SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 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 Identification No.)
incorporation or organization)
601 West 50th Street, New York, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 977-9100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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:
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting and non-voting common equity
held by non-affiliates: $24,050,968 on October 3, 1997.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 6,634,750 shares of
Common Stock, par value $.001 per share, outstanding on October 3, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
LANCIT MEDIA ENTERTAINMENT, LTD.
Part I
Item No. Page
- ----------------------------------------------------------------
1 Business I-1
2 Properties I-11
3 Legal Proceedings I-11
4 Submission of Matters to a Vote of
Security Holders I-11
Part II
5 Market for Registrant's Common Equity and
Related Stockholder Matters II-1
6 Selected Financial Data II-2
7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations II-3
7A Quantitative and Qualitative Disclosure
About Market Risk II-8
8 Financial Statements and Supplementary
Data II-8
9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure II-8
Part III
10 Directors and Officers of the Registrant III-1
11 Executive Compensation III-5
12 Security Ownership of Certain Beneficial Owners
and Management III-12
13 Certain Relationships and Related
Transactions III-13
Part IV
14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K IV-1
Signatures S-1
<PAGE>
PART I
Item 1. Business
Introduction
Lancit Media Entertainment, Ltd. (the "Company") creates, acquires,
develops and produces high-quality children's "edutainment" and family
programming, including the 11-time Emmy Award-winning Reading Rainbow(R)
(including 1997 and 1996's Emmys for "Outstanding Children's Series"), which is
now entering its fifteenth year on the Public Broadcasting Service ("PBS"), and
The Puzzle Place(R), the award-winning children's program, produced in
cooperation with KCET/Southern California ("KCET"), now in its third year on
PBS. The Puzzle Place has received over 20 broadcast awards, plus four Emmy
Award nominations, including one for 1997's "Outstanding Children's Preschool
Series". The Company seeks to reach consumers for its productions via
traditional commercial and public broadcast television, cable television, motion
pictures, home video, and interactive media products.
The Company was formed in New York on June 11, 1979 and became
publicly-traded in June 1991 (NASDAQ: LNCT). The Company includes Lancit Media
Entertainment, Ltd. ("Lancit"), which is an entity engaged in the acquisition
and development and/or production of properties for television series, motion
pictures, home videos and interactive media products for children and
family-oriented audiences; Frame Accurate, Inc. ("Frame"), a wholly-owned
subsidiary of Lancit, which provides post-production services that include
personnel, facilities, graphics, and dubbing, as well as other editing and
finishing services; Lancit Copyright Corp. ("LCC"), a wholly-owned subsidiary of
Lancit, which holds copyrights and other intellectual property rights; and The
Strategy Licensing Company, Inc. ("Strategy"), a wholly- owned subsidiary of
Lancit, which is a merchandise licensing and promotions company that performs
licensing agent functions and is a 50.1% partner in The Puzzle Place Marketing
Company joint venture ("PPMC").
The Company has its principal executive offices at 601 West 50th Street,
New York, New York 10019 (212-977-9100). As used in this report, the terms
"Company" and "Lancit" refer to Lancit Media Entertainment, Ltd. and its
subsidiaries unless the context otherwise indicates.
Overview of Business
The Company either creates or seeks out and identifies properties that it
believes to be suited to become television series or motion pictures, either for
television or theatrical release. Properties targeted by the Company for
acquisition are sometimes books or characters developed in another medium. Upon
identification of such properties, the Company negotiates with the current
holder of the property's rights to obtain an option to develop the property as a
series or motion picture.
Once the concept has been created or rights to the property have been
secured, the property enters a development period. Development activities
include determining the best medium for exploitation of the property,
determining a budget for the project, creating the stories and characters, and,
where appropriate, scripting. Once the property has been developed, the Company
seeks to negotiate with various distribution venues which would be appropriate
for the property (i.e., broadcast television, cable, theatrical release).
Based on the outcome of these negotiations, the Company determines whether
it will, in fact, go into production of the property and, if so, the type of
funding required to complete the production. The Company seeks production
funding from several sources, including underwriting grants and corporate
funding/sponsorship, broadcast license fees, producer fees, royalties, and
licensing and distribution advances. In certain cases, the Company's costs of
production exceed the production funding available, requiring the Company to
deficit-finance a portion of these production costs, if it elects to go forward
with production.
After production funding has been obtained and primary production has been
completed, the project goes into post-production, which may include editing of
the project, the addition of graphics and effects, opening and closing credits
and other improvements to the original production materials.
Additional revenue opportunities may come from international sales,
publishing tie-ins and, in the case of successful series, licensing fees and
royalties related to sales of merchandise and other consumer items. Rights in
and revenues from these various revenue streams are typically shared, in a
significant fashion, with talent, distributors and others. There can be no
assurance, once the Company has developed, produced and sold a property, that it
will be a success or, if it is a success, that it will generate income for the
Company.
The Company has a number of properties in development that it believes to
be well-suited for the growing children's programming market (see "Business -
Development" and "Business - Areas of Proposed Growth", below). However, even if
the Company successfully develops, produces and sells these properties, it will
be some time, if at all, before they can become income-producing properties. The
Company requires substantial additional funding in order to continue its
operations and to place these and or other properties into production. The
Company is actively exploring a number of alternatives to obtain such funding.
The Company is also actively seeking guaranteed distribution arrangements which
would reduce the risk of funding such new programming.
Strategic Restructuring
In the fiscal year ended June 30, 1997, the Company determined to
implement a strategic restructuring plan, the initial phase of which included an
extensive and systematic review of the Company's operations, cost structure and
balance sheet. As part of this process and the Company's continuing analysis,
the Company reviewed the anticipated future revenue streams related to its
projects and recorded a charge of approximately $5.5 million. This non-cash
charge related to film and program costs, of which approximately $2.1 million
related to The Puzzle Place and approximately $3.3 million related to Backyard
Safari(R). The charge reflected the Company's revision of each of its estimated
future royalty streams with respect to The Puzzle Place and its anticipated
production funding sources and its estimated future net royalty stream with
respect to Backyard Safari. In both cases, the Company accrued for estimated
remaining project costs.
As part of this restructuring program, management anticipates focusing
more of the Company's time and resources on properties that are currently in
development which may have more revenue-producing potential to the Company,
including a new series currently called Putt Putt 'n Pals, based upon characters
developed by Humongous Entertainment, programming for Discovery Communications,
Inc. ("DCI") to fill a minimum of one-sixth of the programming on Discovery Kids
(see "Business - Development", below), and other commercial broadcasters.
Additionally, the Company has, and, where appropriate, will continue to take
steps to minimize its operating expenses and continues to seek strategic
partners (see "Business Capital Requirements", below).
Strategic Programming Alliance With Discovery Communications, Inc.
In September 1996, DCI entered into a non-exclusive strategic programming
alliance with Lancit and invested $5 million for an initial 6.6% equity stake in
the Company. DCI is a large privately-held, diversified media company which owns
cable television's The Discovery Channel and The Learning Channel, as well as
the national retailing chain, The Nature Company.
In May 1997, the Company entered into a two-year production output
agreement with DCI, under which the Company will provide one-sixth of the
Discovery Channel's Discovery Kids block of programming, which will expand as
the programming block expands. Discovery Kids is currently a 3-hour weekly
block. Pursuant to the May 1997 agreement, DCI also agreed to fund 13 half-hours
of programming for each of the 1997-98 and 1998-99 seasons. No Really is a show
which was already produced and aired under the original September 1996
arrangement, as were the "Discovery Kids" promotional spots. In the fiscal year
ended June 30, 1997, DCI accounted for 64% of the Company's production and
royalty revenues.
The Company and DCI have agreed that Outward Bound, scheduled to debut in
Fall 1998, will be the first program produced under the new May 1997
arrangement.
Capital Requirements
Notwithstanding the Company's significant cash position at June 30, 1997,
the Company believes that additional funding will be necessary to sustain the
Company's operations through the fourth quarter of fiscal 1998. The Company is
actively seeking additional funding and has retained an investment banking firm
to assist it in this effort. Among the alternatives being considered by the
Company are a sale of an interest in the Company, an acquisition of the Company,
and/or strategic alliances with industry partners. The Company continues to
pursue marketing efforts to generate cash from production and licensing
activities and, where appropriate, may explore turning to account certain
non-strategic assets. While there can be no assurance that any such transactions
will be available to the Company or, if available, that they will be on terms
favorable to the Company or its shareholders, the Company is devoting
considerable management and other resources to these efforts.
The Company also has taken steps to reduce, where appropriate, its
operating expenses. These steps include relocating Strategy, its merchandising
and licensing agent subsidiary, from Westport, Connecticut to the Company's New
York City offices, and certain staff reductions.
Productions
In addition to Reading Rainbow and The Puzzle Place, the Company's
television productions include Outward Bound, an original series that follows a
group of young teenagers on Outward Bound wilderness adventure trips, which is
scheduled to air on Discovery Kids in Fall 1998, and Backyard Safari, a natural
science series for 4-to-8 year olds, featuring Crinkleroot(C), a 3-D animated
character featured in Jim Arnosky's popular series of nature books, which is
scheduled to air on public television stations commencing in November 1997.
Reading Rainbow
Lancit is the co-creator of and has produced 130 episodes of Reading
Rainbow, the award-winning daily children's series, hosted by LeVar Burton, now
entering its fifteenth broadcast season on over 300 PBS stations nationwide. The
series was the winner of the 1996 and 1997 Daytime Emmy Award for "Outstanding
Children's Series". Each episode centers on a television adaptation of a picture
book appropriate for beginning readers.
The episodes were produced pursuant to contracts with GPN/NETV Network
("GPN") on behalf of itself and WNED-TV, Buffalo ("WNED"). Reading Rainbow is
owned by GPN and WNED, which control all rights to the series, including
merchandising and distribution. Lancit and Frame are paid fees for producing,
directing and providing post-production services to this series. Revenues
related to the series accounted for approximately 30%, 35% and 14% of the
Company's production and royalty revenues during the fiscal years ended June 30,
1997, 1996 and 1995, respectively. Funding for Reading Rainbow has been provided
by PBS, The Corporation for Public Broadcasting ("CPB"), the National Science
Foundation and others. A commitment for a portion of the funding for future
episodes has been received, and the Company has recently engaged in discussions
with GPN and WNED regarding potential opportunities related to additional
funding of the series. There can be no assurance that these discussions will be
successful.
In August 1997, the Company became the exclusive licensing agent for
Reading Rainbow for a term of up to ten years, subject to meeting certain sales
goals. The Company will receive a customary license fee based on the percentage
of sales of products and merchandise bearing the Reading Rainbow brand
(excluding sales of existing products sold to the school and library markets).
The Company, as licensing agent for Reading Rainbow, (see "Business - Licensing
Agent Activities") will seek to expand the merchandising activities relating to
the Reading Rainbow brand, and, as a means to accomplish this goal, is
developing plans for brand expansion both domestically and internationally
focusing on publishing, merchandising, foreign television, promotions,
multi-media, home video and learning systems marketed to parents.
The Puzzle Place
In November 1991, CPB awarded Lancit and KCET a $4.5 million grant to
develop and produce The Puzzle Place, designed to be the first new major daily
preschool series created for public television since the premiere of "Sesame
Street" in 1969. The series premiered on January 16, 1995 with an initial 40
episodes delivered to PBS. Episodes 41 through 65, produced between March 1995
and December 1995, began airing in February 1996.
In June 1997, the Company and KCET entered into an agreement with PBS,
pursuant to which PBS would reimburse the Company and KCET up to $1 million in
actual costs of securing additional releases of episodes 1 through 65 of the
series in return for domestic broadcast rights to the series through December
1998. In addition, if the Company and KCET deliver ten new episodes on or before
November 1, 1998 for airing on or before January 1, 1999, PBS will reimburse up
to $688,000, plus any unused portion of the previous $1 million in funding,
toward securing additional releases of the first 65 episodes in exchange for
domestic broadcast rights to the series through June 30, 2000.
The Company and KCET share equal ownership in all ancillary rights to the
series. CPB is entitled to receive a 19% profit participation in ancillary sales
of the project but has committed to invest proceeds which would otherwise be
received under this participation, through June 30, 1997, towards the production
funding shortfall on the first 65 episodes.
As of June 30, 1997, Lancit had received all but approximately $0.1
million of the full amount of the project grants and had recognized
substantially all of the revenues related to them over a four year period ending
June 30, 1997. As of June 30, 1997, the remaining promotion and outreach efforts
required under the CPB grant for the series are still continuing. Production and
royalty revenues related to The Puzzle Place accounted for less than 1% of the
Company's production and royalty revenues during the fiscal year ended June 30,
1997 and approximately 48% and 83% of the Company's production and royalty
revenues during the fiscal years ended June 30, 1996 and 1995, respectively.
<PAGE>
Lancit and KCET have been actively seeking funding from various sources to
support the production of ten new episodes. International Home Foods, Inc./Chef
Jr. has agreed to provide funding in the amount of $1.25 million over the next
three years and CPB has committed to an additional $1.0 million in funding. The
Company and KCET intend to begin the production of the ten new episodes,
required to be delivered to PBS by November 1, 1998, in early 1998. The expected
budget of $3.2 million for the ten new episodes includes approximately $1.0
million of which approximately $0.5 million from Carnegie Corporation of New
York, the Surdna Foundation and the Ford Foundation is already in place, for
outreach and promotion activities. The Company is currently in negotiations to
acquire the additional financing necessary to fund the production of the ten new
episodes. There can be no assurance that the Company will be able to acquire
such financing on terms satisfactory to the Company or, if the Company obtains
such financing, that the ten new episodes will be completed by November 1, 1998.
During the fiscal year ended June 30, 1994, the Company, through Strategy,
established PPMC, a joint venture with KCET to manage the exploitation of the
various ancillary rights associated with The Puzzle Place. The Company has
recognized revenues of $741,420, $1,325,868 and $1,351,007 during the fiscal
years ended June 30, 1997, 1996 and 1995, respectively, resulting from its role
in the joint venture. PPMC continues to service The Puzzle Place licensee
accounts and generates fees from such activities. However, the Company believes
that early licensee and retailer expectations for sales of licensed products
related to the property were excessively high and that the product introduction,
shortly after the show began airing, into an unusually weak overall retail
climate led to disappointing retail sales in a number of product categories. The
Company, with KCET, has agreed to restructure royalty payment schedules and
license terms with certain licensees in order to more closely reflect the
anticipated future royalty stream expected to be generated by those particular
categories. There can be no assurance that the Company will not effect such a
restructuring again in the future.
During the fiscal year ended June 30, 1997, the Company determined that
the licensing relaunch plan developed by the Company in early 1997 did 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 distribute the television program, leading to delays in the
building of an international licensing campaign. As a result of all of these
factors, the Company recorded a non-cash charge in the amount of approximately
$2.1 million for the fiscal year ended June 30, 1997, which included an accrual
for the estimated remaining program cost. For the fiscal year ended June 30,
1996, the Company recorded a non-cash charge of approximately $2.5 million to
reflect its reduced royalty expectations.
Based on the history of certain other well established PBS children's
series, consumer awareness levels appear to reach their peak several years after
a show's debut. Although there can be no assurance that the same will hold true
with The Puzzle Place, the Company will seek to work closely with licensees and
potential retail partners to heighten the retail popularity of the property.
<PAGE>
Outward Bound
Outward Bound is the first series under Lancit's new output arrangement
with DCI (see "Business - Strategic Programming Alliance with Discovery
Communications, Inc."). The Company has signed a co-production deal with the
wilderness adventure company Outward Bound, Inc. for a series that follows the
experiences of a group of young teenagers on Outward Bound adventure trips. A
distribution arrangement with DCI is in place, pursuant to which an initial 13
episodes are on order for airing in Fall 1998 (with DCI having options to order
additional episodes). With respect to the series, the Company, together with
Outward Bound, Inc., will retain copyright and control of all foreign broadcast
rights (except those for Latin America) and all other rights, including home
video and all other ancillary rights. The Company and Outward Bound, Inc. also
retain the copyright and control of the domestic television rights subject to
the five year (three years for Latin America) DCI license. Should Outward Bound
decide to begin a licensing and merchandising effort, the Company will be the
exclusive licensing agent of these rights.
No Really
Under the September 1996 agreement with DCI, the Company produced No
Really for the Discovery Kids programming block. DCI funded the cost of the
production of the series, which represented 26% of the Company's total
production and royalty revenues for the fiscal year ended June 30, 1997. The
series debuted in April 1997, and the six half-hour episodes produced have
already aired. Under the terms of the agreement with DCI, the Company is not
entitled to any further revenues from the series.
"Discovery Kids" Promotional Spots
Under the September 1996 agreement with DCI, the Company produced a series
of promotional identity spots for the "Discovery Kids" programming block. DCI
funded the project, and the Company received a producer fee. The project
accounted for 38% of the Company's total production and royalty revenues for the
fiscal year ended June 30, 1997. Under the terms of the agreement with DCI, the
Company is not entitled to any further revenues from the series.
Backyard Safari
The Company has completed production and post-production on the initial
season of 13 half-hour episodes of Backyard Safari, a natural science television
series for young children that is scheduled to premiere on public television in
November 1997. In addition, the Company has entered into an agreement with GPN
for distribution of Backyard Safari to the national school and library market.
The show combines live action field trips with "3-D" performance animation to
explore the wonders of nature. In 1993, Backyard Safari was the recipient of a
$1.69 million underwriting grant from the National Science Foundation, the
primary grantor of the project, and the project has been developed in
cooperation with the American Museum of Natural History.
In June 1994, the Company and Manhattan/Transfer Edit entered into an
agreement under which the Company utilized the technology of Manhattan/Transfer
Edit's digital animation stage to create the motion capture effects for Backyard
Safari's animated co-host, Crinkleroot. As part of the agreement,
Manhattan/Transfer Edit received a profit participation in the series.
The Company continues to work toward securing additional production
funding from potential sources of underwriting. Management believes that such
efforts may be enhanced when the series begins airing. In the event that the
Company were to receive no amounts from sources of outside production funding,
the Company estimates that its remaining cash outlay required for this project
beyond June 30, 1997 would be less than $0.5 million.
Because the program is expected to be aired on a limited basis, at least
initially, the Company has reduced its projected production revenues.
Furthermore, negotiations with certain venues that were expected to help drive
merchandise sales were not successful, which further reduced previously
estimated licensing revenues. Also, as the program has only recently been
cleared domestically, international exploitation of this property, at least
initially, is no longer expected to be significant. As a result of all of these
factors, the Company recorded a non-cash charge of approximately $3.3 million
during the fiscal year ended June 30, 1997, which included an accrual for
estimated remaining project costs.
<PAGE>
The Company currently owns all rights to the Backyard Safari series and
related products as well as the exclusive right to license the Crinkleroot
character as part of the series licensing effort. The Company will act as
exclusive licensing agent for the series in a wide range of product categories.
Development
The Company has numerous projects in development. However, as is typical in
the television and film industry, only a relatively small number of such
projects are ultimately produced. There can be no assurance that the Company's
efforts in developing or acquiring potential new programs, including any of the
projects in development described below, will lead to production commitments or
that any programs that are ultimately produced will be successful.
Series in Development
The Company has a number of television projects in development, including:
Missing Links, a half-hour game show which is being co-produced with the
Smithsonian Institution and H. Beale and Company (the late Brandon Tartikoff's
production company); Danger Guys, an action-adventure series based on the
popular children's books; SEEKERS, an action/adventure series in partnership
with The Smithsonian Institution; A.F.R.I.C.A., an animated series about
children who can communicate with animals and use their special powers to help
solve the problems which arise when the world of humans clashes with the world
of nature; Humongous's Putt-Putt(R) & Pals (Freddi Fish & Pajama Sam), an
original treatment for an animated series based on Humongous Entertainment's
award-winning, best-selling CD-ROMs; Lemmings(R), a game show based on the
computer game of the same name; The Zack Files based on the Grosset & Dunlap
book series by Dan Greenburg; Pink and Say, based on the book by children's
author Patricia Polacco; The Saddle Club, based on the popular sixty-five book
series of the same title; and Royal Pain, based on author Ellen Conford's book
of the same name. The Company also has television and merchandising rights to
many other projects, including Broderbund Software's KID PIX.
Feature Films in Development
Lancit is currently developing a number of feature film projects,
including: The Giver, a best-selling children's fiction book, as a feature with
Jeff Bridges' AsIs Productions; The Watsons Go to Birmingham - 1963, with Whoopi
Goldberg and her company, One Ho Productions; Fenwick's Suit, based on the
Farrar, Straus & Giroux picture book of the same name by David Small, a comedy
currently in development with Fox 2000; The Adventures of Taxi Dog, based on the
popular Dial Press book series by Sal and Debra Baracca; Groucho Marx Story, a
biographical picture; and A Christmas Crime, an original screenplay by Adam
Kulakow and Simon Kelton. Should any of these films go into production, the
Company would seek to recoup its development costs, receive producer fees and a
participation in the film's revenue and would not be required to incur any other
future costs in association with these projects. There can be no assurance that
any of these films will go into production or that, if any of them do, that they
will ultimately be successful.
<PAGE>
Other
The Company is developing several of its properties as television movies
and/or direct-to-home videos, including: The 13th Floor, a supernatural time
travel adventure story; and Dry Fire, a police story told from the female
perspective. The Company also has rights to develop and produce a slate of
biographical films, including a motion picture based upon the life of Ingrid
Bergman. Other film properties include The Greyhound Project, Sleepless Beauty
and Coming of Age with Elephants.
Licensing Agent Activities
In September 1997, the Company became the exclusive licensing agent for
Reading Rainbow for all product categories other than existing products sold to
the school and library markets for a term of up to ten years, subject to meeting
certain sales goals. The Company, as licensing agent for Reading Rainbow, will
seek to expand the merchandising activities relating to the Reading Rainbow
brand. Reading Rainbow has established brand recognition with children, parents,
teachers, educators, publishers and librarians. The Company is developing
extensive plans for brand expansion both domestically and internationally,
focusing on publishing, merchandising, foreign television, promotions,
multi-media, home video and learning systems marketed to parents. There can be
no assurance that any or all of these expansion plans will come to fruition.
The Company, through Strategy, a merchandising, licensing, and promotions
company, performs licensing agent functions for properties and characters owned
by Lancit, as well as for outside clients, including Sega of America, Sony
Interactive, Humongous Entertainment and Broderbund Software. Revenues typically
are derived from fees based upon the royalties and advances earned by its
clients from the sale of licensed consumer products and promotions through the
use of a client's copyrights, trademarks and trade names.
Strategy acts as merchandising agent for some well known interactive
properties, including Putt-Putt, Freddi Fish, and Pajama Sam for Humongous
Entertainment; Lemmings for Sony Interactive; KID PIX for Broderbund Software;
and Sonic the Hedgehog(TM) for Sega of America. Strategy continues to handle
licensing and promotion activities for The Puzzle Place, Backyard Safari,
SEEKERS, and Danger Guys.
In October 1997, the Company entered into an agreement with Arlene J.
Scanlan, pursuant to which the Company acquired the remaining 15% of the
outstanding shares of the capital stock of Strategy held by her (see Item 13).
Post Production Services
Frame provides post-production services that include personnel,
facilities, graphics, and dubbing, as well as other editing and finishing
services.
Frame occupies approximately 20% of the Company's 17,000 square feet of
production/office space in New York City, and provides various post-production
services for the Company's own productions. Post-production activities include
off-line analog and random access editing, creation of special effects,
computer-generated 3-D and digitized graphics, and on-line mastering and
duplication subsequent to the completion of production of a project. Random
access Avid(TM) editing systems, as well as other computer hardware and
software, have been purchased over the last few years to enhance Frame's range
of services. Frame makes facilities available for post-production services to
outside producers, when the facilities are not being used on Company projects.
<PAGE>
Trademarks, Service Marks and Copyrights
LCC was formed to own and administer various copyrights created by the
Company and currently administers all of the music publishing interests which
the Company retains with respect to the music sound tracks for both The Puzzle
Place and Backyard Safari, as well as for other productions created by the
Company.
The Company owns various United States trademarks, service marks and
copyrights, including The Puzzle Place and Backyard Safari. The Company
endeavors to take commercially reasonable actions to protect the marks and
copyrights created and acquired in its business. Certain of the Company's
trademarks, service marks and copyrights may be considered material to the
Company's business.
The Company's ability to obtain the rights to subject matter appropriate
for children's and family programming is a factor that contributes to the
Company's ability to develop and market such programming and to efficiently
produce and distribute its products. The Company endeavors to obtain rights for
merchandising and licensing and home video in order to enhance the value of the
properties.
Areas of Proposed Growth
The Company continues to evaluate potential business opportunities in
several markets which it believes present natural tie-ins to its core production
and licensing businesses. These markets include specialty and school-related
children's products, book publishing, animation, direct-to-consumer sales and
providing content to on-line computer service network providers. The Company may
consider entering one or more of these business areas in partnership with larger
media companies, and intends to explore such opportunities with its current
distributors as well as with other potential strategic alliance candidates.
The Company will seek to benefit from anticipated increasing demand for
children's and educational programming over the next several years, as well as
from positive demographic trends. Three principal sources are expected to spur
this demand: 1) the pursuit by emerging domestic cable channels of advertising
dollars aimed at children; 2) the proliferation of cable and satellite-delivered
children's channels internationally; and 3) the Federal Communications
Commission's mandate that each broadcast television station carry three hours of
educational children's programming weekly.
The Company believes that there are also revenue opportunities in the area
of children's characters, which hold long-term commercial potential on a global
basis. Characters may be created by the Company or acquired from other sources.
Acquired characters typically are derived from properties exploited in
publishing or other forms of distribution.
Additionally, the Company believes that there is potential in
international licensing, including foreign broadcast sales, and publishing,
which the Company will seek to exploit. For example, in Latin America, the
number of children's channels increased from zero to seven within a twelve-month
period and The Puzzle Place can now be seen in Brazil, Mexico, and Panama, in
addition to appearing on The Discovery/Learning Channel Latin America which is
distributed throughout the Latin American continent.
In order to position itself to take advantage of these growing
opportunities, the Company intends to focus on increasing its strategic
alliances with business partners which can deliver additional distribution
outlets, on-air, on-line, and at retail, for the Company's creative assets. This
strategy is intended to increase the Company's profitability and allow its
properties to be enjoyed by a broader base of viewers, readers, and consumers.
There can be no assurance, however, that the Company will be able to take
advantage of any of these opportunities or that the Company will achieve any
commercial success as a result thereof.
Competition
Competition in the television production, distribution, and syndication
industries is intense, with many companies competing for available literary
properties, creative personnel, talent, production personnel, distribution
channels and financing, which are essential to create, acquire, develop, produce
and distribute product. The Company's competitors include motion picture
studios, television networks, and independent television production companies,
which have become increasingly active in children's programming, and many of
which have substantially greater financial and other resources than the Company.
The Company competes for broadcast commitments and production funding for public
television projects with Children's Television Workshop, other independent
production companies, and projects produced by local public television stations.
As the Company attempts to expand into other areas, including commercial
television, it will face more intense competition from other, larger entities,
which have substantially greater financial and other resources than the Company,
such as The Walt Disney Company, Fox, Nickelodeon, Jim Henson Productions,
Scholastic Productions, Cinar, and certain television syndicators, production
companies, and networks which also seek to attract the children's/family
audience segments with their programming. In addition, there is a strong trend
toward vertical integration in the business, with more networks owning
productions, making it more difficult for smaller, independent companies such as
the Company to obtain favorable production financing and distribution terms.
In the licensing industry, there is strong competition from other
independent licensing agencies and from the in-house licensing divisions of
other production companies and motion picture and television studios.
With respect to its post-production activities for third parties, if any,
Frame faces significant competition from many other independent, and other
in-house, post-production facilities.
Employees
As of October 3, 1997, the Company had 40 full-time employees, 20 of whom
are engaged in production and related activities, and 20 of whom are in
administration. The Company has an in-house staff of experienced, core
production personnel as well as researchers and designers. In order to meet the
staffing requirements of a production, the Company will augment its full-time
creative staff by contracting with writers, directors, technical and other
production personnel known to the Company, generally through paymaster service
or loanout companies.
The Company is party to collective bargaining agreements with the American
Federation of Television and Radio Artists (with respect to The Puzzle Place and
Backyard Safari) and the Writer's Guild of America. Some of the Company's
current and proposed business activities may be affected by the existence of
certain collective bargaining agreements with the Directors Guild of America and
the Screen Actors Guild, as many of the performing artists, writers, technical
and other production personnel that the Company may call upon are members of
such unions and/or guilds.
Item 2. Properties
The Company's principal production offices and its post-production
service facility, as well as its executive offices, are located at 601 West 50th
Street, New York, New York 10019 pursuant to two leases with the same unrelated
party. The combined leases cover approximately 17,000 square feet and both
expire in September 1998. The aggregate annual base rent is approximately
$217,660 through September 1998.
The Company maintains development offices at 9454 Wilshire Boulevard,
Beverly Hills, California 90212, pursuant to a lease, expiring in April 1998,
with an unrelated party, for approximately 930 square feet at an aggregate
annual rental of approximately $24,000.
Strategy's licensing activities, previously based in Westport,
Connecticut have been moved into the Company's New York City offices. The
Company is seeking to sublet the Westport offices or to terminate its
obligations under this lease on terms mutually agreeable to the Company and the
landlord. These premises are currently subject to a lease, expiring in March
1999, with an unrelated party for approximately 3,500 square feet at an
aggregate annual base rental of approximately $68,000 plus certain escalation
clauses. There can be no assurance that the Company will be able to sublet these
offices or to terminate the lease.
The Company believes that the facilities mentioned above will be adequate
for its needs for the foreseeable future.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock, par value $0.001 per share (the "Common
Stock"), is traded in the over-the-counter market and quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System National
Market ("NASDAQ") and listed under the symbol "LNCT".
The table set forth below shows, for the period indicated, the high and
low bid quotations on NASDAQ for the Company's Common Stock. These amounts
represent inter-dealer prices without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Bid
Quarter Ended Type of Security
High Low
September 30, 1995 Common Stock $16.75 $12.50
December 31, 1995 Common Stock $13.38 $10.63
March 31, 1996 Common Stock $13.00 $8.88
June 30, 1996 Common Stock $14.00 $9.50
September 30, 1996 Common Stock $12.88 $9.25
December 31, 1996 Common Stock $10.50 $4.25
March 31, 1997 Common Stock $7.13 $4.63
June 30, 1997 Common Stock $5.13 $2.69
The Company has not paid any dividends in the two most recent fiscal years
and has no present intention to declare or pay dividends.
The Company estimates that, as of September 24, 1997, there were
approximately 201 holders of record of its Common Stock.
As of April 29, 1997, as amended June 20, 1997, the Company entered into
an agreement with Robinson Lerer Montgomery, LLC ("RLM") pursuant to which RLM
agreed to perform certain public relations and shareholder communication
services to the Company for a term of one year in consideration of a monthly
retainer and warrants to purchase up to 122,093 shares of the Company's Common
Stock at an exercise price of $3.625 per share, which warrants are exercisable
for a period of four years.
As of September 10, 1997, the Company issued to Allen & Company
Incorporated ("Allen") warrants to purchase up to 100,000 shares of Common Stock
at an exercise price of $3.00 per share, which warrants are exercisable for a
period of five years. Such warrants were issued in partial payment for Allen's
fee for investment banking services in connection with the September 1996
investment by DCI in the Company.
The Company relied on the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended, in effecting these transactions.
Item 6. Selected Financial Data
The selected consolidated financial data with respect to each of the
Company's fiscal years ended June 30, 1997, 1996, 1995, 1994 and 1993 is derived
from the Company's audited consolidated financial statements. The information
below should be read in conjunction with the consolidated financial statements
and related notes thereto, set forth in Item 14 of this Report.
Fiscal Year Ended June 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
Statement of
Operations
Data:
Revenues $ 3,152,057 $ 9,061,213 $ 17,882,479 $ 8,914,698 $3,670,990
Income (loss)
from
continuing $(10,078,908) $(3,700,713) $ 1,247,499 $ 34,874 $ (996,823)
operations (1)
Income (loss)
from
continuing
operations per
common share $ (1.54) $ (.60) $ .20 $ .01 $ (.25)
(1)
Weighted
average shares
used in 6,538,851 6,177,051 6,365,741 6,154,223 3,944,010
computation
Balance Sheet
Data:
Total assets $ 9,199,313 $14,388,166 $ 22,395,858 $16,926,998 $5,494,714
(1) Loss from continuing operations for fiscal 1997 includes a charge of
$5,456,180, or $0.83 per share, for a non-cash write-down related to projects
and, for fiscal 1996, includes a charge of $2,650,000, or $0.43 per share, for a
non-cash write-down related to a project and a restructuring charge. See the
consolidated financial statements and related notes thereto.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Fiscal 1997 as compared to Fiscal 1996
Production and royalty revenues for the fiscal year ended June 30, 1997
decreased to $1,943,807 from $6,812,975 for the fiscal year ended June 30, 1996.
This decrease is primarily the result of significantly reduced production
activity on The Puzzle Place, Backyard Safari and Reading Rainbow, all of which
was partially offset by production activity beginning in the third quarter of
fiscal 1997 on No Really and a series of promotional spots for the Discovery
Kids programming block.
Licensing agent fee revenues for the fiscal year ended June 30, 1997
decreased to $1,208,250 from $2,248,238 in the fiscal year ended June 30, 1996.
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 and reduced royalties on Sonic The Hedgehog.
Production and royalty expenses for the fiscal year ended June 30, 1997
decreased to $3,026,577 from $6,580,666 in the fiscal year ended June 30, 1996
reflecting primarily decreased production and royalty activity on The Puzzle
Place and reduced production activity on Reading Rainbow and Backyard Safari,
all of which was partially offset by production activity beginning in the third
quarter of fiscal 1997 on No Really and a series of promotional spots for the
Discovery Kids programming block as well as additional development expenses.
Direct costs of licensing agent activities for the fiscal year ended June
30, 1997 decreased to $809,823 from $1,175,699 in the fiscal year ended June 30,
1996 primarily as a result of reduced personnel, professional fees, travel and
marketing costs.
General and administrative expenses for the fiscal year ended June 30,
1997 increased to $4,073,089 from $2,438,471 in the fiscal year ended June 30,
1996. This increase is principally due to personnel costs (approximately
$451,000), a severance charge (approximately $126,000) and professional fee
costs (approximately $422,000) as well as a reduction in project activities
resulting in costs (approximately $398,000) being reflected as overhead expenses
rather than being absorbed as part of project activities. Of the overall
increase, approximately $768,000 represents what the Company expects to be
non-recurring items, and as previously mentioned above, an additional amount of
approximately $398,000 represents costs typically absorbed by projects.
A non-cash write-down related to film and program costs was taken during
the fiscal year ended June 30, 1997 amounting to approximately $5.5 million.
This non-cash charge, of which approximately $2.1 million relates to The Puzzle
Place and approximately $3.3 million relates to Backyard Safari, reflects the
Company's revision of its estimated future net royalty stream with respect to
The Puzzle Place and the Company's revision of its anticipated production
funding sources and its estimated future net royalty stream with respect to
Backyard Safari. In both cases, the Company accrued for estimated remaining
project costs.
With respect to The Puzzle Place, the Company determined that the
licensing relaunch plan developed by the Company in early 1997 did 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 with respect to The Puzzle Place
have not met expectations. Further, internationally, the Company is finding it
to be a greater challenge than anticipated to distribute the television program,
leading to delays in the building of a licensing campaign.
With respect to Backyard Safari, the Company has an airing commitment for
Fall 1997 which does not include an initial license fee. Because the program is
expected to be aired on a limited basis, at least initially, the Company has
reduced its expected production revenues. 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 only recently been cleared domestically, international
exploitation of this property, at least initially, is no longer expected to be
significant.
A write-down related to a project and a restructuring charge during the
fiscal year ended June 30, 1996 amounted to $2,650,000. A project-related charge
in the amount of $2,500,000 primarily reflected revisions in the Company's
future anticipated net royalty stream on The Puzzle Place project and an effort
to adjust the amortization of film and program costs to those anticipated
revenue streams. Additionally, a downsizing of staff involved with certain
projects resulted in a restructuring charge of $150,000 including severance and
other benefits paid to terminated employees.
Management anticipates focusing more of the Company's time and resources
on properties which are currently on the development slate which may have more
financial benefit to the Company. These include Humongous and programming for
DCI to fill a minimum of one-sixth of the programming on Discovery Kids.
Interest income, net for the fiscal year ended June 30, 1997 decreased to
$255,508 from $276,570 in the fiscal year ended June 30, 1996. This decrease is
primarily due to a reduced level of cash invested during the current fiscal
year, resulting from the Company's utilization of cash for production,
development and corporate needs.
Provision for income tax was $19,500 for state and local taxes for the
fiscal year ended June 30, 1997 compared to $87,900 for state and local taxes in
the fiscal year ended June 30, 1996.
Minority interest in the Company's licensing activities for the fiscal
year ended June 30, 1997 was $101,304 compared to $105,760 in the fiscal year
ended June 30, 1996.
Net loss for the fiscal year ended June 30, 1997 was $10,078,908 ($1.54
per share) compared to net loss of $3,700,713 ($.60 per share) in the fiscal
year ended June 30, 1996 primarily as a result of the combination of all factors
discussed above. Weighted average shares outstanding for the fiscal year ended
June 30, 1997 increased to 6,538,851 from 6,177,051 in the fiscal year ended
June 30, 1996 primarily as a result of the issuance of shares related to DCI's
purchase of its 6.6% equity stake in the Company. Net loss for the fiscal year
ended June 30, 1997 included a charge of $5,456,180, or $0.83 per share, for a
non-cash write-down related to projects and, for the fiscal year ended June 30,
1996, included a charge of $2,650,000, or $0.43 per share, for a non-cash
write-down related to a project and a restructuring charge.
Fiscal 1996 as compared to Fiscal 1995
Production and royalty related revenue for the fiscal year ended June 30,
1996 decreased to $6,812,975 from $15,532,607 in the fiscal year ended June 30,
1995 primarily as a result of reduced royalty revenue, and to a lesser extent,
lower levels of production activity related to The Puzzle Place project during
fiscal 1996. In fiscal 1995, revenues included over $7 million of initial
copyright holder royalties from licensees of this project. As of June 30, 1996,
substantially all of these licensees were still in the process of recouping
initial royalty commitments from product sales. The Company is not able to
record additional revenues, as copyright holder, until individual licensees have
recouped the royalties previously recognized by the Company.
Licensing agent fees for the fiscal year ended June 30, 1996 remained
relatively constant at $2,248,238 compared to $2,349,872 in the fiscal year
ended June 30, 1995.
Production and royalty related expenses for the fiscal year ended June 30,
1996 decreased to $6,580,666 from $13,550,150 in the fiscal year ended June 30,
1995 primarily related to the decreased level of royalty and production activity
for The Puzzle Place series. However, such expenses represented an unusually
high percentage of related revenues in fiscal 1996 primarily due to copyright
holder expenses on The Puzzle Place project remaining relatively high during the
fiscal 1996 period of licensee recoupment on the project.
Direct costs of licensing activities for the fiscal year ended June 30,
1996 remained relatively constant at $1,175,699 compared to $1,184,345 in the
fiscal year ended June 30, 1995. During fiscal 1996, increased personnel costs
were offset by reduced travel costs.
General and administrative expenses for the fiscal year ended June 30,
1996 increased to $2,438,471 from $2,168,827 in the fiscal year ended June 30,
1995. This increase is primarily the result of the hiring of more personnel, as
well as higher facilities and insurance costs in addition to increased
depreciation and amortization expense.
A write-down related to a project and a restructuring charge during the
fiscal year ended June 30, 1996 amounted to $2,650,000. The Company's decision
to record a non-cash project-related charge in the amount of $2,500,000
primarily reflects revisions in the Company's future anticipated net royalty
stream on The Puzzle Place project and an effort to adjust the amortization of
film and program costs to those anticipated revenue streams. Additionally, an
overall decrease in production activity during the fiscal year ended June 30,
1996 resulted in a downsizing of staff involved with certain projects and a
resulting restructuring charge of $150,000 including severance and other
benefits paid to terminated employees.
Interest income for the fiscal year ended June 30, 1996 decreased to
$276,570 from $506,316 in the fiscal year ended June 30, 1995. This decrease is
primarily the result of cash being used during the year which reduced the cash
available for investment during the year.
Provision for income taxes - current for the fiscal year ended June 30,
1996 increased to $87,900 from $38,000 in the fiscal year ended June 30, 1995.
This increase is primarily due to state and local income tax liabilities
associated with the Company's licensing subsidiary.
Minority interest in the Company's licensing activities decreased to
$105,760 for the fiscal year ended June 30, 1996 from $199,974 for the fiscal
year ended June 30, 1995. This change is the direct result of the change in the
profitability of the licensing activities from year to year.
Net loss for the fiscal year ended June 30, 1996 was $3,700,713, or $0.60
per share (which includes the above-mentioned write-down related to a project
and restructuring charge amounting to $2,650,000, or $.43 per share) compared to
net income of $1,247,499, or $0.20 per share, in the fiscal year ended June 30,
1995 as a result of the combination of the factors described above. Weighted
average shares outstanding for the fiscal year ended June 30, 1996 decreased to
6,177,051 from 6,365,741 in the fiscal year ended June 30, 1995 primarily
reflecting the exclusion of outstanding anti-dilutive stock options during the
fiscal 1996 loss period.
Liquidity and Capital Resources
The Company had cash and cash equivalents as of June 30, 1997 of
approximately $4.5 million, and no long-term debt. Notwithstanding the Company's
cash position at June 30, 1997 the Company believes that additional funding will
be necessary to sustain the Company's operations through the fourth quarter of
fiscal 1998. The Company is actively seeking additional funding and has retained
an investment banking firm to assist it in this effort. Among the alternatives
being considered by the Company are a sale of an interest in the Company, an
acquisition of the Company, and/or strategic alliances with industry partners.
The Company continues to pursue marketing efforts to generate cash from
production and other licensing activities and, where appropriate, may explore
turning to account certain non-strategic assets. While there can be no assurance
that any such transactions will be available to the Company or, if available,
that they will be on terms favorable to the Company or its shareholders, the
Company is devoting considerable management and other resources to these
efforts.
The Company also has taken steps to reduce, where appropriate, its
operating expenses. These steps include relocating Strategy, its merchandising
and licensing agent subsidiary, from Westport, Connecticut to the Company's New
York City offices, and certain staff reductions.
Cash used in operating activities was approximately $3.6 million for the
fiscal year ended June 30, 1997, compared to approximately $3.9 million for the
fiscal year ended June 30, 1996. A net loss of approximately $10.1 million for
the fiscal year ended June 30, 1997, including a non-cash write down on projects
of approximately $5.5 million and depreciation and other amortization of
approximately $0.4 million, net additions to film and program costs of
approximately $1.6 million, a decrease in deferred revenues of approximately
$1.2 million and a decrease in participations payable of approximately $0.4
million, which were partially offset by a decrease in accounts receivable of
approximately $2.2 million, an increase in accounts payable and accrued expenses
of approximately $1.4 million comprises the majority of the cash used in
operating activities.
Cash used in investing activities was approximately $55,000 for the fiscal
year ended June 30, 1997, compared to approximately $163,000 for the fiscal year
ended June 30, 1996. The Company made improvements to its office space and
purchased computer equipment in the fourth quarter of fiscal 1997.
Cash provided from financing activities was approximately $4.7 million for
the fiscal year ended June 30, 1997 compared to $13,126 for the fiscal year
ended June 30, 1996. 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 June 30, 1997, the Company is continuing with the outreach,
publicity and television rights renewals for the first 65 episodes of The Puzzle
Place. All the remaining outreach and publicity costs and television rights
renewal costs through June 30, 1997 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 CPB and
KCET, the Company's remaining funding requirement will be no more than
approximately $0.1 million. With respect to The Puzzle Place licensing effort,
the Company and KCET have agreed to, and may in the future, adjust the licensing
terms for certain licensees.
The Company has completed post-production on the initial season of 13
episodes of Backyard Safari 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 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
Company's business.
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995 and advises readers that
this report includes forward-looking statements that involve known and unknown
risks and uncertainties which may cause the Company's development and financial
performance in future periods to differ materially from anticipated developments
and performance expressed in any forward-looking statements made by, or on
behalf of, the Company. These risk factors include, among others:
The ability of the Company to secure timely production
funding and additional capital financing;
Risks generally associated with the production of a television series
and other entertainment products, including, without limitation, (a) the
availability of appropriate time slots for children's and family
entertainment programming; (b) a serious strike threat that could delay
production schedules; (c) availability of a star or other key
individual(s) associated with production of a series, movie or other
project;
Network and studio acceptance of television and motion picture
projects; pricing, purchasing, financing, operational, advertising and
promotional decisions by intermediaries in the distribution channel; and
the effects of vertical integration of companies in the media and
entertainment industry, the effects of which could be to reduce the
opportunities for the Company and independent producers, suppliers and
distributors as a whole;
The ability of the Company to successfully negotiate and enter into
agreements to acquire rights, develop, produce, market and distribute
entertainment and licensing projects;
Difficulties or delays in the development, production and marketing of
entertainment projects and/or licensed products, including, but not
limited to, a failure to complete production of new projects when
anticipated and failures related to another party's inability to
perform, which could, for example, affect the licensees' ability to
manufacture, or consumer demand for, licensed products;
Less than anticipated consumer acceptance of entertainment projects or
licensed products, which could negatively affect the life cycle of
entertainment projects and licensed products;
The effects of, and changes in, consumer tastes, economic and tax
policies, social and economic conditions, and laws and regulations,
including governmental action or legal proceedings relating to
intellectual property rights and intellectual property licenses and the
adoption of new, or changes in, accounting policies
Non-renewal of annual contracts with production-related
customers; and
Underutilization of the Company's post-production facilities resulting
from, among other things, production slowdowns or inefficiencies.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk
Not applicable
Item 8. Financial Statements and Supplementary Data
See the consolidated financial statements and related notes thereto set
forth in Item 14 of this Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
See Current Report on Form 8-K, filed May 8, 1997 (reporting the change
in the Company's certifying accountants).
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth information with respect to the directors
and executive officers of Lancit as of September 26, 1997:
Name Age Position
Susan L. Solomon 46 Chairman of the Board of Directors, Chief
Executive Officer
Cecily Truett 48 Co-President and Director
Laurence A. Lancit 49 Co-President and Director
Orly Wiseman 39 Senior Vice President - Production
Gary Appelbaum 39 Senior Vice President, Chief Financial
Officer and Treasurer
Jane M. Abernethy 40 Senior Vice President - Legal and Business
Affairs
Noel Resnick 46 Senior Vice President - Development
David Michaels 34 Senior Vice President - Motion Pictures
Irene V. Minett 50 Senior Vice President - Marketing
Marc L. Bailin 45 Secretary and Director
Joseph Kling 66 Director
John R. Costantino 51 Director
Roger C. Faxon 49 Director
A. Robert Towbin 62 Director
Each of the directors serves from the date of election until the next
annual meeting of shareholders and until a successor is elected and qualified.
Each of the officers serves at the discretion of the Board of Directors from the
date of election until the next annual meeting of shareholders and until a
successor is elected and qualified.
SUSAN L. SOLOMON, Chairman and Chief Executive Officer, joined
the Company in April 1997. In August 1996, Ms. Solomon was named a
Senior Vice President for Corporate Development of Sony Corporation
of America. Ms. Solomon joined Sony in January 1994 to oversee that
company's investments in satellite and cable radio and to assist in
the development of worldwide music video channels. Ms. Solomon
served as Chief Executive Officer, President and founder of Sony
Worldwide Networks, from its inception in March 1994. From October
1992 to January 1994, she served as Executive Vice President of
McAndrews and Forbes' media holding subsidiary The Andrews Group.
Prior to that, Ms. Solomon held a number of senior executive
positions in the media and entertainment industry, including being
affiliated with MMG Patricof & Co. as a senior investment banker
specializing in entertainment and media. Ms. Solomon received a B.A.
from New York University in 1975, and a J.D. degree from Rutgers Law
School in 1978, where she was an editor for the Law Review. She is a
member of the New York Bar, and serves on the Board of the New York
Chapter of the Juvenile Diabetes Foundation.
CECILY TRUETT is co-founder of the Company and has served as
Co-President of the Company since April 1997. From March 1989
through March 1997, she served as Chairman of the Board of Directors
and Chief Executive Officer of the Company. From the Company's
inception in 1979 through March 1989, Ms. Truett served as Executive
Vice President of the Company. From 1978 to 1979, Ms. Truett was
Project Director of Books and Broadcasting For Children, an
international symposium in children's media. Between 1974 and 1978,
she was an associate producer/producer for South Carolina Educational
Television Network ("SCETV"). Ms. Truett has served as a Blue Ribbon
panelist for the Emmy Awards and as a judge at the Prix Jeunesse
International Awards for children's programs. Ms. Truett has also
written an Emmy Award-winning episode of Reading Rainbow. Ms. Truett
is the wife of Laurence A. Lancit.
LAURENCE A. LANCIT is co-founder of the Company and has served as
Co-President of the Company since April 1997 and as a Director since the
Company's inception. He served as President and Chief Operating Officer of the
Company from its inception in 1979 through March 1997, as well as Treasurer
through June 1995. From 1977 to 1979, he was a producer/director for the Network
for Continuing Medical Education, a major distributor of medical information
productions to hospitals nationwide. From 1971 to 1977, Mr. Lancit was a
producer/director for SCETV, a PBS affiliate. During this period, his credits
included Director of "Lowell Thomas Remembers", a series of 44 half hours, and
"10 Years of Firing Line" with William F. Buckley Jr. In June 1992, Mr. Lancit
received a 1992 Daytime Emmy Award as Best Director In A Children's Series for
his efforts on Reading Rainbow. Mr. Lancit is the husband of Cecily Truett.
ORLY WISEMAN has been supervising producer of Reading Rainbow since 1982
and in April 1993 was promoted to Senior Vice President Production from Vice
President - Production. During her tenure, the series has been the recipient of
every major award in children's programming, including nine Emmys, the Prix
Jeunesse International and the Peabody. Prior to joining the Company, Ms.
Wiseman served as a producer for Hearst/ABC Cable and a variety of commercial
television projects.
GARY APPELBAUM, who joined the Company as Vice President and Controller
in October 1992, became a Senior Vice President and the Chief Financial Officer
in October 1993. In June 1995, he became the Treasurer as well. Mr. Appelbaum
worked for Madison Square Garden Corporation from 1989 to 1992, first as
Assistant Controller and then as Vice President and Controller. Prior to that,
Mr. Appelbaum worked for Four M Manufacturing as Corporate Controller from 1988
to 1989. Mr. Appelbaum is a CPA and received a Masters in Business
Administration from New York University in 1987.
JANE M. ABERNETHY joined the Company as Vice President - Legal
& Business Affairs in October 1995 and became Senior Vice President
- - Legal & Business Affairs in August 1997. Ms. Abernethy was an
associate with the entertainment law firm of Frankfurt, Garbus, Klein
& Selz, P.C. from April 1991 through September 1995. From September
1986 through March 1991, Ms. Abernethy was a corporate associate with
the firm of Kramer, Levin, Naftalis & Frankel. Ms. Abernethy is a
graduate of New York University School of Law (J.D.) and Princeton
University (A.B.). She serves on the Board of Directors of Cause
Effective, Inc., a non-profit technical assistance provider to other
non-profit corporations.
NOEL RESNICK joined the Company in February 1996 as Senior Vice President
- - Development. Ms. Resnick has been an award winning independent producer of
children's and family entertainment since 1986. In addition to developing and
producing both live action and animation programs for network and cable
television, she produced the critically acclaimed film The Little Kidnappers
(1990 - recipient of the Banff Television Festival "Rockie" Award for Best
Children's Program of 1991) as well as the highly rated trilogy of Not Quite
Human movies (1987, 1989, 1992) for Disney. Ms. Resnick's other executive
producing credits include the animated ABC Weekend Special The Magic Flute
(1994), ABC Afterschool Special Magical Makeover (1994), CBS Storybreak
wraparounds (1993) and the CBS Schoolbreak Special But He Loves Me (1991). Her
production of the 100th ABC Afterschool Special The Gift of Amazing Grace was
awarded the 1987 NAACP Image Award for Best Children's Special. From 1976 to
1986, she served in several executive positions at ABC Television in the
children's and family programming arena where she was responsible for the
development and production of ABC's Afterschool Specials, Weekend Specials,
primetime family specials and Saturday morning series.
DAVID MICHAELS, who joined the Company in March 1996 as Vice President -
Motion Pictures, became Senior Vice President - Motion Pictures in March 1997.
From 1994 through February 1996, Mr. Michaels developed motion picture projects
for Le Bad, Incorporated, the production company for director Russell Mulcahy
(Highlander, Ricochet, The Shadow). Concurrently, as an independent producer
through his own company, Good Medicine Films, Inc., Mr. Michaels produced or
executive produced a number of projects including Ringside, Not Even Trees and
The Reunion. From 1992 through 1994, Mr. Michaels worked as a writer/producer
with Media, Incorporated, a television and commercial production company. In
addition, during 1991 to 1995, Mr. Michaels worked as a freelance editor for the
New York Times creating advertorial sections for the paper. Prior to that, Mr.
Michaels was a story editor for several series produced by Lorimar-Telepictures.
IRENE V. MINETT, who joined the Company in April 1997 as Vice President -
Marketing, became Senior Vice President - Marketing in August 1997. From 1994 to
April 1997, Ms. Minett was Vice President Entertainment Programming and
Marketing, for Sony Worldwide Networks, the radio division of Sony Corp. of
America, where she produced and marketed a series of live concert simulcasts
with the Arts & Entertainment cable television network and successfully
developed, executed and managed the Entertainment & Music News Network
programming. From 1987 to 1994, Ms. Minett was Director of Entertainment
Programming and Marketing at ABC Radio Networks where she created and executed
marketing and promotional campaigns as well as image enhancing programming. She
negotiated, produced and marketed a variety of concert broadcast and promotional
events including the Rolling Stones' 1989 Steel Wheels Tour, the American Top 40
Concert Tour and the series ABC In Concert.
MARC L. BAILIN has served as Secretary and as a Director of the Company
since the Company's inception in 1979. He is a senior partner of Rubin, Bailin,
Ortoli, Mayer, Baker & Fry LLP and has been engaged in the practice of
entertainment and corporate law in New York and California for nineteen years.
Mr. Bailin has served as the line production attorney for the Reading Rainbow
series since its creation and has served as Executive Producer of nine feature
length action motion pictures. Mr. Bailin is also a Director and founder of
Virtu Management Group, Ltd., a business management and financial affairs firm
for a variety of leading motion picture, prime-time television and daytime
television personalities. Mr. Bailin attended The New York University and Boston
University Schools of Law (J.D.) as well as Columbia University Graduate School
of Business (M.B.A.)
and Yale College (B.A.).
JOSEPH KLING has served as a Director of the Company since 1993. From
1985 to 1989, Mr. Kling was Vice Chairman and President of View Master Ideal
Group. From 1989 to 1991, he was President of Sharon Industries, Inc., a
manufacturer and distributor of toy products. Since 1991, he has been President
of PAMSCO Inc., a consulting company. Mr. Kling is on the Board of Directors of
Russ Berrie & Co., a New York Stock Exchange-listed designer and marketer of
gift products worldwide.
JOHN R. COSTANTINO has served as a Director of the Company since May
1995. From 1978 to 1984, Mr. Costantino was a Senior Tax Partner at Touche Ross
& Co. where he served as Managing Tax Partner of the firm's New York practice.
From 1984 to 1985, he was President and Managing Director of Integrated
Acquisition Corporation. From 1985 to 1987, he was Senior Executive Vice
President and Chief Operating Officer of Conair Corporation. Since 1987 he has
been a private investor and is presently a principal of Walden Partners Ltd., an
investment partnership. Mr. Costantino is a member of the Board of Directors of
Brooklyn Bancorp Inc. (the holding company for Crossland Federal Savings Bank),
a Trustee of the General Electric Company's family of funds and is also a
director of a number of domestic and international companies. He is an attorney
and certified public accountant admitted to practice in New York State.
ROGER C. FAXON has served as a Director of the Company since
January 1997. Mr. Faxon was named Senior Vice President - Business
Development and Strategy of EMI Music in April 1994 and is
responsible for EMI's world-wide planning process and development of
market strategies for over seventy countries. In June 1990, Mr.
Faxon was appointed Executive Vice President of Sotheby's in North
and South America and in September 1991 was named Managing Director
of Sotheby's Europe. Mr. Faxon has a B.A. degree from the Johns
Hopkins University of Baltimore, Maryland.
A. ROBERT TOWBIN has served as a Director of the Company since
May 1997. Mr. Towbin was named Managing Director of Unterberg Harris
in September 1995. In January 1987, Mr. Towbin joined Shearson
Lehman Hutton, Inc., now Lehman Brothers, as a Managing Director. In
January 1994, Mr. Towbin was appointed President and Chief Executive
Officer of the Russian-American Enterprise Fund. Mr. Towbin serves
as a Corporate Director of Bradley Real Estate, Inc., Gerber
Scientific, Inc., Columbus New Millennium Fund (London), K&F
Industries, Inc. and Globalstar Telecommunications.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own beneficially more
than ten percent of the Company's outstanding Common Stock to file with the SEC
initial reports of beneficial ownership and reports of changes in beneficial
ownership of Common Stock and other securities of the Company on Forms 3, 4 and
5, and to furnish the Company with copies of all such forms they file. Based on
a review of copies of such reports furnished to it, the Company believes that
all of the Company's directors and officers timely filed all reports required
during the fiscal year ended June 30, 1997, except that the Forms 3 for each of
Mr. Faxon, Ms. Minett and Mr. Towbin were filed more than 10 days after the
occurrence of the events that required their filing; Mr. Appelbaum filed a late
Form 4 reporting the exercise of an employee stock option; and the Forms 5 for
each of Mr. Towbin and Ms. Scanlan, reporting only exempt transactions, were
filed late.
<PAGE>
Item 11. Executive Compensation
The following table sets forth the aggregate compensation earned for
services rendered during the three fiscal years ended June 30, 1997, 1996 and
1995 to the Company's chief executive officer and the four other most highly
compensated executive officers other than the chief executive officer to whom
aggregate annual compensation (salary and bonus) exceeded $100,000
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation
Other Securities All
Annual Underlying Other
Name and Year Salary Bonus Compensation Options/SARs(1) Compensation
Principal Ended ($) ($) ($) (#) ($)
Position June 30,
Susan L. 1997 $108,814 $150,000(2) $49,755(3) 750,000(4)/ $5,625(12)
Solomon 255,000(5)
Chief 1996 - - - - -
Executive 1995 - - - - -
Officer
and
Chairman
of the
Board of
Directors*
Cecily 1997 $150,000 - $ 9,661(7) 45,000/0(8) $10,159(13)
Truett 1996 $146,600 $ 2,000(6) $19,803(7) - $ 6,247(13)
Co-President**1995 $133,300 $10,665(6) $34,829(7) - $ 8,528(13)
Laurence 1997 $150,000 - $16,870(9) 45,000/0(8) $12,785(14)
A. Lancit 1996 $146,600 $ 2,000(6) $28,587(9) - $ 7,988(14)
Co-President***1995$133,300 $10,665(6) $11,750(9) - $11,994(14)
Arlene J. 1997 $125,000 $ 1,000(6) - 15,000/0(11) $ 3,780(15)
Scanlan 1996 $125,000 $ 2,000(6) - - $ 4,070(15)
President 1995 $125,000 $10,665(6) - 5,000/0(11) $ 3,810(15)
of
Strategy****
Noel 1997 $127,083 750(6) $ 7,200(10) - $ 2,898(16)
Resnick 1996 $ 46,875 - $ 2,700(10) 33,000/0(11) -
Senior 1995 - - - - -
Vice
President
Development
* Became Chief Executive Officer and Chairman of the Board commencing April 1,
1997.
** Was Chief Executive Officer and Chairman of the Board until
March 31, 1997.
*** Was President and Chief Operating Officer until March 31, 1997.
**** Terminated, effective September 23, 1997
(1) All options listed were granted pursuant to either the 1990 Stock Option
Plan (as amended, the "1990 Plan") or the 1997 Stock Incentive Plan (as
amended, the "1997 Plan"), as indicated. Stock appreciation rights ("SARs")
were granted under the Company's 1997 Value Incentive Bonus Program. Option
exercise prices and SAR measuring values are at or above the fair market
value of the Company's Common Stock as reported on NASDAQ on the date of
grant (see "Executive Compensation - Option/SAR Grants In Last Fiscal
Year", below).
(2) Ms. Solomon earned a signing bonus of $150,000 upon her
hiring.
(3) Ms. Solomon received other annual compensation in the form of paid advisory
services along with a tax equalization for negotiation of her employment
contract totaling $49,755.
(4) Consists of (i) options to purchase 255,000 shares of the Company's Common
Stock granted pursuant to the 1997 Plan (the "1997 Plan Option"), subject
to approval of such plan or such options by the Company's shareholders; and
(ii) options to purchase 495,000 shares of the Company's Common Stock
granted pursuant to the 1990 Plan.
(5) SARs are subject to cancellation upon approval by the Company's
shareholders of either the 1997 Plan or the 1997 Plan Option. Does not
include 700,000 SARs which were granted on March 31, 1997 and canceled on
June 20, 1997.
(6) Officers, as a group, under an incentive bonus plan (the "Bonus Plan"),
receive a bonus of 5% of pre-tax income (before bonus), for a fiscal year,
provided that (i) pretax income (before bonus) for such fiscal year is at
least $250,000, (ii) net income for such fiscal year exceeds net income for
the prior fiscal year, and (iii) net income is at least $.05 per share
(adjusted for stock splits and stock dividends), on a fully diluted basis.
No amounts were accrued under the Bonus Plan for fiscal 1997 or fiscal
1996. $77,987 was accrued under the Bonus Plan for fiscal 1995 and each
eligible individual received $8,665 which was paid in fiscal 1996. Other
bonus amounts shown are holiday bonuses for which all employees are
eligible. The amounts of these bonuses are determined at the discretion of
management.
(7) Ms. Truett received other annual compensation in the form of royalty
payments as one of the creators of The Puzzle Place of $9,661, $19,803 and
$34,830 in fiscal 1997, 1996 and 1995, respectively.
(8) Granted pursuant to the 1997 Plan. Stock options granted under the 1997
Plan are generally exercisable for a period of up to 10 years from the date
of grant at an exercise price which is not less than the fair market value
of the Company's Common Stock on the date of grant. Stock options granted
under the 1997 Plan generally vest on or before the first anniversary of
the date of grant. The 1997 Plan is subject to approval by the Company's
shareholders.
(9) Mr. Lancit received other annual compensation as follows: auto expense
allowance of $16,871, $15,280 and $11,750 in fiscal 1997, 1996 and 1995,
respectively; and fees for his services as a director of Reading Rainbow in
the amount of $13,307 in fiscal 1996.
(10) Ms. Resnick received other annual compensation as follows: auto expense
allowance of $7,200 and $2,700 in fiscal 1997 and 1996, respectively.
(11) Granted pursuant to the 1990 Plan. Stock options granted under the 1990
Plan are generally exercisable for a period of up to 10 years from the date
of grant at an exercise price which is not less than the fair market value
of the Common Stock on the date of the grant, except that the term of an
incentive stock option granted under the 1990 Plan to a shareholder owning
more than 10% of the outstanding Common Stock may not exceed five years and
its exercise price may not be less than 110% of the fair market value of
the Common Stock on the date of the grant. Stock options granted under the
1990 Plan generally vest on or before the first anniversary of the date of
grant.
(12) Ms. Solomon received other compensation as follows: an automobile allowance
of $5,625.
(13) Ms. Truett received other annual compensation as follows: employer paid
life insurance of $5,660, $1,590, and $4,339 in fiscal 1997, 1996 and 1995,
respectively; employer 401(k) contributions of $4,500, $4,658 and $4,189 in
fiscal 1997, 1996 and 1995, respectively.
(14) Mr. Lancit received other compensation as follows: employer paid life
insurance of $8,285, $3,330 and $7,362 in fiscal 1997, 1996 and 1995,
respectively; employer 401(k) contributions of $4,500, $4,657 and $4,632 in
fiscal 1997, 1996 and 1995, respectively.
(15) Ms. Scanlan received other compensation as follows: employer 401(k)
contributions of $3,780, $4,070 and $3,810 in fiscal 1997, 1996 and 1995,
respectively.
(16) Ms. Resnick received other compensation as follows: employer 401(k)
contributions of $2,898 in fiscal 1997.
Employment Contracts
On April 1, 1997, the Company entered into an employment agreement with
Susan L. Solomon in connection with her appointment as Chairman of the Board and
Chief Executive Officer, which employment agreement was amended on June 20,
1997. The agreement has a three-year term and is subject to renewal such that,
unless and until terminated by either party, the remaining term thereof is never
less than two years. Annual base salary thereunder is $350,000, subject to
increase from year to year by a minimum amount based on the annual increase in
the consumer price index, with the actual amount of the increase being
determined by the Board of Directors. In addition, the agreement calls for Ms.
Solomon to receive, on an annual basis, a performance bonus equal to a set
percentage of certain established, annually increasing levels of the Company's
pretax income, and additional bonus payments in the event of certain third-party
investments in the Company. Ms. Solomon is also entitled to participate in the
Bonus Plan. If her employment agreement were terminated by either party
following a change in control, as defined in the employment agreement, Ms.
Solomon would be entitled to her base salary and bonus payable throughout the
remaining term of the agreement. Pursuant to her employment agreement, Ms.
Solomon also received certain stock options and stock appreciation rights (see
"Executive Compensation - Option/SAR Grants in Last Fiscal Year" below).
In October 1995, the Company entered into employment agreements, covering
the term from October 1, 1995 to October 1, 1998, with each of Cecily Truett and
Laurence A. Lancit. Each agreement provides for a base annual salary starting at
$150,000 for the first year, subject to increases in each of the remaining two
years in a minimum amount based on the annual increase in the consumer price
index, with the actual amount of the increase being determined by the Board of
Directors. Each of Ms. Truett and Mr. Lancit is eligible to participate in the
Bonus Plan. Following a change in control of the Company, as defined in each
such agreement, each of Ms. Truett and Mr. Lancit could terminate her or his
employment with the Company for any reason within one year after the change in
control and certain provisions of the employment agreement relating to future
employment would not apply. Additionally, in the event that the Company
terminates the employment of either of Ms. Truett or Mr. Lancit, other than for
cause, within one year following a change in control, Ms. Truett and/or Mr.
Lancit, as the case may be, would receive payment in the amount of the greater
of (i) her or his then existing annual base salary or (ii) the balance of her or
his base salary due for the remaining term of the employment agreement.
In September 1997, the Company and Noel Resnick executed an employment
agreement, covering the term from February 16, 1996 to February 16, 1998. The
agreement provides for an annual base salary of $125,000 in the first year and
at least $130,000 in the second year. Ms. Resnick is eligible to participate in
the Bonus Plan.
The following table sets forth all grants of stock options and stock
appreciation rights during the fiscal year ended June 30, 1997 to the Named
Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Potential Realizable Value at
Individual Grants Assumed Annual Rates of
Stock Price Appreciation for
Option Term(5)
Number of % of
Securities Total
Underlying Options/
Options/ SARs Exercise
SARs Granted or Expiration
Name Granted to Base Date 0%($) 5%($) 10%($)
(#)(1) Employees Price
in ($/Sh)(1)
Fiscal
Year(4)
Susan L. 495,000(2),(9) 41.8% 3.15625 03-31-07 - 1,296,745 5,921,282
Solomon, 255,000(8),(10) 21.6% 3.15625 03-31-07(6) - 668,020 3,050,358
Chief 255,000(3),(11) 21.6% 3.15625 03-31-07(7) - 668,020 3,050,358
Executive
Officer
and
Chairman
of the
Board*
Cecily
Truett, 45,000(3),(12) 3.8% 3.15625 06-20-07 - 117,886 538,298
Co-President**
Laurence
A. Lancit, 45,000(3),(12) 3.8% 3.15625 06-20-07 - 117,886 538,298
Co-President***
Arlene J.
Scanlan, 15,000(2),(13) 1.3% 3.15625 12-23-97(13)- 39,295 179,432
President,
The
Strategy
Licensing
Company,
Inc.****
Noel
Resnick, 33,000(2),(14) 2.8% 3.15625 06-20-07 - 86,450 394,752
Senior
Vice
President-Development
* Became Chief Executive Officer and Chairman of the Board commencing April 1,
1997.
** Was Chief Executive Officer and Chairman of the Board until March 31, 1997.
*** Was President and Chief Operating Officer until March 31, 1997.
**** Terminated, effective September 23, 1997
(1) All options listed were granted pursuant to either the 1990 Plan
or the 1997 Plan, as indicated. Stock appreciation rights ("SARs") were
granted under the Company's 1997 Value Incentive Bonus Program. Option
exercise prices and SAR measuring values are at the average of the last bid
and the last ask prices of the Company's Common Stock as reported on NASDAQ
on the date of grant.
(2) Granted pursuant to the 1990 Plan. Stock options granted under the 1990 Plan
are generally exercisable for a period of up to 10 years from the date of
grant at an exercise price which is not less than the fair market value of
the Common Stock on the date of the grant, except that the term of an
incentive stock option granted under the 1990 Plan to a shareholder owning
more than 10% of the outstanding Common Stock of the Company may not exceed
five years and its exercise price may not be less than 110% of the fair
market value of the Common Stock on the date of the grant. Stock options
granted under the 1990 Plan generally vest on or before the first
anniversary of the date of grant. The 1990 Plan provides for accelerated
vesting upon the occurrence of certain transactions which would otherwise
cause such options to be extinguished.
(3) Granted pursuant to the 1997 Plan. Stock options granted under the 1997 Plan
are generally exercisable for a period of up to 10 years from the date of
grant at an exercise price which is not less than the fair market value of
the Company's Common Stock on the date of grant. Stock options granted under
the 1997 Plan generally vest on or before the first anniversary of the date
of grant. Options granted under the 1997 Plan provide for accelerated
vesting upon the occurrence of certain transactions which would otherwise
extinguish such options. The 1997 Plan is subject to approval by the
Company's shareholders.
(4) Based on the total number of stock options and SARs granted to all employees
and directors of the Company under the Company's various stock incentive
plans during the fiscal year ended June 30, 1997, or a total of 1,182,350
rights. Excludes (i) 255,000 rights granted to Ms. Solomon, as either the
255,000 SARs or the 1997 Plan Option will be canceled on or prior to
December 31, 1997 (see Notes 6 and 7 below) and (ii) 700,000 SARs which were
granted to Ms. Solomon on March 31, 1997 and were canceled on June 20, 1997.
(5) The dollar amounts shown under these columns are the results of calculations
at 0% and at the 5% and 10% rates set by the SEC for the maximum option term
and are not intended to, and may not accurately, forecast possible future
appreciation, if any, in the price of the Company's Common Stock.
(6) Subject to cancellation if either the 1997 Plan Option or the 1997 Plan is
approved by the shareholders of the Company on or prior to December 31,
1997.
(7) Subject to cancellation if the 1997 Plan Option or the 1997 Plan is not
approved by the shareholders of the Company on or prior to December 31,
1997.
(8) SARs granted pursuant to the Company's 1997 Value Incentive Bonus Program
(as amended, the "Program"). SARs granted under the Program are generally
convertible for a period of up to 10 years from the date of grant at a
measuring price equal to the fair market value of the Company's Common Stock
on the date of grant.
(9)Options become exercisable on the earlier to occur of (i) October 1, 1997,
or (ii) a change in control of the Company. Options granted in partial
replacement of the cancellation of 700,000 SARs (see Note 10 below).
(10)SARs become payable upon conversion in cash or common stock, at the option
of the Company, upon the earliest to occur of (i) a meeting, which is
required to be held no later than December 31, 1997, at which the Company's
shareholders decline to approve or ratify the 1997 Plan or the 1997 Plan
Option, (ii) December 31, 1997, or (iii) a change in control of the Company.
Upon approval or ratification by the shareholders on or before December 31,
1997 of either the 1997 Plan or the 1997 Plan Option, the SARs granted
pursuant to the Program will be canceled. SARs remain convertible until
March 31, 2007, unless earlier canceled in accordance with their terms. Does
not include 700,000 SARs which were granted to Ms. Solomon on March 31, 1997
and canceled on June 20, 1997
(11)Options become exercisable on the later to occur of (i) October 1, 1997 or
(ii) the date the 1997 Plan or the 1997 Plan Option is approved or ratified
by the Company's shareholders at the meeting described in Note 10 above;
provided that if the 1997 Plan Option or the 1997 Plan has been approved or
ratified by the Company's shareholders and if the 1997 Plan Option is not
already exercisable in accordance with its terms, the 1997 Plan Option shall
become exercisable upon a change in control of the Company.
(12)22,500 options became exercisable on the date of grant; the remaining
22,500 options become exercisable on June 20, 1998.
(13)Granted in connection with the Company's stock option "rejuvenation"
program (the "Rejuvenation"), pursuant to which each employee of the
Company, including executive officers, could elect to forfeit the stock
options held by him or her which were previously granted pursuant to the
1990 Plan, in exchange for an option to purchase one-half the number of
shares of Common Stock of the Company as was represented by the options so
forfeited. In each instance, the vesting schedule of the forfeited option
was retained, but a new exercise price equal to the fair market value of the
Company's Common Stock on June 20, 1997 and a new expiration date of 10
years from June 20, 1997 was assigned. Options became exercisable on the
date of grant. Due to Ms. Scanlan's termination, these options will expire
on December 23, 1997.
(14)Granted pursuant to the Rejuvenation. 15,000 options became exercisable on
the date of grant; 7,500 become exercisable on February 15, 1998; 3,500
options become exercisable on the earlier to occur of (i) the Company
meeting certain performance goals or (ii) January 17, 2006; 7,500 options
become exercisable on the earlier to occur of (i) the Company meeting
certain performance goals or (ii) February 9, 2007.
The following table sets forth information with respect to options
exercised by each of the Named Executive Officers during the fiscal year ended
June 30, 1997 and the number and value of their unexercised options and stock
appreciation rights as of June 30, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options/SARs at Options/SARs
Fiscal Year End (#) at Fiscal Year
End ($)(1)
Shares Value
Acquired Realized Unexer-
Name on ($) Exercisable Unexercisable Exercisable cisable
Exercise
(#)
Susan L. -- -- 495,000/255,000 255,000/0 -- --
Solomon, --
Chief
Executive
Officer and
Chairman of
the Board*
Cecily -- -- 22,500/0 22,500/0 -- --
Truett,
Co-President**
Laurence A. -- -- 22,500/0 22,500/0 -- --
Lancit,
Co-President***
Arlene J. -- -- 15,000/0 -- -- --
Scanlan,
President,
The Strategy
Licensing
Company,
Inc.****
Noel -- -- 15,000/0 18,000/0 -- --
Resnick,
Senior Vice
President-Development
* Became Chief Executive Officer and Chairman of the Board
commencing April 1, 1997.
** Was Chief Executive Officer and Chairman of the Board until March 31, 1997.
*** Was President and Chief Operating Officer until March 31, 1997.
**** Terminated, effective September 23, 1997.
(1) There were no "in-the-money" options/SARs at the Company's
fiscal year-end, based on the closing price of the Company's Common Stock on
NASDAQ on June 30, 1997, the last day of trading in the Company's fiscal
year ended June 30, 1997, or $3.125.
Compensation Committee Interlocks and Insider Participation
Laurence A. Lancit served on the Compensation Advisory Committee which
administered the 1990 Plan through October 1996, who, during that period was the
Company's President and Chief Operating Officer. Each of Cecily Truett, who,
during that period, was the Company's Chairman of the Board, and Marc L. Bailin,
the Company's Secretary, also served on the Compensation Advisory Committee. Mr.
Bailin also served on the Compensation Committee. No executive officer of the
Company served on the board of directors or compensation committee of any entity
which has one or more executive officers serving as a member of the Company's
Board of Directors, Compensation Committee or Compensation Advisory Committee.
Compensation of Directors
Directors who are not also employed by the Company presently receive
$1,500 semi-annually, as compensation for serving on the Board.
In addition, in December 1994, the Company adopted the 1994 Non-Employee
Director Non-Qualified Stock Option Plan (as amended, the "1994 Plan")
authorizing the issuance of options for the purchase of a total of up to 45,000
shares of the Company's Common Stock. Only non-employee directors of the Company
are eligible to participate in the 1994 Plan. The 1994 Plan provides that each
non-employee director shall be granted options to purchase 3,000 shares of the
Company's Common Stock on the day of his or her initial appointment to the Board
of Directors and annually thereafter on the day of his or her re-election. The
exercise price per share for each option granted is the fair market value of the
Company's Common Stock on the date of grant. Each option is exercisable in full
one year from the date of grant and expires no later than ten (10) years from
the date of grant. The 1994 Plan provides for accelerated vesting upon the
occurrence of certain transactions which would otherwise cause such options to
be extinguished.
In addition to the options automatically granted under the 1994 Plan, on
June 20, 1997, each of Messrs. Bailin, Costantino, Faxon, Kling and Towbin
received an option to purchase 5,000 shares of the Company's Common Stock at an
exercise price of $3.15625 under the Company's 1997 Plan, subject to approval of
the 1997 Plan by the Company's shareholders. Each option is exercisable in full
one year from the date of grant and expires no later than ten (10) years from
the date of grant. Options granted under the 1997 Plan provide for accelerated
vesting upon the occurrence of certain transactions which would otherwise cause
such options to be extinguished.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of October 3, 1997 the ownership of
the Company's Common Stock held by (i) each person who owns of record or who is
known by the Company to own beneficially more than 5% of such stock, (ii) each
of the directors of the Company, (iii) each of the Named Executive Officers and
(iv) all of the Company's directors and executive officers as a group. As of
such date, the Company had 6,634,750 shares of Common Stock issued and
outstanding. The number of shares and the percentage of the class beneficially
owned by the persons named in the table and by all directors and executive
officers as a group is presented in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, as amended, and includes, in addition to shares actually
issued and outstanding, unissued shares which are subject to issuance upon
exercise of options or warrants which are or will become exercisable within 60
days. Except as otherwise indicated, the persons named in the table have sole
voting and dispositive power with respect to all securities listed.
SECURITY OWNERSHIP
Percent
Amount and Nature of Class
of Beneficial (%)
Ownership
Name and Address of Beneficial Owners
Discovery Communications, Inc.
7700 Wisconsin Avenue
Bethesda, Maryland 11.9%
20814............................................876,232.(1)...
Directors and Executive Officers (2)
Laurence A. Lancit............................ 7.8%
575,613 (3)
Cecily Truett................................. 7.8%
575,613 (3)
Susan L. Solomon..............................
495,000 (4) 6.7%
Arlene J. Scanlan**........................... *
55,000 (5)
Noel Resnick.................................. *
15,000 (6)
John R. Costantino............................ *
29,400 (7)
Marc L. Bailin................................ *
27,000 (8)
Joseph Kling.................................. *
6,000 (9)
Roger C. *
Faxon............................................-.(10)........................
A. Robert *
Towbin...........................................-.(11)......................
All Directors and Executive Officers as a Group 25.4%
(16 persons).................................. 1,876,906 (12)
* Less than 1%
** Terminated, effective September 23, 1997
(1) Includes 438,116 shares which Discovery Communications, Inc. has the right
to acquire upon the exercise of currently exercisable warrants. The
foregoing information is derived from the Statement on Schedule 13D of
Discovery Communications, Inc., filed with the SEC on September 27, 1996.
(2) The address for each of the directors and executive officers is c/o Lancit
Media Entertainment, Ltd., 601 West 50th Street, New
York, New York 10019.
(3) Laurence A. Lancit and Cecily Truett are husband and wife. The number of
shares shown for each of them includes (i) 553,113 shares of Common Stock
held by each of them individually, and (ii) 22,500 shares of Common Stock
which are the subject of currently exercisable stock options. The number
of shares shown for each of them excludes (i) 2,932 held by their
children, as to which each disclaims beneficial ownership, (ii) 40,080
shares held by a trust for the benefit of their children, as to which each
disclaims beneficial ownership, and (iii) 553,113 shares of Common Stock
held by each other's spouse, as to which each disclaims beneficial
ownership, and (iv) 22,500 shares of Common Stock which are the subject of
options which are not currently exercisable and will not become
exercisable within 60 days.
(4) Includes 495,000 shares which are the subject of options granted to Ms.
Solomon which are currently exercisable. Excludes (i)255,000 shares which
are the subject of options granted to Ms. Solomon which are not currently
exercisable and will not become exercisable within 60 days and are subject
to ratification by the Company's shareholders, and (ii) any shares which
may be issuable, at the option of the Company, upon the conversion of
certain stock appreciation rights which were granted to Ms. Solomon.
(5) Includes 15,000 shares of Common Stock which are the subject of options
granted to Ms. Scanlan which are currently exercisable.
(6) Includes 15,000 shares of Common Stock which are the subject of options
granted to Ms. Resnick which are currently exercisable. Excludes 18,000
shares of Common Stock which are the subject of options granted to Ms.
Resnick which are not currently exercisable and will not become
exercisable within 60 days.
(7) Includes (i) 13,400 shares which Walden Partners Ltd., of which Mr.
Costantino is a vice president, director and principal, has the right to
acquire upon the exercise of currently exercisable stock options, and (ii)
6,000 shares which Mr. Costantino has the right to acquire upon the
exercise of currently exercisable stock options. Excludes 8,000 shares of
Common Stock which are the subject of options granted to Mr. Costantino
which are not currently exercisable and will not become exercisable within
60 days.
(8) Includes 6,000 shares which Mr. Bailin has the right to acquire upon the
exercise of currently exercisable stock options. Excludes (i) 15,000
shares owned by Marie Valdes, M.D., wife of Mr. Bailin, as to which shares
Mr. Bailin disclaims any beneficial interest, and (ii) 8,000 shares of
Common Stock which are the subject of options granted to Mr. Bailin which
are not currently exercisable and will not become exercisable within 60
days.
(9) Includes 6,000 shares of Common Stock which Mr. Kling has the right to
acquire upon the exercise of currently exercisable stock options. Excludes
8,000 shares of Common Stock which are the subject of options granted to
Mr. Kling which are not currently exercisable and will not become
exercisable within 60 days.
(10) Excludes 8,000 shares of Common Stock which are the subject of options
granted to Mr. Faxon which are not currently exercisable and will not
become exercisable within 60 days.
(11) Excludes 8,000 shares of Common Stock which are the subject of options
granted to Mr. Towbin which are not currently exercisable and will not
become exercisable within 60 days.
(12) Includes an aggregate of 733,400 shares of Common Stock which the
executive officers and directors have the right to acquire upon the
exercise of currently exercisable stock options or stock options which
become exercisable within 60 days, including 15,000 shares of Common Stock
subject to stock options held by Ms. Scanlan, whose employment was
terminated effective September 23, 1997. Excludes an aggregate of 888,500
shares which are the subject of options granted to the executive officers
and directors which are not currently exercisable and will not become
exercisable within 60 days.
Item 13. Certain Relationships and Related Transactions
The Company's corporate secretary, Marc L. Bailin, is a partner in Rubin
Bailin Ortoli Mayer Baker & Fry LLP. The Company paid legal fees of $195,040,
$121,157, and $135,140 to Rubin Bailin Ortoli Mayer Baker & Fry LLP and its
predecessor firm, for the fiscal years ended June 30, 1997, 1996, and 1995,
respectively.
The Company had entered into an arrangement with Walden Partners, Ltd.
("Walden"), pursuant to which Walden provided the Company with regular and
customary consulting advice involving matters relating to the Company's internal
operations, corporate transactions and financial markets. The arrangement had a
term commencing October 20, 1995 and ending October 31, 1996. Pursuant to the
arrangement, the Company paid Walden a monthly fee of $833 and granted Walden an
option under the 1990 Plan to purchase 13,400 shares of Common Stock with an
exercise price equal to the fair market value of the Common Stock on, and
expiring five years from, the date of grant. John R. Costantino is a vice
president, director and principal of Walden.
Simultaneously with the equity purchase transaction between DCI and the
Company on September 25, 1996, the Company entered into a non-exclusive
Production Output Agreement pursuant to which the Company will develop and
produce children's programming for Discovery Channel's new Sunday children's
block. A new agreement was entered into in May 1997, pursuant to which the
Company will own the copyright for and expects to derive licensing revenues
from, programming it produces for DCI (a minimum of one-sixth of the total
"Discovery Kids" programming block). The value of the agreement may vary on a
case-by-case basis.
In March 1997, the Company entered into an employment agreement with David
Michaels, pursuant to which Mr. Michaels would serve as the Company's Senior
Vice President - Motion Pictures. Mr. Michaels currently has, and will continue
to have, a significant ownership interest in the motion picture/television
production company Good Medicine Films, Inc. ("GMF") Under the terms of the
employment agreement, GMF granted to the Company first negotiation and matching
rights with respect to certain projects under development by GMF. The Company
has acquired options to certain properties held by GMF. The dollar value of such
rights may vary on a case-by-case basis.
In October 1997, the Company entered into an agreement with Arlene J.
Scanlan, pursuant to which the Company acquired the remaining 15% of the
outstanding shares of the capital stock of Strategy held by her. Additionally,
Ms. Scanlan's employment with Strategy and the Company was terminated. In
consideration of the foregoing, the Company paid Ms. Scanlan an aggregate of
$30,788 and has released Ms. Scanlan from certain restrictions contained in a
covenant not to compete with respect to specified properties and entities.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a)(1)
Financial Statements Page
Report of Independent Auditors F-2
Report of Predecessor Independent Auditors F-2a
Consolidated Balance Sheets - June 30, 1997 and 1996 F-3
Consolidated Statements of Operations - Years Ended
June 30, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity Period from July 1,
1994 through June 30, 1997 F-5
Consolidated Statements of Cash Flows - Years Ended
June 30, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
(a)(2) Financial Statement Schedules
Report of Independent Auditors F-19
Schedule II - Valuation and Qualifying Accounts F-20
(a)(3) Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 1995)
3.2 By-Laws of the Registrant, as amended (filed herewith)
4.1 Specimen Certificate evidencing shares of Common Stock (incorporated by
reference to Exhibit 4.1 of the Registrant's Registration Statement on
Form S-18 (File No. 33-40701-NY))
4.2 Form of Warrant issued to Robinson Lerer & Montgomery, LLC
(filed herewith)
4.3 Form of Warrant issued to Allen & Company, Inc. (filed
herewith)
4.4 Form of Stock Purchase Warrant issued to Discovery Communications, Inc.
(see Exhibit A to Stock Purchase Agreement, dated as of September 25,
1996, between the Registrant and Discovery Communications, Inc., filed
as Exhibit 10.19 to this Annual Report on Form 10-K)
10.1 Employment Agreement, dated as of October 1, 1995, between the
Registrant and Laurence A. Lancit (incorporated by reference to Exhibit
10.1 to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996)
10.2 Employment Agreement, dated as of October 1, 1995, between the
Registrant and Cecily Truett (incorporated by reference to Exhibit 10.2
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996)
10.3 Employment Agreement, dated as of March 31, 1997, between the
Registrant and Susan Solomon (incorporated by reference to Exhibit
10.19 to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997)
10.4 Amendment No. 1, dated as of June 20, 1997, to the Employment
Agreement, dated as of March 31, 1997, between the Registrant
and Susan Solomon (filed herewith)
10.5 Employment Agreement, dated as of February 16, 1996, between the
Registrant and Noel Resnick (filed herewith)
10.6 Employment Agreement, dated as of February 25, 1997, between the
Registrant and David Michaels (incorporated by reference to Exhibit
10.20 to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997)
10.7 Employment Agreement, dated as of June 16, 1997, between the Registrant
and Jane M. Abernethy (filed herewith)
10.8 Employment Agreement, dated as of April 14, 1997, between the
Registrant and Irene V. Minett (filed herewith)
10.9 Executive Stock Option Plan (incorporated by reference to
Exhibit 4(a) to the Registrant's Registration Statement on
Form S-8 (File No. 33-95582))
10.10 1990 Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.12 of the Registrant's Quarterly Report on From 10-Q for the
fiscal quarter ended December 31, 1995)
10.11 1994 Non-Employee Director Non-Qualified Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.13 of the Registrant's
Quarterly Report on From 10-Q for the fiscal quarter ended December 31,
1995)
10.12 Incentive Bonus Plan (see the description thereof appearing in Footnote
(6) to the Summary Compensation Table)
10.13 1997 Incentive Stock Plan (filed herewith)
10.14 1997 Value Incentive Bonus Program (see the description thereof
appearing in Schedule A to Amendment No. 1, dated as of June 20, 1997,
to the Employment Agreement, dated as of March 31, 1997, between the
Registrant and Susan Solomon, filed as Exhibit 10.4 to this Annual
Report on Form 10-K)
10.15 Leases for premises at 601 West 50th Street, New York, New York
(incorporated by reference to Exhibit 10.1 of the Registrant's
Registration Statement on Form S-18 (File No.
33-40701-NY))
10.16 Fifth Amendment of Lease for premises at 601 West 50th
Street, New York, New York (filed herewith)
10.17 Agreement, dated as of October 10, 1997, among Arlene
Scanlan, the Registrant, and The Strategy Licensing Company,
Inc. (filed herewith).
10.18 Mutual Separation Agreement, dated May 20, 1997, between the Registrant
and Britten & Stone and Gary Stein (incorporated by reference to
Exhibit 10.21 to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1997)
10.19 Stock Purchase Agreement, dated as of September 25, 1996, between the
Registrant and Discovery Communications, Inc. (incorporated by
reference to Exhibit 10.19 to the Registrant's Annual Report on Form
10-K/A for the fiscal year ended June 30, 1996)
10.20 Distribution Agreement, dated May 19, 1997, between the
Registrant and Discovery Communications, Inc. (filed herewith)(Portions
of this exhibit have been omitted pursuant to a request for
confidential treatment.)
11 Computation of Earnings Per Share (filed herewith)
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21
of the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1995)
23.1 Consent of Feldman Radin & Co., P.C. (filed herewith)
23.2 Consent of Ernst & Young LLP (filed herewith)
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
Current Report on Form 8-K, filed May 8, 1997 (reporting the change in
the Company's certifying accountants)
<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.
Dated: October 14, 1997
LANCIT MEDIA ENTERTAINMENT, LTD.
By: /s/ GARY APPELBAUM
Gary Appelbaum
Senior Vice
President, Chief
Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
Name Title(s) Date
- ---------------------- ---------------------------- ------------------
Chairman of the Board,
Chief Executive Officer
and Director October 14, 1997
(Principal Executive
/s/ SUSAN L. SOLOMON Officer)
- ----------------------
Susan L. Solomon
/s/ LAURENCE A. LANCIT Co-President and Director October 14, 1997
- ----------------------
Laurence A. Lancit
/s/ CECILY TRUETT Co-President and Director October 14, 1997
- ----------------------
Cecily Truett
Senior Vice President, October 14, 1997
Chief Financial Officer
and Treasurer (Principal
Financial and Accounting
/s/ GARY APPELBAUM Officer)
- ----------------------
Gary Appelbaum
/s/ MARC L. BAILIN Secretary and Director October 14, 1997
- ----------------------
Marc L. Bailin
/s/ JOSEPH KLING Director October 14, 1997
- ----------------------
Joseph Kling
/s/ JOHN R. COSTANTINO Director October 14, 1997
- ----------------------
John R. Costantino
/s/ ROGER C. FAXON Director October 14, 1997
- ----------------------
Roger C. Faxon
/s/ A. ROBERT TOWBIN Director October 14, 1997
- ----------------------
A. Robert Towbin
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in (i) the
Registration Statement on Form S-3, as amended (File No. 33-70856),
(ii) the Registration Statement on Form S-1 (File No. 33-48236),
(iii) the Registration Statement on Form S-8 (File No. 33-53472),
(iv) the Registration Statement on Form S-8 (File No. 33-77834), (v)
the Registration Statement on Form S-8 (File No. 33-90506), (vi) the
Registration Statement on Form S-8 (File No. 33-80447), and (vii) the
Registration Statement on Form S-8 (File No. 33-80449) of Lancit
Media Entertainment, Ltd. (the "Registrant") F/K/A Lancit Media
Productions, Ltd. of our report dated August 28, 1996 appearing in
this Annual Report on Form 10-K of the Registrant for the fiscal year
ended June 30, 1996 and 1995.
/s/ FELDMAN RADIN AND CO., P.C.
Feldman Radin & Co,, PC
Certified Public Accountants
New York, New York
October 7, 1997
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We hereby consent to the incorporation by reference in (i) the
Registration Statement on Form S-3, as amended (File No. 33-70856), (ii) the
Registration Statement on Form S-1 (File No. 33-48236), (iii) the Registration
Statements on Form S-8 (File Nos. 33-53472, 33-77834, 33-90506, 33-80447 and
33-80449) of Lancit Media Entertainment, Ltd. (the "Registrant") of our reports
dated October 13, 1997, with respect to the consolidated financial statements
and schedule of the Registrant included in this Annual Report (Form 10-K) for
the year ended June 30, 1997.
/s/ ERNST & YOUNG, LLP
Ernst & Young, LLP
Certified Public Accountants
New York, New York
October 13, 1997
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
REPORT OF INDEPENDENT AUDITORS F-2
REPORT OF PREDECESSOR INDEPENDENT AUDITORS F-2a
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-18
REPORT OF INDEPENDENT AUDITORS F-19
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS F-20
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lancit Media Entertainment, Ltd.
We have audited the accompanying consolidated balance sheet of Lancit
Media Entertainment, Ltd. and Subsidiaries (the "Company") as of June 30, 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lancit Media
Entertainment, Ltd. and Subsidiaries at June 30, 1997, and the consolidated
results of its operations and cash flows for the year then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred losses in
each of the last two fiscal years and as more fully described in Note 2, the
Company anticipates that additional funding will be necessary to sustain the
Company's operations through the fiscal year ending June 30, 1998. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ ERNST & YOUNG, LLP
Ernst & Young LLP
Certified Public Accountants
New York, New York
October 13, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Stockholders and
Board of Directors of
Lancit Media Productions, Ltd.
We have audited the accompanying consolidated balance sheet of Lancit Media
Productions, Ltd. and Subsidiaries as of June 30, 1996 and the related
statements of operations, stockholders' equity and cash flows for the years
ended June 30, 1996 and 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lancit Media
Productions, Ltd. and Subsidiaries as of June 30, 1996 and the results of its
operations and cash flows for each of the years ended June 30, 1996 and 1995 in
conformity with generally accepted accounting principles.
/s/ FELDMAN RADIN & CO., P.C.
Certified Public Accountants
New York, New York
August 28, 1996
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
------------------------------
1997 1996
-------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,461,627 $ 3,358,230
Accounts receivable, net of allowance 1,698,250 2,683,433
Film and program costs, net 1,718,526 5,527,106
Prepaid expenses 270,215 268,175
-------------- -------------
TOTAL CURRENT ASSETS 8,148,618 11,836,944
ACCOUNTS RECEIVABLE - NON-CURRENT 211,500 1,378,078
FIXED ASSETS, NET 525,530 832,606
GOODWILL, NET 263,302 279,754
DEPOSITS 50,363 60,784
-------------- -------------
TOTAL ASSETS $ 9,199,313 $ 14,388,166
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,116,028 $ 732,158
Participations payable 1,342,702 1,199,991
Deferred revenue 1,009,413 1,651,279
-------------- -------------
TOTAL CURRENT LIABILITIES 4,468,143 3,583,428
PARTICIPATIONS PAYABLE - NON-CURRENT 88,009 598,461
DEFERRED REVENUE - NON-CURRENT 317,620 828,713
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 195,360 94,056
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized -
15,000,000 shares; issued and outstanding -
6,634,750 shares at June 30, 1997 and
6,187,634 shares at June 30, 1996 6,635 6,188
Additional paid-in capital 17,504,536 12,579,402
Accumulated deficit (13,380,990) (3,302,082)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 4,130,181 9,283,508
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,199,313 $ 14,388,166
============== =============
See notes to consolidated financial statements.
F - 3
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
------------------------------------
1997 1996 1995
----------- ---------- ----------
REVENUES:
Production and royalties $ 1,943,807 $ 6,812,975 $15,532,607
Licensing agent fees 1,208,250 2,248,238 2,349,872
----------- ---------- ----------
3,152,057 9,061,213 17,882,479
----------- ---------- ----------
OPERATING EXPENSES:
Production and royalties 3,026,577 6,580,666 13,550,150
Licensing agent - direct costs 809,823 1,175,699 1,184,345
General and administrative 4,073,089 2,438,471 2,168,827
Write-down related to projects and
restructuring charge 5,456,180 2,650,000 --
----------- ---------- ----------
13,365,669 12,844,836 16,903,322
----------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (10,213,612) (3,783,623) 979,157
INTEREST INCOME - NET 255,508 276,570 506,316
----------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND MINORITY INTEREST (9,958,104) (3,507,053) 1,485,473
PROVISION FOR INCOME TAXES - CURRENT (19,500) (87,900) (38,000)
MINORITY INTEREST (101,304) (105,760) (199,974)
----------- ---------- ----------
NET INCOME (LOSS) $(10,078,908) $(3,700,713) $1,247,499
=========== ========== ==========
NET INCOME (LOSS) PER SHARE $ (1.54) $ (0.60) $ 0.20
=========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 6,538,851 6,177,051 6,365,741
=========== ========== ==========
See notes to consolidated financial statements.
F - 4
<PAGE>
LANCIT MEDIA PRODUCTIONS, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Retained
------------------ Earnings Total
Additional (Accum- Stock-
Paid-in ulated holders'
Shares Amount Capital Deficit) Equity
--------- ------- ---------- ---------- ----------
BALANCE - June 30, 1994 6,101,634 6,102 12,401,247 (848,868) 11,558,481
Shares issued in connec-
tion with exercise of
options and warrants
(net of expenses) 56,000 56 165,059 -- 165,115
Net income -- -- -- 1,247,499 1,247,499
--------- ------- ---------- ---------- ----------
BALANCE - June 30, 1995 6,157,634 6,158 12,566,306 398,631 12,971,095
Shares issued in connec-
tion with exercise of
options (net of
expenses) 30,000 30 13,096 -- 13,126
Net loss -- -- -- (3,700,713)(3,700,713)
--------- ------- --------- ---------- ---------
BALANCE - June 30, 1996 6,187,634 6,188 12,579,402 (3,302,082) 9,283,508
Shares issued in connec-
tion with exercise of
options (net
of expenses) 9,000 9 16,241 -- 16,250
Shares issued in connec-
tion with investment by
Discovery Communications,
Inc. (net of expenses) 438,116 438 4,698,893 -- 4,699,331
Warrants issued in
exchange for
consulting services
rendered -- -- 210,000 -- 210,000
Net loss -- -- -- (10,078,908)(10,078,908)
--------- ------- ---------- ---------- ----------
BALANCE - June 30, 1997 6,634,750 6,635 17,504,536 (13,380,990)4,130,181
========= ======= ========== ========== =========
See notes to consolidated financial statements.
F - 5
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
--------------------------------
1997 1996 1995
---------- ---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $(10,078,908)(3,700,713) 1,247,499
---------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Amortization of film and program costs 1,465,831 3,869,945 6,334,297
Write-down related to projects 5,456,180 2,500,000 -
Depreciation and other amortization 378,281 407,313 348,615
Minority interest 101,304 105,760 199,974
Grant of warrants in exchange for services 210,000 - -
Changes in operating assets and liabilities:
Accounts receivable - current 985,183 3,128,355 (3,796,488)
Accounts receivable - non-current 1,166,578 1,227,792 (3,105,670)
Film and program costs (3,113,431)(7,076,993)(8,557,597)
Prepaid expenses (2,040) (186,308) (24,491)
Deposits receivable 10,421 (17,056) 2,185
Accounts payable and accrued expenses 1,383,870 320,501 6,440
Participations payable - current 142,711 293,628 906,363
Participations payable - non-current (510,452) (341,462) 1,220,148
Deferred revenue - current (641,866) (3,479,961)1,611,401
Deferred revenue - non-current (511,093) (938,346) 111,921
---------- ---------- ----------
6,521,477 (186,832)(4,742,902)
---------- ---------- ----------
CASH USED IN OPERATING ACTIVITIES (3,557,431)(3,887,545)(3,495,403)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (54,753) (162,589) (334,680)
---------- ---------- ----------
CASH USED IN INVESTING ACTIVITIES (54,753) (162,589) (334,680)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock in connection
with DCI agreement 4,699,331 - -
Issuance of common stock in connection with
exercise of options 16,250 13,126 165,115
---------- ---------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES 4,715,581 13,126 165,115
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,103,397 (4,037,008)(3,664,968)
CASH AND CASH EQUIVALENTS - beginning of year 3,358,230 7,395,238 11,060,206
---------- ---------- ----------
CASH AND CASH EQUIVALENTS - end of year $ 4,461,627 3,358,230 7,395,238
========== ========== ==========
CASH PAID DURING THE YEAR FOR:
Income taxes $ 52,058 35,867 14,684
========== ========== ==========
See notes to consolidated financial statements.
F - 6
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lancit Media Entertainment, Ltd. and Subsidiaries (the
"Company") includes Lancit Media Entertainment, Ltd. ("Lancit"),
its wholly-owned subsidiaries Frame Accurate, Inc. ("Frame"),
Lancit Copyright Corp. ("LCC"), and The Strategy Licensing
Company, Inc. ("Strategy") (see Note 13).
Lancit creates, acquires, develops and produces high-quality children's
"edutainment" and family programming.
Frame is a provider of post-production services which include personnel,
facilities, graphics and dubbing, as well as other editing and finishing
services.
LCC was formed to own and administer various copyrights created by the Company
and currently administers all of the music publishing interests which the
Company retains with respect to the music sound tracks for both The Puzzle Place
and Backyard Safari, as well as for other productions created by the Company.
Strategy is a merchandise licensing and promotions company that performs
licensing agent functions for properties and characters owned by various
copyright holders, including Strategy affiliates. Strategy is the majority
partner in The Puzzle Place Marketing Company, a joint venture with Community
Television of Southern California ("KCET").
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation - The consolidated financial statements include
the accounts of Lancit, Frame, LCC and Strategy. All material intercompany
accounts and transactions have been eliminated.
B. Cash and Cash Equivalents - The Company considers to be cash
equivalents all highly liquid temporary cash investments with an original
maturity of three months or less when purchased.
C. Accounts Receivable - Accounts receivable consists primarily of amounts
to be received from minimum contractual royalties and underwriting
agreements. Amounts to be received from minimum contractual royalties
result from the copyright holder entering into agreements with licensees
whereby the Company has licensed the right, during a specified term, to
utilize the copyright holder's copyright. Such amounts are due no later
than the conclusion of specified time periods which, for the most part,
occur within the next twenty-four months after entering into an agreement.
Amounts to be received from existing underwriting agreements are due
mostly within the next fiscal year.
D. Film and Program Costs - Film and program costs ("project costs"),
which include acquisition and development costs (such as story rights,
scenarios and scripts), production costs (including salaries and costs of
talent), production overhead and post-production costs, are stated at the
lower of cost less accumulated amortization or net realizable value and
are deferred and amortized under the "individual film forecast method" as
required by Statement of Financial Accounting Standards No. 53, "Financial
Reporting by Producers and Distributors of Motion Picture Films" ("SFAS
53"). Project costs are amortized in relation to the revenue recognized
from each project, and amortization is calculated based on management's
latest estimate of the project's gross profit margin over its remaining
life. Film and program costs are re-evaluated periodically and, when
necessary, are written down to net realizable value (See Note 12).
E. Fixed Assets - Fixed assets are stated at cost. Depreciation on
production and office equipment is provided for using the straight-line
method over the estimated useful life of the related asset. Leasehold
improvements are amortized using the straight-line method over the shorter
of the lease term or estimated useful life of the asset.
F. Goodwill - Goodwill resulting from business acquisitions represents the
remaining unamortized value of the excess of the acquisition costs over
the fair value of the net assets of the business acquired. Goodwill is
amortized on the straight-line basis over a period not to exceed 20 years.
The Company periodically reviews the recoverability of its goodwill. Any
impairment is charged to expense when such determination is made.
Accumulated amortization at June 30, 1997 and 1996 was $64,496 and
$48,044, respectively.
G. Participations Payable - Participations payable represent the amount
due for profit participations and residuals. The participation amounts are
recorded when the revenue which gives rise to such participations is
recognized. Participants are paid when the actual cash is received and
when the entitled payees have been identified.
H. Deferred Revenue - Deferred revenue consists of licensing agent fees
remaining to be recognized based on guaranteed royalties, as well as
production funding received but not yet recognized as revenues based on
percentage of completion. The fees from guaranteed royalties are
recognized as revenue over a period which is no longer than the term of
each individual license agreement. In addition, any royalty amounts
received as advances by the Company as copyright holder are deferred and
recognized as revenues when all obligations and commitments associated
with such contracts have been met.
I. Net Income (Loss) Per Share - Net income per share is computed on the
basis of the weighted average number of common shares and common share
equivalents outstanding for the respective period. Common share
equivalents include dilutive stock options and warrants, and are included
in the calculation using the treasury stock method. Net loss per share is
computed on the basis of only the weighted average number of common shares
outstanding for the period as all common share equivalents would be
anti-dilutive.
J. Revenue Recognition - Revenues are primarily derived from the following
sources:
(a) (i) Production - Revenues from such activities,
when performed for a third party contracting
entity such as a grantor, are recognized using
the percentage of completion method, recognizing
revenue relative to the proportionate progress
on such contracts. When producing a project
subject to a commercial network presale,
revenues are recorded in accordance with SFAS
53. (ii) Royalties - On many of the original
projects it produces, the Company retains, in
varying degrees, ownership in such projects, and
derives royalties from their exploitation in
both primary and secondary markets worldwide.
Such revenues are recognized when firm sales are
reported to the Company by designated sales
representatives in each market area or upon the
Company meeting all commitments and obligations
(which are primarily broadcast-oriented) related
to the minimum contractual royalties under the
licensing agreement. Such agreements generally
range from two to four years. Typically, on a
licensing contract, the Company does not begin
to recognize additional copyright-holder related
royalty revenues beyond any previously recorded
minimum contractual royalty amounts until such
time as the licensee has recouped that full
amount. Depending on the particular licensee
category and on the initial sales success of the
products in that category, such recoupment
period may range anywhere from one year to
several years. The nature of the primary market
and the order of market exploitation varies from
project to project, as does the length of each
project's revenue producing cycle. However,
such revenue cycles typically range from two to
six years.
(b) Licensing agent fees - Revenues from such
activities are derived from a negotiated
percentage, with the copyright holder, of
overall royalty revenue in a wide variety of
categories. Licensing agent fees derived from
minimum contractual royalty commitments to the
copyright holder are recognized over a period
which is no longer than the term covered by each
individual license. Once royalties generated on
sales of licensed product exceed the minimum
contractual royalties provided for in such
agreements, the licensing agent will record, as
revenue, its entitled share of all royalties
generated from that point forward, upon knowing
the royalties have been earned which may be at
the time of receipt.
K. Income Taxes - The Company accounts for income taxes by the liability
method as required by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under this method, deferred
tax assets and liabilities are recognized with respect to the future tax
consequences attributable to differences between the financial statement
carrying values and tax bases of existing assets and liabilities and
operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in the period that includes the
enactment date.
L. Compensation Expense Associated with Stock Options and Stock
Appreciation Rights ("SARs") - The Company's policy is to record
compensation expense when stock options or SARs are granted at an exercise
price which is less than the fair market value of the Company's common
stock on the date of the grant. The amount recorded as compensation
expense is equal to the difference between the exercise price or the
measuring value, and the fair market value of the Company's common stock
on the date of grant. In October 1995, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
prescribes accounting and reporting standards for all stock-based
compensation plans and stock appreciation rights and requires that
compensation expense be recorded (i) using the new fair value method or
(ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25") and related interpretations with pro forma disclosure of what net
income (loss) and earnings per share would have been had the Company
adopted the new fair value method. Effective July 1, 1996, the Company has
adopted SFAS 123 and, as allowed by the statement, intends to continue to
account for its stock-based compensation plans in accordance with the
provisions of APB 25.
M. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the footnotes thereto. Actual
results could differ from those estimates.
N. Impact of Recently Issued Accounting Standards Statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("SFAS 128") was issued
in February 1997. The Company will be required to adopt the new standard
for the quarter ending December 31, 1997. Early adoption of this standard
is not permitted. The primary elements of this standard are: (i)
replacement of primary earnings per share with basic earnings per share,
which eliminates the dilutive effect of options and warrants; (ii) use of
an average share price in applying the treasury method to compute dilution
for options and warrants for diluted earnings per share; and (iii)
disclosure reconciling the numerator and denominator of earnings per share
calculations. The Company plans to adopt SFAS 128 in the quarter ending
December 31, 1997 and does not anticipate that SFAS 128 will have a
material impact on the calculation of net income (loss) per share.
2. CAPITAL REQUIREMENTS
Notwithstanding the Company's cash position at June 30, 1997, the
Company believes that additional funding will be necessary to sustain the
Company's operations through the fourth quarter of fiscal 1998. The
Company is actively seeking additional funding and has retained an
investment banking firm to assist it in these efforts. Among the
alternatives being considered by the Company are a sale of an interest in
the Company, an acquisition of the Company, and/or strategic alliances
with industry partners. The Company continues to pursue marketing efforts
to generate cash from production and licensing activities and, where
appropriate, may explore turning to account certain non-strategic assets.
While there can be no assurance that any such transactions will be
available to the Company or, if available, that they will be on terms
favorable to the Company or its shareholders, the Company is devoting
considerable management and other resources to these efforts.
The Company also has taken steps to reduce, where appropriate, its
operating expenses. These steps include relocating Strategy, its
merchandising and licensing agent subsidiary, from Westport, Connecticut
to the Company's New York City offices, and certain staff reductions.
3. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $530,052 and $448,175 at June 30,
1997 and 1996, respectively.
4. FIXED ASSETS
Fixed assets consists of the following:
June 30,
-----------------------
1997 1996
----------- -----------
Production and office equipment $ 1,858,191 $ 1,826,639
Leasehold Improvements 413,928 390,727
----------- -----------
2,272,119 2,217,366
Less accumulated depreciation
and amortization (1,746,589) (1,384,760)
----------- -----------
Fixed assets, net $ 525,530 $ 832,606
=========== ===========
5. COMMITMENTS AND CONTINGENCIES
A. Leases
The Company leases facilities and office equipment under the terms of
several operating leases. The major portion of these operating leases
relate to the Company's four leases covering its facilities. One lease
expires in April 1998, two expire in September 1998 and the fourth expires
in February 1999.
The following is a schedule of minimum future lease payments under all
operating leases at June 30, 1997:
Year Ending June 30, Total
- ---------------------- -----------
1998 $ 315,000
1999 107,000
-----------
$ 422,000
===========
Rent expense was approximately $299,000, $296,000 and $355,000 for the
years ended June 30, 1997, 1996 and 1995, respectively. Facility leases,
in some cases, also provide for escalations based on increases in real
estate taxes and maintenance charges.
B. Employment Agreements
The Company has employment agreements with seven individuals, all of whom
are officers of Lancit. The agreements expire at various times through
March 2000. Remaining commitments under the terms of these agreements are
approximately $2,019,000.
C. Bonus Plans
Officers as a group, under an incentive bonus plan (the "Bonus Plan"),
receive a bonus of 5% of pretax income (before bonus), for a fiscal year,
provided that (i) pretax income (before bonus) for such fiscal year is at
least $250,000, (ii) net income for such fiscal year exceeds net income
for the prior fiscal year and (iii) net income is at least $.05 per share
(adjusted for stock splits and stock dividends), on a diluted basis. No
amounts were accrued under the Bonus Plan for fiscal 1997 or fiscal 1996
and $78,000 was accrued under the Bonus Plan for fiscal 1995.
D. Production Funding
In fiscal 1997, the Company substantially completed production on episodes
41-65 of The Puzzle Place. After taking into account the portion of the
project funding expected to be contributed via existing underwriting
agreements and the Company's partner on the project, KCET, the Company
estimates less than $0.1 million will ultimately be required from the
Company to meet the current budget needs of the project.
The Company also substantially completed production on the initial 13
episodes of Backyard Safari, which has been funded partially through a
grant from the National Science Foundation. In the event the Company were
to receive no outside production funding, the Company estimates that the
remaining cash outlay required for this project would be less than $0.5
million.
E. Consulting Agreements
The Company entered into several consulting agreements and entered into an
agreement terminating its relationship with a previous consultant, during
the fiscal year ended June 30, 1997. The term of the ongoing agreements
are month-to-month, with cancellation notices required from one to three
months in advance, with fees ranging from $5,000 to $10,000 per month. The
minimum commitment under the terms of these agreements, in the aggregate,
is approximately $206,000.
6. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
For the fiscal year ended June 30, 1997, two customers accounted for 64%
and 30% of total revenues from production and royalties and two customers
accounted for 34% and 13% of licensing agent fees. For the fiscal year
ended June 30, 1996, two customers accounted for 35% and 24% of total
revenues from production and royalties and three customers accounted for
36%, 10% and 10% of licensing agent fees. For the fiscal year ended June
30, 1995, four customers accounted for 14%, 12%, 12% and 10% of total
revenues from production and royalties and two customers accounted for 40%
and 20% of licensing agent fees.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash
investments and trade receivables. The Company restricts placement of its
temporary cash investments to financial institutions with high credit
ratings and limits the amount of credit exposure with any one financial
institution. At June 30, 1997, amounts receivable from three different
entities accounted for 37%, 16% and 12% of the Company's total accounts
receivable. At June 30, 1996, amounts receivable from three different
entities accounted for 33%, 20% and 15% of the Company's total accounts
receivable. Allowances are maintained, as necessary, for any potential
credit losses.
7. FILM AND PROGRAM COSTS
Components of film and program costs (net of accumulated amortization)
consist of the following:
June 30,
--------------------------------
1997 1996
------------ -------------
Productions completed and
released $ 828,905 $ 2,329,015
Productions completed and
not released 376,165 -
Productions in progress 110,340 2,851,378
Story rights and scenarios 403,116 346,713
------------ -------------
Total film and program
costs, net $ 1,718,526 $ 5,527,106
============ =============
Film and program costs are substantially made up of capitalized
television, production, and development costs incurred by the Company. The
Company capitalizes such costs and amortizes them to expense in accordance
with SFAS 53, which requires the Company to use estimates to determine the
future revenue-generating potential of its project which is subject to a
variety of risk factors. Revenues generated by television and movie
programming and related ancillary products depend in part upon general
economic conditions, but are more directly affected by the viewer and
retail response to the entertainment product made available to the
marketplace. The estimates used are re-evaluated periodically, and such
re-evaluations have, in the past, and may, in the future, require that the
Company write down unamortized capitalized amounts (See Note 12).
8. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
In July 1990, the Company adopted a stock option plan (as amended, the
"1990 Plan") authorizing the issuance of options covering 200,000 shares
of the Company's common stock, which, over the years has been increased to
cover the issuance of up to 1,000,000 shares of the Company's common
stock. Officers, directors, consultants and employees are eligible to
participate in the 1990 Plan and to receive non-qualified or, to the
extent allowable, incentive stock options pursuant to the 1990 Plan.
Options granted under the Plan are exercisable for a period of not more
than ten years from the date of grant. Selection of participants,
allotment of shares, determination of exercise price and other conditions
of the granting of options is determined by the Company. Additionally, the
1990 Plan provides that no options may be issued at an exercise price
which is less than the fair market value of the Company's common stock on
the date of grant. In June 1997, the Company initiated a stock option
rejuvenation program in which options with an exercise price considerably
higher than current market value could be exchanged for a lesser number of
shares at an exercise price that was reflective of current market value.
The effective date of the cancellation of the existing options and the
issuance of the new options was June 20, 1997.
The Company has outstanding stock options under the 1990 Plan as follows:
Weighted
Average
Exercise Price Exercise Price
Per Share Per Share
Options ($) ($)
--------- --------------- -----
Outstanding at June
30, 1994 181,500 1.67 - 16.29 12.02
Options granted 154,000 11.69 - 16.13 12.70
Options exercised (7,000) 3.75 3.75
--------- -------------- ------
Outstanding at June
30, 1995 328,500 1.67 - 16.29 12.61
Options granted 383,200 9.31 - 15.50 10.79
Options exercised (10,000) 1.67 - 3.75 2.92
Options cancelled (28,500) 10.44 - 15.94 12.64
--------- -------------- ------
Outstanding at June
30, 1996 673,200 1.67 - 16.29 11.72
Options granted 797,350 3.16 - 11.75 3.42
Options exercised (8,000) 1.67 - 3.65 3.39
Options cancelled (645,300) 5.06 - 16.29 10.94
--------- -------------- ------
Outstanding at June
30, 1997 817,250 3.16 - 15.50 4.31
========= ============== ======
At June 30, 1997, 762,750 options were exercisable with an average
remaining term of 9.32 years. The weighted average exercise price of such
options is $4.45. At June 30, 1997, 3,750 options remained available for
grant.
In April 1991, the Company adopted the Stock Performance Based Stock
Option Plan (as amended, the "1991 Plan") authorizing the issuance of
options covering 250,000 shares of the Company's common stock. Executive
management in place at the time of the adoption of the 1991 Plan, was
eligible to participate in the 1991 Plan and to receive non-qualified
options pursuant to the 1991 Plan at an exercise price of $0.01 per share.
Options granted under the 1991 Plan became exercisable at any time after
the second anniversary of the effective date of the initial public
offering of the Company's common stock upon the Company's common stock
meeting certain performance levels.
The Company had outstanding stock options under the 1991 Plan as follows:
Weighted Average
Exercise Price Exercise Price
Per Share Per Share
Options ($) ($)
------- ------------- -------------
Outstanding at June
30, 1994 195,000 0.01 0.01
Options exercised (15,000) 0.01 0.01
------- ------------- -------------
Outstanding at June
30, 1995 180,000 0.01 0.01
Options exercised (20,000) 0.01 0.01
Options cancelled (160,000) 0.01 0.01
------- ------------- -------------
Outstanding at June
30, 1996 and 1997 - - -
======= ============= =============
In December 1994, the Company adopted the 1994 Non-Employee Director Non-
Qualified Stock Option Plan (as amended, the "1994 Plan") authorizing the
issuance of options covering 45,000 shares of the Company's common stock.
Non-employee directors of the Company are eligible to participate in the
1994 Plan. Each non-employee director is granted 3,000 options on the day
of his or her initial appointment and annually thereafter on the day of
his or her re-election. The exercise price per share for each option
granted is the fair market value of the Company's common stock on the date
of grant. Each option is exercisable one year from the date of grant and
expires no later than ten years from the date of grant.
The Company has outstanding stock options under the 1994 Plan as follows:
Weighted Average
Exercise Price Exercise Price
Per Share Per Share
Options ($) ($)
------- ------------- ------------
Outstanding at July
1, 1994 - - -
Options granted 9,000 13.19 - 13.69 13.35
------- ------------- ------------
Outstanding at June
30, 1995 9,000 13.19 - 13.69 13.35
Options granted 9,000 13.13 13.13
------- ------------- ------------
Outstanding at June
30, 1996 18,000 13.13 - 13.69 13.24
Options granted 15,000 3.50 - 6.25 5.44
------- ------------- ------------
Outstanding at June
30, 1997 33,000 3.50 - 13.69 9.69
======= ============= ============
At June 30, 1997, 18,000 options were exercisable with an average
remaining term of 8.7 years. The weighted average exercise price of such
options is $13.24. At June 30, 1997, 12,000 options remained available for
grant.
In June 1997, the Company adopted the 1997 Incentive Stock Option Plan (as
amended, the "1997 Plan") authorizing the issuance of options and other
awards covering 650,000 shares of the Company's common stock, and the 1997
Value Incentive Bonus Program (as amended, the "1997 Incentive Program").
Any officer, key employee, directors who are also officers and consultants
are eligible to participate in the 1997 Plan and receive non-qualified or,
to the extent allowable, incentive stock options pursuant to the 1997
Plan. Options granted under the 1997 Plan are exercisable for a period of
not more than ten years from the date of the grant. With the exception of
grants to two officers/directors, of which a portion is immediately
exercisable, grants which have been made are exercisable one year from the
date of the grant. The exercise price per share for each option granted is
the fair market value of the Company's common stock on the date of the
grant. The 1997 Plan is subject to approval by the Company's shareholders.
The Company has outstanding stock options under the 1997 Plan as follows:
Weighted Average
Exercise Price Exercise Price
Per Share Per Share
Options ($) ($)
-------- ------------ -------------
Outstanding at July
1, 1996 - - -
Options granted 370,000 3.16 3.16
-------- ------------ -------------
Outstanding at June
30, 1997 370,000 3.16 3.16
======== ============ =============
At June 30, 1997, 45,000 options were exercisable with an average
remaining term of 10 years. The weighted average exercise price of such
options is $3.16. At June 30, 1997, 280,000 options are available for
grant.
The Company has outstanding SARs under the 1997 Incentive Program as
follows:
Weighted Average
Exercise Price Exercise Price
Per Share Per Share
SARs ($) ($)
------------ ------------- ------------
Outstanding at July
1, 1996 - - -
SARs granted 255,000 $3.16 $3.16
------------ ------------- ------------
Outstanding at June
30, 1997 255,000 $3.16 $3.16
============ ============= ============
These SARs are subject to cancellation upon approval of the 1997 Plan by
the Company's shareholders on or prior to December 31, 1997.
The Company's other various options/warrants, not under any form of a
plan, covering shares of the Company's common stock are as follows:
Weighted Average
Exercise Price Exercise Price
Options/ Per Share Per Share
Warrants ($) ($)
-------- ------------- -------------
Outstanding at June 30, 1994 5,000 3.75 3.75
Options exercised (4,000) 3.75 3.75
-------- ------------- -------------
Outstanding at June 30, 1995
and 1996 1,000 3.75 3.75
Warrants Issued 560,209 3.62 - 13.00 10.96
Options Exercised (1,000) 3.75 3.75
-------- ------------- -------------
Outstanding at June 30, 1997 560,209 3.62 - 13.00 10.96
======== ============= =============
The remaining warrants outstanding at June 30, 1997 covering 560,209
shares of common stock were exercisable with a weighted average remaining
term of 4.0 years. The weighted average exercise price of such warrants is
$10.96
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS 123, and has been determined as if the Company
had accounted for its employees' stock options and SARs under the fair
value method provided by that Statement. The fair value of the stock
options and SARs was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for
vested and non-vested options and SARs:
Assumptions June 30, June 30,
1997 1996
Risk-Free Interest Rate 6.82% 5.56%
Dividend Yield 0% 0%
Volatility factor of the expected
market price of the 0.678 0.431
Company's Common Stock
Average Life 5 years 5 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options and SARs.
For purposes of pro forma disclosures, the estimated fair value of the
options under SFAS 123 is amortized to expense over the options' vesting
period. For the year ended June 30, 1997, pro forma net loss and pro forma
net loss per share would have increased under SFAS 123 by approximately
$3,248,000 and $0.49, respectively. For the year ended June 30, 1996, pro
forma net loss and pro forma net loss per share would have increased under
SFAS 123 by approximately $1,548,000 and $0.25, respectively.
9. 401(k) AND PROFIT SHARING PLAN
Effective as of January 1, 1994, the Company adopted a combined 401(k)
Savings and Profit Sharing Plan (as amended, the "Retirement Plan"). The
Retirement Plan provides for immediate eligibility for all employees of
the Company as of January 1, 1994 and eligibility after completion of six
months of service for all employees of the Company employed after January
1, 1994. The 401(k) Savings portion of the Retirement Plan provides for an
employer match which is determined on an annual basis. The Profit Sharing
portion of the Retirement Plan provides for an employer discretionary
contribution which is determined on an annual basis and which is reduced
by any 401(k) employer match already received. Amounts expensed under the
Retirement Plan were approximately $85,000, $72,000 and $70,000 for the
fiscal years ended June 30, 1997, 1996 and 1995, respectively.
10. RELATED PARTY TRANSACTIONS
Legal fees incurred to one of the Company's law firms, where a principal of that
law firm is the Corporate Secretary and Director of the Company, were
$195,040, $121,157 and $135,140 for the fiscal years ended June 30, 1997,
1996 and 1995, respectively.
Consulting fees incurred to one of the Company's consulting firms, where a
principal of that firm is a director of the Company were $5,000 and
$13,054 for the fiscal years ended June 30, 1997 and 1996, respectively.
In addition, that consulting firm, in October 1995, was granted stock
options covering 13,400 shares of the Company's common stock, exercisable
at $12.25 per share and expiring in October 2000.
11. INCOME TAXES
The following table illustrates the sources and status of the Company's
major deferred tax asset and (liability) items at June 30, 1997 and 1996:
June 30,
1997 1996
Tax benefit of net operating loss
carryforward $6,534,068 $2,349,000
Royalty revenue not yet collected (229,347) (154,000)
Excess of tax over book depreciation (158,989) (73,000)
Other 62,952 48,000
Net deferred tax asset 6,208,684 2,170,000
Valuation allowance (6,208,684) (2,170,000)
Net deferred tax asset recorded $ - $ -
The provision for income taxes differs from the amount computed by
applying the statutory Federal income tax rate to income (loss) before
provision for income taxes and minority interest as follows:
June 30,
-----------------------------------
1997 1996 1995
----------- ---------- ----------
Income tax provision (benefit)
computed at the statutory rate $(3,528,000) $(1,265,000) $ 450,000
Income tax benefit of disqualifying
dispositions - (110,000) (127,000)
Net tax effect of other permanent
differences 20,000 34,000 (39,000)
Tax effect of temporary differences - 33,000 (369,000)
Income tax benefit not recognized 3,508,000 1,308,000 85,000
Provision for state income taxes 19,500 87,900 38,000
----------- ---------- ----------
Income tax provision $ 19,500 $ 87,900 $ 38,000
=========== ========== ==========
The Company has net operating loss carryforwards for tax purposes totaling
approximately $14,850,000 at June 30, 1997 that expire in the years 2006
to 2012.
Certain of the Company's subsidiaries file state income tax returns on an
unconsolidated basis, and as such, losses may not be available to offset
income in all states.
12. WRITE-DOWNS RELATED TO PROJECTS AND RESTRUCTURING
The write-down of film and program costs amounted to approximately $5.5
million and $2.5 million in fiscal 1997 and 1996, respectively, of which
approximately $2.1 million and $2.5 million relates to The Puzzle Place
for fiscal 1997 and 1996, respectively, and approximately $3.3 million
relates to Backyard Safari for fiscal 1997. Such write-down reflects the
Company's revision of its estimated future net royalty stream with respect
to The Puzzle Place and the Company's revision of its anticipated
production funding sources and its estimated future net royalty stream
with respect to Backyard Safari. As part of the fiscal 1997 charge, the
Company accrued for estimated remaining costs on these projects.
Also, in fiscal 1996, the Company recorded a restructuring charge of
$150,000 which included severance and other benefits paid to terminated
employees due to reduced production activity.
13. SUBSEQUENT EVENT
In October 1997, the Company entered into an agreement with Arlene J.
Scanlan, pursuant to which the Company acquired the remaining 15% of the
outstanding shares of the capital stock of Strategy held by her.
Additionally, Ms. Scanlan's employment with Strategy and the Company was
terminated. In consideration of the foregoing, the Company paid Ms.
Scanlan an aggregate of $30,788 and has released Ms. Scanlan from certain
restrictions contained in a covenant not to compete with respect to
specified properties and entities.
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lancit Media Entertainment, Ltd.
We have audited the consolidated financial statements of Lancit Media
Entertainment, Ltd. and Subsidiaries as of June 30, 1997 and for the year then
ended, and have issued our report thereon dated October 13, 1997 (included
elsewhere in this Form 10-K). Our audit also included the financial statement
schedule listed in Item 14 of this Form 10-K. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
The financial statement schedule does not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of the uncertainty regarding the Company's ability to continue as a
going concern.
/s/ ERNST & YOUNG, LLP
Ernst & Young
Certified Public Accountants
New York, New York
October 13, 1997
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Lancit Media Productions, Ltd.
We have audited the consolidated financial statements of Lancit Media
Productions, Ltd. and Subsidiaries as of June 30, 1996 and the years ended June
30, 1996 and 1995, and have issued our report thereon dated August 28, 1996
(included elsewhere in this 10-K). Our audit also included the financial
statement schedule listed in this 10-K. This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein for
the periods stated above.
/s/ FELDMAN RADIN & CO., P.C.
Feldman Radin & Co., P.C.
New York, New York
August 28, 1996
<PAGE>
LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Additions
Balance Charged
at to Balance
Beginning Costs at End
of and (a) of
Description Period Expenses Deductions Period
Year ended June 30, 1995
Allowances deducted
from assets
to which they apply:
Allowance for $111,182 $128,869 $94,483 $145,568
doubtful
accounts
Year ended June 30, 1996
Allowances deducted
from assets to which
they apply:
Allowance for
doubtful $145,568 $411,787 $ 109,180 $448,175
accounts
Year ended June 30, 1997
Allowances deducted
from assets to which
they apply:
Allowance for
doubtful $448,175 $143,112 $ 61,235 $530,052
accounts
(a) Uncollectible receivables written off
EXHIBIT A
As Amended October 1, 1997
BY-LAWS
OF
LANCIT MEDIA ENTERTAINMENT, LTD.
ARTICLE I
OFFICES
Section 1. Principal Office
The principal office of the Corporation shall be in the city, incorporated
village or town and the county within the State of New York as is designated in
the Certificate of Incorporation.
Section 2. Additional Offices
The Corporation may also have offices and places of business at such other
places, within or without the State of New York, as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Time and Place
Meetings of the shareholders of the Corporation may be held at such time
and place within or without the State of New York as shall be stated in the
notice of the meeting, or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting
The annual meeting of the shareholders shall be held within six months
following the close of each fiscal year of the Corporation, or on such other
date as may be fixed from time to time by resolution of the Board of Directors,
and at such place within or without the State of New York as shall be designated
by the Board of Directors.
<PAGE>
Section 3. Notice of Annual Meeting
Written notice of the place, date and hour of the annual meeting of
shareholders shall be given personally or by mail to each shareholder entitled
to vote thereat, not less than ten (10) nor more than fifty (50) days prior to
the meeting.
Section 4. Special Meetings
Special meeting of the shareholders, for any purpose or purposes, unless
otherwise prescribed by law or by the Certificate of Incorporation, may be
called by the Chief Executive Officer or the Board of Directors, and shall be
called by the Chief Executive Officer at the written request of shareholders
holding at least twenty percent (20%) in amount of shares of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
Section 5. Notice of Special Meeting
Written notice of a special meeting of shareholders, stating the place,
date and hour of the meeting, the purpose or purposes for which the meeting is
called, and by or at whose direction it is being issued, shall be given
personally or by mail to each shareholder entitled to vote thereat, not less
than ten (10) nor more than fifty (50) days prior to the meeting.
Section 6. Quorum
Except as otherwise provided by law or by the Certificate of Incorporation
or these By-Laws, the holders of a majority of the shares of the Corporation
issued and outstanding and entitled to vote thereat shall be necessary to and
shall constitute a quorum for the transaction of business at all meetings of the
shareholders; provided, however, that when a specified item of business is
required to be voted on by a class or series, voting as a class, the holders of
a majority of the share of such class or series issued and outstanding and
entitled to vote thereat shall constitute a quorum for the transaction of such
specified item of business. If a quorum shall not be present at any meeting of
the shareholders, the shareholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, until a quorum shall be present. At any such adjourned meeting at which a
quorum may be present any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 7. Voting
(a) At any meeting of the shareholders every shareholder having the right
to vote shall be entitled to vote in person or by proxy. Each shareholder shall
have one (1) vote for each share of stock having voting power which is
registered in his name on the books of the Corporation. Except where another
date shall have been fixed as a record date for the determination of its
shareholders entitled to vote, no share of stock shall be voted at any election
<PAGE>
of Directors which shall have been transferred on the books of the Corporation
within twenty (20) days next preceding such election of Directors.
(b) Except as otherwise provided by law or by the Certificate of
Incorporation or these By-Laws, all elections of Directors shall be decided by a
plurality of the votes cast, and all other matters shall be decided by a
majority of the votes cast.
Section 8. Proxies
A proxy, to be valid, shall be executed in writing by the shareholder or by
his attorney-in-fact. No proxy shall be valid after the expiration of eleven
(11) months from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
in those cases where an irrevocable proxy is permitted by law.
Section 9. Written Consents
Whenever shareholders are required or permitted to take any action by vote,
such action may be taken without a meeting on written consent, setting forth the
action so taken, signed by the holders of all outstanding shares entitled to
vote thereon.
Section 10. Notice of Shareholder Business
At an annual meeting of shareholders, only such business shall be conducted
as shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or by the Chairman of the Board or the
President or any Co-President of the Corporation or (c) otherwise properly
brought before the meeting by a shareholder. For business to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be received at the principal office of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the meeting. Notwithstanding the preceding sentence, if the date of the
meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, and if less
than 70 days' notice or prior public disclosure of the date of such meeting is
given or made to shareholders, notice by the shareholder to be timely must be
received not later than the close of business on the fifteenth day following the
day on which such notice of the date of such meeting was mailed or such public
disclosure was made. As used in this Section 10 and in paragraph B of Section 2
of Article III of these By-Laws, the phrase "notice or prior public disclosure
of the date of the meeting" shall mean notice or prior public disclosure of the
date on which the meeting is originally scheduled to be called to order and
shall not refer to notice or prior public disclosure of any date to which such
meeting may be adjourned. A shareholder's notice to the Secretary shall set
forth, as to each matter the shareholder proposes to bring before the annual
meeting, (a) a brief description of the business desired to be brought
<PAGE>
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the Corporation's
stock transfer books, of the shareholder proposing such business, (c) the class
and number of shares of capital stock of the Corporation which are beneficially
owned (such term being used in this Section 10 and in paragraph B of Section 2
of Article III of these By-Laws with the meaning ascribed to such term in
Rule13d-3 of the rules under the Securities Exchange Act of 1934, as amended, as
such Rule was in effect on July 1, 1990) by the shareholder and (d) any material
interest of the shareholder in such business. Notwithstanding any other
provision of these By-Laws, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Sec tion 10. If the
presiding officer of an annual meeting determines and declares that business was
not properly brought before the meeting in accordance with this Section 10, any
such business shall not be transacted.
ARTICLE III
DIRECTORS
Section 1. Board of Directors
Subject to any provision in the Certificate of Incorporation, the business
of the Corporation shall be managed by its Board of Directors.
Section 2. Election and nomination of Directors
A. Number, Term of Office, Qualifications and Election. The Board of
Directors shall consist of the number of directors as shall be determined by
resolution approved by at least a majority of the then authorized number of
directors, but shall not be more than fif teen nor less than three. Each
director shall hold office until the next annual meeting of shareholders and
until his successor has been duly elected and qualified, or until his death, or
until he shall have resigned or he shall have been removed, as hereinafter
provided in these By- Laws, or as otherwise provided by statute or by the
Certificate of Incorporation. All the directors shall be of full age. Directors
need not be shareholders. Except as otherwise required by statute or the
Certificate of Incorporation or these By-Laws, directors to be elected at each
annual meeting of shareholders shall be elected by a plurality of the votes cast
at the meeting by the holders of shares present in person or represented by
proxy and entitled to vote for the election of directors.
B. Nomination of Directors. Only persons who are nominated in accordance
with the procedures set forth in this paragraph B shall be eligible for election
as a director at any meeting of shareholders for the election of directors (an
"Election Meeting"). Nominations of candidates for election to the Board of
Directors of the Corporation at an Election Meeting may be made only by or at
the direction of the Board of Directors or by a shareholder entitled to vote at
such Election Meeting. All such nominations, except those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation of the shareholder's intention to
make such nomination. To be timely, any such
<PAGE>
notice must be received at the principal office of the Corporation not less than
sixty (60) nor more than ninety (90) days prior to the date of the Election
Meeting. Notwithstanding the preceding sentence, if the Election Meeting is
either (A) a special meeting, or (B) an annual meeting the date of which has
been changed by more than 30 calendar days from the date contemplated at the
time of the previous year's proxy statement, and if less than 70 days' notice or
prior public disclosure of the date of such Election Meeting is given or made to
shareholders, notice by the shareholder to be timely must be received not later
than the close of business on the fifteenth day following the day on which such
notice of the date of such Election Meeting was mailed or such public disclosure
was made. Such shareholder's notice with respect to a proposed nomination shall
set forth (a) as to each person whom the shareholder proposes to nominate as a
candidate for election to the Board of Directors (i) the name, age, business
address and residence address and the principal occupation or employment of such
person, (ii) the class and number of shares of capital stock of the Corporation
which are beneficially owned by such person, (iii) such other information
concerning such person as would be required, under the rules of the Securities
and Exchange Commission, in a proxy statement soliciting proxies for the
election of such person and (iv) a signed consent of such person to serve as a
Director of the Corporation, if elected, and (b) as to the shareholder giving
the notice (i) the name and address of such share holder, as they appear in the
Corporation's stock transfer books and (ii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by such
shareholder. In the event that a person is validly designated as a nominee in
accordance with the procedures specified above and shall thereafter become
unable or unwilling to stand for election to the Board of Directors, the Board
of Directors or the shareholder who proposed such nominee, as the case may be,
may designate a substitute nominee; provided, however, that in the case of
persons not nominated by the Board of Directors, such a substitution may be made
only if notice as pro vided above in this paragraph B is received at the
principal office of the Corporation not later than the later of (x) thirty (30)
days prior to the date of the Election Meeting or (y) five (5) days after the
shareholder proposing the original nominee first learned that such original
nominee has become unable or unwilling to stand for election. If the presiding
officer of an Election Meeting determines and declares that a Director
nomination was not made in accordance with the fore going procedures, such
nomination shall be void and shall be disregarded for all purposes.
Section 3. Resignation; Removal
Any Director may resign at any time. Except as otherwise provided by law,
the Board of Directors may, by majority vote of all Directors then in office,
remove a Director for cause. Subject to applicable provisions of law, any or all
of the Directors may be removed with or without cause by vote of the
shareholders.
Section 4. Vacancies
Except as otherwise provided by the Certificate of Incorporation, if any
vacancies occur in the Board of Directors by reason of the death, resignation,
retirement, disqualification or removal from office of any Director with cause,
or if any new directorships are created, all of the Directors then in office,
although less than a quorum, may, by majority vote, choose a successor or
successors, or fill the newly created directorships, and the Directors so chosen
shall hold
<PAGE>
office until the next annual meeting of the shareholders and until their
successors shall be duly elected and qualified, unless sooner displaced;
provided, however, that if in the event of any such vacancy, the Directors
remaining in office shall be unable, by majority vote, to fill such vacancy
within thirty (30) days of the occurrence thereof, the Chief Executive Officer
or the Secretary may call a special meeting of the shareholders at which such
vacancy shall be filled. In the event of any vacancy created by removal from
office of any Director without cause, such special meeting of the shareholders;
shall be so called within thirty (30) days of the occurrence thereof, at which
meeting such vacancy may be filled.
ARTICLE IV
MEETINGS OF THE BOARD
Section 1. Place
Except as otherwise provided by the Certificate of Incorporation, the Board
of Directors of the Corporation may hold meetings, both regular and special,
either within or without the State of New York as may be determined by the Board
of Directors. Any one or more members of the Board of Directors or any committee
thereof may participate in a meeting of the Board of Directors or such committee
by means of a conference, telephone or similar communications equipment allowing
all persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at a meeting.
Section 2. Regular Meetings
Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by the
Board of Directors.
Section 3. Special Meetings
Special meetings of the Board of Directors may be called by the Chairman of
the Board, if any, or by the Chief Executive Officer. Special meetings shall be
called by the Chairman, Chief Executive Officer or Secretary in like manner and
on like notice on the written request of one (1) Director. Notice of each
special meeting of the Board of Directors shall be given by the Secretary as
hereinafter provided in this Section 3, in which notice shall be stated the time
and place of the meeting. Notice of each such meeting shall be delivered to each
director, either personally (including by courier) or by telephone, telex,
telegraph, or facsimile transmission at least twenty-four hours before the time
at which such meeting is to be held, or shall be mailed to each director by
first-class mail postage prepaid, addressed to him at his residence or usual
place of business, at least three days before the day on which such meeting is
to be held. Notice of any such meeting need not be given to any director who
shall, either before or after the meeting, submit a signed waiver of notice or
who shall attend such meeting without objecting, at the beginning of such
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Except as otherwise specifically required by these
<PAGE>
By-Laws, a notice or waiver of notice of any regular or special meeting of the
Board of Directors need not state the purpose or purposes of such meeting.
Section 4. Quorum; Voting
At all meetings of the Board of Directors a majority of the entire Board
shall be necessary to constitute a quorum for the transaction of business, and
the vote of a majority of the Directors present at the time of the vote if a
quorum is present shall be the act of the Board of Directors, except as may be
otherwise specifically provided by law. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time until a quorum shall be present. Notice of any such
adjournment shall be given to any Directors who were not present and, unless
announced at the meeting, to the other Directors.
Section 5. Compensation
Directors, as such, shall not receive any stated salary for their services,
but, by resolution of the Board of Directors, a fixed fee and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board; provided, however, that nothing herein contained shall be
construed to preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor.
ARTICLE V
NOTICES
Section 1. Form; Delivery
Notice of the place, date and time of the holding of each annual and
special meeting of the shareholders (and of any change in such place, date
and/or time) and the purpose or purposes thereof shall be given personally or by
mail in a postage prepaid envelope to each shareholder entitled to vote at such
meeting, not less than ten nor more than fifty days before the date of such
meeting, and, if mailed, it shall be directed to such shareholder at his address
as it appears on the records of the Corporation, unless he shall have filed with
the Secretary of the Corporation a written request that notices to him be mailed
to some other address, in which case it shall be directed to him at such other
address. Any such notice for any meeting other than the annual meeting of
shareholders shall indicate that it is being issued at the direction of the
Chairman of the Board or a majority of the Board of Directors. Notice of any
meeting shall not be required to be given to any shareholder who shall attend
such meeting in person or by proxy and shall not, prior to the conclusion of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy. Unless the
Board shall fix a new record date for an adjourned meeting, notice of such
adjourned meeting need not be given if the time and place to which the meeting
shall be adjourned were announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any
<PAGE>
business which might have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting.
Section 2. Waiver
Whenever a notice is required to be given by any statute, the Certificate
of Incorporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to such notice. In addition, any
shareholder attending a meeting of shareholders in person or by proxy without
protesting prior to the conclusion of the meeting the lack of notice thereof to
him, such lack of notice shall be conclusively deemed to have waived notice of
such meeting.
ARTICLE VI
OFFICERS
Section 1. Officers
The officers of the Corporation shall be a Chief Executive Officer, a
President or one or more Co-Presidents, one or more Vice Presidents, a
Secretary, a Treasurer, and such other officers including a Chairman of the
Board as may be determined by the Board of Directors. Any two (2) or more
offices may be held by the same person, except the offices of President or
Co-President and Secretary; provided, however, that if all of the issued and
outstanding stock of the Corporation is owned by one (1) person, such person may
hold all or any combination of offices.
Section 2. Authority and Duties
All officers, as between themselves and the Corporation, shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-Laws, or, to the extent not so provided, by the Board of
Directors.
Section 3. Term of Office; Removal
All officers shall be elected by the Board of Directors and each shall hold
office until the meeting of the Board of Directors following the next annual
meeting of shareholders, and until his successor has been elected or appointed
and qualified.
<PAGE>
Section 4. Compensation
The compensation of all officers of the Corporation shall be fixed by the
Board of Directors, and the compensation of agents shall either be so fixed or
shall be fixed by officers thereunto duly authorized.
Section 5. Vacancies
If an office becomes vacant for any reason, the Board of Directors shall
fill the vacancy. Any officer so appointed or elected by the Board of Directors
shall serve only until the unexpired term of his predecessor shall have expired
unless reelected by the Board of Directors.
Section 6. The Chief Executive Officer
The President or one of the Co-Presidents, as appropriate, shall be the
Chief Executive Officer of the Corporation, unless the Board of Directors has
designated the Chairman of the Board as the Chief Executive Officer of the
Corporation, in which case the Chairman of the Board shall be the Chief
Executive Officer of the Corporation. The officer so designated shall have, in
addition to the powers and duties applicable to the office set forth in these
By- Laws, general and active supervision and direction over the business and
affairs of the Corporation and over its several officers, agents and employees,
subject, however, to the control of the Board of Directors. The Chief Executive
Officer shall see that all orders and resolutions of the Board of Directors are
carried into effect and, in general, the Chief Executive Officer shall have such
other powers and perform such other duties as may be incidental to the position
of Chief Executive Officer or as from time to time may be assigned to him or her
by the Board of Directors.
Section 7. The President or Co-Presidents
The President or, if there be Co-Presidents, the Co-President so designated
by Board of Directors, as the case may be, in the absence of the Chairman of the
Board, or if there be no Chairman, shall preside at all meetings of the
shareholders and Directors; he or she shall have general and active management
and control of the business and affairs of the Corporation, subject to the
control of the Board of Directors and the Chief Executive Officer, if any, and,
in the absence or inability to act of any Chief Executive Officer, shall see
that all orders and resolutions of the Board of Directors are carried into
effect.
Section 8. The Vice-President
The Vice-President or, if there be more than one, the Vice-Presidents, in
the order of their seniority or in any other order determined by the Board of
Directors, shall, in the absence or disability of each of the Chief Executive
Officer and the President or each Co-President, as the case may be, to perform
the duties and exercise the powers of the Chief Executive Officer and the
President or Co-President as the case may be, and shall generally assist each of
the Chief Executive Officer and the President or Co-Presidents, as the case may
be, and perform such other
<PAGE>
duties as the Board of Directors, the Chief Executive Officer or the President
or Co-Presidents, as the case may be, may prescribe.
Section 9. The Secretary
The Secretary shall attend all meetings of the Board of Directors and all
meetings of the shareholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board of
Directors and shall perform such other duties as may be prescribed by the Board
of Directors, the Chief Executive Officer or President or Co-President, as the
case may be, under whose supervision he shall act. He shall keep in safe custody
the seal of the Corporation and, when authorized by the Board, affix the same to
any instrument requiring it and, when so affixed, it shall be attested by his
signature or by the signature of the Treasurer or an Assistant Treasurer or
Assistant Secretary. He shall keep in safe custody the certificate books and
shareholder records and such other books and records as the Board may direct and
shall perform all other duties incident to the office of the Secretary.
Section 10. The Assistant Secretary
During the absence or disability of the Secretary, any Assistant Secretary,
or if there be more than one, the one so designated by the Secretary or by the
Board of Directors, shall have all the powers and functions of the Secretary.
Section 11. The Treasurer
The Treasurer shall have the care and custody of the corporate funds, and
other valuable effects, including securities, and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer, President or
Co-Presidents, as the case may be, and Directors, at the regular meetings of the
Board of Directors, or whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
Section 12. The Assistant Treasurer
During the absence or disability of the Treasurer, any Assistant Treasurer,
or if there be more than one, the one so designated by the Treasurer or by the
Board of Directors, shall have all the powers and functions of the Treasurer.
<PAGE>
Section 13. Bonds
In case the Board of Directors shall so require, any officer or agent of
the Corporation shall give the Corporation a bond for such term, in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the restoration
to the Corporation, in case of his death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
ARTICLE VII
SHARE CERTIFICATES
Section 1. Form; Signature
The certificates for shares of the Corporation shall be in such form as
shall be determined by the Board of Directors and shall be numbered
consecutively and entered in the books of the Corporation as they are issued.
Each certificate shall exhibit the registered holder's name and the number and
class of shares, and shall be signed by the Chairman or a Vice- Chairman of the
Board of Directors, if there be any, or the President or any Co-President, as
the case may be, or a Vice-President and the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, and shall bear the seal of the
Corporation or a facsimile thereof.
Section 2. Lost Certificates
The Board of Directors may direct a new share certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate or certificates, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost or destroyed.
Section 3. Registration of Transfer
Upon surrender to the Corporation or any transfer agent of the Corporation
of a certificate for shares duty endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation or such transfer agent to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
<PAGE>
Section 4. Registered Shareholders
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends or other distributions, and to vote as such
owner, and to hold liable for calls and assessments a person registered on its
books as the owner of shares, and shall not be bound to recognize any equitable
or legal claim to or interest in such share or shares on the part of any other
person, whether or not it has actual or other notice thereof, except as
otherwise provided by the laws or the State of New York.
Section 5. Record Date
For the purpose of determining the shareholders entitled to notice of or to
vote at any meeting of shares or an adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action affecting the
interests of shareholders, the Board of Directors may fix, in advance, a record
date. Such date shall not be more than fifty (50) nor less than ten (10) days
before the date of any such meeting, nor more than fifty (50) days prior to any
other action.
In each such case, except as otherwise provided by law, only such persons
as shall be shareholders of record on the date so fixed shall be entitled to
notice of, and to vote at, such meeting and any adjournment thereof, or to
express such consent or dissent, or to receive payment of such dividend, or such
allotment of rights, or otherwise to be recognized as shareholders for the
related purpose, notwithstanding any registration of transfer of shares on the
books of the Corporation after any such record date so fixed.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Fiscal Year
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
Section 2. Dividends
Dividends upon the capital stock of the Corporation may be declared by the
Board of Directors at any regular or special meeting and may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Certificate of Incorporation and the law.
<PAGE>
Section 3. Reserves
Before payment of any dividend, there may be set aside out of any funds of
the Corporation available for dividends such sum or sums as the Directors from
time to time, in their absolute discretion, think proper as a reserve fund to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purposes as the Board or
Directors shall deem conducive to the interest of the Corporation, and the Board
of Directors may modify or abolish any such reserve in the manner in which it
was created.
Section 4. Checks
All checks or demands for money and notes of the Corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
Section 5. Seal
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal New
York." The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or otherwise reproduced.
ARTICLE IX
AMENDMENTS
Section 1. Adoption; Amendment; Repeal
By-Laws of the Corporation may be adopted, amended or repealed by vote of
the holders of the shares at the time entitled to vote in the election of any
Directors. By-Laws of the Corporation may also be adopted, amended or repealed
by the Board of Directors, but any By-Law adopted by the Board of Directors, may
be amended or repealed by the shareholders entitled to vote thereon as herein
provided.
Section 2. Amendments Affecting Election of Directors; Notice
If any By-Law regulating an impending election of Directors is adopted,
amended or repealed by the Board, there shall be set forth in the notice of the
next meeting of shareholders for the election of Directors the By-Law so
adopted, amended or repealed, together with a concise statement of the changes
made.
<PAGE>
Exhibit 4.2
THE WARRANTS EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF SUCH WARRANTS HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES
LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE
WARRANTS EVIDENCED HEREBY ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
AS SET FORTH HEREIN.
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON JUNE 2, 2001
No. R-1 JUNE 2, 1997
LANCIT MEDIA ENTERTAINMENT, LTD.
WARRANTS TO PURCHASE COMMON STOCK
THIS CERTIFIES that Robinson Lerer & Montgomery, LLC ("Robinson Lerer"),
and its successors and assigns to the extent permitted hereunder (hereinafter,
the "Holder"), is the registered holder of Warrants entitling the Holder to
purchase from Lancit Media Entertainment, Ltd., a corporation organized and
existing under the laws of the State of New York (the "Company"), subject to the
terms and conditions set forth herein, up to ONE HUNDRED TWENTY-TWO THOUSAND
NINETY-THREE (122,093) fully paid and non-assessable shares (each, a "Warrant
Share") of the Common Stock, par value $0.001 per share, of the Company (subject
to adjustment as provided herein, the "Common Stock") at a price per Warrant
Share of $3.625 (subject to adjustment as provided herein, the "Purchase
Price"). The Holder shall be entitled to exercise the Warrants, in whole or in
part, upon surrender of this Warrant Certificate, submission of the subscription
form annexed hereto duly executed, and payment in lawful money of the United
States of the Purchase Price in respect of the Warrant Shares being purchased at
any time on or after the date hereof and at or prior to 5:00 P.M. (New York City
Time) on June 2, 2001 at the office of the Company or, if the Company shall
designate a warrant transfer agent, at the office of such warrant transfer
agent. Upon the partial exercise of the Warrants evidenced by this Certificate,
the Company shall issue or cause to be issued to the Holder a certificate
evidencing the balance of the Warrants not then exercised. The Warrants
represented by this Warrant Certificate may not be exercised as to a fraction of
a Warrant Share. Payment of the Purchase Price shall be made by wire transfer to
an account designated by the Company in writing or by certified or official bank
check.
1. Upon the surrender of this Warrant Certificate, delivery of a duly
executed subscription form and payment of the Purchase Price for the Warrants to
be exercised, as herein provided, such Warrants shall be deemed to have been
exercised and the person exercising the same shall become the holder of record
of the Warrant Shares so purchased for all purposes on the date of such
surrender, delivery and payment; provided, however, that if such date is a date
on which the stock transfer books of the Company are closed, such person shall
be deemed to have become the record holder of such shares of Common Stock on the
next succeeding date on which the stock transfer books are open. As soon as
practicable after such surrender, delivery and payment, the Company shall issue
and deliver to the Holder a certificate or certificates representing the Warrant
Shares so purchased and, in the case of a fractional interest in a Warrant
Share, cash as herein provided. Upon surrender of this Warrant Certificate to
the Company (or its warrant transfer agent, if any), the Company (or warrant
transfer agent) shall cancel this Warrant Certificate, and to the extent there
is a partial exercise of the Warrants evidenced hereby, the Holder of this
Warrant Certificate shall receive a replacement Warrant Certificate of like
tenor and date evidencing the number of Warrants that shall not have been
exercised, unless such Warrants shall have expired.
2. Notwithstanding the foregoing, if the Company shall give notice to its
shareholders of the liquidation, dissolution or winding up of the Company, the
right to exercise the Warrants evidenced hereby shall terminate at the close of
business on the third full business day prior to the record date for determining
the Company's shareholders entitled to receive any distribution upon
liquidation, dissolution or winding up, as such record date is specified in such
notice.
3. The number and kinds of shares of stock of the Company issuable upon
exercise, in whole or in part, of the Warrants evidenced hereby are subject to
modification and adjustment upon the happening of certain events, as follows:
(a) If, at any time after the date hereof, the Company shall declare or pay
a dividend or make a distribution to its shareholders consisting of Common
Stock, the Holder shall, upon the exercise of such Warrants after the record
date for such dividend, receive, in addition to the Warrant Shares otherwise
issuable upon such exercise, the number of shares of Common Stock which the
Holder would have been entitled to receive had the Holder exercised such
Warrants immediately prior to the record date for such dividend.
(b) If, at any time after the date hereof, the Company shall, by
subdivision, combination or reclassification of Common Stock, or through merger
or consolidation, or otherwise, alter or modify the number, kind or class of
shares of Common Stock, or other securities or property of the Company, then, as
of the record date for such alteration or modification, the Warrant Shares
issuable upon the exercise of a Warrant shall be adjusted so as to amount to the
number of shares of capital stock or other securities or property of the Company
that the Holder would have owned or would have been entitled to receive had the
Warrants evidenced hereby been exercised immediately prior to the record date
for such subdivision, combination or reclassification of Common Stock, or
merger, consolidation or other alteration or modification.
(c) Unless the context otherwise indicates, all references to Warrant
Shares in this Warrant Certificate shall, in the event of an adjustment
hereunder, be deemed to refer also to any other securities or property
receivable upon exercise of the Warrants pursuant to such adjustment.
(d) This Warrant Certificate need not be amended because of any adjustment
in the number and/or content of Warrant Shares pursuant hereto, and any Warrant
Certificate delivered after such adjustment may state the same number of Warrant
Shares as is stated in the Warrant Certificate originally delivered. However,
the Company may, with the prior written consent of the Holder, amend the form of
Warrant Certificate, provided such amendment in form does not affect the
substance thereof; and any Warrant Certificate thereafter countersigned and
delivered, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in such amended form.
(e) If, by reason of the calculation of the number of Warrant Shares
issuable upon exercise of the Warrants or any adjustment made pursuant to the
terms hereof, the Holder would be entitled, upon any exercise hereof, to receive
a fractional interest in a share of Common Stock, the Company shall, upon such
exercise, purchase such fractional interest for an amount in cash equal to (i)
the then current market value of such fractional interest, computed on the basis
of the average closing bid and asked prices of shares of Common Stock on the
exercise date as furnished to the Company by any member of member firm of a
registered national securities exchange selected from time to time by the
Company for that purpose or (ii) if such shares of Common Stock are listed on a
national securities exchange or traded on a national market system, at the
closing price of such shares on the exercise date. <PAGE>
(f) Except as otherwise set forth herein, the Holder shall not, upon any
exercise hereof, be entitled to any dividends that may have accrued since the
date hereof with respect to the Warrant Shares issuable in respect thereof, or
to any interest that may have accrued upon any evidence of indebtedness included
in the Warrant Shares.
(g) Whenever an adjustment in respect of the Warrant Shares or the Purchase
Price is made pursuant to the terms hereof, the Company shall promptly mail to
the Holder at the address registered with the Company a notice setting forth
such adjustment and the reasons therefor and the calculation thereof. In the
event that any of the circumstances described in clause (a) or (b) above occur,
the Purchase Price shall, if applicable, be adjusted accordingly.
Notwithstanding anything to the contrary herein, no provisions of this Warrant
Certificate shall entitle the Holder to any adjustment in Warrant Shares as a
result of the issuance of any securities of the Company, or any options,
warrants or other rights to purchase any such securities, except as expressly
provided in clause (a) or (b), above.
4. In the event of the liquidation, dissolution, or winding up of the
Company (which shall not include an event described in paragraph 5), a notice
thereof shall be filed by the Company with the warrant transfer agent, if any
shall have been designated by the Company, at least thirty (30) days prior to
the record date (which date shall be specified in such notice) for determining
security holders of the Company entitled to receive any distribution upon such
liquidation, dissolution, or winding up. Such notice also shall specify the date
on which the right to exercise the Warrants shall expire. A copy of such notice
shall be mailed to the Holder at the address registered with the Company not
more than thirty (30) nor less than twenty (20) days before such record date.
5. In the case of any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification
or change of outstanding shares of the class or classes of the Warrant Shares),
or in the case of any sale or transfer to another corporation of the property of
the Company in its entirety or substantially in its entirety, the Holder, upon
the exercise hereof in whole or in part at any time after such consolidation,
merger, sale or transfer, shall be entitled to receive the kind and amount of
shares of Common Stock and other securities and property which the Holder would
have received upon such consolidation, merger, sale, or transfer had the Holder
exercised its Warrants immediately prior thereto.
6. The issue of any shares of Common Stock or other certificates upon any
exercise of the Warrants shall be made without charge to the Holder for any
stamp or transfer tax in respect thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of any certificate in a name other than that of the
Holder, and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
7. (a) The Warrants evidenced by this Warrant Certificate may not be sold,
assigned, transferred, pledged or hypothecated without the express written
consent of the Company in each instance, except to (i) members of Robinson
Lerer, (ii) the spouse or any children or grand- children of any such members,
or (iii) a trust or trusts for the sole benefit of the Holder and/or one or more
of such persons. With respect to any such permitted transfer, or upon the
Holder's obtaining such consent, upon surrender of this Warrant Certificate to
the Company with a duly executed Assignment Form and funds sufficient to pay any
transfer tax, the Company shall, without additional charge, execute and deliver
a new Warrant Certificate or Warrant Certificates of like tenor in the name of
the assignee named in such Assignment Form, and this Warrant Certificate shall
promptly be canceled. Any such transfer shall be subject, if requested by the
Company, to the receipt by the Company of a written opinion of legal counsel,
which opinion shall be addressed to the Company and be reasonably satisfactory
in form and substance to the Company, to the effect that the proposed
<PAGE>
transfer of this Warrant may be effected without registration under the
Securities Act of 1933, as amended (the "Securities Act"). In addition, the
Holder and the proposed transferee shall execute any documentation reasonably
required by the Company to ensure compliance with the terms of this Warrant
Certificate and the Securities Act. The Holder shall not be entitled to transfer
this Warrant Certificate, or any part thereof, if such legal opinion is not
reasonably acceptable to the Company or if such documentation is not provided.
The term "Warrant Certificate" as used herein shall be deemed to include any
Warrant Certificates issued in substitution or exchange for this Warrant
Certificate.
(b) Subject to the provisions of this paragraph 7, in the event of a
transfer permitted hereunder, this Warrant Certificate may be divided upon
surrender at the principal office or the Company, without charge to the Holder,
and upon such division, the Warrant Certificates issued in exchange herefor may
be transferred of record as the then holder thereof may specify without charge
to such holder (other than any applicable transfer taxes).
(c) Except as otherwise contemplated by this paragraph 7, each Warrant
Certificate issued upon direct or indirect transfer or in substitution for any
Warrant Certificate pursuant to this paragraph 7 shall be stamped or otherwise
imprinted with a restrictive legend similar to that set forth on this Warrant
Certificate, and each stock certificate for Warrant Shares issued upon the
exercise of any Warrant and each stock certificate issued upon the direct or
indirect transfer of any such Warrant Shares shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN
MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND SUCH LAWS OR AN EXEMPTION FROM REGISTRATION
THEREUNDER.
The Holder may require the Company to issue a stock certificate for Warrant
Shares, in each case without a legend, if either (i) such Warrant Shares have
been registered for resale under the Securities Act of 1933, as amended (the
"Securities Act") or (ii)such Holder has delivered to the Company an opinion of
legal counsel, which opinion shall be addressed to the Company and be reasonably
satis factory in form and substance to the Company, to the effect that such
registration is not required with respect to such Warrant Shares.
(d) Notwithstanding any contrary provision of this paragraph 7, upon the
written request of the Holder, and subject to compliance with any obligations to
notify the holders of "piggy- back" registration rights, the Company shall use
its best efforts to effect the registration of the Warrant Shares under the
Securities Act of 1933, as amended, on Form S-3 and to keep in effect a current
registration statement on Form S-3 relating to the Warrant Shares for such time
as the Warrants remain exercisable, and shall use its commercially reasonable
efforts to cause such Warrant Shares to be listed on such national securities
exchange, or to cause such Warrant Shares to be quoted on NASDAQ under such
designation, as may then be applicable to the Company's publicly traded common
stock, all at the Company's sole expense. Notwithstanding the foregoing, if the
Company shall furnish to the Holder a certificate stating that in the good faith
judgment of the Board of Directors a registration would require the premature
disclosure of material non-public information which disclosure would be
seriously detrimental to the Company, the Company's obligation to use its best
efforts to file a registration statement shall be deferred for a period not to
exceed 120 days. Following the filing of such a registration statement, the
Company shall promptly notify the Holder of the happening of any event of which
the Company has knowledge, as a result of which the Company believes the
prospectus included in the registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances then existing, not misleading, and shall
<PAGE>
use its best efforts to prepare promptly a supplement or amendment to the
registration statement to correct such untrue statement or omission, and deliver
a number of copies of such supplement or amendment (after the same has become
effective) to the Holder as the Holder may reasonably request; in such event,
the Holder shall suspend sales pursuant to the registration statement until such
supplement or amendment has been so filed and delivered.
8. Subject to the terms and conditions hereof, upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant Certificate and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of such mutilation, upon surrender and cancellation of
this Warrant Certificate, the Company will execute and deliver a new Warrant
Certificate of like tenor.
9. This Warrant Certificate and the Warrants evidenced hereby shall not
entitle the Holder to any rights of a shareholder of the Company either at law
in or equity including, without limitation, the right to vote, to receive
dividends and other distributions, to exercise any preemptive rights or to
receive any notice of meetings of shareholders or of any other proceedings of
the Company, except as expressly provided herein.
10. To the extent then unexercised, this Warrant Certificate, in all
events, shall be canceled and have no effect after 5:00 P.M. (New York City
Time) on June 2, 2001.
11. In the event that one or more of the provisions of this Warrant
Certificate shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Warrant Certificate, but this Warrant Certificate
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
12. The Company hereby represents and warrants to the Holder as of the date
hereof as follows:
(a) The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of New York, with full corporate power
and authority to own, lease and operate its respective properties and to carry
on its business in the places and in the manner as currently conducted and as
currently contemplated to be conducted.
<PAGE>
(b) The execution, delivery and performance by the Company of this Warrant
Certificate is within the corporate power of the Company, and this Warrant
Certificate has been duly and validly authorized, executed and delivered by the
Company. This Warrant Certificate and the Warrants evidenced hereby constitute
the valid and binding obligations of the Company, enforceable in accordance with
their terms, except as such enforceability may be subject to bankruptcy,
insolvency, moratorium and other similar laws affecting creditors' rights
generally and to general equitable principles.
13. This Warrant Certificate shall be binding upon the successors and
assigns of the Company.
14. This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
provisions thereof governing conflicts of law.
15. All the covenants, agreements, representations and warranties contained
in this Warrant Certificate shall bind the parties hereto and their respective
heirs, executors, administrators, distributors, successors and assigns.
Assignability of rights is limited under the terms of this Warrant Certificate.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed and delivered by its officer hereunder duly authorized.
LANCIT MEDIA ENTERTAINMENT, LTD.
By: /s/ SUSAN L. SOLOMON
--------------------------------------------
Susan L. Solomon, Chief Executive Officer
<PAGE>
[Form of Subscription]
(To be Delivered by the Holder desiring to exercise
any of the Warrants evidenced by the Warrant Certificate)
To: LANCIT MEDIA ENTERTAINMENT, LTD.
The undersigned hereby irrevocably elects to exercise Warrants, pursuant to
the Warrant Certificate issued by Lancit Media Entertainment, Ltd. (the
"Company") to the Holder, dated __________________ (the "Warrant Certificate"),
for, and to purchase thereunder, full shares of Common Stock of the Company
issuable upon exercise of said Warrants and delivery of $ in the manner
specified in the Warrant Certificate, which represents payment in full of the
Purchase Price for said Warrants.
The undersigned requests that [a] certificate[s] for such shares be issued
in the name[s] of .
HOLDER'S SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER:
(Please print name and address)
(Signature)
If said number or Warrants shall not be all of the Warrants evidenced by
the Warrant Certificate, the undersigned requests that a new Warrant Certificate
evidencing the Warrants not so exercised be issued in the name of and delivered
to:
(Please print name and address)
(Signature)
NOTICE: The signature on this subscription form must correspond with the name as
written upon the face of the Warrant Certificate, or upon the assignment
thereof, in every particular, without alteration, enlargement, or any change
whatsoever and must be guaranteed by a participant in a signature guarantee
program recognized by The Securities Transfer Association, Inc.
<PAGE>
FORM OF ASSIGNMENT
(To be executed only upon transfer of this Warrant as permitted by the within
Warrant Certificate)
For value received, the undersigned registered holder of the within Warrant
Certificate hereby sells, assigns and transfers unto the right represented by
such Warrant Certificate to purchase ___________ shares of Common Stock of
Lancit Media Entertainment, Ltd. (the "Company"), to which such Warrant
Certificate relates and all other rights of the holder thereof under the
Warrants evidenced thereby and appoints _______________ Attorney to make such
transfer on the books of the Company maintained for such purpose, with full
power of substitution in the premises.
Dated: __________________
(Signature)
(Print Name)
(Street Address)
(City) (State) (Zip Code)
Signed in the presence of:
transfer on the books of the Company maintained for such purpose, with full
power of substitution in the premises. Dated: __________________ (Signature)
(Print Name) (Street Address) (City) (State) (Zip Code) Signed in the presence
of: ___________________________
- ---------------------------
Exhibit 4.3
FORM OF WARRANT
THE WARRANTS EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF SUCH WARRANTS HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE STATE SECURITIES
LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
HYPOTHECATED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND UNDER SUCH LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE
WARRANTS EVIDENCED HEREBY ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER
AS SET FORTH HEREIN.
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON September 10, 2002
No. A-1 September 10, 1997
LANCIT MEDIA ENTERTAINMENT, LTD.
WARRANTS TO PURCHASE COMMON STOCK
THIS CERTIFIES that ALLEN & COMPANY INCORPORATED and its successors and
assigns (hereinafter, the "Holder") is the registered holder of Warrants
entitling the Holder to purchase from Lancit Media Entertainment, Ltd., a
corporation organized and existing under the laws of the State of New York (the
"Company"), subject to the terms and conditions set forth herein, up to ONE
HUNDRED THOUSAND (100,000) fully paid and non-assessable shares (each, a
"Warrant Share") of the Common Stock, par value $0.001 per share, of the Company
(subject to adjustment as provided herein, the "Common Stock") at a price per
Warrant Share of $3.00 (subject to adjustment as provided herein, the "Purchase
Price"). The Holder shall be entitled to exercise the Warrants, in whole or in
part, upon surrender of this Warrant Certificate, submission of the subscription
form annexed hereto duly executed, and payment in lawful money of the United
States of the Purchase Price in respect of the Warrant Shares being purchased at
any time on or after the date hereof and at or prior to 5:00 P.M. (New York City
Time) on September 10, 2002 at the office of the Company or, if the Com pany
shall designate a warrant transfer agent, at the office of such warrant transfer
agent. Upon the partial exercise of the Warrants evidenced by this Certificate,
the Company shall issue or cause to be issued to the Holder a certificate
evidencing the balance of the Warrants not then exercised. The Warrants
represented by this Warrant Certificate may not be exercised as to a fraction of
a Warrant Share. Payment of the Purchase Price shall be made made by wire
transfer to an account designated by the Company in writing or by certified or
official bank check.
In lieu of the exercise of the Warrants, in whole or in part, pursuant to
the above paragraph, the Holder may, as to any Warrant Shares then issuable
hereunder as to which the Holder wishes to exercise his rights under this
paragraph (the "Conversion Shares"), elect instead to convert his right to
purchase such Conversion Shares pursuant to this Warrant Certificate into a
number of shares of Common Stock equal to (a) the product of the number of the
Conversion Shares times the excess, if any, of (i) the Market Price Per Share
(as hereinafter defined) as of the date of exercise of such conversion right
over (ii) the Exercise Price, divided by (b) the Market Price Per Share as of
the date of exercise of such conversion right. In order to exercise such
conversion privilege, the Holder shall surrender to the Company, at its offices,
this Warrant Agreement accompanied by a duly completed Notice of Conversion in
the form attached hereto. The Warrants (or so much thereof as shall have been
surrendered for conversion) shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of such Warrant Agreement
for conversion in accordance with the foregoing provisions (the "Conversion
Date"). As promptly as practicable on or after the Conversion Date, the Company
shall issue and shall deliver to the Holder (i) a certificate or certificates
representing the number of shares of Common Stock to which the Holder shall be
entitled
<PAGE>
as a result of the conversion, and (ii) if the Warrants are being converted in
part only, a new Warrant Certificate representing the unconverted portion of the
Warrants. For purposes of this paragraph, the Market Price per Share shall be
the average of the last ten "daily sales prices" of the Common Stock on the
National Market or Small Cap Market of NASDAQ on the last ten trading days prior
to the Conversion Date.
1. Upon the surrender of this Warrant Certificate, delivery of a duly
executed subscription form and payment of the Purchase Price for the
Warrants to be exercised, as herein provided, such Warrants shall be
deemed to have been exercised and the person exercising the same shall
become the holder of record of the Warrant Shares so purchased for all
purposes on the date of such surrender, delivery and payment;
provided, however, that if such date is a date on which the stock
transfer books of the Company are closed, such person shall be deemed
to have become the record holder of such shares of Common Stock on the
next succeeding date on which the stock transfer books are open. As
soon as practicable after such surrender, delivery and payment, the
Company shall issue and deliver to the Holder a certificate or
certificates representing the Warrant Shares so purchased and, in the
case of a fractional interest in a Warrant Share, cash as herein
provided. Upon surrender of this Warrant Certificate to the Company
(or its warrant transfer agent, if any), the Company (or warrant
transfer agent) shall cancel this Warrant Certificate, and to the
extent there is a partial exercise of the Warrants evidenced hereby,
the Holder of this Warrant Certificate shall receive a replacement
Warrant Certificate of like tenor and date evidencing the number of
Warrants that shall not have been exercised, unless such Warrants
shall have expired.
2. Notwithstanding the foregoing, if the Company shall give notice to
its shareholders of the liquidation, dissolution or winding up of the
Company, the right to exercise the Warrants evidenced hereby shall
terminate at the close of business on the third full business day
prior to the record date for determining the Company's shareholders
entitled to receive any distribution upon liquidation, dissolution or
winding up, as such record date is specified in such notice.
3. The number and kinds of shares of stock of the Company issuable upon
exercise, in whole or in part, of the Warrants evidenced hereby are
subject to modification and adjustment upon the happening of certain
events, as follows:
(a) If, at any time after the date hereof, the Company shall declare
or pay a dividend or make a distribution to its shareholders
consisting of Common Stock, the Holder shall, upon the exercise
of such Warrants after the record date for such dividend,
receive, in addition to the Warrant Shares otherwise issuable
upon such exercise, the number of shares of Common Stock which
the Holder would have been entitled to receive had the Holder
exercised such Warrants immediately prior to the record date for
such dividend.
(b) If, at any time after the date hereof, the Company shall, by
subdivision, combination or reclassification of Common Stock, or
through merger or consolidation, or otherwise, alter or modify
the number, kind or class of shares of Common Stock, or other
securities or property of the Company, then, as of the record
date for such alteration or modification, the Warrant Shares
issuable upon the exercise of a Warrant shall be adjusted so as
to amount to the number of shares of capital stock or other
securities or property of the Company that the Holder would have
owned or would have been entitled to receive had the Warrants
evidenced hereby been exercised immediately prior to the record
date for such subdivision, combination or reclassification of
Common Stock, or merger, consolidation or other alteration or
modification.
(c) Unless the context otherwise indicates, all references to Warrant
Shares in this Warrant Certificate shall, in the event of an
adjustment hereunder, be deemed to refer also to any other
securities or property receivable upon exercise of the Warrants
pursuant to such adjustment.
<PAGE>
(d) This Warrant Certificate need not be amended because of any
adjustment in the number and/or content of Warrant Shares
pursuant hereto, and any Warrant Certificate delivered after such
adjustment may state the same number of Warrant Shares as is
stated in the Warrant Certificate originally delivered. However,
the Company may, with the prior written consent of the Holder,
amend the form of Warrant Certificate, provided such amendment in
form does not affect the substance thereof; and any Warrant
Certificate thereafter countersigned and delivered, whether in
exchange or substitution for an outstanding Warrant Certificate
or otherwise, may be in such amended form.
(e) If, by reason of the calculation of the number of Warrant Shares
issuable upon exercise of the Warrants or any adjustment made
pursuant to the terms hereof, the Holder would be entitled, upon
any exercise hereof, to receive a fractional interest in a share
of Common Stock, the Company shall, upon such exercise, purchase
such fractional interest for an amount in cash equal to (i) the
then current market value of such fractional interest, computed
on the basis of the average closing bid and asked prices of
shares of Common Stock on the exercise date as furnished to the
Company by any member of member firm of a registered national
securities exchange selected from time to time by the Company for
that purpose or (ii) if such shares of Common Stock are listed on
a national securities exchange or traded on a national market
system, at the closing price of such shares on the exercise date.
(f) Except as otherwise set forth herein, the Holder shall not, upon
any exercise hereof, be entitled to any dividends that may have
accrued since the date hereof with respect to the Warrant Shares
issuable in respect thereof, or to any interest that may have
accrued upon any evidence of indebtedness included in the Warrant
Shares.
(g) Whenever an adjustment in respect of the Warrant Shares or the
Purchase Price is made pursuant to the terms hereof, the Company
shall promptly mail to the Holder at the address registered with
the Company a notice setting forth such adjustment and the
reasons therefor and the calculation thereof. In the event that
any of the circumstances described in clause (a) or (b) above
occur, the Purchase Price shall, if applicable, be adjusted
accordingly. Notwithstanding anything to the contrary herein, no
provisions of this Warrant Certificate shall entitle the Holder
to any adjustment in Warrant Shares as a result of the the
issuance of any securities of the Company, or any options,
warrants or other rights to purchase any such securities, except
as expressly provided in clause (a) or (b), above.
4. In the event of the liquidation, dissolution, or winding up of the
Company (which shall not include an event described in paragraph 5), a notice
thereof shall be filed by the Company with the warrant transfer agent, if any
shall have been designated by the Company, at least thirty (30) days prior to
the record date (which date shall be specified in such notice) for determining
security holders of the Company entitled to receive any distribution upon such
liquidation, dissolution, or winding up. Such notice also shall specify the date
on which the right to exercise the Warrants shall expire. A copy of such notice
shall be mailed to the Holder at the address registered with the Company not
more than thirty (30) nor less than twenty (20) days before such record date.
5. In the case of any consolidation or merger of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification
or change of outstanding shares of the class or classes of the Warrant Shares),
or in the case of any sale or transfer to another corporation of the property of
the Company in its entirety or substantially in its entirety, the Holder, upon
the exercise hereof in whole or in part at any time after such consolidation,
merger, sale or transfer, shall be entitled to receive the kind and amount of
shares of Common Stock and other securities and property which the Holder would
have received upon such consolidation, merger, sale, or transfer had the Holder
exercised its Warrants immediately prior thereto.
<PAGE>
6. The issue of any shares of Common Stock or other certificates upon any
exercise of the Warrants shall be made without charge to the Holder for any
stamp or transfer tax in respect thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of any certificate in a name other than that of the
Holder, and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
7. (a) The Warrants evidenced by this Warrant Certificate may not be sold,
assignede, transferred, pledged or hypothecated without the express written
consent of the Company in each instance, except to a wholly-owned subsidiary of
the Holder. With respect to any such permitted transfer, or upon the Holder's
obtaining such consent, upon surrender of this Warrant Certificate to the
Company with a duly executed Assignment Form and funds sufficient to pay any
transfer tax, the Company shall, without additional charge, execute and deliver
a new Warrant Certificate or Warrant Certificates of like tenor in the name of
the assignee named in such Assignment Form, and this Warrant Certificate shall
promptly be canceled. Any such transfer shall be subject, if requested by the
Company, to the receipt by the Company of a written opinion of legal counsel,
which opinion shall be addressed to the Company and be reasonably satisfactory
in form and substance to the Company, to the effect that the proposed transfer
of this Warrant may be effected without registration under the Securities Act of
1933, as amended (the "Securities Act"). In addition, the Holder and the
proposed transferee shall execute any documentation reasonably required by the
Company to ensure compliance with the terms of this Warrant Certificate and the
Securities Act. The Holder shall not be entitled to transfer this Warrant
Certificate, or any part thereof, if such legal opinion is not reasonably
acceptable to the Company or if such documentation is not provided. The term
"Warrant Certificate" as used herein shall be deemed to include any Warrant
Certificates issued in substitution or exchange for this Warrant Certificate.
(b) Subject to the provisions of this paragraph 7, this Warrant
Certificate may be divided upon surrender at the principal office
or the Company, without charge to the Holder, and upon such
division, the Warrant Certificates issued in exchange herefor may
be transferred of record as the then holder thereof may specify
without charge to such holder (other than any applicable transfer
taxes).
(c) Except as otherwise contemplated by this paragraph 7, each
Warrant Certificate issued upon direct or indirect transfer or in
substitution for any Warrant Certificate pursuant to this
paragraph 7 shall be stamped or otherwise imprinted with a
restrictive legend similar to that set forth on this Warrant
Certificate, and each stock certificate for Warrant Shares issued
upon the exercise of any Warrant and each stock certificate
issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
SUCH LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
The Holder may require the Company to issue a stock certificate for
Warrant Shares without a legend, if either (i)such Warrant Shares have
been registered for resale under the Securities Act or (ii)such Holder
has delivered to the Company an opinion of legal counsel, which
opinion shall be addressed to
<PAGE>
the Company and be reasonably satisfactory in form and substance to
the Company, to the effect that such registration is not required with
respect to such Warrant Shares.
(d) Notwithstanding any contrary provision of this paragraph 7, upon
the written request of the Holder, and subject to compliance with
any obligations to notify the holders of "piggy- back"
registration rights, the Company shall use its best efforts to
effect the registration of the Warrant Shares under the
Securities Act of 1933, as amended, on Form S-3 and to keep in
effect a current registration statement on Form S-3 relating to
the Warrant Shares for such time as the Warrants remain
exercisable. Notwithstanding the foregoing, if the Company shall
furnish to the Holder a certificate stating that in the good
faith judgment of the Board of Directors a registration would
require the premature disclosure of material non-public
information which disclosure would be seriously detrimental to
the Company, the Company's obligation to use its best efforts to
file a registration statement shall be deferred for a period not
to exceed 120 days. In the event that, prior to the filing of a
registration statement with respect to the Warrant Shares in
accordance wtih this parargraph 7(d), the Company files a
registration statement with respect to its Common Stock (other
than on Form S-4 or S-8 or comparable forms), it will so notify
the Holder to enable the Holder to exercise its registration
rights pursuant to this paragraph (in which event the Company may
either include the Warrant Shares in such other registration
statement or file a separate registration statement as
contemplated hereby). Following the filing of any registration
statement covering the Warrant Shares, the Company shall promptly
notify the Holder of the happening of any event of which the
Company has knowledge, as a result of which the Company believes
the prospectus included in the registration statement, as then in
effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances then existing, not misleading, and shall use its
best efforts to prepare promptly a supplement or amendment to the
registration statement to correct such untrue statement or
omission (after the same has become effective), and deliver a
number of copies of such supplement or amendment to the Holder as
the Holder may reasonably request; in such event, the Holder
shall suspend sales pursuant to the registration statement until
such supplement or amendment has been so filed and delivered.
8. Subject to the terms and conditions hereof, upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant Certificate and, in the case of
loss, theft or destruction, of such bond or indemnification as the Company
may reasonably require, and, in the case of such mutilation, upon surrender
and cancellation of this Warrant Certificate, the Company will execute and
deliver a new Warrant Certificate of like tenor.
9. This Warrant Certificate and the Warrants evidenced hereby shall
not entitle the Holder to any rights of a shareholder of the Company either
at law in or equity including, without limitation, the right to vote, to
receive dividends and other distributions, to exercise any preemptive
rights or to receive any notice of meetings of shareholders or of any other
proceedings of the Company, except as expressly provided herein.
10. To the extent then unexercised, this Warrant Certificate, in all
events, shall be canceled and have no effect after 5:00 P.M. (New York City
Time) on September 10, 2002.
11. In the event that one or more of the provisions of this Warrant
Certificate shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Warrant
Certificate, but this Warrant Certificate shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein.
12. The Company hereby represents and warrants to the Holder as of the
date hereof as follows:
<PAGE>
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York,
with full corporate power and authority to own, lease and operate
its respective properties and to carry on its business in the
places and in the manner as currently conducted and as currently
contemplated to be conducted.
(b) The execution, delivery and performance by the Company of this
Warrant Certificate is within the corporate power of the Company,
and this Warrant Certificate has been duly and validly
authorized, executed and delivered by the Company. This Warrant
Certificate and the Warrants evidenced hereby constitute the
valid and binding obligations of the Company, enforceable in
accordance with their terms, except as such enforceability may be
subject to bankruptcy, insolvency, moratorium and other similar
laws affecting creditors' rights generally and to general
equitable principles.
13. This Warrant Certificate shall be binding upon the successors and
assigns of the Company.
14. This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
provisions thereof governing conflicts of law.
15. All the covenants, agreements, representations and warranties
contained in this Warrant Certificate shall bind the parties hereto and
their respective heirs, executors, administrators, distributors, successors
and assigns. Assignability of rights is limited under the terms of this
Warrant Certificate.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed and delivered by its officer hereunder duly
authorized.
LANCIT MEDIA ENTERTAINMENT, LTD.
By: /s/SUSAN L. SOLOMON
Susan L. Solomon, Chief Executive Officer
Countersigned:
/s/LAURENCE A. LANCIT
Laurence A. Lancit, Co-President
<PAGE>
FORM OF SUBSCRIPTION
(To be Delivered by the Holder desiring to exercise
any of the Warrants evidenced by the Warrant Certificate)
To: LANCIT MEDIA ENTERTAINMENT, LTD.
The undersigned hereby irrevocably elects to exercise Warrants,
pursuant to the Warrant Certificate issued by Lancit Media Entertainment,
Ltd. (the "Company") to the Holder, dated __________________ (the "Warrant
Certificate"), for, and to purchase thereunder, full shares of Common Stock
of the Company issuable upon exercise of said Warrants and delivery of $ in
the manner specified in the Warrant Certificate, which represents payment
in full of the Purchase Price for said Warrants.
The undersigned requests that [a] certificate[s] for such shares be
issued in the name[s] of _______________________________________________
HOLDER'S SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER:
(Please print name and address)
(Signature)
If said number or Warrants shall not be all of the Warrants evidenced
by the Warrant Certificate, the undersigned requests that a new
Warrant Certificate evidencing the Warrants not so exercised be issued
in the name of and delivered to:
(Please print name and address)
(Signature)
NOTICE: The signature on this subscription form must correspond with
the name as written upon the face of the Warrant Certificate, or
upon the assignment thereof, in every particular, without
alteration, enlargement, or any change whatsoever and must be
guaranteed by a participant in a signature guarantee program
recognized by The Securities Transfer Association, Inc.
<PAGE>
FORM OF NOTICE OF CONVERSION
The undersigned irrevocably elects to convert, pursuant to the Warrant
Certificate issued by Lancit Media Entertainment, Ltd. (the "Company") to the
Holder, dated __________________ (the "Warrant Agreement"), the undersigned's
right to purchase __________ Conversion Shares pursuant to the Warrant
Certificate into shares of the Common Stock of the Company.
The undersigned hereby requests (a) that certificates for such shares (and
any securities or other property issuable upon such exercise) be issued in the
name of, and delivered to, ______________ and (b) the Conversion Shares referred
to above shall not include all of the Warrant Shares issuable as provided in
said Warrant, that a new Warrant Certificate of like tenor and date for the
balance of the Warrant Shares issuable thereunder be delivered to the
undersigned.
Name of Holder
Signature
Address:
NOTICE: The signature on this subscription form must correspond with the name as
written upon the face of the Warrant Agreement, or upon the assignment
thereof, in every particular, without alteration, enlargement, or any
change whatsoever and must be guaranteed by a participant in a signature
guarantee program recognized by The Securities Transfer Association, Inc.
<PAGE>
FORM OF ASSIGNMENT
(To be executed only upon transfer of this Warrant as permitted by the within
Warrant Certificate)
For value received, the undersigned registered holder of the within Warrant
Certificate hereby sells, assigns and transfers unto the right represented by
such Warrant Certificate to purchase ___________ shares of Common Stock of
Lancit Media Entertainment, Ltd. (the "Company"), to which such Warrant
Certificate relates and all other rights of the holder thereof under the
Warrants evidenced thereby and appoints _______________ Attorney to make such
transfer on the books of the Company maintained for such purpose, with full
power of substitution in the premises.
Dated: __________________
(Signature)
(Print Name)
(Street Address)
(City) (State) (Zip Code)
Signed in the presence of:
- ---------------------------
Exhibit 10.4
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of June 20, 1997 to the Employment Agreement (the
"Agreement") dated as of March 31, 1997 between LANCIT MEDIA ENTERTAINMENT,
LTD., a New York corporation ("Employer") and SUSAN SOLOMON ("Executive").
W I T N E S S E T H:
WHEREAS, Employer and Executive entered into the Agreement on March 31,
1997; and
WHEREAS, the Board of Directors approved certain amendments to the
Agreement on the date hereof; and
WHEREAS, capitalized terms used in this Amendment and not separately
defined shall have the meanings ascribed thereto in the Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
amend the Agreement as follows:
1. Paragraphs 3(e), 3(f) and 3(g) of the Agreement are hereby
amended to provide in their entirety as follows:
(e) (i) Employer hereby grants to Executive stock options to
purchase four hundred ninety-five thousand (495,000) shares
of Employer's common stock (the "Signing Options") under
Employer's 1990 Stock Option Plan (the "1990 Plan") on the
terms and conditions described in the Stock Option Agreement
between Employer and Executive dated as of June 20, 1997, a
copy of which is annexed hereto as Exhibit A. Employer
represents, warrants and covenants that no fewer than four
hundred ninety-five thousand (495,000) authorized but
unissued shares of Employer's common stock (or shares of
common stock held in treasury) will remain reserved and
available for issuance under the 1990 Plan pursuant to such
Stock Option Agreement for so long as the Signing Options
remain outstanding. Subject to subparagraph 3(f)(v)(B), the
Signing Options may not be exercised prior to October 1,
1997. From and after that date (or such earlier date as is
provided for hereunder), the Signing Options may be
exercised in accordance with their terms.
(ii) Employer represents and warrants the shares of common
stock issuable pursuant to the Signing Options (the "Signing
Option Shares") are registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a
registration statement on Form S-8 which is currently in
effect. Upon the request of Executive, 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 Signing 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 Form S- 8 and such
re-offer prospectus as contemplated by this Agreement.
Employer covenants and agrees to use its reasonable efforts
to maintain current and in effect each of such registration
statement and reoffer prospectus until the earliest to occur
of (A) the eleventh (11th) anniversary of the Effective
Date, or (B) the sale of all of the Signing 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
Signing Option Shares may be sold under the provisions of
paragraph (k) of Rule 144 notwithstanding the fact that a
portion of the Signing Option Shares may remain unregistered
under the Act.
(iii)If Employer is unable to maintain in effect the
registration of the Signing Option Shares on Form S-8 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 B.
<PAGE>
(iv) Executive agrees that, during any ninety (90) day
period, and notwithstanding the registration under the
Securities Act of the Signing Option Shares, Executive's
right to sell, assign, hypothecate or otherwise transfer any
interest in the Signing Option Shares (collectively referred
to herein as Executive's "Transfer Rights"), shall be
limited to that number of the Signing Option Shares,
together with any shares of common stock issuable to
Executive pursuant to the Units or the Additional Signing
Options hereinafter referred to (collectively, 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(e)(iv) 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 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.
(v) (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 Internal Revenue Code of 1986, as
amended (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 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) Upon a "Change in Control of Employer", the Signing
Options, if not already exercisable in accordance with their
terms, 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 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
<PAGE>
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.
(vi) If, at the time Executive purchases any Option Shares
upon exercise of Signing Options, such Option Shares are not
registered for resale by Executive under the Securities Act,
and Executive is entitled to demand registration rights
under subparagraph 3(e)(iii) 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(e)(vi), 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.
(f) (i) As a further financial incentive for Executive, Employer
hereby grants Executive an additional value incentive bonus
(the "Value Incentive Bonus") of two hundred fifty-five
thousand (255,000) 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 and
shall be 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 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)Subject to subparagraph 3(f)(viii)(B) below, the Units
may not be converted prior to the earlier to occur of the
Shareholders Meeting (as defined in subparagraph 3(g)(ii)
below) or December 31, 1997, except as hereinafter provided
and provided that the Units do not expire immediately
following the Shareholders Meeting (held on or before
December 31, 1997) in accordance with subparagraph
3(f)(vii)(A). 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 conversion 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 two hundred fifty-five thousand (255,000)) being
converted.
<PAGE>
(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"), upon the request of Executive following the
earlier of the Shareholders Meeting of Employer referred to
in subparagraph 3(g)(ii) below or December 31, 1997
(provided the New Plan and/or Additional Signing Options
referred to in Paragraph 3(g) below were not approved or
ratified at such meeting on or prior to December 31, 1997),
Employer will promptly seek to register the Value Incentive
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 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 or (iv) expiration of the Units as provided
in subparagraph 3(f)(viii) hereof.
(v) If Employer is unable to register the Value Incentive
Shares on Form S-8 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 B.
(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 as set forth in subparagraph 3(e)(iv) of this
Agreement. Employer and Executive agree that the
restrictions described in this subparagraph 3(f)(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 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 the New Plan on or before
December 31, 1997, such that the grant of Additional Signing
Options granted to Executive to purchase up to two hundred
fifty-five thousand (255,000) shares of Common Stock become
effective;
(B) the Expiration Date;
(C) the dissolution of Employer (subject to the provisions of
subparagraph 3(f)(viii) below);
<PAGE>
(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
or cash 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 or cash 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 or cash 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 the
Units becoming convertible pursuant to Paragraph 3(f)(iii),
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 units
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 plan,
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 units 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
<PAGE>
incentive bonus units 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(f)(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(f)(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.
(g) (i) Employer hereby grants and, subject to the approval of
Employer's shareholders at the Shareholders Meeting described in
subparagraph 3(g)(ii), Executive agrees to accept in lieu of the
Value Incentive Bonus, stock options to purchase two hundred
fifty-five thousand (255,000) shares of Employer's common stock
(the "Additional Signing Options") on the terms and conditions
described in the Stock Option Agreement between Employer and
Executive dated as of June 20, 1997, a copy of which is annexed
hereto as Exhibit C, pursuant to the 1997 Incentive Stock Plan of
Employer (the "New Plan") which has been adopted by the Board of
Directors, subject to shareholder approval. Subject to obtaining
such approval, Employer represents, warrants and covenants that
no fewer than two hundred fifty-five thousand (255,000)
authorized but unissued shares of Employer's common stock (or
shares of common stock held in treasury) will remain reserved and
available for issuance under such New Plan pursuant to such Stock
Option Agreement for so long as the Additional Signing Options
remain outstanding.
(ii) Employer agrees to call an annual or special meeting of its
shareholders promptly following the execution of this Agreement,
but in no event to be held later than December 31, 1997, for the
purpose of seeking such shareholder approval of the New Plan
and/or ratification or approval of the grant of the Additional
Signing Options (the "Shareholders Meeting"). Executive agrees
that if the shareholders approve the New Plan or otherwise ratify
or approve the grant of the Additional 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 "Additional Option Shares"), Employer will, upon the request
of Executive following the Shareholders Meeting, promptly seek to
register the Additional 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 of the Additional 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 Additional 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 Additional Option Shares may be sold
under the provisions of paragraph (k) of Rule 144 notwithstanding
the fact that a portion of the Additional Option Shares may
remain unregistered under the Securities Act.
<PAGE>
(iv) If Employer is unable to register the Additional Option
Shares on Form S-8 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 B.
(v) Executive agrees that, during any ninety (90) day period, and
notwithstanding the registration under the Securities Act of the
Additional Option Shares, Executive's right to sell, assign,
hypothecate or otherwise transfer any interest in the Additional
Option Shares (collectively referred to herein as Executive's
"Transfer Rights"), shall be limited as set forth in subparagraph
3(e)(iv) above. Employer and Executive agree that the
restrictions described in this subparagraph 3(g)(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 Additional Option
Shares 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 Additional 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 Additional Signing Options or for the express
assumption (within the meaning of Section 424(a) of the Code) of
the Additional Signing Options by the surviving corporation,
Employer's Board of Directors shall declare that the Additional
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 New Plan or
the Additional Signing Options have theretofore been approved or
ratified by Employer's shareholders as contemplated by
subparagraph 3(g)(ii) above, Executive shall have the right,
during the period between the receipt of the written notice and
the Termination Date to exercise the Additional Signing Options,
in whole or in part, whether or not all or any part of the
Additional 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 Additional Signing Options, if any, shall be
deemed to have delivered to Employer a notice of exercise of the
Additional Signing Options, in whole, on such Termination Date.
To the extent that the Additional Signing Options are not
exercised in their entirety on or prior to the Termination Date,
any and all Additional Signing Options and all rights then
remaining hereunder shall terminate as of the Termination Date.
(B) Provided the New Plan or the Additional Signing Options have
been approved or ratified by Employer's shareholders as
contemplated by the provisions of subparagraph 3(g)(ii) above,
upon a "Change in Control of Employer", the Additional Signing
Options, if not already exercisable in accordance with their
terms, 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
Additional Signing Options herein granted or the surviving
corporation offers to assume the Additional 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 New Plan or the Additional Signing
Options have theretofore been approved or ratified by Employer's
shareholders as contemplated by the provisions of subparagraph
3(g)(ii) above, Executive shall have the right to elect to accept
such substitute options or assumption of the Additional Signing
Options or to exercise the
<PAGE>
Additional Signing Options in whole or in part, prior to 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
Additional Signing Options, if any, shall be deemed to have
rejected any substitute options offered to Executive and any
offer to assume the Additional Signing Options and to have
delivered to Employer a notice of exercise of the Additional
Signing Options, in whole, on such effective date.
(vii)If, at the time Executive purchases any Additional Option
Shares upon exercise of Additional Signing Options, such
Additional Option Shares are not registered for resale under the
Securities Act, and Executive is entitled to demand registration
rights under subparagraph 3(g)(iv) above, and if on the date on
which such Additional 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 Additional Option
Share, below the lesser of (A) the fair market value of such
Additional 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 Additional 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 Additional Option Share
described in this subparagraph 3(g)(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.
2. Paragraph 4(f) of the Agreement is hereby amended to provide in
its entirety as follows:
(f) Unless Executive gives Employer written notice not later than
five (5) business days prior to the effective date of a Change in
Control of Employer that she wishes to remain employed pursuant
to this Agreement following such effective date, Executive shall
be deemed to have served her written notice of Resignation For
Cause pursuant to subparagraph 4(c)(iv) hereof on the effective
date of such "Change in Control of Employer". Such resignation
shall terminate Executive's obligations under this Agreement
effective immediately following such Change in Control of
Employer, and Executive shall be entitled to the same amounts as
would be payable if Employer had terminated Executive pursuant to
subparagraph 4(b) hereof, 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 the effective date
of such Change in Control of Employer. Executive shall also be
entitled to any benefits accrued under this Agreement through the
date of such Change in Control of Employer or accruing pursuant
thereto, including without limitation any amounts payable
pursuant to Paragraph 3(c) hereof or any rights under any of
Paragraphs 3(e), 3(f) or 3(g) hereof, payable as of the effective
date of such Change in Control of Employer.
3. Paragraph 4(g) of the Agreement is hereby amended to provide in
its entirety as follows:
(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, the Signing
Option Shares or the Additional Option Shares, as applicable,
shall cease to apply.
4. Schedule A and Exhibits A, B and C to the Agreement are hereby
amended and restated to conform to the provisions of this
Amendment and, as so amended and restated, are annexed hereto.
5. Subject to the Amendments effected hereby, the Agreement shall
remain in full force and effect.
<PAGE>
6. This Amendment may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first above written.
Attest: LANCIT MEDIA ENTERTAINMENT, LTD.
/s/ MARC L. BAILIN By: /s/ LAURENCE A. LANCIT
Secretary Laurence A. Lancit
/s/ SUSAN L. SOLOMON
Susan Solomon
<PAGE>
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
(as amended by Amendment No. 1, dated as of June 20, 1997, and as
the same may be further amended, modified or otherwise
supplemented from time to time, 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". 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 and shall be
an employee benefit plan of the Employer.
2. Election to Receive Value Incentive Bonus. 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 the earlier to occur of the
Shareholders Meeting (as defined in Paragraph 3(g)(ii) of the
Employment Agreement) or December 31, 1997, except as otherwise
provided in the Employment Agreement. From and after the date the
Units become convertible under the Employment Agreement, 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 to this Schedule A (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, 255,000) 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 Units,
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) $3.15625 (the "Measuring
Value"); subject, however, to adjustment pursuant to paragraph 6
of this Schedule A. 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 A, 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 date
preceding such relevant date, fair market value shall be as
reasonably determined by the Board of Directors of the Employer
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 (of 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
<PAGE>
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 Paragraph
3(f)(vii) of the Employment Agreement, if applicable.
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
Paragraph 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 the Units.
8. Captions. The captions or headings of the paragraphs of this
Schedule A are inserted only as a matter of convenience, and in
no way define, limit or in any other way describe the scope of
this Schedule A or the intent of any provisions hereof.
<PAGE>
EXHIBIT I
to Calculation and Payment of
Value Incentive Bonus Schedule A
ELECTION NOTICE
To: LANCIT MEDIA ENTERTAINMENT, LTD.
601 West 50th Street
New York, New York 10019
Attention: 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, as amended by Amendment No. 1, dated as of
June 20, 1997, 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: _________________________________
<PAGE>
Exhibit A
Non-Qualified Stock Option for 495,000 Shares Dated: June 20, 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 bond 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"), pursuant to the 1990 Stock Option Plan
(the "Plan"), in consideration of services to be rendered to the Company, the
right and option (the "Option") to purchase FOUR HUNDRED NINETY- FIVE THOUSAND
(495,000) 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. Except as hereinafter provided, the
Option granted hereby may not be exercised prior to October 1,
1997. From and after October 1, 1997 (or such earlier date as
this Option may become exercisable pursuant to Section 8(c)), 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 $3.15625 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, as amended (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
<PAGE>
any withholding tax due thereon has been made. For the purposes
of this Agreement, the term "fair market value" shall have the
meaning assigned to it in the Plan.
4. 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 8 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 (as amended by
Amendment No. 1, dated as of June 20, 1997, and as the same
may be further amended, modified or otherwise supplemented
from time to time, 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";
d. 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;
e. 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
f. 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 l6b-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
<PAGE>
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 has registered the Shares under
the Act on a Form S-8 registration statement and will 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. Optionee is also entitled
to the benefit of the Registration Rights Agreement dated as
of March 31, 1997 between the Company and Optionee, in
accordance with its terms and the terms of the Employment
Agreement.
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.
<PAGE>
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 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. Upon a "Change in Control of Employer" (as defined in the
Employment Agreement), the Option, if not already
exercisable in accordance with its terms, 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 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. 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 or the Employment Agreement, except pursuant
<PAGE>
to Section 8 above. 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.
11. 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.
12. 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 affected 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.
13. 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.
14. 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.
15. Governing Law. This Agreement and all amendments or charges
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.
16. Notices. Notices pursuant hereto shall be given in writing, in
person (against receipt therefor only if requested) or by retired
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.
<PAGE>
17. 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.
18. 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.
19. 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, INC.
By:
[Assistant] Secretary Laurence A. Lancit, President
SUSAN L. SOLOMON
<PAGE>
EXHIBIT I
to Stock Option Agreement - Exhibit A
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 piece 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 night
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___________________________________________
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.
<PAGE>
Exhibit B
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT, dated as of March 31, 1997 (as amended and restated as of
June 20, 1997, the "Agreement"), between LANCIT MEDIA ENTERTAINMENT, LTD., a New
York corporation (the "Company"), and SUSAN L. SOLOMON, an individual
("Executive").
W I T N E S S E T H
WHEREAS, the Company and Executive have entered into an employment
agreement dated March 31, 1997 (as amended by Amendment No. 1, dated as of June
20, 1997, and as the same may be further amended, modified, or supplemented from
time to time, the "Employment Agreement"), pursuant to which Executive has been
awarded stock options under the Company's 1990 Stock Option Plan (the "1990 Plan
Options"), stock options under the Company's 1997 Incentive Stock Plan, which is
subject to shareholder approval (the "1997 Plan Options"), and an incentive
value bonus ("IVB") pursuant to which the Executive may receive, in the sole
discretion of the Company, either cash or shares of common stock, par value
$.001 per share (the "Common Stock"), of the Company in satisfaction of the
obligations of the Company with respect to the IVB; and
WHEREAS, the Company has agreed to register such shares of Company Common
Stock as may be issued to Executive upon her exercise of the 1990 Plan Options
or the 1997 Plan Options or in satisfaction of the IVB ("New Shares"), in
accordance with the terms and conditions hereof;
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. Unless otherwise defined herein or the
context otherwise requires, all capitalized terms used in this
Agreement shall have the meanings ascribed to such terms in the
Employment Agreement.
2. Registration Rights.
a. Although the Company is under no existing obligation under
the Securities Act of 1933, as amended (the "Securities
Act") or any other domestic or foreign law applicable to the
sale or transfer of securities (collectively, the
"Securities Laws") to file a registration statement or
otherwise resister any New Shares for any purpose, the
Company agrees that if, and only if, the Company (i) has not
registered the New Shares issuable pursuant to the 1997 Plan
Options or the IVB under the Securities Act on Form S-8
within the one hundred seventy (170) day period following
the date of this Agreement, or (ii) thereafter fails or is
unable to maintain such registration statement or the
registration statement covering the 1990 Plan Options in
effect, as contemplated by the Employment Agreement, or
(iii) fails or is unable to file or thereafter maintain in
effect a reoffer prospectus under such registration
statements, as contemplated in the Employment Agreement,
then unless any such failure or inability is the consequence
of a failure on Executive's part to cooperate with the
Company in a reasonable manner, such as (by way of
illustration and not by way of limitation) by failing to
provide information or undertakings reasonably required to
prepare and file a reoffer prospectus, upon the written
request of Executive with respect to all (but not less than
all) of the New Shares which shall have theretofore been
issued to Executive and which are not then covered by a
currently effective registration statement and reoffer
prospectus, the Company will, subject to the limitations set
forth below, use reasonable efforts to cause such New Shares
(herein referred to as the "Securities") to be registered
under the Securities Act for the purposes of permitting the
sale or other disposition by the Executive of all or part of
the Securities to be so registered (a "Holder's Offering");
provided, however, that under no circumstances shall the
Company be required to effect more than three (3) Holder's
Offerings under this Agreement per calendar year; and
provided, further, that neither the provisions of this
Agreement nor the registration of any Securities pursuant
hereto shall waive, or release Executive from, any
restrictions on the sale, transfer, pledge, hypothecation or
other disposition or encumbrance of the New Shares contained
in the Employment Agreement or, in any other way, waive,
modify or amend any provision of the Employment Agreement.
b. The provisions of paragraph (a) above notwithstanding, if
the Board of Directors of the Company (the "Board")
determines in good faith that the filing or effectiveness
of, or sales pursuant to any registration statement
otherwise required to be prepared, filed and made and kept
effective by it pursuant to this Agreement would materially
impede, delay or interfere with any financing, offer or sale
of securities, acquisition, corporate reorganization, share
repurchase, listing or qualification of any of the
<PAGE>
Company's securities on any national securities exchange, or
other significant transaction involving the Company or any
of its affiliates or require disclosure of material
information which the Company has a bona fide business
purpose for preserving as confidential, the Company shall be
entitled to postpone, for a reasonable period of time, the
filing or effectiveness of, or suspend the right of
Executive to make sales pursuant to, such registration
statement; provided, however, that the duration of such
postponement or suspension may not exceed ninety (90) days
after the cessation of the circumstances upon which such
postponement or suspension is based. If the Company shall so
postpone the filing or effectiveness of a registration
statement it shall, as promptly as possible, notify
Executive to withdraw the request for registration by giving
written notice to the Company within ten (10) days after
receipt of such notice. Any Holder's Offering as to which
the withdrawal election referred to in the preceding
sentence has been effected shall not be counted for purposes
of determining whether the Company has effected a Holder's
Offering pursuant to paragraph (a) above during such
calendar year.
c. The Company's obligations under Section 3 below shall be
subject to the obligations of the Executive to furnish all
information and materials and to take any and all actions as
may be required under applicable Federal and state
securities laws and regulations requirements of the
Securities and Exchange Commission (the "SEC" or
"Commission") and to obtain acceleration of the effective
date of a registration statement.
3. Company Obligations. If and whenever the Company is required by
the provisions of Section 2 above to effect the registration of
Securities under the Securities Act, the Company will use
reasonable efforts to:
a. Prepare and file with the Commission a registration
statement with respect to such Securities and to cause such
registration statement to become effective and (by preparing
and filing with the SEC such amendments to such registration
statement and supplements to the prospectus, if any,
contained therein as may be necessary) to remain effective
during the period required for the distribution of the
Securities covered by such registration statement; provided,
however, that the Company may deregister any of such
Securities which have not been sold after the earlier to
occur of (i) the date the Executive receives an opinion of
counsel (which may be from counsel to the Company) that all
such securities may be sold under the provisions of SEC Rule
144(k) and (ii) the later to occur of (A) the third
anniversary of the effective date of the registration
statement and (B) the ninety-first (91st) day after the
expiration of any suspension of the right of Executive to
make sales pursuant to such registration statement, if any,
subject, however, to the requirements of Section 2, above;
b. Furnish to the Executive in connection with a Holder's
Offering such reasonable number of copies of the
registration statement, summary plan description,
preliminary prospectus, final prospectus and other documents
as may reasonably be requested in order to facilitate the
marketing of such Securities;
c. Register or qualify such Securities under the securities or
"blue sky" laws of such jurisdiction within the United
States as the Executive may reasonably request; provided
that the Company shall not be required to consent to general
service of process for all purposes in any jurisdiction
where it is not then qualified to do business as a foreign
corporation;
d. Promptly notify the Executive, promptly after the Company
shall receive notice thereof, of the time when such
registration statement has become effective or a supplement
to any prospectus forming a part of such registration
statement has been filed;
e. Notify the Executive, during any period during which
Securities may be distributed pursuant to a Holder's
Offering and a prospectus relating to such registration
statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then
in effect, if any, includes an untrue statement of a
material fact or omits to state a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances then existing, not
misleading, and at the request of the Executive prepare and
furnish to the Executive a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers
of such Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a
material fact required to be stated
<PAGE>
therein or necessary to make the statements therein, in
light of the circumstances then existing, not misleading;
f. In the case of an underwritten offering, enter into and
perform its obligations under an underwriting agreement with
the managing underwriter of such offering, in usual and
customary form, including, without limitation, customary
indemnification and contribution obligations, and in the
case of any non-underwritten offering, provide to
broker-dealers participating in any distribution of
Securities reasonable indemnification substantially similar
to that provided by Section 6 hereof whenever requested to
do so;
g. Promptly notify the Executive (or, in the event of an
underwritten offering, the managing underwriters) of the
issuance by the SEC of any stop order or other suspension of
effectiveness of the registration statement, and make every
reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the registration statement
at the earliest possible time;
h. Permit counsel for the Executive to review the registration
statement and all amendments and supplements thereto for a
reasonable period of time prior to their filing with the
SEC, and not to file any document in a form to which such
counsel reasonably objects;
i. Make generally available to its security holders as soon as
practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the
Securities Act) covering a twelve-month period beginning not
later than the first day of the Company's fiscal quarter
next following the effective date of the registration
statement;
j. Make available for inspection by the Executive, any
underwriter participating in any disposition pursuant to the
registration statement, and any attorney, accountant, or
other agent retained by the Executive or any such
underwriter (collectively, the "Inspectors"), all pertinent
financial and other records, pertinent corporate documents
and properties of the Company, as shall be reasonably
necessary to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers,
directors and employees to supply all information reasonably
required by any such Inspector in connection with the
registration statement;
k. Use reasonable efforts either to (i) cause all the
Securities covered by the registration statement to be
listed on a national exchange and on each additional
national securities exchange on which similar securities
issued by the Company are then listed, if any, if the
listing of such Securities is then permitted under the rules
of such exchange or (ii) secure designation of all the
Securities covered by the registration statement as a Nasdaq
"National Market Security" within the meaning of Rule 11a2-1
of the SEC and the quotation of the Securities on the Nasdaq
National Market System;
l. Provide a transfer agent and registrar, which may be a
single entity, for the Securities not later than the
effective date of the registration statement;
m. Cooperate with the Executive and the managing underwriter or
underwriters, if any, in a reasonable manner to facilitate
the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Securities to
be sold pursuant to the registration statement and enable
such certificates to be in such denominations or amounts, as
the case may be, and registered in such names as the
managing underwriter or underwriters, if any, or the
Executive may reasonably request; and
n. Take all other reasonable actions necessary and appropriate
for the Company to take to expedite and facilitate
disposition by the Executive of the Securities pursuant to
the registration statement.
4. Executive's Obligations. The Executive's right to have the
Securities included in a registration statement pursuant to the
provisions of Section 2 above shall be subject to the following
further conditions:
<PAGE>
a. The Executive shall have furnished to the Company in writing
such information, agreements and documents regarding the
Executive and any distribution of New Shares proposed by her
as the Company, the managing underwriter(s) of any proposed
issuance of securities by or on behalf of the Company, if
any, and its counsel may reasonably request; and
b. The Executive shall have executed and delivered to the
Company such written undertakings as the Company and its
counsel may reasonably require in order to assure full
compliance with Applicable provisions of the Securities Act
and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which may include, without limitation,
undertakings not to buy any securities of the same class as
the Securities or to solicit such purchases by others until
Executive's distribution of Securities is completed and
otherwise to comply with the SEC's anti-manipulation rules,
and to inform any exchange upon which the Company's Common
Stock may be traded and the managing underwriter(s) or
broker(s) participating in Executive's distribution of New
Shares of the substance, of the foregoing undertakings and
of the restrictions on Executive's right to sell Shares
contained in the Employment Agreement.
5. Fees and Costs.
a. All fees and costs relating to each Holder's Offering shall
be borne by the Company, except that the Executive shall
bear all brokerage and underwriting fees, commissions and
discounts attributable to the New Shares offered for sale
for the account of the Executive.
b. The fees and costs of registration to be borne by the
Company as provided above, shall include, without
limitation, all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants
for the Company, legal fees and disbursements and other
expenses of complying with the state securities or "blue
sky" laws of the jurisdiction in which the Securities to be
offered are to be registered or qualified, and premiums and
other costs of policies of insurance, if any, against
liability arising out of such public offering.
6. Indemnification and Contribution.
a. In connection with any Holder's Offering, the Company will,
to the extent permitted by law, indemnify and hold harmless
the Executive from and against, and will reimburse the
Executive with respect to, any and all losses, damages,
costs and expenses the Executive may suffer, insofar as such
losses, damages, costs or expenses arise out of or are based
upon any untrue or alleged untrue statement of any material
fact contained in any such registration statement, any
prospectus contained therein or any amendment or supplement
thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading and shall reimburse the Executive for
any legal or any other expenses reasonably incurred in
connection with investigating or defending any such loss,
damage, cost or expense; provided, however, that the Company
will not be liable in any such case to the extent that any
such loss, damage, cost or expense arises out of or is based
upon an untrue statement or alleged untrue statement of
material fact or omission or alleged omission to state a
material fact made in conformity with information furnished
to the Company by the Executive. Such indemnity shall remain
in full force and effect regardless of any investigation
made by or on behalf of the Executive and shall survive the
transfer of such securities by such Executive.
b. Promptly after receipt by an indemnified party under the
provisions of this Section of notice of the commencement of
any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim
thereof is to be made against the indemnifying party
pursuant to the provisions of this Section, notify the
indemnifying party of the commencement thereof, but the
failure of any indemnified party to provide such notice
shall not relieve the indemnifying party of its obligations
under this Section 6 except to the extent that the
indemnifying party is materially prejudiced thereby, and
shall not relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than
under this Section 6. In case such action is brought against
any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it
may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party,
and if, but only if, such counsel will not be required to
represent parties with actual differing interests, and,
after notice from the indemnifying party to such
indemnifying party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expense
<PAGE>
subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable
costs of investigation; provided, however, than an
indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel
for the indemnified party, representation of such
indemnified party by the counsel retained by the indemnified
party would be inappropriate due to actual or potential
differing, interests between such indemnified party and any
other party represented by such counsel in such proceedings.
No indemnifying party shall be liable to an indemnified
party for any settlement or compromise of any action or
claim to which the indemnifying party has not consented. The
indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage
or liability is incurred and is due and payable.
c. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in
this Section is for any reason held to be unenforceable
although applicable in accordance with its terms, then the
Company agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under
this Section 6 to the fullest extent permitted by law, and
the Executive shall be liable for contribution only to the
extent that any costs, expenses or judgments described
herein (after deducting any contribution, if any, received
by the Company from persons other than the Executive who may
also be liable for contribution) are determined by a court
(or the parties to any settlement) to have arisen out of or
to have been based upon any untrue or alleged untrue
statement of any material fact contained in a registration
statement, any prospectus contained therein or any amendment
or supplement thereto, or upon the omission to state therein
a material fact required to be stated therein or necessary
to make the statements therein, in light of the
circumstances under which they were made, not misleading,
made in reliance upon and in conformity with written
information furnished to the Company by the Executive
specifically stating that it is for use in such registration
statement, prospectus, amendment or supplement or document
incorporated by reference into any of the foregoing.
Notwithstanding the foregoing, the liability of the
Executive shall be limited to the aggregate offering price
of the Securities sold by Executive under such registration
statement pursuant to Section 2 hereof.
d. The Company and the Executive agree that it would not be
just and equitable if contribution pursuant to paragraph (c)
above were determined by pro rata allocation or by any other
method of allocation inconsistent with the equitable
considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages,
liabilities, or judgments referred to in the immediately
preceding paragraphs shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the
meanings of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
7. Termination. This Agreement and the rights granted under Section
2 hereof shall terminate on the earliest to occur of (i) the
eleventh (11th) anniversary of the date hereof or (ii) the sale
of all of the New Shares by the Executive, or (iii) the date the
Executive receives an opinion of counsel (which may be from
counsel to the Company) reasonably acceptable to counsel for the
Executive that all of the New Shares may be sold under the
provisions of SEC Rule 144(k) notwithstanding the fact that a
portion of the New Shares may remain unregistered under the
Securities Act; provide, however, that the Company may elect, in
its sole discretion, to include any remaining unregistered New
Shares in one or more subsequently filed registration statements
registering securities of the Company upon such terms and
conditions upon which the Company and the Executive shall then
mutually agree.
8. Miscellaneous.
a. Notices. All notices under this Agreement shall be in
writing and shall be effective (i) upon personal delivery
against receipt therefor, or (ii) if sent by mail three (3)
business days after deposit in the United States, Postal
Service, first-class, postage prepaid, registered or
certified, return receipt requested. All notices given
hereunder shall be addressed:
(i) in the case of the Company to:
Lancit Media Entertainment, Ltd.
601 West 50th Street
New York, NY 10019
Attn: Chief Financial Officer
<PAGE>
with a copy to:
Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP
405 Park Avenue
New York, NY 10022
Attn: Marc Bailin, Esq.
or
(ii) in the case of Executive, to:
Susan L. Solomon
211 Central Park West
New York, NY 10024
with a copy to:
Robert M. Schorr
KLS Professional Advisors Group, Inc.
641 Lexington Avenue
New York, NY 10022
or to such other address or to such other person as the
Company or Executive shall have last designated by notice to
the other parties hereto.
b. Integration and Modification. This Agreement contains the
entire agreement among the parties hereto with respect to
the transactions contemplated hereby and there are no
agreements, warranties or representations which are not set
forth herein. All prior negotiations, agreements and
understandings are superseded hereby. This Agreement may not
be modified or amended except by an instrument in writing,
signed by or on behalf of the parties hereto.
c. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the
State of New York, without giving effect to the principles
of conflicts of laws thereof.
d. Binding Effect; Successor's Undertakings. This Agreement
shall be binding upon the parties and inure to the benefit
of the successors, legal representatives and assigns of the
parties hereto. Neither this Agreement nor all or any part
of the rights granted hereunder may be assigned by the
Executive without the prior written consent of the Company,
except to a "permitted transferee" (as defined in the
agreements covering the 1990 Plan Options and the 1997 Plan
Options or the IVB, as applicable); provided, however, that
no assignment shall require the Company to effect more
Holder's Offerings than are permitted pursuant to Section 2
above during the term of this Agreement regardless of the
number of persons to whom the Executive may have assigned
part of her rights hereunder following receipt of the
Company's consent thereto. Each successor, legal
representative and assignee of the Executive shall, as a
condition to the extension of the rights of Executive
hereunder to such successor, legal representative or assign,
execute a written undertaking, in form and substance
satisfactory to the Company and its counsel, to observe and
perform all of the obligations of Executive under this
Agreement and in all other respects to be bound hereby.
e. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed
an original but all of which together shall constitute one
and the same instrument.
f. Headings. The Section and Paragraph headings in this
Agreement are for convenience of reference only and shall
not be deemed to alter or affect any provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
LANCIT MEDIA ENTERTAINMENT, LTD.
By:
Laurence A. Lancit, President
Susan L. Solomon
<PAGE>
Exhibit C
Non-Qualified Stock Option for 255,000 Shares Dated: June 20, 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 bond 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"), pursuant to the Company's 1997 Incentive
Stock Plan (the "Plan"), in consideration of services to be rendered to the
Company, the right and option (the "Option") to purchase TWO HUNDRED FIFTY-FIVE
THOUSAND (255,000) 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, 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 on or prior to December 31, 1997, and may
not be exercised unless such approval or ratification has been
obtained on or prior to such date. The Option may not be
exercised prior to October 1, 1997, except as hereinafter
provided. From and after the later to occur of October 1, 1997
(or such earlier date as this Option may become exercisable
pursuant to Section 8(c)) 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 or such earlier
date as may be specified under Section 4 hereof (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 $3.15625 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, as amended (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
<PAGE>
any withholding tax due thereon has been made. For the purposes
of this Agreement, the term "fair market value" shall have the
meaning assigned to it in the Plan.
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. January 1, 1998 (or such later date as may be mutually
agreed in writing by the Company and Optionee), unless the
Option or the Plan is ratified or approved by the Company's
shareholders at a meeting held prior to such date;
c. March 31, 2007;
d. expiration of the Option pursuant to the provisions of
Section 8 hereof;
e. (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 (as amended by
Amendment No. 1, dated as of June 20, 1997, and as the same
may be further amended, modified or otherwise supplemented
from time to time, 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";
f. 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;
g. 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
h. 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 l6b-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
<PAGE>
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. Optionee
is also entitled to the benefit of the Registration Rights
Agreement dated as of March 31, 1997 between Optionee and
the Company, in accordance with its terms and the terms of
the Employment Agreement.
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 by
will or by the laws of descent and distribution. The Option
may be exercised during the lifetime of Optionee only by
Optionee or by Optionee's guardian or other legal
representative (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.
<PAGE>
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 or the Plan has been approved or
ratified by the Company's shareholders as contemplated by
the provisions of Section 1 above, upon a "Change in Control
of Employer", the Option, if not already exercisable in
accordance with its terms, 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. 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 or the Committee, as the case
may be, 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 or the Committee, as the case may be, may, without the
consent of the Holder alter the terms of, or impair the
<PAGE>
rights of the Holder under this Agreement or the Employment
Agreement, except pursuant to Section 8 above. The power of the
Board or the Committee, as the case may be, 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.
11. 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.
12. 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 affected 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.
13. 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.
14. 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.
15. Governing Law. This Agreement and all amendments or charges
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.
16. Notices. Notices pursuant hereto shall be given in writing, in
person (against receipt therefor only if requested) or by retired
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.
17. 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
<PAGE>
entitled to enforcement of such covenants by seeking an
injunction or a decree of specific performance from a court of
competent jurisdiction.
18. 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.
19. 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, INC.
______________________________________ By: ______________________________
[Assistant] Secretary Laurence A. Lancit, President
------------------------------
SUSAN L. SOLOMON
<PAGE>
EXHIBIT I
to Stock Option Agreement - Exhibit C
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 piece 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 night
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________________________________
- --------
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 10.5
EMPLOYMENT AGREEMENT made as of the 15th 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 NOEL RESNICK, residing at
10335-1/2 Wilshire Blvd., Los Angeles, California 90024 (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 Senior Vice President
Development for a period of two (2) years commencing on February 16,
1996 ("Initial Term").
2. Services: (a) Employee shall be responsible for Employer's development
of quality children's and family entertainment television, film and
other media projects and allied activities 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 her 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 her 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 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 times 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
Employer which she shall hold at the time of the execution of
this Agreement. Employer agrees that Employee will be a named
insured under Employer's Director & Officer liability insurance
policy, as the same may be modified from time to time, a copy of
the Certificate of Insurance naming Employee is annexed hereto as
Exhibit A. Employer will not be asked to be an officer or
director of any component of the Corporate Group not covered by
such policy.
(c) Employee shall have a private, enclosed office and will share a
secretary/assistant employed by Employer with one other employee
of Employer and will have a reserved parking space at the
Employer's office. Employee's primary place of employment will be
at Employer's office in Los Angeles, California. Employer and
Employee will mutually agree on the times when
<PAGE>
Employee shall render her services in New York City, it being
understood that if Employer and Employee cannot agree on such
times, Employer's decision shall be final. Employer acknowledges
that the current expectation is that Employee will be in New York
City, on average, for no more than one (1) week per month.
Employer agrees to discuss any such change in such expectation
with Employee, and in no event shall Employer require Employee to
relocate her primary residence outside of the Los Angeles,
California metropolitan area.
(d) Nothing contained in this Agreement shall be construed to prevent
Employee from managing her private investments in any business,
except that Employee will be permitted to own not more than two
(2%) percent of the issued and outstanding stock or other
securities of a competitive company. Employee 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 Chief Executive Officer of Employer.
(e) Notwithstanding the provisions of subparagraph 2(a), Employer
acknowledges that Employee currently has and will continue to
have an interest in the projects described in Exhibit B annexed
hereto (hereinafter "Outside Projects"). Employee will be
permitted to continue to be involved in the Outside Projects upon
the following conditions:
(i) Employee's involvement in such activities shall not
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 similar
activities which require anything other than supervisory
involvement during the term of this agreement; and
(iii)Employee agrees that she will use her reasonable best
efforts to attach Employer to each Outside Project as a
producer providing services to the entity controlling such
Outside Project, but Employee shall not be required to
attach Employer to any Outside Project as a condition of her
employment. "Reasonable best efforts" shall include, at a
minimum, good faith efforts to arrange a meeting with
representatives of the entity controlling each Outside
Project. Employer acknowledges that the timing of Employee's
efforts to attach Employer to the Outside Projects depends
on events outside the control of Employee, but Employee
agrees to commence such efforts at the earliest practicable
time.
(f) Subject to all of the provisions of this Agreement including,
without limitation, subparagraph 2(b) hereof, Employer
acknowledges that Employee shall be entitled to render non-
<PAGE>
exclusive services in connection with Outside Projects and
projects produced by Employee prior to the date hereof and to
receive contractual passive producer fees for such projects.
Notwithstanding the foregoing, if Employer is attached to any
Outside Project and, as a result of such attachment, Employee's
and Employer's respective fees are paid as a single fee, Employer
and Employee will negotiate in good faith regarding how such fee
should be allocated between Employee and Employer.
(g) In connection with productions acquired, developed or set up by
Employee hereunder, Employee shall be entitled to receive credit
as Executive Producer for supervisory producing services rendered
by Employee. In connection with productions acquired, developed
or set up by Employee hereunder with respect to which Employee
which does not render day to day supervisory production services,
Employee will receive a producing credit, the exact form of which
shall fairly reflect Employee's services and be negotiated in
good faith by Employer and Employee. For purposes of this
Agreement, a production will have been "set up" by Employee if,
due to the efforts of Employee, the production has been placed in
active development with a third party financier(s) who has agreed
to provide at least 50% of the budget (exclusive of development
costs) for the production. Employer will accord Employee its
executive producer or other producer credit on the same card and
wherever and whenever the other like producers of such production
receive credit, subject to approval of the distributor of such
production. Employer agrees to use best efforts to obtain such
approval, but Employee acknowledges that best efforts shall not
require Employer to make such approval a condition of such
distributor's participation in the project. An inadvertent
failure by Employer to grant Employee such credit 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 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 regardless of whether or
not Employee is an employee of Employer at the time the
production is actually produced.
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
$125,000 per year during the first year of this Agreement. The
Base Salary during the second year of this Agreement shall be not
less than $130,000 per year, but may also be raised based on
Employee's performance and in amounts as may be determined by her
supervisor and approved in accordance with company policies. The
Base Salary shall be payable in accordance with Employer's then
<PAGE>
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.
(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 was granted an option to
purchase 45,000 shares of Employer's Common Stock (the "Signing
Options") effective as of February 16, 1996 (the "Effective
Date"). The Signing Options vested and become exercisable in
accordance with the provisions below. The Signing Options were
granted pursuant to Employer's 1990 Stock Option Plan. Options
with respect to 15,000 shares of the Signing Options become
exercisable as of the Effective Date. Options with respect to an
additional 15,000 shares of the Signing Options become
exercisable as of February 16, 1997. Options with respect to the
final 15,000 shares of the Signing Options become exercisable as
of February 15, 1998. All such Signing Options are exercisable at
an exercise price per share equal to $10.3125 per share, which
was the average of the closing bid and asked quotations for a
share of Employer's Common Stock on the Effective Date.
(ii) Subject to the terms of this Agreement, Employer's 1990
Stock Option Plan and any applicable I.R.S. regulations, Employee
was also granted an additional option to purchase 21,000 shares
of Employer's Common Stock (the "Bonus Options") effective as of
Effective Date. The Bonus Options vest and become exercisable in
accordance with the provisions below. The Bonus Options were
granted pursuant to Employer's 1990 Stock Option Plan. Options
with respect to 7,000 shares of the Bonus Options become
exercisable on the earlier of (A) the date that aggregate gross
revenues received by Employer, directly attributable to projects
acquired, developed or set up by
<PAGE>
Employee on behalf of Employer, equal $2,000,000 or (B) January
17, 2006. Options with respect to an additional 7,000 shares of
the Bonus Options become exercisable on the earlier of (A) the
date that aggregate gross revenues received by Employer, directly
attributable to projects acquired, developed or set up by
Employee on behalf of Employer, equal $4,000,000 or (B) February
9, 2006. Options with respect to the final 7,000 shares of the
Bonus Options become exercisable on the earlier of (A) the date
that aggregate gross revenues received by Employer, directly
attributable to projects acquired, developed or set up by
Employee on behalf of Employer, equal $6,000,000 or (B) February
9, 2006. All such Bonus Options are exercisable at an exercise
price per share equal to $10.3125 per share, which was the
average of the closing bid and the closing asked per share price
of Employer's Common Stock on the Effective Date. For the
purposes of this subparagraph 3(c)(ii), "aggregate gross
revenues" shall be defined as all forms of compensation received
by or credited to Employer in respect of development and/or
production costs, including, without limitation, license fees,
producer fees, contingent compensation (when and if actually
received) and the cash value of "in kind" materials, products or
services and barter received.
(iii) The terms of the Signing Options and the Bonus Options are
governed by Employer's 1990 Stock Option Plan and Employee's
Stock Option Agreement (including the provisions regarding the
effect of Employer's liquidation, merger and consolidation),
copies of which have been delivered to Employee prior to the
execution hereof.
(iv) Employee acknowledges and agrees that, as a corporate
officer of Employer, she 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." Employer acknowledges that Employee has
filed Form 3 in a timely fashion.
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 her
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
<PAGE>
Employee 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
Employee may be subject involving acts of moral turpitude; or (v)
death or disability of Employee. Employee shall be deemed disabled if
she shall be unable by reason of mental or physical incapacity from
performing her 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 a reasonable
opportunity to cure, provided that the foregoing opportunity to cure
shall not be available with respect to conduct which has been the
subject of a previous notice and opportunity to cure. 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 her employment and any properly
reimbursable expenses and other accrued employee benefits through the
date of termination. Options which are vested as of the date of such
termination may only be exercised by Employee during the ninety (90)
day period (one (1) year if termination is due to death or disability)
following such date and unexercised vested options shall expire on the
last day of such period. Options granted pursuant to subparagraph 3(c)
which are not vested as of the date of termination shall,
notwithstanding termination pursuant to this subparagraph 4(a), vest
as provided in subparagraph 3(c), subject to the further condition
that the options may only be exercised by Employee during the ninety
(90) day period (one (1) year if termination is due to death or
disability) following vesting, and any unexercised options remaining
after such period shall expire on the last day of such period.
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:
(i) Employee shall be entitled to receive, as damages, and as
her sole and exclusive right and remedy on account of such
termination, the base salary 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)(i) shall be payable when and as
the same would otherwise have been payable under the terms
hereof and shall not be subject
<PAGE>
to any duty to mitigate damages by using reasonable efforts
to seek other comparable employment; however, 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)(i). In the event of termination pursuant to this
subparagraph 4(b)(i), Employee shall not be entitled to any
damages by reason of such termination other than as set
forth in this subparagraph 4(b)(i).
(ii) With respect to the options granted pursuant to subparagraph
3(c) which are not vested as of the date of termination,
such options shall vest as provided in subparagraph 3(c),
subject to the further condition that the options may be
exercised by Employee during the ninety (90) day period
following vesting, and any unexercised options remaining
after such period shall expire on the last day of such
period.
(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 for senior executives.
Air travel and hotel expenses shall be reimbursed at rates comparable
to those reimbursed for Employer's other senior 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 her
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 her duties hereunder by
reason of any illness, disability or incapacity, as determined by
Employer, she shall be entitled to one hundred (100%) percent of her
Base Salary for the first ninety (90) days of her disability, and
fifty (50%) percent of those amounts for the next ninety (90) days,
unless she is terminated for disability pursuant to subparagraph 4(a),
less
<PAGE>
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. Notwithstanding the foregoing
sentence, if Employer agrees that Employee is unable to perform her
duties hereunder by reason of any illness, disability or incapacity,
as determined by Employer in its sole reasonable discretion, she shall
be entitled to terminate this Agreement at any time during the one
hundred eighty (180) day period described above. The foregoing periods
of disability during which compensation shall be paid constitute
aggregate periods during the full term of this Agreement.
7. Employee Benefits: Employee 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 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. Employee
shall be entitled to two (2) weeks vacation time (exclusive of any
company-wide holidays or vacations).
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").
Confidential Information shall not include information (a) already
lawfully known to the receiving party, (b) generally known to the
public, or (c) lawfully obtained from any third party without any
confidentiality obligation. Employee 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. 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
her employment will return to Employer any and all lists and records
concerning Employer's Confidential Information
<PAGE>
thereof in her 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 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
Employee or any person who is a member of Employee's family.
(b) Employee agrees that during the term of her 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 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 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 (i)
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 or
(ii) projects which were rejected by Employer during the term of this
Agreement. Notwithstanding the foregoing, projects shall only qualify
as having been "rejected by Employer during the term of this
Agreement" if Employee, within thirty (30) days following the end of
the term of this Agreement, provides Employer with a written notice
identifying such projects, and Employer acknowledges in writing that
such projects have been rejected. Employer agrees not to withhold its
acknowledgement unreasonably. At the end of the term of this
Employee's right to enter into an agreement or other arrangement
regarding projects described by the subparagraph 9(b)(i) 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
<PAGE>
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 Robert M. Lange, Esq. at
Kleinberg Lopez Lange Brisbin & Cuddy, 1880 Century Park East, Suite
1150, Los Angeles, California 90067.
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 her 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 material 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
/s/NOEL RESNICK
------------------------------
Noel Resnick, Employee
<PAGE>
EXHIBIT A
Director and Officer Liability Policy
Certificate of Insurance
<PAGE>
EXHIBIT B
Outside Projects
1. "Nutcracker"
2. "Canterville Ghost"
3. "Not Quite Human"
Exhibit 10.7
Susan L. Solomon
Chief Executive Officer
Chairman of the Board
As of June 16, 1997
Ms. Jane M. Abernethy
685 West End Avenue, #11E
New York, New York 10025
Dear Jane:
This letter will confirm our agreement regarding your continued employment
as Vice President - Legal & Business Affairs of Lancit Media Entertainment, Ltd.
(the "Company"), as follows:
1. Effective with the pay period commencing June 16, 1997, your
annual salary shall be $125,000;
2. In the event that your employment is terminated other than for "cause" (as
such term is defined in the currently effective employment agreement between
Larry Lancit and the Company), you shall be entitled to six (6) months'
severance.
If the foregoing is acceptable to you, please so indicate by your
signature below and return a fully-executed copy of this letter to me.
Sincerely yours,
LANCIT MEDIA ENTERTAINMENT, LTD.
By: /s/ Susan L. Solomon
Susan L. Solomon
Accepted and agreed: /s/ Jane M. Abernethy
Jane M. Abernethy
Exhibit 10.8
Agreement made as of April 14, 1997 between IRENE MINETT ("you"), residing
at 12 Huntington Road, Port Washington, New York 11050, and LANCIT MEDIA
ENTERTAINMENT, LTD., having an office at 601 West 50th Street, New York, New
York 10019 (the "Company").
1. EMPLOYMENT
1.01.The Company hereby employs you, and you accept employment, as
Vice President - Marketing. You shall perform such additional
services, of a similar nature and degree of responsibility as
those of your primary duties, as may from time to time be
assigned to you.
1.02.During the term of this agreement, you will devote substantially
all of your working time and attention to the interests of the
Company. Your services will be rendered exclusively to the
Company during that term, and you will not render any services to
others or engage in any other business, directly or indirectly.
You will discharge your responsibilities in a diligent and
faithful manner, consistent with sound business practices.
1.03.Your principal place of employment will be at such offices as the
Company may provide in or around New York City, or such other
place as you and the Company mutually designate. You will travel
as reasonably necessary for the performance of your duties.
2. TERM
2.01.The term of this agreement will begin on April 14, 1997 and will
continue for a one (1) year period ending on April 13, 1998 (the
"Expiration Date").
<PAGE>
2.02.You grant the Company one (1) option to extend the term for a
period of one year commencing April 14, 1998 (the "Option Year").
The Company may, in its sole discretion, exercise such option by
giving you notice not later than March 13, 1998.
3. BASE SALARY
3.01 The Company will pay you a base salary at the rate of $110,000
per year during the term of this agreement. Your base salary may
be subject to such merit increases, if any, as the Company may
determine in its sole discretion from time to time, based on its
periodic review of your performance in accordance with its
regular policies and procedures.
4. OTHER COMPENSATION; BENEFITS AND EXPENSES
4.01 You shall be eligible to participate in all plans now existing or
adopted in the future for the general benefit of all employees of
the Company, such as pension plans, investment funds, and group
or other insurance plans and benefits, to the extent that you are
and remain eligible to participate, and subject to the provisions
of such plans in effect from time to time. The Company reserves
its right to modify, suspend or discontinue any and all such
benefits at any time without recourse by you.
4.02.The Company will reimburse you for your reasonable business
expenses incurred in connection with the performance of your
duties under this agreement, in accordance with the Company's
general policies regarding expenses and expense accounting.
4.03.All compensation payable to you under this agreement will be
subject to applicable tax withholding.
<PAGE>
4.04.During the first year of the term of this agreement, you should
be entitled to 10 days of vacation. During the Option Year, if
applicable, you shall be entitled to 15 days of vacation.
5. TERMINATION
5.01.The term of this agreement will terminate at your death. The term
may be terminated at the Company's option, by notice to you, as a
result of your disability (defined in paragraph 5.02), for cause
(defined in paragraph 5.03), or without cause (subject to the
provisions of subparagraph 5.04(b)).
5.02."Disability" means illness or other physical or mental disability
or incapacity which, in the Company's judgment, has substantially
prevented you from performing your duties during any period of 90
consecutive days or for 90 days during any period of 180
consecutive days, and which can reasonably be expected to
continue in the judgment of a physician selected by the company.
The Company will have the right to terminate your employment as a
result of your disability by giving written notice to you not
later than 30 days after the expiration of any such 90-day
period.
5.03."Cause" for termination means (i) fraud, embezzlement, or other
misappropriation, (ii) your material breach of your obligations
with respect to any rules or regulations of employment which may
be adopted or amended from time to time by the Company, (iii)
your failure to perform your duties, which failure is not cured
within thirty (30) days after the date on which the Company gives
you written notice of such failure, or (iv) your default of any
obligations under this agreement (other than those specified in
clauses (i) through (iii) above), which default is not cured
within thirty (30) days
<PAGE>
after the date on which the Company gives you written notice of
such default. If your employment is terminated by the Company for
cause, the Company's obligations to you will terminate
immediately except as expressly provided in subparagraphs 5.04(a)
and (c).
5.04.(a) If your employment is terminated during the term of this
agreement by your voluntary action, death, or disability or by
the Company for cause, the Company will pay, in lieu of any other
payments hereunder (including bonus payments), your base salary
that has actually accrued to the date of termination and any
vacation pay that has accrued to that date and is payable under
the Company's standard policies. You acknowledge that upon
receipt of such payments pursuant to this subparagraph, the
Company will have no further obligations to you under this
agreement, except as provided under subparagraph 5.04(c).
(b) If your employment is terminated during the term of this
agreement other than by your voluntary action, death or
disability, or by the Company for cause, you shall receive, in
lieu of all amounts otherwise payable hereunder (including bonus
payments), the balance of the base salary (excluding the Option
Year salary if the Company has not yet opted for the Option Year
at the time of termination) which would be payable during the
remainder of the term, but in no event shall such amount be less
than the base salary for six (6) months. Such payments will be
made at the same intervals as they would have been made if this
agreement had not been terminated. In addition, you shall receive
any base salary that has actually accrued to the date of
termination and any vacation pay that has accrued to that date
and is payable under the Company's standard policies. You
acknowledge that upon receipt of such payments pursuant to this
subparagraph, the Company will have no further obligations to you
<PAGE>
under this agreement, except as provided under subparagraph
5.04(c).
(c) If your employment is terminated for any reason, you will be
entitled to any benefits then vested under benefit plans and
otherwise payable in accordance with the provisions of the plan
concerned.
(d) In the event of any termination of your employment, this
paragraph 5.04 will apply in place of any Company severance
policies that might otherwise be applicable, and the Company will
have no obligation to make any payments to you except those
expressly prescribed in subparagraphs 5.04(a), 5.04(b), and
5.04(c).
6. RESTRICTIONS
6.01.Without limiting the generality of paragraph 1.02, you shall not
engage or be financially interested, directly or indirectly, at
any time during the term of this agreement, in any activity
competitive with any business then carried on by the Company or
by any other enterprise directly controlled by the Company.
Notwithstanding the preceding sentence, you may own less than one
percent (1%) of the number of shares outstanding of any
securities that are listed for trading on any securities
exchange.
6.02.You recognize and acknowledge that certain information is
proprietary to and confidential with the Company, including
without limitation the following: the Company's strategic and/or
business plan, pending projects, projects in development,
acquisition targets at both the individual project and corporate
level, co-production arrangements, joint ventures, funding
sources, distribution arrangements, the contacts at such entities
and the financial terms of such agreements with the
<PAGE>
Company (collectively, "Confidential Information"). You will not
directly or indirectly, on behalf of yourself or others, during
or at any time after the termination of your providing services
hereunder, irrespective of time, manner or reason for
termination, disclose, publish, disseminate or utilize such
Confidential Information, or any part thereof except in
furtherance of the business of the Company. You will not remove
or duplicate in any manner at any time any lists or other
records, or any parts thereof, concerning the Company's
Confidential Information and upon termination of your employment
will return to the Company any and all lists and records
concerning the Company's Confidential Information thereof in your
possession.
6.03.(a) You agree that during the Term of your employment with the
Company and for the two (2) years following termination of such
employment, neither you nor any Related Person shall knowingly,
either directly or indirectly, for yourself 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 the Company during the term of your
employment. The Company agrees that the restriction of this
subparagraph 6.03 shall not apply to any project which was the
subject of a written agreement between the Company 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. Your right
to enter into an agreement or other arrangement regarding
projects described by the previous sentence shall be subject to
your obligation to send the Company notice of your intention to
do so, and the Company's failure to commence negotiations for
such project, within five (5) business days after receipt of such
notice. "Related Person" shall mean any person or entity who or
which, directly or indirectly, is controlled by you or any person
who is a member of your family.
<PAGE>
(b) You also agree that prior to the date twelve months after the
date on which your employment with the Company is terminated
neither you nor any entity with whom you are at the time
affiliated shall, by virtue of any action taken or information
supplied by you, directly or indirectly hire, offer to hire,
entice away, or in any other manner persuade or attempt to
persuade any officer, employee, agent, representative, customer
or supplier of the Company to discontinue his or her relationship
with the Company.
7. NOTICES
7.01.All notices under this agreement shall be in writing and shall be
given by courier or other personal delivery or by registered or
certified mail at the appropriate address below or at a
substitute address designated by written notice by the party
concerned:.
TO YOU: The address shown above.
TO THE COMPANY: The address shown above.
Each notice to the Company shall be addressed for the attention
of its President and Chief Executive Officer and a copy of each
such notice shall be sent to Rubin, Bailin, Ortoli, Mayer, Baker
& Fry LLP, 405 Park Avenue, New York, New York 10022, Attention:
Marc L. Bailin, Esq. Notices shall be deemed given when mailed
or, if personally delivered, when so delivered, except that a
notice of change of address shall be effective only from the date
of its receipt.
8. MISCELLANEOUS
8.01 This agreement supersedes all previous agreements between the
parties hereto, and contains the entire understanding
<PAGE>
of the parties relating to its subject matter. No change or
termination of this agreement will be binding upon the Company
unless it is made by an instrument signed by an officer of the
Company. No change of this agreement will be binding upon you
unless it is made by an instrument signed by you. A waiver by
either party of any provision of this agreement in any instance
shall not be deemed to waive it for the future. All remedies,
rights, undertakings, and obligations contained in this agreement
shall be cumulative, and none of them shall be in limitation of
any other remedy, right, undertaking, or ligation of either
party.
8.02 The Company may assign its rights under this agreement in whole
or in part to any subsidiary, affiliated or controlling
corporation, to any entity owning or acquiring a substantial
portion of the stock or assets of the Company, or to any
partnership or other venture in which the Company participates,
provided that no such assignment shall relieve the Company of any
obligations hereunder. You shall not assign any of your rights or
delegate any of your duties under this agreement without the
prior express written consent in each instance of the Company.
8.03.Neither party will be entitled to recover damages or to terminate
the term of this agreement by reason of any breach by the other
party of its material obligations hereunder, unless the other
party has failed to remedy such breach within a reasonable time
after it has been given notice of such breach. In any action or
proceeding against the Company for breach of this agreement by
reason of termination, damages shall in no event exceed lost
salary under paragraph 3.01, and you shall have the obligation to
locate new employment and, upon re-employment, to offset amounts
earned against any amounts due under this agreement.
<PAGE>
8.04 You hereby warrant and represent that you have full power and
authority to enter into this agreement and that your execution,
performance and delivery of this agreement will not (a) violate,
conflict with, or result in the breach of any terms, conditions,
covenants, or provisions of, or constitute a default under, any
agreement to which you are a party or (b) violate the rights of
any party. Notwithstanding anything in paragraph 8.03 to the
contrary, you will at all times indemnify and hold harmless the
Company from and against any and all claims, damages,
liabilities, costs and expenses, including legal expenses and
reasonable counsel fees, arising out of any breach or alleged
breach by you of the warranties and representations made by you
in this agreement or any other act or omission by you.
8.05.THIS AGREEMENT HAS BEEN ENTERED INTO IN THE STATE OF NEW YORK,
AND THE VALIDITY, INTERPRETATION AND LEGAL EFFECT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS ENTERED INTO AND PERFORMED ENTIRELY
WITHIN THE STATE OF NEW YORK. THE NEW YORK COURTS (STATE AND
FEDERAL) WILL HAVE EXCLUSIVE JURISDICTION OF ANY CONTROVERSIES
REGARDING THIS AGREEMENT; ANY ACTION OR OTHER PROCEEDING WHICH
INVOLVES SUCH A CONTROVERSY WILL BE BROUGHT IN THOSE COURTS, IN
NEW YORK COUNTY, AND NOT ELSEWHERE. ANY PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY, AMONG OTHER METHODS, BE SERVED UPON YOU
BY DELIVERING IT OR MAILING IT, BY REGISTERED OR CERTIFIED MAIL,
DIRECTED TO THE ADDRESS FIRST ABOVE WRITTEN OR SUCH OTHER ADDRESS
AS YOU MAY DESIGNATE PURSUANT TO ARTICLE 7.
8.06.The provisions of this agreement will survive any termination of
your employment, unless the context requires otherwise.
8.07 If any provision of this agreement or the application thereof is
held invalid, the invalidity shall not affect other
<PAGE>
effect without the invalid provisions or application, and to t
his end the provisions of this agreement are declared to be
severable.
8.08 This agreement shall not become effective until executed by both
parties. IN WITNESS WHEREOF, the parties hereto have executed
this Agreement the day and year first above written.
LANCIT MEDIA ENTERTAINMENT, LTD.
BY: /s/SUSAN L. SOLOMON
Authorized Officer
EMPLOYEE:
/s/ IRENE MINETT
Name:IRENE MINETT
Social Security Number: ###-##-####
Exhibit 10.13
LANCIT MEDIA ENTERTAINMENT, LTD.
1997 INCENTIVE STOCK PLAN
1. Purpose. The purpose of the 1997 Incentive Stock Plan (the "Plan") is to
aid the Company in attracting, retaining and motivating officers,
consultants, key employees and directors of the Company by providing them
with incentives for making significant contributions to the growth and
profitability of the Company. The Plan is designed to accomplish this goal
by offering stock options and other incentive awards, thereby providing
Participants with a proprietary interest in the growth, profitability and
success of the Company.
2. Definitions.
(a) Award. Any form of stock option, stock appreciation right, stock or
cash award granted under the Plan, whether granted singly, in
combination or in tandem, pursuant to such terms, conditions and
limitations as the Board or the Committee may establish in order to
fulfill the objectives, and in accordance with the terms and
conditions, of the Plan.
(b) Award Agreement. An agreement between the Company and a Participant
setting forth the terms, conditions and limitations applicable to an
Award.
(c) Board. The Board of Directors of Lancit Media Entertainment, Ltd.
(d) Code. The Internal Revenue Code of 1986, as amended from time to time.
(e) Committee. Such committee of the Board as may be designated from time
to time by the Board to administer the Plan or any subplan under the
Plan. Any such committee shall consist of not less than two members of
the Board who are not officers or employees of the Company, provided
that, unless the Board otherwise determines, each such non-employee
director on such committee must meet the requirements of Section 16(a)
of the Securities Exchange Act of 1934, as amended, and Section 162(m)
of the Code.
(f) Company. Lancit Media Entertainment, Ltd. and its direct and indirect
parents and subsidiaries.
(g) Fair Market Value. If the Stock is listed on the New York Stock
Exchange (or other national exchange), the average of the high and low
sale prices as reported on the New York Stock Exchange (or such other
exchange) or, if the Stock is not listed on a national exchange, the
last quoted sale price or, if not so quoted, the average of the high
bid and low asked prices for a share of the Stock in the
over-the-counter market, as reported by the National Association of
Securities Dealers through its Automated Quotation System or
otherwise, in either case for the date in question; provided that if
no transactions in the Stock are reported for that date, the average
of the high and low sale prices or last quoted sale price or, if not
so quoted, the average of the high bid and low asked prices as so
reported for the preceding day on which transactions in the Stock were
effected, and provided, further, that if no transactions in the Stock
were effected within 10 business days preceding such relevant date, or
if otherwise deemed appropriate by the Board or the Committee, the
fair market value of the Stock shall be as determined by the Board or
the Committee.
(h) Lancit. Lancit Media Entertainment, Ltd.
(i) Participant. An officer, consultant, key employee or director of the
Company to whom an Award has been granted.
(j) Stock. Authorized and issued or unissued shares of Common Stock, par
value $.001 per share, of Lancit or any security issued in exchange or
substitution therefor.
<PAGE>
3. Eligibility. Only officers, key employees, and directors who are also
officers or employees of the Company or who have been designated by the
Board as eligible to receive Awards and consultants who have been so
designated by the Board or the Committee are eligible to receive Awards
under the Plan. Key employees are those employees who hold positions of
responsibility or whose performance, in the judgment of the Board or the
Committee, can have a significant effect on the growth and profitability of
the Company.
4. Stock Available for Awards. Subject to Section 14 hereof, a total of
400,000 shares of Stock shall be available for issuance pursuant to Awards
granted under the Plan; provided, however, that the aggregate number of
shares of Stock subject to options and upon which stock appreciation rights
are based pursuant to Awards hereunder shall not exceed 200,000 shares for
any Participant during any fiscal year; and, provided, further, that the
Board or the Committee shall have the power to grant Awards to a
Participant exceeding such annual maximum amount, but such Awards shall not
qualify as "performance based" for purposes of Section 162(m) of the Code
to the extent of such excess. From time to time, the Board and appropriate
officers of Lancit shall file such documents with governmental authorities
and, if the Stock is listed on the New York Stock Exchange (or other
national exchange), with such stock exchange, as are required to make
shares of Stock available for issuance pursuant to Awards and publicly
tradeable. Shares of Stock related to Awards, or portions of Awards, that
are forfeited, canceled or terminated, expire unexercised, are surrendered
in exchange for other Awards, or are settled in cash in lieu of Stock or in
such manner that all or some of the shares of Stock covered by an Award are
not and will not be issued to a Participant, shall be restored to the total
number of shares of Stock available for issuance pursuant to Awards.
5. Administration.
(a) General. The Plan shall be administered by the Board or, to the extent
determined by the Board, by the Committee, which shall have full and
exclusive power to (i) authorize and grant Awards to persons eligible
to receive Awards under the Plan; (ii) establish the terms, conditions
and limitations of each Award or class of Awards, including terms,
conditions and limitations governing the extent (if any) to which the
Award may be assigned or transferred provided that, awards shall not
be assignable or transferable to any person who is not at the time of
transfer a member of the Participant's immediate family or to any
entity that is not established for the benefit of, or wholly-owned by,
the Participant or a member or members of the Participant's immediate
family; (iii) construe and interpret the Plan and all Award
Agreements; (iv) grant waivers of Plan restrictions; (v) adopt and
amend such rules, procedures, regulations and guidelines for carrying
out the Plan as it may deem necessary or desirable; and (vi) take any
other action necessary for the proper operation and administration of
the Plan, all of which powers shall be exercised in a manner
consistent with the objectives, and in accordance with the terms and
conditions, of the Plan. The powers of the Board or the Committee, as
applicable, shall include, but shall not be limited to, the authority
to (A) adopt such subplans as may be necessary or appropriate (1) to
provide for the authorization and granting of Awards to promote
specific goals or for the benefit of specific classes of Participants,
(2) to provide for grants of Awards by means of formulae, standardized
criteria or otherwise, or (3) for any other purposes as are consistent
with the objectives of the Plan, and to segregate shares of Stock
available for issuance under the Plan generally as being available
specifically for the purposes of one or more subplans, and (B) subject
to Section 11 hereof, adopt modifications, amendments, rules,
procedures, regulations, subplans and the like as may be necessary or
appropriate (1) to comply with provisions of the laws of other
countries in which the Company may operate in order to assure the
effectiveness of Awards granted under the Plan and to enable
Participants employed in such other countries to receive advantages
and benefits under the Plan and such laws, (2) to effect the
continuation, acceleration or modification of Awards under certain
circumstances, including events which might constitute a Change in
Control (as set forth in Section 7 hereof) of Lancit, or (3) for any
other purposes as are consistent with the objectives of the Plan. All
such modifications, amendments, rules, procedures, regulations and
subplans shall be deemed to be a part of the Plan as if stated herein.
<PAGE>
(b) Committee Actions. All actions of the Committee with respect to the
Plan shall require the vote of a majority of its members or, if there
are only two members, by the vote of both. Any action of the Committee
may be taken by a written instrument signed by a majority (or both
members) of the Committee, and any action so taken shall be as
effective as if it had been taken by a vote at a meeting. All
determinations and acts of the Committee as to any matters concerning
the Plan, including interpretations or constructions of the Plan and
any Award Agreement, shall be conclusive and binding on all
Participants and on any parties validly claiming through any
Participants.
6. Delegation of Authority. The Board or the Committee may delegate to the
Chief Executive Officer of Lancit and to other executive officers of the
Company certain of its admini strative duties under the Plan, pursuant to
such conditions or limitations as the Board or the Commit tee may
establish, except that neither the Board nor the Committee may delegate its
authority with respect to (a) the selection of eligible persons as
Participants in the Plan, (b) the granting or timing of Awards,
(c) establishing the amount, terms and conditions of any such Award, (d)
interpreting the Plan, any subplan or any Award Agreement or (e) amending
or otherwise modifying the terms or provisions of the Plan, any subplan or
any Award Agreement.
7. Awards. Subject to Section 4 and Section 19, the Board or the Committee
shall determine the types and timing of Awards to be made to each
Participant and shall set forth in the related Award Agreement the terms,
conditions and limitations applicable to each Award. Awards may include,
but are not limited to, those listed below in this Section 7. Awards may be
granted singly, in combination or in tandem, or in substitution for Awards
previously granted under the Plan. Awards may also be made in combination
or in tandem with, in substitution for, or as alternatives to, grants or
rights under any other benefit plan of the Company, including any such plan
of any entity acquired by, or merged with or into, the Company. Any such
Awards made in substitution for, or as alternatives to, grants or rights
under a benefit plan of an entity acquired by, or merged with or into, the
Company in order to give effect to the transaction shall be deemed to be
issued in accordance with the terms and conditions of the Plan. Awards
shall be effected through Award Agreements executed by the Company in such
forms as are approved by the Board or the Committee from time to time.
All or part of any Award may be subject to conditions established by the
Board or the Committee and set forth in the Award Agreement, which
conditions may include, without limitation, achievement of specific
business objectives, increases in specified indices, attainment of growth
rates and other measurements of Company performance.
The Board or the Committee may determine to make any or all of the
following Awards:
(a) Stock Options. A grant of a right to purchase a specified number of
shares of Stock at an exercise price not less than 100% of the Fair
Market Value of the Stock on the date of grant, during a specified
period, all as determined by the Board or the Committee. Without
limitation, a stock option may be in the form of (i) an incentive
stock option which, in addition to being subject to such terms,
conditions and limitations as are established by the Board or the
Committee, complies with Section 422 of the Code or (ii) a
non-qualified stock option subject to such terms, conditions and
limitations as are established by the Board or the Committee.
(b) Stock Appreciation Rights. A right to receive a payment, in cash or
Stock, equal to the excess of the Fair Market Value (or other
specified valuation) of a specified number of shares of Stock on the
date the stock appreciation right ("SAR") is exercised over the Fair
Market Value (or other specified valuation) on the date of grant of
the SAR, except that if an SAR is granted in tandem with a stock
option, valuations on the grant and exercise dates shall be no less
than as determined on the basis of Fair Market Value. The eventual
amount, vesting or issuance of an SAR may be subject to future
service, performance standards and such other restrictions and
conditions as may be established by the Board or the Committee.
<PAGE>
(c) Stock Awards. An Award made in Stock or denominated in units of Stock.
The eventual amount, vesting or issuance of a Stock Award may be
subject to future service, performance standards and such other
restrictions and conditions as may be established by the Board or the
Committee. Stock Awards may be based on Fair Market Value or another
specified valuation.
(d) Cash Awards. An Award made or denominated in cash. The eventual amount
of a cash Award may be subject to future service, performance
standards and such other restrictions and conditions as may be
established by the Board or the Committee.
Dividend equivalency rights, on a current or deferred basis, may be
extended to and be made part of any Award denominated in whole or in part
in Stock or units of Stock, subject to such terms, conditions and
restrictions as the Board or the Committee may establish.
Notwithstanding the provisions of the paragraphs of this Section 7, Awards
may be subject to acceleration of exercisability or vesting in the event of
a Change in Control of Lancit (i) as set forth in agreements between Lancit
and certain of its officers, directors and key employees which provide for
certain protections and benefits in the event of a change in control (as
defined in such agreements) or (ii) as may otherwise be determined by the
Board or the Committee under and in accordance with the terms and
conditions of the Plan. "Change in Control" for purposes of the Plan shall
mean a change in control of Lancit under such circumstances as shall be
specified by (x) the Board or the Committee or (y) where applicable to any
Awards granted under the Plan by such agreements between Lancit and a
Participant as (1) may have been entered into prior to the effective date
of the Plan or (2) shall be entered into after the effective date of the
Plan with, to the extent such an agreement is applicable to an Award, the
approval of the Board or the Committee. A "Change in Control" may, without
limitation, be deemed to have occurred if (A) any "person" or "group" of
persons (as the terms "person" and "group" are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and the rules
thereunder) is or becomes the beneficial owner, directly or indirectly, of
securities of Lancit representing 50.1% or more of the combined voting
power of the then outstanding securities of Lancit, or (B) a change of more
than 25% in the composition of the Board occurs within a two-year period,
unless such change in composition was approved in advance by at least
two-thirds of the previous directors.
8. Payment under Awards. Payment by the Company pursuant to Awards may be made
in the form of cash, Stock or combinations thereof and may be subject to
such restrictions as the Board or the Committee determines, including, in
the case of Stock, restrictions on transfer and forfeiture provisions.
Stock subject to transfer restrictions or forfeiture provisions is referred
to herein as "Restricted Stock". The Board or the Committee may provide for
payments to be deferred, such future payments to be made in installments or
by lump-sum payment. The Board or the Committee may permit selected
Participants to elect to defer payments of some or all types of Awards in
accordance with procedures established by the Board or the Committee to
assure that such deferrals comply with applicable requirements of the Code.
The Board or the Committee may also establish rules and procedures for the
crediting of interest on deferred cash payments and of dividend
equivalencies on deferred payments to be made in Stock or units of Stock.
At the discretion of the Board or the Committee, a Participant may be
offered an election to substitute an Award for another Award or Awards, or
for awards made under any other benefit plan of the Company, of the same or
different type.
9. Stock Option Exercise or Conversion. The price at which shares of Stock may
be purchased upon exercise of a stock option shall be paid in full at the
time of the exercise, in cash or, if permitted by the Board or the
Committee, by (a) tendering Stock or surrendering such option or another
Award, including Restricted Stock, or an option or other award granted
under another benefit plan of the Company, in each case valued at, or on
the basis of, Fair Market Value on
<PAGE>
the date of exercise, (b) delivery of a promissory note issued by a
Participant to the Company in a form determined by the Board or the
Committee, or (c) any other means acceptable to the Board or the Committee.
The Board or the Committee shall determine acceptable methods for tendering
Stock or surrendering options or other Awards or grants and may impose such
conditions on the use of Stock or other Awards or grants to exercise a
stock option as it deems appropriate. If shares of Restricted Stock are
tendered as consideration for the exercise of a stock option, the Board or
the Committee may require that the number of shares issued upon exercise of
the stock option equal to the number of shares of Restricted Stock used as
consideration therefor be subject to the same restrictions as the
Restricted Stock so tendered and any other restrictions as may be imposed
by the Board or the Committee. The Board or the Committee may also permit
Participants to exercise stock options and simultaneously sell some or all
of the shares of Stock so acquired pursuant to a brokerage or similar
arrangement which provides for the payment of the exercise price
substantially concurrently with the delivery of such shares.
10. Tax Withholding. Unless otherwise expressly provided under the terms of any
Award Agreement, the Company shall have the right to deduct applicable
taxes from any Award payment or shares of Stock receivable under an Award
and to withhold an appropriate number of shares of Stock for payment of
taxes required by law or to take such other action as may be neces sary in
the opinion of the Company to satisfy all tax withholding obligations. In
addition, the Board or the Committee may permit Participants to elect to
(a) have the Company deduct applicable taxes resulting from any Award
payment to, or exercise of an Award by, such Participant by withholding an
appropriate number of shares of Stock for payment of tax obligations or
(b) tender to the Company for the purpose of satisfying tax payment
obligations other Stock held by the Participant. If the Company withholds
shares of Stock to satisfy tax payment obligations, the value of such Stock
in general shall be its Fair Market Value on the date of the Award payment
or the date of exercise of an Award, as the case may be. If a Participant
tenders shares of Stock pursuant to clause (b) above to satisfy tax payment
obligations, the value of such Stock shall be the Fair Market Value on the
date the Participant tenders such Stock to the Company.
11. Amendment, Modification, Suspension or Termination of the Plan. The Board
may amend, modify, suspend or terminate the Plan, or adopt subplans under
the Plan, (a) for the purpose of meeting or addressing any changes in any
applicable tax, securities or other laws, rules or regulations or (b) for
any other purpose permitted by law. Except as otherwise required by
applicable law, no amendment to this Plan or any subplan established
hereunder will require stockholder approval; provided, however, that the
Plan may not be amended in a manner that would alter, impair, amend,
modify, suspend or terminate any rights of a Participant or obligation of
the Company under any Awards theretofore granted, in any manner adverse to
any such affected Participant, without the consent of such affected
Participant.
12. Termination of Employment. Except as otherwise set forth in an applicable
Award Agreement or determined by the Board or the Committee, or as
otherwise provided in para graph (a) or (b) of this Section 12, if a
Participant's employment or association with the Company terminates, all
unexercised, deferred and unpaid Awards (or portions of Awards) shall be
canceled immediately.
(a) Retirement, Resignation or Other Termination. If a Participant's
employment or association with the Company terminates by reason of the
Participant's retirement or resignation, or for any other reason
(other than the Participant's death or disability), the Board or the
Committee may, under circumstances in which it deems an exception from
the provisions of the first sentence of this Section 12 to be
appropriate to carry out the objectives of the Plan and to be
consistent with the best interests of the Company, permit Awards to
continue in effect and be exercisable or payable beyond the date of
such termination, up until the expiration date specified in the
applicable Award Agreement and otherwise in accordance with the terms
of the applicable Award Agreement, and may accelerate the
exercisability or vesting of any Award, in either case, in whole or in
part.
<PAGE>
(b) Death or Disability.
(i) In the event of a Participant's death, the Participant's estate
or beneficiaries shall have a period, not extending beyond the
expiration date specified in the applicable Award Agreement
(except as otherwise provided in such Award Agreement), within
which to exercise any outstanding Award held by the Participant,
as may be specified in the Award Agreement or as may otherwise be
determined by the Board or the Committee. All rights in respect
of any such outstanding Awards shall pass in the following order:
(A) to beneficiaries so designated in writing by the Participant;
or if none, then (B) to the legal repre sentative of the
Participant; or if none, then (C) to the persons entitled thereto
as determined by a court of competent jurisdiction. Awards so
passing shall be exercised or paid at such times and in such
manner as if the Participant were living, except as otherwise
provided in the applicable Award Agreement or as determined by
the Board or the Committee.
(ii) If a Participant ceases to be employed by or associated with the
Company because the Participant is deemed by the Company to be
disabled, outstanding Awards held by the Participant may be paid
to or exercised by the Participant, if legally competent, or by a
committee or other legally designated guardian or representative
if the Participant is legally incompetent, for a period, not
extending beyond the expiration date specified in the applicable
Award Agreement (except as otherwise provided in such Award
Agreement), following the termination of his employment or
association with the Company, as may be specified in the Award
Agreement or as may otherwise be determined by the Board or the
Committee.
(iii)After the death or disability of a Participant, the Board or the
Committee may at any time (A) terminate restrictions with respect
to Awards held by the Participant, (B) accelerate the vesting or
exercisability of any or all installments and rights of the
Participant in respect of Awards held by the Participant and (C)
instruct the Company to pay the total of any accelerated payments
under the Awards in a lump sum to the Participant or to the
Participant's estate, beneficiaries or representatives,
notwithstanding that, in the absence of such termination of
restrictions or acceleration of payments, any or all of the
payments due under the Awards might ultimately have become
payable to other beneficiaries.
(iv) In the event of uncertainty as to the interpretation of, or
controversies concerning, paragraph (b) of this Section 12, the
Board or the Committee's determinations shall be binding and
conclusive on all Participants and any parties validly claiming
through them.
13. Nonassignability.
(a) Except as provided for in paragraphs (a) and (b) of Section 12 hereof
and paragraph (b) of this Section 13, and except as may otherwise be
determined by the Board or the Committee (subject to paragraph (a)(ii)
of Section 5 hereof and set forth in the applicable Award Agreement,
no Award or any other benefit under the Plan, or any right with
respect thereto, shall be assignable or transferable, or payable to or
exercisable by, anyone other than the Participant to whom it is
granted.
(b) If a Participant's employment or association with the Company
terminates in order for such Participant to assume a position with a
governmental, charitable or educational agency or institution, and the
Participant retains Awards pursuant to paragraph (a) of Section 12
hereof, the Board or the Committee, in its discretion and to the
extent permitted by law, may authorize a third party (including,
without limitation, the trustee of a "blind" trust), acceptable to the
applicable authori ties, the Participant and the Board or the
Committee, to act on behalf of the Participant with respect to such
Awards.
<PAGE>
14. Adjustments. In the event of any change in the outstanding Stock by reason
of a stock split, stock dividend, combination or reclassification of
shares, recapitalization, merger or similar event, the Board or the
Committee shall adjust proportionally (a) the number of shares of Stock (i)
reserved under the Plan, (ii) available for options or other Awards and
available for issuance pursuant to options, or upon which SARs may be
based, for individual Participants and (iii) covered by outstanding Awards
denominated in Stock or units of Stock; (b) the prices related to
outstanding Awards; and (c) the appropriate Fair Market Value and other
price determinations for such Awards. In the event of any other change
affecting the Stock or any distribution (other than normal cash dividends)
to holders of Stock, such adjustments as may be deemed equitable by the
Board or the Committee, including adjustments to avoid fractional shares,
shall be made to give proper effect to such event. In the event of a
corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Board or the Committee shall
be authorized to issue or assume stock options or other awards, whether or
not in a transaction to which Section 424(a) of the Code applies, by means
of substitution of new stock options or Awards for previously issued
options or awards or an assumption of previously issued stock options or
awards.
15. Notice. Any written notice to Lancit required by any of the provisions of
the Plan shall be addressed to the Board, c/o the Secretary of Lancit, and
shall become effective when received by the Secretary.
16. Unfunded Plan. Insofar as the Plan provides for Awards of cash or Stock,
the Plan shall be unfunded unless and until the Board or the Committee
otherwise determines. Although bookkeeping accounts may be established with
respect to Participants who are entitled to cash, Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. Unless the Board otherwise determines, (a) the Company shall
not be required to segregate any assets that may at any time be represented
by cash, Stock or rights thereto, nor shall the Plan be construed as
providing for such segregation, nor shall the Company, the Board or the
Committee be deemed to be a trustee of any cash, Stock or rights thereto to
be granted under the Plan; (b) any liability of the Company to any
Participant with respect to a grant of cash, Stock or rights thereto under
the Plan shall be based solely upon any contractual obligations that may be
created by the Plan and an Award Agreement; (c) no such obligation of the
Company shall be deemed to be secured by any pledge or other encumbrance on
any property of the Company; and (d) neither the Company, the Board nor the
Committee shall be required to give any security or bond for the
performance of any obligation that may be created by or pursuant to the
Plan.
17. Payments to Trust. Notwithstanding the provisions of Section 16 hereof, the
Board or the Committee may cause to be established one or more trust
agreements pursuant to which the Board or the Committee may make payments
of cash, or deposit shares of Stock, due or to become due under the Plan to
Participants.
18. No Right to Employment. Neither the adoption of the Plan nor the granting
of any Award shall confer on any Participant any right to continued
employment or association with the Company or in any way interfere with the
Company's right to terminate the employment or association of any
Participant at any time, with or without cause, and without liability
therefor. Awards, payments and other benefits received by a Participant
under the Plan shall not be deemed a part of the Participant's regular,
recurring compensation for any purpose, including, without limitation, for
the purposes of any termination indemnity or severance pay law of any
jurisdiction.
19. Governing Law. The Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by the Code or the
securities laws of the United States, shall be governed by and construed
under the laws of the state of incorporation of Lancit (the "Governing
Law"). No Award shall be made under the Plan which is other than in
conformity with the Governing Law and, in the event of a conflict between
any for of Award Agreement and any provision of the Governing Law, the
Award Agreement shall be deemed modified to the extent necessary to comply
with the Governing Law.
<PAGE>
20. Effective and Termination Dates. This Plan, and any amendment hereof
requiring stockholder approval, shall become effective as of the date of
its approval by the stockhold ers of Lancit by the affirmative vote of the
number of shares required by the Governing Law at a stockholders' meeting
at which the approval of the Plan (or any such amendment) is considered.
The Plan shall terminate on December 31, 2007, subject to earlier
termination by the Board pursuant to Section 11 hereof, except as to Awards
then outstanding.
Exhibit 10.16
THIRD AMENDMENT OF LEASE
THIS THIRD AMENDMENT OF LEASE (this "Amendment") made as of this _____ day
of May, 1997, by and between SAAR CO., L.L.C., a New York limited liability
company, having a business address at 601 West 50th Street, New York, New York
10019 ("Landlord") and LANCIT MEDIA ENTERTAINMENT, LTD., a New York corporation,
having a business address at 601 West 50th Street, New York, New York 10019
("Tenant").
WITNESSETH:
WHEREAS:
a. West 50th Street Associates, Landlord's predecessor-in-interest, and
Tenant have heretofore entered into a certain Standard Form of Office Lease
dated as of July 24, 1985 (the "Standard Form of Office Lease"), pursuant to
which Tenant leased approximately 6,000 rentable square feet (the "Premises")
consisting of a portion of the sixth (6th) floor of that certain building known
as 601 West 50th Street, New York, New York (the "Building"), upon and subject
to all of the terms, covenants and conditions as are more particularly described
in the Standard Form of Office Lease.
b. The Mutual Life Insurance Company of New York, Landlord's
predecessor-in-interest, and Tenant thereafter entered into a First Amendment of
Lease dated as of March 29, 1995 (the "First Amendment of Lease").
c. Landlord and Tenant thereafter entered into a Second Amendment of Lease
dated as of May 29, 1996, to amend the Standard Form of Office Lease in certain
respects as stated therein (the Standard Form of Office Lease, together with and
as amended by the First Amendment of Lease and the Second Amendment of Lease, is
hereinafter collectively referred to as the "Lease") and pursuant to which
Second Amendment of Lease, the expiration date of the Lease was extended to
September 30, 1997.
d. The Lease by its terms expires on September 30, 1997 (the "Second
Modified Expiration Date").
e. The parties hereto desire to provide for, among other things, to extend
the term of the Lease to September 30, 1998, at a modified rental as fully set
forth herein.
NOW THEREFORE, in consideration of the Premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1 . All capitalized terms used herein which are not otherwise defined
herein shall have the respective meanings ascribed to them in the Lease.
2. The effective date (the "Third Amendment Effective Date") of this
Amendment shall be the date upon which Landlord executes this Amendment and
delivers same to Tenant.
3. The expiration date of the Lease shall be extended from the Second
Modified Expiration Date to September 30, 1998 (the "Third Modified Expiration
Date").
4. From and after October 1, 1997, monthly installments of Base Rental
shall be $6,375.00.
5. Except as set forth herein and to the contrary, all provisions of the
Lease remain in full force and effect. Notwithstanding the above, however, the
following provisions of the Lease shall not be applicable to the Premises
commencing as of October 1, 1997: Article 37, Electricity (with the exception of
Subsections 37.02 and 37.03); Article 38, Increase In Real Estate Taxes; and
Article 40, Fuel Expenses; it being understood and agreed that Tenant's
obligations to make any escalation payments with respect to the period from and
after October 1, 1997 shall cease.
6. Landlord and Tenant each represents and warrants to the other that it
has not dealt with any broker other than Newmark & Company Real Estate, Inc. and
Harper-Lawrence Inc. (collectively, the "Broker") in connection with the
negotiation or execution of this Amendment. Each party agrees to indemnify and
hold the other harmless from and against any and all damage, loss, cost or
expense, including, without limitation, all reasonable attorneys' fees and
disbursements incurred by reason of any claim of or liability to any other
broker or other person for commissions or other compensation or charges arising
out of the dealings with the indemnifying party in the negotiation, execution
and delivery of this Amendment and such obligations shall survive the expiration
or sooner termination of the Lease, as amended hereby. Landlord shall pay any
commission due Broker pursuant to separate agreement with Newmark & Company Real
Estate, Inc.
7. Except as otherwise provided in the Lease, as amended hereby, the
covenants, agreements, terms and conditions contained in this Amendment shall
bind and inure to the benefit of the parties hereto and their respective
successors and respective assigns.
8. This Amendment may not be changed orally, but only by an agreement in
writing executed by Landlord and Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
TENANT: LANDLORD:
LANCIT MEDIA ENTERTAINMENT, LTD. SAAR CO., L.L.C.
By:/s/LAURENCE A. LANCIT By:/s/KENNETH ASHENDORF
Name:________________________ Name:______________________
Title:_______________________ Title:_____________________
Date:________________________ Date:______________________
FIFTH AMENDMENT OF LEASE
THIS FIFTH AMENDMENT OF LEASE (this "Amendment") made as of this _____ day
of May, 1997, by and between SAAR CO., L.L.C., a New York limited liability
company, having a business address at 601 West 50th Street, New York, New York
10019 ("Landlord") and LANCIT MEDIA ENTERTAINMENT, LTD., a New York corporation,
having a business address at 601 West 50th Street, New York, New York 10019
("Tenant").
WITNESSETH:
WHEREAS:
a. West 50th Street Associates, Landlord's predecessor-in-interest, and
Tenant have heretofore entered into a certain Standard Form of Office Lease
dated as of May 7, 1987 (the "Standard Form of Office Lease"), pursuant to which
Tenant leased approximately 6,000 rentable square feet (the "Initial Premises")
consisting of a portion of the sixth (6th) floor of that certain building known
as 601 West 50th Street, New York, New York (the "Building"), upon and subject
to all of the terms, covenants and conditions as are more particularly described
in the Standard Form of Office Lease.
b. The Mutual Life Insurance Company of New York, Landlord's
predecessor-in-interest ("MONY"), and Tenant thereafter entered into a First
Amendment of Lease dated as of December 16, 1993 (the "First Amendment of
Lease") to amend the Standard Form of Office Lease in certain respects as stated
therein, and pursuant to which First Amendment of Lease, Tenant leased
approximately 1,478 additional rentable square feet (the "First Additional
Premises") consisting of a portion of the sixth (6th) floor of the Building,
upon and subject to all of the terms, covenants and conditions as are more
particularly described in the First Amendment of Lease.
c. MONY and Tenant thereafter entered into a Second Amendment of Lease
dated as of April 7, 1994 (the "Second Amendment of Lease") to further amend the
Standard Form of Office Lease as previously amended by the First Amendment of
Lease, pursuant to which Second Amendment of Lease, Tenant leased approximately
2,421 additional rentable square feet (the "Second Additional Premises")
consisting of a portion of the sixth (6th) floor of the Building, upon and
subject to all of the terms, covenants and conditions as are more particularly
described in the Second Amendment of Lease.
d. MONY and Tenant thereafter entered into a Third Amendment of Lease
dated as of March 29, 1995 (the "Third Amendment of Lease") to further amend the
Standard Form of Office Lease as previously amended by the First Amendment of
Lease and the Second Amendment of Lease, pursuant to which Third Amendment of
Lease, Tenant leased approximately 1,601 additional rentable square feet (the
"Third Additional Premises") consisting of a portion of the sixth (6th) floor of
the Building, upon and subject to all of the terms, covenants and conditions as
are more particularly described in the Third Amendment of Lease, and the
expiration date of the Lease was extended to September 30, 1996.
<PAGE>
e. Landlord and Tenant thereafter entered into a Fourth Amendment of Lease
dated as of May 29, 1996 (the "Fourth Amendment to Lease"), pursuant to which
Fourth Amendment of Lease, the expiration date of the Lease was extended to
September 30, 1997 (the Standard Form of Office Lease, together with and as
amended by the First Amendment of Lease, the Second Amendment of Lease, the
Third Amendment of Lease and the Fourth Amendment of Lease, is hereinafter
collectively referred to as the "Lease").
f. The Lease by its terms expires on September 30, 1997 (the "Second
Modified Expiration Date").
g. The parties hereto desire to provide for, among other things, to extend
the term of the Lease to September 30, 1998, at a modified rental as fully set
forth herein.
NOW THEREFORE, in consideration of the Premises and the mutual covenants
hereinafter contained, the parties hereto agree as follows:
1 . All capitalized terms used herein which are not otherwise defined
herein shall have the respective meanings ascribed to them in the Lease.
2. The effective date (the "Fifth Amendment Effective Date") of this
Amendment shall be the date upon which Landlord executes this Amendment and
delivers the same to Tenant.
3 . The expiration date of the Lease shall be extended from the Second
Modified Expiration Date to September 30, 1998 (the "Third Modified Expiration
Date").
4.___From and after October 1, 1997, monthly installments of Base Rental
shall be payable as follows:
Initial Premises - $6,375.00
First Additional Premises - $1,570.38
Second Additional Premises - $2,572.31
Third Additional Premises - $1,701.06
Tenant shall receive separate billing with respect to the Initial
Premises, First Additional Premises, Second Additional Premises
and Third Additional Premises.
5. Except as set forth herein and to the contrary, all provisions of the
Lease remain in full force and effect. Notwithstanding the above, however, the
following provisions of the Lease shall not be applicable to the Initial
Premises, First Additional Premises, Second Additional Premises and Third
Additional Premises, commencing as of October 1, 1997: Article 37, Electricity
(with the exception of Subsections 37.02 and 37.03); Article 38, Increase In
Real Estate Taxes; Article 39, Escalation--Other Building Expenses; Article 40,
Fuel Expenses; Article 50, Air Conditioning and Ventilation (with the exception
of Subsection of 50.02); and Article 63, Electricity Services (Rent Inclusion);
it being understood that Tenant's obligation to make any escalation payments
with respect to the period from and after October 1, 1997 shall cease.
6. Landlord and Tenant each represents and warrants to the other that it
has not dealt with any broker other than Newmark & Company Real Estate, Inc. and
Harper-Lawrence Inc. (collectively, the "Broker") in connection with the
negotiation or execution of this Amendment. Each party agrees to indemnify and
hold the other harmless from and against any and all damage, loss, cost or
expense, including, without limitation, all reasonable attorneys' fees and
disbursements incurred by reason of any claim of or liability to any other
broker or other person for commissions or other compensation or charges arising
out of the dealings with the indemnifying party in the negotiation, execution
and delivery of this Amendment and such obligations shall survive the expiration
or sooner termination of the Lease, as amended hereby. Landlord shall pay any
commission due Broker pursuant to separate agreement with Newmark & Company Real
Estate, Inc.
7. Except as otherwise provided in the Lease, as amended hereby, the
covenants, agreements, terms and conditions contained in this Amendment shall
bind and inure to the benefit of the parties hereto and their respective
successors and respective assigns.
8. This Amendment may not be changed orally, but only by an agreement in
writing executed by Landlord and Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
day and year first above written.
TENANT: LANDLORD:
LANCIT MEDIA ENTERTAINMENT, LTD. SAAR CO., L.L.C.
By:/s/LAURENCE A. LANCIT By:/s/KENNETH ASHENDORF
Name:________________________ Name:_____________________
Title:_______________________ Title:____________________
Date:________________________ Date:_____________________
AGREEMENT, entered into as of October 10, 1997
(the "Agreement"), among Arlene Scanlan ("Scanlan"), Lancit
Media Entertainment, Ltd. ("Lancit") and The Strategy
Licensing Company, Inc. ("Strategy").
WHEREAS, pursuant to a Stock Exchange Agreement between Lancit
and Scanlan, dated October 1, 1993, Lancit acquired 85% of the outstanding
shares of capital stock of Strategy from Scanlan and Scanlan retained the
remaining 15% of the stock;
WHEREAS, in connection with the sale of the stock to Lancit,
Scanlan and Lancit entered into an Employment Agreement pursuant to which
Scanlan acted as President of Strategy and, among other things, to a provision
restricting her ability to compete with Strategy after the termination of her
employment;
WHEREAS, the employment period under the Employment Agreement
expired and Scanlan continued her employment with Strategy after the expiration;
and
WHEREAS, Lancit, Strategy and Scanlan now desire to terminate
Scanlan's employment with Strategy and Lancit desires to acquire the remaining
15% of the Strategy stock.
NOW THEREFORE, in consideration of the mutual covenants and
representations herein set forth the parties agree as follows:
<PAGE>
1. Definitions.
"Affiliate" means a Person that directly, or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with the Person specified. For purposes of this definition,
the term "control" (including the terms "controlling," "controlled by" and
"under common control with") of a Person means the possession, direct or
indirect, of the power to (i) vote 50% or more of the Voting Stock of such
Person or (ii) direct or cause the direction of the management and policies of
such Person, whether by contract or otherwise.
"Claims" means any and all actions, causes of
action, suits, debts, dues, sums of money, accounts, reckonings, bonds, notes,
bills, specialities, covenants, contracts, controversies, variances, trespasses,
damages, judgments, executions, claims (including without limitation, claims for
indemnity, contribution, costs or attorneys's fees), demands and any and all
proceedings whatsoever, whether in law, admiralty, equity or otherwise.
"Employment Agreement" means the Employment
Agreement between Strategy and Scanlan, dated July 1, 1993.
"Person" means any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, limited
liability company, trust, estate, unincorporated organization, governmental or
regulatory body or other entity.
<PAGE>
"Shareholders Agreement" means the
Shareholders Agreement among Strategy, Lancit and Scanlan, dated December 14,
1993.
"Strategy Related Entities" means Strategy
and its Affiliates (including without limitation Lancit), Affiliates hereafter
created, predecessors, representatives, heirs, successors and assigns, and the
officers, directors, employees, shareholders, partners and agents, past, present
and future, and the heirs, executors, administrators, insurers, legal
representatives, predecessors, successors and assigns of each of the foregoing.
2. Stock Transfer. In consideration for all of the covenants
and agreements contained herein, and in complete redemption of all her right,
title and interest to all of the shares of capital stock of Strategy held by
Scanlan (the "Shares"), concurrently with the execution of this Agreement,
Scanlan shall transfer to Lancit, all of the Shares by executing a stock power
in the form of Exhibit A hereto.
3. Payment; Resignation.
3.1 Resignation. Effective September 23,
1997 (the "Termination Date"), Scanlan's employment is terminated and she is no
longer President of Strategy or a member of the Board of Directors of Strategy,
and she no longer holds any other positions with Strategy and/or Lancit and any
of their respective Affiliates. Scanlan has no
<PAGE>
right to reinstatement as an employee of Strategy and shall not seek
reemployment, or employment by Lancit or any of its Affiliates.
3.2 Severance Payment. Strategy shall pay
Scanlan $30,788.43 (the "Severance Payment"). Except for the Payment, Scanlan
has no right to receive any money from Strategy or any of the Strategy Related
Entities.
3.3 Termination of Shareholders Agreement.
Effective as of the date hereof the parties agree that the Shareholders
Agreement shall be deemed terminated.
3.4 Exercise of Options. As of the date
hereof, Scanlan holds 15,000 options to purchase Lancit common stock.
Notwithstanding anything herein to the contrary, Scanlan shall have 3 months
from the Termination Date to exercise such options.
4. Releases and Exceptions to the Noncompete.
4.1 Exception to the Noncompete. Effective
as of the date hereof, Strategy hereby waives its rights under the Covenant Not
to Compete (the "Noncompete") contained in Section 7 of the Employment Agreement
with respect to the properties and/or entities listed on Schedule A hereto. It
is expressly agreed by the parties hereto that Scanlan shall continue to be
bound by the terms of the Noncompete in all other respects, as well as the
provisions of Sections 8 and 9 of the Employment Agreement. Scanlan acknowledges
that except as provided on Schedule A hereto,
<PAGE>
the obligations created by the Noncompete expire on September 23, 1999, and that
until such time she is bound by the terms thereof with the exception of the
provisions of the first sentence of this Section 4.1.
4.2 Scanlan Release of the Strategy Related
Entities. Effective as of the date hereof, except for any Claims arising out of
the obligations under this Agreement, Scanlan hereby releases and forever
discharges the Strategy Related Entities from any and all Claims against any of
the Strategy Related Entities, whether or not well-founded in fact or law, and
whether or not known to Scanlan, which Scanlan ever had, now has, or might have
in the future, upon or by reason of any matter, cause or thing, or any action or
inaction, whatsoever from the beginning of the world to and including the date
of this Agreement, including, without limitation, all Claims relating to her
employment, the Employment Agreement or the Shareholders Agreement and all
Claims which could arise under Title VII of the Civil Rights Act of 1964, as
amended, the New York Human Rights Law, the Age Discrimination in Employment Act
of 1967, and any and all other laws or obligations regulating the employment
relationship between the parties.
4.3 The Strategy Related Entities Release of
Scanlan. Scanlan represents that she is not aware of any
Claims that the Strategy Related Entities may have against
her as of the date of this Agreement and that she is not
<PAGE>
aware that she has acted or failed to act in a manner giving rise to any such
Claims. Based upon and subject to such representations, except for any rights
they may have under this Agreement (including without limitation the provisions
of the Employment Agreement referred to in Section 4.1), the Strategy Related
Entities forever release and discharge Scanlan from any and all Claims against
Scanlan, her heirs, successors and assigns, whether or not well-founded in fact
or law, which they ever had, now have, or may have against Scanlan in the future
upon or by reason of any matter, cause or thing, or any action or inaction
whatsoever from the beginning of the world to and including the date of this
Agreement, except for any Claims (i) caused by Scanlan's gross neglect or
intentional misconduct, and (ii) arising out of the obligations created by the
Agreement.
5. Settlement a Compromise; Not an Admission. The parties
hereto, and each of them, understand and agree that the settlement effectuated
by this Agreement is a compromise of disputed Claims, and is not intended nor is
it to be construed as an admission of liability by any party hereto.
6. Irreparable Harm. Scanlan acknowledges that a breach of
Sections 4.1 and 8 hereof could cause irreparable injury and harm to Strategy
and Lancit and would cause damage for which a remedy at law would be inadequate.
Therefore, the parties agree that Strategy and Lancit will
<PAGE>
be entitled, in addition to any other remedies that it may have, to a temporary
restraining order, preliminary injunction, and/or permanent injunction or other
equitable relief in any court of competent jurisdiction to prevent or otherwise
to restrain a breach, or to compel specific performance, of any or all of
Sections 4.1 and 8 of this Agreement. Nothing in this Section 6 shall be
construed to prohibit or restrain Strategy and Lancit from pursuing any other
remedies or rights available to Strategy and Lancit for any breach of this
Agreement, including the remedy of damages and right of set-off.
7. Representations and Warranties.
7.1 Representations and Warranties of
Scanlan. Scanlan makes the following representations and
warranties to the Strategy Related Entities:
7.1.1 No Assignment of Claims. Scanlan
has not assigned or otherwise transferred any of the Claims
being released herein.
7.1.2 Possession of Documents. Scanlan
does not have in her possession, custody or control, any books, records,
videotapes, memoranda, papers, reports, correspondence, data, lists or documents
of any description (whether in hard copy or on computer disks, computer hard
drives or in other embodiments) which belong to Strategy or Lancit, or contain
information relating to Strategy or Lancit.
<PAGE>
7.1.3 Authority. Scanlan has the
authority to enter into this Agreement and to perform the transactions
contemplated hereby. This Agreement when executed and delivered will constitute
the valid and binding obligation of Scanlan, enforceable in accordance with its
terms.
7.1.4 No Representations by Strategy.
Scanlan acknowledges that none of the Strategy Related Entities has made any
representations or warranties in connection with this Agreement or the
transactions contemplated herein except those expressly set forth in Section
7.2.
7.1.5 Knowledge; No Reliance. Scanlan
is a sophisticated investor, familiar with the licensing industry generally and
the business of Strategy in particular, and is being advised by, or has access
to advice from, an experienced financial advisor. Scanlan has been a shareholder
and the President of Strategy since its inception. Scanlan is aware of and has
made full investigation of the operations, condition and prospects of Strategy
and discussed and is familiar with the business, management, financial affairs
and prospects of Strategy. Scanlan has, independently (or together with her
financial advisor) and based upon such documents and information as she has
available, made her own analysis and decision to enter into this Agreement. In
connection with that
<PAGE>
decision, neither Strategy nor any of the Strategy Related Entities has made
(and has no responsibility with respect to), and Scanlan is not relying upon,
any representation or warranty, express or implied, or any duty of disclosure by
Strategy as to any matter, including without limitation matters relating to the
Shares.
7.2 Representations and Warranties of
Strategy and Lancit. Each of Strategy and Lancit has the authority to enter into
this Agreement and to perform the transactions contemplated hereby. This
Agreement when executed and delivered will constitute the valid and binding
obligation of each of Strategy and Lancit, enforceable in accordance with its
terms.
8. Confidentiality; Nondisparagement. Neither
party, nor anyone acting on such party's behalf, shall
publish, disseminate or communicate to any person
whatsoever, directly or indirectly (except as required by
law and to such parties' attorneys, accountants or tax
advisors), information concerning this Agreement. Scanlan
shall not make or cause to be made, any statement or
communicate any information that disparages the reputation
of the Strategy Related Entities or any business or property
in which such entities have an interest. Strategy and
Lancit shall use reasonable efforts to cause their officers,
directors, shareholders and employees not to make or cause
<PAGE>
to be made, any statement or communicate any information
that disparages the reputation of Scanlan.
9. Return of Property; Cooperation.
9.1 Return of Property. Strategy shall
deliver to Scanlan at the address listed in Section 11, all of the furniture
listed on Schedule B hereto. Upon receipt of the furniture listed on Schedule B,
Scanlan shall have received from the Strategy Related Entities all of her
personal property.
10. Taxes. All payments hereunder are subject to
all applicable federal state and local tax, FICA and other
withholding requirements.
11. Notices. All notices, requests, demands or other
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been duly given to any party when
delivered personally (by courier service or otherwise), when delivered by
facsimile (and receipt thereof has been confirmed by return facsimile), in each
case to the applicable addresses set forth below; provided that delivery shall
be deemed complete when delivered to the address designated below and shall not
require actual receipt by the individual to whom the communication's attention
has been marked:
<PAGE>
If to Scanlan:
Arlene Scanlan
15 Summer Hill Road
Westport, Connecticut
Facsimile No.: (203) 259-4432
with a copy to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Michael Mullman, Esq.
Facsimile No.: (212) 885-5001
If to Lancit or Strategy, to each at:
601 West 50th Street
New York, New York 10019
Attn: Jane M. Abernethy, Esq.
Facsimile No.: (212) 977-9164
with a copy to:
Friedman Kaplan & Seiler LLP
875 Third Avenue
New York, NY 10022
Attn.: Lisa Gersh Hall, Esq.
Facsimile No.: (212) 355-6401
12. Arbitration. The parties agree that all disputes arising
hereunder shall be settled by arbitration to be held in New York, New York in
accordance with the applicable rules of the American Arbitration Association or
any successor thereto. The arbitrator may grant injunctions or other relief in
such dispute. The decision of the arbitrator shall be final, conclusive and
binding on the parties to the arbitration. Nothing contained herein shall
prevent any party from seeking injunctive relief, if necessary from a court of
competent jurisdiction.
<PAGE>
13. Cooperation between the Parties. At the request of
Strategy or Lancit, Scanlan shall provide reasonable cooperation in connection
with any matters relating to tax issues of either Strategy or Lancit and will
execute all documents necessary to effectuate the terms of this Agreement.
14. New York Law. This Agreement is entered into in the State
of New York and shall be interpreted in accordance with the internal laws of the
State of New York, without regard to New York's choice-of-law rules.
15. Binding Nature. This Agreement shall inure to the benefit
of, and be binding upon, and enforceable against, the successors, heirs,
personal representatives and permitted assigns of the parties hereto.
16. Amendments. This Agreement may not be modified, amended or
terminated except by a writing signed by the parties against which such
modification, amendment or termination is sought to be enforced.
17. Blue Penciling. If any court determines that any portion
of this Agreement is unenforceable because of scope or duration, such court
shall have the power to reduce the duration or scope of such portion of the
Agreement, and, in its reduced form, the Agreement shall then be enforceable.
18. Counterparts. This Agreement may be executed
in counterparts, each executed counterpart constituting an
<PAGE>
original but all together only one agreement among the
parties hereto.
19. Delay. No course of dealing and no delay on the part of a
party in exercising any right, power or remedy conferred by this Agreement shall
operate as a waiver thereof or otherwise prejudice such party's rights, powers
or remedies. No single or partial exercise of any rights, powers or remedies
shall preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
20. Assignment. No party may assign or transfer any of its
rights or obligations under this Agreement without the express written consent
of the others, which consent may be withheld for any reason. However, the
Strategy Related Parties may transfer their respective rights and obligations
under this Agreement as part of a larger transfer of respective rights and
obligations by operation of law to a successor in connection with any merger,
reorganization, liquidation or amalgamation involving any of the Strategy
Related Entities.
21. Advice of Counsel. In connection with the negotiation and
execution of this Agreement (including the ADEA Waiver appended hereto), Scanlan
has been advised by Tenzer Greenblatt LLP, counsel of her own choosing. Scanlan
has read this Agreement in its entirety, fully understands
<PAGE>
its terms and is signing it voluntarily of her own free
will.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Agreement to be executed and delivered at New
York, New York as of the date first written above.
THE STRATEGY LICENSING
COMPANY, INC.
By /s/LAURENCE A. LANCIT
LANCIT MEDIA
ENTERTAINMENT, LTD.
By /s/SUSAN L. SOLOMON
/s/ ARLENE SCANLAN
Arlene Scanlan
<PAGE>
Exhibit A
STOCK POWER
For value received, ARLENE SCANLAN, does hereby sell, assign and transfer unto
LANCIT MEDIA ENTERTAINMENT, LTD., fifteen (15) shares of Common Stock of The
Strategy Licensing Company, Inc. standing in her name on the books of said
corporation, and does hereby irrevocably constitute and appoint JANE M.
ABERNETHY attorney to transfer the said stock on the books of said corporation
with full power of substitution in the premises.
Dated: October 10, 1997
By/s/ ARLENE SCANLAN
Arlene Scanlan
<PAGE>
Schedule A
Properties and/or Entities from which Scanlan
is released from Non-Compete
1. "America's Dumbest Criminals"
2. "WORLD WILDLIFE FUND," and the marks "WWF" and the
Panda design.
3. Except as set forth in item 2 above, all properties owned by World
Wildlife Fund, Inc., a Delaware corporation, but such release shall not
be effective
until after July 31, 1998.
4. "Love Letters"
5. "The American Experience"
6. Except as set forth in item 5 above, all properties owned by WGBH
Educational Foundation, a non-profit charitable Massachusetts
corporation, but such release shall not be effective until after July
31, 1998.
7. "Sonic the Hedgehog"
8. "Bedtime Buddies"
9. "Class of 2000" and all properties owned by the owner
thereof.
10. "Psycho Chihuahua"/Wrench, L.L.C.
<PAGE>
Schedule B
Furniture to be Returned to Scanlan.
Two burgundy lamps with shades
Four small black chairs
Six burgundy chairs
One desk/conference room table
<PAGE>
WAIVER OF CLAIMS UNDER AGE DISCRIMINATION
IN EMPLOYMENT ACT (ADEA)
This statement is attached to and made a part of the Agreement dated October 10,
1997. By signing this statement, I am waiving any claims that I may now have
against the Strategy Related Entities under the Age Discrimination in Employment
Act (ADEA). My signature below acknowledges that I have read and fully
understand this waiver and the terms of the appended severance proposal
(collectively, the "Agreement"), that I have had the opportunity to consult with
an attorney regarding the terms of the Agreement, that I have had at least 21
days to consider this waiver, that I am entering into this Agreement freely and
without coercion, not in reliance on any representation or promises other than
those contained in the Agreement, and that I intend to be bound by the terms of
the Agreement. I understand that the benefits provided under the Agreement are
conditioned upon this waiver.
I agree that I have had seven days to consider the terms of the Agreement and to
consider whether to revoke my acceptance of the terms of this Agreement. I
understand that I shall be bound by all of the terms of the Agreement if I have
not so revoked my acceptance as described in the preceding sentence.
ACCEPTED AND AGREED TO:
/s/ ARLENE SCANLAN
Arlene Scanlan
<PAGE>
STOCK POWER
For value received, ARLENE SCANLAN, does hereby sell, assign and transfer unto
LANCIT MEDIA ENTERTAINMENT, LTD., fifteen (15) shares of Common Stock of The
Strategy Licensing Company, Inc. standing in her name on the books of said
corporation, and does hereby irrevocably constitute and appoint JANE M.
ABERNETHY attorney to transfer the said stock on the books of said corporation
with full power of substitution in the premises.
Dated: October 10, 1997
By /s/ARLENE SCANLAN
Arlene Scanlan
Exhibit 10.20
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR A PORTION OF THIS DOCUMENT.
THE OMITTED PORTION IS INDICATED BY ASTERISKS (*)
Discovery Communications Incorporated
641 Lexington Avenue
8th Floor
New York, New York 10022-4503
212-751-2120
May 19, 1997
Jane M. Abernethy
Lancit Media Entertainment Ltd.
601 West 50th Street, 6th Floor
New York, New York 10019
Dear Jane:
This letter will confirm the points that have been agreed between
Lancit and Discovery Communications, Inc. ("DCI") regarding the Discovery
Channel Kids block (the "Block"):
1. Based on Lancit's commitment to provide DCI with a range of
programming opportunities suitable for exhibition as part of the Block, DCI
shall license and air a minimum of one-sixth of the Block of programming from
Lancit.
2. DCI shall order a minimum of thirteen (13) half-hours per year
for a minimum of two years from Lancit It is expected that the first series of
half-hours will air in calendar 1998 or sooner.
3. DCI's minimum air commitment shall expand proportionately as the
Block expands. For example, if DCI expands the Block to six hours of
programming, DCI would license and air one hour of Lancit-produced programming.
4. The license fee that DCI shall pay per program for such
Lancit programming shall be ****************************************************
*******************************************************************************.
Please sign in the space below to confirm Lancit's acceptance of
these points. I will then ask our Legal Department to prepare a formal agreement
incorporating these items.
Sincerely,
DISCOVERY COMMUNICATIONS, INC.
By: /s/ MARJORIE KAPLAN
ACKNOWLEDGED AND AGREED:
LANCIT MEDIA ENTERTAINMENT, LTD.
By: /s/ JANE M. ABERNETHY
Lancit Media Entertainment, Ltd.
Exhibit 11 - Computation of Earnings Per Share
Fiscal year ended June 30,
1997 1996 1995
---------- ---------- ----------
Primary
Weighted average shares out-
standing 6,538,851 6,177,051 6,148,631
Net effect of dilutive stock
options - based on the
treasury stock method
using average market
price - - 217,110
---------- ---------- ----------
Total 6,538,851 6,177,051 6,365,741
========== ========== ==========
Net Income (Loss) $(10,078,908)$(3,700,713)$1,247,499
========== ========== ==========
Per share amount $ (1.54) $ (0.60) $ 0.20
========== ========== ==========
Fully Diluted
Weighted average shares out-
standing 6,538,851 6,177,051 6,148,631
Net effect of dilutive stock
options - based on the
treasury stock method
using average market
price - - 237,428
---------- ---------- ----------
Total 6,538,851 6,177,051 6,386,059
========== ========== ==========
Net Income (Loss) $(10,078,908)$(3,700,713)$1,247,499
========== ========== ==========
Per share amount $ (1.54) $ (0.60) $ 0.20
========== ========== ==========
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Wholly-Owned Subsidiaries:
The Strategy Licensing Company, Inc., a Connecticut
corporation
Frame Accurate, Inc., a New York corporation
Lancit Copyright Corp., a Delaware corporation
Other Subsidiaries:
The Puzzle Place Marketing Company, a joint venture, of
which 50.1% is owned by The
Strategy Licensing Company, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000868796
<NAME> Lancit Media Entertainment, Ltd.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-START> Jul-01-1996
<PERIOD-END> Jun-30-1997
<EXCHANGE-RATE> 1
<CASH> 4,461,627
<SECURITIES> 0
<RECEIVABLES> 1,909,750
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,148,618
<PP&E> 525,530
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,199,313
<CURRENT-LIABILITIES> 4,468,143
<BONDS> 0
0
0
<COMMON> 6,635
<OTHER-SE> 4,123,546
<TOTAL-LIABILITY-AND-EQUITY> 9,199,313
<SALES> 0
<TOTAL-REVENUES> 3,152,057
<CGS> 0
<TOTAL-COSTS> 7,756,365
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,958,104)
<INCOME-TAX> 19,500
<INCOME-CONTINUING> (10,078,908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,078,908)
<EPS-PRIMARY> (1.54)
<EPS-DILUTED> (1.54)
</TABLE>
