Note 12—Deferred Compensation Plan

In January 2010, the Company adopted the U.S. Auto Parts Network, Inc. Management Deferred Compensation Plan (the "Deferred Compensation Plan"), for the purpose of providing highly compensated employees a program to meet their financial planning needs. The Deferred Compensation Plan provides participants with the opportunity to defer up to 90% of their base salary and up to 100% of their annual earned bonus, all of which, together with the associated investment returns, are 100% vested from the outset. The Deferred Compensation Plan, which is designed to be exempt from most provisions of the Employee Retirement Security Act of 1974, is informally funded by the Company through the purchase of Company-owned life insurance policies with the Company as the owner and beneficiary, in order to preserve the tax-deferred savings advantages of a non-qualified plan. The Deferred Compensation Plan assets are the cash surrender value of the Company-owned life insurance policies and not associated with the deferred compensation liability. The deferred compensation liabilities (consisting of employer contributions, employee deferrals and associated earnings and losses) are general unsecured obligations of USAP. Liabilities under the Deferred Compensation Plan are recorded at amounts due to participants, based on the fair value of participants' selected investments. The Company may at its discretion contribute certain amounts to eligible employee accounts. In January 2010, the Company began to contribute 50% of the first 2% of participants' eligible contributions into their Deferred Compensation Plan accounts. In September 2010, the Company established and transferred its ownership to a rabbi trust to hold the Company-owned life insurance policies. As of October 1, 2011, the assets and associated liabilities of the Deferred Compensation Plan were $0.4 million and are included in other non-current assets and non-current liabilities, respectively, in our condensed consolidated balance sheets. The associated liabilities mainly include the employee contributions of $0.3 million and the Company contributions of $0.1 million made as of October 1, 2011. Included in other income, the Company recorded a gain of $11,000 and a gain of $20,000 for the change in the cash surrender value of the Company-owned life insurance policies during the thirteen and thirty-nine weeks ended October 1, 2011, respectively. As of October 2, 2010, the assets and associated liabilities of the Deferred Compensation Plan were $0.2 million. The associated liabilities mainly include the employee contributions of $0.2 million and the employer contributions of $30,000 made as of October 2, 2010. Included in other income, the Company recorded a gain of $20,000 and a loss of $10,000 for the change in the cash surrender value of the Company-owned life insurance policies during the thirteen and thirty-nine weeks ended October 2, 2010, respectively.