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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 15, 1996
MAGNETIC TECHNOLOGIES CORPORATION
Incorporated under the laws Commission File No. IRS Employer Identification No.
of the State of Delaware 0-4277 16-0961159
770 Linden Avenue, Rochester, New York 14625
(716) 385-8711
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 15, 1996, Magnetic Technologies Corporation ("the Company")
sold the operating assets related to its Austro Mold Group, which designs and
builds plastic molds and manufactures custom injection molded plastic parts and
assemblies. The sale was made to Austro Mold, Inc. ("the Purchaser"), a newly
formed New York corporation of which Nathu R. Dandora of the Philadelphia,
Pennsylvania area is the majority stockholder and Vice President. Mr. Dandora
had no prior relationship with the Company nor with any Director or officer
thereof or any of their associates.
The Purchaser acquired Austro Mold's machinery, equipment, contracts,
open orders and the bulk of its inventory, while the Company retained Austro
Mold's accounts receivable (circa $850,000) and a lesser portion of the
inventory. The Purchaser also subleased from the Company Austro Mold's premises
in Rochester, New York, through December 17, 1997, the duration of the lease
term. The Company agreed to purchase certain of its requirements for plastic
molded parts from the Purchaser for a period of five years after the closing,
provided that the Purchaser remains competitive in terms of quality, cost and
delivery.
The consideration paid by the Purchaser for Austro Mold's fixed assets
was $1,083,504, of which $916,497 was paid at the closing and the balance of
$167,007 was represented by the Purchaser's assumption of equipment leases. The
consideration paid by the Purchaser for the portion of Austro Mold's inventory
which it acquired was $342,683, payable by a five-year note. The note will
accrue no interest during the first year after the closing; thereafter, the note
will accrue interest at the rate of 8% per annum and will be discharged in 48
equal monthly payments. The note is secured by a security interest in all of the
assets conveyed, subordinate to the Purchaser's bank debt, and is also
personally guaranteed by Mr. Dandora.
In its third quarter ended April 30, 1996, the Company booked a
$1,800,000 reserve in anticipation of a loss on the sale of Austro Mold. The
loss includes the Company's retained obligations to discharge $467,500 of
covenant-not-to-compete payments to the prior owners of Austro Mold, to satisfy
approximately $300,000 of Austro Mold accounts payable, accrued liabilities,
consultant fees related to the transaction and a note to the City of Rochester,
and to pay the rent through the lease term (the Company's rent obligation is
$13,650 per month, and the Company's sublease of the premises to the Purchaser
is at a rent of $11,500 per month).
The Austro Mold Group has incurred losses since its acquisition by the
Company during fiscal 1993. The Company's Form 10-KSB for the fiscal year ended
July 31, 1995, stated that "management views the current fiscal year as a
defining, or pivotal, year in which the future of Austro Mold will be
determined". During the first half of the current fiscal year, management was
unable to stem the losses. Accordingly, at the end of February 1996, the
Company's Board of Directors authorized management to seek a buyer for Austro
Mold.
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Management initially marketed Austro Mold in the local area and
retained a consultant to assist in the effort. After negotiations, each of two
competitors considered, but then declined, to make a purchase offer because of
Austro Mold's continuing losses. Eventually two offers were received, one from
the Purchaser and a leveraged buy-out offer from Austro Mold's management group.
The Board concluded that the Purchaser's offer was preferable to the management
offer.
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 hereunto duly authorized.
MAGNETIC TECHNOLOGIES CORPORATION
By: /s/ Gordon H. McNeil
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Gordon H. McNeil
President and CEO
Dated: July 29, 1996
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