Exhibit 10.1

 

FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT

 

THIS FOURTH AMENDMENT (the “Fourth Amendment”), dated September 29, 2016 by and
between John a/k/a Jack McGrath, an individual (“Executive”) and JAKKS Pacific,
Inc., a Delaware corporation (“JAKKS” or the “Company”) further amends the 2010
Employment Agreement (as defined below) between Executive and the Company, and
is entered into pursuant to Section 20 of the 2010 Employment Agreement.

 

W I T N E S S E T H:

 

WHEREAS, Executive and the Company entered into an Employment Agreement on March
4, 2010 which was effective January 1, 2010 (the “2010 Employment Agreement”),
which was amended by a First Amendment to Employment Agreement dated August 23,
2011, a Second Amendment to Employment Agreement dated May 15, 2013, and a Third
Amendment Extending Term of Employment Agreement dated June 11, 2015 (the 2010
Employment Agreement, as heretofore amended is referred to as the “Amended
Employment Agreement”); and

 

WHEREAS, Executive and the Company desire to amend the terms of the Amended
Employment Agreement in certain respects without modifying, changing or
otherwise amending any other provisions of the Amended Employment Agreement (the
Amended Employment Agreement, as further amended by this Fourth Amendment, is
referred to as the “Employment Agreement”.)

 

NOW, THEREFORE, in consideration of the mutual promises, representations and
warranties set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:

 

1.Capitalized terms used and not defined herein have the respective meanings
ascribed to them in the Amended Employment Agreement.

 

2.The text of Section 2 of the 2010 Employment Agreement shall be deleted in its
entirety, and the following shall be substituted therefor:

 

“Term. The employment of Executive hereunder shall commence on the Effective
Date and continue until December 31, 2020, subject to earlier termination on the
terms and conditions provided elsewhere in this Agreement (the “Term”). As used
herein, “Termination Date” means the last day of the Term.”

 

3.Annual Restricted Stock Awards. Effective as of January 1, 2017, Section 3(d)
of the Amended Employment Agreement is amended in its entirety to provide as
follows:

 

“d. Annual Restricted Stock Awards.

 

(i)       Definitions.

 

A. The term “Annual Restricted Shares Grant” means the number of shares of
Restricted Stock issued on each annual Issuance Date, which shall be determined
by dividing $1,000,000.00 by the closing price of a share of the Company’s
Common Stock on the first trading date immediately preceding such annual
Issuance Date.

 

B. The term “Common Stock” means the Company’s common stock, par value $.001 per
share.

 

C. The term “Issuance Date” means January 1, 2017 and January 1 of each calendar
year thereafter occurring during the Term.

 

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D. The term “Performance Measures” is defined in section 5 below of this Fourth
Amendment.

 

E. The term “Performance Shares” is defined in sub-paragraph (ii) (A) below of
this Section 3(d).

 

F. The term “Plan” means the Company’s 2002 Stock Award and Incentive Plan as in
effect on June 1, 2016 and as subsequently may be amended, from time to time, or
any successor plan.

 

G. The term “Restricted Stock” means shares of restricted common stock of the
Company, par value $.001 per share issuable under the Plan.

 

H. The term “Restricted Stock Performance Measures” has the meaning provided for
in Schedule “A” annexed to of this Fourth Amendment.

 

(ii)        Pursuant to and subject to the terms (including, without limitation,
the availability of shares reserved for issuance thereunder) of the Plan and the
applicable Restricted Stock Agreement, which shall be substantially in the form
of Exhibit A to the Amended Employment Agreement, the Company shall issue to
Executive on each annual Issuance Date that number of shares of Restricted Stock
with a value equal to $1,000,000.00 which shall vest as follows:

 

A. Sixty Percent (60%) of each Annual Restricted Shares Grant, equal in value on
its Issuance Date to $600,000.00, shall vest in accordance with the Restricted
Stock Performance Measures (the shares included in that part of each Annual
Restricted Shares Grant that vest in accordance with the Restricted Stock
Performance Measures are referred to as the “Performance Shares.”)

 

B. Forty Percent (40%) of each Annual Restricted Shares Grant, equal in value on
its Issuance Date to $400,000.00, shall vest in four (4) equal annual
installments, with twenty-five percent (25%) thereof vesting on each of the
first, second, third and fourth anniversaries of its Issuance Date.

 

4.Section 3(e) of the Amended Employment Agreement is amended in its entirety to
provide that the Annual Performance Bonus for fiscal year 2017 and each fiscal
year thereafter during the Term shall equal the amount calculated as provided in
clause (A) below and be paid as provided in clauses (B) and (C) below.

 

i.Each Annual Performance Bonus shall be equal to an amount not exceeding 125%
of Base Salary for the applicable fiscal year, one-half of which shall be earned
using Company Net Revenue performance criteria established by the Compensation
Committee for the applicable fiscal year and one-half of which shall be earned
using Company EBITDA performance criteria established by the Compensation
Committee for the applicable fiscal year, such criteria to be established by the
Compensation Committee during the first fiscal quarter of the relevant fiscal
year for which the Annual Performance Bonus criteria are being established,
after consultation with the Executive, in a manner consistent with past
practices. The terms Net Revenue and EBITDA shall have the same meaning as
provided for in Schedule A.

 

ii.That portion of the Annual Performance Bonus up to an amount equal to the
first 100% of Base Salary shall be paid in cash; any excess over 100% of Base
Salary shall be paid in Restricted Stock vesting in equal quarterly
installments, with the first installment vesting on the award date and the
remainder over 3 years following the award date. The number of shares of
Restricted Stock, if any, forming part of the Annual Performance Bonus shall be
determined by dividing the dollar amount of the Restricted Stock portion of the
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 Annual
Performance Bonus is determined to have been earned.

 

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iii.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.

 

5.The calculations necessary to determine the Restricted Stock Performance
Measures and the Annual Performance Bonus performance criteria (collectively,
the “Performance Measures”) shall be made by the Compensation Committee in its
discretion, and will, absent manifest error, be conclusive and binding upon the
Company and Executive. The Performance Measures may all be 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 Plan, and the
Compensation Committee also reserves the right to modify the vesting and bonus
targets and vesting and bonus percentages in the exercise of its negative
discretion to take account of any extraordinary or special items, and business
acquisitions occurring during the Performance Periods and the relevant fiscal
years, or as otherwise determined by the Compensation Committee.

 

6.Section 3(d) of the Amended Employment Agreement as amended by this Fourth
Amendment shall continue to be subject to the provisions of Sections 3(e) (3)
through 3(e) (5) and Sections 3(f), 3(g), 3(h) through 3(i) inclusively of the
Amended Employment Agreement. Section 3(j) of the Amended Employment Agreement
is supplemented to provide that unless the Employment Agreement has been
terminated by Executive other than as the result of a breach by the Company of
its obligations or by the Company for cause, if the Term or Executive’s
employment by the Company does not continue after December 31, 2020, the
Performance Shares and any Restricted Stock issued in partial payment of an
Annual Performance Bonus shall continue to vest in accordance with and subject
to the vesting conditions provided for in Section 3 of this Fourth Amendment.

 

7.Section 12(c) of the Amended Employment Agreement is amended to replace the
date December 31, 2015 with the date December 31, 2020.

 

8.The Amended Employment Agreement, as expressly amended by this Fourth
Amendment, remains in full force and effect.

 

BALANCE OF THIS PAGE DELIBERATELY LEFT BLANK

SIGNATURE PAGE FOLLOWS

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first written above, intending to be legally bound hereby.

 

  JAKKS PACIFIC, INC.             By:         Name: Stephen Berman      
Title:  President & CEO                   John a/k/a Jack McGrath  

  

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SCHEDULE A

To Fourth Amendment to Amended Employment Agreement Between

John a/k/a Jack McGrath (“Executive”) and JAKKS Pacific, Inc. (the “Company”)

 

RESTRICTED STOCK PERFORMANCE MEASURES

 

This Schedule A to the Amended Employment Agreement between Executive and JAKKS
sets forth the Restricted Stock Performance Measures that will be used to
determine vesting of each Annual Restricted Shares Grant made to Executive.
Capitalized terms not otherwise defined in this Schedule “A” are used below with
the meanings ascribed thereto in Amendment Number Two to the Amended Employment
Agreement.

 

1)Definitions.

 

a)       “Closing Share Value” means in the case of the Company, the closing
price of a share of the Company’s Common Stock, and in the case of the Russell
2000 Index, the price reported as the closing price of the companies in the
Russell 2000 Index, in both cases, on the last trading day of a Restricted Stock
Performance Period.

 

b)       “EBITDA” means the earnings before interest, taxes, depreciation and
amortization of a company for an entire fiscal year calculated in accordance
with the company’s audited financial statements.

 

c)       “Index” means the stock market index known as the Russell 2000 Index,
or if the Russell 2000 Index ceases to be published, then such other stock
market index (such as, but not limited to, the S&P Small Cap 600 Index) that the
Compensation Committee determines, with the advice of its independent
compensation consultant, and after receiving input from the Executive, should be
used as the Index for determining the Restricted Stock Performance Measures.

 

d)       “Opening Share Value” means in the case of the Company, the closing
price of a share of the Company’s Common Stock, and in the case of the Russell
2000 Index, the price reported as the closing price of the companies in the
Russell 2000 Index, in both cases, on the first trading day of a Restricted
Stock Performance Period.

 

e)       “Peer Group Companies” means those public companies whose shares of
stock are traded on a recognized securities exchange that the Compensation
Committee, with the advice of its independent compensation consultant, and after
receiving input from the Executive, has chosen to comprise the group of
companies used as a basis for comparison of the Company’s Net Revenue Growth and
EBITDA Growth in each Restricted Stock Performance Period.

 

f)       “Restricted Stock Performance Measures” means the TSR Metric, Net
Revenue Growth Metric and EBITDA Metric as each such term is defined Section 2
of this Schedule “A”.

 

g)       “Restricted Stock Performance Period” with respect to each Annual
Restricted Shares Grant means the three (3) year period commencing on its
Issuance Date and ending on December 31 of the third calendar year following
such Issuance Date.

 

h)       “TSR” means the total shareholder return calculated by dividing (i) the
Closing Share Value plus any dividends paid by (ii) the Opening Share Value. The
TSR of the Company shall be adjusted to give appropriate effects to any stock
splits, reverse stock splits and similar transactions, as determined by the
Compensation Committee.

 

 i 

 

 

2)Vesting of the Performance Shares during each Restricted Stock Performance
Period shall be determined by three performance metrics: TSR for the Company as
compared to TSR for the Index during the Restricted Stock Performance Period
(the “TSR Metric”); the percentile performance of the Company relative to the
Peer Group Companies measured by the Net Revenue Growth of the Company as
compared to Net Revenue Growth of the Peer Group Companies during the
Performance Period (the “Net Revenue Growth Metric”); and the percentile
performance of the Company relative to the Peer Group Companies measured by the
EBITDA Growth of the Company as compared to EBITDA Growth of the Peer Group
Companies during the Performance Period (the “EBITDA Growth Metric”.)

 

a)       Each Annual Restricted Shares Grant shall be divided into the following
three Tranches: one Tranche shall be equal to fifty percent (50%) of the Annual
Restricted Shares Grant, and vesting of such Tranche shall be determined by the
TSR Metric (the “TSR Tranche”); one Tranche shall be equal to twenty-five
percent (25%) of the Annual Restricted Shares Grant, and vesting of such Tranche
shall be determined by the Net Revenue Growth Metric (the “Net Revenue
Tranche”), and the third Tranche shall be equal to twenty-five percent (25%) of
the Annual Restricted Shares Grant, and vesting of such Tranche shall be
determined by the EBITDA Growth Metric (the “EBITDA Tranche”.)

 

b)       The number of Performance Shares and the percentage of Performance
Shares in each Tranche that vest shall be determined as set forth in the table
below:

 

Percentage of

Performance Shares in

a Tranche that Vest

According to the

Applicable

Performance Measure

TSR Tranche (50% of

Annual Restricted

Shares Grant)

Net Revenue Tranche

(25% of Annual

Restricted Shares

Grant)

EBITDA Tranche

(25% of Annual

Restricted Shares

Grant)

100% Company’s TSR is
20% or more above
of Index TSR 90th percentile or more
using Net Revenue
Metric 90th percentile or more
using EBITDA Metric 75% Company’s TSR is
10%-19% TSR above  
Index TSR 75th - 89th percentile
using Net Revenue
Metric 75th - 89th percentile
using EBITDA Metric 50% Company’s TSR is
Equal to Index TSR 50th – 74th Percentile
using Net Revenue
Metric 50th – 74th Percentile
using EBITDA Metric 25% (threshold) Company’s TSR is
10% or less below
Index TSR 25th –  49th Percentile
using Net Revenue
Metric 25th –  49th Percentile
using EBITDA Metric 0% Company’s TSR is
more than 10% below
Index TSR Less than 25th Percentile
using Net Revenue
Metric Less than 25th Percentile
using Net Revenue
Metric