**Exhibit10.6**

 

April 14,2008

 

 

LinsterW. Fox

841Promontory Drive West

NewportBeach, CA  92660

 

**                                               ****Re:          *Transaction BonusAgreement***

 

DearMr. Fox:

 

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 entitledto a Transaction Bonus of $300,000.  Ifthe Net Proceeds are more than $    pershare but less than $    per share, yourTransaction Bonus shall be scaled linearly between $300,000 and $1.5 million(for example, if the Net Proceeds are $   per share, you will be entitled to a $900,000 Transaction Bonus, and ifthe Net Proceeds are $    per share, youwill be entitled to a $1.098 million Transaction Bonus).  If the Net Proceeds are $    per share, you will be entitled to a $1.5million Transaction Bonus.  If the NetProceeds are more than $    per share butless than $    per share, yourTransaction Bonus shall be scaled linearly between $1.5 million and $3 million(for example, if the Net Proceeds are $   per share, you will be entitled to a $1.65 million Transaction Bonus,and if the Net Proceeds are $    pershare, you will be entitled to a $2.1 million Transaction Bonus).  If the Net Proceeds are $10.00 per share ormore, you will be entitled to a $3 million Transaction Bonus.  Your maximum Transaction Bonus will be $3million.

 

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 ContingentConsideration is subsequently distributed to common stockholders, you will thenreceive an additional bonus based on the incremental Net Proceeds from theContingent Consideration.  Thisadditional bonus shall be calculated as the difference between your TransactionBonus based on all aggregate Net Proceeds as of that date and all TransactionBonuses previously 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 thisletter 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; (iii) the commission by you of any act of theft, embezzlement orfraud in connection with your employment with the Company;

 

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(iv) anymaterial breach by you of any employment or other agreement between you and theCompany or any subsidiary of the Company; (v) any conflict of interestbetween you and the Company or any subsidiary of the Company that, in theBoard’s determination, inappropriately affects your ability to carry on yournormal duties as an employee of the Company or any subsidiary of the Company;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.  Cause shall be deemed not to exist until you havefirst been (1) supplied with notice from the Company setting forth theBoard’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 letteragreement, “Good Reason” is defined as the occurrence of one or more of thefollowing events without your prior written consent (except as a result of aprior termination):  (i) anymaterial change in your status, title, authorities or responsibilities(including reporting responsibilities) which represents a demotion from yourstatus, title, position or responsibilities (including reportingresponsibilities) immediately prior to the Company Sale; the assignment to youof any duties or work responsibilities which are materially inconsistent withyour status, title, position or work responsibilities immediately prior to theCompany Sale, or which are materially inconsistent with the status, title,position or work responsibilities of a similarly situated senior officer; orany removal of you from, or failure to appoint, elect, reappoint or reelect youto, any of such positions, except in the event of your death or Disability andother than any such change primarily attributable to the fact the Company mayno longer be a public company; (ii) any decrease in your annual basesalary or target annual incentive award opportunity except for across-the-boardsalary reductions 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; (v) the failure by the Company to continue in effect any employeebenefit plan (including any medical, hospitalization, life insurance,disability or other group benefit plan in which you participate), or anymaterial fringe benefit or perquisite enjoyed by you unless an equitablearrangement (embodied in an ongoing substitute or alternative plan) has beenmade with respect to the failure to continue such plan, or the failure by theCompany to continue your participation therein, or any action by the Companywhich would directly or indirectly materially reduce your participation thereinor reward opportunities thereunder, or the failure by the Company to provideyou with the benefits to which you are entitled as an employee of the Company;provided, however, that you continue to meet substantially all eligibility requirementsthereof;

 

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(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*. You will not at any time whileyou are employed by the Company or any of its subsidiaries, and for 12 monthsfollowing the termination of your employment (the “Restricted Period”),solicit, recruit, request, cause, induce or encourage any individual who isthen employed by the Company, or was employed by the Company at any time duringthe 12-month period ending on your termination date, to leave the employment ofthe 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“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 agreement you may have with theCompany (or any of its affiliates) and subject to applicable law, nothingcontained in this letter agreement constitutes an employment or service commitmentby the Company (or any of its affiliates), affects your status as an employeeat will who is subject to termination without cause at any time, or interferesin any way with the Company’s right (or the right of its affiliates) to changeyour compensation or other terms of employment at any time.

 

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*Attorneys’ Fees and Costs*.  The Company shall pay to any law firm chosenby you, all reasonable fees and costs incurred by you, in an amount not toexceed $30,000 in the aggregate in enforcing the terms of this letter agreementor in the resolution of any dispute with respect to the benefits payable underthis letter agreement.  Said fees shallbe paid, as incurred, directly to the law firm chosen by you as invoiced by thelaw firm.

 

*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 bythe laws 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/  LINSTER W. FOX       |   |
| Linster  W. Fox           |   |

 

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