**Exhibit 10.26**

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# **CHANGE OF CONTROL AGREEMENT**

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This Change of ControlAgreement (“Agreement”) is entered into on September 29, 2005 by andbetween Stephen Torres, an individual (the “Officer”), and Magnetek, Inc.,a Delaware corporation (the “Company”).

 

RECITALS

 

WHEREAS, the Boardof Directors of the Company (the “Board”) recognizes that the possibility of aChange of Control (as hereinafter defined) exists and that the threat or theoccurrence of a Change of Control can result in significant distractions of itskey management personnel because of the uncertainties inherent in such asituation;

 

WHEREAS, the Boardhas determined that it is essential and in the best interest of the Company andits stockholders to retain the services of the Officer in the event of a threator occurrence of a Change of Control and to ensure the Officer’s continueddedication and efforts in such event without undue concern for personalfinancial and employment security; and

 

WHEREAS, in orderto induce the Officer to remain in the employ of the Company, particularly inthe event of a threat or the occurrence of a Change of Control, the Companydesires to enter into this Agreement with the Officer to provide the Officerwith certain benefits in the event his or her employment is terminated as aresult of, or in connection with, a Change of Control.

 

AGREEMENT

 

NOW THEREFORE, inconsideration of the mutual covenants set forth herein, and for other good andvaluable consideration, receipt of which is hereby acknowledged, the parties dohereby agree as follows:

 

1.                                       Termof Agreement.  This Agreement shallcommence as of the date hereof and shall continue in effect until December 31,2006; *provided*, *however*,that on December 31, 2006 and on each anniversary thereof, the term ofthis Agreement shall automatically be extended for one year unless either theCompany or the Officer shall have given written notice to the other priorthereto that the term of this Agreement shall not be so extended; *provided*, *further*, *however*, that notwithstanding any such notice by the Companyor the Officer not to extend, the term of this Agreement shall not expire priorto the second anniversary of a Change of Control Date.  The benefits payable pursuant to Section 2hereof shall be due in all events if a Change of Control occurs during the termof this Agreement, and a Change of Control will be deemed to have occurredduring the term hereof if an agreement for a transaction resulting in a Changeof Control is entered into during the term hereof, notwithstanding that theChange of Control Date occurs after the expiration of the term of thisAgreement.

 

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2.                                       BenefitsUpon Change of Control.

 

(a)                                  EventsGiving Rise to Benefits.  The Companyagrees to pay or cause to be paid to the Officer the benefits specified in thisSection 2 if (i) there is a Change of Control, and (ii) withinthe Change of Control Period, (a) the Company or the Successor terminatesthe employment of the Officer for any reason other than Cause, death orDisability or (b) the Officer voluntarily terminates employment for GoodReason.

 

(b)                                 BenefitsUpon Termination of Employment.  Ifthe Officer is entitled to benefits pursuant to this Section 2, theCompany agrees to pay or provide to the Officer as severance payment, thefollowing:

 

(i)                                     Asingle lump sum payment, payable in cash within five days of the TerminationDate (or if later, the Change of Control Date), equal to the sum of:

 

(A)                              theaccrued portion of any of the Officer’s unpaid base salary and vacation throughthe Termination Date and any unpaid portion of the Officer’s bonus for theprior fiscal year; plus

 

(B)                                aportion of the Officer’s bonus for the fiscal year in progress, prorated basedupon the number of days elapsed since the commencement of the fiscal year andcalculated assuming that 100% of the target under the bonus plan is achieved;plus

 

(C)                                anamount equal to the Officer’s Base Compensation times the CompensationMultiplier.

 

(ii)                                  Continuation,on the same basis as if the Officer continued to be employed by the Company, ofBenefits for the Benefit Period commencing on the Termination Date.  The Company’s obligation hereunder withrespect to the foregoing Benefits shall be limited to the extent that the Officerobtains any such benefits pursuant to a subsequent employer’s benefit plans, inwhich case the Company may reduce the coverage of any Benefits it is requiredto provide the Officer hereunder as long as the aggregate coverage and benefitsof the combined benefit plans is no less favorable to the Officer than theBenefits required to be provided hereunder.

 

(iii)                               Outplacementservices to be provided by an outplacement organization of national repute,which shall include the provision of office space and equipment (includingtelephone and personal computer) but in no event shall the Company be requiredto provide such services for a value exceeding 17% of the Officer’s BaseCompensation.

 

(iv)                              Acceleratedvesting of all outstanding stock options and of all previously grantedrestricted stock awards.

 

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3.                                       Definitions.  When used in this Agreement, the followingterms have the meanings set forth below:

 

“Base Compensation”means the sum of (i) the Officer’s annual salary in effect on the earlierof the Change of Control Date and the Termination Date and (ii) 100% ofthe target under the bonus plan for the fiscal year during which the Change ofControl Date occurs.

 

“Benefits” meansbenefits that would be available under any health and welfare plan of theCompany on the Termination Date.

 

“Benefit Period”means 18 months.

 

“Cause”means:  (A) conviction of a felonyor misdemeanor involving moral turpitude, or (B) willful gross neglect orwillful gross misconduct in carrying out the Officer’s duties, resulting inmaterial economic harm to the Company or any Successor.

 

“Change of Control”means (i) any event described in Section 13.2 of the 2004 StockIncentive Plan of the Company or any event so defined in any stock incentive orsimilar plan adopted by the Company in the future unless, in either case, suchevent occurs in connection with a Distress Sale and (ii) any event whichresults in the Board ceasing to have at least a majority of its members be “continuingdirectors.”  For this purpose, a “continuingdirector” means a director of the Company who held such position on September 29,2005 or who thereafter was appointed or nominated to the Board by a majority ofcontinuing directors.

 

“Change of ControlDate” means the date on which a Change of Control is consummated.

 

“Change of Control Period” means the periodcommencing on the earlier of (i) 180 days prior to the Change of ControlDate and (ii) the announcement of a transaction expected to result in aChange of Control, and ending on the second anniversary of the Change of ControlDate.

 

“Code” means the Internal Revenue Code of 1986,as amended.  References herein to aspecific section of the Code shall be deemed to include comparable oranalogous provisions of state, local and foreign law.

 

“CompensationMultiplier” means 1.5.

 

“Disability” meansthe inability of the Officer due to illness (mental or physical), accident, orotherwise, 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 thefollowing:  (i) the Company’sindependent public accountants shall have made a “going concern” qualificationin their audit report (other than by reason of extraordinary occurrences, suchas material litigation, not attributable to poor management practices); (ii) theCompany shall lack sufficient capital for its operations by reason oftermination of its existing credit lines or the Company’s inability to securecredit facilities upon acceptable terms; or (iii) the Company shall havevoluntarily sought relief under, consented to or acquiesced in the benefit ofapplication to it of the Bankruptcy Code of the United States of America or anyother liquidation,

 

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conservatorship, bankruptcy, moratorium, rearrangement, receivership,insolvency, reorganization, suspension of payments or similar laws, or shallhave been the subject of proceedings under such laws (unless the applicableinvoluntary petition is dismissed within 60 days after its filing).

 

“Good Reason” means (A) without the Officer’sprior written consent, assignment to the Officer of duties materiallyinconsistent in any respect with his or her position immediately prior to theChange of Control Date or any other action by a Successor that results in amaterial diminution in the Officer’s position, authority, duties,responsibilities, annual base salary or target bonus when compared with thesame immediately prior to the Change of Control Date; or (B) assignment ofthe Officer, without his or her prior written consent, to a place of businessthat is not within the metropolitan area of the Officer’s current place ofbusiness.

 

“Stay and Pay Agreement” means a “stay and pay”or retention agreement entered into in contemplation of a sale by the Companyof a division or business unit.

 

“Successor” means any acquiror of all orsubstantially all of the stock, assets or business of the Company.

 

“Termination Date” means the last day of the Officer’semployment.

 

4.                                       Eligibility;Effect on Other Agreements and Plans.

 

(a)                                  Inthe event the Officer is also a party to a Stay and Pay Agreement or severanceagreement and becomes entitled to any payment thereunder, this Agreement shallbe null and void and the Officer shall not be entitled to any payment orbenefit hereunder.  Nothing in thisAgreement shall prevent or limit the Officer’s continuing or futureparticipation in any benefit, bonus, incentive or other plan or programprovided by the Company and for which the Officer may qualify, nor shallanything herein limit or reduce such rights as the Officer may have under anyother agreements with the Company. Amounts that are vested benefits or that the Officer is otherwiseentitled to receive under any plan or program of the Company shall be payablein accordance with such plan or program, except as explicitly modified by thisAgreement.

 

(b)                                 PlanAmendments.  The Company shall adoptsuch amendments to its employee benefit plans and insurance policies,including, without limitation, the Plans, as are necessary to effectuate theprovisions of this Agreement.  If and tothe extent any benefits under Section 2 are not paid or payable orotherwise provided to the Officer or his or her dependents or beneficiariesunder 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 itselfshall pay or provide for such benefits (including any gross-up needed toaccount for the less favorable tax treatment if the payments are made from theCompany and not from the Plans or other employee benefit plans).

 

5.                                       GoldenParachute Tax.

 

(a)                                  Ifthe Value (as hereinafter defined) attributable to the payments and benefitsprovided in Section 2 above, without regard to this Section 5 (“AgreementPayments”), in combination with the Value attributable to other payments orbenefits in the nature of compensation to or for the benefit of Officer(including but not limited to the value attributable

 

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to accelerated vesting of options and, collectivelywith Agreement Payments, “Payments”) would, but for this Section 5,constitute an “excess parachute payment” under Code Section 280G, thenAgreement Payments will be made to the Officer under Section 2 hereof onlyto the extent provided in this Section 5. If (i) the excess of the Value of all Payments over the sum of alltaxes (including but not limited to income and excise taxes under Code Section 4999)that would be payable by the Officer with respect to such Payments, is equal toor greater than 110% of (ii) the excess of the greatest Value of all suchPayments that could be paid to or for the benefit of the Officer and not resultin an “excess parachute payment” (the “Cap”), over the amount of taxes thatwould be payable by Officer thereon, then the full amount of Agreement Paymentsshall be paid to the Officer.  Otherwise,Agreement Payments shall be made only to the extent that such payments causethe Value of all Payments to equal the Cap.

 

(b)                                 Forpurposes of this Section 5, the Company and the Officer hereby irrevocablyappoint the persons who constituted the Compensation Committee of the Boardimmediately prior to the Change of Control, or a three person panel named by amajority of them, as arbitrators (the “Arbitrators”) to make all determinationsrequired under this Section 5, including but not limited to the Value ofall Payments (and the components thereof) and the amount and nature of anyreduction 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 valuationprocedures and methodologies established pursuant to Code Section 280G,including any non-binding interpretive guidance as the Arbitrators determineappropriate.  The determinations of theArbitrators shall be final and binding on both the Company and Officer, andtheir successors, assignees, heirs and beneficiaries, for purposes ofdetermining the amount payable under Section 2.  All fees and expenses of the Arbitrators(including attorneys’ and accountants’ fees) shall be borne by theCompany.  The arbitrators will becompensated, to the extent they are not then members of the Board’sCompensation Committee, at the rates at which they would have been compensatedfor their work as Committee members in effect immediately prior to the Changeof Control Date.

 

6.                                       EmploymentAt-Will.  Notwithstanding anything tothe contrary contained herein, the Officer’s employment with the Company is notfor any specified term and may be terminated by the Officer or by the Companyat any time, for any reason, with or without cause, without liability exceptwith respect to the payments provided hereunder or as required by law or anyother contract or employee benefit plan.

 

7.                                       General.

 

(a)                                  EntireAgreement.  This document constitutesthe final, complete, and exclusive embodiment of the entire agreement andunderstanding between the parties related to the subject matter hereof and supersedesand preempts any prior or contemporaneous understandings, agreements, orrepresentations by or between the parties, written or oral.

 

(b)                                 Successorsand Assigns.  This Agreement isintended to bind and inure to the benefit of and be enforceable by the Officerand the Company, and their respective successors and assigns, except that the Officermay not assign any of his or her duties hereunder and he or she may not assignany of his or her rights hereunder without the prior written consent of the Company.

 

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(c)                                  Amendments.  No amendments or other modifications to thisAgreement may be made except by a writing signed by both parties.  No amendment or waiver of this Agreementrequires the consent of any individual, partnership, corporation or otherentity not a party to this Agreement. Nothing in this Agreement, express or implied, is intended to conferupon any third person any rights or remedies under or by reason of thisAgreement.

 

(d)                                 NoAmounts Due.  The Officeracknowledges that no payments or benefits whatsoever shall become due hereunderin the absence of a Change of Control.

 

(e)                                  NoMitigation Obligation.  The partieshereto expressly agree that the payment of the benefits by the Company to the Officerin accordance with the terms of this Agreement will be liquidated damages, andthat the Officer shall not be required to mitigate the amount of any paymentprovided for in this Agreement by seeking other employment or otherwise, norshall any profits, income, earnings or other benefits from any sourcewhatsoever create any mitigation, offset, reduction or any other obligation onthe part of the Officer hereunder or otherwise except as expressly provided inSections 2(b)(ii) and 4(a).

 

(f)                                    Changesto Benefits.  In the event that,within 90 days of the execution of this Agreement, the Company enters into anagreement for a Change of Control in connection with a merger to be accountedfor as a “pooling of interests,” the Board will be entitled to modify or reducethe payments or benefits due hereunder, or to abrogate this Agreement entirely,if and to the extent that Ernst & Young opines to the Board suchmeasures are necessary in order to ensure that the proposed merger will beaccounted for as a “pooling of interests.” The Board will have no such authority after such 90-day period and, inthe event such merger does not eventuate or is ultimately not accounted for asa “pooling of interests,” this Agreement, with or without any action by theBoard or the Officer, shall be automatically reinstated.

 

(g)                                 Choiceof Law.  All questions concerning theconstruction, validity and interpretation of this Agreement will be governed bythe laws of the State of California without giving effect to principles of conflictsof law.

 

(h)                                 ERISA.  This Agreement is pursuant to the Company’sseverance plan for Officers (the “Plan”) which is unfunded and maintained bythe Company primarily for the purpose of providing deferred compensation for aselect group of management or highly compensated employees.  The Plan constitutes an employee welfarebenefit plan (“Welfare Plan”) within the meaning of Section 3(1) ofthe Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  Any payments pursuant to this Agreement whichcould cause the Plan not to constitute a Welfare Plan shall be deemed insteadto be made pursuant to a separate “employee pension benefit plan” within themeaning of Section 3(2) of ERISA as to which the applicable portionsof the document constituting the Plan shall be deemed to be incorporated byreference.  None of the benefitshereunder may be assigned in any way.

 

(i)                                     Representation.  The Officer acknowledges that Gibson, Dunn &Crutcher LLP has not represented the Officer in connection with this Agreementand that he has had the opportunity to consult with counsel before executingthis Agreement.

 

(j)                                     MutualNon-Disparagement.  The Company andsubsidiaries agree, and the Company shall use its best efforts to cause itsrespective Officer officers and directors to agree, that they will not make orpublish any statement critical of the Officer, or in any way adverselyaffecting or otherwise maligning the Officer’s reputation.  The Officer agrees that he or she will notmake or publish any statement critical of the Company, its affiliates and theirrespective Officer officers and directors, or in any way adversely affecting orotherwise maligning the business or reputation of the Company, its affiliatesand subsidiaries and their respective officers, directors and employees.

 

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 (k)                               Counterparts. This Agreement may be executed in anynumber of counterparts, each of which shall be considered an original, and allof which shall be deemed one and the same instrument.

 

(l)                                     Severability.                              If any part of this Agreement shall for anyreason be found or held invalid or unenforceable by any court or governmentalagency of competent jurisdiction, such invalidity or unenforceability shall notaffect the remainder of this Agreement, which shall survive and be construed asif such invalid or unenforceable part was not included in this Agreement.

 

8.                                       Arbitration.

 

(a)                                  Exceptas provided in Section 5 hereof, any disputes or claims arising out of orconcerning the Officer’s employment or termination by the Company, whetherarising under theories of liability or damages based upon contract, tort orstatute, will be determined exclusively by arbitration before a singlearbitrator in accordance with the employment arbitration rules of theAmerican Arbitration Association, except as modified by this Agreement.  The arbitrator’s decision will be final andbinding on both parties.  Judgment uponthe award rendered by the arbitrator may be entered in any court of competentjurisdiction.  In recognition of the factthat resolution of any disputes or claims in the courts is rarely timely orcost effective for either party, the Company and the Officer enter this mutualagreement to arbitrate in order to gain the benefits of a speedy, impartial andcost-effective dispute resolution procedure. The parties further intend that the arbitration hereunder be conductedin as confidential a manner as is practicable under the circumstances, andintend for the award to be confidential unless that confidentiality wouldfrustrate the purpose of the arbitration or render the remedy awardedineffective.

 

(b)                                 Anyarbitration will be held in Los Angeles, California.  The arbitrator must be an attorney withsubstantial experience in employment matters, selected by the partiesalternately striking names from a list of five such persons provided by theAmerican Arbitration Association (AAA) office located nearest to the place ofemployment, following a request by the party seeking arbitration for a list offive such attorneys with substantial professional experience in employmentmatters.  If either party fails to strikenames from the list, the arbitrator will be selected from the list by the otherparty.

 

(c)                                  Eachparty will have the right to take the deposition of one individual and anyexpert witness designated by the other party. Each party will also have the right to propound requests for productionof documents to any party and the right to subpoena documents and witnesses forthe arbitration.  Additional discoverymay be made only where the arbitrator selected so orders upon a showing ofsubstantial need.  The arbitrator willhave the authority to entertain a motion to dismiss and/or a motion for summaryjudgment by any party and will apply the standards governing such motions underthe Federal Rules of Civil Procedure.

 

(d)                                 TheCompany and the Officer agree that they will attempt, and they intend that theyand the arbitrator should use their best efforts in that attempt, to concludethe arbitration proceeding and have a final decision from the arbitrator within120 days from the date of selection of the arbitrator; *provided,however*, that the arbitrator will be entitled to extend such 120-dayperiod for one additional 120-day period. The arbitrator will deliver a written award with respect to the disputeto each of the parties, who must promptly act in accordance therewith.

 

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(e)                                  TheCompany will pay any and all reasonable fees and expenses incurred by the Officerin seeking to obtain or enforce any rights or benefits provided by thisAgreement, including all reasonable attorneys’ and experts’ fees and expenses,accountants’ fees and expenses, and court costs (if any) that may be incurredby the Officer in pursuing a claim for payment of compensation or benefits orother right or entitlement under this Agreement, *provided*that the Officer is successful as to material issues, resulting in an award ofat least $50,000.  In addition, theCompany will pay without regard to the results of the arbitration all costs andfees not normally associated with a civil proceeding, such as any fees chargedby the arbitrator or any room rental charges.

 

(f)                                    Ina contractual claim under this Agreement, the arbitrator must act in accordancewith the terms and provisions of this Agreement and applicable legal principlesand will have no authority to add, delete or modify any term or provision ofthis Agreement.  In addition, the arbitratorwill have no authority to award punitive damages under any circumstances unlessrepudiating the arbitrator’s authority to do so would cause this arbitrationclause to be ruled ineffective under applicable law.

 

IN WITNESS WHEREOF, theparties have executed this Agreement effective as of the date it is lastexecuted below by either party.

 

 
|   | /s/ Stephen Torres |                    |
|--------|--------------------|-------------------------|
|   | Stephen Torres     |
|   |               |
|   |               |
|   | **MAGNETEK, INC.** |
|   |               |
|   | By:                | /s/ Thomas G. Boren     |   |
|   | Name:              | Thomas G. Boren         |
|   | Title:             | Chief Executive Officer |
|        |                    |                         |  |  |

 

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