JAKKS PACIFIC, INC.
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(Exact name of registrant as specified in its charter)
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Delaware | 0-28104 | 95-4527222 |
(State or other jurisdiction
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(Commission
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(IRS Employer
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of incorporation)
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File Number)
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Identification No.)
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22619 Pacific Coast Highway, Malibu, California
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90265
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(Address of principal executive offices)
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(Zip Code)
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Item 5.02.
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Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers.
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(d)
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Exhibits
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Exhibit | Description |
10.1
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Employment Agreement between the Company and
John a/k/a Jack McGrath
, dated March 4, 2010
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10.2
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First Amendment to Employment Agreement between the Company and
John a/k/a Jack McGrath
, dated August 23, 2011
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JAKKS PACIFIC, INC.
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Dated: August 23, 2011
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By:
/s/ JOEL M. BENNETT
Joel M. Bennett, CFO
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Exhibit | Description |
10.1
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Employment Agreement between the Company and
John a/k/a Jack McGrath
, dated March 4, 2010
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10.2
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First Amendment to Employment Agreement between the Company and
John a/k/a Jack McGrath
, dated August 23, 2011
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1.
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Capitalized terms used and not defined herein have the respective meanings ascribed to them in the Employment Agreement.
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2.
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Section 1(a) of the Employment Agreement is amended in its entirety, and the following shall be substituted therefor:
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3.
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The last sentence of Section 1(b) of the Employment Agreement is amended in its entirety, and the following shall be substituted therefor: “
The term “Executive Officers” means any of Company’s Chairman, if any, and Chief Executive Officer and President.”
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4.
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The text of Section 2 of the Employment Agreement shall be deleted in its entirety, and the following shall be substituted therefor:
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5.
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The Base Salary is amended to be $600,000.00, subject to increase in each subsequent calendar year during the Term at an increased annual rate to be determined by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) in its sole and absolute discretion, but, commencing with the calendar year 2012 that is at least $15,000 more than the annual rate in the immediately preceding calendar year (the “Base Salary”).
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6.
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The following new paragraphs 3(d) through 3(j) are added to the Employment Agreement:
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i)
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Subject to the terms (including, without limitation, the availability of shares reserved for issuance thereunder) of the Company’s 2002 Stock Award and Incentive Plan (as in effect on the date hereof and as subsequently may be amended, from time to time, or any successor plan, the “Plan”) and the applicable restricted stock agreement, which shall be substantially in the form annexed hereto as
Exhibit A
(the “Restricted Stock Agreement”), and as additional consideration for Executive agreeing to this amendment to his Employment Agreement, on October 1, 2011, January 1, 2012, and January 1, 2013 (each, an “Annual Issuance Date”) the Company shall issue to Executive a number of shares of restricted common stock of the Company, par value $.001 per share (the “Restricted Stock”), with a value equal to $75,000 (hereafter, the Restricted Stock issued under this Section 3(d) shall be referred to as the “Section 3(d) Restricted Stock”). The number of shares of Section 3(d) Restricted Stock to be issued to Executive on each Annual Issuance Date shall be determined by dividing $75,000 by the closing price of a share of the Company’s common stock, par value $.001 per share (the “Common Stock”), on the first trading date immediately preceding the Annual Issuance Date.
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ii)
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The first vesting date for each $75,000 award of Section 3(d) Restricted Stock shall occur effective as of the date in the calendar year immediately following the calendar year (the “EPS Reference Year”) in which the Annual Issuance Date occurs with respect to such award that it is determined that the Company’s “Earnings Per Share” (defined below) for the EPS Reference Year is at least equal to the “Minimum Earnings Per Share” (defined below; such Minimum Earnings Per Share, the “3% Vesting Condition”). Subject to the satisfaction of the 3% Vesting Condition, subsequent vesting of each tranche of the Section 3(d) Restricted Stock awarded for an EPS Reference Year shall occur in accordance with the vesting schedule annexed as
Exhibit B
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iii)
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For purposes of this Agreement,
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(1)
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the term “Earnings Per Share” shall mean the net income per share of the Company’s common stock, calculated on a fully-diluted basis as determined by the Company’s then current auditors in accordance with GAAP, and such determination by the Auditors, absent manifest error, will be conclusive and binding upon the Company and Executive;
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(2)
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the term “GAAP” means generally accepted accounting principles, applied on a basis consistent with past periods;
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(3)
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the term “Minimum Earnings Per Share” shall mean (X) with respect to Fiscal year 2011, the greater of $1.41 or an amount that is 3% higher than the actual Earnings Per Share for fiscal year 2011, (Y) with respect to Fiscal year 2012, the greater of $1.45 or an amount that is 3% higher than the actual Earnings Per Share for fiscal year 2012, and (Z) with respect to Fiscal year 2013, the greater of $1.49 or an amount that is 3% higher than the actual Earnings Per Share for fiscal year 2013; and
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(4)
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the term “Adjusted Earnings Per Share” means the Earnings Per Share, as adjusted in the sole discretion of the Compensation Committee to take account of extraordinary or special items, or as otherwise may be permitted by the Company’s 2002 Stock Award and Incentive Plan, and such determination by the Auditors, absent manifest error, as adjusted by the Compensation Committee, will be conclusive and binding upon the Company and Executive.
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1)
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Bonus Criteria
. In addition to the Base Salary and Section 3(d) Restricted Stock compensation, Executive shall be eligible to receive as compensation for performance during fiscal years 2011, 2012, and 2013, a performance-based bonus award equal to up to 125% of Executive’s Base Salary for the applicable fiscal year (hereafter, such bonus for 2011, 2012 and 2013 is referred to as an “Annual Performance Bonus,” which, together with the Section 3(d) Restricted Stock is referred to herein collectively as the “Bonus”), as further provided below in this Section 3(d).
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2)
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Payment of Annual Performance Bonus
. One-half of the Annual Performance Bonus shall be paid in Restricted Stock, and the balance shall be paid in cash. The number of shares of Restricted Stock shall be determined by dividing the Restricted Stock portion of the Base Annual Performance Bonus by the closing price of a share of the Common Stock on the first trading date immediately preceding the date on which the Base Annual Performance Bonus is determined to have been earned. The Company shall pay the cash portion and issue the Restricted Stock portion of the Annual Performance Bonus to Executive, subject to any required tax withholding, not later than twenty-one (21) business days following the date on which the Auditors’ final report on the Company’s financial statements for the fiscal year for which the Annual Performance Bonus is awarded is issued and delivered to the Company and in any event not later than April 30 in the calendar year following such fiscal year (the “Annual Performance Bonus Award Date”). Such Restricted Stock shall be issued subject to the Plan (including, without limitation, the availability of shares reserved for issuance thereunder) and the applicable Restricted Stock Agreement, and shall vest in equal annual installments, the first installment of which shall vest on the Annual Performance Bonus Award Date and thereafter on January 1 in each subsequent year until the final vesting date on January 1, 2014, notwithstanding that this Agreement shall have earlier expired or terminated, but subject to Section 3(j) below.
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3)
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Right to Voting and Dividends
. Executive shall not have the right to vote or receive dividends (whether in cash, stock or any other form) on shares of Restricted Stock issued under this Agreement until the date of vesting of such shares. The number of shares of Restricted Stock issued to Executive under this Agreement shall be adjusted to take account of any stock split, change in capitalization or other similar capital event in which the Company’s stockholders participate generally in respect of all shares of common stock of the Company, $.001 per share, from and after the date of issuance of the Restricted Stock issued under this Agreement, the number and class of shares of Restricted Stock or other securities that Executive shall be entitled to, and shall hold, pursuant to this Agreement shall be appropriately adjusted or changed to reflect such capital event or change in capitalization.
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4)
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Obligation to Keep Sufficient Shares
. The Company shall use its reasonable best efforts to ensure a sufficient number of shares of Common Stock remain available for issuance under the Plan at all times to satisfy its obligations to issue Restricted Stock to Executive pursuant to this Agreement. In the event that there are insufficient shares available under the Plan to permit a specific issuance of Restricted Stock to Executive, then the Company shall take all necessary action to amend the Plan or adopt an additional or successor plan (including, without limitation, seeking stockholder approval with respect thereto) as promptly as practicable. Immediately following the adoption of such amendment or additional or successor plan, the Company shall issue to Executive the number of shares of Restricted Stock to which Executive is entitled and was not previously issued, and shall pay to Executive, in cash, any amounts which Executive would have received in respect of such shares of Restricted Stock had such shares been issued to Executive on the date or dates prescribed herein.
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5)
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No Trust Fund
. Nothing contained herein and no action taken in respect of any Bonus (or otherwise in respect of Sections 3(d) or 3(e)) shall create or be construed to create a trust of any kind. All Bonuses under Section 3(e) and all other compensation to Executive shall be paid from general funds of the Company, and no special or separate fund shall be established, and no segregation of assets shall be made, to assure payment of any Bonus hereunder.
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7.
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Paragraph 12(c) of the Employment Agreement and any reference to Paragraph 12(c) in the Employment Agreement is hereby replaced in its entirety by the following:
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8.
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The following new Section 21 is added to the Employment Agreement:
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(a)
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During the Term and throughout the 10-year period following the Termination Date, the Company shall indemnify Executive, and hold him harmless from, any loss, damages, liability, obligation or expense that he may suffer or incur in connection with any claim made or Proceeding commenced during such period relating to his service as a director, officer, employee or agent of the Company (or any subsidiary thereof) to the same extent and in same manner as the Company shall be obligated so to indemnify Executive immediately prior to the Termination Date; provided that, if during such 10-year period the Company adopts or assumes any indemnification policy or practice with respect to its directors, officers, employees or agents that is more favorable than that in effect on the Termination Date, Executive shall be entitled to such more favorable indemnification.
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(b)
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During the Term and throughout the 10-year period following the Termination Date, the Company shall maintain for the benefit of Executive directors’ and officers’ liability insurance (on a “claims made” basis) providing coverage at least as favorable to Executive (including with respect to limits of liability, exclusions, and deductible and retention amounts) as that in effect on the Termination Date.
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9.
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Compliance with Code Section 409A
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(a)
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Unless otherwise expressly provided in this Employment Agreement, as amended hereby, any payment of compensation by the Company to Executive, whether pursuant to this Agreement or otherwise, shall be made within two and one-half months (2½ months) after the end of the later of the calendar year or the Company’s fiscal year in which Executive’s right to such payment vests (i.e., is not subject to a substantial risk of forfeiture for purposes of Code Section 409A (“Code Section 409A”)). Such amounts shall not be subject to the requirements of subsection (b) below applicable to “nonqualified deferred compensation.”
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(b)
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All payments of “nonqualified deferred compensation” (within the meaning of Code Section 409A) are intended to comply with the requirements of Code Section 409A, and shall be interpreted in accordance therewith. Neither party individually or in combination may accelerate, offset or assign any such deferred payment, except in compliance with Code Section 409A. No amount shall be paid prior to the earliest date on which it is permitted to be paid under Code Section 409A and Executive shall have no discretion with respect to the timing of payments except as permitted under Code Section 409A. In the event that Executive is determined to be a “Specified Employee” (as defined in and determined in accordance with Code Section 409A) of the Company at a time when its stock is deemed to be publicly traded on an established securities market, payments determined to be “nonqualified deferred compensation” payable by reason of “Separation from Service” (as defined in Code Section 409A) shall be paid no earlier than (i) the first day of the seventh (7th) calendar month commencing after such termination of employment, or (ii) Executive’s death, consistent with and to the extent necessary to meet the requirements of Code Section 409A without the imposition of excise taxes. Any payment delayed by reason of the prior sentence shall be paid in a single lump sum on the earliest date permitted under Code Section 409A in order to catch up to the original payment schedule, with interest on such delayed amount equal to the short-term federal rate applicable under Section 7872(f)(2)(A) of the Code for the month in which occurs Executive’s Separation from Service. Thereafter, Executive shall receive any remaining benefits as if there had not been an earlier delay.
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(c)
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For purposes of this Agreement, termination of employment shall be deemed to occur only upon “Separation from Service” as such term is defined in Code Section 409A. Each payment and each installment of any bonus or severance payments provided for under this Agreement shall be treated as a separate payment for purposes of application of Code Section 409A. Subsection (b) above shall not apply to that portion of any amounts payable upon termination of employment which shall qualify as “involuntary severance” under Code Section 409A because such amount (i) does not exceed the lesser of (1) two hundred percent (200%) of Executive’s annualized compensation from the Company for the calendar year immediately preceding the calendar year during which the termination of employment occurs, or (2) two hundred percent (200%) of the annual limitation amount under Section 401(a)(17) of the Code (the maximum amount of compensation that may be taken into account for purposes of a tax-qualified retirement plan) for the calendar year during which termination of employment occurs, and (ii) is paid no later than the end of the second (2nd) calendar year commencing after termination of employment.
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(d)
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All benefit plans, programs and policies sponsored by the Company are intended to comply with all requirements of Code Section 409A or to be structured so as to be exempt from the application of Code Section 409A. All expense reimbursement or in-kind benefits subject to Code Section 409A which are provided under this Agreement or, unless otherwise specified in writing, under any Company program or policy, shall be subject to the following rules: (i) the amount of expenses eligible for reimbursement or in-kind benefits provided during one calendar year may not affect the benefits provided during any other year; (ii) reimbursements shall be paid no later than the end of the calendar year following the year in which Executive incurs such expenses, and Executive shall take all actions necessary to claim all such reimbursements on a timely basis to permit the Company to make all such reimbursement payments prior to the end of said period, and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.
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10.
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Except as expressly set forth herein, all other terms and provisions of the Employment Agreement as amended shall remain in full force and effect and unmodified hereby, and Executive shall be entitled to continue to receive all other benefits provided thereunder.
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JAKKS PACIFIC, INC.
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By:
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/s/ | |
Name:
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Title: | |||
John a/k/a Jack McGrath |
Dollar Value of Shares Issued
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Issuance Date
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First Vesting Date
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% of Shares Vesting on First Vesting Date
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Second Vesting Date
2
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% of Shares Vesting on Second Vesting Date
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Third
Vesting
Date
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% of Shares Vesting on Third Vesting Date
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Fourth
Vesting
Date
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% of Shares Vesting on Fourth Vesting Date
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$75,000.00
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____ 1, 2011
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Date in 2012 as of which the 3% Vesting Condition is determined to have been satisfied
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25%
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Jan 1, 2013
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25%
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Jan 1, 2014
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25%
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Jan 1, 2015
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25%
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$75,000.00
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Jan 1, 2012
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Date in 2013 as of which the 3% Vesting Condition is determined to have been satisfied
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33⅓%
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Jan 1, 2014
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33⅓%
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Jan 1, 2015
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33⅓%
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N/A
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N/A
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$75,000.00
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Jan 1, 2013
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Date in 2014 as of which the 3% Vesting Condition is determined to have been satisfied
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50%
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Jan 1, 2015
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50%
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N/A
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N/A
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N/A
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N/A
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2011 Adjusted EPS ($)
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Bonus
(% of Base Salary)
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Less than 1.37
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0%
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1.40
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20%
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1.44
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25%
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1.48
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35%
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1.52
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45%
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1.56
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55%
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1.60
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70%
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1.64
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85%
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1.70
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100%
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1.78
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125%
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1.74
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120%
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