<PAGE>   1


                          SHOWSCAN ENTERTAINMENT INC.
                              3939 LANDMARK STREET
                       CULVER CITY, CALIFORNIA 90232-2315





                                 August 7, 1996


William C. Soady
President, Chief Executive Officer
 and Director
Showscan Entertainment Inc.
3939 Landmark Street
Culver City, California 90232-2315


Dear Mr. Soady:

                 Showscan Entertainment Inc. (the "Corporation") considers it
essential to the best interests of its stockholders to foster the continuous
employment of key management personnel.  In connection with this, the
Corporation's Board of Directors (the "Board") recognizes that, as is the case
with many publicly held corporations, the possibility of a change in control of
the Corporation may exist and that such possibility, and that such uncertainty
and questions that it may raise among management, could result in the departure
or distraction of management personnel to the detriment of the Corporation and
its stockholders.

                 The Board has decided to reinforce and encourage the continued
attention and dedication of members of the Corporation's management, including
yourself, to their assigned duties without distraction arising from the
possibility of a change in control of the Corporation.

                 In order to induce you to remain in its employ, the
Corporation hereby agrees that after this letter agreement (this "Agreement")
has been fully executed, you shall receive the severance and other benefits set
forth in this Agreement.  If an employment agreement between you and the
Corporation also entitles you to benefits upon a change in control (as defined
in such employment agreement), you shall be required to choose between the
benefits upon a change in control provided by any such employment agreement and
the benefits upon a Change in Control provided by this Agreement.

                 Unless otherwise defined herein, all capitalized terms used
herein shall have the meanings assigned to such terms in Appendix A attached
hereto.





<PAGE>   2
William C. Soady
August 7, 1996
Page 2


                 1.       Term of Agreement.  This Agreement shall commence on
August 7, 1996, and shall continue in effect through December 31, 1999;
provided, however, that commencing on January 1, 2000, and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless, not later than September 30 of the preceding year, the
Corporation shall have given notice that it does not wish to extend this
Agreement; provided, that if a Change in Control or Potential Change in
Control, occurs during the original or extended term of this Agreement, this
Agreement shall continue in effect for a period of not less than twenty-four
(24) months beyond the month in which such Change in Control or Potential
Change in Control occurred.  Notwithstanding anything to the contrary contained
in this Agreement, in no event shall the term of this Agreement extend beyond
the end of the calendar month in which your 65th birthday occurs.

                 2.       Change in Control and Potential Change in Control.
No benefits shall be payable hereunder until there has been a Change in
Control.  You agree that, subject to the terms and conditions of this
Agreement, in the event of a Potential Change in Control, you shall remain in
the employ of the Corporation until the date of occurrence of a Change in
Control, unless you terminate your employment before then for Good Reason or by
reason of death, Disability or retirement, or the Corporation terminates your
employment for any reason.

                 3.       Termination Following Change in Control or Potential
                          Change in Control.

                 (a)      General.  If any of the events constituting a Change
in Control shall have occurred, you shall be entitled to the benefits provided
in Section 4(b) upon the subsequent termination of your employment during the
term of this Agreement, if such termination is (i) by the Corporation other
than for Cause within twenty-four (24) months after a Change in Control, (ii)
by you for Good Reason within twenty-four (24) months after a Change in
Control, (iii) by you in the case of your voluntary termination of employment
for any reason, if you continue in the employ of the Corporation for a period
of six (6) months after a Change in Control (the "Transition Employment
Period"), and the termination of your employment occurs within thirty (30) days
immediately following the end of the Transition Employment Period, as provided
in Section 3(b), or (iv) because of your death, Disability (as defined in
Section 3(c)) or retirement, as long as such termination occurs within
twenty-four (24) months after a Change in Control.  You shall not be entitled
to the benefits provided in Section 4(b) if the termination of your employment
occurs more than twenty-four (24) months after a Change in Control.
Furthermore, you shall not be entitled to the benefits provided in Section 4(b)
if, upon termination of your employment, you fail to comply with the
Corporation's standard termination procedures, including execution of a copy of
the separation agreement, a form of which is attached hereto as Exhibit 1.  In
the event your employment with the Corporation is terminated for any reason and
subsequently a Potential Change in Control or a Change in Control occurs, you
shall not be entitled to any





<PAGE>   3
William C. Soady
August 7, 1996
Page 3

benefits hereunder.  Notwithstanding anything in this Agreement to the
contrary, if your employment is terminated within one (1) year immediately
prior to the Change in Control, but following a Potential Change in Control,
such termination shall be deemed to have occurred on the date immediately
following a Change in Control and to have been (A) by the Corporation without
Cause, if your employment is terminated without Cause, or (B) by you with Good
Reason, if you terminate your employment with Good Reason and the act (or
failure to act) which constitutes Good Reason occurs following such Potential
Change in Control, or (C) by you because of your death, Disability or
retirement, if you terminate your employment because of your death, Disability
or retirement and your death, Disability or retirement occurs following such
Potential Change in Control.

                 (b)      Voluntary Termination Within 30 Days Immediately
Following the End of the Transition Employment Period.  Notwithstanding any
other provision in this Agreement, if you voluntarily terminate your employment
for any reason, and the Date of Termination and/or Notice of Termination occurs
within the first thirty (30) days immediately following the end of the
Transition Employment Period, you shall be entitled to the benefits provided in
Section 4(b).

                 (c)      Disability.  If you are unable to perform your duties
of employment for in excess of ninety (90) consecutive days or an aggregate of
one hundred and twenty (120) days in any twelve (12) month period during the
term of your employment as a result of a physical or mental condition, as
determined in good faith by the Board of Directors, your employment may be
terminated for "Disability."

                 (d)      Good Reason.  Your right to terminate your employment
for Good Reason shall not be affected by your incapacity due to physical or
mental illness.  Your continued employment shall not constitute consent to, or
a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.

                 (e)      Notice of Termination.  Any purported termination of
your employment by the Corporation or by you (other than termination due to
death which shall terminate your employment automatically) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 7.

                 4.       Compensation Upon Termination or During Disability.
Following a Change in Control, you shall be entitled to the benefits described
below during a period of disability, or upon termination of your employment, as
the case may be, provided that such period or termination occurs during the
term of this Agreement.  The benefits to which you are entitled, subject to the
terms and conditions of this Agreement, are:

                      (a)         If your employment shall be terminated by the
Corporation for Cause, or by the Corporation without Cause and more than
twenty-four (24) months after a





<PAGE>   4
William C. Soady
August 7, 1996
Page 4

Change in Control, or by you other than for Good Reason either before, or more
than thirty (30) days after, the end of the Transition Employment Period, or by
you for Good Reason and more than twenty-four (24) months after a Change in
Control, the Corporation shall pay you your full base salary, when due, through
the Date of Termination at the rate in effect at the time Notice of Termination
is given, plus all other amounts to which you are entitled under any
compensation plan of the Corporation at the time such payments are due, and the
Corporation shall have no further obligations to you under this Agreement.

                      (b)         If your employment by the Corporation shall
be terminated by you for Good Reason within twenty-four (24) months after a
Change in Control or by the Corporation other than for Cause within twenty-four
(24) months after a Change in Control or by you for any reason within thirty
(30) days immediately following the end of your Transition Employment Period or
by you because of your death, Disability or retirement within twenty-four (24)
months after a Change in Control, then you shall be entitled to the benefits
provided below:

                        (i)     the Corporation shall pay to you your full base
         salary, when due, through the Date of Termination at the rate in effect
         at the time Notice of Termination is given, at the time specified in
         Section 4(d), plus all other amounts to which you are entitled under
         any compensation plan of the Corporation at the time such payments are
         due;

                       (ii)     in lieu of any further salary payments to you
         for periods subsequent to the Date of Termination, the Corporation
         shall pay as severance pay to you, at the time specified in Section
         4(d), a lump sum severance payment (the "Severance Payments") equal to
         300% of the average of your salary with respect to the three (3) fiscal
         years (or your total years of employment with the Corporation, if less
         than three (3)) preceding the Date of Termination or immediately prior
         to the Change in Control, whichever is greater, and 300% of the average
         of the annual bonuses awarded to you pursuant to the Corporation's
         bonus plan for executive officers, or any successor bonus plan thereto,
         with respect to the three (3) fiscal years (or your total years of
         employment with the Corporation, if less than three (3)) preceding the
         Date of Termination or immediately prior to the Change in Control,
         whichever is greater;

                      (iii)   the Corporation shall pay to you all legal fees
         and legal expenses incurred by you as a result of such termination
         (including all such reasonable legal fees and legal expenses, if any,
         incurred in contesting or disputing any such termination or in seeking
         to obtain or enforce any right or benefit provided by this Agreement
         (as set forth in Section 11 of this Agreement) or in connection with
         any tax audit or proceeding to the extent attributable to the
         application of section 4999 of the Code, to any payment or benefit
         provided hereunder); and





<PAGE>   5
William C. Soady
August 7, 1996
Page 5


                          (iv)    for a twenty-four (24) month period after the
         Date of Termination, the Corporation shall arrange to provide you with
         life, disability, accident and group health insurance benefits
         substantially similar to those that you were receiving immediately
         prior to the Notice of Termination.  Benefits otherwise receivable by
         you pursuant to this Section 4(b)(iv) shall be reduced to the extent
         comparable benefits are actually received by you during the
         twenty-four (24) month period following the Date of Termination, and
         any such benefits actually received by you shall be reported to the
         Corporation.

                 (c)              You shall bear all expense of, and be solely
responsible for, all federal, state, local or foreign taxes due with respect to
any payment received hereunder, including, without limitation, any excise tax
imposed by Section 4999 of the Code; provided, however, that any payment or
benefit received or to be received by you in connection with a Change in
Control or the termination of your employment (whether payable pursuant to the
terms of this Agreement ("Contract Payments") or any other plan, arrangements
or agreement with the Corporation or an Affiliate (collectively with the
Contract Payments, the "Total Payments")) that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, shall be reduced to
the extent necessary so that no portion thereof shall be subject to the excise
tax imposed by Section 4999 of the Code but only if, by reason of such
reduction, the net after-tax benefit received by you shall exceed the net
after-tax benefit received by you if no such reduction was made.  For purposes
of this Section 4(c), "net after-tax benefit" shall mean (i) the Total Payments
which you receive or are then entitled to receive from the Corporation that
would constitute "parachute payments" within the meaning of Section 280G of the
Code, less (ii) the amount of all federal, state and local income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax
rate for each year in which the foregoing shall be paid to you (based on the
rate in effect for such year as set forth in the Code as in effect at the time
of the first payment of the foregoing), less (iii) the amount of excise taxes
imposed with respect to the payments and benefits described in (i) above by
Section 4999 of the Code.  The foregoing determination will be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by you
and reasonably acceptable to the Corporation (which may be, but will not be
required to be, the Corporation's independent auditors).  You will direct the
Accounting Firm to submit its determination and detailed supporting
calculations to both you and the Corporation within fifteen (15) days after the
Date of Termination.  If the Accounting Firm determines that such reduction is
required by this Section 4(c), you, in your sole and absolute discretion, may
determine which Total Payments shall be reduced to the extent necessary so that
no portion thereof shall be subject to the excise tax imposed by Section 4999
of the Code, and the Corporation shall pay such reduced amount to you.  You and
the Corporation will each provide the Accounting Firm access to and copies of
any books, records, and documents in the possession of you or the Corporation,
as the case may be, reasonably requested by the Accounting Firm, and otherwise
cooperate with the Accounting Firm in connection with the preparation and
issuance of the determinations and calculations contemplated by this Section





<PAGE>   6
William C. Soady
August 7, 1996
Page 6

4(c).  The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by this
Section 4(c) will be borne by the Corporation.

                      (d)         The payments provided for in Section 4(b)(i)
shall be made not later than the Date of Termination.  The payments provided
for in Section 4(b)(ii) shall be made not later than the Date of Termination;
provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Corporation shall pay to you on such day
an estimate, as determined in good faith by the Corporation, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than the
Date of Termination.  In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such excess shall
constitute a loan by the Corporation to you, payable on the demand by the
Corporation (together with interest at the rate provided in section
1274(b)(2)(B) of the Code).

                      (e)         You shall not be required to mitigate the
amount of any payment provided for in this Section 4 by seeking other
employment or otherwise nor, except as provided in Section 4(b)(iv), shall the
amount of any payment or benefit provided for in this Section 4 be reduced by
any compensation earned by you as the result of employment by another employer
or self-employment, by retirement benefits, by offset against any amount
claimed to be owed by you to the Corporation, or otherwise.

                 5.       Vesting of Stock Options Upon Change in Control.
Notwithstanding any other provision of this Agreement or of any stock option
plan or agreement, upon the occurrence of a Change in Control, all of your
stock options, if any, granted under any of the Corporation's stock option
plans or agreements shall become vested and exercisable effective as of the day
immediately prior to the date of the Change in Control.

                 6.       Successors; Binding Agreement.  (a)  The Corporation
shall require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Corporation to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform it if no such succession had taken place.  Failure of
the Corporation to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to terminate your employment and receive compensation from
the Corporation in the same amount and on the same terms to which you would be
entitled hereunder if you terminate your employment for Good Reason within
twenty-four (24) months after a Change in Control, except that for purposes of
implementing the foregoing, the day before the date on which any such
succession becomes effective shall be deemed the Date of Termination.  Where
the context





<PAGE>   7
William C. Soady
August 7, 1996
Page 7

requires, "Corporation" shall mean the Corporation as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.

                      (b)         This Agreement shall inure to the benefit of
and be enforceable by you and your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.  If you should die while any amount would still be payable to you
hereunder had you continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement
to your devisee, legatee or other designee or, if there is no such designee, to
your estate.

                 7.       Notice.  For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Corporation shall be directed to
the attention of the Board with a copy to the Secretary of the Corporation, or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.

                 8.       Miscellaneous.  No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by you and such officer as may be specifically
designated by the Board.  No waiver by either party hereto at any time of any
breach by the other party hereto of or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.  No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of California without regard to its
conflicts of law principles.  All references to sections of the Exchange Act or
the Code shall be deemed also to refer to any successor provisions to such
sections.  Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.  The
obligations of the Corporation under Section 4 shall survive the expiration of
the term of this Agreement.  The section headings contained in this Agreement
are for convenience only, and shall not affect the interpretation of this
Agreement.

                 9.       Severability.  The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.





<PAGE>   8
William C. Soady
August 7, 1996
Page 8

                 10.      Counterparts.  This Agreement may be executed in
several counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.

                 11.      Arbitration; Dispute Resolution.

                      (a)         Arbitration Procedure.  Any disagreement,
dispute, controversy or claim arising out of or relating to this Agreement or
the interpretation of this Agreement or any arrangements relating to this
Agreement or contemplated in this Agreement or the breach, termination or
invalidity thereof shall be settled by arbitration in accordance with the
Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") (except as otherwise provided in this
Agreement) in Los Angeles, California.  The arbitral tribunal shall consist of
one arbitrator.  In making any decision, the arbitrator shall apply and follow
the substantive law of California without reference to the conflicts of law
provisions thereof.  The parties to the arbitration jointly shall directly
appoint such arbitrator within thirty (30) days of initiation of arbitration.
If the parties shall fail to appoint such arbitrator as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
You and the Corporation agree that the arbitral award may be enforced against
the parties to the arbitration proceeding or their assets wherever they may be
found and that a judgment upon the arbitral award may be entered in any court
having jurisdiction thereof.  The Corporation shall pay all fees and expenses
of the Arbitrator regardless of the result and shall provide all witnesses and
evidence reasonably required by you to present your case.  The Corporation
shall pay to you all reasonable arbitration expenses and legal fees incurred by
you as a result of a termination of your employment in seeking to obtain or
enforce any right or benefit provided by this Agreement (whether or not you are
successful in obtaining or enforcing such right or benefit).  Such payments
shall be made within five (5) days after your request for payment accompanied
with such evidence of fees and expenses incurred as the Corporation reasonably
may require.

                      (b)         Compensation During Dispute.  Your
compensation during any disagreement, dispute, controversy or claim arising out
of or relating to this Agreement or the interpretation of this Agreement shall
be as follows:

                          (i)     If a purported termination by you for Good
         Reason within twenty-four (24) months after a Change in Control occurs
         or is deemed to occur following a Change in Control and during the
         term of this Agreement, and such termination is disputed in accordance
         with Section 7 of Appendix A and Section 11(a) of this Agreement, the
         Corporation shall continue to pay you the full compensation in effect
         when the notice giving rise to the dispute was given (including, but
         not limited to, salary) and continue you as a participant in all
         compensation, benefit and insurance plans in which you were
         participating when the notice giving rise to the dispute was given,
         until the dispute is finally resolved in accordance with Section





<PAGE>   9
William C. Soady
August 7, 1996
Page 9

         11(a).  Amounts paid under this Section 11(b)(i) are in addition to
         all other amounts due under this Agreement and shall not be offset
         against or reduce any other amounts due under this Agreement.  You
         agree to remain in the employ of the Corporation during the resolution
         of the dispute and to continue to provide services unless your
         employment is terminated earlier by death, Disability or retirement,
         or by action of the Corporation.  If the dispute is resolved by a
         determination that you did not have Good Reason, this Agreement, in
         accordance with its terms, shall continue to apply to the
         circumstances of your employment by the Corporation and any
         termination thereof.

                          (ii)    If there is a termination by the Corporation
         followed by a dispute as to whether you are entitled to the payments
         and other benefits provided under this Agreement, then, during the
         period of that dispute the Corporation shall pay you 100% of the
         amount specified in Section 4(b)(i) hereof and 50% of the amount
         specified in Section 4(b)(ii) hereof, and the Corporation shall
         provide you with the other benefits provided in Section 4(b) of this
         Agreement, if, but only if, you agree in writing that if the dispute
         is resolved against you, you shall promptly refund to the Corporation
         all payments you receive under Section 4(b)(ii) of this Agreement plus
         interest at the rate provided in Section 1274(d) of the Code,
         compounded quarterly.  If the dispute is resolved in your favor,
         promptly after resolution of the dispute the Corporation shall pay you
         the sum that was withheld during the period of the dispute plus
         interest at the rate provided in Section 1274(d) of the Code,
         compounded quarterly.

                 12.      Entire Agreement.  This Agreement sets forth the
entire agreement of the parties hereto in respect of your benefits upon a
Change in Control and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto related
to the subject of your benefits upon a Change in Control; and any prior
agreement of the parties hereto in respect of your benefits upon a Change in
Control, is hereby terminated and cancelled.  Notwithstanding the foregoing,
this Agreement shall not supersede any employment agreement between you and the
Corporation, except that if the provisions and definitions of such an
employment agreement in respect of your benefits upon a change in control (as
defined in such employment agreement), if any, differ from the provisions and
definitions of this Agreement in respect of your benefits upon a Change in
Control, you, in your sole and absolute discretion, may choose whether the
provisions and definitions of such employment agreement or this Agreement shall
govern all matters relating to your benefits upon a change in control.

                 13.      No Employment Right Created.  Nothing in this
Agreement shall confer on you any right to continue in the employ of the
Corporation or shall interfere with or restrict in any way the rights of the
Corporation, which are hereby expressly reserved, to





<PAGE>   10
William C. Soady
August 7, 1996
Page 10

discharge you at any time for any reason whatsoever, with or without good
cause, except as may be otherwise provided in any written employment agreement
between you and the Corporation.  This Agreement shall not constitute an
agreement for employment.

                 If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Corporation the enclosed copy of this
letter, which shall then constitute our agreement on this subject.

                                            Sincerely,

                                            SHOWSCAN ENTERTAINMENT INC.



                                            By /s/ DENNIS POPE
                                               --------------------------
                                               Name: Dennis Pope
                                               Title: Executive Vice President




Agreed to this 12th day
of August 1996.

/s/ WILLIAM C. SOADY
-------------------------








<PAGE>   11
William C. Soady
August 7, 1996
Page 11

                                   APPENDIX A
                                  DEFINITIONS

                 For purposes of this Agreement, the following terms have the
meanings indicated:

                 1.       "Acquiring Person" shall mean any Person who or
which, together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares of the Corporation then
outstanding, but shall not include (i) the Corporation; (ii) any Subsidiary of
the Corporation; or (iii) any employee benefit plan of the Corporation or any
Subsidiary of the Corporation, or any entity holding Common Shares for or
pursuant to the terms of any such plan.  Notwithstanding the foregoing, no
Person shall become an "Acquiring Person" as the result of an acquisition of
Common Shares by the Corporation which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 20% or more of the Common Shares of the Corporation then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of 20% or more of the Common Shares of the Corporation then outstanding
by reason of share purchases by the Corporation and shall, after such share
purchases by the Corporation, become the Beneficial Owner of any additional
Common Shares of the Corporation, then such Person shall be deemed to be an
"Acquiring Person." Notwithstanding the foregoing, if the Board of Directors of
the Corporation determines in good faith that a Person who would otherwise be
an "Acquiring Person," has become such inadvertently, and such Person divests
as promptly as practicable a sufficient number of Common Shares so that such
Person would no longer be an "Acquiring Person," then such Person shall not be
deemed to be an "Acquiring Person" for any purposes of this Agreement.

                 2.       "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.

                 3.       A Person shall be deemed the "Beneficial Owner" of
                          and shall be deemed to "beneficially own" any
                          securities:

                          (a)     which such Person or any of such Person's
         Affiliates or Associates beneficially owns, within the meaning of Rule
         13d-3(a) under the Exchange Act, directly or indirectly;

                          (b)     which such Person or any of such Person's
         Affiliates or Associates has (i) the right to acquire (whether such
         right is exercisable immediately or only after the passage of time)
         pursuant to any agreement, arrangement or





<PAGE>   12
William C. Soady
August 7, 1996
Page 12

         understanding (other than customary agreements with and between
         underwriters and selling group members with respect to a bona fide
         public offering of securities), or upon the exercise of conversion
         rights, exchange rights, rights, warrants or options, or otherwise;
         provided, however, that a Person shall not be deemed the Beneficial
         Owner of, or to beneficially own, securities tendered pursuant to a
         tender or exchange offer made by or on behalf of such Person or any of
         such Person's Affiliates or Associates until such tendered securities
         are accepted for purchase or exchange; or (ii) the right to vote
         pursuant to any agreement, arrangement or understanding; provided,
         however, that a Person shall not be deemed the Beneficial Owner of, or
         to beneficially own, any security if the agreement, arrangement or
         understanding to vote such security (A) arises solely from a revocable
         proxy or consent given to such Person in response to a public proxy or
         consent solicitation made pursuant to, and in accordance with, the
         applicable rules and regulations promulgated under the Exchange Act
         and (B) is not also then reportable on Schedule 13D under the Exchange
         Act (or any comparable or successor report); or

                          (c) which are beneficially owned, directly or
         indirectly, by any other Person with which such Person or any of such
         Person's Affiliates or Associates has any agreement, arrangement or
         understanding (other than customary agreements with and between
         underwriters and selling group members with respect to a bona fide
         public offering of securities) for the purpose of acquiring, holding,
         voting or disposing of any securities of the Corporation.

Notwithstanding anything in this definition of Beneficial Ownership to the
contrary, the phrase "then outstanding," when used with reference to (and for
purposes of determining the percentage of) a Person's Beneficial Ownership of
securities of the Corporation, shall mean the number of such securities then
issued and outstanding together with the number of such securities not then
actually issued and outstanding which such Person (including such Person's
Affiliates and Associates but not including any other Person) would be deemed
to own beneficially hereunder.

                 4.       Termination by the Corporation of your employment for
"Cause" shall mean termination (a) upon your willful and continued failure to
substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to physical or mental illness) or
any such actual or anticipated failure after your issuance of a Notice of
Termination, after a written demand for substantial performance is delivered to
you by the Board, which demand specifically identifies the manner in which the
Board believes that you have not substantially performed your duties, (b) upon
your willful participation in conduct which is demonstrably and materially
injurious to the Corporation, monetarily or otherwise, or (c) upon your
conviction of a felony involving moral turpitude after all appeals are final.
For purposes of this definition, no act, or failure to act, on your part shall
be deemed "willful" unless done, or omitted to be done, by you in bad faith.





<PAGE>   13
William C. Soady
August 7, 1996
Page 13

Notwithstanding the foregoing, you shall not be deemed terminated for Cause
unless and until there shall have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the Board's good faith opinion you
were guilty of conduct set forth above in this definition and specifying the
particulars thereof in reasonable detail.

                 5.       A "Change in Control" shall be deemed to occur if:

                          (a)  any Person shall have become an Acquiring
         Person;

                          (b)  any Person is or becomes the Beneficial Owner,
         directly or indirectly, of Common Shares of the Corporation
         representing 20% or more of the combined voting power of the
         Corporation's then outstanding Common Shares;

                          (c)  during any period of two consecutive years (not
         including any period prior to the execution of this Agreement),
         individuals who at the beginning of such period constitute the Board,
         and any new director (other than a director designated by a person who
         has entered into an agreement with the Corporation to effect a
         transaction described in Sections (a), (b), (d) or (e) of this
         definition) whose election by the Board or nomination for election by
         the Corporation's stockholders was approved by a vote of at least
         two-thirds ( 2/3) of the directors then still in office who either
         were directors at the beginning of such period or whose election or
         nomination for election was previously so approved (hereinafter
         referred to as "Continuing Directors"), cease for any reason to
         constitute at least a majority thereof;

                          (d)     the stockholders of the Corporation approve a
         merger or consolidation of the Corporation with any other corporation
         (or other entity), other than a merger or consolidation which would
         result in the Common Shares of the Corporation outstanding immediately
         prior thereto continuing to represent (either by remaining outstanding
         or by being converted into Common Shares of the surviving entity) more
         than 66- 2/3% of the combined voting power of the Common Shares of the
         Corporation or such surviving entity outstanding immediately after
         such merger or consolidation; provided, however, that a merger or
         consolidation effected to implement a recapitalization of the
         Corporation (or similar transaction) in which no Person acquires more
         than 20% of the combined voting power of the Corporation's  then
         outstanding Common Shares shall not constitute a Change in Control; or





<PAGE>   14
William C. Soady
August 7, 1996
Page 14

                          (e)     the stockholders of the Corporation approve a
         plan of complete liquidation of the Corporation or an agreement for
         the sale or disposition by the Corporation of all or substantially all
         of the Corporation's assets.

                 6.       "Common Shares" when used with reference to the
Corporation shall mean the shares of common stock, par value $.001 per share,
of the Corporation; and in addition shall include all Common Shares issuable
upon exercise or conversion of outstanding Common Share Equivalents, which
Common Shares are deemed to be "outstanding" and the holder of which shall be
deemed to be a "record holder" of such Common Shares for purposes of this
Agreement.  "Common Share Equivalents" shall mean all outstanding shares of
Series C Preferred Stock of the Corporation and of 8% Convertible Notes Due
September 1, 1999, and such other classes or series of capital stock and/or
debt of the Corporation as the Board of Directors of the Corporation shall
expressly designate as Common Share Equivalents within the meaning of this
Agreement.  "Common Shares" when used to refer to shares issued by any Person
other than the Corporation shall mean the capital stock (or equity interest)
with the greatest voting power of such other Person or, if such other Person is
a Subsidiary of another Person, the Person or Persons which ultimately control
such first-mentioned Person.

                 7.       "Date of Termination" shall mean (a) if your
employment is terminated due to your death, the date of your death; (b) if your
employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the
full-time performance of your duties during such thirty (30)-day period), and
(c) if your employment is terminated for Cause or Good Reason or for any other
reason (other than death or Disability), the date specified in the Notice of
Termination (which, in the case of a termination for Cause shall not be less
than thirty (30) days from the date such Notice of Termination is given, and in
the case of a termination for Good Reason or a voluntary termination shall not
be less than fifteen (15) nor more than sixty (60) days from the date such
Notice of Termination is given).  Except for cases of voluntary termination,
notwithstanding anything to the contrary contained in this definition, if
within fifteen (15) days after any Notice of Termination is given, the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, then the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, or as set forth in Section 11 of the Agreement;
provided, however, that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.

                 8.       "Good Reason" shall mean, without your express
written consent, the occurrence after a Change in Control of any of the
following circumstances unless, in the case of Sections (a), (e), (f), (g) or
(h) of this definition, such circumstances are fully





<PAGE>   15
William C. Soady
August 7, 1996
Page 15

corrected prior to the Date of Termination specified in the Notice of
Termination given in respect thereof:

                          (a)     the assignment to you of any duties
         inconsistent with the position in the Corporation that you held
         immediately prior to the Change in Control, or a significant adverse
         alteration in the nature or status of your responsibilities or the
         conditions of your employment from those in effect immediately prior
         to such Change in Control, or a significant adverse alteration in the
         level or authority of your position in the overall corporate structure
         from that in effect immediately prior to such Change in Control;

                          (b)     the Corporation's reduction of your annual
         base salary as in effect on the date hereof or as the same may be
         increased from time to time except for across-the-board salary
         reductions similarly affecting all management personnel of the
         Corporation and all management personnel of any Person in control of
         the Corporation;

                          (c)     the relocation of the Corporation's offices
         at which you are principally employed immediately prior to the date of
         the Change in Control to a location that is more than fifteen (15)
         miles further from your primary residence on the date of the Change in
         Control than the location of the Corporation's offices at which you
         are principally employed immediately prior to the date of the Change
         in Control, or the Corporation's requiring you to be based anywhere
         other than the Corporation's offices at such location except for
         required travel on the Corporation's business to an extent
         substantially consistent with your present business travel
         obligations;

                          (d)     the Corporation's failure to pay to you any
         portion of your current compensation or to pay to you any portion of
         an installment of deferred compensation under any deferred
         compensation program of the Corporation within seven (7) days of the
         date such compensation is due;

                          (e)     the Corporation's failure to continue in
         effect any material compensation or benefit plan in which you
         participate immediately prior to the Change in Control, unless an
         equitable arrangement (embodied in an ongoing substitute or
         alternative plan) has been made with respect to such plan, or the
         Corporation's failure to continue your participation therein (or in
         such substitute or alternative plan) on a basis not materially less
         favorable, both in terms of the amount of benefits provided and the
         level of your participation relative to other participants, as existed
         at the time of the Change in Control;





<PAGE>   16
William C. Soady
August 7, 1996
Page 16

                          (f)     the Corporation's failure to continue to
         provide you with benefits substantially similar to those enjoyed by
         you under any of the Corporation's life insurance, medical, health and
         accident, or disability plans in which you were participating at the
         time of the Change in Control, the taking of any action by the
         Corporation which would directly or indirectly materially reduce any
         of such benefits, or the failure by the Corporation to provide you
         with the number of paid vacation days to which you are entitled on the
         basis of years of service with the Corporation in accordance with the
         Corporation's normal vacation policy in effect at the time of the
         Change in Control;

                          (g)     the Corporation's failure to obtain a
         satisfactory agreement from any successor to assume and agree to
         perform this Agreement, as contemplated in Section 6 of the Agreement;
         or

                          (h)     any purported termination of your employment
         that is not effected pursuant to a Notice of Termination satisfying
         the requirements of Section 9 of this Appendix (and, if applicable,
         the requirements of termination for Cause), which purported
         termination shall not be effective for purposes of this Agreement.

                 9.  "Notice of Termination" shall mean a notice that shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.

                 10.      "Person" shall mean any individual, firm, corporation
or other entity, and shall include any successor (by merger or otherwise) of
such entity.

                 11.      A "Potential Change in Control" shall be deemed to
                          occur if:

                          (a)     the Corporation enters into an agreement, the
         consummation of which would result in the occurrence of a Change in
         Control;

                          (b)  any Person (including the Corporation) publicly
         announces an intention to take or to consider taking actions which, if
         consummated, would constitute a Change in Control;

                          (c)  any Person who, on the effective date of this
         Agreement, is not a Beneficial Owner directly or indirectly of Common
         Shares of the Corporation representing 10% or more of the combined
         voting power of the Corporation's then outstanding Common Shares,
         becomes, at any time after the effective date of this Agreement, the
         Beneficial Owner directly or indirectly, of Common Shares of the





<PAGE>   17
William C. Soady
August 7, 1996
Page 17

         Corporation representing 10% or more of the combined voting power of
         the Corporation's then outstanding Common Shares;

                          (d)  any Person who, on the effective date of this
         Agreement, is a Beneficial Owner directly or indirectly of Common
         Shares of the Corporation representing 10% or more of the combined
         voting power of the Corporation's then outstanding Common Shares,
         increases such Person's beneficial ownership of such Common Shares, at
         any time after the effective date of this Agreement, by 5% or more over
         the percentage so owned by such Person on the date hereof; or

                          (e)  the Board adopts a resolution to the effect
         that, for purposes of this Agreement, a Potential Change in Control
         has occurred.

                 12.      "Subsidiary" of any Person shall mean any corporation
or other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, at the time of determination, directly
or indirectly, by such Person.