<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
EQUITY MARKETING, INC.
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(Name of Issuer)
COMMON STOCK, $.001 PAR VALUE
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(Title of Class of Securities)
294724109
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(CUSIP Number)
Kenneth Squire
Crown Acquisition Partners, LLC
660 Madison Avenue, 15th Floor
New York, New York 10021
(212) 207-4100
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copies to:
W. Alex Voxman
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
(213) 485-1234
MARCH 29, 2000
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is subject of this Schedule 13D, and is filing this
statement because of Rule 13d-1(b)(3) or (4), check the following box: [ ].
(Continued on the following page)
Page 1 of 13 Pages
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SCHEDULE 13D
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CUSIP NO. 294724109 PAGE 2 OF 13
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- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
PETER ACKERMAN
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,611,580 SHARES*
OWNED BY EACH --------------------------------------------------------------
REPORTING 8 SHARED VOTING POWER
PERSON WITH
2,611,580 SHARES*
--------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
2,611,580 SHARES*
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,611,580 SHARES*
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,611,580 SHARES*
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.5% (BASED ON 6,249,767 SHARES OF EQUITY MARKETING, INC.'S COMMON STOCK
OUTSTANDING AS OF MARCH 22, 2000)
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14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
* See response to Item 5(a).
<PAGE>
SCHEDULE 13D
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CUSIP NO. 294724109 PAGE 3 OF 13
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1 NAME OF REPORTING PERSON
JOANNE LEEDOM-ACKERMAN
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,611,580 SHARES*
OWNED BY EACH --------------------------------------------------------------
REPORTING 8 SHARED VOTING POWER
PERSON WITH
2,611,580 SHARES*
--------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
2,611,580 SHARES*
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,611,580 SHARES*
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,611,580 SHARES*
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.5% (BASED ON 6,249,767 SHARES OF EQUITY MARKETING, INC.'S COMMON STOCK
OUTSTANDING AS OF MARCH 22, 2000)
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14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
* See response to Item 5(a).
<PAGE>
SCHEDULE 13D
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CUSIP NO. 294724109 PAGE 4 OF 13
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1 NAME OF REPORTING PERSON
PERRY A. LERNER
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
USA
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,611,580 SHARES*
OWNED BY EACH --------------------------------------------------------------
REPORTING 8 SHARED VOTING POWER
PERSON WITH
2,611,580 SHARES*
--------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
2,611,580 SHARES*
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,611,580 SHARES*
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,611,580 SHARES*
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.5% (BASED ON 6,249,767 SHARES OF EQUITY MARKETING, INC.'S COMMON STOCK
OUTSTANDING AS OF MARCH 22, 2000)
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14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
* See response to Item 5(a).
<PAGE>
SCHEDULE 13D
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CUSIP NO. 294724109 PAGE 5 OF 13
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1 NAME OF REPORTING PERSON
SOMERVILLE S TRUST
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA
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NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,611,580 SHARES*
OWNED BY EACH --------------------------------------------------------------
REPORTING 8 SHARED VOTING POWER
PERSON WITH
2,611,580 SHARES*
--------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
2,611,580 SHARES*
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,611,580 SHARES*
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,611,580 SHARES*
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.5% (BASED ON 6,249,767 SHARES OF EQUITY MARKETING, INC.'S COMMON STOCK
OUTSTANDING AS OF MARCH 22, 2000)
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14 TYPE OF REPORTING PERSON
OO
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* See response to Item 5(a).
<PAGE>
SCHEDULE 13D
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CUSIP NO. 294724109 PAGE 6 OF 13
- ------------------------- -------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
SANTA MONICA PICTURES, LLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA
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NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,611,580 SHARES*
OWNED BY EACH --------------------------------------------------------------
REPORTING 8 SHARED VOTING POWER
PERSON WITH
2,611,580 SHARES*
--------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
2,611,580 SHARES*
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,611,580 SHARES*
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,611,580 SHARES*
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.5% (BASED ON 6,249,767 SHARES OF EQUITY MARKETING, INC.'S COMMON STOCK
OUTSTANDING AS OF MARCH 22, 2000)
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14 TYPE OF REPORTING PERSON
OO
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* See response to Item 5(a).
<PAGE>
SCHEDULE 13D
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CUSIP NO. 294724109 PAGE 7 OF 13
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1 NAME OF REPORTING PERSON
SOMERVILLE, LLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
WC;OO
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,611,580 SHARES*
OWNED BY EACH --------------------------------------------------------------
REPORTING 8 SHARED VOTING POWER
PERSON WITH
2,611,580 SHARES*
--------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
2,611,580 SHARES*
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,611,580 SHARES*
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,611,580 SHARES*
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.5% (BASED ON 6,249,767 SHARES OF EQUITY MARKETING, INC.'S COMMON STOCK
OUTSTANDING AS OF MARCH 22, 2000)
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14 TYPE OF REPORTING PERSON
OO
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* See response to Item 5(a).
<PAGE>
SCHEDULE 13D
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CUSIP NO. 294724109 PAGE 8 OF 13
- ------------------------- -------------------
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
CROWN ACQUISITION PARTNERS, LLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 2,611,580 SHARES*
OWNED BY EACH --------------------------------------------------------------
REPORTING 8 SHARED VOTING POWER
PERSON WITH
2,611,580 SHARES*
--------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
2,611,580 SHARES*
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
2,611,580 SHARES*
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,611,580 SHARES*
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* [X]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.5% (BASED ON 6,249,767 SHARES OF EQUITY MARKETING, INC.'S COMMON STOCK
OUTSTANDING AS OF MARCH 22, 2000)
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14 TYPE OF REPORTING PERSON
OO
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* See response to Item 5(a).
<PAGE>
ITEM 1. SECURITY AND ISSUER.
This statement relates to the common stock, $.001 par value per
share (the "Common Stock"), of Equity Marketing, Inc., a Delaware corporation
(the "Company"), with its principal executive offices located at 6330 San
Vicente Boulevard, California 90048. On March 29, 2000, Crown Acquisition
Partners, LLC, a Delaware limited liability company ("Crown Acquisition")
entered into that certain Securities Purchase Agreement (the "Purchase
Agreement") to acquire (i) 25,000 shares of Series A Senior Cumulative
Participating Convertible Preferred Stock, $.001 par value per share, of the
Company (the "Series A Preferred Stock"), which are convertible into 1,694,914
shares of Common Stock and (ii) warrants to purchase (a) 12,000 shares of Series
B Senior Cumulative Participating Convertible Preferred Stock, $.001 par value
per share, of the Company (the "Series B Preferred Stock"), which are
convertible into 750,000 shares of Common Stock and (b) 3,000 shares of Series C
Senior Cumulative Participating Convertible Preferred Stock, $.001 par value per
share, of the Company (the "Series C Preferred Stock" and together with the
Series A Preferred Stock and the Series B Preferred Stock, the "Preferred
Stock"), which are convertible into 166,666 shares of Common Stock. The
Preferred Stock is not registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended.
ITEM 2. IDENTITY AND BACKGROUND.
(a) This statement is being filed jointly by Peter Ackerman, an
individual, Joanne Leedom-Ackerman, an individual (together with Peter
Ackerman, the "Ackermans"), Perry A. Lerner, an individual ("Lerner"),
Somerville S Trust, a revocable trust organized in California (the "Trust"),
Santa Monica Pictures, LLC, a California limited liability company ("SMP"),
Somerville, LLC, a Delaware limited liability company ("Somerville"), and Crown
Acquisition Partners, LLC, a Delaware limited liability company ("Crown
Acquisition" and together with the Ackermans, Lerner, the Trust, SMP and
Somerville, the "Reporting Persons.")
(b) The address of the principal business of each of the Ackermans,
Lerner, the Trust, SMP, and Somerville is 700 Eleventh Street N.W., Washington,
D.C. 20001. The address of the principal office of Crown Acquisition is 660
Madison Avenue, 15th Floor, New York, New York 10021. The Trust controls SMP and
SMP controls Sommerville. Lerner is the trustee of the Trust and a manager of
SMP and Somerville. Jeffrey S. Deutschman is the manager of Crown Acquisition.
(c) Peter Ackerman's occupation is an investor, and Joanne
Leedom-Ackerman's occupation is a writer. The principal business of each of the
Trust, SMP and Somerville is investing in companies. The principal business of
Crown Acquisition is holding the Preferred Stock of the Company.
(d) None of the Reporting Persons have during the last five years
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) None of the Reporting Persons have during the last five years
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which such person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) Peter Ackerman and Joanne Leeedom-Ackerman are citizens of the
United States.
<PAGE>
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
See Item 4 below.
ITEM 4. PURPOSE OF TRANSACTION.
On March 29, 2000, Crown Acquisition entered into that certain
Securities Purchase Agreement by and between Crown Acquisition and the Company
(the "Purchase Agreement") to purchase from the Company an aggregate of (i)
25,000 shares of Series A Preferred Stock and (ii) warrants to purchase 12,000
shares of Series B Preferred Stock and 3,000 shares of Series C Preferred Stock
for an aggregate purchase price of $25.0 million. The Purchase Agreement is
attached hereto as Exhibit 2 and incorporated by reference herein.
Pursuant to the Purchase Agreement, the transaction has been
structured to close in two stages. At the first closing which took place on
March 29, 2000, Crown Acquisition paid the initial purchase price of $11,900,000
as consideration for 11,900 shares of Series A Preferred Stock and warrants to
purchase 5,712 shares of Series B Preferred Stock and 1,428 shares of Series C
Preferred Stock. The $11,900,00 was funded by a capital contribution from
Somerville. The second stage of the transaction will include the purchase of
13,100 shares of Sereies A Preferred Stock and warrants to purchase 6,288 shares
of Series B Preferred Stock and 1,572 shares of Series C Preferred Stock for a
purchase price of $13,100,000. Prior to this transaction, neither Crown
Acquisition nor any of the other Reporting Persons owned any debt or equity
securities (including convertible securities) of the Company. After the
consummation of both stages of the transaction pursuant to the Purchase
Agreement and assuming the exercise of the warrants and the conversion of all
the shares of Preferred Stock owned and to be acquired by Crown Acquisition,
Crown Acquisition would own 2,611,580 shares of Common Stock, representing
approximately 29.5% of the Common Stock based on 6,249,767 shares of Common
Stock (excluding outstanding options) outstanding as of March 22, 2000.
Subject to certain conditions, the holders of the Preferred Stock
have the exclusive right, voting separately as a class, to elect two directors
to the Board of Directors (and such holders will have the right to elect an
additional director if the size of the Board of Directors is increased to
include greater than 8 members). Crown Acquisition currently holds 100% of the
shares of Preferred Stock after the transaction, and consequently, has
designated two individuals -- Peter Ackerman and Jeffrey S. Deutschman -- to the
Board of Directors of the Company. Under certain circumstances, holders of
Preferred Stock will no longer have the right to elect directors, voting
separately as a class. In such case, Crown Acquisition may nevertheless continue
to have the right to designate two (or if, applicable, three) directors so long
as it holds securities of the Company in excess of certain thresholds set forth
in the Purchase Agreement.
The consummation of the second stage of the Purchase Agreement is
conditioned on the expiration or termination of the waiting period imposed under
the Hart-Scott-Rodino Improvements Act of 1976, as amended, and the Company's
receipt of a determination letter from the National Association of Securities
Dealers, Inc. ("NASD") stating that the Company's consummation of the
transactions contemplated in the Purchase Agreement do not require stockholder
approval. If such a determination is not obtained from the NASD, the Company's
consummation of the transaction will be conditioned on the approval of a
majority of the votes cast by holders of the outstanding Common Stock.
In connection with the proposed transaction, Donald A. Kurz and
Stephen P. Robeck have each executed a Voting and Irrevocable Proxy Agreement
whereby each has agreed, if necessary, to vote (a) for the directors to be
designated by Crown Acquisition and nominated by the Company to its slate of
Board of Directors, and (b) for the proposed transaction in connection with any
stockholder
<PAGE>
approval that may be required to close the transaction's second stage in the
event that the interpretive ruling and confirmation from NASD has not obtained.
Until the earlier of May 29, 2005 and the date that Crown
Acquisition no longer beneficially owns at least 10% of the outstanding capital
stock of the Company, calculated on a fully diluted basis, Crown Acquisition
will be subject to a standstill provision that will prevent it from acquiring
more than 30% of the fully diluted common equity of the Company without the
prior written consent to the Company, subject to certain exceptions.
The Reporting Persons acquired the Preferred Stock and the warrants
for investment purposes. The Reporting Persons intend to review their investment
in the Company from time to time. Subject to the limitations set forth herein
and depending upon (i) the price and availability of the Preferred Stock and the
Common Stock, (ii) subsequent developments affecting the Company, (iii) the
Company's business and prospects, (iv) other investment and business
opportunities available to the Reporting Persons, (v) general stock market and
economic conditions, (vi) tax considerations, and (vii) other factors deemed
relevant, the Reporting Persons may decide to increase or decrease the size of
their investment in the Company.
Except as described in this Schedule 13D, none of the Reporting
Persons have any present plan or proposal which relates to, or could result in,
any of the events referred to in paragraphs (a) through (j), inclusive, of Item
4 of Schedule 13D. However, the Reporting Persons will continue to review the
business of the Company and, depending upon one or more of the factors referred
to above, may in the future propose that the Company take one or more of such
actions.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) On March 29, 2000, Crown Acquisition acquired (i) 11,900 shares
of Series A Preferred Stock, which are initially convertible into 806,779 shares
of Common Stock and (ii) warrants to purchase 5,712 shares of Series B Preferred
Stock, which are initially convertible into 357,000 shares of Common Stock, and
1,428 shares of Series C Preferred Stock, which are initially convertible into
79,333 shares of Common Stock. Pursuant to the second stage of the transaction,
Crown Acquisition will acquire an additional (i) 13,100 shares of Series A
Preferred Stock, convertible into 888,135 shares of Common Stock and (ii)
warrants to purchase 6,288 shares of Series B Preferred Stock, which are
convertible into 393,000 shares of Common Stock, and 1,572 shares of Series C
Preferred Stock, which are convertible into 87,333 shares of Common Stock.
Assuming the exercise of the warrants and the conversion of all shares of
Preferred Stock owned and to be acquired by Crown Acquisition into Common Stock,
Crown Acquisition would own an aggregate of 2,611,580 shares of Common Stock.
After the consummation of both stages of the transactions, assuming exercise of
all such warrants and conversion of all such shares of Preferred Stock and based
on 6,249,767 shares of Common Stock outstanding as of March 22, 2000, Crown
Acquisition's shares would constitute approximately 29.5% of the Common Stock.
Pursuant to the voting agreements described in Item 6 below, Donald
A. Kurz ("Kurz") and Stephen P. Robeck ("Robeck") are required, in specific
circumstances, to vote all of the shares of the Company's Common Stock
beneficially held by each such stockholder in favor of the designees of Crown
Acquisition for election to the Board of Directors of the Company. Kurz and
Robeck also granted a proxy appointing Crown Acquisition as such stockholders'
attorney-in-fact and proxy, with full power of substitution, for and in each
stockholder's name, to vote, express, consent or dissent, or otherwise to
utilize such voting power solely with respect to the election to the Board of
Directors of Crown Acquisition's designees as set forth in the preceding
sentence. Accordingly, the Reporting Persons may be deemed to share voting power
over the shares of Common Stock owned by Kurz and Robeck. In addition, the
disposition of the shares of Common Stock owned by Kurz and Robeck is restricted
under
<PAGE>
certain circumstances by the Voting Agreements. Accordingly, the Reporting
Persons may be deemed to have shared dispositive power over the shares of Common
Stock owned by Kurz and Robeck. After giving effect to the consummation of both
stages of the transaction, Kurz and Robeck own an aggregate of 2,560,516 shares
of Common Stock, representing approximately 28.9% of the Company' outstanding
Common Stock, calculated on a fully diluted basis (and inclusive of
approximately 2% that are subject to options held by such individuals). Assuming
exercise of the warrants and the conversion of all shares of Preferred Stock
owned by Crown Acquisition as described above, following the issuance of such
shares, such shares combined with the shares beneficially owned by Kurz and
Robeck would number 5,172,096, which would then constitute approximately 58.4%
of the Common Stock. The Reporting Persons expressly disclaim any admission that
they have beneficial ownership of, or any pecuniary interest in, any shares of
Common Stock except the 2,611,580 shares with respect to which they possess sole
dispositive power.
(b) The Trust controls SMP. SMP controls Somerville, which in turn
controls Crown Acquisition. Lerner is the trustee of the Trust and in his
capacity as a trustee, may be deemed to have shared power to vote or direct the
vote, and to dispose or to direct the disposition of the shares of Common Stock.
The Ackermans may be deemed to have shared power to vote or direct the vote, and
to dispose or to direct the disposition of the shares of Common Stock through
their power to revoke the Trust. Following consummation of the second stage of
the transaction, Crown Acquisition will have sole voting and dispositive power
over 2,611,580 shares of Common Stock (assuming exercise of all warrants and
conversion of all shares of Preferred Stock). Crown Acquisition presently has
sole voting and dispositive power over 1,243,112 shares of Common Stock. See
response to Item 5(a) above.
(c) None, to the knowledge of the Reporting Persons.
(d) None, to the knowledge of the Reporting Persons.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
SECURITIES PURCHASE AGREEMENT
Pursuant to the Purchase Agreement, Crown Acquisition will purchase
certain securities of the Company in two stages. On March 29, 2000, the first
closing date, Crown Acquisition paid the Company $11,900,000 as consideration to
purchase 11,900 shares of Series A Preferred Stock (having an aggregate
liquidation preference of $11,900,000) and warrants to purchase 5,712 shares of
Series B Preferred Stock and 1,428 Series C Preferred Stock. If certain
conditions are satisfied pursuant to the terms of the Purchase Agreement, on the
second closing date (the "Second Closing"), Crown Acquisition is obligated to
purchase an additional 13,100 shares of Series A Preferred Stock and warrants to
purchase 6,288 shares of Series B Preferred Stock and 1,572 shares of Series C
Preferred Stock for an additional purchase price of $13,100,000. The Certificate
of Designation of the Preferred Stock and the Purchase Agreement provide for
board representation by Crown Acquisition as described in Item 4 above, and the
Purchase Agreement contains the standstill provisions described in Item 4 above.
The Purchase Agreement contains customary representations and warranties and
covenants. In addition, pursuant to the Purchase Agreement, the Company agreed
to reimburse Crown Acquisition for certain expenses and to pay Crown Acquisition
an aggregate commitment fee of $1,250,000 which is payable in quarterly
installments of $62,500.
VOTING AGREEMENTS
As described in Items 4 and 5 above, certain stockholders of the
Company have agreed, in specific circumstances, to vote all of their shares of
Common Stock to elect two nominees of Crown Acquisition to the board of
<PAGE>
directors of the Company. These stockholders together own approximately 28.9% of
the Company's outstanding Common Stock, calculated on a fully diluted basis,
after the consummation of both stages of the transaction and assuming the
exercise of the warrants and the conversion of all the shares of Preferred Stock
owned by Crown Acquisition into Common Stock. In addition, subject to certain
exceptions, these stockholders have agreed not to sell any of their shares of
Common Stock prior to the earlier to occur of the Second Closing or the date for
the Company's stockholder meeting for the purpose of obtaining the approval of
the Company's stockholders of the Company's issuance and sale of the additional
securities to Crown Acquisition in connection with the Second Closing.
REGISTRATION RIGHTS AGREEMENT
Crown Acquisition and the Company entered into a Registration
Rights Agreement whereby Crown Acquisition will have certain registration rights
with respect to the resale of (i) the Common Stock issuable upon the conversion
of the Preferred Stock (including Preferred Stock acquired upon the exercise of
the warrants). The Company has granted Crown Acquisition four demand
registration rights to require the Company to use its reasonable best efforts to
register the resale of these securities.
In addition, if the Company registers for the resale of shares of
Common Stock for the Company's account or for the account of its other
stockholders, the Company also may have to include in the registration, shares
held by Crown Acquisition. Crown Acquisition has an unlimited number of these
"piggyback registration rights."
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1. Joint Filing Agreement, dated as of April 10, 2000, by and
among Peter Ackerman, Joanne Leedom-Ackerman, Perry A.
Lerner, Somerville S Trust, Santa Monica Pictures, LLC, a
California limited liability company, Somerville, LLC, a
Delaware limited liability company, and Crown Acquisition
Partners, LLC, a Delaware limited liability company.
Exhibit 2. Securities Purchase Agreement, dated as of March 29, 2000, by
and between Crown Acquisition Partners, LLC, a Delaware
limited liability company, and Equity Marketing, Inc., a
Delaware corporation.
Exhibit 3. Voting Agreement, dated as of March 29, 2000, by and between
Crown Acquisition Partners, LLC, a Delaware limited liability
company, and Donald A. Kurz.
Exhibit 4. Voting Agreement, dated as of March 29, 2000, by and among
Crown Acquisition Partners, LLC, a Delaware limited liability
company, and Stephen P. Robeck and Robeck 1997 Trust.
Exhibit 5. Registration Rights Agreement, dated as of March 29, 2000, by
and between Crown Acquisition Partners, LLC, a Delaware
limited liability company, and Equity Marketing, Inc., a
Delaware corporation.
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of our knowledge and
belief, the undersigned certify that the information set forth in this statement
is true, complete and correct.
Dated: April 10, 2000 PETER ACKERMAN
By: /s/ PETER ACKERMAN
------------------------------
Peter Ackerman
Dated: April 10, 2000 JOANNE LEEDOM-ACKERMAN
By: /s/ JOANNE LEEDOM-ACKERMAN
------------------------------
Joanne Leedom-Ackerman
Dated: April 10, 2000 PERRY A. LERNER
By: /s/ PERRY A. LERNER
------------------------------
Perry A. Lerner
Dated: April 10, 2000 SOMERVILLE S TRUST
By: /s/ PERRY A. LERNER
------------------------------
Name: Perry A. Lerner
Title: Trustee
Dated: April 10, 2000 SANTA MONICA PICTURES, LLC
By: /s/ PERRY A. LERNER
------------------------------
Name: Perry A. Lerner
Title: Authorized Signatory
Dated: April 10, 2000 SOMERVILLE, LLC
By: /s/ PERRY A. LERNER
------------------------------
Name: Perry A. Lerner
Title: Authorized Signatory
<PAGE>
Dated: April 10, 2000 CROWN ACQUISITION PARTNERS, LLC
By: /s/ JEFFREY S. DEUTSCHMAN
------------------------------
Name: /s/ Jeffrey S. Deutschman
Title: Manager
<PAGE>
EXHIBIT INDEX
Exhibit 1. Joint Filing Agreement, dated as of April 10, 2000, by and
among Peter Ackerman, Joanne Leedom-Ackerman, Perry A.
Lerner, Somerville S Trust, Santa Monica Pictures, LLC, a
California limited liability company, Somerville, LLC, a
Delaware limited liability company, and Crown Acquisition
Partners, LLC, a Delaware limited liability company.
Exhibit 2. Securities Purchase Agreement, dated as of March 29, 2000, by
and between Crown Acquisition Partners, LLC, a Delaware
limited liability company, and Equity Marketing, Inc., a
Delaware corporation.
Exhibit 3. Voting Agreement, dated as of March 29, 2000, by and between
Crown Acquisition Partners, LLC, a Delaware limited liability
company, and Donald A. Kurz.
Exhibit 4. Voting Agreement, dated as of March 29, 2000, by and among
Crown Acquisition Partners, LLC, a Delaware limited liability
company, and Stephen P. Robeck and Robeck 1997 Trust.
Exhibit 5. Registration Rights Agreement, dated as of March 29, 2000, by
and between Crown Acquisition Partners, LLC, a Delaware
limited liability company, and Equity Marketing, Inc., a
Delaware corporation.
<PAGE>
EXHIBIT 1
JOINT FILING AGREEMENT
The undersigned hereby agree to jointly file a statement on
Schedule 13D, together with any amendments thereto (collectively, the "Schedule
13Ds"), with the Securities and Exchange Commission pursuant to the requirements
of Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended.
This Joint Filing Agreement may be signed in counterpart copies.
(Signature Page Follows)
<PAGE>
Dated: April 10, 2000 PETER ACKERMAN
By: S/ PETER ACKERMAN
------------------------------
Peter Ackerman
Dated: April 10, 2000 JOANNE LEEDOM-ACKERMAN
By: S/ JOANNE LEEDOM-ACKERMAN
------------------------------
Joanne Leedom-Ackerman
Dated: April 10, 2000 PERRY A. LERNER
By: S/ PERRY A. LERNER
------------------------------
Perry A. Lerner
Dated: April 10, 2000 SOMERVILLE S TRUST
By: S/ PERRY A. LERNER
------------------------------
Name: Perry A. Lerner
Title: Trustee
Dated: April 10, 2000 SANTA MONICA PICTURES, LLC
By: S/ PERRY A. LERNER
------------------------------
Name: Perry A. Lerner
Title: Authorized Signatory
Dated: April 10, 2000 SOMERVILLE, LLC
By: S/ PERRY A. LERNER
------------------------------
Name: Perry A. Lerner
Title: Authorized Signatory
<PAGE>
Dated: April 10, 2000 CROWN ACQUISITION PARTNERS, LLC
By: s/ JEFFREY S. DEUTSCHMAN
------------------------------
Name: Jeffrey S. Deutschman
Title: Manager
<PAGE>
EXHIBIT 2
SECURITIES PURCHASE AGREEMENT
DATED AS OF MARCH 29, 2000
BY AND BETWEEN
CROWN ACQUISITION PARTNERS, LLC
AND
EQUITY MARKETING, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE I. DEFINITIONS...................................................................................2
Section 1.1 Certain Defined Terms...........................................................2
ARTICLE II. SALE AND TRANSFER OF SECURITIES; CLOSINGS....................................................7
Section 2.1 Sale And Purchase Of Securities.................................................7
Section 2.2 Purchase Price; Payment.........................................................7
Section 2.3 Commitment Fee..................................................................7
Section 2.4 Closings and Closing Deliveries.................................................8
ARTICLE III. REPRESENTATIONS AND WARRANTIES..............................................................9
Section 3.1 Disclosure Schedule.............................................................9
Section 3.2 Representations And Warranties Of The Company...................................9
Section 3.3 Representations And Warranties Of The Investor.................................19
ARTICLE IV. COVENANTS OF THE COMPANY....................................................................21
Section 4.1 No Solicitation................................................................21
Section 4.2 Certain Agreements.............................................................23
Section 4.3 Continuing Covenants...........................................................23
Section 4.4 Governance.....................................................................24
ARTICLE V. ADDITIONAL AGREEMENTS........................................................................25
Section 5.1 Preparation Of The Proxy Statement; Stockholder Meeting........................25
Section 5.2 Best Efforts...................................................................26
Section 5.3 Public Announcements...........................................................26
Section 5.4 Takeover Statutes..............................................................26
Section 5.5 Restrictive Legend.............................................................27
Section 5.6 Standstill.....................................................................27
Section 5.7 Enforceability Opinion.........................................................28
ARTICLE VI. CLOSING DELIVERIES..........................................................................28
Section 6.1 Conditions To The Obligation Of The Investor To Effect The First Closing.......28
Section 6.2 Conditions To The Obligation Of The Company To Effect The First Closing........30
Section 6.3 Conditions To The Investor's Obligation To Effect The Second Closing...........30
Section 6.4 Conditions to the Company's Obligation to Effect The Second Closing............31
ARTICLE VII. TERMINATION................................................................................32
Section 7.1 Termination of Second Closing by Either Party..................................32
Section 7.2 Termination of Second Closing by Investor......................................32
Section 7.3 Termination Date...............................................................33
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VIII. INDEMNIFICATION; REMEDIES.................................................................33
Section 8.1 Survival; Right To Indemnification Not Affected By Knowledge...................33
Section 8.2 Indemnification And Payment Of Damages By The Company..........................33
Section 8.3 Indemnification And Payment Of Damages By The Investor.........................34
Section 8.4 Limitation On Amount...........................................................34
Section 8.5 Procedure For Indemnification -- Third Party Claims............................35
Section 8.6 Procedure For Indemnification -- Other Claims..................................36
Section 8.7 Remedies Exclusive.............................................................36
ARTICLE IX. GENERAL PROVISIONS..........................................................................36
Section 9.1 Notices........................................................................36
Section 9.2 Interpretation.................................................................37
Section 9.3 Counterparts...................................................................37
Section 9.4 Entire Agreement; No Third Party Beneficiaries.................................37
Section 9.5 Costs And Expenses.............................................................37
Section 9.6 Governing Law..................................................................38
Section 9.7 Assignment.....................................................................38
Section 9.8 Enforcement....................................................................38
Section 9.9 Severability...................................................................38
Section 9.10 Further Assurances.............................................................38
Section 9.11 Construction...................................................................39
Section 9.12 Amendment......................................................................39
</TABLE>
EXHIBITS
Exhibit A - Series B Warrant
Exhibit B - Series C Warrant
Exhibit C - Certificate of Designation of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock
Exhibit D - Registration Rights Agreement
Exhibit E - Voting Agreement of Donald Kurz
Exhibit F - Voting Agreement of Stephen Robeck
Exhibit G - NASD Determination Letter
Exhibit H - Opinion of Riordan & McKinzie
Exhibit I - Opinion of the General Counsel of Equity Marketing, Inc.
SCHEDULES
Schedule 3.2(a) - Organization, Standing and Corporate Power
Schedule 3.2(b) - Subsidiaries
Schedule 3.2(c) - Capitalization; Valid Issuance of Shares
Schedule 3.2(d) - Authority; Noncontravention
Schedule 3.2(e) - SEC Documents; Undisclosed Liabilities
Schedule 3.2(g) - Absence of Certain Changes or Events
Schedule 3.2(h) - Litigation; Labor Matters; Compliance with Laws
ii
<PAGE>
Schedule 3.2(i) - Employee Matters
Schedule 3.2(j) - Tax Returns and Tax Payments
Schedule 3.2(m) - Properties
Schedule 3.2(n) - Intellectual Property
Schedule 3.2(o) - Brokers
iii
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT") is entered into
as of March 29, 2000 by and between Crown Acquisition Partners, LLC, a Delaware
limited liability company (the "INVESTOR"), and Equity Marketing, Inc., a
Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, the Company desires to sell to the Investor, and the Investor
desires to purchase from the Company, (i) a total of 25,000 shares of Series A
Senior Cumulative Participating Convertible Preferred Stock of the Company, par
value $.001 per share (the "SERIES A PREFERRED STOCK"), (ii) warrants, in the
form attached hereto as EXHIBIT A (each individually a "SERIES B WARRANT," and
collectively the "SERIES B WARRANTS"), to purchase 12,000 shares of Series B
Senior Cumulative Participating Convertible Preferred Stock of the Company, par
value $.001 per share (the "SERIES B PREFERRED STOCK"), and (iii) warrants, in
the form attached hereto as EXHIBIT B (each individually a "SERIES C WARRANT"
and collectively the "SERIES C WARRANTS") to purchase 3,000 shares of Series C
Senior Cumulative Participating Convertible Preferred Stock of the Company, par
value $.001 per share (the "SERIES C PREFERRED STOCK" and, together with the
Series A Preferred Stock and the Series B Preferred Stock, the "PREFERRED
STOCK") in each case, pursuant to the terms and conditions set forth in this
Agreement. The Series B Warrants and the Series C Warrants are collectively
referred to as the "WARRANTS";
WHEREAS, the Board of Directors of the Company has approved, and
deemed it advisable, that the Company (i) execute and deliver this Agreement and
consummate the Contemplated Transactions, and (ii) issue and sell to the
Investor such shares of Series A Preferred Stock and the Warrants on the terms
and conditions set forth herein;
WHEREAS, prior to the closing of the transactions contemplated by this
Agreement, the Company has filed the Certificate of Designation of its Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock in the
form attached hereto as EXHIBIT C (the "CERTIFICATE OF DESIGNATION") with the
Secretary of State of the State of Delaware.
WHEREAS, concurrently with the closing of the transactions
contemplated by this Agreement, the Company will enter into a registration
rights agreement with the Investor with respect to the shares of Series A
Preferred Stock and the Warrants being acquired by the Investor herein (the
"REGISTRATION RIGHTS AGREEMENT"), in the form attached hereto as EXHIBIT D;
WHEREAS, concurrently with the execution of this Agreement, certain
stockholders of the Company are entering into a voting agreement with the
Investor, in the form attached hereto as EXHIBIT E with respect to Donald A.
Kurz and EXHIBIT F with respect to Stephen P. Robeck (each, a "VOTING
AGREEMENT," and collectively the "VOTING AGREEMENTS"), whereby such stockholders
have agreed, for certain periods of time, to vote their shares in favor (a) of
the Company Stockholder Approval (as defined in Section 5.1(b)), if a Company
Stockholders Meeting is required to be held pursuant to Section 5.1(b), and any
other vote, consent or action as required of the stockholders of the Company to
approve the Contemplated
<PAGE>
Transactions and (b) the election of certain nominees selected by Investor to
the Board of Directors of the Company, in each case as provided herein; and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants, restrictions and agreements contained in this Agreement, the parties
agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS.
"AFFILIATE" means, with respect to any Person, another Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person.
"AGREEMENT" or "SECURITIES PURCHASE AGREEMENT" means this Securities
Purchase Agreement, including all Exhibits and Disclosure Schedules attached
hereto, as amended from time to time in accordance with the provisions of
Section 9.12. Words such as "herein," "hereinafter," "hereof," "hereto" and
"hereunder" refer to this Agreement as a whole, unless the context otherwise
requires.
"BEST EFFORTS" means the commercially reasonable efforts that a
prudent Person desirous of achieving a result would use in good faith in similar
circumstances to ensure that such result is achieved as expeditiously as can
reasonably be expected.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day
which is a legal holiday in the State of Delaware.
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation for
the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock attached hereto as EXHIBIT C.
"CLOSINGS" has the meaning set forth in Section 2.4.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"COMMON SHARES" has the meaning set forth in Section 3.2(c).
"COMPANY" has the meaning set forth in the Preamble.
"COMPANY INDEMNIFIED PERSONS" has the meaning set forth in Section
8.2.
"COMPANY SEC FINANCIAL STATEMENTS" has the meaning set forth in
Section 3.2(e).
"COMPANY SEC DOCUMENTS" has the meaning set forth in Section 3.2(e).
2
<PAGE>
"COMPANY STOCK OPTIONS" means all outstanding officer, employee,
director or consultant stock options to purchase Common Stock granted under the
Option Plans.
"COMPANY STOCKHOLDER APPROVAL" has the meaning set forth in Section
5.1(b).
"COMPANY STOCKHOLDERS MEETING" has the meaning set forth in Section
5.1(b).
"CONFIDENTIALITY AGREEMENT" means the Confidentiality Agreement dated
as of October 11, 1999 between the Company and Crown Capital Group Incorporated.
"CONTEMPLATED TRANSACTIONS" means all of the transactions contemplated
by this Agreement, including, without limitation, (i) the sale by the Company of
the Series A Preferred Stock and the Warrants to the Investor, (ii) the
execution, delivery, and performance of the Registration Rights Agreement and
the Voting Agreements, (iii) the performance by the Investor and the Company of
their respective covenants and obligations under this Agreement, and (iv) the
Investor's acquisition and ownership of the Purchased Securities.
"CREDIT FACILITY" means the Amended and Restated Credit Agreement
dated as of December 10, 1998 by and among the Company, Sanwa Bank California
and the other lenders party thereto, as amended to date by Amendments No. 1, 2,
3, 4, 5 and 6 thereto.
"DAMAGES" has the meaning set forth in Section 8.2.
"DESIGNEES" has the meaning set forth in Section 4.4(b).
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3.1.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 3.2(l).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"ERISA AFFILIATE" has the meaning set forth in Section 3.2(i).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"GAAP" means generally accepted accounting principles as used in the
United States.
"GOVERNMENTAL ENTIT(Y/IES)" has the meaning set forth in Section
3.2(d).
"HOULIHAN OPINION" has the meaning set forth in Section 3.2(p).
"HSR ACT" has the meaning set forth in Section 3.2(d).
3
<PAGE>
"INCONSISTENT TRANSACTION" has the meaning set forth in Section 4.1.
"INCONSISTENT TRANSACTION AGREEMENT" means any letter of intent,
agreement in principle, acquisition agreement or other similar agreement related
to any Inconsistent Transaction.
"INDEMNIFIED PERSONS" means the Investor Indemnified Persons and the
Company Indemnified Persons, each an "Indemnified Person."
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 3.2(n).
"INVESTOR" has the meaning set forth in the Preamble.
"INVESTOR INDEMNIFIED PERSONS" has the meaning set forth in Section
8.3.
"IRS" means the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
"KNOWLEDGE" means, with respect to an individual, that such individual
will be deemed to have "Knowledge" of a particular fact or other matter if (a)
such individual is actually aware of such fact or other matter, or (b) a prudent
individual would be expected to discover or otherwise become aware of such fact
or other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter. The Company
will be deemed to have "Knowledge" of a particular fact or other matter only if
any of Donald Kurz, Leland Smith, Teresa Covington, Scott Landsbaum, Edward
Boyd, Kim Thompson or Gaetano Metropasqua has, or at any time had, Knowledge of
such fact or other matter.
"LIENS" has the meaning set forth in Section 3.2(b).
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means any
change or effect that either individually or in the aggregate with all other
such changes or effects is, or would reasonably be expected to be, materially
adverse to the business, assets, financial condition or results of operations of
the Company and its Subsidiaries taken as a whole (except for changes affecting
the economy generally or resulting from the announcement or execution of this
Agreement or the consummation of the Contemplated Transactions);
"MATERIAL CONTRACTS" has the meaning set forth in Section 3.2(d).
"NASD" has the meaning set forth in Section 3.2(r).
"NASDAQ" has the meaning set forth in Section 3.2(r).
"NASD DETERMINATION LETTER" means that certain letter that may be
issued by Nasdaq in response to the Company's letter of even date herewith and
attached hereto as EXHIBIT G (the "COMPANY REQUEST LETTER") requesting that
Nasdaq confirm the Company's conclusions that the Contemplated Transactions do
not require stockholder approval under the Quantitative Maintenance Criteria of
Rule 4460(i) or under the Qualification Requirements For
4
<PAGE>
Domestic and Canadian Securities of Rule 4310(c)(25)(G) of the rules of The
Nasdaq Stock Market.
"OPTION PLANS" mean the Equity Marketing, Inc. Stock Option Plan, the
Equity Marketing, Inc. 1995 Stock Award Plan and the Equity Marketing, Inc.
Non-Employee Director Stock Option Plan.
"ORGANIZATIONAL DOCUMENTS" means (i) the articles or certificate of
incorporation and the bylaws of a corporation, (ii) the partnership agreement
and any statement of partnership of a general partnership, (iii) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership, (iv) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person, and (v) any amendment
to any of the foregoing (including any pending or proposed amendments).
"PERMITTED LIENS" means (i) liens, charges and encumbrances for any
taxes, assessments or other governmental charges for sums not yet due; (ii)
liens granted under the Credit Facility; (iii) purchase money liens, and (iv)
such other liens, restrictions and other encumbrances, if any, which do not
materially detract from the value of, or materially interfere with, the present
use of the Company of the property subject thereof or affected thereby.
"PERSON" means an individual, or a corporation, partnership, a limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"PREFERRED SHARES" has the meaning set forth in Section 3.2(c).
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Entity or arbitrator.
"PROXY STATEMENT" has the meaning set forth in Section 5.1(a).
"PURCHASE PRICE" has the meaning set forth in Section 2.2. "PURCHASED
SECURITIES" has the meaning set forth in Section 2.1.
"RECENT COMPANY SEC DOCUMENTS" has the meaning set forth in Section
3.2(e).
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in the
Recitals.
"REPRESENTATIVE" means with respect to a particular Person, any
authorized director, officer, employee, agent, consultant, advisor, or other
authorized representative of such Person, including legal counsel, accountants,
and financial advisors.
"SEC" has the meaning set forth in Section 3.2(d).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
5
<PAGE>
"SERIES A PREFERRED SHARES" means the shares of Series A Preferred
Stock.
"SERIES B PREFERRED SHARES" means the shares of Series B Preferred
Stock issuable upon exercise of the Series B Warrants.
"SERIES C PREFERRED SHARES" means the shares of Series C Preferred
Stock issuable upon exercise of the Series C Warrants.
"SOFTWARE" has the meaning set forth in Section 3.2(n).
"STOCK PLANS" means the Option Plans and any other plan, program,
agreement or arrangement providing for the issuance or grant of any interest in
respect of the capital stock of the Company or any Subsidiary of the Company.
"SUBSIDIARY" of any Person means another Person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of directors or
other governing body or, if there are no such voting interests, 50% or more of
the equity interest of which, is owned directly or indirectly by such first
Person.
"TAX RETURN(S)" means any return(s), report(s) or statement(s)
required to be filed with any Governmental Entity with respect to any Tax(es).
"TAX(ES)" means any and all tax(es) of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any Governmental Entity.
"TERMINATION DATE" has the meaning set forth in Section 7.3.
"THREATENED" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing).
"THRESHOLD AMOUNT" means the lesser of (i) 25% of the Common Shares
(or an equivalent adjusted number of shares of voting securities of the Company
into which such Common Shares have been converted following any
reclassification, conversion, reorganization, stock dividend, stock split,
reverse splits or combination or similar change to the common stock of the
Company) underlying the Preferred Shares and Warrants purchased by Investor
(assuming conversion of all shares of Series A Preferred Stock purchased by
Investor and exercise of all the Warrants and conversion of all shares of Series
B Preferred Stock and Series C Preferred Stock issuable upon exercise of the
Warrants) and (ii) 9.9% of the outstanding Common Shares. For purposes of clause
(i) this definition, if the Second Closing does not occur, only the Initial
Purchased Securities shall be taken into account in determining the number of
shares purchased by Investor hereunder.
6
<PAGE>
"VOTING AGREEMENTS" means the Voting and Irrevocable Proxy Agreements,
entered into as of the date hereof and as amended from time to time pursuant to
the provisions of Section 4.2 thereof, by and among the Investor and the
stockholders of the Company listed on the signature page thereof or who
subsequently become a party thereto.
"WARRANTS" has the meaning set forth in the Recitals.
ARTICLE II.
SALE AND TRANSFER OF SECURITIES; CLOSINGS
Section 2.1 SALE AND PURCHASE OF SECURITIES.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, the Company shall sell, transfer, assign, convey and deliver to the
Investor, and the Investor shall purchase, accept, and acquire from the Company,
on the date hereof (the "FIRST CLOSING DATE"), (i) 11,900 shares of Series A
Preferred Stock (the "INITIAL PREFERRED SHARES"), (ii) a Series B Warrant (the
"INITIAL SERIES B WARRANT") to purchase 5,712 shares of Series B Preferred Stock
and (iii) a Series C Warrant to purchase 1,428 shares of Series C Preferred
Stock (the "INITIAL SERIES C WARRANT," and together with the Initial Series B
Warrant, the "INITIAL WARRANTS"). The Initial Warrants and the Initial Preferred
Shares are collectively referred to as the "INITIAL SECURITIES."
(b) Upon the terms and subject to the conditions set forth in this
Agreement, the Company shall sell, transfer, assign, convey and deliver to the
Investor, and the Investor shall purchase, accept, and acquire from the Company,
at the Second Closing Date (defined below), (i) 13,100 shares of Series A
Preferred Stock (the "ADDITIONAL PREFERRED SHARES") (ii) a Series B Warrant (the
"ADDITIONAL SERIES B WARRANT") to purchase 6,288 shares of Series B Preferred
Stock and (iii) a Series C Warrant to purchase 1,572 shares of Series C
Preferred Stock (the "ADDITIONAL SERIES C WARRANT," and together with the
Additional Series B Warrant, the "ADDITIONAL WARRANTS"). The Additional Warrants
and the Additional Preferred Shares are collectively referred to as the
"ADDITIONAL SECURITIES." The Initial Securities and the Additional Securities
are collectively referred to as the "PURCHASED SECURITIES."
Section 2.2 PURCHASE PRICE; PAYMENT. In consideration of the sale,
transfer, assignment, conveyance and delivery to the Investor of the Purchased
Securities, the Investor agrees to pay to the Company, (i) on the First Closing
Date, by wire transfer of immediately available funds to an account specified by
the Company, an aggregate purchase price of Eleven Million Nine Hundred Thousand
Dollars ($11,900,000) (the "INITIAL PURCHASE PRICE") and (ii) on the Second
Closing Date, by wire transfer of immediately available funds to an account
specified by the Company, an aggregate purchase price of Thirteen Million One
Hundred Thousand Dollars ($13,100,000) (the "SECOND PURCHASE PRICE," and
together with the Initial Purchase Price, the "PURCHASE PRICE").
Section 2.3 COMMITMENT FEE. The Company agrees to pay to Investor or any
Affiliate of Investor designated by it (including Crown Capital Group
Incorporated), a commitment fee in the amount of $1,250,000. Such fee shall be
paid in equal quarterly installments of $62,500 commencing on June 30, 2000 and
ending on March 31, 2005. All such payments shall be made
7
<PAGE>
in cash by wire transfer of immediately available funds to an account specified
by Investor. The parties agree that any Affiliate of Investor (including Crown
Capital Group Incorporated) designated by Investor to receive all or any portion
of the Commitment Fee shall be a third party beneficiary of this Section 2.3 of
this Agreement.
Section 2.4 CLOSINGS AND CLOSING DELIVERIES.
(a) FIRST CLOSING. The sale of the Initial Securities to be
purchased by the Investor contemplated by Section 2.1(a) shall take place at the
offices of Latham & Watkins, 633 West Fifth Street, Los Angeles, California at
10:00 a.m., Pacific Time, on the date hereof or at such other time and place as
the Company and the Investor may mutually agree in writing (such event being
called the "FIRST CLOSING" and such date, the "FIRST CLOSING DATE"). All
transactions required to occur at the First Closing shall be deemed to have
occurred simultaneously, and no such transaction shall be deemed to have
occurred until all have occurred.
(b) At the First Closing, the Company will deliver the following to
the Investor:
(i) A certified copy of the Certificate of Designation, which
shall have been duly filed under the laws of the State of Delaware;
(ii) A duly executed stock certificate evidencing the Initial
Preferred Shares registered in the name of the Investor;
(iii) The duly executed Initial Warrants registered in the name
of the Investor;
(iv) The Registration Rights Agreement duly executed and
delivered by the Company;
(v) The Voting Agreements duly executed and delivered by the
stockholders of the Company listed on the signature pages thereof; and
(vi) The documents, instruments and writings contemplated
or required to be delivered by the Company at the First Closing pursuant to
Section 6.1 or otherwise contemplated or required under this Agreement.
(c) At the First Closing, the Investor will deliver the following to
the Company:
(i) The Initial Purchase Price;
(ii) The Registration Rights Agreement duly executed and
delivered by the Investor; and
(iii) The documents, instruments and writings contemplated
or required to be delivered by the Investor at the First Closing pursuant to
Section 6.2 or otherwise contemplated or required under this Agreement.
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(d) SECOND CLOSING. The sale of the Additional Securities to be
purchased by the Investor contemplated by Section 2.1(b) shall take place at the
offices of Latham & Watkins, 633 West Fifth Street, Los Angeles, California at
10:00 a.m., Pacific Time, or at such other time and place as the Company and the
Investor may mutually agree in writing, as soon as practicable and in any event
within five (5) Business Days following, and subject to, the prior fulfillment
or waiver of all conditions (other than conditions to be satisfied at the Second
Closing, but subject to those conditions) set forth in Sections 6.3 and 6.4
hereof (such event being called the "SECOND CLOSING," and such date, the "SECOND
CLOSING DATE"). The First Closing and the Second Closing are collectively
referred to as the "CLOSINGS."
(e) At the Second Closing, the Company will deliver the following to
the Investor:
(i) A certified copy of the Certificate of Designation
(which shall not have been amended following the First Closing except with the
consent of Investor);
(ii) A duly executed stock certificate evidencing the Additional
Preferred Shares registered in the name of the Investor;
(iii) The duly executed Additional Warrants registered in the
name of the Investor;
(iv) The documents, instruments and writings contemplated
or required to be delivered by the Company at the Second Closing pursuant to
Section 6.3 or otherwise contemplated or required under this Agreement.
(f) At the Second Closing, the Investor will deliver the following to
the Company:
(i) The Second Purchase Price;
(ii) The documents, instruments and writings contemplated
or required to be delivered by the Investor at the Second Closing pursuant to
Section 6.4 or otherwise contemplated or required under this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.1 DISCLOSURE SCHEDULE. On the date hereof, the Company has
delivered to the Investor a schedule (the "DISCLOSURE SCHEDULE") setting forth,
among other things, items the disclosure of which is necessary or appropriate
either in response to an express disclosure requirement contained in a provision
hereof or as an exception to one or more representations or warranties contained
in Section 3.2, or to one or more of its covenants contained herein.
Section 3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Investor, except as set forth in the Disclosure
Schedule, as follows:
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(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of the
Company and each of its Subsidiaries is duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as now
being conducted. Each of the Company and each of its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a Material Adverse Effect. The
Company has provided the Investor with complete and correct copies of the
Certificate of Incorporation and Bylaws of the Company and the comparable
Organizational Documents of each of its Subsidiaries.
(b) SUBSIDIARIES. The only direct or indirect Subsidiaries of
the Company and other ownership interests held by the Company in any other
Person are those listed in Section 3.2(b) of the Disclosure Schedule, and other
than such listed Subsidiaries and Persons, the Company does not own (directly or
indirectly) any stock, securities or equity interests in any Person. All the
outstanding shares of capital stock or other ownership interests of each such
listed Subsidiary and Person have been validly issued and are fully paid and
nonassessable and are owned (of record and beneficially) by the Company, by
another Subsidiary (wholly owned) of the Company or by the Company and another
such Subsidiary (wholly owned), free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature whatsoever
(collectively, "LIENS").
(c) CAPITALIZATION; VALID ISSUANCE OF SHARES. The authorized capital
stock of the Company consists of 20,000,000 shares of common stock, $0.001 par
value per share (the "COMMON SHARES"), and 1,000,000 shares of preferred stock,
$0.001 par value per share (the "PREFERRED SHARES"). As of the date of this
Agreement, there are (i) 6,249,767 Common Shares issued and outstanding, (ii)
1,921,299 Common Shares held in the treasury of the Company or held by any
Subsidiary of the Company; (iii) 2,740,000 Common Shares reserved for issuance
upon exercise of authorized but unissued Company Stock Options pursuant to the
Option Plans; (iv) 1,827,810 Common Shares issuable upon exercise of outstanding
Company Stock Options; and (v) no Preferred Shares issued or outstanding.
Section 3.2(c) of the Disclosure Schedule contains a complete and accurate list
of all Company Stock Options outstanding pursuant to the Option Plans including
the date of grant, name of option holder, exercise price and expiration date.
Except as set forth in this Section 3.2(c), no shares of capital stock or other
equity securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and all
shares which may be issued pursuant to the Stock Plans will be when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. The Series A Preferred Shares and the Warrants when issued,
paid for and delivered in accordance with the terms of this Agreement, and the
Series B Preferred Shares and Series C Preferred Shares to be issued upon
exercise of the Warrants, as applicable, will be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in Section 3.2(c) of the Disclosure Schedule, there are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of the Company or any of its Subsidiaries having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Company or such Subsidiary may vote.
Except as set forth in Section 3.2(c) of the Disclosure Schedule, there are
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no outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company or any
of its Subsidiaries is a party or by which any of them is bound obligating the
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other equity or
voting securities of the Company or of any of its Subsidiaries or obligating the
Company or any of its Subsidiaries to issue, grant, extend or enter into any
such security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking. Other than the Company Stock Options or as otherwise set forth
in Section 3.2(c) of the Disclosure Schedule, (x) there are no outstanding
contractual obligations, commitments, understandings or arrangements of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire or
make any payment in respect of or measured or determined based on the value or
market price of any shares of capital stock of the Company or any of its
Subsidiaries and (y) to the Knowledge of the Company, there are no irrevocable
proxies with respect to shares of capital stock of the Company beneficially
owned by any officer or director of the Company or with respect to shares of
capital stock of any Subsidiary of the Company. Except as set forth in Section
3.2(c) of the Disclosure Schedule, there are no agreements or arrangements
pursuant to which the Company or any of its Subsidiaries is or would be required
to register Common Shares, Preferred Shares or other securities under the
Securities Act of 1933, as amended.
(d) AUTHORITY; NONCONTRAVENTION. The Company has the requisite
corporate power and authority to enter into this Agreement, the Registration
Rights Agreement and the Warrants and to consummate the Contemplated
Transactions. The execution and delivery of this Agreement, the Registration
Rights Agreement and the Warrants by the Company and the consummation by the
Company of the Contemplated Transactions have been duly authorized by all
necessary corporate action on the part of the Company, subject to the approval
of the Company's stockholders of the issuance and sale of the Additional
Securities to the Investor. This Agreement has been duly executed and delivered
by the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to the
effect of applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the rights of creditors generally and the effect of
general principles of equity. Each of this Agreement, the Registration Rights
Agreement and the Initial Warrants constitute, and, when duly executed and
delivered by the Company at the Second Closing, the Additional Warrants shall
constitute, a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and the effect of general principles
of equity. Except as disclosed in Section 3.2(d) of the Disclosure Schedule, the
execution and delivery of this Agreement, the Registration Rights Agreement and
the Warrants does not, and the consummation of the Contemplated Transactions and
compliance with the provisions hereof will not, conflict with, or result in any
breach or violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation, payment or
acceleration of or "put" right with respect to any obligation or the loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries under, (i) the
Certificate of Incorporation or Bylaws of the Company or the comparable
Organizational Documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, contract or other agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries or their respective properties or assets which is
material to
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the Company and its Subsidiaries taken as a whole ("MATERIAL CONTRACTS") or
(iii) subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule,
regulation or arbitration award applicable to the Company or any of its
Subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate would not have a
Material Adverse Effect and would not prevent or materially hinder or delay the
ability of the Company to consummate the Contemplated Transactions. No consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any federal, state or local government or any court,
administrative agency or commission or other governmental authority or agency,
domestic or foreign, (each a "GOVERNMENTAL ENTITY" and collectively,
"GOVERNMENTAL ENTITIES"), or any other Person, is required by or with respect to
the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the Contemplated Transactions, except for (i) the filing of a pre-merger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT") (with respect to
the consummation of the Second Closing only) (the "HSR Filing"), (ii) the filing
with the Securities and Exchange Commission (the "SEC") of (x) the Proxy
Statement, and (y) such other reports or schedules under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), as may be required in connection
with this Agreement and the Contemplated Transactions, (iii) the Company
Stockholder Approval (with respect to the consummation of the Second Closing
only), and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices for which the absence of such
would not, individually or in the aggregate, have a Material Adverse Effect or
as are set forth in Section 3.2(d) of the Disclosure Schedule; provided that the
exceptions set forth in clauses (ii)(x) and (iii) above shall not apply if the
NASD Determination Letter is obtained.
(e) SEC DOCUMENTS; UNDISCLOSED LIABILITIES. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since January 1, 1998 (collectively, and in each case including all exhibits and
schedules thereto and documents incorporated by reference therein, and including
without limitation the Recent Company SEC Documents (the "COMPANY SEC
DOCUMENTS"). As of their respective dates (or, if amended, at the time of such
amended filing or, in the case of Securities Act registration statements, on
their respective effective dates), the Company SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Company SEC Documents, and none of the Company SEC
Documents (including any and all financial statements included therein) as of
such dates and as of the date hereof (except as set forth in subsequent filings
with the SEC prior to the date hereof) contained or contain any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the Company SEC Documents (the
"COMPANY SEC FINANCIAL STATEMENTS") comply as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with GAAP (except, in the case of unaudited
consolidated quarterly statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates
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thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements, to
normal year-end audit adjustments). Since December 31, 1998, neither the Company
nor any of its Subsidiaries has incurred any liabilities or obligations required
to be reflected in its balance sheet (whether accrued, absolute, contingent or
otherwise) except (i) as and to the extent set forth on the audited balance
sheet of the Company and its Subsidiaries as of December 31, 1998 (including the
notes thereto), (ii) as incurred in connection with the Contemplated
Transactions, (iii) as set forth in Section 3.2(e) of the Disclosure Schedule,
(iv) as described in the Company SEC Documents filed since December 31, 1998,
but prior to the date of this Agreement, including for this purpose, the
Company's Report on Form 10-K for the fiscal year ended December 31, 1999 filed
with the SEC on March 28, 2000 (the "RECENT COMPANY SEC DOCUMENTS") or (v) as
incurred in the ordinary course of business consistent with past practice in
amounts that are not material to the Company and its Subsidiaries taken as a
whole. Neither the Company, nor any of its Subsidiaries is, or has received any
notice or has any Knowledge that any other party is, in default or breach under
or is unable to perform in any material respect under any Material Contracts,
nor has there occurred any event that with the lapse of time or the giving of
notice or both would constitute such a default or breach, except for those
defaults, breaches or inability to perform which would not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect.
(f) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement will, at the date it is first mailed to the Company's stockholders or
at the time of the Company Stockholders Meeting contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder, except that
no representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied in writing by
the Investor for inclusion or incorporation by reference therein.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Recent Company SEC Documents or in Section 3.2(g) of the Disclosure Schedule,
since December 31, 1998, the Company has conducted its business only in the
ordinary course consistent with past practice, and there is not and has not
been: (i) any Material Adverse Change; (ii) any condition, event or occurrence
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect or give rise to a Material Adverse Change; (iii) any
event which, if it had taken place following the execution of this Agreement,
would not have been permitted by Sections 4.2 or 4.4 without the prior written
consent of the Investor; or (iv) any condition, event or occurrence which would
prevent or materially hinder or delay the ability of the Company to consummate
the Contemplated Transactions.
(h) LITIGATION; LABOR MATTERS; COMPLIANCE WITH LAWS.
(i) Except as disclosed in the Company SEC Documents or in
Section 3.2(h) of the Disclosure Schedule, there is no suit, action, proceeding,
investigation or inquiry pending or, to the Knowledge of the Company, Threatened
against or affecting the
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Company or any of its Subsidiaries or, to the Knowledge of the Company, any
basis for any such suit, action, proceeding, investigation or inquiry that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect or prevent or materially hinder or delay the ability of
the Company or the Investor to consummate the Contemplated Transactions, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company or any of its Subsidiaries having,
or which, in the future would reasonably be expected to have, any such effect.
(ii) Neither the Company nor any of its Subsidiaries is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
or any of its Subsidiaries the subject of any proceeding asserting that it or
any Subsidiary has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment nor
is there any strike, work stoppage or other labor dispute involving it or any of
its Subsidiaries pending or, to its Knowledge, Threatened, any of which would
reasonably be expected to have a Material Adverse Effect.
(iii) The conduct of the business of each of the Company and each
of its Subsidiaries complies with all statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees or arbitration awards applicable thereto,
except for violations or failures so to comply, if any, that, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
(i) EMPLOYEE MATTERS.
Except as disclosed in the Company SEC Documents or in Section 3.2(i)
of the Disclosure Schedule, the Company maintains no employment, severance,
bonus, profit sharing, compensation, termination, stock option, stock
appreciation right, restricted stock, phantom stock, performance unit, pension,
retirement, deferred compensation, welfare or employee benefit plan, agreement,
trust fund or other arrangement, including any "employee benefit plan" as
defined in Section 3(3) of ERISA, or any union, guild or collective bargaining
agreement maintained or contributed to or required to be contributed to by the
Company or any of its ERISA Affiliates, for the benefit or welfare of any
current or former director, officer, employee, consultant of the Company or any
of its ERISA Affiliates (such plans, agreements, trust funds and arrangements
being collectively the "EMPLOYEE AGREEMENTS AND Plans"), other than employment
agreements which provide for compensation to an individual that is not in excess
of $60,000 per year (including any payments available upon acceleration,
termination, or change of control). Each of the Employee Agreements and Plans is
in material compliance with all applicable laws including ERISA and the Code.
The IRS has issued a determination letter stating that each Employee Agreement
and Plan that is intended to be a qualified plan under Section 401(a) of the
Code is so qualified and the Company is aware of no event occurring after the
date of such determination that would adversely affect such determination. The
liabilities accrued under each such Employee Agreement and Plan are reflected on
the latest balance sheet of the Company included in the Recent Company SEC
Documents to the extent required in accordance with GAAP. No condition exists
that is reasonably likely to subject the Company or any of its Subsidiaries to
any direct or indirect material liability under Title IV of ERISA or to a civil
penalty under Section 502(j) of ERISA or material liability under Section 4069
of ERISA or
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4975, 4976, or 4980B of the Code or the loss of a federal tax deduction under
Section 280G of the Code or other material liability with respect to the
Employee Agreements and Plans that is not reflected on such balance sheet. No
Employee Agreement and Plan is subject to Title IV of ERISA and no Employee
Agreement and Plan is a "multiemployer plan," as defined in Section 3(37) of
ERISA. During the past six years, neither the Company nor any of its ERISA
Affiliates have made or been required to make contributions to any
"multiemployer plan," as defined in Section 3(37) of ERISA. There have been no
non-exempt "prohibited transactions" within the meaning of Section 4975 of the
Code or Section 406 of ERISA with respect to any Employee Agreement and Plan to
which either of those sections may apply, which might result in any material
liability of the Company. No Employee Agreement and Plan provides benefits,
including death, medical or health benefits (whether or not insured), after an
employee's retirement or termination of employment, other than (i) continuation
coverage required pursuant to Section 4980B of the Code and Part 6 of Title I of
ERISA, and the regulation thereunder, and any other applicable law. There are no
pending or, to the Knowledge of the Company, anticipated or Threatened claims
(other than routine claims for benefits or immaterial claims) by, on behalf of
or against any of the Employee Agreements and Plans or any trusts related
thereto. "ERISA Affiliate" means, with respect to any Person, any trade or
business, whether or not incorporated, that together with such Person would be
deemed a "single employer" within the meaning of Section 414 of the Code.
(j) TAX RETURNS AND TAX PAYMENTS.
(i) The Company and each of its Subsidiaries has filed or caused
to be filed, on a timely basis, all Tax Returns that are or were required to be
filed by or with respect to any of them, either separately or as a member of a
group, pursuant to applicable law. Each of the Company and its Subsidiaries has
paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by the Company or its Subsidiaries, except such Taxes, if
any, as are listed in Section 3.2(j)(i) of the Disclosure Schedule and are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided in the Company SEC Financial
Statements;
(ii) The Company and its Subsidiaries have not granted the IRS or
relevant state tax authorities any extension or waiver of or the applicable
statute of limitations for their respective United States federal and state
income Tax Returns for any period. All deficiencies proposed as a result of any
audits of any Tax Returns have been paid, reserved against, settled, or, as
listed on Section 3.2(j)(ii) of the Disclosure Schedule, are being contested in
good faith by appropriate proceedings. No issues have been raised (and are
currently pending) by any taxing authority in connection with any Tax Return of
the Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of the Company or its
Subsidiaries for which any of them may be liable;
(iii) The charges, accruals, and reserves with respect to Taxes
on the respective books of each of the Company and its Subsidiaries are adequate
(determined in accordance with GAAP) and are at least equal to that company's
liability for Taxes. All Taxes
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that the Company or any of its Subsidiaries is or was required by applicable law
to withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper governmental entity or other Person;
(iv) All Tax Returns filed by (or that include on a consolidated
basis) the Company and/or its Subsidiaries are true, correct, and complete.
There is no tax sharing agreement that will require any payment by the Company
or any of its Subsidiaries after the date of this Agreement. Except as set forth
in Section 3.2(j)(iv) of the Disclosure Schedule, neither the Company nor any of
its Subsidiaries is or has been a member of any consolidated, combined, unitary
or aggregate group for Tax purposes except such a group consisting only of the
Company and its Subsidiaries; and
(v) Neither the Company nor any of its Subsidiaries has filed a
consent pursuant to the collapsible corporation provisions of Section 341(f) of
the Code (or any corresponding provision of state, local or foreign income tax
law).
(k) STATE ANTITAKEOVER LAWS NOT APPLICABLE; NO OTHER RESTRICTIONS. The
Board of Directors of the Company has approved this Agreement and the
Contemplated Transactions (including the Voting Agreements) and such approval
constitutes approval of the Investor's acquisition of the Series A Preferred
Shares, the Warrants (and the shares of Series B Preferred Stock and Series C
Preferred Stock issuable upon exercise thereof) and the other Contemplated
Transactions by the Board of Directors of the Company under the provisions of
Section 203 of the DGCL such that the restrictions on "business combinations" do
not apply to Investor in connection with this Agreement or the Contemplated
Transactions. No other state takeover statute or similar statute or regulation
of the State of Delaware (or, to the Knowledge of the Company, of any other
state or jurisdiction) applies to this Agreement or the Contemplated
Transactions. No provision of the Certificate of Incorporation, Bylaws or other
governing instruments of the Company or any of its Subsidiaries or the terms of
any plan or agreement of the Company would, directly or indirectly, restrict or
impair (i) the ability of the Investor to vote, or otherwise to exercise the
rights of a stockholder with respect to, securities of the Company and its
Subsidiaries that may be acquired or controlled by the Investor by virtue of
this Agreement or the Contemplated Transactions or (ii) the rights granted
hereunder, or permit any stockholder to acquire securities of the Company or the
Investor, or any of their respective Subsidiaries, on a basis not available to
the Investor in the event that the Investor were to acquire securities of the
Company.
(l) ENVIRONMENTAL MATTERS. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action or, to the
Knowledge of the Company, private environmental investigations or remediation
activities or governmental investigations of any nature seeking to impose, or
that would reasonably be expected to result in the imposition, on the Company or
any of its Subsidiaries of any liability or obligations arising under common law
standards relating to environmental protection, human health or safety, or under
any local, state, federal, national or supernational environmental statute,
regulation or ordinance, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (collectively, "ENVIRONMENTAL
LAWS"), pending or, to the Knowledge of the Company, Threatened, against the
Company or any of its Subsidiaries, which liability or obligation would have or
would reasonably be expected to have a Material Adverse Effect. To the Knowledge
of
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the Company or any of its Subsidiaries, there is no reasonable basis for any
such proceeding, claim, action or governmental investigation that would impose
any liability or obligation that would have or would reasonably be expected to
have a Material Adverse Effect. To the Knowledge of the Company, during or prior
to the period of (i) its or any of its Subsidiaries' ownership or operation of
any of their respective current properties, or (ii) its or any of its
Subsidiaries' holding of a security interest or other interest in any property,
there was no release or Threatened release of hazardous, toxic, radioactive or
dangerous materials or other materials regulated under Environmental Laws in,
on, under or affecting any such property which would reasonably be expected to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is subject to any agreement, order, judgment, decree, letter or memorandum by or
with any court, regulatory agency, other Governmental Entity or third party
imposing any material liability or obligations pursuant to or under any
Environmental Law that would have or would reasonably be expected to have a
Material Adverse Effect.
(m) PROPERTIES. Except as disclosed in the Company SEC Documents or in
Section 3.2(m) of the Disclosure Schedule, each of the Company and its
Subsidiaries (i) has good and marketable title to all the properties and assets
reflected in the latest audited balance sheet included in such Recent Company
SEC Documents as being owned by the Company or one of its Subsidiaries or
acquired after the date thereof which are, individually or in the aggregate,
material to the Company's business on a consolidated basis (except properties
and assets sold or otherwise disposed of since the date thereof in the ordinary
course of business), free and clear of all Liens except Permitted Liens and (ii)
is the lessee of all leasehold estates reflected in the latest audited financial
statements included in such Recent Company SEC Documents or acquired after the
date thereof which are material to its business on a consolidated basis and is
in possession of the properties purported to be leased thereunder, and each such
lease is valid without material default thereunder by the lessee or, to the
Company's Knowledge, the lessor.
(n) INTELLECTUAL PROPERTY. Section 3.2(n) of the Disclosure Schedule
contains a list of all copyrights, patents, trademarks, service marks and
tradenames (including applications, continuations, reissues and similar rights)
("INTELLECTUAL PROPERTY") and software (other than standard, off-the-shelf
software subject to "shrink wrap" licenses) ("SOFTWARE") owned by or licensed to
the Company and its Subsidiaries which are material to the conduct of business
of the Company or any of its Subsidiaries. The Company or the Subsidiary using
such Intellectual Property or Software either (i) owns the entire right, title
and interest in and to the Intellectual Property and Software free and clear of
any Liens (other than Permitted Liens) or (ii) has the right and license to use
the same in its business, except where the failure to so own or have such right
or license would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. No proceedings are pending or, to the
Knowledge of the Company, Threatened, which challenge the validity, use or
ownership of any of the Intellectual Property or Software listed in Section
3.2(n) of the Disclosure Schedule. To the Knowledge of the Company, no
infringement by the Company or any of its Subsidiaries of any Intellectual
Property of any other Person has occurred and the Company and its Subsidiaries
have not received notice of a claim that the Company or its Subsidiaries are
infringing any Intellectual Property of any other Person. To the Knowledge of
the Company, no Person is engaged in any unauthorized use of the Intellectual
Property of the Company.
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(o) BROKERS. Except as described in Section 3.2(o) of the Disclosure
Schedule, no broker, investment banker, financial advisor or other Person, other
than Houlihan, Lokey, Howard & Zukin ("HLHZ"), the fees and expenses of which
will be paid by the Company, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the Contemplated
Transactions based upon arrangements made by or on behalf of the Company. The
Company has provided to the Investor a true and correct copy of any agreement
with HLHZ providing for payment of any such fee or commission.
(p) OPINION OF FINANCIAL ADVISOR. The Company has received, prior to
the execution of this Agreement, the oral opinion of HLHZ to the effect that the
purchase price to be received by the Company for the Purchased Securities is
fair, from a financial point of view, to the Company, a signed written copy of
which opinion, dated as of March 29, 2000 (the "HOULIHAN OPINION") will be
delivered to the Investor within five (5) Business Days of the date hereof.
(q) BOARD RECOMMENDATIONS. The Board of Directors of the Company, at a
meeting duly called and held, has by unanimous vote of those directors present
(who constituted four of six of the directors then in office) (i) determined
that this Agreement and the Contemplated Transactions are fair to and in the
best interests of the stockholders of the Company, (ii) approved the Certificate
of Designation in the form attached hereto as EXHIBIT C and resolved that it be
filed in accordance with applicable law as soon as practicable prior to the
First Closing Date, and (iii) resolved to recommend that the holders of the
Common Shares approve this Agreement and the Contemplated Transactions and the
issuance of the Additional Securities, if the Company is required to obtain
Company Stockholder Approval under Section 5.1(b).
(r) COMMON SHARES LISTING. The Common Shares are registered pursuant
to Section 12(g) of the Exchange Act and are listed on the Nasdaq National
Market ("NASDAQ").
The Company has taken no action designed to cause, or likely to result
in, the termination of the registration of the Common Shares under the Exchange
Act or the delisting of the Common Shares from Nasdaq, nor has the Company
received any notification that the SEC or the National Association of Securities
Dealers, Inc. ("NASD") is contemplating the termination of such registration or
listing.
(s) REQUIRED VOTE. The Company Stockholder Approval that may be
required pursuant to NASD Rule 4460(i) or NASD Rule 4310(c)(25)(G) prior to the
purchase by the Investor of the Additional Securities in order to avoid the
possible delisting of the Common Shares from Nasdaq is the only vote of the
holders of any class or series of the Company's securities that may be necessary
to approve any of the Contemplated Transactions or this Agreement. The Company
Stockholder Approval will not be required if the Company receives the NASD
Determination Letter and consummates the Second Closing without obtaining the
Company Stockholder Approval.
(t) CUSTOMS MATTERS. Except as disclosed in Section 3.2(t) of the
Disclosure Schedule, there are no legal, administrative, arbitral or other
proceedings, claims, actions, causes of action or, to the Knowledge of the
Company, private customs investigations or governmental
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investigations of any nature seeking to impose, or that would reasonably be
expected to result in the imposition, on the Company or any of its Subsidiaries
of any liability or obligations arising under the United States customs or
international trade laws or the regulations of the United States Customs Service
that would have or would reasonably be expected to have a Material Adverse
Effect. To the Knowledge of the Company or any of its Subsidiaries, there is no
such Threatened proceeding, claim, action or governmental investigation that
would impose any liability or obligation that would have or would reasonably be
expected to have a Material Adverse Effect. Except as disclosed in Section
3.2(t) of the Disclosure Schedule, the Company has not received from the United
Sates Customs Service any Notices of Investigation, Rate Advances Notices,
Proposed Rate Advance Notices, Liquidated Damages Notices, Requests for
Information, Notices of Audit or Compliance Assessment Review Initiation,
Marking Notices, or any of the notices relating to merchandise imported into the
United States for which the Company is the Importer of Record or Consignee.
Section 3.3 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
represents and warrants to the Company as follows:
(a) ORGANIZATION, STANDING AND POWER. The Investor is duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite power and authority to carry on its business as now being
conducted. The Investor is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) would not have a material adverse
effect on the Investor.
(b) AUTHORITY; NONCONTRAVENTION. The Investor has all requisite power
and authority to enter into this Agreement and the Registration Rights Agreement
and to consummate the Contemplated Transactions. The execution and delivery of
this Agreement and the Registration Rights Agreement by the Investor and the
consummation by the Investor of the Contemplated Transactions have been duly
authorized by all necessary action on the part of the Investor. Each of this
Agreement and the Registration Rights Agreement has been duly executed and
delivered by, and constitutes the valid and binding obligation of, the Investor,
enforceable against the Investor in accordance with its terms, subject to the
effect of applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the rights of creditors generally and the effect of
general principles of equity. The execution and delivery of this Agreement and
the Registration Rights Agreement do not, and the consummation of the
Contemplated Transactions and compliance with the provisions hereof will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to any
obligation or to loss of a benefit under, or result in the creation of any Lien
upon its or its Subsidiaries' properties or assets under, (i) the Investor's
Certificate of Formation or operating agreement, each as amended to date, (ii)
any loan or credit agreement, note, bond, mortgage, indenture, lease, contract
or other agreement, instrument, permit, concession, franchise or license
applicable to the Investor or any of its properties or assets which is material
to the Investor, each as amended to date or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any judgment,
order, decree, statute, law,
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ordinance, rule, regulation or arbitration award applicable to the Investor, or
its properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, breaches, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not have a material adverse effect with
respect to the Investor or would not prevent or materially hinder or delay the
ability of the Investor to consummate the Contemplated Transactions. No consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental Entity or any other Person is required by
or with respect to the Investor or any Subsidiary of Investor in connection with
the execution and delivery of this Agreement or the consummation by the Investor
of any of the Contemplated Transactions, except for (i) the HSR Filing, (ii) the
filing with the SEC of such reports or schedules under the Exchange Act as may
be required in connection with this Agreement and the Contemplated Transactions,
(iii) such other consents, approvals, orders, authorizations, registrations,
declarations, filings or notices as may be required under the "takeover" or
"blue sky" laws of various states and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations, filings or notices for
which the absence of such would not, individually or in the aggregate, have a
Material Adverse Effect.
(c) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Investor for inclusion or incorporation by reference in the
Proxy Statement will, at the date the Proxy Statement is first mailed to the
Company's stockholders or at the time of the Company Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(d) LITIGATION. There is no suit, action, proceeding, investigation or
inquiry pending or, to the Knowledge of the Investor, Threatened against or
affecting the Investor or any basis for any such suit, action, proceeding,
investigation or inquiry that, individually or in the aggregate, would
reasonably be expected to have a material adverse effect with respect to the
Investor or prevent or materially hinder or delay the ability of the Company or
the Investor to consummate the Contemplated Transactions, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Investor having, or which, in the future
would have, any such effect.
(e) BROKERS. No broker, investment banker, financial advisor or other
Person, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the Contemplated Transactions based
upon arrangements made by or on behalf of the Investor.
(f) INVESTOR STATUS. The Investor has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment in the Series A Preferred Shares and the Warrants (and
the Series B Preferred Shares and Series C Preferred Shares issuable upon
exercise of the Series B Warrants or Series C Warrants, as applicable) and is
able to bear the economic risks of such investment.
(g) ACCREDITED INVESTOR. The Investor is an "accredited investor" as
defined in Rule 501(a) under the 1933 Act. The Investor is acquiring the Series
A Preferred Shares and the Warrants for its own account and not with a view to
any resale, distribution or other disposition
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of the Series A Preferred Shares or the Warrants (or the Series B Preferred
Shares or Series C Preferred Shares issuable upon exercise of the Series B
Warrants or the Series C Warrants, as applicable) in violation of the United
States securities laws.
(h) FINANCIAL ABILITY. The Investor has the financial capability to
consummate the Contemplated Transactions, and the Investor understands that
under the terms of this Agreement the Investor's obligations hereunder are not
in any way contingent or otherwise subject to (i) the Investor's consummation of
any financing arrangements or the Investor's obtaining any financing or (ii) the
availability of any financing to the Investor.
(i) NO OTHER AGREEMENTS. Except for the Voting Agreements, the
Investor has made no other agreements, arrangements or understandings concerning
the Contemplated Transactions or the Company or any of its Subsidiaries with (a)
any director, officer, employee or consultant of the Company or any of its
Subsidiaries, or (b) any stockholder beneficially owning at least 5% of the
outstanding Common Shares.
(j) NO OWNERSHIP. Other than the Initial Securities to be purchased by
Investor at the First Closing, neither Investor nor any of its Affiliates will
directly own any debt or equity securities of the Company (or any securities
convertible into such debt or equity securities) as of the First Closing.
ARTICLE IV.
COVENANTS OF THE COMPANY
Section 4.1 NO SOLICITATION.
(a) Subject to clause (b) below, from the date hereof through the
earlier of (i) the Second Closing or (ii) the Termination Date, the Company
shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize (and shall use Best Efforts to prevent) any of its or its
Subsidiaries' Representatives to, directly or indirectly through another Person,
(i) solicit, initiate or encourage (including by way of furnishing non-public
information), or take any other action designed to facilitate, any inquiries or
the making of any proposals, inquiries or offers that would reasonably be
considered inconsistent with or would reasonably be expected to delay the
consummation of the Second Closing (each, an "Inconsistent Transaction
Proposal") or (ii) participate in any negotiations regarding any Inconsistent
Transaction Proposal. Without limiting the generality of the foregoing, any
proposal, inquiry or offer regarding the potential acquisition by any person or
"group" (as within the meaning of Section 13(d)(3) of the Exchange Act) of 10%
of the net assets, voting securities or other equity interests of the Company
shall be considered an Inconsistent Transaction Proposal, and any such
transaction shall be considered an "Inconsistent Transaction."
(b) Notwithstanding the provisions of clause (a) above, the Company
shall be permitted, at any time prior to the earlier of (x) the Second Closing
or (y) the Termination Date, to (i) solicit, initiate or encourage (including by
way of furnishing non-public information), or take any other action designed to
facilitate, an Inconsistent Transaction Proposal, (ii) participate in any
negotiations regarding any Inconsistent Transaction Proposal and (iii)
consummate an Inconsistent Transaction and only if it takes each of the
following actions (and the Company
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agrees to take and cause to be taken each of the actions described in (A), (B)
and (C) below if the Company takes or permits to be taken any actions described
in clauses (i), (ii) or (iii) of this Section 4.1(b)): (A) the Company takes all
such actions as may be necessary to ensure that Investor obtains the maximum
financial and other consideration, rights and benefits from any Inconsistent
Transaction that is consummated prior to the Second Closing that Investor could
have received if the Second Closing had been consummated prior to the
consummation of such Inconsistent Transaction (and the Investor had tendered the
Second Purchase Price), including, without limitation, making a cash payment to
Investor in an amount equal to (x) the amount of taxes incurred by Investor as a
result of such Inconsistent Transaction that would not have been incurred had
the Inconsistent Transaction not occurred prior to the Second Closing, and (y)
an amount sufficient to ensure that the consideration received by Investor is
equal, on an after-tax basis, to the amount Investor would have received if the
Second Closing had been consummated prior to the consummation of such
Inconsistent Transaction (the financial and other consideration, rights and
benefits to which Investor is entitled under this clause (A) being collectively
referred to as the "MAKE-WHOLE CONSIDERATION"), (B) the other parties to the
Inconsistent Transaction (and any successor entities thereto) acknowledge and
agree to be bound by the provisions of this Section 4.1(b), and (C) the Company
pays Investor a fee in the amount of $1,000,000 if an Inconsistent Transaction
is consummated. Without limiting the generality of the foregoing, the maximum
financial and other consideration, rights and benefits (on an after tax basis)
that Investor could have received will be deemed to include any such financial
and other consideration, rights and benefits (on an after tax basis) that
Investor could have received had the Second Closing occurred prior to the
consummation of the Inconsistent Transaction and had Investor taken all such
actions with respect to the Additional Securities as may be specified by
Investor to the Company (or its successor) ("Specified Actions") that Investor
would have been entitled to take prior to the consummation of the Inconsistent
Transaction (including, if specified by Investor, the exercise of any of the
Additional Warrants and conversion of any Preferred Stock that would have been
issuable upon exercise of such Additional Warrants). Following the occurrence of
the Inconsistent Transaction, Investor shall notify the Company (or its
successor) of the Specified Actions that should be taken into account in
calculating the amount and nature of the Make-Whole Consideration.
(c) Except in circumstances where the Company has specifically
complied with the terms and provisions of Section 4.1(b), neither the Board of
Directors of the Company nor any other committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to the
Investor, the approval or recommendation by such Board of Directors of the
Contemplated Transactions, (ii) approve or recommend, or propose to approve or
recommend, any Inconsistent Transaction Proposal or (iii) cause the Company to
enter into any Inconsistent Transaction Agreement.
(d) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 4.1, the Company shall immediately (but
in any event within two business days) advise the Investor orally and in writing
of any request for information with respect to any Inconsistent Transaction or
the receipt of any Inconsistent Transaction Proposal, the material terms and
conditions of such initial request or Inconsistent Transaction Proposal and the
identity of the person making such request or Inconsistent Transaction Proposal.
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(e) Nothing contained in this Section 4.1 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act if, in the good faith judgment of
the Board of Directors of the Company following consultation with outside
counsel, failure so to disclose would be a violation of its obligations under
applicable law; provided, however, that, neither the Company nor its Board of
Directors thereof shall withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to this Agreement or the Contemplated
Transactions or approve or recommend, or propose publicly to approve or
recommend, an Inconsistent Transaction Proposal except as permitted in Section
4.1(c).
Section 4.2 CERTAIN AGREEMENTS. The Company will immediately cease and
cause its Representatives to cease any and all existing activities, discussions
or negotiations with any parties conducted heretofore with respect to any
Inconsistent Transaction Proposal, and shall use its Best Efforts to cause such
parties in possession of confidential information about the Company or its
Subsidiaries that was furnished by or on behalf of the Company or its
Subsidiaries to return or destroy all such information in the possession of any
such party or in the possession of any attorney, agent, advisor or
representative of such party. Neither the Company nor any Subsidiary of the
Company will waive or fail to enforce any provision of any confidentiality
agreement entered into in connection with a potential Inconsistent Transaction
Proposal described in the first sentence of this Section 4.2 or standstill or
similar agreement to which it is a party without the prior written consent of
the Investor.
Section 4.3 CONTINUING COVENANTS. Without limiting the rights of the
holders of Preferred Stock under the Certificate of Designation, the Company
covenants that from and after the date of this Agreement and thereafter so long
as the Investor owns Common Shares and/or shares of Preferred Stock (including
shares underlying the Warrants) representing on an as converted basis, in the
aggregate, an amount at least equal to the Threshold Amount:
(a) The Company shall not issue or authorize for issuance any shares
of equity securities of the Company in violation of the provisions of the
Certificate of Designation;
(b) The Company shall use its Best Efforts to maintain its status as a
registrant under the Exchange Act that is not in default or contravention of any
requirement of the Exchange Act, except in the event that there is a merger,
sale of all or substantially all of the assets of the Company or similar
transaction involving the Company and its Subsidiaries and requiring approval of
the Board of Directors and stockholders of the Company (provided the Company
complies with its obligations under Section 4.1 in the case of any such
transaction occurring prior to the Second Closing);
(c) The Company shall use its Best Efforts to maintain the listing and
posting for trading of the Common Shares on Nasdaq, except in the event that
there is a merger, sale of all or substantially all of the assets of the Company
or similar transaction involving the Company and its Subsidiaries and requiring
approval of the Board of Directors and stockholders of the Company (provided the
Company complies with its obligations under Section 4.1 in the case of any such
transaction occurring prior to the Second Closing);
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(d) The Company shall at all times reserve and keep available, solely
for the issuance and delivery upon conversion of the Purchased Securities, the
number of Common Shares from time to time issuable upon conversion of all of the
Purchased Securities at the time outstanding. All Common Shares issuable upon
conversion of the Purchased Securities shall be duly authorized and, when issued
upon such conversion, shall be validly issued, fully paid and nonassessable, and
admitted for listing and quotation on Nasdaq.
Section 4.4 GOVERNANCE.
(a) On the First Closing Date contemporaneously with the First
Closing, the Company shall immediately expand the size of the Board of Directors
to eight directors and, consistent with the terms of the Certificate of
Designation, appoint to the Board of Directors two individuals designated by the
Investor, as the holder of a majority of the outstanding shares of Preferred
Stock, to serve on the Board of Directors. Subject to their earlier resignation
or removal by the holders of a majority of the outstanding shares of the
Preferred Stock, the directors designated by such holders shall continue to
serve as directors until the next election of directors.
(b) Subject to the rights of the holders of a majority of the
Preferred Stock to designate and elect such directors as specified in the
Certificate of Designation (which holders may include the Investor and its
Affiliates), as long as the Investor and its Affiliates continue to own shares
of Preferred Stock and/or Common Shares (including any shares underlying the
Warrants) representing on an as converted basis, in the aggregate, an amount at
least equal to the Threshold Amount, the Investor and its Affiliates shall be
entitled to designate two individuals to be nominated to the Board of Directors
by the Company (or, if the size of the Board of Directors is increased to
include more than eight members, the Investor shall be entitled to designate one
additional individual to be nominated to the Board of Directors by the Company).
Any individual so designated by the Investor pursuant to this paragraph (b) is
referred to herein as a "Designee."
(c) As long as holders of Preferred Stock are entitled to designate
nominee(s) for election as director(s), such nominee(s) will be elected to the
Board of Directors by the holders of the Preferred Stock voting separately as a
class, as provided in the Certificate of Designation. If holders of the
Preferred Stock are not entitled to designate directors pursuant to the
Certificate of Designation but the Investor and its Affiliates are otherwise
entitled to designate individuals for nomination to the Board of Directors under
this Section 4.4, the Company shall nominate each such Designee for election as
a director as part of the management slate that is included in the proxy
statement (or consent solicitation or similar document) of the Company relating
to the election of directors, and shall provide the same support for the
election of each such Designee as it provides to other persons standing for
election as directors of the Company as part of the Company's management slate.
(d) Subject to the rights of the holders of a majority of the
Preferred Stock to designate and elect such directors as specified in the
Certificate of Designation (which holders may include the Investor and its
Affiliates) and subject to applicable law, in the event that any Designee shall
cease to serve as a director for any reason (other than the failure of the
stockholders of the Company to elect such person as director), the vacancy
resulting therefrom
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shall be filled by the remaining Designee(s) designated by the Investor (or if
no Designees then remain, or the remaining Designees are otherwise unable to
fill such vacancy, then such vacancy shall be filled by the persons and entities
entitled to designate individuals to fill such vacancies in accordance with
subparagraph (b) of this Section 4.4).
(e) For the avoidance of doubt, and subject to the prohibitions on
Investor and its Affiliates contained in Section 5.6 of this Agreement, nothing
in this Section 4.4 or elsewhere in this Agreement (other than as provided in
such Section 5.6) is intended to prohibit the Investor and its Affiliates from
nominating and electing a majority of the members of the Board of Directors if
the Investor and its Affiliates have actual ownership of voting stock
representing in the aggregate a majority of the total voting power.
(f) The Company will reimburse each Designee that serves as a director
for all reasonable costs and expenses (including travel expenses) incurred in
connection with such director's attendance at meetings of the Board of Directors
or any committee of the Board of Directors upon which such director serves. The
Company will not pay such director any other annual or other fees for attending
Board of Directors or committee meetings, except that following the third
anniversary of the date hereof, the Company shall make available and issue to
each such 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. The Company shall indemnify and advance expenses to each
such director to the same extent it indemnifies and advances expenses to its
other directors pursuant to its Organizational Documents and applicable law.
(g) The right of Investor and its Affiliates to designate any
individuals to be nominated to the Board of Directors of the Company under this
Section 4.4 shall not apply during any period that the holders of a majority of
the Preferred Stock then outstanding are entitled to designate and elect, and
have designated and elected, directors, voting as a separate class, pursuant to
paragraph 6(i) of the Certificate of Designation.
ARTICLE V.
ADDITIONAL AGREEMENTS
Section 5.1 PREPARATION OF THE PROXY STATEMENT; STOCKHOLDER MEETING.
(a) If the NASD Determination Letter is not obtained on or prior to
May 5, 2000, then within seven (7) days thereafter, the Company shall prepare
and file with the SEC a Proxy Statement on Schedule 14A (the "PROXY STATEMENT").
The Investor shall provide to the Company all information required by applicable
securities laws to be included in the Proxy Statement regarding the Investor and
its Affiliates and Designees (as described below in Section 5.1(b)). The Company
will use its Best Efforts to cause the Proxy Statement to be mailed to its
stockholders as promptly as practicable after any comments thereto issued by the
SEC are cleared by the SEC.
(b) If the NASD Determination Letter is not obtained on or prior to
May 5, 2000, then as promptly as practicable following the date of execution of
this Agreement, the Company will duly call, give notice of, convene and hold a
meeting of its stockholders (the
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"COMPANY STOCKHOLDERS MEETING") for the purpose of obtaining the approval of the
Company stockholders of the Company's issuance and sale of the Additional
Securities to the Investor by means of the affirmative vote of a majority of the
votes cast by holders of the outstanding Common Shares as required by Nasdaq
(such approval of the Company stockholders being referred to herein as the
"COMPANY STOCKHOLDER APPROVAL"). The Company will, through its Board of
Directors in accordance with the provisions of Section 3.2(q), recommend to its
stockholders that they vote in favor of the Company Stockholders Approval (the
"BOARD RECOMMENDATION"). Such recommendation, together with a copy of the
Houlihan Opinion, shall be included in the Proxy Statement. If the NASD
Determination Letter is not obtained as described above, the Company will use
its Best Efforts to hold such meeting as soon as practicable after the date of
execution of this Agreement.
Section 5.2 BEST EFFORTS. Each of the parties agrees to use its Best
Efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable, to consummate, in the most expeditious manner
practicable, the Second Closing and the other Contemplated Transactions. The
Investor and the Company will use their Best Efforts and cooperate with one
another (i) in promptly determining whether any filings are required to be made
or consents, approvals, waivers, permits or authorizations are required to be
obtained under any applicable law or regulation or from any governmental
authorities or third parties in connection with the Contemplated Transactions,
(ii) in promptly making any such filings, in furnishing information required in
connection therewith, and (iii) in promptly seeking to obtain any such consents,
approvals, waivers, permits or authorizations, including any notification and
report forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act. Each of the parties shall use its Best
Efforts to obtain an early termination of the applicable waiting period under
the HSR Act, and shall make any further filings or information submissions
pursuant thereto that may be necessary, proper or advisable.
Section 5.3 PUBLIC ANNOUNCEMENTS. The Investor and the Company will consult
with each other before issuing, and provide each other the opportunity to review
and comment upon, any press release or other public statements with respect to
the Contemplated Transactions, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange or as are agreed upon in
advance. The parties agree that the initial press release or releases to be
issued with respect to the Contemplated Transactions shall be mutually agreed
upon prior to the issuance thereof.
Section 5.4 TAKEOVER STATUTES. If any "FAIR PRICE," "MORATORIUM," "CONTROL
SHARE ACQUISITION" or other form of antitakeover statute or regulation shall
become applicable to the Contemplated Transactions, the Company and the members
of its Board of Directors, on the one hand, and the Investor and its general
partner, on the other hand, shall grant such approvals and take such actions as
are reasonably necessary so that the Contemplated Transactions may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such statute or regulation
on the Contemplated Transactions.
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Section 5.5 RESTRICTIVE LEGEND. The Purchased Securities shall be stamped
or otherwise imprinted with the following legend and the Investor agrees to
transfer such Purchased Securities only in accordance therewith:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE AND NEITHER THIS SECURITY, NOR ANY INTEREST THEREIN, MAY BE OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (II) AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, SUCH EXEMPTION TO BE EVIDENCED BY SUCH DOCUMENTATION AS
THE ISSUER MAY REASONABLY REQUEST."
Section 5.6 STANDSTILL. Investor agrees that until the earlier of March
29, 2005 and the date that Investor (together with its Affiliates) no longer
beneficially owns Common Shares and/or Preferred Shares (including shares
underlying the Warrants) representing on an as converted basis, in the
aggregate, at least equal to 10.0% of the Company's outstanding Common Shares
(making equitable adjustments for any conversions, reclassifications,
reorganizations, stock dividends, stock splits, reverse splits and similar
events which occur with respect to the Common Stock), neither Investor nor its
Affiliates will, directly or indirectly, without the prior written consent of a
majority of the Board of Directors of the Company (other than the nominees or
designees of the Investor) acquire, agree to acquire, make any proposal to
acquire or in any way participate in a "group" (within the meaning of Section
13(d)(3) of the Exchange Act) to do any of the foregoing, equity securities
(including convertible debt instruments and preferred stock but excluding the
shares of Series A Preferred Stock and the Warrants or any shares of capital
stock issuable upon the conversion or exercise thereof) of the Company
representing more than 30% of the voting power of all voting securities of the
Company on a fully diluted basis; provided, however, that the agreements of
Investor set forth in this Section 5.6 shall not apply (A) following the breach
by the Company of any of the covenants set forth in Sections 4.4(b) or 4.4(c)
(or, except as otherwise provided in the introductory clauses to Sections 4.4(b)
and 4.4(d) and in Section 4.4(g), the failure of the Designees of Investor to be
elected as directors during the period Investor has the right to designate any
individual for nomination to the Board of Directors pursuant to Section 4.4) in
which event such agreements of the Investor shall be of no further force and
effect; (B) in the event that any of the following events occurs (x) the
acquisition (whether by business combination, merger, tender or exchange offer,
or otherwise) by any "group" (within the meaning of Section 13(d)(3) of the
Exchange Act, and specifically excluding Donald A. Kurz and Stephen P. Robeck
(unless either Mr. Kurz or Mr. Robeck or any of their Affiliates acquire
additional Common Shares (or securities convertible into Common Shares), other
than through the grant or exercise of options approved by the Board of Directors
(or a committee thereof) and issued pursuant to an option plan of the Company,
representing 10% or more of the Common Shares held by Mr. Kurz or Mr. Robeck, as
applicable, as of the date hereof) and the Investor and its Affiliates) of 20%
of any class of equity securities of the Company or of substantially all of the
assets of the Company, (y) the solicitation of proxies by
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any Person or group (other than Investor and its Affiliates) to engage in any of
the transactions described in (x), or (z) the public announcement of any of the
foregoing, or of any intent to engage in the foregoing, in which event such
agreements of the Investor shall be of no further force or effect; provided that
if any transaction described in clause (y) or (z) above is definitively
abandoned prior to its consummation (or, in the case of a tender or exchange
offer, the Person making such tender or exchange offer does not acquire more
than 20% of any class of equity securities of the Company), then such agreements
shall thereupon be reinstated, subject to further suspension or reinstatement in
the event of the occurrence of further events described in clauses (x), (y) or
(z) of this proviso, respectively; and (C) (x) to the extent of any sales or
transfers of Common Shares prior to the earlier of the Second Closing or the
termination date of the applicable Voting Agreement, by any of the parties to
the Voting Agreements (other than the Investor), or any of their transferees, to
any Person not subject to the Voting Agreements, in which case the Investor
shall be permitted to acquire and/or solicit for the acquisition of Common
Shares up to the aggregate amount of any such sales or transfers, or (y) upon
the material breach of the Voting Agreements by any of the parties thereto
(other than the Investor) prior to the Second Closing or the termination date of
the applicable Voting Agreement, (1) upon which material breach, if arising from
the failure of the breaching party to vote such party's shares in accordance
with the provisions of the Voting Agreements and the Investor is unable to
exercise its proxy with respect to such shares, the Investor shall be entitled
to purchase the number of Common Shares equal to the percentage of ownership of
the outstanding capital stock of the Company owned by such breaching party or
parties immediately following the date of this Agreement (or as of the date any
such breaching party acquired its Common Shares if the breaching party is a
transferee of a party to the Voting Agreements which transferee agreed to bound
by the Voting Agreements), or (2) upon which material breach, if arising from
the sale or other transfer of Common Shares by the breaching party in violation
of the provisions of the Voting Agreements, the Investor shall be entitled to
purchase the number of Common Shares equal to the aggregate amount of any such
sales or transfers.
Section 5.7 ENFORCEABILITY OPINION. The Company will use its Best Efforts
to deliver to Investor promptly following the First Closing Date an opinion of
the Company's Delaware counsel that this Agreement, the Registration Rights
Agreement and the Warrants constitute the legally valid and binding obligations
of the Company and are enforceable under Delaware law.
ARTICLE VI.
CLOSING DELIVERIES
Section 6.1 CONDITIONS TO THE OBLIGATION OF THE INVESTOR TO EFFECT THE
FIRST CLOSING. The obligation of the Investor to effect the transactions to be
effected by it at the First Closing shall be subject to the satisfaction, or
waiver, on or prior to the First Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in this Agreement, shall be true and correct in all
respects, in each case as of the date of this Agreement. The Investor shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the secretary of the Company, dated as of the First Closing Date to
such effect.
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(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the First Closing Date in all material respects, and the Investor
shall have received a certificate signed on behalf of the Company by the chief
executive officer and the secretary of the Company, dated as of the date of the
First Closing Date to such effect.
(c) CONSENTS, ETC. Except for the NASD Determination Letter, the
Company Stockholder Approval and the expiration or early termination of the
applicable waiting period under the HSR Act, the Investor has received evidence,
in form and substance reasonably satisfactory to it, that such licenses,
permits, consents, approvals, authorizations, qualifications and orders of
Governmental Entities and other third parties as are necessary in connection
with the transactions contemplated hereby (including those to be consummated at
the Second Closing) have been obtained.
(d) DELIVERY OF CERTAIN DOCUMENTS. The Company shall have delivered to
the Investor (i) a certificate dated as of the First Closing Date executed by an
officer of the Company, attaching true and correct copies of the Certificate of
Incorporation and bylaws of the Company and the resolutions of its Board of
Directors made in connection with the Agreement and the Contemplated
Transactions, and certifying as to the genuineness and authenticity of the
signature, and the accuracy of the title, of each officer of the Company
executing this Agreement or any document delivered at the First Closing, (ii)
the legal opinion of Riordan and McKinzie dated as of the First Closing Date in
substantially the form attached as EXHIBIT H hereto and (iii) the legal opinion
of the General Counsel of the Company dated as of the First Closing Date in
substantially the form attached as EXHIBIT I hereto.
(e) DELIVERY AND PERFORMANCE OF AGREEMENTS. The Registration Rights
Agreement and the Initial Warrants shall have been duly executed and delivered
by the Company on the First Closing Date. The Voting Agreements shall have been
duly executed and delivered by the stockholders of the Company listed on the
signature page thereof on the First Closing Date.
(f) CERTIFICATE OF DESIGNATION. The Company shall have filed with the
Secretary of State of the State of Delaware the Certificate of Designation and
such instrument shall have become effective as of the First Closing Date.
(g) BOARD ELECTION. The Board of Directors of the Company shall have
been expanded to eight (8) members and the Investor's two (2) nominees to the
Board of Directors shall have been elected, effective as of the First Closing.
(h) STOCK CERTIFICATE. The Company shall have delivered a duly
executed stock certificate evidencing the Initial Preferred Shares registered in
the name of Investor.
(i) DELIVERY OF THE INITIAL WARRANTS. The Company shall have delivered
duly executed Initial Warrants registered in the name of the Investor.
(j) RECEIPT. The Company shall have executed and delivered a receipt
confirming receipt of the Initial Purchase Price.
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Section 6.2 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE FIRST
CLOSING. The obligation of the Company to effect the transactions to be effected
by it at the First Closing shall be subject to the satisfaction, or waiver, on
or prior to the First Closing Date of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor set forth in this Agreement shall be true and correct in all
respects, in each case as of the date of this Agreement. The Company shall have
received a certificate signed on behalf of the Investor by an authorized officer
of the Investor, dated as of the date of the First Closing Date to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE INVESTOR. The Investor shall
have performed the obligations required to be performed by it under this
Agreement at or prior to the First Closing Date in all material respects, and
the Company shall have received a certificate signed on behalf of the Investor
by an authorized officer of the Investor, dated as of the date of the First
Closing Date to such effect.
(c) DELIVERY OF CERTAIN DOCUMENTS. The Investor shall have delivered
to the Company a certificate dated as of the First Closing Date executed by an
authorized officer of the Investor, attaching true and correct copies of the
Certificate of Formation of Investor, as amended to date, and the resolutions of
its managing member made in connection with this Agreement and the Contemplated
Transactions, and certifying as to the genuineness and authenticity of the
signature, and the accuracy of the title, of the authorized officer of the
Investor executing this Agreement or any document delivered at the First Closing
Date.
(d) DELIVERY AND PERFORMANCE OF AGREEMENTS. The Registration Rights
Agreement shall have been duly executed and delivered by the Investor, and the
Initial Purchase Price shall have been delivered to the Company pursuant to
Section 2.2.
(e) INITIAL PURCHASE PRICE. The Initial Purchase Price shall have been
delivered to the Company pursuant to Section 2.2.
(f) RECEIPT. Investor shall have executed and delivered a receipt
confirming Investor's receipt of the certificates evidencing the Initial
Preferred Shares and the Initial Warrants.
Section 6.3 CONDITIONS TO THE INVESTOR'S OBLIGATION TO EFFECT THE SECOND
CLOSING. The obligation of the Investor to effect the transactions to be
effected by it at the Second Closing shall be subject to the satisfaction, or
waiver, on or prior to the Second Closing Date of the following conditions:
(a) HSR ACT. The waiting period (and any extension thereof) applicable
to the HSR Act shall have been terminated or shall have expired.
(b) NASD DETERMINATION LETTER OR COMPANY STOCKHOLDER APPROVAL. Either
(i) the NASD Determination Letter shall have been obtained in form and substance
reasonably satisfactory to the Investor or (ii) the Company Stockholder Approval
shall have been obtained.
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(c) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the Second Closing Date in all material respects, and the Investor
shall have received a certificate signed on behalf of the Company by the chief
executive officer and the secretary of the Company, dated as of the date of the
Second Closing Date to such effect.
(d) DELIVERY OF CERTAIN DOCUMENTS. The Company shall have delivered to
the Investor a certificate dated as of the Second Closing Date executed by an
officer of the Company, attaching a true and correct copy of the Certificate of
Incorporation, as amended to date.
(e) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of any of the Contemplated Transactions shall be in effect;
provided, however, that the parties hereto shall use their Best Efforts to have
any such injunction, order, restraint or prohibition vacated.
(f) NASDAQ LISTING. The Company shall not have received any notice
(which notice has not subsequently been withdrawn) that the Common Shares will
not be eligible or approved for listing or quotation on Nasdaq as a result of
the Contemplated Transactions.
(g) STOCK CERTIFICATE. The Company shall have delivered a duly
executed Stock Certificate evidencing the Additional Preferred Shares registered
in the name of Investor.
(h) DELIVERY OF THE ADDITIONAL WARRANTS. The Company shall have
delivered duly executed Additional Warrants registered in the name of Investor.
(i) RECEIPT. The Company shall have executed and delivered a receipt
confirming receipt of the Second Purchase Price.
Section 6.4 CONDITIONS TO THE COMPANY'S OBLIGATION TO EFFECT THE SECOND
CLOSING.
(a) HSR ACT. The waiting period (and any extension thereof) applicable
to the HSR Act shall have been terminated or shall have expired.
(b) NASD DETERMINATION LETTER OR COMPANY STOCKHOLDER APPROVAL. Either
(i) the NASD Determination Letter shall have been obtained in form and substance
reasonably satisfactory to the Company or (ii) the Company Stockholder Approval
shall have been obtained.
(c) PERFORMANCE OF OBLIGATIONS OF THE INVESTOR. The Investor shall
have performed the obligations required to be performed by it under this
Agreement at or prior to the Second Closing Date in all material respects, and
the Company shall have received a certificate signed on behalf of the Investor
by an authorized officer of the Investor, dated as of the date of the Second
Closing Date to such effect.
(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of any of the Contemplated
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Transactions shall be in effect; provided, however, that the parties hereto
shall use their Best Efforts to have any such injunction, order, restraint or
prohibition vacated.
(e) SECOND PURCHASE PRICE. The Second Purchase Price shall have been
delivered to the Company pursuant to Section 2.2.
(f) RECEIPT. Investor shall have executed and delivered a receipt
confirming Investor's receipt of the certificates evidencing the Additional
Preferred Shares and the Additional Warrants.
ARTICLE VII.
TERMINATION
Section 7.1 TERMINATION OF SECOND CLOSING BY EITHER PARTY. In the event
that either (a) the waiting period (and any extension thereof) applicable to the
HSR Act shall not have terminated or otherwise expired on or prior to August 31,
2000, or (b) there exists an injunction or restraint described in Section 6.3(e)
or Section 6.4(c) of this Agreement, which injunction or restraint the parties
hereto have been unable to have removed or terminated on or before August 31,
2000 by using their Best Efforts as required by Section 5.2 of this Agreement
(and provided that such injunction or restraint has not been effected by the
party that would otherwise terminate this Agreement pursuant to this Section
7.1), then either party may elect to terminate such party's obligations to
consummate the Second Closing by written notice to the other on or within five
(5) business days of such date; provided, that a party may not exercise such
termination right if it is in material breach of its obligations under this
Agreement. In the event of such termination by either party pursuant to this
Section 7.1, the remaining terms of this Agreement (including without limitation
Article VIII) shall continue to be in full force and effect, and no party shall
be liable to the other party for any amount as a result of such termination,
except as provided in Section 9.5 of this Agreement.
Section 7.2 TERMINATION OF SECOND CLOSING BY INVESTOR. If, after the
occurrence of the First Closing, (i) the Board of Directors withdraws or
adversely changes the Board Recommendation, or takes any similar action, or (ii)
the Company fails for any reason to consummate the Second Closing on or before
September 30, 2000 (other than as a result only of (a) the failure of the
waiting period (and any extension thereof) applicable to the HSR Act to
terminate or otherwise expire prior to such time, or (b) the existence of any
injunction or restraint described in Section 6.4(c) of this Agreement) and
provided that the Investor is not then in material breach of its obligations
under this Agreement, then Investor may elect to terminate its obligations to
acquire the Additional Securities and to consummate the Second Closing, by
written notice to the Company. Notwithstanding the foregoing, in the event that
the Company determines to pursue an Inconsistent Transaction Proposal, and as a
result thereof, fails to consummate the Second Closing on or before September
30, 2000, Investor shall retain the right to terminate its obligations as
described herein, without limiting Investor's rights under Section 4.1 with
respect to the Inconsistent Transaction that is the subject of such Inconsistent
Transaction Proposal. In the event that the Investor elects to exercise its
termination right as provided in this Section 7.2, then the Company shall pay to
Investor a cash fee of $1,000,000, as well as all fees and expenses to be paid
to Investor as provided in Section 9.5 of this Agreement. In the event of such
termination by Investor pursuant to this Section 7.2, the remaining terms of
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this Agreement (including without limitation Article VIII) shall continue to be
in full force and effect, and no party shall be liable to the other party for
any amount as a result of such termination, except as provided in the preceding
sentence.
Section 7.3 TERMINATION DATE. The date that either the Company or Investor
terminates the parties' obligations to consummate the Second Closing pursuant to
this Article VII, if at all, shall be deemed to be the "Termination Date".
ARTICLE VIII.
INDEMNIFICATION; REMEDIES
Section 8.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE.
All representations and warranties in this Agreement, the Disclosure Schedule
and in any certificate or document delivered pursuant to this Agreement shall
survive until June 30, 2001; provided, however, that the representations and
warranties in Sections 3.2(c), 3.2(d), 3.2(k) and 3.3(b) shall survive in
perpetuity and the representations and warranties in Section 3.2(j) shall
survive until 30 days following the expiration of the applicable statute of
limitations; further, provided, that this Section 8.1 shall not limit any
covenant, restriction, obligation or other agreement of the parties set forth or
contemplated herein, each of which shall survive for its respective term set
forth in this Agreement. The right to indemnification, payment of Damages or
other remedy based on such representations, warranties, covenants, restrictions,
obligations and agreements will not be affected by any investigation conducted
with respect to, or any Knowledge acquired (or capable of being acquired) at any
time, whether before or after the execution and delivery of this Agreement or
the applicable Closing Date, with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, or obligation. The
waiver of any condition based on the accuracy of any representation or warranty,
or on the performance of or compliance with any covenant or obligation, will not
affect the right to indemnification, payment of Damages, or other remedy based
on such representations, warranties, covenants, and obligations.
Section 8.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE COMPANY. The
Company will indemnify and hold harmless the Investor and its Representatives,
partners, controlling persons, and Affiliates and each of their respective
Representatives (collectively, the "COMPANY INDEMNIFIED PERSONS") from and
against, and will pay to the Company Indemnified Persons the amount of, any and
all losses, liabilities, claims, damages, or expenses (including costs of
investigation, defense, litigation and reasonable attorneys' fees), whether or
not involving a third-party claim (collectively, "DAMAGES"), arising, directly
or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by the Company
in this Agreement, the Disclosure Schedule or any other certificate or document
delivered by the Company pursuant to this Agreement, provided that notice of
such breach is given to the Company pursuant to Section 8.5 or 8.6, as
applicable, on or prior to June 30, 2001 (with respect to the representations
and warranties other than those in Sections 3.2(c), 3.2(d), 3.2(j) or 3.2(k)) or
the expiration of the survivability of the representation or warranty in Section
3.2(j) (it being understood that there shall be no time limitation for claims
based on breaches of the
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representations and warranties in Sections 3.2(c), 3.2(d) or 3.2(k) or notices
in respect of such claims); or
(b) any breach by the Company of any covenant, restriction, obligation
or agreement of the Company in this Agreement.
Section 8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY THE INVESTOR. The
Investor will indemnify and hold harmless the Company, its respective
Representatives, and Affiliates and each of their respective Representatives
(collectively, the "INVESTOR INDEMNIFIED PERSONS"), and will pay to the Company
the amount of any Damages arising, directly or indirectly, from or in connection
with:
(a) any breach of any representation or warranty made by the Investor
in this Agreement or in any certificate or document delivered by the Investor
pursuant to this Agreement, provided that notice of such breach is given to the
Investor pursuant to Section 8.5 or 8.6, as applicable, on or prior to June 30,
2001 (with respect to the representations and warranties other than those in
Section 3.3(b)) (it being understood that there shall be no time limitation for
claims based on breaches of the representations and warranties in Section 3.3(b)
or notices in respect of such claims); or
(b) any breach by the Investor of any covenant, restriction,
obligation or agreement of the Investor in this Agreement.
Section 8.4 Limitation On Amount.
(a) The Company will have no liability (for indemnification or
otherwise) with respect to the matters described in clause (a) of Section 8.2
until the total of all Damages attributable to the Company with respect to such
matters taken as a whole exceeds $125,000 (the "THRESHOLD"), after which the
amount of such Damages in excess of such Threshold shall be recoverable
hereunder up to a maximum recovery equal to the entire amount of the Purchase
Price paid by the Investor to the Company hereunder. The Threshold shall be
increased to $250,000 on the date that the Second Closing is consummated, if at
all (or the Termination Date, if applicable) (and, to the extent an
indemnification payment has been made prior to such date, the indemnified party
shall remit, within five (5) business days thereafter, to the indemnifying party
any amount that the indemnifying party paid to the indemnified party that it
would not have been required to pay if the Threshold had been $250,000 at the
time of such payment). Notwithstanding the foregoing, this Section 8.4(a) will
not apply to any breach of any of the Company's representations and warranties
set forth in Section 3.2(o), and the Company will be liable for all Damages with
respect to such breaches.
(b) The Investor will have no liability (for indemnification or
otherwise) with respect to the matters described in clause (a) of Section 8.3
until the total of all Damages incurred by the Company with respect to such
matters taken as a whole exceeds the Threshold, after which the amount of such
Damages in excess of the Threshold shall be recoverable hereunder up to a
maximum recovery equal to $10,000,000. Notwithstanding the foregoing, this
Section 8.4(b) will not apply to any breach of any of Investor's representations
and warranties set
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forth in Section 3.3(e), and the Investor will be liable for all Damages with
respect to such breaches.
Section 8.5 PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an Indemnified Person described in
Section 8.2 or 8.3 of notice of the commencement of any Proceeding against it,
including reasonable details as to the basis for such claim (to the extent
within the Knowledge of the Indemnified Person), such Indemnified Person will,
if a claim is to be made against an indemnifying party under such Section, give
notice to the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the indemnifying party
of any liability that it may have to any Indemnified Person, except to the
extent that the indemnifying party demonstrates that the defense of such action
is prejudiced by the Indemnified Person's failure to give such notice.
(b) If any Proceeding referred to in Section 8.5(a) is brought against
an Indemnified Person and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless the
indemnifying party fails to provide reasonable assurance to the Indemnified
Person of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume the defense of such
Proceeding with counsel reasonably satisfactory to the Indemnified Person and,
after notice from the indemnifying party to the Indemnified Person of its
election to assume the defense of such Proceeding, the indemnifying party will
not, as long as it diligently conducts such defense, be liable to the
Indemnified Person under this Article 8 for any fees of other counsel or any
other expenses with respect to the defense of such Proceeding, in each case
subsequently incurred by the Indemnified Person in connection with the defense
of such Proceeding, other than reasonable costs of investigation; provided that
if the indemnifying party is also a party to such Proceeding and, under
applicable standards of professional conduct, joint representation of the
Indemnified Person and the indemnifying party would be inappropriate, then the
Indemnified Person shall be entitled to retain separate counsel whose fees and
expenses shall be paid by the indemnifying party. If the indemnifying party
assumes the defense of a Proceeding, (i) no compromise or settlement of such
claims may be effected by the indemnifying party without the Indemnified
Person's consent not to be unreasonably withheld unless (A) there is no finding
or admission of any violation of Legal Requirements or any violation of the
rights of any Person and no effect on any other claims that may be made against
the Indemnified Person, and (B) the sole relief provided is monetary damages
that are paid in full by the indemnifying party; and (ii) the Indemnified Person
will have no liability with respect to any compromise or settlement of such
claims effected without its consent. If notice is given to an indemnifying party
of the commencement of any Proceeding and the indemnifying party does not,
within ten (10) days after the Indemnified Person's notice is given, give notice
to the Indemnified Person of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination made in
such Proceeding or any compromise or settlement effected by the Indemnified
Person. The Indemnified Person shall provide its reasonable cooperation with the
indemnifying party in connection with the defense of a proceeding assumed by the
indemnifying party hereunder, including the provision of information reasonably
requested by the indemnifying party.
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(c) The Company and the Investor hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on the Company and the Investor
with respect to such a claim anywhere in the world.
Section 8.6 PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
Section 8.7 REMEDIES EXCLUSIVE. The remedies provided in this Article VIII
shall be the exclusive remedies of the parties hereto in connection with any
breach of a representation or warranty contained herein except in the case of
actual fraud, willful misconduct or gross negligence, with respect to which the
remedies shall not be limited to those set forth herein.
ARTICLE IX.
GENERAL PROVISIONS
Section 9.1 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given when received if delivered personally, on the next Business Day if sent by
overnight courier for next Business Day delivery (providing proof of delivery),
when confirmation is received, if sent by facsimile or in 5 Business Days if
sent by U.S. registered or certified mail, postage prepaid (return receipt
requested) to the other parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Investor, to:
Crown Acquisition Partners, LLC
660 Madison Avenue, 15th Floor
New York, New York
Attn: Kenneth Squire
Facsimile: (212) 207-8001
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: W. Alex Voxman
Facsimile: (213) 891-8763
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(b) if to the Company, to:
Equity Marketing, Inc.
6330 San Vicente Blvd.
Los Angeles, California 90048
Attn: Leland P. Smith
Facsimile: (323) 932-4488
with a copy to:
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Attn: Thomas M. Cleary
Facsimile: (213) 229-8550
Section 9.2 INTERPRETATION. A reference made in this Agreement to an
Article, Section, Exhibit or Schedule, shall be to an Article or Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts (which may be by facsimile), all of which shall be considered one
and the same agreement and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other parties.
Section 9.4 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement,
the Registration Rights Agreement and the Confidentiality Agreement together
constitute the entire agreement between the parties with respect to the subject
hereof and thereof, and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter of such
agreements. Except as explicitly provided in Sections 8.2 and 8.3, this
Agreement is not intended to confer upon any Person other than the parties any
rights or remedies.
Section 9.5 COSTS AND EXPENSES. All costs and expenses in connection with
the negotiation, preparation, execution, delivery and performance of this
Agreement and the Contemplated Transactions (including, irrespective of whether
the Closings shall have occurred, costs incurred by the Investor and its
Affiliates in connection with an investment in the Company, which include,
without limitation, all reasonable attorney fees and other consultant and
advisor fees, including all fees and expenses arising from any due diligence
investigation and reasonable fees of brokers, investment bankers or financial
advisors, and all filing fees under the HSR Act) and all reasonable
out-of-pocket expenses incurred by Investor and its Affiliates (excluding,
unless the Company otherwise agrees, fees of brokers, investment bankers,
consultants and financial and other advisors) in connection with Investor and
its Affiliates providing strategic advice to the Company, in each case whether
incurred prior to or after the
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consummation of the Contemplated Transactions, shall be borne by the Company,
and the Company shall reimburse the Investor for all such costs and expenses (i)
no later than 30 days following the First Closing Date (with respect to costs
and expenses incurred through the First Closing), and (ii) for all other costs
and expenses, within 30 days following receipt by the Company from Investor or
its Affiliates of an invoice for such costs and expenses (together with such
documentation as may reasonably be requested by the Company).
Section 9.6 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 9.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise, by any of the parties without the prior
written consent of the other parties. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 9.8 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the State of Delaware
or of the United States located in the State of Delaware in the event any
dispute arises out of this Agreement or any of the Contemplated Transactions,
and each party agrees (a) it will not attempt to deny or defeat personal
jurisdiction or venue in any such court by motion or other request for leave
from any such court and (b) it will not bring any action relating to this
Agreement or any of the Contemplated Transactions in any court other than any
such court.
Section 9.9 SEVERABILITY. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein, so long as the economic and legal substance of the
Contemplated Transactions are not affected in a manner materially adverse to any
party hereto.
Section 9.10 FURTHER ASSURANCES. The parties agree (i) to furnish upon
request to each other such further information, (ii) to execute and deliver to
each other such other documents, and (iii) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
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Section 9.11 CONSTRUCTION. In entering into this Agreement, each party
represents and warrants that such party does so freely and voluntarily, after
having had the opportunity to meet and confer with such party's respective
attorneys regarding the contents and legal effect of this Agreement. Each party
represents and warrants that such party has full power and authority to enter
into and execute this Agreement. Every covenant, term, and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any party. In the event any claim is made by any party
relating to any conflict, omission, or ambiguity in this Agreement, no
presumption or burden of proof or persuasion shall be implied by virtue of the
fact that this Agreement was prepared by or at the request of a particular party
or such party's counsel.
Section 9.12 AMENDMENT. This Agreement may be amended by mutual agreement
of the parties at any time, but only pursuant to an instrument in writing duly
executed on behalf of each of the Company and the Investor.
(SIGNATURE PAGE FOLLOWS)
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IN WITNESS WHEREOF, the Investor and the Company have caused this
Agreement to be signed by their respective officers hereunto duly authorized,
all as of the date first written above.
CROWN ACQUISITION PARTNERS, LLC
By: /s/ JEFFREY S. DEUTSCHMAN
----------------------------
Name: Jeffrey S. Deutschman
Its: Manager
EQUITY MARKETING, INC.
By: /s/ DONALD A. KURZ
----------------------------
Name: Donald A. Kurz
Its: Chairman of the Board and Chief Executive
Officer
<PAGE>
EXHIBIT 3
VOTING AND IRREVOCABLE PROXY AGREEMENT
This VOTING AGREEMENT (the "Voting Agreement"), is dated as of March 29,
2000 among Crown Acquisition Partners, LLC, a Delaware limited liability company
("Investor") and Donald A. Kurz (the "Stockholder").
WHEREAS, in order to induce Investor to enter into the Securities Purchase
Agreement, dated as of the date hereof (the "Securities Purchase Agreement"),
with Equity Marketing, Inc., a Delaware corporation (the "Company"), Investor
has requested the Stockholder, and the Stockholder has agreed, to enter into
this Agreement with respect to shares of common stock of the Company, par value
$.001 per share (the "Common Stock") that the Stockholder beneficially owns,
whether now or hereafter acquired (the "Shares").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
GRANT OF PROXY; VOTING AGREEMENT; TRANSFER
Section 1.1 AGREEMENT TO VOTE FOR SECURITIES PURCHASE AGREEMENT. The
Stockholder hereby irrevocably and unconditionally agrees to vote all Shares
that the Stockholder is entitled to vote, at the time of any vote to approve the
Securities Purchase Agreement and the transactions contemplated thereby
(including the issuance of the Additional Securities (as defined in the
Securities Purchase Agreement)) at any meeting of the stockholders of the
Company (if one is held), and at any adjournment or postponement thereof, at
which the Securities Purchase Agreement (or any amended version thereof to which
the Stockholder consents) is submitted for the consideration and vote of the
stockholders of the Company (or in connection with any consent solicitation
conducted for such purpose), in favor of the approval of the Securities Purchase
Agreement and the transactions contemplated by the Securities Purchase Agreement
(including the issuance of the Additional Securities) and against any action
which would reasonably be expected to result in a failure of the conditions
described in Sections 6.3 and 6.4 of the Securities Purchase Agreement to be
satisfied.
Section 1.2 AGREEMENT TO VOTE FOR NOMINEES. The Stockholder hereby
irrevocably and unconditionally agrees to vote all Shares that the Stockholder
is entitled to vote and/or to cause such Shares to be voted in favor of the
Designees (as defined in the Securities Purchase Agreement) of Investor
nominated by the Company (or, if the Company fails to nominate such Designees,
which Investor is entitled to have nominated by the Company pursuant to the
Securities Purchase Agreement) for election as directors at any meeting of the
Company's stockholders called, or any consent solicitation conducted, for such
purpose.
Section 1.3 IRREVOCABLE PROXY. The Stockholder hereby revokes any and all
previous proxies granted with respect to the Shares that are inconsistent with
the voting agreements set forth in Sections 1.1 and 1.2. By entering into this
Agreement, the Stockholder hereby grants a proxy, effective upon the First
Closing under the Securities Purchase Agreement, appointing Investor as the
Stockholder's attorney-in-fact and proxy, with full power of substitution, for
and in the Stockholder's name, to vote, express, consent or dissent, or
otherwise to utilize such voting power solely in the manner contemplated by and
regarding the proposals specifically
<PAGE>
described in Sections 1.1 and 1.2 above. The proxy granted by the Stockholder
pursuant to this Article 1 is irrevocable and is coupled with an interest and is
granted in consideration of Investor entering into this Agreement and the
Securities Purchase Agreement and as security for the obligations of the
Stockholder under Section 1.2. The proxy granted by the Stockholder shall
terminate upon termination of this Agreement in accordance with its terms or,
with respect to particular Shares, the sale of such Shares in accordance with
the terms hereof. Without limiting the foregoing, the Stockholder will, upon
Investor's request, take all action as shall be reasonably required from time to
time in order to appoint Investor as its duly authorized proxy holder for the
Shares solely for the purpose set forth in Section 1.2. Such appointment shall
be renewed upon Investor's request as appropriate by the Stockholder during the
term of this Agreement in order to ensure that Investor remains the duly
authorized proxy holder of the Stockholder at all times during such term solely
for the purpose set forth in Section 1.2.
Section 1.4 NO PROXIES FOR OR DISPOSITIONS OF SHARES. Except pursuant to
the terms of this Agreement, the Stockholder shall not, without the prior
written consent of Investor, directly or indirectly, (i) grant any proxies or
enter into any voting trust or other agreement or arrangement with respect to
the voting of any Shares that are inconsistent with the voting agreements set
forth in Sections 1.1 and 1.2 or (ii) prior to the earlier to occur of the
Second Closing or the record date for the Company Stockholder Meeting (as
defined in the Securities Purchase Agreement) (the "No Sale Date"), sell,
assign, transfer, encumber or otherwise dispose of (collectively "Sell,"
correlative terms to have correlative meanings), or enter into any contract,
option or other arrangement or understanding with respect to the direct or
indirect sale of any Shares. Notwithstanding anything in Section 1.4(i) or (ii)
to the contrary, the Stockholder may sell up to 100,000 Shares at any time,
whether before or after the No Sale Date so long as the recipient agrees to be
bound by the terms of this Agreement, executes a counterpart to such effect and
Investor receives such executed Voting Agreement and proxy in the form hereof.
The Stockholder agrees not to permit any such transfer unless the Stockholder
has complied with the foregoing requirements.
Section 1.5 RECORD OWNER. If the Stockholder is not the record owner of any
Shares as to which the Stockholder is the beneficial owner, the Stockholder
agrees to cause or direct the record holder to vote such Shares in accordance
with the terms of this Agreement or, to the extent permitted by law, to provide
a proxy to Investor with respect thereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
The Stockholder represents and warrants to Investor that:
Section 2.1 AUTHORIZATION. The execution, delivery and performance by the
Stockholder of this Agreement and the consummation by the Stockholder of the
transactions contemplated hereby are within the powers of the Stockholder and
such execution, delivery and performance have been duly authorized by all
necessary action of such entity and the individual signing this Agreement on
behalf of the Stockholder represents he is authorized to bind the entity
thereby. This Agreement constitutes a valid and binding Agreement of the
Stockholder, enforceable in accordance with its terms, subject to the effect of
applicable bankruptcy,
2
<PAGE>
insolvency, reorganization, moratorium and other similar laws affecting the
rights of creditors generally and the effect of general principles of equity.
Section 2.2 NON-CONTRAVENTION. The execution, delivery and performance by
the Stockholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not, (i) violate any applicable law, rule,
regulation, judgment, injunction, order or decree, (ii) except as set forth in
Section 3.2(d) of the Securities Purchase Agreement, require any consent or
other action by any person or private or governmental entity under, constitute a
breach of or default under, or give rise to any right of termination,
cancellation or acceleration or to a loss of any benefit to which the
Stockholder is entitled under any provision of any agreement or other instrument
binding on the Stockholder or (iii) result in the imposition of any lien or
encumbrance on any asset of the Stockholder.
Section 2.3 OWNERSHIP OF SHARES. Subject to community property laws where
applicable, the Stockholder is the sole beneficial owner of the Shares set forth
under the Stockholder's name on the signature page hereto, free and clear of any
lien or encumbrance (including any restriction on the right to vote or otherwise
dispose of the Shares). None of such Shares is subject to any voting trust,
proxy or other agreement or arrangement with respect to the voting of such
Shares.
Section 2.4 TOTAL SHARES. Except for the Shares set forth under the
Stockholder's name on the signature page hereto, the Stockholder does not
beneficially own any (i) shares of capital stock or voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company or (iii) options or
other rights to acquire from the Company any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company, other than options granted under the Company's stock
option plans.
Section 2.5 FINDER'S FEES. No investment banker, broker, finder or other
intermediary is entitled to a fee or commission from the Stockholder, Investor
or the Company in respect of this Agreement based upon any arrangement or
agreement made by or on behalf of the Stockholder or the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Stockholder:
Section 3.1 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Investor of this Agreement and the consummation by Investor of
the transactions contemplated hereby are within the limited partnership powers
of Investor and have been duly authorized by all necessary limited partnership
action. This Agreement constitutes a valid and binding Agreement of Investor,
enforceable in accordance with its terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and the effect of general principles
of equity.
Section 3.2 NON-CONTRAVENTION. The execution, delivery and performance by
Investor of this Agreement and the consummation of the transactions contemplated
hereby do not and will
3
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not, (i) violate any applicable law, rule, regulation, judgment, injunction,
order or decree, (ii) except as set forth in Section 3.3(b) of the Securities
Purchase Agreement, require any consent or other action by any person or private
or governmental entity under, constitute a breach of or default under, or give
rise to any right of termination, cancellation or acceleration or to a loss of
any benefit to which Investor is entitled under any provision of any agreement
or other instrument binding on Investor or (iii) result in the imposition of any
lien or encumbrance on any asset of Investor.
Section 3.3 FINDER'S FEES. No investment banker, broker, finder or other
intermediary is entitled to a fee or commission from the Stockholder or the
Company in respect of this Agreement based upon any arrangement or agreement
made by or on behalf of Investor.
ARTICLE 4
MISCELLANEOUS
Section 4.1 FURTHER ASSURANCES. Investor and the Stockholder will execute
and deliver, or cause to be executed and delivered, all further documents and
instruments and use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations, to vote the Stockholder's
Shares to approve the Securities Purchase Agreement and the transactions
contemplated thereby (including the issuance of the Additional Securities) and
to take all other acts required to be taken by Investor or the Stockholder
pursuant to this Agreement; provided, however, that this Section 4.1 shall not
obligate the Stockholder to act in any capacity other than as a stockholder of
the Company, including, but not limited to, as an officer, consultant or
director of the Company.
Section 4.2 AMENDMENTS; TERMINATION. Any provision of this Agreement may be
amended or waived if, but only if, such amendment or waiver is in writing and is
signed, in the case of an amendment, by each party to this Agreement or in the
case of a waiver, by the party against whom the waiver is to be effective. This
Agreement shall terminate upon Investor ceasing to have the exclusive right to
designate a director under Section 4.4 of the Securities Purchase Agreement
(assuming directors are not elected by holders of the Preferred Stock, voting as
a separate class, pursuant to the Certificate of Designation). In addition, this
Agreement will terminate at such time as (i) the Stockholder ceases to
beneficially own any Shares (other than as a result of a disposition of such
Shares in violation of this Agreement) or (ii) if Investor is permitted to vote
any shares of capital stock held by it as a single class with holders of Common
Stock for the election of directors pursuant to paragraph 6 of the Certificate
of Designation (any such shares that may be voted as a single class with the
Common Stock, the "Eligible Shares"), Investor fails to vote such Eligible
Shares for the Stockholder for election as a director at any meeting of the
Company's stockholders (unless the Stockholder is not a nominee for director at
such meeting).
Section 4.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given upon receipt by the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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if to Investor, to: Crown Acquisition Partners, LLC
660 Madison Avenue, 15th Floor
New York, NY 10021
Attn: Kenneth Squire
Facsimile: (212) 207-8001
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: W. Alex Voxman
Facsimile: (213) 891-8763
if to the Stockholder: Donald A. Kurz
c/o Equity Marketing, Inc.
6330 San Vicente Boulevard
Los Angeles, California 90048
Attn: Donald A. Kurz
Facsimile: (323) 932-4484
with a copy to: Equity Marketing, Inc.
6330 San Vicente Boulevard
Los Angeles, California 90048
Attn: Leland P. Smith
Facsimile: (323) 932-4488
and
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Attn: Thomas M. Cleary, Esq.
Facsimile: (213) 229-8550
Section 4.4 EXPENSES. Except as provided in Section 9.5 of the Securities
Purchase Agreement, all costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
Section 4.5 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of the other
parties hereto. Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except that that the covenants made by the Stockholder in
Article 1 hereof shall also inure to the benefit of and be enforceable by the
Company (it being expressly understood, however, that such Article may be
amended by the
5
<PAGE>
parties, and compliance with any of the provisions of that Article may be
waived, in each case without the consent of or notice to the Company).
Section 4.6 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware, without regard for the
conflicts of law principles thereof.
Section 4.7 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts (which may be by facsimile), each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by all of the other
parties hereto.
Section 4.8 SEVERABILITY. If any term, provision or covenant of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, and if the rights or obligations of any party
hereto under this Agreement will not be materially and adversely affected
thereby, (i) such provision will be fully severable, (ii) this Agreement will be
construed and enforced as if such invalid, void or unenforceable provision had
never comprised a part hereof, (iii) the remaining provisions of this Agreement
will remain in full force and effect and will not be affected by the invalid,
void or unenforceable provision or by its severance herefrom and (iv) in lieu of
such invalid, void or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such invalid, void or unenforceable provision as may be possible so
as to carry out the intent of the parties hereto to the maximum extent permitted
by law.
Section 4.9 NOTICE OF SALES. Through the date that is the earlier to occur
of the Second Closing and the record date of the Company Stockholder Meeting,
the Stockholder agrees to provide written notice to Investor of any proposed
sale of Shares by the Stockholder at least three business days prior to such
sale.
Section 4.10 LEGEND. The Stockholder agrees that the certificates
representing any of the Stockholder's Shares (other than those held in the
Company's 401(k) Plan) the sale of which is prohibited by Section 1.4 shall, at
the request of Investor, contain a legend to the effect that such Shares are
subject to the terms of this Agreement, which limits the ability of the
Stockholder to sell such Shares. In the event the Second Closing does not occur
on or prior to May 5, 2000, the Stockholder shall, if requested by Investor,
promptly deliver the Stockholder's certificates to the Company for legending in
accordance with this section. The parties agree to cooperate in promptly
removing the legend from any certificate that represents Shares that are no
longer subject to any sale restrictions.
Section 4.11 ENTIRE AGREEMENT. This Agreement, its exhibits and the
documents executed in connection herewith, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral and written, between the
parties hereto with respect to the subject matter hereof.
Section 4.12 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with
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the terms hereof and that the parties shall be entitled to specific performance
of the terms hereof in addition to any other remedy to which they are entitled
at law or in equity.
(SIGNATURE PAGE FOLLOWS)
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
CROWN ACQUISITION PARTNERS, LLC
By: /s/ JEFFREY S. DEUTSCHMAN
----------------------------------
Name: Jeffrey S. Deutschman
Title: Manager
/s/ DONALD A. KURZ
-------------------------------------
Name: DONALD A. KURZ
with respect to 1,542,850 Shares held
directly and 1,953 Shares held in the
Equity Marketing, Inc. 401(k) Plan
<PAGE>
EXHIBIT 4
VOTING AND IRREVOCABLE PROXY AGREEMENT
This VOTING AND IRREVOCABLE PROXY AGREEMENT (the "Voting Agreement"), is
dated as of March 29, 2000 among Crown Acquisition Partners, LLC, a Delaware
limited liability company ("Investor"), and each other person or entity set
forth on the signature page hereof (the "Stockholders").
WHEREAS, in order to induce Investor to enter into the Securities Purchase
Agreement, dated as of the date hereof (the "Securities Purchase Agreement"),
with Equity Marketing, Inc., a Delaware corporation (the "Company"), Investor
has requested the Stockholders, and each Stockholder has agreed, to enter into
this Agreement with respect to shares of common stock of the Company, par value
$.001 per share (the "Common Stock") that each Stockholder beneficially owns,
whether now or hereafter acquired (the "Shares").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
GRANT OF PROXY; VOTING AGREEMENT; TRANSFER
Section 1.1 AGREEMENT TO VOTE FOR SECURITIES PURCHASE AGREEMENT.
Each Stockholder hereby irrevocably and unconditionally agrees to vote all
Shares that such Stockholder is entitled to vote, at the time of any vote to
approve the Securities Purchase Agreement and the transactions contemplated
thereby (including the issuance of the Additional Securities (as defined in the
Securities Purchase Agreement)) at any meeting of the stockholders of the
Company (if one is held), and at any adjournment or postponement thereof, at
which the Securities Purchase Agreement (or any amended version thereof to which
the Stockholder consents) is submitted for the consideration and vote of the
stockholders of the Company (or in connection with any consent solicitation
conducted for such purpose), in favor of the approval of the Securities Purchase
Agreement and the transactions contemplated by the Securities Purchase Agreement
(including the issuance of the Additional Securities) and against any action
which would reasonably be expected to result in a failure of the conditions
described in Sections 6.3 and 6.4 of the Securities Purchase Agreement to be
satisfied.
Section 1.2 AGREEMENT TO VOTE FOR NOMINEES. Each Stockholder hereby
irrevocably and unconditionally agrees to vote all Shares that such Stockholder
is entitled to vote and/or to cause such Shares to be voted in favor of the
Designees (as defined in the Securities Purchase Agreement) of Investor
nominated by the Company (or, if the Company fails to nominate such Designees,
which Investor is entitled to have nominated by the Company pursuant to the
Securities Purchase Agreement) for election as directors at any meeting of the
Company's stockholders called, or any consent solicitation conducted, for the
purpose of seeking the approvals set forth in Section 1.1, if any.
Section 1.3 IRREVOCABLE PROXY. Each Stockholder hereby revokes any
and all previous proxies granted with respect to the Shares that are
inconsistent with the voting agreements set forth in Sections 1.1 and 1.2. By
entering into this Agreement, each Stockholder hereby grants a proxy, effective
upon the First Closing under the Securities Purchase Agreement, appointing
Investor as each Stockholder's attorney-in-fact and proxy, with full power of
substitution, for
<PAGE>
and in each Stockholder's name, to vote, express, consent or dissent, or
otherwise to utilize such voting power solely in the manner contemplated by and
regarding the proposals specifically described in Sections 1.1 and 1.2 above.
The proxy granted by each Stockholder pursuant to this Article 1 is irrevocable
and is coupled with an interest and is granted in consideration of Investor
entering into this Agreement and the Securities Purchase Agreement and as
security for the obligations of such Stockholder under Section 1.2. The proxy
granted by each Stockholder shall terminate upon termination of this Agreement
in accordance with its terms or, with respect to particular Shares, the sale of
such Shares in accordance with the terms hereof.
Section 1.4 NO PROXIES FOR OR DISPOSITIONS OF SHARES. Except pursuant to
the terms of this Agreement, a Stockholder shall not, without the prior written
consent of Investor, directly or indirectly, (i) grant any proxies or enter into
any voting trust or other agreement or arrangement with respect to the voting of
any Shares that are inconsistent with the voting agreements set forth in
Sections 1.1 and 1.2 or (ii) prior to the earlier to occur of the Second Closing
or the record date for the Company Stockholder Meeting (as defined in the
Securities Purchase Agreement) (the "No Sale Date"), sell, assign, transfer,
encumber or otherwise dispose of (collectively "Sell," correlative terms to have
correlative meanings), or enter into any contract, option or other arrangement
or understanding with respect to the direct or indirect sale of any Shares.
Notwithstanding anything in Section 1.4(i) or (ii) to the contrary, a
Stockholder may sell up to 100,000 Shares at any time, whether before or after
the No Sale Date.
Section 1.5 RECORD OWNER. If a Stockholder is not the record owner of any
Shares as to which such Stockholder is the beneficial owner, such Stockholder
agrees to cause or direct the record holder to vote such Shares in accordance
with the terms of this Agreement or, to the extent permitted by law, to provide
a proxy to Investor with respect thereto.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder represents and warrants to Investor that:
Section 2.1 AUTHORIZATION. The execution, delivery and performance by each
Stockholder of this Agreement and the consummation by each Stockholder of the
transactions contemplated hereby are within the powers of each Stockholder and,
if Stockholder is an entity, such execution, delivery and performance have been
duly authorized by all necessary action of such entity and the individual
signing this Agreement on behalf of such Stockholder represents he is authorized
to bind the entity thereby. This Agreement constitutes a valid and binding
Agreement of each Stockholder, enforceable in accordance with its terms, subject
to the effect of applicable bankruptcy, insolvency, reorganization, moratorium
and other similar laws affecting the rights of creditors generally and the
effect of general principles of equity.
Section 2.2 NON-CONTRAVENTION. The execution, delivery and performance by
each Stockholder of this Agreement and the consummation of the transactions
contemplated hereby do not and will not, (i) violate any applicable law, rule,
regulation, judgment, injunction, order or decree, (ii) except as set forth in
Section 3.2(d) of the Securities Purchase Agreement, require any consent or
other action by any person or private or governmental entity under, constitute a
breach of or default under, or give rise to any right of termination,
cancellation or acceleration or
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<PAGE>
to a loss of any benefit to which each Stockholder is entitled under any
provision of any agreement or other instrument binding on any Stockholder or
(iii) result in the imposition of any lien or encumbrance on any asset of the
Stockholders.
Section 2.3 OWNERSHIP OF SHARES. Subject to community property laws where
applicable, each Stockholder is the sole beneficial owner of the Shares set
forth under such Stockholder's name on the signature page hereto, free and clear
of any lien or encumbrance (including any restriction on the right to vote or
otherwise dispose of the Shares). None of such Shares is subject to any voting
trust, proxy or other agreement or arrangement with respect to the voting of
such Shares.
Section 2.4 TOTAL SHARES. Except for the Shares set forth under each
Stockholder's name on the signature page hereto, each Stockholder does not
beneficially own any (i) shares of capital stock or voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company or (iii) options or
other rights to acquire from the Company any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company, other than options granted under the Company's stock
option plans.
Section 2.5 FINDER'S FEES. No investment banker, broker, finder or other
intermediary is entitled to a fee or commission from any Stockholder, Investor
or the Company in respect of this Agreement based upon any arrangement or
agreement made by or on behalf of any Stockholder or the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to each Stockholder:
Section 3.1 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Investor of this Agreement and the consummation by Investor of
the transactions contemplated hereby are within the limited partnership powers
of Investor and have been duly authorized by all necessary limited partnership
action. This Agreement constitutes a valid and binding Agreement of Investor,
enforceable in accordance with its terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights of creditors generally and the effect of general principles
of equity.
Section 3.2 NON-CONTRAVENTION. The execution, delivery and performance by
Investor of this Agreement and the consummation of the transactions contemplated
hereby do not and will not, (i) violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (ii) except as set forth in Section
3.3(b) of the Securities Purchase Agreement, require any consent or other action
by any person or private or governmental entity under, constitute a breach of or
default under, or give rise to any right of termination, cancellation or
acceleration or to a loss of any benefit to which Investor is entitled under any
provision of any agreement or other instrument binding on Investor or (iii)
result in the imposition of any lien or encumbrance on any asset of Investor.
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Section 3.3 FINDER'S FEES. No investment banker, broker, finder or other
intermediary is entitled to a fee or commission from a Stockholder or the
Company in respect of this Agreement based upon any arrangement or agreement
made by or on behalf of Investor.
ARTICLE 4
MISCELLANEOUS
Section 4.1 FURTHER ASSURANCES. Investor and each Stockholder will
execute and deliver, or cause to be executed and delivered, all further
documents and instruments and use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations, to vote the Stockholders'
Shares to approve the Securities Purchase Agreement and the transactions
contemplated thereby (including the issuance of the Additional Securities) and
to take all other acts required to be taken by Investor or each Stockholder
pursuant to this Agreement; provided, however, that this Section 4.1 shall not
obligate any Stockholder to act in any capacity other than as a stockholder of
the Company, including, but not limited to, as an officer, consultant or
director of the Company.
Section 4.2 AMENDMENTS; TERMINATION. Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing and
is signed, in the case of an amendment, by each party to this Agreement or in
the case of a waiver, by the party against whom the waiver is to be effective.
This Agreement shall terminate upon the earlier to occur of (i) completion of
the Second Closing (as defined in the Securities Purchase Agreement) or (ii) the
Termination Date (as defined in the Securities Purchase Agreement).
Section 4.3 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given upon receipt by the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
if to Investor, to: Crown Acquisition Partners, LLC
660 Madison Avenue, 15th Floor
New York, NY 10021
Attn: Kenneth Squire
Facsimile: (212) 207-8001
with a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071-2007
Attn: W. Alex Voxman
Facsimile: (213) 891-8763
if to a Stockholder: to the address set forth under such
Stockholder's name on Exhibit A hereto,
with a copy to the person indicated on
Exhibit A hereto.
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<PAGE>
with a copy to: Equity Marketing, Inc.
6330 San Vicente Boulevard
Los Angeles, California 90048
Attn: Leland P. Smith
Facsimile: (323) 932-4488
and
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Attn: Thomas M. Cleary, Esq.
Facsimile: (213) 229-8550
Section 4.4 EXPENSES. Except as provided in Section 9.5 of the
Securities Purchase Agreement, all costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
Section 4.5 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns; provided,
however, that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of the other
parties hereto. Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except that that the covenants made by the Stockholders in
Article 1 hereof shall also inure to the benefit of and be enforceable by the
Company (it being expressly understood, however, that such Article may be
amended by the parties, and compliance with any of the provisions of that
Article may be waived, in each case without the consent of or notice to the
Company).
Section 4.6 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware, without regard for the
conflicts of law principles thereof.
Section 4.7 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts (which may be by facsimile), each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each party
hereto shall have received counterparts hereof signed by all of the other
parties hereto.
Section 4.8 SEVERABILITY. If any term, provision or covenant of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, and if the rights or obligations of any party
hereto under this Agreement will not be materially and adversely affected
thereby, (i) such provision will be fully severable, (ii) this Agreement will be
construed and enforced as if such invalid, void or unenforceable provision had
never comprised a part hereof, (iii) the remaining provisions of this Agreement
will remain in full force and effect
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and will not be affected by the invalid, void or unenforceable provision or by
its severance herefrom and (iv) in lieu of such invalid, void or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such invalid, void
or unenforceable provision as may be possible so as to carry out the intent of
the parties hereto to the maximum extent permitted by law.
Section 4.9 NOTICE OF SALE. Through the date that is the earlier to
occur of the Second Closing and the record date of the Company Stockholders'
Meeting, each Stockholder agrees to provide written notice to Investor of any
proposed sale of Shares by such Stockholder (other than shares permitted to be
transferred pursuant to the last sentence of Section 1.4).
Section 4.10 ENTIRE AGREEMENT. This Agreement, its exhibits and the
documents executed in connection herewith, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral and written, between the
parties hereto with respect to the subject matter hereof.
Section 4.11 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy to which they are entitled at law or in equity.
(SIGNATURE PAGE FOLLOWS)
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
CROWN ACQUISITION PARTNERS, LLC
By: /s/ JEFFREY S. DEUTSCHMAN
--------------------------------------------
Name: Jeffrey S. Deutschman
Title: Manager
/s/ Stephen P. Robeck
--------------------------------------------
Name: STEPHEN P. ROBECK, AS TRUSTEE FOR THE
ROBECK 1997 TRUST
1,013,750 Shares
/s/ Stephen P. Robeck
--------------------------------------------
Name: STEPHEN P. ROBECK
With respect to 1,963 Shares held in the
Equity Marketing, Inc. 401(k) Plan
<PAGE>
EXHIBIT A
Address of Stockholders
STEPHEN P. ROBECK
c/o Equity Marketing, Inc.
6330 San Vicente Boulevard
Los Angeles, CA 90048
Exhibit - A
<PAGE>
EXHIBIT 5
REGISTRATION RIGHTS AGREEMENT
BETWEEN
CROWN ACQUISITION PARTNERS, LLC
AND
EQUITY MARKETING, INC.
DATED AS OF MARCH 29, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PAGE
Section 1. Definitions...................................................................1
Section 2. Demand Registration...........................................................3
(a) Requests for Registration by Holders..........................................3
(b) Filing and Effectiveness......................................................4
(c) Priority on Demand Registration...............................................4
(d) Postponement of Demand Registration...........................................5
Section 3. Piggyback Registration........................................................5
(a) Right to Piggyback............................................................5
(b) Priority on Piggyback Registrations...........................................5
Section 4. Restrictions on Sale by Holders...............................................6
Section 5. Registration Procedures.......................................................6
Section 6. Registration Expenses........................................................11
Section 7. Indemnification..............................................................12
(a) Indemnification by the Company...............................................12
(b) Indemnification by Holders...................................................13
(c) Conduct of Indemnification Proceedings.......................................13
(d) Contribution.................................................................13
Section 8. Underwritten Registrations...................................................14
Section 9. Other Agreements.............................................................15
Section 10. Miscellaneous................................................................15
(a) Remedies.....................................................................15
(b) Amendments and Waivers.......................................................15
(c) Notices......................................................................15
(d) Merger or Consolidation of the Company.......................................16
(e) Successors and Assigns.......................................................16
(f) Counterparts.................................................................16
(g) Headings.....................................................................17
(h) Governing Law................................................................17
(i) Severability.................................................................17
(j) Entire Agreement.............................................................17
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of March 29, 2000, by and between Equity Marketing, Inc., a
Delaware corporation (the "COMPANY") , Crown Acquisition Partners, LLC, a
Delaware limited liability company ("Investor"), and each other person who
becomes a Holder hereunder.
RECITALS
WHEREAS, pursuant to a Securities Purchase Agreement dated as of
even date hereof (the "SECURITIES PURCHASE AGREEMENT") between the Company and
the Investor, the Investor is purchasing shares of Series A Senior Cumulative
Participating Convertible Preferred Stock of the Company, par value $0.001 per
share (including any securities into which such preferred stock may be or has
been converted or exchanged in any merger, consolidation or reclassification,
the "SERIES A PREFERRED STOCK") and warrants (the "Warrants") to purchase shares
of Series B Senior Cumulative Participating Convertible Preferred Stock of the
Company, par value $.001 per share (including any securities into which such
preferred stock may be or has been converted or exchanged in any merger,
consolidation or reclassification, the "SERIES B PREFERRED STOCK") and shares of
Series C Senior Cumulative Participating Convertible Preferred Stock of the
Company, par value $.001 per share (including any securities into which such
preferred stock may be or has been converted or exchanged in any merger,
consolidation or reclassification, the "SERIES C PREFERRED STOCK", and, together
with the Series A Preferred Stock, and the Series B Preferred Stock, the
"Preferred Stock"), with each share of Preferred Stock being convertible into
Common Stock of the Company, par value $0.001 per share (the "COMMON STOCK") ;
and
WHEREAS, the Company's shares of Common Stock are registered with
the SEC and quoted on the Nasdaq Stock Market; and
WHEREAS, to induce Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide to the Holders (as defined
below) certain registration rights under the Securities Act; and
WHEREAS, the execution and delivery of this agreement by the
parties hereto is a condition to the closing of the transactions contemplated by
the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein and in the Securities Purchase Agreement, and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS. For purposes of this Agreement, the following
capitalized terms have the following meanings:
"AFFILIATES:" Any person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, such first Person.
<PAGE>
"COMMON STOCK:" The Common Stock of the Company and any
securities into which such common stock may be or has been converted or
exchanged in any merger, consolidation or reclassification.
"HOLDERS:" The Investor and its Affiliates that from time to time
own Registrable Securities and each of their permitted transferees pursuant to
Section 10(e) who agree to be bound by the provisions of this Agreement in
accordance with said section.
"PERSON:" An individual or a corporation, partnership, a limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"PREFERRED STOCK:" The Preferred Stock issued pursuant to the
terms of the Securities Purchase Agreement, including the Preferred Stock to be
issued upon the exercise of the Warrants issued pursuant thereto.
"PROSPECTUS:" The prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to such
prospectus, including posteffective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such prospectus.
"REGISTRABLE SECURITIES:" All shares of Common Stock issued or
issuable upon the conversion of the Preferred Stock into Common Stock (including
Preferred Stock acquired upon exercise of the Warrants), excluding shares of
Common Stock that have been disposed of by a Holder pursuant to a Registration
Statement relating to the sale thereof that has become effective under the
Securities Act or pursuant to Rule 144 or Rule 145 under the Securities Act.
Registrable Securities shall also include any shares of the Common Stock or
other securities (or shares of Common Stock underlying such other securities)
that may be received by the Holders (x) as a result of a stock dividend on or
stock split of Registrable Securities or (y) on account of Registrable
Securities in a recapitalization of or other transaction involving the Company.
"REGISTRATION STATEMENT:" Any registration statement of the
Company under the Securities Act that covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the related Prospectus,
any preliminary prospectus, all amendments and supplements to such registration
statement (including post-effective amendments), all exhibits and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
"SEC:" The Securities and Exchange Commission.
"SECURITIES ACT:" The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"UNDERWRITTEN OFFERING:" A distribution, registered pursuant to
the Securities Act, in which securities of the Company are sold to the public
through one or more underwriters.
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Section 2. DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION BY HOLDERS. At any time and from time to
time after the earlier to occur of (i) the Second Closing Date (as defined in
the Securities Purchase Agreement), (ii) the Termination Date (as defined in the
Securities Purchase Agreement), or (iii) September 30, 2000, subject to the
conditions set forth in this Agreement: (i) the Holders will have the right, by
written notice delivered to the Company (a "DEMAND NOTICE"), to require the
Company to register Registrable Securities under and in accordance with the
provisions of the Securities Act (a "DEMAND REGISTRATION"), PROVIDED that the
Holders may not make in the aggregate more than four (4) Demand Registrations
under this Agreement; PROVIDED, FURTHER, that: (i) no such Demand Registration
may be required unless the Holders requesting such Demand Registration provide
to the Company a certificate (the "Authorizing Certificate"), seeking to include
Registrable Securities in such Demand Registration with a market value of at
least $5,000,000 (calculated based on the closing sale price of such securities
on the principal securities exchange where such securities are listed on the
business day immediately preceding the date of the Demand Notice) as of the date
the Demand Notice is given; and (ii) no Demand Notice may be given prior to six
(6) months after the effective date of the immediately preceding Demand
Registration or, if later, the date on which a registration pursuant to this
Section 2 is terminated in its entirety prior to the effective date of the
applicable registration statement. Each Demand Notice shall set forth (A) the
name of the Holder(s) seeking to include Registrable Securities in such Demand
Registration, (B) the number of Registrable Securities held by each such Holder,
and, if different, the number of Registrable Securities such Holder has elected
to have registered, and (C) the intended methods of disposition of the
Registrable Securities. Notwithstanding the foregoing, a good faith decision by
a Holder to withdraw Registrable Securities from registration will not affect
the Company's obligations hereunder even if the amount remaining to be
registered has a market value of less than $5,000,000 (calculated as aforesaid),
provided that: (1) such continuing registration shall constitute a Demand
Registration and (2) the withdrawing Holder reimburses the Company for any
registration and filing fees (including any fees payable to the National
Association of Securities Dealers, Inc. or any successor organization) it has
incurred with respect to the withdrawn Registrable Securities (unless all
Registrable Securities are withdrawn, in which case the withdrawing Holder(s)
shall reimburse the Company for all registration and filing fees and other costs
and expenses described in Section 6 incurred by it in connection with the
registration of such Registrable Securities). Subject to compliance with clause
(2) of the proviso contained in the preceding sentence, a registration that is
terminated in its entirety prior to the effective date of the applicable
registration statement will not constitute a Demand Registration and,
notwithstanding the proviso contained in the preceding sentence, the withdrawing
Holder shall not be obligated to reimburse the Company for any registration or
filing fees or other costs and expenses incurred by the Company with respect to
the withdrawn Registrable Securities if such withdrawal is based upon a material
adverse event or change involving the Company that has occurred or been
disclosed after the date of Holder's Demand Notice (including a decrease of 20%
or more in the trading price of the Company's Common Stock, calculated based on
the difference between the closing price of the Company's Common Stock on the
date of the Demand Notice when compared with the closing price of the Company's
Common Stock on the date that the Holder's request for withdrawal is transmitted
to the Company) or material adverse information relating to the Company that has
been disclosed to Holder after the date of Holder's Demand Notice.
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<PAGE>
(b) FILING AND EFFECTIVENESS. The Company will file a Registration
Statement relating to any Demand Registration as promptly as practicable (but in
any event within (i) 60 days if the Company is not eligible to file a
registration statement on Form S-3 or (ii) 30 days if the Company is eligible to
file a registration statement on Form S-3 (unless the Company is required to
file a registration statement on Form S-1 or Form S-2 at the request of the
Holders holding a majority of the Registrable Securities to be included in the
applicable Demand Registration) following the date on which the Demand Notice is
given and will use its reasonable best efforts to cause the same to be declared
effective by the SEC as soon as practicable thereafter. If any Demand
Registration is requested to be effected as a shelf registration pursuant to
Rule 415 under the Securities Act by the Holders demanding such Demand
Registration, the Company will keep the Registration Statement filed in respect
thereof effective for a period of six (6) months from the date on which the SEC
declares such Registration Statement effective (subject to extension pursuant to
Section 5) or such shorter period that will terminate when all Registrable
Securities covered by such Registration Statement have been sold pursuant to
such Registration Statement.
Within ten (10) business days after receipt of such Demand
Notice, the Company will serve written notice thereof (the "NOTICE") to all
other Holders and will, subject to the provisions of Section 2(c), include in
such registration all Registrable Securities with respect to which the Company
receives written requests for inclusion therein within ten (10) business days
after receipt of the Notice by the applicable Holder. Subject to the terms of
Section 2(a), the Holder will be permitted to withdraw in good faith all or part
of the Registrable Securities from a Demand Registration at any time prior to
the effective date of such Demand Registration, in which event the Company will
promptly amend or, if applicable, withdraw the related Registration Statement.
(c) PRIORITY ON DEMAND REGISTRATION. If Registrable Securities are to be
registered pursuant to a Demand Registration, the Company shall provide written
notice to the other Holders and will permit all such Holders who request to be
included in the Demand Registration to include any or all Registrable Securities
held by such Holders in such Demand Registration. Notwithstanding the foregoing,
if the managing underwriter or underwriters of an Underwritten Offering to which
such Demand Registration relates advises the Holders that the total amount of
Registrable Securities that such Holders intend to include in such Demand
Registration is in the aggregate such as to materially and adversely affect the
success of such offering, then the number of Registrable Securities to be
included in such Demand Registration will, if necessary, be reduced and there
will be included in such Underwritten Offering the number of Registrable
Securities that, in the opinion of such managing underwriter or underwriters,
can be sold without materially and adversely affecting the success of such
Underwritten Offering. The Registrable Securities of the Holder or Holders
initiating the Demand Registration shall receive priority in such Underwritten
Offering to the full extent of the Registrable Securities such Holder or Holders
desire to sell (unless these securities would materially and adversely affect
the success of such offering, in which case the number of such Holder's
Registrable Securities included in the offering shall be reduced to the extent
necessary) and the remaining allocation available for sale, if any, shall be
allocated PRO RATA among the other Holders on the basis of the amount of
Registrable Securities requested to be included therein by each such Holder.
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(d) POSTPONEMENT OF DEMAND REGISTRATION. The Company will be entitled to
postpone the filing period of any Demand Registration for a reasonable period of
time not in excess of 90 calendar days if the Company determines, in the good
faith exercise of the business judgment of its Board of Directors, that such
registration and offering could materially interfere with a BONA FIDE business
or financing transaction of the Company or would require disclosure of
information, the premature disclosure of which could materially and adversely
affect the Company; provided, that the Company shall be entitled to exercise its
rights under this Section 2(d) only once in any twelve month period. If the
Company postpones the filing of a Registration Statement, it will promptly
notify the Holders in writing (i) when the events or circumstances permitting
such postponement have ended and (ii) that the decision to postpone was made by
the Board of Directors of the Company in accordance with this Section 2(d).
Section 3. PIGGYBACK REGISTRATION.
(a) RIGHT TO PIGGYBACK. If at any time the Company proposes to file a
Registration Statement, whether or not for sale for the Company's own account,
on a form and in a manner that would also permit registration of Registrable
Securities, the Company shall give to Holders holding Registrable Securities,
written notice of such proposed filing at least thirty (30) days before the
anticipated filing. The notice referred to in the preceding sentence shall offer
Holders the opportunity to register such amount of Registrable Securities as
each Holder may request (a "PIGGYBACK REGISTRATION"). Subject to Section 3(b),
the Company will include in each such Piggyback Registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein. Subject to clause (2) of the proviso at the end of Section
2(a), the Holders will be permitted to withdraw all or part of the Registrable
Securities from a Piggyback Registration at any time prior to the effective date
of such Piggyback Registration.
Notwithstanding the foregoing, the Company will not be obligated
to effect any registration of Registrable Securities under this Section 3 as a
result of the registration of any of its securities solely in connection with
mergers, acquisitions, exchange offers, dividend reinvestment and share purchase
plans offered solely to current holders of the Common Stock, rights offerings or
option or other employee benefit plans.
(b) PRIORITY ON PIGGYBACK REGISTRATIONS. The Company will cause the
managing underwriter or underwriters of a proposed Underwritten Offering to
permit Holders holding Registrable Securities requested to be included in the
registration for such offering to include therein all such Registrable
Securities requested to be so included on the same terms and conditions as any
securities of the Company included therein (other than the indemnification by
the Holders, which will be limited as set forth in Section 7 hereof).
Notwithstanding the foregoing, if the managing underwriter or underwriters of
such Underwritten Offering advises the Holders to the effect that the total
amount of securities that such Holders and the Company propose to include in
such Underwritten Offering is such as to materially and adversely affect the
success of such offering, then the Company will include in such registration (i)
first, and subject to the provisions of Section 2(c), if applicable, the Common
Stock of the Person who has demanded such registration, if any, (ii) second,
100% of the Common Stock the Company proposes to sell, and (iii) third, to the
extent of the number of Registrable Securities requested to be included in such
registration which, with the advice of such managing underwriter, can be sold
without having the adverse effect referred to above, the number of Registrable
Securities
5
<PAGE>
which the Holders have requested to be included in such registration,
such amount to be allocated pro rata among all requesting Holders on the basis
of the relative number of Registrable Securities then held by each such Holder.
No registration of Registrable Securities effected under this
Section 3 shall relieve the Company of its obligation to effect a registration
of Registrable Securities pursuant to Section 2 hereof.
Section 4. RESTRICTIONS ON SALE BY HOLDERS. Each Holder agrees, if such
Holder is so requested (pursuant to a timely written notice) by the managing
underwriter or underwriters in an Underwritten Offering, not to effect any
public sale or distribution of any of the Company's securities of such class or
securities convertible or exchangeable into such class (except as part of such
Underwritten Offering), including a sale pursuant to Rule 144 under the
Securities Act, during the 15-calendar day period prior to, and during the
90-calendar day period beginning on, the closing date of such Underwritten
Offering.
Section 5. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations pursuant to Sections 2 and 3, the Company will effect
such registrations to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible, and in each case
to the extent applicable (it being understood that the obligations of the
Company in clauses (a), (b), (d), (h), (j), (k), (1), (n) and (q) of this
Section 5 will be subject to the first sentence of Section 3(b) and, except as
provided in Section 3(b), the Holders will not have any right to effect an
underwritten public offering under Section 3):
(a) Prepare and file with the SEC a Registration Statement
or Registration Statements on any appropriate form under the
Securities Act available for the sale of the Registrable
Securities by the holders thereof in accordance with the intended
method or methods of distribution thereof, and cause each such
Registration Statement to become effective and remain effective
as provided herein; PROVIDED, HOWEVER, that before filing a
Registration Statement or Prospectus or any amendments or
supplements thereto (including documents that would be
incorporated or deemed to be incorporated therein by reference)
the Company will furnish to the Holders holding Registrable
Securities covered by such Registration Statement, not more than
one counsel chosen by Holders holding a majority of the
Registrable Securities being registered ("SPECIAL COUNSEL") and
the managing underwriters, if any, copies of all such documents
proposed to be filed, which documents will be subject to the
review of such Holders, such Special Counsel and such
underwriters, and the Company will not file any such Registration
Statement or amendment thereto or any Prospectus or any
supplement thereto (excluding such documents that, upon filing,
will be incorporated or deemed to be incorporated by reference
therein) to which the Holders holding a majority of the
Registrable Securities covered by such Registration Statement or
the managing underwriter, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may
be necessary to keep such Registration Statement continuously
effective for the applicable periods specified in Section 2;
cause the related Prospectus to be supplemented by any required
Prospectus
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supplement, and as so supplemented to be filed pursuant to Rule
424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in
accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the selling Holders and the managing
underwriters, if any, promptly, and (if requested by any such
person) confirm such notice in writing, (i) when a Prospectus or
any Prospectus supplement or post-effective amendment has been
filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective,
(ii) of any request by the SEC or any other federal or state
governmental authority for amendments or supplements to a
Registration Statement or related Prospectus or for additional
information, (iii) of the issuance by the SEC or any other
federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) if at any
time the representations and warranties of the Company contained
in any agreement contemplated by Section 5(n) (including any
underwriting agreement) cease to be true and correct in any
material, respect, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the
occurrence of any event that makes any statement made in such
Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires the making of any
changes in a Registration Statement, Prospectus or any such
document so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and, in
the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, and (vii) of the Company's reasonable
determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) Use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of a
Registration Statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the
earliest possible moment.
(e) If requested by the managing underwriters, if any, or
Holders holding a majority of the Registrable Securities being
registered, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment such information as the managing
underwriters, if any, and such Holders agree should be included
therein as may be required by applicable law and (ii) make all
required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company
has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment; provided,
however, that the Company will not be required
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to take any actions under this Section 5(e) that are not, in the
opinion of counsel for the Company, in compliance with applicable
law.
(f) Furnish to each selling Holder and each managing
underwriter, if any, without charge, at least one conformed copy
of the Registration Statement and any posteffective amendment
thereto, including financial statements (but excluding schedules,
all documents incorporated or deemed incorporated therein by
reference and all exhibits, unless requested in writing by such
holder or underwriter).
(g) Deliver to each selling Holder and the underwriters,
if any, without charge as many copies of the Prospectus or
Prospectuses relating to such Registrable Securities (including
each preliminary prospectus) and any amendment or supplement
thereto as such persons may reasonably request; and, subject to
the last paragraph of this Section 5, the Company hereby consents
to the use of such Prospectus or each amendment or supplement
thereto by each of the selling Holders and the underwriters, if
any, in connection with the offering and sale of the Registrable
Securities covered by such Prospectus or any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities,
to register or qualify or cooperate with the selling Holders, the
underwriters, if any, and their respective counsel in connection
with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for
offer and sale under the securities or blue sky laws of such
jurisdictions within the United States as any seller or
underwriter reasonably requests in writing; use its reasonable
best efforts to keep such registration or qualification (or
exemption therefrom) effective during the period the applicable
Registration Statement is required to be kept effective and do
any and all other acts or things necessary or advisable to enable
the disposition in each such jurisdiction of the Registrable
Securities covered by the applicable Registration Statement;
PROVIDED, HOWEVER, that the Company will not be required to (i)
qualify to do business in any jurisdiction where it is not then
so qualified or (ii) take any action that would subject it to
taxation or service of process in any such jurisdiction where it
is not then so subject.
(i) Cooperate with the selling Holders and the managing
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to
be sold and enable such Registrable Securities to be in such
denominations and registered in such names as the managing
underwriters, if any, shall request at least two business days
prior to any sale of Registrable Securities to the underwriters.
(j) Use its reasonable best efforts to cause the
Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other
governmental agencies or authorities within the United States
except as may be required solely as a consequence of the nature
of any selling Holder's business, in which case the Company will
cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals as may
be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such
Registrable Securities.
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(k) Upon the occurrence of any event contemplated by
Section 5(c)(vi) or 5(c)(vii), prepare a supplement or
post-effective amendment to each Registration Statement or a
supplement to the related Prospectus or any document incorporated
therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
(l) If requested by Holders holding a majority of the
Registrable Securities covered by such Registration Statement or
the managing underwriters, if any, use its reasonable best
efforts to cause all Registrable Securities covered by such
Registration Statement to be (i) listed on each securities
exchange, if any, on which securities issued by the Company of
the same class are then listed or, if no such securities issued
by the Company are then so listed, on the New York Stock Exchange
or another national securities exchange if the securities qualify
to be so listed or (ii) authorized to be quoted on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") or the National Market System of Nasdaq, if the
securities qualify to be so quoted.
(m) As needed, (i) engage an appropriate transfer agent and
provide the transfer agent with printed certificates for the
Registrable Securities in a form eligible for deposit with The
Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Securities.
(n) Enter into such customary agreements (including, in the
event of an Underwritten Offering, an underwriting agreement in
form, scope and substance as is customary in underwritten
offerings) and take all such other commercially reasonable and
customary actions in connection therewith (including those
reasonably requested by the Holders holding a majority of the
Registrable Securities being sold or, in the event of an
Underwritten offering, those reasonably requested by the managing
underwriters) in order to facilitate the disposition of such
Registrable Securities and in such connection, but only where an
underwriting agreement is entered into in connection with an
underwritten registration, (i) make such representations and
warranties to the underwriters with respect to the businesses of
the Company and its subsidiaries, the Registration Statement,
Prospectus and documents incorporated by reference or deemed
incorporated by reference therein, if any, in each case, in form,
substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if
and when requested; (ii) obtain opinions of counsel to the
Company and updates thereof, which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, addressed to each of the
underwriters covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may
be reasonably requested by such underwriters; (iii) use its
reasonable best efforts to obtain "comfort" letters and updates
thereof from the independent certified public accountants of the
Company (and, if necessary, any other certified public
accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and
financial data is, or is
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<PAGE>
required to be, included in the Registration Statement),
addressed to each of the underwriters, such letters to be in
customary form and covering matters of the type customarily
covered in "comfort" letters in connection with underwritten
offerings; and (iv) deliver such documents and certificates as
may be reasonably requested by the managing underwriters, if any,
to evidence the continued validity of the representations and
warranties of the Company and its subsidiaries made pursuant to
clause (i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement entered into
by the Company. The foregoing actions will be taken in connection
with each closing under such underwriting agreement as and to the
extent required thereunder.
(o) Make available for reasonable inspection during normal
business hours by a representative of the Holders holding
Registrable Securities being sold, any underwriter participating
in any disposition of Registrable Securities, and any attorney or
accountant retained by such selling Holders or underwriter, all
financial and other records, pertinent corporate documents and
properties of the company and its subsidiaries, and cause the
officers, directors and employees of the Company and its
subsidiaries to supply all information reasonably requested by
any such representative, underwriter, attorney or accountant in
connection with such Registration statement; PROVIDED, HOWEVER,
that any records, information or documents that are designated by
the Company in writing as confidential at the time of delivery of
such records, information or documents will be kept confidential
by such persons unless such records, information or documents are
in the public domain or otherwise publicly available, (ii)
disclosure of such records, information or documents is required
by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, or (iii) disclosure of such
records, information or documents, in the reasonable opinion of
counsel to such person, is otherwise required by law (including,
without limitation, pursuant to the requirements of the
Securities Act).
(p) Comply with all applicable rules and regulations of the
SEC and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 calendar
days after the end of any 12-month period (or 90 calendar days
after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm
commitment or reasonable best efforts underwritten offering, or
(ii) if not sold to underwriters in such an offering, commencing
on the first day of the first fiscal quarter of the Company,
after the effective-date of a Registration Statement, which
statements shall cover such 12-month period.
(q) In connection with any underwritten offering, cause
appropriate members of management to cooperate and participate on
a reasonable basis in the underwriters, "road show" conferences
related to such offering.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may, from time to time, reasonably
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request in writing, and the Company may exclude from such registration the
Registrable Securities of any seller who unreasonably fails to furnish such
information within a reasonable time after receiving such request.
Each Holder will be deemed to have agreed by virtue of its acquisition
of Registrable Securities that, upon receipt of any notice from the Company of
the occurrence of any event of the kind described in Section 5(c)(ii),
5(c)(iii), 5(c)(v), 5(c)(vi) or 5 (c) (vii) ("SUSPENSION NOTICE") , such Holder
will forthwith discontinue disposition of such Registrable Securities covered by
such Registration Statement or Prospectus (a "BLACK-OUT") until such Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 5(k), or until it is advised in writing (the "ADVICE") by the Company
that the use of the applicable Prospectus may be resumed, and such Holder has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus. Except as
expressly provided herein, there shall be no limitation with regard to the
number of Suspension Notices that the Company is entitled to give hereunder;
PROVIDED, HOWEVER, that in no event shall the aggregate number of days the
Holders are subject to Black-Out during any period of 12 consecutive months
exceed 180 days.
Section 6. REGISTRATION EXPENSES. Subject to the terms of Section 2(a), all
fees and expenses incident to the performance of or compliance with this
Agreement by the Company will be borne by the Company whether or not any of the
Registration Statements become effective. Such fees and expenses will include,
without limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses for compliance with securities or "blue sky" laws)
, (ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities in a form eligible for deposit with The
Depository Trust Company and of printing a reasonable number of prospectuses if
the printing of such prospectuses is requested by the Holders holding a majority
of the Registrable Securities included in any Registration Statement), (iii)
messenger, telephone and delivery expenses incurred by the Company, (iv) fees
and disbursements of counsel for the Company incurred by the Company, (v) fees
and disbursements of all independent certified public accountants referred to in
Section 5(n)(iii) (including the expenses of any special audit and "comfort"
letter required by or incident to such performance) incurred by the Company,
(vi) Securities Act liability insurance, if any, and (vii) fees and expenses of
Special Counsel retained by the Holders in connection with the registration and
sale of their Registrable Securities (which counsel will be selected by the
Holders of a majority of the Registrable Securities being sold). In addition,
the Company will pay internal expenses (including without limitation all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange on which securities of the same class issued by the
Company are then listed and the fees and expenses of any person, including
special experts, retained by the Company. In no event, however, will the Company
be responsible for any underwriting discount or selling commission with respect
to any sale of Registrable Securities pursuant to this Agreement, and the
Holders shall be responsible on a pro rata basis for any taxes of any kind
(including, without limitation, transfer taxes) with respect to any disposition,
sale or transfer of Registrable Securities.
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Section 7. Indemnification.
(a) INDEMNIFICATION BY THE COMPANY. The Company will, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each Holder holding Registrable Securities registered pursuant
to this Agreement, the officers, directors and agents and employees of each of
them, each person who controls such a Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of any such controlling person, from and against
all losses, claims, damages, liabilities, costs (including without limitation
the costs of investigation and attorneys' fees and expenses) (collectively,
"Losses") incurred, arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or form of Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar and to
the extent as the same are based upon information furnished in writing to the
Company by such Holder for use therein; PROVIDED, HOWEVER, that the Company will
not be liable to any Holder to the extent that any such Losses arise out of or
are based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Registration Statement, Prospectus or preliminary
prospectus if either (A) (i) such Holder failed to send or deliver a copy of the
Prospectus with or prior to the delivery of written confirmation of the sale by
such Holder of a Registrable Security to the person asserting the claim from
which such Losses arise and (ii) the Prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged omission; or
(B) such untrue statement or alleged untrue statement, omission or alleged
omission is corrected in an amendment or supplement to the Prospectus previously
furnished by or on behalf of the Company with copies of the Prospectus, and such
Holder thereafter fails to deliver such Prospectus as so amended or supplemented
prior to or concurrently with the sale of a Registrable Security to the person
asserting the claim from which such Losses arise.
(b) INDEMNIFICATION BY HOLDERS. In connection with any Registration
Statement in which a Holder is participating, such Holder will furnish to the
Company in writing such information as the Company reasonably requests for use
in connection with any Registration Statement, Prospectus or preliminary
prospectus and will indemnify, to the fullest extent permitted by law, the
Company, its directors and officers, agents and employees, each person who
controls the Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling persons, from and against all Losses arising out
of or based upon any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any
information so furnished in writing by such Holder to the Company for use in
such Registration Statement, Prospectus or preliminary prospectus and was relied
upon by the Company in the preparation of such Registration Statement,
Prospectus or preliminary prospectus. In no event will the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the
proceeds (net of payment of all expenses) received by such Holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.
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<PAGE>
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any person shall become
entitled to indemnity hereunder (an "INDEMNIFIED PARTY") , such indemnified
party shall give prompt notice to the party from which such indemnity is sought
(the "INDEMNIFYING PARTY") of any claim or of the commencement of any action or
proceeding with respect to which such indemnified party seeks indemnification or
contribution pursuant hereto; PROVIDED, HOWEVER, that the failure to so notify
the indemnifying party will not relieve the indemnifying party from any
obligation or liability except to the extent that the indemnifying party has
been prejudiced materially by such failure. All reasonable fees and expenses
(including any reasonable fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) will be paid to
the indemnified party (provided appropriate documentation for such expenses is
also submitted with such notice), as incurred, within five calendar days of
written notice thereof to the indemnifying party (regardless of whether it is
ultimately determined that an indemnified party is not entitled to
indemnification hereunder). The indemnifying party will not consent to entry of
any judgment or enter into any settlement or otherwise seek to terminate any
action or proceeding in which any indemnified party is or could be a party and
as to which indemnification or contribution could be sought by such indemnified
party under this Section 7, unless such judgment, settlement or other
termination includes as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnified party of a release, in form and substance
reasonably satisfactory to the indemnified party, from all liability in respect
of such claim or litigation for which such indemnified party would be entitled
to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in this Section
7 is unavailable to an indemnified party under Section 7(a) or 7(b) in respect
of any Losses or is insufficient to hold such indemnified party harmless, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, will, severally but not jointly, contribute to the amount paid or payable
by such indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or
indemnifying parties, on the one hand, and such indemnified party, on the other
hand, in connection with the actions, statements or omissions that resulted in
such Losses as well as any other relevant equitable considerations. The relative
fault of such indemnifying party or indemnifying parties, on the one hand, and
such indemnified party, on the other hand, will be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or related to information supplied by,
such indemnifying party or indemnified party, and the parties, relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses will be deemed to include any legal or other fees or expenses
incurred by such party in connection with any action or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this section 7(d) were determined by PRO RATA
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 7(d), an indemnifying party that
is a selling Holder will not be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities sold by
such indemnifying party and distributed to the public were offered to the public
exceeds the amount of
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<PAGE>
any damages that such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations
of the Company hereunder will be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 7 will
survive so long as Registrable Securities remain outstanding, notwithstanding
any permitted transfer of the Registrable Securities by any Holder thereof or
any termination of this Agreement.
Section 8. UNDERWRITTEN REGISTRATIONS. If any of the Registrable
Securities included in any Demand Registration are to be sold in an Underwritten
Offering, the Holders holding a majority of the Registrable Securities included
in the Demand Notice may select an investment banker or investment bankers and
manager or managers to manage the Underwritten Offering, in each case subject to
the reasonable approval of the Company. If any Piggyback Registration is an
Underwritten Offering, the Company will have the right to select the investment
banker or investment bankers and manager or managers to administer the offering.
The Company agrees that, in connection with any Underwritten Offering hereunder,
it shall offer customary indemnification to the participating underwriters and
each Holder agrees that, in connection with any Underwritten Offering hereunder
in which such Holder is selling Registrable Securities, such Holder will offer
indemnification to the participating underwriters to the same extent that such
Holder is required to indemnify the Company under Section 7(b).
Section 9. OTHER AGREEMENTS. The Company shall not enter into any
agreement or instrument which would conflict with or result in a material breach
or violation of any of the terms or provisions of this Agreement. In addition,
the Company shall not enter into any agreement or instrument with any Person
which grants such Person demand registration rights similar to those in Section
2(a) which preclude the Holders of Registrable Securities from exercising their
rights pursuant to Section 2(a) hereof in connection with any registration
statement filed pursuant to which such Person will sell securities of the
Company.
Section 10. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by a party of its obligations
under this Agreement, each other party, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. Each party
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any provision of this Agreement and
hereby further agrees that, in the event of any action for specific performance
in respect of such breach, it will waive the defense that a remedy at law would
be adequate.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented without the prior written consent of the
Company, and Holders holding in excess of 50% of the Registrable Securities in
respect of which Registrable Securities are issuable.
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(c) NOTICES. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid or courier or overnight delivery service to the Company at the following
address and to the initial Holder at the following address (or at such other
address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof):
If to the Company: Equity Marketing, Inc.
6330 San Vicente Boulevard
Los Angeles, California 90048
Attn: Leland P. Smith
Facsimile: (323) 932-4488
With a copy to: Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, CA 90071
Attn: Thomas M. Cleary, Esq.
Facsimile: (213) 229-8550
If to the Investor: Crown Acquisition Partners, LLC
660 Madison Avenue, 15th Floor
New York, NY 10021
Attn: Kenneth Squire
Facsimile: (212) 207-8001
with copies to: Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, CA 90071
Attention: W. Alex Voxman
Facsimile: (213) 891-8763
(d) MERGER OR CONSOLIDATION OF THE COMPANY. If the Company is a party
to any merger or consolidation pursuant to which the Preferred Stock or
Registrable Securities are converted into or exchanged for securities or the
right to receive securities of any other person ("Conversion Securities") , the
issuer of such Conversion Securities shall assume (in a writing delivered to all
Holders) all obligations of the Company hereunder. The Company will not effect
any merger or consolidation described in the immediately preceding sentence
unless the issuer of the Conversion Securities complies with this Section 10(d).
(e) SUCCESSORS AND ASSIGNS. Any transferee of all or a portion of the
Preferred Stock, Warrants or Registrable Securities (i) that is an Affiliate of
a Holder (without regard to the amount of Preferred Stock, Warrants or
Registrable Securities acquired by such Affiliate) or (ii) that acquires
Preferred Stock, Warrants or Registrable Securities with a market value of at
least $2.5 million (calculated on an as exercised and as converted basis based
on the closing sale price of the Common Stock as of the date of the transfer)
shall become a Holder hereunder to the extent it agrees in writing to be bound
by all of the provisions applicable hereunder to the
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transferring Holder (such acknowledgment being evidenced by execution of a
Counterpart and Acknowledgment substantially in the form of EXHIBIT A). Subject
to the requirements of this Section 10(e), this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties hereto.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts (which may be by
facsimile), each of which when so executed will be deemed to be an original and
all of which taken together will constitute one and the same instrument.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and will not limit or otherwise affect the meaning.
(h) GOVERNING LAW. This agreement will be governed by and construed in
accordance with the laws of the State of Delaware, as applied to contracts made
and performed within the State of Delaware, without regard to principles of
conflict of laws.
(i) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein will remain in full force and effect and will in
no way be affected, impaired or invalidated, and the parties hereto will use
their reasonable best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to such subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(k) TERMINATION. This Agreement and the rights provided to the Holders
as contained herein shall terminate on the earlier of (a) March 29, 2010 (with
respect to all Holders), or (b) at such time that a Holder may sell all of its
Registrable Securities pursuant to Rule 144 contained in the Securities Act
without any volume limitation (with respect to such Holder).
(SIGNATURE PAGE FOLLOWS)
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
EQUITY MARKETING, INC.
By: /s/ DONALD A. KURZ
--------------------------------
Name: Donald A. Kurz
Title: Chairman of the Board
and Chief Executive
Officer
CROWN ACQUISITION PARTNERS, LLC
By: /s/ JEFFREY S. DEUTSCHMAN
--------------------------------
Name: Jeffrey S. Deutschman
Title: Manager
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
COUNTERPART AND ACKNOWLEDGMENT
TO: The Company
RE: The Registration Rights Agreement (the
"Agreement") dated as of __________, 2000, by
and among the Company and the Holders (as
defined in the Agreement)
The undersigned hereby agrees to be bound by the terms of the
Agreement as a party to the Agreement, and shall be entitled to all benefits of
the Holders (as defined in the Agreement) and shall be subject to all
obligations and restrictions of the Holders pursuant to the Agreement, as fully
and effectively as though the undersigned had executed a counterpart of the
Agreement together with the other parties to the Agreement. The undersigned
hereby acknowledges having received and reviewed a copy of the Agreement.
DATED this ______ day of _______________, ________
By:
Title:
Number of
Shares of
Registrable Securities:
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