SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
EQUITY MARKETING, INC.
- ------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- ------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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/X/ No fee required.
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and 0-11.
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[LOGO]
Equity Marketing, Inc.
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
EQUITY MARKETING, INC.
6330 SAN VICENTE BLVD.
LOS ANGELES, CALIFORNIA
SEPTEMBER 7, 2000
EQUITY MARKETING, INC.
6330 SAN VICENTE BLVD.
LOS ANGELES, CALIFORNIA 90048
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 7, 2000
------------------------
TO THE STOCKHOLDERS OF
EQUITY MARKETING, INC.:
Notice is hereby given that the 2000 Annual Meeting of Stockholders (the
"Annual Meeting") of Equity Marketing, Inc., a Delaware corporation (the
"Company"), will be held at the offices of the Company located at 6330 San
Vicente Blvd., Los Angeles, California 90048, on Thursday, September 7, 2000,
beginning at 10:00 a.m., local time. The Annual Meeting will be held for the
following purposes:
1. To elect five members of the Board of Directors, each to hold office
until the 2001 Annual Meeting and until his successor is elected and
qualified;
2. To approve the Equity Marketing, Inc. 2000 Stock Option Plan;
3. To ratify the selection of Arthur Andersen LLP as the Company's
independent auditor; and
4. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
The Board of Directors has fixed July 12, 2000 as the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting and any postponements or adjournments thereof, and only stockholders of
record at the close of business on that date are entitled to such notice and to
vote at the Annual Meeting. A list of stockholders entitled to vote at the
Annual Meeting will be available at the Annual Meeting and at the offices of the
Company for ten days prior to the Annual Meeting.
We hope that you will use this opportunity to take an active part in the
affairs of the Company by voting on the business to come before the Annual
Meeting, either by executing and returning the enclosed Proxy Card or by casting
your vote in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Leland P. Smith
LELAND P. SMITH
SECRETARY
Los Angeles, California
July 21, 2000
STOCKHOLDERS UNABLE TO ATTEND THE ANNUAL MEETING IN PERSON ARE REQUESTED TO
DATE AND SIGN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. A STAMPED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. IF A STOCKHOLDER RECEIVES MORE THAN
ONE PROXY CARD BECAUSE HE OR SHE OWNS SHARES REGISTERED IN DIFFERENT NAMES OR
ADDRESSES, EACH PROXY CARD SHOULD BE COMPLETED AND RETURNED.
EQUITY MARKETING, INC.
6330 SAN VICENTE BLVD.
LOS ANGELES, CALIFORNIA 90048
(323) 932-4300
------------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 7, 2000
INTRODUCTION
This Proxy Statement is furnished to the stockholders by the Board of
Directors of Equity Marketing, Inc., a Delaware corporation (the "Company"), for
solicitation of proxies for use at the 2000 Annual Meeting of Stockholders to be
held at the offices of the Company located at 6330 San Vicente Blvd., Los
Angeles, California 90048, on Thursday, September 7, 2000, at 10:00 a.m., local
time, and at any and all adjournments thereof (the "Annual Meeting").
The purpose of the Annual Meeting and the matters to be acted upon are set
forth in the following Proxy Statement. As of the date of this Proxy Statement,
the Board of Directors knows of no other business which will be presented for
consideration at the Annual Meeting. A stockholder giving a proxy pursuant to
the present solicitation may revoke it at any time before it is exercised by
submitting a duly executed proxy bearing a later date or by delivering to the
Secretary of the Company a written notice of revocation prior to the Annual
Meeting, or by appearing at the Annual Meeting and expressing a desire to vote
his or her shares in person. Subject to such revocation, all shares represented
by a properly executed proxy received prior to or at the Annual Meeting will be
voted by the proxy holders whose names are set forth in the accompanying proxy
in accordance with the instructions on the proxy. If no instruction is specified
with respect to a matter to be acted upon, the shares represented by the proxy
will be voted "FOR" the election of the nominees for director set forth herein,
"FOR" the approval of the Equity Marketing, Inc. 2000 Stock Option Plan and
"FOR" the proposal to ratify the appointment of Arthur Andersen LLP as the
independent auditor of the Company for the fiscal year ending December 31, 2000.
If any other business shall properly come before the meeting, votes will be cast
pursuant to said proxies in respect of any such other business in accordance
with the judgment of the persons acting under said proxies.
It is anticipated that the mailing to stockholders of this Proxy Statement
and the enclosed proxy will commence on or about July 21, 2000.
OUTSTANDING SECURITIES AND VOTING RIGHTS
Only stockholders of record at the close of business on July 12, 2000 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting. At
that date there were 6,305,612 outstanding shares of common stock, par value
$.001 per share, of the Company (the "Common Stock"), and 25,000 outstanding
shares of Series A senior cumulative participating convertible preferred stock,
par value $.001 per share, of the Company (the "Series A Stock"), the only
outstanding voting securities of the Company. At the Annual Meeting, each share
of Common Stock will be entitled to one vote. Each share of Series A Stock will
be entitled to 67.7966 votes (which represents the number of shares of Common
Stock into which each share of Series A Stock is currently convertible), or
approximately 1,694,915 votes in the aggregate. Accordingly, an aggregate of
8,000,527 votes may be cast at the Annual Meeting by holders of Common Stock and
Series A Stock.
The representation, in person or by properly executed proxy, of the holders
of a majority of the voting power of the shares of stock entitled to vote at the
Annual Meeting is necessary to constitute a quorum for the transaction of
business at the Annual Meeting. Stockholders are not entitled to cumulate their
votes. Abstentions and broker non-votes (shares held by a broker or nominee
which are represented at the Annual Meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular proposal) are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business. In the election of directors, holders of Common Stock
are entitled to elect five directors with the five candidates who receive the
highest number of affirmative votes being elected, and the holders of the Series
A Stock, voting separately as a class, are entitled to elect two directors, with
the candidates receiving the highest number of affirmative votes being elected.
Votes against a candidate and votes withheld have no legal effect. In matters
other than the election of directors, abstentions have the effect of votes
against a proposal in tabulations of the votes cast on proposals presented to
stockholders, whereas broker non-votes do not have any effect for purposes of
determining whether a proposal has been approved.
As of the Record Date, all of the outstanding shares of Series A Stock are
owned by Crown EMAK Partners, LLC, a Delaware limited liability company
("Crown"), representing the power to vote approximately 21.2% of the voting
power of the shares of stock entitled to vote at the Annual Meeting. The Company
has been advised that Crown intends to vote all the shares beneficially owned by
it "FOR" the approval of the Equity Marketing, Inc. 2000 Stock Option Plan and
"FOR" the proposal to ratify the appointment of Arthur Andersen LLP as the
independent auditor of the Company for the fiscal year ending December 31, 2000.
As of the Record Date, Stephen P. Robeck and Donald A. Kurz possessed the
power to vote approximately 32.0% of the voting power of the shares of stock
entitled to vote at the Annual Meeting. The Company has been advised that
Messrs. Robeck and Kurz intend to vote all of the shares beneficially owned by
them "FOR" the election of the nominees for director set forth herein, "FOR" the
approval of the Equity Marketing, Inc. 2000 Stock Option Plan and "FOR" the
proposal to ratify the appointment of Arthur Andersen LLP as the independent
auditor of the Company for the fiscal year ending December 31, 2000.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the shares of Common Stock
and Series A Stock owned as of July 1, 2000 by (i) each person known to the
Company to be the beneficial owner of more than 5% of the Common Stock and
Series A Stock; (ii) each director and nominee for director; (iii) each
executive officer named in the Summary Compensation Table included under
"Executive Compensation and Related Matters"; and (iv) all directors and
nominees and executive officers of the Company as a group. Unless otherwise
indicated in the footnotes following the table, the persons as to whom the
information is given had sole voting and investment power over the shares of
Common Stock and Series A Stock shown as beneficially owned by them, subject to
community property laws where applicable. Unless otherwise indicated, the
address of each person shown is c/o Equity Marketing, Inc., 6330 San Vicente
Blvd., Los Angeles, California 90048.
COMMON STOCK SERIES A STOCK
----------------------- ------------------------
AMOUNT PRECENT AMOUNT
BENEFICIALLY OF CLASS BENEFICALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) (1) OWNED (1) CLASS (1)
- ------------------------------------ ------------ -------- ----------- ----------
Crown EMAK Partners, LLC (2)...................... 2,611,580 29.3% 25,000 100%
Peter Ackerman (2)................................ 2,611,580 29.3% 25,000 100%
Donald A. Kurz (3)................................ 1,588,970 25.0%
Stephen P. Robeck (3)............................. 1,047,380 16.5%
Baron Capital (4)................................. 350,000 5.6%
Bruce Raben (3)................................... 207,000 3.2%
Mitchell H. Kurz (3).............................. 121,600 1.9%
Lawrence Elins (3)................................ 118,334 1.8%
Kim H. Thomsen (3)................................ 100,319 1.6%
Sanford R. Climan (3)............................. 85,800 1.3%
Joseph F. Morrison (3)............................ 80,445 1.3%
Gaetano A. Mastropasqua (3)....................... 35,197 *
Edward T. Boyd (3)................................ 21,015 *
Jeffrey S. Deutschman (2)......................... 0 *
Executive Officers and Directors as a Group
(16 persons)(2)(5).............................. 6,092,265 63.3% 25,000 100%
- ------------------------------
* Less than one percent.
(1) In accordance with Rule 13d-3(d)(1)(i) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), shares beneficially owned at any date
include shares issuable upon the exercise of options, warrants, rights or
conversion privileges within sixty days of the that date. For the purpose of
computing the percentage of outstanding shares beneficially owned by a
particular person, any securities not outstanding which are subject to
options, warrants, rights or conversion privileges exercisable by that
person within sixty days of July 1, 2000 have been deemed to be outstanding,
but have not been deemed outstanding for the purpose of computing the
percentage of the class beneficially owned by any other person.
(2) As reported on a Schedule 13D dated April 10, 2000 and filed with the
Securities and Exchange Commission by Crown, Peter Ackerman, Jeffrey S.
Deutschman and related parties. The address of Mr. Deutschman and Crown is
660 Madison Avenue, 15th Floor, New York, New York 10021. The address of
Mr. Ackerman is 700 Eleventh Street N.W., Washington, DC 20001.
Mr. Deutschman is the manager of Crown. Mr. Ackerman may be deemed to have
shared power to vote or direct the vote, and to dispose or direct the
disposition of the shares of Series A Stock.
On March 29, 2000, Crown paid $11.9 million to the Company in exchange for
11,900 shares of Series A Stock with a conversion price of $14.75 per share.
In connection with such purchase, the Company granted to Crown five year
warrants (collectively, the "Warrants") to purchase 5,712 shares of
Series B senior cumulative participating convertible preferred stock, par
value $.001 per share, of the Company (the "Series B Stock") at an exercise
price of $1,000 per share, and 1,428 shares of Series C senior cumulative
participating convertible preferred stock, par value $.001 per share, of the
Company (the "Series C Stock") at an exercise price of $1,000 per share. The
Warrants are immediately exercisable. The conversion prices of the Series B
Stock and the Series C Stock are $16.00 and $18.00, respectively. On
June 20, 2000, Crown paid an additional $13.1 million to the Company in
exchange for an additional 13,100 shares of Series A Stock with a conversion
price of $14.75 per share. In connection with such purchase, the Company
granted to Crown Warrants to purchase an additional 6,288 shares of Series B
Stock and an additional 1,572 shares of Series C Stock. As of the date
hereof, each share of Series A Stock is currently convertible into 67.7966
shares of
3
Common Stock, representing 1,694,915 shares of Common Stock in the
aggregate. As of the date hereof, each share of Series B Stock and Series C
Stock is currently convertible into 62.5 and 55.5556 shares of Common Stock,
respectively, representing 916,666 shares of Common Stock in the aggregate.
(3) Includes shares of Common Stock which the following officers and directors
have the right to acquire by exercise of options within sixty days following
July 1, 2000: D. Kurz, 44,167; Robeck, 31,667; Raben, 130,000; M. Kurz,
45,000; Elins, 98,334; Thomsen, 98,461; Climan, 65,000; Morrison, 74,445;
Mastropasqua, 30,834; and Boyd, 18,750.
(4) As reported on a Schedule 13G dated January 28, 2000 and filed with the
Securities and Exchange Commission by Baron Capital. The address of Baron
Capital is 767 Fifth Avenue, New York, NY 10153.
(5) The amount stated includes an aggregate of 3,317,238 shares of Common Stock
which may be acquired upon the exercise of options or warrants within sixty
days following July 1, 2000.
ELECTION OF DIRECTORS
Pursuant to the Certificate of Incorporation of the Company and the
Certificate of Designation of the Series A Stock of the Company, the holders of
the Series A Stock, voting as a separate class, shall be entitled to elect two
directors of the Company at the Annual Meeting (the "Series A Directors"). The
holders of the Common Stock, voting separately as a class, shall elect the
remaining directors. Accordingly, five directors are to be elected and qualified
at the Annual Meeting. Proxies for the Series A Directors are not being
solicited; the Series A Stock will be voted by written ballot or unanimous
written consent at the Annual Meeting. Crown, the holder of the Series A Stock,
has advised the Company that Messrs. Ackerman and Deutschman will be nominated
for election as the Series A Directors for a term commencing on the date of the
Annual Meeting and continuing until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. With the exception
of Mr. Elins who plans to resign from the Board of Directors immediately prior
to the Annual Meeting, all of the incumbent directors are also nominees for
election as directors. All nominees have advised the Company that they are able
and willing to serve as directors. However, if any nominee is unable to or for
good cause will not serve, the persons named in the accompanying proxy will vote
for any other person nominated by the Board of Directors.
Except as set forth below, no arrangement or understanding exists between
any nominee and any other person or persons pursuant to which any nominee was or
is to be selected as a director or nominee. Under his consulting agreement, the
Company has agreed to use its best efforts to have Mr. Robeck elected as a
director of the Company. (See "Certain Relationships and Related Transactions"
below.) Under his employment agreement, the Company has agreed to use its best
efforts to have Mr. Kurz elected as a director of the Company. (See "Employment
Agreements" below.) Donald A. Kurz and Mitchell H. Kurz are brothers.
4
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF THE NOMINEES LISTED BELOW
The following table sets forth the names and ages of the nominees of the
Board of Directors.
NAME AGE DIRECTOR SINCE
- ---- -------- --------------
Donald A. Kurz.............................................. 44 1990
Sanford R. Climan........................................... 44 1998
Mitchell H. Kurz............................................ 48 1999
Bruce Raben................................................. 46 1993
Stephen P. Robeck........................................... 52 1989
DONALD A. KURZ joined the Company as Executive Vice President and was
elected a director in September 1990, and was elected President and Co-Chief
Executive Officer in September 1991. On January 1, 1999, he was elected Chairman
of the Board and Chief Executive Officer. Prior to joining the Company,
Mr. Kurz was a management consultant for seven years with the general management
consulting division of Towers Perrin, where he was a Vice President (Senior
Partner) and, most recently, Manager of the New York office. Mr. Kurz received
his BA from Johns Hopkins University and his MBA from the Columbia University
Graduate School of Business.
SANFORD R. CLIMAN is Managing Director of Entertainment Media Ventures, a
Los Angeles-based venture capital fund focused on investment in the areas of
technology and media. From June 1997 through February 1999, he was a senior
executive with Creative Artists Agency ("CAA"). From October 1995 through May
1998, he was an Executive Vice President for Universal Studios and, from June
1986 through September 1995, he was a senior executive with CAA. Mr. Climan
holds a bachelor's degree from Harvard College, a master's of science in health
policy and management from Harvard School of Public Health and an MBA from
Harvard Business School.
MITCHELL H. KURZ is the Chairman and founder of Kurz and Friends, a
consulting company to the global advertising and marketing services business.
Mr. Kurz retired from Young & Rubicam Inc. in December 1998, followng a 24-year
career during which he held numerous executive positions. His most recent
position at Young & Rubicam was Chairman of Client Services, where he oversaw
key global client relationships representing approximately 50 percent of the
company's annual revenues. From 1996 to 1998, he was Pesident and Chief
Operating Officer of Young & Rubicam Advertising, and from 1992 to 1996, he was
Worldwide Chief Executive Officer of Wunderman Cato Johnson, a Young & Rubicam
operating unit. Mr. Kurz received his MBA from Harvard Business School and his
bachelor's degree from Dartmouth College.
BRUCE RABEN was an Executive Vice President of Jeffries & Company, Inc., an
investment banking firm, from 1990 through 1995. In 1996 Mr. Raben joined CIBC
World Markets, an investment banking firm, as a Managing Director. Mr. Raben is
also a director of Global Crossings, Ltd. and Evercom Holdings, Inc. Mr. Raben
received a BA from Vassar College and an MBA from the Columbia University
Graduate School of Business.
STEPHEN P. ROBECK was a senior executive of the Company and its predecessor
business from 1986 to 1998. He became a director of the Company in 1989 and was
elected Chairman and Co-Chief Executive Officer in September 1991. Effective
December 31, 1998, Mr. Robeck resigned as Chairman and Co-Chief Executive
Officer. On January 1, 1999, he became a consultant to the Company. Between 1987
and September 1991, Mr. Robeck served as Chief Operating Officer of the Company.
Mr. Robeck received a BA in philosophy from Lake Forest College.
SERIES A DIRECTORS
PETER ACKERMAN was the Director of Capital Markets at Drexel Burnham
Lambert, an investment banking firm, from 1978 to 1989. He has been an Equity
Marketing director since March 2000. Since 1989,
5
Dr. Ackerman has been the Managing Director of Rockport Capital, which is the
Special Limited Partner of Crown Capital Group. Dr. Ackerman received a Ph.D.
from the Fletcher School of Law and Diplomacy where he is the Chairman of the
Board of Overseers. In addition, he sits on the Boards of CARE, Colgate
University and the Cato Institute and is a member of the Council on Foreign
Relations and the Executive Council of the International Institute for Strategic
Studies.
JEFFREY S. DEUTSCHMAN has been a Managing Director of Crown Capital Group
since 1997. He has been an Equity Marketing director since March 2000. Prior to
joining Crown, he was a Partner at Aurora Capital Partners, a leveraged buyout
fund, from 1992 through 1995, a Partner at Deutschman, Clayton & Company, an
investment firm engaged in management buyout transactions, from 1987 through
1991 and a Principal at Spectrum Group, Inc., which specialized in leveraged
acquisitions, from 1981 through 1986. Mr. Deutschman received a BA from Columbia
University and an MBA from the UCLA Business School. Mr. Deutschman sits on the
boards of JPS Industries, Davidson Cotton and Resort Theaters of America. He
also serves as the Chief Executive Officer and is a director of ISG Holdings, a
company engaged in the consumer sampling and specialty packaging industries.
During 1999, the Board of Directors met 6 times. Each director attended more
than 75% of the Board of Directors meetings and the meetings of Board committees
on which he served.
COMMITTEES OF THE BOARD
AUDIT COMMITTEE. The Board has an Audit Committee consisting of
Messrs. Climan, Elins and Raben. The Audit Committee reviews the audit and
control functions of the Company, the Company's accounting principles, policies
and practices and financial reporting, the scope of the audit conducted by the
Company's independent auditors, the fees and all non-audit services of the
independent auditors and the independent auditors' opinion and letter of comment
to management (if any) and management's response thereto. The Audit Committee
met three times in 1999.
COMPENSATION COMMITTEE. The Board has a Compensation Committee consisting
of Messrs. Climan, Elins and Raben. The Compensation Committee is authorized to
review and recommend to the Board the salaries, bonuses and perquisites for the
Company's executive officers and to administer the Equity Marketing, Inc. Stock
Option Plan (the "Option Plan"). The Compensation Committee also reviews and
recommends to the Board any new compensation or retirement plans. During 1999,
the Compensation Committee met two times.
DIRECTOR COMPENSATION
STANDARD COMPENSATION. Directors who are not employees of the Company or
its subsidiaries ("non-employee directors") receive $20,000 per year. Directors
who are employees of the Company or its subsidiaries serve as directors without
compensation. The Series A Directors also serve without compensation; provided,
however, that the Company has agreed to make available and issue each such
Series A Director options to purchase equity securities of the Company on the
same terms and conditions as are then available to the Company's other
non-employee directors commencing in April, 2003.
STOCK OPTIONS. Non-employee directors receive additional compensation in
the form of stock options granted automatically under the Equity Marketing, Inc.
Non-Employee Director Stock Option Plan (the "Director Plan"). Each non-employee
director automatically receives an option to purchase 35,000 shares of Common
Stock upon the date such non-employee director first joins the Board of
Directors, such options vesting six months after the date of grant, and options
to purchase 30,000 shares of Common Stock the first time such non-employee
director is elected to the Board of Directors by the stockholders and each third
time thereafter such non-employee director is elected to the Board of Directors
by the stockholders, such options vesting in three equal installments on each of
the first, second and third anniversary of the date of grant. If a non-employee
director first joins the Board of Directors upon election by the stockholders,
such non-employee director receives both grants of options on the same date.
6
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stephen P. Robeck, formerly Chairman of the Board and Co-Chief Executive
Officer, has entered into a consulting agreement with the Company. The agreement
runs from January 1, 1999 through December 31, 2001, subject to earlier
termination upon Mr. Robeck's death or disability or termination by the Company
For Cause or Other Than For Cause (each as defined in the agreement). The
agreement provides that Mr. Robeck will serve as a financial and business
consultant to the Company and be available to fulfill his obligations thereunder
no less than twenty hours per month. The agreement contains provisions
restricting Mr. Robeck's ability to compete with the Company while providing
services as a consultant and to solicit the Company's employees through the
first anniversary of the end of the consulting period. Under the agreement,
Mr. Robeck receives a consulting fee of $210,000 per year, a car allowance of
$18,000 per year and certain medical, disability and life insurance benefits. He
is also entitled to reimbursement of certain business-related expenses incurred
for all reasonable travel and out-of-pocket expenses incurred in the performance
of his services as a consultant. If the agreement is terminated by reason of
death or disability, Mr. Robeck or his estate shall receive his full consulting
fee through the end of the month of his death or disability and a prorated share
of any other compensation or benefits required under the agreement. If the
agreement is terminated by the Company For Cause, Mr. Robeck's compensation and
benefits shall cease as of the date of termination. If the agreement is
terminated by the Company Other Than For Cause, Mr. Robeck shall receive his
full consulting fee and any other compensation or benefits required under the
agreement through the end of the term of the agreement. Under the agreement, the
Company has agreed to use its best efforts to have Mr. Robeck elected as a
director of the Company.
On December 9, 1999, the Company purchased in a private transaction from a
trust controlled by Mr. Robeck 50,000 shares of Common Stock at a price of
$17.208 per share, or $860,400 in the aggregate. $17.208 represents the average
closing price of the Common Stock on December 2nd, 3rd, and 6th.
Bruce Raben, a director of the Company, provided significant services as a
director to the Company in 2000. As consideration for these services, Mr. Raben
received on March 28, 2000 a grant of options to purchase 50,000 shares of
Common Stock at $14.75 per share, a 55% premium to fair market value ($9.50) on
the date of grant. The options expire on March 28, 2010, the tenth anniversary
of the date of grant and are immediately vested. The options were granted under
the Option Plan. Using the assumed rates of appreciation as set forth in the
Option Grants table below, the grant to Mr. Raben had a value of $463,806 at 5%
and $1,175,383 at 10%.
On March 29, 2000, Crown paid $11.9 million to the Company in exchange for
11,900 shares of Series A Stock with a conversion price of $14.75 per share. In
connection with such purchase, the Company granted to Crown five year Warrants
to purchase 5,712 shares of Series B Stock at an exercise price of $1,000 per
share, and 1,428 shares of Series C Stock at an exercise price of $1,000 per
share. The conversion prices of the Series B Stock and the Series C Stock are
$16.00 and $18.00, respectively. On June 20, 2000, Crown paid an additional
$13.1 million to the Company in exchange for an additional 13,100 shares of
Series A Stock with a conversion price of $14.75 per share. In connection with
such purchase, the Company granted to Crown Warrants to purchase an additional
6,288 shares of Series B Stock and an additional 1,572 shares of Series C Stock.
In connection with the purchase of preferred stock, the Company agreed to pay
Crown a commitment fee in the aggregate amount of $1.25 million, paid in equal
quarterly installments of $62,500 commencing on June 30, 2000 and ending on
March 31, 2005. Jeffrey S. Deutschman, a director of the Company, is the manager
of Crown. Peter Ackerman, a director of the Company, may be deemed to have
shared power to vote or direct the vote, and to dispose or direct the
disposition of the shares of Series A Stock owned by Crown.
7
EXECUTIVE COMPENSATION AND RELATED MATTERS
The following table sets forth the cash compensation (including cash
bonuses) paid or accrued by the Company for its fiscal years ended December 31,
1997, 1998 and 1999 to its Chief Executive Officer and its four most highly
compensated officers other than the Chief Executive Officer (collectively, the
"Named Executive Officers") at December 31, 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
--------------------------
SECURITIES
OTHER ANNUAL UNDERLYING OPTION
YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2) OPTIONS(3) PAYOUTS($)
-------- --------- ----------- ------------------ ------------- ----------
Donald A. Kurz.............. 1999 375,000 300,000 19,200 50,000 --
Chairman, Chief Executive 1998 315,000 -- 16,095 -- --
Officer 1997 300,000 -- 16,920 50,000 --
Joseph F. Morrison.......... 1999 275,000 -- 14,000 -- --
President, Promotions and 1998 164,440 10,000 8,970 296,667 --
Consumer Products(5)
Kim H. Thomsen.............. 1999 250,000 175,000 12,000 25,000 --
President, Marketing and 1998 210,000 125,000 10,920 25,833 --
Interactive Services, 1997 200,000 50,000 10,920 25,000 --
Chief Creative Officer
Edward T. Boyd.............. 1999 215,000 125,000 12,000 15,000 --
Senior Vice President, 1998 150,000 90,000 7,826 112,500 --
Corporate Operations(6)
Gaetano A. Mastropasqua(7).. 1999 187,500 165,000 12,000 90,000 --
Senior Vice President, 1998 121,000 50,000 6,000 10,000 --
Client Services 1997 55,000 -- 3,000 20,000 --
ALL OTHER
COMPENSATION($)(4)
------------------
Donald A. Kurz.............. 21,924
Chairman, Chief Executive 21,924
Officer 39,362
Joseph F. Morrison.......... --
President, Promotions and --
Consumer Products(5)
Kim H. Thomsen.............. 5,000
President, Marketing and 5,000
Interactive Services, 4,924
Chief Creative Officer
Edward T. Boyd.............. 5,000
Senior Vice President, --
Corporate Operations(6)
Gaetano A. Mastropasqua(7).. 5,000
Senior Vice President, 4,235
Client Services --
- ------------------------------
(1) Amounts were earned in the years indicated. Annual bonuses are generally
paid in the first quarter of the following year.
(2) Consists of an automobile allowance unless otherwise indicated.
(3) 1998 amounts include stock options that were granted in 1998 and then
subsequently cancelled in 1998 in connection with a repricing in the
following amounts: Mr. Morrison--200,000; and Mr. Boyd--75,000.
(4) 1999 amounts consist of: (i) matching payments pursuant to the Company's
401(k) Plan in the following amounts: Mr. Kurz--$5,000;
Ms. Thomsen--$5,000; Mr. Boyd--$5,000; and Mr. Mastropasqua--$5,000;
(ii) premiums on term life insurance in the following amounts:
Mr. Kurz--$6,257; and (iii) loan forgiveness in the following amounts: Mr.
Kurz--$10,667.
(5) Mr. Morrison commenced employment in April, 1998. As of December 31, 1999,
Mr. Morrison was no longer an officer of the Company.
(6) Mr. Boyd commenced employment in April, 1998. Mr. Boyd received a signing
bonus of $50,000.
(7) Mr. Mastropasqua commenced employment in June, 1997.
EMPLOYMENT AGREEMENTS
Donald A. Kurz has entered into an employment agreement with the Company.
The agreement runs from January 1, 1999 through December 31, 2002, subject to
earlier termination upon Mr. Kurz's death or disability or termination by the
Company For Cause or Other Than For Cause (each as defined in the agreement).
The agreement also terminates upon the first anniversary of a Change of Control
(as defined in the agreement). Under the agreement, Mr. Kurz is entitled to a
base salary of $375,000 per year, subject to upward annual adjustment at the
discretion of the Compensation Committee in an amount no less than increases in
the Consumer Price Index (as defined in the agreement), a car allowance of
$19,200 per year and certain medical, disability and life insurance benefits.
Pursuant to the agreement, Mr. Kurz received a grant of 50,000 stock options in
January 1999 priced at a 50% premium to fair market value on that date and may
receive future stock option grants at the discretion of the Compensation
Committee. Mr. Kurz is also entitled to an annual bonus of up to 50% of his base
salary based on the attainment of certain corporate earnings goals and, at the
discretion of the Compensation Committee, a strategic performance bonus of up to
50% of his base salary after taking into account the Company's long-term
prospects and position and the accomplishment of strategic goals devised by
Mr. Kurz and the Board of Directors. Upon termination of the employment term,
the Company has agreed to retain Mr. Kurz as a consultant for a period of three
years, unless the agreement is terminated pursuant to a Change of Control. If
the
8
agreement is terminated by reason of death or disability, Mr. Kurz or his estate
shall receive his full base salary through the end of the month of his death or
disability and a prorated share of any other compensation or benefits required
under the agreement. If the agreement is terminated by the Company For Cause,
Mr. Kurz's compensation and benefits shall cease as of the date of termination.
If the agreement is terminated by the Company Other Than For Cause, Mr. Kurz
shall receive his full base salary and any other compensation or benefits
required under the agreement through the end of the term of the agreement and
double the annual corporate earnings goal bonus he would have been entitled to
if he was not terminated. Under the agreement, the Company has agreed to use its
best efforts to have Mr. Kurz elected as a director of the Company.
Joseph F. Morrison has entered into an employment agreement with the
Company. The agreement runs from September 1, 1998 through December 31, 2000,
subject to earlier termination upon Mr. Morrison's death or disability or
termination by the Company For Cause or Other Than For Cause (each as defined in
the agreement). The agreement contains provisions restricting Mr. Morrison's
ability to compete with the Company through April 24, 2003 and to solicit the
Company's employees through April 24, 2003. Under the agreement, Mr. Morrison is
entitled to a base salary of $275,000 per year, a car allowance of $14,400 per
year and certain medical, disability and life insurance benefits. Pursuant to
the agreement, Mr. Morrison received a grant of 100,000 stock options in
September 1998. Mr. Morrison is also entitled to an annual bonus of up to 80% of
his base salary based on the attainment of certain corporate earnings goals and
business group earnings goals. If the agreement is terminated by reason of death
or disability, Mr. Morrison or his estate shall receive his full base salary
through the end of the month of his death or disability and a prorated share of
his annual bonus as determined under the agreement. If the agreement is
terminated by the Company For Cause, Mr. Morrison's compensation and benefits
shall cease as of the date of termination. If the agreement is terminated by the
end of the employment term, Mr. Morrison's compensation and benefits shall cease
as of the date of termination, but he shall be entitled to payment of his annual
bonus through the end of the calendar year in which his employment terminates
subject to proration if applicable. If the agreement is terminated by the
Company Other Than For Cause, Mr. Morrison shall receive his full base salary
and any other compensation or benefits required under the agreement through the
end of the term of the agreement. Effective December 31, 1999, Mr. Morrison's
employment agreement was terminated by the Company Other Than For Cause, and
Mr. Morrison is no longer an officer of the Company.
Effective January 1, 2000, Mr. Morrison entered into a Consulting Agreement
with the Company. The agreement runs from January 1, 2000 through December 31,
2000 (the "Consulting Period"), subject to earlier termination upon
Mr. Morrison's death or disability or upon breach by Mr. Morrison of certain
provisions incorporated by reference from his employment agreement. Under the
consulting agreement, Mr. Morrison is entitled to receive during the Consulting
Period the severance compensation mandated by his employment agreement as
described above upon termination by the Company Other Than For Cause. The
provisions of Mr. Morrison's employment agreement that restrict his ability to
compete with the Company and to solicit the Company's employees are also
incorporated by reference into his consulting agreement.
Edward T. Boyd has entered into an employment agreement with the Company.
The agreement runs from April 13, 1998 through April 12, 2000, subject to
earlier termination upon Mr. Boyd's death or disability or termination by the
Company For Cause or Other Than For Cause (each as defined in the agreement).
Following April 12, 2000, Mr. Boyd's employment with the Company may continue on
an "at will basis" subject to termination by him upon thirty days prior written
notice to the Company. The agreement contains provisions restricting Mr. Boyd's
ability to solicit the Company's employees through the second anniversary of the
agreement's termination. Under the agreement, Mr. Boyd is entitled to a base
salary of $200,000 per year, a car allowance of $12,000 per year and certain
medical, disability and life insurance benefits. Pursuant to the agreement,
Mr. Boyd received a grant of 75,000 stock options in April 1998. Mr. Boyd is
also entitled to an annual bonus of up to 60% of his base salary based on the
attainment of certain corporate earnings goals and business group earnings
goals. Pursuant to the
9
agreement, Mr. Boyd received a signing bonus of $50,000 in April 1998 which is
refundable to the Company in the event he is terminated For Cause on or prior to
April 13, 1999. If the agreement is terminated by reason of death or disability,
Mr. Boyd or his estate shall receive his full base salary through the end of the
month of his death or disability and a prorated share of his annual bonus as
determined under the agreement. If the agreement is terminated by the Company
For Cause, Mr. Boyd's compensation and benefits shall cease as of the date of
termination. If the agreement is terminated by the end of the employment term,
Mr. Boyd's compensation and benefits shall cease as of the date of termination.
If the agreement is terminated by the Company Other Than For Cause, Mr. Boyd
shall receive his full base salary and other benefits required under the
agreement through the end of the term of the agreement, and he shall be entitled
to payment of his annual bonus through the end of the calendar year in which his
employment terminates.
STOCK OPTIONS
The following table sets forth information with respect to grants of options
to purchase Common Stock under the Option Plan to the Named Executive Officers
during the fiscal year ended December 31, 1999.
OPTION GRANTS IN 1999
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATE OF STOCK
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM($)(2)
OPTIONS EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH)(1) DATE 5% 10%
- ---- ---------- -------------- --------- ---------- --------- --------
Donald A. Kurz................. 50,000(3) 10.4% 12.38 2009 389,283 986,525
Joseph F. Morrison............. 0 -- -- -- -- --
Kim H. Thomsen................. 25,000(4) 5.2% 11.00 2009 172,945 438,279
Edward T. Boyd................. 15,000(4) 3.1% 8.44 2009 79,617 201,767
35,000(4) 7.2% 8.44 2009 185,774 470,791
55,000(4) 11.4% 11.00 2009 380,478 964,213
Gaetano A. Mastropasqua........
- ------------------------------
(1) Unless otherwise indicated, the exercise price was market value of the
Common Stock on the date of grant.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on option exercises are dependent upon other factors,
including the future performance of the Common Stock and overall stock
market conditions.
(3) Options were granted at 150% of fair market value on the date of grant and
vest in four equal annual installments commencing on the first anniversary
of the date of grant.
(4) Options vest in four equal annual installments commencing on the first
anniversary of the date of grant.
The following table sets forth with respect to the Named Executive Officers
information with respect to options exercised, unexercised options and year-end
option values in each case with respect to options to purchase shares of Common
Stock.
AGGREGATED OPTION EXERCISES DURING FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN THE MONEY OPTIONS
ACQUIRED VALUE DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
ON REALIZED --------------------------------- ---------------------------------
NAME EXERCISE(#) ($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- ----------- -------- -------------- ---------------- -------------- ----------------
Donald A. Kurz............ 0 0 26,667 73,333 0 0
Joseph F. Morrison........ 0 0 42,223 54,444 227,160 292,909
Kim H. Thomsen............ 0 0 92,211 31,832 1,021,743 83,756
Edward T. Boyd............ 0 0 7,500 45,000 40,350 228,000
Gaetano A. Mastropasqua... 0 0 6,668 93,332 35,874 276,726
- ------------------------------
(1) Represents the difference between the last reported sale price of the Common
Stock on December 31, 1999 and the exercise price of the option multiplied
by the applicable number of shares.
10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors are
Messrs. Climan, Elins and Raben. No member of the Board of Directors or the
Compensation Committee has any interlocking relationship with any other
corporation that requires disclosure under this heading.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following Report of the Compensation Committee on Executive Compensation
and the Performance Graph shall not be deemed to be "soliciting material" or to
be "filed" with the Securities and Exchange Commission (the "Commission") or
subject to Regulations 14A or 14C of the Commission or the liabilities of
Section 18 of the Exchange Act. Such Report and Performance Graph shall not be
deemed incorporated by reference into any filing under the Securities Act of
1933, as amended (the "Securities Act") or the Exchange Act, notwithstanding any
general incorporation by reference of this Proxy Statement into any other
document.
GENERAL. The Compensation Committee (the "Compensation Committee") has the
responsibility to determine and administer the Company's executive compensation
programs and make appropriate recommendations concerning matters of executive
compensation. In evaluating the performance of members of management, the
Compensation Committee consults with the chief executive officer except when
reviewing the chief executive officer's performance, in which case it meets
independently. The Committee reviews with the Board in detail all aspects of
compensation for the senior executives, including the Named Executive Officers.
The Committee met two times in 1999. Set forth below are the principal factors
underlying the Committee's philosophy used in setting compensation for fiscal
1999.
COMPENSATION PHILOSOPHY. At the direction of the Board of Directors, the
Compensation Committee endeavors to ensure that the compensation programs for
executive officers of the Company are competitive and consistent in order to
attract and retain key executives critical to the Company's long-term success.
The Compensation Committee believes that the Company's overall financial
performance should be an important factor in the total compensation of executive
officers. At the executive officer level, the Compensation Committee has a
policy that a significant proportion of potential total compensation should
consist of variable, performance-based components, such as stock options and
bonuses, which can increase or decrease to reflect changes in corporate and
individual performance. These incentive compensation programs are intended to
reinforce management's commitment to the enhancement of profitability and
stockholder value.
The Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for the Company's chief executive
officer and other executive officers. In implementing the Company's executive
compensation objectives, the Compensation Committee has designed an executive
compensation program consisting of base salary, annual incentive compensation,
stock options and other employment benefits.
The Compensation Committee seeks to maintain levels of compensation that are
competitive with similar companies in the Company's industry. To that end, the
Compensation Committee reviews proxy data and other compensation data relating
to companies within the Company's industry. In addition, from time to time, the
Compensation Committee also receives assessments and advice regarding the
Company's compensation practices from independent compensation consultants.
BASE SALARY. Base salary represents the fixed component of the executive
compensation program. The Company's philosophy regarding base salaries is to
maintain salaries for the aggregate group of executive officers at approximately
the competitive industry average. Periodic increases in base salary relate to
individual contributions evaluated against established objectives and the
industry's annual competitive pay practices.
11
ANNUAL INCENTIVE COMPENSATION. The Company's executive officers are
eligible for annual incentive compensation consisting primarily of cash bonuses
based on the attainment of corporate earnings goals, as well as divisional and
individual performance objectives. While performance against financial
objectives is the primary measurement for executive officers' annual incentive
compensation, non-financial performance also affects bonus pay. The Compensation
Committee considers such corporate performance measures as net income, earnings
per common and common equivalent share, return on average common stockholders'
equity, gross margin, sales growth and expense and asset management in making
bonus decisions. The Compensation Committee also appreciates the importance of
achievements that may be difficult to quantify, and accordingly recognizes
qualitative factors, such as successful supervision of major corporate projects,
demonstrated leadership ability and contributions to industry and community
development. The amount of each annual incentive award is recommended for
approval by management and approved by the Compensation Committee.
In 1999, the Company reported record sales and income (before charges or
gains). Based on the attainment of corporate, divisional and individual
performance objectives, cash bonuses were awarded to the Named Executive
Officers in the following amounts: Mr. Kurz--$300,000; Mr. Morrison--$0; Ms.
Thomsen--$175,000; Mr. Boyd--$125,000; and Mr. Mastropasqua--$165,000.
STOCK OPTIONS. The Compensation Committee strongly believes that the
compensation program should provide employees with an opportunity to increase
their equity ownership and potentially gain financially from Company stock price
increases. By this approach, the best interests of stockholders, executives and
employees will be closely aligned. Therefore, executives and other key employees
are eligible to receive stock options, giving them the right to purchase shares
of Common Stock of the Company at a specified price in the future. The
Compensation Committee believes that the use of stock options as the basis for
long-term incentive compensation meets the Compensation Committee's compensation
strategy and business needs of the Company by achieving increased value for
stockholders and retaining key employees.
In 1999, the Company granted options to purchase shares of the Company's
Common Stock to the Named Executive Officers in the following amounts: Mr.
Kurz--50,000; Mr. Morrison--0; Ms. Thomsen--25,000; Mr. Boyd--15,000; and Mr.
Mastropasqua--90,000.
OTHER EMPLOYMENT BENEFITS. The Company provides health and welfare benefits
to executives and employees similar to those provided by other companies in the
Company's industry. The Company also provides a 401(k) plan in which all
employees are eligible and maintains a supplemental deferred compensation plan
for certain executive officers and a restricted stock plan for certain employees
who are not executive officers. Certain executives are also eligible for a
monthly car allowance.
INTERNAL REVENUE CODE SECTION 162(M). To the extent readily determinable
and as one of the factors in its consideration of compensation matters, the
Compensation Committee considers the anticipated tax treatment to the Company
and to the executives of various payments and benefits. Some types of
compensation payments and their deductibility depend upon the timing of an
executive's vesting or exercise of previously granted rights. Further,
interpretations of and changes in the tax laws and other factors beyond the
Compensation Committee's control also affect the deductibility of compensation.
For these and other reasons, the Compensation Committee will not necessarily
limit executive compensation to that deductible under Section 162(m) of the
Internal Revenue Code (the "Code"). The Compensation Committee will consider
various alternatives to preserve the deductibility of compensation payments and
benefits to the extent reasonably practicable and to the extent consistent with
its other compensation objectives.
CHIEF EXECUTIVE OFFICER COMPENSATION. The Compensation Committee is
responsible for evaluating and establishing the compensation paid to Donald A.
Kurz, the Company's chief executive officer. The 1999 base salary for Mr. Kurz
was based upon the employment agreement between Mr. Kurz and the
12
Company dated as of January 1, 1999. In evaluating the incentive compensation to
be paid to Mr. Kurz, the Compensation Committee applied the principles and
procedures for evaluating performance against corporate and individual
objectives outlined above. In 1999, the Company reported record sales and income
(before charges or gains). Based on these results, the Compensation Committee
awarded Mr. Kurz a bonus of $300,000 for the year ended December 31, 1999. In
addition, Mr. Kurz received options to purchase 50,000 shares of Common Stock in
1999 at an exercise price equal to 150% of fair market value on the date of
grant.
COMPENSATION COMMITTEE
Lawrence Elins, Chairman
Sanford R. Climan
Bruce Raben
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total stockholder return on the Common Stock against the cumulative
total return of the Standard & Poors 500 Index ("S&P 500 Index"), and the
Russell 2000 Index ("Russell 2000 Index") for the period commencing January 1,
1995 and ended December 31, 1999. The data represented below assumes $100
invested in each of the Common Stock, the S&P 500 Index and the Russell 2000
Index on January 1, 1995. The stock performance graph shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act or under the
Exchange Act except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such acts.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
EQUITY MARKETING S&P 500 RUSSELL 2000
01.95 $100.00 $100.00 $100.00
12.95 $263.16 $134.16 $127.80
12.96 $389.47 $161.34 $146.66
12.97 $526.32 $211.37 $176.76
12.98 $173.68 $267.74 $170.67
12.99 $271.16 $320.02 $204.15
Comparison of cumulative return among the Company, the S&P 500 Index and the
Russell 2000 Index.
13
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the Exchange Act, the Company's directors, its executive officers, and
any persons holding more than 10% of the Common Stock or Series A Stock are
required to report their ownership of the Common Stock or Series A Stock and any
changes in that ownership to the Commission. Specific due dates for these
reports have been established and the Company is required to report in this
Proxy Statement any failure to file by these dates during the fiscal year ended
December 31, 1999. All of these filing requirements were satisfied by its
directors, officers and 10% holders. In making these statements, the Company has
relied on the written representations of its directors, officers and its 10%
holders and copies of the reports that they have filed with the Commission.
PROPOSAL NO. 2
APPROVAL OF THE
EQUITY MARKETING, INC. 2000 STOCK OPTION PLAN
At the Annual Meeting, stockholders are being asked to approve the Equity
Marketing, Inc. 2000 Stock Option Plan (the "2000 Option Plan"), which was
adopted by the Board on June 27, 2000 and became effective on such date, subject
to stockholder approval. The effectiveness of any grant of stock options,
restricted stock or bonus grants under the 2000 Option Plan before the Annual
Meeting will be contingent upon stockholder approval. Thus, if the 2000 Option
Plan is not approved by the stockholders, the 2000 Option Plan and any stock
options, restricted stock or bonus grants granted thereunder shall terminate. A
summary description of the 2000 Option Plan is set forth below. This summary
description does not purport to be complete and is qualified in its entirety by
reference to the full text of the 2000 Option Plan, which is attached hereto as
Exhibit A and incorporated herein by this reference. Stockholders are urged to
read the 2000 Option Plan in its entirety.
When approved by the stockholders of the Company, the 2000 Option Plan will
replace the Company's most recent stock option plan, the Equity Marketing, Inc.
Stock Option Plan (the "Option Plan").
Adoption of the 2000 Option Plan has been recommended by the Board of
Directors. In the opinion of the Board of Directors, it is in the best interests
of the Company and its stockholders to provide, through the 2000 Option Plan, a
comprehensive incentive compensation program designed to enable the Company to
attract, retain and reward key employees and other eligible participants through
performance-based incentives in shares of Common Stock.
SUMMARY DESCRIPTION OF THE 2000 OPTION PLAN
PURPOSE OF THE 2000 OPTION PLAN. The purpose of the 2000 Option Plan is to
enable the Company and its stockholders to secure the benefits of Common Stock
ownership by key personnel of the Company and its subsidiaries, including
furthering the Company's ability to attract, retain and motivate the people who
will be largely responsible for the profitability and long-term future growth of
the Company and its subsidiaries. The 2000 Option Plan provides for the granting
to such personnel of (a) options to purchase shares of Common Stock ("Options"),
(b) shares of Common Stock that are subject to risks of forfeiture and
restrictions on transfer ("Restricted Stock"), and (c) shares of Common Stock as
a bonus, or in lieu of other compensatory obligations of the Company ("Bonus
Grants") (Options, Restricted Stock and Bonus Grants are collectively referred
to as "Awards").
ELIGIBILITY. The persons who are eligible to receive Awards under the 2000
Option Plan are present or future key employees, non-employee consultants and
non-employee directors of the Company and its subsidiaries. A person who holds
an Award is herein referred to as a "Participant," and more than one Award may
be granted to any Participant.
14
ADMINISTRATION. The 2000 Option Plan is to be administered by the Board or
a committee (the "Committee") consisting of at least two directors appointed by
the Board. If the 2000 Option Plan is administered by the Board, references to
the Committee shall mean the Board of Directors. The Committee has the authority
to interpret the 2000 Option Plan and to supervise the administration of the
2000 Option Plan. Under the 2000 Option Plan, the Committee also is authorized
to (a) grant Awards, (b) select Participants, (c) determine the number of shares
covered by each Award, and (d) establish the terms and conditions of each Award,
including (i) the exercise price of an Option, (ii) the restrictions on
exercisability of an Option or grant of Restricted Stock and on the disposition
of each Award, and (iii) whether or not an Option is to be treated as an
incentive stock option, as defined in Section 422 of the Code. The Committee
also has the power to prescribe, amend and rescind the rules relating to the
2000 Option Plan, as discussed below.
SHARES SUBJECT TO THE 2000 OPTION PLAN. Awards covering an aggregate of
750,000 shares of Common Stock may be granted pursuant to the 2000 Option Plan,
subject to adjustments to reflect certain corporate transactions or events, as
discussed below. Such shares of Common Stock may be either authorized and
unissued or held by the Company in its treasury. In the event that a Participant
pays part of the exercise price of an Award with Options or Restricted Stock,
only the net shares issued are counted against the shares available for
issuance. Upon the expiration or termination of outstanding Options, or any
portion thereof which are not exercised in full, the remaining unissued shares
of Common Stock under the Options shall again become available for issuance
under the 2000 Option Plan. Similarly, upon the forfeiture of shares of
Restricted Stock, the forfeited shares shall again become available for
issuance.
OPTIONS. Options granted under the 2000 Option Plan will either qualify for
treatment as incentive stock options under the Code and be designated "Incentive
Stock Options," or not qualify for such treatment and be designated
"Nonqualified Stock Options." Incentive Stock Options may only be granted to
employees. A person may not be granted Options to purchase more than 100,000
shares of Common Stock in any single calendar year. The aggregate fair market
value (determined as of the time an Option is granted) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Participant in any calendar year under the 2000 Option Plan and any other
incentive stock option plans of the Company or any subsidiary shall not exceed
$100,000. To the extent a Participant's Options exceed the limit, such Options
will be treated as Nonqualified Stock Options.
OPTION PRICE. The exercise price per share (the "Option Price") of the
shares of Common Stock underlying each Option cannot be less than the par value
per share of the Common Stock in the case of Nonqualified Stock Options or less
than 100% of the fair market value (as defined in the 2000 Option Plan) of each
share of Common Stock on the date of grant of the Option in the case of
Incentive Stock Options. If the Participant is a ten-percent stockholder
(determined using the constructive ownership rules of the Code) of the Company
or a subsidiary immediately before the grant of an Incentive Stock Option, the
Option Price shall be not less than 110% of the fair market value on the date of
grant.
OPTION PERIOD. The period during which an Option may be exercised will be
determined by the Committee, but cannot exceed ten years from the date such
Option is granted, except that with respect to Incentive Stock Options, the
Option period cannot exceed five years from the date of grant if the Participant
is a ten-percent stockholder of the Company.
EXERCISE OF OPTIONS. The Committee may determine any vesting or other
restrictions on the exercisability of an Option, subject to any earlier
termination provided for under the 2000 Option Plan. Options may be exercised by
a Participant upon transmitting to the Company a written notice setting forth
the number of shares to be purchased and payment of the Option Price of the
shares to be exercised.
DISSOLUTION, LIQUIDATION, SALE OF ALL OR SUBSTANTIALLY ALL THE ASSETS OR
MERGER. If the outstanding shares of Common Stock of the Company are exchanged
for different securities of the Company through a recapitalization, merger,
consolidation or reclassification or other similar transaction, or if the number
of
15
outstanding shares is changed through a stock split or stock dividend, the
Committee will make adjustments as it deems appropriate with respect to the
number, exercise price with respect to Options, or kind of securities subject to
any outstanding Award. The Committee may also make such adjustments in the event
of a spinoff or other distribution to stockholders of assets of the Company,
other than normal cash dividends. No issuance of shares of capital stock,
securities convertible into shares of capital stock, or options or warrants to
purchase any shares of capital stock will affect the number, exercise price with
respect to Options or kind of securities subject to any Award other than as set
forth above.
Upon a dissolution, liquidation or sale of all or substantially all of the
assets of the Company or a merger or similar transaction in which the holders of
outstanding voting securities of the Company would own 50 percent or less of the
voting power of the surviving corporation existing after such transaction,
assuming the conversion of all equity securities convertible into shares
entitled to vote, all Participants will be permitted to exercise their
outstanding Options, whether exercisable or not, immediately prior to such
transaction, and all restrictions and conditions on Awards of Restricted Stock
will be deemed satisfied immediately prior to such transaction. Any unexercised
Options after the date of any such transaction will terminate.
TERMINATION OF SERVICE. If a Participant ceases employment or ceases
performing services in a capacity other than as an employee with the Company or
any subsidiary for any reason other than death, disability or cause, each Option
granted to him or her under the 2000 Option Plan will terminate six months after
the date of such cessation of employment or service, or three months in the case
of any Incentive Stock Option. If a Participant's employment or service ceases
as a result of death or disability, each outstanding Option will terminate one
year after the date of such cessation of employment or service. If a
Participant's employment or service is terminated by reason of cause, each
outstanding Option will terminate on the date of such termination of employment
or service for cause. A Participant shall forfeit to the Company all non-vested
shares of Restricted Stock immediately upon termination of such Participant's
employment or service with the Company or any subsidiary for any reason.
CANCELLATION OF GRANTS. The Committee may cancel any unexpired, unpaid or
deferred Award of any Participant at any time if the Participant does not comply
with all of the terms of the Award, and one or more of the following conditions
occur: (a) the Participant provides services for an organization or engages in
any business which, in the judgement of the chief executive officer of the
Company, is or becomes competitive with the Company or which is or becomes
prejudicial to or conflicts with the interests of the Company; (b) the
Participant discloses to anyone outside of the Company confidential information
or material relating to the Company; and (c) the Participant fails to disclose
and assign to the Company all right, title and interest in any invention or idea
made or conceived by the Participant during his or her employment by the
Company, relating in any manner to the business or work of the Company and shall
assist the Company in securing a patent for the invention or idea. The
occurrence of any of these conditions prior to or during the six months after
any exercise, payment or delivery pursuant to an Award may result in the
recission of such exercise, payment or delivery.
RESTRICTED STOCK. The Committee may issue Awards of Restricted Stock upon
such terms and conditions as it may deem appropriate, which terms need not be
identical for all such Awards. The Committee may issue Awards for consideration
or the Awards may be issued without the receipt of consideration by the Company.
If any Awards are issued for consideration, the Committee may determine the
forms of consideration that are acceptable. A Participant shall not have a
vested right to the Restricted Stock until the satisfaction of the vesting
requirements specified in the Award. The Restricted Stock may not be assigned or
transferred prior to its vesting. The Participant shall have all of the other
rights of a stockholder of the Company, including the right to vote the shares
of Common Stock underlying the Restricted Stock and to receive any dividends on
such Common Stock.
BONUS GRANTS. The 2000 Option Plan authorizes the Committee to issue shares
of Common Stock on such terms and conditions as it may decide as a bonus, or
shares of Common Stock, Restricted Stock or
16
Options in lieu of the Company's obligation to pay cash or deliver other
property under the 2000 Option Plan or under other plans or compensatory
arrangements.
AMENDMENT AND TERMINATION OF THE 2000 OPTION PLAN. The Board may at any
time make any amendments to or terminate the 2000 Option Plan. Such amendments
shall include, but not be limited to, acceleration of the time at which an
Option may be exercised. Such amendments may not, without the approval of the
stockholders (a) increase the maximum number of shares of Common Stock that may
be issued under the 2000 Option Plan, except as set forth under "Dissolution,
Liquidation, Sale of All or Substantially All the Assets or Merger," or (b)
change the designation of the class of individuals eligible to receive Incentive
Stock Options. Notwithstanding the foregoing, the 2000 Option Plan shall
terminate on June 27, 2010, the date which is ten years after the date of the
adoption of the 2000 Option Plan. Subject to the provisions under "Dissolution,
Liquidation, Sale of All or Substantially All the Assets or Merger," the
amendment or termination of the 2000 Option Plan may not adversely affect any
outstanding Award.
SUBSTITUTE OPTIONS. In the event the Company acquires another entity, the
Committee may authorize the issuance of Options to individuals who perform
services for such acquired entity in substitution of stock options previously
granted to those individuals by such acquired entity for the performance of
services. In order to allow the Committee to preserve the economic benefit, if
any, inherent in the options previously granted by an acquired entity,
substitute Options which are intended to qualify as Incentive Stock Options may
be granted with an exercise price less than 100 percent of the fair market value
of each share of Common Stock on the date of grant by the Company. Additionally,
grants of substitute Options which are intended to qualify as Incentive Stock
Options are not subject to the limitation that the aggregate fair market value
(determined at the time of grant by the Company) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Participant in any calendar year not exceed $100,000.
FEDERAL INCOME TAX CONSEQUENCES OF THE 2000 OPTION PLAN
The following summary of the effects of federal income taxation upon the
Participants and the Company with respect to shares of Common Stock issued under
the 2000 Option Plan does not purport to be complete and reference is made to
the applicable provisions of the Code.
INCENTIVE STOCK OPTIONS. No taxable income will be recognized by a
Participant upon the grant or exercise of any Incentive Stock Option. However,
the amount by which the fair market value of shares of Common Stock purchased
upon exercise of an Incentive Stock Option exceeds the exercise price of such
stock constitutes an "item of adjustment" that could then be subject to the
alternative minimum tax in the year that the Option is exercised. Additionally,
the Company will not be entitled to any federal income tax deduction as the
result of the grant or exercise of any Incentive Stock Option.
Any gain or loss resulting from the subsequent sale of shares of Common
Stock acquired upon exercise of any Incentive Stock Option will be capital gain
or loss if such sale is made after the later of (a) two years from the date of
the grant of the Incentive Stock Option, and (b) one year after the transfer of
such stock to the Participant upon exercise, so long as the Participant is an
employee of the Company from the date of grant until three months before the
date of exercise. In the event of the Participant's death or disability prior to
exercise of an Incentive Stock Option, special rules apply in determining
whether gain or loss upon sale of the shares of Common Stock acquired upon
exercise of such Option will be taxable as capital gain or loss or ordinary
income.
If the sale of stock is made prior to the expiration of such two-year and
one-year periods, the Participant will recognize ordinary income in the year of
the sale in an amount equal to the difference between the exercise price and the
fair market value of the shares of Common Stock on the date of exercise.
However, if such sale is a transaction in which a loss (if sustained) would have
been recognized by the Participant, the amount of ordinary income recognized by
the Participant will not exceed the excess (if any) of the amount realized on
the sale over the exercise price. The Company will then be entitled to an
17
income tax deduction of like amount. Any excess gain recognized by the
Participant upon such a disqualifying disposition would then be taxable as a
capital gain.
If an individual sale of shares of Common Stock received through the
exercise of an Incentive Stock Option qualifies for capital gain treatment, the
federal capital gains tax rate from such sale will be determined based on the
holding period of the Common Stock in accordance with the tax rates then in
effect under the Code.
NONQUALIFIED STOCK OPTIONS. At the time of the grant of a Nonqualified
Stock Option, no taxable income will be recognized by the Participant and the
Company will not be entitled to a deduction. Upon the exercise of such an
Option, the Participant will recognize taxable income, and the Company will then
be entitled to a deduction, in the amount by which the then fair market value of
the shares of Common Stock issued to such Participant exceeds the exercise
price. Income recognized by the Participant upon exercise of a Nonqualified
Stock Option will be taxed as ordinary income with respect to which the Company
is required to deduct and withhold federal and state income tax. Pursuant to the
2000 Option Plan, the exercise of each Nonqualified Stock Option will be subject
to the Company's determination that all withholding taxes relating to the
Nonqualified Stock Option have been satisfied. Upon the subsequent disposition
of shares of Common Stock acquired upon the exercise of a Nonqualified Stock
Option, the Participant will recognize capital gain or loss in an amount equal
to the difference between the proceeds received upon disposition and the fair
market value of such shares at the time of exercise. If the gain recognized in
connection with such disposition qualifies for capital gain treatment, the
federal capital gain tax rate for such sale will be determined based on the
holding period of the Common Stock in accordance with the tax rates then in
effect under the Code.
RESTRICTED STOCK. Generally, at the time of the grant of Restricted Stock,
no taxable income will be recognized by the Participant and the Company will not
be entitled to a deduction. Upon the lapse of the forfeiture restrictions
imposed by the Committee on Restricted Stock (I.E., "vesting"), the Participant
generally will recognize taxable income, and the Company will be entitled to a
deduction, in the amount by which the fair market value of the shares granted to
the Participant at the time of vesting exceeds the purchase price, if any.
Alternatively, if the Participant timely files an election under Section
83(b) of the Code at the time of the grant of Restricted Stock (a "Section 83(b)
Election"), the Participant generally will recognize income, and the Company
will be entitled to a deduction, at the date of grant in the amount by which the
fair market value of the shares on the date of grant exceeds the purchase price,
if any. If the Participant forfeits the Restricted Stock subsequent to the
filing of a Section 83(b) Election, the Participant will not be able to deduct
any part of the amount previously included in income. Income recognized by the
Participant upon the vesting of the Restricted Stock, or at the earlier time of
grant if the Participant timely files a Section 83(b) Election, will be taxed as
ordinary income. Such income constitutes "wages" with respect to which the
Company is required to deduct and withhold federal and state income tax.
Upon the subsequent disposition of vested shares of Restricted Stock, the
Participant will recognize capital gain or loss in an amount equal to the
difference between the proceeds received upon disposition, and the fair market
value of such shares at the time of vesting, or the earlier time of grant if the
Participant timely files a Section 83(b) Election. If the gain recognized in
connection with such disposition qualifies for capital gain treatment, the
federal capital gains tax rate for such sale will be determined based on the
holding period of the Common Stock, which will begin on the date the shares vest
or the date of grant if the Participant timely files a Section 83(b) Election,
and in accordance with the tax rates then in effect under the Code.
BONUS GRANTS. Generally, at the time of a Bonus Grant of Common Stock, the
Participant will recognize taxable income, and the Company will be entitled to a
deduction, in the amount by which the fair market value of the shares awarded to
the Participant at the time of grant exceeds the purchase price, if any. Income
recognized by the Participant upon the receipt of a Bonus Grant will be taxed as
ordinary
18
income. Such income constitutes "wages" with respect to which the Company is
required to deduct and withhold federal and state income tax.
Upon the subsequent disposition of shares of the Bonus Grant, the
Participant will recognize capital gain or loss in an amount equal to the
difference between the proceeds received upon disposition, and the fair market
value of such shares at the time of grant. If the gain recognized in connection
with such disposition qualifies for capital gain treatment, the federal capital
gains tax rate for such sale will be determined based on the holding period of
the Common Stock and in accordance with the tax rates then in effect under the
Code.
Long-term capital gains are generally taxed at the flat rate of 20 percent.
Ordinary income is taxed at your marginal income tax rate, which can be as much
as 39.6 percent. Short-term capital gains are taxed the same as ordinary income.
There are limitations on the deductibility of capital losses.
ACCELERATION OF STOCK OPTIONS AND RESTRICTED STOCK UPON TRANSFER OF
CONTROL. Pursuant to the 2000 Option Plan and as further discussed above, upon
the occurrence of certain events involving a dissolution, liquidation, sale of
all or substantially all the assets of the Company, merger or other similar
transaction in which the holders of outstanding voting securities of the Company
would own 50% or less of the voting power of the surviving corporation existing
after such transaction, the exercisability of Nonqualified Stock Options and
Incentive Stock Options, and the vesting of Restricted Stock, will be
accelerated. Such acceleration may be a "parachute payment" for federal income
tax purposes. If the present value of all of the Participant's parachute
payments equals or exceeds three times the Participant's average annual
compensation for the past five years (or the entire period of employment with
the Company, if less than five years), the Participant will be subject to a
special excise tax of 20 percent on the amount of his or her "excess parachute
payment." Such tax will be applied to the amount of such parachute payment which
is in excess of the greater of such average annual compensation of the
Participant or an amount which the Participant establishes as reasonable
compensation. In addition, the Company will not be allowed a deduction for such
"excess parachute payment."
COMPENSATION DEDUCTION LIMITATION. Upon exercise, Options granted under the
2000 Option Plan to a "covered employee" (as defined below) with an option price
equal to or greater than the fair market value of the Common Stock at the time
of grant generally will not be subject to the $1.0 million deduction limitation
for compensation paid to certain executives of publicly held corporations such
as the Company. So long as the Committee is at all times composed of "outside
directors" as defined in applicable Treasury Regulations, it should then meet
the exemption for "performance-based" compensation. A "covered employee" is a
Participant who, on the last day of the taxable year of the Company, is the
chief executive officer or one of the four other most highly compensated
executive officers of the Company for proxy disclosure purposes. Bonus Grants
and Restricted Stock are also subject to this $1.0 million deduction limitation.
APPLICABILITY OF ERISA
The 2000 Option Plan is not subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended and it is not a tax-qualified
retirement plan under Section 401(a) of the Code.
BENEFITS TO BE RECEIVED BY OR ALLOCATED TO NON-EMPLOYEE DIRECTORS AND EXECUTIVE
OFFICERS
The benefits that would be received by or allocated to non-employee
directors and executive officers of the Company participating in the 2000 Option
Plan and to other Participants cannot be determined at this time because the
amount or value of Awards to be granted to any Participant are within the
discretion of the Committee (subject to the limitations set forth above) and, as
of the date of this Proxy Statement, the Committee has made no determinations as
to the individuals who would receive Awards under the 2000 Option Plan.
19
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD
The affirmative vote of holders of a majority of the shares of Common Stock
issued, outstanding and entitled to vote, present or represented at the Annual
Meeting, a quorum being present, is required for the adoption of this proposal.
Broker non-votes with respect to this matter will be treated as neither a vote
"for" or a vote "against" the matter, although they will be counted in
determining whether a quorum is present. However abstentions will be considered
in determining the number of votes required to attain a majority of the shares
present or represented at the Annual Meeting and entitled to vote. Accordingly,
an abstention from voting by a stockholder present in person or by proxy at the
Annual Meeting has the same legal effect as a vote "against" the proposal
because it represents a share present or represented at the Annual Meeting and
entitled to vote, thereby increasing the number of affirmative votes needed to
approve this proposal.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE EQUITY MARKETING, INC. 2000
STOCK OPTION PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
Upon recommendation by the Audit Committee, the Board of Directors has
appointed Arthur Andersen LLP as the Company's independent auditor for the year
ending December 31, 2000. Representatives of that firm will be present at the
Annual Meeting to respond to appropriate questions and will be given an
opportunity to make a statement if they so desire.
Stockholders are being asked to ratify the appointment of Arthur Andersen
LLP as the Company's independent auditor for the year ending December 31, 2000.
If the stockholders do not ratify the appointment of Arthur Andersen LLP as
the Company's independent auditor, the Board of Directors will consider
selecting another accounting firm.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSAL.
FORM 10-K
UPON WRITTEN REQUEST OF ANY PERSON ENTITLED TO VOTE AT THE MEETING,
ADDRESSED TO THE COMPANY, ATTENTION: SECRETARY, EQUITY MARKETING, INC., 6330 SAN
VICENTE BLVD., LOS ANGELES, CALIFORNIA 90048, THE COMPANY WILL PROVIDE WITHOUT
CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
DEADLINE FOR FUTURE PROPOSALS OF STOCKHOLDERS
Proposals that a stockholder desires to have included in the Company's proxy
materials for the 2001 Annual Meeting of Stockholders of the Company must comply
with the applicable rules and regulations of the Commission, including that any
such proposal must be received by the Secretary of the Company at the Company's
principal office no later than March 23, 2001. It is suggested that such
proposals be sent by Certified Mail, Return Receipt Requested. The Company's
Bylaws require a stockholder to give advance notice of any business, including
the nomination of candidates for the Board of Directors, that the stockholder
wishes to bring before a meeting of stockholders of the Company. In general, for
business to be brought before an annual meeting by a stockholder, written notice
of the stockholder proposal or nomination must be received by the Secretary of
the Company not less than 120 days nor more than 150 days prior to the
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than 30 days before or
more than 60 days after such anniversary date, notice must be received by the
Secretary not earlier than 150 days prior to such annual meeting, and not later
than 120 days prior to such annual meeting or 10 days following the first public
20
announcement of such meeting date. With respect to stockholder proposals, the
stockholder's notice to the Secretary of the Company must contain a brief
description of the business to be brought before the meeting and the reasons for
conducting such business at the meeting, as well as certain other information
set forth in the Company's Bylaws and/or required by law. With respect to the
nomination of a candidate for the Board of Directors by a stockholder, the
stockholder's notice to the Secretary of the Company must contain certain
information set forth in the Company's Bylaws about both the nominee and the
stockholder making the nominations. If a stockholder desires to have a proposal
included in the Company's proxy materials for the 2001 Annual Meeting of
Stockholders of the Company and desires to have such proposal brought before the
same annual meeting, the stockholder must comply with both sets of procedures
described in the two immediately preceding paragraphs. Any required written
notices should be sent to Equity Marketing, Inc., 6330 San Vicente Blvd., Los
Angeles, California 90048, Attention: Secretary.
OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING
The Company knows of no other matters to be presented at the Annual Meeting,
but if any other matters should properly come before the meeting, it is intended
that the persons named in the accompanying form of proxy will vote the same in
accordance with their best judgment and their discretion, and authority to do so
is included in the proxy.
SOLICITATION OF PROXIES
The expense of this solicitation of proxies will be borne by the Company.
Solicitations will be made only by use of the mail except that, if deemed
desirable, officers and regular employees of the Company may solicit proxies by
telephone, telegraph or personal calls. Brokerage houses, custodians, nominees
and fiduciaries will be requested to forward the proxy soliciting material to
the beneficial owners of the stock held of record by such persons and the
Company will reimburse them for their reasonable expenses incurred in this
connection.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Leland P. Smith
LELAND P. SMITH
SECRETARY
21
EXHIBIT A
EQUITY MARKETING, INC.
2000 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Equity Marketing, Inc. 2000 Stock Option
Plan (the "Plan") is to enable Equity Marketing, Inc., a Delaware corporation
(the "Company"), and its stockholders to secure the benefits of common stock
ownership by key personnel of the Company and its subsidiaries. The Board of
Directors of the Company (the "Board") believes that the granting under the Plan
of (1) options ("Options") to purchase shares of the common stock of the
Company, $.001 par value per share (the "Common Stock"), (2) shares of Common
Stock issued pursuant to section 9 below that are subject to restrictions on
ownership ("Restricted Stock"), or (3) shares of Common Stock issued pursuant to
section 10 below as a bonus or in lieu of other obligations of the Company
("Bonus Grants" and collectively with awards of Options or Restricted Stock,
"Awards"), will foster the Company's ability to attract, retain and motivate
those individuals who will be largely responsible for the profitability and
long-term future growth of the Company.
2. STOCK SUBJECT TO THE PLAN. The Company may issue and sell a total of
750,000 shares of its Common Stock pursuant to the Plan. Such shares may be
either authorized and unissued or held by the Company in its treasury. In the
event that a Participant pays part or all of the exercise price of an Option or
the purchase price of Restricted Stock in the form of Common Stock, only the net
additional shares issued (i.e., the number of shares issued in excess of the
number of shares surrendered) will be taken into account for purposes of the
limitation set forth above. Upon the forfeiture of shares of Restricted Stock,
the forfeited shares of Common Stock shall again become available for use under
the Plan. Upon the expiration or termination of an outstanding Option which
shall not have been exercised in full, the shares of Common Stock remaining
unissued under the Option shall again become available for use under the Plan.
3. ADMINISTRATION. The Plan will be administered by the Board, or at the
discretion of the Board, a committee (the "Committee") consisting of at least
two directors appointed by and serving at the pleasure of the Board. If the Plan
is administered by the Board, references in the Plan to the "Committee" shall
mean the "Board". Subject to the provisions of the Plan, the Committee, acting
in its sole and absolute discretion, will have full power and authority to grant
Awards under the Plan, to interpret the provisions of the Plan, to fix and
interpret the provisions of agreements regarding Awards made under the Plan, to
supervise the administration of the Plan, and to take such other action as may
be necessary or desirable in order to carry out the provisions of the Plan. A
majority of the members of the Committee will constitute a quorum. The Committee
may act (1) by the vote of a majority of its members present in person or by
telephone at a meeting at which there is a quorum or (2) by unanimous written
consent. The decision of the Committee as to any disputed question, including
questions of construction, interpretation and administration, will be final and
conclusive on all persons. The Committee will keep a record of its proceedings
and acts and will keep or cause to be kept such books and records as may be
necessary in connection with the proper administration of the Plan.
4. ELIGIBILITY. Awards may be granted under the Plan to present or future
key employees of the Company or a subsidiary of the Company (a "Subsidiary")
within the meaning of Section 424(f) of the Internal Revenue Code of 1986 (the
"Code"), and to consultants to the Company or a Subsidiary who are not
employees. Awards may also be granted to directors of the Company who are not
employees of the Company and/or a Subsidiary. Subject to the provisions of the
Plan, the Committee may from time to time select the persons to whom Awards will
be granted (a "Participant"), and will fix the number of shares covered by each
such Award and establish the terms and conditions thereof (including, without
limitation, (1) the exercise price of an Option, (2) restrictions on
exercisability of an Option or grant of Restricted Stock and on the disposition
of the shares of Common Stock issued upon exercise of an Option, and (3) whether
or not an Option is to be treated as an incentive stock option within the
meaning of Section 422 of the Code (an "Incentive Stock Option")). Incentive
Stock Options may only be granted to employees.
A-1
5. TERMS AND CONDITIONS OF OPTIONS. Each Option granted under the Plan
will be evidenced by a written agreement in a form approved by the Committee.
Each such Option will be subject to the terms and conditions set forth in this
section 5 and such additional terms and conditions not inconsistent with the
Plan as the Committee deems appropriate. No person may receive Options to
purchase more than 100,000 shares of Common Stock under the Plan in a single
calendar year.
(a) OPTION EXERCISE PRICE. In the case of an Option which is not
treated as an Incentive Stock Option, the exercise price per share may not
be less than the par value of a share of Common Stock on the date the Option
is granted; and, in the case of an Incentive Stock Option, the exercise
price per share may not be less than 100% of the fair market value of a
share of Common Stock on the date the Option is granted (110% in the case of
an Participant who, at the time the Option is granted, owns stock possessing
more than 10% of the total combined voting power of all classes of stock of
the Company or a Subsidiary, determined using the constructive ownership
rules contained in Section 424(d) of the Code (a "ten percent
stockholder")). For purposes hereof, the fair market value of a share of
Common Stock on any date will be equal to the closing sale price per share
as published by a national securities exchange on which shares of the Common
Stock are traded on such date or, if there is no sale of Common Stock on
such date, the average of the bid and asked prices on such exchange at the
closing of trading on such date or, if shares of the Common Stock are not
listed on a national securities exchange on such date, the closing price or,
if none, the average of the bid and asked prices in the over the counter
market at the close of trading on such date, or if the Common Stock is not
traded on a national securities exchange or the over the counter market, the
fair market value of a share of the Common Stock on such date as determined
in good faith by the Committee. Except in the case of Substitute Options (as
defined in Section 17), the aggregate fair market value (determined as of
the date of grant) of the number of shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year shall not exceed $100,000. To the
extent that a Participant's Options exceed that limit, they will be treated
as not being Incentive Stock Options (but all of the other provisions of the
Option shall remain applicable), with the first Options that were granted to
the Participant to be treated as Incentive Stock Options.
(b) OPTION PERIOD. The period during which an Option may be exercised
will be fixed by the Committee and will not exceed ten years from the date
the Option is granted (five years in the case of an Incentive Stock Option
granted to a "ten percent stockholder").
(c) EXERCISE OF OPTIONS. The Committee will determine, and will set
forth in the Option agreement, any vesting or other restrictions on the
exercisability of an Option, subject to any earlier termination of the
Option required hereunder. Options shall only be exercised for whole number
of shares. All or part of the exercisable portion of an Option may be
exercised at any time during the Option period. An Option may be exercised
by transmitting to the Company (1) a written notice specifying the number of
shares of Common Stock to be purchased, and (2) payment of the exercise
price, together with the amount, if any, deemed necessary by the Committee
to enable the Company to satisfy its income tax withholding obligations with
respect to such exercise (unless other arrangements acceptable to the
Company are made with respect to the satisfaction of such withholding
obligations). To the extent authorized by the Committee, Participants may
surrender previously acquired shares of Common Stock or have shares withheld
upon the exercise of an Option in satisfaction of the tax withholding
obligations. To the extent necessary to avoid adverse accounting treatment,
the number of shares that may be withheld for this purpose shall not exceed
the minimum number needed to satisfy the applicable income and employment
tax withholding rules.
(d) PAYMENT OF EXERCISE PRICE. Options are exercised by payment of the
full amount of the purchase price to the Company. The payment shall be in
the form of cash or such other forms of consideration as the Committee shall
deem acceptable or such other methods of payment as the Committee shall deem
acceptable. If the payment is made by means of the surrender of Restricted
Stock, a number of shares issued upon the exercise of the Option equal to
the number of shares of
A-2
Restricted Stock surrendered shall be subject to the same restrictions as
the Restricted Stock that was surrendered. The Committee may also authorize
the exercise of Options by the delivery to the Company or its designated
agent of an executed written notice of exercise form together with
irrevocable instructions to a broker-dealer to sell or margin a sufficient
portion of the shares of Common Stock and to deliver the sale or margin loan
proceeds directly to the Company to pay all or a portion of the exercise
price of the Option and/or any income tax withholding obligations.
(e) RIGHTS AS A STOCKHOLDER. No shares of Common Stock will be issued
in respect of the exercise of an Option granted under the Plan until full
payment therefor has been made. The holder of an Option will have no rights
as a stockholder with respect to any shares covered by an Option until the
date a stock certificate for such shares is issued to him or her. Except as
otherwise provided herein, no adjustments shall be made for dividends or
distributions of other rights for which the record date is prior to the date
such stock certificate is issued.
(f) OTHER PROVISIONS. The Committee may impose such other conditions
with respect to the exercise of Options, including, without limitation, any
conditions relating to the application of federal or state securities laws,
as it may deem necessary or advisable.
6. CAPITAL CHANGES, REORGANIZATION, SALE.
(a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of a
stock split, stock dividend, recapitalization, merger, consolidation,
split-up, combination, exchange of shares, or similar change affecting
Common Stock, the Committee shall authorize such adjustments as it may deem
appropriate with respect to the following: (1) the number and/or kind of
shares covered by each outstanding Award; (2) the aggregate number and/or
kind of shares for which Awards may be granted under this Plan; and (3) the
exercise price per share in respect of each outstanding Option. The
Committee may also make such adjustments in the event of a spinoff (or other
distribution) of Company assets to stockholders, other than normal cash
dividends. Except as set forth above in this section 6(a), no issuance by
the Company of shares of stock of any class, or securities convertible into,
or options or warrants to purchase shares of any class of stock, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to any Award.
(b) CASH, STOCK OR OTHER PROPERTY FOR STOCK. In the event of an
Exchange Transaction (as defined below), (1) all Participants will be
permitted to exercise their outstanding Options in whole or in part (whether
or not otherwise exercisable) immediately prior to such Exchange
Transaction, and any outstanding Options which are not exercised before the
Exchange Transaction will thereupon terminate, and (2) all restrictions and
conditions of all Awards of Restricted Stock then outstanding shall be
deemed satisfied immediately prior to such Exchange Transaction.
(c) DEFINITION OF EXCHANGE TRANSACTION. For purposes hereof, the term
"Exchange Transaction" means a sale of substantially all of the assets of
the Company, a liquidation or dissolution of the Company, or a merger,
consolidation or similar transaction in which the Company is not the
Surviving Corporation. The determination as to which party to a merger or
consolidation is the "Surviving Corporation" shall be made on the basis of
the relative equity interests of the stockholders in the corporation
existing after the transaction, as follows: if immediately following any
merger or consolidation the holders of outstanding voting securities of the
Company immediately prior to the merger or consolidation own equity
securities possessing more than 50% of the voting power of the corporation
existing following the merger or consolidation, then for purposes of this
Plan, the Company shall be the Surviving Corporation. In all other cases,
the Company shall not be the Surviving Corporation. In making the
determination of ownership by the stockholders of a corporation immediately
after the merger or consolidation, equity securities which the stockholders
owned immediately before the merger or consolidation as stockholders of
another party to the transaction shall be disregarded. Further, for purposes
of this section 6(c) only, outstanding voting securities of a corporation
shall be calculated by assuming the conversion of all equity securities
convertible (immediately or at some future time) into shares entitled to
vote.
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(d) FRACTIONAL SHARES. In the event of any adjustment in the number of
shares covered by any Option pursuant to the provisions hereof, any
fractional shares resulting from such adjustment will be disregarded, and
each such Option will cover only the number of full shares resulting from
the adjustment.
7. CANCELLATION OF GRANTS. Except as otherwise provided in the Award, the
Committee may cancel any unexpired, unpaid, or deferred Award at any time if the
Participant does not comply with all of the terms of the Award and the following
conditions.
(a) A Participant shall not render services for any organization or
engage directly or indirectly in any business that, in the judgment of the
Chief Executive Officer of the Company or other senior officer designated by
the Committee, is or becomes competitive with the Company, or which
organization or business, or the rendering of services to such organization
or business, is or becomes otherwise prejudicial to or in conflict with the
interests of the Company. For Participants whose employment has terminated,
the judgment of the Chief Executive Officer shall be based on the
Participant's position and responsibilities while employed by the Company,
the Participant's post-employment responsibilities and position with the
other organization or business, the extent of past, current and potential
competition or conflict between the Company and the other organization or
business, the effect on the Company's customers, suppliers and competitors
of the Participant assuming the post-employment position and such other
considerations as are deemed relevant given the applicable facts and
circumstances. A Participant who has Retired (as defined below) shall be
free, however, to purchase as an investment or otherwise, stock or other
securities of such organization or business so long as they are listed upon
a recognized securities exchange or traded over-the-counter, and such
investment does not represent a substantial investment to the Participant or
a greater than five percent (5%) equity interest in the organization or
business. For purposes hereof, the term "Retired" means a Participant who
ceases to be employed by or to perform services for the Company or any
Subsidiary for any reason where the Participant had previously attained the
age of fifty-five (55) and completed five (5) years of service as determined
in accordance with the terms of the Equity Marketing, Inc. 401(k) Plan.
(b) A Participant shall not, without prior written authorization from
the Company, disclose to anyone outside the Company, or use in other than
the Company's business, any confidential information or material, as those
terms are used in the Company's Employee Patent and Confidence Agreement,
relating to the business of the Company, acquired by the Participant either
during or after employment with the Company.
(c) A Participant, pursuant to the Company's Employee Patent and
Confidence Agreement, shall disclose promptly and assign to the Company all
right, title, and interest in any invention or idea, patentable or not, made
or conceived by the Participant during employment by the Company, relating
in any manner to the actual or anticipated business, research, or
development work of the Company and shall do anything reasonably necessary
to enable the Company to secure a patent where appropriate in the United
States and in foreign countries.
(d) Upon exercise, payment, or delivery pursuant to an Award, the
Participant shall certify on a form acceptable to the Committee that he or
she is in compliance with the terms and conditions of the Plan. Failure to
comply with the provisions of paragraph (a), (b) or (c) of this section 7
prior to, or during the six (6) months after, any exercise, payment or
delivery pursuant to an Award may, at the Committee's discretion, cause such
exercise, payment or delivery to be rescinded. The Company shall notify the
Participant in writing of any such rescission within two (2) years after
such exercise, payment or delivery. Within ten (10) days after receiving
such a notice from the Company, the Participant shall pay to the Company the
amount of any gain realized or payment received as a result of the rescinded
exercise, payment, or delivery pursuant to an Award. Such payment shall be
made either in cash or by returning to the Company the number of shares of
Common Stock that the Participant received in connection with the rescinded
exercise, payment, or delivery.
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8. AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time amend
or terminate the Plan. No amendment or termination may affect adversely any
outstanding Award without the written consent of the Participant. However, if
the amendment affects the class of individuals who are eligible to receive
Incentive Stock Options or the maximum number of shares of Common Stock that may
be issued under the Plan, then stockholder approval of the amendment must be
obtained within twelve months of the date on which the amendment was adopted.
9. RESTRICTED STOCK. The Committee may issue Awards of Restricted Stock
upon such terms and conditions as it may deem appropriate, which terms need not
be identical for all such Awards. Restricted Stock may be sold to Participants,
or it may be issued to Participants without the receipt of any consideration. If
the Participant is required to give any consideration, the payment shall be in
the form of cash or such other forms of consideration as the Committee shall
deem acceptable, such as the surrender of outstanding shares of Common Stock
owned by the Participant. A Participant shall not have a vested right to the
Restricted Stock until the satisfaction of the vesting requirements specified in
the Award. A Participant may not assign or alienate his or her interest in the
shares of Restricted Stock prior to vesting. Otherwise, the Participant shall
have all of the rights of a stockholder of the Company with respect to the
Restricted Stock, including the right to vote the shares and to receive any
dividends. The following rules apply with respect to events that occur prior to
the date on which the Participant obtains a vested right to the Restricted
Stock: (1) stock dividends issued with respect to the shares covered by an Award
of Restricted Stock shall be treated as additional shares received under the
Award of Restricted Stock, and (2) cash dividends are taxable compensation to
the Participant that is deductible by the Company.
10. BONUS GRANTS AND GRANTS IN LIEU OF COMPENSATION. The Committee is
authorized to grant shares of Common Stock as a bonus, or to grant shares of
Common Stock, Restricted Stock or Options in lieu of Company obligations to pay
cash or deliver other property under the Plan or under other plans or
compensatory arrangements of the Company. Such Bonus Grants shall be upon such
terms and conditions as the Committee may deem appropriate.
11. NONTRANSFERABILITY OF AWARDS. Unless otherwise determined by the
Committee, no Option or grant of Restricted Stock shall be assignable or
transferable except upon the Participant's death to a beneficiary designated by
the Participant in accordance with procedures established by the Committee or,
if no designated beneficiary shall survive the Participant, pursuant to the
Participant's will or by the laws of descent and distribution. Unless otherwise
determined by the Committee, during an Participant's lifetime, Options may be
exercised only by the Participant or, in the event of the Participant's
disability (as defined in section 12 below), the Participant's guardian or legal
representative.
12. TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
(a) OPTIONS. Unless otherwise determined by the Committee, if a
Participant ceases to be employed by or to perform services for the Company
or any Subsidiary for any reason other than death, Disability (as defined
below) or Cause (as defined below), then each outstanding Option granted to
him or her under the Plan will terminate six months after the date of such
termination of employment or service. Notwithstanding the preceding
sentence, an Incentive Stock Option will terminate three months following
the termination of the Participant's employment for any reason. For this
purpose, a Participant who is on a leave of absence that exceeds ninety days
will be considered to have terminated employment on the ninety-first day of
the leave of absence, unless the Participant's rights to reemployment are
guaranteed by statute or contract. If a Participant's employment or service
is terminated by reason of the Participant's death or Disability (as defined
below), then each outstanding Option granted to the Participant under the
Plan will terminate on the date one year after the date of such termination
of employment or service. For purposes hereof, the term "Disability" means a
determination to that effect under the group long-term disability plan of
the Company; provided, however, that in no event will a Participant be
considered to be disabled for purposes of this Plan if, at the sole
discretion of the Committee, the Participant's disability is a result of
intentionally self-inflicted injuries (while sane or insane), alcohol or
drug abuse, or a criminal act for which the
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Participant is convicted or to which the Participant pleads guilty or nolo
contendere. If a Participant's employment or service is terminated by reason
of Cause (as defined below), then each outstanding Option granted to the
Participant under the Plan will terminate on the date of such termination of
employment or service for Cause. For purposes hereof, the term "Cause" means
(1) "Cause" as defined in an individual employment agreement between the
Company and the Participant, if any, (2) in the judgement of the Chief
Executive Officer of the Company or the Board, the Participant is 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, (3) conduct
of a criminal nature that has or that may have an adverse effect on the
Company's reputation or standing in the community, or on its continuing
relationships with customers or those who purchase or use its products or
services, (4) any act or acts of personal conduct that, in the judgement of
the Chief Executive Officer of the Company or the Board, are in violation of
a Company policy or policies as set forth in the Employee Handbook of the
Company in effect at the time of the act or acts, (5) any act or acts by the
Participant in violation of specific directions of the Participant's
supervisor or the Chief Executive Officer of the Company or continued or
repeated failure by the Participant to perform duties assigned by such
supervisor or the Chief Executive Officer of the Company, or (6) any
material misrepresentation or omission regarding employment history,
education or experience made by the Participant in connection with their
negotiations with the Company to become an employee of the Company.
(b) RESTRICTED STOCK. A Participant shall forfeit to the Company all
non-vested shares of Restricted Stock upon termination of such Participant's
employment with the Company for any reason.
13. NO RIGHTS CONFERRED. Neither the adoption of this Plan nor the
granting of any Award shall affect or restrict in any way the power of the
Company to undertake any corporate action otherwise permitted under applicable
law or confer upon any Participant the right to continue performing services for
the Company or a Subsidiary, nor shall it interfere in any way with the right of
the Company or a Subsidiary to terminate the services of any Participant at any
time, with or without cause.
14. GOVERNING LAW. The Plan and each Award granted thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware,
without regard to the conflict of law provisions of any state.
15. DECISIONS AND DETERMINATIONS OF COMMITTEE TO BE FINAL. Except to the
extent rights or powers under this Plan are reserved specifically to the
discretion of the Board, all decisions and determinations of the Committee are
final and binding.
16. TERM OF THE PLAN. The Plan shall be effective as of June 27, 2000, the
date on which it was adopted by the Board. The Plan will terminate on June 27,
2010, the date ten years after the date of adoption by the Board, unless sooner
terminated by the Board. The rights of Participants under Awards outstanding at
the time of the termination of the Plan shall not be affected solely by reason
of the termination and shall continue in accordance with the terms of the Award
(as then in effect or thereafter amended).
17. SUBSTITUTE OPTIONS. In the event that the Company acquires another
entity by merger or otherwise, the Committee may authorize the issuance of
Options to the individuals performing services for the acquired entity in
substitution of stock options previously granted to those individuals in
connection with their performance of services for the acquired entity upon such
terms and conditions as the Committee shall determine ("Substitute Options").
The exercise price of such a Substitute Option shall be determined without
regard to the rules of section 5(a), but, in the case of a Substitute Option
that is intended to be an Incentive Stock Option, all of the terms of the
Substitute Option shall be determined in accordance with the rules of Code
Section 424(a).
A-6
EQUITY MARKETING, INC.
THIS PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD SEPTEMBER 7, 2000
Donald A. Kurz, Leland P. Smith and Teresa P. Covington, and each of them,
as the true and lawful attorneys, agents and proxies of the undersigned, with
full power of substitution, are hereby authorized to represent and to vote, as
designated below, all shares of Common Stock of Equity Marketing, Inc. held of
record by the undersigned on July 12, 2000, at the Annual Meeting of
Stockholders to be held at 10:00 a.m. on September 7, 2000, at the offices of
the Company at 6330 San Vicente Blvd., Los Angeles, California 90048, and at any
adjournment thereof. Any and all proxies heretofore given are hereby revoked.
1. ELECTION OF DIRECTORS. To elect all nominees.
Nominees are: Donald A. Kurz, Sanford R. Climan, Mitchell H. Kurz, Bruce
Raben and Stephen P. Robeck.
/ / AUTHORITY GIVEN / / AUTHORITY WITHHELD
FOR ALL NOMINEES LISTED ABOVE EXCEPT:
- --------------------------------------------------------------------------------
2. To approve the Equity Marketing, Inc. 2000 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. To ratify the selection of Arthur Andersen LLP as the Company's independent
auditor.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
PLEASE MARK, DATE AND SIGN THE REVERSE SIDE AND MAIL PROMPTLY IN THE ENCLOSED
ENVELOPE.
Discretionary authority is hereby granted with respect to such other matters
as may properly come before the meeting.
The signer acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the Proxy Statement furnished therewith. Unless otherwise
specified this Proxy will be voted FOR Proposals 1, 2 and 3.
IMPORTANT: Please sign exactly as
name appears hereon. Each joint
owner shall sign. Executors,
administrators, trustees, etc.,
should give their full title.
__________________________________
Signature(s)
__________________________________
Date
__________________________________
Signature(s)
__________________________________
Date