exv10w1



 






EXECUTION COPY




Exhibit 10.1



AMENDED AND RESTATED EMPLOYMENT AGREEMENT




     This Amended and Restated Employment Agreement (this “Agreement”) is made and entered into on
October 3, 2005 (the “Effective Date”), by and among EMAK Worldwide, Inc. (the “Parent”), Equity
Marketing, Inc., a Delaware corporation (the “Company”), and Kim H. Thomsen (“Executive”).



1. Engagement and Duties.




     (a) This Agreement is intended to amend and restate in its entirety the Prior Employment
Agreement. Upon the terms and subject to the conditions set forth in this Agreement, the Company
hereby engages and employs Executive as an officer of the Company, with the title and designation
“Co-Chief Executive Officer” and also as a member of the Company Board. Executive hereby accepts
such engagement and employment. In addition, by executing this Agreement, Executive hereby
resigns, and the Parent hereby accepts Executive’s resignation, from her position as President
and Chief Creative Officer of the Parent, although this will not affect Executive’s participation
in the benefit plans of Parent.



     (b) During the Employment Term, the Executive, as Co-Chief Executive Officer, shall report
to the Chief Executive Officer of the Parent (“Parent CEO”). The Executive shall, subject to the
shared authority of Jonathan Banks, as Executive’s Co-Chief Executive Officer (the “Other CEO”)
and subject to the reasonable direction and control of the Parent CEO, have general and active
supervision and control of the Company and shall perform all duties and enjoy all powers commonly
incident to the position of chief executive officer and otherwise as may be delegated to her from
time to time by the Company Board or the Parent Board consistent with the position of CEO,
including, without limitation, succession planning for Executive’s position and the development
and implementation of transition plans for key client relationships at the end of the Employment
Term.



 









 





     (c) Executive agrees to devote her full-time business time, energy and efforts to the
business of the Company and will use her best efforts and abilities faithfully and diligently to
promote the Company Group’s business interests.



     (d) For so long as Executive is employed by the Company and for one year thereafter,
Executive shall not, directly or indirectly, as owner, partner, joint venturer, shareholder,
employee, broker, agent, principal, trustee, corporate officer, director, licensor, or in any
other capacity whatsoever engage in, become financially interested in, be employed by, render any
consultation or business advice with respect to, or have any connection with, any business
engaged in the development, design, manufacture, sale, marketing, utilization or exploitation of
any products or services which are designed for the same purpose as, are similar to, or are
otherwise competitive with, products or services of the Company Group provided as of the end of
the Employment Term, in any geographic area where, prior to or at the time of the termination of
her employment, the business of the Company Group was being conducted in any manner whatsoever;
provided, however, that the Executive may own any securities of any corporation which is engaged
in such business and is publicly owned and traded but in an amount not to exceed at any one time
one percent (1%) of any class of stock or securities of such corporation. Subject to the
foregoing prohibition and provided such services or investments do not violate any applicable
law, regulation or order, or interfere in any way with the faithful and diligent performance by
Executive of the services to the Company otherwise required or contemplated by this Agreement or
duly requested by the Parent Board, the Company and the Parent expressly acknowledge that
Executive may:



          (i) make and manage personal business investments of Executive’s choice without consulting the
Parent Board;




          (ii) serve in any capacity with any civic, educational, charitable or trade organization; and




          (iii) serve as a member of the board of directors of other companies or businesses with the
approval of the Parent Board, which approval will not be unreasonably withheld.




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2. Definitions.




     For the purposes of this Agreement, the following terms shall have the meanings set forth
below:



     “2008 Severance Compensation” shall have the meaning set forth in Section 5(e) of this
Agreement.



     “Affiliate” shall mean, with respect to any Person, any individual, partnership, limited
liability company, corporation, trust, estate, real estate investment trust, association or any
other entity, directly or indirectly, through one or more intermediaries, controlling, controlled
by or under common control with such Person. The term “control,” as used in the immediately
preceding sentence, means, with respect to a corporation or other entity, the right to exercise,
directly or indirectly, more than 10% of the voting rights attributable to the controlled
corporation or other entity, and with respect to any individual, partnership, limited liability
company, trust, association or other entity, the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of the controlled entity.



     “Base Salary” shall have the meaning set forth in Section 3(a) of this Agreement.



     “Board of Directors” shall mean the Board of Directors of the Parent.



     “Change of Control” shall be deemed to have occurred if:




     (a) any Person is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or indirectly of securities of the company
representing more than 50% of the combined voting power of the Parent’s then outstanding voting
securities;




     (b) during any period of twenty-four (24) consecutive months, individuals, who at the
beginning of such period constitute the Board of Directors, and any new director whose election
by the Board of Directors, or whose nomination for election by the Parent’s stockholders, was
approved by a vote of at least one-half (1/2) of the directors then in office (other than in
connection with a contested election), cease for any reason to constitute at least one-half (1/2)
of the Board of Directors; or




     (c) the stockholders of the Parent approve (i) a plan of complete liquidation of the Parent;
or (ii) the sale or other disposition by the Parent of all or substantially all of the Parent’s
assets; or



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     (d) the consummation of a merger, consolidation or reorganization of the Parent with any
other entity other than:



          (i) a merger, consolidation or reorganization which results in the voting securities of the
Parent outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity) more than 50% of
the combined voting power of the surviving entity’s outstanding voting securities immediately after
such merger, consolidation or reorganization; or




          (ii) a merger, consolidation or reorganization which would result in the directors of the
Parent (who were directors immediately prior thereto) continuing to constitute at least 50% of all
directors of the surviving entity immediately after such merger, consolidation or reorganization.




     (e) the Parent enters into a definitive agreement with respect to any of the foregoing
transactions during the Employment Term or the SARs Term, and the transaction contemplated by such
definitive agreement is actually consummated by Parent.



For purposes of paragraph (d) above, “surviving entity” shall mean only an entity in which all of
the Parent’s stockholders immediately before such merger, consolidation or reorganization
(determined without taking into account any stockholders properly exercising appraisal or similar
rights) become stockholders by the terms of such merger, consolidation or reorganization, and the
phrase “directors of the Parent (who were directors immediately prior thereto)” shall include only
individuals who were directors of the Parent, as applicable, at the beginning of the twenty-four
(24) consecutive month period preceding the date of such merger, consolidation or reorganization.



     “Code” shall mean the Internal Revenue Code of 1986, as amended and as the same may be further
amended from time to time.



     “Common Stock” shall have the meaning set forth in Section 3(b)(i)(B) of this Agreement.




     “Company Board” shall mean the Board of Directors of the Company



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     “Company Group”shall mean the Company, including all parent, subsidiary and Affiliates of the
Company (including all subsidiaries and Affiliates of the Parent), and each Person with respect to
which the Company or the Parent directly or indirectly has Control.



     “Consumer Price Index Adjustment” shall be determined as follows: the Consumer Price Index for
the Los Angeles — Riverside — Orange County, CA (All Items), as published by the United States
Department of Labor, Bureau of Labor Statistics (1982-84=100) (the “Index”) which is most recently
available at the commencement of the new year (the “New Index”) shall be compared with the Index
most recently available twelve months prior to the New Index (the “Previous Index”). If the New
Index has increased over the Previous Index, the Consumer Price Index Adjustment shall be set by
multiplying the Base Salary of the prior year by a fraction, the numerator of which is the New
Index and the denominator of which is the Previous Index; provided, however, that if the Index is
changed so that the base year used for the New Index differs from that used for the Previous Index,
the New Index shall be converted in accordance with the conversion factor published by the United
States Department of Labor, Bureau of Labor Statistics.



     “Control” shall mean, with respect to any Person, (i) the beneficial ownership of any of the
outstanding voting securities of such Person, or (ii) the power, directly or indirectly, by proxy,
voting trust or otherwise, to elect any of the outstanding directors, trustees or other managing
persons of such Person.



     “Direct Allocations” shall mean (i) the Company’s share of the cost of the Parent’s shared
service centers (i.e., creative, operations, warehouse, Hong Kong, product integrity, etc.) based
on estimated usage or time spent working on behalf of the Company, and (ii) corporate overhead
(i.e., occupancy, finance & accounting, MIS, legal & business affairs, human resources, insurance,
etc.) allocated to the Company based on estimated usage/service levels; provided that the
methodology for determining Direct Allocations shall be the same as that used by the Company and
Parent in preparing budgets and accounting statements prior to the date hereof. The parties
acknowledge and agree that Direct Allocations have historically under Parent’s practice and shall
continue to exclude the Parent’s expenses of being a public company (e.g., expenses of filing
period reports under the Securities Exchange Act of 1934, investor relations expenses, preparation
and distribution of proxy statements, annual meeting expenses, Board of Directors fees and
expenses, etc.).



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     “EBITDA” shall mean earnings before interest, taxes, depreciation, and amortization of the
Company, as reported on the Parent’s internal unaudited statement of operations for the Company
using the Company’s actual expenses for its own operations and only Direct Allocations. For
purposes of calculating EBITDA, the following costs shall be excluded: (i) the compensation payable
pursuant to Sections 3(b)(i) and (ii) of this Agreement, as well as the identical compensation
provisions of the Other CEO’s employment agreement; and (ii) the discretionary bonuses paid to
employees of the Company. For purposes of calculating EBITDA, all revenues received and expenses
incurred by Parent or its subsidiaries in servicing the clients on Schedule 2, as amended from time
to time by mutual agreement, shall be included subject to any mutually agreed allocations or
limitations set forth in Schedule 2. Additional clients shall be added to Schedule 2 at any time
when the Company commences to provide services to them. Attachment A hereto sets forth the
methodology for determining EBITDA.



     “Employment Term” shall mean the Effective Date through December 31, 2007, unless earlier
terminated as provided herein.



     “For Cause” shall mean, in the context of a basis for termination of Executive’s employment
with the Company, that:



     (a) Executive materially breaches any obligation, duty or agreement under this Agreement,
which breach is not either waived by the Company or cured or corrected by Executive within 15 days
of written notice thereof from the Company (except for breaches of Sections 1(d), 6 or 7 of this
Agreement, which cannot be cured and for which the Executive shall have no opportunity to cure);



     (b) Executive is grossly negligent in the course of providing services to the Company, or
commits any act of personal dishonesty, fraud or breach of fiduciary duty or trust against the
Company;



     (c) Executive is convicted of, or pleads guilty or nolo contendere with respect to, theft,
fraud or felony under federal or applicable state law;



     (d) Executive commits any act or acts of personal conduct that, following due investigation
and determination by the Parent Board of probable cause, gives rise to a likelihood of liability
under federal or applicable state law for discrimination or sexual or other forms of harassment or
other similar liabilities with respect to subordinate employees; or



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     (e) Executive commits continued and repeated material violations of specific directions of the
Parent CEO, which directions are consistent with past practices, with this Agreement and with
Executive’s position as a chief executive officer, or continued and repeated substantive failure to
perform duties assigned by or pursuant to this Agreement; provided that no termination shall be
deemed “For Cause” under this subsection (e) unless Executive first receives written notice from
the Parent CEO advising her of the specific acts or omissions alleged to constitute violations of
written directions or a material failure to perform her duties, and such violations or material
failure continue after she shall have had a reasonable opportunity to correct the acts or omissions
so complained of.



     “Minimum EBITDA Threshold” shall mean the dollar amount set forth on Schedule 1 attached
hereto under the heading Minimum EBITDA Threshold for the applicable fiscal year of the Company.



     “Other CEO” shall have the meaning set forth in Section 1(b) of this Agreement.



     “Other Than For Cause” shall mean, in the context of termination of Executive’s employment
with the Company, any termination by the Company other than pursuant to Sections 4(a), (b), (c) or
(e) hereof.



     “Parent” has the meaning set forth in the preamble of this Agreement.



     “Parent Board” shall mean the Board of Directors of the Parent.



     “Parent CEO” has the meaning set forth in Section 1(b) of this Agreement.



     “Person” shall mean an individual or a partnership, corporation, trust, association, limited
liability company, governmental authority or other entity.



     “Prior Employment Agreement” shall mean that certain employment agreement entered into between
the Parent and Executive dated as of December 12, 2003.



     “SARs Term” shall mean the Effective Date through the fifth anniversary of the termination of
this Agreement, unless earlier terminated as provided herein or in the SAR Agreement.



3. Compensation; Executive Benefit Plans.




     (a) Base Salary and Signing Bonus. The Company shall pay to Executive a base salary
(the “Base Salary”) at an annual rate of $364,000 during the period from April 1, 2005 to
December 31, 2005. Executive’s October 15, 2005 payroll check shall include a one time



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payment of her retroactive salary adjustment from $350,000 to $364,000 per annum for the
period from April 1, 2005 to September 30, 2005. The Base Salary shall be payable in
installments throughout the year in the same manner and at the same times the Company pays base
salaries to other executive officers of the Company. Commencing April 1, 2006, the Base Salary
shall be adjusted upward annually in an amount at the discretion of the Parent Board; provided,
however, that such upward annual adjustment shall be greater than or equal to the Consumer Price
Index Adjustment. In addition to Executive’s base salary, on or before execution of this
Agreement, Executive shall receive a one-time signing bonus of $100,000. Executive acknowledges
receipt of such signing bonus on September 23, 2005.



     (b) Bonus. During the Employment Term, the Executive’s bonus program shall consist
of the following:



          (i) Annual Bonus.




               (A) Executive shall be eligible to receive an annual bonus no later than 75 days after the end
of each Company fiscal year that is included within the Employment Term. The annual bonus shall be
based upon the Company achieving certain EBITDA thresholds for the most recently completed fiscal
year. The annual bonus shall be calculated as follows: for each fiscal year, in order for
Executive to receive an annual bonus, the Company must exceed the Minimum EBITDA Threshold for such
fiscal year. If the Company’s EBITDA exceeds the Minimum EBITDA Threshold, Executive may earn
one-half (1/2) of the specified percentage of each applicable tranche based upon the Company’s
EBITDA (each an “EBITDA Tranche”). The parties acknowledge that the remaining one-half (1/2) of
the specified percentage of each EBITDA Tranche may be payable to the Other CEO pursuant to his
employment agreement with the Company. Schedule 1 attached hereto sets forth the applicable
Minimum EBITDA Threshold, the EBITDA Tranches and the percentages earned for each applicable EBITDA
Tranche as well as two sample calculations to illustrate the calculation of Executive’s annual
bonus.



               (B) The annual bonus shall be payable to Executive as follows: (1) twenty-five percent (25%)
shall be payable in cash; (2) twenty-five percent (25%) shall be payable in shares of the Parent’s
common stock, $.001 par value per share (“Common Stock”);



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and (3) the remaining fifty percent (50%) may be paid in either cash and/or Common Stock, at
the election of Executive.



               (C) The number of shares of Common Stock issued to Executive pursuant to this Section 3(b)(i)
shall be a number of shares equal to the quotient of the dollar amount of the annual bonus to be
paid in Common Stock divided by the average closing price of the Common Stock, for the 30 trading
days immediately preceding the date of issuance. To the extent that any shares of Common Stock are
issued to Executive pursuant to this Section 3(b)(i), the Parent shall be entitled to offset the
amount of any applicable withholding taxes required by the Code and any other applicable laws
against the cash portion of such annual bonus due to the Executive pursuant to this Section 3(b)(i)
and, if the cash portion of such annual bonus is insufficient to cover the amount of such
withholding taxes, against the payment of the Executive’s base salary.



          (ii) Stock Appreciation Rights. On the Effective Date, Executive and the Parent shall
enter into a Stock Appreciation Rights Agreement (the “SAR Agreement”) in the form of Exhibit A
attached hereto. Pursuant to the SAR Agreement, Executive shall be granted free-standing stock
appreciation rights in 200,000 shares of Common Stock (“SARs”). The grant price of the SARs shall
be $8.03 per share, which the parties hereto hereby acknowledge and agree is the average closing
price of the Common Stock for the five trading days ending the week of September 23, 2005. As
provided in the SAR Agreement, the SARs shall vest and become exercisable only upon a Change of
Control of the Parent (assuming that Executive has served the Company in accordance with the terms
of this Agreement including post-employment service as provided below, through the date of the
Change of Control) and only if the Company has experienced positive growth in EBITDA over the
period commencing January 1, 2005 and ending upon the earlier of December 31, 2007 or the date of a
Change of Control. In the event that a Change of Control of the Parent does not occur during the
Employment Term, the SARs shall continue in full force and effect for a period of five (5) years
following the termination of this Agreement; provided that Executive: (x) continuously served the
Company in accordance with the terms of this Agreement through the Employment Term and thereafter
continues to serve as a member of the Company Board, and (y) continues to abide by the provisions
of Sections 1(d), 6 and 7 of this Agreement.




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     (c) Reimbursement. Executive shall be entitled to reimbursement from the Company
for the reasonable costs and expenses that she incurs in connection with the performance of her
duties and obligations under this Agreement in a manner consistent with the Company’s practices
and policies for reimbursements for executive officers.



     (d) Additional Reimbursement. During the Employment Term, the Company shall
reimburse Executive on a basis comparable to the current practice of the Company, for leasing
garage space, telephone and home office equipment for her use in performing her employment duties
and obligations under this Agreement.



     (e) Group Benefit Plans. Executive shall be eligible to participate in the Parent’s
group health, dental, life, disability, retirement (including 401(k)) and pension benefit plans,
subject to the terms, conditions and limitations contained in the applicable plan documents and
insurance policies.



     (f) Vacation. In accordance with the Company’s policy for executives at the rank of
vice president and above, no specific amount of vacation time will be accrued by Executive.
Executive shall be entitled to take the amount of vacation time she and the Parent CEO determine
to be appropriate in light of her workload from time to time. Any vacation time shall be
scheduled to minimize interference with the exercise of Executive’s duties under this Agreement.



     (g) Insurance. During the Employment Term, the Company shall pay to or on behalf of
the Executive such amounts as are required on an after-tax basis to maintain all premiums on (i)
supplemental disability insurance paying at least $20,000 per month, and (ii) term life insurance
having a face value payable on death of no less than $700,000 on the life of the Executive with
the Executive (or her estate) as beneficiary.



     (h) Withholding. The Company may deduct from any compensation payable to Executive
the minimum amounts sufficient to cover applicable federal, state and/or local income tax
withholding, old-age and survivors’ and other social security payments, state disability and
other insurance premiums and payments.



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     (i) Fringe Benefits. During the Employment Term, Executive shall be entitled to an
automobile allowance of $1,200 per month and a cellular phone allowance of $150 per month. Such
allowances shall be paid in a manner consistent with the Company’s practices and policies
therefor. During the Employment Term, Executive shall also be entitled to reimbursement for
expenses of travel (including business class airline upgrades) and hotel accommodations while
traveling on Company business in accordance with the policies of the Company as in effect from
time to time. The Company agrees to reimburse Executive up to a total of $15,000 for the cost of
reasonable attorneys’ fees incurred in connection with the negotiation and preparation of this
Agreement.



     (j) Long Term Deferred Compensation. At the request of Executive, the Company
agrees to restructure the annuity provided for in the Prior Employment Agreement such that the
Company pays Executive $450,000 within five (5) business days of the Effective Date, and $450,000
on each of the second and third anniversaries of this date. Notwithstanding the foregoing, all
unpaid amounts under this Section 3(j) will be immediately paid to Executive (i) upon termination
of this Agreement by the Company pursuant to Section 4(d) (Other Than For Cause), (ii) upon
termination of this Agreement pursuant to Section 4(a) (for death) or (iii) upon a Change of
Control. In the event that Executive’s employment is terminated for any other reason, then all
unpaid amounts under this Section shall be forfeited.



     (k) Current Options, Restricted Stock, etc. As of the date hereof, Executive has
received and shall be entitled to retain: (i) 13,333 options to purchase Common Stock at $7.50
per share expiring December 7, 2005 and reflected in Parent’s records as grant number 224; (ii)
12,500 options to purchase Common Stock at $7.50 per share expiring December 9, 2007 and
reflected in Parent’s records as grant number 225; (iii) 25,000 options to purchase Common Stock
at $11.00 per share expiring July 1, 2009 and reflected in Parent’s records as grant number 255;
(iv) 100,000 options to purchase Common Stock at $19.94 per share expiring March 3, 2010 and
reflected in Parent’s records as grant number 276; (v) 15,000 options to purchase Common Stock at
$10.90 per share expiring May 17, 2011 and reflected in Parent’s records as grant number 306;
(vi) 4,000 restricted stock units vesting April 1, 2007 and reflected in Parent’s records as
grant number 406; and (vii) 7,500 restricted stock units vesting April 1, 2008 and reflected in
Parent’s records as grant number 565.



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4. Termination of Employment.




          Executive’s employment pursuant to this Agreement shall commence on the Effective Date and
shall terminate on the earliest to occur of the following:




     (a) upon the death of Executive;



     (b) upon delivery to Executive of written notice of termination by the Company if Executive
shall suffer a physical or mental disability which renders Executive unable to perform her duties
and obligations under this Agreement for at least 120 days, whether or not consecutive, in any
12-month period (“Disability”);



     (c) upon delivery to Executive of written notice of termination by the Company For Cause; or



     (d) upon delivery to Executive of written notice of termination by the Company Other Than
For Cause; or



     (e) upon the earlier to occur of (i) the end of the Employment Term, or (ii) the first
anniversary of a Change of Control.



5. Severance Compensation.




     (a) If Executive’s employment is terminated pursuant to Section 4(a) (death) or Section 4(b)
(Disability), the Company shall pay to the Executive or her estate her full Base Salary through
the end of the month of Executive’s death or Disability, and Executive or her estate shall be
entitled to a prorated share of any bonus or benefits as provided under Section 3 hereof for the
calendar year during which her death or Disability occurred. Notwithstanding the foregoing, if
(i) Executive’s employment is terminated due to a Disability, and (ii) Executive is denied all or
some disability benefits under the applicable disability policy, then Executive shall be entitled
to continue to receive her Base Salary from the Company in accordance with Section 3(a) of this
Agreement through December 31, 2007, payable at the same time and in the same manner as if
Executive’s employment had not terminated. Any disability benefits that Executive does receive
shall be offset against any amounts payable to Executive pursuant to the preceding sentence.
Executive agrees to cooperate fully with the Company and the disability insurance carrier with
respect to any claim for disability benefits.



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     (b) If Executive’s employment is terminated pursuant to Section 4(c) (by the Company For
Cause), Executive’s Base Salary and all benefits under Section 3 shall cease as of the date of
termination, and Executive shall not be entitled to any bonus for the calendar year during which
her employment shall be terminated or at any time thereafter. In the event of termination of
Executive’s employment pursuant to Section 4(c) (by the Company For Cause), and subject to
applicable law and regulations, the Company shall be entitled to offset against any payments due
Executive the loss and damage, if any, which shall have been suffered by the Company as a result
of the acts or omissions of Executive giving rise to termination under Section 4(c). The
foregoing shall not be construed to limit any cause of action, claim or other rights which the
Company may have against Executive in connection with such acts or omissions.



     (c) If Executive’s employment is terminated pursuant to Section 4(d) (by the Company Other
Than For Cause) prior to December 31, 2007, Executive shall be entitled to continue to receive
(i) her Base Salary in accordance with Section 3(a) of this Agreement, through December 31, 2007,
payable at the same time and in the same manner as if Executive’s employment had not terminated,
(ii) the benefits provided under Sections 3(b)(ii), 3(e), 3(g), 3(i) and 3(j) of this Agreement,
through December 31, 2007, payable at the same time and in the same manner as if Executive’s
employment had not terminated, (iii) her compensation under Section 5(e), (iv) any rights she may
have under the plans and agreements set forth under Section 3(k) according to their terms, and
(v) the annual bonus payable to Executive pursuant to Section 3(b)(i) for the fiscal year in
which Executive’s employment is terminated pursuant to Section 4(d) (by the Company Other Than
For Cause) and the annual bonus for the next fiscal year. If for some reason the Executive is
not eligible to participate in the Company’s group plans, the Company shall pay the COBRA
premiums associated with Executive’s obtaining comparable benefits. Executive shall have no duty
to seek other employment upon such termination, and if Executive does so, any income therefrom,
shall not be credited against amounts due hereunder.



     (d) If Executive terminates her employment in breach of this Agreement prior to December 31,
2007, Executive shall as of the date of termination cease to be entitled to Base Salary, benefits
or bonuses. In addition, the Company shall be entitled to seek any other



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available remedies pursuant to this Agreement or otherwise for such breach, and to offset
against any amounts due Executive any damages suffered as a result of such breach.



     (e) At December 31, 2007 unless Executive is terminated for Cause, and provided that
Executive has fulfilled all of her material obligations hereunder for the entire Employment Term,
Executive shall be entitled to severance compensation (the “2008 Severance Compensation”) in an
amount equal to Executive’s annual bonus for fiscal year 2008, calculated in accordance with
Section 3(b)(i) and Schedule 1 attached hereto as if Executive continued to be employed by the
Company for fiscal year 2008. The amount of Executive’s 2008 Severance Compensation shall be
calculated and paid to Executive quarterly in arrears through fiscal year 2008. Within thirty
(30) days after the end of each quarter in fiscal year 2008, the amount of the 2008 Severance
Compensation shall be calculated in accordance with the procedures set forth in Section 3(b)(i)
by annualizing the current EBITDA of the Company on the last business day of such quarter.
Executive shall be entitled to receive payment of 25%, 50% and 75% of such calculated 2008
Severance Compensation within thirty-five (35) days following the end of the first, second and
third quarters, respectively, less any amounts of 2008 Severance Compensation previously paid to
Executive. Within 90 days of the end of the Company’s fiscal year 2008, the final amount of
Executive’s 2008 Severance Compensation shall be calculated and the Company shall pay to
Executive the remainder of any amounts not having been previously paid to Executive pursuant to
this Section 5(e).



     (f) Executive acknowledges that the Company has the right to terminate Executive’s
employment Other Than For Cause and that such termination shall not be a breach of this Agreement
or any other express or implied agreement between the Company and Executive. Accordingly, in the
event of such termination, Executive shall be entitled only to the compensation and benefits
specifically provided for in this Agreement in the event of such termination, and shall not have
any other rights to any compensation or damages from the Company for breach of contract.



     (g) Executive acknowledges that in the event of termination of her employment for any
reason, she shall not be entitled to any severance or other compensation from the



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Company except as specifically provided in this Section 5. Without limitation on the
generality of the foregoing, this Section supersedes any plan or policy of the Company which
provides for severance to its officers or employees, and Executive shall not be entitled to any
benefits under any such plan or policy.



6. Covenant Not To Solicit.




     (a) During the Employment Term and through the third anniversary of the end of the
Employment Term, Executive will not directly or indirectly, either alone or by action in concert
with others: (i) induce any employee of any member of the Company Group to engage in any activity
in which Executive is prohibited from engaging by Section 1(d) of this Agreement or to terminate
his or her employment with any member of the Company Group; or (ii) offer employment or induce
any Person to employ or offer employment to anyone who is or was within the 12 months prior to
the date of the proscribed action employed by any member of the Company Group; or (iii) induce or
attempt to induce any customer, supplier, licensee or other Person with a business relationship
with any member of the Company Group to discontinue or reduce its business with any member of the
Company Group, or in any way interfere with the relationship between any such customer, supplier,
licensee or other Person and any member of the Company Group; or (iv) solicit or accept any
business whatsoever from any of the customers with which the Company did business during the
Executive’s engagement or employment by the Company. The Parent CEO shall have the authority to
waive the provisions of Section 6(a)(ii) insofar as it relates to the personal assistant who was
assigned to Executive. (All of the provisions of this Section 6(a) shall continue to apply
through the third anniversary of the end of the Employment Term (the “Post-Employment Period”)).



     (b) Executive acknowledges that the Company Group conducts business on a world-wide basis,
that its sales and marketing prospects are for continued expansion into world markets and that,
therefore, the territorial and time limitations set forth in Section 1(d) and in this Section 6
are reasonable and properly required for the adequate protection of the business of the Company
Group. In the event any such territorial or time limitation is deemed to be unreasonable by a
court of competent jurisdiction, Executive agrees to the reduction of



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the territorial or time limitation to the largest area or the longest period which such
court deems reasonable.



     (c) If any portion of the restrictions set forth in Section 1(d) and in this Section 6
should, for any reason whatsoever, be declared invalid by a court of competent jurisdiction, the
validity or enforceability of the remainder of such restrictions shall not thereby be adversely
affected.



     (d) The existence of any claim or cause of action by Executive against the Company (other
than Company’s failure to pay Executive the compensation owing pursuant to this Agreement) shall
not constitute a defense to the enforcement by the Company of the restrictive covenants set forth
in Section 1(d) and in this Section 6, but such claim or cause of action shall be litigated
separately.



7. Confidentiality.




     Executive will not at any time (whether during or after her employment with the Company)
disclose or use for her own benefit or purposes or the benefit or purposes of any other Person,
other than any member of the Company Group, any trade secrets, information or data of a proprietary
or sensitive nature, any information, data or conclusions relating to any audit pursuant to Section
9, or other confidential information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data, financial methods,
plans, or the business and affairs of the Company Group generally. Executive agrees that upon
termination for any reason of this Agreement, she will immediately return to the Company all such
confidential memoranda, books, papers, plans, information, letters and other data of a proprietary
or sensitive nature, and all copies thereof or therefrom, in any way relating to the business of
the Company Group. Executive further agrees that she will not retain or use at any time any trade
name, trademark or other proprietary business designation used or owned in connection with the
business of any member of the Company Group. Executive further agrees that she shall take all
reasonable measures to prevent any of her auditors, agents and representatives from disclosing any
of the type of information described above.



16









 





8. Copyright and Trademarks.




     (a) All right, title and interest, of every kind whatsoever, in the United States and
throughout the world, in (i) any work, including the copyright thereof (for the full terms and
extensions thereof in every jurisdiction), created by the Executive at any time during the
Employment Term, and all material embodiments of the work subject to such rights; and (ii) all
inventions, ideas, discoveries, designs and improvements, patentable or not, made or conceived by
the Executive at any time during the Employment Term, shall be and remain the sole property of
the Company Group without payment of any further consideration to the Executive or any other
person than as set forth herein, and each such work shall, for purposes of United States
copyright law, be deemed created by the Executive pursuant to her duties under this Agreement and
within the scope of her employment and shall be deemed a work made for hire; and Executive agrees
to assign, at the Company’s expense, and the Executive does hereby assign, all of her right,
title and interest in and to all such works, copyrights, materials, inventions, ideas,
discoveries, designs and improvements, patentable or not, and any copyrights, letters patent,
trademarks, trade secrets, and similar rights, and the applications therefor, which may exist or
be issued with respect thereto to the Company Group. For the purposes of this Section 8, “works”
shall include all materials created during the Employment Term, whether or not ever used by or
submitted to the Company Group, including, without limitation, any work which may be the subject
matter of a copyright under the United States copyright law. In addition to its other rights,
the Company Group may copyright any such work in any of their names in the United States in
accordance with the requirements of the United States copyright law and the Universal Copyright
Convention and any other convention or treaty to which the United States is or may become a
party. Notwithstanding the foregoing, Executive is hereby notified and acknowledges that this
Section 8(a) does not apply (i) to an invention which qualifies fully under the provisions of
Section 2870 of the California Labor Code and/or (ii) to any work(s) which were developed
entirely on Executive’s own time without using the Company Group’s equipment, supplies,
facilities, or trade secrets, except as to any of these which are related to the Company Group’s
business or actual or demonstrably anticipated research or development of the Company Group.



17









 





     (b) Whenever the Company Group shall so request, whether during or after the Employment
Term, the Executive shall execute, acknowledge and deliver all applications, assignments or other
instruments; make or cause to be made all rightful oaths; testify in all legal proceedings;
communicate all known facts which relate to such works, copyrights, inventions, ideas,
discoveries, designs and improvements; perform all lawful acts and otherwise render all such
assistance as the Company Group may deem necessary to apply for, obtain, register, enforce and
maintain any copyrights, letters patent and trademark registrations of the United States or any
foreign jurisdiction or under the Universal Copyright Convention (or any other convention or
treaty to which the United States is or may become a party), or otherwise to protect the Company
Group’s interests therein, including any which the Company Group shall deem necessary in
connection with any proceeding or litigation involving the same. The Company Group shall
reimburse the Executive for all reasonable out-of-pocket costs incurred by the Executive in
testifying at the Company Group’s request or in rendering any other assistance requested by the
Company Group pursuant to this Section 8 plus (if Executive is not then an employee of the
Company Group) reasonable compensation based on her prior compensation by the Company Group. All
registration and filing fees and similar expenses shall be paid by the Company Group.



9. Specific Performance; Audit.




     (a) Executive acknowledges and agrees that the Company’s remedies at law for a breach or
threatened breach of any of the provisions of Sections 1(d), 6 or 7 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, the Company shall be entitled to obtain equitable
relief in the form of specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available. In addition, the Executive
recognizes that the services to be rendered by her under this Agreement are of a special, unique,
unusual, extraordinary and intellectual character involving skill of the highest order and giving
them peculiar value, the loss of which cannot be adequately compensated in damages.
Consequently, in the event of a breach of this Agreement by the Executive, the Company shall be
entitled to injunctive relief or any other legal or equitable remedies. The Executive agrees
that the Company also may recover by



18









 







appropriate action the amount of the actual damage caused the Company by any failure,
refusal or neglect of the Executive to perform her agreements, representations and warranties
contained in this Agreement. The remedies provided in this Agreement shall be deemed cumulative
and the exercise of one shall not preclude the exercise of any other remedy at law or in equity
for the same event or any other event.



     (b) Executive shall have the right to engage an independent accounting firm of national
reputation, mutually acceptable to Executive and Parent, to audit the books and records of the
Company upon which the calculation of the annual bonus pursuant to Section 3(b)(i) is based.
Executive shall pay all costs and expenses of such audit unless such examination shows an
underpayment of at least five percent (5%) or more of the total amount payable (and at least
$5,000 in actual dollar amount) during the period covered by the audit, in which case the costs
of the audit shall be paid by the Company. Executive hereby acknowledges and agrees that neither
Executive nor such independent accounting firm may disclose any information relating to such
audit to any other Person, and may not use such information for any purpose other than for
confirming or determining the amount of Executive’s bonus pursuant to Section 3(b)(i) hereof.



10. Resolution of Disputes.




     (a) Except as provided in subsection (c) below, any controversy or claim between or among
the parties, relating to Executive’s employment with the Company, including but not limited to
those arising out of or relating to this Agreement or any agreements or instruments relating
hereto or delivered in connection herewith and any claim based on or arising from an alleged
tort, shall at the request of any party be determined by arbitration. The arbitration shall be
conducted in Los Angeles, California, in accordance with the United States Arbitration Act (Title
9 of the United States Code), notwithstanding any choice of law provision in this Agreement, and
under the National Rules for the Resolution of Employment Disputes of the American Arbitration
Association (“AAA”). The parties shall have the right to review and approve a panel of
prospective arbitrators supplied by AAA, but the arbitration shall be conducted by a single
arbitrator selected from the approved panel by AAA or by stipulation of the parties. The
arbitrator shall give effect to statutes of limitation in determining any claim. Any controversy
concerning whether an issue is arbitrable shall be



19









 







determined by the arbitrator. The arbitrator shall be entitled to order specific
performance of the obligations imposed by this Agreement. Judgment upon the arbitration award
may be entered in any court having jurisdiction.



     (b) All decisions of the arbitrator shall be final, conclusive and binding on all parties
and shall not be subject to judicial review. All costs of the arbitration shall be borne by the
party which is not the Prevailing Party (as defined in Section 12(h) of this Agreement). If
required, each party shall advance 50% of any costs of the arbitration required to be advanced,
subject to the right of the non-Prevailing Party to reimbursement.



     (c) Subsection (a) above does not prohibit a party from seeking and obtaining injunctive
relief from a court of competent jurisdiction pending the outcome of arbitration. A party
bringing an action for injunctive relief shall not be deemed to have waived its right to demand
arbitration of all disputes.



11. Miscellaneous.




     (a) Notices. All notices, requests, demands and other communications (collectively,
“Notices”) given pursuant to this Agreement shall be in writing, and shall be delivered by
personal service, courier, facsimile transmission or by United States first class, registered or
certified mail, addressed to the following addresses:



	 	 	 	 	 	 	 
	 

	 	(i)
	 	If to the Company, to:
	 	 
	 

	 	 	 	Equity Marketing, Inc.	 	 
	 

	 	 	 	6330 San Vicente Blvd.	 	 
	 

	 	 	 	Los Angeles, California 90048	 	 
	 

	 	 	 	Attn: General Counsel	 	 
	 
	 	 	 	 	 	 
	 

	 	(ii)
	 	If to the Parent, to:	 	 
	 

	 	 	 	EMAK Worldwide, Inc.	 	 
	 

	 	 	 	6330 San Vicente Blvd.	 	 
	 

	 	 	 	Los Angeles, California 90048	 	 
	 

	 	 	 	Attn: General Counsel	 	 






20









 






	 	 	 	 	 	 	 
	 

	 	(iii)
	 	If to Executive, to:
	 	 
	 

	 	 	 	Kim H. Thomsen	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

Los Angeles, California 90027
	 	 
	 
	 	 	 	 	 	 
	 

	 	(iv)
	 	With a copy to:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Guth Christopher LLP	 	 
	 

	 	 	 	10866 Wilshire Blvd., Suite 1250	 	 
	 

	 	 	 	Los Angeles, California 90024	 	 
	 

	 	 	 	Attn: Theodore E. Guth, Esq.	 	 






     Any Notice, other than a Notice sent by registered or certified mail, shall be effective when
received; a Notice sent by registered or certified mail, postage prepaid return receipt requested,
shall be effective on the earlier of when received or the third day following deposit in the United
States mails (or on the seventh day if sent to or from an address outside the United States). Any
party may from time to time change its address for further Notices hereunder by giving notice to
the other party in the manner prescribed in this Section.




     (b) Entire Agreement. This Agreement and the SAR Agreement (collectively, the
“Agreements”) contain the sole and entire agreement and understanding of the parties with respect
to the entire subject matter of the Agreements, and any and all prior discussions, negotiations,
commitments and understandings, whether oral, written or implied, related to the subject matter
of the Agreements and any and all prior discussions, negotiations, commitments, agreements
(including the Prior Employment Agreement) and understandings, whether oral, written or implied,
related thereto, are hereby extinguished and superseded. No representations, oral or otherwise,
express or implied, other than those contained in the Agreements have been relied upon by any
party to the Agreements.




     (c) Severability. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, in whole or in part, the
remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force
and effect to the fullest extent permitted by law.



21









 






     (d) Governing Law. This Agreement has been made and entered into in the State of
California and shall be construed in accordance with the laws of the State of California.




     (e) Captions. The various captions of this Agreement are for reference only and
shall not be considered or referred to in resolving questions of interpretation of this
Agreement.




     (f) Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which together shall constitute one
and the same instrument.




     (g) Business Day. If the last day permissible for delivery of any notice under any
provision of this Agreement, or for the performance of any obligation under this Agreement, shall
be other than a business day, such last day for such notice or performance shall be extended to
the next following business day (provided, however, under no circumstances shall this provision
be construed to extend the date of termination of this Agreement).




     (h) Attorneys’ Fees. If any action, proceeding or arbitration is brought to enforce
or interpret any provision of this Agreement, the Prevailing Party shall be entitled to recover
as an element of its costs, and not its damages, its reasonable attorneys’ fees, costs and
expenses. The “Prevailing Party” is the party who would have been entitled to recover its costs
under the California Code of Civil Procedure had the action been maintained in the Superior Court
of California regardless of whether there is final judgment. A party not entitled to recover its
costs may not recover attorneys’ fees. No sum for attorneys’ fees shall be counted in
calculating the amount of a judgment for purposes of determining whether a party is entitled to
recover its costs or attorneys’ fees.




     (i) Advice from Independent Counsel. The parties hereto understand that this
Agreement is legally binding and may affect such party’s rights. Each party represents to the
other that it has received legal advice from counsel of its choice regarding the meaning and
legal significance of this Agreement.




     (j) Interpretation. Should any provision of this Agreement require interpretation,
it is agreed that any court or arbitrator interpreting or construing the same shall not apply a



22









 







presumption that the terms hereof shall be more strictly construed against any Person by
reason of the rule of construction that a document is to be construed more strictly against the
Person who itself or through its agent prepared the same, it being agreed that all Parties have
participated in the preparation of this Agreement.




     (k) Survival. The termination of the Executive’s employment hereunder shall not
affect the enforceability of Sections 1(d), 6, 7 and 8.




     (l) Waiver of Jury Trial. IF NOTWITHSTANDING THE AGREEMENT THAT ALL DISPUTES BE
SUBMITTED TO BINDING ARBITRATION, A DISPUTE IS SUBMITTED TO A COURT, EACH PARTY HERETO WAIVES THE
RIGHT TO A TRIAL BY JURY IN ANY DISPUTE IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY
RELATED AGREEMENT OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, AND AGREE TO TAKE
ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH WAIVER. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS WRITTEN CONSENT TO A WAIVER OF TRIAL BY JURY.



23









 





EXECUTION COPY




     IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement on her own behalf
or caused this Agreement to be executed on its behalf as of the date first written above.



	 	 	 	 	 	 	 
	 	 	EQUITY MARKETING, INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	/S/TERESA L. TORMEY
	 	 	 	 	 
	 

	 	 	 	 	 	Teresa L. Tormey,


EVP, General Counsel and Secretary
	 
	 	 	 	 	 	 
	 	 	EMAK WORLDWIDE, INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	/S/TERESA L. TORMEY
	 	 	 	 	 
	 

	 	 	 	 	 	Teresa L. Tormey,


EVP, General Counsel and Secretary
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	/S/KIM H. THOMSEN
	 	 	 
	 	 	Kim H. Thomsen