Katzenberg Describes the Souring of a Relationship

Testifying publicly for the first time in his lengthy fight with Walt Disney Co., Jeffrey Katzenberg described a deteriorating relationship with the company during his lastyear as studio chief and, in particular, his frustration in getting Chairman Michael Eisner to honor a bonus payment that Katzenberg contends was the most important part of his employment contract.

Katzenberg’s testimony came in the second day of the second phase of a trial in which he claims Disney owes him as much as $250 million from an agreement entitling him to 2% of the profits from such films as “Beauty and the Beast,” “The Lion King” and “Sister Act” that he oversaw at the studio.

Katzenberg said he and Eisner had “a very strong working relationship” at Paramount Pictures in the early 1980s before they both left in 1984 as part of a group that turned around Disney. At one point while still at Paramount, Katzenberg said, he and Eisner discussed going into business together by forming a new film company.

But by the time Katzenberg left Disney a decade later, the relationship had soured. On the day in August 1994 that he was told by Eisner that he was no longer wanted, Katzenberg said, he made two requests: one was to part amicably, and the other was that Eisner personally ensure that Katzenberg was paid the bonus Disney owed him.

Katzenberg said he reminded Eisner that his concerns were similar to those Eisner had when he left Paramount.

“I wanted him to understand that I was in the same position he was in 10 years earlier,” said Katzenberg, who appeared uncharacteristically nervous during his testimony.

After he was forced out, Katzenberg testified, he had two meetings with Eisner, one in which Eisner “came to my home to make peace.”

Katzenberg said he reminded Eisner that he had asked him to personally make sure he got what he was entitled to.

Katzenberg said Eisner told him there was “ambiguity” in the language of his contract. Katzenberg testified that Eisner added that as a result, he would have to discuss the issue with Disney’s board, which at the time was still furious with Katzenberg.

Eisner added, according to Katzenberg, that “if I behaved myself, in a couple of weeks he would revisit the situation.”

Asked to explain, Katzenberg said Eisner wasn’t happy with the press the company was getting in the wake of the studio chief’s departure and that Eisner blamed Katzenberg for it.

Katzenberg then described a more contentious meeting with Eisner in which he visited the Disney chief in his office and tried to hand him a copy of a “deal memo” from 1988 that described his contract terms. Taking issue with Eisner’s contention that the contract language was ambiguous, Katzenberg said he told Eisner that it was so clear that his then-11-year-old twins could understand it.

But Eisner refused to accept the paper, Katzenberg said. “He stood up from his desk and literally backed away,” he testified.

Eisner eventually did take the paper and said he would turn it over to Sanford Litvack, a top Disney executive who was then the company’s chief lawyer.

After that, Katzenberg recalled, Eisner “invited me to leave his office.”

Katzenberg contends his bonus plan should have given him a large lump-sum payment within two years of leaving the company, based on projected future profits of the movies and TV shows.

During the first phase of the trial, Disney and Katzenberg agreed to a partial settlement of Katzenberg’s lawsuit. In this second phase, they are arguing before a retired judge just how much he should get.

At issue is interpreting how broadly to define the formula. Katzenberg, using memos and internal Disney documents, is seeking a broader definition to include such things as all merchandise stemming from those movies and their use in online services. Disney’s lawyers argue that the contract defines it much more narrowly.

Tuesday’s session underscored that one of the key problems is the reliance on documents, letters and scribbled notes from the late Disney President Frank G. Wells, who was killed in a helicopter crash four months before Eisner and Katzenberg parted ways.

Both sides are seeking to interpret the intentions of Wells, the key Disney executive in negotiations with Katzenberg.

Disney lawyer Lou Meisinger began his cross-examination of Katzenberg toward the end of the hearing in the Century City law offices of Katzenberg’s attorneys, pressing Katzenberg on whether he had his personal lawyers and accountants undertake an extensive review of the disputed bonus.

Meisinger is expected to continue his examination of Katzenberg today. Eisner is expected to testify next week.

* PROFIT DROPS: Disney said its fiscal second-quarter profit fell 30%. C8