FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-10781
LANCIT MEDIA ENTERTAINMENT, LTD.
(Exact Name of Registrant as Specified in its Charter)
New York 13-3019470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 West 50th Street, New York, New York, 10019
(Address of Principal Executive Office) (Zip Code)
(212) 977-9100
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 90 days.
Yes X No
The number of shares of registrant's Common Stock, $.001 par value, outstanding
as of March 31, 1997 was 6,634,750 shares.
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LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET - March 31, 1997
and June 30, 1996 1
CONSOLIDATED STATEMENT OF OPERATIONS - For the
nine and three months ended March 31, 1997
and 1996 2
CONSOLIDATED STATEMENT OF CASH FLOWS - For the
nine months ended March 31, 1997 and 1996 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 5
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
<PAGE>
PART I. FINANCIAL INFORMATION
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, June 30,
1997 1996
-------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,219,893 $ 3,358,230
Accounts receivable 1,670,177 2,683,433
Film and program costs, net 1,870,423 5,527,106
Prepaid expenses 160,984 268,175
-------------- -------------
TOTAL CURRENT ASSETS 9,921,477 11,836,944
ACCOUNTS RECEIVABLE - NON-CURRENT 579,625 1,378,078
FIXED ASSETS, NET 567,432 832,606
GOODWILL, NET 267,415 279,754
DEPOSITS 50,363 60,784
-------------- -------------
TOTAL ASSETS $ 11,386,312 $ 14,388,166
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,557,891 $ 732,158
Participation payable 1,016,324 1,199,991
Deferred revenue 1,132,194 1,651,279
-------------- -------------
TOTAL CURRENT LIABILITIES 4,706,409 3,583,428
-------------- -------------
PARTICIPATION PAYABLE - NON-CURRENT 504,146 598,461
DEFERRED REVENUE - NON-CURRENT 440,912 828,713
MINORITY INTEREST 158,780 94,056
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized
15,000,000 shares; issued and outstanding
6,634,750 shares at March 31, 1997 and
6,187,634 shares at June 30, 1996 6,635 6,188
Additional paid-in capital 17,294,536 12,579,402
Accumulated deficit (11,725,106) (3,302,082)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 5,576,065 9,283,508
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,386,312 $ 14,388,166
============== =============
See notes to consolidated financial statements.
- 1 -
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LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- ---------------------
1997 1996 1997 1996
-------- --------- --------- ----------
(UNAUDITED) (UNAUDITED)
REVENUES:
Production and royalties $ 820,258 $ 1,234,926 $ 1,566,266 $5,956,892
Licensing agent fees 285,537 514,902 929,412 1,853,288
---------- ---------- ----------- ----------
1,105,795 1,749,828 2,495,678 7,810,180
---------- ---------- ----------- ----------
OPERATING EXPENSES:
Production and royalties 1,252,276 1,297,137 2,231,267 5,557,345
Licensing agent - direct costs 200,875 317,359 641,123 901,317
General and administrative 1,217,165 574,410 2,717,935 1,931,621
Write-down of film and
program costs 5,456,180 - 5,456,180 -
---------- ---------- ---------- ----------
8,126,496 2,188,906 11,046,505 8,390,283
---------- ---------- ----------- ----------
LOSS FROM OPERATIONS (7,020,701) (439,078) (8,550,827) (580,103)
INTEREST INCOME - NET 78,714 55,870 192,527 229,665
---------- ---------- ----------- ----------
LOSS BEFORE PROVISION FOR
INCOME TAXES AND MINORITY
INTEREST (6,941,987) (383,208) (8,358,300) (350,438)
PROVISION FOR INCOME
TAXES - CURRENT - 17,450 - 38,440
MINORITY INTEREST (13,123) 2,002 (64,724) (123,117)
---------- ---------- ----------- ----------
NET LOSS $ (6,955,110) $(398,656) $(8,423,024) $(511,995)
========== ========== =========== ==========
NET LOSS PER SHARE $ (1.05) $ (0.06) $ (1.29) $ (0.08)
========== ========== =========== ==========
WEIGHTED AVERAGE SHARES 6,632,750 6,180,387 6,506,884 6,180,305
========== ========== =========== ==========
See notes to consolidated financial statments.
- 2 -
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LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
---------- ----------
(UNAUDITED)
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss (8,423,024) (511,995)
---------- ----------
Adjustments to reconcile net loss to net cash from operating activities:
Amortization of film and program costs 853,032 3,295,761
Write-down of film and program costs 5,456,180 -
Depreciation and other amortization 288,256 314,120
Minority interest 64,724 123,117
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable - current 1,013,256 2,463,981
(Increase) decrease in accounts
receivable - non-current 798,453 706,767
Additions to film and program costs (2,652,529) (5,830,096)
(Increase) decrease in prepaid expenses 107,191 (69,493)
(Increase) decrease in income taxes receivable - 434
(Increase) decrease in deposits receivable 10,421 (1,500)
Increase (decrease) in accounts payable
and accrued expenses 1,825,733 361,972
Increase (decrease) in participations
payable - current (183,667) 628,517
Increase (decrease) in participations
payable - non-current (94,315) (713,915)
Increase (decrease) in income taxes payable - (14,181)
Increase (decrease) in deferred revenue - current (519,085) (2,708,548)
Increase (decrease) in deferred revenue - non-current (387,801) (660,469)
---------- ----------
6,579,849 (2,103,533)
---------- ----------
CASH USED IN OPERATING ACTIVITIES (1,843,175) (2,615,528)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,742) (159,021)
---------- ----------
CASH USED IN INVESTING ACTIVITIES (10,742) (159,021)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 4,715,581 203
---------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES 4,715,581 203
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,861,664 (2,774,346)
CASH AND CASH EQUIVALENTS - beginning of period 3,358,230 7,395,238
---------- ----------
CASH AND CASH EQUIVALENTS - end of period 6,219,894 4,620,892
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest -- --
========== ==========
Income taxes -- 56,526
========== ==========
See notes to consolidated financial statements.
- 3 -
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
Reference is made to the Company's Annual Report on Form 10-K/A dated October
28, 1996 for the year ended June 30, 1996.
The accompanying financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the financial
position and results of operations for the interim periods presented. Except as
described in note 3 below, all such adjustments are of a normal and recurring
nature. The results of operations for any interim period are not necessarily
indicative of the results of a full fiscal year.
2. NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average number
common shares outstanding for the respective period.
3. WRITE-DOWN OF FILM AND PROGRAM COSTS
The write-down of film and program costs amounted to $5,456,180. This non-cash
charge, of which approximately $2.1 million relates to THE PUZZLE PLACE(R) and
approximately $3.3 million relates to BACKYARD SAFARI(TM), reflects the
Company's revision of its estimated future net royalty stream with respect to
the PUZZLE PLACE(R) and the Company's revision of its anticipated production
funding sources and its estimated future net royalty stream with respect to
BACKYARD SAFARI(TM). In both cases, the Company accrued for estimated remaining
project costs.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three months ended March 31, 1997 as
compared to three months ended March 31, 1996
Production and royalty revenues for the three month period ended March 31, 1997
decreased to $820,258 from $1,234,926 in the comparable 1996 quarter. This
decrease is primarily the result of reduced production and royalty activity on
THE PUZZLE PLACE(R) and reduced production activity on READING RAINBOW(R) and
BACKYARD SAFARI(TM) which was partially offset by revenues from production
activity beginning in the current quarter on "NO! REALLY" and the "DISCOVERY
KIDS" project to produce interstitial material.
Licensing agent fee revenues for the three month period ended March 31, 1997
decreased to $285,537 from $514,902 in the comparable 1996 quarter. This
decrease is primarily the result of reduced revenue recognition resulting from
the adjustment of the licensing terms for several licensees on THE PUZZLE
PLACE(R) and lower royalties on SONIC THE HEDGEHOG(TM).
Production and royalty expenses for the three month period ended March 31, 1997
decreased to $1,252,276 from $1,297,137 in the comparable 1996 quarter
reflecting primarily the decreased production and royalty activity on THE PUZZLE
PLACE(R) and reduced production activity on READING RAINBOW(R) and BACKYARD
SAFARI(TM), largely offset by production activity beginning in the current
quarter on "NO! REALLY" and the "DISCOVERY KIDS" interstitial project as well as
additional development expenses.
Direct costs of licensing agent activities for the three month period ended
March 31, 1997 decreased to $200,875 from $317,359 in the comparable 1996
quarter primarily as a result of reduced personnel, travel and marketing costs.
General and administrative expenses for the three month period ended March 31,
1997 rose to $1,217,165 from $574,410 in the comparable 1996 quarter. This
increase is due to costs related to the hiring of the new Chief Executive
Officer, a severance charge and a reduction in project activities resulting in
reduced project absorption of personnel costs, office expenses and facilities
costs.
The write-down related to film and program costs amounted to $5,456,180. This
non-cash charge, of which approximately $2.1 million relates to THE PUZZLE
PLACE(R) and approximately $3.3 million relates to BACKYARD SAFARI(TM), reflects
the Company's revision of its estimated future net royalty stream with respect
to the PUZZLE PLACE(R) and the Company's revision of its anticipated production
funding sources and its estimated future net royalty stream with respect to
BACKYARD SAFARI(TM). In both cases, the Company accrued for estimated remaining
projectcosts.
With respect to THE PUZZLE PLACE(R), the licensing relaunch plan recently
prepared by the Company does not appear to have the revenue generating
capabilities that the Company previously anticipated, particularly in the
short-term. In addition, unexploited licensing categories previously identified
by the Company have not met expectations. Further, internationally, the Company
is finding it to be a greater challenge than anticipated to both distribute the
television program andbuild a licensing campaign.
With respect to BACKYARD SAFARI(TM), based on negotiations the Company was
having with certain distribution outlets, the Company expected to have secured
an airing commitment which would have included an initial license fee. While the
Company continues to believe that the program will air, it no longer expects to
receive an initial license fee. In addition, because the Company currently
expects that any airing of the program will be on a limited basis, at least
initially, reduced production revenues are expected. Furthermore, negotiations
with certain venues that were expected to help drive merchandise sales were not
successfully completed which further reduced previously estimated licensing
revenues. Because the program has not yet been cleared domestically,
international exploitation of this property, at least initially, is no longer
expected to be significant.
Management anticipates focusing more of the Company's time and resources on
properties which are currently on the development slate which may have more
near-term financial benefit to the Company. These include HUMONGOUS and
programming for DISCOVERY to fill a minimum of 1/6 of the programming on
DISCOVERY CHANNEL KIDS.
Interest income, net for the three month period ended March 31, 1997 increased
to $78,714 compared to $55,870 in the comparable 1996 quarter, as a result of an
increased level of cash invested in the current year.
There was no provision for income taxes recorded for the three month period
ended March 31, 1997 compared to $17,450 for state and local taxes recorded in
the comparable 1996 quarter.
Minority interest in licensing activities for the three month period ended March
31, 1997 was $13,123 compared to a benefit of $2,002 in the comparable 1996
quarter.
Net loss for the three month period ended March 31, 1997 was $6,955,110 ($1.05
per share) compared to a net loss of $398,656 ($.06 per share) in the comparable
1996 quarter primarily as a result of the combination of all factors discussed
above. Weighted average shares outstanding for the three month period ended
March 31, 1997 increased to 6,632,750 from 6,180,387 in the comparable 1996
quarter primarily as a result of the issuance of shares related to the purchase
of a 6.6% equity stake in the Company by Discovery Communications, Inc. ("DCI")
in September 1996 as well as the exercise of stock options during the twelve
month period since March 31, 1996.
<PAGE>
Results of Operations - Nine months ended March 31, 1997 as
compared to nine months ended March 31, 1996
Production and royalty revenues for the nine month period ended March 31, 1997
decreased to $1,566,266 from $5,956,892 in the comparable 1996 nine month
period. This decrease is primarily the result of significantly reduced
production activity on THE PUZZLE PLACE(R), BACKYARD SAFARI(TM) and READING
RAINBOW(R), all which was partially offset by production activity beginning in
the quarter ended March 31, 1997 on "NO! REALLY" and the "DISCOVERY KIDS"
interstitial project.
Licensing agent fee revenues for the nine month period ended March 31, 1997
decreased to $929,412 from $1,853,288 in the comparable 1996 nine month period.
This decrease is primarily the result of reduced revenue recognition resulting
from the adjustment of the licensing terms for several licensees on THE PUZZLE
PLACE(R) and reduced royalties on SONIC THE HEDGEHOG(TM).
Production and royalty expenses for the nine month period ended March 31, 1997
decreased to $2,231,267 from $5,557,345 in the comparable 1996 nine month period
reflecting primarily decreased production and royalty activity on THE PUZZLE
PLACE(R) and reduced production activity on READING RAINBOW(R) and BACKYARD
SAFARI(TM), all of which was partially offset by production activity beginning
in the comparable 1997 period on "NO! REALLY" and the "DISCOVERY KIDS"
interstitial project as well as additional development expenses.
Direct costs of licensing agent activities for the nine month period ended March
31, 1997 decreased to $641,123 from $901,317 in the comparable 1996 nine month
period primarily as a result of reduced personnel, travel and marketing costs.
General and administrative expenses for the nine month period ended March 31,
1997 rose to $2,717,935 from $1,931,621 in the comparable 1996 nine month
period. This increase is due to costs related to the hiring of the new Chief
Executive Officer, a severance charge as well as a reduction in project
activities resulting in reduced project absorption of personnel and facilities
costs being absorbed by project activities.
The write-down of film and program costs is discussed in the results of
operations for the three months ended March 31, 1997.
Interest income, net for the nine month period ended March 31, 1997 decreased to
$192,527 from $229,665 in the comparable 1996 nine month period. This decrease
is primarily due to a reduced level of cash invested during the earlier part of
the fiscal year, resulting from the Company's utilization of cash for
production, development and corporate needs.
There was no provision for income taxes recorded for the nine month period ended
March 31, 1997 compared to $38,440 for state and local taxes in the comparable
1996 nine month period.
Minority interest in licensing activities for the nine month period ended March
31, 1997 was $64,724 compared to $123,117 in the comparable 1996 nine month
period. This reduction is the direct result of the reduced profitability of the
licensing agent.
Net loss for the nine month period ended March 31, 1997 was $8,423,024 ($1.29
per share) compared to net loss of $511,995 ($.08 per share) in the comparable
1996 nine month period primarily as a result of the combination of all factors
discussed above. Weighted average shares outstanding for the nine month period
ended March 31, 1997 increased to 6,506,884 from 6,180,305 in the comparable
1996 nine month period primarily as a result of the issuance of shares related
to DCI's purchase of its 6.6% equity stake in the Company as well as the
exercise of stock options during the twelve month period since March 31, 1996.
Liquidity and Capital Resources
The Company had cash and cash equivalents as of March 31, 1997 of approximately
$6.2 million, and no long-term debt. The Company is not generating cash flow
from operations sufficient to fund its current level of operating expenses, and
additional funding from strategic alliances and/or distribution arrangements is
believed by management to be important for sustaining the Company's operations
on a long-term basis. The Company also expects to take steps to reduce its
operating expenses.
Cash used in operating activities was approximately $1.9 million for the nine
month period ended March 31, 1997, compared to approximately $2.6 million for
the same period last year. A net loss of approximately $8.4 million for the nine
month period ended March 31, 1997, which included non-cash project related
write-downs of approximately $5.5 million, net additions to film and program
costs of approximately $1.8 million, a decrease in deferred revenues of
approximately $0.9 million and a decrease in participations payable of
approximately $0.3 million, was partially offset by a decrease in accounts
receivable of approximately $1.8 million, an increase in accounts payable and
accrued expenses of approximately $1.8 million and depreciation and other
amortization of approximately $0.3 million.
Cash used in investing activities was approximately $11,000 for the nine month
period ended March 31, 1997, compared to approximately $159,000 for the same
period last year. The Company acquired equipment during the first nine months of
fiscal 1996 as part of its expansion of post production capabilities as well as
the improvement of its management information systems.
Cash provided from financing activities was approximately $4.7 million for the
nine month period ended March 31, 1997 compared to $203 for the same period last
year. In September 1996, DCI invested $5 million, which was partially offset by
costs relating to the transaction, in return for a 6.6% equity stake in the
Company, and the right to purchase what currently represents an additional 6.2%
equity stake in the Company through the exercise of warrants at $13 per share.
As of March 31, 1997, the Company is continuing with the outreach, publicity and
rights renewals for the first 65 episodes of THE PUZZLE PLACE(R). All these
remaining costs were accrued and included in the calculation of the film and
program cost write-down related to the property. The Company estimates that,
after it receives the balance of the monies due from Corporation for Public
Broadcast and KCET, its remaining funding requirement will be no more than
approximately $0.1 million. With respect to THE PUZZLE PLACE(R) licensing
effort, the Company and KCET have agreed to, and may in the future, adjust the
licensing terms for certain licensees in order to free up existing licensed
categories.
The Company is completing post production on the initial season of 13 episodes
of BACKYARD SAFARI(TM) which was partially funded through a major grant from the
National Science Foundation. The Company estimates that its remaining funding
requirement for this project is approximately $0.5 million to cover primarily
outreach and promotion activities. All of these remaining costs were accrued for
at March 31, 1997 and included in the calculation of the film and program cost
write-down related to the property.
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
This report, including, without limitation, descriptions of the Company's
targets or goals and Management's views concerning the Company's pending and
proposed projects, prospects and future financial performance contained in this
discussion and analysis and elsewhere, constitute forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and involve known and unknown risks and uncertainties which
may cause the Company's actual results in future periods to differ materially
from forecasts. These risks include, among others: network and studio acceptance
of television and motion picture projects; negotiation of appropriate license
and distribution and other partnership and business arrangements; the ability of
the Company to secure timely funding; less than anticipated consumer acceptance
of entertainment projects or licensed products; as well as risks generally
associated with the production of a television series, movie or other
entertainment project. These and other risks are described in the Company's
Annual Report on Form 10-K/A filed with the Securities and Exchange Commission,
copies of which are available from the SEC or may be obtained upon request from
the Company.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.19 Employment Agreement with Susan Solomon and Exhibits
Thereto
10.20 Employment Agreement with David Michaels
10.21 Mutual Separation Agreement with Britten & Stone
b) Reports on Form 8-K
The Company filed a Report on Form 8-K on May 8, 1997 reporting a change
in certifying accountants. The filing included a letter from the former
certifying accountants pursuant to Item 304 (a) (3) of Regulation S-K.
<PAGE>
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.
LANCIT MEDIA ENTERTAINMENT, LTD.
Date: May 20, 1997 By: /s/ Gary Appelbaum
Gary Appelbaum
Senior Vice President, Chief Financial Officer &
Treasurer
Date: May 20, 1997 By: /s/ Laurence A. Lancit
Laurence A. Lancit
Co-President
EMPLOYMENT AGREEMENT made as of the 31st day of March, 1997 (the
"Effective Date") by and between LANCIT MEDIA ENTERTAINMENT, LTD. with offices
at 601 West 50th Street, New York, New York 10019 (hereinafter "Employer") and
SUSAN SOLOMON, residing at 211 Central Park West, New York, New York 10024
(hereinafter "Executive").
WHEREAS, the parties desire to set forth the terms and conditions of
employment of Executive by Employer.
NOW, THEREFORE, in consideration of the agreements hereinafter contained,
the parties hereto agree as follows:
1. Term: The initial term of this Agreement shall be three (3) years,
commencing as of the Effective Date ("Initial Term"). Unless the employment of
Executive is terminated during the second year of the Initial Term, the term of
this Agreement shall automatically be extended for another year, and at all
times thereafter the remaining term of this Agreement shall not be less than two
(2) years. For example, if Employer terminates the employment of Executive on
June 1, 2000, then the remaining term of this Agreement shall be until May 31,
2002.
2. Services: (a) During the term of her employment, Executive shall render
her services to Employer as Chief Executive Officer and Chairman of the Board of
Directors of Employer. Executive shall report directly to the Board of Directors
and all other executives of Employer shall report to her. Executive shall also
be elected to the Board of Directors of Employer. It is agreed that should
Executive so request, one (1) additional director position shall be added to the
Board of Directors, and Executive shall have the sole right to nominate one (1)
or more persons to fill this position, subject to the good faith approval of the
then existing Board of Directors. Employer agrees to include such nominee(s) in
any proxy statement prepared by Employer which relates to the election of
directors and to use its reasonable efforts to ensure such nominee's election.
(b) Executive agrees to devote her full working time and efforts to
the business and affairs of Employer and to all of its majority-owned
subsidiaries, if any (hereinafter collectively referred to as the "Corporate
Group"), and hold such additional offices in components of the Corporate Group
to which she shall accept, such acceptance not to be unreasonably withheld and
to which from time to time she may be elected or appointed, provided that they
are of the same general character and of at least the same degree of
responsibility as the offices in the Employer which she shall hold pursuant to
the terms of this Agreement. Employer agrees that Executive will be covered
under Employer's Director & Officer liability insurance policy, as the same may
be modified from time to time, provided that such modifications may not reduce
coverage benefits which are in effect as of the date of this Agreement.
Executive will not be asked to be an officer or director of any component of the
Corporate Group not covered by such policy. Employer represents that the
Director & Officer liability insurance policy in effect as of the date of this
Agreement has been issued by Chubb/Federal Insurance Company, and that the
material terms of that policy are set forth on the coverage summary annexed
hereto as Exhibit D. Employer hereby covenants to maintain the above described
Director & Officer liability insurance policy or a policy with at least as
favorable coverage for Employer's directors and officers issued by an insurance
company whose credit rating is at least as strong as the current rating of the
current issuer of the policy in effect.
(c) Employer will indemnify Executive and hold her harmless against
any and all claims and liabilities asserted against Executive which arise in
connection with the performance of Executive's duties and responsibilities while
acting in Executive's capacity as an employee of Employer, except Employer shall
not be obligated to indemnify or hold Executive harmless against any claim or
liability which arises out of Executive's gross misconduct, malfeasance or gross
negligence.
(d) Executive shall have a private, enclosed office and a
secretary/assistant employed by Employer, dedicated exclusively to Executive,
full time. Executive's primary place of employment will be at Employer's office
in New York, New York.
(e) Nothing contained in this Agreement shall be construed to prevent
Executive from managing her private investments in any business, except that
Executive will be permitted to own not more than two (2%) percent of the issued
and outstanding stock or other securities of a competitor of Employer. Executive
shall, in the performance of her duties, be at all times subject to the
direction and supervision of Employer, and shall report directly to the Board of
Directors of Employer.
3. Compensation:
(a) As compensation for services rendered to the Corporate Group
during the term of this Agreement, Executive shall be paid compensation at the
annual base rate (the "Base Salary") of Three Hundred Fifty Thousand ($350,000)
Dollars per year during each year of this Agreement. The Base Salary shall be
payable in accordance with Employer's then applicable payroll practice.
Executive's Base Salary shall be increased each year as of the commencement of
each such year at the discretion of the Board of Directors of Employer, provided
that the Base Salary shall, at a minimum, be increased each year by the
percentage increase in the "Consumer Price Index (CPI-U) for New York City," as
published by the Bureau of Labor Statistics of the United States Department of
Labor for the prior calendar year, and as soon as such increase shall be
determined Executive's salary shall be the amount as so adjusted, retroactive to
the commencement of such year.
(b) As additional compensation for services rendered to the Corporate
Group during the term of this Agreement Executive shall also be paid the
following bonuses:
(i) A signing bonus of One Hundred Thousand ($100,000) Dollars,
payable upon execution of this Agreement.
(ii) A signing bonus of Fifty Thousand ($50,000) Dollars,
payable no later than July 31, 1998.
(iii) Annual performance bonuses, commencing for the 1997/98
fiscal year, based on the annual financial result of Employer as compared to the
financial objective proposed by Executive for each fiscal year (the "Annual
Goal") and approved by the Board of Directors (it being understood and agreed
that if the Board does not so approve such proposed Annual Goal, the Board
retains the right to set the Annual Goal, in its sole discretion), calculated as
follows, and paid within sixty (60) days after the close of each fiscal year:
(A) If the financial result for a fiscal
year is twenty (20%) percent or more above the Annual Goal for that fiscal year,
the minimum annual bonus for that fiscal year shall be equal to one hundred
(100%) percent of the Base Salary.
(B) If the financial result for a fiscal
year is more than the Annual Goal for that fiscal year but less than twenty
(20%) percent above the Annual Goal for that fiscal year, the minimum annual
bonus for that fiscal year shall be set at an amount between fifty (50%) percent
and one hundred (100%) percent of the Base Salary, calculated on a pro-rata
basis. For example, if the financial result was ten (10%) above the Annual Goal
for the fiscal year, the minimum annual bonus would be equal to seventy-five
(75%) percent of the Base Salary.
(C) If the financial result for a fiscal
year is equal to the Annual Goal for that fiscal year, the minimum annual bonus
for that fiscal year shall be equal to fifty (50%) percent of the Base Salary.
(D) If the financial result for a fiscal
year is not more than ten (10%) percent below the Annual Goal for that fiscal
year, the minimum annual bonus for that fiscal year shall be set at an amount
between twenty (20%) percent and fifty (50%) percent of the Base Salary,
calculated on a pro-rata basis. For example, if the financial result was five
(5%) below the Annual Goal for the fiscal year, the annual bonus would be equal
to thirty-five (35%) percent of the Base Salary.
(E) If the financial result for a fiscal
year is more than ten (10%) below the Annual Goal for that fiscal year, there
shall be no minimum annual bonus payable, but the Board of Directors may, in its
sole discretion, still award Executive an annual bonus.
(c) As additional compensation for services rendered to the Corporate
Group during the Initial Term of this Agreement, Executive shall also be paid a
bonus with respect to funds invested in Employer by any third party (exclusive
of third parties currently having any equity or other financial interest in
Employer), to the extent such funds are received by Employer during the term of
this Agreement. The amount of such bonus shall be equal to the difference
between (i) the sum of (A) five (5%) percent of the first One Million
($1,000,000) Dollars invested in Employer, (B) four (4%) percent of the next One
Million ($1,000,000) Dollars invested in Employer, (C) three (3%) percent of the
next One Million ($1,000,000) Dollars invested in Employer, (D) two (2%) percent
of the next One Million ($1,000,000) Dollars invested in Employer and (E) one
(1%) percent of any monies in excess of Four Million ($4,000,000) Dollars and
(ii) all amounts paid to third party investment bankers and advisors in
connection with such investment. Executive's bonus shall be payable with respect
to net funds received by Employer (i.e., after all of Employer's expenses
incurred in connection with such investment) during the term of this Agreement
and shall be paid within thirty (30) days of Employer's receipt of such funds.
(d) Employer has adopted an Incentive Bonus Plan whereby executive
officers of Employer as a group shall receive a bonus of five (5%) percent of
pre-tax income of Employer, as set forth in Employer's audited financial
statements provided that: (i) Employer's pre-tax income in any given fiscal year
is at least Two Hundred Fifty Thousand ($250,000) Dollars; (ii) in such fiscal
year, Employer's net income per share is at least $.05 per share (adjusted for
stock splits and stock dividends); 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 Executive which may be available for distribution
pursuant to such Incentive Bonus Plan, in any year of this Agreement, shall be
determined by Employer. Executive shall be eligible to participate in such
Incentive Bonus Plan starting with the fiscal year which commences on July 1,
1997, and if the term of Executive's employment terminates prior to the close of
Employer's fiscal year, Executive shall be eligible to participate in a pro-rata
portion of any bonus payable as of the close of such fiscal year.
(e) (i) As a further financial incentive for Executive, Employer
hereby grants Executive an additional value incentive bonus (the "Value
Incentive Bonus") of seven hundred thousand (700,000) units (the "Units") which
shall be convertible in accordance with the terms and conditions of this
Agreement and Schedule A annexed hereto. The value of each Unit shall be equal
to the increased value of one (1) share of Employer's common stock, calculated
in the manner described in this Agreement and in Schedule A annexed hereto. Upon
conversion of the Units into compensation, as contemplated by Paragraph 2 of
Schedule A, employee will be entitled to receive cash or shares of Employer's
common stock at the option of Employer's Board of Directors, in accordance with
Schedule A. The Value Incentive Bonus is an employee benefit plan of Employer.
(ii) (A) The Units are granted in recognition of the personal
services of Executive, and Executive hereby agrees that Executive will not
directly or indirectly sell, assign, transfer, pledge, hypothecate, dispose of,
encumber or otherwise grant any interest in the Units other than (1) by will or
by the laws of descent and distribution or (2) pursuant to a "Qualified Domestic
Relations Order" ("QDRO") as defined in the Internal Revenue Code of 1986, as
amended (the "Code"), or Title I of the Employment Retirement Income Security
Act of 1974, as amended. The Units may be converted during the lifetime of
Executive only by Executive or by Executive's guardian or other legal
representative or by a transferee thereof pursuant to a QDRO (a "Permitted
Transferee").
(B) If Executive shall die while still
employed pursuant to this Agreement, the Units may be converted by Executive's
executor, administrator or other legal representative, or by a Permitted
Transferee to whom the Units were lawfully transferred, if any, at any time
prior to the expiration of the Units.
(C) If Executive's employment pursuant to
this Agreement is terminated by reason of permanent disability (as defined in
Paragraph 4(a) below), the Units may be converted by Executive or by Executive's
guardian or legal representative, or by a Permitted Transferee to whom the Units
were lawfully transferred, if any, at any time prior to the expiration of the
Units.
(iii) The Units may not be converted prior to October 1, 1997.
From and after such date the Units may be converted in whole or from time to
time in part at any time before their expiration by giving advance written
notice of such exercise to the Chief Financial Officer of Employer in the form
of Exhibit I annexed to Schedule A hereto prior to midnight, New York City time,
on March 31, 2007 (the "Expiration Date"), specifying the number of Units (not
exceeding seven hundred thousand (700,000)) being exercised.
(iv) Employer agrees that with respect to the shares of common
stock which may be issuable to Executive pursuant to Executive's Value Incentive
Bonus (the "Value Incentive Shares"), Employer will, promptly after the
execution and delivery of this Agreement, seek to register the Value Incentive
Shares under the Securities Act of 1933, as amended (the "Securities Act"), on a
Form S-8 (or the applicable successor Form) registration statement, and shall
thereafter use its reasonable efforts to maintain current and in effect such
registration statement. In connection with such registration, Employer shall
prepare and file and thereafter maintain current and in effect, a "re-offer
prospectus" under such registration statement, registering the resale of all the
Value Incentive Shares by Executive. Employer agrees to use its reasonable
efforts to make timely filings of its periodic reports and to take such other
actions as may be necessary or appropriate in order for Employer to remain
qualified to use such Form S-8 and such re-offer prospectus as contemplated by
this Agreement. Employer's obligations under this paragraph shall terminate upon
the earliest to occur of (i) the eleventh (11th) anniversary of the Effective
Date, or (ii) the sale of all of the Value Incentive Shares by Executive or
(iii) the date Executive receives an opinion of counsel reasonably acceptable to
counsel for Executive (which may be from counsel to Employer) that all of the
Value Incentive Shares may be sold under the provisions of paragraph (k) of Rule
144 notwithstanding the fact that a portion of the Value Incentive Shares may
remain unregistered under the Securities Act.
(v) If Employer is unable to register the Value Incentive Shares
on Form S-8 during the period ending on the later to occur of the date of the
shareholders meeting referred to in subparagraph 3(f)(ii) or the expiration of
the one hundred seventy (170) day period following the execution of this
Agreement, or thereafter fails or is unable to maintain such registration
statement in effect or fails or is unable to file or thereafter maintain in
effect a re-offer prospectus under such registration statement, Executive will
be entitled to the demand registration rights described in the Registration
Rights Agreement between Employer and Executive dated as of March 31, 1997, a
copy of which is annexed hereto as Exhibit C.
(vi) Executive agrees that, during any ninety (90) day period,
and notwithstanding the registration under the Securities Act of the Value
Incentive Shares, Executive's right to sell, assign, hypothecate or otherwise
transfer any interest in the Value Incentive Shares (collectively referred to
herein as Executive's "Transfer Rights"), shall be limited to that number of the
Value Incentive Shares which is equal to the greater of (A) one (1%) percent of
the number of shares of Employer's common stock outstanding or (B) the average
weekly reported volume of trading in Employer's common stock on all national
securities exchanges and/or reported through the automated quotation system of a
registered securities association (e.g., NASDAQ) during the four (4) calendar
weeks immediately preceding the filing of the notice of sale required to be
filed under Rule 144 if the Value Incentive Shares are being sold in compliance
with SEC Rule 144 or, if compliance with Rule 144 is not required, the date of
sale. Employer and Executive agree that the restrictions described in this
subparagraph 3(e)(vi) shall expire: (1) if Executive's employment is terminated
other than for the reason set forth in subparagraph 4(a)(iv), upon the later of
(x) the termination of Executive's employment with Employer or (y) March 30,
2001, or (2) if Executive's employment is terminated for the reason set forth in
subparagraph 4(a)(iv), upon the termination of Executive's employment with
Employer or (3) upon a "Change In Control of Employer" as defined in
subparagraph 4(d) of this Agreement. Employer further agrees that if Executive,
prior to her termination of employment, has not transferred or sold the maximum
number of Value Incentive Shares to which she had been entitled to transfer or
sell hereunder, then, as of the date of termination of her employment, where
such date is prior to March 30, 2001, all restrictions on transfer and sale
shall expire as of the date of termination of employment as to the number of
Value Incentive Shares which Executive could have previously transferred or sold
cumulatively, less the number of shares which were previously transferred or
sold.
(vii) The Units shall expire and become null and
void at the earliest of:
(A) the approval or ratification by
Employer's shareholders at the Shareholder's Meeting of a grant to Executive of
even date herewith of options to purchase up to seven hundred thousand (700,000)
shares of Common Stock on or before September 21, 1997;
(B) the Expiration Date;
(C) the dissolution of Employer (subject to
the provisions of subparagraph 3(e)(viii) below);
(D) (1) six (6) months after the
termination of this Agreement if such termination occurs on or prior to March
31, 2001 other than by reason of death or "permanent disability" (as defined in
subparagraph 4(a) below), or (2) one (1) year after the termination of this
Agreement if such termination occurs on or prior to March 31, 2001 by reason of
death or disability;
(E) one (1) year after the termination of
this Agreement if such termination occurs for any reason whatsoever after March
31, 2001 and on or prior to March 31, 2002;
(F) two (2) years after the termination of
this Agreement if such termination occurs for any reason whatsoever after March
31, 2002 and on or prior to March 31, 2003; or
(G) three (3) years after the termination of
this Agreement if such termination occurs for any reason whatsoever after March
31, 2003.
In the event Executive's employment is terminated within four (4) years of the
Effective Date, other than "For Cause" (as defined in subparagraph 4(a) of this
Agreement) or in the event Executive delivers her notice of her "Resignation For
Cause" (as defined in subparagraph 4(c) of this Agreement), then,
notwithstanding any other provisions of this or any other agreement dated as of
even date herewith or prior hereto, the Units shall expire no earlier than the
date which is two (2) years from the Effective Date with respect to fifty (50%)
percent of the Value Incentive Shares issuable upon conversion of the Units, the
date which is three (3) years from the Effective Date with respect to an
additional twenty-five (25%) percent of the Value Incentive Shares issuable upon
conversion of the Units and the date which is four (4) years from the Effective
Date with respect to the remaining twenty-five (25%) percent of the Value
Incentive Shares issuable upon conversion of the Units.
(viii) (A) In the event of (1) the dissolution or liquidation of
Employer or (2) a merger or consolidation in which (x) the Employer does not
survive as a publicly owned corporation with securities registered under the
Exchange Act and (y) the agreements governing such merger or consolidation do
not provide for the issuance of a substitute value incentive bonus or options
with substantially equivalent terms, as determined by Employer's Board of
Directors, in lieu of the Units or for the express assumption (within the
meaning of Section 424(a) of the Code) of the Units by the surviving
corporation, Employer's Board of Directors shall declare that the Units shall
terminate as of a date to be fixed by the Board of Directors (the "Termination
Date"), provided that the Board of Directors shall cause to be delivered not
less than thirty (30) days before the Termination Date written notice of the
Termination Date to Executive, and Executive shall have the right, during the
period between the receipt of the written notice and the Termination Date to
convert the Units, in whole or in part, whether or not all or any part of the
Units would otherwise be convertible; provided, however, that unless Executive
shall deliver to Employer written notice to the contrary at least three (3)
business days prior to the Termination Date, Executive and all other holders of
Units, if any, shall be deemed to have delivered to Employer a notice of
conversion of the Units, in whole, on such Termination Date. To the extent that
the Units are not converted in their entirety on or prior to the Termination
Date, any and all Units and all rights then remaining hereunder shall terminate
as of the Termination Date.
(B) In the event a "Change in Control" of
Employer (as defined in subparagraph 4(d) below) occurs prior to September 30,
1997, the Units shall become immediately convertible in whole or in part.
(C) In the event of a "Change in Control" of
Employer pursuant to which a substitute value incentive bonus or options are
offered to Executive in place of the Units herein granted or the surviving
corporation offers to assume Employer's obligations under the value incentive
bonus, the Board shall cause to be delivered to Executive, not less than thirty
(30) days before the effective date of such "Change In Control of Employer",
written notice of such effective date to Executive, and Executive shall have the
right to elect to accept such substitute value incentive bonus or options or to
convert the Units in whole or in part, prior to the effective date of such
"Change in Control of Employer" (and such notice shall so state); provided,
however, that unless Executive shall deliver to Employer written notice to the
contrary at least three (3) business days prior to such effective date,
Executive and all other holders of Units, if any, shall be deemed to have
rejected any substitute value incentive bonus or options offered to Executive
and any offer to assume the Units and to have delivered to Employer a notice of
conversion of the Units, in whole, on such effective date.
(ix) If, at the time Executive converts any Units with respect
to which payment is made in Value Incentive Shares, such Value Incentive shares
are not registered for resale under the Securities Act, and Executive is
entitled to demand registration rights under subparagraph 3(e)(v) above, and if
on the date on which such Value Incentive Shares may for the first time be sold
by Executive without limitation (whether by means of an effective registration
for resale under the Securities Act or otherwise) the "fair market value" of a
share of Employer's common stock is, with respect to any such Value Incentive
Share, below the lesser of (A) the fair market value of such Value Incentive
Share on the date Executive's notice of election to exercise her registration
rights was received by Employer or (B) the fair market value of such Value
Incentive Share on the date the certificate representing ownership in registered
form thereof was issued, Employer will promptly compensate Executive with a
bonus payment in an amount of cash or registered shares (valued at their fair
market value) equal to the sum of the differences between the fair market value
of a share of Employer's common stock on the date on which such registration
statement is declared effective and the amount determined to be, with respect to
each Value Incentive Share described in this subparagraph 3(e)(ix), the lesser
of the amounts described in clauses (A) and (B) above. For purposes of the
foregoing, the term fair market value shall have the same meaning as is ascribed
to such term in Schedule A.
(f) (i) Employer hereby grants and, subject to the approval of
Employer's shareholders at the special shareholders meeting described in
subparagraph 3(f)(ii), Executive agrees to accept in lieu of the Value Incentive
Bonus, stock options to purchase seven hundred thousand (700,000) shares of
Employer's common stock (the "Signing Options") on the terms and conditions
described in the Stock Option Agreement between Employer and Executive dated as
of March 31, 1997, a copy of which is annexed hereto as Exhibit A.
(ii) Employer agrees to call a special meeting of its
shareholders promptly following the execution of this Agreement, but in no event
later than September 21, 1997, for the purpose of seeking such shareholder
approval of Employer's grant of the Signing Options. Executive agrees that if
the shareholders approve the grant of the Signing Options, all of Executive's
rights to the Value Incentive Bonus shall be deemed null and void, ab initio.
(iii) Employer agrees that with respect to the shares of common
stock issuable to Executive upon exercise of the Signing Options (the "Option
Shares"), Employer will, promptly after the execution and delivery of this
Agreement, seek to register the Option Shares under the Securities Act on a Form
S-8 (or the applicable successor Form) registration statement, and shall
thereafter use its reasonable efforts to maintain current and in effect such
registration statement. In connection with such registration, Employer shall
prepare and thereafter maintain current and in effect, a "re-offer prospectus"
under such registration statement, registering the resale of all the Option
Shares by Executive. Employer agrees to use its reasonable efforts to make
timely filings of its periodic reports and to take such other actions as may be
necessary or appropriate in order for Employer to remain qualified to use such
Form S-8 and such re-offer prospectus as contemplated by this Agreement.
Employer's obligations under this paragraph shall terminate upon the earliest to
occur of (i) the eleventh (11th) anniversary of the Effective Date, or (ii) the
sale of all of the Option Shares by Executive or (iii) the date Executive
receives an opinion of counsel reasonably acceptable to counsel for Executive
(which may be from counsel to Employer) that all of the Option Shares may be
sold under the provisions of paragraph (k) of Rule 144 notwithstanding the fact
that a portion of the Option Shares may remain unregistered under the Securities
Act.
(iv) If Employer is unable to register the Option Shares on Form
S-8 during the period ending on the later to occur of the date of the
shareholders meeting referred to in subparagraph 3(f)(ii) or the expiration of
the one hundred seventy (170) day period following the execution of this
Agreement, or thereafter fails or is unable to maintain such registration
statement in effect or fails or is unable to file or thereafter maintain in
effect a re-offer prospectus under such registration statement, Executive will
be entitled to the demand registration rights described in the Registration
Rights Agreement between Employer and Executive dated as of March 31, 1997, a
copy of which is annexed hereto as Exhibit C.
(v) Executive agrees that, during any ninety (90) day period,
and notwithstanding the registration under the Securities Act of the Option
Shares, Executive's right to sell, assign, hypothecate or otherwise transfer any
interest in the Option Shares (collectively referred to herein as Executive's
"Transfer Rights"), shall be limited to that number of the Option Shares, which
is equal to the greater of (A) one (1%) percent of the number of shares of
Employer's common stock outstanding or (B) the average weekly reported volume of
trading in Employer's common stock on all national securities exchanges and/or
reported through the automated quotation system of a registered securities
association (e.g., NASDAQ) during the four (4) calendar weeks immediately
preceding the filing of the notice of sale required to be filed under Rule 144
if the Option Shares are being sold in compliance with SEC Rule 144 or, if
compliance with Rule 144 is not required, the date of sale. Employer and
Executive agree that the restrictions described in this subparagraph 3(f)(v)
shall expire: (1) if Executive's employment is terminated other than for the
reason set forth in subparagraph 4(a)(iv), upon the later of (x) the termination
of Executive's employment with Employer or (y) March 24, 2001, or (2) if
Executive's employment is terminated for the reason set forth in subparagraph
4(a)(iv), upon the termination of Executive's employment with Employer or (3) in
the event of a "Change In Control of Employer" as defined in subparagraph 4(d)
of this Agreement. Employer further agrees that if Executive, prior to her
termination of employment, has not transferred or sold the maximum number of
Option Shares to which she had been entitled to transfer or sell hereunder,
then, as of the date of termination of her employment, where such date is prior
to March 24, 2001, all restrictions on transfer and sale shall expire as of the
date of termination of employment as to the number of Option Shares which
Executive could have previously transferred or sold cumulatively, less the
number of shares which were previously transferred or sold.
(vi) (A) In the event of (1) the dissolution or liquidation of
Employer or (2) a merger or consolidation in which (x) the Employer does not
survive as a publicly owned corporation with securities registered under the
Exchange Act and (y) the agreements governing such merger or consolidation do
not provide for the issuance of substitute options with substantially equivalent
terms, as determined by Employer's Board of Directors, in lieu of the Signing
Options or for the express assumption (within the meaning of Section 424(a) of
the Code) of the Signing Options by the surviving corporation, Employer's Board
of Directors shall declare that the Signing Options shall terminate as of a date
to be fixed by the Board of Directors (the "Termination Date"), provided that
the Board of Directors shall cause to be delivered not less than thirty (30)
days before the Termination Date written notice of the Termination Date to
Executive and, provided the Signing Options have theretofore been approved or
ratified by Employer's shareholder as contemplated by the provisions of
subparagraph 3(f)(ii) above, Executive shall have the right, during the period
between the receipt of the written notice and the Termination Date to exercise
the Signing Options, in whole or in part, whether or not all or any part of the
Signing Options would not otherwise be exercisable; provided, however, that
unless Executive shall deliver to Employer written notice to the contrary at
least three (3) business days prior to the Termination Date, Executive and all
other holders of the Signing Options, if any, shall be deemed to have delivered
to Employer a notice of exercise of the Signing Options, in whole, on such
Termination Date. To the extent that the Signing Options are not exercised in
their entirety on or prior to the Termination Date, any and all Signing Options
and all rights then remaining hereunder shall terminate as of the Termination
Date.
(B) Provided the Signing Options have been
approved or ratified by Employer's shareholders as contemplated by the
provisions of subparagraph 3(f)(ii) above, in the event a "Change in Control" of
Employer (as defined in subparagraph 4(d) below) occurs prior to September 30,
1997, the Signing Options shall become immediately exercisable in whole or in
part.
(C) In the event of a "Change in Control" of
Employer pursuant to which substitute options are offered to Executive in place
of the Signing Options herein granted or the surviving corporation offers to
assume the Signing Options, the Board shall cause to be delivered to Executive,
not less than thirty (30) days before the effective date of such "Change In
Control of Employer", written notice of such effective date to Executive and,
provided the Signing Options have theretofore been approved or ratified by
Employer's shareholders as contemplated by the provisions of subparagraph
3(f)(ii) above, Executive shall have the right to elect to accept such
substitute options or assumption of the Signing Options or to exercise the
Signing Options in whole or in part, prior to the such effective date (and such
notice shall so state); provided, however, that unless Executive shall deliver
to Employer written notice to the contrary at least three (3) business days
prior to such effective date, Executive and all other holders of the Signing
Options, if any, shall be deemed to have rejected any substitute options offered
to Executive and any offer to assume the Signing Options and to have delivered
to Employer a notice of exercise of the Signing Options, in whole, on such
effective date.
(vii) If, at the time Executive purchases any Option Shares upon
exercise of Signing Options, such Option Shares are not registered for resale
under the Securities Act, and Executive is entitled to demand registration
rights under subparagraph 3(f)(iv) above, and if on the date on which such
Option Shares may for the first time be sold by Executive without limitation
(whether by means of an effective registration for resale under the Securities
Act or otherwise) the "fair market value" of a share of Employer's common stock
is, with respect to any such Option Share, below the lesser of (A) the fair
market value of such Option Share on the date Executive's notice of election to
exercise her registration rights was received by Employer or (B) the fair market
value of such Option Share on the date the certificate representing ownership in
registered form thereof was issued, Employer will promptly compensate Executive
with a bonus payment in an amount of cash or registered shares (valued at their
fair market value) equal to the sum of the differences between the fair market
value of a share of Employer's common stock on the date on which such
registration statement is declared effective and the amount determined to be,
with respect to each Option Share described in this subparagraph 3(f)(vii), the
lesser of the amounts described in clauses (A) and (B) above. For purposes of
the foregoing, the term fair market value shall have the same meaning as is
ascribed to such term in Schedule A annexed hereto.
(g) (i) Employer represents and warrants that (i) Employer has
authorized Fifteen Million (15,000,000) shares of common stock, which is the
only class of stock authorized and issued, and that Six Million Six Hundred
Thirty-Four Thousand Seven Hundred Fifty (6,634,750) shares of such common stock
have been issued and are outstanding as of the Effective Date. Employer further
represents and warrants that there are third party options and warrants
representing One Million One Hundred Seventeen Thousand Sixty-Six (1,117,066)
shares of common stock outstanding but unexercised as of the Effective Date.
Employer has agreed to protect Executive from the dilutive effect that the
exercise of Employer's currently outstanding warrants and stock options would
have on the Value Incentive Shares or the Option Shares, as applicable.
Accordingly, subject to the terms of this Agreement and Employer's 1990 Stock
Option Plan (as it may be amended from time to time), Employer agrees to grant
Executive, pursuant to Employer's 1990 Stock Option Plan (the "Plan"), an option
to purchase up to seventy thousand (70,000) shares of Employer's common stock
(the "Anti-Dilution Options") effective as of the Effective Date. The
Anti-Dilution Options will vest and become exercisable in accordance with the
terms and conditions of the Stock Option Agreement between Employer and
Executive dated March 31, 1997, a copy of which is annexed as Exhibit B.
Employer agrees that no fewer than seventy thousand (70,000) shares (the
"Anti-Dilution Shares") of Employer's common stock will remain available for
issuance under the Plan pursuant to the Stock Option Agreement for so long as
the Anti-Dilution Options remain outstanding.
(ii) Employer represents and warrants that the Anti-Dilution
Shares are registered pursuant to a registration statement on Form S-8 which is
currently in effect. Employer shall promptly prepare and file, by means of a
post-effective amendment, and thereafter maintain current and in effect, a
re-offer prospectus under such registration statement, registering the resale of
all the Anti-Dilution Shares by Executive. Employer agrees to use its reasonable
efforts to make timely filings of its periodic reports and to take such other
actions as may be necessary or appropriate in order for Employer to remain
qualified to use Form S-8 and such re-offer prospectus as contemplated by this
Agreement. Employer further represents and warrants that it shall use its
reasonable efforts to maintain current and in effect such registration statement
until the earliest to occur of (A) the eleventh (11th) anniversary of the
Effective Date, or (B) the sale of all of the Anti-Dilution Shares by Executive,
or (iii) the date Executive receives an opinion of counsel reasonably acceptable
to counsel for Executive (which may be from counsel to Employer) that all of the
Anti-Dilution Shares may be sold under the provisions of paragraph (k) of Rule
144 notwithstanding the fact that a portion of the Anti-Dilution Shares may
remain unregistered under the Act.
(iii) If Anti-Dilution Shares are at any time issued to
Executive, Executive agrees that, during any ninety (90) day period, and
notwithstanding the registration under the Securities Act of the Anti-Dilution
Shares, Executive's right to sell, assign, hypothecate or otherwise transfer any
interest in the Anti-Dilution Shares and the Value Incentive Shares or Option
Shares (collectively referred to herein as Executive's "Transfer Rights"), shall
be limited to that aggregate number of shares of the Employer's common stock
which is equal to the greater of (A) one (1%) percent of the number of shares of
Employer's common stock outstanding or (B) the average weekly reported volume of
trading in Employer's common stock on all national securities exchanges and/or
reported through the automated quotation system of a registered securities
association (e.g., NASDAQ) during the four (4) calendar weeks immediately
preceding the filing of the notice of sale required to be filed under Rule 144
if Anti-Dilution Shares or Option Shares are being sold in compliance with SEC
Rule 144 or, if compliance with Rule 144 is not required, the date of sale.
Employer and Executive agree that the restrictions described in this
subparagraph 3(g)(iii) shall expire: (1) if Executive's employment is terminated
other than for the reason set forth in subparagraph 4(a)(iv), upon the later of
(x) the termination of Executive's employment with Employer or (y) March 24,
2001, or (2) if Executive's employment is terminated for the reason set forth in
subparagraph 4(a)(iv), upon the termination of Executive's employment with
Employer or (3) in the event of a "Change In Control of Employer" as defined in
subparagraph 4(d) of this Agreement. Employer further agrees that if Executive,
prior to her termination of employment, has not transferred or sold the maximum
number of Anti-Dilution Shares and Value Incentive Shares or Option Shares,
collectively, to which she had been entitled to transfer or sell hereunder,
then, as of the date of termination of her employment, where such date is prior
to March 24, 2001, all restrictions on transfer and sale shall expire as of the
date of termination of employment as to the number of Anti-Dilution Shares and
Value Incentive Shares or Option Shares, collectively, which Executive could
have previously transferred or sold cumulatively, less the number of such shares
which were previously transferred or sold.
(h) Executive acknowledges and agrees that, as a corporate officer of
Employer, she will be deemed a "named executive officer," and that she is an
insider, for the purposes of SEC filings and reporting and securities laws.
Executive agrees to comply with all applicable securities laws including,
without limitation, timely filing of Form 3, "Initial Statement of Beneficial
Ownership of Securities," which shall be timely prepared by Employer's counsel.
4. Termination: (a) In addition to any other rights and remedies provided
for in this Agreement, Employer may terminate Executive's employment hereunder
upon written notice "For Cause." For purposes of this Agreement, For Cause shall
mean: (i) commission of any act of gross misconduct or gross negligence which
has a materially adverse effect on Employer; (ii) except as permitted under
subparagraph 4(c) below, deliberate and continued refusal to perform employment
duties or deliberate refusal to implement a policy of the Board of Directors of
Employer after receiving written notice of such policy and a thirty (30) day
opportunity to cure, if such refusal is susceptible to cure; (iii) engagement by
Executive in any act, whether with respect to her employment or otherwise, which
is in violation of the criminal laws of the United States or any state thereof
or any similar foreign law to which Executive may be subject and which results
in a conviction or admission of guilt or a plea of nolo contendere; or (iv)
death or permanent disability of Executive. Executive shall be deemed
permanently disabled if she shall be unable by reason of mental or physical
incapacity from performing her duties hereunder for a period of ninety (90)
consecutive days or more. Notwithstanding the previous sentence, Employer agrees
to provide Executive with thirty (30) days prior written notice that Employer
considers Executive permanently disabled and intends to terminate this Agreement
pursuant to this subparagraph 4(a). Executive shall have thirty (30) days after
receipt of such notice to resume all of her duties hereunder. If Executive is
unable to resume all of her duties within such thirty (30) day period, Employer
may immediately terminate Executive's employment. If Executive's employment
shall be terminated pursuant to this subparagraph 4(a), Executive shall be
entitled to receive only the Base Salary actually earned and payable to
Executive pursuant to subparagraph 3(a) above through the date of the
termination of her employment, together with any properly reimbursable expenses
and other accrued employee benefits through the date of termination, and
Executive shall not thereafter be entitled to receive any further salary, bonus,
expenses, benefits (other than medical or disability benefits if applicable) or
other compensation of any kind hereunder, except that if Executive's employment
is terminated pursuant to subparagraph 4(a)(iv), Executive shall also be
entitled to a pro-rata share of any bonus due hereunder for the fiscal year in
which Executive is terminated. Any bonus which has been earned, but not paid,
shall be paid at the time it would otherwise be payable.
(b) If Employer shall terminate Executive's employment other than For
Cause, as provided in subparagraph 4(a) above: Executive shall be entitled to
receive, as liquidated damages, and as her sole and exclusive right and remedy
on account of such termination, the Base Salary to which Executive would
otherwise have been entitled hereunder throughout the remaining term hereof and
Executive's pro-rata share of any bonus due hereunder for the fiscal year in
which Executive is terminated under this subparagraph 4(b), together with any
properly reimbursable business expenses and other employee benefits to the date
of termination. In addition, Employer shall reimburse Executive for the COBRA
expenses incurred by Executive for the full period (not to exceed the remaining
term hereof) that is allowed by Employer's medical insurance company. Amounts
payable by Employer under this subparagraph 4(b) shall be payable when and as
the same would otherwise have been payable under the terms hereof and shall not
be subject to Executive's duty to mitigate her damages by using reasonable
efforts to seek other comparable employment. Executive shall not thereafter be
entitled to receive any further salary, expenses, benefits (other than medical
or disability benefits, if applicable) or other compensation hereunder. In the
event of termination pursuant to this subparagraph 4(b), Executive shall not be
entitled to any damages by reason of such termination other than as set forth in
this subparagraph 4(b). Nothing herein, however, shall be deemed a waiver of
Executive's rights at law as to any causes of action against Employer including,
without limitation, any claims under the Employee Retirement Income Security Act
of 1974, the Equal Pay Act of 1963, Title VII of the Civil Rights Act of 1964,
as amended, the Civil Rights Act of 1991, the Americans With Disabilities Act of
1990 and Age Discrimination in Employment Act as modified by the Older Workers
Benefit Protection Act, the Family and Medical Leave Act, the Fair Labor
Standards Act, as amended, and any other federal, state or local human rights,
civil rights, pension or labor laws, rules and/or regulations. The parties agree
that the payments provided for in this subparagraph 4(b) constitute a reasonable
estimate of Executive's damages in the event of the termination of her
employment, actual damages being difficult if not impossible to ascertain.
(c) Executive may only terminate this Agreement upon written notice
of "Resignation For Cause." For purposes of this Agreement, Resignation For
Cause shall include: (i) the change in Employer's corporate offices location to
a location outside of New York City, (ii) change in Employer's primary business
to one outside the entertainment industry, (iii) a material adverse change in
the authority, responsibilities or reporting lines described in this Agreement
or (iv) subject to subparagraph 4(d), a Change in Control (defined in
subparagraph 4(d) below) of Employer.
(d) A "Change in Control of Employer" shall mean any
of the following events:
(i) A change in control of a nature that would be required to be
reported in response to Item 6(e) 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 Employer, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of
Employer representing 50.1% or more of the combined voting power of Employer's
then outstanding securities.
(ii) Approval of Employer's shareholders of: (A) a merger,
consolidation or reorganization involving Employer (a "Transaction"), unless (1)
stockholders of Employer, 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, (2) 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 (3) 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, or any Person who, immediately prior to such Transaction had
Beneficial Ownership of 50.1% or more of the then outstanding voting securities
of Employer) has Beneficial Ownership of 50.1% or more of the combined voting
power of the Surviving Corporation's then outstanding voting securities, or (B)
an agreement for the sale or other disposition of all or substantially all of
the assets of Employer to any Person (other than a member of the Corporate
Group).
(e) Unless otherwise expressly provided herein, Executive's
termination of this Agreement for Resignation For Cause as described in
subparagraph 4(c) shall not be effective until after Executive delivers to
Employer (or the Surviving Company, if applicable) written notice. If Executive
terminates for Resignation For Cause as described in subparagraph 4(c),
Executive shall only be entitled to the same amounts as would be payable if
Employer had terminated Executive pursuant to subparagraph 4(b), unless
otherwise provided herein.
(f) Executive may only serve her written notice of Resignation For
Cause pursuant to subparagraph 4(c)(iv) upon ninety (90) days prior written
notice during the one (1) year period following the effective date of the Change
In Control of Employer, during which ninety (90) day period Executive agrees to
negotiate in good faith with the Surviving Corporation regarding Executive's
continued employment. If Executive is unable to come to agreement with the
Surviving Corporation regarding such continued employment and serves her written
notice of Resignation For Cause as provided herein, such resignation shall
terminate this Agreement immediately, and she shall be entitled to the same
amounts as would be payable if Employer had terminated Executive pursuant to
subparagraph 4(b), except (i) that for purposes of calculating such amounts, the
remainder of the term of this Agreement shall be deemed to be two (2) years,
regardless of the actual length of the then remaining term of this Agreement and
(ii) payment of cash shall be accelerated to three (3) days after Executive
delivers notice under this subparagraph 4(f).
(g) Immediately upon the occurrence of a Change In Control of
Employer, all restrictions imposed by this Agreement and Exhibits (excluding
those restrictions otherwise imposed by law) on the transfer and sale of Value
Incentive Shares or the Option Shares, as applicable, and the Anti-Dilution
Shares shall cease to apply.
5. Expenses; Life Insurance: (a) Employer shall reimburse Executive for
all reasonable expenses of business travel (including car service to and from
airports), hotel, business-related car telephone, entertainment or otherwise
incurred by Executive in connection with and on behalf of the business of
Employer upon presentation of receipt, voucher or itemization of expenses in
accordance with Employer's then applicable expense reimbursement policies and
procedures for Employer's most senior executives. Air travel and hotel expenses
shall be reimbursed at rates comparable to those reimbursed for Employer's most
senior management executives.
(b) Employer shall provide Executive with a One Thousand Five Hundred
($1,500) Dollar per month car allowance and cellular telephone, the expenses of
which shall be paid by Employer.
(c) Employer shall reimburse Executive for legal and financial
advising fees incurred by Executive in connection with the negotiation of this
Agreement.
(d) Employer shall maintain during the term of this Agreement term
life insurance, in the amount of Two Million ($2,000,000) Dollars, on the life
of Executive for the benefit of such beneficiaries as Executive may designate
from time to time. Upon the termination of this Agreement, Executive shall have
the right to purchase, within thirty (30) days thereafter, such insurance
policy, at its cash surrender value, if any, plus any unearned premiums thereon,
and Employer shall deliver the policy to Executive and shall execute any
necessary instruments of transfer. A policy of insurance not so purchased by the
insured shall be released from the terms of this Agreement.
(e) Employer shall have the right to secure a Three Million
($3,000,000) Dollar "key-person" life insurance policy with respect to Executive
for Employer's own benefit. In this connection, Executive agrees to complete
such questionnaires and other documents and to submit to such physical
examinations which Employer or any insurance carrier may from time to time
reasonably require in connection with securing and maintaining such insurance.
6. Disability: If Executive is unable to perform her duties hereunder by
reason of any illness, disability or incapacity, she shall be entitled to one
hundred (100%) percent of her Base Salary for the first six (6) months of her
disability, seventy-five (75%) percent of her Base Salary for the next three (3)
months and fifty (50%) percent of her Base Salary for the next three (3) months,
less such benefits or compensation paid to Executive by reason of State,
Federal, Social Security, disability, worker's compensation or comparable
government benefits and such policies of disability insurance payable to
Executive and procured by Employer. During any period in which disability
compensation shall be paid, Executive shall continue to receive benefits in
accordance with Paragraph 7.
7. Executive Benefits: Executive shall be entitled to 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 most senior executives of Employer which may be in effect from
time to time during the period of her employment hereunder. Employer shall be
under no obligation to continue the existence of any such employee benefit plan.
Executive shall be entitled to the same vacation time (exclusive of any
company-wide holidays or vacations) as are granted to Employer's most senior
executives.
8. Disclosure of Confidential Information: Executive recognizes and
acknowledges that certain information is proprietary to and confidential with
Employer and/or the Corporate Group, including without limitation the following:
Employer'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 Employer and/or the Corporate Group
(collectively, "Confidential Information"). Confidential Information shall not
include information (a) already lawfully known to the receiving party, (b)
generally known to the public, entertainment business community or financial
community or (c) lawfully obtained from any third party without any
confidentiality obligation. 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
Employer or another member of the Corporate Group. Executive will not remove or
duplicate in any manner at any time any lists or other records, or any parts
thereof, concerning Employer's Confidential Information and upon termination of
her employment will return to Employer any and all lists and records concerning
Employer's Confidential Information thereof in her possession.
9. Interference with Employer's Business: (a) Executive agrees that during
the Non-Solicitation Period (defined below), neither Executive nor any Related
Person (defined below) shall knowingly, either directly or indirectly, for
herself or for any other person or entity, (i) call upon, solicit or take away,
or attempt to call upon, solicit or take away, any person then employed by
Employer or the Corporate Group or (ii) knowingly employ any employee of
Employer or the Corporate Group who voluntarily terminates such employment until
six (6) months have passed following termination of such employment, unless such
condition is waived by Employer in writing. "Non-Solicitation Period" shall mean
the period from the date hereof until one (1) year after the termination of this
agreement. "Related Person" shall mean any person or entity who or which,
directly or indirectly, is controlled by Executive.
(b) Executive agrees that during the term of her employment with
Employer and for the two (2) years following termination of such employment,
neither Executive nor any Related Person (as defined in subparagraph 9(a)) shall
knowingly, either directly or indirectly, for herself or for any other person or
entity, enter into any agreement, or assist any other person or entity in
entering into any agreement or other arrangement regarding any of the projects
introduced to Employer or the Corporate Group prior to or during the term of
Executive's employment, without Employer's prior written consent, such consent
not to be unreasonably withheld. Employer agrees that the restriction of this
subparagraph 9(b) shall not apply to any project which was the subject of a
written agreement between Employer and a third party, the term of which has
ended, and which is not then the subject of a negotiation for an extended or new
term. Executive's right to enter into an agreement or other arrangement
regarding projects described by the previous sentence shall be subject to
Executive's obligation to send Employer notice of Executive's intention to do
so, and Employer's failure to commence negotiations for such project, within
five (5) business days after receipt of such notice.
10. Employer's Closing Obligations: (a) Employer will cause its counsel,
Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP, to issue an opinion, dated as of
the Effective Date, to the effect that this Employment Agreement and the
Exhibits and Schedule annexed hereto are properly authorized by Employer and
enforceable in accordance with their respective terms.
(b) Employer will deliver to Executive copies of the resolutions of
Employer's Board of Directors, certified by an officer of Employer, which
authorize Employer to execute this Agreement and the Exhibits annexed hereto.
(c) Employer will cause its counsel, Satterlee Stephens Burke & Burke
LLP, to issue an opinion, dated as of the Effective Date, to the effect that a
Form S-8 registration will be available for the Value Incentive Shares or the
Option Shares, as applicable. Such opinion will also state that a vote of
Employer's shareholders is not required for the grant of the Value Incentive
Bonus and the issuance of the shares of Employer's common stock thereunder.
11. 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, and shall be applied
in a manner which will keep the economic benefits and burdens intact.
12. Governing Law: This Agreement shall be governed in all
respects by the laws of the State of New York.
13. 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
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. Duplicate copies of any notices to Employer shall also be sent to
Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP, 405 Park Avenue, 15th Floor, New
York, New York 10022, Attention: Marc L. Bailin, Esq. Duplicate copies of any
notices to Executive shall also be sent to Robert M. Schorr, KLS Professional
Advisors Group, Inc., 641 Lexington Avenue, New York, New York 10022.
14. Entire Agreement: This Agreement contains the entire
agreement between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter
hereof. No modification or amendment of this Agreement can be
made other than in writing signed by the parties hereto.
15. Injunctive Relief: Executive acknowledges that the services to be
rendered by her hereunder are of a special, unique and intellectual character
which gives them peculiar value, and that a breach or threatened breach of any
material provision of this Agreement, including, without limitation the
provisions of Paragraphs 8 and 9, will cause Employer immediate irreparable
injury and damage which cannot be reasonably or adequately compensated in
damages in an action at law. Accordingly, Executive agrees that Employer shall
be entitled to seek injunctive relief to enforce and protect its rights under
this Agreement as well as pursue any other legal remedies available to it.
16. Most Favored Nations: Employer agrees that, to the extent any current
employment agreement between Employer and any of its employees includes terms or
conditions which are more favorable than those contained herein, this Agreement
shall be deemed to be modified to include such more favorable terms or
conditions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
Attest: LANCIT MEDIA ENTERTAINMENT, LTD.
/s/ Marc L. Bailin By:/s/ Laurence A. Lancit
- ------------------ -------------------------
Secretary Laurence A. Lancit, President
/s/ Susan Solomon
-----------------
Susan Solomon
Schedule A
CALCULATION AND PAYMENT OF VALUE INCENTIVE BONUS
1. Measurement in Units. Units shall be used solely as a device for
the measurement and determination of the amount to be paid to SUSAN L.
SOLOMON ("Executive") as her "Value Incentive Bonus" under the employment
agreement to which this Schedule is annexed (the "Employment Agreement").
The right to receive an amount equal to the appreciation in market value
of one (1) share of the common stock, par value $.001 per share (the
"Common Stock"), of LANCIT MEDIA ENTERTAINMENT, LTD. (the "Employer"), is
referred to herein as a "Unit." The Units shall not constitute or be
treated as property or as a trust fund of any kind. All amounts at any
time attributable to the Units shall be and remain the sole property of
the Employer and Executive's rights hereunder are limited to the right to
receive cash and/or Common Stock as further provided below. The Value
Incentive Bonus is an employee benefit plan of the Employer.
2. Election to Receive Value Incentive Bonus. The Executive may elect
to receive all or a portion of her Value Incentive Bonus at such time or
times as she may desire by electing to convert Units into compensation as
provided in this Schedule. No such election may be made, however, prior to
October 1, 1997, except as otherwise provided in the Employment Agreement.
From and after such date, Units may be converted in whole or from time to
time in part at any time before their expiration by giving advance written
notice of Executive's election to convert Units into compensation to the
Chief Financial Officer of the Employer in the form of Exhibit I annexed
hereto (an "Election Notice") prior to midnight, New York City time, on
March 31, 2007 (the "Expiration Date"), specifying the number of Units
(not to exceed, in the aggregate, 700,000) being converted.
3. Determination of Value. Upon Executive's conversion of all or part
of the Units, Executive shall be entitled to receive the economic value of
the Units being converted. For each such Unit, that economic value shall
be equal to the excess of (i) the "fair market value" of one share of
Common Stock on the date that the Election Notice is received by the
Employer's Chief Financial Officer (the "Election Date") over (ii) $ (the
"Measuring Value"); subject, however, to adjustment pursuant to paragraph
6 of this Schedule. The total economic value of all Units converted by
Executive pursuant to an individual Election Notice shall be the economic
value of each Unit as determined in the preceding sentence multiplied by
the number of Units converted. For the purposes of this Schedule, the term
"fair market value" as of any date of a share of Common Stock means the
average of the closing bid and ask quotation for a share of Common Stock
as reported on the principal national securities exchange on which such
shares are listed or, if not so listed, on the National Association of
Securities Dealers, Inc. Automated Quotation System on the relevant date
or, if no such shares were sold on such date, on the next preceding date
on which such shares were sold or, if no sales shall have occurred within
10 business days preceding such relevant date, fair market value shall be
as reasonably determined by the Board of Directors in good faith.
4. Payment and/or Issuance of Share Certificates. Full payment of the
aggregate economic value of all Units converted by Executive pursuant to
an individual Election Notice (the "Total Payment") shall be made by the
Employer, either in cash or in shares of Common Stock or any combination
thereof, as the Employer's Board of Directors may determine in its sole
discretion. If all or any part of the Total Payment due in connection with
any conversion of Units hereunder is paid in shares of Common Stock
("Shares"), the number of Shares that shall be issued will be determined
by dividing the Total Payment (or the part thereof to be paid in Shares)
by the fair market value of a share of Common Stock on the Election Date;
provided, however, that Executive shall receive cash in lieu of any
fraction of a share of Common Stock issuable hereunder. Certificates for
Shares, if any, issued hereunder shall be delivered to Executive, subject
to the provisions of paragraph 6 hereof, as promptly as practicable
thereafter. Employer may place an appropriate legend on any certificates
representing ownership of Shares to assure compliance with the
restrictions on Executive's right to sell Shares contained in the
Employment Agreement.
5. Expiration. Executive's right to elect to
convert the Units shall expire and become null and void in
accordance with Section 3(e)(vii) of the Employment
Agreement.
6. Recapitalization. If the outstanding shares of the Common Stock of
the Employer are subdivided, consolidated, increased, decreased, changed
into or exchanged for a different number or kind of shares or securities
of the Employer through reorganization, merger, recapitalization,
reclassification, capital adjustment or otherwise, or if the Employer
shall issue Common Stock as a dividend or upon a stock split, then the
number of Units convertible by Executive and/or the Measuring Value shall
be proportionately adjusted. Adjustments under this Section shall be made
by the Employer's independent public accountants.
7. Wage, FICA and Withholding Taxes. Executive hereby agrees that
there shall be deducted from the payment of the economic value of any
Units converted hereunder the amount necessary to discharge any Federal,
state or local taxes (including any wage withholding or stock transfer
taxes) imposed upon the Employer in respect of the Units or any payment
upon conversion of Units.
8. Captions. The captions or headings of the
paragraphs of this Schedule 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.
<PAGE>
EXHIBIT I
to Calculation and Payment of
Value Incentive Bonus Schedule
ELECTION NOTICE
To: LANCIT MEDIA ENTERTAINMENT, LTD.
601 West 50th Street
New York, New York 10019
Attn: Chief Financial Officer
I hereby elect to convert Units in accordance with the terms and
conditions described in the Calculation and Payment of Value Incentive Bonus
Schedule to Employment Agreement to which this Election Notice is attached as
Exhibit I.
All share certificates that may be issued pursuant to this Election
Notice are to be issued and delivered as follows:
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________.
Date:___________________, _____ Signature______________________________
Exhibit A
Non-Qualified Stock Option for 700,000 Shares Dated March 31, 1997
(the "Date of Grant")
This Option and the Shares issuable upon exercise of this Option are subject to
certain restrictions on transfer described in
Sections 5 and 6 hereof, and the holder of this Option agrees to be
bound by such restrictions.
LANCIT MEDIA ENTERTAINMENT, LTD.
STOCK OPTION AGREEMENT
KNOW ALL PERSONS BY THESE PRESENTS, that LANCIT MEDIA ENTERTAINMENT, LTD.,
a New York corporation (the "Company"), acting by its Board of Directors (the
"Board"), hereby grants to SUSAN L. SOLOMON, residing at 211 Central Park West,
New York, New York 10024 ("Optionee"), in consideration of services to be
rendered to the Company, the right and option (the "Option") to purchase SEVEN
HUNDRED THOUSAND (700,000) fully-paid and non-assessable shares (the "Shares")
of the Company's common stock, par value $.001 per share (the "Common Stock"),
on the following terms and conditions (as used throughout, the term "Optionee"
shall refer only to the original grantee of the Option, and shall not include
subsequent authorized holders thereof, such as legatees, personal
representatives or distributees of such grantee or transferees thereof pursuant
to a "QDRO" (as defined in Section 8 below), and the term "Holder" shall refer
to any authorized holder of the Option):
1. Time and Manner of Exercise. The Option herein granted is subject
to approval or ratification by the Company's shareholders in compliance
with Section 505 of the Business Corporation Law of the State of New York
and may not be exercised unless and until such approval or ratification
has been obtained. The Option may not be exercised prior to October 1,
1997. From and after the later to occur of October 1, 1997 and the receipt
of such shareholder approval or ratification, the Option may be exercised
in whole or from time to time in part by giving advance written notice of
such exercise to the Chief Financial Officer of the Company in the form of
Exhibit I annexed hereto at any time prior to midnight, New York City
time, on March 31, 2007 (the "Expiration Date"), specifying the number of
Shares to be purchased. In no event shall a fraction of a Share be
purchased or issued hereunder. Such notice must be accompanied by full
payment for the Shares to be purchased and any withholding tax due. If the
Company does not receive full payment for the Shares to be purchased and
any withholding tax due within a reasonable period of time after notice of
exercise has been given by Optionee, the notice of exercise shall be
deemed to have been withdrawn and the Option shall remain in full force
and effect, exercisable in accordance with the terms of this Agreement
without any change in the number of Shares purchasable upon exercise of
the Option, as though such notice of exercise had never been issued.
2. Exercise Price. The price of the Shares to be purchased pursuant
to the Option shall be $5.0625 per share (the "Exercise Price"), subject
to adjustment pursuant to Section 8 hereof. The aggregate purchase price
of the Shares to be purchased pursuant to any exercise of the Option shall
be equal to the product of the number of Shares to be purchased multiplied
by the Exercise Price.
3. Payment and Issuance of Share Certificates. Full payment of the
aggregate purchase price for the Shares purchased by Holder and any
withholding taxes due thereon shall be made to the Company, either in cash
or by certified check, bank check, personal check (in which case the
Company reserves the right to withhold issuance of such Shares until the
funds have cleared) or by wire transfer. If, and only if, the Shares
issuable upon exercise of the Option may not be immediately resold without
restriction under the Securities Act of 1933 (the "Act") prior to the date
such payment is due, then Holder may pay the full or a partial amount of
the purchase price, but not any withholding taxes due, in shares of Common
Stock of the Company (including Shares previously issued upon exercise of
the Option) valued at the "fair market value" thereof on the date notice
of exercise of the Option to purchase such Shares is received by the
Company. Certificates for the Shares purchased shall be delivered to
Holder, subject to the provisions of Section 8 hereof, promptly
thereafter. No Shares shall be issued, and no certificates for Shares
shall be delivered, to Optionee until full payment therefor and of any
withholding tax due thereon has been made. For the purposes of this
agreement, the term "fair market value" as of any date of a share of
Common Stock means the average of the closing bid and ask quotations for a
share of Common stock as reported on the principal national securities
exchange on which such shares are listed or, if not so listed, on the
National Association of Securities Dealers, Inc. Automated Quotation
System on the relevant date or, if no such shares were sold on such date,
on the next preceding date on which such shares were sold or, if no sales
shall have occurred within 10 business days preceding such relevant date,
fair market value shall be as reasonably determined by the Board in good
faith.
4. Expiration. The Option shall expire and become
null and void at the earliest of:
(a) the adjournment of the first meeting of the Company's
shareholders to be held after the date first above written unless the Option is
approved or ratified by the shareholders at such meeting;
(b) the Expiration Date;
(c) expiration of the Option pursuant to the
provisions of Section 8 hereof;
(d) (i) six (6) months after the termination of Optionee's
employment pursuant to Optionee's employment agreement with the Company dated as
of March 31, 1997 (the "Employment Agreement") if such termination occurs on or
prior to March 31, 2001 other than by reason of death or "permanent disability"
(as defined in the Employment Agreement);
(ii)one (1) year after the termination of Optionee's employment
pursuant to the Employment Agreement if such termination occurs on or prior to
March 31, 2001 by reason of death or "permanent disability";
(e) one (1) year after the termination of Optionee's employment
pursuant to the Employment Agreement if such termination occurs for any reason
whatsoever after March 31, 2001 and on or prior to March 31, 2002;
(f) two (2) years after the termination of Optionee's employment
pursuant to the Employment Agreement if such termination occurs for any reason
whatsoever after March 31, 2002 and on or prior to March 31, 2003; or
(g) three (3) years after the termination of Optionee's employment
pursuant to the Employment Agreement if such termination occurs for any reason
whatsoever after March 31, 2003.
In the event Optionee's employment is terminated within four (4) years of
the Effective Date of the Employment Agreement other than "For Cause" (as
defined in the Employment Agreement) or in the event Optionee effects a
"Resignation For Cause" (as defined in the Employment Agreement) then,
notwithstanding any other provisions of this or any other agreement dated of
even date herewith or prior hereto, the Option shall expire no earlier than the
date which is two (2) years from the Effective Date of the Employment Agreement
with respect to 50% of the Shares purchasable upon exercise of the Option, the
date which is three (3) years from the Effective Date of the Employment
Agreement with respect to an additional 25% of the Shares purchasable upon
exercise of the Option, and the date which is four (4) years from the Effective
Date of the Employment Agreement with respect to the remaining 25% of the Shares
purchasable upon exercise of the Option.
5. Securities Laws.
(a) Optionee acknowledges that Optionee has been informed of, or is
otherwise familiar with, the nature and the limitations imposed by the
Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations thereunder
(in particular, Rule 144 promulgated under the Act ("Rule 144") and Section 16
of the Exchange Act and Rule 16b-3 promulgated thereunder) and the securities
("Blue Sky") laws of the state of Optionee's residence, concerning the Shares
issuable upon exercise of the Option and agrees to be bound by the restrictions
embodied in such laws, and the rules and regulations promulgated thereunder.
Unless the Shares to be issued upon the exercise of the Option have been
registered for resale in accordance with a currently effective registration
statement under the Act, (but without prejudice to any obligations of the
Company arising under the Employment Agreement or the Registration Rights
Agreement referred to therein to register the Shares) the Board may require, as
a condition to the delivery of certificates representing ownership of the
Shares, that the Company receive appropriate evidence that Holder is acquiring
the Shares for investment and not with a view to the distribution or public
offering of the Shares, or any interest in the Shares, and a representation to
the effect that Holder shall make no sale or other disposition of the Shares
unless (a) the Company shall have received an opinion of counsel satisfactory in
form and substance to it that the sale or other disposition may be made without
registration under the then applicable provisions of the Act and the rules and
regulations promulgated thereunder, or (b) the Shares shall be included in a
currently effective registration statement under the Act. The Company reserves
the right to place a legend on any certificates representing ownership of Shares
to assure compliance with this paragraph.
(b) The Company acknowledges that the Employment Agreement provides
that the Company will seek to register the Shares under the Act on a Form S-8
registration statement and thereafter use reasonable efforts to maintain same in
effect. In connection with such registration, the Company shall prepare and file
and thereafter maintain current and in effect a "reoffer prospectus" under such
registration statement registering the resale of all the Shares by Optionee. The
Company agrees to use reasonable efforts to make timely filings of its periodic
reports and to take such other actions as may be necessary or appropriate in
order for the Company to remain qualified to use Form S-8 and such reoffer
prospectus as herein contemplated. The Company's obligations under this
paragraph shall terminate upon the earliest to occur of (i) the eleventh (11th)
anniversary of the Date of Grant, or (ii) the sale of all of the Shares by
Optionee, or (iii) the date Optionee receives an opinion of counsel (which may
be from counsel to the Company) reasonably acceptable to counsel for the
Optionee that all of the Shares may be sold under the provisions of paragraph
(k) of Rule 144 notwithstanding the fact that a portion of the Shares may remain
unregistered under the Act.
6. Non-Transferability; Death or Disability.
(a) The Option is granted in recognition of the personal services of
Optionee and Optionee hereby agrees that Optionee will not directly or
indirectly sell, assign, transfer, pledge, hypothecate, dispose of, encumber or
otherwise grant any interest in the Option other than (i) by will or by the laws
of descent and distribution or (ii) pursuant to a "Qualified Domestic Relations
Order" ("QDRO") as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), or Title I of the Employee Retirement Income Security Act of 1974, as
amended. The Option may be exercised during the lifetime of Optionee only by
Optionee or by Optionee's guardian or other legal representative or by a
transferee thereof pursuant to a QDRO (a "Permitted Transferee").
(b) Optionee acknowledges that the Employment Agreement contains
certain restrictions on Optionee's right to sell Shares and hereby agrees that
the Company may place an appropriate legend on any certificates representing
ownership of Shares to assure compliance with such restrictions.
(c) If Optionee shall die, the Option may be exercised by Optionee's
executor, administrator or other legal representative, or by a Permitted
Transferee to whom the Option was lawfully transferred, if any, at any time
prior to the expiration of the Option pursuant to Section 4 hereof.
(d) If Optionee's employment pursuant to the Employment Agreement is
terminated by reason of "permanent disability" (as defined in the Employment
Agreement) the Option may be exercised by Optionee or by Optionee's guardian or
legal representative, or by a Permitted Transferee to whom the Option was
lawfully transferred, if any, at any time prior to the expiration of the Option
pursuant to Section 4 hereof.
7. Holder Not a Shareholder. The Option shall not entitle Holder to
any dividend, voting or other rights as a shareholder of the Company or to
any notice of proceedings of the Company in respect of any Shares issuable
upon exercise of the Option unless and until the certificates representing
the Shares have been issued to Holder.
8. Recapitalization and Reorganization.
(a) If the outstanding shares of the Common Stock of the Company are
subdivided, consolidated, increased, decreased, changed into or exchanged for a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization, reclassification, capital adjustment
or otherwise, or if the Company shall issue Common Stock as a dividend or upon a
stock split, then the number and kind of shares then purchasable upon exercise
of the Option and the Exercise Price hereunder shall be proportionately
adjusted. However, no such adjustment shall change the total purchase price of a
complete exercise of the unexercised portion of the Option. Adjustments under
this Section shall be made by the Company's independent public accountants. In
computing any such adjustments, any fractional share which might otherwise
become subject to the Option shall be eliminated and paid in cash.
(b) In the event of (i) the dissolution or liquidation of the
Company or (ii) a merger or consolidation in which (A) the Company does not
survive as a publicly owned corporation with securities registered under the
Exchange Act and (B) the agreements governing such merger or consolidation do
not provide for the issuance of substitute options with substantially equivalent
terms as determined by the Board in lieu of the Option or for the express
assumption (within the meaning of Section 424(a) of the Code) of the Option by
the surviving corporation, the Board shall declare that the Option shall
terminate as of a date to be fixed by the Board (the "Termination Date"),
provided that the Board shall cause to be delivered not less than thirty (30)
days before the Termination Date written notice of the Termination Date to
Holder and, provided the Option has theretofore been approved or ratified by the
Company's shareholders as contemplated by the provisions of Section 1 above,
Holder shall have the right, during the period between the receipt of the
written notice and the Termination Date to exercise the Option, in whole or in
part, whether or not all or any part of the Option would not otherwise be
exercisable; provided, however, that unless Optionee shall deliver to the
Company written notice to the contrary at least three (3) business days prior to
the Effective Date, the Optionee and every Holder shall be deemed to have
delivered to the Company a notice of exercise of the Option, in whole, on the
Effective Date. To the extent that the Option is not exercised in its entirety
on or prior to the Termination Date, the Option and any and all rights then
remaining hereunder shall expire and terminate as of the Termination Date.
(c) Provided the Option has been approved or ratified by the
Company's shareholders as contemplated by the provisions of Section 1 above, in
the event a "Change in Control of Employer" (as defined in the Employment
Agreement) occurs prior to October 1, 1997, the Option shall become immediately
exercisable, in whole or in part.
(d) In the event of a "Change in Control of Employer" pursuant to
which substitute options are offered to Optionee in place of the Option herein
granted or the surviving corporation offers to assume the Option, the Board
shall cause to be delivered not less than thirty (30) days before the effective
date of such "Change in Control of Employer" (the "Effective Date") written
notice of the Effective Date to Optionee and, provided the Option has
theretofore been approved or ratified by the Company's shareholders as
contemplated by the provisions of Section 1 above, Optionee shall have the right
to elect to accept such substitute options or assumption or to exercise the
Option, in whole or in part, prior to the Effective Date (and such notice shall
so state); provided, however, that unless Optionee shall deliver to the Company
written notice to the contrary at least three (3) business days prior to the
Effective Date, the Optionee and every Holder shall be deemed to have rejected
any substitute options offered to Optionee and any offer to assume the Option
and to have delivered to the Company a notice of exercise of the Option, in
whole, on the Effective Date.
9. Reservation of Shares. The Company will at all times reserve and
keep available out of its authorized shares of Common Stock, solely for
issuance upon the exercise of the Option and other similar options, at
least such number of its shares of Common Stock as shall be issuable upon
the exercise of the Option and all other similar options at the time
outstanding.
10. No Employment Agreement. Nothing contained in this Agreement
shall confer upon Optionee the right to be continued as an employee or as
a director of or as a consultant or advisor to the Company or any
subsidiary or affiliate of the Company or shall interfere in any way with
the right of the Company or any subsidiary or affiliate of the Company
lawfully to terminate Optionee's employment at any time, and no such
termination shall in any way affect any of the rights of the Company set
forth in this Agreement. Nothing herein contained shall in any way affect
the rights of the Company or Optionee arising under the Employment
Agreement.
11. Wage, FICA and Withholding Taxes. Holder hereby agrees that
Holder will make such arrangements as the Company may reasonably deem
necessary to discharge any Federal, state or local taxes (including any
wage withholding or stock transfer taxes) imposed upon the Company in
respect of this Agreement, the Option covered hereby or the Shares
purchasable hereunder. Shares of Common Stock may not be used to discharge
Holder's tax obligations. Holder may, however, discharge Holder's tax
obligations with respect to any purchase of Shares pursuant to the
exercise of the Option by (i) agreeing to sell the Shares so purchased
within the thirty (30) day period immediately following such purchase,
which period shall be extended by such number of days, if any, during
which such sale cannot be effected by reason of the failure or inability
of the Company to register such Shares under the Act (as so extended, the
"Sale Period") and (ii) delivering to the Company Optionee's promissory
note payable upon the earlier to occur of (A) such sale of Shares and (B)
the expiration of the Sale Period.
12. Entire Agreement. This Agreement contains the entire agreement of
the parties relative to the subject matter hereof, superseding and
terminating all prior agreements or understandings, whether oral or
written, between the parties hereto relative to the subject hereof, and
this Agreement may not be extended, amended, modified or supplemented
without the written consent of the parties hereto.
13. Waiver, Modification, Amendment. 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 power or right hereunder
preclude other or further exercise thereof or the 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.
14. Governing Law. This Agreement and all amendments
or changes relating hereto shall be deemed to have been
entered into pursuant to, and shall be governed by, the laws
of the State of New York.
15. Notices. Notices pursuant hereto shall be given in writing, in
person (against receipt therefor only if requested) or by registered or
certified mail, return receipt requested, and shall be deemed delivered
upon delivery in person or four (4) days after deposit in the United
States mail, postage prepaid, addressed as follows:
If to the Company: LANCIT MEDIA ENTERTAINMENT, LTD.
601 West 50th Street
New York, NY 10019
Attn: Chief Financial Officer
If to Optionee: SUSAN L. SOLOMON
211 Central Park West
New York, NY 10024
or to such other address as either party hereto shall designate to the
other party by written notice given in accordance with this Section.
16. Injunctive Relief. In addition to any other rights or remedies
available to the Company as a result of any breach of Optionee's covenants
under Section 5 hereof, the Company shall be entitled to enforcement of
such covenants by seeking an injunction or a decree of specific
performance from a court of competent jurisdiction.
<PAGE>
17. Captions. The captions or headings of the
Sections 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.
18. Optionee Information and Knowledge. Holder hereby certifies that
Holder has read the above Agreement, and understands and agrees to all of
the terms, conditions and statements contained therein, accepting this
Agreement as of the Date of Grant first above written.
ATTEST: LANCIT MEDIA ENTERTAINMENT, LTD.
_____________________________ By: __________________________________
[Assistant] Secretary Laurence A. Lancit, President
__________________________________
SUSAN L. SOLOMON
<PAGE>
EXHIBIT I
EXERCISE NOTICE
To: LANCIT MEDIA ENTERTAINMENT, LTD. (the "Company")
601 West 50th Street
New York, New York 10019
Attn: Chief Financial Officer
I hereby elect to purchase shares of Common Stock ("New Shares") in
accordance with the terms and conditions of the Stock Option Agreement to which
this Exercise Notice is attached as Exhibit I (the "Agreement"), and hereby
tender herewith full payment of the purchase price and all applicable
withholding taxes in the amount of $ , either in cash or by certified check,
bank check, personal check (in which case the Company reserves the right to
withhold issuance of such New Shares until the funds have cleared) payable to
the order of Lancit Media Entertainment, Ltd., or by wire transfer of funds, or,
but only if I am permitted to do so under the Agreement, and only with regard to
the full or partial amount of the purchase price, in negotiable certificates1
for outstanding shares of Common Stock of the Company ("Old Shares"), valued at
the "fair market value" (as defined in the Agreement) thereof as of the date
this Exercise Notice is received by the Company.
I further request that if the stock certificate(s) for Old Shares
being tendered herewith (if any) is for more shares of Common Stock than are
needed to pay the purchase price, that a new stock certificate for the extra
shares represented by the certificate(s) delivered herewith be issued and
delivered to me.
All share certificates issued pursuant to this Exercise Notice are
to be issued and delivered as follows:
_______________________________________
_______________________________________
_______________________________________
_______________________________________.
Date:__________________,________ Signature __________________________2
1 To be negotiable, certificates must be endorsed to LANCIT MEDIA
ENTERTAINMENT, LTD., or in blank, or be accompanied by a stock power so
endorsed.
2 The signature on this notice must correspond with Holder's name as
written on the face of the Agreement in every particular, without alteration or
enlargement or any change whatsoever.
Exhibit B
NQO 1990 for 70,000 Shares Dated March 31, 1997
(the "Date of Grant")
This Option and the Shares issuable upon exercise of this Option are subject to
certain restrictions on transfer described in
Sections 7 and 8 hereof, and the holder of this Option agrees to be
bound by such restrictions.
LANCIT MEDIA ENTERTAINMENT, LTD.
STOCK OPTION AGREEMENT
KNOW ALL PERSONS BY THESE PRESENTS, that LANCIT MEDIA ENTERTAINMENT, LTD.,
a New York corporation (the "Company"), acting by its Board of Directors (the
"Board"), hereby grants to SUSAN L. SOLOMON, residing at 211 Central Park West,
New York, New York 10024 ("Optionee" or a "Holder" as defined below), pursuant
to the Company's 1990 Stock Option Plan (the "Plan"), in consideration of
services to be rendered to the Company, the right and option (the "Option") to
purchase up to SEVENTY THOUSAND (70,000) fully-paid and non-assessable shares
(the "Shares") of the Company's common stock, par value $.001 per share (the
"Common Stock"), on the following terms and conditions (as used throughout, the
term "Optionee" shall refer only to the original grantee of the Option, and
shall not include subsequent authorized holders thereof, such as legatees,
personal representatives or distributees of such grantee or transferees thereof
pursuant to a "QDRO" (as defined in Section 8 below), and the term "Holder"
shall refer to any authorized holder of the Option):
1. Character of the Option. The Plan provides for the issuance of
incentive stock options ("Incentive Stock Options") and of non-qualified stock
options ("Non-Qualified Options"). The Incentive Stock Options are intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"). Non-Qualified Options are intended to be
options which do not satisfy the requirements of Section 422 of the Code. All of
the Shares purchasable hereunder are purchasable pursuant to a Non-Qualified
Option.
2. Time and Manner of Exercise.
(a) To the extent provided in paragraph (b) of this Section, the Option
may be exercised in whole or from time to time in part by giving advance written
notice of such exercise to the Chief Financial Officer of the Company in the
form of Exhibit I annexed hereto at any time after October 1, 1997 and prior to
midnight, New York City time, on March 31, 2007 (the "Expiration Date"),
specifying the number of Shares to be purchased. In no event shall a fraction of
a Share be purchased or issued hereunder. Such notice must be accompanied by
full payment for the Shares to be purchased and any withholding tax due. If the
Company does not receive full payment for the Shares to be purchased and any
withholding tax due within a reasonable period of time after notice of exercise
has been given by Optionee, the notice of exercise shall be deemed to have been
withdrawn and the Option shall remain in full force and effect, exercisable in
accordance with the terms of this Agreement without any change in the number of
Shares purchasable upon exercise of the Option, as though such notice of
exercise had never been issued.
(b) This Option may be exercised prior to the Expiration Date at any time
(or if exercised in part, from time to time) to purchase such number of Shares
as equals the total of the "Exercise Products" determined prior to such exercise
of the Option (less such number of Shares as may already have been purchased
upon the exercise of the Option); provided, however, that under no circumstances
whatsoever may the Option be exercised to purchase more that 70,000 shares of
Common Stock. For the purposes of this agreement, Exercise Product shall be
determined as follows: Every time an option or warrant issued by the Company
which entitles the holder to acquire shares of Common Stock upon the exercise
thereof, and which is outstanding on the date first above written (each such
option and warrant outstanding on the date first above written is hereinafter
referred to as a "Currently Outstanding Warrant"), is exercised, the "dilutive
effect" of such exercise shall be determined in accordance with the following
formula:
"dilutive effect" = dilutive value, where "dilutive value" = afmv - app, where
-------------- ----------
fmv os+uso
fmv = the "fair market value" of a share of Common Stock on
the date of exercise (for the purposes of this
agreement, the term "fair market value" as of any date
of a share of Common Stock means the average of the
closing bid and ask quotations for a share of Common
Stock as reported on the principal national securities
exchange on which such shares are listed or, if not so
listed, on the National Association of Securities
Dealers, Inc. Automated Quotation System on the
relevant date or, if no such shares were sold on such
date, on the next preceding date on which such shares
were sold or, if no sales shall have occurred within 10
business days preceding such relevant date, fair market
value shall be as reasonably determined by the Board in
good faith);
afmv = the aggregate fair market value of the shares of Common
Stock purchased upon such exercise;
app = the aggregate purchase price paid for such shares of
Common Stock;
os = the number of shares of Common Stock outstanding
immediately prior to such exercise; and
uso = the number of Signing Options remaining unexercised at
such time.
The dilutive effect so determined, expressed as a fraction, shall be multiplied
by 700,000 and the product so determined (the "Exercise Product") shall be the
number of Shares which may thereafter be purchased upon exercise of the Option
as a consequence of such exercise of Currently Outstanding Warrants. The
Exercise Product shall be determined with respect to every exercise of Currently
Outstanding Warrants after the date hereof.
(c) Anything in paragraph (b) of this Section to the contrary
notwithstanding, from and after October 1, 2006, the Option shall be exercisable
in whole or from time to time in part to purchase 70,000 Shares (less such
number of Shares as may already have been purchased upon the exercise of the
Option).
3. Exercise Price. The price of the Shares to be purchased pursuant
to the Option shall be $5.0625 per share (the "Exercise Price"), subject to
adjustment pursuant to Section 10 hereof. The aggregate purchase price of the
Shares to be purchased pursuant to any exercise of the Option shall be equal to
the product of the number of Shares to be purchased multiplied by the Exercise
Price.
4. Payment and Issuance of Share Certificates. Full payment of the
aggregate purchase price for the Shares purchased by Holder and any withholding
taxes due thereon shall be made to the Company, either in cash or by certified
check, bank check, personal check (in which case the Company reserves the right
to withhold issuance of such Shares until the funds have cleared) or by wire
transfer. If, and only if, the Shares issuable upon exercise of the Option may
not be immediately resold without restriction under the Securities Act of 1933,
as amended (the "Act") prior to the date such payment is due, then Holder may
pay the full or partial amount of the purchase price, but not any withholding
taxes due, in shares of Common Stock of the Company (including Shares previously
issued upon exercise of the Option) valued at the "fair market value" thereof on
the date notice of exercise of the Option to purchase such Shares is received by
the Company. Certificates for the Shares purchased shall be delivered to Holder,
subject to the provisions of Section 10 hereof, promptly thereafter. No Shares
shall be issued, and no certificates for Shares shall be delivered, to Holder
until full payment therefor and of any withholding tax due thereon has been
made.
5. Expiration. The Option shall expire and become
null and void at the earliest of:
(a) the Expiration Date;
(b) expiration of the Option pursuant to the provisions of
Section 10 hereof;
(c) (i) six (6) months after the termination of Optionee's employment
pursuant to Optionee's employment agreement with the Company dated as of March
31, 1997 (the "Employment Agreement") if such termination occurs on or prior to
March 31, 2001 other than "For Cause" (as defined in the Employment Agreement)
or by reason of death or "permanent disability" (as defined in the Employment
Agreement);
(ii) one (1) year after the termination of Optionee's employment
pursuant to the Employment Agreement if such termination occurs on or prior to
March 31, 2001 by reason of death or "permanent disability;"
(d) one (1) year after the termination of Optionee's employment pursuant
to the Employment Agreement if such termination occurs for any reason other than
"For Cause" after March 31, 2001 and on or prior to March 31, 2002;
(e) two (2) years after the termination of Optionee's employment pursuant
to the Employment Agreement if such termination occurs for any reason other than
"For Cause" or by reason of "permanent disability" after March 31, 2002 and on
or prior to March 31, 2003;
(f) three (3) years after the termination of Optionee's employment
pursuant to the Employment Agreement if such termination occurs for any reason
other than "For Cause" or by reason of "permanent disability" after March 31,
2003;
(g) one (1) year after the termination of Optionee's employment pursuant
to the Employment Agreement if such termination occurs by reason of "permanent
disability" after March 31, 2002; or
(h) upon the termination of Optionee's employment pursuant to the
Employment Agreement if such termination occurs "For Cause" at any time.
In the event Optionee's employment is terminated within four (4) years of the
Effective Date of the Employment Agreement other than "For Cause" or in the
event Optionee effects a "Resignation For Cause" (as defined in the Employment
Agreement) then, notwithstanding any other provisions of this or any other
agreement dated of even date herewith or prior hereto, the Option shall expire
no earlier than the date which is two (2) years from the Effective Date of the
Employment Agreement with respect to 50% of the Shares purchasable upon exercise
of the Option, the date which is three (3) years from the Effective Date of the
Employment Agreement with respect to an additional 25% of the Shares purchasable
upon exercise of the Option, and the date which is four (4) years from the
Effective Date of the Employment Agreement with respect to the remaining 25% of
the Shares purchasable upon exercise of the Option.
6. Subject to Plan. The Option has been issued under the Plan. In
addition to the provisions of this Agreement, the Option will be subject to the
power of the Board to interpret the Plan, correct any defect, supply any
omission and reconcile any inconsistency in the Plan, prescribe, amend and
rescind rules and regulations, forms, notices and agreements relating to it and
make all determinations necessary or advisable for its administration and to
alter, suspend or discontinue the Plan at any time, except that no such action
of the Board may, without the consent of the Holder, alter the terms of, or
impair the rights of the Holder under this Agreement, except pursuant to Section
10 below. The power of the Board to construe and administer any options granted
prior to the termination or suspension of the Plan shall nevertheless continue
after and survive such termination or during such suspension. By acceptance
hereof, Optionee acknowledges receipt of a copy of the Summary Plan Description
describing the Plan and recognizes and agrees to the foregoing.
7. Securities Laws.
(a) Optionee acknowledges that Optionee has been informed of, or is
otherwise familiar with, the nature and the limitations imposed by the
Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations thereunder
(in particular, Rule 144 promulgated under the Act ("Rule 144") and Section 16
of the Exchange Act and Rule 16b-3 promulgated thereunder) and the securities
("Blue Sky") laws of the state of Optionee's residence, concerning the Shares
issuable upon exercise of the Option and agrees to be bound by the restrictions
embodied in such laws, and the rules and regulations promulgated thereunder.
Unless the Shares to be issued upon the exercise of the Option have been
registered for resale in accordance with a currently effective registration
statement under the Act, the Board may require, as a condition to the delivery
of certificates representing ownership of the Shares, that the Company receive
appropriate evidence that Holder is acquiring the Shares for investment and not
with a view to the distribution or public offering of the Shares, or any
interest in the Shares, and a representation to the effect that Holder shall
make no sale or other disposition of the Shares unless (a) the Company shall
have received an opinion of counsel satisfactory in form and substance to it
that the sale or other disposition may be made without registration under the
then applicable provisions of the Act and the rules and regulations promulgated
thereunder, or (b) the Shares shall be included in a currently effective
registration statement under the Act. If at any time the Board shall determine
in its discretion that the listing, registration or qualification of the shares
covered by the Plan upon any national securities exchange or under any federal
or state law, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the sale or
purchase of shares subject to the Plan, no Shares shall be issued and no
certificates for Shares shall be delivered unless and until such listing,
registration, qualification, consent or approval shall have been effected or
obtained, or otherwise provided for, free of any conditions not acceptable to
the Board. The Company reserves the right to place a legend on any certificates
representing ownership of Shares to assure compliance with this paragraph.
(b) The Company acknowledges that the Common Stock purchasable upon
exercise of stock options issued under the Plan have been registered under the
Act on a Form S-8 registration statement and agrees to use reasonable efforts to
maintain same in effect. In connection with such registration, the Company shall
prepare and file, by means of a post-effective amendment, and thereafter
maintain current and in effect a "reoffer prospectus" under such registration
statement registering the resale of all the Shares by Optionee. The Company
agrees to use reasonable efforts to make timely filings of its periodic reports
and to take such other actions as may be necessary or appropriate in order for
the Company to remain qualified to use Form S-8 and such reoffer prospectus as
herein contemplated. The Company's obligations under this paragraph shall
terminate upon the earliest to occur of (i) the eleventh (11th) anniversary of
the Date of Grant, or (ii) the sale of all of the Shares by Optionee, or (iii)
the date Optionee receives an opinion of counsel (which may be from counsel to
the Company) reasonably acceptable to counsel for the Optionee that all of the
Shares may be sold under the provisions of paragraph (k) of Rule 144
notwithstanding the fact that a portion of the Shares may remain unregistered
under the Act.
8. Non-Transferability; Death or Disability.
(a) The Option is granted in recognition of the personal services of
Optionee and Optionee hereby agrees that Optionee will not directly or
indirectly sell, assign, transfer, pledge, hypothecate, dispose of, encumber or
otherwise grant any interest in the Option other than (i) by will or by the laws
of descent and distribution or (ii) pursuant to a "Qualified Domestic Relations
Order" ("QDRO") as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), or Title I of the Employee Retirement Income Security Act of 1974, as
amended. The Option may be exercised during the lifetime of Optionee only by
Optionee or by Optionee's guardian or other legal representative or by a
transferee thereof pursuant to a QDRO (a "Permitted Transferee").
(b) Optionee acknowledges that the Employment Agreement contains certain
restrictions on Optionee's right to sell Shares and hereby agrees that the
Company may place an appropriate legend on any certificates representing
ownership of Shares to assure compliance with such restrictions.
(c) If Optionee shall die, the Option may be exercised by Optionee's
executor, administrator or other legal representative, or by a Permitted
Transferee to whom the Option was lawfully transferred, if any, at any time
prior to the expiration of the Option pursuant to Section 5 hereof.
(d) If Optionee's employment pursuant to the Employment Agreement is
terminated by reason of "permanent disability" (as defined in the Employment
Agreement), the Option may be exercised by Optionee or by Optionee's guardian or
legal representative, or by a Permitted Transferee to whom the Option was
lawfully transferred, if any, at any time prior to the expiration of the Option
pursuant to Section 5 hereof.
9. Holder Not a Shareholder. The Option shall not entitle Holder to
any dividend, voting or other rights as a shareholder of the Company or to any
notice of proceedings of the Company in respect of any Shares issuable upon
exercise of the Option unless and until the certificates representing the Shares
have been issued to Holder.
10. Recapitalization and Reorganization.
(a) If the outstanding shares of the Common Stock of the Company are
subdivided, consolidated, increased, decreased, changed into or exchanged for a
different number or kind of shares or securities of the Company through
reorganization, merger, recapitalization, reclassification, capital adjustment
or otherwise, or if the Company shall issue Common Stock as a dividend or upon a
stock split, then the number and kind of shares then purchasable upon exercise
of the Option and the Exercise Price hereunder shall be proportionately
adjusted. However, no such adjustment shall change the total purchase price of a
complete exercise of the unexercised portion of the Option. Adjustments under
this Section shall be made by the Company's independent public accountants. In
computing any such adjustments, any fractional share which might otherwise
become subject to the Option shall be eliminated and be paid in cash.
(b) In the event of (i) the dissolution or liquidation of the Company or
(ii) a merger or consolidation in which (A) the Company does not survive as a
publicly owned corporation with securities registered under the Exchange Act and
(B) the agreements governing such merger or consolidation do not provide for the
issuance of substitute options with substantially equivalent terms as determined
by the Board in lieu of the Option or for the express assumption (within the
meaning of Section 424(a) of the Code) of the Option by the surviving
corporation, the Board shall declare that the Option shall terminate as of a
date to be fixed by the Board (the "Termination Date"), provided that the Board
shall cause to be delivered not less than thirty (30) days before the
Termination Date written notice of the Termination Date to Holder, and Holder
shall have the right, during the period between the receipt of the written
notice and the Termination Date to exercise the Option, in whole or in part,
whether or not all or any part of the Option would not otherwise be exercisable;
provided, however, that unless Optionee shall deliver to the Company written
notice to the contrary at least three (3) business days prior to the Effective
Date, the Optionee and every Holder shall be deemed to have delivered to the
Company a notice of exercise of the Option, in whole to the extent provided in
paragraph (b) of Section 2, above, on the Effective Date. To the extent that the
Option is not exercised in its entirety on or prior to the Termination Date, the
Option and any and all rights then remaining hereunder shall terminate as of the
Termination Date.
(c) In the event "Change in Control of Employer" (as defined in the
Employment Agreement) occurs prior to October 1, 1997, the Option shall become
immediately exercisable, in whole or in part, to the extent provided in
paragraph (b) of Section 2, above.
(d) In the event of a "Change in Control of Employer" pursuant to which
substitute options are offered in place of the Option herein granted or the
surviving corporation offers to assume the Option, the Board shall cause to be
delivered not less than thirty (30) days before the effective date of such
"Change in Control of Employer" (the "Effective Date") written notice of the
Effective Date to Optionee and Optionee shall have the right to elect (i) to
accept such substitute options or assumption, or (ii) to exercise the Option, in
whole or in part, to the extent provided in paragraph (b) of Section 2, above,
prior to the Effective Date (and such notice shall so state); provided, however,
that unless Optionee shall deliver to the Company written notice to the contrary
at least three (3) business days prior to the Effective Date, the Optionee and
every Holder shall be deemed to have rejected any substitute options offered to
Optionee and any offer to assume the Option and to have delivered to the Company
a notice of exercise of the Option, in whole to the extent provided in paragraph
(b) of Section 2, above, on the Effective Date.
11. Reservation of Shares. The Company will at all times reserve and
keep available out of its authorized shares of Common Stock, solely for issuance
upon the exercise of the Option and other similar options, at least such number
of its shares of Common Stock as shall be issuable upon the exercise of the
Option and all other similar options at the time outstanding.
12. No Employment Agreement. Nothing contained in this Agreement
shall confer upon Optionee the right to be continued as an employee or as a
director of or as a consultant or advisor to the Company or any subsidiary or
affiliate of the Company or shall interfere in any way with the right of the
Company or any subsidiary or affiliate of the Company lawfully to terminate
Optionee's employment at any time, and no such termination shall in any way
affect any of the rights of the Company set forth in this Agreement. Nothing
herein contained shall in any way affect the rights of the Company or Optionee
arising under the Employment Agreement.
13. Wage, FICA and Withholding Taxes. Holder hereby agrees that
Holder will make such arrangements as the Company may reasonably deem necessary
to discharge any Federal, state or local taxes (including any wage withholding
or stock transfer taxes) imposed upon the Company in respect of this Agreement,
the Option covered hereby or the Shares purchasable hereunder. Shares of Common
Stock may not be used to discharge Holder's tax obligations. Holder may,
however, discharge Holder's tax obligations with respect to any purchase of
Shares pursuant to the exercise of the Option by (i) agreeing to sell the Shares
so purchased within the thirty (30) day period immediately following such
purchase, which period shall be extended by such number of days, if any, during
which such sale cannot be effected by reason of the failure or inability of the
Company to register such Shares under the Act (as so extended, the "Sale
Period") and (ii) delivering to the Company Optionee's promissory note payable
upon the earlier to occur of (A) such sale of Shares and (B) the expiration of
the Sale Period.
14. Entire Agreement. This Agreement contains the entire agreement of
the parties relative to the subject matter hereof, superseding and terminating
all prior agreements or understandings, whether oral or written, between the
parties hereto relative to the subject hereof, and this Agreement may not be
extended, amended, modified or supplemented without the written consent of the
parties hereto.
15. Waiver, Modification, Amendment. 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 power or right hereunder preclude other or further
exercise thereof or the 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.
<PAGE>
16. Governing Law. This Agreement and all amendments
or changes relating hereto shall be deemed to have been entered
into pursuant to, and shall be governed by, the laws of the State
of New York.
17. Notices. Notices pursuant hereto shall be given in writing, in
person (against receipt therefor only if requested) or by registered or
certified mail, return receipt requested, and shall be deemed delivered upon
delivery in person or four (4) days after deposit in the United States mail,
postage prepaid, addressed as follows:
If to the Company: LANCIT MEDIA ENTERTAINMENT, LTD.
601 West 50th Street
New York, NY 10019
Attn: Chief Financial Officer
If to Optionee:SUSAN L. SOLOMON
211 Central Park West
New York, NY 10024
or to such other address as either party hereto shall designate to the other
party by written notice given in accordance with this Section.
18. Injunctive Relief. In addition to any other rights or remedies
available to the Company as a result of any breach of Optionee's covenants under
Section 7 hereof, the Company shall be entitled to enforcement of such covenants
by seeking an injunction or a decree of specific performance from a court of
competent jurisdiction.
19. Captions. The captions or headings of the
Sections 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.
20. Optionee Information and Knowledge. Holder hereby certifies that
Holder has read the above Agreement, and understands and agrees to all of the
terms, conditions and statements contained therein, accepting this Agreement as
of the Date of Grant first above written.
ATTEST: LANCIT MEDIA ENTERTAINMENT, LTD.
_____________________________ By: ______________________________
[Assistant] Secretary Laurence A. Lancit, President
______________________________
SUSAN L. SOLOMON
<PAGE>
EXHIBIT I
to Stock Option Agreement
EXERCISE NOTICE
To: LANCIT MEDIA ENTERTAINMENT, LTD. (the "Company")
601 West 50th Street
New York, New York 10019
Attn: Chief Financial Officer
I hereby elect to purchase shares of Common Stock ("New Shares") pursuant
to the exercise of Non-Qualified Option NQO 1990- in accordance with the terms
and conditions of the Stock Option Agreement to which this Exercise Notice is
attached as Exhibit I (the "Agreement"), and hereby tender herewith full payment
of the purchase price and all applicable withholding taxes in the amount of $ ,
either in cash or by certified check, bank check, personal check (in which case
the Company reserves the right to withhold issuance of such New Shares until the
funds have cleared) payable to the order of Lancit Media Entertainment, Ltd., or
by wire transfer, or, but only if I am permitted to do so under the Agreement,
and only with regard to the full or a partial amount of the purchase price, in
negotiable certificates1 for outstanding shares of Common Stock of the Company
("Old Shares"), valued at the "fair market value" (as defined in the Agreement)
thereof as of the date this Exercise Notice is received by the Company.
I further request that if the stock certificate(s) for Old Shares being
tendered herewith (if any) is for more shares of Common Stock than are needed to
pay the purchase price, that a new stock certificate for the extra shares
represented by the certificate(s) delivered herewith be issued and delivered to
me.
All share certificates issued pursuant to this Exercise Notice are to be
issued and delivered as follows:
_______________________________________
_______________________________________
_______________________________________
_______________________________________.
Date:___________________, ______ Signature____________________________
1 To be negotiable, certificates must be endorsed to LANCIT MEDIA ENTERTAINMENT,
LTD., or in blank, or be accompanies by a stock power so endorsed.
2 The signature on this notice must correspond with Holder's name as written on
the face of the Agreement in every particular, without alteration or enlargement
or any change whatsoever.
EMPLOYMENT AGREEMENT made as of the 25th day of February, 1996 by and
between LANCIT MEDIA PRODUCTIONS, LTD. with offices at 601 West 50th Street, New
York, New York 10019 (hereinafter "Employer") and DAVID MICHAELS, residing at
1526 North Beverly Drive, Beverly Hills, California 90210 (hereinafter
"Employee").
WHEREAS, the parties desire to set forth the terms and conditions of
employment of Employee by Employer.
NOW, THEREFORE, in consideration of the agreements hereinafter contained,
the parties hereto agree as follows:
1. Term: Employer hereby employs Employee as Vice
President - Motion Pictures for a period of three (3) years
commencing on February 26, 1996 ("Initial Term").
2. Services: (a) Employee shall be responsible for
Employer's development of quality family television and film
projects consistent with Employer's primary mission to deliver
quality content and quality production values, and expanding
Employer's presence into mainstream children and family
programming venues.
(b) Employee will perform his services within a mutually agreed
annual budget, it being understood that if Employer and Employee cannot agree on
such budget, Employer's decision regarding such budget shall be final. Employee
agrees to devote his full working time and efforts to the business and affairs
of Employer and to all of its subsidiaries and affiliates, if any (hereinafter
collectively referred to as the "Corporate Group"), and hold the offices in
components of the Corporate Group to which from time to times he may be elected
or appointed, provided that they are of the same general character and of at
least the same degree of responsibility as the offices in Employer which he
shall hold at the time of the execution of this Agreement.
(c) Employee shall have a private, enclosed office and will share a
secretary/assistant employed by Employer. Employee's primary place of employment
will be at Employer's office in Los Angeles, California, and Employer will not
change Employee's primary place of employment without Employee's consent.
Employer and Employee will mutually agree on the times when Employee shall
render his services in New York City, it being understood that if Employer and
Employee cannot agree on such times, Employer's decision shall be final.
(d) Nothing contained in this Agreement shall be construed to prevent
Employee from managing his private passive investments in any non-competitive
business, except that Employee will be permitted to own not more than five (5%)
percent of the issued and outstanding stock or other securities of a competitive
company. Employee shall, in the performance of his duties, be at all times
subject to the direction and supervision of Employer, and shall report to
Employer's Chief Executive Officer, currently Cecily Truett.
(e) Notwithstanding the provisions of subparagraph 2(a), Employer
acknowledges that Employee currently has, and will continue to have an ownership
interest in the motion picture/television production company Good Medicine, Inc.
("Good Medicine"). Employee represents and warrants that Good Medicine has an
interest in the projects described in Schedule A annexed hereto as well as
future projects acquired or developed by Good Medicine (collectively referred to
herein as the "Outside Projects"). Employee will be permitted to continue to be
involved in the activities of Good Medicine upon the following conditions:
(i) Employee's involvement in such
activities shall not materially interfere with the performance of Employee's
duties hereunder, as determined in Employer's sole reasonable discretion;
(ii) Employee shall not engage in line
producing or other activities which require anything other than minimal
supervisory involvement during the term of this agreement; and
(iii) Employee agrees to cause Good Medicine
to grant Employer first negotiation and matching rights with respect to the
Outside Projects. In that connection, if, and only if, Employee desires to enter
into an agreement with any third party regarding the development of an Outside
Project, Employee agrees to cause Good Medicine to deliver to Employer a written
description of each Outside Project, together with a development budget and/or a
development cost report for such Outside Project no less than ten (10) days
prior to soliciting any third party interest in such development. Within ten
(10) days of receipt of such materials, Employer shall advise Employee whether
Employer wishes to assume development of such Outside Project. If Employer
elects to assume development of such Outside Project, Employer shall reimburse
Good Medicine for its documented, direct out-of-pocket costs (exclusive of any
salary and salary related items paid to Employee or any employees of Good
Medicine) to date in connection with such Outside Project. If Employer declines
to assume development of such Outside Project, Good Medicine shall thereafter be
permitted to offer such Outside Project to any other third party. If, prior to a
third party entering into a contract with respect to such Outside Project, a
material element of an Outside Project changes at any time after Employer
declines to assume development of such Outside Project, such changed Outside
Project shall be deemed a new Outside Project, subject to all of the provisions
of this subparagraph 2(e)(iii). Finally, if Employer declines to assume
development of an Outside Project, and Good Medicine receives from a third party
a written offer to assume development or financing of an Outside Project,
Employee shall deliver to Employer a copy of such written offer, which offer
shall contain all material terms of any such proposed third party agreement.
Employer shall then have the right for five (5) business days to match such
offer, and upon receipt of Employer's agreement to match such offer, Employee
shall cause Good Medicine to enter into an agreement with Employer regarding the
assumption of the development or financing of the Outside Project, upon material
terms equivalent to those of the proposed third party agreement. Employer
acknowledges and agrees that if an Outside Project is not offered to Employer
during the Term in accordance with the terms of this Agreement, such Outside
Project shall not be required to be offered to Employer after the expiration of
the Term.
(f) (i) In connection with productions acquired or developed solely
by Employee hereunder, Employee shall be entitled to receive credit for
supervisory producing services actually rendered by Employee hereunder. Employer
will use its best efforts to accord such credit in advertisements wherever and
whenever Employer, the writer and the director of such production receive
credit, in the main or end titles of the production, subject to approval of the
distributor of such production, and Employer's and Employee's mutual agreement,
not to be unreasonably withheld, regarding the appropriate description of
Employee's services. A production shall be deemed "developed or acquired solely
by Employee hereunder" if the project shall be identified as such within ten
(10) days after such project shall have been first introduced to Employer by an
executed written notice in the form of Exhibit A hereto, delivered by Employee
and acknowledged by Employer.
(ii) With respect to Outside Projects acquired by Employer
during the Term, Employer agrees to accord Employee a "Produced By" credit in
the main or end titles and in paid advertisements wherever and whenever
Employer, the writer and the director of such production receive credit, and
agrees to require the distributor of such production to accord such credit.
(iii) An inadvertent failure by Employer or the distributor of
such production to accord Employee the credit required by this subparagraph 2(f)
shall not be a breach of this Agreement, although Employer shall, upon receipt
of written notice of such failure from Employee, use reasonable efforts to cure,
or instruct the distributor to cure, such failure on a prospective basis. It is
acknowledged and agreed that if Employee has rendered such services in
connection with a production during the Term of this Agreement, such credit
shall be accorded to Employee whether or not Employee is then an employee of
Employer.
3. Compensation:
(a) As compensation for services rendered to the Corporate Group
during the term of this Agreement, Employee shall be paid compensation at the
annual base rate (the "Base Salary") of $75,000 per year during the first year
of this Agreement. The Base Salary during each of the second and third years of
this Agreement shall be not less than $125,000 per year, but may also be raised
based on Employee's performance and in amounts as may be determined by his
supervisor and approved in accordance with Employer's policies. The Base Salary
shall be payable in accordance with Employer's then applicable payroll practice.
(b) Employer has adopted an Incentive Bonus Plan whereby executive
officers of Employer as a group shall receive a bonus of five (5%) percent of
pre-tax income of Employer, as set forth in Employer's audited financial
statements provided that: (i) Employer's pre-tax income in any given fiscal year
is at least $250,000; (ii) in such fiscal year, Employer's net income per share
is at least $.05 per share (adjusted for stock splits and stock dividends); 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
Employee which may be available for distribution pursuant to such Incentive
Bonus Plan, in any year of this Agreement, shall be determined by Employer.
Employee shall be eligible to participate in such Incentive Bonus Plan starting
with the fiscal year which commences on July 1, 1996, and if the term of
Employee's employment terminates prior to the close of Employer's fiscal year,
Employee shall be eligible to participate in a pro-rata portion of any bonus
payable as of the close of such fiscal year. Employer represents and warrants
that no current employee has pre-negotiated the amount of any bonus to be paid
to such employee in connection with the Incentive Bonus Plan described in this
subparagraph 3(b).
(c) (i) Subject to the terms of this Agreement, Employer's 1990 Stock
Option Plan (as it may be amended from time to time) and any applicable I.R.S.
regulations, Employee shall be granted an option to purchase 45,000 shares of
Employer's Common Stock (the "Signing Options") effective as of February 26,
1996 (the "Effective Date"), the Signing Options to vest and be exercisable in
accordance with the provisions below. The Signing Options shall be granted
pursuant to Employer's 1990 Stock Option Plan, as it may be amended from time to
time. Options with respect to 15,000 shares of the Signing Options shall be
exercisable as of the Effective Date. Options with respect to an additional
15,000 shares of the Signing Options shall be exercisable as of February 26,
1997. Options with respect to the final 15,000 shares of the Signing Options
shall be exercisable as of February 25, 1998. All such Signing Options shall be
exercisable at an exercise price per share equal to $10.125 per share, which was
the average of the closing bid and ask quotations for a share of Employer's
Common Stock on the Effective Date.
(ii) The terms of the Signing Options shall be governed by
Employer's 1990 Stock Option Plan and Employee's Stock Option Agreement, copies
of which have been delivered to
Employee prior to the execution hereof.
(iii) Employee acknowledges and agrees that, as a corporate
officer of Employer, he may be deemed a "Named Executive Individual" and is an
insider, for the purposes of SEC filings and reporting and securities laws.
Employee agrees to comply with all applicable securities laws including, without
limitation, timely filing of Form 3, "Initial Statement of Beneficial Ownership
of Securities."
(d) Subject to the limitations described in Exhibit B annexed hereto
and the provisions of this Agreement, Employee shall also be entitled to receive
a production introduction bonus in the amount of Twelve and One-Half Percent
(12-1/2%) of Passive Producing Fees (defined below) arising out of projects
introduced to Employer solely by Employee and which Passive Producing Fees are
received by Employer, either during or after the term of his employment.
Notwithstanding the previous sentence, Employee's production introduction bonus
shall only be payable after the term of his employment (i) if projects are
picked up by Employer pursuant to contracts entered into by Employer (A) during
the term of his employment or (B) within six (6) months (for television
projects) or twelve (12) months (for theatrical motion picture projects) after
the term of his employment and (ii) with respect to a television project, such
production introduction bonus shall only be payable with respect to the first
season of such television project. The production introduction bonuses shall be
calculated and paid to Employee within thirty (30) days after each June 30th out
of twenty-five (25%) percent of Employer's Passive Producing Fees (the
"Introduction Bonus Fund"). If the Introduction Bonus Fund is insufficient to
pay any portion of a production introduction bonus payable hereunder, payment of
such portion shall be deferred until the Introduction Bonus Fund is sufficient
to pay the remaining portion of Employee's production introduction bonus.
"Passive Producing Fees" shall be deemed to be net sums paid to Employer (i.e.,
net of any third party payments made by Lancit (including unreimbursed payments
Lancit may make to underlying rights owners)) by third parties as compensation
for licensing to such third parties the right to exploit a project, and with
respect to which Employer is not required to provide any other production
services. For the purposes of this subparagraph 3(c)(ii), a project shall be
deemed "introduced to Employer solely by Employee" if the project shall be
identified as such within ten (10) days after such project shall have been first
introduced to Employer by an executed written notice in the form of Exhibit A
hereto, delivered by Employee and acknowledged by Employer.
4. Termination: (a) In addition to any other rights and remedies provided
by law or this agreement, Employer may terminate Employee's employment hereunder
upon written notice for "cause". For purposes of this paragraph, "cause" shall
include: (i) commission of any act of material fraud or gross negligence by
Employee in the course of his employment hereunder which, in the case of gross
negligence, has a materially adverse effect on the business or financial
condition of Employer; (ii) willful and material misrepresentation at any time
during the term hereof by Employer to any officer of Employer; (iii) failure,
refusal or neglect by Employee to comply with a reasonable instruction of the
Chief Executive Officer of Employer; (iv) engagement by Employee in any conduct
or the commission by Employee of any act which is, in the reasonable opinion of
Employer, materially injurious or detrimental to the substantial interest of
Employer; (v) engagement by Employee in any act, whether with respect to his
employment or otherwise, which is in violation of the criminal laws of the
United States or any state thereof or any similar foreign law to which Employee
may be subject involving acts of moral turpitude; or (vi) death or disability of
Employee. Employee shall be deemed disabled if he shall be unable by reason of
mental or physical incapacity from performing his duties hereunder for a period
of 90 consecutive days or an aggregate of 120 days in any consecutive six-month
period. In case of each provision above, when a cure is possible, Employee shall
be given notice, details of the grounds for termination and ten (10) days to
cure, provided that the foregoing cure period shall not be available with
respect to conduct which has been the subject of a previous notice and cure
period. If Employee's employment shall be terminated pursuant to this
subparagraph 4(a), Employee shall be entitled to receive only the base salary
actually earned and payable to Employee pursuant to subparagraph 3(a) above
through the date of the termination of his employment, together with any
properly reimbursable expenses and other accrued employee benefits through the
date of termination, and Employee shall not thereafter be entitled to receive
any further salary, expenses, benefits (other than medical or disability
benefits if applicable) or other compensation of any kind hereunder. Any bonus
which has been earned, but not paid, shall be paid at the time it would
otherwise be payable.
(b) If Employer shall terminate Employee's employment other than for
"cause", as provided in subparagraph 4(a) above, Employee shall be entitled to
receive, as damages, and as his sole and exclusive right and remedy on account
of such termination, the base salary and medical benefits to which Employee
would otherwise have been entitled hereunder throughout the remaining term
hereof together with any properly reimbursable business expenses and other
employee benefits to the date of termination. Amounts payable by Employer under
this subparagraph 4(b) shall be payable when and as the same would otherwise
have been payable under the terms hereof and shall be subject to Employee's duty
to mitigate his damages by using reasonable efforts to seek other comparable
employment. Compensation (in whatever form) earned by Employee on account of
other employment during the unexpired term of this Agreement shall be applied in
reduction of Employer's obligations hereunder. Employee shall not thereafter be
entitled to receive any further salary, expenses, benefits (other than medical
or disability benefits, if applicable) or other compensation hereunder, except
that Employee shall be eligible to receive a pro-rata share of any bonus due
hereunder for the fiscal year in which Employee is terminated under this
subparagraph 4(b). In the event of termination pursuant to this subparagraph
4(b) Employee shall not be entitled to any damages by reason of such termination
other than as set forth in this subparagraph 4(b).
(c) Employee may not terminate this Agreement, except in the event of
a material breach of this Agreement by Employer.
5. Expenses: Employer shall reimburse Employee for all reasonable expenses
of business travel (including car service to and from airports), hotel,
business-related car telephone, entertainment or otherwise incurred by Employee
in connection with and on behalf of the business of Employer upon presentation
of receipt, voucher or itemization of expenses in accordance with Employer's
then applicable expense reimbursement policies and procedures. Air travel and
hotel expenses shall be reimbursed at rates comparable to those reimbursed for
Employer's other management executives. In addition, and in lieu of the
gas/mileage reimbursement which would normally be payable to Employee in
connection Employee's use of his car for Employer's business, Employer shall pay
Employee a $600 monthly non-accountable car allowance. Employee acknowledges and
agrees that such car allowance payments shall be reported to the Internal
Revenue Service as part of Employee's gross compensation.
6. Disability: If Employee is unable to perform his duties hereunder by
reason of any illness, disability or incapacity, as determined by Employer, he
shall be entitled to one hundred (100%) percent of his Base Salary for the first
ninety (90) days of his disability, and fifty (50%) percent of those amounts for
the next ninety (90) days, unless he is terminated for disability pursuant to
subparagraph 4(a), less such benefits or compensation payable to Employee by
reason of State, Federal, Social Security, disability, worker's compensation or
comparable government benefits and such policies of disability insurance
procured by Employer. The foregoing periods of disability during which
compensation shall be paid constitute aggregate periods during the full term of
this Agreement. Employer represents and warrants that no other executive of
Employer currently has an employment agreement which provides greater disability
benefits to such executive.
7. Employee Benefits: Employee shall be entitled to 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 senior executives of Employer which may be in effect from time
to time during the period of his employment hereunder. Employer shall be under
no obligation to continue the existence of any such employee benefit plan.
Employer acknowledges that it currently maintains a 401(k) plan. Employee shall
be entitled to two (2) weeks vacation time (exclusive of any Employer-wide
holidays or vacations). Employer agrees that if its vacation policy for other
executives changes to increase the vacation time permitted, Employee's vacation
time will be increased by a like amount.
8. Disclosure of Confidential Information: Employee recognizes and
acknowledges that certain information is proprietary to and confidential with
Employer and/or the Corporate Group, including without limitation the following:
Employer'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 Employer and/or the Corporate Group
(collectively, "Confidential Information"). Employee 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 Employer or another member of the Corporate Group. Employee will not
remove or duplicate in any manner at any time any lists or other records, or any
parts thereof, concerning Employer's Confidential Information and upon
termination of his employment will return to Employer any and all lists and
records concerning Employer's Confidential Information thereof in his
possession.
9. Interference with Employer's Business: (a) Employee agrees that during
the Non-Solicitation Period (defined below), neither Employee nor any Related
Person (defined below) shall knowingly, either directly or indirectly, for
himself or for any other person or entity, (i) call upon, solicit or take away,
or attempt to call upon, solicit or take away, any person then employed by
Employer or the Corporate Group or (ii) knowingly employ any employee of
Employer or the Corporate Group who voluntarily terminates such employment until
six (6) months have passed following termination of such employment, unless such
condition is waived by Employer in writing. "Non-Solicitation Period" shall mean
the period from the date hereof until one (1) year after the termination of this
agreement. "Related Person" shall mean any person or entity who or which,
directly or indirectly, is controlled by Employee or any person who is a member
of Employee's family.
(b) Employee agrees that during the Term of his employment with
Employer and for the two (2) years following termination of such employment,
neither Employee nor any Related Person shall knowingly, either directly or
indirectly, for himself or for any other person or entity, enter into any
agreement, or assist any other person or entity in entering into any agreement
or other arrangement regarding any of the projects introduced to or acquired or
developed by Employer or the Corporate Group during the term of Employee's
employment, without Employer's prior written consent, such consent not to be
unreasonably withheld. Employer agrees that the restriction of this subparagraph
9(b) shall not apply to any project which was the subject of a written agreement
between Employer and a third party, the term of which has ended, and which is
not then the subject of a negotiation for an extended or new term. Employee's
right to enter into an agreement or other arrangement regarding projects
described by the previous sentence shall be subject to Employee's obligation to
send Employer notice of Employee's intention to do so, and Employer's failure to
commence negotiations for such project, within five (5) business days after
receipt of such notice.
10. 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.
11. Governing Law: This Agreement shall be governed in all
respects by the laws of the State of New York.
12. 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
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. Duplicate copies of any notices to Employer shall also be sent to
Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP, 405 Park Avenue, 15th Floor, New
York, New York 10022, Attention: Marc L. Bailin, Esq. Duplicate copies of any
notices to Employee shall also be sent to Craig Emanuel, Esq. at Sinclair
Tenenbaum Olesiuk & Emanuel, The Ice House, 9348 Civic Center Drive, Suite 200,
Beverly Hills, California 90210.
13. Entire Agreement: This Agreement contains the entire
agreement between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter
hereof. No modification or amendment of this Agreement can be
made other than in writing signed by the parties hereto.
14. Injunctive Relief: Employee acknowledges that the services to be
rendered by his hereunder are of a special, unique and intellectual character
which gives them peculiar value, and that a breach or threatened breach of any
provision of this Agreement, including, without limitation the provisions of
Paragraphs 8 and 9, will cause Employer immediate irreparable injury and damage
which cannot be reasonably or adequately compensated in damages in an action at
law. Accordingly, Employee agrees that Employer shall be entitled to injunctive
relief to enforce and protect its rights under this Agreement. Nothing herein
shall be construed to prohibit Employer from pursuing any other legal or
equitable remedies available to it for such breach, including the recovery of
damages form Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
LANCIT MEDIA PRODUCTIONS, LTD.
BY:/s/ Cecily Truett
--------------------
Cecily Truett,
Chief Executive Officer
/s/ David Michaels
------------------
David Michaels, Employee
<PAGE>
EXHIBIT A
Notice of Project Introduced, Developed or Acquired
Solely by David Michaels
Subject to Credit and Bonus Provisions
Description of Project Lancit Acknowledgement
<PAGE>
EXHIBIT B
Production Introduction Bonus Caps
The Production Introduction Bonus shall be capped, on a production by production
basis, as follows:
Theatrical Motion Picture $70,000
Television Motion Picture $25,000
Television Series:
Network Primetime:
Weekly: $ 750
Strip: $ 625
Premium Cable:
Weekly: $ 625
Strip: $ 500
Non-Primetime Network,
Basic Cable or PBS
Weekly: $ 500
Strip: $ 375
MUTUAL SEPARATION AGREEMENT
This Agreement is entered into by Britten & Stone and Gary
Stein, its general partner (hereinafter collectively referred to
as "BS&S") and Lancit Media Entertainment, Ltd., on behalf of
itself and its affiliates, predecessors, successors and assigns,
agents, and employees, past and present (hereinafter collectively
referred to as "Company"). The parties agree as follows:
1. Separation. BS&S agree to the termination of the
November 15, 1996 Consulting Agreement with Britten & Stone
effective immediately and acknowledges the separation of Gary
Stein's prior employment by the Company effective November 1,
1996.
2. Separation Pay. In consideration for the covenants set
forth herein, the Company agrees to pay Britten & Stone $6,150
upon execution hereof representing the final installment payment
due pursuant to the Consulting Agreement. The Company further
agrees to pay Britten & Stone, as and for separation pay, the sum
of $63,000 on July 10, 1997 and the additional sum of $63,000 on
July 10, 1998.
3. General Release. BS&S hereby release the Company, its
affiliates, predecessors, successors and assigns, agents,
officers and employees, past and present, from any and all
claims, contracts and other liabilities of whatever kind, whether
now known or unknown, arising out of or in any way connected with
his employment and the cessation of that employment, and covering
the period up to the date of this Agreement. This release
includes, without limitation, any and all claims under Title VII
of the Civil Rights Act of 1964 as amended by the Civil Rights
Act of 1991, the Americans With Disabilities Act of 1990, the Age
Discrimination in Employment Act as modified by the Older Workers
Benefit Protection Act, the Family and Medical Leave Act, the New
York Human Rights Law, and any other federal, state or local
human rights, civil rights, pension or labor laws, rules and/or
regulations, public policy, contract or tort law (regardless of
whether of statutory or common law origin), or any other action
against the Company based upon any conduct up to and including
the date of this Agreement. BS&S further agree that they have
not, nor will they ever, institute any claim, action or other
proceeding that is subject to the foregoing release, and
acknowledge that this Agreement shall bar any such action.
Lancit also releases BS&S from any and all claims arising out of
any conduct up to and including the date of this Agreement, and
agrees that it shall not institute any claim in respect of such
conduct.
4. Non-Admissions. Nothing in this Agreement constitutes
or shall be interpreted as any admission of liability or
wrongdoing on the part of either party.
5. Complete Agreement. Other than as set forth herein,
BS&S warrant that no promise or inducement has been offered for
this Agreement. The parties agree that this Agreement sets forth
the entire agreement between them and supersedes any other
written or oral understandings, with the exception of the
Confidentiality Agreement between Gary Stein and the Company
dated as of November 15,1996 the terms of which are hereby
ratified and reaffirmed in all respects. No other promises or
agreements shall be binding unless reduced to writing and signed
by the parties. The parties further agree that if any provision
of this Agreement is held invalid for any reasons by a court or
other tribunal of competent jurisdiction, the remaining
provisions shall continue to be in full force and effect.
WHEREFORE, BS&S affirm that they have read and understand
this Agreement, and that they have been encouraged to consult
with an attorney or other personal advisor concerning this
Agreement. BS&S further affirm that they have entered into this
Agreement voluntarily and with full knowledge of its significance.
BRITTEN & STONE LANCIT MEDIA ENTERTAINMENT, LTD.
(On behalf of itself
and Gary Stein)
By: /s/ Gary Stein By: /s/ Marc L. Bailin
- ------------------ --------------------------------
Gary Stein Marc L. Bailin
General Partner Secretary/General Councel
5/19/97 5/20/97
------- -----------------
(Date) (Date)
50090.stein.agt
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<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1997
<PERIOD-END> Mar-31-1997
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0
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