-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NoskozTCUPxrhWC6Qy2JWgJZd/SXDMtgEI4kap48uc16VZ6JOdknAAmUwhWhZ1xd eh0C0bPlwDYLN954ECkQOA== 0001001039-97-000004.txt : 19970222 0001001039-97-000004.hdr.sgml : 19970222 ACCESSION NUMBER: 0001001039-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALT DISNEY CO/ CENTRAL INDEX KEY: 0001001039 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 954545390 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11605 FILM NUMBER: 97532738 BUSINESS ADDRESS: STREET 1: 500 SOUTH BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 BUSINESS PHONE: 8185601000 MAIL ADDRESS: STREET 1: 500 SOUTH BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521 FORMER COMPANY: FORMER CONFORMED NAME: DC HOLDCO INC DATE OF NAME CHANGE: 19950918 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended December 31, 1996 Commission File Number 1-11605 THE WALT DISNEY COMPANY Incorporated in Delaware I.R.S. Employer Identification No. 95-4545390 500 South Buena Vista Street, Burbank, California 91521 (818) 560-1000 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 There were 675,133,968 shares of common stock outstanding as of February 6, 1997. PART I. FINANCIAL INFORMATION THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME In millions, except per share data (unaudited)
Three Months Ended December 31 --------------------------- 1996 1995 ----------- ----------- REVENUES $ 6,278 $ 3,837 COSTS AND EXPENSES (4,851) (2,974) GAIN ON SALE OF KCAL 135 - ---------- ---------- OPERATING INCOME 1,562 863 CORPORATE ACTIVITIES AND OTHER (90) (86) NET INTEREST EXPENSE (171) (13) ---------- ---------- INCOME BEFORE INCOME TAXES 1,301 764 INCOME TAXES (552) (268) ---------- ---------- NET INCOME $ 749 $ 496 ---------- ---------- ---------- ---------- EARNINGS PER SHARE $ 1.09 $ 0.93 ---------- ---------- ---------- ---------- Average number of common and common equivalent shares outstanding 686 534 ---------- ---------- ---------- ----------
See Notes to Condensed Consolidated Financial Statements THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS In millions, except share data
December 31, September 30, 1996 1996 ----------- -------------- (unaudited) ASSETS Cash and cash equivalents $ 707 $ 278 Investments 483 454 Receivables 4,131 3,343 Inventories 808 951 Film and television costs 4,148 3,912 Theme parks, resorts and other property, net of accumulated depreciation of $4,564 and $4,448 8,270 8,031 Intangible assets, net of accumulated amortization of $415 and $301 17,864 17,978 Other assets 2,266 2,359 -------- --------- $ 38,677 $ 37,306 -------- --------- -------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts and taxes payable and accrued $ 7,543 $ 6,956 liabilities Borrowings 12,364 12,342 Deferred income taxes 902 743 Unearned royalty and other advances 1,076 1,179 Stockholders' equity Preferred stock, $.01 par value Authorized - 100 million shares Issued - none Common stock, $.01 par value Authorized - 1.2 billion shares Issued - 683 million shares and 682 8,623 8,576 million shares Retained earnings 8,607 7,933 Cumulative translation and other adjustments 27 39 Less treasury shares, at cost - 8 (465) (462) million shares -------- --------- 16,792 16,086 -------- --------- $ 38,677 $ 37,306 -------- --------- -------- ---------
See Notes to Condensed Consolidated Financial Statements THE WALT DISNEY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS In millions (unaudited)
Three Months Ended December 31 --------------------------- 1996 1995 ----------- ----------- NET INCOME $ 749 $ 496 -------- -------- OPERATING ITEMS NOT REQUIRING CASH OUTLAYS Amortization of film and television costs 1,159 441 Depreciation 174 159 Amortization of intangibles 114 - Gain on sale of KCAL (135) - Other 29 11 CHANGES IN Investments in trading securities - 41 Receivables (813) (623) Inventories 143 40 Other assets (108) (7) Accounts and taxes payable and accrued 615 323 liabilities Deferred income taxes 161 79 Unearned royalty and other advances (103) 9 -------- -------- 1,236 473 -------- -------- CASH PROVIDED BY OPERATIONS 1,985 969 -------- -------- INVESTING ACTIVITIES Film and television costs (1,427) (639) Investments in theme parks, resorts and (424) (375) other property Proceeds from sale of investments 8 228 Proceeds from sale of KCAL 377 - Other (44) (10) -------- -------- (1,510) (796) -------- -------- FINANCING ACTIVITIES Borrowings 439 - Proceeds from formation of REIT 842 - Reduction of borrowings (1,270) (219) Dividends (75) (47) Other 18 13 -------- ------- (46) (253) -------- ------- Increase (Decrease) in Cash and Cash Equivalents 429 (80) Cash and Cash Equivalents, Beginning of Period 278 1,077 -------- ------- Cash and Cash Equivalents, End of Period $ 707 $ 997 -------- ------- -------- -------
See Notes to Condensed Consolidated Financial Statements THE WALT DISNEY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these condensed consolidated financial statements. Operating results for the quarter are not necessarily indicative of the results that may be expected for the year ending September 30, 1997. Certain reclassifications have been made in the 1996 financial statements to conform to the 1997 presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1996. 2. The Company sold KCAL, a Los Angeles television station, for $387 million in cash on November 22, 1996, resulting in a pre-tax gain of $135 million. A trust has retained $10 million of the sales price to cover certain contingencies, and will remit any unutilized amount to the Company. 3. During the quarter, the Company established a real estate investment trust (REIT) and issued equity interests in the REIT to third-party investors in exchange for $842 million. The Company also received proceeds of approximately $439 million through other financing arrangements with effective interest rates ranging from 4.4% to 5.4% and maturities in fiscal 2000 through fiscal 2012. Certain of these financing arrangements are denominated in foreign currencies for which the Company has entered into cross-currency swap agreements effectively converting these obligations into U.S. dollar denominated LIBOR-based variable rate debt instruments. The proceeds from these transactions were used to retire commercial paper borrowings. Commercial paper outstanding as of December 31, 1996 totaled $3 billion with maturities of up to one year and an average interest rate of 5.4%. The outstanding commercial paper borrowings are supported by bank facilities totaling $5 billion, which expire in one to five years and allow for borrowings at various maturities. Notes to Condensed Consolidated Financial Statements (continued) During February 1997, the Company received $752 million from various other financing transactions. These proceeds were also used to retire commercial paper borrowings. 4. Dividends per share for the quarters ended December 31, 1996 and 1995 were $0.11 and $0.09, respectively. 5. The unaudited pro forma information below for the quarter ended December 31, 1995 presents combined results of operations as if the Company's prior-year acquisition of Capital Cities/ABC, Inc. had occurred at the beginning of such period. The unaudited pro forma information is not necessarily indicative of the results of operations of the combined company had the acquisition occurred at the beginning of such period.
(in millions, except per share data) Quarter Ended December 31, 1995 ------------------------- Revenues $5,893 Net income 565 Earnings per share 0.82
The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations SEASONALITY The Company's businesses are subject to the effects of seasonality. Consequently, the operating results for the quarter ended December 31, 1996 for each line of business, and for the Company as a whole, are not necessarily indicative of results for the full year. Creative Content revenues fluctuate based upon the timing of theatrical and home video releases and seasonal consumer purchasing behavior. Release dates for theatrical product are determined by several factors, including timing of vacation and holiday periods and competition in the market. Broadcasting revenues are influenced by advertiser demand and the seasonal nature of programming, and generally peak in the spring and fall. Theme Parks and Resorts revenues fluctuate with changes in theme park attendance and resort occupancy resulting from the nature of vacation travel. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring holiday periods. RESULTS OF OPERATIONS For the Quarter Ended December 31, 1996 On February 9, 1996, the Company acquired Capital Cities/ABC, Inc. ("ABC"). The Company's results of operations have incorporated ABC's activity since that date. To enhance comparability, certain information for the quarter ended December 31, 1995 has been presented on a "pro forma" basis and reflects the acquisition of ABC as though it had occurred at the beginning of such period. The Company believes prior-year pro forma results provide more meaningful information for comparing net income, changes in net income and earnings trends, as the pro forma presentation includes the results of the Company and its acquired ABC operations for the quarter. Accordingly, the discussion of fiscal 1997 results below reflects comparisons to the Company's pro forma fiscal 1996 operating results. The pro forma results are not necessarily indicative of the combined results that would have occurred had the acquisition actually occurred at the beginning of such period. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The Company's fiscal 1997 as reported results and fiscal 1996 pro forma amounts reflect the impacts of the acquisition including the use of purchase accounting as well as significant increases in amortization of intangible assets, interest expense, the effective income tax rate and shares outstanding resulting from the acquisition. Consolidated Results
For the Quarter Ended December 31, (unaudited; in millions, except per share data) 1995 % 1995 1996 (Pro forma) Change (As reported) ---- ----------- ------ ----------- Revenues $6,278 $5,893 7% $3,837 Costs and Expenses (4,851) (4,700) (3)% (2,974) Gain on Sale of KCAL 135 - n/m - --- -- -- Operating Income 1,562 1,193 31% 863 Corporate Activities and Other (90) (24) n/m (86) Net Interest Expense (171) (167) (2)% (13) ---- ---- --- Income Before Income Taxes 1,301 1,002 30% 764 Income Taxes (552) (437) (26)% (268) ---- ---- ---- Net Income $ 749 $ 565 33% $ 496 === === === Net Income Excluding KCAL Gain $ 669 $ 565 18% $ 496 === === === Earnings Per Share $ 1.09 $ 0.82 33% $ 0.93 ==== ==== ==== Earnings Per Share Excluding KCAL Gain $ 0.98 $ 0.82 20% $ 0.93 ====== ====== ====== Amortization of Intangible Assets Included in Operating Income $ 114 $ 114 - ===== =====
Net income for the quarter increased 33% to $749 million. These results were driven by increased operating income in all business segments, including a gain of $135 million from the sale of KCAL, a Los Angeles television station. Earnings per share increased 33% to $1.09. Excluding the gain on the sale of KCAL, operating income increased 20% to $1.4 billion, net income increased 18% to $669 million, and earnings per share increased 20% to $0.98. Corporate Activities and Other was impacted by certain non-recurring items in both the current and prior-year quarters. The current quarter reflects a severance payment to a former senior executive and the prior-year quarter reflects certain gains at ABC, primarily related to the sale of an investment in a cellular communications company. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Business Segment Results
For the Quarter Ended December 31, (Unaudited; in millions) 1995 1995 1996 (Pro forma) %Change As reported) ---- --------- ------- ------------ Revenues: Creative Content $3,235 $3,076 5% $2,720 Broadcasting 1,893 1,823 4% 123 Theme Parks & Resorts 1,150 994 16% 994 ----- --- --- Total $6,278 $5,893 7% $3,837 ===== ===== ===== Operating Income: (1) Creative Content $ 719 $ 656 10% $ 649 Broadcasting 470 341 38% 18 Theme Parks & Resorts 238 196 21% 196 --- --- --- 1,427 1,193 20% 863 Gain on Sale of KCAL 135 - n/m - --- --- --- Total $ 1,562 $ 1,193 31% $ 863 ===== ===== === (1) Includes depreciation and amortization (excluding film costs) of: Creative Content $ 50 $ 46 Broadcasting 133 131 Theme Parks & Resorts 97 83 --- --- $ 280 $ 260 === ===
Creative Content Revenues increased 5% or $159 million to $3.2 billion, driven by growth of $94 million in the Disney Stores, $73 million in character merchandise licensing and $39 million in home video, partially offset by reductions in television distribution revenues of $34 million and theatrical revenues of $27 million. Growth at the Disney Stores reflects an increase in comparable store sales of 2% driven by strong domestic holiday sales, and a revenue increase of $87 million due to continued worldwide expansion. During the quarter, the Company opened 30 new stores, bringing the total number of stores to 560. Character merchandise licensing reflects the strength of film and television properties domestically including 101 Dalmatians, Toy Story, Winnie the Pooh and The Hunchback of Notre Dame and standard characters internationally. Home video revenues reflect the worldwide release of Toy Story and the international success of Pocahontas. Television distribution revenues declined due to a greater number of titles in domestic pay television in the prior year. The decline in theatrical revenues reflects a greater number of theatrical releases in the prior year including the success of Toy Story domestically and Pocahontas internationally, partially offset by the box office successes The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Creative Content (continued) in the current year of Ransom, 101 Dalmatians and The English Patient domestically and The Hunchback of Notre Dame internationally. Operating income increased 10% or $63 million to $719 million, reflecting improved results for character merchandise licensing, the Disney Stores, and theatrical distribution, partially offset by a reduction in home video results which faced difficult comparisons due to the prior year success of Cinderella domestically and The Lion King internationally. Costs and expenses, which consist primarily of production cost amortization, distribution and selling expenses, product cost, labor and occupancy, increased 4% or $96 million. The increase is primarily due to the expansion of the Disney Stores and increases in and production cost amortization and participation expense in the home video markets, partially offset by decreases in distribution expenses and amortization of production costs in the theatrical markets. Broadcasting Revenues increased 4% or $70 million to $1.9 billion, primarily driven by a $63 million increase in revenues at ESPN and The Disney Channel and an increase of $18 million at the television stations. The revenue growth at ESPN was due primarily to higher advertising revenues and affiliate fees resulting from continued growth and improved advertising and subscriber rates. The revenue increase at the television stations was due primarily to increased political advertising. These increases were partially offset by a $13 million decrease in revenues at the television network, primarily due to lower ratings. Excluding the gain on the sale of KCAL, operating income increased 38% or $129 million to $470 million, reflecting revenue increases at ESPN, The Disney Channel, and the television stations, and decreased costs and expenses at the television network. Costs and expenses, which consist primarily of programming, selling, general and administrative costs decreased 4% or $59 million. This decrease reflected reduced program amortization at the television network, primarily attributable to the acquisition, partially offset by increased program rights and production costs driven by growth at ESPN. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Theme Parks and Resorts Revenues increased 16% or $156 million to $1.2 billion, driven by the Walt Disney World Resort, which had growth of $69 million from higher guest spending, $36 million due to record attendance and $17 million from increased occupied room nights. Guest spending growth included $23 million at the Disney Village Marketplace, most of which was attributable to the October 1996 opening of the World of Disney, the world's largest Disney retail outlet. The remaining growth in guest spending resulted from pricing and improved market penetration in merchandise and food and beverage sales. Attendance gains were driven by increased domestic tourist visitation primarily attributable to the resort's 25th Anniversary celebration. Increased occupied room nights reflected higher occupancy, as well as more available rooms resulting from the opening of Disney's BoardWalk Resort during the fourth quarter of the prior year. Disneyland's revenue grew by $14 million, reflecting higher guest spending. Operating income increased 21% or $42 million to $238 million, reflecting the impact of higher attendance and guest spending. Costs and expenses, which consist principally of labor, costs of merchandise, food and beverages sold, depreciation, repairs and maintenance, entertainment, and marketing and sales expenses, increased 14% or $114 million. The increase was primarily due to higher operating costs resulting from increased attendance and resort expansion, increased marketing and sales efforts including those related to the Walt Disney World Resort's 25th Anniversary celebration, and increased merchandise costs due to higher guest spending levels. FINANCIAL CONDITION For the quarter ended December 31, 1996, cash provided by operations increased $1.0 billion to $2.0 billion, which includes the impact of the ABC acquisition. Borrowings increased $22 million to $12.4 billion. During the quarter, the Company received $1.3 billion from new borrowings and the formation of a real estate investment trust, which was used to repay commercial paper borrowings. Commercial paper borrowings outstanding as of December 31, 1996 totaled $3 billion with maturities of up to one year, and are supported by bank facilities totaling $5 billion, which expire in one to five years and allow for borrowings at various interest rates. The Company continues to replace some of the remaining commercial paper with longer-term financing and may utilize, among other options, a U.S. shelf registration statement filed in March 1996 and a Euro Medium-Term Note Program established in June 1996, which collectively will permit the future issuance of up to approximately $3.3 billion of additional debt. The Walt Disney Company Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) FINANCIAL CONDITION (continued) During the quarter, the Company invested $1.4 billion to produce and acquire film and television properties. These costs are higher than the prior-year quarter due primarily to the inclusion in fiscal 1997 of spending at the acquired ABC operations. The Company expects the ABC Television Network, ESPN and the Company's television and radio stations to continue to enter into programming commitments to purchase the broadcast rights for various feature films, sports and other programming. Total commitments to purchase broadcast programming approximated $3.9 billion at December 31, 1996. Substantially all of this amount is payable over the next five years. The Company announced in January 1997 it was beginning to explore strategic options with respect to the publishing operations obtained in the ABC acquisition. Those options could include selling the publishing operations in whole or part, distributing the operations to the Company's shareholders or retaining the operations. The Company believes that its financial condition is strong and that its cash, other liquid assets, operating cash flows, access to equity capital markets and borrowing capacity, taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects. PART II. OTHER INFORMATION THE WALT DISNEY COMPANY Item 4. Submission of Matters to a Vote of Security Holders None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Agreement, dated as of December 27, 1996, between registrant and Michael S. Ovitz. 10.2 Employment agreement, dated as of January 8, 1997, between registrant and Michael D. Eisner. (b) Reports on Form 8-K None THE WALT DISNEY COMPANY SIGNATURE 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. THE WALT DISNEY COMPANY (Registrant) By /s/ Richard D. Nanula Richard D. Nanula Senior Executive Vice President and Chief Financial Officer February 14, 1997 Burbank, California EX-27 2
5 This schedule contains summary financial information extracted from the condensed consolidated balance sheet and condensed consolidated statement of income found on the Company's Form 10-Q for the three months ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000,000 U.S. DOLLARS 3-MOS SEP-30-1996 OCT-01-1996 DEC-31-1996 1 707 483 4,131 0 808 0 12,834 4,564 38,677 0 12,364 0 0 8,623 8,169 38,677 6,278 6,278 0 4,716 90 0 179 1,301 552 749 0 0 0 749 1.09 1.09
EX-10.1 3 December 27, 1996 Mr. Michael Ovitz c/o Robert L. Adler, Esq. Munger, Tolles & Olson 355 S. Grand Avenue, 35th Floor Los Angeles, California 90071 Dear Michael: Reference is made to my letter to you dated December 12, 1996. By our mutual agreement this letter will supersede and replace my prior letter. This will confirm the terms of your agreement with the Company as follows: 1. The Term of your employment under your existing Employment Agreement with The Walt Disney Company will end at the close of business today. Consequently, your signature confirms the end of your service as an officer, and your resignation as a director, of the Company and its affiliates. 2. This letter will for all purposes of the Employment Agreement be treated as a "Non-Fault Termination." By our mutual agreement, the total amount payable to you under your Employment Agreement, including the amount payable under Section 11(c) in the event of a "Non-Fault Termination," is $38,888,230.77, net of withholding required by law or authorized by you. By your signature on this letter, you acknowledge receipt of all but $1,000,000 of such amount. Pursuant to our mutual agreement, this will confirm that payment of the $1,000,000 balance has been deferred until February 5, 1997, pending final settlement of accounts. 3. This letter will further confirm that the option to purchase 3,000,000 shares of the Company's Common Stock granted to you pursuant to Option A described in your Employment Agreement will vest as of today and will expire in accordance with its terms on September 30, 2002. Please confirm your agreement to the foregoing by countersigning below. Sincerely, /s/ Sanford M. Litvack Sanford M. Litvack AGREED: /s/ Michael Ovitz Michael Ovitz GENERAL RELEASE THIS GENERAL RELEASE (this "Release") is executed as of December 27, 1996, by the undersigned Releasor in favor of The Walt Disney Company, a Delaware corporation (the "Company"), and the other Releasees referred to herein, in connection with the following: A. Releasor and the Company are parties to an Employment Agreement dated as of October 1, 1995 (the "Employment Agreement"). B. Simultaneously with the execution and delivery of this Release, the Company and Releasor are executing and delivering a letter agreement (the "Letter Agreement") that ends the employment Term set forth in the Employment Agreement and that treats the Letter Agreement and the ending of such Term as a "Non-Fault Termination" under the Employment Agreement. C. Pursuant to the terms of the Letter Agreement and the Employment Agreement, the Company has: (i) paid to Releasor the sum called for by the Letter Agreement, except for the sum of $1,000,000 which has been deferred in accordance with the terms of the Letter Agreement (the "Deferred Amount"), (ii) vested the option to purchase 3,000,000 shares of the Company's Common Stock granted to Releasor pursuant to Option A described in the Employment Agreement (the "Option"), and (iii) confirmed that such Option will expire in accordance with its terms on September 30, 2002. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by Releasor, the undersigned Releasor hereby agrees as follows: 1. Release. Except as expressly set forth below, Releasor hereby releases, remises, acquits and forever discharges (a) the Company, (b) each of the Company's parents, subsidiaries, affiliated companies, divisions, predecessors, successors and assigns, (c) each of the foregoing's officers, directors, representatives, employees, agents and shareholders in their respective capacities as such, and (d) all persons acting by, through, under or in concert with any of them (all of the persons and entities referred to above being collectively referred to as the "Releasees"), from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs actually incurred) of any nature whatsoever, known or unknown, suspected or unsuspected, including but not limited to, rights arising out of alleged violations of any contracts, express or implied, any covenant of good faith and fair dealing, express or implied, or any tort or any legal restrictions related to the end of Releasor's employment by the Company, or any Federal, state or other governmental statute, regulation or ordinance, including, without limitation, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, and the California Fair Employment and Housing Act (each of the foregoing being referred to individually as a "Claim" and collectively as "Claims"), that Releasor now has, or has ever had, or ever will have, against each or any of the Releasees, by reason of any and all acts, omissions, events, circumstances or facts existing or occurring up to the date hereof. With respect to Claims that are released under this Paragraph 1, Releasor represents that he has not filed any complaints or charges or lawsuits of any kind whatsoever against any of the Releasees with any governmental agency or any court and further represents and agrees that he will not do so at any time hereafter. Without limiting the generality of the foregoing, Releasor acknowledges that, except for matters that are expressly excluded below from the release set forth herein, the payments called for by the Letter Agreement, the vesting of the Option, and the exercisability of the Option through September 30, 2002 in accordance with, and subject to, its terms and the stock option plan pursuant to which it was granted, are in lieu of and in full and final discharge of any obligations to Releasor for compensation, salary, bonus, vacation pay, floating holidays, severance payments, or any other expectations of payment, remuneration, or continued coverage or benefit of any nature for or in favor of Releasor arising out of or in connection with his employment with the Company, or under any agreement, arrangement, commitment, plan, program, practice or policy of the Company or any affiliate thereof or otherwise. 2. Scope of Release. Except for those matters that are expressly excluded from the Release set forth herein, this Release is intended as a release of all Claims that the Releasor may have against the Releasees or any of them, whether now known or unknown. In furtherance thereof, the Releasor expressly waives and relinquishes all rights and benefits afforded by California Civil Code Section 1542 and does so understanding and acknowledging the significance of such specific waiver of Section 1542. Section 1542 states as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." Thus, notwithstanding the provisions of Section 1542, and for the purposes of implementing a full and complete release and discharge of the Releasees, Releasor expressly acknowledges that this Release is intended to include in its effect, without limitation, all Claims that Releasor does not know or suspect to exist in Releasor's favor at the time of execution hereof, and this Release contemplates the extinguishment of any such Claim or Claims except to the extent expressly set forth herein. 3. Age Discrimination Claims. Releasor hereby acknowledges that insofar as the Claims that are the subject of release include any Claim arising under the federal Age Discrimination Act of 1967, as amended ("Age Discrimination Claim"), the following terms apply: a. Releasor has been advised in writing to consult with an attorney prior to agreeing to and signing this Release. b. Releasor has been advised that he has a period of 21 days within which to consider the terms of this Release prior to signing this Release; however, Releasor may voluntarily choose to sign prior to the end of the 21-day period. c. Releasor has been advised that he has a period of 7 days immediately following his signing of this Release (the "Revocation Period") in which to revoke this entire Release and that any such revocation must be in writing, signed by Releasor, and hand delivered during the revocation period to the Senior Vice President and Chief of Corporate Operations of the Company. d. In furtherance of the foregoing and notwithstanding any other provision hereof, Releasor agrees not to exercise all or any part of the Option for a period of eight (8) days following Releasor's execution of this Release. If Releasor chooses to exercise his right during the Revocation Period to revoke this Release, then, in order to place the Company and Releasor in the positions they were in prior to the Letter Agreement, Releasor shall, within 24 hours of the revocation, return to the Company all amounts paid to Releasor pursuant to the Letter Agreement and any other benefits whatsoever conferred upon Releasor in the Letter Agreement, including the vesting of the Option referred to therein. Releasor shall take all reasonably required steps, including execution of such documents as may be required by the Company, to effectuate such return of payments and other consideration. Upon such timely return of such payments and other consideration, Releasor shall reserve whatever rights and claims he held prior to the Letter Agreement and this Release. However, in the event that Releasor fails or refuses, following revocation during the Revocation Period, to effect a timely and complete return of all such payments and other consideration to the Company, then the Option shall expire, lapse and become non-exercisable, notwithstanding any of the provisions of the Employment Agreement, the Letter Agreement, the stock option agreement evidencing the Option or the stock option plan pursuant to which the Option was granted. 4. Exclusions. Notwithstanding the foregoing, nothing in this Release shall operate, or shall be construed or interpreted, as a release, acquittal, discharge or waiver of any of the following, and none of the following shall be included in the Claims that are the subject of this Release: a. Such rights of Releasor as are unconditionally vested in him as of the date hereof under the terms of any (i) applicable employee pension plan of the Company to which Releasor may be subject, or (ii) any other applicable employee welfare benefit plans of the Company or its affiliates, Releasor hereby acknowledging that all such rights referred to in clauses (i) and (ii) shall be provided only in accordance with, and subject to, the terms and provisions of the relevant plans as in effect from time to time which are applicable to Releasor. b. The right of Releasor and his dependents to the continuation of health care coverage as is required under, and subject to, applicable law, of which Releasor understands he will be notified after the date hereof, Releasor hereby acknowledging that such rights are subject to Releasor's timely exercise and that all payments for any such continued health care coverage will be paid by him. c. Releasor's right to the return of any tangible personal property of his that is currently in the possession of the Company, Releasor acknowledging that nothing herein or in the documents referred to herein has waived or limited the Company's right to the return from Releasor of tangible personal property of the Company that is in Releasor's possession, all of which tangible personal property shall be returned to the Company or the Releasor, as the case may be, as soon as reasonably practicable, but in no event later than January 29, 1997. d. Releasor's right to reimbursement of business expenses incurred through the date hereof, in accordance with and subject to the terms of Section 7 of the Employment Agreement, including requests for reimbursement submitted prior to or after the date hereof, provided that in order for a request to be eligible for reimbursement it must be submitted on or before January 29, 1997, and provided further that requests for reimbursement of bills actually received by Releasor prior to September 30, 1996 must be submitted prior to the date hereof. e. Any right which Releasor now has or may have to claim indemnity (including advancement of expenses) for liabilities in connection with his activities as a director, officer or employee of the Company pursuant to the terms of any applicable statute, under any insurance policy, pursuant to the certificate of incorporation or bylaws of any Releasee, or pursuant to the terms of any applicable indemnification agreement to which Releasor and the Company or any affiliate of the Company are or have been parties. f. Except as provided in Paragraph 3 above, any right of Releasor, whether arising under the Employment Agreement, the Letter Agreement, the Stock Option Agreement of the Company with respect to the Option, any stock option plan of the Company, or otherwise, in respect of the grant, issuance, validity, enforceability, vesting, or exercise of the Option, or the entitlement of the Releasor to Common Stock of the Company upon the exercise of all or any portion of the Option in accordance with and subject to its terms, up to its date of expiration on September 30, 2002. g. Any Claim of entitlement by Releasor to the Deferred Amount. 5. General. Releasor hereby confirms that: (a) Releasor's execution of this Release is a material inducement to the Company's entering into the Letter Agreement and making the payments at the time called for therein; (b) Releasor has had the opportunity to consult, and has in fact consulted with, legal counsel concerning this Release; (c) except for the provisions of this Release and agreements between the Releasor and the Company referred to in this Release, no statements, representations or promises have been made to Releasor, or relied upon by Releasor, in executing this Release; (d) notwithstanding any other term or provision hereof or of the Letter Agreement, Sections 8(b) and 19 of the Employment Agreement and any provisions of the Employment Agreement that are expressly designated therein to survive the expiration or earlier termination of the Term of employment shall remain in full force and effect in accordance with their terms; and (e) this Release shall be governed by the laws of the State of California without giving effect to conflicts of law principles. IN WITNESS WHEREOF, Releasor has executed this Release as of the day and year first above written. /s/ Michael S. Ovitz Michael S. Ovitz EX-10.2 4 EMPLOYMENT AGREEMENT BETWEEN THE WALT DISNEY COMPANY AND MICHAEL D. EISNER Michael D. Eisner ("Executive") and The Walt Disney Company, a Delaware corporation ("Company"), hereby agree as follows: 1. Term The term of this Agreement shall commence on January 8, 1997 and shall terminate on September 30, 2006. 2. Duties Executive shall be employed by Company as its Chairman and Chief Executive Officer. Executive shall report directly and solely to the Company's Board of Directors ("Board"). Executive shall devote his full time and best efforts to the Company. Company agrees to nominate Executive for election to the Board as a member of the management slate at each annual meeting of stockholders during his employment hereunder at which Executive's director class comes up for election. Executive agrees to serve on the Board if elected. 3. Salary Executive shall receive an annual base salary of $750,000. The Board, in its discretion, may increase the base salary based upon relevant circumstances. 4. Bonus (a) Executive shall, as provided in, and subject to, Sections 4(e) and 4(f) below, receive an incentive bonus for Company's fiscal years ending September 30, 1997 and September 30, 1998, pursuant to Company's 1997 Cash Bonus Performance Plan for Executive Officers (the "Executive Cash Bonus Performance Plan"), which plan shall be submitted to the shareholders of Company as provided in Section 4(f) hereof. (b) Executive shall, as provided in, and subject to, Sections 4(c),4(e) and 4(f) below, receive an incentive bonus for each fiscal year of Company which shall end after September 30, 1998 and on or before the termination of this Agreement and for such additional periods as are provided in Section 4(e) below, in an amount determined in accordance with the bonus formula set forth on Exhibit 1 hereto. Such bonus formula shall be submitted to the shareholders of Company as provided in Section 4(f) hereof. (c) Both parties acknowledge that the bonus formula set forth on Exhibit A hereto may produce inequitable results in the future, particularly since the contract covers an extended period of time and the Company has grown very large with worldwide activities in a very dynamic industry. Combination with another company, capital restructuring, material changes in accounting rules or tax laws, severe or prolonged recession or inflation and other circumstances, both intrinsic and extrinsic to Company operations and/or the applicability of the formula could create such inequitable results and materially frustrate the intent of the bonus formula. In the event that the parties shall agree that circumstances have occurred which make such bonus formula unfair and inequitable, the parties will, at the request of either party, negotiate a substitute formula which will provide a fair and realistic incentive under the then current and anticipated circumstances and, in general, yield an equitable and comparable result. Upon completion of such negotiations, this Agreement shall be terminated and the parties shall enter into a new agreement which shall replace such bonus formula with a substitute formula and which shall otherwise be substantially identical to this Agreement. If the parties cannot agree upon such substitute formula, or if the parties cannot agree as to whether or not circumstances exist which would give rise to the right of either party to request negotiation pursuant to the foregoing, the parties shall submit such matter to arbitration by a qualified individual with expertise and at least ten years experience in the field of executive compensation. Said individual shall not have had dealings with either party during the preceding five years. Upon failure to agree upon the selection of the arbitrator, each party shall submit a panel of five qualified arbitrators, the other party may strike three from the other's list, and the arbitrator shall be selected by lot from the remaining four names. The arbitrator shall have the authority only to determine (i) whether circumstances described above have occurred so as to make the matter arbitrable and (ii) the substitute formula that will provide a fair and realistic incentive and yield an equitable and comparable result in accordance with the foregoing. After such determination shall have been made by the arbitrator, this Agreement shall be terminated and the parties shall enter into a new agreement which shall be substantially identical to this Agreement except for the substitute formula which will replace the bonus formula set forth on Exhibit A hereto. In all cases hereunder, Company shall be permitted to seek shareholder approval or take such other steps as are reasonably necessary to claim the deductibility by Company of any compensation paid to Executive pursuant to any substitute formula hereunder. Notwithstanding any other term or provision hereof, the implementation of any substitute formula hereunder shall be effectuated on a prospective basis only (i.e., such substitute formula shall not be applicable to any year as to which the applicable deadline under any Federal tax law relating to deductibility of taxes by Company for the establishment of a performance-based compensation plan shall have passed). (d) Each incentive bonus shall be payable (i) 30 days following the date Company's audited consolidated statement of income for the applicable fiscal year becomes available or (ii) on the January 2 following the end of that fiscal year, whichever is later (the "Bonus Payment Date"). (e) Executive shall be entitled to receive the bonus provided for in paragraph (a) or paragraph (b) above, as the case may be, for each fiscal year during which he is employed hereunder and, in addition, for the next twenty-four months following the fiscal year during which Executive's employment is terminated hereunder, except that said post-termination bonus coverage (i) shall only extend for twelve months after termination if Executive takes employment (other than as an independent producer) with another major entertainment company within twelve months of termination and (ii) shall not apply if this Agreement is terminated for good cause. The bonus provided for in Section 4(a) above shall be applicable to any part or all of any period prior to October 1, 1998 in respect of which a post-termination bonus is payable, and the bonus formula set forth on Exhibit 1 hereto above shall be applicable to any part or all of any period after September 30, 1998 in respect of which a post-termination bonus is payable. If the bonus formula set forth on Exhibit 1 is used to determine a post-termination bonus for fiscal 2007 or 2008, the Bonus Percentage (as defined in Exhibit 1 hereto) shall be .35 for fiscal 2007 and .30 for fiscal 2008; the payment of any bonus or bonuses for fiscal 2007 and 2008 in accordance with the foregoing shall be made no earlier than thirty days following the date upon which such payment is no longer subject to Section 162(m) of the Internal Revenue Code. If such bonus formula shall no longer be applicable pursuant to Section 4(f)(1) hereof, the post-termination bonuses shall be determined in accordance with Section 4(f)(1) and paid during the time period applicable to payments made pursuant to such bonus formula; provided, however, that any bonus payable in respect of either the first or second twelve-month period of such twenty-four month period shall not be less than the average of the total bonuses paid to Executive hereunder in respect of the two fiscal years immediately prior to the fiscal year in which termination of Executive's employment occurs. All bonus payments hereunder shall be in cash. (f) The bonus formula set forth on Exhibit 1 shall be submitted to the shareholders of Company, together with the Executive Cash Bonus Performance Plan, at Company's annual shareholders meeting to be held in 1997. In the event that the Executive Cash Bonus Performance Plan is not approved by the shareholders, this Agreement shall remain in effect, subject to the provisions of this Section 4(f) set forth below, and Executive's bonuses for fiscal years 1997 and 1998 shall be determined in a manner consistent with the way the Company shall determine bonuses for all other executives of the Company subject to Section 162(m) of the Internal Revenue Code. In the event that the bonus formula set forth on Exhibit 1 is not approved by shareholders at such meeting, Company and Executive shall, for a period of thirty (30) days following such shareholders meeting, use their best efforts to negotiate a bonus formula to substitute for such disapproved formula, and if such substitute formula is agreed upon, it shall be submitted to the shareholders of Company for approval at Company's 1998 annual shareholders meeting. If no agreement is reached by Company and Executive during such thirty-day period, or if shareholder approval of any such agreement is not obtained at Company's 1998 shareholders meeting, all of the terms and provisions of this Agreement shall remain in full force and effect except that, notwithstanding any other term or provision hereof: (1) The bonus formula set forth on Exhibit 1 hereto shall be of no force or effect and Executive's annual bonuses hereunder for fiscal years of Company ending on or after September 30, 1999 shall be determined at the discretion of the Board of Directors of Company and may not comply with Section 162(m) of the Internal Revenue Code; and (2) Executive may terminate this Agreement and his employment hereunder by delivering to Company, at any time on or after October 1, 1998, written notice setting forth a date of termination of this Agreement which shall be at least twelve months later than the date upon which such notice is delivered to Company. 5. Stock Options (a) In connection with this Agreement Executive has been granted stock options on September 30, 1996, to purchase (i) 5,000,000 shares of Company common stock having an exercise price equal to the per share fair market value (determined in accordance with the applicable provisions of the Company's 1995 Stock Incentive Plan (the "Plan")) of Company common stock on September 30, 1996 (the "A Options") and (ii) 3,000,000 shares of Company common stock of which 1,000,000 shall have an exercise price equal to 125% of the per share fair market value of the Company common stock on such date ("Group 1"), 1,000,000 shall have an exercise price equal to 150% of the per share fair market value of the Company common stock on such date ("Group 2"), and 1,000,000 shall have an exercise price equal to 200% of the per share fair market value of the Company common stock on such date ("Group 3") ("Groups 1, 2 and 3 are collectively referred to herein as the B Options"). The A Option shall vest on September 30, 2003. Group 1 of the B Options shall vest on September 30, 2004. Group 2 of the B Options shall vest on September 30, 2005. Group 3 of the B Options shall vest on September 30, 2006. The A Option shall expire on September 30, 2008, and the B Options shall expire on September 30, 2011. Such options shall be subject to, and governed by, the terms and provisions of the Plan except to the extent of modifications of such options which are permitted by the Plan and which are expressly provided for in this Agreement. (b) In accordance with the Plan, Executive will enter into a stock option agreement with Company containing the terms and provisions of such options set forth herein together with such other terms and conditions as counsel for the Company requires to assure compliance with applicable federal or state law and stock exchange requirements in connection with the issuance of shares of Company common stock upon exercise of options to be granted as provided herein, or as may be required to comply with the Plan. (c) If Company has not already done so, Company shall register Executive's shares pursuant to the appropriate form of registration statement under the Securities Act of 1933 and shall maintain such registration statement's effectiveness at all required times. (d) Company shall, to the extent permitted by law, make loans to Executive in reasonable amounts on reasonable terms and conditions during his employment by Company to facilitate the exercise of the options granted to him as described above. 6. Benefits Executive shall be entitled to receive all benefits generally made available to executives of Company. In addition, Company shall provide a death benefit to Executive's estate having an after-tax value of $3,000,000 in the event of Executive's death during the term hereof. 7. Reimbursement for Expenses Executive shall be expected to incur various business expenses customarily incurred by persons holding like positions, including but not limited to traveling, entertainment and similar expenses incurred for the benefit of Company. Subject to Company's policy regarding the reimbursement of such expenses (which does not necessarily provide for reimbursement of all such expenses), Company shall reimburse Executive for such expenses from time to time, at Executive's request, and Executive shall account to Company for such expenses. 8. Protection of Company's Interests (a) During the term of this Agreement Executive shall not directly or indirectly engage in competition with, or own any interest in any business which competes with, any business of Company or any of its subsidiaries; provided, however, that the provisions of this Section 8 shall not prohibit his ownership of not more than 5% of voting stock of any publicly held corporation. (b) Except for actions taken in the course of his employment hereunder, at no time shall Executive divulge, furnish or make accessible to any person any information of a confidential or proprietary nature obtained by him while in the employ of Company. Upon termination of his employment by Company, Executive shall return to the Company all such information which exists in written or other physical form and all copies thereof in his possession or under his control. (c) Company and its successors and assigns shall, in addition to Executive's services, be entitled to receive and own all of the results and proceeds of said services (including, without limitation, literary material and other intellectual property) produced or created during the term of Executive's employment hereunder except with respect to any book or writing autobiographical in nature. Executive will, at the request of Company, execute such assignments, certificates or other instruments as Company may from time to time deem necessary or desirable to evidence, establish, maintain, protect, enforce or defend its right or title in or to any such material. (d) Executive recognizes that the services to be rendered by him hereunder are of a character giving them peculiar value, the loss of which cannot be adequately compensated for in damages, and in the event of a breach of this Agreement by Executive, Company shall be entitled to equitable relief by way of injunction or any other legal or equitable remedies. 9. Termination by Company (a) Company shall have the right to terminate this Agreement under the following circumstances: (i) Upon the death of Executive. (ii) Upon notice from Company to Executive in the event of an illness or other disability which has incapacitated him from performing his duties for six consecutive months as determined in good faith by the Board. (iii) For good cause upon notice from Company. Termination by Company of Executive's employment for "good cause" as used in this Agreement shall be limited to gross negligence or malfeasance by Executive in the performance of his duties under this Agreement or the voluntary resignation by Executive as an employee of Company without the prior written consent of Company. (b) If this Agreement is terminated pursuant to Section 9(a) above, Executive's rights and Company's obligations hereunder shall forthwith terminate except as expressly provided in this Agreement. (c) If this Agreement is terminated pursuant to Section 9(a)(i) or (ii) hereof, Executive or his estate shall be entitled to receive a cash payment equal to the present value (based on Company's then current cost of borrowing for the remainder of the term hereof) of his base salary for the balance of the term of this Agreement, payable within 30 days of the date of termination. Executive shall also be entitled to receive the bonus payments provided for in Section 4(e) hereof for the fiscal year in which the termination occurred plus the twenty-four months following such fiscal year. All stock options granted to Executive in accordance with Section 5 hereof shall also immediately vest upon such termination and remain exerciseable until the earlier of the fifth anniversary of the date of such termination or the expiration of such options on the scheduled expiration dates set forth in Section 5(a) hereof. (d) Whenever compensation is payable to Executive hereunder during a time when he is partially or totally disabled and such disability (except for the provisions hereof) would entitle him to disability income or to salary continuation payments from Company according to the terms of any plan now or hereafter provided by Company or according to any Company policy in effect at the time of such disability, the compensation payable to him hereunder shall be inclusive of any such disability income or salary continuation and shall not be in addition thereto. If disability income is payable directly to Executive by an insurance company under an insurance policy paid for by Company, the amounts paid to him by said insurance company shall be considered to be part of the payments to be made by Company to him pursuant to this Section 9, and shall not be in addition thereto. 10. Termination by Executive (a) Executive shall have the right to terminate his employment under this Agreement upon 30 days' notice to Company given within 60 days following the occurrence of any of the following events, each of which shall constitute "good reason" for such termination: (i) Executive is not elected or retained as Chairman and Chief Executive Officer and a director of Company. (ii) Company acts to materially reduce Executive's duties and responsibilities hereunder. Executive's duties and responsibilities shall not be deemed materially reduced for purposes hereof solely by virtue of the fact that Company is (or substantially all of its assets are) sold to, or is combined with, another entity provided that (a) Executive shall continue to have the same duties and responsibilities with respect to Company's business as of January 8, 1997, including but not limited to, entertainment and recreation, broadcasting, cable, direct broadcast satellite, filmed entertainment, consumer products, etc. and (b) Executive shall report directly to the chief executive officer and/or board of directors of the entity (or individual) that acquires Company or its assets. (iii) Company acts to change the geographic location of the performance of Executive's duties from Los Angeles California Metropolitan area. (b) Notwithstanding any other term or provision hereof, in the event that Executive's employment shall terminate pursuant to Section 4(f)(2) hereof, Executive's stock options referred to in Section 5 hereof shall remain exercisable until the earlier of twelve months from the effective date of termination or the scheduled expiration dates of such options set forth in Section 5(a) hereof, and, for the purpose of establishing the period during which vesting may continue to occur with respect to such options (and for no other purpose whatsoever), Executive's employment shall not be deemed to terminate until three months after the effective date of termination of Executive's employment hereunder. In addition, Company's obligation to make the bonus payments required by Section 4(e) hereof in the event of termination pursuant to Section 4(f)(2) hereof in respect of the twenty-four month period following the fiscal year during which termination of Executive's employment hereunder shall occur shall remain in full force and effect, and in no event shall the bonus payable in respect of either the first or second twelve-month period of such twenty-four month period be less than the average of the total bonuses paid to Executive hereunder for the two fiscal years immediately prior the fiscal year in which the effective date of termination shall occur. Except as provided above in this Section 10(b), a termination of this Agreement pursuant to Section 4(f)(2) shall be treated as a voluntary resignation by Executive as an Employee of Company without the prior written consent of Company under Section 9(a)(iii). 11. Consequences of Breach by Company If this Agreement is terminated pursuant to Section 10 hereof, or if Company shall terminate Executive's employment under this Agreement in any other way that is a breach of this Agreement by Company, the following shall apply: (i) Executive shall receive a cash payment equal to the present value (based on Company's then current cost of borrowing for the remainder of the term hereof) of Executive's base salary hereunder for the remainder of the term, payable within 30 days of the date of such termination. (ii) Executive shall be entitled to bonus payments as provided in Section 4 hereof for the remainder of the term hereof plus twenty-four months. (iii) All stock options granted by Company to Executive under the Plan or granted by Company to Executive prior to the date hereof shall accelerate and become immediately exercisable and thereafter remain exercisable until the earlier of the fifth anniversary of the date of such termination or the scheduled expiration dates for such options set forth in Section 5(a) hereof. 12. Post-Termination Consulting Services Upon expiration of this Agreement on September 30, 2006 (i.e., after the completion of the full term of service by Executive hereunder), Executive shall serve as a consultant to Company at a fee to be mutually agreed upon which shall be at least $1.00 per year plus continuation of the same benefits and/or perquisites provided to Executive during his term as Chief Executive Officer of Company, excluding, however, any items which would conflict with any laws, regulations and/or tax qualifications applicable to group health, pension and employee welfare plans of Company and, except as otherwise provided herein with respect to certain specified continuing obligations of Company to Executive, salary, bonuses and/or stock options. The consulting arrangement shall continue until notice is given as provided below following the earlier of: (i) acceptance by Executive of full-time employment with a third party, (ii) the rendering by Executive of any services to a competitor of Company or (iii) Executive's disability for a period of six months which shall render him substantially incapable of performing any consulting services for Company. If notice is given pursuant to clauses (i) and (ii) above, the consulting arrangement shall terminate three business days after the giving of such notice, and if such notice is given pursuant to clause (iii), such termination shall occur three months after the giving of such notice. 13. Remedies Company recognizes that because of Executive's special talents, stature and opportunities in the entertainment industry, and because of the special creative nature of and compensation practices of said industry and the material impact that individual projects can have on an entertainment company's results of operations, in the event of termination by Company hereunder (except under Section 9(a)), or in the event of termination by Executive under Section 10, before the end of the agreed term, Company and Executive acknowledge and agree that the provisions of this Agreement regarding further payments of base salary, bonuses and the exercisability of stock options constitute fair and reasonable provisions for the consequences of such termination, do not constitute a penalty, and such payments and benefits shall not be limited or reduced by amounts Executive might earn or be able to earn from any other employment or ventures during the remainder of the agreed term of this Agreement. 14. Binding Agreement This Agreement shall be binding upon and inure to the benefit of Executive, his heirs, distributees and assigns and Company, its successors and assigns. Executive may not, without the express written permission of the Company, assign or pledge any rights or obligations hereunder to any person, firm or corporation. 15. Amendment; Waiver This Agreement contains the entire agreement of the parties with respect to the employment of Executive by Company and upon execution of this Agreement supersedes, on and as of January 8, 1997, the Employment Agreement dated as of January 10, 1989 between Company and Executive (it being understood, however, that this Agreement shall not affect any stock options granted to Executive by Company prior to the date hereof). No amendment or modification of this Agreement shall be valid unless evidenced by a written instrument executed by the parties hereto. No waiver by either party of any breach by the other party of any provision or condition of this Agreement shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time. 16. Governing Law (a) This Agreement shall be governed by and construed under and in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws; and the laws of that state shall govern all of the rights remedies, liabilities, powers and duties of the parties under this Agreement and of any arbitrator or arbitrators to whom any matter hereunder may be submitted for resolution by the parties hereto, as contemplated by and pursuant to Title 6, Section 2708 of the Delaware Code. (b) Any legal action or proceeding with respect to this Agreement shall be brought exclusively in the federal or state courts of the State of Delaware, and by execution and delivery of this Agreement, Executive and Company irrevocably consent to the jurisdiction of those courts. Executive and Company irrevocably waive any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, which either may now or hereafter have to the bringing of any action or proceeding in such jurisdiction in respect of this Agreement or any transaction related hereto. Executive and Company acknowledge and agree that any service of legal process by mail in the manner provided for notices under this Agreement constitutes proper legal service of process under applicable law in any action or proceeding under or in respect of this Agreement. (c) The parties agree that this Agreement (together with the stock option agreement referred to in Section 5(b) hereof and any other documents or agreements specifically referred to herein) shall constitute the sole and conclusive basis for establishing Executive's compensation for all services provided by him hereunder. 17. Notices All notices which a party is required or may desire to give to the other party under or in connection with this Agreement shall be given in writing by addressing the same to the other party as follows: If to Executive to: Michael D. Eisner 283 Bel Air Road Los Angeles, California 90024 and If to Company, to: The Walt Disney Company 500 South Buena Vista Street Burbank, California 91521 Attn: Senior Executive Vice President and Chief of Operations or at such other place as may be designated in writing by like notice. Any notice shall be deemed to have been given within 48 hours after being addressed as required herein and deposited, first-class postage prepaid, in the United States mail. IN WITNESS WHEREOF, the parties have executed this Agreement on this 8th day of January 1997. THE WALT DISNEY COMPANY /s/ Michael D. Eisner By:_/s/ Raymond L. Watson Michael D. Eisner Name: Raymond L. Watson Title:Chairman of the Executive Committee Bonus Formula The bonus payable pursuant for each applicable fiscal year of the Company shall be the amount of Bonus EPS multiplied by Outstanding Shares with the result multiplied by the Bonus Percentage. In determining such bonus, the following definitions shall apply: (1) "Bonus EPS" shall be the amount by which the EPS for the applicable fiscal year exceeds Threshold EPS. (2) "EPS" means the primary earnings per share of Company as reported in its annual consolidated financial statements after any extraordinary items set forth therein. (3) "Base EPS" shall be the average of the EPS of the Company for the fiscal years 1997 and 1998 (rounded to the nearest cent), but in no event less than $2.75 or more than $3.25 if the average is below or above such figures, respectively. (4) "Threshold EPS" shall be based on a compounded annual growth rate of 7.5% calculated on Base EPS (and rounded to the nearest cent). For fiscal year 1999 it shall be determined by multiplying Base EPS by 1.075. For each succeeding fiscal year it shall be determined by multiplying the previous fiscal year's Threshold EPS by 1.075. (5) "Outstanding Shares" means the number of common shares of the Company outstanding based on the same figures used by the Company in calculating EPS for the applicable fiscal year. (6) The "Bonus Percentage" for each applicable fiscal year shall be the following: Year Percentage Year Percentage 1999 5.75 2003 0.75 2000 2.75 2004 0.55 2001 1.60 2005 0.45 2002 1.10 2006 0.40
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