**Exhibit 10.7**

 

April 14,2008

 

Mukesh Patel

15 Rocky Mountain

Coto De Caza, CA  92679

 

**Re:****                            *****Transaction Bonus Agreement***

 

DearMr. Patel:

 

Cherokee International Corporation (the “Company”)has decided to grant selected employees of the Company an opportunity toreceive a cash bonus (“Transaction Bonus”) on the terms and conditions setforth in this letter agreement (this “letter agreement”) in the event there isa Company Sale (as defined below).  Thepurpose of this letter agreement is to notify you that you have been selectedto become eligible for a Transaction Bonus and to set forth the terms andconditions of your opportunity.

 

*Bonus Opportunity*.  If a Company Sale occurs andthe conditions set forth below under “Conditions of Bonus Opportunity” aresatisfied, you will be entitled to receive a Transaction Bonus based on the NetProceeds (as defined below) received by common stockholders in the CompanySale.  In the event of a Company Sale inwhich the Net Proceeds are less than $   per share, you will not be entitled to a Transaction Bonus under thisletter agreement.  If the Net Proceedsare $    per share, you will be entitled to a TransactionBonus of $45,000.  If the Net Proceedsare more than $    per share but lessthan $    per share, your Transaction Bonus shall be scaledlinearly between $45,000 and $225,000 (for example, if the Net Proceeds are $    pershare, you will be entitled to a $135,000 Transaction Bonus, and if the NetProceeds are $    per share, you will be entitled to a$164,700 Transaction Bonus).  If the NetProceeds are $    per share, you will be entitled to a$225,000 Transaction Bonus.  If the NetProceeds are more than $    per share but less than $    pershare, your Transaction Bonus shall be scaled linearly between $225,000 and$450,000 (for example, if the Net Proceeds are $    pershare, you will be entitled to a $247,500 Transaction Bonus, and if the NetProceeds are $    per share, you will be entitled to a$315,000 Transaction Bonus).  If the NetProceeds are $10.00 per share or more, you will be entitled to a $450,000Transaction Bonus.  Your maximumTransaction Bonus will be $450,000.

 

Forpurposes of this letter agreement, the term “Company Sale” means (1) asale or other disposition of all or substantially all of the assets of theCompany and its subsidiaries on a consolidated basis, or (2) a sale orother transfer (including by way of merger) by the Company of more than 50% ofthe issued and outstanding voting equity securities of the Company (other thana transfer to the Company or any of its respective affiliates or to GSC orOaktree); provided, however, that in no event will any transaction that occursbefore the date of this letter agreement be considered a Company Sale for purposesof this letter agreement.  For thispurpose, a series of related transactions will be deemed a single sale.

 

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For purposes of this letteragreement, the term “Net Proceeds” means the value of proceeds actuallydistributed per share to the common stockholders in a Company Sale, as and whendistributed, after deducting all fees and related expenses (including the costof bonuses under this letter agreement and similar Company Sale bonus letteragreements).  For example, in the eventthat proceeds from a Company Sale are subject to escrow, hold-back, earn-out orsimilar delayed payment provisions (“Contingent Consideration”), you willinitially be entitled to a bonus based on Net Proceeds excluding the ContingentConsideration.  If any Contingent Considerationis subsequently distributed to common stockholders, you will then receive anadditional bonus based on the incremental Net Proceeds from the ContingentConsideration.  This additional bonusshall be calculated as the difference between your Transaction Bonus based onall aggregate Net Proceeds as of that date and all Transaction Bonusespreviously paid to you.

 

*Conditions of Bonus Opportunity*.  If aCompany Sale occurs, you will be entitled to receive a cash bonus if:

 

1.             You execute and deliver to theCompany, on or promptly after the date of the Company Sale and in a formacceptable to the Company, a general release of claims related to the Company’sobligations under this letter agreement, and you do not revoke such releasewithin any revocation period provided under applicable law; and

 

2.             You are either (i) employedwith the Company or one of its subsidiaries at the time of the Company Sale, (ii) youare terminated by the Company other than for Cause within six (6) monthsprior to a Company Sale, or (iii) you terminate your employment with theCompany for Good Reason within six (6) months prior to a Company Sale.

 

Ifyou terminate your employment with the Company voluntarily or you areterminated by the Company for Cause prior to a Company Sale, you shall not beentitled to any bonus payable under this letter agreement.

 

*Payment*.  All payment of Transaction Bonuses shall beon substantially the same schedule as the distribution of the underlying NetProceeds to common stockholders.  Yourbonus will be subject to and reduced by all required tax withholding.

 

*Definition of Cause. *For purposes of this letter agreement,“Cause” is defined as the occurrence of any of the following:  (i) your willful and continued failureto perform your duties with the Company or follow reasonable and lawful directivesof the Board (including any material breach of the Company’s or anysubsidiary’s Code of Conduct or other corporate policies); (ii) yourconviction of, or entry of a plea of guilty or nolo contendere to, a felony orother crime involving moral turpitude; (iii) the commission by you of anyact of theft, embezzlement or fraud in connection with your employment with theCompany; (iv) any material breach by you of any employment or otheragreement between you and the Company or any subsidiary of the Company; (v) anyconflict of interest between you and the Company or any subsidiary of theCompany that, in the Board’s determination, inappropriately affects yourability to carry on your normal duties as an employee of the Company or anysubsidiary of the Company;

 

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or(vi) your appropriation (or attempted appropriation) of a materialbusiness opportunity of the Company, including attempting to secure or securingfrom anyone other than the Company any personal profit without the Company’sconsent in connection with any transaction entered into on behalf of theCompany.  For purposes of this definitionof Cause, an act or failure to act on your part shall be considered “willful”if it was done or omitted to be done by you not in good faith, and shall notinclude any act or failure to act by you resulting from any incapacity.

 

*Definition of Good Reason*.  For purposes of this letteragreement, “Good Reason” is defined as the occurrence of one or more of the followingevents without your prior written consent (except as a result of a priortermination):  (i) any materialchange in your status, title, authorities or responsibilities (includingreporting responsibilities) which represents a demotion from your status,title, position or responsibilities (including reporting responsibilities)immediately prior to the Company Sale; the assignment to you of any duties orwork responsibilities which are materially inconsistent with your status,title, position or work responsibilities immediately prior to the Company Sale,or which are materially inconsistent with the status, title, position or workresponsibilities of a similarly situated senior officer; or any removal of youfrom, or failure to appoint, elect, reappoint or reelect you to, any of suchpositions, except in the event of your death or Disability and other than anysuch change primarily attributable to the fact the Company may no longer be apublic company; (ii) any decrease in your annual base salary or targetannual incentive award opportunity except for across-the-board salaryreductions similarly affecting all senior officers of the Company; (iii) thereassignment of you to a location more than twenty-five (25) miles from yourthen current work location; (iv) the failure by the Company to continue ineffect any incentive, bonus or other compensation plan in which youparticipate, unless an equitable arrangement (embodied in an ongoing substituteor alternative plan) has been made with respect to the failure to continue suchplan, or the failure by the Company to continue your participation therein, orany action by the Company which would directly or indirectly materially reduceyour participation therein or reward opportunities thereunder; provided, however,that you continue to meet substantially all eligibility requirements thereof; (v) thefailure by the Company to continue in effect any employee benefit plan(including any medical, hospitalization, life insurance, disability or othergroup benefit plan in which you participate), or any material fringe benefit orperquisite enjoyed by you unless an equitable arrangement (embodied in anongoing substitute or alternative plan) has been made with respect to thefailure to continue such plan, or the failure by the Company to continue yourparticipation therein, or any action by the Company which would directly orindirectly materially reduce your participation therein or reward opportunitiesthereunder, or the failure by the Company to provide you with the benefits towhich you are entitled as an employee of the Company; provided, however, thatyou continue to meet substantially all eligibility requirements thereof; (vi) anypurported termination of your employment for Cause which is not effective; or (vii) thefailure of the Company to obtain a satisfactory agreement from any successor orassignee of the Company to fully assume and agree to perform this letteragreement; provided, however, that Good Reason shall be deemed not to existuntil the Company has first been (1) supplied with notice from you settingforth your assertion of Good Reason and (2) provided with the opportunityto cure the facts giving rise to such assertion within thirty (30) days ofdelivery of the written notice by you to the Company.

 

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Notwithstanding the foregoing, it will not constitute “Good Reason” ifyou become employed by a parent corporation of the Company and your status,title, position or responsibilities change as a result of your employment bythe parent corporation so long as you retain the same general authority for theoperations of the Company as you had immediately prior to the Company Sale andyour status, title, position and responsibilities with the parent corporation areconsistent with other officers of the parent who have similar operationalresponsibilities for other businesses of the parent or its subsidiaries.

 

*Non-Solicitation*.  You will not at any time while you areemployed by the Company or any of its subsidiaries, and for 12 months followingthe termination of your employment (the “Restricted Period”), solicit, recruit,request, cause, induce or encourage any individual who is then employed by theCompany, or was employed by the Company at any time during the 12-month periodending on your termination date, to leave the employment of the Company or anyof its subsidiaries.

 

During the Restricted Period, you will not directly or indirectlythrough any other person, influence or attempt to influence customers, vendors,suppliers, licensors, lessors, joint venturers, associates, consultants,agents, or partners of the Company or any affiliate of the Company (each, a“Restricted Company”) to divert their business away from the Company or suchaffiliate, and you will not otherwise interfere with, disrupt or attempt todisrupt the business relationships, contractual or otherwise, between theCompany or any affiliate of the Company.

 

However, nothing in the paragraph above shall prevent you fromaccepting employment with any other person or entity during the RestrictedPeriod, including any Restricted Company, provided that you continue tootherwise comply with the restrictions in this paragraph.

 

*No Right to Continued Employment*.  Subject to any written employment agreementyou may have with the Company (or any of its affiliates) and subject toapplicable law, nothing contained in this letter agreement constitutes anemployment or service commitment by the Company (or any of its affiliates),affects your status as an employee at will who is subject to terminationwithout cause at any time, or interferes in any way with the Company’s right(or the right of its affiliates) to change your compensation or other terms ofemployment at any time.

 

*Severability*.  Theinvalidity or unenforceability of any provision of this letter agreement shallnot affect the validity or enforceability of any other provision of thisagreement, which shall remain in full force and effect.

 

*Governing Law*.  This letter agreement shall be governed by thelaws of the State of California.

 

*Entire Agreement*.  Thisletter agreement contains all of the terms and conditions of your bonusopportunity and supersedes all prior understandings and agreements, written ororal, between you and the Company or any of its respective affiliates withrespect thereto.  This letter agreementmay be amended only by a written agreement, signed by an authorized officer,that expressly refers to this letter agreement. For purposes of clarity, this letter agreement does not supersede yourseverance agreement with the Company.

 

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If this letter agreement accurately sets forth ourunderstanding with respect to the foregoing matters, please indicate youracceptance by signing this agreement below and returning it to me.  A duplicate copy of this letter agreement isincluded for your records.

 
|                      | Sincerely,                                                                              |
|---------------------------|-----------------------------------------------------------------------------------------|
|                      |                                                                                    |
|                      |                                                                                    |
|                      |            /s/  JEFFREY M. FRANK |
|                      | Jeffrey  M. Frank, President and CEO                                                    |
|                      | Cherokee  International Corporation                                                     |
|                      |                                                                                    |
|                      |                                                                                    |
| Acknowledged  and Agreed: |                                                                                    |
|                      |                                                                                    |
|                      |                                                                                    |
| /s/  MUKESH PATEL         |                                                                                    |   |
| Mukesh  Patel             |                                                                                    |
|                           |                                                                                         |  |

 

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