7/16 per share, the closing price of the Common
Stock on the date hereof. You understand and agree with respect to
such option that:
(i) your right to exercise such option shall vest as
follows: 20% on November 12, 1999; 20% on November 12, 2000; 20%
on November 12, 2001; and 40% on November 12, 2003; and
(ii) if you should cease to be a full-time employee of the
Company and any of its subsidiaries or affiliates, then you shall
only have the right to exercise the unexercised portion of such
option within one month after the date on which you ceased to be
so employed and then only to the extent that such portion was
vested (pursuant to the foregoing vesting schedule) on the date
you ceased to be so employed, and you shall forfeit all other
rights to and under such option, provided, however, that if your
full-time employment ceases by reason of your death or
"disability" (within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), then such one month
period shall instead be a one-year period following the cessation
of your employment.
The foregoing, as well as such other terms and conditions as the
Company shall deem appropriate, shall be set forth in a definitive stock
option agreement. Your rights as an optionee shall be governed by the terms
and conditions of such agreement and the Plan.
6. The Company shall pay to you a bonus of $75,000 upon the execution
and delivery of this Agreement by you and the Company.
7. Paragraph 2(c) of the Letter Agreement shall be deleted and shall
not be considered to have been part of the Letter Agreement at any
time. Accordingly, it is understood that the Company shall have no
obligation under any circumstances to pay any contingent compensation
to you under said paragraph 2(c) and that, as a corollary, none of the
Advances under paragraph 2(a) of the Letter Agreement shall be
recoupable by the Company.
8. The second sentence of paragraph 3(d) of the Letter Agreement shall
be amended to read in its entirety as follows:
"When travelling on business for the Company to New York,
you shall not be required to utilize any trade-out hotel
arrangements secured by the Company or any of its affiliates."
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:__________________________________
Accepted:
- ------------------------------
Andrew Friendly
KING WORLD PRODUCTIONS, INC.
830 Morris Turnpike
Short Hills, New Jersey 07078
June 23, 1989
Mr. Don Prijatel
1612 Prosser Avenue
Dayton, Ohio 45409
Dear Don:
This letter, when accepted by you, shall constitute an agreement between you and
us:
1. (a) We hereby agree to employ you as Director of Development for
the period commencing on June 26, 1989 and terminating on August 31, 1990,
unless extended by us pursuant to paragraph 1(b) hereof (the "Employment
Period"). You accept such employment, and agree to diligently and faithfully
perform such services as shall from time to time be reasonably assigned to you
by, or pursuant to a resolution of, our Board of Directors or our senior
management, and diligently and faithfully devote your entire business time,
skill and attention to the performance of such services.
(b) You hereby grant to us an option to extend the Employment Period
for (i) the period commencing on September l, 1990 and ending on August 31, 1991
("First Option Period") and (ii) the period commencing on September 1, 1991 and
ending on August 31, 1992 (the "Second Option Period"). We may exercise the
option with respect to the First Option Period by giving you written notice to
such effect at least sixty (60) days prior to the expiration of the initial
Employment Period. We may exercise the option with respect to the Second Option
Period by giving you written notice to such effect at least sixty (60) days
prior to the expiration of the First Option Period, if any. In the event that we
elect to exercise either of such options, the terms and provisions of this
Agreement shall remain in effect and shall apply during the Employment Period as
it may have been extended, as applicable, by the First Option Period and the
Second Option Period, except as otherwise expressly provided herein.
2. (a) We shall pay to you, and you shall accept from us, for your
services during the Employment Period, compensation at the annual rates of (i)
$125,000 for the period commencing on the date on which the Employment Period
commences through and including August 31, 1990; (ii) $137,500 for the period
commencing on September 1, 1990 through and including August 31, 1991, and (iii)
<PAGE>
2
$150,000 for the period commencing on September 1, 1991 and ending on August 31,
1992. Any compensation payable pursuant to this Paragraph 2(a) shall be paid in
accordance with our payroll policy at the time then in effect.
(b) During each year of the Employment Period you may also be
entitled to a bonus if our Board of Directors, in its sole and absolute
discretion, shall so determine.
(c) Subject to the provisions of this paragraph (c), we shall
cause our Board of Directors to grant to you an option under the King World
Productions, Inc. Incentive Stock Option Plan (the "Plan") to purchase 10,000
shares of King World Common Stock, $.01 par value ("Common Stock"), at an
exercise price equal to the closing price of the Common Stock on the New York
Stock Exchange on the date on which the Employment Period commences. You
understand and agree, with respect to such stock option, that:
(i) your right to exercise such option shall vest over a
five-year period as follows: 20% on the first
anniversary of the date of grant; 20% on the second
anniversary of the date of grant; 20% on the third
anniversary of the date of grant; and 40% on the fifth
anniversary of the date of grant, and
(ii) if you should cease to be a full-time employee of King
World Productions, Inc. for any reason other than your
death or "disability" (as defined in the Plan), then
you shall have the right only to exercise the
unexercised portion of such option within one month
after the date on which you ceased to be so employed
and then only to the extent that such portion was
vested (pursuant to the foregoing vesting schedule) on
the date you ceased to be so employed, and you shall
forfeit all other rights to and under such option.
The foregoing, as well as such other terms and conditions as our Board
of Directors may deem appropriate, shall be set forth in a definitive stock
option agreement between you and us. Your rights as an optionee shall be
governed by the terms and conditions of such agreement and the Plan.
(d) You shall be entitled to participate or continue to
participate, as the case may be, on the same basis as our other employees, in
any pension, profit-sharing, life insurance, health insurance or hospitalization
plan in effect with respect to such employees.
(e) We shall reimburse you for any expenses of the following
nature incurred by you, and approved in advance in writing by us, in connection
<PAGE>
3
with your relocation to the Los Angeles area: moving your household effects and
one car; coach air travel for you and your immediate family between Dayton, Ohio
and Los Angeles (a total of up to 6 round trips); and temporary housing in Los
Angeles for you for up to six weeks (or until you move into a permanent home, if
sooner).
3. (a) In the event of your death, the Employment Period shall
automatically terminate, effective upon the date of your death.
(b) In the event that you are unable to perform the duties
required of you pursuant to this agreement for ninety (90) days during the
Employment Period (whether or not such ninety (90) days are consecutive) by
reason of illness or other physical incapacity, we may, after the expiration of
such ninety (90) days, terminate this agreement on thirty (30) days written
notice to you.
4. Except as required in connection with the performance of your
services to us, you shall not, during or after the termination of the Employment
Period use or disclose to any person, partnership or corporation any
confidential business information or trade secrets of ours obtained or learned
by you during the Employment Period, including, without limitation, the type and
nature of the contracts entered into by us in connection with the acquisition of
television programming and the distribution of television programming or the
basis upon which we elect to acquire television programming for distribution.
5. You hereby agree that you shall not, for a period of two (2) years
following the termination of the Employment Period, (a) induce, directly or
indirectly, any person, partnership or corporation from whom or from which we
acquire television programming during the Employment Period, to terminate its
agreement with us with respect to such programming, to refuse to renew any such
agreement or to refuse to enter into any agreement with us with respect to the
development or production of additional episodes of, or one or more prequels or
sequels to, or any other derivative of, such programming or (b) induce, directly
or indirectly, any employee of ours to terminate his or her employment with us.
6. You hereby agree that all ideas, creations, improvements and other
works of authorship created, developed written or conceived by you at any time
during the Employment Period are works for hire within the scope of your
employment and shall be our property free of any claim whatever by you or any
person claiming any rights or interests through you.
7. You hereby agree to indemnify and hold us harmless from and
against any and all loss, damage, liability, cost and expense, including
reasonable attorney's fees, incurred by us as a result of, arising out of or in
connection with a violation of any term or condition of this Agreement required
to be performed or observed by you.
<PAGE>
4 8. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York and constitutes the entire agreement
between the parties hereto on the subject matter hereof. No waiver or
modification of the terms shall be valid unless in writing signed by the party
to be charged and only to the extent therein set forth. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
successors, assigns, heirs, administrators and executors.
Yours very truly,
ACCEPTED: KING WORLD PRODUCTIONS, INC.
By: /s/ Don Prijatel By:
---------------------
Don Prijatel
<PAGE>
KING WORLD PRODUCTIONS, INC.
12400 Wilshire Blvd.
Los Angeles, California 90025
As of September 1, 1991
Mr. Don Prijatel
31758 Kentfield Court
Westlake Village, California 91361
Dear Don:
This letter, when accepted by you, shall constitute an amendment (the
"Amendment") to the letter agreement (the "Letter Agreement"), dated June 23,
1989, between King World Productions, Inc. (the "Company") and you. Unless
otherwise modified herein, all of the terms, definitions and provisions of the
Letter Agreement shall continue in effect and shall govern this Amendment. The
Company and you hereby agree as follows:
1. You hereby grant to the Company an option to extend the
Employment Period for three additional twelve-month periods (the
"Option Periods"), to commence on September 1, 1992 and to end on
August 31, 1993, in the case of the first Option Period, to
commence on September 1, 1993 and to end on August 31, 1994, in
the case of the second Option Period, and to commence on
September 1, 1994 and to end on August 31, 1995, in the case of
the third Option Period. The Company may exercise such option by
giving you written notice to such effect not later than July 1,
1992, in the case of the first Option Period, July 1, 1993, in
the case of the second Option Period, and July 1, 1994 in the
case of the third Option Period. In the event that the Company
elects to exercise one or more of such options, the terms and
provisions of the Letter Agreement, as amended hereby, shall
remain in effect and shall apply during the Employment Period as
extended by the exercise of any such option, except as otherwise
expressly provided in the Letter Agreement and herein.
2. The Company shall pay to you, and you shall accept from the
Company, for your services during the Employment Period, (i)
compensation at the annual rate of $200,000 for the period from
September 1, 1991 through August 31,
<PAGE>
1992, (ii) subject to the Company's exercising the option for the
first Option Period, compensation at the annual rate of $225,000
for the period from September 1, 1992 through August 31, 1993,
(iii) subject to the Company's exercising the option for the
second Option Period, compensation at the annual rate of $250,000
for the period from September 1, 1993 through August 31, 1994,
and (iv) subject to the Company's exercising the option for the
third Option Period, compensation at the annual rate of $275,000
for the period from September 1, 1994 through August 31, 1995, in
each case payable in accordance with the Company's customary
payroll policy.
3. You shall be entitled to a bonus of $50,000 payable upon the
execution and delivery of this Amendment by you and the Company.
4. Subject to the provisions of this paragraph 4, as soon as
practicable after the execution and delivery of this Amendment,
the Company will grant to you a "non-qualified stock option"
under the Company's 1989 Stock Option and Restricted Stock
Purchase Plan (the "Plan") to purchase 75,000 shares of the
Company's Common Stock, $.01 par value, at an exercise price
equal to $29.125 per share. You understand and agree, with
respect to such option, that:
(i) your right to exercise such option shall vest over a
five year period as follows: 20% on August 31, 1992; 20% on
August 31, 1993; 20% on August 31, 1994; and 40% on August 31,
1996; and
(ii) if you should cease to be a full-time employee of the
Company and any of its subsidiaries or affiliates, then you shall
only have the right to exercise the unexercised portion of such
option within one month after the date on which you ceased to be
so employed and then only to the extent that such portion was
vested (pursuant to the foregoing vesting schedule) on the date
you ceased to be so employed, and you shall forfeit all other
rights to and under such option, provided, however, that if your
full-time employment ceases by reason of your death or
"disability" (within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), then such one month
period shall instead be a one-year period following the cessation
of your employment.
The foregoing, as well as such other terms and conditions as
the Company shall deem appropriate, shall be set forth in a
definitive stock option agreement. Your rights as an optionee
shall be governed by the terms and conditions of such agreement
and the Plan.
2
<PAGE>
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect during the Employment Period.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:
Accepted:
Don Prijatel
<PAGE>
KING WORLD PRODUCTIONS, INC.
12400 Wilshire Blvd.
Los Angeles, California 90025
As of September 1, 1995
Mr. Don Prijatel
31758 Kentfield Court
Westlake Village, California 91361
Dear Don:
This letter, when accepted by you, shall constitute an amendment (the
"Second Amendment") to the letter agreement, dated June 23, 1989, as amended
September 1, 1991 (as so amended, the "Letter Agreement"), between King World
Productions, Inc. (the "Company") and you. Unless otherwise modified herein, all
of the terms, definitions and provisions of the Letter Agreement shall continue
in effect and shall govern this Second Amendment. The Company and you hereby
agree as follows:
1. The "Employment Period" (as that term is defined in the Letter
Agreement) shall terminate on August 31, 1998.
2. Your salary compensation for the period (a) from September 1,
1995 through August 31, 1996 shall be payable at the annual rate
of $300,000, (b) from September 1, 1996 through August 31, 1997
shall be payable at the annual rate of $315,000 and (c) from
September 1, 1997 through August 31, 1998 shall be payable at the
annual rate of $325,000.
3. Effective as of the date hereof, you shall be employed as
Senior Vice President, Advertising and Promotion.
4. Subject to the provisions of this paragraph 4, the Company
will grant to you a "non-qualified stock option" under the
Company's 1989 Stock Option and Restricted Stock Purchase Plan
(the "Plan") to purchase 25,000 shares of the Company's Common
<PAGE>
Stock, $.01 par value (the "Common Stock"), at an exercise price
equal to $38.50 per share, the closing price of the Common Stock
on the New York Stock Exchange on the date hereof. You understand
and agree with respect to such option that:
(i) your right to exercise such option shall vest as
follows: 20% on August 31, 1996; 20% on August 31, 1997; 20% on
August 31, 1998; and 40% on August 31, 2000; and
(ii) if you should cease to be a full-time employee of the
Company and any of its subsidiaries or affiliates, then you shall
only have the right to exercise the unexercised portion of such
option within one month after the date on which you ceased to be
so employed and then only to the extent that such portion was
vested (pursuant to the foregoing vesting schedule) on the date
you ceased to be so employed, and you shall forfeit all other
rights to and under such option, provided, however, that if your
full-time employment ceases by reason of your death or
"disability" (within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), then such one month
period shall instead be a one-year period following the cessation
of your employment.
The foregoing, as well as such other terms and conditions as
the Company shall deem appropriate, shall be set forth in a
definitive stock option agreement. Your rights as an optionee
shall be governed by the terms and conditions of such agreement
and the Plan.
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:__________________________________
Accepted:
- ------------------------------
Don Prijatel
<PAGE>
KING WORLD PRODUCTIONS, INC.
12400 Wilshire Boulevard
Los Angeles, California 90025
July 10, 1998
Mr. Don Prijatel
31758 Kentfield Court
Westlake Village, California 91361
Dear Don:
This letter, when accepted by you, shall constitute an amendment (the
"Third Amendment") to the letter agreement, dated June 23, 1989, as amended
September 1, 1991 and September 1, 1995 (as so amended, the "Letter Agreement"),
between King World Productions, Inc. (the "Company") and you. All of the
definitions of the Letter Agreement shall govern this Third Amendment. The
Company and you hereby agree as follows:
1. The Employment Period shall terminate on August 31, 2001.
2. Your salary compensation for the period (a) from September 1,
1998 through August 31, 1999 shall be payable at the annual rate
of $360,000, (b) from September 1, 1999 through August 31, 2000
shall be payable at the annual rate of $378,000 and (c) from
September 1, 2000 through August 31, 2001 shall be payable at the
annual rate of $397,000.
3. You hereby grant to the Company options to extend the
Employment Period for two additional twelve month periods (the
"Option Periods") to commence on September 1, 2001 and to end on
August 31, 2002, in the case of the first Option Period, and to
commence on September 1, 2002 and to end on August 31, 2003, in
the case of the second Option Period. The Company may exercise
such options by giving you written notice to such effect not
later than May 1, 2001, in the case of the first Option Period,
and May 1, 2002, in the case of the second Option Period. In the
event that the Company elects to exercise the first or both of
such options, the terms and provisions of the Letter Agreement,
as amended hereby, shall remain in effect and shall apply during
<PAGE>
the Employment Period as so extended. If the Company shall
exercise the option for the first Option Period, the Company
shall pay to you, and you shall accept from the Company, salary
compensation at the annual rate of $417,000 during such Option
Period, and if the Company shall exercise the option for the
second Option Period, the Company shall pay to you, and you shall
accept from the Company, salary compensation at the annual rate
of $442,000 during such Option Period.
4. Subject to the provisions of this paragraph 4, the Company
will grant to you a "non-qualified stock option" under the
Company's Amended and Restated Stock Option and Restricted Stock
Purchase Plan (the "Plan") to purchase 50,000 shares of the
Company's Common Stock, $.01 par value (the "Common Stock"), at
an exercise price equal to $26.19 per share, the closing price of
the Common Stock on the New York Stock Exchange on the date
hereof. You understand and agree with respect to such option
that:
(i) your right to exercise such option shall vest as
follows: 20% on August 31, 1999; 20% on August 31, 2000; 20% on
August 31, 2001; and 40% on August 31, 2003; and
(ii) if you should cease to be a full-time employee
of the Company and any of its subsidiaries or affiliates, then
you shall only have the right to exercise the unexercised portion
of such option within one month after the date on which you
ceased to be so employed and then only to the extent that such
portion was vested (pursuant to the foregoing vesting schedule)
on the date you ceased to be so employed, and you shall forfeit
all other rights to and under such option, provided, however,
that if your full-time employment ceases by reason of your death
or "disability" (within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended), then such one month
period shall instead be a one-year period following the cessation
of your employment.
The foregoing, as well as such other terms and
conditions as the Company shall deem appropriate, shall be set
forth in a definitive stock option agreement. Your rights as an
optionee shall be governed by the terms and conditions of such
agreement and the Plan.
5. Effective September 1, 1998, you shall be employed as
President, Advertising and Promotion.
<PAGE>
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:__________________________________
Accepted:
- ------------------------------
Don Prijatel
KING WORLD PRODUCTIONS, INC.
830 Morris Turnpike
Short Hills, New Jersey 07078
September 1, 1988
Mr. Stuart Stringfellow
c/o King World Productions, Inc.
830 Morris Turnpike
Short Hills, New Jersey 07078
Dear Stuart:
This letter, when accepted by you, shall constitute an agreement
between you and us:
1. (a) We hereby agree to continue to employ you as Vice President
Central Region for the period commencing on the date hereof and terminating on
August 31, 1989, unless extended by us pursuant to paragraph l(b) hereof (the
"Employment Period"). You accept such employment, and agree to diligently and
faithfully perform such services as shall from time to time be reasonably
assigned to you by, or pursuant to a resolution of, our Board of Directors or
our senior management, and diligently and faithfully devote your entire business
time, skill and attention to the performance of such services.
(b) You hereby grant to us an option to extend the Employment
Period for one additional twelve month period to commence on September 1, 1989
and to end on August 31, 1990 (such period being hereinafter referred to as an
"Option Period"). We may exercise each such option by giving you written notice
to such effect at least sixty (60) days prior to the expiration of the
Employment Period. In the event that we elect to exercise such option, the terms
and provisions of this Agreement shall remain in effect and shall apply during
the Employment Period as extended by any such Option Period, except as otherwise
expressly provided herein.
2. (a) We shall pay to you, and you shall accept from us, for your
services during the Employment Period, compensation at the annual rates of (i)
$165,000 for the period commencing on September 1, 1988 through and including
August 31, 1989, and (ii) $175,000 for the period commencing on September 1,
1989 through and including August 31, 1990. Any compensation payable pursuant to
this Paragraph 2(a) shall be paid in accordance with our payroll policy at the
time then in effect.
<PAGE>
2
(b) During the Employment Period and the Option Period, if any, you
may also be entitled to a bonus if our Board of Directors, in its sole and
absolute discretion, shall so determine.
(c) Subject to the provisions of this paragraph (c), as of the date
hereof, we hereby grant to you under the King World Productions, Inc.
Non-Qualified Stock Option Plan (the "Plan") an option to purchase 5,000 shares
of King World Common Stock, $.01 par value ("Common Stock"), at an exercise
price equal to the lowest closing price of the Common Stock on the New York
Stock Exchange on any trading day during the period commencing on June 1, 1988
and ending on August 31, 1988. You understand and agree, with respect to such
stock option that:
(i) your right to exercise such option shall vest over a five year
period commencing on September 1, 1988 as follows: 20% on August 31, 1989; 20%
on August 31, 1990; 20% on August 31, 1991; 0% on August 31, 1992; and, 40% on
August 31, 1993.
(ii) if you should cease to be a full-time employee of us, then you
shall only have the right to exercise the unexercised portion of any option
granted to you within one month after the date on which you ceased to be so
employed and then only to the extent that such portion was vested (pursuant to
the foregoing vesting schedule) on the date you ceased to be so employed, and
you shall forfeit all other rights to and under said option.
The foregoing, as well as such other terms and conditions as our Board
of Directors may deem appropriate, shall be set forth in a definitive stock
option agreement between you and us. Your rights as an optionee shall be
governed by the terms and conditions of such agreement and the Plan.
(d) You shall be entitled to participate or continue to
participate, as the case may be, on the same basis as our other employees, in
any pension, profit-sharing life insurance, health insurance or hospitalization
plan in effect with respect to such employees.
3. (a) In the event of your death, this agreement shall automatically
terminate, effective upon the date of your death.
(b) In the event that you are unable to perform the duties
required of you pursuant to this agreement for ninety (90) days during the
Employment Period (whether or not such ninety (90) days are consecutive) by
reason of illness or other physical incapacity, we may, after the expiration of
such ninety (90) days, terminate this agreement on thirty (30) days written
notice to you.
<PAGE>
3
4. Except as required in connection with the performance of your
services to us, you shall not, during or after the termination of the Employment
Period use or disclose to any person, partnership or corporation any
confidential business information or trade secrets of ours obtained or learned
by you during the Employment Period, including, without limitation, the type and
nature of the contracts entered into by us in connection with the acquisition of
television programming and the distribution of television programming, or the
basis upon which we elect to acquire television programming for distribution.
5. You hereby agree that you shall not, for a period of two (2) years
following the termination of the Employment Period, (a) induce, directly or
indirectly, any person, partnership or corporation from whom or from which we
acquired television programming during the Employment Period, to terminate its
agreement with us with respect to such programming, to refuse to renew any such
agreement or to refuse to furnish to us any other television programming or (b)
induce, directly or indirectly, any employee of ours to terminate his or her
employment with us.
6. You hereby agree that all ideas, creations, improvements and other
works of authorship created, developed, written or conceived by you at any time
during the Employment Period are works for hire within the scope of your
Employment and shall be our property free of any claim whatever by you or any
person claiming any rights or interests through you.
7. You hereby agree to indemnify and hold us harmless from and against
any and all loss, damage, liability, cost and expense, including reasonable
attorney's fees, incurred by us as a result of, arising out of or in connection
with a violation of any term or condition of this agreement required to be
performed or observed by you.
8. This agreement shall be governed by, and construed in accordance
with, the laws of the State of New York and constitutes the entire agreement
between the parties hereto on the subject matter hereof. No waiver or
modification of the terms shall be valid unless in
<PAGE>
4
writing signed by the party to be charged and only to the extent therein set
forth. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors, assigns, heirs, administrators and
executors.
Yours very truly,
KING WORLD PRODUCTIONS, INC.
By____________________________
ACCEPTED:
By______________________________
Stuart Stringfellow
<PAGE>
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
June 28, 1990
Mr. Stuart Stringfellow
c/o King World Productions, Inc.
1700 Broadway
New York, New York 10019
Dear Stuart:
This letter shall constitute confirmation, pursuant to our letter
agreement with you, dated as of September 1, 1988 (the "Letter Agreement"), that
you and we have agreed to extend the Employment Period (as that term is defined
in the Letter Agreement) to include the period commencing on September 1, 1990
and terminating on August 31, 1992.
In addition, we hereby agree to amend the terms of the Letter
Agreement in the following respects:
1. Modifying the terms of paragraph 1(a) of the Letter Agreement, we
hereby agree to employ you as Vice President Sales - East for the
balance of the Employment Period, commencing on September 1,
1990.
2. Modifying the terms of paragraph 2(a) of the Letter Agreement, we
shall pay to you, and you shall accept from us, for your services
during the Employment Period, compensation at the annual rate of
(i) $225,000 for the period from September 1, 1990 through August
31, 1991, and (ii) $250,000 for the period from September 1, 1991
through August 31, 1992, in each case payable in accordance with
our customary payroll policy.
3. We hereby agree to reimburse you in the amount of $25,000 for
such reasonable expenses as shall be incurred by you in
connection with the relocation of your home to the New York area.
<PAGE>
Except as modified hereby, all other terms and provisions of the
Letter Agreement shall continue in full force and effect during the Employment
Period.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:_______________________________
Accepted:
_________________________
Stuart Stringfellow
<PAGE>
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
As of September 1, 1991
Mr. Stuart Stringfellow
King World Productions, Inc.
1700 Broadway
New York, New York 10019
Dear Stuart:
This letter, when accepted by you, shall constitute an amendment (the
"Second Amendment") to the letter agreement, dated September 1, 1988, as amended
June 28, 1990 (as so amended, the "Letter Agreement"), between King World
Productions, Inc. (the "Company") and you. Unless otherwise modified herein, all
of the terms, definitions and provisions of the Letter Agreement shall continue
in effect and shall govern this Second Amendment. The Company and you hereby
agree as follows:
1. You hereby grant to the Company an option to extend the
Employment Period for two additional twelve-month periods (the
"Option Periods"), to commence on September 1, 1992 and to end on
August 31, 1993, in the case of the first Option Period, and to
commence on September 1, 1993 and to end on August 31, 1994, in
the case of the second Option Period. The Company may exercise
such option by giving you written notice to such effect not later
than July 1, 1992, in the case of the first Option Period, and
July 1, 1993, in the case of the second Option Period. In the
event that the Company elects to exercise the first or both of
such options, the terms and provisions of the Letter Agreement,
as amended hereby, shall remain in effect and shall apply during
the Employment Period as extended by the exercise of any such
option, except as otherwise expressly provided in the Letter
Agreement and herein.
2. The Company shall pay to you, and you shall accept from the
Company, for your services during the extended Employment Period,
(i) subject to the Company's exercising the option for the first
1
<PAGE>
Option Period, compensation at the annual rate of $262,500 for
the period from September 1, 1992 through August 31, 1993, and
(ii) subject to the Company's exercising the option for the
second Option Period, compensation at the annual rate of $275,625
for the period from September 1, 1993 through August 31, 1994, in
each case payable in accordance with the Company's customary
payroll policy.
3. Subject to the provisions of this paragraph 3, as of the date
hereof, the Company will grant to you a "non-qualified stock
option" under the Company's 1989 Stock Option and Restricted
Stock Purchase Plan (the "Plan") to purchase 25,000 shares of the
Company's Common Stock, $.0l par value, at an exercise price
equal to $25.00 per share. You understand and agree, with respect
to such option that:
(i) your right to exercise such option shall vest over a five
year period as follows: 20% on August 31, 1992; 20% on August 31, 1993; 20% on
August 31, 1994; and 40% on August 31, 1996; and
(ii) if you should cease to be a full-time employee of the
Company and any of its subsidiaries or affiliates, then you shall only have the
right to exercise the unexercised portion of such option within one month after
the date on which you ceased to be so employed and then only to the extent that
such portion was vested (pursuant to the foregoing vesting schedule) on the date
you ceased to be so employed, and you shall forfeit all other rights to and
under such option, provided, however, that if your full-time employment ceases
by reason of your death or "disability" (within the meaning of Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended), then such one month period
shall instead be a one-year period following the cessation of your employment.
The foregoing, as well as such other terms and conditions as the
Company shall deem appropriate, shall be set forth in a definitive stock option
agreement. Your rights as an optionee shall be governed by the terms and
conditions of such agreement and the Plan.
2
<PAGE>
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect during the Employment Period.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:__________________________
Accepted:
/s/ Stuart Stringfellow
- -------------------------
Stuart Stringfellow
3
<PAGE>
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
As of June 3, 1993
Mr. Stuart Stringfellow
c/o King World Productions, Inc.
1700 Broadway
New York, New York 10019
Dear Stuart:
This letter, when accepted by you, shall constitute an amendment (the
"Third Amendment") to the letter agreement, dated September 1, 1988, as amended
June 28, 1990 and September 1, 1991 (as so amended, the "Letter Agreement"),
between King World Productions, Inc. (the "Company") and you. Unless otherwise
modified herein, all of the terms, definitions and provisions of the Letter
Agreement shall continue in effect and shall govern this Third Amendment. The
Company and you hereby agree as follows:
1. The Company hereby exercises its option to extend the
Employment Period for an additional twelve-month period
commencing September 1, 1993 and ending on August 31, 1994.
2. Your salary compensation for the period from September 1, 1993
through August 31, 1994 shall be payable at the annual rate of
$250,000.
3. You hereby grant to the Company an option (the "Option") to
extend the Employment Period for an additional twelve-month
period to commence on September 1, 1994 and to end on August 31,
1995. The Company may exercise the Option by giving you written
notice to such effect not later than July 1, 1994. In the event
that the Company elects to exercise the Option, the terms and
provisions of the Letter Agreement, as amended hereby, shall
remain in effect and shall apply during the Employment Period as
extended by the exercise of the Option, except as otherwise
expressly provided in the Letter Agreement and herein.
<PAGE>
4. If the Company shall exercise the Option, the Company shall
pay to you, and you shall accept from the Company, salary
compensation at the annual rate of $262,500 for the period from
September 1, 1994 through August 31, 1995.
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:__________________________________
Accepted:
- ---------------------
Stuart Stringfellow
<PAGE>
As of September 1, 1995
Mr. Stuart Stringfellow
c/o King World Productions, Inc.
1700 Broadway
New York, New York 10019
Dear Stu:
This letter, when accepted by you, shall constitute an amendment (the "Fourth
Amendment") to the letter agreement, dated September 1, 1988, as amended June
28, 1990, as of September 1, 1991 and as of June 3, 1993 (as so amended, the
"Letter Agreement"), between King World Productions, Inc. (the "Company") and
you. Unless otherwise modified herein, all of the terms, definitions and
provisions of the Letter Agreement shall continue in effect and shall govern
this Fourth Amendment.
1. The Company and you hereby agree to extend the Employment Period
for an additional two-year period commencing September 1, 1995
and ending on August 31, 1997.
2. Your salary compensation for the period from September 1, 1995
through August 31, 1996 shall be payable at the annual rate of
$250,000.
3. Your salary compensation for the period from September 1, 1996
through August 31, 1997 shall be payable at the annual rate of
$275,000.
Except as modified herein, all terms and provisions of the Letter Agreement
shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:_____________________________
Accepted:
________________________
Stuart Stringfellow
<PAGE>
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
June 16, 1997
Mr. Stuart Stringfellow
c/o King World Productions, Inc.
1700 Broadway
New York, New York 10019
Dear Stu:
This letter, when accepted by you, shall constitute an amendment (the
"Fifth Amendment") to the letter agreement, dated September 1, 1988, as amended
June 28, 1990, September 1, 1991, June 3, 1993 and September 1, 1995 (as so
amended, the "Letter Agreement"), between King World Productions, Inc. (the
"Company") and you. All of the definitions of the Letter Agreement shall govern
this Fifth Amendment. The Company and you hereby agree as follows:
1. The Employment Period shall be extended so as to terminate on
August 31, 1999.
2. Your salary compensation for the period from September 1, 1997
through August 31, 1999 shall be payable at the annual rate of
$400,000.
3. If the proposed talk/variety television series hosted by
Roseanne is produced for premiere in the 1998/99 broadcast season
with coverage (determined on an NSS basis), upon such premiere,
of at least 80% of United States television homes, then the
Company shall, by September 30, 1998, pay you a one-time bonus in
an amount equal to the product of (a) the number of percentage
points of such coverage and (b) $1,000 (i.e., for purposes of
clarity, a maximum bonus of $100,000).
<PAGE>
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:__________________________________
Accepted:
- ---------------------
Stuart Stringfellow
<PAGE>
KING WORLD PRODUCTIONS, INC.
1700 Broadway
New York, New York 10019
July 22, 1998
Mr. Stuart Stringfellow
c/o King World Productions, Inc.
1700 Broadway
New York, New York 10019
Dear Stu:
This letter, when accepted by you, shall constitute an amendment (the
"Sixth Amendment") to the letter agreement, dated September 1, 1988, as amended
June 28, 1990, September 1, 1991, June 3, 1993, September 1, 1995 and June 16,
1997 (as so amended, the "Letter Agreement"), between King World Productions,
Inc. (the "Company") and you. All of the definitions of the Letter Agreement
shall govern this Sixth Amendment. The Company and you hereby agree as follows:
1. The Employment Period shall be extended so as to terminate on
August 31, 2001.
2. Your salary compensation for the period (a) from September 1, 1999
through August 31, 2000 shall be payable at the annual rate of
$425,000 and (b) from September 1, 2000 through August 31, 2001 shall
be payable at the annual rate of $450,000.
Except as modified herein, all terms and provisions of the Letter
Agreement shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By:__________________________________
Accepted:
- ---------------------
Stuart Stringfellow
