[PPT] - What is Phantom Stock? and why do I keep hearing about it? and why do PowerPoint Presentation

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September 23, 2014

What is Phantom Stock? and why do I keep hearing about it? and why do I keep hearing about it?

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Today’s Presenter:

Tom Miller

President (949) 265‐5700 tmiller@vladvisors.com

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7700 Irvine Center Drive, Suite 930  Irvine, CA 92618  949-852-2288 www.VLadvisors.com  www.PhantomStockOnline.com

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h d f d l d We’re happy to provide a copy of today’s slides. Information will be provided at the close

f the presentation.

p To open or close the control panel: Click the red arrow For questions during today’s presentation:

Q: Are the slides available? A: Yes, more info will be provided at the end

today s presentation: Use the question area

n your control panel

Webinar

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y p

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Let’s start with the “why” Let’s start with the “why”

Think like an owner as you answer the following 8 questions

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g q

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1. Do you believe…

y

f …you’ll be bigger—significantly bigger—in 5 years?



YES NO



YES NO

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2. Do you believe…

y

f …you can’t grow significantly without the exceptional commitment and effort of your team?



YES NO



YES NO

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3. Do you believe…

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f …you have a greater likelihood of growing significantly if you attract premier talent, not d l just good talent?

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YES NO



YES NO

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4. Do you believe…

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f …that establishing a flourishing ownership mentality will improve engagement and d productivity?

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YES NO



YES NO

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5. Do you believe…

5 y

f f …that if an employee is directly responsible for creating economic value, he or she is entitled to f a portion of it?

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YES NO



YES NO

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6. Do you believe…

y

f f …that if you want to outperform your competitors you must pay your employees d ff l h h d differently than they do?

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YES NO



YES NO

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7. Do you believe…

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f …you’d rather not dilute shareholder equity (if possible)?

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YES NO

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YES NO

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8. Do you believe…

y

f f …you want to optimize tax benefits for the shareholders and your executives?

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YES NO



YES NO

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If you answered “yes” to most or all of these:

We need We need

y y

W ill W ill We need We need premier talent! premier talent! We will We will be bigger! be bigger! We need an exceptional We need an exceptional commitment and effort commitment and effort commitment and effort commitment and effort from our team! from our team! We’re looking for We’re looking for We share value with We share value with those that help create it! hose that help create it! e e oo g o e e oo g o an enhanced ownership an enhanced ownership mentality! mentality! those that help create it! hose that help create it! We’d prefer not We’d prefer not We want to We want to We want our pay We want our pay programs to be a programs to be a to dilute equity. to dilute equity. We want to We want to

ptimize tax
ptimize tax

benefits for benefits for h h ld h h ld

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programs to be a programs to be a competitive advantage! competitive advantage! shareholders shareholders and our executives! and our executives!

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You definitely need a phantom stock plan! You definitely need a phantom stock plan!

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Attracting Premier Talent g

They will find non They will find non‐traditional traditional pay structures alluring and pay structures alluring and Value sharing pay structures Value sharing pay structures will respect their will respect their entrepreneurial mindset and entrepreneurial mindset and pay structures alluring and pay structures alluring and meaningful meaningful entrepreneurial mindset and entrepreneurial mindset and appeal to their interest in appeal to their interest in wealth accumulation wealth accumulation opps

pps

They will accept the They will accept the responsibilities and responsibilities and responsibilities and responsibilities and accountability associated accountability associated with true value creation (i.e., with true value creation (i.e., they won’t “expect” higher they won’t “expect” higher They will particularly value They will particularly value pay arrangements that defer pay arrangements that defer taxes and build wealth taxes and build wealth

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y p g y p g pay without creating results) pay without creating results)

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Partnership Compensation p p

“Y h i h i l h l ”

 “You share in the economic value you help create”  “Your compensation structures mirror the way owners are paid”  “You have variable pay opportunities that are not ‘capped’”

You have variable pay opportunities that are not capped

 “You participate in equity or equity like programs that have

significant upside” f ll h ll h l d

 “If we sell the company, you’ll participate in the value created”  “If we can create tax‐savings opportunities for you, we’ll do it”  “Your compensation package won’t be replaceable anywhere

Your compensation package won t be replaceable anywhere else”

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SLIDE 17

Best Outcomes from an LTIP ( h t t k) (phantom stock)

Attraction Attraction Attraction Attraction Retention Retention Retention Retention

Att ti Att ti

Focus Focus Focus Focus Alignment Alignment Alignment Alignment

Attraction Attraction Retention Retention Focus Focus Alignment Alignment

Ownership Mentality Ownership Mentality Ownership Mentality Ownership Mentality

Alignment Alignment Value Sharing Value Sharing Motivation Motivation

Value Sharing Value Sharing Value Sharing Value Sharing Motivation Motivation Motivation Motivation

Ownership Mentality Ownership Mentality

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Value Sharing Value Sharing Value Sharing Value Sharing Motivation Motivation Motivation Motivation

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Emotional Connection

(Ownership Mentality)

Competitive Ed Improved P f Edge

(Attract/Retain)

Performance

(Focus/Execution)

Unified Vision for Growing the Business

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“The Partnership Model”

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Phantom Stock

h h l

 What’s the goal?  What is it?  How does it work?  What are the key decisions to make?  What’s the best way to build a great plan?  Final observations and suggestions

gg

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What’s the goal? g

“How do I compensate employees for b h “Can I reward contributing to the creation of my future company?” employees like

wners without

giving away stock?” p y g g y “What compensation techniques do I use to techniques do I use to attract and retain top talent?”

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Three Ultimate Results

O nership O nership Ownership Ownership Mentality Mentality Talent Talent Wars Wars Value Value Value Value Creation Creation

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What is Phantom Stock?

f

 A deferred bonus  Awards made in “units” (like stock)  Unit price is tied to a formula (or appraisal)

that reflects company value p y

 Settled in cash (almost always)

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C O C O M P A M P A A N Y A N Y

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$100 mm Increase in $85 mm Increase in Enterprise Value Employee Value $15 mm Base Value $30 mm

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Today Future Date (5 – 15 yrs)

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So, you’re hiring John… , y g

 New president  What do you offer him?

Significant salary
Meaningful target bonus
Meaningful target bonus

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John’s comp package p p g

2014 Annual Salary 325,000 $ Bonus 85,000 $

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John’s traditional comp package p p g

Employee Value Statement ‐ Typical

2014 2015 2016 2017 2018 2019 Annual Salary 325,000 $ 334,750 $ 344,793 $ 355,136 $ 365,790 $ 376,764 $ Bonus 85,000 $ 87,550 $ 90,177 $ 92,882 $ 95,668 $ 98,538 $

John Ferry @ Target

Cash Needs Total Cash Received 410,000 $ 422,300 $ 434,970 $ 448,018 $ 461,458 $ 475,302 $ Core Benefits 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Executive Benefits

$
$
$
$
$
$

Total Value 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Security Needs Wealth Accumulation Long-Term Incentive Plan (SAR) Annual Distribution

$
$
$
$
$
$

Increase in Vested Value

$
$
$
$
$
$

Remaining Unvested Value

$
$
$
$
$
$

Total Annual Value (Paid, Vested & Unvested)

$
$
$
$
$
$

Wealth Accumulation Retirement Plans 401(k) Company Match 16,500 $ 16,995 $ 17,505 $ 18,030 $ 18,571 $ 19,128 $ Deferred Comp Match

$
$
$
$
$
$

Total Cash Received 410,000 $ 422,300 $ 434,970 $ 448,018 $ 461,458 $ 475,302 $ Total Benefits Annual Value 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Total Value Projection

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Total Benefits Annual Value 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Annual Value of LTIP

$
$
$
$
$
$

Annual Value of Ret Plan Contributions 16,500 $ 16,995 $ 17,505 $ 18,030 $ 18,571 $ 19,128 $ Total Annual Value 447,500 $ 461,555 $ 476,071 $ 491,059 $ 506,541 $ 522,533 $ Total Wealth Projection 447,500 $ 909,055 $ 1,385,124 $ 1,876,184 $ 2,382,725 $ 2,905,259 $

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John’s expected contribution p

1. Deliver on annual budget goals
2. Deliver on 6‐year growth plan

a)

Revenue from $17mm to $39mm

b)

Net Income from $5mm to $13.5mm 5 3 5

c)

Book value from $19mm to $51mm

d)

Market value (conservative) from $25mm to $67mm

d)

Market value (conservative) from $25mm to $67mm

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John’s “amplified” comp package p p p g

Employee Value Statement ‐ Amplified

2014 2015 2016 2017 2018 2019 Annual Salary 325,000 $ 334,750 $ 344,793 $ 355,136 $ 365,790 $ 376,764 $ Bonus 85,000 $ 87,550 $ 90,177 $ 92,882 $ 95,668 $ 98,538 $

John Ferry @ Target

Cash Needs Total Cash Received 410,000 $ 422,300 $ 434,970 $ 448,018 $ 461,458 $ 475,302 $ Core Benefits 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Executive Benefits 18,000 $ 18,540 $ 19,096 $ 19,669 $ 20,259 $ 20,867 $ Total Value 39,000 $ 40,800 $ 42,692 $ 44,680 $ 46,771 $ 48,970 $ Security Needs Wealth Accumulation Long-Term Incentive Plan (SAR) Annual Distribution

$
$
$

287,767 $ 287,159 $ 291,978 $ Increase in Vested Value

$
$

287,767 $ 287,159 $ 291,978 $ 272,602 $ Remaining Unvested Value

$

81,408 $ 256,731 $ 257,488 $ 259,262 $ 266,263 $ Total Annual Value (Paid, Vested & Unvested)

$

81,408 $ 544,498 $ 832,414 $ 838,399 $ 830,843 $ Wealth Accumulation Retirement Plans 401(k) Company Match 16,500 $ 16,995 $ 17,505 $ 18,030 $ 18,571 $ 19,128 $ Deferred Comp Match 20,000 $ 20,600 $ 21,218 $ 21,855 $ 22,510 $ 23,185 $ Total Cash Received 410,000 $ 422,300 $ 434,970 $ 448,018 $ 461,458 $ 475,302 $ Total Benefits Annual Value 39,000 $ 40,800 $ 42,692 $ 44,680 $ 46,771 $ 48,970 $ Total Value Projection

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Total Benefits Annual Value 39,000 $ 40,800 $ 42,692 $ 44,680 $ 46,771 $ 48,970 $ Annual Value of LTIP

$
$

287,767 $ 287,159 $ 291,978 $ 272,602 $ Annual Value of Ret Plan Contributions 36,500 $ 37,595 $ 38,723 $ 39,885 $ 41,081 $ 42,313 $ Total Annual Value 485,500 $ 500,695 $ 804,152 $ 819,742 $ 841,288 $ 839,187 $ Total Wealth Projection 485,500 $ 986,195 $ 1,790,346 $ 2,610,088 $ 3,451,377 $ 4,290,564 $

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Let’s Build a Plan Let’s Build a Plan

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Select the Right Plan Type g yp

P f Sh Restricted Stock Phantom Stock Option Performance Shares Phantom Stock Profit Pool Performance Phantom Stock Strategic Deferred Compensation Stock Option Performance Unit p

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Grant Equity or Not Equity? Full Value or Appreciation Only?

Yes Full Value

Performance Based?

Appreciation

Stock Option

Yes

Performance Shares

No

Restricted Stock

No

Stock Option Performance Shares Restricted Stock Reward for Value Increase or Financial

Value Increase

Full Value or

Full Value

P f B d? Increase or Financial Performance? Appreciation?

Appreciation

Performance Based?

Yes No

Ph t St k

Phantom Stock Option Performance Phantom Stock Phantom Stock

Financial Performance Performance Based Profits

Phantom Stock Option

Appreciation- Performance Based or Employee Directed?

Based

Reward for Profit/Cash Flow or Other Metrics?

Profits

Allocation or Objectives Based?

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Allocation

Profit Pool

Objectives Other Metrics

Performance Unit

Employee Directed

Strategic Deferred Compensation

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Compensation Dashboard p

D t il d ti j ti

 Detailed operation projection  Award guidelines by participant  Vesting redemption payment schedules  Vesting, redemption, payment schedules  Performance standards  Over/under performance assessment (Base, Target,

p ( , g , Superior)

 Success measurements

C t t l

 Cost controls  Cash flow and earnings assessment  Funding standards

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 Funding standards

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Select possible participants p p p

ID First Name Last Name Position / Job Title Date of birth Date of Hire Tier Initial Annual Salary 1 Todd Warren President 4/17/1959 1/1/1990 1 350,000 $ 2 John Anderson CFO 11/5/1976 1/1/1990 2 240,000 $ 3 Carol Watson VP Marketing 2/20/1978 6/15/1994 2 240 000 $ ID First Name Last Name Position / Job Title Date of birth Date of Hire Tier Initial Annual Salary 1 Todd Warren President 4/17/1959 1/1/1990 1 350,000 $ 2 John Anderson CFO 11/5/1976 1/1/1990 2 240,000 $ 3 Carol Watson VP Marketing 2/20/1978 6/15/1994 2 240 000 $ 3 Carol Watson VP Marketing 2/20/1978 6/15/1994 2 240,000 $ 4 Wilson Harrendale VP Sales 6/30/1963 1/1/2004 2 235,000 $ 5 Charlie Hills VP IT 9/15/1981 11/15/2005 2 225,000 $ 6 Virginia Johnson VP Operations 10/17/1961 5/30/1996 2 215,000 $ 7 Barb Tanaka VP International 4/21/1965 11/15/2005 2 210,000 $ 8 Dennis Aguirre General Co nsel 7/24/1972 11/15/2005 2 205 000 $ 3 Carol Watson VP Marketing 2/20/1978 6/15/1994 2 240,000 $ 4 Wilson Harrendale VP Sales 6/30/1963 1/1/2004 2 235,000 $ 5 Charlie Hills VP IT 9/15/1981 11/15/2005 2 225,000 $ 6 Virginia Johnson VP Operations 10/17/1961 5/30/1996 2 215,000 $ 7 Barb Tanaka VP International 4/21/1965 11/15/2005 2 210,000 $ 8 Dennis Aguirre General Co nsel 7/24/1972 11/15/2005 2 205 000 $ 8 Dennis Aguirre General Counsel 7/24/1972 11/15/2005 2 205,000 $ 9 Eve Allendale VP HR 1/31/1979 3/30/1995 2 190,000 $ 10 Cheryl Flink Director 3/3/1968 6/15/1999 3 145,000 $ 11 Tessa Gray Director 5/1/1958 3/1/2004 3 139,000 $ 12 Emily Jordan Director 1/9/1980 1/1/2005 3 138,000 $ 13 D id B th l Di 8/22/1964 4/1/2001 3 129 000 $ 8 Dennis Aguirre General Counsel 7/24/1972 11/15/2005 2 205,000 $ 9 Eve Allendale VP HR 1/31/1979 3/30/1995 2 190,000 $ 10 Cheryl Flink Director 3/3/1968 6/15/1999 3 145,000 $ 11 Tessa Gray Director 5/1/1958 3/1/2004 3 139,000 $ 12 Emily Jordan Director 1/9/1980 1/1/2005 3 138,000 $ 13 D id B th l Di 8/22/1964 4/1/2001 3 129 000 $ 13 David Bartholomew Director 8/22/1964 4/1/2001 3 129,000 $ 14 Jordan Kyle Director 11/10/1969 2/28/1998 3 125,000 $ 15 Shannon Lightwood Director 6/6/1976 5/1/2011 3 120,000 $ 16 Steven Barnes Director 10/20/1970 11/30/2012 3 120,000 $ 13 David Bartholomew Director 8/22/1964 4/1/2001 3 129,000 $ 14 Jordan Kyle Director 11/10/1969 2/28/1998 3 125,000 $ 15 Shannon Lightwood Director 6/6/1976 5/1/2011 3 120,000 $ 16 Steven Barnes Director 10/20/1970 11/30/2012 3 120,000 $

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Set your budget y g

Future Company Projection Future Company Projection

2012 2020 Present Company Future Company Key Indicators 36,787,580 $ Valuation 86,987,646 $ 2012 2020 Present Company Future Company Key Indicators 36,787,580 $ Valuation 86,987,646 $ Added Value 50 200 066 $ Added Value 50 200 066 $ 50,200,066 $ Sharing Target 15% Value Shared 7,530,009.93 $ Pl i i 50,200,066 $ Sharing Target 15% Value Shared 7,530,009.93 $ Pl i i

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Plan participants 10 Average Value 753,001 $ Plan participants 10 Average Value 753,001 $

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Project your values by person j y y p

2013 2014 2015 2016 2017 2018 2019 2020 Assumed Market Value 54,303,740 $ 60,578,870 $ 67,693,780 $ 76,162,930 $ 85,579,900 $ 96,420,540 $ 108,448,000 $ 121,782,700 $ F l V l 38 788 390 $ 43 270 620 $ 48 352 700 $ 54 402 090 $ 61 128 500 $ 68 871 820 $ 77 462 840 $ 86 987 650 $ PSO Projection (CO) ‐ Target 2013 2014 2015 2016 2017 2018 2019 2020 Assumed Market Value 54,303,740 $ 60,578,870 $ 67,693,780 $ 76,162,930 $ 85,579,900 $ 96,420,540 $ 108,448,000 $ 121,782,700 $ F l V l 38 788 390 $ 43 270 620 $ 48 352 700 $ 54 402 090 $ 61 128 500 $ 68 871 820 $ 77 462 840 $ 86 987 650 $ PSO Projection (CO) ‐ Target Formula Value 38,788,390 $ 43,270,620 $ 48,352,700 $ 54,402,090 $ 61,128,500 $ 68,871,820 $ 77,462,840 $ 86,987,650 $ Increase in Formula Value From Inception 2,000,810 6,483,040 11,565,120 17,614,510 24,340,920 32,084,240 40,675,260 50,200,070 Total Phantom Shares 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Weighted Share Value (EOY) 38.79 $ 43.27 $ 48.35 $ 54.40 $ 61.13 $ 68.87 $ 77.46 $ 86.99 $ EBITDA 7,913,096 $ 9,465,329 $ 10,341,422 $ 11,682,241 $ 13,171,406 $ 14,824,071 $ 16,656,865 $ 18,688,032 $ Annual Estimated Cash Flow 756,650 $ 1,992,766 $ 2,524,517 $ 2,251,987 $ 2,563,808 $ 3,303,682 $ 3,780,538 $ 4,243,210 $ TOTAL PLAN PROJECTION Annual Grants (BOY) 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 Formula Value 38,788,390 $ 43,270,620 $ 48,352,700 $ 54,402,090 $ 61,128,500 $ 68,871,820 $ 77,462,840 $ 86,987,650 $ Increase in Formula Value From Inception 2,000,810 6,483,040 11,565,120 17,614,510 24,340,920 32,084,240 40,675,260 50,200,070 Total Phantom Shares 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Weighted Share Value (EOY) 38.79 $ 43.27 $ 48.35 $ 54.40 $ 61.13 $ 68.87 $ 77.46 $ 86.99 $ EBITDA 7,913,096 $ 9,465,329 $ 10,341,422 $ 11,682,241 $ 13,171,406 $ 14,824,071 $ 16,656,865 $ 18,688,032 $ Annual Estimated Cash Flow 756,650 $ 1,992,766 $ 2,524,517 $ 2,251,987 $ 2,563,808 $ 3,303,682 $ 3,780,538 $ 4,243,210 $ TOTAL PLAN PROJECTION Annual Grants (BOY) 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 Cumulative Grants 59,000 118,000 177,000 236,000 295,000 354,000 413,000 472,000 Dollar Basis of PSOs 87,500 $ 90,125 $ 92,829 $ 95,614 $ 98,482 $ 101,436 $ 104,480 $ 107,614 $ Plan Value (BOY) ‐ $ 118,000 $ 646,640 $ 1,545,800 $ 1,934,610 $ 2,204,830 $ 2,521,070 $ 2,830,820 $ Annual Distributions ‐ $ ‐ $ ‐ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ Cumulative Distributions ‐ $ ‐ $ ‐ $ 682,040 $ 1,603,030 $ 2,656,770 $ 3,867,450 $ 5,227,990 $ Remaining Installments ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Value (EOY) 38,940 $ 339,557 $ 1,153,214 $ 1,472,186 $ 1,682,427 $ 1,924,840 $ 2,163,677 $ 2,416,882 $ Unvested Value (EOY) 79,060 $ 307,083 $ 392,586 $ 462,424 $ 522,404 $ 596,231 $ 667,142 $ 740,208 $ Cumulative Grants 59,000 118,000 177,000 236,000 295,000 354,000 413,000 472,000 Dollar Basis of PSOs 87,500 $ 90,125 $ 92,829 $ 95,614 $ 98,482 $ 101,436 $ 104,480 $ 107,614 $ Plan Value (BOY) ‐ $ 118,000 $ 646,640 $ 1,545,800 $ 1,934,610 $ 2,204,830 $ 2,521,070 $ 2,830,820 $ Annual Distributions ‐ $ ‐ $ ‐ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ Cumulative Distributions ‐ $ ‐ $ ‐ $ 682,040 $ 1,603,030 $ 2,656,770 $ 3,867,450 $ 5,227,990 $ Remaining Installments ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Value (EOY) 38,940 $ 339,557 $ 1,153,214 $ 1,472,186 $ 1,682,427 $ 1,924,840 $ 2,163,677 $ 2,416,882 $ Unvested Value (EOY) 79,060 $ 307,083 $ 392,586 $ 462,424 $ 522,404 $ 596,231 $ 667,142 $ 740,208 $ Plan Value (EOY) 118,000 $ 646,640 $ 1,545,800 $ 1,934,610 $ 2,204,830 $ 2,521,070 $ 2,830,820 $ 3,157,090 $ Cum Plan Value (Pd, Unpd, Vstd, Unvstd) 118,000 $ 646,640 $ 1,545,800 $ 2,616,650 $ 3,807,860 $ 5,177,840 $ 6,698,270 $ 8,385,080 $ CPV as % of Market Value 0.2% 1.1% 2.3% 3.4% 4.4% 5.4% 6.2% 6.9% CPV as % of Increase in Market Value 4.2% 7.1% 9.5% 10.6% 11.2% 11.5% 11.8% 11.9% CPV as % of Formula Value 0.3% 1.5% 3.2% 4.8% 6.2% 7.5% 8.6% 9.6% CPV as % of Increase in Formula Value 5.9% 10.0% 13.4% 14.9% 15.6% 16.1% 16.5% 16.7% % Vested 33.0% 52.5% 74.6% 76.1% 76.3% 76.4% 76.4% 76.6% % Unvested 67.0% 47.5% 25.4% 23.9% 23.7% 23.6% 23.6% 23.4% dd Plan Value (EOY) 118,000 $ 646,640 $ 1,545,800 $ 1,934,610 $ 2,204,830 $ 2,521,070 $ 2,830,820 $ 3,157,090 $ Cum Plan Value (Pd, Unpd, Vstd, Unvstd) 118,000 $ 646,640 $ 1,545,800 $ 2,616,650 $ 3,807,860 $ 5,177,840 $ 6,698,270 $ 8,385,080 $ CPV as % of Market Value 0.2% 1.1% 2.3% 3.4% 4.4% 5.4% 6.2% 6.9% CPV as % of Increase in Market Value 4.2% 7.1% 9.5% 10.6% 11.2% 11.5% 11.8% 11.9% CPV as % of Formula Value 0.3% 1.5% 3.2% 4.8% 6.2% 7.5% 8.6% 9.6% CPV as % of Increase in Formula Value 5.9% 10.0% 13.4% 14.9% 15.6% 16.1% 16.5% 16.7% % Vested 33.0% 52.5% 74.6% 76.1% 76.3% 76.4% 76.4% 76.6% % Unvested 67.0% 47.5% 25.4% 23.9% 23.7% 23.6% 23.6% 23.4% dd Todd Warren 2013 2014 2015 2016 2017 2018 2019 2020 Annual Grants (BOY) 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 Annual Distributions ‐ $ ‐ $ ‐ $ 69,360 $ 93,660 $ 107,160 $ 123,120 $ 138,360 $ Cumulative Distributions ‐ $ ‐ $ ‐ $ 69,360 $ 163,020 $ 270,180 $ 393,300 $ 531,660 $ Remaining Installments ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Value (EOY) 3,960 $ 34,531 $ 117,276 $ 149,714 $ 171,094 $ 195,746 $ 220,035 $ 245,785 $ Unvested Value (EOY) 8,040 $ 31,229 $ 39,924 $ 47,026 $ 53,126 $ 60,634 $ 67,845 $ 75,275 $ Cumulative Plan Value 12,000 $ 65,760 $ 157,200 $ 266,100 $ 387,240 $ 526,560 $ 681,180 $ 852,720 $ Todd Warren 2013 2014 2015 2016 2017 2018 2019 2020 Annual Grants (BOY) 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 Annual Distributions ‐ $ ‐ $ ‐ $ 69,360 $ 93,660 $ 107,160 $ 123,120 $ 138,360 $ Cumulative Distributions ‐ $ ‐ $ ‐ $ 69,360 $ 163,020 $ 270,180 $ 393,300 $ 531,660 $ Remaining Installments ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Value (EOY) 3,960 $ 34,531 $ 117,276 $ 149,714 $ 171,094 $ 195,746 $ 220,035 $ 245,785 $ Unvested Value (EOY) 8,040 $ 31,229 $ 39,924 $ 47,026 $ 53,126 $ 60,634 $ 67,845 $ 75,275 $ Cumulative Plan Value 12,000 $ 65,760 $ 157,200 $ 266,100 $ 387,240 $ 526,560 $ 681,180 $ 852,720 $

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John Anderson 2013 2014 2015 2016 2017 2018 2019 2020 Annual Grants (BOY) 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 Annual Distributions ‐ $ ‐ $ ‐ $ 46,240 $ 62,440 $ 71,440 $ 82,080 $ 92,240 $ Cumulative Distributions ‐ $ ‐ $ ‐ $ 46,240 $ 108,680 $ 180,120 $ 262,200 $ 354,440 $ Remaining Installments ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Value (EOY) 2,640 $ 23,021 $ 78,184 $ 99,809 $ 114,063 $ 130,498 $ 146,690 $ 163,856 $ Unvested Value (EOY) 5,360 $ 20,819 $ 26,616 $ 31,351 $ 35,417 $ 40,422 $ 45,230 $ 50,184 $ Cumulative Plan Value 8,000 $ 43,840 $ 104,800 $ 177,400 $ 258,160 $ 351,040 $ 454,120 $ 568,480 $ John Anderson 2013 2014 2015 2016 2017 2018 2019 2020 Annual Grants (BOY) 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 Annual Distributions ‐ $ ‐ $ ‐ $ 46,240 $ 62,440 $ 71,440 $ 82,080 $ 92,240 $ Cumulative Distributions ‐ $ ‐ $ ‐ $ 46,240 $ 108,680 $ 180,120 $ 262,200 $ 354,440 $ Remaining Installments ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Value (EOY) 2,640 $ 23,021 $ 78,184 $ 99,809 $ 114,063 $ 130,498 $ 146,690 $ 163,856 $ Unvested Value (EOY) 5,360 $ 20,819 $ 26,616 $ 31,351 $ 35,417 $ 40,422 $ 45,230 $ 50,184 $ Cumulative Plan Value 8,000 $ 43,840 $ 104,800 $ 177,400 $ 258,160 $ 351,040 $ 454,120 $ 568,480 $

SLIDE 37

Study different scenarios y

2018 2022 2018 2022 2018 2022 Base Target Superior 2018 2022 2018 2022 2018 2022 Base Target Superior Increase in FV since Inception $ 21,835,870 $ 44,250,010 $ 32,084,240 $ 72,437,820 $ 47,554,260 $ 117,625,420 CPV for all Participants $ 3,426,720 $ 7,395,060 $ 5,177,840 $ 12,321,560 $ 7,819,860 $ 20,222,250 Value Sharing Percentage 15.7% 16.7% 16.1% 17.0% 16.4% 17.2% Increase in FV since Inception $ 21,835,870 $ 44,250,010 $ 32,084,240 $ 72,437,820 $ 47,554,260 $ 117,625,420 CPV for all Participants $ 3,426,720 $ 7,395,060 $ 5,177,840 $ 12,321,560 $ 7,819,860 $ 20,222,250 Value Sharing Percentage 15.7% 16.7% 16.1% 17.0% 16.4% 17.2% Totals $ 3,426,720 $ 7,395,060 $ 5,177,840 $ 12,321,560 $ 7,819,860 $ 20,222,250 Todd Warren $348,480 $752,040 $526,560 $1,253,040 $795,240 $2,056,500 John Anderson $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Carol Watson $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Wil H d l $232 320 $501 360 $351 040 $835 360 $530 160 $1 371 000 Totals $ 3,426,720 $ 7,395,060 $ 5,177,840 $ 12,321,560 $ 7,819,860 $ 20,222,250 Todd Warren $348,480 $752,040 $526,560 $1,253,040 $795,240 $2,056,500 John Anderson $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Carol Watson $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Wil H d l $232 320 $501 360 $351 040 $835 360 $530 160 $1 371 000 Wilson Harrendale $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Charlie Hills $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Virginia Johnson $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Barb Tanaka $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Dennis Aguirre $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Eve Allendale $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Wilson Harrendale $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Charlie Hills $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Virginia Johnson $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Barb Tanaka $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Dennis Aguirre $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 Eve Allendale $232,320 $501,360 $351,040 $835,360 $530,160 $1,371,000 e e da e $ 3 ,3 0 $50 ,360 $35 ,0 0 $835,360 $530, 60 $ ,3 ,000 Cheryl Flink $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Tessa Gray $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Emily Jordan $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 David Bartholomew $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Jordan Kyle $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 e e da e $ 3 ,3 0 $50 ,360 $35 ,0 0 $835,360 $530, 60 $ ,3 ,000 Cheryl Flink $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Tessa Gray $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Emily Jordan $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 David Bartholomew $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Jordan Kyle $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250

37 37

Shannon Lightwood $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Steven Barnes $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Shannon Lightwood $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250 Steven Barnes $174,240 $376,020 $263,280 $626,520 $397,620 $1,028,250

SLIDE 38

Consider payout events p y

Transaction Value Total Employee Payments M d P i t CIC Total Value to Employees at CIC Total Plan Employee Value Change in Control Report 2020‐‐at Target Transaction Value Total Employee Payments M d P i t CIC Total Value to Employees at CIC Total Plan Employee Value Change in Control Report 2020‐‐at Target Made Prior to CIC CIC p y $ 121,782,700 $ 5,227,990 $ 4,419,926 $ 9,647,916 Employee CIC Value as Percent of Total CIC Value Total Employee Value as Percent of Total CIC Value 3.63% 7.92% I i MV f Pl T t l E l P t Employee CIC Value as Total Employee Value as Made Prior to CIC CIC p y $ 121,782,700 $ 5,227,990 $ 4,419,926 $ 9,647,916 Employee CIC Value as Percent of Total CIC Value Total Employee Value as Percent of Total CIC Value 3.63% 7.92% I i MV f Pl T t l E l P t Employee CIC Value as Total Employee Value as Increase in MV from Plan Inception Total Employee Payments Made Prior to CIC p y Percent of Increase in MV from Plan Inception p y Percent of Increase in MV from Plan Inception $ 70,280,090 $ 5,227,990 6.29% 13.73% Employee Payments Received Prior to CIC Value Due at CIC Total Value Increase in MV from Plan Inception Total Employee Payments Made Prior to CIC p y Percent of Increase in MV from Plan Inception p y Percent of Increase in MV from Plan Inception $ 70,280,090 $ 5,227,990 6.29% 13.73% Employee Payments Received Prior to CIC Value Due at CIC Total Value CIC Todd Warren $ 531,660 $ 449,484 $ 981,144 John Anderson $ 354,440 $ 299,656 $ 654,096 Carol Watson $ 354,440 $ 299,656 $ 654,096 Wilson Harrendale $ 354,440 $ 299,656 $ 654,096 Charlie Hills $ 354,440 $ 299,656 $ 654,096 CIC Todd Warren $ 531,660 $ 449,484 $ 981,144 John Anderson $ 354,440 $ 299,656 $ 654,096 Carol Watson $ 354,440 $ 299,656 $ 654,096 Wilson Harrendale $ 354,440 $ 299,656 $ 654,096 Charlie Hills $ 354,440 $ 299,656 $ 654,096 Virginia Johnson $ 354,440 $ 299,656 $ 654,096 Barb Tanaka $ 354,440 $ 299,656 $ 654,096 Dennis Aguirre $ 354,440 $ 299,656 $ 654,096 Eve Allendale $ 354,440 $ 299,656 $ 654,096 Cheryl Flink $ 265,830 $ 224,742 $ 490,572 Tessa Gray $ 265 830 $ 224 742 $ 490 572 Virginia Johnson $ 354,440 $ 299,656 $ 654,096 Barb Tanaka $ 354,440 $ 299,656 $ 654,096 Dennis Aguirre $ 354,440 $ 299,656 $ 654,096 Eve Allendale $ 354,440 $ 299,656 $ 654,096 Cheryl Flink $ 265,830 $ 224,742 $ 490,572 Tessa Gray $ 265 830 $ 224 742 $ 490 572

38 38

Tessa Gray $ 265,830 $ 224,742 $ 490,572 Emily Jordan $ 265,830 $ 224,742 $ 490,572 David Bartholomew $ 265,830 $ 224,742 $ 490,572 Jordan Kyle $ 265,830 $ 224,742 $ 490,572 Shannon Lightwood $ 265,830 $ 224,742 $ 490,572 Steven Barnes $ 265,830 $ 224,742 $ 490,572 Tessa Gray $ 265,830 $ 224,742 $ 490,572 Emily Jordan $ 265,830 $ 224,742 $ 490,572 David Bartholomew $ 265,830 $ 224,742 $ 490,572 Jordan Kyle $ 265,830 $ 224,742 $ 490,572 Shannon Lightwood $ 265,830 $ 224,742 $ 490,572 Steven Barnes $ 265,830 $ 224,742 $ 490,572

SLIDE 39

Assess the financial impact p

Totals 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Plan Value 118,000 $ 646,640 $ 1,545,800 $ 1,934,610 $ 2,204,830 $ 2,521,070 $ 2,830,820 $ 3,157,090 $ 3,498,700 $ 3,876,300 $

Accrual Info ‐ company totals by grant year

Totals 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Plan Value 118,000 $ 646,640 $ 1,545,800 $ 1,934,610 $ 2,204,830 $ 2,521,070 $ 2,830,820 $ 3,157,090 $ 3,498,700 $ 3,876,300 $

Accrual Info ‐ company totals by grant year

Plan Value 118,000 $ 646,640 $ 1,545,800 $ 1,934,610 $ 2,204,830 $ 2,521,070 $ 2,830,820 $ 3,157,090 $ 3,498,700 $ 3,876,300 $ Annual Accrual 38,940 $ 304,440 $ 815,474 $ 1,001,938 $ 1,132,204 $ 1,297,150 $ 1,450,615 $ 1,614,800 $ 1,788,868 $ 1,982,011 $ Total Accrual 38,940 $ 343,380 $ 1,158,854 $ 2,160,793 $ 3,292,997 $ 4,590,147 $ 6,040,762 $ 7,655,562 $ 9,444,431 $ 11,426,442 $ Cumulative Accrual 38,940 $ 343,380 $ 1,158,854 $ 1,478,753 $ 1,689,967 $ 1,933,377 $ 2,173,312 $ 2,427,572 $ 2,690,701 $ 2,981,182 $ PSO Liability (credit) ‐ $ ‐ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ 1,525,740 $ 1,691,530 $ 1,874,430 $ Distribution (positive #) ‐ $ ‐ $ ‐ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ 1,525,740 $ 1,691,530 $ PSO Liability (negative #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Accrual Adjustment (credit) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value ‐ $ ‐ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ 1,525,740 $ 1,691,530 $ 1,874,430 $ Plan Value 118,000 $ 646,640 $ 1,545,800 $ 1,934,610 $ 2,204,830 $ 2,521,070 $ 2,830,820 $ 3,157,090 $ 3,498,700 $ 3,876,300 $ Annual Accrual 38,940 $ 304,440 $ 815,474 $ 1,001,938 $ 1,132,204 $ 1,297,150 $ 1,450,615 $ 1,614,800 $ 1,788,868 $ 1,982,011 $ Total Accrual 38,940 $ 343,380 $ 1,158,854 $ 2,160,793 $ 3,292,997 $ 4,590,147 $ 6,040,762 $ 7,655,562 $ 9,444,431 $ 11,426,442 $ Cumulative Accrual 38,940 $ 343,380 $ 1,158,854 $ 1,478,753 $ 1,689,967 $ 1,933,377 $ 2,173,312 $ 2,427,572 $ 2,690,701 $ 2,981,182 $ PSO Liability (credit) ‐ $ ‐ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ 1,525,740 $ 1,691,530 $ 1,874,430 $ Distribution (positive #) ‐ $ ‐ $ ‐ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ 1,525,740 $ 1,691,530 $ PSO Liability (negative #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Accrual Adjustment (credit) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value ‐ $ ‐ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ 1,525,740 $ 1,691,530 $ 1,874,430 $ Vested Plan Value $ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ 1,525,740 $ 1,691,530 $ 1,874,430 $ 2013 Grant 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Plan Value 118,000 $ 382,320 $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ % Accrued 33% 67% 100% 100% 100% 100% 100% 100% 100% 100% Annual Accrual 38,940 $ 217,214 $ 425,885 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Total Accrual 38,940 $ 256,154 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ Cumulative Accrual 38,940 $ 256,154 $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (credit) ‐ $ ‐ $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Distribution (positive #) ‐ $ ‐ $ ‐ $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value $ $ 682,040 $ 920,990 $ 1,053,740 $ 1,210,680 $ 1,360,540 $ 1,525,740 $ 1,691,530 $ 1,874,430 $ 2013 Grant 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Plan Value 118,000 $ 382,320 $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ % Accrued 33% 67% 100% 100% 100% 100% 100% 100% 100% 100% Annual Accrual 38,940 $ 217,214 $ 425,885 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Total Accrual 38,940 $ 256,154 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ 682,040 $ Cumulative Accrual 38,940 $ 256,154 $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (credit) ‐ $ ‐ $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Distribution (positive #) ‐ $ ‐ $ ‐ $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (negative #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Accrual Adjustment (credit) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value ‐ $ ‐ $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ 2014 Grant 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Plan Value ‐ $ 264,320 $ 564,040 $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ % Accrued 0% 33% 67% 100% 100% 100% 100% 100% 100% 100% Annual Accrual ‐ $ 87,226 $ 290,681 $ 543,083 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Total Accrual ‐ $ 87,226 $ 377,907 $ 920,990 $ 920,990 $ 920,990 $ 920,990 $ 920,990 $ 920,990 $ 920,990 $ Cumulative Accrual ‐ $ 87 226 $ 377 907 $ 920 990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (negative #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Accrual Adjustment (credit) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value ‐ $ ‐ $ 682,040 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ 2014 Grant 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Plan Value ‐ $ 264,320 $ 564,040 $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ % Accrued 0% 33% 67% 100% 100% 100% 100% 100% 100% 100% Annual Accrual ‐ $ 87,226 $ 290,681 $ 543,083 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Total Accrual ‐ $ 87,226 $ 377,907 $ 920,990 $ 920,990 $ 920,990 $ 920,990 $ 920,990 $ 920,990 $ 920,990 $ Cumulative Accrual ‐ $ 87 226 $ 377 907 $ 920 990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Cumulative Accrual ‐ $ 87,226 $ 377,907 $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (credit) ‐ $ ‐ $ ‐ $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Distribution (positive #) ‐ $ ‐ $ ‐ $ ‐ $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (negative #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Accrual Adjustment (credit) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value ‐ $ ‐ $ ‐ $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ 2015 Grant 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Plan Value ‐ $ ‐ $ 299,720 $ 656,670 $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ % Accrued 0% 0% 33% 67% 100% 100% 100% 100% 100% 100% Cumulative Accrual ‐ $ 87,226 $ 377,907 $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (credit) ‐ $ ‐ $ ‐ $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Distribution (positive #) ‐ $ ‐ $ ‐ $ ‐ $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (negative #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Accrual Adjustment (credit) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value ‐ $ ‐ $ ‐ $ 920,990 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ 2015 Grant 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Plan Value ‐ $ ‐ $ 299,720 $ 656,670 $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ % Accrued 0% 0% 33% 67% 100% 100% 100% 100% 100% 100%

39 39

Annual Accrual ‐ $ ‐ $ 98,908 $ 341,061 $ 613,771 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Total Accrual ‐ $ ‐ $ 98,908 $ 439,969 $ 1,053,740 $ 1,053,740 $ 1,053,740 $ 1,053,740 $ 1,053,740 $ 1,053,740 $ Cumulative Accrual ‐ $ ‐ $ 98,908 $ 439,969 $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (credit) ‐ $ ‐ $ ‐ $ ‐ $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Distribution (positive #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (negative #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Accrual Adjustment (credit) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value ‐ $ ‐ $ ‐ $ ‐ $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Annual Accrual ‐ $ ‐ $ 98,908 $ 341,061 $ 613,771 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Total Accrual ‐ $ ‐ $ 98,908 $ 439,969 $ 1,053,740 $ 1,053,740 $ 1,053,740 $ 1,053,740 $ 1,053,740 $ 1,053,740 $ Cumulative Accrual ‐ $ ‐ $ 98,908 $ 439,969 $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (credit) ‐ $ ‐ $ ‐ $ ‐ $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Distribution (positive #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ PSO Liability (negative #) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Accrual Adjustment (credit) ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $ Vested Plan Value ‐ $ ‐ $ ‐ $ ‐ $ 1,053,740 $ ‐ $ ‐ $ ‐ $ ‐ $ ‐ $

SLIDE 40

Document your plan y p

 Documents

Basic Plan Document
Adoption Agreement
Participant Enrollment Forms

 Plan Launch Materials

PowerPoint deck
Employee Plan Summary
Employee Value Statement

40 40

SLIDE 41

41 41

SLIDE 42

42 42

SLIDE 43

43 43

SLIDE 44

Plan Launch: Our Mission Objective Plan Launch: Our Mission Objective

Here’s how your plan works
Here’s how your performance will affect your plan value
Here’s how the plan will be operated funded maintained

44 44

Here’s how the plan will be operated, funded, maintained
See how you’re now partners in the business’ success

SLIDE 45

John’s traditional comp package p p g

Employee Value Statement ‐ Typical

2014 2015 2016 2017 2018 2019 Annual Salary 325,000 $ 334,750 $ 344,793 $ 355,136 $ 365,790 $ 376,764 $ Bonus 85,000 $ 87,550 $ 90,177 $ 92,882 $ 95,668 $ 98,538 $

John Ferry @ Target

Cash Needs Total Cash Received 410,000 $ 422,300 $ 434,970 $ 448,018 $ 461,458 $ 475,302 $ Core Benefits 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Executive Benefits

$
$
$
$
$
$

Total Value 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Security Needs Wealth Accumulation Long-Term Incentive Plan (SAR) Annual Distribution

$
$
$
$
$
$

Increase in Vested Value

$
$
$
$
$
$

Remaining Unvested Value

$
$
$
$
$
$

Total Annual Value (Paid, Vested & Unvested)

$
$
$
$
$
$

Wealth Accumulation Retirement Plans 401(k) Company Match 16,500 $ 16,995 $ 17,505 $ 18,030 $ 18,571 $ 19,128 $ Deferred Comp Match

$
$
$
$
$
$

Total Cash Received 410,000 $ 422,300 $ 434,970 $ 448,018 $ 461,458 $ 475,302 $ Total Benefits Annual Value 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Total Value Projection

45 45

Total Benefits Annual Value 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Annual Value of LTIP

$
$
$
$
$
$

Annual Value of Ret Plan Contributions 16,500 $ 16,995 $ 17,505 $ 18,030 $ 18,571 $ 19,128 $ Total Annual Value 447,500 $ 461,555 $ 476,071 $ 491,059 $ 506,541 $ 522,533 $ Total Wealth Projection 447,500 $ 909,055 $ 1,385,124 $ 1,876,184 $ 2,382,725 $ 2,905,259 $

SLIDE 46

John’s “amplified” comp package p p p g

Employee Value Statement ‐ Amplified

2014 2015 2016 2017 2018 2019 Annual Salary 325,000 $ 334,750 $ 344,793 $ 355,136 $ 365,790 $ 376,764 $ Bonus 85,000 $ 87,550 $ 90,177 $ 92,882 $ 95,668 $ 98,538 $

John Ferry @ Target

Cash Needs Total Cash Received 410,000 $ 422,300 $ 434,970 $ 448,018 $ 461,458 $ 475,302 $ Core Benefits 21,000 $ 22,260 $ 23,596 $ 25,011 $ 26,512 $ 28,103 $ Executive Benefits 18,000 $ 18,540 $ 19,096 $ 19,669 $ 20,259 $ 20,867 $ Total Value 39,000 $ 40,800 $ 42,692 $ 44,680 $ 46,771 $ 48,970 $ Security Needs Wealth Accumulation Long-Term Incentive Plan (SAR) Annual Distribution

$
$
$

287,767 $ 287,159 $ 291,978 $ Increase in Vested Value

$
$

287,767 $ 287,159 $ 291,978 $ 272,602 $ Remaining Unvested Value

$

81,408 $ 256,731 $ 257,488 $ 259,262 $ 266,263 $ Total Annual Value (Paid, Vested & Unvested)

$

81,408 $ 544,498 $ 832,414 $ 838,399 $ 830,843 $ Wealth Accumulation Retirement Plans 401(k) Company Match 16,500 $ 16,995 $ 17,505 $ 18,030 $ 18,571 $ 19,128 $ Deferred Comp Match 20,000 $ 20,600 $ 21,218 $ 21,855 $ 22,510 $ 23,185 $ Total Cash Received 410,000 $ 422,300 $ 434,970 $ 448,018 $ 461,458 $ 475,302 $ Total Benefits Annual Value 39,000 $ 40,800 $ 42,692 $ 44,680 $ 46,771 $ 48,970 $ Total Value Projection

46 46

Total Benefits Annual Value 39,000 $ 40,800 $ 42,692 $ 44,680 $ 46,771 $ 48,970 $ Annual Value of LTIP

$
$

287,767 $ 287,159 $ 291,978 $ 272,602 $ Annual Value of Ret Plan Contributions 36,500 $ 37,595 $ 38,723 $ 39,885 $ 41,081 $ 42,313 $ Total Annual Value 485,500 $ 500,695 $ 804,152 $ 819,742 $ 841,288 $ 839,187 $ Total Wealth Projection 485,500 $ 986,195 $ 1,790,346 $ 2,610,088 $ 3,451,377 $ 4,290,564 $

SLIDE 47

It’s all about communication

 Long‐term perspective  Long‐term value creation

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SLIDE 48

Does phantom stock work? p

 Does it help you create an ownership

mentality?

 Does it properly reward for value creation?  Does it help you win the talent wars?

p y

48 48

SLIDE 49

Answer

If you do it right If you do it right…

Ownership Ownership Mentality Mentality Talent Talent Wars Wars

Yes! Yes! Yes! Yes!

Value Value Creation Creation

Yes! Yes!

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SLIDE 50

Doing it “right” Doing it right

Good plan Not so good plan Good plan Not so good plan

 Appraisal or over‐

engineered formula

 Simple valuation method  Annual awards

g

 One time “block” awards  In‐service payouts (FDR—

fixed date redemptions)

 No redemptions until

major event

 Budgeted grants  Random grants

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 Drafting precision  Casual documentation

SLIDE 51

Employees must… p y

f

 …grasp the plan as a significant commitment

with meaningful potential value

 …understand and believe in the results

implied by the commitment

 …see their economic value tied to that of the

wners

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SLIDE 52

Employer must… p y

f

 …earnestly commit to meaningful grant

levels

 …paint a vibrant picture of potential value

(remember the EVS)

 …organize a dynamic communication and

reinforcement effort

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SLIDE 53

Last thoughts… g

h d l h h h

 Companies with engaged employees achieve higher

levels of productivity

 Engagement does not occur without a serious effort

to communicate a compelling future and involve employees in that future employees in that future

 A phantom stock (or similar long‐term incentive)

plan is the best a to financiall nite shareholders plan is the best way to financially unite shareholders and key employees

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SLIDE 54

Questions Questions

54 54

SLIDE 55

Special Offer p

One hour consulting call with a VisionLink principal at no charge

Indicate interest on final survey Indicate interest on final survey

55 55

SLIDE 56

One idea…

A d f l ?

 Are you ready for a plan?  VisionLink’s Tool:

10 questions
Evaluation and VisionLink comments

Evaluation and VisionLink comments

 Part of the consulting hour, if you wish

56 56

SLIDE 57

AVAILABLE AVAILABLE! !

Phantom Stock White Paper Phantom Stock White Paper

57 57

Express interest on the final survey

SLIDE 58

Next Online Seminar:

“How to Pay High Performers” How to Pay High Performers

To be held on: To be held on:

Tuesday, October 28th, 2014

58 58

7700 Irvine Center Drive, Suite 930  Irvine, CA 92618  949-852-2288 www.VLadvisors.com  www.PhantomStockOnline.com

SLIDE 59

www.VLadvisors.com www.VLadvisors.com

59 59

You can also subscribe to our blog

SLIDE 60

www.PhantomStockOnline.com www.PhantomStockOnline.com

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SLIDE 61

Thank you for attending

Please complete our brief survey immediately following our presentation. We value your input. You may request a copy of our slides White You may request a copy of our slides, White Paper and the 1-hour free consultation with

ne of our principals
ne of our principals.

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SLIDE 62

Q&A Q&A

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SLIDE 63

Thank you! Tom Miller

President (949) 265‐5700 949 5 57 tmiller@vladvisors.com

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