EXHIBIT 10.42

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is entered into effective as of the Start Date (as defined below) by and between Joseph P. Hagan (the “Executive”) and Ambros Therapeutics, Inc. (the “Company”).

 

The Company desires to employ Executive and, in connection therewith, to compensate Executive for Executive’s services, performed personally by Executive, to the Company; and

 

Executive wishes to be employed by the Company and provide services to be performed personally by Executive and certain covenants to the Company in return for certain compensation and benefits.

 

Accordingly, in consideration of the mutual promises and covenants contained herein, the parties agree to the following:

 

1.           Employment by the Company.

 

1.1       Position. Subject to the terms set forth herein, the Company agrees to employ Executive initially in the position of Chief Executive Officer, and Executive hereby accepts such employment.

 

1.2        Effectiveness of Agreement and Start Date. Executive’s employment with the Company shall commence on December 3, 2025 or such other date mutually agreed to in writing by Executive and the Company (the “Start Date”). In the event that Executive does not commence employment with the Company under this Agreement, the Company shall have no obligation to provide Executive with compensation and benefits (including, but not limited to, the “Severance Benefits” and “Change in Control Severance Benefits” stated in Section 6.1, 6.2 or 6.3).

 

1.3       Duties. Executive will initially report to the Company’s Board of Directors (the “Board”), performing such duties as are normally associated with Executive’s position and such duties as are assigned to Executive from time to time, subject to the oversight and direction of the Board or their designee. During the term of Executive’s employment with the Company, and except as set forth in Section 4 below, Executive will devote Executive’s best efforts and substantially all of Executive’s business time and attention to the business of the Company. Executive shall perform Executive’s duties under this Agreement principally from Executive’s home office (the “Principal Location”) or, once the Company has established a permanent office location in San Diego, California, at the Company’s office in San Diego, California, or, from time to time, the Company’s office in Orange County, California. In addition, Executive shall make such business trips to such places as may be necessary or advisable for the efficient operations of the Company. During Executive’s employment with the Company, Executive will not change the state where Executive is primarily working for the Company or resides, without prior written approval from the Company of such change, other than in the case of any such change requested or required of Executive by the Company.

 

1.4       Company Policies and Benefits. The employment relationship between the parties shall be subject to the Company’s personnel policies and procedures as they may be established, interpreted, adopted, revised or deleted from time to time in the Company’s sole discretion. Executive will be eligible to participate on the same basis as similarly-situated Executives in the Company’s benefit plans in effect from time to time during Executive’s employment. The Company reserves the right to change, alter, or terminate any benefit plan in its sole discretion. Notwithstanding the foregoing, in the event that the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.

 

2.           Compensation.

 

2.1         Salary. Executive shall receive for Executive’s services to be rendered under this Agreement an initial base salary of $575,000 on an annualized basis, subject to review and adjustment by the Company in its sole discretion, and payable subject to standard federal and state payroll deductions and withholding requirements in accordance with the Company’s standard payroll practices (“Base Salary”).

 

2.2       Annual Discretionary Bonus. Beginning as of January 1, 2026, Executive will be eligible to be awarded a discretionary annual cash bonus with a target of 50% of Executive’s then-current Base Salary, subject to review and adjustment from time to time by the Company in its sole discretion, payable subject to standard federal and state payroll deductions and withholding requirements in accordance with the Company’s standard payroll practices (“Target Bonus”). Whether or not Executive is awarded any bonus will be dependent upon (a) the actual achievement by Executive and the Company of the applicable individual and corporate performance goals, as determined by the Company’s Board, or a committee thereof, in its sole discretion, and (b) Executive’s continuous performance of services to the Company through the date any such bonus is paid. The bonus may be greater or lesser than the Target Bonus and may be zero. In the event Executive’s Base Salary is increased during an applicable bonus year, any bonus Executive is eligible to receive for that year (as a percentage of Executive’s Base Salary) will be calculated such that the modified Base Salary rate only applies to the period of time from the effective date of the Base Salary adjustment through the end of the applicable bonus year (and the prior Base Salary rate applies to the period before the Base Salary adjustment). The Board will determine in its sole discretion the extent to which Executive has achieved the performance goals upon which the bonus is based and the amount of the bonus, if any. Any bonus earned under this Section 2.2 shall be paid to Executive no later than March 15 of the calendar year following the year for which the bonus is awarded.

 

2.3         Equity Awards.

 

(a)         Initial Equity Grant. Subject to approval of the Board, as soon as practicable following the Start Date, the Executive shall be granted an option to purchase 2,250,000 shares of the Company’s common stock (the “Initial Option Grant”) under and subject to the terms of the Company’s 2024 Equity Incentive Plan, as amended (the “Plan”). The Initial Option Grant shall have an exercise price per share equal to the fair market value of the Company’s common stock as of the date of grant, as determined in good faith by the Board. One-fourth of the shares subject to the Initial Option Grant shall vest on the first anniversary of the Start Date and the balance of the shares shall vest in a series of 36 successive equal monthly installments thereafter, subject to Executive’s Continuous Service (as defined in the Plan) as of each such vesting date. Executive hereby acknowledges that, except as otherwise set forth in Section 6 below, the Initial Option Grant, as well as any other future equity grants issued by the Company to Executive will continue to be governed by the terms of the Plan and other applicable award agreement documents. The parties acknowledge that service as a consultant, employee, or member of the Board is and will be deemed to be “Continuous Service” (as defined in the Plan) for purposes of vesting under the Plan.

 

(b)         Additional Equity Grants. Executive will be eligible to receive future grants of equity awards as determined from time to time by the Board as part of the annual executive compensation review by the Board. The Board shall determine in its sole discretion the grant timing, amount, form(s) and mix, and such other terms and conditions (including vesting, exercise and settlement) applicable to any such equity-based compensation award. Any future awards shall be evidenced by a separate award agreement in a form prescribed by the Company.

 

2.4         Performance Bonus.

 

(a)          In the event that Executive remains in Continuous Service as of the occurrence of a Bonus Event (as defined below), subject to Section 6.1, 6.2 or 6.3 below, then Executive will be entitled to receive the applicable Performance Bonus, payable as follows:

 

(i)        The Performance Bonus will be paid in cash or securities or a combination of both, as determined by the Board in its sole discretion, and will be subject to standard federal and state payroll deductions and withholding requirements in accordance with the Company’s standard payroll practices. Any securities that are issued to Executive in full or partial satisfaction of the Performance Bonus will have an aggregate fair market value (as reasonably determined in good faith by the Board) that is equal to the cash amount Executive would have received had such portion of the Performance Bonus been paid in cash, with the number of such securities calculated as of the date of the occurrence of the applicable Bonus Event.

 

(ii)         Any cash that is paid to Executive in full or partial satisfaction of the Performance Bonus will be paid in its entirety upon or as soon as practicable following the occurrence of the applicable Bonus Event (but in no event longer than 15 days following the occurrence of the applicable Bonus Event). Any securities that are issued to Executive in full or partial satisfaction of the Performance Bonus will be issued in two equal installments, the first of which will be issued upon or as soon as practicable following the occurrence of the applicable Bonus Event (but in no event longer than 15 days following the occurrence of the applicable Bonus Event), and the second of which will be issued on the first anniversary of the occurrence of the applicable Bonus Event, subject to Executive remaining in Continuous Service as of such first anniversary.

 

(b)          For purposes of this Section 2.4:

 

(i)          “Bonus Event” means the earliest to occur of the following: (a) the closing of a Change in Control, at which the Net Proceeds equal or exceed $1,000,000,000 (a “Qualifying Change in Control”) (b) the consummation of a bona fide third-party equity financing prior to an initial public offering or a direct listing of the Company that results in a post-money valuation of the Company that equals or exceeds $1,000,000,000 on a fully-diluted basis (a “Qualifying Equity Financing”), or (c) the date the market value of the Company following an initial public offering or a direct listing of the Company equals or exceeds $1,000,000,000 (a “Qualifying Market Cap”) utilizing the volume-weighted average of the closing sale price of the Company’s common stock (“VWAP”) for each of the sixty (60) trading days immediately prior to the measurement date (the “VWAP Period”), as reported on the principal stock exchange on which it is then traded.

 

(ii)       “Net Proceeds” means the sum of any cash and the fair market value of any securities or other property (determined on the same basis on which such securities or other property were valued in the Change in Control), reduced by the Expenses, legally available for payment or distribution to the Company’s securityholders in respect of their holdings of the Company’s securities or the sale of the Company’s assets, as applicable, in the Change in Control. In the event there are any escrowed, contingent or potential future payments following the closing of such Change in Control, then for purposes of determining Net Proceeds, the value of such escrowed, contingent or potential future payments will be estimated as reasonably determined in good faith by the Board. However, if within three years following the closing of such Change in Control, the amount of such escrowed, contingent or potential future payments actually paid or distributed to the Company’s securityholders exceeds the Board’s estimate at closing, then the Net Proceeds will be recalculated at such time, including for purposes of whether a Performance Bonus (or incremental Performance Bonus) is due and payable. Any Performance Bonus (or incremental Performance Bonus) payable pursuant to the preceding sentence will be paid solely in cash. For the avoidance of confusion, in no event will Executive be required to return any portion of a previously paid Performance Bonus.

 

(iii)       “Expenses” means the sum of (a) all transaction fees and expenses (including, without limitation, payments to investment bankers and attorneys) in connection with the closing of a Change in Control, (b) all debts and liabilities of the Company not assumed by the acquirer at the closing of a Change in Control, and (c) any reserves that the Board deems reasonably necessary at the closing of a Change in Control, including a reasonable estimate of post-closing expenses. For the avoidance of doubt, the Performance Bonus itself shall not be deemed an “Expense.”

 

(iv)        “Performance Bonus” means an amount equal to (a) 0.75% of the Net Proceeds in the event of a Qualifying Change in Control, (b) 0.75% of the fully-diluted pre-money valuation in the event of a Qualifying Equity Financing, or (c) 0.75% of the market value of the Company (calculated utilizing the VWAP for the VWAP Period) on the date of the occurrence of a Qualifying Market Cap.

 

(c)        The Board may also determine in its sole discretion (but shall not be obligated) to award an appropriate bonus to Executive upon the occurrence of a Change in Control that does not constitute a Qualifying Change in Control.

 

2.5        Expense Reimbursement. The Company will reimburse Executive for reasonable business expenses in accordance with the Company’s standard expense reimbursement policy, as the same may be modified by the Board from time to time. The Company shall reimburse Executive for all customary and appropriate business-related expenses actually incurred and documented in accordance with Company policy, as in effect from time to time, including any out-of-pocket costs relating to Executive’s travel to and from Orange County, California (including food, lodging and ground transportation). For the avoidance of doubt, to the extent that any reimbursements payable to Executive are subject to the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”): (a) any such reimbursements will be paid no later than December 31 of the year following the year in which the expense was incurred, (b) the amount of expenses reimbursed in one year will not affect the amount eligible for reimbursement in any subsequent year, and (c) the right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.

 

2.6        Indemnification. Executive shall be entitled to indemnification and directors’ and officers’ insurance coverage, to the extent made available to other senior executives, in accordance with the charter, bylaws and all other applicable policies and procedures of the Company for expenses incurred or damages paid or payable by the Executive (including any advancement of reasonable costs and expenses in connection therewith) with respect to a claim against the Executive based on actions or inactions by the Executive in his capacity as a senior executive or director of the Company.

 

2.7         Legal Fees. Not later than ten (10) business days following the Start Date, the Company shall reimburse the Executive for any and all reasonable attorneys’ fees and related costs paid in connection with his negotiation and execution of this Agreement, up to a maximum of $5,000.

 

3.           Confidential Information, Inventions, Non-Competition and Non-Solicitation Obligations. As a condition of employment, Executive agrees to execute and abide by the Employee Confidential Information and Inventions Assignment Agreement attached as Exhibit A (“Confidential Information Agreement”), which may be amended by the parties from time to time without regard to this Agreement. The Confidential Information Agreement contains provisions that are intended by the parties to survive and do survive termination of this Agreement.

 

4.           Outside Activities During Employment. Except with the prior written consent of the Board, Executive will not, while employed by the Company, undertake or engage in any other employment, consulting, occupation or business enterprise that would interfere with Executive’s responsibilities and the performance of Executive’s duties hereunder, except for (i) service on the board of directors of ClicBio and [***], (ii) reasonable time devoted to volunteer services for or on behalf of such religious, educational, non-profit and/or other charitable organization as Executive may wish to serve, (iii) reasonable time devoted to activities in the non-profit and business communities consistent with Executive’s duties, (iv) service on a board of directors of not more than one (1) external public company, subject to the prior written consent of the Board, and (v) such other activities as may be specifically approved in writing by the Board. This restriction shall not, however, preclude Executive (i) from owning less than one percent (1%) of the total outstanding shares of a publicly-traded company or (ii) from employment or service in any capacity with Affiliates of the Company. As used in this Agreement, “Affiliates” means an entity under common management or control with the Company. Executive agrees to promptly disclose to the Board his/her involvement in any activities contemplated by this Section 4.

 

5.           No Conflict with Existing Obligations. Executive represents that Executive’s performance of all the terms of this Agreement and service as an executive of the Company do not and will not breach any agreement or obligation of any kind made prior to Executive’s employment by the Company, including agreements or obligations Executive may have with prior employers or entities for which Executive has provided services. Subject to Section 4 above, Executive has not entered into, and Executive agrees that Executive will not enter into, any agreement or obligation, either written or oral, in conflict herewith.

 

6.           Termination of Employment. The parties acknowledge that Executive’s employment relationship with the Company will at all times be at-will. Either Executive or the Company may terminate the employment relationship for any reason whatsoever at any time, with or without cause or advance notice. The provisions in this Section govern the amount of compensation, if any, to be provided to Executive upon termination of employment and do not alter this at-will status.

 

6.1         Termination by the Company without Cause (not in connection with a Change in Control).

 

(a)         The Company shall have the right to terminate Executive’s employment with the Company pursuant to this Section 6.1 at any time without “Cause” (as defined below) by giving notice as described in Section 7.1 of this Agreement. A termination pursuant to Sections 6.5 or 6.6 below is not a termination without Cause for purposes of receiving the benefits described in this Section 6.1.

 

(b)        If the Company terminates Executive’s employment at any time without Cause, then Executive shall be entitled to receive the Accrued Obligations (as defined below), and provided that such termination constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder, a “Separation from Service”) and subject to Executive’s compliance with the obligations in Section 6.1(c) below, Executive shall also be eligible to receive the following severance benefits (the “Severance Benefits”):

 

(i)         The Company will pay Executive an amount equal to the sum of (A) Executive’s then current Base Salary for twelve (12) months, plus (B) 100% of Executive’s Target Bonus for the year in which Executive’s termination hereunder occurs, less all applicable withholdings and deductions, in a lump sum on the Company’s second regularly-scheduled payroll date following the Release Effective Date (as defined below); and any remaining installment of securities issuable in full or partial satisfaction of the Performance Bonus that have not been issued as of such termination, will be issued on the Release Effective Date. In addition, in the event a Qualifying Change in Control occurs on or prior to the three-month anniversary of the date of such termination, the Company will pay and/or issue to Executive the applicable Performance Bonus, less all applicable withholdings and deductions, in a lump sum upon or as soon as practicable following the occurrence of the Qualifying Change in Control (but in no event longer than 15 days following the occurrence of the Qualifying Change in Control).

 

(ii)       If Executive timely elects continued coverage under COBRA for Executive and Executive’s dependents under the Company’s group health plans following such termination, then the Company shall reimburse Executive for the cost of the COBRA premiums necessary to continue Executive’s and his/her covered dependents’ health insurance coverage in effect on the termination date until the earliest of: (i) eighteen (18) months following the Separation from Service; (ii) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment; or (iii) the date Executive ceases to be eligible for COBRA continuation coverage for any reason, including plan termination (such period from the termination date through the earlier of (i)-(iii), (the “COBRA Payment Period”). To receive this reimbursement, Executive will be required to remit timely payment of each COBRA premium during the COBRA Payment Period to the Company or its designee and present proof of payment within ten (10) days. The Company will then process the reimbursement to Executive in accordance with its ordinary expense reimbursement policies. Notwithstanding the foregoing, the Company may in its discretion pay COBRA premiums directly to the applicable carrier or pay Executive on the last day of each remaining month of the COBRA Payment Period, a fully taxable cash payment equal to the COBRA premium for such month, subject to applicable tax withholding, for the remainder of the COBRA Payment Period (the “Special COBRA Payments”). The Company may also in its discretion pay the Special COBRA Payments for the remainder of the COBRA Payment Period in one fully taxable lump sum as opposed to monthly installments. Nothing in this Agreement shall deprive Executive of his/her rights under COBRA or ERISA for benefits under plans and policies arising under his/her employment by the Company.

 

(iii)       Effective as of the date of termination hereunder, the vesting and exercisability of all outstanding unvested Company equity awards that are held by Executive as of immediately prior to the termination date and which are scheduled to vest and become exercisable under a time-based schedule shall be modified so that any unvested shares scheduled to vest during the twelve (12) month period following Executive’s termination date shall be deemed immediately vested and exercisable as of Executive’s termination date (and, for clarity, if any unvested equity award is in the form of restricted stock where the unvested shares are subject to a share reacquisition or repurchase right on behalf of the Company upon Executive’s termination from employment or service (e.g., at the lower of the stock’s fair market value or the original purchase price), such unvested share reacquisition or repurchase right will lapse as to the shares of stock that otherwise are scheduled or are eligible to vest following Executive’s termination date). For the avoidance of confusion, the Performance Bonus is not considered a Company equity award subject to the terms of this Section 6.1(b)(iii).

 

(c)        Executive will be paid all of the Accrued Obligations on the Company’s first payroll date after Executive’s date of termination from employment or earlier if required by law. Executive shall receive the Severance Benefits pursuant to Section 6.1(b) of this Agreement if: (i) by the sixtieth (60th) day following the date of Executive’s Separation from Service, Executive has signed and delivered to the Company a separation agreement containing (among other terms) an effective, general release of claims in favor of the Company and its affiliates and representatives, in a form presented by the Company (the “Release”) and which cannot be revoked in whole or part by such date (the date that the Release can no longer be revoked is referred to as the “Release Effective Date”); (ii) if Executive holds any other positions with the Company or any Affiliate, including a position on the Board, Executive resigns such position(s) to be effective no later than the date of Executive’s termination date (or such other date as requested by the Board); (iii) Executive returns all Company property; (iv) Executive is in compliance with his/her post-termination obligations under this Agreement and the Proprietary Information Agreement when any such Severance Benefits are due and payable; and (v) Executive complies with the terms of the Release, including without limitation any mutual non-disparagement and confidentiality provisions contained in the Release. To the extent that any of the Severance Benefits are deferred compensation under Section 409A of the Code, and are not otherwise exempt from the application of Section 409A, then, if the period during which Executive may consider and sign the Release spans two calendar years, the payment of the Severance Benefits will not be made or begin until the later calendar year.

 

(d)        For purposes of this Agreement, “Accrued Obligations” are (i) Executive’s accrued but unpaid salary through the date of termination, (ii) Executive's accrued but unused vacation time through the date of termination, (iii) any unreimbursed business expenses incurred by Executive payable in accordance with the Company’s standard expense reimbursement policies, and (iv) benefits owed to Executive under any qualified retirement plan or health and welfare benefit plan in which Executive was a participant in accordance with applicable law and the provisions of such plan.

 

(e)         The Severance Benefits provided to Executive pursuant to this Section 6.1 are in lieu of, and not in addition to, any benefits to which Executive may otherwise be entitled under any Company severance plan, policy or program.

 

(f)         Any damages caused by the termination of Executive’s employment without Cause would be difficult to ascertain; therefore, the Severance Benefits for which Executive is eligible pursuant to Section 6.1(b) above in exchange for the Release is agreed to by the parties as liquidated damages, to serve as full compensation, and not a penalty.

 

(g)         For purposes of this Agreement, the term “Change in Control” shall have the meaning set forth in the Plan.

 

6.2         Resignation by Executive for Good Reason (not in connection with a Change in Control).

 

(a)        Provided Executive has not previously been notified of the Company’s intention to terminate Executive’s employment, Executive may resign from employment with the Company for Good Reason (as defined in Section 6.2(b) below).

 

(b)          “Good Reason” for purposes of this Agreement shall mean the occurrence of any of the following conditions without Executive’s consent, after Executive’s provision of written notice to the Company of the existence of such condition (which notice must be provided as described in Section 7.1 within thirty (30) days of the initial existence of the condition and must specify the particular condition in reasonable detail), provided that the Company has not first provided notice to Executive of its intent to terminate Executive’s employment: (i) a material reduction in Executive’s duties, responsibilities or authorities; (ii) a material (greater than 10%) reduction by the Company of Executive’s Base Salary or Target Bonus (except in the case of either an across-the-board reduction in salaries or target bonuses, or a temporary reduction due to financial exigency, in either case, not to exceed six (6) months); (iii) the relocation by the Company of the Principal Location by fifty (50) or more miles from its existing location; (iv) the Company requiring Executive to violate applicable law or established professional ethics rules in the performance of Executive’s duties hereunder. Notwithstanding the foregoing, Good Reason shall only exist if the Company is provided a thirty (30) day period to cure the event or condition giving rise to Good Reason, and it fails to do so within that cure period (and, additionally, Executive must resign for such Good Reason condition by giving notice as described in Section 7.1 within thirty (30) days after the period for curing the violation or condition has ended).

 

(c)          In the event Executive resigns for Good Reason from Executive’s employment, then Executive shall be entitled to the Accrued Obligations and, provided such resignation constitutes a Separation from Service, and Executive complies with the obligations in Section 6.1(c) of this Agreement (including the requirement to provide an effective Release), Executive shall also be eligible to receive the same Severance Benefits as described in Section 6.1 and on the same conditions as if Executive had been terminated by the Company without Cause.

 

6.3       Termination by the Company without Cause or Resignation by Executive for Good Reason in Connection with a Change in Control.

 

(a)        In the event that the Company terminates Executive’s employment without Cause (as defined below) or Executive resigns for Good Reason within three (3) months before or twelve (12) months following the effective date of a Change in Control (“Change in Control Termination Date”), then Executive shall be entitled to the Accrued Obligations and, subject to Executive’s compliance with Section 6.1(c), including but not limited to the Release requirement and Executive’s continued compliance with Executive’s obligations to the Company under Executive’s Confidential Information Agreement, then Executive will be eligible for the following “Change in Control Severance Benefits:”

 

(i)         The Company will pay Executive an amount equal to the sum of (A) Executive’s then current Base Salary for twenty-four (24) months, plus (B) 200% of Executive’s Target Bonus for the year in which Executive’s termination hereunder occurs less all applicable withholdings and deductions, in a lump sum payment upon the Company’s second regularly-scheduled payroll date following the Release Effective Date (as defined below); and any remaining installment of securities issuable in full or partial satisfaction of the Performance Bonus that have not been issued as of such termination, will be issued on the Release Effective Date. In addition, in the event a Qualifying Change in Control occurs on or prior to the three-month anniversary of the date of such termination or resignation, the Company will pay and/or issue to Executive the applicable Performance Bonus, less all applicable withholdings and deductions, in a lump sum upon or as soon as practicable following the occurrence of the Qualifying Change in Control (but in no event longer than 15 days following the occurrence of the Qualifying Change in Control).

 

(ii)       If Executive timely elects continued coverage under COBRA for Executive and Executive’s dependents under the Company’s group health plans following such termination, then the Company shall reimburse Executive for the cost of the COBRA premiums necessary to continue Executive’s and his/her covered dependents’ health insurance coverage in effect on the termination date until the earliest of: (i) eighteen (18) months following the Change in Control Termination Date; (ii) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment; or (iii) the date Executive ceases to be eligible for COBRA continuation coverage for any reason, including plan termination (such period from the termination date through the earlier of (i)-(iii), (the “CIC COBRA Payment Period”). To receive this reimbursement, Executive will be required to remit timely payment of each COBRA premium during the CIC COBRA Payment Period to the Company or its designee and present proof of payment within ten (10) days. The Company will then process the reimbursement to Executive in accordance with its ordinary expense reimbursement policies. Notwithstanding the foregoing, the Company may in its discretion pay COBRA premiums directly to the applicable carrier or pay Executive on the last day of each remaining month of the CIC COBRA Payment Period, a fully taxable cash payment equal to the COBRA premium for such month, subject to applicable tax withholding, for the remainder of the CIC COBRA Payment Period (the “Special CIC COBRA Payments”). The Company may also in its discretion pay the Special CIC COBRA Payments for the remainder of the CIC COBRA Payment Period in one fully taxable lump sum as opposed to monthly installments. Nothing in this Agreement shall deprive Executive of his/her rights under COBRA or ERISA for benefits under plans and policies arising under his/her employment by the Company.

 

(iii)       Effective as of Executive’s Change in Control Termination Date, and provided that Company equity awards have been continued, assumed or substituted for by the Company and/or the acquiror (or any affiliate of the acquiror) in connection with such Change in Control transaction, the vesting and exercisability of all outstanding unvested Company equity awards that are held by Executive as of immediately prior to the Change in Control Termination Date and which are scheduled to vest and become exercisable under a time-based or performance based schedule shall be deemed immediately vested and exercisable as of Executive’s termination date (and, for clarity, if any unvested equity award is in the form of restricted stock where the unvested shares are subject to a share reacquisition or repurchase right on behalf of the Company upon Executive’s termination from employment or service (e.g., at the lower of the stock’s fair market value or the original purchase price), such unvested share reacquisition or repurchase right will lapse as to the shares of stock that otherwise are scheduled or are eligible to vest following the Change in Control Termination Date). For the avoidance of confusion, the Performance Bonus is not considered a Company equity award subject to the terms of this Section 6.3(a)(iii).

 

6.4         Termination by the Company for Cause.

 

(a)         The Company shall have the right to terminate Executive’s employment with the Company at any time for Cause by giving notice as described in Section 7.1 of this Agreement.

 

(b)       “Cause” for purposes of this Agreement shall mean that the Company has determined in its sole discretion that Executive has engaged in any of the following: (i) a material breach of any covenant or condition under this Agreement or any other agreement between the Company and Executive; (ii) any act constituting dishonesty, fraud, immoral or disreputable conduct which causes or is reasonably likely to cause material harm to the Company, its business or its reputation; (iii) any conduct which constitutes a felony under applicable law; (iv) material violation of any Company policy or any act of misconduct; (v) repeated refusal to follow or implement a clear reasonable and lawful directive of Company; (vi) negligence or incompetence in the performance of Executive’s duties or failure to perform such duties in a manner satisfactory to the Company after the expiration of thirty (30) days without cure, to the extent curable, after written notice of such failure; (vii) failure to pass to the satisfaction of the Company, a preliminary background check or failure to submit proof of legal eligibility to work in the United States; or (viii) breach of fiduciary duty.

 

(c)       In the event Executive’s employment is terminated at any time for Cause, Executive will not receive Severance Benefits, Change in Control Severance Benefits, or any other compensation or benefits, except that, pursuant to the Company’s standard payroll policies, the Company shall provide to Executive the Accrued Obligations.

 

6.5         Resignation by Executive (other than for Good Reason).

 

(a)         Executive may resign from Executive’s employment with the Company at any time by giving notice as described in Section 7.1.

 

(b)       In the event Executive resigns from Executive’s employment with the Company (other than for Good Reason), Executive will not receive Severance Benefits, Change in Control Severance Benefits, or any other compensation or benefits, except that, pursuant to the Company’s standard payroll policies, the Company shall provide to Executive the Accrued Obligations.

 

6.6         Termination by Virtue of Death or Disability of Executive.

 

(a)          In the event of Executive’s death while employed pursuant to this Agreement, all obligations of the parties hereunder shall terminate immediately, and the Company shall, pursuant to the Company’s standard payroll policies, provide to Executive’s legal representatives all Accrued Obligations.

 

(b)       Subject to applicable state and federal law, the Company shall at all times have the right, upon written notice to Executive, to terminate this Agreement based on Executive’s Disability. Termination by the Company of Executive’s employment based on “Disability” shall mean termination because Executive is unable due to a physical or mental condition to perform the essential functions of Executive’s position with or without reasonable accommodation for six (6) months in the aggregate during any twelve (12) month period or based on the written certification by two licensed physicians of the likely continuation of such condition for such period. This definition shall be interpreted and applied consistent with the Americans with Disabilities Act, the Family and Medical Leave Act, and other applicable law. In the event Executive’s employment is terminated based on Executive’s Disability, Executive will not receive the Severance Benefits, Change in Control Severance Benefits, or any other severance compensation or benefit, except that, pursuant to the Company’s standard payroll policies, the Company shall provide to Executive the Accrued Obligations.

 

6.7       Application of Section 409A. It is intended that all of the severance payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively, “Section 409A”) provided under Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(9), and this Agreement will be construed in a manner that complies with Section 409A. If not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A, and incorporates by reference all required definitions and payment terms. No severance payments will be made under this Agreement unless Executive’s termination of employment constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h)). For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulations Section 1.409A-2(b)(2)(iii)), Executive’s right to receive any installment payments under this Agreement (whether severance payments or otherwise) shall be treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a separate and distinct payment. To the extent that any severance payments are deferred compensation under Section 409A, and are not otherwise exempt from the application of Section 409A, then, if the period during which Executive may consider and sign the Release spans two calendar years, the severance payments will not begin until the second calendar year. If the Company determines that the Severance Benefits or Change in Control Severance Benefits provided under this Agreement constitutes “deferred compensation” under Section 409A and if Executive is a “specified Executive” of the Company, as such term is defined in Section 409A(a)(2)(B)(i) of the Code at the time of Executive’s Separation from Service, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Severance will be delayed as follows: on the earlier to occur of (a) the date that is six months and one day after Executive’s Separation from Service, and (b) the date of Executive’s death (such earlier date, the “Delayed Initial Payment Date”), the Company will (i) pay to Executive a lump sum amount equal to the sum of the Severance Benefits or Change in Control Severance Benefits that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Severance Benefits or Change in Control Severance Benefits had not been delayed pursuant to this Section 6.7 and (ii) commence paying the balance of the Severance Benefits or Change in Control Severance Benefits in accordance with the applicable payment schedule set forth in Section 6.1. No interest shall be due on any amounts deferred pursuant to this Section 6.7.

 

6.8         Notice; Effective Date of Termination.

 

(a)          Termination of Executive’s employment pursuant to this Agreement shall be effective on the earliest of:

 

(i)          immediately after the Company gives notice to Executive of Executive’s termination, with or without Cause, unless pursuant to Section 6.4(b)(vi) in which case thirty (30) days after notice if not cured or unless the Company specifies a later date, in which case, termination shall be effective as of such later date;

 

(ii)         immediately upon Executive’s death;

 

(iii)     ten (10) days after the Company gives notice to Executive of Executive’s termination on account of Executive’s Disability, unless the Company specifies a later date, in which case, termination shall be effective as of such later date, provided that Executive has not returned to the full-time performance of Executive’s duties prior to such date;

 

(iv)       ten (10) days after Executive gives written notice to the Company of Executive’s resignation not for Good Reason, provided that the Company may set a termination date at any time between the date of notice and the date of resignation, in which case Executive’s resignation shall be effective as of such other date. Executive will receive compensation through any required notice period; or

 

(v)        for a termination for Good Reason under Section 6.2(b), immediately upon Executive’s full satisfaction of the requirements of Section 6.2(b).

 

(b)         In the event notice of a termination under subsections (a)(i) and (iii) is given orally, at the other party’s request, the party giving notice must provide written confirmation of such notice within five (5) business days of the request in compliance with the requirement of Section 7.1 below. In the event of a termination for Cause, written confirmation shall specify the subsection(s) of the definition of Cause relied on to support the decision to terminate.

 

6.9        Cooperation With Company After Termination of Employment. Following termination of Executive’s employment for any reason, Executive shall fully cooperate with the Company in all matters relating to the winding up of Executive’s pending work including, but not limited to, any litigation in which the Company is involved, and the orderly transfer of any such pending work to such other executives as may be designated by the Company. The Company will reimburse Executive for reasonable out-of-pocket expenses Executive incurs in connection with any such cooperation (excluding forgone wages, salary, or other compensation) and will make reasonable efforts to accommodate Executive’s scheduling needs. The Parties further agree that no cooperation under this Section 6.9 shall be required after the six (6)-month anniversary of Executive’s termination date and any cooperation hereunder in excess of ten (10) hours per month after the one (1)-month anniversary of Executive’s termination date shall be compensated at an hourly cash rate to be agreed upon by Executive and the Company after the termination date.

 

6.10       Excise Tax Adjustment.

 

(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 Section, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then any such 280G Payment provided 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 this Section 6.10 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 that would not otherwise be subject to taxes pursuant to Section 409A, 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 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 shall be reduced (or eliminated) before Payments that are not deferred compensation within the meaning of Section 409A.

 

(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 transaction 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 transaction, the Company shall appoint a nationally recognized accounting or law firm to make the determinations required by this Section 6.10. 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 6.10(a) and the Internal Revenue Service determines thereafter that some portion of the Payment is subject to the Excise Tax, Executive agrees to promptly return to the Company a sufficient amount of the Payment (after reduction pursuant to clause (x) of Section 6.10(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 6.10(a), Executive shall have no obligation to return any portion of the Payment pursuant to the preceding sentence.

 

7.           General Provisions.

 

7.1        Notices. Any notices required hereunder to be in writing shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by electronic mail or confirmed facsimile if sent during normal business hours of the recipient, and if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the Company at its primary office location and to Executive at Executive’s address as listed on the Company payroll or to Executive’s Company-issued email address or Executive’s email address as listed in Company records, or at such other address as the Company or Executive may designate by ten (10) days’ advance written notice to the other.

 

7.2        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 invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

 

7.3       Survival. Provisions of this Agreement which by their terms must survive the termination of this Agreement in order to effectuate the intent of the parties will survive any such termination, whether by expiration of the term, termination of Executive’s employment, or otherwise, for such period as may be appropriate under the circumstances.

 

7.4        Waiver. If either party should waive any breach of any provisions of this Agreement, it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

 

7.5        Complete Agreement. This Agreement constitutes the entire agreement between Executive and the Company with regard to the subject matter hereof. This Agreement is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter and supersedes any prior oral discussions or written communications and agreements. This Agreement is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in writing signed by Executive and an authorized officer of the Company. The parties will enter into a separate Confidential Information Agreement and may enter into separate agreements related to equity. These separate agreements govern other aspects of the relationship between the parties, have or may have provisions that survive termination of Executive’s employment under this Agreement, may be amended or superseded by the parties without regard to this Agreement and are enforceable according to their terms without regard to the enforcement provision of this Agreement.

 

7.6       Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

 

7.7        Headings. The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

 

7.8         Successors and Assigns. The Company shall assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any Company or other entity with or into which the Company may hereafter merge or consolidate or to which the Company may transfer all or substantially all of its assets, if in any such case said Company or other entity shall by operation of law or expressly in writing assume all obligations of the Company hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. The Executive may not assign or transfer this Agreement or any rights or obligations hereunder, other than to the Executive’s estate upon Executive’s death.

 

7.9        Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of California.

 

7.10     Resolution of Disputes. To ensure the rapid and economical resolution of disputes that may arise in connection with Executive’s continued employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Executive’s employment with the Company, or the termination of Executive’s employment, shall be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. § 1-16, to the fullest extent permitted by law, by final, binding and confidential arbitration conducted by JAMS or its successor, under JAMS’ then applicable rules and procedures appropriate to the relief being sought (available upon request and also currently available at the following web addresses: (i) https://www.jamsadr.com/rules-employment-arbitration/ and (ii) https://www.jamsadr.com/rules-comprehensive-arbitration/). Executive acknowledges that by agreeing to this arbitration procedure, both Executive and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. In addition, all claims, disputes, or causes of action under this Section, whether by Executive or the Company, must be brought in an individual capacity, and shall not be brought as a plaintiff (or claimant) or class member in any purported class or representative proceeding, nor joined or consolidated with the claims of any other person or entity. The arbitrator may not consolidate the claims of more than one person or entity, and may not preside over any form of representative or class proceeding. To the extent that the preceding sentences regarding class claims or proceedings are found to violate applicable law or are otherwise found unenforceable, any claim(s) alleged or brought on behalf of a class shall proceed in a court of law rather than by arbitration. This Section shall not apply to any action or claim that cannot be subject to mandatory arbitration as a matter of law, including, without limitation, claims brought pursuant to the California Private Attorneys General Act of 2004, as amended, the California Fair Employment and Housing Act, as amended, and the California Labor Code, as amended, or claims alleging sexual harassment or a nonconsensual sexual action or sexual contact, to the extent such claims are not permitted by applicable law(s) to be submitted to mandatory arbitration and the applicable law(s) are not preempted by the Federal Arbitration Act or otherwise invalid (collectively, the “Excluded Claims”). In the event Executive intends to bring multiple claims, including one of the Excluded Claims listed above, the Excluded Claims may be filed with a court, while any other claims will remain subject to mandatory arbitration. Executive will have the right to be represented by legal counsel at any arbitration proceeding. Questions of whether a claim is subject to arbitration under this Agreement shall be decided by the arbitrator. Likewise, procedural questions which grow out of the dispute and bear on the final disposition are also matters for the arbitrator. The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. The arbitrator shall be authorized to award all relief that Executive or the Company would be entitled to seek in a court of law. Executive and the Company shall equally share all JAMS’ arbitration fees, or such fees shall be paid in such other manner to the extent required by, and in accordance with, applicable law to effectuate Executive’s and the Company’s agreement to arbitrate. To the extent JAMS does not collect or Executive otherwise does not pay to JAMS an equal share of all JAMS’ arbitration fees for any reason, and the Company pays JAMS Executive’s share, Executive acknowledges and agrees that the Company shall be entitled to recover from Executive half of the JAMS arbitration fees invoiced to the parties (less any amounts Executive paid to JAMS) in a federal or state court of competent jurisdiction. Each party is responsible for its own attorneys’ fees, except as expressly set forth in the Confidential Information Agreement. Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.

 

[signatures to follow on next page]

 

In Witness Whereof, the parties have executed this Employment Agreement on the day and year first written above.

Exhibit A

 

employee confidential information and inventions assignment agreement

 

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