SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-9244
KING WORLD PRODUCTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2565808
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12400 Wilshire Boulevard
Suite 1200
Los Angeles, California 90025
- -------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 310-826-1108
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 par value,
70,745,131 shares outstanding as of April 4, 1999.
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in thousands)
February 28, August 31,
1999 1998
------------ ----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents....................... $ 338,340 $ 188,778
Short-term investments.......................... 26,990 88,016
Accounts receivable (net of
allowance for doubtful accounts of
$3,014 and $3,301 at February 28, 1999
and August 31, 1998, respectively)............ 107,260 75,423
Producer advances and deferred costs............ 89,274 99,965
Other current assets............................ 1,546 1,146
---------- ----------
Total current assets................... 563,410 453,328
---------- ----------
LONG-TERM INVESTMENTS, at cost,
which approximates market value................. 357,753 470,715
---------- ----------
FIXED ASSETS, at cost............................. 34,885 31,353
Less - accumulated depreciation
and amortization.............................. (15,075) (13,613)
---------- ----------
19,810 17,740
---------- ----------
PRODUCER ADVANCES AND OTHER ASSETS................ 95,168 81,815
---------- ----------
$1,036,141 $1,023,598
========== ==========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
2
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Dollars in thousands)
February 28, August 31,
1999 1998
------------ ----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities....................... $ 16,408 $ 15,913
Payable to producers and others............... 62,337 96,118
Income taxes payable.......................... 36,234 30,356
---------- ----------
Total current liabilities.............. 114,979 142,387
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued............................... -- --
Common stock, $.01 par value;
150,000,000 shares authorized,
88,997,325 shares and
88,650,301 shares issued
at February 28, 1999 and
August 31, 1998, respectively............. 890 887
Paid-in capital............................... 146,440 138,219
Retained earnings............................. 1,218,306 1,137,238
Treasury stock, at cost; 18,203,194 shares
and 16,284,794 shares at February 28,
1999 and August 31, 1998, respectively...... (444,474) (395,133)
---------- ----------
921,162 881,211
---------- ----------
$1,036,141 $1,023,598
========== ==========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
3
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
February 28, February 28,
1999 1998 1999 1998
(Dollars in thousands except per share data)
REVENUES....................... $197,483 $173,916 $391,750 $346,842
-------- -------- -------- -------
EXPENSES:
Producers' fees, programming
and other direct
operating costs............ 120,220 110,694 238,753 217,929
Selling, general and
administrative expenses.... 23,856 19,115 47,545 39,156
-------- -------- -------- -------
144,076 129,809 286,298 257,085
-------- -------- -------- -------
Income from operations..... 53,407 44,107 105,452 89,757
INVESTMENT INCOME.............. 7,345 7,178 19,793 14,072
-------- -------- -------- -------
Income before provision
for income taxes......... 60,752 51,285 125,245 103,829
PROVISION FOR INCOME TAXES..... 21,449 17,707 44,177 35,882
-------- -------- -------- -------
Net income................. $ 39,303 $ 33,578 $ 81,068 $ 67,947
======== ======== ======== ========
BASIC EARNINGS PER SHARE....... $ .55 $ .46 $ 1.13 $ .93
======== ======== ======== ========
DILUTED EARNINGS PER SHARE..... $ .53 $ .44 $ 1.09 $ .89
======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
4
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
February 28,
1999 1998
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................... $ 81,068 $ 67,947
Items not affecting cash:
Depreciation and amortization .... 1,462 902
Change in assets and liabilities:
Accounts receivable .............. (31,837) (13,292)
Producer advances and
deferred costs ................. 1,857 (74,396)
Accounts payable and accrued
liabilities .................... 495 (984)
Payable to producers and others .. (33,781) (16,449)
Income taxes payable ............. 5,878 (1,689)
Other, net ....................... (4,919) (2,983)
--------- ---------
Net cash provided by (used in)
operating activities ............... 20,223 (40,944)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales (purchases) of investments ..... 173,988 (57,837)
Additions to fixed assets ............ (3,532) (7,106)
Net cash provided by (used in) --------- ---------
investing activities ............... 170,456 (64,943)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 8,224 7,335
Purchase of treasury stock ........... (49,341) (6,041)
--------- ---------
Net cash (used in) provided
by financing activities ............ (41,117) 1,294
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .......................... 149,562
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ............................ 188,778 317,782
CASH AND CASH EQUIVALENTS AT END -------- --------
OF PERIOD ............................ $338,340 $213,189
-------- --------
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
5
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies
Principles of consolidation
The accompanying consolidated financial statements include the
accounts of King World Productions, Inc. ("King World") and its wholly-owned
subsidiaries. All significant intercompany transactions have been eliminated.
Unless the context suggests otherwise, the "Company", as used herein, means King
World and its subsidiaries.
The unaudited consolidated financial statements for the six months and
three months ended February 28, 1999 have been prepared in accordance with the
instructions to Form 10-Q and include, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations for such periods. They do not,
however, include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. For further
information, reference is made to the consolidated financial statements for the
fiscal year ended August 31, 1998 and the footnotes related thereto included in
the Company's Annual Report on Form 10-K from which the August 31, 1998 balances
presented herein have been derived. The results of operations for the six months
and three months ended February 28, 1999 are not necessarily indicative of the
results of operations for the full year.
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., 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.
6
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies (continued)
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!. The Company co-produces and
distributes HOLLYWOOD SQUARES, a first-run syndicated game show, and The
Roseanne Show, a first-run syndicated talk show. The Company also produces and
distributes INSIDE EDITION, a first-run syndicated newsmagazine.
The contribution of each program to the Company's total revenues are
as follows:
Six Months
Ended
February 28,
1999 1998
---- ----
THE OPRAH WINFREY SHOW 37% 42%
- ----------------------
WHEEL OF FORTUNE 19% 21%
- ----------------
JEOPARDY! 16% 18%
- ---------
HOLLYWOOD SQUARES(1) 9% --
- -----------------
THE ROSEANNE SHOW(1) 7% --
- -----------------
INSIDE EDITION 6% 7%
- --------------
(1) HOLLYWOOD SQUARES and THE ROSEANNE SHOW premiered in September 1998.
The Company distributes THE OPRAH WINFREY SHOW pursuant to an
agreement with Harpo, Inc., the producer of the series ("Harpo"). Under the
terms of the Company's agreement in effect through August 1998 with Harpo, King
World was engaged as the exclusive distributor of THE OPRAH WINFREY SHOW through
7
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies (continued)
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.
The Company's agreements with Columbia TriStar Television provide that
King World will 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
other game shows for strip first-run syndication so long as the Company is
distributing WHEEL OF FORTUNE or JEOPARDY!.
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 strip first-run syndication and
premiered 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 talk show hosted by Roseanne and distributed by the Company
in strip 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
primarily include the producers' share of both cash license fees from the sale
of programming to television stations and revenues derived from the sale of
retained advertising time to advertisers with respect to programming distributed
by the Company; participation 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 direct
response marketing subsidiary. That portion of any recognized revenue that is to
8
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Summary of significant accounting policies (continued)
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.
Stockholders' equity
Basic earnings per share has been computed using the weighted average
shares of Common Stock outstanding of 71,267,000 and 73,478,000 for the three
months ended February 28, 1999 and 1998, respectively, and 71,438,000 and
73,366,000 for the six months ended February 28, 1999 and 1998, 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 74,455,000 and 77,171,000 for the three months ended
February 28, 1999 and 1998, respectively, and 74,465,000 and 76,477,000 for the
six months ended February 28, 1999 and 1998, respectively.
Comprehensive income
In the first quarter of fiscal 1999 the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income. SFAS 130 establishes new rules for the reporting and presentation of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. The components of
comprehensive income include, but are not limited to, foreign currency
translation adjustments and unrealized gains and losses on certain investment
securities. The Company has no material items required to be reported in the
presentation of comprehensive income.
(2) Proposed Merger with CBS Corporation
The Company has entered into an Agreement and Plan of Merger, dated as
of March 31, 1999 (the "Merger Agreement"), by and among the Company, CBS
Corporation, a Pennsylvania corporation ("CBS"), and K Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of CBS ("Merger Sub"),
9
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) Proposed Merger with CBS Corporation (continued)
pursuant to which (a) Merger Sub will be merged with and into the Company and
the Company will become a wholly-owned subsidiary of CBS and (b) each
outstanding share of the Company (other than shares owned by CBS or Merger Sub)
will be converted into the right to receive .81 shares of common stock, par
value $1.00 per share, of CBS. Concurrently with the execution of the Merger
Agreement, Michael King, Roger King, Richard King and Diana King (the "Principal
Stockholders" of the Company) entered into a Stockholders Agreement with CBS
whereby the Principal Stockholders agreed, among other things, that, while the
Merger Agreement was in effect, they would vote their shares of Common Stock,
which represent approximately 18% of the total outstanding shares of Common
Stock of the Company, in favor of the merger and against any alternative
proposal that may be brought before the stockholders of the Company for a vote.
The consummation of the merger is subject to certain conditions,
including approval by the stockholders of the Company and the expiration or
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. Pursuant to the Merger Agreement, the
Company will prepare and file a proxy statement/prospectus to be mailed to
stockholders in connection with calling a meeting of the stockholders of the
Company to vote on the merger. The transaction is expected to close in mid-1999.
(3) Producer advances
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. As of February 28, 1999, the
entire $65 million advance associated with the 1998-1999 broadcast season had
been recouped by the Company. None of the $65 million advance related to the
1999-2000 broadcast season was recouped as of February 28, 1999. As part of the
most recent amendment to its agreement with Harpo, the Company paid an advance
to Harpo of $75 million against Harpo's guaranteed share of gross revenues for
the 2000-2001 broadcast season. Also, the Company 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
such broadcast seasons, the Company believes that revenues from the series will
10
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) Producer Advances (continued)
be sufficient to enable the Company to recoup such 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.
11
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KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
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 Six Months and Three Months Ended February 28, 1999 and 1998
Revenues
Revenues for the first six months of fiscal 1999 increased by
approximately 13% over revenues for the first six months of the prior fiscal
year, primarily due to the introduction of HOLLYWOOD SQUARES, a strip first-run
syndicated game show co-produced and distributed by the Company, and The
Roseanne Show, a strip first-run syndicated talk show co-produced and
distributed by the Company, each of which premiered in September 1998. The
additional revenues generated by such programs were partially offset by the
discontinuation of AMERICAN JOURNAL (which was cancelled following the 1997-1998
broadcast season) and, to a lesser extent, lower revenues from INSIDE EDITION, a
strip first-run syndicated newsmagazine produced and distributed by the Company.
The Company's revenues for the three months ended February 28,
1999 increased by approximately 14% over revenues for the three months ended
February 28, 1998, primarily due to the same factors discussed above with
respect to the six month period.
12
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The principal components of the Company's revenues for the six months
and three months ended February 28, 1999 and 1998 are as follows:
Six Months Ended Three Months Ended
February 28, February 28,
------------- ------------
1999 1998 1999 1998
---- ---- ---- ----
THE OPRAH WINFREY SHOW 37% 42% 37% 42%
- ----------------------
WHEEL OF FORTUNE 19% 21% 19% 21%
- ----------------
JEOPARDY! 16% 18% 16% 18%
- --------
HOLLYWOOD SQUARES (1) 9% -- 9% --
- -----------------
THE ROSEANNE SHOW (1) 7% -- 7% --
- -----------------
INSIDE EDITION 6% 7% 6% 7%
- --------------
AMERICAN JOURNAL (2) -- 4% -- 4%
- ----------------
(1) HOLLYWOOD SQUARES and THE ROSEANNE SHOW premiered in September 1998.
(2) The production of AMERICAN JOURNAL was discontinued after the 1997-1998
broadcast season.
Producers' fees, programming and other direct operating costs
Producers' fees, programming and other direct operating costs
increased by approximately 10% in the first six months of fiscal 1999 compared
to the first six months of fiscal 1998. The increase was primarily attributable
to the production and participation costs associated with HOLLYWOOD SQUARES and
THE ROSEANNE SHOW, partially offset by a decrease in production costs due to the
discontinuation of AMERICAN JOURNAL. For the three months ended February 28,
1999, producers' fees, programming and other direct operating costs increased by
approximately 9% due primarily to the same factors as those discussed above for
the six month period.
13
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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. 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 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 the first and second quarters of fiscal 1999, which
include all amounts payable in accordance with the terms of such employment
agreements.
Selling, general and administrative expenses for the first six months
of fiscal 1999 increased by approximately 21% from the comparable period of
fiscal 1998 as a result of advertising and promotion costs incurred in
connection with the introduction of HOLLYWOOD SQUARES and THE ROSEANNE SHOW, and
certain performance-based bonuses incurred in connection with the launch of
these shows as described above. Such increase was partially offset by the
elimination of marketing costs for AMERICAN JOURNAL. Selling, general and
administrative expenses for the three months ended February 28, 1999 increased
by 25% compared to the corresponding period of fiscal 1998, primarily due to the
same factors as those discussed above for the six month period.
Net income and earnings per share
Due to the factors discussed above, the Company's operating income for
the six months and three months ended February 28, 1999 increased by
approximately 17% and 21%, respectively, compared to the corresponding period of
the prior year.
Net income increased by approximately $13.1 million, or 19%, for the
six months ended February 28, 1999 in comparison to the six months ended
February 28, 1998, reflecting the increase in operating income and the
realization, in the first quarter of fiscal 1999 of nonrecurring capital gains
on the sale of various investment securities, partially offset by a slightly
higher effective tax rate for the first six months of fiscal 1999, as compared
to the same period of fiscal 1998. Basic earnings per share increased by 22%
from $.93 per share in the first six months of fiscal 1998 to $1.13 per share in
the first six months of the current fiscal year as a result of the increase in
net income and a decrease in the number of shares outstanding resulting from the
Company's ongoing stock repurchase program. Diluted earnings per share increased
by 22% from $.89 per share in the first six months of the prior fiscal year to
$1.09 in the first six months of fiscal 1999, due to the same factors as basic
earnings per share. Absent the nonrecurring capital gains, basic and diluted
earnings per share would have been $1.10 and $1.06, respectively, in the first
six months of fiscal 1999.
14
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For the three months ended February 28, 1999, net income increased by
17%, compared to the same period of the prior year, from $33.6 million to $39.3
million; basic earnings per share increased by 20% from $.46 per share to $.55
per share; and diluted earnings per share increased by 20% from $.44 per share
to $.53 per share, all for the same reasons discussed above for the six month
period.
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
than the rates applicable to the 1998-1999 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 impact of inflation on its operations
has not been significant.
Year 2000
The year 2000 ("Y2K") problem, which confronts the business community
generally, is a result of computer programs that use two digits (rather than
four) to define the applicable year. Information technology ("IT") systems that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000, which could result in system malfunctions and various
systems failures. This problem may also be significant in non-IT systems
(operating systems and equipment that rely on embedded chip systems). Also, as
with other business enterprises, the Company must rely on the Y2K readiness of
its customers' and vendors' IT and non-IT systems, the failure of which is
beyond the Company's control.
During fiscal 1997 the Company began to address the issues and
concerns surrounding the Y2K problem. A task force, consisting of executive and
operating personnel, was assembled to develop a Y2K compliance plan which
included assessing the effectiveness of the Company's present information
systems and identifying critical financial and operating systems that may be
vulnerable to the Y2K problem. This task force was also responsible for
understanding the Company's significant customers' and vendors' Y2K issues and
for developing a contingency plan should the systems currently in place fail.
15
<PAGE>
The Company recently replaced the majority of its IT systems (software
and hardware) as a result of the above systems review and modernization
assessment. The Company has been testing, and will continue to test, such
systems to obtain reasonable assurance of their Y2K compliance. To date, no
significant system uncertainties related to the Y2K problem have been
identified. The Company does not anticipate that the remaining third-party costs
related to Y2K compliance by its IT systems and non-IT systems will be greater
than $500,000. The Company plans to have all critical systems tested and
compliant by the end of fiscal 1999.
The Company is currently communicating with its significant customers
and vendors to determine and assess their state of Y2K readiness, and
anticipates continuing this process for the next several months. To date, no
significant customers or vendors have informed the Company of the existence of a
material Y2K issue that can be expected to affect the Company. The Company is
placing great emphasis on understanding the Y2K compliance of its primary
satellite distribution providers. Although the Company has received assurances
that such satellite distribution providers are addressing the Y2K problem and
anticipate being Y2K compliant, the Company is actively working on a contingency
plan should such systems fail. This plan includes, but is not limited to,
utilizing alternative vendors in the event of a Y2K-related problem with its
primary satellite distribution providers. Based on its current plan, the Company
believes it will have adequate time to prepare for such contingency measures if
the need arises.
The Company believes that it has adequately addressed the Y2K issues
affecting its internal systems and believes that any material Y2K risks that the
Company faces arise from its significant customers' and vendors' Y2K compliance.
The inability of the Company or its significant customers and vendors to
adequately address the Y2K problem on a timely basis could have a material
adverse effect on the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital resources to fund development, production
and promotion costs of independently produced programming, including, in some
instances, advances to producers and talent, to produce its own programs and to
acquire distribution rights to new programming. In acquiring distribution rights
from independent producers, King World has tried to avoid making significant
capital commitments to such producers until it has obtained broadcast
commitments from a substantial number of television stations. As a result of
this strategy and the success of its existing syndication properties, to date,
King World has funded substantially all programming acquisition, development,
production and promotion costs and advances from its operations.
16
<PAGE>
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 the
Company's agreement in effect through August 1998 with Harpo, Inc. ("Harpo"),
the producer of THE OPRAH WINFREY SHOW, the Company was engaged as the exclusive
distributor of THE OPRAH WINFREY SHOW through the 1999-2000 broadcast season.
Such agreement was amended in September 1998 to provide for a commitment by
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 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 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. As of February 28, 1999, the
entire $65 million advance associated with the 1998-1999 broadcast season had
been recouped by the Company. None of the $65 million related to the 1999-2000
broadcast season was recouped as of February 28, 1999. As part of the most
recent amendment to its agreement with Harpo, the Company paid, an advance to
Harpo of $75 million against Harpo's guaranteed share of gross revenues for the
2000-2001 broadcast season. Also, the Company 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
such 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.
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The Company has entered into an Agreement and Plan of Merger, dated as
of March 31, 1999 (the "Merger Agreement"), by and among the Company, CBS
Corporation, a Pennsylvania corporation ("CBS"), and K Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of CBS ("Merger Sub"),
pursuant to which (a) Merger Sub will be merged with and into the Company and
the Company will become a wholly-owned subsidiary of CBS and (b) each
outstanding share of the Company (other than shares owned by CBS or Merger Sub)
will be converted into the right to receive .81 shares of common stock, par
value $1.00 per share, of CBS. Concurrently with the execution of the Merger
Agreement, Michael King, Roger King, Richard King and Diana King (the "Principal
Stockholders") entered into a Stockholders Agreement with CBS whereby the
Principal Stockholders agreed, among other things, that, while the Merger
Agreement was in effect, they would vote their shares of Common Stock, which
represent approximately 18% of total outstanding shares of Common Stock of the
Company, in favor of the merger and against any alternative proposal that may be
brought before the stockholders of the Company for a vote.
The consummation of the merger is subject to certain conditions,
including approval by the stockholders of the Company and the expiration or
early termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. Pursuant to the Merger Agreement, the
Company will prepare and file a proxy statement/prospectus to be mailed to
stockholders in connection with calling a meeting of the stockholders of the
Company to vote on the merger. The transaction is expected to close in mid-1999.
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 April 4, 1999, 5,894,100 shares of Common Stock had been repurchased for
aggregate consideration of approximately $139.7 million or approximately $23.70
per share. Purchases under the share repurchase program have been financed out
of the Company's available cash and liquid investments. The Company is not
permitted to repurchase shares of its Common Stock pursuant to the Merger
Agreement with CBS.
PART II - OTHER INFORMATION
Item 5. Other Information
At the Company's 1999 annual meeting of stockholders, held on January
28, 1999, an aggregate 65,017,860 shares of Common Stock were present in person
or by proxy. Votes cast for and against and abstentions for the matters
submitted to a vote of security-holders were as follows:
1. Election of Directors:
For Authority Withheld
Diana King 64,511,545 506,315
Joel Chaseman 64,511,917 505,943
Avram Miller 64,511,659 506,201
2. Approval of the amendment to the Company's Restated Certificate of
Incorporation to provide for the annual election of directors:
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For Against Abstain
57,801,535 46,223 102,648
3. Resolution to approve the Company's 1998 Stock Option and
Restricted Stock Purchase Plan:
For Against Abstain
37,035,774 27,751,507 230,579
4. Appointment of Arthur Andersen LLP as the Company's auditors for
the current fiscal year:
For Against Abstain
64,902,161 11,855 103,844
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.1 Certificate of Amendment, dated February 24, 1999, to the Restated
Certificate of Incorporation of the Company
3.2 Restated By-laws of the Company, dated February 24, 1999
10.1 Company's 1998 Stock Option and Restricted Stock Purchase Plan
10.2 Second Amendment to Employment Agreement dated as of July 10,
1998, between the Company and Don Prijatel.
10.3 Second Amendment to Employment Agreement, dated as of July 21,
1998, between the Company and Andrew Friendly.
10.4 Sixth Amendment to Employment Agreement, dated as of July 22,
1998, between the Company and Stuart Stringfellow.
10.5 Amendment to Employment Agreement, dated as of March 2, 1999,
between the Company and Jonathan Birkhahn.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On April 1, 1999, the Company report on Form 8-K announcing its
proposed merger with CBS Corporation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KING WORLD PRODUCTIONS, INC.
By: /s/ Steven A. LoCascio
Steven A. LoCascio
Senior Vice President and
Chief Financial Officer
and on behalf of the Registrant
April 13, 1999
20
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
KING WORLD PRODUCTIONS, INC.
KING WORLD PRODUCTIONS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY
as follows:
FIRST: that at a meeting of the Board of Directors of the Corporation
held on November 11, 1998, a resolution was duly passed setting forth a proposed
amendment to the Restated Certificate of Incorporation of the Corporation,
declaring such amendment to be advisable and directing that such amendment be
submitted to the stockholders of the Corporation for their approval at the
annual meeting of stockholders to be held on January 28, 1999 (the "Annual
Meeting"). The resolution approving the proposed amendment is as follows:
"RESOLVED, that the Board of Directors hereby proposes, approves and
declares the advisability of amendments to Sections 1 and 2 of Article VI
of the Restated Certificate of Incorporation of the Corporation to provide
for the annual election of the Corporation's Board of Directors, and in
connection with such changes, that Sections 1 and 2 of Article VI of the
Restated Certificate of Incorporation be amended to read in their entirety
as follows:
'1. Except as otherwise fixed by or pursuant to the provisions
of Article IV hereof relating to the rights of the holders of any
class or series of stock having a preference over the Common Stock as
to dividends or upon liquidation, the number of the directors of the
Corporation shall be fixed from time to time by or pursuant to the
By-laws of the Corporation. The directors, other than those who may be
elected by the holders of the Preferred Stock or any other class or
series of stock having a preference over the Common Stock as to
dividends or upon liquidation pursuant to the terms of this
Certificate of Incorporation or any resolution or resolutions
providing for the issue of such class or series of stock adopted by
the Board of Directors, shall be elected by the stockholders entitled
<PAGE>
to vote thereon at each annual meeting of stockholders and shall hold
office until the next annual meeting of stockholders and until each of
their respective successors shall have been elected and qualified. The
term of office of each director in office at the time this Section 1
of Article VI becomes effective shall expire at the next annual
meeting of stockholders held after the time this Section 1 of Article
VI becomes effective. The election of directors need not be by written
ballot. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
2. Except as otherwise provided for or fixed by or pursuant to
the provisions of Article IV hereof relating to the rights of the
holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation, newly created
directorships resulting from any increase in the number of directors
may be filled by the Board of Directors, or as otherwise provided in
the By-laws, and any vacancies on the Board of Directors resulting
from death, resignation, removal or other cause shall be filled only
by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of the Board of Directors,
or by a sole remaining director, or as otherwise provided in the By-
laws. Any director elected in accordance with the preceding sentence
of this Section 2 shall hold office until the next annual meeting of
stockholders and until such director's successor shall have been
elected and qualified.'"
SECOND: that the amendment to the Restated Certificate of Incorporation
effected by this Certificate was duly authorized at the Annual Meeting by the
holders of at least two-thirds of the outstanding stock of the Corporation
entitled to vote thereon, after first having been declared advisable by the
Board of Directors of the Corporation, all in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
THIRD: that the capital of the Corporation will not be reduced under,
or by reason of, the foregoing amendment to the Restated Certificate of
Incorporation of the Corporation.
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IN WITNESS WHEREOF, KING WORLD PRODUCTIONS, INC. has caused this
Certificate of Amendment to the Restated Certificate of Incorporation to be
signed by an officer of the Corporation thereunto duly authorized, hereby
declaring, certifying and acknowledging under penalties of perjury that the
facts herein stated are true and that this Certificate of Amendment is the act
and deed of the Corporation this 22nd day of February 1999.
KING WORLD PRODUCTIONS, INC.
By: /s/ Jonathan Birkhahn
-------------------------
Jonathan Birkhahn
Senior Vice President, Business Affairs and
General Counsel
3
BY-LAWS
OF
KING WORLD PRODUCTIONS, INC.
(Amended and Restated as of February 24, 1999)
ARTICLE I
Stockholders
Section 1.1 ANNUAL MEETINGS. (a) An annual meeting of stockholders
shall be held for the election of directors at such date, time and place either
within or without the State of Delaware as may be designated by the Board of
Directors from time to time. At any such annual meeting any business properly
brought before the meeting may be transacted.
(b) To be properly brought before an annual meeting, business must be
(i) specified in the notice of the meeting (or any supplement thereto) given by
or at the direction of the chairman of the meeting or the Board of Directors,
(ii) otherwise properly brought before the meeting by or at the direction of the
chairman of the meeting or the Board of Directors or (iii) otherwise properly
brought before the meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
written notice thereof, either by personal delivery or by United States mail,
postage prepaid, to the Secretary of the Corporation, not more than 120 days or
less than 90 days in advance of the anniversary date of the immediately
preceding annual meeting. Any such notice shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting and in the event that such business
includes a proposal to amend either the Certificate of incorporation or By-laws
of the Corporation, the language of the proposed amendment, (ii) the name and
address of the stock holder proposing such business, (iii) a representation that
the stockholder is a holder of record of stock of the Corporation entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to propose such business, (iv) any material interest of the stockholder in such
business and (v) if the stockholder intends to solicit proxies in support of
such stockholder's proposal, a representation to that effect. No business shall
be conducted at an annual meeting of stockholders except in accordance with this
Section 1.1(b), and chairman of the meeting may refuse to permit any business to
be brought before an annual meeting without compliance with the foregoing
<PAGE>
procedures or if the stockholder solicits proxies in support of such
stockholder's proposal without such stockholder having made the representation
required by clause (v) of the preceding sentence."
Section 1.2 SPECIAL MEETINGS. Except as otherwise required by law and
subject to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, special
meetings of the stockholders for any purpose or purposes may be called only by
the Chairman of the Board, the President, or a majority of the entire Board of
Directors. Only such business as is specified in the notice of any special
meeting of the stockholders shall come before such meeting.
Section 1.3 NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4 ADJOURNMENTS. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 1.5 QUORUM. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these By-laws,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum. For purposes of the foregoing, two or more classes
or series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum the stockholders so present may, by majority vote, adjourn the meeting
from time to time in the manner provided by Section 1.4 of these By-laws until
a quorum shall attend. Shares of its own capital stock belonging on the record
date for the meeting to the Corporation or to another corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
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Section 1.6 ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in the absence of the Chairman of
the Board by the Vice Chairman of the Board, if any, or in the absence of the
Vice Chairman of the Board by the President, or in the absence of the President
by a Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7 VOTING; PROXIES. Unless otherwise provided in the
Certificate of Incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders may authorize another
person or persons to act for such stockholder by proxy, but no such proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the Corporation.
Unless required by law or determined by the chairman of the meeting to be
advisable, the vote on any matter, including the election of directors, need not
be by written ballot. In the case of a vote by written ballot, each ballot shall
be signed by the stockholder voting, or by such stockholder's proxy, and shall
state the number of shares voted. Either the Board of Directors or, in the
absence of a designation of inspectors by the Board, the chairman of any meeting
of stockholders may, in its or such person's discretion, appoint two or more
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<PAGE>
inspectors to act at any meeting of stockholders. Such inspectors shall perform
such duties as shall be specified by the Board or the chairman of the meeting.
Inspectors need not be stockholders. No director or nominee for the office of
director shall be appointed such inspector. At all meetings of stockholders for
the election of directors a plurality of the votes cast shall be sufficient to
elect. With respect to other matters, unless otherwise provided by law or by the
Certificate of Incorporation or these By-laws, the affirmative vote of the
holders of a majority of the shares of all classes of stock present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders. Where a separate vote by class is
required, the affirmative vote of the holders of a majority of the shares of
each class present in person or represented by proxy at the meeting shall be the
act of such class, except as otherwise provided by law or by the Certificate of
Incorporation or these By-laws.
Section 1.8 ACTION BY WRITTEN CONSENT. (a) Unless otherwise provided
in the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
(b) Consents to corporate action shall be valid for a maximum of 60
days after the date of the earliest dated consent delivered to the Corporation
in the manner provided in Section 228(c) of the Delaware General Corporation
Law. Consents may be revoked by written notice (i) to the Corporation, (ii) to
the stockholder or stockholder soliciting consents or soliciting revocations in
opposition to action by consent (the "Soliciting Stockholders"), or (iii) to a
proxy solicitor or other agent designated by the Corporation or the Soliciting
Stockholders.
(c) Within ten business days after receipt of the earliest dated
consent delivered to the Corporation in the manner provided in Section 228(c) of
the Delaware General Corporation Law or the determination by the Board of
Directors of the Corporation that the Corporation should seek corporate action
by written consent, as the case may be, the Secretary of the Corporation shall
engage nationally recognized independent inspectors of elections for the purpose
of performing a ministerial review of the validity of the consents and
revocations. The cost of retaining inspectors of elections shall be borne by the
Corporation.
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<PAGE>
(d) Following appointment of the inspectors, consents and revocations
shall be delivered to the inspectors upon receipt by the Corporation, the
Soliciting Stockholder or their proxy solicitors or other designated agents. As
soon as practicable following the earlier of (i) the receipt by the inspectors,
a copy of which shall be delivered to the Corporation, of any written demand by
the Soliciting Stockholders, or (ii) 60 days after the date of the earliest
dated consent delivered to the Corporation in the manner provided in Section
228(c) of the Delaware General Corporation Law, the inspectors shall issue a
preliminary report to the Corporation and the Soliciting Stockholders stating
the number of valid and unrevoked consents and whether, based on their
preliminary count, the requisite number of valid and unrevoked consents has been
obtained to authorize or take the action specified in the consents.
(e) Unless the Corporation and the Soliciting Stockholders shall
agree to a shorter or longer period, the Corporation and the Soliciting
Stockholders shall have 48 hours to review the consents and revocations and to
advise the inspectors and the opposing party in writing as to whether they
intend to challenge the preliminary report of the inspectors. If no written
notice of an intention to challenge the preliminary report is received within 48
hours after the inspectors' issuance of the preliminary report, the inspectors
shall issue to the Corporation and the Soliciting Stockholders their final
report containing the information from the inspectors' determination with
respect to whether the requisite number of valid and unrevoked consents was
obtained to authorize and take the action specified in the consents. If the
Corporation or the Soliciting Stockholders issue written notice of an intention
to challenge the inspectors' preliminary report within 48 hours after the
issuance of that report, a challenge session shall be scheduled by the
inspectors as promptly as practicable. Following completion of the challenge
session, the inspectors shall as promptly as practicable issue their final
report to the Soliciting Stockholders and the Corporation, which report shall
contain the information included in the preliminary report, plus any change in
the vote total as a result of the challenge and a certification of whether the
requisite number of valid and unrevoked consents was obtained to authorize or
take the action specified in the consents.
5
<PAGE>
Section 1.9 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty nor less than ten days before the date of such meeting, nor more
than sixty days prior to any other action. If no record date is fixed, (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held, and (2) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any adjourn
ment of the meeting; provided, however, that the Board may fix a new record date
for the adjourned meeting.
Notwithstanding any inconsistent provision which may be contained in
these By-Laws, in order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
on which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corpo rate action by written consent shall, by written notice to the
Secretary of the Corporation, request the Board of Directors to fix a record
date. The Board of Directors shall thereafter promptly, but in all events within
ten days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record date has been fixed by the Board of
Directors within ten days of the date upon which such a request is received, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or any officer or agent of the
Corporation having custody of the book in which proceedings of stockholders'
meetings are recorded, to the attention of the Secretary of the Corporation.
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Delivery shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by applicable law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
Section 1.10 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockhold ers entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
ARTICLE II
Board of Directors
Section 2.1 GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by law or by the certificate of incorporation
of the corporation directed or required to be exercised or done by the
stockholders.
Section 2.2 NUMBER, QUALIFICATION AND ELECTION. Except as otherwise
fixed by or pursuant to the provisions of Article IV of the Certificate of
Incorporation of the Corporation relating to the rights of the holders of any
class or series of stock having preference over the Common Stock as to dividends
or upon liquidation, the number of the directors of the Corporation shall be
eight (8), but, by vote of a majority of the entire Board of Directors, the
number thereof may be increased without limit, or decreased to not less than
three (3), by amendment to this Section 2.2.
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The directors, other than those who may be elected by the holders of
shares of any class or series of stock having a preference over the Common Stock
of the Corporation as to dividends or upon liquidation pursuant to the terms of
Article IV of the Certificate of Incorporation or any resolution or resolutions
providing for the issuance of such stock adopted by the Board, shall be elected
by the stockholders entitled to vote thereon at each annual meeting of the
stockholders, and shall hold office until the next annual meeting of
stockholders and until each of their successors shall have been duly elected and
qualified.
Each director shall be a least 21 years of age. Directors need not be
stockholders of the Corporation.
In any election of directors, the persons receiving a plurality of the
votes cast, up to the number of directors to be elected in such election, shall
be deemed elected.
Section 2.3 NOTIFICATION OF NOMINATIONS. Subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board of Directors or by any stockholder entitled
to vote for the election of directors. Any stockholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such stockholders' intent to make such
nomination is given, either by personal delivery or by United States mail,
Postage prepaid, to the Secretary of the Corporation not later than (i) with
respect to an election to be held at an annual meeting of stockholders, not more
than 120 days or less than 90 days in advance of the anniversary date of the
immediately preceding annual meeting, and (ii) with respect to an election to be
held at a special meeting of stockholders for the election of directors, the
close of business On the seventh day following the date on which notice of such
meeting is first given to stockholders. Each such notice shall set forth (a) the
name and address of the stockholder who intends to make the nomination and of
the person or, persons to be nominated, (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice, (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, (d) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee be nominated,
or intended to be nominated, by the Board of Directors; (e) the consent of each
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nominee to serve as a director of the corporation if so elected and (f) if the
stockholder intends to solicit proxies in support of such stockholder's
nominee(s), a representation to that effect. The chairman of the meeting may
refuse to acknowledge the nomination of any person which was not made in
accordance with the foregoing procedure or if the stockholder solicits proxies
in support of such stockholder's nominee(s) without such stockholder having made
the representation required by clause (f) of the preceding sentence.
Section 2.4 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.5 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President or by a majority of the members
of the Board. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
Section 2.6 PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE
PERMITTED. Unless otherwise restricted by the Certificate of Incorporation or
these By-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this By-law shall
constitute presence in person at such meeting.
Section 2.7 QUORUM; VOTE REQUIRED FOR ACTION. Except as otherwise
provided by law, the Certificate of Incorporation or these By-laws, at any
meeting of the Board of Directors a majority of the entire Board shall
constitute a quorum for the transaction of business and, except as so provided,
the vote of a majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board. In case at any meeting of the Board a
quorum shall not be present, the members of the Board present may adjourn the
meeting from time to time until a quorum shall attend. At any adjourned meeting
at which a quorum is present, any business may be transacted which might have
been transacted at the meeting originally called.
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Section 2.8 ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the Board by the President, or in their absence
by a chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.9 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required
or permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 2.10 RESIGNATIONS. Any director of the Company may at any time
resign by giving written notice to the Board of Directors, the Chairman of the
Board, the President or the Secretary of the Corporation. Such resignation shall
take effect at the time specified therein or, if the time be not specified, upon
receipt thereof; and, unless otherwise specified therein, the acceptance of such
resignation shall not be neces sary to make it effective.
Section 2.11 VACANCIES. Subject to the rights of the holders of any
class or series of stock having a preference over the Common Stock of the
Corporation as to dividends or upon liquidation, any vacancies on the Board of
Directors resulting from death, resignation, removal or other cause shall only
be filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of the Board of Directors, or by a
sole remaining director, and newly created directorships resulting from any
increase in the number of directors shall be filled by the Board, or if not so
filled, by the stockholders at the next annual meeting thereof or at a special
meeting called for that purpose in accordance with 1.2 of these By-laws. Any
director elected in accordance with the preceding sentence shall hold office
until the next annual meeting of stockholders and until such director's
successor shall have been elected and qualified.
Section 2.12 COMPENSATION OF DIRECTORS. The Board of Directors shall
have the authority to fix the compensation of directors.
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ARTICLE III
Committees
Section 3.1 COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any Committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in place
of any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board, shall have and may exercise all the
powers and authority of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee shall have power or
authority in reference to amending the certificate of incorporation, adopting
an agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all the Corporation's property
and assets, recommending to the stockholders a dissolution of the Corporation
or a revocation of dissolution, removing or indemnifying directors or amending
these By-laws; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. The Board shall have power at any time to
change the membership of any committee, to fill all vacancies in it and to
discharge it, either with or without cause.
Section 3.2 COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these By-laws.
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ARTICLE IV
Officers
Section 4.1 OFFICERS; ELECTION. As soon as practicable after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary, and it may, if it so determines, elect from among
its members a Chairman of the Board and a Vice Chairman of the Board. The Board
may also elect one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person.
Section 4.2 TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. Except as
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until the first meeting of the Board
after the annual meeting of stockholders next succeeding his or her election and
until his or her successor is elected and qualified or until his or her earlier
resignation or removal. Any officer may resign at any time upon written notice
to the Board or to the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. The Board may remove any officer with or without cause at
any time. Any such removal shall be without prejudice to the contractual rights
of such officer, if any, with the Corporation, but the election of an officer
shall not of itself create contractual rights. Any vacancy occurring in any
office of the Corporation by death, resignation, removal or otherwise may be
filled for the unexpired portion of the term by the Board at any regular or
special meeting.
Section 4.3 CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he or she shall be present and shall have and may exercise such powers
as may, from time to time, be assigned to him or her by the Board and as may be
provided by law.
Section 4.4 VICE CHAIRMAN OF THE BOARD. In the absence of the Chairman
of the Board, the Vice Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he or she
shall be present and shall have and may exercise such powers as may, from time
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to time, be assigned to him or her by the Board and as may be provided by
law.
Section 4.5 PRESIDENT. In the absence of the Chairman of the Board and
Vice Chairman of the Board, the President shall preside at all meetings of the
Board of Directors and of the stockholders at which he or she shall be present.
The President shall be the chief executive officer and shall have general charge
and supervision of the business of the Corporation and, in general, shall
perform all duties incident to the office of president of a corporation and such
other duties as may, from time to time, be assigned to him or her by the Board
or as may be provided by law.
Section 4.6 VICE PRESIDENTS. The Vice President or Vice Presidents, at
the request or in the absence of the President or during the President's
inability to act, shall perform the duties of the President, and when so acting
shall have the powers of the President. If there be more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties; or if such determination is not
made by the Board, the President may make such determination; otherwise any of
the Vice Presidents may perform any of such duties. The Vice President or Vice
Presi dents shall have such other powers and shall perform such other duties as
may, from time to time, be assigned to him or her or them by the Board or the
President or as may be provided by law.
Section 4.7 SECRETARY. The Secretary shall have the duty to record the
proceedings of the meetings of the stockholders, the Board of Directors and any
committees in a book to be kept for that purpose, shall see that all notices are
duly given in accordance with the provisions of these By-laws or as required by
law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and,
in general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.8 TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
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surety or sureties as the Board may determine. The Treasurer shall keep or cause
to be kept full and accurate records of all receipts and disbursements in books
of the Corporation, shall render to the President and to the Board, whenever
requested, an account of the financial condition of the Corporation, and, in
general, shall perform all the duties incident to the office of treasurer of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.9 OTHER OFFICERS. The other officers, if any, of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these By-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security for
the faithful performance of his or her duties.
ARTICLE V
Stock
Section 5.1 CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or Vice Chairman of the Board of Directors, if any,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
certify ing the number of shares owned by such holder in the Corporation. Any of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
Section 5.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond in such sum and with such surety or sureties as the
Corporation may direct sufficient to indemnify the Corporation and its transfer
agents or registrars against any claim that may be made against it on account of
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the alleged loss, theft or destruction of any such certificate or the issuance
of such new certificate.
Section 5.3 TRANSFER OF SHARES. Transfers of shares of stock of each
class of the Corporation shall be made only on the books of the Corporation by
the holder thereof, or by such holder's attorney thereunto authorized by a power
of attorney duly executed and filed with the Secretary of the Corporation or a
transfer agent for such stock, if any, and on surrender of the certificate or
certificates for such shares properly endorsed or accompanied by a duly executed
stock transfer power and the payment of all taxes thereon. The person in whose
name shares stand on the books of the Corporation shall be deemed the owner
thereof for all purposes as regards the Corporation; provided, however, that
whenever any transfer of shares shall be made for collateral security and not
absolutely, and written notice thereof shall be given to the Secretary or to
such transfer agent, such fact shall be stated in the entry of the transfer. No
transfer of shares shall be valid as against the Corporation, its stockholders
and creditors for any purpose, except to render the transferee liable for the
debts of the Corporation to the extent provided by law, until it shall have been
entered in the stock records of the Corporation by an entry showing from and to
whom transferred.
ARTICLE VI
Miscellaneous
Section 6.1 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2 SEAL. The Corporation may have a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 6.3 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS
AND COMMITTEES. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these By-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
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is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these By-laws.
Section 6.4 INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES. The
Corporation shall indemnify to the full extent authorized by law any person made
or threatened to be made a party to any action, suit or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a direc tor,
officer or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. For
purposes of this By-law, the term "Corporation" shall include any predecessor of
the Corporation and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger; the term
"other enterprise" shall include any corporation, partnership, joint venture,
trust or employee benefit plan; service "at the request of the Corporation"
shall include service as a director, officer or employee of the Corporation
which imposes duties on, or involves services by, such director, officer or
employee with respect to an employee benefit plan, its participants or
beneficiaries; any excise taxes assessed on a person with respect to an employee
benefit plan shall be deemed to be indemnifiable expenses; and action by a
person with respect to an employee benefit plan which such person reasonably
believes to be in the interest of the participants and beneficiaries of such
plan shall be deemed to be action not opposed to the best interests of the
Corporation.
Section 6.5 INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his or her relationship
or interest and as to the contract or transaction are disclosed or are known to
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the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
Section 6.6 FORM OF RECORDS. Any records maintained by the Corporation
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photo graphs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 6.7 AMENDMENT OF BY-LAWS. These By-laws may be amended or
repealed, and new By-laws adopted, by the Board of Directors at any meeting
thereof, provided that such proposed action in respect thereof shall be stated
in the notice of such meeting. The stockholders entitled to vote shall have the
power to adopt additional By-laws and may amend or repeal any By-law, whether or
not adopted by them, only to the extent and in the manner provided in the
Certificate of Incorporation.
17
KING WORLD PRODUCTIONS, INC. AND ITS SUBSIDIARIES
1998 STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Section 1. PURPOSE. The purpose of the King World Productions, Inc.
and its Subsidiaries 1998 Stock Option and Restricted Stock Purchase Plan (the
"Plan") is to promote the interests of King World Productions, Inc., a Delaware
corporation (the "Company"), and any Subsidiary thereof and the interests of the
Company's stockholders by providing an opportunity to selected Employees,
Consultants and Non-Employee Directors of the Company to purchase Common Stock
of the Company, thereby enhancing the Company's ability to attract, retain,
motivate and encourage such persons to devote their best efforts to the business
and financial success of the Company. It is intended that this purpose will be
effected by awards of Non-Qualified Stock Options, Incentive Stock Options,
Restricted Stock and/or Unrestricted Stock.
Section 2. DEFINITIONS. For purposes of the Plan, the following terms
used herein have the following meanings, unless a different meaning is clearly
required by the context:
2.1. "ADMINISTRATOR" means the Board of Directors or any Committees
that shall be administering the Plan in accordance with Section 4 hereof.
2.2. "ANNUAL OPTION" means a Non-Qualified Stock Option automatically
granted to a Non-Employee Director on the third business day following each
annual meeting of stockholders at which such Non-Employee Director is elected as
a Director, including the annual meeting of stockholders at which such
Non-Employee Director is initially elected a Director.
2.3. "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under state corporate laws, federal and
state securities laws and the Code.
2.4. "AWARD" means any award of an Option or Stock under the Plan.
2.5. "BOARD OF DIRECTORS" means the Board of Directors of the Company.
2.6. "CHANGE OF CONTROL" means: (A) a majority of the Board of
Directors of the Company consists of individuals other than "Incumbent
Directors", which term means the members of the Board of Directors on the date
the Plan was adopted by the Board of Directors; provided, that any person
becoming a Director subsequent to such date whose election or nomination for
election was approved by at least two-thirds of the Directors who then comprised
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the Incumbent Directors shall be considered to be an Incumbent Director; (B) the
Company, without the approval of at least two-thirds of the Incumbent Directors,
adopts any plan of liquidation providing for the distribution of all or
substantially all of its assets; or (C) all or substantially all of the assets
or business of the Company and its consolidated subsidiaries are disposed of
pursuant to a merger, consolidation, reorganization, share exchange or other
transaction (unless the stockholders of the Company, immediately prior to such
merger, consolidation, reorganization, share exchange or other transaction,
beneficially own, directly or indirectly, more than 50% of all the voting stock
or other ownership interests of the entity or entities, if any, that succeed to
the business of the Company).
2.7. "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.8. "COMMITTEE" means any committee appointed by the Board of
Directors in accordance with Section 4 of the Plan.
2.9. "COMMON STOCK" means the Common Stock, $.01 par value, of the
Company.
2.10. "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Subsidiary of the Company to render services and who is
compensated for such services; provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
2.11. "DESIGNATED BENEFICIARY" means the beneficiary designated by a
Participant, in a manner determined by the Administrator, to receive amounts due
or exercise rights of the Participant in the event of the Participant's death.
In the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
2.12. "DIRECTOR OPTION" means an Initial Option or an Annual Option.
2.13. "DIRECTOR" means any member of the Board of Directors.
2.14. "EMPLOYEE" means any person, including without limitation, an
officer or Director of the Company, who, is employed by the Company or any
Subsidiary of the Company. Neither service as a Director nor payment of a
director's fee by the Company shall constitute "employment" by the Company.
2.15. "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
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(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the average between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
2.16. "INCENTIVE STOCK OPTION" means an Option granted to a
Participant pursuant to Section 6 (including Section 6.7 thereof) which is
intended to meet the requirements of Section 422 of the Code or any successor
provision.
2.17. "INITIAL OPTION" means a Non-Qualified Stock Option
automatically granted pursuant to Section 6.8 to a Non-Employee Director on the
third business day following his or her initial election to the Board of
Directors.
2.18. "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee
of the Company or any Subsidiary of the Company.
2.19. "NON-QUALIFIED STOCK OPTION" means an Option granted to a
Participant pursuant to Section 6 that is not intended to be an Incentive Stock
Option.
2.20. "OPTION" means any Incentive Stock Option or Non-Qualified Stock
Option.
2.21. "PARTICIPANT" means any Employee, Consultant or Non-Employee
Director to whom an Award is granted under the Plan.
2.22. "RESTRICTED PERIOD" means the period of time selected by the
Administrator during which shares subject to an Award of Restricted Stock may be
repurchased by or forfeited to the Company.
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2.23. "REPORTING PERSON" means a Participant that is subject to
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
2.24. "RESTRICTED STOCK" means shares of Common Stock awarded to a
Participant under Section 7.
2.25. "STOCK" means shares of Restricted Stock or Unrestricted Stock.
2.26. "SUBSIDIARY" shall have the meaning set forth in Section 424(f)
of the Code.
2.27. "UNRESTRICTED STOCK" means shares of Common Stock awarded to a
Participant under Section 7 free of any restrictions under the Plan.
Section 3. COMMON STOCK SUBJECT TO THE PLAN.
3.1. NUMBER OF SHARES. The total number of shares of Common Stock for
which Awards may be granted under the Plan shall not exceed in the aggregate
2,000,000 shares of Common Stock (subject to adjustment as provided in Section
3.3 hereof). The Company, during the term of the Plan, will at all times reserve
and keep available such number of shares of Common Stock as shall be sufficient
to satisfy the requirements of the Plan.
3.2. REISSUANCE. The shares of Common Stock that may be subject to
Awards under the Plan may be either authorized and unissued shares or shares
reacquired at any time and now or hereafter held as treasury stock as the
Administrator may determine. In the event that any outstanding Option expires,
is terminated, forfeited or becomes unexercisable for any reason without having
been exercised in full, the shares allocable to the unexercised portion of such
Option may again be subject to an Award under the Plan, subject, in the case of
Incentive Stock Options, to any limitation required by the Code. If any shares
of Common Stock issued or sold pursuant to a Stock award or the exercise of an
Option shall have been repurchased by the Company, then such shares shall not
again be available for future grant or award under the Plan.
3.3. STOCK DIVIDENDS, ETC. In the event that the Administrator, in
its sole discretion, determines that any stock dividend, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination or other similar transaction affects the Common Stock such
that an adjustment is required in order to preserve or prevent enlargement of
the benefits or potential benefits intended to be made available under the Plan,
then the Administrator, subject, in the case of Incentive Stock Options, to any
limitation required under the Code, may equitably adjust any or all of (i) the
number and kind of shares in respect of which Awards may be made under the Plan,
(ii) the number and kind of shares subject to outstanding Awards, (iii) the
award, exercise or conversion price with respect to any of the foregoing and
(iv) the maximum number of shares which may be the subject of Awards to any one
employee under the Plan (subject to any requirements of Section 162(m) of the
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Code). If considered appropriate, the Administrator may cause the number of
shares subject to any Award always to be a whole number.
The Administrator may make Awards under the Plan in substitution for
stock and stock based awards held by employees of another corporation who
concurrently become employees of the Company as a result of a merger or
consolidation of the employing company with the Company or a Subsidiary or
parent company of the Company or the acquisition by the Company or any such
Subsidiary or parent company of the Company of property or stock of the
employing corporation. The substitute Awards shall be granted on such terms and
conditions as the Administrator deems appropriate under the circumstances.
Section 4. ADMINISTRATION OF THE PLAN.
4.1. PROCEDURE.
(a) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered by
different Committees with respect to different groups of Participants.
(b) SECTION 162(m). To the extent that the Administrator determines it
to be desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the Plan
shall be administered by a Committee consisting of two or more Non-Employee
Directors who qualify as "outside directors" within the meaning of such
Section.
(c) RULE 16b-3. To the extent that the Administrator determines it to
be desirable to qualify transactions hereunder as exempt under Rule 16b-3
of the Exchange Act, the transactions contemplated hereunder shall be
structured to satisfy the requirements for exemption under Rule 16b-3.
(d) OTHER ADMINISTRATION. Other than as provided above, the Plan shall
be administered by (i) the Board of Directors or (ii) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
4.2. POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific powers delegated
by the Board of Directors to such Committee, the Administrator shall have the
authority, in its discretion:
(a) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2.15 of the Plan;
(b) to select the Employees and Consultants to whom Awards may be
granted hereunder;
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(c) to determine whether and to what extent awards of Options and
Stock, or any combination thereof, are granted hereunder;
(d) to determine the number of shares of Common Stock to be covered by
each Award made hereunder;
(e) to determine the amount (not less than par value per share) and
the form of the consideration that may be used to purchase shares of Common
Stock pursuant to any Stock award or upon exercise of any Option
(including, without limitation, the circumstances under which issued and
outstanding shares of Common Stock owned by a Participant may be used by
the Participant to exercise an Option);
(f) to approve forms of agreements for use under the Plan;
(g) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Award granted hereunder, including without
limitation, the exercise price, the time or times when Options may be
exercised (which may be based on performance criteria), any vesting,
acceleration or waiver of forfeiture restrictions and any restriction or
limitation regarding any Award or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its
sole discretion, shall determine;
(h) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by
such Option shall have declined since the date the Option was granted;
(i) to construe and interpret the terms of the Plan:
(j) to prescribe, amend and rescind rules and regulations relating to
the Plan;
(k) to modify or amend the terms of any Award;
(l) to accelerate vesting periods with respect to outstanding Options
and the end of Restricted Periods with respect to Stock Awards; provided,
however, that any Incentive Stock Options may only be"accelerated" in
accordance with Section 424(h) of the Code;
(m) to authorize any person to execute on behalf of the Company any
instrument required to effect any Award granted by the Administrator; and
(n) to exercise all other powers granted to the Administrator under
the Plan and make all other determinations deemed necessary or advisable
for administering the Plan.
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4.3. EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Participants and any other holders of Options or Stock awarded under the Plan .
4.4. EXPENSES, ETC. All expenses and liabilities incurred by the
Administrator in the administration of the Plan shall be borne by the Company.
The Administrator may employ attorneys, consultants, accountants or other
persons in connection with the administration of the Plan. The Company, and its
officers and directors, shall be entitled to rely upon the advice, opinions or
valuations of any such persons. No member of the Administrator shall be liable
for any action, determination or interpretation taken or made in good faith with
respect to the Plan or any Award granted thereunder.
Section 5. ELIGIBILITY. Awards may be granted to any Employee,
Consultant or Non-Employee Director. The Administrator shall have the sole
authority to select the Employees and Consultants to whom discretionary Awards
are to be granted hereunder, and to determine whether a person is to be granted
a Non-Qualified Stock Option, an Incentive Stock Option, Restricted Stock or
Unrestricted Stock, or any combination thereof. Non-Employee Directors shall
only be eligible to receive Awards pursuant to Section 6.8 of the Plan. No
person other than an Employee, Consultant or Non-Employee Director shall have
any right to participate in the Plan. Any person selected by the Administrator
for participation during any one period will not by virtue of such participation
have the right to be selected as a Participant for any other period. The maximum
number of shares of Common Stock which may be the subject of Awards granted to
any one employee under the Plan during any period of five consecutive fiscal
years shall be 1,500,000 shares. For this purpose, the grant of a new Award in
substitution for outstanding Awards shall be deemed to constitute a new grant,
separate from the original grant that is to be canceled. Incentive Stock Options
may be granted only to persons eligible to receive Incentive Stock Options under
the Code.
Section 6. OPTIONS.
6.1. Subject to the provisions of the Plan, the Administrator may
award Incentive Stock Options and Non-Qualified Stock Options, and determine the
number of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder.
6.2. EXERCISE PRICE. The Administrator shall establish the exercise
price of each Option at the time such Option is awarded. Such price shall not be
less than 100% of the Fair Market Value of the Common Stock on the date of
grant.
6.3. VESTING. Each Option shall be exercisable at such times and
subject to such
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terms and conditions as the Administrator may specify in the applicable Option
agreement or thereafter. The Administrator may impose such conditions with
respect to the exercise of Options, and the disposition of the securities
issuable thereunder, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
6.4. PAYMENT. Options granted under the Plan may provide for the
payment of the exercise price by delivery of cash or check in an amount equal to
the exercise price of such Options or, to the extent permitted by the
Administrator at or after the award of the Option, by (a) delivery of shares of
Common Stock owned by the optionee, valued at their Fair Market Value on the
date of such option exercise, (b) delivery of a promissory note of the optionee
to the Company on terms determined by the Administrator, (c) delivery of an
irrevocable undertaking by a broker to deliver promptly to the Company
sufficient funds to pay the exercise price or delivery of irrevocable
instructions to a broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price, (d) payment of such other lawful
consideration as the Administrator may determine or (e) any combination of the
foregoing. In the event an optionee pays some or all of the exercise price of an
Option by delivery of shares of Common Stock pursuant to clause (a) above, the
Administrator may provide for the automatic award of an Option for up to the
number of shares so delivered.
6.5. TRANSFERABILITY. Each Option granted under the Plan shall provide
that neither it nor any interest therein may be transferred, assigned, pledged
or hypothecated, by the optionee or by operation of law otherwise than by will,
the laws of descent and distribution or a "qualified domestic relations order"
(as defined in the Code), and shall be exercised during the lifetime of the
optionee only by the optionee or a transferree pursuant to such a "qualified
domestic relations order". No Option or interest therein may be or be made
subject to execution, attachment or similar process.
6.6. CANCELLATION AND NEW GRANT OF OPTIONS. The Board of Directors
shall have the authority to effect, at any time and from time to time, with the
consent of the affected optionees, (i) the cancellation of any or all
outstanding options under the Plan and the grant in substitution therefor of new
Options under the Plan covering the same or different numbers of shares of
Common Stock and having an option exercise price per share which may be lower or
higher than the exercise price per share of the canceled Options or (ii) the
amendment of the terms of any and all outstanding Options under the Plan to
provide an option exercise price per share which is higher or lower than the
then current exercise price per share of such outstanding Options.
6.7. INCENTIVE STOCK OPTIONS. Options granted under the Plan which are
intended to be Incentive Stock Options shall be subject to the following
additional terms and conditions:
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(a) All Incentive Stock Options granted under the Plan shall, at
the time of grant, be specifically designated as such in the option agreement
covering such Incentive Stock Options. The exercise period shall not exceed ten
years from the date of grant.
(b) If any Employee to whom an Incentive Stock Option is to be
granted under the Plan is, at the time of the grant of such option, the owner of
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company (after taking into account the attribution of stock
ownership rule of Section 424(d) of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted to such
individual:
(i) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the Fair
Market Value of one share of Common Stock on the date of grant; and
(ii) The Option exercise period shall not exceed five years from
the date of grant.
(c) For so long as the Code shall so provide, options granted to
any Employee under the Plan (and any other incentive stock option plans of the
Company or its Subsidiaries) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
Options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value
(determined as of the respective date or dates of grant) of more than $100,000.
(d) No Incentive Stock Option may be exercised unless, at the
time of such exercise, the Participant is, and has been continuously since the
date of grant of his or her Option, employed by the Company, except that:
(i) an Incentive Stock Option may be exercised (to the extent
exercisable on the date the Participant ceased to be an Employee of
the Company or a Subsidiary) within the period of three months after
the date the Participant ceases to be an employee of the Company or
such Subsidiary (or within such lesser period as may be specified in
the applicable option agreement); provided, that the agreement with
respect to such Option may designate a longer exercise period and that
the exercise after such three-month period shall be treated as the
exercise of a Non-Qualified Stock Option under the Plan;
(ii) if the Participant dies while in the employ of the Company,
or within three months after the Participant ceases to be an Employee,
the Incentive Stock Option (to the extent otherwise exercisable on the
date of death) may be exercised by the Participant's Designated
Beneficiary within the period of one year after the date of death (or
within such lesser period as may be specified in the applicable Option
agreement); and
9
<PAGE>
(iii) if the Participant becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while
in the employ of the Company, the Incentive Stock Option may be
exercised (to the extent otherwise exercisable on the date of death)
within the period of one year after the date of such disability (or
within such lesser period as may be specified in the Option
agreement). In the event of the Participant's death during this
one-year period, the Incentive Stock Option may be exercised by the
Participant's Designated Beneficiary within the period of one year
from the date the Participant became disabled or within such lesser
period as may be specified in the applicable Option agreement.
For all purposes of the Plan and any Option granted hereunder, (i) "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Treasury Regulations under the Code (or any successor regulations) and (ii) any
Option may provide that if such Option shall be assumed or a new Option
substituted therefor in a transaction to which Section 424(a) of the Code
applies, employment by such assuming or substituting corporation shall be
considered for all purposes of such Option to be employment by the Company.
Notwithstanding the foregoing provisions, no Incentive Stock Option may be
exercised after its expiration date.
6.8. NON-EMPLOYEE DIRECTOR OPTIONS. Director Options shall be
automatic and subject to the following additional terms and conditions:
(a) All Director Options shall be Non-Qualified Stock Options.
(b) Each person who becomes a Non-Employee Director shall be
granted an Initial Option to purchase 10,000 shares of Common Stock on the third
business day following his or her first appointment or election as a
Non-Employee Director.
(c) On the third business day following the 1999 annual meeting
of the stockholders of the Company and each annual meeting of stockholders
thereafter at which a Non-Employee Director is elected or re-elected as a
member of the Board of Directors, such Non-Employee Director shall be granted
an Annual Option to purchase 3,333 shares of Common Stock; provided, however,
that no Annual Option shall be granted to any Non-Employee Director so long as
any non-qualified stock option that was granted to such Non-Employee Director
pursuant to the 1996 Amended and Restated Stock Option and Restricted Stock
Purchase Plan of the Company is unvested.
(d) The exercise price of each Director Option will be 100% of
the Fair Market Value on the date of grant.
(e) Initial Options shall become exercisable six months after the
date of grant and Annual Options shall become exercisable on the date of the
next annual meeting of stockholders following the date of grant. The exercise
period of Director Options shall be ten years from the date of grant, subject to
the following:
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(i) if a Non-Employee Director ceases to serve as a Director for
any reason other than as a result of his death or "disability" (within
the meaning of Section 22(e)(3) of the Code), the unexercised portion
of any Director Option held by such Non-Employee Director at the time
he or she ceased to serve as a Director may be exercised only within
one month after the date on which such Non-Employee Director ceased to
serve as a Director, and only to the extent that such Non-Employee
Director could have otherwise exercised such Director Option as of the
date on which he or she ceased to serve as a Director; provided,
however, that if such Non-Employee Director was subject to a "lock-
up" or similar restriction on his or her ability to sell the
securities issuable upon the exercise of such Director Option as of
the date he or she ceased to serve as a Director or during such
one-month period, such one-month period shall be extended by a number
of days equal to the number of days that such sale restrictions were
in effect;
(ii) if a Non-Employee Director ceases to serve as a Director by
reason of his "disability" (within the meaning of Section 22(e)(3) of
the Code), the unexercised portion of any Director Option held by such
Non-Employee Director at the time he or she ceased to serve as a
Director may be exercised only within one year after the date on which
the Non-Employee Director ceased to serve as a Director, and only to
the extent that the Non-Employee Director could have otherwise
exercised such Non-Qualified Option as of the date on which he or she
ceased to serve as a Director;.
(iii) if a Non-Employee Director dies while serving as a
Non-Employee Director (or within a period of one month after ceasing
to serve as a Director for any reason other than "disability" (within
the meaning of Section 22(e)(3) of the Code) or within a period of one
year after ceasing to be a Director by reason of such "disability"),
the unexercised portion of any Director Option held by such
Non-Employee Director at the time of his or her death may be exercised
only within one year after the date of such Non-Employee Director's
death, and only to the extent that such Non-Employee Director could
have otherwise exercised such Director Option at the time of his or
her death; and in such event, such Director Option may be exercised by
the Designated Beneficiary of such Non- Employee Director.
(g) In the event of a "Change of Control" of the Company, any
Director Option that had not become exercisable in accordance with Section
6.8(e) prior to such Change of Control shall become exercisable upon the
effectiveness of such Change of Control, subject to all other applicable
provisions the Plan and the option agreement relating thereto.
(h) Notwithstanding the appointment of a Committee to administer
the Plan, all administrative, interpretive and discretionary powers with respect
to Director Options shall be exercised by the Board of Directors, the
Non-Employee Directors abstaining.
Section 7. RESTRICTED AND UNRESTRICTED STOCK.
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7.1. GENERAL. The Board of Directors may grant Awards entitling
recipients to acquire shares of Common Stock, subject to the right of the
Company to repurchase all or part of such shares at their purchase price (or to
require forfeiture of such shares if purchased at no cost) from the recipient in
the event that conditions specified by the Administrator in the applicable Award
are not satisfied prior to the end of the applicable Restricted Period or
Restricted Periods established by the Administrator for such Award. Conditions
for repurchase (or forfeiture) may be based on continuing employment or service
or achievement of pre-established performance or other goals and objectives.
7.2. RESTRICTED STOCK. Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered, except as permitted by
the Administrator, during the applicable Restricted Period. Shares of Restricted
Stock shall be evidenced in such manner as the Board of Directors may determine.
Any certificates issued in respect of shares of Restricted Stock shall be
registered in the name of the Participant and, unless otherwise determined by
the Board of Directors, deposited by the Participant, together with a stock
power endorsed in blank, with the Company (or its designee). At the expiration
of the Restricted Period, the Company (or such designee) shall deliver such
certificates to the Participant or, if the Participant has died, to the
Participant's Designated Beneficiary.
7.3. UNRESTRICTED STOCK. The Administrator may, in its sole
discretion, grant (or sell at a purchase price determined by the Board of
Directors, which shall not be lower than 85% of Fair Market Value on the date of
sale) Unrestricted Stock to Participants.
7.4. PAYMENT. The purchase price for each share of Restricted Stock
and Unrestricted Stock shall be determined by the Administrator and may not be
less than the par value of the Common Stock. Such purchase price may be paid in
the form of past services or such other lawful consideration as is determined by
the Board of Directors.
7.5. CERTIFICATES. Stock certificates representing Shares of
Restricted Stock or Unrestricted Stock shall bear a legend referring to any
restrictions imposed thereon and such other matters as the Administrator may
determine.
7.6. ACCELERATION. The Administrator may at any time accelerate the
expiration of the Restricted Period applicable to all, or any particular,
outstanding shares of Restricted Stock.
Section 8. GENERAL PROVISIONS APPLICABLE TO AWARDS.
8.1. APPLICABILITY OF RULE 16b-3. Those provisions of the Plan which
make an express reference to Rule 16b-3 shall apply to the Company only at such
time as the Company's Common Stock is registered under the Exchange Act, or any
successor provision, and then only with respect to Reporting Persons.
12
<PAGE>
8.2. DOCUMENTATION. Each Award under the Plan shall be evidenced by an
instrument delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Administrator considers necessary or advisable.
Such instruments may be in the form of agreements to be executed by both the
Company and the Participant, or certificates, letters or similar documents,
acceptance of which will evidence agreement to the terms thereof and of this
Plan.
8.3. ADMINISTRATOR DISCRETION. Each type of Award may be made alone,
in addition to or in relation to any other type of Award. The terms of each type
of Award need not be identical, and the Administrator need not treat
Participants uniformly.
8.4. TERMINATION OF STATUS. Subject to the provisions of Section 6,
the Administrator shall determine the effect on an Award of the disability,
death, retirement, authorized leave of absence or other termination of
employment or other status of a Participant and the extent to which, and the
period during which, the Participant's legal representative, guardian or
Designated Beneficiary may exercise rights under such Award.
8.5. MERGERS, ETC. In the event of a consolidation or merger or sale
of all or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property of
any other corporation or business entity (an "Acquisition"), the Board of
Directors or the board of directors of any corporation assuming the obligations
of the Company, may, in its discretion, take any one or more of the following
actions as to outstanding Awards: (i) provide that such Awards shall be assumed,
or substantially equivalent Awards shall be substituted, by the acquiring or
succeeding corporation (or an affiliate thereof) on such terms as the Board of
Directors determines to be appropriate; (ii) upon written notice to
Participants, provide that all unexercised Options will terminate immediately
prior to the consummation of such transaction unless exercised by the
Participant within a specified period following the date of such notice; (iii)
in the event of an Acquisition under the terms of which holders of the Common
Stock of the Company will receive upon consummation thereof a cash payment for
each share surrendered in the Acquisition (the "Acquisition Price"), make or
provide for a cash payment to Participants equal to the difference between (A)
the Acquisition Price times the number of shares of Common Stock subject to
outstanding Options (to the extent then exercisable at prices not in excess of
the Acquisition Price) and (B) the aggregate exercise price of all such
outstanding Options in exchange for the termination of such Options; and (iv)
provide that all or any outstanding Awards shall become exercisable or
realizable in full on or prior to the effective date of such Acquisition.
8.6. DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board of Directors may, in the
exercise of its sole discretion in such instances, declare that any Award shall
terminate as of a date fixed by the Board of Directors and give each Participant
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<PAGE>
the right to exercise his or her Option as to all or any of the shares subject
thereto, including shares as to which the Option would not otherwise be
exercisable, or may accelerate the termination of the Restricted Period of any
Stock Award.
8.7. WITHHOLDING. The Participant shall pay to the Company, or make
provision satisfactory to the Administrator for payment of, any taxes required
by law to be withheld in respect of Awards under the Plan no later than the date
of the event creating the tax liability. In the Administrator's discretion, and
subject to such conditions as the Administrator may establish, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value. The Company may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to the Participant.
8.8. FOREIGN NATIONALS. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Administrator
considers necessary or advisable to achieve the purposes of the Plan or comply
with applicable laws.
8.9. AMENDMENT OF AWARD. The Board of Directors may amend, modify or
terminate any outstanding Award, including substituting therefor another Award
of the same or a different type, changing the date of exercise or realization
and converting an Incentive Stock Option to a Non-Qualified Stock Option;
provided that the Participant's consent to such action shall be required unless
the Board of Directors determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
8.10. CONDITIONS ON DELIVERY OF COMMON STOCK. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or to
remove restrictions from shares previously delivered under the Plan (i) until
all conditions of the Award have been satisfied or removed; (ii) until, in the
opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with; (iii) if the outstanding Common Stock is at
the time listed on any stock exchange or admitted for trading on an automatic
quotation system, until the shares to be delivered have been listed or
authorized to be listed or quoted on such exchange or quotation system upon
official notice of notice of issuance; and (iv) until all other legal matters in
connection with the issuance and delivery of such shares have been approved by
the Company's counsel. If the sale of Common Stock has not been registered under
the Securities Act of 1933, as amended, the Company may require, as a condition
to exercise of the Award, such representations or agreements as the Company may
consider appropriate to avoid violation of such act and may require that the
certificates evidencing such Common Stock bear an appropriate legend restricting
transfer.
Section 9. MISCELLANEOUS
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9.1. NO RIGHT TO EMPLOYMENT OR OTHER STATUS. The grant of an Award
shall not be construed as giving a Participant the right to continued employment
or service for the Company. The Company expressly reserves the right at any time
to dismiss a Participant free from any liability or claim under the Plan, except
as expressly provided in the applicable Award.
9.2. NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the record holder thereof.
9.3. EXCLUSION FROM BENEFIT COMPUTATIONS. No amounts payable upon
exercise of Awards granted under the Plan shall be considered salary, wages or
compensation to Participants for purposes of determining the amount or nature of
benefits that Participants are entitled to under any insurance, retirement or
other benefit plans or programs of the Company.
9.4. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained.
9.5. GRANTS EXCEEDING ALLOTTED SHARES. If the shares of Common Stock
covered by an Award exceeds, as of the date of grant, the number of Shares which
may be issued under the Plan without additional shareholder approval, such Award
shall be void with respect to such excess stock, unless such additional
shareholder approval is obtained in a timely manner.
9.6. EFFECTIVE DATE AND TERM.
(i) EFFECTIVE DATE. The Plan shall become effective on December
21, 1998, the date of its adoption by the Board of Directors, but no
Incentive Stock Option granted under the Plan shall become exercisable
unless and until the Plan shall have been approved by the Company's
stockholders. If such stockholder approval is not obtained within twelve
months after the date of the Board of Director's adoption of the Plan, no
Options previously granted under the Plan shall be deemed to be Incentive
Stock Options and no Incentive Stock Options shall be granted thereafter
under the Plan. Amendments to the Plan not requiring stockholder approval
shall become effective when adopted by the Board of Directors; amendments
requiring stockholder approval shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted after the date of
such amendment shall become exercisable (to the extent that such amendment
to the Plan was required to enable the Company to grant such Incentive
Stock Option to a particular optionee) unless and until such amendment
shall have been approved by the Company's stockholders. If such stockholder
approval is not obtained within twelve months of the Board of Director's
adoption of such amendment, any Incentive Stock
15
<PAGE>
Options granted on or after the date of such amendment shall terminate to
the extent that such amendment to the Plan was required to enable the
Company to grant such Option to a particular optionee. Subject to the
limitations set forth in this Section 9.6, Awards may be made under the
Plan at any time after the effective date and before the date fixed for
termination of the Plan.
(ii) TERMINATION. The Plan shall terminate upon the earlier of
(i) the close of business on the day next preceding the tenth anniversary of the
date of its adoption by the Board of Directors, (ii) the date on which all
shares available for issuance under the Plan shall have been issued pursuant to
Awards under the Plan, or (iii) by action of the Board of Directors. No Award
may be granted hereunder after termination of the Plan. The termination or
amendment of the Plan shall not alter or impair any rights or obligations
theretofore granted under the Plan.
9.7. AMENDMENT OF PLAN. The Board of Directors may amend, suspend or
terminate the Plan or any portion thereof at any time; provided that no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any applicable tax or regulatory requirement. Prior to
any such approval, Awards may be made under the Plan expressly subject to such
approval.
9.8. GOVERNING LAW. The provisions of the Plan shall be governed by
and interpreted in accordance with the laws of the State of Delaware.
*****************************
16
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
<PAGE>
remain in effect and shall apply during 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.
2
<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: /s/ Jonathan Birkhahn
--------------------------
Accepted:
/s/ Don Prijatel
- ---------------------------
Don Prijatel
3
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."
<PAGE>
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.
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.
S. The second sentence of paragraph 3(d) of the Letter Agreement shall be
amended to read in
2
<PAGE>
its entirety as follows:
"When travelling on business for the Company to New York, you shall
not be required to utilize any trade-but 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: /s/ Jonathan Birkhahn
--------------------------
Accepted:
/s/ Andrew Friendly
- -----------------------------
Andrew Friendly
3
KING WORLD
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: /s/ Jonathan Birkhahn
--------------------------
Accepted:
/s/ Stuart Stringfellow
- ----------------------------------
Stuart Stringfellow
KING WORLD
March 2, 1999
Jonathan Birkhahn, Esq.
King World Productions, Inc.
1700 Broadway
New York, New York 10019
Dear Jon:
This letter, when accepted by you, shall constitute an amendment (this
"Amendment") to the letter agreement dated as of September 1, 1996 (the "Letter
Agreement"), between King World Productions, Inc. (the "Company") and you. All
of the definitions set forth in the Letter Agreement shall govern this
Amendment. The Company and you hereby agree as follows:
1. The Employment Period shall terminate on August 31, 2002.
2. Your salary compensation for the period (a) from September 1, 2000 through
August 31, 2001, shall be payable at the annual rate of $425,000 and (b)
from September 1, 2001, through August 31, 2002, shall be payable at the
annual rate of $451,560.
Except as modified herein, all terms and conditions of the Letter Agreement
shall continue in full force and effect.
Very truly yours,
KING WORLD PRODUCTIONS, INC.
By: /s/ Robert Madden
-------------------------
Accepted:
/s/ Jonathan Birkhahn
- --------------------------------
Jonathan Birkhahn
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
FINANCIAL DATA SCHEDULE
COMMERCIAL AND INDUSTRIAL COMPANIES
ARTICLE 5 OF REGULATION S-X
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>
<CIK> 000756764
<NAME> #x4hauwm
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Aug-31-1999
<PERIOD-START> Dec-01-1998
<PERIOD-END> Feb-28-1999
<EXCHANGE-RATE> 1
<CASH> $338,340
<SECURITIES> $0
<RECEIVABLES> $110,274
<ALLOWANCES> $3,014
<INVENTORY> $0
<CURRENT-ASSETS> $563,410
<PP&E> $34,885
<DEPRECIATION> $15,075
<TOTAL-ASSETS> $1,036,141
<CURRENT-LIABILITIES> $114,979
<BONDS> $0
<COMMON> $890
$0
$0
<OTHER-SE> $920,272
<TOTAL-LIABILITY-AND-EQUITY> $1,036,141
<SALES> $0
<TOTAL-REVENUES> $197,483
<CGS> $0
<TOTAL-COSTS> $120,220
<OTHER-EXPENSES> $23,856
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $0
<INCOME-PRETAX> $60,752
<INCOME-TAX> $21,449
<INCOME-CONTINUING> $39,303
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $39,303
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.53
</TABLE>
