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EXHIBIT 10.1
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement ("Agreement") is entered into on
November 1, 2000 by and between Timothy Champion, 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 November 1, 2002; PROVIDED,
HOWEVER, that on November 1, 2002 and on each anniversary thereof, the term
of this Agreement shall automatically be extended for one year unless either
the Company or the Executive shall have given written notice to the other
prior thereto that the term of this Agreement shall not be so extended;
PROVIDED, FURTHER, however, that notwithstanding any such notice by the
Company or the Executive not to extend, the term of this Agreement shall not
expire prior to the second anniversary of a Change of Control Date. The
benefits payable pursuant to Section 2 hereof shall be due in all events if a
Change of Control occurs during the term of this Agreement, and a Change of
Control will be deemed to have occurred during the term hereof if an
agreement for a transaction resulting in a Change of Control is entered into
during the term hereof, notwithstanding that the Change of Control Date
occurs after the expiration of the term of this Agreement.
2. BENEFITS UPON CHANGE OF CONTROL.
(a) EVENTS GIVING RISE TO BENEFITS. The Company agrees to pay
or cause to be paid to the Executive the benefits specified in this Section 2
if (i) there is a Change of Control, and (ii) within the Change of Control
Period, (a) the Company or the Successor terminates the
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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) If the Change of Control Date occurs within 24 months
of the date hereof, the Company will bear the following out-of-pocket
expenses in connection with the Executive's relocation from the Los Angeles
area to the Philadelphia area:
(A) Acquisition of the Los Angeles area home at fair
market value plus closing costs.
(B) Closing costs on purchase of the Philadelphia area
home.
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(C) Cost of moving household goods.
In such event the Executive is likewise entitled to a cost of living
allowance in respect of his family's housing and transportation
expenses incurred in connection with his family's temporary living
arrangements prior to such move to the Philadelphia area for a
period not to exceed three months, and two househunting trips. All
out-of-pocket expenses for which the Executive is entitled to
reimbursement under this Section 2(v) shall be documented in
accordance with the Company's expense reimbursement policies.
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 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
11.2 of the 1999 Stock Incentive 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, 2000 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.
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"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, 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.
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(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 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
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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.
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.
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(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 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
Tina McKnight 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 Los Angeles, California.
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
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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.
(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. In addition, the Company will
pay without regard to the results of the arbitration all costs and fees not
normally associated with a civil proceeding, such as any fees charged by the
arbitrator or any room rental charges.
(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.
TIMOTHY CHAMPION
MAGNETEK, INC.
By:_______________________
Name:___________________
Title:__________________
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