<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 1-10233
MAGNETEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3917584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
26 Century Blvd.
Nashville, Tennessee 37214
(Address of principal executive offices)
(Zip Code)
(615) 316-5100
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, as of
January 29, 1999: 31,591,740 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
In the opinion of management, the accompanying condensed consolidated financial
statements contain all adjustments necessary to fairly present the financial
position as of December 31, 1998 and the results of operations and cash flows
for the three-month and six-month periods ended December 31, 1998 and 1997. It
is suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes included in the
Company's latest annual report on Form 10-K. Results for the three-months and
six-months ended December 31, 1998 are not necessarily indicative of results
which may be experienced for the full fiscal year.
<PAGE>
ITEM 1
MAGNETEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 and JUNE 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS December 31 June 30
------ ----------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 2,887 $ 5,976
Accounts receivable 180,494 197,284
Inventories 211,808 196,830
Prepaid expenses and other 20,742 17,464
--------- ---------
Total current assets 415,931 417,554
--------- ---------
Property, plant and equipment 470,255 440,127
Less-accumulated depreciation
and amortization 263,114 243,657
--------- ---------
207,141 196,470
--------- ---------
Goodwill 54,208 53,576
Deferred financing costs,
intangible and other assets 64,251 63,138
--------- ---------
Total Assets $741,531 $730,738
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $108,643 $113,377
Accrued liabilities 93,763 107,539
Current portion of long-term debt 2,754 5,527
--------- ---------
Total current liabilities 205,160 226,443
--------- ---------
Long-term debt, net of current portion 272,446 239,577
Other long-term obligations 64,298 66,213
Deferred income taxes 9,794 11,784
Commitments and contingencies
Stockholders' equity
Common stock 310 313
Paid in capital in excess of par value 169,915 176,464
Retained earnings 39,172 27,737
Accumulated other comprehensive loss (19,564) (17,793)
--------- ---------
Total stockholders' equity 189,833 186,721
--------- ---------
Total Liabilities and
Stockholders' Equity $741,531 $730,738
--------- ---------
--------- ---------
</TABLE>
<PAGE>
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1998 and 1997
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
-------- --------
Net sales $279,540 $298,507
Cost of sales 230,739 240,241
-------- --------
Gross profit 48,801 58,266
Selling, general and administrative 39,545 39,727
-------- --------
Income from operations 9,256 18,539
Interest expense 4,884 3,861
Other expense, net 816 639
-------- --------
Income before provision for
income taxes 3,556 14,039
Income taxes 1,138 5,054
-------- --------
Net income $ 2,418 $ 8,985
-------- --------
-------- --------
EARNINGS PER COMMON SHARE
Basic:
Net income $ 0.08 $ 0.29
-------- --------
-------- --------
Diluted:
Net income $ 0.08 $ 0.28
-------- --------
-------- --------
</TABLE>
See accompanying notes
<PAGE>
ITEM 1 (Continued)
MAGNETEK, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 and 1997
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net sales $569,372 $584,994
Cost of sales 465,233 469,273
-------- --------
Gross profit 104,139 115,721
Selling, general and administrative 76,062 79,942
-------- --------
Income from operations 28,077 35,779
Interest expense 9,704 8,614
Other expense, net 1,556 1,440
-------- --------
Income before provision
for income taxes 16,817 25,725
Income taxes 5,382 9,261
-------- --------
Net income $ 11,435 $ 16,464
-------- --------
-------- --------
EARNINGS PER COMMON SHARE
Basic:
Net income $ 0.37 $ 0.55
-------- --------
-------- --------
Diluted:
Net income $ 0.37 $ 0.53
-------- --------
-------- --------
</TABLE>
See accompanying notes
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,435 $ 16,464
Adjustments to reconcile income to net cash
used in operating activities:
Depreciation and amortization 18,869 18,942
Changes in operating assets and liabilities (30,862) (30,527)
-------- ---------
Total adjustments (11,993) (11,585)
-------- --------
Net cash provided by (used in) operating activities: ( 558) 4,879
-------- ---------
Cash flows from investing activities:
Capital expenditures (25,897) (23,081)
Other investments ( 178) 5,204
-------- ---------
Net cash used in investing activities (26,075) (17,877)
-------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 809 4,029
Repurchase of common stock (7,361) --
Borrowings under bank
and other long-term obligations 30,096 6,953
Increase in deferred financing costs -- ( 102)
-------- ---------
Net cash provided by financing activities: 23,544 10,880
Net decrease in cash $ (3,089) $ (2,118)
Cash at the beginning of period 5,976 6,138
-------- ---------
Cash at the end of period $ 2,887 $ 4,020
-------- ---------
-------- ---------
</TABLE>
(continued on next page)
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 9,624 $ 8,654
Income Taxes $ 1,196 $ 1,344
</TABLE>
(see accompanying notes)
<PAGE>
ITEM 1 (continued)
MAGNETEK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(All dollar amounts are in thousands)
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL PERIOD - The Company uses a fifty-two, fifty-three week fiscal year.
Fiscal periods end on the Sunday nearest the end of the month. For clarity
of presentation, all periods are presented as if they ended on the last day
of the calendar period. The three-month and six-month periods ended
December 31, 1998 and 1997 each contained thirteen weeks and twenty six
weeks respectively.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of MagneTek, Inc. and its subsidiaries (the Company). All
significant inter-company accounts and transactions have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from
these estimates.
EARNINGS PER SHARE - In 1997, the Financial Accounting Standards Board
issued statement of Financial Accounting Standards No. 128, Earnings per
share. Statement 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the Statement
128 requirements.
2. INVENTORIES
Inventories at December 31, 1998 and June 30, 1998 consist of the
following:
<TABLE>
<CAPTION>
December 31 June 30
----------- ---------
<S> <C> <C>
Raw materials and stock parts $ 67,274 $ 64,714
Work-in-process 39,723 38,620
Finished goods 104,811 93,496
----------- ---------
$211,808 $196,830
----------- ---------
----------- ---------
</TABLE>
<PAGE>
3. COMMITMENTS AND CONTINGENCIES
In December, 1996 the Company and certain of its subsidiaries were named as
defendants in a suit filed by Cooper Industries, Inc. ("Cooper") in the
U.S. District Court for the Southern District of Texas, alleging breach of
the 1986 agreement by which the Company acquired certain businesses from
Cooper. At issue in the litigation is the question of which party has
responsibility in connection with pending lawsuits (the "asbestos
lawsuits") involving numerous plaintiffs who allege injurious exposure to
asbestos contained in products manufactured by current or former
subsidiaries and divisions of Cooper. Cooper claims that the Company is
obligated to defend and indemnify Cooper in connection with the asbestos
lawsuits. The Company has denied that it is obligated under the agreement
to defend and indemnify Cooper in connection with the asbestos lawsuits,
and has filed a counterclaim asserting that Cooper is obligated under the
agreement to defend and indemnify the Company in connection with the
asbestos lawsuits and that certain insurance coverage available to Cooper
should be applied to the asbestos lawsuits. The Company and Cooper have
engaged in settlement discussions. In July 1998, the Court granted partial
summary judgement in favor of the Company, ruling that the Company has no
obligation to indemnify Cooper in connection with the asbestos lawsuits.
Management of the Company does not believe that the financial impact of the
foregoing legal proceeding will be material to operating results or the
financial position of the Company.
In April 1998, Ole K. Nilssen filed a lawsuit in the U.S. District Court
for the Northern District of Illinois alleging the Company is infringing on
seven of his patents pertaining to electronic ballast technology. The
plaintiff seeks an unspecified amount of damages and an injunction to
preclude the Company from making, using or selling those products allegedly
infringing his patents. The Company denies that it has infringed, or is
infringing, any of the plaintiff's patents, and has asserted several
affirmative defenses. The Company also filed a counterclaim seeking
judicial declaration that it is not infringing (and has not infringed) the
patents asserted by the plaintiff, and that such asserted patents are
invalid. The Company intends to defend this matter vigorously. Due to the
early state of the litigation, it is difficult to predict the outcome of
the foregoing legal proceeding. However, management of the Company does not
believe that the financial impact of such litigation will be material to
operating results or the financial position of the Company.
4. OTHER COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 130 "Reporting Comprehensive Income," as of the first quarter of fiscal
1999. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components, however it has no impact on the
Company's net income or stockholders' equity. SFAS 130 requires foreign
currency translation adjustments, which, prior to adoption were reported
separately in stockholders equity, to be included in other comprehensive
income. Prior year
<PAGE>
financial statements have been restated to conform to the requirements
of SFAS 130.
During the second quarter of fiscal 1999 comprehensive losses were $2,612
versus comprehensive income of $8,485 in the second quarter of fiscal 1998.
For the first six months of fiscal 1999 and 1998, comprehensive income was
$9,664 and $15,847 respectively.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
--------------------- ---------------------
2Q 2Q YTD YTD
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
(in thousands, except per share amounts)
BASIC
Weighted average shares outstanding 30,793 30,952 30,986 29,793
EARNINGS:
Net Income $ 2,418 $ 8,985 $ 11,435 $16,464
------- ------- -------- -------
Per Share Earnings: $ 0.08 $ 0.29 $ 0.37 $ 0.55
------- ------- -------- -------
------- ------- -------- -------
DILUTED:
Weighted average shares outstanding 30,793 30,952 30,986 29,793
Dilutive stock options based upon 156 1,048 238 1,176
the treasury stock method using the
average market price.
Effect of Convertible debt to equity -- -- -- 1,005
------- ------- -------- -------
Total diluted shares outstanding 30,949 32,000 31,224 31,974
EARNINGS:
Net Income 2,418 8,985 11,435 16,464
Add:Interest savings on Convertible
debt after tax -- -- -- 466
------- ------- -------- -------
Net income $ 2,418 $ 8,985 $ 11,435 $16,930
PER SHARE EARNINGS: $ 0.08 $ 0.28 $ 0.37 $ 0.53
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
<PAGE>
6. REPOSITIONING COSTS
In fiscal 1996, as a result of significant declines in sales and profit
margins in both electronic and magnetic ballasts, the Company initiated a
review and analysis of actions to reduce costs and improve future
flexibility and profitability, focused to a large extent in its Lighting
products business. Subsequent to review and approval by the Company's Board
of Directors, certain reserves were established and charges recorded in the
year ended June 30, 1996. These charges were associated with a variety of
repositioning actions and included severance, termination benefits and
asset write-downs related to facility closures. Reserves were also
established for estimated increases in warranty (primarily related to the
electronic ballast product line) and other costs.
As of the end of the second quarter of fiscal 1999, the majority of the
activity associated with these reserves has been completed, with the
exception of those related to warranty claims. The magnitude of claims
incurred since June of 1996 (approximately one-half of the warranty
period), have been significantly less than originally projected. In
addition, the Company has successfully recovered almost three million
dollars from a single vendor in a structured settlement of a claim made for
defective components used in certain of the ballasts. As a result of lower
warranty claims and the recoveries, the Company recognized a credit to the
original reserve of $5,100 in the second quarter of fiscal 1999. Also, in
the second quarter of fiscal 1999, due to softening economic conditions,
consolidation of certain power supplies facilities and the pending sale of
its generator business to Emerson Electric, the Company established a
reserve for severance and related costs of $5,100. The re-evaluation of the
warranty liability and the recording of the reserve for severance were
offsetting occurrences with no impact on earnings per share for the
quarter.
7. SALE OF GENERATOR PRODUCT LINE
During the second quarter of fiscal 1999, the Company announced that it has
agreed in principle to sell its generator business which produces
alternators for use with diesel and natural gas generators sets to Emerson
Electric for $115 million subject to the completion of due diligence.
Proceeds from the sale could be used for debt repayment, continued share
repurchases and acquisitions.
<PAGE>
ITEM 2
MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS:
THREE MONTHS ENDED DECEMBER 31, 1998 VS. 1997
NET SALES AND GROSS PROFIT.
MagneTek's net sales for the second quarter of fiscal 1999 were $279.5
million, a 6.4% decrease from the second quarter of fiscal 1998 at $298.5
million. Sales in the Motors and Controls segment declined 8.7% due to
lower sales of generators, residential fractional horsepower motors, and
drives products. Sales in the Lighting Products segment fell 7.6% primarily
due to reduced electronic ballast revenues in domestic markets and lower
magnetic ballast sales in Europe. Compact fluorescent ballast sales
improved both domestically and in Europe. Power Supplies segment sales
increased 4.6% due entirely to the acquisition of Omega Power Systems in
June of 1998. Excluding sales of Omega Power Systems, segment sales were
lower than the year earlier period by 3%, due to weaker sales in Europe
from key customers (e.g. IBM, Siemens). Versus the year earlier period,
sales of European lighting products and power supplies benefited modestly
from slightly stronger local currency translation to U.S. dollars.
The Company's gross profit decreased to $48.8 million (17.5% of net sales)
in the second quarter of fiscal 1999 from $58.3 million (19.5% of net
sales) in the second quarter of fiscal 1998. The decline in gross profit
was a combination of lower sales volume and lower production levels. Large
volume customers for which demand was adversely affected by Asian and
domestic economic changes pared requirements, most notably in generator and
power supplies products. In response to these changes, manufacturing
facilities in the U.S. and Europe engaged in extended plant shutdowns in
the quarter to offset slackening demand and mitigate further increases to
inventory levels. The Lighting Products segment gross margin levels
improved (expressed as a percent of net sales) from prior year levels
primarily due to earlier plant consolidation programs. Production
capability for the domestic lighting business is now focused almost
entirely in Mexico.
OPERATING EXPENSES.
Selling, general and administrative (SG&A) expense was $39.5 million (14.2%
of net sales) in the second quarter of fiscal 1999 compared to $39.7
million (13.3% of net sales) in the second quarter of fiscal 1998. With
revenue losses concentrated in large customers with typically lower support
costs, spending levels dropped less than would be expected. Spending
comparisons were negatively impacted by the acquisition of Omega Power
Systems for which selling, general and administrative costs did not exist
in the prior year quarter.
<PAGE>
INTEREST AND OTHER EXPENSE.
Interest expense was $4.9 million in the second quarter of fiscal 1999
compared to the $3.9 million in the second quarter of fiscal 1998.
Approximately one-half of the increase in interest expense was due to the
purchase of Omega Power Systems in June of 1998 and the remaining increase
related to higher working capital balances.
NET INCOME.
The Company recorded an after-tax profit of $2.4 million in the second
quarter of fiscal 1999 compared to an after-tax profit of $9.0 million in
the second quarter of fiscal 1998. The tax provision in the second quarter
of fiscal 1999 was $1.1 million (32% effective tax rate) versus $5.1
million (36% effective tax rate) in the second quarter of fiscal 1998. The
lower provision for taxes reflects the Company's projected lower deferred
tax asset valuation requirement and a reduction in certain foreign tax
rates. The Company expects this lower overall rate to continue throughout
the year.
<PAGE>
ITEM 2
MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS:
SIX MONTHS ENDED DECEMBER 31, 1998 VS. 1997
NET SALES AND GROSS PROFIT.
Net sales for MagneTek in the first six months of fiscal 1999 were $569.4
million a 2.7% decline from $585.0 million of sales in the first six months
of fiscal 1998. Sales in the Lighting Products segment slipped 4.9%. The
majority of the reduction occurred in the magnetic and electronic ballast
products. Revenues for both compact fluorescent and HID (high intensity
discharge) ballasts improved from the earlier six-month period. Pricing
continues to be competitive in both domestic and foreign markets. Motors
and Controls segment revenues dropped 3.8% from the previous year levels.
Aggregate motor sales increased slightly for the period but were more than
offset by lower sales for both generator and drives products. Power supply
segment sales increased by 7.4%. Results include the effect of the
acquisition of Omega Power Systems, without which, segment sales
comparisons were flat with the year earlier period.
Gross profits were $104.1 million (18.3% of net sales) in the first six
months of fiscal 1999 compared to $115.7 million (19.8% of net sales) in
the first six months of fiscal 1998. Reduced gross profit levels occurred
in each segment but were most pronounced in Motors and Controls. Weaker
revenues in residential fractional horsepower motors and generators,
coupled with downward changes in production levels and extended plant
shutdowns during December, eroded performance. Results for the Lighting
Products segment, while unfavorably affected by sales volume, benefited
from earlier plant consolidations to lower cost facilities. Power Supplies
results were adversely affected by factors similar to motor and controls,
volume losses from key customers and lower production rates.
OPERATING EXPENSES.
Selling, general and administrative (SG&A) expense was $76.1 million (13.4%
of net sales) in the first six months of fiscal 1999 versus $79.9 million
(13.7% of net sales) in the first six months of fiscal 1998. Reduced
spending occurred primarily in the administrative area. Lower expenditures
in travel, legal, consulting and development costs contributed to the
favorable spending. The Company also had lower salary and related costs as
manning levels were reduced.
<PAGE>
INTEREST AND OTHER EXPENSE
Interest expense was $9.7 million in the first six months of fiscal 1999
compared to $8.6 million in the first six months of fiscal 1998. Interest
rates are generally lower on the Company's floating rate debt, however
borrowing levels have increased due to the funding of the Omega acquisition
and increased investment in working capital.
NET INCOME
The Company recorded an after-tax profit of $11.4 million in the first six
months of fiscal 1999 compared to an after-tax profit of $16.5 million in
the first six months of fiscal 1998. The tax provision in the first six
months of fiscal 1998 was $5.4 million (32% effective tax rate) versus $9.3
million (36% effective tax rate) in the first six months of fiscal 1998.
The Company expects this lower overall rate to continue throughout fiscal
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a Bank Loan Agreement which provides for borrowings of up to
$350 million under a revolving loan facility through June, 2002. Borrowings
under the facility bear interest at the bank's prime lending rate or, at the
London Interbank Offered rate plus five eights of one percent. As of December
31, 1998 the Company had approximately $78 million of available borrowings under
the Bank Loan Agreement. At present, the Bank Loan Agreement provides both short
term working capital availability and longer term financing needs for the
Company. The Company's Board of Directors has approved the repurchase of up to
five million shares of its common stock. Through the first six months of fiscal
1999, the Company repurchased 633,200 shares for approximately $7.4 million
through open market transactions.
In the second quarter of fiscal 1999, due to softening economic conditions,
consolidation of certain power supplies facilities and the pending sale of its
generator business to Emerson Electric, the Company established a reserve for
severance and related costs of $5,100. The re-evaluation of the warranty
liability and the recording of the reserve for severance were offsetting
occurrences with no impact on earnings per share for the quarter (see Note 6).
During the second quarter of fiscal 1999, the Company announced that it has
agreed in principle to sell its generator business to Emerson Electric (see Note
7).
<PAGE>
IMPACT OF YEAR 2000
As previously reported in the 1998 Annual Report, the Company initiated in
fiscal 1997 a comprehensive systems review, which resulted in the purchase of an
Oracle "Enterprise Resource Planning" software package. While the primary
purpose of the software was to improve business processes, it also enables the
Company to resolve Year 2000 issues. Though the first six months of fiscal 1999,
the Company has completed approximately 65% of its system conversion. The
Company currently expects to complete conversion of all software to eliminate
Year 2000 problems by early in the second half of calendar 1999. Total costs of
the project are anticipated at approximately $16 million of which approximately
$12 million has been spent through the first six months of fiscal 1999.
Management believes that the likelihood of a material adverse impact due to
problems with internal systems is remote.
The Company has also initiated an evaluation of other potential areas which
could be impacted by the Year 2000 issue. The Company has, and continues to
contact critical suppliers to determine that the products and services they
provide are Year 2000 compliant. These external vendor products and systems are
expected to function properly in the Year 2000. Notwithstanding those efforts,
there can be no assurance that another company's failure to ensure Year 2000
capability would not have an adverse effect on the Company.
The Company will conduct periodic reviews to monitor implementation plans
associated with the Year 2000 problem. In the event these reviews would indicate
the Company's implementation dates are at risk, contingency plans will be
established.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 1, Note 3.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Change of Control Agreement dated October 20, 1998 between
Antonio Canova and MagneTek, Inc.
10.2 Change of Control Agreement dated October 20, 1998 between
Brian R. Dundon and MagneTek, Inc.
10.3 Change of Control Agreement dated October 20, 1998 between
Gerard P. Gorman and MagneTek, Inc.
10.4 Change of Control Agreement dated October 20, 1998 between
James E. Schuster and MagneTek, Inc.
10.5 Change of Control Agreement dated October 20, 1998 between
Alexander Levran and MagneTek, Inc.
10.6 Change of Control Agreement dated October 20, 1998 between
David P. Reiland and MagneTek, Inc.
10.7 Change of Control Agreement dated October 20, 1998 between
John P. Colling, Jr. and MagneTek, Inc.
10.8 Change of Control Agreement dated October 20, 1998 between
Nancy M. Falls and MagneTek, Inc.
10.9 Change of Control Agreement dated October 20, 1998 between
Thomas R. Kmak and MagneTek, Inc.
10.10 Change of Control Agreement dated October 20, 1998 between
Samuel A. Miley and MagneTek, Inc.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAGNETEK, INC.
(Registrant)
Date: February 2, 1999 /s/ David P. Reiland
-------------------------------
David P. Reiland
Executive Vice President
and Chief Financial Officer
(Duly authorized officer of the
registrant and principal
financial officer)
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on
October 20, 1998 by and between Antonio Canova, 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,
<PAGE>
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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<PAGE>
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
6
<PAGE>
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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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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<PAGE>
(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.
-----------------------------------
ANTONIO CANOVA
MAGNETEK, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
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CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between Brian R. Dundon, 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,
<PAGE>
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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<PAGE>
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
6
<PAGE>
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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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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<PAGE>
(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.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date it is last executed below by either party.
-----------------------------------
BRIAN R. DUNDON
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
9
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CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between Gerard P. Gorman, 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,
<PAGE>
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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<PAGE>
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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<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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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<PAGE>
(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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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date it is last executed below by either party.
-----------------------------------
GERARD P. GORMAN
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
9
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CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between James E. Schuster, 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,
<PAGE>
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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<PAGE>
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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<PAGE>
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
6
<PAGE>
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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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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<PAGE>
(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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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date it is last executed below by either party.
-----------------------------------
JAMES E. SCHUSTER
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
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CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between Alexander Levran, 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,
<PAGE>
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
6
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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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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.
-----------------------------------
ALEXANDER LEVRAN
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
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CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between David P. Reiland, 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,
<PAGE>
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
6
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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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date it is last executed below by either party.
-----------------------------------
DAVID P. REILAND
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
9
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between John P. Colling, Jr., 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,
<PAGE>
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.
2
<PAGE>
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 twelve (12) 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 1.0.
"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,
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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.
7
<PAGE>
(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.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date it is last executed below by either party.
-----------------------------------
JOHN P. COLLING, JR.
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
9
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between Nancy M. Falls, 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,
<PAGE>
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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<PAGE>
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 twelve (12) 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 1.0.
"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,
3
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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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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.
-----------------------------------
NANCY M. FALLS
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
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CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between Thomas R. Kmak, 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,
<PAGE>
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 twelve (12) 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 1.0.
"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
6
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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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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.
7
<PAGE>
(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.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date it is last executed below by either party.
-----------------------------------
THOMAS R. KMAK
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
9
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on October
20, 1998 by and between Samuel A. Miley, 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,
<PAGE>
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.
2
<PAGE>
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 twelve (12) 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 1.0.
"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,
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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 Samuel
A. Miley nor Gibson, Dunn & Crutcher 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.
7
<PAGE>
(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.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date it is last executed below by either party.
-----------------------------------
SAMUEL A. MILEY
MAGNETEK, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
9
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
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0
0
<COMMON> 310
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