Exhibit 99.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into March 15, 2022, (the “Effective Date”) by and
between CarParts.com, Inc., a Delaware corporation (the “Company”), and David Meniane, an individual (the “Executive”).
WHEREAS, the
parties hereto desire to amend the written agreement between Executive and the Company documenting the terms of Executive’s employment with the Company.
1. Duties and Responsibilities.
A. Executive
shall serve as the Company’s Chief Executive Officer commencing on April 18, 2022 (the “Start Date”), reporting directly to the
Company’s Board of Directors. Executive shall have the duties and powers at the Company that are customary for an individual holding such position.
B. Executive agrees to use his best efforts
to advance the business and welfare of the Company, to render his services under this Agreement faithfully, diligently and to the best of his ability.
C. Executive shall be based at the
Company’s office located at Torrance, California, or at such other offices of the Company located within 30 miles of such offices.
2. Employment Period. Following the Start Date, Executive’s employment with the Company shall be governed by the provisions of this Agreement for the period commencing as of the date
hereof and continuing until the earlier of (i) Executive’s termination of employment with the Company for any reason, or (ii) the fifth anniversary of the Start Date (the “Employment
Period”). Provided that Executive’s employment has not been or is not being terminated for any reason, Executive and the Company agree to negotiate in good faith prior to the end of the Employment Period to enter into a new Employment
Agreement to take effect after the Employment Period.
3. Cash Compensation.
A. Annual Salary. Executive’s base salary shall be $609,000 per year (the “Annual Salary”), which shall be
payable in accordance with the Company’s standard payroll schedule (but in no event less frequent than on a monthly basis), and may be increased from time to time at the discretion of the Compensation Committee of the Company’s Board of Directors
(the “Compensation Committee”). The Compensation Committee shall review Executive’s Annual Salary at least annually and may increase the Annual Salary from time to time at
its sole discretion. Any increased Annual Salary shall thereupon be the “Annual Salary” for the purposes hereof. Executive’s Annual Salary shall not be decreased without his prior written consent at any time during the Employment Period.
B. Annual Target Bonus. Executive shall also be entitled to receive an annual target incentive bonus of up to 100% of the Executive’s current salary. The annual bonus shall be based
upon the Company achieving the annual goals and criteria for earning determined by the Compensation Committee. The amount of the annual target bonus payable to Executive with respect to any given year shall be determined by the Compensation
Committee. The annual bonus shall be paid no later than the end of March following the year for which such bonus is being paid.
C. Total Compensation. Company and Executive agree that for calendar year 2022, that Executive’s total compensation package is equal to $3,592,000.00. This compensation package consists of $609,000 base salary,
$609,000 target bonus, plus $2,374,00.00 in long term equity incentives, including (i) time-based restricted stock units and (ii) performance restricted stock units granted at target levels. For the avoidance of doubt, the foregoing compensation
package does not include the promotion grant described below in section 4.A. The parties further acknowledge that Executive was previously granted by the Company on January 10, 2022: (i) $558,000 in performance restricted stock units on the
Company’s standard form for its 2022 Management Incentive Program; (ii) $496,800 in time-based restricted stock units on the Company’s standard form of restricted stock unit agreement previously approved by the Company’s Board of Directors, with
33 1/3 % of the restricted stock units (“RSU”) vesting in equal amounts on the first, second and third anniversary of the grant date, and (iii) $1,159,200 on the
Company’s standard form of 2022 performance restricted stock unit agreement previously approved by the Board, vesting in accordance with the total shareholder return performance requirements therein.
D. Applicable Withholdings. The Company shall deduct and withhold from the compensation payable to Executive hereunder any and all applicable federal, state and local income and
employment withholding taxes and any other amounts required to be deducted or withheld by the Company under applicable statutes, regulations, ordinances or orders governing or requiring the withholding or deduction of amounts otherwise payable as
compensation or wages to employees.
4. Equity Compensation.
A. Initial Grant. As of the close of business on the Start Date, the Company’s Compensation Committee shall grant Executive: (i) on the Company’s standard form of restricted stock
unit agreement previously approved by the Company’s Board of Directors, $215,400 in value, with 33 1/3 % of the RSUs vesting in equal amounts on the first, second and third anniversary of the grant date; (ii) on the Company’s standard form of 2022
performance restricted stock unit agreement previously approved by the Board and with a measuring start and grant date of April 18, 2022, $502,600 in value, vesting in accordance with the total shareholder return performance requirements therein;
(iii) $ on the Company’s standard form of 2022 Management Incentive Program performance restricted stock unit agreement previously approved by the Board with a grant date of April 18, 2022, $51,000 in value, vesting in accordance with the performance
requirements therein; and (iv) on the Company’s standard form of restricted stock unit agreement previously approved by the Company’s Board of Directors, a promotion grant, $1,187,000 in value, with 33 1/3 % of the RSUs vesting in equal amounts on
the first, second and third anniversary of the grant date (together, the Initial Equity Awards”). For the avoidance of doubt, the Initial Equity Awards are granted pursuant to the Company’s 2016 Equity Incentive Plan, and subject to their applicable
award agreements.
B. Other Equity Compensation. Executive shall also be entitled to participate in any other equity incentive plans of the Company. All such other options or other equity awards will
be made at the discretion of the Company’s Compensation Committee of the Board of Directors pursuant and subject to the terms and conditions of the applicable equity incentive plan, including any provisions for repurchase thereof. The option
exercise price or value of any equity award granted to Executive will be established by the Company’s Board of Directors as of the date such interests are granted but shall not be less than the fair market value of the class of equity underlying such
award. Except with respect to any RSUs granted to Executive (the terms of which shall be governed by the applicable award agreements), the vesting of all stock options and other equity compensation awards (both time-based vesting and
performance-based vesting at target level) granted to Executive that are outstanding on the date of Executive’s termination or resignation shall accelerate in full in the event that the Executive’s employment is terminated without Cause (as defined
herein) or Executive resigns for Good Reason (as defined herein) within the period beginning three months before, and ending twelve months following, a Change in Control (as defined in the Company’s 2016 Equity Incentive Plan (the “Plan”)) (each, a “Change in Control Termination”). In the event of Executive’s termination or
resignation for any reason, all stock options granted to Executive that are outstanding on the date of such termination or resignation shall remain exercisable until the earlier of (i) the expiration date set forth in the applicable stock option
agreement or (ii) the expiration of twelve (12) months measured from the date of Executive’s termination or resignation. The provisions of this Section 4B of this Agreement shall govern the acceleration of Executive’s stock options and other equity
compensation awards (other than the RSUs) in the event of a Change in Control Termination and the period for which Executive’s stock options remain exercisable following Executive’s termination or resignation for any reason and shall supersede any
provisions to the contrary in any other agreement.
C. Equity Bonus Eligibility. Executive shall also be eligible to receive an annual target incentive bonus, additionally or in the alternative to the annual cash target incentive bonus
described in Section 3B of this Agreement, in the form of common stock or restricted stock unit awards as determined by the Compensation Committee.
5. Expense Reimbursement. In addition to the compensation specified in Section 3, Executive shall be entitled to receive reimbursement from the Company for all reasonable business
expenses incurred by Executive in the performance of Executive’s duties hereunder, provided that Executive furnishes the Company, not later than the August 31 of the year following the year in which the expense was incurred, with vouchers, receipts
and other details of such expenses in the form reasonably required by the Company to substantiate a deduction for such business expenses under all applicable rules and regulations of federal and state taxing authorities. The Company shall reimburse
such expenses as soon as practicable, but in no event later than ninety (90) days after such documentation is received.
6. Fringe Benefits.
A. Group Plans. Executive shall, throughout the Employment Period, continue to be eligible to participate in all of the group term life insurance plans, group health plans, accidental
death and dismemberment plans, short-term disability programs, retirement plans, profit sharing plans or other plans (for which Executive qualifies) that are available to the executive officers of the Company. During the Employment Period, the
Company will pay for coverage for Executive and his spouse and dependents residing in Executive’s household (collectively, the “Dependents”) under the Company’s health plan,
and coverage for Executive under the Company’s accidental death and dismemberment plan and for short-term disability. In the event Executive elects not to participate in the Company’s health plan, the Company shall reimburse Executive for the cost
of alternative health care coverage of his choosing for Executive and his Dependents in an amount up to $1,500 per month. Payment for all other benefit plans will be paid in accordance with the Company’s policy in effect for similar executive
positions.
B. Vacation and Paid Sick Leave. Executive
shall participate in the Company’s Open Vacation Policy, which provides an unlimited number of vacations days. The Company will additionally provide the minimum amount of paid sick leave in accordance with, and as required by, California law for
the period of time in which Executive resides in that state. Auto Allowance. Executive shall continue to be entitled to an auto allowance for one vehicle for Executive’s use up to $1,000 per month.
D. Indemnification. On the Start Date, the Company and Executive shall enter into the Company’s standard indemnification agreement for its key executives.
7. Termination of Employment. Executive’s employment with the Company continues to be “at-will.” This means that it is not for any specified period of time and can be terminated by
Executive or the Company at any time, with or without advance notice, and for any or no particular reason or cause. Upon such termination, Executive (or, in the case of Executive’s death, Executive’s estate and beneficiaries) shall have no further
rights to any other compensation or benefits from the Company on or after the termination of employment except as follows:
A. Termination For Cause. In the event the Company terminates Executive’s employment with the Company prior to expiration of the Employment Period for Cause (as defined below), the
Company shall pay to Executive the following: (i) Executive’s unpaid Annual Salary that has been earned through the termination date of his employment; (ii) Executive’s accrued but unused vacation; (iii) any accrued expenses pursuant to Section 5
above, and (iv) any other payments as may be required under applicable law (subsections (i) through (iv) above shall collectively be referred to herein as the “Required Payments”).
For purposes of this Agreement, “Cause” shall mean that Executive has engaged in any one of the following: (i) misconduct involving the Company or its assets, including,
without limitation, misappropriation of the Company’s funds or property; (ii) a material neglect of duty, or reckless or willful misconduct in the performance of Executive’s duties in the event such conduct continues after the Company has provided 30
days written notice to Executive and a reasonable opportunity to cure; (iii) conviction of, or plea of nolo contendere to, any felony or misdemeanor involving dishonesty or fraud; (iv) the violation of any of the Company’s policies, including without
limitation, the Company’s policies on equal employment opportunity and the prohibition against unlawful harassment; (v) the material breach of any provision of this Agreement after 30 days written notice to Executive of such breach and a reasonable
opportunity to cure such breach; or (vi) any other misconduct that has a material adverse effect on the business or reputation of the Company.
B. Termination Upon Death or Disability. If Executive dies during the Employment Period, the Executive’s employment with the Company shall be deemed terminated as of the date of
death, and the obligations of the Company to or with respect to Executive shall terminate in their entirety upon such date except as otherwise provided under this Section 7B. If Executive becomes Disabled (as defined below), then the Company shall
have the right, to the extent permitted by law, to terminate the employment of Executive upon 30 days prior written notice in writing to Executive. Upon termination of employment due to the death or Disability of Executive, Executive (or Executive’s
estate or beneficiaries in the case of the death of Executive) shall be entitled to receive the Required Payments. Additionally, upon termination of employment due to the Executive’s death, or due to the Company’s involuntary termination of
Executive’s employment due to the Executive’s Disability, Executive (or Executive’s estate or beneficiaries in the case of the death of Executive) shall also be entitled to the following: (i) any unpaid annual target bonus under Section 3B for the
year immediately prior to the year of such termination (in an amount equal to the bonus percentage accrued by the Company, pursuant to GAAP, through the last closed accounting month prior to the time of such termination) and a pro-rated share of
Executive’s annual target bonus under Section 3B for the year of such termination (in an amount equal to the bonus percentage accrued by the Company, pursuant to GAAP, through the last closed accounting month prior to the time of such termination),
which bonus amounts shall be paid at the earlier of (A) such time as the Company regularly pays bonuses, or (B) no later than 2 ½ months following the calendar year in which the termination occurs; and (ii) continuation of his Annual Salary following
such termination for a period of one year, which shall be payable in accordance with the Company’s standard pay schedules; and (iii) in the case of termination due to Disability, the Company shall reimburse Executive’s COBRA payments for Executive’s
health insurance benefits for a period of one year. For the purposes of this Agreement, “Disability” shall mean a physical or mental impairment which, the Board of
Directors determines, after consideration and implementation of reasonable accommodations, precludes the Executive from performing his essential job functions for a period longer than three consecutive months or a total of one hundred twenty (120)
days in any twelve month period.
C. Termination for
Any Other Reason; Resignation for Good Reason. Should the Company terminate Executive’s employment (other than for Cause or as a result of Executive’s Death or Disability), or the Company does not
enter into a new Employment Agreement with Executive prior to the fifth anniversary of the Start Date (other than because the Executive has been or is being terminated for Cause or because of the Executive’s death or Disability) and this
Agreement expires, or in the event Executive resigns for Good Reason (as defined below) within two years following the initial occurrence of the event giving rise thereto, then the Company shall pay Executive the Required Payments; and Executive
shall also be entitled to the following: (i) any unpaid annual target bonus under Section 3B for the year immediately prior to the year of such termination, expiration or resignation (in an amount equal to the bonus percentage accrued by the
Company, pursuant to GAAP, through the last closed accounting month prior to the time of such termination, expiration or resignation) and a pro-rated share of Executive’s annual target bonus under Section 3B for the year of such termination,
expiration or resignation (in an amount equal to the bonus percentage accrued by the Company, pursuant to GAAP, through the last closed accounting month prior to the time of such termination, expiration or resignation), which bonus amounts shall
be paid at the earlier of (A) such time as the Company regularly pays bonuses, or (B) no later than 2 ½ months following the calendar year in which the termination, expiration or resignation occurs; (ii) continuation of Executive’s Annual Salary,
which shall be payable in accordance with the Company’s standard pay schedules for a period of one year and (iii) the Company shall also reimburse Executive’s actual COBRA payments for Executive’s health insurance benefits for a period of one
year. This Section 7C is intended to qualify as an involuntary separation pay arrangement that is exempt from application of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) because certain severance payments are treated as paid on account of an involuntary separation (including a separation for Good Reason) and paid in a lump sum within the “short-term deferral” period following
the time the Executive obtains a vested right to such payments. For the purposes of this Agreement, “Good Reason” shall mean Executive’s voluntary resignation for any
of the following events that results in a material negative change to the Executive; (i) a reduction without Executive’s prior written consent in either his level of Annual Salary or his target annual bonus as a percentage of Annual Salary,
except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior management employees of the Company; (ii) a material reduction in the scope of Executive’s authorities,
duties and responsibilities or a reduction in the authority, duties or responsibilities of the supervisor to whom the Executive is required to report, (iii) a relocation of Executive more than thirty (30) miles from the Company’s current
corporate headquarters as of the date hereof, (iv) a material breach of any provision of this Agreement by the Company or (v) the failure of the Company to have a successor entity specifically assume this Agreement. Notwithstanding the
foregoing, a suspension of Executive’s responsibilities, authority and/or duties for the Company during any portion of a bona fide internal investigation or an investigation by regulatory or law enforcement authorities shall not be a Good Reason
for resignation. Following a Change in Control (as defined the Plan), Good Reason shall include (x) a material negative change in authority, duties or responsibilities resulting from the Executive no longer being an executive officer of a
publicly-traded company and (y) the Company’s chief executive officer (immediately prior the Change in Control) no longer being the chief executive officer of the successor publicly-traded company. Notwithstanding the foregoing, the Executive
shall be entitled to benefits described in this Section 7C and in Section 4B due to a resignation resulting from (x) or (y) of the preceding sentence only if such resignation occurs more than six months after the Change in Control.
Notwithstanding the foregoing, “Good Reason” shall only be found to exist if prior to Executive’s resignation for Good Reason, the Executive has provided, not more than 90 days following the initial occurrence thereof, written notice to the
Company of such Good Reason event indicating and describing the event resulting in such Good Reason, and the Company does not cure such event within 90 days following the receipt of such notice from Executive. Upon termination of Executive’s employment for any reason, Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the Company or any of its subsidiaries.
D. Health Care Reform Compliance. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot provide the health insurance premium
reimbursement benefits under this Section 7 without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof pay
Executive a taxable cash amount, which payment shall be made regardless of whether Executive elects or pays for health insurance benefits following termination (the “Health Care
Benefit Payment”). The Health Care Benefit Payment shall be paid in monthly installments on the same schedule that the health insurance premium reimbursement amounts would otherwise have been paid. The Health Care Benefit Payment shall be
equal to the amount that the Executive would have otherwise paid for health insurance premiums (which amount shall be calculated based on the premium for the first month of coverage), and shall be paid until the expiration of the one year period
following Executive’s termination.
8. Non-Competition During the Employment Period. Executive acknowledges and agrees that given the extent and nature of the confidential and proprietary information he will obtain during the course of
his employment with the Company, it would be inevitable that such confidential information would be disclosed or utilized by the Executive should he obtain employment from, or otherwise become associated with, an entity or person that is engaged in a
business or enterprise that directly competes with the Company. Consequently, during any period for which Executive is receiving payments from the Company, either as wages or as a severance benefit, Executive shall not directly or indirectly own,
manage, operate, control or participate in the ownership, management, operation or control of, or be employed by or provide advice to, any enterprise that is engaged in any business directly competitive to that of the Company in the aftermarket auto
parts market in the United States; provided, however, that such restriction shall not apply to any passive investment representing an interest of less than 1% of an outstanding class of publicly-traded securities of any company or other enterprise
where Executive does not provide any management, consulting or other services to such company or enterprise.
9. Proprietary Information. On the Start Date or prior to the Effective Date, Executive shall
execute the Company’s standard Confidential Information and Assignment of Inventions Agreement (the “Confidentiality Agreement”), which is hereby incorporated by this reference as if set
forth fully herein. Executive’s obligations pursuant to the Confidentiality Agreement will survive termination of Executive’s employment with the Company. Executive agrees that he will not use or disclose to the Company any confidential or
proprietary information from any of his prior employers. Successors and Assigns. This Agreement is personal in its nature and the Executive shall not assign or transfer his rights under this Agreement. The provisions of this
Agreement shall inure to the benefit of, and shall be binding on, each successor of the Company whether by merger, consolidation, transfer of all or substantially all assets, or otherwise, and the heirs and legal representatives of Executive.
11. Notices. Any notices, demands or other communications required or desired to be given by any party shall be in writing and shall be validly given to another party if served either
personally or via overnight delivery service such as Federal Express, postage prepaid, return receipt requested. If such notice, demand or other communication shall be served personally, service shall be conclusively deemed made at the time of such
personal service. If such notice, demand or other communication is given by overnight delivery, such notice shall be conclusively deemed given two business days after the deposit thereof addressed to the party to whom such notice, demand or other
communication is to be given as hereinafter set forth:
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To the Company: |
CarParts.com, Inc.
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2050 W. 190th St, Suite 400,
Torrance, CA 90504
Attn: General Counsel
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To Executive: |
At Executive’s last residence as provided by Executive to the Company for payroll records.
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Any party may change such party’s address for the purpose of receiving notices, demands and other communications by providing written notice to the
other party in the manner described in this Section 11.
12. Governing Documents. This Agreement, along with the documents expressly referenced in this Agreement, constitute the entire agreement and understanding of the Company and Executive with respect to
the terms and conditions of Executive’s employment with the Company and the payment of severance benefits, and supersedes all prior and contemporaneous written or verbal agreements and understandings between Executive and the Company relating to such
subject matter. This Agreement may only be amended by written instrument signed by Executive and an authorized officer of the Company. Any and all prior agreements, understandings or representations relating to the Executive’s employment with the
Company are terminated and cancelled in their entirety and are of no further force or effect.
13. Governing Law. The provisions of this letter agreement will be construed and interpreted under the laws of the State of California. If any provision of this Agreement as applied
to any party or to any circumstance should be adjudged by a court of competent jurisdiction to be void or unenforceable for any reason, the invalidity of that provision shall in no way affect (to the maximum extent permissible by law) the application
of such provision under circumstances different from those adjudicated by the court, the application of any other provision of this Agreement, or the enforceability or invalidity of this Agreement as a whole. Should any provision of this Agreement
become or be deemed invalid, illegal or unenforceable in any jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the extent necessary to conform to applicable law so as to be valid
and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision will be stricken and the remainder of this Agreement shall continue in full force and effect.
14. Remedies. All rights and remedies provided pursuant to this Agreement or by law shall be cumulative, and no such right or remedy shall be exclusive of any other. A party may
pursue any one or more rights or remedies hereunder, or may seek damages or specific performance in the event of another party’s breach hereunder, or may pursue any other remedy by law or equity, whether or not stated in this Agreement.
15. No Waiver. The waiver by either party of a breach of any provision of this Agreement shall not operate as, or be construed as, a waiver of any later breach of that provision.
16. Counterparts. This Agreement may be executed in more than one counterpart, each of which shall be deemed an original, but all of which together shall constitute but one and the
same instrument.
17. Section 409A.
(a) Notwithstanding anything to the
contrary herein, the following provisions apply to the extent severance benefits provided herein are subject to Section 409A of Code and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”). Severance benefits shall not commence until Executive has a “separation from service” for purposes of Section 409A. Each installment of severance benefits is a separate “payment” for
purposes of Treas. Reg. Section 1.409A-2(b)(2)(i), and the severance benefits are intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(5) to the maximum
extent such exemptions are available. However, to the extent such exemptions are not available and Executive is, upon separation from service, a “specified employee” for purposes of Section 409A, then, solely to the extent necessary to avoid
adverse personal tax consequences under Section 409A, the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one day after Executive’s separation from service, or (ii) Executive’s death. The
parties acknowledge that the exemptions from application of Section 409A to severance benefits are fact specific, and any later amendment of this Agreement to alter the timing, amount or conditions that will trigger payment of severance benefits
may preclude the ability of severance benefits provided under this Agreement to qualify for an exemption.
(b) It is intended that this Agreement
shall comply with the requirements of Section 409A, and any ambiguity contained herein shall be interpreted in such manner so as to avoid adverse personal tax consequences under Section 409A. Notwithstanding the foregoing, the Company shall in
no event be obligated to indemnify the Executive for any taxes or interest that may be assessed by the IRS pursuant to Section 409A of the Code to payments made pursuant to this Agreement. To the extent that any severance benefit payments are
delayed as required by this Agreement due to the application of Section 409A, all suspended payments shall earn and accrue interest at the prevailing “Prime Rate” of interest as published by The Wall Street Journal at the time the payment is
made, and any suspended payment when so made, shall be made as a lump sum payment, including accrued interest.
18. Section 280G.
(a) If any payment or benefit Executive
will or may receive from the Company or otherwise (a “280G Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999
of the Code (the “Excise Tax”), then any such 280G Payment pursuant to this Agreement (a “Payment”)
shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax or (y) the largest portion, up to
and including the total, of the Payment, whichever amount (i.e., the amount determined by clause (x) or by clause (y)), after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all
computed at the highest applicable marginal rate), results in Executive’s receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in
a Payment is required pursuant to the preceding sentence and the Reduced Amount is determined pursuant to clause (x) of the preceding sentence, the reduction shall occur in the manner (the “Reduction Method”) that results in the greatest economic benefit for Executive. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata (the “Pro Rata Reduction Method”).
(b) Notwithstanding any provision of
Section 18(a) to the contrary, if the Reduction Method or the Pro Rata Reduction Method would result in any portion of the Payment being subject to taxes pursuant to Section 409A of the Code that would not otherwise be subject to taxes pursuant
to Section 409A of the Code, then the Reduction Method and/or the Pro Rata Reduction Method, as the case may be, shall be modified so as to avoid the imposition of taxes pursuant to Section 409A of the Code as follows: (A) as a first priority,
the modification shall preserve to the greatest extent possible, the greatest economic benefit for Executive as determined on an after-tax basis; (B) as a second priority, Payments that are contingent on future events (e.g., being terminated
without Cause), shall be reduced (or eliminated) before Payments that are not contingent on future events; and (C) as a third priority, Payments that are “deferred compensation” within the meaning of Section 409A of the Code shall be reduced (or
eliminated) before Payments that are not deferred compensation within the meaning of Section 409A of the Code.
(c) Unless Executive and the Company agree
on an alternative accounting firm or law firm, the accounting firm engaged by the Company for general tax compliance purposes as of the day prior to the effective date of the Change in Control shall perform the foregoing calculations. If the
accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting or law firm to make the determinations
required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting or law firm required to be made hereunder. The Company shall use commercially reasonable efforts to cause the accounting or law firm
engaged to make the determinations hereunder to provide its calculations, together with detailed supporting documentation, to Executive and the Company within fifteen (15) calendar days after the date on which Executive’s right to a 280G Payment
becomes reasonably likely to occur (if requested at that time by Executive or the Company) or such other time as requested by Executive or the Company.
(d) If Executive receives a Payment for
which the Reduced Amount was determined pursuant to clause (x) of Section 18(a) and the Internal Revenue Service determines thereafter that some portion of the Payment is subject to the Excise Tax, Executive shall promptly return to the Company a
sufficient amount of the Payment (after reduction pursuant to clause (x) of Section 18(a)) so that no portion of the remaining Payment is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount was determined pursuant to
clause (y) of Section 18(a), Executive shall have no obligation to return any portion of the Payment pursuant to the preceding sentence.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
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EXECUTIVE
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/s/ Alfredo Gomez, VP General Counsel |
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[NAME]
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