SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission File Number: 1-10781
LANCIT MEDIA PRODUCTIONS, LTD.
(Exact name of registrant as specified in its charter)
New York
13-3019470
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
601 West 50th Street, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 977-9100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value, $.001 per share
(Title of Class)
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 twelve (12) months or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes: x No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates:
$57,396,278 on September 27, 1996.
Number of shares of Common Stock outstanding: 6,626,750 on
September 27, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
TABLE OF CONTENTS
FORM 10-K/A ANNUAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
LANCIT MEDIA PRODUCTIONS, LTD.
Item No. Part I Page
1 Business I-1
2 Property I-10
3 Legal Proceedings I-10
4 Submission of Matters to a Vote of Security Holders I-11
Part II
5 Market for Registrant's Common Equity and Related
Stockholders Matters II-1
6 Selected Financial Data II-2
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations II-3
8 Financial Statements and Supplementary Data II-9
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-9
Part III
10 Directors and Officers of the Registrant III-1
11 Executive Compensation III-5
12 Security Ownership of Certain Beneficial
Owners and Management III-12
13 Certain Relationships and Related Transactions III-13
Part IV
14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K IV-1
Signatures S-1
PART I
Item 1. Business
Lancit Media Productions, Ltd. and subsidiaries (the "Company")
include Lancit Media Productions, Ltd. ("Lancit"), a New York
corporation which was formed on June 11, 1979, Lancit's wholly-owned
subsidiaries, Frame Accurate, Inc. ("Frame Accurate") and Lancit
Copyright Corp. ("LCC"), as well as Lancit's majority-owned
subsidiary, The Strategy Licensing Company, Inc. ("Strategy") and its
majority-owned subsidiary, The Puzzle Place Marketing Company
("PPMC").
Lancit is engaged in the acquisition and development of properties for,
and the production of "franchise"-based television series, motion pictures, home
videos and interactive media products for children and family-oriented
audiences. In the last five years, Lancit shifted its emphasis from being
primarily a provider of production services to others to that of a developer,
producer and licensor of original programming and related characters in which
Lancit maintains a significant ownership interest as well as licensing and
distribution rights.
Frame Accurate is a provider of post-production services which include
personnel, facilities, graphics and dubbing as well as other aspects of the
editing and finishing process.
LCC's primary function is to manage copyrights, trademarks and other
intellectual property acquired from producers, including Lancit, and other
rights holders, which properties are primarily character based, for the purpose
of maximizing the returns on such properties in all ancillary markets such as
merchandise licensing and home video.
In December 1993, Lancit created Strategy by acquiring the majority of A.
J. Scanlan and Co., Inc. ("Scanlan") as well as the remaining 50% interest in
the Scanlan/Drosnes partnership (of which Scanlan was the other 50% owner) and
subsequently merging Lancit's interest in each of these two entities. Strategy
is a merchandise licensing and promotions company which performs licensing agent
functions for properties and characters owned by Lancit as well as for outside
clients including Sega of America, Broderbund Software and Sony Interactive.
In September 1996, Discovery Communications, Inc. ("DCI") entered into a
non-exclusive strategic programming alliance with Lancit and invested $5 million
for an initial 6.6% equity stake in the Company. DCI is a large privately held,
diversified media company which owns cable television's Discovery Channel and
The Learning Channel, as well as the national retailing chain, The Nature
Company.
Current Productions
The Puzzle Place(R). In November 1991, The Corporation for Public
Broadcasting ("CPB") awarded Lancit and Community Television of Southern
California ("KCET") a $4.5 million grant, one of the largest children's
television grants in CPB's history, to develop and produce The Puzzle Place(R),
designed to be the first new major daily preschool series created for public
television since the premiere of "Sesame Street". The series premiered on
January 16, 1995 with an initial 40 episodes delivered to PBS and, since its
debut, has regularly achieved the second highest average daily ratings among
daily PBS children's shows based on ratings in the top 32 metered markets.
Episodes 41 - 65, produced between March 1995 and December 1995, began airing in
February 1996.
The series features a cast of multi-ethnic "people puppet" characters who
inhabit a make-believe workshop and together must solve the many "puzzles" of
growing up. The show is intended to teach children life skills, such as
understanding other people, evaluating choices and solving basic problems.
The funding for the production and post-production of the first 65
episodes, as well as for related outreach and educational print materials, has
come largely from underwriting grants from corporations, foundations and public
broadcasting-related entities. These include major corporate funding grants from
Edison International ($3.5 million), IBM ($2 million) and Sears ($1 million) and
a foundation grant from Carnegie Corporation of New York ($.3 million) in
addition to initial contributions of $1.15 million from KCET and the $4.5
million from CPB. Lancit also subsequently secured additional contributions from
KCET and CPB totaling approximately $2.5 million.
The Company and KCET share equal ownership in all ancillary rights to the
series. In addition, Lancit receives all producer fees which are allocated in
the annual budgets for the series. CPB is entitled to receive a 19% profit
participation in ancillary sales of the project but has verbally committed to
invest proceeds which would otherwise be received under this participation
towards production.
As of June 30, 1996, Lancit has received all but approximately $.8 million
of the full amount of the project grants and has recognized substantially all of
the revenues related to them over a three year period ending June 30, 1996. As
of June 30, 1996, remaining promotion and outreach required under the CPB grant
for the series was near completion. Production and royalty revenues related to
The Puzzle Place(R) accounted for approximately 48%, 83% and 64% of the
Company's production and royalty revenues during the fiscal years ended June 30,
1996, 1995 and 1994, respectively. Lancit and KCET have submitted a funding
request to CPB for a new production grant to support the development and
production of a third season of episodes of The Puzzle Place(R). Negotiations
regarding terms of such funding have been ongoing, and the timing and extent of
new production for the series will be determined by the outcome of such
discussions.
Lancit has entered into licensing agreements involving The Puzzle Place(R)
with over 35 companies which have generated initial royalties as of June 30,
1996 totaling over $11.5 million (of which $7.1 million has already been
received as of August 1996). The Company recognized a large part of the
copyright holders' portion of these royalties (approximately $7.3 million) as
revenues during the second half of its fiscal year ended June 30, 1995. As had
been anticipated, revenues related to the copyright holder's portion of
licensing royalties from the project during the fiscal year ending June 30, 1996
were limited since the Company, as copyright holder, is not able to recognize
additional revenues from product sales related to these agreements until
individual licensees have recouped their initial royalty commitments. The
initial line of The Puzzle Place(R) licensed products, for the most part, was
introduced at retail in Fall 1995 and substantially all licensees are still in
the process of recoupment.
During fiscal 1994, the Company, through its licensing subsidiary,
Strategy, established a joint venture with KCET, PPMC, to manage the
exploitation of the various ancillary rights associated with the series.
Strategy has recognized revenues of $1,325,868 and $1,351,007 during the fiscal
years ending June 30, 1996 and 1995, respectively, resulting from its role in
the joint venture. PPMC, through Strategy, continues to actively service The
Puzzle Place(R) licensee accounts and generate fees from such activities. The
television series continues to perform well as measured by average daily
television ratings in the top 32 markets, and recent consumer and site-based
promotions efforts have been well received. However, the Company believes that
early licensee and retailer expectations for sales of licensed products related
to the property were excessively high which, when combined with the product
introduction into an unusually weak overall retail climate, led to disappointing
retail sell-through of a number of product categories. As a result, the Company
has determined it fiscally prudent to reduce its own financial expectations for
these product categories, and, with KCET, has agreed to restructure royalty
payment schedules and license terms with certain licensees in order to more
closely reflect the anticipated future royalty stream expected to be generated
by those particular categories. For the fiscal year ending June 30, 1996, the
Company decided to record a non-cash charge of $2.5 million to reflect these
revisions.
Based on past history of certain other well established PBS children's
series, consumer awareness levels appear to reach their peak several years after
a show's debut. Although there is no assurance that the same will hold true with
The Puzzle Place(R), the Company is continuing to work closely with key
licensees and potential retail partners to enhance the popularity of the
property at retail. The Company is actively developing large-scale promotional
and awareness-building opportunities for The Puzzle Place(R) including a
recently completed successful national brand cereal promotion, a national
fast-food chain premium promotion and a recently commenced nationwide mall show
tour.
The series has been licensed to an international television distributor
who has placed the series for airing in various countries around the world. The
series has already debuted internationally. Licensing programs are expected to
be implemented in several countries.
Reading Rainbow(R). Lancit is the co-creator and has produced 130 episodes
of this award-winning daily children's series, hosted by LeVar Burton, now in
its thirteenth broadcast season on over 300 PBS stations nationwide. The series
was the winner of the 1996 Daytime Emmy Award for "Outstanding Children's
Series". Each episode centers on television adaptations of a picture book
appropriate for beginning readers. The book adaptations have been narrated by
such celebrities as Bill Cosby, Jason Robards, Tyne Daly and Whoopie Goldberg,
among others. Each adaptation then provides a springboard for location segments
that expand on the themes and ideas from the featured book.
Lancit has produced approximately ten new Reading Rainbow(R) programs each
year pursuant to a contract with GPN/NETV Network ("GPN") which has been renewed
on an annual basis for the past eleven years. Reading Rainbow(R) is a production
of GPN and WNED-TV, Buffalo ("WNED"), who control all rights to the series
including merchandising and distribution. Lancit and Frame Accurate are paid
fees for production, directing and post- production services provided to this
series. Such revenues related to the series accounted for approximately 35%, 14%
and 27% of the Company's production and royalty revenues during the fiscal years
ended June 30, 1996, 1995, 1994, respectively. Funding for Reading Rainbow(R)
has been provided by PBS, CPB, the National Science Foundation and others.
Lancit has been notified by GPN that funding has been committed to ensure
continued production of the series through at least September 1996. The Company
has recently engaged in discussions with GPN and WNED regarding potential
opportunities related to future funding of the series. No assurance can be
provided regarding the successful resolution of these ongoing discussions.
Backyard Safari(TM). The Company is completing production and
post-production on the initial season of 13 half hour episodes of this natural
science television series for young children that, as explained below, is
expected to premiere in early 1997. The show combines live action field trips
with "3-D" performance animation to explore the wonders of nature. Backyard
Safari(TM) has been the recipient of a $1.69 million underwriting grant from the
National Science Foundation and has been developed in cooperation with the
American Museum of Natural History ("the Museum"). The Company and the Museum
are in final stages of negotiation regarding a higher visibility association
between the Museum and the Backyard Safari(TM) series and property.
In June 1994, the Company and Manhattan/Transfer Edit entered into an
agreement under which the Company utilizes the technology of
Manhattan/Transfer's digital animation stage to create the motion capture
effects for Backyard Safari's(TM) animated co-host, Crinkleroot(C).
Manhattan/Transfer Edit has a profit participation in the series.
The Company has been actively pursuing and evaluating additional
production funding from potential production partnerships, license fees, and
from potential sources of underwriting. Management believes that such efforts
will soon be enhanced by the anticipated announcement of a commitment from a
television network to air the series, as well as by a more visible association
between the Museum and the series. Based on the most recent indications from
network executives, the Company believes that the show will debut in early 1997.
Only in the event that the Company were to receive no amounts from any sources
of outside production funding (a scenario the Company considers unlikely), the
Company estimates that its remaining investment required for this project beyond
June 30, 1996 would be between $.5 million and $1.0 million.
The Company currently owns all rights to the Backyard Safari(TM) series
and related products as well as the exclusive right to license the
Crinkleroot(C) character as part of the series licensing effort. Strategy will
act as exclusive licensing agent for the series in a wide range of product
categories.
Series in Development
The following is a description of five "franchise"-based children's series
which are currently in active development. There can be no assurance that these
series will advance beyond the development stage or that if produced, such
series will be successfully marketed to broadcast or cable networks.
Seekers (the "Smithsonian" series). In April 1995, the Company and the
Smithsonian Institution signed an agreement to jointly develop a major new
action-adventure television series designed to transport children ages eight to
twelve into new worlds of discovery, using the Smithsonian's museums and
treasures as catalysts. In June, 1996, the two parties announced successful
completion of the initial development phase of the series, Seekers, and shortly
thereafter, the Company initiated discussions with broadcast and cable networks
regarding a proposed Fall 1997 debut for the show.
Recently celebrating its 150th anniversary, the Smithsonian is the world's
largest museum and research complex, encompassing 16 museums and the National
Zoo, and is home to over 140 million artifacts and specimens. The Seekers series
is intended to serve as a springboard for a new children's cross-media franchise
based around the Smithsonian which is expected to feature significant
interactive, print and merchandise components. The Company and the Smithsonian
are co-owners of the Seekers project, while Strategy will act as exclusive
licensing agent.
Danger Guys. In May 1996, the Company acquired an exclusive option for
television, motion picture, home video and merchandising rights (excluding
publishing) to this popular series of Harper Collins adventure stories for boys.
The Company is in active negotiations with a major cable network to develop an
action-adventure series based on the property which would be targeted to debut
in Fall 1997. There can be no assurance that these negotiations will lead to a
definitive agreement. Strategy is expected to act as exclusive licensing agent
for the property.
Lemmings(R). In fiscal 1994, the Company reached an agreement with
Psygnosis, Ltd., now a UK-based division of Sony Interactive, whereby the
Company was awarded the exclusive option to acquire all motion picture,
television and home video rights to Lemmings(R), one of the all-time best
selling interactive game series. In July 1996, the Company entered into an
agreement with an affiliate of Columbia TriStar Television, a division of Sony
Entertainment, to create and co-produce an animated television series based on
the property. Under the terms of the agreement, the Company will act as
executive producer on the project and will retain financial participations in
all ancillary income generated by the series and related merchandising,
including sales of Lemmings(R) interactive products utilizing characters created
for the TV show. Strategy will act as exclusive licensing agent in North America
for the Lemmings(R) property. Pursuant to the terms of the agreement the Company
will not be required to provide production funding for the series. Lemmings(R)
electronic games have sold over 3.5 million units internationally since 1991 and
have been awarded over 20 major industry honors, including Best Home
Entertainment Program and Best Action/Arcade Game of the Year by the Software
Publishers Association.
Kid Pix(R). In August 1996, the Company announced its acquisition of an
exclusive option from Broderbund Software, Inc. for television, motion picture
and home video rights to Kid Pix(R), the best-selling series of creativity
software for children. Strategy has also entered into an agreement with
Broderbund to act as exclusive licensing agent for this property in all
categories outside of interactive software. Sales of Kid Pix(R) software have
surpassed one million units and the acclaimed drawing, painting and animation
programs have been introduced in over 10 languages worldwide.
Passporte Productions/Raven-Symone. The Company is in the later stages of
negotiation for a co-development agreement with Passporte Productions
("Passporte"), one of whose principals is Raven-Symone, one of television's top
child stars (THE COSBY SHOW, HANGIN' WITH MR. COOPER). Under the terms of the
proposed agreement, Passporte will be based at the Company's New York
headquarters. The Company and Passporte intend to co-develop television, motion
picture and home video properties specifically with Raven in mind and the
Company will also receive a "first look" at other Passporte-originated
development projects. Strategy is in the later stages of negotiation of an
agreement under which it will act as exclusive licensing agent for projects
co-developed by the Company and Passporte, including those which feature
Raven-Symone.
Family-Oriented Motion Pictures - In Development
The following family-oriented motion pictures are in various stages of
development. No assurance can be given that development will be completed,
production will be funded or any resulting motion pictures successfully
marketed.
The Giver. In March, 1994, the Company acquired an option for the
exclusive worldwide movie and television rights to this book which won the 1994
Newbery Medal as the most distinguished young people's book of the year. During
1995, The Giver was the best-selling children's fiction book in the nation. The
Company is currently developing the property as a feature film. In September
1994, actor Jeff Bridges and his production company, AsIs Productions, entered
into a co-development and co-production agreement with the Company to develop
the story as a theatrical motion picture. A screenplay has recently been
submitted by screenwriter Bob Weide and the Company is engaged in early stage
discussions with various Hollywood studios that have expressed interest in the
project.
The Watsons Go To Birmingham - 1963. In March 1996, the Company acquired
an option for the exclusive worldwide motion picture, television and home video
rights to The Watsons Go To Birmingham - 1963. The book was named a 1996 Newbery
Honor Book and also received the prestigious Coretta Scott King Award.
The Company is in active negotiations to co-develop and produce a feature
motion picture based on the property with the production company of a major
Hollywood star. The star has agreed, subject to script approval, to play a key
role in the film. No assurance can be given that such negotiations will lead to
an agreement. The Watsons Go To Birmingham - 1963 explores one of the most
significant and heroic moments in the history of America's Civil Rights Movement
as seen through the eyes of an African-American child. Strategic Programming
Alliance With Discovery Communications, Inc.
In September 1996, Discovery Communications, Inc. entered into a strategic
programming alliance with Lancit and invested $5 million for an initial 6.6%
equity stake in the Company ($11.41 per share). DCI may also purchase, what
currently represents, an additional 6.2% stake in the Company through exercise
of warrants at $13 per share.
DCI is a large privately held, diversified media company that owns such
well-known operations as cable television's Discovery Channel and The Learning
Channel, as well as the national retailing chain, The Nature Company. DCI is 49%
owned by Liberty Media Corporation, a division of cable giant
Tele-Communications, Inc. The Discovery Network reaches over 69 million homes
domestically, which represents near universal cable access.
Under the terms of the programming alliance between Lancit and DCI, DCI
will fully fund the development and production of approved newly developed
Lancit children's series for "Discovery Kids", a new Sunday morning block of
children's programs on Discovery Channel debuting in 1997. The agreement also
contemplates Lancit creating on-air interstitial and promotional programming
spots for the block. The non-exclusive agreement between the parties applies to
newly created information-based programming concepts and not to Lancit shows
already in development or production. However, Lancit properties may also find a
home on a DCI-owned cable channel in the U.S. or abroad. For example, the
Discovery Kids network in Latin America is expected to be airing The Puzzle
Place(R) every day beginning in early 1997.
Under the agreement, the Company will derive production-related revenues
from programming it produces for DCI and will participate in income generated by
DCI from licensed product sales based on that programming. Lancit will be
entitled to 25% of the income derived by DCI from sales of third party licensed
products based on Lancit- produced programs. On products that DCI manufactures,
the Company will receive a lesser percentage share of manufacturer's net
revenues.
Management currently anticipates that production activities related to
this programming alliance should commence during the three month period ending
March 31, 1997.
Areas of Proposed Growth
Since Lancit's library of quality children's programming in which it
retains various licensing rights is growing, the Company elected to enter the
licensing business and to establish in-house licensing capabilities through the
acquisition of Strategy, whose business is described below, and may look to
enhance such capabilities through acquisitions, joint ventures or the creation
of certain licensing-related businesses.
Licensing Agent Activities
Strategy derives its revenues from fees on royalties generated for
copyright holders including Sega of America, Sony Interactive, Broderbund
Software and Humongous Entertainment as well as for Lancit Copyright Corp.
Strategy presently represents, as agent, several of the most popular multimedia
characters of all time including Sonic the Hedgehog(TM), Lemmings(R), Kid Pix(R)
and Putt-Putt(R), the purple car. Sonic the Hedgehog(TM) accounted for
approximately 36%, 37% and 83% of the Company's licensing agent fee revenues
during the fiscal years ended June 30, 1996, 1995 and 1994, respectively.
Strategy represents several Company-owned children's properties including
The Puzzle Place(R), for which it manages worldwide licensing activities through
PPMC. This property accounted for approximately 59% and 57% of the Company's
licensing agent fee revenues during the fiscal year ended June 30, 1996 and
1995, respectively.
The Company believes that through Strategy it is better able to control
the merchandising of its characters and properties while earning the licensing
agent fees that would otherwise be paid to an outside agent. The Company also
intends to further build Strategy as a leading independent licensing agent and
promotions company seeking to represent popular, high-quality licensed
properties and brands which it believes have the potential to become long-term
"franchises". Strategy's management believes it has established a leadership
position in the representation of interactive/multimedia-based properties and
will also look to pursue attractive opportunities which involve what it believes
are unique consumer brands.
Strategy was one of six nominees for the 1996 Licensing Agency of the Year
Award given by the International Licensing Industry Merchandisers' Association.
Post Production Services
Frame Accurate occupies approximately 20% of the Company's 17,000 square
feet of production/office space in Manhattan and provides various
post-production services for the Company's own productions. Frame Accurate will
consider using these facilities, if available, to provide post-production
services to outside producers. Post-production activities include off-line
analog and random access editing, creation of special effects, computer
generated 3-D and digitized graphics and on-line mastering and duplication
subsequent to the completion of production of a project. Random access Avid(TM)
editing systems, as well as other computer hardware and software, have been
purchased over the last few years to enhance Frame Accurate's range of services.
Other Areas Under Consideration
The Company continues to evaluate potential business opportunities in
several markets which it believes present natural tie-ins to its core production
and licensing businesses. These markets include specialty and school-related
children's products, book publishing, animation and direct-to-consumer sales.
The Company may consider entering one or more of these business areas in
partnership with larger media companies, and intends to explore such
opportunities with DCI as well as with other potential strategic alliance
candidates.
Competition
Competition in the television production, distribution and syndication
industries is intense since there are numerous suppliers of product, including
motion picture studios, the television networks and independent television
production companies. Lancit believes that it has established a high profile
niche as a provider of high quality, non-violent children's programming,
competing in the past for broadcast commitments and production funding with
projects of local PBS stations, Children's Television Workshop and a small group
of other independent production companies. As Lancit attempts to expand into new
growth areas including commercial television, it faces more intense competition
from larger entities with greater experience and financial resources such as The
Walt Disney Company, Jim Henson Productions, Scholastic Productions and certain
television syndicators, production companies and networks who will also be
looking to attract the children/family audience segments with their programming.
In the licensing industry, Strategy will face strong competition from
other independent licensing agencies and from the in-house licensing divisions
of other production companies and motion picture studios.
With respect to its post-production activities, should Frame Accurate
elect to provide its post-production services to outside producers, it would
face significant competition from many other independent post-production
companies.
Employees
As of August 30, 1996, the Company had 49 full-time employees, 32 of whom
are in operating activities and 17 of whom are in administration. The Company
has an in-house staff of production personnel as well as researchers, set
designers and a creative director. To augment its full time creative staff in
order to meet the staffing requirements of a production, the Company contracts
with and/or uses, from a large talent pool of available individuals, writers,
directors, technical and other production personnel, generally through paymaster
service or loanout companies.
Other than being a party to collective bargaining agreements with the
American Federation of Television and Radio Artists (with respect to The Puzzle
Place(R) and Backyard Safari(TM)) and the Writer's Guild of America, the Company
is not a party to any collective bargaining agreements. In addition, some of the
Company's current and proposed business activities may be affected by the
existence of collective bargaining agreements with the Directors Guild of
America and the Screen Actors Guild, since many of the performing artists,
writers, technical and other production personnel that it may call upon are
members of unions or guilds. The extent to which such collective bargaining
agreements may affect the Company is difficult to estimate.
Item 2. Property
The Company's principal production offices and its post-production
service facility, as well as its executive offices, are located at 601 West 50th
Street, New York, New York 10019 pursuant to two leases with the same unrelated
party. The combined leases cover approximately 17,000 square feet and both have
been extended for one year such that they now expire in September 1997. The
aggregate annual base rent is approximately $200,000 through September 1997. The
Company's licensing activities are based at One Morningside Drive, Westport,
Connecticut 06880 pursuant to a lease, with an unrelated party, expiring March
1999 for approximately 3,500 square feet at an annual base rental of
approximately $68,000 plus certain escalation clauses. The Company maintains
development offices at 9454 Wilshire Boulevard, Beverly Hills, California 90212,
pursuant to a lease with an unrelated party, expiring in April 1997 for
approximately 930 square feet at an annual rental of $24,000. The Company
believes that the facilities mentioned above will be adequate for its needs for
the foreseeable future.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded in the over-the-counter
market and quoted on the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") and listed under the
symbol: "LNCT".
The table set forth below shows, for the period indicated, the high and
low bid quotations on NASDAQ for the Company's Common Stock. These amounts
represent quotations between dealers in securities, do not include retail
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions.
Bid
Quarter Ended Type of Security
High Low
September 30, 1994 Common Stock $16.25 $12.00
December 31, 1994 Common Stock $16.13 $12.50
March 31, 1995 Common Stock $15.38 $11.50
June 30, 1995 Common Stock $17.50 $10.88
September 30, 1995 Common Stock $16.75 $12.50
December 31, 1995 Common Stock $13.38 $10.63
March 31, 1996 Common Stock $13.00 $8.88
June 30, 1996 Common Stock $14.00 $9.50
The Company's records indicate that, as of the record date of its most
recent annual meeting of shareholders, there were approximately 3,680 beneficial
owners of its Common Stock.
The Company has not paid any dividends.
Item 6. Selected Financial Data
The selected consolidated financial data with respect to the years ended
June 30, 1996, 1995, 1994, 1993 and 1992 is derived from the Company's audited
consolidated financial statements. The information below should be read in
conjunction with the Consolidated Financial Statements and related notes
thereto.
Year Ended
June 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
Statement of
Operations
Data:
Revenues $ 9,061,213 $ 17,882,479 $8,914,698 $3,670,990 $ 2,821,010
Income (loss)
from
continuing $(3,700,713)$ 1,247,499 $ 34,874 $ (996,823) $ (300,514)
operations (1)
Income (loss)
from
continuing
operations $ ($.60)$ .20 $ .01 $ (.25) $ (.10)
per common
share (1)
Weighted
average
shares used 6,177,051 6,365,741 6,154,223 3,944,010 3,018,340
in computation
Balance Sheet
Data:
Total assets $14,388,166 $22,395,858 $16,926,998 $5,494,714 $ 2,274,509
(1) Fiscal 1996 includes a charge of $2,650,000, or $0.43 per share, for
write-down related to project and restructuring charge.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Fiscal 1996 as compared to Fiscal 1995
Production and royalty related revenue for the fiscal year ended June 30,
1996 decreased to $6,812,975 from $15,532,607 in the fiscal year ended June 30,
1995 primarily as a result of reduced royalty revenue, and to a lesser extent,
lower levels of production activity related to The Puzzle Place(R) project
during fiscal 1996. In fiscal 1995, revenues included over $7 million of initial
copyright holder royalties from licensees of this project. As of June 30, 1996,
substantially all of these licensees were still in the process of recouping
initial royalty commitments from product sales. The Company is not able to
record additional revenues, as copyright holder, until individual licensees have
recouped the royalties previously recognized by the Company.
Licensing agent fees for the fiscal year ended June 30, 1996 remained
relatively constant at $2,248,238 compared to $2,349,872 in the fiscal year
ended June 30, 1995.
Production and royalty related expenses for the fiscal year ended June
30, 1996 decreased to $6,580,666 from $13,550,150 in the fiscal year ended June
30, 1995 primarily related to the decreased level of royalty and production
activity for The Puzzle Place(R) series. However, such expenses represented an
unusually high percentage of related revenues in fiscal 1996 primarily due to
copyright holder expenses on The Puzzle Place(R) project remaining relatively
high during the fiscal 1996 period of licensee recoupment on the project.
Licensing agent - direct costs for the fiscal year ended June 30, 1996
remained relatively constant at $1,175,699 compared to $1,184,345 in the fiscal
year ended June 30, 1995. During fiscal 1996, increased personnel costs were
offset by reduced travel costs.
General and administrative expenses for the fiscal year ended June 30,
1996 increased to $2,438,471 from $2,168,827 in the fiscal year ended June 30,
1995. This increase is primarily the result of higher personnel, facilities and
insurance costs as well as increased depreciation and amortization expense.
A write-down related to a project and a re-structuring charge during
fiscal 1996 amounted to $2,650,000. The Company's decision to record a non-cash
project-related charge in the amount of $2,500,000 primarily reflects revisions
in the Company's future anticipated net royalty stream on The Puzzle Place(R)
project and an effort to adjust the amortization of film and program costs to
those anticipated revenue streams. Additionally, an overall decrease in
production activity during fiscal 1996 resulted in a downsizing of staff
involved with certain projects and a resulting restructuring charge of $150,000
including severance and other benefits paid to terminated employees.
<PAGE>
Interest income for the fiscal year ended June 30, 1996 decreased to
$276,570 from $506,316 in the fiscal year ended June 30, 1995. This decrease is
primarily the result of cash being used during the year which reduced the cash
available for investment during the year.
Provision for income taxes - current for the fiscal year ended June 30,
1996 increased to $87,900 from $38,000 in the fiscal year ended June 30, 1995.
This increase is primarily due to state and local income tax liabilities
associated with the Company's profitable licensing subsidiaries.
Minority interest in licensing activities decreased to $105,760 for the
fiscal year ended June 30, 1996 from $199,974 for the fiscal year ended June 30,
1995. This change is the direct result of the change in the profitability of the
licensing activities from year to year.
Net loss for the fiscal year ended June 30, 1996 was $3,700,713, or $0.60
per share (which includes the above-mentioned write-down related to a project
and restructuring charge amounting to $2,650,000, or $.43 per share) compared to
net income of $1,247,499, or $0.20 per share, in the fiscal year ended June 30,
1995 as a result of the combination of the factors described above. Weighted
average shares outstanding for the fiscal year ended June 30, 1996 decreased to
6,177,051 from 6,365,741 in the fiscal year ended June 30, 1995 primarily
reflecting the exclusion of outstanding dilutive stock options during the fiscal
1996 loss period.
Fiscal 1995 as compared to Fiscal 1994
Production and royalty related revenue for the fiscal year ended June 30,
1995 increased to $15,532,607 from $8,579,761 in the fiscal year ended June 30,
1994 primarily due to the Company recognizing the copyright holder portion of
minimum contractual licensing royalties related to a number of The Puzzle
Place(R) licensed product categories.
Licensing agent fee revenue for the fiscal year ended June 30, 1995
increased to $2,349,872 from $334,937 in the fiscal year ended June 30, 1994.
This increase is primarily the result of increased fees from Sonic the
Hedgehog(TM) and The Puzzle Place(R) properties.
Production and royalty related expense for the fiscal year ended June 30,
1995 increased to $13,550,150 from $7,017,537 in the fiscal year ended June 30,
1994 primarily due to the increased level of royalty activity related to The
Puzzle Place(R) series.
Licensing agent - direct costs for the fiscal year ended June 30, 1995
increased to $1,184,345 from $676,765 in the fiscal year ended June 30, 1994
primarily due to increased personnel, trade show, travel, telephone and shipping
costs, all associated with the growth of the licensing agent operations.
General and administrative expenses for the fiscal year ended June 30,
1995 increased to $2,168,827 from $1,630,860 in the fiscal year ended June 30,
1994. This increase is primarily the result of higher personnel costs,
professional fees, office, facilities and insurance expenses and depreciation
and amortization, all associated with the Company's growth.
Interest income for the fiscal year ended June 30, 1995 increased to
$506,316 from $228,761 in the fiscal year ended June 30, 1994. This increase is
primarily the result of interest earned over a full year on advances received
from several licensees.
Provision for income taxes - current for the fiscal year ended June 30,
1995 was $38,000. This amount primarily represents the Company's income taxes
imposed by state and local authorities. This item was not a factor in the fiscal
year ended June 30, 1994.
Minority interest in licensing activities resulted in a charge in the
amount of $199,974 for the fiscal year ended June 30, 1995 compared to a benefit
in the amount of $216,577 for the fiscal year ended June 30, 1994. This change
is the direct result of the year to year improvement in the profitability of the
licensing activities.
Net income for the fiscal year ended June 30, 1995 was $1,247,499, or
$0.20 per share, compared to $34,874, or $0.01 per share, in the fiscal year
ended June 30, 1994 as a result of the combination of the factors described
above. Weighted average shares outstanding for the fiscal year ended June 30,
1995 increased to 6,365,741 from 6,154,223 in the fiscal year ended June 30,
1994 reflecting the exercise of the remaining warrants from the underwriter's
unit purchase option and of employee stock options.
Fiscal 1994 as compared to Fiscal 1993
Production and royalties revenue for the fiscal year ended June 30, 1994
increased to $8,579,761 from $3,670,990 in the fiscal year ended June 30, 1993
due to the increased level of production activity related to The Puzzle Place(R)
series and Changing Channels, an educational video.
Licensing agent fee revenue was $334,937 for the fiscal year ended June
30, 1994. These revenues were not a factor in the prior fiscal year as the
Company was not in this business prior to its acquisition of Strategy.
Production and royalties expense for the fiscal year ended June 30, 1994
increased to $7,017,537 from $3,538,159 in the fiscal year ended June 30, 1993
due to the increased level of production activity. However, production expenses
as a percentage of revenues declined significantly primarily due to a more
profitable mix of projects.
Licensing agent - direct costs for the fiscal year ended June 30, 1994
were $676,765. These costs were not a factor in the comparable 1993 period as
the Company was not in this business prior to its acquisition of Strategy. In
addition, the disproportionate increase in these costs, in relation to revenue
earned, is the result of the recognition of expenses incurred during the period
while deferring licensing agent fee revenue until such time as when the
copyright holder contractual commitments with the licensees have been met.
General and administrative expenses for the fiscal year ended June 30,
1994 increased to $1,630,860 from $950,250. This increase is primarily the
result of higher personnel costs, office expenses and depreciation and
amortization associated with the Company's growth as well as additional general
and administrative expenses associated with the start up of licensing activities
and expansion of post-production capabilities in the current fiscal year.
Write-off of film costs and program rights were not necessary in the
fiscal year ended June 30, 1994 compared to a write-off of $269,569 in the
fiscal year ended June 30, 1993. The prior year write-offs were primarily
associated with projects produced prior to June 30, 1989 and were the result of
management redirecting its efforts towards the Company's more current projects.
Interest income for the fiscal year ended June 30, 1994 increased to
$228,761 from $90,165 in the fiscal year ended June 30, 1993. This increase is
primarily the result of the additional proceeds from warrant and option
exercises being invested.
Minority interest in licensing activities resulted in a benefit in the
amount of $216,577 for the fiscal year ended June 30, 1994. This item was not a
factor in the 1993 fiscal year as the Company commenced licensing activities in
the current fiscal year.
Net income for the fiscal year ended June 30, 1994 was $34,874 ($0.01 per
share) compared to a net loss of $996,823 ($0.25 per share) in the fiscal year
ended June 30, 1993 as a result of the combination of the factors described
above. Weighted average shares outstanding for the fiscal year ended June 30,
1994 increased to 6,154,223 from 3,944,010 in the fiscal year ended June 30,
1993 reflecting the exercise of warrants, options and underwriter unit purchase
options as well as the inclusion of dilutive common share equivalents.
Liquidity and Capital Resources
As of June 30, 1996 the Company's balance sheet remains in healthy
condition with cash and cash equivalents as of June 30, 1996 of approximately
$3.4 million, a current ratio of 3.3 to 1 and no long-term debt.
Cash used in operating activities was approximately $3.9 million for the
fiscal year ended June 30, 1996, compared to the use of approximately $3.5
million for the fiscal year ended June 30, 1995. During the fiscal year ended
June 30, 1996, a decrease in accounts receivable of approximately $4.4 million
was offset by a decrease in deferred revenues of the same amount, resulting in
net additions to film and program costs of $3.2 million (excluding project
write-down) combined with a net loss of approximately $1.0 million (excluding
the fourth quarter adjustments), both of which were partially offset by
depreciation and other amortization of approximately $.4 million, to comprise
the majority of the cash used in operating activities.
Cash used in investing activities was approximately $163,000, for the
fiscal year ended June 30, 1996, compared to the use of approximately $335,000
for the fiscal year ended June 30, 1995. This use of cash is primarily the
result of the Company's continued expansion of Frame Accurate's post-production
capabilities.
As of June 30, 1996, the Company was in the final stages of completing
remaining elements associated with the airing of and outreach for the first 65
episodes of The Puzzle Place(R). As a result of the Company's success in
attracting significant corporate underwriting grants to the project and after
taking into account the portion of project funding expected to be contributed
via such agreements and by the Company's partner on the project, KCET, the
Company estimates that its remaining contribution will be less than $0.1
million. With respect to The Puzzle Place(R) licensing effort, the Company and
KCET have agreed to, and may in the future, extend the license term and payment
schedule for certain licensees in order to more closely reflect the anticipated
royalty stream generated by those particular categories.
The Company is completing production and post-production on the initial
season of 13 episodes of Backyard Safari(TM), which is being partially funded
through a major grant from the National Science Foundation. The Company has been
actively pursuing and evaluating additional production funding from potential
production partnerships, broadcast license fees, as well as sources of
underwriting. Only in the event the Company were to receive no amounts from
these sources of outside production funding (a scenario the Company considers
unlikely), the Company estimates that its remaining investment required for this
project would be between $.5 million and $1.0 million.
In September 1996, Discovery Communications, Inc. invested $5 million in
the Company in return for a 6.6% equity stake in Lancit. DCI may also purchase,
what currently represents an additional 6.2% stake in the Company through the
exercise of warrants at $13 per share. Management believes that its present cash
position and strong liquidity will enable the Company to meet all capital
requirements over at least the next 12 months. In the event the Company
aggressively pursues growth opportunities which could arise over the foreseeable
future, additional capital may be required. The Company and its investment
banker, Allen & Co., may pursue additional strategic alliances which present a
source of capital and attractive business opportunities for the Company. Also,
citing business opportunities believed to be available to it, the Company
decided to no longer pursue its previously announced proposed purchase of a
minority stake in EPI, Ltd. Management does not expect inflation to have a
significant impact on the business.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the new "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 and advises readers that
this report includes forward-looking statements that involve known and unknown
risks and uncertainties which may cause the Company's development and financial
performance in future periods to differ materially from anticipated developments
and performance expressed in any forward-looking statements made by, or on
behalf of, the Company. These risk factors include, among others:
The ability of the Company to secure timely production
funding;
Risks generally associated with the production of a television series and
other entertainment products such as (a) the availability of appropriate
time slots for children's and family entertainment programming; (b) a
serious strike threat that could delay production schedules; (c)
availability of a star or other key individual(s) associated with
production of a series, movie or other project;
Network and studio acceptance of television and motion picture projects;
pricing, purchasing, financing, operational, advertising and promotional
decisions by intermediaries in the distribution channel; and the effects
of vertical integration of companies in the media and entertainment
industry, the effects of which could be to reduce the opportunities for
independent producers, suppliers and distributors;
Less than anticipated consumer acceptance of entertainment projects or
licensed products, and factors affecting the life cycle of entertainment
projects and licensed products;
Underutilization of the Company's post-production facilities resulting
from, among other things, production slowdowns or inefficiencies;
Difficulties or delays in the development, production and marketing of
entertainment projects and/or licensed products, including, but not
limited to, a failure to complete production of new projects when
anticipated and failures related to another party's inability to perform,
which could, for example, affect the licensees' ability to manufacture, or
consumer demand for, licensed products;
Non-renewal of annual contracts with production-related
customers;
The ability of the Company to successfully negotiate and enter into
agreements to acquire rights, develop, produce, market and distribute
entertainment and licensing projects; and
The effects of, and changes in, consumer tastes, economic and tax
policies, social and economic conditions, and laws and regulations,
including governmental action or legal proceedings relating to
intellectual property rights and intellectual property licenses and the
adoption of new, or changes in, accounting policies.
Item 8. Financial Statements and Supplementary Data
See financial statements set forth in Item 14 of this annual report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
<PAGE>
- -----------------------------------------------------------------------
PART III
- -----------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are:
Name Age Position
Cecily Truett 47 Chairman of the Board of Directors, Chief
Executive
Officer and Director
Laurence A. Lancit 48 President, Chief Operating Officer and
Director
Gary M. Stein 39 Executive Vice President - Corporate
Development
Orly Wiseman 38 Senior Vice President - Production
Gary Appelbaum 38 Senior Vice President, Chief Financial
Officer and Treasurer
Arlene J. Scanlan 41 President, Strategy
Marjorie Kaplan 41 Senior Vice President - Marketing and Sales
Jane M. Abernethy 39 Vice President - Legal and Business Affairs
Noel Resnick 45 Senior Vice President - Development
David Michaels 33 Vice President - Motion Pictures
Marc L. Bailin 44 Secretary and Director
Joseph Kling 65 Director
John R. Costantino 50 Director
Each of the directors serves from the date of election until the next
annual meeting of stockholders and until a successor is elected and qualified.
Each of the officers serves at the discretion of the Board of Directors from the
date of election until the next annual meeting of the Board of Directors and
until a successor is elected and qualified.
CECILY TRUETT is a co-founder of the Company and has served as
Chairman of the Board of Directors and Chief Executive Officer of the
Company since March 1989. From the Company's inception in 1979
through March 1989, Ms. Truett served as Executive Vice President of
the Company. From 1978 to 1979, Ms. Truett was Project Director of
Books and Broadcasting For Children, an international symposium in
children's media. Between 1974 and 1978, she was an associate
producer/producer for South Carolina Educational Television Network
("SCET"). Ms. Truett has served as a Blue Ribbon
panelist for the Emmy Awards and as a judge at the Prix Jeunesse
International Awards for children's programs. Ms. Truett has also
written an Emmy Award-winning episode of Reading Rainbow(R). Ms.
Truett is the wife of Laurence A. Lancit.
LAURENCE A. LANCIT is co-founder of the Company and has served as
President, Chief Operating Officer and as a Director of the Company since its
inception in 1979, as well as Treasurer through June 1995. From 1977 to 1979, he
was a producer/director for the Network for Continuing Medical Education, a
major distributor of medical information productions to hospitals nationwide.
From 1971 to 1977, Mr. Lancit was a producer/director for SCET, a PBS affiliate.
During this period, his credits included Director of "Lowell Thomas Remembers",
a series of 44 half hours, and "10 Years of Firing Line" with William F. Buckley
Jr. In June 1992, Mr. Lancit received a 1992 Daytime Emmy Award as Best Director
In A Children's Series for his efforts on Reading Rainbow(R). Mr. Lancit is the
husband of Cecily Truett.
GARY M. STEIN has served as Executive Vice President Corporate
Development since March 1990 and has acted as a financial consultant to the
Company since March 1988. From 1987 to 1989, Mr. Stein served as an independent
financial consultant to a wide variety of media and entertainment industry
clients, assisting them with their corporate development needs. From 1984 to
1987, Mr. Stein was Senior Analyst - Investment Banking at Rosenkrantz Lyon &
Ross, a NYSE member brokerage firm now known as Josephthal Lyon & Ross, where he
helped form the firm's corporate finance division and serviced many of its
corporate clients. From 1980 to 1984, he served as Rosenkrantz' Growth Stock
Analyst.
ORLY WISEMAN has been supervising producer of Reading Rainbow(R) since
1982 and in April 1993 was promoted to Senior Vice President Production from
Vice President - Production. During her tenure, the series has been the
recipient of every major award in children's programming, including nine Emmys,
the Prix Jeunesse International and the Peabody. Prior to joining the Company,
Ms. Wiseman served as producer for Hearst/ABC Cable and a variety of commercial
television projects.
GARY APPELBAUM, who joined the Company as Vice President and
Controller in October 1992, became a Senior Vice President and the
Chief Financial Officer in October 1993. In June 1995, he became the
Treasurer as well. Mr. Appelbaum worked for Madison Square Garden
Corporation from 1989 to 1992, first as Assistant Controller and then
as Vice President and Controller. Prior to that, Mr. Appelbaum
worked for Four M Manufacturing as Corporate Controller from 1988 to
1989. Mr. Appelbaum is a C. P. A. and received a Masters in Business
Administration from New York University in 1987.
ARLENE J. SCANLAN has been president of Strategy since its inception in
April 1991. From 1984 to 1991, Ms. Scanlan was Vice President of Licensing and
Merchandising at United Media where she was responsible for the licensing and
marketing of such classic properties as "Garfield" and "Snoopy". Prior to that,
Ms. Scanlan created and implemented the in-house licensing and merchandising
division at Marvel Comics.
MARJORIE KAPLAN joined the Company in March 1994 as Vice
President-Marketing and Sales and in March 1995 became a Senior Vice President.
Prior to that Ms. Kaplan was Director of Advertising for Kraft General Foods
where she had responsibilities in the area of brand positioning, advertising and
strategy. Before that Ms. Kaplan was Vice President, Account Supervisor at
Ogilvy & Mather where her clients included General Foods, TWA and AT&T.
Additionally, Ms. Kaplan has worked in television program development as a
consultant to Warner Amex.
JANE M. ABERNETHY, Vice President - Legal & Business Affairs,
joined the Company in October 1995. Ms. Abernethy was an associate
with the entertainment law firm of Frankfurt, Garbus, Klein & Selz,
P.C. from April 1991 through September 1995. From September 1986
through March 1991, Ms. Abernethy was a corporate associate with the
firm now known as Kramer, Levin, Naftalis & Frankel. Ms. Abernethy
is a graduate of New York University School of Law (J.D.) and
Princeton University (A.B.). She serves on the Board of Directors of
Cause Effective, Inc., a non-profit technical assistance provider to
other non-profits.
NOEL RESNICK, Senior Vice President - Development, joined the Company in
February 1996. Ms. Resnick has been an award winning independent producer of
children's and family entertainment since 1986. In addition to developing and
producing both live action and animation for network and cable television, she
produced the critically acclaimed film The Little Kidnappers (1990 - recipient
of the Banff Television Festival "Rockie" Award for Best Children's Program of
1991) as well as the highly rated trilogy of Not Quite Human movies
(1987,1989,1992) for Disney. Other recent Executive Producing credits include
the animated ABC Weekend Special The Magic Flute (1994), ABC Afterschool Special
Magical Makeover (1994), CBS Storybreak wraparounds (1993) and the CBS
Schoolbreak Special But He Loves Me (1991). Her production of the 100th ABC
Afterschool Special The Gift of Amazing Grace was awarded the 1987 NAACP Image
Award for Best Children's Special. From 1976 - 1986 she served in several
executive positions at ABC Television in the children's and family programming
arena where she was responsible for the development and production of ABC's
Afterschool Specials, Weekend Specials, primetime family specials and Saturday
morning series.
DAVID MICHAELS, Vice President - Motion Pictures, joined the Company in
March 1996. From 1994 through February 1996, Mr. Michaels developed motion
picture projects for Le Bad, Incorporated, the production company for director
Russell Mulcahy (Highlander, Ricochet, The Shadow). Concurrently, as an
independent producer through his own company, Good Medicine Films, Inc., Mr.
Michaels developed a number of projects including Lenya which is now being
developed as a joint venture between Largo Entertainment and BMG for a
biographical motion picture, based upon the life of German composer Kurt Weill,
which is expected to be directed by Michael Ballhaus (cinematographer for films
directed by Martin Scorsese and Robert Redford). From 1992 through 1994, Mr.
Michaels worked as a writer/producer with Media, Incorporated, a television and
commercial production company. In addition, during 1991 to 1995, Mr. Michaels
worked as a freelance editor for the New York Times creating advertorial
sections for the paper. Prior to that, Mr. Michaels was a story editor for
Lorimar-Telepictures.
MARC L. BAILIN has served as Secretary and as a Director of the
Company since the Company's inception in 1979. He is a senior
partner of Rubin, Bailin, Ortoli, Mayer, Baker & Fry LLP and has been
engaged in the practice of entertainment and corporate law in New
York and California for nineteen years. Mr. Bailin has served as the
line production attorney for the Reading Rainbow(R) series since its
creation and has served as Executive Producer of nine feature length
action motion pictures. Mr. Bailin is also a Director and founder of
Virtu Management Group, Ltd., a business management and financial
affairs firm for a variety of leading motion picture, prime-time
television and daytime television personalities. Mr. Bailin attended
New York University and Boston University Schools of Law (J.D.) as
well as Columbia University Graduate School of Business (M.B.A.) and
Yale College (B.A.).
JOSEPH KLING has served as a Director of the Company since 1993. From
1985 to 1989, Mr. Kling was Vice Chairman and President of View Master Ideal
Group. From 1989 - 1991, he was President of Sharon Industries, Inc., a
manufacturer and distributor of toy products. Since 1991, he has been President
of PAMSCO Inc., a consulting company. Mr. Kling is on the Board of Directors of
Russ Berrie & Co., a New York Stock Exchange-listed designer and marketer of
gift products worldwide.
JOHN R. COSTANTINO has served as a Director of the Company since May
1995. From 1978 to 1984, Mr. Costantino was a Senior Tax Partner at Touche Ross
& Co. where he served as Managing Tax Partner of the firm's New York practice.
From 1984 to 1985, he was President and Managing Director of Integrated
Acquisition Corporation. From 1985 to 1987, he was Senior Executive Vice
President and Chief Operating Officer of Conair Corporation. Since 1987 he has
been a private investor and is presently a Principal of Walden Partners Ltd. Mr.
Costantino is a member of the Board of Directors of Brooklyn Bancorp Inc. (the
holding company for Crossland Federal Savings Bank), a Trustee of the General
Electric Company's family of funds and is also a director of a number of
domestic and international companies. He is an attorney and certified public
accountant admitted to practice in New York State.
Section 16(a) Beneficial Ownership Reporting Compliance
Under United States securities laws, the Company's directors and officers
and persons who own more than ten percent of the Common Stock are required to
file initial reports of ownership and reports of changes in ownership with the
SEC. Based solely on its review of copies of such reports received or written
representations from certain reporting persons, the Company believes that during
the fiscal year ended June 30, 1996, all filing requirements under section 16(a)
of the Securities Exchange Act of 1934 (the "Exchange Act") applicable to its
directors and officers and holders of more than 10% of its Common Stock were
complied with except for the filing of Form 3 by Mr. Michaels, the filing of
Form 4 by Mr. Kling, Mr. Lancit and Ms. Truett and the filing of Form 4 for four
transactions by Ms. Wiseman.
Item 11. Executive Compensation
The following table sets forth the aggregate cash compensation paid or
accrued by the Company for services rendered during the three fiscal years ended
June 30, 1996, 1995 and 1994 to the Company's chief executive officer and the
four other most highly compensated executive officers to whom aggregate annual
compensation (salary and bonus) exceeded $100,000 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation
Securities
Year Underlying
Name and Ended Other Options/SARs
Principal June 30, Salary Bonus Compensation (#)
Positions
Cecily Truett 1996 $146,600 $10,665 $26,051 -
(Chief Executive 1995 133,300 2,000 43,357 -
Officer 1994 122,519 2,000 7,759 -
and Chairman of the
Board)
Laurence A. Lancit 1996 $146,600 $10,665 $36,575 -
(President and Chief 1995 133,300 2,000 23,744 -
Operating Officer) 1994 133,300 2,000 20,317 -
Arlene J. 1996 $125,000 $10,665 $4,070 -
Scanlan 1995 125,000 2,000 3,810 5,000
(President of Strategy) 1994 100,000 2,000 - 25,000
Orly Wiseman 1996 $123,625 $10,665 $3,969 32,500
(Senior Vice President - 1995 111,250 2,000 3,397 15,000
Production) 1994 98,125 1,750 1,500 17,500
Marjorie Kaplan 1996 $108,848 $10,665 $43,180 57,500
(Senior Vice President 1995 80,415 2,000 22,001 15,000
- - Marketing 1994 23,949 - 5,987 25,000
and Sales)
<PAGE>
In October 1995, the Company entered into employment agreements,
covering the term October 1, 1995 - October 1, 1998, with its Chairman of the
Board and Chief Executive Officer and its President and Chief Operating Officer.
Each agreement calls for a base annual salary starting at $150,000 for the first
year. The base salary of each of the remaining two years of the agreements
increases by a minimum of the annual increase in the consumer price index with
the actual amount of the increase being determined by the Board of Directors.
These individuals are eligible to participate in the Company's incentive bonus
plan. In addition, the Chief Executive Officer and Chairman of the Board was one
of the individuals responsible for creating The Puzzle Place(R) and, according
to the agreement with the Writers Guild of America, is entitled to receive a
share, which amounted to $19,803 and $34,830 for fiscal 1996 and 1995,
respectively, of the royalties associated with the licensing of that property.
The Company, at the time of the acquisition of Strategy, entered into a
three year employment agreement, effective July 1, 1993, with the President of
Strategy. The agreement provided for a base salary of $125,000 in fiscal 1996.
In addition, the agreement called for this individual to receive, on an annual
basis, a performance bonus equal to a set percentage of certain established,
annually increasing levels of Strategy's pretax income. Also, at the time of the
acquisition, this individual was granted options to purchase 25,000 shares of
the Company's common stock, all of which are currently exercisable. This
employee is eligible to participate in the incentive bonus plan. Following the
expiration of the agreement, this individual's employment was continued without
an employment agreement at the existing base salary.
On March 16, 1994, the Company entered into a two year employment
agreement with its Senior Vice President - Marketing and Sales. The agreement
called for a base salary of $80,000 as well as an annual non-refundable advance
against commissions in the amount of $20,000 per year. During fiscal 1996, this
individual's base annual salary was increased to $100,000 retroactively to March
16, 1995. Also, under the terms of the agreement this individual was granted the
following options under the 1990 Plan: (a) at the commencement of the agreement,
options covering 25,000 shares of common stock; (b) on the first anniversary of
the agreement, options covering 10,000 shares of common stock; and (c) on the
second anniversary of the agreement, options covering 10,000 shares of common
stock, all of which are currently exercisable. Also, this employee is eligible
to participate in the incentive bonus plan. Following the expiration of the two
year agreement, this individual's employment was continued without an employment
agreement at a base salary of $107,500 and with the same annual non-refundable
advance against commissions.
Under the incentive bonus plan referred to in this section, officers, as
a group, receive a bonus of 5% of pretax income (before bonus), for the fiscal
year, provided that (i) pretax income (before bonus) for such fiscal year is at
least $250,000, (ii) net income for such fiscal year exceeds net income for the
prior fiscal year and (iii) net income is at least $.05 per share (adjusted for
stock splits and stock dividends), on a fully diluted basis. There was no
accrual under this plan for fiscal 1996.
Common Stock Options
In July 1990, the Company adopted the 1990 Stock Option Plan (the "1990
Plan") covering 200,000 shares of the Company's Common Stock, which was
increased, over the years, to 1,000,000 shares, pursuant to which officers,
directors, consultants and employees of the Company are eligible to receive
non-qualified, or to the extent allowed, incentive stock options. Through
October 1996, the 1990 Plan, which expires on July 19, 2000, is administered by
the Compensation Advisory Committee (the "Advisory Committee") of the Board of
Directors. In October 1996, in order to bring the Company's 1990 Plan into
compliance with the new revisions in the SEC's regulation under Section 16 of
the Exchange Act, the Company's Board amended the 1990 Plan to eliminate the
Board's 3-member Advisory Committee. To the extent permitted under the express
provisions of the 1990 Plan, the Advisory Committee has authority to determine
the selection of participants, allotment of shares, price and other conditions
of purchase of options and administration of the 1990 Plan in order to attract
and retain persons instrumental to the success of the Company. From November 1,
1996, the Advisory Committee's function will be performed by the Board of
Directors. Stock options granted under the 1990 Plan are exercisable for a
period of up to 10 years from the date of grant at an exercise price which is
not less than the fair market value of the Common Stock on the date of the
grant, except that the term of an incentive stock option granted under the 1990
Plan to a stockholder owning more than 10% of the outstanding Common Stock may
not exceed five years and its exercise price may not be less than 110% of the
fair market value of the Common Stock on the date of the grant.
In December 1994, the Company adopted the 1994 Non-Employee Director
Non-Qualified Stock Option Plan (the "1994 Plan") authorizing the issuance of
options covering 45,000 shares of the Company's common stock. Non-employee
Directors of the Company are eligible to participate in the 1994 Plan. The 1994
Plan provides that each non-employee Director shall be granted 3,000 options on
the day of their initial appointment and annually thereafter on the day of their
re-election. The exercise price per share for each option granted will be the
fair market value of the shares on the date of grant. Each option is exercisable
one year from the date of grant and expires no later than ten (10) years from
the date of grant.
The following table sets forth all grants of stock options during the
fiscal year ended June 30, 1996 to the Named Executive Officers. The Company has
not issued any SARs.
Option/SAR Grants In Last Fiscal Year
Potential
Realizable Value at
Individual Grants Assumed Annual Rates
of Stock Price
Appreciation1
% of
Number Total
of Options
Securities Granted Exercise
Underlying to or Base Expiration 0%($) 5% ($) 10% ($)
Options Employees Price Date
Granted in Fiscal ($)
Year
Cecily Truett - - - - - - -
Laurence A. - - - - - - -
Lancit
Arlene J. - - - - - - -
Scanlan
Orly Wiseman 17,500 4.6% 10.94 12-20-05 - 120,374 305,052
15,000 3.9% 9.38 03-14-06 - 88,438 224,120
Marjorie Kaplan 17,500 4.6% 10.94 12-20-05 - 120,374 305,052
10,000 2.6% 9.38 03-13-00 - 20,204 43,509
30,000 7.8% 9.38 03-14-06 - 176,877 448,240
- ---------------------
1 The dollar amounts under these columns are the result of calculations at
0% and at the 5% and 10% rates set by the Securities and Exchange
Commission for the maximum option term and therefore are not intended to
and may not accurately forecast possible future appreciation, if any, in
the price of the Company's Common Stock.
The following table sets forth information with respect to options
exercised by each of the Named Executive Officers during the fiscal year ended
June 30, 1996 and the number and value of their unexercised options as of June
30, 1996.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal Year End
Fiscal Year ($)1
End (#)
Shares Value
Realized Unexer- Unexer-
Name Acquired ($) Exercisable cisable Exercisable cisable
on
Exercise
(#)
Cecily Truett - - - - - -
Laurence A. - - - - - -
Lancit
Arlene Scanlan - - 21,667 8,333 - -
Orly Wiseman 6,000 54,000 47,500 17,500 34,688 13,125
Marjorie Kaplan - - 80,000 17,500 92,500 13,125
- ---------------------
1 The value of unexercised options was determined based upon the average of the
closing bid and closing ask price of the Company's Common Stock on June 30,
1996.
On January 1, 1994, the Company adopted a combined 401K Savings and
Profit Sharing Plan (the "Plan"). The Plan provides for immediate eligibility
for all employees of the Company as of January 1, 1994 and eligibility after
completion of six months of service for all employees of the Company whose
employment commenced after January 1, 1994. The 401K Savings portion of the Plan
provides for an employer match which is determined on an annual basis. For
calendar years 1996, 1995 and 1994, the Company declared a match of 50% of the
first 6% of any employee elective deferrals. The Profit Sharing portion of the
Plan provides for an employer discretionary contribution, on an annual basis,
which is reduced by any 401K employer match already received. For calendar years
1996, 1995 and 1994, the Company declared a profit sharing contribution in the
amount of 3% of eligible compensation reduced by any 401K employer match already
received.
<PAGE>
Compensation Committee Interlocks and Insider Participation
Laurence A. Lancit, the Company's President, serves on the Compensation
Committee of the Board of Directors (the "Compensation Committee") and served on
the Compensation Advisory Committee which administered the 1990 Plan through
October, 1996. Cecily Truett, the Company's Chairman, also served on the
Compensation Advisory Committee. No executive officer of the Company served on
the board of directors or compensation committee of any entity which has one or
more executive officers serving as a member of the Company's Board of Directors
or Compensation Committee.
Compensation Committee Report on Executive Compensation
The Compensation Committee has the authority and responsibility for
approving the overall compensation strategy for the Company and reviewing and
making recommendations to the Board of Directors with respect to the Company's
executive compensation. The Compensation Committee is comprised of two outside
Directors, Marc L. Bailin and John R. Costantino, and a Named Executive Officer
and Director, Laurence A. Lancit. In October 1996, in order to be in compliance
with recent changes in the SEC's regulations under section 16 of the Exchange
Act, the Board of Directors eliminated the 3-member Compensation Advisory
Committee. The functions of the Compensation Advisory Committee were to grant
options under, to construe or interpret the Company's 1990 Plan, to prescribe,
amend and rescind rules and regulations relating to it and to make all other
determinations necessary or advisable for its administration, subject to the
1990 Plan's express terms and conditions. The Compensation Advisory Committee
was comprised of Marc L. Bailin, Laurence A.
Lancit and Cecily Truett.
General Compensation Policy. The Compensation Committee's overall policy
is to offer the Company's executive officers unique and competitive compensation
opportunities. The Company uses stock options as a form of compensation to
retain key personnel while maintaining salary levels which the Compensation
Committee believes are lower than industry norms. The Compensation Committee's
objectives are (i) to create a performance-oriented environment with variable
compensation based upon the achievement of annual and longer-term business
results; and (ii) to focus management on maximizing shareholder value through
stock option based compensation.
The Compensation Committee is authorized (i) to establish and maintain
compensation guidelines for salaries and merit pay increases throughout the
Company; and (ii) to make specific recommendations to the Board of Directors
concerning the compensation of executive officers of the Company, including the
Chief Executive Officer.
Chief Executive Officer Compensation. Compensation paid by the Company to
the Chief Executive Officer of the Company is determined in accordance with the
general compensation policy of the Company set forth above. For the three years
ended September 30, 1995, Ms. Truett's salary was paid pursuant to an existing
employment agreement. The compensation provisions of the renewal of her
employment agreement were based on a number of factors, including her experience
as Chairman of the Board and Chief Executive Officer of the Company, her
performance as such for the Company since its inception in 1979 and compensation
levels for other chief executive officers in companies of similar size, business
and complexity. The policies and programs initiated by Ms. Truett and the
Company's President and Chief Operating Officer, Laurence A. Lancit, since the
Company's inception have resulted in the growth and success of the Company. No
specific quantitative value was assigned to these factors in determining Ms.
Truett's compensation.
Ms. Truett's bonus paid in fiscal 1996 consisted of an equal share of the
total amount available, for fiscal 1995 performance, to all individuals eligible
to participate in the Company's incentive bonus plan during fiscal 1995 as well
as an amount equal to her 1994 calendar year end bonus. There was no accrual
under the incentive bonus plan based on fiscal 1996 performance.
Submitted by:
Compensation Committee of the
Board of Directors Compensation Advisory Committee
Marc L. Bailin Laurence A. Lancit Marc L. Bailin Laurence A. Lancit
John R. Costantino Cecily Truett
The graph set forth below shows, for the period from June 30, 1991
through June 30, 1996, the cumulative total return of the common stock of the
Company, as compared with a broad equity market index, in this case, the NASDAQ
Market Index, and with a published industry index, in this case, MG Industry
Group 471 - Motion Picture Production, Distribution and Theaters as published by
Media General Financial Services.
COMPARATIVE 5-YEAR CUMULATIVE TOTAL RETURN AMONG THE COMPANY,
NASDAQ MARKET INDEX AND MG GROUP INDEX1
[Line graph with the following plot points]
FISCAL YEAR ENDING
--------------------------------------------------
1991 1992 1993 1994 1995 1996
Lancit Media 100 221.43 671.43 785.71 942.86 657.14
Productions
NASDAQ Market Index 100 107.75 132.27 145.04 170.11 214.14
MG Group Index 100 121.18 145.93 148.51 189.34 214.21
1 Assumes $100 invested on June 30, 1991 and assumes dividends reinvested.
As of Fiscal year ended June 30, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of September 27, 1996, the ownership
of the Company's Common Stock held by (i) each person who owns of record or who
is known by the Company to own beneficially more than 5% of such stock, (ii)
each of the directors of the Company, (iii) each of the Named Executive Officers
and (iv) all of the Company's directors and officers as a group. As of such
date, the Company had 6,626,750 shares of Common Stock issued and outstanding.
The number of shares and the percentage of the class beneficially owned by the
persons named in the table and by all directors and executive officers as a
group is presented in accordance with Rule 13d-3 of the Securities and Exchange
Commission and includes, in addition to shares actually issued and outstanding,
unissued shares which are subject to issuance upon exercise of options within 60
days. Except as otherwise indicated, the persons named in the table have sole
voting and dispositive power with respect to all securities listed.
SECURITY OWNERSHIP
Number of Percent
Shares of
Beneficially Class
Owned (%)
Name and Address of Beneficial Owners
Discovery Communications, Inc.
7700 Wisconsin Avenue
Bethesda, Maryland 876,232 1 12.4%
20814...........................................
Directors, Nominees and Executive Officer2
Laurence A. Lancit............................ 1,149,238 3 17.3%
Cecily Truett................................. 1,149,238 3 17.3%
Marjorie Kaplan............................... 80,000 4 1.2%
Arlene J. Scanlan............................. 61,667 4 *
Orly Wiseman.................................. 61,000 5 *
John R. Costantino............................ 26,400 6 *
Marc L. Bailin................................ 24,000 7 *
Joseph Kling.................................. 5,000 4 *
All Directors and Officers as a Group (12 1,610,905 4,5,6,7 23.1%
persons)1.....................................
* Less than 1%
1 Includes warrants to purchase 438,116 shares. The foregoing information is
derived from the Schedule 13D filed with the SEC by Discovery
Communications, Inc.
2 Address is c/o Lancit Media Productions, Ltd., 601 West 50th Street, New
York, New York 10019 for all officers and directors.
3 Laurence A. Lancit and Cecily Truett are husband and wife. Includes (i)
560,653 shares of Common Stock held by the named individual's spouse,
2,932 held by the named individual's children and 25,000 shares held by a
trust for the benefit of the named individual's children, and (ii) 560,653
shares of Common Stock held by the named individual. Each named individual
disclaims beneficial ownership of the shares held by the spouse.
4 Includes options to purchase the following number of shares: Marjorie
Kaplan - 80,000, Arlene J. Scanlan - 21,667, Joseph Kling - 3,000, all
Officers and Directors as a group - 352,567.
5 Includes options to purchase 7,500 shares owned by Mr. Ed
Wiseman, Ms. Wiseman's husband, in which options Ms. Wiseman
disclaims any beneficial interest, and options to purchase
47,500 shares owned by Ms. Wiseman.
6 Includes options to purchase 13,400 shares owned by Walden
Partners, Ltd., of which Mr. Costantino is a vice president,
director and principal, and options to purchase 3,000 shares
owned by Mr. Costantino.
7 Includes 15,000 shares owned by Marie Valdes, M.D., wife of Mr. Bailin, in
which shares Mr. Bailin disclaims any beneficial interest, and options to
purchase 3,000 shares owned by Mr.
Bailin.
Item 13. Certain Relationships and Related Transactions
The Company's general counsel is Rubin Bailin Ortoli Mayer Baker & Fry,
LLP of which Marc L. Bailin is a partner. The Company paid legal fees of
$121,157, $135,140 and $113,965 to Rubin Bailin Ortoli Mayer Baker & Fry, LLP
and its predecessor firm, for the years ended June 30, 1996, 1995 and 1994,
respectively.
The Company has entered into an arrangement with Walden Partners, Ltd.
("Walden"), pursuant to which Walden will provide the Company with regular and
customary consulting advice involving matters relating to the Company's internal
operations, corporate transactions and financial markets. The arrangement has a
term commencing October 20, 1995 and ending October 31, 1996. Pursuant to the
arrangement, the Company pays Walden a monthly fee of $833.34 and has granted
Walden an option under the 1990 Plan to purchase 13,400 shares of Common Stock
with an exercise price equal to the market price of the Common Stock on and
expiring five years from the date the term commenced. John R. Costantino is a
vice president, director and principal of Walden.
Simultaneously with the equity purchase transaction between DCI and the Company
on September 25, 1996, the Company entered into a non-exclusive Production
Output Agreement pursuant to which the Company will develop and produce
children's programming for Discovery Channel's new Sunday children's block. The
Company will derive production-related revenues from programming it produces for
DCI and will participate in income generated by DCI from licensed product sales
based on that programming.
<PAGE>
- -----------------------------------------------------------------------
PART IV
- -----------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a)(1)
Financial Statements Page
Independent Auditors' Report F-2
Consolidated Balance Sheet - June 30, 1996 and 1995 F-3
Consolidated Statement of Operations - Years Ended
June 30, 1996, 1995 and 1994 F-4
Consolidated Statement of Stockholders' Equity Period from July 1, 1993
through June 30, 1996 F-5
Consolidated Statement of Cash Flows - Years Ended
June 30, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7
(a)(2) Financial Statement Schedules
No schedules are submitted because none are applicable or they are not
required or because the required information is not material or is
included in the financial statements or the notes thereto.
(b) Reports on Form 8-K
Not Applicable
(c) Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended (Filed as
Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995 and incorporated herein by reference.)
3.2 By-Laws of the Registrant, as amended (Filed as
Exhibit 3.4 to Amendment No. 1 to the Registrant's
Registration Statement No. 33-40701-NY on Form S-18
and incorporated herein by reference.)
(c) Exhibits (cont'd.)
10.1 Employment Agreement with Laurence A. Lancit.
10.2 Employment Agreement with Cecily Truett.
10.10 Form of Merger and Acquisition Agreement between the
Registrant and GKN Securities Corp. (Filed as Exhibit
10.9 to the Registrant's Registration Statement No.
33-40701-NY on Form S-18 and incorporated herein by
reference.)
10.11 Leases for premises at 601 W. 50th St., New York, NY
(Filed as Exhibit 10.1 to the Registrant's
Registration Statement No. 33-40701-NY on Form S-18
and incorporated herein by reference.)
10.12 1990 Stock Option Plan, as amended through December, 1995 (Filed as
Exhibit 10.12 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995 and incorporated herein by reference.)
10.13 1994 Non-Employee Director Non-Qualified Stock Option Plan, as amended
through December, 1995 (Filed as Exhibit 10.13 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995
and incorporated herein by reference.)
10.16 Incentive Bonus Plan (See the description thereof appearing in the
paragraph immediately preceding the caption "Common Stock Options" in
Item 11.)
10.18 Consulting Agreement with Walden Partners, Ltd.
10.19 Stock Purchase Agreement with Discovery Communications, Inc.
21 Subsidiaries of the Registrant (Filed as Exhibit 21 to Registrant's
Annual Report on Form 10-K for the year ended June 30, 1995 and
incorporated herein by reference.)
23 Consent of Feldman Radin & Co., P.C.
<PAGE>
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
NUMBER
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEET F-3
CONSOLIDATED STATEMENT OF OPERATIONS F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENT OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-18
F-1
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To The Stockholders and
Board of Directors of
Lancit Media Productions, Ltd.
We have audited the accompanying consolidated balance sheets of Lancit
Media Productions, Ltd. and Subsidiaries as of June 30, 1996 and 1995, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1996. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lancit Media
Productions, Ltd. and Subsidiaries as of June 30, 1996 and 1995, and the results
of its operations and cash flows for each of the three years in the period ended
June 30, 1996 in conformity with generally accepted accounting principles.
/s/ Feldman Radin & Co.,
P.C.
Certified Public Accountants
New York, New York
August 28, 1996
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30,
------------------------------
1996 1995
-------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,358,230 $ 7,395,238
Accounts receivable 2,683,433 5,811,788
Film and program costs, net 5,527,106 4,600,483
Prepaid expenses 268,175 81,867
-------------- -------------
TOTAL CURRENT ASSETS 11,836,944 17,889,376
ACCOUNTS RECEIVABLE - NON-CURRENT 1,378,078 3,105,670
PROPERTY AND EQUIPMENT, NET 832,606 1,060,878
GOODWILL, NET 279,754 296,206
DEPOSITS 60,784 43,728
-------------- -------------
TOTAL ASSETS $ 14,388,166 $ 22,395,858
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 732,158 $ 411,657
Participations payable 1,199,991 906,363
Deferred revenue 1,651,279 5,131,240
-------------- -------------
TOTAL CURRENT LIABILITIES 3,583,428 6,449,260
-------------- -------------
PARTICIPATIONS PAYABLE - NON-CURRENT 598,461 1,220,148
-------------- -------------
DEFERRED REVENUE - NON-CURRENT 828,713 1,767,059
-------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 94,056 (11,704)
-------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized
15,000,000 shares; issued and outstanding
6,187,634 shares at June 30, 1996 and
6,157,634 shares at June 30, 1995 6,188 6,158
Additional paid-in capital 12,579,402 12,566,306
Retained earnings (accumulated deficit) (3,302,082) 398,631
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 9,283,508 12,971,095
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,388,166 $ 22,395,858
============== =============
See notes to consolidated financial statements.
F - 3
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended June 30,
-------------------------------------
1996 1995 1994
----------- ---------- ----------
REVENUES:
Production and royalties $ 6,812,975 $ 15,532,607 $ 8,579,761
Licensing agent fees 2,248,238 2,349,872 334,937
----------- ---------- ----------
9,061,213 17,882,479 8,914,698
----------- ---------- ----------
OPERATING EXPENSES:
Production and royalties 6,580,666 13,550,150 7,017,537
Licensing agent - direct costs 1,175,699 1,184,345 676,765
General and administrative 2,438,471 2,168,827 1,630,860
Write-down related to project and 2,650,000 -- --
re-structuring charge ----------- ---------- ----------
12,844,836 16,903,322 9,325,162
----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (3,783,623) 979,157 (410,464)
INTEREST INCOME - NET 276,570 506,316 228,761
----------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST (3,507,053) 1,485,473 (181,703)
PROVISION FOR INCOME TAXES - CURRENT (87,900) (38,000) --
MINORITY INTEREST (105,760) (199,974) 216,577
----------- ---------- ----------
NET INCOME (LOSS) $ (3,700,713) $ 1,247,499 $ 34,874
=========== ========== ==========
NET INCOME (LOSS) PER SHARE $ (0.60) 0.20 $ 0.01
=========== ========== ==========
WEIGHTED AVERAGE SHARES 6,177,051 6,365,741 6,154,223
=========== ========== ==========
See notes to consolidated financial statements.
F - 4
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Retained
Additional Earnings Total
Common Stock Paid-in (Accumulated Stockholders'
-----------------
Shares Amount Capital Deficit) Equity
-------- ------- ---------- ---------- -----------
BALANCE - July 1, 1993 4,455,322 $ 4,455 $5,617,874 $ (883,742) $4,738,587
Shares issued in connection
with exercise of options and
warrants (net of
expenses) 1,591,312 1,592 6,597,803 -- 6,599,395
Shares issued in connection
with acquisition 55,000 55 185,570 -- 185,625
Net income -- -- -- 34,874 34,874
-------- ------- ---------- ---------- ----------
BALANCE - June 30, 1994 6,101,634 6,102 12,401,247 (848,868) 11,558,481
Shares issued in connection
with exercise of options and
warrants (net of
expenses) 56,000 56 165,059 -- 165,115
Net income -- -- -- 1,247,499 1,247,499
-------- ------- ---------- ---------- ----------
BALANCE - June 30, 1995 6,157,634 6,158 12,566,306 398,631 12,971,095
Shares issued in connection with
exercise of options (net
of expenses) 30,000 30 13,096 -- 13,126
Net loss -- -- -- (3,700,713) ( 3,700,713)
-------- ------- ---------- ---------- ----------
BALANCE - June 30, 1996 6,187,634 $ 6,188 $12,579,402$(3,302,082) $9,283,508
======== ======= ========== ========== ==========
See notes to consolidated financial statements.
F - 5
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended June 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,700,713) 1,247,499 34,874
---------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash from operating
activities:
Amortization of film and program costs 3,869,945 6,334,297 4,695,339
Write-down related to project 2,500,000 - -
Depreciation and other amortization 407,313 348,615 214,857
Minority interest 105,760 199,974 (211,677)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable - current 3,128,355 (3,796,488)(1,317,300)
(Increase) decrease in accounts
receivable - non-current 1,227,792 (3,105,670) --
Additions to film and program costs (7,076,993)(8,557,597)(5,878,777)
(Increase) decrease in prepaid expenses (186,308) (24,491) (18,529)
(Increase) decrease in deposits receivable (17,056) 2,185 3,701
Increase (decrease) in accounts payable
and accrued expenses 320,501 6,440 (212,832)
Increase (decrease) in participations
payable - current 293,628 906,363 --
Increase (decrease) in participations
payable - non-current (341,462) 1,220,148 --
Increase (decrease) in deferred
revenue - current (3,479,961) 1,611,401 2,912,751
Increase (decrease) in deferred
revenue - non-current (938,346) 111,921 1,655,138
---------- ---------- ----------
(186,832)(4,742,902) 1,842,671
---------- ---------- ----------
CASH PROVIDED (USED) IN OPERATING ACTIVITIES (3,887,545)(3,495,403) 1,877,545
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (162,589) (334,680) (877,245)
Net cash acquired in acquisition -- -- 33,889
---------- ---------- ----------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES (162,589) (334,680) (843,356)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 13,126 165,115 6,599,395
---------- ---------- ----------
CASH PROVIDED (USED) IN FINANCING ACTIVITIES 13,126 165,115 6,599,395
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (4,037,008)(3,664,968)7,633,584
CASH AND CASH EQUIVALENTS - beginning of year 7,395,238 11,060,206 3,426,622
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - end of year $ 3,358,230 7,395,238 11,060,206
========== ========== ==========
CASH PAID DURING THE YEAR FOR:
Income taxes $ 35,867 14,684 --
========== ========== ==========
See notes to consolidated financial statements.
F - 6
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lancit Media Productions, Ltd. and Subsidiaries (the
"Company") includes Lancit Media Productions, Ltd.
("Lancit"), its wholly-owned subsidiaries Frame Accurate,
Inc. ("Frame") and Lancit Copyright Corp. ("LCC") and its
85% owned subsidiary, The Strategy Licensing Company, Inc.
("Strategy").
Lancit is engaged in the acquisition and development of
properties for, and the production of high quality
"franchise" - based television series and
made-for-television and feature motion pictures for children
and family-oriented audiences.
Frame is a provider of post production services which include personnel,
facilities, graphics and dubbing as well as other aspects of the editing and
finishing process.
LCC's primary function is to acquire properties from producers and other rights'
holders, which are primarily character based, for the purpose of maximizing the
returns on those properties in all ancillary markets.
Strategy is a merchandising/licensing company which performs licensing agent
functions for properties and characters owned by various copyright holders,
including Strategy affiliates. Strategy is the majority partner in The Puzzle
Place Marketing Company, a joint venture with Community Television of Southern
California ("KCET").
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The consolidated financial statements include
the accounts of Lancit, Frame, LCC and Strategy. All material intercompany
accounts and transactions have been eliminated.
B. Cash and Cash Equivalents - The Company considers all highly liquid
temporary cash investments with an original maturity of three months or
less when purchased, to be cash equivalents.
C. Accounts Receivable - Accounts receivable primarily consists of amounts
still to be received from remaining minimum contractual royalties and
underwriting agreements. Amounts still to be received from the remaining
minimum contractual royalties result from the copyright holder entering
into agreements with licensees whereby the Company has licensed them the
right, during a specified term, to utilize the copyright holder's
copyright. Such amounts are due no later than the conclusion of specified
time periods which, for the most part, occur within the next twenty-four
months. Amounts still to be received from existing underwriting agreements
are due mostly within the next fiscal year.
D. Film and Program Costs - Film and program costs ("project costs")
(which includes acquisition and development costs such as story rights,
scenarios and scripts, production costs including salaries and costs of
talent, production overhead and post-production costs) are stated at the
lower of cost less accumulated amortization or net realizable value and
are deferred and amortized under the "individual film forecast method" as
required by Statement of Financial Accounting Standards No. 53 ("SFAS No.
53"). Project costs are amortized in relation to the revenue recognized
from each project, and amortization is calculated based on management's
latest estimate of the project's gross profit margin over its remaining
life. Film and program costs are re-evaluated periodically and, when
necessary, are written down to net realizable value.
E. Property and Equipment - Property and equipment is
stated at cost. Depreciation is provided for using the
straight-line method over the estimated useful life of
the related asset.
F. Goodwill - Goodwill resulting from business acquisitions represents the
remaining unamortized value of the excess of the acquisition costs over
the fair value of the net assets of the business acquired. Goodwill is
amortized on a straight-line basis over a period not to exceed 20 years.
G. Participations Payable - Participations payable represent the amount
due for profit participations and residuals. The participation amounts are
recorded at the same time that the revenue which gives rise to such
participations, is recorded. Participants are paid when the actual cash is
received and when the entitled payees have been identified.
H. Deferred Revenue - Deferred revenue consists of licensing agent fees
remaining to be recognized based on guaranteed royalties, as well as
production funding received but not yet recognized as revenues based on
percentage of completion. The fees from guaranteed royalties are
recognized as revenue over a period which is no longer than the term of
each individual license agreement. In addition, any royalty amounts
received as advances by the Company as copyright holder, are deferred and
are recognized as revenues when all obligations and commitments associated
with such contracts have been met.
I. Net Income (Loss) Per Share - Net income (loss) per share is computed
on the basis of the weighted average number of common shares and common
share equivalents outstanding for the respective period. Common share
equivalents include dilutive stock options and warrants using the treasury
stock method.
J. Revenue Recognition - Revenues are primarily
derived from the following sources:
(a) (i) Production - Revenues from such
activities, when performed for a third party
contracting entity such as a grantor, are
recognized using the percentage of completion
method, recognizing revenue relative to the
proportionate progress on such contracts.
When producing a project subject to a
commercial network presale, revenues are
recorded in accordance with Statement of
Financial Accounting Standards No. 53,
"Financial Reporting by Producers and
Distributors of Motion Picture Films". (ii)
Royalties - On many of the original projects
it produces, the Company will retain, in
varying degrees, ownership in such projects,
and will derive royalties from their
exploitation in both primary and secondary
markets worldwide. Such revenues are
recognized when firm sales are reported to
the Company by designated sales
representatives in each market area or upon
the Company meeting all commitments and
obligations (which are primarily
broadcast-oriented) related to the minimum
contractual royalties under the licensing
agreement. Such agreements generally range
from two to four years. Typically, on a
licensing contract, the Company will not
begin to recognize additional
copyright-holder related royalty revenues
beyond any previously recorded minimum
contractual royalty amounts until such time
as the licensee has recouped that full
amount. Depending on the particular licensee
category and on the initial sales success of
the products in that category, such
recoupment period may range anywhere from one
year to several years. The nature of the
primary market and the order of market
exploitation varies from project to project,
as does the length of each project's revenue
producing cycle. However, such revenue
cycles typically range from two to six years.
(b) Licensing agent fees - Revenues from such
activities are derived from a negotiated
percentage, with the copyright holder, of
overall royalty revenue in a wide variety of
categories. Licensing agent fees derived
from minimum contractual royalty commitments
to the copyright holder are recognized over a
period which is no longer than the term
covered by each individual agreement. Once
royalties generated on sales of licensed
product exceed the minimum contractual
royalties provided for in such agreements,
the licensing agent will record, as revenue,
its entitled share of all royalties generated
from that point forward, upon knowing the
royalties have been earned which may be at
the time of receipt.
K. Income Taxes - Effective July 1, 1993, the Company
adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 109").
SFAS No. 109 utilizes the liability method of
accounting for income taxes. Deferred taxes are
determined based on the estimated future tax effects of
differences between the financial statement and tax
bases of assets and liabilities, given the provisions
of the enacted tax laws.
L. Compensation Expense Associated with Stock Options - The Company's
policy is to record compensation expense when stock options are granted at
an exercise price which is less than the fair market value of the
Company's common stock on the date of the grant. The amount recorded as
compensation expense is equal to the difference between the exercise price
and the fair market value of the Company's common stock on the date of
grant.
In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock Based
Compensation". SFAS No. 123 permits companies to
choose to follow the accounting prescribed by SFAS No.
123 for securities issued to employees, or to continue
to follow the accounting treatment prescribed by
Accounting Principles Board Opinion No. 25 ("APB No.
25") along with the additional disclosure required
under SFAS No. 123 if the Company elects to continue to
follow APB No. 25. The Company will adopt SFAS No. 123
for fiscal 1997, however, the Company has not yet
determined the manner in which SFAS No. 123 will be
adopted. As such the Company can not at this time
determine the impact on the Company's financial
statements.
M. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principals requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30,
---------------------------
1996 1995
------------- ------------
Production and office equipment $1,826,639 $1,673,822
Leasehold improvements 390,727 380,955
------------- ------------
2,217,366 2,054,777
Less accumulated depreciation (1,384,760) (993,899)
------------- ------------
Property and equipment, net $ $ 832,606 $1,060,878
============= ============
3. COMMITMENTS AND CONTINGENCIES
A. Leases
The Company leases facilities and office equipment under the terms of
several operating leases. The major portion of these operating leases
relate to the Company's four facilities leases. Two of the facility leases
expire in September 1997, one expires in April 1997 and the other expires
in February 1999.
The following is a schedule of minimum future lease payments under all
leases at June 30, 1996:
Year Ended June 30, Total
----------------------- -----------
1997 $ 301,936
1998 126,592
1999 50,236
Rent expense was $296,285, $354,854 and $279,304 for the years ended June
30, 1996, 1995 and 1994, respectively. Facility leases, in some cases,
also provide for escalations based on increases in real estate taxes and
maintenance charges.
B. Employment Agreements
The Company has employment agreements with four individuals, all of whom
are officers of Lancit. The agreements expire at various times through
September 1999. Remaining commitments under the terms of these agreements
are $1,103,691.
C. Bonus Plans
Officers as a group, under an incentive bonus plan, receive a bonus of 5%
of pretax income (before bonus), for a fiscal year, provided that (i)
pretax income (before bonus) for such fiscal year is at least $250,000,
(ii) net income for such fiscal year exceeds net income for the prior
fiscal year and (iii) net income is at least $.05 per share (adjusted for
stock splits and stock dividends), on a fully diluted basis. For fiscal
1996 no amount was accrued under this plan and for fiscal 1995 $77,987 was
accrued under this plan.
D. Production Funding
In fiscal 1996, the Company continued and substantially completed
production on episodes 41-65 of THE PUZZLE PLACE. After taking into
account the portion of the project funding expected to be contributed via
existing underwriting agreements and the Company's partner on the project,
KCET, the Company estimates less than $.1 million will ultimately be
required from the Company to meet the current budget needs of the project.
The Company also continued production on the initial thirteen episodes of
BACKYARD SAFARI, which has been funded partially through a major grant
from the National Science Foundation. The Company is actively pursuing and
evaluating production funding from potential project partnerships as well
as from potential sources of underwriting grants. Only in the event the
Company were to receive no amounts from these sources of outside
production funding, the Company estimates that its remaining investment
required for this project would be between $.5 million and $1.0 million.
4. PUBLIC OFFERINGS AND WARRANTS
In June 1991, the Company's initial public offering occurred wherein the
Company sold 258,750 units, priced at $9.00 per unit, which consisted of
six shares of common stock and three redeemable common stock purchase
warrants ("W Warrants").
In July 1992, the Company completed an additional public offering, wherein
the Company sold 862,500 units, at $4.00 per unit, which consisted of one
share of common stock and one redeemable common stock purchase warrant ("Z
Warrants"). In connection with the offering, the Company sold to the
underwriter, for nominal consideration, an option to purchase 75,000 units
at an exercise price of $4.80 per unit.
The Company currently has no outstanding warrants. Previously, the Company
had outstanding warrants as follows:
Warrants Exercise
or Unit Purchase Price per
Options Share
------------- ------------
Outstanding at July 1, 1993 1,536,737 $2.00 - $6.00
W Warrants exercised (531,662) $2.00
Z Warrants exercised (894,650) $6.00
Underwriter's Unit Purchase
Option exercise (75,000) $4.80
Warrants expired (5,425) $2.00 - $6.00
------------- ------------
Outstanding at June 30, 1994 30,000 $6.00
Z Warrants exercised (30,000) $6.00
------------- ------------
Outstanding at June 30, 1995 - -
and 1996 ============= ============
5. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
For the year ended June 30, 1996, two customers accounted for 35% and 24%
of total revenues from production and royalties and three customers
accounted for 36%, 10% and 10% of licensing agent fees. For the year ended
June 30, 1995, four customers accounted for 14%, 12%, 12% and 10% of total
revenues from production and royalties and two customers accounted for 40%
and 20% of licensing agent fees. For the year ended June 30, 1994, three
customers accounted for 28%, 27% and 27% of total revenues from production
and royalties and one customer accounted for 84% of licensing agent fees.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash
investments and trade receivables. The Company restricts placement of its
temporary cash investments to financial institutions with high credit
ratings and limits the amount of credit exposure with any one financial
institution. For the year ended June 30, 1996, amounts receivable from
three different entities accounted for 33%, 20%, and 15% of the Company's
total accounts receivable. Allowances are maintained, as necessary, for
any potential credit losses.
6. FILM AND PROGRAM COSTS
Components of film and program costs (net of accumulated amortization)
consist of the following:
June 30,
---------------------------------
1996 1995
------------ -------------
Productions completed and released $2,329,015 $ 505,834
Productions in progress 2,851,378 3,958,207
Story rights and scenarios 346,713 136,442
------------ -------------
Total film and program costs, net $5,527,106 $4,600,483
============ =============
Film and program costs are substantially made up of capitalized
television, production, and development costs incurred by the Company.
Revenues generated by television and movie programming and related
ancillary product depend in part upon general economic conditions, but are
more directly effected by the viewer and retail response to the
entertainment product made available to the marketplace. The Company
capitalizes such costs and amortizes them to expense in accordance with
SFAS No. 53 which requires the Company to use estimates to determine
future revenue-generating potential of its project which is subject to a
variety of risk factors. The estimates used are reevaluated periodically,
and such reevaluations may, in the future, require the Company to write
down unamortized capitalized amounts.
7. STOCK OPTIONS
In July 1990, the Company adopted a stock option plan (the "1990 plan")
authorizing the issuance of options covering 200,000 shares of the
Company's common stock, which, over the years has been increased to cover
the issuance of up to 1,000,000 shares of the Company's common stock.
Officers, directors, consultants and employees are eligible to participate
in the 1990 Plan and to receive non-qualified or, to the extent allowable,
incentive stock options pursuant to the 1990 Plan. Options granted under
the Plan are exercisable for a period of not more than ten years from the
date of grant. Selection of participants, allotment of shares,
determination of exercise price and other conditions of the granting of
options is determined by the Company. Additionally, the 1990 Plan provides
that no options may be issued at an exercise price which is less than the
fair market value of the Company's common stock on the date of grant.
The Company has outstanding stock options under the 1990 Plan as follows:
Exercise Price
Options Per Share
------------ -------------
Outstanding at July 1, 1993 52,500 $1.67 - $3.88
Options granted 154,000 $10.50 - $16.29
Options exercised (25,000) $1.67 - $3.88
------------ -------------
Outstanding at June 30, 1994 181,500 $1.67 - $16.29
Options granted 154,000 $11.69 - $16.13
Options exercised (7,000) $3.75
------------ -------------
Outstanding at June 30, 1995 328,500 $1.67 - $16.29
Options granted 383,200 $9.31 - $15.50
Options exercised (10,000) $1.67 - $3.75
Options cancelled (28,500) $10.44 - $15.94
------------ -------------
Outstanding at June 30, 1996 673,200 $1.67 - $16.29
============ =============
During the year ended June 30, 1996, options covering 383,200 shares of
common stock were granted. Officers of the Company were granted options
covering 303,500 shares of common stock at exercise prices ranging from
$9.38-$12.69 per share. Other employees of the Company were granted
options covering 41,300 shares at exercise prices ranging from
$9.88-$15.50 and consultants were granted options covering 38,400 shares
at exercise prices ranging from $9.31-$12.56. Options covering 28,500
shares of common stock, at exercise prices ranging from $10.50-$15.94 were
canceled, 5,000 at an exercise price of $11.81 which were held by an
officer and 23,500 at exercise prices ranging from $10.44-$15.93 which
were held by other employees. During the year ended June 30, 1996, an
officer exercised options covering 6,000 shares of common stock at an
exercise price of $3.75. Other employees exercised stock options covering
4,000 shares of common stock at an exercise price of $1.67. Under the 1990
Plan, options covering 673,200 shares of common stock were outstanding at
June 30, 1996 of which 455,534 were immediately exercisable.
In April 1991, the Company adopted a Stock Performance Based Stock Option
Plan (the "1991 Plan") authorizing the issuance of options covering
250,000 shares of the Company's common stock. Executive management was
eligible to participate in the 1991 Plan and to receive non-qualified
options pursuant to the 1991 Plan at an exercise price of $0.01 per share.
Options granted under the 1991 Plan became exercisable at any time after
the second anniversary of the effective date of the initial public
offering of the Company's common stock upon the common stock having met
certain performance levels.
The Company had outstanding stock options under the 1991 Plan as follows:
Exercise Price
Options Per Share
------------ -------------
Outstanding at July 1, 1993 250,000 $0.01
Options exercised (55,000) $0.01
------------ -------------
Outstanding at June 30, 1994 195,000 $0.01
Options exercised (15,000) $0.01
------------ -------------
Outstanding at June 30, 1995 180,000 $0.01
Options exercised (20,000) $0.01
Options cancelled (160,000) $0.01
------------ -------------
Outstanding at June 30, 1996 - -
============ =============
During the fiscal year ended June 30, 1996, an executive of the Company
exercised options covering 20,000 shares of common stock. During fiscal
1996, options covering 160,000 shares of common stock, all held by
executives of the Company, were cancelled.
In December 1994, the Company adopted The 1994 Non-Employee Director Non-
Qualified Stock Option Plan (the "1994 Plan") authorizing the issuance of
options covering 45,000 shares of the Company's common stock. Non-employee
directors of the Company are eligible to participate in the 1994 Plan.
Each non-employee director shall be granted 3,000 options on the day of
their initial appointment and annually thereafter on the day of their
re-election. The exercise price per share for each option granted is the
fair market value of the Company's common stock on the date of grant. Each
option is exercisable one year from the date of grant and expires no later
than ten (10) years from the date of grant.
The Company has outstanding stock options under the 1994 Plan as follows:
Exercise Price
Options Per Share
------------ -------------
Outstanding at July 1, 1994 - -
Options granted 9,000 $13.19 - $13.69
------------ -------------
Outstanding at June 30, 1995 9,000 $13.19 - $13.69
Options granted 9,000 $13.13
------------ -------------
Outstanding at June 30, 1996 18,000 $13.13 - $13.69
============ =============
During the year ended June 30, 1996, non-employee directors of the Company
were granted options covering 9,000 shares of common stock at an exercise
price of $13.13 per share. Under the 1994 Plan, options covering 18,000
shares of common stock were outstanding at June 30, 1996 of which 9,000
were immediately exercisable.
The Company's other various options covering shares of common stock, not
under any form of a plan, are as follows:
Exercise Price
Options Per Share
------------ ------------
Outstanding at July 1, 1993 15,000 $3.75
Options exercised (10,000) $3.75
------------ ------------
Outstanding at June 30, 1994 5,000 $3.75
Options exercised (4,000) $3.75
------------ ------------
Outstanding at June 30, 1995 1,000 $3.75
and 1996 ============ ============
Of these other various options, at June 30, 1996 options covering 1,000
shares of common stock were outstanding and immediately exercisable.
8. 401K AND PROFIT SHARING PLAN
Effective as of January 1, 1994, the Company adopted a combined 401K
Savings and Profit Sharing Plan ("the Plan"). The Plan provides for
immediate eligibility for all employees of the Company as of January 1,
1994 and eligibility after completion of six months of service for all
employees of the Company after January 1, 1994. The 401K Savings portion
of the Plan provides for an employer match which is determined on an
annual basis. The Profit Sharing portion of the Plan provides for an
employer discretionary contribution which is determined on an annual basis
and which is reduced by any 401K employer match already received.
Contributions accrued under the Plan for fiscal 1996 were $72,000, of
which $65,000 was funded at June 30, 1996. Contributions accrued and paid
under the Plan for fiscal 1995 and fiscal 1994 were $70,000 and $30,000,
respectively.
9. RELATED PARTY TRANSACTIONS
Legal fees incurred to one of the Company's law firms, where a principal
of that law firm is a statutory officer and director of the Company were
$121,157, $135,140 and $113,965 for the years ended June 30, 1996, 1995
and 1994, respectively.
Consulting fees incurred to one of the Company's consulting firms, where a
principal of that firm is a director of the Company were $13,054 for the
year ended June 30, 1996. In addition, that consulting firm, in October
1995, was granted stock options covering 13,400 shares of the Company's
common stock, exercisable at $12.25 per share and expiring in October
2000.
10. INCOME TAXES
Effective July 1, 1993, the Company adopted SFAS No. 109. SFAS No.
109 requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences
between the financial statement and tax basis of assets
and liabilities, and for the expected future tax benefit
to be derived from tax loss and tax credit carryfowards.
SFAS No. 109 additionally requires the establishment of a
valuation allowance to reflect the likelihood of
realization of deferred tax assets. At June 30, 1996, the
Company had deferred tax assets of $2,514,000 and deferred
tax liabilities of $344,000. The Company has recorded a
valuation allowance for the full amount by which such
deferred tax assets exceed the deferred tax liabilities.
The following table illustrates the sources and status of the Company's
major deferred tax asset and (liability) items at June 30, 1996:
Tax benefit of net operating loss carryforward $ 2,349,000
Royalty revenue not yet collected (154,000)
Excess of tax over book depreciation (73,000)
Other 48,000
-------------
Net deferred tax asset 2,170,000
Valuation Allowance (2,170,000)
-------------
Net deferred tax asset recorded $ -
=============
The provision for income taxes differs from the amount computed by
applying the statutory Federal income tax rate to income (loss) before
provision for income taxes and minority interest as follows:
June 30,
-----------------------------------
1996 1995 1994
---------- ---------- ----------
Income tax provision (benefit)
computed at the statutory rate (1,265,000) 450,000 12,000
Income tax benefit of disqualifying
dispositions (110,000) (127,000) (460,000)
Net tax effect of other permanent
differences 34,000 (39,000)
Tax effect of temporary differences 33,000 (369,000) -
Income tax benefit not recognized 1,308,000 85,000 448,000
Provision for state income taxes 87,900 38,000 -
---------- ---------- ----------
Income tax provision $ 87,900 38,000 -
========== ========== ==========
The Company has net operating loss carryforwards for tax purposes totaling
$5,872,000 at June 30, 1996 that expire in the years 2006 to 2011.
Certain of the Company's subsidiaries file state income tax returns on an
unconsolidated basis, and as such, losses may not be available to offset
income in all states.
11. FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
During the fourth quarter of fiscal 1996, the Company recorded a charge
related to a write-down of film and program costs in the amount of
$2,500,000 primarily reflecting revisions in the Company's future
anticipated net royalty stream on THE PUZZLE PLACE project and to relate
the amortization of the film and program costs to those future revenue
streams.
Also, during the fiscal year ended June 30, 1996, production activity was
reduced on certain projects. This resulted in a downsizing of the staff
involved with the production of these projects and the Company recorded a
restructuring charge of $150,000 which included severance and other
benefits paid to terminated employees.
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.
Dated: October 28, 1996
LANCIT MEDIA PRODUCTIONS, LTD.
By: /s/ Gary Appelbaum
Gary Appelbaum
Senior Vice President, Chief
Financial Officer and Treasurer
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 in the capacities and on
the date indicated.
Name Titles Date
- ---------------------- ---------------------------- ------------------
Chairman of the Board,
Chief Executive Officer
/s/ Cecily Truett and Director October 28, 1996
- ---------------------- (Principal Executive
Cecily Truett Officer)
President, Chief Operating
/s/ Laurence A. Lancit Officer and Director October 28, 1996
- ----------------------
Laurence A. Lancit
Senior Vice President,
Chief Financial Officer
and Treasurer (Principal October 28, 1996
/s/ Gary Appelbaum Financial and Accounting
- ---------------------- Officer)
Gary Appelbaum
/s/ Marc L. Bailin Secretary and Director October 28, 1996
- ----------------------
Marc L. Bailin
/s/ Joseph Kling Director October 28, 1996
- ----------------------
Joseph Kling
/s/ John R. Costantino Director October 28, 1996
- ----------------------
John R. Costantino
<PAGE>
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
EXHIBIT 10.1
Employment Agreement with Laurence A. Lancit
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of October, 1995 (the "Effective
Date") by and between LANCIT MEDIA PRODUCTIONS, LTD., a New York corporation
with offices at 601 West 50th Street, New York, New York 10019 (hereinafter the
"Company"), and LAURENCE A. LANCIT, residing at 5 Meade Lane, Chappaqua, New
York 10514 (hereinafter the "Executive"). In consideration of the mutual
promises and agreements herein contained, the parties hereto agree as follows:
I. Employment. The Company agrees to continue the
Executive in its employ and the Executive agrees to remain in the
employ of the Company, for the period stated in Paragraph 3
hereof and upon the other terms and conditions herein provided.
<PAGE>
2. Position and Responsibilities of Executive. The Executive agrees
to serve as President and Chief Operating Officer of the Company for the term of
this Agreement. The Executive shall be responsible for the general management of
the affairs of the Company and all of its subsidiaries (hereinafter collectively
referred to as the "Corporate Group"), reporting directly to the Board of
Directors of the Company. The Executive also agrees to serve, if elected, as an
officer and director of any subsidiary or affiliate of the Company; provided
that any such office is of the same general character and of at least the same
degree of responsibility as the offices of the Company that he shall hold as of
the Effective Date.
3. Term of Employment. The period of the Executive's employment shall
be deemed to commence on the Effective Date and shall continue for three (3)
years thereafter. This Agreement may be extended for an additional period of
three (3) years by mutual written consent. In the event that the Executive
continues in the full time employ of the Company upon expiration of this
Agreement, such continued employment shall be governed by the terms and
conditions of this Agreement.
4. Duties of Executive. The Executive agrees to devote his full
working time and efforts to the business and affairs of the Corporate Group.
Except as otherwise provided in Paragraph 12 below, nothing contained in this
Agreement shall be construed to prevent the Executive from making investments of
any character in any business. If the Executive is elected or appointed a
director of the Company during the term of this Agreement, the Executive will
serve in such capacity without further compensation.
5. Compensation and Reimbursement of Expenses.
A. Base Salary. As compensation for services
rendered to the Corporate Group pursuant to this Agreement, the Executive shall
be paid compensation at the annual base rate (the "Base Salary") of $150,000 per
year during the first year of this Agreement. For each subsequent year of this
Agreement, effective on each October 1 after the Effective Date, the Base Salary
shall be increased as determined by the Board of Directors; provided, however,
that such Base Salary shall not be less than the amount obtained by multiplying
$150,000 by the percentage obtained by dividing the Consumer Price Index (CPI-U)
for New York City, as published by the U.S. Department of Labor (or, if
publication of that index is terminated, any substantially equivalent successor
index), for the September preceding the effective date of such increase, by such
Consumer Price Index for the month of September 1995.
B. Bonus. The Company has adopted an Incentive Bonus Plan
whereby officers of the Company as a group shall receive a bonus of five percent
(5%) of pre-tax income (before bonus) provided that (i) the Company's pre-tax
income (before bonus) in any given fiscal year is at least $250,000; (ii) in
such fiscal year, the Company's net income per share is at least $0.5 per share
(adjusted for stock splits and stock dividends on a fully diluted basis); and
(iii) the net income in such fiscal year exceeds the net income in the
immediately preceding fiscal year. The amount of any bonus to be paid to the
Executive which may be available for distribution pursuant to such Incentive
Bonus Plan in any year of this Agreement shall be determined by the Board of
Directors of the Company.
C. Additional Compensation.
(1) The Company shall pay to the Executive,
as additional compensation, an amount equal to the annual premiums paid with
respect to a $1,000,000 term and a $200,000 universal life insurance policy
maintained by the Executive on his life with the insurance company of his
choice. Such compensation shall be paid upon presentation to the Company by the
Executive of the premium invoice received from the insurer providing such life
insurance coverage.
(2) The Company acknowledges that the
Executive has provided and may continue to provide services to the Company as a
film or television director or in some capacity other than as the President and
Chief Operating Officer of the Company which services may at some future time
fall under the jurisdiction of a guild in which Executive is a member and with
which the Company is a signatory to such collective bargaining agreement. In
such instances, the Executive shall be entitled to such additional compensation
for services rendered in connection with specific projects undertaken on behalf
of the Company as may be required by the applicable collective bargaining
agreement from time to time, and shall be entitled to retain such intellectual
property rights with respect to such projects as are required by such guild to
be retained. Such compensation and intellectual property rights shall be set
forth in a separate agreement with respect to each project for which the
Executive provides such services which are subject to the jurisdiction of such
guild. The Executive's rights to such additional compensation and to royalties
with respect to any such intellectual property rights retained by him shall
survive any termination of this Agreement and shall be governed by such separate
agreements and the applicable collective bargaining agreement.
(3) The Executive shall also be provided
with a leased vehicle and a cash allowance such that the total payments do not
exceed $1,500 per month.
D. Reimbursement of Expenses. The Company
shall reimburse the Executive for all reasonable expenses of
travel, telephone, entertainment or otherwise incurred by the
Executive in connection with and on behalf of the business of the
Company upon presentation of appropriate receipts, vouchers or
itemizations of expenses.
6. Participation in Benefit Plans. The Executive shall be entitled to
benefits in accordance with Company policy and shall participate, to the extent
he is eligible under the terms and conditions thereof, in any bonus, pension,
profit-sharing, retirement, hospitalization, insurance, medical service, or
other employee benefit plan, including disability insurance, generally available
to the employees of the Company, which may be in effect from time to time during
the period of his employment hereunder. The Company shall be under no obligation
to continue the existence of any such employee benefit plan, except that the
Company shall, in all instances, provide full family basic health and major
medical insurance coverage to the Executive at no cost to the Executive.
7. Benefits Payable Upon Disability. If the Executive's employment is
terminated by the Company pursuant to Paragraph 8.B due to disability, he shall
be entitled to one hundred percent (100%) of his Base Salary for the first six
(6) months following such termination of his employment, seventy-five (75%) for
the next three (3) months, and fifty percent (50%) for the next three (3)
months, less such benefits or compensation payable to the Executive by reason of
State, Federal, Social Security, disability, worker's compensation or comparable
government benefits and such policies of disability insurance procured by the
Company. The foregoing periods of disability during which compensation shall be
paid constitute aggregate periods during the full term of this Agreement and the
Executive shall continue to receive benefits in accordance with Paragraph 6
during such periods.
8. Termination of Employment.
A. Termination on Expiration of Agreement Term. If the term of this
Agreement expires and the Company does not agree to extend the Agreement for an
additional three (3) year term as provided in Paragraph 3 or enter into a new
employment agreement or otherwise continue the Executive in the employ of the
Company in a substantially similar position, the Executive shall be entitled to
severance of one year of Base Salary at the rate that would have applied had the
Agreement continued in effect for such year.
B. Termination for Cause. The Company may terminate the
Executive's employment at any time for cause, in which case the Executive shall
not be entitled to any severance pay. As used herein, "cause" shall mean (a)
conviction of any felony or crime of moral turpitude; (b) repeated intoxication
by alcohol or drugs preventing the performance of the Executive's duties; (c)
material misuse of the funds or assets of any member of the Corporate Group,
embezzlement or willful and material misrepresentation or concealment in any
report submitted to the Company's Board of Directors; (d) willful failure to
comply with directives of the Board of Directors relating to a material aspect
of the Company's business; (e) a material breach of the terms of this Agreement
by the Executive which the Executive does not cure upon notice by the Board of
Directors; or (f) physical or mental incapacity of the Executive that prevents
him from performing his duties for a period of ninety (90) consecutive days or
more. The Company shall provide written notice to the Executive describing the
state of affairs or facts deemed by the Board of Directors to constitute such
cause and the Executive shall have thirty (30) days after receipt of such notice
to cure the reason constituting cause except with respect to events set forth in
(a), (b), and (c) above. If the cause for termination is an event set forth in
(a), (b), or (c) above, or if such cause is some other event and the Executive
does not cure such cause to the satisfaction of the Board of Directors within
thirty (30) days after receiving notice, the Board of Directors may immediately
terminate the Executive's employment.
C. Termination Without Cause by Company. The Company shall have
the right to terminate the employment of the Executive without cause upon sixty
(60) days written notice to the Executive. In the event of such a termination,
the Executive shall continue to receive his Base Salary as if he had continued
in the employment of the Company for the longer of (i) the duration of the term
of this Agreement or (ii) twelve months from the date of termination of
employment.
D. Other Events of Termination. Upon the occurrence of an Event
of Termination during the term of this Agreement, the provisions of this
Paragraph 8.D shall apply, and the Executive shall have the right to terminate
his employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within three (3) months (except in the case of a
continuing breach) of the occurrence of the Event of Termination. An Event of
Termination shall mean and include: (a) the failure to appoint or reappoint, as
the case may be, the Executive to the offices of President or Chief Operating
Officer of the Company; (b) a material change by the Company in the Executive's
function, duties, or responsibilities which change would cause the Executive's
position with the Company to become of less dignity, responsibility, importance,
or scope from the position and attributes thereof described in Paragraph 2 of
this Agreement, and any such material change shall be deemed a continuing breach
of this Agreement; or (c) any other material breach of this Agreement by the
Company. If the Executive elects to terminate his employment subsequent to an
Event of Termination, in the manner described above, he shall continue to
receive from the Company the full amount of his Base Salary for the longer of
(i) the duration of the term of this Agreement or (ii) twelve months from the
date of termination, as if he had remained in the employ of the Company.
E. Termination of Employee. Except as provided
above, the Executive may not terminate this Agreement. If the
Executive breaches or seeks to terminate this Agreement the
Executive shall be entitled to only the Base Salary as set forth
in Paragraph 3.A actually accrued but unpaid hereunder.
F. Termination After a Change of Control.
(1) For the purpose of this Agreement, a
"Change in Control" shall mean any of the following events:
(a) a change in control of a nature that
would be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Company, an
employee benefit plan (or a trust forming a part thereof) maintained by a member
of the Corporate Group, or the Executive, his wife or a member of his immediate
family, is or become the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of securities of the Company representing
50.1% or more of the combined voting power of the Company's then outstanding
securities.
(b) Approval of the Company's shareholders
of: (1) a merger, consolidation or reorganization involving the Company (a
"Transaction"), unless (i) stockholders of the Company, immediately before such
Transaction, own directly or indirectly immediately following such Transaction,
at least a majority of the combined voting power of the outstanding voting
securities of the corporation resulting from such Transaction (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
voting securities immediately before such Transaction, (ii) the individuals who
were members of the incumbent board immediately prior to the execution of the
agreement providing for such Transaction constitute at least a majority of the
members of the board of directors of the Surviving Corporation, and (iii) no
Person (other than a member of the Corporate Group, an employee benefit plan (or
any trust forming a part thereof) maintained by a member of the Corporate Group
or the Surviving Corporation, the Executive, his wife or a member of his
immediate family, or any Person who, immediately prior to such Transaction had
Beneficial Ownership of 50.1% or more of the then outstanding voting securities
of a party to the Transaction) has Beneficial Ownership of 50.1% or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities, or (2) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
member of the Corporate Group).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than 50.1% of the outstanding voting securities as
a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition, the Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the percentage of the outstanding
Voting Securities Beneficially Owned by the Subject Person, then a Change in
control shall occur.
(2) The Executive shall have the right to terminate his
employment, for any reason, on ninety (90) days written notice to the Company in
the event of a Change in Control; provided, however, that such termination right
must be exercised by the Executive within one year following such Change in
Control.
(3) In the event the Executive terminates his employment
pursuant to this Paragraph 8.F, the provisions of Paragraph 12 shall not apply
after the date of such termination.
(4) In the event the Company terminates the Executive's
employment for any reason other than for cause within one year of a Change in
Control, the Company shall pay the Executive the greater of (a) one times his
then existing Base Salary, or (b) the balance of his Base Salary due for the
duration of the term of this Agreement in one lump sum payment within ten (10)
days of the date of such termination. In such event, the provisions of Paragraph
12 shall not apply after the date of such termination.
9. Consent for Key Man Insurance. The Executive
hereby consents that the Company shall have the right to maintain
a policy of insurance on the life of the Executive in the
principal amount of up to $3,000,000 and to designate the
beneficiary thereof.
10. Disclosure of Confidential Information. The Executive recognizes
and acknowledges that certain information is proprietary to and confidential
with the Company and the Corporate Group, including without limitation the
following: the Company's and the Corporate Group's strategic and/or business
plan, pending projects, projects in development, acquisition targets at both the
individual project and corporate level, co-production arrangements, joint
ventures, funding sources, distribution arrangements, the contacts at such
entities and the financial terms of such agreements with the Company and/or the
Corporate Group (collectively, "Confidential Information"). The Executive will
not directly or indirectly, on behalf of himself or others, during or at any
time after the termination of his providing services hereunder, irrespective of
time, manner or reason for termination, disclose, publish, disseminate or
utilize such Confidential Information, or any part thereof except in furtherance
of the business of the Company or another member of the Corporate Group. The
Executive will not remove or duplicate in any manner at any time any lists or
other records, or any parts thereof, concerning the Company's Confidential
Information and upon termination of his employment will return to the company
any and all lists and records concerning the Company's Confidential Information
thereof in his possession.
11. Non-Disclosure of Trade Secrets. The Executive recognizes and
acknowledges that he will be given and have access to the confidential methods,
techniques, trade secrets, procedures, materials and confidential information of
the Company. The Executive will not, directly or indirectly on behalf of himself
or others, during or at any time after the termination of his providing services
hereunder, irrespective of time, manner of cause of termination, disclose,
publish, disseminate or utilize same or any portion of same.
12. Non-Competition. During the term of this Agreement and, unless
there is a breach of this Agreement by the Company, for a period equal to the
longer of (i) twelve (12) months after the termination of this Agreement, or
(ii) such period during which the Executive is receiving payments from the
Company pursuant to Paragraphs 8 A, C, D or F, the Executive shall not, without
the prior written consent of the Company, either separately or in association
with others, directly or indirectly:
A. Establish, engage in, or become interested in (whether as an
owner, stockholder, partner, lender or other investor, director, officer,
employee, consultant, advisor, agent or otherwise) any business or enterprise
that is, at the time, competitive with any substantial part of the business
conducted by the Company or any other member of the Corporate Group. Mere
passive ownership of not more than five percent (5%) of the outstanding voting
securities of any class of any corporation that is listed on a national
securities exchange or traded in the over-the-counter market, shall not be
considered a breach of this Section; or
B. Attempt to interfere with or induce any employee of the
Company or any other member of the Corporate Group to leave the employment of
the Company or such other member of the Corporate Group.
13. Remedies in the Event of Executive's Breach. In view of the
unique quality of his services to the Company and the fact that the Company's
business heavily depends upon compliance with the provisions Paragraphs 10, 11
and 12 of this Agreement, the Executive acknowledges that the remedies of the
Company at law for breach by the Executive of any of said provisions will be
inadequate and the Executive agrees that the Company shall be entitled to
injunctive relief or a decree of specified performance without the necessity of
proving irreparable damages in the event of a breach or threatened breach by the
Executive of the provisions of this Agreement. In the event, pursuant to action
of any administrative, judicial or other governmental body having jurisdiction,
the operation of any of the provisions of Paragraphs 10, 11 and 12 of this
Agreement shall be deemed to be unlawful or otherwise unenforceable, then the
coverage of such provisions shall be deemed to be restricted as to duration,
geographical scope or otherwise to the extent, and only to the extent, necessary
to make such provisions lawful and enforceable in the particular jurisdiction in
which such adjudication is made. Nothing herein shall be construed to prohibit
the Company from pursuing any other legal or equitable remedies available to it
for such breach, including the recovery of damages from the Executive.
14. Severability. In the event any of the terms or provisions of this
Agreement are found to be invalid, void or voidable for any reason whatsoever,
such finding will not affect the remaining terms and provisions of this
Agreement and they shall remain in full force and effect.
15. Governing Law. This Agreement shall be governed
in all respects by the laws of the State of New York.
16. Notices. Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered mail or certified mail to the
Executive or to the Company's vice-president of legal and business affairs at
the respective addresses hereinabove set forth or to such other addresses as any
of the parties hereto may designate in writing, transmitted by registered or
certified mail to the other.
17. Entire Agreement; Waiver; Modification. This Agreement contains
the entire agreement between the parties hereto and supersedes all prior
employment agreements and understandings relating to the subject matter hereof.
Except where specific time limits are herein provided, no delay on the part of
either party hereto in exercising any power or right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any other power or
right. No waiver, modification, or amendment of this Agreement or any provision
hereof, shall be enforceable against either party hereto unless in writing,
signed by the party against whom such waiver, modification or amendment is
claimed, and with regard to any waiver, shall be limited solely to the one
event.
18. Successors and Assigns. If the Company shall at any time be
merged or consolidated into or with any other corporation or corporations and
this Agreement is not terminated pursuant to the provisions of Paragraph 8.F
hereof, then the provisions of this Agreement shall be binding upon, enforceable
against, and inure to the benefit of, the corporation resulting from such merger
or consolidation and this provision shall be recurring and shall apply in the
event of any and each subsequent merger or consolidation. The rights, privileges
and benefits of the Executive under this Agreement shall not be transferred or
assigned and the Company shall not transfer or assign any of its rights,
privileges or benefits hereunder, save and except as a consequence of, or in
connection with, the merger of consolidation thereof into or with any other
corporation or corporations. This Agreement shall inure to and be binding upon
respective legatees, heir, successors, permitted assigns and legal
representatives of the parties hereto.
19. Gender and Number. The gender and number used in this Agreement
are used as a reference term only and shall apply with the same effect whether
the parties are of the masculine or feminine gender, corporate or other form,
and the singular shall likewise include the plural.
20. Captions. The captions or headings of the
Paragraphs are inserted only as a matter of convenience, and in
no way define, limit or in any other way describe the scope of
this Agreement or the intent of any provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
LANCIT MEDIA PRODUCTIONS LTD.
By: /s/ Marc L. Bailin
Marc L. Bailin
Secretary, General Counsel &
Member of the Board of Directors
& Compensation Committee
EXECUTIVE
/s/ Laurence A. Lancit
Laurence A. Lancit
c:50090\lancit2.emp
<PAGE>
EXHIBIT 10.2
Employment Agreement with Cecily Truett
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of October, 1995 (the "Effective
Date") by and between LANCIT MEDIA PRODUCTIONS, LTD., a New York corporation
with offices at 601 West 50th Street, New York, New York 10019 (hereinafter the
"Company"), and CECILY TRUETT, residing at 5 Meade Lane, Chappaqua, New York
10514 (hereinafter the "Executive"). In consideration of the mutual promises and
agreements herein contained, the parties hereto agree as follows:
I. Employment. The Company agrees to continue the
Executive in its employ and the Executive agrees to remain in the
employ of the Company, for the period stated in Paragraph 3
hereof and upon the other terms and conditions herein provided.
<PAGE>
2. Position and Responsibilities of Executive. The Executive agrees
to serve as Chairman of the Board of Directors of the Company for the period for
which she is and shall from time to time be elected, and as Chief Executive
Officer of the Company for the term of this Agreement. The Executive shall be
responsible for the general management of the affairs of the Company and all of
its subsidiaries (hereinafter collectively referred to as the "Corporate
Group"), reporting directly to the Board of Directors of the Company. The
Executive also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Company; provided that any such office is of the
same general character and of at least the same degree of responsibility as the
offices of the Company that she shall hold as of the Effective Date.
3. Term of Employment. The period of the Executive's employment shall
be deemed to commence on the Effective Date and shall continue for three (3)
years thereafter. This Agreement may be extended for an additional period of
three (3) years by mutual written consent. In the event that the Executive
continues in the full time employ of the Company upon expiration of this
Agreement, such continued employment shall be governed by the terms and
conditions of this Agreement.
4. Duties of Executive. The Executive agrees to devote her full
working time and efforts to the business and affairs of the Corporate Group.
Except as otherwise provided in Paragraph 12 below, nothing contained in this
Agreement shall be construed to prevent the Executive from making investments of
any character in any business. If the Executive is elected or appointed a
director of the Company during the term of this Agreement, the Executive will
serve in such capacity without further compensation.
5. Compensation and Reimbursement of Expenses.
A. Base Salary. As compensation for services
rendered to the Corporate Group pursuant to this Agreement, the Executive shall
be paid compensation at the annual base rate (the "Base Salary") of $150,000 per
year during the first year of this Agreement. For each subsequent year of this
Agreement, effective on each October 1 after the Effective Date, the Base Salary
shall be increased as determined by the Board of Directors; provided, however,
that such Base Salary shall not be less than the amount obtained by multiplying
$150,000 by the percentage obtained by dividing the Consumer Price Index (CPI-U)
for New York City, as published by the U.S. Department of Labor (or, if
publication of that index is terminated, any substantially equivalent successor
index), for the September preceding the effective date of such increase, by such
Consumer Price Index for the month of September 1995.
B. Bonus. The Company has adopted an Incentive Bonus Plan
whereby officers of the Company as a group shall receive a bonus of five percent
(5%) of pre-tax income (before bonus) provided that (i) the Company's pre-tax
income (before bonus) in any given fiscal year is at least $250,000; (ii) in
such fiscal year, the Company's net income per share is at least $0.5 per share
(adjusted for stock splits and stock dividends on a full diluted basis); and
(iii) the net income in such fiscal year exceeds the net income in the
immediately preceding fiscal year. The amount of any bonus to be paid to the
Executive which may be available for distribution pursuant to such Incentive
Bonus Plan in any year of this Agreement shall be determined by the Board of
Directors of the Company.
C. Additional Compensation.
(1) The Company shall pay to the Executive,
as additional compensation, an amount equal to the annual premiums paid with
respect to a $1,000,000 term and a $200,000 universal life insurance policy
maintained by the Executive on her life with the insurance company of her
choice. Such compensation shall be paid upon presentation to the Company by the
Executive of the premium invoice received from the insurer providing such life
insurance coverage.
(2) The Company acknowledges that the
Executive has provided and may continue to provide services to the Company as a
writer or in some capacity other than as the Chairman of the Board and Chief
Executive Officer of the Company which services fall under the jurisdiction of a
guild in which Executive is a member and with which the Company is a signatory
to such collective bargaining agreement. In such instances, the Executive shall
be entitled to such additional compensation for services rendered in connection
with specific projects undertaken on behalf of the Company as may be required by
the applicable collective bargaining agreement from time to time, and shall be
entitled to retain such intellectual property rights with respect to such
projects as are required by such guild to be retained. Such compensation and
intellectual property rights shall be set forth in a separate agreement with
respect to each project for which the Executive provides such services which are
subject to the jurisdiction of such guild. The Executive's rights to such
additional compensation and to royalties with respect to any such intellectual
property rights retained by her shall survive any termination of this Agreement
and shall be governed by such separate agreements and the applicable collective
bargaining agreement.
(3) The Executive shall also be provided
with a leased vehicle and a cash allowance such that the total payments do not
exceed $1,500 per month.
D. Reimbursement of Expenses. The Company
shall reimburse the Executive for all reasonable expenses of
travel, telephone, entertainment or otherwise incurred by the
Executive in connection with and on behalf of the business of the
Company upon presentation of appropriate receipts, vouchers or
itemizations of expenses.
6. Participation in Benefit Plans. The Executive shall be entitled to
benefits in accordance with Company policy and shall participate, to the extent
she is eligible under the terms and conditions thereof, in any bonus, pension,
profit-sharing, retirement, hospitalization, insurance, medical service, or
other employee benefit plan, including disability insurance, generally available
to the employees of the Company, which may be in effect from time to time during
the period of her employment hereunder. The Company shall be under no obligation
to continue the existence of any such employee benefit plan, except that the
Company shall, in all instances, and upon the written request of the Executive,
provide basic health and major medical insurance coverage to the Executive at no
cost to the Executive.
7. Benefits Payable Upon Disability. If the Executive's employment is
terminated by the Company pursuant to Paragraph 8.B due to disability, she shall
be entitled to one hundred percent (100%) of her Base Salary for the first six
(6) months following such termination of her employment, seventy-five (75%) for
the next three (3) months, and fifty percent (50%) for the next three (3)
months, less such benefits or compensation payable to the Executive by reason of
State, Federal, Social Security, disability, worker's compensation or comparable
government benefits and such policies of disability insurance procured by the
Company. The foregoing periods of disability during which compensation shall be
paid constitute aggregate periods during the full term of this Agreement and the
Executive shall continue to receive benefits in accordance with Paragraph 6
during such periods.
8. Termination of Employment.
A. Termination on Expiration of Agreement Term. If the term of this
Agreement expires and the Company does not agree to extend the Agreement for an
additional three (3) year term as provided in Paragraph 3 or enter into a new
employment agreement or otherwise continue the Executive in the employ of the
Company in a substantially similar position, the Executive shall be entitled to
severance of one year of Base Salary at the rate that would have applied had the
Agreement continued in effect for such year.
B. Termination for Cause. The Company may terminate the
Executive's employment at any time for cause, in which case the Executive shall
not be entitled to any severance pay. As used herein, "cause" shall mean (a)
conviction of any felony or crime of moral turpitude; (b) repeated intoxication
by alcohol or drugs preventing the performance of the Executive's duties; (c)
material misuse of the funds or assets of any member of the Corporate Group,
embezzlement or willful and material misrepresentation or concealment in any
report submitted to the Company's Board of Directors; (d) willful failure to
comply with directives of the Board of Directors relating to a material aspect
of the Company's business; (e) a material breach of the terms of this Agreement
by the Executive which the Executive does not cure upon notice by the Board of
Directors; or (f) physical or mental incapacity of the Executive that prevents
her from performing her duties for a period of ninety (90) consecutive days or
more. The Company shall provide written notice to the Executive describing the
state of affairs or facts deemed by the Board of Directors to constitute such
cause and the Executive shall have thirty (30) days after receipt of such notice
to cure the reason constituting cause except with respect to events set forth in
(a), (b), and (c) above. If the cause for termination is an event set forth in
(a), (b), or (c) above, or if such cause is some other event and the Executive
does not cure such cause to the satisfaction of the Board of Directors within
thirty (30) days after receiving notice, the Board of Directors may immediately
terminate the Executive's employment.
C. Termination Without Cause by Company. The Company shall have
the right to terminate the employment of the Executive without cause upon sixty
(60) days written notice to the Executive. In the event of such a termination,
the Executive shall continue to receive her Base Salary as if she had continued
in the employment of the Company for the longer of (i) the duration of the term
of this Agreement or (ii) twelve months from the date of termination of
employment.
D. Other Events of Termination. Upon the occurrence of an Event
of Termination during the term of this Agreement, the provisions of this
Paragraph 8 D shall apply, and the Executive shall have the right to terminate
her employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within three (3) months (except in the case of a
continuing breach) of the occurrence of the Event of Termination. An Event of
Termination shall mean and include: (a) the failure to elect or reelect or to
appoint or reappoint, as the case may be, the Executive to the offices of
Chairman of the Board of Directors or Chief Executive Officer of the Company;
(b) a material change by the Company in the Executive's function, duties, or
responsibilities which change would cause the Executive's position with the
Company to become of less dignity, responsibility, importance, or scope from the
position and attributes thereof described in Paragraph 2 of this Agreement, and
any such material change shall be deemed a continuing breach of this Agreement;
or (c) any other material breach of this Agreement by the Company. If the
Executive elects to terminate her employment subsequent to an Event of
Termination, in the manner described above, she shall continue to receive from
the Company the full amount of her Base Salary for the longer of (i) the
duration of the term of this Agreement or (ii) twelve months from the date of
termination, as if she had remained in the employ of the Company.
E. Termination of Employee. Except as provided
above, the Executive may not terminate this Agreement. If the
Executive breaches or seeks to terminate this Agreement the
Executive shall be entitled to only the Base Salary as set forth
in Paragraph 3.A actually accrued but unpaid hereunder.
F. Termination After a Change of Control.
(1) For the purpose of this Agreement, a
"Change in Control" shall mean any of the following events:
(a) a change in control of a nature that
would be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"); provided that, without limitation, such a change in control
shall be deemed to have occurred if any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the Company, an
employee benefit plan (or a trust forming a part thereof) maintained by a member
of the Corporate Group, or the Executive, her husband or a member of her
immediate family, is or become the "beneficial owner" (as defined in Rule 13d-3
of the Exchange Act), directly or indirectly, of securities of the Company
representing 50.1% or more of the combined voting power of the Company's then
outstanding securities.
(b) Approval of the Company's shareholders
of: (1) a merger, consolidation or reorganization involving the Company (a
"Transaction"), unless (i) stockholders of the Company, immediately before such
Transaction, own directly or indirectly immediately following such Transaction,
at least a majority of the combined voting power of the outstanding voting
securities of the corporation resulting from such Transaction (the "Surviving
Corporation") in substantially the same proportion as their ownership of the
voting securities immediately before such Transaction, (ii) the individuals who
were members of the incumbent board immediately prior to the execution of the
agreement providing for such Transaction constitute at least a majority of the
members of the board of directors of the Surviving Corporation, and (iii) no
Person (other than a member of the Corporate Group, an employee benefit plan (or
any trust forming a part thereof) maintained by a member of the Corporate Group
or the Surviving Corporation, the Executive, her husband or a member of her
immediate family, or any Person who, immediately prior to such Transaction had
Beneficial Ownership of 50.1% or more of the then outstanding voting securities
of a party to the Transaction) has Beneficial Ownership of 50.1% or more of the
combined voting power of the Surviving Corporation's then outstanding voting
securities, or (2) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
member of the Corporate Group).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than 50.1% of the outstanding voting securities as
a result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition, the Subject Person becomes the Beneficial Owner of any
additional Voting Securities which increases the percentage of the outstanding
Voting Securities Beneficially Owned by the Subject Person, then a Change in
control shall occur.
(2) The Executive shall have the right to terminate her
employment, for any reason, on ninety (90) days written notice to the Company in
the event of a Change in Control; provided, however, that such termination right
must be exercised by the Executive within one year following such Change in
Control.
(3) In the event the Executive terminates her employment
pursuant to this Paragraph 8.F, the provisions of Paragraph 12 shall not apply
after the date of such termination.
(4) In the event the Company terminates the Executive's
employment for any reason other than for cause within one year of a Change in
Control, the Company shall pay the Executive the greater of (a) one times her
then existing Base Salary, or (b) the balance of his Base Salary due for the
duration of the term of this Agreement in one lump sum payment within ten (10)
days of the date of such termination. In such event, the provisions of Paragraph
12 shall not apply after the date of such termination.
9. Consent for Key Man Insurance. The Executive
hereby consents that the Company shall have the right to maintain
a policy of insurance on the life of the Executive in the
principal amount of up to $3,000,000 and to designate the
beneficiary thereof.
10. Disclosure of Confidential Information. The Executive recognizes
and acknowledges that certain information is proprietary to and confidential
with the Company and the Corporate Group, including without limitation the
following: the Company's and the Corporate Group's strategic and/or business
plan, pending projects, projects in development, acquisition targets at both the
individual project and corporate level, co-production arrangements, joint
ventures, funding sources, distribution arrangements, the contacts at such
entities and the financial terms of such agreements with the Company and/or the
Corporate Group (collectively, "Confidential Information"). The Executive will
not directly or indirectly, on behalf of herself or others, during or at any
time after the termination of her providing services hereunder, irrespective of
time, manner or reason for termination, disclose, publish, disseminate or
utilize such Confidential Information, or any part thereof except in furtherance
of the business of the Company or another member of the Corporate Group. The
Executive will not remove or duplicate in any manner at any time any lists or
other records, or any parts thereof, concerning the Company's Confidential
Information and upon termination of her employment will return to the Company
any and all lists and records concerning the Company's Confidential Information
thereof in her possession.
11. Non-Disclosure of Trade Secrets. The Executive recognizes and
acknowledges that she will be given and have access to the confidential methods,
techniques, trade secrets, procedures, materials and confidential information of
the Company. The Executive will not, directly or indirectly on behalf of herself
or others, during or at any time after the termination of her providing services
hereunder, irrespective of time, manner of cause of termination, disclose,
publish, disseminate or utilize same or any portion of same.
12. Non-Competition. During the term of this Agreement and, unless
there is a breach of this Agreement by the Company, for a period equal to the
longer of (i) twelve (12) months after the termination of this Agreement, or
(ii) such period during which the Executive is receiving payments from the
Company pursuant to Paragraphs 8 A, C, D or F, the Executive shall not, without
the prior written consent of the Company, either separately or in association
with others, directly or indirectly:
A. Establish, engage in, or become interested in (whether as an
owner, stockholder, partner, lender or other investor, director, officer,
employee, consultant, advisor, agent or otherwise) any business or enterprise
that is, at the time, competitive with any substantial part of the business
conducted by the Company or any other member of the Corporate Group. Mere
passive ownership of not more than five percent (5%) of the outstanding voting
securities of any class of any corporation that is listed on a national
securities exchange or traded in the over-the-counter market, shall not be
considered a breach of this Section; or
B. Attempt to interfere with or induce any employee of the
Company or any other member of the Corporate Group to leave the employment of
the Company or such other member of the Corporate Group.
13. Remedies in the Event of Executive's Breach. In view of the
unique quality of her services to the Company and the fact that the Company's
business heavily depends upon compliance with the provisions Paragraphs 10, 11
and 12 of this Agreement, the Executive acknowledges that the remedies of the
Company at law for breach by the Executive of any of said provisions will be
inadequate and the Executive agrees that the Company shall be entitled to
injunctive relief or a decree of specified performance without the necessity of
proving irreparable damages in the event of a breach or threatened breach by the
Executive of the provisions of this Agreement. In the event, pursuant to action
of any administrative, judicial or other governmental body having jurisdiction,
the operation of any of the provisions of Paragraphs 10, 11 and 12 of this
Agreement shall be deemed to be unlawful or otherwise unenforceable, then the
coverage of such provisions shall be deemed to be restricted as to duration,
geographical scope or otherwise to the extent, and only to the extent, necessary
to make such provisions lawful and enforceable in the particular jurisdiction in
which such adjudication is made. Nothing herein shall be construed to prohibit
the Company from pursuing any other legal or equitable remedies available to it
for such breach, including the recovery of damages from the Executive.
14. Severability. In the event any of the terms or provisions of this
Agreement are found to be invalid, void or voidable for any reason whatsoever,
such finding will not affect the remaining terms and provisions of this
Agreement and they shall remain in full force and effect.
15. Governing Law. This Agreement shall be governed
in all respects by the laws of the State of New York.
16. Notices. Any notice required or given under this Agreement shall
be sufficient if in writing and sent by registered mail or certified mail to the
Executive or to the Company's vice-president of legal and business affairs at
the respective addresses hereinabove set forth or to such other addresses as any
of the parties hereto may designate in writing, transmitted by registered or
certified mail to the other.
17. Entire Agreement; Waiver; Modification. This Agreement contains
the entire agreement between the parties hereto and supersedes all prior
employment agreements and understandings relating to the subject matter hereof.
Except where specific time limits are herein provided, no delay on the part of
either party hereto in exercising any power or right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any other power or
right. No waiver, modification, or amendment of this Agreement or any provision
hereof, shall be enforceable against either party hereto unless in writing,
signed by the party against whom such waiver, modification or amendment is
claimed, and with regard to any waiver, shall be limited solely to the one
event.
18. Successors and Assigns. If the Company shall at any time be
merged or consolidated into or with any other corporation or corporations and
this Agreement is not terminated pursuant to the provisions of Paragraph 8.F
hereof, then the provisions of this Agreement shall be binding upon, enforceable
against, and inure to the benefit of, the corporation resulting from such merger
or consolidation and this provision shall be recurring and shall apply in the
event of any and each subsequent merger or consolidation. The rights, privileges
and benefits of the Executive under this Agreement shall not be transferred or
assigned and the Company shall not transfer or assign any of its rights,
privileges or benefits hereunder, save and except as a consequence of, or in
connection with, the merger of consolidation thereof into or with any other
corporation or corporations. This Agreement shall inure to and be binding upon
respective legatees, heir, successors, permitted assigns and legal
representatives of the parties hereto.
<PAGE>
19. Gender and Number. The gender and number used in this Agreement
are used as a reference term only and shall apply with the same effect whether
the parties are of the masculine or feminine gender, corporate or other form,
and the singular shall likewise include the plural.
20. Captions. The captions or headings of the
Paragraphs are inserted only as a matter of convenience, and in
no way define, limit or in any other way describe the scope of
this Agreement or the intent of any provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
LANCIT MEDIA PRODUCTIONS LTD.
By: /s/ Marc L. Bailin
Marc L. Bailin
Secretary, General Counsel &
Member of the Board of
Directors & Compensation Committee
EXECUTIVE
/s/ Cecily Truett
Cecily Truett
c:50090\truett2.emp
EXHIBIT 10.18
Consulting Agreement with Walden Partners, Ltd.
LANCIT MEDIA PRODUCTIONS, LTD.
CONSULTING AGREEMENT
Agreement (the "Agreement") dated as of the 20th day of October, 1995 (the
"Effective Date") between LANCIT MEDIA PRODUCTIONS, LTD., a New York corporation
and its subsidiaries and affiliates (collectively, the "Company"), and WALDEN
PARTNERS, LTD., a New York corporation ("Consultant").
WHEREAS, the Company is engaged in the acquisition and development of
properties for and the production of "franchise"-based television series and
made-for-television and feature motion pictures for children and family-oriented
audiences and desires to obtain regular and customary consulting advice relating
to the Company's internal operations, corporate transactions and the financial
markets;
WHEREAS, Consultant is engaged in the business of providing
such advisory services;
WHEREAS, the Company wishes to retain Consultant and Consultant wishes to
participate in the development and growth of the Company, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the mutual premises set forth above
and the covenants set forth herein, the parties hereto agree as follows:
1. Purpose. For the Term (as defined in Section 2 below) and upon the
terms and conditions set forth herein, the Company engages Consultant to provide
consulting advice to the Company on financial, operational and any other
matters, and Consultant accepts such engagement.
2. Term. The period of the Consultant's engagement hereunder by the
Company (the "Term") shall run from the Effective Date until October 31, 1996,
unless this Agreement is terminated earlier in accordance with the provisions of
Section 7 hereof.
3. Duties. (a) During the Term, Consultant shall provide the Company with
such regular and customary consulting advice as is reasonably requested by the
Company. It is understood and acknowledged by the parties that the value of
Consultant's advice is not readily quantifiable, and that Consultant shall be
obligated to render advice upon the reasonable request of the Company, in good
faith, but shall not be obligated to spend any minimum or maximum amount of time
in so doing. Consultant's duties shall include, at the reasonable request of the
Company, but will not necessarily be limited to, providing recommendations
concerning the following financial and related matters:
A. Providing advice with regard to the Company's internal
operations, including:
1. the formulation of the Company's goals and their
implementation;
2. the Company's financial structure and its
divisions or subsidiaries; and
3. the Company's organization and personnel.
B. Providing advice with regard to any of the following
corporate finance matters:
1. changes in the capitalization of the Company;
2. changes in the Company's corporate structure;
3. redistribution of shareholdings of the Company's
stock;
4. offerings of the Company's securities in public
transactions;
5. sales of the Company's securities in private
transactions;
6. alternative uses of the Company's assets;
7. structure and use of debt by the Company; and
8. alternate methods for the Company to compensate
employees.
C. Providing advice regarding the presentation and
dissemination of information about the Company to the
investment community at large;
D. Providing advice and assistance in connection with the
preparation of annual and interim reports and press
releases;
E. Assisting in the Company's financial public relations;
and
F. Arranging, on behalf of the Company, at appropriate
times, meetings with brokers, fund managers and large
investors.
(b) In addition to the foregoing, Consultant shall furnish advice to the
Company as reasonably requested by the Company in connection with (i) any
acquisition and/or merger of or with other companies, divestiture or other
similar transaction, or sale of the Company itself (or any significant
percentage of its securities or assets, subsidiaries or affiliates), and (ii)
bank financings or any other financing from financial institutions (including
but not limited to lines of credit, performance bonds, letters of credit or
loans).
(c) Consultant shall render such other financial advisory and investment
and/or investment banking advisory services as may from time to time be agreed
upon by the Company and Consultant.
(d) Nothing contained in this Agreement shall require the Company to
request the advice of Consultant on any matters referred to in subsection (a)
above or any other services from Consultant, and the Company may at any time and
from time to time, in its sole discretion, obtain such advice or other services
from any other person whatsoever.
4. Compensation. The Company shall pay Consultant a fee of Ten Thousand
and 00/100 Dollars ($10,000.00) per annum, which shall be payable in equal
monthly installments of $833.34 on the first business day of each month during
the Term, beginning on November 1st, 1995. As additional compensation for
Consultant's services hereunder, the Company has granted to Consultant an option
(the "Option") under Lancit Media Productions, Ltd. 1990 Stock Option Plan, as
amended (the "Plan"), to purchase 13,400 shares (the "Option Shares") of the
Company's common stock, par value $0.001 per share (the "Common Stock"), at a
per share exercise price equal to the "fair market value" (as defined in Section
5(A)(i) of the Plan) of a share of the Common Stock on the Effective Date. The
option shall expire at midnight, New York City time, on October 20, 2000 (the
"Expiry Date"), or prior thereto in accordance with the provisions of the Plan;
provided, however, that, notwithstanding anything to the contrary contained in
the Stock Option Agreement dated as of October 20, 1995, between the Company and
the Consultant, if at any time prior to October 20, 1996, this Agreement shall
be terminated either (i) by the Consultant pursuant to the provisions of Section
7 hereof or (ii) by the Company pursuant to the provisions of Section 7 hereof
because John R. Costantino is no longer an employee of the Consultant, then the
number of Option Shares subject to purchase upon exercise of the Option shall be
reduced by the product (rounded to the nearest whole number) of (x) 13,400 and
(y) a fraction, the numerator of which shall be the aggregate number of days
from and including the date of such termination of this Agreement through and
including October 19, 1996, and the denominator of which shall be 365. The
Option shall continue in effect until the Expiry Date with respect to the
balance of the unpurchased Option Shares.
5. Expenses. The Company shall promptly reimburse, or cause to be
reimbursed, Consultant for all reasonable and customary out-of-pocket expenses
incurred by Consultant during the Term in the performance of its duties
hereunder, against receipt of appropriate documentation of such expenses when
claiming reimbursement, which documentation shall be submitted no less often
than on a quarterly basis; provided that any single expense either (i) in excess
of $250.00 or (ii) which, during any three month period, when added to all other
expenses during such period, shall in the aggregate exceed $500, shall be
approved in advance by the Company.
6. Non-Disclosure Covenant. (a) Consultant shall not, at any time during
the Term or thereafter, communicate or disclose to any person other than the
Company, or use, directly or indirectly, for its own account or benefit, without
the prior written consent of the Company, any data, written materials, records,
documents or other information relating to the Company which is of a
confidential or proprietary nature or which Consultant acquired by virtue of
work performed for the Company; provided, however, that notwithstanding the
foregoing, this paragraph shall not apply to publicly available information or
information otherwise lawfully obtained.
(b) Consultant acknowledges that the Company will have no adequate remedy
at law if the Consultant violates the terms of this Section. In such event, the
Company shall have the right, in addition to any other rights it may have, to
obtain injunctive relief to restrain any breach or threatened breach of this
Section.
7. Termination. (a) This Agreement may be terminated (i) by either the
Company or Consultant upon not less than thirty (30) days prior written notice
to the other party, or (ii) in the event that John R. Costantino shall no longer
be an employee of Consultant for any reason, by the Company, at its sole option,
immediately upon written notice to Consultant. Termination of this Agreement
shall be effective on the date set forth in such notice as the termination date
(the "Termination Date"), provided that, in connection with any termination
pursuant to clause (i) hereof, the required advance notice has been provided.
(b) In the event of any termination of this Agreement, either by
Consultant pursuant to clause (i) of subsection (a) of this Section 7, or by the
Company pursuant to clause (ii) of subsection (a) of this Section 7, Consultant
shall be entitled to compensation only for its services up to and including the
Termination Date in accordance with the provisions of Section 4.
8. Independent Contractor. Nothing contained herein shall be construed as
creating an employer-employee relationship between the Company and Consultant,
and Consultant shall at all times during the Term provide its services hereunder
to the Company as an independent contractor. It is expressly understood and
agreed by the parties hereto that Consultant shall have no authority to act for,
represent or bind the Company in any manner, except as may be agreed to
expressly by the Company in writing from time to time.
9. Miscellaneous. (a) This Agreement contains the
entire agreement and supersedes all prior agreements and
understandings, oral or written, between the parties hereto with
respect to the subject matter hereof. This Agreement may be
modified or amended only by a written instrument signed by each
of the parties hereto.
(b) Any notice or communication permitted or required hereunder shall be
in writing and shall be deemed sufficiently given if hand-delivered or sent
postage prepaid by registered certified mail, return receipt requested, to the
respective parties as set forth below, or to such other address as either party
may notify the other in writing:
====================================================================
If to the Company to: Lancit Media Productions, Ltd.
601 West 50th Street
New York, New York 10019
Attn: Vice President,
Legal and Business
Affairs
====================================================================
with a copy to: Marc Bailin, Esq.
Rubin, Bailin, Ortoli, Abady &
Fry, P.C.
405 Park Avenue
New York, NY 10022
====================================================================
If to Consultant, to: Walden Partners, Ltd.
150 E. 58th Street
New York, NY 10155
Attn: John R. Costantino
====================================================================
(c) This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors and assigns.
(d) The headings contained in this Agreement are for reference purposes
only and shall not affect the construction or interpretation of this Agreement.
(e) The invalidity of all or any part of any section or paragraph of this
Agreement shall not render invalid the remainder of this Agreement or the
remainder of such section or paragraph. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
(f) This Agreement may be executed in any number of counterparts, each of
which shall, when executed, be deemed to be an original, but all of which
together shall constitute one and the same instrument.
(g) This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of New York, applicable to agreements made and
to be performed wholly within such jurisdiction.
(h) Any dispute or controversy arising between the Company and Consultant
under this Agreement shall be submitted to arbitration before a single
arbitrator appointed in accordance with the rules of the American Arbitration
Association in New York, New York. The arbitration proceedings shall be
conducted in accordance with the rules of such Association and the decision of
the arbitrator shall be final and binding upon the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
WALDEN PARTNERS, LTD. LANCIT MEDIA PRODUCTIONS, LTD.
(Employer I.D. #13-3651788)
By: /S/ John R. Costantino
John R. Costantino
By: /S/ Laurence A. Lancit
Laurence A. Lancit
<PAGE>
EXHIBIT 10.19
Stock Purchase Agreement with Discovery Communications, Inc.
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of September 25, 1996 (this
"Agreement"), between DISCOVERY COMMUNICATIONS, INC., a Delaware corporation
("DCI") and LANCIT MEDIA PRODUCTIONS, LTD., a New York corporation (the
"Company").
R E C I T A L S
DCI is engaged in the business of, among other things, owning
and operating certain cable television channels;
The Company is engaged in the business of acquiring, developing,
and producing television series and made-for-television and feature motion
pictures for children and family-oriented audiences and exploiting subsidiary
and ancillary rights derived therefrom, including without limitation,
merchandising and licensing rights;
C. The Company desires to sell, and DCI desires to
purchase, shares of $.001 par value common stock issued by the
Company ("Common Stock") on the terms and conditions contained
herein; and
D. Simultaneously with entering into this Agreement, the parties
hereto are entering into a Production Output Agreement (the "Output Agreement"),
a copy of which is attached hereto as Exhibit 1.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
The Closing
(a) Purchase and Sale of Stock. Subject to the terms and
conditions of this Agreement, the Company shall issue and sell to DCI, and DCI
shall purchase 438,116 shares of Common Stock (the "Purchased Shares") and
Warrants (as defined in Section 2 of this Agreement) to purchase shares of
Common Stock as set forth in Section 2.
(b) Closing. The closing of the sale and purchase of the Shares
and the Warrants (the "Closing") shall take place on the later of September 27,
1996, or the Effective Date (as defined herein). The date of such Closing is
hereinafter referred to as the "Closing Date."
(c) Purchase Price. The purchase price to be paid by DCI to the
Company for the Shares and the Warrants shall be Five Million Dollars
($5,000,000) (the "Purchase Price"), which shall be paid at Closing by wire
transfer of immediately available funds to an account designated by the Company.
Section 2. Stock Warrants
(a) Granting of Warrants. At Closing, the Company shall issue
transferable warrants (the "Warrants") to DCI to purchase 438,116 shares of
Common Stock (the "Warrant Shares"), at an exercise price of thirteen dollars
($13.00) per share,
<PAGE>
exercisable at any time during the forty-eight (48) month period
commencing on the Closing Date.
B. Form of Warrants. Warrants shall be
substantially in the form attached as Exhibit A hereto.
III. Representations and Warranties of the Company.
The Company hereby represents, warrants, covenants and
agrees as follows:
A. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York, and is duly
licensed or qualified and in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased, used or operated by it or the
nature of the business conducted by it require it to be so qualified except for
such failures to be so licensed or qualified which, individually or in the
aggregate, have not had and will not have a material adverse affect on the
condition (financial or other), assets, liabilities, results of operations,
business or prospects of the Company or a material adverse effect on the ability
of the Company to perform its obligations hereunder or under the Output
Agreement. True and complete copies of the Certificate of Incorporation of the
Company and all amendments thereto (the "Certificate of Incorporation") and the
By-Laws of the Company and all amendments thereto (the "By-Laws"), certified by
the Secretary or Assistant Secretary of the Company, have been furnished to DCI.
Each of such documents is in full force and effect in the respective form
delivered to DCI. The minute books of the Company accurately and fairly reflect
all meetings of, and contain true and complete originals of all written consents
in lieu of meetings executed by, the Board of Directors (and all committees
thereof) and shareholders of the Company. All material actions and transactions
taken or entered into by the Company or otherwise requiring action by its Board
of Directors or shareholders have been duly authorized or ratified as necessary
and are evidenced in such minute books. The stock certificate books and stock
records of the Company are true and complete.
B. The Company has full corporate power and authority to own,
lease and operate the properties now owned, leased or operated or proposed to be
owned, leased or operated by it, as and in the places where such properties are
now or are proposed to be owned, leased or operated, and to carry on its
business as and in the places as such business now is or is proposed to be
conducted.
C. The authorized capital stock of the Company consists of
15,000,000 shares of Common Stock of which (prior to giving effect to the
transactions contemplated by this Agreement) 6,188,634 are outstanding. All of
the issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable. All of the Purchased
Shares, Warrant Shares and Additional Shares (as defined in Section 7) when
issued will be duly authorized and validly issued and outstanding, fully paid
and nonassessable and free and clear of any liens, pledges, options,
encumbrances, charges and claims of any kind except for any of the foregoing
resulting from any actions or inactions on the part of DCI upon the acquisition
thereby. (The Purchased Shares, Warrant Shares and Additional Shares referred to
hereinafter collectively as "Shares".)
D. Except as set forth on Schedule 3(d) hereto and except as
contemplated by this Agreement in favor of DCI, there are no outstanding
securities convertible into or exchangeable for shares of Common Stock, or
rights, options or warrants to purchase Common Stock or such convertible or
exchangeable securities or rights, options or warrants or any agreements,
arrangements or understandings to issue any of the foregoing (collectively,
"Rights"). There are no agreements or understandings of any kind to which the
Company is a party or by which it is bound relating to the redemption or
repurchase of any shares of Common Stock. Except as set forth on Schedule 3(d)
hereto and for this Agreement with respect to DCI, there are no voting trust or
other arrangements, agreements or understandings with respect to the ownership,
transfer, registration or voting of Common Stock.
E. The Company has full corporate power and authority to make,
execute, deliver and perform this Agreement and the Output Agreement. This
Agreement and the Output Agreement have each been duly executed and delivered by
the Company. The execution, delivery and performance by the Company of this
Agreement and the Output Agreement, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement and the Output
Agreement each constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its respective
terms, except that (i) such enforceability may be subject to bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights, and (ii) the
remedy of specific performance and injunction and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. (f) None of the execution
or delivery of this Agreement or the Output Agreement, the performance by the
Company of the terms hereof or thereof, or the consummation of the transactions
contemplated hereby or thereby (i) will result (upon notice, with lapse of time
or otherwise) in a breach of the terms or conditions of, a default under, a
conflict with, or the acceleration of (or the creation in any individual,
corporation, partnership, limited liability company, trust, governmental agency
or other entity (each, a "Person") any right to cause the acceleration of) any
performance or any increase in any payment required by, or the termination,
suspension, modification, impairment or forfeiture (or the creation in any
Person of any right to cause the termination, suspension, modification,
impairment or forfeiture) of any rights or privileges of the Company under, the
Certificate of Incorporation, the By-Laws, any material agreement, instrument or
undertaking, any award, order, writ, decree, injunction or judgment of, or any
stipulation entered into in connection with any action or proceeding before, any
court, arbitrator or administrative or regulatory authority (collectively,
"Judgments") or regulatory or other restriction or obligation to which the
Company is a party or by which the Company or its properties, assets or business
may be bound or affected, (ii) will result (upon notice, with the lapse of time
or otherwise) in the creation, imposition or right to exercise or foreclosure of
a lien, charge, security interest, option, equity, claim or other encumbrance of
any nature whatsoever (collectively, "Liens") upon or in any of the Shares, or a
material Lien upon any of the assets or properties of the Company or (iii) does
or will conflict in any material respect with, or result in any material
violation of, any ordinance, statute, law, rule or regulation (collectively
"Laws") applicable to the Company or by which the Company or its properties,
assets or business may be bound or affected. There are no restrictions on the
ownership, transferability or voting of the Shares imposed by the Certificate of
Incorporation or the By-Laws, by any agreement to which the Company is a party
or by any Law to which the Company is subject, except as contemplated by Section
6(a) hereof, other than the holders of stock options as described on Schedule
3(d). No Person has any preemptive rights or other rights to purchase Common
Stock or other securities of the Company with respect to or by reason of the
issuance or sale of any of the Shares, and no issuance or sale of any of the
Shares will result in the adjustment of the number or amount of shares of Common
Stock, other capital stock or other securities issuable or deliverable upon
exercise of any Rights by reason of anti-dilution or other provisions, other
than the holders of stock options as described on Schedule 3(d).
(g) The Company has heretofore furnished DCI with copies of the
audited balance sheets of the Company at June 30, 1996, 1995 and 1994 and the
statements of operations, changes in stockholders' equity and cash flows (the
"Financials") of the Company for each of the years in the three-year period
ended June 30, 1996, certified by Feldman Radin & Co., P.C., whose opinion
thereon are included therewith. The Financials (i) were prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
throughout the periods indicated and applied on a basis consistent with
preceding years, (ii) were prepared in accordance with the requirements of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"Commission") and (iii) fairly present the financial condition and the results
of operations of the Company as at the dates and for the periods indicated.
Except as and to the extent reflected, disclosed or reserved against on the
balance sheet of the Company at June 30, 1996 (the "Balance Sheet"), the Company
did not have, as of the date of the Balance Sheet, any debt, liability or
obligation of any nature whatsoever, whether accrued, absolute, contingent or
other, and whether due or to become due, including, without limitation, any
liability or obligation on account of taxes or other governmental charges or
penalties, interest or fines in respect thereof, which, singly or in the
aggregate, was material and which were required to be reflected on the Balance
Sheet in accordance with GAAP. Except for liabilities and obligations incurred
in the ordinary course of business since the date of the Balance Sheet, which
are not, singly or in the aggregate, material, the Company has no liabilities or
obligations, whether accrued, absolute, contingent or other, and whether due or
to become due, nor has there been any aspect of the prior or current conduct of
the business of the Company which may form the basis for any material claim by
any third party which if asserted could result in any such liabilities or
obligations, which are not fully reflected or reserved against in the Balance
Sheet. Since June 30, 1996, there has not been any change, and the Company does
not know of any development of a nature that is reasonably likely to result in a
change, in the condition (financial or other), assets, liabilities, results of
operations, business or prospects (as such prospects relate particularly to the
Company, not to business conditions generally) of the Company, other than
changes in the ordinary course of business, none of which has been or will be
(singly or in the aggregate) materially adverse. Without limiting the generality
of the foregoing, since June 30, 1996 the Company has not:
(i) except as disclosed on Schedule 3(d), issued, sold or delivered
any capital stock or other equity securities or bonds or other debt instruments,
granted any Rights or incurred, assumed or guaranteed any indebtedness for money
borrowed;
(ii) incurred or became subject to any material obligation or
liability (absolute or contingent) except current liabilities incurred, and
obligations under agreements entered into, in the ordinary course of business;
(iii) discharged or satisfied any Lien, or paid, canceled,
compromised or otherwise satisfied any obligation, indebtedness or liability
(absolute or contingent) other than the payment in the ordinary course of
business of current liabilities or incurred since the date thereof in the
ordinary course of business;
(iv) declared or made any payment of any dividend or other
distribution (whether in cash, securities, properties or otherwise) in respect
of capital stock or purchased or redeemed any capital stock or other securities
or any Rights;
(v) subdivided, combined, reclassified or
recapitalized any capital stock;
(vi) mortgaged, pledged, subjected to or suffered to exist any Lien
upon any of its assets, except the lien of current real and personal property
taxes not yet due and payable;
(vii) sold or transferred or made any disbursement or disposition of
any portion of its assets, except in the ordinary course of business, or
canceled or agreed to cancel any material debts or claims;
(viii) suffered any material loss or damage, whether or not covered by
insurance, or waived or released, or agreed to waive or release, any rights
except in the ordinary course of business;
(ix) entered into any transaction other than in
the ordinary course of business;
(x) except as set forth in Schedule 3(g) or in the ordinary course
of business (A) increased the rate of compensation payable or to become payable
by it to any of its officers, directors, agents, or employees whose base salary
(excluding any amount payable pursuant to clauses (B), (C) or (D) of this
subsection) is in excess of $75,000 per annum (hereinafter "Significant
Employees"), or (B) increased the rate of compensation payable or to become
payable to any of its employees who are not Significant Employees, except
reasonable increases consistent with past practices, or (C) granted, made or
accrued any bonus, incentive compensation, service award or other like benefit,
contingently or otherwise, to or to the credit of its officers, directors,
employees or agents, or (D) made any employee welfare, pension, retirement,
profit-sharing or similar payment or arrangement, or (E) paid any material
severance or termination pay to any officer, director, employee or agent;
(xi) added to, modified or terminated any employee benefit plans,
arrangements or practices, other than (A) contributions made in accordance with
the normal practice of the Company or (B) the extension of coverage to other
employees or agents who became eligible after the date of the Balance Sheet;
(xii) except as set forth on Schedule 3(g), terminated, rescinded,
modified, amended or renewed, or waived or released any material term, condition
or provision of, any material contract, agreement, arrangement or understanding
to which it is a party;
(xiii) except as set forth on Schedule 3(g), purchased, leased or
acquired any additional assets except in the ordinary course of the Company's
business and consistent with past practice or made any extraordinary capital or
operating expenditure, capital addition or improvement;
(xiv) changed in any material respect its
business or accounting policies or practices;
(xv) directly or indirectly made any loan to any of its officers or
directors, or any material loan, advance or other payment to its shareholders or
any Person that, directly or indirectly, controls, is controlled by or under
common control with the Company ("Affiliates") other than loans to employees for
business expenses incurred in the ordinary course; or
(xvi) entered into any contract, agreement,
arrangement or understanding to do any of the foregoing.
(h) The books of account of the Company have been maintained in
accordance with good business and accounting practices and accurately and fairly
reflect all of the properties, assets, liabilities and transactions of the
Company.
(i) Except as set forth in Schedule 3(i), the Company has good and
marketable title, in all material respects, to all of the properties and assets,
real and personal, tangible and intangible, reflected on the Balance Sheet
(except as sold or otherwise disposed of by it in the ordinary course of
business since the date of the Balance Sheet), and owns, leases or otherwise has
sufficient legal right to use all other properties and assets, real and
personal, tangible or intangible, used in or necessary for the conduct of its
business as currently conducted and as currently proposed to be conducted
(except for properties or assets the failure of which to so own, lease or have
the right to use has not and will not have a material adverse effect on the
condition (financial or other), operations, results of operations, business or
prospects of the Company), in each case free and clear of all Liens except (i)
Liens referred to in the notes to the Balance Sheet as securing specified
liabilities (with respect to which no default, event of default or event which
with or without notice or lapse of time or both would constitute a default
exists or is claimed to exist); (ii) minor imperfections of title and Liens, if
any, which are not substantial in amount, do not materially detract from the
value of the properties of the Company taken as a whole, or materially impair
the operations of the Company; and (iii) the Lien for any current real or
personal property taxes not yet due and payable.
(j) All of the real property and improvements thereon and equipment
owned or leased by the Company and which are material to the Company's
operations are adequately insured and in good condition and repair, subject to
normal wear and tear, reasonably suited for the uses intended, and, to the
knowledge of the Company, are operated in conformity with all applicable
material building, zoning, subdivision, environmental, land-use, fire and other
Laws. All material leases and licenses pursuant to which the Company is either
the lessee, lessor, licensee or licensor of any real or personal property are
valid and effective in accordance with their terms; and there is not under any
of such leases any existing or, to the Company's knowledge, claimed default or
event of default or event which with notice or lapse of time or both would
constitute a default.
(k) Except as set forth on Schedule 3(k), all notes receivable and
accounts receivable shown on the Balance Sheet and all such receivables held by
the Company on the date hereof have been and are valid and have been collected
or, to the knowledge of the Company, are collectible to the extent of the excess
thereof over any reserves for the collectibility thereof reflected on the
Balance Sheet.
(l) The Company is not indebted to any of its officers or directors,
and none of the said officers or directors has any claim of any nature against
the Company except for compensation for current pay periods and rights under the
options granted pursuant to the plans identified on Schedule 3(d) and
reimbursement for reasonable expenses incurred by such officer or director in
the ordinary course of business.
(m) The Company has complied with all of the material provisions of
all of the material commitments, contracts and agreements to which it is a
party. No material default, event of default or event which with notice or lapse
of time or both would constitute a default by the Company exists or, to the
knowledge of the Company, has been claimed to exist with respect to any material
commitment, contract or agreement to which the Company is a party and no
material default, event of default or event which with or without notice or
lapse of time or both would constitute a material default by any other party
thereto is known to or claimed by the Company to exist.
(n) The Common Stock is registered under Section 12(g), and the
Company is subject to the reporting requirements of Section 13, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and has
heretofore delivered to DCI copies, as filed with the Commission, of:
(i) its Annual Reports on Form 10-K for each of
the Company's last three fiscal years;
(ii) its Proxy Statements for each of its annual meetings of
shareholders held during the last three years and for any special meetings of
shareholders held during the last three years;
(iii) its Quarterly Reports on Form 10-Q for the
first three quarters of fiscal 1996 and any amendments
thereto; and
(iv) all Reports on Form 8-K filed since June 30, 1992. Said reports
and proxy statements include all annual, quarterly and other reports, all proxy
statements and other documents (together with the documents described on
Schedule 3(n)) filed or required to be filed by the Company with the Commission
with respect to periods after June 30, 1992 and are herein collectively called
the "SEC Reports". As of their respective dates of filing, the SEC Reports
complied as to form with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, and the Exchange Act and the rules and regulations
promulgated thereunder, and did not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
not misleading.
(o) There is no legal action, proceeding, investigation or
controversy pending or, to the Company's knowledge, threatened against or
otherwise involving the Company, any of its directors or officers, or, to the
knowledge of the Company, any of its other Affiliates, employees or agents, nor
are there any Judgments outstanding against the Company or to or by which the
Company, any of its assets or its business is or may be subject, bound or
affected. To the Company's knowledge, there is no basis for any litigation,
proceeding, investigation or controversy that, individually or in the aggregate,
would (i) have a material adverse effect on the Company, or (ii) impair the
ability of the Company to perform its obligations under this Agreement or the
Output Agreement. To the knowledge of the Company, no Judgment has been issued,
and no action, suit, proceeding or investigation has been instituted or
threatened, to set aside or modify any authorization of any of the transactions
contemplated by this Agreement or the Output Agreement or any approvals or
consents required hereunder or thereunder, or to enjoin or prevent the
consummation of any of such transactions, or seeking damages in connection with
any of such transactions or which might require DCI to divest itself of any of
the Shares or any of its assets or the Company to divest itself of any of its
assets, to cease or refrain from engaging in any business or to take or refrain
from taking any other action.
(p) The Company has complied in all respects with all applicable Laws
in respect of the conduct of its business and ownership, possession, maintenance
and operation of its properties and assets except for such non-compliances which
would not, individually or in the aggregate, (i) have a material adverse effect
on the Company, or (ii) impair the ability of the Company to perform its
obligations under this Agreement and the Output Agreement. No claims or
investigations alleging any violation by the Company of any such Laws have at
any time been made or settled. The Company is not in default with respect to any
Judgment.
(q) No consent, approval, action or authorization (collectively,
"Consents") of, or registration, declaration, filing or notice (collectively,
"Filings") with or to, any governmental or judicial authority (Federal, state or
local, domestic or foreign including, without limitation, under applicable "blue
sky" laws) or other Person is required in connection with the execution or
delivery by the Company of this Agreement or the Output Agreement or its
performance of or compliance with any of the terms, provisions and conditions
hereof or thereof or the consummation of the transactions contemplated hereby or
thereby (including, but not limited to, the issuance and delivery by the Company
to DCI, and the ownership by DCI, of the Shares), other than Filings
contemplated by Exhibit B hereto and filings required to be made by DCI pursuant
to Section 13 of the Exchange Act, each of which are not required to be made
until after the date hereof.
(r) All federal, state, county, local, foreign, payroll, withholding
and other taxes and assessments of any kind, including interest and penalties
(collectively, "Taxes"), which are due and payable by the Company or any other
corporation or legal entity which was a predecessor to the Company or which is
now or was previously owned or controlled by the Company (any such corporations
or legal entities hereinafter referred to as "Former Affiliates") have been paid
or adequate provision has been made for the payment thereof. The liabilities for
Taxes reflected on the Balance Sheet represent adequate provision, in accordance
with GAAP, for the payment of all accrued and unpaid Taxes for all periods ended
on or prior to the date of the Balance Sheet, whether or not disputed and
whether or not asserted prior to the date hereof. All federal, state, county,
local, foreign and other returns and reports of any nature for Taxes required to
be filed prior to the date hereof by the Company, or any of the Former
Affiliates have been duly filed. All Taxes shown on such returns or reports and
on assessments received have been paid to the extent that such Taxes have become
due. DCI has been furnished with access to true and complete copies of all
federal, state, county, local, foreign and other returns and reports of every
nature for Taxes required to be filed by the Company or any of the Former
Affiliates for each of the five taxable years ending on or before June 30, 1995.
Except as set forth on Schedule 3(r), no claims have been asserted against the
Company or any of the Former Affiliates which are currently unresolved for
Taxes, including interest or penalties. The federal income tax returns of the
Company and the Former Affiliates have been closed by applicable statute for all
taxable years prior to and including the taxable year ended June 30, 1992.
Except as set forth on Schedule 3(r), no adjustments were made and no unresolved
issues were raised as a result of any such examination or audit. None of the
federal income tax returns of the Company have ever been audited, there has been
no extension of any applicable statute of limitations and, to the knowledge of
the Company, none of the federal income tax returns of the Company are currently
under examination. To the knowledge of the Company neither the Internal Revenue
Service nor any state, county, local or foreign tax authority is currently
examining any returns or reports of, has issued a notice of audit or proposed
deficiency to, or assessed a deficiency against the Company or any of the Former
Affiliates for any taxable year beginning after the taxable year ending closest
to June 30, 1991. Neither the Company nor any of the Former Affiliates has
waived any statute of limitations relating to the assessment or collection of
Taxes with respect to any taxable year. All Taxes or other assessments with
respect to Taxes which the Company or any of the Former Affiliates is required
by law to withhold or collect have been duly withheld and collected and have
been paid over to the proper governmental authorities or are properly held by
the Company for such payment. Except as set forth on Schedule 3(r), there are
no, and, to the Company's knowledge after due inquiry, never have been any, tax
sharing agreements to which the Company or any of the Former Affiliates is or
was a party.
(s) The Company has not entered into any contract, agreement,
arrangement or understanding with any Person or firm which may result in the
obligation of DCI or the Company to pay, or is aware of any claim or basis for
any claim for payment, of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, other
than pursuant to agreement with Allen & Company Incorporated. The Company
covenants and agrees that all fees, commissions or other payments due or claimed
to be due to Allen & Company Incorporated shall be paid by the Company, and DCI
shall not have any liability therefor.
(t) Except as disclosed in the SEC Reports, the Company has no
material investment, whether by way of ownership of stock or other securities or
by loan, advance or otherwise, in any corporation, partnership, firm,
association or other business entity.
(u) Assuming that the representations and warranties of DCI contained
in Sections 4(a) and 4(b) hereof are true and correct, the offering, issuance,
sale and delivery of the Shares shall be exempt from the registration
requirements of the Securities Act and neither the Company, nor anyone acting on
its behalf, directly or indirectly, has sold, offered for sale, or solicited
offers to buy, or will sell, offer for sale or solicit offers to buy, any Common
Stock or other securities of the Company so as to bring the offer, issuance,
sale or delivery of the Shares as contemplated by this Agreement within the
provisions of Section 5 of the Securities Act or within the registration or
qualification provisions of any "blue sky" or securities laws of any state or
other jurisdiction.
(v) The Company is not aware that any executive, key employee or
group of employees of the Company has any plans to terminate his, her or their
employment with the Company or that any Person who is an executive or key
employee of the Company is subject to any agreement, obligation or other legal
hindrance which impedes or might impede such executive or key employee from
devoting his or her full business time to the affairs of the Company. Except as
disclosed in the SEC Reports or Schedule 3(v), the Company is not a party to any
material employment, deferred compensation, noncompetition, confidentiality or
consulting agreements. The Company has complied in all material respects with
all applicable Laws relating to the employment of labor, including, without
limitation, the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and those relating to wages, hours, collective bargaining,
unemployment insurance, workers' compensation, equal employment opportunity and
the payment and withholding of taxes, including income and social security
taxes, and has withheld (and duly segregated, deposited or paid over to the
appropriate authorities) all amounts required by Law or agreement to be withheld
from the wages or salaries of its employees and is not liable for any arrears of
wages or benefits or any taxes or penalties for failure to comply with any of
the foregoing. Except as set forth on Schedule 3(v), the Company is not a party
to any contract or agreement with any labor organization, nor has it agreed to
recognize any union or other collective bargaining unit, nor has any union or
other collective bargaining unit been certified as representing any of its
employees. The Company has no knowledge of any organizational effort currently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company. Except as disclosed in the SEC Reports or on Schedule
3(v), neither the Company nor any trade or business (whether or not
incorporated) which is under common control with the Company (an "ERISA
Affiliate") within the meaning of Section 414 of the Internal Revenue Code of
1986, as amended (the "Code"), maintains or sponsors, nor is required to make
any contribution to, and at no time has maintained, sponsored or been required
to make any contribution to, any pension, profit-sharing, thrift or other
retirement plan, medical, hospitalization, vision, dental, life, disability or
other insurance or benefit plan, deferred compensation, stock ownership, stock
purchase, stock option, performance share, bonus, fringe benefit, savings or
other incentive plan, severance plan or other similar plan, agreement,
arrangement or understanding, whether or not such plan is or is intended to be
subject to the provisions of ERISA or qualified under Section 401(a) of the
Code, including, without limitation, any "employee benefit plan" within the
meaning of Section 3(3) of ERISA, any "defined benefit plan" within the meaning
of Section 3(35) of ERISA or any "multiemployer plan" within the meaning of
Section 3(37) of ERISA. The Company does not maintain any "employee pension
benefit plans" within the meaning of Section 3(2) of ERISA or is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA. No plan or
arrangement of the Company provides medical or death benefits (whether or not
insured) with respect to current or former employees of the Company or any of
its ERISA Affiliates beyond their retirement or other termination of employment.
All employee benefits plans of the Company have been maintained and administered
in accordance with the applicable requirements of the Code and ERISA.
(w) All documents which have been or shall be delivered to DCI by or
on behalf of the Company pursuant to this Agreement or the Output Agreement, or
in connection with the transactions contemplated hereby or thereby, are or when
so delivered shall be correct, current and complete in all material respects and
in full force and effect. To the Company's knowledge, except as disclosed on
Schedule 3(w), no event has occurred and no circumstance exists which materially
adversely affects or may materially adversely affect the assets, liabilities,
business, results of operations, condition (financial or other), capitalization,
ownership or financing of the Company or the value of the Shares. Neither this
Agreement, the Output Agreement nor any other document, description, opinion,
certificate or written statement furnished to DCI pursuant thereto or hereto or
in connection with the transactions contemplated hereby or thereby, as of its
respective date, contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements contained therein not
misleading; and all of the foregoing, taken as a whole, do not, as of the date
hereof, contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein (assuming they
were made on and as of the date hereof) not misleading.
(x) All taxes and other charges payable upon or by reason of the
issuance of the Shares will be paid by the Company.
Section 4. Representations and Warranties of DCI. DCI
represents and warrants to the Company as follows:
(a) DCI will acquire the Shares solely for its own account for
investment and not with a view to, or for, sale in connection with any
distribution thereof, and DCI has no present intention to distribute, resell or
otherwise dispose of such shares or any part of them. DCI acknowledges that the
Shares have not been (or will not have been, as the case may be) registered
under the Securities Act or the securities laws of any state. The certificates
held by DCI representing the Shares acquired hereunder may bear a legend
substantially in the form set forth in Section 6(a).
(b) DCI is an "accredited investor" as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act.
(c) DCI has full corporate power and authority to make, execute,
deliver and perform this Agreement and the Output Agreement. This Agreement and
the Output Agreement have each been duly executed and delivered by DCI. The
execution, delivery and performance by DCI of this Agreement and the Output
Agreement, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action on part of
DCI. This Agreement and the Output Agreement each constitutes the legal, valid
and binding obligation of DCI, enforceable against DCI in accordance with its
respective terms, except that (i) such enforceability may be subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights, and
(ii) the remedy of specific performance and injunction and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(d) Neither the execution and delivery of this Agreement or the
Output Agreement, the performance by DCI of the terms hereof or thereof, or the
consummation of the transactions contemplated hereby or thereby (i) violates,
conflicts in any material respect with, or results in a material breach of any
provision of, or constitutes a material default (or an event which, with notice
or lapse of time or both, would constitute a material default) under, any of the
terms, conditions or provisions of (x) its Articles of Incorporation or By-Laws,
or (y) any material note, bond, mortgage, indenture, lease, agreement to other
instrument.
(e) DCI's principal place of business is located
in the State of Maryland.
(f) There are no legal actions, proceedings, investigations or
controversies pending or, to DCI's knowledge, threatened against or otherwise
involving DCI, which, individually or in the aggregate, would have a material
adverse effect on the ability of DCI to perform its obligations under this
Agreement or the Output Agreement.
(g) DCI has not entered into any contract, agreement, arrangement or
understanding with any Person or firm which may result in the obligation of DCI
or the Company to pay, or is aware of any claim or basis for any claim for
payment, of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
(h) No Consents or Filings with or to, any governmental or judicial
authority (Federal, state or local, domestic or foreign including, without
limitation, under applicable "blue sky" laws) or other Person is required to be
made by DCI in connection with the execution or delivery by DCI of this
Agreement or the Output Agreement or its performance of or compliance with any
of the terms, provisions and conditions hereof or thereof or the consummation of
the transactions contemplated hereby or thereby (including, but not limited to,
the issuance and delivery by the Company to DCI, and the ownership by DCI, of
the Shares), other than filings required to be made by DCI pursuant to Section
13 of the Exchange Act, which is not required to be made until after the date
hereof.
Section 5. Conditions Precedent to Obligations of
Parties to Close.
(a) The obligation of DCI to complete the Closing is subject to the
fulfillment of each of the following conditions, any of which may be waived by
DCI (the date of such fulfillment or waiver, the "Effective Date"):
(i) All representations and warranties of the Company contained
in this Agreement shall be true and correct as of the Closing Date with the same
force and effect as though made on and as of the Closing Date and the Company
shall have performed all agreements and covenants required by this Agreement to
be performed prior to Closing. The Company shall have delivered a certificate,
dated as of the Closing Date and signed by an executive officer of the Company,
to the foregoing effect.
(ii) The Company shall have delivered to DCI a resolution of the
Company's Board of Directors, certified by an executive officer of the Company,
approving the execution, delivery, and performance of this Agreement and the
Output Agreement.
(iii) The Company shall have delivered to DCI an opinion of
Rubin Bailin Ortoli Mayer Baker & Fry, L.L.P., counsel to the Company, in a form
reasonably acceptable to DCI.
(iv) The Company shall have delivered a duly executed
certificate representing the Purchased Shares and duly executed certificates
representing the Warrants.
(b) The obligation of the Company to complete the Closing is subject
to the fulfillment of each of the following conditions, any of which may be
waived by the Company:
(i) All representations and warranties of DCI contained in this
Agreement shall be true and correct as of the Closing Date with the same force
and effect as though made on and as of the Closing Date and DCI shall have
performed all agreements and covenants required by this Agreement to be
performed prior to Closing. DCI shall have delivered a certificate, dated as of
the Closing Date and signed by an executive officer of DCI to the foregoing
effect.
(ii) DCI shall have paid the Purchase Price in accordance with
Section 1(c).
Section 6. Legend on Stock; Registration Rights.
(a) Legend on Stock. Each certificate evidencing
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"The securities represented hereby have not been registered
under the Securities Act of 1933 and may not be sold or
otherwise disposed of without registration under such Act or an
opinion of counsel, reasonably satisfactory to the Company, that
such registration is not required. The holder hereof has certain
rights and obligations with respect to the registration of such
securities by the Company under such Act and certain other
matters as set forth in the Stock Purchase Agreement, dated as
of September 25, 1996, between the Company and Discovery
Communications, Inc. The Company will furnish a copy of such
Agreement, without charge, to each holder of the securities
represented hereby who so requests. Such request may be made to
the Secretary of the Company."
In connection with any proposed transfer of Shares, the transferee shall be
entitled to receive a stock certificate or stock certificates not containing
such legend if the transferor(s) or transferee(s) deliver to the Company either
(i) a written opinion of legal counsel, who shall be reasonably satisfactory to
the Company, addressed to the Company and reasonably satisfactory in form and
substance to the Company, to the effect that the proposed transfer may be
effected without registration under the Securities Act and applicable "blue sky"
or securities laws, or (ii) a "no action" letter from the staff of the
Commission to the effect that the proposed transfer without registration under
the Securities Act of the Shares proposed to be disposed of will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereof.
(b) Registration. DCI shall have registration rights as set forth in
Exhibit B to this Agreement (the "Registration Rights Provisions") and
incorporated herein by reference. Each of the parties hereto agrees to the terms
and provisions of the Registration Rights Provisions with the same force and
effect as though set forth at length in this Section 6(b).
Section 7. Anti-Dilution Provisions.
(a) In the event that, during the period
commencing on the Closing Date and terminating on the date that is twelve (12)
months thereafter, the Company (i) sells or issues any shares of Common Stock
for a price (including any sales commissions or underwriters' discounts) that is
less than the Share Issue Price and less than the Existing Market Price (as each
term is defined below), or (ii) enters into any agreement, arrangement or
understanding or grants any rights pursuant to which shares of Common Stock will
be issued for a total per share consideration paid or to be paid (including any
sales commissions or underwriters' discounts where such shares are sold through
an underwriter in the event that such shares are sold pursuant to an
underwritten offering) that is less than the Share Issue Price and less than the
Existing Market Price (the shares specified in clause (i) and (ii) referred to
as "Dilutive Shares"), the Company shall issue to DCI, without the payment of
any additional consideration, that number of shares of Common Stock determined
in accordance with Section 7(b) (the "Additional Shares"). For purposes of this
Agreement, "Share Issue Price" shall be eleven and 41/100 dollars ($11.41) per
share, and "Existing Market Price" shall be the average of the closing sales
prices for Common Stock as quoted on NASDAQ for the ten (10) trading days prior
to the date of such sale or issuance, or the entering into of such agreement,
arrangement or understanding or the granting of such rights, as the case may be.
(b) Subject to subsection 7(c), the total number of Additional Shares
to be issued to DCI pursuant to this Section 7(a) shall be calculated as
follows:
(i) the number of Dilutive Shares; plus
(ii) that number of shares determined by
subtracting from the Purchase Price the total consideration
paid or to be paid to acquire the Dilutive Shares and
dividing the result by the Share Issue Price; less
(iii) the number of Purchased Shares.
(c) The Company shall not be obligated to issue
any Additional Shares in excess of that number of shares determined by dividing
the Purchase Price by the Average Price Per Dilutive Share and subtracting
therefrom the number of Purchased Shares. The Average Price Per Dilutive Share
shall be calculated by the dividing the aggregate consideration received, or to
be received for all Dilutive Shares, by the number of Dilutive Shares issued or
to be issued.
(d) The provisions of this Section 7 shall not apply with respect to
the issuance by the Company of any Common Stock or Rights (i) constituting
employee compensation in connection with the hiring of such employee, or (ii)
pursuant to the employee or director stock option plans identified on Schedule
3(d).
Section 8. Rights in Future Offerings.
(a) Except as set forth in subsection (f) of this
Section 9, if on or at any time or from time to time after the Closing Date, the
Company or any subsidiary of the Company at any time or from time to time makes
any public or nonpublic offering of Common Stock or any other equity securities
of the Company or any Rights to acquire Common Stock or other equity securities
of the Company, then upon each such offering DCI shall have the preemptive right
to first be offered the opportunity to acquire such securities from the Company
for the same price and, as nearly as reasonably practicable, on the same terms
as such securities would be offered to others. DCI shall be entitled to purchase
a number of offered shares, or, in the case of Rights, a number or amount of
offered Rights for a number of shares, of the Common Stock or other equity
securities determined by multiplying the total number of such offered shares or,
in the case of Rights, the total number of such shares covered by Rights, by a
fraction the numerator of which is the number of shares of Common Stock held by
DCI and the denominator of which is the number of shares of Common Stock then
issued and outstanding (excluding shares held by the Company or any of its
subsidiaries and shares issuable upon exercise of any Rights).
(b) The Company promptly will cause to be given to DCI a written
notice of any proposed offering setting forth the terms and conditions upon
which shares or other securities are to be offered (the "Preemptive Notice").
The Preemptive Notice shall include a range, not exceeding two dollars ($2.00)
per share, at which such shares are proposed to be offered (the "Price Range").
(c) After receiving a Preemptive Notice, in order to exercise its
preemptive rights, DCI must reply in writing (the "Preemptive Reply") within
fifteen (15) days after the date of such Preemptive Notice that DCI agrees to
purchase the shares or other securities offered on the date of sale on the terms
contained in the Preemptive Notice. In the event that DCI provides a Preemptive
Reply and within ninety (90) days of the receipt of the Preemptive Reply the
Company subsequently decides to offer the shares or other securities specified
in the Preemptive Notice for a price in excess of the Price Range, the Company
shall promptly notify DCI in writing and DCI shall have five (5) days to decide
whether to purchase such shares.
(d) If DCI fails to make a Preemptive Reply in accordance with
Section 8(c), the Company shall have ninety (90) days after the expiration of
the Preemptive Reply period to issue, sell or subject to Rights, or to enter
into an agreement (pursuant to which the closing of the consummation of the
issuance, sale or subjection to Rights covered thereby shall occur within sixty
(60) days from the date of such agreement) for the issuance, sale or subjection
to Rights of the shares or other securities identified in the Preemptive Notice
on terms not more favorable than those contained in the Preemptive Notice,
provided that if during such period, the Company proposes to offer such shares
or other securities for a price less than the Price Range, the Company shall
promptly notify DCI in writing and DCI shall have five (5) days to decide
whether to purchase such shares or other securities. If the Company has not
issued, sold or subjected to Rights such shares or other securities within said
ninety (90) day period, or if the Company has entered into an agreement for the
issuance, sale or subjection to Rights of such shares of securities within such
ninety (90) day period but fails to close such transaction within sixty (60)
days after execution of such agreement, the Company shall not thereafter issue,
sell or subject to Rights any such shares or other securities without first
offering such shares as other securities in the manner provided for in this
Section 8.
(e) If all or any part of the offering price for any shares or other
securities as to which DCI has preemptive rights consists of any consideration
other than cash, then the price at which DCI shall be offered preemptive rights
with respect thereto shall be the amount determined by dividing the total number
of the shares or other securities into the sum of (i) the aggregate amount of
cash, if any, proposed to be paid therefor plus (ii) the aggregate fair market
value of the non-cash consideration proposed to be paid therefor (taking into
account, in determining such fair market value, any liabilities associated with
such non-cash consideration).
(f) The provisions of this Section 8 shall not apply (A) to the
issuance by the Company of any Common Stock or Rights (i) constituting employee
compensation in connection with the hiring of such employee, (ii) pursuant to
employee or director stock options plans identified on Schedule 3(d), or (iii)
in connection with acquisitions of property from, or share exchanges with
unaffiliated third parties, provided that the value of Common Stock issued or
subject to the Rights issued pursuant to this clause (iii) does not exceed one
hundred thousand dollars ($100,000) per transaction, or (B) during any period
that the number of shares of Common Stock held by DCI constitutes less than two
percent (2%) of all outstanding shares of Common Stock.
Section 9. Most-Favored Nation Rights.
If, on or at any time after the Closing Date and
prior to the first anniversary thereof, the Company shall issue or sell, agree
or offer to issue or sell or reach any arrangement or understanding regarding
the issuance or sale of (regardless of whether such agreement, offer,
arrangement or understanding is legally binding or enforceable, such offer is
accepted, or the sale or issuance which is the subject of such agreement, offer,
arrangement or understanding is consummated), any shares of or Rights to acquire
Common Stock to any Person other than DCI and any of the terms, other than
price, of such transaction, any anti-dilution, registration, most-favored nation
or indemnification rights, any rights to receive or have access to reports or
information or any other rights or benefits to which such Person is entitled,
any representations, warranties, covenants or agreements of the Company made to,
with or for the benefit of such Person or any other term of or right or benefit
conferred in connection with such transaction are more favorable to such Person
than DCI, under this Agreement, then in each such instance the Company shall
offer to DCI such more favorable terms (or, if such terms are dependent on
conditions or actions which cannot reasonably be satisfied or taken by DCI,
other reasonable terms providing DCI with substantially equivalent benefits),
rights, benefits, representations, warranties, covenants and agreements.
Section 10. Certain Additional Covenants of the
Company.
(a) The Company shall not sell, offer for sale, or solicit offers to
buy any Common Stock or other securities of the Company so as to cause the
offer, issuance, sale or delivery of any of the Shares as contemplated by this
Agreement to be integrated with any other sale, offer to sell or solicitation of
offers to buy any other shares of Common Stock or other securities of the
Company and to be subject to the registration requirements of Section 5 of the
Securities Act or the registration or qualification requirements of any "blue
sky" or securities laws of any state or other jurisdiction or so as to
jeopardize the availability of any of the exemptions from registration under the
Securities Act and registration or qualification under such "blue sky" or
securities laws relied on with respect to the offer, sale, issuance and delivery
of the Shares pursuant to this Agreement.
(b) The Company will use its commercially reasonable efforts to
maintain the registration of the Common Stock under Section 12(g) or 12(b) of
the Exchange Act and qualification of the Common Stock for quotation on the
NASDAQ System or listing on a national securities exchange.
(c) The Company shall take all necessary corporate and other actions
to reserve for issuance, and to permit it to issue, the Warrant Shares and the
Additional Shares and the Company shall represent and warrant at the time of
such issuance that such Shares are duly authorized and validly issued.
Section 11. Survival of Representations, Warranties,
Covenants and Agreements.
(a) All representations and warranties in this Agreement shall
survive for a period of eighteen (18) months after the Closing Date regardless
of any investigation that may have been or may be made at any time by or on
behalf of DCI or the Company. All covenants and agreements of the Company
contained in this Agreement or the Output Agreement shall survive such closing
indefinitely and without limitation (except as may otherwise be expressly
provided for by their terms). Any representation, warranty or covenant which is
the subject of a claim or dispute asserted in writing prior to the expiration of
the applicable of the above-stated periods shall survive with respect to such
claim or dispute until the final resolution thereof.
Section 12. Notices.
All notices, requests or other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in Person or by
registered or certified mail, return receipt requested, as follows:
(i) if to the Company:
Lancit Media Productions, Ltd.
601 West 50th Street
6th Floor
New York, New York 10019
Attn: Vice President, Legal and Business
Affairs
with a copy to:
Mark L. Bailin, Esq.
Rubin Bailin Ortoli Mayer Baker & Fry, L.L.P.
405 Park Avenue
15th Floor
New York, New York 10022
Mark N. Kaplan, Esq.
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
(ii) if to DCI:
Discovery Communications, Inc.
7700 Washington Avenue
Bethesda, Maryland 20814
Attention: General Counsel
with a copy to:
Alayne Serle, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Section 13. General Indemnification.
(a) Indemnification by the Company. From and
after the Closing Date, the Company shall indemnify and hold harmless, to the
fullest extent permitted by law, DCI and its officers, directors, agents and
control persons (each, a "Company Indemnitee"), against any and all losses,
claims damages, liabilities and expenses, including without limitation
reasonable legal or other expenses incurred in connection with investigating or
defending against such loss, claim, damage or liability, or action or proceeding
in respect thereof, that such Company Indemnitee may incur or suffer by reason
of (i) any inaccuracy in any representation or the breach of any warranty made
by the Company hereunder, or (ii) the failure of the Company to duly perform or
observe any term, provision, covenant, agreement or condition on the part of the
Company to be performed or observed hereunder.
(b) Indemnification by DCI. From and after the Closing Date, DCI
shall indemnify and hold harmless, to the fullest extent permitted by law, the
Company and its officers, directors, agents and control persons (each, a "DCI
Indemnitee"), against any and all losses, claims damages, liabilities and
expenses, including without limitation reasonable legal or other expenses
incurred in connection with investigating or defending against such loss, claim,
damage or liability, or action or proceeding in respect thereof, that such DCI
Indemnitee may incur or suffer by reason of (i) any inaccuracy in any
representation or the breach of any warranty made by DCI hereunder, or (ii) the
failure of DCI to duly perform or observe any term, provision, covenant,
agreement or condition on the part of DCI to be performed or observed hereunder.
(Each DCI Indemnitee and Company Indemnitee referred to as an "Indemnified
Party.")
(c) Notice of Claims, Etc. Promptly after receipt by an Indemnified
Party of written notice of the commencement of any action or proceeding with
respect to which a claim for indemnification may be made pursuant to Sections
13(a) or 13(b), such Indemnified Party will, if a claim in respect thereof is to
be made against an indemnifying party, give written notice to the indemnifying
party of the commencement of such action; provided, that the failure of the
Indemnified Party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under this Section 13, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. If any such action is brought against an Indemnified Party (unless
in such Indemnified Party's reasonable judgment a conflict of interest between
such Indemnified Party and the indemnifying party may exist in respect of such
claim) the indemnifying party will be entitled to participate in and to assume
the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such Indemnified Party, and after notice from the indemnifying party to such
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that, any Indemnified Party shall have the right to employ separate counsel and
to participate in the defense of such claim, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party unless (i) the
indemnifying party has agreed to pay such fees or expenses or (ii) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Indemnified Party or (iii) in the
reasonable judgment of any such Indemnified Party based upon advice of its
counsel, a conflict of interest may exist between such Indemnified Party and the
indemnifying party with respect to such claim (in which case, if the Indemnified
Party notifies the indemnifying party in writing that such Indemnified Party
elects to employ separate counsel at the reasonable expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such Indemnified Party.) If such defense is not assumed
by the indemnified party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include, as an
unconditional term thereof, the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any Indemnified
Party, based upon an opinion of counsel, a conflict of interest may exist
between such Indemnified Party and any other of such Indemnified Parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
(d) Indemnity Rights Are Supplemental. The rights of indemnification
and contribution contained in this Section 13 are supplemental and in addition
to, and shall not be limited or otherwise affected by, those contained in
Exhibit A hereto, and vice versa.
Section 14. General.
(a) This Agreement cannot be changed or terminated orally and no
waiver of compliance with any provision or condition hereof and no consent
provided for herein shall be effective unless evidenced by an instrument in
writing duly executed by the party hereto sought to be charged with such waiver
or consent. No waiver of any term or provision hereof shall be construed as a
further or continuing waiver of such term or provision or any other term or
provision. All Schedules and Exhibits to this Agreement are incorporated into
this Agreement by reference and made a part hereof. This Agreement (including
the Exhibits and Schedules hereto) and the Output Agreement set forth the entire
understanding of the parties with respect to the respective subject matters
hereof and thereof and supersedes any and all prior agreements, memoranda,
arrangements and understandings relating to such subject matters. No
representation, warranty, promise, inducement or statement of intention has been
made by any party which is not contained in this Agreement or the Output
Agreement, and no party shall be bound by, or be liable for, any alleged
representation, promise, inducement or statement of intention not contained
herein or Output Agreement.
(b) The rights and obligations under this Agreement may not be
assigned without the prior written consent of the other party.
(c) The headings of the various subdivisions of this Agreement have
been inserted for convenience of reference only, and shall not be deemed a part
of this Agreement.
(d) This Agreement shall be governed by and construed in accordance
with the substantive laws of the State of Delaware, and no conflict of law
principles shall vary the parties' intentions herein.
(e) In the event one of the parties hereto brings an action or suit
against the other party by reason of any breach of any covenant, agreement,
representation, warranty or other provision hereof, the prevailing party in
whose favor final judgment is entered shall be entitled to have and recover of
and from the losing party all reasonable costs and expenses incurred or
sustained by such prevailing party in connection with such action or suit,
including without limitation, legal fees and court costs (whether or not taxable
as such).
(f) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
(g) In the event of a breach or a threatened breach by any party to
this Agreement of its obligations under this Agreement, any party injured or to
be injured by such breach will be entitled to specific performance of its rights
under this Agreement. The parties agree that the provisions of this Agreement
shall be specifically enforceable, it being agreed by the parties that the
remedy at law, including monetary damages, for breach of such provision will be
inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
(h) Whenever the context may require, any pronouns used herein shall
be deemed also to include the corresponding neuter, masculine or feminine forms.
(i) The use of the words "hereof", "herein", "hereunder", and words
of similar import shall refer to this entire Agreement, and not to any
particular article, section, subsection, clause, or paragraph of this Agreement,
unless the context clearly indicates otherwise. As used herein, the terms
"security" and "securities" include Rights, unless the context clearly indicates
otherwise.
(j) If any provision of this Agreement or the application thereof to
any Person or circumstance is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remaining provisions hereof, or the
application of such provision to Persons or circumstances other than those as to
which it has been held invalid or unenforceable, shall remain in full force and
effect and shall in no way be affected, impaired or invalidated thereby,
provided, that if any provision hereof or the application thereof shall be so
held to be invalid, void or unenforceable by a court of competent jurisdiction,
then such court may substitute therefor a suitable and equitable provision in
order to carry out, so far as may be valid and enforceable, the intent and
purpose of the invalid, void or unenforceable provision and, if such court shall
fail to decline to do so, the parties shall negotiate in good faith and use
their best efforts to agree upon such a suitable and equitable provision. To the
extent that any provision shall be judicially unenforceable in any one or more
states, such provision shall not be affected with respect to any other state,
each provision with respect to each state being construed as several and
independent.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
DISCOVERY COMMUNICATIONS, INC.
By: _/s/ C. Richard Allen
LANCIT MEDIA PRODUCTIONS, LTD.
By: _/s/ Laurence A. Lancit
<PAGE>
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. THIS WARRANT AND ANY SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR EXEMPTION
THEREFROM UNDER SUCH LAWS.
LANCIT MEDIA PRODUCTIONS, LTD.
STOCK PURCHASE WARRANT
Date of Issuance: September 27, 1996 Certificate No.:
W-1
For value received, Lancit Media Productions, Ltd., a New York
corporation (the "Company"), hereby grants to Discovery Communications, Inc., a
Delaware corporation, or its transferees and assigns (the "Holder"), the right
to purchase 438,116 shares (the "Warrant Shares") of the Company's $.001 par
value Common Stock ("Common Stock"), subject to the terms and conditions
contained herein.
SECTION 1. Exercise Of Warrant.
(a) Exercise Period. The purchase right represented by this Warrant
may be exercised, in whole or in part (subject to subsection (c) of this Section
1), at any time and from time to time, during the period commencing on the date
of this Warrant and terminating at the close of business on the date that is
forty-eight (48) months after such commencement date.
(b) Exercise Price. The exercise price for the
Warrant Shares shall be thirteen dollars ($13.00) per share
(the "Exercise Price").
(c) Minimum Exercise Amount. This Warrant may not be exercised unless
the amount determined by multiplying the number of Warrant Shares to be
purchased upon such exercise by the Exercise Price is at least one hundred
thousand dollars ($100,000), provided that the foregoing restriction shall not
apply to an exercise of this Warrant pursuant to which all Warrant Shares
purchasable at such time are being purchased.
(d) Exercise Procedure. This Warrant may be exercised by the
surrender of this Warrant to the Company, during normal business hours,
accompanied by (i) a duly executed subscription in substantially the form of
attached as Exhibit I to this Warrant, (ii) and a check in an amount equal to
the product of the Exercise Price and the number of Warrant Shares being
purchased upon such exercise. The exercise of this Warrant shall be deemed to
have been effected on the date that the foregoing items have been delivered to
the Company.
(e) Issuance and Delivery of Certificates. As soon as practicable
following the exercise of this Warrant, and in any event within seven business
days thereafter, the Company shall cause to be issued and delivered to the
Holder (i) certificates for the Warrant Shares purchased upon exercise of this
Warrant, and (ii) unless this Warrant has expired or all of the purchase rights
represented hereby have been exercised, a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised. The issuance of certificates for Warrant Shares
upon exercise of this Warrant shall be made without charge to the Holder for any
issuance tax in respect thereof or other cost incurred by the Company in
connection with such exercise and the related issuance of Warrant Shares. The
Company shall at all times reserve and keep available out of its authorized but
unissued Common Stock, solely for the purpose of issuance upon the exercise of
this Warrant, the maximum number of Warrant Shares issuable upon the exercise of
this Warrant. All such Warrant Shares shall, when issued and upon the payment of
the applicable Exercise Price, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In
order to prevent dilution of the rights granted under this Warrant, the number
of Warrant Shares and the Exercise Price shall be subject to adjustment from
time to time as provided in this Section 2.
(a) Subdivision or Combination of Shares. If the Company at any time
(i) subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of Common Stock in the form of shares of such
class of securities, or (ii) combines (by reverse stock split or otherwise) the
Common Stock into a smaller number of shares, the number of Warrant Shares that
may be purchased upon exercise of this Warrant shall be adjusted so that, upon
the subsequent exercise of this Warrant in full, the Holder shall be entitled to
receive the same number of shares of Common Stock that the Holder would have
been entitled to receive immediately following the happening of the foregoing
events had this Warrant been exercised in full immediately prior to the
happening of such event.
(b) Adjustment of Exercise Price. In the event of any adjustment of
the total number of shares of Common Stock purchasable upon the exercise of this
Warrant pursuant to Section 2(a), the Exercise Price per Warrant Share under
this Warrant shall be adjusted to be the amount resulting from dividing the
number of Warrant Shares (including fractional share interests) covered by this
Warrant immediately after such adjustment into the total amount payable upon
exercise of this Warrant in full immediately prior to such adjustment.
(c) Reorganization, Reclassification, Consolidation, Merger or Sale.
Subject to the provisions of Section 3, prior to the consummation of any
recapitalization, reorganization, reclassification, consolidation, merger or
other transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for such securities (each an
"Organic Change"), the Company shall make appropriate provision to ensure that
the Holder shall have the right to acquire and receive upon exercise of this
Warrant subsequent to such consummation, in lieu of or in addition to (as the
case may be) the Warrant Shares, such shares of stock, securities or assets as
the Holder would be entitled to receive if this Warrant had been exercised
immediately prior to such Organic Change. In any such case, the Company shall
make appropriate provision with respect to Holder's rights and interests to
insure that the provisions hereof (including this Section 2) shall thereafter be
applicable to the Warrants. The Company shall not effect any such Organic Change
unless, prior to the consummation thereof, the successor entity (if other than
the Company) resulting from such Organic Change (including a purchaser of all or
substantially all the Company's assets) assumes by written instrument the
obligation to deliver to Holder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be entitled to
acquire upon exercise of Warrants.
(d) Other Adjustments. If any event occurs as to which, in the
opinion of the Board of Directors of the Company, the essential intent and
principles of this Section 2 contemplate an adjustment of the exercise
provisions of this Warrant but as to which the terms of this Section 2 are not
strictly applicable or, if applicable, would not fairly protect the rights of
the Holder in accordance with such essential intent and principles, then the
Board of Directors of the Company shall make an adjustment in the application of
the terms of this Section 2, so as to protect such rights in accordance with
such intent and principles, but in no event shall any such adjustment have the
effect of decreasing the amount of Warrant Shares issuable upon exercise of this
Warrant as otherwise determined pursuant to this Section 2.
(e) Notices. Whenever the number of shares of Common Stock or other
securities purchasable upon exercise of this Warrant, or the Exercise Price, is
adjusted pursuant to this Section 2, the Company shall promptly provide written
notice to the Holder setting forth the number and kind of shares or other
securities or property purchasable and Exercise Price, as adjusted.
SECTION 3. Change of Control. In the event that a Change of Control
(as defined below) occurs with respect to the Company, the Company, or successor
entity, shall purchase, and Holder shall sell, this Warrant at a sale price
equal to the amount of cash, plus the market value of property or securities to
which a Holder of this Warrant would have been entitled to receive had this
Warrant been exercised in full immediately prior to such Change of Control less
an amount equal to the number of Warrant Shares for which this Warrant was
exercisable immediately prior to such Transaction multiplied by the Exercise
Price. For purposes of this Warrant, a "Change of Control" shall mean any
transaction, or series of transactions, including, but not limited to, any sale
of all or substantially all of the Company's assets, any merger, consolidation,
or reorganization, as a result of which (i) any person (including groups of
persons pursuant to Section 13(d)(3) of the Securities Exchange Act of 1934)
acquires ownership of a greater percentage of the outstanding stock of the
Company, or successor entity (provided such interest is at least 5%) than the
amount of such stock then owned by the individuals serving as directors and
executive officers of the Company as of the date of this Warrant (a "Controlling
Interest") and (ii) a majority of the individuals then serving as directors of
the Company, or successor entity, are not individuals serving as Directors of
the Company immediately prior to the acquisition of such Controlling Interest.
SECTION 4. Liquidating Dividends. If the Company declares or pays a
dividend or other distribution upon the Common Stock other than a stock dividend
payable solely in shares of such class of securities or a cash dividend paid out
of current earnings (a "Liquidating Dividend"), then the Exercise Price shall be
reduced by the per-share amount of the Liquidating Dividend which would have
been paid with respect to the Warrant Shares had such Warrant Shares been
outstanding immediately prior to the date on which a record is taken for such
Liquidating Dividend or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such Liquidating Dividend are determined. To
the extent that the Exercise Price per Warrant Share would be reduced below the
aggregate par value of the Warrant Shares as a result of such adjustment, the
Exercise Price shall be reduced to equal such aggregate par value and the amount
of any adjustment that would have reduced the Exercise Price below such
aggregate par value shall be payable to the Holder upon exercise of this
Warrant. In case any Liquidating Dividend is payable other than in cash, the
amount of such Liquidating Dividend shall be the fair value of such
consideration, except where such consideration consists of marketable
securities, in which case the amount of such Liquidating Dividend shall be the
market price of such securities as of the date of receipt. The fair value of any
Liquidating Dividend payable other than in cash or marketable securities shall
be determined jointly by the Company and the Holder.
<PAGE>
SECTION 5. Notices of Corporate Action. In the
event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase, convert to, exchange for or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any sale,
consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the Company to any other
person, or
(c) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company, or
(d) the proposed public offering by the Company (or any stockholder
of the Company pursuant to the exercise of registration rights) of any shares of
Common Stock for which this Warrant shall then be exercisable, or
(e) the proposed public occurrence of any other event that would be
dilutive and would require antidilution adjustment in accordance with this
warrant,
the Company will mail to Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, sale, consolidation, merger,
transfer, dissolution, liquidation, winding-up or public offering is to take
place, (iii) the time, if any such time is to be fixed, as of which the holders
of record of Common Stock shall be entitled to exchange their shares of Common
Stock for the securities or other property deliverable upon such reorganization,
reclassification, recapitalization, sale, consolidation, merger, transfer,
dissolution, liquidation or winding-up, and (iv) in the case of a public
offering, any additional information reasonably necessary to permit the Holder
to determine whether to exercise this Warrant. Such notice shall be mailed at
least 10 days prior to the earliest date therein specified.
SECTION 6. No Voting Rights; Limitations of Liability. This Warrant
shall not entitle the Holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Holder to purchase Warrant Shares, and no enumeration herein of
the rights or privileges of the Holder shall give rise to any liability of such
holder for the Exercise Price of Warrant Shares acquirable by exercise hereof or
as a stockholder of the Company.
SECTION 7. Transfer of Warrant. This Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Holder upon
surrender of this Warrant with a properly executed Assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
SECTION 8. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Holder at the time
of such surrender. At the request of the Holder (pursuant to a transfer of
Warrants or otherwise), this Warrant may be exchanged for one or more Warrants
to purchase Warrant Shares. The date the Company initially issues this Warrant
shall be deemed to be the date of issuance hereof regardless of the number of
new certificates representing the unexpired and unexercised rights formerly
represented by this Warrant shall be issued. All Warrants representing portions
of the rights hereunder are referred to herein as the "Warrants."
SECTION 9. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of the Holder shall be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the Company,
or, in the case of any such mutilation upon surrender of such certificate, the
Company shall (at its expense) execute and deliver in lieu of such certificate a
new certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
SECTION 10. Notices. Except as otherwise expressly provided herein,
all notices and deliveries referred to in this Warrant shall be in writing and
shall be delivered personally or sent by registered or certified mail, return
receipt requested, postage prepaid, or sent via a nationally recognized
overnight courier service and shall be deemed to have been given when so
delivered, deposited in the U.S. Mail or sent (i) to the Company, at its
principal executive offices and (ii) to Holder, at such holder's address as it
appears in the records of the Company (unless otherwise indicated by any such
holder).
SECTION 11. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the Holder.
SECTION 12. Warrant Register. The Company shall maintain at its
principal executive offices a register for the registration and transfer of this
Warrant. The Company may deem and treat the Holder, as identified on such
register, as the absolute owner hereof (notwithstanding any notation of
ownership or other writing thereon made by anyone) for all purposes and shall
not be affected by any notice to the contrary (other than an assignment
delivered to the Company pursuant to Section 7).
SECTION 13. Fractional Shares. The Company shall not be required to
issue fractions of Warrant Shares upon exercise of this Warrant. If any fraction
of a Warrant Share would, except for the provisions of this Section 13 be
issuable upon the exercise of this Warrant, in lieu of issuing such fraction of
a Warrant Share, the Company shall pay to the Holder cash in an amount equal to
the fraction of the Warrant Share that would be issuable multiplied by the
Exercise Price.
SECTION 14. Descriptive Headings; Governing Law. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the date hereof.
By:_________________________
Name:
Attest:
- -----------------------
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-_____), hereby agrees to subscribe for the purchase
of ____ Warrant Shares covered by such Warrant and makes payment herewith in
full therefor at the price per share provided by such Warrant.
Signature ______________________
Address _________________________
<PAGE>
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED, __________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-_____) with respect to the number of Warrant Shares covered
thereby set forth below, unto:
Names of Assignees Address No. of Shares
- -------------------------------
Signature
- -------------------------------
Name
- -------------------------------
Date
EXHIBIT B
REGISTRATION RIGHTS
SECTION 1. Demand Registration. (a) DCI shall have the right, at any time
after the first anniversary of the Closing Date, to demand of the Company, by
delivery to the Company of written request, that the Company effect a
registration under the Securities Act (including any registration pursuant to
Rule 415 thereunder) of Shares then outstanding (which written request shall
specify (i) the number of Shares to be sold by DCI (the "Requested Securities"),
(ii) the proposed means of distribution and (iii) in the case of any proposed
underwritten offer, the managing lead underwriter). The Company shall use its
best efforts to effect such a registration as soon as practicable and in any
event to file with the SEC, within 45 days of the receipt of such request, a
registration statement under the Securities Act covering all the Requested
Securities and shall use its best efforts to have such registration statement
become effective; provided, however, that the Company shall be obligated to
effect such registration on Form S-1 only if (i) Form S-3 (or any successor form
to Form S-3 regardless of its designation) is not available for such offering by
DCI or (ii) if applicable, the managing lead underwriter shall determine that it
is in the best interest of DCI to effect such registration on Form S-1; and
provided further, that the Company shall not be obligated in connection with any
such registration to have performed a special audit of its financial statements.
(b) The Company shall not be obligated to effect more than one
registration under this Section 1 within any 18 month period nor shall the
Company be obligated to effect a registration if market value of the Requested
Securities is reasonably likely to be less than the lesser of (i) one million
dollars ($1,000,000),or (ii) the largest amount that may be sold at such time by
DCI in accordance with Federal Securities laws. A registration shall not be
deemed to have been effected, nor shall it be sufficient to satisfy the
Company's obligation to effect a registration under this Section 1, unless such
registration becomes effective pursuant to the Securities Act; provided that no
registration shall be deemed to have been effected, nor shall it satisfy the
Company's obligation to effect a registration under this Section 1, if (i) such
registration is interfered with by any stop order, injunction or, other order or
requirement of the SEC or other governmental authority for any reason other than
an act or omission of DCI thereunder; (ii) the conditions to closing specified
in the purchase agreement or underwriting agreement entered into in connection
with such registration are not satisfied by the Company other than by reason of
an act or omission by DCI; or (iii) DCI shall have withdrawn such request for
registration on the basis that there has been a material adverse change in the
business, condition or prospects of the Company from that known to DCI at the
time of its request which makes the proposed offering unwarranted in the good
faith judgment of DCI.
(c) Notwithstanding the foregoing, (i) the Company shall not be obligated
to effect the filing of a registration statement pursuant to this Section 1
during the period starting with the date which is 30 days prior to the date
which the Company in good faith estimates (as certified in writing by an officer
of the Company to DCI) will be the date of filing of, and ending on the date 90
days following the effective date of, a registration statement pertaining to an
underwritten public offering of securities of the same class as the Shares (or
exchangeable for or convertible into such shares) for the account of the
Company, (ii) the Company shall have the right to defer such filing for a period
of not more than 60 days after receipt of the request of DCI if the Company
shall furnish to DCI a certificate signed by an officer of the Company stating
that, in the good faith judgment of the Board of Directors of the Company and
for valid business reasons (not including avoidance of the Company's obligations
hereunder), such registration request will result in the disclosure in the
related registration statement of an action (including an acquisition of assets
or any merger, consolidation tender offer or similar transaction) or other event
that, if disclosed, would have a material detrimental effect on the Company.
(d) DCI shall use its best efforts to cause any Shares registered by the
Company pursuant to this Section 1 to be sold within a reasonable period of time
following such registration and will request the Company to deregister any such
Shares that cannot be sold within such period.
SECTION 2. Company Registration. (a) If the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than DCI) any shares of the Company Common Stock (or
exchangeable for or convertible into such shares) under the Securities Act in
connection with the public offering of such securities (other than (A) any
registration of public sales or distributions solely by and for the account of
the Company of securities issued (x) pursuant to a registration statement on
Form S-4 or Form S-8, or successor forms, or (y) in an exchange offer or an
offering to the Company's then existing stockholders or (B) pursuant to Section
1), the Company shall, at each such time, promptly give written notice of such
registration to DCI. Upon the written request of DCI given within 20 days after
mailing of such notice by the Company, the Company shall use its best efforts to
cause the underwriter to include in the offering, on the same terms and
conditions as the securities of the Company included in such offering, all of
the Shares that DCI has requested to be registered under the Securities Act;
provided, however, that, if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to DCI and, thereupon, (A) in the case of a determination not to
register, the Company shall be relieved of its obligation to register any Shares
in connection with such registration and (B) in the case of a determination to
delay such registration, the Company shall be permitted to delay registration of
any Shares requested to be included in such registration statement for the same
period as the delay in registering such other securities. In the case of any
registration of Shares pursuant to this Section 2, DCI shall, at the request of
the Company, enter into an agreement in customary form with the underwriter or
underwriters selected by the Company.
(b) If applicable, notwithstanding any other provision of this Section 2,
if, in the case of a registration request pursuant to Section 2(a), the managing
lead underwriter advises the Company that marketing factors require a limitation
of the number of shares to be underwritten, then the Company shall so advise DCI
and all securities initially proposed to be sold by the Company (prior to the
exercise of any rights under this Section 2) shall be included in any
registration pursuant to this Section 2 before any Shares of DCI are included.
SECTION 3. Obligations of Company. Whenever required under Section 1 or 2
to effect the registration of any Shares on behalf of DCI, the Company shall, as
expeditiously as reasonably possible: prepare and file with the SEC a
registration statement (on a form selected by the Company for which the Company
is eligible and, with respect to a registration under Section 1, which is
reasonably acceptable to counsel for DCI and shall be appropriate for the
intended method of distribution) with respect to such Shares and use its best
efforts to cause such registration statement to become effective; and, upon the
request of DCI, keep such registration statement effective until the later of
(i) such time as all of the Shares included in such registration statement have
been sold or, in the case of an offering pursuant to Rule 415 under the
Securities Act or any successor rule, if Shares remain unsold at the termination
of such offering, such time as the Company shall file, with the consent of DCI,
a post-effective amendment with the SEC de-registering the Shares remaining
unsold at the termination of such offering and (ii) the time that a dealer is no
longer required to deliver a prospectus in connection with the offer and sale of
the Shares included in the registration statement; and shall:
(a) prepare and file with the SEC as expeditiously as is reasonably
practicable such amendments and supplements to such registration statement and
the prospectus used in connection with such registration statement and any
documents incorporated therein by reference or by filing any other requested
document and use its best efforts to cause each such amendment to become
effective, as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement;
(b) furnish to DCI and each underwriter, if any, of such securities such
reasonable number of copies of a prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, including, in each
case, all supplements, amendments and exhibits thereto, and such other documents
as they may reasonably request in order to facilitate the disposition of Shares
owned by them, and the Company hereby consents to the use of any such prospectus
by DCI and the underwriter, if any, in connection with any offer and sale
covered thereby;
(c) use its best efforts to register or qualify the securities covered by
such registration statement under the securities or blue sky laws of such
jurisdictions as shall be reasonably requested by DCI (in light of the intended
plan of distribution of DCI) or any managing underwriters and do any and all
other acts and things which may be reasonably necessary or desirable to
consummate the disposition of the securities in such jurisdictions; provided
that the Company shall not be required (i) to register or qualify the Shares in
any jurisdiction if such registration or qualification in such jurisdiction
would subject the Company to unreasonable burden or expense or would
unreasonably delay the commencement of an underwritten offering or (ii) in
connection therewith or as a condition thereto to qualify to do business,
subject itself to taxation in respect of doing business or to file a general
consent to service of process or register as a broker or dealer in any such
states or jurisdictions where it has not otherwise done so;
(d) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter, reasonably acceptable to the Company, of
such offering. DCI shall also enter into and perform its obligations under such
an agreement, including furnishing any opinion of counsel (in form and substance
as is customarily given by counsel to selling stockholders and addressed to the
underwriters and the Company);
(e) notify DCI when such registration statement or any post-effective
amendment or supplement thereto becomes effective, of the issuance by the SEC or
any state securities authority of any stop order, injunction or other order or
requirement suspending the effectiveness of such registration statement and take
all reasonable action requested to prevent the entry of such stop order or to
remove it if entered, or the initiation of any proceedings for that purpose, or
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing and promptly file such amendments and supplements
which may be required on account of such event and use its best efforts to cause
each such amendment and supplement to become effective;
(f) promptly furnish counsel for each underwriter, if any, and for DCI
copies of any request by the SEC or any state securities authority for
amendments or supplements to a registration statement and prospectus or for
additional information;
(g) use best efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration
statement at the earliest possible time:
(h) cooperate with DCI and the underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Shares to be sold
and not bearing any restrictive legends; and enable such Shares to be in such
names as the selling Holders or the underwriters, if any, may reasonably request
at least three business days prior to any sale of Shares;
(i) furnish, at the request of DCI on the date that such Shares are
delivered to the underwriters for sale in connection with a registration
pursuant to this Agreement, if such securities are being sold through
underwriters, or on the date that the registration statement with respect to the
securities becomes effective, if such securities are not being sold through
underwriters, (i) an opinion, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given by company counsel to the underwriters in any underwritten
public offering, addressed to the underwriters, if any, and to DCI, and (ii) a
"cold comfort" letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to DCI:
(j) make available for inspection by representatives of DCI and any
underwriters participating in any disposition pursuant hereto and any counsel or
accountant retained by DCI or underwriters all relevant financial and other
records, pertinent corporate documents and properties of the Company and cause
the respective officers, directors and employees of the Company to supply all
information reasonably requested by any such representative, underwriter,
counsel or accountant in connection with a registration pursuant hereto;
provided, however, that such records, documents or information which the Company
determines, in good faith, to be confidential and as to which the Company
notifies such representatives, underwriters, counsel or accountants in writing
of such confidentiality shall not be disclosed by the representatives,
underwriters, counsel or accountants unless (i) the release of such records,
documents or information is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction, (ii) such records, documents or information
have previously been generally made available to the public or (iii) the
disclosure of such records, documents or information is necessary, in the
written opinion of outside legal counsel, to avoid or correct a material
misstatement or omission in the registration statement and then only after
reasonable request has been made to the Company to do so and the Company has
denied such request. DCI agrees that information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
affiliates (or for DCI's business purposes or for any reason other than in
connection with a registration hereunder) unless and until such information is
made generally available (other than by DCI or where DCI knows that such
information became publicly available as a result of a breach of any
confidentiality arrangement) to the public. DCI further agrees that it will,
upon learning that disclosure of such records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of the records deemed
confidential;
(k) (i) within a reasonable time prior to the filing of any registration
statement, any related prospectus, any amendment to such a registration
statement or amendment or supplement to such a prospectus, provide copies of
such document to DCI and its counsel and to the underwriter or underwriters, if
any; make such reasonable changes in any such document prior to or after the
filing thereof as the counsel to DCI or the underwriter may request; and make
such of the representatives of the Company as shall be reasonably requested by
DCI or any underwriter available for discussion of such document;
(ii) within a reasonable time prior to the filing of any document which is
to be incorporated by reference into a registration statement filed pursuant
hereto or a related prospectus, provide copies of such document to counsel for
DCI; make such reasonable changes in such document prior to or after the filing
thereof as counsel for DCI shall request; and make such of the representatives
of the Company as shall be reasonably requested by such counsel available for
discussion of such document;
(l) cause the Shares to be listed on the exchange on
which the Company securities similar to the Shares are then
listed; and
(m) cooperate and assist in any filings required to be made with the
National Association of Securities Dealers,Inc. (the "NASD"), and in the
performance of any due diligence investigation by any underwriter, if any
(including any "qualified independent underwriter" that is required to be
retained in accordance with the rules and regulations of the NASD).
Notwithstanding the foregoing, the Company shall not be obligated to
effect registration of Shares which at the time of request for registration are
eligible for sale to the public by DCI without registration under the Securities
Act, including pursuant to Rule 144 (with such sale not being limited by the
volume and manner of sale restrictions thereunder), and with respect to which
the restrictive legend thereon has been removed (or will be removed upon or in
connection with the intended transfer thereof) from the certificates
representing such securities.
SECTION 4. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
DCI shall furnish to the Company such information, agreements and documents as
shall be reasonably requested by the Company, or the underwriters, if any, or
their respective counsels, in order to effect the registration of its Shares.
SECTION 5. Expenses of Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Shares with respect to the registrations described in Sections 1 and 2 for
DCI, including, without limitation, all registration and printing fees, all
accounting fees of the Company's independent certified public accountants and
fees and disbursements of counsel for the Company; provided, however, that
underwriting discounts and commissions relating to Shares to be included in any
registration statement will be borne and paid ratably by DCI.
SECTION 6. Underwriting Requirements. In connection with any offering
involving any underwriting of securities in an offering described in Section 2,
the Company shall not be required to include any Requested Securities in such
underwriting unless DCI accepts the terms of the underwriting as agreed upon
between the Company and the underwriters selected by the Company; in either
case, only in such quantities and on such terms as set forth in Sections 1 and
2.
SECTION 7. Indemnification. In the event any Shares
are included in a registration statement under this
Agreement:
(a) To the fullest extent permitted by law, the Company will and hereby
does indemnify and hold harmless DCI and its officers, directors, shareholders,
agents, partners and each person, if any, who controls DCI within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, any
underwriter (as defined in the Securities Act) for DCI and each person, if any,
who controls such underwriter within the meaning of the Securities Act or the
Exchange Act (each, a "Company Indemnified Person"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other Federal or state law or
common law, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any prospectus included therein including any preliminary
prospectus, or omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, unless such untrue statement or alleged untrue statement or omission
or alleged omission was contained in a preliminary prospectus and corrected in a
final or amended prospectus or prospectus supplement and DCI failed to deliver a
copy of the final or amended prospectus or prospectus supplement at or prior to
the confirmation of the sale of the Shares to the persons asserting any such
loss, claim, damage or liability in the case where such delivery is required by
the Securities Act or final prospectus contained therein or any amendments or
supplements thereto; or (ii) any violation by the Company or by the Company
Indemnified Person (as a result of actions taken by or omissions by the Company)
of the Securities Act or any other securities law, or any rule or regulation
promulgated thereunder. The Company will reimburse each Company Indemnified
Person for any legal or other expenses reasonably incurred by such person in
connection with investigating or defending any such loss, claim, damage,
liability or action. The indemnity agreement contained in this subsection 7(a)
shall not apply to amounts paid in settlement of any loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable to any Company Indemnified Person in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration statement, prospectus, or in any amendment or supplement thereto,
by or on behalf of any Company Indemnified Person.
(b) To the fullest extent permitted by law, DCI will and hereby does
indemnify and hold harmless the Company, its officers, directors, shareholders
and agents or any person, if any, who controls the Company within the meaning of
the Securities Act, and each person, if any, who controls such underwriter
within the meaning of Section 15 of the Securities Act or Section 20 the
Exchange Act (each, a "DCI Indemnified Person"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other Federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by or on behalf of DCI
expressly for use in connection with any registration statement or prospectus
relating to Shares or in any amendment or supplement thereto. DCI will reimburse
each DCI Indemnified Person for any legal or other expenses reasonably incurred
by such person in connection with investigating or defending any such loss,
claim, damage, liability or action. The indemnity agreement contained in this
subsection 7(b) shall not apply to amounts paid in settlement of any loss,
claim, damage, liability or action if such settlement is effected without the
consent of DCI, which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
and control the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.08 to the extent of such prejudice, but the omission so to
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 7.
(d) If the indemnification provided for in this Section 7 is unavailable
to a party that would have been an indemnified party under this Section 7 in
respect of any claims referred to herein, then each party that would have been
an indemnifying party hereunder shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party as a
result of such claims in such proportion as is appropriate to reflect the
relative fault of the indemnifying party or parties on the one hand and such
indemnified party on the other in connection with the action, statement or
omission which resulted in such claims, as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue statement or alleged untrue statement or
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or such indemnified party and the party's,
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing provisions of
this Section 7(d), DCI shall not, as an indemnifying party, be required to
contribute any amount in excess of (x) the amount by which the total price at
which the Shares sold by such indemnifying party were offered to the public
exceeds (y) the amount of any damages which such indemnifying party has
otherwise been required to pay by reason of such action, untrue or alleged
untrue statement or omission or alleged omission. The Company and DCI agree that
it would not be just and equitable if contribution pursuant to this subsection
7(d) were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this subsection 7(d). The amount paid or payable by an indemnified party as a
result of the claims referred to above in this subsection 7(d) shall include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigation or defending any such action or claim.
(e) No indemnifying party shall consent to entry of judgment or enter into
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim. No indemnifying party shall be liable
for any settlement of any action or proceeding entered into without its prior
consent, which consent shall not be unreasonably withheld.
(f) No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of fraudulent misrepresentation within the meaning
of such Section 11(f).
SECTION 8. Reports Under Securities Exchange Act of 1934. With a view to
making available to DCI the benefits of Rules 144 and 145 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit DCI to sell securities of the Company to the public without registration,
and with a view to making it possible for the Company to register the DCI Shares
pursuant to a registration on Form S-3, the Company agrees:
(a) to make and keep public information available, as those terms are
understood and defined in Rule 144 and Rule 145:
(b) to file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) to furnish to DCI so long as DCI owns any Shares forthwith upon
request (i) a written statement by the Company as to its compliance with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company and (iii) such other
information as may be reasonably requested in availing DCI of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
SECTION 9. Restrictions on Sale by Company. The Company agrees not to
effect any public sale or distribution (other than public sales or distributions
solely by and for the account of the Company of securities issued pursuant to
any employee or director benefit or similar plan or any dividend reinvestment
plan) or any private sale or other sales of Shares or securities convertible
into or exchangeable or exercisable for Shares during the period commencing on
the date the Company receives a request from DCI under Section 1, and continuing
until 90 days after the commencement of an underwritten offering, if requested
by the sole underwriter or lead managing underwriter in such underwritten
offering, or for such shorter period as the sole or lead managing underwriter
shall request.
SECTION 10. Recapitalizations, Exchanges, etc. Affecting Shares. The
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to the Shares, to the extent reasonably practicable, to any and all
securities or capital stock of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise), which
may be issued in respect of, in exchange for, or in substitution of such Shares,
by reason of any dividend, split, issuance, reverse split, combination,
recapitalization, reclassification, merger, consolidation or otherwise.
EXHIBIT 23
Consent of Feldman Radin & Co., P.C.
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the
Registration Statement on Form S-3, as amended (File No. 33-70856),
(ii) the Registration Statement on Form S-1 (File No. 33-48236),
(iii) the Registration Statement on Form S-8 (File No. 33-53472),
(iv) the Registration Statement on Form S-8 (File No. 33-77834), (v)
the Registration Statement on Form S-8 (File No. 33-90506), (vi) the
Registration Statement on Form S-8 (File No. 33-80447), and (vii) the
Registration Statement on Form S-8 (File No. 33-80449) of Lancit
Media Productions, Ltd. (the "Registrant") of our report dated August
28, 1996 appearing in this Annual Report on Form 10-K of the
Registrant for the year ended June 30, 1996.
/s/ Feldman Radin and Co., P.C.
FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
September 20, 1996
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