EMPLOYMENT AGREEMENT
THIS
EMPLOYMENT AGREEMENT (the “Agreement”) is
made effective April 3, 2008. (the “Effective Date”)
by and among between U.S. Auto Parts Network, Inc., a Delaware corporation
(the
“Company”), and Xxxxx Xxxxxxx, an individual (the
“Executive”).
WHEREAS,
the parties hereto desire to enter into a written agreement to document
the terms of Executive’s employment with the Company.
1. Duties
and Responsibilities.
A. Executive
shall serve as the Company’s CIO and Executive Vice President of Operations,
reporting directly to the Company’s Chief Executive
Officer. Executive shall have the duties and powers at the Company
that are customary for an individual holding such positions.
B. Executive
agrees to use his best efforts to advance the business and welfare of the
Company, to render his services under this Agreement faithfully, diligently
and
to the best of his ability.
C. Executive
shall be based at the Company’s office located at Carson, California, or at such
other offices of the Company located within 30 miles of such
offices.
2. Employment
Period. Following the Effective Date, Executive’s
employment with the Company shall be governed by the provisions of this
Agreement for the period commencing as of the date hereof and continuing until
the earlier of (i) Executive’s termination of employment with the Company for
any reason, or (ii) the fifth anniversary of the Effective Date (the
“Employment Period”). Provided that
Executive’s employment has not been or is not being terminated for any reason,
Executive and the Company agree to negotiate in good faith prior to the end
of
the Employment Period to enter into a new Employment Agreement to take effect
after the Employment Period.
3. Cash
Compensation.
A. Annual
Salary. Executive’s initial base salary
shall be $250,000 per year (the “Annual Salary”),
which shall be payable in accordance with the Company’s standard payroll
schedule (but in no event less frequent than on a monthly basis), and may be
increased from time to time at the discretion of the Compensation Committee
of
the Company’s Board of Directors (the “Compensation
Committee”). The Compensation Committee shall review
Executive’s Annual Salary at least annually and may increase the Annual Salary
from time to time at its sole discretion. Any increased Annual Salary
shall thereupon be the “Annual Salary” for the purposes
hereof. Executive’s Annual Salary shall not be decreased without his
prior written consent at any time during the Employment Period.
B. Bonus.
(1) Signing
and Retention Bonus. The Company shall pay to Executive
a bonus of $50,000, which shall be payable in a lump sum as soon as reasonably
practicable following the Effective Date. In the event that
Executive’s employment is terminated for Cause (as defined below) or if
Executive resigns from the Company without Good Reason (as defined below) prior
to the first anniversary of the Effective Date, Executive agrees to reimburse
the Company for such bonus; provided however, that the amount of the reimbursed
bonus to the Company shall be reduced by $4,167 (1/12th of the
total
bonus) for each complete month of Executive’s employment with the Company,
calculated from the Effective Date. Executive hereby agrees that the
Company may deduct such bonus reimbursement from any or all payments due to
Executive from the Company, including from his last paycheck (to the extent
legally permissible), and Executive agrees to provide the Company with any
further written authorization of the deduction as may be reasonably requested
by
the Company to authorize, facilitate or substantiate such
deduction.
(2) Annual
Target Bonus. Executive shall also be entitled to
receive an annual target incentive bonus of up to 40% of the Executive’s current
salary, which for the first calendar year shall be an amount up to $100,000
per
year, pro rated based upon the Executive’s length of employment during such
year. The annual bonus shall be based upon the Company achieving its
revenue and EBITDA goals, and Executive meeting the annual goals determined
by
the Compensation Committee. The amount of the annual target bonus
payable to Executive in any given year shall be determined by the Compensation
Committee. The annual bonus shall be paid no later than the end of
February following the year for which such bonus is being paid.
C. Applicable
Withholdings. The Company shall deduct
and withhold from the compensation payable to Executive hereunder any and all
applicable federal, state and local income and employment withholding taxes
and
any other amounts required to be deducted or withheld by the Company under
applicable statutes, regulations, ordinances or orders governing or requiring
the withholding or deduction of amounts otherwise payable as compensation or
wages to employees.
4. Equity
Compensation.
A. Initial
Grants. As of the close of business on
the date of the Executive’s first day of employment with the Company, the
Company’s Compensation Committee shall grant you a non-statutory stock
option. The stock option shall be an option to purchase up to 250,000
shares of the Company’s common stock and shall vest over four years; 25% of the
shares shall vest on the first anniversary of the grant date and the balance
shall vest in 36 equal monthly installments thereafter.
The
foregoing option will be granted
pursuant to the Company’s 2007 Omnibus Incentive Plan (the
“Plan”), and will be subject to the terms and
conditions of the Plan in effect as of the grant date and the related stock
option agreement. The exercise price for the option shall be equal to
the closing sales price of the Company’s common stock as reported by the NASDAQ
Stock Market or the primary exchange on which the Company’s common stock is then
listed or quoted (the “Exchange”) on the date of grant
of the option. The option shall have provisions to accelerate the
vesting in the event either Executive’s employment is terminated without Cause
or Executive resigns for Good Reason within twelve months following a Change
in
Control as defined in the Plan. The option shall contain provisions
that will restrict the sale of the common stock issuable upon exercise of such
option for 18 months following the grant date, except to the extent necessary
to
cover any current tax liabilities of Executive associated with such
option.
B. Other
Equity Compensation. Executive shall also be entitled to
participate in any other equity incentive plans of the Company. All
such other options or other equity awards will be made at the discretion of
the
Company’s Compensation Committee of the Board of Directors pursuant and subject
to the terms and conditions of the applicable equity incentive plan, including
any provisions for repurchase thereof. The option exercise price or
value of any equity award granted to Executive will be established by the
Company’s Board of Directors as of the date such interests are granted but shall
not be less than the fair market value of the class of equity underlying such
award.
5. Expense
Reimbursement. In addition to the
compensation specified in Section 3, Executive shall be entitled to receive
reimbursement from the Company for all reasonable business expenses incurred
by
Executive in the performance of Executive’s duties hereunder, provided that
Executive furnishes the Company with vouchers, receipts and other details of
such expenses in the form reasonably required by the Company to substantiate
a
deduction for such business expenses under all applicable rules and regulations
of federal and state taxing authorities.
6. Fringe
Benefits.
A. Group
Plans. Executive shall, throughout the
Employment Period, be eligible to participate in all of the group term life
insurance plans, group health plans, accidental death and dismemberment plans,
short-term disability programs, retirement plans, profit sharing plans or other
plans (for which Executive qualifies) that are available to the executive
officers of the Company. During the Employment Period, the Company
will pay for coverage for Executive and his spouse and dependents residing
in
Executive’s household (collectively, the “Dependents”)
under the Company’s health plan, and coverage for Executive under the Company’s
accidental death and dismemberment plan and for short-term
disability. In the event Executive elects not to participate in the
Company’s health plan, the Company shall reimburse Executive for the cost of
alternative health care coverage of his choosing for Executive and his
Dependents in an amount up to $1,500 per month. Payment for all other
benefit plans will be paid in accordance with the Company’s policy in effect for
similar executive positions.
B. Vacation. Executive
shall be entitled to at least four weeks paid vacation per
year. Vacation shall accrue pursuant to the Company’s vacation
benefit policies.
C. Auto
Allowance. Executive shall be entitled to an
auto allowance for one vehicle for Executive’s use up to $1,000 per
month.
D. Housing
Benefits. Executive shall be reimbursed for all
out-of-pocket, direct expenses incurred in connection with the relocation of
Executive’s family from Dallas, Texas to Southern California including moving
costs and travel expenses; provided that Executive furnishes the Company with
vouchers, receipts and other details of such expenses in the form reasonably
required by the Company. The Company will also reimburse Executive
for the actual real estate commissions paid by Executive on the sale of
Executive’s primary residence and for closing costs for purchase of Executive’s
home in California, both of which collectively shall not exceed
$35,000.
E. Indemnification. As
of the Effective Date, the Company and Executive shall enter into the Company’s
standard indemnification agreement for its key executives.
7. Termination
of Employment. Executive’s employment with the Company
is “at-will.” This means that it is not for any specified period of
time and can be terminated by Executive or the Company at any time, with or
without advance notice, and for any or no particular reason or
cause. Upon such termination, Executive (or, in the case of
Executive’s death, Executive’s estate and beneficiaries) shall have no further
rights to any other compensation or benefits from the Company on or after the
termination of employment except as follows:
A. Termination
For Cause. In the event the Company terminates
Executive’s employment with the Company prior to expiration of the Employment
Period for Cause (as defined below), the Company shall pay to Executive the
following: (i) Executive’s unpaid Annual Salary that has been earned through the
termination date of his employment; (ii) Executive’s accrued but unused
vacation; (iii) any accrued expenses pursuant to Section 5 above, and (iv)
any
other payments as may be required under applicable law (subsections (i) through
(iv) above shall collectively be referred to herein as the “Required
Payments”). For purposes of this Agreement,
“Cause” shall mean that Executive has engaged
in any
one of the following: (i) misconduct involving the Company or its
assets, including, without limitation, misappropriation of the Company’s funds
or property; (ii) reckless or willful misconduct in the performance of
Executive’s duties in the event such conduct continues after the Company has
provided 30 days written notice to Executive and a reasonable opportunity to
cure; (iii) conviction of, or plea of nolo contendre to, any felony or
misdemeanor involving dishonesty or fraud; (iv) the violation of any of the
Company’s policies, including without limitation, the Company’s policies on
equal employment opportunity and the prohibition against unlawful harassment;
(v) the material breach of any provision of this Agreement after 30 days written
notice to Executive of such breach and a reasonable opportunity to cure such
breach; or (vi) any other misconduct that has a material adverse effect on
the
business or reputation of the Company.
B. Termination
Upon Death or Disability. If Executive dies during the
Employment Period, the Executive’s employment with the Company shall be deemed
terminated as of the date of death, and the obligations of the Company to or
with respect to Executive shall terminate in their entirety upon such date
except as otherwise provided under this Section 7B. If Executive
becomes Disabled (as defined below), then the Company shall have the right,
to
the extent permitted by law, to terminate the employment of Executive upon
30
days prior written notice in writing to Executive. Upon termination
of employment due to the death or Disability of Executive, Executive (or
Executive’s estate or beneficiaries in the case of the death of Executive) shall
be entitled to receive the Required Payments; and Executive shall
also be entitled to the following: (i) Executive’s annual bonus for
the year of termination in accordance with Section 3B above (pro rated up to
the
termination date), which bonus shall be paid at the earlier of (A) such time as
the Company regularly pays bonuses, or (B) 2 ½ months following the calendar
year in which the termination occurs; and (ii) continuation of his Annual Salary
following such termination for a period of one year, which shall be payable
in
accordance with the Company’s standard pay schedules; and (iii) in the case of
termination due to Disability, the Company shall reimburse Executive’s COBRA
payments for Executive’s health insurance benefits for a period of one
year. Notwithstanding the foregoing, the aggregate amount of
continuation payments under (ii) above made during the first six months
following Executive’s termination of employment shall not exceed the applicable
dollar limit provided under Treasury Regulations Section
1.409A-1(b)(9)(iii)(A). The amount, if any, that exceeds the
applicable dollar limit shall be paid on the first day of the seventh month
following Executive’s termination of employment. For the purposes of
this Agreement, “Disability” shall mean a physical or
mental impairment which, the Board of Directors determines, after consideration
and implementation of reasonable accommodations, precludes the Executive from
performing his essential job functions for a period longer than three
consecutive months or a total of one hundred twenty (120) days in any twelve
month period.
C. Termination
for Any Other Reason; Resignation for Good
Reason. Should the Company terminate Executive’s
employment (other than for Cause or as a result of Executive’s Death or
Disability), or in the event Executive resigns for Good Reason (as defined
below), then the Company shall pay Executive the Required Payments; and
Executive shall also be entitled to the following: (i) a pro rated
share of Executive’s bonus (pro rated up to the termination or resignation date,
as the case may be), which bonus shall be paid at the earlier of (A) such time
as the Company regularly pays bonuses; or (B) no later than 2 ½ months following
the calendar year in which the termination or resignation occurs; (iii)
continuation of Executive’s Annual Salary, which shall be payable in accordance
with the Company’s standard pay schedules for a period of one year (provided
however that if Executive obtains other employment, then his severance payments
shall be reduced after the first six months of the foregoing one year severance
period by any amounts received by Executive from his new employer for the
balance of the one year severance period); and (iv) the Company shall also
reimburse Executive’s actual COBRA payments for Executive’s health insurance
benefits for a period of one year. This Section 7C is intended to
qualify as an involuntary separation pay arrangement that is exempt from
application of Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”) because certain severance payments are
treated as paid on account of an involuntary separation (including a separation
for Good Reason) and paid in a lump sum within the “short-term deferral” period
following the time the Executive obtains a vested right to such
payments. Notwithstanding the foregoing, the aggregate amount of
continuation payments under (iii) above made during the first six months
following Executive’s termination of employment shall not exceed the applicable
dollar limit provided under Treasury Regulations Section
1.409A-1(b)(9)(iii)(A). The amount, if any, that exceeds the
applicable dollar limit shall be paid on the first day of the seventh month
following Executive’s termination of employment. For the purposes of
this Agreement, “Good Reason” shall mean Executive’s
voluntary resignation for any of the following events that results in a material
negative change to the Executive; (i) a reduction without Executive’s
prior written consent in either his level of Annual Salary or his target annual
bonus as a percentage of Annual Salary; (iii) a relocation of Executive more
than thirty (30) miles from the Company’s current corporate headquarters as of
the date hereof, (iv) a material breach of any provision of this Agreement
by
the Company or (v) the failure of the Company to have a successor entity
specifically assume this Agreement. Notwithstanding the foregoing,
“Good Reason” shall only be found to exist if prior to Executive’s resignation
for Good Reason, the Executive has provided 30 days written notice to the
Company of such Good Reason event indicating and describing the event resulting
in such Good Reason, and the Company does not cure such event within 90 days
following the receipt of such notice from Executive.
8. Non-Competition
During the Employment Period. Executive acknowledges and
agrees that given the extent and nature of the confidential and proprietary
information he will obtain during the course of his employment with the Company,
it would be inevitable that such confidential information would be disclosed
or
utilized by the Executive should he obtain employment from, or otherwise become
associated with, an entity or person that is engaged in a business or enterprise
that directly competes with the Company. Consequently, during any
period for which Executive is receiving payments from the Company, either as
wages or as a severance benefit, Executive shall not, without
prior written consent of the Chief Executive Officer, directly or indirectly
own, manage, operate, control or participate in the ownership, management,
operation or control of, or be employed by or provide advice to, any enterprise
that is engaged in any business directly competitive to that of the Company
in
the aftermarket auto parts market in the United States; provided, however,
that
such restriction shall not apply to any passive investment representing an
interest of less than 1% of an outstanding class of publicly-traded securities
of any company or other enterprise where Executive does not provide any
management, consulting or other services to such company or
enterprise.
9. Proprietary
Information. Executive has executed or
is concurrently executing the Company’s standard Confidential Information and
Assignment of Inventions Agreement (the “Confidentiality
Agreement”), which is hereby incorporated by this reference as if
set forth fully herein. Executive’s obligations pursuant to the
Confidentiality Agreement will survive termination of Executive’s employment
with the Company. Executive agrees that he will not use or disclose
to the Company any confidential or proprietary information from any of his
prior
employers.
10. Successors
and Assigns. This Agreement is personal
in its nature and the Executive shall not assign or transfer his rights under
this Agreement. The provisions of this Agreement shall inure to the
benefit of, and shall be binding on, each successor of the Company whether
by
merger, consolidation, transfer of all or substantially all assets, or
otherwise, and the heirs and legal representatives of Executive.
11. Notices. Any
notices, demands or other communications required or desired to be given by
any
party shall be in writing and shall be validly given to another party if served
either personally or via overnight delivery service such as Federal Express,
postage prepaid, return receipt requested. If such notice, demand or
other communication shall be served personally, service shall be conclusively
deemed made at the time of such personal service. If such notice,
demand or other communication is given by overnight delivery, such notice shall
be conclusively deemed given two business days after the deposit thereof
addressed to the party to whom such notice, demand or other communication is
to
be given as hereinafter set forth:
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To
the Company:
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00000
Xxxxx Xxxxxx Xxxxxx
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Xxxxxx,
Xxxxxxxxxx 00000
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Attn: Chief
Executive Officer
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To
Executive:
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At
Executive’s last residence as provided
by
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Executive
to the Company for payroll records.
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Any
party
may change such party’s address for the purpose of receiving notices, demands
and other communications by providing written notice to the other party in
the
manner described in this Section 11.
12. Governing
Documents. This Agreement, along with
the documents expressly referenced in this Agreement, constitute the entire
agreement and understanding of the Company and Executive with respect to the
terms and conditions of Executive’s employment with the Company and the payment
of severance benefits, and supersedes all prior and contemporaneous written
or
verbal agreements and understandings between Executive and the Company relating
to such subject matter. This Agreement may only be amended by written
instrument signed by Executive and an authorized officer of the
Company. Any and all prior agreements, understandings or
representations relating to the Executive’s employment with the Company are
terminated and cancelled in their entirety and are of no further force or
effect.
13. Governing
Law. The provisions of this letter
agreement will be construed and interpreted under the laws of the State of
California. If any provision of this Agreement as applied to any
party or to any circumstance should be adjudged by a court of competent
jurisdiction to be void or unenforceable for any reason, the invalidity of
that
provision shall in no way affect (to the maximum extent permissible by law)
the
application of such provision under circumstances different from those
adjudicated by the court, the application of any other provision of this
Agreement, or the enforceability or invalidity of this Agreement as a
whole. Should any provision of this Agreement become or be deemed
invalid, illegal or unenforceable in any jurisdiction by reason of the scope,
extent or duration of its coverage, then such provision shall be deemed amended
to the extent necessary to conform to applicable law so as to be valid and
enforceable or, if such provision cannot be so amended without materially
altering the intention of the parties, then such provision will be stricken
and
the remainder of this Agreement shall continue in full force and
effect.
14. Remedies. All
rights and remedies provided pursuant to this Agreement or by law shall be
cumulative, and no such right or remedy shall be exclusive of any
other. A party may pursue any one or more rights or remedies
hereunder, or may seek damages or specific performance in the event of another
party’s breach hereunder, or may pursue any other remedy by law or equity,
whether or not stated in this Agreement.
15. No
Waiver. The waiver by either party of a
breach of any provision of this Agreement shall not operate as, or be construed
as, a waiver of any later breach of that provision.
16. Counterparts. This
Agreement may be executed in more than one counterpart, each of which shall
be
deemed an original, but all of which together shall constitute but one and
the
same instrument.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date
first above written.
By: /s/
Xxxxx Xxxxxxxxxx
Print
Name: Xxxxx
Xxxxxxxxxx
Title: Chief
Executive
Officer
Address:
00000 Xxxxx Xxxxxx
Xxxxxx
Xxxxxx,
XX 00000
/s/
Xxxxx Xxxxxxx
XXXXX
XXXXXXX, Executive
