-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PO7tkngvjLE1sA0osvZ3Utldi0oIKUx6ds9qvEE6xGnDRZEeq0aGTu0nXUIv8wA6 ApzILt0Cw67q7HIWglHefA== 0000898430-95-002664.txt : 19981222 0000898430-95-002664.hdr.sgml : 19981222 ACCESSION NUMBER: 0000898430-95-002664 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951219 DATE AS OF CHANGE: 19981221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DISNEY WALT CO CENTRAL INDEX KEY: 0000029082 STANDARD INDUSTRIAL CLASSIFICATION: 7990 IRS NUMBER: 950684440 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-04083 FILM NUMBER: 95602713 BUSINESS ADDRESS: STREET 1: 500 S BUENA VISTA ST CITY: BURBANK STATE: CA ZIP: 91521-6205 BUSINESS PHONE: 8185697903 MAIL ADDRESS: STREET 1: 500 SOUTH BUENA VISTA STREET CITY: BURBANK STATE: CA ZIP: 91521- FORMER COMPANY: FORMER CONFORMED NAME: DISNEY WALT CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DISNEY WALT PRODUCTIONS DATE OF NAME CHANGE: 19860221 10-K 1 FORM 10-K FOR FISCAL YEAR END 09/30/95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1995 Commission File Number 1-4083 [LOGO OF THE WALT DISNEY COMPANY] Incorporated in Delaware I.R.S. Employer Identification No. 500 South Buena Vista Street, 95-0684440 Burbank, California 91521 (818) 560-1000 Securities Registered Pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - - ------------------- --------------------- Common Stock, $.025 par value New York Stock Exchange Pacific Stock Exchange Swiss Stock Exchange Tokyo Stock Exchange Securities Registered Pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Rule 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. ____ As of November 30, 1995, the aggregate market value of registrant's common stock held by non-affiliates (based on the closing price on such date as reported on the New York Stock Exchange-Composite Transactions) was $31.6 billion. All executive officers and directors of registrant and all persons filing a Schedule 13D with the Securities and Exchange Commission in respect to registrant's common stock have been deemed, solely for the purpose of the foregoing calculation, to be "affiliates" of the registrant. There were 524,843,804 shares of common stock outstanding as of December 15, 1995. PART I ITEM 1. BUSINESS The Walt Disney Company, together with its subsidiaries (the "Company"), is a diversified international entertainment company with operations in three business segments: Filmed Entertainment, Theme Parks and Resorts and Consumer Products. Information on revenues, operating income, identifiable assets and supplemental revenue data of the Company's business segments appears in the Consolidated Statement of Income and in Note 13 of Notes to Consolidated Financial Statements included in Item 8 hereof. The Company employs approximately 71,000 people. In July 1995, the Company and Capital Cities/ABC, Inc. ("Cap Cities") entered into a reorganization agreement, pursuant to which the Company expects to acquire Cap Cities in a transaction that is expected to be completed in 1996. Information on the business activities of Cap Cities appears in Note 2 of Notes to Consolidated Financial Statements included in Item 8 hereof. FILMED ENTERTAINMENT The Company produces and acquires live-action and animated motion pictures for distribution to the theatrical, television and home video markets and produces original television programming for the network and first-run syndication markets. In addition, the Company provides programming for and operates The Disney Channel, a pay television programming service and KCAL-TV, a Los Angeles, California television station. The Company also produces music recordings and live stage plays. The success of all the Company's theatrical motion pictures and television programming is heavily dependent upon public taste, which is unpredictable and subject to change without warning. In addition, filmed entertainment operating results fluctuate due to the timing of theatrical and home video releases. Release dates are determined by several factors, including timing of vacation and holiday periods and competition in the market. THEATRICAL FILMS Walt Disney Pictures and Television, a wholly-owned subsidiary of the Company, produces and acquires live-action motion pictures that are distributed under the banners Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures and Caravan Pictures. The Company's Miramax Film Corp. subsidiary distributes films under its own banner. In addition, the Company distributes films produced or acquired by the independent production companies Cinergi Pictures Entertainment, Interscope Communications and Merchant-Ivory Productions. The Company also produces animated motion pictures under the banner Walt Disney Pictures. The Company generally seeks to distribute approximately 20 to 30 feature films each year under the Company's various banners, including several live- action family feature films, one to two full-length animated films under the Walt Disney Pictures banner, and between 15 and 25 teenage and adult films under the other motion picture banners. In addition, the Company periodically reissues previously released animated films. As of September 30, 1995, the Company had released 311 full-length live-action features (primarily color), 33 full-length animated color features and approximately 536 cartoon shorts. The Company also expects that Miramax will independently acquire and produce approximately 30 films per year. The Company distributes and markets its filmed products through its own distribution and marketing companies in the United States and certain foreign markets. HOME VIDEO The Company directly distributes home video releases from each of its banners in the domestic market. In the international market, the Company distributes both directly and through foreign distribution companies. In addition, the Company acquires and produces original programming for -1- direct-to-video release. As of September 30, 1995, approximately 657 titles, including 203 feature films and 193 cartoon shorts and animated features were available to the domestic marketplace. Approximately 589 titles, including 293 feature films and 296 cartoon shorts and animated features were available to the international home entertainment market. NETWORK TELEVISION The Company's network television operation develops, produces and distributes television programming to network and other broadcasters, under the Buena Vista Television, Touchstone Television and Walt Disney Television labels. Program development is carried out in collaboration with a number of independent writers, producers and creative teams under exclusive development arrangements. Since 1991, the Company has focused on the development, production and distribution of half-hour comedies for network prime-time broadcast, including such series as Home Improvement, Ellen, If Not For You, Boy Meets World and Misery Loves Company. The Company seeks to syndicate in the domestic market those series that produce enough programs to permit syndicated "strip" broadcasting on a five-days-per-week basis. The Company licenses television series developed for United States networks in a number of foreign markets, including Germany, Italy, the United Kingdom, France, Spain and Canada. Walt Disney Television currently distributes two animated cartoon series for Saturday morning: Aladdin and Timon and Pumbaa. The Company also offers a variety of prime-time specials for exhibition on network television. The Company believes that its television programs complement the marketing and distribution of its theatrical motion pictures, the Walt Disney World destination resort, Disneyland and other businesses. PAY TELEVISION AND TELEVISION SYNDICATION The Company licenses a number of feature films to pay television services, including its wholly-owned subsidiary, The Disney Channel. The Company's Buena Vista Television subsidiary licenses the theatrical and television film library to the domestic television syndication market. Major packages of the Company's feature films and television programming have been licensed for broadcast and basic cable continuing over several years. The Company currently licenses its feature films for pay television on an output basis in several geographic markets, including the United Kingdom and Scandinavia, and has an arrangement with Showtime through 1996 for the United States. In 1993, the Company entered into an agreement to license to the Encore pay television service, over a multi-year period, exclusive domestic pay television rights to Miramax films beginning in 1994 and Touchstone Pictures and Hollywood Pictures films starting in 1997. The Company also produces first-run animated and live-action syndicated programming. The Disney Afternoon is a two-hour block of cartoons airing five days per week including Aladdin, Gargoyles, Darkwing Duck, Goof Troop and Bonkers. Tale Spin, Duck Tales and Chip'n Dale are also syndicated nationally. Live action programming includes: Live with Regis and Kathie Lee and Danny!, daily talk shows; Siskel & Ebert, a weekly motion picture review program; Disney Presents Bill Nye the Science Guy and Sing Me a Story With Belle, weekly educational programs for children; and Land's End, a weekly action program. Home Improvement, Blossom and Dinosaurs entered syndication in September 1995, joining The Golden Girls and Empty Nest in off-network syndication. Certain of the Company's television programs are also syndicated by the Company abroad, including The Disney Club, a weekly series that the Company produces for foreign markets. The Company's television programs are telecast regularly in many countries, including Australia, Brazil, -2- Canada, China, France, Germany, Italy, Japan, Mexico, Spain and the United Kingdom. The Company teamed with Compagnie Luxembourgeoise de Telediffusion S. A. to launch Super RTL, a new family-oriented channel in Germany in June 1995. THE DISNEY CHANNEL The Disney Channel, which has approximately 14.5 million subscribers, is the Company's nationwide premium television service. New shows developed for original use by The Disney Channel include dramatic, adventure, comedy and educational series, as well as documentaries and first-run television movies. In addition, entertainment specials include shows originating from both the Walt Disney World destination resort and Disneyland. The balance of the programming consists of products acquired from third parties and products from the Company's theatrical film and television programming library. The Disney Channel premiered in Taiwan in March 1995, with the launch of The Disney Channel (Taiwan), and in Europe in October 1995, with the launch of The Disney Channel UK. The Company is scheduled to begin broadcasting The Disney Channel in Australia in late 1996 and is exploring the development of The Disney Channel in other countries around the world. KCAL-TV The Company operates KCAL-TV, an independent commercial station on VHF channel 9 in the Los Angeles area. Its revenues are derived from the sale of advertising time to local, regional and national advertisers. WALT DISNEY THEATRICAL PRODUCTIONS In 1994, the Company produced a Broadway-style stage musical based on the animated feature film Beauty and the Beast. The stage adaptation is currently playing in three cities in the United States and overseas, and is scheduled to open in additional cities around the world beginning in 1996. HOLLYWOOD RECORDS Hollywood Records seeks to develop and market recordings from new talent across the spectrum of popular music, as well as soundtracks from the Company's live-action motion pictures. COMPETITIVE POSITION The Company's filmed entertainment businesses (including theatrical films, product distributed through the network, syndication and pay television and home video markets and The Disney Channel) compete with all forms of entertainment. The Company also competes to obtain creative talents, story properties, advertiser support, broadcast rights and market share, which are essential to the success of all of the Company's filmed entertainment businesses. A significant number of companies produce and/or distribute theatrical and television films, exploit products in the home video market and provide pay television programming service. The Company produces and distributes films designed for family audiences and believes that it is a significant source of such films. THEME PARKS AND RESORTS The Company operates the Walt Disney World(R) destination resort in Florida and the Disneyland Park(R) and the Disneyland Hotel in California. The Company earns royalties on revenues generated by the Tokyo Disneyland theme park. All of the theme parks and most of the associated resort facilities are operated on a year-round basis. Historically, the theme parks and resorts business experiences fluctuations in park attendance and resort occupancy resulting from the nature of vacation travel. Peak attendance and resort occupancy generally occur during the summer months when school vacations occur and during early-winter and spring holiday periods. -3- WALT DISNEY WORLD DESTINATION RESORT The Walt Disney World destination resort is located on approximately 29,900 acres of land owned by the Company 15 miles southwest of Orlando, Florida. The resort includes three theme parks (the Magic Kingdom, Epcot and the Disney-MGM Studios Theme Park), hotels and villas, an entertainment complex, a shopping village, conference centers, campgrounds, golf courses, water parks and other recreational facilities designed to attract visitors for an extended stay. The Company markets the entire Walt Disney World destination resort through a variety of national, international and local advertising and promotional activities. A number of attractions in each of the theme parks are sponsored by corporate participants through long-term participation agreements. MAGIC KINGDOM - The Magic Kingdom, which opened in 1971, consists of seven principal areas: Main Street, Liberty Square, Frontierland, Tomorrowland, Fantasyland, Adventureland and Mickey's Starland. These areas feature themed rides and attractions, restaurants, refreshment stands and merchandise shops. EPCOT - Epcot, which opened in 1982, consists of two major themed areas: Future World and World Showcase. Future World dramatizes certain historical developments and addresses the challenges facing the world today through major pavilions devoted to high-tech products of the future ("Innoventions"), communication and technological exhibitions ("Spaceship Earth"), and energy, transportation, imagination, life and health, the land and seas. World Showcase presents a community of nations focusing on the culture, traditions and accomplishments of people around the world. World Showcase includes as a central showpiece the American Adventure pavilion, which highlights the history of the American people. Other nations represented are Canada, Mexico, Japan, China, France, the United Kingdom, Germany, Italy, Morocco and Norway. Both areas feature themed rides and attractions, restaurants, refreshment stands and merchandise shops. DISNEY-MGM STUDIOS THEME PARK - The Disney-MGM Studios Theme Park, which opened in 1989, consists of a theme park, an animation studio and a production facility. The theme park centers around Hollywood as it was during the 1930's and 1940's and features Disney animators at work and a backstage tour of the production facilities in addition to themed food service and merchandise facilities and other attractions. The production facility consists of three sound stages, merchandise shops and a back lot area and currently hosts both feature film and television productions. RESORT FACILITIES - As of September 30, 1995, the Company owned and operated 12 resort hotels and a complex of villas and suites at the Walt Disney World destination resort, with a total of approximately 14,300 rooms. Disney's Boardwalk Resort, a mixed-use resort built around a turn-of-the-century Atlantic boardwalk theme, offering approximately 380 hotel rooms and additional Disney Vacation Club villas, and The Disney Institute, a resort community offering participatory programs and enriching experiences, are expected to open in 1996. In addition, Disney's Fort Wilderness camping and recreational area offers approximately 1,200 campsites and wilderness homes. Several of the resort hotels also contain conference centers and related facilities. Recreational activities available at the resort facilities include five championship golf courses, an animal sanctuary, tennis, sailing, water skiing, swimming, horseback riding and a number of noncompetitive sports and leisure time activities. The Company also operates three water parks: Blizzard Beach, River Country and Typhoon Lagoon. The Company has also developed a shopping facility known as the Disney Village Marketplace. Pleasure Island, an entertainment center adjacent to Disney Village Marketplace, includes restaurants, night clubs and shopping facilities. Currently under development are Celebration, a 5,000-acre town; Disney Cruise Lines, a cruise vacation line that will include two ships; Disney's Animal Kingdom, a themed wild animal adventure park incorporating live animals in natural habitats; Disney's Coronado Springs Resort, designed to serve the moderately priced hotel/convention market; a sports complex featuring amateur sporting events; and a motor speedway which will host Indianapolis style racing. -4- The downtown area of Celebration is scheduled to open during 1996, when limited residential lot sales are also expected to begin. At the Disney Village Marketplace Hotel Plaza, seven independently operated hotels are situated on property leased from the Company. These hotels have a capacity of approximately 3,700 rooms. Additionally, two hotels--the Walt Disney World Swan and the Walt Disney World Dolphin, with an aggregate capacity of approximately 2,300 rooms--are independently operated on property leased from the Company near Epcot. Another hotel, the 290-room Shades of Green on Walt Disney World Resort, is leased from the Company and operated by a non-profit organization as an armed forces recreation center. DISNEY VACATION CLUB In 1995, Disney Vacation Development, Inc., a wholly-owned subsidiary of the Company, completed its 497-unit Disney Vacation Club at the Walt Disney World Resort. In addition, 175 units of the Disney Vacation Club in Vero Beach, Florida opened in October 1995, and a 102-unit Disney Vacation Club on Hilton Head Island, South Carolina, and 377 Disney Vacation Club villas located at Disney's Boardwalk Resort are expected to open in 1996. Each facility is intended to be sold under a vacation ownership plan and operated partially as rental property until the units are completely sold. The Company has also acquired property for a planned resort in Newport Beach, California. DISNEYLAND The Company owns 330 acres and has under long-term lease an additional 39 acres of land in Anaheim, California. Disneyland, which opened in 1955, consists of eight principal areas: Toontown, Fantasyland, Adventureland, Frontierland, Tomorrowland, New Orleans Square, Main Street and Critter Country. These areas feature themed rides and attractions, restaurants, refreshment stands and merchandise shops. A number of the Disneyland attractions are sponsored by corporate participants. The Company markets Disneyland through national and local advertising and promotional activities. The Company also owns and operates the 1,100-room Disneyland Hotel near Disneyland. TOKYO DISNEYLAND The Company earns royalties on revenues generated by the Tokyo Disneyland theme park, which is owned and operated by Oriental Land Co., Ltd., an unrelated Japanese corporation. The park, which opened in 1983, is similar in size and concept to Disneyland and is located approximately six miles from downtown Tokyo, Japan. DISNEY DESIGN AND DEVELOPMENT Disney Design and Development, encompassing the Company's two major design and development organizations, Walt Disney Imagineering and Disney Development Company, provides master planning, real estate development, attraction and show design, engineering support, production support, project management and other development services for the Company's operations. COMPETITIVE POSITION The Company's theme parks and resorts compete with all other forms of entertainment, lodging, tourism and recreational activities. The profitability of the leisure-time industry is influenced by various factors which are not directly controllable, such as economic conditions, amount of available leisure time, oil and transportation prices and weather patterns. The Company believes its theme parks and resorts benefit substantially from the Company's reputation in the entertainment industry for excellent quality and from synergy with activities in other business segments of the Company. -5- CONSUMER PRODUCTS The Company licenses the name Walt Disney, as well as the Company's characters, visual and literary properties and songs and music, to various consumer manufacturers, retailers, show promoters and publishers throughout the world. The Company also engages in direct retail distribution through The Disney Stores and consumer catalogs, and is a publisher of books, magazines and comics in the United States and Europe. In addition, the Company produces audio products for all markets, as well as film and video products for the educational marketplace. Operating results for the consumer products business are influenced by seasonal consumer purchasing behavior and by the timing of animated theatrical releases. CHARACTER MERCHANDISE AND PUBLICATIONS LICENSING The Company's domestic and foreign licensing activities generate royalties which are usually based on a fixed percentage of the wholesale or retail selling price of the licensee's products. The Company licenses characters based upon both traditional and newly created film properties. Character merchandise categories which have been licensed include apparel, watches, toys, gifts, housewares, stationery, sporting goods and domestic items such as sheets and towels. Publication categories which have been licensed include continuity-series books, book sets, art and picture books, magazines and newspaper comic strips. In addition to receiving licensing fees, the Company is actively involved in the development and approval of licensed merchandise and in the conceptualization, development, writing and illustration of licensed publications. The Company continually seeks to create new characters to be used in licensed products. PUBLISHING The Company has book imprints in the United States offering trade books for children (Mouse Works, Disney Press and Hyperion Books for Children) and adults (Hyperion Press). In addition, the Company is a joint venture partner in Disney Hachette Editions, which produces children's books, and Disney Hachette Presse, which produces children's magazines and computer software magazines in France. In Italy and France, the Company publishes comic magazines for children. The Company also publishes the children's magazine Disney Adventures, the general science magazine Discover and the family entertainment and informational magazines FamilyFun and FamilyPC. THE DISNEY STORES The Company markets Disney-related products directly through its retail facilities operated under "The Disney Store" name. These facilities are generally located in leading shopping malls and similar retail complexes. The stores carry a wide variety of Disney merchandise and promote other businesses of the Company. During fiscal 1995, the Company opened 64 new Disney Stores in the United States and Canada, 26 in Europe and 15 in the Asia-Pacific area, bringing the total number to 429 as of September 30, 1995. The Company expects to open additional stores in the future in selected markets throughout the country, as well as in Asia-Pacific, European and Latin American countries. AUDIO PRODUCTS AND MUSIC PUBLISHING The Company produces and distributes compact discs, audiocassettes and records primarily directed at the children's market in the United States and France, consisting primarily of soundtracks for animated films and read-along products, and licenses the creation of similar products throughout the rest of the world. In addition, the Company commissions new music for its motion pictures, television programs and records and exploits the song copyrights created for the Company by licensing others to produce and distribute printed music, records, audiovisual devices and public performances. Domestic retail sales of compact discs, audiocassettes, records and related materials are the largest source of revenues, while direct marketing, which utilizes catalogs, coupon packages and television, is a secondary means of distribution for the Company. -6- OTHER ACTIVITIES The Company produces audiovisual materials for the educational market, including videocassettes and film strips. It also licenses the manufacture and sale of posters and other teaching aids. The Company markets and distributes, through various channels, animation cel art and other animation-related artwork. COMPETITIVE POSITION The Company competes in its character merchandising and other licensing, publishing and retail activities with other licensers, publishers and retailers of character, brand and celebrity names. In the record and music publishing business the Company competes with several other companies. Although public information is limited, the Company believes it is the largest worldwide licenser of character-based merchandise and producer/distributor of children's audio products. OTHER OPERATIONS DISNEY INTERACTIVE Disney Interactive, organized during 1995, is a fully integrated software venture focused on product development and marketing of entertainment and educational computer software and video game titles for home and school. DISNEY SPORTS ENTERPRISES Disney Sports Enterprises provides management and development services for the Company's National Hockey League franchise, the Mighty Ducks of Anaheim. DISNEYLAND PARIS Disneyland Paris is located on a 4,800-acre site at Marne-la-Vallee, approximately 20 miles east of Paris, France. The project has been developed pursuant to a 1987 master agreement with French governmental authorities by Euro Disney S.C.A., a publicly held French company in which the Company holds a 39% equity interest and which is managed by a subsidiary of the Company. In addition, the Company has licensed various intellectual property rights to Euro Disney for use in connection with the project. The Disneyland Paris theme park, which opened in April 1992, draws on a number of European traditions in its five themed lands. Six themed hotels, with a total of approximately 5,200 rooms, are part of the resort complex, together with an entertainment center offering a variety of retail, dining and show facilities and a 595-space camping area. The complex is served by direct rail transport to Paris and by high-speed TGV train service. In 1994, the Company, Euro Disney, Euro Disney's principal creditors and Euro Disney's shareholders approved a financial restructuring that included an offering of new shares, to which the Company subscribed 49%, and various other contributions and concessions by and from the Company and Euro Disney's creditors. In connection with the restructuring, the Company agreed to waive its royalties and base management fees through September 30, 1998. (See Note 3 of Notes to Consolidated Financial Statements and Management's Discussion and Analysis on page 12 for further information.) ITEM 2. PROPERTIES The Walt Disney World destination resort, Disneyland Park and other California and Florida properties are described in Item 1 under the caption Theme Parks and Resorts. Film library properties are described in Item 1 under the caption Filmed Entertainment. -7- The Company owns approximately 51 acres of land in Burbank, California on which are located its studios and executive offices. The studio facilities are used for the production of both live-action and animated motion pictures and television products. In addition, the Company leases office and warehouse space for certain of its studio and corporate activities. The Company's KCAL- TV facilities are located in Hollywood, California. It is the Company's practice to obtain United States and foreign legal protection for its theatrical and television product and its other original works, including the various names and designs of the animated characters and the publications and music which have been created in connection with the Company's filmed products. The Company owns all rights to the name, likeness and portrait of Walt Disney. ITEM 3. LEGAL PROCEEDINGS The Company, together with, in some instances, certain of its directors and officers, is a defendant or co-defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of such actions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York, Pacific, Swiss and Tokyo stock exchanges (NYSE symbol DIS). The following sets forth the high and low composite sale prices for the fiscal periods indicated.
Sales Price --------------- High Low ------- ------- 1995 1st Quarter.............................................. $46 7/8 $37 3/4 2nd Quarter.............................................. 56 1/4 45 3rd Quarter.............................................. 60 52 7/8 4th Quarter.............................................. 62 3/4 50 1/2 1994 1st Quarter.............................................. $45 3/8 $37 1/8 2nd Quarter.............................................. 48 5/8 40 7/8 3rd Quarter.............................................. 45 1/8 39 5/8 4th Quarter.............................................. 44 1/4 38 3/4
The Company declared one quarterly dividend of $.075 per share and three quarterly dividends of $.09 per share in 1995, and in 1994, declared one quarterly dividend of $.0625 per share and three quarterly dividends of $.075. As of September 30, 1995, the approximate number of record holders of the Company's common stock was 507,960. -8- ITEM 6. SELECTED FINANCIAL DATA (In millions, except per share data)
1995 1994 1993* 1992 1991 --------- --------- --------- --------- --------- Statement of Income Revenues $12,112.1 $10,055.1 $ 8,529.2 $ 7,504.0 $ 6,112.0 Operating income 2,445.7 1,965.7 1,724.5 1,435.3 1,094.5 Income before cumulative effect of accounting changes 1,380.1 1,110.4 671.3 816.7 636.6 Cumulative effect of accounting changes (371.5) Net income 1,380.1 1,110.4 299.8 816.7 636.6 Per Share Earnings before cumulative effect of accounting changes $ 2.60 $ 2.04 $ 1.23 $ 1.52 $ 1.20 Cumulative effect of accounting changes (.68) Earnings 2.60 2.04 .55 1.52 1.20 Cash dividends .35 .29 .24 .20 .17 Balance Sheet Total assets $14,605.8 $12,826.3 $11,751.1 $10,861.7 $ 9,428.5 Borrowings 2,984.3 2,936.9 2,385.8 2,222.4 2,213.8 Stockholders' equity 6,650.8 5,508.3 5,030.5 4,704.6 3,871.3 Statement of Cash Flows Cash flow from operations $ 3,510.1 $ 2,807.3 $ 2,145.2 $ 1,838.1 $ 1,496.7 Investing activities (2,288.4) (2,886.7) (2,659.7) (1,923.7) (1,726.3) Financing activities (332.1) (96.7) 112.7 (35.7) 295.9
* See Notes 1, 7, 8, and 12 of Notes to Consolidated Financial Statements for description of accounting changes effective October 1, 1992. -9- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1995 VS. 1994 Revenues increased 20% or $2.06 billion to a record $12.11 billion in 1995, reflecting growth in Filmed Entertainment, Theme Parks and Resorts and Consumer Products revenues of $1.21 billion, $496.2 million, and $352.6 million, respectively. Revenues of $2.80 billion from foreign operations in all business segments increased 19% or $443.6 million in 1995 and represented 23% of total revenues. Operating income rose 24% or $480.0 million to a record $2.45 billion in 1995, driven by increases in Filmed Entertainment, Theme Parks and Resorts and Consumer Products operating income of $218.3 million, $176.7 million and $85.0 million, respectively. Net income increased 24% to a record $1.38 billion and earnings per share increased 27% to a record $2.60 from $1.11 billion and $2.04, respectively. 1994 VS. 1993 Revenues increased 18% or $1.53 billion to a record $10.06 billion in 1994, driven by growth in Filmed Entertainment and Consumer Products revenues of $1.12 billion and $383.1 million, respectively. Revenues of $2.36 billion from foreign operations in all business segments increased 30% or $539.1 million in 1994 and represented 23% of total revenues, an increase of two percentage points over 1993. Operating income rose 14% or $241.2 million to a record $1.97 billion in 1994, driven by increases in Filmed Entertainment and Consumer Products operating income of $233.9 million and $70.1 million, respectively, partially offset by Theme Parks and Resorts results, which declined $62.8 million. Net income increased 65% to a record $1.11 billion and earnings per share increased 66% to a record $2.04 from $671.3 million and $1.23, respectively, before the cumulative effect of accounting changes in 1993. Excluding Euro Disney reserves, which negatively impacted 1993 results, net income and earnings per share grew 25%. FILMED ENTERTAINMENT 1995 VS. 1994 Revenues increased 25% or $1.21 billion to $6.00 billion in 1995, driven by growth of $605 million in worldwide home video revenues, $340 million in television revenues and $106 million in worldwide theatrical revenues. Home video revenues increased primarily due to the domestic and initial international release of The Lion King and the worldwide release of Snow White and the Seven Dwarfs, compared to the worldwide release of Aladdin, the domestic release of The Fox and the Hound and the international release of The Jungle Book in the prior year. Television revenues grew primarily due to the release of Home Improvement in syndication and increased availability and success of titles in pay television. Theatrical revenues increased primarily due to the domestic rerelease and expanded international release of The Lion King, the domestic release of Pocahontas and the domestic release of the live- action titles The Santa Clause, While You Were Sleeping and Pulp Fiction. Operating income increased 25% or $218.3 million to $1.07 billion in 1995, primarily due to growth in worldwide home video and television. Costs and expenses increased 25% or $989.9 million, principally due to higher home video marketing and distribution costs reflecting the worldwide release of Snow White and the Seven Dwarfs and the domestic release of The Lion King, higher distribution costs related to theatrical releases and costs associated with the syndication of Home Improvement. 1994 VS. 1993 Revenues increased 30% or $1.12 billion to $4.79 billion in 1994, driven by growth of $731 million in worldwide home video revenues, $224 million in worldwide theatrical revenues and $99 million in television revenues. Domestic home video revenues were driven by Aladdin, The Fox and the Hound and -10- The Return of Jafar compared to Beauty and the Beast and Pinocchio in 1993, while international home video revenues were driven by The Jungle Book, Aladdin and Bambi compared to Beauty and the Beast and Cinderella in the prior year. Theatrical revenues increased due to the worldwide release of The Lion King, except for Europe, Aladdin in Europe and continued expansion of theatrical productions, including full-year operations of Miramax, which was acquired in June 1993. Television revenues grew due to increased title availabilities worldwide. Operating income increased 38% or $233.9 million to $856.1 million in 1994, driven by growth in worldwide home video activity and television, partially offset by lower worldwide theatrical operating income, reflecting lower results per film in 1994. Theatrical results in 1993 were driven by the worldwide release of Aladdin except for Europe, and international releases of Beauty and the Beast, Sister Act and The Jungle Book, compared to the 1994 release of The Lion King, the European release of Aladdin, and the international release of Cool Runnings. Costs and expenses increased 29% or $886.0 million, principally due to higher film cost amortization and increased distribution and selling costs, resulting from increased home video and theatrical activities. THEME PARKS AND RESORTS 1995 VS. 1994 Revenues increased 14% or $496.2 million to $3.96 billion, driven by growth of $288 million from higher theme park attendance in Florida and California and $127 million from an increase in occupied rooms at Florida resorts. Higher theme park attendance reflected increased domestic and international tourist visitation. The increase in occupied rooms reflected the openings of Disney's Wilderness Lodge and Disney's All-Star Sports Resort in the third quarter of 1994 and the phased opening of Disney's All-Star Music Resort during 1995. Operating income increased 26% or $176.7 million to $860.8 million in 1995, driven by higher theme park attendance and increased occupied rooms at Florida resorts. Costs and expenses, which consist principally of labor, costs of merchandise, food and beverages sold, depreciation, repairs and maintenance, entertainment and marketing and sales expenses, increased 11% or $319.5 million, primarily due to expansion of theme park attractions and Florida resorts and increased marketing and sales expenses, partially offset by the impact of ongoing cost reduction initiatives. 1994 VS. 1993 Revenues of $3.46 billion in 1994 were substantially unchanged from the prior year, as growth of $86 million reflecting higher guest spending at Florida theme parks and resorts and $47 million from an increase in occupied rooms at Florida resorts offset the $114 million impact of lower attendance at Florida and California theme parks. Guest spending rose, primarily due to expanded product offerings and certain price increases, while the increase in occupied rooms reflected the third quarter openings of Disney's Wilderness Lodge and Disney's All-Star Sports Resort and expansion at the Disney Vacation Club. Lower attendance was driven by reduced international tourism. Operating income decreased 8% or $62.8 million to $684.1 million in 1994, reflecting the impact of reduced revenues from lower theme park attendance. Costs and expenses increased 3% or $85.7 million, primarily due to expansion of theme park attractions and resorts in Florida and a charge recorded in the fourth quarter to write off certain development costs associated with Disney's America, as a result of the Company's decision to seek a new site for the theme park. CONSUMER PRODUCTS 1995 VS. 1994 Revenues increased 20% or $352.6 million to $2.15 billion in 1995, driven by growth of $237 million from the Disney Stores and $67 million from worldwide character merchandise licensing. In 1995, 105 new Disney Stores opened, bringing the total number of stores to 429. Comparable store sales grew 4% and sales at new stores contributed $94 million of sales growth. Worldwide merchandise licensing growth was generated by increased demand for traditional Disney characters and recent animated film properties, principally The Lion King and Pocahontas. -11- Operating income increased 20% or $85.0 million to $510.5 million in 1995, primarily due to growth in worldwide character merchandise licensing and the Disney Stores. Costs and expenses, which consist principally of costs of goods sold, labor and publicity and promotion, increased 19% or $267.6 million, primarily due to ongoing expansion and revenue growth of the Disney Stores. 1994 VS. 1993 Revenues increased 27% or $383.1 million to $1.80 billion in 1994, driven by growth of $166 million from the Disney Stores, $109 million from worldwide character merchandise licensing and $87 million from publications, catalogs and records and audio entertainment. In 1994, 85 new Disney Stores opened, bringing the total number of stores to 324. Comparable store sales grew 7% and sales at new stores contributed $70 million of sales growth. Worldwide merchandise licensing growth was generated by increased demand for traditional Disney characters and new animated film properties, including Aladdin and The Lion King. Operating income increased 20% or $70.1 million to $425.5 million in 1994, primarily due to the worldwide success of character merchandise licensing and expansion of the Disney Stores, partially offset by higher costs and expenses. Costs and expenses increased 30% or $313.0 million, primarily reflecting expansion and revenue growth of the Disney Stores and higher expenses in catalog businesses. CORPORATE ACTIVITIES GENERAL AND ADMINISTRATIVE EXPENSES 1995 VS. 1994 General and administrative expenses increased 13% or $21.4 million to $183.6 million in 1995, reflecting higher corporate general and administrative expenses and losses from Disney Sports Enterprises (The Mighty Ducks of Anaheim) due to the shortened NHL season. 1994 VS. 1993 General and administrative expenses decreased 1% or $2.0 million to $162.2 million in 1994, reflecting operating income from Disney Sports Enterprises and lower losses incurred by Hollywood Records, partially offset by higher corporate general and administrative expenses incurred to support growth in the Company's operations and performance-related incentive programs. INVESTMENT AND INTEREST INCOME AND INTEREST EXPENSE 1995 VS. 1994 Total investment and interest income decreased 48% or $61.9 million to $68.0 million in 1995. The decrease reflected both lower average investment balances and yields. Interest expense increased 49% or $58.4 million to $178.3 million in 1995, primarily reflecting the impact of higher borrowings, due in part to calendar 1994 common stock repurchases and prior-year Euro Disney funding. 1994 VS. 1993 Total investment and interest income decreased 30% or $56.2 million to $129.9 million in 1994. The decrease reflected both lower average investment balances and yields. Interest expense decreased 24% or $37.8 million to $119.9 million in 1994, primarily due to the 1993 write-off of unamortized issuance costs related to subordinated notes redeemed by the Company and increased capitalized interest, resulting from higher capital expenditures in the current year. INVESTMENT IN EURO DISNEY 1995 VS. 1994 The Company's investment in Euro Disney resulted in a loss of $35.1 million in 1995, compared to a loss of $110.4 million in 1994. Results for 1995 include a gain of $55 million from the sale of -12- approximately 75 million shares, or 20% of the Company's investment in Euro Disney, to Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud in the first quarter. The Company currently holds an ownership interest in Euro Disney of approximately 39% and has agreed, under certain conditions, to maintain ownership of at least 34% of the outstanding common stock of Euro Disney until June 1999, at least 25% for the subsequent five years and at least 16.67% for an additional term thereafter. The prior-year loss consisted of a $52.8 million third-quarter charge reflecting the Company's participation in the Euro Disney financial restructuring, and the Company's equity share of Euro Disney's post-restructuring operating results. 1994 VS. 1993 The Company's investment in Euro Disney resulted in a loss of $110.4 million in 1994. The loss consisted of a $52.8 million charge recognized in the third quarter as a result of the Company's participation in the Euro Disney financial restructuring and the Company's equity share of fourth quarter operating results. The prior year loss reflected the Company's equity share of Euro Disney's operating results and a $350.0 million charge to fully reserve receivables from and a funding commitment to Euro Disney, partially offset by royalties and gain amortization related to the investment. During the third quarter of 1994, the Company entered into agreements with Euro Disney and lenders participating in the restructuring (the "Lenders"), to provide certain debt, equity and lease financing to Euro Disney. Under the restructuring agreements, which specified amounts denominated in French francs, the Company increased its equity investment in Euro Disney by subscribing for 49% of a $1.1 billion rights offering of new shares; provided long-term lease financing at a 1% interest rate for approximately $255 million of theme park assets; and subscribed for securities reimbursable in shares with a face value of approximately $180 million and a 1% coupon. In addition, the Company canceled fully-reserved receivables from Euro Disney of approximately $210 million, waived royalties and base management fees for a period of five years and reduced such amounts for specified periods thereafter, and modified the method by which management incentive fees will be calculated. Additionally, the Company agreed to arrange for the provision of a 10-year unsecured standby credit facility of approximately $210 million, upon request, bearing interest at PIBOR. As of September 30, 1995, Euro Disney had not requested the Company to establish this facility. As part of the overall restructuring, the Lenders served as underwriters for 51% of the Euro Disney rights offering, forgave certain interest charges for the period from April 1, 1994 to September 30, 2003, having a present value of approximately $300 million, and deferred all principal payments until three years later than originally scheduled. In connection with the restructuring, Euro Disney Associes S.N.C. ("Disney SNC"), an indirect wholly-owned affiliate of the Company, entered into a lease arrangement with a noncancelable term of 12 years (the "Lease") related to substantially all of the Disneyland Paris theme park assets, and then entered into a 12-year sublease agreement (the "Sublease") with Euro Disney. Remaining lease rentals at September 30, 1995 of approximately FF 10 billion ($2 billion) receivable from Euro Disney under the Sublease approximate the amounts payable by Disney SNC under the Lease. At the conclusion of the Sublease term, Euro Disney will have the option to assume Disney SNC's rights and obligations under the Lease. If Euro Disney does not exercise its option, Disney SNC may purchase the assets, continue to lease the assets or elect to terminate the Lease, in which case Disney SNC would make a termination payment to the lessor equal to 75% of the lessor's then outstanding debt related to the theme park assets, estimated to be $1.5 billion; Disney SNC could then sell or lease the assets on behalf of the lessor to satisfy the remaining debt, with any excess proceeds payable to Disney SNC. -13- LIQUIDITY AND CAPITAL RESOURCES The Company generates significant cash from operations and has substantial borrowing capacity to meet its operating and discretionary cash requirements. Cash provided by operations increased 25% or $702.8 million to $3.51 billion in 1995, primarily due to increased operating income in each business segment. Net borrowings (the Company's borrowings less cash and liquid investments) decreased $327 million to $1.4 billion. The decrease was primarily due to payments of existing debt and an increase in cash and liquid investments, partially offset by the issuance of $400 million of senior participating notes in the second quarter and $300 million of senior, unsecured debt obligations in the first quarter. In 1995, the Company invested $1.89 billion to develop and produce film and television properties and $896.5 million to design and develop new theme park attractions and resort properties, including Disney's Animal Kingdom, Disney Cruise Lines, the Blizzard Beach water park, Disney's BoardWalk and the town of Celebration. Pursuant to agreements executed in connection with the 1994 Euro Disney financial restructuring, the Company sold approximately 75 million, or 20%, of its Euro Disney shares to Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud for approximately $145 million in 1995. The Company repurchased 8.9 million shares of its common stock for approximately $349 million in 1995. Under its share repurchase program, the Company is authorized to purchase up to an additional 104 million shares. The Company evaluates share repurchase decisions on an ongoing basis, taking into account borrowing capacity, management's target capital structure, and other investment opportunities. The Company also used $180 million to fund dividend payments during the year. The Company currently maintains significant borrowing capacity to take advantage of growth and investment opportunities. The Company focuses on net borrowings, which take into account its cash and investment balances, when monitoring borrowing capacity. The Company's borrowing capacity includes credit facilities which are available for general corporate purposes and to support commercial paper issuance. The Company's financial condition remains strong. The Company believes that its cash, other liquid assets, operating cash flows, access to equity capital markets and borrowing capacity taken together provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects. Expansion of existing businesses includes continued film and television production, design and development of theme park attractions and resort properties and expansion of the Disney Stores worldwide. Theme park and resort projects currently under development include Disney's Animal Kingdom, the town of Celebration, Disney Cruise Lines, the Coronado Springs Resort and Disney's BoardWalk. In addition, the Company continually evaluates discretionary investments in new projects which complement its existing businesses. In July 1995, the Company and Capital Cities/ABC, Inc. ("Cap Cities") entered into a reorganization agreement, pursuant to which the Company expects to acquire Cap Cities in a transaction that will be accounted for as a purchase. (See Note 2 of Notes to Consolidated Financial Statements.) The transaction has been approved by the Board of Directors of each company, and is subject to regulatory review and approval by each company's stockholders. Pursuant to the reorganization agreement, stockholders of Cap Cities will have the right to receive a combination of common stock and cash. The relative proportions of common stock and cash consideration payable to Cap Cities stockholders are dependent upon certain elections to be made by Cap Cities stockholders and other conditions as defined in the reorganization agreement. The acquisition cost is estimated to be $19 billion as of the date the transaction was announced. The transaction is expected to be completed by early 1996. In October 1995, the Company established bank facilities totaling $12 billion to support the issuance of commercial paper. The Company intends to initially fund the cash portion of the Cap Cities purchase consideration through the issuance of commercial paper and the use of existing cash and investments. The Company may subsequently replace the commercial paper with longer-term financing. In accordance with this objective, the Company has filed a shelf registration statement permitting the issuance from time to time of up to $5 billion of debt and preferred equity securities. -14- Upon consummation of the Cap Cities acquisition, the Company's debt and equity capitalization will change significantly from the issuance of new borrowings and Company common stock. The Company continues to believe that it will have adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects. RISK MANAGEMENT STRATEGIES The Company employs a variety of on- and off-balance-sheet financial instruments to manage its business and financial market risks. During 1995 and 1994, the Company raised $400 million and $475 million, respectively, from the issuance of senior participating notes. The notes, due 2000 with a minimum yield of 2.0% and due 2001 with a minimum yield of 4.2%, respectively, provide that a portion of the interest paid is contingent upon the performance of a portfolio of live-action films released under the Company's various film labels. In the future, the Company will continue to seek partners that will share the risks and rewards of its live-action film business. The Company's foreign currency revenues continue to grow and management believes it is prudent to reduce the risk associated with fluctuations in the value of the U.S. dollar in the foreign exchange markets. The Company uses foreign currency forward and option contracts to reduce the impact of changes in the value of its existing foreign currency assets and liabilities, commitments and anticipated foreign currency revenues denominated in Japanese yen, French francs, German marks, British pounds, and other currencies. The primary focus of the Company's foreign exchange risk management program is to reduce earnings volatility. By policy, the Company maintains hedge coverages between minimum and maximum percentages of its anticipated foreign exchange exposures for each of the next five years. The Company is exposed to interest rate risk related to its investments and borrowings. The Company monitors the net interest rate sensitivity of its portfolio of investments and borrowings and uses interest rate and cross- currency swaps, exchange-traded futures and forward and option contracts to manage the net interest exposure and to lower overall borrowing costs. In addition, in anticipation of additional borrowings to finance its proposed acquisition of Cap Cities, the Company has entered into forward-starting interest rate swaps to manage the interest rate risk associated with such borrowings. The Company's objective is to manage the impact of interest rate changes on earnings and on the market value of its investments and borrowings. The Company does not expect interest rate movements to significantly affect its liquidity in the foreseeable future. For 1995 and 1994, a 1% increase or decrease in interest rates would not have had a material impact on the Company's liquidity or operating results. The Company continually monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its off-balance- sheet financial instruments, and does not anticipate failure to perform by such institutions. The Company enters into off-balance-sheet transactions only with financial institution counterparties which have a credit rating of single A- or better. The Company's current policy in agreements with financial institution counterparties is generally to require collateral in the event credit ratings fall below single A-. With respect to certain contracts, the Company has the right to offset amounts payable to the counterparties to the extent of amounts receivable, further reducing the risk associated with counterparty nonperformance. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements and Supplemental Data on page 31. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -15- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY DIRECTORS The Board of Directors of the Company is divided into three classes, as nearly equal in number as possible. Each class serves three years, with the terms of office of the respective classes expiring in successive years. The following table sets forth information as to the persons who served as directors of the Company during the 1995 fiscal year.
Name and Year First Became A Director of Disney Age Business Experience -------------------------- --- ------------------- CLASS I DIRECTORS (ELECTED 1994) Stephen F. Bollenbach 53 Senior Executive Vice President and (1995) Chief Financial Officer of Disney since May 1, 1995. Mr. Bollenbach served as Chief Executive Officer and President of Host Marriott Corporation from October 1993 until he joined Disney. From March 1992 until October 1993, he served as the Chief Financial Officer of Marriott Corporation. During the two years prior to joining Marriott Corporation, Mr. Bollenbach was the Chief Financial Officer of The Trump Group. He served as Senior Vice President and Chief Financial Officer, as well as a member of the Board of Directors, of Holiday Corporation/Promus Companies prior thereto. In addition, Mr. Bollenbach is a member of the Board of Directors of America West Airlines, Inc. Michael D. Eisner 53 Chairman of the Board and Chief (1984) Executive Officer of Disney. Prior to joining Disney in September 1984, Mr. Eisner was President and Chief Operating Officer of Paramount Pictures Corp., which was then a wholly owned subsidiary of Gulf+Western Industries, Inc. Prior to joining Paramount in 1976, Mr. Eisner was Senior Vice President, Prime Time Programming, for ABC Entertainment, a division of the American Broadcasting Company, Inc., with responsibility for the development and supervision of all prime-time series programming, limited series movies made for television and the acquisition of talent. Stanley P. Gold 53 For more than the past five years, (1987) (also June 1984- Mr. Gold has served as President and September 1984) Chief Executive Officer of Shamrock Holdings, Inc. which, through its subsidiaries, is engaged in real estate development and the making of investments. Since January 1, 1990, Mr. Gold has been President of Trefoil Investors, Inc., the general partner of Trefoil Capital Investors, L.P., an investment partnership, as well as President of Shamrock Capital Advisors, Inc., which acts as manager of the partnership. Mr. Gold is also Chairman of the Board of Directors of L.A. Gear, Inc., a manufacturer and distributor of athletic and casual footwear.
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Name and Year First Became A Director of Disney Age Business Experience -------------------------- --- ------------------- Irwin E. Russell 69 Attorney engaged in private practice (1987) specializing in the entertainment industry. From 1989 to 1992 he served of counsel to the law firm of Rudin, Appel & Rosenfeld. From 1980 through September 1986, he was senior partner in the law firm of Russell & Glickman. From 1971 to 1976, Mr. Russell was Executive Vice President, Treasurer and Director of The Wolper Organization, Inc., a film production company. Mr. Russell serves as an ad hoc arbitrator for the Federal Mediation and Conciliation Service and the American Arbitration Association. Raymond L. Watson 68 Chairman of the Executive Committee (1974) of Disney's Board of Directors since September 1984 and served as Chairman of the Board of Disney from May 1983 to September 1984. Since September 1986, Mr. Watson has been Vice Chairman of the Board of The Irvine Company, a land development company. From 1985 to 1986, he was Regents Professor in the Graduate School of Management at the University of California, Irvine. Mr. Watson is also a member of the Boards of Directors of Pacific Mutual Life Insurance Company; Mitchell Energy & Development Co., a company engaged in oil and gas exploration, production, distribution and land development; and Tejon Ranch Company. CLASS II DIRECTORS (ELECTED 1995) Sanford M. Litvack 59 Senior Executive Vice President and (1995) Chief of Corporate Operations of Disney since August 1994. From April 1991 through November 1991, Mr. Litvack served as Senior Vice President-General Counsel of Disney. From June 1992 through August 1994, he served as Executive Vice President-Law and Human Resources of Disney. Mr. Litvack was previously a member of the executive committee and chairman of the litigation department of the law firm of Dewey Ballantine, of which he was a partner from January 1987 until April 1991. Richard A. Nunis 63 Chairman of Walt Disney Attractions, (1981) a principal business of Disney encompassing Disney's theme parks and resorts, and a senior executive of Disney or a subsidiary thereof for more than the past five years. He is also a member of the Boards of Directors of Sun Banks, N.A. and Florida Progress Corporation, a diversified holding company whose interests include an electric utility. Mr. Nunis is a member of the Travel and Tourism Advisory Board of the U.S. Department of Commerce and a director or trustee of several educational, civic and charitable organizations, including the University of Central Florida.
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Name and Year First Became A Director of Disney Age Business Experience -------------------------- --- ------------------- Sidney Poitier 68 Actor, director, writer and the Chief (1994) Executive Officer of Verdon-Cedric Productions, a film production company, and a member of the Boards of Directors of SpectraVision, Inc., a designer and operator of closed- circuit television movie viewing systems, and Sarah Lawrence College. Mr. Poitier has won many awards, including the Academy Award for Best Actor and the American Film Institute's Lifetime Achievement Award. He belongs to numerous civic organizations, including the Children's Defense Fund, the NAACP League Defense and Education Fund and the Natural Resources Defense Council. Robert A.M. Stern 56 Practicing architect, teacher and (1992) writer. He is Senior Partner of Robert A.M. Stern Architects of New York, which he founded, and a Fellow of the American Institute of Architects. Mr. Stern is also a professor at the Graduate School of Architecture, Planning and Preservation at Columbia University in New York, where he is Director of the Historic Preservation Program. Mr. Stern was the architect of the Yacht and Beach Club hotels and the Casting Center at the Walt Disney World Resort and the Newport Bay Club and the Cheyenne Hotel at Disneyland Paris. He is also the architect of Disney's Boardwalk Hotel at the Walt Disney World Resort and the Feature Animation Building at Disney's headquarters in Burbank, California. E. Cardon Walker 78 Senior executive of Disney for more (1960) than 25 years until 1984, serving as President from 1971 to 1977 and Chairman of the Board and Chief Executive Officer from 1980 to 1983. From 1984 through 1989, he provided consulting and other services to Disney. CLASS III DIRECTORS (ELECTED 1993) Reveta F. Bowers 47 Head of School for the Center for (1993) Early Education, an independent school for pre-school through sixth grade located in Los Angeles, since 1976, Mrs. Bowers is a member of the Board of Directors of several non- profit educational organizations, including the National Association of Independent Schools and Educational Records Bureau, Inc. She is also a trustee of Harvard-Westlake School, an independent high school located in Los Angeles. Roy E. Disney 65 Vice Chairman of the Board of (June 1984) Directors of Disney since 1984, and (1967-March 1984) since November 1985 head of Disney's animation department. In addition, Mr. Disney is Chairman of the Board of Shamrock Holdings, Inc. Mr. Disney is a nephew of the late Walt Disney.
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Name and Year First Became A Director of Disney Age Business Experience -------------------------- --- ------------------- Ignacio E. Lozano, Jr. 68 Chairman and Editor-in Chief of (1981) Lozano Enterprises, which publishes La Opinion, the largest Spanish- language newspaper in the Los Angeles metropolitan area. Mr. Lozano was Publisher and Editor of La Opinion from 1953 to 1986, except for the period from 1976 through 1977 when he was the United States Ambassador to El Salvador. Mr. Lozano is a member of the Boards of Directors of Bank America Corporation, a bank holding company; Bank of America N.T. & S.A.; Pacific Enterprises, a holding company with interests in a natural gas public utility; Pacific Mutual Life Insurance Company; and a number of public service and charitable organizations. George J. Mitchell 62 Special Counsel to the law firm of (1995) Verner, Liipfert, Bernhard, McPherson and Hand in Washington, D.C. Mr. Mitchell served as a United States Senator for fifteen years commencing in 1980, the last six years of which he was the Senate Majority Leader. Mr. Mitchell is a member of the Boards of Directors of UNUM Corporation, Federal Express Corp. and Xerox Corporation. He also serves as a special advisor to the President and the Secretary of State on United States investment and trade opportunities in Ireland. Gary L. Wilson 55 Co-Chairman of the Board of Northwest (1985) Airlines Corporation. From July 1985 through December 1989, he was Executive Vice President and Chief Financial Officer of Disney. Prior to joining Disney, Mr. Wilson was Executive Vice President and Chief Financial Officer of Marriott Corporation, a diversified company involved in lodging, food service and related businesses.
-19- EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are elected each year at the organizational meeting of the Board of Directors which follows the annual meeting of the stockholders and at such other meetings as appropriate. Each of the executive officers has been employed by the Company in the position or positions indicated in the list and pertinent notes below. Messrs. Eisner, Disney and Murphy have been employed by the Company as executive officers for more than five years. At September 30, 1995, the executive officers were as follows:
Executive Officer Name Age Title Since - - --------------------- --- ---------------------------------------------------- --------- Michael D. Eisner 53 Chairman of the Board, Chief Executive Officer 1984 and President /1/ Roy E. Disney 65 Vice Chairman of the Board 1984 Stephen F. Bollenbach 53 Senior Executive Vice President and Chief 1995 Financial Officer Sanford M. Litvack 59 Senior Executive Vice President and Chief of 1991 Corporate Operations John F. Cooke 53 Executive Vice President-Corporate Affairs /2/ 1995 Lawrence P. Murphy 43 Executive Vice President and Chief Strategic Officer 1985 and Chairman of Disney Cruise Lines John J. Garand 48 Senior Vice President-Planning and Control /3/ 1992
- - -------- /1/ On October 2, 1995, Mr. Michael Ovitz joined the Company and assumed the position of President. Mr. Ovitz co-founded and served as chairman of Creative Artists Agency from 1975 until 1995. /2/ Mr. Cooke served as President of The Disney Channel from 1985 until assuming his present position in February 1995. /3/ Mr. Garand joined the Company as Vice President-Planning and Control in 1992 and was named Senior Vice President-Planning and Control in September 1995. Mr. Garand was previously Senior Vice President and Chief Financial Officer for Morse Shoe, Inc. from April 1990 until March 1992. Prior to that, Mr. Garand served in various positions at the corporate and subsidiary offices of PepsiCo, Inc. from 1981 until March 1990. ITEM 11. EXECUTIVE COMPENSATION EMPLOYMENT AGREEMENTS Mr. Eisner serves the Company pursuant to an employment agreement dated as of January 11, 1989, which provides for his employment as Chairman and Chief Executive Officer of the Company through September 30, 1998. Mr. Eisner's base salary is $750,000 per year through the entire term of the agreement. In addition, his agreement provides for a nondiscretionary annual bonus equal to 2% of the amount (the "Bonus Base") by which the Company's net income for the fiscal year exceeds the amount representing a return on stockholder's equity of 11% (9% for 1989 and 1990). Mr. Eisner's bonuses for the first two years of the agreement were payable in cash; thereafter, bonuses, to the extent earned, are payable in cash to the extent the return on stockholders' equity is equal to or less than 17.5%, and in restricted stock, as defined in the employment agreement, to the extent of any amount over 17.5%. Mr. Eisner's employment agreement provided for a single stock option grant (made on January 11, 1989) with respect to 8,000,000 shares of Common Stock. Of the options granted, 25% were granted at a exercise price $10 above the then-current fair market value of the Common Stock, with the remaining 75% granted at a price equal to fair market value. In the event of death or disability, Mr. Eisner's employment agreement provides for continued payment of base salary for the remaining term of the agreement and continued payment of annual bonuses for 24 months. Mr. Eisner is entitled to termination payments under certain circumstances and is indemnified up to stated limits in respect of potential tax liabilities for certain of such payments. -20- COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Directors Lozano, Poitier, Russell and Watson comprise the Company's Compensation Committee. Messrs. Lozano, Poitier and Russell are nonemployee directors. Mr. Watson was Chairman of the Board of Directors of the Company from May 1983 to September 1984, but he has not served as a Company employee since that time. At its September 1995 meeting, the Board of Directors approved the payment of $250,000 as special compensation to Mr. Russell for extraordinary services rendered over an extended period of time in connection with his position as Chairman of the Compensation Committee. These services related to circumstances arising after the death of Frank G. Wells, the Company's former President and Chief Operating Officer, in April 1994 and concluded with Mr. Russell's key role in securing for the Company the services of Michael S. Ovitz as President. EXECUTIVE COMPENSATION SUMMARY TABLE The following table sets forth information concerning total compensation earned or paid to the Chief Executive Officer and the four most highly compensated executive officers of the Company who served in such capacities on September 30, 1995 (the "named executive officers") for services rendered to the Company during each of the last three fiscal years.
Annual Long-Term Compensation Compensation ------------------- ------------------------ Number of Restricted Name and Principal Fiscal Stock Options Stock All Other Positions Year Salary Bonus /3/ Granted Awards /4/ Compensation /5/ ------------------ ------ -------- ---------- ------------- ---------- ---------------- Michael D. Eisner....... 1995 $750,000 $8,024,707 -- 5,996,522 $ 6,877 Chief Executive Officer 1994 750,000 7,268,807 -- 2,638,394 9,730 and Chairman of the 1993 750,000 -- -- -- 9,667 Board Sanford M. Litvack /1/.. 1995 $647,115 $1,600,000 -- -- $ 6,820 Senior Executive Vice 1994 500,000 1,600,000 200,000 -- 9,731 President and Chief of 1993 500,000 375,000 -- -- 9,992 Corporate Operations John F. Cooke /2/....... 1995 $569,616 $ 550,000 335,000 -- $ 6,840 Executive Vice 1994 523,751 575,000 -- -- 7,859 President-Corporate 1993 505,770 500,000 -- -- 10,842 Affairs Lawrence P. Murphy...... 1995 $475,769 $ 550,000 150,000 -- $ 6,828 Executive Vice 1994 436,846 800,000 -- -- 9,701 President and Chief 1993 408,558 375,000 -- -- 10,151 Strategic Officer Roy E. Disney........... 1995 $350,000 $ 550,000 200,000 -- $ 3,820 Vice Chairman of the 1994 350,000 500,000 -- -- 6,670 Board 1993 350,000 450,000 -- -- 5,532
- - -------- /1/ Mr. Litvack assumed this position in August 1994; prior to that he was Executive Vice President- Law and Human Resources. /2/ Mr. Cooke assumed this position in February 1995; prior to that he was President of The Disney Channel. /3/ Mr. Eisner's bonus was calculated pursuant to the bonus formula set forth in his employment agreement (see "Employment Agreements" above). For Fiscal 1995, Mr. Eisner received a cash bonus of $8,024,707 and 97,445 shares of restricted stock (valued at $5,996,522) pursuant to the formula set forth in his employment agreement (the "Bonus Formula"). For Fiscal 1994, Mr. Eisner received a cash bonus of $7,268,807 and 60,618 shares of restricted stock (valued at $2,638,394) pursuant to the Bonus Formula. In accordance with the S.E.C.'s rules, the cash and restricted stock portions of Mr. Eisner's bonus are reported separately in, respectively, the "Bonus" and "Restricted Stock" columns above. For Fiscal 1993, the Company did not meet the bonus threshold set forth in Mr. Eisner's employment agreement and he accordingly did not receive a bonus for that fiscal year. -21- /4/ Mr. Eisner received 97,445 shares of restricted stock for part of his Fiscal 1995 bonus and 60,618 shares of restricted stock for part of his Fiscal 1994 bonus pursuant to the Bonus Formula (see "Employment Agreements" above). Pursuant to Mr. Eisner's employment agreement, the restricted stock value is based upon the average closing price for the Company's Common Stock between: (i) December 1 and December 14, 1995 ($61.538 per share) for the restricted stock awarded as part of Mr. Eisner's Fiscal 1995 bonus and (ii) November 28 and December 9, 1994 ($43.525 per share) for the restricted stock awarded as part of Mr. Eisner's Fiscal 1994 bonus. Mr. Eisner is entitled to receive dividends on the restricted stock, and all restrictions will lapse on the third anniversary following the date of grant, or earlier in the event of death or certain corporate transactions that eliminate or materially impair the market for the Company's Common Stock. /5/ The Company provides the named executive officers with certain group life, health, medical and other non-cash benefits generally available to all salaried employees and not included in this column pursuant to the S.E.C.'s rules. The amounts shown in this column include the following: (a) The Disney Salaried Savings and Investment Plan (the "Savings Plan") currently permits salaried employees of the Company to elect to make tax-deferred contributions of a portion of their base compensation. Amounts deferred through payroll deductions are contributed by the Company on behalf of a participant as tax-deferred contributions pursuant to Section 401(k) of the Internal Revenue Code. Under the Savings Plan, the Company currently matches a participant's first 4% of tax-deferred contributions by an amount equal to 50% of such contribution for each year, subject to a maximum of 2% of the participant's compensation for that year. Participants may allocate their contributions among six investment funds, including a fund investing in the Company's Common Stock. All Company matching contributions are invested in Common Stock of the Company. During Fiscal 1995, the Company's matching contributions were $3,057 for Mr. Eisner, $3,000 for Mr. Litvack, $3,020 for Mr. Cooke, $3,008 for Mr. Murphy and $0 for Mr. Disney, who did not participate in the Plan. The Company's matching contributions were $3,014 during Fiscal 1994 and $4,497 during Fiscal 1993 for Mr. Cooke. (b) The Company provides certain key employees with personal liability insurance coverage up to $5,000,000. Benefits under the plan supplement each employee's personal homeowner's and automobile liability insurance coverage. During Fiscal 1995, the Company paid $520 in premiums on behalf of each of the named executive officers. The Company paid premiums of $195 during each of Fiscal 1994 and Fiscal 1993 for Mr. Cooke. (c) The Supplemental Medical Plan is a fully insured hospital and medical expense reimbursement plan covering certain key management employees and their dependents. The plan provides coverage for 100% of medical expenses incurred (with certain limited exceptions) up to 20% of the employee's annual salary in any one year, provided that the expenses are not covered by the Company's Major Medical Plan, which is available to all salaried employees of the Company. The Company pays the full cost of premiums for the Supplemental Medical Plan, as well as premiums for additional voluntary insurance under the Company's group life insurance plan. During Fiscal 1995, premiums of $3,300 were paid on behalf of each of the named executive officers. The Company paid premiums of $4,650 during Fiscal 1994 and $6,150 during Fiscal 1993 for Mr. Cooke. -22- OPTION GRANTS FOR FISCAL 1995 AND POTENTIAL REALIZABLE VALUES The following table sets forth as to each of the named executive officers information with respect to option grants during Fiscal 1995 and the potential realizable value of such option grants: (i) the number of shares of Common Stock underlying options granted during Fiscal 1995, (ii) the percentage that such options represent of all options granted to employees during Fiscal 1995, (iii) the exercise price, (iv) the expiration date and (v) the potential realizable value, assuming a 5% and 10% annual rate of appreciation in the Common Stock during the option terms. The table also sets forth a hypothetical potential realizable value during a corresponding 10-year term, assuming a 5% and 10% annual rate of appreciation, for all stockholders. The 5% and 10% assumed rates of growth are for illustrative purposes only. They are not intended to predict future stock prices, which will depend on market conditions and other factors such as the Company's performance.
Potential Realizable Value at Assumed Annual Rates Stock Price Appreciation Individual Grants for Option Term /3/ --------------------------------------------- ------------------------------- % of Total Options Number of Granted to Exercise Options Employees in Price Expiration Name Granted /2/ Fiscal Year ($/Share) Date 5% 10% ---- ----------- ------------ --------- ---------- --------------- --------------- Michael D. Eisner....... -- -- -- -- -- -- Sanford M. Litvack...... -- -- -- -- -- -- John F. Cooke........... 335,000 3.55% $52.75 2/21/2005 $ 11,113,354 $ 28,163,421 Lawrence P. Murphy...... 150,000 1.59% 55.25 4/24/2005 5,211,964 13,208,141 Roy E. Disney........... 200,000 2.12% 46.56 1/23/2005 5,856,518 14,841,567 All Stockholders /1/ N/A N/A N/A N/A 18,964,874,599 48,060,710,689
- - -------- /1/ The potential realizable gain to stockholders (based on 524,450,134 shares outstanding and a fair market value of $57.50 per share on September 29, 1995 and 5% and 10% assumed annual rates over a term of ten years, commencing on October 1, 1995), is provided as a comparison to the potential gain realized by the named executive officers at the same assumed annual rates of stock appreciation. /2/ Mr. Cooke's options become exercisable in 9% installments on the first and second anniversary following the date of grant, 21% installments on the third through fifth anniversaries, and a 19% installment on the sixth anniversary of grant. Mr. Disney's options become exercisable in five installments of 20% on each of the first through fifth anniversaries following the date of grant. Mr. Murphy's options become exercisable in 50% installments on each of the fourth and fifth anniversaries following the date of grant. /3/ Amounts for the named executive officers shown under the "Potential Realizable Value" columns above have been calculated by multiplying the exercise price by the annual appreciation rate shown (compounded for the term of the options), subtracting the exercise price per share and multiplying the gain per share by the number of shares covered by the options. OPTION EXERCISES AND VALUES FOR FISCAL 1995 The following table sets forth as to each of the named executive officers information with respect to option exercises during Fiscal 1995 and the status of their options on September 30, 1995: (i) the number of shares of Common Stock underlying options exercised during Fiscal 1995, (ii) the aggregate dollar value realized upon the exercise of such options, (iii) the total number of exercisable and unexercisable stock options held on September 30, 1995 and (iv) the aggregate dollar value of in-the-money exercisable and unexercisable options on September 30, 1995. -23-
Number of Shares Number of Value of Unexercised Acquired Unexercised Options In-the-Money Options Upon 9/30/95 9/30/95 /1/ Exercise of Value Upon ------------------------- -------------------------- Name Option Exercise Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ---------- ----------- ------------- ------------ ------------- Michael D. Eisner....... -- -- 6,000,000 2,000,000 $238,410,000 $79,470,000 Sanford M. Litvack...... -- -- 345,000 355,000 9,660,785 8,270,715 John F. Cooke........... 40,000 $1,480,005 -- 415,000 -- 4,795,010 Lawrence P. Murphy -- -- 272,000 330,000 9,189,824 5,925,960 Roy E. Disney........... -- -- 160,000 200,000 5,490,080 2,187,600
- - -------- /1/ In accordance with the S.E.C.'s rules, values are calculated by subtracting the exercise price from the fair market value of the underlying Common Stock. For purposes of this table, fair market value is deemed to be $57.50, the average of the high and low Common Stock price reported for the New York Stock Exchange Composite Transactions on September 29, 1995. RETIREMENT PLANS The Company maintains a tax-qualified, noncontributory retirement plan for salaried employees called the Disney Salaried Retirement Plan (the "Retirement Plan"). Certain provisions of the Retirement Plan become effective if there is a change in control of the Company (as defined in the Retirement Plan document). These provisions prevent any assets of the Retirement Plan from reverting to the Company and any transfers of assets or liabilities to or from the Retirement Plan, and prevent any amendments to the Retirement Plan. In addition, the Company maintains a nonqualified, unfunded plan, the Amended and Restated Key Plan (the "Restated Key Plan"), which provides retirement benefits for key salaried employees. The table set forth below illustrates the total combined estimated annual benefits payable under the Retirement Plan and the Restated Key Plan to eligible salaried employees for years of service assuming normal retirement at age 65.
Average Annual Base Compensation Years of Service for Highest Five -------------------------------------------- Consecutive Years 15 20 25 30 35 ----------------- -------- -------- -------- -------- -------- $ 150,000 $ 45,444 $ 60,621 $ 75,906 $ 91,050 $104,925 300,000 88,757 118,371 148,094 177,675 205,988 450,000 132,069 176,121 220,281 264,300 307,050 600,000 175,382 233,871 292,469 350,925 408,113 750,000 218,694 291,621 364,656 437,550 509,175 1,000,000 290,882 387,871 484,969 581,925 677,613
The Retirement Plan covers salaried employees who have completed one year of service. Benefits under the Retirement Plan are based primarily on the participant's credited years of service and average base compensation (base compensation excludes other compensation such as bonuses) for the highest five consecutive years of compensation during the ten-year period prior to termination or retirement, whichever is earlier. In addition, a portion of each participant's retirement benefit is comprised of a flat dollar amount based solely on years and hours of credited service. Benefits are non- forfeitable after five years of vesting service, and actuarially reduced benefits are available for participants who retire on or after age 55 after five years of vesting service. The Restated Key Plan provides retirement benefits for key salaried employees in excess of maximum benefit accruals for qualified plans permitted under Code procedures. In calendar year 1995, the maximum annual benefit accruable under a tax-qualified plan was $120,000. The benefits provided under the Restated Key Plan are provided by the Company on a noncontributory basis. -24- As of December 1, 1995, the estimated annual payments for services under the Retirement Plan and the Restated Key Plan would be based upon an average compensation of $750,000 for Mr. Eisner, $540,599 for Mr. Litvack, $496,281 for Mr. Cooke, $417,081 for Mr. Murphy and $350,000 for Mr. Disney. Messrs. Eisner, Cooke and Disney each have eleven years, Mr. Litvack has five years and Mr. Murphy has ten years of credited service for the plans. The table set forth above illustrates estimated benefits payable determined on a straight- life annuity basis. There is no offset in benefits under either plan for Social Security benefits. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth information as to the beneficial ownership of each person known to the Company to own more than 5% of the outstanding Common Stock as of December 1, 1995.
Shares Percent Name and Address Beneficially of of Beneficial Owner Owned Class ------------------- ------------ ------- Bass Management Trust /1/............................ 31,125,578 5.93% 2700 First City Bank Tower 201 Main Street Fort Worth, Texas 76102
- - -------- /1/ According to a Schedule 13D, amended through January 28, 1992, filed on behalf of the Bass Management Trust (the "Trust"), Mr. Perry R. Bass may also be deemed a beneficial owner of the shares held by the Trust by virtue of his authority as Trustee and a trustor of the Trust, and Nancy L. Bass may also be deemed a beneficial owner of such shares as a trustor of the Trust. STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The following table reflects shares of Common Stock beneficially owned (or deemed to be beneficially owned pursuant to the rules of the Securities and Exchange Commission) as of December 1, 1995 by each director of the Company, each of the executive officers named in the Summary Compensation Table included elsewhere herein and the current directors and executive officers of the Company as a group.
Sole Shared Voting Voting and and/or Acquirable Investment Investment Within 60 Percent of Name Power /1/ Power /2/ Days /3/ Common Stock /4/ ---- ---------- ------------- ---------- ---------------- Reveta F. Bowers.......... -- -- -- -- John F. Cooke............. -- 1,430 -- * Roy E. Disney /5/......... 5,674,600 2,179,444 200,000 1.53 Michael D. Eisner......... 2,852,640 99,219 6,000,000 1.71 Stanley P. Gold........... 1,000 1,936 -- * Sanford M. Litvack........ -- 607 345,000 * Ignacio E. Lozano, Jr. ... 5,148 440 -- * George J. Mitchell........ 500 -- -- * Lawrence P. Murphy........ 20,272 1,070 272,000 * Richard A. Nunis.......... 70,122 35,160 420,000 * Sidney Poitier............ -- -- -- -- Irwin E. Russell.......... 4,000 -- -- * Robert A.M. Stern......... 140 -- -- * E. Cardon Walker.......... -- 162,943 -- * Raymond L. Watson......... -- 17,040 -- * Gary L. Wilson............ -- -- -- -- All current directors and executive officers as a group (19 persons, including the foregoing). 8,781,162 2,700,305 7,256,000 3.57
- - -------- * Represents less than 1% of the Company's outstanding Common Stock. -25- /1/ Certain of the directors and executive officers included in the table disclaim beneficial ownership of some of these shares as follows: Mr. Eisner--53,600 shares held by Mr. Eisner's wife directly and as custodian for their children, 36,000 shares held in trust for the benefit of their children and 1,600 shares held in a family trust; Mr. Disney--2,179,444 shares (see footnote (5) below); Mr. Gold--1,520 shares held by Mr. Gold's wife and children and 416 shares held by Shamrock Holdings, Inc., of which he is an officer and director; Mr. Lozano--440 shares that he holds as custodian for the benefit of his child; Mr. Nunis--3,547 shares held by a trust of which Mr. Nunis is trustee for the benefit of his son; and all current directors and executive officers as a group--2,276,151 shares. /2/ Includes interests in shares held for the benefit of the following individuals and for all current directors and executive officers as a group in the Disney Salaried Savings and Investment Plan as of December 1, 1995, with respect to which such persons have sole voting power but no investment rights: Mr. Eisner--8,019 shares; Mr. Litvack--607 shares; Mr. Murphy-- 1,070 shares; Mr. Cooke--1,430 shares; Mr. Nunis--9,555 shares; and all current directors and executive officers as a group--20,877 shares. /3/ Reflects the number of shares that could be purchased by exercise of options available as of December 1, 1995 or within 60 days thereafter under the Company's stock option or stock incentive plans. /4/ Based on the number of shares outstanding at, or acquirable within 60 days of, December 1, 1995. /5/ The shares listed in the table for Mr. Disney include 2,179,444 shares as to which Mr. Disney disclaims beneficial ownership, consisting of 1,507,520 shares owned by Mr. Disney's wife; 256,320 shares held in trusts for the benefit of his four children, of which Mr. Disney is the trustee; 33,332 shares held in trust for the benefit of one of his children, of which Mr. Disney is the trustee; and 416 shares owned by a subsidiary of Shamrock Holdings, Inc., of which both Mr. Disney and his wife are officers and directors and the shares of which are held by Mr. Disney, his wife, certain of his children, trusts for the benefit of his children and custodial accounts for the benefit of certain of his children and grandchildren. Section 16(a) of the Securities Exchange Act of 1934 requires the company's executive officers and directors to file initial reports of ownership and reports of changes of ownership of the Company's Common Stock with the Securities and Exchange Commission. Executive officers and directors are required to furnish the Company with copies of all Section 16(a) forms that they file. Based upon a review of these filings and written representations from certain of the Company's directors and executive officers that no other reports were required, the Company notes that Robert A.M. Stern inadvertently failed to report the gift of 10 shares on December 17, 1994; Gary L. Wilson inadvertently failed to report the sale of 1,072 shares held in a retirement account on July 5, 1995; and John F. Cooke, an executive officer of the Company, inadvertently filed a late initial report of ownership. Messrs. Stern and Wilson subsequently reported each transaction. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During Fiscal 1995, E. Cardon Walker received payments totaling $565,359 with respect to films in which he had invested between 1963 and 1979 under a former investment participation incentive program of the Company, but as to which he had not yet recovered the amount of such investment, and $17,066 as his net profit participation in prior years' programs. During Fiscal 1995, a subsidiary of the Company retained the firm of Robert A.M. Stern Architects, of which Mr. Stern is Senior Partner, for architectural services relating to resort and office developments in California and Florida. Payments to Mr. Stern's firm for these services aggregated approximately $201,363 during Fiscal 1995. During Fiscal 1995, a subsidiary of the Company retained Impact Design, Inc., of which Barbera Hale Thornhill is principal, to perform interior design services for the Disney Vacation Club at Newport Coast development. Ms. Thornhill is the wife of Gary L. Wilson. Payments to Impact Design, Inc. totaled approximately $121,122 during Fiscal 1995. -26- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Exhibits and Financial Statements and Schedules (1)Financial Statements and Schedules See Index to Financial Statements and Supplemental Data at page 31. (2)Exhibits 3(a) Restated Certificate of Incorporation of the Company, filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended September 30, 1992, is hereby incorporated by reference. 3(b) Bylaws of the Company, as amended, filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended September 30, 1994, are hereby incorporated by reference. 4(a) Rights Agreement, dated as of June 21, 1989, between the Company and Security Pacific National Bank, as Rights Agent (including the form of Certificate of Designation of the Series R Preferred Stock attached as Exhibit A thereto and the form of Rights Certificate attached as Exhibit B thereto), filed as Exhibit 1 to the Company's Current Report on Form 8-K, dated June 21, 1989, is hereby incorporated by reference. 4(b) Indenture, dated as of November 30, 1990, between the Company and Bankers Trust Company, as Trustee, with respect to certain senior debt securities of the Company, filed as Exhibit 2 to the Company's Current Report on Form 8-K, dated January 14, 1991, is hereby incorporated by reference. 4(c) Second Amended and Restated Credit Agreement, dated as of April 12, 1995, among the Company, Citicorp USA, Inc., as Agent, and certain financial institutions, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1995, is hereby incorporated by reference. 4(d) Other long-term borrowing instruments issued by the Company are omitted pursuant to Item 601(b) (4) (iii) of Regulation S-K. The Company undertakes to furnish copies of such instruments to the Commission upon request. 10(a) (i) Agreement on the Creation and the Operation of Euro Disneyland en France, dated March 25, 1987, and (ii) Letter relating thereto of Michael D. Eisner, Chairman of the Company, dated March 24, 1987, filed as Exhibits 10(b) and 10(a), respectively, to the Company's Current Report on Form 8-K filed April 24, 1987, are hereby incorporated by reference. 10(b) Limited Recourse Financing Facility Agreement, dated as of April 27, 1988, among the Company, Citibank Channel Island Limited and Citicorp International, filed as Exhibit (10a) to the Company's Current Report on Form 8-K filed April 29, 1988, is hereby incorporated by reference. 10(c) (i) Employment Agreement, dated as of January 10, 1989, between the Company and Michael D. Eisner, filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1989; (ii) Agreement, dated March 1, 1985, between the Company and Michael D. Eisner, filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1985; and(iii) description of action by the Compensation Committee taken on November 30, 1990, filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the year ended September 30, 1990, are hereby incorporated by reference. 10(d) Restricted Stock Agreement, dated May 5, 1995, between the Corporation and Stephen F. Bollenbach is filed herewith. 10(e) Employment Agreement, dated October 1, 1995, between the Company andMichael S. Ovitz is filed herewith. -27- 10(f) (i) Contract, dated December 14, 1979, with E. Cardon Walker, to purchase a 2% interest in certain motion pictures to be produced by the Company and to acquire an additional 2% profit participation; and (ii) Amendment thereto, dated August 8, 1980, filed as Exhibits 1 and 3, respectively, to the Company's Annual Report on Form 10-K for the year ended September 30, 1980, are hereby incorporated by reference. 10(g) Form of Indemnification Agreement entered into or to be entered into by certain officers and directors of the Company as determined from time to time by the Board of Directors, included as Annex C to the Proxy Statement for the Company's 1988 Annual Meeting of Stockholders, is hereby incorporated by reference. 10(h) 1995 Stock Option Plan for Non-Employee Directors, filed as Exhibit A to the Company's Proxy Statement, dated December 29, 1994, with respect to its 1995 Annual Meeting of Stockholders, is hereby incorporated by reference. 10(i) (i) 1990 Stock Incentive Plan and Rules, filed as Exhibits 28(a) and 28(b), respectively, to the Company's Registration Statement on Form S-8 (No. 33-39770), dated April 5, 1991, and (ii) Amended and Restated 1990 Stock Incentive Plan and Rules, filed as Appendix B-2 to the Company's Joint Proxy Statement and Prospectus, dated November 13, 1995, are hereby incorporated by reference. 10(j) 1995 Stock Incentive Plan and Rules, filed as Appendix B-1 to the Company's Joint Proxy Statement and Prospectus, dated November 13, 1995, is hereby incorporated by reference. 10(k) (i) 1987 Stock Incentive Plan and Rules, (ii) 1984 Stock Incentive Plan and Rules,(iii) 1981 Incentive Plan and Rules and (iv) 1980 Stock Option Plan, all as set forth as Exhibits 1(a), 1(b), 2(a), 2(b), 3(a), 3(b) and 4, respectively, to the Prospectus contained in Part I of the Company's Registration Statement on Form S-8 (No. 33-26106), dated December 20, 1988, are hereby incorporated by reference. 10(l) Contingent Stock Award Rules under the Company's 1984 Stock Incentive Plan, filed as Exhibit 10(t) to the Company's Annual Report on Form 10-K for the year ended September 30, 1986, are hereby incorporated by reference. 10(m) 1996 Cash Bonus Performance Plan is filed herewith. 10(n) Disney Salaried Retirement Plan, as amended through March 1, 1994, filed as Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year endedSeptember 30, 1994, is hereby incorporated by reference. 10(o) The Walt Disney Company and Associated Companies Key Employees Deferred Compensation and Retirement Plan, filed as Exhibit 10(u) to the Company's Annual Report on Form 10-K for the year ended September 30, 1985, is hereby incorporated by reference. 10(p) Group Term Life Insurance Plan (summary plan description), filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the year ended September 30, 1985, is hereby incorporated by reference. 10(q) Group Personal Excess Liability Insurance Plan (summary plan description), filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the year ended September 30, 1986, is hereby incorporated by reference. 10(r) Family Income Assurance Plan (summary plan description), filed as Exhibit 10(aa) to the Annual Report on Form 10-K for the year ended September 30, 1986, is hereby incorporated by reference. 10(s) Disney Salaried Savings and Investment Plan, as amended and restated, is filed herewith. 10(t) Disney Salaried Savings and Investment Plan Trust Agreement, dated June 30, 1992, filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1992, is hereby incorporated by reference. 10(u) Master Trust Agreement for Employees Savings and Retirement Plans, as amended and restated through June 1, 1990, between the Company and Bankers Trust Company, as Trustee, filed as Exhibit 28(b) to the Company's Registration Statement on Form S-8 (No. 33-35405), filed June 14, 1990, is hereby incorporated by reference. -28- 10(v) Amended and Restated Agreement and Plan of Reorganization, dated as of July 31, 1995, between the Company and Capital Cities/ABC, Inc., filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, dated October 6, 1995, is hereby incorporated by reference. 18 Letter from the Company's independent accountants, dated August 9, 1993, regarding preferability of the change in accounting method for project-related pre-opening costs, filed as Exhibit 1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1993, is hereby incorporated by reference. 21 Subsidiaries of The Walt Disney Company is filed herewith. 23 Consent of Price Waterhouse LLP, the Company's independent accountants, is included herein at page 32. 27 Financial Data Schedule (filed electronically only). 28 Financial statements with respect to the Disney Salaried Savings and Investment Plan for the year ended December 31, 1994, filed as Exhibit 28 to the Annual Report on Form 10-K for the year ended September 30, 1994, as amended by Amendment No. 1 on Form 10-K/A dated June 30, 1995, are hereby incorporated by reference. (b) Reports on Form 8-K (1) The Company filed a Current Report on Form 8-K, dated July 31, 1995, with respect to the execution of an Agreement and Plan of Reorganization, and certain other related agreements, by the Company and Capital Cities/ABC, Inc. (2) The Company filed a Current Report on Form 8-K, dated October 6, 1995, with respect to the execution of an Amended and Restated Agreement and Plan of Reorganization between the Company and Capital Cities/ABC, Inc. -29- 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. THE WALT DISNEY COMPANY ----------------------------------------------------- (Registrant) Date: December 19, 1995 By: MICHAEL D. EISNER ----------------------------------------------------- (Michael D. Eisner, Chairman of the Board and Chief Executive 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 --------- ----- ---- Principal Executive Officer MICHAEL D. EISNER Chairman of the Board and - - ----------------------------- Chief Executive Officer December 19, 1995 (Michael D. Eisner) Principal Financial and Accounting Officers STEPHEN F. BOLLENBACH Senior Executive Vice - - ----------------------------- President and Chief (Stephen F. Bollenbach) Financial Officer December 19, 1995 JOHN J. GARAND Senior Vice President - - - ----------------------------- Planning and Control December 19, 1995 (John J. Garand) Directors STEPHEN F. BOLLENBACH Director December 19, 1995 - - ----------------------------- (Stephen F. Bollenbach) REVETA F. BOWERS Director December 19, 1995 - - ----------------------------- (Reveta F. Bowers) ROY E. DISNEY Director December 19, 1995 - - ----------------------------- (Roy E. Disney) MICHAEL D. EISNER Director December 19, 1995 - - ----------------------------- (Michael D. Eisner) STANLEY P. GOLD Director December 19, 1995 - - ----------------------------- (Stanley P. Gold) SANFORD M. LITVACK Director December 19, 1995 - - ----------------------------- (Sanford M. Litvack) IGNACIO E. LOZANO, JR. Director December 19, 1995 - - ----------------------------- (Ignacio E. Lozano, Jr.) GEORGE J. MITCHELL Director December 19, 1995 - - ----------------------------- (George J. Mitchell) RICHARD A. NUNIS Director December 19, 1995 - - ----------------------------- (Richard A. Nunis) SIDNEY POITIER Director December 19, 1995 - - ----------------------------- (Sidney Poitier) IRWIN E. RUSSELL Director December 19, 1995 - - ----------------------------- (Irwin E. Russell) ROBERT A.M. STERN Director December 19, 1995 - - ----------------------------- (Robert A.M. Stern) E. CARDON WALKER Director December 19, 1995 - - ----------------------------- (E. Cardon Walker) RAYMOND L. WATSON Director December 19, 1995 - - ----------------------------- (Raymond L. Watson) GARY L. WILSON Director December 19, 1995 - - ----------------------------- (Gary L. Wilson)
-30- THE WALT DISNEY COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Page ---- Report of Independent Accountants and Consent of Independent Accountants.. 32 Consolidated Financial Statements of The Walt Disney Company and Subsidiaries Consolidated Statement of Income for the Years Ended September 30, 1995, 1994 and 1993.......................................................... 33 Consolidated Balance Sheet as of September 30, 1995 and 1994............ 34 Consolidated Statement of Cash Flows for the Years Ended September 30, 1995, 1994 and 1993.................................................... 35 Notes to Consolidated Financial Statements.............................. 36 Quarterly Financial Summary............................................. 52
Schedules other than those listed above are omitted for the reason that they are not applicable or the required information is included in the financial statements or related notes. -31- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of The Walt Disney Company In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of The Walt Disney Company and its subsidiaries (the "Company") at September 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Notes 1, 7, 8, and 12 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes," and changed its method of accounting for pre-opening costs in fiscal 1993. PRICE WATERHOUSE LLP Los Angeles, California November 27, 1995 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-26106, 33-35405 and 33-39770) and Form S-3 (Nos. 33-49891 and 33-62777) of The Walt Disney Company of our report dated November 27, 1995 which appears above. PRICE WATERHOUSE LLP Los Angeles, California December 19, 1995 -32- CONSOLIDATED STATEMENT OF INCOME (In millions, except per share data)
Year ended September 30 1995 1994 1993 - - ------------------------------------------------------------------------------- Revenues Filmed entertainment $ 6,001.5 $ 4,793.3 $3,673.4 Theme parks and resorts 3,959.8 3,463.6 3,440.7 Consumer products 2,150.8 1,798.2 1,415.1 --------- --------- -------- 12,112.1 10,055.1 8,529.2 --------- --------- -------- Costs and Expenses Filmed entertainment 4,927.1 3,937.2 3,051.2 Theme parks and resorts 3,099.0 2,779.5 2,693.8 Consumer products 1,640.3 1,372.7 1,059.7 --------- --------- -------- 9,666.4 8,089.4 6,804.7 --------- --------- -------- Operating Income Filmed entertainment 1,074.4 856.1 622.2 Theme parks and resorts 860.8 684.1 746.9 Consumer products 510.5 425.5 355.4 --------- --------- -------- 2,445.7 1,965.7 1,724.5 --------- --------- -------- Corporate Activities General and administrative expenses 183.6 162.2 164.2 Interest expense 178.3 119.9 157.7 Investment and interest income (68.0) (129.9) (186.1) --------- --------- -------- 293.9 152.2 135.8 --------- --------- -------- Loss from Investment in Euro Disney (35.1) (110.4) (514.7) --------- --------- -------- Income Before Income Taxes and Cumulative Effect of Accounting Changes 2,116.7 1,703.1 1,074.0 Income taxes 736.6 592.7 402.7 --------- --------- -------- Income Before Cumulative Effect of Accounting Changes 1,380.1 1,110.4 671.3 Cumulative Effect of Accounting Changes Pre-opening costs -- -- (271.2) Postretirement benefits -- -- (130.3) Income taxes -- -- 30.0 --------- --------- -------- Net Income $ 1,380.1 $ 1,110.4 $ 299.8 ========= ========= ======== Amounts Per Common Share Earnings Before Cumulative Effect of Account- ing Changes $ 2.60 $ 2.04 $ 1.23 Cumulative Effect of Accounting Changes Pre-opening costs -- -- (.50) Postretirement benefits -- -- (.24) Income taxes -- -- .06 --------- --------- -------- Earnings Per Share $ 2.60 $ 2.04 $ .55 ========= ========= ======== Average Number of Common and Common Equivalent Shares Outstanding 530.4 545.2 544.5 ========= ========= ======== Pro Forma Amounts Assuming the New Accounting Method for Pre-opening Costs is Applied Retroactively Net Income $ 571.0 ======== Earnings Per Share $ 1.05 ========
See Notes to Consolidated Financial Statements -33- CONSOLIDATED BALANCE SHEET (In millions)
September 30 1995 1994 - - ------------------------------------------------------------------------------ Assets Cash and cash equivalents $ 1,076.5 $ 186.9 Investments 866.3 1,323.2 Receivables 1,792.8 1,670.5 Merchandise inventories 824.0 668.3 Film and television costs 2,099.4 1,596.2 Theme parks, resorts and other property, at cost Attractions, buildings and equipment 8,339.9 7,450.4 Accumulated depreciation (3,038.5) (2,627.1) --------- --------- 5,301.4 4,823.3 Projects in progress 778.4 879.1 Land 110.5 112.1 --------- --------- 6,190.3 5,814.5 Investment in Euro Disney 532.9 629.9 Other assets 1,223.6 936.8 --------- --------- $14,605.8 $12,826.3 ========= ========= Liabilities and Stockholders' Equity Accounts payable and other accrued liabilities $ 2,842.5 $ 2,474.8 Income taxes payable 200.2 267.4 Borrowings 2,984.3 2,936.9 Unearned royalty and other advances 860.7 699.9 Deferred income taxes 1,067.3 939.0 Stockholders' equity Preferred stock, $.10 par value Authorized--100.0 million shares Issued--none Common stock, $.025 par value Authorized--1.2 billion shares Issued--575.4 million shares and 567.0 million shares 1,226.3 945.3 Retained earnings 6,990.4 5,790.3 Cumulative translation and other adjustments 37.3 59.1 --------- --------- 8,254.0 6,794.7 Less treasury stock, at cost--51.0 million shares and 42.9 million shares 1,603.2 1,286.4 --------- --------- 6,650.8 5,508.3 --------- --------- $14,605.8 $12,826.3 ========= =========
See Notes to Consolidated Financial Statements -34- CONSOLIDATED STATEMENT OF CASH FLOWS (In millions)
Year ended September 30 1995 1994 1993 - - ------------------------------------------------------------------------------- Cash Provided by Operations Before Income Taxes $ 4,067.5 $ 3,127.7 $ 2,453.9 Income taxes paid (557.4) (320.4) (308.7) --------- --------- --------- 3,510.1 2,807.3 2,145.2 --------- --------- --------- Investing Activities Film and television costs (1,886.0) (1,433.9) (1,264.6) Investments in theme parks, resorts and other property (896.5) (1,026.1) (813.9) Euro Disney investment 144.8 (971.1) (140.1) Purchases of investments (1,033.2) (952.7) (1,313.5) Proceeds from sales of investments 1,460.3 1,494.1 841.0 Other (77.8) 3.0 31.4 --------- --------- --------- (2,288.4) (2,886.7) (2,659.7) --------- --------- --------- Financing Activities Borrowings 786.1 1,866.4 1,256.0 Reduction of borrowings (771.9) (1,315.3) (1,119.2) Repurchases of common stock (348.7) (570.7) (31.6) Dividends (180.0) (153.2) (128.6) Other 182.4 76.1 136.1 --------- --------- --------- (332.1) (96.7) 112.7 --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents 889.6 (176.1) (401.8) Cash and Cash Equivalents, Beginning of Year 186.9 363.0 764.8 --------- --------- --------- Cash and Cash Equivalents, End of Year $ 1,076.5 $ 186.9 $ 363.0 ========= ========= ========= The difference between Income Before Income Taxes and Cumulative Effect of Accounting Changes as shown on the Consolidated Statement of Income and Cash Provided By Operations Before Income Taxes is detailed as follows. Income Before Income Taxes and Cumulative Effect of Accounting Changes $ 2,116.7 $ 1,703.1 $ 1,074.0 --------- --------- --------- Cumulative Effect of Accounting Changes -- -- (514.2) Charges to Income Not Requiring Cash Outlays Depreciation 470.2 409.7 364.2 Amortization of film and television costs 1,382.8 1,198.6 664.2 Euro Disney 35.1 110.4 350.0 Other 98.1 121.1 163.5 Changes in Investments in trading securities 1.2 -- -- Receivables (122.3) (280.2) (211.0) Merchandise inventories (155.7) (59.4) (146.1) Other assets (287.7) (81.5) 197.0 Accounts payable and other accrued liabilities 368.3 146.7 544.4 Unearned royalty and other advances 160.8 (140.8) (32.1) --------- --------- --------- 1,950.8 1,424.6 1,379.9 --------- --------- --------- Cash Provided by Operations Before Income Taxes $ 4,067.5 $ 3,127.7 $ 2,453.9 ========= ========= ========= Supplemental Cash Flow Information: Interest paid $ 122.8 $ 99.3 $ 77.3 ========= ========= =========
See Notes to Consolidated Financial Statements -35- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollars in millions, except per share amounts) 1 Description of the Business and Summary of Significant Accounting Policies The Walt Disney Company, together with its subsidiaries (the "Company"), is a diversified international entertainment company with operations or investments in the following businesses. FILMED ENTERTAINMENT The Company produces and acquires live-action and animated motion pictures for distribution to the theatrical, television and home video markets. The Company also produces original television programming for the network and first-run syndication markets. The Company distributes its filmed product through its own distribution and marketing companies in the United States and most foreign markets. The Company provides programming for and operates The Disney Channel, a pay television programming service, and a Los Angeles, California television station. THEME PARKS AND RESORTS The Company operates the Walt Disney World(R) destination resort in Florida and the Disneyland Park(R) and the Disneyland Hotel in California. The Walt Disney World destination resort includes the Magic Kingdom, Epcot and the Disney-MGM Studios Theme Park, twelve resort hotels and a complex of villas and suites, a nighttime entertainment complex, a shopping village, conference centers, campgrounds, golf courses, water parks and other recreational facilities. The Company earns royalties on revenues generated by the Tokyo Disneyland theme park near Tokyo, Japan, which is owned and operated by an unrelated Japanese corporation. The Company's Disney Design and Development unit designs and develops new theme park concepts and attractions, as well as resort properties. The Company also manages and markets vacation ownership interests in the Disney Vacation Club. CONSUMER PRODUCTS The Company licenses the name Walt Disney, as well as the Company's characters, visual and literary properties and songs and music, to various consumer manufacturers, retailers, show promoters and publishers throughout the world. The Company also engages in direct retail distribution through the Disney Stores and consumer catalogs, and is a publisher of books, magazines and comics in the United States and Europe. In addition, the Company produces audio products for all markets, as well as film and video products for the educational marketplace. INVESTMENT IN EURO DISNEY The Company is an equity investor in Euro Disney S.C.A. ("Euro Disney"), the operator of the Disneyland Paris Resort (see Note 3). SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements of the Company include the accounts of The Walt Disney Company and its subsidiaries after elimination of intercompany accounts and transactions. Investments in affiliated companies are accounted for using the equity method. Accounting Changes Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards ("SFAS") 115 Accounting for Certain Investments in Debt and Equity Securities (see Note 14), the impact of which was not material. Effective October 1, 1992, the Company adopted SFAS 106 Employers' Accounting for Postretirement Benefits Other Than Pensions (see Note 8) and SFAS 109 Accounting for Income Taxes (see Note 7) and changed its method of accounting for pre-opening costs (see Note 12). These changes had no cash impact. The pro forma amounts presented in the consolidated statement of income reflect the effect of retroactive application of expensing pre-opening costs. -36- Revenue Recognition Revenues from the theatrical distribution of motion pictures are recognized when motion pictures are exhibited. Television licensing revenues are recorded when the program material is available for telecasting by the licensee and when certain other conditions are met. Revenues from video sales are recognized on the date that video units are made widely available for sale by retailers. Revenues from participants and sponsors at the theme parks are generally recorded over the period of the applicable agreements commencing with the opening of the related attraction. Cash, Cash Equivalents and Investments Cash and cash equivalents consist of cash on hand and marketable securities with original maturities of three months or less. SFAS 115, adopted in 1995, requires that certain investments in debt and equity securities be classified into one of three categories. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and reported at amortized cost. Debt securities not classified as held-to-maturity and marketable equity securities are classified as either "trading" or "available-for-sale," and are recorded at fair value with unrealized gains and losses included in earnings or stockholders' equity, respectively. Prior to 1995, debt securities were carried at cost, adjusted for unamortized premium or discount. Marketable equity securities were carried at the lower of aggregate cost or market. Realized gains and losses were determined on an average cost basis. Merchandise Inventories Carrying amounts of merchandise, materials and supplies inventories are generally determined on a moving average cost basis and are stated at the lower of cost or market. Film and Television Costs Film and television production and participation costs are expensed based on the ratio of the current period's gross revenues to estimated total gross revenues from all sources on an individual production basis. Estimates of total gross revenues are reviewed periodically and amortization is adjusted accordingly. Television broadcast rights are amortized principally on an accelerated basis over the estimated useful lives of the programs. Theme Parks, Resorts and Other Property Theme parks, resorts and other property are carried at cost. Depreciation is computed on the straight-line method based upon estimated useful lives ranging from three to fifty years. Other Assets Rights to the name, likeness and portrait of Walt Disney, goodwill and other intangible assets are amortized over periods ranging from two to forty years. Risk Management Contracts In the normal course of business, the Company employs a variety of off- balance-sheet financial instruments to manage its exposure to fluctuations in interest and foreign currency exchange rates, including interest rate and cross-currency swap agreements, forward and option contracts, and interest rate exchange-traded futures. The Company designates interest rate and cross- currency swaps as hedges of investments and debt, and accrues the differential to be paid or received under the agreements as interest rates change over the lives of the contracts. Differences paid or received on swap agreements are recognized as adjustments to interest income or expense over the life of the swaps, thereby adjusting the effective interest rate on the underlying investment or obligation. Gains and losses on the termination of swap agreements, prior to their original maturity, are deferred and amortized to interest income or expense over the original term of the swaps. Gains and losses arising from interest rate futures, forwards and option contracts, and foreign currency forward and option contracts are recognized in income or expense as offsets of gains and losses resulting from the underlying hedged transactions. -37- Cash flows from interest rate and foreign exchange risk management activities are classified in the same category as the cash flows from the related investment, borrowing or foreign exchange activity. The Company classifies its derivative financial instruments as held or issued for purposes other than trading. Earnings Per Share Earnings per share amounts are based upon the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. Reclassifications Certain reclassifications have been made in the 1994 and 1993 financial statements to conform to the 1995 presentation. 2 Proposed Acquisition In July 1995, the Company and Capital Cities/ABC, Inc. ("Cap Cities") entered into a reorganization agreement, pursuant to which the Company expects to acquire Cap Cities in a transaction that will be accounted for as a purchase. The transaction has been approved by the Board of Directors of each company, and is subject to regulatory review and approval by each company's stockholders. Pursuant to the reorganization agreement, stockholders of Cap Cities will have the right to receive one share of common stock and $65 in cash, or the equivalent value in common stock or in cash, subject to certain limitations, for each of their shares. The acquisition cost is estimated to be $19 billion based upon the Company's common stock price as of the date the transaction was announced. The transaction is expected to be completed in early 1996. Cap Cities, directly or through its subsidiaries, operates the ABC Television Network, ten television stations, the ABC Radio Networks and 21 radio stations, and provides programming for cable television. Through joint ventures, Cap Cities is also engaged in international broadcast/cable services and television production and distribution. Cap Cities also publishes daily and weekly newspapers, shopping guides, various specialized and business periodicals and books, provides research services, and distributes information from databases. The Company's consolidated results of operations will incorporate Cap Cities activity commencing upon the acquisition date. The unaudited pro forma combined information below presents combined results of operations as if the acquisition had occurred October 1, 1994 and balance sheet information as if the acquisition had occurred as of September 30, 1995. The unaudited pro forma combined information, based upon the historical consolidated financial statements of the Company and Cap Cities, assumes an acquisition cost of approximately $19 billion, and further assumes that an estimated $16 billion excess of acquisition cost over the net tangible book value of Cap Cities' assets is allocated to intangible assets with a useful life of 40 years. In addition, since the exact amounts of cash and/or shares of common stock issuable to Cap Cities stockholders are dependent upon certain elections to be made by Cap Cities stockholders and other conditions as defined in the reorganization agreement, two alternative scenarios of unaudited pro forma combined financial information are presented, which give effect to the range of possible amounts of common stock and/or cash to be received by Cap Cities stockholders upon consummation of the acquisition. Scenario 1 assumes that all Cap Cities stockholders receive one share of common stock and $65 in cash for each outstanding share of Cap Cities common stock, reflecting the maximum number of shares of common stock which could be issued in connection with the acquisition. Scenario 2 assumes that all Cap Cities stockholders receive solely cash for each outstanding share of Cap Cities common stock. -38- The unaudited pro forma combined information is not necessarily indicative of the results of operations of the combined company had the acquisition occurred October 1, 1994, or financial position had the acquisition occurred on September 30, 1995, nor is it necessarily indicative of future results or financial position.
SCENARIO 1 Scenario 2 Statement of Income YEAR ENDED Year ended Data SEPT. 30, 1995 Sept. 30, 1995 -------------------------------------------------------- Revenues $18,908.4 $18,908.4 Net income 1,368.5 987.7 Earnings per share (1) 2.00 1.86 Balance Sheet Data SEPT. 30, 1995 Sept. 30, 1995 -------------------------------------------------------- Total assets $33,538.6 $33,538.6 Borrowings 11,588.4 21,192.1 Stockholders' equity 15,478.1 5,874.5
-------- (1) Earnings per share excluding amortization of intangible assets would be $2.60 and $2.64 under scenarios 1 and 2, respectively. 3 Investment in Euro Disney Euro Disney, a publicly traded French company, operates the Disneyland Paris theme park and resort complex on a 4,800-acre site near Paris, France. The Company accounts for its ownership interest in Euro Disney using the equity method of accounting. In October 1994, the Company sold approximately 75 million Euro Disney shares for $145 million to Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud, Chairman of United Saudi Commercial Bank, and recognized a gain of $55 million. The sale reduced the Company's equity ownership in Euro Disney from 49% at September 30, 1994 to approximately 39%. The quoted market value of the Company's Euro Disney shares at September 30, 1995 was approximately $966 million. During the third quarter of 1994, the Company entered into restructuring agreements with Euro Disney and the lenders participating in a financial restructuring for Euro Disney (the "Lenders") and recorded a charge of $52.8 million to reflect its participation in the restructuring. In the fourth quarter of 1994, the Company recorded a loss of $57.6 million to reflect its equity share of Euro Disney's operating results for that period. Under the restructuring agreements, which specified amounts denominated in French francs, the Company increased its equity investment in Euro Disney by subscribing for 49% of a $1.1 billion rights offering of new shares; provided long-term lease financing at a 1% interest rate for approximately $255 million of Disneyland Paris theme park assets; and subscribed for securities reimbursable in shares with a face value of approximately $180 million and a 1% coupon. In addition, the Company canceled fully-reserved receivables from Euro Disney of approximately $210 million, waived royalties and base management fees for a period of five years and reduced such amounts for specified periods thereafter, and modified the method by which management incentive fees will be calculated. Additionally, the Company agreed to arrange for the provision of a 10-year unsecured standby credit facility of approximately $210 million, upon request, bearing interest at PIBOR. As of September 30, 1995, Euro Disney had not requested the Company to establish this facility. The Company also agreed, as long as any obligations to the Lenders are outstanding, to maintain ownership of at least 34% of the outstanding common stock of Euro Disney until June 1999, at least 25% for the subsequent five years and at least 16.67% for an additional term thereafter. In connection with the restructuring, Euro Disney Associes S.N.C. ("Disney SNC"), an indirect wholly-owned affiliate of the Company, entered into a lease arrangement with a noncancelable term of 12 years (the "Lease") related to substantially all of the Disneyland Paris theme park assets, and then entered into a 12-year sublease agreement (the "Sublease") with Euro Disney. Remaining lease -39- rentals at September 30, 1995 of FF 10 billion ($2 billion) receivable from Euro Disney under the Sublease approximate the amounts payable by Disney SNC under the Lease. At the conclusion of the Sublease term, Euro Disney will have the option to assume Disney SNC's rights and obligations under the Lease. If Euro Disney does not exercise its option, Disney SNC may purchase the assets, continue to lease the assets or elect to terminate the Lease, in which case Disney SNC would make a termination payment to the lessor equal to 75% of the lessor's then outstanding debt related to the theme park assets, estimated to be $1.5 billion; Disney SNC could then sell or lease the assets on behalf of the lessor to satisfy the remaining debt, with any excess proceeds payable to Disney SNC. As part of the overall restructuring, the Lenders served as underwriters for 51% of the Euro Disney rights offering, forgave certain interest charges for the period from April 1, 1994 to September 30, 2003, having a present value of approximately $300 million, and deferred all principal payments until three years later than originally scheduled. In 1993, the Company's loss from its investment in Euro Disney included a $350 million charge to fully reserve its outstanding receivables and its commitment to help fund Euro Disney for a limited period, to afford Euro Disney time to attempt the financial restructuring. Previously deferred base management fees for 1993 were permanently waived as part of Euro Disney's financial restructuring. Euro Disney's consolidated financial statements are prepared in accordance with accounting principles generally accepted in France ("French GAAP"). Under French GAAP, Euro Disney recognized net income of FF 114 million in 1995, a net loss of FF 1.8 billion in 1994, and a net loss of FF 5.3 billion in 1993 (FF 2.1 billion before the cumulative effect of an accounting change). During 1993, Euro Disney changed its method of accounting for project-related pre- opening costs. Under the new method, such costs are expensed as incurred. The cumulative effect of the change in method on prior years was a charge against income of FF 3.2 billion. The effect of the change in 1993 was to decrease the loss before the cumulative effect of accounting change by FF 338 million. -40- U.S. generally accepted accounting principles ("U.S. GAAP") differ in certain significant respects from French GAAP applied by Euro Disney, principally as they relate to accounting for leases and the calculation of interest expense relating to the debt affected by Euro Disney's financial restructuring. In addition, the U.S. GAAP treatment of receivables due from Euro Disney and canceled by the Company in connection with Euro Disney's financial restructuring in 1994 differed significantly from French GAAP applied by Euro Disney. The summarized consolidated financial statements for Euro Disney set forth below are stated in U.S. dollars in accordance with U.S. GAAP.
Balance Sheet 1995 1994 ----------------------------------------------------------- Cash and investments $ 291 $ 289 Receivables 207 227 Fixed assets, net 3,855 3,791 Other assets 173 137 ------ ------ Total Assets $4,526 $4,444 ====== ====== Accounts payable and other liabilities $ 642 $ 560 Borrowings 3,213 3,051 Stockholders' equity 671 833 ------ ------ Total Liabilities and Stockholders' Equity $4,526 $4,444 ====== ======
Statement of Operations 1995 1994 1993 ------------------------------------------------------------------------ Revenues $ 912 $ 751 $ 873 Costs and expenses 967 1,198 1,114 Net interest expense 161 280 287 ----- ------ ------- Loss before income taxes and cumulative effect of accounting change (216) (727) (528) Income taxes -- -- -- ----- ------ ------- Loss before cumulative effect of accounting change (216) (727) (528) Cumulative effect of change in accounting for pre-opening costs -- -- (578) ----- ------ ------- Net Loss $(216) $ (727) $(1,106) ===== ====== ======= Pro forma net loss assuming the change in accounting method is applied retroactively $ (528) =======
4 Film and Television Costs
1995 1994 - - ----------------------------------------------- Theatrical Film Costs Released, less amortization $ 632.0 $ 436.7 In process 969.8 627.1 -------- -------- 1,601.8 1,063.8 -------- -------- Television Costs Released, less amortization 274.1 281.9 In process 119.9 124.7 -------- -------- 394.0 406.6 -------- -------- Television Broadcast Rights 103.6 125.8 -------- -------- $2,099.4 $1,596.2 ======== ========
Based on management's total gross revenue estimates as of September 30, 1995, approximately 87% of unamortized production costs applicable to released theatrical and television productions are expected to be amortized during the next three years. -41- 5 Borrowings
Effective Fiscal Interest Year Rate Maturity 1995 1994 - - -------------------------------------------------------------------------- Senior participating notes (a) 6.3% 2000-2001 $1,056.8 $ 722.8 Medium-term notes (b) 7.3 1996-2093 863.0 948.0 Eurobonds 8.2 1998 300.0 -- Japanese yen bonds (c) 5.6 1998 285.4 285.4 Securities sold under agreements to repurchase (d) 0.5 1996 180.0 57.5 Commercial paper (e) -- -- -- 609.1 Other (c) 8.6 1996-2013 299.1 314.1 -------- -------- 6.6% $2,984.3 $2,936.9 ======== ========
- - -------- (a) The average coupon rate is 2.7% on $1.3 billion face value amount of notes. Additional interest may be paid based on the performance of designated portfolios of films. (b) The effective interest rate reflects the effect of interest rate swaps entered into with respect to certain of these borrowings. (c) The effective interest rate reflects the effect of cross-currency swaps entered into with respect to certain of these borrowings. (d) Securities sold under agreements to repurchase are collateralized by certain marketable securities. (e) The Company has available through 2000 an unsecured revolving line of bank credit of up to $1 billion for general corporate purposes, including the support of commercial paper borrowings. In addition, in October 1995, the Company established bank facilities totaling $12 billion to support the issuance of commercial paper to fund the cash portion of the Cap Cities purchase price (see Note 2). The facilities expire in one to six years. Under the revolving line of bank credit and the new bank facilities, the Company has the option to borrow at various interest rates. Borrowings, excluding commercial paper and securities sold under agreements to repurchase, have the following scheduled maturities. 1996 $128.7 1997 108.0 1998 711.1 1999 33.3 2000 850.3
The Company capitalizes interest on assets constructed for its theme parks, resorts and other property, and on theatrical and television productions in process. In 1995, 1994 and 1993, respectively, total interest costs incurred were $236.4, $171.9 and $183.7 million, of which $58.1, $52.0 and $26.0 million were capitalized. 6 Unearned Royalty and Other Advances
1995 1994 - - ------------------------------------------------ Tokyo Disneyland royalty advances $452.1 $466.6 Other 408.6 233.3 ------ ------ $860.7 $699.9 ====== ======
-42- In 1988, the Company monetized a substantial portion of its royalties through 2008 from certain Tokyo Disneyland operations. The Company has certain ongoing obligations under its contract with the owner and operator of Tokyo Disneyland, and accordingly, royalty advances are being amortized through 2008. The maximum amount the Company may be required to fund under certain recourse provisions of the monetization agreement is $145 million. The Company does not anticipate funding any significant amount under this agreement. 7 Income Taxes
1995 1994 1993 - - ------------------------------------------------------------------------------ Income Before Income Taxes and Cumulative Effect of Accounting Changes Domestic (including U.S. exports) $1,908.3 $1,514.5 $ 931.4 Foreign subsidiaries 208.4 188.6 142.6 -------- -------- -------- $2,116.7 $1,703.1 $1,074.0 ======== ======== ======== Income Tax Provision Current Federal $ 325.6 $ 117.3 $ 217.3 State 67.6 29.9 47.1 Foreign subsidiaries 78.7 84.1 63.3 Other foreign 104.6 78.7 65.1 -------- -------- -------- 576.5 310.0 392.8 -------- -------- -------- Deferred Federal 170.1 259.6 17.0 State (10.0) 23.1 (7.1) -------- -------- -------- 160.1 282.7 9.9 -------- -------- -------- $ 736.6 $ 592.7 $ 402.7 ======== ======== ========
Components of Deferred Tax Assets and Liabilities 1995 1994 - - -------------------------------------------------------------------------- Deferred tax assets: Accrued liabilities $ (351.0) $(221.3) Investment in Euro Disney (153.2) (133.3) State income/franchise taxes (88.7) (72.9) Pension and other benefit programs -- (26.2) -------- ------- Total deferred tax assets (592.9) (453.7) -------- ------- Deferred tax liabilities: Theme parks, resorts and other property 1,133.0 954.8 Licensing revenues 91.3 66.1 Interest and property taxes 87.5 73.8 Purchase accounting 48.3 49.6 Leveraged leases 198.7 175.1 Other--net 51.6 23.5 -------- ------- Total deferred tax liabilities 1,610.4 1,342.9 -------- ------- Net deferred tax liability before evaluation allowance 1,017.5 889.2 Valuation allowance 49.8 49.8 -------- ------- Net deferred tax liability $1,067.3 $ 939.0 ======== =======
-43-
Reconciliation of Effective Income Tax Rate 1995 1994 1993 - - ----------------------------------------------------------------------------- Federal income tax rate 35.0% 35.0% 34.8% State taxes, net of Federal income tax benefit 1.9 2.1 2.2 Effect of increase in statutory tax rate on deferred taxes -- -- 1.6 Other (2.1) (2.3) (1.1) ---- ---- ---- 34.8% 34.8% 37.5% ==== ==== ====
As discussed in Note 1, the Company adopted SFAS 109 in 1993, effective October 1, 1992. The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the deferred method to the asset and liability method. SFAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Differences between financial reporting and tax bases arise most frequently from differences in timing of income and expense recognition and as a result of business acquisitions. As a result of adoption, the Company recognized a benefit in 1993 of $30.0 million, or $.06 per share, representing the cumulative effect of the change on results for years prior to October 1, 1992. The cumulative effect represented the adjustment of previously recorded deferred tax assets and liabilities to reflect the lower prevailing tax rates and the establishment of previously unrecorded deferred tax liabilities. The adoption had no effect on pre-tax income in 1993. In 1995 and 1994, income tax benefits of $90.0 and $12.6 million, respectively, were allocated to stockholders' equity. Such benefits were attributable to employee stock option transactions. 8 Pension and Other Benefit Programs The Company contributes to various pension plans under union and industry- wide agreements. In 1995, 1994 and 1993, the costs recognized under these plans were $14.3, $13.1 and $16.1 million, respectively. The Company's share of the unfunded liability, if any, related to these multi-employer plans is not material. The Company also maintains pension plans covering most of its domestic salaried and hourly employees not covered by union or industry-wide pension plans and a non-qualified, unfunded retirement plan for key employees. With respect to its qualified defined benefit pension plans, the Company's policy is to fund, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with the requirements of ERISA. Benefits are generally based on years of service and/or compensation. The funded status of the plans and the amounts included in the Company's consolidated balance sheet are as follows.
1995 1994 - - ---------------------------------------------------------------------------- Plan assets at fair value, primarily publicly traded stocks and bonds $631.6 $484.8 Actuarial present value of projected benefit obligations Accumulated benefit obligations Vested (498.9) (383.2) Non-vested (18.1) (20.3) Provision for future salary increases (86.6) (72.2) ------ ------ Excess of plan assets over projected benefit obligations 28.0 9.1 Unrecognized net loss 98.2 82.3 Unrecognized prior service benefit (5.2) (10.6) Unrecognized net obligation 3.4 3.7 ------ ------ Prepaid pension cost $124.4 $ 84.5 ====== ======
-44- Net pension cost in 1995, 1994 and 1993 amounted to $33.1, $36.5 and $32.0 million, respectively. The weighted average discount rate was 7.5% for 1995 and 8.5% for 1994 and 1993, and the expected long-term rate of return on plan assets was 9.5% for 1995, 1994 and 1993. The assumed rate of increase in compensation for the salaried plans was 5.8% for 1995, 6.3% for 1994, and 6.8% for 1993. The mortality table used is the 1983 Group Annuity Mortality Table for Males and Females. The Company sponsors a plan to provide postretirement medical benefits to most of its domestic salaried and hourly employees, and contributes to multi- employer welfare plans to provide similar benefits to certain employees under collective bargaining agreements. Employees hired after January 1, 1994 are not eligible for postretirement medical benefits. The Company funds its postretirement health benefit liability on a discretionary basis. As discussed in Note 1, the Company adopted SFAS 106 in 1993, effective October 1, 1992. SFAS 106 requires accrual of postretirement benefit costs to actuarially allocate such costs to the years during which employees render qualifying service. Previously, such costs were expensed as actual claims were paid. SFAS 106 also requires recognition of the unfunded and previously unrecognized accumulated postretirement benefit obligation (transition obligation) for all participants in the Company-sponsored plan. The Company elected to immediately recognize the transition obligation, which resulted in a charge against income of $130.3 million, or $.24 per share, after related income tax benefit of $71.7 million, which represented the cumulative effect of the change in accounting on results prior to October 1, 1992. Under the provisions of SFAS 106, postretirement benefit expense in 1993 exceeded the amount under the previous accounting method by $17.0 million after-tax, or $.03 per share. The funded status of the plan and the amounts included in the Company consolidated balance sheet are as follows.
1995 1994 - - ------------------------------------------------------------------------------- Actuarial present value of accumulated postretirement benefit obligation Retirees $ 53.9 $ 46.9 Fully eligible active plan participants 32.4 57.8 Other active plan participants 75.5 77.7 ------- ------ 161.8 182.4 Plan assets at fair value, primarily publicly traded stocks and bonds (107.3) (78.1) Unrecognized net gain (14.9) (23.1) Unrecognized prior service cost 111.5 129.0 ------- ------ Accrued postretirement benefit cost $ 151.1 $210.2 ======= ======
Net postretirement benefit (gain) cost in 1995, 1994 and 1993 amounted to $(42.7), $13.9 and $29.8 million, respectively. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% for 1995 and 8.5% for 1994 and 1993. The expected long-term rate of return on plan assets was 9.5% for 1995, 1994 and 1993. The annual rate of increase in the per capita cost of covered health care benefits was assumed to be 7% in 1995, 1994 and 1993. An increase in the assumed health care cost trend rate of 1% for each year would increase the postretirement benefit obligation as of September 30, 1995 and 1994 by $34.8 and $39.2 million, respectively, and the net service and interest cost components of net postretirement benefit cost for 1995, 1994 and 1993 by $5.5, $7.1 and $8.1 million, respectively. -45- 9 Stockholders' Equity
Common Paid-in Retained (Shares in millions) Shares Stock Capital Earnings - - ---------------------------------------------------------------- Balance at September 30, 1992 552.2 $13.8 $ 606.1 $4,661.9 Exercise of stock options, net 12.4 0.3 256.2 -- Dividends ($.24 per share) -- -- -- (128.6) Net income -- -- -- 299.8 ----- ----- -------- -------- Balance at September 30, 1993 564.6 14.1 862.3 4,833.1 Exercise of stock options, net 2.4 0.1 68.8 -- Dividends ($.2875 per share) -- -- -- (153.2) Net income -- -- -- 1,110.4 ----- ----- -------- -------- Balance at September 30, 1994 567.0 14.2 931.1 5,790.3 Exercise of stock options, net 8.4 0.2 280.8 -- Dividends ($.345 per share) -- -- -- (180.0) Net income -- -- -- 1,380.1 ----- ----- -------- -------- Balance at September 30, 1995 575.4 $14.4 $1,211.9 $6,990.4 ===== ===== ======== ========
In June 1989, the Company adopted a stockholders rights plan. The plan becomes operative in certain events involving the acquisition of 25% or more of the Company's common stock by any person or group in a transaction not approved by the Company's Board of Directors. Upon the occurrence of such an event, each right, unless redeemed by the Board, entitles its holder to purchase for $350 an amount of common stock of the Company, or in certain circumstances the acquirer, having a market value of twice the purchase price. In connection with the rights plan, 7.2 million shares of preferred stock were reserved. At September 30, 1995 and 1994, the Company's cumulative foreign currency translation adjustments were $37.3 and $59.1 million, net of deferred taxes of $17.6 and $27.5 million, respectively. Treasury stock activity for the three years ended September 30, 1995 was as follows.
Treasury (Shares in millions) Shares Stock - - ------------------------------------------------------------ Balance at September 30, 1992 27.8 $ 664.1 Common stock repurchased 0.9 31.6 Common stock trade-ins on exercised options 0.4 20.0 ---- -------- Balance at September 30, 1993 29.1 715.7 Common stock repurchased 13.8 570.7 ---- -------- Balance at September 30, 1994 42.9 1,286.4 Common stock repurchased, net 8.1 316.8 ---- -------- Balance at September 30, 1995 51.0 $1,603.2 ==== ========
On November 21, 1994, the authorized share repurchase amount under the Company's share repurchase program was increased from 90 million to 180 million shares. Since the program's inception, a total of 75.5 million shares have been repurchased at prevailing market prices. -46- 10 Stock Incentive Plans Under various plans, the Company may grant stock option and other awards to key executive, management and creative personnel. Transactions under the various stock option and incentive plans for the periods indicated were as follows.
(Shares in millions) 1995 1994 1993 - - ------------------------------------------------------- Outstanding at beginning of year 38.8 36.4 44.3 Awards canceled (3.3) (1.6) (1.1) Awards granted 7.8 6.5 5.6 Awards exercised (8.2) (2.5) (12.4) ---- ---- ----- Outstanding at September 30 35.1 38.8 36.4 ==== ==== ===== Exercisable at September 30 14.6 17.5 13.4 ==== ==== =====
Stock option awards are granted at prices equal to at least market price on the date of grant. Options outstanding at September 30, 1995 and 1994 ranged in price from $5.56 to $57.44 and $3.61 to $47.31 per share, respectively. Options exercised ranged in price from $3.61 to $57.44 per share in 1995, from $3.23 to $41.00 per share in 1994, and from $3.23 to $33.35 per share in 1993. Shares available for future option grants at September 30, 1995 were 14.4 million. 11 Detail of Certain Balance Sheet Accounts
1995 1994 - - ------------------------------------------------ Receivables Trade, net of allowances $1,593.1 $1,328.4 Other 199.7 342.1 -------- -------- $1,792.8 $1,670.5 ======== ======== Other Assets Intangibles $ 318.3 $ 311.0 Other 905.3 625.8 -------- -------- $1,223.6 $ 936.8 ======== ======== Accounts Payable and Other Accrued Liabilities Accounts payable $2,130.7 $1,771.8 Payroll and employee benefits 646.7 638.6 Other 65.1 64.4 -------- -------- $2,842.5 $2,474.8 ======== ========
12 Pre-Opening Costs As discussed in Note 1, during 1993 the Company changed its method of accounting for pre-opening costs. In years prior to 1993, project-related pre- opening costs were capitalized and amortized on a straight-line basis over periods of up to five years. Under the new method, project-related pre-opening costs are expensed as incurred. The cumulative effect of the change in method on prior years was a charge against income of $271.2 million, or $.50 per share, after related income tax benefit of $71.0 million, of which $233.0 million related to the impact of the accounting change on the Company's investment in Euro Disney. The effect of the change was to increase income in 1993 by $40.2 million after-tax, or $.07 per share. -47- 13 Segments
Business Segments 1995 1994 1993 - - --------------------------------------------------------------- Capital Expenditures Filmed entertainment $ 125.0 $ 100.7 $ 130.2 Theme parks and resorts 635.5 846.4 593.4 Consumer products 115.4 61.1 36.3 Corporate 20.6 17.9 54.0 --------- --------- --------- $ 896.5 $ 1,026.1 $ 813.9 ========= ========= ========= Depreciation Expense Filmed entertainment $ 61.6 $ 49.1 $ 38.5 Theme parks and resorts 319.5 289.2 269.2 Consumer products 52.2 38.3 26.2 Corporate 36.9 33.1 30.3 --------- --------- --------- $ 470.2 $ 409.7 $ 364.2 ========= ========= ========= Identifiable Assets Filmed entertainment $ 4,834.2 $ 3,791.5 $ 3,417.5 Theme parks and resorts 6,073.9 5,706.9 5,216.0 Consumer products 962.0 845.3 707.5 Corporate 2,202.8 1,852.7 2,410.1 Investment in Euro Disney 532.9 629.9 -- --------- --------- --------- $14,605.8 $12,826.3 $11,751.1 ========= ========= ========= Supplemental Revenue Data Filmed entertainment Theatrical product $ 4,452.5 $ 3,734.2 $ 2,764.4 Theme parks and resorts Admissions 1,346.0 1,179.6 1,215.6 Merchandise, food and beverage 1,423.6 1,238.1 1,232.7 Geographic Segments - - --------------------------------------------------------------- Domestic Revenues United States $ 9,311.0 $ 7,697.6 $ 6,710.8 United States export 547.8 458.0 399.8 International Revenues Europe 1,552.1 1,344.8 984.6 Rest of world 701.2 554.7 434.0 --------- --------- --------- $12,112.1 $10,055.1 $ 8,529.2 ========= ========= ========= Operating Income United States $ 1,745.8 $ 1,392.7 $ 1,591.7 Europe 464.1 405.0 121.8 Rest of world 323.2 226.0 82.5 Unallocated expenses (87.4) (58.0) (71.5) --------- --------- --------- $ 2,445.7 $ 1,965.7 $ 1,724.5 ========= ========= ========= Identifiable Assets United States $13,437.5 $11,306.1 $11,084.5 Europe 1,060.2 1,237.8 519.7 Rest of world 108.1 282.4 146.9 --------- --------- --------- $14,605.8 $12,826.3 $11,751.1 ========= ========= =========
-48- 14 Financial Instruments As discussed in Note 1, the Company adopted the method of accounting prescribed by SFAS 115 Accounting for Certain Investments in Debt and Equity Securities in 1995. As of September 30, 1995, the Company held $95.8 million of securities classified as trading and $403.0 and $307.3 million of securities and cash equivalents, respectively, classified as available-for- sale. In 1995, realized gains and losses on available-for-sale securities, determined principally on an average cost basis, unrealized gains and losses on available-for-sale securities and the change in the net unrealized gain on trading securities were not material. Financial Risk Management The Company is exposed to the impact of interest rate changes. The Company's objective is to manage the impact of interest rate changes on earnings and cash flows and on the market value of its investments and borrowings. The Company transacts business in virtually every part of the world and, accordingly, is subject to risks associated with changing foreign exchange rates. The Company's objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on its core business issues and challenges. Accordingly, the Company enters into various contracts which change in value as foreign exchange rates change to protect the value of its existing foreign currency assets and liabilities, commitments and anticipated foreign currency revenues. By policy, the Company maintains hedge coverage between minimum and maximum percentages of its anticipated foreign exchange exposures for each of the next five years. The gains and losses on these contracts offset changes in the related exposures. It is the Company's policy to enter into foreign currency and interest rate transactions only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into foreign currency or interest rate transactions for speculative purposes. Interest Rate Risk Management The Company uses interest rate swaps and other instruments to manage net exposure to interest rate changes related to its portfolio of investments and borrowings and to lower its overall borrowing costs. Significant interest rate risk management instruments held by the Company at September 30, 1995 and 1994 are described below. Interest Rate Risk Management-Investment Transactions At September 30, 1995 and 1994, the Company had outstanding interest rate swaps designated as hedges of investments with notional amounts totaling $153.9 and $131.3 million, respectively, which expire in six to seven years, and $225.2 and $461.5 million, respectively, of options, futures and forward contracts which expire in one to three years. At September 30, 1994, the Company had outstanding spreadlock contracts with notional amounts totaling $250.0 million. These contracts matured during 1995, and the realized gains and losses are included in investment and interest income. Interest Rate Risk Management-Borrowings At September 30, 1995 and 1994, the Company had outstanding interest rate swaps on its borrowings with notional amounts totaling $685.0 and $590.0 million, respectively, which effectively converted medium-term notes to commercial paper or LIBOR-based variable rate instruments, and $395.0 million at September 30, 1994, which effectively converted senior participating notes to LIBOR-based variable rate instruments. These swap agreements expire in one to 14 years. In anticipation of the acquisition of Cap Cities (see Note 2), the Company has entered into forward-starting interest rate swaps designated as hedges of anticipated borrowings with notional amounts totaling $4.4 billion. These swaps will become effective in 1996 and will effectively convert acquisition-related floating-rate borrowings into fixed-rate instruments. These swaps expire in three to ten years. -49- Interest Rate Risk Management-Summary of Transactions The following table reflects incremental changes in the notional or contractual amounts of the Company's interest rate contracts during 1995 and 1994. Activity representing renewal of existing positions is excluded.
Balance at Balance at September 30, Maturities/ September 30, 1994 Additions Expirations Terminations 1995 - - ------------------------------------------------------------------------------------ Pay floating swaps $1,037.4 $ 983.9 $ (135.0) $(1,167.4) $ 718.9 Pay fixed swaps 213.1 4,606.5 -- (139.6) 4,680.0 Spreadlock contracts 250.0 -- (250.0) -- -- Forward contracts 100.7 294.1 (394.8) -- -- Futures contracts 266.4 288.9 (238.6) (193.2) 123.5 Option contracts 94.4 238.8 (190.4) (41.1) 101.7 -------- -------- --------- --------- -------- $1,962.0 $6,412.2 $(1,208.8) $(1,541.3) $5,624.1 ======== ======== ========= ========= ======== Balance at Balance at September 30, Maturities/ September 30, 1993 Additions Expirations Terminations 1994 - - ------------------------------------------------------------------------------------ Pay floating swaps $1,431.7 $1,047.4 $ (590.7) $ (851.0) $1,037.4 Pay fixed swaps 717.6 141.8 -- (646.3) 213.1 Spreadlock contracts 50.0 300.0 -- (100.0) 250.0 Forward contracts 212.1 96.5 -- (207.9) 100.7 Futures contracts 18.7 824.3 (5.3) (571.3) 266.4 Option contracts 65.8 727.6 (147.6) (551.4) 94.4 -------- -------- --------- --------- -------- $2,495.9 $3,137.6 $ (743.6) $(2,927.9) $1,962.0 ======== ======== ========= ========= ========
The impact of interest rate risk management activities on income in 1995 and 1994 and the amount of deferred gains and losses from interest rate risk management transactions at September 30, 1995 and 1994 were not material. Foreign Exchange Risk Management Most foreign exchange hedging contracts are option strategies providing for the sale of foreign currencies which hedge probable, but not firmly committed, revenues. While these hedging instruments are subject to fluctuations in value, such fluctuations are offset by changes in the value of the underlying exposures being hedged. The principal currencies hedged are the Japanese yen, French franc, German mark, Italian lira, British pound, Canadian dollar, and Spanish peseta. Foreign Exchange Risk Management Transactions The Company uses option contracts to hedge anticipated foreign currency revenues and forward contracts to hedge foreign currency assets and foreign currency payments the Company is committed to make in connection with the construction of two cruise ships (see Note 15). Cross-currency swaps are used to hedge foreign currency-denominated borrowings. At September 30, 1995 and 1994, the notional amounts of the Company's foreign exchange risk management contracts, net of notional amounts of contracts with counterparties against which the Company has a legal right of offset, the related exposures hedged and contract maturities are as follows.
1995 1994 ------------------------------ ------------------------------ NOTIONAL EXPOSURES FISCAL YEAR Notional Exposures Fiscal Year AMOUNT HEDGED MATURITY Amount Hedged Maturity - - ----------------------------------------------------------------------------------- Option contracts $5,070.5 $2,869.3 1996-1999 $6,160.8 $2,337.4 1995-1998 Forward contracts 1,939.7 1,195.6 1996-1999 1,274.8 918.5 1995-1996 Cross-currency swaps 350.1 350.1 1997-1998 365.2 372.0 1995-1998 -------- -------- -------- -------- $7,360.3 $4,415.0 $7,800.8 $3,627.9 ======== ======== ======== ========
-50- Gains and losses on contracts hedging anticipated foreign currency revenues and foreign currency commitments are deferred until such revenues are recognized or such commitments are met, and offset changes in the value of the foreign currency revenues and commitments. At September 30, 1995, the Company had net deferred losses of $188.9 million related to foreign currency hedge transactions, which will be recognized in income over the next four years. Amounts recognizable in any one year are not material and will be offset by gains in the value of the related hedged transactions. Deferred gains and losses from foreign exchange risk management transactions at September 30, 1994 were not material. The impact of foreign exchange risk management activities on income in 1995 and 1994 was not material. Fair Value of Financial Instruments At September 30, 1995 and 1994, the Company's financial instruments included cash, cash equivalents, investments, borrowings and interest rate and foreign exchange risk management contracts. At September 30, 1995, the fair values of cash and cash equivalents, commercial paper and securities sold under agreements to repurchase approximated carrying values because of the short-term nature of these instruments. The estimated fair values of other financial instruments subject to fair value disclosures, determined based on broker quotes or quoted market prices or rates for the same or similar instruments, and the related carrying amounts at September 30, 1995 are as follows.
Carrying Fair Amount Value ------------------------------------------------- Investments $ 498.8 $ 498.8 Borrowings (2,984.3) (3,151.3) Risk management contracts 180.7 137.1 --------- --------- $(2,304.8) $(2,515.4) ========= =========
At September 30, 1994, the estimated fair values of each class of the Company's financial instruments either approximated carrying values, or were not material. Credit Concentrations The Company continually monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments and does not anticipate nonperformance by the counterparties. The Company would not realize a material loss as of September 30, 1995 in the event of nonperformance by any one counterparty. The Company enters into transactions only with financial institution counterparties which have a credit rating of A- or better. The Company's current policy in agreements with financial institution counterparties is generally to require collateral in the event credit ratings fall below A-. In addition, the Company limits the amount of credit exposure with any one institution. At September 30, 1995, neither the Company nor its counterparties were required to collateralize their respective financial instrument obligations. The Company's trade receivables and investments do not represent significant concentrations of credit risk at September 30, 1995, due to the wide variety of customers and markets into which the Company's products are sold, their dispersion across many geographic areas, and the diversification of the Company's portfolio among instruments and issuers. (See Note 3 for a discussion of the Company's investment in Euro Disney). 15 Commitments and Contingencies The Company, together with, in some instances, certain of its directors and officers, is a defendant or co-defendant in various legal actions involving copyright, breach of contract and various other claims incident to the conduct of its businesses. Management does not expect the Company to suffer any material liability by reason of such actions, nor does it expect that such actions will have a material effect on the Company's liquidity or operating results. During 1995, the Company entered into agreements with a shipyard to build two cruise ships for its Disney Cruise Lines. Under the agreements, the Company is committed to make payments totaling approximately $700 million through 1999. -51- QUARTERLY FINANCIAL SUMMARY (In millions, except per share data) (Unaudited)
December 31 March 31 June 30 September 30 - - ---------------------------------------------------------------- 1995 Revenues $3,301.7 $2,922.8 $2,764.0 $3,123.6 Operating income 790.8 606.6 562.3 486.0 Net income 482.4 315.5 318.2 264.0 Earnings per share .91 .60 .60 .50 1994 Revenues $2,727.3 $2,275.8 $2,353.6 $2,698.4 Operating income 624.4 410.0 492.6 438.7 Net income 368.6 248.4 267.5 225.9 Earnings per share .68 .45 .49 .42
-52- EX-10.(D) 2 RESTRICTED STOCK AGREEMENT [LETTERHEAD OF THE WALT DISNEY COMPANY] EXHIBIT 10(d) As of May 5, 1995 Mr. Stephen F. Bollenbach 10400 Fernwood Drive Washington, D.C. Amended and Restated Award of Restricted Stock ---------------------------------------------- Dear Mr. Bollenbach: We are pleased to confirm to you that, subject to the restrictions described below, you have been awarded 150,000 shares of the Common Stock of The Walt Disney Company (the "Company"), par value $0.025 per share (the "Restricted Shares"). This letter will confirm the following agreement between you and the Company with respect to this award of Restricted Shares. 1. Payment. Concurrently with your countersignature and return of ------- this letter, you will deliver to the Company a payment of $3,750 in consideration of the grant of the Restricted Shares, representing the aggregate par value of the Restricted Shares. 2. Restriction on Transfer; Risk of Forfeiture. ------------------------------------------- (a) No Transfer. Except as provided in Section 7, none of the ----------- Restricted Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered unless and until such shares become unrestricted. (b) Performance-Based Restricted Shares. One-third or 50,000 shares ----------------------------------- of the Restricted Stock (hereinafter referred to as the "Performance Based Restricted Shares") shall vest and become unrestricted in and, except as provided in Section 4, only if (i) the required certification is made under the 1996 Cash Bonus Plan for Eligible Executive Officers of DC Holdco, Inc. (the "1996 Bonus Plan") that the Performance Target (as defined in the 1996 Bonus Plan) established with respect to you under the 1996 Bonus Plan has been met, or (ii) the required certification is made under any subsequently adopted annual cash [LOGO OF THE WALT DISNEY COMPANY] Mr. Stephen F. Bollenbach As of May 5, 1995 Page 2 bonus plan that meets the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code (a "Successor Bonus Plan") that the performance target(s) established with respect to you, if any, under any such Successor Bonus Plan have been met for the 1997 or 1998 fiscal year. (c) Other Restricted Shares. Subject to the provisions of Section 3, ----------------------- the remaining 100,000 Restricted Shares shall vest and become unrestricted as determined pursuant to the following schedule or at such earlier date as such restrictions shall otherwise lapse under the provisions of Section 4: Date Shares Become Unrestricted Number of Shares ------------------------------- ---------------- October 29, 1997 50,000 October 29, 1998 50,000 For purposes of this letter, the period during which the Restricted Shares remain subject to the restrictions set forth in this Section 2 shall be called the "Restricted Period." (d) All certificates representing Restricted Shares shall be issued in your name and delivered to you and returned by you to remain in the physical custody of the Company during the Restricted Period or until such time as any transfer restrictions hereunder otherwise terminate as provided herein. Each such certificate shall bear a legend in substantially the following form: "The transfer of these securities is subject to restrictions set forth in a certain Amended and Restated Restricted Stock Award Agreement, dated as of May 5, 1995, a copy of which is available for inspection at the office of the Secretary of the Corporation." Any purported transfer of any Restricted Shares in contravention of the terms, conditions and restrictions set forth in this letter, irrespective of whether the certificate representing such Shares contains the legend set forth above, shall be ineffective, and any disposition of such Restricted Shares purported to be effected thereby shall be void. 3.(a) Forfeiture of Restricted Shares upon Voluntary Termination or ------------------------------------------------------------- Termination for Cause. Except as provided in paragraph 4 below, if (i) you - - --------------------- voluntarily terminate your employment with the Company, or (ii) your employ- [LOGO OF THE WALT DISNEY COMPANY] Mr. Stephen F. Bollenbach As of May 5, 1995 Page 3 ment is terminated by the Company for Cause (as hereinafter defined) prior to the end of the Restricted Period, the Restricted Shares then still subject to the restrictions set forth in Section 2 shall be forfeited and revert back to the Company without any payment to you. For purposes of this letter, "Cause" means (i) your conviction of a felony or a crime involving moral turpitude; (ii) your willful or repeated failure to perform substantially the duties and responsibilities of your position, after receipt of written notice from the Company of such failure; or (iii) your engaging in willful, intentional or reckless misconduct or gross negligence that is seriously detrimental to the business or reputation of the Company. (b) Forfeiture of Performance-Based Restricted Shares upon Failure to ----------------------------------------------------------------- Meet Performance Target(s). Except as provided in Section 4 below, the 50,000 - - -------------------------- Performance-Based Restricted Shares shall be forfeited and revert back to the Company without any payment to you on December 31, 1996 unless either (i) the applicable Performance Target under the 1996 Bonus Plan has been met and duly certified as provided therein, or (ii) a Successor Bonus Plan for fiscal years beginning on or after October 1, 1996 has been adopted by the Company or DC Holdco, Inc. If the Performance-Based Restricted Shares remain unvested after December 31, 1996, they shall be forfeited and revert back to the Company without payment to you (i) upon the failure of the shareholders to approve the Successor Bonus Plan at the shareholder's meeting at which such plan is first considered or (ii) on December 31, 1998, unless the Performance-Based Restricted Shares have earlier become unrestricted pursuant to Section 2. 4. Vesting Upon Death, Disability, Termination by the Company Without ------------------------------------------------------------------ Cause or Voluntary Termination for Good Reason. If your employment with the - - ---------------------------------------------- Company terminates due to (i) your death, (ii) your illness or disability which has incapacitated you from performing your duties for six consecutive months as determined in good faith by the Company's Chief Executive Officer, (iii) a termination by the Company other than for Cause or (iv) a Voluntary Termination for Good Reason (as defined below), the Restricted Period shall immediately and automatically lapse, without further action by the Company, on the date of such termination as to any Restricted Shares then still subject to the restrictions set forth in Section 2; provided that if the termination occurs prior to the -------- certification required under Section 2 for a reason specified in clause (iii) or (iv) above, the vesting of the 50,000 Performance-Based Restricted Shares shall not occur unless and until the certification required under Section 2 is made for the fiscal year in which such termination of employment occurs. If such [LOGO OF THE WALT DISNEY COMPANY] Mr. Stephen F. Bollenbach As of May 5, 1995 Page 4 certification is not made by the December 31st first following the end of the fiscal year in which such termination of employment occurs, the Performance- Based Restricted Shares shall then be forfeited and revert back to the Company without payment to you. For purposes of this letter, a "Voluntary Termination for Good Reason" ------------------------------------- means any voluntary resignation by you within 120 days following the occurrence of any of the following events without your prior written consent: (i) you do not serve as Chief Financial Officer of the Company; (ii) you do not report to the Company's Chief Executive Officer; or (iii) your principal place of employment is relocated to a location other than the Company's corporate headquarters complex or a nearby complex housing other senior executives of the Company or its affiliates. 5. Change in Control. Notwithstanding any other provision of this ----------------- letter to the contrary, the Restricted Period shall lapse in the event the Company enters into an agreement pursuant to which either the Company or all or substantially all of its assets are to be sold or combined with another entity (regardless of whether or not such sale or combination is subject to the satisfaction of conditions precedent or subsequent) and, as a consequence thereof, the market for public trading of the Company's Common Stock would, or could reasonably be expected to be, eliminated or materially impaired. 6. Rights as a Stockholder. Subject to the provisions of Sections 2 ----------------------- and 3 hereof, you shall have all the rights of a stockholder with respect to your Restricted Shares, including the right to vote the shares and to receive dividends. 7. Conversions and Property Distributions. In the event your -------------------------------------- Restricted Shares are exchanged for or converted into securities other than Common Stock or in the event that any distribution is made with respect to such Restricted Shares either in Common Stock or in other property (other than cash), the securities or other property (other than cash) that you receive shall be subject to the same restrictions as apply to your Restricted Shares. 8. Withholding. As a condition to receiving any share certificate ----------- without the legend and the vesting of any shares, you shall be required to pay or to provide (to the Company's satisfaction), in accordance with the terms of the Company's 1987 Stock Incentive Plan, as amended (the "Stock Plan"), for any and all applicable Federal, state or local withholding taxes. [LOGO OF THE WALT DISNEY COMPANY] Mr. Stephen F. Bollenbach As of May 5, 1995 Page 5 9. No Right to Continued Employment. This letter is not an employment -------------------------------- contract, and nothing in this letter shall be deemed to confer on you any right to continue in the employ of the Company or any of its subsidiaries, or to interfere with or limit in any way the right of the Company or any of its subsidiaries to terminate such employment at any time. 10. Governing Law. This letter shall be construed and enforced in ------------- accordance with, and governed by, the internal laws of the State of California. 11. Waiver and Amendment. This letter may not be modified or amended, -------------------- and any provision hereof may not be waived, except pursuant to a written agreement signed by the Company and you. Any such modification, amendment or waiver signed by, or binding upon, you shall be valid and binding upon any and all persons or entities who may, at any time, have or claim any rights under or pursuant to this letter in respect of the Restricted Shares. No waiver of any breach or default hereunder shall be deemed a waiver of any subsequent breach or default of the same or similar nature. This letter supersedes in its entirety the letter agreement between us captioned "Award of Restricted Stock," dated May 5, 1995. Please sign one of the two copies of this letter where indicated below and return it to me at your earliest convenience. Please retain the other copy of this letter for your records. THE WALT DISNEY COMPANY By: /s/ SANFORD M. LITVACK ---------------------------- Name: Title: ACCEPTED AND AGREED TO: /s/ STEPHEN F. BOLLENBACH - - -------------------------------- Stephen F. Bollenbach EX-10.(E) 3 EMPLOYMENT AGREEMENT OF OVITZ EXHIBIT 10(e) EMPLOYMENT AGREEMENT DATED AS OF OCTOBER 1, 1995 BETWEEN THE WALT DISNEY COMPANY AND MICHAEL S. OVITZ MICHAEL S. OVITZ ("EXECUTIVE") and THE WALT DISNEY COMPANY, a Delaware corporation ("COMPANY"), hereby agree as follows: 1. TERM The term of Executive's employment by Company under this Agreement shall commence on and as of October 1, 1995 and shall expire on September 30, 2000 (the "TERM"), unless earlier terminated as hereinafter provided. 2. TITLE AND DUTIES During the Term, Executive shall be employed by Company as its President. As President, Executive shall report to Company's Chairman and Chief Executive Officer. Executive shall devote his full time and best efforts exclusively to the Company; provided, however, that the foregoing shall not preclude Executive -------- ------- from engaging in charitable and community affairs, managing his personal passive investments and continuing his current board membership with Ziff-Davis Holdings, Inc., provided that none of such activities or managing shall interfere with, or be inconsistent with, the performance of his duties hereunder. Executive shall perform such duties, which shall not be inconsistent with his position as President of Company, as are assigned to him from time to time by the Chairman and Chief Executive Officer of Company, and any other duties undertaken or accepted by Executive. Company agrees to use its best efforts to cause Executive to be 1 elected to the Board of Directors of Company (or its successor in interest), when a seat on the Board becomes available, and to nominate Executive as a member of the management slate at each annual meeting of stockholders during his employment hereunder at which Executive's director class comes up for election. Executive agrees to serve on the Board if elected. 3. SALARY Executive shall receive a salary of $1,000,000 per annum during the term hereof. Salary payments shall be made in equal installments in accordance with Company's then prevailing payroll policy. 4. BONUS For each full year of the Term completed by Executive, Executive will be eligible for an annual discretionary bonus which will be determined by the Compensation Committee of the Board of Directors. Pursuant to Company's applicable bonus plan as in effect from time to time, such bonus may be determined according to criteria intended to qualify under Section 162(m) of the Internal Revenue Code, as amended (the "CODE"). 5. STOCK OPTIONS Executive shall be granted two stock options (individually, "OPTION A" and "OPTION B") to purchase an aggregate of 5,000,000 shares of common stock of Company pursuant to Company's 1990 Stock Incentive Plan and related rules or pursuant to a stock option plan hereinafter adopted by Company having terms no less favorable to Executive than the 1990 Stock Incentive Plan and related rules (the applicable plan and rules pursuant to 2 which such options shall be granted being hereinafter referred to as the "PLAN") in accordance with, and subject to, the following: OPTION A: -------- (a) The exercise price of Option A shall be equal to the fair market value (determined in accordance with the applicable provisions of the Plan) of Company's common stock on the date of grant, which date shall be October 16, 1995. (b) Pursuant to Option A Executive shall have the right to purchase 3,000,000 shares, subject to the terms and conditions hereof and of the Plan, and such right shall vest in increments of 1,000,000 shares on September 30 of each year commencing September 30, 1998; provided, however, -------- ------- that, notwithstanding the foregoing, any portion of Option A scheduled to vest on a scheduled vesting date shall not vest on such scheduled vesting date (or at any time thereafter) if Executive's employment by Company pursuant to this Agreement shall have terminated for any reason whatsoever more than three months prior to such scheduled vesting date. (c) In the event that Executive's employment shall be terminated and such termination shall constitute a Non-Fault Termination (as defined in subparagraph (d) below), then the vesting schedule of Option A shall be accelerated and Option A shall become immediately exercisable in its entirety upon such termination. (d) Option A shall expire on the earlier of ten years from the date of grant or 24 months after termination of Executive's employment with 3 Company; provided, however, that notwithstanding the foregoing, in the -------- ------- event that Executive's employment with Company shall be terminated without cause (i.e., in a manner which shall constitute a breach of this Agreement ---- by Company), by reason of death or total and permanent disability pursuant to Section 11(a)(i) or (ii) hereof, or Executive shall validly terminate his employment pursuant to Section 12 hereof (any of the foregoing being herein referred to as a "NON-FAULT TERMINATION"), Option A shall expire on the later of September 30, 2002, or 24 months after the date of the Non- Fault Termination (but in no event later than ten years from the date of grant.) (e) Except as expressly provided herein, Option A shall be subject to all of the standard terms and provisions of the Plan (i.e., those terms and ---- provisions which are automatically applicable to any stock option granted under the Plan in the absence of special action or specification to the contrary with respect to such stock option by the Compensation Committee of the Board of Directors of the Company (which Committee currently administers the Plan)), including without limitation, such modifications and/or substitutions of the Plan and the options granted thereunder as are effected in connection with the acquisition by Company of Cap Cities/ABC, Inc. OPTION B: -------- The terms and provisions of Option B shall be identical to the terms and provisions of Option A in all respects except as follows: 4 (f) Pursuant to Option B Executive shall have the right to purchase 2,000,000 shares of Company's common stock, subject to the terms and conditions hereof and of the Plan, and such right shall vest in increments of 1,000,000 shares on each of September 30, 2001 and September 30, 2002; provided, however, that notwithstanding the foregoing, any portion of -------- ------- Option B scheduled to vest on a scheduled vesting date shall not vest on such vesting date (or at any time thereafter) if Executive's employment with Company shall have terminated for any reason whatsoever more than three months prior to such scheduled vesting date. (g) Notwithstanding any other term or provision of the Plan or this Agreement, under no circumstances shall Option B vest or become exercisable prior to October 1, 2000, and in the event that Executive's employment with Company shall terminate prior to such date for any reason whatsoever, Option B and all rights and claims of any nature related thereto shall thereupon irrevocably terminate in their entirety without further action by any party; after such date Option B shall vest in accordance with its terms if, and only if, Executive shall have entered into, prior to the earlier of the first scheduled vesting date of Option B or the date of any event occurring on or after October 1, 2000 which would give rise to accelerated vesting if the conditions of this subparagraph were met, an agreement with Company (which shall be acceptable to Company in its sole and unfettered discretion or which shall have been entered into pursuant to a Qualifying Offer (as hereinafter defined in Section 10 hereof) to continue his employment with Company until at least September 30, 2002; provided, -------- however, that notwithstanding the foregoing, if Executive is actually ------- employed by Company on a scheduled vesting date of Option B, the increment of 5 Option B scheduled to vest on such date shall vest in accordance with its terms. The parties hereto acknowledge that in order to implement certain provisions of Section 5(d) hereto relating to the continued exercisability of Option A for more than 24 months after a Non-Fault Termination, an amendment to the 1990 Stock Incentive Plan is required or a new Plan permitting such continued exercisability must be adopted. Company will implement such amendment or adopt such new Plan, subject, however, in each case to receipt by Company of approval by the shareholders of Company. Accordingly, all of the provisions of Option A referred to in Section 5(d) above providing for exercisability beyond 24 months after termination of Executive's employment with Company shall be subject to receipt by Company of such shareholder approval, and in the event such shareholder approval shall not have been obtained within 18 months from the date hereof or there shall have been a Non-Fault Termination at any time prior to receipt by Company of such approval, Company and Executive (or his estate) shall enter into good-faith negotiations with respect to alternative compensation for Executive. 6. BENEFITS AND PERQUISITES Executive shall be entitled to receive the benefits and perquisites currently made available to the Chairman and Chief Executive Officer of Company. 6 7. REIMBURSEMENT FOR EXPENSES Executive shall be expected to incur various business expenses customarily incurred by persons holding like position, including but not limited to traveling, entertainment and similar expenses, all of which are to be incurred by Executive for the benefit of Company. Subject to Company's policy regarding the reimbursement and non-reimbursement of such expenses (which policy does not necessarily provide for reimbursement of all such expenses but which shall be applied to Executive in a manner consistent with the application of such policy to the Chairman and Chief Executive Officer of Company), Company shall reimburse Executive for such expenses from time to time, at Executive's request, and Executive shall account to Company for such expenses. 8. PROTECTION OF COMPANY'S INTERESTS (a) During the term of Executive's employment by Company, Executive will not compete in any manner, directly or indirectly, whether as a principal, employee, consultant, agent, owner or otherwise, with Company or any affiliate thereof, except that the foregoing will not prevent Executive from holding at any time less than 5% of the outstanding capital stock of any company whose stock is publicly traded. (b) To the extent permitted by law, all rights worldwide with respect to any and all intellectual or other property of any nature produced, created or suggested by Executive during the term of his employment or resulting from his services shall be deemed to be a work made for hire and shall be the sole and exclusive property of Company. Executive agrees to execute, acknowledge and deliver to Company, at Company's request, such 7 further documents as Company finds appropriate to evidence Company's rights in such property. Any confidential and/or proprietary information of Company or any affiliate thereof (including, without limitation, any information relating to the identities, capabilities, compensatory and contractual arrangements and/or general personnel data of employees of Company and its affiliates to which Executive has access) shall not be used by Executive or disclosed or made available by Executive to any person except as required in the course of his employment, and upon expiration or earlier termination of the term of this Agreement, Executive shall return to Company all such information that exists in written or other physical form (and all copies thereof) under his control. Without limiting the generality of the foregoing, Executive acknowledges signing and delivering to Company The Walt Disney Company and Associated Companies Confidentiality Agreement and Statement of Policy Regarding Conflicts of Interest and Business Ethics and Questionnaire Regarding Compliance and he agrees that all terms and conditions contained therein, and all of his obligations and commitments provided for therein, shall be deemed, and hereby are, incorporated into this Agreement as if set forth in full herein. The provisions of this Section 8(b) shall survive the expiration or earlier termination of this Agreement. 9. SERVICES UNIQUE Executive recognizes that his services hereunder are of a special, unique, unusual, extraordinary and intellectual character giving them a peculiar value, the loss of which cannot be reasonably or adequately compensated for in damages, and in the event of a breach of this Agreement by him (particularly, but without limitation, with respect to the provisions hereof relating to the exclusivity of his services and the provisions of Section 8 8 hereof), Company shall, in addition to all other remedies available to it, be entitled to equitable relief by way of injunction and any other legal or equitable remedies. 10. CONTRACT TERMINATION PAYMENT In the event that Company shall not have made a Qualifying Offer (as hereinafter defined) to Executive by July 1, 2000, and no other agreement between Executive and Company relating to the extension of Executive's employment shall have been entered into by September 30, 2000, Executive shall be entitled to receive, after Executive's: (a) having given Company written notice of its failure to deliver a Qualifying Offer; and (b) not having received such Qualifying Offer from Company within five business days from the delivery of such notice to Company, a contract termination payment of $10,000,000 (the "TERMINATION PAYMENT") from Company. Such Termination Payment shall be due by the earlier of 30 days after the date that such payment shall not be subject to Section 162(m) of the Code or four months after the end of the last fiscal year of the Company during which Executive was employed by Company, but in no event shall such Termination Payment be due earlier than October 1, 2000, except as provided in Section 11(c) hereof. The term "QUALIFYING OFFER" shall mean a written offer of employment to Executive which (i) shall be for a period of not less than five years from October 1, 2000, (ii) shall include the types of compensation contained in this Agreement, (iii) shall constitute a reasonable offer taking into account the 9 compensation to Executive provided for in this Agreement, the Company's financial and operating performance during the term of this Agreement and any other then-current circumstances relevant to the determination of Executive's compensation by Company for the period specified in clause (i) above, (iv) shall not contain any terms or provisions which reduce Executive's title or duties as stated herein, and (vii) shall state that it is irrevocable for 30 days from the date of delivery thereof. Notwithstanding any other term or provision hereof, Executive shall be entitled to receive the Termination Payment in accordance with Section 11(c) hereof in the event of a Non-Fault Termination of Executive's employment for any reason other than death (it being understood that in the event of Executive's death prior to payment of the Termination Payment, Company shall have no obligation under any circumstances to make a Termination Payment to Executive's estate or any other person or entity). In the event that the parties shall disagree as to whether or not an offer timely made by Company in accordance with the foregoing constitutes a Qualifying Offer, the parties shall submit such disagreement to arbitration by a qualified individual executive compensation expert of national reputation who shall not have had dealings with either party during the preceding five years. Upon failure to agree upon the selection of the arbitrator, each party shall submit a panel of three qualified arbitrators, the other party may strike two from the other's list, and the arbitrator shall be selected by lot from the remaining two names. The arbitrator shall have the authority only to determine (i) whether the matter is arbitrable under the conditions of this Agreement and (ii) whether or not the offer made by the Company is a Qualifying Offer. 10 11. TERMINATION (a) Company shall have the right to terminate Executive's employment with Company under the following circumstances: (i) Upon death of Executive. (ii) Upon notice from Company to Executive in the event of an illness or other disability which has totally and permanently incapacitated him from performing his duties for six consecutive months as determined in good faith by the Board of Directors. (iii) For good cause (A) immediately upon notice from Company if Company shall reasonably determine that the conduct or cause specified in such notice is not curable; or (B) upon thirty days' notice from Company, if Company shall determine that the conduct or cause specified in such notice is curable, unless Executive has, within ten days after the date such notice has been given by Company, commenced in good faith to cure the conduct or cause specified in such notice and has completed such cure within 30 days following the date of such notice. Termination by Company of Executive's employment for "good cause" as used in this Agreement shall be limited to gross negligence or malfeasance by Executive in the performance of his duties under this Agreement or the voluntary resignation by Executive prior to expiration of the Term (other than pursuant to a valid termination of employment by Executive in accordance with Section 12 hereof) as an employee of Company without the prior written consent of Company. 11 (b) If Executive's employment is terminated pursuant to Section 11(a)(iii) above, Executive's rights and Company's obligations hereunder and under all stock options granted in accordance with this Agreement shall forthwith terminate in their entirety, except that, notwithstanding the foregoing, (i) the expiration date of any stock options granted in accordance with this Agreement shall be 30 days after the date of termination pursuant to Section 11(a)(iii), and (ii) to the extent that any term or provision of this Agreement shall expressly state that any such right or obligation shall survive termination of the Agreement pursuant to Section 11(a)(iii) hereof, it shall so survive. (c) If a Non-Fault Termination of Executive's employment with Company shall occur, Executive or his estate shall be entitled to receive a lump sum payment equal to the sum of (x) the present value (based on Company's then current cost of borrowing for the remainder of the scheduled Term) of 100% of Executive's base salary for the balance of the term of this Agreement (the percentage of Executive's salary to be paid in such lump sum after such present value calculation being referred to herein as the "PRESENT VALUE PERCENTAGE") and (y) of an amount equal to $7,500,000 multiplied by the product of (A) the Present Value Percentage (expressed as a decimal) and (B) the number of fiscal years of Company in the Term not yet completed at the time of termination. The sum of clauses (x) and (y) above is hereinafter referred to as the "NON-FAULT PAYMENT". In addition, in the event of a Non-Fault Termination for any reason other than death, Executive shall be entitled to receive the Termination Payment. Company may purchase insurance to cover all or any part of its obligations set forth in the preceding sentence, and Executive agrees to take a physical examination to facilitate the obtaining of such insurance. The Non-Fault Payment and Termination Payment (if applicable) shall be made to Executive 12 (or to his estate, if applicable) not later than the earlier of (i) 30 days after the date that such payment shall not be subject to Section 162(m) of the Code, or (ii) four months after the end of the last fiscal year of Company during which Executive was employed by Company. (d) Whenever compensation is payable to Executive hereunder during a time when he is partially or totally disabled and such disability would entitle him to disability income or to salary continuation payments from Company according to the terms of any plan now or hereafter provided by Company or according to any Company policy in effect at the time of such disability, the compensation payable to him hereunder shall be inclusive of any such disability income or salary continuation and shall not be in addition thereto. If disability income is payable directly to Executive by any insurance company under an insurance policy paid for by Company, the amounts paid to him by said insurance company shall be considered to be part of the payments to be made by Company to him pursuant to this Section 11(d) and shall not be in addition thereto. 12. TERMINATION BY EXECUTIVE Prior to the expiration of the Term, Executive shall have the right to terminate his employment under this Agreement upon 30 days' notice to Company given within 60 days following the occurrence of any of the following events, provided that Company shall have 20 days after the date such notice has been given to Company in which to cure the conduct or cause specified in such notice: 13 (a) Executive is not elected or retained in accordance with Section 2 hereof as President (reporting to Company's Chairman and Chief Executive Officer) and a director of Company. (b) Company shall assign duties to Executive hereunder which are materially inconsistent with his position as President. (c) Company shall fail to grant Executive's stock options provided for herein (other than to the extent provided in the last paragraph of Section 5 hereof) or shall reduce his salary or shall deny Executive eligibility for annual discretionary bonuses, or Company shall fail to make any compensation payment required hereunder. 13. FCC PROVISION Executive acknowledges that he has been provided by Company with a copy of Section 508 of the Federal Communications Act of 1934, as amended, relating in part to receiving or paying consideration for product identification in television programs, that he is familiar with the provisions thereof and that he will fully comply therewith during the term of this Agreement. Without limiting the foregoing, however, and whether or not Section 508 is applicable to his activities, Executive agrees that he will not, without Company's prior written consent, accept any compensation or gift from any person, firm or corporation (other than Company) where such compensation or gift is, or may appear to be, in consideration of his acting in a particular manner in relation to the business of such person, firm or corporation. 14 14. EXCLUSIVE REMEDY Executive acknowledges and agrees that the Non-Fault Payment and Termination Payment (if applicable) payable in the event of a Non-Fault Termination, and the provisions relating to any Non-Fault Termination set forth in Section 5 hereof regarding stock options (including, if applicable, any alternative provisions which might be subsequently agreed to in accordance with Section 5 hereof) are fair and reasonable and shall constitute Executive's sole and exclusive remedy, in lieu of all rights and claims of Executive, at law or in equity, for a Non-Fault Termination, including, expressly, for termination of his employment by Company in a manner which shall constitute a breach of this Agreement, and for all other rights and claims of any nature whatsoever related to any such termination, and Executive hereby irrevocably waives all rights and claims of any nature whatsoever in respect of any such termination except for such Non-Fault Payment, Termination Payment (if applicable) and provisions relating to stock options. Such payments shall not be limited or reduced by amounts Executive might earn or be able to earn from any other employment or ventures during the remainder of the scheduled Term following a Non-Fault Termination. 15. ASSIGNMENT Company may assign this Agreement or all or any part of its rights hereunder to any entity that succeeds to all or substantially all of Company's assets or that holds, directly or indirectly, all or substantially all of the capital stock of Company or that is otherwise a successor in interest to Company generally, and this Agreement shall inure to the benefit of, and be binding upon, such assignee or successor in interest. This Agreement is personal to 15 Executive and Executive may not, without the express written permission of Company, assign or pledge any rights or obligations hereunder to any person, firm, corporation or other entity. 16. NO CONFLICT WITH PRIOR AGREEMENTS Executive represents and warrants to Company that neither his commencement of employment hereunder nor the performance of his duties hereunder conflicts with any contractual commitment on his part to any third party or violates or interferes with any rights of any third party. 17. CERTAIN PAYMENTS The parties believe that the payments to Executive hereunder do not constitute "Excess Parachute Payments" under Section 280G of the Code. Notwithstanding such belief, if any payment or benefit under this Agreement is determined to be an "Excess Parachute Payment" Company shall pay Executive an additional amount ("Tax Payment") such that (x) the excess of all Excess Parachute Payments (including payments under this sentence) over the sum of excise tax thereon under Section 4999 of the Code and income tax thereon under Subtitle A of the Code and under applicable state law is equal to (y) the excess of all Excess Parachute Payments (excluding payments under this sentence) over income tax thereon under Subtitle A of the Code and under applicable state law. 18. KEY MAN INSURANCE Company shall have the right to secure, in its own name or otherwise, and at its own expense, life, disability, accident or other insurance covering 16 Executive and Executive shall have no right, title or interest in or to such insurance. Executive shall assist Company in procuring such insurance by submitting to reasonable examinations and signing such applications and other instruments as may be required by the insurance carriers to which application is made for any such insurance. 19. POST-TERMINATION OBLIGATIONS After the expiration or earlier termination of Executive's employment hereunder for any reason whatsoever, Executive shall not either alone or jointly, with or on behalf of others, either directly or indirectly, expressly or impliedly, whether as principal, partner, agent, shareholder, director, employee, consultant or otherwise, at any time during a period of two years following such expiration or termination, solicit in any manner whatsoever the employment or engagement of, either for his own account or for any other person, firm, company or other entity, any person who is employed by Company or any affiliated entity, whether or not such person would commit any breach of his contract of employment by reason of his leaving the service of Company or any affiliated entity. 20. ENTIRE AGREEMENT; AMENDMENTS; WAIVER, ETC. (a) This Agreement supersedes all prior and/or contemporaneous agreements and/or statements, whether written or oral, concerning the terms of Executive's employment, and no amendment or modification of this Agreement shall be binding unless set forth in a writing signed by Company and Executive. No waiver by either party of any breach by the other party of any provision or condition of this Agreement shall be effective unless in writing and signed by the party effecting the waiver, and no such waiver shall be 17 deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time. (b) Nothing herein contained shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision of this Agreement and any present or future statute, law, ordinance or regulation, the latter shall prevail, but in such event the provision of this Agreement affected shall be curtailed and limited only to the extent necessary to bring it within legal requirements. (c) This Agreement does not constitute a commitment of Company with regard to Executive's employment, express or implied, other than to the extent expressly provided for herein. Upon expiration of the Term, it is the contemplation of both parties that Executive's employment with Company shall cease unless an employment agreement with respect to such subsequent period shall have been entered into, and that neither Company nor Executive shall have any obligation to the other with respect to continued employment. In the event that Executive's employment continues for any period of time following the stated expiration of the Term, unless and until agreed to in a new subscribed written document, such employment or any continuation thereof is "at will," and may be terminated without obligation at any time by either party's giving notice to the other. (d) Company shall have the right but not the obligation to use Executive's name or likeness for any publicity or advertising purpose during the term of Executive's employment with Company. Company is under no obligation to accord Executive credit for any production. 18 (e) All payments required to be made to Executive hereunder, whether during the term of his employment hereunder or otherwise, shall be subject to all applicable federal, state and local tax withholding laws. (f) This Agreement shall be governed by and construed in accordance with the laws of the State of California. In the event of any controversy or claim by either party hereunder the prevailing party in any final and legally binding adjudication (as to which all periods for the filing of any appeal have expired) with respect to such controversy or claim shall be entitled to reimbursement from the losing party for reasonable attorney's fees and costs and for all other reasonable expenses of such adjudication. 21. NOTICES All notices that either party is required or may desire to give the other shall be in writing shall be effective (i) upon personal delivery or (ii) three business days after deposit of same with the United States Postal Service for delivery by certified mail, return receipt requested, addressed to the party to be given notice as follows: To Company: 500 South Buena Vista Street Burbank, California 91521 Attn: Chairman and Chief Executive Officer To Executive: Michael S. Ovitz The Walt Disney Company 500 South Buena Vista Street Burbank, California 91521 19 With copies to: Robert L. Adler, Esq. Munger, Tolles & Olson 355 South Grand Avenue, 35th Floor Los Angeles, California 90071 and Michael A. Rubel, Esq. Del, Rubel, Shaw, Mason & Derin 2029 Century Park East, Suite 3910 Los Angeles, California 90067-3025 Either party may by written notice designate a different address for giving of notices. The date of mailing of any such notices shall be deemed to be the date on which such notice is given. 22. HEADINGS The headings set forth herein are included solely for the purpose of identification and shall not be used for the purpose of construing the meaning of the provisions of this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE WALT DISNEY COMPANY /s/ MICHAEL S. OVITZ By: /s/ MICHAEL D. EISNER - - -------------------- --------------------------------------- Michael S. Ovitz Title: Chairman and Chief Executive Officer 20 EX-10.(M) 4 CASH BONUS PERFORMANCE PLAN EXHIBIT 10(m) 1996 CASH BONUS PERFORMANCE PLAN FOR ELIGIBLE EXECUTIVE OFFICERS OF DC HOLDCO, INC. PURPOSE OF PLAN The purpose of the Plan is to promote the success of the Company by providing to participating executives bonus incentives that qualify as performance-based compensation within the meaning of Section 162(m) of the Code. DEFINITIONS AND TERMS 2.1 ACCOUNTING TERMS. Except as otherwise expressly provided or the context otherwise requires, financial and accounting terms are used as defined for purposes of, and shall be determined in accordance with, generally accepted accounting principles, as from time to time in effect, as applied and reflected in the consolidated financial statements of the Company, prepared in the ordinary course of business. 2.2 SPECIFIC TERMS. The following words and phrases as used herein shall have the following meanings unless a different meaning is plainly required by the context: "BASE SALARY" means the aggregate base annualized salary of a Participant from the Company and all affiliates of the Company at the time of the adoption of the Plan, or when the Participant first becomes eligible to participate (if after that time), exclusive of any commissions or other actual or imputed income from any Company-provided benefits or perquisites, but prior to any reductions for salary deferred pursuant to any deferred compensation plan or for contributions to a plan qualifying under Section 401(k) of the Code or contributions to a cafeteria plan under Section 125 of the Code. "BASE SALARY MULTIPLE" means an amount equal to 10 times Base Salary. "BONUS" means a cash payment or payment opportunity as the context requires. "BUSINESS CRITERIA" means one or any combination of Net Income, Return on Equity, or Return on Assets. "CAPCITIES ACQUISITION" means the pending acquisition of Capital Cities/ABC, Inc. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMITTEE" means the Committee established to administer the Plan in accordance with Section 3.1 and Section 162(m) of the Code. "COMPANY" means DC Holdco, Inc. and any successor, whether by merger, ownership of all or substantially all of its assets, or otherwise. "ELIGIBLE EXECUTIVE" means an Executive described in Section 4.4. "EXECUTIVE" means a person who is or on the effective date of the CapCities Acquisition will be an "executive officer" as defined in Rule 3b-7 under the Securities Exchange Act of 1934. "NET INCOME" means the consolidated net income of the Company, as reported in the audited financial statements of the Company for the Year, subject to any adjustments required or permitted by the Plan. "PARTICIPANT" means an Eligible Executive selected to participate in the Plan by the Committee. "PERFORMANCE TARGET(S)" means the specific objective goal or goals (which may be cumulative and/or alternative) that are timely established in writing by the 2 Committee for each Executive for the Year in respect of any one or more of the Business Criteria. "PLAN" means the 1996 Cash Bonus Performance Plan for Eligible Executive Officers of the Company, as amended from time to time. "RETURN ON ASSETS" means Net Income divided by the average of the total assets of the Company at the end of the four fiscal quarters of the Year, as reported by the Company in its consolidated financial statements. "RETURN ON EQUITY" means the Net Income divided by the average of the common stockholders equity of the Company at the end of each of the four fiscal quarters of the Year, as reported by the Company in its consolidated financial statements. "SECTION 162(m)" means Section 162(m) of the Code, and the regulations promulgated thereunder, all as amended from time to time. "TWDC" means The Walt Disney Company. "YEAR" means the Company's 1996 fiscal year (including the operations during such fiscal year of its predecessor, TWDC), which represents the applicable performance period. ADMINISTRATION OF THE PLAN 3.1 THE COMMITTEE. Prior to the time the Company becomes a public company, the decision to establish the Plan, the selection of applicable Business Criteria and Performance Target(s) and the selection of Participants shall be made by the Compensation Committee of the Board of Directors of TWDC. Thereafter, the Plan shall be administered by a Committee consisting of at least three members of the Board of Directors of the Company, duly authorized by the Board of Directors of the Company to administer the Plan, who (i) are not eligible to participate in the Plan and (ii) are "outside directors" (within the meaning of Section 162(m), including applicable transition provisions). 3 3.2 POWERS OF THE COMMITTEE. The Committee shall have the sole authority to establish and administer the Performance Target(s) and the responsibility of determining from among the Eligible Executives those persons who will participate in and receive Bonuses under the Plan and the amount of such Bonuses and shall otherwise be responsible for the administration of the Plan, in accordance with its terms. The Committee shall have the authority to construe and interpret the Plan and any agreement or other document relating to any Bonus under the Plan, may adopt rules and regulations governing the administration of the Plan, and shall exercise all other duties and powers conferred on it by the Plan, or which are incidental or ancillary thereto. 3.3 REQUISITE ACTION. A majority (but not fewer than two) of the members of the Committee shall constitute a quorum. The vote of a majority of those present at a meeting at which a quorum is present or the unanimous written consent of the Committee shall constitute action by the Committee. 3.4 EXPRESS AUTHORITY (AND LIMITATIONS ON AUTHORITY) TO CHANGE TERMS AND CONDITIONS OF BONUS. Without limiting the Committee's authority under other provisions of the Plan, but subject to any express limitation of the Plan, the Committee shall have the authority to accelerate a Bonus and to waive restrictive conditions for a Bonus (including forfeiture conditions, but not Performance Target(s)), in such circumstances as the Committee deems appropriate. 4. BONUS PROVISIONS. 4.1 PROVISION FOR BONUS. Each Participant may receive a Bonus if and only if the Performance Target(s) established by the Committee, relative to the applicable Business Criteria, are attained. The applicable Performance Target(s) shall be determined by the Committee consistent with the terms of the Plan and Section 162(m). Notwithstanding the fact that the Performance Target(s) have been attained, the Company may pay a Bonus of less than the amount determined by the formula or standard established pursuant to Section 4.2 or may pay no Bonus at all. 4 4.2 SELECTION OF PERFORMANCE TARGET(S). The specific Performance Target(s) with respect to the Business Criteria must be established by the Committee in advance of the deadlines applicable under Section 162(m) and while the performance relating to the Performance Target(s) remains substantially uncertain within the meaning of Section 162(m). At the time the Performance Target(s) are selected, the Committee shall provide, in terms of an objective formula or standard for each Participant, the method of computing the specific amount that will represent the maximum amount of Bonus payable to the Participant if the performance Target(s) are attained, subject to Sections 4.1, 4.7, 5.1 and 5.8. 4.3 MAXIMUM INDIVIDUAL BONUS. Notwithstanding any other provision hereof, no Executive shall receive a Bonus under the Plan for the Year in excess of the lesser of $10 million or his or her Base Salary Multiple. 4.4 ELIGIBLE CLASS OF PARTICIPANTS. Eligible Executives include only Executives at or above the level of Executive Vice President, including the Vice Chairman, but excluding the Chairman and Chief Executive Officer (whose annual bonus is set by the terms of this employment agreement). 4.5 EFFECT OF MID-YEAR COMMENCEMENT OF SERVICE. To the extent compatible with Sections 4.2 and 5.8, if services as an Executive commence after the adoption of the Plan and the Performance Target(s) are established, the Committee may grant a Bonus that is proportionately or otherwise adjusted based on objective factors to take into account the period of actual service. 4.6 CHANGES RESULTING FROM MATERIAL ACQUISITIONS, DISPOSITIONS OR RECAPITALIZATIONS; EXTRAORDINARY ITEMS; ACCOUNTING CHANGES. Subject to Section 5.8, in the event of a material change in accounting assumptions, principles or practices after the Performance Target(s) are established, which change affects the Year's results relative to the Business Criteria, or in the event of a recapitalization, restructuring, merger, combination, consolidation, change in capitalization or capital structure or other reorganization (except for the CapCities Acquisition which will be taken into account by the Committee in setting the Performance 5 Target(s) for the Year), or any extraordinary dividend or other extraordinary distribution (whether in the form of cash, securities or other property) or acquisition, or other extraordinary event out of the ordinary course of business in respect of or materially affecting the applicable Business Criteria, then the Committee may, in the manner and to the extent, if any, it deems appropriate and equitable to the Participants and consistent with the terms of the Plan, proportionately adjust any or all of the Performance Target(s), based solely on objective criteria, so as to neutralize, in the Committee's best judgment, the effect of the change on the applicable pre-established Performance Target(s) for the Year. 4.7 COMMITTEE DISCRETION TO DETERMINE BONUSES. The Committee has the sole discretion to determine the standard or formula pursuant to which each Participant's Bonus shall be calculated (in accordance with Section 4.2), whether all or any portion of the amount so calculated will be paid, and the specific amount (if any) to be paid to each Participant, subject in all cases to the terms, conditions and limits of the Plan. The Committee may at any time establish such additional conditions and terms of payment of Bonuses (including but not limited to the achievement of other financial, strategic or individual goals, which may be objective or subjective) as it may deem desirable in carrying out the purposes of the Plan and may take into account such other factors as it deems appropriate in administering any aspect of the Plan. The Committee may not, however, increase the maximum amount permitted to be paid to any individual under Section 4.2 or 4.3 of the Plan. 4.8 COMMITTEE CERTIFICATION. No Executive shall receive any payment under the Plan unless the Committee has certified, by resolution or other appropriate action in writing, that the amount thereof has been accurately determined in accordance with the terms, conditions and limits of the Plan and that the Performance Target(s) and any other material terms previously established by the Committee or set forth in the Plan were in fact satisfied. 4.9 TIME OF PAYMENT. Subject to Section 4.8, Bonuses granted by the Committee under Section 4.8 of the Plan shall be paid as and when determined by the Committee. Any such payment shall be in cash or cash equivalent, 6 subject to applicable withholding requirements. The Committee, in its sole discretion, may defer, with any conditions it deems appropriate, the payout or vesting of any Bonus. GENERAL PROVISIONS 5.1 NO RIGHT TO BONUS OR CONTINUED EMPLOYMENT. Neither the establishment of the Plan nor the provision for or payment of any amounts hereunder nor any action of the Company, TWDC, the Board of Directors of either of them or the Committee in respect of the Plan, shall be held or construed to confer upon any person any legal right to receive, or any interest in, a Bonus or any other benefit under the Plan, or any legal right to be continued in the employ of the Company. TWDC and the Company expressly reserve any and all rights to discharge an Executive in its sole discretion, without liability of any person, entity or governing body under the Plan or otherwise. Notwithstanding any other provision hereof and notwithstanding the fact that the Performance Target(s) have been attained and/or the individual maximum amounts pursuant to Section 4.2 have been calculated, the Company shall have no obligation to pay any Bonus hereunder nor to pay the maximum amount so calculated. 5.2 DISCRETION OF COMPANY, BOARD OF DIRECTORS AND COMMITTEE. Any decision made or action taken by the Company or TWDC, the Board of Directors of the Company or TWDC or by the Committee arising out of or in connection with the construction, administration, interpretation and effect of the Plan shall be within the absolute discretion of such entity and shall be conclusive and binding upon all persons. No member of the Committee shall have any liability for actions taken or omitted under the Plan by the member or any other person. 5.3 ABSENCE OF LIABILITY. A member of the Board or Directors of the Company or TWDC or of the Committee or any officer of the Company or TWDC shall not be liable for any act or inaction hereunder, whether of commission or omission. 5.4 NO FUNDING OF PLAN. The Company shall not be required to fund or otherwise segregate any cash or any 7 other assets which may at any time be paid to Participants under the Plan. The Plan shall constitute an "unfunded" plan of the Company. The Company shall not, by any provisions of the Plan, be deemed to be a trustee of any property, and any obligations of the Company to any Participant under the Plan shall be those of a debtor and any rights of any Participant or former Participant shall be limited to those of a general unsecured creditor. 5.5 NON-TRANSFERABILITY OF BENEFITS AND INTERESTS. Except as expressly provided by the Committee, no benefit payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any such attempted action be void and no such benefit shall be in any manner liable for or subject to debts, contracts, liabilities, engagements or torts of any Participant or former Participant. This Section 5.5 shall not apply to an assignment of a contingency or payment due after the death of the Executive to the deceased Executive's legal representative or beneficiary. 5.6 LAW TO GOVERN. All questions pertaining to the construction, regulation, validity and effect of the provisions of the Plan shall be determined in accordance with the laws of the State of California. 5.7 NON-EXCLUSIVITY. Subject to Section 5.8, the Plan does not limit the authority of the Company, the Board or the Committee to grant awards or authorize any other compensation under any other plan or authority, including, without limitation, awards or other compensation based on the same Performance Target(s) used under the Plan. In addition, Executives not selected to participate in the Plan may participate in other plans of the Company. 5.8 SECTION 162(m) CONDITIONS; BIFURCATION OF PLAN. It is the intent of the Company that the Plan and Bonuses paid hereunder satisfy and be interpreted in a manner, that, in the case of Participants who are or may be persons whose compensation is subject to Section 162(m), satisfies any applicable requirements as performance-based compensation. Any provision, application or interpretation of the Plan inconsistent with this intent to satisfy the standards in Section 162(m) of the Code shall be 8 disregarded. Notwithstanding anything to the contrary in the Plan, the provisions of the Plan may at any time be bifurcated by the Board or the Committee in any manner so that certain provisions of the Plan or any Bonus intended (or required in order) to satisfy the applicable requirements of Section 162(m) are only applicable to persons whose compensation is subject to Section 162(m). AMENDMENTS, SUSPENSION OR TERMINATION OF PLAN The Board of Directors or the Committee may from time to time amend, suspend or terminate in whole or in part, and if suspended or terminated, may reinstate, any or all of the provisions of the Plan. Notwithstanding the foregoing, no amendment may be effective without Board of Directors and/or shareholder approval if such approval is necessary to comply with the applicable rules of Section 162(m) of the Code. 9 EX-10.(S) 5 DISNEY SALARIED SAVINGS & INVESTMENT PLAN EXHIBIT 10(s) DISNEY SALARIED SAVINGS AND INVESTMENT PLAN As Amended and Restated Effective January 1, 1987 DISNEY SALARIED SAVINGS AND INVESTMENT PLAN TABLE OF CONTENTS
PAGE ---- PREAMBLE. I ARTICLE 1 DEFINITIONS SECTION - - ------- 1.01. ADJUSTMENT FACTOR 1 1.02. AFFILIATED EMPLOYER 1 1.03. AFTER-TAX ACCOUNT 1 1.04. AGGREGATE ACCOUNT 2 1.05. BENEFICIARY 2 1.06. BOARD OF DIRECTORS 3 1.07. BREAK IN SERVICE 3 1.08. CODE 4 1.09. COMMITTEE 4 1.10. COMPANY 4 1.11. COMPANY STOCK 4 1.12. COMPENSATION 5 1.13. COVERED EMPLOYEE 6 1.14. EFFECTIVE DATE 7 1.15. ELIGIBILITY COMPUTATION PERIOD 7 1.16. ELIGIBLE EMPLOYEE 7 1.17. EMPLOYEE 8 1.18. EMPLOYER 8 1.19. EMPLOYMENT COMMENCEMENT DATE 8 1.20. ENROLLMENT DATE 8 1.21. ERISA 9 1.22. HIGHLY COMPENSATED EMPLOYEE 9 1.23. HOUR OF SERVICE 11 1.24. INCOME 16 1.25. LEASED EMPLOYEE 16 1.26. LEAVE OF ABSENCE 16 1.27. MATCHING ACCOUNT 17 1.28. MATCHING CONTRIBUTION 17 1.29. MAXIMUM COMPENSATION LIMITATION 17 1.30. PARTICIPANT 19 1.31. PLAN 20 1.32. PLAN YEAR 20 1.33. REEMPLOYMENT COMMENCEMENT DATE 20 1.34. RULE OF PARITY 20 1.35. ROLLOVER ACCOUNT 21
i DISNEY SALARIED SAVINGS AND INVESTMENT PLAN TABLE OF CONTENTS
CONTINUED PAGE ---- 1.36. ROLLOVER CONTRIBUTION 21 1.37. SECTION 415 COMPENSATION 21 1.38. SECTION 402(G) LIMIT 23 1.39. SPECIAL ACCOUNT 24 1.40. SPECIAL CONTRIBUTION 25 1.41. SPOUSAL CONSENT 25 1.42. TAX-DEFERRED ACCOUNT 26 1.43. TAX-DEFERRED CONTRIBUTIONS 26 1.44. TRUST AGREEMENT 26 1.45. TRUST FUND 26 1.46. TRUSTEE 26 1.47. VALUATION DATE 27 1.48. VALUATION PERIOD 27 ARTICLE 2 PARTICIPATION 2.01. ELIGIBILITY 28 2.02. PARTICIPATION 28 2.03. REEMPLOYMENT OF FORMER EMPLOYEES AND FORMER PARTICIPANTS 29 2.04. TRANSFERRED PARTICIPANTS 29 2.05 TERMINATION OF EMPLOYMENT AND TERMINATION OF PARTICIPATION 30 ARTICLE 3 CONTRIBUTIONS 3.01. TAX-DEFERRED CONTRIBUTIONS 31 3.02. MATCHING CONTRIBUTIONS 33 3.03. SPECIAL CONTRIBUTIONS 34 3.04. DEDUCTIBILITY LIMITATIONS AND FORM OF CONTRIBUTION 36 3.05. ROLLOVER CONTRIBUTIONS 36 3.06. AFTER-TAX CONTRIBUTIONS 39 3.07. RETURN OF CONTRIBUTIONS 39 ARTICLE 4 ALLOCATIONS 4.01. INDIVIDUAL ACCOUNTS 41 4.02. ACCOUNT ADJUSTMENTS 42 4.03. LIMITATION ON ALLOCATIONS 44 4.04. NO GUARANTEE 44 4.05. ANNUAL STATEMENT OF ACCOUNTS 45
ii DISNEY SALARIED SAVINGS AND INVESTMENT PLAN TABLE OF CONTENTS
CONTINUED PAGE ---- ARTICLE 5 VESTING 5.01. NONFORFEITABILITY 46 5.02. SUSPENSION OF BENEFITS 46 ARTICLE 6 DISTRIBUTIONS 6.01. WITHDRAWALS FROM AFTER-TAX ACCOUNT 47 6.02. LOANS TO ACTIVE PARTICIPANTS 47 6.03. HARDSHIP WITHDRAWALS 52 6.04. DISTRIBUTIONS ON ACCOUNT OF TERMINATION OF EMPLOYMENT 56 6.05 RESTRICTIONS AND REQUIREMENTS ON DISTRIBUTIONS 60 6.06 METHOD OF PAYMENT FOR ELIGIBLE ROLLOVER DISTRIBUTIONS 65 6.07 RECAPTURE OF PAYMENTS 70 ARTICLE 7 INVESTMENT ELECTIONS AND VOTING OF COMPANY STOCK 7.01 INVESTMENT OPTIONS 72 7.02 VOTING OF COMPANY STOCK 80 ARTICLE 8 ADMINISTRATION OF PLAN 8.01 APPOINTMENT OF PLAN COMMITTEE 82 8.02 DUTIES OF COMMITTEE 82 8.03 MEETINGS 83 8.04 QUORUM 83 8.05 COMPENSATION AND BONDING 84 8.06 ESTABLISHMENT OF RULES AND INTERPRETATION OF PLAN 84 8.07 PRUDENT CONDUCT 84 8.08 SERVICE IN MORE THAN ONE FIDUCIARY CAPACITY 85 8.09 LIMITATION OF LIABILITY 85 8.10 INDEMNIFICATION 86 8.11 EXPENSES OF ADMINISTRATION 86 8.12 CLAIMS PROCEDURES 87 ARTICLE 9 MANAGEMENT OF FUNDS 9.01 TRUST AGREEMENT 89 9.02 EXCLUSIVE BENEFIT RULE 89 9.03 COMMITTEE POWER AND DUTIES 90
iii DISNEY SALARIED SAVINGS AND INVESTMENT PLAN TABLE OF CONTENTS
CONTINUED PAGE ---- ARTICLE 10 GENERAL PROVISIONS 10.01 NONALIENATION 93 10.02 NO CONTRACT OF EMPLOYMENT 94 10.03 FACILITY OF PAYMENT 95 10.04 INFORMATION 95 10.05 CONSTRUCTION 96 10.06 PROOF OF DEATH AND RIGHT OF BENEFICIARY OR OTHER PERSON 96 10.07 FAILURE TO LOCATE RECIPIENT 97 ARTICLE 11 AMENDMENT, MERGER AND TERMINATION 11.01 AMENDMENT OF PLAN 98 11.02 MERGER OR CONCLUSION 100 11.03 ADDITIONAL PARTICIPATING EMPLOYERS 101 11.04 TERMINATION OF PLAN 102 11.05 DISTRIBUTION OF ASSETS ON PLAN TERMINATION OR A COMPLETE DISCONTINUANCE OF CONTRIBUTIONS 102 11.06 NOTIFICATION OF TERMINATION 104 11.07 CHANGE IN CONTROL 104 ARTICLE 12 TOP-HEAVY PROVISIONS 12.01 PRIORITY OVER OTHER PLAN PROVISIONS 106 12.02 DEFINITIONS USED IN THIS ARTICLE 106 12.03 MINIMUM ALLOCATION 112 12.04 MODIFICATION OF AGGREGATE BENEFIT LIMIT 115 12.05 MINIMUM VESTING 117 ARTICLE 13 LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS TO PARTICIPANT'S ACCOUNTS 13.01 PRIORITY OVER OTHER CONTRIBUTIONS AND ALLOCATION PROVISIONS 118 13.02 DEFINITIONS USED IN THIS ARTICLE 118 13.03 GENERAL ALLOCATION LIMITATION 129 13.04 EXCESS ALLOCATIONS 129 13.05 AGGREGATE BENEFIT LIMITATION 133 13.06 NO CONFLICT WITH CODE SECTION 415 134 13.07 LIMITATION ON DEFERRAL CONTRIBUTIONS 135 13.08 LIMITATION ON MATCHING CONTRIBUTIONS 138 13.09 AGGREGATION RULES 139
iv PREAMBLE DISNEY SALARIED SAVINGS AND INVESTMENT PLAN The Disney Salaried Savings and Investment Plan (the "Plan") was originally adopted, effective May 1, 1984, by The Walt Disney Company ("Company") by authorization of the Board of Directors of its predecessor, Walt Disney Productions, to provide a retirement savings vehicle for certain salaried employees of the Company and such other participating companies as approved by the Company as described in Section 11.03. The Plan was subsequently amended and restated effective June 1, 1990, but the June 1, 1990 restatement did not contain revisions necessary to bring the Plan into compliance with the Tax Reform Act of 1986 and subsequent legislation. The June 1, 1990 restatement did contain provisions contemplating that a portion of the Plan be designated as a stock bonus plan (assigned plan number 012) in the event the Company determined, at some future date, to include employee stock ownership plan ("ESOP") features (as defined in Internal Revenue Code Section 4975(e)(8) and 409(l)) into the Plan. In 1994, the Company decided that it did not intend to adopt an ESOP in the near future so that the ESOP provisions have been eradicated from the Plan document contained herein. Retroactively effective as of January 1, 1987, Disney has amended and restated the Plan, as set forth herein, to meet the i requirements of the Tax Reform Act of 1986 and subsequent federal legislation and regulations and to make other clarifying and desirable revisions. The Plan, as set forth herein is intended to qualify as a profit sharing plan with a cash or deferred arrangement under Sections 401(a) and 401(k) of the Internal Revenue Code. Although the Plan is intended to qualify as a profit sharing plan, employer contributions hereunder may be made without regard to profits. The provisions of this Plan shall apply only to an employee who terminates employment with the employers on or after the Effective Date. A former employee's eligibility for benefits and the amount of benefits, if any, payable to or on behalf of a former employee shall be determined in accordance with the provisions of the Plan in effect on the date his employment terminated. The benefit payable to or on behalf of a Participant included under the Plan in accordance with the following provisions shall not be affected by the terms of any amendment to the Plan adopted after such Participant's employment terminates, unless the amendment expressly provides otherwise. ii DISNEY SALARIED SAVINGS AND INVESTMENT PLAN EFFECTIVE JANUARY 1, 1987 Article 1. Definitions - - --------- ----------- 1.01. "ADJUSTMENT FACTOR" means the cost of living adjustment factors prescribed by the Secretary of the Treasury under Section 415(d) of the Code applied to such items and in such manner as the Secretary shall provide. 1.02. "AFFILIATED EMPLOYER" means any company not participating in the Plan which is a member of a controlled group of corporations (determined under Section 1563(a) of the Code without regard to Section 1563(a)(4) and (e)(3)(C)) with The Walt Disney Company or any trade or business under common control (as defined in Section 414(c) of the Code) with The Walt Disney Company, or a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes The Walt Disney Company. 1.03. "AFTER-TAX ACCOUNT" means the account maintained for a Participant to record his after-tax contributions made to the Plan prior to January 1, 1987 and adjustments relating thereto. 1 1.04. "AGGREGATE ACCOUNT" means the records, including subaccounts, maintained by the Committee in the manner provided hereunder to determine the interest of each Participant in the assets of the Plan and may refer to any or all of the accounts which a Participant may have under this Plan namely, a Tax-Deferred Account, a Matching Account, a Rollover Account, a Special Account or an After-Tax Account. 1.05. "BENEFICIARY" means any person, persons or entity named by a Participant by written designation filed with the Committee to receive benefits payable in the event of the Participant's death, provided that if the Participant is married and he designates other than his spouse as the Beneficiary, he obtains Spousal Consent. If any Participant fails to designate a Beneficiary, or if the Beneficiary designated by a deceased Participant died before him, then the Beneficiary shall be deemed to be the Participant's surviving spouse, or if none then the benefits will be paid in accordance with the following order of priority: (a) the Participant's children (equally), or if none; (b) the Participant's parents (equally), or if none; 2 (c) the Participant's brothers and sisters, (equally), or if none; (d) the Participant's estate. 1.06. "BOARD OF DIRECTORS" means the Board of Directors of The Walt Disney Company. 1.07. "BREAK IN SERVICE" means an Eligibility Computation period during which an Employee has been credited with less than 501 Hours of Service. Solely for the purpose of determining whether an Employee has incurred a Break in Service, Hours of Service shall also include hours granted, on the basis of forty-five (45) hours per week, for periods during which an Employee is on an approved Leave of Absence. If an Employee is absent from work because of such Employee's pregnancy, the birth of a child, placement of an adopted child, or caring for an adopted or natural child following birth or placement, the individual shall not be treated as having incurred a Break in Service in the Eligibility Computation Period in which the absence begins or, if the individual would 3 not otherwise have suffered a Break in Service during that Eligibility Computation Period, in the next following Eligibility Computation Period. The Committee may require that a Employee file a written request to receive Hours of Service credit under this paragraph. Unless otherwise determined by the Committee or an Employer's personnel practices, an Employee who is absent from work for the reasons described in this paragraph shall be deemed to have terminated employment for all purposes of this Plan other than the special Break in Service rule in this paragraph. 1.08. "CODE" means the Internal Revenue Code of 1986, as it may be amended from time to time. 1.09. "COMMITTEE" means the Committee appointed by the Board of Directors to administer the Plan in accordance with Article 8, and to have such additional powers as provided elsewhere in the Plan. 1.10. "COMPANY" means The Walt Disney Company. 1.11. "COMPANY STOCK" means common stock of The Walt Disney Company. 4 1.12. "COMPENSATION" means an Employee's base pay (excluding overtime, bonuses, relocation reimbursement, stock options, or other extraordinary payments as determined by the Committee) paid during the calendar year by the Employer in return for the Employee's services. Compensation does not include: (a) Employer contributions to any pension plan other than contributions caused by an Employee's salary deferral reduction pursuant to Section 401(k) of the Code; (b) Employer contributions to this Plan or any other plan of deferred compensation maintained by an Employer other than Tax-Deferred Contributions; (c) Fringe benefits not taxable to the Employee; (d) Payments to or on behalf of an individual after he is no longer an Employee; (e) Salary deferral reductions pursuant to a Cafeteria Plan as described in Section 125 of the Code; 5 (f) Imputed life insurance and all other forms of imputed income. Compensation shall not, for Plan purposes, exceed the Maximum Compensation Limitation . 1.13. "COVERED EMPLOYEE" means an Employee who: (a) Is employed by an Employer; (b) Receives Compensation in the form of a salary (as distinguished from hourly-paid Employees), whether or not such Employee is exempt for wage-and-hour-law purposes; (c) Is not a member of a collective-bargaining unit that has a collective bargaining agent, unless the Board of Directors specifically waives this requirement; (d) Is not a Leased Employee; and (e) Is not a non-resident alien with respect to the United States. 6 1.14. "EFFECTIVE DATE" means January 1, 1987, the date this amended and restated Plan becomes effective. 1.15. "ELIGIBILITY COMPUTATION PERIOD" means, with respect to an Employee, the applicable of (a) or (b) as follows: (a) A 12 consecutive month period commencing on the Employee's Employment Commencement Date in which he has been credited with at least 1,000 Hours of Service; or (b) Plan Year: In the case of an Employee who is not credited with at least 1,000 Hours of Service in the 12 month period described in Section 1.15 (a) above, a Plan Year, commencing with the Plan Year beginning immediately following the Employee's Employment Commencement Date, in which he has been credited with at least 1,000 Hours of Service. An Employee's Eligibility Computation Periods are subject to and may be ignored pursuant to the Rule of Parity. 1.16 "ELIGIBLE EMPLOYEE" means a Covered Employee who has attained age eighteen and has completed one Eligibility 7 Computation Period. An Employee is an Eligible Employee on the day before he satisfies the requirements of Article 2 of the Plan. 1.17 "EMPLOYEE" means any person receiving compensation for services rendered to an Employer or an Affiliated Employer, whose compensation is subject to withholding of income tax and/or for whom Social Security contributions are made by an Employer, including any Leased Employee but excluding any person who serves solely as a director or independent contractor. 1.18 "EMPLOYER" means the Company and any subsidiary or affiliated company which, with the approval of the Company, adopts this Plan as described in Section 11.03. 1.19 "EMPLOYMENT COMMENCEMENT DATE" means the first date as of which an Employee is credited with an Hour of Service for an Employer or an Affiliated Employee. 1.20 "ENROLLMENT DATE" means the first day of the calendar month after an Employee becomes an Eligible Employee or the beginning of any payroll period thereafter as of 8 which the Eligible Employee elects to commence participation in the Plan. 1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.22 "HIGHLY COMPENSATED EMPLOYEE" means any Employee of the Employers or an Affiliated Employer (whether or not eligible for participation in the Plan) who satisfies one or more of the following criteria: (a) During the current Plan year or the preceding Plan Year, the Employee was at any time a 5% owner of an Employer or an Affiliated Employer. (b) During the preceding Plan Year, the Employee received: (i) Section 415 Compensation in excess of $75,000 multiplied by the Adjustment Factor; (ii) Section 415 Compensation in excess of $50,000 multiplied by the Adjustment Factor and was among the highest 20% of Employees for that year when ranked by Section 415 Compensation 9 paid for that year excluding, for purposes of determining the number of such Employees, such Employees as the Company may determine on a consistent basis pursuant to Section 414(q)(8) of the Code; or (iii) Section 415 Compensation greater than 50% of the dollar limitation on maximum benefits under Section 415(b)(1)(A) of the Code for such Plan Year and was at any time an officer of an Employer or an Affiliated Employer (subject to the limitations of Section 414(q) (5) of the Code). (c) During the current Plan Year, the Employee meets the criteria under Section 1.22(b)(i), (ii) or (iii) and is one of the 100 highest-paid Employees of an Employer or an Affiliated Employer. (d) A former Employee who separated from service prior to the current Plan Year and who was a 5 percent owner for either (i) the year he separated from service or (ii) any Plan Year ending on or after the date the Employee attains age 55. 10 (e) Notwithstanding the foregoing, Employees who are nonresident aliens and who receive no earned income from an Employer or an Affiliated Employer which constitutes income from sources within the United States shall be disregarded for all purposes of this Section 1.22. (f) The Committee may elect to determine the status of Highly Compensated Employees under the simplified snapshot method described in IRS Revenue Procedure 93-42, or the extent permitted under regulations, on a current calendar year basis. (g) The provisions of this Section 1.22 shall be further subject to such additional requirements as shall be described in Section 414(q) of the Code and its applicable regulations, which shall override any aspects of this Section 1.22 inconsistent therewith. 1.23 "HOUR OF SERVICE" means, with respect to any applicable computation period. (a) An Hour of Service is each hour for which an Employee is paid or is entitled to payment for the 11 performance of duties for an Employer or an Affiliated Employer during the applicable computation period. (b) An Hour of Service is each hour for which an Employee is paid, or is entitled to payment, by an Employer or an Affiliated Employer on account of a period during which no duties are performed (regardless of whether the employment relationship has terminated) because of vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence, but (1) no more than 501 Hours of Service are to be credited under this subsection (b) to an individual for any single continuous period during which he performs no duties (whether or not the period occurs in a single computation period); (2) an hour is not credited where an individual directly or indirectly paid or is entitled to payment because of a period during which no duties are performed if that payment is made 12 or is due under a plan maintained solely for the purpose of complying with applicable worker's compensation or unemployment compensation or disability insurance laws; and (3) Hours of Service will not be credited for a payment that solely reimburses an individual for medical or medically related expenses incurred. For purposes of his subsection (b), a payment is deemed to be made by or be due from an Employer or an Affiliated Employer regardless of whether it is made by or due from that entity directly or indirectly through a trust fund or insurers (among others) to which that entity contributes or pays premiums and regardless of whether contributions made or due to the trust fund or insurer or other funding vehicle are for the benefit of particular individuals or are on behalf of a group of individuals in the aggregate. (c) An Hour of Service is each hour for which back pay, irrespective of mitigation of damages, is 13 either awarded or agreed to by an Employer or Affiliated Employer. The same Hours of Service must not be credited both under subsection (a) or (b) and also under this subsection (c). Thus, for example, if an individual receives a back-pay award following a determination that he was paid at an unlawful rate for Hours of Service previously credited, he is not entitled to additional credit for the same Hours of Service. Crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in subsection (b) is subject to the limitations set forth in that subsection. For example, no more than 501 Hours of Service are required to be credited for payments of back pay, to the extent that the back pay is awarded or agreed to for a period of time during which an individual did not or would not have performed duties. (d) For determining Hours of Service for reasons other than the performance of duties, the special rule provided in 29 C.F.R. section 2530.200b-2(b) is incorporated by reference. That rule provides that Hours of Service are credited on the basis of the number of hours in the individual's regular 14 work schedule or, in the case of a payment not calculated by units or time, by dividing the payment in question by the individual's most recent hourly rate of pay. (e) For purposes of crediting Hours of Service to computation periods, the special rule provided in 29 C.F.R. section 2530.200b-2(c) is incorporated by reference. That rule provides that Hours of Service are credited to an individual in the computation periods covered by the individual's regular work schedule during the period of nonperformance. (f) The determination of Hours of Service must be made from records of hours worked and hours for which payment is made or due. (g) For purpose of determining Hours of Service credited each Employee must be credited with at least forty-five Hours of Service for each week for which he would be required to be credited with at least one Hour of Service under subsection (a). 15 (h) An Employee who has Leave of Absence due to military service shall receive Hours of Service credit in accordance with applicable Federal veteran's laws. 1.24 "INCOME" means the net gain or loss of the Trust Fund from investments, as reflected by interest payments, dividends, realized and unrealized gains and losses on securities, other investment transactions and expenses paid from the Trust Fund. In determining the Income of the Trust Fund as of any date, assets shall be valued on the basis of their then fair market value. 1.25 "LEASED EMPLOYEE" means any person as so defined in Section 414(n) of the Code. 1.26 "LEAVE OF ABSENCE" means an absence authorized by an Employer or an Affiliated Employer under its standard personnel practices as applied in a uniform and nondiscriminatory manner to all persons similarly situated, provided that the Employee resumes employment with the Employer or an Affiliated Employer within the period specified in the authorization of the Leave of Absence. An absence due to service in the Armed Forces of the United States shall be considered an authorized 16 Leave of Absence provided that the Employee complies with all of the requirements of Federal law in order to be entitled to reemployment and provided further that the Employee returns to employment with an Employer or an Affiliated Employer within the period provided by such law. 1.27 "MATCHING ACCOUNT" means the account maintained for a Participant to record Matching Contributions made on his behalf pursuant to Section 3.02 and adjustments relating thereto. 1.28 "MATCHING CONTRIBUTION" means the Employer Matching Contribution made to the Plan on behalf of a Participant pursuant to Section 3.02. 1.29 "MAXIMUM COMPENSATION LIMITATION" means, effective on or after January 1, 1989, and before January 1, 1994, $200,000 per year. As of January 1 of each calendar year on and after January 1, 1990, and before January 1, 1994, the Maximum Compensation Limitation as determined by the Commissioner of Internal Revenue for the calendar year shall become effective as the Maximum Compensation Limitation taken into account for Plan purposes for the Plan Year beginning within that 17 calendar year in lieu of the $200,000 limitation set forth above. Commencing January 1, 1994, the Maximum Compensation Limitation means $150,000 per year. If for any calendar year after 1994, the cost-of- living adjustment described in the following sentence is equal to or greater than $10,000, then the Maximum Compensation Limitation (as previously adjusted hereunder) for any Plan Year beginning in any subsequent calendar year shall be increased by the amount of such cost-of-living adjustment, rounded to the next lowest multiple of $10,000. The cost-of-living adjustment shall equal the excess of (i) $150,000 increased by the adjustment made under Section 415(d) of the Code of the calendar year, except that the base period for purposes of Section 415(d)(1)(A) of the Code shall be the calendar quarter beginning October 1, 1993, over (ii) the Maximum Compensation Limitation in effect for the Plan Year beginning in the calendar year. In determining a Participant's compensation for purposes of the Maximum Compensation Limitation, if any individual is a member of the family of a 5-percent owner or a Highly Compensated Employee who is in the 18 group consisting of the 10 individuals paid the greatest compensation during the year, then (i) such individual shall not be considered as a separate employee and (ii) any compensation paid to such individual (and any applicable benefit on behalf of such individual) shall be treated as if it were paid to (or on behalf of) the 5-percent owner or a highly compensated employee; provided, however, that for purposes of this Section 1.29, the term "family" shall include only the Participant's spouse and any lineal descendants of the Participant who have attained age 19 before the close of the year. If, as a result of the application of the foregoing family aggregation rules, the Maximum Compensation Limitation is exceeded, then the limit shall be prorated among the affected individuals in proportion to each such individual's compensation as determined prior to the application of the Maximum Compensation Limitation. 1.30 "PARTICIPANT" means any person included for participation in the Plan as provided in Article 2 and who continues to be entitled to benefits under the Plan. 19 1.31 "PLAN" means the Disney Salaried Savings and Investment Plan as set forth in this document, or as amended from time to time. 1.32 "PLAN YEAR" means the calendar year, except there was a short year from May 1, 1984 through December 31, 1984 which was the first year of the Plan. 1.33 "REEMPLOYMENT COMMENCEMENT DATE" means the date an Employee first is credited with an Hour of Service following a prior Break in Service. 1.34 "RULE OF PARITY" means a rule pursuant to which an Employee who incurs a Break in Service shall have his Eligibility Computation Periods which occur prior to such Break in Service ignored or restored. If an Employee incurs a Break in Service prior to becoming a Participant hereunder, his Eligibility Computation Periods prior to such Break in Service shall not be taken into account if the number of consecutive one year breaks in service equals or exceeds the greater of the Employee's Eligibility Computation Periods completed prior to the first such Break in Service or five. Eligibility Computation Periods previously eliminated by a prior application of this paragraph 20 shall not be counted for purposes of the preceding sentences. 1.35 "ROLLOVER ACCOUNT" means the account maintained for a Participant to record his Rollover Contributions to the Trust Fund pursuant to Section 3.05 and adjustments relating thereto. 1.36 "ROLLOVER CONTRIBUTION" means a Rollover Contribution made to the Plan by a Participant pursuant to Section 3.05. 1.37 "SECTION 415 COMPENSATION" means wages, salaries, fees for professional services, and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with an Employer or an Affiliated Employer to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid salespersons, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, reimbursements, and expense allowances), and excluding: 21 (a) Employer contributions to the Plan or to any other plan of deferred compensation maintained by an Employer or an Affiliated Employer, but solely for purposes of determining Highly Compensated Employees under Section 1.22 and key employees under Section 12.02(h), Section 415 Compensation shall include Tax- Deferred Contributions; (b) Amounts realized from the exercise of a non-qualified stock option; (c) Amounts realized when restricted stock is no longer subject to substantial risk of forfeiture; (d) Amounts realized from the disposition of stock acquired under a qualified stock option; and (e) Other amounts that receive special tax benefits, but solely for purposes of determining Highly Compensated Employees under Section 1.22 and key employees under Section 12.02(h), Section 415 Compensation 22 shall include amounts contributed on an Employee's behalf on a salary reduction basis to a cafeteria plan under Section 125 of the Code. Except for the provisos of Sections 1.37(a) and (e), this definition of "Section 415 Compensation" is intended to be the definition which appears in Section 1.415(2)(d)(ll)i of the Income Tax Regulations (Box 1 of IRS Form W-2 or substitute compensation) so that any discrepancy in the above definition and said regulations shall be resolved in such a manner as to give full effect to said regulations. 1.38 "SECTION 402(G) LIMIT" means $7,000 (as increased by the Adjustment Factor every calendar year) for any taxable year of a Participant. In addition, the amount of a Participant's Tax-Deferred Contributions for a Plan Year shall be subject to the deferral percentage limitation of Section 13.07. In the event a Participant's Tax-Deferred Contributions and other elective deferrals (whether or not under a plan, contract or arrangement of an Employer or an Affiliated Employer) for any taxable year exceed the foregoing $7,000 limitation, as adjusted by the Adjustment 23 Factor, the excess allocated by the Participant to Tax-Deferred Contributions hereunder (adjusted for Trust Fund Income in the manner described in Section 13.07(d)), may in the discretion of the Committee, be distributed to the Participant no later than April 15 following the close of such taxable year. The amount of Tax-Deferred Contributions distributed pursuant to this Section with respect to a Participant for a Plan Year will be reduced by any excess Tax-Deferred Contributions previously distributed to the Participant pursuant to Section 13.07(c) for the same Plan Year. In the event any Tax-Deferred Contributions returned under this Section were matched by Matching Contributions pursuant to Section 3.02, those Matching Contributions, together with Income through the end of the Plan Year in which they were made, shall be forfeited by the Participant and used to reduce Employer contributions to the Plan. 1.39 "SPECIAL ACCOUNT" means the account maintained for a Participant to record Special Contributions made on his behalf pursuant to Section 3.03, and adjustments relating thereto. 24 1.40 "SPECIAL CONTRIBUTION" means the Employer Special Contribution made to the Plan on behalf of a Participant pursuant to Section 3.03. 1.41 "SPOUSAL CONSENT" means written consent given by a Participant's spouse to an election made by the Participant of a specified form of benefit or a designation by the Participant of a specified Beneficiary other than the spouse. The specified form or specified beneficiary, shall not be changed unless further Spousal Consent is given, unless the Spouse expressly waives the right to consent to any future changes. Spousal Consent shall be duly witnessed by a Plan representative or notary public and shall acknowledge the effect on the spouse of the Participant's election. The requirement for Spousal Consent may be waived by the Committee if it is established to its satisfaction that there is no spouse, or that the spouse cannot be located, or because of such other circumstances as may be established by applicable law. Spousal Consent shall be applicable only to the particular spouse who provides such consent. 25 1.42 "TAX-DEFERRED ACCOUNT" means the account maintained for a Participant to record contributions made on his behalf by an Employer pursuant to a Tax-Deferred Contribution agreement described in Section 3.01 and adjustments relating thereto. 1.43 "TAX-DEFERRED CONTRIBUTIONS" means an Employer's contribution made to the Plan on behalf of a Participant pursuant to a Tax-Deferred Contribution agreement described in Section 3.01. 1.44 "TRUST AGREEMENT" means the trust agreement or agreements that may be established from time to time hereunder and as the same may from time to time be amended and/or restated. 1.45 "TRUST FUND" means all money or other property which is held by Trustee, pursuant to the terms of the Trust Agreement. 1.46 "TRUSTEE" means the trustee acting under the Trust Agreement, or any other Trustee or Trustees designated in any trust agreement or agreements which may be established to carry out the purposes of this Plan. 26 1.47 "VALUATION DATE" means the last day of each Plan Year and any other date determined by the Committee. 1.48 "VALUATION PERIOD" means the period between two consecutive valuation dates. 27 ARTICLE 2. ELIGIBILITY AND PARTICIPATION - - --------- ----------------------------- 2.01. ELIGIBILITY Only Eligible Employees may participate in this Plan. 2.02. PARTICIPATION An Employee who was a Participant prior to January 1, 1987 shall remain a Participant provided that he remains an Eligible Employee. An Employee who becomes an Eligible Employee thereafter shall become a Participant as of the first Enrollment Date after he files with the Company, an enrollment form or forms as prescribed by the Committee on which he: (a) authorizes his Tax-Deferred Contributions in accordance with Section 3.01; (b) names a Beneficiary, and (c) selects investment funds pursuant to Article 7. 28 2.03. REEMPLOYMENT OF FORMER EMPLOYEES AND FORMER PARTICIPANTS Any person employed by an Employer as an Eligible Employee who was previously a Participant shall be immediately eligible to become a Participant in the Plan. Any other person reemployed by an Employer may participate in the Plan upon meeting the requirements of Section 2.02. 2.04 TRANSFERRED PARTICIPANTS If a Participant remains in the employ of an Employer or an Affiliated Employer, but ceases to be an Eligible Employee, his participation under the Plan shall be suspended, provided however that during the period of his employment in such ineligible position: (a) he shall cease to have any right to elect Tax-Deferred Contributions or make Rollover Contributions; (b) he shall not receive allocations of Matching Contributions or Special Contributions; 29 (c) he shall continue to participate in Income allocations pursuant to Section 4.02(a); and (d) the provisions of Articles 6 and 7 shall continue to apply. If an Employee again becomes an Eligible Employee, his rights and privileges as an Eligible Employee under this Plan shall be restored. 2.05 TERMINATION OF EMPLOYMENT AND TERMINATION OF PARTICIPATION Under this Plan, termination of employment occurs on the date an Employee is no longer employed with an Employer or an Affiliated Employer. An Eligible Employee's participation in the Plan shall terminate on the date he terminates employment, unless the Participant is entitled to benefits under the Plan, in which event his participation shall terminate when those benefits have been distributed to him. 30 ARTICLE 3. CONTRIBUTIONS - - --------- ------------- 3.01. TAX-DEFERRED CONTRIBUTIONS (a) A Tax-Deferred Contribution represents an agreement by a Participant with his Employer to accept a reduction in Compensation in consideration of a contribution to the Plan by the Employer on Participant's behalf in the same amount. (b) A Participant shall elect to enter into an agreement with his Employer as described in Section 3.01(a), by indicating the amount of Tax-Deferred Contributions he wishes to be contributed by his Employer on his enrollment form, as described in Section 2.02. Tax-Deferred Contributions may be any whole percentage of a Participant's Compensation between one percent and 10 percent, but may not exceed the Section 402(g) Limit in any Plan Year. Tax-Deferred Contributions shall be made by regular payroll deduction, except that a Participant subject to the Section 402(g) Limit may request the Committee 31 to calculate his Tax-Deferred Contributions in such a manner so that his regular payroll reductions will result in the maximum Matching Contribution. Tax-Deferred Contribution elections are effective on the first pay period after a Participant files an enrollment form. (c) An election of Tax-Deferred Contributions shall remain in force until changed in writing on forms approved by the Committee. Four times each Plan Year, a Participant may elect to increase or decrease the amount of his Tax-Deferred Contributions. A Participant may also elect to cease contributions at any time. Elections to increase, decrease or cease Tax-Deferred Contributions are effective as of the pay period following receipt by the Committee. A Participant may not change his election with respect to Tax-Deferred Contributions already made by payroll deduction. (d) All Tax-Deferred Contributions shall be credited to the Participant's Tax-Deferred Account and shall be 100% vested and non-forfeitable at all times. 32 (e) Tax-Deferred Contributions shall be transmitted to the Trustee in the month following the payroll month in which the Tax-Deferred Contribution was deducted from the Participant's Compensation. (f) All Tax-Deferred Contributions are subject to the limitations of Article 13 and the further limitations of this Article. 3.02 MATCHING CONTRIBUTIONS (a) Each Employer will contribute with respect to Participants employed by it, a Matching Contribution equal to 50% of the amounts elected as Tax-Deferred Contributions, but in no event shall Matching Contributions for any Plan Year for any Participant exceed 2% of the Participant's Compensation for the Plan Year. Notwithstanding the foregoing, Matching Contributions of the Employers are discretionary and are not required. (b) All Matching Contributions shall be paid to the Trustee no later than the time prescribed by law for filing the federal income tax returns of the 33 Employers, including any extensions which have been granted for the filing of such tax returns. (c) All Matching Contributions made on behalf of a Participant shall be credited to the Participant's Matching Account and shall be 100% vested and non-forfeitable at all times. (d) All Matching Contributions are subject to the limitations of Article 13 and the further limitations of this Article. 3.03 SPECIAL CONTRIBUTIONS (a) Special Contributions are not required and are made at each Employer's discretion. (b) Special Contributions may be made in order to correct an Average Deferral Percentage test failure under Section 13.07, or to correct an Average Contribution test failure under Section 13.08 or to eliminate discrimination under any tax-qualified Plan of the Employers under Sections 401(a)(4) or 410(b) of the Code or as a result of 34 the reallocation of excess Annual Additions under Section 13.04(a). (c) Special Contributions are made on behalf of Participants who are not Highly Compensated Employees and who are actively employed by the Employer on the last day of the pay period for which a Special Contribution is made. (d) All Special Contributions shall be credited to the Participant's Special Account and shall be 100% vested and non-forfeitable at all times. (e) All Special Contributions shall be paid to the Trustee no later than the time prescribed by law for filing the federal income tax returns of the Employers including any extensions which have been granted for the filing of such tax returns. (f) All Special Contributions are subject to the limitations of Article 13 and the further limitations of this Article. 35 3.04 DEDUCTIBILITY LIMITATIONS AND FORM OF CONTRIBUTION (a) In no event shall the aggregate Tax-Deferred, Matching and Special Contributions of the Employers exceed the amount deductible by the Employers for such Plan Year for income tax purposes as a contribution to the Trust under the applicable provisions of the Internal Revenue and all Participant Tax- Deferred Contribution elections, Matching Contributions and Special Contributions are specifically conditioned upon such deductibility. (b) All contributions of the Employers shall be in cash except Matching Contributions and Special Contributions may be made in the form of Company Stock. 3.05 ROLLOVER CONTRIBUTIONS: (a) Effective as of January 1, 1993, and subject to Committee procedures, a Covered Employee, regardless of whether he has satisfied the participation requirements of Article 2, may "rollover" in cash to the Trust Fund a 36 distribution that is from another plan which meets the requirements of Section 401(a) of the Code (the "Other Plan"). (b) The procedures approved by the Committee shall include rules providing that such rollover may be made only if the rollover occurs on or before the 60th day following the Covered Employee's receipt of the distribution from the Other Plan, however such requirement shall not apply with respect to a direct rollover from the Other Plan and the Committee may provide in its procedures to waive the 60-day requirement with respect to a rollover from a "Conduit IRA". (c) If a Covered Employee had deposited a distribution previously received from an Other Plan into an individual retirement account (Conduit IRA) as defined in Section 408 of the Internal Revenue Code, he may rollover the amount of such distribution plus earnings thereon from the Conduit IRA to this Plan; provided such rollover amount is deposited with the Trustee on or before the 60th day following receipt thereof from the Conduit IRA and provided the Committee has 37 determined to waive the 60-day requirement of Section 3.05(b) on behalf of all Covered Employees. (d) The Committee shall develop such other procedures and may require such information from a Covered Employee desiring to make a rollover, as it deems necessary or desirable to determine that the proposed rollover will meet the requirements of this Section and that the amount rolled over qualifies for rollover treatment pursuant to applicable provisions of the Code. (e) Upon approval by the Committee, the amount rolled over shall be deposited in the Trust Fund and shall be credited to the Covered Employee's Rollover Account. Such account shall be 100 percent vested and non-forfeitable at all times. Upon such rollover by Covered Employee who is otherwise eligible to participate in the Plan but who has not yet completed the participation requirements of Section 2.02, his Rollover Account shall represent his sole interest in the Plan until he becomes a Participant. 38 (f) Only rollover contributions and direct rollovers from Other Plans are allowed hereunder. A direct transfer of assets from another tax-qualified plan to this Plan is not permitted. (g) Until the Committee shall announce otherwise in writing to Eligible Employees, the provisions of Sections 6.02 and 6.03 do not apply to Rollover Accounts until the Covered Employee becomes a Participant. 3.06 AFTER-TAX CONTRIBUTIONS From and after January 1, 1987, voluntary after-tax contributions are not permitted under this Plan. Voluntary after-tax contributions made by a Participant prior to January 1, 1987 are maintained in his After- Tax Account which is 100% vested and non-forfeitable at all times. 3.07 RETURN OF CONTRIBUTIONS (a) If all or part of an Employer's deductions under Section 404 of the Code for contributions to the Plan are disallowed by the Internal Revenue 39 Service, the portion of the contributions to which that disallowance applies shall be returned to the applicable Employer(s) without interest but reduced by any investment loss attributable to those contributions. The return shall be made within one year after the disallowance of deduction. (b) An Employer may recover without interest the amount of its contributions to the Plan made on account of a mistake of fact, reduced by any investment loss attributable to those contributions, if recovery is made within one year after the date of those contributions. (c) In the event that Tax-Deferred Contributions are returned to the Employers pursuant to this Section 3.07, the agreements to reduce Compensation which were made by Participants on whose behalf those contributions were made shall be void retroactively to the beginning of the period for which those contributions were made. The Tax-Deferred Contributions so returned shall be distributed in cash to those Participants for whom those contributions were made. 40 ARTICLE 4. ALLOCATION TO PARTICIPANTS ACCOUNTS - - --------- ----------------------------------- 4.01. INDIVIDUAL ACCOUNTS (a) The Committee shall create and maintain adequate records to disclose the interest in the Trust Fund of each Participant and Beneficiary. Such records shall be in the form of individual accounts and credits and charges shall be made to such accounts in the manner herein described. When appropriate, a Participant shall have five separate accounts, a Tax-Deferred Account, a Matching Account, a Special Account, a Rollover Account or an After Tax Account. The maintenance of individual accounts is only for accounting purposes, and a segregation of the assets of the Trust Fund to each account shall not be required. Distributions and withdrawals made from an account shall be charged to the account as of the date paid. (b) Under Article 7, Participants have a choice of investment funds so that any reference in this Plan to a Tax-Deferred Account, a Matching Account, a Special Account, a Rollover-Account or an After Tax Account shall be deemed to mean and include all accounts which 41 are maintained for the Participant under each investment fund. 4.02 ACCOUNT ADJUSTMENTS The accounts of Participants and Beneficiaries shall be adjusted in accordance with the following: (a) Income: The Income of the Trust Fund for each Valuation Period shall be allocated to the accounts of Participants and Beneficiaries who had unpaid balances in their accounts on the last day of the Valuation Period in proportion to the balances in such accounts at the beginning of the Valuation Period, but after first reducing each such account balance by any distributions from the account during the Valuation Period and increasing such Account balance by 50% of the Tax-Deferred and Matching Contributions made during the Valuation Period. (b) Tax-Deferred Contributions: As of each Valuation Date, the Tax- Deferred Contributions received by the Trust Fund during the Valuation Period ending on such Valuation Date shall be allocated to the 42 Tax-Deferred Accounts of the Participants on whose behalf such contributions were made. (c) Matching Contributions: As of each Valuation Date, the Matching Contributions received by the Trust Fund during the Valuation Period shall be allocated to the Matching Account of the Participants on whose behalf such contributions were made. (d) Special Contributions: As of each Valuation Date, Special Contributions received by the Trust Fund during the Valuation Period shall be allocated to the Special Accounts of Participants who are not Highly Compensated Employees and who were actively employed on the last day of the pay period for which the Special Contribution was made. The allocation for each Participant eligible to receive a share of the allocation shall be equal to the total amount of the Special Contribution divided by the total number of Participants eligible to receive an allocation of Special Contributions. Therefore, each eligible Participant shall receive the same dollar amount 43 of allocation of Special Contributions as each other eligible Participant. (e) Rollover Contributions: As of each Valuation Date, the Rollover Contributions received by the Trust Fund during the Valuation Period on behalf of a Participant shall be allocated to such Participant's Rollover Account. 4.03. LIMITATION ON ALLOCATIONS Notwithstanding any of the foregoing, the amount of contributions that may be allocated to a Participant's Aggregate Account for a Plan Year shall be subject to the limitations under Code sections 401(k), 401(m) and 415 set forth in Article 13. 4.04 NO GUARANTEE The Employers, the Committee and the Trustee do not guarantee the Participants or their Beneficiaries against loss or depreciation or fluctuation of the value of the assets of the Trust Fund. 44 4.05 ANNUAL STATEMENT OF ACCOUNTS The Committee will furnish each Participant and each Beneficiary of a deceased Participant, at least annually, a statement showing the value of his Aggregate Account at the end of the Plan Year, and the allocations to and distributions from his Accounts during the Plan Year. No statement will be provided to a Participant or Beneficiary after the Participant's entire vested and nonforfeitable interest in his Accounts has been distributed. 45 ARTICLE 5. VESTING - - --------- ------- 5.01 NONFORFEITABILITY Except as provided in Sections 1.38 and 10.07 and Article 13, the interest of each Participant in his Aggregate Account shall be 100% vested and non-forfeitable at all times. 5.02 SUSPENSION OF BENEFITS The nonforfeitable Aggregate Account of a Participant who terminates employment is not forfeited if he later has a Reemployment Commencement Date. Payments to the Employee may be suspended, however, until his later termination of employment. If the Employee is not an Eligible Employee upon his Reemployment Commencement Date, the provisions of Section 2.04 shall apply. To the extent required by law, the notice of suspension of benefits described in Department of Labor Regulation Section 2530.203-2(b)(4) shall be provided. 46 ARTICLE 6. DISTRIBUTIONS TO PARTICIPANTS AND BENEFICIARIES - - --------- ----------------------------------------------- 6.01. WITHDRAWALS FROM AFTER-TAX ACCOUNT A Participant may elect to withdraw amounts credited to his After-Tax Account. Such an election may only be made twice in each Plan Year and the minimum withdrawal amount is $500, or if, lesser the total value of a Participant's After-Tax Account. Elections under this Section 6.01 shall be on forms approved by the Committee for that purpose. 6.02. LOANS TO ACTIVE PARTICIPANTS The Committee shall direct the Trustee to loan a Participant or Alternate Payee who is actively employed by an Employer an amount from his Tax-Deferred, Matching, Special and Rollover Accounts in accordance with the rules of this Section. (a) A Participant or Alternate Payee may have only one outstanding loan at a time. 47 (b) A Participant's or Alternate Payee's loan shall not be less than $1,000 and shall not exceed the lesser of (i) $50,000 reduced to the extent of the Participant's or Alternate Payee's highest outstanding loan balance during the immediately prior 12-month period (ending the day before the new loan is granted) or 50% of the total dollar value of the Participant's or Alternate Payee's Tax-Deferred, After-Tax, Matching, Special and Rollover Accounts as of the date the loan is made. (c) All loans will require Spousal Consent. (d) All loans shall be subject to the approval of the Committee and to such rules or regulations as the Committee shall adopt. (e) An application for a loan by a Participant or Alternate Payee shall be made in writing to the Committee, whose action thereon shall be final. (f) The period of repayment for any loan shall be arrived at by mutual agreement between the Committee and the borrower, but all loans shall become due and payable upon termination of 48 employment. The repayment period shall be in full year increments and shall not exceed four (4) years, except that a 10-year repayment period may apply to any loan used for the purpose of establishing a home which is the Participant's or Alternate Payee's principal residence. (g) Each loan shall be made at a reasonable rate of interest determined by the Committee which as of the Effective Date and thereafter has been the prime rate charged by the Bank of America N.T. and S.A. (as of the last business day of the month preceding the month in which a Participant's or Alternate's Payee's loan application is submitted to the Committee) plus one percent. The interest rate so determined with respect to a particular loan shall be fixed for the duration of such loan. Each loan shall be secured by the balance remaining in the borrower's Aggregate Account or by such other security as the Committee may deem to be adequate. (h) Each loan shall be treated as a separate investment of the funds credited to a 49 Participant's or Alternate Payee's Tax-Deferred, Matching, Special or Rollover Account. Loan proceeds will be taken first from the Participant's or Alternate Payee's Rollover Account, if any, then his Tax-Deferred Account, then his Matching Account, and finally, his Special Account, if any. Within the Tax-Deferred Account and the Rollover Account, the loan amount is prorated among the investment funds the Participant or Alternate Payee had otherwise elected pursuant to Article 7. Loan payments will be returned to the investment funds based on the Participant's or Alternate Payee's current elections under Article 7. (i) Loans may be repaid in full at any time after the first three monthly payments are made, however partial prepayment is not allowed. (j) Upon the Participant's or Alternate Payee's termination of employment, the full amount of the loan becomes due and payable, regardless of whether a distribution is made pursuant to Section 6.04 at that time. 50 (k) Repayment of loans shall be by regular payroll deduction only, and all loans shall be contingent on the borrower's and his spouse's, if any, payroll deduction authorization. Loan payments shall be transmitted to the Trustee in accordance with the Committee's usual administrative practice. (l) In accordance with Code Section 72(p)(3), the Committee shall notify the borrower that no interest deduction can be claimed with respect to any loan secured by the borrower's Tax-Deferred Account. (m) Loan applications will be processed within the time periods established by the Committee in its administrative procedures. (n) Loan defaults shall be treated as taxable distributions pursuant to Code requirements, but may not be applied to the borrower's collateral in his Tax-Deferred, Matching or Special Account until such time as a distribution from such accounts could otherwise be made under the Plan. 51 (o) Notwithstanding the preceding provisions of this Section, loans may not be made from the Rollover Account of a Covered Employee who is not a Participant unless the Committee announces in writing to Eligible Employees that such loans are permissible. (p) For the purposes of the Section, Alternate Payee has the meaning set forth in Section 10.01. 6.03. HARDSHIP WITHDRAWALS (a) Subject to the further requirements of this Section, a Participant who has not terminated employment may request a distribution in the event of the Participant's hardship, as defined in this Section. Effective as of December 29, 1993, a Participant who has terminated employment but has not received a distribution of his Aggregate Account may make one request for a distribution on account of a life threatening medical hardship. A Covered Employee who has a Rollover Account but who is not a Participant may not elect a hardship distribution from his Rollover Account until he becomes a Participant or until the Committee 52 announces in writing to Eligible Employees that such hardship distributions are permissible. (b) For Participants who have not terminated employment, hardship withdrawals are limited to the excess of the total amount of the Participant's Rollover Account, if any, plus the value of the Participant's Tax-Deferred Account and Matching Account as of December 31, 1988 plus the principle of the Participant's Tax- Deferred Contributions made from and after January 1, 1989 over any outstanding loan the Participant may have. For a Participant who has terminated employment, the Participant must withdraw his entire Aggregate Account in order to be eligible for a life- threatening medical hardship withdrawal. (c) A distribution will be on account of hardship only if the distribution is necessary to satisfy an immediate and heavy financial need of the Participant. For purposes of this Plan, a distribution is made on account of an immediate and heavy financial need of the Participant only if the distribution is for (i) the payment of 53 medical expenses described in Code section 213(d) incurred (or, from and after December 29, 1993, to be incurred) by the Participant, the Participant's spouse or any dependents of the Participant (as defined in Code section 1520, (ii) the purchase (excluding mortgage payments) of a principal residence for the Participant, (iii) the payment of tuition for the next twelve months of post-secondary education for the Participant, his or her spouse, children, or dependents, (iv) the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence, or (v) if announced in writing to Participants by the Committee, the payment of funeral expenses of a family member. (d) A distribution will be considered necessary to satisfy an immediate and heavy financial need of the Participant only if all three of the following requirements are satisfied: (i) the distribution to a Participant who has not terminated employment is not in excess of the amount required to relieve the immediate and heavy financial need of the Participant (taking into account the taxable 54 nature of the distribution); (ii) the Participant represents in writing, on forms provided by the Committee, that the need cannot be relieved through reimbursement or compensation by insurance or otherwise, by reasonable liquidation of the Participant's assets, to the extent such liquidation would not itself cause an immediate and heavy financial need, by cessation of Tax-Deferred Contributions under the Plan, or by withdrawals, distributions (other than hardship distributions) or nontaxable loans (at the time of the loan) from this Plan or plans maintained by any Employer or any Affiliated Employer or any other entity by which the Participant is employed, or by borrowing from commercial sources on reasonable commercial terms; and (iii) the Committee determines that it can reasonably rely on the Participant's written representation. (e) Distributions pursuant to this Section will be made as soon as practicable following the Committee's approval of the Participant's written request for withdrawal and will be made in the form of a two-party single lump sum payment. The Committee may request any documentation it may 55 require from a Participant in order to make a determination that the Participant is eligible for a hardship withdrawal hereunder. (f) Upon making a hardship withdrawal, a Participant's Tax-Deferred Contributions will be suspended for 12 months following the hardship distribution and may only be resumed upon the Participant's submission of an election to resume contributions on a form approved by the Committee. A Participant's Tax Deferred Contributions, if any, for the Plan Year following the hardship withdrawal may not exceed the Section 402(g) Limit minus the amount of Tax-Deferred Contributions he made in the Plan Year of hardship withdrawal. (g) All hardship withdrawal elections must be made on forms approved by the Committee for that purpose and require Spousal Consent. 6.04 DISTRIBUTIONS ON ACCOUNT OF TERMINATION OF EMPLOYMENT (a) Except as set forth in Section 6.04(c), below, distribution of a Participant's Aggregate Account shall commence as soon as practicable after the 56 Participant's termination of employment. A Participant's distributable Aggregate Account is based on the value of that Account as of the Valuation Date immediately proceeding the date the Aggregate Account is to be distributed, except that there will be added to the value of the Participant's Aggregate Account the fair market value of any amounts allocated to his Aggregate Account under Article 4 after that Valuation Date. If a loan is outstanding from the Trust Fund to the Participant on the date of distribution, the amount distributed will be reduced by the outstanding loan balance. The distribution will be paid to the Participant's Beneficiary in the event the Participant's termination of employment is caused by his death. In all other cases, payment will be made to the Participant. (b) Distributions will be in the form of a lump sum cash payment except that any portion of a Participant's Aggregate Account which is invested in The Walt Disney Company Common Stock Fund will be distributed in shares of Company Stock, plus cash for any fractional shares. Notwithstanding 57 the foregoing, the recipient may elect that the entire distribution be made in cash. (c) If the Participant's termination of employment is due to reasons other than death and if the amount of a Participant's Aggregate Account exceeds $3,500, the Committee will not automatically distribute the Participant's Aggregate Account prior to the Participant's attainment of age 65. In lieu of payment at age 65, the Participant may elect either one of the following: (i) an immediate lump sum distribution, payable as soon as practical after receipt of the Participant's election under this Section 6.04(c), or (ii) A deferred lump sum distribution payable upon the Participant's attainment of age 55 or such older age as the Participant shall elect, but not older than age 65. The Participant shall have one year to make the above election. Such one year shall be measured from the date the Committee mails the Participant 58 an election notice specifying the Participant's options under this Section 6.04(c). If the Participant fails to make an election in such one-year period, he shall be deemed to have elected the deferred payment under Section 6.04(c)(ii). Once an election is made by a Participant pursuant to this Section it may not be revoked, except that a Participant may elect to change the age of distribution under 6.04(c)(ii) above at any time provided the age remains between the ages of 55 and 65. All elections made pursuant to this Section shall be on forms provided from the Committee and shall be subject to Spousal Consent. (d) If a Participant dies prior to receiving the lump sum distribution of his Aggregate Account under this Section, the distribution shall be paid to the Participant's Beneficiary, as soon as practical after the Participant's death. (e) It is possible for a Participant or Beneficiary to receive a distribution under this Section before all Matching and Special Contributions on behalf of the Participant are made to the Trust Fund. In such case, such additional amounts shall be paid 59 to the Participant or Beneficiary as soon as practical after the Trust Fund's receipt thereof. (f) As provided in Section 5.02, if a Participant who terminated employment again becomes an Employee before receiving a distribution of his Aggregate Account, no distribution from the Trust Fund will be made while he is an Employee, and amounts distributable to him on account of his prior termination will be held in the Trust Fund until he is again entitled to a distribution under the Plan. 6.05 RESTRICTIONS AND REQUIREMENTS ON DISTRIBUTIONS (a) Except for distributions permitted under this Article 6 with respect to Participants who suffer a hardship, a Participant's interest in the Plan will not be distributed before the Participant's termination of employment or death unless: (i) the Plan is terminated without the establishment or maintenance by the Employers of another defined contribution plan (other than an employee stock ownership plan as defined in Code section 4975(e)(7)) (ii) an Employer that is a corporation disposes of all or substantially all of the assets used by the Employer in a trade or business to a person other than an Employer or an Affiliated Employer but only if the Participant continues employment with the acquiring employer; or (iii) an Employer that is a corporation 60 disposes of its interest in a subsidiary to a person other than an Employer or an Affiliated Employer but only if the Participant continues employment with the subsidiary. An event will not be treated as described in clause (ii) or (iii) above unless the Employer continues to maintain the Plan after the disposition. (b) An event described in Section 6.05(a) that would otherwise permit distribution of a Participant's interest in the Plan will not be treated as described in Section 6.05(a) unless the Participant receives a lump sum distribution by reason of the event. A lump sum distribution for this purpose will be a distribution described in Code section 402(e)(4), without regard to clauses (i), (ii), (iii), and (iv) of subparagraph (A), subparagraph (B), or subparagraph (H) thereof. 61 (c) The provisions of this Section 6.05(c) will apply to restrict the Committee's ability to delay the commencement of distributions. Except as otherwise provided in this Article 6, distribution of the Participant's interest in his Aggregate Account shall begin no later than the 60th day after the close of the Plan Year in which occurs the latest of: (i) The Participant's 65th birthday; (ii) The tenth anniversary of the date on which he became a Participant; or (iii) The date he terminates services with an Employer or Affiliated Employer. (d) The following provisions will apply to limit a Participant's ability to delay the distribution of benefits. (i) Distribution of a Participant's entire Aggregate Account will be made not later than April 1 following the calendar year in which he attains age 70-1/2. 62 (ii) Notwithstanding Section 6.05(d)(i) above, if a Participant attained age 70-1/2 before January 1, 1988 and was not a 5- percent owner (as such term is defined in Code section 416(i)) at any time during the five-plan-year period ending in the calendar year in which he attained age 70-1/2, then distribution of his entire vested and nonforfeitable interest will be made or commence not later than April 1 following the earlier of (A) the calendar year in which his employment terminates, or (B) the calendar year in which he becomes a 5-percent owner. (iii) If a Participant attained age 70-1/2 during 1988 and had not terminated employment as of January 1, 1989, distribution of his entire vested and nonforfeitable interest will be made or commence not later than April 1, 1990. (e) In the event that any payments under this Plan are to be made to someone other than the Participant or jointly to the Participant and his spouse or 63 other payee, such payments must conform to the "incidental benefit" rules of Code section 401(a)(9)(G) and Treasury Regulation section 1.4019(a)(9)-2. (f) Upon the death of a Participant, the following distribution provisions will apply to limit the Beneficiary's ability to delay distributions. If the Participant dies after distribution of his benefit has begun, the remaining portion of his benefit, if any, will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death; but if he dies before distribution of his benefit commences, his entire benefit will be distributed as soon as practical after his death but no later than five years after his death. (g) Distributions under the Plan to Participants or Beneficiaries will be made in accordance with Treasury Regulations issued under Code section 401(a)(9). (h) The Committee shall provide recipients of a benefit hereunder with appropriate claim forms, 64 election forms, withholding forms and an officially approved notice supplied by the Secretary of the Treasury which specifies certain information regarding the federal income tax treatment of Plan benefits paid in the form of a lump sum. 6.06 METHOD OF PAYMENT FOR ELIGIBLE ROLLOVER DISTRIBUTIONS (a) Notwithstanding any provision of the Plan to the contrary, effective January 1, 1993, if a Distributee is entitled to receive an Eligible Rollover Distribution which exceeds $200, the Distributee may elect, at the time and in the manner prescribed by Committee, and in accordance with this Section 6.06, to have his Eligible Rollover Distribution paid in accordance with one of the following methods: (i) All of the Eligible Rollover distribution shall be paid directly to the Distributee; (ii) All of the Eligible Rollover Distribution shall be paid as a Direct Rollover to the 65 Eligible Retirement Plan designated by the Distributee; or (iii) The portion of the Eligible Rollover as designated by the Participant, which portion shall be at least $500 or such lesser amount as the Committee shall determine, shall be paid as a Direct Rollover to the Eligible Retirement Plan designated by the Distributee and the balance of the Eligible Rollover Distribution shall be paid directly to the Distributee. (b) No less than 30 days and no more than 90 days prior to the Distributee's payment date, the Committee shall provide the Distributee with an election form and a notice that satisfies the requirements of Section 1.411(a)-11(c) of the Income Tax Regulations and Section 402(f) of the Code. In the event the Distributee does not return the signed election form by his payment date, he shall be deemed to have elected the method of Payment described in Section 6.06(a)(i). 66 (c) Notwithstanding the provisions of Section 6.06(b) above, distributions paid in accordance with Section 6.06(a) may commence less than 30 days after the material described in Section 6.06(b) is given to the Distributee provided that: (i) If the Distributee is the Participant, the value of the Participant's Aggregate Account does not exceed $3,500; (ii) The Distributee is notified that he has the right to a period of at least 30 days after receipt of the material to consider whether or not to elect a distribution; and (iii) After receipt of such notification, he affirmatively elects to receive a distribution. (d) The following definitions apply to the terms used in this Section 6.06: (i) "Eligible Rollover Distribution" means any distribution of all or any portion of the balance to the credit of the Distributee, 67 except that an Eligible Rollover Distribution does not include: (A) Any distribution that is one of a series of a substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary, or for a specified period of ten years or more; (B) Any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; (C) The portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and 68 (D) Any other type of distribution that the Internal Revenue Service announces (pursuant to regulation, notice or otherwise) is not an Eligible Rollover Distribution pursuant to Section 402(c) of the Code. (ii) "Eligible Retirement Plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (iii) "Distributee" includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or 69 former spouse who is the alternate payee pursuant to a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the Spouse or former Spouse. (iv) "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 6.07 RECAPTURE OF PAYMENTS (a) By error, it is possible that payments to a Participant or Beneficiary may exceed the amounts to which the recipient is entitled. When notified of the error, the recipient must return the excess to the Trust Fund. This requirement is limited where explicit statutory provisions require limitation . (b) To prevent hardship, repayment under Section 6.07(a) may be made in installments, determined in the sole discretion of the Committee. A repayment arrangement, however, may not be contrary to law, and it may not be used as a disguised loan. 70 (c) If a Trustee is authorized by statue to recover some payments, no Plan provision may be construed to contravene the statue. 71 ARTICLE 7. INVESTMENT ELECTIONS AND VOTING OF COMPANY STOCK - - --------- ------------------------------------------------ 7.01. INVESTMENT OPTIONS (a) Except to the extent that a Participant's loan is considered a separate investment pursuant to Section 6.02, each Participant shall designate the investment fund under which his Tax-Deferred, After Tax and Rollover Contributions are to be invested. All Matching Contributions and Special Contributions shall be invested in the Company Stock Fund. (b) Effective as of June 30, 1992, there are seven such investment funds, as follows: (i) GUARANTEED INTEREST CONTRACT FUND ("GIC FUND") The contracts in this fund are guaranteed by the issuing insurance companies only and not by the Employers or the Plan. Money in this fund is invested in group annuity contracts issued by major life insurance companies or 72 other interest-bearing obligations with other financial institutions. The interest rate payable reflects a blend of the total return on investments made by this fund. As of July 1, 1992, the GIC Fund will be closed to future contributions and transfers from other funds. As the GICs mature, fund balances will be reinvested in the Fidelity Short-Intermediate Government Portfolio. (ii) FIDELITY SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO (FORMERLY KNOWN AS THE FIDELITY INSTITUTIONAL SHORT-INTERMEDIATE GOVERNMENT PORTFOLIO) The objective of this portfolio is to seek a high level of current income consistent with preservation of principal. The portfolio invests only in fixed income securities issued by the U.S. government or issued by U.S. government agencies. It may also buy and sell options and futures contracts relating to U.S. government or government agency fixed income securities. The 73 portfolio generally has a dollar-weighted average maturity of three to five years. The portfolio's share price, yield and total return fluctuate because of several factors, and are not guaranteed. (iii) FIDELITY U.S. BOND INDEX PORTFOLIO The objective of this portfolio is to provide investment results which correspond to the total return on the Lehman Brothers Aggregate Bond Index, a U.S. investment grade fixed income index comprised of approximately 6,500 securities. The portfolio invests in U.S. government, corporate, mortgage, and asset-backed fixed income securities in proportion to their representation in the Lehman Brothers Aggregate Bond Index. It may also buy and sell options and futures contracts relating to securities in its portfolio. The portfolio generally has a dollar-weighted average maturity of eight to ten years. The portfolio's share price, yield and total return fluctuate because of several factors, and are not guaranteed. 74 (iv) FIDELITY BALANCED FUND The objectives of this fund are to provide a high level of current income while preserving capital, and consider opportunities for capital appreciation. The fund invests in a broadly diversified portfolio including U.S. government fixed income securities, U.S. corporate fixed income securities, and U.S. equity securities, and may buy and sell options and futures contracts relating to securities in its portfolio. At all times, the fund will maintain a minimum 25 percent exposure to fixed income securities. The fund's share price, yield and total return fluctuate because of several factors, and are not guaranteed. (v) FIDELITY U.S. EQUITY INDEX COMMINGLED POOL The objective of this pool is to provide investment results which correspond to the total return on the Standard and Poor's 500 Index, a U.S. equity index comprised of 500 equity securities. The pool invests in these 75 equity securities in proportion to their market value weighting in the S&P 500 Index. The Walt Disney Company Common Stock is a stock in the S&P 500 Index, and thus may be held by this pool (Company Stock represents approximately one percent of the S&P 500 Index). The pool may also buy and sell options and futures contracts relating to securities in its portfolio. This is a commingled pool managed by Fidelity Management Trust Company, and is not a mutual fund. The pool's share price, yield and total return fluctuate because of several factors, and are not guaranteed. (vi) FIDELITY MAGELLAN (R) FUND The objective of this fund is to seek capital appreciation by investing primarily in common stock and securities convertible into common stock; however, up to 20 percent of the fund may be invested in fixed income securities. The fund may also invest in foreign securities, high-yield securities, and may buy and sell options and futures contracts 76 relating to securities in the fund. Company Stock may be held in the fund. The fund's share price, yield and total return fluctuate because of several factors, and are not guaranteed. (vii) THE WALT DISNEY COMPANY COMMON STOCK FUND Money is invested entirely in Company Stock. The fund's share price, yield and total return fluctuate in direct correlation with the stock market and the characteristics of Company Stock, and are not guaranteed. (c) Upon Plan enrollment, a Participant shall choose to invest his contributions in one or any combination of the available investment funds in multiples of 10%. (d) A Participant may change his election of investment funds with respect to his future contributions four times each Plan Year, in multiples of 10%. 77 (e) A Participant may transfer the current value of his Tax-Deferred, After-Tax and Rollover Account four times each Plan Year in multiples of 10%. However, a Participant may not make a direct transfer of funds between the GIC Fund and the Fidelity Short-Intermediate Government Portfolio or the Fidelity U.S. Bond Index Portfolio. Amounts transferred from the GIC Fund must be invested in one or more of the other investment choices for a period of three months or more before the amounts can be transferred into the Fidelity Short-Intermediate Government Portfolio or the Fidelity U.S. Bond Index Portfolio. No amounts may be transferred to the GIC Fund from and after July 1, 1992. (f) If a Participant dies, his Beneficiary has the same investment elections rights as the Participant had prior to his death, until the Participant's Aggregate Account is distributed to the Beneficiary. (g) Subject to the provision of Section 7.01(h), the Committee shall adopt such rules and procedures as it deems advisable with respect to all matters 78 relating to the selection and use of the investment funds, provided that all Participant's are treated uniformly. If there is an inconsistency between such rules and the provisions of the preceding provisions of this Section 7.01, such preceding provisions shall be disregarded. (h) The Plan is intended to constitute a Plan described in Section 404(c) of ERISA and Title 29 of the Code of Federal Regulations, Section 2550.404c-1. As such, the Plan's fiduciaries may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by a Participant or a Beneficiary. (i) Each Participant is solely responsible for the selection of his investment options. The Trustee, the Committee, the Employers, and the officers, supervisors and other employees of the Employers are not empowered to advise a Participant as to the manner in which his accounts shall be invested. The fact that an Investment Fund is available to Participants for investment under the 79 Plan shall not be construed as a recommendation for investment in that particular Investment Fund. 7.02 VOTING OF COMPANY STOCK (a) Until the Committee announces otherwise, the provisions of this Section apply to all Company Stock held in The Walt Disney Company Common Stock Fund. (b) A Participant may direct the Committee to direct the Trustee involved in any voting of Company Stock in the Participant's Aggregate Account using the rules in this Section. Voting shares of Company Stock held in The Walt Disney Company Common Stock Fund may be voted by the Trustee holding those shares only according to the written instructions of the Participant whose Aggregate Account holds the shares. Such shares that are unallocated, if any, as of any voting record date or such shares as to which that Trustee receives no written instructions must be voted by the Trustee on each matter in the same ratio (for against, and abstention) as the Trustee was instructed (or abstentions upon a failure to 80 instruct) with respect to other identical shares eligible to vote on such matter as to which direction was received. Options and other rights (for example, tender tights) inuring to the benefit of shares of Company Stock allocated to a Participant's Aggregate Account may be exercised by the Trustee holding those shares only according to the written instruction of the Participant whose Aggregate Account holds the shares. Options and similar rights (for example, tender rights) inuring to the benefit of such shares that are unallocated, if any, must be exercised by the Trustee holding those shares according to the same principles set forth in this Section with regard to voting rights. Participant directions pursuant to this Section may be itemized or a general (blanket) authorization. (c) Whenever a Participant's right to voting or a similar right (such as tender right) is at hand, the Committee must see that the Participants receive all notices, prospectuses, financial statements, proxies, and proxy solicitation materials relating to shares of Company Stock held for their Aggregate Accounts. 81 ARTICLE 8. ADMINISTRATION OF PLAN - - --------- ---------------------- 8.01 APPOINTMENT OF PLAN COMMITTEE The general administration of the Plan and the responsibility for carrying out the provisions of the Plan shall be placed with a Committee, consisting of not less than 3 persons, appointed by the Board of Directors to serve at the pleasure of such Board. Any member of the Committee may resign by delivering his written resignation to the Board of Directors. 8.02 DUTIES OF COMMITTEE The members of the Committee shall elect a chairman from their number and a secretary who may be but need not be one of the members of the Committee; may appoint from their number such subcommittees with such powers as they shall determine; and may authorize one or more of their number or any agent to execute or deliver any instrument or make any payment on their behalf. In addition, the Committee may retain counsel, employ agents and provide for such clerical, accounting, actuarial and consulting services as they may require 82 in carrying out the provisions of the Plan; and may allocate among themselves or delegate all or such portion of the duties under the Plan, other than those granted to the Trustee under the trust agreement adopted for use in implementing the Plan, as they, in their sole discretion, shall decide. 8.03 MEETINGS The Committee shall hold meetings upon such notice, at such place or places, and at such time or times as it may from time to time determine. 8.04 QUORUM Any act which the Plan authorizes or requires the Committee to do may be done by a majority of a quorum of members. A quorum is 50% of all members of the Committee then in office. The action of that majority expressed from time to time by a vote at a meeting or in writing without a meeting shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all members of the Committee at the time in office. 83 8.05 COMPENSATION AND BONDING No member of the Committee shall receive any compensation from the Plan for his services as such. Except as may otherwise be required by law, no bond or other security need be required of any member in that capacity in any jurisdiction. 8.06 ESTABLISHMENT OF RULES AND INTERPRETATION OF PLAN Subject to the limitations of the Plan, the Committee from time to time shall establish rules for the administration of the Plan and the transaction of its business as it deems necessary or appropriate. The Committee shall have the power to construe and interpret the plan, decide all questions of eligibility, and determine the amount, manner and time of payment of any benefits hereunder. The determination of the Committee as to any disputed question shall be conclusive. 8.07 PRUDENT CONDUCT The Committee shall use that degree of care, skill, 84 prudence and diligence that a prudent man acting in a like capacity and familiar with such matters would use in his conduct of a similar situation. 8.08 SERVICE IN MORE THAN ONE FIDUCIARY CAPACITY Any individual, entity or group of persons may serve in more than one fiduciary capacity with respect to the Plan and/or the funds of the Plan. 8.09 LIMITATION OF LIABILITY The Board of Directors, the Committee, the Employees and any officer, employee or agent of an Employer or an Affiliated Employer shall not incur any liability individually or on behalf of any other individuals or on behalf of an Employer or an Affiliated Employer for any act or failure to act, made in good faith in relation to the Plan or the funds of the Plan. However, this limitation shall not act to relieve any such individual, an Employer or an Affiliated Employer from a responsibility or liability for any fiduciary responsibility, obligation or duty under Part 4, Title 1 of ERISA. 85 8. 10 INDEMNIFICATION The Committee, the Board of Directors, and the officers, employees and agents of the Employers or an Affiliated Employer shall be indemnified against any and all liabilities arising by reason of any act, or failure to act, in relation to the Plan or the funds of the Plan, including, without limitation, expenses reasonably incurred in the defense of any claim relating to the Plan or the funds of the Plan, and amounts paid in any compromise or settlement relating to the Plan or the funds of the Plan, except for actions or failures to act made in bad faith. The foregoing indemnification shall be from the funds of the Plan to the extent of those funds and to the extent permitted under applicable law; otherwise from the assets of the Employers. 8.11 EXPENSES OF ADMINISTRATION All expenses incurred prior to the termination of the Plan which shall arise in connection with the administration of the Plan, including but not limited to the compensation of the Trustee, administrative 86 expenses and proper charges and disbursements of the Trustee and compensation and other expenses and charges of any enrolled actuary, counsel, accountant, specialist, or other person who shall be employed by the Committee in connection with the administration thereof, shall be paid from the Trust Fund to the extent not paid by the Employers. 8.12 CLAIMS PROCEDURES The Committee will ordinarily instruct the Trustee to pay benefits when benefits become available without the necessity of a claim by Participants, Contingent Annuitants or Beneficiaries. If any Participant, Contingent Annuitant or Beneficiary makes a written claim for benefits under the Plan and such benefits are denied, the Committee, within 60 days of the date the claim is filed (or, if special circumstances require an extension of time for processing the claim and written notice is given to the claimant of such extension, up to 120 days after the original claim is filed), shall give the claimant notice in writing of the denial of claimed benefits, setting forth specific reasons for the denial, references to pertinent Plan provisions, the reason for and description of any additional 87 material or information needed to perfect the claim and an explanation of the review procedure. The decision of the Committee shall be final unless the claimant, within 60 days after receipt of notice of the decision of the Committee, makes a written request for review of the decision. The claimant or his authorized representative shall have 30 days after submitting a written request for review during which Plan documents may be reviewed and written issues and comments may be submitted. Within 60 days after receipt of the written request for review, the Committee shall issue a written decision including reasons for the decision and references to controlling Plan provisions, which decision shall be final. 88 ARTICLE 9. MANAGEMENT OF FUNDS - - --------- ------------------- 9.01 TRUST AGREEMENT All the funds of the Plan shall be held by a Trustee appointed from time to time by the Board of Directors under a Trust Agreement adopted, or as amended, by the Board of Directors for use in providing the benefits of the Plan and paying its expenses not paid directly by the Employers. The Employers shall have no liability for the payment of benefits under the Plan nor for the administration of the funds paid over to the Trustee. 9.02 EXCLUSIVE BENEFIT RULE Except as otherwise provided in the Plan, no part of the corpus or income of the funds of the Plan shall be used for, or diverted to, purposes other than for the exclusive benefit of Participants and other persons entitled to benefits under the Plan before satisfaction of all liabilities with respect to them. No person shall have any interest in or right to any part of the earnings of the funds of the Plan, or any right in, or 89 to, any part of the assets held under the Plan, except as to and to the extent expressly provided in the Plan. 9.03 COMMITTEE POWER AND DUTIES (a) The Committee may, in its discretion, appoint one or more investment managers (within the meaning of Section 3(38) of ERISA) to manage (including the power to acquire and dispose of) all or part of the assets of the Plan, as the Committee shall designate. In that event, authority over and responsibility for the management of the assets so designated shall be the sole responsibility of that investment manager. (b) The Committee shall have the duty to advise any investment adviser or person (including any investment manager) with discretionary investment authority over all or a portion of the Plan's Trust Fund of the investment objectives which such person should observe. Such advice should, looking at the assets of the Plan as a whole, take into account the short-term cash needs for benefit payment as well as the long-term growth needed to discharge the Plan's liabilities. The Committee 90 shall review and report to the Board of Directors concerning the performance of all investment advisers and persons with discretionary investment authority and make such changes in the appointment of such persons as it deems advisable, except that any replacement of the Trustee may be made only by the Board of Directors upon the recommendation of the Committee. The Committee shall also have the power and authority specified in any agreements with the Trustee or any investment adviser or investment manager. (c) With the approval of the Committee, a portion of the Plan's Trust Fund may be invested in the Trustee's certificates of deposit, or in the Trustee's pooled or commingled qualified trust funds. (d) Notwithstanding the foregoing, the Trust Fund shall consist of the seven separate Investment Funds as provided in Article 7, and to the extent required by Participant elections, may be fully invested in Company Stock. 91 (e) The Committee shall prepare not less than once per year a report of its actions, recommendations and investments and shall deliver a copy of such report to the Board of Directors. 92 ARTICLE 10. GENERAL PROVISIONS - - ---------- ------------------ 10.01 NONALIENATION Except as provided in Section 6.02 or as required by any applicable law, no benefit under the Plan shall in any manner be anticipated, assigned or alienated, and any attempt to do so shall be void. However, payment shall be made in accordance with the provisions of any judgment, decree, or order which: (a) Creates for, or assigns to, a spouse, former spouse, child or other dependent of a Participant ("Alternate Payee") the right to receive all or a portion of the Participant's benefits under the Plan for the purpose of providing child support, alimony payments or marital property rights to that spouse, child or dependent; (b) Is made pursuant to a state domestic relations law; 93 (c) Does not require the Plan to provide any type of benefit, or any option, not otherwise provided under the Plan; and (d) Otherwise meets the requirements of Section 206(d) of ERISA, as amended, as a "Qualified Domestic Relations Order", as determined by the Committee. 10.02 NO CONTRACT OF EMPLOYMENT The Plan shall not be deemed to constitute a contract between any Employer and any person or to be considered an inducement for the employment of any person by any Employer. Nothing contained in the Plan shall be deemed: (a) To give any person the right to be retained in the service of an Employer; or (b) To interfere with the right of any Employer to discharge any person at any time without regard to the effect which such discharge shall have upon his rights or potential rights, if any, under the Plan. 94 10.03 FACILITY OF PAYMENT If the Committee shall find that a Participant or other person entitled to a benefit is unable to care for his affairs because of illness or accident or is a minor, the Committee may direct that any benefit due him, unless claim shall have been made for the benefit by a duly appointed legal representative, be paid to his spouse, a child, a parent or other blood relative, or to a person with whom he resides. Any payment so made shall be a complete discharge of the liabilities of the Plan for that benefit. 10.04 INFORMATION Each Participant, Beneficiary or other person entitled to a benefit, before any benefit shall be payable to him or on his account under the Plan, shall file with the Committee the information that it shall require to establish his rights and benefits under the Plan. 95 10.05 CONSTRUCTION (a) Governing Laws. Except as otherwise provided by ERISA, this Plan -------------- and all provisions thereof shall be construed and administered according to the laws of the State of California. (b) Title and Headings not to Control. The titles to the Articles and --------------------------------- the headings of Sections in the Plan are placed herein for convenience of reference only, and in the case of any conflict, the text of this instrument rather than such titles or headings shall control. (c) Gender and Person. The masculine pronoun shall include the ----------------- feminine, the feminine pronoun shall include the masculine and the singular shall include the plural wherever the context so requires. 10.06 PROOF OF DEATH AND RIGHT OF BENEFICIARY OR OTHER PERSON The Committee may require and rely upon such proof of death and such evidence of the right of any Beneficiary 96 or other person to receive the value of the Plan benefits of a deceased Participant as the Committee may deem proper, and its determination of death and of the right of that Beneficiary or other person to receive payment shall be conclusive. 10.07 FAILURE TO LOCATE RECIPIENT In the event that the Committee is unable to locate a Participant or Beneficiary who is entitled to payment under the Plan within 5 years from the date such payment was to have been made, the amount to which such Participant or Beneficiary was entitled shall be declared a forfeiture and shall be used to reduce future Matching Contributions to the Plan. If the Participant or Beneficiary is later located, the benefit which was previously forfeited hereunder shall be restored by means of additional Employer contributions to the Plan. 97 ARTICLE 11. AMENDMENT, MERGER AND TERMINATION - - ---------- --------------------------------- 11.01 AMENDMENT OF PLAN The Company, acting through the Board of Directors reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to amend in whole or in part any or all of the provisions of the Plan. Effective as of November 21, 1994, the Committee may also amend the Plan provided that any amendment adopted by the Committee may not have an impact on the Company's annual expense of more than five million dollars, except that such five million dollar limitation shall not apply to amendments necessary to comply with laws or regulations. However, no amendment shall make it possible for any part of the funds of the Plan to be used for, or diverted to, purposes other than for the exclusive benefit of persons entitled to benefits under the Plan. No amendment shall be made which has the effect of decreasing the accrued benefits of any Participant or of reducing the nonforfeitable percentage of the accrued benefits of a Participant below the nonforfeitable percentage computed under the Plan as in 98 effect on the date on which the amendment is adopted or, if later, the date on which the amendment becomes effective. Any action required or permitted to be taken by the Board of Directors or the Committee under the Plan shall be by resolution adopted by the Board of Directors or the Committee at a meeting held either in person or by telephone or other electronic means, or by unanimous written consent in lieu of a meeting. Notwithstanding the foregoing, any right of the Company or the Committee to amend the Plan (except for amendments required by law or non-material amendments which are administrative in nature) or any right of the Company to cause mergers or asset and liability transfers or any right of the Employers to take a reversion of the Suspense Account (as defined in Section 13.04(a))terminate as of the date there is a Change in Control of the Company which is defined as follows: (l) any person (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes the beneficial owner, directly or indirectly, to securities of the Company representing fifty percent or more of the combined 99 voting power of the Company's then outstanding securities; or (2) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority of the Board of Directors, unless the election (or the nomination for election by the Company shareholders) of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 11.02 MERGER OR CONSOLIDATION The Plan may not be merged or consolidated with, and its assets or liabilities may not be transferred to, any other plan unless each person entitled to benefits under the Plan would, if the resulting plan were then terminated, receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer if the Plan had then terminated. 100 11.03 ADDITIONAL PARTICIPATING EMPLOYERS (a) If any company is or becomes a subsidiary of or associated with an Employer, the Company may include the employees of that subsidiary or associated company as participants in the Plan upon appropriate action by that company necessary to adopt the Plan. In that event, or if any persons become Employees of an Employer as the result of merger or consolidation or as the result of acquisition of all or part of the assets or business of another company, the Company shall determine to what extent, if any, previous service with the subsidiary or associated company shall be recognized under the Plan, but subject to the continued qualification of the trust for the Plan as tax-exempt under the Code. (b) Any Employer may terminate its participation in the Plan upon appropriate action by it. In that event the assets of the Plan held on account of Participants in the employ of that Employer, and any unpaid Aggregate Accounts of all Participants 101 who have separated from the employ of that Employer, shall be determined by the Committee. Subject to the provisions of Section 6.05, those assets shall be distributed as provided in Section 11.05 if the Plan is terminated or partially terminated as a result of the withdrawal of such Employer. Otherwise, benefits payable to Employees employed by the withdrawing Employer shall be payable to such Employee when due under the Plan, but such Employees shall not be considered Eligible Employees from and after the date of withdrawal by their Employer. 11.04 TERMINATION OF PLAN The Company may terminate the Plan for any reason at any time. 11.05 DISTRIBUTION OF ASSETS ON PLAN TERMINATION OR A COMPLETE DISCONTINUANCE OF CONTRIBUTIONS (a) Subject to the provisions of Section 6.05, in case of termination of the Plan, or a complete discontinuance of contributions under the Plan, the rights of Participants to the benefits accrued 102 under the Plan to date of termination or discontinuance of contributions, shall remain fully vested and nonforfeitable. (b) Upon Plan termination or discontinuance of contributions, the Committee shall instruct the Trustee to allocate any unallocated assets of the Trust Fund (exclusive of any Suspense Account as defined in Section 13.04(a)) among the Aggregate Accounts of Participants and Beneficiaries in accordance with the provisions of Article 5. (c) After providing for payment of any expenses properly chargeable against the Trust Fund, the Committee may direct the Trustee to distribute assets remaining in the Trust Fund. Assets in any Suspense Account must be returned to the Employers in kind, unless there has been a Change of Control as provided in Section 11.01. Distributions to Participants or Beneficiaries may be in cash or in kind and are not subject to the regular distribution provisions of this Plan except distributions must be in a form that the Committee determines consistent with statutory requirements. Except as specifically provided by law, the 103 Committee's determination is conclusive on all persons. (d) In the event of a partial termination of the Plan, the provisions of this Section shall be applicable to the Participants affected by the partial termination. 11.06 NOTIFICATION OF TERMINATION Upon a termination of the Plan in accordance with this Article, the Committee shall notify the Employers, the Trustee, the Participants and all other necessary parties. The Committee shall thereafter continue the administration of the Plan for the purpose of winding up its affairs and may take all action reasonably required to accomplish such purpose. 11.07 CHANGE IN CONTROL Notwithstanding any other provision of this Plan to the contrary, in the event of a Change in Control as defined in Section 11.01, any residual assets of the trust fund held in a Suspense Account as defined in Section 13.04(a) must be used to provide additional 104 benefits to the Participants, in proportion to their relative Compensation, or in a per capita allocation, as the Committee shall determine. If necessary to avoid tax disqualification of the Plan, such additional benefits shall be provided to the Participants as additional compensation after the Employers have taken the value of the Suspense Account as defined in Section 13.04(a) into taxable income. 105 ARTICLE 12. TOP-HEAVY PROVISIONS - - ---------- -------------------- 12.01. PRIORITY OVER OTHER PLAN PROVISIONS If the Plan is or becomes a Top-Heavy Plan in any Plan Year, the provisions of this Article will supersede any conflicting provisions of the Plan. However, the provisions of this Article will not operate to increase the rights or benefits of Participants under the Plan except to the extent required by the Code section 416 and other provisions of law applicable to Top-Heavy Plans. 12.02 DEFINITIONS USED IN THIS ARTICLE The following words and phrases, when used with initial capital letters, will have the meanings, set forth below. (a) "DEFINED BENEFIT DOLLAR LIMITATION" means the limitation described in Section 13.02(f). 106 (b) "DEFINED BENEFIT PLAN" means the qualified plan described in Section 13.02(h). (c) "DEFINED CONTRIBUTION DOLLAR LIMITATION" means the limitation described in Section 13.02(i). (d) "DEFINED CONTRIBUTION PLAN" means the tax-qualified plan described in Section 13.02(k). (e) "DETERMINATION DATE" means for the first Plan Year of the Plan, the last day of the Plan Year and for any subsequent Plan Year, the last day of the preceding Plan Year. (f) "DETERMINATION PERIOD" means the Plan Year containing the Determination Date and the four preceding Plan Years. (g) "INCLUDABLE COMPENSATION" means Section 415 Compensation limited each year by the Maximum Compensation Limitation. (h) "KEY EMPLOYEE" means any Employee or former Employee (and the Beneficiary of a deceased Employee) who at any time during the Determination 107 Period was (i) an officer of an Employer or an Affiliated Employer, if such individual's Includable Compensation (modified as described below) exceeds 50% of the Defined Benefit Dollar Limitation, (ii) an owner (or considered an owner under Code section 318) of one of the ten largest interests in an Employer or an Affiliated Employer, if such individual's Includable Compensation exceeds the Defined Contribution Dollar Limitation, (iii) a 5-percent owner of an Employer or an Affiliated Employer, or (iv) a l-percent owner of an Employer or an Affiliated Employer who has annual Includable Compensation of more than $150,000. The determination of who is a Key Employee will be made in accordance with Code section 416(i). (i) "MINIMUM ALLOCATION" means the allocation described in the first sentence of Section 12.03. (j) "PERMISSIVE AGGREGATION GROUP" means the Required Aggregation Group of Qualified Plans plus any other qualified plan or qualified plans of an Employer or an Affiliated Employer which, when considered as a group with the Required 108 Aggregation Group, would continue to satisfy the requirements of Code sections 401(a)(4) and 410 (including simplified employee pension plans). (k) "PRESENT VALUE" means present value based only on the interest and mortality rates specified in a Defined Benefit Plan. (l) "REQUIRED AGGREGATION GROUP" means the group of plans consisting of (i) each qualified plan (including simplified employee pension plans) of an Employer or an Affiliated Employer which enables a Qualified Plan to meet the requirements of Code sections 401(a)(4) or 410. (m) "TOP-HEAVY PLAN" means the Plan for any Plan Year in which any of the following conditions exists: (i) if the Top-Heavy Ratio for the Plan exceeds 60% and the Plan is not a part of any Required Aggregation Group or Permissive Aggregation Group of qualified plans; (ii) if the Plan is a part of a Required Aggregation Group but not part of a Permissive Aggregation Group of qualified plans and the Top-Heavy Ratio for the Required Aggregation Group exceeds 60%; or (iii) if the 109 Plan is a part of a Required Aggregation Group and part of a Permissive Aggregation Group of qualified plans and the Top- Heavy Ratio for the Permissive Aggregation Group exceeds 60%. (n) "TOP-HEAVY RATIO" means a fraction, the numerator of which is the sum of the Present Value of accrued benefits and the account balances (as required by Code section 416)) of all Key Employees with respect to such Qualified Plans as of the Determination Date (including any part of any accrued benefit or account balance distributed during the five-year period ending on the Determination Date), and the denominator of which is the sum of the Present Value of the accrued benefits and the account balances (including any part of any accrued benefit or account balance distributed in the five-year period ending on the Determination Date) of all Employees with respect to such qualified plans as of the Determination Date. The value of account balances and the Present Value of accrued benefits will be determined as of the most recent Top-Heavy Valuation Date that fails within or ends with the 12-month period ending on the Determination Date, 110 except as provided in Code section 416 for the first and second Plan Years of a Defined Benefit Plan. The account balances and accrued benefits of a participant who is not a Key Employee but who was a Key Employee in a prior year will be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, transfers and contributions unpaid as of the Determination Date are taken into account will be made in accordance with Code section 416. Employee contributions described in Code section 219(e)(2) will not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the Determination Dates that fall within the same calendar year. The accrued benefit of any Employee other than a Key Employee will be determined under the method, if any, that uniformly applies for accrual purposes under all Qualified Plans maintained by an Employer or an Affiliated Employer and included in a Required Aggregation Group or a Permissive Aggregation Group or, if there is no such method, as if the benefit accrued not more rapidly than the slowest 111 accrual rate permitted under the fractional accrual rate of Code section 411(b)(1)(C). Notwithstanding the foregoing, the account balances and accrued benefits of any Employee who has not performed services for an employer maintaining any of the aggregated plans during the five-year period ending on the Determination Date will not be taken into account for purposes of this subsection. (o) "TOP-HEAVY VALUATION DATE" means the last day of each Plan Year. 12.03 MINIMUM ALLOCATION (a) For any Plan Year in which the Plan is a Top-Heavy Plan, each Participant who is not a Key Employee will receive an allocation of Employer contributions of not less than the lesser of 3% of his Includable Compensation for such Plan Year or the percentage of Includable Compensation that equals the largest percentage of Participating Employer contributions and forfeitures allocated to a Key Employee. The Minimum Allocation is determined without regard to any Social Security 112 contribution. Tax-Deferred Contributions made on behalf of Participants who are not Key Employees will not be treated as Employer contributions for purposes of the Minimum Allocation in Plan Years beginning after December 31, 1988. Matching Contributions that are allocated to Participants who are not Key Employees and that are taken into account in determining a Participant's Deferral Percentage or Contribution Percentage for a Plan Year beginning after December 31, 1988 will not be treated as Employer contributions for such Plan Year for purposes of the Minimum Allocation. The Minimum Allocation applies even though under other Plan provisions the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the Plan Year because (i) the non-Key Employee fails to make mandatory contributions to the Plan, (ii) the non-Key Employee's Includable Compensation is less than a stated amount, or (iii) the non-Key Employee fails to complete 1,000 Hours of Service in the Plan Year. (b) No Minimum Allocation will be provided pursuant to subsection (a) to a Participant who is not 113 employed by an Employer or an Affiliated Employer on the last day of the Plan Year. (c) If an Employer or an Affiliated Employer maintains one or more other Defined Contribution Plans covering Employees who are Participants in this Plan, the Minimum Allocation will be provided under this Plan, unless such other Defined Contribution Plans make explicit reference to this Plan and provide that the Minimum Allocation will not be provided under this Plan, in which the provisions of subsection (a) will not apply to any Participant covered under such other Defined Contribution Plans. If an Employer or an Affiliated Employer maintains one or more Defined Benefit Plans covering Employees who are Participants in this Plan, and such Defined Benefit Plans provide that Employees who are participants therein will accrue the minimum benefit applicable to top-heavy Defined Benefit Plans notwithstanding their participation in this Plan then the provisions of subsection (a) will not apply to any Participant covered under such Defined Benefit Plans. If an Employer or an Affiliated Employer maintains one or more Defined 114 Benefit Plans covering Employees who are Participants in this Plan, and the provisions of the preceding sentence do not apply, then each Participant who is not a Key Employee and who is covered by such Defined Benefit Plans will receive a Minimum Allocation determined by applying the provisions of subsection (a) with the substitution of "5%" in each place that "3%" occurs therein. (d) The Participant's Minimum Allocation, to the extent required to be nonforfeitable under Code section 416(b) and the special vesting schedule provided in this Article, may not be forfeited under Code section 411(a)(3)(B)(relating to suspension of benefits on reemployment) or 411(a)(3)(D) (relating to withdrawal of mandatory contributions). 12.04 MODIFICATION OF AGGREGATE BENEFIT LIMIT (a) Subject to the provisions of subsection (b), in any Plan Year in which the Top-Heavy Ratio exceeds 60%, the aggregate benefit limit described in Article 13 will be modified by substituting "100%" for "125%" in Sections 13.02(h) and (k). 115 (b) The modification of the aggregate benefit limit described in subsection (a) will not be required if the Top-Heavy Ratio does not exceed 90% and one of the following conditions is met: (i) Employees who are not Key Employees do not participate in both a Defined Benefit Plan and a Defined Contribution Plan which are in the Required Aggregation Group, and the Minimum Allocation requirements of Section 12.03(a) are met when such requirements are applied with the substitution of "4%" for "3%"; (ii) the Minimum Allocation requirements of Section 12.03 (c) are met when such requirements are applied with the substitution of "7 1/2%" for "5%"; or (iii) Employees who are not Key Employees have an accrued benefit of not less than 3% of their average Includable Compensation for the five consecutive Plan Years in which they had the highest Includable Compensation multiplied by their Years of Service in which the Plan is a Top-Heavy Plan (not to exceed a total such benefit of 30%) expressed as a life annuity commencing at the Participant's normal retirement age in a Defined Benefit Plan which is in the Required Aggregation Group. 116 12.05 MINIMUM VESTING The vesting provided in Article 5 exceeds the minimum vesting of Section 416 of the Code and hence special minimum top-heavy vesting requirements are not required under this Plan. 117 ARTICLE 13. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS TO PARTICIPANTS' ------------------------------------------------------------- ACCOUNTS -------- 13.01 PRIORITY OVER OTHER CONTRIBUTION AND ALLOCATION PROVISIONS The provisions set forth in this Article will supersede any conflicting provisions of Articles 3 and 4. 13.02 DEFINITIONS USED IN THIS ARTICLE The following words and phrases, when used with initial capital letters, will have the meanings set forth below. (a) "ANNUAL ADDITION" means the sum of the following amounts with respect to all qualified plans and welfare benefit funds maintained by the Employers and Affiliated Employers. (1) the amount of Employer and Affiliated Employer contributions including Tax-Deferred Contributions with respect to the 118 Limitation Year allocated to the Participant's account; (2) the amount of any forfeitures for the Limitation Year allocated to the Participant's account; (3) the amount, if any, carried forward pursuant to Section 13.04 or a similar provision in another qualified plan and allocated to the Participant's account; (4) the amount of a Participant's voluntary nondeductible contributions for the Limitation Year, provided, however, that the Annual Addition for any Limitation Year beginning before January 1, 1987 will not be recomputed to treat all of the Participant's nondeductible voluntary contributions as part of the Annual Addition; (5) the amount allocated to an individual medical benefit account (as defined in Code section 415(1)(2)) which is part of a Defined Benefit Plan or an annuity plan; and 119 (6) the amount derived from contributions paid or accrued after December 31, 1985 in taxable years ending after such date that are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code section 419A(d)(3)) under a Welfare Benefit Fund. A Participant's Annual Addition will not include a (i) any nonvested amounts restored to his account following his reemployment before incurring five consecutive one year Breaks in Service, (ii) any amounts allocated to his Rollover Account, or (iii) any amounts repaid to the Plan as principal or interest on a loan pursuant to Section 6.02. Any Tax-Deferred or Matching Contributions distributed or forfeited under the provisions of Sections 1.38, 13.07 or 13.08 shall be included in Annual Additions for the year allocated. (b) "AVERAGE CONTRIBUTION PERCENTAGE" means the average of the Contribution Percentages of each Participant in a group of Participants. 120 (c) "AVERAGE DEFERRAL PERCENTAGE" means the average of the Deferral Percentages of each Participant in a group of Participants. (d) "CONTRIBUTION PERCENTAGE" means the ratio (expressed as a percentage) determined by dividing the Matching Contributions and any applicable Special Contributions made to the Plan on behalf of a Participant who is eligible to receive such contributions for a Plan Year (disregarding any Matching Contributions that are taken into account in determining the Participant's Deferral Percentage for the Plan Year) by the Participant's Statutory Compensation for the Plan Year. A Participant is eligible for purposes of determining his Contribution Percentage even though no Matching Contributions are made to the Plan on his behalf because of the suspension of his Tax-Deferred Contributions under the terms of the Plan, because of an election not to participate, or because of the limitations contained in Sections 13.03 through 13.05 of the Plan. 121 (e) "DEFERRAL PERCENTAGE" means the ratio (expressed as a percentage) determined by dividing the Tax-Deferred Contributions and any applicable Special Contributions made to the Plan on behalf of a Participant who is eligible to make Tax-Deferred Contributions for all or a portion of a Plan Year by the Participant's Statutory Compensation for the Plan Year. In addition, since the Matching and Special Contributions to the Plan for any Plan Year satisfy the requirements of Code section 401(k)(2)(B) and (C), a Participant's Deferral Percentage may be determined by aggregating the Tax-Deferred Contributions, Matching Contributions and Special Contributions made to the Plan on his behalf for such Plan Year. A Participant is eligible to make Tax-Deferred Contributions for purposes of determining his Deferral Percentage even though he may not make Tax-Deferred Contributions because of the suspension of his Tax- Deferred Contributions under the terms of the Plan, because of an election not to participate, or because of 122 the limitations contained in Sections 13.03 and 13.05 of the Plan. (f) "DEFINED BENEFIT DOLLAR LIMITATION" means for any Limitation Year, $90,000, multiplied by the Adjustment Factor. (g) "DEFINED BENEFIT FRACTION" means a fraction, the numerator of which is the Projected Annual Benefit of a Participant under all Defined Benefit Plans maintained by the Employers or an Affiliated Employer determined as of the close of the Limitation Year and the denominator of which is the lesser of (i) 140% of the Participant's average Section 415 Compensation that may be taken into account for the Limitation Year under Code section 415(b)(1)(B), or (ii) 125% of the Defined Benefit Dollar Limitation, determined as of the close of the Limitation Year. If the Participant was a participant in a Defined Benefit Plan maintained by an Employer or an Affiliated Employer in existence on July 1, 1982, or on May 6, 1986, the denominator of the Defined Benefit 123 Fraction will not be less than 125% of the greater of the Participant's accrued Projected Annual Benefit under such plan as of the end of the last Limitation Year beginning before January 1, 1983, or his accrued Projected Annual Benefit of the end of the last Limitation Year beginning January 1, 1987. The preceding sentence applies only if the Defined Benefit Plan satisfied the requirements of Code section 415 as in effect at the end of such Limitation Year. (h) "DEFINED BENEFIT PLAN" means a qualified plan other than a Defined Contribution Plan. (i) "DEFINED CONTRIBUTION DOLLAR LIMITATION" means for any Limitation Year, $30,000 or, if greater, 25% of the Defined Benefit Dollar Limitation for the same Limitation Year. If a short Limitation Year is created because of a Plan amendment changing the Limitation Year to a different 12-consecutive month period, the Defined Contribution Dollar Limitation for the short Limitation Year will not exceed the amount determined in the preceding 124 sentences multiplied by a fraction, the numerator of which is the number of months in the short Limitation Year and the denominator of which is 12. (j) "DEFINED CONTRIBUTION FRACTION" means a fraction, the numerator of which is the sum of the Annual Additions allocated to the Participant's accounts for the applicable Limitation Year and each prior Limitation Year, and the denominator of which is the sum of the lesser of the following products for each Limitation Year in which the Participant was an Employee (regardless of whether a Defined Contribution Plan was in existence for such Limitation Year) (i) the Defined Contribution Dollar Limitation (determined for this purpose without regard to the provisions of Code section 415(c)(6)) effective for the Limitation Year multiplied by 125%, or (ii) 35% of the Participant's Section 415 Compensation for such Limitation Year. 125 (k) "DEFINED CONTRIBUTION PLAN" means a qualified plan described in Code section 414(i). (l) "FAMILY MEMBER" means, with respect to an Employee, the Employee's spouse and lineal ascendants or descendants and the spouses of such lineal ascendants or descendants. (m) "LIMITATION YEAR" means the 12-consecutive-month period used by a qualified plan for purposes of computing the limitations on benefits and annual additions under Code section 415. The Limitation Year for this Plan is the Plan Year. (n) "MAXIMUM ANNUAL ADDITION" means with respect to a Participant for any Limitation Year an amount equal to the lesser of (i) the Defined Contribution Dollar Limitation, or (ii) 25% of the Participant's Section 415 Compensation. (o) "NONHIGHLY COMPENSATED EMPLOYEE" means an Employee who is neither a Highly Compensated 126 Employee nor a Family Member of a Highly Compensated Employee. (p) "PROJECTED ANNUAL BENEFIT" means the annual benefit (as defined in Code section 415(b)(2)) to which a Participant would be entitled under the terms of a Defined Benefit Plan maintained by an Employer or an Affiliated Employer, assuming that the Participant will continue employment until his normal retirement age under the Defined Benefit Plan (or current age, if later) and that the Participant's Section 415 Compensation for the current Limitation Year and all other relevant factors used to determine benefits under the Defined Benefit Plan will remain constant for all future Limitation Years. (q) "STATUTORY COMPENSATION" means the earnings paid to an Employee by the Employers which are subject to reporting on Internal Revenue Service Form W-2. In addition, Statutory Compensation includes any contributions made by the Employers on behalf of an Employee 127 pursuant to a Tax-Deferral Contribution election under the Plan or under any other employee benefit plan containing a cash or deferred arrangement under Code section 401(k) and any amounts that would have been received as cash but for an election to receive benefits under a cafeteria plan meeting the requirements of Code section 125. Effective January 1, 1989, the annual Statutory Compensation of an Employee taken into account for any purpose for any Plan Year will not exceed the Maximum Compensation Limitation. (r) "WELFARE BENEFIT FUND" means an organization described in paragraph (7), (9), (17) or (20) of Code section 501(c), a trust, corporation or other organization not exempt from federal income tax, or to the extent provided in Treasury Regulations, any account held for an employer by any person, which is part of a plan of an employer through which the employer provides benefits to employees or their beneficiaries, other than a benefit to which Code sections 83(h), 404 (determined 128 without regard to section 404(b)(2)) or 404A applies, or to which an election under Code section 463 applies. 13.03 GENERAL ALLOCATION LIMITATION The Annual Addition of a Participant for any Limitation Year will not exceed the Maximum Annual Addition. If, except for the application of this Section, the Annual Addition of a Participant for any Limitation Year would exceed the Maximum Annual Addition, the excess Annual Addition attributable to this Plan will not be allocated to the Participant's Aggregate Account for the Plan Year included in such Limitation Year, but will be subject to the provisions of Section 13.04. The limitations contained in this Article will apply on an aggregate basis to all Defined Contribution Plans and all Defined Benefit Plans (whether or not any of such plans have terminated) established by the Employers and Affiliated Employers. 13.04 EXCESS ALLOCATIONS If the Participant is not covered under another Defined Contribution Plan or a Welfare Benefit Fund maintained 129 by an Employer or an Affiliated Employer during the Limitation Year and the amount otherwise allocable to his Account would exceed the Maximum Annual Addition, the Employer contributions which would cause the Participant's Annual Addition to exceed the Maximum Annual Addition will first be returned to the Employers as an amount contributed as a mistake of fact to the extent permitted by law and/or second be successively allocated in the manner described in Section 4.02(d) among the Accounts of eligible Participants whose Annual Additions do not exceed the Maximum Annual Addition. If, after such allocations have been made, there remain Employer contributions which cannot be allocated without causing the Annual Addition of a Participant to exceed the Maximum Annual Addition, the Employer contributions which result from a reasonable error in estimating the Participant's Section 415 Compensation or from any other limited facts and circumstances which the Commissioner of Internal Revenue finds justifiable under section 1.415-6(b)(6) of the Treasury Regulations and which cause the Participant's Annual Addition to exceed the Maximum Annual Addition will be held in a Suspense Account in the Trust Fund to be carried forward and allocated in subsequent Limitation Years as provided in Section 130 4.02. Such Suspense Account will participate in the allocation of Income of the Trust Fund. (b) If, in addition to this Plan, the Participant is covered under another Defined Contribution Plan or a Welfare Benefit Fund maintained by an Employer or an Affiliated Employer during the Limitation Year, the following provisions will apply. The Annual Addition which may be credited to a Participant's Account under this Plan for any such Limitation Year will not be reduced by the Annual Addition credited to a Participant's accounts under the other Defined Contribution Plans and Welfare Benefit Funds for the same Limitation Year. The Annual Addition with respect to the Participant under the other Defined Contribution Plans and Welfare Benefit Funds maintained by an Employer or an Affiliated Employer will be reduced if necessary so that the Annual Addition under all such Defined Contribution Plans and Welfare Benefit Funds for the Limitation Year will equal the Maximum Annual Addition. (c) If Annual Additions on behalf of a Participant are to be reduced under this Plan to avoid allocation to the Participant in excess of the Maximum Annual Addition, 131 then the reduction shall be accomplished in accordance with the following order of priority: (i) the Participant's unmatched Tax-Deferred Contributions, and the amount of the reduction, plus Income thereon if required by Income Tax Regulations, shall be returned to the Participant. (ii) the Participant's matched Tax-Deferred Contributions and corresponding Matching Contributions shall be reduced to the extent necessary. The amount of reduction attributable to Participant's matched Tax-Deferred Contributions shall be returned to the Participant, plus Income thereon if required by Income Tax Regulations. The amount of reduction attributable to Matching Contributions shall be forfeited and used to reduce subsequent Employer contributions to the Plan. (iii) Special Contributions, if any, shall be reduced to the extent necessary, and said reduction shall be forfeited and used to reduce subsequent Employer contributions to the Plan. 132 Any Tax-Deferred Contributions returned to the Participant pursuant to this Section 13.04(c) shall be disregarded in applying the Section 402(g) Limit and in determining the Participant's Deferral Percentage under Section 13.02(e). 13.05 AGGREGATE BENEFIT LIMITATION If an Employer or an Affiliated Employer maintains, or at any time maintained, one or more Defined Benefit Plans covering any Participant in this Plan, the sum of the Defined Benefit Fraction and the Defined Contribution Fraction for any Limitation Year will equal no more than one (1.0). The provisions of the Defined Benefit Plans will govern the order of reduction of Annual Additions or benefit accruals necessary to meet this limitation. If the provisions of the Defined Benefit Plans are silent, the rate of accrual under the Defined Benefit Plan will be reduced first to meet this limitation. If the Defined Contribution Plans taken into account in determining the Participant's Annual Addition under this Article satisfied the requirements of Code section 415 as in effect for all Limitation Years beginning before January 1, 1987, an amount will be subtracted from the 133 numerator of the Defined Contribution Fraction (not exceeding such numerator) as prescribed by the Secretary of the Treasury so that the sum of the Defined Contribution Fraction and the Defined Benefit Fraction does not exceed 1.0. For purposes of this Section, a Participant's voluntary nondeductible contributions to a Defined Benefit Plan will be treated as being part of a separate Defined Contribution Plan. 13.06 NO CONFLICT WITH CODE SECTION 415 The preceding provisions of this Article are intended to comply with current provisions of Section 415 of the Code so that the maximum benefits provided by plans of the Employers and Affiliated Employers shall be exactly equal to the maximum amounts allowed under Section 415 of the Code and regulations thereunder. If there is a discrepancy between the provisions of Section 415 of the Code and regulations thereunder, such discrepancy shall be resolved in such a way as to give full effect to the provisions of Section 415 of the Code and regulations thereunder. 134 13.07 LIMITATION ON DEFERRAL CONTRIBUTIONS (a) AVERAGE DEFERRAL PERCENTAGE TEST Notwithstanding any other provision of the Plan, the Average Deferral Percentage for a Plan Year for Participants who are Highly Compensated Employees will not exceed the greater of: (i) the Average Deferral Percentage for Participants who are Nonhighly Compensated Employees multiplied by 1.25; or (ii) the lesser of (A) the Average Deferral Percentage for Participants who are Nonhighly Compensated Employees plus two percentage points or (B) the Average Deferral Percentage for Participants who are Nonhighly Compensated Employees multiplied by 2.0. The multiple use of the alternative test contained in clause (ii) of this section will be restricted as provided in regulations prescribed by the Secretary of the Treasury. (b) SUSPENSION OF TAX-DEFERRED CONTRIBUTIONS If at any time during a Plan Year the Committee determines, on the basis of estimates made from 135 information then available, that the limitation described in Section 13.07(a) above will not be met for the Plan Year, the Committee in its discretion may reduce or suspend the Tax- Deferred Contributions of one or more Participants who are Highly Compensated Employees to the extent necessary (i) to enable the Plan to meet such limitation, or (ii) to reduce the amount of excess Tax-Deferred Contributions that would otherwise be distributed pursuant to Section 13.07(c) below. (c) REDUCTION OF EXCESS TAX-DEFERRED CONTRIBUTIONS If, for any Plan Year, the Average Deferral Percentage for Participants who are Highly Compensated Employees exceeds the limitation described in Section 13.07(a) above, the Deferral Percentage for each such Participant will be reduced (in the order of Deferral Percentages, beginning with the highest of such percentages) until the limitation in Section 13.07 (a) is satisfied. In order to reduce a Participant's Deferral Percentage, the Participant's excess Tax-Deferred Contributions will be returned to him. If Matching Contributions are taken into account 136 in determining Deferral Percentages, a Participant's Deferral Percentage will be reduced by returning first Tax-Deferred Contributions in excess of 4% of Compensation and by returning next the remaining Tax-Deferred Contributions and Matching Contributions, in proportion to the amount of such contributions for the Plan Year. All distributions under this Section 13.07(c) will include Trust Fund Income for the Plan Year and the distribution and will be made within two and one-half months following the close of the Plan Year, if practicable, but in no event later than the last day of the immediately following Plan Year. The amount of excess Tax-Deferred Contributions distributed pursuant to this Section with respect to a Participant for the Plan Year will be reduced by any Tax-Deferred Contributions previously distributed to the Participant for the same Plan Year pursuant to Section 1.38. In the event any Tax-Deferred Contributions returned under this Section were matched by Matching Contributions, such corresponding Matching Contribution, with Income as of the end of the Plan Year shall be forfeited by the 137 Participant and used to reduce Employer contributions under the Plan. 13.08 LIMITATION ON MATCHING CONTRIBUTIONS (a) AVERAGE CONTRIBUTION PERCENTAGE TEST Notwithstanding any other provision of the Plan, the Average Contribution Percentage for a Plan Year for Participants who are Highly Compensated Employees will not exceed the greater of: (i) the Average Contribution Percentage for Participants who are Nonhighly Compensated Employees multiplied by 1.25; or (ii) the lesser of (A) the Average Contribution Percentage Test for Participants who are Nonhighly Compensated Employees plus two percentage points or (B) the Average Contribution Percentage for Participants who are Nonhighly Compensated Employees multiplied by 2.0. The multiple use of the alternative test contained in clause (ii) of this Section will be restricted as provided in regulations prescribed by the Secretary of Treasury. 138 (b) REDUCTION OF EXCESS MATCHING CONTRIBUTIONS If, for any Plan Year, the Average Contribution Percentage for Participants who are Highly Compensated Employees exceeds the limitation described in Section 13.08(a) above, the Contribution Percentage for each such Participant will be reduced (in the order of Contribution Percentages, beginning with the highest of such percentages) until the limitation in Section 13.08(a) is satisfied. In order to reduce a Participant's Contribution Percentage, the Participant's excess Matching Contributions (increased by Trust Fund Income for the Plan Year) will be distributed to the Participant within two and one-half months following the close of the Plan Year, if practicable, but in no event later than the last day of the immediately following Plan Year. 13.09 AGGREGATION RULES (a) CODE SECTION 415 For purposes of the allocation limitations under 139 Code section 415 set forth in this Article, all Defined Benefit Plans ever maintained by an Employer or an Affiliated Employer will be treated as one Defined Benefit Plan, and all Defined Conribution Plans ever maintained by an Employer or an Affiliated Employer will be treated as one Defined Contribution Plan. (b) CODE SECTION 401(K) For purposes of the limitation on Tax-Deferred Contributions set forth in this Article, the Average Deferral Percentage for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have tax-deferred contributions allocated to his account under two or more plans or arrangements described in Code section 401(k) that are maintained by the Employer or any Affiliated Employer will be determined as if all such tax-deferred contributions were made under a single arrangement. (c) CODE SECTION 401(M) If this Plan satisfies the requirements of Code 140 section 4l0(b) only if aggregated with one or more other plans, the Contribution Percentages of all Participants will be determined as if all such plans were a single plan. In addition, the Contribution Percentage of a Participant who is a Highly Compensated Employee for a Plan Year and who is eligible to receive Tax-Deferred Contributions or Matching Contributions allocated to his account under two or more Defined Contribution Plans maintained by an Employer or an Affiliated Employer will be determined as if all such contributions were made to a single plan. (d) FAMILY MEMBERS For purposes of determining the Contribution Percentage or the Deferral Percentage of a Participant who is both a Highly Compensated Employee and either (i) a 5-percent owner, determined in accordance with Code section 414(q) and the Treasury Regulations promulgated thereunder, or (ii) one of the 10 most highly compensated Employees ranked on the basis of Statutory Compensation paid by an Employer or an Affiliated Employer during the year, determined in 141 accordance with Code section 414(q) and the Treasury Regulations promulgated thereunder, the Tax-Deferred Contributions, Matching Contributions and Statutory Compensation of such Participant will include the Tax-Deferred Contributions, Matching Contributions and Statutory Compensation of Family Members, and Family Members will be disregarded in determining the Contribution Percentage or the Deferral Percentage of all other Participants. 142 EX-21 6 LIST OF SUBSIDIARIES EXHIBIT 21 THE WALT DISNEY COMPANY AND SUBSIDIARIES
Name of Subsidiary State of Incorporation - - ------------------ ---------------------- Buena Vista Home Video, Inc. California Buena Vista International, Inc. California Buena Vista Pictures Distribution, Inc. California Buena Vista Television California Disney Development Company Florida EDL Holding Company Delaware KCAL-TV, Inc. California Lake Buena Vista Communities, Inc. Delaware The Disney Channel California The Disney Store, Inc. California Walt Disney Pictures and Television California Walt Disney World Co. Delaware WCO Parent Corporation Delaware
EX-27 7 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the consolidated balance sheet and consolidated statement of income found on pages 34 and 33 of the Company's Form 10-K for 1995 and is qualified in its entirety by reference to such financial statements. 1,000,000 US DOLLARS 12-MOS SEP-30-1995 OCT-01-1994 SEP-30-1995 1 1,077 866 1,793 0 824 0 9,229 3,039 14,606 0 2,984 1,226 0 0 5,425 14,606 12,112 12,112 0 9,666 184 0 178 2,117 737 1,380 0 0 0 1,380 2.06 2.06
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