**Exhibit10.5**

 

April 14,2008

 

JeffreyM. Frank

15Calle De Princesa

CotoDe Caza, CA  92679

 

**Re:          *TransactionBonus Agreement***

 

DearMr. Frank:

 

CherokeeInternational Corporation (the “Company”) has decided to grant selectedemployees of the Company an opportunity to receive a cash bonus (“TransactionBonus”) on the terms and conditions set forth in this letter agreement (this “letteragreement”) in the event there is a Company Sale (as defined below).  The purpose of this letter agreement is tonotify you that you have been selected to become eligible for a TransactionBonus and to set forth the terms and conditions of your opportunity.

 

*Bonus Opportunity*.  If aCompany Sale occurs and the conditions set forth below under “Conditions ofBonus Opportunity” are satisfied, you will be entitled to receive a TransactionBonus based on the Net Proceeds (as defined below) received by commonstockholders in the Company Sale.  In theevent of a Company Sale in which the Net Proceeds are less than $    per share, you will not be entitled to aTransaction Bonus under this letter agreement. If the Net Proceeds are $    pershare, you will be entitled to a Transaction Bonus of $500,000.  If the Net Proceeds are more than $    per share but less than $    per share, your Transaction Bonus shall bescaled linearly between $500,000 and $2.5 million (for example, if the NetProceeds are $    per share, you will beentitled to a $1.5 million Transaction Bonus, and if the Net Proceeds are $    per share, you will be entitled to a $1.83million Transaction Bonus).  If the NetProceeds are $    per share, you will beentitled to a $2.5 million Transaction Bonus. If the Net Proceeds are more than $   per share but less than $    pershare, your Transaction Bonus shall be scaled linearly between $2.5 million and$5 million (for example, if the Net Proceeds are $    per share, you will be entitled to a $2.75million Transaction Bonus, and if the Net Proceeds are $    per share, you will be entitled to a $3.5million Transaction Bonus).  If the NetProceeds are $10.00 per share or more, you will be entitled to a $5 millionTransaction Bonus.  Your maximumTransaction Bonus will be $5 million.

 

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);

 

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provided,however, that in no event will any transaction that occurs before the date ofthis letter agreement be considered a Company Sale for purposes of this letteragreement.  For this purpose, a series ofrelated transactions will be deemed a single sale.

 

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 a Company Sale occurs, you will beentitled 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.

 

If you terminate youremployment with the Company voluntarily or you are terminated by the Companyfor Cause prior to a Company Sale, you shall not be entitled to any bonuspayable 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 ofthis letter agreement, “Cause” is defined as the occurrence of any of thefollowing:  (i) your willful andcontinued failure to perform your duties with the Company or follow reasonableand lawful directives of the Board (including any material breach of theCompany’s or any subsidiary’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;

 

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(iii) thecommission by you of any act of theft, embezzlement or fraud in connection withyour employment with the Company; (iv) any material breach by you of anyemployment or other agreement between you and the Company or any subsidiary ofthe Company; (v) any conflict of interest between you and the Company orany subsidiary of the Company that, in the Board’s determination,inappropriately affects your ability to carry on your normal duties as anemployee of the Company or any subsidiary of the Company; or (vi) yourappropriation (or attempted appropriation) of a material business opportunityof the Company, including attempting to secure or securing from anyone otherthan the Company any personal profit without the Company’s consent inconnection with any transaction entered into on behalf of the Company.  For purposes of this definition of Cause, anact or failure to act on your part shall be considered “willful” if it was doneor omitted to be done by you not in good faith, and shall not include any actor failure to act by you resulting from any incapacity.  Cause shall be deemed not to exist until youhave first been (1) supplied with notice from the Company setting forththe Board’s finding of Cause, (2) provided with the opportunity to appearbefore the Board to dispute the Board’s findings of Cause or present evidencethat the facts giving rise to the finding of Cause have been cured and (3) followinga final finding of Cause by the Board, provided with the opportunity to curethe facts giving rise to such finding within ten (10) days of delivery ofthe written notice of the Board’s final findings to you by the Company.

 

*Definition of Good Reason*.  For purposes of this letter agreement, “GoodReason” is defined as the occurrence of one or more of the following eventswithout 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 requirementsthereof;

 

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(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, that youcontinue 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.

 

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 corporationare consistent with other officers of the parent who have similar operationalresponsibilities for other businesses of the parent or its subsidiaries.

 

*Non-Solicitation*.  Youwill not at any time while you are employed by the Company or any of itssubsidiaries, and for 12 months following the termination of your employment(the “Restricted Period”), solicit, recruit, request, cause, induce or encourageany individual who is then employed by the Company, or was employed by theCompany at any time during the 12-month period ending on your termination date,to leave the employment of the Company or any of 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 “RestrictedCompany”) to divert their business away from the Company or such affiliate, andyou will not otherwise interfere with, disrupt or attempt to disrupt thebusiness relationships, contractual or otherwise, between the Company or any affiliateof 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 writtenemployment agreement you may have with the Company (or any of its affiliates)and subject to applicable law, nothing contained in this letter agreementconstitutes an employment or service commitment by the Company (or any of itsaffiliates), affects your status as an employee at will who is subject totermination without cause at any time, or interferes in any way with theCompany’s right (or the right of its affiliates) to change your compensation orother terms of employment at any time.

 

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*Attorneys’ Fees and Costs*.  The Company shall pay to any lawfirm chosen by you, all reasonable fees and costs incurred by you, in an amountnot to exceed $30,000 in the aggregate in enforcing the terms of this letteragreement or in the resolution of any dispute with respect to the benefitspayable under this letter agreement. Said fees shall be paid, as incurred, directly to the law firm chosen byyou as invoiced by the law firm.

 

*Severability*.  The invalidity orunenforceability of any provision of this letter agreement shall not affect thevalidity or enforceability of any other provision of this agreement, whichshall remain in full force and effect.

 

*Governing Law*.  This letter agreement shall begoverned by the laws of the State of California.

 

*Entire Agreement*.  This letter agreement contains all of theterms and conditions of your bonus opportunity and supersedes all priorunderstandings and agreements, written or oral, between you and the Company orany of its respective affiliates with respect thereto.  This letter agreement may be amended only bya written agreement, signed by an authorized officer, that expressly refers tothis letter agreement.  For purposes ofclarity, this letter agreement does not supersede your severance agreement withthe Company.

 

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Ifthis letter agreement accurately sets forth our understanding with respect tothe foregoing matters, please indicate your acceptance by signing thisagreement below and returning it to me. A duplicate copy of this letter agreement is included for your records.

 
|                      | Sincerely,                            |
|---------------------------|---------------------------------------|
|                      |                                  |
|                      |                                  |
|                      | /s/ RAYMOND MEYER                     |
|                      | Raymond  Meyer, Chairman of the Board |
|                      | Cherokee  International Corporation   |
|                      |                                  |
|                      |                                  |
| Acknowledged  and Agreed: |                                  |
|                      |                                  |
|                      |                                  |
| /s/  JEFFREY M. FRANK     |                                  |
| Jeffrey  M. Frank         |                                  |

 

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