-----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, VghkMJ93QrE+/zHcOZVhJEdVDPuNfkKjb2qEayUfzqonZMkg6N8IjdyPXWz0iuxR kH0RGTp1BR/dEPweFH/Tvw== 0000904454-98-000184.txt : 19981126 0000904454-98-000184.hdr.sgml : 19981126 ACCESSION NUMBER: 0000904454-98-000184 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KING WORLD PRODUCTIONS INC CENTRAL INDEX KEY: 0000756764 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE DISTRIBUTION [7822] IRS NUMBER: 132565808 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09244 FILM NUMBER: 98759645 BUSINESS ADDRESS: STREET 1: 1700 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2123154000 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended August 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURI- TIES EXCHANGE ACT OF 1934 For transition period from to Commission file number: 1-9244 KING WORLD PRODUCTIONS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-2565808 - ------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12400 Wilshire Boulevard Suite 1200 Los Angeles, California 90025 - ------------------------ ------------ (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: 310-826-1108 ------------ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ----------------------- Common Stock, New York Stock Exchange $.01 par value Securities registered pursuant to Section 12(g) of the Act: None ---------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the Common Stock of the registrant held by non-affiliates as of November 10, 1998 was approximately $ 1.7 billion. As of November 10, 1998, there were 71,553,731 outstanding shares of the registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive proxy statement for its 1999 annual meeting of stockholders (which is to be filed pursuant to Regulation 14A not later than December 29, 1998) is incorporated by reference into Part III of this Form 10-K. PART I Item 1. BUSINESS General King World was founded in 1964 by the late Charles and Lucille King to distribute or syndicate feature length films and television programs to television stations. King World currently distributes programming to approximately 400 television stations in over 200 of the 211 designated television markets in the United States (as defined by A.C. Nielsen Co. ("Nielsen")) and in Canada and a number of other foreign countries directly and through sales agents and subdistributors. Three of Mr. and Mrs. King's children, namely Roger King, King World's Chairman of the Board, Michael King, King World's Vice Chairman and Chief Executive Officer, and Diana King, a Vice President and the Secretary of King World, are directors of the Company and are actively involved in its management. In addition, one other child of King World's founders, Richard King, serves as a director of the Company and another, Robert King, is Senior Vice President for Strategic Planning/Acquisitions. King World Productions, Inc., a Delaware corporation, was incorporated in October 1984 and is the successor to a corporation incorporated in 1964 under the laws of the State of New Jersey. King World's corporate headquarters are located at 12400 Wilshire Boulevard, Suite 1200, Los Angeles, California 90025. Except as otherwise indicated or as implied by the context, references to "King World" or the "Company" include King World Productions, Inc., its consolidated subsidiaries and its predecessor corporation. The Company operates in only one business segment: production and distribution of television programming in the United States, Canada and a number of other foreign countries, and related operations. This Report contains certain forward-looking statements covering the Company's objectives, planned or expected activities and anticipated financial performance. These forward-looking statements may generally be identified by words such as "expects", "anticipates", "believes", "plans", "should", "will", "may", "projects" (or variants of these words or phrases), or similar language indicating the expression of an opinion or view concerning the future with respect to the Company's financial position, results of operations, prospects or business. The Company's actual results may differ significantly from the results described in or suggested by such forward-looking statements. Programming and Related Operations FIRST-RUN TELEVISION SYNDICATION In general terms, television syndication is a process by which a company, such as King World, sells programming on a market-by-market basis to television stations (whether network affiliates or independents); "first-run" refers to programming that airs initially in syndication (in contrast to "off network" programming, which airs initially on a network); and "strip" refers to programming that airs Monday through Friday at the same time of day. King World's revenues currently are derived primarily from the first-run strip syndication of the television series THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE, JEOPARDY! and INSIDE EDITION. These series are four of the top ten first-run series in national syndication, as reported in the July 1998 Nielsen Designated Market Area Ranking Report. WHEEL OF FORTUNE and JEOPARDY! had the two highest ratings among all syndicated television shows and THE OPRAH WINFREY SHOW had the highest ratings among all national television talk shows (based on original telecasts). According to Nielsen, WHEEL OF FORTUNE has had the highest ratings among shows in national syndication for the last 59 consecutive sweeps periods, JEOPARDY! has had the second highest ratings among such shows for each of the last 52 consecutive sweeps periods and THE OPRAH WINFREY SHOW has had the third highest ratings among such shows for 40 of the last 47 sweeps periods. Based primarily on the success of THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY!, King World's revenues have grown from $80.6 million in fiscal 1985 to $683.9 million in fiscal 1998 and its net income has increased from $9.8 million in fiscal 1985 to $136.0 million in fiscal 1998. Revenues derived from THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE, JEOPARDY! and INSIDE EDITION (including revenues derived from the sale of retained advertising time) accounted for approximately 88% of King World's revenues for the fiscal year ended August 31, 1998. The Company distributes two other first-run syndicated shows, HOLLYWOOD SQUARES and THE ROSEANNE SHOW, both of which premiered in September 1998. The United States market for television programming is currently comprised principally of four components: (i) the major broadcast television networks (ABC, CBS, NBC, FOX and two emerging networks, UPN and WB) in conjunction with their respective affiliated stations; (ii) independent broadcast television stations (that is, stations that are not affiliated with such networks); (iii) basic cable services (such as USA Network, The Discovery Channel, MTV and Nickelodeon); and (iv) pay cable services (such as HBO and Showtime). Although this market is still dominated by the broadcast networks, each of which has affiliations with television stations that enable such networks to reach virtually all of the significant television markets in the United States, cable television networks (the most successful of which reach more than 70% of all U.S. television households) have generally been achieving increasing ratings in recent years. Recently developed digital compression technology, combined with fiber optics or small-sized satellite dishes may in coming years permit cable companies or direct broadcast satellite systems (which 2 carry, among other programming, many cable television networks) to expand the domestic television market to hundreds of channels. During hours commonly referred to as "prime-time" (currently, with limited exceptions, 8 p.m. to 11 p.m. in the Eastern and Pacific time zones and 7 p.m. to 10 p.m. in the Central and Mountain time zones), stations owned and operated by the four major broadcast networks, and stations affiliated with those networks, broadcast schedules consisting primarily of programming produced for initial exhibition by the networks. (The WB and the UPN each currently supplies its respective affiliates with prime-time programming five evenings per week and with several hours per week of non-prime-time programming.) In non-prime time, such stations broadcast network programming, off-network programming (reruns), programming produced by the local stations themselves or by independent producers and first-run syndicated programming (programming produced for initial distribution on a syndicated basis). Independent television stations, during both prime and non-prime time, broadcast their own programming, off-network programming and first-run syndicated programming; some of such stations are affiliated with the WB or the UPN. Some cable operators, in addition to other services that they offer, telecast syndicated programming. At present, King World distributes television programming primarily to network-owned-and-operated stations and network-affiliated stations. First-run syndicated programming distributed by the Company competes for available time periods primarily with other first-run syndicated programming, network reruns and programming produced by local television stations. Nielsen divides the United States into 211 designated market areas and approximately 30 additional special market areas that, on the basis of size and the other Nielsen criteria, do not qualify as designated market areas. The 241 Nielsen designated and special market areas are referred to below as the "Nielsen market areas". In the 1983-1984 broadcast season, King World introduced a syndicated version of WHEEL OF FORTUNE, which had premiered on daytime network television in 1975. For the 1997-1998 broadcast season, WHEEL OF FORTUNE was licensed to television stations in 207 Nielsen market areas in the United States, covering over 99% of total domestic television households, and for the current broadcast season has been licensed to television stations in 204 Nielsen market areas, also covering over 99% of total domestic television households. For the 1984-1985 broadcast season, the Company introduced JEOPARDY!, a remake of the successful game show originally broadcast on network television between 1964 and 1975. For the 1997-1998 broadcast season, JEOPARDY! was licensed to television stations in 200 Nielsen market areas in the United States, covering approximately 99% of total domestic television households, and for the current broadcast season has been licensed to television stations in 198 Nielsen market areas, also covering approximately 99% of total domestic television households. For the 1986-1987 broadcast season, King World introduced into national television syndication THE OPRAH WINFREY SHOW, a talk show hosted by Oprah Winfrey which originally was produced by WLS-TV, an ABC owned-and-operated station. Commencing in October 1988, Harpo, Inc. ("Harpo"), an entity controlled by Ms. Winfrey, assumed production of the series. For the 1997-1998 broadcast season, THE OPRAH WINFREY SHOW was licensed to television stations in 208 Nielsen market areas in the United States, covering more than 99% of total domestic television households, and for the current broadcast season has been licensed to television stations in 206 Nielsen market areas, also covering more than 99% of total domestic television households. INSIDE EDITION, a half-hour first-run syndicated newsmagazine series hosted by Deborah Norville that is produced and distributed by King World, premiered in January 1989. It was the first television series produced by King World. INSIDE EDITION is produced at the Company's production facility in New York and has a correspondent bureau in Los Angeles to enhance the ability of the program to provide nationwide coverage. For the 1997-1998 broadcast season, INSIDE EDITION was licensed to television stations in 148 Nielsen market areas, covering approximately 90% of total domestic television households, and for the current broadcast season, the series has been licensed to television stations in 130 Nielsen market areas, covering approximately 85% of total domestic television households. 3 HOLLYWOOD SQUARES, a new half-hour strip version of the popular game show featuring Whoopi Goldberg as the "Center Square," premiered in September 1998. For the current broadcast season, HOLLYWOOD SQUARES has been licensed to television stations in 159 Nielsen market areas, covering approximately 90% of total domestic television households. THE ROSEANNE SHOW, an hour-long strip talk show hosted by Roseanne, premiered in September 1998. For the current broadcast season, THE ROSEANNE SHOW has been licensed to television stations in 158 Nielsen market areas, covering approximately 92% of total domestic television households. AMERICAN JOURNAL, a half-hour first-run syndicated newsmagazine series that was produced by King World, premiered in September 1993. For the 1997-1998 broadcast season, AMERICAN JOURNAL was licensed to television stations in 104 Nielsen market areas, covering approximately 82% of total domestic television households. The distribution of AMERICAN JOURNAL ceased at the end of that season. Each of THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE, JEOPARDY!, INSIDE EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW has been licensed to television stations for exhibition in the current and in future broadcast seasons. The licenses for future seasons commence with the 1999-2000 broadcast season and extend, in certain cases, as far into the future as the 2004-2005 broadcast season. Revenues and related expenses under such license agreements will not be recognized until the license periods thereunder have begun and certain other conditions are satisfied. As of November 10, 1998, the gross amount of license fees under such agreements approximated $2.0 billion, of which approximately $1.3 billion is payable to producers and others and is to be recognized as an expense. The recognition of such amounts in the consolidated financial statements of the Company in fiscal years subsequent to August 31, 1998 is subject to several conditions, including the Company's continued distribution of such programming. Such amounts do not include sales of advertising time retained during the broadcast of such programming or foreign license fees. There can be no assurance that any of these programs will be licensed for additional years through renewal of existing licenses or issuance of new licenses or, if so licensed, that the terms of the license agreements will be as favorable to King World as those of the existing licenses. There can be no assurance that the key personalities on such programs, such as Oprah Winfrey, Pat Sajak, Vanna White, Alex Trebek, Whoopi Goldberg and Roseanne will continue to participate in the production of their respective programs. If for any reason they do not do so, there could be a material adverse effect on the Company's business. ACQUISITION AND DEVELOPMENT OF PROPERTIES FOR DISTRIBUTION King World's business is dependent on obtaining or creating new television programs and series for distribution. King World may acquire properties for domestic, foreign or worldwide television distribution by entering into distribution agreements with independent producers, by producing its own programs, by co-producing programs in association with others, or by purchasing distribution rights. The terms under which the Company obtains the right to distribute programming from independent producers vary in each instance. The Company distributes THE OPRAH WINFREY SHOW pursuant to an agreement with Harpo, the producer of the series. Under the terms of the agreement currently in effect, the Company has been granted the exclusive right, and has agreed, to distribute episodes of THE OPRAH WINFREY SHOW produced through the 2001- 2002 broadcast season. In October 1995, Harpo and Ms. Winfrey committed to produce and host the series through the 1997-1998 season; in September 1997, Harpo and Ms. Winfrey committed to continue to produce and host the series through the 1999-2000 broadcast season; and in September 1998, Harpo and Ms. Winfrey committed to continue to produce and host the series through the 2001-2002 broadcast season. Under the terms of its agreement with Harpo, following the 1996- 1997 broadcast season, the profit sharing arrangements between Harpo and the Company previously in effect were terminated and, in the 1997-1998 broadcast season and thereafter, the Company instead receives distribution fees based on a percentage of gross revenues derived from the series. These arrangements are less favorable 4 to the Company than those contained in prior agreements between the Company and Harpo. As a result of these changes, the Company's net profits and cash flow have declined. Also, the distribution fees payable to the Company for the 2000-2001 and 2001-2002 broadcast seasons are significantly lower than those applicable to seasons through the 1999-2000 broadcast season, and, as a result, the contribution of THE OPRAH WINFREY SHOW to the Company's net profits and cash flow will further decline. After the 2001-2002 broadcast season, Harpo will not be obligated to distribute the series through the Company, if it elects to produce the series at all, and Ms. Winfrey will no longer be subject to any contractual restrictions with the Company on her ability to appear in television shows with the same or similar format as THE OPRAH WINFREY SHOW. See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources". The Company's agreements with Columbia TriStar Television, the producer of WHEEL OF FORTUNE and JEOPARDY!, provide that King World will be the exclusive distributor for each such series so long as the Company has obtained sufficient broadcast commitments to cover the production and distribution costs of that series and that the Company may not, unless otherwise agreed by Columbia TriStar Television, distribute other game shows for first-run strip syndication so long as the Company is distributing WHEEL OF FORTUNE or JEOPARDY!. The Company has an agreement with Columbia TriStar Television to co-produce a new strip version of HOLLYWOOD SQUARES for distribution by the Company in first-run syndication. This series premiered in September 1998. As of November 10, 1998, the series had been licensed for the 1998-1999, 1999-2000 and 2000-2001 broadcast seasons to televisions stations covering approximately 80% of the total domestic television viewing households. The Company also has an agreement with Full Moon & High Tide Productions, Inc., a company controlled by Roseanne, to co-produce THE ROSEANNE SHOW, an hour-long, strip talk show hosted by Roseanne and distributed by the Company in first-run syndication. The series premiered in September 1998. Under the terms of the agreement, the Company has the exclusive right to distribute the show through the 2003-2004 broadcast season. As of November 10, 1998, the series had been licensed for the 1998-1999 and 1999-2000 broadcast seasons to televisions stations covering approximately 86% of total domestic television viewing households. In acquiring new programming, King World has attempted, based on research concerning television programs currently being broadcast, to identify programs and series that King World believes will have broad-based audience appeal and satisfy the programming needs of television stations for particular time periods. Historically, the Company had relied on independent producers for new programming. In recent years, however, in order to satisfy what King World believes to be audience demands and station programming needs, the Company has, 5 for the most part, been developing and producing original programming on its own or in cooperation with others. For several years, the Company has been, and is now, in the process of developing new television shows for syndication that it hopes will gain widespread audience appeal and generate significant revenues and income for the Company. The Company has entered into an agreement with Dolshor Productions, Inc., a company controlled by Martin Short, to co-produce THE MARTIN SHORT SHOW, a talk/variety show to be hosted by Martin Short and distributed by the Company in first-run syndication. The series is scheduled to premiere in the Fall of 1999. Under the terms of that agreement, the Company will have the exclusive right to distribute the show through the 2004-2005 broadcast season. The introduction of new television programs requires substantial capital investment to fund programming development costs, the production of pilot programs and the production, distribution and promotion of the initial episodes of programming for syndication. The Company has funded and intends to continue to fund such capital investments out of its internal cash resources. LICENSE AND DISTRIBUTION FEES For certain first-run syndicated programs produced by independent companies for distribution by King World, the Company earns distribution fees that are based on a percentage of the license fees paid by television stations for the right to broadcast the program and the amounts paid by national advertisers for advertising time retained by the Company and sold in connection with such program. The Company also recoups some or all of the distribution expenses that it incurs in connection with the distribution of these series, which consist principally of advertising, promotion, satellite and tape costs and related expenses. Amounts remaining in excess of King World's distribution fees and recouped expenses are remitted to the producers of such series. In other cases, the Company's fees for distributing first-run syndicated programming produced by independent companies are based upon a negotiated percentage of the profits derived from the exploitation of the programming after recoupment of the production, advertising, promotion and other distribution fees and expenses of the programming. In such cases, the Company generally finances all or a substantial portion of the production costs and may commit itself to advancing the producer and/or talent fixed minimum amounts as advances against their participation fees, irrespective of the amount of license fees and other revenues that may actually be generated by the programming. In acquiring distribution rights for new programming from independent producers, King World has generally tried to limit its risk by not making major commitments to independent producers until it has obtained commitments from a substantial number of television station licensees. 6 In recent years, the new shows introduced by the Company in first-run syndication have been developed and produced by the Company itself. In such cases, the Company hires a production team, leases production facilities, engages talent, assumes all of the costs and expenses of developing, producing, advertising, promoting and distributing the programming and, after any required payments to the production team and talent, retains the net profits derived from the exploitation of the programming. License fees payable by stations for the rights to broadcast television programs are payable in the form of cash, retained advertising time or both. A television station that enters into a license agreement for a particular program becomes obligated to pay the contracted license fee (which will often depend on the time period in which the program is aired by that station) and provide advertising time, if applicable, upon the delivery by the Company of the program in question. By licensing a program to television stations throughout the United States, the Company creates, in effect, an "ad hoc" network of stations that have agreed to carry the program. The creation of this ad hoc network, typically representing a penetration of at least 70% of total U.S. television households, enables the Company to sell the resulting commercial inventory to sponsors desiring national coverage. (See "Sale of Advertising Time".) In the 1998 fiscal year, approximately 14% of the Company's revenues were derived from license fees under contracts with television stations owned by ABC, Inc. No other television station, broadcast group or advertiser accounted for ten percent or more of the Company's revenues in such fiscal year. MARKETING Sales to domestic television stations are made by the Company through a sales force that numbered 11 persons as of November 10, 1998. The Company's marketing strategy concentrates on a select number of programs that the Company considers to have good prospects for high audience ratings and expects will meet television stations' programming needs for specific time periods. Although the Company has been dependent upon the active participation of members of the King family since its formation in 1964, the Company believes that it has significantly lessened its reliance on certain key executive officers by adding experienced executive, programming and marketing personnel. Nevertheless, the loss of key personnel might have an adverse effect on the Company's operations. SALE OF ADVERTISING TIME King World Media Sales Inc. ("KWM"), a wholly-owned subsidiary of King World, sells advertising time within television programs. As of November 10, 1998, KWM (formerly known as Camelot Entertainment Sales, Inc.) employed 8 salespersons. 7 The value of advertising on any particular program varies significantly depending on the audience ratings and demographics for such program and conditions in the market for television advertising time in general. In order for advertising time on a particular syndicated television program to be valuable to national advertisers, the program must, as a general rule, be broadcast in television markets covering at least 70% of the total domestic television households. For the 1998-1999 broadcast season, THE OPRAH WINFREY SHOW has been licensed to stations covering more than 99% of the total domestic television households; WHEEL OF FORTUNE and JEOPARDY! have each been licensed to stations covering approximately 99% of the total domestic television households; INSIDE EDITION has been licensed to stations covering approximately 85% of the total domestic television households; HOLLYWOOD SQUARES has been licensed to stations covering approximately 90% of the total domestic television households; and THE ROSEANNE SHOW has been licensed to stations covering approximately 92% of the total domestic television households. Fees for advertising time are established on the basis of household audience ratings or, more frequently, on the basis of the delivery of a certain demographic category of the viewing audience. The desired household rating or demographic delivery, as the case may be, is negotiated in advance with the advertiser or its agency. If the television program does not deliver at least the agreed-upon audience coverage, KWM is obligated either to make available, at no additional cost, additional advertising time within the same program or other programs that are expected to deliver at least the agreed-upon audience coverage, or to refund that portion of the advertising fee attributable to the under delivery. Generally, a portion of the Company's contracts for the sale of its advertising time may be canceled by the advertiser upon 90 days' notice. Each television station is obligated to broadcast advertising time retained by King World even if the program or episode on which the time was retained is preempted by the station. Historically, KWM has sold advertising time primarily on television programs distributed by King World. However, a portion of KWM's revenues has in recent years been attributable to commissions earned on sales of advertising time on television programs distributed by companies other than King World. KWM has agreements currently in effect with, among others, Western International Syndication, Don Cornelius Productions, Inc. and Allied Communications Incorporated to sell advertising time in IT'S SHOWTIME AT THE APOLLO and SOUL TRAIN, variety programs, and the "Film Leader" package of films, respectively. FOREIGN SALES The number of outlets for television programming outside the United States has been increasing with the worldwide proliferation of broadcast, cable and satellite delivery systems. In recent years, many European governments have 8 privatized television systems. The Company believes that privatized systems are more likely to broadcast U.S. programming than government-owned networks. In addition, both the number of pay and satellite television systems in Europe and the number of subscribers to these systems have increased. Pay television and satellite distribution systems are also developing in other geographic areas, including many Asian and South American markets. In some international markets, suppliers of programming may, however, be subject to local content and quota requirements that prohibit or limit the amount of U.S. programming that may be acquired. The Company licenses episodes of WHEEL OF FORTUNE, JEOPARDY!, THE OPRAH WINFREY SHOW, INSIDE EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW in Canada and in certain other English-speaking foreign territories (or to English-speaking channels in non-English-speaking territories). The Company also licenses the production of local versions of WHEEL OF FORTUNE and JEOPARDY! in a number of other major foreign territories. Under licenses from King World, Unilever, N.V. licenses the production of local versions of WHEEL OF FORTUNE and JEOPARDY! for broadcast in a number of Western European markets. In addition, the Company has recently become more active in acquiring rights for the distribution of television programming solely outside the United States. Revenues from foreign sales (including Canada) accounted for approximately 6% of King World's revenues in fiscal 1998. DIRECT RESPONSE MARKETING The Company operates King World Direct Inc., a direct response marketing subsidiary. King World Direct handles key aspects of direct response marketing campaigns, including production, order fulfillment and media placement. King World Direct has developed direct response telemarketing campaigns for, among others, the WILD AMERICA video series and the Sears Craftsman line of hardware. Revenue from direct response marketing activities accounted for approximately 1% of the Company's revenues in fiscal 1998. MERCHANDISING AND FILM LIBRARY The Company has granted licenses to others to produce WHEEL OF FORTUNE and JEOPARDY! non-electronic boxed board games and to exploit certain of its merchandising rights in THE LITTLE RASCALS and HOLLYWOOD SQUARES. King World also distributes its own library of over 60 feature length films and over 200 television programs, including feature length films from Sherlock Holmes, The East Side Kids, Mr. Moto and Charlie Chan series and episodes from THE LITTLE RASCALS, TOPPER, BRANDED and THE GUNS OF WILL SONNETT television series. In acquiring feature length films and television programs for its own library, the Company has attempted to emphasize classic programming -- films and television series with broad and enduring audience appeal. King World holds long-term 9 television and related distribution rights to the properties in its library. The Company is not generally required to make any material royalty or similar payments with respect to the properties in its library. Revenues from merchandising and the film library accounted for less than 1% of the Company's revenues in fiscal 1998. COMPETITION The production and distribution of television programming and the sale of associated advertising time is a highly competitive business. King World competes with many companies that have resources substantially greater than those of King World. The most important competitive factors in television program distribution are marketing, quality and variety of programming and research and promotional services. King World's success is highly dependent upon those factors as well as the continuing availability of writers, performers and other creative talent and the viewing preferences of television audiences. King World has attempted to concentrate on the distribution of programs that it believes will have broad or enduring audience appeal in order to reduce its exposure to changes in viewer preferences. King World has also developed an experienced television syndication sales organization as well as strong programming acquisition, research and advertising and promotion departments. See "Marketing" above. REGULATION OF THE TELEVISION INDUSTRY Legislation and Other FCC Rules and Proposals Affecting the Television Industry Generally The Telecommunications Act of 1996 (the "1996 Act"), signed in February 1996, among other things, requires the Federal Communications Commission (the "FCC") to relax its regulation (the "Multiple Ownership Rules") limiting the aggregate number of television stations that may be under common ownership. Prior to passage of the 1996 Act, the Multiple Ownership Rules permitted common ownership of, in most circumstances, up to twelve television stations, subject (in the case of station groups) to certain limitations based upon audience reach. As required by the 1996 Act, the FCC (in March 1996) eliminated the numerical limitation on common ownership and relaxed the audience reach limitation to 35% of domestic television households. The 1996 Act also requires the FCC to re-examine provisions of the Multiple Ownership Rules that prohibit the common ownership of stations serving the same market. In proceedings now pending before it, the FCC is considering relaxing the existing restrictions on common ownership of television stations serving the same market and permitting, subject to certain restrictions, joint venture (including joint programming) arrangements between independently owned stations in circumstances where common ownership would otherwise be prohibited. 10 The 1996 Act further requires the FCC to review its broadcast ownership rules every two years to "determine whether any of such rules are necessary in the public interest as a result of competition" and to repeal or modify any rules that are deemed no longer to serve the public interest. Pursuant to this requirement, in March 1998, the FCC began a formal inquiry to review those rules relating to broadcast ownership that were not either modified by the 1996 Act or already under consideration in pending FCC proceedings. Among other things, this inquiry solicits comments on the rules that prohibit common ownership of a broadcast television station and daily newspaper, or of a broadcast television station and cable system, serving the same market. In addition, the FCC has asked whether further relaxation of the national audience reach cap is warranted and whether competition warrants relaxation of the dual network rule, which, as revised by the 1996 Act, forbids common ownership of multiple broadcast networks by the four major broadcast networks (ABC, CBS, NBC and Fox) or by any of these four networks in combination with one of the two "emerging" broadcast networks (the WB and UPN). The FCC has stated that if, in its review, it determines that any of its broadcast ownership rules were no longer in the public interest, it would subsequently commence appropriate rulemaking proceedings to modify or repeal the rule or rules in question. During the pendency of these various proceedings, the FCC has granted waivers of the existing restrictions on common ownership of television stations serving the same market but it has not otherwise waived or granted exceptions to any other broadcast ownership restrictions. King World is unable to predict the outcome of these proceedings. King World believes that increases in the concentration of television station ownership by broadcast groups will tend to increase the relative power of the broadcast groups in the market for television programming and, consequently, could adversely affect King World's bargaining position vis-a-vis its principal customers. The 1996 Act requires that all television sets manufactured or imported into the United States be equipped with a device (the "V-chip") that will enable viewers to block display of certain programs based upon content. The 1996 Act afforded the program production and distribution industries a period of twelve months (until February 1997) within which to establish voluntary rules for identifying and rating video programming that contains sexual, violent or other indecent material and to agree to voluntarily transmit such ratings in a format capable of being read by the V-chip technology. If a voluntary code was not established (or if such a code was not acceptable to the FCC) within that time frame, then the FCC was to be required, in consultation with an advisory committee, to establish and enforce a rating code. The Company has participated actively in industry efforts to establish the voluntary code. In January 1997, the industry submitted to the FCC its proposal for a voluntary rating system, and, in August 1997, the industry submitted a revised proposal that added to the rating categories originally proposed. The revised proposal changed the descriptions used to identify certain age group categories and, in some situations, added symbols to indicate the nature of violence or sexual situations depicted, or language used, in certain programs. In March 1998, the FCC adopted an order finding the revised code acceptable; the FCC also 11 adopted technical rules requiring television receivers (and computers) with picture screens 13" or greater to be equipped with the V-chip technology. That technology is, under the FCC's rules, required to be compatible with the approved code; however, manufacturers are encouraged, but not required, to market technology that is compatible with other potential rating systems. Under the rules, all television receivers manufactured after January 1, 2000 to which the rule applies must meet the V-chip requirements. The programming industry has established an oversight monitoring board to ensure that the rating guidelines are applied accurately and consistently to television programming. The Company does not believe that these requirements will have a material adverse effect on its revenues or profits. However, to the extent that any program series (or episodes of such series) produced or distributed by King World are subjected to restrictive ratings, there may be an adverse effect on the distribution and/or viewing of such series. In June 1995, the FCC initiated two proceedings in which it is considering repeal or relaxation of certain of its regulations restricting or forbidding certain contractual arrangements between a broadcast network and its affiliates. Among the matters under examination are: a rule that forbids a network from entering into a contract with any affiliate that either enables the network to reserve any time on the affiliate's station before the network has committed to use the time, or requires the station to make time available for network programming in substitution for programming already scheduled by the affiliate ("Time Optioning Rule"); a rule that forbids a network from penalizing affiliated stations for rejecting network programming and substituting programming deemed by the station to be of greater local or national interest; and a rule that forbids stations from affiliating with any network organization that operates more than one network. Separately, the FCC is re-examining a rule that prohibits a network from directly or indirectly controlling the advertising rates charged by an affiliate in connection with the broadcast of non-network programming ("Station Rates Rule") and a rule that forbids a network from acting as a sales representative for affiliated stations for the sale of advertising time in connection with non-network programming ("Station Rep Rule"). The Company is unable to predict the outcome of these proceedings. Although the Company believes that certain of the conduct prohibited by the FCC's rules, such as the Station Rates Rule, are proscribed or curtailed under the anti-trust laws, the Company anticipates that repeal or substantial relaxation of the Time Optioning Rule and the Station Rep Rule will tend to increase the relative power of the networks in the market for television programming and for the sale of advertising time and will consequently adversely affect King World's bargaining position vis-a-vis sales of its programming to network-affiliated stations, as well as the sale of King World's barter time. 12 PRIME-TIME ACCESS RULE/FINANCIAL INTEREST AND SYNDICATION RULE Until August 1996, a rule promulgated by the FCC in the 1970's and known as the "prime-time access rule" prohibited (subject to certain significant exceptions) television stations owned by or affiliated with the three major broadcast networks (ABC, CBS and NBC) in the 50 largest television markets from broadcasting more than a total of three hours per day of programming supplied by or previously aired on a network during the prime-time period (defined under the rule as 7-11 p.m. Eastern and Pacific time and 6-10 p.m. Central and Mountain time). Due to the rule, network-owned and network-affiliated stations often acquired either one hour or one-half hour of program material for exhibition during the prime-time access period from independent television producers and syndicators such as the Company. In July 1995, following proceedings looking toward reconsideration or modification of the prime-time access rule, the FCC issued a decision concluding that the rule no longer served the public interest because the networks no longer had market power sufficient to foreclose access by independent producers and syndicators of first-run programming to the prime-time access period. In order to permit an orderly transition, the FCC held that programming supplied by or previously aired on a network may not be aired during the prime-time access period for 12 months from the August 1995 effective date of its decision, but during such period stations subject to the rule were permitted to enter into contracts providing for the airing of such programming in the access period after August 1996. Pursuant to consent decrees entered into in the mid to late 1970's between the three largest television networks (the ABC Television Network, the CBS Television Network and the NBC Television Network) and the United States Department of Justice (the "Consent Decrees"), such networks were, until mid-November 1993 (when the Decrees were lifted), prohibited from domestically syndicating television programs and from acquiring financial interests in such programs or in network programming (other than the right to network exhibitions) produced by independent production companies. In the mid 1970's, the FCC implemented rules (the "Rules") that substantially paralleled the prohibitions of the Consent Decrees. The Rules enhanced the Company's ability to license its programs to stations owned and operated by the major television networks (licensees that are, in most instances, very important to the success of a series distributed through first-run syndication). In May 1991, the FCC issued a decision (the "1991 Decision") to modify, but not to repeal, the Rules. The modified Rules substantially relaxed the restrictions upon the ability of a network to acquire financial interests in, and to syndicate, television programs previously aired by that network (a sector of programming in which King World has not to date had substantial involvement). However, the 1991 Decision retained stringent limitations on network involvement in first-run syndication activities, which remained in place after the FCC further relaxed the Rules in 1993. In August 1995, upon further review of the remaining Rules, the FCC held that the Rules, including the restrictions on network entry into 13 first-run syndication activities, were no longer necessary. Under the resulting FCC order, the Rules expired in August 1995. As a result of the repeal of the prime-time access rule and the elimination of the remaining restrictions of the financial interest and syndication rules, the Company may have more difficulty licensing its programming to stations owned and operated by the three major television networks and anticipates that, even if the Company is able to so license its programming, the profitability of such programming to the Company may, as a result of terms imposed by such stations, be reduced. OTHER REGULATORY AND LEGISLATIVE MATTERS In October 1992, Congress enacted legislation imposing certain new regulations on the cable television industry (the "1992 Cable Act"). The legislation includes provisions that require each local television station (as defined) to make an election between demanding carriage on any cable system within its service area on a "must-carry" basis (for which the station receives no compensation) or demanding that such cable system obtain the consent of the station and pay compensation (and/or furnish other consideration) to the station for the right to carry its signal. The election made by the station as to each such cable system remains in effect for three years. In March 1997, the United States Supreme Court, after protracted litigation and by a 5 to 4 vote, upheld the constitutionality of the "must carry" rules, against a First Amendment challenge initiated by cable interests. Under regulations promulgated by the FCC, stations were required to make an election between "must carry" and "retransmission consent" in October 1998, with the election to take effect as of January 1, 1999. Since the advent of the "retransmission consent" provisions, which became operative in October 1993, a small number of cable systems have refused to or failed to reach carriage agreements with particular local television stations and consequently ceased the carriage of such stations, thus resulting in decreased audience for King World programming aired on those stations. The Company has suffered no discernible adverse impact to date from such provisions. In April 1997, the FCC adopted comprehensive regulations relating to the deployment of Advanced Television Technologies ("ATV"), as required by the 1996 Act. ATV technologies will, among other things, enable existing television stations to broadcast more than one program at the same time; and the FCC has concluded that stations will be permitted to use the additional channel capacity resulting from ATV for entertainment programming purposes, including subscription programming, so long as at least one of the additional channels is used for free, over-the-air broadcasting. The rules adopted by the FCC provide that stations owned by or affiliated with the four major broadcast networks (ABC, CBS, Fox and NBC) in each of the top ten markets must complete construction of ATV facilities by May 1, 1999, that stations in markets 11-30 affiliated with those four networks must complete construction of ATV facilities by November 1, 1999 and that all other commercial television stations must complete construction of ATV facilities by May 1, 2002. Under the FCC rules, 14 television stations will not be required to simultaneously broadcast programming on both a conventional analog channel and any ATV channel until 2003; thereafter, each station will be required to broadcast simultaneously on its analog channel specified percentages of programming carried on its ATV channel until the expected expiration of analog broadcasting, in 2006. Under the 1996 Act, the additional channels resulting from ATV technology will have "must carry/retransmission consent" rights. In July 1998, the FCC initiated a proceeding in which it is considering the implementation of the must carry/retransmission consent options in application to ATV technology. The FCC has proposed a series of implementing options, ranging from a rule that would require cable operators to immediately recognize the must carry/retransmission consent rights of broadcasters with respect to the ATV channels when those channels come on the air to one under which the question of must carry would be deferred until at least the expiration of the ATV transition period (2006) (which latter rule would effectively require broadcasters to rely exclusively upon their retransmission consent rights to negotiate arrangements with cable operators with respect to the carriage of their ATV channels during the transition period). As a part of this proceeding, the FCC has, among other issues, raised a question of whether its "program exclusivity rules" should be repealed. Under these rules, stations may, with the consent of the copyright owner/distributor, require a cable system not to carry (that it, to "blackout") a particular program or program series that is aired on a distant television station carried by the cable system. King World has, as a general rule, granted its station licensees the right to exercise these blackout rights. The FCC has invited comment on whether these blackout rights might be equally well protected through negotiations between stations and cable systems under the retransmission consent procedures. King World has submitted comments to the FCC contending that, under the 1992 Cable Act, any repeal of the program exclusivity rules would not relieve broadcasters of their obligations, or expand their rights, under existing or future program licensing agreements between them and King World. King World is unable to predict the outcome of this proceeding. Moreover, because the deployment of ATV technologies and the availability to consumers of television receivers capable of delivering ATV channels to consumers remain uncertain, the Company is unable to predict the outcome of these developments or their impact on the Company, if any. The 1996 Act repealed provisions of the Communications Act that prohibited any telephone company from acquiring financial interests in video programming and from distributing video programming in the same geographic area in which such telephone company provides telephone service. Under the 1996 Act, telephone companies are permitted, in most circumstances, to own and operate cable television systems, in which event they are subject to all of the requirements applicable to such systems including the "must carry"/retransmission consent requirements of the 1992 Cable Act. Alternatively, the 1996 Act permits telephone companies to directly enter the multi-channel video distribution business on a quasi-common carrier basis ("Open Video Systems"), pursuant to which the Open Video System operator leases channel 15 capacity to programmers on a non-discriminatory basis; each such operator is required to reserve, in cases where demand exceeds channel capacity, up to two-thirds of its channel capacity for programmers with which such operator is not affiliated. The statute also requires that Open Video System operators extend "must carry"/ retransmission consent rights to over-the-air television stations in the market served. The FCC has adopted rules to implement these requirements, but the Company cannot predict the extent of telephone company entry into the program delivery market. However, to the extent that telephone company entry into the production and distribution of video programming weakens the position of over-the-air television stations in the video marketplace or increases the cost to such stations of access to audience, this could result in decreased audience for King World programming aired on those stations, or a reduction in the profitability to King World of such programming. The 1996 Act, among other requirements, directed the FCC to establish rules requiring that new video programming be closed captioned for the hearing impaired, and to establish timetables for implementing those captioning obligations. The FCC adopted closed captioning rules in August 1997, which took effect on January 1, 1998. The regulations require that all video programming first aired after January 1, 1998, that is not exempt pursuant to the rules be closed captioned. Legal responsibility generally falls on the "video programming distributors," including television stations. Program producers and distributors, however, are expected to cooperate in the process, and distributors will be able to rely on certifications from their programming sources indicating that the programming supplied is either captioned or exempt under the FCC rules. All of the programming currently produced or distributed by the Company, as well as all advertising programming produced by King World Direct that is more than five minutes in length, will be subject to the captioning requirements. However, the Company does not anticipate that compliance with these new rules will have a material adverse effect on the profitability of this programming to King World. EMPLOYEES As of November 10, 1998, the Company employed approximately 418 persons. Of this number, approximately 230 are involved in the production of INSIDE EDITION, HOLLYWOOD SQUARES and THE ROSEANNE SHOW. Approximately 21 of the Company's employees are covered by collective bargaining agreements. Item 2. DESCRIPTION OF PROPERTIES The Company's corporate headquarters are located in Los Angeles, California, where the Company maintains executive offices, its advertising and promotion department, programming development, direct response marketing and licensing operations and its Western U.S. sales staff. The Company leases office space in New York City for executive offices, the operations of KWM and the Company's Eastern U.S. and foreign sales staff. The Company's accounting and finance, contract administration and research departments are located in leased offices in Short Hills, New Jersey. The Company also leases office space in Chicago, Boca Raton and Dallas for regional sales offices. The Company leases office and production facilities in New York and Los Angeles for its internally produced programming. Item 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings other than routine litigation incidental to the conduct of its business. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 16 PART II Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS King World's Common Stock is listed and traded on the New York Stock Exchange under the symbol KWP. The following table sets forth, for the fiscal periods indicated, the range of high and low closing sale prices for the Common Stock as reported by the New York Stock Exchange. HIGH LOW Fiscal 1997 First Quarter Ended November 30, 1996............ 19 3/8 17 3/8 Second Quarter Ended February 28, 1997............ 20 18 1/16 Third Quarter Ended May 31, 1997................. 19 3/16 17 5/8 Fourth Quarter Ended August 31, 1997.............. 20 1/4 17 3/16 Fiscal 1998 First Quarter Ended November 30, 1997............ 28 9/16 19 17/32 Second Quarter Ended February 28, 1998............ 29 19/32 26 1/2 Third Quarter Ended May 31, 1998................. 30 1/4 25 5/16 Fourth Quarter Ended August 31, 1998.............. 30 1/16 21 As of the close of business on November 10, 1998, there were 568 holders of record of the Company's Common Stock. On February 17, 1998, the Company effected a two-for-one stock split (the "1998 Stock Split") in the form of a 100% stock dividend, which was paid to stockholders of record on February 3, 1998. In connection with the stock split, the Company increased the number of authorized shares of Common Stock from 75 million to 150 million, which increase was approved by the stockholders of the Company in January 1998. All share and per share data presented herein have been adjusted for all periods presented to reflect the stock split. In May 1997, a special dividend distribution of $1.00 per share was paid to stockholders of record on April 25, 1997. The Company used approximately $74.8 million of its cash and liquid investments to pay the special dividend. The Company has no present plan to declare additional cash dividends in the foreseeable future. The Company requires capital resources to fund development, production and promotion costs for its programming, and intends to use its cash reserves and future earnings to finance such expenses and the development and expansion of its business. See Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources". 17 Item 6. SELECTED FINANCIAL DATA The following selected financial data have been derived from the consolidated financial statements of King World and its subsidiaries for the five years ended August 31, 1998, which have been audited and reported upon by Arthur Andersen LLP, independent public accountants. The unaudited 1995 and 1994 pro forma information presents selected financial data assuming that a change in accounting for revenue recognition adopted prospectively in the fourth quarter of fiscal 1994 had not been made. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Consolidated Financial Statements and the Notes thereto included elsewhere in this Annual Report. 18
Statements of Income: Year Ended August 31, 1995 1994 1998 1997 1996 1995(1) PRO FORMA(1) 1994(1) PRO FORMA(1) ---- ---- ---- ---- --------- ---- --------- (unaudited) (unaudited) (Dollars in thousands except per share data) Revenues.......................... $683,869 $671,277 $663,426 $574,186 $575,732 $480,659 $541,390 Income from operations............ 176,267 192,281 191,585 162,416 162,736 127,578 148,151 Income before provision for income taxes................ 205,407 221,926 231,610(2) 183,258 183,578 140,839 161,412 Net income........................ 136,048 143,382 150,000(2) 117,312 117,490 88,300 101,196 ======== ======== ======== ======== ======== ======== ======== Basic earnings per share.......... $1.86 $1.93 $2.02(2) $1.60 $1.60 $1.19 $1.36 ======== ======== ======== ======== ======== ======== ======== Diluted earnings per share........ $1.79 $1.91 $1.99(2) $1.57 $1.58 $1.17 $1.34 ======== ======== ======== ======== ======== ======== ======== Special dividend per share........ -- $1.00 -- -- -- -- -- ======== ======== ======== ======== ======== ======== ======== Balance Sheets: August 31, 1995 1994 1998 1997 1996 1995(1) PRO FORMA(1) 1994(1) PRO FORMA(1) ---- ---- ---- ---- --------- ---- --------- (unaudited) (unaudited) (Dollars in thousands) Cash and investments.............. $ 747,509 $730,049 $644,380 $529,025 $529,025 $430,048 $430,048 Advances to producers............. 130,000 65,000 130,000 60,000 60,000 60,000 60,000 Working capital................... 310,941 586,075 519,613 477,972 477,972 294,336 307,232 Total assets...................... 1,023,598 902,067 854,141 686,786 688,332 569,562 630,293 Stockholders' equity.............. 881,211 784,082 737,885 575,737 575,915 459,077 471,973 ========= ======== ======== ======== ======= ======== ========
19 - ----------------------- 1. The results of operations for fiscal 1995 and 1994 reflect a change in accounting for revenue recognition adopted prospectively in the fourth quarter of fiscal 1994. The one-time impact of adopting such change was to cause revenues, income from operations, income before provision for income taxes, net income, basic earnings per share and diluted earnings per share in the fourth quarter of fiscal 1994 to be approximately $60.7 million, $20.6 million, $20.6 million, $12.9 million, $.17 and $.17, lower, respectively, than they would have been under the Company's prior revenue recognition practice. Such revenues were recognized in fiscal 1995 under the modified accounting practice. The results of operations for fiscal 1995 would have been substantially the same as that actually reported if the Company's prior revenue recognition practice had been in effect for all of fiscal 1995. The unaudited 1995 and 1994 pro forma data are presented for comparison purposes only and represent the results of operations and balance sheet information assuming the Company's prior revenue recognition practice had been in effect in the fourth quarter of fiscal 1994 and in fiscal 1995. 2. Income before provision for income taxes, net income, basic earnings per share and diluted earnings per share include a nonrecurring gain of approximately $14.1 million, $10.3 million, $.14 and $.14, respectively, as a result of the Company's sale of Buffalo Broadcasting Co. Inc. to LIN Television Corporation in October 1995. See Note 8 of Notes to Consolidated Financial Statements. 20 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL The Company's revenues consist principally of fees from the licensing of syndicated television programs and series which may be in the form of cash, retained advertising time or both. In addition, revenues include fees from the sale of advertising time on programs distributed to television stations by others. The Company typically receives a portion of the fees derived from the licensing of syndicated television programming in the form of retained advertising time, which is sold to advertisers by King World Media Sales Inc. ("KWM"), a wholly-owned subsidiary of the Company. Such revenues are recognized at the same time as the cash portion of the license fees derived from such programming is recognized, in amounts adjusted for expected ratings. See Note 1 of Notes to Consolidated Financial Statements. All share (excluding treasury shares) and per share data have been adjusted to give effect to a two-for-one stock split, effected in the form of a 100% stock dividend, which was paid by the Company on February 17, 1998. The discussion herein contains certain forward-looking statements covering the Company's objectives, planned or expected activities and anticipated financial performance. These forward-looking statements may generally be identified by words such as "expects", "anticipates", "believes", "plans", "should", "will", "may", "projects" (or variants of these words or phrases), or similar language indicating the expression of an opinion or view concerning the future with respect to the Company's financial position, results of operations, prospects or business. The Company's actual results may differ significantly from the results described in or suggested by such forward-looking statements. RESULTS OF OPERATIONS Comparison of Fiscal 1998 and Fiscal 1997 REVENUES Revenues for fiscal 1998 increased by approximately 2% compared to fiscal 1997, primarily due to increased revenues from the sale of retained advertising time on and increased cash license fees from THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY!, offset by lower revenues from ROLONDA, a first-run syndicated talk-show produced and distributed by the Company (due to the discontinuation of the show), and King World Direct, the Company's wholly owned, direct response marketing subsidiary. The decrease in revenues from King World Direct was attributable to significantly lower sales of the WILD AMERICA video series and the Company's reduced participation in the revenues from Sears Craftsman Robogrip pliers. 21 The principal components of the Company's revenues for fiscal 1998 and 1997 are as follows: 1998 1997 ---- ---- THE OPRAH WINFREY SHOW 42% 40% WHEEL OF FORTUNE 21% 20% JEOPARDY! 18% 17% INSIDE EDITION 7% 8% AMERICAN JOURNAL (1) 4% 4% ROLONDA (2) -- 1% King World Direct 1% 4% (1) The production of AMERICAN JOURNAL was discontinued after the 1997-1998 broadcast season. (2) The production of ROLONDA was discontinued after the 1996-1997 broadcast season. PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS Producers' fees, programming and other direct operating costs include primarily the producers' share of both cash license fees from the sale of programming to television stations and revenues derived from the sale of retained advertising time to advertisers with respect to program ming distributed by the Company; participation payments payable by the Company to producers and talent; production and distribution costs for first-run syndicated programming; and the direct operating costs of King World Direct. That portion of any recognized revenue that is to be paid to producers and owners of programming is accrued as such revenues are earned. The share of revenues payable by the Company to producers, talent and others is generally paid as cash license fees and revenues derived from the sale of retained advertising time are received from television stations and advertisers. Under the terms of its agreement with Harpo, Inc. ("Harpo"), the producer of THE OPRAH WINFREY SHOW, following the 1996-1997 broadcast season, the profit sharing arrangements between Harpo and the Company previously in effect were terminated and, in the 1997-1998 broadcast season and thereafter, the Company instead receives distribution fees based on a percentage of gross revenues derived from the series. These arrangements are less favorable to the Company than those contained in prior agreements between the Company and Harpo. 22 As a result of these changes, the contribution of THE OPRAH WINFREY SHOW to the Company's net profits and cash flow has declined. Producers' fees, programming and other direct operating costs increased by approximately 9% in fiscal 1998 compared to fiscal 1997. The increase was primarily due to the greater portion of revenues payable to Harpo, as discussed above, as well as the increase in revenues generated by THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY! (a portion of which is payable to the producer of each such series). These effects were partially offset by the lower operating costs of King World Direct and a decrease in production costs due to the discontinuation of ROLONDA. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The Company has entered into employment agreements with its Chairman of the Board, its Vice Chairman and Chief Executive Officer and certain other executive officers. Certain of such agreements provide, among other things, for performance-based bonuses, including bonuses payable upon the introduction of new shows and bonuses which vary depending on the Company's net income and Common Stock price during pre-established measurement periods. As a result, the Company's compensation expense will increase if the Company introduces a new series in syndication, if the Company's net income increases or if the Company's Common Stock price exceeds the specified levels during the applicable measurement periods. The Company has recognized the impact of certain of these bonuses in its operating results for fiscal 1998, which include all amounts payable in accordance with the terms of such employment agreements. Selling, general and administrative expenses for fiscal 1998 decreased by approximately 8% from fiscal 1997. The decrease was primarily due to a decrease in advertising and promotion costs for THE OPRAH WINFREY SHOW, ROLONDA and AMERICAN JOURNAL, a first-run syndicated newsmagazine produced and distributed by the Company, partially offset by an increase in the cost of programming under development and greater costs incurred in connection with the sales of programs distributed by the Company. NET INCOME AND EARNINGS PER SHARE Due to the factors discussed above, the Company's operating income for fiscal 1998 decreased by approximately 8% compared to fiscal 1997. Net income decreased by approximately $7.3 million, or 5%, for fiscal 1998 compared to fiscal 1997, reflecting the decrease in operating income and slightly lower interest income earned on the Company's cash and investments, partially offset by a lower effective tax rate for fiscal 1998. Basic earnings per share decreased by approximately 4%, from $1.93 per share in fiscal 1997 to $1.86 per share in fiscal 1998 as a result of the decrease in net income, offset by a decrease in the weighted average shares of Common Stock outstanding resulting from the Company's stock repurchase program. Diluted earnings per 23 share decreased by 6% from $1.91 per share in fiscal 1997 to $1.79 per share in fiscal 1998, due primarily to a higher average Common Stock price during fiscal 1998 (which resulted in a greater dilutive effect of outstanding stock options under the method used by the Company to calculate diluted earnings per share). The Company's results of operations are highly dependent upon the viewing preferences of television audiences and the Company's ability to acquire distribution rights to, or itself produce, television programming that achieves broad and enduring audience acceptance. The success of the Company's programming could be significantly affected by changes in viewer preferences or the unavailability of new programming or talent. Moreover, the amount of revenue derived from the sale of retained advertising time is dependent upon a large number of factors, such as household ratings, the demographic composition of the viewing audience and economic conditions in general and in the advertising business in particular. Due to the success of the shows distributed by the Company and in order to mitigate the influence of some of the factors referred to above, the Company has been obtaining multi-year licenses and license renewals from television stations for its principal distribution properties, extending as far into the future as the 2004-2005 broadcast season. In general, these licenses and renewals have been at rates as favorable or more favorable to the Company as the rates applicable to the 1997-1998 broadcast season. All such licenses and renewals are contingent upon the continued production of the series by their respective producers through the broadcast seasons for which the licenses run. The Company believes that the state of readiness with regard to the year 2000 compliance of its various information systems is adequate. Also, the Company is communicating with its significant customers and vendors to understand their year 2000 issues and, to date, no significant customers or vendors have informed the Company that a material year 2000 issue exists. The Company believes that the impact of inflation on its operations has not been significant. Comparison of Fiscal 1997 and Fiscal 1996 REVENUES Revenues for fiscal 1997 increased by approximately 1% compared to fiscal 1996, primarily due to increased cash license fees from THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE and, to a lesser extent, JEOPARDY!, offset by lower revenues derived from the sale of retained advertising time on INSIDE EDITION, AMERICAN JOURNAL and ROLONDA. 24 The principal components of the Company's revenues for fiscal 1997 and 1996 are as follows: 1997 1996 ---- ---- THE OPRAH WINFREY SHOW 40% 39% WHEEL OF FORTUNE 20% 19% JEOPARDY! 17% 17% INSIDE EDITION 8% 8% AMERICAN JOURNAL 4% 4% ROLONDA 1% 2% King World Direct 4% 4% PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS Producers' fees, programming and other direct operating costs for fiscal 1997 were comparable to fiscal 1996, decreasing by less than 1%, primarily as a result of a significant decrease in operating costs of King World Direct, offset by a modest increase in revenues generated by THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE and, to a lesser extent, JEOPARDY! (a portion of which revenues is payable to the producer of each such series). SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for fiscal 1997 increased by approximately 12% from fiscal 1996. Such increase was primarily due to higher compensation costs associated principally with the hiring of new executives and additional personnel and a general increase in advertising and promotion costs. In addition, selling, general and administrative expenses for fiscal 1997 were impacted by increased activity with respect to programming under development. NET INCOME AND EARNINGS PER SHARE Due to the factors discussed above, the Company's operating income for fiscal 1997 was comparable to fiscal 1996, increasing by less than 1%. Reported net income for fiscal 1997 decreased by approximately $6.6 million compared to fiscal 1996 as a result of the Company recording a nonrecurring gain of approximately $14.1 million on the sale of Buffalo Broadcasting Co. Inc. ("Buffalo") to LIN Television Corporation during the first quarter of fiscal 1996. Reported basic earnings per share decreased for fiscal 1997 to $1.93 per share from $2.02 per share for fiscal 1996, and reported diluted earnings per 25 share decreased for fiscal 1997 to $1.91 per share from $1.99 per share for fiscal 1996, as a result of the nonrecurring gain from the sale of Buffalo. Absent the nonrecurring gain on the sale of Buffalo, net income increased by approximately $3.7 million, or 3%, for fiscal 1997 in comparison to fiscal 1996, reflecting the slight increase in operating income, higher interest income earned on the Company's cash and investments and a marginally lower effective tax rate for fiscal 1997 compared with fiscal 1996. Absent the nonrecurring gain on the sale of Buffalo, basic earnings per share increased by $.05 per share, or approximately 3%, for fiscal 1997 compared to fiscal 1996, and diluted earnings per share increased by $.06 per share, or approximately 3%, for fiscal 1997 compared to fiscal 1996, as a result of the increase in net income. LIQUIDITY AND CAPITAL RESOURCES For several years, the Company has been, and is now, in the process of developing new television shows for syndication that it hopes will gain widespread audience appeal, generate significant profits and cash flow for the Company, and reduce the significance of any one broadcast property on the Company's operating results. Two such shows, THE ROSEANNE SHOW and a new version of the game show HOLLYWOOD SQUARES, premiered in September 1998, and a variety/talk show hosted by Martin Short is being developed for distribution by the Company, with a possible premiere in Fall 1999. The Company requires capital resources to fund development, production and promotion costs of independently produced programming, including, in some instances, advances to producers and talent, to produce its own programs and to acquire distribution rights to new programming. In acquiring distribution rights from independent producers, King World has tried to avoid making significant capital commitments to such producers until it has obtained broadcast commitments from a substantial number of television stations. As a result of this strategy and the success of its existing syndication properties, to date, King World has funded substantially all programming acquisition, development, production and promotion costs and advances from its operations. The distribution of television programming is highly competitive and the Company may be obliged to offer, among other things, guarantees and cash advances to acquire, renew or extend distribution rights. Under the terms of King World's previous agreement with Harpo, King World was the exclusive distributor of THE OPRAH WINFREY SHOW through the 1999-2000 broadcast season. Such agreement was amended in September 1998 to provide for Harpo and Ms. Winfrey to produce and host the show for the 2000-2001 and 2001-2002 broadcast seasons and to extend the engagement of King World as the exclusive distributor of the show for those seasons. Under the amended agreement, King World will continue to receive distribution fees based on a percentage of the gross revenues generated by the show. Such distribution fees are significantly less than those applicable 26 to seasons through the 1999-2000 broadcast season, and, as a result, the contribution of THE OPRAH WINFREY SHOW to King World's net profits and cash flow will decline. In January 1996, the Company paid Harpo a $65 million advance against Harpo's guaranteed share of gross revenues for the 1997-1998 broadcast season, which was fully recouped as of August 31, 1998. In September 1997, the Company made advances to Harpo in the aggregate amount of $130 million against Harpo's guaranteed share of gross revenues for the 1998-1999 and 1999-2000 broadcast seasons, none of which had been recouped as of August 31, 1998. Subsequent to August 31, 1998, the Company paid an advance to Harpo of $75 million against Harpo's guaranteed share of gross revenues for the 2000-2001 broadcast season and agreed to pay, in June 2000, an additional $75 million against Harpo's guaranteed share of gross revenues for the 2001-2002 broadcast season. Based on the license agreements in place for the 1998-1999 through the 2001-2002 broadcast seasons, the Company believes that revenues from the series will be sufficient to enable the Company to recoup the advances for such seasons. All of the advances paid to Harpo are refundable to the Company by Harpo and Ms. Winfrey if King World terminates its agreement with Harpo due to Harpo's failure to deliver episodes of THE OPRAH WINFREY SHOW. The Company has used its cash reserves to make acquisitions of and investments in broadcast and related properties in the entertainment field, to repurchase shares of its Common Stock and to fund the cost of development, production and promotion of new programming. The Company continues to evaluate opportunities in these areas, and may seek to raise capital in public or private securities markets to finance such activities if it considers it advantageous to do so. On April 15, 1997, the Company announced that the Board of Directors had approved a program to repurchase up to 10,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions. Through November 10, 1998, 4,923,100 shares of its Common Stock had been repurchased in open market transactions for aggregate consideration of approximately $113.6 million, or approximately $23.07 per share. The Company intends to continue to repurchase shares of its Common Stock in the open market and in privately negotiated transactions if and when it deems it advantageous to do so. Purchases under the share repurchase program will be financed out of the Company's available cash and liquid investments. In May 1997, a special dividend distribution of $1.00 per share was paid to stockholders of record on April 25, 1997. The Company used approximately $74.8 million of its cash and liquid investments to pay the special dividend. The Company has no present plan to declare additional cash dividends in the foreseeable future. In January 1998, the Company's Board of Directors declared a two-for-one stock split, effected in the form of a 100% stock dividend, which was paid on February 17, 1998 to stockholders of record on February 3, 27 1998. In connection with the stock split, the Company increased the number of authorized shares of Common Stock from 75 million to 150 million, which increase was approved by the stockholders of the Company in January 1998. The par value of the additional 36,738,470 shares of Common Stock issued in connection with the stock split was credited to Common Stock and a like amount was charged to paid-in capital. The Company has entered into agreements with television stations for the future distribution of programming commencing with the 1998-1999 broadcast season and extending as far into the future as the 2004-2005 broadcast season, under which the revenues and related expenses will not be recognized until the license periods thereunder have begun and certain other conditions are satisfied. As of November 10, 1998, the gross amount of license fees under such agreements approximated $2.0 billion, of which approximately $1.3 billion is payable to producers and others and is to be recognized as an expense. The recognition of such amounts in the consolidated financial statements of the Company in fiscal years subsequent to August 31, 1998 is subject to the Company's continued distribution of such programming. Such amounts do not include sales of advertising time retained during the broadcast of such programming or foreign license fees. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Financial Statements listed in the accompanying Index to Consolidated Financial Statements which appear elsewhere in this Annual Report. Information required by the schedules called for under Regulation S-X is either not applicable or is included in the consolidated financial statements or notes thereto. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 28 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Public Accountants . . . . . . . . 32 Consolidated Balance Sheets as of August 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . 33 Consolidated Statements of Income for the years ended August 31, 1998, 1997 and 1996 . . . . . . . . . 35 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1998, 1997 and 1996 . . . . 36 Consolidated Statements of Cash Flows for the years ended August 31, 1998, 1997 and 1996 . . . . . . . . . 37 Notes to Consolidated Financial Statements . . . . . . . 38 29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To King World Productions, Inc.: We have audited the accompanying consolidated balance sheets of King World Productions, Inc. (a Delaware corporation) and subsidiaries as of August 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended August 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of King World Productions, Inc. and subsidiaries as of August 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP New York, New York October 16, 1998 30 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS AUGUST 31, 1998 1997 (Dollars in thousands) CURRENT ASSETS: Cash and cash equivalents.............. $ 188,778 $ 317,782 Short-term investments................. 88,016 234,677 Accounts receivable (net of allowance for doubtful accounts of $3,301 and $4,101 in 1998 and 1997, respectively).............. 75,423 75,092 Producer advances and deferred costs....................... 99,965 74,652 Other current assets................... 1,146 1,857 --------- -------- Total current assets................. 453,328 704,060 --------- -------- LONG-TERM INVESTMENTS, at cost, which approximates market value...... 470,715 177,590 --------- -------- FIXED ASSETS, at cost: Office and transportation equipment.... 20,304 12,522 Furniture, leaseholds and other improvements......................... 8,371 6,255 Film and videotape masters............. 2,678 2,678 --------- -------- 31,353 21,455 Less-accumulated depreciation and amortization......................... (13,613) (11,706) ---------- -------- 17,740 9,749 ---------- -------- PRODUCER ADVANCES AND OTHER ASSETS....................... 81,815 10,668 ---------- -------- $1,023,598 $902,067 ========== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 31 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) LIABILITIES AND STOCKHOLDERS' EQUITY AUGUST 31, 1998 1997 (Dollars in thousands) CURRENT LIABILITIES: Accounts payable and accrued liabilities.......................... $ 15,913 $ 18,014 Payable to producers and others........ 96,118 69,599 Income taxes payable................... 30,356 30,372 ---------- --------- Total current liabilities.......... 142,387 117,985 ---------- --------- COMMITMENTS AND CONTINGENCIES (Note 4) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued.......................... -- -- Common stock, $.01 par value; 150,000,000 shares authorized, 88,650,301 and 87,664,828 shares issued in 1998 and 1997, respectively......................... 887 877 Paid-in capital........................ 138,219 124,130 Retained earnings...................... 1,137,238 1,001,190 Treasury stock, at cost; 16,284,794 and 14,413,594 shares in 1998 and 1997, respectively................... (395,133) (342,115) ---------- --------- 881,211 784,082 ---------- --------- $1,023,598 $ 902,067 ========== ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 32 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED AUGUST 31, 1998 1997 1996 (Dollars in thousands except per share data) REVENUES............................... $683,869 $671,277 $663,426 -------- -------- -------- EXPENSES: Producers' fees, programming and other direct operating costs....... 430,653 395,489 397,494 Selling, general and admini- strative expenses.................. 76,949 83,507 74,347 -------- -------- -------- 507,602 478,996 471,841 -------- -------- -------- Income from operations............... 176,267 192,281 191,585 INTEREST AND DIVIDEND INCOME........... 29,140 29,645 25,965 NONRECURRING GAIN - Sale of Buffalo Broadcasting Co. Inc......... -- -- 14,060 -------- ------- -------- Income before provision for income taxes....................... 205,407 221,926 231,610 PROVISION FOR INCOME TAXES............. 69,359 78,544 81,610 -------- ------- -------- Net income........................... $136,048 $143,382 $150,000 ======== ======== ======== BASIC EARNINGS PER SHARE............... $1.86 $1.93 $2.02 ======== ======== ======== DILUTED EARNINGS PER SHARE............. $1.79 $1.91 $1.99 ======== ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 33
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Paid-in Retained Treasury Shares $ Capital Earnings Stock ---------- ----- ------- -------- ------- (Dollars in thousands) Balance - August 31, 1995........................ 85,373,896 $855 $ 87,261 $ 782,651 $(295,041) Exercise of stock options.............. 1,681,988 16 23,038 -- -- Purchase of treasury stock............. -- -- -- -- (10,898) Net income............................. -- -- -- 150,000 -- ---------- ---- -------- ---------- --------- Balance- August 31, 1996 87,055,884 871 110,299 932,651 (305,939) Exercise of stock options.............. 608,944 6 13,831 -- -- Purchase of treasury stock............. -- -- -- -- (36,176) Special dividend....................... -- -- -- (74,843) -- Net income............................. -- -- -- 143,382 -- ---------- ---- -------- ---------- --------- Balance - August 31, 1997........................ 87,664,828 877 124,130 1,001,190 (342,115) Exercise of stock options.............. 985,473 10 14,089 -- -- Purchase of treasury stock ............ -- -- -- -- (53,018) Net income ............................ -- -- -- 136,048 -- ---------- ---- -------- ---------- --------- Balance - August 31, 1998........................ 88,650,301 $887 $138,219 $1,137,238 $(395,133) ========== ==== ======== ========== ========= The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
34
KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED AUGUST 31, 1998 1997 1996 (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................................. $136,048 $143,382 $150,000 Items not affecting cash: Gain on sale of Buffalo Broadcasting Co. Inc............................................ -- -- (14,060) Depreciation and amortization..................................... 1,907 1,203 800 Change in assets and liabilities: Accounts receivable............................................... (331) (14,597) (9,022) Producer advances and deferred costs.................................................. (92,480) 60,173 (46,740) Accounts payable and accrued liabilities..................................................... (2,101) 2,777 4,167 Payable to producers and others.......................................................... 26,519 (2,321) 1,829 Income taxes payable.............................................. (16) 1,273 3,469 Other, net........................................................ (3,269) (965) 3,391 -------- -------- -------- Net cash provided by operating activities........................................................... 66,277 190,925 93,834 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in investments................................................ (146,464) (112,653) (217,485) Proceeds from sale of Buffalo Broadcasting Co. Inc................................................. -- -- 9,802 Additions to fixed assets.............................................. (9,898) (8,071) (429) -------- -------- -------- Net cash used in investing activities................................................. (156,362) (120,724) (208,112) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock................................................................ 14,099 13,834 23,046 Purchase of treasury stock............................................. (53,018) (36,176) (10,898) Payment of special dividend............................................ -- (74,843) -- -------- -------- -------- Net cash (used in) provided by financing activities................................................. (38,919) (97,185) 12,148 -------- -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS................................................... (129,004) (26,984) (102,130) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR...................................................... 317,782 344,766 446,896 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR............................................................ $188,778 $317,782 $344,766 ======== ======== ======== The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
35 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of significant accounting policies PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of King World Productions, Inc. and its subsidiaries. All significant intercompany transactions have been eliminated. Unless the context suggests otherwise, the "Company", as used herein, means King World Productions, Inc. ("King World") and its consolidated subsidiaries. All share (excluding treasury shares) and per share data presented in these Consolidated Financial Statements have been adjusted to give effect to a two-for-one stock split, effected in the form of a 100% stock dividend, which was paid by the Company on February 17, 1998. REVENUE RECOGNITION License fees from first-run syndicated television properties are recognized at the commencement of the license period pursuant to noncancelable agreements and as each show is made available to the licensee via satellite transmission. Because transmission to the satellite takes place, on the average, no more than two to three days prior to the broadcast of the programming, revenues are recognized on or about the air date. The Company typically receives a portion of the fees derived from the licensing of syndicated television programming in the form of retained advertising time, which is sold to advertisers by King World Media Sales Inc. ("KWM"), a wholly-owned subsidiary of the Company. Such revenues are recognized at the same time as the cash portion of the license fees derived from such programming is recognized, in amounts adjusted for expected ratings. License fees for non-first-run syndicated properties are recognized at the gross contract amount (net of discount to present value for license periods greater than one year) at the commencement of the license period and when certain other conditions are satisfied. PRINCIPAL PROPERTIES The Company's principal properties are licenses to distribute THE OPRAH WINFREY SHOW, WHEEL OF FORTUNE and JEOPARDY!; and INSIDE EDITION, a first-run syndicated series produced and distributed by the Company. 36 (1) Summary of significant accounting policies The contribution of each program to the Company's total revenues for fiscal 1998, 1997 and 1996 was as follows: 1998 1997 1996 ---- ---- ---- THE OPRAH WINFREY SHOW 42% 40% 39% WHEEL OF FORTUNE 21% 20% 19% JEOPARDY! 18% 17% 17% INSIDE EDITION 7% 8% 8% The Company distributes THE OPRAH WINFREY SHOW pursuant to an agreement with Harpo, Inc. ("Harpo"), the producer of the series. Under the terms of King World's previous agreement with Harpo, King World was the exclusive distributor of THE OPRAH WINFREY SHOW through the 1999-2000 broadcast season. Such agreement was amended in September 1998 to provide for Harpo and Ms. Winfrey to produce and host the show for the 2000-2001 and 2001-2002 broadcast seasons and to extend the engagement of King World as the exclusive distributor of the show for those seasons. Under the terms of its agreement with Harpo, following the 1996-1997 broadcast season, the profit sharing arrangements between Harpo and the Company previously in effect were terminated and, in the 1997-1998 broadcast season and thereafter, the Company instead receives distribution fees based on a percentage of gross revenues derived from the series. These arrangements are less favorable to the Company than those contained in prior agreements between the Company and Harpo. As a result of these changes, the Company's net profits and cash flow have declined. Also, the distribution fees payable for the 2000-2001 and 2001-2002 broadcast seasons are significantly less than those applicable to seasons through the 1999-2000 season, and as a result, the contribution of THE OPRAH WINFREY SHOW to the Company's net profits and cash flow will further decline. The Company's agreements with Columbia TriStar Television provide that the Company shall be the exclusive distributor for WHEEL OF FORTUNE and JEOPARDY! so long as the Company has obtained sufficient broadcast commitments to cover such series' respective production and distribution costs and that the Company may not, unless otherwise agreed by Columbia TriStar Television, distribute game shows for syndication so long as the Company is distributing WHEEL OF FORTUNE or JEOPARDY!. For several years, the Company has been, and is now, in the process of developing new television shows for syndication that it hopes will gain widespread audience appeal, generate significant profits and cash flows for the Company and reduce the significance of any one broadcast property on the Company's operating results. Two such shows, THE ROSEANNE SHOW and a new version 37 (1) Summary of significant accounting policies of the game show HOLLYWOOD SQUARES, premiered in September 1998, and a variety/talk show hosted by Martin Short is being developed for distribution by the Company, with a possible premiere in Fall 1999. In September 1997, the Company and Columbia TriStar Television announced their agreement to co-produce a new version of the game show HOLLYWOOD SQUARES, which is distributed by the Company in first-run syndication and debuted in September 1998. The Company has entered into an agreement with Full Moon & High Tide Productions, Inc., a company controlled by Roseanne, to co-produce THE ROSEANNE SHOW, an hour-long strip talk show hosted by Roseanne and distributed by the Company in first-run syndication. The series premiered in September 1998. Under the terms of the agreement, the Company will have the exclusive right to distribute the show through the 2003-2004 broadcast season. PRODUCERS' FEES, PROGRAMMING AND OTHER DIRECT OPERATING COSTS Producers' fees, programming and other direct operating costs include primarily the producers' share of both cash license fees from the sale of programming to television stations and revenues derived from the sale of retained advertising time to advertisers with respect to programming distributed by the Company; participation fees payable by the Company to producers and talent; production and distribution costs for first-run syndicated programming; and the direct operating costs of King World Direct, the Company's wholly-owned direct response marketing subsidiary. That portion of any recognized revenue that is to be paid to producers and owners of programming is accrued as such revenues are earned. The share of revenues payable by the Company to such producers and others is generally paid as cash license fees and revenues derived from the sale of retained advertising time are received from television stations and advertisers. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses include advertising and promotion costs associated with programming distributed by the Company, which amounted to $22,876,000, $33,150,000 and $31,329,000 in fiscal 1998, 1997 and 1996, respectively. These amounts include the producers' share of such costs. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash equivalents and short-term investments are comprised principally of municipal obligations, money market funds, money market preferred investments, commercial paper and United States Treasury and other agency obligations whose maturities are one year or less and are carried at amortized cost, which approximates market value. The Company considers its highly liquid 38 (1) Summary of significant accounting policies short-term investments purchased with a maturity of three months or less to be cash equivalents. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet and measured at its fair value. This statement also requires that changes in the derivative's fair value be recognized currently in earnings. To date, the Company has not, and has no present intention, to invest in any derivative instruments or participate in any hedging activities. Accordingly, the adoption of SFAS 133 will not have any effect on the Company. PRODUCER ADVANCES AND DEFERRED COSTS Producer advances and deferred costs include pre-production, production and promotion costs, as well as talent and producer participation advances, in connection with certain first-run syndicated programs distributed by the Company for broadcast during seasons subsequent to August 31, 1998. Such costs are charged to expense as the revenues from such programs are earned. Advances are recouped from the share of revenues payable by the Company to producers, talent and others. In January 1996, the Company paid Harpo a $65 million advance against Harpo's guaranteed share of gross revenues for the 1997-1998 broadcast season, which was fully recouped as of August 31, 1998. In September 1997, the Company made advances to Harpo in the aggregate amount of $130 million against Harpo's guaranteed share of gross revenues for the 1998-1999 and 1999-2000 broadcast seasons, none of which had been recouped as of August 31, 1998. Subsequent to August 31, 1998, the Company paid an advance to Harpo of $75 million against Harpo's guaranteed share of gross revenues for the 2000-2001 broadcast season and agreed to pay, in June 2000, an additional $75 million against Harpo's guaranteed share of gross revenues for the 2001-2002 broadcast season. Based on the license agreements in place for the 1998-1999 through the 2001-2002 broadcast seasons, the Company believes that revenues from the series will be sufficient to enable the Company to recoup the advances for such seasons. All of the advances paid to Harpo are refundable to the Company by Harpo and Ms. Winfrey if King World terminates its agreement with Harpo due to Harpo's failure to deliver episodes of THE OPRAH WINFREY SHOW. LONG-TERM INVESTMENTS Long-term investments are comprised principally of intermediate-term municipal obligations and United States Treasury and other agency obligations whose maturities are between one and seven years and are carried at amortized cost which approximates market value. 39 (1) Summary of significant accounting policies FIXED ASSETS Fixed assets are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method for financial reporting purposes and accelerated methods for tax purposes, with estimated useful lives of 3 to 5 years for furniture, office and transportation equipment and 5 years for film and videotape masters. Leaseholds and other improvements are amortized over the shorter of their useful lives and the lease term. Depreciation and amortization expense was approximately $1,907,000, $1,203,000 and $800,000 in fiscal 1998, 1997 and 1996, respectively. STOCKHOLDERS' EQUITY In the first quarter of fiscal 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 requires the presentation of "basic" earnings per share, which excludes any common stock equivalents and their related dilution, and "diluted" earnings per share, which includes the potential dilution from all common stock equivalents including options, warrants and convertible securities. Basic earnings per share has been computed using the weighted average shares of Common Stock outstanding of 73,157,000, 74,180,000 and 74,343,000 for the fiscal years ended August 31, 1998, 1997 and 1996, respectively. Diluted earnings per share which includes the dilutive effect of the assumed exercise of vested and unvested stock options outstanding as of the end of each period reported, has been computed using the weighted average shares of Common Stock outstanding of 76,078,000, 74,992,000 and 75,368,000 for the fiscal years ended August 31, 1998, 1997 and 1996, respectively. Reported earnings per share in prior periods have been restated to conform with the provisions of SFAS 128. The Company is authorized to issue 5,000,000 shares of Preferred Stock, $.01 par value. The Board of Directors is empowered, without further stockholder approval, to establish from time to time one or more series of Preferred Stock and to determine the powers, preferences and special rights of any unissued series of Preferred Stock, including voting rights, dividend rights, terms of redemption, liquidation preferences, conversion rights and the designation of any such series. INDUSTRY SEGMENTS AND CUSTOMERS The Company operates in one business segment, television program ming. The Company's major customers and principal facilities are located within the United States. In the 1998, 1997 and 1996 fiscal years, approximately 14%, 13% and 12%, respectively, of the Company's revenues were derived from license fees under contracts with a single broadcast group. 40 (1) Summary of significant accounting policies USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) Pension and profit sharing plans The Company maintains the King World Productions, Inc. Retirement Savings Plan with an employee pre-tax salary deferral contribution program under Section 401(k) of the Internal Revenue Code. Under the plan, employer matching contributions may not exceed 3% of annual compensation per employee and employer fixed contributions are limited to 3% of annual salary per employee, subject to a maximum total employer contribution of approximately $10,000 per employee for fiscal 1998. The plan covers substantially all of the Company's employees other than those involved in the production of programming produced by the Company. Contributions by the Company to the plan were approximately $709,000, $576,000 and $491,000 in fiscal 1998, 1997 and 1996, respectively. (3) Income taxes The components of the Company's provision for income taxes are summarized as follows: YEAR ENDED AUGUST 31, 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Federal: Current..................... $59,076 $64,824 $71,525 Deferred.................... 2,081 1,562 (2,293) ------- ------- ------- 61,157 66,386 69,232 ------- ------- ------- State and local: Current..................... 8,115 12,067 12,511 Deferred.................... 87 91 (133) ------- ------- ------- 8,202 12,158 12,378 ------- ------- ------- Total................... $69,359 $78,544 $81,610 ======= ======= ======= Deferred income taxes and benefits are provided for any income and expense items that are recognized in different years for tax return and 41 financial reporting purposes. No individual temporary difference gives rise to significant deferred tax assets or liabilities. The current provision in each period presented above does not include reductions to income taxes payable attributable to the exercise of stock options. See Note 5. Following is a reconciliation of the Company's provision for income taxes to the tax computed at the U.S. statutory rate: YEAR ENDED AUGUST 31, 1998 1997 1996 ---- ---- ---- (Dollars in thousands) Tax at U.S. statutory rate........................... $71,892 $77,674 $81,064 State tax provision, net of Federal benefit............. 5,331 7,903 8,046 Tax-exempt interest and dividend income................ (7,780) (6,892) (5,370) Other, net....................... (84) (141) (2,130) ------- ------- ------- $69,359 $78,544 $81,610 ======= ======= ======= Income taxes paid approximated $67.5 million, $73.3 million and $76.8 million in fiscal 1998, 1997 and 1996, respectively. (4) Commitments and contingencies LICENSE FEES The Company has entered into agreements with television stations for the future distribution of programming in broadcast television seasons commencing with the 1998-1999 season and extending as far into the future as the 2004-2005 broadcast season, under which the revenues and related expenses will not be recognized until the license periods thereunder have begun and certain other conditions are satisfied. As of November 10, 1998, the gross amount of license fees under such agreements approximated $2.0 billion, of which approximately $1.3 billion is payable to producers and others and is to be recognized as an expense. The recognition of such amounts in the consolidated financial statements of the Company in fiscal years subsequent to August 31, 1998 is subject to the Company's continued distribution of such programming. Such amounts do not include sales of advertising time retained during the broadcast of such programming or foreign license fees. OPERATING LEASES Rent expense under operating leases covering office facilities, production studios and equipment amounted to approximately $4,078,000, $2,849,000 and $2,559,000 for fiscal 1998, 1997 and 1996, respectively. Office and studio leases are subject to price escalations for certain costs. 42 Aggregate future minimum rental commitments for these leases as of August 31, 1998 were as follows: YEAR ENDING AUGUST 31, (Dollars in thousands) 1999......................... $6,519 2000......................... 5,742 2001......................... 1,845 2002......................... 1,435 2003......................... 872 EMPLOYMENT AND PRODUCTION AGREEMENTS As of August 31, 1998, the Company had entered into employment agreements and agreements with independent contractors relating to programming being or to be produced by King World which provide for aggregate minimum annual compensation as follows: YEAR ENDING AUGUST 31, (Dollars in thousands) 1999......................... $33,531 2000......................... 12,548 2001......................... 1,223 2002......................... 156 2003......................... 0 The Company has entered into employment agreements with its Chairman of the Board, its Vice Chairman and Chief Executive Officer and certain other executive officers. Certain of such agreements provide, among other things, for performance-based bonuses, including bonuses payable upon the introduction of new shows and bonuses which vary depending on the Company's net income and Common Stock price during pre-established measurement periods. The Company has recognized the impact of certain of these bonuses in its operating results for fiscal 1998, which include all amounts payable in accordance with the terms of such employment agreements. LEGAL MATTERS The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to such actions will not have a material adverse effect on the results of operations and financial position of the Company. (5) Stock plans In fiscal 1998, the Company, reserved 2,000,000 additional shares for grants and awards under the 1996 Amended and Restated Stock Option and Restricted Stock Purchase Plan (the "Option/Stock Plan"). As of August 31, 1998 there were 1,806,862 shares available for grant under the Option/Stock 43 Plan. The Option/Stock Plan provides for grants of incentive stock options ("ISOs") and non-qualified stock options, as well as awards of shares of restricted stock, subject to certain conditions. The Option/Stock Plan is currently administered by the Compensation Committee of the Board of Directors. For ISOs granted pursuant to the Option/Stock Plan, the exercise price of options may not be less than the fair market value of the shares on the date of grant and the options may not have a term in excess of ten years. The Compensation Committee has the power to determine the vesting periods for options granted under the Option/Stock Plan. Only full-time employees of the Company and its subsidiaries may be granted ISOs under the Option/Stock Plan. ISOs granted under the Option/Stock Plan are intended to qualify as "incentive stock options" within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). For non-qualified stock options granted pursuant to the Option/Stock Plan, the exercise price of options may be more than, less than or equal to the fair market value of the shares on the date of grant (in the discretion of the Compensation Committee), and the options may be immediately exercisable (in the discretion of the Compensation Committee) and may have a term in excess of ten years. Employees, directors and officers of, and consultants or suppliers to, the Company and its subsidiaries may be granted non-qualified stock options under the Option/Stock Plan. Awards of restricted stock may be granted under the Option/Stock Plan to purchase shares of Common Stock for a price per share that may be more than, equal to or less than the fair market value of such shares on the date of the award. The Compensation Committee has the right to determine vesting provisions, transfer restrictions and other conditions or restrictions with respect to each award. To date, no awards of restricted stock have been granted under the Option/Stock Plan or its predecessor plans. In fiscal 1997, the Company also adopted the Salesforce Bonus Plan (the "Salesforce Plan"), and reserved 1,000,000 shares for grants of options thereunder. The Salesforce Plan provides for grants of non-qualified stock options and certain cash bonuses, subject to certain conditions. The Salesforce Plan is currently administered by the Board of Directors and by the Chairman of the Board of the Company, who is also the head of the Company's salesforce. Any person employed by, or performing services for, the sales department of the Company or any subsidiary of the Company on a full-time basis (excluding directors and officers of the Company) is eligible to receive stock options and cash bonuses under the Salesforce Plan. The exercise price of options granted under the Salesforce Plan must be equal to the fair market value of the shares on the date of grant, and the options shall vest at a rate of 20% at the end of each of the first three 44 years from the date of grant and 40% at the end of the fifth year from grant and shall expire on the date ten years from the date of grant. In fiscal 1989, the Company adopted the Incentive Equity Plan for Senior Executives, pursuant to which an aggregate 5,100,000 shares of Common Stock were reserved for issuance to the Company's Chairman of the Board, President and Chief Executive Officer (who is now its Vice Chairman and Chief Executive Officer), and Executive Vice President and Chief Operating Officer, upon the exercise of options granted thereunder. Each of the Chairman of the Board and the President and Chief Executive Officer was granted non-qualified stock options to purchase 2,400,000 shares of Common Stock, 1,950,000 at an exercise price of $7.88 (the approximate fair market value on the date of grant) and 450,000 at an exercise price of $.01; the Executive Vice President was granted non-qualified stock options to purchase 300,000 shares of Common Stock, 240,000 at an exercise price of $7.88 and 60,000 at an exercise price of $.01. No additional options may be granted under the Executive Plan. In connection with the extensions of the Company's rights to distribute THE OPRAH WINFREY SHOW through the 1999-2000 broadcast season, the Company previously granted to the principals of Harpo options to purchase an aggregate 5,000,000 shares of Common Stock. As of August 31, 1998, 3,900,000 of such options were outstanding and exercisable. In addition, on September 24, 1998, in connection with Harpo's and Ms. Winfrey's commitment to continue to produce and host the show for the 2000-2001 and 2001-2002 broadcast seasons, the Company granted to the principals of Harpo (including some key production executives) options to purchase an aggregate 1,130,000 million shares of Common Stock. All of such options were fully vested at the time of grant and have a term of ten years. The following table summarizes stock option activity at August 31 and for the fiscal years then ended:
1998 1997 1996 ------ ------ ----- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise SHARES PRICE SHARES PRICE SHARES PRICE Outstanding at beginning of year 15,183,206 $17.31 13,341,974 $17.21 7,440,804 $13.85 Granted 1,833,040 $22.27 2,955,334 $18.05 7,855,000 $19.52 Exercised (1,104,640) $11.05 (598,102) $16.40 (1,692,830) $19.80 Canceled (570,200) $18.56 (516,000) $20.02 (261,000) $19.03 ---------- ---------- ---------- Outstanding at end of year 15,341,406 $18.31 15,183,206 $17.31 13,341,974 $17.21 ========== ========== ========== Exercisable at end of year 10,069,736 $17.46 8,014,872 $15.85 6,897,374 $15.07 =========== ========== ==========
45 The following table summarizes stock options outstanding and exercisable at August 31, 1998: Options Outstanding Options Exercisable Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Life Exercise Exercise Prices Shares (in years) Price Shares Price $ .01 to $ 7.88 480,000 0.5 $ 6.40 480,000 $ 6.40 $ 7.89 to $14.25 1,251,700 2.3 $12.52 1,251,700 $12.52 $14.26 to $19.70 6,864,866 6.9 $18.07 4,661,668 $18.03 $19.71 to $29.43 6,744,840 7.4 $20.46 3,676,368 $19.86 ---------- --------- 15,341,406 10,069,736 ========== ========== In October 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). As permitted under SFAS 123, the Company accounts for employee stock compensation arrangements in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25, compensation cost is recognized only when employee stock options are granted at an exercise price lower than that of the market price of the stock on the date of grant. The Company generally does not recognize compensation expense with respect to stock option grants. For stock options granted by the Company after August 31, 1995, SFAS 123 requires that pro forma information regarding net income and earnings per share be disclosed as if the Company had accounted for its options under the fair value method outlined in SFAS 123, which requires a compensation charge to earnings for all options granted during the period. The fair value of the Company's options was estimated using the Black-Scholes option valuation model. The Black-Scholes option valuation model requires the use of highly subjective assumptions, including the expected stock price volatility and expected life of such options. Because the Company's stock options granted to employees have characteristics significantly different from those of traded options (for which the Black-Scholes model was created) and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of Company stock options granted to employees. 46 The fair value of the Company's stock options granted to employees was estimated using the following weighted average assumptions at August 31: 1998 1997 1996 ---------- ---------- ---------- Expected life (in years) 6.50 6.50 6.50 Risk-free interest rate 5.25% 6.50% 6.50% Volatility 30.00% 30.00% 30.00% Dividend yield 0.00% 0.00% 0.00% The weighted average estimated fair value of employee stock options granted during fiscal 1998, 1997 and 1996 was $9.41, $8.13 and $8.80 per share, respectively. For purposes of the pro forma disclosures, the estimated fair value of the options is generally amortized to compensation expense over the options' vesting period. The Company's pro forma net income, basic earnings per share and diluted earnings per share compared to that actually reported at August 31 are as follows: 1998 1997 1996 -------- -------- -------- Net income (in thousands) As reported $136,048 $143,382 $150,000 Pro forma 121,011 134,720 139,762 Basic earnings per share As reported $1.86 $1.93 $2.02 Pro forma 1.65 1.82 1.88 Diluted earnings per share As reported $1.79 $1.91 $1.99 Pro forma 1.59 1.80 1.85 The effects on the pro forma disclosures of applying SFAS 123 to fiscal 1998, 1997 and 1996 are not likely to be representative of the effects on pro forma disclosures of future years. Because SFAS 123 is applicable only to options granted subsequent to August 31, 1995, and the estimated fair value of the options is generally amortized over the five-year vesting period of the Company's employee stock options, the pro forma effect will not be fully reflected until fiscal 2000. The Company realizes a tax benefit in respect of non-qualified stock options based on the difference between the exercise price of the Common Stock subject to the option and the market price thereof on the date of exercise. Tax deductions related to compensation expense in excess of that taken for financial reporting purposes are added to paid-in capital in the period of the tax deduction. The amount of such tax deductions added to paid-in capital approximated $1,898,000, $3,976,000 and $1,342,000 in fiscal 1998, 1997 and 1996, respectively. 47 (6) Dividends and stock repurchases In May 1997, a special dividend distribution of $1.00 per share was paid to stockholders of record on April 25, 1997. The Company used approximately $74.8 million of its cash and liquid investments to pay the special dividend. In April 1997, the Company announced that the Board of Directors had approved a program to repurchase up to 10,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions. Through November 10, 1998, 4,923,100 shares of Common Stock were repurchased in open market transactions for aggregate consideration of approximately $113.6 million or approximately $23.07 per share. The Company intends to continue to repurchase shares of its Common Stock in the open market and in privately negotiated transactions if and when it deems it advantageous to do so. Purchases under the share repurchase program will be financed out of the Company's available cash and liquid investments. In January 1998, the Company's Board of Directors declared a two-for-one stock split, effected in the form of a 100% stock dividend, which was paid on February 17, 1998 to stockholders of record on February 3, 1998. In connection with the stock split, the Company increased the number of authorized shares of Common Stock from 75 million to 150 million, which increase was approved by the stockholders of the Company in January 1998. The par value of the additional 36,738,470 shares of Common Stock issued in connection with the stock split was credited to Common Stock and a like amount was charged to paid-in capital. (7) Quarterly financial summaries (unaudited) 1st 2nd 3rd 4th Fiscal Quarter Quarter Quarter Quarter Year (Dollars in thousands except per share data) FISCAL 1998: Revenues............... $172,926 $173,916 $167,968 $169,059 $683,869 Gross margin........... 65,691 63,222 61,458 62,845 253,216 Income before provision for income taxes................ 52,544 51,285 50,514 51,064 205,407 Net income............. 34,369 33,578 34,202 33,899 136,048 Basic earnings per share............ $.47 $.46 $.47 $.47 $1.86 ======== ======== ======== ======== ======== Diluted earnings per share............. $.45 $.44 $.45 $.45 $1.79 ======== ======== ======== ======== ======== 48 1st 2nd 3rd 4th Fiscal Quarter Quarter Quarter Quarter Year (Dollars in thousands except per share data) FISCAL 1997: Revenues...............$164,287 $175,169 $166,751 $165,070 $671,277 Gross margin........... 65,481 71,405 69,006 69,896 275,788 Income before provision for income taxes................ 53,923 57,185 54,890 55,928 221,926 Net income............. 34,967 36,677 35,705 36,033 143,382 Basic earnings per share............. $.47 $.49 $.48 $.49 $1.93 ======== ======== ======== ======== ======== Diluted earnings per share............. $.46 $.48 $.48 $.49 $1.91 ======== ======== ======== ======== ======== (8) Buffalo Broadcasting Co. Inc. In October 1995 the Company closed its agreement to sell WIVB-TV, the CBS-affiliated VHF television station in Buffalo, New York, to LIN Television Corporation for $95 million in cash. As a result of this transaction, the Company recorded a nonrecurring gain of approximately $14.1 million, of which approximately $9.8 million represents cash proceeds to the Company from the sale. The remaining $4.3 million of such gain represents the reversal of previously recognized accounting losses (with no associated income tax effect) in excess of the Company's original investment. The Company acquired Buffalo Broadcasting Co. Inc. ("Buffalo") in December 1988 in a highly leveraged transaction. In April 1992, the Company and Buffalo's lenders entered into an agreement providing for a financial restructuring of Buffalo effective August 4, 1992. As a result of such restructuring, Buffalo ceased to be a consolidated subsidiary of King World. The Company's investment in Buffalo subsequent to the restructuring was carried at cost. 49 PART III The information required by Part III of Form 10-K is incorporated by reference from the registrant's definitive proxy statement for its 1999 annual meeting of stockholders, which is to be filed pursuant to Regulation 14A not later than December 29, 1998. PART IV Item 10. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a)(1 and 2) Financial Statements. See Index to Consolidated Financial Statements which appears on page 31 of this Annual Report. (3) EXHIBITS: Exhibit NUMBER DESCRIPTION 3.1. Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement No. 2-93987). 3.2. Certificate of Amendment to the Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement No. 33-8357). 3.3. Certificate of Amendment to the Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended May 31,1998). 3.4. Registrant's By-laws, as amended through May 8, 1998 (incorporated by reference to Exhibit 3(ii) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended May 31, 1998). 10.1. Agreement dated July 12, 1984 between Leo A. Gutman, Inc. and the Registrant with exhibits (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement No. 2-93987). 10.2. Agreements dated August 6, 1970, July 31, 1970, and May 29, 1969, between Hal Roach Studios, Inc. and the Registrant, with amendment dated June 8, 1983 and exhibits (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement No. 2-93987). - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 50 10.3.* Distribution Agreement dated December 15, 1982, between Califon Productions, Inc. and the Registrant, with amendment dated July 8, 1983 (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement No. 2-93987). 10.4.* Amendment, dated April 23, 1990, to the Distribution Agreement dated December 15, 1982, between Califon Productions, Inc. and the Registrant (incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1995). 10.5.* Distribution Agreement dated November 1, 1983, between Califon Productions, Inc. and the Registrant, with amendment dated March 26, 1984 (incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement No. 2-93987). 10.6. Employment Agreement, dated December 20, 1995, between Mr. Roger King and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 1996). 10.7. Employment Agreement, dated December 20, 1995, between Mr. Michael King and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 1996). 10.8. Employment Agreement, dated as of June 6, 1997 between Jules Haimovitz and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1997). 10.9. Employment Agreements between the Registrant and the individuals named below: Name of Employee OR CONSULTANT DATE OF AGREEMENT Steven Hirsch . . . . . September 3, 1996 Jonathan Birkhahn . . . September 1, 1996 Michael Spiessbach. . . September 3, 1996 Robert V. Madden. . . . September 3, 1996 (incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1996). - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 51 10.10. King World Productions, Inc. Retirement Savings Plan dated September 17, 1992 (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.11. 1996 Amended and Restated Stock Option and Restricted Stock Purchase Plan of the Registrant (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.12. Incentive Equity Compensation Plan for Senior Executives of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement No. 33-30695). 10.13. Form of Indemnification Agreement between the Registrant and the Registrant's directors (incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.14.* Agreement dated January 30, 1987 between the Registrant and Harpo, Inc. and amendment thereto dated July 29, 1988 (incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.15.* Amendment dated as of October 15, 1989 to the Agreement dated January 30, 1987 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1995). 10.16.* Agreement dated as of March 17, 1994 between the Registrant and Harpo, Inc. (incorporated by reference to Form 8-K/A dated May 18, 1994). 10.17.* Agreement dated as of October 6, 1995 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter ended February 29, 1996). 10.18. Stock Option Agreement dated as of January 28, 1991 between the registrant and Oprah Winfrey (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement No. 33-71696). - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 52 10.19. Stock Option Agreement dated as of January 28, 1991 between the registrant and Jeffrey D. Jacobs (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement No. 33-71696). 10.20. Form of Stock Option Agreement between the registrant and Oprah Winfrey (incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1995). 10.21. Form of Stock Option Agreement between the registrant and Jeffrey D. Jacobs (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1995). 10.22.* Settlement Agreement, dated as of September 15, 1997, by and among Califon Productions, Inc. on Jeopardy Productions, Inc., Sony Pictures Entertainment Inc., The Game Show Network, L.P. and the Registrant (incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.23.* Letter Agreement, dated October 1, 1991, between Orion Pictures Corporation and the Registrant, under which Orion Picture Corporation transferred to the Registrant trademark, copyright and other property rights as more fully described therein to the television series entitled "Hollywood Squares" with accompanying Security Agreement and Assignment (incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.24* Agreement made and entered into on the 14th day of May, 1997, by and between K.W.M., Inc. and Full Moon & High Tide Productions, Inc., providing the services of Roseanne (incorporated by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.25.* Agreement dated as of June 2, 1988 between King World F.S.C. Corporation and Unilever N.V. and amendment thereto dated as of June 13, 1989 (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1994). - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 53 10.26.* Amendment dated as of September 19, 1991 to the Agreement dated as of June 2, 1988 between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.27* Amendment dated June 13, 1994 to the Agreement dated June 2, 1988, as amended as of June 13, 1989 and September 19, 1991, between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1994). 10.28* Amendment dated as of July 11, 1995 to the Agreement dated June 2, 1988, as amended as of June 13, 1989, September 19, 1991 and as of June 13, 1994 between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1995). 10.29* Amendment dated as of September 1, 1996 to the Agreement dated June 2, 1988, as amended as of June 13, 1989, September 19, 1991, June 13, 1994 and July 11, 1995 between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1996). 10.30** Agreement dated March 2, 1998 between the Registrant and MGM Domestic Television Distribution Inc. 10.31** Agreement dated as of September 16, 1998 between the Registrant and Harpo, Inc. 10.32 Employment Agreement, dated May 27, 1997, between the Registrant and Fred Cohen, as amended. 10.33 Employment Agreement, dated September 28, 1995, between the Registrant and Andrew Friendly, as amended. 10.34 Employment Agreement, dated June 23, 1989, between the Registrant and Don Prijatel, as amended. 10.35 Employment Agreement, dated September 1, 1988, between the Registrant and Stuart Stringfellow, as amended. 21.1. List of Subsidiaries of the Registrant. 23.1. Consent of Independent Public Accountants. 27.1 Financial Data Schedule. - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 54 (b) Reports on Form 8-K filed during the last quarter of the fiscal year ended August 31, 1998: On July 27, 1998, the Company filed a current report on Form 8-K announcing that Jules Haimovitz, the Company's President and Chief Operating Officer, had left the Company. For the purposes of complying with the amendments to the rules governing Form S-8 under the Securities Act of 1933, as amended, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statement on Form S-8 No. 33-30695 (filed August 24, 1990): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than for the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 24, 1998 KING WORLD PRODUCTIONS, INC. By /s/ Steven A. LoCascio Steven A. LoCascio Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE /S/ MICHAEL KING Vice Chairman and November 24, 1998 - -------------------- Michael King Chief Executive Officer and Director (principal executive officer) /S/ ROGER KING Director November 24, 1998 Roger King /S/ DIANA KING Director November 24, 1998 Diana King /S/ RICHARD KING Director November 24, 1998 Richard King /S/ JOEL CHASEMAN Director November 24, 1998 Joel Chaseman 56 /S/ FREDRIC D. ROSEN Director November 24, 1998 - -------------------- Fredric D. Rosen /S/ RAYMOND G. CHAMBERS Director November 24, 1998 - ------------------------ Raymond G. Chambers /S/ AVRAM MILLER Director November 24, 1998 Avram Miller /S/ STEVEN A. LOCASCIO November 24, 1998 - ------------------------ Senior Vice President Steven A. LoCascio and Chief Financial Officer (principal financial and accounting officer) 57 EXHIBIT INDEX Exhibit NO. DESCRIPTION PAGE 3.1. Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement No. 2-93987). 3.2. Certificate of Amendment to the Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement No. 33-8357). 3.3. Certificate of Amendment to the Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i) to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended May 31, 1998). 3.4. Registrant's By-laws, as amended through May 8, 1998 (incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the quarterly period ended May 31, 1998). 10.1. Agreement dated July 12, 1984 between Leo A. Gutman, Inc. and the Registrant with exhibits (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement No. 2-93987). 10.2. Agreements dated August 6, 1970, July 31, 1970, and May 29, 1969, between Hal Roach Studios, Inc. and the Registrant, with amendment dated June 8, 1983 and exhibits (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement No. 2-93987). 10.3.* Distribution Agreement dated December 15, 1982, between Califon Productions, Inc. and the Registrant, with amendment dated July 8, 1983 (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement No. 2-93987). 10.4.* Amendment, dated April 23, 1990, to the Distribution Agreement dated December 15, 1982, between Califon Productions, Inc. and the Registrant (incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1995). 10.5.* Distribution Agreement dated November 1, 1983, between Califon Productions, Inc. and the Registrant, with amendment dated March 26, 1984 (incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement No. 2-93987). - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 58 Exhibit NO. DESCRIPTION PAGE 10.6. Employment Agreement, dated December 20, 1995, between Mr. Roger King and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 1996). 10.7. Employment Agreement, dated December 20, 1995, between Mr. Michael King and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended February 29, 1996). 10.8. Employment Agreement, date as of June 6, 1997 between Jules Haimovitz and the Registrant (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended May 31, 1997). 10.9. Employment Agreements between the Registrant and the individuals named below: Name of Employee Or Consultant DATE OF AGREEMENT Steven Hirsch . . . . . September 3, 1996 Jonathan Birkhahn . . . September 1, 1996 Michael Spiessbach. . . September 3, 1996 Robert V. Madden. . . . September 3, 1996 (incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1996). 10.10. King World Productions, Inc. Retirement Savings Plan dated September 17, 1992 (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.11. 1996 Amended and Restated Stock Option and Restricted Stock Purchase Plan of the Registrant (incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 59 Exhibit NO. DESCRIPTION PAGE 10.12. Incentive Equity Compensation Plan for Senior Executives of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement No. 33-30695). 10.13. Form of Indemnification Agreement between the Registrant and the Registrant's directors (incorporated by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.14.* Agreement dated January 30, 1987 between the Registrant and Harpo, Inc. and amendment thereto dated July 29, 1988 (incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.15.* Amendment dated as of October 15, 1989 to the Agreement dated January 30, 1987 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 10.13 to the Registrant's Annual report on Form 10-K for the fiscal year ended August 31, 1995). 10.16.* Agreement dated as of March 17, 1994 between the Registrant and Harpo, Inc. (incorporated by reference to 8- K/A dated May 18, 1994). 10.17.* Agreement dated as of October 6, 1995 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q/A for the fiscal quarter ended February 29, 1996). 10.18. Stock Option Agreement dated as of January 28, 1991 between the registrant and Oprah Winfrey (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement No. 33-71696). 10.19. Stock Option Agreement dated as of January 28, 1991 between the registrant and Jeffrey D. Jacobs (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement No. 33-71696). 10.20. Form of Stock Option Agreement between the registrant and Oprah Winfrey (incorporated by reference to Exhibit - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 60 Exhibit NO. DESCRIPTION PAGE 10.19 to the Registrant's Annual report on Form 10-K for the fiscal year ended August 31, 1995). 10.21. Form of Stock Option Agreement between the registrant and Jeffrey D. Jacobs (incorporated by reference to Exhibit 10.20 to the Registrant's Annual report on Form 10-K for the fiscal year ended August 31, 1995). 10.22.* Settlement Agreement, dated as of September 15, 1997, by and among Califon Productions, Inc. on Jeopardy Productions, Inc., Sony Pictures Entertainment Inc., The Game Show Network, L.P. and the Registrant (incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.23* Letter Agreement, dated October 1, 1991, between Orion Pictures Corporation and the Registrant, under which Orion Picture Corporation transferred to the Registrant trademark, copyright and other property rights as more fully described therein to the television series enti- tled "Hollywood Squares" with accompanying Security Agreement and Assignment (incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.24* Agreement made and entered into on the 14th day of May, 1997, by and between K.W.M., Inc. and Full Moon & High Tide Productions, Inc., providing the services of Roseanne (incorporated by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1997). 10.25.* Agreement dated as of June 2, 1988 between King World F.S.C. Corporation and Unilever N.V. and amendment thereto dated as of June 13, 1989 (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1994). 10.26.* Amendment dated as of September 19, 1991 to the Agreement dated as of June 2, 1988 between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.26 to the Registrant's Annual - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 61 Exhibit NO. DESCRIPTION PAGE Report on Form 10-K for the fiscal year ended August 31, 1997). 10.27* Amendment dated June 13, 1994 to the Agreement dated June 2, 1988, as amended as of June 13, 1989 and September 19, 1991, between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1994). 10.28* Amendment dated as of July 11, 1995 to the Agreement dated June 2, 1988, as amended as of June 13, 1989, September 19, 1991 and as of June 13, 1994 between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1995). 10.29* Amendment dated as of September 1, 1996 to the Agreement dated June 2, 1988, as amended as of June 13, 1989, September 19, 1991, June 13, 1994 and July 11, 1995 between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1996). 10.30** Agreement dated March 2, 1998 between the Registrant and MGM Domestic Television Distribution Inc. 10.31** Agreement dated as of September 16, 1998 between the Registrant and Harpo, Inc. 10.32 Employment Agreement, dated May 27, 1997, between the Registrant and Fred Cohen, as amended. 10.33 Employment Agreement, dated September 28, 1995, between the Registrant and Andrew Friendly, as amended. 10.34 Employment Agreement, dated June 23, 1989, between the Registrant and Don Prijatel, as amended. 10.35 Employment Agreement, dated September 1, 1988, between the Registrant and Stuart Stringfellow, as amended. - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 62 Exhibit NO. DESCRIPTION PAGE 21.1. List of Subsidiaries of the Registrant. 23.1. Consent of Independent Public Accountants. 27.1 Financial Data Schedule. - -------------------------- * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. Such deleted information has been filed separately with the Securities and Exchange Commission. 63 EX-23.1 2 LIST OF SUBSIDIARIES EXHIBIT 21.1 List of Subsidiaries of the Registrant -------------------------------------- American Journal Inc., a New York corporation King World Media Sales Inc., a Delaware corporation Four Crowns Inc., a Delaware corporation Inside Edition Inc., a New York corporation K.W.M., Inc., a Delaware corporation King World Corporation, a Delaware corporation King World Direct Inc., a Delaware corporation King World FSC Corporation, a Virgin Islands corporation King World/GSN Inc., a Delaware corporation King World/LR Inc., a California corporation King World Merchandising, Inc., a Delaware corporation King World Studios West Inc., a California corporation Topper Productions Inc., a California corporation EX-23.1 3 ACCOUNTANT CONSENT EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated October 16, 1998 included in this Form 10-K, into the Company's previously filed Registration Statements File No. 33-30695, No. 333-8969, No. 333-11363 and No. 45299. /s/ ARTHUR ANDERSEN LLP New York, New York November 24, 1998 EX-27 4 FDS --
5 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. 1,000 YEAR AUG-31-1998 SEP-01-1997 AUG-31-1998 188,778 558,731 78,724 3,301 0 453,328 31,353 (13,613) 1,023,598 142,387 0 0 0 887 0 1,023,598 683,869 683,869 430,653 507,602 0 0 0 205,407 69,359 136,048 0 0 0 136,048 1.86 1.79
EX-10.30 5 HOLLYWOOD SQUARES AGREEMENT *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] Exhibit 10.30 March 2, 1998 King World Productions, Inc. 1700 Broadway New York, New York 10019-5983 Att: Jonathan Birkhahn Re: HOLLYWOOD SQUARES Gentlemen: The following will confirm the terms of the agreement between MGM Domestic Television Distribution Inc. ("MGM"), successor in interest to Orion Pictures Corporation ("Orion"), on the one part, and King World Productions, Inc. ("KW"), on the other part, with respect to HOLLYWOOD SQUARES ("HS"). For purposes of this agreement ("Agreement"), reference is made to the agreement dated as of October 1, 1991 between Orion and KW with respect to HS (the "Orion-KW Agreement"), and all capitalized terms used in this Agreement but not otherwise defined in this Agreement shall have the meanings ascribed to them in the Orion-KW Agreement. MGM warrants and represents that MGM is the sole owner of Orion's interest in HS, that neither MGM nor Orion has heretofore assigned to any party (other than Orion's assignment to MGM) any of the rights in HS retained by Orion under the Orion-KW Agreement, and that MGM has the right to enter into this Agreement and grant the rights granted herein. MGM and KW agree as follows: 1. MGM and KW acknowledge that KW plans to produce a new HS series based on the Rights ("New Series"). 2 *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] 2. Conditioned upon KW's material performance of KW's obligations under this paragraph 2, MGM hereby waives and relinquishes, as of the date hereof, MGM's participation in any share of KW's "Net Profits" that would otherwise be payable to MGM (as successor-in-interest to Orion) pursuant to paragraph 3 of the Orion-KW Agreement. In consideration for MGM's aforesaid waiver, KW agrees as follows: (a) KW shall pay to MGM the sum of [*] within five business days after execution of this Agreement by MGM and KW; (b) If the New Series is produced for a fourth consecutive series year (i.e., the series year commencing in September 2001), KW will pay to MGM [*] on or before December 15, 2001; (c) If the New Series is produced for a fifth consecutive series year (i.e., the series year commencing in September 2002), KW will pay to MGM [*] on or before December 15, 2002; (d) If the New Series is produced for a sixth consecutive series year (i.e., the series year commencing in September 2003), KW will pay to MGM [*] on or before December 15, 2003. (e) If the New Series is produced for a seventh consecutive series year (i.e., the series year commencing in September 2004), KW will pay to MGM [*] on or before December 15, 2004; and (f) KW waives and relinquishes any right to recoupment of the Advance (as set forth in paragraph 3 of the Orion-KW Agreement), i.e., all of the monies set forth in subparagraphs (a) through (e), above, are net sums payable to MGM and are in addition to the Advance previously paid to Orion. 3. MGM and KW agree with respect to the Existing Episodes that MGM shall have the exclusive right to license the Existing Episodes to the Game Show Network ("GSN") on such terms as are agreed between MGM and GSN (it being understood that KW and GSN have previously reached agreement with respect to the terms on which GSN may enter into such license agreement with MGM; however, MGM shall have no liability for GSN's failure to comply with the agreement between GSN and KW). MGM shall be entitled to retain all of the proceeds from MGM's aforesaid license of the Existing Episodes to GSN, 3 *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] and MGM shall indemnify KW in connection with such license on the same basis as KW shall, as set forth below in this paragraph 3, indemnify MGM in connection with KW's usage of "Existing Clips," as defined below. MGM shall not have the right to license or otherwise exploit the Existing Episodes in any other manner (i.e., other than to GSN) expect as set forth in the Orion-KW Agreement, i.e., by written agreement of both MGM and KW. Notwithstanding the foregoing, MGM agrees that KW may utilize clips of the Existing Episodes ("Existing Clip[s]") in and as part of the New Series, and MGM hereby grants to KW a nonexclusive license with respect to the Existing Episodes for such purposes. For each Existing Clip utilized in any episode of the New Series ("New Series Episode[s]") or in any promotional material for the New Series ("New Series Promotion"), KW shall pay MGM a license fee in the amount of [*] per minute, or fraction of a minute, of usage of each Existing Clip for each such usage in a New Series Episode or in a New Series Promotion. The minimum license fee to MGM for the use of each Existing Clip in any New Series Episode or in any New Series Promotion will be [*]. Usage of multiple Existing Clips used in any New Series Episode will not be aggregated, but will be treated individually as separate licenses, and usage of the same Existing Clip(s) in multiple New Series Episodes or in multiple New Series Promotions or in both a New Series Episode and a New Series Promotion will be treated individually as separate licenses for each such usage. The aforesaid license fees to MGM for usage of Existing Clips shall be payable on a monthly basis, within 30 days after the end of each month, for all Existing Clips utilized during the prior month. It is understood that KW shall be solely responsible for all clearances in connection with any usage of the Existing Clips (e.g., performers, directors, writers, music, etc.), and that KW hereby indemnifies and holds harmless MGM and its parents, subsidiaries, affiliated entities, and their respective officers, directors, and employees, from and against any costs, damages, liability, and expenses (including reasonable attorneys' fees) arising out of any usage of the Existing Clips by or under authorization of KW. The aforesaid right of KW to utilize the existing Clips is personal to KW and is not assignable except in connection with a sale or assignment of all of KW's interest in the New Series, and, in any event, is limited to the New Series only. 4. If MGM desires to sell, assign, transfer, or otherwise dispose of MGM's interest in the Existing Episodes to any third party (except as part of a sale, assignment, or transfer of all or substantially all of MGM's television distribution assets), MGM agrees to advise KW in writing of MGM's aforesaid desire, and MGM agrees to negotiate exclusively with KW with respect thereto for a period of [*] after MGM's aforesaid notice to KW. In the event that MGM and KW do not enter into an agreement within said 4 *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] exclusive negotiation period (as such period may be extended by the agreement of MGM and KW), MGM shall be free to sell, assign, transfer, or otherwise dispose of MGM's rights in the Existing Episodes, which rights shall at all times remain subject to KW's rights as provided in the Orion-KW Agreement, as amended by this Agreement. It is understood that MGM shall have no obligation to notify KW or to negotiate with KW with respect to MGM's interest in the Existing Episodes if MGM's interest in the Existing Episodes is to be sold, assigned, transferred, or otherwise disposed of as part of a sale, assignment, or transfer of all or substantially all of MGM's television distribution assets. 5. MGM hereby waives its right of reversion with respect to the Rights, as set forth in paragraph 8 of the Orion-KW Agreement, i.e., the provisions of said paragraph 8 of the Orion-KW Agreement after the first two sentences of said paragraph are deemed deleted. 6. Except as set forth in this Agreement, all terms and conditions in the Orion-KW Agreements are reaffirmed by MGM, as successor-in-interest to Orion, on the one part, and KW, on the other part. Please confirm your agreement to the foregoing by signing below where indicated. Very truly yours, ____________________________ Albert Spevak Accepted and agreed: King World Productions, Inc. By:_______________________________ Date:______________________________ 5 *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] Accepted and agreed: MGM Domestic Television Distribution Inc. By:________________________________ Date:_______________________________ EX-10.31 6 OPRAH WINFREY SHOW AGREEMENT *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] Exhibit 10.31 King World Productions, Inc. 1700 Broadway New York, New York 10019 Harpo, Inc. 110 North Carpenter Chicago, Illinois 60607 Attn: Jeffrey D. Jacobs Dated: September 23, 1998, as of September 16, 1998 Re: "The Oprah Winfrey Show" Dear Jeff: The following (sometimes herein referred to as the "1998 Amendment") shall serve as an amendment to the existing agreement as amended to date (as further amended hereby, sometimes referred to as the "Agreement") between the parties King World Productions, Inc. ("King World") and Harpo, Inc. ("Harpo"). As used herein, all capitalized terms, except as otherwise indicated, shall have the respective meanings ascribed to them in the Agreement. For good and valuable consideration as set forth herein, the parties agree as follows: 1. Harpo agrees to produce an additional two (2) television seasons of the Show, namely the 2000/2001 television season ("Year 15") and the 2001/2002 television season ("Year 16"). The Year 15 episodes will be produced for initial telecast between September 1, 2000 and August 31, 2001 and the Year 16 episodes will be produced for initial telecast between September 1, 2001 and August 31, 2002, with the Term of the Agreement deemed extended through August 31, 2002. Harpo shall, for all purposes of the Agreement, be deemed to have exercised an option to produce the Show for Year 15 and Year 16 and thus, inter alia, the End Date shall mean August 31, 2002. Harpo confirms that King World shall have the right to license the Year 15 and Year 16 episodes of the Show to domestic and international markets in accordance with the Agreement. King World and Harpo shall discuss in good faith King World's possible inclusion of a second telecast *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] of the episodes of the Show in the station telecast licenses for the Show issued by King World for Year 13 forward. Harpo may engage Harpo Productions, Inc. to produce the Show and shall furnish the personal services of Oprah Winfrey to host 180 new episodes of the Show for Year 15 and 170 new episodes of the Show for Year 16. 2. Paragraph 1 of the March 17, 1994 amendment constituting a part of the Agreement (the "1994 Amendment") is amended so that the references to "Year 8" in the 7th, 9th, and 10th lines of Page 2 thereof shall be changed to "Year 13." Paragraph 2 of the 1994 Amendment is amended so that, with respect to Year 15 and Year 16 only, Harpo shall deliver 180 newly produced episodes of the Show for Year 15 and 170 newly produced episodes of the Show for Year 16. 3. Paragraph 4 of the 1994 Amendment is amended to provide that the Guarantees payable by King World to Harpo shall be $120 million for Year 15 and $125 million for Year 16. The Year 15 Guarantee shall be deposited into a "Rabbi trust" (as described below) pursuant to the following schedule: (A) $75 million, within 30 days following the date of this 1998 Amendment (provided that such installment shall bear interest, at the Applicable Federal Rate from time to time in effect, from such date until King World's payment of such installment), (B) $22,500,000 on or before September 1, 2000, and (C) $22,500,000 on or before January 2, 2001. The Year 16 Guarantee shall be payable (A) $75 million, on or before June 1, 2000, (B) $25 million, on or before September 1, 2001 and (C) $25 million, on or before January 2, 2002. The Returnable Portion of the Guarantee for each of Year 15 and Year 16 shall be $75 million. The Guarantees shall be paid by King World for the benefit of Harpo into a so-called "Rabbi trust" pursuant to a trust agreement in a form generally utilized for similar trusts, to be negotiated in good faith by Harpo and King World promptly following the execution of this 1998 Amendment. 4. Paragraph 5 of the 1994 Amendment is amended to provide that, in consideration of Harpo's agreement to produce the Show for Years 15 and 16, King World hereby grants to the individuals listed below (each, a "Purchaser") options to purchase the number of shares of King World common stock set forth below: Number of Purchaser Shares Oprah Winfrey 900,000 Jeffrey D. Jacobs 100,000 Timothy Bennett 50,000 Dianne Hudson 50,000 Douglas Pattison 30,000 2 *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] Said options shall be exercisable at the price of $26 7/16 per share (the closing market price of King World common stock on September 16, 1998, the date on which Harpo and King World reached an agreement in principle with respect to this transaction) and shall be exercisable immediately. The shares subject to the options shall be publicly registered. The final stock option agreements, which will definitively govern said options, will be presented promptly after the execution of this 1998 Amendment to each of the Purchasers for signature, and will, except as set forth to the contrary in this 1998 Amendment, be consistent with the terms of the existing agreements governing stock option grants by King World to Oprah Winfrey and Jeffrey D. Jacobs, including, without limitation, the provisions regarding sales volume limitations contained therein. 5. Paragraph 10 of the 1994 Amendment is amended to provide that King World's and Harpo's respective shares of revenues attributable to the distribution of the Show in Years 15 and 16 shall be determined in the same manner as for Year 14 (i.e., in accordance with subparagraph 10(b) of the 1994 Amendment), except that: (A) King World's distribution fee for each of Years 15 and 16 shall be [*] of Gross Receipts and (B) King World's Recoupable Distribution Costs for each of Years 15 and 16 shall not, without Harpo's approval, include so-called "co-op advertising costs" in excess of the co-op advertising budget applicable for Year 13 [*]. "Harpo's Share of Revenues" with respect to Years 15 and 16 shall mean the share of Gross Receipts payable to Harpo with respect to such Years pursuant to Paragraph 10 of the 1994 Amendment (as amended hereby). 6. Paragraph 11 of the 1994 Amendment is amended as follows: (a) Except as set forth in Paragraphs 11(a), 11(b)(i) and 11(b)(ii) of the 1994 Amendment, as amended hereby, King World relinquishes, as of the date hereof, to Harpo all of King World's right, title and interest (such King World right, title and interest being valued at [*] in and to the Library, including King World's share of any revenue therefrom. (b) Paragraphs 11(a)(i)(A), 11(b)(i) and 11(b)(ii) of the 1994 Amendment are amended to provide that, commencing January 1, 2000, Harpo may exercise distribution rights in and to the Library for exhibition in the United States and Canada in all media other than free over-the-air television (for clarification, the proviso in Paragraph 11(b)(i) of the 1994 Amendment shall not restrict Harpo's rights under this Paragraph 6(b)), provided that: (i) Harpo shall not authorize any exhibitions of the Library episodes prior to the End Date between the hours of [*] local time in any television market; 3 *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] (ii) Harpo shall not authorize the exhibition of any Library episode prior to the first anniversary of the initial telecast of such episode as distributed by King World pursuant to the Agreement; (iii) Harpo shall not authorize the exhibition prior to the End Date of more than one telecast of one Library episode per day in any television market. [*] 7. Notwithstanding anything to the contrary contained in the Agreement, in the event that Roger King at any time ceases to serve as the senior executive on behalf of King World responsible for supervising King World's distribution of the Show, and the Show has not at that time already been licensed for Years 15 and 16 to television stations representing at least 70% of United States television households (as measured by Nielsen NSI reports), then King World promptly shall notify Harpo in writing of such cessation, and Harpo shall have the right, by written notice to King World within ten days following Harpo's receipt of that notice, prospectively to terminate King World's distribution rights for such Years, provided that King World shall remain fully entitled to its Distribution Fees arising from any licenses issued by King World prior to such termination, including, without limitation, a pro-rata share of any barter advertising sales revenue based on the percentage of United States television households (measured as above) represented by the television stations licensing the Show under license from King World as a percentage of the total percentage of such households represented by all television stations licensing the Show. In no event shall King World's distribution rights for any Years prior to Year 15 be subject to the conditions set forth in this paragraph. 8. Paragraph 12(a)(i) of the 1994 Amendment is amended by deleting the phrase "at any time during the 2:00 pm to 5:00 pm (local time) time period" therein and replacing it with the phrase "on any day Monday through Friday at any time during the 2:00 pm to 6:00 pm (local time) time period." 9. Paragraph 12(a)(ii) of the 1994 Amendment is amended to provide that, solely for purposes of such Paragraph 12(a)(ii), a series of television programs telecast not more than once monthly adapted from the so-called "book club episodes" of the Show shall not be deemed to be a television series with the same format or a substantially similar format as the Show. 10. Paragraphs 12(b)(i) and 12(b)(ii) of the 1994 Amendment are deleted, and Paragraph 12(b)(iii) of the 1994 Amendment is amended by deleting the phrase "After the end of Year 14" therein. 4 *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] 11. Paragraph 13(a)(ii)(A) of the 1994 Amendment is hereby deleted. 12. Except as expressly modified by this 1998 Amendment, the Agreement (a) constitutes the sole and entire agreement between the parties, and supersedes all communications oral or written, with respect to the subject matter thereof, (b) shall remain in full force and effect and (c) shall not be subject to modification or waiver except in a writing signed by both parties. For purposes of construing this 1998 Amendment, this 1998 Amendment will be deemed to have been jointly drafted by the parties. This 1998 Amendment may be executed in one or more counterparts. If the foregoing meets with your approval, please so indicate by signing in the space provided below. Very truly yours, KING WORLD PRODUCTIONS, INC. By:_____________________________ ACCEPTED AND APPROVED: HARPO, INC. By:____________________________ 5 *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] GUARANTEE King World Productions, Inc. 1700 Broadway New York, New York 10019 I refer to the agreement as amended to date (the "Agreement"), including the amendment thereto dated September 23, 1998, as of September 16, 1998 (the "1998 Amendment"), between King World Productions, Inc. ("King World") and HARPO, Inc. ("HARPO"). All capitalized terms used herein shall have the respective meanings ascribed to them in the Agreement. As an inducement to King World to enter into the 1998 Amendment, I hereby guarantee the full performance by HARPO of its past, current and prospective obligations and agreements (including without limitation the representations, warranties and agreements set forth in Paragraphs 12 and 15 of the March 17, 1994 amendment constituting part of the Agreement and the repayment of any Guarantees which become repayable to King World) under the Agreement. Insofar as this is a guarantee of HARPO's monetary obligations, it constitutes a guarantee of payment and not collection. As an additional inducement to King World to enter into the 1998 Amendment, I hereby represent, warrant and agree as follows: (A) That I have heretofore looked and shall hereafter look solely to HARPO for all compensation to be paid to me for all services and obligations performed or to be performed by me and all rights, licenses and privileges granted or to be granted by me; (B) That I waive any claims against King World for compensation of any kind for any services which I have heretofore rendered or may hereafter render pursuant to the Agreement; (C) That I am familiar with each and all of the terms, covenants and conditions of the Agreement, and consent and agree to the execution and delivery of the Agreement including the 1998 Amendment by HARPO; that I shall render all services, grant all rights and perform all other obligations to be performed by me as provided for in the Agreement; *[Deleted pursuant to a request for Confidential Treatment and filed separately with the Securities and Exchange Commission] (D) That I shall comply with all of the terms, covenants and conditions of the Agreement on my part to be complied with; that I am under no obligation or disability created by law or otherwise which would or might prevent or restrict me from so doing; (E) That in no event shall any amendment or termination of the agreement which I now have or any agreement which I may hereafter have with HARPO or any breach of any such agreement by HARPO limit or affect any of the obligations or any of the rights, privileges or remedies of King World provided for in the Agreement and, in such event, I shall look solely to HARPO for any remedies arising out of such breach or the failure to perform, and that I shall continue to perform all services and obligations to be performed by me under the Agreement and that King World shall continue to have all rights, privileges and remedies specified therein; and (F) That, in the event of a breach of threatened breach of the Agreement by HARPO, King World shall be entitled to seek equitable relief by way of injunction or otherwise or legal relief against HARPO, and equitable relief by way of injunction or otherwise or legal relief against me under this Guarantee, without the necessity of first resorting to or exhausting any rights or remedies which King World may have against HARPO. I acknowledge, for this purpose only, that the rights I have granted to HARPO are of a special, unique, unusual and extraordinary and intellectual character giving them peculiar value, the loss of which cannot be reasonably or adequately compensated in damages. Dated:____________________ ________________________________ OPRAH WINFREY 2 EX-10.32 7 EMPLOYMENT AGREEMENT - FRED COHEN KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 May 27, 1997 Mr. Fred Cohen c/o King World Productions, Inc. 1700 Broadway New York, New York 10019 Dear Fred: This letter, when accepted by you, shall constitute an agreement between you and King World Productions, Inc. (the "Company") with respect to your employment by the Company for the Employment Period (as hereinafter defined). 1. (a) The Company hereby agrees to employ you as President of its International Division (the "Division") for the period commencing on September 1, 1997 and terminating on August 31, 1999 (the "Employment Period"). You hereby agree to accept such employment, to diligently, faithfully and competently perform such services as shall from time to time be reasonably assigned to you by the Company's Board of Directors or its senior management (including, without limitation, services in connection with the development and production of animated, game show and other programming and in connection with merchandising), and to diligently, faithfully and competently devote your entire business time, skill and attention to the performance of your duties and responsibilities to the Company. As a condition of your employment by the Company, you hereby affirm and represent that you are under no obligation to any current or former employer or other party that is in any way inconsistent with, or that imposes any restriction upon, your acceptance of employment hereunder with the Company, the employment of you by the Company, or your undertakings under this Agreement. Your base of operations shall be located in the New York City metropolitan area, although you acknowledge that your services under this Agreement will require such travel as the Company may reasonably require. You will report directly to the Chairman of the Board of Directors, Chief Executive Officer and Chief Operating Officer of the Company. (b) You hereby grant to the Company options to extend the Employment Period for three additional twelve-month periods (the "Option Periods") to commence on September 1, 1999 and to end on August 31, 2000, in the case of the first Option Period, to commence on September 1, 2000 and to end on August 31, 2001, in the case of the second Option Period and to commence September 1, 2001 and to end on August 31, 2002, in the case of the third Option Period. The Company may exercise each option by giving you written notice to such effect not later than the May 1st preceding the commencement of each Option Period. In the event that the Company elects to exercise any of such options, the terms and provisions of this Agreement shall remain in effect and shall apply during the Employment Period as so extended. 2. (a) The Company shall pay to you, and you shall accept, for your services performed for the Company and its subsidiaries and affiliates during the Employment Period, salary compensation at the annual rate of (i) $410,000 for the period commencing September 1, 1997 and ending August 31, 1998; (ii) $425,000 for the period commencing September 1, 1998 and ending August 31, 1999; (iii) subject to the Company's exercising the option for the first Option Period, $450,000 during such Option Period; (iv) subject to the Company's exercising the option for the second Option Period, $475,000 during such Option Period; and subject to the Company's exercising the option for the third Option Period, $500,000 during such Option Period. Any compensation payable pursuant to this paragraph 2(a) shall be paid in accordance with the Company's normal payroll policy at the time in effect. (b) You shall also be entitled to receive a bonus equal to 0.1% of the first $45,000,000 of gross revenues (as hereinafter defined) of the Division, plus 0.15% of all gross revenues of the Division in excess of $45,000,000, during each entire fiscal year of the Company during the Employment Period. For the purposes of this Agreement, the "gross revenues" of the Division shall be determined on a basis consistent with the publicly reported financial statements of the Company. Payment of any bonus payable to you pursuant to this paragraph 2(b) shall be made within thirty (30) days following the issuance by the Company of certified financial statements for the fiscal year with respect to which any such bonus is payable. With respect to any fiscal year of the Company during which your employment terminates, you shall be entitled to a pro rata share of the bonus compensation for such year provided for in this paragraph 2(b) in an amount equal to the product of the gross revenues of the Division for such entire fiscal year and a fraction the numerator of which is the number of days during which you were employed by the Company in such fiscal year and the demoninator of which is 365. (c) Subject to the provisions of this paragraph (c), the Company hereby grants to you a "non-qualified stock option" under the Company's 1996 Amended and Restated Stock Option and Restricted Stock Purchase Plan (the "Plan") to purchase 55,000 shares of the Company's Common Stock, $.01 par value (the "Common Stock"), at an exercise price per share equal to $38.00, the closing price of the Common Stock on the New York Stock Exchange on the date hereof. You understand and agree with respect to such stock option that: (i) your right to exercise such option shall vest over a five year period as follows: 20% on August 31, 1998; 20% on August 31, 1999; 20% on August 31, 2000; and 40% on August 31, 2002; and (ii) if you should cease to be a full-time employee of the Company and any of its subsidiaries or affiliates, then you shall only have the right to exercise the unexercised portion of such option within one month after the date on which you ceased to be so employed and then only to the extent that such portion was vested (pursuant to the foregoing vesting schedule) on the date you ceased to be so employed, and you shall forfeit all other rights to and under such option, provided, however, that if your full-time employment ceases by reason of your death or "disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), then such one month period shall instead be a one-year period following the cessation of your employment. The foregoing, as well as such other terms and conditions as the Company shall deem appropriate, shall be set forth in a definitive stock option agreement. Your rights as an optionee shall be governed by the terms and conditions of such agreement and the Plan. 3. (a) You shall be entitled to participate, on the same basis as the other employees of the Company, in any pension, life insurance, health insurance or hospitalization plan generally in effect with respect to all such other employees. You shall be entitled to reimbursement of expenses reasonably incurred by you in connection with the performance of your duties hereunder, provided that you promptly furnish documentation therefor reasonably satisfactory to the Company. (b) You shall be entitled to stay in first-class hotel accommodations and to utilize first-class air travel (if available and if used) in connection with your performance of services under this Agreement. 4. (a) In the event of your death, the Employment Period shall automatically terminate, effective upon the date of your death. (b) In the event that you are unable to perform the duties required of you pursuant to this Agreement, for (i) ninety (90) days during any consecutive twelve-month period during the Employment Period (whether or not such ninety (90) days are consecutive) or (ii) any thirty (30) consecutive days during the Employment Period, by reason of illness or other physical incapacity, the Company may, after the expiration of such ninety (90) or thirty (30) days and subject to applicable law, terminate the Employment Period. 5. (a) Except as required in connection with the performance of your services for the Company, you shall not, during or after the termination of the Employment Period, use or disclose to any person, firm, partnership or corporation any confidential or proprietary information or trade secrets of the Company or any of its subsidiaries or affiliates obtained or learned by you during the Employment Period, including, without limitation, the type and nature of the contracts entered into by the Company or any of its subsidiaries or affiliates in connection with the acquisition of television programming or the acquisition of distribution rights with respect to any such programming (including, without limitation, the acquisition of advertising time within any television programming or acting as sales agent for any such advertising time, irrespective of whether the Company or any of its subsidiaries or affiliates distributes such programming to television stations ("Advertising Time")), the sale or other distribution of television programming (including, without limitation, Advertising Time), or the basis upon which the Company or any of its subsidiaries or affiliates elects to acquire television programming or distribution rights with respect to any such programming (including, without limitation, Advertising Time) for sale or other distribution. (b) You also agree that during and for a period of two (2) years following the termination of the Employment Period, you will not work for, or render services to or for the benefit of, or otherwise be interested in (whether as an employee, consultant, independent contractor, proprietor, investor, lender or in any other manner), any business or portion of a business of any person, firm, partnership, corporation or other entity which supplied television programming (including, without limitation, Advertising Time) to, or which entered into a distribution (including, without limitation, sales agency) agreement for television programming with, the Company or any of its subsidiaries or affiliates at any time within the two (2) year period preceding the termination of the Employment Period; provided, however, that (i) for the purposes of the foregoing paragraph the supplier of "Wheel of Fortune" and "Jeopardy!" shall be deemed to be the Columbia Pictures Television division of Sony Entertainment Pictures; (ii) the foregoing non-competition restrictions shall not apply to any such entity if its first contractual relationship with the Company was initiated by you; and (iii) the provisions of this paragraph shall not apply to investments by you in corporations whose shares of stock are traded on a national securities exchange or on the national over-the-counter market, and which shall, at the time of acquisition, have an aggregate market value of less than $100,000 and constitute less than 1% of the outstanding shares of such corporation's stock. 6. You hereby agree that during and for a period of two (2) years following the termination of the Employment Period, you shall not (a) induce, directly or indirectly, any person, firm, partnership, corporation or other entity from whom or from which the Company or any of its subsidiaries or affiliates acquired television programming or distribution (including, without limitation, sales agency) rights with respect thereto (including, without limitation, Advertising Time) during the Employment Period to terminate its agreement with the Company or such subsidiary or affiliate with respect to such programming or distribution rights (including any such Advertising Time), to elect not to renew any such agreement or not to furnish to the Company or any such subsidiary or affiliate any other television programming or distribution rights (including, without limitation, Advertising Time) or (b) induce, directly or indirectly, any employee of the Company or any of its subsidiaries or affiliates to terminate his or her employment with the Company or any such subsidiary or affiliate. 7. You hereby agree that all ideas, creations, improvements and other works of authorship created, developed, written or conceived by you at any time during the Employment Period are works for hire within the scope of your employment and shall be the property of the Company free of any claim whatever by you or any person claiming any rights or interests through you. Notwithstanding any other provision of this Agreement that may be to the contrary, nothing contained in this Agreement shall require the Company to utilize your services under this Agreement, the Company's only obligation to you being payment of your compensation and reimbursable expenses under this Agreement during the Employment Period. 8. (a) You hereby agree to indemnify and hold the Company harmless from and against any and all loss, damage, liability, cost and expense, including reasonable attorneys' fees, incurred by the Company as a result of, arising out of or in connection with a violation of any term or condition of this Agreement required to be performed or observed by you. (b) The Company hereby agrees to indemnify and hold you harmless from and against any and all loss, damage, liability, cost and expense, including reasonable attorneys' fees, incurred by you as a result of, arising out of or in connection with a violation of any term or condition of this Agreement required to be performed or observed by the Company. 9. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. The failure of a party to insist upon strict compliance with any provision of this Agreement shall not be deemed to be a waiver of such provision or of any other provision of this Agreement. No waiver or modification of the terms or conditions hereof shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors, assigns, heirs, administrators and executors. (b) Any legal suit, action or proceeding arising out of or based upon this Agreement may be instituted in the federal courts of the United States of America or the courts of the State of New York, in each case located in the City and County of New York (collectively, the "Specified Courts"), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court, as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party's address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum. Yours very truly, KING WORLD PRODUCTIONS, INC. By:_______________________________ ACCEPTED: - ------------------------- Fred Cohen EX-10.33 8 EMPLOYMENT AGREEMENT - ANDREW FRIENDLY KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 September 28, 1995 Mr. Andrew Friendly c/o David Nochimson, Esq. Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars Los Angeles, CA 90067 Dear Andy: This letter, when accepted by you, shall constitute an agreement between you and King World Productions, Inc. (the "Company") with respect to your employment by the Company for the Employment Period (as hereinafter defined). 1. (a) The Company hereby agrees to employ you as Executive Vice President of Programming and Production for the three-year period commencing on the date (the "Start Date") selected by you, of which you shall notify the Company in writing at least two weeks prior thereto, and terminating on the third anniversary of the day prior to the Start Date (the "Employment Period"); provided, however, that the Start Date may not be a date later than November 6, 1995. This Agreement shall terminate and be of no further force and effect if the Start Date does not occur by November 6, 1995. You hereby agree to accept such employment, to diligently, faithfully and competently perform such services as shall from time to time be reasonably assigned to you by the Company's Board of Directors or by its Chairman of the Board, President and Chief Executive Officer or Executive Vice President and Chief Operating Officer and to diligently, faithfully and competently devote your entire business time, skill and attention to the performance of your duties and responsibilities to the Company; provided, however, that you shall have the right to consult with CNBC with respect to matters dealing with your former employment by CNBC for up to ninety (90) days after termination of your employment with CNBC; provided further, however, that any such consultation does not interfere with, or otherwise constitute a breach of, your obligations under this Agreement. Your duties shall extend to, and you shall, subject to your reporting responsibilities, have responsibility for, the development and production of programming for all modes of television distribution including, without limitation, syndication, network and cable. The Company agrees that during the Employment Period you will be required to report only to its Chairman of the Board, President and Chief Executive Officer and Executive Vice President and Chief Operating Officer. During the Employment Period, your base of operations shall be located at the Company's corporate headquarters in the New York City metropolitan area, currently located at 1700 Broadway, New York, New York, although it is understood that you will have the right to spend a portion of your time working from the Company's offices in Los Angeles, California, as coordinated with the Company, for up to an average of ten working days per month. (b) As a condition to your employment by the Company, you hereby affirm and represent that you are under no obligation to any current or former employer or other party which is in any way inconsistent with, or which imposes any restriction upon, your acceptance of employment hereunder with the Company, the employment of you by the Company or your agreements and undertakings contained in this Agreement. 2. (a) The Company shall pay to you, and you shall accept, for your services performed for the Company and its subsidiaries and affiliates during the Employment Period, salary compensation at the annual rate of (i) $525,000 during the first year of the Employment Period, (ii) $550,000 during the second year of the Employment Period, and (iii) $575,000 during the third year of the Employment Period, it being understood and agreed that $25,000 of each year's salary compensation (collectively, the "Advances") shall be considered an advance against, and shall be recoupable from, the first payments that otherwise would be made to you pursuant to the provisions of paragraph 2(c) of this Agreement. Any compensation payable pursuant to this paragraph 2(a) shall be paid in accordance with the Company's normal payroll policy at the time in effect. (b) Subject to the provisions of this paragraph (b), as soon as practicable after the commencement of the Employment Period, the Company will grant to you a "non-qualified stock option" under the Company's Amended and Restated Stock Option and Restricted Stock Purchase Plan (the "Plan") to purchase 100,000 shares of the Company's Common Stock, $.01 par value (the "Common Stock"), at an exercise price per share equal to the closing price of the Common Stock on the New York Stock Exchange on the Start Date. You understand and agree with respect to such stock option that: (i) your right to exercise such option shall vest over a five year period as follows: 20% on each of the first, second and third anniversaries of the day prior to the Start Date and 40% on the fifth anniversary of the day prior to the Start Date; and (ii) if you should cease to be a full-time employee of the Company and any of its subsidiaries or affiliates, then you shall only have the right to exercise the unexercised portion of such option within one month after the date on which you ceased to be so employed and then only to the extent that such portion was vested (pursuant to the foregoing vesting schedule) on the date you ceased to be so employed, and you shall forfeit all other rights to and under such option, provided, however, that if your full-time employment ceases by reason of your death or "disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), then such one month period shall instead be a one-year period following the cessation of your employment. The foregoing, as well as such other terms and conditions as the Company shall deem appropriate, shall be set forth in a definitive stock option agreement. Your rights as an optionee shall be governed by the terms and conditions of such agreement and the Plan. (c) (i) You shall also be entitled to receive contingent compensation in an amount equal to 5% of the Net Profits (as hereinafter defined), if any, from each Covered Series (as hereinafter defined). "Net Profits" from any Covered Series shall be determined on a cumulative basis from the inception of such Series, shall not be cross-collateralized with the Net Profits from any other Covered Series and shall mean all "Gross Revenues" (defined as all money actually received by or credited to the Company in the United States from the distribution of such Series and all rights therein less refunds and security deposits or other revenue subject to refund, and net of agency commissions, in the event of any barter sales revenues), less (1) a distribution fee to the Company of thirty-five percent (35%) of Gross Revenues from sources within the United States, provided that such fee shall be five percent (5%) of Gross Revenues in the case of distribution via United States network television (over the air or "free" or "pay" cable), and forty percent (40%) of Gross Revenues from distribution outside the United States (all of such distribution fees to be inclusive of fees to any subdistributors engaged by the Company); (2) all out-of-pocket distribution expenses (including without limitation any promotion and advertising expenses) incurred by the Company in connection with such Series; (3) recoupment by the Company of all out-of-pocket development and production costs of such Series; (4) interest on all the foregoing costs from the time expended, at the prime rate from time to time in effect at The Bank of New York, New York, New York or any successor thereto; and (5) any residual or reuse fees, royalties or other fixed or contingent compensation of any nature payable to any third parties as a result of the exploitation of such Series. For the purposes of this Agreement, "Covered Series" shall mean any television series initially produced by the Company during the Employment Period, it being understood and agreed that the term "Covered Series" shall not include (A) any series produced by an entity not affiliated with the Company, including, without limitation, "The Oprah Winfrey Show," "Wheel of Fortune" and "Jeopardy!"; (B) any series currently produced by the Company, including, without limitation, "Inside Edition", "American Journal" and "Rolonda"; (C) the series currently in development by the Company and currently referred to as "Planet Hollywood Squares"; (D) the series currently in development by the Company and currently referred to as "Love Triangle"; and (E) the "dance/young adult lifestyles" series currently in development by the Company. For the purposes of this paragraph 2(c), the term "Company" shall include all subsidiaries of the Company. (ii) Within sixty (60) days after the close of each quarterly period ending on November 30, February 28, May 31 and August 31 of each year, commencing with the first television exhibition of any Covered Series, if any, the Company shall furnish to you a written statement which reflects the amount of Net Profits, if any, payable to you hereunder and a check payable to your order in the appropriate amount; provided, that (A) there shall first be deducted from any amount otherwise owed to you any then-unrecouped Advances and (B) the Company shall not be required to furnish you a statement with respect to any quarterly period during which there were no Gross Revenues. Any such statement shall be deemed accepted by you unless (i) you notify the Company in writing within two (2) years from the date of such statement setting forth your specific objections thereto and (ii) you commence a lawsuit to contest such statement within three (3) years from the date of such statement. You or your designated representative shall have the right, at your expense, at the Company's usual place of business, during normal business hours and on a reasonable notice to the Company (but in no event more than once annually), to examine the Company's books and records to confirm the accuracy of any such statements not otherwise deemed accepted. (d) During each year of the Employment Period, you may also be entitled to a bonus if the Board of Directors of the Company, in its sole and absolute discretion, shall so determine. 3. (a) You shall be entitled to participate, on the same basis as other senior executives of the Company, in any pension, profit-sharing, life insurance, health insurance or hospitalization plan in effect with respect to such other executives. The health insurance coverage currently offered by the Company provides for elective contributory family coverage; however, it is understood and agreed by you that the offering by the Company of this or any other plan or benefit currently in effect does not require the Company to maintain any such plan or benefit or prohibit the Company from amending or deleting any such plan or benefit. You shall be entitled to reimbursement of expenses reasonably incurred by you in connection with the performance of your duties hereunder, provided that you promptly furnish documentation therefor reasonably satisfactory to the Company. (b) You shall be entitled to four (4) weeks of vacation during each year of the Employment Period. (c) The Company shall furnish you with executive office space commensurate with your title and responsibilities in New York and Los Angeles, a dedicated secretary in New York and access to adequate secretarial services and paid parking at its Los Angeles office. (d) You shall be entitled to stay in first-class hotel accommodations and to utilize first-class travel and ground transportation in connection with your performance of services under this Agreement. During each year of the Employment Period, we shall furnish you, on an as-used basis, with up to ten (10) first-class round trip air tickets between Los Angeles and New York, and related ground transportation, for Pat Friendly. 4. You shall be entitled to receive a production credit with respect to all episodes of each Covered Series produced during the Employment Period. Such credit shall be substantially in the form of "Executive Vice President of Programming and Production for King World--Andy Friendly." Your credit on any Covered Series shall be on a separate card if credits are not in crawl form and shall be after any credit for Roger King and/or Michael King as the Executive Producer(s) of such Series and shall immediately follow, and be the same size as, the producer, co-executive producer or executive producer credit, which shall immediately follow any credit for Roger King and/or Michael King, for the senior production executive(s) with day-to-day responsibility for such Series; provided, however, that you shall not be entitled to any credit on any episode of a Covered Series on which no other individual receives credit. 5. The Company shall submit to you for your review and approval, which approval shall not be unreasonably withheld, a press release relating to your employment by the Company. 6. (a) In the event of your death, the Employment Period shall automatically terminate, effective upon the date of your death. (b) In the event that you are unable to perform the duties required of you pursuant to this Agreement, for (i) one hundred twenty (120) days during the Employment Period (whether or not such one hundred twenty (120) days are consecutive) or (ii) any forty-five (45) consecutive days during the Employment Period, by reason of illness or other physical incapacity, the Company may, after the expiration of such one hundred twenty (120) or forty-five (45) days, terminate the Employment Period. 7. (a) Except as required in connection with the performance of your services for the Company, you shall not, during or after the termination of the Employment Period, use or disclose to any person, firm, partnership or corporation any confidential or proprietary information or trade secrets of the Company or any of its subsidiaries or affiliates obtained or learned by you during the Employment Period, including, without limitation, the type and nature of the contracts entered into by the Company or any of its subsidiaries or affiliates in connection with the acquisition of television programming or the acquisition of distribution rights with respect to any such programming (including, without limitation, the acquisition of advertising time within any television programming or acting as sales agent for any such advertising time, irrespective of whether the Company or any of its subsidiaries or affiliates distributes such programming to television stations ("Advertising Time")), the sale or other distribution of television programming (including, without limitation, Advertising Time), or the basis upon which the Company or any of its subsidiaries or affiliates elects to acquire television programming or distribution rights with respect to any such programming (including, without limitation, Advertising Time) for sale or other distribution. (b) You also agree that during and for a period of two (2) years following the termination of the Employment Period, you will not work for, or render services to or for the benefit of, or otherwise be interested in (whether as an employee, consultant, independent contractor, proprietor, investor, lender or in any other manner), the production unit of any Covered Series, "The Oprah Winfrey Show," "Wheel of Fortune," "Jeopardy!" or "Planet Hollywood Squares." 8. You hereby agree that during and for a period of eighteen (18) months following the termination of the Employment Period, you shall not (a) induce, directly or indirectly, any person, firm, partnership, corporation or other entity from whom or from which the Company or any of its subsidiaries or affiliates acquired television programming or distribution (including, without limitation, sales agency) rights with respect thereto (including, without limitation, Advertising Time) during the Employment Period to terminate its agreement with the Company or such subsidiary or affiliate with respect to such programming or distribution rights (including any such Advertising Time), to elect not to renew any such agreement or not to furnish to the Company or any such subsidiary or affiliate any other television programming or distribution rights (including, without limitation, Advertising Time) or (b) induce, directly or indirectly, any employee of the Company or any of its subsidiaries or affiliates to terminate his or her employment with the Company or any such subsidiary or affiliate. 9. You hereby agree that all ideas, creations, improvements and other works of authorship created, developed, written or conceived by you at any time during the Employment Period are works for hire within the scope of your employment and shall be the property of the Company free of any claim whatever by you or any person claiming any rights or interests through you. 10. (a) You hereby agree to indemnify and hold the Company harmless from and against any and all loss, damage, liability, cost and expense, including reasonable attorneys' fees, incurred by the Company as a result of, arising out of or in connection with a violation of any term or condition of this Agreement required to be performed or observed by you. (b) The Company hereby agrees to indemnify and hold you harmless from and against any and all loss, damage, liability, cost and expense, including reasonable attorneys' fees (collectively, "Your Losses") incurred by you (i) as a result of, arising out of or in connection with a violation of any term or condition of this Agreement required to be performed or observed by the Company or (ii) in respect of the development, production or distribution by the Company of any programming (except in the case of any of Your Losses that arise from a violation by you of any term or condition of this Agreement required to be performed or observed by you). 11. Any notice or other communication under this Agreement shall be in writing and shall be considered given when delivered personally or mailed by certified mail, return receipt requested, to the relevant party at the address set forth above or at such other address as a party may specify by notice to the other in the manner herein provided. 12. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. The failure of a party to insist upon strict compliance with any provision of this Agreement shall not be deemed to be a waiver of such provision or of any other provision of this Agreement. No waiver or modification of the terms or conditions hereof shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors, assigns, heirs, administrators and executors. Yours very truly, KING WORLD PRODUCTIONS, INC. By:_______________________________ ACCEPTED: - ------------------------- Andrew Friendly KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 August 12, 1996 Mr. Andrew Friendly c/o David Nochimson, Esq. Ziffren, Brittenham, Branca & Fischer 2121 Avenue of the Stars Los Angeles, CA 90067 Dear Andy: This letter, when accepted by you, shall constitute an amendment (the "Amendment") to the letter agreement (the "Letter Agreement"), dated September 28, 1995, between King World Productions, Inc. (the "Company") and you. All of the definitions of the Letter Agreement shall govern this Amendment. The Company and you hereby agree that the last sentence of paragraph 1 of the Letter Agreement shall be amended to read in its entirety as follows: "During the Employment Period, your base of operations shall be located at the Company's offices in the Los Angeles, California metropolitan area, although you acknowledge that your services under this Agreement will require substantial travel as the Company may require." The Company reserves the right, on ten days' written notice to you, to cancel this Amendment and to reinstate the original provisions in the last sentence of paragraph 1 of the Letter Agreement. Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect. Very truly yours, KING WORLD PRODUCTIONS, INC. By:__________________________________ ACCEPTED: - -------------------------- Andrew Friendly KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 July 21, 1998 Mr. Andrew Friendly c/o David Nochimson, Esq. Ziffren, Brittenham, Branca & Fischer 1801 Century Park West Los Angeles, CA 90067 Dear Andy: This letter, when accepted by you, shall constitute an amendment (the "Second Amendment") to the letter agreement, dated September 28, 1995, as amended August 12, 1996 (as so amended, the "Letter Agreement"), between King World Productions, Inc. (the "Company") and you. All of the definitions of the Letter Agreement shall govern this Second Amendment. The Company and you hereby agree as follows: 1. The Employment Period, which commenced on November 13, 1995 and would otherwise end on November 12, 1998, shall be extended and shall terminate on November 12, 2001. Effective as of the date of this Second Amendment, you shall be employed as President, First-Run Programming and Production. 2. The fourth sentence of paragraph 1 of the Letter Agreement shall be amended to read in its entirety as follows: "Your duties shall extend to, and you shall, subject to your reporting responsibilities, have responsibility for the development and production of game show, talk show, news magazine and other reality-based, non-scripted, non-children's television programming, expressly excluding, without limitation, long-form television, situation comedy, dramatic series, animated, children's and all other scripted programming." 3. Your salary compensation for the period (a) from November 13, 1998 through November 12, 1999 shall be payable at the annual rate of $650,000, (b) from November 13, 1999 through November 12, 2000 shall be payable at the annual rate of $700,000 and (c) from November 13, 2000 through November 12, 2001 shall be payable at the annual rate of $750,000. 4. The third paragraph of the amendment, dated August 12, 1996, is hereby deleted and of no further force and effect. 5. Subject to the provisions of this paragraph 5, the Company will grant to you an additional "non-qualified stock option" under the Company's Amended and Restated Stock Option and Restricted Stock Purchase Plan (the "Plan") to purchase 120,000 shares of the Company's Common Stock, $.01 par value (the "Common Stock"), at an exercise price equal to $29 7/16 per share, the closing price of the Common Stock on the date hereof. You understand and agree with respect to such option that: (i) your right to exercise such option shall vest as follows: 20% on November 12, 1999; 20% on November 12, 2000; 20% on November 12, 2001; and 40% on November 12, 2003; and (ii) if you should cease to be a full-time employee of the Company and any of its subsidiaries or affiliates, then you shall only have the right to exercise the unexercised portion of such option within one month after the date on which you ceased to be so employed and then only to the extent that such portion was vested (pursuant to the foregoing vesting schedule) on the date you ceased to be so employed, and you shall forfeit all other rights to and under such option, provided, however, that if your full-time employment ceases by reason of your death or "disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), then such one month period shall instead be a one-year period following the cessation of your employment. The foregoing, as well as such other terms and conditions as the Company shall deem appropriate, shall be set forth in a definitive stock option agreement. Your rights as an optionee shall be governed by the terms and conditions of such agreement and the Plan. 6. The Company shall pay to you a bonus of $75,000 upon the execution and delivery of this Agreement by you and the Company. 7. Paragraph 2(c) of the Letter Agreement shall be deleted and shall not be considered to have been part of the Letter Agreement at any time. Accordingly, it is understood that the Company shall have no obligation under any circumstances to pay any contingent compensation to you under said paragraph 2(c) and that, as a corollary, none of the Advances under paragraph 2(a) of the Letter Agreement shall be recoupable by the Company. 8. The second sentence of paragraph 3(d) of the Letter Agreement shall be amended to read in its entirety as follows: "When travelling on business for the Company to New York, you shall not be required to utilize any trade-out hotel arrangements secured by the Company or any of its affiliates." Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect. Very truly yours, KING WORLD PRODUCTIONS, INC. By:__________________________________ Accepted: - ------------------------------ Andrew Friendly EX-10.34 9 EMPLOYMENT AGREEMENT - DON PRIJATEL KING WORLD PRODUCTIONS, INC. 830 Morris Turnpike Short Hills, New Jersey 07078 June 23, 1989 Mr. Don Prijatel 1612 Prosser Avenue Dayton, Ohio 45409 Dear Don: This letter, when accepted by you, shall constitute an agreement between you and us: 1. (a) We hereby agree to employ you as Director of Development for the period commencing on June 26, 1989 and terminating on August 31, 1990, unless extended by us pursuant to paragraph 1(b) hereof (the "Employment Period"). You accept such employment, and agree to diligently and faithfully perform such services as shall from time to time be reasonably assigned to you by, or pursuant to a resolution of, our Board of Directors or our senior management, and diligently and faithfully devote your entire business time, skill and attention to the performance of such services. (b) You hereby grant to us an option to extend the Employment Period for (i) the period commencing on September l, 1990 and ending on August 31, 1991 ("First Option Period") and (ii) the period commencing on September 1, 1991 and ending on August 31, 1992 (the "Second Option Period"). We may exercise the option with respect to the First Option Period by giving you written notice to such effect at least sixty (60) days prior to the expiration of the initial Employment Period. We may exercise the option with respect to the Second Option Period by giving you written notice to such effect at least sixty (60) days prior to the expiration of the First Option Period, if any. In the event that we elect to exercise either of such options, the terms and provisions of this Agreement shall remain in effect and shall apply during the Employment Period as it may have been extended, as applicable, by the First Option Period and the Second Option Period, except as otherwise expressly provided herein. 2. (a) We shall pay to you, and you shall accept from us, for your services during the Employment Period, compensation at the annual rates of (i) $125,000 for the period commencing on the date on which the Employment Period commences through and including August 31, 1990; (ii) $137,500 for the period commencing on September 1, 1990 through and including August 31, 1991, and (iii) 2 $150,000 for the period commencing on September 1, 1991 and ending on August 31, 1992. Any compensation payable pursuant to this Paragraph 2(a) shall be paid in accordance with our payroll policy at the time then in effect. (b) During each year of the Employment Period you may also be entitled to a bonus if our Board of Directors, in its sole and absolute discretion, shall so determine. (c) Subject to the provisions of this paragraph (c), we shall cause our Board of Directors to grant to you an option under the King World Productions, Inc. Incentive Stock Option Plan (the "Plan") to purchase 10,000 shares of King World Common Stock, $.01 par value ("Common Stock"), at an exercise price equal to the closing price of the Common Stock on the New York Stock Exchange on the date on which the Employment Period commences. You understand and agree, with respect to such stock option, that: (i) your right to exercise such option shall vest over a five-year period as follows: 20% on the first anniversary of the date of grant; 20% on the second anniversary of the date of grant; 20% on the third anniversary of the date of grant; and 40% on the fifth anniversary of the date of grant, and (ii) if you should cease to be a full-time employee of King World Productions, Inc. for any reason other than your death or "disability" (as defined in the Plan), then you shall have the right only to exercise the unexercised portion of such option within one month after the date on which you ceased to be so employed and then only to the extent that such portion was vested (pursuant to the foregoing vesting schedule) on the date you ceased to be so employed, and you shall forfeit all other rights to and under such option. The foregoing, as well as such other terms and conditions as our Board of Directors may deem appropriate, shall be set forth in a definitive stock option agreement between you and us. Your rights as an optionee shall be governed by the terms and conditions of such agreement and the Plan. (d) You shall be entitled to participate or continue to participate, as the case may be, on the same basis as our other employees, in any pension, profit-sharing, life insurance, health insurance or hospitalization plan in effect with respect to such employees. (e) We shall reimburse you for any expenses of the following nature incurred by you, and approved in advance in writing by us, in connection 3 with your relocation to the Los Angeles area: moving your household effects and one car; coach air travel for you and your immediate family between Dayton, Ohio and Los Angeles (a total of up to 6 round trips); and temporary housing in Los Angeles for you for up to six weeks (or until you move into a permanent home, if sooner). 3. (a) In the event of your death, the Employment Period shall automatically terminate, effective upon the date of your death. (b) In the event that you are unable to perform the duties required of you pursuant to this agreement for ninety (90) days during the Employment Period (whether or not such ninety (90) days are consecutive) by reason of illness or other physical incapacity, we may, after the expiration of such ninety (90) days, terminate this agreement on thirty (30) days written notice to you. 4. Except as required in connection with the performance of your services to us, you shall not, during or after the termination of the Employment Period use or disclose to any person, partnership or corporation any confidential business information or trade secrets of ours obtained or learned by you during the Employment Period, including, without limitation, the type and nature of the contracts entered into by us in connection with the acquisition of television programming and the distribution of television programming or the basis upon which we elect to acquire television programming for distribution. 5. You hereby agree that you shall not, for a period of two (2) years following the termination of the Employment Period, (a) induce, directly or indirectly, any person, partnership or corporation from whom or from which we acquire television programming during the Employment Period, to terminate its agreement with us with respect to such programming, to refuse to renew any such agreement or to refuse to enter into any agreement with us with respect to the development or production of additional episodes of, or one or more prequels or sequels to, or any other derivative of, such programming or (b) induce, directly or indirectly, any employee of ours to terminate his or her employment with us. 6. You hereby agree that all ideas, creations, improvements and other works of authorship created, developed written or conceived by you at any time during the Employment Period are works for hire within the scope of your employment and shall be our property free of any claim whatever by you or any person claiming any rights or interests through you. 7. You hereby agree to indemnify and hold us harmless from and against any and all loss, damage, liability, cost and expense, including reasonable attorney's fees, incurred by us as a result of, arising out of or in connection with a violation of any term or condition of this Agreement required to be performed or observed by you. 4 8. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York and constitutes the entire agreement between the parties hereto on the subject matter hereof. No waiver or modification of the terms shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors, assigns, heirs, administrators and executors. Yours very truly, ACCEPTED: KING WORLD PRODUCTIONS, INC. By: /s/ Don Prijatel By: --------------------- Don Prijatel KING WORLD PRODUCTIONS, INC. 12400 Wilshire Blvd. Los Angeles, California 90025 As of September 1, 1991 Mr. Don Prijatel 31758 Kentfield Court Westlake Village, California 91361 Dear Don: This letter, when accepted by you, shall constitute an amendment (the "Amendment") to the letter agreement (the "Letter Agreement"), dated June 23, 1989, between King World Productions, Inc. (the "Company") and you. Unless otherwise modified herein, all of the terms, definitions and provisions of the Letter Agreement shall continue in effect and shall govern this Amendment. The Company and you hereby agree as follows: 1. You hereby grant to the Company an option to extend the Employment Period for three additional twelve-month periods (the "Option Periods"), to commence on September 1, 1992 and to end on August 31, 1993, in the case of the first Option Period, to commence on September 1, 1993 and to end on August 31, 1994, in the case of the second Option Period, and to commence on September 1, 1994 and to end on August 31, 1995, in the case of the third Option Period. The Company may exercise such option by giving you written notice to such effect not later than July 1, 1992, in the case of the first Option Period, July 1, 1993, in the case of the second Option Period, and July 1, 1994 in the case of the third Option Period. In the event that the Company elects to exercise one or more of such options, the terms and provisions of the Letter Agreement, as amended hereby, shall remain in effect and shall apply during the Employment Period as extended by the exercise of any such option, except as otherwise expressly provided in the Letter Agreement and herein. 2. The Company shall pay to you, and you shall accept from the Company, for your services during the Employment Period, (i) compensation at the annual rate of $200,000 for the period from September 1, 1991 through August 31, 1992, (ii) subject to the Company's exercising the option for the first Option Period, compensation at the annual rate of $225,000 for the period from September 1, 1992 through August 31, 1993, (iii) subject to the Company's exercising the option for the second Option Period, compensation at the annual rate of $250,000 for the period from September 1, 1993 through August 31, 1994, and (iv) subject to the Company's exercising the option for the third Option Period, compensation at the annual rate of $275,000 for the period from September 1, 1994 through August 31, 1995, in each case payable in accordance with the Company's customary payroll policy. 3. You shall be entitled to a bonus of $50,000 payable upon the execution and delivery of this Amendment by you and the Company. 4. Subject to the provisions of this paragraph 4, as soon as practicable after the execution and delivery of this Amendment, the Company will grant to you a "non-qualified stock option" under the Company's 1989 Stock Option and Restricted Stock Purchase Plan (the "Plan") to purchase 75,000 shares of the Company's Common Stock, $.01 par value, at an exercise price equal to $29.125 per share. You understand and agree, with respect to such option, that: (i) your right to exercise such option shall vest over a five year period as follows: 20% on August 31, 1992; 20% on August 31, 1993; 20% on August 31, 1994; and 40% on August 31, 1996; and (ii) if you should cease to be a full-time employee of the Company and any of its subsidiaries or affiliates, then you shall only have the right to exercise the unexercised portion of such option within one month after the date on which you ceased to be so employed and then only to the extent that such portion was vested (pursuant to the foregoing vesting schedule) on the date you ceased to be so employed, and you shall forfeit all other rights to and under such option, provided, however, that if your full-time employment ceases by reason of your death or "disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), then such one month period shall instead be a one-year period following the cessation of your employment. The foregoing, as well as such other terms and conditions as the Company shall deem appropriate, shall be set forth in a definitive stock option agreement. Your rights as an optionee shall be governed by the terms and conditions of such agreement and the Plan. 2 Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect during the Employment Period. Very truly yours, KING WORLD PRODUCTIONS, INC. By: Accepted: Don Prijatel KING WORLD PRODUCTIONS, INC. 12400 Wilshire Blvd. Los Angeles, California 90025 As of September 1, 1995 Mr. Don Prijatel 31758 Kentfield Court Westlake Village, California 91361 Dear Don: This letter, when accepted by you, shall constitute an amendment (the "Second Amendment") to the letter agreement, dated June 23, 1989, as amended September 1, 1991 (as so amended, the "Letter Agreement"), between King World Productions, Inc. (the "Company") and you. Unless otherwise modified herein, all of the terms, definitions and provisions of the Letter Agreement shall continue in effect and shall govern this Second Amendment. The Company and you hereby agree as follows: 1. The "Employment Period" (as that term is defined in the Letter Agreement) shall terminate on August 31, 1998. 2. Your salary compensation for the period (a) from September 1, 1995 through August 31, 1996 shall be payable at the annual rate of $300,000, (b) from September 1, 1996 through August 31, 1997 shall be payable at the annual rate of $315,000 and (c) from September 1, 1997 through August 31, 1998 shall be payable at the annual rate of $325,000. 3. Effective as of the date hereof, you shall be employed as Senior Vice President, Advertising and Promotion. 4. Subject to the provisions of this paragraph 4, the Company will grant to you a "non-qualified stock option" under the Company's 1989 Stock Option and Restricted Stock Purchase Plan (the "Plan") to purchase 25,000 shares of the Company's Common Stock, $.01 par value (the "Common Stock"), at an exercise price equal to $38.50 per share, the closing price of the Common Stock on the New York Stock Exchange on the date hereof. You understand and agree with respect to such option that: (i) your right to exercise such option shall vest as follows: 20% on August 31, 1996; 20% on August 31, 1997; 20% on August 31, 1998; and 40% on August 31, 2000; and (ii) if you should cease to be a full-time employee of the Company and any of its subsidiaries or affiliates, then you shall only have the right to exercise the unexercised portion of such option within one month after the date on which you ceased to be so employed and then only to the extent that such portion was vested (pursuant to the foregoing vesting schedule) on the date you ceased to be so employed, and you shall forfeit all other rights to and under such option, provided, however, that if your full-time employment ceases by reason of your death or "disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), then such one month period shall instead be a one-year period following the cessation of your employment. The foregoing, as well as such other terms and conditions as the Company shall deem appropriate, shall be set forth in a definitive stock option agreement. Your rights as an optionee shall be governed by the terms and conditions of such agreement and the Plan. Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect. Very truly yours, KING WORLD PRODUCTIONS, INC. By:__________________________________ Accepted: - ------------------------------ Don Prijatel KING WORLD PRODUCTIONS, INC. 12400 Wilshire Boulevard Los Angeles, California 90025 July 10, 1998 Mr. Don Prijatel 31758 Kentfield Court Westlake Village, California 91361 Dear Don: This letter, when accepted by you, shall constitute an amendment (the "Third Amendment") to the letter agreement, dated June 23, 1989, as amended September 1, 1991 and September 1, 1995 (as so amended, the "Letter Agreement"), between King World Productions, Inc. (the "Company") and you. All of the definitions of the Letter Agreement shall govern this Third Amendment. The Company and you hereby agree as follows: 1. The Employment Period shall terminate on August 31, 2001. 2. Your salary compensation for the period (a) from September 1, 1998 through August 31, 1999 shall be payable at the annual rate of $360,000, (b) from September 1, 1999 through August 31, 2000 shall be payable at the annual rate of $378,000 and (c) from September 1, 2000 through August 31, 2001 shall be payable at the annual rate of $397,000. 3. You hereby grant to the Company options to extend the Employment Period for two additional twelve month periods (the "Option Periods") to commence on September 1, 2001 and to end on August 31, 2002, in the case of the first Option Period, and to commence on September 1, 2002 and to end on August 31, 2003, in the case of the second Option Period. The Company may exercise such options by giving you written notice to such effect not later than May 1, 2001, in the case of the first Option Period, and May 1, 2002, in the case of the second Option Period. In the event that the Company elects to exercise the first or both of such options, the terms and provisions of the Letter Agreement, as amended hereby, shall remain in effect and shall apply during 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. Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect. Very truly yours, KING WORLD PRODUCTIONS, INC. By:__________________________________ Accepted: - ------------------------------ Don Prijatel EX-10.32 10 EMPLOYMENT AGREEMENT - STUART STRINGFELLOW KING WORLD PRODUCTIONS, INC. 830 Morris Turnpike Short Hills, New Jersey 07078 September 1, 1988 Mr. Stuart Stringfellow c/o King World Productions, Inc. 830 Morris Turnpike Short Hills, New Jersey 07078 Dear Stuart: This letter, when accepted by you, shall constitute an agreement between you and us: 1. (a) We hereby agree to continue to employ you as Vice President Central Region for the period commencing on the date hereof and terminating on August 31, 1989, unless extended by us pursuant to paragraph l(b) hereof (the "Employment Period"). You accept such employment, and agree to diligently and faithfully perform such services as shall from time to time be reasonably assigned to you by, or pursuant to a resolution of, our Board of Directors or our senior management, and diligently and faithfully devote your entire business time, skill and attention to the performance of such services. (b) You hereby grant to us an option to extend the Employment Period for one additional twelve month period to commence on September 1, 1989 and to end on August 31, 1990 (such period being hereinafter referred to as an "Option Period"). We may exercise each such option by giving you written notice to such effect at least sixty (60) days prior to the expiration of the Employment Period. In the event that we elect to exercise such option, the terms and provisions of this Agreement shall remain in effect and shall apply during the Employment Period as extended by any such Option Period, except as otherwise expressly provided herein. 2. (a) We shall pay to you, and you shall accept from us, for your services during the Employment Period, compensation at the annual rates of (i) $165,000 for the period commencing on September 1, 1988 through and including August 31, 1989, and (ii) $175,000 for the period commencing on September 1, 1989 through and including August 31, 1990. Any compensation payable pursuant to this Paragraph 2(a) shall be paid in accordance with our payroll policy at the time then in effect. 2 (b) During the Employment Period and the Option Period, if any, you may also be entitled to a bonus if our Board of Directors, in its sole and absolute discretion, shall so determine. (c) Subject to the provisions of this paragraph (c), as of the date hereof, we hereby grant to you under the King World Productions, Inc. Non-Qualified Stock Option Plan (the "Plan") an option to purchase 5,000 shares of King World Common Stock, $.01 par value ("Common Stock"), at an exercise price equal to the lowest closing price of the Common Stock on the New York Stock Exchange on any trading day during the period commencing on June 1, 1988 and ending on August 31, 1988. You understand and agree, with respect to such stock option that: (i) your right to exercise such option shall vest over a five year period commencing on September 1, 1988 as follows: 20% on August 31, 1989; 20% on August 31, 1990; 20% on August 31, 1991; 0% on August 31, 1992; and, 40% on August 31, 1993. (ii) if you should cease to be a full-time employee of us, then you shall only have the right to exercise the unexercised portion of any option granted to you within one month after the date on which you ceased to be so employed and then only to the extent that such portion was vested (pursuant to the foregoing vesting schedule) on the date you ceased to be so employed, and you shall forfeit all other rights to and under said option. The foregoing, as well as such other terms and conditions as our Board of Directors may deem appropriate, shall be set forth in a definitive stock option agreement between you and us. Your rights as an optionee shall be governed by the terms and conditions of such agreement and the Plan. (d) You shall be entitled to participate or continue to participate, as the case may be, on the same basis as our other employees, in any pension, profit-sharing life insurance, health insurance or hospitalization plan in effect with respect to such employees. 3. (a) In the event of your death, this agreement shall automatically terminate, effective upon the date of your death. (b) In the event that you are unable to perform the duties required of you pursuant to this agreement for ninety (90) days during the Employment Period (whether or not such ninety (90) days are consecutive) by reason of illness or other physical incapacity, we may, after the expiration of such ninety (90) days, terminate this agreement on thirty (30) days written notice to you. 3 4. Except as required in connection with the performance of your services to us, you shall not, during or after the termination of the Employment Period use or disclose to any person, partnership or corporation any confidential business information or trade secrets of ours obtained or learned by you during the Employment Period, including, without limitation, the type and nature of the contracts entered into by us in connection with the acquisition of television programming and the distribution of television programming, or the basis upon which we elect to acquire television programming for distribution. 5. You hereby agree that you shall not, for a period of two (2) years following the termination of the Employment Period, (a) induce, directly or indirectly, any person, partnership or corporation from whom or from which we acquired television programming during the Employment Period, to terminate its agreement with us with respect to such programming, to refuse to renew any such agreement or to refuse to furnish to us any other television programming or (b) induce, directly or indirectly, any employee of ours to terminate his or her employment with us. 6. You hereby agree that all ideas, creations, improvements and other works of authorship created, developed, written or conceived by you at any time during the Employment Period are works for hire within the scope of your Employment and shall be our property free of any claim whatever by you or any person claiming any rights or interests through you. 7. You hereby agree to indemnify and hold us harmless from and against any and all loss, damage, liability, cost and expense, including reasonable attorney's fees, incurred by us as a result of, arising out of or in connection with a violation of any term or condition of this agreement required to be performed or observed by you. 8. This agreement shall be governed by, and construed in accordance with, the laws of the State of New York and constitutes the entire agreement between the parties hereto on the subject matter hereof. No waiver or modification of the terms shall be valid unless in 4 writing signed by the party to be charged and only to the extent therein set forth. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors, assigns, heirs, administrators and executors. Yours very truly, KING WORLD PRODUCTIONS, INC. By____________________________ ACCEPTED: By______________________________ Stuart Stringfellow KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 June 28, 1990 Mr. Stuart Stringfellow c/o King World Productions, Inc. 1700 Broadway New York, New York 10019 Dear Stuart: This letter shall constitute confirmation, pursuant to our letter agreement with you, dated as of September 1, 1988 (the "Letter Agreement"), that you and we have agreed to extend the Employment Period (as that term is defined in the Letter Agreement) to include the period commencing on September 1, 1990 and terminating on August 31, 1992. In addition, we hereby agree to amend the terms of the Letter Agreement in the following respects: 1. Modifying the terms of paragraph 1(a) of the Letter Agreement, we hereby agree to employ you as Vice President Sales - East for the balance of the Employment Period, commencing on September 1, 1990. 2. Modifying the terms of paragraph 2(a) of the Letter Agreement, we shall pay to you, and you shall accept from us, for your services during the Employment Period, compensation at the annual rate of (i) $225,000 for the period from September 1, 1990 through August 31, 1991, and (ii) $250,000 for the period from September 1, 1991 through August 31, 1992, in each case payable in accordance with our customary payroll policy. 3. We hereby agree to reimburse you in the amount of $25,000 for such reasonable expenses as shall be incurred by you in connection with the relocation of your home to the New York area. Except as modified hereby, all other terms and provisions of the Letter Agreement shall continue in full force and effect during the Employment Period. Very truly yours, KING WORLD PRODUCTIONS, INC. By:_______________________________ Accepted: _________________________ Stuart Stringfellow KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 As of September 1, 1991 Mr. Stuart Stringfellow King World Productions, Inc. 1700 Broadway New York, New York 10019 Dear Stuart: This letter, when accepted by you, shall constitute an amendment (the "Second Amendment") to the letter agreement, dated September 1, 1988, as amended June 28, 1990 (as so amended, the "Letter Agreement"), between King World Productions, Inc. (the "Company") and you. Unless otherwise modified herein, all of the terms, definitions and provisions of the Letter Agreement shall continue in effect and shall govern this Second Amendment. The Company and you hereby agree as follows: 1. You hereby grant to the Company an option to extend the Employment Period for two additional twelve-month periods (the "Option Periods"), to commence on September 1, 1992 and to end on August 31, 1993, in the case of the first Option Period, and to commence on September 1, 1993 and to end on August 31, 1994, in the case of the second Option Period. The Company may exercise such option by giving you written notice to such effect not later than July 1, 1992, in the case of the first Option Period, and July 1, 1993, in the case of the second Option Period. In the event that the Company elects to exercise the first or both of such options, the terms and provisions of the Letter Agreement, as amended hereby, shall remain in effect and shall apply during the Employment Period as extended by the exercise of any such option, except as otherwise expressly provided in the Letter Agreement and herein. 2. The Company shall pay to you, and you shall accept from the Company, for your services during the extended Employment Period, (i) subject to the Company's exercising the option for the first 1 Option Period, compensation at the annual rate of $262,500 for the period from September 1, 1992 through August 31, 1993, and (ii) subject to the Company's exercising the option for the second Option Period, compensation at the annual rate of $275,625 for the period from September 1, 1993 through August 31, 1994, in each case payable in accordance with the Company's customary payroll policy. 3. Subject to the provisions of this paragraph 3, as of the date hereof, the Company will grant to you a "non-qualified stock option" under the Company's 1989 Stock Option and Restricted Stock Purchase Plan (the "Plan") to purchase 25,000 shares of the Company's Common Stock, $.0l par value, at an exercise price equal to $25.00 per share. You understand and agree, with respect to such option that: (i) your right to exercise such option shall vest over a five year period as follows: 20% on August 31, 1992; 20% on August 31, 1993; 20% on August 31, 1994; and 40% on August 31, 1996; and (ii) if you should cease to be a full-time employee of the Company and any of its subsidiaries or affiliates, then you shall only have the right to exercise the unexercised portion of such option within one month after the date on which you ceased to be so employed and then only to the extent that such portion was vested (pursuant to the foregoing vesting schedule) on the date you ceased to be so employed, and you shall forfeit all other rights to and under such option, provided, however, that if your full-time employment ceases by reason of your death or "disability" (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), then such one month period shall instead be a one-year period following the cessation of your employment. The foregoing, as well as such other terms and conditions as the Company shall deem appropriate, shall be set forth in a definitive stock option agreement. Your rights as an optionee shall be governed by the terms and conditions of such agreement and the Plan. 2 Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect during the Employment Period. Very truly yours, KING WORLD PRODUCTIONS, INC. By:__________________________ Accepted: /s/ Stuart Stringfellow - ------------------------- Stuart Stringfellow 3 KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 As of June 3, 1993 Mr. Stuart Stringfellow c/o King World Productions, Inc. 1700 Broadway New York, New York 10019 Dear Stuart: This letter, when accepted by you, shall constitute an amendment (the "Third Amendment") to the letter agreement, dated September 1, 1988, as amended June 28, 1990 and September 1, 1991 (as so amended, the "Letter Agreement"), between King World Productions, Inc. (the "Company") and you. Unless otherwise modified herein, all of the terms, definitions and provisions of the Letter Agreement shall continue in effect and shall govern this Third Amendment. The Company and you hereby agree as follows: 1. The Company hereby exercises its option to extend the Employment Period for an additional twelve-month period commencing September 1, 1993 and ending on August 31, 1994. 2. Your salary compensation for the period from September 1, 1993 through August 31, 1994 shall be payable at the annual rate of $250,000. 3. You hereby grant to the Company an option (the "Option") to extend the Employment Period for an additional twelve-month period to commence on September 1, 1994 and to end on August 31, 1995. The Company may exercise the Option by giving you written notice to such effect not later than July 1, 1994. In the event that the Company elects to exercise the Option, the terms and provisions of the Letter Agreement, as amended hereby, shall remain in effect and shall apply during the Employment Period as extended by the exercise of the Option, except as otherwise expressly provided in the Letter Agreement and herein. 4. If the Company shall exercise the Option, the Company shall pay to you, and you shall accept from the Company, salary compensation at the annual rate of $262,500 for the period from September 1, 1994 through August 31, 1995. Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect. Very truly yours, KING WORLD PRODUCTIONS, INC. By:__________________________________ Accepted: - --------------------- Stuart Stringfellow As of September 1, 1995 Mr. Stuart Stringfellow c/o King World Productions, Inc. 1700 Broadway New York, New York 10019 Dear Stu: This letter, when accepted by you, shall constitute an amendment (the "Fourth Amendment") to the letter agreement, dated September 1, 1988, as amended June 28, 1990, as of September 1, 1991 and as of June 3, 1993 (as so amended, the "Letter Agreement"), between King World Productions, Inc. (the "Company") and you. Unless otherwise modified herein, all of the terms, definitions and provisions of the Letter Agreement shall continue in effect and shall govern this Fourth Amendment. 1. The Company and you hereby agree to extend the Employment Period for an additional two-year period commencing September 1, 1995 and ending on August 31, 1997. 2. Your salary compensation for the period from September 1, 1995 through August 31, 1996 shall be payable at the annual rate of $250,000. 3. Your salary compensation for the period from September 1, 1996 through August 31, 1997 shall be payable at the annual rate of $275,000. Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect. Very truly yours, KING WORLD PRODUCTIONS, INC. By:_____________________________ Accepted: ________________________ Stuart Stringfellow KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 June 16, 1997 Mr. Stuart Stringfellow c/o King World Productions, Inc. 1700 Broadway New York, New York 10019 Dear Stu: This letter, when accepted by you, shall constitute an amendment (the "Fifth Amendment") to the letter agreement, dated September 1, 1988, as amended June 28, 1990, September 1, 1991, June 3, 1993 and September 1, 1995 (as so amended, the "Letter Agreement"), between King World Productions, Inc. (the "Company") and you. All of the definitions of the Letter Agreement shall govern this Fifth Amendment. The Company and you hereby agree as follows: 1. The Employment Period shall be extended so as to terminate on August 31, 1999. 2. Your salary compensation for the period from September 1, 1997 through August 31, 1999 shall be payable at the annual rate of $400,000. 3. If the proposed talk/variety television series hosted by Roseanne is produced for premiere in the 1998/99 broadcast season with coverage (determined on an NSS basis), upon such premiere, of at least 80% of United States television homes, then the Company shall, by September 30, 1998, pay you a one-time bonus in an amount equal to the product of (a) the number of percentage points of such coverage and (b) $1,000 (i.e., for purposes of clarity, a maximum bonus of $100,000). Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect. Very truly yours, KING WORLD PRODUCTIONS, INC. By:__________________________________ Accepted: - --------------------- Stuart Stringfellow KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 July 22, 1998 Mr. Stuart Stringfellow c/o King World Productions, Inc. 1700 Broadway New York, New York 10019 Dear Stu: This letter, when accepted by you, shall constitute an amendment (the "Sixth Amendment") to the letter agreement, dated September 1, 1988, as amended June 28, 1990, September 1, 1991, June 3, 1993, September 1, 1995 and June 16, 1997 (as so amended, the "Letter Agreement"), between King World Productions, Inc. (the "Company") and you. All of the definitions of the Letter Agreement shall govern this Sixth Amendment. The Company and you hereby agree as follows: 1. The Employment Period shall be extended so as to terminate on August 31, 2001. 2. Your salary compensation for the period (a) from September 1, 1999 through August 31, 2000 shall be payable at the annual rate of $425,000 and (b) from September 1, 2000 through August 31, 2001 shall be payable at the annual rate of $450,000. Except as modified herein, all terms and provisions of the Letter Agreement shall continue in full force and effect. Very truly yours, KING WORLD PRODUCTIONS, INC. By:__________________________________ Accepted: - --------------------- Stuart Stringfellow -----END PRIVACY-ENHANCED MESSAGE-----