Exhibit 10.36
SIRIUS XM
RADIO INC.
1221 Avenue of the Americas
New York, NY 10020
Tel: 212-584-5100
Fax: 212-584-5200
www.sirius.com
October 15, 2008
Directed Electronics Inc.
1 Viper Way
Vista, CA 92081
Facsimile No. (760) 599-1389
Attention: Jim Minarik, President and CEO
Letter Agreement re: End of Agreement Matters
Dear Jim:
     Reference is made to the Manufacturing and Distribution Agreement, dated
April 7, 2005 (as amended on July 17, 2007, November 8, 2007, and April 23,
2008, the “Agreement”), between Sirius XM Radio Inc. (“Sirius,” successor to
Sirius Satellite Radio Inc.) and DEI Holdings, Inc., f.k.a. Directed
Electronics. Inc. (“Directed”). Capitalized terms used but not defined herein
shall have the meanings set forth in the Agreement.
     Directed and Sirius have decided to allow the Agreement to terminate on its
own terms effective January 31, 2009. To facilitate the efficient transition and
termination of the Agreement the parties hereby agree to the following processes
relating to the wind-down of their relationship at the expiration of the
Agreement:
     1. 2008 Year-End Inventory Report. Following the close of business on
December 31, 2008, Directed shall use best efforts to complete, by January 4,
2009, a physical inventory of all Core Product in Directed’s warehouses. Such
inventory will be conducted in accordance with Sirius’ Physical Inventory
Instructions attached hereto as Exhibit A, or as modified with Sirius’ consent
which will not be unreasonably withheld. Within two Business Days following the
completion of the physical inventory, Directed will provide to Sirius a report
(the “Year-End Inventory Report”) specifying, (i) the quantity (net of Backstop
Inventory) and the actual Landed Cost for each item of Core Product held by
Directed at each of its warehouse locations as of the close of business on
December 31, 2008 (“Year-End Non-Backstop Inventory”), (ii) the quantity of
Sirius Backstop Inventory held by Directed at each of its locations as of the
close of business on December 31, 2008 (“Year-End Backstop Inventory”), and
(iii) the quantity of eligible

 

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Core Product returned by Approved Dealers and processed by Directed as of
December 31, 2008 in accordance with the Agreement and April 23, 2008 Letter
Agreement (“Year-End Returns”). The Year-End Inventory Report shall be based on
Directed’s year-end inventory count, during which Sirius shall be allowed to be
present to inspect and certify the quantity of Core Products held by Directed at
each of its warehouse locations and to reconcile such inventory quantity
balances with Directed’s perpetual inventory balances. For purposes of this
Letter Agreement, the term Core Products shall have the meaning set forth in the
Agreement and shall include those items set forth in Schedule 1 attached to this
Letter Agreement
     2. 2008 Year-End Purchases. Notwithstanding anything to the contrary in the
Agreement or our April 23, 2008 Letter Agreement, not later than two business
days following delivery to Sirius by Directed of the Year-End Inventory Report,
Sirius agrees to purchase all (i) Year-End Non-Backstop Inventory, and
(ii) Year-End Returns, as reflected in the Year-End Inventory Report, by
issuance of a purchase order (the “Year-End Inventory PO”). Sirius shall
purchase such Year-End Non-Backstop Inventory from Directed at the actual Landed
Cost paid or payable by Directed, and it shall purchase the Year-End Returns at
the cost set forth in Section 3.09(e) of the Agreement, less any missing
Material Part credits as set forth in Section 3.09(d) of the Agreement. Upon
receipt of the Year-End Inventory PO from Sirius, Directed shall issue to Sirius
a corresponding invoice and shall, subject to the possible retention of “January
Non-Backstop Inventory” pursuant to Section 3(c) hereof, prepare the Year-End
Non-Backstop Inventory and Year-End Returns to be loaded for shipment not later
than five business days from Directed’s receipt of the Year-End Inventory PO.
     3. Sirius Backstop Inventory. (a) Notwithstanding anything to the contrary
in Section 3.07 of the Agreement, on the date the Year-End Non-Backstop
Inventory and Year-End Returns are shipped pursuant to Section 6, Sirius shall
remit to Directed payment in full for all Year-End Backstop Inventory (not
previously paid for) via electronic funds transfer (“EFT”). In conjunction with
the placement of the Year-End Inventory PO, Sirius shall place a shipping order
for shipment, along with the Year-End Non-Backstop Inventory and Year-End
Returns, of all Year-End Backstop Inventory then in Directed’s possession,
subject to the possible retention of “January Non-Backstop Inventory” pursuant
to Section 3(c) hereof.
     (b) With respect to Sirius Backstop Inventory held by Directed and sold,
pursuant to Section 3.07(b) of the Agreement, prior to January 1, 2009 (“2008
Consignment Inventory”), all payments owed Sirius by Directed for such 2008
Consignment Inventory shall be due and payable in full by EFT on the date the
Year-End Non-Backstop Inventory and Year-End Returns are shipped pursuant to
Section 6.
     (c) Sirius and Directed shall mutually determine a quantity of Core Product
up to a maximum aggregate amount of two million dollars at dealer cost that may
be required for shipment to Approved Dealers between January 1, 2009 and
January 31, 2009 (“January Non-Backstop Inventory”) based on Approved Dealer
forecasts for January 2009. During January 2009, Directed will continue to
fulfill orders from Approved

 

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Dealers from the January Non-Backstop Inventory in accordance with
Section 3.07(b) of the Agreement.
     4. February Purchases. (a) On February 2, 2009, Directed will provide to
Sirius a report (the “February Report”) specifying (i) as of the close of
business January 31, 2009, the quantity and the actual Landed Cost paid by
Directed for each item of Core Product that is: (1) held by Directed at each of
its warehouse locations (which shall include any remaining January Non-Backstop
Inventory), (2) in transit to Directed from an Authorized Manufacturer, and
(3) on open purchase order issued by Directed to each Authorized Manufacturer
(collectively (1), (2) and (3), the “Final Non-Backstop Inventory”), and
(ii) the quantity of Core Product returned by Approved Dealers and processed by
Directed as of January 31, 2009, but in no event duplicative of Year-End Returns
(“January Returns”). On January 31, 2009, Sirius shall have the right to be
present to inspect and certify the quantity of Core Products held by Directed at
each of its warehouse locations and reconcile such inventory quantity balances
with Directed’s perpetual inventory balances.
     (b) Not later than February 6, 2009, Sirius agrees to purchase all
(i) Final Non-Backstop Inventory, and (ii) January Returns, as reflected in the
February Report, by issuance of a purchase order (the “February Inventory PO”).
Sirius shall purchase such Final Non-Backstop Inventory from Directed at the
actual Landed Cost paid or payable by Directed, and Sirius shall purchase the
January Returns at the cost set forth in Section 3.09(e) of the Agreement, less
any missing Material Part credits as set forth in Section 3.09(d) of the
Agreement. Upon receipt of the February Inventory PO from Sirius, Directed shall
issue to Sirius a corresponding invoice and shall prepare the Final Non-Backstop
Inventory, and January Returns to be loaded for shipment no later than
February 13, 2009.
     5. Final Returns Purchases. (a) On March 6, 2009, Directed will provide to
Sirius a report (the “March Report”) specifying the quantity of Core Product
returned by Approved Dealers by February 28, 2009 and processed and credited by
Directed to the Approved Dealers as of the close of business on March 5, 2009,
but in no event duplicative of Year-End Returns or January Returns (“Final
Returns”).
     (b) Not later than March 10, 2009, Sirius agrees to purchase all Final
Returns, as reflected in the March Report, by issuance of a purchase order (such
purchase order, the “Final Returns PO”). Sirius shall purchase the Final Returns
at the cost set forth in Section 3.09(e) of the Agreement, less any missing
Material Part credits as set forth in Section 3.09(d) of the Agreement. Upon
receipt of the Final Returns PO from Sirius, Directed shall issue to Sirius a
corresponding invoice and shall prepare the Final Returns to be loaded for
shipment not later than March 16, 2009.
     6. Shipping. Prior to the loading of any shipments from Directed, Sirius
shall have the right to inspect each shipment and shall be allowed to be present
during the loading of each such shipment. Upon the completion of loading of
shipments by Directed, Sirius personnel shall seal the trucks and Sirius shall
remit to Directed payment

 

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in full for the corresponding invoice via EFT. Upon receipt in full of payment
from Sirius for the Year-End Backstop Inventory and Year-End Inventory PO
(“January Shipment”), February Inventory PO (“February Shipment”), and Final
Returns PO (“March Shipment”) respectively, Directed shall ship the
corresponding shipment to a location designated by Sirius, provided that
Directed will re-direct to a location designated by Sirius all Final
Non-Backstop Inventory that is in-transit or on open purchase order. The Sirius
payment for the February Inventory PO shall, as indicated above, include payment
for any remaining January Non-Backstop Inventory held by Directed as of the
close of business on January 31, 2009. All shipping costs in connection with
this Agreement shall be freight collect at Sirius’ expense.
     7. Non-Core Products. On January 31, 2009, subject to availability and
Directed’s standard terms of purchase Sirius may, at its option, purchase
non-Core Products in Directed’s inventory of satellite radio related products.
Sirius may purchase any such non-Core Products from Directed at Directed’s then
current price sheet or as otherwise mutually agreed.
     8. Approved Dealer Account Transition. Sirius and Directed will cooperate
in good faith to, by October 25, 2008, develop and execute a mutually agreeable
communication plan for internal and external use (the “Communication Plan”). As
part of the Communication Plan, by no later than November 1, 2008, Sirius and
Directed will communicate to all Approved Dealers that: (1) effective
February 1, 2009 a new Sirius distribution partner (the “New Distributor”) will
be taking over the distribution of Sirius Core Products, (2) each Approved
Dealer should place its purchase orders, for shipments of Core Product after
January 31, 2009, with the New Distributor, (3) all returns of Core Products
shipped after January 31, 2009 by Approved Dealers should be sent to the New
Distributor, (4) all deductions for the return of Core Products shipped by
Approved Dealers to the New Distributor after January 31, 2009 should be applied
against its account with the New Distributor, (5) all inquiries, reconciliations
and obligations related to the return of any Core Product or resulting credits
or deductions for all Core Products after January 31, 2009, regardless of when
the Approved Dealer purchased such Core Products, are the responsibility of
Sirius or the New Distributor, (6) all Dealer Payment commissions accruing after
December 31, 2008 to each Approved Dealer will be remitted by Sirius or the New
Distributor, (7) all market development funds and other allowance offered by
Directed and related to the sales of Core Product occurring after January 31,
2009 will no longer be in effect, and (8) all payments, inquiries, and
reconciliations for the purchase of Core Products from Directed prior to
February 1, 2009, excluding returns after January 31, 2009, should be routed to
Directed in the ordinary course. Sirius and Directed reserve the right to
independently communicate with any Approved Dealer regarding the subject matter
of this Letter Agreement or otherwise, provided that such communications are
consistent with the terms of this Letter Agreement.
     9. Dealer Returns. Effective February 1, 2009, Sirius will assume or cause
the New Distributor to assume all cost and responsibility whatsoever related to
all Core Product returned by an Approved Dealer, regardless of the date of sale,
including but not limited to, consumer warranty, returns processing, and any
associated costs, such as

 

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issuing credits to Approved Dealers. Directed will have no further obligation
with respect to such Approved Dealers’ returned Core Product. Effective
February 1, 2009, all credits and deductions for the return of Core Product
occurring on or after February 1, 2009 by Approved Dealers shall be applied to
the Approved Dealers account with Sirius or the New Distributor.
     10. Directed Activation Payments. (a) Notwithstanding anything to the
contrary in Section 4.02 of the Agreement, for activations of Core Products
occurring on January 1, 2009 or later, Directed shall have no responsibility to
pay any Dealer Payment commissions and Sirius will not charge back to Directed
any Activation Fee or Dealer Payment. All Activation Fees and Dealer Payments
accrued as of December 31, 2008 to Directed shall become due and payable by
Sirius by EFT no later than February 13, 2009. Directed will notify all Approved
Dealers that normally are entitled to receive Dealer Payment commissions from
Directed of the termination of Dealer Payment commissions from Directed for
activations made after December 31, 2008.
     (b) Effective within 30 days of the execution of the Communication Plan,
Directed further agrees to cooperate with Sirius and the New Distributor (or
other designated third-party) to smoothly transition the transfer to the New
Distributor (or other designated third-party) of Dealer Payment commission
obligations to accounts formerly paid by Directed. Such cooperation shall
include Directed providing Sirius, New Distributor or other designated
third-party with (i) the name and contact information of all such accounts along
with the ESN information for all Core Receivers shipped to each such account
which have yet to be activated, and (ii) the name and contact information of all
other such accounts that have received Dealer Payment commissions from Directed
in the 12 months preceding the execution date of the Communication Plan.
     11. Accruals and Offsets. Notwithstanding anything to the contrary in the
Agreement or this Letter Agreement, all amounts payable by Sirius (or Directed,
if applicable) to Directed (or Sirius, if applicable) that have been accrued
through December 31, 2008 and not previously remitted shall become due on the
date the Year- End Non-Backstop Inventory and Year-End Returns are shipped
pursuant to Section 6, provided, however, that subject to prior acknowledgment
and approval from Directed (or Sirius, if applicable), which acknowledgment and
approval shall not be unreasonably withheld or delayed, Sirius (or Directed, if
applicable) may reduce its payable obligation through an offset of amounts
otherwise then owed to Sirius (or Directed, if applicable) under this Letter
Agreement. All payments, either to Directed from Sirius or to Sirius from
Directed shall be executed via EFT.
     12. Post Transition Cooperation. (a) In the event that any returns of Core
Product by an Approved Dealer are sent to Directed in error after January 31,
2009, Directed shall refuse delivery of such Core Products.
     (b) In the event that any payments or deductions by an Approved Dealer
related to the sale or return of Core Product are misrouted or misapplied to
Directed or the New

 

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Distributor, Directed shall, and Sirius will cause the New Distributor to,
immediately reconcile and remediate such errors upon discovery.
     13. Order Placement. (a) Directed shall continue to place Backstop Purchase
Orders with Authorized Manufacturers for all quantities of Core Product as
Sirius determines appropriate up to a maximum aggregate amount of six million
dollars (from the date hereof) and for receipt at Directed’s warehouses prior to
December 31, 2008. Directed will receive such Core Product and work in good
faith with Sirius based on historical practices to process transactions with
Approved Dealers.
     (b) Directed will make payments in the ordinary course for purchase of Core
Product by Directed from Authorized Manufacturers.
     14. American Home Recording Act. With respect to any Sirius “digital audio
recording device” as that term is defined in the American Home Recording Act of
1992, U.S.C. § 1001 (the “AHRA”), and including but not limited to the S50TK1,
SL100TK1, SL10TK1, and SL2TK1, notwithstanding any previous letter agreement
between Directed and Sirius regarding such subject matter, Directed shall
prepare the 2008 annual AHRA royalty report by January 31, 2009 and submit the
same to Sirius for review. No later than February 13, 2009, Sirius shall remit
to Directed all unpaid royalty amounts as set forth in the 2008 AHRA royalty
report and Directed shall remit any such unpaid royalties to the United States
Copyright Office as required under the AHRA. Sirius and Directed shall work
together to avoid further imports of any AHRA covered device by Directed
following December 31, 2008. In the event that such import is necessary to
conduct the normal course of business for sales to Approved Dealers between
January 1, 2009 and January 31, 2009, Directed shall prepare the 2009 annual
AHRA royalty report and submit the same to Sirius for review. Sirius shall remit
to Directed all royalty amounts as set forth in the 2009 AHRA royalty report and
Directed shall remit such royalties to the United States Copyright Office as
required under the AHRA. Sirius will also reimburse Directed for the expense
related to the audit required under the AHRA
     15. Exclusivity. Effective with the execution of this Letter Agreement,
Sirius Core Products produced shall no longer be required to include the
“Distributed by Directed” logos. Upon receipt in full of payment from Sirius for
the Year-End Inventory PO (including payment for 50% of the January Non-Backstop
Inventory) Directed shall no longer be the exclusive retail distributor for
Sirius Core Products.
     16. Counterparts. This letter agreement may be executed by the parties
hereto on any number of separate counterparts, and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. This
letter agreement may be delivered by facsimile transmission and shall be
effective upon receipt of such facsimile by the other party.
     17. Integration. This letter agreement, along with the Agreement and the
April 23 Letter Agreement, represents the entire agreement of Sirius and
Directed with respect to the subject matter hereof and supersedes all previous
agreements, and there are no

 

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promises, undertakings, representations or warranties by the parties hereto
relative to the subject matter hereof that are not expressly set forth or
referred to herein.

 

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     Please indicate your acceptance with the terms of this letter agreement by
signing in the space below.

                  Sincerely,    
 
                SIRIUS XM RADIO INC.    
 
           
 
  By:   /s/ Robert F. Law
 
            Robert F. Law             Group Vice President and General Manager,
            After Market Division    

Accepted and Agreed:
DEI HOLDINGS INC.

         
By:
  /s/ Jim Minarik
 
Jim Minarik    
 
  President and CEO