Exhibit 10.4

 

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 Don Gottwald (“Employee”).

 

RECITALS

 

A.            Employer desires to employ Employee as Chief Executive Officer of
Automotive Finance Corporation 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 Executive Officer of Automotive Finance Corporation 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 $424,483 (“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

 

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Bonus Plan shall be subject to Employee’s continued employment with Employer
through December 31 of 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 Eighteen Thousand
Dollars ($18,000).  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, including, but not limited to, the
Automotive Finance Corporation Offer Letter dated December 3, 2008 and the
Automotive Finance Corporation Amendment to Offer Letter dated December 20,
2012.

 

(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.

 

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[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/ Don Gottwald

 

 

 

Printed:

James P. Hallett

 

 

 

 

 

Title:

Chief Executive Officer

 

 

 

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