-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I5bae3nsipzuL7riF/6fOJvzfTig0I46KWLmoMc1RJz6jnvSsX+gwF5AqsI7xqIp 8AJumzOoBDx85F8tW4vD/A== 0000868796-97-000009.txt : 19970521 0000868796-97-000009.hdr.sgml : 19970521 ACCESSION NUMBER: 0000868796-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970520 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LANCIT MEDIA PRODUCTIONS LTD CENTRAL INDEX KEY: 0000868796 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 133019470 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23414 FILM NUMBER: 97611876 BUSINESS ADDRESS: STREET 1: 601 W 50TH ST 6TH FL CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2129779100 MAIL ADDRESS: STREET 1: 601 WEST 50TH ST 6TH FL CITY: NEW YORK STATE: NY ZIP: 10019 10-Q 1 REPORT FOR 3 MONTHS ENDED 3/31/97 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-10781 LANCIT MEDIA ENTERTAINMENT, LTD. (Exact Name of Registrant as Specified in its Charter) New York 13-3019470 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 601 West 50th Street, New York, New York, 10019 (Address of Principal Executive Office) (Zip Code) (212) 977-9100 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of registrant's Common Stock, $.001 par value, outstanding as of March 31, 1997 was 6,634,750 shares. LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES INDEX PAGE PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET - March 31, 1997 and June 30, 1996 1 CONSOLIDATED STATEMENT OF OPERATIONS - For the nine and three months ended March 31, 1997 and 1996 2 CONSOLIDATED STATEMENT OF CASH FLOWS - For the nine months ended March 31, 1997 and 1996 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 5 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10 SIGNATURES 11 PART I. FINANCIAL INFORMATION LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET March 31, June 30, 1997 1996 -------------- ------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 6,219,893 $ 3,358,230 Accounts receivable 1,670,177 2,683,433 Film and program costs, net 1,870,423 5,527,106 Prepaid expenses 160,984 268,175 -------------- ------------- TOTAL CURRENT ASSETS 9,921,477 11,836,944 ACCOUNTS RECEIVABLE - NON-CURRENT 579,625 1,378,078 FIXED ASSETS, NET 567,432 832,606 GOODWILL, NET 267,415 279,754 DEPOSITS 50,363 60,784 -------------- ------------- TOTAL ASSETS $ 11,386,312 $ 14,388,166 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 2,557,891 $ 732,158 Participation payable 1,016,324 1,199,991 Deferred revenue 1,132,194 1,651,279 -------------- ------------- TOTAL CURRENT LIABILITIES 4,706,409 3,583,428 -------------- ------------- PARTICIPATION PAYABLE - NON-CURRENT 504,146 598,461 DEFERRED REVENUE - NON-CURRENT 440,912 828,713 MINORITY INTEREST 158,780 94,056 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.001 par value, authorized 15,000,000 shares; issued and outstanding 6,634,750 shares at March 31, 1997 and 6,187,634 shares at June 30, 1996 6,635 6,188 Additional paid-in capital 17,294,536 12,579,402 Accumulated deficit (11,725,106) (3,302,082) -------------- ------------- TOTAL STOCKHOLDERS' EQUITY 5,576,065 9,283,508 -------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,386,312 $ 14,388,166 ============== ============= See notes to consolidated financial statements. - 1 - LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, ------------------- --------------------- 1997 1996 1997 1996 -------- --------- --------- ---------- (UNAUDITED) (UNAUDITED) REVENUES: Production and royalties $ 820,258 $ 1,234,926 $ 1,566,266 $5,956,892 Licensing agent fees 285,537 514,902 929,412 1,853,288 ---------- ---------- ----------- ---------- 1,105,795 1,749,828 2,495,678 7,810,180 ---------- ---------- ----------- ---------- OPERATING EXPENSES: Production and royalties 1,252,276 1,297,137 2,231,267 5,557,345 Licensing agent - direct costs 200,875 317,359 641,123 901,317 General and administrative 1,217,165 574,410 2,717,935 1,931,621 Write-down of film and program costs 5,456,180 - 5,456,180 - ---------- ---------- ---------- ---------- 8,126,496 2,188,906 11,046,505 8,390,283 ---------- ---------- ----------- ---------- LOSS FROM OPERATIONS (7,020,701) (439,078) (8,550,827) (580,103) INTEREST INCOME - NET 78,714 55,870 192,527 229,665 ---------- ---------- ----------- ---------- LOSS BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST (6,941,987) (383,208) (8,358,300) (350,438) PROVISION FOR INCOME TAXES - CURRENT - 17,450 - 38,440 MINORITY INTEREST (13,123) 2,002 (64,724) (123,117) ---------- ---------- ----------- ---------- NET LOSS $ (6,955,110) $(398,656) $(8,423,024) $(511,995) ========== ========== =========== ========== NET LOSS PER SHARE $ (1.05) $ (0.06) $ (1.29) $ (0.08) ========== ========== =========== ========== WEIGHTED AVERAGE SHARES 6,632,750 6,180,387 6,506,884 6,180,305 ========== ========== =========== ========== See notes to consolidated financial statments. - 2 - LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED MARCH 31, ----------------------- 1997 1996 ---------- ---------- (UNAUDITED) CASH FLOW FROM OPERATING ACTIVITIES: Net loss (8,423,024) (511,995) ---------- ---------- Adjustments to reconcile net loss to net cash from operating activities: Amortization of film and program costs 853,032 3,295,761 Write-down of film and program costs 5,456,180 - Depreciation and other amortization 288,256 314,120 Minority interest 64,724 123,117 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable - current 1,013,256 2,463,981 (Increase) decrease in accounts receivable - non-current 798,453 706,767 Additions to film and program costs (2,652,529) (5,830,096) (Increase) decrease in prepaid expenses 107,191 (69,493) (Increase) decrease in income taxes receivable - 434 (Increase) decrease in deposits receivable 10,421 (1,500) Increase (decrease) in accounts payable and accrued expenses 1,825,733 361,972 Increase (decrease) in participations payable - current (183,667) 628,517 Increase (decrease) in participations payable - non-current (94,315) (713,915) Increase (decrease) in income taxes payable - (14,181) Increase (decrease) in deferred revenue - current (519,085) (2,708,548) Increase (decrease) in deferred revenue - non-current (387,801) (660,469) ---------- ---------- 6,579,849 (2,103,533) ---------- ---------- CASH USED IN OPERATING ACTIVITIES (1,843,175) (2,615,528) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (10,742) (159,021) ---------- ---------- CASH USED IN INVESTING ACTIVITIES (10,742) (159,021) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 4,715,581 203 ---------- ---------- CASH PROVIDED BY FINANCING ACTIVITIES 4,715,581 203 ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,861,664 (2,774,346) CASH AND CASH EQUIVALENTS - beginning of period 3,358,230 7,395,238 ---------- ---------- CASH AND CASH EQUIVALENTS - end of period 6,219,894 4,620,892 ========== ========== CASH PAID DURING THE PERIOD FOR: Interest -- -- ========== ========== Income taxes -- 56,526 ========== ========== See notes to consolidated financial statements. - 3 - LANCIT MEDIA ENTERTAINMENT, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 (UNAUDITED) 1. BASIS OF PRESENTATION Reference is made to the Company's Annual Report on Form 10-K/A dated October 28, 1996 for the year ended June 30, 1996. The accompanying financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the interim periods presented. Except as described in note 3 below, all such adjustments are of a normal and recurring nature. The results of operations for any interim period are not necessarily indicative of the results of a full fiscal year. 2. NET LOSS PER SHARE Net loss per share is computed on the basis of the weighted average number common shares outstanding for the respective period. 3. WRITE-DOWN OF FILM AND PROGRAM COSTS The write-down of film and program costs amounted to $5,456,180. This non-cash charge, of which approximately $2.1 million relates to THE PUZZLE PLACE(R) and approximately $3.3 million relates to BACKYARD SAFARI(TM), reflects the Company's revision of its estimated future net royalty stream with respect to the PUZZLE PLACE(R) and the Company's revision of its anticipated production funding sources and its estimated future net royalty stream with respect to BACKYARD SAFARI(TM). In both cases, the Company accrued for estimated remaining project costs. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - Three months ended March 31, 1997 as compared to three months ended March 31, 1996 Production and royalty revenues for the three month period ended March 31, 1997 decreased to $820,258 from $1,234,926 in the comparable 1996 quarter. This decrease is primarily the result of reduced production and royalty activity on THE PUZZLE PLACE(R) and reduced production activity on READING RAINBOW(R) and BACKYARD SAFARI(TM) which was partially offset by revenues from production activity beginning in the current quarter on "NO! REALLY" and the "DISCOVERY KIDS" project to produce interstitial material. Licensing agent fee revenues for the three month period ended March 31, 1997 decreased to $285,537 from $514,902 in the comparable 1996 quarter. This decrease is primarily the result of reduced revenue recognition resulting from the adjustment of the licensing terms for several licensees on THE PUZZLE PLACE(R) and lower royalties on SONIC THE HEDGEHOG(TM). Production and royalty expenses for the three month period ended March 31, 1997 decreased to $1,252,276 from $1,297,137 in the comparable 1996 quarter reflecting primarily the decreased production and royalty activity on THE PUZZLE PLACE(R) and reduced production activity on READING RAINBOW(R) and BACKYARD SAFARI(TM), largely offset by production activity beginning in the current quarter on "NO! REALLY" and the "DISCOVERY KIDS" interstitial project as well as additional development expenses. Direct costs of licensing agent activities for the three month period ended March 31, 1997 decreased to $200,875 from $317,359 in the comparable 1996 quarter primarily as a result of reduced personnel, travel and marketing costs. General and administrative expenses for the three month period ended March 31, 1997 rose to $1,217,165 from $574,410 in the comparable 1996 quarter. This increase is due to costs related to the hiring of the new Chief Executive Officer, a severance charge and a reduction in project activities resulting in reduced project absorption of personnel costs, office expenses and facilities costs. The write-down related to film and program costs amounted to $5,456,180. This non-cash charge, of which approximately $2.1 million relates to THE PUZZLE PLACE(R) and approximately $3.3 million relates to BACKYARD SAFARI(TM), reflects the Company's revision of its estimated future net royalty stream with respect to the PUZZLE PLACE(R) and the Company's revision of its anticipated production funding sources and its estimated future net royalty stream with respect to BACKYARD SAFARI(TM). In both cases, the Company accrued for estimated remaining projectcosts. With respect to THE PUZZLE PLACE(R), the licensing relaunch plan recently prepared by the Company does not appear to have the revenue generating capabilities that the Company previously anticipated, particularly in the short-term. In addition, unexploited licensing categories previously identified by the Company have not met expectations. Further, internationally, the Company is finding it to be a greater challenge than anticipated to both distribute the television program andbuild a licensing campaign. With respect to BACKYARD SAFARI(TM), based on negotiations the Company was having with certain distribution outlets, the Company expected to have secured an airing commitment which would have included an initial license fee. While the Company continues to believe that the program will air, it no longer expects to receive an initial license fee. In addition, because the Company currently expects that any airing of the program will be on a limited basis, at least initially, reduced production revenues are expected. Furthermore, negotiations with certain venues that were expected to help drive merchandise sales were not successfully completed which further reduced previously estimated licensing revenues. Because the program has not yet been cleared domestically, international exploitation of this property, at least initially, is no longer expected to be significant. Management anticipates focusing more of the Company's time and resources on properties which are currently on the development slate which may have more near-term financial benefit to the Company. These include HUMONGOUS and programming for DISCOVERY to fill a minimum of 1/6 of the programming on DISCOVERY CHANNEL KIDS. Interest income, net for the three month period ended March 31, 1997 increased to $78,714 compared to $55,870 in the comparable 1996 quarter, as a result of an increased level of cash invested in the current year. There was no provision for income taxes recorded for the three month period ended March 31, 1997 compared to $17,450 for state and local taxes recorded in the comparable 1996 quarter. Minority interest in licensing activities for the three month period ended March 31, 1997 was $13,123 compared to a benefit of $2,002 in the comparable 1996 quarter. Net loss for the three month period ended March 31, 1997 was $6,955,110 ($1.05 per share) compared to a net loss of $398,656 ($.06 per share) in the comparable 1996 quarter primarily as a result of the combination of all factors discussed above. Weighted average shares outstanding for the three month period ended March 31, 1997 increased to 6,632,750 from 6,180,387 in the comparable 1996 quarter primarily as a result of the issuance of shares related to the purchase of a 6.6% equity stake in the Company by Discovery Communications, Inc. ("DCI") in September 1996 as well as the exercise of stock options during the twelve month period since March 31, 1996. Results of Operations - Nine months ended March 31, 1997 as compared to nine months ended March 31, 1996 Production and royalty revenues for the nine month period ended March 31, 1997 decreased to $1,566,266 from $5,956,892 in the comparable 1996 nine month period. This decrease is primarily the result of significantly reduced production activity on THE PUZZLE PLACE(R), BACKYARD SAFARI(TM) and READING RAINBOW(R), all which was partially offset by production activity beginning in the quarter ended March 31, 1997 on "NO! REALLY" and the "DISCOVERY KIDS" interstitial project. Licensing agent fee revenues for the nine month period ended March 31, 1997 decreased to $929,412 from $1,853,288 in the comparable 1996 nine month period. This decrease is primarily the result of reduced revenue recognition resulting from the adjustment of the licensing terms for several licensees on THE PUZZLE PLACE(R) and reduced royalties on SONIC THE HEDGEHOG(TM). Production and royalty expenses for the nine month period ended March 31, 1997 decreased to $2,231,267 from $5,557,345 in the comparable 1996 nine month period reflecting primarily decreased production and royalty activity on THE PUZZLE PLACE(R) and reduced production activity on READING RAINBOW(R) and BACKYARD SAFARI(TM), all of which was partially offset by production activity beginning in the comparable 1997 period on "NO! REALLY" and the "DISCOVERY KIDS" interstitial project as well as additional development expenses. Direct costs of licensing agent activities for the nine month period ended March 31, 1997 decreased to $641,123 from $901,317 in the comparable 1996 nine month period primarily as a result of reduced personnel, travel and marketing costs. General and administrative expenses for the nine month period ended March 31, 1997 rose to $2,717,935 from $1,931,621 in the comparable 1996 nine month period. This increase is due to costs related to the hiring of the new Chief Executive Officer, a severance charge as well as a reduction in project activities resulting in reduced project absorption of personnel and facilities costs being absorbed by project activities. The write-down of film and program costs is discussed in the results of operations for the three months ended March 31, 1997. Interest income, net for the nine month period ended March 31, 1997 decreased to $192,527 from $229,665 in the comparable 1996 nine month period. This decrease is primarily due to a reduced level of cash invested during the earlier part of the fiscal year, resulting from the Company's utilization of cash for production, development and corporate needs. There was no provision for income taxes recorded for the nine month period ended March 31, 1997 compared to $38,440 for state and local taxes in the comparable 1996 nine month period. Minority interest in licensing activities for the nine month period ended March 31, 1997 was $64,724 compared to $123,117 in the comparable 1996 nine month period. This reduction is the direct result of the reduced profitability of the licensing agent. Net loss for the nine month period ended March 31, 1997 was $8,423,024 ($1.29 per share) compared to net loss of $511,995 ($.08 per share) in the comparable 1996 nine month period primarily as a result of the combination of all factors discussed above. Weighted average shares outstanding for the nine month period ended March 31, 1997 increased to 6,506,884 from 6,180,305 in the comparable 1996 nine month period primarily as a result of the issuance of shares related to DCI's purchase of its 6.6% equity stake in the Company as well as the exercise of stock options during the twelve month period since March 31, 1996. Liquidity and Capital Resources The Company had cash and cash equivalents as of March 31, 1997 of approximately $6.2 million, and no long-term debt. The Company is not generating cash flow from operations sufficient to fund its current level of operating expenses, and additional funding from strategic alliances and/or distribution arrangements is believed by management to be important for sustaining the Company's operations on a long-term basis. The Company also expects to take steps to reduce its operating expenses. Cash used in operating activities was approximately $1.9 million for the nine month period ended March 31, 1997, compared to approximately $2.6 million for the same period last year. A net loss of approximately $8.4 million for the nine month period ended March 31, 1997, which included non-cash project related write-downs of approximately $5.5 million, net additions to film and program costs of approximately $1.8 million, a decrease in deferred revenues of approximately $0.9 million and a decrease in participations payable of approximately $0.3 million, was partially offset by a decrease in accounts receivable of approximately $1.8 million, an increase in accounts payable and accrued expenses of approximately $1.8 million and depreciation and other amortization of approximately $0.3 million. Cash used in investing activities was approximately $11,000 for the nine month period ended March 31, 1997, compared to approximately $159,000 for the same period last year. The Company acquired equipment during the first nine months of fiscal 1996 as part of its expansion of post production capabilities as well as the improvement of its management information systems. Cash provided from financing activities was approximately $4.7 million for the nine month period ended March 31, 1997 compared to $203 for the same period last year. In September 1996, DCI invested $5 million, which was partially offset by costs relating to the transaction, in return for a 6.6% equity stake in the Company, and the right to purchase what currently represents an additional 6.2% equity stake in the Company through the exercise of warrants at $13 per share. As of March 31, 1997, the Company is continuing with the outreach, publicity and rights renewals for the first 65 episodes of THE PUZZLE PLACE(R). All these remaining costs were accrued and included in the calculation of the film and program cost write-down related to the property. The Company estimates that, after it receives the balance of the monies due from Corporation for Public Broadcast and KCET, its remaining funding requirement will be no more than approximately $0.1 million. With respect to THE PUZZLE PLACE(R) licensing effort, the Company and KCET have agreed to, and may in the future, adjust the licensing terms for certain licensees in order to free up existing licensed categories. The Company is completing post production on the initial season of 13 episodes of BACKYARD SAFARI(TM) which was partially funded through a major grant from the National Science Foundation. The Company estimates that its remaining funding requirement for this project is approximately $0.5 million to cover primarily outreach and promotion activities. All of these remaining costs were accrued for at March 31, 1997 and included in the calculation of the film and program cost write-down related to the property. Management does not expect inflation to have a significant impact on the business. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report, including, without limitation, descriptions of the Company's targets or goals and Management's views concerning the Company's pending and proposed projects, prospects and future financial performance contained in this discussion and analysis and elsewhere, constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks and uncertainties which may cause the Company's actual results in future periods to differ materially from forecasts. These risks include, among others: network and studio acceptance of television and motion picture projects; negotiation of appropriate license and distribution and other partnership and business arrangements; the ability of the Company to secure timely funding; less than anticipated consumer acceptance of entertainment projects or licensed products; as well as risks generally associated with the production of a television series, movie or other entertainment project. These and other risks are described in the Company's Annual Report on Form 10-K/A filed with the Securities and Exchange Commission, copies of which are available from the SEC or may be obtained upon request from the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 10.19 Employment Agreement with Susan Solomon and Exhibits Thereto 10.20 Employment Agreement with David Michaels 10.21 Mutual Separation Agreement with Britten & Stone b) Reports on Form 8-K The Company filed a Report on Form 8-K on May 8, 1997 reporting a change in certifying accountants. The filing included a letter from the former certifying accountants pursuant to Item 304 (a) (3) of Regulation S-K. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LANCIT MEDIA ENTERTAINMENT, LTD. Date: May 20, 1997 By: /s/ Gary Appelbaum Gary Appelbaum Senior Vice President, Chief Financial Officer & Treasurer Date: May 20, 1997 By: /s/ Laurence A. Lancit Laurence A. Lancit Co-President EX-10 2 EMPLOYMENT AGREEMENT WITH SUSAN SOLOMON EMPLOYMENT AGREEMENT made as of the 31st day of March, 1997 (the "Effective Date") by and between LANCIT MEDIA ENTERTAINMENT, LTD. with offices at 601 West 50th Street, New York, New York 10019 (hereinafter "Employer") and SUSAN SOLOMON, residing at 211 Central Park West, New York, New York 10024 (hereinafter "Executive"). WHEREAS, the parties desire to set forth the terms and conditions of employment of Executive by Employer. NOW, THEREFORE, in consideration of the agreements hereinafter contained, the parties hereto agree as follows: 1. Term: The initial term of this Agreement shall be three (3) years, commencing as of the Effective Date ("Initial Term"). Unless the employment of Executive is terminated during the second year of the Initial Term, the term of this Agreement shall automatically be extended for another year, and at all times thereafter the remaining term of this Agreement shall not be less than two (2) years. For example, if Employer terminates the employment of Executive on June 1, 2000, then the remaining term of this Agreement shall be until May 31, 2002. 2. Services: (a) During the term of her employment, Executive shall render her services to Employer as Chief Executive Officer and Chairman of the Board of Directors of Employer. Executive shall report directly to the Board of Directors and all other executives of Employer shall report to her. Executive shall also be elected to the Board of Directors of Employer. It is agreed that should Executive so request, one (1) additional director position shall be added to the Board of Directors, and Executive shall have the sole right to nominate one (1) or more persons to fill this position, subject to the good faith approval of the then existing Board of Directors. Employer agrees to include such nominee(s) in any proxy statement prepared by Employer which relates to the election of directors and to use its reasonable efforts to ensure such nominee's election. (b) Executive agrees to devote her full working time and efforts to the business and affairs of Employer and to all of its majority-owned subsidiaries, if any (hereinafter collectively referred to as the "Corporate Group"), and hold such additional offices in components of the Corporate Group to which she shall accept, such acceptance not to be unreasonably withheld and to which from time to time she may be elected or appointed, provided that they are of the same general character and of at least the same degree of responsibility as the offices in the Employer which she shall hold pursuant to the terms of this Agreement. Employer agrees that Executive will be covered under Employer's Director & Officer liability insurance policy, as the same may be modified from time to time, provided that such modifications may not reduce coverage benefits which are in effect as of the date of this Agreement. Executive will not be asked to be an officer or director of any component of the Corporate Group not covered by such policy. Employer represents that the Director & Officer liability insurance policy in effect as of the date of this Agreement has been issued by Chubb/Federal Insurance Company, and that the material terms of that policy are set forth on the coverage summary annexed hereto as Exhibit D. Employer hereby covenants to maintain the above described Director & Officer liability insurance policy or a policy with at least as favorable coverage for Employer's directors and officers issued by an insurance company whose credit rating is at least as strong as the current rating of the current issuer of the policy in effect. (c) Employer will indemnify Executive and hold her harmless against any and all claims and liabilities asserted against Executive which arise in connection with the performance of Executive's duties and responsibilities while acting in Executive's capacity as an employee of Employer, except Employer shall not be obligated to indemnify or hold Executive harmless against any claim or liability which arises out of Executive's gross misconduct, malfeasance or gross negligence. (d) Executive shall have a private, enclosed office and a secretary/assistant employed by Employer, dedicated exclusively to Executive, full time. Executive's primary place of employment will be at Employer's office in New York, New York. (e) Nothing contained in this Agreement shall be construed to prevent Executive from managing her private investments in any business, except that Executive will be permitted to own not more than two (2%) percent of the issued and outstanding stock or other securities of a competitor of Employer. Executive shall, in the performance of her duties, be at all times subject to the direction and supervision of Employer, and shall report directly to the Board of Directors of Employer. 3. Compensation: (a) As compensation for services rendered to the Corporate Group during the term of this Agreement, Executive shall be paid compensation at the annual base rate (the "Base Salary") of Three Hundred Fifty Thousand ($350,000) Dollars per year during each year of this Agreement. The Base Salary shall be payable in accordance with Employer's then applicable payroll practice. Executive's Base Salary shall be increased each year as of the commencement of each such year at the discretion of the Board of Directors of Employer, provided that the Base Salary shall, at a minimum, be increased each year by the percentage increase in the "Consumer Price Index (CPI-U) for New York City," as published by the Bureau of Labor Statistics of the United States Department of Labor for the prior calendar year, and as soon as such increase shall be determined Executive's salary shall be the amount as so adjusted, retroactive to the commencement of such year. (b) As additional compensation for services rendered to the Corporate Group during the term of this Agreement Executive shall also be paid the following bonuses: (i) A signing bonus of One Hundred Thousand ($100,000) Dollars, payable upon execution of this Agreement. (ii) A signing bonus of Fifty Thousand ($50,000) Dollars, payable no later than July 31, 1998. (iii) Annual performance bonuses, commencing for the 1997/98 fiscal year, based on the annual financial result of Employer as compared to the financial objective proposed by Executive for each fiscal year (the "Annual Goal") and approved by the Board of Directors (it being understood and agreed that if the Board does not so approve such proposed Annual Goal, the Board retains the right to set the Annual Goal, in its sole discretion), calculated as follows, and paid within sixty (60) days after the close of each fiscal year: (A) If the financial result for a fiscal year is twenty (20%) percent or more above the Annual Goal for that fiscal year, the minimum annual bonus for that fiscal year shall be equal to one hundred (100%) percent of the Base Salary. (B) If the financial result for a fiscal year is more than the Annual Goal for that fiscal year but less than twenty (20%) percent above the Annual Goal for that fiscal year, the minimum annual bonus for that fiscal year shall be set at an amount between fifty (50%) percent and one hundred (100%) percent of the Base Salary, calculated on a pro-rata basis. For example, if the financial result was ten (10%) above the Annual Goal for the fiscal year, the minimum annual bonus would be equal to seventy-five (75%) percent of the Base Salary. (C) If the financial result for a fiscal year is equal to the Annual Goal for that fiscal year, the minimum annual bonus for that fiscal year shall be equal to fifty (50%) percent of the Base Salary. (D) If the financial result for a fiscal year is not more than ten (10%) percent below the Annual Goal for that fiscal year, the minimum annual bonus for that fiscal year shall be set at an amount between twenty (20%) percent and fifty (50%) percent of the Base Salary, calculated on a pro-rata basis. For example, if the financial result was five (5%) below the Annual Goal for the fiscal year, the annual bonus would be equal to thirty-five (35%) percent of the Base Salary. (E) If the financial result for a fiscal year is more than ten (10%) below the Annual Goal for that fiscal year, there shall be no minimum annual bonus payable, but the Board of Directors may, in its sole discretion, still award Executive an annual bonus. (c) As additional compensation for services rendered to the Corporate Group during the Initial Term of this Agreement, Executive shall also be paid a bonus with respect to funds invested in Employer by any third party (exclusive of third parties currently having any equity or other financial interest in Employer), to the extent such funds are received by Employer during the term of this Agreement. The amount of such bonus shall be equal to the difference between (i) the sum of (A) five (5%) percent of the first One Million ($1,000,000) Dollars invested in Employer, (B) four (4%) percent of the next One Million ($1,000,000) Dollars invested in Employer, (C) three (3%) percent of the next One Million ($1,000,000) Dollars invested in Employer, (D) two (2%) percent of the next One Million ($1,000,000) Dollars invested in Employer and (E) one (1%) percent of any monies in excess of Four Million ($4,000,000) Dollars and (ii) all amounts paid to third party investment bankers and advisors in connection with such investment. Executive's bonus shall be payable with respect to net funds received by Employer (i.e., after all of Employer's expenses incurred in connection with such investment) during the term of this Agreement and shall be paid within thirty (30) days of Employer's receipt of such funds. (d) Employer has adopted an Incentive Bonus Plan whereby executive officers of Employer as a group shall receive a bonus of five (5%) percent of pre-tax income of Employer, as set forth in Employer's audited financial statements provided that: (i) Employer's pre-tax income in any given fiscal year is at least Two Hundred Fifty Thousand ($250,000) Dollars; (ii) in such fiscal year, Employer's net income per share is at least $.05 per share (adjusted for stock splits and stock dividends); and (iii) the net income in such fiscal year exceeds the net income in the immediately preceding fiscal year. The amount of any bonus to be paid to Executive which may be available for distribution pursuant to such Incentive Bonus Plan, in any year of this Agreement, shall be determined by Employer. Executive shall be eligible to participate in such Incentive Bonus Plan starting with the fiscal year which commences on July 1, 1997, and if the term of Executive's employment terminates prior to the close of Employer's fiscal year, Executive shall be eligible to participate in a pro-rata portion of any bonus payable as of the close of such fiscal year. (e) (i) As a further financial incentive for Executive, Employer hereby grants Executive an additional value incentive bonus (the "Value Incentive Bonus") of seven hundred thousand (700,000) units (the "Units") which shall be convertible in accordance with the terms and conditions of this Agreement and Schedule A annexed hereto. The value of each Unit shall be equal to the increased value of one (1) share of Employer's common stock, calculated in the manner described in this Agreement and in Schedule A annexed hereto. Upon conversion of the Units into compensation, as contemplated by Paragraph 2 of Schedule A, employee will be entitled to receive cash or shares of Employer's common stock at the option of Employer's Board of Directors, in accordance with Schedule A. The Value Incentive Bonus is an employee benefit plan of Employer. (ii) (A) The Units are granted in recognition of the personal services of Executive, and Executive hereby agrees that Executive will not directly or indirectly sell, assign, transfer, pledge, hypothecate, dispose of, encumber or otherwise grant any interest in the Units other than (1) by will or by the laws of descent and distribution or (2) pursuant to a "Qualified Domestic Relations Order" ("QDRO") as defined in the Internal Revenue Code of 1986, as amended (the "Code"), or Title I of the Employment Retirement Income Security Act of 1974, as amended. The Units may be converted during the lifetime of Executive only by Executive or by Executive's guardian or other legal representative or by a transferee thereof pursuant to a QDRO (a "Permitted Transferee"). (B) If Executive shall die while still employed pursuant to this Agreement, the Units may be converted by Executive's executor, administrator or other legal representative, or by a Permitted Transferee to whom the Units were lawfully transferred, if any, at any time prior to the expiration of the Units. (C) If Executive's employment pursuant to this Agreement is terminated by reason of permanent disability (as defined in Paragraph 4(a) below), the Units may be converted by Executive or by Executive's guardian or legal representative, or by a Permitted Transferee to whom the Units were lawfully transferred, if any, at any time prior to the expiration of the Units. (iii) The Units may not be converted prior to October 1, 1997. From and after such date the Units may be converted in whole or from time to time in part at any time before their expiration by giving advance written notice of such exercise to the Chief Financial Officer of Employer in the form of Exhibit I annexed to Schedule A hereto prior to midnight, New York City time, on March 31, 2007 (the "Expiration Date"), specifying the number of Units (not exceeding seven hundred thousand (700,000)) being exercised. (iv) Employer agrees that with respect to the shares of common stock which may be issuable to Executive pursuant to Executive's Value Incentive Bonus (the "Value Incentive Shares"), Employer will, promptly after the execution and delivery of this Agreement, seek to register the Value Incentive Shares under the Securities Act of 1933, as amended (the "Securities Act"), on a Form S-8 (or the applicable successor Form) registration statement, and shall thereafter use its reasonable efforts to maintain current and in effect such registration statement. In connection with such registration, Employer shall prepare and file and thereafter maintain current and in effect, a "re-offer prospectus" under such registration statement, registering the resale of all the Value Incentive Shares by Executive. Employer agrees to use its reasonable efforts to make timely filings of its periodic reports and to take such other actions as may be necessary or appropriate in order for Employer to remain qualified to use such Form S-8 and such re-offer prospectus as contemplated by this Agreement. Employer's obligations under this paragraph shall terminate upon the earliest to occur of (i) the eleventh (11th) anniversary of the Effective Date, or (ii) the sale of all of the Value Incentive Shares by Executive or (iii) the date Executive receives an opinion of counsel reasonably acceptable to counsel for Executive (which may be from counsel to Employer) that all of the Value Incentive Shares may be sold under the provisions of paragraph (k) of Rule 144 notwithstanding the fact that a portion of the Value Incentive Shares may remain unregistered under the Securities Act. (v) If Employer is unable to register the Value Incentive Shares on Form S-8 during the period ending on the later to occur of the date of the shareholders meeting referred to in subparagraph 3(f)(ii) or the expiration of the one hundred seventy (170) day period following the execution of this Agreement, or thereafter fails or is unable to maintain such registration statement in effect or fails or is unable to file or thereafter maintain in effect a re-offer prospectus under such registration statement, Executive will be entitled to the demand registration rights described in the Registration Rights Agreement between Employer and Executive dated as of March 31, 1997, a copy of which is annexed hereto as Exhibit C. (vi) Executive agrees that, during any ninety (90) day period, and notwithstanding the registration under the Securities Act of the Value Incentive Shares, Executive's right to sell, assign, hypothecate or otherwise transfer any interest in the Value Incentive Shares (collectively referred to herein as Executive's "Transfer Rights"), shall be limited to that number of the Value Incentive Shares which is equal to the greater of (A) one (1%) percent of the number of shares of Employer's common stock outstanding or (B) the average weekly reported volume of trading in Employer's common stock on all national securities exchanges and/or reported through the automated quotation system of a registered securities association (e.g., NASDAQ) during the four (4) calendar weeks immediately preceding the filing of the notice of sale required to be filed under Rule 144 if the Value Incentive Shares are being sold in compliance with SEC Rule 144 or, if compliance with Rule 144 is not required, the date of sale. Employer and Executive agree that the restrictions described in this subparagraph 3(e)(vi) shall expire: (1) if Executive's employment is terminated other than for the reason set forth in subparagraph 4(a)(iv), upon the later of (x) the termination of Executive's employment with Employer or (y) March 30, 2001, or (2) if Executive's employment is terminated for the reason set forth in subparagraph 4(a)(iv), upon the termination of Executive's employment with Employer or (3) upon a "Change In Control of Employer" as defined in subparagraph 4(d) of this Agreement. Employer further agrees that if Executive, prior to her termination of employment, has not transferred or sold the maximum number of Value Incentive Shares to which she had been entitled to transfer or sell hereunder, then, as of the date of termination of her employment, where such date is prior to March 30, 2001, all restrictions on transfer and sale shall expire as of the date of termination of employment as to the number of Value Incentive Shares which Executive could have previously transferred or sold cumulatively, less the number of shares which were previously transferred or sold. (vii) The Units shall expire and become null and void at the earliest of: (A) the approval or ratification by Employer's shareholders at the Shareholder's Meeting of a grant to Executive of even date herewith of options to purchase up to seven hundred thousand (700,000) shares of Common Stock on or before September 21, 1997; (B) the Expiration Date; (C) the dissolution of Employer (subject to the provisions of subparagraph 3(e)(viii) below); (D) (1) six (6) months after the termination of this Agreement if such termination occurs on or prior to March 31, 2001 other than by reason of death or "permanent disability" (as defined in subparagraph 4(a) below), or (2) one (1) year after the termination of this Agreement if such termination occurs on or prior to March 31, 2001 by reason of death or disability; (E) one (1) year after the termination of this Agreement if such termination occurs for any reason whatsoever after March 31, 2001 and on or prior to March 31, 2002; (F) two (2) years after the termination of this Agreement if such termination occurs for any reason whatsoever after March 31, 2002 and on or prior to March 31, 2003; or (G) three (3) years after the termination of this Agreement if such termination occurs for any reason whatsoever after March 31, 2003. In the event Executive's employment is terminated within four (4) years of the Effective Date, other than "For Cause" (as defined in subparagraph 4(a) of this Agreement) or in the event Executive delivers her notice of her "Resignation For Cause" (as defined in subparagraph 4(c) of this Agreement), then, notwithstanding any other provisions of this or any other agreement dated as of even date herewith or prior hereto, the Units shall expire no earlier than the date which is two (2) years from the Effective Date with respect to fifty (50%) percent of the Value Incentive Shares issuable upon conversion of the Units, the date which is three (3) years from the Effective Date with respect to an additional twenty-five (25%) percent of the Value Incentive Shares issuable upon conversion of the Units and the date which is four (4) years from the Effective Date with respect to the remaining twenty-five (25%) percent of the Value Incentive Shares issuable upon conversion of the Units. (viii) (A) In the event of (1) the dissolution or liquidation of Employer or (2) a merger or consolidation in which (x) the Employer does not survive as a publicly owned corporation with securities registered under the Exchange Act and (y) the agreements governing such merger or consolidation do not provide for the issuance of a substitute value incentive bonus or options with substantially equivalent terms, as determined by Employer's Board of Directors, in lieu of the Units or for the express assumption (within the meaning of Section 424(a) of the Code) of the Units by the surviving corporation, Employer's Board of Directors shall declare that the Units shall terminate as of a date to be fixed by the Board of Directors (the "Termination Date"), provided that the Board of Directors shall cause to be delivered not less than thirty (30) days before the Termination Date written notice of the Termination Date to Executive, and Executive shall have the right, during the period between the receipt of the written notice and the Termination Date to convert the Units, in whole or in part, whether or not all or any part of the Units would otherwise be convertible; provided, however, that unless Executive shall deliver to Employer written notice to the contrary at least three (3) business days prior to the Termination Date, Executive and all other holders of Units, if any, shall be deemed to have delivered to Employer a notice of conversion of the Units, in whole, on such Termination Date. To the extent that the Units are not converted in their entirety on or prior to the Termination Date, any and all Units and all rights then remaining hereunder shall terminate as of the Termination Date. (B) In the event a "Change in Control" of Employer (as defined in subparagraph 4(d) below) occurs prior to September 30, 1997, the Units shall become immediately convertible in whole or in part. (C) In the event of a "Change in Control" of Employer pursuant to which a substitute value incentive bonus or options are offered to Executive in place of the Units herein granted or the surviving corporation offers to assume Employer's obligations under the value incentive bonus, the Board shall cause to be delivered to Executive, not less than thirty (30) days before the effective date of such "Change In Control of Employer", written notice of such effective date to Executive, and Executive shall have the right to elect to accept such substitute value incentive bonus or options or to convert the Units in whole or in part, prior to the effective date of such "Change in Control of Employer" (and such notice shall so state); provided, however, that unless Executive shall deliver to Employer written notice to the contrary at least three (3) business days prior to such effective date, Executive and all other holders of Units, if any, shall be deemed to have rejected any substitute value incentive bonus or options offered to Executive and any offer to assume the Units and to have delivered to Employer a notice of conversion of the Units, in whole, on such effective date. (ix) If, at the time Executive converts any Units with respect to which payment is made in Value Incentive Shares, such Value Incentive shares are not registered for resale under the Securities Act, and Executive is entitled to demand registration rights under subparagraph 3(e)(v) above, and if on the date on which such Value Incentive Shares may for the first time be sold by Executive without limitation (whether by means of an effective registration for resale under the Securities Act or otherwise) the "fair market value" of a share of Employer's common stock is, with respect to any such Value Incentive Share, below the lesser of (A) the fair market value of such Value Incentive Share on the date Executive's notice of election to exercise her registration rights was received by Employer or (B) the fair market value of such Value Incentive Share on the date the certificate representing ownership in registered form thereof was issued, Employer will promptly compensate Executive with a bonus payment in an amount of cash or registered shares (valued at their fair market value) equal to the sum of the differences between the fair market value of a share of Employer's common stock on the date on which such registration statement is declared effective and the amount determined to be, with respect to each Value Incentive Share described in this subparagraph 3(e)(ix), the lesser of the amounts described in clauses (A) and (B) above. For purposes of the foregoing, the term fair market value shall have the same meaning as is ascribed to such term in Schedule A. (f) (i) Employer hereby grants and, subject to the approval of Employer's shareholders at the special shareholders meeting described in subparagraph 3(f)(ii), Executive agrees to accept in lieu of the Value Incentive Bonus, stock options to purchase seven hundred thousand (700,000) shares of Employer's common stock (the "Signing Options") on the terms and conditions described in the Stock Option Agreement between Employer and Executive dated as of March 31, 1997, a copy of which is annexed hereto as Exhibit A. (ii) Employer agrees to call a special meeting of its shareholders promptly following the execution of this Agreement, but in no event later than September 21, 1997, for the purpose of seeking such shareholder approval of Employer's grant of the Signing Options. Executive agrees that if the shareholders approve the grant of the Signing Options, all of Executive's rights to the Value Incentive Bonus shall be deemed null and void, ab initio. (iii) Employer agrees that with respect to the shares of common stock issuable to Executive upon exercise of the Signing Options (the "Option Shares"), Employer will, promptly after the execution and delivery of this Agreement, seek to register the Option Shares under the Securities Act on a Form S-8 (or the applicable successor Form) registration statement, and shall thereafter use its reasonable efforts to maintain current and in effect such registration statement. In connection with such registration, Employer shall prepare and thereafter maintain current and in effect, a "re-offer prospectus" under such registration statement, registering the resale of all the Option Shares by Executive. Employer agrees to use its reasonable efforts to make timely filings of its periodic reports and to take such other actions as may be necessary or appropriate in order for Employer to remain qualified to use such Form S-8 and such re-offer prospectus as contemplated by this Agreement. Employer's obligations under this paragraph shall terminate upon the earliest to occur of (i) the eleventh (11th) anniversary of the Effective Date, or (ii) the sale of all of the Option Shares by Executive or (iii) the date Executive receives an opinion of counsel reasonably acceptable to counsel for Executive (which may be from counsel to Employer) that all of the Option Shares may be sold under the provisions of paragraph (k) of Rule 144 notwithstanding the fact that a portion of the Option Shares may remain unregistered under the Securities Act. (iv) If Employer is unable to register the Option Shares on Form S-8 during the period ending on the later to occur of the date of the shareholders meeting referred to in subparagraph 3(f)(ii) or the expiration of the one hundred seventy (170) day period following the execution of this Agreement, or thereafter fails or is unable to maintain such registration statement in effect or fails or is unable to file or thereafter maintain in effect a re-offer prospectus under such registration statement, Executive will be entitled to the demand registration rights described in the Registration Rights Agreement between Employer and Executive dated as of March 31, 1997, a copy of which is annexed hereto as Exhibit C. (v) Executive agrees that, during any ninety (90) day period, and notwithstanding the registration under the Securities Act of the Option Shares, Executive's right to sell, assign, hypothecate or otherwise transfer any interest in the Option Shares (collectively referred to herein as Executive's "Transfer Rights"), shall be limited to that number of the Option Shares, which is equal to the greater of (A) one (1%) percent of the number of shares of Employer's common stock outstanding or (B) the average weekly reported volume of trading in Employer's common stock on all national securities exchanges and/or reported through the automated quotation system of a registered securities association (e.g., NASDAQ) during the four (4) calendar weeks immediately preceding the filing of the notice of sale required to be filed under Rule 144 if the Option Shares are being sold in compliance with SEC Rule 144 or, if compliance with Rule 144 is not required, the date of sale. Employer and Executive agree that the restrictions described in this subparagraph 3(f)(v) shall expire: (1) if Executive's employment is terminated other than for the reason set forth in subparagraph 4(a)(iv), upon the later of (x) the termination of Executive's employment with Employer or (y) March 24, 2001, or (2) if Executive's employment is terminated for the reason set forth in subparagraph 4(a)(iv), upon the termination of Executive's employment with Employer or (3) in the event of a "Change In Control of Employer" as defined in subparagraph 4(d) of this Agreement. Employer further agrees that if Executive, prior to her termination of employment, has not transferred or sold the maximum number of Option Shares to which she had been entitled to transfer or sell hereunder, then, as of the date of termination of her employment, where such date is prior to March 24, 2001, all restrictions on transfer and sale shall expire as of the date of termination of employment as to the number of Option Shares which Executive could have previously transferred or sold cumulatively, less the number of shares which were previously transferred or sold. (vi) (A) In the event of (1) the dissolution or liquidation of Employer or (2) a merger or consolidation in which (x) the Employer does not survive as a publicly owned corporation with securities registered under the Exchange Act and (y) the agreements governing such merger or consolidation do not provide for the issuance of substitute options with substantially equivalent terms, as determined by Employer's Board of Directors, in lieu of the Signing Options or for the express assumption (within the meaning of Section 424(a) of the Code) of the Signing Options by the surviving corporation, Employer's Board of Directors shall declare that the Signing Options shall terminate as of a date to be fixed by the Board of Directors (the "Termination Date"), provided that the Board of Directors shall cause to be delivered not less than thirty (30) days before the Termination Date written notice of the Termination Date to Executive and, provided the Signing Options have theretofore been approved or ratified by Employer's shareholder as contemplated by the provisions of subparagraph 3(f)(ii) above, Executive shall have the right, during the period between the receipt of the written notice and the Termination Date to exercise the Signing Options, in whole or in part, whether or not all or any part of the Signing Options would not otherwise be exercisable; provided, however, that unless Executive shall deliver to Employer written notice to the contrary at least three (3) business days prior to the Termination Date, Executive and all other holders of the Signing Options, if any, shall be deemed to have delivered to Employer a notice of exercise of the Signing Options, in whole, on such Termination Date. To the extent that the Signing Options are not exercised in their entirety on or prior to the Termination Date, any and all Signing Options and all rights then remaining hereunder shall terminate as of the Termination Date. (B) Provided the Signing Options have been approved or ratified by Employer's shareholders as contemplated by the provisions of subparagraph 3(f)(ii) above, in the event a "Change in Control" of Employer (as defined in subparagraph 4(d) below) occurs prior to September 30, 1997, the Signing Options shall become immediately exercisable in whole or in part. (C) In the event of a "Change in Control" of Employer pursuant to which substitute options are offered to Executive in place of the Signing Options herein granted or the surviving corporation offers to assume the Signing Options, the Board shall cause to be delivered to Executive, not less than thirty (30) days before the effective date of such "Change In Control of Employer", written notice of such effective date to Executive and, provided the Signing Options have theretofore been approved or ratified by Employer's shareholders as contemplated by the provisions of subparagraph 3(f)(ii) above, Executive shall have the right to elect to accept such substitute options or assumption of the Signing Options or to exercise the Signing Options in whole or in part, prior to the such effective date (and such notice shall so state); provided, however, that unless Executive shall deliver to Employer written notice to the contrary at least three (3) business days prior to such effective date, Executive and all other holders of the Signing Options, if any, shall be deemed to have rejected any substitute options offered to Executive and any offer to assume the Signing Options and to have delivered to Employer a notice of exercise of the Signing Options, in whole, on such effective date. (vii) If, at the time Executive purchases any Option Shares upon exercise of Signing Options, such Option Shares are not registered for resale under the Securities Act, and Executive is entitled to demand registration rights under subparagraph 3(f)(iv) above, and if on the date on which such Option Shares may for the first time be sold by Executive without limitation (whether by means of an effective registration for resale under the Securities Act or otherwise) the "fair market value" of a share of Employer's common stock is, with respect to any such Option Share, below the lesser of (A) the fair market value of such Option Share on the date Executive's notice of election to exercise her registration rights was received by Employer or (B) the fair market value of such Option Share on the date the certificate representing ownership in registered form thereof was issued, Employer will promptly compensate Executive with a bonus payment in an amount of cash or registered shares (valued at their fair market value) equal to the sum of the differences between the fair market value of a share of Employer's common stock on the date on which such registration statement is declared effective and the amount determined to be, with respect to each Option Share described in this subparagraph 3(f)(vii), the lesser of the amounts described in clauses (A) and (B) above. For purposes of the foregoing, the term fair market value shall have the same meaning as is ascribed to such term in Schedule A annexed hereto. (g) (i) Employer represents and warrants that (i) Employer has authorized Fifteen Million (15,000,000) shares of common stock, which is the only class of stock authorized and issued, and that Six Million Six Hundred Thirty-Four Thousand Seven Hundred Fifty (6,634,750) shares of such common stock have been issued and are outstanding as of the Effective Date. Employer further represents and warrants that there are third party options and warrants representing One Million One Hundred Seventeen Thousand Sixty-Six (1,117,066) shares of common stock outstanding but unexercised as of the Effective Date. Employer has agreed to protect Executive from the dilutive effect that the exercise of Employer's currently outstanding warrants and stock options would have on the Value Incentive Shares or the Option Shares, as applicable. Accordingly, subject to the terms of this Agreement and Employer's 1990 Stock Option Plan (as it may be amended from time to time), Employer agrees to grant Executive, pursuant to Employer's 1990 Stock Option Plan (the "Plan"), an option to purchase up to seventy thousand (70,000) shares of Employer's common stock (the "Anti-Dilution Options") effective as of the Effective Date. The Anti-Dilution Options will vest and become exercisable in accordance with the terms and conditions of the Stock Option Agreement between Employer and Executive dated March 31, 1997, a copy of which is annexed as Exhibit B. Employer agrees that no fewer than seventy thousand (70,000) shares (the "Anti-Dilution Shares") of Employer's common stock will remain available for issuance under the Plan pursuant to the Stock Option Agreement for so long as the Anti-Dilution Options remain outstanding. (ii) Employer represents and warrants that the Anti-Dilution Shares are registered pursuant to a registration statement on Form S-8 which is currently in effect. Employer shall promptly prepare and file, by means of a post-effective amendment, and thereafter maintain current and in effect, a re-offer prospectus under such registration statement, registering the resale of all the Anti-Dilution Shares by Executive. Employer agrees to use its reasonable efforts to make timely filings of its periodic reports and to take such other actions as may be necessary or appropriate in order for Employer to remain qualified to use Form S-8 and such re-offer prospectus as contemplated by this Agreement. Employer further represents and warrants that it shall use its reasonable efforts to maintain current and in effect such registration statement until the earliest to occur of (A) the eleventh (11th) anniversary of the Effective Date, or (B) the sale of all of the Anti-Dilution Shares by Executive, or (iii) the date Executive receives an opinion of counsel reasonably acceptable to counsel for Executive (which may be from counsel to Employer) that all of the Anti-Dilution Shares may be sold under the provisions of paragraph (k) of Rule 144 notwithstanding the fact that a portion of the Anti-Dilution Shares may remain unregistered under the Act. (iii) If Anti-Dilution Shares are at any time issued to Executive, Executive agrees that, during any ninety (90) day period, and notwithstanding the registration under the Securities Act of the Anti-Dilution Shares, Executive's right to sell, assign, hypothecate or otherwise transfer any interest in the Anti-Dilution Shares and the Value Incentive Shares or Option Shares (collectively referred to herein as Executive's "Transfer Rights"), shall be limited to that aggregate number of shares of the Employer's common stock which is equal to the greater of (A) one (1%) percent of the number of shares of Employer's common stock outstanding or (B) the average weekly reported volume of trading in Employer's common stock on all national securities exchanges and/or reported through the automated quotation system of a registered securities association (e.g., NASDAQ) during the four (4) calendar weeks immediately preceding the filing of the notice of sale required to be filed under Rule 144 if Anti-Dilution Shares or Option Shares are being sold in compliance with SEC Rule 144 or, if compliance with Rule 144 is not required, the date of sale. Employer and Executive agree that the restrictions described in this subparagraph 3(g)(iii) shall expire: (1) if Executive's employment is terminated other than for the reason set forth in subparagraph 4(a)(iv), upon the later of (x) the termination of Executive's employment with Employer or (y) March 24, 2001, or (2) if Executive's employment is terminated for the reason set forth in subparagraph 4(a)(iv), upon the termination of Executive's employment with Employer or (3) in the event of a "Change In Control of Employer" as defined in subparagraph 4(d) of this Agreement. Employer further agrees that if Executive, prior to her termination of employment, has not transferred or sold the maximum number of Anti-Dilution Shares and Value Incentive Shares or Option Shares, collectively, to which she had been entitled to transfer or sell hereunder, then, as of the date of termination of her employment, where such date is prior to March 24, 2001, all restrictions on transfer and sale shall expire as of the date of termination of employment as to the number of Anti-Dilution Shares and Value Incentive Shares or Option Shares, collectively, which Executive could have previously transferred or sold cumulatively, less the number of such shares which were previously transferred or sold. (h) Executive acknowledges and agrees that, as a corporate officer of Employer, she will be deemed a "named executive officer," and that she is an insider, for the purposes of SEC filings and reporting and securities laws. Executive agrees to comply with all applicable securities laws including, without limitation, timely filing of Form 3, "Initial Statement of Beneficial Ownership of Securities," which shall be timely prepared by Employer's counsel. 4. Termination: (a) In addition to any other rights and remedies provided for in this Agreement, Employer may terminate Executive's employment hereunder upon written notice "For Cause." For purposes of this Agreement, For Cause shall mean: (i) commission of any act of gross misconduct or gross negligence which has a materially adverse effect on Employer; (ii) except as permitted under subparagraph 4(c) below, deliberate and continued refusal to perform employment duties or deliberate refusal to implement a policy of the Board of Directors of Employer after receiving written notice of such policy and a thirty (30) day opportunity to cure, if such refusal is susceptible to cure; (iii) engagement by Executive in any act, whether with respect to her employment or otherwise, which is in violation of the criminal laws of the United States or any state thereof or any similar foreign law to which Executive may be subject and which results in a conviction or admission of guilt or a plea of nolo contendere; or (iv) death or permanent disability of Executive. Executive shall be deemed permanently disabled if she shall be unable by reason of mental or physical incapacity from performing her duties hereunder for a period of ninety (90) consecutive days or more. Notwithstanding the previous sentence, Employer agrees to provide Executive with thirty (30) days prior written notice that Employer considers Executive permanently disabled and intends to terminate this Agreement pursuant to this subparagraph 4(a). Executive shall have thirty (30) days after receipt of such notice to resume all of her duties hereunder. If Executive is unable to resume all of her duties within such thirty (30) day period, Employer may immediately terminate Executive's employment. If Executive's employment shall be terminated pursuant to this subparagraph 4(a), Executive shall be entitled to receive only the Base Salary actually earned and payable to Executive pursuant to subparagraph 3(a) above through the date of the termination of her employment, together with any properly reimbursable expenses and other accrued employee benefits through the date of termination, and Executive shall not thereafter be entitled to receive any further salary, bonus, expenses, benefits (other than medical or disability benefits if applicable) or other compensation of any kind hereunder, except that if Executive's employment is terminated pursuant to subparagraph 4(a)(iv), Executive shall also be entitled to a pro-rata share of any bonus due hereunder for the fiscal year in which Executive is terminated. Any bonus which has been earned, but not paid, shall be paid at the time it would otherwise be payable. (b) If Employer shall terminate Executive's employment other than For Cause, as provided in subparagraph 4(a) above: Executive shall be entitled to receive, as liquidated damages, and as her sole and exclusive right and remedy on account of such termination, the Base Salary to which Executive would otherwise have been entitled hereunder throughout the remaining term hereof and Executive's pro-rata share of any bonus due hereunder for the fiscal year in which Executive is terminated under this subparagraph 4(b), together with any properly reimbursable business expenses and other employee benefits to the date of termination. In addition, Employer shall reimburse Executive for the COBRA expenses incurred by Executive for the full period (not to exceed the remaining term hereof) that is allowed by Employer's medical insurance company. Amounts payable by Employer under this subparagraph 4(b) shall be payable when and as the same would otherwise have been payable under the terms hereof and shall not be subject to Executive's duty to mitigate her damages by using reasonable efforts to seek other comparable employment. Executive shall not thereafter be entitled to receive any further salary, expenses, benefits (other than medical or disability benefits, if applicable) or other compensation hereunder. In the event of termination pursuant to this subparagraph 4(b), Executive shall not be entitled to any damages by reason of such termination other than as set forth in this subparagraph 4(b). Nothing herein, however, shall be deemed a waiver of Executive's rights at law as to any causes of action against Employer including, without limitation, any claims under the Employee Retirement Income Security Act of 1974, the Equal Pay Act of 1963, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Americans With Disabilities Act of 1990 and Age Discrimination in Employment Act as modified by the Older Workers Benefit Protection Act, the Family and Medical Leave Act, the Fair Labor Standards Act, as amended, and any other federal, state or local human rights, civil rights, pension or labor laws, rules and/or regulations. The parties agree that the payments provided for in this subparagraph 4(b) constitute a reasonable estimate of Executive's damages in the event of the termination of her employment, actual damages being difficult if not impossible to ascertain. (c) Executive may only terminate this Agreement upon written notice of "Resignation For Cause." For purposes of this Agreement, Resignation For Cause shall include: (i) the change in Employer's corporate offices location to a location outside of New York City, (ii) change in Employer's primary business to one outside the entertainment industry, (iii) a material adverse change in the authority, responsibilities or reporting lines described in this Agreement or (iv) subject to subparagraph 4(d), a Change in Control (defined in subparagraph 4(d) below) of Employer. (d) A "Change in Control of Employer" shall mean any of the following events: (i) A change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred if any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than Employer, is or becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of Employer representing 50.1% or more of the combined voting power of Employer's then outstanding securities. (ii) Approval of Employer's shareholders of: (A) a merger, consolidation or reorganization involving Employer (a "Transaction"), unless (1) stockholders of Employer, immediately before such Transaction, own directly or indirectly immediately following such Transaction, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such Transaction (the "Surviving Corporation") in substantially the same proportion as their ownership of the voting securities immediately before such Transaction, (2) the individuals who were members of the incumbent board immediately prior to the execution of the agreement providing for such Transaction constitute at least a majority of the members of the board of directors of the Surviving Corporation and (3) no Person (other than a member of the Corporate Group, an employee benefit plan (or any trust forming a part thereof) maintained by a member of the Corporate Group or the Surviving Corporation, or any Person who, immediately prior to such Transaction had Beneficial Ownership of 50.1% or more of the then outstanding voting securities of Employer) has Beneficial Ownership of 50.1% or more of the combined voting power of the Surviving Corporation's then outstanding voting securities, or (B) an agreement for the sale or other disposition of all or substantially all of the assets of Employer to any Person (other than a member of the Corporate Group). (e) Unless otherwise expressly provided herein, Executive's termination of this Agreement for Resignation For Cause as described in subparagraph 4(c) shall not be effective until after Executive delivers to Employer (or the Surviving Company, if applicable) written notice. If Executive terminates for Resignation For Cause as described in subparagraph 4(c), Executive shall only be entitled to the same amounts as would be payable if Employer had terminated Executive pursuant to subparagraph 4(b), unless otherwise provided herein. (f) Executive may only serve her written notice of Resignation For Cause pursuant to subparagraph 4(c)(iv) upon ninety (90) days prior written notice during the one (1) year period following the effective date of the Change In Control of Employer, during which ninety (90) day period Executive agrees to negotiate in good faith with the Surviving Corporation regarding Executive's continued employment. If Executive is unable to come to agreement with the Surviving Corporation regarding such continued employment and serves her written notice of Resignation For Cause as provided herein, such resignation shall terminate this Agreement immediately, and she shall be entitled to the same amounts as would be payable if Employer had terminated Executive pursuant to subparagraph 4(b), except (i) that for purposes of calculating such amounts, the remainder of the term of this Agreement shall be deemed to be two (2) years, regardless of the actual length of the then remaining term of this Agreement and (ii) payment of cash shall be accelerated to three (3) days after Executive delivers notice under this subparagraph 4(f). (g) Immediately upon the occurrence of a Change In Control of Employer, all restrictions imposed by this Agreement and Exhibits (excluding those restrictions otherwise imposed by law) on the transfer and sale of Value Incentive Shares or the Option Shares, as applicable, and the Anti-Dilution Shares shall cease to apply. 5. Expenses; Life Insurance: (a) Employer shall reimburse Executive for all reasonable expenses of business travel (including car service to and from airports), hotel, business-related car telephone, entertainment or otherwise incurred by Executive in connection with and on behalf of the business of Employer upon presentation of receipt, voucher or itemization of expenses in accordance with Employer's then applicable expense reimbursement policies and procedures for Employer's most senior executives. Air travel and hotel expenses shall be reimbursed at rates comparable to those reimbursed for Employer's most senior management executives. (b) Employer shall provide Executive with a One Thousand Five Hundred ($1,500) Dollar per month car allowance and cellular telephone, the expenses of which shall be paid by Employer. (c) Employer shall reimburse Executive for legal and financial advising fees incurred by Executive in connection with the negotiation of this Agreement. (d) Employer shall maintain during the term of this Agreement term life insurance, in the amount of Two Million ($2,000,000) Dollars, on the life of Executive for the benefit of such beneficiaries as Executive may designate from time to time. Upon the termination of this Agreement, Executive shall have the right to purchase, within thirty (30) days thereafter, such insurance policy, at its cash surrender value, if any, plus any unearned premiums thereon, and Employer shall deliver the policy to Executive and shall execute any necessary instruments of transfer. A policy of insurance not so purchased by the insured shall be released from the terms of this Agreement. (e) Employer shall have the right to secure a Three Million ($3,000,000) Dollar "key-person" life insurance policy with respect to Executive for Employer's own benefit. In this connection, Executive agrees to complete such questionnaires and other documents and to submit to such physical examinations which Employer or any insurance carrier may from time to time reasonably require in connection with securing and maintaining such insurance. 6. Disability: If Executive is unable to perform her duties hereunder by reason of any illness, disability or incapacity, she shall be entitled to one hundred (100%) percent of her Base Salary for the first six (6) months of her disability, seventy-five (75%) percent of her Base Salary for the next three (3) months and fifty (50%) percent of her Base Salary for the next three (3) months, less such benefits or compensation paid to Executive by reason of State, Federal, Social Security, disability, worker's compensation or comparable government benefits and such policies of disability insurance payable to Executive and procured by Employer. During any period in which disability compensation shall be paid, Executive shall continue to receive benefits in accordance with Paragraph 7. 7. Executive Benefits: Executive shall be entitled to participate, to the extent she is eligible under the terms and conditions thereof, in any bonus, pension, profit-sharing, retirement, hospitalization, insurance, medical service, or other employee benefit plan including disability insurance generally available to the most senior executives of Employer which may be in effect from time to time during the period of her employment hereunder. Employer shall be under no obligation to continue the existence of any such employee benefit plan. Executive shall be entitled to the same vacation time (exclusive of any company-wide holidays or vacations) as are granted to Employer's most senior executives. 8. Disclosure of Confidential Information: Executive recognizes and acknowledges that certain information is proprietary to and confidential with Employer and/or the Corporate Group, including without limitation the following: Employer's and the Corporate Group's strategic and/or business plan, pending projects, projects in development, acquisition targets at both the individual project and corporate level, co-production arrangements, joint ventures, funding sources, distribution arrangements, the contacts at such entities and the financial terms of such agreements with Employer and/or the Corporate Group (collectively, "Confidential Information"). Confidential Information shall not include information (a) already lawfully known to the receiving party, (b) generally known to the public, entertainment business community or financial community or (c) lawfully obtained from any third party without any confidentiality obligation. Executive will not directly or indirectly, on behalf of herself or others, during or at any time after the termination of her providing services hereunder, irrespective of time, manner or reason for termination, disclose, publish, disseminate or utilize such Confidential Information, or any part thereof except in furtherance of the business of Employer or another member of the Corporate Group. Executive will not remove or duplicate in any manner at any time any lists or other records, or any parts thereof, concerning Employer's Confidential Information and upon termination of her employment will return to Employer any and all lists and records concerning Employer's Confidential Information thereof in her possession. 9. Interference with Employer's Business: (a) Executive agrees that during the Non-Solicitation Period (defined below), neither Executive nor any Related Person (defined below) shall knowingly, either directly or indirectly, for herself or for any other person or entity, (i) call upon, solicit or take away, or attempt to call upon, solicit or take away, any person then employed by Employer or the Corporate Group or (ii) knowingly employ any employee of Employer or the Corporate Group who voluntarily terminates such employment until six (6) months have passed following termination of such employment, unless such condition is waived by Employer in writing. "Non-Solicitation Period" shall mean the period from the date hereof until one (1) year after the termination of this agreement. "Related Person" shall mean any person or entity who or which, directly or indirectly, is controlled by Executive. (b) Executive agrees that during the term of her employment with Employer and for the two (2) years following termination of such employment, neither Executive nor any Related Person (as defined in subparagraph 9(a)) shall knowingly, either directly or indirectly, for herself or for any other person or entity, enter into any agreement, or assist any other person or entity in entering into any agreement or other arrangement regarding any of the projects introduced to Employer or the Corporate Group prior to or during the term of Executive's employment, without Employer's prior written consent, such consent not to be unreasonably withheld. Employer agrees that the restriction of this subparagraph 9(b) shall not apply to any project which was the subject of a written agreement between Employer and a third party, the term of which has ended, and which is not then the subject of a negotiation for an extended or new term. Executive's right to enter into an agreement or other arrangement regarding projects described by the previous sentence shall be subject to Executive's obligation to send Employer notice of Executive's intention to do so, and Employer's failure to commence negotiations for such project, within five (5) business days after receipt of such notice. 10. Employer's Closing Obligations: (a) Employer will cause its counsel, Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP, to issue an opinion, dated as of the Effective Date, to the effect that this Employment Agreement and the Exhibits and Schedule annexed hereto are properly authorized by Employer and enforceable in accordance with their respective terms. (b) Employer will deliver to Executive copies of the resolutions of Employer's Board of Directors, certified by an officer of Employer, which authorize Employer to execute this Agreement and the Exhibits annexed hereto. (c) Employer will cause its counsel, Satterlee Stephens Burke & Burke LLP, to issue an opinion, dated as of the Effective Date, to the effect that a Form S-8 registration will be available for the Value Incentive Shares or the Option Shares, as applicable. Such opinion will also state that a vote of Employer's shareholders is not required for the grant of the Value Incentive Bonus and the issuance of the shares of Employer's common stock thereunder. 11. Severability: In the event any of the terms or provisions of this Agreement are found to be invalid, void or voidable for any reason whatsoever such finding will not affect the remaining terms and provisions of this Agreement and they shall remain in full force and effect, and shall be applied in a manner which will keep the economic benefits and burdens intact. 12. Governing Law: This Agreement shall be governed in all respects by the laws of the State of New York. 13. Notices: Any notice required or given under this Agreement shall be sufficient if in writing and sent by registered mail or certified mail to the addresses hereinabove set forth or to such other addresses as any of the parties hereto may designate in writing, transmitted by registered or certified mail to the other. Duplicate copies of any notices to Employer shall also be sent to Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP, 405 Park Avenue, 15th Floor, New York, New York 10022, Attention: Marc L. Bailin, Esq. Duplicate copies of any notices to Executive shall also be sent to Robert M. Schorr, KLS Professional Advisors Group, Inc., 641 Lexington Avenue, New York, New York 10022. 14. Entire Agreement: This Agreement contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. No modification or amendment of this Agreement can be made other than in writing signed by the parties hereto. 15. Injunctive Relief: Executive acknowledges that the services to be rendered by her hereunder are of a special, unique and intellectual character which gives them peculiar value, and that a breach or threatened breach of any material provision of this Agreement, including, without limitation the provisions of Paragraphs 8 and 9, will cause Employer immediate irreparable injury and damage which cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, Executive agrees that Employer shall be entitled to seek injunctive relief to enforce and protect its rights under this Agreement as well as pursue any other legal remedies available to it. 16. Most Favored Nations: Employer agrees that, to the extent any current employment agreement between Employer and any of its employees includes terms or conditions which are more favorable than those contained herein, this Agreement shall be deemed to be modified to include such more favorable terms or conditions. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. Attest: LANCIT MEDIA ENTERTAINMENT, LTD. /s/ Marc L. Bailin By:/s/ Laurence A. Lancit - ------------------ ------------------------- Secretary Laurence A. Lancit, President /s/ Susan Solomon ----------------- Susan Solomon Schedule A CALCULATION AND PAYMENT OF VALUE INCENTIVE BONUS 1. Measurement in Units. Units shall be used solely as a device for the measurement and determination of the amount to be paid to SUSAN L. SOLOMON ("Executive") as her "Value Incentive Bonus" under the employment agreement to which this Schedule is annexed (the "Employment Agreement"). The right to receive an amount equal to the appreciation in market value of one (1) share of the common stock, par value $.001 per share (the "Common Stock"), of LANCIT MEDIA ENTERTAINMENT, LTD. (the "Employer"), is referred to herein as a "Unit." The Units shall not constitute or be treated as property or as a trust fund of any kind. All amounts at any time attributable to the Units shall be and remain the sole property of the Employer and Executive's rights hereunder are limited to the right to receive cash and/or Common Stock as further provided below. The Value Incentive Bonus is an employee benefit plan of the Employer. 2. Election to Receive Value Incentive Bonus. The Executive may elect to receive all or a portion of her Value Incentive Bonus at such time or times as she may desire by electing to convert Units into compensation as provided in this Schedule. No such election may be made, however, prior to October 1, 1997, except as otherwise provided in the Employment Agreement. From and after such date, Units may be converted in whole or from time to time in part at any time before their expiration by giving advance written notice of Executive's election to convert Units into compensation to the Chief Financial Officer of the Employer in the form of Exhibit I annexed hereto (an "Election Notice") prior to midnight, New York City time, on March 31, 2007 (the "Expiration Date"), specifying the number of Units (not to exceed, in the aggregate, 700,000) being converted. 3. Determination of Value. Upon Executive's conversion of all or part of the Units, Executive shall be entitled to receive the economic value of the Units being converted. For each such Unit, that economic value shall be equal to the excess of (i) the "fair market value" of one share of Common Stock on the date that the Election Notice is received by the Employer's Chief Financial Officer (the "Election Date") over (ii) $ (the "Measuring Value"); subject, however, to adjustment pursuant to paragraph 6 of this Schedule. The total economic value of all Units converted by Executive pursuant to an individual Election Notice shall be the economic value of each Unit as determined in the preceding sentence multiplied by the number of Units converted. For the purposes of this Schedule, the term "fair market value" as of any date of a share of Common Stock means the average of the closing bid and ask quotation for a share of Common Stock as reported on the principal national securities exchange on which such shares are listed or, if not so listed, on the National Association of Securities Dealers, Inc. Automated Quotation System on the relevant date or, if no such shares were sold on such date, on the next preceding date on which such shares were sold or, if no sales shall have occurred within 10 business days preceding such relevant date, fair market value shall be as reasonably determined by the Board of Directors in good faith. 4. Payment and/or Issuance of Share Certificates. Full payment of the aggregate economic value of all Units converted by Executive pursuant to an individual Election Notice (the "Total Payment") shall be made by the Employer, either in cash or in shares of Common Stock or any combination thereof, as the Employer's Board of Directors may determine in its sole discretion. If all or any part of the Total Payment due in connection with any conversion of Units hereunder is paid in shares of Common Stock ("Shares"), the number of Shares that shall be issued will be determined by dividing the Total Payment (or the part thereof to be paid in Shares) by the fair market value of a share of Common Stock on the Election Date; provided, however, that Executive shall receive cash in lieu of any fraction of a share of Common Stock issuable hereunder. Certificates for Shares, if any, issued hereunder shall be delivered to Executive, subject to the provisions of paragraph 6 hereof, as promptly as practicable thereafter. Employer may place an appropriate legend on any certificates representing ownership of Shares to assure compliance with the restrictions on Executive's right to sell Shares contained in the Employment Agreement. 5. Expiration. Executive's right to elect to convert the Units shall expire and become null and void in accordance with Section 3(e)(vii) of the Employment Agreement. 6. Recapitalization. If the outstanding shares of the Common Stock of the Employer are subdivided, consolidated, increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Employer through reorganization, merger, recapitalization, reclassification, capital adjustment or otherwise, or if the Employer shall issue Common Stock as a dividend or upon a stock split, then the number of Units convertible by Executive and/or the Measuring Value shall be proportionately adjusted. Adjustments under this Section shall be made by the Employer's independent public accountants. 7. Wage, FICA and Withholding Taxes. Executive hereby agrees that there shall be deducted from the payment of the economic value of any Units converted hereunder the amount necessary to discharge any Federal, state or local taxes (including any wage withholding or stock transfer taxes) imposed upon the Employer in respect of the Units or any payment upon conversion of Units. 8. Captions. The captions or headings of the paragraphs of this Schedule are inserted only as a matter of convenience, and in no way define, limit or in any other way describe the scope of this Agreement or the intent of any provisions hereof. EXHIBIT I to Calculation and Payment of Value Incentive Bonus Schedule ELECTION NOTICE To: LANCIT MEDIA ENTERTAINMENT, LTD. 601 West 50th Street New York, New York 10019 Attn: Chief Financial Officer I hereby elect to convert Units in accordance with the terms and conditions described in the Calculation and Payment of Value Incentive Bonus Schedule to Employment Agreement to which this Election Notice is attached as Exhibit I. All share certificates that may be issued pursuant to this Election Notice are to be issued and delivered as follows: _____________________________________________ _____________________________________________ _____________________________________________ _____________________________________________. Date:___________________, _____ Signature______________________________ Exhibit A Non-Qualified Stock Option for 700,000 Shares Dated March 31, 1997 (the "Date of Grant") This Option and the Shares issuable upon exercise of this Option are subject to certain restrictions on transfer described in Sections 5 and 6 hereof, and the holder of this Option agrees to be bound by such restrictions. LANCIT MEDIA ENTERTAINMENT, LTD. STOCK OPTION AGREEMENT KNOW ALL PERSONS BY THESE PRESENTS, that LANCIT MEDIA ENTERTAINMENT, LTD., a New York corporation (the "Company"), acting by its Board of Directors (the "Board"), hereby grants to SUSAN L. SOLOMON, residing at 211 Central Park West, New York, New York 10024 ("Optionee"), in consideration of services to be rendered to the Company, the right and option (the "Option") to purchase SEVEN HUNDRED THOUSAND (700,000) fully-paid and non-assessable shares (the "Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), on the following terms and conditions (as used throughout, the term "Optionee" shall refer only to the original grantee of the Option, and shall not include subsequent authorized holders thereof, such as legatees, personal representatives or distributees of such grantee or transferees thereof pursuant to a "QDRO" (as defined in Section 8 below), and the term "Holder" shall refer to any authorized holder of the Option): 1. Time and Manner of Exercise. The Option herein granted is subject to approval or ratification by the Company's shareholders in compliance with Section 505 of the Business Corporation Law of the State of New York and may not be exercised unless and until such approval or ratification has been obtained. The Option may not be exercised prior to October 1, 1997. From and after the later to occur of October 1, 1997 and the receipt of such shareholder approval or ratification, the Option may be exercised in whole or from time to time in part by giving advance written notice of such exercise to the Chief Financial Officer of the Company in the form of Exhibit I annexed hereto at any time prior to midnight, New York City time, on March 31, 2007 (the "Expiration Date"), specifying the number of Shares to be purchased. In no event shall a fraction of a Share be purchased or issued hereunder. Such notice must be accompanied by full payment for the Shares to be purchased and any withholding tax due. If the Company does not receive full payment for the Shares to be purchased and any withholding tax due within a reasonable period of time after notice of exercise has been given by Optionee, the notice of exercise shall be deemed to have been withdrawn and the Option shall remain in full force and effect, exercisable in accordance with the terms of this Agreement without any change in the number of Shares purchasable upon exercise of the Option, as though such notice of exercise had never been issued. 2. Exercise Price. The price of the Shares to be purchased pursuant to the Option shall be $5.0625 per share (the "Exercise Price"), subject to adjustment pursuant to Section 8 hereof. The aggregate purchase price of the Shares to be purchased pursuant to any exercise of the Option shall be equal to the product of the number of Shares to be purchased multiplied by the Exercise Price. 3. Payment and Issuance of Share Certificates. Full payment of the aggregate purchase price for the Shares purchased by Holder and any withholding taxes due thereon shall be made to the Company, either in cash or by certified check, bank check, personal check (in which case the Company reserves the right to withhold issuance of such Shares until the funds have cleared) or by wire transfer. If, and only if, the Shares issuable upon exercise of the Option may not be immediately resold without restriction under the Securities Act of 1933 (the "Act") prior to the date such payment is due, then Holder may pay the full or a partial amount of the purchase price, but not any withholding taxes due, in shares of Common Stock of the Company (including Shares previously issued upon exercise of the Option) valued at the "fair market value" thereof on the date notice of exercise of the Option to purchase such Shares is received by the Company. Certificates for the Shares purchased shall be delivered to Holder, subject to the provisions of Section 8 hereof, promptly thereafter. No Shares shall be issued, and no certificates for Shares shall be delivered, to Optionee until full payment therefor and of any withholding tax due thereon has been made. For the purposes of this agreement, the term "fair market value" as of any date of a share of Common Stock means the average of the closing bid and ask quotations for a share of Common stock as reported on the principal national securities exchange on which such shares are listed or, if not so listed, on the National Association of Securities Dealers, Inc. Automated Quotation System on the relevant date or, if no such shares were sold on such date, on the next preceding date on which such shares were sold or, if no sales shall have occurred within 10 business days preceding such relevant date, fair market value shall be as reasonably determined by the Board in good faith. 4. Expiration. The Option shall expire and become null and void at the earliest of: (a) the adjournment of the first meeting of the Company's shareholders to be held after the date first above written unless the Option is approved or ratified by the shareholders at such meeting; (b) the Expiration Date; (c) expiration of the Option pursuant to the provisions of Section 8 hereof; (d) (i) six (6) months after the termination of Optionee's employment pursuant to Optionee's employment agreement with the Company dated as of March 31, 1997 (the "Employment Agreement") if such termination occurs on or prior to March 31, 2001 other than by reason of death or "permanent disability" (as defined in the Employment Agreement); (ii)one (1) year after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs on or prior to March 31, 2001 by reason of death or "permanent disability"; (e) one (1) year after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs for any reason whatsoever after March 31, 2001 and on or prior to March 31, 2002; (f) two (2) years after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs for any reason whatsoever after March 31, 2002 and on or prior to March 31, 2003; or (g) three (3) years after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs for any reason whatsoever after March 31, 2003. In the event Optionee's employment is terminated within four (4) years of the Effective Date of the Employment Agreement other than "For Cause" (as defined in the Employment Agreement) or in the event Optionee effects a "Resignation For Cause" (as defined in the Employment Agreement) then, notwithstanding any other provisions of this or any other agreement dated of even date herewith or prior hereto, the Option shall expire no earlier than the date which is two (2) years from the Effective Date of the Employment Agreement with respect to 50% of the Shares purchasable upon exercise of the Option, the date which is three (3) years from the Effective Date of the Employment Agreement with respect to an additional 25% of the Shares purchasable upon exercise of the Option, and the date which is four (4) years from the Effective Date of the Employment Agreement with respect to the remaining 25% of the Shares purchasable upon exercise of the Option. 5. Securities Laws. (a) Optionee acknowledges that Optionee has been informed of, or is otherwise familiar with, the nature and the limitations imposed by the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder (in particular, Rule 144 promulgated under the Act ("Rule 144") and Section 16 of the Exchange Act and Rule 16b-3 promulgated thereunder) and the securities ("Blue Sky") laws of the state of Optionee's residence, concerning the Shares issuable upon exercise of the Option and agrees to be bound by the restrictions embodied in such laws, and the rules and regulations promulgated thereunder. Unless the Shares to be issued upon the exercise of the Option have been registered for resale in accordance with a currently effective registration statement under the Act, (but without prejudice to any obligations of the Company arising under the Employment Agreement or the Registration Rights Agreement referred to therein to register the Shares) the Board may require, as a condition to the delivery of certificates representing ownership of the Shares, that the Company receive appropriate evidence that Holder is acquiring the Shares for investment and not with a view to the distribution or public offering of the Shares, or any interest in the Shares, and a representation to the effect that Holder shall make no sale or other disposition of the Shares unless (a) the Company shall have received an opinion of counsel satisfactory in form and substance to it that the sale or other disposition may be made without registration under the then applicable provisions of the Act and the rules and regulations promulgated thereunder, or (b) the Shares shall be included in a currently effective registration statement under the Act. The Company reserves the right to place a legend on any certificates representing ownership of Shares to assure compliance with this paragraph. (b) The Company acknowledges that the Employment Agreement provides that the Company will seek to register the Shares under the Act on a Form S-8 registration statement and thereafter use reasonable efforts to maintain same in effect. In connection with such registration, the Company shall prepare and file and thereafter maintain current and in effect a "reoffer prospectus" under such registration statement registering the resale of all the Shares by Optionee. The Company agrees to use reasonable efforts to make timely filings of its periodic reports and to take such other actions as may be necessary or appropriate in order for the Company to remain qualified to use Form S-8 and such reoffer prospectus as herein contemplated. The Company's obligations under this paragraph shall terminate upon the earliest to occur of (i) the eleventh (11th) anniversary of the Date of Grant, or (ii) the sale of all of the Shares by Optionee, or (iii) the date Optionee receives an opinion of counsel (which may be from counsel to the Company) reasonably acceptable to counsel for the Optionee that all of the Shares may be sold under the provisions of paragraph (k) of Rule 144 notwithstanding the fact that a portion of the Shares may remain unregistered under the Act. 6. Non-Transferability; Death or Disability. (a) The Option is granted in recognition of the personal services of Optionee and Optionee hereby agrees that Optionee will not directly or indirectly sell, assign, transfer, pledge, hypothecate, dispose of, encumber or otherwise grant any interest in the Option other than (i) by will or by the laws of descent and distribution or (ii) pursuant to a "Qualified Domestic Relations Order" ("QDRO") as defined in the Internal Revenue Code of 1986, as amended (the "Code"), or Title I of the Employee Retirement Income Security Act of 1974, as amended. The Option may be exercised during the lifetime of Optionee only by Optionee or by Optionee's guardian or other legal representative or by a transferee thereof pursuant to a QDRO (a "Permitted Transferee"). (b) Optionee acknowledges that the Employment Agreement contains certain restrictions on Optionee's right to sell Shares and hereby agrees that the Company may place an appropriate legend on any certificates representing ownership of Shares to assure compliance with such restrictions. (c) If Optionee shall die, the Option may be exercised by Optionee's executor, administrator or other legal representative, or by a Permitted Transferee to whom the Option was lawfully transferred, if any, at any time prior to the expiration of the Option pursuant to Section 4 hereof. (d) If Optionee's employment pursuant to the Employment Agreement is terminated by reason of "permanent disability" (as defined in the Employment Agreement) the Option may be exercised by Optionee or by Optionee's guardian or legal representative, or by a Permitted Transferee to whom the Option was lawfully transferred, if any, at any time prior to the expiration of the Option pursuant to Section 4 hereof. 7. Holder Not a Shareholder. The Option shall not entitle Holder to any dividend, voting or other rights as a shareholder of the Company or to any notice of proceedings of the Company in respect of any Shares issuable upon exercise of the Option unless and until the certificates representing the Shares have been issued to Holder. 8. Recapitalization and Reorganization. (a) If the outstanding shares of the Common Stock of the Company are subdivided, consolidated, increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, merger, recapitalization, reclassification, capital adjustment or otherwise, or if the Company shall issue Common Stock as a dividend or upon a stock split, then the number and kind of shares then purchasable upon exercise of the Option and the Exercise Price hereunder shall be proportionately adjusted. However, no such adjustment shall change the total purchase price of a complete exercise of the unexercised portion of the Option. Adjustments under this Section shall be made by the Company's independent public accountants. In computing any such adjustments, any fractional share which might otherwise become subject to the Option shall be eliminated and paid in cash. (b) In the event of (i) the dissolution or liquidation of the Company or (ii) a merger or consolidation in which (A) the Company does not survive as a publicly owned corporation with securities registered under the Exchange Act and (B) the agreements governing such merger or consolidation do not provide for the issuance of substitute options with substantially equivalent terms as determined by the Board in lieu of the Option or for the express assumption (within the meaning of Section 424(a) of the Code) of the Option by the surviving corporation, the Board shall declare that the Option shall terminate as of a date to be fixed by the Board (the "Termination Date"), provided that the Board shall cause to be delivered not less than thirty (30) days before the Termination Date written notice of the Termination Date to Holder and, provided the Option has theretofore been approved or ratified by the Company's shareholders as contemplated by the provisions of Section 1 above, Holder shall have the right, during the period between the receipt of the written notice and the Termination Date to exercise the Option, in whole or in part, whether or not all or any part of the Option would not otherwise be exercisable; provided, however, that unless Optionee shall deliver to the Company written notice to the contrary at least three (3) business days prior to the Effective Date, the Optionee and every Holder shall be deemed to have delivered to the Company a notice of exercise of the Option, in whole, on the Effective Date. To the extent that the Option is not exercised in its entirety on or prior to the Termination Date, the Option and any and all rights then remaining hereunder shall expire and terminate as of the Termination Date. (c) Provided the Option has been approved or ratified by the Company's shareholders as contemplated by the provisions of Section 1 above, in the event a "Change in Control of Employer" (as defined in the Employment Agreement) occurs prior to October 1, 1997, the Option shall become immediately exercisable, in whole or in part. (d) In the event of a "Change in Control of Employer" pursuant to which substitute options are offered to Optionee in place of the Option herein granted or the surviving corporation offers to assume the Option, the Board shall cause to be delivered not less than thirty (30) days before the effective date of such "Change in Control of Employer" (the "Effective Date") written notice of the Effective Date to Optionee and, provided the Option has theretofore been approved or ratified by the Company's shareholders as contemplated by the provisions of Section 1 above, Optionee shall have the right to elect to accept such substitute options or assumption or to exercise the Option, in whole or in part, prior to the Effective Date (and such notice shall so state); provided, however, that unless Optionee shall deliver to the Company written notice to the contrary at least three (3) business days prior to the Effective Date, the Optionee and every Holder shall be deemed to have rejected any substitute options offered to Optionee and any offer to assume the Option and to have delivered to the Company a notice of exercise of the Option, in whole, on the Effective Date. 9. Reservation of Shares. The Company will at all times reserve and keep available out of its authorized shares of Common Stock, solely for issuance upon the exercise of the Option and other similar options, at least such number of its shares of Common Stock as shall be issuable upon the exercise of the Option and all other similar options at the time outstanding. 10. No Employment Agreement. Nothing contained in this Agreement shall confer upon Optionee the right to be continued as an employee or as a director of or as a consultant or advisor to the Company or any subsidiary or affiliate of the Company or shall interfere in any way with the right of the Company or any subsidiary or affiliate of the Company lawfully to terminate Optionee's employment at any time, and no such termination shall in any way affect any of the rights of the Company set forth in this Agreement. Nothing herein contained shall in any way affect the rights of the Company or Optionee arising under the Employment Agreement. 11. Wage, FICA and Withholding Taxes. Holder hereby agrees that Holder will make such arrangements as the Company may reasonably deem necessary to discharge any Federal, state or local taxes (including any wage withholding or stock transfer taxes) imposed upon the Company in respect of this Agreement, the Option covered hereby or the Shares purchasable hereunder. Shares of Common Stock may not be used to discharge Holder's tax obligations. Holder may, however, discharge Holder's tax obligations with respect to any purchase of Shares pursuant to the exercise of the Option by (i) agreeing to sell the Shares so purchased within the thirty (30) day period immediately following such purchase, which period shall be extended by such number of days, if any, during which such sale cannot be effected by reason of the failure or inability of the Company to register such Shares under the Act (as so extended, the "Sale Period") and (ii) delivering to the Company Optionee's promissory note payable upon the earlier to occur of (A) such sale of Shares and (B) the expiration of the Sale Period. 12. Entire Agreement. This Agreement contains the entire agreement of the parties relative to the subject matter hereof, superseding and terminating all prior agreements or understandings, whether oral or written, between the parties hereto relative to the subject hereof, and this Agreement may not be extended, amended, modified or supplemented without the written consent of the parties hereto. 13. Waiver, Modification, Amendment. Except where specific time limits are herein provided, no delay on the part of either party hereto in exercising any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right hereunder preclude other or further exercise thereof or the exercise of any other power or right. No waiver, modification, or amendment of this Agreement or any provision hereof, shall be enforceable against either party hereto unless in writing, signed by the party against whom such waiver, modification or amendment is claimed, and with regard to any waiver, shall be limited solely to the one event. 14. Governing Law. This Agreement and all amendments or changes relating hereto shall be deemed to have been entered into pursuant to, and shall be governed by, the laws of the State of New York. 15. Notices. Notices pursuant hereto shall be given in writing, in person (against receipt therefor only if requested) or by registered or certified mail, return receipt requested, and shall be deemed delivered upon delivery in person or four (4) days after deposit in the United States mail, postage prepaid, addressed as follows: If to the Company: LANCIT MEDIA ENTERTAINMENT, LTD. 601 West 50th Street New York, NY 10019 Attn: Chief Financial Officer If to Optionee: SUSAN L. SOLOMON 211 Central Park West New York, NY 10024 or to such other address as either party hereto shall designate to the other party by written notice given in accordance with this Section. 16. Injunctive Relief. In addition to any other rights or remedies available to the Company as a result of any breach of Optionee's covenants under Section 5 hereof, the Company shall be entitled to enforcement of such covenants by seeking an injunction or a decree of specific performance from a court of competent jurisdiction. 17. Captions. The captions or headings of the Sections are inserted only as a matter of convenience, and in no way define, limit or in any other way describe the scope of this Agreement or the intent of any provisions hereof. 18. Optionee Information and Knowledge. Holder hereby certifies that Holder has read the above Agreement, and understands and agrees to all of the terms, conditions and statements contained therein, accepting this Agreement as of the Date of Grant first above written. ATTEST: LANCIT MEDIA ENTERTAINMENT, LTD. _____________________________ By: __________________________________ [Assistant] Secretary Laurence A. Lancit, President __________________________________ SUSAN L. SOLOMON EXHIBIT I EXERCISE NOTICE To: LANCIT MEDIA ENTERTAINMENT, LTD. (the "Company") 601 West 50th Street New York, New York 10019 Attn: Chief Financial Officer I hereby elect to purchase shares of Common Stock ("New Shares") in accordance with the terms and conditions of the Stock Option Agreement to which this Exercise Notice is attached as Exhibit I (the "Agreement"), and hereby tender herewith full payment of the purchase price and all applicable withholding taxes in the amount of $ , either in cash or by certified check, bank check, personal check (in which case the Company reserves the right to withhold issuance of such New Shares until the funds have cleared) payable to the order of Lancit Media Entertainment, Ltd., or by wire transfer of funds, or, but only if I am permitted to do so under the Agreement, and only with regard to the full or partial amount of the purchase price, in negotiable certificates1 for outstanding shares of Common Stock of the Company ("Old Shares"), valued at the "fair market value" (as defined in the Agreement) thereof as of the date this Exercise Notice is received by the Company. I further request that if the stock certificate(s) for Old Shares being tendered herewith (if any) is for more shares of Common Stock than are needed to pay the purchase price, that a new stock certificate for the extra shares represented by the certificate(s) delivered herewith be issued and delivered to me. All share certificates issued pursuant to this Exercise Notice are to be issued and delivered as follows: _______________________________________ _______________________________________ _______________________________________ _______________________________________. Date:__________________,________ Signature __________________________2 1 To be negotiable, certificates must be endorsed to LANCIT MEDIA ENTERTAINMENT, LTD., or in blank, or be accompanied by a stock power so endorsed. 2 The signature on this notice must correspond with Holder's name as written on the face of the Agreement in every particular, without alteration or enlargement or any change whatsoever. Exhibit B NQO 1990 for 70,000 Shares Dated March 31, 1997 (the "Date of Grant") This Option and the Shares issuable upon exercise of this Option are subject to certain restrictions on transfer described in Sections 7 and 8 hereof, and the holder of this Option agrees to be bound by such restrictions. LANCIT MEDIA ENTERTAINMENT, LTD. STOCK OPTION AGREEMENT KNOW ALL PERSONS BY THESE PRESENTS, that LANCIT MEDIA ENTERTAINMENT, LTD., a New York corporation (the "Company"), acting by its Board of Directors (the "Board"), hereby grants to SUSAN L. SOLOMON, residing at 211 Central Park West, New York, New York 10024 ("Optionee" or a "Holder" as defined below), pursuant to the Company's 1990 Stock Option Plan (the "Plan"), in consideration of services to be rendered to the Company, the right and option (the "Option") to purchase up to SEVENTY THOUSAND (70,000) fully-paid and non-assessable shares (the "Shares") of the Company's common stock, par value $.001 per share (the "Common Stock"), on the following terms and conditions (as used throughout, the term "Optionee" shall refer only to the original grantee of the Option, and shall not include subsequent authorized holders thereof, such as legatees, personal representatives or distributees of such grantee or transferees thereof pursuant to a "QDRO" (as defined in Section 8 below), and the term "Holder" shall refer to any authorized holder of the Option): 1. Character of the Option. The Plan provides for the issuance of incentive stock options ("Incentive Stock Options") and of non-qualified stock options ("Non-Qualified Options"). The Incentive Stock Options are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Non-Qualified Options are intended to be options which do not satisfy the requirements of Section 422 of the Code. All of the Shares purchasable hereunder are purchasable pursuant to a Non-Qualified Option. 2. Time and Manner of Exercise. (a) To the extent provided in paragraph (b) of this Section, the Option may be exercised in whole or from time to time in part by giving advance written notice of such exercise to the Chief Financial Officer of the Company in the form of Exhibit I annexed hereto at any time after October 1, 1997 and prior to midnight, New York City time, on March 31, 2007 (the "Expiration Date"), specifying the number of Shares to be purchased. In no event shall a fraction of a Share be purchased or issued hereunder. Such notice must be accompanied by full payment for the Shares to be purchased and any withholding tax due. If the Company does not receive full payment for the Shares to be purchased and any withholding tax due within a reasonable period of time after notice of exercise has been given by Optionee, the notice of exercise shall be deemed to have been withdrawn and the Option shall remain in full force and effect, exercisable in accordance with the terms of this Agreement without any change in the number of Shares purchasable upon exercise of the Option, as though such notice of exercise had never been issued. (b) This Option may be exercised prior to the Expiration Date at any time (or if exercised in part, from time to time) to purchase such number of Shares as equals the total of the "Exercise Products" determined prior to such exercise of the Option (less such number of Shares as may already have been purchased upon the exercise of the Option); provided, however, that under no circumstances whatsoever may the Option be exercised to purchase more that 70,000 shares of Common Stock. For the purposes of this agreement, Exercise Product shall be determined as follows: Every time an option or warrant issued by the Company which entitles the holder to acquire shares of Common Stock upon the exercise thereof, and which is outstanding on the date first above written (each such option and warrant outstanding on the date first above written is hereinafter referred to as a "Currently Outstanding Warrant"), is exercised, the "dilutive effect" of such exercise shall be determined in accordance with the following formula: "dilutive effect" = dilutive value, where "dilutive value" = afmv - app, where -------------- ---------- fmv os+uso fmv = the "fair market value" of a share of Common Stock on the date of exercise (for the purposes of this agreement, the term "fair market value" as of any date of a share of Common Stock means the average of the closing bid and ask quotations for a share of Common Stock as reported on the principal national securities exchange on which such shares are listed or, if not so listed, on the National Association of Securities Dealers, Inc. Automated Quotation System on the relevant date or, if no such shares were sold on such date, on the next preceding date on which such shares were sold or, if no sales shall have occurred within 10 business days preceding such relevant date, fair market value shall be as reasonably determined by the Board in good faith); afmv = the aggregate fair market value of the shares of Common Stock purchased upon such exercise; app = the aggregate purchase price paid for such shares of Common Stock; os = the number of shares of Common Stock outstanding immediately prior to such exercise; and uso = the number of Signing Options remaining unexercised at such time. The dilutive effect so determined, expressed as a fraction, shall be multiplied by 700,000 and the product so determined (the "Exercise Product") shall be the number of Shares which may thereafter be purchased upon exercise of the Option as a consequence of such exercise of Currently Outstanding Warrants. The Exercise Product shall be determined with respect to every exercise of Currently Outstanding Warrants after the date hereof. (c) Anything in paragraph (b) of this Section to the contrary notwithstanding, from and after October 1, 2006, the Option shall be exercisable in whole or from time to time in part to purchase 70,000 Shares (less such number of Shares as may already have been purchased upon the exercise of the Option). 3. Exercise Price. The price of the Shares to be purchased pursuant to the Option shall be $5.0625 per share (the "Exercise Price"), subject to adjustment pursuant to Section 10 hereof. The aggregate purchase price of the Shares to be purchased pursuant to any exercise of the Option shall be equal to the product of the number of Shares to be purchased multiplied by the Exercise Price. 4. Payment and Issuance of Share Certificates. Full payment of the aggregate purchase price for the Shares purchased by Holder and any withholding taxes due thereon shall be made to the Company, either in cash or by certified check, bank check, personal check (in which case the Company reserves the right to withhold issuance of such Shares until the funds have cleared) or by wire transfer. If, and only if, the Shares issuable upon exercise of the Option may not be immediately resold without restriction under the Securities Act of 1933, as amended (the "Act") prior to the date such payment is due, then Holder may pay the full or partial amount of the purchase price, but not any withholding taxes due, in shares of Common Stock of the Company (including Shares previously issued upon exercise of the Option) valued at the "fair market value" thereof on the date notice of exercise of the Option to purchase such Shares is received by the Company. Certificates for the Shares purchased shall be delivered to Holder, subject to the provisions of Section 10 hereof, promptly thereafter. No Shares shall be issued, and no certificates for Shares shall be delivered, to Holder until full payment therefor and of any withholding tax due thereon has been made. 5. Expiration. The Option shall expire and become null and void at the earliest of: (a) the Expiration Date; (b) expiration of the Option pursuant to the provisions of Section 10 hereof; (c) (i) six (6) months after the termination of Optionee's employment pursuant to Optionee's employment agreement with the Company dated as of March 31, 1997 (the "Employment Agreement") if such termination occurs on or prior to March 31, 2001 other than "For Cause" (as defined in the Employment Agreement) or by reason of death or "permanent disability" (as defined in the Employment Agreement); (ii) one (1) year after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs on or prior to March 31, 2001 by reason of death or "permanent disability;" (d) one (1) year after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs for any reason other than "For Cause" after March 31, 2001 and on or prior to March 31, 2002; (e) two (2) years after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs for any reason other than "For Cause" or by reason of "permanent disability" after March 31, 2002 and on or prior to March 31, 2003; (f) three (3) years after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs for any reason other than "For Cause" or by reason of "permanent disability" after March 31, 2003; (g) one (1) year after the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs by reason of "permanent disability" after March 31, 2002; or (h) upon the termination of Optionee's employment pursuant to the Employment Agreement if such termination occurs "For Cause" at any time. In the event Optionee's employment is terminated within four (4) years of the Effective Date of the Employment Agreement other than "For Cause" or in the event Optionee effects a "Resignation For Cause" (as defined in the Employment Agreement) then, notwithstanding any other provisions of this or any other agreement dated of even date herewith or prior hereto, the Option shall expire no earlier than the date which is two (2) years from the Effective Date of the Employment Agreement with respect to 50% of the Shares purchasable upon exercise of the Option, the date which is three (3) years from the Effective Date of the Employment Agreement with respect to an additional 25% of the Shares purchasable upon exercise of the Option, and the date which is four (4) years from the Effective Date of the Employment Agreement with respect to the remaining 25% of the Shares purchasable upon exercise of the Option. 6. Subject to Plan. The Option has been issued under the Plan. In addition to the provisions of this Agreement, the Option will be subject to the power of the Board to interpret the Plan, correct any defect, supply any omission and reconcile any inconsistency in the Plan, prescribe, amend and rescind rules and regulations, forms, notices and agreements relating to it and make all determinations necessary or advisable for its administration and to alter, suspend or discontinue the Plan at any time, except that no such action of the Board may, without the consent of the Holder, alter the terms of, or impair the rights of the Holder under this Agreement, except pursuant to Section 10 below. The power of the Board to construe and administer any options granted prior to the termination or suspension of the Plan shall nevertheless continue after and survive such termination or during such suspension. By acceptance hereof, Optionee acknowledges receipt of a copy of the Summary Plan Description describing the Plan and recognizes and agrees to the foregoing. 7. Securities Laws. (a) Optionee acknowledges that Optionee has been informed of, or is otherwise familiar with, the nature and the limitations imposed by the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder (in particular, Rule 144 promulgated under the Act ("Rule 144") and Section 16 of the Exchange Act and Rule 16b-3 promulgated thereunder) and the securities ("Blue Sky") laws of the state of Optionee's residence, concerning the Shares issuable upon exercise of the Option and agrees to be bound by the restrictions embodied in such laws, and the rules and regulations promulgated thereunder. Unless the Shares to be issued upon the exercise of the Option have been registered for resale in accordance with a currently effective registration statement under the Act, the Board may require, as a condition to the delivery of certificates representing ownership of the Shares, that the Company receive appropriate evidence that Holder is acquiring the Shares for investment and not with a view to the distribution or public offering of the Shares, or any interest in the Shares, and a representation to the effect that Holder shall make no sale or other disposition of the Shares unless (a) the Company shall have received an opinion of counsel satisfactory in form and substance to it that the sale or other disposition may be made without registration under the then applicable provisions of the Act and the rules and regulations promulgated thereunder, or (b) the Shares shall be included in a currently effective registration statement under the Act. If at any time the Board shall determine in its discretion that the listing, registration or qualification of the shares covered by the Plan upon any national securities exchange or under any federal or state law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the sale or purchase of shares subject to the Plan, no Shares shall be issued and no certificates for Shares shall be delivered unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board. The Company reserves the right to place a legend on any certificates representing ownership of Shares to assure compliance with this paragraph. (b) The Company acknowledges that the Common Stock purchasable upon exercise of stock options issued under the Plan have been registered under the Act on a Form S-8 registration statement and agrees to use reasonable efforts to maintain same in effect. In connection with such registration, the Company shall prepare and file, by means of a post-effective amendment, and thereafter maintain current and in effect a "reoffer prospectus" under such registration statement registering the resale of all the Shares by Optionee. The Company agrees to use reasonable efforts to make timely filings of its periodic reports and to take such other actions as may be necessary or appropriate in order for the Company to remain qualified to use Form S-8 and such reoffer prospectus as herein contemplated. The Company's obligations under this paragraph shall terminate upon the earliest to occur of (i) the eleventh (11th) anniversary of the Date of Grant, or (ii) the sale of all of the Shares by Optionee, or (iii) the date Optionee receives an opinion of counsel (which may be from counsel to the Company) reasonably acceptable to counsel for the Optionee that all of the Shares may be sold under the provisions of paragraph (k) of Rule 144 notwithstanding the fact that a portion of the Shares may remain unregistered under the Act. 8. Non-Transferability; Death or Disability. (a) The Option is granted in recognition of the personal services of Optionee and Optionee hereby agrees that Optionee will not directly or indirectly sell, assign, transfer, pledge, hypothecate, dispose of, encumber or otherwise grant any interest in the Option other than (i) by will or by the laws of descent and distribution or (ii) pursuant to a "Qualified Domestic Relations Order" ("QDRO") as defined in the Internal Revenue Code of 1986, as amended (the "Code"), or Title I of the Employee Retirement Income Security Act of 1974, as amended. The Option may be exercised during the lifetime of Optionee only by Optionee or by Optionee's guardian or other legal representative or by a transferee thereof pursuant to a QDRO (a "Permitted Transferee"). (b) Optionee acknowledges that the Employment Agreement contains certain restrictions on Optionee's right to sell Shares and hereby agrees that the Company may place an appropriate legend on any certificates representing ownership of Shares to assure compliance with such restrictions. (c) If Optionee shall die, the Option may be exercised by Optionee's executor, administrator or other legal representative, or by a Permitted Transferee to whom the Option was lawfully transferred, if any, at any time prior to the expiration of the Option pursuant to Section 5 hereof. (d) If Optionee's employment pursuant to the Employment Agreement is terminated by reason of "permanent disability" (as defined in the Employment Agreement), the Option may be exercised by Optionee or by Optionee's guardian or legal representative, or by a Permitted Transferee to whom the Option was lawfully transferred, if any, at any time prior to the expiration of the Option pursuant to Section 5 hereof. 9. Holder Not a Shareholder. The Option shall not entitle Holder to any dividend, voting or other rights as a shareholder of the Company or to any notice of proceedings of the Company in respect of any Shares issuable upon exercise of the Option unless and until the certificates representing the Shares have been issued to Holder. 10. Recapitalization and Reorganization. (a) If the outstanding shares of the Common Stock of the Company are subdivided, consolidated, increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, merger, recapitalization, reclassification, capital adjustment or otherwise, or if the Company shall issue Common Stock as a dividend or upon a stock split, then the number and kind of shares then purchasable upon exercise of the Option and the Exercise Price hereunder shall be proportionately adjusted. However, no such adjustment shall change the total purchase price of a complete exercise of the unexercised portion of the Option. Adjustments under this Section shall be made by the Company's independent public accountants. In computing any such adjustments, any fractional share which might otherwise become subject to the Option shall be eliminated and be paid in cash. (b) In the event of (i) the dissolution or liquidation of the Company or (ii) a merger or consolidation in which (A) the Company does not survive as a publicly owned corporation with securities registered under the Exchange Act and (B) the agreements governing such merger or consolidation do not provide for the issuance of substitute options with substantially equivalent terms as determined by the Board in lieu of the Option or for the express assumption (within the meaning of Section 424(a) of the Code) of the Option by the surviving corporation, the Board shall declare that the Option shall terminate as of a date to be fixed by the Board (the "Termination Date"), provided that the Board shall cause to be delivered not less than thirty (30) days before the Termination Date written notice of the Termination Date to Holder, and Holder shall have the right, during the period between the receipt of the written notice and the Termination Date to exercise the Option, in whole or in part, whether or not all or any part of the Option would not otherwise be exercisable; provided, however, that unless Optionee shall deliver to the Company written notice to the contrary at least three (3) business days prior to the Effective Date, the Optionee and every Holder shall be deemed to have delivered to the Company a notice of exercise of the Option, in whole to the extent provided in paragraph (b) of Section 2, above, on the Effective Date. To the extent that the Option is not exercised in its entirety on or prior to the Termination Date, the Option and any and all rights then remaining hereunder shall terminate as of the Termination Date. (c) In the event "Change in Control of Employer" (as defined in the Employment Agreement) occurs prior to October 1, 1997, the Option shall become immediately exercisable, in whole or in part, to the extent provided in paragraph (b) of Section 2, above. (d) In the event of a "Change in Control of Employer" pursuant to which substitute options are offered in place of the Option herein granted or the surviving corporation offers to assume the Option, the Board shall cause to be delivered not less than thirty (30) days before the effective date of such "Change in Control of Employer" (the "Effective Date") written notice of the Effective Date to Optionee and Optionee shall have the right to elect (i) to accept such substitute options or assumption, or (ii) to exercise the Option, in whole or in part, to the extent provided in paragraph (b) of Section 2, above, prior to the Effective Date (and such notice shall so state); provided, however, that unless Optionee shall deliver to the Company written notice to the contrary at least three (3) business days prior to the Effective Date, the Optionee and every Holder shall be deemed to have rejected any substitute options offered to Optionee and any offer to assume the Option and to have delivered to the Company a notice of exercise of the Option, in whole to the extent provided in paragraph (b) of Section 2, above, on the Effective Date. 11. Reservation of Shares. The Company will at all times reserve and keep available out of its authorized shares of Common Stock, solely for issuance upon the exercise of the Option and other similar options, at least such number of its shares of Common Stock as shall be issuable upon the exercise of the Option and all other similar options at the time outstanding. 12. No Employment Agreement. Nothing contained in this Agreement shall confer upon Optionee the right to be continued as an employee or as a director of or as a consultant or advisor to the Company or any subsidiary or affiliate of the Company or shall interfere in any way with the right of the Company or any subsidiary or affiliate of the Company lawfully to terminate Optionee's employment at any time, and no such termination shall in any way affect any of the rights of the Company set forth in this Agreement. Nothing herein contained shall in any way affect the rights of the Company or Optionee arising under the Employment Agreement. 13. Wage, FICA and Withholding Taxes. Holder hereby agrees that Holder will make such arrangements as the Company may reasonably deem necessary to discharge any Federal, state or local taxes (including any wage withholding or stock transfer taxes) imposed upon the Company in respect of this Agreement, the Option covered hereby or the Shares purchasable hereunder. Shares of Common Stock may not be used to discharge Holder's tax obligations. Holder may, however, discharge Holder's tax obligations with respect to any purchase of Shares pursuant to the exercise of the Option by (i) agreeing to sell the Shares so purchased within the thirty (30) day period immediately following such purchase, which period shall be extended by such number of days, if any, during which such sale cannot be effected by reason of the failure or inability of the Company to register such Shares under the Act (as so extended, the "Sale Period") and (ii) delivering to the Company Optionee's promissory note payable upon the earlier to occur of (A) such sale of Shares and (B) the expiration of the Sale Period. 14. Entire Agreement. This Agreement contains the entire agreement of the parties relative to the subject matter hereof, superseding and terminating all prior agreements or understandings, whether oral or written, between the parties hereto relative to the subject hereof, and this Agreement may not be extended, amended, modified or supplemented without the written consent of the parties hereto. 15. Waiver, Modification, Amendment. Except where specific time limits are herein provided, no delay on the part of either party hereto in exercising any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right hereunder preclude other or further exercise thereof or the exercise of any other power or right. No waiver, modification, or amendment of this Agreement or any provision hereof, shall be enforceable against either party hereto unless in writing, signed by the party against whom such waiver, modification or amendment is claimed, and with regard to any waiver, shall be limited solely to the one event. 16. Governing Law. This Agreement and all amendments or changes relating hereto shall be deemed to have been entered into pursuant to, and shall be governed by, the laws of the State of New York. 17. Notices. Notices pursuant hereto shall be given in writing, in person (against receipt therefor only if requested) or by registered or certified mail, return receipt requested, and shall be deemed delivered upon delivery in person or four (4) days after deposit in the United States mail, postage prepaid, addressed as follows: If to the Company: LANCIT MEDIA ENTERTAINMENT, LTD. 601 West 50th Street New York, NY 10019 Attn: Chief Financial Officer If to Optionee:SUSAN L. SOLOMON 211 Central Park West New York, NY 10024 or to such other address as either party hereto shall designate to the other party by written notice given in accordance with this Section. 18. Injunctive Relief. In addition to any other rights or remedies available to the Company as a result of any breach of Optionee's covenants under Section 7 hereof, the Company shall be entitled to enforcement of such covenants by seeking an injunction or a decree of specific performance from a court of competent jurisdiction. 19. Captions. The captions or headings of the Sections are inserted only as a matter of convenience, and in no way define, limit or in any other way describe the scope of this Agreement or the intent of any provisions hereof. 20. Optionee Information and Knowledge. Holder hereby certifies that Holder has read the above Agreement, and understands and agrees to all of the terms, conditions and statements contained therein, accepting this Agreement as of the Date of Grant first above written. ATTEST: LANCIT MEDIA ENTERTAINMENT, LTD. _____________________________ By: ______________________________ [Assistant] Secretary Laurence A. Lancit, President ______________________________ SUSAN L. SOLOMON EXHIBIT I to Stock Option Agreement EXERCISE NOTICE To: LANCIT MEDIA ENTERTAINMENT, LTD. (the "Company") 601 West 50th Street New York, New York 10019 Attn: Chief Financial Officer I hereby elect to purchase shares of Common Stock ("New Shares") pursuant to the exercise of Non-Qualified Option NQO 1990- in accordance with the terms and conditions of the Stock Option Agreement to which this Exercise Notice is attached as Exhibit I (the "Agreement"), and hereby tender herewith full payment of the purchase price and all applicable withholding taxes in the amount of $ , either in cash or by certified check, bank check, personal check (in which case the Company reserves the right to withhold issuance of such New Shares until the funds have cleared) payable to the order of Lancit Media Entertainment, Ltd., or by wire transfer, or, but only if I am permitted to do so under the Agreement, and only with regard to the full or a partial amount of the purchase price, in negotiable certificates1 for outstanding shares of Common Stock of the Company ("Old Shares"), valued at the "fair market value" (as defined in the Agreement) thereof as of the date this Exercise Notice is received by the Company. I further request that if the stock certificate(s) for Old Shares being tendered herewith (if any) is for more shares of Common Stock than are needed to pay the purchase price, that a new stock certificate for the extra shares represented by the certificate(s) delivered herewith be issued and delivered to me. All share certificates issued pursuant to this Exercise Notice are to be issued and delivered as follows: _______________________________________ _______________________________________ _______________________________________ _______________________________________. Date:___________________, ______ Signature____________________________ 1 To be negotiable, certificates must be endorsed to LANCIT MEDIA ENTERTAINMENT, LTD., or in blank, or be accompanies by a stock power so endorsed. 2 The signature on this notice must correspond with Holder's name as written on the face of the Agreement in every particular, without alteration or enlargement or any change whatsoever. EX-10 3 EMPLOYMENT AGREEMENT WITH DAVID MICHAELS EMPLOYMENT AGREEMENT made as of the 25th day of February, 1996 by and between LANCIT MEDIA PRODUCTIONS, LTD. with offices at 601 West 50th Street, New York, New York 10019 (hereinafter "Employer") and DAVID MICHAELS, residing at 1526 North Beverly Drive, Beverly Hills, California 90210 (hereinafter "Employee"). WHEREAS, the parties desire to set forth the terms and conditions of employment of Employee by Employer. NOW, THEREFORE, in consideration of the agreements hereinafter contained, the parties hereto agree as follows: 1. Term: Employer hereby employs Employee as Vice President - Motion Pictures for a period of three (3) years commencing on February 26, 1996 ("Initial Term"). 2. Services: (a) Employee shall be responsible for Employer's development of quality family television and film projects consistent with Employer's primary mission to deliver quality content and quality production values, and expanding Employer's presence into mainstream children and family programming venues. (b) Employee will perform his services within a mutually agreed annual budget, it being understood that if Employer and Employee cannot agree on such budget, Employer's decision regarding such budget shall be final. Employee agrees to devote his full working time and efforts to the business and affairs of Employer and to all of its subsidiaries and affiliates, if any (hereinafter collectively referred to as the "Corporate Group"), and hold the offices in components of the Corporate Group to which from time to times he may be elected or appointed, provided that they are of the same general character and of at least the same degree of responsibility as the offices in Employer which he shall hold at the time of the execution of this Agreement. (c) Employee shall have a private, enclosed office and will share a secretary/assistant employed by Employer. Employee's primary place of employment will be at Employer's office in Los Angeles, California, and Employer will not change Employee's primary place of employment without Employee's consent. Employer and Employee will mutually agree on the times when Employee shall render his services in New York City, it being understood that if Employer and Employee cannot agree on such times, Employer's decision shall be final. (d) Nothing contained in this Agreement shall be construed to prevent Employee from managing his private passive investments in any non-competitive business, except that Employee will be permitted to own not more than five (5%) percent of the issued and outstanding stock or other securities of a competitive company. Employee shall, in the performance of his duties, be at all times subject to the direction and supervision of Employer, and shall report to Employer's Chief Executive Officer, currently Cecily Truett. (e) Notwithstanding the provisions of subparagraph 2(a), Employer acknowledges that Employee currently has, and will continue to have an ownership interest in the motion picture/television production company Good Medicine, Inc. ("Good Medicine"). Employee represents and warrants that Good Medicine has an interest in the projects described in Schedule A annexed hereto as well as future projects acquired or developed by Good Medicine (collectively referred to herein as the "Outside Projects"). Employee will be permitted to continue to be involved in the activities of Good Medicine upon the following conditions: (i) Employee's involvement in such activities shall not materially interfere with the performance of Employee's duties hereunder, as determined in Employer's sole reasonable discretion; (ii) Employee shall not engage in line producing or other activities which require anything other than minimal supervisory involvement during the term of this agreement; and (iii) Employee agrees to cause Good Medicine to grant Employer first negotiation and matching rights with respect to the Outside Projects. In that connection, if, and only if, Employee desires to enter into an agreement with any third party regarding the development of an Outside Project, Employee agrees to cause Good Medicine to deliver to Employer a written description of each Outside Project, together with a development budget and/or a development cost report for such Outside Project no less than ten (10) days prior to soliciting any third party interest in such development. Within ten (10) days of receipt of such materials, Employer shall advise Employee whether Employer wishes to assume development of such Outside Project. If Employer elects to assume development of such Outside Project, Employer shall reimburse Good Medicine for its documented, direct out-of-pocket costs (exclusive of any salary and salary related items paid to Employee or any employees of Good Medicine) to date in connection with such Outside Project. If Employer declines to assume development of such Outside Project, Good Medicine shall thereafter be permitted to offer such Outside Project to any other third party. If, prior to a third party entering into a contract with respect to such Outside Project, a material element of an Outside Project changes at any time after Employer declines to assume development of such Outside Project, such changed Outside Project shall be deemed a new Outside Project, subject to all of the provisions of this subparagraph 2(e)(iii). Finally, if Employer declines to assume development of an Outside Project, and Good Medicine receives from a third party a written offer to assume development or financing of an Outside Project, Employee shall deliver to Employer a copy of such written offer, which offer shall contain all material terms of any such proposed third party agreement. Employer shall then have the right for five (5) business days to match such offer, and upon receipt of Employer's agreement to match such offer, Employee shall cause Good Medicine to enter into an agreement with Employer regarding the assumption of the development or financing of the Outside Project, upon material terms equivalent to those of the proposed third party agreement. Employer acknowledges and agrees that if an Outside Project is not offered to Employer during the Term in accordance with the terms of this Agreement, such Outside Project shall not be required to be offered to Employer after the expiration of the Term. (f) (i) In connection with productions acquired or developed solely by Employee hereunder, Employee shall be entitled to receive credit for supervisory producing services actually rendered by Employee hereunder. Employer will use its best efforts to accord such credit in advertisements wherever and whenever Employer, the writer and the director of such production receive credit, in the main or end titles of the production, subject to approval of the distributor of such production, and Employer's and Employee's mutual agreement, not to be unreasonably withheld, regarding the appropriate description of Employee's services. A production shall be deemed "developed or acquired solely by Employee hereunder" if the project shall be identified as such within ten (10) days after such project shall have been first introduced to Employer by an executed written notice in the form of Exhibit A hereto, delivered by Employee and acknowledged by Employer. (ii) With respect to Outside Projects acquired by Employer during the Term, Employer agrees to accord Employee a "Produced By" credit in the main or end titles and in paid advertisements wherever and whenever Employer, the writer and the director of such production receive credit, and agrees to require the distributor of such production to accord such credit. (iii) An inadvertent failure by Employer or the distributor of such production to accord Employee the credit required by this subparagraph 2(f) shall not be a breach of this Agreement, although Employer shall, upon receipt of written notice of such failure from Employee, use reasonable efforts to cure, or instruct the distributor to cure, such failure on a prospective basis. It is acknowledged and agreed that if Employee has rendered such services in connection with a production during the Term of this Agreement, such credit shall be accorded to Employee whether or not Employee is then an employee of Employer. 3. Compensation: (a) As compensation for services rendered to the Corporate Group during the term of this Agreement, Employee shall be paid compensation at the annual base rate (the "Base Salary") of $75,000 per year during the first year of this Agreement. The Base Salary during each of the second and third years of this Agreement shall be not less than $125,000 per year, but may also be raised based on Employee's performance and in amounts as may be determined by his supervisor and approved in accordance with Employer's policies. The Base Salary shall be payable in accordance with Employer's then applicable payroll practice. (b) Employer has adopted an Incentive Bonus Plan whereby executive officers of Employer as a group shall receive a bonus of five (5%) percent of pre-tax income of Employer, as set forth in Employer's audited financial statements provided that: (i) Employer's pre-tax income in any given fiscal year is at least $250,000; (ii) in such fiscal year, Employer's net income per share is at least $.05 per share (adjusted for stock splits and stock dividends); and (iii) the net income in such fiscal year exceeds the net income in the immediately preceding fiscal year. The amount of any bonus to be paid to Employee which may be available for distribution pursuant to such Incentive Bonus Plan, in any year of this Agreement, shall be determined by Employer. Employee shall be eligible to participate in such Incentive Bonus Plan starting with the fiscal year which commences on July 1, 1996, and if the term of Employee's employment terminates prior to the close of Employer's fiscal year, Employee shall be eligible to participate in a pro-rata portion of any bonus payable as of the close of such fiscal year. Employer represents and warrants that no current employee has pre-negotiated the amount of any bonus to be paid to such employee in connection with the Incentive Bonus Plan described in this subparagraph 3(b). (c) (i) Subject to the terms of this Agreement, Employer's 1990 Stock Option Plan (as it may be amended from time to time) and any applicable I.R.S. regulations, Employee shall be granted an option to purchase 45,000 shares of Employer's Common Stock (the "Signing Options") effective as of February 26, 1996 (the "Effective Date"), the Signing Options to vest and be exercisable in accordance with the provisions below. The Signing Options shall be granted pursuant to Employer's 1990 Stock Option Plan, as it may be amended from time to time. Options with respect to 15,000 shares of the Signing Options shall be exercisable as of the Effective Date. Options with respect to an additional 15,000 shares of the Signing Options shall be exercisable as of February 26, 1997. Options with respect to the final 15,000 shares of the Signing Options shall be exercisable as of February 25, 1998. All such Signing Options shall be exercisable at an exercise price per share equal to $10.125 per share, which was the average of the closing bid and ask quotations for a share of Employer's Common Stock on the Effective Date. (ii) The terms of the Signing Options shall be governed by Employer's 1990 Stock Option Plan and Employee's Stock Option Agreement, copies of which have been delivered to Employee prior to the execution hereof. (iii) Employee acknowledges and agrees that, as a corporate officer of Employer, he may be deemed a "Named Executive Individual" and is an insider, for the purposes of SEC filings and reporting and securities laws. Employee agrees to comply with all applicable securities laws including, without limitation, timely filing of Form 3, "Initial Statement of Beneficial Ownership of Securities." (d) Subject to the limitations described in Exhibit B annexed hereto and the provisions of this Agreement, Employee shall also be entitled to receive a production introduction bonus in the amount of Twelve and One-Half Percent (12-1/2%) of Passive Producing Fees (defined below) arising out of projects introduced to Employer solely by Employee and which Passive Producing Fees are received by Employer, either during or after the term of his employment. Notwithstanding the previous sentence, Employee's production introduction bonus shall only be payable after the term of his employment (i) if projects are picked up by Employer pursuant to contracts entered into by Employer (A) during the term of his employment or (B) within six (6) months (for television projects) or twelve (12) months (for theatrical motion picture projects) after the term of his employment and (ii) with respect to a television project, such production introduction bonus shall only be payable with respect to the first season of such television project. The production introduction bonuses shall be calculated and paid to Employee within thirty (30) days after each June 30th out of twenty-five (25%) percent of Employer's Passive Producing Fees (the "Introduction Bonus Fund"). If the Introduction Bonus Fund is insufficient to pay any portion of a production introduction bonus payable hereunder, payment of such portion shall be deferred until the Introduction Bonus Fund is sufficient to pay the remaining portion of Employee's production introduction bonus. "Passive Producing Fees" shall be deemed to be net sums paid to Employer (i.e., net of any third party payments made by Lancit (including unreimbursed payments Lancit may make to underlying rights owners)) by third parties as compensation for licensing to such third parties the right to exploit a project, and with respect to which Employer is not required to provide any other production services. For the purposes of this subparagraph 3(c)(ii), a project shall be deemed "introduced to Employer solely by Employee" if the project shall be identified as such within ten (10) days after such project shall have been first introduced to Employer by an executed written notice in the form of Exhibit A hereto, delivered by Employee and acknowledged by Employer. 4. Termination: (a) In addition to any other rights and remedies provided by law or this agreement, Employer may terminate Employee's employment hereunder upon written notice for "cause". For purposes of this paragraph, "cause" shall include: (i) commission of any act of material fraud or gross negligence by Employee in the course of his employment hereunder which, in the case of gross negligence, has a materially adverse effect on the business or financial condition of Employer; (ii) willful and material misrepresentation at any time during the term hereof by Employer to any officer of Employer; (iii) failure, refusal or neglect by Employee to comply with a reasonable instruction of the Chief Executive Officer of Employer; (iv) engagement by Employee in any conduct or the commission by Employee of any act which is, in the reasonable opinion of Employer, materially injurious or detrimental to the substantial interest of Employer; (v) engagement by Employee in any act, whether with respect to his employment or otherwise, which is in violation of the criminal laws of the United States or any state thereof or any similar foreign law to which Employee may be subject involving acts of moral turpitude; or (vi) death or disability of Employee. Employee shall be deemed disabled if he shall be unable by reason of mental or physical incapacity from performing his duties hereunder for a period of 90 consecutive days or an aggregate of 120 days in any consecutive six-month period. In case of each provision above, when a cure is possible, Employee shall be given notice, details of the grounds for termination and ten (10) days to cure, provided that the foregoing cure period shall not be available with respect to conduct which has been the subject of a previous notice and cure period. If Employee's employment shall be terminated pursuant to this subparagraph 4(a), Employee shall be entitled to receive only the base salary actually earned and payable to Employee pursuant to subparagraph 3(a) above through the date of the termination of his employment, together with any properly reimbursable expenses and other accrued employee benefits through the date of termination, and Employee shall not thereafter be entitled to receive any further salary, expenses, benefits (other than medical or disability benefits if applicable) or other compensation of any kind hereunder. Any bonus which has been earned, but not paid, shall be paid at the time it would otherwise be payable. (b) If Employer shall terminate Employee's employment other than for "cause", as provided in subparagraph 4(a) above, Employee shall be entitled to receive, as damages, and as his sole and exclusive right and remedy on account of such termination, the base salary and medical benefits to which Employee would otherwise have been entitled hereunder throughout the remaining term hereof together with any properly reimbursable business expenses and other employee benefits to the date of termination. Amounts payable by Employer under this subparagraph 4(b) shall be payable when and as the same would otherwise have been payable under the terms hereof and shall be subject to Employee's duty to mitigate his damages by using reasonable efforts to seek other comparable employment. Compensation (in whatever form) earned by Employee on account of other employment during the unexpired term of this Agreement shall be applied in reduction of Employer's obligations hereunder. Employee shall not thereafter be entitled to receive any further salary, expenses, benefits (other than medical or disability benefits, if applicable) or other compensation hereunder, except that Employee shall be eligible to receive a pro-rata share of any bonus due hereunder for the fiscal year in which Employee is terminated under this subparagraph 4(b). In the event of termination pursuant to this subparagraph 4(b) Employee shall not be entitled to any damages by reason of such termination other than as set forth in this subparagraph 4(b). (c) Employee may not terminate this Agreement, except in the event of a material breach of this Agreement by Employer. 5. Expenses: Employer shall reimburse Employee for all reasonable expenses of business travel (including car service to and from airports), hotel, business-related car telephone, entertainment or otherwise incurred by Employee in connection with and on behalf of the business of Employer upon presentation of receipt, voucher or itemization of expenses in accordance with Employer's then applicable expense reimbursement policies and procedures. Air travel and hotel expenses shall be reimbursed at rates comparable to those reimbursed for Employer's other management executives. In addition, and in lieu of the gas/mileage reimbursement which would normally be payable to Employee in connection Employee's use of his car for Employer's business, Employer shall pay Employee a $600 monthly non-accountable car allowance. Employee acknowledges and agrees that such car allowance payments shall be reported to the Internal Revenue Service as part of Employee's gross compensation. 6. Disability: If Employee is unable to perform his duties hereunder by reason of any illness, disability or incapacity, as determined by Employer, he shall be entitled to one hundred (100%) percent of his Base Salary for the first ninety (90) days of his disability, and fifty (50%) percent of those amounts for the next ninety (90) days, unless he is terminated for disability pursuant to subparagraph 4(a), less such benefits or compensation payable to Employee by reason of State, Federal, Social Security, disability, worker's compensation or comparable government benefits and such policies of disability insurance procured by Employer. The foregoing periods of disability during which compensation shall be paid constitute aggregate periods during the full term of this Agreement. Employer represents and warrants that no other executive of Employer currently has an employment agreement which provides greater disability benefits to such executive. 7. Employee Benefits: Employee shall be entitled to participate, to the extent he is eligible under the terms and conditions thereof, in any bonus, pension, profit-sharing, retirement, hospitalization, insurance, medical service, or other employee benefit plan including disability insurance generally available to the senior executives of Employer which may be in effect from time to time during the period of his employment hereunder. Employer shall be under no obligation to continue the existence of any such employee benefit plan. Employer acknowledges that it currently maintains a 401(k) plan. Employee shall be entitled to two (2) weeks vacation time (exclusive of any Employer-wide holidays or vacations). Employer agrees that if its vacation policy for other executives changes to increase the vacation time permitted, Employee's vacation time will be increased by a like amount. 8. Disclosure of Confidential Information: Employee recognizes and acknowledges that certain information is proprietary to and confidential with Employer and/or the Corporate Group, including without limitation the following: Employer's and the Corporate Group's strategic and/or business plan, pending projects, projects in development, acquisition targets at both the individual project and corporate level, co-production arrangements, joint ventures, funding sources, distribution arrangements, the contacts at such entities and the financial terms of such agreements with Employer and/or the Corporate Group (collectively, "Confidential Information"). Employee will not directly or indirectly, on behalf of himself or others, during or at any time after the termination of his providing services hereunder, irrespective of time, manner or reason for termination, disclose, publish, disseminate or utilize such Confidential Information, or any part thereof except in furtherance of the business of Employer or another member of the Corporate Group. Employee will not remove or duplicate in any manner at any time any lists or other records, or any parts thereof, concerning Employer's Confidential Information and upon termination of his employment will return to Employer any and all lists and records concerning Employer's Confidential Information thereof in his possession. 9. Interference with Employer's Business: (a) Employee agrees that during the Non-Solicitation Period (defined below), neither Employee nor any Related Person (defined below) shall knowingly, either directly or indirectly, for himself or for any other person or entity, (i) call upon, solicit or take away, or attempt to call upon, solicit or take away, any person then employed by Employer or the Corporate Group or (ii) knowingly employ any employee of Employer or the Corporate Group who voluntarily terminates such employment until six (6) months have passed following termination of such employment, unless such condition is waived by Employer in writing. "Non-Solicitation Period" shall mean the period from the date hereof until one (1) year after the termination of this agreement. "Related Person" shall mean any person or entity who or which, directly or indirectly, is controlled by Employee or any person who is a member of Employee's family. (b) Employee agrees that during the Term of his employment with Employer and for the two (2) years following termination of such employment, neither Employee nor any Related Person shall knowingly, either directly or indirectly, for himself or for any other person or entity, enter into any agreement, or assist any other person or entity in entering into any agreement or other arrangement regarding any of the projects introduced to or acquired or developed by Employer or the Corporate Group during the term of Employee's employment, without Employer's prior written consent, such consent not to be unreasonably withheld. Employer agrees that the restriction of this subparagraph 9(b) shall not apply to any project which was the subject of a written agreement between Employer and a third party, the term of which has ended, and which is not then the subject of a negotiation for an extended or new term. Employee's right to enter into an agreement or other arrangement regarding projects described by the previous sentence shall be subject to Employee's obligation to send Employer notice of Employee's intention to do so, and Employer's failure to commence negotiations for such project, within five (5) business days after receipt of such notice. 10. Severability: In the event any of the terms or provisions of this Agreement are found to be invalid, void or voidable for any reason whatsoever such finding will not affect the remaining terms and provisions of this Agreement and they shall remain in full force and effect. 11. Governing Law: This Agreement shall be governed in all respects by the laws of the State of New York. 12. Notices: Any notice required or given under this Agreement shall be sufficient if in writing and sent by registered mail or certified mail to the addresses hereinabove set forth or to such other addresses as any of the parties hereto may designate in writing, transmitted by registered or certified mail to the other. Duplicate copies of any notices to Employer shall also be sent to Rubin, Bailin, Ortoli, Mayer, Baker & Fry, LLP, 405 Park Avenue, 15th Floor, New York, New York 10022, Attention: Marc L. Bailin, Esq. Duplicate copies of any notices to Employee shall also be sent to Craig Emanuel, Esq. at Sinclair Tenenbaum Olesiuk & Emanuel, The Ice House, 9348 Civic Center Drive, Suite 200, Beverly Hills, California 90210. 13. Entire Agreement: This Agreement contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof. No modification or amendment of this Agreement can be made other than in writing signed by the parties hereto. 14. Injunctive Relief: Employee acknowledges that the services to be rendered by his hereunder are of a special, unique and intellectual character which gives them peculiar value, and that a breach or threatened breach of any provision of this Agreement, including, without limitation the provisions of Paragraphs 8 and 9, will cause Employer immediate irreparable injury and damage which cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, Employee agrees that Employer shall be entitled to injunctive relief to enforce and protect its rights under this Agreement. Nothing herein shall be construed to prohibit Employer from pursuing any other legal or equitable remedies available to it for such breach, including the recovery of damages form Employee. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. LANCIT MEDIA PRODUCTIONS, LTD. BY:/s/ Cecily Truett -------------------- Cecily Truett, Chief Executive Officer /s/ David Michaels ------------------ David Michaels, Employee EXHIBIT A Notice of Project Introduced, Developed or Acquired Solely by David Michaels Subject to Credit and Bonus Provisions Description of Project Lancit Acknowledgement EXHIBIT B Production Introduction Bonus Caps The Production Introduction Bonus shall be capped, on a production by production basis, as follows: Theatrical Motion Picture $70,000 Television Motion Picture $25,000 Television Series: Network Primetime: Weekly: $ 750 Strip: $ 625 Premium Cable: Weekly: $ 625 Strip: $ 500 Non-Primetime Network, Basic Cable or PBS Weekly: $ 500 Strip: $ 375 EX-10 4 MUTUAL SEPARATION AGREEMENT WITH BRITTEN & STONE MUTUAL SEPARATION AGREEMENT This Agreement is entered into by Britten & Stone and Gary Stein, its general partner (hereinafter collectively referred to as "BS&S") and Lancit Media Entertainment, Ltd., on behalf of itself and its affiliates, predecessors, successors and assigns, agents, and employees, past and present (hereinafter collectively referred to as "Company"). The parties agree as follows: 1. Separation. BS&S agree to the termination of the November 15, 1996 Consulting Agreement with Britten & Stone effective immediately and acknowledges the separation of Gary Stein's prior employment by the Company effective November 1, 1996. 2. Separation Pay. In consideration for the covenants set forth herein, the Company agrees to pay Britten & Stone $6,150 upon execution hereof representing the final installment payment due pursuant to the Consulting Agreement. The Company further agrees to pay Britten & Stone, as and for separation pay, the sum of $63,000 on July 10, 1997 and the additional sum of $63,000 on July 10, 1998. 3. General Release. BS&S hereby release the Company, its affiliates, predecessors, successors and assigns, agents, officers and employees, past and present, from any and all claims, contracts and other liabilities of whatever kind, whether now known or unknown, arising out of or in any way connected with his employment and the cessation of that employment, and covering the period up to the date of this Agreement. This release includes, without limitation, any and all claims under Title VII of the Civil Rights Act of 1964 as amended by the Civil Rights Act of 1991, the Americans With Disabilities Act of 1990, the Age Discrimination in Employment Act as modified by the Older Workers Benefit Protection Act, the Family and Medical Leave Act, the New York Human Rights Law, and any other federal, state or local human rights, civil rights, pension or labor laws, rules and/or regulations, public policy, contract or tort law (regardless of whether of statutory or common law origin), or any other action against the Company based upon any conduct up to and including the date of this Agreement. BS&S further agree that they have not, nor will they ever, institute any claim, action or other proceeding that is subject to the foregoing release, and acknowledge that this Agreement shall bar any such action. Lancit also releases BS&S from any and all claims arising out of any conduct up to and including the date of this Agreement, and agrees that it shall not institute any claim in respect of such conduct. 4. Non-Admissions. Nothing in this Agreement constitutes or shall be interpreted as any admission of liability or wrongdoing on the part of either party. 5. Complete Agreement. Other than as set forth herein, BS&S warrant that no promise or inducement has been offered for this Agreement. The parties agree that this Agreement sets forth the entire agreement between them and supersedes any other written or oral understandings, with the exception of the Confidentiality Agreement between Gary Stein and the Company dated as of November 15,1996 the terms of which are hereby ratified and reaffirmed in all respects. No other promises or agreements shall be binding unless reduced to writing and signed by the parties. The parties further agree that if any provision of this Agreement is held invalid for any reasons by a court or other tribunal of competent jurisdiction, the remaining provisions shall continue to be in full force and effect. WHEREFORE, BS&S affirm that they have read and understand this Agreement, and that they have been encouraged to consult with an attorney or other personal advisor concerning this Agreement. BS&S further affirm that they have entered into this Agreement voluntarily and with full knowledge of its significance. BRITTEN & STONE LANCIT MEDIA ENTERTAINMENT, LTD. (On behalf of itself and Gary Stein) By: /s/ Gary Stein By: /s/ Marc L. Bailin - ------------------ -------------------------------- Gary Stein Marc L. Bailin General Partner Secretary/General Councel 5/19/97 5/20/97 ------- ----------------- (Date) (Date) 50090.stein.agt EX-27 5 FDS --
5 0000868796 Lancit Media Entertainment, Ltd. U.S. Dollars 9-Mos Jun-30-1997 Jul-01-1997 Mar-31-1997 1.000 6,219,893 0 2,249,802 0 0 9,921,477 567,432 0 11,386,312 4,706,409 0 0 0 6,635 5,569,430 11,386,312 0 2,495,678 0 2,872,390 0 0 0 (8,358,300) 0 (8,423,024) 0 0 0 (8,423,024) (1.29) (1.29)
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