Related Party Transactions and Outside Related Director Information

Directed Electronics, Inc. (DEIX)

4/25/2006 Proxy Information

Management and Advisory Agreements

From 1999 through our initial public offering, we had a management agreement with Trivest Partners, L.P., pursuant to which Trivest Partners provided management, consulting, and financial services to us. These services included rendering advice and assistance concerning our operations, strategic and capital planning, and financing, including conducting relations on our behalf with accountants, attorneys, financial advisors, and other professionals, as well as advice and expertise in connection with acquisitions and dispositions. Pursuant to the management agreement, Trivest Partners was entitled to receive a base management fee and additional fees for assisting with acquisitions, dispositions, and financings, as well as reimbursement for out-of-pocket expenses. In 2005, we paid Trivest Partners aggregate fees and expenses of $720,000. In connection with the consummation of our initial public offering, the management agreement was terminated in exchange for a payment to Trivest Partners of $3.5 million. Messrs. Templeton, Elias, and Powell are each affiliated with Trivest Partners, which is also an affiliate of our largest shareholders.

Upon consummation of our initial public offering, we entered into an advisory agreement with Trivest Partners. The agreement provides that for each acquisition or disposition of any business operation by us that is introduced or negotiated by Trivest Partners, Trivest Partners will generally receive a fee of between 1% and 3% of the purchase price. In addition, we will pay Trivest Partners a fee of 1.5% of the amount of any equity or debt financing or refinancing negotiated by Trivest Partners. However, if we engage another financial advisor to provide services in connection with such an acquisition, disposition, or financing, the fees payable to Trivest Partners may be reduced to an amount (determined in good faith by our board of directors) that reflects the relative contribution of Trivest Partners. The agreement further provides that our obligation to pay financial advisory fees will terminate when affiliates of Trivest Partners, on a combined basis, own less than 20% of our outstanding voting securities. There will not be any fee payable to Trivest Partners in connection with such termination.

Sale Bonus Agreements

In December 2004 and early 2005, we entered into sale bonus agreements with 21 key employees, including our executive officers. These agreements were designed to provide an incentive to increase our value by making a payment upon certain liquidity events. The agreements provided that, in connection with our initial public offering, our board of directors would negotiate in good faith with each key employee to determine a fair compensation arrangement to compensate the key employee in accordance with the purpose of the agreement. As a result of that negotiation, we agreed to pay an aggregate of approximately $5.8 million and grant restricted stock unit awards for an aggregate of 897,748 shares of our common stock to the 21 key employees in exchange for the termination of the sale bonus agreements upon the consummation of our initial public offering. The restricted stock unit awards generally provide for the delivery of one-third of the underlying common stock on each of the first three anniversaries of our initial public offering, with delivery of stock on a quarterly basis to four of our named executive officers. Delivery of the underlying common stock is not contingent on our continued employment of the key employees. The termination payments and restricted stock unit awards were determined by applying each employeeÕs applicable sale bonus agreement percentage to the amount by which an agreed-upon valuation for our company exceeded a pre-established amount. Each employeeÕs percentage of that net equity amount will generally be paid 20% in cash and 80% in restricted stock units. Prior to our initial public offering, no amounts had ever been paid to any employee under the sale bonus agreements.

In connection with our initial public offering, named executive officers received the following: (See page 18 of proxy for table).

Deferred Compensation/Salary Continuation Agreements

We have entered into deferred compensation/salary continuation agreements with each of our executive officers. These agreements were designed to provide these officers with retirement benefits in the form of deferred compensation, which amounts accrue for as long as the officer remains a full-time employee of our company. Under the agreements, for each year during which an executive officer remains a full-time employee of our company, we accrue as deferred compensation for that executive officer a set amount (which ranges from approximately $2,500 to $15,000 per officer) plus any additional amount we may elect to contribute. The amounts accrued are deposited into a deferred compensation account and, upon the executive officerÕs retirement, we are obligated to pay the executive officer the balance of the deferred compensation account. The balance of the deferred compensation account will be paid in five annual installments commencing on January 1 of the year following an executive officerÕs retirement. If an executive officer dies while employed by our company, we will pay that executive officerÕs designated beneficiary a salary continuation benefit equal to the balance of the deferred compensation account. If an executive officerÕs employment terminates for any reason other than death or retirement, that executive officer is entitled to a severance benefit equal to the value of the deferred compensation account.

Real Estate Lease Agreement

On July 14, 2003, we entered into a lease agreement for our headquarters facility with Greene Properties, Inc., a corporation owned by Darrell E. Issa, one of our current directors and our former owner. Under the lease agreement and an amendment to the lease dated September 8, 2004, we lease an aggregate of 162,771 square feet of office and distribution space. The initial term of the amended lease expires December 31, 2013, and we have one five-year renewal option exercisable upon at least six months advance written notice of our election to exercise the option. Our current fixed monthly rent under the lease is approximately $118,000, plus 100% of the common area costs. We paid annual rent under the lease of $1.1 million, $1.3 million, and $1.6 million during the years ended December 31, 2003, 2004, and 2005, respectively.

Registration Rights Agreement

In connection with our purchase by Trivest in 1999, we entered into a registration rights agreement with Darrell E. Issa, one of our current directors and our former owner, as well as certain other shareholders that provided financing for that acquisition. In connection with our initial public offering, we entered into an amended and restated agreement pursuant to which Trivest became a party. The agreement provides that, if Mr. Issa, Trivest, or the other shareholders party to the agreement so request, we will register under the Securities Act of 1933, as amended, any shares of our common stock currently held or later acquired by Mr. Issa, Trivest, or the other shareholders. Mr. Issa, Trivest, and the other shareholders will also have the right to include the shares of our common stock that they own in registrations that we initiate on our own behalf or on behalf of other shareholders.