This Employment
Agreement (this “ Agreement ”) is made and
entered into on October 3, 2005 (the “ Effective
Date ”), by and among EMAK Worldwide, Inc. (the “
Parent ”), Equity Marketing, Inc., a Delaware
corporation (the “ Company ”), and Jonathan
Banks (“ Executive ”).
1. Engagement
and Duties.
(a)
Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby engages and employs Executive as an
officer of the Company, with the title and designation
“Co-Chief Executive Officer” and also as a member of
the Company Board. Executive hereby accepts such engagement and
employment. In addition, by executing this Agreement, Executive
hereby resigns, and the Company and the Parent hereby accept
Executive’s resignation, from any and all positions that he
currently holds with the Company and the Parent, although this will
not affect Executive’s participation in the benefit plans of
Parent.
(b)
During the Employment Term, the Executive, as Co-Chief Executive
Officer, shall report to the Chief Executive Officer of the Parent
(“ Parent CEO ”). The Executive shall, subject
to the shared authority of Kim H. Thomsen, as Executive’s
Co-Chief Executive Officer (the “ Other CEO ”)
and subject to the reasonable direction and control of the Parent
CEO, have general and active supervision and control of the Company
and shall perform all duties and enjoy all powers commonly incident
to the position of chief executive officer and otherwise as may be
delegated to him from time to time by the Company Board or the
Parent Board consistent with the position of CEO, including,
without limitation, succession planning for Executive’s
position and the development and implementation of transition plans
for key client relationships at the end of the Employment
Term.
(c)
Executive agrees to devote his full-time business time, energy and
efforts to the business of the Company and will use his best
efforts and abilities faithfully and diligently to promote the
Company Group’s business interests.
(d)
For so long as Executive is employed by the Company and for one
year thereafter, Executive shall not, directly or indirectly, as
owner, partner, joint venturer, shareholder, employee, broker,
agent, principal, trustee, corporate officer, director, licensor,
or in any other capacity whatsoever engage in, become financially
interested in, be employed by, render any consultation or business
advice with respect to, or have any connection with, any business
engaged in the development, design, manufacture, sale, marketing,
utilization or exploitation of any products or services which are
designed for the same purpose as, are similar to, or are otherwise
competitive with, products or services of the Company Group
provided as of the end of the Employment Term, in any geographic
area where, prior to or at the time of the termination of his
employment, the business of the Company Group was being conducted
in any manner whatsoever; provided, however, that the Executive may
own any securities of any corporation which is engaged in such
business and is publicly owned and traded but in an amount not to
exceed at any one time one percent (1%) of any class of stock or
securities of such corporation. Subject to the foregoing
prohibition and provided such services or investments do not
violate any applicable law, regulation or order, or interfere in
any way with the faithful and diligent performance by Executive of
the services to the Company otherwise required or contemplated by
this Agreement or duly requested by the Parent Board, the Company
and the Parent expressly acknowledge that Executive may:
(i)
make and manage personal business investments of Executive’s
choice without consulting the Parent Board;
(ii)
serve in any capacity with any civic, educational, charitable or
trade organization; and
(iii)
serve as a member of the board of directors of other companies or
businesses with the approval of the Parent Board, which approval
will not be unreasonably withheld.
For the purposes
of this Agreement, the following terms shall have the meanings set
forth below:
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“ 2008
Severance Compensation ” shall have the meaning set forth
in Section 5(e) of this Agreement.
“
Affiliate ” shall mean, with respect to any Person,
any individual, partnership, limited liability company,
corporation, trust, estate, real estate investment trust,
association or any other entity, directly or indirectly, through
one or more intermediaries, controlling, controlled by or under
common control with such Person. The term “control,” as
used in the immediately preceding sentence, means, with respect to
a corporation or other entity, the right to exercise, directly or
indirectly, more than 10% of the voting rights attributable to the
controlled corporation or other entity, and with respect to any
individual, partnership, limited liability company, trust,
association or other entity, the possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of the controlled entity.
“ Base
Salary ” shall have the meaning set forth in Section 3(a)
of this Agreement.
“Board
of Directors” shall mean the Board of Directors of the
Parent.
“ Change
of Control ” shall be deemed to have occurred
if:
(a)
any Person is or becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended), directly or indirectly of securities of the
company representing more than 50% of the combined voting power of
the Parent’s then outstanding voting securities;
(b)
during any period of twenty-four (24) consecutive months,
individuals, who at the beginning of such period constitute the
Board of Directors, and any new director whose election by the
Board of Directors, or whose nomination for election by the
Parent’s stockholders, was approved by a vote of at least
one-half (1/2) of the directors then in office (other than in
connection with a contested election), cease for any reason to
constitute at least one-half (1/2) of the Board of Directors;
or
(c)
the stockholders of the Parent approve (i) a plan of complete
liquidation of the Parent; or (ii) the sale or other
disposition by the Parent of all or substantially all of the
Parent’s assets; or
(d)
the consummation of a merger, consolidation or reorganization of
the Parent with any other entity other than:
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(i) a
merger, consolidation or reorganization which results in the voting
securities of the Parent outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
more than 50% of the combined voting power of the surviving
entity’s outstanding voting securities immediately after such
merger, consolidation or reorganization; or
(ii)
a merger, consolidation or reorganization which would result in the
directors of the Parent (who were directors immediately prior
thereto) continuing to constitute at least 50% of all directors of
the surviving entity immediately after such merger, consolidation
or reorganization.
(e)
the Parent enters into a definitive agreement with respect to any
of the foregoing transactions during the Employment Term or the
SARs Term, and the transaction contemplated by such definitive
agreement is actually consummated by Parent.
For purposes of
paragraph (d) above, “surviving entity” shall mean
only an entity in which all of the Parent’s stockholders
immediately before such merger, consolidation or reorganization
(determined without taking into account any stockholders properly
exercising appraisal or similar rights) become stockholders by the
terms of such merger, consolidation or reorganization, and the
phrase “directors of the Parent (who were directors
immediately prior thereto)” shall include only individuals
who were directors of the Parent, as applicable, at the beginning
of the twenty-four (24) consecutive month period preceding the
date of such merger, consolidation or reorganization.
“
Code ” shall mean the Internal Revenue Code of 1986,
as amended and as the same may be further amended from time to
time.
“ Common
Stock ” shall have the meaning set forth in
Section 3(b)(i)(B) of this Agreement.
“ Company
Board ” shall mean the Board of Directors of the
Company
“ Company
Group” shall mean the Company, including all parent,
subsidiary and Affiliates of the Company (including all
subsidiaries and Affiliates of the Parent), and each Person with
respect to which the Company or the Parent directly or indirectly
has Control.
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“
Consumer Price Index Adjustment ” shall be determined
as follows: the Consumer Price Index for the Los Angeles —
Riverside — Orange County, CA (All Items), as published by
the United States Department of Labor, Bureau of Labor Statistics
(1982-84=100) (the “ Index ”) which is most
recently available at the commencement of the new year (the “
New Index ”) shall be compared with the Index most
recently available twelve months prior to the New Index (the
“ Previous Index ”). If the New Index has
increased over the Previous Index, the Consumer Price Index
Adjustment shall be set by multiplying the Base Salary of the prior
year by a fraction, the numerator of which is the New Index and the
denominator of which is the Previous Index; provided, however, that
if the Index is changed so that the base year used for the New
Index differs from that used for the Previous Index, the New Index
shall be converted in accordance with the conversion factor
published by the United States Department of Labor, Bureau of Labor
Statistics.
“
Control ” shall mean, with respect to any Person,
(i) the beneficial ownership of any of the outstanding voting
securities of such Person, or (ii) the power, directly or
indirectly, by proxy, voting trust or otherwise, to elect any of
the outstanding directors, trustees or other managing persons of
such Person.
“ Direct
Allocations ” shall mean (i) the Company’s
share of the cost of the Parent’s shared service centers (
i.e. , creative, operations, warehouse, Hong Kong, product
integrity, etc.) based on estimated usage or time spent working on
behalf of the Company, and (ii) corporate overhead (
i.e. , occupancy, finance & accounting, MIS, legal &
business affairs, human resources, insurance, etc.) allocated to
the Company based on estimated usage/service levels; provided that
the methodology for determining Direct Allocations shall be the
same as that used by the Company and Parent in preparing budgets
and accounting statements prior to the date hereof. The parties
acknowledge and agree that Direct Allocations have historically
under Parent’s practice and shall continue to exclude the
Parent’s expenses of being a public company (e.g., expenses
of filing period reports under the Securities Exchange Act of 1934,
investor relations expenses, preparation and distribution of proxy
statements, annual meeting expenses, Board of Directors fees and
expenses, etc.).
“
EBITDA ” shall mean earnings before interest, taxes,
depreciation, and amortization of the Company, as reported on the
Parent’s internal unaudited statement of operations for the
Company using the Company’s actual expenses for its own
operations and only Direct
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Allocations.
For purposes of calculating EBITDA, the following costs shall be
excluded: (i) the compensation payable pursuant to
Sections 3(b)(i) and (ii) of this Agreement, as well as
the identical compensation provisions of the Other CEO’s
employment agreement; and (ii) the discretionary bonuses paid
to employees of the Company. For purposes of calculating EBITDA,
all revenues received and expenses incurred by Parent or its
subsidiaries in servicing the clients on Schedule 2, as
amended from time to time by mutual agreement, shall be included
subject to any mutually agreed allocations or limitations set forth
in Schedule 2. Additional clients shall be added to
Schedule 2 at any time when the Company commences to provide
services to them. Attachment A hereto sets forth the methodology
for determining EBITDA.
“
Employment Term ” shall mean the Effective Date
through December 31, 2007, unless earlier terminated as
provided herein.
“ For
Cause ” shall mean, in the context of a basis for
termination of Executive’s employment with the Company,
that:
(a) Executive
materially breaches any obligation, duty or agreement under this
Agreement, which breach is not either waived by the Company or
cured or corrected by Executive within 15 days of written
notice thereof from the Company (except for breaches of
Sections 1(d), 6 or 7 of this Agreement, which cannot be cured
and for which the Executive shall have no opportunity to
cure);
(b)
Executive is grossly negligent in the course of providing services
to the Company, or commits any act of personal dishonesty, fraud or
breach of fiduciary duty or trust against the Company;
(c) Executive
is convicted of, or pleads guilty or nolo contendere with respect
to, theft, fraud or felony under federal or applicable state
law;
(d) Executive
commits any act or acts of personal conduct that, following due
investigation and determination by the Parent Board of probable
cause, gives rise to a likelihood of liability under federal or
applicable state law for discrimination or sexual or other forms of
harassment or other similar liabilities with respect to subordinate
employees; or
(e)
Executive commits continued and repeated material violations of
specific directions of the Parent CEO, which directions are
consistent with past practices, with this Agreement and with
Executive’s position as a chief executive officer, or
continued and repeated substantive failure to perform duties
assigned by or pursuant to this Agreement; provided that
no
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termination
shall be deemed “For Cause” under this subsection
(e) unless Executive first receives written notice from the
Parent CEO advising him of the specific acts or omissions alleged
to constitute violations of written directions or a material
failure to perform his duties, and such violations or material
failure continue after he shall have had a reasonable opportunity
to correct the acts or omissions so complained of.
“ Minimum
EBITDA Threshold ” shall mean the dollar amount set forth
on Schedule 1 attached hereto under the heading Minimum EBITDA
Threshold for the applicable fiscal year of the Company.
“ Other
CEO ” shall have the meaning set forth in Section 1(b) of
this Agreement.
“ Other
Than For Cause ” shall mean, in the context of
termination of Executive’s employment with the Company, any
termination by the Company other than pursuant to
Sections 4(a), (b), (c) or (e) hereof.
“
Parent ” has the meaning set forth in the preamble of
this Agreement.
“ Parent
Board ” shall mean the Board of Directors of the
Parent.
“ Parent
CEO ” has the meaning set forth in Section 1(b) of this
Agreement.
“
Person ” shall mean an individual or a partnership,
corporation, trust, association, limited liability company,
governmental authority or other entity.
“ Prior
Employment Agreement ” shall mean that certain employment
agreement entered into between the Parent and Executive dated as of
December 12, 2003.
“ SARs
Term ” shall mean the Effective Date through the fifth
anniversary of the termination of this Agreement, unless earlier
terminated as provided herein or in the SAR Agreement.
3.
Compensation; Executive Benefit Plans.
(a)
Base Salary and Signing Bonus
. The Company shall pay to Executive a base salary (the “
Base Salary ”) at an annual rate of $300,000 during
the period from April 1, 2005 to December 31, 2005. The
Base Salary shall be payable in installments throughout the year in
the same manner and at the same times the Company pays base
salaries to other executive officers of the Company. Commencing
April 1, 2006, the Base Salary shall be adjusted upward
annually in an amount at the discretion of the Parent Board;
provided, however, that such upward annual adjustment shall be
greater than or equal to the Consumer Price Index
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Adjustment. In
addition to Executive’s base salary, on or before execution
of this Agreement, Executive shall receive a one-time signing bonus
of $100,000. Executive acknowledges receipt of such signing bonus
on September 23, 2005.
(b)
Bonus . During the Employment Term, the Executive’s
bonus program shall consist of the following:
(A)
Executive shall be eligible to receive an annual bonus no later
than 75 days after the end of each Company fiscal year that is
included within the Employment Term. The annual bonus shall be
based upon the Company achieving certain EBITDA thresholds for the
most recently completed fiscal year. The annual bonus shall be
calculated as follows: for each fiscal year, in order for Executive
to receive an annual bonus, the Company must exceed the Minimum
EBITDA Threshold for such fiscal year. If the Company’s
EBITDA exceeds the Minimum EBITDA Threshold, Executive may earn
one-half (1/2) of the specified percentage of each applicable
tranche based upon the Company’s EBITDA (each an “
EBITDA Tranche ”). The parties acknowledge that the
remaining one-half (1/2) of the specified percentage of each EBITDA
Tranche may be payable to the Other CEO pursuant to her employment
agreement with the Company. Schedule 1 attached hereto sets
forth the applicable Minimum EBITDA Threshold, the EBITDA Tranches
and the percentages earned for each applicable EBITDA Tranche as
well as two sample calculations to illustrate the calculation of
Executive’s annual bonus.
(B) The
annual bonus shall be payable to Executive as follows:
(1) twenty-five percent (25%) shall be payable in cash;
(2) twenty-five percent (25%) shall be payable in shares of
the Parent’s common stock, $.001 par value per share (“
Common Stock ”); and (3) the remaining fifty
percent (50%) may be paid in either cash and/or Common Stock, at
the election of Executive.
(C) The
number of shares of Common Stock issued to Executive pursuant to
this Section 3(b)(i) shall be a number of shares equal to the
quotient of the dollar amount of the annual bonus to be paid in
Common Stock divided by the average closing price of
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the Common
Stock, for the 30 trading days immediately preceding the date of
issuance. To the extent that any shares of Common Stock are issued
to Executive pursuant to this Section 3(b)(i), the Parent
shall be entitled to offset the amount of any applicable
withholding taxes required by the Code and any other applicable
laws against the cash portion of such annual bonus due to the
Executive pursuant to this Section 3(b)(i) and, if the cash
portion of such annual bonus is insufficient to cover the amount of
such withholding taxes, against the payment of the
Executive’s base salary.
(ii)
Stock Appreciation Rights . On the Effective Date, Executive
and the Parent shall enter into a Stock Appreciation Rights
Agreement (the “ SAR Agreement ”) in the form of
Exhibit A attached hereto. Pursuant to the SAR Agreement,
Executive shall be granted free-standing stock appreciation rights
in 200,000 shares of Common Stock (“ SARs ”).
The grant price of the SARs shall be $8.03 per share, which the
parties hereto hereby acknowledge and agree is the average closing
price of the Common Stock for the five trading days ending the week
of September 23, 2005. As provided in the SAR Agreement, the
SARs shall vest and become exercisable only upon a Change of
Control of the Parent (assuming that Executive has served the
Company in accordance with the terms of this Agreement including
post-employment service as provided below, through the date of the
Change of Control) and only if the Company has experienced positive
growth in EBITDA over the period commencing January 1, 2005
and ending upon the earlier of December 31, 2007 or the date
of a Change of Control. In the event that a Change of
Contro
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