Exhibit 10.49

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of July 20, 2011,
between THE COAST DISTRIBUTION SYSTEM, INC., a Delaware corporation (the
“Company”), and JAMES MUSBACH (“Executive”). For ease of reference, the Company
and Executive shall sometimes be referred to in this Agreement, collectively, as
the “Parties” and, individually, as a “Party” and certain other terms used in
this Agreement shall have the respective meanings set forth in Section 1 hereof.

R E C I T A L S:

A. Executive is currently employed as the Company’s President and Chief
Executive Officer (“CEO”).

B. The Parties desire to set forth the material terms of Executive’s employment
with the Company in this Agreement.

A G R E E M E N T

NOW, THEREFORE, in consideration of the respective promises of each Party made
to the other in this Agreement and other good and valuable consideration, the
receipt of which is hereby acknowledged by each of the Parties, it is agreed as
follows:

1. Certain Definitions. As used in this Agreement, the following terms shall
have the respective meanings given to then below.

1.1 An “Affiliate” of the Company means any individual, entity or organization
that controls, is under common control with or is controlled by the Company.

1.2 The terms “beneficially owned” or “owned beneficially” and “beneficial
ownership” shall have the meanings given to such terms in or by Securities and
Exchange Commission Rule 13d-3 under the Exchange Act, or any successor rule
thereto.

1.3 The term “Company” shall mean The Coast Distribution System, Inc. and, in
the event that it consummates a merger, consolidation or other reorganization in
which it is not the Surviving Person, the term “Company” thereafter shall mean
the Surviving Person in such merger, consolidation or other reorganization
(whether or not such merger, consolidation or other reorganization constitutes a
Change in Control of the Company.

1.4 The term “Cause” shall mean the occurrence of any of the following:

(a) Executive’s conviction of an act that, under applicable law or government
regulations, constitutes a felony or a misdemeanor involving moral turpitude;

(b) Executive’s commission of an act that subjects the Company, or any Affiliate
of the Company to any material civil liabilities or penalties or any criminal
penalties or fines, any conduct by Executive that constitutes unlawful
harassment, discrimination or retaliation, or which, in the good faith judgment
of the Board, is detrimental to the Company’s reputation or its competitive
position within any of its markets (including the use or possession of any
controlled substance, chronic abuse of alcoholic beverages, moral turpitude or
the like);

(c) Executive’s breach or violation of (i) any of his covenants in his Employee
Confidentiality Agreement, (ii) any conflict of interest, ethics or employment
policies from time to time adopted by the Board and made applicable to all
Company employees generally or those applicable more specifically to financial
executives or executive officers of the Company, (i) which continues unremedied
for a period of ten (10) days following written notice thereof to Executive from
the Company or (ii) which the Board of Directors determines is not susceptible
of cure within such 10-day time period;

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(d) Executive’s breach or violation of any of his material covenants or
obligations contained in this Agreement (i) which continues unremedied for a
period of fifteen (15) days following written notice thereof from the Company to
Executive or (ii) which the Board of Directors determines is not susceptible of
cure within such 15-day time period;

(e) Executive’s gross negligence, willful misconduct or reckless disregard of
material and adverse consequences of Executive’s decisions or actions, as
determined by the Board of Directors; and

(f) Executive’s insubordination with respect to any lawful direction of the
Board or Executive’s failure, on at least two separate occasions, to perform his
material duties as Chief Executive Officer other than due to his illness or his
Disability (as defined below).

1.5 A “Change in Control” of the Company shall be deemed to have occurred if:

(a) There is consummated:

(i) any consolidation or merger of the Company with another Person, if (A) the
Company is not the Surviving Person therein, or (B) the shares of the Company’s
Common Stock are converted into cash, securities or other property, provided,
however, any such merger or consolidation shall not constitute a Change in
Control if the holders of the Company’s common stock immediately prior to such
merger or consolidation will own, in the aggregate, at least 50% of the
outstanding shares of Voting Securities of the Surviving Person or its Parent
(if any) immediately after consummation of such merger or consolidation; or

(ii) any sale, exchange or other transfer (in one transaction or a series of
related transactions during the 12-month period ending on the date of the most
recent transaction) of all, or substantially all, of the assets of the Company,
provided, however, that such sale, exchange or other transfer shall not
constitute a Change in Control if (A) the Person acquiring such assets is a
corporation or other entity in which the holders of the Company’s common stock
immediately prior to such transaction will own, in the aggregate, at least 50%
of the outstanding Voting Securities of the Person acquiring such assets, or of
the Parent thereof (if any), immediately after consummation of such transaction,
or (ii) such Person is a “related person” within the meaning of Treasury
Regulation § 1.409A-3(i)(5)(vii)(B); or

(b) any Person or group of Persons, acting in concert (within the meaning of
Section 13(d) or Section 14(d)(2) of the Exchange Act), shall directly or
indirectly acquire (other than in or as a result of a transaction described in
Paragraph 1.5(a) above) beneficial ownership of securities of the Company
possessing more than 50% of the total combined voting power of the Company’s
then outstanding securities, unless (i) the Person or group making such
acquisition of beneficial ownership (the “Acquiring Person”) was (A) the Company
or an Affiliate of the Company, (B) the beneficial owner of more than 20% of the
outstanding Voting Securities of the Company immediately prior to the
acquisition, (C) an employee benefit plan of Company or any of its Affiliates or
a trustee or other fiduciary holding securities under any such employee benefit
plan, or (D) an underwriter temporarily holding securities of the Company
pursuant to an offering of such securities, or (ii) the transaction that caused
such Acquiring Person’s beneficial ownership to exceed fifty percent (50%) of
the outstanding Voting Securities of the Company was either (X) a repurchase by
the Company of its own Voting Securities or (Y) a purchase of Voting Securities
of the Company in a firmly underwritten public offering of Voting Securities of
the Company; or

(c) Over a period of twenty-four (24) consecutive months or less, there is a
change in the composition of the Company’s Board of Directors (the “Board”) such
that a majority of the Board members (rounded up to the next whole number, if a
fraction) ceases, by reason of one or more proxy contests for the election of
Board members, to be composed of individuals who either (i) have been Board
members continuously since the beginning of that period, or (ii) have been
elected or nominated for election as Board members during such period by at
least a majority of the Board members described in the preceding clause (i) who
were still in office at the time that election or nomination was approved by the
Board.

Notwithstanding the foregoing, however, a “Change in Control” of the Company
shall not be deemed to have occurred within the meaning of this Section 1.5,
solely as the result of any acquisition of Voting Securities by the Company or
any subsidiary thereof that has the effect of (i) reducing the number of the
Company’s outstanding Voting Securities, or (ii) increasing the beneficial
ownership of the Company’s Voting Securities by any Person to more than fifty
percent (50%) of the Company’s outstanding Voting Securities; provided, however,
that, if

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any such Person shall thereafter become the direct or indirect beneficial owner
of any additional Voting Securities of the Company (other than pursuant to a
stock split, stock dividend, or similar transaction or as a result of an
acquisition of securities directly from the Company) and immediately thereafter
beneficially owns more than fifty percent (50%) of the then outstanding Voting
Securities of the Company, then, a “Change in Control” shall be deemed to have
occurred for purposes of this Section 1.5.

1.6 Disability. The terms “Disability” and “Disabled” shall mean Executive’s
incapacity due to physical or mental illness that causes the Executive to be
absent from his duties with the Company on a full-time basis for three
(3) consecutive months or a period of one hundred eighty (180) non-consecutive
days in any twelve (12) month period. In the event there is a dispute over
whether the Executive is disabled, then, such dispute shall be resolved by a
practicing physician, licensed as such and in good standing, in California that
is selected by the Company, to conduct a physical or, in the case of an alleged
mental disability a psychiatrist to conduct a psychological, examination of the
Executive and Executive agrees to submit to such examination in the event of
such a dispute. The determination of such physician or psychiatrist (as the case
may be) shall be binding on and non-appealable by the Parties. Any refusal or
failure of Executive to submit to such a physical or psychological examination
shall, for purposes of this Agreement, constitute Executive’s admission that he
is Disabled.

1.7 The term “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended, and any successor act thereto.

1.8 “Good Reason Event”. Each of the following actions that results from a
Change in Control of the Company or that is taken ( whether by the Company or a
Surviving Person) on the date of or at any time within twelve (12) months
following a Change in Control of the Company shall constitute a “Good Reason
Event”:

(a) Executive’s employment with the Company is terminated without Cause by the
Company or the Surviving Person (if other than the Company); or

(b) Executive’s authority, duties or responsibilities with Company or the
Surviving Person (if other than the Company) is materially reduced or
Executive’s principal position with Company or the Surviving Person (if other
than the Company) in a manner or to an extent that constitutes or would
generally be considered to constitute a demotion of Executive; provided,
however, that if either of the foregoing actions is taken by the Company or the
Surviving Person as a result of (i) the Disability of Executive, or (ii) any
acts or omissions of Executive or any other occurrence that would entitle
Company or the Surviving Person to terminate Executive’s employment hereunder
for Cause, then such action shall not entitle Executive to terminate his
employment for Good Reason pursuant to Section 6.1 of this Agreement; or

(c) Executive’s base salary or base compensation is reduced below the amount
thereof as prescribed by this Agreement, unless such reduction is made (i) as
part of an across-the-board cost cutting measure that is applied equally or
proportionately to all senior executives of Company or the Surviving Person (if
other than the Company), rather than discriminatorily against Executive, or
(ii) by and at the election of the Company or the Surviving Person (if other
than the Company) due to Executive’s Disability or any acts or omissions of
Executive or other occurrence that would entitle Company or the Surviving Person
to terminate Executive’s employment for Cause; or

(d) The Company or the Surviving Person (if other than the Company) breaches any
of its material obligations to Executive under this Agreement and fails to cure
such material breach prior to the expiration of a period of thirty (30) days
following the giving of a written notice from Executive to the Company or the
Surviving Person (if other than the Company) of such breach which sets forth, in
reasonable detail, the actions, facts or circumstances that Executive is
asserting constitute such a breach by the Company.

1.9 “Good Reason Termination” means a termination by Executive of his employment
and all other positions that he may hold with the Company or a Surviving Person
(if other than the Company), its Parent or any subsidiary thereof, effectuated
by Executive in accordance with the requirements of Section 6.1, due to the
occurrence of a Good Reason Event at the time of or at any time within (but not
later than) twelve (12) months following a Change of Control of the Company.

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1.10 “Good Reason Termination Notice” means a written notice given by Executive
to the Company or a Surviving Person (if other than the Company) which
(i) states that Executive is irrevocably terminating his employment with the
Company or the Surviving Person (if other than the Company), and all other
positions he may hold with the Parent (if any) or any subsidiary thereof,
pursuant to Section 6.1 hereof due to the occurrence of a Good Reason Event and
(ii) sets forth a description, in reasonable detail, of such Good Reason Event.
To be effective, a Good Reason Termination Notice must be given by Executive to
the Company or the Surviving Person (if other than the Company) within not more
than fifteen (15) days immediately following the date the Executive is first
notified in writing of the occurrence of a Good Reason Event.

1.11 The term “Parent” of a corporation or other entity means any Person that is
the beneficial owner, directly or indirectly, of a majority of the Voting
Securities (as defined below) of that corporation or other entity.

1.12 The terms “Person” and “person” mean any natural person and any
corporation, limited liability company, general or limited partnership, joint
venture, trust, estate or any other organization or entity.

1.13 “Surviving Person” shall mean the corporation or other entity that is the
surviving or continuing corporation or entity in a merger or consolidation of
the Company with another corporation or entity, whether that is the Company or
another party to such merger or consolidation.

1.14 The term “Voting Securities” of any Person that is a corporation means the
combined voting power of that Person’s then outstanding securities having the
right to vote in an election of that Person’s directors. The term “Voting
Securities” of any Person, other than a corporation, such as a partnership or
limited liability company, shall mean the combined voting power of that Person’s
outstanding ownership interests that are entitled to vote or select the
individuals (such as the managers of a limited liability company) that have
substantially the same authority or decision-making powers with respect to such
entity that are generally exercisable by directors of a corporation.

1.15 The term “Code” means the Internal Revenue Code of 1986 as has been amended
to date and as may be amended hereafter and any successor statute thereto that
may be promulgated during the term of this Agreement.

2. Employment as Chief Executive Officer.

2.1 Continued Employment of Executive. The Company shall continue to employ
Executive as the Company’s Chief Executive Officer for the term of this
Agreement as set forth in Section 3 hereof. Executive hereby accepts such
employment and agrees to serve in that position in accordance with the terms and
subject to the conditions contained in this Agreement. Executive shall perform
his duties and responsibilities as the Company’s CEO fully, faithfully and in a
diligent and timely manner throughout the term of his employment with the
Company and will, in his capacity as CEO, report to the Board of Directors of
the Company (the “Board of Directors” or the “Board”).

2.2 CEO Responsibilities. As the Company’s CEO, Executive shall be responsible
for (i) the formulation of strategic and business plans and initiatives for the
Company and its subsidiaries and, upon their approval by the Board, their
implementation, (ii) the supervision of the senior management personnel of the
Company and its subsidiaries, (iii) the financial performance and financial
condition of the Company and its subsidiaries, and (iv) the accuracy and
completeness of the Company’s financial and public reporting, including the
reports filed with the Securities and Exchange Commission, subject to the
oversight of the Company’s Board. Executive also shall perform such other duties
as may be assigned from time to time to Executive by the Board, provided that
such duties are commensurate with those customarily assigned to chief executive
officers of public companies with revenues and market capitalizations comparable
to that of the Company. Executive hereby represents and warrants that, except as
may otherwise have been disclosed in writing to the Company, he is under no
contractual or other commitments (written or oral) that are inconsistent or
would interfere with the performance of his duties as the Company’s CEO,
including, but not limited to, any non-competition, trade secret or
confidentiality or similar agreements. In addition, Executive also represents
that none of the information that he needs or will use in performing his duties
as the Company’s CEO was obtained from any Person who employed Executive in the
past as an employee or engaged Executive’s services as an non-employee
consultant or advisor.

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2.3 Employee Confidentiality Agreement. Concurrently herewith Executive shall
execute and deliver to the Company an Employee Confidentiality Agreement in a
form reasonably acceptable to the Company.

3. Term of Employment. Unless sooner terminated as provided in Section 5 or
Section 6 below, the term of Executive’s employment with the Company as its CEO
shall continue until and shall end on December 31, 2012 (the “Employment
Expiration Date”).

4. Compensation and Benefits. Executive’s compensation for all services rendered
to the Company or to any of its Affiliates (as hereinafter defined in this
Agreement) shall be as follows:

4.1 Salary. Executive will receive an base annual salary of Two Hundred
Thirty-Seven Thousand Five Hundred Dollars ($237,500) (the “Annual Salary”),
which shall be payable in installments at the times set forth in and in
accordance with the Company’s customary payroll policies, less tax and other
required withholdings. Executive’s Annual Salary may be (i) increased from time
to time during the term of his employment with the Company and (ii) may be
reduced as part of an across-the-board cost cutting measure that is applied
equally or proportionately to all senior executives of Company or the Surviving
Person (if other than the Company), rather than discriminatorily against
Executive, or by and at the election of the Company or the Surviving Person (if
other than the Company) due to Executive’s Disability or any acts or omissions
of Executive or other occurrence that would entitle Company or the Surviving
Person to terminate Executive’s employment for Cause, in each case as and to the
extent determined by the Compensation Committee of the Board (the “Compensation
Committee”). If Executive’s employment terminates other than on the last
business day of any calendar month, the salary payable to Executive for such
month shall be pro-rated based on the number of days in such month that
Executive was employed by the Company as its CEO.

4.2 Incentive or Bonus Compensation. During the term of his employment as the
Company’s CEO, Executive will be entitled to participate in cash and equity
incentive or bonus programs adopted by the Board of Directors or the
Compensation Committee that are generally made available to the Company’s
executive officers, subject to the eligibility requirements and the other terms
and conditions thereof, including any performance, time or other vesting
conditions; provided that it is understood and agreed that neither the Board of
Directors nor its Compensation Committee shall be obligated to adopt any such
incentive or bonus programs.

4.3 Employee Benefits. During the term of Executive’s employment as the
Company’s CEO, he will be entitled to participate in those employee benefit
programs that are generally made available to other full time employees of the
Company, subject to the eligibility requirements thereof, including, without
limitation, health insurance coverage for him and his immediate family, paid
vacation which shall accrue in accordance with the Company’s applicable vacation
policy, and any 401k or other ERISA compliant retirement savings plans.

4.4 Reimbursement of Expenses. Executive shall be entitled to be reimbursed
promptly for the reasonable out-of-pocket expenses incurred by him in the
performance of his duties for the Company, in accordance with and subject to the
Company’s expense reimbursement policies as in effect from time to time. Without
limiting the Company’s obligation pursuant to the preceding sentence, but
subject to Executive’s compliance with the Company’s expense reimbursement
policies, reimbursements of any such expenses shall (a) be paid to the Executive
no later than sixty (60) days following the end of the calendar year in which
the expenses were incurred, (b) the right to reimbursement during the year will
not affect reimbursements or in-kind benefits provided to the Executive in any
other year, and (c) the Executive’s right to reimbursement shall not be subject
to liquidation or exchange for any other benefit.

4.5 Taxes and Withholdings. All compensation and benefits payable to Executive
under this Agreement, including salary payments and any amounts that may become
payable to him pursuant to Section 5 or Section 6 below, shall be paid net of
any employment taxes and any other withholdings required pursuant to applicable
law or under any Company employee benefit plans or programs in which Executive
or his dependents participate.

5. Early Termination of Employment.

5.1 Termination of Executive’s Employment by the Company for Cause or by
Executive without Good Reason. The Company may terminate Executive’s employment
for Cause (as defined in Section 1.4 above), at any time effective on written
notice to him. Executive may resign or terminate his employment with the Company
at any time and for any reason effective on fifteen (15) days prior written
notice to the Company. If Executive elects to resign or terminate his employment
on 15 days’ prior written notice as provided above in this Section 5.1, the

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Company may elect, instead, to terminate Executive’s employment for Cause
effective immediately on written notice to Executive. On any termination of
Executive’s employment pursuant to this Section 5.1, whether by the Company for
Cause or by Executive for any reason, other than a termination of employment by
Executive pursuant to Section 6.1 below, Executive shall become entitled to
receive, and the Company’s sole obligation and liability to Executive shall be
to pay Executive, any unpaid salary, together any unpaid employee benefits and
any unused vacation, accrued to the effective date of such termination.

5.2 Termination of Employment due to Executive’s Disability or Death.
Executive’s employment with the Company shall terminate immediately in the event
of his Disability or death, and in either event, Executive or, in the case of
his death, Executive’s estate, shall be entitled to receive, and the Company’s
sole obligation and liability shall be to pay to Executive or his estate (as the
case may be), Executive’s unpaid salary, any unpaid employee benefits and any
unused vacation, in each case accrued to the effective date of such termination.

5.3 Termination by the Company without Cause.

(a) The Company may terminate this Agreement and Executive’s employment at any
time without Cause, effective on fifteen (15) days’ prior written notice to
Executive. Upon and by reason of any such termination of Executive’s employment
by the Company without Cause, Executive shall become entitled to receive, and
the Company’s sole and exclusive obligation and liability to Executive in such
event shall be, to pay to Executive in a single lump sum payment the annual
salary he would have received had he remained in the Company’s employ as its CEO
until the earlier of the Employment Expiration Date or the first anniversary of
the effective date of such termination of employment, together with any vested
but unpaid employee benefits and any unused vacation, in each case accrued to
the effective date of such termination of employment.

(b) If the Company breaches any of its material obligations to Executive under
this Agreement and such breach continues unremedied for a period of thirty
(30) days following the Company’s receipt of a written notice from Executive
setting forth, in reasonable detail, the facts and circumstances which
constitutes such breach, then Executive shall be entitled to terminate his
employment with the Company effective on ten (10) days prior written notice to
the Company. Upon any such termination by Executive of his employment, Executive
shall become entitled to receive the same compensation that he would have
received pursuant to Section 5.3(a) above to the same extent as if the Company
had terminated his employment without Cause. Notwithstanding the foregoing,
however, if any such breach occurs as a direct result of, or on or at any time
within twelve (12) months following, a Change in Control of the Company,
Executive’s rights and compensation and the obligations of the Company or a
Surviving Person (if other than the Company) to him by reason of such breach of
this Agreement shall be determined in accordance with and shall be governed by
Section 6 below and not this Section 5.3(b).

5.4 Exclusivity of Remedies. In the event of any termination of Executive’s
employment by the Company or by Executive pursuant to any of Sections 5.1, 5.2
or 5.3 hereof, the respective rights and remedies and the respective obligations
of the Parties hereto set forth in this Section 5 shall constitute the sole and
exclusive rights, remedies and obligations of the Parties arising out of or in
connection with any such termination of Executive’s employment with the Company,
and each Party expressly disclaims and waives any and all other rights or
remedies it or he (as the case may be) would, but for the provisions of this
Section 5.4, have under this Agreement or under applicable law by reason of such
termination of employment or the acts or omissions that led to such termination
of employment.

5.5 Effect of Termination of Employment on this Agreement and Executive’s other
Positions with the Company. Upon a termination of Executive’s employment with
the Company for any reason whatsoever, whether by the Company or Executive:

(a) this Agreement shall terminate and shall be of no further force or effect;
provided, however, that (i) Section 1, this Section 5, and Sections 6, 7 and 8
of this Agreement, and (ii) Executive’s Employee Confidentiality Agreement shall
survive any such termination of this Agreement; and

(b) Executive shall be deemed to have immediately resigned from all other
positions he may have then held with the Company or any of its subsidiaries,
including the position of a director of the Company and as a director of any of
its subsidiaries, without the necessity of any further action by the Company or
Executive to effectuate or evidence such resignations.

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5.6 Payment Delay. Notwithstanding anything herein to the contrary, to the
extent any payments to Executive pursuant to this Section 5 or Section 6 below,
are treated as non-qualified deferred compensation subject to Section 409A of
the Code, then (i) no such amount shall be payable pursuant to this Section 5 or
Section 6, as applicable, unless Executive’s termination of employment
constitutes a “separation from service” with the Company, as such term is
defined in Treasury Regulation § 1.409A-1(h) or any successor provision thereto
(a “Separation from Service”), and (ii) if Executive, at the time of his
Separation from Service, is determined by the Company to be a “specified
employee” for purposes of Section 409A(a)(2)(B)(i) of the Code and the Company
determines that delayed commencement of any portion of the termination benefits
payable to Executive pursuant to this Agreement is required in order to avoid a
prohibited distribution under Section 409A(a)(2)(B)(i) of the Code (any such
delayed commencement, a “Payment Delay”), then, such portion of the compensation
payable to Executive pursuant to this Section 5 or Section 6 shall not be
provided to Executive prior to the earlier of (A) the expiration of the six (6)
month period measured from the date of Executive’s Separation from Service,
(B) the date of the Executive’s death or (C) such earlier date as is permitted
under Section 409A of the Code. Upon the expiration of the applicable Code
Section 409A(a)(2)(B)(i) deferral period, all payments deferred pursuant to a
Payment Delay shall be paid in a lump sum to Executive within 10 days following
such expiration, without interest, and any remaining payments due under the
Agreement shall be paid as otherwise provided herein. The determination of
whether Executive is a “specified employee” for purposes of
Section 409A(a)(2)(B)(i) of the Code as of the time of his Separation from
Service shall made by the Company in accordance with the terms of Section 409A
of the Code and applicable guidance thereunder (including without limitation
Treasury Regulation Section 1.409A-1(i) or any successor provision thereto).

5.7 Exceptions to Payment Delay. Notwithstanding Section 5.6 above, to the
maximum extent permitted by applicable law, amounts payable to Executive
pursuant to this Section 5 or Section 6 shall be made in reliance upon Treasury
Regulation § 1.409A-1(b)(9) with respect to separation pay plans, or Treasury
Regulation § 1.409A-1(b)(4) with respect to short-term deferrals. Accordingly,
the severance or post termination payments provided for in this Section 5 and
Section 6 are not intended to provide for any deferral of compensation subject
to Section 409A of the Code to the extent (i) the severance payments payable
pursuant hereto or thereto by their terms, and determined as of the date of
Executive’s Separation from Service, may not be made later than the 15th day of
the third calendar month following the later of (A) the end of the Company’s
fiscal year in which Executive’s Separation from Service occurs or (B) the end
of the calendar year in which Executive’s Separation from Service occurs, or
(ii) (A) such severance payments do not exceed an amount equal to two times the
lesser of (1) the amount of Executive’s annualized compensation based upon
Executive’s annual rate of pay for the calendar year immediately preceding the
calendar year in which Executive’s Separation from Service occurs (adjusted for
any increase during the calendar year in which such Separation from Service
occurs that would be expected to continue indefinitely had Executive remained
employed with the Company) or (2) the maximum amount that may be taken into
account under a qualified plan pursuant to Section 401(a)(17) of the Code for
the calendar year in which Executive’s Separation from Service occurs, and
(B) such severance payments shall be completed no later than December 31 of the
second calendar year following the calendar year in which Executive’s Separation
from Service occurs.

6. Termination of Employment for Good Reason Following a Change in Control.

6.1 Good Reason Termination. Executive shall become entitled to terminate his
employment for Good Reason and to receive the Severance Compensation provided
for in Section 6.2 below, if (i) a Change in Control of the Company occurs while
Executive is still employed as the Company’s CEO, (ii) a Good Reason Event (as
defined in Section 1.8 hereof) occurs as a direct result of, or at the time of
or within (but not later than) twelve (12) months following, the consummation of
such Change in Control of the Company, and (iii) Executive terminates his
employment and all positions he may hold with the Company or the Surviving
Person (if other than the Company), due to the occurrence of such Good Reason
Event by giving the Company or the Surviving Person (if other than the Company)
a Good Reason Termination Notice within not more than fifteen (15) days
immediately following the date on which Executive is first notified, whether by
the Company or the Surviving Person (as the case may be), in writing of the
occurrence of such Good (such 15-day period, the “Good Reason Notice Period”);
provided, however, that, notwithstanding anything to the contrary that may be
set forth above in this Section 6.1 or elsewhere in this Agreement, it is
expressly agreed that Executive shall not be entitled to terminate his
employment due to the occurrence of Good Reason Event on or within 12 months
following the consummation of a Change in Control of the Company, if (x) the
Company or the Surviving Person was required to take any of actions set forth in
Section 1.8 in order to comply with any applicable laws or government
regulations or any order, ruling, instruction or determination of any government
agency having jurisdiction over Company or the Surviving Person or its Parent
(if any); (y) Executive fails to give the Company or the Surviving Person, as
the case maybe, the required Good Reason Termination Notice within the aforesaid
fifteen (15) day

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Good Reason Notice Period, or (iii) the Company or Surviving Person (as the case
may be) rescinds the Good Reason Event by written notice given to Executive
within fifteen (15) days of the receipt by the Company or the Surviving Person
(as the case may be) of the Good Reason Termination Notice from Executive. For
the avoidance of any doubt, if Executive fails to give a Good Reason Termination
Notice to the Company or the Surviving Person (if other than the Company) within
the 15-day Good Reason Notice Period, Executive shall be deemed to have
consented to the taking by the Company or the Surviving Company (as the case may
be) of the action constituting the Good Reason Event and shall not be entitled
to receive the Severance Compensation set forth in Section 6.2 below due to the
occurrence of such Good Reason Event.

6.2 Severance Compensation upon a Termination Pursuant to Section 6.1. Subject
to Sections 5.6, 5.7, 6.3, 6.4 and 6.5 hereof, upon a termination of Executive’s
employment pursuant to and meeting the applicable conditions of Section 6.1
above (a “Section 6 Termination”), then, in lieu of any further salary or other
compensation or benefits that would otherwise be due to Executive under this
Employment Agreement, or otherwise, for periods subsequent to the date of such
Section 6 Termination, Executive shall become entitled to receive the following
severance compensation and benefits:

(a) Accrued but Unpaid Amounts. All of Executive’s unpaid salary, vested but
unpaid benefits and unused vacation accrued to the effective date of such
Section 6 Termination.

(b) Salary Benefit. An amount, payable at the time and in the manner set forth
in Section 6.3 below, equal to one (1) times the Annual Salary being paid to
Executive under this Employment Agreement as of the date of such Section 6
Termination.

(c) Medical Insurance Continuation Benefit. Upon a timely election by Executive
of continuation coverage under COBRA following a termination of his employment
for Good Reason pursuant to Section 6.1, the Company, or the Surviving Person
(if other than the Company) will pay one hundred percent (100%) of Executive’s
COBRA premiums for medical insurance coverage as in effect on the day
immediately preceding the effective date of such termination of employment for a
period ending (i) eighteen (18) months following such termination of employment
or (ii) on the date Executive obtains employment with another employer that
makes health insurance available to him and his dependents (“Alternative
Insurance Coverage”), whichever is the shorter period (the “Medical Insurance
Continuation Benefit”). Executive agrees that if he obtains Alternative
Insurance Coverage from another employer prior to the expiration of the
above-mentioned 18-month period, he shall promptly notify the Company thereof.
Each medical insurance premium payment made pursuant to this Section 6.2(c)
shall be paid when due and shall be considered a separate payment for purposes
of Section 409A of the Code.

(d) Acceleration of Vesting of Equity Incentives. All unvested stock options and
unvested restricted shares shall automatically become fully vested without the
necessity of any action by the Company or the Surviving Person (if other than
the Company) or Executive.

Notwithstanding any other provision to the contrary that may be contained in
this Agreement, under no circumstances, shall the Executive be permitted to
exercise any discretion to modify the amount, timing or form of payment or
benefit described in this Section 6.2.

6.3 Timing and Manner of Payment. The cash portion of any Severance Compensation
that becomes payable to Executive as provided above in this Section 6 shall be
paid as follows:

(a) Except as otherwise set forth in Paragraph 6.3(b) below, Executive shall be
entitled to receive the payments referenced in Sections 6.2(a) and (b) in a
single lump sum, less tax and other required or applicable withholdings, on the
tenth (10th) business day following such Section 6 Termination.

(b) Notwithstanding the foregoing, however, if, on the date of the Section 6
Termination, the Company or the Surviving Person (if other than the Company) is
a reporting company under the Exchange Act and Executive is deemed at the time
of such termination of employment to be a “specified” employee under
Section 409A of the Code, then such payment shall be made to Executive in a
single lump sum on the first business day that occurs at the end of the period
which commences on the date of the Section 6 Termination and ending six (6)
months after the last day of the calendar month in which the date of such
termination occurred.

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6.4 No Requirement of Mitigation. Executive shall not be required to mitigate
the amount of any payment or benefit provided for in this Section 6 by seeking
other employment or otherwise, nor shall any compensation or other payments
received by the Executive from other Persons after the date of a Section 6
Termination reduce any payments due to him under this Section 6, except as
otherwise provided in Section 6.2(b) with respect to the Medical Insurance
Continuation Benefit payable pursuant thereto.

6.5 Parachute Limitations. Notwithstanding anything in this Agreement to the
contrary, if any compensation, payment, benefit or distribution by the Company
or a Surviving Person (as the case may be) to or for the benefit of Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (collectively, the “Severance Payments”), would be
subject to the excise tax imposed by Section 4999 of the Code, then, the
Severance Compensation payments shall be reduced to three (3) times Executive’s
“base amount” (within the meaning of Section 280G(b)(3) of the Code and the
regulations promulgated thereunder) less one dollar ($1.00).

6.6 Exclusivity of Remedies. In the event of a Section 6 Termination of
Executive’s employment, the respective rights and remedies and the respective
obligations of the Parties hereto set forth in this Section 6 shall constitute
the sole and exclusive rights, remedies and obligations of the Parties arising
out of or in connection with any such termination of Executive’s employment with
the Company or the Surviving Person (as the case may be), and each Party
expressly disclaims and waives any and all other rights or remedies it or he (as
the case may be) would, but for the provisions of this Section 6.6, have under
this Agreement or under applicable law by reason of such termination of
employment or the acts or omissions that led to such termination of employment.

7. Release of Claims. It shall be a condition precedent to the obligation of the
Company to pay Executive, and to the right of Executive to receive, the
compensation and benefits set forth in Section 5.3 above or the Severance
Compensation and benefits set forth in Section 6 above, that Executive shall
(i) execute and deliver to the Company or the Surviving Person (if other than
the Company), and not revoke, a separation and release agreement, in a form
prescribed by Company or the Surviving Person, as the case may be (the
“Separation Agreement”), and (ii) remain in full compliance with the Separation
Agreement. Such Separation Agreement shall include, without limitation, a
non-disparagement provision, a post-termination cooperation provision, a
confidentiality provision, a covenant not to sue and a general release of all
rights and claims, known or unknown, that Executive may have or may be entitled
to assert against the Company, the Surviving Company or any of their past,
present or future Affiliates, provided that such release shall not apply to
Executive’s rights or the Company’s obligations under Section 5.3 or Section 6
(as the case may be) of this Agreement.

8. Miscellaneous.

8.1 No Other Agreements. This Agreement, together with the Employee
Confidentiality Agreement and any existing agreements that provide for the grant
or award of stock-based compensation to Executive by the Company (the “Other
Agreements”) contain all of the terms and provisions relating to and governing
the employment relationship between Executive and the Company and shall
supersede any other prior or contemporaneous agreements or understandings
(written, oral or implied) between Executive and the Company relating in any way
to Executive’s employment as CEO of the Company.

8.2 Amendments and Waivers. This Agreement may be amended at any time, but only
by a written instrument signed by both Parties. A waiver by either Party of any
of its rights or any of the obligations of the other Party under this Agreement
shall not be binding, effective or enforceable unless such waiver is set forth
in an instrument in writing signed by the Party to be charged thereby. No
failure to exercise and no delay on the part of either Party in exercising any
right or power hereunder or granted by law will operate as a waiver thereof and
any single or partial exercise of any right, power or privilege shall not
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.

8.3 Severability. If any provision of this Agreement or of the Employee
Confidentiality Agreement is held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions hereof or
thereof (as the case may be) shall not be affected or impaired in any way.

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8.4 Governing Law. This Agreement is made and is to be performed in the state of
California and shall be governed by, construed in accordance with and enforced
under the internal laws of the State of California, excluding its choice of law
rules and principles.

8.5 Arbitration.

(a) Arbitration. Any dispute between the Parties relating to this Agreement or
any agreements entered into pursuant hereto, including any controversy or
dispute regarding the enforceability or the interpretation of any of the
provisions hereof or thereof, or with respect to any alleged or actual
non-performance by a Party of its obligations hereunder or thereunder or with
respect to Executive’s performance as the Company’s CEO, shall be resolved
exclusively by binding arbitration in accordance with the rules of commercial
arbitration of the American Arbitration Association. Any arbitration proceeding
shall be held exclusively in Santa Clara County, California and any service of
process in or in connection with any such proceeding shall be adequate if sent
by certified or registered mail, postage prepaid to the address of the other
Party last communicated in writing by such other Party to the Party initiating
such arbitration. The determinations of the arbitrator in any such proceeding
shall be final and binding on and non-appealable by the Parties. Each Party
shall bear and pay the fees and disbursements of the attorneys, accountants and
expert witnesses incurred by such Party in any such arbitration proceeding.

(b) Waiver of Jury Trial. Each Party acknowledges that by agreeing to resolve
any disputes between the Parties exclusively by arbitration, as provided in
Section 8.5(a) above, such Party is waiving any right it or he may have to
resolve such disputes or controversies by means of a trial by jury. EACH PARTY
DOES HEREBY EXPRESSLY AND IRREVOCABLY WAIVE SUCH PARTY’S RIGHTS TO A TRIAL BY
JURY IN ANY SUCH ARBITRATION OR OTHER PROCEEDING BETWEEN THE PARTIES RELATING IN
ANY WAY TO THIS AGREEMENT OR TO ANY OF THE OTHER MATTERS SET FORTH IN SECTION
8.5(a) ABOVE, AND EXPRESSLY AND IRREVOCABLY AGREES THAT THE TRIER OF FACT IN ANY
SUCH ARBITRATION PROCEEDING SHALL BE THE ARBITRATOR.

(c) Exception for Equitable Relief. Notwithstanding anything to the contrary
that may be contained above in this Section 8.5, each Party shall have the right
to petition and obtain from any court of competent jurisdiction any equitable
remedies, including temporary, preliminary and permanent injunctive relief, to
obtain a halt to any breach of this Agreement, or to prevent a threatened breach
of this Agreement from taking place or to obtain specific performance of any of
the obligations of the other Party hereunder, and it is further expressly agreed
by the Parties that, in the event any action or proceeding is brought in equity
to obtain any such relief or remedies, no Party will urge, as a defense thereto,
that there is an adequate remedy available at law and no Party seeking such
relief shall be obligated to post a bond or other security as a condition to the
granting of any such remedies or the continued effectiveness thereof.

8.6 Rules of Construction and Certain Additional Definitions. No party hereto,
nor its respective counsel, shall be deemed the drafter of this Agreement for
purposes of construing or applying any of the terms or provisions of this
Agreement, and all such terms and provisions shall be construed in accordance
with their fair meanings, and not strictly for or against any party hereto.
Unless the context in which such terms are used clearly and unambiguously
indicates otherwise, for purposes of this Agreement (i) the term “or” shall not
be exclusive, (ii) the terms “including” and “include” shall not be limiting and
shall mean “including, but not limited to,” and “include without limitation”,
(iii) the terms “herein,” “hereof,” “hereto,” “hereunder”, “hereinafter” and
other similar terms shall refer to this Agreement as a whole and not to the
specific section, subsection, paragraph or clause where such terms may appear,
and (iv) whenever required by the context, the masculine gender shall include
the feminine and neuter genders, and vice versa and the singular shall include
the plural, and vice versa.

8.7 Restrictions on Assignment and Delegation. No Party may transfer or assign
any of its rights or delegate any of its obligations under this Agreement and
any attempt to do so shall be null and void; provided, however, that the Company
shall be entitled, without the necessity of having to obtain the consent of
Executive, to assign this Agreement and delegate its duties hereunder to any
corporation or other entity that acquires a majority or more of the outstanding
common stock or all or substantially all of the assets of the Company, whether
by purchase, merger, consolidation or otherwise.

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8.8 Binding on Successors. Subject to Section 8.7 above, this Agreement shall
inure to and be binding on the Parties and their respective heirs, legal
representatives and successors and assigns.

8.9 Headings. Section, subsection and paragraph headings are for convenience of
reference only and shall not affect the meaning or have any bearing on the
interpretation of any provision of this Agreement.

8.10 Counterparts. This Agreement may be executed in any number of counterparts,
and each of such signed counterparts, including any photocopies or facsimile
copies thereof, shall be deemed to be an original, but all of such counterparts
shall constitute one and the same instrument.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and date first above written:

 

THE COAST DISTRIBUTION SYSTEM, INC. By:  

  /s/  THOMAS R. McGUIRE

   Thomas R. McGuire, Executive Chairman EXECUTIVE:

        /s/  JAMES MUSBACH

          James Musbach