-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, a86b5jqnMIpDlvSrET5LeBoK+Y7Bfn9D3EEnaLA9cX7yBqZZtrBg9/+fRObCtlF9 dtrnWoFh02zbO8V2N5fZkg== 0000950123-94-001938.txt : 19941129 0000950123-94-001938.hdr.sgml : 19941129 ACCESSION NUMBER: 0000950123-94-001938 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19940831 FILED AS OF DATE: 19941128 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KING WORLD PRODUCTIONS INC CENTRAL INDEX KEY: 0000756764 STANDARD INDUSTRIAL CLASSIFICATION: 7822 IRS NUMBER: 132565808 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09244 FILM NUMBER: 94562156 BUSINESS ADDRESS: STREET 1: 1700 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2123154000 10-K 1 KING WORLD PRODUCTIONS, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended August 31, 1994 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For transition period from to Commission file number: 1-9244 KING WORLD PRODUCTIONS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 13-2565808 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1700 Broadway New York, New York 10019 --------------------- ---------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: 212-315-4000 ------------ Securities registered pursuant to Section 12(b) of the Act: 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 --- --- 2 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of the registrant held by non-affiliates as of November 15, 1994 was approximately $1.008 billion. As of November 15, 1994, there were 36,768,874 outstanding shares of the registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive proxy statement for its 1995 annual meeting of stockholders (which is to be filed pursuant to Regulation 14A not later than December 29, 1994) is incorporated by reference into Part III of this Form 10-K. 3 PART I Item 1. BUSINESS GENERAL King World was founded in 1964 by the late Charles and Lucille King to distribute or syndicate feature length films and television programs to television stations. King World currently distributes programming to approximately 400 television stations in over 200 of the 211 designated television markets in the United States (as defined by A.C. Nielsen Co. ("Nielsen")) and in Canada and a number of other foreign countries directly and through sales agents and subdistributors. Three of Mr. and Mrs. King's children, namely Roger King, King World's Chairman of the Board, Michael King, King World's President and Chief Executive Officer, and Diana King, a Vice President and the Secretary of King World, are actively involved in the management of King World. In addition, one other child of King World's founders, Richard King, serves as a director of the Company and another, Robert King, is Senior Vice President for Strategic Planning/Acquisitions. King World Productions, Inc., a Delaware corporation, was incorporated in October 1984 and is the successor to a corporation incorporated in 1964 under the laws of the State of New Jersey. King World's corporate headquarters are located at 1700 Broadway, New York, New York 10019 ((212) 315-4000). Except as otherwise indicated or as implied by the context, references to "King World" or the "Company" include King World Productions, Inc., its consolidated subsidiaries and its predecessor corporation. As a result of the deconsolidation of Buffalo Broadcasting Co. Inc. from the financial statements of King World as of August 4, 1992 (see Note 2 of Notes to Consolidated Financial Statements), the Company operates in only one business segment: production and distribution of television programming in the United States, Canada and a number of other foreign countries, and related operations. PROGRAMMING AND RELATED OPERATIONS First-run Television Syndication King World's revenues currently are derived primarily from the first-run strip syndication of the television series The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside Edition. These series are four of the top ten series in national syndication, as reported in the July 1994 Nielsen Designated Market Area Ranking Report: Wheel of Fortune and Jeopardy! had the two highest ratings among all syndicated television shows; 4 and The Oprah Winfrey Show had the highest ratings among all national television talk shows. According to Nielsen, Wheel of Fortune has had the highest ratings among shows in national syndication for the last 43 consecutive sweeps periods, Jeopardy! has had the second highest ratings among such shows for each of the last 36 consecutive sweeps periods and The Oprah Winfrey Show has had the third highest ratings among such shows for 24 of the last 32 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 $480.7 million in fiscal 1994 and its net income has increased from $9.8 million in fiscal 1985 to $88.3 million in fiscal 1994. 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 82% of King World's revenues for the fiscal year ended August 31, 1994. Information for the 1994 fiscal year gives effect to a change in accounting for revenue recognition adopted by the Company on a prospective basis in the fourth quarter of fiscal 1994. See Note 1 of Notes to Consolidated Financial Statements. At present, King World distributes television programming primarily to network-owned-and-operated stations and network-affiliated stations. First-run syndicated programming distributed by the Company competes primarily with other first-run syndicated programming, network reruns and programming produced by local television stations. The United States television market is served primarily by network-owned-and-operated stations, network-affiliated stations, independent stations and cable operators. During hours commonly referred to as "prime- time" (currently, with limited exceptions, 8 p.m. to 11 p.m. in the Eastern and Pacific time zones and 7 p.m. to 10 p.m. in the Central and Mountain time zones), stations owned and operated by the four major broadcast networks (the ABC Television Network, the CBS Television Network, the NBC Television Network and the Fox Broadcasting Company), and stations affiliated with those networks, broadcast schedules consisting primarily of programming produced for initial exhibition by the networks. In non-prime time, such stations broadcast network programming, off-network programming (reruns), programming produced by the local stations themselves or by independent producers and first-run syndicated programming (programming produced for initial distribution on a syndicated basis). Independent television stations, during both prime and non-prime time, broadcast their own programming, off-network programming and first-run syndicated programming. Some cable operators, in addition to other services that they offer, telecast syndicated programming. Nielsen divides the United States into 211 designated market areas and approximately 29 additional special market areas 2 5 that, on the basis of size and the other Nielsen criteria, do not qualify as designated market areas. The approximately 240 Nielsen designated and special market areas are referred to below as the "Nielsen market areas". In the 1983-1984 broadcast season, King World introduced a syndicated version of Wheel of Fortune, which had premiered on daytime network television in 1975. For the 1993-1994 broadcast season, Wheel of Fortune 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, covering approximately 99% of total domestic television households. For the 1984-1985 broadcast season, the Company introduced Jeopardy!, a remake of the successful game show originally broadcast on network television between 1964 and 1975. For the 1993-1994 broadcast season, Jeopardy! was licensed to television stations in 192 Nielsen market areas in the United States, covering approximately 98% of total domestic television households, and for the current broadcast season has been licensed to television stations in 192 Nielsen market areas, covering approximately 98% of total domestic television households. For the 1986-1987 broadcast season, King World introduced into national television syndication The Oprah Winfrey Show, a talk show hosted by Oprah Winfrey which, until October 1988, was produced by WLS-TV, an ABC owned- and-operated station. Commencing in October 1988, Harpo, Inc. ("Harpo"), an entity controlled by Ms. Winfrey, assumed production of the series. For the 1993-1994 broadcast season, The Oprah Winfrey Show was licensed to television stations in 206 Nielsen market areas in the United States, covering more than 99% of total domestic television households, and for the current broadcast season has been licensed to stations in 210 Nielsen market areas, covering more than 99% of total domestic television households. Inside Edition, a half-hour first-run syndicated newsmagazine series that is produced and distributed by King World, premiered in January 1989. It is the first television series produced by King World. Inside Edition is produced at the Company's production facility in New York and has a correspondent bureau in Los Angeles to enhance the ability of the program to provide nationwide coverage. For the 1993-1994 broadcast season, Inside Edition was licensed to television stations in 154 Nielsen market areas, covering approximately 92% of total domestic television households, and for the current broadcast season, the series has been licensed to television stations in 151 Nielsen market areas, covering approximately 91% of total domestic television households. 3 6 American Journal, a half-hour first-run syndicated newsmagazine series that is also produced by King World in New York, premiered in September 1993. American Journal is anchored by Nancy Glass, the Emmy Award-winning former senior correspondent of Inside Edition. For the 1993-1994 broadcast season, American Journal was licensed to television stations in 111 Nielsen market areas, covering approximately 83% of total domestic television households, and for the current broadcast season, the series has been licensed to television stations in 120 Nielsen market areas, covering approximately 85% of total domestic television households. Rolonda, a daytime talk show that is also produced by King World in New York, premiered in January 1994 following the cancellation of The Les Brown Show. It is hosted by Rolonda Watts, a popular broadcast journalist. For the 1993-1994 broadcast season, Rolonda was licensed to television stations in 96 Nielsen market areas, covering approximately 77% of total domestic television households. For the current broadcast season, Rolonda has been licensed to television stations in 79 Nielsen market areas, covering approximately 70% of total domestic television households. Each of The Oprah Winfrey Show, Wheel of Fortune, Jeopardy!, Inside Edition, and American Journal has been licensed to television stations for exhibition in future broadcast seasons, commencing with the 1995-1996 broadcast season and extending, in certain cases, as far into the future as the 1999-2000 broadcast season. Revenues and related expenses under license agreements with respect to future broadcast seasons will not be recognized until the license periods thereunder have begun and certain other conditions are satisfied. As of October 31, 1994, the gross amount of license fees under such agreements approximated $2.1 billion, of which approximately $1.2 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, 1994 is subject to the satisfaction of several conditions, including, with respect to amounts attributable to The Oprah Winfrey Show, the agreement of the producer and Ms. Winfrey to continue to produce and host the show after the 1995-1996 television season (which they are not contractually obligated to do). Such amounts do not include sales of advertising time retained during the broadcast of such program material or foreign license fees and do not reflect the production costs to be incurred for programming produced by King World. 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 assur- 4 7 ance that the key personalities on such programs, such as Oprah Winfrey, Pat Sajak, Vanna White and Alex Trebek, will continue to participate in the production of their respective programs. If for any reason they do not do so, there could be a material adverse effect on the Company's business. Acquisition and Development of Properties for Distribution King World's business is dependent on obtaining new television programs and series for distribution. King World may acquire properties for domestic, foreign or worldwide television distribution by entering into distribution agreements with independent producers, by producing its own programs, by co-producing programs in association with others, or by purchasing distribution rights. The terms under which the Company obtains the right to distribute programming from independent producers vary in each instance. The Company distributes The Oprah Winfrey Show pursuant to an agreement with Harpo, the producer of the series. Under the terms of the most recent amendment to such agreement, the Company has been granted the exclusive right, and has agreed, to distribute episodes of The Oprah Winfrey Show produced through the 1999- 2000 broadcast season, subject to Harpo's and Ms. Winfrey's right to decline to produce and host the show in any season after the 1995-1996 season. Such agreement, among other things, establishes the production fees payable to Harpo in the first two subject seasons and commits the Company to guaranty payments to Harpo at levels which, commencing with the 1995-1996 season, will be substantially higher than those currently in effect. In addition, in the 1997-1998 season and thereafter, profit sharing arrangements between Harpo and the Company currently in effect will terminate and the Company will instead receive distribution fees based on a percentage of gross revenues derived from the series. After the 1999-2000 television season, Harpo will not be obligated to distribute the series through the Company. Under the terms of the amended agreement with Harpo, Ms. Winfrey is subject until the 2000-2001 television season to certain restrictions on her ability to appear in television shows with the same or similar format as The Oprah Winfrey Show. In the event of certain corporate transactions constituting a "change in control" of the Company under the modified agreement, Harpo has the right to terminate such restrictions and, under certain circumstances, receive additional consideration for producing the series. The financial arrangements in the amended agreement with Harpo are less favorable to the Company than those contained in prior agreements between the Company and Harpo and, unless offset by significant increases in license fees paid for the series in forthcoming seasons, increased barter revenues from the series or both, the Company's net profits derived from The Oprah Winfrey Show will decline in the coming years. However, the Company believes that the modified arrangements provide Harpo and Ms. Winfrey additional incentives to continue to produce and host the series for the 1996-1997 and subsequent broadcast seasons and that the series will continue to be an important and profitable distribution property for the Company. The Company's agreements with Columbia TriStar Television (formerly Merv Griffin Enterprises), the producer of Wheel of Fortune and Jeopardy!, provide that King World shall be the exclusive distributor for such series so long as the Company has obtained sufficient broadcast commitments to cover production and distribution costs and that the Company may not, unless otherwise agreed by Columbia TriStar Television, distribute game shows for first-run strip syndication so long as the Company is distributing Wheel of Fortune or Jeopardy!. In acquiring new programming, King World has attempted, based on research concerning television programs currently being broadcast, to identify programs and series that King World believes will have broad-based audience appeal and satisfy the programming needs of television stations for particular time periods. Historically, the Company had relied on independent 5 8 producers for new programming. In recent years, however, in order to satisfy what King World believes to be audience demands and station programming needs, the Company has, for the most part, been developing and producing original programming on its own or in cooperation with others. In addition to Inside Edition, the Company is currently producing American Journal and Rolonda for first-run strip syndication. The introduction of new television programs requires substantial capital investment to fund programming development costs, the production of pilot programs and the production, distribution and promotion of the initial episodes of programming for syndication. The Company has funded and intends to continue to fund such capital investments out of its internal cash resources. License and Distribution Fees For certain first-run syndicated programming produced by independent companies for distribution by King World, the Company earns distribution fees that are based on a percentage of the license fees paid by television stations for the right to broadcast programs and the amounts paid by national advertisers for advertising time retained by the Company and sold in connection with such programs. The Company also recoups certain distribution expenses that it incurs in connection with the distribution of these series, which consist principally of advertising, promotion, satellite and tape costs and related expenses. Amounts remaining in excess of King World's distribution fees and expenses are remitted to the producers of such series. In other cases, the Company's fees for distributing first-run syndicated programming produced by independent companies are based upon a negotiated percentage of the profits derived from the exploitation of the programming after recoupment of the production, advertising, promotion and other distribution fees and expenses of the programming. In such cases, the Company generally finances all or a substantial portion of the production costs and may commit itself to advancing the producer and/or talent fixed minimum amounts as advances against their participation fees, irrespective of the amount of license fees and other revenues that may actually be generated by the programming. In acquiring distribution rights for new programming from independent producers, King World has generally tried to limit its risk by not making major commitments to independent producers until it has obtained commitments from a substantial number of television station licensees. 6 9 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 retains the net profits derived from the exploitation of the programming. License fees payable by stations for the rights to broadcast television programs and series are payable in the form of cash, retained advertising time or both. A television station that enters into a license agreement for a particular program or series becomes obligated to pay the contracted license fee (which will often depend on the time period in which the program is aired by that station) and provide advertising time, if applicable, upon the delivery by the Company of the programming in question. Advertising time retained by King World in connection with program distribution is sold to national advertisers by a wholly-owned subsidiary of the Company. See "Sale of Advertising Time". In the 1994 fiscal year, approximately 11% of the Company's revenues were derived from license fees under contracts with television stations owned by Capital Cities/ABC, Inc. No other television station, broadcast group or advertiser accounted for ten percent or more of the Company's revenues in the fiscal year. Marketing In the United States, there are approximately 240 Nielsen designated and special market areas containing commercial and/or public television stations. Sales to domestic television stations are made by the Company through a sales force that numbered 13 persons as of November 15, 1994. 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. 7 10 Sale of Advertising Time Camelot Entertainment Sales, Inc. ("Camelot"), a wholly-owned subsidiary of King World, sells advertising time within television programs. As of November 15, 1994, Camelot employed eight salespersons. The value of advertising on any particular program varies significantly depending on the audience ratings and demographics for such program and conditions in the market for television advertising time in general. In order for advertising time on a particular syndicated television program to be valuable to national advertisers, the program must, as a general rule, be broadcast in television markets covering at least 70% of the total domestic television households. For the 1994-1995 broadcast season, The Oprah Winfrey Show has been licensed to stations covering more than 99% of the total domestic television households; Wheel of Fortune and Jeopardy! have been licensed to stations covering approximately 99% and 98%, respectively, of the total domestic television households; Inside Edition has been licensed to stations covering approximately 91% of the total domestic television households; American Journal has been licensed to stations covering approximately 85% of the total domestic television households; and Rolonda has been licensed to stations covering approximately 70% of the total domestic television households. Fees for advertising time are established on the basis of household audience ratings or, more frequently, on the basis of the delivery of a certain demographic category of the viewing audience. The desired household rating or demographic delivery, as the case may be, is negotiated in advance with the advertiser or its agency. If the television program does not deliver at least the agreed-upon audience coverage, Camelot is obligated to make available, at no additional cost, additional advertising time within the same program or other programs that are expected to deliver at least the agreed-upon audience coverage or to refund that portion of the advertising fee attributable to the underdelivery. Generally, a portion of the Company's contracts for the sale of its advertising time may be cancelled by the advertiser upon 90 days' notice. Each television station is obligated to broadcast advertising time retained by King World even if the program or episode on which the time was retained is preempted by the station. Historically, Camelot has sold advertising time primarily on television programs distributed by King World. However, a portion of Camelot's revenues has in recent years been attributable to commissions earned on sales of advertising time on television programs distributed by companies other than King 8 11 World. Camelot has agreements currently in effect with, among others, Metro-Goldwyn-Mayer, Inc. to sell advertising time in Pink Panther, an animated children's series, and Western International Syndication to sell advertising time in It's Showtime at the Apollo, a variety program. Foreign Sales The Company licenses episodes of Wheel of Fortune, Jeopardy!, The Oprah Winfrey Show and Inside Edition in Canada and certain other English-speaking foreign territories. The Company also licenses the production of foreign versions of Wheel of Fortune and Jeopardy! in a number of other major foreign territories, including, among others, Australia, Germany and Poland. Under licenses from King World, EC-TV, on behalf of 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 8% of King World's revenues in fiscal 1994. Merchandising and Film Library The Company has granted licenses to others to produce Wheel of Fortune and Jeopardy! boxed board games and to exploit certain of its merchandising rights in The Little Rascals. King World also distributes its own library of 68 feature length films and 210 television programs, including 14 Sherlock Holmes, 13 The East Side Kids, 9 Mr. Moto and 11 Charlie Chan feature length films and episodes from The Little Rascals, Topper, Branded and The Guns of Will Sonnett television series. In acquiring feature length films and television programs for its own library, the Company has attempted to emphasize classic programming -- films and television series with broad and enduring audience appeal. King World holds long-term television and related distribution rights to the properties in its library. The Company is not generally required to make any material royalty or similar payments with respect to the properties in its library. Revenues from merchandising and the film library accounted for less than 1% of the Company's revenues in fiscal 1994. Direct Response Marketing The Company has launched King World Direct Inc., a new 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 the Wild America video series and 9 12 Sears Craftsman Robogrip pliers. Revenue from direct response marketing activities accounted for approximately 1% of the Company's revenues in fiscal 1994. 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 Prime-Time Access Rule A rule promulgated by the Federal Communications Commission ("FCC") known as the "prime-time access rule" prohibits (subject to certain significant exceptions) network-owned and network-affiliated television stations in the 50 largest television markets from broadcasting more than a total of three hours per day of programming supplied by or previously aired on a network during the prime-time period (defined under the rule as 7-11 p.m. Eastern and Pacific time and 6-10 p.m. Central and Mountain time). Due to the rule, network-owned and network-affiliated stations often acquire either one hour or one-half hour of program material for exhibition during the prime-time access period from independent television producers and syndicators. On October 20, 1994, the FCC initiated proceedings looking toward reconsideration or modification of the prime-time access rule. These proceedings were begun in response to petitions filed by a television station in Orlando, Florida, seeking a determination that the prime-time access rule is unconstitutional and a petition filed by a station group owner urging that the rule be modified to permit the network-owned and -affiliated stations now subject to the rule to broadcast, during the prime- 10 13 time access period, programming that has previously aired on a network. Proposals for modification or repeal are vigorously supported by the television networks and certain major producers of programming intended for initial airing on network television; such proposals are opposed by other station groups, by organizations representing independent broadcasters (that is, those unaffiliated with television networks) and by producers and distributors of first-run syndicated programming, including the Company. King World believes that the prime-time access rule is an important counter-balance to the market power of the networks and that any rule change that alters the prime-time access period, or that permits the prime-time access period to be used for the exhibition of programming supplied by or previously aired on the networks, probably will have a negative impact on independently produced television programming broadcast in the prime-time access period, such as Wheel of Fortune, Jeopardy! and Inside Edition. The FCC is expected to conclude its reexamination of the prime-time access rule during the first half of 1995. King World intends to participate vigorously in the proceedings regarding such reexamination and to urge that the rule be retained in its present form. However, King World is unable to predict the outcome of such proceedings. Syndication and Financial Interest Rules 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 (as defined under the Rules) to acquire financial interests in, and to syndicate, television programs previously aired by that network (a sector of programming in which King 11 14 World has not to date had substantial involvement). The 1991 Decision retained stringent limitations on network involvement in first-run syndication activities. Under the Rules as revised in 1991, a network could retain a continuing financial interest in a first-run program or series only if the program or series were produced solely by such network; any such first-run syndicated programming could be syndicated domestically only through a syndicator that was not owned or controlled by the network. The 1991 Decision defined a network as an entity regularly providing more than 15 hours per week of programming during prime-time hours to interconnected affiliated stations that reached, in the aggregate, at least 75 percent of television households nationwide. Under this definition, each of ABC, CBS and NBC was subject to the 1991 Rules as a network unless such entity reduced the amount of prime-time programming it provided to less than 15 hours per week; Fox Broadcasting Company was not a network for purposes of the Rules because it did not meet the 15 hour per week threshold. The 1991 Decision was appealed to the United States Court of Appeals for the Seventh Circuit, which, in early November 1992, overturned the 1991 Decision and remanded the matter to the FCC for further proceedings. In April 1993, after further proceedings, the FCC voted to further modify the Rules (the "1993 Decision"), in the following principal respects: (a) The restrictions contained in the 1991 Decision with respect to network involvement in first- run syndicated programming within the United States have been retained. Accordingly, networks (as defined) continue to be prohibited from acquiring any financial interests in, or actively syndicating, any first-run syndicated programming within the United States; provided that networks continue to be permitted to own financial interests and syndication rights in first-run syndicated programming produced solely in-house, subject to the active syndication prohibition. That is, networks must engage independent syndicators to effect the actual distribution of such programming. (b) The definition of a network has been retained. However, the 1993 Decision permanently excludes from the application of the Rules any entity that did not fall within the definitional criteria as of June 1993. As a result, the Fox Broadcasting Company and other emerging networks are not and will not be subject to the Rules even if and when they reach the 15 hour per week threshold. (c) The prohibition contained in the 1991 Decision on active network syndication in the United States of certain off-network programming has been made applicable to all network programming, regardless of whether the program in question was 12 15 produced by a network in-house or when the network came to acquire the syndication rights. (d) All other restrictions (except for certain anti-warehousing rules applicable to off-network programming and reporting requirements) on network acquisition of financial interest and syndication rights in United States network programming have been eliminated. In the 1993 Decision, the FCC stated that it would conduct a review of the remaining Rules 18 months after the lifting of Consent Decrees (which in fact occurred in November 1993). In such review proceeding, the burden of proof will be placed on those (such as the Company) who seek to retain the remaining restrictions. If, within six months after the launching of such review, the proponents of retention have failed to persuade the FCC that retention is justified, the remaining Rules will automatically expire. The 1993 Decision was appealed to the United States Court of Appeals for the Seventh Circuit and, in July 1994, it was upheld. However, the Court's affirmance of the 1993 Decision rested significantly on the procedures described above, which provide for automatic expiration of the remaining Rules unless proponents of retention successfully persuade the FCC that retention is justified. As a result of these decisions (and the November 1993 decision by the Federal District Court lifting the Consent Decrees), further proceedings before the FCC by those (including the Company) that believe the remaining Rules should be retained must be initiated not later than May 8, 1995. The Company is unable to predict the outcome of such further proceedings. In any event, under the terms of the 1993 Decision, network entry into the syndication business will continue to be governed by the Rules, as modified by the 1993 Decision, for at least six months from the initiation of such proceedings (that is, at least until November 1995). The Company anticipates that, if the Rules are permitted to expire as described above, the Company will have more difficulty licensing its programming to stations owned and operated by the three major television networks and that, even if the Company were able to so license its programming, the profitability of such programming to the Company would, as a result of terms imposed by such stations, be likely to be reduced. To the extent, however, that the restrictions on network acquisition of financial interests in, and active syndication of, first-run syndicated programming within the United States continue beyond the above-described period, such Rules should not have a material adverse effect on the Company's first-run syndication activities. 13 16 Other FCC Rules FCC rules currently permit the common ownership of, in most circumstances, up to twelve television stations, subject (in the case of station groups) to certain limitations based on audience reach. The rules also prohibit the common ownership of stations if certain defined service contours overlap. In May 1992, the FCC initiated proceedings requesting comments on various proposals to relax the ownership restrictions placed on television broadcasters and networks. The FCC is considering proposals to increase the number of stations that a network or station group may control and/or to relax the audience reach limitations; it is also considering relaxing the limitations on the number of stations with overlapping service contours that may be under common ownership. King World is unable to predict the outcome of these proceedings. King World believes that increases in the concentration of television station ownership, either by the networks or by broadcast groups, will tend to increase the power of the networks and the broadcast groups in the market for television programming and, consequently, could adversely affect King World's bargaining position vis-a-vis its customers. A federal district court has held unconstitutional, on First Amendment grounds, provisions of the 1992 Cable Act that require the FCC to prescribe rules and regulations establishing "reasonable limits on the number of cable subscribers" that a cable operator is authorized to reach through cable systems it owns or controls. The U.S. Justice Department has appealed this determination. However, the rationale for this decision (if ultimately affirmed) may implicate the constitutionality of other FCC structural regulations, including the rules that limit the number of television stations that a television network or station group may own. In October 1992, Congress enacted legislation imposing certain new regulations on the cable television industry. The legislation includes provisions that require each local television station (as defined) to make an election between demanding carriage on any cable system within its service area on a "must-carry" basis (for which the station receives no compensation) or demanding that such cable system obtain the consent of the station and pay compensation (and/or furnish other consideration) to the station for the right to carry its signal. The election made by the station as to each such cable system remains in effect for three years. Since the advent of these "retransmission consent" provisions, which became operative in October 1993, a small number of cable systems have refused to or failed to reach carriage agreements with particular local television stations and consequently ceased the carriage of such stations, thus resulting in decreased audience for King World programming aired on those stations, and in the future other cable systems could refuse or fail to reach such agreements. Although the Company has suffered 14 17 no discernible adverse impact to date, any such future decreases in audience could come to adversely affect the license fees and revenues from the sale of retained advertising time received by the Company from its programming. Turner Broadcasting System and a number of cable television networks and cable systems have brought or joined in lawsuits challenging the constitutionality of the retransmission consent and "must carry" provisions of the legislation. In April 1993, a three-judge district court, by a divided vote, upheld the must-carry provisions of the 1992 Cable Act. In June 1994, the United States Supreme Court overturned that decision and remanded the case to the District Court for a trial. The burden of proving that the must-carry rules do not infringe upon cable operators' rights under the First Amendment has been placed upon those who seek to justify the rules. The must-carry rules will remain in effect during the pendency of the trial. In a lawsuit that is related to, but separate from, the litigation concerning must-carry, the retransmission consent provisions of the 1992 Cable Act were upheld by the United States Court of Appeals for the District of Columbia; this decision was not disturbed by the United States Supreme Court. Legislation governing the cable television industry, and FCC implementing regulations, impose significant limits on the ability of a local telephone company to enter into the business of creating and of distributing video programming within its franchised telephone service area. In August 1993, a federal district court in Virginia held that these restrictions are unconstitutional on First Amendment grounds. The Department of Justice, which is responsible for the defense of this action, has appealed this determination. In 1992, the FCC adopted regulations which permit telephone companies to make their common carrier facilities available for the carriage of video programming ("video dialtone"). As promulgated, the rules severely limited the ability of a local telephone company to acquire financial interests in video programming distributed over its own telephone facilities. In October of 1994, the FCC revised its video dialtone rules but retained the restrictions on a telephone company's acquisition of financial interests in programming transmitted over its own telephone facilities. Judicial appeals of this determination, and legislation addressing the question of telephone company entry into the television programming business, are expected. King World is unable to predict the outcome of any of these proceedings. However, to the extent that telephone companies are permitted to engage in the production and distribution of video programming (or to acquire financial interests in video programming distributed over telephone company facilities), the position of over-the-air television stations in the video marketplace could be substantially weakened, thus resulting in decreased audiences for King World programming aired on those stations. 15 18 BROADCASTING In December 1988, the Company acquired Buffalo Broadcasting Co. Inc. ("Buffalo"), which owns and operates WIVB-TV, Channel 4, a VHF television station in Buffalo, New York. WIVB-TV is affiliated with the CBS Television Network. Buffalo entered into a Restructuring Agreement dated as of April 30, 1992, with its lenders and a newly formed subsidiary of King World, Buffalo Management Enterprises Co. Inc., providing for a restructuring of Buffalo's debt and substantial modifications to Buffalo's equity and governance structure. As a result of such restructuring, Buffalo ceased to be a consolidated subsidiary of King World. See Note 2 of Notes to Consolidated Financial Statements. Employees As of November 15, 1994, the Company employed 430 persons. Of this number, 292 are involved in the production of Inside Edition, American Journal and Rolonda. Thirty-two of the Company's employees are covered by collective bargaining agreements. Item 2. DESCRIPTION OF PROPERTIES The Company's corporate headquarters are located in New York, New York, where it leases office space for executive offices, the operations of Camelot and the Company's eastern U.S. and foreign sales staff. The Company's accounting, contract administration and research departments are located in leased offices in Short Hills, New Jersey. The Company also leases office space in Los Angeles for executive offices, its creative services department, program development and direct response marketing operations and its western U.S. sales staff, and in Chicago, West Palm Beach and Dallas for regional sales offices. The Company leases office and production facilities in New York and Los Angeles for its internally produced programming. Item 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings other than routine litigation incidental to the conduct of its business. 16 19 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 17 20 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 1993 First Quarter Ended November 30, 1992 . . . . . . . . . . 33 24 1/4 Second Quarter Ended February 28, 1993 . . . . . . . . . . 36 32 1/4 Third Quarter Ended May 31, 1993 . . . . . . . . . . . . . 35 3/4 32 Fourth Quarter Ended August 31, 1993 . . . . . . . . . . . 38 3/8 32 5/8 Fiscal 1994 First Quarter Ended November 30, 1993 . . . . . . . . . . 42 5/8 36 1/4 Second Quarter Ended February 28, 1994 . . . . . . . . . . 42 3/8 37 Third Quarter Ended May 31, 1994 . . . . . . . . . . . . . 42 33 5/8 Fourth Quarter Ended August 31, 1994 . . . . . . . . . . . 44 37 1/4
As of the close of business on October 31, 1994, there were 835 holders of record of the Company's Common Stock. The Company has not paid cash dividends since 1979. The Company has no present intention to pay dividends on its Common Stock. The Company requires substantial amounts to fund development, production and promotion costs for its programming, and intends to use its cash reserves and future earnings to finance such expenses and the development and expansion of its business. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources". 18 21 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, 1994, which have been audited and reported upon by Arthur Andersen LLP, independent public accountants. The unaudited 1994 pro forma data presents selected financial data assuming that a change in accounting for revenue recognition adopted prospectively in the fourth quarter of fiscal 1994 had not been made. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Results of Operations and Financial Condition" and the Consolidated Financial Statements and the Notes thereto included elsewhere in this Annual Report.
Statements of Income: Year Ended August 31, -------------------------------------------------------------------------------------- 1994(1) 1994 Pro forma(1) 1993 1992 1991 1990 ---- -------------- ---- ---- ---- ---- (unaudited) (Dollars in thousands except per share data) Revenues . . . . . . . . . . . . . . . $480,659 $541,390 $474,312 $503,174 $475,909 $453,749 Income from opera- tions . . . . . . . . . . . . . . . 127,578 148,151 150,950 152,481 154,084 142,828 Income before provi- sion for income taxes . . . . . . . . . . . . . . . . 140,839 161,412 162,592 164,725 154,028 139,651 Net income . . . . . . . . . . . . . . 88,300 101,196 101,936 94,880(2) 90,591(3) 84,100 ======== ======== ======== ======= ======== ======== Primary earnings per share . . . . . . . . . . . . . . . . $ 2.33 $ 2.67 $ 2.65 $ 2.43(2) $ 2.31(3) $ 2.15 ======== ======== ======== ======= ======== ========
Balance Sheets: August 31, -------------------------------------------------------------------------------------- 1994(1) 1994 Pro forma(1) 1993 1992 1991 1990 ---- -------------- ---- ---- ---- ---- (unaudited) (Dollars in thousands) Cash and invest- ments . . . . . . . . . . . . . . . . $430,048 $430,048 $384,489 $355,612 $241,915 $153,201 Working capital . . . . . . . . . . . . 294,336 307,232 286,348 273,086 126,489(4) 125,119 Total assets . . . . . . . . . . . . . 569,562 630,293 535,546 498,240 500,834 406,950 Long-term debt . . . . . . . . . . . . -- -- -- -- 97,238(4) 90,683 Stockholders' equity . . . . . . . . . . . . . . . 459,077 471,973 394,173 342,919 241,655 146,402 ======== ======== ======== ======== ======== ========
19 22 ___________________________ (1) The results of operations for fiscal 1994 reflect a change in accounting for revenue recognition adopted prospectively in the fourth quarter of fiscal 1994. The one-time impact of adopting such change was to cause revenues, income from operations, income before provision for income taxes, net income and primary earnings per share to be approximately $60.7 million, $20.6 million, $20.6 million, $12.9 million and $.34 lower, respectively, than they would have been under the Company's prior revenue recognition practice. Such revenues will be recognized in subsequent periods under the modified accounting practice. The unaudited 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 fiscal quarter of 1994. See Note 1 of Notes to Consolidated Financial Statements. (2) Net income and primary earnings per share include the effect of a net loss from the deconsolidated operations of Buffalo Broadcasting Co. Inc. ("Buffalo"), a former subsidiary of the Company, of approximately $7.7 million and $.20, respectively. See Note 2 of Notes to Consolidated Financial Statements. (3) Net income and primary earnings per share include the effect of an extraordinary loss of approximately $2.6 million and $.07, respectively, in fiscal 1991, as a result of the write-off of King World's investment in Financial News Network, Inc. (4) Working capital in fiscal 1991 reflects the reduction of $97.2 million of long-term debt, which was reclassified as a current liability. Such long-term debt was collateralized by all of the assets of Buffalo and King World's stock in Buffalo. Such long-term debt was restructured in fiscal 1992, as a result of which Buffalo was deconsolidated from King World's financial statements. See Note 2 of Notes to Consolidated Financial Statements. 20 23 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL The Company's revenues consist principally of fees from the licensing of syndicated television programs and series which may be in the form of cash, retained advertising time or both. In addition, revenues include fees from the sale of advertising time on programs distributed to television stations by others. Historically, King World has followed a practice of recognizing license fees from the distribution of first-run syndicated television properties at the commencement of the license period and as each show was produced (even though the particular show may not have been broadcast by a television station for several months). This practice has had the effect of creating variations in the Company's reported revenues and earnings from quarter to quarter, corresponding to the greater or smaller number of shows that were produced in a particular quarter, which were not necessarily indicative of longer term trends in the Company's business. In the fourth quarter of the 1994 fiscal year, the Company adopted a change in accounting for revenue recognition which has been accounted for prospectively as a change in accounting estimate as opposed to a change in accounting principle. Under the modified practice, license fees from first-run syndicated television properties are recognized at the commencement of the license period pursuant to noncancelable agreements and as each show is made available to the licensee via satellite transmission, rather than at the time the show is produced. Because transmission to the satellite takes place, on the average, no more than two to three days prior to the broadcast of the programming and in some cases several months after the programming is produced, the effect of adopting the modified practice will be to cause revenues from certain series to be recognized closer to the air date than under the prior practice. This effect is greater for Wheel of Fortune and Jeopardy!, which have a longer lag time between production and satellite transmission, and less for The Oprah Winfrey Show, Inside Edition, American Journal and Rolonda, which are produced closer to the time the shows are transmitted to the licensee. In addition, the accounting change will eliminate the quarterly revenue and earnings fluctuations that resulted from variations in production schedules. The one-time impact of adopting the change was to cause fourth quarter fiscal 1994 revenues, net income and earnings per share to be approximately $60.7 million, $12.9 million and $.34 lower, respectively, than they would have been under the prior practice, with no impact on cash flow. Such revenues will be 21 24 recognized in subsequent periods under the modified accounting practice. The Company typically receives a portion of the fees derived from the licensing of syndicated television programming in the form of retained advertising time, which is sold to advertisers by Camelot Entertainment Sales, Inc. ("Camelot"), a wholly-owned subsidiary of the Company. Such revenues are recognized at the same time as the cash portion of the license fees derived from such programming is recognized, in amounts adjusted for expected ratings. That portion of recognized revenue that is to be paid to the producers and owners of the licensed program material is accrued as the license fees are earned. See Note 1 of Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS COMPARISON OF FISCAL 1994 AND FISCAL 1993 Revenues Due to the adoption of the accounting change referred to above, the Company's revenues for the fiscal year ended August 31, 1994 increased by 1% over the prior year. Had revenues in the fourth quarter of fiscal 1994 been recognized on a basis comparable to prior periods, revenues for fiscal 1994 would have been approximately 14% higher than fiscal 1993, due primarily to the introduction of new shows produced and distributed by the Company (American Journal, which debuted in September 1993, and Rolonda, which debuted in January 1994, and The Les Brown Show, which debuted in September 1993 and was cancelled in January 1994), increased cash license fees from The Oprah Winfrey Show and Inside Edition and, to a lesser extent, an increase in revenues derived from the sale of retained advertising time on Wheel of Fortune, Jeopardy! and Inside Edition. The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside Edition accounted for approximately 41%, 17%, 15% and 9%, respectively, of the Company's revenues for fiscal 1994, compared to 39%, 24%, 20% and 8%, respectively, for the prior year. American Journal, Rolonda and The Les Brown Show accounted for approximately 5%, 2% and 2%, respectively, of the Company's revenues for fiscal 1994. The decreases in the relative contri- butions of Wheel of Fortune and Jeopardy! to the Company's fiscal 1994 revenues are primarily attributable to the impact of the accounting change, which had the effect of decreasing fourth quarter revenues derived from these two series. On a basis of accounting comparable to that employed prior to the fourth quarter of fiscal 1994, The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside Edition would have accounted for approxi- mately 36%, 21%, 18% and 8%, respectively, of the Company's 22 25 revenues for fiscal 1994. American Journal, Rolonda and The Les Brown Show would have accounted for approximately 4%, 2%, and 1%, respectively, of the Company's revenues for fiscal 1994. Producers' fees, programming and other direct operating costs Producers' fees, programming and other direct operating costs primarily include the producers' share of both cash license fees from the sale of programming to television stations and revenues derived from the sale of retained advertising time to advertisers with respect to programming distributed by the Company; participation fees payable by the Company to producers and talent; and production and distribution costs for first-run syndicated programming. The share of license fees payable by the Company to producers, talent and others is generally paid as cash license fees and revenues derived from the sale of retained advertising time are received from television stations and advertisers. Producers' fees, programming and other direct operating costs increased by approximately 5% for fiscal 1994 compared with fiscal 1993. Because the recognition of these costs and expenses generally coincides with the recognition of the revenues with which they are associated, the adoption of the modified accounting practice in the fourth quarter of fiscal 1994 caused the increase in producers' fees, programming and other direct operating costs in fiscal 1994 to be substantially lower than it would have been under the prior revenue recognition practice. On a basis of accounting comparable to that employed prior to the fourth quarter of fiscal 1994, producers' fees, programming and other direct operating costs would have increased by approximately 20% in fiscal 1994 over the prior year, primarily as a result of production costs associated with American Journal, Rolonda and The Les Brown Show, and as a result of the higher level of revenues generated by The Oprah Winfrey Show, of which the producer was entitled to a greater percentage in the 1993-1994 broadcast season compared with the prior season. Selling, general and administrative expenses Selling, general and administrative expenses for fiscal 1994 increased by approximately 27% over the prior year. The increase is primarily attributable to advertising and promotion costs associated with American Journal, Rolonda and The Les Brown Show and higher promotion expenditures for The Oprah Winfrey Show. (During fiscal 1993, no new shows were introduced.) To a lesser extent, the increase is attributable to payment of the new show bonuses and reserves for the other executive bonuses referred to below. In December 1993, the Company entered into new employment agreements with four executive officers. The agreements 23 26 provide, among other things, for new bonuses that are intended to qualify as "performance based compensation" (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended), including bonuses payable upon the introduction of new shows and bonuses contingent upon the Company's Common Stock achieving specified target prices during preestablished measurement periods. As a result, the Company's compensation expense will increase if the Common Stock price exceeds the specified target prices during the applicable measurement periods. As of August 31, 1994, the first measurement date for such bonuses, the applicable target prices of the Company's Common Stock for certain of such bonuses had not been met. However, as of such date, the Company provided for the probability that such target prices will be met in future measurement periods and such bonuses will be paid pursuant to the terms of such employment agreements. Net income and primary earnings per share The Company's operating income for fiscal 1994 decreased by approximately 15% compared to the prior year, primarily due to the change in accounting practice adopted by the Company in the fourth quarter of fiscal 1994. But for such change, the Company's operating income would have been slightly less than 2% below the prior year. The accounting change further resulted in a 13% decrease in net income, which, but for the accounting change, would have been approximately equal to that of the prior year, reflecting higher interest income earned on the Company's cash and investments due to a higher level of investments in fiscal 1994 and moderate increases in interest rates over the prior year, offset by a slight decrease in operating income. Primary earnings per share, which decreased by $.34 due to the accounting change, would have been slightly higher than fiscal 1993 had the prior method of revenue recognition been employed in the fourth quarter of fiscal 1994, due to a smaller number of shares outstanding as a result of the Company's ongoing stock repurchase program. COMPARISON OF FISCAL 1993 AND FISCAL 1992 Revenues The Company's revenues for the year ended August 31, 1993 decreased by approximately 6% over the prior year. The reduction was primarily due to reduced cash license fees from Wheel of Fortune and, to a lesser extent, Jeopardy!, reflecting lower license fees per show and the production of a smaller number of Wheel of Fortune and Jeopardy! shows in fiscal 1993 as compared to the prior year. Revenues were further reduced due to the cancellation of Candid Camera, which was not renewed for the 1992-1993 broadcast season. These decreases were partially 24 27 offset by increases in cash license fees from The Oprah Winfrey Show and Inside Edition, due to higher license fees per show. In addition, revenues derived from the sale of retained advertising time on all shows increased on a per show basis, reflecting a general improvement in the market for television advertising time. The Oprah Winfrey Show, Wheel of Fortune, Jeopardy! and Inside Edition accounted for approximately 39%, 24%, 20% and 8%, respectively, of the Company's revenues for fiscal 1993, compared to 34%, 28%, 20% and 7%, respectively, for the prior year. Revenues from Candid Camera accounted for approximately 4% of the Company's revenues for fiscal 1992. Producers' fees, programming and other direct operating costs Producers' fees, programming and other direct operating costs decreased for fiscal 1993, primarily as a result of decreased revenues from Wheel of Fortune and Jeopardy!, a portion of which is payable to the producer of such programming, and the elimination of production costs associated with Candid Camera. This decrease was partially offset by increased participation fees paid to the producer of The Oprah Winfrey Show, due to the higher level of revenues generated by the show. Selling, general and administrative expenses Selling, general and administrative expenses for fiscal 1993 were comparable to fiscal 1992. Advertising and promotion expenditures decreased in fiscal 1993 compared to fiscal 1992, primarily as a result of substantially higher advertising and promotion expenditures in fiscal 1992 associated with the introduction of Candid Camera and higher advertising and promotion expenditures for the 1991-1992 season of The Oprah Winfrey Show. However, such decrease was offset by increases in other areas, primarily increased costs associated with the development of American Journal and The Les Brown Show, two new programs produced and distributed by King World that debuted in first-run syndication in September 1993. Net income and primary earnings per share The Company's income before provision for income taxes decreased slightly in fiscal 1993 compared to the prior year. This was due to the factors discussed above and slightly lower interest income, reflecting lower interest rates in fiscal 1993, increased levels of tax-exempt investments by the Company (which generally have lower yields than taxable investments of a similar nature) and the use of cash (which had been invested in interest-bearing instruments) to repurchase Common Stock. The Company's 1993 financial statements also reflect a slightly lower effective tax rate, which resulted, despite an increase in the Federal tax 25 28 rate (enacted in the Company's fourth fiscal quarter but effective retroactively as of January 1, 1993), primarily from the increased levels of tax-exempt investments. In addition, the Company's 1993 financial statements reflect the absence of the results of operations of Buffalo Broadcasting Co. Inc. ("Buffalo"), formerly a wholly-owned subsidiary of the Company, which was deconsolidated from the Company's financial statements as a result of a financial restructuring of Buffalo effective August 4, 1992. The results of operations of Buffalo decreased net income by $7.7 million and primary earnings per share by $.20 in fiscal 1992. Overall, net income for fiscal 1993 increased by $7.1 million or approximately 7% over the prior year. As a result of such increase in net income and the smaller weighted average number of shares outstanding following the Company's repurchases of Common Stock in fiscal 1993, primary earnings per share increased by $.22, or approximately 9%, in fiscal 1993 compared to the prior year. 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. In the recent past, the advertising market has been somewhat depressed, although conditions generally improved in fiscal 1993 compared to fiscal 1992 and the improve- ment continued into fiscal 1994. Due to the success of the shows distributed by the Company and in order to mitigate the influence of some of the factors referred to above, the Company has been obtaining multi-year licenses and license renewals from television stations for its principal distribution properties, extending as far into the future as the 1999-2000 broadcast season. In general, these licenses and renewals have been at rates as favorable or more favorable to the Company than the rates applicable to the 1993-1994 and 1994-1995 broadcast seasons. All such licenses and renewals are contingent upon the continued production of the series by their respective producers through the broadcast seasons for which the licenses run. The Company believes that the impact of inflation on its operations has not been significant. 26 29 LIQUIDITY AND CAPITAL RESOURCES The Company requires capital resources to fund development, production and promotion costs of independently produced programming, including, in some instances, advances to producers and talent, to produce its own programs and to acquire distribution rights to new programming. In acquiring distribution rights from independent producers, King World has tried to avoid making significant capital commitments to such producers until it has obtained broadcast commitments from a substantial number of television stations. As a result of this strategy and the success of its existing syndication properties, to date, King World has funded substantially all programming acquisition, development and production costs and advances from its operations. As King World has developed and produced its own programming for syndication, it has assumed a greater portion of the risk associated with the introduction of new series. The introductions of American Journal and The Les Brown Show in the 1993-1994 broadcast season, and Rolonda, which premiered in January 1994, have necessitated the expenditure by King World of substantial amounts to fund development, production and promotion costs. The Company has funded and intends to continue to fund such costs out of its internal cash resources. The distribution of television programming is highly competitive and the Company may be obliged to offer, among other things, guarantees and cash advances to acquire, renew or extend distribution rights. In connection with the extension for the 1993-1994 and 1994-1995 broadcast seasons of the commitment by Harpo, Inc. ("Harpo"), the producer of The Oprah Winfrey Show, to produce The Oprah Winfrey Show for those seasons, the Company made an interest-free loan to Harpo and became obligated to pay Harpo certain minimum amounts against its participation fees for such periods, irrespective of the amount of license fees generated by the series in such periods. Harpo's participation fees for the 1993-1994 broadcast season exceeded such minimum amounts for the 1993-1994 and 1994-1995 broadcast seasons. The loan is due in two installments of $8,625,000 each, one of which was paid in July 1994 and the other of which is due in July 1995. Under the terms of the Company's agreement with Harpo, the Company has the exclusive right, and has agreed, to distribute episodes of The Oprah Winfrey Show produced through the 1999-2000 television season, subject to Harpo's and Ms. Winfrey's right to decline to produce and host the show in any season after the 1995-1996 season. Under the agreement, the Company has, among other things, agreed to pay Harpo production fees and to guaranty payments to Harpo at levels which, commencing with the 1995-1996 season, will be substantially higher than those cur- 27 30 rently in effect. In addition, in the 1997-1998 season and thereafter, profit sharing arrangements between Harpo and the Company currently in effect will terminate and the Company will instead receive distribution fees based on a percentage of gross revenues derived from the series. The Company has paid Harpo a $60,000,000 advance against its minimum participation fees for the 1995-1996 broadcast season. Based on the license agreements in place for the 1995-1996 broadcast season, the revenues from the series will be sufficient to cover such amount. From time to time, the Company has used cash reserves and/or borrowed funds to make acquisitions of and investments in broadcast and related properties in the entertainment field, to repurchase shares of its Common Stock and to fund development and production of new programming. The Company continues to evaluate opportunities in these areas, and may seek to raise capital in public or private securities markets to finance such activities if it considers it advantageous to do so. In December 1992, the Company announced that the Board of Directors had approved a program to repurchase up to 2,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions. In the fiscal years ended August 31, 1994 and 1993, 753,100 and 765,200 shares, respectively, of Common Stock were repurchased in open market transactions, for aggregate consideration of approximately $28.9 million (or approximately $38.40 per share) and $24.8 million (or approximately $32.40 per share), respectively. As of October 31, 1994, the Company had repurchased an aggregate 40,000 shares in fiscal 1995 for aggregate consideration of approximately $1.44 million (or approximately $36.00 per share), and as a result, as of such date, there were 441,700 shares available for repurchase under such program. The Company intends to continue to repurchase shares of Common Stock in the open market and in privately negotiated transactions if and when it deems it advantageous to do so. Commitments and receivables The Company has entered into agreements with television stations for the future distribution of program material in television seasons commencing with the 1994-1995 season and extending as far into the future as the 1999-2000 broadcast season, under which the revenues and related expenses will not be recognized until the license periods thereunder have begun and certain other conditions are satisfied. As of October 31, 1994, the gross amount of license fees under such agreements approximated $2.1 billion, of which approximately $1.2 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, 1994 is subject to the satisfaction of several condi- 28 31 tions, including, with respect to amounts attributable to The Oprah Winfrey Show, the agreement of the producer and Ms. Winfrey to continue to produce and host the show after the 1995-1996 television season (which they are not contractually obligated to do). Such amounts do not include sales of advertising time retained during the broadcast of such program material or foreign license fees and do not reflect the production costs to be incurred for programming produced by King World. As of August 31, 1994 and 1993, the Company's accounts receivable amounted to approximately $41.4 million and $102.2 million, respectively (net of allowance for doubtful accounts and unamortized discount to present value), substantially all of which was due within one year. The lower level of receivables as of August 31, 1994 compared with August 31, 1993 is attributable to the change in revenue recognition practice adopted in the fourth quarter of fiscal 1994. See Note 1 of Notes to Consolidated Financial Statements. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Financial Statements and Supplementary Data listed in the accompanying Index to Consolidated Financial Statements and Schedules which appear elsewhere in this Annual Report. Information required by other 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. 29 32 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page ---- Report of Independent Public Accountants . . . . . . . . 31 Consolidated Balance Sheets as of August 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . 32 Consolidated Statements of Income for the years ended August 31, 1994, 1993 and 1992 . . . . . . . . . 34 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1994, 1993 and 1992 . . . . 35 Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1993 and 1992 . . . . . . . . . 36 Notes to Consolidated Financial Statements . . . . . . . 37 Schedule I - Long-term Investments as of August 31, 1994 and 1993 . . . . . . . . . . . . . . . 53
30 33 Report of Independent Public Accountants To King World Productions, Inc.: We have audited the accompanying consolidated balance sheets of King World Productions, Inc. (a Delaware corporation) and subsidiaries as of August 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended August 31, 1994. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule 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, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended August 31, 1994, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the Index to Consolidated Financial Statements and Schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP New York, New York October 31, 1994 31 34 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
August 31, ---------------------- 1994 1993 -------- -------- (Dollars in thousands) CURRENT ASSETS: Cash and cash equivalents . . . . . . $341,857 $300,219 Accounts receivable (net of allowance for doubtful accounts of $4,412 and $4,212 in 1994 and 1993, respectively) . . . . . . . . 41,231 101,667 Producer loans, advances and deferred costs . . . . . . . . . . 21,314 25,600 Other current assets . . . . . . . . 419 235 -------- -------- Total current assets . . . . . . . 404,821 427,721 -------- -------- LONG-TERM INVESTMENTS, at cost, which approximates market . . 88,191 84,270 -------- -------- FIXED ASSETS, at cost: Furniture and office equipment . . . 7,028 6,766 Leasehold improvements . . . . . . . 1,959 2,195 Film and videotape masters . . . . . 1,644 1,423 -------- -------- 10,631 10,384 Less-accumulated depreciation and amortization . . . . . . . . . . . (9,099) (8,573) -------- -------- 1,532 1,811 -------- -------- OTHER ASSETS: Producer loans and advances . . . . . 65,500 11,625 Other non-current assets . . . . . . 9,518 10,119 -------- -------- 75,018 21,744 -------- -------- $569,562 $535,546 ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 32 35 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) LIABILITIES AND STOCKHOLDERS' EQUITY
August 31, ------------------- 1994 1993 -------- -------- (Dollars in thousands) CURRENT LIABILITIES: Accounts payable and accrued liabilities . . . . . . . . . . . . $ 14,780 $ 7,832 Payable to producers and others . . . 69,647 109,016 Income taxes payable: Current . . . . . . . . . . . . . . 23,506 13,559 Deferred . . . . . . . . . . . . . 2,552 10,966 --------- --------- Total current liabilities . . . . 110,485 141,373 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 5) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 5,000,000 shares authorized, none issued . . . . . . . . . . . . -- -- Common stock, $.01 par value; 75,000,000 shares authorized, 49,722,218 shares and 49,505,363 shares issued in 1994 and 1993, respectively . . . . . . . . . . . 497 495 Paid-in capital . . . . . . . . . . . 82,171 76,647 Retained earnings . . . . . . . . . . 665,339 577,039 Treasury stock, at cost; 12,960,894 and 12,207,794 shares in 1994 and 1993, respectively . . . . . . . . . (288,930) (260,008) --------- -------- 459,077 394,173 --------- --------- $ 569,562 $ 535,546 ========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. 33 36 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended August 31, ----------------------------- 1994(1) 1993 1992 -------- -------- -------- (Dollars in thousands except per share data) REVENUES . . . . . . . . . . . . . . . $480,659 $474,312 $503,174 -------- -------- -------- EXPENSES: Producers' fees, programming and other direct operating costs . . . 279,465 265,357 291,976 Selling, general and admini- strative expenses . . . . . . . . . 73,616 58,005 58,717 -------- -------- -------- 353,081 323,362 350,693 -------- -------- -------- Income from operations . . . . . . . 127,578 150,950 152,481 INTEREST AND DIVIDEND INCOME . . . . . 13,261 11,642 12,244 -------- -------- -------- Income before provision for income taxes . . . . . . . . . . . 140,839 162,592 164,725 PROVISION FOR INCOME TAXES . . . . . . 52,539 60,656 62,178 NET LOSS FROM DECONSOLIDATED OPERATION (Note 2) . . . . . . . . . -- -- (7,667) -------- -------- -------- Net income . . . . . . . . . . . . . $ 88,300 $101,936 $ 94,880 ======== ======== ======== PRIMARY EARNINGS PER SHARE . . . . . . $ 2.33 $ 2.65 $ 2.43 ======== ======== ========
____________________ (1) The results of operations for fiscal 1994 reflect a change in accounting for revenue recognition adopted prospectively in the fourth quarter of fiscal 1994. See Note 1. The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 34 37 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, 1991 . . . . . . 47,254,921 $473 $23,013 $380,223 $ (162,054) Amortization of deferred compensation . . . . . . -- -- 3,390 -- -- Exercise of stock options . 118,771 1 2,993 -- -- Net income . . . . . . . . -- -- -- 94,880 -- ---------- ---- ------- -------- ---------- Balance - August 31, 1992 . . . . . . 47,373,692 474 29,396 475,103 (162,054) Amortization of deferred compensation . . . . . . -- -- 2,898 -- -- Exercise of stock options . . . . . . . . . 2,131,671 21 44,353 -- -- Purchase of treasury stock -- -- -- -- (97,954) Net income . . . . . . . . -- -- -- 101,936 -- ---------- ---- ------- -------- ---------- Balance - August 31, 1993 . . . . . . 49,505,363 495 76,647 577,039 (260,008) Amortization of deferred compensation . . . . . . -- -- 152 -- -- Exercise of stock options . 216,855 2 5,372 -- -- Purchase of Treasury Stock -- -- -- -- (28,922) Net income . . . . . . . . -- -- -- 88,300 -- ---------- ---- ------- -------- ---------- Balance - August 31, 1994 . . . . . . 49,722,218 $497 $82,171 $665,339 $ (288,930) ========== ==== ======= ======== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 35 38 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31, --------------------------------------- 1994 1993 1992 -------- -------- -------- (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . $ 88,300 $101,936 $ 94,880 Items not affecting cash: Net loss from deconsolidated operation . . . . . . . . . . . -- -- 7,667 Depreciation and amortization . . 577 1,845 1,701 Non-current deferred income taxes . . . . . . . . . . . . . -- 2,001 1,372 Amortization of deferred compensation . . . . . . . . . 152 2,898 3,390 Effect of deconsolidated operation . . . . . . . . . . . -- -- (10,734) Change in assets and liabilities, net of deconsolidated operation: Accounts receivable . . . . . . 60,298 (2,862) (4,067) Producer loans, advances and deferred costs . . . . . (49,589) (1,092) 8,836 Accounts payable and accrued liabilities . . . . . . . . . 6,948 466 2,183 Payable to producers and others . . . . . . . . . . . (39,369) 1,733 (1,799) Income taxes payable . . . . . 1,533 (16,147) 8,890 Other, net . . . . . . . . . . . 554 867 (1,290) -------- -------- -------- Net cash provided by operating activities . . . . . . . . . . . . 69,404 91,645 111,029 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in investments . . . . . . . (3,921) (47,240) (44,530) Additions to fixed assets . . . . . . (567) (1,688) (263) Other . . . . . . . . . . . . . . . . 270 -- (63) -------- -------- -------- Net cash used in investing activities . . . . . . . . . . . . (4,218) (48,928) (44,856) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock . . . . . . . . . . . . . . . 5,374 44,374 2,994 Purchase of treasury stock . . . . . (28,922) (97,954) -- -------- -------- -------- Net cash (used in) provided by financing activities . . . . . . . (23,548) (53,580) 2,994 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . 41,638 (10,863) 69,167 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . 300,219 311,082 241,915 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . $341,857 $300,219 $311,082 ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 36 39 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of significant accounting policies Principles of consolidation The accompanying consolidated financial statements include the accounts of King World Productions, Inc. and its subsidiaries, including, prior to the fiscal year ended August 31, 1992, Buffalo Broadcasting Co. Inc. ("Buffalo"), the operator of WIVB-TV, the CBS-affiliated VHF television station in Buffalo, New York, which the Company acquired on December 5, 1988. All significant intercompany transactions have been eliminated. Unless the context suggests otherwise, the "Company", as used herein, means King World Productions, Inc. ("King World") and its consolidated subsidiaries. Revenue recognition Historically, King World has followed a practice of recognizing license fees from the distribution of first-run syndicated television properties at the commencement of the license period and as each show was produced (even though the particular show may not have been broadcast by a television station for several months). This practice has had the effect of creating variations in the Company's reported revenues and earnings from quarter to quarter, corresponding to the greater or smaller number of shows that were produced in a particular quarter, which were not necessarily indicative of longer term trends in the Company's business. In the fourth quarter of the 1994 fiscal year, the Company adopted a change in accounting for revenue recognition which has been accounted for prospectively as a change in accounting estimate as opposed to a change in accounting principle. Under the modified practice, license fees from first-run syndicated television properties are recognized at the commencement of the license period pursuant to noncancelable agreements and as each show is made available to the licensee via satellite transmission, rather than at the time the show is produced. Because transmission to the satellite takes place, on the average, no more than two to three days prior to the broadcast of the pro- gramming and in some cases up to three months after the programming is produced, the effect of adopting the modified practice will be to cause revenues from certain series to be recognized closer to the air date than under the prior practice. This effect is greater for Wheel of Fortune and Jeopardy!, which have a longer lag time between production and satellite transmission, and less for The Oprah Winfrey Show, Inside Edition, American Journal and Rolonda, which are produced closer to the time the shows are transmitted to the licensee. In addition, the account- 37 40 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of significant accounting policies (continued) ing change will eliminate the quarterly revenue and earnings fluctuations that resulted from variations in production schedules. The one-time impact of adopting the change was to cause fourth quarter fiscal 1994 revenues, net income and earnings per share to be approximately $60.7 million, $12.9 million and $.34 lower, respectively, than they would have been under the prior practice, with no impact on cash flow. Such revenues will be recognized in subsequent periods under the modified accounting practice. The following pro forma financial information assumes the Company's prior revenue recognition practice was in effect for the fourth quarter of fiscal 1994:
Year Ended August 31, ------------------------------------------ 1994 Pro forma 1993 1992 -------------- -------- ------- (unaudited) (Dollars in thousands except per share data) Revenues . . . . . . . . . . . . . . $541,390 $474,312 $503,174 Income from operations . . . . . . . 148,151 150,950 152,481 Income before provision for income taxes . . . . . . . . . . . 161,412 162,592 164,725 Net income . . . . . . . . . . . . . 101,196 101,936 94,880 ======== ======== ======== Primary earnings per share . . . . . . . . . . . . . . . $ 2.67 $ 2.65 $ 2.43 ======== ======== ========
The Company typically receives a portion of the fees derived from the licensing of syndicated television programming in the form of retained advertising time, which is sold to advertisers by Camelot Entertainment Sales, Inc. ("Camelot"), a wholly-owned subsidiary of the Company. Such revenues are recognized at the same time as the cash portion of the license fees derived from such programming is recognized, in amounts adjusted for expected ratings. That portion of recognized revenue that is to be paid to the producers and owners of the licensed program material is accrued as the license fees are earned. License fees for non-first-run syndicated properties are recognized at the gross contract amount (net of discount to present value for license periods greater than one year) at the commencement of the license period. The Company's principal properties are licenses to distribute The Oprah Winfrey Show, Wheel of Fortune and Jeopar- 38 41 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of significant accounting policies (continued) dy!; and Inside Edition, a first-run syndicated series produced and distributed by the Company. The Oprah Winfrey Show accounted for approximately 41%, 39% and 34% of revenues in fiscal 1994, 1993 and 1992, respectively. Wheel of Fortune accounted for approximately 17%, 24% and 28% of revenues in fiscal 1994, 1993 and 1992, respectively. Jeopardy! accounted for approximately 15%, 20% and 20% of revenues in fiscal 1994, 1993 and 1992, respectively. Inside Edition accounted for approximately 9%, 8% and 7% of revenues in fiscal 1994, 1993 and 1992, respectively. American Journal, which debuted in September 1993, Rolonda, which debuted in January 1994, and The Les Brown Show, which debuted in September 1993 but was cancelled in January 1994, accounted for approximately 5%, 2% and 2%, respectively, of the Company's revenues for fiscal 1994. On a basis of accounting comparable to that employed prior to the fourth quarter of fiscal 1994, The Oprah Winfrey Show, Wheel of Fortune, Jeopardy!, and Inside Edition would have accounted for approximately 36%, 21%, 18% and 8%, respectively, of the Company's revenues for fiscal 1994. American Journal, Rolonda and The Les Brown Show would have accounted for approximately 4%, 2% and 1%, respectively, of the Company's revenues for fiscal 1994. The Company distributes The Oprah Winfrey Show pursuant to an agreement with Harpo, Inc. ("Harpo"), the producer of the series. Under the terms of the agreement, the Company has the exclusive right, and has agreed, to distribute episodes of The Oprah Winfrey Show produced through the 1999-2000 television season, subject to Harpo's and Ms. Winfrey's right to decline to produce and host the show in any season after the 1995-1996 season. Under the agreement, the Company has, among other things, agreed to pay Harpo production fees and to guaranty payments to Harpo at levels which, commencing with the 1995-1996 season, will be substantially higher than those currently in effect. In addition, in the 1997-1998 season and thereafter, profit sharing arrangements between Harpo and the Company currently in effect will terminate and the Company will instead receive distribution fees based on a percentage of gross revenues derived from the series. The Company's agreements with Columbia TriStar Television (formerly Merv Griffin Enterprises) provide that the Company shall be the exclusive distributor for Wheel of Fortune and Jeopardy! so long as the Company has obtained sufficient broadcast commitments to cover production and distribution costs and that the Company may not, unless otherwise agreed by Columbia TriStar Television, distribute game shows for "strip" first-run 39 42 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of significant accounting policies (continued) syndication so long as the Company is distributing Wheel of Fortune or Jeopardy!. Producers' fees, programming and other direct operating costs Producers' fees, programming and other direct operating costs primarily include the producers' share of both cash license fees from the sale of programming to television stations and revenues derived from the sale of retained advertising time to advertisers with respect to programming distributed by the Company; participation fees payable to producers and talent; and production and distribution costs for first-run syndicated programming. The share of license fees payable by the Company to producers, talent and others is generally paid as cash license fees and revenues derived from the sale of retained advertising time are received from television stations and advertisers. Selling, general and administrative expenses Selling, general and administrative expenses include advertising and promotion costs associated with programming distributed by the Company, which amounted to $29,824,000, $22,783,000 and $25,249,000 in fiscal 1994, 1993 and 1992, respectively. Cash equivalents Cash equivalents are comprised principally of short-term municipal obligations, money market funds, money market preferred investments, commercial paper and United States Treasury and other agency obligations, and are carried at cost, which approximates market. For purposes of the consolidated statements of cash flows, the Company considers its highly liquid short-term investments purchased with a maturity of three months or less to be cash equivalents. Accounts receivable A provision for doubtful accounts of $200,000, $500,000 and $391,000 was recorded in fiscal 1994, 1993 and 1992, respectively. No material write- offs to the reserve have been made. Producer loans, advances and deferred costs Producer advances and deferred costs includes production and promotion costs, as well as talent and producer partici- 40 43 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of significant accounting policies (continued) pation advances, in connection with certain first-run syndicated programs distributed by the Company for broadcast during seasons subsequent to August 31, 1994. Such costs are charged to expense as the revenues from such programs are earned. Advances are recouped from the share of revenues payable by the Company to producers, talent and others. In connection with the extension for the 1993-1994 and 1994-1995 broadcast seasons of the commitment by Harpo to produce The Oprah Winfrey Show for those seasons, the Company made an interest-free loan to Harpo and became obligated to pay Harpo certain minimum amounts against its participation fees for such periods, irrespective of the amount of license fees generated by the series in such periods. Harpo's participation fees for the 1993-1994 broadcast season exceeded such minimum amounts for the 1993-1994 and 1994-1995 broadcast seasons. The loan is due in two installments of $8,625,000 each, one of which was paid in July 1994 and the other of which is due in July 1995. In connection with the extension of Harpo's commitment to produce The Oprah Winfrey Show for the 1995-1996 broadcast season, the Company paid Harpo a $60,000,000 advance against its minimum participation fees for such season. Based on the license agreements in place for the 1995-1996 broadcast season, the revenues from the series will be sufficient to cover such amount. 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 in excess of one year, and are carried at cost, which approximates market. Fixed assets Fixed assets are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight- line method for financial reporting purposes and accelerated methods for tax purposes, with estimated useful lives of 3 to 5 years for furniture and office equipment and 5 years for film and videotape masters. Leasehold improvements are amortized over the shorter of their useful lives and the lease term. Depreciation and amortization expense was approximately $527,000, $1,437,000 and $1,130,000 in fiscal 1994, 1993 and 1992, respectively. 41 44 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of significant accounting policies (continued) Stockholders' equity Primary earnings per share has been computed using the weighted average number of common shares outstanding of 37,862,000, 38,408,000 and 39,017,000 for the fiscal years ended August 31, 1994, 1993 and 1992, respectively, which includes the dilutive effect from the assumed exercise of vested and unvested stock options outstanding as of the end of the year. The difference between primary and fully diluted earnings per share for each such fiscal year was not significant. The Company is authorized to issue 5,000,000 shares of Preferred Stock, $.01 par value. The Board of Directors is empowered, without further stockholder approval, to establish from time to time one or more series of Preferred Stock and to determine the powers, preferences and special rights of any unissued series of Preferred Stock, including voting rights, dividend rights, terms of redemption, liquidation preferences, conversion rights and the designation of any such series. Industry segments and customers As discussed in Note 2, as a result of the deconsolidation of Buffalo from the Company's financial statements, the Company operates in one business segment, television programming. The Company's major customers and principal facilities are located within the United States. In the 1994, 1993 and 1992 fiscal years, approximately 11%, 13% and 11%, respectively, of the Company's revenues were derived from license fees under contracts with a single broadcast group. (2) Buffalo Broadcasting Co. Inc. Buffalo entered into a Restructuring Agreement dated as of April 30, 1992 with its lenders and a newly formed subsidiary of King World, Buffalo Management Enterprises Co. Inc., providing for a financial restructuring of Buffalo (the "Restructuring"). The Restructuring became effective on August 4, 1992. Buffalo's lenders and equity holders have indicated their intention to consummate a sale of Buffalo or its assets before June 30, 1998. As a result of the Restructuring, Buffalo ceased to be a consolidated subsidiary of King World. The net losses of Buffalo for the period ended August 4, 1992, including related tax effects of the deconsolidation, have been separately classified in the accompanying statement of income for the 1992 fiscal year. Buffalo's net losses amounted to approximately $7.7 42 45 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS million in fiscal 1992, which had the effect of decreasing primary earnings per share by $.20 for such fiscal year. King World's remaining investment in the equity of Buffalo is carried at cost. (3) Pension and profit sharing plans Effective September 1992, the King World Productions, Inc. Money Purchase Pension Plan was renamed the King World Productions, Inc. Retirement Savings Plan and was modified to include an employee pre-tax salary deferral contribution program under Section 401(k) of the Internal Revenue Code, with an employer matching contribution not to exceed 3% of annual compensation per employee, and a revised employer fixed contribution equal to 3% of annual salary per employee, subject to a maximum total employer contribution of approximately $10,000 per employee for fiscal 1994. The plan covers substantially all of the Company's employees. Contributions by the Company to the plan and its predecessor plan were approximately $576,000, $516,000 and $400,000 in fiscal 1994, 1993 and 1992, respectively. (4) Income taxes The components of the Company's provision for income taxes are summarized below:
Year Ended August 31, ------------------------------------- 1994 1993 1992 ------- ------- ------- (Dollars in thousands) Federal: Current . . . . . . . . . . . . $51,176 $47,480 $50,382 Deferred . . . . . . . . . . . (7,867) 1,939 232 ------- ------- ------- 43,309 49,419 50,614 ------- ------- ------- State and local: Current . . . . . . . . . . . . 9,777 11,091 11,546 Deferred . . . . . . . . . . . (547) 146 18 ------- ------- ------- 9,230 11,237 11,564 ------- ------- ------- Total . . . . . . . . . . . $52,539 $60,656 $62,178 ======= ======= =======
The Company reports income tax data in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The impact of the Company's adopting this Statement in fiscal 1993 on the consolidated financial statements was not significant. Deferred income taxes and benefits are provided for income and expense items recognized in different years for tax return and 43 46 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) Income taxes (continued) financial reporting purposes. For fiscal years prior to 1994, such deferred income taxes arose primarily due to differences in the revenue recognition methods employed by the Company with respect to license fee income. As of August 31, 1993, the tax effect of this temporary difference, which gives rise to a deferred tax liability, amounted to approximately $7.3 million. No other temporary differences give rise to significant deferred tax assets or liabilities. As discussed in Note 1, in the fourth quarter of fiscal 1994 the Company prospectively adopted a change in accounting for revenue recognition. As a result of such change, license fees are now recognized in the same year for tax return and financial reporting purposes. Accordingly, as of August 31, 1994, no temporary difference existed with respect to this item. 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 6. As part of the Revenue Reconciliation Act of 1993, the Federal tax rate on large corporations was increased from 34% to 35% effective retroactively as of January 1, 1993. For fiscal 1993, this resulted in a blended rate for the Company of 34.67%. Following is a reconciliation of the Company's provision for income taxes to the tax computed at the U.S. statutory rate:
Year Ended August 31, --------------------------- 1994 1993 1992 ------- ------- ------- (Dollars in thousands) Tax at U.S. statutory rate . . . . . . . . . . . . . $49,293 $56,371 $56,006 State tax provision, net of Federal benefit . . . . . . 6,000 7,341 7,632 Tax-exempt interest and dividend income . . . . . . . . (3,367) (2,723) (1,774) Other, net . . . . . . . . . . . 613 (333) 314 ------- ------- ------- $52,539 $60,656 $62,178 ======= ======= =======
As discussed in Note 2, Buffalo completed a financial restructuring on August 4, 1992. As a result, Buffalo was deconsolidated from the Company's financial statements and is no longer included in the Company's consolidated Federal income tax return. Income taxes paid approximated $49.8 million, $62.1 million and $56.1 million in fiscal 1994, 1993 and 1992, respectively. 44 47 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Commitments and contingencies License fees The Company has entered into agreements with television stations for the future distribution of program material in television seasons commencing with the 1994-1995 season and extending as far into the future as the 1999-2000 broadcast season, under which the revenues and related expenses will not be recognized until the license periods thereunder have begun and certain other conditions are satisfied. As of October 31, 1994, the gross amount of license fees under such agreements approximated $2.1 billion, of which approximately $1.2 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, 1994 is subject to the satisfaction of several conditions, including, with respect to amounts attributable to The Oprah Winfrey Show, the agreement of the producer and Ms. Winfrey to continue to produce and host the show after the 1995-1996 television season (which they are not contractually obligated to do). Such amounts do not include sales of advertising time retained during the broadcast of such program material or foreign license fees and do not reflect the production costs to be incurred for programming produced by King World. Operating leases Rent expense under operating leases covering office facilities, production studios and equipment amounted to $2,599,000, $2,908,000 and $2,883,000 for fiscal 1994, 1993 and 1992, respectively. Office and studio leases are subject to price escalations for certain costs. Aggregate future minimum rental commitments for these leases as of August 31, 1994 were as follows: Year Ending August 31, ---------------------- (Dollars in thousands) 1995 . . . . . . . . . $2,175 1996 . . . . . . . . . 1,397 1997 . . . . . . . . . 982 1998 . . . . . . . . . 691 1999 . . . . . . . . . -- Employment and production agreements As of August 31, 1994, the Company had entered into employment agreements and agreements with independent contractors relating to programming being or to be produced by King World 45 48 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Commitments and contingencies (continued) which provide for aggregate minimum annual compensation as follows: Year Ending August 31, ---------------------- (Dollars in thousands) 1995 . . . . . . . . . $18,051 1996 . . . . . . . . . 2,863 1997 . . . . . . . . . 175 1998 . . . . . . . . . -- 1999 . . . . . . . . . -- In December 1993, the Company entered into new employment agreements with four executive officers. The agreements provide, among other things, for new bonuses that are intended to qualify as "performance based compensation" (within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended), including bonuses payable upon the introduction of new shows and bonuses contingent upon the Company's Common Stock achieving specified target prices during preestablished measurement periods. As a result, the Company's compensation expense will increase if the Common Stock price exceeds the specified target prices during the applicable measurement periods. As of August 31, 1994, the first measurement date for such bonuses, the applicable target prices of the Company's Common Stock for certain of such bonuses had not been met. However, as of such date, the Company provided for the probability that such target prices will be met in future measurement periods and such bonuses will be paid pursuant to 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 these actions will not have a material adverse effect on the financial position of the Company. (6) Stock plans In fiscal 1994, the Company adopted the Amended and Restated Stock Option and Restricted Stock Purchase Plan (the "Option/Stock Plan"), which amended and restated the Company's 1989 Stock Option and Restricted Stock Purchase Plan and reserved 1,500,000 additional shares for grants and awards thereunder. The Option/Stock Plan provides for grants of incentive stock 46 49 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Stock plans (continued) options ("ISOs") and non-qualified stock options, as well as awards of shares of restricted stock, subject to certain conditions. The Option/Stock Plan is currently administered by the Compensation Committee of the Board of Directors. For ISOs granted pursuant to the Option/Stock Plan, the exercise price of options may not be less than the fair market value of the shares on the date of grant and the options may not have a term in excess of ten years. The Compensation Committee has the power to determine the vesting periods for options granted under the Option/Stock Plan. Only full-time employees of the Company and its subsidiaries may be granted ISOs under the Option/Stock Plan. ISOs granted under the Option/Stock Plan are intended to qualify as "incentive stock options" within the meaning of Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). For non-qualified options granted pursuant to the Option/Stock Plan, the exercise price of options may be more than, less than or equal to the fair market value of the shares on the date of grant (in the discretion of the Compensation Committee), and the options may be immediately exercisable (in the discretion of the Compensation Committee) and may not have a term in excess of ten years and one day. Employees, directors and officers of, and consultants or suppliers to, the Company and its subsidiaries may be granted non-qualified options under the Option/Stock Plan. Awards of restricted stock may be granted under the Option/Stock Plan to purchase shares of Common Stock for a price per share that may be more than, equal to or less than the fair market value of such shares on the date of the award. The Compensation Committee has the right to determine vesting provi- sions, transfer restrictions and other conditions or restrictions with respect to each award, including a condition that under certain circumstances the Company may, but is not required to, purchase any shares that have not become vested. To date, no awards of restricted stock have been granted under the Option/Stock Plan or its predecessor plans. In fiscal 1989, the Company adopted the Incentive Equity Plan for Senior Executives, pursuant to which an aggregate 2,550,000 shares of Common Stock were reserved for issuance to the Company's Chairman of the Board, President and Chief Executive Officer, and Executive Vice President and Chief Operating Officer, upon the exercise of options granted thereunder. Each of the Chairman and the President was granted non-qualified stock 47 50 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Stock plans (continued) options to purchase 1,200,000 shares of Common Stock, 975,000 at an exercise price of $15.75 (the approximate fair market value on the date of grant) and 225,000 at an exercise price of $.01; the Executive Vice President was granted non-qualified stock options to purchase 150,000 shares of Common Stock, 120,000 at an exercise price of $15.75 and 30,000 at an exercise price of $.01. No additional options may be granted under the Executive Plan. The following tables set forth options outstanding as well as options exercisable and available for grant at August 31, 1993 and 1994, and options forfeited and exercised during fiscal 1993 and 1994, together with the option prices:
Option/Stock Plan --------------------------- Non-Qualified Executive Fiscal 1993 ISOs Options Plan ----------- --------------------------- ---------- Granted . . . . . . . . -- 276,750 -- Prices ranging: From . . . . . . . -- $ 24.25 -- To . . . . . . . . -- $ 34.75 -- Forfeited . . . . . . . -- 47,600 -- Exercised . . . . . . . 34,814 299,857 1,797,000 Prices ranging: From . . . . . . . $ 1.45 $ .01 $ .01 To . . . . . . . . $ 26.59 $ 28.50 $ 15.75 Outstanding at August 31, 1993 . . . 110,550 1,219,734 510,000 Exercisable at August 31, 1993 . . . 58,800 482,284 510,000 Prices ranging: From . . . . . . . $ 7.05 $ .01 $ .01 To . . . . . . . . $ 33.63 $ 31.63 $ 15.75 Available for grant at August 31, 1993 . . . 320,198 -- --------------------------- ----------
Option/Stock Plan --------------------------- Non-Qualified Executive Fiscal 1994 ISOs Options Plan ----------- --------------------------- ---------- Granted . . . . . . . . 2,500 1,111,250 -- Prices ranging: From . . . . . . . $ 37.25 $ 25.38 -- To . . . . . . . . $ 37.25 $ 41.38 -- Forfeited . . . . . . . 2,250 259,400 -- Exercised . . . . . . . 9,000 207,855 -- Prices ranging: From . . . . . . . $ 15.75 $ 10.17 -- To . . . . . . . . $ 33.63 $ 34.50 -- Outstanding at August 31, 1994 . . . 101,800 1,863,729 510,000 Exercisable at August 31, 1994 . . . 42,237 527,892 510,000 Prices ranging: From . . . . . . . $ 7.05 $ .01 $ .01 To . . . . . . . . $ 24.17 $ 36.38 $ 15.75 Available for grant at August 31, 1994 . . . 968,098 -- --------------------------- ----------
48 51 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (6) Stock plans (continued) In addition, in connection with the two most recent extensions of the Company's rights to distribute The Oprah Winfrey Show, the Company granted options to the principals of Harpo to purchase an aggregate 1.5 million shares of Common Stock, all of which were fully vested as of August 31, 1994. Options to purchase one million such shares bear exercise prices of $25.50 per share and the remainder bear exercise prices of $33.375 per share. The Company has also agreed to grant the principals of Harpo additional options to purchase an aggregate 250,000 shares of Common Stock with respect to each broadcast season from the 1996-1997 season through the 1999-2000 season for which The Oprah Winfrey Show is produced for distribution by the Company, at a per share exercise price equal to the closing price of the Common Stock on the date Harpo elects to produce such series for such additional season. For non-qualified options, the difference between the market price of the Common Stock at the date of grant and the exercise price is treated as deferred compensation and amortized to expense generally over a five year vesting period. Deferred compensation is classified as a component of paid-in capital and is recorded at the date of the grant of the option(s). The amount of deferred compensation arising from such grants and included in paid-in capital at August 31, 1994 and 1993 was not significant. Compensation expense relating to stock option grants of $152,000, $2,898,000 and $3,390,000 was recorded in fiscal 1994, 1993 and 1992, respectively. The Company realizes a tax benefit in respect of non-qualified stock options based on the difference between the market price of the Common Stock and the exercise price on the date of exercise. Tax reductions 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 reductions added to paid-in capital approximated $1,162,000, $12,765,000 and $2,172,000 in fiscal 1994, 1993 and 1992, respectively. (7) Stock repurchases On December 18, 1992, the Company purchased an aggregate 2,252,000 shares of Common Stock from certain executive officers of the Company at a price per share of $32.50, the closing price of the Common Stock on the New York Stock Exchange on December 17, 1992. The aggregate consideration paid by the Company to such officers (net of the proceeds from option exercises) was approximately $47.1 million. Such purchases were 49 52 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) Stock repurchases (continued) financed out of the Company's available cash and liquid investments. Also on December 18, 1992, the Company announced that the Board of Directors had approved a program to repurchase up to 2,000,000 shares of its Common Stock from time to time in the open market and in privately negotiated transactions. In the fiscal years ended August 31, 1994 and 1993, 753,100 and 765,200 shares, respectively, of Common Stock were repurchased in open market transactions, for aggregate consideration of approximately $28.9 million (or approximately $38.40 per share) and $24.8 million (or approximately $32.40 per share), respectively. As of October 31, 1994, the Company had repurchased an aggregate 40,000 shares in fiscal 1995 for aggregate consideration of approximately $1.44 million (or approximately $36.00 per share), and as a result, as of such date, there were 441,700 shares available for repurchase under such program. The Company intends to continue to repurchase shares of Common Stock in the open market and in privately negotiated transactions if and when it deems it advantageous to do so. 50 53 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) Quarterly financial summaries (unaudited)
1st 2nd 3rd 4th Fiscal 4th Quarter Fiscal Year Quarter Quarter Quarter Quarter(1) Year(1) Pro forma(1) Pro forma(1) -------- -------- -------- ---------- -------- ------------ ------------ (Dollars in thousands except per share data) Fiscal 1994: Revenues . . . . . . . . . . $193,045 $137,138 $111,861 $38,615 $480,659 $99,346 $541,390 Revenues less direct costs . . . . . . . 81,202 55,841 46,197 17,954 201,194 39,230 222,470 Income before provision for income taxes . . . . . . . . . . . 61,463 39,237 31,331 8,808 140,839 29,381 161,412 Net income . . . . . . . . . 38,722 24,287 19,511 5,780 88,300 18,676 101,196 Primary earnings per share . . . . . . . . . $ 1.02 $ .64 $ .52 $ .15 $ 2.33 $ .50 $ 2.67 ======== ======== ======== ======= ======== ======= ========
1st 2nd 3rd 4th Fiscal Quarter Quarter Quarter Quarter Year -------- -------- -------- ------- ------ (Dollars in thousands except per share data) Revenues . . . . . . . . . . $169,714 $113,079 $ 87,939 $103,580 $474,312 Revenues less direct costs . . . . . . . 75,891 50,999 40,958 41,107 208,955 Income before provision for income taxes . . . . . . . . . . . 61,114 38,997 29,820 32,661 162,592 Net income . . . . . . . . . 38,502 24,053 18,649 20,732 101,936 Primary earnings per share . . . . . . . . . $ .98 $ .62 $ .49 $ .55 $ 2.65 ======== ======== ======== ======== ========
______________________ (1) Reflects 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 fourth quarter fiscal 1994 revenues, net income and earnings per share to be approximately $60.7 million, $12.9 million and $.34 lower, respectively, than they would have been under the prior practice. The unaudited 1994 pro forma data are presented for comparison purposes only and represent the results of operations assuming the Company's prior revenue recognition practice had been in effect in the fourth fiscal quarter of 1994. See Note 1. The results of operations for the first three quarters of fiscal 1994, and all four quarters of fiscal 1993, employ the practice of recognizing license fees from the distribution of first-run syndicated television properties at the commencement of the license period and as each show was produced (even though the particular show may not have been broadcast by a television station for several months). This practice had the effect of creating variations in the Company's reported revenues and earnings from quarter to quarter, corresponding to the greater or smaller number of shows that were produced in a particular quarter, which were not necessarily indicative of longer term trends in the Company's business. Commencing with the fourth quarter of fiscal 1994, the results of operations employ a modified revenue recognition practice pursuant to which 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 51 54 KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) Quarterly financial summaries (unaudited) (continued) the licensee via satellite transmission, rather than at the time the show is produced. 52 55 SCHEDULE I KING WORLD PRODUCTIONS, INC. AND SUBSIDIARIES LONG-TERM INVESTMENTS August 31, 1994 and 1993 (In thousands)
Name of Issuer Aggregate and Number of Aggregate Market Balance Sheet Title of Issue Shares or Units Cost Value Carrying Value - ---------------------------------------------------------------------------------- August 31, 1993 State and Municipal Obligations (1) 77.441 $79,270 $79,537 $79,270 U.S. Government Agency Obligations 5.000 5,000 5,028 5,000 ------ ------- ------- ------- 82.441 $84,270 $84,565 $84,270 ====== ======= ======= ======= August 31, 1994 State and Municipal Obligations (1) 79.69 $82,833 $82,387 $82,833 U.S. Government Agency Obligations 4.40 4,358 4,370 4,358 Certificates of Deposit 1.00 1,000 1,000 1,000 ------ ------- ------- ------- 85.09 $88,191 $87,757 $88,191 ====== ======= ======= =======
____________________ (1) Represents obligations of various states and municipalities, none of which individually exceeds 2% of the Company's total assets. 53 56 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 1995 annual meeting of stockholders, which is to be filed pursuant to Regulation 14A not later than December 29, 1994. 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 and Schedule which appears on page 30 of this Annual Report. (3) Exhibits: Exhibit Number Description - ------- ----------- 3.1. Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement No. 2-93987). 3.2. Certificate of Amendment to the Registrant's Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Registrant's Registration Statement No. 33-8357). 3.3. Registrant's By-laws, as amended April 28, 1988 (incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.1. Agreement dated July 12, 1984 between Leo A. Gutman, Inc. and the Registrant with exhibits (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement No. 2-93987). 10.2. Agreements dated August 6, 1970, July 31, 1970, and May 29, 1969, between Hal Roach Studios, Inc. and the Registrant, with amendment dated June 8, 1983 and exhibits (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement No. 2-93987). 54 57 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 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1990). 10.5.* Distribution Agreement dated November 1, 1983, between Califon Productions, Inc. and the Registrant, with amendment dated March 26, 1984 (incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement No. 2-93987). 10.6. Employment or consulting agreements between the Registrant and the individuals named below: Name of Employee or Consultant Date of Agreement ---------------- ----------------- Roger King. . . . . . . December 23, 1993 Michael King. . . . . . December 23, 1993 Stephen W. Palley . . . December 23, 1993 Steven Hirsch . . . . . December 23, 1993 Anthony E. Hull . . . . May 20, 1994 10.7. King World Productions, Inc. Retirement Savings Plan dated September 17, 1992 (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.8. Amended and Restated Stock Option and Restricted Stock Purchase Plan of the Registrant (incorporated by reference to the Registrant's Registration Statement No. 33-54691). 10.9. Incentive Equity Compensation Plan for Senior Executives of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement No. 33-30695). ____________________ * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. 55 58 10.10. Agreement dated as of May 1, 1991, among the Registrant and the stockholders named therein (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated May 6, 1991). 10.11. Form of Indemnification Agreement between the Registrant and the Registrant's directors (incorporated by reference to Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1992). 10.12.* Agreement dated January 30, 1987 between the Registrant and Harpo, Inc. and amendment thereto dated July 29, 1988 (incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.13.* Amendment dated as of October 15, 1989 to the Agreement dated January 30, 1987 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1990). 10.14.* Agreement dated as of January 28, 1991 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1991). 10.15.* Agreement dated as of March 17, 1994 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K/A dated May 18, 1994). 10.16. 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). 10.17. 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). 10.18. Stock Option Agreement dated as of March 17, 1994 between the registrant and Oprah Winfrey. ____________________ * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. 56 59 10.19. Stock Option Agreement dated as of March 17, 1994 between the registrant and Jeffrey D. Jacobs. 10.20.* 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. 10.21.* Amendment dated as of September 19, 1991 to the Agreement dated as of June 2, 1988 between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1992). 10.22** Amendment dated June 13, 1994 to the Agreement dated June 2, 1998, as amended as of June 13, 1989 and September 19, 1991, between King World F.S.C. Corporation and Unilever N.V. 10.23. Restructuring Agreement dated as of April 30, 1992 among Buffalo Broadcasting Co. Inc., the Holders named therein and Buffalo Management Enterprises Co., Inc., together with Exhibits thereto (incorporated by reference to Exhibit 2 to the Registrant's Current Report on Form 8-K dated August 18, 1992). 10.24. Letter Agreements dated December 18, 1992 between the Registrant and each of Roger King and Michael King and Cross Receipt dated December 18, 1992 (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 21.1. List of Subsidiaries of the Registrant. 23.1. Consent of Independent Public Accountants. ____________________ * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. (b) Reports on Form 8-K filed during the last quarter of the fiscal year ended August 31, 1993: None. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, as amended, the undersigned registrant hereby under- takes as follows, which undertaking shall 57 60 be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 33-30694 and 33-30695 (filed August 24, 1990) and No. 33-54691 (filed on July 22, 1994): Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than for the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 58 61 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 28, 1994 KING WORLD PRODUCTIONS, INC. By/s/ Stephen W. Palley ------------------------------- Stephen W. Palley Executive Vice President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- President and November 28, 1994 Director (principal /s/ Michael King executive officer) - ----------------------- Michael King /s/ Roger King Director November 28, 1994 - ----------------------- Roger King /s/ Stephen W. Palley Director November 28, 1994 - ----------------------- Stephen W. Palley /s/ Diana King Director November 28, 1994 - ----------------------- Diana King /s/ Richard King Director November 28, 1994 - ----------------------- Richard King /s/ Ronald Konecky Director November 28, 1994 - ----------------------- Ronald S. Konecky /s/ James M. Rupp Director November 28, 1994 - ----------------------- James M. Rupp
59 62 /s/ Joel Chaseman Director November 28, 1994 - ---------------------- Joel Chaseman /s/ Anthony E. Hull Chief Financial November 28, 1994 - ---------------------- Officer (principal Anthony E. Hull financial officer) /s/ Steven A. LoCascio Vice President and November 28, 1994 - ---------------------- Controller Steven A. LoCascio (principal accounting officer)
60 63 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. Registrant's By-laws, as amended April 28, 1988 (incorporated by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.1. Agreement dated July 12, 1984 between Leo A. Gutman, Inc. and the Registrant with exhibits (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement No. 2-93987). 10.2. Agreements dated August 6, 1970, July 31, 1970, and May 29, 1969, between Hal Roach Studios, Inc. and the Registrant, with amendment dated June 8, 1983 and exhibits (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement No. 2-93987). 10.3.* Distribution Agreement dated December 15, 1982, between Califon Productions, Inc. and the Registrant, with amendment dated July 8, 1983 (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement No. 2-93987). 10.4.* Amendment, dated April 23, 1990, to the Distribution Agreement dated December 15, 1982, between Califon Productions, Inc. and the Registrant (incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1990).
____________________ * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. 64
Exhibit No. Description Page - ------- ----------- ---- 10.5.* Distribution Agreement dated November 1, 1983, between Califon Productions, Inc. and the Registrant, with amendment dated March 26, 1984 (incorporated by reference to Exhibit 10.9 to the Registrant's Registration Statement No. 2-93987). 10.6. Employment or consulting agreements between the Registrant and the individuals named below: Name of Employee or Consultant Date of Agreement ---------------- ----------------- Roger King. . . . . . . December 23, 1993 Michael King. . . . . . December 23, 1993 Stephen W. Palley . . . December 23, 1993 Steven Hirsch . . . . . December 23, 1993 Anthony E. Hull . . . . May 20, 1994 10.7. King World Productions, Inc. Retirement Savings Plan dated September 17, 1992 (incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 10.8. Amended and Restated Stock Option and Restricted Stock Purchase Plan of the Registrant (incorporated by reference to the Registrant's Registration Statement No. 33-54691). 10.9. Incentive Equity Compensation Plan for Senior Executives of the Registrant (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement No. 33-30695). 10.10. Agreement dated as of May 1, 1991, among the Registrant and the stockholders named therein (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated May 6, 1991). 10.11. Form of Indemnification Agreement between the Registrant and the Registrant's directors (incorporated by reference to Exhibit 10.15 to the
____________________ * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. 2 65
Exhibit No. Description Page - ------- ----------- ---- Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1992). 10.12.* Agreement dated January 30, 1987 between the Registrant and Harpo, Inc. and amendment thereto dated July 29, 1988 (incorporated by reference to Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993) 10.13.* Amendment dated as of October 15, 1989 to the Agreement dated January 30, 1987 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1990). 10.14.* Agreement dated as of January 28, 1991 between the Registrant and Harpo, Inc. (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1991). 10.15.* Agreement dated as of March 17, 1994 between the Registrant and Harpo, Inc. (incorporated by reference to 8-K/A dated May 18, 1994). 10.16. 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). 10.17. 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). 10.18. Stock Option Agreement dated as of March 17, 1994 between the registrant and Oprah Winfrey.
____________________ * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. 3 66
Exhibit No. Description Page - ------- ----------- ---- 10.19. Stock Option Agreement dated as of March 17, 1994 between the registrant and Jeffrey D. Jacobs. 10.20.* 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. 10.21.* Amendment dated as of September 19, 1991 to the Agreement dated as of June 2, 1988 between King World F.S.C. Corporation and Unilever N.V. (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1992). 10.22** 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. 10.23. Restructuring Agreement dated as of April 30, 1992 among Buffalo Broadcasting Co. Inc., the Holders named therein and Buffalo Management Enterprises Co., Inc., together with Exhibits thereto (incorporated by reference to Exhibit 2 to the Registrant's Current Report on Form 8-K dated August 18, 1992). 10.24. Letter Agreements dated December 18, 1992 between the Registrant and each of Roger King and Michael King and Cross Receipt dated December 18, 1992 (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for the fiscal year ended August 31, 1993). 21.1. List of Subsidiaries of the Registrant. 23.1. Consent of Independent Public Accountants.
____________________ * Certain information in this exhibit is deleted pursuant to an order of the Securities and Exchange Commission granting confidential treatment. ** Certain information in this exhibit is deleted pursuant to a request to the Securities and Exchange Commission for confidential treatment. 4 EX-10.6 2 EMPLOYMENT OR CONSULTING AGREEMENTS 1 EXHIBIT 10.6 KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 December 21, 1993 Mr. Roger King c/o King World Productions, Inc. Phillips Point West Tower 777 South Flager Drive, Suite 702 West Palm Beach, Florida 33401 Dear Roger: This letter, when accepted by you, shall constitute an agreement between you and King World Productions, Inc. ("King World" or the "Company") with respect to the terms upon which you will be employed by King World during the Employment Period (as hereinafter defined). 1. During the Employment Period, King World shall employ you, and you hereby accept employment by King World, in the capacity of Chairman of the Board and head of the Company's sales department, on the terms and subject to the conditions set forth in this Agreement. The "Employment Period" shall mean the period commencing on September 1, 1993 and ending on August 31, 1995 or such earlier date on which this Agreement is terminated pursuant to the provisions of Section 9 hereof. During the Employment Period, you shall perform such services as shall from time to time be reasonably assigned to you by, or pursuant to resolution of, King World's Board of Directors and diligently devote your entire business time, skill and attention to the performance of such services and your duties and obligations hereunder. 2. As consideration for the services rendered by you hereunder, you shall be entitled to salary compensation at the annual rate of $1,000,000 for the Company's fiscal year ending August 31, 1994 and $1,050,000 for the Company's fiscal year ending August 31, 1995. Your salary compensation shall be payable in accordance with King World's standard payroll policy from time to time in effect. 3. (a) As further consideration for the services rendered by you hereunder, and in order to induce you to accept employment with King World on the terms and conditions set forth 2 2 herein, King World shall grant to you, as soon as practicable after the commencement of the Employment Period, an aggregate 120,000 phantom stock units (the "Stock Units"), of which 40,000 will become eligible for redemption on August 31, 1994 and an additional 20,000 will become eligible for redemption on the last day of each succeeding fiscal quarter during the Employment Period (August 31, 1994 and each such quarterly date being herein called a "Redemption Date"); and an aggregate 270,000 Stock Appreciation Units (the "Stock Appreciation Units"), of which 90,000 will become eligible for redemption on August 31, 1994 and an additional 45,000 will become eligible for redemption on each remaining Redemption Date. The Stock Units and the Stock Appreciation Units (together, the "Units") will be redeemable only in cash, and the Compensation Committee of the Board of Directors (the "Compensation Committee") will be responsible for determining the amounts received upon redemption in the manner described below. (b) If on a Redemption Date, the average of the daily closing prices of the Common Stock, $.01 par value, of the Company (the "Common Stock"), during the ten (10) business days ending on the Redemption Date ("Average Price") is equal to or greater than the Minimum Redemption Price (as hereinafter defined) applicable to such Redemption Date, then each Stock Unit that became eligible for redemption on such Redemption Date will be redeemed for a cash amount per Unit equal to the Average Price for such Redemption Date. The "Minimum Redemption Price" for each successive Redemption Date will be $38.875, the closing price of King World Common Stock on the New York Stock Exchange (the "NYSE") on the date of this Agreement (the "Contract Date"), increased for each successive Redemption Date by an appreciation factor calculated at the rate of 5% per annum (determined on a non-cumulative basis and pro rated for partial fiscal years) over the closing price of the Common Stock on the Contract Date. If, on any Redemption Date, the applicable Average Price is less than the applicable Minimum Redemption Price, then Stock Units that became eligible for redemption on such Redemption Date will be carried forward, will continue to be eligible for redemption and will be redeemed on the next succeeding Redemption Date on which the then-applicable Average Price equals or exceeds the Minimum Redemption Price on the Redemption Date on which such Stock Units first became eligible for redemption. If and to the extent that any Stock Units have not been redeemed on or before the redemption associated with the August 31, 1995 Redemption Date, they will expire. (c) If on a Redemption Date, the Average Price (determined in same manner as described above) is greater than $38.875, 3 3 the closing price of King World Common Stock on the NYSE on the Contract Date (the "Appreciation Unit Base Price"), then each Stock Appreciation Unit that became eligible for redemption on such Redemption Date will be redeemed for a cash amount equal to the excess of such Average Price over the Appreciation Unit Base Price. If on any Redemption Date, the applicable Average Price is not greater than the Appreciation Unit Base Price, then all Stock Appreciation Units that became eligible for redemption on such Redemption Date (or were not previously redeemed and were carried forward from a prior Redemption Date) will be carried forward to the next Redemption Date, will again be eligible for redemption and will be redeemed on the next succeeding Redemption Date on which the then-applicable Average Price exceeds the Appreciation Unit Base Price. If and to the extent that any Stock Appreciation Units have not been redeemed on or before the redemption associated with the August 31, 1995 Redemption Date, they will expire. (d) In the event that the Company is required to withhold any Federal, state or local taxes in respect of any compensation income realized by you in respect of the redemption of Units as provided herein, the Company shall deduct the aggregate amount of such Federal, state or local taxes you will be required to pay to the Company, or to make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of such taxes. 4. (a) With respect to each fiscal year of the Company ending within (or upon the termination of) the Employment Period, you shall be entitled to a bonus equal to 1.5% of the Consolidated Net Income of the Company for such fiscal year, provided that the Compensation Committee determines that the Company's return on equity exceeds the average annual return on equity of the companies comprising the Standard and Poor's Composite Index of 500 Stocks for the most recent comparable period for which published information is available to the Compensation Committee at the time such determination is made (the "S&P Average Return on Equity"). "Consolidated Net Income" shall mean, for the purposes of this Agreement, the Company's net income after taxes but before all extraordinary items of the Company and its consolidated subsidiaries as reported in its financial statements filed with the Securities and Exchange Commission. (b) At the end of each of the first three fiscal quarters of each fiscal year in which you are eligible for a bonus hereunder, the Compensation Committee shall make an interim determination as to whether the Company's return on equity from 4 4 the beginning of such fiscal year through the end of such quarter exceeded the S&P Average Return on Equity for the most recent comparable period for which published information is available to the Compensation Committee and, if the Compensation Committee so determines, an interim bonus payment will be made to you in an amount equal to 1.5% of Consolidated Net Income for such quarter; provided, however, that if, in the sole judgment of the Compensation Committee, it is more likely than not that you will not entitled to a bonus in respect of such year (because the Company's return on equity for the full fiscal year will not exceed the S&P Average Return on Equity for such year), then such interim bonus payment shall be deferred until such time as the Compensation Committee determines that you are, or are reasonably certain to be, entitled to a bonus in respect of such year. (c) At the end of each fiscal year in which you are eligible for a bonus hereunder, the Compensation Committee shall make a final determination as to whether the Company's return on equity for such year exceeded the S&P Average Return on Equity and, if the Compensation Committee so determines, a final bonus payment shall be made such that the sum of all interim bonus payments due in such year plus such final payment shall be equal to 1.5% of Consolidated Net Income for such year. In the event that interim bonus payments have been made in any fiscal year as to which the Compensation Committee finally determines that the Company's return on equity did not exceed the S&P Average Return on Equity, then such interim payments shall be deemed to be indebtedness to the Company incurred by you as of the respective dates of payment to you and shall be offset against amounts otherwise payable to you pursuant to Sections 2, 3, 4 and 5 hereof. If such indebtedness has not been repaid in full on or prior to the termination of the Employment Period, any amounts remaining outstanding shall be repaid in full within thirty days after the termination of the Employment Period. 5. (a) In addition to the bonus payable pursuant to Section 4 hereof, you shall be entitled to a "New Show Bonus" for new first-run "strip" (i.e., Monday-Friday) syndicated series that are first broadcast in any of the 1993-1994, 1994-1995 or 1995-1996 television seasons and cleared at any time over the course of any such season in domestic television markets covering at least 70% of the domestic television viewing households (each of which series is hereinafter referred to as a "New Show"). It is understood and agreed that no series currently being aired is a New Show, but that Rolonda, which is scheduled to premiere on January 17, 1994, is a New Show. 5 5 (b) The New Show Bonus shall be equal to $750,000 in the case of the first New Show, $500,000 in the case of the second New Show, and $250,000 in the case of the third New Show. In addition, you shall be entitled to a New Show Bonus in the amount of $250,000 upon the Company's receipt of orders for at least thirteen weeks of a series developed by the Company from an over-the-air television network for broadcast in any of the 1993-1994, 1994-1995 or 1995-1996 television seasons. Notwithstanding the foregoing, in no event will you be entitled to a New Show Bonus in any fiscal year in excess of $1.5 million. The Compensation Committee will be responsible for determining whether the criteria for the granting of a New Show Bonus have been satisfied and for determining the amount of such bonus. New Show Bonuses will be paid, if at all, in cash, promptly after such determinations are made. 6. Notwithstanding anything to the contrary contained herein, the grant of the Stock Units and Stock Appreciation Units described in Section 3 hereof, the bonus described in Section 4 hereof and the New Show Bonus described in Section 5 hereof are subject to approval of the stockholders of the Company and any additional approvals or consents that may, in the reasonable opinion of counsel to the Company, be necessary or desirable for the Company to obtain. In the event that such approvals are not obtained on or prior to August 31, 1994, then you and the Company shall negotiate in good faith for the purpose of agreeing upon a mutually acceptable cash substitute of equivalent value for the Stock Units and Stock Appreciation Units, the bonus and the New Show Bonus (which may also be subject to stockholder and other approvals). If, after good-faith negotiation, you and the Company cannot so agree, then you may, in your sole discretion, terminate this Agreement. 7. You shall be entitled to participate, on the same basis and subject to the same qualifications as King World's other executive officers, in any pension, life insurance, health insurance or hospitalization plan or other similar plan from time to time in effect with respect to King World's executive officers or employees generally. 8. The Company shall, during the Employment Period, reimburse you for such expenses as shall be incurred by you in connection with the performance of your duties hereunder, provided that you furnish to us evidence of such expenses reasonably satisfactory to us. 9. (a) This Agreement shall terminate (i) upon your death, (ii) thirty (30) days' after written notice to you from 6 6 King World's Board of Directors in the event that you have been unable to perform the duties required of you pursuant to this Agreement for ninety (90) days during any twelve month period during the Employment Period (whether or not such ninety (90) days are consecutive) by reason of illness or other incapacity and King World's Board of Directors determines to terminate this Agreement for such reason or (iii) immediately upon written notice to you in the event that King World's Board of Directors determines to terminate this Agreement for Cause. For the purposes of this Agreement, "Cause" shall mean (1) the habitual failure of you, or the habitual neglect by you, to substantially perform your duties under this Agreement, other than any such failure or neglect resulting from your physical or mental incapacity or (2) the engaging by you in an act or acts of dishonesty intended to result directly or indirectly in gain or personal enrichment at the expense of the Company. (b) Termination of this Agreement shall terminate all of your rights hereunder from and after the effective date of termination except for your rights to salary and benefits which have accrued but are unpaid at the effective date of termination, and except that in the event that your full-time employment with the Company is terminated on account of your death, disability or incapacity, the cash bonus provided for in Section 4 shall continue to be payable as provided therein, and the Units granted pursuant to Section 3 hereof shall continue to be eligible for redemption and shall be redeemed (if at all) as provided therein, in each case through the end of the fiscal year in which your death, disability or incapacity occurred. (The foregoing is not intended to relieve or release the Company from any liability for damages to you if the Company wrongfully terminates this Agreement.) In no event shall termination of this Agreement for any reason terminate any of your obligations under paragraphs 10, 11, 12 and 13 hereof. 10. Except as required in connection with the performance of services hereunder, you shall not, during or after the termination of the Employment Period, use of disclose to any person any confidential business information or trade secrets of King World or any of its affiliates or business associates that you obtained or learned during the Employment Period or in the course of your employment by the Company, including, but not limited to, confidential business information regarding the type and nature of the contracts entered into by the Company or its affiliates for the acquisition or distribution of television programming. 7 7 11. You hereby agree that you shall not, during the Employment Period and for a period of two (2) years following the termination of the Employment Period, (i) induce, directly or indirectly, any person from whom or from which King World or any of its affiliates acquired television programming to terminate his or its agreement with King World or such affiliate with respect to such programming, to refuse to renew any such agreement or to refuse to furnish to King World or its affiliates with any other television programming or (ii) induce, directly or indirectly, any employee of King World or any affiliate thereof to terminate his or her employment with King World or such affiliate. 12. You hereby agree that all ideas, creations, improvements and other works of authorship created, developed, written or conceived, individually or jointly 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. 13. Each of you and King World (the "Indemnitor"), agrees to indemnify and hold harmless the other from and against any and all loss, damage, claim, liability, cost and expense, including reasonable attorneys fees, incurred by the other as a result of, or arising out of or in connection with, a violation by the Indemnitor of any term, covenant or condition required by this Agreement to be performed or observed by the Indemnitor. 14. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York and constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. No waiver or modification of any terms hereof shall be valid unless in writing signed by the party against whom such waiver is sought to be enforced, and 8 8 then only to the extent set forth in such writing. 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 /s/ STEPHEN W. PALLEY ------------------------- Accepted as of the date first above written: /s/ ROGER KING - ------------------- Roger King 9 EXHIBIT 10.6 KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 December 21, 1993 Mr. Michael King c/o King World Productions, Inc. 12400 Wilshire Boulevard, Suite 1200 Los Angeles, California 90025 Dear Michael: This letter, when accepted by you, shall constitute an agreement between you and King World Productions, Inc. ("King World" or the "Company") with respect to the terms upon which you will be employed by King World during the Employment Period (as hereinafter defined). 1. During the Employment Period, King World shall employ you, and you hereby accept employment by King World, in the capacity of President and Chief Executive Officer of King World, on the terms and subject to the conditions set forth in this Agreement. The "Employment Period" shall mean the period commencing on September 1, 1993 and ending on August 31, 1995 or such earlier date on which this Agreement is terminated pursuant to the provisions of Section 9 hereof. During the Employment Period, you shall perform such services as shall from time to time be reasonably assigned to you by, or pursuant to resolution of, King World's Board of Directors and diligently devote your entire business time, skill and attention to the performance of such services and your duties and obligations hereunder. 2. As consideration for the services rendered by you hereunder, you shall be entitled to salary compensation at the annual rate of $1,000,000 for the Company's fiscal year ending August 31, 1994 and $1,050,000 for the Company's fiscal year ending August 31, 1995. Your salary compensation shall be payable in accordance with King World's standard payroll policy from time to time in effect. 3. (a) As further consideration for the services rendered by you hereunder, and in order to induce you to accept employment with King World on the terms and conditions set forth 10 2 herein, King World shall grant to you, as soon as practicable after the commencement of the Employment Period, an aggregate 120,000 phantom stock units (the "Stock Units"), of which 40,000 will become eligible for redemption on August 31, 1994 and an additional 20,000 will become eligible for redemption on the last day of each succeeding fiscal quarter during the Employment Period (August 31, 1994 and each such quarterly date being herein called a "Redemption Date"); and an aggregate 270,000 Stock Appreciation Units (the "Stock Appreciation Units"), of which 90,000 will become eligible for redemption on August 31, 1994 and an additional 45,000 will become eligible for redemption on each remaining Redemption Date. The Stock Units and the Stock Appreciation Units (together, the "Units") will be redeemable only in cash, and the Compensation Committee of the Board of Directors (the "Compensation Committee") will be responsible for determining the amounts received upon redemption in the manner described below. (b) If on a Redemption Date, the average of the daily closing prices of the Common Stock, $.01 par value, of the Company (the "Common Stock"), during the ten (10) business days ending on the Redemption Date ("Average Price") is equal to or greater than the Minimum Redemption Price (as hereinafter defined) applicable to such Redemption Date, then each Stock Unit that became eligible for redemption on such Redemption Date will be redeemed for a cash amount per Unit equal to the Average Price for such Redemption Date. The "Minimum Redemption Price" for each successive Redemption Date will be $38.875, the closing price of King World Common Stock on the New York Stock Exchange (the "NYSE") on the date of this Agreement (the "Contract Date"), increased for each successive Redemption Date by an appreciation factor calculated at the rate of 5% per annum (determined on a non-cumulative basis and pro rated for partial fiscal years) over the closing price of the Common Stock on the Contract Date. If, on any Redemption Date, the applicable Average Price is less than the applicable Minimum Redemption Price, then Stock Units that became eligible for redemption on such Redemption Date will be carried forward, will continue to be eligible for redemption and will be redeemed on the next succeeding Redemption Date on which the then-applicable Average Price equals or exceeds the Minimum Redemption Price on the Redemption Date on which such Stock Units first became eligible for redemption. If and to the extent that any Stock Units have not been redeemed on or before the redemption associated with the August 31, 1995 Redemption Date, they will expire. (c) If on a Redemption Date, the Average Price (determined in same manner as described above) is greater than $38.875, 11 3 the closing price of King World Common Stock on the NYSE on the Contract Date (the "Appreciation Unit Base Price"), then each Stock Appreciation Unit that became eligible for redemption on such Redemption Date will be redeemed for a cash amount equal to the excess of such Average Price over the Appreciation Unit Base Price. If on any Redemption Date, the applicable Average Price is not greater than the Appreciation Unit Base Price, then all Stock Appreciation Units that became eligible for redemption on such Redemption Date (or were not previously redeemed and were carried forward from a prior Redemption Date) will be carried forward to the next Redemption Date, will again be eligible for redemption and will be redeemed on the next succeeding Redemption Date on which the then-applicable Average Price exceeds the Appreciation Unit Base Price. If and to the extent that any Stock Appreciation Units have not been redeemed on or before the redemption associated with the August 31, 1995 Redemption Date, they will expire. (d) In the event that the Company is required to withhold any Federal, state or local taxes in respect of any compensation income realized by you in respect of the redemption of Units as provided herein, the Company shall deduct the aggregate amount of such Federal, state or local taxes you will be required to pay to the Company, or to make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of such taxes. 4. (a) With respect to each fiscal year of the Company ending within (or upon the termination of) the Employment Period, you shall be entitled to a bonus equal to 1.5% of the Consolidated Net Income of the Company for such fiscal year, provided that the Compensation Committee determines that the Company's return on equity exceeds the average annual return on equity of the companies comprising the Standard and Poor's Composite Index of 500 Stocks, based on the most recent published information available to the Compensation Committee at the time such determination is made (the "S&P Average Return on Equity"). "Consolidated Net Income" shall mean, for the purposes of this Agreement, the Company's net income after taxes but before all extraordinary items of the Company and its consolidated subsidiaries as reported in its financial statements filed with the Securities and Exchange Commission. (b) At the end of each of the first three fiscal quarters of each fiscal year in which you are eligible for a bonus hereunder, the Compensation Committee shall make an interim determination as to whether the Company's return on equity from the beginning of such fiscal year through the end of such quarter 12 4 exceeded the S&P Average Return on Equity for the most recent comparable period for which published information is available to the Compensation Committee and, if the Compensation Committee so determines, an interim bonus payment will be made to you in an amount equal to 1.5% of Consolidated Net Income for such quarter; provided, however, that if, in the sole judgment of the Compensation Committee, it is more likely than not that you will not entitled to a bonus in respect of such year (because the Company's return on equity for the full fiscal year will not exceed the S&P Average Return on Equity for such year), then such interim bonus payment shall be deferred until such time as the Compensation Committee determines that you are, or are reasonably certain to be, entitled to a bonus in respect of such year. (c) At the end of each fiscal year in which you are eligible for a bonus hereunder, the Compensation Committee shall make a final determination as to whether the Company's return on equity for such year exceeded the S&P Average Return on Equity and, if the Compensation Committee so determines, a final bonus payment shall be made such that the sum of all interim bonus payments due in such year plus such final payment shall be equal to 1.5% of Consolidated Net Income for such year. In the event that interim bonus payments have been made in any fiscal year as to which the Compensation Committee finally determines that the Company's return on equity did not exceed the S&P Average Return on Equity, then such interim payments shall be deemed to be indebtedness to the Company incurred by you as of the respective dates of payment to you and shall be offset against amounts otherwise payable to you pursuant to Sections 2, 3, 4 and 5 hereof. If such indebtedness has not been repaid in full on or prior to the termination of the Employment Period, any amounts remaining outstanding shall be repaid in full within thirty days after the termination of the Employment Period. 5. (a) In addition to the bonus payable pursuant to Section 4 hereof, you shall be entitled to a "New Show Bonus" for new first-run "strip" (i.e., Monday-Friday) syndicated series that are first broadcast in any of the 1993-1994, 1994-1995 or 1995-1996 television seasons and cleared at any time over the course of any such season in domestic television markets covering at least 70% of the domestic television viewing households (each of which series is hereinafter referred to as a "New Show"). It is understood and agreed that no series currently being aired is a New Show, but that Rolonda, which is scheduled to premiere on January 17, 1994, is a New Show. (b) The New Show Bonus shall be equal to $750,000 in the case of the first New Show, $500,000 in the case of the 13 5 second New Show, and $250,000 in the case of the third New Show. In addition, you shall be entitled to a New Show Bonus in the amount of $250,000 upon the Company's receipt of orders for at least thirteen weeks of a series developed by the Company from an over-the-air television network for broadcast in any of the 1993-1994, 1994-1995 or 1995-1996 television seasons. Notwithstanding the foregoing, in no event will you be entitled to a New Show Bonus in any fiscal year in excess of $1.5 million. The Compensation Committee will be responsible for determining whether the criteria for the granting of a New Show Bonus have been satisfied and for determining the amount of such bonus. New Show Bonuses will be paid, if at all, in cash, promptly after such determinations are made. 6. Notwithstanding anything to the contrary contained herein, the grant of the Stock Units and Stock Appreciation Units described in Section 3 hereof, the bonus described in Section 4 hereof and the New Show Bonus described in Section 5 hereof are subject to approval of the stockholders of the Company and any additional approvals or consents that may, in the reasonable opinion of counsel to the Company, be necessary or desirable for the Company to obtain. In the event that such approvals are not obtained on or prior to August 31, 1994, then you and the Company shall negotiate in good faith for the purpose of agreeing upon a mutually acceptable cash substitute of equivalent value for the Stock Units and Stock Appreciation Units, the bonus and the New Show Bonus (which may also be subject to stockholder and other approvals). If, after good-faith negotiation, you and the Company cannot so agree, then you may, in your sole discretion, terminate this Agreement. 7. You shall be entitled to participate, on the same basis and subject to the same qualifications as King World's other executive officers, in any pension, life insurance, health insurance or hospitalization plan or other similar plan from time to time in effect with respect to King World's executive officers or employees generally. 8. The Company shall, during the Employment Period, reimburse you for such expenses as shall be incurred by you in connection with the performance of your duties hereunder, provided that you furnish to us evidence of such expenses reasonably satisfactory to us. 9. (a) This Agreement shall terminate (i) upon your death, (ii) thirty (30) days' after written notice to you from King World's Board of Directors in the event that you have been unable to perform the duties required of you pursuant to this 14 6 Agreement for ninety (90) days during any twelve month period during the Employment Period (whether or not such ninety (90) days are consecutive) by reason of illness or other incapacity and King World's Board of Directors determines to terminate this Agreement for such reason or (iii) immediately upon written notice to you in the event that King World's Board of Directors determines to terminate this Agreement for Cause. For the purposes of this Agreement, "Cause" shall mean (1) the habitual failure of you, or the habitual neglect by you, to substantially perform your duties under this Agreement, other than any such failure or neglect resulting from your physical or mental incapacity or (2) the engaging by you in an act or acts of dishonesty intended to result directly or indirectly in gain or personal enrichment at the expense of the Company. (b) Termination of this Agreement shall terminate all of your rights hereunder from and after the effective date of termination except for your rights to salary and benefits which have accrued but are unpaid at the effective date of termination, and except that in the event that your full-time employment with the Company is terminated on account of your death, disability or incapacity, the cash bonus provided for in Section 4 shall continue to be payable as provided therein, and the Units granted pursuant to Section 3 hereof shall continue to be eligible for redemption and shall be redeemed (if at all) as provided therein, in each case through the end of the fiscal year in which your death, disability or incapacity occurred. (The foregoing is not intended to relieve or release the Company from any liability for damages to you if the Company wrongfully terminates this Agreement.) In no event shall termination of this Agreement for any reason terminate any of your obligations under paragraphs 10, 11, 12 and 13 hereof. 10. Except as required in connection with the performance of services hereunder, you shall not, during or after the termination of the Employment Period, use of disclose to any person any confidential business information or trade secrets of King World or any of its affiliates or business associates that you obtained or learned during the Employment Period or in the course of your employment by the Company, including, but not limited to, confidential business information regarding the type and nature of the contracts entered into by the Company or its affiliates for the acquisition or distribution of television programming. 11. You hereby agree that you shall not, during the Employment Period and for a period of two (2) years following the termination of the Employment Period, (i) induce, directly or 15 7 indirectly, any person from whom or from which King World or any of its affiliates acquired television programming to terminate his or its agreement with King World or such affiliate with respect to such programming, to refuse to renew any such agreement or to refuse to furnish to King World or its affiliates with any other television programming or (ii) induce, directly or indirectly, any employee of King World or any affiliate thereof to terminate his or her employment with King World or such affiliate. 12. You hereby agree that all ideas, creations, improvements and other works of authorship created, developed, written or conceived, individually or jointly 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. 13. Each of you and King World (the "Indemnitor"), agrees to indemnify and hold harmless the other from and against any and all loss, damage, claim, liability, cost and expense, including reasonable attorneys fees, incurred by the other as a result of, or arising out of or in connection with, a violation by the Indemnitor of any term, covenant or condition required by this Agreement to be performed or observed by the Indemnitor. 14. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York and constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. No waiver or modification of any terms hereof shall be valid unless in writing signed by the party against whom such waiver is sought to be enforced, and 16 8 then only to the extent set forth in such writing. 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 /s/ STEPHEN W. PALLEY ------------------------- Accepted as of the date first above written: /s/ MICHAEL KING - ---------------------- Michael King 17 EXHIBIT 10.6 KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 December 21, 1993 Stephen W. Palley, Esq. 45 East End Avenue New York, New York 10028 Dear Steve: This letter, when accepted by you, shall constitute an agreement between you and King World Productions, Inc. ("King World" or the "Company") with respect to the terms upon which you will be employed by King World during the Employment Period (as hereinafter defined). 1. During the Employment Period, King World shall employ you, and you hereby accept employment by King World, in the capacity of Executive Vice President and Chief Operating Officer of King World, on the terms and subject to the conditions set forth in this Agreement. The "Employment Period" shall mean the period commencing on September 1, 1993 and ending on August 31, 1996, or such earlier date on which this Agreement is terminated pursuant to the provisions of Section 8 hereof. During the Employment Period, you shall perform such services as shall from time to time be reasonably assigned to you by King World's Chief Executive Officer or Chairman, or pursuant to resolution of King World's Board of Directors, and diligently devote your entire business time, skill and attention to the performance of such services and your duties and obligations hereunder. 2. As a consideration for the services rendered by you hereunder, you shall be entitled to the following: (a) Salary compensation at the annual rate of $500,000 for each fiscal year of the Company during the Employment Period. Your salary compensation shall be payable in accordance with King World's standard payroll policy from time to time in effect. 18 2 (b) As further consideration for the services rendered by you pursuant to this Agreement, and in order to induce you to accept employment with King World on the terms and conditions set forth herein, the Compensation Committee of King World's Board of Directors (the "Compensation Committee") has granted to you, subject to your acceptance of this Agreement and the conditions set forth below, a stock option (herein called the "Option") under the Company's Amended and Restated Stock Option and Restricted Stock Purchase Plan (the "Plan") to purchase 250,000 shares of Common Stock, $.01 par value, of the Company ("Common Stock"), at an option exercise price equal to $38.875 per share, the closing price of the Common Stock on the date hereof, subject to vesting as provided in paragraph (c) below. The grant of the Option shall be subject to approval of the stockholders of the Company and any additional approvals or consents that may, in the reasonable opinion of counsel to the Company, be necessary or desirable for the Company to obtain, including, without limitation, stockholder approval of currently proposed amendments to the Plan. (c) The Option shall have a term of ten years and shall become exercisable with respect to 20% of the total number of shares subject thereto on August 31, 1994 and each of the two immediately succeeding anniversaries of that date, and with respect to the remaining 40% of the total number of shares subject thereto on August 31, 1998. Except to the extent otherwise provided in this paragraph (c), if your full-time employment with the Company terminates during the Employment Period, any shares subject to the Option that have not vested at the time of such termination shall not vest. You and King World agree that, notwithstanding anything herein or in any other agreement between you and the Company prior to this Agreement: (i) In the event that your full-time employment with the Company is terminated by the Company prior to the end of the Employment Period without "Cause" (as defined below) and other than on account of your death, disability or incapacity, then during the one-year period commencing as of the date your employment is so terminated, to the extent that the Option had not previously been exercised, you shall be entitled to exercise the Option with respect to all shares of Common Stock subject thereto (whether or not vested as of the date of such termination). 19 3 (ii) In the event that your full-time employment with the Company terminates on account of your death, disability or incapacity, then, during the twelve-month period commencing as of the date your employment so terminates, to the extent that the Option had not been exercised, you (or your heirs, administrators or legal representatives) shall be entitled to exercise the Option with respect to all the shares that had vested thereunder as of the date of such termination and with respect to 50% of the remaining shares of Common Stock subject to the Option. (iii) Except as set forth in clauses (i) and (ii) above, should your full-time employment with the Company be terminated or cease for any reason, then the unexercised portion of the Option held by you on the date your full-time employment ceased may only be exercised within one year after such date, and only to the extent that your right to exercise such portion of the Option had vested on the date your full-time employment ceased. (iv) In the event that stockholder approvals, or any approvals or consents that are reasonably necessary for the grant of the Option, are not obtained on or prior to August 31, 1994, then you and the Company shall negotiate in good faith for the purpose of agreeing upon a mutually acceptable cash substitute of equivalent value for the Option. If, after good-faith negotiation, you and the Company cannot so agree, then you may, in your sole discretion, terminate this Agreement. (v) For purposes of this Agreement, "Cause" shall mean (1) the habitual failure of you, or the habitual neglect by you, to substantially perform your duties under this Agreement, other than any such failure or neglect resulting from your physical or mental incapacity, or (2) the engaging by you in an act or acts of dishonesty intended to result directly or indirectly in gain or personal enrichment at the expense of the Company. (d) In the event that after the date hereof, the outstanding shares of the Company's Common Stock shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation through reorganization, merger or consolidation, recapitalization, reclassification, stock split, split-up, combination or 20 4 exchange of shares or declaration of any dividends payable in Common Stock, appropriate adjustment shall be made for (i) the number of shares of Common Stock for which the Option shall be granted hereunder and (ii) the number of shares of Common Stock (and the exercise price per share) subject to the unexercised portion of the outstanding Option (to the nearest possible full share). (e) In the event that the Company is required to withhold any Federal, state or local taxes in respect of any compensation income realized by you in respect of the Option granted hereunder or in respect of any shares acquired upon exercise of the Option, the Company shall deduct the aggregate amount of such Federal, state or local taxes required to be so withheld or, if such payments are insufficient to satisfy such Federal, state or local taxes, you will be required to pay to the Company, or to make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of such taxes. (f) The terms of the Option are more fully set forth in a definitive stock option agreement under the Plan, a copy of which is attached to this Agreement. Such stock option agreement and the Plan shall govern your rights as an optionee. The Company shall cause the shares of Common Stock issuable upon the exercise of the Option to be registered on Form S-8 and/or Form S-3 (or any successor form) under the Securities Act of 1933, as amended, and listed on the New York Stock Exchange. 3. (a) With respect to each fiscal year of the Company ending within (or upon the termination of) the Employment Period, you shall be entitled to a bonus equal to 0.4% of the Consolidated Net Income of the Company for such fiscal year, provided that the Compensation Committee determines that Company's return on equity exceeds the average annual return on equity of the companies comprising the Standard and Poor's Composite Index of 500 Stocks for the most recent comparable period for which published information is available to the Compensation Committee at the time such determination is made (the "S&P Average Return on Equity"). "Consolidated Net Income" shall mean, for the purposes of this Agreement, the net income after taxes but before all extraordinary items of the Company and its consolidated subsidiaries, as reported in its financial statements filed with the Securities and Exchange Commission. (b) At the end of each of the first three fiscal quarters of each fiscal year in which you are eligible for a bonus hereunder, the Compensation Committee shall make an interim determination as to whether the Company's return on equity from 21 5 the beginning of such fiscal year through the end of such quarter exceeded the S&P Average Return on Equity for the most recent comparable period for which published information is available to the Compensation Committee, and, if the Compensation Committee so determines, an interim bonus payment will be made in an amount equal to 0.4% of Consolidated Net Income for such quarter; provided, however, that if, in the sole judgment of the Compensation Committee, it is more likely than not that you will not be entitled to a bonus in respect of such year (because the Company's return on equity for the full fiscal year will not exceed the S&P Average Return on Equity for such year), then such interim bonus payment shall be deferred until such time as the Compensation Committee determines that you are, or are reasonably certain to be, entitled to a bonus in respect of such year. (c) As soon as practicable after the end of each fiscal year in which you are eligible for a bonus hereunder, the Compensation Committee shall make a final determination as to whether the Company's return on equity for such year exceeded the S&P Average Return on Equity and, if the Compensation Committee so determines, a final bonus payment shall be made such that the sum of all interim bonus payments due in such year plus such final payment shall be equal to 0.4% of Consolidated Net Income for such year. In the event that interim bonus payments have been made in any fiscal year as to which the Compensation Committee finally determines that the Company's return on equity did not exceed the S&P Average Return on Equity, then such interim payments shall be deemed to be indebtedness to the Company incurred by you as of the respective dates of payment to you and shall be offset against amounts otherwise payable to you pursuant to Sections 2(a), 3 and 4 hereof. If such indebtedness has not been repaid in full on or prior to the termination of the Employment Period, any amounts remaining outstanding shall be repaid in full within thirty days after the termination of the Employment Period. 4. (a) In addition to the bonus payable to you pursuant to Section 3, with respect to each fiscal year of the Company ending within (or upon the termination of) the Employment Period, you shall be entitled to a supplemental bonus as described in this Section 4, provided that the Compensation Committee determines that (i) the average daily closing price of the Common Stock for such year (the "Average Yearly Price") exceeds $30 and (ii) the Company's return on equity for such fiscal year exceeds the S&P 500 Average Return on Equity. (b) If the Average Yearly Price for any such fiscal year equals or exceeds $38.875, the closing price of the Common Stock on December 21, 1993, the supplemental bonus for such year shall be equal to 0.4% of Consolidated Net Income for such year. 22 6 If such Average Yearly Price exceeds $30, but is less than $38.875, the supplemental bonus for such year shall be equal to 0.4% of Consolidated Net Income for such year multiplied by a fraction, the numerator of which is the excess of such Average Yearly Price over $30, and the denominator of which is $8.875. (c) The full amount by which any supplemental bonus payment was reduced below 0.4% of Consolidated Net Income for any year pursuant to the second sentence of paragraph 4(b) shall be payable to you if the Average Yearly Price for any subsequent fiscal year within the term of this Agreement equals or exceeds $38.875. A portion of the amount by which any supplemental bonus payment was reduced pursuant to the second sentence of paragraph 4(b) above (and was not previously recouped by you pursuant to this paragraph (c)) shall be payable to you if the Average Yearly Price for any subsequent fiscal year or years during the term of this Agreement is less than $38.875 but greater than the Average Yearly Price for the year in which such reduction was made, and the portion of such reduction that shall be payable to you shall be equal to the full amount of such reduction (or the portion thereof that was not previously recouped by you pursuant to this paragraph (c)), multiplied by a fraction, the numerator of which is the excess of the Average Yearly Price for such subsequent year over the Average Yearly Price for the year in which such reduction was made and the denominator of which is the excess of $38.875 over the Average Yearly Price for the year in which such reduction was made. To the extent that a partial recoupment is made in a subsequent fiscal year, any amounts not recouped under the foregoing formula shall remain available for recoupment in subsequent years during the term of this Agreement. Any amounts not recouped by you pursuant to this paragraph (c) on or prior to the making of the supplemental bonus payment in respect of the August 31, 1996 fiscal year shall no longer be subject to recoupment and shall not be paid to you. (d) Notwithstanding the foregoing, in no event shall aggregate supplemental bonus payments payable pursuant to this Section 4 exceed $1,333,000. (e) Payments of the supplemental bonus amounts provided herein shall be made annually, in arrears, as soon as practicable after the end of each fiscal year in which you are eligible for a bonus hereunder. 5. Notwithstanding anything to the contrary contained herein, the grant of the Option described in Section 2(b) hereof, the bonus described in Section 3 hereof and the supplemental bonus described in Section 4 hereof are subject to approval of the stockholders of the Company and any additional approvals or consents that may, in the reasonable opinion of counsel to the 23 7 Company, be necessary or desirable for the Company to obtain. In the event that such approvals are not obtained on or prior to August 31, 1994, then you and the Company shall negotiate in good faith for the purpose of agreeing upon a mutually acceptable cash substitute of equivalent value for the Option, the bonus and the supplemental bonus (which may also be subject to stockholder and other approvals). If, after good-faith negotiation, you and the Company cannot so agree, then you may, in your sole discretion, terminate this Agreement. 6. You shall be entitled to participate, on the same basis and subject to the same qualifications as King World's other executive officers, in any pension, life insurance, health insurance or hospitalization plan or other similar plan from time to time in effect with respect to King World's executive officers or employees generally. 7. The Company shall, during the Employment Period, reimburse you for such expenses as shall be incurred by you in connection with the performance of your duties hereunder, provided that you furnish to us evidence of such expenses reasonably satisfactory to us. 8. This Agreement shall terminate (i) upon your death, (ii) thirty (30) days after written notice to you from King World's Board of Directors in the event that you have been unable to perform the duties required of you pursuant to this Agreement for ninety (90) days during any twelve-month period during the Employment Period (whether or not such ninety (90) days are consecutive) by reason of illness or other incapacity and King World's Board of Directors determines to terminate this Agreement for such reason or (iii) immediately upon written notice to you in the event that King World's Board of Directors determines to terminate this Agreement for Cause (as such term is defined in Section 2(c)(v) hereof). (b) Termination of this Agreement shall terminate all of your rights hereunder from and after the effective date of termination except for your rights to salary and benefits which have accrued but are unpaid at the effective date of termination, your rights with respect to the Option (which shall be governed by the terms of Section 2, the stock option agreement and the Plan) and except that in the event that your full-time employment with the Company is terminated on account of your death, disability or incapacity, the cash bonuses provided for in Sections 3 and 4 shall continue to be payable as provided therein through the end of the fiscal year in which your death, disability or incapacity occurred. (The foregoing is not intended to relieve or release the Company from any liability for damages to you if the Company wrongfully terminates this Agreement.) In no event shall 24 8 termination of this Agreement for any reason terminate any of your obligations under paragraphs 9, 10, 11 and 12 hereof. 9. Except as required in connection with the performance of services hereunder, you shall not, during or after the termination of the Employment Period, use or disclose to any person any confidential business information or trade secrets of King World or any of its affiliates or business associates that you obtained or learned during the Employment Period or in the course of your employment by the Company, including, but not limited to, confidential business information regarding the type and nature of the contracts entered into by the Company or its affiliates for the acquisition or distribution of television programming. 10. You hereby agree that you shall not (a) during the Employment Period and for a period of two (2) years following the termination of the Employment Period, induce, directly or indirectly, any person from whom or from which King World or any of its affiliates acquired television programming to terminate his or its agreement with King World or such affiliate with respect to such programming, to refuse to renew any such agreement or to refuse to furnish to King World or its affiliates with any other television programming, or (b) induce, directly or indirectly, any employee of King World or any affiliate thereof to terminate his or her employment with King World or such affiliate. 11. You hereby agree that all ideas, creations, improvements and other works of authorship created, developed, written or conceived, individually or jointly, 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. 12. Each of you and King World (the "Indemnitor"), agrees to indemnify and hold harmless the other from and against any and all loss, damage, claim, liability, cost and expense, including reasonable attorneys fees, incurred by the other as a result of, or arising out of or in connection with, a violation by the Indemnitor of any term, covenant or condition required by this Agreement to be performed or observed by the Indemnitor. 13. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York and constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. No waiver or modification of any terms hereof shall be valid unless in writing signed by the party against whom such waiver is sought to be enforced, and then only to the extent set forth in such writing. This Agree- 25 9 ment 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 /s/ MICHAEL KING --------------------------- Accepted as of the date first above written: /s/ STEPHEN W. PALLEY - ----------------------- Stephen W. Palley 26 EXHIBIT 10.6 KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 December 21, 1993 Mr. Steven R. Hirsch c/o Camelot Entertainment Sales, Inc. 1700 Broadway New York, New York 10019 Dear Steve: This letter, when accepted by you, shall constitute an agreement between you and King World Productions, Inc. ("King World" or the "Company") with respect to the terms upon which you will be employed by King World during the Employment Period (as hereinafter defined). 1. During the Employment Period, King World shall employ you, and you hereby accept employment by King World, in the capacity of President of King World's barter advertising sales subsidiary, Camelot Entertainment Sales, Inc. ("Camelot"), on the terms and subject to the conditions set forth in this Agreement. The "Employment Period" shall mean the period commencing on September 1, 1993 and ending on August 31, 1996, or such earlier date on which this Agreement is terminated pursuant to the provisions of Section 8 hereof. During the Employment Period, you shall perform such services as shall from time to time be reasonably assigned to you by King World's Chief Executive Officer, Chairman or Chief Operating Officer, or by or pursuant to resolution of Camelot's Board of Directors, and diligently devote your entire business time, skill and attention to the performance of such services and your duties and obligations hereunder. 2. As a consideration for the services rendered by you hereunder, you shall be entitled to the following: (a) Salary compensation at the annual rate of $450,000 for each of the Company's first two fiscal years during the Employment Period and at the annual rate of $475,000 for the Company's third fiscal year during the Employment Period. Your salary compensation shall be payable in accordance with 27 2 King World's standard payroll policy from time to time in effect. (b) As further consideration for the services rendered by you pursuant to this Agreement, and in order to induce you to accept employment with King World on the terms and conditions set forth herein, the Compensation Committee of King World's Board of Directors (the "Compensation Committee") has granted to you, subject to your acceptance of this Agreement and the conditions set forth below, a stock option (herein called the "Option") under the Company's Amended and Restated Stock Option and Restricted Stock Purchase Plan (the "Plan") to purchase 100,000 shares of Common Stock, $.01 par value, of the Company ("Common Stock"), at an option exercise price equal to $38.875 per share, the closing price of the Common Stock on the date hereof, subject to vesting as provided in paragraph (c) below. The grant of the Option shall be subject to approval of the stockholders of the Company and any additional approvals or consents that may, in the reasonable opinion of counsel to the Company, be necessary or desirable for the Company to obtain, including, without limitation, stockholder approval of currently proposed amendments to the Plan. (c) The Option shall have a term of ten years and shall become exercisable with respect to 20% of the total number of shares subject thereto on August 31, 1994 and each of the two immediately succeeding anniversaries of that date, and with respect to the remaining 40% of the total number of shares subject thereto on August 31, 1998, provided that if you should cease to be a full-time employee of King World or any of its subsidiaries or affiliates, you will have the right to exercise the unexercised portion of the option only within the one month period following the date on which you ceased to be a full-time employee, and then only to the extent that such unexercised portion of the option was vested on the date your full-time employment ceased, except that if your full-time employment ceased by reason of your death or disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended), such one-month period will instead be the one-year period following the cessation of your full-time employment. (d) In the event that after the date hereof, the outstanding shares of the Company's Common Stock shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation through reorganization, merger or consolidation, recapitalization, reclassification, stock split, split-up, combination or 28 3 exchange of shares or declaration of any dividends payable in Common Stock, appropriate adjustment shall be made for (i) the number of shares of Common Stock for which the Option shall be granted hereunder and (ii) the number of shares of Common Stock (and the exercise price per share) subject to the unexercised portion of the outstanding Option (to the nearest possible full share). (e) In the event that the Company is required to withhold any Federal, state or local taxes in respect of any compensation income realized by you in respect of the Option granted hereunder or in respect of any shares acquired upon exercise of the Option, the Company shall deduct the aggregate amount of such Federal, state or local taxes required to be so withheld or, if such payments are insufficient to satisfy such Federal, state or local taxes, you will be required to pay to the Company, or to make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of such taxes. (f) The terms of the Option are more fully set forth in a definitive stock option agreement under the Plan, a copy of which is attached to this Agreement. Such stock option agreement and the Plan shall govern your rights as an optionee. The Company shall cause the shares of Common Stock issuable upon the exercise of the Option to be registered on Form S-8 and/or Form S-3 (or any successor form) under the Securities Act of 1933, as amended, and listed on the New York Stock Exchange. 3. With respect to each fiscal year of the Company ending within (or upon the termination of) the Employment Period, you shall be entitled to a bonus, payable annually, equal to 1% of the net revenues of Camelot for such fiscal year, such bonus not to exceed $150,000 in any fiscal year of the Company, provided that the Compensation Committee determines that the Company's return on equity for such fiscal year exceeds the average annual return on equity of the companies comprising the Standard and Poor's Composite Index of 500 Stocks for the most recent comparable period for which published information is available to the Committee at the time such determination is made (the "S&P Average Return on Equity"). The "net revenues of Camelot" shall mean, for the purposes of this Agreement, the net revenues of Camelot which are included in the Company's consolidated financial statements filed with the Securities and Exchange Commission. 4. (a) In addition to the bonus payable to you pursuant to Section 3, with respect to each fiscal year of the Company ending within (or upon the termination of) the Employment 29 4 Period, you shall be entitled to a supplemental bonus as described in this Section 4, not to exceed $150,000 in any fiscal year of the Company (excluding, for the purpose of such $150,000 per year limitation, any amounts subsequently recouped pursuant to paragraph (c) below), provided that (i) the Committee determines that the average daily closing price of the Common Stock for such year (the "Average Yearly Price") exceeds $32.625 and (ii) the Company's return on equity for such fiscal year exceeds the S&P Average Return on Equity. (b) If the Average Yearly Price for any such fiscal year equals or exceeds $38.875, the closing price of the Common Stock on December 21, 1993, the supplemental bonus for such year shall be equal to the lesser of 1% of the net revenues of Camelot for such year or $150,000. If such Average Yearly Price exceeds $32.625, but is less than $38.875, the supplemental bonus for such year shall be equal to the lesser of 1.0% of net revenues of Camelot for such year or $150,000, multiplied by a fraction, the numerator of which is the excess of such Average Yearly Price over $32.625, and the denominator of which is $6.25. (c) The full amount by which any supplemental bonus payment was reduced below 1.0% of net revenues of Camelot for any year or $150,000, whichever is less, pursuant to the second sentence of paragraph 4(b) shall be payable to you if the Average Yearly Price for any subsequent fiscal year within the term of this Agreement equals or exceeds $38.875. A portion of the amount by which any supplemental bonus payment was reduced pursuant to the second sentence of paragraph 4(b) above (and was not previously recouped by you pursuant to this paragraph (c)) shall be payable to you if the Average Yearly Price for any subsequent fiscal year or years during the term of this Agreement is less than $38.875 but greater than the Average Yearly Price for the year in which such reduction was made, and the portion of such reduction that shall be payable to you shall be equal to the full amount of such reduction (or the portion thereof that was not previously recouped by you pursuant to this paragraph (c)), multiplied by a fraction, the numerator of which is the excess of the Average Yearly Price for such subsequent year over the Average Yearly Price for the year in which such reduction was made and the denominator of which is the excess of $38.875 over the Average Yearly Price for the year in which such reduction was made. To the extent that a partial recoupment is made in a subsequent fiscal year, any amounts not recouped under the foregoing formula shall remain available for recoupment in subsequent years during the term of this Agreement. Any amounts not recouped by you pursuant to this paragraph (c) on or prior to the making of the supplemental bonus payment in respect of the August 31, 1996 fiscal year shall no longer be subject to recoupment and shall not be paid to you. 30 5 (d) Notwithstanding the foregoing, in no event shall aggregate supplemental bonus payments payable pursuant to this Section 4 exceed $375,000. (e) Payments of the supplemental bonus amounts provided herein shall be made annually, in arrears, as soon as practicable after the after the end of each fiscal year in which you are eligible for a bonus hereunder. 5. Notwithstanding anything to the contrary contained herein, the grant of the Option described in Section 2(b) hereof, the bonus described in Section 3 hereof and the supplemental bonus described in Section 4 hereof are subject to approval of the stockholders of the Company and any additional approvals or consents that may, in the reasonable opinion of counsel to the Company, be necessary or desirable for the Company to obtain. In the event that such approvals are not obtained on or prior to August 31, 1994, then you and the Company shall negotiate in good faith for the purpose of agreeing upon a mutually acceptable cash substitute of equivalent value for the Option, the bonus and the supplemental bonus (which may also be subject to stockholder and other approvals). If, after good-faith negotiation, you and the Company cannot so agree, then you may, in your sole discretion, terminate this Agreement. 6. You shall be entitled to participate, on the same basis and subject to the same qualifications as King World's other executive officers, in any pension, life insurance, health insurance or hospitalization plan or other similar plan from time to time in effect with respect to King World's executive officers or employees generally. 7. The Company shall, during the Employment Period, reimburse you for such expenses as shall be incurred by you in connection with the performance of your duties hereunder, provided that you furnish to us evidence of such expenses reasonably satisfactory to us. 8. This Agreement shall terminate (i) upon your death, (ii) thirty (30) days after written notice to you from King World's Board of Directors in the event that you have been unable to perform the duties required of you pursuant to this Agreement for ninety (90) days during any twelve-month period during the Employment Period (whether or not such ninety (90) days are consecutive) by reason of illness or other incapacity and King World's Board of Directors determines to terminate this Agreement for such reason or (iii) immediately upon written notice to you in the event that King World's Board of Directors determines to terminate this Agreement for cause. 31 6 (b) Termination of this Agreement shall terminate all of your rights hereunder from and after the effective date of termination except for your rights to salary and benefits which have accrued but are unpaid at the effective date of termination, your rights with respect to the Option (which shall be governed by the terms of Section 2, the stock option agreement and the Plan) and except that in the event that your full-time employment with the Company is terminated on account of your death, disability or incapacity, the cash bonuses provided for in Sections 3 and 4 shall continue to be payable as provided therein through the end of the fiscal year in which your death, disability or incapacity occurred. (The foregoing is not intended to relieve or release the Company from any liability for damages to you if the Company wrongfully terminates this Agreement.) In no event shall termination of this Agreement for any reason terminate any of your obligations under paragraphs 9, 10, 11 and 12 hereof. 9. Except as required in connection with the performance of services hereunder, you shall not, during or after the termination of the Employment Period, use or disclose to any person any confidential business information or trade secrets of King World or any of its affiliates or business associates that you obtained or learned during the Employment Period or in the course of your employment by the Company, including, but not limited to, confidential business information regarding the type and nature of the contracts entered into by the Company or its affiliates for the acquisition or distribution of television programming (including, without limitation, advertising time within any television programming irrespective of whether King World or any of its 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 King World or any of its affiliates elects to acquire television programming (including, without limitation, Advertising Time) for sale or other distribution. (b) You also agree that during the Employment Period 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, proprietor or otherwise howsoever), any business or portion of a business of any person, firm, partnership or corporation which supplied television programming (including, without limitation, Advertising Time) to King World or any of its affiliates at any time within the two (2) year period preceding the termination of the Employment Period. 10. You hereby agree that you shall not (a) during the Employment Period and for a period of two (2) years following the 32 7 termination of the Employment Period, induce, directly or indirectly, any person from whom or from which King World or any of its affiliates acquired television programming (including without limitation Advertising Time) to terminate his or its agreement with King World or such affiliate with respect to such programming, to refuse to renew any such agreement or to refuse to furnish King World or any of its affiliates with any other television programming (including without limitation Advertising Time), or (b) induce, directly or indirectly, any employee of King World or any affiliate thereof to terminate his or her employment with King World or such affiliate. 11. 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 King World and/or Camelot, free of any claim whatever by you or any person claiming any rights or interests through you. 12. Each of you and King World (the "Indemnitor"), agrees to indemnify and hold harmless the other from and against any and all loss, damage, claim, liability, cost and expense, including reasonable attorneys fees, incurred by the other as a result of, or arising out of or in connection with, a violation by the Indemnitor of any term, covenant or condition required by this Agreement to be performed or observed by the Indemnitor. 13. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York and constitutes the entire understanding between the parties hereto with respect to the subject matter hereof. No waiver or modification of any terms hereof shall be valid unless in writing signed by the party against whom such waiver is sought to be enforced, and 33 8 then only to the extent set forth in such writing. 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 /s/ STEPHEN W. PALLEY ---------------------------- Accepted as of the date first above written: /s/ STEVEN R. HIRSCH - ---------------------- Steven R. Hirsch 34 EXHIBIT 10.6 KING WORLD PRODUCTIONS, INC. 1700 BROADWAY NEW YORK, NEW YORK 10019 May 20, 1994 Mr. Anthony E. Hull 9 Woody Lane Larchmont, New York 10538 Dear Tony: 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 Chief Financial Officer for the period commencing on June 13, 1994 and terminating on June 12, 1996 (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 management, 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. During the Employment Period, your base of operations shall be located in the New York City metropolitan area. (b) You hereby grant to the Company an option to extend the Employment Period for one additional 24 month period (the "Option Period") to commence on June 13, 1996 and to end on June 12, 1998. The Company may exercise such option by giving you written notice to such effect not later than 120 days prior to the expiration of the Employment Period (the "Option Notice Date"). In the event that the Company elects to exercise such option, 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) $300,000 for the period from June 13, 1994 through and including June 12, 1995; (ii) $310,000 for the period from June 13, 1995 through and including June 12, 1996; and (iii) subject to the Company's exercising the option for the Option Period, $325,000 for the period commencing June 13, 1996 and ending June 12, 1997 and $350,000 for the period commencing June 13, 1997 and ending June 12, 1998. Any compensation payable 35 pursuant to this paragraph 2(a) shall be paid in accordance with the Company's normal payroll policy at the time in effect for its senior executives. (b) You shall be entitled to such discretionary bonuses as may be from time to time determined by the Board of Directors of the Company. (c) Subject to the provisions of this paragraph (c), 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 1989 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 date of your commencement of employment hereunder (the "Option Exercise Price"). 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 June 12, 1995; 20% on June 12, 1996; 20% on June 12, 1997; and 40% on June 12, 1999; 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. (d) In the event that the Company does not exercise its option to extend the Employment Period for the Option Period, the Company shall pay you, within 15 days following the expiration of the Employment Period, additional compensation in an amount equal to the product of (i) 10,000 and (ii) the excess, if any, of (A) the closing price of the Common Stock on the New York Stock Exchange on the Option Notice Date over (B) the Option Exercise Price. 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. You shall be entitled to participate, on the same basis as the 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 senior executives. You shall be entitled to reimbursement of expenses reasonably incurred by you in -2- 36 connection with the performance of your duties hereunder, provided that you promptly furnish documentation therefor reasonably satisfactory to the Company. 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 ninety (90) days during the Employment Period (whether or not such ninety (90) days are consecutive) by reason of illness or other physical incapacity, the Company may, after the expiration of such ninety (90) days, terminate the Employment Period on thirty (30) days written notice to you. 5. 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. 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. -3- 37 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. 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. 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. 10. 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 -4- 38 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: /s/ STEPHEN W. PALLEY --------------------------- ACCEPTED: /s/ ANTHONY E. HULL - ------------------------- Anthony E. Hull -5- EX-10.18 3 STOCK OPTION AGREEMENT 1 EXHIBIT 10.18 THE TRANSFER OF THE OPTION EVIDENCED BY THIS AGREEMENT IS SUBJECT TO RESTRICTIONS CONTAINED HEREIN. THE OPTION HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THE OPTION NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THE OPTION HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS OPTION, AND THE OPTION SHARES ISSUABLE UPON EXERCISE IN ACCORDANCE WITH THE TERMS CONTAINED HEREIN, ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A LIEN IN FAVOR OF KING WORLD PRODUCTIONS, INC. (THE "COMPANY") TO SECURE CERTAIN OBLIGA- TIONS OF HARPO, INC. ("HARPO") TO THE COMPANY PURSUANT TO AN AGREEMENT DATED AS OF JANUARY 30, 1987, AS AMENDED THROUGH MARCH 17, 1994 BETWEEN THE COMPANY AND HARPO. KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 Ms. Oprah Winfrey As of March 17, 1994 c/o Harpo, Inc. 110 North Carpenter Street Chicago, Illinois 60607 Dear Ms. Winfrey: This is the stock option agreement referred to in the amendment (the "Harpo Amendment") dated as of March 17, 1994, to the Agreement dated as of January 30, 1987 (the "Original Agreement"), as previously amended to the date hereof (the Original Agreement, as amended to the date hereof and by the Harpo Amendment, being herein called the "Harpo Agreement") between Harpo, Inc. ("Harpo") and the undersigned (the "Company"). As partial consideration for Harpo to enter into the Harpo Amendment, and as an inducement for you to render services with respect to the production of the Show (as such term is defined in the Harpo Amendment), the Company hereby grants to you an option (the "Option") to purchase four hundred fifty thousand (450,000) shares of the Company's Common Stock, $.01 par value ("Common Stock"; such shares of Common Stock, as the same may be adjusted as described in Section 6 below, being herein referred to as the "Option Shares"). The terms and conditions of the Option are set out below. 2 The Option will be treated as and shall constitute a "non-qualified stock option" for Federal income tax purposes. The Option will not constitute or be treated either by you or by the Company as an "incentive stock option" as defined under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). 1. Date of Grant. The Option is granted to you on the date hereof. 2. Termination of the Option. Your right to exercise the Option (and to purchase the Option Shares) shall expire and terminate in all events on (i) March 18, 2004, or (ii) such earlier date provided in Section 7 below. 3. Option Price. The purchase price to be paid upon the exercise of the Option (the "Option Price") will be $33-5/8 per Option Share, the closing price of the Common Stock on the New York Stock Exchange on March 8, 1994, the date on which the parties reached an agreement in principle with respect to the Harpo Amendment. 4. Vesting Provisions -- Entitlement to Exercise the Option and Purchase Option Shares. The Option shall be exercisable by you, in whole or part, at any time prior to expiration and termination pursuant to Section 2 above. 5. Exercise of Option. (a) To exercise the Option, you must deliver a completed copy of the attached Option Exercise Form to the address indicated on the Form, specifying the number of Option Shares being purchased as a result of such exercise, together with payment of the full Option Price for the Option Shares being purchased. (b) Payment of the Option Price must be made in cash. (c) In the event of any exercise of the Option, a certificate or certificates representing the Option Shares so purchased, registered in your name, shall be delivered to you within a reasonable time. (d) You agree that Option Shares shall be held by you for investment and may not be resold unless registered under the Securities Act of 1933, as amended (the "Securities Act"), or an exemption from registration is available, and that the Option Shares will bear a legend referring to such limitation, to the restrictions on transfer of the Option Shares referred to else- 2 3 where in this Agreement and to any security interests encumbering the Option Shares. 6. Adjustments. If the total outstanding shares of Common Stock of the Company shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation through reorganization, merger or consolidation, recapitalization, stock split, combination or exchange of shares or declaration of any dividends payable in stock or other corporate transaction, then the number of Option Shares subject to the unexercised portion of the Option (and the Option Price per share) shall be appropriately adjusted (to the nearest possible full share) by the Board of Directors of the Company. 7. Default under the Harpo Agreement. (a) In the event that you die, or the term of the Harpo Agreement terminates for any other reason except a material breach by Harpo, then the Option may be exercised by you or your estate only within the nine (9) month period following your death or the termination of the term of the Harpo Agreement. (b) In the event that the term of the Harpo Agreement terminates by reason of a material breach thereof by Harpo, then your right to exercise the Option as to any and all Option Shares that have not theretofore been issued shall terminate simultaneously with the termination of such term. (c) In the event that the Company exercises its rights pursuant to paragraph 17 or 18 of the Original Agreement and the term of the Harpo Agreement is suspended, then your right to exercise the Option pursuant to Section 4 hereof shall be suspended during the period that the term of the Harpo Agreement is suspended. (d) Notwithstanding any provision contained herein to the contrary, in no event may the Option be exercised to any extent after March 18, 2004. 8. Representations. (a) You represent and warrant that you are acquiring the Option and the Option Shares for investment purposes only and not with a view towards the public distribution thereof. (b) You understand that neither the Options nor the Option Shares have been registered under the Securities Act by reason of their issuance in a transaction exempt from the regis- 3 4 tration requirements thereof pursuant to Section 4(2) of the Securities Act. (c) You represent and warrant that (i) you have the financial ability to bear the economic risk of investment in the Option and the Option Shares and (ii) you, together with the financial advisers who have assisted you in acquiring the Option, have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Option and the Option Shares and have had sufficient opportunity to obtain, and have obtained, all information regarding the Company as you have deemed relevant in order to evaluate the merits and risks of such investment. (d) You represent and warrant that you understand the Federal, state and local income tax consequences of the granting of the Option to you, the exercise of the Option and purchase of Option Shares, and the subsequent sale or other disposition of any Option Shares. 9. Covenants of the Company. The Company will at all times reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of issue upon the exercise of the Option, such number of shares of Common Stock as shall then be issuable upon the exercise of the Option. The Company covenants that all Option Shares, when issued in accordance with the terms hereof, shall be duly and validly issued, fully paid and nonassessable. The Company will take all such action as may be necessary to assure that all Option Shares may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Company may then be listed. The Company will not take any action which results in any adjustment of the Option Price if the total number of Option Shares issued and issuable after such action would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation. The Company has not granted and will not grant any right of first refusal with respect to the Option Shares, and there are no preemptive rights associated with such shares. 10. Required Registration. (a) At any time you may by notice to the Company (the "Registration Notice") request that it register for sale under the Securities Act, in the manner specified in your Registration Notice, all or any portion of the Option Shares and any other shares of Common Stock that have been issued or are issuable to you and/or Jeffrey D. Jacobs upon the 4 5 exercise of stock options granted or to be granted pursuant to the Harpo Agreement, including any prior or subsequent amendment to that agreement (collectively, together with the Option Shares, the "Agreement Shares"), and that have been purchased, or will be purchased on or before the effective date of such registration statement, or, provided that deferral of the date of purchase to the closing date of sale of such shares in the manner contemplated by the proposed registration will not disqualify the offering from registration on Form S-3 (or any successor to such form), then on such closing date pursuant to such exercise. (b) Promptly following receipt of your Registration Notice, the Company shall commence to prepare and, unless it elects to purchase all of the Agreement Shares specified in such Registration Notice through the procedures specified in Section 10(f) below, shall file a registration statement under the Securities Act for the sale of the Agreement Shares specified in such Registration Notice (less any shares to be purchased pursuant to Section 10(f) below) and shall use its best efforts to cause such registration statement to become effective and remain in effect for the Required Effective Period for public sale in accordance with the method of disposition specified by you, provided, however, that the Company shall not be required to file a "shelf" registration except on Form S-3 (or any successor to such Form). The "Required Effective Period" shall be the greater of (A) the 180-day period following the effective date of such registration statement; and (B) unless the proposed plan of distribution involves a firm commitment underwritten public offering, the period required to dispose of all of the shares included in such registration statement assuming the sale in each three-month period of the maximum number of shares permitted to be sold under the limitations of Section 14 of this Agreement. If such method of disposition shall be an underwritten public offering, the Company may designate the managing underwriter of such offering. If, in the good faith opinion of the Board of Directors of the Company, registration would materially interfere with pre-existing contractual obligations to which the Company is then subject or financing arrangements or other material transactions involving the Company or any of its subsidiaries are pending at the time the Registration Notice is given, or are under active consideration by the Company, the Company may elect to defer registration for such period of time, in no event in excess of one hundred twenty (120) days from the date on which the Registration Notice was given, as in the good faith judgment of the Board of Directors of the Company is necessary in order to preclude adverse impact 5 6 upon such financing or other transaction. In the event of such deferral, if the shares to be registered are to be acquired on exercise of this Option following the date of such Registration Notice, the date on which the Option was exercised shall, for purposes of Sections 2 and 7(d) hereof, be deemed to be the date on which the Registration Notice was given. The obligation of the Company under this Section 10 shall be deemed satisfied only when a registration statement covering all Agreement Shares specified in your Registration Notice and not purchased by the Company pursuant to Section 10(f) below shall have become effective and, (X) if the method of disposition you specify is a firm commitment underwritten public offering, all such Agreement Shares shall have been sold pursuant thereto; or (Y) if it is not such an offering, has remained in effect for the Required Effective Period specified herein or until the distribution of the Agreement Shares covered thereby is completed, whichever is shorter. (c) The Company shall not be obligated to register Agreement Shares pursuant to this Section 10 (i) more than once; (ii) in any period of twelve consecutive months in which any Agreement Shares have been registered pursuant to the exercise of a demand registration right granted pursuant to any other agreement between the Company and you or Jeffrey D. Jacobs; or (iii) at any time when the registration, offering or sale of Option Shares would violate any law, rule or regulation. For purposes of the foregoing sentence, (X) a registration under this Option or the corresponding provisions of the option agreement issued to Jeffrey D. Jacobs on the date hereof shall be aggregated (so that a registration initiated by you pursuant to this Section 10 shall decrease by one the number of demand registrations available to each of you and Jeffrey D. Jacobs pursuant said corresponding provisions, and vice versa) and (Y) any request for registration given by Jeffrey D. Jacobs pursuant the corresponding provisions of the option agreement issued to him shall, as a condition to its effectiveness, be confirmed in writing by you (provided that you are then competent to give such confirmation). If any Agreement Shares included in a registration statement filed pursuant to this Section 10 were issued upon the exercise of any other stock option granted to you or Jeffrey D. Jacobs pursuant to the Harpo Agreement, the number of "demand" registration rights granted to you and to Jeffrey D. Jacobs pursuant to such stock option or stock options shall each be reduced by one. (d) The Company shall be entitled to include in any registration statement referred to in this Section 10, for 6 7 sale in accordance with the method of disposition you specify, shares of Common Stock to be sold by the Company for its own account or by other security holders of the Company for their accounts, or both, except as and to the extent that, in the opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would adversely affect the marketing of the Agreement Shares to be sold. (e) The procedures for registration of Agreement Shares under this Section 10 shall conform to the following: (1) Obligations of the Company. If and whenever the Company is required by the provisions of Section 10 or 11 to effect the registration of Agreement Shares, the Company will: (i) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the Required Effective Period or until the securities covered by such registration statement have been sold in accordance with the method of disposition specified by you in your Registration Notice, whichever is shorter, and prepare and file with the Commission such amendments or supplements to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective for the Required Effective Period or until the shares covered by such registration statement have been sold in accordance with such method of disposition, whichever is shorter; (ii) If the offering is to be underwritten in whole or in part, enter into a written underwriting agreement in form and substance reasonably satisfactory to the managing underwriter or underwriters of the public offering of such securities; (iii) Furnish to the shareholders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (iv) Use its best efforts to register or qualify the shares covered by such registration statement 7 8 under such state securities or blue sky laws of such jurisdictions as you may reasonably request within 20 days following the original filing of such registration statement, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (v) Notify you promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (vi) Notify you promptly of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information; (vii) Prepare and file with the Commission, promptly upon your request, any amendments or supplements to such registration statement or prospectus which, in the opinion of your counsel, are required under the Securities Act or the rules and regulations thereunder in connection with the distribution of the Option Shares by you; (viii) Prepare and promptly file with the Commission and promptly notify you of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such shares is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; (ix) In case you or any underwriters for you is required to deliver a prospectus at a time when the prospectus then in effect may no longer be used under the Securities Act, prepare promptly upon request such amendment or amendments to such registration statement and such prospectus or prospectuses as may be necessary to permit compliance with the requirements of the Securities Act; (x) Advise you, promptly after it shall receive notice or obtain knowledge thereof, of the issuance 8 9 of any stop order by the Commission suspending the effectiveness of such registration statement; or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (xi) If such registration is by way of an underwritten public offering and if you so request, use its best efforts to cause counsel and the independent certified public accountants to the Company to furnish on the effective date of the registration statement and at the closing provided for in the underwriting agreement, (i) an opinion dated such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to you, covering such matters with respect to the registration statement and prospectus and each amendment or supplement thereto, proceedings under state and federal securities laws and other matters relating to the Company, the securities included in the registration statement and the offer and sale of such securities as are customarily the subject of opinions of issuer's counsel provided to underwriters at or about the time such registration statement becomes effective and the sale is closed; and (ii) a letter dated each such date, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and to you, stating that they are independent certified public accountants within the meaning of the Securities Act and providing such assurances as are customarily provided by the independent certified public accountants for an issuer in connection with the registration of securities, including information as to the period ending not more than five business days prior to the date of such letter with respect to the registration statement and prospectus, as the underwriters or you may reasonably request. If the furnishing of such opinion and/or letter causes Company to incur any additional cost or expense, you agree to reimburse Company therefor at the closing provided for in the underwriting agreement. (2) Obligations of Option Holder. It shall be a condition to the inclusion of any Agreement Shares in a registration statement that the holder thereof shall cooperate in the execution and filing of the registration statement and any necessary state securities law filings, and if the offering is to be underwritten, that such holder become a party to the underwriting agreement and, if so requested by the managing underwriter, execute and deliver Powers of 9 10 Attorney and/or custodial agreements or other suitable arrangements as the managing underwriter deems reasonably necessary in order to insure orderly sale of the shares. As among the holders of shares included in any registration statement, decisions respecting the terms and conditions of any underwriting agreements shall be made by the party initiating the registration; so that in the case of a registration required pursuant to a request by you under Section 10, determinations with respect to the underwriting agreement shall be made by you, in your reasonable judgment, after appropriate consultation with the Company and with other persons whose shares are to be included in such offering; and if you are party to a registration statement pursuant to Section 11, you shall not have the right to make such determinations, but shall be informed of them, and consulted with respect thereto. (f) Within ten (10) business days following receipt of a Registration Notice, the Company may elect, by written notice to you, to purchase all or any portion of the Agreement Shares specified by you in such Registration Notice for a purchase price equal to the closing price of the Common Stock on the date such notice was given. In the event that the Company elects to purchase any of the Agreement Shares specified by you in such notice, the delivery of such Agreement Shares against payment therefor shall take place on the fifth business day following receipt by you of the Company's election notice. In the event that the Company does not elect to purchase all of the Agreement Shares specified by you in such Registration Notice, the Company shall register under the Securities Act all the Agreement Shares not so purchased, in the manner provided above. 11. Incidental Registration. If the Company at any time (other than pursuant to Section 10 hereof) proposes to register any of its Common Stock under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4 or S-8 or another form not available for registering the Option Shares for sale to the public), it will give written notice at such time to you of its intention to do so. Upon your written request, given within 30 days after receipt of any such notice by the Company, to register any of the Option Shares that you have purchased, or will purchase on or before the effective date of such registration statement, pursuant to the exercise of the Option (which request shall state the intended method of disposition thereof), the Company will use its best efforts to cause such Option Shares to be included in the securities to be covered by the registration 10 11 statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by you of the Option Shares so registered. In the event that any registration pursuant to this Section 11 shall be, in whole or in part, an underwritten public offering of Common Stock, any request by you pursuant to this Section 11 to register Option Shares shall specify that either (i) such Option Shares are to be included in the underwriting on the same terms and conditions as the shares of Common Stock otherwise being sold through underwriters under such registration; or (ii) such Option Shares are to be sold in the open market without any underwriting, on terms and conditions comparable to those normally applicable to offerings of common stock in reasonably similar circumstances. The number of Option Shares to be included in such an underwriting may be reduced if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold therein by the Company or other security holders of the Company. Notwithstanding anything to the contrary contained in this Section 11, in the event that there is a firm commitment underwritten public offering of securities of the Company pursuant to a registration covering Option Shares and you do not elect to sell any Option Shares to the underwriters of the Company's securities in connection with such offering, you agree to refrain from selling any Option Shares during the period of distribution of the Company's securities by such underwriters and the period in which the underwriting syndicate participates in the after market; provided, however, that you shall, in any event, be entitled to sell Option Shares commencing on the 150th day after the effective date of such registration statement. 12. Expenses. (a) The expenses incurred by the Company in complying with the registration pursuant to Section 10 and all registrations pursuant to Section 11 hereof shall be paid as follows: (i) all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees of the National Association of Securities Dealers, Inc. and/or the New York Stock Exchange, transfer taxes, fees of transfer agents and registrars, costs of insurance and other costs not described in (ii) below shall be paid by the Company; and (ii) fees and expenses of your counsel, and all underwriting discounts and selling commissions applicable to the sale of Agreement Shares sold by you, and any additional 11 12 cost or expense incurred by the Company pursuant to your request under Section (10)(e)(1)(xi), shall be paid by you. 13. Indemnification. In the event of a registration of Agreement Shares under the Securities Act pursuant to Section 10 or 11 hereof, the Company will indemnify and hold you harmless against any losses, claims, damages or liabilities, joint or several, to which you may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Option Shares were registered under the Securities Act pursuant to Section 10 or 11, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse you for any legal or other expenses reasonably incurred in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing by you for inclusion in such registration statement. In the event of a registration of any of the Agreement Shares under the Securities Act pursuant to Section 10 or 11 hereof, you will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer or director or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Agreement Shares were registered under the Securities Act pursuant to Section 10 or 11, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will 12 13 reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that you will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to the Company by you in writing for inclusion in such registration statement. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under this Section 13. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 13 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding the foregoing, any indemnified party shall have the right to retain its own counsel in any such action, but the fees and disbursements of such counsel shall be at the expense of such indemnified party unless (i) the indemni- 13 14 fying party shall have failed to retain counsel for the indemnified person as aforesaid or (ii) the indemnifying party and such indemnified party shall have mutually agreed to the retention of such counsel. It is understood that the indemnifying party shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for the indemnified party. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. If the indemnification provided for in the first two paragraphs of this Section 13 is unavailable or insufficient to hold harmless an indemnified party under such paragraphs in respect of any losses, claims, damages or liabilities or actions in respect thereof referred to therein, then each indemnifying party shall in lieu of indemnifying such indemnified party contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or actions in such proportion as appropriate to reflect the relative fault of the Company, on the one hand, and you, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or actions as well as any other relevant equitable considerations, including the failure to give any notice under the third paragraph of this Section 13. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the Company, on the one hand, or you, on the other, and to the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and you agree that it would not be just and equitable if contributions pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation which did not take account of the equitable considerations referred to above in this paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or action in respect thereof, referred to above in this paragraph, shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. 14 15 The indemnification of underwriters provided for in this Section 13 shall be on such other terms and conditions as are at the time customary and reasonably required by such underwriters. Upon your reasonable request, or upon the reasonable request of any underwriter of Agreement Shares, the Company shall obtain, if reasonably available, an insurance policy covering the risks described above in this Section 13 in an amount and with a deductible reasonably requested by you or such underwriter and naming you, any underwriter of such stock and any person controlling you or such underwriter as beneficiaries. The costs of obtaining and maintaining any such insurance shall be borne by the Company. 14. Sale of Option Shares. (a) You hereby agree to limit your sales of Agreement Shares so that, except for sales pursuant to underwritten, firm commitment public offerings, your sales of Agreement Shares, aggregated with sales of Agreement Shares by Jeffrey D. Jacobs, shall not exceed in any three-month period the greater of (i) one percent of the outstanding shares of Common Stock of the Company, as disclosed in its public report most recently filed with the Securities and Exchange Commission before the date of any sale and (ii) the average weekly reported volume of trading in Common Stock of the Company on the New York Stock Exchange and all other national securities exchanges during the four calendar weeks preceding the date of any sale; provided however, that upon any "Change in Control" (as such term is defined in Exhibit B of the Harpo Amendment) of the Company, the foregoing restriction shall be reduced or eliminated to the extent that any volume restrictions on resales of Common Stock that then apply to Roger King and/or any other person who was an executive officer of the Company prior to such Change in Control are more favorable than those afforded to you pursuant to this Option. Notwithstanding anything to the contrary contained in this Agreement, you shall not be entitled to register, sell or dispose of any Agreement Shares that are subject to any liens, claims, security interests and other encumbrances of any kind, unless and until the same are removed (or will be removed in conjunction with their sale). (b) In order to secure the repayment to the Company of the Secured Amount (as defined in the Harpo Amendment) pursuant to the Harpo Agreement, you hereby grant to the Company a first priority lien and security interest (the "Security Interest") in (i) your rights under this Option, (ii) all Option Shares now or hereafter issuable or issued pursuant to the exercise of the Option and (iii) all proceeds thereof (collectively, the "Stock Option Collateral"), provided that, unless and until the Company notifies you that the amount of Harpo's Share of Revenues (as 15 16 defined in the Harpo Amendment) which the Company reasonably projects at the time of such notice will be payable to Harpo would be inadequate to fully secure the Secured Amount (an "Additional Security Notice"; such notice specifying, in reasonable detail, the amount of such inadequacy (the "Security Shortfall")), you may exercise the Option, sell the Option Shares issued to you upon such exercise and retain the proceeds thereof without restriction. The Security Interest shall, in any event, be limited to such number of shares of Common Stock (and to the Option to the extent corresponding to such shares) that, as of the date of such Additional Security Notice, would, upon sale at a price per share equal to the closing price of the Common Stock on the New York Stock Exchange, generate Net Realizable Value equal to the projected amount of the Security Shortfall. The Net Realizable Value of an Option Share at any time shall be the fair market value of such share at such time less the sum of (i) the Option Price for such Option Share, and (ii) a provision for taxes equal to the difference between such fair market value and such Option Price (the "Option Gain") multiplied by the highest rate of federal and state income tax to which the Option Gain will be subject (with offset for deductibility of such state taxes). At any time that any Stock Option Collateral is subject to the Security Interest, you may obtain its release from the Security Interest by substituting alternate collateral, as more fully set forth in the Security and Pledge Agreement dated as of March 17, 1994 among you, the Company, Harpo, Jacobs & Company and Jeffrey D. Jacobs (the "Security and Pledge Agreement"). You hereby agree to take such steps as are reasonably requested by the Company to perfect the Security Interest, including the execution and filing of UCC-1 financing statements in such form as reasonably requested by the Company, the delivery to the Company of the certificates evidencing the Option Shares, the delivery to such third-party financial intermediaries as may from time to time be requested by the Company of written notice confirming the Security Interest and obtaining the written confirmation and agreement of any such financial intermediaries that such Option Shares and the proceeds thereof are subject to the Security Interest, and that such financial intermediaries shall hold the Option Shares and the proceeds thereof as agent for the Company, as pledgee, subject to such written confirmation and agreement. Upon the occurrence of an Event of Default (as such term is defined in the Security and Pledge Agreement), the Company shall have all of the rights and remedies of a secured party under the Uniform Commercial Code in all relevant jurisdictions with respect to the Stock Option Collateral. 15. Defaults. It shall constitute a breach of this Agreement by either party if such party shall fail or refuse to fully perform any of its obligations under this Agreement and 16 17 shall not have cured such failure or refusal within 30 days after receipt from the other party of written notice advising it of such failure or refusal, or, in the event that such failure or refusal is of a nature that cannot be cured within 30 days, then if such party shall not begin to cure the same within such 30-day period and thereafter diligently prosecute such cure to completion. 16. Successors; No Assignment. Each of the covenants, terms, provisions and agreements contained herein shall be binding upon and inure to the benefit of the parties' successors and assigns. Neither the Option, nor any of the rights granted to you pursuant hereto, may be transferred or assigned (including, without limitation, by operation of law), except by will or the laws of descent and distribution. 17. Withholding Taxes. In the event that the Company is required to withhold any Federal, state or local taxes in respect of the grant of the Option or in respect of the acquisition of any Option Shares, the Company may deduct from any payments of any kind otherwise due to you under the Harpo Agreement the aggregate amount of such Federal, state or local taxes required to be so withheld or, if such payments are insufficient to satisfy such Federal, state or local taxes or if no such payments are due or to become due, then, you will be required to pay to the Company, or to make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of any such taxes. All matters with respect to the total amount of taxes to be withheld shall be determined by the Company in its sole discretion. 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. If any one or more provisions of this Agreement shall be found to be illegal or unenforceable in any respect, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 17 18 Please acknowledge receipt of this Option Agreement and agreement with the terms hereof by signing the enclosed copy of this Option Agreement in the space provided below. KING WORLD PRODUCTIONS, INC. By /s/ STEPHEN W. PALLEY ------------------------- Accepted and Agreed: /s/ OPRAH WINFREY - -------------------------- Oprah Winfrey 18 19 King World Productions, Inc. OPTION EXERCISE FORM Oprah Winfrey hereby exercises her right to purchase ________ shares of Common Stock, $.01 par value, of King World Productions, Inc. pursuant to the option granted to her on March 17, 1994, memorialized in the Option Agreement, dated as of March 17, 1994, between her and King World Productions, Inc. Date: ------------------- -------------------------- Oprah Winfrey Send a completed copy of this Option Exercise Form to: Vice President - Finance King World Productions, Inc. c/o King World Corporation 830 Morris Turnpike Short Hills, New Jersey 07078 EX-10.19 4 STOCK OPTION AGREEMENT 1 EXHIBIT 10.19 THE TRANSFER OF THE OPTION EVIDENCED BY THIS AGREEMENT IS SUBJECT TO RESTRICTIONS CONTAINED HEREIN. THE OPTION HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARDS THE RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THE OPTION NOR THE SHARES ISSUABLE UPON THE EXERCISE OF THE OPTION HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS OPTION, AND THE OPTION SHARES ISSUABLE UPON EXERCISE IN ACCORDANCE WITH THE TERMS CONTAINED HEREIN, ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A LIEN IN FAVOR OF KING WORLD PRODUCTIONS, INC. (THE "COMPANY") TO SECURE CERTAIN OBLIGA- TIONS OF HARPO, INC. ("HARPO") TO THE COMPANY PURSUANT TO AN AGREEMENT DATED AS OF JANUARY 30, 1987, AS AMENDED THROUGH MARCH 17, 1994 BETWEEN THE COMPANY AND HARPO. KING WORLD PRODUCTIONS, INC. 1700 Broadway New York, New York 10019 Mr. Jeffrey D. Jacobs As of March 17, 1994 c/o Harpo, Inc. 110 North Carpenter Street Chicago, Illinois 60607 Dear Mr. Jacobs: This is the stock option agreement referred to in the amendment (the "Harpo Amendment") dated as of March 17, 1994, to the Agreement dated as of January 30, 1987 (the "Original Agreement"), as previously amended to the date hereof (the Original Agreement, as amended to the date hereof and by the Harpo Amendment, being herein called the "Harpo Agreement") between Harpo, Inc. ("Harpo") and the undersigned (the "Company"). As partial consideration for Harpo to enter into the Harpo Amendment, and as an inducement for you to render services with respect to the production of the Show (as such term is defined in the Harpo Amendment), the Company hereby grants to you an option (the "Option") to purchase fifty thousand (50,000) shares of the Company's Common Stock, $.01 par value ("Common Stock"; such shares of Common Stock, as the same may be adjusted as described in Section 6 below, being herein referred to as the "Option Shares"). The terms and conditions of the Option are set out below. 2 The Option will be treated as and shall constitute a "non-qualified stock option" for Federal income tax purposes. The Option will not constitute or be treated either by you or by the Company as an "incentive stock option" as defined under Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"). 1. Date of Grant. The Option is granted to you on the date hereof. 2. Termination of the Option. Your right to exercise the Option (and to purchase the Option Shares) shall expire and terminate in all events on (i) March 18, 2004, or (ii) such earlier date provided in Section 7 below. 3. Option Price. The purchase price to be paid upon the exercise of the Option (the "Option Price") will be $33-5/8 per Option Share, the closing price of the Common Stock on the New York Stock Exchange on March 8, 1994, the date on which the parties reached an agreement in principle with respect to the Harpo Amendment. 4. Vesting Provisions -- Entitlement to Exercise the Option and Purchase Option Shares. The Option shall be exercisable by you, in whole or part, at any time prior to expiration and termination pursuant to Section 2 above. 5. Exercise of Option. (a) To exercise the Option, you must deliver a completed copy of the attached Option Exercise Form to the address indicated on the Form, specifying the number of Option Shares being purchased as a result of such exercise, together with payment of the full Option Price for the Option Shares being purchased. (b) Payment of the Option Price must be made in cash. (c) In the event of any exercise of the Option, a certificate or certificates representing the Option Shares so purchased, registered in your name, shall be delivered to you within a reasonable time. (d) You agree that Option Shares shall be held by you for investment and may not be resold unless registered under the Securities Act of 1933, as amended (the "Securities Act"), or an exemption from registration is available, and that the Option Shares will bear a legend referring to such limitation, to the restrictions on transfer of the Option Shares referred to else- 2 3 where in this Agreement and to any security interests encumbering the Option Shares. 6. Adjustments. If the total outstanding shares of Common Stock of the Company shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation through reorganization, merger or consolidation, recapitalization, stock split, combination or exchange of shares or declaration of any dividends payable in stock or other corporate transaction, then the number of Option Shares subject to the unexercised portion of the Option (and the Option Price per share) shall be appropriately adjusted (to the nearest possible full share) by the Board of Directors of the Company. 7. Default under the Harpo Agreement. (a) In the event that you die, or the term of the Harpo Agreement terminates for any other reason except a material breach by Harpo, then the Option may be exercised by you or your estate only within the nine (9) month period following your death or the termination of the term of the Harpo Agreement. (b) In the event that the term of the Harpo Agreement terminates by reason of a material breach thereof by Harpo, then your right to exercise the Option as to any and all Option Shares that have not theretofore been issued shall terminate simultaneously with the termination of such term. (c) In the event that the Company exercises its rights pursuant to paragraph 17 or 18 of the Original Agreement and the term of the Harpo Agreement is suspended, then your right to exercise the Option pursuant to Section 4 hereof shall be suspended during the period that the term of the Harpo Agreement is suspended. (d) Notwithstanding any provision contained herein to the contrary, in no event may the Option be exercised to any extent after March 18, 2004. 8. Representations. (a) You represent and warrant that you are acquiring the Option and the Option Shares for investment purposes only and not with a view towards the public distribution thereof. (b) You understand that neither the Options nor the Option Shares have been registered under the Securities Act by reason of their issuance in a transaction exempt from the regis- 3 4 tration requirements thereof pursuant to Section 4(2) of the Securities Act. (c) You represent and warrant that (i) you have the financial ability to bear the economic risk of investment in the Option and the Option Shares and (ii) you, together with the financial advisers who have assisted you in acquiring the Option, have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Option and the Option Shares and have had sufficient opportunity to obtain, and have obtained, all information regarding the Company as you have deemed relevant in order to evaluate the merits and risks of such investment. (d) You represent and warrant that you understand the Federal, state and local income tax consequences of the granting of the Option to you, the exercise of the Option and purchase of Option Shares, and the subsequent sale or other disposition of any Option Shares. 9. Covenants of the Company. The Company will at all times reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of issue upon the exercise of the Option, such number of shares of Common Stock as shall then be issuable upon the exercise of the Option. The Company covenants that all Option Shares, when issued in accordance with the terms hereof, shall be duly and validly issued, fully paid and nonassessable. The Company will take all such action as may be necessary to assure that all Option Shares may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Company may then be listed. The Company will not take any action which results in any adjustment of the Option Price if the total number of Option Shares issued and issuable after such action would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation. The Company has not granted and will not grant any right of first refusal with respect to the Option Shares, and there are no preemptive rights associated with such shares. 10. Required Registration. (a) At any time you may by notice to the Company (the "Registration Notice") request that it register for sale under the Securities Act, in the manner specified in your Registration Notice, all or any portion of the Option Shares and any other shares of Common Stock that have been issued or are issuable to you and/or Oprah Winfrey upon the exer- 4 5 cise of stock options granted or to be granted pursuant to the Harpo Agreement, including any prior or subsequent amendment to that agreement (collectively, together with the Option Shares, the "Agreement Shares"), and that have been purchased, or will be purchased on or before the effective date of such registration statement, or, provided that deferral of the date of purchase to the closing date of sale of such shares in the manner contemplated by the proposed registration will not disqualify the offering from registration on Form S-3 (or any successor to such form), then on such closing date pursuant to such exercise. (b) Promptly following receipt of your Registration Notice, the Company shall commence to prepare and, unless it elects to purchase all of the Agreement Shares specified in such Registration Notice through the procedures specified in Section 10(f) below, shall file a registration statement under the Securities Act for the sale of the Agreement Shares specified in such Registration Notice (less any shares to be purchased pursuant to Section 10(f) below) and shall use its best efforts to cause such registration statement to become effective and remain in effect for the Required Effective Period for public sale in accordance with the method of disposition specified by you, provided, however, that the Company shall not be required to file a "shelf" registration except on Form S-3 (or any successor to such Form). The "Required Effective Period" shall be the greater of (A) the 180-day period following the effective date of such registration statement; and (B) unless the proposed plan of distribution involves a firm commitment underwritten public offering, the period required to dispose of all of the shares included in such registration statement assuming the sale in each three-month period of the maximum number of shares permitted to be sold under the limitations of Section 14 of this Agreement. If such method of disposition shall be an underwritten public offering, the Company may designate the managing underwriter of such offering. If, in the good faith opinion of the Board of Directors of the Company, registration would materially interfere with pre-existing contractual obligations to which the Company is then subject or financing arrangements or other material transactions involving the Company or any of its subsidiaries are pending at the time the Registration Notice is given, or are under active consideration by the Company, the Company may elect to defer registration for such period of time, in no event in excess of one hundred twenty (120) days from the date on which the Registration Notice was given, as in the good faith judgment of the Board of Directors of the Company is necessary in order to preclude adverse impact 5 6 upon such financing or other transaction. In the event of such deferral, if the shares to be registered are to be acquired on exercise of this Option following the date of such Registration Notice, the date on which the Option was exercised shall, for purposes of Section 2 and 7(d) hereof, be deemed to be the date on which the Registration Notice was given. The obligation of the Company under this Section 10 shall be deemed satisfied only when a registration statement covering all Agreement Shares specified in your Registration Notice and not purchased by the Company pursuant to Section 10(f) below shall have become effective and, (X) if the method of disposition you specify is a firm commitment underwritten public offering, all such Agreement Shares shall have been sold pursuant thereto; or (Y) if it is not such an offering, has remained in effect for the Required Effective Period specified herein or until the distribution of the Agreement Shares covered thereby is completed, whichever is shorter. (c) The Company shall not be obligated to register Agreement Shares pursuant to this Section 10 (i) more than once; (ii) in any period of twelve consecutive months in which any Agreement Shares have been registered pursuant to the exercise of a demand registration right granted pursuant to any other agreement between the Company and you or Oprah Winfrey; or (iii) at any time when the registration, offering or sale of Option Shares would violate any law, rule or regulation. For purposes of the foregoing sentence, (X) a registration under this Option or the corresponding provisions of the option agreement issued to Oprah Winfrey on the date hereof shall be aggregated (so that a registration initiated by you pursuant to this Section 10 shall decrease by one the number of demand registrations available to each of you and Oprah Winfrey pursuant said corresponding provisions, and vice versa) and (Y) any request for registration given by you shall, as a condition to its effectiveness, be confirmed in writing by Oprah Winfrey (provided that she is then competent to give such confirmation). If any Agreement Shares included in a registration statement filed pursuant to this Section 10 were issued upon the exercise of any other stock option granted to you or Oprah Winfrey pursuant to the Harpo Agreement, the number of "demand" registration rights granted to you and to Oprah Winfrey pursuant to such stock option or stock options shall each be reduced by one. (d) The Company shall be entitled to include in any registration statement referred to in this Section 10, for sale in accordance with the method of disposition you specify, shares of Common Stock to be sold by the Company for its 6 7 own account or by other security holders of the Company for their accounts, or both, except as and to the extent that, in the opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would adversely affect the marketing of the Agreement Shares to be sold. (e) The procedures for registration of Agreement Shares under this Section 10 shall conform to the following: (1) Obligations of the Company. If and whenever the Company is required by the provisions of Section 10 or 11 to effect the registration of Agreement Shares, the Company will: (i) Prepare and file with the Commission a registration statement with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the Required Effective Period or until the securities covered by such registration statement have been sold in accordance with the method of disposition specified by you in your Registration Notice, whichever is shorter, and prepare and file with the Commission such amendments or supplements to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective for the Required Effective Period or until the shares covered by such registration statement have been sold in accordance with such method of disposition, whichever is shorter; (ii) If the offering is to be underwritten in whole or in part, enter into a written underwriting agreement in form and substance reasonably satisfactory to the managing underwriter or underwriters of the public offering of such securities; (iii) Furnish to the shareholders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; (iv) Use its best efforts to register or qualify the shares covered by such registration statement under such state securities or blue sky laws of such jurisdictions as you may reasonably request within 20 days fol- 7 8 lowing the original filing of such registration statement, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (v) Notify you promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (vi) Notify you promptly of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information; (vii) Prepare and file with the Commission, promptly upon your request, any amendments or supplements to such registration statement or prospectus which, in the opinion of your counsel, are required under the Securities Act or the rules and regulations thereunder in connection with the distribution of the Option Shares by you; (viii) Prepare and promptly file with the Commission and promptly notify you of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such shares is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; (ix) In case you or any underwriters for you is required to deliver a prospectus at a time when the prospectus then in effect may no longer be used under the Securities Act, prepare promptly upon request such amendment or amendments to such registration statement and such prospectus or prospectus as may be necessary to permit compliance with the requirements of the Securities Act; (x) Advise you, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement; or the initiation 8 9 or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (xi) If such registration is by way of an underwritten public offering and if you so request, use its best efforts to cause counsel and the independent certified public accountants to the Company to furnish on the effective date of the registration statement and at the closing provided for in the underwriting agreement, (i) an opinion dated such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and to you, covering such matters with respect to the registration statement and prospectus and each amendment or supplement thereto, proceedings under state and federal securities laws and other matters relating to the Company, the securities included in the registration statement and the offer and sale of such securities as are customarily the subject of opinions of issuer's counsel provided to underwriters at or about the time such registration statement becomes effective and the sale is closed; and (ii) a letter dated each such date, from the independent certified public accountants of the Company, addressed to the underwriters, if any, and to you, stating that they are independent certified public accountants within the meaning of the Securities Act and providing such assurances as are customarily provided by the independent certified public accountants for an issuer in connection with the registration of securities, including information as to the period ending not more than five business days prior to the date of such letter with respect to the registration statement and prospectus, as the underwriters or you may reasonably request. If the furnishing of such opinion and/or letter causes Company to incur any additional cost or expense, you agree to reimburse Company therefor at the closing provided for in the underwriting agreement. (2) Obligations of Option Holder. It shall be a condition to the inclusion of any Agreement Shares in a registration statement that the holder thereof shall cooperate in the execution and filing of the registration statement and any necessary state securities law filings, and if the offering is to be underwritten, that such holder become a party to the underwriting agreement and, if so requested by the managing underwriter, execute and deliver Powers of Attorney and/or custodial agreements or other suitable 9 10 arrangements as the managing underwriter deems reasonably necessary in order to insure orderly sale of the shares. As among the holders of shares included in any registration statement, decisions respecting the terms and conditions of any underwriting agreements shall be made by the party initiating the registration; so that in the case of a registration required pursuant to a request by you under Section 10, determinations with respect to the underwriting agreement shall be made by you, in your reasonable judgment, after appropriate consultation with the Company and with other persons whose shares are to be included in such offering; and if you are party to a registration statement pursuant to Section 11, you shall not have the right to make such determinations, but shall be informed of them, and consulted with respect thereto. (f) Within ten (10) business days following receipt of a Registration Notice, the Company may elect, by written notice to you, to purchase all or any portion of the Agreement Shares specified by you in such Registration Notice for a purchase price equal to the closing price of the Common Stock on the date such notice was given. In the event that the Company elects to purchase any of the Agreement Shares specified by you in such notice, the delivery of such Agreement Shares against payment therefor shall take place on the fifth business day following receipt by you of the Company's election notice. In the event that the Company does not elect to purchase all of the Agreement Shares specified by you in such Registration Notice, the Company shall register under the Securities Act all the Agreement Shares not so purchased, in the manner provided above. 11. Incidental Registration. If the Company at any time (other than pursuant to Section 10 hereof) proposes to register any of its Common Stock under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4 or S-8 or another form not available for registering the Option Shares for sale to the public), it will give written notice at such time to you of its intention to do so. Upon your written request, given within 30 days after receipt of any such notice by the Company, to register any of the Option Shares that you have purchased, or will purchase on or before the effective date of such registration statement, pursuant to the exercise of the Option (which request shall state the intended method of disposition thereof), the Company will use its best efforts to cause such Option Shares to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent 10 11 requisite to permit the sale or other disposition by you of the Option Shares so registered. In the event that any registration pursuant to this Section 11 shall be, in whole or in part, an underwritten public offering of Common Stock, any request by you pursuant to this Section 11 to register Option Shares shall specify that either (i) such Option Shares are to be included in the underwriting on the same terms and conditions as the shares of Common Stock otherwise being sold through underwriters under such registration; or (ii) such Option Shares are to be sold in the open market without any underwriting, on terms and conditions comparable to those normally applicable to offerings of common stock in reasonably similar circumstances. The number of Option Shares to be included in such an underwriting may be reduced if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold therein by the Company or other security holders of the Company. Notwithstanding anything to the contrary contained in this Section 11, in the event that there is a firm commitment underwritten public offering of securities of the Company pursuant to a registration covering Option Shares and you do not elect to sell any Option Shares to the underwriters of the Company's securities in connection with such offering, you agree to refrain from selling any Option Shares during the period of distribution of the Company's securities by such underwriters and the period in which the underwriting syndicate participates in the after market; provided, however, that you shall, in any event, be entitled to sell Option Shares commencing on the 150th day after the effective date of such registration statement. 12. Expenses. (a) The expenses incurred by the Company in complying with the registration pursuant to Section 10 and all registrations pursuant to Section 11 hereof shall be paid as follows: (i) all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees of the National Association of Securities Dealers, Inc. and/or the New York Stock Exchange, transfer taxes, fees of transfer agents and registrars, costs of insurance and other costs not described in (ii) below shall be paid by the Company; and (ii) fees and expenses of your counsel, and all underwriting discounts and selling commissions applicable to the sale of Agreement Shares sold by you, and any additional 11 12 cost or expense incurred by the Company pursuant to your request under Section (10)(e)(1)(xi), shall be paid by you. 13. Indemnification. In the event of a registration of Agreement Shares under the Securities Act pursuant to Section 10 or 11 hereof, the Company will indemnify and hold you harmless against any losses, claims, damages or liabilities, joint or several, to which you may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Option Shares were registered under the Securities Act pursuant to Section 10 or 11, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse you for any legal or other expenses reasonably incurred in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished in writing by you for inclusion in such registration statement. In the event of a registration of any of the Agreement Shares under the Securities Act pursuant to Section 10 or 11 hereof, you will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer or director or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Agreement Shares were registered under the Securities Act pursuant to Section 10 or 11, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will 12 13 reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that you will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to the Company by you in writing for inclusion in such registration statement. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under this Section 13. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 13 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding the foregoing, any indemnified party shall have the right to retain its own counsel in any such action, but the fees and disbursements of such counsel shall be at the expense of such indemnified party unless (i) the indemni- 13 14 fying party shall have failed to retain counsel for the indemnified person as aforesaid or (ii) the indemnifying party and such indemnified party shall have mutually agreed to the retention of such counsel. It is understood that the indemnifying party shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for the indemnified party. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. If the indemnification provided for in the first two paragraphs of this Section 13 is unavailable or insufficient to hold harmless an indemnified party under such paragraphs in respect of any losses, claims, damages or liabilities or actions in respect thereof referred to therein, then each indemnifying party shall in lieu of indemnifying such indemnified party contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or actions in such proportion as appropriate to reflect the relative fault of the Company, on the one hand, and you, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or actions as well as any other relevant equitable considerations, including the failure to give any notice under the third paragraph of this Section 13. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the Company, on the one hand, or you, on the other, and to the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and you agree that it would not be just and equitable if contributions pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation which did not take account of the equitable considerations referred to above in this paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or action in respect thereof, referred to above in this paragraph, shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. 14 15 The indemnification of underwriters provided for in this Section 13 shall be on such other terms and conditions as are at the time customary and reasonably required by such underwriters. Upon your reasonable request, or upon the reasonable request of any underwriter of Agreement Shares, the Company shall obtain, if reasonably available, an insurance policy covering the risks described above in this Section 13 in an amount and with a deductible reasonably requested by you or such underwriter and naming you, any underwriter of such stock and any person controlling you or such underwriter as beneficiaries. The costs of obtaining and maintaining any such insurance shall be borne by the Company. 14. Sale of Option Shares. (a) You hereby agree to limit your sales of Agreement Shares so that, except for sales pursuant to underwritten, firm commitment public offerings, your sales of Agreement Shares, aggregated with sales of Agreement Shares by Oprah Winfrey, shall not exceed in any three-month period the greater of (i) one percent of the outstanding shares of Common Stock of the Company, as disclosed in its public report most recently filed with the Securities and Exchange Commission before the date of any sale and (ii) the average weekly reported volume of trading in Common Stock of the Company on the New York Stock Exchange and all other national securities exchanges during the four calendar weeks preceding the date of any sale; provided however, that upon any "Change in Control" (as such term is defined in Exhibit B of the Harpo Amendment) of the Company, the foregoing restriction shall be reduced or eliminated to the extent that any volume restrictions on resales of Common Stock that then apply to Roger King and/or any other person who was an executive officer of the Company prior to such Change in Control are more favorable than those afforded to you pursuant to this Option. Notwithstanding anything to the contrary contained in this Agreement, you shall not be entitled to register, sell or dispose of any Agreement Shares that are subject to any liens, claims, security interests and other encumbrances of any kind, unless and until the same are removed (or will be removed in conjunction with their sale). (b) In order to secure the repayment to the Company of the Secured Amount (as defined in the Harpo Amendment) pursuant to the Harpo Agreement, you hereby grant to the Company a first priority lien and security interest (the "Security Interest") in (i) your rights under this Option, (ii) all Option Shares now or hereafter issuable or issued pursuant to the exercise of the Option and (iii) all proceeds thereof (collectively, the "Stock Option Collateral"), provided that, unless and until the Company notifies you that the amount of Harpo's Share of Revenues (as 15 16 defined in the Harpo Amendment) which the Company reasonably projects at the time of such notice will be payable to Harpo would be inadequate to fully secure the Secured Amount (an "Additional Security Notice"; such notice specifying, in reasonable detail, the amount of such inadequacy (the "Security Shortfall")), you may exercise the Option, sell the Option Shares issued to you upon such exercise and retain the proceeds thereof without restriction. The Security Interest shall, in any event, be limited to such number of shares of Common Stock (and to the Option to the extent corresponding to such shares) that, as of the date of such Additional Security Notice, would, upon sale at a price per share equal to the closing price of the Common Stock on the New York Stock Exchange, generate Net Realizable Value equal to the projected amount of the Security Shortfall. The Net Realizable Value of an Option Share at any time shall be the fair market value of such share at such time less the sum of (i) the Option Price for such Option Share, and (ii) a provision for taxes equal to the difference between such fair market value and such Option Price (the "Option Gain") multiplied by the highest rate of federal and state income tax to which the Option Gain will be subject (with offset for deductibility of such state taxes). At any time that any Stock Option Collateral is subject to the Security Interest, you may obtain its release from the Security Interest by substituting alternate collateral, as more fully set forth in the Security and Pledge Agreement dated as of March 17, 1994 among you, the Company, Harpo, Jacobs & Company and Jeffrey D. Jacobs (the "Security and Pledge Agreement"). You hereby agree to take such steps as are reasonably requested by the Company to perfect the Security Interest, including the execution and filing of UCC-1 financing statements in such form as reasonably requested by the Company, the delivery to the Company of the certificates evidencing the Option Shares, the delivery to such third-party financial intermediaries as may from time to time be requested by the Company of written notice confirming the Security Interest and obtaining the written confirmation and agreement of any such financial intermediaries that such Option Shares and the proceeds thereof are subject to the Security Interest, and that such financial intermediaries shall hold the Option Shares and the proceeds thereof as agent for the Company, as pledgee, subject to such written confirmation and agreement. Upon the occurrence of an Event of Default (as such term is defined in the Security and Pledge Agreement), the Company shall have all of the rights and remedies of a secured party under the Uniform Commercial Code in all relevant jurisdictions with respect to the Stock Option Collateral. 15. Defaults. It shall constitute a breach of this Agreement by either party if such party shall fail or refuse to fully perform any of its obligations under this Agreement and 16 17 shall not have cured such failure or refusal within 30 days after receipt from the other party of written notice advising it of such failure or refusal, or, in the event that such failure or refusal is of a nature that cannot be cured within 30 days, then if such party shall not begin to cure the same within such 30-day period and thereafter diligently prosecute such cure to completion. 16. Successors; No Assignment. Each of the covenants, terms, provisions and agreements contained herein shall be binding upon and inure to the benefit of the parties' successors and assigns. Neither the Option, nor any of the rights granted to you pursuant hereto, may be transferred or assigned (including, without limitation, by operation of law), except by will or the laws of descent and distribution. 17. Withholding Taxes. In the event that the Company is required to withhold any Federal, state or local taxes in respect of the grant of the Option or in respect of the acquisition of any Option Shares, the Company may deduct from any payments of any kind otherwise due to you under the Harpo Agreement the aggregate amount of such Federal, state or local taxes required to be so withheld or, if such payments are insufficient to satisfy such Federal, state or local taxes or if no such payments are due or to become due, then, you will be required to pay to the Company, or to make other arrangements satisfactory to the Company regarding payment to the Company of, the aggregate amount of any such taxes. All matters with respect to the total amount of taxes to be withheld shall be determined by the Company in its sole discretion. 18. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. If any one or more provisions of this Agreement shall be found to be illegal or unenforceable in any respect, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 17 18 Please acknowledge receipt of this Option Agreement and agreement with the terms hereof by signing the enclosed copy of this Option Agreement in the space provided below. KING WORLD PRODUCTIONS, INC. By /s/ STEPHEN W. PALLEY --------------------------- Accepted and Agreed: /s/ JEFFREY D. JACOBS - --------------------------- Jeffrey D. Jacobs 18 19 King World Productions, Inc. OPTION EXERCISE FORM Jeffrey D. Jacobs hereby exercises his right to purchase ________ shares of Common Stock, $.01 par value, of King World Productions, Inc. pursuant to the option granted to him on March 17, 1994, memorialized in the Option Agreement, dated as of March 17, 1994, between him and King World Productions, Inc. Date:------------------ -------------------------- Jeffrey D. Jacobs Send a completed copy of this Option Exercise Form to: Vice President - Finance King World Productions, Inc. c/o King World Corporation 830 Morris Turnpike Short Hills, New Jersey 07078 EX-10.20 5 AGREEMENT DATED AS OF JUNE 2, 1988 1 CONFIDENTIAL TREATMENT (LOGO) Buena Vista International, Inc. EXHIBIT 10.20 June 2, 1988 Lintas International Limited One Dag Hammarskjold Plaza New York, New York 10017 RE: LICENSE TO PRODUCE AND TELECAST TELEVISION SERIES BASED ON "WHEEL OF FORTUNE" AND "JEOPARDY!" Ladies/Gentlemen: This letter will confirm the terms and conditions of the agreement between you, Lintas International Limited (hereinafter referred to as "Lintas"), with offices at One Dag Hammarskjold Plaza, New York, New York 10017, acting as agent for "UNILEVER" (hereinafter referred to as "UNILEVER"), with offices at Burgemaster, S'Jacobplain #1, 3015 CA, Rotterdam, The Netherlands and Buena Vista International, Inc. (hereinafter referred to as "BVI"), with a head office at the address noted above, acting as agent for KING WORLD F.S.C. CORPORATION (hereinafter referred to as "KING WORLD"), with its head office at 830 Morris Turnpike, Short Hills, New Jersey 07078, to enter into a licensing agreement for certain rights in the television game show properties known in the United States of America as "WHEEL OF FORTUNE" (hereinafter referred to as "WHEEL") and "JEOPARDY!" (hereinafter referred to as "JEOPARDY"). 1. GRANT OF RIGHTS (a) KING WORLD hereby grants to UNILEVER the sole and exclusive right to produce and to exhibit on free television only, whether by way of over-the-air broadcast television, cable television and/or satellite television, in the Territory (as defined below) during the License Term of this Agreement, television series based on the formats of WHEEL and JEOPARDY (hereinafter referred to as "a Series" and collectively "the Series"). (b) UNILEVER shall have the right to produce such number of thirty (30) minute episodes of each of the Series, for telecast once in such countries of the Territory, as it may determine, and may cause each such episode to be telecast such additional number of times in such country as KING WORLD and UNILEVER may agree. (c) UNILEVER shall have the right, subject to third party restrictions, to advertise and promote the Series in the press and other media of communications; provided, however, that no clip of the Series shall exceed four (4) minutes in length. (d) The grant of rights to JEOPARDY and WHEEL is limited to the use 2 CONFIDENTIAL TREATMENT Page 2 June 2, 1988 Lintas International of the title, names, set designs, lighting designs, graphic designs, decorations, colors, equipment and the rules of the games for JEOPARDY and WHEEL (the "Proprietary Elements"), as these television series are distributed by KING WORLD in the United States of America. KING WORLD hereby advises UNILEVER that the title "WHEEL OF FORTUNE" (in Italian translation) is currently registered to Rete Italia; the use of the title "WHEEL OF FORTUNE" in the French translation is subject to possible restrictions which have been addressed in the license agreement referred to in Paragraph 8 of this Agreement and a third party has registered the name WHEEL OF FORTUNE (in Spanish translation) in international class 41 in Spain. KING WORLD is not aware of any other possible legal restrictions on the use of such titles in any other countries of the Territory. KING WORLD represents and warrants that its licensor has registered the trademark for the name "WHEEL OF FORTUNE" for television programming in the following territories: France (in English translation) and United Kingdom (applied for only). (e) The Proprietary Elements in the format of the Series produced by UNILEVER shall at all times conform to the analogous elements of the United States versions of WHEEL and JEOPARDY. In order to enable KING WORLD to ensure such conformity, prior to UNILEVER's initial telecast of the Series in any country of the Territory, UNILEVER shall submit to KING WORLD, for KING WORLD's licensor's approval, photographs or artist's renditions, pictures and script of the prototype episode of the Series. UNILEVER shall make such modifications to its prototype as KING WORLD may require to achieve such conformity. Following approval of such prototype, UNILEVER shall not depart from such prototype in its production of subsequent episodes of the Series in that country. (f) KING WORLD expressly reserves all rights that are not expressly granted herein, including without limitation all television rights not referred to in Paragraph 1(a), all subsidiary and ancillary rights, all merchandising rights, and all other right, title and interest, in and to the names of WHEEL, JEOPARDY and the Series and the Proprietary Elements, and KING WORLD and/or its licensor shall be free to exploit these rights in any fashion it shall deem appropriate. KING WORLD and/or its licensor may, or may authorize any third parties to, reproduce any of the Proprietary Elements without any compensation to UNILEVER therefor. (g) UNILEVER may produce the Series in any language of the country in which the Series will be telecast. Unilever shall notify KING WORLD in writing of any translation of the titles WHEEL and JEOPARDY. KING WORLD shall have the right to approve any translation of the titles WHEEL and JEOPARDY prior to their use in the Territory and KING WORLD's licensor shall own the rights to such translations and shall have the right to register and protect all involved trademarks and service marks. UNILEVER shall not dub or subtitle any episodes of the Series into other languages for telecast purposes. UNILEVER shall not telecast any version of either of the Series in any language in a country other than the country where it 3 CONFIDENTIAL TREATMENT Page 3 June 2, 1988 Lintas International had its original telecast (including for these purposes contiguous countries that are functionally part of the same market) without KING WORLD's prior written consent. (h) UNILEVER may sublicense the right to produce and to exhibit the Series; provided, however, any such agreement must preserve all of KING WORLD's and its licensor's rights as set forth herein and in no way may such sublicense contravene the terms and conditions of this Agreement. Subject to the preceding sentence, UNILEVER may not assign this Agreement or any of its rights or obligations hereunder. 2. TERRITORY The rights granted hereunder shall include all countries specified in Territory A and if UNILEVER exercises its option pursuant to Paragraph 11 below, the countries included in Territory B. Territory A shall include Albania, Andorra, Austria, Belgium, Bulgaria, Czechoslovakia, Denmark, Finland, France, German Democratic Republic (GDR), Federal Republic of Germany (FRG) (only for JEOPARDY; the rights to WHEEL are specifically excluded), Greece, Hungary, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Spain, Sweden, Switzerland, Union of Soviet Socialist Republics (USSR), United Kingdom (only for WHEEL; the rights to JEOPARDY are specifically excluded), Vatican and Yugoslavia. Territory B shall include the entire world excluding the Territory A countries, Australia and New Zealand (for WHEEL only), Canada, the United States of America including the Commonwealth of Puerto Rico (but excluding its other territories and possessions) and Bermuda. 3. LICENSE TERM The License Term shall be for a period of five (5) years. The License Term commenced on January 1, 1988, except where there is a delayed availability of the rights as indicated below, and will expire on December 31, 1992 for the Territory A countries. The License Term will commence on January 1, 1989 and will expire on December 31, 1993 for the Territory B countries, if the relevant option is exercised. UNILEVER acknowledges that KING WORLD has previously licensed the rights to WHEEL and JEOPARDY in, among other countries, the United Kingdom and Italy. Due to this prior grant of rights in these Territory A countries, the License Terms in those countries will commence as follows: a) Italy for WHEEL and JEOPARDY, the License Term will commence on January 1, 1989 and b) United Kingdom for WHEEL, the License Term will commence on August 1, 1991. Notwithstanding the delayed availability of the rights in the foregoing countries, the License Terms in these countries will still expire on December 31, 1992. 4 CONFIDENTIAL TREATMENT Page 4 June 2, 1988 Lintas International In addition, UNILEVER acknowledges that by a grant of rights to it by Television Francaise 1 pursuant to an agreement specified in Paragraph 8 below, UNILEVER has acquired the rights to WHEEL in France. 4. LICENSE FEE (a) The Total License Fee for the rights herein granted is the greater of the guaranteed minimum license fee of [*] or a sum which equals the amount of all monies derived from the royalty payments which become due and owing according to the schedule as specified in the attached Exhibit A, which is incorporated herein by this reference, during the License Term. (b) UNILEVER shall remit to KING WORLD, unless previously paid as provided in Paragraphs 4(c) and (d) below, the minimum guaranteed license fee as follows: [*] (c) Subject to the other provisions of this Agreement, UNILEVER will pay KING WORLD a royalty in accordance with the attached Exhibit A for each episode per telecast (i.e., initial telecast and each repeat telecast, however, UNILEVER shall pay [*] of the original royalty rate for such repeat telecast if UNILEVER loses its barter advertising in such repeat telecast) of each of the Series, on a [*] basis, with respect to each year of the License Term in each country in Territory A. (d) The royalty payments specified above shall be applied against the guaranteed minimum payments as set forth in subparagraph (b) hereof during each year of the License Term. The guaranteed annual minimum payments are cumulative; therefore, in the event the amount of the royalty payments due to KING WORLD, when calculated using the schedule outlined in Exhibit A for a specific year of the License Term, exceeds the guaranteed minimum * Omitted pursuant to a request for confidential treatment. 5 CONFIDENTIAL TREATMENT Page 5 June 2, 1988 Lintas International payment due in that year, UNILEVER shall have the right to credit any cumulative excess against the future minimum guaranteed payments in reverse order (i.e., reduce the 1992 payment first, then the 1991 payment, etc.) 5. COMMENCEMENT OF PRODUCTION UNILEVER shall notify KING WORLD upon UNILEVER's determination to commence production of each of the Series in any particular country of the Territory. 6. ACCOUNTING STATEMENTS For each [*] of the License Term ("Accounting Period"), Licensee shall, by the [*] day after the end thereof, send to BVI a detailed Accounting Statement containing the aggregate Total Number of Episodes Telecast and the Total Number of Episodes Produced in each country in Territory A for each of the Series, which Statements shall include excerpts from UNILEVER's (or the appropriate sublicensees') telecast logs or affidavits of performance, together with any payment due with respect to such accounting period. The form of Accounting Statement submitted by UNILEVER shall be subject to the reasonable approval of BVI. All sums specified herein refer to United States dollars and all currencies received by UNILEVER must be converted to United States dollars before remittance to BVI. UNILEVER agrees to pay all conversion fees. Time is of the essence in the performance by UNILEVER of its accounting and payment obligations hereunder. All Accounting Statements shall be addressed to John Elia, Director of Finance Administration, Buena Vista International, Inc., 350 South Buena Vista Street, Burbank, California 91521 with an additional copy sent to Jonathan Birkhahn, Vice President, King World, 1700 Broadway, 35th Floor, New York, New York 10019. In the event a discrepancy is discovered regarding the number of episodes telecast during a particular year of the License Term, UNILEVER agrees to recompute and make immediate payment of any amounts, including interest charges, then due based on the actual and true telecasts of the episodes and in the event of a deficiency of [*] or more, to pay all reasonable costs and expenses incurred by BVI in the checking of such telecast usage by UNILEVER and any reasonable attorneys' fees incurred by BVI in enforcing the collection thereof. UNILEVER shall have the right to satisfy its obligations under this Paragraph by causing LINTAS to provide same, providing UNILEVER remains primarily obligated. 7. AUDIT UNILEVER shall keep accurate and complete books and records of all transactions relating to this Agreement. KING WORLD, at any time during the License Term and for a period of [*] thereafter, may by its representatives and/or designees, during regular business hours, have full access to audit all such books and records (but no more than [*] * Omitted pursuant to a request for confidential treatment. 6 CONFIDENTIAL TREATMENT Page 6 June 2, 1988 Lintas International and to make any copies thereof it may desire. The exercise by KING WORLD of any right to audit or the acceptance by KING WORLD of any Accounting Statement or payment shall be without prejudice to any of KING WORLD's rights or remedies and shall not bar KING WORLD from thereafter disputing the accuracy of any such Accounting Statement or payment and UNILEVER shall remain fully liable for any balance due under the provisions hereof; provided, however, any Accounting Statement or audit shall be deemed conclusive and no longer subject to challenge by KING WORLD, its representatives and/or designees [*] years from the date of its receipt by KING WORLD (except with respect to any challenges which are begun but not concluded prior to that date, which shall remain in effect until they are concluded). If an audit or checking reveals that UNILEVER has underreported or has misrepresented any item bearing upon the computation of the amounts payable to KING WORLD, UNILEVER agrees, in addition to recomputing and making immediate payment of the amounts due based on the actual and true items, to pay all costs and expenses incurred by KING WORLD for the audit checking and any attorneys' fees incurred by KING WORLD in enforcing the collection thereof. UNILEVER shall have the right to satisfy its obligations under this Paragraph by causing LINTAS to provide same, providing UNILEVER remains primarily obligated. KING WORLD acknowledges that any audit conducted under this Paragraph shall be limited to LINTAS so long as LINTAS maintains the books and records pertaining to such audit and further that if UNILEVER is to be the subject of a direct audit, such audit shall be conducted by Coopers and Lybrand (or UNILEVER's then principal accounting firm), which firm shall deliver to KING WORLD a certificate to the effect that the accountings in question are accurate with such exceptions as may be required. 8. INTERNATIONAL BARTER Reference is hereby made to that license agreement between KING WORLD and Television Francaise 1 ("TF1") signed by KING WORLD on April 13, 1988 and by TF1 on March 23, 1988, in which KING WORLD granted to TF1 the sole and exclusive right to produce and to exhibit on television in the Territory (as defined in the agreement) during the term of the agreement, a television series based upon the format of "WHEEL OF FORTUNE" ("LA ROUE DE LA FORTUNE") in the French language and which right has been assigned by TF1 to Unilever France Services, a corporation controlled by UNILEVER. That agreement is incorporated herein by this reference. Said agreement shall be treated as if it were a license agreement entered into under this Agreement. 9. RATINGS If an episode of either or both of the Series is telecast in a country and 1) UNILEVER receives any barter advertising time therein and 2) if such episode of the Series [*] then: * Omitted pursuant to a request for confidential treatment. 7 CONFIDENTIAL TREATMENT Page 7 June 2, 1988 Lintas International i. if the telecast occurs [*], the royalty payment due as indicated on the schedule in Exhibit A will be increased by [*]; and ii. if the telecast occurs [*], the royalty payment due as indicated on the schedule in Exhibit A will be increased by [*]. Notwithstanding the above, the royalty increases will not be applicable for the episodes of WHEEL in France broadcast through [*]. The method, time and source used to determine the ratings of each episode of the Series will be determined on a country-by-country basis and by using the local customary audience measurement methods subject to KING WORLD's and UNILEVER's mutual approval. 10. INCREASE IN ROYALTY PAYMENTS If by the Accounting Period ending December 31, 1990, the total guaranteed minimum amount as set forth in Paragraph 4 above is exceeded by the royalty payments due under Exhibit A, the royalty payments due for episodes of WHEEL in France will be increased from [*] to [*] per episode telecast during 1991 and from [*] to [*] per episode telecast during 1992. The increases in royalty payments for telecasts of episodes of WHEEL in countries in Territory A other than France will be increased by [*] per episode telecast in 1991 and [*] per episode telecast in 1992. 11. OPTION Prior to January 1, 1989, KING WORLD shall refrain from licensing the rights set forth in Paragraph 1 for Territory B to a third party, and UNILEVER shall have an exclusive option to license such rights for Territory B (and for the entire Territory B only) exercisable upon prior written notice received by KING WORLD no later than December 31, 1988; provided that the negotiations regarding the amount of the royalty payments for each country in Territory B and the guaranteed minimum license fee must be completed to the mutual satisfaction of KING WORLD and UNILEVER as a condition to UNILEVER's right to exercise the option. If such negotiations are not completed and UNILEVER has not exercised the option by December 31, 1988, then KING WORLD shall be free to enter into such licenses with any third parties in Territory B without any further obligation to UNILEVER whatsoever. 12. TAXES UNILEVER shall pay and hold KING WORLD harmless from, all taxes (excluding KING WORLD's income and franchise taxes), censorship charges, or other * Omitted pursuant to a request for confidential treatment. 8 CONFIDENTIAL TREATMENT Page 8 June 2, 1988 Lintas International charges now or hereafter imposed or based upon the production, rental, delivery, license, exhibition, possession or use by UNILEVER hereunder of any materials furnished by KING WORLD or the materials produced by UNILEVER hereunder. Payment withholding or deduction by UNILEVER of the foregoing shall in no way reduce the payments due KING WORLD hereunder. To the extent that payment of any of the foregoing is advanced by KING WORLD, UNILEVER shall reimburse KING WORLD on demand, and upon the failure of UNILEVER to do so, KING WORLD shall have all the remedies available to it in law or equity for the collection of unpaid License Fees, as well as all other remedies provided by law or equity, including any offset rights. 13. WARRANTIES (a) KING WORLD represents and warrants that (i) it has not previously granted to any other party any of the rights herein conveyed except as expressly set forth in Paragraph 3 and (ii) BVI is duly authorized and acting agent of KING WORLD, with all authority to receive payments and conduct all other acts contemplated by this Agreement. (b) UNILEVER represents and warrants that no part of the Series produced by it will infringe upon or violate the rights or interest of any person, nor will such Series defame, libel, or slander or invade the privacy of any person and the Series will be produced in accordance with all applicable laws, requirements, contracts, rules and regulations. 14. DROIT MORAL It is agreed that in the adaption of the productions the "Droit Moral" of the creators of the formats may not be violated, provided however, that no interruption of the program solely for advertising and promotion purposes shall be deemed to be such a violation and that KING WORLD hereby consents to any such interruptions decided in UNILEVER's sole discretion. 15. GOODWILL, TRADEMARK, COPYRIGHT (a) UNILEVER hereby acknowledges and agrees that (i) the names of WHEEL and JEOPARDY and of the Series and the Proprietary Elements are unique and original and have acquired a secondary meaning and that KING WORLD and/or its licensors are the owners and/or controllers thereof and of the substantial and valuable good will associated therewith; (ii) UNILEVER shall not at any time dispute or contest, directly or indirectly, the exclusive right, title and interest of KING WORLD and/or its licensors in and to WHEEL, JEOPARDY, the Series or the Proprietary Elements or the copyrights, trade names or trademarks with respect thereto except to the extent of the rights expressly granted to UNILEVER under this Agreement; and (iii) UNILEVER shall, at any time, whether during or after the License Term, execute any documents reasonably required by KING WORLD to confirm KING WORLD's (or its licensors') ownership rights as set forth herein. 9 CONFIDENTIAL TREATMENT Page 9 June 2, 1988 Lintas International The provisions of this Paragraph 15(a) shall not apply except to the extent that such provisions do not infringe European Community Law from time to time in effect, provided that if at a given time such provisions are so inapplicable, then in the event that UNILEVER shall take any action inconsistent with any of the acknowledgements and agreements that would have been made by UNILEVER but for such inapplicability, KING WORLD shall, at its option, have the right to terminate the License Term by giving UNILEVER not less than 60 days' prior written notice to such effect. In the event of such a termination, the minimum guaranteed licensee fee payable by UNILEVER pursuant to Paragraph 5(b) with respect to the calendar year of the License Term during which such termination takes effect shall be directly prorated. (b) Whether or not there is a change in European Community law as described above, UNILEVER shall cooperate with KING WORLD in the execution, filing and prosecution of any trademark, copyright or design application that KING WORLD may desire to file, relating to WHEEL, JEOPARDY, the Series or the Proprietary Elements. (c) The parties hereby agree that (i) KING WORLD and its licensors may, in their sole and absolute discretion, take such action (including without limitation the commencement of litigation) to stop any infringement of any of their rights in or to WHEEL, JEOPARDY, the Series or the Proprietary Elements, as they deem appropriate; and (ii) UNILEVER shall fully cooperate with KING WORLD and its licensors to prevent such infringement and, if requested by any of them, shall at KING WORLD's expense join with KING WORLD or such licensor as a party to any action brought by KING WORLD or such licensor for such purpose. 16. CREDITS The Series shall be exploited with a separate credit reading: "Based upon WHEEL OF FORTUNE (or JEOPARDY! as the case may be) produced in the United States by MERV GRIFFIN ENTERPRISES, a unit of COLUMBIA PICTURES ENTERTAINMENT, INC. and Distributed in association with KING WORLD and BUENA VISTA INTERNATIONAL, INC.", in an adequate translation. 17. CREATIVE APPROVALS MERV GRIFFIN ENTERPRISES, the licensor of KING WORLD, shall have prior approval over the principle creative elements of the production of either of the Series in each country in Territory A and/or Territory B and no material changes to the television format rights, including but limited to the title, host, set designs, lighting designs, graphic designs, decorations, colors, equipment and rules of WHEEL and JEOPARDY shall be 10 CONFIDENTIAL TREATMENT Page 10 June 2, 1988 Lintas International made without MERV GRIFFIN ENTERPRISES' prior approval in writing. MERV GRIFFIN ENTERPRISES shall exercise its rights of approval in a good faith manner. KING WORLD will act as an intermediary for UNILEVER in obtaining the foregoing approvals. 18. OWNERSHIP Title in and to all or part of the rights licensed to UNILEVER hereunder shall at all times remain in KING WORLD and/or its licensor, and the trademarks and other intellectual property embodied in all of such rights shall at all times remain vested in KING WORLD and/or its licensor, subject only to the uses granted herein. Possession of any of the above by UNILEVER shall be solely for the purpose of exercising its rights hereunder. UNILEVER shall not and agrees not to impair KING WORLD's and/or its licensor's title, interest or rights therein or to create a lien or encumbrance thereon or to in any manner perform any act in derogation of such rights, interests and title in KING WORLD and/or its licensor. 19. OWNERSHIP OF MATERIALS PRODUCED OR CREATED BY UNILEVER Any and all materials produced by UNILEVER for the telecast of either of the Series will become the exclusive property of KING WORLD and/or its licensor, including without limitation, all videotapes, any advertising and/or promotional meterials (e.g., trailers, print advertising) and any and all other materials related to the Series. UNILEVER shall promptly furnish and/or execute any document requested by KING WORLD in evidence of such exclusive ownership rights and interest in KING WORLD. Any and all materials relating to each of the Series (including, without limitation, videotapes, sound tracks and advertising and promotional materials) remaining in UNILEVER's possession at the expiration or other termination of the License Term shall be returned by UNILEVER, shipping or delivery charges prepaid, immediately following such expiration or other termination, unless otherwise provided, either directly to KING WORLD or to such address as KING WORLD may designate. KING WORLD may elect, at its sole option, to require UNILEVER by written notice to destroy or erase any material and to furnish an affidavit certifying that such destruction or erasure has occurred executed by senior executive officers of UNILEVER. 20. INDEMNIFICATION Each party agrees to indemnify and hold harmless the other (including, in the case of KING WORLD, its licensors) from and against any and all loss, 11 CONFIDENTIAL TREATMENT Page 11 June 2, 1988 Lintas International damage, liability, cost and expenses, including reasonable attorneys' fees, incurred by the other as a result of, or arising out of, or in connection with a breach or an alleged breach of any representation or warranty or the failure or the alleged failure to perform any agreement to be performed pursuant to this Agreement. 21. DEFAULT/BREACH: If UNILEVER (1) fails or refuses to perform any of its obligations hereunder or breaches any provision hereof, and if such default or breach is not cured within fourteen (14) days after written notice thereof to UNILEVER from KING WORLD, of (2) becomes insolvent or a petition under any Bankruptcy Act shall be filed by or against UNILEVER or if any property of UNILEVER is attached and such attachment is not released within ten (10) days after the date of attachment or if UNILEVER executes an assignment for the benefit of creditors or if a receiver, custodian, liquidator or trustee is appointed for UNILEVER or (3) attempts to make or makes any assignment, transfer or sublicense of the Agreement without KING WORLD's prior written consent, KING WORLD, in addition to its other rights and remedies under law or equity, may, at its option, declare this Agreement breached, make all License Fees and any other monies then due or to become due hereunder immediately due and payable plus interest on any late payments at the rate of two percent (2%) over the prime interest rate charged by the Bank of America from time to time (but in no event higher than the maximum rate of interest then permitted by law), suspend the license granted in this Agreement, suspend the right to telecast the Series until such default is cured and/or terminate this Agreement. In the event this Agreement is terminated under any of the provisions contained in this paragraph, all rights herein granted to UNILEVER shall terminate and automatically revert to KING WORLD. The exercise of any or all of the foregoing remedies by KING WORLD shall not operate as a waiver on the part of KING WORLD of its right to exercise any other remedies available to KING WORLD under this Agreement, at law or equity, and all of the foregoing remedies shall be deemed cumulative. 22. NOTICES Except as may be specifically provided to the contrary elsewhere in this Agreement, all notices and communications required or appropriate hereunder shall be deemed given when deposited, postage or toll charges prepaid, in any post office or post office box or telegraph office in the United States or in the Territory, addressed to BVI, attention: John Reagan, Senior Vice President, Business and Legal Affairs at the address specified on page one (1) hereof with an additional copy to KING WORLD, attention: Jon Birkhahn, Vice President, Business and Legal Affairs at 12 CONFIDENTIAL TREATMENT Page 12 June 2, 1988 Lintas International 1700 Broadway, New York, New York 10019 or LINTAS at the addresses appearing above or at such other addresses as may hereafter be designated in writing to the other party. 23. ILLEGALITY If any provision hereof is held to be illegal or unenforceable, this Agreement shall remain in full force and effect, except that such provision shall be deemed deleted or modified, as may be appropriate, in order to remove such illegality or unenforceability. 24. RELATIONSHIP OF THE PARTIES Nothing herein contained shall be construed to create a partnership or joint venture among the parties hereto or to make any of the parties the agent of the other, except as expressly stated herein. None of the parties shall be or become liable or bound by any representation, act, omission or agreement whatsoever of the other which may be contrary to the provisions of this Agreement. 25. WAIVER No waiver by any of the parties hereto of any failure by any of the parties to keep or perform any covenants or conditions of this Agreement shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other covenant or condition. 26. RENEWAL If during the License Term, or for a period of [*] thereafter, KING WORLD elects to grant to other parties for an additional license period, for Territory A (or any country constituting a part of that Territory) and/or (if the option referred to in Paragraph 11 above has been exercised) Territory B (or any country constituting a part of that Territory), any of the rights granted herein to UNILEVER, KING WORLD shall negotiate exclusively with UNILEVER in good faith for a period of up to [*] regarding the terms for such a renewal. If such a renewal agreement is not reached within [*], KING WORLD shall have the right to grant such rights for such additional period and for such country to any third party without any further obligation to UNILEVER. KING WORLD acknowledges and agrees that UNILEVER's rights under this Paragraph 26 shall extend to such rights to the Series as KING WORLD may hereafter acquire from its licensor if KING WORLD in fact elects to grant such rights to other parties. 27. PREMIUM RIGHTS In the event that, during the License Term or any extension thereof in Territory A and/or, if the relevant option is exercised, Territory B, KING * Omitted pursuant to a request for confidential treatment. 13 CONFIDENTIAL TREATMENT Page 13 June 2, 1988 Lintas International WORLD elects to grant merchandising rights in the nature of premium rights in connection with WHEEL and/or JEOPARDY to any other advertising agency in its capacity as such, it will first offer any such opportunity to UNILEVER by notice to Mr. Lawrence E. Lamattina of LINTAS at the address noted on page one hereof and Mr. Lamattina will within two (2) business days of receipt respond to KING WORLD, as appropriate, by either accepting or rejecting such offer, provided that UNILEVER shall be entitled to its rights under this Paragraph 27 only so long as Mr. Lamattina is employed as a senior executive of LINTAS. 28. BI-WEEKLY UPDATES ON LICENSING ACTIVITIES UNILEVER agrees to designate a representative at LINTAS to give bi-weekly updates to a representative designated by KING WORLD regarding the status of all licensing activities undertaken pursuant to this Agreement. 29. HEADINGS The headings of this Agreement or any paragraph hereof are inserted only for the purpose of convenient reference and it is recognized that they may not accurately or adequately describe the contents of the paragraphs which they head. Such headings shall not be deemed to limit, cover, or in any way affect the scope, meaning, or intent of this Agreement or any part thereof, nor shall they otherwise be given any legal effect. 30. AMENDMENTS AND MODIFICATIONS This Agreement may not be modified or waived in whole or in part except in writing signed by or on behalf of KING WORLD and UNILEVER. 31. GOVERNING LAW This Agreement shall be construed and interpreted in accordance with the laws of the State of New York applicable to contracts made and fully to be performed therein, independent of the forum in which this Agreement or any part thereof may come up for construction, interpretation or enforcement. All actions, proceedings or litigation brought by the parties hereto against the others relating to this Agreement shall be instituted and prosecuted within the State of New York and the parties hereby agree and submit to the jurisdiction of its courts solely for such purposes. 32. ENTIRE AGREEMENT This Agreement is complete and embraces the entire understanding of and among the parties, all prior understandings in connection with the subject matter herein contained, either oral or written, having been merged herein or cancelled. No representations have been made by the parties hereto except those expressly set forth herein. 14 CONFIDENTIAL TREATMENT Page 14 June 2, 1988 Lintas International If the foregoing correctly sets forth your understanding, please sign in the space provided below. Very truly yours, BUENA VISTA INTERNATIONAL INC. KING WORLD F.S.C. CORPORATION (as agent FOR KING WORLD F.S.C. CORPORATION) By /s/ Signed By /s/ STEPHEN W. PALLEY Date 1/25/89 Date 1/25/89 ACCEPTED AND AGREED TO: LINTAS INTERNATIONAL LIMITED UNILEVER NV (as agent FOR UNILEVER NV) By /s/ LAWRENCE LAMATTINA By_______________________ Date Jan. 17, 1989 Date_____________________ 15 CONFIDENTIAL TREATMENT EXHIBIT A Attached to and forming a part of the June 2, 1988 Letter of Agreement between LINTAS INTERNATIONAL LIMITED and BUENA VISTA INTERNATIONAL, INC. WHEEL OF FORTUNE and JEOPARDY LICENSE FEE SCHEDULE (Royalty Payment in U.S. Dollars Per Episode Per Telecast) Per Calendar Year 16 [KING WORLD LOGO] As of June 13, 1989 UNILEVER BV c/o Lintas International Limited One Dag Hammarskjold Plaza New York, New York 10017 RE: LICENSE TO PRODUCE AND TELECAST TELEVISION SERIES BASED ON "WHEEL OF FORTUNE" AND "JEOPARDY!" Ladies/Gentlemen: This letter, when accepted by you, shall constitute an amendment to the agreement dated June 2, 1988 (the "Agreement") between King World F.S.C. Corporation ("King World") and UNILEVER BV. 1. Notwithstanding paragraph 1(b) of the Agreement, KING WORLD authorizes UNILEVER to sublicense the production by Canale 5 of episodes of WHEEL of forty-five (45) minutes in duration for broadcast in Italy, San Marino and Vatican. 2. Paragraph 2 of the Agreement is amended to read in its entirety as follows: "2. TERRITORY The rights granted hereunder shall include all countries specified in Territory A and if UNILEVER exercises its option pursuant to Paragraph 11 below, the countries included in Territory B. Territory A shall include Albania, Andorra, Austria, Belgium, Bulgaria, Czechoslovakia, Denmark, Finland, France, German Democratic Republic (GDR) (including East Berlin), Federal Republic of Germany (FRG) (including West Berlin), Greece, Hungary, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, Norway, Poland, Portugal, Romania, San Marino, Spain, Sweden, Switzerland, Union of Soviet Socialist Republics (USSR), United Kingdom (only for WHEEL; the rights to JEOPARDY are specifically excluded), Vatican and Yugoslavia. Notwithstanding the foregoing, the rights granted hereunder with respect to WHEEL in German Democratic Republic, Federal Republic of Germany, Austria, Switzerland, Luxembourg, 17 Page 2 June 13, 1989 Lintas International Liechtenstein, South Tirol, Czechoslovakia, Hungary, Romania and Poland shall be limited to versions of such Series in languages other than German. Territory B shall include the entire world excluding the Territory A countries, Australia and New Zealand (for WHEEL only), Canada, the United States of America including the Commonwealth of Puerto Rico (but excluding its other territories and possessions) and Bermuda." 3. The episodic royalties set forth in Exhibit A with respect to productions of WHEEL in Ireland during 1988, 1989 and 1990 are replaced by the phrase "NA." 4. The phrase "the United Kingdom" appearing on the second and sixth lines of the second paragraph of Paragraph 3 of the Agreement is amended to read "the United Kingdom and Ireland," and the word "August" appearing in such sixth line is amended to read "January." 5. UNILEVER acknowledges that is has not exercised the option contemplated by paragraph 11 of the Agreement. 6. UNILEVER may satisfy its obligations under paragraph 17 of the Agreement by complying with the following procedures: (a) A production "bible" for each WHEEL and JEOPARDY! shall be created by UNILEVER for the approval of MGE. KING WORLD confirms that the "bible" created for the French (TF-1) version of WHEEL is pre-approved for use in the production of such Series in the other countries of the Territory. (b) MGE shall have prior approval over each of the following elements of each Series in each country of the Territory: i. Title ii. Rules iii. The use and role of the hosts(s) in the Series; UNILEVER need not obtain MGE's approval over the actual identity of the host in any version of either Series. iv. Photos or artists' renditions of: Set Design Lighting Design Graphic Design Decorations Colors Equipment 18 Page 3 June 13, 1989 Lintas International Elements prepared for approval by MGE shall be sent by UNILEVER to KING WORLD, Attention: Fred M. Cohen (or such other individual as may be designated by KING WORLD) for forwarding to the appropriate persons at MGE. Upon MGE's approval or KING WORLD'S receipt from MGE of requested changes, KING WORLD shall directly contact Larry Lamattina, Doug Gluck or any other individual designated by UNILEVER to relay such approval or changes. A production of either Series produced consistent with such elements, in the form approved by MGE, shall be deemed a "prototype" for purposes of paragraph 1(a) of the Agreement. (c) UNILEVER shall furnish KING WORLD with a VHS cassette (any format) of the pilot show for each Series in each country of the Territory, as well as one cassette of each such Series during each calendar quarter that such Series is in production. 7. UNILEVER acknowledges that, as members of the Interpublic Group of Companies, Lintas: Worldwide and E.C. Television may act as UNILEVER'S administrators and as UNILEVER'S agents in UNILEVER'S performance of this agreement. 8. E.C. Television is designated as UNILEVER'S direct liaison with KING WORLD and its licensors. KING WORLD, on behalf of itself and its licensors, agrees that all approvals called for in paragraphs 1(e), 1(g), and 17 of the Agreement and of paragraph 6(c) of this letter of amendment dated June 13, 1989 shall be given within 20 business days following receipt by KING WORLD of the applicable request for approvals and all accompanying materials (or 20 business days following the complete execution of this letter, if later); UNILEVER shall, in this connection, cause a copy of each such request and materials to be sent simultaneously to Merv Griffin Enterprises. KING WORLD'S failure to respond within such 20-day period shall constitute its consent. 19 9. Except as expressly modified hereby, the Agreement remains in full force and effect. Very truly yours, KING WORLD F.S.C. CORPORATION By: ----------------------- Dated: ----------------------- ACCEPTED: UNILEVER BV By: LINTAS INTERNATIONAL LIMITED By: ------------------------------- Date: ----------------------------- EX-10.22 6 AGREEMENT DATED JUNE 13, 1994 1 CONFIDENTIAL TREATMENT EXHIBIT 10.22 KING WORLD F.S.C. CORPORATION 830 Morris Turnpike Short Hills, New Jersey 07078 Dated as of June 13, 1994 Unilever NV c/o Mr. Doug Gluck Senior Vice President E.C. Television Inc. Greendon House 7 C-D Bayham Street London NW1 OEY England Dear Doug: Reference is made to the agreement between Unilever NV ("Unilever"), through its then agent Lintas International Limited ("Lintas"), and King World F.S.C. Corporation ("KW") through its then agent Buena Vista International, Inc. ("BVI"), dated June 2, 1988, as amended as of June 13, 1989 and as of September 19, 1991 (the "Original Agreement"). Unless otherwise specified, all defined terms herein shall have the meanings set forth in the Original Agreement. Except as otherwise specified herein, the amendments to the Original Agreement hereunder shall become effective on the commencement of the Extended Renewal Period (as defined in Paragraph A below). Unilever and KW agree to amend the Original Agreement as follows: A. The License Term shall be extended for the period January 1, 1995 through December 31, 1995 (the "Extended Renewal Period"). B. The guaranteed minimum license fee during the Extended Renewal Period shall be equal to [*]. C. With respect to telecasts of the Series [*] the royalty payable to KW by Unilever for each telecast of each of the Series during the Extended Renewal Period shall be [*]. * Confidential treatment requested. 2 CONFIDENTIAL TREATMENT D. With respect to all countries within Territory A [*] (the royalities for which are set forth in Paragraph C above), the Royalty Rate for each such country during the Extended Renewal Period shall be [*]. E. As of the date hereof, Paragraph 16 of the Original Agreement is deleted in its entirety and replaced with the following: "16. CREDITS. The Series shall be exploited with a separate credit reading: "Based upon WHEEL OF FORTUNE (or JEOPARDY! as the case may be) produced in the United States by COLUMBIA TRISTAR TELEVISION, a SONY PICTURES ENTERTAINMENT COMPANY, and Distributed by KING WORLD PRODUCTIONS, INC." (or such other similar legend as KW may from time to time advise Unilever), in an adequate translation." Except as modified hereunder, the Original Agreement shall remain in full force and effect. Very truly yours, KING WORLD F.S.C. CORPORATION By: /s/ JONATHAN BIRKHAHN --------------------------- ACCEPTED AND AGREED TO: UNILEVER NV By: E.C. TELEVISION INC. By: /s/ LAWRENCE LAMATTINA ------------------------ * Confidential treatment requested. -2- EX-21.1 7 LIST OF SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 List of Subsidiaries of the Registrant American Journal Inc., a New York corporation. Buffalo Management Enterprises Co. Inc., a New York corporation Camelot Entertainment Sales, Inc., a New Jersey corporation. Camelot Entertainment Sales of Delaware, Inc., a Delaware corporation. Four Crowns Inc., a Delaware corporation Inside Edition Inc., a New York corporation. K.W.M., Inc., a Delaware corporation. King World Corporation, a Delaware corporation King World Direct Inc., a Delaware corporation King World FSC Corporation, a Virgin Islands corporation. King World/RWS Inc., a New York corporation King World/LBS Inc., a New York corporation King World Merchandising, Inc., a Delaware corporation. Quickstead Inc., a California corporation. Topper Productions Inc., a California corporation 5 EX-23.1 8 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated October 31, 1994 included in this Form 10-K, into the Company's previously filed Registration Statements File No. 33-30694, No. 33-30695, No. 33-71696 and No. 33-54691. ARTHUR ANDERSEN LLP New York, New York November 22, 1994 6 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 YEAR AUG-31-1994 SEP-01-1993 AUG-31-1994 341,857 0 45,643 4,412 0 404,821 10,631 (9,099) 569,562 110,485 0 497 0 0 458,580 569,562 477,615 480,659 279,465 353,081 0 0 0 140,839 52,539 88,300 0 0 0 88,300 2.33 2.33
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