EMPLOYMENT AGREEMENT
BETWEEN
THE XXXX DISNEY COMPANY
AND
XXXXXXX X. XXXXXX
Xxxxxxx X. Xxxxxx ("Executive") and The Xxxx Disney Company, a Delaware
corporation ("Company"), hereby agree as follows:
1. Term
The term of this Agreement shall commence on January 8, 1997 and shall
terminate on September 30, 2006.
2. Duties
Executive shall be employed by Company as its Chairman and Chief Executive
Officer. Executive shall report directly and solely to the Company's Board of
Directors ("Board"). Executive shall devote his full time and best efforts to
the Company. Company agrees to nominate Executive for election to the Board as a
member of the management slate at each annual meeting of stockholders during his
employment hereunder at which Executive's director class comes up for election.
Executive agrees to serve on the Board if elected.
3. Salary
Executive shall receive an annual base salary of $750,000. The Board, in
its discretion, may increase the base salary based upon relevant circumstances.
4. Bonus
(a) Executive shall, as provided in, and subject to, Sections 4(e) and
4(f) below, receive an incentive bonus for Company's fiscal years ending
September 30, 1997 and September 30, 1998, pursuant to Company's 1997 Cash Bonus
Performance Plan for Executive Officers (the "Executive Cash Bonus Performance
Plan"), which plan shall be submitted to the shareholders of
Company as provided in Section 4(f) hereof.
(b) Executive shall, as provided in, and subject to, Sections 4(c),4(e)
and 4(f) below, receive an incentive bonus for each fiscal year of Company which
shall end after September 30, 1998 and on or before the termination of this
Agreement and for such additional periods as are provided in Section 4(e) below,
in an amount determined in accordance with the bonus formula set forth on
Exhibit 1 hereto. Such bonus formula shall be submitted to the shareholders of
Company as provided in Section 4(f) hereof.
(c) Both parties acknowledge that the bonus formula set forth on Exhibit A
hereto may produce inequitable results in the future, particularly since the
contract covers an extended period of time and the Company has grown very large
with worldwide activities in a very dynamic industry. Combination with another
company, capital restructuring, material changes in accounting rules or tax
laws, severe or prolonged recession or inflation and other circumstances, both
intrinsic and extrinsic to Company operations and/or the applicability of the
formula could create such inequitable results and materially frustrate the
intent of the bonus formula. In the event that the parties shall agree that
circumstances have occurred which make such bonus formula unfair and
inequitable, the parties will, at the request of either party, negotiate a
substitute formula which will provide a fair and realistic incentive under the
then current and anticipated circumstances and, in general, yield an equitable
and comparable result. Upon completion of such negotiations, this Agreement
shall be terminated and the parties shall enter into a new agreement which shall
replace such bonus formula with a substitute formula and which shall otherwise
be substantially identical to this Agreement. If the parties cannot agree upon
such substitute formula, or if the parties cannot agree as to whether or not
circumstances exist which would give rise to the right of either party to
request negotiation pursuant to the foregoing, the parties shall submit such
matter to arbitration by a qualified individual with expertise and at least ten
years experience in the field of executive compensation. Said individual shall
not have had dealings with either party during the preceding five years. Upon
failure to agree upon the selection of the arbitrator, each party shall submit a
panel of five qualified arbitrators, the other party may strike three from the
other's list, and the arbitrator shall be selected by lot from the remaining
four names. The arbitrator shall have the authority only to determine (i)
whether circumstances described above have occurred so as to make the matter
arbitrable and (ii) the substitute formula that will provide a fair and
realistic incentive and yield an equitable and comparable result in accordance
with the foregoing. After such determination shall have been made by the
arbitrator, this Agreement shall be terminated and the parties shall enter into
a new agreement which shall be substantially identical to this Agreement except
for the substitute formula which will replace the bonus formula set forth on
Exhibit A hereto. In all cases hereunder, Company shall be permitted to seek
shareholder approval or take such other steps as are reasonably necessary to
claim the deductibility by Company of any compensation paid to Executive
pursuant to any substitute formula hereunder. Notwithstanding any other term or
provision hereof, the implementation of any substitute formula hereunder shall
be effectuated on a prospective basis only (i.e., such substitute formula shall
not be applicable to any year as to which the applicable deadline under any
Federal tax law relating to deductibility of taxes by Company for the
establishment of a performance-based compensation plan shall have passed).
(d) Each incentive bonus shall be payable (i) 30 days following the date
Company's audited consolidated statement of income for the applicable fiscal
year becomes available or (ii) on the January 2 following the end of that fiscal
year, whichever is later (the "Bonus Payment Date").
(e) Executive shall be entitled to receive the bonus provided for in
paragraph (a) or paragraph (b) above, as the case may be, for each fiscal year
during which he is employed hereunder and, in addition, for the next twenty-four
months following the fiscal year during which Executive's employment is
terminated hereunder, except that said post-termination bonus coverage (i) shall
only extend for twelve months after termination if Executive takes employment
(other than as an independent producer) with another major entertainment company
within twelve months of termination and (ii) shall not apply if this Agreement
is terminated for good cause. The bonus provided for in Section 4(a) above shall
be applicable to any part or all of any period prior to October 1, 1998 in
respect of which a post-termination bonus is payable, and the bonus formula set
forth on Exhibit 1 hereto above shall be applicable to any part or all of any
period after September 30, 1998 in respect of which a post-termination bonus is
payable. If the bonus formula set forth on Exhibit 1 is used to determine a
post-termination bonus for fiscal 2007 or 2008, the Bonus Percentage (as defined
in Exhibit 1 hereto) shall be .35 for fiscal 2007 and .30 for fiscal 2008; the
payment of any bonus or bonuses for fiscal 2007 and 2008 in accordance with the
foregoing shall be made no earlier than thirty days following the date upon
which such payment is no longer subject to Section 162(m) of the Internal
Revenue Code. If such bonus formula shall no longer be applicable pursuant to
Section 4(f)(1) hereof, the post-termination bonuses shall be determined in
accordance with Section 4(f)(1) and paid during the time period applicable to
payments made pursuant to such bonus formula; provided, however, that any bonus
payable in respect of either the first or second twelve-month period of such
twenty-four month period shall not be less than the average of the total bonuses
paid to Executive hereunder in respect of the two fiscal years immediately prior
to the fiscal year in which termination of Executive's employment occurs. All
bonus payments hereunder shall be in cash.
(f) The bonus formula set forth on Exhibit 1 shall be submitted to the
shareholders of Company, together with the Executive Cash Bonus Performance
Plan, at Company's annual shareholders meeting to be held in 1997. In the event
that the Executive Cash Bonus Performance Plan is not approved by the
shareholders, this Agreement shall remain in effect, subject to the provisions
of this Section 4(f) set forth below, and Executive's bonuses for fiscal years
1997 and 1998 shall be determined in a manner consistent with the way the
Company shall determine bonuses for all other executives of the Company subject
to Section 162(m) of the Internal Revenue Code. In the event that the bonus
formula set forth on Exhibit 1 is not approved by shareholders at such meeting,
Company and Executive shall, for a period of thirty (30) days following such
shareholders meeting, use their best efforts to negotiate a bonus formula to
substitute for such disapproved formula, and if such substitute formula is
agreed upon, it shall be submitted to the shareholders of Company for approval
at Company's 1998 annual shareholders meeting. If no agreement is reached by
Company and Executive during such thirty-day period, or if shareholder approval
of any such agreement is not obtained at Company's 1998 shareholders meeting,
all of the terms and provisions of this Agreement shall remain in full force and
effect except that, notwithstanding any other term or provision hereof:
(1) The bonus formula set forth on Exhibit 1 hereto shall be of no
force or effect and Executive's annual bonuses hereunder for fiscal years
of Company ending on or after September 30, 1999 shall be determined at
the discretion of the Board of Directors of Company and may not comply
with Section 162(m) of the Internal Revenue Code; and
(2) Executive may terminate this Agreement and his employment
hereunder by delivering to Company, at any time on or after October 1,
1998, written notice setting forth a date of termination of this Agreement
which shall be at least twelve months later than the date upon which such
notice is delivered to Company.
5. Stock Options
(a) In connection with this Agreement Executive has been granted stock
options on September 30, 1996, to purchase (i) 5,000,000 shares of Company
common stock having an exercise price equal to the per share fair market value
(determined in accordance with the applicable provisions of the Company's 1995
Stock Incentive Plan (the "Plan")) of Company common stock on September 30, 1996
(the "A Options") and (ii) 3,000,000 shares of Company common stock of which
1,000,000 shall have an exercise price equal to 125% of the per share fair
market value of the Company common stock on such date ("Group 1"), 1,000,000
shall have an exercise price equal to 150% of the per share fair market value of
the Company common stock on such date ("Group 2"), and 1,000,000 shall have an
exercise price equal to 200% of the per share fair market value of the Company
common stock on such date ("Group 3") ("Groups 1, 2 and 3 are collectively
referred to herein as the B Options"). The A Option shall vest on September 30,
2003. Group 1 of the B Options shall vest on September 30, 2004. Group 2 of the
B Options shall vest on September 30, 2005. Group 3 of the B Options shall vest
on September 30, 2006. The A Option shall expire on September 30, 2008, and the
B Options shall expire on September 30, 2011. Such options shall be subject to,
and governed by, the terms and provisions of the Plan except to the extent of
modifications of such options which are permitted by the Plan and which are
expressly provided for in this Agreement.
(b) In accordance with the Plan, Executive will enter into a stock option
agreement with Company containing the terms and provisions of such options set
forth herein together with such other terms and conditions as counsel for the
Company requires to assure compliance with applicable federal or state law and
stock exchange requirements in connection with the issuance of shares of Company
common stock upon exercise of options to be granted as provided herein, or as
may be required to comply with the Plan.
(c) If Company has not already done so, Company shall register Executive's
shares pursuant to the appropriate form of registration statement under the
Securities Act of 1933 and shall maintain such registration statement's
effectiveness at all required times.
(d) Company shall, to the extent permitted by law, make loans to Executive
in reasonable amounts on reasonable terms and conditions during his employment
by Company to facilitate the exercise of the options granted to him as described
above.
6. Benefits
Executive shall be entitled to receive all benefits generally made
available to executives of Company. In addition, Company shall provide a death
benefit to Executive's estate having an after-tax value of $3,000,000 in the
event of Executive's death during the term hereof.
7. Reimbursement for Expenses
Executive shall be expected to incur various business expenses customarily
incurred by persons holding like positions, including but not limited to
traveling, entertainment and similar expenses incurred for the benefit of
Company. Subject to Company's policy regarding the reimbursement of such
expenses (which does not necessarily provide for reimbursement of all such
expenses), Company shall reimburse Executive for such expenses from time to
time, at Executive's request, and Executive shall account to Company for such
expenses.
8. Protection of Company's Interests
(a) During the term of this Agreement Executive shall not directly or
indirectly engage in competition with, or own any interest in any business which
competes with, any business of Company or any of its subsidiaries; provided,
however, that the provisions of this Section 8 shall not prohibit his ownership
of not more than 5% of voting stock of any publicly held corporation.
(b) Except for actions taken in the course of his employment hereunder, at
no time shall Executive divulge, furnish or make accessible to any person any
information of a confidential or proprietary nature obtained by him while in the
employ of Company. Upon termination of his employment by Company, Executive
shall return to the Company all such information which exists in written or
other physical form and all copies thereof in his possession or under his
control.
(c) Company and its successors and assigns shall, in addition to
Executive's services, be entitled to receive and own all of the results and
proceeds of said services (including, without limitation, literary material and
other intellectual property) produced or created during the term of Executive's
employment hereunder except with respect to any book or writing autobiographical
in nature. Executive will, at the request of Company, execute such assignments,
certificates or other instruments as Company may from time to time deem
necessary or desirable to evidence, establish, maintain, protect, enforce or
defend its right or title in or to any such material.
(d) Executive recognizes that the services to be rendered by him hereunder
are of a character giving them peculiar value, the loss of which cannot be
adequately compensated for in damages, and in the event of a breach of this
Agreement by Executive, Company shall be entitled to equitable relief by way of
injunction or any other legal or equitable remedies.
9. Termination by Company
(a) Company shall have the right to terminate this Agreement under the
following circumstances:
(i) Upon the death of Executive.
(ii) Upon notice from Company to Executive in the event of an illness
or other disability which has incapacitated him from performing his duties
for six consecutive months as determined in good faith by the Board.
(iii) For good cause upon notice from Company. Termination by Company
of Executive's employment for "good cause" as used in this Agreement shall
be limited to gross negligence or malfeasance by Executive in the
performance of his duties under this Agreement or the voluntary
resignation by Executive as an employee of Company without the prior
written consent of Company.
(b) If this Agreement is terminated pursuant to Section 9(a) above,
Executive's rights and Company's obligations hereunder shall forthwith terminate
except as expressly provided in this Agreement.
(c) If this Agreement is terminated pursuant to Section 9(a)(i) or (ii)
hereof, Executive or his estate shall be entitled to receive a cash payment
equal to the present value (based on Company's then current cost of borrowing
for the remainder of the term hereof) of his base salary for the balance of the
term of this Agreement, payable within 30 days of the date of termination.
Executive shall also be entitled to receive the bonus payments provided for in
Section 4(e) hereof for the fiscal year in which the termination occurred plus
the twenty-four months following such fiscal year. All stock options granted to
Executive in accordance with Section 5 hereof shall also immediately vest upon
such termination and remain exerciseable until the earlier of the fifth
anniversary of the date of such termination or the expiration of such options on
the scheduled expiration dates set forth in Section 5(a) hereof.
(d) Whenever compensation is payable to Executive hereunder during a time
when he is partially or totally disabled and such disability (except for the
provisions hereof) would entitle him to disability income or to salary
continuation payments from Company according to the terms of any plan now or
hereafter provided by Company or according to any Company policy in effect at
the time of such disability, the compensation payable to him hereunder shall be
inclusive of any such disability income or salary continuation and shall not be
in addition thereto. If disability income is payable directly to Executive by an
insurance company under an insurance policy paid for by Company, the amounts
paid to him by said insurance company shall be considered to be part of the
payments to be made by Company to him pursuant to this Section 9, and shall not
be in addition thereto.
10. Termination by Executive
(a) Executive shall have the right to terminate his employment under this
Agreement upon 30 days' notice to Company given within 60 days following the
occurrence of any of the following events, each of which shall constitute "good
reason" for such termination:
(i) Executive is not elected or retained as Chairman and Chief
Executive Officer and a director of Company.
(ii) Company acts to materially reduce Executive's duties and
responsibilities hereunder. Executive's duties and responsibilities shall
not be deemed materially reduced for purposes hereof solely by virtue of
the fact that Company is (or substantially all of its assets are) sold to,
or is combined with, another entity provided that (a) Executive shall
continue to have the same duties and responsibilities with respect to
Company's business as of January 8, 1997, including but not limited to,
entertainment and recreation, broadcasting, cable, direct broadcast
satellite, filmed entertainment, consumer products, etc. and (b) Executive
shall report directly to the chief executive officer and/or board of
directors of the entity (or individual) that acquires Company or its
assets.
(iii) Company acts to change the geographic location of the performance
of Executive's duties from Los Angeles California Metropolitan area.
(b) Notwithstanding any other term or provision hereof, in the event that
Executive's employment shall terminate pursuant to Section 4(f)(2) hereof,
Executive's stock options referred to in Section 5 hereof shall remain
exercisable until the earlier of twelve months from the effective date of
termination or the scheduled expiration dates of such options set forth in
Section 5(a) hereof, and, for the purpose of establishing the period during
which vesting may continue to occur with respect to such options (and for no
other purpose whatsoever), Executive's employment shall not be deemed to
terminate until three months after the effective date of termination of
Executive's employment hereunder. In addition, Company's obligation to make the
bonus payments required by Section 4(e) hereof in the event of termination
pursuant to Section 4(f)(2) hereof in respect of the twenty-four month period
following the fiscal year during which termination of Executive's employment
hereunder shall occur shall remain in full force and effect, and in no event
shall the bonus payable in respect of either the first or second twelve-month
period of such twenty-four month period be less than the average of the total
bonuses paid to Executive hereunder for the two fiscal years immediately prior
the fiscal year in which the effective date of termination shall occur. Except
as provided above in this Section 10(b), a termination of this Agreement
pursuant to Section 4(f)(2) shall be treated as a voluntary resignation by
Executive as an Employee of Company without the prior written consent of Company
under Section 9(a)(iii).
11. Consequences of Breach by Company
If this Agreement is terminated pursuant to Section 10 hereof, or if
Company shall terminate Executive's employment under this Agreement in any other
way that is a breach of this Agreement by Company, the following shall apply:
(i) Executive shall receive a cash payment equal to the present value
(based on Company's then current cost of borrowing for the remainder of
the term hereof) of Executive's base salary hereunder for the remainder of
the term, payable within 30 days of the date of such termination.
(ii) Executive shall be entitled to bonus payments as provided in
Section 4 hereof for the remainder of the term hereof plus twenty-four
months.
(iii) All stock options granted by Company to Executive under the Plan
or granted by Company to Executive prior to the date hereof shall
accelerate and become immediately exercisable and thereafter remain
exercisable until the earlier of the fifth anniversary of the date of such
termination or the scheduled expiration dates for such options set forth
in Section 5(a) hereof.
12. Post-Termination Consulting Services
Upon expiration of this Agreement on September 30, 2006 (i.e., after the
completion of the full term of service by Executive hereunder), Executive shall
serve as a consultant to Company at a fee to be mutually agreed upon which shall
be at least $1.00 per year plus continuation of the same benefits and/or
perquisites provided to Executive during his term as Chief Executive Officer of
Company, excluding, however, any items which would conflict with any laws,
regulations and/or tax qualifications applicable to group health, pension and
employee welfare plans of Company and, except as otherwise provided herein with
respect to certain specified continuing obligations of Company to Executive,
salary, bonuses and/or stock options. The consulting arrangement shall continue
until notice is given as provided below following the earlier of: (i) acceptance
by Executive of full-time employment with a third party, (ii) the rendering by
Executive of any services to a competitor of Company or (iii) Executive's
disability for a period of six months which shall render him substantially
incapable of performing any consulting services for Company. If notice is given
pursuant to clauses (i) and (ii) above, the consulting arrangement shall
terminate three business days after the giving of such notice, and if such
notice is given pursuant to clause (iii), such termination shall occur three
months after the giving of such notice.
13. Remedies
Company recognizes that because of Executive's special talents, stature
and opportunities in the entertainment industry, and because of the special
creative nature of and compensation practices of said industry and the material
impact that individual projects can have on an entertainment company's results
of operations, in the event of termination by Company hereunder (except under
Section 9(a)), or in the event of termination by Executive under Section 10,
before the end of the agreed term, Company and Executive acknowledge and agree
that the provisions of this Agreement regarding further payments of base salary,
bonuses and the exercisability of stock options constitute fair and reasonable
provisions for the consequences of such termination, do not constitute a
penalty, and such payments and benefits shall not be limited or reduced by
amounts Executive might earn or be able to earn from any other employment or
ventures during the remainder of the agreed term of this Agreement.
14. Binding Agreement
This Agreement shall be binding upon and inure to the benefit of
Executive, his heirs, distributees and assigns and Company, its successors and
assigns. Executive may not, without the express written permission of the
Company, assign or pledge any rights or obligations hereunder to any person,
firm or corporation.
15. Amendment; Waiver
This Agreement contains the entire agreement of the parties with respect
to the employment of Executive by Company and upon execution of this Agreement
supersedes, on and as of January 8, 1997, the Employment Agreement dated as of
January 10, 1989 between Company and Executive (it being understood, however,
that this Agreement shall not affect any stock options granted to Executive by
Company prior to the date hereof). No amendment or modification of this
Agreement shall be valid unless evidenced by a written instrument executed by
the parties hereto. No waiver by either party of any breach by the other party
of any provision or condition of this Agreement shall be deemed a waiver of any
similar or dissimilar provision or condition at the same or any prior or
subsequent time.
16. Governing Law
(a) This Agreement shall be governed by and construed under and in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws; and the laws of that state shall govern all of the rights
remedies, liabilities, powers and duties of the parties under this Agreement and
of any arbitrator or arbitrators to whom any matter hereunder may be submitted
for resolution by the parties hereto, as contemplated by and pursuant to Title
6, Section 2708 of the Delaware Code.
(b) Any legal action or proceeding with respect to this Agreement shall be
brought exclusively in the federal or state courts of the State of Delaware, and
by execution and delivery of this Agreement, Executive and Company irrevocably
consent to the jurisdiction of those courts. Executive and Company irrevocably
waive any objection, including any objection to the laying of venue or based on
the grounds of forum non conveniens, which either may now or hereafter have to
the bringing of any action or proceeding in such jurisdiction in respect of this
Agreement or any transaction related hereto. Executive and Company acknowledge
and agree that any service of legal process by mail in the manner provided for
notices under this Agreement constitutes proper legal service of process under
applicable law in any action or proceeding under or in respect of this
Agreement.
(c) The parties agree that this Agreement (together with the stock option
agreement referred to in Section 5(b) hereof and any other documents or
agreements specifically referred to herein) shall constitute the sole and
conclusive basis for establishing Executive's compensation for all services
provided by him hereunder.
17. Notices
All notices which a party is required or may desire to give to the other
party under or in connection with this Agreement shall be given in writing by
addressing the same to the other party as follows:
If to Executive to:
Xxxxxxx X. Xxxxxx
000 Xxx Xxx Xxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000 and
If to Company, to:
The Xxxx Disney Company
000 Xxxxx Xxxxx Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Senior Executive Vice President
and Chief of Operations
or at such other place as may be designated in writing by like notice. Any
notice shall be deemed to have been given within 48 hours after being addressed
as required herein and deposited, first-class postage prepaid, in the United
States mail.
IN WITNESS WHEREOF, the parties have executed this Agreement on this 8th day of
January 1997.
THE XXXX DISNEY
COMPANY
/s/ Xxxxxxx X. Xxxxxx By:_/s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx Name: Xxxxxxx X. Xxxxxx
Title:Chairman of the
Executive Committee
Bonus Formula
The bonus payable pursuant for each applicable fiscal year of the Company
shall be the amount of Bonus EPS multiplied by Outstanding Shares with the
result multiplied by the Bonus Percentage.
In determining such bonus, the following definitions shall apply:
(1) "Bonus EPS" shall be the amount by which the EPS for the
applicable fiscal year exceeds Threshold EPS.
(2) "EPS" means the primary earnings per share of Company as reported
in its annual consolidated financial statements after any extraordinary
items set forth therein.
(3) "Base EPS" shall be the average of the EPS of the Company for the
fiscal years 1997 and 1998 (rounded to the nearest cent), but in no event
less than $2.75 or more than $3.25 if the average is below or above such
figures, respectively.
(4) "Threshold EPS" shall be based on a compounded annual growth rate
of 7.5% calculated on Base EPS (and rounded to the nearest cent). For
fiscal year 1999 it shall be determined by multiplying Base EPS by 1.075.
For each succeeding fiscal year it shall be determined by multiplying the
previous fiscal year's Threshold EPS by 1.075.
(5) "Outstanding Shares" means the number of common shares of the
Company outstanding based on the same figures used by the Company in
calculating EPS for the applicable fiscal year.
(6) The "Bonus Percentage" for each applicable fiscal year shall be
the following:
Year Percentage Year Percentage
1999 5.75 2003 0.75
2000 2.75 2004 0.55
2001 1.60 2005 0.45
2002 1.10 2006 0.40
