CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between Xxxxxx X. Xxxxxx, an individual (the "Executive"), and
MagneTek, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change of Control (as hereinafter defined) exists and
that the threat or the occurrence of a Change of Control can result in
significant distractions of its key management personnel because of the
uncertainties inherent in such a situation;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive in the event of a threat or occurrence of a Change of Control and to
ensure the Executive's continued dedication and efforts in such event without
undue concern for personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, particularly in the event of a threat or the occurrence of a Change of
Control, the Company desires to enter into this Agreement with the Executive to
provide the Executive with certain benefits in the event his or her employment
is terminated as a result of, or in connection with, a Change of Control.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties do hereby agree as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of the date
hereof and shall continue in effect until December 31, 2000; PROVIDED, HOWEVER,
that on December 31, 2000 and on each anniversary thereof, the term of this
Agreement shall automatically be extended for one year unless either the Company
or the Executive shall have given written notice to the other prior thereto that
the term of this Agreement shall not be so extended; PROVIDED, FURTHER, HOWEVER,
that notwithstanding any such notice by the Company or the Executive not to
extend, the term of this Agreement shall not expire prior to the second
anniversary of a Change of Control Date. The benefits payable pursuant to
Section 2 hereof shall be due in all events if a Change of Control occurs during
the term of this Agreement, and a Change of Control will be deemed to have
occurred during the term hereof if an agreement for a transaction resulting in a
Change of Control is entered into during the term hereof, notwithstanding that
the Change of Control Date occurs after the expiration of the term of this
Agreement.
2. BENEFITS UPON CHANGE OF CONTROL.
(a) EVENTS GIVING RISE TO BENEFITS. The Company agrees to pay or
cause to be paid to the Executive the benefits specified in this Section 2 if
(i) there is a Change of Control,
and (ii) within the Change of Control Period, (a) the Company or the
Successor terminates the employment of the Executive for any reason other
than Cause, death or Disability or (b) the Executive voluntarily terminates
employment for Good Reason.
(b) BENEFITS UPON TERMINATION OF EMPLOYMENT. If the Executive is
entitled to benefits pursuant to this Section 2, the Company agrees to pay or
provide to the Executive as severance payment, the following:
(i) A single lump sum payment, payable in cash within five
days of the Termination Date (or if later, the Change of Control Date),
equal to the sum of:
(A) the accrued portion of any of the Executive's unpaid
base salary and vacation through the Termination Date and any unpaid
portion of the Executive's bonus for the prior fiscal year; plus
(B) a portion of the Executive's bonus for the fiscal
year in progress, prorated based upon the number of days elapsed since
the commencement of the fiscal year and calculated assuming that 100%
of the target under the bonus plan is achieved; plus
(C) an amount equal to the Executive's Base Compensation
times the Compensation Multiplier.
(ii) Continuation, on the same basis as if the Executive
continued to be employed by the Company, of Benefits for the Benefit Period
commencing on the Termination Date. The Company's obligation hereunder
with respect to the foregoing Benefits shall be limited to the extent that
the Executive obtains any such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the coverage of any
Benefits it is required to provide the Executive hereunder as long as the
aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Executive than the Benefits required to be provided
hereunder.
(iii) Outplacement services to be provided by an outplacement
organization of national repute, which shall include the provision of
office space and equipment (including telephone and personal computer) but
in no event shall the Company be required to provide such services for a
value exceeding 17% of the Executive's Base Compensation.
(iv) Accelerated vesting of all outstanding stock options and
of all previously granted restricted stock awards.
(v) Target amounts that would have accrued under the MagneTek
Shareholder Return Plan had the applicable period for each such target
elapsed, calculated and paid, PRO RATA, for the actual period elapsed.
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3. DEFINITIONS. When used in this Agreement, the following terms have
the meanings set forth below:
"BASE COMPENSATION" means the sum of (i) the Executive's annual salary
in effect on the earlier of the Change of Control Date and the Termination Date
and (ii) 100% of the target under the bonus plan for the fiscal year during
which the Change of Control Date occurs.
"BENEFITS" means benefits that would be available under the Company's
Medical Plan, Dental Plan, Senior Executive Medical Reimbursement Plan, Life
Insurance and Disability Insurance Plans and any similar health and welfare plan
of the Company.
"BENEFIT PERIOD" means eighteen (18) months.
"CAUSE" means: (A) conviction of a felony or misdemeanor involving
moral turpitude, or (B) willful gross neglect or willful gross misconduct in
carrying out the Executive's duties, resulting in material economic harm to the
Company or any Successor.
"CHANGE OF CONTROL" means (i) any event described in Section 4.7(a) of
the Amended and Restated 1989 Incentive Compensation Plan of the Company or any
event so defined in any stock incentive or similar plan adopted by the Company
in the future unless, in either case, such event occurs in connection with a
Distress Sale and (ii) any event which results in the Board ceasing to have at
least a majority of its members be "continuing directors." For this purpose, a
"continuing director" shall mean a director of the Company who held such
position on June 1, 1996 or who thereafter was appointed or nominated to the
Board by a majority of continuing directors.
"CHANGE OF CONTROL DATE" means the date on which a Change of Control
is consummated.
"CHANGE OF CONTROL PERIOD" means the period commencing on the earlier
of (i) 180 days prior to the Change of Control Date and (ii) the announcement of
a transaction expected to result in a Change of Control, and ending on the
second anniversary of the Change of Control Date.
"CODE" means the Internal Revenue Code of 1986, as amended.
References herein to a specific section of the Code shall be deemed to include
comparable or analogous provisions of state, local and foreign law.
"COMPENSATION MULTIPLIER" means 1.5.
"DISABILITY" means the inability of the Executive due to illness
(mental or physical), accident, or otherwise, to perform his or her duties for
any period of 180 consecutive days, as determined by a qualified physician.
"DISTRESS SALE" means a Change of Control occurring within 18 months
of any of the following: (i) the Company's independent public accountants shall
have made a "going concern" qualification in their audit report (other than by
reason of extraordinary occurrences,
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such as material litigation, not attributable to poor management practices);
(ii) the Company shall lack sufficient capital for its operations by reason
of termination of its existing credit lines or the Company's inability to
secure credit facilities upon acceptable terms; or (iii) the Company shall
have voluntarily sought relief under, consented to or acquiesced in the
benefit of application to it of the Bankruptcy Code of the United States of
America or any other liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of
payments or similar laws, or shall have been the subject of proceedings under
such laws (unless the applicable involuntary petition is dismissed within 60
days after its filing).
"GOOD REASON" means (A) without the Executive's prior written consent,
assignment to the Executive of duties materially inconsistent in any respect
with his or her position immediately prior to the Change of Control Date or any
other action by a Successor that results in a material diminution in the
Executive's position, authority, duties, responsibilities, annual base salary or
target bonus when compared with the same immediately prior to the Change of
Control Date; or (B) assignment of the Executive, without his or her prior
written consent, to a place of business that is not within the metropolitan area
of the Executive's current place of business.
"STAY AND PAY AGREEMENT" means a "stay and pay" or retention agreement
entered into in contemplation of a sale by the Company of a division or business
unit.
"SUCCESSOR" means any acquiror of all or substantially all of the
stock, assets or business of the Company.
"TERMINATION DATE" means the last day of the Executive's employment.
4. ELIGIBILITY; EFFECT ON OTHER AGREEMENTS AND PLANS.
(a) In the event the Executive is also a party to a Stay and Pay
Agreement or severance agreement and becomes entitled to any payment thereunder,
this Agreement shall be null and void and the Executive shall not be entitled to
any payment or benefit hereunder. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any other agreements with the Company. Amounts
that are vested benefits or that the Executive is otherwise entitled to receive
under any plan or program of the Company shall be payable in accordance with
such plan or program, except as explicitly modified by this Agreement.
(b) PLAN AMENDMENTS. The Company shall adopt such amendments to its
employee benefit plans and insurance policies, including, without limitation,
the Plans, as are necessary to effectuate the provisions of this Agreement. If
and to the extent any benefits under Section 2 are not paid or payable or
otherwise provided to the Executive or his or her dependents or beneficiaries
under any such plan or policy (whether due to the terms of the plan or policy,
the termination thereof, applicable law, or otherwise), then the Company itself
shall pay or provide for such benefits (including any gross-up needed to account
for the less favorable tax treatment if
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the payments are made from the Company and not from the Plans or other
employee benefit plans).
5. GOLDEN PARACHUTE TAX.
(a) If the Value (as hereinafter defined) attributable to the
payments and benefits provided in Section 2 above, without regard to this
Section 5 ("Agreement Payments"), in combination with the Value attributable to
other payments or benefits in the nature of compensation to or for the benefit
of Executive (including but not limited to the value attributable to accelerated
vesting of options and, collectively with Agreement Payments, "Payments") would,
but for this Section 5, constitute an "excess parachute payment" under Code
Section 280G, then Agreement Payments will be made to the Executive under
Section 2 hereof only to the extent provided in this Section 5. If (i) the
excess of the Value of all Payments over the sum of all taxes (including but not
limited to income and excise taxes under Code Section 4999) that would be
payable by the Executive with respect to such Payments, is equal to or greater
than 110% of (ii) the excess of the greatest Value of all such Payments that
could be paid to or for the benefit of the Executive and not result in an
"excess parachute payment" (the "Cap"), over the amount of taxes that would be
payable by Executive thereon, then the full amount of Agreement Payments shall
be paid to the Executive. Otherwise, Agreement Payments shall be made only to
the extent that such payments cause the Value of all Payments to equal the Cap.
(b) For purposes of this Section 5, the Company and the Executive
hereby irrevocably appoint the persons who constituted the Compensation
Committee of the Board immediately prior to the Change of Control, or a three
person panel named by a majority of them, as arbitrators (the "Arbitrators") to
make all determinations required under this Section 5, including but not limited
to the Value of all Payments (and the components thereof) and the amount and
nature of any reduction of Agreement Payments required by this Section 5. For
purposes of this Section 5, "Value" shall mean value as determined by the
Arbitrators applying the valuation procedures and methodologies established
pursuant to Code Section 280G, including any non-binding interpretive guidance
as the Arbitrators determine appropriate. The determinations of the Arbitrators
shall be final and binding on both the Company and Executive, and their
successors, assignees, heirs and beneficiaries, for purposes of determining the
amount payable under Section 2. All fees and expenses of the Arbitrators
(including attorneys' and accountants' fees) shall be borne by the Company. The
arbitrators will be compensated, to the extent they are not then members of the
Board's Compensation Committee, at the rates at which they would have been
compensated for their work as Committee members in effect immediately prior to
the Change of Control Date.
6. EMPLOYMENT AT-WILL. Notwithstanding anything to the contrary
contained herein, the Executive's employment with the Company is not for any
specified term and may be terminated by the Executive or by the Company at any
time, for any reason, with or without cause, without liability except with
respect to the payments provided hereunder or as required by law or any other
contract or employee benefit plan.
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7. GENERAL.
(a) ENTIRE AGREEMENT. This document constitutes the final, complete,
and exclusive embodiment of the entire agreement and understanding between the
parties related to the subject matter hereof and supersedes and preempts any
prior or contemporaneous understandings, agreements, or representations by or
between the parties, written or oral.
(b) SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by the Executive and the Company, and
their respective successors and assigns, except that the Executive may not
assign any of his or her duties hereunder and he or she may not assign any of
his or her rights hereunder without the prior written consent of the Company.
(c) AMENDMENTS. No amendments or other modifications to this
Agreement may be made except by a writing signed by both parties. No amendment
or waiver of this Agreement requires the consent of any individual, partnership,
corporation or other entity not a party to this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any third person any
rights or remedies under or by reason of this Agreement.
(d) NO AMOUNTS DUE. The Executive acknowledges that no payments or
benefits whatsoever shall become due hereunder in the absence of a Change of
Control.
(e) NO MITIGATION OBLIGATION. The parties hereto expressly agree
that the payment of the benefits by the Company to the Executive in accordance
with the terms of this Agreement will be liquidated damages, and that the
Executive shall not be required to mitigate the amount of any payment provided
for in this Agreement by seeking other employment or otherwise, nor shall any
profits, income, earnings or other benefits from any source whatsoever create
any mitigation, offset, reduction or any other obligation on the part of the
Executive hereunder or otherwise except as expressly provided in
Sections 2(b)(ii) and 4(a).
(f) CHANGES TO BENEFITS. In the event that, within 90 days of the
execution of this Agreement, the Company enters into an agreement for a Change
of Control in connection with a merger to be accounted for as a "pooling of
interests," the Board will be entitled to modify or reduce the payments or
benefits due hereunder, or to abrogate this Agreement entirely, if and to the
extent that Ernst & Young opines to the Board such measures are necessary in
order to ensure that the proposed merger will be accounted for as a "pooling of
interests." The Board will have no such authority after such 90-day period and,
in the event such merger does not eventuate or is ultimately not accounted for
as a "pooling of interests," this Agreement, with or without any action by the
Board or the Executive, shall be automatically reinstated.
(g) CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the laws of
the State of Tennessee without giving effect to principles of conflicts of law.
(h) ERISA. This Agreement is pursuant to the Company's severance
plan for Executives (the "Plan") which is unfunded and maintained by the Company
primarily for the purpose of providing deferred compensation for a select group
of management or highly
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compensated employees. The Plan constitutes an employee welfare benefit plan
("Welfare Plan") within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Any payments
pursuant to this Agreement which could cause the Plan not to constitute a
Welfare Plan shall be deemed instead to be made pursuant to a separate
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
as to which the applicable portions of the document constituting the Plan
shall be deemed to be incorporated by reference. None of the benefits
hereunder may be assigned in any way.
(i) REPRESENTATION. The Executive acknowledges that neither Xxxxxx
X. Miley nor Xxxxxx, Xxxx & Xxxxxxxx LLP has represented the Executive in
connection with this Agreement and that he or she has had the opportunity to
consult with counsel before executing this Agreement.
(j) MUTUAL NON-DISPARAGEMENT. The Company and subsidiaries agree,
and the Company shall use its best efforts to cause its respective executive
officers and directors to agree, that they will not make or publish any
statement critical of the Executive, or in any way adversely affecting or
otherwise maligning the Executive's reputation. The Executive agrees that he or
she will not make or publish any statement critical of the Company, its
affiliates and their respective executive officers and directors, or in any way
adversely affecting or otherwise maligning the business or reputation of the
Company, its affiliates and subsidiaries and their respective officers,
directors and employees.
8. ARBITRATION.
(a) Except as provided in Section 5 hereof, any disputes or claims
arising out of or concerning the Executive's employment or termination by the
Company, whether arising under theories of liability or damages based upon
contract, tort or statute, will be determined exclusively by arbitration before
a single arbitrator in accordance with the employment arbitration rules of the
American Arbitration Association, except as modified by this Agreement. The
arbitrator's decision will be final and binding on both parties. Judgment upon
the award rendered by the arbitrator may be entered in any court of competent
jurisdiction. In recognition of the fact that resolution of any disputes or
claims in the courts is rarely timely or cost effective for either party, the
Company and the Executive enter this mutual agreement to arbitrate in order to
gain the benefits of a speedy, impartial and cost-effective dispute resolution
procedure. The parties further intend that the arbitration hereunder be
conducted in as confidential a manner as is practicable under the circumstances,
and intend for the award to be confidential unless that confidentiality would
frustrate the purpose of the arbitration or render the remedy awarded
ineffective.
(b) Any arbitration will be held in Nashville, Tennessee. The
arbitrator must be an attorney with substantial experience in employment
matters, selected by the parties alternately striking names from a list of five
such persons provided by the American Arbitration Association (AAA) office
located nearest to the place of employment, following a request by the party
seeking arbitration for a list of five such attorneys with substantial
professional experience in employment matters. If either party fails to strike
names from the list, the arbitrator will be selected from the list by the other
party.
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(c) Each party will have the right to take the deposition of one
individual and any expert witness designated by the other party. Each party
will also have the right to propound requests for production of documents to any
party and the right to subpoena documents and witnesses for the arbitration.
Additional discovery may be made only where the arbitrator selected so orders
upon a showing of substantial need. The arbitrator will have the authority to
entertain a motion to dismiss and/or a motion for summary judgment by any party
and will apply the standards governing such motions under the Federal Rules of
Civil Procedure.
(d) The Company and the Executive agree that they will attempt, and
they intend that they and the arbitrator should use their best efforts in that
attempt, to conclude the arbitration proceeding and have a final decision from
the arbitrator within 120 days from the date of selection of the arbitrator;
PROVIDED, HOWEVER, that the arbitrator will be entitled to extend such 120-day
period for one additional 120-day period. The arbitrator will deliver a written
award with respect to the dispute to each of the parties, who must promptly act
in accordance therewith.
(e) The Company will pay any and all reasonable fees and expenses
incurred by the Executive in seeking to obtain or enforce any rights or benefits
provided by this Agreement, including all reasonable attorneys' and experts'
fees and expenses, accountants' fees and expenses, and court costs (if any) that
may be incurred by the Executive in pursuing a claim for payment of compensation
or benefits or other right or entitlement under this Agreement, PROVIDED that
the Executive is successful as to material issues, resulting in an award of at
least $100,000.
(f) In a contractual claim under this Agreement, the arbitrator must
act in accordance with the terms and provisions of this Agreement and applicable
legal principles and will have no authority to add, delete or modify any term or
provision of this Agreement. In addition, the arbitrator will have no authority
to award punitive damages under any circumstances unless repudiating the
arbitrator's authority to do so would cause this arbitration clause to be ruled
ineffective under applicable law.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date it is last executed below by either party.
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XXXXXX X. XXXXXX
MAGNETEK, INC.
By:
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Name:
--------------------------------
Title:
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