1221 Avenue of
the Americas
New York, NY 10020
Tel: 212-584-5100
Fax: 212-584-5200
www.sirius.com
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
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
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
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 2
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