Disney owes Katzenberg

Retired Los Angeles County Superior Court judge Paul Breckenridge has ruled
that Jeffrey Katzenberg, the former head of Disney's film unit, did not
forfeit a lucrative bonus when he left the company in 1994 and is entitled
to interest on any money he is owed. Judge Paul Breckenridge issued his
decision Wednesday and will next hear testimony to determine exactly how
much money Disney should pay. Katzenberg, who left Disney in 1994 after he
was denied a promotion, is suing Disney for what he says is at least $250
million from an incentive bonus promised in his contract. At stake is 10%
statutory interest per year that would be tacked on to any award.


Katzenberg claims the bonus is worth 2 percent of all future profits from
every Disney product generated during his decade with the company, that
includes everything from T-shirts to games from such blockbusters as THE
LION KING and ALADDIN. If the bonus ends up being close to what Katzenberg
wants, the compounded interest could be worth tens of millions of dollars.
In his ruling, Breckenridge found that Disney breached Katzenberg's
contract on Oct. 1, 1994, and "was obligated to pay a post-termination
bonus" with interest. The judge further ruled that Katzenberg can go after
revenues earned by Disney merchandise created in-house (rather than
licensed), and can go after online earnings, but only after the conglom's
Internet venture is deemed to be more than a promotional tool. These
revenues include profits from merchandise sold in Disney stores and at
theme parks. In rulings for Disney, the judge found that Katzenberg was not
entitled to any bonus money from profits at the three Club Disney play
centers. The judge's decisions also gave a key point to Disney by finding
that there was no fraud on the part of the studio's execs in its efforts to
deny Katzenberg monies due under his employment contract. Breckenridge's
decision - which was made public Wednesday - closes the first phase of
Katzenberg's lawsuit against Disney and sets the stage for the second
phase. In addition to the amount of the bonus, the judge left undecided the
date from which the interest should start accruing.


Disney had argued that Katzenberg forfeited his bonus because he left two
years before the end of his six-year contract. The parties reached a
partial settlement at an earlier time, but most of the terms have been
placed under seal. What is known is that Disney has already paid Katzenberg
some money - more than $100 million, according to sources. It is this
settlement that authorized Breckenridge to resolve disputes on whether
certain products fall under the bonus, and the exact value of that bonus.
The proceeding has been portrayed as the messy aftermath of the
disintegration of a Hollywood power marriage, with the trial turning into a
bitter personal battle between Katzenberg and his former boss, Disney
Chairman Michael Eisner. In an extraordinarily unusual airing of Hollywood
grievances, Katzenberg argued the dispute boiled down to Eisner's animosity
toward him. Eisner, under questioning by Katzenberg's lawyer, acknowledged
he may have once said of Katzenberg, "I think I hate the little midget."
However, Eisner did say that he probably made that remark in anger after
Katzenberg left the company.