Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 1 of 38 PageID: 725 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY THE HERTZ CORPORATION and HERTZ GLOBAL HOLDINGS, INC., Case No.: 2:19-cv-08927 Plaintiffs, Hon. Esther Salas, U.S.D.J. Hon. Cathy L. Waldor, U.S.M.J. v. MARK FRISSORA, ELYSE DOUGLAS, and JOHN JEFFREY ZIMMERMAN, Civil Action Defendants. FIRST AMENDED COMPLAINT AND JURY DEMAND Plaintiffs The Hertz Corporation (“Hertz Corp.”) and Hertz Global Holdings, Inc. (“Hertz Holdings,” and together with Hertz Corp., the “Company,” “Hertz,” or “Plaintiffs”), by and through their undersigned counsel of record, hereby sue Defendants Mark Frissora (“Frissora”), Elyse Douglas (“Douglas”), and John Jeffrey Zimmerman (“Zimmerman”), and allege as follows. NATURE OF THE ACTION 1. Hertz brings this action, pursuant to Hertz’s 2010 and 2014 Compensation Recovery Policies (the “ClawBack Policies”), to recover, inter alia, approximately $70 million in incentive compensation paid to Defendants as a result of inappropriately inflated net pre-tax income publicly reported for its 2011, 2012, and 2013 fiscal years, causing the necessity of a restatement of the financial statements for those years (the “Restatement” or “Restatement Period”), as well as certain other damages suffered. The Compensation Committees of Hertz’s 1 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 2 of 38 PageID: 726 board of directors have made a good-faith determination that the Restatement was triggered by the gross negligence and misconduct of Hertz’s senior executive officers, the Defendants – that is, the very people entrusted with safeguarding the Company’s financial standing – and this lawsuit is triggered by, their subsequent refusal to honor the terms of the ClawBack Policies, and certain incentive compensation agreements, and return the incentive compensation paid to them. 2. As indicated above, under the 2010 ClawBack Policy – which was expressly incorporated into various compensation agreements Defendants entered with the Company, as well as expressly incorporated into Hertz’s Standards of Business Conduct in 2009,1 and which policy (and the amended version in 2014) were otherwise well known and agreed to by them – Defendants are now required to forfeit their unjustly received incentive pay, together with severance that was paid to Defendants, having specifically promised to do so in the event that Hertz’s Compensation Committees made a formal, good-faith determination that Defendants’ mismanagement caused or contributed to the Restatement of the financial results upon which those payments were based. The Compensation Committees made such a determination on February 11, 2019. The ClawBack Policies expressly state that such a determination is “final, conclusive and binding on all persons . . . and employees[.]” 1 As indicated in Hertz’s November 16, 2009 S.E.C. Form 8-K filing – which was signed by Douglas – Hertz’s board approved on November 12, 2009 “an amended and restated Standards of Business Conduct (the “Code”) applicable to its employees, including its Chief Executive Officer, Chief Financial Officer and Controller,” which was “revised to include a “claw back” policy for all annual incentive, long-term incentive, equity-based awards and other performancebased compensation arrangements, effective January 1, 2010 . . .” and “[t]he full text of the revised Code ha[d] been posted on the “Investor Relations – Corporate Governance – Overview” portion of the Company’s website at www.hertz.com.” More specifically, the incorporated ClawBack policy provisions appeared in the revised Standards of Business Conduct’s section “N,” which was titled “Compensation Recovery Policy.” 2 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 3 of 38 PageID: 727 3. In addition, Hertz also seeks (i) damages of more than $200 million suffered because of the inappropriately inflated net pre-tax income from its 2011, 2012, and 2013 fiscal years, the proximate result of the Defendants’ wrongful conduct, and the direct, natural and otherwise foreseeable consequence of which was a lengthy and costly investigation by the Securities Exchange Commission, additional significant fees paid to Hertz’s accountants, defense of class and derivative suits by shareholders, and substantial damage to Hertz’s business, and (ii) damages resulting from Frissora’s and Zimmerman’s breaches of their respective separation agreements with the Company. SUMMARY OF DEFENDANTS’ WRONGFUL CONDUCT: THE BASIS FOR THE COMPENSATION COMMITTEE’S GOOD FAITH, AND BINDING, DETERMINATION 4. As concerns Hertz’s claims pursuant to its ClawBack Policies, the allegations of Defendants’ gross negligence and other misconduct, as set forth in this Complaint, reflect, and present the context underlying, the good-faith findings and binding determination of Hertz’s duly established and authorized Compensation Committees, which were acting in the best interests of the Company and its shareholders and pursuant to Hertz’s contractual rights under the ClawBack Policies. 5. Defendants’ gross negligence and other misconduct manifested itself in “an inconsistent and inappropriate tone at the top,” as Hertz disclosed to its shareholders in the Restatement. In particular, Defendant Frissora, Hertz’s Chief Executive Officer (“CEO”), during fiscal years 2011, 2012, and 2013, displayed a management style and temperament that created a pressurized operating environment at the company, where there was an inappropriate emphasis on meeting internal budgets, business plans, and current estimates, which resulted in an environment which the Compensation Committees has determined led to inappropriate 3 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 4 of 38 PageID: 728 accounting decisions and the failure to disclose information critical to an effective review of Hertz’s finances. 6. Upon learning that Hertz might miss a financial target, Frissora would demand mandatory team-wide calls and continuous weekend meetings, and would repeatedly berate subordinates who did not come up with a sufficient number of “paradigm-busting” accounting strategies to fill the gaps between Hertz’s actual and expected performance, accusing them of not being team players if they would not play his game. Defendants Douglas and Zimmerman— Frissora’s right-hand subordinates who were entrusted with effectuating his orders—failed to stop, effectively counterbalance, or otherwise offset or report to Hertz’s board of directors (herein, the “Board”) Frissora’s inappropriately forceful tone, in breach of their duties owed to Hertz. 7. Defendants’ wrongful “tone at the top” was a form of misconduct and gross negligence because it exacerbated various risk factors, among which were: a. Defendants collectively employed or otherwise acquiesced in aggressive accounting to meet growth targets at a time when Hertz did not have a sufficient complement of personnel with an appropriate level of knowledge, experience, and training commensurate with its financial reporting requirements to ensure proper selection and application of Generally Accepted Accounting Principles (“GAAP”). b. Several major corporate endeavors were initiated by Frissora and supported by the other Defendants, including (i) Hertz’s complex integration with Dollar Thrifty Automotive Group Inc. (“Dollar Thrifty”), a large competitor Hertz acquired in 2012, and its related divestiture of one of its subsidiaries; and (ii) Hertz’s and Dollar Thrifty’s ill-timed respective relocations from their prior headquarters to a new consolidated headquarters in Lee 4 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 5 of 38 PageID: 729 County, Florida, driven by Frissora, which resulted in the departure of more than half of Hertz’s corporate office personnel. Each of these major transitions further strained Hertz’s internal controls. Frissora, with the support of the other Defendants, nonetheless placed enormous pressure on Hertz’s already-taxed internal controls while they were dealing with the impact of these major corporate initiatives. Moreover, Frissora was wrongfully fixated on maximizing short-term profits at the expense of long-term objectives, the result of which he knew would boost his incentive compensation but, among other things, thereby degrading Hertz’s fleet and damaging customer relationships. c. The above-described corporate endeavors were implemented by Frissora through a distracting mix of multiple, conflicting business initiatives, and a system of colliding reporting structures, reporting lines, and decisional authority responsibilities. When combined with the pressurized operating environment set from the top down by Frissora, these created the climate in which multiple financial errors predictably occurred. d. Defendants significantly compromised the Company’s long-term security by pushing a counterproductive aggressive agenda, doing so despite knowing full well that Hertz was in a difficult and taxing period of corporate upheaval that strained the Company’s alreadyinadequate internal controls. THE PARTIES 8. Hertz Global Holdings, Inc. is a Delaware corporation with its principal place of business at 8501 Williams Road, Estero, Florida. Prior to 2014, Hertz Holdings’ nerve center and principal place of business was in Park Ridge, New Jersey. Hertz Holdings is the parent corporation of Plaintiff Hertz Corporation. 5 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 6 of 38 PageID: 730 9. The Hertz Corporation is a Delaware corporation with its principal place of business in 8501 Williams Road, Estero, Florida. Hertz Corp. retains an office in New Jersey and is a subsidiary of Hertz Holdings and operates the Hertz, Dollar, Thrifty, and Firefly vehicle rental brands, along with approximately 11,500 corporate and franchisee locations throughout North America, Central America, South America, Europe, Africa, the Middle East, Asia, Australia, and New Zealand. 10. Mark Frissora is an individual who, upon information and belief, is domiciled in a state other than Florida or Delaware. From July 2006 until his resignation on September 8, 2014, Frissora served as Board Chairman and CEO of Hertz Corp. and Hertz Holdings. 11. Elyse Douglas is an individual who, upon information and belief, is domiciled in a state other than Florida or Delaware. Douglas was employed by Hertz from July 2006 until December 2013. She served as Senior Vice President and Treasurer from July 2006 to September 2007, and as Executive Vice President and CFO from October 2007 until her resignation on September 23, 2013. Douglas continued to work for Hertz after her resignation, finally departing the Company on December 31, 2013. 12. John Jeffrey Zimmerman is an individual who, upon information and belief, is domiciled in a state other than Florida or Delaware. Zimmerman served as Executive Vice President, General Counsel, and Secretary of Hertz from December 2007 until his resignation in December 2014. JURISDICTION AND VENUE 13. This Court has subject-matter jurisdiction over the causes of action stated herein pursuant to 28 U.S.C. § 1332(a)(1) because there is complete diversity of citizenship and Plaintiffs seek to recover damages in excess of $75,000. Plaintiffs are Delaware corporations 6 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 7 of 38 PageID: 731 with their principal places of business in the state of Florida; Defendants are domiciled in states other than Florida or Delaware. 14. Venue is appropriate in this Court pursuant to 28 U.S.C. § 1391(b)(2) because a substantial part of the events or omissions giving rise to the claims in this complaint occurred in this District, wherein Plaintiffs were headquartered during the great majority of the alleged wrongdoing and where Plaintiffs continue to maintain a key corporate office. 15. This Court has personal jurisdiction over each of the Defendants pursuant to Federal Rule of Civil Procedure 4(k) and New Jersey’s long arm statute. Defendants carried on business in the state of New Jersey for Hertz and engaged in gross negligence and other misconduct in New Jersey, as alleged herein. ALLEGATIONS I. BACKGROUND 16. Hertz and its predecessor corporations have been in the truck and car rental and leasing business since 1918, and in the equipment rental business since 1965. 17. At all relevant times, the Defendants, agreed to comply with, and each was otherwise subject to, Hertz’s Standards of Business Conduct (the “Standards”), which not only expressly incorporated Hertz’s 2010 ClawBack Policy, but outlines the Company’s general standards for the ethical and lawful conduct of its business, and imposes on each employee an individual obligation and responsibility to comply with both the intent and the literal terms of the policy. Besides requiring that employees not violate the law or the Company’s ethical standards, the Standards also requires, among other things, that an employee report when another employee has violated the law or the Company’s ethical standards, and required employees like Defendants to provide each year a certification concerning compliance and to disclose any potential violations of law. 7 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 8 of 38 PageID: 732 18. In July 2010, Hertz began what would become a years-long effort to acquire Dollar Thrifty, one of the larger rental car companies in the United States at the time. Hertz faced stiff competition from Avis Rent a Car—one of Hertz’s direct competitors in the United States rental car market (along with Enterprise Rent-A-Car)—to acquire Dollar Thrifty. 19. Dollar Thrifty targeted customers in the mid-market and budget-conscious ends of the rental car market, offering a larger variety of bargain rentals. In an effort to penetrate the bargain rental market, Hertz had previously acquired a subsidiary known as Advantage Rent a Car. However, in December of 2012, after defeating Avis’s competing bids and completing its acquisition of Dollar Thrifty, Hertz divested itself of Advantage, which was eventually acquired by Catalyst Capital Group. 20. From July 2010 through the Restatement Period, Hertz was in a period of enormous institutional changes related to the acquisition of Dollar Thrifty, the integration of Hertz’s and Dollar Thrifty’s operations, the acquisition and divestiture of Advantage, and, later, the relocation of Hertz and Dollar Thrifty to a new consolidated headquarters in Lee County, Florida and the attendant departure of more than half of Hertz’s corporate personnel (among other things). 21. During the Restatement Period, a majority of Hertz’s directors and senior management officials were hired and/or promoted at Frissora’s urging. Defendants Douglas and Zimmerman were no exceptions. II. SUMMARY OF DEFENDANTS’ RESPONSIBILITIES AND INCENTIVE COMPENSATION 22. Mark Frissora: Mark Frissora was hired as Hertz’s Board Chairman and CEO in 8 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 9 of 38 PageID: 733 July 2006, shortly before Hertz’s initial public offering. Frissora presided over Hertz during a period of rapid expansion and tumultuous upheaval, including in the acquisition of Dollar Thrifty and the relocation of Hertz’s headquarters from Park Ridge, New Jersey to Lee County, Florida. a. As CEO, Frissora was Hertz’s highest-ranking executive. In his capacity as CEO, Frissora was primarily responsible for managing Hertz’s day-to-day operations, and guided the Company’s major decisions, including the acquisition of Dollar Thrifty, the transition to a new accounting system, and the decision in 2013 to relocate Hertz’s headquarters to Lee County, Florida. Moreover, Frissora was responsible for setting Hertz’s vision and tone, and was the Company’s most prominent business figure during the Restatement Period. Thus, it was ultimately his responsibility to ensure Hertz was adequately mitigating its financial risks. And, as CEO, he presented Hertz’s financials to the Board. b. As Hertz’s senior-most officer, his vision for Hertz during the Restatement Period was implemented on a day-to-day basis through his subordinates, including Defendants Douglas, then the Chief Financial Officer (“CFO”), and Zimmerman, then the General Counsel (“GC”). Frissora took direct and intimidating and/or demeaning steps to instill an aggressively pro-growth culture within Hertz. Many of Frissora’s subordinates believed that his aggressive attitude placed tremendous and inappropriate pressure on his subordinates to meet financial targets. c. Frissora was very well compensated for his work as Hertz’s CEO. In addition to his base salary (which averaged approximately $1.3 million annually during the Restatement Period), and several valuable perquisites (including the use of company aircraft and cars), Frissora received several forms of incentive-based compensation tied to Hertz’s growth and earnings. Frissora’s incentive pay included stock awards, option awards, non-equity 9 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 10 of 38 PageID: 734 incentive plan compensation, a well-funded pension, and other forms of valuable annual and deferred compensation. d. All told, Frissora received millions from Hertz in incentive compensation during the Restatement Period and additional compensation upon his resignation, which he expressly agreed to be treated as incentive compensation (under the Company’s ClawBack Policy then in effect). 23. Elyse Douglas: Elyse Douglas was hired as Hertz’s Senior Vice President and Treasurer in July 2006, at the same time Frissora was hired as CEO. She was quickly promoted to CFO in October 2007. a. Douglas’ responsibilities as CFO included supervising the presentation and reporting of Hertz’s financial information to government agencies and shareholders, overseeing Hertz’s capital structure and investments, and working with various consultants and other stakeholders to identify areas of growth for the Company. Moreover, as Hertz’s CFO, Douglas presented Hertz’s financials to the Board. b. Douglas was Frissora’s right-hand fellow executive during the Restatement Period. She was hired at the same time as Frissora, just before Hertz’s November 2006 initial public offering, and Frissora quickly promoted her to CFO less than a year later. She played key roles implementing the major corporate changes Hertz underwent during the Restatement Period, including the Dollar Thrifty merger and the transition to a new accounting system. c. Douglas also worked hand-in-hand with Frissora in ensuring the Company met its aggressive targets for growth. As CFO, she was primarily responsible for, and had direct oversight of, Hertz’s financial review processes and ensuring Hertz was adequately mitigating 10 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 11 of 38 PageID: 735 financial risks. Her reports were also responsible for approving Hertz’s accounting changes and methodologies. Yet, she consistently deferred to Frissora and wrongfully failed to counterbalance the obvious pressure he was putting on subordinates to meet financial targets – even if it meant using questionable accounting methodologies. Nor did Douglas fulfill her obligation to inform the Audit Committee or the Board of any of that misconduct. d. Like Frissora, Douglas received a large base salary, several valuable perquisites, and many forms of incentive-based compensation tied to Hertz’s growth and earnings and additional compensation upon resignation. 24. John Jeffrey Zimmerman: During the Restatement Period, Zimmerman served as Hertz’s Executive Vice President, General Counsel, and Secretary. a. As Hertz’s General Counsel, Zimmerman was charged with ensuring that Hertz, its officers, and its employees acted lawfully and consistently with their duties and obligations. Moreover, Zimmerman had the responsibility to ensure that the Company remained compliant with its reporting obligations to various government agencies and to shareholders, that it did not breach any covenants made to third parties including outside lenders, and that the Board and relevant committees would be kept fully informed of all material matters. b. As General Counsel, Zimmerman was well aware of various governance, accounting and financial weaknesses. For example, he was aware of possible improper payments to Brazilian government officials, but failed to disclose what he knew to the Board. c. Moreover, Zimmerman was aware of weaknesses within the finance and accounting organizations, pressures on those organizations, and certain accounting changes or requests for changes. For example, during the January 2013 close, Frissora urged Zimmerman to conduct a granular review of the legal reserves to help the Company “bridge the gap” for year- 11 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 12 of 38 PageID: 736 end results. Then, in September 2013, Frissora again urged Zimmerman to review legal reserves to help close the quarter, saying he was “interested in taking things to trial where we have a better than 50-50 shot and reversing the settlement accrual.” d. As General Counsel and chief compliance officer, Zimmerman was responsible for ensuring the accuracy and completeness of disclosures to stockholders and the public. e. Zimmerman’s compensation reflected the importance of his responsibilities. He received a large base salary, several valuable perquisites, and many forms of incentive-based compensation tied to Hertz’s growth and earnings. In addition, Zimmerman received additional compensation when he resigned, which he expressly agreed would be treated as incentive compensation (under the Company’s ClawBack Policy then in effect). III. OTHER KEY SENIOR EXECUTIVES 25. Scott Sider: Sider served as Hertz’s Group President for Rent-A-Car Americas (“RAC Americas”) during the Restatement Period. RAC Americas refers to the core of Hertz’s business model: the renting of passenger vehicles within the United States. 26. As Group President for RAC Americas, Sider was primarily responsible for the day-to-day operations of Hertz’s core business – Hertz’s passenger rentals within the United States. As such, he was frequently in direct contact with Frissora. 27. Jatindar Kapur: Kapur served as Hertz’s Senior Vice President of Finance and Corporate Controller during the Restatement Period. 28. Kapur’s responsibilities as Hertz’s Corporate Controller and V.P. for Finance included directly supervising (alongside Defendant Douglas) Hertz’s financials, the Company’s “closing” of various accounting periods—in which the numbers are finalized before financial 12 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 13 of 38 PageID: 737 reports are completed—and overseeing Hertz’s efforts to resolve and document accounting issues, financial risks, and other potential problems. IV. DEFENDANTS’ GROSS NEGLIGENCE AND MISCONDUCT UNDERLYING THE COMPENSATION COMMITTEE’S GOOD FAITH DETERMINATION AND CLAWBACK DEMANDS 29. Pursuant to the ClawBack Policies, Hertz’s Compensation Committees made a good-faith determination that certain misconduct and gross negligence of Defendants caused or contributed to the Restatement of the financial results upon which certain of their incentive compensation payments were based – which determination was final, conclusive and binding on each of the Defendants under the express terms of those policies, which Defendants’ had agreed to as Hertz employees. Although not necessary to sufficiently plead Hertz’s breach of contract claims that are based on the ClawBack Policies, the allegations which follow below illustrate certain of the misconduct of the Defendants which underlay, and otherwise provide context for, the Compensation Committee’s good faith (and binding) determination that such compensation be returned to the Company, per its ClawBack Policies and other agreements with them. In addition, the misconduct described in those allegations also comprise Defendants’ breaches of Hertz’s Standards, which demands from its employees, inter alia, integrity and ethical and lawful conduct of its business, including honest, accurate and fair books, records and accounting and the disclosure of misconduct. A. Defendants Materially Weaken Hertz’s Internal Controls 30. Hertz’s size and complexity—both before and after the Dollar Thrifty acquisition meant that the Company needed to have strong internal controls to prevent mismanagement and faulty accounting practices from slipping through the cracks. 31. However, during the Restatement Period, Hertz suffered from numerous material 13 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 14 of 38 PageID: 738 deficiencies in internal controls that Defendants were aware of yet failed to correct. These deficiencies predictably made it inevitable that Frissora’s unchallenged aggressive push for profits would result in financial misstatements. These deficiencies included, but are not limited to: (a) inappropriate tone at the top; (b) insufficient personnel with a lack of training, knowledge, and experience commensurate with financial reporting requirements; (c) lack of organizational structure; (d) ineffectively designed controls over non-fleet procurement process; (e) ineffectively designed controls over accounting estimates; (f) ineffectively designed controls over the review, approval, and documentation of manual journal entries; (g) ineffective controls over GAAP policies and procedures; (h) ineffective controls in response to the risks of material misstatement; (i) insufficient controls over the preparation, analysis, and review of significant account reconciliations and closing adjustments; (j) ineffective process for internal communication between accounting and other departments within the business; and (k) ineffective internal audit function. 32. More specifically, Defendant Douglas, Hertz’s CFO, had minimal experience as the Company’s Treasurer before her promotion to CFO. Her subordinates similarly lacked experience in GAAP, including Hertz’s head of internal finance services. 33. Frissora was also aware of these deficiencies. He not only hired and promoted Douglas but received frequent Human Resources summaries as CEO, which informed him about “the general environment in Finance,” where employees were “overworked,” suffered from “a lack of communication,” and were beset by other significant concerns. 34. These personnel risk factors were exacerbated by two other powerful factors: (a) the departure of a substantial number of personnel when Hertz began its ill-timed relocation of its operations in Lee County, Florida (reducing the size of its Park Ridge, New Jersey offices); 14 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 15 of 38 PageID: 739 and (b) the early retirement of a substantial number of senior personnel in 2011 and 2012 under Hertz’s early retirement program. 35. Ultimately, throughout the Restatement Period, during which Defendants sought the review of an enormous number of major accounting changes, Hertz lacked appropriately trained accounting review personnel throughout its corporate structure. This deficiency was the result of Defendants’ effort to aggressively cut costs, which resulted in reduced head-count for their financial review teams and contributed to Hertz’s inability to hire appropriately qualified, GAAP-trained accounting personnel. 36. Moreover, Hertz’s financial review team was under substantial strain during the Restatement Period, during which Hertz underwent a series of corporate changes including the acquisition of, and integration with, Dollar Thrifty, the acquisition and divestiture of Advantage, the dislocation and employee turnover caused by the Company’s relocation to Lee County, Florida beginning in May 2013, and the expansion of Hertz’s retail car sales outlets. 37. The deficiencies associated with Hertz’s under-qualified and overtaxed review team were compounded by Hertz’s lack of a centralized accounting system during the Restatement Period, a substantial number of critical accounting decisions were left to the subjective judgments of accounting personnel, exacerbating existing control deficiencies. 38. Rather than delay the integration of the new accounting system, or otherwise ensure that the existing control deficiencies were not so exacerbated, Defendants chose to push for major changes in its accounting processes at precisely the same time Hertz underwent the major, complicated corporate changes discussed above. Doing so further strained Hertz’s internal controls. 39. On top of the foregoing control deficiencies, Hertz suffered throughout the 15 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 16 of 38 PageID: 740 Restatement Period from a lack of overall clarity regarding which departments were actually responsible for accounting changes, judgments, and policies. Hertz had Finance Shared Services personnel in Oklahoma City, Divisional and Fleet Accounting personnel in different countries and business units, accountants working in the Corporate Controller office, and finance business partners. There were frequent issues with authority and jurisdiction between these groups, which Defendants failed to correct. Chain-of-command issues contributed to several of the accounting errors that lead to the Restatement, as several critical changes were not appropriately vetted. Moreover, it enabled various stakeholders, including Defendants, to point fingers at others rather than accept responsibility for errors. 40. Moreover, Defendant Douglas’ poor managerial style failed to remediate these overlapping command hierarchies. As Frissora learned from Human Resources managers within Hertz and then wrote in an e-mail that “[t]he communication within [Hertz’s finance department] is not good,” because “several different directives are relayed by Elyse’s lieutenants after a staff meeting . . . and those directives are often diametrically opposed. This leads to frustration as the staff is forced to do multiple tasks knowing most of them are in vain. Requests for clarification from the staff to her direct reports are often unanswered and there is a fear to go to Elyse directly because of the potential ramifications of going over a direct supervisor’s head. In fact, most feel they are always on the ‘firing line.’ The culture is generally fear based. The staff does not like being in meetings with Elyse or their direct supervisors as the meetings tend to lead to fits of yelling.” [Emphasis added.] 41. As a result of Defendants’ poor management, Hertz’s financial review personnel were “bordering on burn out (if not already there)” because “[c]communication [was] not good,” and “[m]orale [was] not good.” Indeed, Hertz’s Human Resources personnel noted that the financial review teams “fe[lt] the current work processes [were] flawed,” and that they were 16 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 17 of 38 PageID: 741 “penalized for asking questions.” Defendants plowed forward with their aggressive cost-cutting agenda despite knowing the extent of these risk factors. 42. Ultimately, Defendants, the Company’s senior-most officers, were responsible for streamlining its hierarchy and ensuring the appropriate review of accounting changes. Their failure to do so constituted gross negligence and misconduct contributed to the need for the Restatement. 43. All told, Defendants caused, and contributed to the worsening of, each of the foregoing deficiencies by and through their gross negligence and misconduct. 44. The aggressive tone and the deficiencies described above “reached a boiling point” during the Restatement Period, in the words of one Hertz employee, who noted that there was tremendous “pressure” being applied (particularly by Frissora) to improve numbers and that it had placed incredible strain on his review team. Thus, Frissora’s decision, acquiesced in by the other Defendants, to keep pushing for aggressive cost-cutting measures—despite their direct contributions to the foregoing deficiencies—crossed the line into gross negligence and misconduct during the Restatement Period. B. Accounting Wrongdoing Caused or Contributed to by Defendants 1. Tone at the Top 45. In significant part, the accounting errors and need for the Restatement were due to the inappropriate “tone at the top,” which misconduct precipitated Defendants’ grossly negligent mismanagement of the Company. The following examples are illustrative of the inappropriate “tone at the top” set by Frissora, which Douglas and Zimmerman fueled and/or failed to counterbalance or otherwise challenge. 17 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 18 of 38 PageID: 742 a. Frissora would, on a consistent basis, aggressively seek “opportunities” to increase earnings and promote eleventh hour (near the close of a financial reporting period) efforts to “close the gap.” b. One such change—later identified in the Restatement—was to extend the amortization period on Hertz’s vehicles. Such a change would permit Hertz to spread out costs of the vehicles in its fleet, reducing monthly expenses by dividing the total amount of depreciation over a longer period of time. In particular, Defendants’ subordinates zeroed in on increasing the amortization period for vehicle registration and title fees as a way of quickly cutting costs. c. One challenge with establishing amortization periods for vehicle registration and license fees is that the period can be different in each U.S. state or municipality, and it was difficult to obtain information on a car-by-car or jurisdiction-by-jurisdiction basis for vehicle licenses and registrations. Hertz therefore used estimates for amortization periods. At the beginning of the Restatement Period, the amortization period was 16 months. d. However, Hertz’s accounting personnel were unable to obtain data to develop sufficient documentation of the basis for extending the depreciation period on vehicle license and registration fees. e. Nonetheless, the vehicle license and registration period extension was sent directly to Douglas as a way to “bridge” Hertz’s financial gap. Hertz ultimately extended the amortization period to 18 months, cutting $1.5 million in costs from their books. f. Frissora initiated a related change, to wit, retaining existing vehicles for longer periods of time. This change would result in short-term savings—for example, by extending the planned holding period for the vehicles, losses could be deferred in what was a 18 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 19 of 38 PageID: 743 declining market. Moreover, the strategy came with adverse long-term costs, including a reputational cost because Hertz’s customers expected cars to be newer, lower-mileage vehicles. The decision to shift a greater percentage of Hertz’s fleet into a longer planned holding period would result in not only lower depreciation rates, but also lower customer satisfaction. However, Defendants approved the change in planned holding periods for parts of the fleet despite these risks. g. These and other financial and accounting changes were promoted and approved by Douglas with the active consent and encouragement of Frissora and the grossly negligent failure of Zimmerman to inform the Board and take corrective action. 2. Defendants’ Misconduct and Gross Negligence Necessitated The Restatement Of More Than $200 Million In Hertz’s Pre-Tax Income 46. In or about November 2014, the Company, with the advice of its outside auditors, determined that a restatement of its financials from fiscal years 2011, 2012, and 2013 would be needed. a. The Restatement, filed with the SEC on July 16, 2015, disclosed that the “material weaknesses” in the Company’s internal controls—which were caused and/or exacerbated by Defendants’ mismanagement—“resulted in certain instances of inappropriate accounting decisions and inappropriate changes in accounting methodology,” and that, in particular, Hertz had not “design[ed] effective controls over . . . period-end financial reporting processes,” such as the “closing adjustments[.]” [Emphasis added.] b. Hertz (with the assistance of its outside auditor) concluded that its “incorrect accounting was caused by the foregoing control deficiencies, along with a complex mix of structural and environmental factors,” which explicitly included: (i) “the tone set and pressures imposed by our former Chief Executive Officer, which . . . may have been a 19 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 20 of 38 PageID: 744 factor influencing one or more employees to record an accounting entry now determined to be improper; (ii) “the overall historic accounting environment” within Hertz; and (iii) “the distraction caused by the multiple, conflicting business initiatives; challenges related to managing complex, inefficient legacy systems; the lack of a sufficient complement of personnel with an appropriate knowledge, experience, and training with GAAP; [and] unclear reporting structures.” [Emphasis added.] c. Defendants were responsible not only for Hertz’s material control deficiencies but for the inappropriate “tone at the top;” failing to ameliorate Hertz’s “accounting environment,” which was beset with personnel problems and poor morale; imposing the distraction of “multiple, conflicting business initiatives;” and the distraction caused by the enormous corporate upheaval Hertz underwent during the Restatement Period. “As a result of the foregoing . . . [Hertz] restated [its] financial statements for the years ended December 31, 2012 and 2013,” and “restated unaudited selected financial data for the year ended December 31, 2011.” 47. All told, the Company’s July 16, 2015 Restatement identified accounting errors, broken into six broad categories: (a) reserve accounts, (b) fleet adjustments, (c) fixed asset adjustments, (d) Brazil issues, (e) improper accounting reclassifications, and (f) other adjustments. In the end, “[t]he cumulative impact of the . . . misstatements . . . was approximately a $349 million in pre-tax income and $231 million reduction in net income.” [Emphasis added.] 48. The plethora of accounting errors are described in detail in Hertz’s Form 10-K filing for year ended December 31, 2014, an excerpt from which is attached to this Complaint as Exhibit 1. 20 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 21 of 38 PageID: 745 49. In addition, after a lengthy investigation, the SEC issued an “Order Instituting Cease-And-Desist Proceedings Pursuant To Section Sa Of The Securities Act Of 1933 And Section 21c Of The Securities Exchange Act Of 1934, Making Findings, And Imposing A Cease And Desist Order” (“SEC Order”), which among other things, sets forth findings of the SEC regarding the accounting errors, which caused the necessity of the Restatement. Those accounting errors were caused or contributed to by the gross negligence and misconduct of each of the Defendants. The SEC Order is attached to this Complaint as Exhibit 2 and incorporated by reference in these allegations. V. DEFENDANTS’ RESIGNATIONS AND RELATED AGREEMENTS 50. Defendant Douglas: The first of the Defendants to resign was Douglas, whose formal resignation was to be effective on October 1, 2013. However, Douglas continued her work for the Company until December 31, 2013, including work related to the Company’s financial statements for the third and fourth quarters of 2013, and the lead-up to the auditing of its fiscal year 2013 financials. 51. Upon Douglas’ resignation, she and Hertz entered into a Separation Agreement on or about September 23, 2013. The Separation Agreement provided certain severance and related benefits (the “Golden Parachute”). 52. Defendant Frissora: Shortly after the Audit Committee directed its first internal review of Hertz’s financials, and as the Company began investigating the mismanagement that would ultimately lead to the Restatement, Frissora tendered his resignation on September 8, 2014. Shortly before his resignation, the SEC informed Hertz in June 2014 that its financials were under investigation. 53. Upon Frissora’s resignation, he and Hertz entered into a Separation Agreement, 21 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 22 of 38 PageID: 746 which provided him with a Golden Parachute. 54. Frissora’s Golden Parachute included, inter alia, a single lump-sum payment, the retention of certain incentive-based equity awards, eligibility for 68% of his 2014 bonus, and the continued use of certain perquisites such as car privileges and insurance coverage. 55. Defendant Zimmerman: The last of the Defendants to resign their position in the Company was Zimmerman, who resigned on December 5, 2014, shortly after the Audit Committee concluded that a formal restatement would be necessary, and informed Hertz’s shareholders of the same. 56. Upon Zimmerman’s resignation, he and Hertz entered into a Separation Agreement, which provided him with a Golden Parachute. Zimmerman’s Golden Parachute included, inter alia, a series of lump-sum payments the retention of certain incentive-based equity awards, eligibility for 92.9% of his 2014 bonus, and the continued use of certain perquisites such as insurance coverage. VI. DAMAGES 57. As a result of Defendants’ wrongful refusal to return the compensation demanded of them pursuant to the ClawBack Policies, Hertz has been damaged in the amount of, at a minimum, the amounts demanded and not returned and the time-value loss of such monies paid, as further described below. In addition, as a result of Defendants’ prior, underlying misconduct and grossly negligent mismanagement of Hertz, in breach of their contractual obligations under the Company’s Standards, the Company predictably suffered four significant additional direct, natural and otherwise foreseeable consequences beyond the stark decrease in the public value of the Company and the impact on Hertz’s reputation with customers and the investing public. Those negative consequences were: (1) the impact of several securities class-action lawsuits filed against Hertz; (2) the costs of investigating and defending against multiple shareholder derivative 22 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 23 of 38 PageID: 747 demands, one of which has resulted in ongoing litigation; (3) the effect of four separate federal and state government investigations; and (4) the cost to Hertz to remedy the continuing impact of Defendants’ prior misconduct and (grossly negligent) mismanagement, including increased costs of financing and capital. 58. Securities Lawsuits: On November 20, 2013, the action styled Ramirez, Jr. v. Hertz Global Holdings, Inc. et al.—the first action filed in connection with certain consolidated securities cases filed against Hertz (herein, “Ramirez”)—was commenced against Hertz, Frissora, and Douglas. Ramirez was a class-action lawsuit on behalf of investors who held shares in Hertz during a period including the Restatement Period. The class-action plaintiffs alleged that Hertz and the individual defendants made material misstatements about the Company’s financial wellbeing and its internal controls. The class-action plaintiffs sought the recovery of hundreds of millions of dollars in damages. 59. Over the course of Hertz’s successful legal defense against the plaintiffs’ claims, five separate complaints were withdrawn or dismissed in Ramirez. On April 27, 2017, Hertz secured a final dismissal with prejudice of the plaintiffs’ claims. That final dismissal was later affirmed by the U.S. Court of Appeals for the Third Circuit on September 20, 2018. However, the Ramirez plaintiffs have recently filed a motion seeking relief from the dismissal order based on the SEC findings appearing in the SEC Order, in conjunction with a settlement, pursuant to which Hertz paid a $16 million settlement to the SEC. 60. Hertz’s thus-far-successful legal defense came, of course, at significant expense— more than $25 million—because of Defendants’ gross negligence and misconduct, as aforesaid. 61. Shareholder Derivative Demands: As a result of Defendants’ wrongdoing in 23 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 24 of 38 PageID: 748 breach of the Standards, Hertz’s Board received books and records and derivative demands from multiple shareholders. Hertz incurred legal fees as a result of its document productions, investigations, and responses to these demands. 62. Hertz and its Board complied with all applicable duties in investigating and responding to the demands. 63. One demand resulted in a shareholder derivative lawsuit filed on May 30, 2018 against the Company, members of its Board, and Frissora and Douglas in the Court of Chancery for the state of Delaware. Therefore, as a result of Defendants’ misconduct and grossly negligent mismanagement, the Company and its Board remain in legal jeopardy from this lawsuit and other potential shareholder derivative lawsuits. 64. Federal and State Government Investigations: As a result of Defendants’ misconduct and grossly negligent mismanagement in breach of the Standards, Hertz also faced significant legal liability from two separate federal government investigations, and one state government investigation. 65. First, in June 2014, the SEC informed Hertz that it was under investigation with respect to certain financial improprieties, including material misstatements. As a result, the Company underwent an invasive and otherwise burdensome investigation by the SEC, with which it cooperated. On December 31, 2018 Hertz settled with the SEC and paid $16 million dollars to the SEC as a result of the accounting errors detailed in the SEC’s findings and this Complaint, and issued the SEC Order, referenced above and attached as Exhibit 2. 66. Second, in June 2016, Hertz learned that the U.S. Attorney’s Office for the District of New Jersey (“NJUSAO”) was investigating the Company as well. As a result, the Company similarly underwent an invasive investigation by the NJUSAO. 24 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 25 of 38 PageID: 749 67. Third, in December 2014, the New Jersey Bureau of Securities informed Hertz that it was under investigation, likewise for financial improprieties, including material misstatements. As a result, the Company underwent an invasive investigation by the New Jersey Bureau of Securities. 68. Increased Financing and Capital Costs. Moreover, the delay in the issuance of the Restated Financial Statements adversely affected Hertz’s access to capital markets and the cost thereof. 69. ClawBack Damages. ClawBack Damages are owed as a result of Defendants’ wrongful refusal to return the compensation amounts Hertz has demanded from them, which amounts they are clearly required to return under the terms of the ClawBack Policies and the various agreements pursuant to which they received such monies (that is, certain “Performance Stock Unit” agreements, “Employee Stock Option” agreements, “Price Vested Stock Unit” agreements and Separation Agreements (as listed in Exhibit 3 hereto), which expressly note that those payments were made subject to those agreements). 70. During the Restatement Period, Defendants, in total, received more than seventy million dollars in incentive-based compensation. Hertz’s Compensation Committee has voted in favor of reclaiming all available incentive compensation—as they are entitled to seek under the ClawBack Policies. 71. Separate from their available incentive compensation during the Restatement Period, each of the Defendants also received certain other incentive-based compensation as a part of their Separation Agreements, including their Golden Parachutes discussed above. The Compensation Committees have also voted in favor of reclaiming Defendants’ Golden Parachutes. 25 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 26 of 38 PageID: 750 72. The Committees’ decision to demand the return of such monies is proper because the Board’s Compensation Committee determined in good faith, pursuant to the ClawBack Policies, that it was in the best interests of the Company and that Defendants’ misconduct and gross negligence “caused or contributed to” the need for the Restatement. Defendants’ disregard for the substantial risk factors they created in pursuit of aggressive cost-cutting triggered the need for the Restatement. Defendants’ aggressive growth strategy, in combination with Hertz’s materially deficient internal controls which they failed to correct, led to the accounting errors, which necessitated the Restatement. 73. The Committees’ decision to demand return of such monies is also proper under the ClawBack Policies because Hertz identified the need for the Restatement within three years of the public filing of the first financials subject to the Restatement—Hertz’s fiscal year 2011 Form 10-K, which was filed February 27, 2012. Hertz’s Audit Committee identified the need for the Restatement in early November 2014, and informed shareholders of the need for the Restatement shortly thereafter. Thus, Hertz identified the need for the Restatement within three years of the filing of its fiscal year 2011 financials, and well within three years of the filing of its fiscal year 2012 and 2013 financials. 74. And, the Committees’ decision to demand return of Golden Parachutes is also proper under the 2014 ClawBack Policy. 75. Other Contract Damages – the Separation Agreements. In addition to their contractual duties under the ClawBack Polices, Defendants’ various incentive compensation agreements, and Hertz’s Standards (which were breached, as described above), Defendants Frissora and Zimmerman represented in each of their Separation Agreements, among other things, that they had not “engaged in any conduct that constitutes willful gross neglect or willful 26 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 27 of 38 PageID: 751 gross misconduct with respect to [their] employment duties with [Hertz] which has resulted or will result in material economic harm” to Hertz, and that [they] had not “facilitated . . . and ha[ve] no knowledge of, any financial or accounting improprieties or irregularities.” Those representations were false—as they had engaged in grossly negligent conduct and knew of accounting improprieties and irregularities, as described above—and constituted a breach of such contracts. 76. Frissora and Zimmerman further “acknowledge[d] and agree[d]” that Hertz entered into the Separation Agreements “in reliance on th[ose] representations . . . which constitute terms of th[ese] Agreement[s].” 77. Thus, Frissora and Zimmerman are liable to the Company as a result of their breaches of their respective Separation Agreements for, inter alia, the monies paid to them pursuant to their Separation Agreements that would not have been paid but for the misrepresentations they each made in their respective Separation Agreements, as well as the time-value-of-money losses resulting from those payments. 78. Other Contract Damages – Hertz’s Standards. In addition, all Defendants are liable to the Company for such amounts that resulted from their respective failures to comply with the Standards and the disclosure requirements thereunder, including but not limited to: a. Legal Fees & Related Expenses: Hertz has incurred significant legal fees and expenses for the Company’s internal investigation and the cost of responding to the lawsuits and investigations initiated by the securities plaintiffs, the SEC, the NJUSAO, the New Jersey Bureau of Securities, and shareholder derivative plaintiffs. Those fees and expenses include but are not limited to fees and expenses paid to lawyers, experts, consultants, or other agents 27 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 28 of 38 PageID: 752 retained on their behalf, and attendant costs related thereto, such as document database hosting fees and maintenance. b. Auditor Review Costs: As a part of Hertz’s internal investigation, Hertz suffered the burden of significant costs related to their auditor’s subsequent internal review of the Company’s finances and fees paid to others to further investigate the Company’s finances and the breakdowns in controls that lead to the Restatement. c. Heightened Costs of Subsequent Audits: As a result of the Restatement, Hertz’s independent auditor must conduct significantly more invasive/burdensome audits than it had in years past. d. Costs of Financing Waivers: As a result of the Restatement, and the attendant delays in filing the Company’s 2014 fiscal year financials with the SEC, Hertz was in danger of breaching “timely filer” and other similar covenants in its debts with third-parties. To avoid breaching its financing arrangements and possibly accelerating the Company’s debts, Hertz was forced to secure—at significant cost—waivers for any “timely filer” violations. e. Higher-Than-Necessary Taxes: Defendants’ wrongful conduct caused Hertz to report in excess of $200 million in additional pre-tax income to local, state, and federal tax assessors. As a result, Defendants’ mismanagement resulted in significantly inflated tax liabilities for the Company throughout the Restatement Period. 79. Outside of these quantifiable damages, the Company has suffered from significant other costs stemming from the Restatement, including the enormous negative impact Defendants had on the Company’s market capitalization and the distraction of management’s attention from running the core business to addressing the Restatement processes and related investigations. 28 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 29 of 38 PageID: 753 80. All told, the costs to the Company resulting from the remediation of the Restatement matters continue to this day. Defendants’ wrongful conduct and gross negligence in breach of the Standards has damaged Hertz in excess of $200 million to date. COUNT I BREACH OF CONTRACT: Enforcement of the 2010 ClawBack Policy to recover incentivebased compensation from fiscal years 2011, 2012, and 2013 (against all Defendants) 81. Plaintiffs repeat and reallege the allegations set forth above, as though fully set forth herein. 82. The ClawBack Policy adopted by Hertz in 2010 provides that, all determinations and decisions made by the Compensation Committee pursuant to the provisions of this Compensation Recovery Policy shall be final, conclusive and binding on all persons, including the Company, its affiliates, its stockholders and employees. [Emphasis added.] 83. The 2010 ClawBack Policy generally provides that Hertz’s “executive officer[s]” receiving “any annual incentive, long-term incentive, equity-based award or other performancebased award . . . shall repay or forfeit . . . any [such compensation] received by him or her if” four conditions are met: a. “[T]he payment, grant or vesting of such [incentive-based compensation] was based on the achievement of financial results that were the subject of a restatement . . . as filed with the Securities and Exchange Commission []”; b. “[T]he need for the restatement was identified within 3 years after the date of the … filing of the financial results that were subsequently restated”; c. “[T]he Compensation Committee determines in its sole discretion, exercised in good faith, that the executive officer’s gross negligence, fraud or misconduct caused or contributed to the need for the restatement[]”; and 29 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 30 of 38 PageID: 754 d. “[T]he Compensation Committee determines in its sole discretion that it is in the best interests of the Company and its stockholders for the executive officer to repay or forfeit all or any portion of the [incentive-based compensation].” [Emphasis added.] 84. The terms of the 2010 ClawBack Policy were made clear in various valid and enforceable written agreements which were fully performed by Hertz, and pursuant to which such compensation was awarded to Defendants (that is, certain “Performance Stock Unit” agreements, “Employee Stock Option” agreements, and “Price Vested Stock Unit” agreements), and were otherwise known, understood, and agreed to by each of the Defendants.82. At all relevant times, Defendants were “executive officers” of Hertz subject to the Company’s 2010 ClawBack Policy (which remained in effect until amended and restated in 2014). 85. For the 2011, 2012, and 2013 fiscal years, Defendants each received a substantial amount of incentive-based compensation covered by the 2010 ClawBack Policy, which covered incentive-based compensation paid on or after January 1, 2010. In total, Defendants received more than $70 million in incentive-based pay during this period. 86. The Compensation Committee determined in good faith that the incentive-based compensation received by Defendants for the 2011, 2012, and 2013 fiscal years was “based on the achievement of financial results that were the subject of” the Company’s July 2015 Restatement. 87. Hertz identified “the need for the restatement” in November 2014, which was “within 3 years after the date of the first public issuance or filing of the financial results that were subsequently restated,” which first occurred on February 27, 2012. 88. Based on Defendants’ misconduct as set forth above, Hertz’s Compensation Committee “determined in its sole discretion, exercised in good faith, that [Defendants’] gross 30 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 31 of 38 PageID: 755 negligence . . . or misconduct caused or contributed to the need for the restatement,” which determination was final, conclusive, and binding on Defendants, and was reflected in a resolution passed on February 11, 2019. 89. Likewise, Hertz’s Compensation Committee determined that “it is in the best interests of the Company and its stockholders for [Defendants] to repay or forfeit all” of their inventive-based pay from fiscal years 2011, 2012, and 2013. [Emphasis added.] 90. On February 13, 2019 counsel for Hertz contacted counsel for each of the Defendants, informing them of the Compensation Committees’ decision and seeking the prompt return of their incentive-based compensation from fiscal years 2011, 2012, and 2013. 91. Defendants, through their counsel, refused to comply with their obligations under the 2010 ClawBack Policy. 92. Accordingly, Defendants have materially breached their obligations under the 2010 ClawBack Policy, and their various incentive compensation agreements, by failing to remit their incentive-based compensation from fiscal years 2011, 2012, and 2013. 93. As a result of such breaches, Hertz has been damaged, at a minimum, in the amount of demanded monies they have wrongfully refused to return. COUNT II BREACH OF CONTRACT: Enforcement of the 2010 ClawBack Policy to recover incentivebased compensation in Douglas’ Golden Parachute (against Defendant Douglas) 94. Plaintiffs repeat and reallege the allegations set forth above as though fully set forth herein. 95. Douglas was party to a valid, enforceable contract entered into with Hertz upon Douglas’ anticipated termination from Hertz, namely, Douglas’ Separation Agreement. 31 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 32 of 38 PageID: 756 96. Hertz has performed all of the material conditions, covenants, and promises required to be performed in accordance with the terms and conditions of Douglas’ Separation Agreement. 97. As a part of Douglas’ Separation Agreement, Douglas received certain incentive- based compensation as a part of her Golden Parachute. 98. Hertz’s Compensation Committee determined in its sole discretion, exercised in good faith, that the incentive-based compensation received by Douglas as part of her Golden Parachute was “based on the achievement of financial results that were the subject of” the Company’s July 2015 Restatement of its fiscal year 2011, 2012, and 2013 financials. 99. Hertz identified “the need for the restatement” in November 2014 “within 3 years after the date of the first public issuance or filing of the financial results that were subsequently restated,” which first occurred on February 27, 2012. 100. Based on her misconduct and gross negligence as set forth above, Hertz’s Compensation Committee “determined in its sole discretion, exercised in good faith, that [Douglas’] gross negligence . . . or misconduct caused or contributed to the need for the restatement,” which determination was final, conclusive and binding on Douglas and reflected in a resolution passed on February 11, 2019. 101. The ClawBack demand letter of February 13, 2019, described above, includes the incentive-based compensation paid prior to February 20, 2014. 102. Accordingly, Douglas has also materially breached her obligations under the 2010 ClawBack Policy by failing to remit her incentive-based compensation received through her Separation Agreement’s Golden Parachute. 32 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 33 of 38 PageID: 757 103. As a result of such breach, Hertz has been damaged, at a minimum, in the amount of the demanded Golden Parachute monies Douglas has wrongfully refused to return. COUNT III BREACH OF CONTRACT: Enforcement of 2014 ClawBack Policy to recover incentive-based compensation in Defendants’ Golden Parachutes (against all Defendants) 104. Plaintiffs repeat and reallege the allegations set forth above as though fully set forth herein. 105. As a part of Defendants’ Separation Agreements, Defendants received certain incentive-based compensation as a part of their Golden Parachutes, which was paid on or after February 20, 2014. 106. Hertz’s Compensation Committee determined in its sole discretion, exercised in good faith, that certain of the incentive-based compensation received by Defendants through the Golden Parachutes in their Separation Agreements were “based on the achievement of financial results that were the subject of” the Company’s July 2015 Restatement. 107. Hertz identified “the need for the restatement” in November 2014 “within 3 years after the date of the first public issuance or filing of the financial results that were subsequently restated,” which first occurred on February 27, 2012. 108. Based on Defendants’ misconduct and gross negligence as set forth above, and on the ClawBack Policy as amended and restated in 2014, which also applied to Defendants, Hertz’s Compensation Committee “determined in its sole discretion, exercised in good faith, that [Defendants’] gross negligence . . . or willful misconduct caused or contributed to the need for the restatement,” which determination was final, conclusive, and binding on Defendants and reflected in a resolution passed on February 11, 2019. 33 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 34 of 38 PageID: 758 109. The ClawBack demand letters of February 13, 2019, described above, include the incentive-based compensation paid subject to the amended and restated ClawBack Policy in effect in 2014. 110. Accordingly, Defendants have materially breached their obligations under the 2010 ClawBack Policy, by failing to remit their incentive-based compensation as a part of their Golden Parachutes, which was paid on or after February 20, 2014. 111. As a result of such breaches, Hertz has been damaged, at a minimum, in the amount of demanded monies they have wrongfully refused to return. COUNT IV BREACH OF CONTRACT: Breach of the Standards of Business Conduct (against all Defendants ) 112. Plaintiffs repeat and reallege the allegations set forth above as though fully set forth herein. 113. The Standards constitutes an enforceable contract with each of Defendants. 114. Hertz has performed all of the material conditions, covenants, and promises to be performed in accordance with the terms and conditions of the Standards. 115. Each Defendant’s gross negligence and misconduct, and failure to disclose the gross negligence and misconduct of the other aforementioned key senior executives, during and for the Restatement Period, constitutes breaches of the Standards. 116. Hertz has suffered damages in excess of $200 million as a proximate result of Defendants’ breaches of the Standards, consisting of, inter alia, increased financial and other costs and burdens resulting from the required Restatement and the various lawsuits and investigations that predictably followed, as well as the predictable cost to Hertz of remedying the continuing impact of those breaches, including increased costs of financing and capital. 34 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 35 of 38 PageID: 759 117. Such damages were a direct, natural and otherwise foreseeable consequence of Defendants’ breaches, and they were especially foreseeable and predictable given the knowledge and status of Frissora, Douglas and Zimmerman, each being a sophisticated executive managing the Company as, respectively, C.E.O., C.F.O. and General Counsel. As top managers of the Company, each of them was generally well aware, inter alia, that a restatement of financial statements by such a public entity would be an expensive and otherwise burdensome endeavor which would not only require the expenditure of costly accounting/auditing firm fees, but also attract the attention of governmental authorities and class-action lawyers, and result in increased costs of financing and capital. COUNT V BREACH OF CONTRACT: Breaches of Separation Agreement Representations (against Defendants Frissora and Zimmerman) 118. Plaintiffs repeat and reallege the allegations set forth above as though fully set forth herein. 119. Frissora and Zimmerman each entered into a valid, enforceable contract with Hertz, namely, each individual’s Separation Agreement. 120. Each Separation Agreement contained certain representations, which were explicitly incorporated as terms of that Separation Agreement. 121. The terms of Frissora’s Separation Agreement are governed by Florida law. The terms of Zimmerman’s Separation Agreement are governed by Delaware law. 122. Hertz has performed all of the material conditions, covenants, and promises to be performed in accordance with the terms and conditions of the Separation Agreements. 123. Frissora and Zimmerman represented in their respective Separation Agreements 35 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 36 of 38 PageID: 760 that they had not engaged in “willful gross neglect” or “willful gross misconduct.” 124. Frissora and Zimmerman further represented in those agreements that they had not “facilitated … and ha[ve] no knowledge of, any financial or accounting improprieties or irregularities” within Hertz. 125. Frissora and Zimmerman also therein “acknowledge[d] and agree[d]” that Hertz had entered into their Separation Agreements “in reliance on the[se] representations,” which were explicitly incorporated as terms of the Separation Agreements. 126. As evidenced by their misconduct described above, Frissora’s and Zimmerman’s representations were false because they did engage in “willful gross neglect” and/or “willful gross misconduct” with respect to their employment duties with Hertz, which resulted in material economic harm to Hertz, and also because they knew of and/or “facilitated . . . financial or accounting improprieties,” including but not limited to those identified in the Restatement. 127. As evidenced by their misconduct described above, Frissora’s and Zimmerman’s representations were false, as they engaged in “willful gross neglect” and/or “willful gross misconduct” with respect to their employment duties with Hertz, and “facilitated . . . financial or accounting improprieties,” including but not limited to those identified in the Restatement, both of which resulted in material economic harm to Hertz. 128. Accordingly, as a result of their misrepresentations made in those contracts, Frissora and Zimmerman have materially breached their Separation Agreements. 129. Hertz has suffered damages as a proximate result of Frissora and Zimmerman’s breaches of their Separation Agreements, including, without limitation, the monies paid to them pursuant to their Separation Agreements (which would not have been paid but for Hertz’s 36 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 37 of 38 PageID: 761 reliance on the misrepresentations they made in their respective Separation Agreements), and the time-value-of-money losses resulting from those payments. PRAYER FOR RELIEF WHEREFORE, Plaintiffs respectfully request that this Court enter judgment in favor of Plaintiffs and against Defendants, as follows: A. Awarding compensatory damages to Plaintiffs, jointly and severally, in an amount to be proven at trial, including amounts equal to Defendants’ ill-gotten incentive pay and the investigation and remediation costs borne by Plaintiffs as a result of Defendants’ wrongful conduct, including pre- and post-judgment interest; B. Awarding restitution and disgorgement of Defendants’ ill-gotten incentive pay and other profits; C. Declaring that Defendants are not entitled to indemnification by Plaintiffs for any attorney’s fees, costs, and/or any other liability incurred as a result of this litigation; D. Awarding reasonable attorneys’ fees and costs of the suit incurred herein; and E. Such other and further relief, whether in law or at equity, as this Court deems just and proper. JURY DEMAND Plaintiffs hereby demand a trial by jury of all issues properly triable thereby. 37 Case 2:19-cv-08927-ES-CLW Document 54 Filed 07/11/19 Page 38 of 38 PageID: 762 Dated: July 11, 2019 Respectfully submitted, GORDON & REES LLP By: s/Douglas E. Motzenbecker Douglas E. Motzenbecker 18 Columbia Turnpike - Suite 220 Florham Park, New Jersey 07932 973-549-2500 (main) 973-549-2514 (direct) 862-432-2678 (mobile) 973-377-1911 (fax) dmotzenbecker@grsm.com Herbert Beigel Law Offices of Herbert Beigel 5641 N. Chieftan Trail Tucson, Arizona 85750 520-825-1995 520-869-5836 (mobile) 520-844-6215 (fax) hbeigel@me.com Admitted pro hac vice Robert Viducich Law Office of Robert R. Viducich 40 Wall Street, 28th Floor New York, New York 10005 Tel: (212) 400-7135 rviducich@rrvlaw.com Admitted pro hac vice Attorneys for Plaintiffs 38 Case Document 54-1 Filed 07/11/19 Page 1 of 19 PageID: 763 EXHIBIT N0. 1 Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 2 of 19 PageID: 764 3 4 4 < " 8 ,+/: 7 3,# 5+,0 7 3,# 5+,5# 5+,3 5+,0 7 3,# 5+,5 5+,3 7 3,# 5+,, # 5+,5# 5+,3 7 8 ,+/E 2 5+,0# - & / # - A # - # - & & 5+,3 8 ,+/:J" & & - ' A # - ! 5# # ! ?# 8 7 3# 5+,0 5+,, - 2 & # > 5+,0# " - ' 8 # " & - 5+,,# 5+,5# 5+,3 - - & -# - - - # # M / N O & / & N O & & N O - & N O & - - & & N O & - - # N O & - ' N O - N O & N O & - - A N O & & - A N O A & N O A N O N O 2 - & ! " # $ % & '(')*+, - . '+ * , / Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 3 of 19 Page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ase 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 4 of 19 PageID: 766 3 4 4 < #/%)/2'!" O 6 & & # - & & & - # # & # N & - - & & N & O 6 & & & -# & # O 6 & & & D""(# - & -# & # D""( 6 & ' - ' - - ' M O 6 & & / & # # & - 2 ! " # " 7 3,# 5+,0# - & & # - & 2 - - ' / $ 6 & & # - - - 2 & ; - C - # - & C - & C # - - # & - C & & # & N # N ' - & ' - # # - D""(N # # N ' # & C 5+,5 5+,3 2 5+,3# # # # - # # / 2 " # - & " # - ' @ & 7 3,# 5+,0 - ' & # # & - & 7 3,# 5+,0 # & C 8 C & & & ! " # $ % & '(')*+, - . '+ * , / Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 5 of 19 Page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ase 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 6 of 19 Page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ase 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 8 of 19 PageID: 770 3 4 4 #/%)/2'!" O & - ' N O - N O & N O & - - A N O & & - A N O A & N O A N O N O 2 - C ! & ,+# 5+,0# " # - # & - - % 5+,5 5+,3 # # 5+,5 5+,3 - 2 # - > 5+,0# & & & & - ' # - " & - & # % " & & & - 3# <= ( #< " 8 ,+/: ! ,0# < C /A < & & % " ; & - # & # ' # # 8 # ( B . 7 " 8 ,+/: ; - & ; & - - D""( # ; & C ; & # - - & - ' - # # ; & C ' # # - - ' # & - & - & & & - # # ; A # " # & C - & - C & & # & N # N ' - & ' - # # - D""(N # # N ' # & 40 ! " # $ % & '(')*+, - . '+ * , / Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 9 of 19 Page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ase 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 10 of 19 Page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ase 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 11 of 19 Page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ase 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 12 of 19 PageID: 774 3 4 4 #/%)/2'!" / - *3 5+,3 *5 5+,5# & & / - *1 C " " / - 2 ! - & # - # & / - *13 / 7 3,# 5+,3 - *,++ *5, *50 5+,3 5+,5# & - # # ; # *,0, 5+,5 *,3, 5+,3 - - " ( / 5+,0# ' / & - & 7 5++1# - - M <',$ /!'! '+'01'$ / 0)--)#/*" %# / * 3 * G Q * 1 Q ,5 * 3 * 1 * ,5 ! H# < A < 4? ! " # $ % & '(')*+, - . '+ * , / Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 13 of 19 Page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ase 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 14 of 19 PageID: 776 3 4 4 & # - # - # # # & # # - # # " & # # # - # - # # & & # & " 7 3,# 5+,0# - & & - - ' M O C & - B " KD""(L # & C ; & # - - & - ' - # # C & C ' # # - - ' # & - & - & & & - # # A # " # O 6 & - & ' - # # - 2 D""( O 6 # # O 6 & & / # - - ' C ( 5+,3 - ' & - - ' M O 6 & & # - & & & - # # & # N & - - & & N & O 6 & & & -# & # O 6 & & & D""(# - & -# & # D""( 5+1 ! " # $ % & '(')*+, - . '+ * , / Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 15 of 19 PageID: 777 3 4 4 6 & ' - ' - - ' M O 6 & & / & # # & - 2 ! " # " 7 3,# 5+,0# - & & # - & 2 - - ' / $ 6 & & # - - - 2 & ; - C 5+,5 5+,3 2 5+,3# # # # - # # / 2 " # - & " # - ' & & 7 3,# 5+,0 ( - ==(# # # - " 8 ,+/: * ! , # $ " & # ## " $ C - - & C - & C # - - # & - C & & # & N # N ' - & ' - # # - D""(N # # N ' # & '0'!),%)#/ -,/ ,/! %,%2* 6 & # # & & & # - & - - " = & ) ( 8 C # - - 7 5+,3 - " C # - - @ 5+,0 5+G ! " # $ % & '(')*+, - . '+ * , / Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 16 of 19 Page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ase 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 17 of 19 PageID: 779 3 4 4 O ) ( # " " D 8 O ) ( # 7 8 & O 7 # C' 8 & O 7 # ( " O 7 # 8 O 7 # B C 8 " O 7 # 8 O 7 # " O 7 # " O 7 # O 7 # ( ( O 7 # D ( ( O 7 # CI O 7 # ! " D " & - - 2 - 5+,1 8 # 5+,0# - # - # F ; - & & & # # & # - & # # & - # # A " - ' & / # - & # - & & / ' C ( # 5+,0 - M O C N O & C N O ' - C & 5+,0 5+,1 C ( M O 8 / " C C & & - N O & & - N O - C 2 N O 2 5+? ! " # $ % & '(')*+, - . '+ * , / Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 18 of 19 PageID: 780 3 4 4 - ' # & - C ( 6 & ' & & # M O 6 # # & N O F - 2 5+,1 N O & - N O F - & ' - N O & -# & D""( # & & # - & # 2 # & - & 6 # & # ' - ' ' # - 6 & - & # & - # # - & # - # 2 & # & - 6 & & - 6 ' # - & & & & & - 6 & - & / 7 # / # - & - & ! " # 6 & - # - /- - D""( " - & - & $ # - 5+,1 ) ( " & # - # - & & 6 - - 5+4 ! " # $ % & '(')*+, - . '+ * , / Case 2:19-cv-08927-ES-CLW Document 54-1 Filed 07/11/19 Page 19 of 19 PageID: 781 3 4 4 6 & 2 ; 5+,0# - ) ( CI 7 CI 7 5+,0 5+,1 - & - CI 7 5+,0 5+,1# CI - ' # # & - CI " & &,/9'* )/ /%'$/,- #/%$#- #>'$ )/,/+),- '7#$%)/9 C 7 2 7 3,# 5+,0# - # C # & - C 2 - & 2 7 3,# 5+,0 # ' # & 4 ! 5,+ ! " # $ % & '(')*+, - . '+ * , / Case Document 54-2 Filed 07/11/19 Page 1 of 13 PageID: 782 EXHIBIT N0. 2 Case Document 54-2 Filed 07/11/19 Page 2 of 13 PageID: 783 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 10601 I December 31, 2018 SECURITIES EXCHANGE ACT OF 1934 Release No. 84979 December 31, 2018 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 4012/ December 31, 2018 ADMINISTRATIVE PROCEEDING File No. 13-18965 ORDER IN STITUTING In the Matter of DESIST PROCEEDINGS PURSUANT TO SECTION 8A OF THE HERTZ GLOBAL HOLDINGS, INC. SECURITIES ACT OF 1933 AND and SECTION 21C OF THE SECURITIES THE HERTZ CORPORATION, EXCHANGE ACT OF 1934, MAKING FINDINGS, AND IMPOSING A Respondents. CEASE-AND-DESIST ORDER I. The Securities and Exchange Commission (?Commission?) deems it appropriate that cease- and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (?Secun'ties Act?) and Section 21C of the Securities Exchange Act of 1934 (?Exchange Act?), against the entities cunently knoWn as Hertz Global Holdings, Inc and The Hertz Corporation (collectively, ?Respondents? or ?Hertz?). II. In anticipation of the institution of these proceedings, Respondents have submitted an Offer of Settlement (the ?Offer?) which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a palty, and without admitting or denying the ?ndings herein, except as to the Commission?s jurisdiction over them and the subject matter of these Case Document 54-2 Filed 07/11/19 Page 3 of 13 PageID: 784 proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Cease- and?Desist Proceedings Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Making Findings, and Imposing a Cease?and-Desist Order (?Order?), as set forth below. On the basis of this Order and Respondents? Offer, the Commission findsI that: mailman: 1. Respondent Hertz Global Holdings, Inc. (?Hertz Holdings?) is the accounting successor to an entity also called Hertz Global Holdings, Inc. (?Hertz Global?), and Respondent The Hertz Corporation (?Hertz Corp?) is its wholly owned subsidiary. 2. From at least February 2012 through March 2014, Hertz?s public ?lings materially misstated pretax income because of accounting errors made in a number of business units, and over multiple reporting periods, as re?ected in the Restatement that Hertz ?led on July 16, 2015. Part of the misstated income resulted ??om errors made in various accounts that are subject to management estimate. For example, Hertz?s car rental business routinely recovers sums of money from third parties for damages that occur during rental. Hertz estimated an allowance for uncollectible amounts as an offset to what it recorded as potential recoveries. For years, Hertz?s allowance related expenses were understated and income was in?ated because Hertz relied on inappropriate estimation methodologies that resulted in inadequate allowances and write-offs. The inappropriate methodologies occurred within a pressured corporate environment where, in certain instances, there was an inappropriate emphasis on meeting internal budgets, business plans, and earnings estimates. 3. Pressure also existed at times when other inadequate disclosures were filed with the Commission. For example, Hertz, consistent with the regular course of its business, routinely estimated how long it would hold cars before disposing of them and replacing them. The planned holding periods were one of the variables in the formula Hertz used to depreciate its car rental assets, and also could have impacted other aspects of Hertz?s business, such as maintenance costs. During 2013, Hertz decided to extend the holding periods of a signi?cant portion of its US. car rental ?eet. That decision, and its impact on aspects of Hertz?s business, were not adequately disclosed to investors. 4. Also in 2013, after having already revised its earnings guidance downward, Hertz reaf?rmed the revised guidance publicly in November 2013 despite certain internal analysis indicating that the revised guidance had been based in part on inaccurate information and that certain recent internal estimates fell below the low end of that guidance range. The ?ndings herein are made pursuant to Respondents? Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. 2 Case Document 54-2 Filed 07/11/19 Page 4 of 13 PageID: 785 5. On July 16, 2015, Hertz restated its ?nancial results for 2012, 2013, and prior periods, including selected data for 2011 (unaudited). Including revisions made in early 2014, the company reduced its previously reported GAAP pretax income by a total of $235 million (the ?Restatement?). The Restatement identi?ed 17 areas with material accounting errors across the company?s business units, identi?ed additional information regarding historical depreciation and planned holding periods, identi?ed eleven separate material weaknesses in Hertz?s internal controls over financial reporting, and acknowledged that ?an inconsistent and sometimes inappropriate tone at the top? had existed and may have contributed to a number of errors, misstatements and omissions. 6. Based on the foregoing and the conduct described herein below, Hertz Holdings violated Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a), and of the Exchange Act and Rules 12b?20, 13a?1, 13a-11 and 13a?13 thereunder, and Hertz Corp. violated Section 15(d) of the Exchange Act and Rules 12b-20, 15d?1, 15d~ll and 15d- 13 thereunder. Respondents 7. Hertz Global Holdings, Inc. (?Hertz Holdings?) is a Delaware corporation headquartered in Estero, Florida. Its securities are registered pursuant to Section 12(b) of the Exchange Act. Its common stock trades on the New York Stock Exchange, and Hertz Holdings ?les periodic reports, including Forms 10-K and 10-Q, with the Commission pursuant to Section 13(a) of the Exchange Act and related rules thereunder. As of June 30, 2016, Hertz Holdings was spun off from and designated as the accounting successor to Hertz Global, whose securities had also been registered pursuant to Section 12(b) of the Exchange Act. 8. The Hertz Corporation (?Hertz Corp?) is a Delaware corporation headquartered in Estero, Florida. It ?led registration statements with the Commission on Form 8?4 that became effective in February and October 2013. Accordingly, as required by Section 15(d) of the Exchange Act, Hertz Corp. filed periodic reports, including Forms 10-K and 10-Q, respecting ?scal year 2013 pursuant to Section 15 of the Exchange Act and related rules thereunder. Hertz Corp. is the Wholly-owned operating subsidiary of Hertz Holdings, and it previously was the wholly-owned subsidiary of Hertz Global. Facts Hertz ?s Inaccurate Financial Reporting 9. As noted, the Restatement identi?ed a total of $235 million in previously reported pretax income did not comply with generally accepted accounting principles One of the largest Restatement items concerned various internal accounts associated with ?subrogation,? which accounted for a cumulative pre-tax misstatement of $48 million. Case Document 54-2 Filed 07/11/19 Page 5 of 13 PageID: 786 10. Subrogation refers to Hertz?s efforts to offset expenses for vehicle damage during rental periods by recovering money from renters and other third parties, depending on whether there was applicable insurance or credit card coverage and, in some cases, whether the renters purchased the loss damage waiver. Hertz accounted for subrogation by recording income and a receivable for amounts subject to recovery, partially offset by an associated expense and allowance for the possibility that some percentage of those amounts might not be recovered. Amounts ultimately uncollected would be written off against the allowance. 11. FASB Accounting Standards Codi?cation Topic 450, ?Contingencies? (ASC 450), provides guidance on the accounting for collectability of receivables. ASC 45 0-20-25?2 requires the accrual of losses from uncollectible receivables if a loss is probable and the amount of the loss can be reasonably estimated. Hertz?s longstanding policy for calculating the allowance was based on a rolling 12-month average, not of collections experience, but of write-offs, divided by billed receivables. 12. Starting in August 2012, Hertz began sending claims greater than $5,000 that remained uncollected after approximately 120 days to attorneys to assist in the collections process. Whereas amounts due for more than approximately 120 days and sent to third parties for collection had previously been written off, Hertz did not signi?cantly increase its allowance? for or write off such amounts when sent to attorneys for collection. Instead, such claims were held and allowed for or written off on a case-by-case basis, based on the rationale that attorneys would be better at collecting debts but would take more time to do so. In addition, while Hertz?s previous policy had been to maintain a 100% allowance for all claims older than 360 days, the allowance for claims sent to attorneys was then set based on the methodology used for other claims, using the much lower, rolling historical rate of overall claims write-offs, which averaged from approximately 11- 1 13. However, at the time of these accounting changes, Hertz did not have historical data with respect to the speed of attorney collections or the amount that attorneys would collect. Months later, the actual attorneys? net collection rates for August through December 2012 were approximately Still, under persistent pressure to meet budgets, and to generate opportunities to help close company-wide budget gaps or revenue shortfalls, subrogation staff did not significantly increase the allowance for or write off most of these aging attorney-held claims. This was not in accordance with GAAP. 14. During 2013, on several occasions Hertz changed the methodology for either determining the subrogation allowance or the amounts of aged debt to be written off. Each of the changes had a favorable impact on the company?s financial statements. And each of the changes was not in accordance with US. GAAP. 15. For example, in May 2013 Hertz?s Internal Audit Department identi?ed a spreadsheet error that had resulted in recording no allowance at all for any receivables aged over 360 days, whether or not sent to attorneys. Correcting the error by establishing a 100% allowance for such aged claims would have resulted in a $7 million increase to the company?s 4 Case Document 54-2 Filed 07/11/19 Page 6 of 13 PageID: 787 expenses. Instead, Hertz staff reserved the receivables aged over 360 days at the rolling 12- month average write-off rate of 11%, based on the rationale that attorneys .1 who had most of the year?old receivables would achieve substantial recoveries, and that Hertz did not yet have enough experience to gauge the level of reserve needed for those claims. This was inconsistent with actual results over the first nine months of the attorney referrals, which had yielded an approximately 3% net recovery rate. Moreover, other subrogation receivables uncollected for over 360 days that were not being handled by attorneys also were relieved of the 100% allowance requirement. Thus, instead of $7 million, expenses were increased by less than $1 million. 16. Likewise, in the fall of 2013 budget pressure at Hertz was severe, as the company had revised its earnings guidance downward in September, only to have certain internal earnings estimates fall below even the lowered guidance in October. A ?gap-closing? effort ensued, and one idea that emerged from within senior Hertz management was to lower the allowance in subrogation and other parts of the US. rental car business. As of the beginning of October 2013, approxiinately $9.3 million of subrogation receivables remained on Hertz?s books though they were over a year old. 17. In response to the gap-closing effort, Hertz staff preposed reducing certain non- subrogation allowances, but recommended a corresponding increase in the subrogation allowance, to alleviate the risk associated with the aged receivables. After internal review, the allowance for aged subrogation receivables was increased, but the allowance applied to younger receivables was reduced. Based on the methodology worked out during this process, some categories of receivables were reserved at an effective rate of approximately which implied a 96 percent recovery rate that was substantially above historical recovery rates for billed receivables. 18. Finally, in May 2012, April 2013, and May 2013 Hertz headquarters personnel directed the staff with primary responsibility for the subrogation accounts to make post-close adjustments to the subrogation unbilled receivable account, each of which departed from the historical methodology and improved reported results by approximately $1 million. No formal documentation of a rationale for these changes has been identi?ed. In the summer of 2013, Hertz?s Internal Audit Department discovered that the April 2013 $1.2 million post-close adjustment lacked the written documentation of the rationale supporting the adjustment that was required by Hertz accounting policy. Ultimately, in September 2013, Internal Audit declared the incident a controls deficiency during its Sarbanes-Oxley independent controls testing. Hertz ?s Misstatements and Omissions Concerning its Extension of lent Hoiding Periods 19. At various times during the second through the fourth quarters of 2013, Hertz extended the planned holding periods for a signi?cant portion of Hertz?s U.S. rental car ?eet. Many of the company?s top models, for example, had their planned holding periods extended from 20 to 24 or 30 months. 20. The decisions were changes from prior practice with regard to planned holding periods, and made Hertz?s planned holding periods for portions of the ?eet longer than those of 5 Case Document 54-2 Filed 07/11/19 Page 7 of 13 PageID: 788 other major car rental companies. For Hertz, extending holding periods had a short-term bene?t: it spread out over more months the depreciation expense Hertz had to incur on its cars, lowering such expense overall for current quarters. At the same time, extending holding periods had long-term risks, including that older cars were likely to require more costly maintenance, and could injure Hertz?s premium brand. 21. FASB Accounting Standards Codi?cation Topic 25 0?10-5 0-4 provides that the effect on, among other things, net income of a change in accounting estimate that affects several ?iture periods, such as a change in service lives for depreciable assets, shall be disclosed. If a change in estimate does not have a material effect in the period of change but is reasonably certain to have a material effect in later periods, a description of that change in estimate must be disclosed whenever the ?nancial statements of the period of change are presented. 22. During 2013, Hertz did not adequately disclose its decision to extend the planned holding period for substantial portions of its ?eet. To the contrary, in its Form 10-Q for the second quarter of 2013, ?led on August 2, 2013, Hertz stated the following concerning its depreciation policies in Management?s Discussion of and Analysis of Financial Condition and Results of Operations ?Depreciation rates are reviewed on a quarterly basis based on management?s routine review of present and estimated future market conditions and their effect on residual values at the time of disposal. During the six months ended June 30, 2013, depreciation rates being used to compute the provision for depreciation of revenue earning equipment were adjusted on certain vehicles in our car rental operations to re?ect changes in the estimated residual values to be realized when revenue earning equipment is sold.? Hertz did not state in this Form 10-Q .1 as the Restatement later did - the signi?cant adjustment it had made to extend the planned holding periods. 23. In the same ?ling?s Hertz stated the following explanation for why its depreciation expense had declined by $15 million in the ?rst half of the year, a decline concentrated almost entirely in the second quarter: ?In the six months ended June 30, 2013, our per vehicle depreciation costs decreased as compared to the prior year period due to improved residual values in the U.S., a continued move towards a greater proportion of non- program vehicles, mix optimization and improved procurement and remarketing efforts.? In fact, however, this disclosure, which tracked the language from Hertz?s disclosure in its Form 10-Q for the first quarter of 2013, was inaccurate, because residual values had declined in the second quarter of 2013, a fact discussed within Hertz. In addition, the disclosure did not address as the Restatement did two years later that extensions of holding periods had reduced depreciation expense. 24. The in the Form 10-Q for the third quarter of 2013 contained similar disclosures relating to typical adjustments in depreciation rates that omitted the adjustment in planned holding periods. Likewise, the ?ling explained the $18 million decline in depreciation expense in the third quarter of 20 3 in a manner similar to that stated in the Form 10-Q for the second quarter of 2013, stating that per vehicle depreciation costs decreased as compared to the prior year period due to residual values that remained strong in the US, a continued move 6 Case Document 54-2 Filed 07/11/19 Page 8 of 13 PageID: 789 towards a greater proportion of non-pro gram vehicles, mix optimization and improved procurement and remarketing efforts.? The disclosure once again did not adequately disclose the impact of longer planned holding periods later identi?ed in the Restatement. 25. Moreover, Hertz?s Form for 2013, ?led in March 2014, recited that ?our approximate average holding period for a rental car was eighteen months in the United States.? This was the same 18-month average holding period reported in the Form 10-K for 2012, despite the intervening increases in planned holding periods for a substantial portion of the ?eet. During 2013, the weighted average of all planned holding periods across the US. ?eet increased, from 21 to almost 25 months. The disclosure of the 18-month average did not explain that the average had been calculated from the age of cars that had been disposed of, and not from the planned holding period that had changed for portions of the ?eet. The in the same filing did not address the extension of planned holding periods, other than to list generally ?extended holding periods? as one of several factors causing an increase in maintenance costs. While Hertz?s Form 10-K for 2013 disclosed that the ?holding periods? for its cars ranged from 4 to 36 months, a broader range than the 4 to 28 months disclosed in its Form 10-K for 2012, that disclosure did not address either the scale of the shift to longer planned holding periods or that the cause was the result of an af?rmative business decision to extend planned holding periods. 26. In late 2014, new Hertz management changed the ?eet plan to include shorter planned holding periods. Hertz?s Form 10-K for 2014 filed on July 16, 2015, which included the Restatement, disclosed that there had been extensions in planned holding periods and the reduction in the company?s 2013 depreciation expense that resulted from the longer holding periods. As Hertz also disclosed in this Form ?[f]leet related expenses? in 2014 ?increased $182 million? due to increases in vehicle maintenance expense, vehicle damage expense, and damage related liability, which resulted from the ?age and mileage? of the company?s ?eet and having an ?older ?eet compared with the prior year,? as well as certain other factors. Hertz ?s Misstatements Concerning its amin gs Guidance in November 2013 27. Hertz also misrepresented the extent of its declining internal forecasts of overall ?nancial performance in November 2013. On September 26, 2013, Hertz revised downward the earnings guidance it had issued in February 2013, based on a series of business and financial setbacks. The revised guidance was disclosed in a press release issued on the same day that. Hertz publicly ?led a slide deck ?om an investor conference presentation in which it was participating. The new guidance reduced projected 2013 net income from a range of $1.78-1.88 per share to a new range of 1 .68?1.78 per share. Contemporaneous internal analysis projected the company?s 2013 results at $1.72 per share. 28. Within two weeks, however, certain new internal analysis and data forecasted Hertz?s performance to be below the low end of the revised guidance range. Strenuous ?gap- closing? efforts ensued, but by the end of October a Hertz internal estimate for 2013 still projected EPS at $1.66. Moreover, the company?s process of identifying ?opportunities and risks? not yet built into its projections for year-end ?nancial results yielded a lower number: $1.65 per share. 7 Case Document 54-2 Filed 07/11/19 Page 9 of 13 PageID: 790 29. Hertz had analysis done to determine why internal estimates had changed so quickly. One analysis determined that the September 2013 revision had been ?awed in part. Methodological errors occurred, such as recognizing marketing credits in 2013 when the accounting department had determined that in part they could only be recognized in 2014. 30. Nonetheless, Hertz reaf?rmed its $1.684 .78 guidance range when it issued its third quarter 2013 ?nancial statements on November 4, 2013. Hertz ?s Internal Aeconratingr Controls Failures 31. As set forth in the Restatement, Hertz?s internal controls over ?nancial reporting suffered ?om a series of material weaknesses that contributed to the restatement of the company?s ?nancial statements for 2012 and 2013 and each of the quarters of 2013. These included an inconsistent and sometimes inapprOpriate tone at the top, insuf?cient and inadequately trained ?nancial personnel, unclear reporting lines, the distraction caused by multiple, con?icting business initiatives, and ineffective controls over procurement, exacerbated by problems associated with implementation of a new Oracle enterprise resource management system to manage Hertz?s day- to~day business activities. All of these in turn contributed to the types of additional accounting- related material weaknesses detailed above: inadequate controls over accounting estimates, changes to accounting policies, journal entries, and the period-end ?nancial reporting process, including account reconciliations and closing adjustments. Finally, as was also disclosed in the Restatement, Hertz?s internal audit function lacked systems and personnel adequate to ensure the adequate monitoring of control activities. 32. For example, in the third quarter of 2013, Hertz staff performed some testing of relevant internal controls. In mid-November 2013 management informed the audit committee of Hertz?s board of directors that there were no signi?cant de?ciencies in internal controls over ?nancial reporting. Shortly thereafter, more analysis was performed, which revealed what the company determined to be pervasive problems with its journal entries and account reconciliations, which had existed throughout 2013. As noted above, the Restatement determined that these problems constituted material weaknesses. .Hertz?s Restatement, Internal Investigation and Cooperation with SEC Staff 33. On May 13, 2014, Hertz announced that it was unable to ?le its Form 10-Q for the ?rst quarter of 2014, explaining that it had identi?ed certain errors relating to prior periods which might require it to restate its previously issued ?nancial statements for 2011. 34. On June 6, 2014, Hertz further announced that its continuing review had identi?ed additional accounting errors, that its Audit Committee had determined that the company?s 2011 ?nancial statements should no longer be relied upon and must be restated, and that it was reviewing its 2012 and 2013 ?nancial statements to determine if a restatement of the ?nancial statements in those periods would also be required. It also announced that it had identi?ed at least one material weakness in its internal control over ?nancial reporting and that its disclosure controls 8 Case Document 54-2 Filed 07/11/19 Page 10 of 13 PageID: 791 and procedures were ineffective at December 31, 2013. The June 6, 2014 announcement further disclosed that Hertz was in the process of implementing new procedures and controls and strengthening its accounting and ?nance departments through the addition of new personnel, led by the recently hired Chief Financial Of?cer and with the assistance of a new Chief Accounting Of?cer and new Vice President of SOXfCompliance. Also in June 2014, the audit committee commenced an investigation of certain identi?ed accounting errors with the participation of independent counsel. 35. On August 19, 2014, Hertz announced the departure and replacement of its lead independent director, and on September 8, 2014, it announced the departure and replacement of its chief executive of?cer. On November 14, 2014, Hertz announced that in addition to 2011, its 2012 and 2013 ?nancial statements must be restated and should no longer be relied upon. 'On July 16, 2015, based on the results of its accounting review and the internal investigation led by its outside counsel, Hertz restated its 2011, 2012 and 2013 ?nancial statements and disclosed 11 material weaknesses in its internal control over ?nancial reporting. 36. The Restatement items and other material misstatements discussed above impacted, in sum, Hertz Holdings? Forms Forms and/ or earnings reports on Forms 8-K from at least February 2012 to March 2014, each of which was incorporated into continuous offerings and sales made during the same period pursuant to registration statements on Form S-8s ?led by Hertz Holdings on May 22, 2008, August 13, 2010 and August 16, 2013 that registered the offer and sale of stock under an Employee Stock Purchase Plan and the sale of stock upon the exercise of stock options under an Omnibus Incentive Plan. They also affected Hertz Corp. ?3 parallel ?ling of Forms 10-K, Forms 10-Q andfor earnings reports on Forms 8-K, which were required to be ?led from at least February 2013 through March 2014. 37. Throughout the staff?s investigation, Respondents met with staff on multiple occasions, voluntarily providing information likely to be of interest to the staff, both on their own initiative and at the staff? 3 request. mating. 38. As a result of the conduct described above: a. Respondent Hertz Holdings violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, which prohibit any person from directly or indirectly obtaining money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they made, not misleading, or engaging in any transaction, practice, or course of business which Operates or would operate as a fraud or deceit upon the purchaser, in the offer or sale of securities. Claims under Sections 17(a)(2) and 17(a)(3) of the Securities Act do not require a showing of scienter; instead, a showing of negligence is Case Document 54-2 Filed 07/11/19 Page 11 of 13 PageID: 792 suf?cient. Aaron v. SEC, 446 U.S. 680, 697 (1980); SEC v. Hughes Capitat Corp, 124 F.3d 449, 453-64 (3d Cir. 1997); b. Respondent Hertz Holdings violated Section 13(a) of the Exchange Act and Rules l2b-20, 13a?l, l3a?1 1, and 13a?l3 thereunder, which require issuers with securities registered under Section 12 of the Exchange Act to ?le annual, current, and quarterly reports with the Commission containing such information as the Commission?s rules may require and such further material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading. Additionally, the failure of the in Respondent Hertz Holdings? 2013 Form 10-K and Q2 and Q3 2013 Form to comply with Regulation S-K constitutes a violation under Section 13(a) of the Exchange Act. Finally, the failure of Respondent Hertz Holdings? Q2 and Q3 2013 Form 10-Qs to comply with Regulation S-X constitutes a violation under Section 13(a) of the Exchange Act; e. Respondent Hertz Corp, violated Section 15 of the Exchange Act and Rules 12b-20, 15 d?l 15d-1l and 15 d-l 3 thereunder, which require issuers which have ?led a registration statement with the Commission which has become effective pursuant to Section 15 of the Exchange Act to file annual, current, and quarterly reports with the Commission containing such information as the Commission?s rules may require and such ?n?ther material information as may be necessary to make the required statements, in light of the circumstances under which they were made, not misleading. Additionally, the failure of Respondent Hertz Corp. ?3 2013 Form 10-K and Q2 and Q3 2013 Form 10~Qs to comply with Regulation constitutes a violation under Section 15(d) of the Exchange Act, and the failure of its Q2 and Q3 2013 Form lO-Qs to comply with Regulation S-X constitutes a violation under Section 15(d) of the Exchange Act; d. Respondents violated Section of the Exchange Act, which requires issuers with securities registered under Section 12 of the Exchange Act or which are required to ?le reports pursuant to Section 15 of the Exchange Act to make and keep books, records and accounts which, in reasonable detail, accurately and fairly re?ect the transactions and dispositions of assets of the issuer; and e. Respondents violated Section of the Exchange Act, which requires issuers with securities registered under Section 12 of the Exchange Act or which are required to ?le reports pursuant to Section 15(d) of the Exchange Act to devise and maintain a system of internal accounting controls suf?cient to provide reasonable assurance that, among other things, transactions are recorded as necessary to permit preparation of ?nancial statements in conformity with GAAP. 10 Case Document 54-2 Filed 07/11/19 Page 12 of 13 PageID: 793 Respondents? Remedial Efforts In determining to accept the Offer, the Commission considered remedial acts undertaken by Respondents, including replacement of numerous members of senior management and lower-level staff, and cooperation afforded the Commission staff. IV. In View of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondents? Offer. Accordingly, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, it is hereby ORDERED that: A. Respondent Hertz Holdings cease and desist from committing or causing any Violations and any ?iture Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a), and of the Exchange Act and Rules 12b?20, l3a?l, 13a-ll and l3a?l3 thereunder. B. Respondent Hertz Corp. cease and desist from committing or causing any violations and any future Violations of Sections and 15 of the Exchange Act and Rules 12b-20, 15d~l, lSd-ll and lSd-l3 thereunder. C. Respondent Hertz Holdings shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $16,000,000.00 to the Securities and Exchange Commission for transfer to the general fund of the United States Treasury, subject to Section 21F(g)(3) of the Exchange Act. If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 3717. Payment must be made in one of the following ways: (I) Hertz Holdings may transmit payment electronically to the Commission, which will provide detailed ACH transfer/Fedwire instructions upon request; (2) Hertz Holdings may make direct payment from a bank account Via Pay. gov through the SEC website at or (3) Hertz Holdings may pay by certi?ed check, bank cashier?s check, or United States postal money order, made payable to the Securities and Exchange Commission and hand-delivered or mailed to: Enterprise Services Center Accounts Receivable Branch HQ Bldg, Room 181, ll Case Document 54-2 Filed 07/11/19 Page 13 of 13 PageID: 794 6500 South MacArthur Boulevard Oklahoma City, OK 73169 Payments by check or money order must be accompanied by a cover letter identifying Hertz Holdings as a Respondent in these proceedings, and the file number of these proceedings; a copy of the cover letter and check or money order must be sent to Sanjay Wadhwa, Senior Associate Regional Director, Division of Enforcement, New York Regional Of?ce, Securities and Exchange Commission, Brookfield Place, 200 Vesey Street, New York, NY 10281. D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to the government for all purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, Hertz Holdings agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor shall it bene?t by, offset or reduction of any award of compensatory damages by the amount of any part of Hertz Holdings? payment of a civil penalty in this action (?Penalty Offset?). If the court in any Related Investor Action grants such a Penalty Offset, Hertz Holdings agrees that it shall, within 30 days after entry of a ?nal order granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission. Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph, a "Related Investor Action? means a private damages action brought against Hertz Holdings by or on behalf of one or more investors based on substantially the same facts as alleged in the Order instituted by the Commission in this proceeding. E. Respondents acknowledge that the Commission is not imposing a civil penalty in excess of $16,000,000.00 based upon their cooperation in a Commission investigation. If at any time following the entry of the Order, the Division of Enforcement (?Division?) obtains information indicating that Respondents knowingly provided materially false or misleading information or materials to the Commission, or in a related proceeding, the Division may, at its sole discretion and with prior notice to the Respondents, petition the Commission to reopen this matter and seek an order directing that the Respondents pay an additional civil penalty. Respondents may contest by way of defense in any resulting administrative proceeding whether they knowingly provided materially false or misleading information, but may not: (1) contest the ?ndings in the Order; or (2) assert any defense to liability or remedy, including, but not limited to, any statute of limitations defense. By the Commission. Brent 1. Fields Secretary 12 Case Document 54-3 Filed 07/11/19 Page 1 of 3 PageID: 795 EXHIBIT N0. 3 Case 2:19-cv-08927-ES-CLW Document 54-3 Filed 07/11/19 Page 2 of 3 PageID: 796 Exhibit 3 MARK FRISSORA Agreement Title Date Performance Stock Unit Agreement 2 agreements, each dated as of March 1, 2011 Reference to ClawBack Policy § 9(l) March 6, 2012 § 9(l) 3 agreements, each dated as of Feb. 28, 2013 § 9(l) Employee Stock Option Agreement March 1, 2011 § 8(m) Price Vested Stock Unit Agreement March 6, 2012 § 9(l) Separation Agreement Sept. 14, 2014 §8 Agreement Title Date Performance Stock Unit Agreement March 1, 2011 Reference to ClawBack Policy § 9(l) March 6, 2012 § 9(l) ELYSE DOUGLAS 3 agreements, each dated as of Feb. 28, 2013 § 9(l) Employee Stock Option Agreement March 1, 2011 § 8(m) Price Vested Stock Unit Agreement March 6, 2012 § 9(l) Case 2:19-cv-08927-ES-CLW Document 54-3 Filed 07/11/19 Page 3 of 3 PageID: 797 JOHN JEFFREY ZIMMERMAN Agreement Title Date Performance Stock Unit Agreement March 1, 2011 Reference to ClawBack Policy § 9(l) March 6, 2012 § 9(l) 3 agreements, each dated as of Feb. 28, 2013 § 9(l) Employee Stock Option Agreement March 1, 2011 § 8(m) Price Vested Stock Unit Agreement March 6, 2012 § 9(l)