Document:

exv10w1xby

 

Exhibit 10.1(b)

Navarre Draft 12/29/04

POST ACQUISITION

EMPLOYMENT AGREEMENT

     This Post Acquisition Employment Agreement (“Agreement”), dated ___, 2004, is
entered into by and among Gen Fukunaga, a Texas resident (“Executive”), FUNimation Productions,
Ltd., a Texas limited partnership (“Company”), and Navarre Corporation, a Minnesota corporation
(“Parent”).

R E C I T A L S

     A. This Agreement is being executed and delivered contemporaneously with that certain
Partnership Interest Purchase Agreement dated as of the date hereof (the “Acquisition Agreement”),
pursuant to which the holders of 100% of the partnership interests in Company will be sold to
certain wholly-owned subsidiary companies of Parent (the “Acquisition”). Capitalized terms not
otherwise defined in this Agreement shall have the meaning ascribed to them in the Acquisition
Agreement.

     B. Executive is a founder of and the principal operating officer of Company. Company has
developed and acquired valuable information, know-how and ideas relating to its business, all of
which is regarded as valuable confidential information. In the course of his employment, Executive
has had access to and has learned certain valuable and confidential information of Company. During
such period, Executive has also become knowledgeable about the business of Company and has
developed valuable relationships with the suppliers, customers and other business associates of
Company.

     C. Company and Parent wish to ensure the continued services of Executive in order to provide
for a smooth transition following the Acquisition, and Executive is willing to continue his service
to Company and Parent on the terms and conditions hereinafter set forth.

     NOW, THEREFORE, the parties hereby agree as follows:

ARTICLE I

EMPLOYMENT

     1.01 Executive’s Service. From and after the Effective Date of this Agreement (as defined in
Section 3.01 below), Executive will be employed by the Company as the Chief Executive Officer and
President of the Company. He will have such authority and responsibility, and shall serve in such
capacities consistent with that status. Executive shall also serve as a director on the Board of
Directors of the Company or similar body if the Company is an entity other than a corporation (such
governing body, the “Board”). Executive will render such other services and duties, consistent
with Executive’s position, as may be requested of him from time to time by such Board. Executive
shall report only to the Chief Executive Officer or Chief Operating Officer of Parent. The
services of Executive are exclusive to the Company, and Executive will devote substantially all of
his business hours to providing services to the Company and agrees to perform his duties under this
Agreement faithfully and to the best of his ability. Executive hereby confirms that he is under no
contractual commitments inconsistent with his obligations set forth in this Agreement. Nothing
herein shall prevent Executive from serving on the boards or act in an advisory capacity of
for-profit, non-profit or civic or charitable organizations, so long as such board service and
other advisory activities in the aggregate do not materially interfere or conflict with his
services to the Company.

 

 

ARTICLE II

COMPENSATION AND BENEFITS

     2.01 Base Salary. During the Term of this Agreement (as defined in Section 3.01 below), the
Company will pay to Executive a base salary of $350,000 per annum (the “Base Salary”), payable in
equal installments on the Company’s regular payroll dates during the term of this Agreement. On
each anniversary of the Effective Date, the Base Salary will be reviewed by the Company’s Board and
may be adjusted upwards based upon Executive’s level of performance. It is acknowledged that the
Company will withhold and deduct from such installment payments such amounts as are required under
federal, state and local law to be withheld for income tax, Social Security and other withholding
purposes.

     2.02 Performance Bonuses.

               (a) As additional compensation for Executive, Executive will be eligible to receive an annual
bonus up to 40% of Executive’s Base Salary for each fiscal year (the “Annual Bonus”), based upon
criteria determined by mutual agreement of the Board and Executive. Parent and the Company
acknowledge and agree that the percentage of Executive’s Base Salary that constitutes the Annual
Bonus shall be commensurate to the percentages of other similarly situated officers of the Company
or Parent. Executive’s Annual Bonus shall be paid annually not later than 45 days after the
completion of the Company’s fiscal year-end audit. The Annual Bonus shall be pro-rated for the
period commencing on the Effective Date and ending on March 31, 2005.

               (b) In addition to the Annual Bonus, Executive will be eligible to receive bonuses based on
the EBIT of the Companies’ (as such term is defined in the Acquisition Agreement) as follows: (x)
if the Companies’ cumulative EBIT is in excess of $90,000,000 (the “First EBIT Target”) during
Parent’s fiscal years ending March 31, 2006, 2007, and 2008, Executive shall receive 5% of the
cumulative EBIT in excess of the First EBIT Target during such three year period; and additionally,
(y) if the Companies’ cumulative EBIT is in excess of $60,000,000 (the “Second EBIT Target”) during
Parent’s fiscal years ending March 31, 2009 and 2010, Executive shall receive 5% of the cumulative
EBIT in excess of the Second EBIT Target during such two year period. Notwithstanding the
foregoing, in no event shall the bonus payable pursuant to this Section 2.02(b) exceed $5,000,000
with respect to the First EBIT Target, nor shall the bonus payable pursuant to this Section 2.02(b)
exceed $4,000,000 with respect to the Second EBIT Target.

For the purposes of this Agreement the term “EBIT” shall mean the net income of the Companies, plus
interest expense and Taxes, determined in accordance with GAAP. Further, the calculation of EBIT
shall be made based upon the same principles set forth in Section 1.5(d) of the Acquisition
Agreement.

     2.03 Stock Options.

               (a) Parent will grant to Executive, effective as of the Effective Date of this Agreement, an
option to purchase 250,000 shares of Parent’s common stock, pursuant to the Navarre Corporation
2004 Stock Plan, at an exercise price equal to the closing price of Navarre common stock on the
date immediately preceding the Effective Date of this Agreement as quoted on NASDAQ (the “Option”).
Further, if such grants are provided to other similarly situated officers of the Company or
Parent, Parent will provide an annual grant to Executive of additional options to purchase Parent’s
common stock in an amount commensurate with his status and level of employment and in accordance
with the Company’s policies. The specific terms of the Option are set forth in the Stock Option
Agreement attached hereto as Exhibit A; however, the terms of any future grants of stock
options to Executive shall be commensurate with the terms provided to other similarly situated
officers of the Company or Parent, as shall be determined by the Board of Directors of Parent.

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     2.04 Benefits. During the Term of this Agreement, Executive will be entitled to participate
in all benefit plans, retirement plans and fringe benefits, including incentive arrangements
(collectively, “Benefits”), available to Company’s executives as a group and for which his status
and level of employment qualify him in accordance with the Company’s policies; provided, however,
Executive will be entitled to an aggregate of four weeks paid vacation time; and provided further
that such Benefits available to Executive shall be no less favorable than the Benefits offered to
similarly situated officers of the Company or Parent. Any additional fringe benefits to Executive
must be determined and approved by the Board in amounts that are commensurate with the services
rendered.

     2.05 Expenses. All reasonable travel and incidental expenses incurred by Executive in the
performance of his duties under this Agreement will be reimbursed by the Company provided that
Executive complies with the Company’s expense reimbursement policies and provides the Company with
documentation for such expenses in a form sufficient to sustain the Company’s deduction for such
expenses under Section 162 of the Internal Revenue Code of 1986, as amended (the “Code”).

     2.06 D&O Insurance. Parent shall provide director’s and officer’s liability insurance
covering the actions of the Executive as an officer of the Company and as a director of the Company
from and after the Effective Date of this Agreement, as applicable, in such amounts of coverage as
shall be determined by the Board of Directors of Parent.

     2.07 Compensation Upon Termination.

               (a) In the event this Agreement or Executive’s employment hereunder is terminated for any
reason by either party, Executive (or his heirs or legal representatives) will be entitled to
receive: (i) payment for accrued vacation to the date of termination; (ii) payment owing to
Executive pursuant to Section 2.02 for the fiscal year prior to the year of termination (to the
extent any such payments were unpaid on the date of termination); and (iii) reimbursement pursuant
to Section 2.05 of expenses incurred through the date of termination.

               (b) If Executive’s employment under this Agreement is terminated by the Company pursuant to
Section 3.02(d) (without Cause) or by Executive pursuant to Section 3.02(e) (for Good Reason), then
Executive will also be entitled to: continued payment, as severance, of his salary pursuant to
Section 2.01, plus an amount equal to his maximum Annual Bonus payable pursuant to Section 2.02(a)
if this agreement is terminated prior to March 31, 2006 or an amount equal to the Annual Bonus paid
to Executive with respect to the prior fiscal year of Parent if terminated after March 31, 2006, in
either case, for the lesser of (x) the remaining term of this Agreement as provided in Section 3.01
or (y) two years.

               (c) If Executive’s employment under this Agreement is terminated due to disability pursuant to
Section 3.02(b), Executive will be entitled to payment of his base salary pursuant to Section 2.01
up until the date Executive begins receiving benefits under the Company’s disability benefits plan
and payment of the Annual Bonus pursuant to Section 2.02 to which Executive would have been
entitled for the fiscal year in which such disability occurred, prorated to the date of disability.

               (d) If Executive’s employment under this Agreement is terminated other than pursuant to
Sections 3.02(a) (Death), (b) (Disability), (d) (without Cause) or (e) (for Good Reason), Executive
shall not thereafter be entitled to receive any salary or other payments or benefits under this
Agreement, other than payment pursuant to Section 2.01 of salary earned through the date of
termination.

               (e) The Company may elect in its sole discretion to pay any compensation due Executive after
termination in a lump sum.

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ARTICLE III

TERM; TERMINATION

     3.01 Term. The term of this Agreement (the “Term”) begins upon the Closing Date as such term
is defined in the Acquisition Agreement (hereafter, the “Effective Date of this Agreement”) and
expires on the date five years after the Effective Date of this Agreement, unless terminated
earlier in accordance with Section 3.02 hereof. In the event the Acquisition Agreement is
terminated and the Acquisition is not consummated, this Agreement shall not become effective and
shall be deemed for all purposes null and void.

     3.02 Termination.

               (a) Death. Executive’s employment under this Agreement terminates without further notice upon
his death.

               (b) Disability. The Company may, by notice to Executive or his legal representative,
terminate Executive’s employment under this Agreement if the Board of the Company determines in
good faith that Executive is physically or mentally incapacitated and has been unable for one
hundred twenty (120) days in any 360-day period to perform his duties under this Agreement.

               (c) Termination by the Company for Cause. The Company may terminate Executive’s employment
under this Agreement for Cause (as defined below), effective immediately upon notice of such
termination. For these purposes “Cause” means:

                  (i) Executive’s willful and continued failure (other than any such failure
resulting from (x) Executive’s incapacity due to physical or mental illness or
death, (y) any such actual or anticipated failure after the issuance of a notice of
termination by Executive for Good Reason (as defined below), or (z) the Company’s
active or passive obstruction of the performance of Executive’s duties and
responsibilities) to perform substantially the duties and responsibilities of
Executive’s position with the Company after a written demand for substantial
performance, signed by a majority of the Board, is delivered to Executive, which
demand specifically identifies the manner in which the Board believe that Executive
has not substantially performed his duties or responsibilities;

                  (ii) Executive’s conviction by a court of competent jurisdiction for felony
criminal conduct;

                  (iii) Executive’s willful conduct which is (x) fraudulent, or (y) violates the
Company’s or the Parent’s Code of Ethics and which, in the case of (x) and (y)
above, is demonstrably and materially injurious to the Company or its reputation,
monetarily or otherwise; or

                  (iv) Executive’s violation of Articles IV, V or VI of this Agreement.

No act, or failure to act, on Executive’s part will be deemed “willful” unless committed or omitted
by Executive in bad faith and without a reasonable belief that his act or failure to act was in the
best interest of the Company. Executive will not be terminated for Cause unless and until the
Company has delivered to Executive a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board at a meeting called and held for
such purpose (after reasonable advance written notice to Executive, not to be less than 30 days
with respect to 3.02(c)(i) above, and an

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opportunity for Executive, together with Executive’s counsel, to be heard by said Board), finding
that, in the good faith opinion of said Board, Executive’s conduct constituted Cause for
termination and specifying the particulars thereof in detail. Solely with respect to issues arising
out of 3.02(c)(i), the Company shall not be allowed to terminate this Agreement pursuant to this
Section 3.02(c) if Executive has cured such conduct within thirty (30) days following delivery of
such notice.

               (d) Termination by Executive for Good Reason. Executive may terminate his employment with the
Company hereunder at any time for Good Reason. “Good Reason” means, without Executive’s express
written consent, any of the following:

                  (i) the assignment to Executive of any duties inconsistent with Executive’s
status or position with the Company, or a substantial alteration in the nature or
status of Executive’s responsibilities from those in effect immediately prior to the
Acquisition;

                  (ii) a reduction by the Company in Executive’s annual base salary as the same
may be increased from time to time;

                  (iii) a reduction to the percentage of Executive’s Base Salary that constitutes
his potential Annual Bonus pursuant to Section 2.02(a) of this Agreement;

                  (iv) a reduction to the percentage of the Company’s EBIT that is payable as a
bonus pursuant to Section 2.02(b) of this Agreement, or an increase to the amount of
Company EBIT that must be achieved prior to earning a bonus pursuant to Section
2.02(b) of this Agreement;

                  (v) the relocation of the Company’s principal executive offices to a location
more than 75 miles from Fort Worth, Texas;

                  (vi) the Company requiring the Executive to be based anywhere other than the
Company’s principal executive offices except for required travel on the Company’s
business to the extent reasonably consistent with the Company’s strategic business
plan;

                  (vii) the Company or Parent requiring Executive to report to any person other
than as set forth in this Agreement; or

                  (viii) any material violation of this Agreement by the Company which remains
uncured after thirty (30) days following the delivery of Executive’s written notice
of such breach to the Company.

Executive acknowledges that he will not be entitled to terminate his employment with the Company
for Good Reason solely by reason of the consummation of the transactions contemplated by the
Acquisition (and any subsequent transactions directly related thereto and contemplated thereby) or
any change in his reporting responsibilities to reflect the fact that the Company is a subsidiary
of Parent.

               (e) Termination by the Company without Cause. Subject to Executive’s rights hereunder, the
Company shall have the right to terminate this Agreement for any reason upon sixty (60) days’
written notice to Executive.

               (f) Termination by Mutual Consent. The parties may terminate Executive’s employment under
this Agreement at any time by mutual consent.

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ARTICLE IV

INTELLECTUAL PROPERTY

     4.01 Intellectual Property. All right, title, and interest in and to all inventions, patent
applications, patents thereon, know-how and trade secret information, and all copyrightable
material, copyrights, and copyright applications (collectively, “Intellectual Property”) that
Executive conceives or originates in the course of rendering services to the Company, and which
directly relate to the business of the Company, will be the sole and exclusive property of the
Company, and Executive hereby irrevocably assigns and conveys the sole and exclusive right, title
and interest therein, free and clear of any liens or other encumbrances. Subject to the foregoing,
such Intellectual Property shall include, but not be limited to, Intellectual Property that:

               (a) Is based on any confidential or proprietary information of the Company or Parent or of any
vendor, supplier or customer of the Company;

               (b) Is related to the actual business of or research and development of the Company and
Parent;

               (c) Was developed with use of materials, employees, supplies or facilities of the Company or
Parent; or

               (d) Was funded by the Company or Parent.

     4.02 Assistance. Executive agrees to execute promptly any papers and perform promptly any
other reasonable acts necessary to assist the Company or Parent to perfect all rights, including
all Intellectual Property rights, reserved or conveyed thereto hereunder. Executive agrees to
render promptly aid and assistance to the Company or Parent in any interference or litigation
pertaining to such Intellectual Property, and all reasonable expenses therefor incurred by
Executive at the request of the Company will be borne by the Company.

     4.03 Disclosure of Intellectual Property. Executive will promptly disclose to the Company all
Intellectual Property conceived or originated pursuant to 4.01.

     4.04 Warranty. Executive warrants that in the event that Executive creates any original
materials or uses any proprietary information in rendering services, to the best of his knowledge,
none of such materials shall infringe any copyrights, trade secrets, rights of privacy, or any
other rights of others.

     4.05 Survival. Executive’s obligations under this Article IV shall survive the termination or
expiration of this Agreement, whether by mutual agreement of the parties, termination pursuant to
Section 3.02 hereof, or for any other reason.

ARTICLE V

CONFIDENTIALITY

     5.01 Confidentiality. Executive acknowledges that his position with Seller and his future
services have brought and will bring Executive in close contact with many confidential affairs of
the Company and Parent, including, but not limited to, information about costs, profits, financial
data, markets, trade secrets, sales, products, key personnel, pricing policies, customer lists,
development projects, operational methods, technical processes, plans for future development,
business affairs and methods and other information not readily available to the public. In
recognition of the foregoing, Executive covenants and agrees that:

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               (a) Executive will keep secret all material confidential matters of the Company and Parent
which are not otherwise in the public domain and will not disclose them to anyone outside of the
Company or Parent, either during or after the Term of this Agreement, except with the Company’s
written consent and except for such disclosure as is necessary in the performance of Executive’s
duties during the Term or as required by law or any legal proceeding; however, prior to any such
required disclosure, Executive shall have delivered notice of such disclosure obligation to Parent
and shall have used his best efforts to provide Parent with the right to contest any such
disclosure obligation and/or to receive a protective order covering such disclosure; and

               (b) Executive will deliver promptly to the Company on termination of his employment with the
Company, or at any other time the Company may so request, all memoranda, notes, records, reports
and other documents (and all copies thereof) containing confidential material relating to the
Company and Parent, which Executive may then possess or have under his control.

ARTICLE VI

COVENANT NOT TO COMPETE

     6.01 Non-Compete. Executive acknowledges that the businesses of the Company and Parent are
highly competitive and international in scope, that their licenses are sourced and their products
are marketed throughout the world, that the Company and its affiliates compete in nearly all of
their business activities with other organizations which are or could be located in nearly any part
of the world and that the nature of Executive’s services, position and expertise are such that he
is capable of competing with the Company and Parent from nearly any location in the world.
Executive further acknowledges that all services of Executive are exclusive to the Company, and
that Executive’s performances and services hereunder are of a special, unique, unusual,
extraordinary and intellectual character which gives them peculiar value, the loss of which cannot
reasonably or adequately be compensated in an action at law for damages and that a breach by
Executive of the terms of this Article VI will cause the Company irreparable injury. In
recognition of the foregoing Executive covenants and agrees that during his employment with the
Company and for a period of 18 months thereafter (the “Restricted Period”) he will not, directly or
indirectly, as a principal, officer, director, shareholder, partner, member, employee, consultant,
independent contractor, agent or executive or in any other capacity whatsoever, without the prior
written consent of the Company and Parent, do any of the following:

               (a) engage in the business of acquiring, licensing or distributing music, home video, video
games or software; but shall not include activities related to the sales of music, home video,
video games or software directly to consumers via the Internet;

               (b) acquire any ownership of any kind in, or become associated with or provide services to any
other person, corporation, partnership, limited liability company, business trust, association or
other business entity (each an “Entity”) engaged in the business of acquiring, licensing or
distributing music, home video, video games or software; but shall not include activities related
to the sales of music, home video, video games or software directly to consumers via the Internet;

               (c) intentionally and knowingly solicit or attempt to solicit or participate in the
solicitation of or otherwise advise or encourage any then employee, agent, consultant or
representative of, or vendor or supplier to, the Company or Parent to terminate his, her or its
relationship therewith; or

               (d) solicit or attempt to solicit or encourage any person who is then, or was within the then
most recent 12-month period to the knowledge of Executive, an employee, agent, consultant or
representative of the Company or Parent to become an employee, agent, representative or consultant
of or to Executive or any other individual or entity.

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     6.02 Permitted Investments. Nothing in this Article VI shall prevent Executive from making or
holding an investment in securities traded on any national securities exchange or traded in the
over-the-counter market, provided said investments do not exceed one percent (1%) of the issued and
outstanding securities of any one such issuer or, if the total investment in the issuer is $500,000
or less, up to five percent (5%) of such issued and outstanding securities.

     6.03 Injunctive Relief. Executive agrees that the Company is entitled to injunctive and
other equitable relief to prevent a breach or threatened breach of this Article VI, which shall be
in addition to any other rights or remedies to which the Company may be entitled.

     6.04 Consideration. Executive hereby Acknowledges and agrees that his agreement to the
provisions set forth in this Article 6 are conditions precedent to the consummation of the
Acquisition and that the Purchase Price paid to sellers pursuant to the Acquisition is
consideration provided in exchange for, among other things, Executive’s agree to the provisions of
this Article 6.

ARTICLE VI I

MISCELLANEOUS

     7.01 Assignment. This Agreement and all of the provisions hereof will be binding upon and
inure to the benefit of the parties hereto and their respective successors and permitted assigns,
except that neither this Agreement nor any of the rights, interests or obligations hereunder may be
assigned by Executive on the one hand, or Parent and/or the Company on the other hand, without the
prior written consent of the other party or parties.

     7.02 Severability. Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be prohibited by or unenforceable or invalid under applicable law, such
provision will be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this Agreement. In
furtherance and not in limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this Agreement be in excess of that which is
valid and enforceable under applicable law, then such provision shall be construed to cover only
that duration, extent or activities which may validly and enforceably be covered. Executive
acknowledges the uncertainty of the law in this respect and expressly stipulates that this
Agreement be given the construction which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.

     7.03 Complete Agreement. This Agreement, together with the Acquisition Agreement, contains
the complete agreement between the parties with respect to the subject matter hereof and supersedes
any prior understandings, agreements or representations by or between the parties, written or oral,
which may have related to the subject matter hereof in any way. No person, whether or not an
officer, agent, employee or representative of any party, has made or has any authority to make for
or on behalf of that party any agreement, representation, warranty, statement, promise, arrangement
or understanding not expressly set forth in this Agreement or the Acquisition Agreement (any such
other agreements “Parole Agreements”). The parties acknowledge that in entering into this
Agreement, they have not relied and will not in any way rely upon any Parole Agreements.

     7.04 Counterparts. This Agreement may be executed in one or more counterparts, any one of
which need not contain the signatures of more than one party, but all such counterparts taken
together, when delivered, will constitute one and the same instrument.

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     7.05 Governing Law; Choice of Forum; Enforcement. The internal law, without regard to
conflicts of laws principles, of the State of Minnesota will govern all questions concerning the
construction, validity and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement. Any and every legal proceeding arising out of or in connection with this
Agreement shall be brought in the appropriate courts of the State of Minnesota, and each of the
parties hereto consents to the exclusive jurisdiction of such courts.

     7.06 Injunctive Relief. Executive agrees that it would be difficult to compensate the
Company and Parent fully for damages for any violation of the provisions of Articles IV, V and VI
of this Agreement. Accordingly, Executive specifically agrees that both the Company and Parent
shall be entitled to injunctive relief to enforce the provisions of such Articles.

     7.07 No Waiver. No term or condition of this Agreement shall be deemed to have been waived,
nor shall there by any estoppel to enforce any provisions of this Agreement, except by a statement
in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any
written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate
only as to the specific term or condition waived and shall not constitute a waiver of such term or
condition for the future or as to any act other than that specifically waived.

     7.08 Modification. This Agreement may not be altered, modified or amended except by an
instrument in writing signed by Executive, the Company and Parent.

     7.09 Survival. Articles IV, V and VI and Section 2.08 (Compensation Upon Termination) shall
survive the termination or expiration of this Agreement. Further, the bonus payable pursuant to
Section 2.02(b)(y) shall be payable to Executive in accordance with its terms notwithstanding the
earlier expiration of this Agreement, but only in the event that such bonus is otherwise earned as
a result of the Companies having exceeded the EBIT targets set forth in Section 2.02(b)(y) and
Executive having been employed by the Company pursuant to the terms of this Agreement on the fifth
anniversary of the Effective Date.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day
and year first above written.

EXECUTIVE:

	 	 	 
	                                                                                
	 	 
	Gen Fukunaga
	 	 
	 
	 	 
	COMPANY:

	 	PARENT:
	 
	 	 
	FUNimation
Productions, Ltd.,

A Texas limited partnership

	 	Navarre Corporation,

a Minnesota corporation
	 
	 	 
	By:                                                            

	 	By:                                                            
	Name:                                                       

	 	Name:                                                       
	Its:                                                            

	 	Its:                                                            

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Exhibit A

Form of Stock Option Agreement

(Attached)

10 of 10exv10w1xcy

 

Exhibit 10.1(c)

[FORM OF]

ESCROW AGREEMENT

     THIS ESCROW AGREEMENT, dated ___, 2005, (“Escrow Agreement”) is entered into by
and among Navarre CP, LLC, a Minnesota limited liability company (“Navarre CP”), Navarre CS, LLC, a
Minnesota limited liability company (“Navarre CS”), and Navarre CLP, LLC, a Minnesota limited
liability company (“Navarre CLP” and together with Navarre CP and Navarre CS, the “Buyers”), Daniel
Cocanougher serving in his capacity as representative (the “Seller Representative”) of the general
and limited partners of FUNimation Productions, Ltd., a Texas limited partnership (“Productions
Company”), and The FUNimation Store, Ltd., a Texas limited partnership (“Store Company” and
together with Productions Company, the “Companies”), and Wells Fargo Bank, National Association
(“Escrow Agent”). Capitalized terms used in this Escrow Agreement and not otherwise defined shall
have the meanings provided for such term in the Purchase Agreement (as hereinafter defined).

RECITALS

     WHEREAS, all of the general and limited partners of the Companies have agreed to sell to
Buyers one hundred percent (100.00%) of the general and limited partnership interests of the
Companies pursuant to the terms of that certain Partnership Interest Purchase Agreement dated as of
January ___, 2005 (the “Purchase Agreement”);

     WHEREAS, pursuant to the terms of the Purchase Agreement, Buyers shall deposit $1,800,000 of
the Purchase Price at Closing (the “A/R Amount”) in an escrow account established pursuant to this
Escrow Agreement (the “Escrow Account”) to fund Sellers’ obligations under Section 5.13 of the
Purchase Agreement;

     WHEREAS, pursuant to the terms of the Purchase Agreement, Buyers shall deposit $20,000,000 of
the Purchase Price at Closing (the “Indemnification Cash”) in the Escrow Account to fund Sellers
indemnification obligations under Article 8 of the Purchase Agreement (the A/R Amount and the
Indemnification Cash being hereinafter sometimes collectively referred to as the “Escrow Funds”);
and

     WHEREAS, the Escrow Agent desires to hold and disburse the Escrow Funds in accordance with the
terms and conditions set forth herein.

AGREEMENT

     NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:

1. Acceptance of Appointment; Deposit of Escrow Funds. Wells Fargo Bank, National
Association, hereby agrees to act as Escrow Agent under this Escrow Agreement and to hold and

 

 

disburse the Escrow Funds in accordance with the terms and conditions set forth herein. By their
execution and delivery of this Agreement, Buyers, Seller Representative and Escrow Agent
acknowledge and agree that the Escrow Funds have been placed on deposit with the Escrow Agent on
the date hereof pursuant to this Agreement.

2. Investment of Escrow Funds.

2.1 During the term of and subject to the remaining provisions of this Escrow Agreement,
Escrow Agent shall invest and reinvest the Escrow Funds and interest earned thereon in
any one or more of the following types or classes of investments at the written direction
of the Seller Representative and Buyers: (i) United States Treasury Bills (30-days or
less in term) (“TBills”), (ii) any money market fund or account of a national brokerage
or investment firm which is invested solely in United States government or government
guaranteed securities or obligations secured by the same, (iii) money market accounts of
or certificates of deposit (30-days or less in term) issued by any federally insured bank
or (iv) any other investment media determined by written agreement of Buyers and the
Seller Representative. In the absence of written instruction from Buyers and the Seller
Representative, all Escrow Funds shall be deposited in Tbills to the extent possible with
any remaining balance to be invested in the Wells Fargo Money Market Fund selected on
Exhibit C attached hereto.

2.2 All interest earned on the Escrow Funds shall be reinvested by the Escrow Agent in
accordance with Section 2.1 above, and shall be paid within five (5) business days
following December 31st of each year (i) first, to Buyers and/or Sellers pro
rata in accordance with the amount of Escrow Funds disbursed to Buyers and/or Sellers
during the same calendar year in which such interest payment is to be made, and (ii)
second, to Sellers.

2.3 All interest earned on the Escrow Funds shall be treated as property, and for tax
reporting purposes reported as income, of the party or parties receiving such interest
pursuant to Section 2.2 above.

2.4 Buyers and the Sellers agree to provide the Escrow Agent with certified tax
identification numbers for each of them by furnishing appropriate forms W-9 (or Forms
W-8, in the case of non-U.S. persons) and any other forms and documents that the Escrow
Agent may reasonably request (collectively, “Tax Reporting Documentation”) to the Escrow
Agent within thirty (30) days after the date hereof. The parties hereto understand that,
if such Tax Reporting Documentation is not so furnished to the Escrow Agent, the Escrow
Agent shall be required by the Internal Revenue Code to withhold a portion of any
interest or other income earned on the investment of monies held by the Escrow Agent
pursuant to this Agreement, and to immediately remit such withholding to the Internal
Revenue Service.

2

 

3. Disposition of Escrow Funds; Termination of Escrow.

3.1 The Escrow Agent shall, no later than the 5th day after receipt of written
notice signed by Buyers and the Seller Representative specifying the respective portions
of the A/R Amount to be disbursed to Buyers and/or Sellers (the “A/R Amount Payment
Notice”), promptly pay or deliver to Buyers and/or Sellers the respective portions of the
A/R Amount, that Buyers and Sellers are entitled to receive as specified in the A/R
Amount Payment Notice. Payment shall be delivered as specified in the A/R Amount Payment
Notice.

3.2 Each Buyers’ Indemnitee shall be entitled to receive payment directly from the Escrow
Agent out of the Indemnification Cash in the amount which, at any time and from time to
time, such Buyers’ Indemnitee is entitled to be indemnified, reimbursed and held harmless
pursuant to the Purchase Agreement, in each case in accordance with the following
provisions:

3.2.1 If any Buyers’ Indemnitee believes that it has suffered or incurred or
reasonably believes in good faith that it will suffer or incur any Loss as to which
it is entitled to be indemnified under Section 8.2 of the Purchase Agreement, such
Buyers’ Indemnitee (the “Indemnified Person”) shall so notify the Escrow Agent and
the Seller Representative in writing (the “Indemnification Claim Notice”),
certifying that it is a Buyers’ Indemnitee and describing such Loss and the amount
thereof to which it is entitled to be indemnified, if known, and the method of
computation of such Loss, all with reasonable particularity and containing a
reference to the applicable provisions of the Purchase Agreement, any certificate
delivered pursuant thereto or any Ancillary Agreement in respect of which such Loss
shall have occurred; provided, however, that the omission by the
Indemnified Person to give notice as provided herein shall not relieve any
indemnification obligation under Article 8 of the Purchase Agreement, except to the
extent that Sellers are materially damaged as a result of such failure to give
notice. Subject to Section 3.2.2 below, the Escrow Agent shall, following the
20th day after receipt of an Indemnification Claim Notice with respect to
indemnification for a specified amount (the “Indemnification Response Period”),
promptly pay or deliver to Buyers, for their account or the account of each Buyers’
Indemnitee named in the Indemnification Claim Notice, the Indemnification Cash or
the portion thereof specified in the Indemnification Claim Notice. Payment shall be
delivered as specified in the Indemnification Claim Notice.

3.2.2 Notwithstanding the provisions of Section 3.2.1 above, the Escrow Agent shall
not make any payment of the Escrow Funds or any portion thereof with respect to an
Indemnification Claim Notice if, during the Indemnification Response Period, the
Seller Representative shall have delivered to the Escrow Agent a written objection
to the claim made in the Indemnification Claim Notice (an “Indemnification
Objection”). If the Escrow Agent does not receive an Indemnification Objection
within the Indemnification Response Period, then the Seller Representative shall be
deemed to have acknowledged and agreed to the

3

 

correctness of such claim for the full amount thereof as specified in the
Indemnification Claim Notice.

3.2.3 Upon receipt of an Indemnification Objection pursuant to this Escrow
Agreement, the Escrow Agent shall (i) deliver a duplicate copy of the
Indemnification Objection to Buyers (to the extent Buyers are not the Indemnified
Person) and the Indemnified Person, (ii) deliver to the Indemnified Person cash out
of the Indemnification Cash in an amount equal to that portion, if any, specified in
the Indemnification Claim Notice, which is not disputed by the Seller Representative
and (iii) designate and segregate out of the Escrow Funds the amount subject to the
Indemnification Claim Notice which is disputed by the Seller Representative.
Thereafter, the Escrow Agent shall not dispose of that remaining portion of the
Escrow Funds subject to the Indemnification Claim Notice until the Escrow Agent
shall have received a Final Order (as defined in Section 3.2.4 below).

3.2.4 After an Indemnification Objection has been delivered to the Escrow Agent,
Buyers and the Indemnified Person, the amount of indemnification to which an
Indemnified Person shall be entitled under this Escrow Agreement shall be
determined: (i) by a written agreement between the Indemnified Person and the Seller
Representative; (ii) by a final judgment or decree of any court of competent
jurisdiction; or (iii) by any other means to which the Indemnified Person and the
Seller Representative shall agree (a “Final Order”). The judgment or decree of a
court shall be deemed final when the time for appeal, if any, shall have expired and
no appeal shall have been taken or when all appeals taken shall have been finally
determined. The Escrow Agent will pay the Indemnified Person out of the
Indemnification Cash the amount that the Indemnified Person is entitled to receive,
as promptly as practicable after receiving written evidence of such determination.

3.3 The Sellers shall be entitled to receive payment from the Escrow Agent out of the
Indemnification Cash in the amounts which, and at the times when, the Sellers are
entitled to receive Indemnification Cash pursuant to Section 8.2(b)(iii)(B) of the
Purchase Agreement, in each case in accordance with the following provisions:

3.3.1 If the Seller Representative believes that the Sellers are entitled to receive
Indemnification Cash pursuant to Section 8.2(b)(iii)(B) of the Purchase Agreement,
the Seller Representative shall so notify the Escrow Agent and Buyers in writing
(the “Escrow Claim Notice”), certifying that it is the Seller Representative and
describing the amount to which the Seller Representative believes the Sellers are
entitled and the method of computation of such amount, all with reasonable
particularity and containing a reference to the applicable provisions of the
Purchase Agreement. Subject to Section 3.3.2 below, the Escrow Agent shall,
following the 20th day after receipt of an Escrow Claim Notice with
respect to a claim by the Seller Representative for a specified amount of the Escrow
Funds (the “Escrow Response Period”), promptly pay or deliver to

4

 

the Seller Representative, for the account of each Seller, the Indemnification Cash
or the portion thereof specified in the Escrow Claim Notice. Payment shall be
delivered as specified in the Escrow Claim Notice.

3.3.2 Notwithstanding the provisions of Section 3.3.1 above, the Escrow Agent shall
not make any payment of the Escrow Funds or any portion thereof with respect to an
Escrow Claim Notice if, during the Escrow Response Period, the Buyers shall have
delivered to the Escrow Agent a written objection to the claim made in the Escrow
Claim Notice (an “Escrow Objection”). If the Escrow Agent does not receive an
Escrow Objection within the Escrow Response Period, then Buyers shall be deemed to
have acknowledged and agreed to the correctness of such claim for the full amount
thereof as specified in the Escrow Claim Notice.

3.3.3 Upon receipt of an Escrow Objection pursuant to this Escrow Agreement, the
Escrow Agent shall (i) deliver a duplicate copy of the Escrow Objection to the
Seller Representative, (ii) deliver to the Seller Representative Indemnification
Cash in an amount equal to that portion, if any, specified in the Escrow Claim
Notice which is not disputed by Buyers, and (iii) designate and segregate out of the
Escrow Funds the amount subject to the Escrow Claim Notice which is disputed by
Buyers. Thereafter, the Escrow Agent shall not dispose of that remaining portion of
the Escrow Funds subject to the Escrow Claim Notice until the Escrow Agent shall
have received a Final Order.

3.3.4 After an Escrow Objection has been delivered to the Escrow Agent, Buyers and
the Seller Representative, the amount of Indemnification Cash to which the Sellers
shall be entitled under this Escrow Agreement shall be determined by a Final Order.
The Escrow Agent will pay the Indemnified Person out of the Indemnification Cash the
amount that the Indemnified Person is entitled to receive, as promptly as
practicable after receiving written evidence of such determination.

     3.4 This Escrow Agreement shall terminate on the date all of the Escrow Funds and
interest thereon have been disbursed, including amounts withheld pursuant to unresolved
Indemnification Claim Notices and Escrow Claim Notices, as provided herein.

4. Limitations of Duties of Escrow Agent. Escrow Agent shall have no duties other than
those expressly imposed upon Escrow Agent under this Escrow Agreement and shall not be liable for
any act or omission, except for Escrow Agent’s gross negligence or willful misconduct.

5. Indemnification. Buyers and Sellers, jointly and severally, agree to indemnify and hold
Escrow Agent harmless from and against any and all liability, loss, cost, damages or expenses
(including reasonable attorneys’ fees) Escrow Agent may incur or suffer for anything done or
omitted by Escrow Agent in the performance of Escrow Agent’s duties hereunder, except as a result
of Escrow Agent’s gross negligence or willful misconduct.

5

 

6. Good Faith Reliance. Escrow Agent shall be entitled to rely upon and act upon any
notice which Escrow Agent may receive pursuant hereto, and upon the genuineness, capacity and
authorization of the signature and purported signature of any party upon any instruction, notice,
release, receipt or other document delivered to Escrow Agent pursuant to this Escrow Agreement.

7. Resolution of Controversies. In the event any dispute or controversy arises between
Buyers and the Seller Representative with respect to the disposition of the Escrow Funds and/or
interest thereon, or any part thereof, Escrow Agent shall have the right to interplead all such
persons in any court of competent jurisdiction, including but not limited to the courts of
Minnesota and the Federal District Court of Minnesota, which shall be deemed to be courts of
competent jurisdiction, and to deposit with such court the Escrow Funds and all interest earned
thereon; thereafter Escrow Agent shall be fully released and discharged from all further
obligations hereunder with respect to the funds held under this Escrow Agreement.

8. Resignation of Escrow Agent. The Escrow Agent may resign and be discharged from its
duties hereunder at any time by giving written notice of such resignation to Buyers and the Seller
Representative specifying a date (not less than ninety (90) days after the giving of such notice)
when such resignation shall take effect. Promptly after such notice, a successor escrow agent,
which shall be a state or national bank with trust powers, shall be appointed by mutual agreement
of Buyers and the Seller Representative, such successor escrow agent to become Escrow Agent
hereunder upon the resignation date specified in such notice. If Buyers and the Seller
Representative are unable to agree upon a successor escrow agent within ninety (90) days after such
notice, the Escrow Agent shall be entitled to appoint its successor. The Escrow Agent shall
continue to serve until its successor accepts the escrow by written notice to the parties hereto
and receives the Escrow Funds. Buyers and the Seller Representative may agree at any time to
substitute a new escrow agent by giving written notice thereof to the Escrow Agent then acting.

9. Fees and Expenses. Escrow Agent is entitled to compensation in accordance with
Exhibit A attached hereto and incorporated herein by reference and shall be payable 50% by
Buyers and 50% by the Sellers. The fee agreed upon for the services rendered hereunder is intended
as full compensation for the Escrow Agent’s services as contemplated by this Escrow Agreement;
provided, however, that in the event that the conditions for the disbursement of funds under this
Escrow Agreement are not fulfilled, or the Escrow Agent renders any material service not
contemplated in this Escrow Agreement or there is any assignment of interest in the subject matter
of this Escrow Agreement, or any material modification hereof, or if any material controversy
arises hereunder, or the Escrow Agent is made a party to any litigation pertaining to this Escrow
Agreement, or the subject matter hereof, then the Escrow Agent shall be reasonably compensated for
such extraordinary services and reimbursed for all costs and expenses, including reasonable
attorney’s fees, occasioned by any delay, controversy, litigation or event.

10. Seller Representative. The parties hereby acknowledge and agree that Daniel
Cocanougher shall act as a representative of Sellers pursuant to the terms and conditions of
Section 11.14 of the Purchase Agreement and is entitled with such powers as are delegated under
this Escrow Agreement.

6

 

11. Notices. All notices, consents, requests, instructions, approvals and/or other
communications provided for herein shall be in writing, signed by the individual(s) who signed this
Agreement or who are designated as an additional authorized signer on Exhibit B attached
hereto (as the same may be updated from time to time), and shall be deemed validly given, made or
served, if delivered personally against written receipt, or on the third (3rd) business
day after posting in the United States mail, by registered or certified mail, return receipt
requested, and addressed to the respective parties as follows:

	   	If intended for Escrow Agent:

	 	   	Wells Fargo Bank, National Association

Corporate Trust & Escrow Services

N9303-110

Sixth and Marquette

Minneapolis, MN 55479

Attn: Lynn Lean

	   	If intended for Buyers:

	 	   	Navarre Corporation

7400 49th Avenue North

New Hope, MN 55428

Attn: Eric Paulson, CEO

      Ryan Urness, General Counsel
	 
	 	   	With a copy to:
	 
	 	   	Winthrop & Weinstine, P.A.

225 South Sixth Street, Suite 3500

Minneapolis, MN 55402

Attn: Scott Dongoske, Esq.

	   	If intended for the Seller Representative, on behalf of Sellers:

	 	   	Daniel Cocanougher

6851 NE Loop 820, Suite 247

North Richland Hills, TX 76181
	 
	 	   	With a copy to:
	 
	 	   	Moses & Singer LLP

1301 Avenue of the Americas

New York, NY 10019

Attn: Howard Herman, Esq.

7

 

12. Miscellaneous.

12.1 The parties hereto agree that this Escrow Agreement shall be legally binding upon
them, and their respective personal representatives, successors and assigns. The rights
and obligations of the Seller Representative hereunder shall be binding upon and inure to
the benefit of any successor to the Seller Representative appointed by Sellers in
accordance with Section 11.14 of the Purchase Agreement.

12.2 This Escrow Agreement contains the entire understanding of the parties relating to
the subject matter hereof and may not be amended or modified in any way except by an
instrument in writing signed by all of the parties hereto.

12.3 This Escrow Agreement shall be governed by and interpreted in accordance with the
laws of the State of Minnesota, without reference to its principles of conflicts of laws.

12.4 This Escrow Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together will constitute one in the same
agreement.

12.5 The headings contained in this Agreement are for convenience only and shall not be
used to construe or interpret the scope or intent of this Escrow Agreement or in any way
affect the same.

12.6 This Escrow Agreement is not for the benefit of any person or entity not a specific
named party to it, except as otherwise provided herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

8

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first
above written.

	 	 	 
	

	 	SELLER REPRESENTATIVE,

on behalf of the Sellers:
	 
	 	 
	

	 	                                                                                
	

	 	Daniel Cocanougher
	 
	 	 
	

	 	BUYERS:
	 
	 	 
	

	 	Navarre CP, LLC
	 
	 	 
	

	 	By                                                            
	

	 	Its:                                        
	 
	 	 
	

	 	Navarre CS, LLC
	 
	 	 
	

	 	By                                                            
	

	 	Its:                                        
	 
	 	 
	

	 	Navarre CLP, LLC
	 
	 	 
	

	 	By                                                            
	

	 	Its:                                        
	 
	 	 
	

	 	ESCROW AGENT:
	 
	 	 
	

	 	Wells Fargo Bank, National Association
	 
	 	 
	

	 	By                                                            
	

	 	Its:                                        

9

 

EXHIBIT A

Fees and Expenses

	 	 	 	 	 
	Acceptance Fee:

	 	$	1,500.00	 

The Acceptance Fee includes review of all related documents and accepting the appointment of Escrow
Agent on behalf of Wells Fargo Bank Minnesota, National Association. The fee also includes setting
up the required account(s) and accounting records, document filing, and coordinating the receipt of
funds/assets for deposit to the Escrow Account. The Acceptance Fee is due upon receipt of the
assets.

	 	 	 	 	 
	Escrow Agent Administration Fee:

	 	$	1,000.00	 

The Administration Fee includes providing routine and standard fiduciary services of an Escrow
Agent. The fee includes administering the escrow account, performing investment transactions,
processing cash transactions (including wires and check processing), monitoring claim notices
pursuant to the Agreement; disbursing funds in accordance with the Agreement (note any pricing
considerations below), and providing trust account statements to applicable parties. Additional
fees may be billed for extraordinary services and legal fees arising from any disputed claims. The
Administration Fee is payable annually in advance and is not pro-rated. The fee is due upon
receipt of the assets.

	 	 	 
	Out-of Pocket Expenses:

	 	At Cost

All out-of-pocket expenses will be billed in addition to the above, for example, fees for retaining
the services of accounting firms or legal counsel etc.

10

 

EXHIBIT B

Wells Fargo Bank, NA

Corporate Trust Services

Sixth and Marquette, N9303-110

Minneapolis, MN 55479

CERTIFICATE AS TO AUTHORIZED SIGNATURES

Re: Navarre/FUNimation Escrow

Account Number(s): 16875400 & 16875401

The specimen signatures shown below are the specimen signatures of the individuals authorized to
initiate and approve transactions of all types for the above mentioned Escrow Account(s):

	 	 	 
	Please print type	 	 
	Name/Title	 	Specimen Signature
	
	 	 
	
	 	 
	          Name and Title
	 	Signature
	 	 	 
	
	 	 
	
	 	 
	          Name and Title
	 	Signature
	 	 	 
	
	 	 
	
	 	 
	          Name and Title
	 	Signature
	 	 	 
	
	 	 
	
	 	 
	          Name and Title
	 	Signature

Dated:________________

 

 

EXHIBIT C

Escrow Account Direction For Cash Balances

Direction to use Wells Fargo Funds for Cash Balances for the following account(s):

Account Name: Navarre/FUNimation Escrow

Account Number(s): 16875400 & 16875401

You are hereby directed to invest, as indicated below or as I shall direct
further from time to time, all cash in the Account(s) in the following money
market portfolio or Wells Fargo Bank Money Market Fund (the “Fund”) (Check One):

___Wells Fargo 100% Treasury Money Market Fund

___Wells Fargo Government Money Market Fund

___Wells Fargo Fund Treasury Plus Money Market Fund

___Wells Fargo Prime Investment Money Market Fund

___Wells Fargo Cash Investment Money Market Fund

I acknowledge that I have received, at my request, and reviewed the Fund’s
prospectus and have determined that the Fund is an appropriate investment for the
Account.

I understand from reading the Fund’s prospectus that Wells Fargo Funds
Management, LLC, a wholly-owned subsidiary of Wells Fargo & Company provides
investment advisory and other administrative services for the Wells Fargo Funds.
Other affiliates of Wells Fargo & Company provide sub-advisory and other services
for the Funds. Boston Financial Data Services serves as transfer agent for the
Funds. The Funds are distributed by Stephens Inc., Member NYSE/SIPC. Wells Fargo
& Company and its affiliates are not affiliated with Stephens Inc. I also
understand that Wells Fargo & Company will be paid, and its bank affiliates may
be paid, fees for services to the Funds and that those fees may include
Processing Organization fees as described in the Fund’s prospectus.

I understand that you will not exclude amounts invested in the Fund from Account
assets subject to fees under the Account agreement between us.

I understand that investments in the Funds are not obligations of, or endorsed or
guaranteed by, Wells Fargo Bank or any of its affiliates and not insured by the
Federal Deposit Insurance Corporation.

I acknowledge that I have full power to direct investments of the Account.

I understand that I may change this direction at any time and that it shall
continue in effect until revoked or modified by me by written notice to you.

	 	 	 	 	 
	

	 	

	 	 
	Signature

	 	Signature
	 	 
	 
	 	 	 	 
	

	 	
	 	 
	Date

	 	Date

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