EXHIBIT 10.4
XXXXX X. XXXXXXX
SALE BONUS AGREEMENT
THIS SALE BONUS AGREEMENT (this "Agreement"), is made and entered into as
of December 7, 2004, between DEI HOLDINGS, INC. (the "Company") and XXXXX X.
XXXXXXX (the "Executive").
Recitals
A. The Executive and Directed Electronics, Inc., a subsidiary of the
Company ("DEI"), have entered into an Amended and Restated Employment Agreement,
dated as of January 1, 2004 (the "Employment Agreement").
B. Pursuant to a recapitalization of the Company, effective as of June 17,
2004, (i) the Company paid a special dividend to its shareholders, and (ii) in
connection with such dividend, the Company paid to Executive $1,280,007 pursuant
to that certain Third Amended and Restated Equity Participation Right Agreement,
dated as of January 1, 2004, between the Company and the Executive (the "Prior
Agreement").
C. On or about September 17, 2004, certain Company shareholders
contributed $6.0 million additional equity to the Company in connection with an
acquisition.
D. The parties are entering into this Agreement for the purpose of (i)
providing the Executive an incentive to increase the value of the Company by
granting him the right to receive a percentage of the proceeds received by the
Company's shareholders as a result of certain liquidity events, and (ii)
terminating the Prior Agreement.
E. The parties' intent is that upon specified liquidity events, the
Company pay to the Executive a percentage of the proceeds distributable to
common holders (not warrant holders) as follows:
(i) the Executive shall not receive any percentage of the net
proceeds necessary to "repay" a "base equity amount" equal to
the sum of (x) the $6.0 million of equity contributed in
September 2004, plus (y) any additional equity contributed
after the date hereof, together with a 12% annual "preferred
return" on such additional equity;
(ii) the Executive shall receive 2.25% of the next $79,774,798 of
net proceeds above the base equity amount, up to a maximum of
$1,794,933 (i.e., 2.25% of such proceeds amount, which,
together with the $102,443,890 previously paid as a special
dividend to the Company's shareholders, equals $182,218,688,
or four times such shareholders' initial equity investment of
$45,554,672);
(iii) if the net proceeds are more than $79,774,798 but less than
$83,750,000 above the base equity amount, the Executive shall
receive (x) 2.5% of such excess proceeds, up to $99,380 (i.e.,
2.5% of $3,975,202), plus (y) 0.25% of the first $136,664,016
(i.e., $182,218,688 less the $45,554,672 initial equity
investment), or $341,660;
(iv) as a result, if there are $83,750,000 of net proceeds
distributable to common holders in excess of the base equity
amount, the Executive shall receive $2,235,973 (i.e.,
$1,794,933 plus $99,380 plus $341,660); and
(v) the Executive shall receive 5% of all net proceeds
distributable to common holders in excess of the sum of (x)
the base equity amount, plus (y) $83,750,000.
F. Attached as Annex A are certain examples showing the payment due the
Executive under various sale scenarios.
Agreement
NOW THEREFORE, intending to be legally bound, the parties hereby agree as
follows.
1. Definitions. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Employment Agreement. In
addition, the following terms when used in this Agreement have the meanings set
forth below:
(a) "Base Equity Amount" shall mean an amount equal to the sum of
(i) $6,000,000, plus (ii) the Preferential New Equity Amount.
(b) "Initial Gain Share Payment" shall mean an amount equal to 2.25%
of the first $79,774,798 of Net Equity Proceeds, if any, up to a maximum of
$1,794,933.
(c) "Net Equity Proceeds" shall mean an amount equal to the
remainder of (i) the Proceeds Available for Distribution to Shareholders, less
(ii) the Base Equity Amount.
(d) "Preferential New Equity Amount" shall mean the dollar amount of
equity contributions to the Company subsequent to the date hereof, which amount
shall increase at a rate of twelve percent (12%) per annum from the date of each
applicable equity issuance through the date of consummation of the Sale Event.
(e) "Proceeds Available for Distribution to Shareholders" shall mean
the total gross proceeds and other consideration actually paid to or received by
the holders of the Company's equity securities (in their capacity as such) other
than holders of the Company's currently outstanding warrants in connection with
a Sale Event and after payment of all debt, all transaction expenses (including
all payments under this Agreement other than the Third Gain Share Payment), and
all proceeds payment due to holders of the Company's currently outstanding
warrants, including, without limitation, (i) cash, and (ii) notes, securities
and other property. Non-cash consideration shall be valued as follows: (x)
publicly traded securities shall be valued at the average of their closing
prices (as reported in the Wall Street Journal) for the ten trading days prior
to the closing of the Sale Event, and (y) any other non-cash consideration shall
be valued at the fair market value thereof as determined in good faith by the
Board and the Executive.
(f) "Sale Event" shall mean:
(i) the sale of all, or substantially all, of DEI's
consolidated assets in any single transaction or series of related transactions;
or
(ii) the sale, or series of related sales, of common stock of
the Company or DEI possessing the ordinary voting power (on a fully-diluted
basis) to elect a majority of the board of directors of the Company or the
Board, as the case may be, to an independent third party or a group of
affiliated independent third parties; or
(iii) any merger or consolidation of the Company or DEI with
or into another corporation or other business entity (regardless of which entity
is the surviving corporation) if, after giving effect to such merger or
consolidation, the holders of the Company's or DEI's, as the case may be, voting
securities (on a fully-diluted basis) immediately prior to the merger or
consolidation own voting securities of the surviving or resulting corporation or
other business entity representing less than a majority of the ordinary voting
power to elect directors of the surviving or resulting corporation (on a
fully-diluted basis).
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(g) "Second Gain Share Payment" shall mean an amount equal to 2.5%
of Net Equity Proceeds in excess of $79,774,798 but not exceeding $83,750,000,
if any, up to a maximum of $99,380.
(h) "Third Gain Share Payment" shall mean an amount equal to 5% of
the Net Equity Proceeds in excess of $83,750,000.
(i) "Trivest Investors" shall mean Trivest Fund II, Ltd., Trivest
Equity Partners II, Ltd., Trivest Principals Fund II, Ltd., Trivest Fund III,
L.P., Trivest Equity Partners III, L.P., Trivest Fund Cayman III, L.P., Trivest
Principals Fund III, L.P., Trivest-DEI Co-Investment Fund, Ltd., and any of
their respective successors and assigns.
2. Sale Bonus. Upon the consummation of any Sale Event, the Company shall
pay (or cause to be paid) to the Executive an amount (the "Sale Bonus") equal to
the sum of (i) the Initial Gain Share Payment plus (ii) the Second Gain Share
Payment plus (iii) if and only if the Net Equity Proceeds Exceed $79,774,798,
the amount of $341,660, plus (iv) the Third Gain Share Payment.
3. Public Offering. In the event of an initial public offering of equity
securities by the Company or DEI registered under the Securities Act of 1933, as
amended, the Company's Board of Directors shall in good faith negotiate with the
Executive to determine a fair compensation arrangement to compensate Executive
in accordance with the purpose and intent of this Agreement.
4. Nature of the Right.
(a) The Executive shall have the right to receive a Sale Bonus only
upon the closing of a Sale Event during the Employment Period. Notwithstanding
the foregoing, (i) if the Executive's Employment Period is terminated within 18
months prior to the consummation of a Sale Event by reason of the Executive's
death or Disability, the Company shall, upon the closing of such Sale Event, pay
(or cause to be paid) to the Executive (or his estate) the Sale Bonus, and (ii)
the Company shall also pay the Executive a Sale Bonus if a Sale Event occurs
within 18 months of the Company's termination of the Executive's employment
without Cause or the expiration of the Employment Period without an offer by DEI
to renew the Employment Agreement (6 months if there has been a "Negative EBITDA
Event"). For purposes of this Section 3(a), a "Negative EBITDA Event" shall be
deemed to have occurred if the Company's "EBITDA" during any 12-month period
ending not more than six (6) months prior to the termination of the Executive's
Employment Period shall have declined at least 10% from the Company's EBITDA
during any preceding 12-month period. "EBITDA" means the sum of the (i)
Company's net income, plus (ii) the aggregate tax, interest, depreciation and
amortization expense deducted in calculating such net income, each as calculated
in accordance with generally accepted accounting principles consistently applied
with the Company's prior practices. For example, if the Executive's Employment
Period terminates June 30, 2007, and the Company's EBITDA for the 12 months
ended March 31, 2007 is at least 10% less than the Company's EBITDA for the 12
months ended September 30, 2006 (or any other 12-month period ending prior to
March 31, 2007), then Executive shall be entitled to a Sale Bonus only if a Sale
Event is consummated on or prior to December 31, 2007 (i.e., 6 months rather
than 18 months after the termination of Executive's employment without Cause).
(b) The Sale Bonus shall be satisfied in the same form of
consideration as is received by the Trivest Investors. If the Trivest Investors
receive a combination of cash and property, the Sale Bonus shall be satisfied in
such forms in the same proportion as is received by the Trivest Investors.
(c) If all or a portion of the consideration payable by reason of a
Sale Event is payable over time or based upon the existence or occurrence of
events in the future, the amount of the Sale Bonus shall be computed based on
the actual consideration received by the Company's equity holders at closing and
the Sale Bonus shall include the right to receive the percentage of the Proceeds
Available for Distribution to Shareholders applied to such future consideration
as and when such consideration is received.
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5. Modification to Right. In the event of an extraordinary corporate
transaction, including, by way of example, any material acquisition or
disposition of assets or securities other than in the ordinary course of
business, or any material financing transaction, the Board shall in good faith
review for reasonableness the Sale Bonus formula specified in Section 2 hereof
and shall take such action, if any, as the Board in good xxxxx xxxxx necessary
to adjust such formula in light of the circumstances existing at such time.
6. Term. The Company's obligation to pay the Sale Bonus (or portion
thereof) granted hereunder shall terminate upon the earlier to occur of: (a) the
Executive's termination for Cause, (b) the Executive's voluntary resignation,
(c) 18 months after the Executive's termination without Cause (6 months if there
has been a Negative EBITDA Event), (d) 18 months after Executive's termination
by reason of Executive's death or Disability, or (e) seven years from the date
hereof.
7. Non-Transferability. Executive's rights under this Agreement may not be
sold, pledged, assigned, hypothecated, gifted, transferred or disposed of in any
manner either voluntarily or involuntarily by operation of law.
8. Withholding. The Company reserves the right to withhold, in accordance
with any applicable laws, from any consideration payable or property
transferable to the Executive, any taxes required to be withheld by federal,
state or local law as a result of the entering into this Agreement or the
receipt of cash or property upon a Sale Event. If the amount of any
consideration payable to the Executive is insufficient to pay such taxes or if
no consideration is payable to the Executive, upon the request of the Company,
the Executive shall pay to the Company an amount sufficient for the Company to
satisfy any federal, state or local tax withholding requirements it may incur,
as a result of the entering into of this Agreement or the receipt of cash or
property upon a Sale Event.
9. Employment Agreement. This Agreement is subject to, and the Company and
the Executive agree to be bound by, all of the terms and conditions of the
Employment Agreement, and this Agreement, together with the Employment Agreement
and the exhibits attached hereto and thereto, represent the entire agreement
between the parties with respect to the subject matter hereof. Subject to the
Employment Agreement, this Agreement shall not confer upon the Executive any
right to continue in the service of DEI or limit, in any respect, the right of
DEI to discharge the Executive at any time, with or without Cause and with or
without notice.
10. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of California, without regard to the application of the
principles of conflicts of laws.
11. Prior Agreement. By execution below, the Prior Agreement is hereby
terminated in its entirety.
12. Amendment. This Agreement may only be amended by a writing signed by
each of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the date set forth above.
DEI HOLDINGS, INC.
By: /s/ Xxxx X. Xxxxxxxxx
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Xxxx X. Xxxxxxxxx,
Chairman of the Board
/s/ Xxxxx Xxxxxxx
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XXXXX XXXXXXX
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