Exhibit 10.3

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”), dated and effective December 17,
2013 (“Effective Date”), is entered into by and between KAR Auction
Services, Inc. (“Employer”) and Thomas Caruso (“Employee”).

 

RECITALS

 

A.                                    Employer desires to employ Employee as its
Chief Client Officer pursuant to the terms and conditions set forth in this
Agreement.

 

B.                                    Employee desires to accept such
employment.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

 

1.                                      Employment Period.  The period of
employment of Employee by Employer hereunder shall commence on the Effective
Date and continue thereafter until terminated pursuant to Section 4 of this
Agreement (the “Employment Period”).

 

2.                                      Title and Duties.  During the Employment
Period, Employee shall serve as the Chief Client Officer of Employer and shall
perform the duties and responsibilities inherent in such position and any other
duties consistent with such position as may be reasonably assigned to Employee
from time to time by Employer’s Chief Executive Officer or Board of Directors of
Employer (“Board”).  Employee shall perform the duties of this position in a
diligent and competent manner and on a full-time basis during the Employment
Period.

 

3.                                      Compensation and Benefits.

 

(a)                                 Base Salary.  During the Employment Period,
Employee shall be paid an annual base salary of $425,000 (“Base Salary”), less
withholdings and deductions required by law or requested by Employee. 
Employee’s Base Salary may be adjusted but may not be adjusted downward except
in connection with across-the-board base salary reductions, by the Board from
time to time.

 

(b)                                 Business Expenses.  Employer shall reimburse
Employee for all reasonable business expenses incurred in performing services
pursuant to this Agreement upon Employee’s presentation to Employer, on a timely
basis, of satisfactory documentation of such expenditures.  Such expenses shall
be reimbursed as soon as administratively feasible, but in no event later than
the end of the calendar year following the calendar year in which the applicable
expense was incurred.  Notwithstanding the foregoing, all such expenses shall be
reimbursed upon any termination of Employee’s employment under this Agreement,
including without limitation a termination for Cause.

 

(c)                                  Annual Bonuses.  In addition to Base
Salary, Employee shall be eligible to participate in the KAR Auction
Services, Inc. Annual Incentive Plan (the “Bonus Plan”) (as in effect from time
to time).  Except as provided in Section 4 and Section 5 below, payment to
Employee of any amounts under the Bonus Plan shall be subject to Employee’s
continued employment with Employer through December 31 of

 

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the calendar year to which such bonus relates.  Payment of any bonus pursuant to
the Bonus Plan shall be made as soon as practicable but in no event later than
March 15 of the year following the calendar year to which such bonus relates.

 

(d)                                 Equity.         Employee shall be eligible
to participate in all Employer incentive programs extended to executive-level
employees of Employer generally at levels commensurate with Employee’s position,
including without limitation the KAR Auction Services, Inc. 2009 Omnibus Stock
and Incentive Plan.

 

(e)                                  Employee Benefits.  Employee shall be
eligible to participate in Employer’s health and welfare benefit programs,
401(k) benefit program, life and disability insurance programs, and any other
employee benefits, benefit plans, policies or programs Employer provides to its
executive-level employees, in each case, as they may exist from time to time and
subject to the terms and conditions thereof.  Nothing in this Agreement shall
require Employer to maintain any benefit plan, or shall preclude Employer from
terminating or amending any benefit plan from time to time.

 

(f)                                   Vacation and Holidays.  During the
Employment Period, Employee shall be entitled to annual paid vacation in
accordance with Employer’s policy applicable to executive-level employees, but
in no event less than four (4) weeks of paid vacation during each full calendar
year of employment.  Employee shall receive a pro-rated portion of such vacation
during Employee’s initial and final partial calendar years of employment under
this Agreement.  Unused, earned vacation shall not carry over from one calendar
year to the next, unless Employer’s written policies otherwise provide for such
carry over.  Upon termination of Employee’s employment for any reason, Employer
shall pay Employee for any unused, earned vacation days based upon Employee’s
then current Base Salary.  Employee shall also be entitled to all of the paid
holidays recognized by Employer generally.

 

(g)                                  Automobile Allowance.  During the
Employment Period, Employer shall pay Employee an annual automobile allowance of
at least Fifteen Thousand Dollars ($15,000).  Such allowance shall be paid in
accordance with Employer’s regular payroll practices, as may be in effect from
time to time, but in no event less frequently than monthly.

 

4.                                      Termination.

 

(a)                                 Termination by Employer for Cause.  Employer
may terminate Employee’s employment under this Agreement at any time for Cause
after the Board, by the majority vote of its members (excluding, for this
purpose, any employee member of the Board, if applicable) determines that the
actions or inactions of Employee constitute Cause, and Employee’s employment
should accordingly be terminated for Cause.  In the event of a termination of
Employee by Employer for Cause, Employee or Employee’s estate, if applicable,
shall be entitled to receive: (i) Employee’s accrued Base Salary through the
termination date, paid within 30 days of the termination date; (ii) an amount
for reimbursement, paid within 30 days following submission by Employee to
Employer of appropriate supporting documentation for any unreimbursed business
expenses properly incurred prior to the termination date by Employee pursuant to
Section 3(b) and in accordance with Employer’s policy; (iii) any accrued and
unpaid vacation pay, paid within 30 days of the termination date; and (iv) such
employee benefits, if any, to which Employee or Employee’s dependents may be
entitled under the employee benefit plans or programs of Employer, paid in
accordance with the terms of the applicable plans or programs (the amounts
described in clauses (i) through (iv) hereof being referred to as “Employee’s
Accrued Obligations”).

 

For purposes of this Agreement, “Cause” means (A) Employee’s willful, continued
and uncured failure to perform substantially Employee’s duties under this
Agreement (other than any such failure resulting from incapacity due to
medically documented illness or injury) for a period of fourteen (14) days
following written notice by Employer to Employee of such failure, (B) Employee
engaging in illegal conduct or

 

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gross misconduct that is demonstrably likely to lead to material injury to
Employer, monetarily or otherwise, (C) Employee’s indictment or conviction of,
or plea of nolo contendere to, a crime constituting a felony or any other crime
involving moral turpitude, or (D) Employee’s violation of Section 7 of this
Agreement or any other covenants owed to Employer by Employee.

 

(b)                                 Termination by Employer without Cause. 
Employer may terminate Employee’s employment under this Agreement without Cause
at any time upon thirty (30) days’ prior written notice to Employee.  In
addition to the severance benefits provided in Section 5, in the event of
Employee’s termination by Employer without Cause, Employer shall pay to Employee
all of Employee’s Accrued Obligations.

 

(c)                                  Termination by Employee for Good Reason. 
Employee may terminate Employee’s employment under this Agreement for Good
Reason.  For purposes of this Agreement, “Good Reason” means the occurrence of
any of the following:

 

(i)                                     Any material reduction of Employee’s
authority, duties and responsibilities;

 

(ii)                                  Any material failure by Employer to comply
with any of the terms and conditions of this Agreement;

 

(iii)                               Any failure to timely pay or provide
Employee’s Base Salary, or any reduction in Employee’s Base Salary, excluding
any Base Salary reduction made in connection with across the board salary
reductions;

 

(iv)                              The requirement by Employer that Employee
relocate Employee’s principal business location to a location more than fifty
(50) miles from Employee’s principal base of operation as of the Effective Date;
or

 

(v)                                 A Change of Control occurs and, if
applicable, Employer fails to cause its successor (whether by purchase, merger,
consolidation or otherwise) to assume or reaffirm Employer’s obligations under
this Agreement without change.  For purposes of this Agreement, “Change of
Control” shall have the meaning assigned to such term under the KAR Auction
Services, Inc. 2009 Omnibus Stock and Incentive Plan.

 

Within ninety (90) days of the occurrence of a Good Reason event, Employee may
provide Employer with written notice of Employee’s termination of employment to
be effective thirty (30) days after delivery of such notice, during which
Employer shall have the opportunity to cure such Good Reason event.  In the
event of a termination for Good Reason, in addition to the severance benefits
provided in Section 5, Employer shall pay to Employee all of Employee’s Accrued
Obligations.

 

(d)                                 Termination by Employee without Good
Reason.  Employee may terminate Employee’s employment under this Agreement at
any time without Good Reason, upon thirty (30) days’ prior written notice to
Employer.  In the event of a termination described in this Section 4(d),
Employer shall pay to Employee all of Employee’s Accrued Obligations.

 

(e)                                  Termination due to Employee’s death or
Disability.  Employee’s employment under this Agreement shall terminate upon
Employee’s (i) death, or (ii) “Disability,” which for purposes of this Agreement
means a “Total Disability” (or equivalent) as defined under Employer’s Long Term
Disability Plan in effect at the time of the Disability.  In the event of a
termination described in this Section 4(e), Employer shall pay to Employee all
of Employee’s Accrued Obligations.  In addition, (i) if Employee is

 

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participating in the health plans of Employer at the time of termination,
Employer shall pay to Employee the premiums attributable to maintaining
Employee’s (and Employee’s qualified beneficiaries’) insurance coverage under
the Consolidated Omnibus Budget Reconciliation Act until the earlier of (A) the
date that is twelve (12) months following the date of termination and (B) the
date Employee is or becomes eligible for comparable coverage under health plans
of another employer (the “Continued Benefits”), (ii) Employer shall pay to
Employee (or Employee’s estate and/or beneficiaries), in a lump sum following
effectiveness of the release described in Section 6 and at the same time
Employer pays annual bonuses for such calendar year to its other executives, an
amount equal to (x) the actual bonus Employee would have received under the
Bonus Plan had Employee remained employed by Employer through the remainder of
the calendar year in which termination occurred, multiplied by (y) a fraction,
the numerator of which is the number of days Employee was employed in the
calendar year in which termination occurred and the denominator of which is 365
and (iii) Employer shall pay to Employee (or Employee’s estate and/or
beneficiaries) an amount equal to any annual bonus for a prior completed
calendar year that is yet to be calculated and/or paid to Employee, paid as soon
as practicable following effectiveness of the release described in Section 6 but
in no event later than March 15 of the year following the calendar year to which
such bonus relates (the “Earned But Unpaid Bonus”).

 

5.                                      Severance Benefits.  In the event of a
termination of Employee’s employment under Section 4(b) or 4(c) of this
Agreement, Employer shall provide Employee with the following severance
benefits:

 

(a)                                 Employer shall pay to Employee an amount
equal to the sum of (i) Employee’s annual Base Salary and (ii) Employee’s bonus
at target for the year in which termination occurs, which shall be paid by
Employer to Employee in a lump sum as soon as practicable following (and subject
to) effectiveness of the release described in Section 6 but in no event later
than sixty (60) days following the date of termination, provided that if such
sixty (60) day period covers two taxable years, payment shall be made in the
second taxable year.

 

(b)                                 The Continued Benefits; and

 

(c)                                  The Earned But Unpaid Bonus.

 

6.                                      Release of Claims.  As a condition to
the receipt of any payments or benefits described in Section 5 of this
Agreement, subsequent to the termination of the employment of Employee (other
than any Accrued Benefits or any payment or benefits payable on account of
Employee’s death), Employee shall be required to execute, and not subsequently
revoke, within fifty (50) days following the termination of Employee’s
employment a release, in a form reasonably satisfactory to Employer, of all
claims arising out of or related to Employee’s employment or the termination
thereof.

 

7.                                      Restricted Activities.

 

(a)                                 Acknowledgements.  Employee understands and
acknowledges that Employer has invested, and continues to invest, substantial
time, money and specialized knowledge into developing its resources, creating a
customer base, generating customer and potential customer lists, training its
employees, and improving its offerings in the field of wholesale, retail or
consumer vehicle remarketing, including but not limited to vehicle auctions
(whole car and salvage), online services, or dealer floor-plan financing. 
Employee understands and acknowledges that as a result of these efforts,
Employer has created, and continues to use and create, Confidential Information
(as defined below) and that such Confidential Information is integral to
providing Employer with a competitive advantage over others in the marketplace. 
Employee further understands and acknowledges that the nature of Employee’s
position gives him access to and knowledge of Confidential Information and
places him in a position of trust and confidence with Employer.

 

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(b)                                 Confidential Information.  Employee
acknowledges and agrees that Confidential Information is the property of
Employer, and that Employee shall not acquire any ownership rights in
Confidential Information.  Employee (i) shall use Confidential Information
solely in connection with Employee’s employment with Employer; (ii) shall not
directly or indirectly disclose, use or exploit any Confidential Information for
Employee’s own benefit or for the benefit of any person or entity, other than
Employer, both during and after Employee’s employment with Employer; and
(iii) shall hold Confidential Information in trust and confidence, and use all
reasonable means to assure that it is not directly or indirectly disclosed to or
copied by unauthorized persons or used in an unauthorized manner, both during
and after Employee’s employment with Employer.  To the extent that Employee
creates or develops any Confidential Information during the course of Employee’s
employment with Employer, it shall be the sole and exclusive property of
Employer.  For purposes of this Agreement, “Confidential Information” shall mean
any proprietary, confidential and competitively-sensitive information and
materials which are the property of Employer, excluding information and
materials generally known or available to the public, other than as a result of
Employee’s breach of this Section 7, and including without limitation (A) trade
secrets, (B) business and technical information that gives Employer a
competitive advantage, and (C) information concerning Employer’s customers,
suppliers, vendors, licensors, affiliates, financing sources, profits, revenues,
financial condition, pricing, training programs, service techniques, service
processes, marketing plans, and business strategies.

 

(c)                                  Intellectual Property.  Employee agrees to
promptly disclose to Employer and hereby assigns and agrees to assign, without
further compensation, to Employer, Employee’s entire right, title and interest
in each and every invention (whether or not patentable), technological
innovation, and copyrightable work, in which Employee participates during
Employee’s employment with Employer whether or not during working hours, that
pertains to Employer’s business or is aided by the use of time, material, or
facilities of Employer.  Employee further agrees to perform all reasonable acts,
including executing necessary documents, requested by Employer to assist it,
without further compensation, in obtaining and enforcing its property rights in
the above.

 

(d)                                 Non-Competition.  During Employee’s
employment with Employer and for a period of one (1) year immediately following
the termination of Employee’s employment for any reason, Employee shall not
within the United States or Canada perform for or on behalf of any Competitor
(as defined below), the same or similar services as those that the Employee
performed for Employer during Employee’s employment with Employer.  In addition,
Employee shall not, during Employee’s employment with Employer and for a period
of one (1) year immediately following the termination of Employee’s employment
for any reason, within the United States or Canada, engage in, own, operate, or
control any Competitor.  For purposes of this Agreement, “Competitor” means any
person or entity engaged in the business of wholesale, retail or consumer
vehicle remarketing activities, including but not limited to vehicle auctions
(whole car or salvage), online services, or dealer floor plan financing within
the United States or Canada, provided that Employer (either directly or
indirectly through its controlled subsidiaries) is engaged in such businesses.

 

(e)                                  Non-Solicitation/Non-Interference.  During
Employee’s employment with Employer and for a period of one (1) year immediately
following the termination of Employee’s employment for any reason, Employee
shall not (i) induce or attempt to induce any employee of Employer to leave the
employ of Employer, or in any way interfere with the relationship between
Employer and any of its employees, or (ii) induce or attempt to induce any
customer, client, member, supplier, licensee, licensor or other business
relation of Employer to cease doing business with Employer, or otherwise
interfere with the business relationship between Employer and any such customer,
client, member, supplier, licensee, licensor or business relation of Employer.

 

8.                                      Section 409A.  The payments and benefits
under this Agreement and the terms of any release agreement are intended to be
exempt from Section 409A of the Internal Revenue Code of 1986, as amended
(“Code”), and the regulations promulgated thereunder (“Section 409A”) and,
accordingly, to the maximum extent permitted, this Agreement and any release

 

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agreement shall be interpreted and administered consistent with such intent.  If
under this Agreement, an amount is to be paid in two or more installments, for
purposes of Section 409A, each installment shall be treated as a separate
payments.  Without limiting the foregoing, solely to the extent required to
avoid the imposition of any additional tax or interest to the Employee under
Section 409A, any payments, benefits and other obligations under this Agreement
that arise in connection with Employee’s “termination of employment,”
“termination” or similar reference in this Agreement shall be triggered only if
such termination of employment qualifies as a “separation from service” within
the meaning under Section 409A.  Notwithstanding any other provision of this
Agreement, if at the time of the termination of Employee’s employment, Employee
is a “specified employee,” for purposes of Section 409A, and any payments or
benefits upon such termination including but not limited to payments or benefits
under this Agreement would otherwise result in additional tax or interest to the
employee under Section 409A, Employee will not be entitled to receive such
payments or benefits until the date that is six (6) months after the termination
of the Employee’s employment for any reason, subject to earlier immediate
payment if the employee dies during such six (6) month period.  To the extent
required to avoid the imposition of any additional tax or interest under
Section 409A, amounts reimbursable to under this Agreement shall be paid to
Employee on or before the last day of the year following the year in which the
expense was incurred and the amount of expenses eligible for reimbursement (and
in-kind benefits provided to Employee) during any one year may not affect
amounts reimbursable or provided in any subsequent year.  If any provision of
this Agreement would subject Employee to any additional tax or interest under
Section 409A, then Employer shall use its best efforts to amend such provision;
provided that Employer shall not incur any additional expense as a result of
such amendment.  Notwithstanding any other provision hereof, in no event shall
Employer be liable for, or be required to indemnify Employee for, any liability
of Employee for taxes or penalties under Section 409A.

 

9.                                      Arbitration.  Any dispute, controversy
or claim arising out of or relating to this Agreement, the breach, termination,
enforcement, interpretation, or validity thereof (including the determination of
the scope or applicability of this arbitration agreement), or its subject matter
shall be subject and resolved by binding arbitration administered by a single
arbitrator from the American Arbitration Association.  The parties acknowledge
and agree that Employer is involved in transactions involving interstate
commerce and that the Federal Arbitration Act shall govern any arbitration
pursuant to this Agreement.  Such arbitration shall be conducted in accordance
with the commercial rules and regulations promulgated by the American
Arbitration Association applying the laws of the State of Indiana.  The
arbitration shall be conducted in Indianapolis, Indiana.  Discovery shall be
completed within ninety (90) days of the filing of the complaint and the
arbitration shall be held no later than one hundred twenty (120) days after the
filing of the complaint.  A record of the proceedings shall be kept by a
qualified court reporter.  The decision of the arbitrator shall contain findings
of fact and conclusions of law, and shall be made within thirty (30) days of the
arbitration and shall be final and binding on the parties, and shall be
unappealable.  The decision may be enforced in any court having jurisdiction
over the parties and the subject matter.  Costs of the arbitrator shall be split
equally between Employer and Employee.

 

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10.                               Miscellaneous Provisions.

 

(a)                                 Notices.  For the purposes of this
Agreement, notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or mailed by certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below:

 

To Employer:

KAR Auction Services, Inc.

 

13085 Hamilton Crossing Blvd.

 

Carmel, IN 46032

 

Attention: Rebecca C. Polak, Esq.

 

Email: becca.polak@karauctionservices.com

 

 

To Employee:

At Employee’s address on file with Employer

 

(b)                                 Entire Agreement.  This Agreement sets forth
the entire agreement between Employer and Employee with respect to the subject
matter of this Agreement and fully supersedes all prior negotiations,
representations and agreements, whether written or oral, between Employer and
Employee with respect to the subject matter of this Agreement.

 

(c)                                  Severability.  The provisions of this
Agreement are severable and shall be separately construed.  If any of them is
determined to be unenforceable by any court, that determination shall not
invalidate any other provision of this Agreement.

 

(d)                                 Amendment and Waiver.  This Agreement may
not be modified, amended or waived in any manner except by a written document
executed by Employer and Employee.  The waiver by either party of compliance
with any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any other provision of this Agreement (whether or not
similar), or a continuing waiver or a waiver of any subsequent breach by such
party of a provision of this Agreement.

 

(e)                                  No Mitigation.  In no event shall Employee
be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to Employee under any of the provisions of
this Agreement and such amounts shall not be reduced whether or not the Employee
obtains other employment.

 

(f)                                   Successors and Assigns.  This Agreement
and the covenants herein shall extend to and inure to the benefit of the
successors and assigns of Employer.  Employer shall require any successor
(whether by purchase, merger, consolidation or otherwise) to assume or reaffirm,
as applicable, Employer’s obligations under this Agreement without change. 
Failure of Employer to obtain such an assumption shall entitle Employee to
terminate Employee’s employment under this Agreement for Good Reason.

 

(g)                                  Headings.  Numbers and titles to Sections
hereof are for information purposes only and, where inconsistent with the text,
are to be disregarded.

 

(h)                                 Counterparts.  This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which when taken together, shall be and constitute one and
the same instrument.

 

(i)                                     Governing Law and Forum.  This Agreement
shall be governed by and construed according to the internal laws of the State
of Indiana, without regard to conflict of law principles.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first set forth above.

 

“Employer”

 

“Employee”

 

 

 

KAR AUCTION SERVICES, INC.

 

 

 

 

 

 

 

 

By:

/s/ James P. Hallett

 

/s/ Thomas Caruso

 

 

 

 

Printed:

James P. Hallett

 

 

 

 

 

 

Title:

Chief Executive Officer

 

 

 

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