<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-10233
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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 No.)
26 CENTURY BOULEVARD
P.O. BOX 290159
NASHVILLE, TENNESSEE 37229-0159
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 316-5100
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $.01 par value New York Stock Exchange
8% Convertible Subordinated Notes Due 2001 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (based on the closing price of such stock, as reported by the New
York Stock Exchange, on September 13, 1996) was $263,290,054.
The number of shares outstanding of the Registrant's Common Stock, as of
September 13, 1996, was 25,515,147 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the MagneTek, Inc. 1996 Annual Report to Shareholders for the
year ended June 30, 1996 are incorporated by reference into Part II of this
Form 10-K. With the exception of those portions which are expressly incorporated
by reference in the Annual Report on Form 10-K, the MagneTek, Inc. 1996 Annual
Report to Shareholders is not deemed filed as part of this Report.
Portions of the MagneTek, Inc. definitive Proxy Statement to be filed with
the Securities and Exchange Commission within 120 days after the close of the
fiscal year ended June 30, 1996 are incorporated by reference into Part III
hereof.
<PAGE>
MAGNETEK, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1996(1)
Page
----
ITEM 1. BUSINESS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . 9
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . 10
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . . . . . . 11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . 12
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. . 15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . 15
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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(1) The Company uses a 52-53 week fiscal year which ends on the Sunday
nearest June 30. Accordingly, the Company's 1996 fiscal year ended on
June 30, 1996 and contained 52 weeks. The year ended July 2, 1995
contained 52 weeks and the year ended July 3, 1994 contained 53 weeks.
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PART I
ITEM 1. BUSINESS.
GENERAL
The electrical equipment industry is characterized by diverse markets,
global competition and relatively high barriers to entry, including substantial
capital requirements and market channel needs. From its inception in 1984,
MagneTek has pursued a growth strategy designed to achieve the size necessary to
compete in domestic and foreign electrical equipment markets. During the late
1980s and early 1990s, the Company grew rapidly, primarily through acquisitions
of electrical equipment businesses supplemented by internal growth. This growth
enabled MagneTek to capture significant shares of a number of electrical product
and service markets, while reducing manufacturing costs through economies of
scale and vertical integration. However, the debt incurred to finance most of
the Company's acquisitions left it with relatively high financial leverage.
During the fiscal year ended June 30, 1994, MagneTek's Board of
Directors approved a restructuring plan to reduce debt by divesting product
lines peripheral to the Company's primary electrical equipment manufacturing
businesses. The restructuring program entailed the discontinuation and sale of
operations related primarily to utility, military and heavy industrial markets
(see Note 2 to Consolidated Financial Statements). As of June 30, 1996, the
Company had completed the sale of all discontinued operations, and the proceeds
have been applied to reduce debt as contemplated by the restructuring plan.
In June, 1996, under a newly elected President and Chief Executive
Officer, MagneTek initiated a company-wide operational review, resulting in
Board approval of a program to reposition its continuing operations for renewed
growth and profitability (see Note 2 to Consolidated Financial Statements).
Accordingly, the Company now operates in three business segments: MOTORS AND
CONTROLS, which includes fractional- and integral-horsepower electric motors,
medium-voltage generators and electronic variable-speed drives; LIGHTING
PRODUCTS, including magnetic and electronic ballasts; and POWER SUPPLIES,
including electronic power supplies and small transformers.
MOTORS AND CONTROLS SEGMENT
GENERAL. The Motors and Controls segment, which accounted for 46% of
the Company's net sales in fiscal 1996, is comprised of two closely related
product groups: Motors and Generators, including fractional- and integral-
horsepower motors and medium-voltage generators; and Drives and Systems,
including electronic variable-speed drives and drive systems. While overseas
operations accounted for less than 3% of the segment's total net sales in fiscal
1996, MagneTek is expanding its existing motor and generator operations in the
United Kingdom and Hungary and has acquired 55% ownership of a joint venture in
China to build generators for Asian markets. Caterpillar Inc. accounted for 16%
of the segment's total net sales in fiscal 1996.
MOTORS AND GENERATORS. During fiscal 1996, sales of motor and
generator products accounted for 83% of Motors and Controls segment revenues.
MagneTek electric motors, most of which use alternating-current (AC) power,
range from 1/8 to 500 horsepower. Based on frame sizes established by the
National Electric Manufacturers Association (NEMA), motors from 1/8 to 5
horsepower are designated fractional-
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horsepower (FHP) motors. MagneTek FHP motors are used primarily in residential
applications such as home furnaces, air conditioners, ventilators and
dehumidifiers, as well as pool and spa pumps. They also are used in commercial
applications such as office building heating, ventilating and air conditioning
(HVAC), food service and agribusiness. MagneTek integral-horsepower (IHP) motors
ranging up to 500 horsepower are used primarily in commercial HVAC and laundry
equipment, as well as in industrial applications such as food processing,
papermaking and petrochemical plants.
MagneTek also makes direct-current (DC) motors ranging in size from
1/6 to 3 horsepower used in variable-speed applications, including material
handling and packaging equipment, exercise machines and machine tools.
About 65% of MagneTek's motors are sold to original equipment
manufacturers (OEMs), primarily through the Company's direct sales force. The
rest are marketed through a network of some 2,700 independent distributors,
primarily for maintenance and replacement purposes.
Generators manufactured by the Company range in size from 50 kilowatts
("KW") to 2,250 KW. Over 90% of generator sales are to Caterpillar, Inc., which
builds and sells engine-generator sets for primary and standby power
applications.
DRIVES AND SYSTEMS. Sales of drives and drive systems accounted for
17% of the segment's total net sales in fiscal 1996. The Company's electronic
variable-speed drives and drive systems adjust and control the speed and torque
of electric motors. They are used in HVAC applications, film, foil and paper
converting, wire drawing, extrusion and other processing lines, elevators,
mining machinery, machine tools and material handling equipment. MagneTek drives
and drive systems are sold to OEMs and end-users through a specialized,
engineering-oriented sales force and through distributors for industrial plant
operation and replacement purposes.
BACKLOG*. Backlog in the Company's Motors and Controls segment as of
June 30, 1996 was $85.3 million compared to $97.5 million at the end of fiscal
1995. Rather than a result of reduced demand, the backlog decline was primarily
a function of shorter lead-times for commercial FHP motors. Increases in
capacity and manufacturing flexibility, gained through MagneTek plant expansions
and production line changes, enabled customers to place orders nearer to desired
delivery dates.
COMPETITION. MagneTek's primary competitors in the electric motor
business are Emerson Electric, GE, Baldor, Reliance, A.O. Smith, Leeson,
Marathon, FASCO and Pacific Scientific. Its primary generator competitors are
Emerson, Onan, Kohler and Generac. Principal competitors in drives and drive
systems include Emerson Electric, Allen Bradley, Asea Brown Bovari, Toshiba and
Eaton Corporation. Some of these companies have substantially greater resources
than MagneTek, which competes principally on the basis of customer service,
engineering capability, product quality and price.
LIGHTING PRODUCTS SEGMENT
GENERAL. The Lighting Products segment accounted for 39% of MagneTek's
net revenues in fiscal 1996. This segment manufactures lighting ballasts, which
supply power to start and operate gas-filled electric lamps, in the United
States, Mexico and Europe. Ballasts manufactured by the Company include
fluorescent and high-intensity-discharge ("HID") types, both magnetic and
electronic. European operations
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accounted for 19% of the segment's total net sales in fiscal 1996; and Lithonia
Lighting, a domestic lighting fixture OEM, accounted for 11%. In connection with
the operational repositioning program referenced above, certain specialty
lighting product lines previously manufactured in Germany will be manufactured
at existing MagneTek sites in Hungary and possibly Mexico to reduce costs.
MAGNETIC AND HID BALLASTS. Sales of magnetic ballasts (including HID)
accounted for 59% (46% in the U.S. and 13% in Europe) of the segment's net sales
in fiscal 1996. Magnetic fluorescent ballasts are used primarily in standard
fluorescent lighting fixtures in office, commercial and residential
applications, as well as in various types of specialty lighting applications,
including both indoor and outdoor displays and signs. HID ballasts are used in
lighting fixtures in industrial and municipal applications, such as street
lighting, outdoor security and parking lot lighting, indoor factory and
warehouse illumination and sports venue lighting. In the U.S., approximately 60%
of the Company's magnetic fluorescent and HID ballasts are sold directly to
lighting fixture OEMs. The rest are sold through independent manufacturers'
representatives to more than 2,900 independent distributors nationwide. In
Europe, sales are made through a combination of the Company's direct sales force
and sales agents, primarily to OEMs.
ELECTRONIC BALLASTS. While they cost more initially, electronic
fluorescent ballasts can provide savings compared to magnetic ballasts through
reduced energy consumption. Sales of electronic ballasts, primarily in the U.S.,
accounted for 37% of the segment's total net sales in fiscal 1996. The Company
anticipates a continuing shift in demand toward electronic ballasts from
magnetic products as more end-users focus on long-term operating efficiency and
as the cost of electronic ballasts declines. MagneTek's repositioning program is
intended to accommodate this shift. Electronic ballasts are sold through
essentially the same channels as magnetic ballasts.
BACKLOG*. Lighting Products segment backlog as of June 30, l996, was
$31.5 million compared to $70.3 million at the end of fiscal 1995. The backlog
decline resulted primarily from reduced demand for electronic ballasts in the
U.S. On June 30, 1996, domestic electronic ballast backlog was $9.9 million,
versus $42.9 million on June 30, 1995.
Historically, the ballast business has not been characterized by large
backlogs, since sales of ballasts for new construction and replacement purposes
have been fairly predictable. In recent years, however, lighting retrofit
projects driven by energy-efficiency regulations and utility rebates have led to
speculative ordering and backlog building throughout the industry. During fiscal
1996, MagneTek reduced its ballast inventories and backlogs substantially,
reflecting a conservative view of future demand growth. However, the Company
believes that end-user demand for energy-efficient electronic ballasts will
stabilize and continue to grow as rebates give way to longer-term energy savings
incentives and voluntary energy conservation programs.
COMPETITION. MagneTek's primary competitors in the lighting ballast
business in the U.S. are Advance Transformer (a division of North American
Philips), Motorola and Valmont Industries, and in Europe, Schwabe, Helvar and
Zumtobel. Some of these companies have substantially greater resources than
MagneTek, which competes principally on the basis of customer service,
engineering capability, product quality and price.
3
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POWER SUPPLIES SEGMENT
GENERAL. The Power Supplies segment accounted for 15% of the Company's
net revenues in fiscal 1996. This segment manufactures electronic power supplies
and various small component and specialty transformers. A power distribution
transformer product line, which accounted for 6% of segment sales in fiscal
1996, was divested in August of 1996. European operations accounted for 62% of
the Power Supplies segment net revenues in fiscal 1996. Two customers, IBM (27%
of the segment's net sales in fiscal year 1996), and Siemens (17% of the
segment's net sales in fiscal year 1996) are important to the revenue base for
the segment. Electronic power supplies manufactured by MagneTek are used
primarily in business machines, data processing and telecommunications
equipment. The Company also manufactures power converters for recreational
vehicles and boats, as well as component and specialty transformers incorporated
into in a wide range of electronic equipment.
BACKLOG*. Power Supplies segment backlog as of June 30, 1996 was $62.2
million compared to $56.2 million as of the end of fiscal 1995. The increase in
backlog was a function of increases in both U.S. and foreign orders for
electronic power supplies, related in part to penetration of new industrial
power supply markets.
COMPETITION. The Company's principal competitors in the electronic
power supplies business are Astec and Zytec. Its major power converter
competitor is Todd Engineering, and its primary competitors in the small
transformer business are Basler, SNC and Signal. Some of these companies have
substantially greater resources than MagneTek, which competes principally on the
basis of customer service, engineering capability, product quality and price.
* Backlog represents purchase orders received by the Company, which
may be subject to cancellation.
INTERNATIONAL OPERATIONS
MagneTek conducts the majority of its international activities through
its operations in Western Europe. The Company's European operations include
ballast and power supply production in Italy, ballast production in Germany and
motor manufacturing in the United Kingdom and Hungary. International sales,
including exports from U.S. operations, accounted for 23% of net revenues in
fiscal 1996.
During fiscal 1996, MagneTek acted to increase its participation in
European and Asian markets through the expansion of its operations in Hungary
and the formation of a joint venture in the People's Republic of China. In
January 1996, the Company announced the formation of a majority-owned joint
venture with Fujian Fufa Company Limited in Fuzhou, People's Republic of China,
to build and market electric generators in the Far East. It also is initiating
manufacture of generators, electronic power supply components and certain
lighting products at existing facilities in Budapest, Hungary, and intends to
further expand its motor operations based in Eastern Europe.
SUPPLIERS AND RAW MATERIALS
The Company manufactures many of the materials and components used in
its products, including ballast and motor laminations and capacitors. It also
draws magnet wire primarily for products produced by its Lighting Products
segment.
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Virtually all materials and components purchased by MagneTek are
available from multiple suppliers. During fiscal 1996, raw materials represented
approximately 56% of the Company's cost of sales. Production requirements depend
heavily on steel, copper and aluminum, as well as certain electronic components.
Generally, the Company purchases materials in the following manner. Steel prices
are negotiated with vendors on an annual basis. Copper is purchased in rod form
and drawn into magnet wire for lighting products, while finished magnet wire is
purchased directly from outside vendors for motors and generators; the Company
seeks to mitigate its exposure to fluctuations in copper prices through short-
term hedging programs as well as through forward-contracting arrangements with
magnet wire suppliers. Aluminum purchases are based upon the spot prices at
delivery. Electronic components are purchased under contract based on quality,
price and delivery.
RESEARCH AND DEVELOPMENT
Product development activities conducted by MagneTek operating units
are directed toward enhancing existing products and developing new products for
given applications. Advanced technologies are developed at three development
centers in the U.S. and one in Europe. In addition, MagneTek sponsors product-
focused research projects at a number of leading Universities. Total research
and development expenditures were approximately $21.5 million, $23.6 million and
$17.5 million, respectively, in fiscal years 1996, 1995 and 1994.
TRADEMARKS AND PATENTS
MagneTek holds numerous patents which, although of value, are not
considered by management to be essential to the Company's business. The Company
obtains appropriate protection for its inventions as a matter of course, and
believes that it holds all the patent, trademark and other intellectual property
rights necessary to conduct its business.
From time to time, MagneTek has been notified of claims that it may be
infringing patents owned by others. If it appears necessary or desirable, the
Company may seek licenses under patents which it is allegedly infringing.
Although patent holders commonly offer such licenses, no assurance can be given
that licenses will be offered or that the terms of licenses will be acceptable
to the Company. The failure to obtain a key patent license from a third party
could cause the Company to incur substantial liabilities and to suspend the
manufacture of the products utilizing the patented invention.
EMPLOYEES
At the end of fiscal 1996, the Company had approximately 1,700
salaried employees and approximately 11,300 hourly employees, of whom
approximately 4,700 were covered by collective bargaining agreements with
various unions. The Company believes that its relationships with its employees
are favorable.
ENVIRONMENTAL MATTERS
GENERAL. The Company has from time to time discovered contamination
by hazardous substances at certain of its facilities. In response to such a
discovery, the Company conducts remediation activities to bring the facility
into compliance with applicable laws and regulations. Except as described
below, the Company's remediation activities for fiscal 1996 did not entail
material expenditures, and its remediation activities
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for fiscal 1997 are not expected to entail material expenditures. Future
discoveries of contaminated areas could entail material expenditures,
depending upon the extent and nature of the contamination.
CENTURY ELECTRIC (MCMINNVILLE, TENNESSEE). Prior to its purchase by
the Company in 1986, Century Electric, Inc. ("Century Electric") acquired a
business from Gould Inc. ("Gould") in May 1983 which included a leasehold
interest in a fractional-horsepower electric motor manufacturing facility
located in McMinnville, Tennessee. In connection with this acquisition, Gould
agreed to indemnify Century Electric from and against liabilities and expenses
arising out of the handling and cleanup of hazardous waste, including but not
limited to cleaning up any PCBs at the McMinnville facility (the "1983
Indemnity"). Investigation has revealed the presence of PCBs and other
substances, including solvents, in portions of the soil and in the groundwater
underlying the facility and in certain offsite soil, sediment and biota samples.
Century Electric has kept the Tennessee Department of Environment and
Conservation, Division of Superfund, apprised of test results from the
investigation. The McMinnville plant has been listed as a Tennessee Superfund
Site, a report on that site has been presented to the Tennessee legislature, and
community officials and plant employees have been notified of the presence of
contaminants as above described. In 1995, Gould completed an interim remedial
measure of excavating and disposing onsite soil containing PCBs. Gould also
conducted preliminary investigation and cleanup of certain offsite
contamination. The cost of any further investigation and cleanup of onsite and
offsite contamination cannot presently be determined. The Company believes that
the costs for further onsite and offsite cleanup (including ancillary costs) are
covered by the 1983 Indemnity. While the Company believes that Gould will
continue to perform under its indemnity obligations, Gould's failure to perform
such obligations could have a material adverse effect on the Company.
OFFSITE LOCATIONS. The Company has been identified by the United
States Environmental Protection Agency and certain state agencies as a
potentially responsible party for cleanup costs associated with alleged past
waste disposal practices at several offsite locations. Due, in part, to the
existence of indemnification from the former owners of certain acquired
businesses for cleanup costs at certain of these sites, and except as described
below, the Company's estimated share in liability (if any) at the offsite
facilities is not expected to be material. It is possible that the Company will
be named as a potentially responsible party in the future with respect to other
sites.
CROWN INDUSTRIES SITE (PIKE COUNTY, PENNSYLVANIA). In March 1992, the
Company was informed by the Pennsylvania Department of Environmental Resources
("DER") that its Universal Manufacturing division is one of a number of
potentially responsible parties with respect to a planned environmental
investigation and cleanup at the Crown Industries site in Pike County,
Pennsylvania. The DER provided a non-binding preliminary allocation of liability
in connection with the site that assigned the Company a 30 percent share. The
aggregate expense of cleaning up the site is not currently known, but some
preliminary indications suggested a range of $5 million to $15 million. To date,
the DER has sought reimbursement of approximately $500,000 in the aggregate from
the Company and the other potentially responsible parties. In connection with
the February 1986 acquisition of Universal Manufacturing, the Company and the
seller, Farley Northwest Industries, Inc. (the predecessor to Fruit of the Loom,
Inc., hereinafter collectively with such successor referred to as "FOL")
executed an environmental agreement. The Company has informed FOL that it
believes at least 90 percent of any liability it may incur relating to this site
is covered by the indemnification provisions of its environmental agreement with
FOL, and allocation negotiations between the Company and
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FOL are continuing. FOL has acknowledged its indemnity obligation and is
currently defending its own and the Company's interest in this site. FOL's
failure to perform its obligations with respect to the Crown Industries site
under the environmental agreement could have a material adverse effect on the
Company.
INDEMNIFICATION OBLIGATIONS FROM RESTRUCTURING. In selling certain
business operations, the Company from time to time has agreed, subject to
various conditions and limitations, to indemnify buyers with respect to
environmental liabilities associated with the acquired operations. The Company's
indemnification obligations pursuant to such agreements did not entail material
expenditures for fiscal 1996, and its indemnification obligations for fiscal
1997 are not expected to entail material expenditures. Future expenditures
pursuant to such agreements could be material, depending upon the nature of
asserted claims subject to indemnification.
ITEM 2. PROPERTIES.
The Company's headquarters and each of its principal facilities for
the continuing operations of the Company are listed below, each of which is
owned by the Company unless indicated as being leased.
<TABLE>
<CAPTION>
Approximate
Location Lease Term Size (Sq. Ft.) Principal Use
-------- ---------- -------------- -------------
<S> <C> <C> <C>
Altavista, Virginia -- 108,000 Motor manufacturing
Blytheville, Arkansas 1998 plus options 114,000 Ballast manufacturing
to 2008
Bridgeport, 1999 100,000 Capacitor manufacturing
Connecticut
Budapest, Hungary 2002 154,000 Motor manufacturing
Fuzhou, People's 2016 100,000 Generator manufacturing
Republic of China
Gainsborough -- 44,000 Motor manufacturing
Lincolnshire,
England
Gallman, Mississippi 1999 plus options 130,000 Wire mill
to 2073
Goodland, Indiana -- 75,000 Component transformer
manufacturing
Huntington, Indiana -- 211,000 Converter, power supply and
specialty ballast
manufacturing
Huntington, Indiana -- 54,000 Technology center
</TABLE>
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<TABLE>
<CAPTION>
Approximate
Location Lease Term Size (Sq. Ft.) Principal Use
-------- ---------- -------------- -------------
<S> <C> <C> <C>
Huntsville, Alabama -- 75,000 Electronic ballast
manufacturing
Juarez, Mexico Various 220,000 Motor manufacturing
LaVergne, Tennessee 1999 188,000 Distribution center
Lexington, Tennessee -- 449,000 Motor and generator
manufacturing
Mainaschaff, Germany Various 209,257 Ballast, ignition coil and
transformer manufacturing
Matamoros, Mexico Various 320,000 Ballast, wiring harness and
transformer manufacturing
McMinnville, Tennessee Options to 2021 275,000 Motor manufacturing
Mendenhall, Mississippi 1997 251,600 Fluorescent ballast assembly
and distribution center
Milan, Italy -- 53,000 Ballast manufacturing
Nashville, Tennessee 2005 60,000 Corporate headquarters
New Berlin, Wisconsin 2008 122,400 Drives and systems manufacturing
Owosso, Michigan -- 198,000 Motor manufacturing
Ripley, Tennessee -- 84,000 Motor manufacturing
St. Louis, Missouri 2000 plus option 51,000 Administration, marketing
to 2005 and accounting personnel
Terranuova Bracciolini, -- 149,000 Power supply manufacturing
Italy
</TABLE>
The Company believes its facilities are in satisfactory condition and
are adequate for its present operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to a number of product liability lawsuits, many
of which involve fires allegedly caused by defective ballasts. All of these
cases are being defended by the Company's insurers, and management believes that
its insurers will bear all legal costs and liability, except for applicable
deductibles, and that none of these proceedings individually or in the aggregate
will have a material adverse effect on the
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Company. In addition, the Company is frequently named in asbestos-related
lawsuits which do not involve material amounts individually or in the aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders of the Company during
the quarter ended June 30, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth the high and low sales prices of the
Company's Common Stock during each quarter of fiscal 1995 and 1996:
Quarter Ending High Low
---------------------------------------------------
September 30, 1995 13-3/4 12
December 31, 1995 12-3/8 7-7/8
March 31, 1996 8-3/8 6-7/8
June 30, 1996 10-3/4 7-3/4
September 30, 1994 14-7/8 12-5/8
December 31, 1994 15-1/8 12-3/8
March 31, 1995 14-7/8 12-5/8
June 30, 1995 16-1/2 12-3/8
The Company's Common Stock is traded on the New York Stock Exchange
under the ticker symbol "MAG." As of September 13, 1996, there were
approximately 330 record holders of its Common Stock. No cash dividends have
been paid on the Common Stock.
The Company has not paid any cash dividends on its Common Stock and
does not anticipate paying cash dividends in the near future. The ability of the
Company to pay dividends on its Common Stock is restricted by provisions in the
Company's loan agreements. Under the Company's 1995 bank loan agreement, the
Company may not declare or pay any dividend or make any distribution with
respect to its capital stock (i) unless no event of default exists or would
result from such declaration and payment, and (ii) the ratio of the Company and
certain subsidiaries' Funded Debt to Capitalization (as such terms are defined
in the bank loan agreement) is not more than 0.55 to 1.00. Under the Indenture
relating to the Company's 10-3/4% Senior Subordinated Debentures due 1998, the
Company may not declare or pay any dividend or make any distribution with
respect to its Common Stock (other than through the issuance of Qualified
Capital Stock (as defined in the 10-3/4% Indenture and which includes Common
Stock)), unless after giving effect to such dividend or distribution, (i) the
Company is in compliance with the covenants contained in the 10-3/4% Indenture
and (ii) the aggregate amount of all Restricted Payments (as defined in the 10-
3/4% Indenture) declared or made after September 30, 1991 would not exceed
(a) 50% of the aggregate Consolidated Net Income (as defined in the 10-3/4%
Indenture) of the Company subsequent to September 30, 1991 minus 100% of the
amount of any write-downs, write-offs, other negative revaluations and other
negative extraordinary charges not otherwise reflected in such Consolidated Net
Income, plus (b) the aggregate Net Proceeds (as defined in the 10-3/4%
Indenture) to the Company from the sale of Qualified Capital Stock subsequent to
September 30, 1991 (excluding any such Net Proceeds from the sale of Qualified
Capital Stock by a Company subsidiary and excluding Qualified Capital Stock paid
as a dividend on, or issued upon or in exchange for other Capital Stock (as
defined in the 10-3/4% Indenture) or as a payment of interest on indebtedness of
the Company), plus (c) $25 million.
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ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by Part II, Items 5, 6, 7 and 8, except for
information regarding the Company's dividend policy and related matters, which
is provided in response to Item 5, above, is hereby incorporated by reference to
the Financial Statements and the Report of Ernst & Young LLP, Independent
Auditors of the Company's 1996 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
current executive officers of the Company.
Name Age Position
---- --- --------
Andrew G. Galef 63 Chairman of the Board of Directors
Ronald N. Hoge 51 President, Chief Executive Officer and
Director
Antonio Canova 54 Executive Vice President
Brian R. Dundon 50 Executive Vice President
John E. Steiner 52 Executive Vice President
Daryl D. David 42 Senior Vice President, Human Resources and
Administration
Alexander Levran, Ph.D. 46 Senior Vice President, Technology
David P. Reiland 42 Senior Vice President and
Chief Financial Officer
James E. Schuster 43 Senior Vice President, Operations
John P. Colling, Jr. 40 Vice President and Treasurer
Thomas R. Kmak 46 Vice President and Controller
Samuel A. Miley 39 Vice President, General Counsel and
Secretary
Robert W. Murray 57 Vice President, Communications and Investor
Relations
Dennis L. Hatfield 48 Assistant Vice President, Facilities and
Environmental Affairs
Mr. Galef has been the Chairman of the Board of Directors since July
1984. He also is the Chairman of the Nominating Committee. Mr. Galef was the
Chief Executive Officer of the Company from September 1993 until June 1996. He
has been President of The Spectrum Group, Inc. ("Spectrum"), a private
investment and management firm, since its incorporation in California in 1978
and its Chairman and Chief Executive Officer since 1987. Prior to the formation
of Spectrum, Mr. Galef was engaged in providing professional interim management
services to companies with serious operating and financial problems. Mr. Galef
is presently a director of Warnaco, Inc., a diversified apparel manufacturer,
and its parent, The Warnaco Group, Inc., and was formerly Chairman of Aviall,
Inc., a company providing aircraft engine refurbishment and related products and
services, and Exide Corporation, a manufacturer of automotive and industrial
batteries. Mr. Galef also currently serves as a director, and was formerly the
Chairman,
12
<PAGE>
of Petco Animal Supplies, Inc. In addition, Mr. Galef serves as chairman or a
director of other privately held Spectrum portfolio companies.
Mr. Hoge was elected as the President and Chief Executive Officer of
the Company in June 1996. He became a Director of the Company in July 1996. From
1993 until May 1996, Mr. Hoge was President of the Aerospace Equipment Systems
Division of Allied Signal, Inc. From 1986 to 1993, he was President and Chief
Executive Officer of Onan Corporation, the generator subsidiary of Cummins
Engine Company. He also served as President of Cummins Brasil S.A. for five
years. From 1971, when he first joined Cummins, until 1978, he served in
progressive staff positions, including Manager of Corporate Responsibilities,
and managed the start-up of Cummins' diesel engine factory in Daventry, England.
Mr. Hoge earned a Bachelor's degree in Mathematics from Amherst College in 1967.
He received his MBA in Marketing from Stanford University in 1970, completing
graduate studies in Public Administration at the University of California,
Berkeley, the same year. Mr. Hoge has been serving as a director of Merrill
Corporation since June 1989. He was also a director of Graco Corporation from
1990 to 1993.
Mr. Canova has been Executive Vice President, with responsibility for
the Company's Power Supplies business, since October 1993. He has served as
managing director of MagneTek S.p.A. in Italy since March 1991. He held the same
position with Plessey S.p.A. from 1988 until March 1991 when Plessey S.p.A. was
acquired by the Company. From 1969 to 1988, Mr. Canova served as general manager
of Plessey S.p.A.
Mr. Dundon has been Executive Vice President, with responsibility for
the Company's Motors and Controls business, since November 1986 when Century
Electric, Inc. was acquired by the Company. Prior to the acquisition Mr. Dundon
had been with Gould Inc. and Century Electric since 1971, serving in various
capacities.
Mr. Steiner has been Executive Vice President, with responsibility for
the Company's Lighting Products business, since November 1995. He served as
Senior Vice President, Strategic Planning and Business Development from January
1995 until November 1995, and as Vice President, Strategic Planning and Business
Development from July 1994 until January 1995. Mr. Steiner has also served as
vice president of the Company's Drives and Magnetics business since November
1993, as vice president and general manager of the Company's Drive Systems
business from October 1990 to November 1993 and as vice president, marketing of
the Company's Systems and Technology business from September 1987 to October
1990. Prior to joining the Company in 1987, Mr. Steiner had been with
Westinghouse Electric Corporation, an electrical products manufacturing company,
where he served in various capacities since 1967.
Mr. David was elected to the Company's new position of Senior Vice
President of Human Resources and Administration in July 1996. From 1994 until
July 1996, Mr. David was Vice President of Human Resources of the Aerospace
Equipment Systems Division of AlliedSignal Inc. From 1992 to 1994, Mr. David was
Avionics Group Director of Human Resources and Section Director of Labor
Relations for AlliedSignal Aerospace. From 1981 to 1992, Mr. David held several
domestic and international human resource posts with General Mills Inc.,
including the position of General Mills' Chief Human Resource Officer for
Operations. Prior to that, Mr. David also served in several human resource
positions with Weyerhaeuser Company.
Dr. Levran has been Senior Vice President, Technology since January
1995. He served as Vice President, Technology from July 1993 until January 1995.
From 1991
13
<PAGE>
to June 1993, Dr. Levran was employed by EPE Technologies, Inc., a subsidiary of
Groupe Schneider, as Vice President of Engineering and Technology with worldwide
engineering responsibilities. From 1981 to 1991, he held various engineering
management positions with Teledyne Inet, a subsidiary of Teledyne, Inc., most
recently as Vice President of Engineering. Dr. Levran received his Ph.D. in
electrical engineering from the Polytechnic Institute of New York in 1981.
Mr. Reiland has been Senior Vice President since July 1996 and Chief
Financial Officer of the Company since July 1988. Mr. Reiland was also an
Executive Vice President of the Company from July 1993 until July 1996 and
Senior Vice President from July 1989 until July 1993. He was Controller of the
Company from August 1986 to October 1993, and was Vice President, Finance from
July 1987 to July 1989. Prior to joining the Company, Mr. Reiland was an Audit
Manager with Arthur Andersen & Co. where he served in various capacities since
1980.
Mr. Schuster was elected to the Company's new position of Senior Vice
President of Operations in July 1996. From October 1995 to July 1996,
Mr. Schuster was Vice President of Operations of the Aerospace Equipment Systems
Division at AlliedSignal Inc. where he was responsible for 11 sites and
approximately 6,000 employees. Before joining AlliedSignal, Mr. Schuster spent
15 years working for the Naval Systems Division of Westinghouse Electric
Corporation in various positions, including his position as Manager of
Operations from July 1988 to July 1995. He was also appointed to Westinghouse
Electric's Corporate Engineering and Manufacturing Advisory Council in 1992.
Mr. Colling has been Vice President of the Company since July 1990,
Treasurer of the Company since June 1989 and was assistant treasurer of the
Company from July 1987 to June 1989. Prior to that, Mr. Colling was the
assistant treasurer of Century Electric, where he served in various capacities
since August 1981.
Mr. Kmak has been Vice President of the Company since October 1993,
Controller since November 1994 and Operations Controller from October 1993 to
November 1994. Mr. Kmak was the vice president, finance of the Company's Motors
and Controls business from November 1986 when Century Electric was acquired by
the Company until July 1992 and served as vice president, operational finance of
the Company's Motors and Controls business from July 1992 until October 1993.
Prior to the acquisition Mr. Kmak had been with Century Electric since 1976,
serving in various capacities.
Mr. Miley joined the Company in February 1990 as Vice President,
General Counsel and Secretary. Prior to that time, he was an attorney with the
law firms of Sheppard, Mullin, Richter & Hampton in Los Angeles, California
(March 1986 to January 1990) and Sidley & Austin in Chicago, Illinois (May 1982
to March 1986).
Mr. Murray joined the Company in April 1987 and currently serves as
the Vice President, Communications and Investor Relations. From 1976 until April
1987 he held various positions with Whittaker Corporation, a diversified
aerospace manufacturing company, most recently as Vice President, Corporate
Communications.
Mr. Hatfield joined the Company in August 1992 as Assistant Vice
President, Facilities and Environmental Affairs. Prior to that he was a
principal in the industrial environmental consulting firms of Patterson Schafer,
Inc. (February 1989 to December 1990) and Schafer Environmental Associates, Inc.
(March 1991 to July 1992).
14
<PAGE>
From July 1985 to February 1989, Mr. Hatfield served as Director of
Environmental Affairs of the Specialty Chemicals Group at Morton Thiokol, Inc.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
The information called for by Part III, Items 10, 11, 12 and 13, is
hereby incorporated by reference to the Company's definitive Proxy Statement to
be mailed to Stockholders in September 1996, except for information regarding
the Executive Officers of the Company, which is provided in response to Item 10,
above.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) Index to Consolidated Financial Statements, Consolidated
Financial Statement Schedules and Exhibits:
Annual
Report To
Form 10-K Stockholders
Page Page
--------- ------------
1. Consolidated Financial Statements
Consolidated Statements of Income for
Years Ended June 30, 1996, 1995 and 1994 17
Consolidated Balance Sheets at June 30,
1996 and 1995 18
Consolidated Statements of Stockholders'
Equity for Years Ended June 30, 1996,
1995 and 1994 20
Consolidated Statements of Cash Flows
for Years Ended June 30, 1996, 1995
and 1994 21
Notes to Consolidated Financial Statements 22
Report of Ernst & Young LLP, Independent
Auditors 39
2. Consolidated Financial Statement Schedules
Report of Ernst & Young, LLP, Independent
Auditors S-1
II -- Valuation and Qualifying Accounts S-2
All other schedules have been omitted since the required information
is not present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
Consolidated Financial Statements and related notes.
3. Exhibit Index E-1 - E-6
16
<PAGE>
The following exhibits are filed as part of this Annual Report Form 10-K,
or are incorporated herein by reference. Where an exhibit is incorporated by
reference, the number which precedes the description of the exhibit indicates
the documents to which the cross-reference is made.
EXHIBIT NUMBERS DESCRIPTION OF EXHIBIT
- --------------- ----------------------
3.1 (1) Restated Certificate of Incorporation of the Company, as filed
with the Delaware Secretary of State on November 21, 1989.
3.2 (2) By-laws of the Company, as amended and restated.
4.1 (3) Indenture between MagneTek, Inc. and The Bank of New York, as
Trustee, dated as of September 15, 1991 for $75,000,000 in
principal amount of 8% Convertible Subordinated Notes due 2001
including form of Note.
4.2 (4) Form of Indenture between MagneTek, Inc. and Union Bank, as
Trustee, dated as of November 15, 1991 for $125,000,000 Senior
Subordinated Debentures Due 1998 including form of Debenture.
4.3 (5) Specimen Common Stock Certificate.
10.1 (6) 1987 Stock Option Plan of MagneTek, Inc. ("1987 Plan").
10.2 (7) Amendments No. 1 and 2 to 1987 Plan.
10.3 (8) Amendments No. 3 and 4 to 1987 Plan.
10.4 (9) Amendment No. 5 to 1987 Plan.
10.5 (10) Second Amended and Restated 1989 Incentive Stock Compensation
Plan of MagneTek, Inc. ("1989 Plan").
10.6 (9) Amendment No. 1 to 1989 Plan.
10.7 (9) Standard Terms and Conditions Relating to Non-Qualified Stock
Options, revised as of July 24, 1996, pertaining to the 1987
Plan and the 1989 Plan.
10.8 (9) Form of Non-Qualified Stock Option Agreement Pursuant to the
Second Amended and Restated 1989 Incentive Stock Compensation
Plan of the Company.
10.9 (9) Form of Restricted Stock Agreement Pursuant to the Second
Amended and Restated 1989 Incentive Stock Compensation Plan of
the Company.
10.10 (11) MagneTek, Inc. Non-Employee Director Stock Option Plan.
10.11 (6) Senior Executive Medical Expense Reimbursement Plan for the
Company.
17
<PAGE>
10.12 (7) 1991 Director Incentive Compensation Plan of the Company.
10.13 (12) First Amendment to the 1991 Director Incentive Compensation
Plan of the Company.
10.14 (8) 1991 Discretionary Director Incentive Compensation Plan of the
Company.
10.15 (7) Registration Rights Agreement dated as of April 29, 1991 among
the Company, Andrew G. Galef, Frank Perna, Jr. and the other
entities named therein.
10.16 (9) Registration Rights Agreement dated as of June 28, 1996 by and
between MagneTek, Inc. and U.S. Trust Company of California,
N.A.
10.17 (12) Executive Management Agreement dated as of July 1, 1994, by
and between the Company and The Spectrum Group, Inc.
10.18 (13) Amendment dated as of January 25, 1995 to the Executive
Management Agreement between the Company and The Spectrum
Group, Inc.
10.19 (14) Security Agreement dated March 1, 1993 between the Industrial
Development Board of the City of Huntsville (the "Huntsville
IDB") and the Company ("Huntsville Security Agreement").
10.20 (15) First Supplemental Security Agreement dated as of August 1,
1993 by and between the Huntsville IDB and The CIT
Group/Equipment Financing, Inc. ("CIT").
10.21 (15) Second Supplemental Security Agreement dated as of October 1,
1993 by and between the Huntsville IDB and CIT.
10.22 (14) Equipment Lease Agreement of even date with the Huntsville
Security Agreement among the parties thereto.
10.23 (15) Amendment to Equipment Lease Agreement dated as of August 1,
1993 between the Huntsville IDB and the Company.
10.24 (15) Second Amendment to Equipment Lease Agreement dated as of
October 1, 1993 between the Huntsville IDB and the Company.
10.25 (16) Lease Agreement dated as of November 1, 1988 between the
Huntsville IDB and Burnett-Nickelson Investments ("Lease
Agreement") as to which the Company succeeded to the lessee's
obligations.
10.26 (17) First, Second and Third Amendments to Lease Agreement.
10.27 (18) Fourth Amendment to Lease Agreement.
18
<PAGE>
10.28 (17) Bond Guaranty Agreement between MagneTek, Inc., as Guarantor
and First Alabama Bank dated as of February 1, 1993 relating
to the Lease Agreement.
10.29 (17) Indenture dated as of November 1, 1988 relating to First
Mortgage Industrial Revenue Bonds (Burnett-Nickelson Project
Series 1988) between Huntsville IDB and First Alabama Bank, as
Trustee, relating to the Huntsville facility (the
"Indenture").
10.30 (17) First, Second and Third Supplemental Indentures to the
Indenture.
10.31 (18) Fourth Supplemental Indenture to the Indenture.
10.32 (19) Environmental Agreement among the Company, Universal
Manufacturing Corporation and Farley Northwest Industries,
Inc., as amended.
10.33 (19) Letter Agreement dated as of January 9, 1986, between the
Company and Farley Northwest Industries, Inc., pursuant to
Stock Purchase Agreement.
10.34 (19) Tax Agreement dated as of February 12, 1986, between the
Company and Farley Northwest Industries, Inc.
10.35 (19) Agreement dated as of January 9, 1986, between the Company and
Farley/Northwest Industries, Inc. relating to the Totowa
facility.
10.36 (13) Credit Agreement dated as of March 31, 1995 between the
Company, Lenders, NationsBank of Texas, N.A., CIBC Inc., The
First National Bank of Chicago and LTCB Trust Company.
10.37 (20) First Amendment to Credit Agreement dated as of November 13,
1995 between the Company, Lenders, NationsBank of Texas, N.A.,
CIBC Inc., The First National Bank of Chicago and LTCB Trust
Company.
10.38 (9) Second Amendment to Credit Agreement dated as of March 31,
1996 between the Company, Lenders, NationsBank of Texas, N.A.,
CIBC Inc., The First National Bank of Chicago and LTCB Trust
Company.
10.39 (9) Third Amendment to Credit Agreement dated as of May 15, 1996
between the Company, Lenders, NationsBank of Texas, N.A., CIBC
Inc., The First National Bank of Chicago and LTCB Trust
Company.
10.40 (9) Fourth Amendment to Credit Agreement dated as of June 30, 1996
between the Company, Lenders, NationsBank of Texas, N.A., CIBC
Inc., The First National Bank of Chicago and LTCB Trust
Company.
10.41 (21) Lease and Agreement between the City of Blytheville, Arkansas
and the Company, dated as of November 1, 1988.
19
<PAGE>
10.42 (7) First Supplemental Lease and Agreement between City of
Blytheville, Arkansas and the Company dated as of December 1,
1989, for the Blytheville, Arkansas facility.
10.43 (19) Lease on Bridgeport, Connecticut facility of Universal
Manufacturing.
10.44 (9) Lease Agreement dated March 18, 1996 between Fujian Fufa
Company Limited and MagneTek Fuzhou Generator Company Limited.
10.45 (19) Lease on Gallman, Mississippi facility of Universal
Manufacturing.
10.46 (22) Lease of LaVergne, Tennessee facility.
10.47 (18) First Amendment dated August 28, 1991 and Second Amendment
dated February 5, 1993 to Lease on Lavergne, Tennessee
facility.
10.48 (23) Lease of Matamoros, Mexico fluorescent ballast manufacturing
facility dated January 1, 1988.
10.49 (24) Lease on McMinnville, Tennessee facility of Century Electric.
10.50 (19) Lease on Mendenhall, Mississippi facility of Universal
Manufacturing.
10.51 (2) Lease on Nashville, Tennessee headquarters facility dated as
of June 30, 1995.
10.52 (25) Lease of facility in New Berlin, Wisconsin.
10.53 (7) Third Modification of Lease dated as of December 31, 1990, for
the New Berlin, Wisconsin facility.
10.54 (18) Fourth Modification of Lease dated as of February 12, 1993 for
the New Berlin, Wisconsin facility.
10.55 (23) Lease of St. Louis, Missouri administration, marketing and
engineering personnel facility dated January 1, 1988.
10.56 (26) Stock Purchase Agreement dated as of January 9, 1986, between
the Company and Farley/Northwest Industries, Inc., with list
of omitted exhibits and schedules.
10.57 (26) Stock Purchase Agreement dated as of June 20, 1986, between
the Company and Better Coil and Transformer Corporation, with
list of omitted exhibits.
10.58 (27) Purchase Agreement dated as of October 22, 1986, by and among
the Company, Century and certain Securityholders.
10.59 (28) Purchase Agreement dated as of December 15, 1986, between the
Company and all the remaining Securityholders of Century.
20
<PAGE>
10.60 (28) Asset Purchase Agreement dated as of December 30, 1986,
between the Company and Universal Electric.
10.61 (28) Agreement for the Sale of Stock dated as of December 30, 1986,
between the Company and Cooper.
10.62 (2) Asset Purchase Agreement dated as of May 27, 1994, between the
Company and The Louis Allis Company.
10.63 (2) Asset Purchase Agreement dated as of June 17, 1994, among the
Company, MagneTek Controls, Inc. and Controls Acquisition
Corporation.
10.64 (2) Asset Purchase Agreement dated as of October 31, 1994, among
the Company, MagneTek National Electric Coil, Inc. and Rail
Products International, Inc.
10.65 (2) Asset Purchase Agreement dated as of November 8, 1994, between
the Company and MAS Acquiring Corp.
10.66 (2) Purchase and Sale Agreement dated November 18, 1994, by and
among the Company, MagneTek Tempe, Inc., MagneTek Deutschland
Holding GmbH and PTS, Inc.
10.67 (2) Asset Purchase Agreement dated as of March 6, 1995, by and
between the Company and GN Acquisition Partners, L.P.
10.68 (2) Asset Purchase Agreement dated as of March 13, 1995, among the
Company, MagneTek National Electric Coil, Inc. and 800 King
Avenue Acquisition Corp.
10.69 (2) Asset Purchase Agreement dated as of May 31, 1995, between
MagneTek National Electric Coil, Inc. and The Guardian Resin
Corporation.
10.70 (2) Agreement of Sale dated as of June 23, 1995, between General
Signal Corporation and the Company.
10.71 (2) Asset and Stock Purchase Agreement dated as of September 14,
1995, among the Company, MagneTek National Electric Coil, Inc.
and National Electric Coil Company, L.P.
10.72 (9) Sino-American Equity Joint Venture Contract dated December 17,
1995 between Fujian Fufa Company Limited and the Company for
the Establishment of MagneTek Fuzhou Generator Company
Limited.
10.73 (9) Amended and Restated Asset Purchase Agreement dated as of
February 27, 1996 among MagneTek National Electric Coil, Inc.,
the Company, Eastern Electric Apparatus Repair Company, Inc.
and Grand Eagle Companies Inc.
21
<PAGE>
10.74 (9) Stock Purchase Agreement dated as of June 28, 1996 among
MagneTek National Electric Coil, Inc., the Company, Grand
Eagle Companies North America, Inc. and Grand Eagle Companies,
Inc.
10.75 (9) Amendment No. 1 dated as of June 28, 1996 to Amended and
Restated Asset Purchase Agreement among MagneTek National
Electric Coil, Inc., the Company, Eastern Electric Apparatus
Repair Company, Inc. and Grand Eagle Companies Inc. dated as
of February 27, 1996.
10.76 (9) Asset Purchase Agreement dated as of August 30, 1996 between
the Company and Jefferson Electric, Inc.
13 (9) 1996 Annual Report to Stockholders (pp.12-39).
23 (9) Consent of Ernst & Young LLP, independent auditors.
27 (9) Financial Data Schedule.
___________________
(1) Previously filed with the Registration Statement on Form S-3 filed on
August 1, 1991, Commission File No. 33-41854, and incorporated herein by
this reference.
(2) Previously filed with Form 10-K for Fiscal Year ended July 2, 1995 and
incorporated herein by this reference.
(3) Previously filed with Form 10-Q for quarter ended September 30, 1991 and
incorporated herein by this reference.
(4) Previously filed with Amendment No. 1 to Registration Statement filed on
November 8, 1991, Commission File No. 43-43856, and incorporated herein
by this reference.
(5) Previously filed with Amendment No. 1 to Registration Statement filed on
May 10, 1989 and incorporated herein by this reference.
(6) Previously filed with Form 10-K for Fiscal Year ended June 30, 1987 and
incorporated herein by this reference.
(7) Previously filed with Form 10-K for Fiscal Year ended June 30, 1991 and
incorporated herein by this reference.
(8) Previously filed with Form 10-K for Fiscal Year ended June 30, 1992 and
incorporated herein by this reference.
(9) Filed herewith.
(10) Previously filed with Form 10-Q for quarter ended December 31, 1994 and
incorporated herein by this reference.
(11) Previously filed with the Registration Statement on Form S-8 filed on May
17, 1996, Commission File No. 333-04021, and incorporated herein by this
reference.
22
<PAGE>
(12) Previously filed with Form 10-Q for quarter ended March 31, 1994 and
incorporated herein by this reference.
(13) Previously filed with Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by this reference.
(14) Previously filed with Form 10-Q for quarter ended March 31, 1993 and
incorporated herein by this reference.
(15) Previously filed with Form 10-Q for quarter ended September 30, 1993 and
incorporated herein by this reference.
(16) Previously filed with Form 8-K dated January 5, 1990 and incorporated
herein by this reference.
(17) Previously filed with Form 10-K for fiscal year ended June 27, 1993 and
incorporated herein by this reference.
(18) Previously filed with Form 10-K for Fiscal Year ended July 3, 1994 and
incorporated herein by this reference.
(19) Previously filed with Amendment No. 1 to Registration Statement filed on
February 14, 1986 and incorporated herein by this reference.
(20) Previously filed with Form 10-Q for quarter ended December 31, 1995 and
incorporated herein by this reference.
(21) Previously filed with the Registration Statement filed on April 18, 1989
and incorporated herein by this reference.
(22) Previously filed with Form 10-K for Fiscal Year ended July 2, 1989 and
incorporated herein by this reference.
(23) Previously filed with Form 10-K for Fiscal Year ended July 3, 1988 and
incorporated herein by this reference.
(24) Previously filed with Post-Effective Amendment No. 1 to Registration
Statement, filed on August 3, 1987 and incorporated herein by this
reference.
(25) Previously filed with the Registration Statement filed on May 3, 1985 and
incorporated herein by this reference.
(26) Previously filed with Form 10-K for Fiscal Year ended June 30, 1986 and
incorporated herein by this reference.
(27) Previously filed with Form 10-Q for quarter ended September 30, 1986 and
incorporated herein by this reference.
(28) Previously filed with Form 8-K dated December 30, 1986 and incorporated
herein by this reference.
23
<PAGE>
(b) Reports on Form 8-K:
The Company filed no Reports on Form 8-K during the last quarter of the
1996 fiscal year.
(c) Refer to (a) 3 above.
(d) Refer to (a) 2 above.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of
Nashville, State of Tennessee, on the 30th day of September, 1996.
MagneTek, Inc.
(Registrant)
/s/ RONALD N. HOGE
-------------------------------------
Ronald N. Hoge
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ ANDREW G. GALEF Chairman of the Board September 30, 1996
- ----------------------------
Andrew G. Galef
/s/ RONALD N. HOGE Chief Executive Officer and September 30, 1996
- ---------------------------- Director (Principal
Ronald N. Hoge Executive Officer)
/s/ DEWAIN K. CROSS Director September 30, 1996
- ----------------------------
Dewain K. Cross
/s/ PAUL J. KOFMEHL Director September 30, 1996
- ----------------------------
Paul J. Kofmehl
/s/ A. CARL KOTCHIAN Director September 30, 1996
- ----------------------------
A. Carl Kotchian
/s/ CROCKER NEVIN Director September 30, 1996
- ----------------------------
Crocker Nevin
/s/ KENNETH A. RUCK Director September 30, 1996
- ----------------------------
Kenneth A. Ruck
/s/ MARGUERITE W. SALLEE Director September 30, 1996
- ----------------------------
Marguerite W. Sallee
/s/ ROBERT E. WYCOFF Director September 30, 1996
- ----------------------------
Robert E. Wycoff
/s/ DAVID P. REILAND Chief Financial Officer September 30, 1996
- ---------------------------- (Principal Financial Officer)
David P. Reiland
/s/ THOMAS R. KMAK Vice President and Controller September 30, 1996
- ---------------------------- (Principal Accounting
Thomas R. Kmak Officer)
25
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of MagneTek, Inc. as of
June 30, 1996 and 1995, and for each of the three years in the period ended
June 30, 1996, and have issued our report thereon dated August 20, 1996, except
for the second paragraph of Note 4, as to which the date is September 16, 1996
(incorporated by reference elsewhere in this Annual Report on Form 10-K). Our
audits also included the financial statement schedule listed in Item 14(a) of
this Annual Report on Form 10-K. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
St. Louis, Missouri
August 20, 1996, except for the second paragraph of Note 4,
as to which the date is September 16, 1996
S-1
<PAGE>
SCHEDULE II
MAGNETEK INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at end
June 30, 1994 of year earnings Allowance Other(a) of year
- --------------- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful $3,986 $2,878 $(2,980) $861 $4,745
receivables
June 30, 1995
- ---------------
Allowance for
doubtful $4,745 $4,099 $(4,249) $(174) $4,421
receivables
June 30, 1996
- ---------------
Allowance for
doubtful $4,421 $5,422 $(4,450) $35 $5,428
receivables
</TABLE>
(a) Represents primarily opening allowances for doubtful accounts balances of
acquired companies and Foreign Translation Adjustments.
S-2
<PAGE>
FIFTH AMENDMENT
TO THE
1987 STOCK OPTION PLAN
OF
MAGNETEK, INC.
MAGNETEK, INC., a corporation organized under the laws of the State of
Delaware, hereby adopts this amendment to the 1987 Stock Option Plan of
MagneTek, Inc. (the "Plan") pursuant to Section 7.2 of the Plan, as of the 24th
day of July, 1996.
1. Section 5.3 of the Plan is hereby amended to delete the proviso that
appears between paragraph (c)(iv) and paragraph (d).
2. Section 6.1 of the Plan is hereby amended to provide that the
Committee (as defined in the Plan) shall consist of at least two (2)
Directors.
3. Section 7.1 of the Plan is hereby amended to permit options to be
transferable pursuant to a "domestic relations order," as defined in
the Internal Revenue Code.
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FIRST AMENDMENT
TO THE
AMENDED AND RESTATED
1989 INCENTIVE STOCK COMPENSATION PLAN
OF
MAGNETEK, INC.
MAGNETEK, INC., a corporation organized under the laws of the State
of Delaware, hereby adopts this amendment to the Amended and Restated 1989
Incentive Stock Compensation Plan of MagneTek, Inc. (the "Plan") pursuant to
Section 12.2 of the Plan, as of the 24th day of July, 1996.
1. The Plan is hereby amended to delete Section 6.4(b).
2. Section 11.1 of the Plan is hereby amended to provide that the
Committee (as defined in the Plan) shall consist of at least two (2)
Directors.
3. Section 12.1 of the Plan is hereby amended to permit options and other
awards that may be granted thereunder to be transferable pursuant to a
"domestic relations order," as defined in the Internal Revenue Code.
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Exhibit 10.7
1987 STOCK OPTION PLAN
OF
MAGNETEK, INC.
AND
SECOND AMENDED AND RESTATED
1989 INCENTIVE STOCK COMPENSATION PLAN
OF
MAGNETEK, INC.
STANDARD TERMS AND CONDITIONS RELATING TO NON-QUALIFIED OPTIONS
revised as of July 24, 1996
The following standard terms and conditions apply to the Non-Qualified
Options granted under either the 1987 Stock Option Plan of MagneTek, Inc. (the
"1987 Plan") or the Second Amended and Restated 1989 Incentive Stock
Compensation Plan of MagneTek, Inc. (the "1989 Plan") (the applicable terms of
which are hereby incorporated by reference and made a part of these standard
terms and conditions). In turn, these standard terms and conditions are
incorporated by reference into each such Option.
ARTICLE I
DEFINITIONS
Whenever capitalized terms are used in these standard terms and
conditions, they shall have the meaning specified (i) in the Applicable Plan (as
defined below), (ii) in the MagneTek, Inc. Non-Qualified Stock Option Agreement
(the "Agreement") into which these standard terms and conditions are
incorporated by reference or (iii) below, unless the context clearly indicates
to the contrary. The masculine pronoun shall include the feminine and neuter,
and the singular the plural, where the context so indicates.
"Applicable Plan" shall mean either the 1987 Plan or the 1989 Plan
relating to the Option as indicated in the Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean MagneTek, Inc., a Delaware corporation.
"Fair Market Value" of a share of the Company's stock on a given
determination date shall mean: (i) the mean between the highest and lowest sales
prices of a share of the Company's stock on the principal exchange on which
shares of the Company's stock are then trading, if any, on such determination
date, or, if shares were not traded on such date, then on the next preceding
trading day during which a sale occurred, as such prices are quoted in THE WALL
STREET JOURNAL, or (ii) if such stock is not traded on an exchange but is quoted
on NASDAQ or a successor quotation system, (1) the mean between the highest and
lowest sales prices (if the stock is then listed as a National Market Issue
under the NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on such
determination date as reported by NASDAQ or such successor quotation system; or
(iii) if such stock is not publicly traded on an exchange and not quoted on
NASDAQ or a successor quotation system, the mean between the closing bid and
asked prices for the stock, on such determination date, as determined in good
faith by
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the Committee; or (iv) if the Company's stock is not publicly traded, the fair
market value established by the Committee acting in good faith.
"Option" shall mean the non-qualified option to purchase $0.01 par
value Common Stock of the Company granted under the Applicable Plan and to which
these standard terms and conditions apply.
"Optionee" shall mean the Employee or Director to whom the Option is
granted under the Applicable Plan.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Participant and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding terminations where there is a
simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary.
In the case of a Director who is not an Employee, Termination of Employment
shall mean the time when the Director ceases to be a Director for any reason,
including, but not by way of limitation, a cessation by resignation, removal,
discharge, death or retirement, but excluding cessations where there is a
simultaneous or prior and continuing employment of the former Director by the
Company, a Parent Corporation or a Subsidiary. The Committee, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment, including, but not by way of limitation, the question
of whether a Termination of Employment resulted from a discharge for good cause,
and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II
ADJUSTMENTS TO OPTION
SECTION 2.1 - ADJUSTMENTS IN OPTION
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split up, stock dividend or combination of shares, an
appropriate and equitable adjustment shall be made in the number and kind of
shares as to which the Option, or portions thereof then unexercised, shall be
exercisable, to the end that after such event the Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in the Option shall be made without change in the total price
applicable to the unexercised portion of the Option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in the Option price per share.
Any such adjustment made by the Committee shall be final and binding upon the
Optionee, the Company and all other interested persons.
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SECTION 2.2 - MERGER, ACQUISITION, ETC. OF THE COMPANY*
In the event of the merger or consolidation of the Company with or
into another corporation, or the acquisition by another corporation, person or
group of all or substantially all of the Company's assets or forty percent (40%)
or more of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company:
(a) If so provided in the relevant agreement relating to a
merger, consolidation, acquisition of assets, liquidation or dissolution,
the Option shall be assumed or an equivalent option substituted by any
successor corporation to the Company.
(b) If no provision is made as set forth in paragraph (a), or in
the event of an acquisition of 40% or more of the Company's then
outstanding voting stock to which paragraph (c) is inapplicable, the Option
will become fully exercisable from and after the date which is (30) days
prior to such event and until the normal expiration of the Option, as to
all the shares covered by the Option.
(c) In the event of an acquisition of 40% or more of the
Company's then outstanding voting stock (other than pursuant to a merger
resulting in the ownership of all of the Company's outstanding Common Stock
by another corporation), if as a result of the transaction the Company's
Common Stock will cease to be traded on a national stock exchange, listed
as a National Market Issue on the National Market System or quoted on the
NASDAQ quotation system, each Option which has not been exercised prior to
the consummation of the transaction shall be converted automatically into
the right to receive, within thirty days of such consummation, an amount in
cash equal to the difference between the aggregate exercise price for all
shares subject to the Option (whether or not then subject to exercise) and
the Fair Market Value of such shares on the date which is the last trading
date preceding the consummation of such transaction.
The foregoing provisions (a) through (c) shall have no application to a merger
in which (A) the Company is the surviving corporation, (B) no person or group
acquires 40% or more of the Company's outstanding voting stock and (C) the
shares of the Company's Common Stock outstanding prior to the merger remain
outstanding thereafter.
ARTICLE III
PERIOD OF EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
(a) Subject to Section 3.1(b), the Option shall become exercisable as
set forth in the Agreement.
- -------------------------
* The provisions of this Section 2.2 are effective retroactively and govern
all options to which these terms and conditions apply.
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(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
SECTION 3.2 - EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years after the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment unless such
Termination of Employment results from his death, his disability (within the
meaning of Section 22(e)(3) of the Code), his retirement or his voluntary or
involuntary discharge other than for cause; or
(c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment by reason of the Optionee's retirement or
the Optionee's voluntary or involuntary discharge other than for cause, unless
the Optionee dies within said three-month period; or
(d) The expiration of one (1) year from the date of the Optionee's
Termination of Employment by reason of his disability (within the meaning of
Section 22(e)(3) of the Code) unless the Optionee dies within said one-year
period; or
(e) The expiration of one (1) year from the date of the Optionee's
death; or
(f) The circumstances referred to in Section 2.2(c) in which the
Option will automatically be converted into the right to receive a cash payment.
SECTION 3.3 - CONSIDERATION TO THE COMPANY
In consideration of the granting of the Option by the Company, the
Employee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one (1) year
from the date the Option is granted, or in the case of an Optionee who is a non-
employee Director, the Optionee agrees to remain a Director for such one year
period. Nothing in these standard terms and conditions, in the Option Agreement
or in the Applicable Plan shall confer upon the Employee any right to continue
in the employ of the Company, any Parent Corporation or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company, its Parent
Corporations and its Subsidiaries, which are hereby expressly reserved, to
discharge the Employee at any time for any reason whatsoever, with or without
cause. Further, nothing in these standard terms and conditions, in the Option
Agreement, or in the Applicable Plan shall confer upon any Director any right to
remain a Director.
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ARTICLE IV
EXERCISE OF OPTION
SECTION 4.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 2.2 or 3.2, be exercised by his personal
representative or by any person empowered to do so under the Optionee's will or
under the then applicable laws of descent and distribution.
SECTION 4.2 - PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or any portion thereof becomes unexercisable under
Section 3.2; PROVIDED, HOWEVER, that each partial exercise shall be for not less
than the minimum number of shares specified in the Agreement and shall be for
whole shares only.
SECTION 4.3 - MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
2.2 or 3.2:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or any portion thereof, stating that the Option
or portion thereof is thereby exercised, such notice complying with all
applicable rules established by the Committee; and
(b) Full payment:
(1) By delivery of cash or a check for the shares with respect
to which such Option or portion thereof is thereby exercised; or
(2) To the extent provided by the terms of the Option or
otherwise with the consent of the Committee, by delivery to the Company of
shares of the Company's Common Stock owned by the Optionee, duly endorsed
for transfer to the Company by the Optionee or other person then entitled
to exercise the Option or portion thereof, with a Fair Market Value
determined as of the date of delivery equal to the aggregate Option price
of the share with respect to which such Option or portion thereof is
thereby exercised; or
(3) To the extent provided by the terms of the Option or
otherwise with the consent of the Committee, by retention by the Company of
shares of the Company's Common Stock to be issued with a Fair Market Value
determined as of the date of issuance equal to the aggregate Option price
of the shares with respect to which such Option or portion thereof is
thereby exercised; or
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(4) By means of any combination of the consideration provided in
the foregoing subsections (1), (2) or (3); and
(c) On or prior to the date the same is required to be withheld:
(1) Full payment (in cash or by check) of any amount that must
be withheld by the Company, any Parent Corporation or any Subsidiary for
federal, state and/or local tax purposes in connection with the exercise of
the Option; or
(2) To the extent provided by the terms of the Option or
otherwise with the consent of the Committee, full payment by delivery to
the Company of shares of the Company's Common Stock owned by the Optionee,
duly endorsed for transfer to the Company by the Optionee or other person
then entitled to exercise the Option or portion thereof, with a Fair Market
Value determined as of the date of delivery equal to the amount that must
be withheld by the Company, any Parent Corporation or any Subsidiary for
federal, state and/or local tax purposes in connection with the exercise of
the Option; or
(3) To the extent provided by the terms of the Option or
otherwise with the consent of the Committee, full payment by retention by
the Company of shares of the Company's Common Stock to be issued with a
Fair Market Value determined as of the date of issuance equal to the amount
that must be withheld by the Company, any Parent Corporation or any
Subsidiary for federal, state and/or local tax purposes in connection with
the exercise of the Option; or
(4) Any combination of payments provided in the foregoing
subsections (1), (2) or (3); and
(d) In the event the Option or portion thereof shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option
or portion thereof.
The Committee may, in its absolute discretion, take whatever additional actions
it deems appropriate in connection with the exercise of the Option and the
issuance of shares pursuant thereto to insure compliance with the Securities Act
and any other federal or state securities laws or regulations.
SECTION 4.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the Option or any portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
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(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Company shall deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Company shall determine to be necessary
or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
SECTION 4.5 - RIGHTS AS SHAREHOLDER
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
SECTION 5.1 - ADMINISTRATION
The Committee shall have the power to interpret the Applicable
Plan, these standard terms and conditions and the Option Agreements,
and to adopt such rules for the administration, interpretation and
application of the Applicable Plan as are consistent therewith and to
interpret or revoke any such rules. Without limiting the generality of the
foregoing, in connection with mergers, consolidations and other corporate
transactions referred to in Section 2.2 hereof, the Committee may make such
determinations and adopt such rules and conditions as it, in its absolute
discretion, deems appropriate in connection with (a) the acceleration of
exercisability of options (including conditioning such acceleration upon
consummation of the contemplated corporate transaction) and (b)
determinations as to whether the relevant agreement for the corporate
transaction provides for the assumption or substitution of options. All
actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Optionee, the
Company and all other interested persons. No member of the Committee shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Applicable Plan or the Option. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Applicable Plan and
these standard terms and conditions.
SECTION 5.2 - OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and an attempted disposition thereof shall
be null and
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void and of no effect; PROVIDED, HOWEVER, that this Section 5.2 shall not
prevent transfers by will or by the applicable laws of descent and distribution.
SECTION 5.3 - CONFIDENTIALITY AND NON-DISPARAGEMENT
Each Optionee hereby agrees to maintain in confidence and not disclose
or use, either during or after the term of his or her employment without the
prior express written consent of the Company, any proprietary or confidential
information or know-how belonging to the Company ("Proprietary Information"),
whether or not it is in written or permanent form, except to the extent required
to perform duties on behalf of the Company in his or her capacity as an
employee. Proprietary Information refers to any information, not generally
known in the relevant trade or industry, which was obtained from the Company or
which was learned, discovered, developed, conceived, originated, or prepared by
the Optionee in the scope of employment. Such Proprietary Information includes,
but is not limited to, software, technical and business information relating to
the Company's inventions or products, research and development, production
processes, manufacturing and engineering processes, machines and equipment,
finances, customers, marketing, production, future business plans, personnel
information, and any other information which is identified as confidential by
the Company. The Company considers all such Proprietary Information to be its
trade secrets. Upon Termination of Employment or at the request of Optionee's
supervisor before termination, Optionee agrees to deliver to the Company all
written and tangible material in his or her possession incorporating the
Proprietary Information or otherwise relating to the Company's business. These
obligations with respect to Proprietary Information extend to information
belonging to customers and suppliers of the Company who may have disclosed such
information to the Optionee.
The Optionee further agrees not, either orally or in writing, to speak
critically or negatively about the Company, or its past, present, or future
officers, directors, or employees, whether by expressing his or any other
person's opinion, or by speaking in any other manner whatsoever that would
reasonably be expected to result in the Company, or its past, present, or future
officers, directors, or employees being viewed by another person in a false or
negative light. The Optionee also agrees not to make any comments of a
denigrating or disparaging nature about any of the Company's products, goods, or
services.
SECTION 5.4 - AGREEMENT NOT TO SOLICIT EMPLOYEES
In order to remain eligible for the Option, Optionee agrees that
during Employment and for a period of two years after Termination of Employment
he or she will not solicit any employees of the Company or any Subsidiary for
purposes of providing services to or employment with any business organization
competitive with the Company or any Subsidiary.
SECTION 5.5 - SHARES TO BE RESERVED
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of the Option.
SECTION 5.6 - NOTICES
Any notice to be given under the terms of these standard terms and
conditions to the Company shall be addressed to the Company in care of its
Secretary, and any notice to
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be given to the Optionee shall be addressed to him at the address given beneath
his name on the Agreement. By notice given pursuant to this Section 5.6, either
party may hereafter designate a different address for notices to be given to
him. Any notice which is required to be given to the Optionee shall, if the
Optionee is then deceased, be given to the Optionee's personal representative if
such representative has previously informed the Company of his status and
address by written notice under this Section 5.6. Any notice shall be deemed
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, deposited (with postage prepaid) in a post office or branch post
office regularly maintained by the United States Postal Service.
SECTION 5.7 - TITLES
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Option or these standard
terms and conditions.
SECTION 5.8 - CONSTRUCTION
The Option and these standard terms and conditions shall be
administered, interpreted and enforced under the laws of the State of Tennessee.
SECTION 5.9 - AMENDMENT
The Company and the Committee expressly reserve the right to amend,
modify, suspend or terminate these standard terms and conditions; PROVIDED,
HOWEVER, that no such amendment, modification, suspension or termination shall
impair or diminish any rights or increase any obligations of the holder of the
Option without such holder's consent.
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MAGNETEK, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, MAGNETEK, INC., a Delaware
corporation, hereby irrevocably grants to the Optionee named below the
non-qualified stock option (the "Option") to purchase any part or all of the
specified number of shares of its $0.01 par value Common Stock upon the terms
and subject to the conditions set forth in this Agreement, at the specified
purchase price per share without commission or other charge. The Option is
granted pursuant to the plan specified below (the "Plan") and the Standard
Terms and Conditions promulgated under such Plan. The terms of the Plan and
such Standard Terms and Conditions are hereby incorporated herein by
reference and made a part of this Agreement. The Committee shall have the
power to interpret this Agreement.
The Plan: Second Amended and Restated 1989 Incentive
Stock Compensation Plan of MagneTek, Inc.
Name of Optionee:
Social Security Number:
Number of Shares covered by Option (subject to lapse
provisions and other limitations on exercisability in
accordance with the terms of the Plan): #_______
Purchase Price Per Share: $_______
Minimum Number of Shares Per Partial Exercise: 100 Shares
The Option shall become exercisable in installments as follows:
Until __________, the Option shall not be exercisable to any degree.
As of ___________, the Option shall become exercisable as to 33 1/3% of the
Shares covered by the Option.
As of __________, the Option shall become exercisable as to an additional
33 1/3% of the Shares covered by the Option.
As of ___________, the Option shall become exercisable as to the remaining
33 1/3% of the Shares covered by the Option.
Date of this Agreement (grant date): ____________
___________________________________
Optionee Signature
MAGNETEK, INC.
Address (please print):
By______________________________ ___________________________________
By______________________________ ___________________________________
___________________________________
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RESTRICTED STOCK AGREEMENT
PURSUANT TO THE
SECOND AMENDED AND RESTATED
1989 INCENTIVE STOCK COMPENSATION PLAN
OF MAGNETEK, INC.
This Restricted Stock Agreement (this "Agreement") is made and
entered into as of the Date of Award indicated below by and between MagneTek,
Inc., a Delaware corporation (the "Company"), and the person named below as
Employee.
WHEREAS, Employee is an employee of the Company and/or one or more
of its subsidiaries; and
WHEREAS, pursuant to the Company's second Amended and Restated 1989
Incentive Stock Compensation Plan (the "Plan"), the committee of the Board of
Directors of the Company administering the Plan (the "Committee") has
approved the award to Employee of the right to purchase shares of the Common
Stock, par value $.01 per share, of the Company (the "Common Stock"), on the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. AWARD; CERTAIN TERMS AND CONDITIONS. The Company hereby
awards to Employee, and Employee hereby accepts, as of the Date of Award, the
right to purchase the number of shares of Common Stock indicated below (the
"Restricted Shares") for the Cash Purchase Price per share indicated below
(which shall be equal to at least $.01). The aggregate Cash Purchase Price
shall be paid to the Company promptly following the Date of Award. The
Restricted Shares shall be subject to all of the terms and conditions set
forth in this Agreement, including the restrictions imposed pursuant to
Section 3 hereof; provided, however, that on the first anniversary of the
Date of Award, such restrictions shall terminate in all respects (the
termination of such restrictions with respect to any Restricted Share, for
any reason, shall be referred to herein as the "vesting" of such share).
Employee: [NAME]
Date of Award: [DATE]
Number of shares purchasable: [QUANTITY]
Cash Purchase Price per share: $.01
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2. CONSIDERATION FOR SHARES; METHOD OF PAYMENT.
(a) The consideration for the issuance and sale of Restricted
Shares contemplated hereby may include, in addition to the Cash Purchase
Price per share indicated in Section 1 hereof, consideration in the form of
past services to the Company and/or one or more of its subsidiaries.
(b) The aggregate Cash Purchase Price shall be paid to the Company
in cash or by check payable to the Company. Upon payment to the Company in
full of the aggregate Cash Purchase Price as provided herein, Employee shall
be deemed to have purchased the Restricted Shares effective as of the Date of
Award, and shall be the holder of record.
3. RESTRICTIONS. Until a Restricted Share vests, it shall not be
liable for the debts, contracts or engagements of Employee or successors in
interest nor subject to disposition by transfer, alienation, anticipation,
pledge, encumbrance, assignment or any other means whether such disposition
be voluntary or involuntary or by operation of law by judgment, levy,
attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect.
4. ACCELERATION OF VESTING.
(a) ACCELERATION OF VESTING BY COMMITTEE. The Committee, in its
sole discretion, may accelerate the vesting of any or all of the Restricted
Shares at any time and for any reason.
(b) CERTAIN EVENTS CAUSING ACCELERATION OF VESTING.
Notwithstanding anything to the contrary in this Agreement, the Restricted
Shares shall become fully vested immediately prior to the consummation of any
of the following events:
(i) the liquidation of the Company;
(ii) a merger or consolidation of the Company with or into
another corporation not effected solely to reincorporate the Company in a
different state;
(iii) the acquisition by another corporation or person of 40%
or more of the Company's then outstanding voting stock not effected solely to
reincorporate the Company in a different state; or
(iv) the acquisition by another corporation or person of all
or substantially all of the Company's assets.
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(c) ACCELERATION UPON NORMAL RETIREMENT, ETC. Notwithstanding
anything to the contrary in this Agreement, the Restricted Shares shall
become fully vested immediately upon the Employee's normal retirement, death,
total disability or (with the consent of the Committee) early retirement.
5. REPURCHASE OF RESTRICTED SHARES. Notwithstanding anything to
the contrary in this Agreement, if Employee shall cease to be employed by the
Company, a Parent Corporation or a Subsidiary for any reason other than
Employee's normal retirement, death, total disability or (with the consent of
the Committee) early retirement, then, unless the Committee shall determine
otherwise, the Company shall repurchase each then unvested Restricted Share
at a purchase price equal to the Cash Purchase Price per share.
6. PAYMENT OF WITHHOLDING TAXES. If the Company becomes
obligated to withhold an amount on account of any federal, state or local tax
imposed as a result of the sale of the Restricted Shares to Employee pursuant
to this Agreement or the termination of the restrictions imposed upon the
Restricted Shares hereunder, including, without limitation, any federal,
state or other income tax, or any F.I.C.A., state disability insurance tax or
other employment tax (the date upon which the Company becomes so obligated
shall be referred to herein as the "Withholding Date"), then Employee shall
pay such amount (the "Withholding Liability") to the Company on the
Withholding Date in cash or by check payable to the Company. Employee hereby
consents to the Company withholding the full amount of the Withholding
Liability from any compensation or other amounts otherwise payable to
Employee if Employee does not pay the Withholding Liability to the Company on
the Withholding Date, and Employee agrees that the withholding and payment of
any such amount by the Company to the relevant taxing authority shall
constitute full satisfaction of the Company's obligation to pay such
compensation or other amounts to Employee.
7. TAXABLE INCOME AND SECTION 83(b) ELECTION. Employee
understands that the taxable income recognized by Employee as a result of the
award of Restricted Shares hereunder, and the Withholding Liability and
Withholding Date with respect thereto, would be affected by a decision by
Employee to make an election under Section 83(b) of the Internal Revenue Code
(an "83(b) Election") with respect to the Restricted Shares within 30 days of
the Date of Award. Employee understands and agrees that he or she will have
the sole responsibility for determining whether to make an 83(b) Election
with respect to the Restricted Shares, and for properly making such election
and filing the election with the relevant taxing authorities on a timely
basis. Employee will not rely on the Company for any advice in connection
with the decision whether to make, or procedures for making, the 83(b)
Election, and acknowledges that the Company has urged Employee to consult
Employee's own tax advisor with respect to the desirability of and procedures
for making an 83(b) Election with respect to the Restricted Shares. Employee
agrees
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to submit to the Company a copy of any 83(b) Election with respect to the
Restricted Shares immediately upon filing such election with the relevant
taxing authority.
8. ESCROW.
(a) Until a Restricted Share vests, (i) the record address of the
holder of record of such Restricted Share shall be c/o the Secretary of the
Company at the address of the Company's principal executive office, (ii) the
stock certificate representing such Restricted Share shall be held in escrow
in the custody of the Secretary of the Company, duly endorsed in blank or
accompanied by a duly executed stock powers, and (iii) such stock certificate
shall contain the following legend:
"THE TRANSFER AND REGISTRATION OF TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS AS PROVIDED IN A
RESTRICTED STOCK AGREEMENT DATED AS OF [DATE]
BY AND BETWEEN THE CORPORATION AND [NAME]."
(b) From and after the date upon which a Restricted Share vests,
the holder of record of such Restricted Share shall be entitled (provided
that Employee shall have paid the Withholding Liability to the Company
pursuant to Section 6 hereof) to receive the stock certificate representing
such Restricted Share, which stock certificate shall not contain the legend
set forth in subsection (a)(iii) above.
9. VOTING: DIVIDENDS. The holder of record of any Restricted
Share shall be entitled to exercise all voting rights with respect to such
share and to receive all dividends or distributions paid or made with respect
thereto.
10. PLAN. The Restricted Shares are being sold pursuant to the
Plan, as in effect on the Date of Award, and are subject to all the terms and
conditions of the Plan, as the same may be amended from time to time;
provided, however, that no such amendment shall deprive Employee, without his
or her consent, of the Restricted Shares or of any of Employee's rights under
this Agreement. Capitalized terms used without definition herein have the
meanings ascribed to them in the Plan. The interpretation and construction
by the Committee of the Plan, this Agreement and such rules and regulations
as may be adopted by the Committee for the purpose of administering the Plan
shall be final and binding upon Employee. Until the Restricted Shares shall
vest or be forfeited, the Company shall, upon written request therefor, send
a copy of the Plan, in its then current form, to the holder of record of the
Restricted Shares.
11. EMPLOYMENT RIGHTS. No provision of this Agreement shall (a)
confer upon Employee any right to continue in the employ of the Company or
any of its affiliates, (b) affect the
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right of the Company or any of its affiliates to terminate the employment of
Employee, with or without cause, or (c) confer upon Employee any right to
participate in any employee welfare or benefit plan or other program of the
Company or any of its affiliates other than the Plan. EMPLOYEE HEREBY
ACKNOWLEDGES AND AGREES THAT THE COMPANY OR ANY OF ITS AFFILIATES MAY
TERMINATE THE EMPLOYMENT OF EMPLOYEE AT ANY TIME AND FOR ANY REASON, OR FOR
NO REASON, UNLESS EMPLOYEE AND THE COMPANY OR ANY OF ITS AFFILIATES ARE
PARTIES TO A WRITTEN EMPLOYMENT AGREEMENT OR LETTER THAT EXPRESSLY PROVIDES
OTHERWISE.
12. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Tennessee.
IN WITNESS WHEREOF, the Company and Employee have duly executed
this Agreement as of the Date of Award.
MAGNETEK, INC.
By:
--------------------------------------
[NAME]
-----------------------------------------
Signature
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[EXECUTION COPY]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
MAGNETEK, INC.
AND
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
Dated as of June 28, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1. DEFINITIONS.................................................... 1
SECTION 2. REQUIRED REGISTRATION.......................................... 3
(a) Shelf Registration Rights .......................................... 3
(b) Piggyback Registration.............................................. 3
(c) Duration of Registration............................................ 4
SECTION 3. LIMITATIONS ON TRANSFERS....................................... 4
SECTION 4. INTERRUPTIONS OF CONTINUOUS REGISTRATION....................... 5
(a) Permitted Interruptions ............................................ 5
(b) Holdback Agreements ................................................ 6
(c) Cessation of Offers ................................................ 6
SECTION 5. REGISTRATION PROCEDURES ....................................... 7
(a) State Law Compliance................................................ 7
(b) Underwritten Offering .............................................. 7
(c) Confidentiality .................................................... 8
(e) Information Regarding Pension Plan.................................. 8
SECTION 6. NEGOTIATED TRANSFERS........................................... 8
SECTION 7. EXPENSES OF REGISTRATION....................................... 9
SECTION 8. INDEMNIFICATION ............................................... 9
(a) Indemnification by the Company...................................... 9
(b) Indemnification by Holders of Registrable Securities................ 10
REGISTRATION RIGHTS AGREEMENT
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(c) Delivery of Prospectus.............................................. 10
(d) Conduct of Indemnification Proceedings.............................. 10
(e) Contribution........................................................ 11
SECTION 9. GENERAL PROVISIONS............................................. 12
(a) Succession.......................................................... 12
(b) Termination......................................................... 12
(c) Amendments and Waivers ............................................. 12
(d) Notice.............................................................. 12
(e) Governing Law....................................................... 13
(f) Counterparts......................................................... 14
(g) Complete Agreement .................................................. 14
(h) Headings; Interpretation............................................. 14
(i) Gender and Number.................................................... 14
(j) No Third Party Beneficiaries......................................... 14
(k) Cooperation.......................................................... 14
(l) Binding Effect, Assignment........................................... 14
REGISTRATION RIGHTS AGREEMENT
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This REGISTRATION RIGHTS AGREEMENT is entered into as of June 28, 1996,
by and between MagneTek, Inc., a Delaware corporation (the "COMPANY"), and
U.S. Trust Company of California, N.A., a national banking association, in
its capacity as duly appointed and acting investment manager (the "MANAGER")
of a segregated account held in the trust (the "TRUST") created under the
MagneTek, Inc. FlexCare Plus Retirement Pension Plan (the "PENSION PLAN,"
which term, as used herein, shall include the Manager acting on behalf of the
Pension Plan and the Trust), for the account and on behalf of the Pension
Plan (which shall thereby be deemed a party to this Agreement). Capitalized
terms used and not otherwise defined herein shall have the respective
meanings set forth in SECTION 1.
RECITALS:
WHEREAS, the Company has agreed, subject to the satisfaction of certain
regulatory and other conditions, to contribute 750,000 shares of Common Stock
to the Trust; and
WHEREAS, such shares of Common Stock immediately following such
contribution will be held in a single segregated account in the Trust (the
"SEGREGATED ACCOUNT"); and
WHEREAS, the Manager has been appointed as a "fiduciary" of the Pension
Plan, as defined in Section 3(21) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), with the authority to act on behalf of the
Pension Plan with respect to all assets held in the Segregated Account; and
WHEREAS, the Company has agreed to grant the Manager certain
registration rights with respect to shares of Common Stock held in the
Segregated Account, on the terms and subject to the conditions herein set
forth; and
WHEREAS, the Manager has full power and authority to execute and deliver
this Agreement for the account and on behalf of the Pension Plan and to bind
the Pension Plan;
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth in this Agreement, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENT:
Section 1. DEFINITIONS.
In addition to those terms that are defined in the preamble hereto, the
following terms shall have the following meanings as used in this Agreement:
"AFFILIATE" means with respect to any Person, any other Person (i)
controlling, controlled by or under common control with such Person or (ii)
who is a director, officer or employee or a former director, officer or
employee of such Person.
REGISTRATION RIGHTS AGREEMENT
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"AGREEMENT" means this Registration Rights Agreement.
"BLACKOUT PERIOD" means (i) any holdback period during which Transfers
are not permitted by operation of SECTION 4(b) and (ii) the period of time
during which Transfers are not permitted by operation of SECTION 3(a).
"BOARD OF DIRECTORS" means the Board of Directors of the Company and any
authorized committee thereof.
"BUSINESS DAY" means any day on which the New York Stock Exchange is
open for trading.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the Company's Common Stock, par value $.01 per
share.
"COMPANY" is defined in the preamble.
"ERISA" is defined in the recitals.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FORM S-3" means Form S-3 as promulgated by the SEC or any successor
form that is substantially similar thereto.
"INTERRUPTION NOTICE" is defined in SECTION 4(a).
"ISSUER" means, initially, the Company, and thereafter, each successor
issuer as described in SECTION 9(a).
"NEGOTIATED TRANSFER" is defined in SECTION 6(a).
"PERMITTED INTERRUPTION" is defined in SECTION 4(a).
"PERSON" means an individual, partnership, corporation, trust or
unincorporated organization, or a government, or agency or political
subdivision thereof.
"PROSPECTUS" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other amendments
and supplements to the Prospectus, including post-effective amendments and
all material incorporated by reference in such Prospectus.
"REGISTERED TRANSFER" is defined in SECTION 6(b).
"REGISTRABLE SECURITIES" means all of the shares of Common Stock
contributed by the Company to the Pension Plan as described in the recitals
hereto and any Common Stock of the Company issued in respect thereof or in
exchange or replacement for the Common Stock so
REGISTRATION RIGHTS AGREEMENT
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contributed; PROVIDED, HOWEVER, that a security ceases to be a Registrable
Security upon its Transfer pursuant to Sections 3 or 6 hereof.
"REGISTRATION" means the registration contemplated by SECTION 2 hereof,
as the same may be delayed, interrupted or resumed.
"REGISTRATION STATEMENT" means any registration statement of the Company
in a Registration which covers any of the Registrable Securities pursuant to
the provisions of SECTION 2 of this Agreement, including the Prospectus,
amendments and supplements to such Registration Statement, post-effective
amendments, all exhibits and all material incorporated by reference in such
Registration Statement.
"RULE 144" means Rule 144 under the Securities Act, or any successor or
similar rule.
"RULE 415" means Rule 415 under the Securities Act, or any successor or
similar rule.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"SHELF REGISTRATION STATEMENT" is defined in SECTION 2(a).
"TRANSFER" means any sale, transfer or other disposition (including any
pledge and any disposition upon the foreclosure of any pledge) or any
agreement to do any of the foregoing.
Section 2. REQUIRED REGISTRATION.
(a) SHELF REGISTRATION RIGHTS. Subject to SECTION 4(b), as promptly as
reasonably practicable after the date hereof, the Company shall use
reasonable efforts to effect the Registration of all of the Registrable
Securities on a continuous basis under Rule 415 by preparing and filing with
the SEC a Registration Statement on Form S-3 (the "SHELF REGISTRATION
STATEMENT"); provided, however, that if, prior to the effective date of such
Registration, circumstances arise which would, after such date, constitute a
Permitted Interruption, the Company shall be entitled to delay the
Registration for the period of such Permitted Interruption. The Company
shall use reasonable efforts to remain eligible to register its securities on
Form S-3, including, without limitation, remaining current in any required
filings under the Exchange Act.
(b) PIGGYBACK REGISTRATION. In the event the Company proposes to make
an underwritten offering of newly-issued Common Stock, the Company shall
provide the Manager with reasonable notice thereof and an opportunity to
include therein Registrable Securities, PROVIDED, HOWEVER, that (i) no
Registrable Securities shall be included therein if, in the opinion of the
underwriters, their inclusion would impede the consummation of the primary
shares proposed to be included therein by the Company, and (ii) no greater
number shall be included than so approved by the underwriters as not impeding
such primary offering. The Company shall not grant registration rights after
the date hereof and before the expiration of the aforesaid piggyback rights
that are equal or superior in priority to those granted herein. The
piggyback registration
REGISTRATION RIGHTS AGREEMENT
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rights in this Section 3(b) shall expire on the date that is thirty-six (36)
months after the date of this Agreement.
(c) DURATION OF REGISTRATION. The Company shall use reasonable efforts
(subject to any Permitted Interruption) to cause the Registration to remain
in effect until the date that is thirty-six months from the date of this
Agreement.
(d) Under the circumstances set forth in Section 4(a)(i), in the event
the Company is required to invoke such Section for a period longer than
ninety (90) days, then after the expiration of such 90-day period, the
Company shall use its reasonable efforts to effect the registration of the
portion (but no less than 50% of the Registrable Securities outstanding on
the date hereof, as adjusted to reflect any recapitalization or stock split)
of the Registrable Securities indicated in a request from the manager
submitted prior to thirty-three (33) months from the date hereof. The
Company shall use reasonable efforts to effect such registration within
thirty (30) days of receipt of such request and to maintain such registration
effective for the period, not to exceed 90 days, indicated in the plan of
distribution.
Section 3. LIMITATIONS ON TRANSFERS.
(a) The Pension Plan shall not make any Transfer of any Registrable
Securities other than pursuant to (i) the Shelf Registration Statement in
accordance with the plan of distribution described therein, (ii) Rule 144,
(iii) a Transfer to the Company or a wholly-owned direct or indirect
subsidiary of the Company pursuant to a self-tender offer or otherwise, (iv)
a Transfer in response to a tender offer permitted under SECTION 3(c) below,
(v) a Negotiated Transfer permitted under SECTION 6 below or (vi) a Transfer
pursuant to a merger or consolidation in which the Company is a constituent
corporation. All such Transfers shall in addition be subject to the
provisions of this Section 3 and all other applicable provisions of this
Agreement.
(b) The Manager shall provide the Company with a notice of a proposed
Transfer within a reasonable period of time before such proposed Transfer.
Such notice shall state (i) the section of this Agreement pursuant to which
the Pension Plan proposes to Transfer Registrable Securities, (ii) the
maximum number of shares that the Pension Plan proposes to Transfer and (iii)
whether the Transfer or Transfers will occur on a date specified in such
notice or during a period of time specified in the notice. Each notice of a
proposed Transfer pursuant to this SECTION 3(b) shall be delivered a
reasonable period of time before such proposed Transfer and, in any event, as
to (x) Transfers under the Shelf Registration Statement or Rule 144, not less
than two Business Days before such proposed Transfer, and (y) Transfers under
SECTION 6, not less than 10 Business Days before such proposed Transfer. The
Manager shall establish, to the reasonable satisfaction of the Company, that
such proposed Transfer is in compliance with ERISA, federal and state
securities laws and regulations and other applicable laws and regulations.
Notwithstanding the foregoing, the Manager shall not effect any such Transfer
if the Company's legal counsel advises the Company and the Manager in writing
that such Transfer would constitute a "prohibited transaction" (as described
in Section 4975 of the Code), unless the Pension Plan establishes to the
reasonable satisfaction of the Company that an exemption from such Section is
available.
REGISTRATION RIGHTS AGREEMENT
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<PAGE>
(c) Notwithstanding the provisions of this Agreement to the contrary,
the Manager may effect a Transfer by tendering all or any portion of the
Registrable Securities into a BONA FIDE exchange offer, a tender offer or a
request or invitation for tenders (as such terms are used in Sections 14(d)
or 14(e) of the Exchange Act and the rules and regulations of the SEC
thereunder) for Common Stock.
(d) No Transfer of Registrable Securities in violation of this
Agreement shall be made or recorded on the books of the Company, and any such
attempted Transfer shall be void and of no effect. Subject to SECTION 3(e)
below, each certificate representing the Registrable Securities shall
conspicuously bear legends in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAW AND, UNLESS SO
REGISTERED, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
REGISTRATION RIGHTS AGREEMENT, DATED AS OF JUNE 28, 1996 BY AND
BETWEEN THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND U.S.
TRUST COMPANY OF CALIFORNIA, N.A. THAT CONTAINS, AMONG OTHER
THINGS, CERTAIN RESTRICTIONS ON THE TRANSFER OF SUCH SECURITIES. A
COPY OF SUCH REGISTRATION RIGHTS AGREEMENT WILL BE FURNISHED
WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST.
(e) The Company will instruct its transfer agent that the legends set
forth in SECTION 3(d) shall be removed upon the Pension Plan's Transfer of
shares of Common Stock if such Transfer is made in accordance with all
applicable provisions of this Agreement; PROVIDED, HOWEVER, that if such
Transfer is a Negotiated Transfer that is not registered under the Securities
Act, the first legend shall remain on the certificates representing such
shares until such time as the restrictions set forth in such legend cease to
be applicable.
Section 4. INTERRUPTIONS OF CONTINUOUS REGISTRATION.
(a) PERMITTED INTERRUPTIONS. The Company shall be entitled, effective
immediately upon notice given in conformity with SECTION 9(d) (an
"INTERRUPTION NOTICE"), to require the Pension Plan to cease to make any
offers or sales of the Registrable Securities under any Registration
Statement then in effect in the event that:
REGISTRATION RIGHTS AGREEMENT
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(i) the Company is no longer entitled to maintain a Registration
on Form S-3 under Rule 415;
(ii) the Company determines, as evidenced by a certificate of two
of the Company's executive officers, in its good faith and reasonable
judgment, that the offering of any Registrable Securities would (x)
materially impede, delay or interfere with any proposed financing, offer or
sale of securities, acquisition, corporate reorganization or other
significant transaction involving the Company, (y) require disclosure of
material, nonpublic information not otherwise proposed to be disclosed or (z)
conflict with material business plans of the Company in a manner not in the
best interests of the Company. In each such case the interruption shall not
exceed 90 days from the date the Company makes such determination;
(iii) the Company has initiated bona fide discussions with an
underwriter regarding the sale of its securities in a registered primary
public offering and in such underwriter's opinion, the continuation of offers
and/or sales in the Registration would have a material adverse effect on such
offering under discussion (in which case the interruption may not exceed 90
days from the Interruption Notice); or
(iv) at any time the Company would be required, in order to
maintain the effectiveness of the Registration Statement, to obtain audited
financial statements not being prepared independently of the Registration,
unless the Pension Plan undertakes to pay the Company's expenses in obtaining
the requisite financial statements (in which case the interruption shall
terminate when the requisite financial statements are available).
Each of the
foregoing events or any combination thereof shall be hereinafter referred to
as a "PERMITTED INTERRUPTION." In no event (other than pursuant to clause
4(a)(i)) shall the Manager be required to cease offers and sales under the
Registration Statement for more than an aggregate of six months in any
consecutive twelve-month period pursuant to Permitted Interruptions.
(b) HOLDBACK AGREEMENTS. In the event the managing underwriter in any
registration effected by the Company that gives rise to a Permitted
Interruption so requests, the Manager will agree not to effect any public
sale or distribution of the shares of Registrable Securities held by them
(including a sale pursuant to Rule 144) for a period up to 180 days following
the effective date of such registration that so gives rise to a Permitted
Interruption.
(c) CESSATION OF OFFERS. The Manager hereby agrees that, upon receipt
of any notice (including any Interruption Notice) from the Company of:
(i) any Permitted Interruption;
(ii) any request by the SEC for amendments or supplements to a
Registration Statement or Prospectus or for additional information;
(iii) the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose;
REGISTRATION RIGHTS AGREEMENT
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(iv) the representations and warranties of the Company made in
any underwriting agreement relating to the Registration ceasing to be true
and correct in any material respect;
(v) the receipt by the Company of any notification with respect
to the suspension of the qualification of any Registrable Securities
registered in such Registration for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose (in which case
the cessation of sales shall pertain only to the applicable jurisdiction);
(vi) the happening of any event which makes any statement made in
a Registration Statement, Prospectus or any document incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in any such Registration Statement or Prospectus so that they will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; or
(vii) the Company's reasonable determination that a post-effective
amendment to a registration statement would be appropriate;
that the Manager will forthwith discontinue disposition of any Registrable
Securities covered by such Registration Statement until such Pension Plan's
receipt of any required supplemental or amended materials or of advice in
writing that use of the applicable Prospectus may be resumed. In such event,
the Company will use its reasonable efforts promptly to correct or supplement
the Registration Statement, to obtain the lifting of any stop order or
otherwise to remove the circumstances preventing the Manager from continuing
to make offers and sales under the Registration Statement, subject to the
duration provided in SECTION 4 of any Permitted Interruption.
Section 5. REGISTRATION PROCEDURES.
(a) STATE LAW COMPLIANCE. The Company shall use reasonable efforts to
cause the Registrable Securities covered by such Registration to be
registered in a reasonable number of jurisdictions as requested by the
Manager, provided that the Company shall not be obligated to file a general
consent to service of process or to qualify to do business as a foreign
corporation or otherwise to subject itself to taxation in connection with any
such registration.
(b) UNDERWRITTEN OFFERING. If any of the Registrable Securities
covered by the Registration are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Manager; PROVIDED, HOWEVER,
that such investment bankers and managers must be reasonably satisfactory to
the Company. The Company will enter into such agreements (including an
underwriting agreement) and take all such other actions reasonably necessary
in connection therewith in order to expedite or facilitate the disposition of
such Registrable Securities, and in such connection:
REGISTRATION RIGHTS AGREEMENT
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(i) make such representations and warranties to the underwriters
in form, substance and scope as are customarily made by stockholders to
underwriters in underwritten offerings and confirm the same if and when
requested;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reason ably satisfactory to the managing underwriter and the Pension Plan)
addressed to the Pension Plan and the underwriters, if any, covering the
matters customarily covered in opinions requested in underwritten offerings
and such other matters as may be reasonably requested by such holders and
underwriters;
(iii) enter into an indemnity agreement in form, scope and
substance as is customary in underwritten offerings;
(iv) obtain "cold comfort" letters and updates thereof as
appropriate from the Company's independent certified public accountants
addressed to the underwriters, if any, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort"
letters to underwriters in connection with underwritten offerings (provided
that no more than one such cold comfort letter (and updates thereof) shall be
required to be provided at Company expense); and
(v) deliver such documents and certificates as may be reasonably
requested by the Pension Plan and the managing underwriter, if any.
(c) CONFIDENTIALITY. Each of the parties will treat all notices of
proposed Transfers and all notices pursuant to SECTION 4(c) received from the
other party with the strictest confidence and will not disseminate such
information. Nothing herein shall be construed to require Company or any of
its Affiliates to make any public disclosure of information at any time.
(d) INFORMATION REGARDING PENSION PLAN. The Manager shall furnish to
the Company such information regarding the Pension Plan's holdings of Common
Stock and the proposed manner of distribution thereof and such other
information as the Company may reasonably request and as shall be required in
connection with the Registration and with any qualification under state law
referred to in SECTION 5(a). The Company agrees that it will furnish to the
Manager the number of prospectuses, offering circulars or other documents, or
any amendments or supplements thereto, incident to such qualification under
state law referred to in this SECTION 5 as the Pension Plan from time to time
may reasonably request.
Section 6. NEGOTIATED TRANSFERS.
(a) The Manager shall deliver to Company a written notice that the
Manager proposes to make a Transfer of Registrable Securities pursuant to a
negotiated transaction or series of related transactions with one or more
transferees (each such transaction or series of related transactions, whether
registered or not, being referred to herein collectively as a "NEGOTIATED
TRANSFER"). Each notice of a proposed Negotiated Transfer shall be delivered
a reasonable period of time before the proposed Transfer and, in any event,
not less than 10 Business Days before the proposed commencement of such
proposed Transfer. Each notice of a proposed Negotiated
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Transfer shall specify the approximate number of Registrable Securities
proposed to be Transferred, the proposed timetable for the transaction,
whether the transfer will be made pursuant to the Shelf Registration
Statement, and the anticipated per share price for such Transfer. If the
Registrable Securities subject to any Negotiated Transfer are not registered
under the Securities Act, the Pension Plan shall, prior to effecting such
Negotiated Transfer, cause each transferee in such Negotiated Transfer to
represent and warrant to the Pension Plan and Company in writing that (i)
such transferee is acquiring such Registrable Securities for its own account,
or for one or more accounts, as to each of which such transferee exercises
sole investment discretion, for investment purposes only and not with a view
to, or for resale in connection with, any distribution (within the meaning of
the Securities Act), (ii) such transferee has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits
and risks of an investment in the Registrable Securities, and (iii) such
transferee acknowledges that such Transfer has not been and will not be
registered under the Securities Act or any state securities law and such
Registrable Securities may not be resold unless registered under the
Securities Act or unless such resale is exempt therefrom.
(b) Unless approved in advance in writing by the Company, which may
withhold such approval in its discretion, the Manager shall not make a
Negotiated Transfer to any one Person (or group of related Persons) if such
Person (or group of related Persons) is, or as a result of such Negotiated
Transfer will be (to the knowledge of the Pension Plan after reasonable
inquiry), the beneficial owner, as defined for purposes of Section 13(d) of
the Exchange Act (or any successor thereto), of more than 5% of Company's
outstanding Common Stock.
(c) The Company shall make available members of the management of the
Company and its Affiliates for such assistance as is reasonably requested by
the Manager and its counsel in selling efforts relating to any Negotiated
Transfer.
Section 7. EXPENSES OF REGISTRATION.
The Company will bear all expenses of the Registration (other than
underwriting discounts and commissions and brokerage commissions and fees, if
any), including, without limitation, registration fees and legal and
accounting fees (subject to SECTION 4 regarding audited financial statements
and SECTION 5 regarding comfort letters) incurred by the Company in
connection with any such Registration and amendments or supplements in
connection therewith; PROVIDED, HOWEVER, that the Company will not be
required to reimburse the Manager for attorneys' fees incurred hereunder
exceeding $25,000 (plus any reasonably incurred out-of-pocket expenses
incurred by such counsel) incurred in any calendar year or after 36 months
from the date hereof.
Section 8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, each of the Pension
Plan, the Trust, the Manager and its agents against all losses, claims,
damages, liabilities and expenses caused by any untrue or alleged untrue
statement of a material fact contained in any Registration Statement,
Prospectus or preliminary prospectus or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except
REGISTRATION RIGHTS AGREEMENT
9
<PAGE>
insofar as the same are caused by or contained in any information furnished
in writing to the Company by such Person or its agents or any underwriter
thereof expressly for use therein. The Company will also indemnify
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, their officers and
directors and each Person who controls such Persons (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the Pension Plan, the Trust, the Manager and its agents,
if requested. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution to the same extent
as provided above with respect to information so furnished in writing by such
Persons specifically for inclusion in any Prospectus or Registration
Statement.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. Each of the
Pension Plan, the Trust and the Manager severally agrees to indemnify, to the
full extent permitted by law, the Company, its directors and officers and
each Person who controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and expenses caused by
any untrue statement of a material fact or any omission of a material fact
required to be stated in any Registration Statement or Prospectus or
preliminary prospectus or necessary to make the statements therein (in the
case of a Prospectus, in the light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information or affidavit so
furnished in writing by such Person specifically for inclusion in such
Registration Statement or Prospectus. In no event shall the liability of (i)
the Pension Plan or the Trust hereunder be greater in amount than the dollar
amount of the proceeds received by the Pension Plan upon the sale of the
Registrable Securities giving rise to such indemnification obligation or (ii)
of the manager hereunder be greater in amount than the aggregate fees
received by the Manager to date in connection with the Trust.
(c) DELIVERY OF PROSPECTUS. The indemnification provisions in SECTIONS
8(A) and (B) above are subject to the condition that, insofar as they relate
to any untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in a preliminary prospectus or prospectus but eliminated or
remedied in the amended prospectus on file with the SEC at the time the
registration statement becomes effective or in any amended prospectus filed
with the SEC pursuant to Rule 424(b) or 424(c) (the "Final Prospectus"), such
indemnity provisions shall not inure to the benefit of any underwriter, the
Pension Plan, the Trust, the Manager or its agents, if the Company has
previously delivered copies of such Final Prospectus to such underwriter, the
Pension Plan, the Trust, the Manager or its agents and if a copy of the Final
Prospectus was not furnished by such underwriter, the Pension Plan, the
Trust, the Manager or its agents, as the case may be, to the Person asserting
the loss, liability, claim or damage prior to or concurrently with the sale
of a Registrable Security to such Person.
(d) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER,
that any Person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the fees and expenses of counsel shall be at the
REGISTRATION RIGHTS AGREEMENT
10
<PAGE>
expense of such Person unless (a) the indemnifying party has agreed to pay
such fees or expenses, or (b) the indemnifying party shall have failed to
assume the defense of such claims and employ counsel reasonably satisfactory
to such Person or (c) in the reasonable judgment of any such Person, based
upon advice of such Person's counsel, a conflict of interest may exist
between such Person and the indemnifying party with respect to such claims
(in which case, if the Person notifies the indemnifying party in writing that
such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will not be subject
to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld or delayed). No indemnifying party
will consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to the indemnified party of a release from all liability in respect
to such claim or litigation. An indemnifying party who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the opinion of
counsel to such Person a conflict of interest exists between such Person and
another indemnified Person with respect to such claim.
(e) CONTRIBUTION. If the indemnification provided for in this SECTION
8 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified party in connection
with the actions which resulted in such losses, claims, damages, liabilities
or expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been made by,
or relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in SECTION 8(D) hereof, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this SECTION 8(e) were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this SECTION 8(e), in no event
shall (i) the Pension Plan be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities sold
by the Pension Plan and distributed to the public were offered to the public
exceeds the amount of damages which such holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission or (ii) the Manager hereunder be required to contribute any
amount in excess of the
REGISTRATION RIGHTS AGREEMENT
11
<PAGE>
aggregate fees received to date by the Manager in connection with the Trust.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
Section 9. GENERAL PROVISIONS.
(a) SUCCESSION. In the event that the Registrable Securities are to be
converted into or exchanged for (or become the right to receive) securities
of an issuer other than the Person who is then Issuer hereunder in connection
with any transaction to which such Issuer is a party, such Issuer shall cause
the issuer of such securities to agree, effective as of such conversion or
exchange, that all rights, obligations and restrictions of Issuer set forth
in this Agreement shall continue to apply to such securities. As of the time
of such conversion or exchange, subject to any Blackout Period, such issuer
shall be bound by this Agreement and shall succeed to all rights,
restrictions and obligations of Issuer set forth in this Agreement, all
references to Issuer herein shall thereafter be deemed to be references to
such issuer, and the predecessor Issuer shall be released from all
obligations under this Agreement except for any obligations under SECTION 8
with respect to any registration of securities issued by such Issuer. To
evidence the foregoing, prior to the time of such conversion or exchange, the
Issuer may execute, and cause such issuer to execute, a Succession Agreement
setting forth such issuer's obligations pursuant to this SECTION 9. Upon
request, the Manager shall acknowledge and agree to any such Succession
Agreement as set forth therein. To the extent required and permissible under
applicable law, as soon as reasonably practicable after such conversion or
exchange, such issuer shall file with the SEC an amendment to the Shelf
Registration Statement, if any, then in effect to ensure that such Shelf
Registration Statement shall continue to apply to such securities.
(b) TERMINATION. All rights, restrictions and obligations of Company
and the Pension Plan, except with respect to any rights and obligations under
SECTION 8, shall terminate and this Agreement shall have no further force and
effect on the earlier of the date set forth in SECTION 3(b) and the date the
Pension Plan no longer holds any Registrable Securities.
(c) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented
except by a writing signed by Company and the Manager.
(d) NOTICE. Each notice relating to this Agreement shall be in writing
and shall be delivered in person, by overnight air carrier, by registered or
certified mail, by facsimile transmission or by telex, to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice, provided that notices of a change of address shall
be effective only upon receipt thereof):
REGISTRATION RIGHTS AGREEMENT
12
<PAGE>
IF TO COMPANY:
MagneTek, Inc.
P.O. Box 290159
26 Century Boulevard
Nashville, Tennessee 37229-0159
Attention: John P. Colling, Jr.
Telecopy No.: (615) 316-5192
WITH A COPY TO:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Attention: Jennifer Bellah, Esq.
Telecopy No.: (213) 229-7520
IF TO MANAGER:
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2700
Los Angeles, California 90071-2291
Attention: Charles E. Wert
Telecopy No.: (213) 488-1366
WITH A COPY TO:
Jones, Day, Reavis & Pogue
77 West Wacker Drive
Chicago, Illinois 60601-1692
Attention: Ronald S. Rizzo, Esq.
Telecopy No.: (312) 782-8585.
Unless otherwise specifically provided in this Agreement, a notice shall
be deemed to have been effectively given if mailed by registered or certified
mail to the proper address (with such notice to be effective upon the earlier
of actual receipt or five days after deposit in the mail), if given in person
or by overnight air carrier when delivered in person or by overnight air
carrier, if given by telex or telecopy upon receipt if confirmed by return
telecopy, telex or telephonic confirmation or otherwise; provided, however,
that no notice shall be deemed received on a day that is not a Business Day
in the jurisdiction in which notices are to be addressed to such party. Any
such notice shall not be effective until the next Business Day in such
jurisdiction.
(e) GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal law, and not the law pertaining
to conflicts or choice of law, of the State of Delaware.
REGISTRATION RIGHTS AGREEMENT
13
<PAGE>
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
(g) COMPLETE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the transactions contemplated
herein and supersedes all previous oral and written and all contemporaneous
oral negotiations, commitments and understandings.
(h) HEADINGS; INTERPRETATION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. No party hereto, nor its respective
counsel, shall be deemed the drafter of this Agreement for purposes of
construing the provisions hereof. The language in all parts of this
Agreement shall in all cases be construed according to its fair meaning, and
not strictly for or against any party hereto.
(i) GENDER AND NUMBER. In this Agreement, unless the context otherwise
requires, the masculine, feminine and neuter genders and the singular and the
plural include one another.
(j) NO THIRD PARTY-BENEFICIARIES. This Agreement shall be for the sole
and exclusive benefit of the Company, the Pension Plan, the Trust, the
Manager and any other-investment manager or managers acting on behalf of the
Pension Plan with respect to the Registrable Securities, and their respective
successors, and directors, trustees, officers, employees, agents and
controlling Persons indemnified hereunder. Nothing in this agreement shall
be construed to give any other Person any legal or equitable right, remedy or
claim under this Agreement.
(k) COOPERATION. Each party hereto shall take such further action, and
execute such additional documents, as may be reasonably required by any other
party hereto in order to carry out the purposes of this Agreement.
(l) BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and shall inure to the benefit of and be enforceable by each of the parties
and their successors and the directors, trustees (including, without
limitation, any successor trustee for the Pension Plan), officers, employees,
agents and controlling Persons of the parties. Except for an assignment to a
successor trustee or to an investment manager as stated herein, and except as
contemplated in SECTION 9(a), none of the rights or obligations under this
Agreement shall be assigned by the Pension Plan without the consent of the
Company.
REGISTRATION RIGHTS AGREEMENT
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the
date first above written.
MAGNETEK, INC.
By:
--------------------------------------
Title:
-----------------------------------
U.S. TRUST COMPANY OF CALIFORNIA, N.A., a
national banking association, in its capacity as
duly appointed and acting investment manager of
a segregated account held in the trust created
under the MagneTek, Inc. FlexCare Plus Retirement
Pension Plan
By:
--------------------------------------
Title:
-----------------------------------
REGISTRATION RIGHTS AGREEMENT
15
<PAGE>
EXHIBIT 10.38
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS AMENDMENT is entered into effective as of March 31, 1996, between
MAGNETEK, INC., a Delaware corporation ("BORROWER"), certain Lenders,
NATIONSBANK OF TEXAS, N.A. ("AGENT"), as Agent for Lenders, and CIBC INC., THE
FIRST NATIONAL BANK OF CHICAGO, and LTCB TRUST COMPANY as Co-Agents for Lenders.
Borrower, Agent, Co-Agents, and certain Lenders are party to the Credit
Agreement (as renewed, extended, and amended, the "CREDIT AGREEMENT") dated as
of March 31, 1995, providing for a $225,000,000 revolving credit facility and a
$75,000,000 term loan, which term loan has been repaid. Borrower, Agent, and
Lenders have agreed, upon the following terms and conditions, to amend the
Credit Agreement to provide for, among other things, (a) the reduction of the
Commitments for the Revolving Facility to $200,000,000, (b) the removal of
provisions providing for the release of collateral, (c) a reduction in the
amount of Permitted-Capital Expenditures, and (d) changes to certain financial
covenants. Accordingly, for adequate and sufficient consideration, Borrower,
Agent, and Determining Lenders agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this amendment (a)
terms defined in the Credit Agreement have the same meanings when used in this
amendment and (b) references to "SECTIONS," "SCHEDULES," and "EXHIBITS" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is amended as
follows effective as of EITHER (a) May 15, 1996, in respect of (i) the amendment
to SCHEDULE 2, (ii) the reduction of the Commitments, and (iii) PARAGRAPH 2(c)
and PARAGRAPH 2(d) (to the extent relating to definitions used in PARAGRAPH
2(c)) below, OR (b) for all other purposes, the date of the amendment.
(a) The recital paragraph of the Credit Agreement is entirely amended
as follows:
BORROWER ORIGINALLY REQUESTED THAT LENDERS EXTEND CREDIT TO
BORROWER NOT TO EXCEED A TOTAL OUTSTANDING PRINCIPAL AMOUNT OF
$300,000,000 (AS THAT AMOUNT MAY BE REDUCED BY CERTAIN BORROWING BASE
RESTRICTIONS) TO BE USED BY BORROWER AS PROVIDED IN SECTION 7.1 AND
ALLOCATED AS (A) A TERM LOAN OF $75,000,000 (THE "TERM LOAN") TO BE
FUNDED BY LENDERS ON THE CLOSING DATE, WHICH HAS BEEN REPAID, AND (B)
A REVOLVING-CREDIT FACILITY OF $225,000,000, WHICH HAS BEEN REDUCED TO
$200,000,000 (THE "REVOLVING FACILITY"), TO BE FUNDED BY LENDERS FROM
TIME TO TIME IN A COMBINATION OF ADVANCES AND LETTERS OF CREDIT.
LENDERS ARE WILLING TO EXTEND THE REQUESTED CREDIT ON THE TERMS AND
CONDITIONS OF THIS AGREEMENT.
<PAGE>
(b) SECTION 1.1 is amended by deleting the terms "BORROWING-BASE
CONDITION" and "EBIT."
(c) The table in the definition of "APPLICABLE MARGIN" in SECTION 1.1
is entirely amended as follows:
------------------------------------------------------------------
------------------------------------------------------------------
RATIO OF FUNDED DEBT TO EBITDA APPLICABLE APPLICABLE
MARGIN FOR MARGIN FOR
BASE-RATE LIBOR-RATE
BORROWINGS BORROWINGS
------------------------------------------------------------------
------------------------------------------------------------------
GREATER THAN 4.25 TO 1.00 1.00% 2.25%
------------------------------------------------------------------
LESS THAN OR EQUAL TO 4.25 TO 1.00,
BUT GREATER THAN 4.00 TO 1.00 0.75% 2.00%
------------------------------------------------------------------
LESS THAN OR EQUAL TO 4.00 TO 1.00,
BUT GREATER THAN 3.50 TO 1.00 0.50% 1.75%
------------------------------------------------------------------
LESS THAN OR EQUAL TO 3.50 TO 1.00,
BUT GREATER THAN 3.00 TO 1.00 0.25% 1.50%
------------------------------------------------------------------
LESS THAN OR EQUAL TO 3.00 TO 1.00,
BUT GREATER THAN 2.50 TO 1.00 0.00% 1.25%
------------------------------------------------------------------
LESS THAN OR EQUAL TO 2.50 TO 1.00,
BUT GREATER THAN 2.00 TO 1.00 0.00% 1.00%
------------------------------------------------------------------
LESS THAN OR EQUAL TO 2.00 TO 1.00 0.00% 0.75%
------------------------------------------------------------------
------------------------------------------------------------------
(d) SECTION 1.1 IS AMENDED BY ADDING OR ENTIRELY AMENDING THE
FOLLOWING TERMS:
BORROWING-BASE DEFICIENCY MEANS ANY AMOUNT BY WHICH THE
LIMITATION IN SECTION 2.2(c) IS EXCEEDED, WHETHER BECAUSE THE
COMMITMENTS FOR THE REVOLVING FACILITY HAVE BEEN FULLY OR PARTIALLY
TERMINATED OR CANCELLED OR FOR ANY OTHER REASON.
CAPITALIZATION MEANS -- FOR ANY PERSON, AT ANY TIME, AND WITHOUT
DUPLICATION-- THE SUM OF (a) ITS STOCKHOLDERS' EQUITY PLUS (b) ITS
FUNDED DEBT. HOWEVER, SOLELY FOR PURPOSES OF SECTION 10.3, THE EFFECT
OF EXCLUDED CHARGES SHALL NOT BE INCLUDED IN THE CALCULATION OF
CAPITALIZATION UNLESS THE TOTAL OF EXCLUDED CHARGES EXCEEDS
$33,000,000, IN WHICH CASE THAT EXCESS AMOUNT SHALL BE INCLUDED IN
THAT CALCULATION.
EBITDA MEANS -- FOR ANY PERSON, FOR ANY PERIOD, AND WITHOUT
DUPLICATION -- THE SUM OF (a) NET INCOME (WITHOUT REGARD TO
EXTRAORDINARY ITEMS), PLUS (b) TO THE EXTENT ACTUALLY DEDUCTED IN
CALCULATING NET INCOME, INTEREST
2
<PAGE>
EXPENSE, INCOME TAXES, AND DEPRECIATION AND AMORTIZATION FROM
CONTINUING OPERATIONS, AND (c) MINUS OR PLUS, RESPECTIVELY, ANY NET
GAINS OR LOSSES FROM DISCONTINUED OPERATIONS THAT ARE NOT
EXTRAORDINARY ITEMS. HOWEVER, SOLELY FOR PURPOSES OF SECTIONS 10.4
AND 10.5, EXCLUDED CHARGES SHALL NOT BE INCLUDED IN THE CALCULATION OF
EBITDA UNLESS THE TOTAL OF EXCLUDED CHARGES EXCEEDS $42,000,000, IN
WHICH CASE THAT EXCESS AMOUNT SHALL BE INCLUDED IN THAT CALCULATION.
EXCLUDED CHARGES MEANS, WITH RESPECT TO THE DETERMINATION OF
CAPITALIZATION, EBITDA, OR TANGIBLE-NET WORTH, AS THE CASE MAY BE, THE
PRE-TAX CHARGES TAKEN IN THE FISCAL QUARTERS OF BORROWER ENDING ON
JUNE 30, 1996, OR SEPTEMBER 30, 1996, AND INCURRED IN CONNECTION WITH
THE DIVESTITURE OF MAGNETEK MAY AND CHRISTE GMBH, A GERMAN
CORPORATION, THE REMAINING DISCONTINUED OPERATIONS, FAS 121 CHARGES,
AND THE WRITE-DOWN OF THE DEFERRED TAX ASSET.
LC SUBFACILITY MEANS A SUBFACILITY OF THE REVOLVING FACILITY FOR
THE ISSUANCE OF LCS, AS DESCRIBED IN SECTION 2.4, UNDER WHICH THE LC
EXPOSURE MAY NEVER (a) EXCEED $30,000,000 AND (b) TOGETHER WITH
PRINCIPAL DEBT UNDER THE REVOLVING FACILITY MAY NEVER EXCEED THE
LESSER OF EITHER (i) THE TOTAL COMMITMENTS FOR THE REVOLVING FACILITY
OR (ii) THE BORROWING BASE .
PERMITTED-CAPITAL EXPENDITURES MEANS -- FOR ANY FISCAL YEAR OF
BORROWER BEGINNING AFTER JUNE 30, 1994 -- A TOTAL AMOUNT THAT DOES NOT
EXCEED THE SUM OF (a) $54,000,000 FOR ALL RESTRICTED COMPANIES , PLUS
(b) 50% OF AMOUNTS FOR THE IMMEDIATELY PRECEDING FISCAL YEAR UNDER
CLAUSE (a) ABOVE THAT WERE NOT UTILIZED FOR "PERMITTED-CAPITAL
EXPENDITURES."
TANGIBLE-NET WORTH MEANS -- AT ANY TIME AND FOR ANY PERSON -- THE
SUM OF (i)ITS STOCKHOLDERS' EQUITY, PLUS (ii) AMOUNTS EXCLUDED FROM
STOCKHOLDERS' EQUITY UNDER GAAP RELATING TO THE ESTABLISHMENT OF AN
EMPLOYEE STOCK OWNERSHIP PLAN, MINUS (iii) THE TOTAL (WITHOUT
DUPLICATION OF DEDUCTIONS ALREADY MADE IN ARRIVING AT STOCKHOLDERS'
EQUITY) OF THE BOOK VALUE OF ALL ASSETS ACQUIRED AFTER THE CLOSING
DATE THAT WOULD BE TREATED AS INTANGIBLE ASSETS UNDER GAAP, INCLUDING,
WITHOUT LIMITATION, GOODWILL, TRADEMARKS, TRADE NAMES, COPYRIGHTS,
PATENTS, AND UNAMORTIZED DEBT DISCOUNT AND EXPENSE. HOWEVER, SOLELY
FOR PURPOSES OF SECTION 10.1, THE EFFECT OF THE EXCLUDED CHARGES SHALL
NOT BE INCLUDED IN THE CALCULATION OF TANGIBLE-NET WORTH UNLESS THE
TOTAL OF EXCLUDED CHARGES EXCEEDS $33,000,000, IN WHICH CASE THAT
EXCESS AMOUNT SHALL BE INCLUDED IN THAT CALCULATION.
(e) CLAUSE (d) IN THE DEFINITION OF "PERMITTED ACQUISITION" IN
SECTION 1.1 IS ENTIRELY AMENDED AS FOLLOWS:
(d) THE TOTAL OF ALL INVESTMENTS AND PURCHASE PRICE INVOLVED IN
ALL OF THOSE FORMATIONS AND ACQUISITIONS -- INCLUDING, WITHOUT
LIMITATION OR DUPLICATION, ANY FUNDED DEBT TO BE GUARANTEED, ASSUMED,
OR PAID BY ANY RESTRICTED COMPANY
3
<PAGE>
OTHER THAN DEBT OWED BY THE RESTRICTED COMPANY BEING FORMED FOR WHICH
NO OTHER RESTRICTED COMPANY HAS ANY OBLIGATION WHATSOEVER BUT
EXCLUDING ANY PORTION OF ANY PURCHASE PRICE PAID THROUGH the issuance
of Borrower's equity that is not mandatorily redeemable -- during any
fiscal year of Borrower does not exceed the SUM of (i) $12,500,000, or
if the ratio calculated under SECTION 10.4 as of the end of the
immediately preceding fiscal quarter is equal to or less than 4.25 to
1.00, then $25,000,000, PLUS (ii) the net cash proceeds received
during that fiscal year for the issuance of equity or Subordinated
Debt, PLUS (iii) the SUM of (A) 25% of the cumulative Net Income of
the Companies after the date of this agreement MINUS (B) any amount
under CLAUSE (A) preceding utilized during any prior fiscal year for
purposes of the calculation under this CLAUSE (d);
(f) SECTION 2.2(c) IS ENTIRELY AMENDED AS FOLLOWS:
(c) THE COMMITMENT USAGE MAY NEVER EXCEED THE LESSER OF EITHER
THE TOTAL COMMITMENTS FOR THE REVOLVING FACILITY OR THE BORROWING
BASE; AND
(g) SECTION 5.5 IS AMENDED BY DELETING SECTIONS 5.5(c) AND (d) AND BY
ENTIRELY AMENDING SECTION 5.5(b) AS FOLLOWS:
(b) IN CONNECTION WITH ANY SALE OR OTHER DISPOSITION OF STOCK
OR ASSETS PERMITTED BY SECTION 9.11 (OTHER THAN SECTION 9.11(d)),
AGENT SHALL, UPON BORROWER'S REQUEST AND AT BORROWER'S COST AND
EXPENSE, RELEASE THE LENDER LIENS ON THE ASSETS SOLD OR DISPOSED OF,
AND, IN THE CASE OF A SALE OF ALL OF THE STOCK OF any Subsidiary party
to a Guaranty, release such Subsidiary from that Guaranty.
(h) SECTION 8.1(c) IS ENTIRELY AMENDED AS FOLLOWS:
(c) BORROWING-BASE REPORT. PROMPTLY AFTER PREPARATION BUT NO
LATER THAN 30 DAYS AFTER THE LAST DAY OF EACH CALENDAR MONTH, A
BORROWING-BASE REPORT.
(i) SECTION 10.3 IS ENTIRELY AMENDED AS FOLLOWS:
10.3 FUNDED DEBT/CAPITALIZATION. THE RATIO -- DETERMINED AS OF
THE LAST DAY OF EACH FISCAL QUARTER OF BORROWER -- OF THE COMPANIES'
FUNDED DEBT TO CAPITALIZATION TO EXCEED:
--------------------------------------------------------------
--------------------------------------------------------------
QUARTERS ENDING RATIO
--------------------------------------------------------------
--------------------------------------------------------------
3/31/95 THROUGH 3/31/96 0.80 TO 1.00
--------------------------------------------------------------
6/30/96 THROUGH 6/30/97 0.78 TO 1.00
--------------------------------------------------------------
9/30/97 AND EACH FISCAL QUARTER AFTER THAT 0.75 TO 1.00
--------------------------------------------------------------
--------------------------------------------------------------
4
<PAGE>
(j) SECTION 10.4(a) IS ENTIRELY AMENDED AS FOLLOWS:
(a) THE RATIO OF THE COMPANIES' FUNDED DEBT AS OF THE LAST DAY
OF EACH FISCAL QUARTER (COMMENCING WITH THE QUARTER OF BORROWER ENDING
JUNE 30, 1995) TO EBITDA (CALCULATED ONLY IN RESPECT OF ASSETS OWNED
BY THE COMPANIES AT THE END OF THE APPLICABLE PERIOD) FOR THE 12-MONTH
PERIOD ENDING ON THAT LAST DAY TO EXCEED:
--------------------------------------------------------------
--------------------------------------------------------------
QUARTERS ENDING RATIO
--------------------------------------------------------------
--------------------------------------------------------------
6/30/95 THROUGH 3/31/96 4.60 TO 1.00
--------------------------------------------------------------
6/30/96 5.10 TO 1.00
--------------------------------------------------------------
9/30/96 4.70 TO 1.00
--------------------------------------------------------------
12/31/96 4.50 TO 1.00
--------------------------------------------------------------
3/31/97 4.40 TO 1.00
--------------------------------------------------------------
6/30/97 THROUGH 9/30/97 4.30 TO 1.00
--------------------------------------------------------------
12/31/97 AND EACH FISCAL QUARTER AFTER THAT 4.25 TO 1.00
--------------------------------------------------------------
--------------------------------------------------------------
(k) SECTION 10.5(a) IS ENTIRELY AMENDED AS FOLLOWS, AND SECTION
10.5(b) IS ENTIRELY DELETED:
10.5 INTEREST COVERAGE.
(a) THE RATIO -- DETERMINED AS OF THE LAST DAY OF EACH
FISCAL QUARTER (COMMENCING JUNE 30, 1995) OF BORROWER FOR THE
FOUR QUARTERS THEN ENDED -- OF THE COMPANIES' EBITDA TO INTEREST
EXPENSE TO BE LESS THAN:
--------------------------------------------------------------
--------------------------------------------------------------
QUARTER(S) ENDING RATIO
--------------------------------------------------------------
--------------------------------------------------------------
6/30/95 THROUGH 3/31/96 2.25 TO 1.00
--------------------------------------------------------------
6/30/96 2.00 TO 1.00
--------------------------------------------------------------
9/30/96 2.25 TO 1.00
--------------------------------------------------------------
12/31/96 THROUGH 3/31/97 2.40 TO 1.00
--------------------------------------------------------------
6/30/97 THROUGH 12/31/97 2.50 TO 1.00
--------------------------------------------------------------
3/31/98 AND EACH FISCAL QUARTER AFTER THAT 2.75 TO 1.00
--------------------------------------------------------------
--------------------------------------------------------------
5
<PAGE>
(l) SCHEDULE 2 AND EXHIBITS A-2 AND D-5 ARE ENTIRELY AMENDED IN THE
RESPECTIVE FORMS OF -- AND ALL REFERENCES IN THE CREDIT AGREEMENT TO
SCHEDULE 2 AND EXHIBITS A-2 AND D-5 ARE RESPECTIVELY CHANGED TO -- THE
ATTACHED AMENDED SCHEDULE 2 AND AMENDED EXHIBITS A-2 AND D-5.
3. CONDITIONS PRECEDENT. PARAGRAPH 2 above is not effective until Agent
receives (a) counterparts of this amendment executed by Borrower, each
Restricted Company, and Determining Lenders, (b) each document and other item
listed on the attached ANNEX A, each in form and substance satisfactory to Agent
and its special counsel, (c) a prepayment of the Principal Debt of the Revolving
Facility equal to the amount, if any, by which the outstanding Principal Debt
exceeds the lesser of EITHER (i) the Borrowing Base, OR (ii) $200,000,000, and
(d) an amendment fee for Lenders according to each Lender's Commitment
Percentage in an amount equal to 0.10% of the total Commitments described on the
attached AMENDED SCHEDULE 2. Each Lender hereby severally agrees to return to
Borrower the Revolving Note and Term Note issued to it prior to the date hereof
promptly upon receipt by it of the Revolving Note referred to on ANNEX A.
4. RATIFICATIONS. Borrower (a) ratifies and confirms all provisions of
the Loan Documents as amended by this amendment, (b) ratifies and confirms that
all guaranties, assurances, and Liens granted, conveyed, or assigned to Agent
under the Loan Documents are not released, reduced, or otherwise adversely
affected by this amendment and continue to guarantee, assure, and secure full
payment and performance of the present and future Obligation, and (c) agrees to
perform such acts and duly authorize, execute, acknowledge, deliver, file, and
record such additional documents and certificates as Agent may request in order
to create, perfect, preserve, and protect those guaranties, assurances, and
Liens.
5. REPRESENTATIONS. Borrower represents and warrants to Agent and
Lenders that as of the date of this amendment (a) all representations and
warranties in the Loan Documents are true and correct in all material respects
EXCEPT to the extent that (i) any of them speak to a different specific date or
(ii) the facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement, and (b) no Material Adverse
Event, Default or Potential Default exists.
6. MISCELLANEOUS. All references in the Loan Documents to the "CREDIT
AGREEMENT" refer to the Credit Agreement as amended by this amendment. This
amendment is a "LOAN DOCUMENT" referred to in the Credit Agreement, and the
provisions relating to Loan Documents in SECTIONS 1 and 14 of the Credit
Agreement are incorporated in this amendment by reference. Except as
specifically amended and modified in this amendment, the Credit Agreement is
unchanged and continues in full force and effect. This amendment may be
executed in any number of counterparts with the same effect as if all
signatories had signed the same document. All counterparts must be construed
together to constitute one and the same instrument. This amendment binds and
inures to each of the undersigned and their respective successors and permitted
assigns, subject to the terms of the Credit Agreement. THIS AMENDMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
6
<PAGE>
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
7
<PAGE>
EXECUTED as of the date first stated above.
MAGNETEK, INC., NATIONSBANK OF TEXAS, N.A.,
as BORROWER as AGENT and a LENDER
By By
------------------------------------ -------------------------
John P. Colling, Jr. Vice President Michele M. Shafroth, Senior
Vice President and Treasurer
THE FIRST NATIONAL BANK OF CIBC INC.,
CHICAGO, as a CO-AGENT and a LENDER
as a CO-AGENT and a LENDER
By By
------------------------------------ ------------------------------
Name: Name:
------------------------------- -------------------------
Title: Title:
------------------------------- -------------------------
LTCB TRUST COMPANY, FIRST UNION NATIONAL BANK OF
as a CO-AGENT and a LENDER TENNESSEE, as a LENDER
By By
------------------------------------ ------------------------------
Name: Name:
------------------------------- -------------------------
Title: Title:
------------------------------- -------------------------
CREDIT LYONNAIS - CAYMAN ISLAND FLEET BANK OF MASSACHUSETTS, N.A.,
BRANCH, as a LENDER as a LENDER
By By
------------------------------------ ------------------------------
Name: Name:
------------------------------- -------------------------
Title: Title:
------------------------------- -------------------------
SOCIETE GENERALE, SOUTHWEST UNION BANK OF CALIFORNIA, N.A.
AGENCY, as a LENDER successor from the merger of Union
Bank and The Bank of California,
By N.A., as a LENDER
------------------------------------
Name: By
------------------------------- ------------------------------
Title: Name:
------------------------------- -------------------------
Title:
-------------------------
ARAB BANKING CORPORATION
as a LENDER
By
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
Second Amendment Signature Page One of Two Pages
<PAGE>
BANQUE FRANCAISE DU COMMERCE THE BOATMEN'S NATIONAL BANK OF ST.
EXTERIEUR, as a LENDER LOUIS, as a LENDER
By By
------------------------------------ ------------------------------
Name: Name:
------------------------------- -------------------------
Title: Title:
------------------------------- -------------------------
By
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
COMMERZBANK AG, ATLANTA AGENCY, CREDITANSTALT CORPORATE FINANCE
as a LENDER INC., as a LENDER
By By
------------------------------------ ------------------------------
Name: Name:
------------------------------- -------------------------
Title: Title:
------------------------------- -------------------------
By By
------------------------------------ ------------------------------
Name: Name:
------------------------------- -------------------------
Title: Title:
------------------------------- -------------------------
FIRST AMERICAN NATIONAL BANK,
as a LENDER
By
------------------------------------
Name:
-------------------------------
Title:
-------------------------------
To induce Agent to enter into this amendment, the undersigned consent and
agree (a) to its execution and delivery, (b) that this amendment in no way
releases, diminishes, impairs, reduces, or otherwise adversely affects any
Liens, guaranties, assurances, or other obligations or undertakings of any of
the undersigned under any Loan Documents, and (c) waive notice of acceptance of
this consent and agreement, which consent and agreement binds the undersigned
and their successors and permitted assigns and inures to Agent and their
respective successors and permitted assigns.
MAGNETEK CENTURY ELECTRIC, INC.,
MAGNETEK NATIONAL ELECTRIC COIL, INC.,
AND MAGNETEK OHIO TRANSFORMER, INC.,
as GUARANTORS
By
----------------------------------------
John Colling, Jr., Vice President and
Treasurer of all of the foregoing companies
Second Amendment Signature Page Two of Two Pages
<PAGE>
EXHIBIT 10.39
THIRD AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS AMENDMENT is entered into effective as of May 15, 1996, between
MAGNETEK, INC., a Delaware corporation ("BORROWER"), certain Lenders,
NATIONSBANK OF TEXAS, N.A. ("AGENT"), as Agent for Lenders, and CIBC INC., THE
FIRST NATIONAL BANK OF CHICAGO, and LTCB TRUST COMPANY as Co-Agents for Lenders.
Borrower, Agent, Co-Agents, and certain Lenders are party to the Credit
Agreement (as renewed, extended, and amended, the "CREDIT AGREEMENT") dated as
of March 31, 1995, providing for a $200,000,000 revolving credit facility and a
$75,000,000 term loan that has been repaid. Borrower, Agent, and Lenders have
agreed, upon the following terms and conditions, to amend the Credit Agreement
to provide for, among other things, a change to the calculation of the Borrowing
Base. Accordingly, for adequate and sufficient consideration, Borrower, Agent,
and Lenders agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this amendment (a)
terms defined in the Credit Agreement have the same meanings when used in this
amendment and (b) references to "SECTIONS," "SCHEDULES," and "EXHIBITS" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is amended as
follows effective as of the date of this amendment.
(a) SECTION 1 is amended by deleting the terms "RELEASE RATINGS" and
"RELEASE RATIO" and by entirely amending the following term:
BORROWING BASE MEANS, AT ANY TIME, THE SUM OF (a) 80% OF ELIGIBLE
ACCOUNTS PLUS (b) THE LESSER OF (i) 40% OF ELIGIBLE INVENTORY OR
(ii) $100,000,000.
(b) SECTION 14.8(b) is entirely amended as follows:
(b) ALL LENDERS. EXCEPT AS SPECIFICALLY OTHERWISE PROVIDED IN
THIS SECTION 14.8, ANY AMENDMENT TO OR CONSENT OR WAIVER UNDER THIS
AGREEMENT OR ANY LOAN DOCUMENT THAT PURPORTS TO ACCOMPLISH ANY OF THE
FOLLOWING MUST BE BY AN INSTRUMENT IN WRITING EXECUTED BY BORROWER AND
AGENT AND EXECUTED (OR APPROVED, AS THE CASE MAY BE) BY EACH LENDER:
(i) EXTENDS THE DUE DATE OR DECREASES THE AMOUNT OF ANY SCHEDULED
PAYMENT OR AMORTIZATION OF THE OBLIGATION BEYOND THE DATE SPECIFIED IN
THE LOAN DOCUMENTS; (ii) DECREASES ANY RATE OR AMOUNT OF INTEREST,
FEES, OR OTHER SUMS PAYABLE TO AGENT OR LENDERS UNDER THIS AGREEMENT
(EXCEPT SUCH REDUCTIONS AS ARE CONTEMPLATED BY THIS AGREEMENT); (iii)
CHANGES THE DEFINITION OF "COMMITMENT," "COMMITMENT PERCENTAGE,"
"DETERMINING LENDERS," OR "PRO RATA PART," OR INCREASES IN THE
PERCENTAGES IN THE DEFINITION OF "BORROWING BASE;" (iv) INCREASES ANY
ONE OR MORE LENDERS' COMMITMENT; (v) WAIVES COMPLIANCE WITH, AMENDS,
OR FULLY OR PARTIALLY
<PAGE>
RELEASES -- EXCEPT AS EXPRESSLY PROVIDED BY SECTION 5.5 OR ANY OTHER
LOAN DOCUMENTS OR FOR WHEN A COMPANY MERGES INTO ANOTHER PERSON OR
DISSOLVES WHEN SPECIFICALLY PERMITTED IN THE LOAN DOCUMENTS -- ANY
GUARANTY OR COLLATERAL; OR (vi) CHANGES THIS CLAUSE (b) OR ANY OTHER
MATTER SPECIFICALLY REQUIRING THE CONSENT OF ALL LENDERS UNDER THIS
AGREEMENT.
(c) EXHIBIT D-4 IS ENTIRELY AMENDED IN THE FORM OF -- AND ALL
REFERENCES IN THE CREDIT AGREEMENT TO EXHIBIT D-4 ARE CHANGED TO -- THE ATTACHED
AMENDED EXHIBIT D-4.
3. CONDITIONS PRECEDENT. PARAGRAPH 2 above is not effective until Agent
receives counterparts of this amendment executed by Borrower, each Restricted
Company, and each Lender.
4. RATIFICATIONS. Borrower (a) ratifies and confirms all provisions of
the Loan Documents as amended by this amendment, (b) ratifies and confirms that
all guaranties, assurances, and Liens granted, conveyed, or assigned to Agent
under the Loan Documents are not released, reduced, or otherwise adversely
affected by this amendment and continue to guarantee, assure, and secure full
payment and performance of the present and future Obligation, and (c) agrees to
perform such acts and duly authorize, execute, acknowledge, deliver, file, and
record such additional documents and certificates as Agent may request in order
to create, perfect, preserve, and protect those guaranties, assurances, and
Liens.
5. REPRESENTATIONS. Borrower represents and warrants to Agent and
Lenders that as of the date of this amendment (a) all representations and
warranties in the Loan Documents are true and correct in all material respects
EXCEPT to the extent that (i) any of them speak to a different specific date or
(ii) the facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement, and (b) no Material Adverse
Event, Default or Potential Default exists.
6. MISCELLANEOUS. All references in the Loan Documents to the "CREDIT
AGREEMENT" refer to the Credit Agreement as amended by this amendment. This
amendment is a "LOAN DOCUMENT" referred to in the Credit Agreement, and the
provisions relating to Loan Documents in SECTIONS 1 and 14 of the Credit
Agreement are incorporated in this amendment by reference. Except as
specifically amended and modified in this amendment, the Credit Agreement is
unchanged and continues in full force and effect. This amendment may be
executed in any number of counterparts with the same effect as if all
signatories had signed the same document. All counterparts must be construed
together to constitute one and the same instrument. This amendment binds and
inures to each of the undersigned and their respective successors and permitted
assigns, subject to the terms of the Credit Agreement. THIS AMENDMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
2
<PAGE>
EXECUTED as of the date first stated above.
MAGNETEK, INC., NATIONSBANK OF TEXAS, N.A.,
as BORROWER as AGENT and a LENDER
By By
--------------------------------- -------------------------------------
John P. Colling, Jr., Vice President Michele M. Shafroth, Senior Vice
President and Treasurer
THE FIRST NATIONAL BANK OF CHICAGO, CIBC INC.,
as a CO-AGENT and a LENDER as a CO-AGENT and a LENDER
By By
--------------------------------- -------------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
--------------------------- ------------------------------
LTCB TRUST COMPANY,, FIRST UNION NATIONAL BANK OF
as a CO-AGENT and a LENDER TENNESSEE, as a LENDER
By By
--------------------------------- -------------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
--------------------------- ------------------------------
CREDIT LYONNAIS - CAYMAN ISLAND N.A., FLEET BANK OF MASSACHUSETTS,
BRANCH, as a LENDER as a LENDER
By By
--------------------------------- ------------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
--------------------------- ------------------------------
SOCIETE GENERALE, SOUTHWEST, UNION BANK OF CALIFORNIA, N.A.,
AGENCY, as a LENDER successor from the merger of Union Bank
and The Bank of California, N.A., as a
LENDER
By By
--------------------------------- -------------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
--------------------------- ------------------------------
ARAB BANKING CORPORATION,
as a LENDER
By
---------------------------------
Name:
---------------------------
Title:
---------------------------
Third Amendment Signature Page One of Two Pages
<PAGE>
BANQUE FRANCAISE DU COMMERCE, THE BOATMEN'S NATIONAL BANK OF
EXTERIEUR, as a LENDER ST. LOUIS, as a LENDER
By By
--------------------------------- -------------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
--------------------------- ------------------------------
By By
--------------------------------- -------------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
--------------------------- ------------------------------
COMMERZBANK AG, ATLANTA AGENCY, CREDITANSTALT CORPORATE INC.,
FINANCE, as a LENDER as a LENDER
By By
--------------------------------- -------------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
--------------------------- ------------------------------
By By
--------------------------------- -------------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
--------------------------- ------------------------------
FIRST AMERICAN NATIONAL BANK,
as a LENDER
By
---------------------------------
Name:
---------------------------
Title:
---------------------------
To induce Agent to enter into this amendment, the undersigned consent and
agree (a) to its execution and delivery, (b) that this amendment in no way
releases, diminishes, impairs, reduces, or otherwise adversely affects any
Liens, guaranties, assurances, or other obligations or undertakings of any of
the undersigned under any Loan Documents, and (c) waive notice of acceptance of
this consent and agreement, which consent and agreement binds the undersigned
and their successors and permitted assigns and inures to Agent and their
respective successors and permitted assigns.
MAGNETEK CENTURY ELECTRIC, INC.,
MAGNETEK NATIONAL ELECTRIC COIL, INC.,
and MAGNETEK OHIO TRANSFORMER, INC.,
as GUARANTORS
By
-------------------------------------
John Colling, Jr., Vice President and
Treasurer of all of the foregoing
companies
Third Amendment Signature Page Two of Two Pages
<PAGE>
FOURTH AMENDMENT TO CREDIT AGREEMENT
------------------------------------
THIS AMENDMENT is entered into effective as of June 30, 1996, between
MAGNETEK, INC., a Delaware corporation ("BORROWER"), certain Lenders,
NATIONSBANK OF TEXAS, N.A. ("AGENT"), as Agent for Lenders, and CIBC INC., THE
FIRST NATIONAL BANK OF CHICAGO, and LTCB TRUST COMPANY as Co-Agents for Lenders.
Borrower, Agent, Co-Agents, and certain Lenders are party to the Credit
Agreement (as renewed, extended, and amended, the "CREDIT AGREEMENT") dated as
of March 31, 1995, providing for a $225,000,000 revolving credit facility, which
facility has been reduced to $200,000,000, and a $75,000,000 term loan, which
term loan has been repaid. Borrower, Agent, and Lenders have agreed, upon the
following terms and conditions, to amend the Credit Agreement to provide for,
among other things, (a) the reduction of the Commitments for the Revolving
Facility to $170,000,000, and (b) changes to certain pricing terms and financial
covenants.
Accordingly, for adequate and sufficient consideration, Borrower, Agent,
and Determining Lenders agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this amendment (a)
terms defined in the Credit Agreement have the same meanings when used in this
amendment and (b) references to "SECTIONS," "SCHEDULES," and "EXHIBITS" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is amended
effective as of June 30, 1996, as follows:
(a) The recital paragraph of the Credit Agreement is entirely amended
as follows:
BORROWER ORIGINALLY REQUESTED THAT LENDERS EXTEND CREDIT TO
BORROWER NOT TO EXCEED A TOTAL OUTSTANDING PRINCIPAL AMOUNT OF
$300,000,000 (AS THAT AMOUNT MAY BE REDUCED BY CERTAIN BORROWING BASE
RESTRICTIONS) TO BE USED BY BORROWER AS PROVIDED IN SECTION 7.1 AND
ALLOCATED AS (A) A TERM LOAN OF $75,000,000 (THE "TERM LOAN") TO BE
FUNDED BY LENDERS ON THE CLOSING DATE, WHICH HAS BEEN REPAID, AND (B)A
REVOLVING-CREDIT FACILITY OF $225,000,000, WHICH HAS BEEN REDUCED TO
$170,000,000 (THE "REVOLVING FACILITY"), TO BE FUNDED BY LENDERS FROM
TIME TO TIME IN A COMBINATION OF ADVANCES AND LETTERS OF CREDIT.
LENDERS ARE WILLING TO EXTEND THE REQUESTED CREDIT ON THE TERMS AND
CONDITIONS OF THIS AGREEMENT.
<PAGE>
(b) SECTION 1.1 is amended by adding a new PARAGRAPH (F) to the
definition of APPLICABLE MARGIN:
(f) FROM JULY 1, 1996, THROUGH THE DATE THAT AGENT RECEIVES THE
CURRENT FINANCIALS AND COMPLIANCE CERTIFICATE FOR THE FISCAL QUARTER
OF BORROWER ENDING SEPTEMBER 30, 1996, THE APPLICABLE MARGIN IS DEEMED
TO BE 2.25% FOR LIBOR-RATE BORROWINGS AND 1.00% FOR BASE-RATE
BORROWINGS, AND THE APPLICABLE PERCENTAGE IS DEEMED TO BE 0.375%.
(c) SECTION 1.1 is amended by adding or entirely amending the
following terms:
CAPITALIZATION MEANS -- FOR ANY PERSON, AT ANY TIME, AND WITHOUT
DUPLICATION -- THE SUM OF (a) ITS STOCKHOLDERS' EQUITY PLUS (B) ITS
FUNDED DEBT.
EBITDA MEANS -- FOR ANY PERSON, FOR ANY PERIOD, AND WITHOUT
DUPLICATION -- THE SUM OF (a) NET INCOME (WITHOUT REGARD TO
EXTRAORDINARY ITEMS), PLUS (b) TO THE EXTENT ACTUALLY DEDUCTED IN
CALCULATING NET INCOME, INTEREST EXPENSE, INCOME TAXES, AND
DEPRECIATION AND AMORTIZATION FROM CONTINUING OPERATIONS, AND (c)
MINUS OR PLUS, RESPECTIVELY, ANY NET GAINS OR LOSSES FROM DISCONTINUED
OPERATIONS THAT ARE NOT EXTRAORDINARY ITEMS. HOWEVER, SOLELY FOR
PURPOSES OF SECTIONS 10.4 AND 10.5, EXCLUDED CHARGES SHALL NOT BE
INCLUDED IN THE CALCULATION OF EBITDA.
EXCLUDED CHARGES MEANS, WITH RESPECT TO THE DETERMINATION OF
EBITDA, THE $79,177,000 IN PRE-TAX CHARGES TAKEN IN THE FISCAL QUARTER
OF BORROWER ENDING ON JUNE 30, 1996, AND SET FORTH ON SCHEDULE 1.1.
TANGIBLE-NET WORTH MEANS -- AT ANY TIME AND FOR ANY PERSON - THE
SUM OF (i) ITS STOCKHOLDERS' EQUITY, PLUS (ii) AMOUNTS EXCLUDED FROM
STOCKHOLDERS' EQUITY UNDER GAAP RELATING TO THE ESTABLISHMENT OF AN
EMPLOYEE STOCK OWNERSHIP PLAN, MINUS (iii) THE TOTAL (WITHOUT
DUPLICATION OF DEDUCTIONS ALREADY MADE IN ARRIVING AT STOCKHOLDERS'
EQUITY) OF THE BOOK VALUE OF ALL ASSETS ACQUIRED AFTER THE CLOSING
DATE THAT WOULD BE TREATED AS INTANGIBLE ASSETS UNDER GAAP, INCLUDING,
WITHOUT LIMITATION, GOODWILL, TRADEMARKS, TRADE NAMES, COPYRIGHTS,
PATENTS, AND UNAMORTIZED DEBT DISCOUNT AND EXPENSE.
(d) SECTION 10.1 is entirely amended as follows:
10.1 TANGIBLE-NET WORTH. THE COMPANIES' TANGIBLE-NET WORTH --
DETERMINED AS OF THE LAST DAY OF EACH FISCAL QUARTER OF BORROWER -- TO
BE LESS THAN THE SUM OF (a) $30,000,000, PLUS (b) 50% OF THE
COMPANIES' CUMULATIVE NET INCOME (WITHOUT DEDUCTION FOR LOSSES)
2
<PAGE>
AFTER JUNE 30, 1996, PLUS (c) 75% OF THE NET (I.E., GROSS LESS USUAL
AND CUSTOMARY UNDERWRITING, PLACEMENT, AND OTHER RELATED COSTS AND
EXPENSES) PROCEEDS OF THE ISSUANCE OF ANY EQUITY SECURITIES BY
BORROWER AFTER THE DATE OF THIS AGREEMENT.
(e) SECTION 10.3 is entirely amended as follows:
10.3 FUNDED DEBT/CAPITALIZATION. THE RATIO -- DETERMINED AS OF
THE LAST DAY OF EACH FISCAL QUARTER OF BORROWER -- OF THE COMPANIES'
FUNDED DEBT TO CAPITALIZATION TO EXCEED:
-------------------------------------------------------------
-------------------------------------------------------------
QUARTERS ENDING RATIO
-------------------------------------------------------------
-------------------------------------------------------------
3/31/95 THROUGH 3/31/96 0.80 TO 1.00
-------------------------------------------------------------
6/30/96 THROUGH 6/30/97 0.90 TO 1.00
-------------------------------------------------------------
9/30/97 THROUGH 3/31/98 0.87 TO 1.00
-------------------------------------------------------------
6/30/98 AND EACH FISCAL QUARTER AFTER THAT 0.85 TO 1.00
-------------------------------------------------------------
-------------------------------------------------------------
(f) SCHEDULE 2 and EXHIBITS A-2 and D-5 are entirely amended in the
respective forms of -- and all references in the Credit Agreement to
SCHEDULE 2 and EXHIBITS A-2 and D-5 are respectively changed to -- the
attached AMENDED SCHEDULE 2 and AMENDED EXHIBITS A-2 and D-5.
(g) A new SCHEDULE 1.1 is added to the Credit Agreement in the form
of the attached SCHEDULE 1.1.
3. CONDITIONS PRECEDENT. PARAGRAPH 2 above is not effective until Agent
receives (a) counterparts of this amendment executed by Borrower, each
Restricted Company, and Determining Lenders, (b) each document and other item
listed on the attached ANNEX A, each in form and substance satisfactory to Agent
and its special counsel, (c) a prepayment of the Principal Debt of the Revolving
Facility equal to the amount, if any, by which the outstanding Principal Debt
exceeds the lesser of EITHER (i) the Borrowing Base, OR (ii) $170,000,000, and
(d) an amendment fee for Lenders according to each Lender's Commitment
Percentage in an amount equal to 0.10% of the total Commitments described on the
attached AMENDED SCHEDULE 2. Each Lender hereby severally agrees to return to
Borrower the Revolving Note issued to it prior to the date of this amendment
promptly upon receipt by such Lender of the Revolving Note referred to on ANNEX
A.
4. RATIFICATIONS. Borrower (a) ratifies and confirms all provisions of
the Loan Documents as amended by this amendment, (b) ratifies and confirms that
all guaranties, assurances, and Liens granted, conveyed, or assigned to Agent
under the Loan Documents are not released, reduced, or otherwise adversely
affected by this amendment and continue to guarantee, assure, and secure full
payment and performance of the present and future Obligation, and (c)
3
<PAGE>
agrees to perform such acts and duly authorize, execute, acknowledge, deliver,
file, and record such additional documents and certificates as Agent may request
in order to create, perfect, preserve, and protect those guaranties, assurances,
and Liens.
5. REPRESENTATIONS. Borrower represents and warrants to Agent and
Lenders that as of the date of this amendment (a) all representations and
warranties in the Loan Documents are true and correct in all material respects
EXCEPT to the extent that (i) any of them speak to a different specific date or
(ii) the facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement, and (b) no Material Adverse
Event, Default or Potential Default exists.
6. MISCELLANEOUS. All references in the Loan Documents to the "CREDIT
AGREEMENT" refer to the Credit Agreement as amended by this amendment. This
amendment is a "LOAN DOCUMENT" referred to in the Credit Agreement, and the
provisions relating to Loan Documents in SECTIONS 1 and 14 of the Credit
Agreement are incorporated in this amendment by reference. Except as
specifically amended and modified in this amendment, the Credit Agreement is
unchanged and continues in full force and effect. This amendment may be
executed in any number of counterparts with the same effect as if all
signatories had signed the same document. All counterparts must be construed
together to constitute one and the same instrument. This amendment binds and
inures to each of the undersigned and their respective successors and permitted
assigns, subject to the terms of the Credit Agreement. THIS AMENDMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
4
<PAGE>
EXECUTED as of the date first stated above.
MAGNETEK, INC., NATIONSBANK OF TEXAS, N.A.,
as BORROWER as AGENT and a LENDER
By By
----------------------------------- -------------------------------
John P. Colling, Jr., Michele M. Shafroth,
Vice President and Treasurer Senior Vice President and
Treasurer
CIBC INC., as a CO-AGENT and a LENDER THE FIRST NATIONAL BANK OF CHICAGO,
as a CO-AGENT and a LENDER
By By
---------------------------------- --------------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
FIRST UNION NATIONAL BANK OF LTCB TRUST COMPANY,
TENNESSEE, as a LENDER as a CO-AGENT and a LENDER
By By
---------------------------------- --------------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
FLEET BANK OF MASSACHUSETTS, N.A., CREDIT LYONNAIS - CAYMAN ISLAND
as a LENDER BRANCH, as a LENDER
By By
---------------------------------- --------------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
UNION BANK OF CALIFORNIA, N.A., SOCIETE GENERALE, SOUTHWEST AGENCY,
successor from the merger of Union Bank and as a LENDER
The Bank of California, N.A., as a LENDER
By By
---------------------------------- --------------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
ARAB BANKING CORPORATION,
as a LENDER
By
-------------------------------
Name:
-------------------------
Title:
-------------------------
Fourth Amendment Signature Page One of Two Pages
<PAGE>
BANQUE FRANCAISE DU COMMERCE THE BOATMEN'S NATIONAL BANK OF
EXTERIEUR, as a LENDER ST. LOUIS, as a LENDER
By By
---------------------------------- --------------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
By
---------------------------------- CREDITANSTALT CORPORATE FINANCE,
Name: INC., as a LENDER
----------------------------
Title: By
---------------------------- --------------------------------
Name:
COMMERZBANK AG, ATLANTA -------------------------
AGENCY, as a LENDER Title:
By -------------------------
----------------------------------
Name: By
---------------------------- --------------------------------
Title Name:
---------------------------- -------------------------
Title:
By -------------------------
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Name: FIRST AMERICAN NATIONAL BANK,
---------------------------- as a LENDER
Title:
---------------------------- By
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Name:
-------------------------
Title:
-------------------------
To induce Agent and Lenders to enter into this amendment, the undersigned
consents and agrees (a) to its execution and delivery, (b) that this
amendment in no way releases, diminishes, impairs, reduces, or otherwise
adversely affects any Liens, guaranties, assurances, or other obligations
or undertakings of any of the undersigned under any Loan Documents, and (c)
waives notice of acceptance of this consent and agreement, which consent
and agreement binds the undersigned and its successors and permitted
assigns and inures to Agent and Lenders and their respective successors and
permitted assigns.
MAGNETEK NATIONAL ELECTRIC COIL,
INC.,
as GUARANTOR
By
-------------------------------------
John Colling, Jr., Vice President and
Treasurer
Fourth Amendment Signature Page Two of Two Pages
<PAGE>
LEASE AGREEMENT
between
FUJIAN FUFA COMPANY LIMITED
and
MAGNETEK FUZHOU GENERATOR COMPANY LIMITED
<PAGE>
TABLE OF CONTENTS
CLAUSE NUMBER AND HEADING PAGE NO.
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
2. LEASE OF PREMISES . . . . . . . . . . . . . . . . . . . . 3
3. USES OF THE LEASED PREMISES . . . . . . . . . . . . . . . 4
4. TERM OF LEASE . . . . . . . . . . . . . . . . . . . . . . 4
5. PAYMENT OF RENT AND CHARGES . . . . . . . . . . . . . . . 5
6. SUBLEASE. . . . . . . . . . . . . . . . . . . . . . . . . 7
7. MAINTENANCE AND REPAIR. . . . . . . . . . . . . . . . . . 7
8. REPRESENTATIONS, WARRANTIES, AND UNDERTAKINGS . . . . . . 9
9. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . 12
10. EFFECTIVENESS . . . . . . . . . . . . . . . . . . . . . . 12
11. TERMINATION OF LEASE. . . . . . . . . . . . . . . . . . . 12
12. EFFECT OF EXPIRATION OR TERMINATION . . . . . . . . . . . 13
13. APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . . . 14
14. SETTLEMENT OF DISPUTE . . . . . . . . . . . . . . . . . . 14
15. QUIET POSSESSION. . . . . . . . . . . . . . . . . . . . . 14
16. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 14
17. LANGUAGES . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 15
___________________________________________________________________________
Exhibit I
<PAGE>
LEASE AGREEMENT
This Lease Agreement (the "Agreement") is made and entered into on this
Monday, March 18, 1996 by and between:
(1) Fujian Fufa Company Limited, a company duly registered and established
under the laws of the People's Republic of China (hereinafter referred to
as "PRC"), having its legal address at 223 Gong Ye Road, Fuzhou, Fujian,
PRC (hereinafter referred to as "Party A"), and;
(2) MagneTek Fuzhou Generator Company Limited, a Company duly registered and
established under the laws of PRC and having its address at 223 Gong Ye
Road, Fuzhou, Fujian, PRC (hereinafter referred to as the "Company").
RECITALS
WHEREAS, the Company is a Sino-foreign equity joint venture limited liability
company established in accordance with the terms and conditions of the
Sino-American Equity Joint Venture Contract (hereinafter referred to as the
"Contract") between Party A and MagneTek, Inc. of the United States of
America (hereinafter referred to as "Party B").
WHEREAS, in accordance with the Contract, Party A shall lease to the Company
the site and facilities to be used by the Company for its manufacturing
operations.
WHEREAS, this Agreement sets out the terms and conditions subject to which
Party A will lease to the Company the production site and office space (as
defined in Clause 1 of this Agreement).
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, Party A and the Company, intending to
be legally bound, hereby agree as follows:
CLAUSE 1. DEFINITIONS
All terms used in this Agreement, unless otherwise defined herein, shall have
the same meanings as set forth in the Contract. In addition to other terms
defined elsewhere in this Agreement, the following words and expressions
shall have the meanings given to them below:
1.1 "Effective Date" means the date on which this Agreement becomes effective
in accordance with Clause 10 of this Agreement.
2
<PAGE>
1.2 "Large Workshop" means the new workshop of Party A located at 223 Gong Ye
Road, Fuzhou. Fujian, PRC as shown on Exhibit I attached hereto.
1.3 "Leased Office Space" means the office space to be constructed on the roof
of the Large Workshop, with an area of approximately 1461 square meters, as
shown on Exhibit I attached hereto, which is leased to the Company pursuant
to this Agreement.
1.4 "Open Grounds" means the common roadways and entrance used by both parties,
and shown on Exhibit I attached hereto.
1.5 "Leased Premises" means the Leased Workshop, Leased Office Space, and
parking as negotiated by the parties, and shown on Exhibit I attached
hereto.
1.6 "Leased Workshop" means the part of the Large Workshop, with an area of
approximately 8316 square meters, as shown on Exhibit I attached hereto,
which is leased to the Company pursuant to this Agreement.
1.7 "Attached Greenbelts" means the greenbelts with an area of 712 square
meters which are affiliated with the Leased Workshop and Leased Office
Space, as shown on Exhibit I attached hereto.
1.8 "Registration of Lease" means the registration and filing with the Fuzhou
Real Estate Administration Bureau in connection with the execution,
modifications, and termination of this Agreement in accordance with the
relevant laws and regulations of the PRC.
1.9 "Rent" means the rent payable by the Company to Party A for the lease of
the Leased Premises, as specified in Clause 5 of this Agreement.
1.10 "Commencement Date" means the date the Company formally accepts possession
of the Leased Premises as the tenant and Party A becomes the landlord and
relinquishes possession of the Leased Premises to the Company. Rent due to
Party A by the Company shall begin accruing as of the Commencement Date.
1.11 The table of contents and headings to clauses and exhibits are inserted for
convenience of reference only, and shall not be definitive in the
interpretation of this Agreement.
CLAUSE 2. LEASE OF PREMISES
2.1 Party A agrees to lease to the Company, and the Company agrees to lease
from Party A, the Leased Premises for a term as specified in Clause 4
hereof and at the
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Rents specified in Clause 5 and subject to other provisions of this
Agreement. The location and area of the Leased Premises are as shown in
Exhibit I attached hereto.
CLAUSE 3. USES OF THE LEASED PREMISES
3.1 The Company shall use the Leased Premises for its business operations,
including any associated research, development, warehousing, logistics,
distribution, or other related uses.
3.2 The Company shall use the Open Grounds as it sees necessary for conducting
activities relating to the use of the Leased Premises. However, the Company
shall not construct any structures on the Open Grounds without the prior
written approval of Party A.
3.3 The Company and Party A shall have reasonable access and use of each
other's roadways, gates, facilities and Open Grounds at all times, and at
no cost to the Company or Party A. Such facilities shall be used for
access, egress, and movement of people, goods, production-related
machinery, and vehicles, and such reasonable access shall exclude parking
or storage. Specific guidelines for this access shall be agreed upon
between Party A and the Company.
3.4 In the event of emergency which threatens or may threaten people, property,
or equipment, the party needing assistance (the "Requesting Party") shall
have free access and use of any and all facilities and equipment of the
other party (the "Responding Party") and the Responding Party shall render
all reasonable assistance to the Requesting Party in responding to the
emergency. The Requesting Party shall promptly reimburse the Responding
Party for all of the Responding Party' s direct expenses for the facilities
and/or equipment so rendered. For purposes of this Clause 3.4 the
Requesting Party or the Responding Party may be either Party A or the
Company, as the case may be.
CLAUSE 4. TERM OF LEASE
4.1 Beginning from the Effective Date, the term of this Agreement is for a
period of 20 years, with termination provisions as described in Clause 11
hereof. In addition, provided that the Company is current in regard to rent
and other payments provided in this Agreement, the Company may, at its
option, renew this Agreement for up to six additional periods of five years
each, following the end of the initial term of this Agreement.
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CLAUSE 5. PAYMENT OF RENT AND CHARGES
5.1 As herein defined, the Commencement Date of this Agreement shall be
Tuesday, October 1, 1996. Beginning from the Commencement Date, the Company
shall pay monthly Rent to Party A on or before the last day of each and
every calendar month (rent in arrears) at the monthly rates noted in the
following Rental Escalation Table:
---------------------------------------------
RENTAL ESCALATION TABLE
---------------------------------------------
(RMB/Sq Mtr/Month) 10/1/96 1/1/97 7/1/97 10/1/99
- ----------------------------------------------------------------------
Leased Workshop 7.50 11.25 15.00 18.00
- ----------------------------------------------------------------------
Leased Office Space 3.75 5.63 7.50 9.00
- ----------------------------------------------------------------------
The final rates noted in the Rental Escalation Table will then remain
unchanging through September 30, 2001. Rental rates for subsequent five
year periods, beyond September 30, 2001, will be re-negotiated, at that
time, between the parties to this Agreement and be based upon a combination
of market rates at that time and the mutual agreement of Party A and the
Company.
5.2 By March 31, 1996, the Company shall provide Party A with the drawings and
specifications for the Leased Office Space to be constructed upon the roof
of the Leased Workshop.
5.3 Subject to Clause 5.2, herein, Party A shall pay for the cost of
constructing the Leased Office Space. The finished Leased Office Space
provided by Party A shall include plumbing, electric outlets, windows,
interior and exterior walls and doors and painting of the interior and
exterior surfaces, all as agreed upon between the Parties. The Company will
bear the costs of finishing the flooring and installing any heating,
venting, and air conditioning (HVAC) system. With the exception of the HVAC
system, permanent elements of the Leased Office Space shall become part of
the Leased Premises. Providing the Company provides Party A with the
drawings and specifications, as specified in Clause 5.2 herein, Party A
hereby agrees to complete construction of the Leased Office Space no later
than September 30, 1996 and allow the Company and its representatives free
access to the Leased Office Space during construction for the completion of
any necessary modifications and installations by the Company.
5.4 In the event Party A has not completed the Leased Office Space
construction as agreed upon between the Company and Party A, by the date
noted in Clause 5.3 hereof, the Commencement Date for the Leased Office
Space noted in Clause 5.1 hereof shall be delayed until the first day of
the month following completion of the Leased Office Space as agreed upon
between the Company and Party A. All subsequent escalation periods for the
Leased Office Space shall be delayed the same amount of time as the
construction delay.
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5.5 The Company shall pay for its actual water and sewer consumption. Party A
shall send an invoice to the Company by no later than the 15th day of the
month for the Company's water and sewer consumption for the previous
calendar month. On or before the last day of the month in which the invoice
is received by the Company, the Company shall reimburse Party A for the
actual charge rate charged by the Fuzhou Water Company, for the Company's
water and sewer consumption for the period. Maintenance and administration
of the water supply and sewer facilities utilized by the Company will be
the responsibility of the Company and the Company shall bear all the costs
related thereto. In addition, the Company shall share the costs for the
administration and maintenance of the water supply and sewer facilities
commonly utilized by the Company and Party A. Detailed agreement in
connection with such share of costs will be agreed upon between the Company
and Party A.
5.6 The Company shall pay for its actual electricity consumption. Party A shall
send an invoice to the Company by no later than the 15th of the month for
the Company's electricity consumption for the previous calendar month. On
or before the last day of the month in which the invoice is received by the
Company, the Company shall reimburse Party A for the actual charge rate
charged by the Fuzhou Electricity Bureau, for the Company's electricity
consumption for the period. Maintenance, repair, administration (including
depreciation) and overhault of the electricity supply facilities provided
by Party A pursuant to Clause 5.7 and utilized by the Company will be the
responsibility of the Company and the Company shall bear all the costs
related thereto.
5.7 Party A agrees to provide the Company with a set of electricity
transmission facilities available for the electricity supply of l000KVA.
The Company, with the assistance from Party A, will apply to the Fuzhou
Electricity Bureau for this 1000KVA electricity supply provided by Party A,
and Party A will pay all costs associated with approvals_exended_ by the
Fuzhou Electricity Bureau. Ownership of this 1000KVA electricity supply
will remain with Party A. In the event that the Company requires any
electricity transmission facilities available for the electricity supply of
over 1000KVA, it shall apply to the Fuzhou Electricity Bureau for such
extra requirement at its own cost. Party A may provide assistance.
ownership of any electricity supply facilities provided by the company will
remain with the Company.
5.8 All the charges payable to the Fuzhou Real Estate Administration Bureau for
the registration of the lease shall be equally borne by the Company and
Party A. Such charges shall be strictly limited to the handling fee for
registration of this Agreement.
5.9 Subject to the provisions of Clause 7.5 hereof, taxes, charges and fees
listed as follows shall be paid by Party A:
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<PAGE>
(a) Fee for the use of the land occupied by the Leased Premises;
(b) Real estate and rental income tax for the Leased Premises;
(c) All maintenance and cleaning expenses for the Open Grounds;
(d) All electricity expenses for the lighting of the Open Grounds;
(e) All landscape expenses for the maintenance of the Attached Greenbelts;
(f) Any other taxes, charges, or fees required or imposed by the local,
municipal, provincial, or national government, which apply to the
Leased Premises.
5.10 Telecommunications and Datalines
(a) Party A and the Company shall mutually agree on necessary and
appropriate interplant telecommunication facilities and
infrastructure. Party A, at its sole expense, shall promptly install
such facilities and infrastructure. Party A and the Company agree to
discuss annually the quantity and quality of such telecommunications
facilities and infrastructure, and Party A will provide reasonable
upgrades, at its cost, as mutually agreed. If agreement cannot be
reached, the Company reserves the right to install facilities and
infrastructure it deems necessary, which facilities and infrastructure
may then, at the option of the Company, be designated either as the
sole property of the Company or as part of the Leased Premises.
(b) Party A will install, at its sole cost, telecommunication and data
lines throughout the Leased Premises, as agreed upon between the
Company and Party A.
(c) The Company will install, at its sole cost, telephone systems,
facsimile machines, computers, and other similar items that serve as
tertiary elements of the telecommunication system. All such items
shall remain the sole property of the Company.
5.11 All payments in this Lease shall be made in RMB.
CLAUSE 6. SUBLEASE AND ASSIGNMENT
6.1 The Company shall not sublease all or any part of the Leased Premises,
except to subsidiaries or affiliates of the Company, without the consent of
Party A, which consent shall not be unreasonably withheld or delayed. If
Party A has not responded within thirty (30) days following a request by
the Company, the request will be regarded as granted and the Company may
proceed with the sublease.
CLAUSE 7. MAINTENANCE AND REPAIR
7.1 Party A warrants that the Leased Premises are suitable for the leased
purposes defined in Clause 3 herein. As such, Party A agrees to undertake
any necessary
7
<PAGE>
repairs to maintain the Leased Premises which are the property of Party A
in a safe, habitable. and fully operable condition. Said repairs include,
but are not limited to, foundations, exterior walls, windows, doors, roofs,
plumbing, electrical systems, drainage systems, floors, and all other
physical conditions other than routine maintenance. Because such repair
may be crucial to the Company's operation, and in order to protect the
Company's interest, the Company hereby retains the right to perform such
repairs itself if Party A has not performed such repairs within a period
of ten (10) calendar days following notice to Party A by the Company. The
Company shall deduct the cost of such repairs from the rent otherwise owed
to Party A at the next rental month. In the event of an emergency, as
determined by the General Manager or Deputy General Manager of the Company,
the Company may effect such repairs, and deduct the cost from rent
otherwise due to Party A, if Party A has not executed such repairs within
24 hours following written notification of the emergency situation. If the
cost of any such repairs paid by the Company exceeds the rent amount due to
Party A for the next 12 month period, Party A shall reimburse the Company
for such additional expenses no later than the end of 12 months following
the expenditure by the Company. Notwithstanding the above, if repairs are
necessitated by the negligence of the Company, the Company is solely
responsible for the direct costs of needed repairs.
7.2 Routine maintenance (but not repair or replacement) of the Leased Premises
is the responsibility of the Company, and the Company agrees to maintain
the Leased Premises in a clean and orderly condition.
7.3 Any repairs or modifications necessitated by changes in the law, building
codes, national, provincial, or local requirements, or any other similar
reasons shall be solely the responsibility of Party A. Party A shall take
action to promptly comply with all such new or modified requirements. If
Party A does not so comply, the Company reserves the right, but not the
obligation, to make such changes or modifications, and to deduct the cost
thereof from the rent otherwise owed to Party A. If the cost of any such
changes or modifications paid by the Company exceeds the rent amount due to
Party A for the next 12 month period, Party A shall reimburse the Company
for such additional expenses no later than the end of 12 months following
the expenditure by the Company.
7.4 The Company will cooperate in all reasonable ways with Party A in effecting
the provisions of this Clause.
7.5 The Company agrees to share the costs of maintaining the open Grounds and
Attached Greenbelts (referred to in 5.9(c) through 5.9(e)). As such, within
thirty days of receipt of notice by Party A, the Company shall reimburse
Party A for fifty percent of all invoiced expenses Party A pays for the
maintenance of the Open Grounds and Greenbelt Areas, providing the invoiced
amount does not exceed 10000 RMB per month. If the proposed maintenance or
expense is to
8
<PAGE>
exceed 10000 RMB per month, both Party A and the Company must agree on the
maintenance or expense prior to incurrence thereof by Party A.
CLAUSE 8. REPRESENTATIONS, WARRANTIES, AND UNDERTAKINGS
8.1 Party A hereby covenants, represents and warrants to and undertakes with
the Company as follows:
(a) Party A is the owner of the Leased Premises and has the lawful right
to Lease the Leased Premises to the Company.
(b) The Leased Premises are suitable for the Company to carry out its
business activities as specified in the Contract and Clause 3 of this
Agreement.
(c) The Company is entitled to use the Leased Premises for carrying out
its business activities as specified in the Contract.
(d) The land use rights leased by Party A were originally injected by the
State for its subscription of shares of Party A, for which Party A is
not required to pay land use premiums, and which may be used by the
Company without any further payments to Fuzhou Real Estate
Administration Bureau or any other relevant land authorities in the
PRC, except for the charges for the registration of the lease as set
forth in Clause 5.8 of this Agreement. The Company shall not assume
any liability or obligation in connection with the lease of the land
use right from Party A, including, without limitation, the obligation
to pay any premium or fees to the Fuzhou Real Estate Administration
Bureau for the land use rights. Party A hereby indemnifies and holds
the Company and Party B harmless for any and all claims or demands for
payment of any premium or fees by any land authority.
(e) Party A represents and warrants to the Company that the Leased
Premises are environmentally acceptable, contamination free, and are
in full compliance with the relevant government authorities for land
administration, environmental protection, water and soil conservation
construction standards, fire prevention, and worker safety. Party A
hereby indemnifies and holds the Company and Party B harmless for any
and all claims, demands, liabilities, damages, costs and expenses that
arise out of, or in connection with, the lease and use of or
activities on the Leased Premises, or failure to meet the
representation and warranty or compliance standards set forth in this
provision. Party A further represents and warrants that to the best
of its knowledge no hazardous or toxic substances, contaminants, or
materials are or have been spilled, deposited, disposed, accumulated,
or released in, on, or under the Leased Premises. Further, Party A has
not received any notification from any party, and has no other
information, which indicates that there is environmental contamination
at the Leased Premises. Party A agrees to indemnify, defend and hold
harmless the liabilities or damages relating to the presence or
release, at, from, or to the Leased Premises, of any hazardous
substances or other environmental contamination other than any
contaminants that Party A demonstrates were
9
<PAGE>
used and initially released at the Leased Premises by the Company.
The obligations of Party A under this indemnity shall not be affected
by any assignment of this Agreement or sale of the Leased Premises,
and shall survive the expiration or earlier termination of this
Agreement, unless Party A demonstrates that specific contamination
was caused by the Company, in which event the Company shall bear
responsibility for the specific contamination and indemnify Party A
regarding the specific contamination.
(f) After Party A has finalized the registration of ownership of the
Leased Premises, Party A shall, within 30 calendar days, together with
the Company, register the lease of the Leased Premises with Fuzhou
Real Estate Administration Bureau.
(g) Party A shall pay the fees, taxes and charges as set forth in Clause
5.9 herein.
(h) If Party A wishes to transfer, sell or lease all or any portion of the
land use rights or facilities that are in the 223 Gong Ye Road
industrial complex but are outside of the Leased Premises, during the
term of this Agreement, Party A shall first notify the Company of its
intention to do so sixty (60) calendar days prior to Party A entering
into any transfer, sale, or lease agreement of its interest in the
said portion of the land use rights or facilities. If the Company
determines that the offered transfer, sale or lease of the said
premises may be harmful to the Company's operations, the Company
reserves the right, at its sole discretion, for a period of 180 days
following the transfer, sale, or lease of the said land use rights or
facilities to declare this Agreement null and void and effect early
termination of this Agreement following the terms of Clause 12 hereof.
(i) If Party A wishes to sell or transfer its interest in the Leased
Premises, during the term of this Agreement, Party A shall first
provide written notice to the Company of its intention to do so at
least sixty (60) calendar days prior to said offer to sell or transfer
its interest and shall grant to the Company a right of first refusal
to purchase the Leased Premises at essentially the same price and
terms to be offered. The Company shall have sixty (60) calendar days
to notify Party A of its acceptance of the offer to purchase the
Leased Premises. Only in the event that the Company declines to
purchase the Leased Premises, upon the terms and during the time frame
specified above, will Party A be entitled to sell or transfer its
interest in the Leased Premises to a third party, provided that the
price and other conditions of sale are not more favorable to such
third party than those offered to the Company and provided further
that such third party shall assume all the rights and obligations of
Party A under this Agreement. Because the operation and success of the
Company depend to a large extent upon the performance of Party A,
the Company is entitled to review and comment upon the viability of
the proposed buyer, and of its ability to meet the obligations of this
Agreement. However, Party A is not to be bound by the review and
comments of the Company.
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8.2 The Company hereby covenants to Party A as follows:
(a) The Company shall rent and use the Leased Premises in accordance with
the provisions of this Agreement and for the purpose of the Company as
set forth in the Contract;
(b) The Company shall pay Rent to Party A in accordance with Clause 5 of
this Agreement;
(c) Without prejudice to Clause 5.2 hereof, the Company shall obtain Party
A' s written consent, which consent shall not be unreasonably withheld
or delayed, for any major renovation or refurbishment of the Leased
Premises. "Major" in this section means costing more than US $75,000.
If Party A has not replied within 30 days following the Company's
submission of its request, the request may be deemed granted by Party
A, and the Company may proceed as it sees fit. Notwithstanding the
above, in its renovation or refurbishment of the Leased Premises the
Company shall not change or in any way endanger the structure of the
Leased Premises and shall not change the purposes of the Leased
Premises;
(d) The Company shall not intentionally use its machinery and equipment in
a manner which will intentionally damage the utilities affiliated to
the Leased Premises.
(e) During the term of this Agreement the production and business
activities of the Company shall comply with relevant and promulgated
laws and regulations of Fuzhou City and the PRC.
8.3 Each Party hereto acknowledges and agrees that it shall be responsible for
dealing with all actions, claims, suits and demands relating to
environmental pollution (including ground, water and air pollution) caused
at any time by that party in the Leased Premises regardless of when such
actions, claims, suits or demands are made or brought, and further
regardless of when the cause giving rise to any of such actions, claims,
suits or demands arose. Under no circumstances will one party be
responsible for any environmental pollution or breach of PRC laws and
regulations relating to environmental pollution caused by the other party,
or by third parties, in the Leased Premises. Each party hereto further
agrees to indemnify the other party hereto against all losses, liabilities,
claims, costs and expenses which may be suffered by the other party as a
direct or indirect result of any pollution of the environment (including
ground, water and air pollution) caused by the first mentioned party in the
Leased Premises at any time. Notwithstanding the above, the Company's
liability is limited to the requirements in effect only during the
Company's tenancy, and the Company's liability in any respect shall
expire upon cessation of this Agreement or cessation of the Company's
occupancy of the Leased Premises.
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CLAUSE 9. INSURANCE
9.1 Throughout the entire term of this Agreement, the Company shall have in
effect insurance for the Leased Premises and for its own property and
assets installed or stored at the Leased Premises and pay the relevant
premiums for such insurance.
9.2 Throughout the entire term of this Agreement, Party A shall have in effect
liability insurance for the Leased Premises, of a type and in a quantity
satisfactory to the Company, for itself and its invitees, agents, and
activities.
CLAUSE 10. EFFECTIVENESS
10.1 This Agreement shall become effective on the date when it is signed and
dated by the representatives of Party A and the Company.
10.2 Party A shall deliver to the Company a copy of the certificate of lease
issued by the Fuzhou Real Estate Administration Bureau as soon as such
certificate is issued.
CLAUSE 11. TERMINATION OF LEASE
11.1 Either party to this Agreement may, by serving a written notice on the
other party, terminate this Agreement if any of the following events
happens:
(a) The other party ("Defaulting Party") fails to perform, observe, or
comply with any of the substantive terms and conditions in this
Agreement and the first mentioned party serves on the Defaulting Party
a written notice of default and after 60 days from the date of such
written notice the Defaulting Party has not rectified its non-
performance, non-observance or non-compliance to the satisfaction of
the first mentioned party or is not otherwise pursuing in good faith
resolution of the dispute.
(b) The other party becomes bankrupt or insolvent, or is dissolved or
liquidated.
(c) Should either of the parties be prevented from performing under this
Agreement by force majeure, including earthquake, typhoon, flood,
fire, war, civil unrest, labor disturbance, strikes, disruption of
transportation, disruption of communication systems or other
unforeseen events, and their happening and consequences are
unavoidable and beyond the control of the prevented party, such party
shall so notify the other party as soon as possible by the best means
reasonably available, and within 15 days thereafter provide detailed
information of the events. If requested by the other party, the
prevented party shall also provide verified documentary evidence
explaining the reason of its inability to execute, or of the delay in
execution of its performance. Both parties shall, through
consultations, decide whether
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to terminate this Agreement, or to waive partial performance of the
Agreement, or to delay the execution of performance of the Agreement
according to the effects of the events on the performance of the
Agreement.
(d) Upon occurrence of the early termination of the Contract, as defined
in Chapter XIV of the Contract.
11.2 If either party serves a written notice on the other party informing the
other party of its intention to terminate this Agreement as a result of the
happening of any of the events described in Clause 11.1 above, the Company
and Party A shall, as soon as practicable, enter into friendly discussions
in order to agree on an equitable and satisfactory solution. If no such
solution is agreed within a period of 60 days from the date of the written
notice served pursuant to Clause 11.1, then this Agreement shall be
terminated forthwith, but without prejudice to the rights and obligations
of the parties which have accrued prior to such termination. Except as
provided in Clause 8.1(e) hereof, the Company's environmental obligations
shall be terminated.
11.3 The Company may terminate this Agreement at any time after two years
following the Effective Date of this Agreement by providing 180 days
written notice to Party A. If the Company so terminates this Agreement
within the first three years from the Effective Date, the Company agrees to
continue to pay to Party A the rent effective as of the date of such
termination for a period of six months following the actual date of
termination. If the Company terminates this Agreement in the period from
the end of the third year of the Effective Date through the end of the
fifth year after the Effective Date, the Company agrees to continue to pay
to Party A the rent effective as of the date of termination for a period of
three months following the actual termination date. If the Company elects
to terminate this Agreement following the end of the fifth year from the
Effective Date, there will be no further payments to Party A following the
actual termination date.
CLAUSE 12. EFFECT OF EXPIRATION OR TERMINATION
12.1 Upon the expiration of the term of this Agreement or upon early termination
of this Agreement, the Company shall deliver vacant possession of the
Leased Premises to Party A and shall remove from the Leased Premises all
moveable machinery, equipment, materials, goods and facilities belonging to
the Company, unless the Company agrees to sell the same to Party A at a
price to be agreed, based upon independent valuation and/or negotiation.
The Leased Premises shall be returned to Party A in the same condition as
at the Commencement Date, except for reasonable wear and tear.
12.2 The expiration of this Agreement at the end of its term, or the termination
of this Agreement by either party for whatever reason, shall not prejudice
any of the
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preexisting rights and obligations of the Company and Party A hereunder.
In such event, the Company's environmental obligations shall be
terminated, except as provided in Clause 8.1 (e) hereof.
12.3 Without prejudice to each party's right to terminate this Agreement in
accordance with Clause 11.1 hereof, each party shall also indemnify the
other party against losses, damages, costs and liabilities which the other
party may suffer as a direct consequence of any breach of such party's
representations, warranties and undertakings under Clause 8 hereof, or as a
direct consequence of the failure of such party to duly perform, observe or
comply with any of the terms and conditions of this Agreement.
CLAUSE 13. APPLICABLE LAW
13.1 The formation of this Agreement, its validity, interpretation and
performance, and settlement of the disputes shall be governed by the
relevant promulgated and publicly available laws and regulations of the
PRC.
CLAUSE 14. SETTLEMENT OF DISPUTES
14.1 The parties shall initially attempt to settle any disputes arising from the
execution of, or in connection with, this Agreement, through friendly
consultations between the parties.
14.2 Any disputes arising from this Agreement or in connection herewith which
have not been resolved within sixty days from the date of first issuance of
a letter by either party indicating the nature of the disputed matter, and
in accordance with Clause 14.1 herein, shall be settled through the
Arbitration Commission based in the PRC cities of Beijing, Shanghai, or
Fuzhou at the choice of the party initiating the arbitration, in accordance
with and bound by the explicit provisions of this Agreement as well as the
relevant laws and regulations of the PRC.
14.3 During any arbitration proceeding, this Agreement shall be performed
continuously by both parties except for the matters in dispute.
CLAUSE 15. QUIET POSSESSION
15.1 So long as the Company pays the rent and abides by the other provisions of
this Agreement, the Company shall enjoy quiet possession of the Leased
Premises.
CLAUSE 16. NOTICES
16.1 All notices shall be sent by written notice or facsimile transmission.
Notices and correspondence between Party A and the Company shall be sent to
the appropriate address of each party specified below.
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if to Party A: Fujian Fufa Company Limited
Attn.: General Manager
223 Gong Ye Road
Fuzhou, Fujian 350004
PRC
Fax No: 0591-3713706
if to the Company: MagneTek Fuzhou Generator Company, Limited
Attn.: General Manager
223 Gong Ye Road
Fuzhou, Fujian 350004
PRC
Fax No: 0591-3713706
16.2 Each party may, by written notice or facsimile notification to the other
party, change its address for the purposes of correspondence at any time.
16.3 Every notice or correspondence shall be deemed to have been received, in
the case of facsimile transmission, at the time of transmission and, in the
case of a written notice, when delivered personally or 5 days after the
same has been put into the post.
CLAUSE 17. LANGUAGES
17.1 This Agreement is written in an English version and in a Chinese version.
Both language versions are of equal validity and effect.
Executed in Fuzhou, Fujian, PRC by the legal or duly authorized representatives
of Party A and the Company on this Monday, March 18, 1996.
PARTY A THE COMPANY
Fujian Fufa Company Limited MagneTek Fuzhou Generator Company Limited
/s/ Chan Guo Xiang /s/ Gary Wolfe
- ------------------------- -----------------------------
Chen Guo Xiang Gary Wolfe
Legal Representative Legal Representative
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SINO-AMERICAN
EQUITY JOINT VENTURE CONTRACT
BETWEEN
FUJIAN FUFA COMPANY LIMITED
AND
MAGNETEK, INC.
FOR THE ESTABLISHMENT OF
MAGNETEK FUZHOU GENERATOR
COMPANY LIMITED
<PAGE>
CONTENTS
CHAPTER I GENERAL PROVISIONS 1
CHAPTER II PARTIES TO THE CONTRACT 1
CHAPTER III ESTABLISHMENT OF THE EQUITY JOINT VENTURE COMPANY 2
CHAPTER IV PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS 4
CHAPTER V TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL 5
CHAPTER VI RESPONSIBILITIES OF EACH PARTY TO THE COMPANY 9
CHAPTER VII PROVISIONS OF TECHNOLOGY 12
CHAPTER VIII SELLING OF PRODUCTS 16
CHAPTER IX THE BOARD OF DIRECTORS 17
CHAPTER X BUSINESS MANAGEMENT STAFF 18
CHAPTER XI PURCHASE OF EQUIPMENT 20
CHAPTER XII LABOR MANAGEMENT 20
CHAPTER XIII ACCOUNTING, AUDITING AND TAXATION 21
CHAPTER XIV DURATION AND TERMINATION OF THE CONTRACT 22
CHAPTER XV INSURANCE 26
CHAPTER XVI THE AMENDMENT OF THE CONTRACT 27
CHAPTER XVII LIABILITIES FOR BREACH OF CONTRACT 27
CHAPTER XVIII FORCE MAJEURE 28
CHAPTER XIX APPLICABLE LAW 28
CHAPTER XX SETTLEMENT OF DISPUTES 28
CHAPTER XXI LANGUAGE 30
CHAPTER XXII EFFECTIVENESS OF THE CONTRACT AND MISCELLANY 30
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SINO-AMERICAN
EQUITY JOINT VENTURE CONTRACT
BETWEEN
FUJIAN FUFA COMPANY LIMITED
AND
MAGNETEK, INC.
FOR THE ESTABLISHMENT OF
MAGNETEK FUZHOU GENERATOR COMPANY LIMITED
This Contract (hereinafter referred to as the "Contract") for the
Establishment of MAGNETEK FUZHOU GENERATOR COMPANY LIMITED (hereinafter
referred to as the "Company") is entered into by and between FUJIAN FUFA
COMPANY LIMITED (hereinafter referred to as "Party A"), and MAGNETEK, INC.
(hereinafter referred to as "Party B", and together with Party A, the
"Parties" or "Party" if the context so requires) and shall be effective as of
the date that the Contract, including its Schedules attached hereto, receives
approval by the Fuzhou Foreign Trade and Economic Cooperation Bureau of the
People's Republic of China ("PRC") or its relevant examination and approval
authority having due authority to approve this Contract (the "Approving
Authorities"). Such date is hereinafter referred to as the "Effective Date".
References to the PRC in this Contract shall not be applicable to Hong Kong,
Macau or Taiwan.
CHAPTER I GENERAL PROVISIONS
In accordance with "The Company Law of the People's Republic of China"
and "The Law of the People's Republic of China on Joint Ventures Using
Chinese and Foreign Investment", as well as other relevant promulgated and
publicly available Chinese laws and regulations, Party A and Party B,
adhering to the principle of equality and mutual benefit and through friendly
consultations, agree to jointly invest in, and to set up the Company, as an
equity joint venture limited liability enterprise in Fuzhou, Fujian, PRC, in
accordance with the following terms and conditions:
CHAPTER II PARTIES TO THE CONTRACT
Article 1
The Parties to this Contract are as follows:
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1.1 Party A: FUJIAN FUFA COMPANY LIMITED, a duly established and registered
Company under the laws of the PRC, whose legal address is at 223 Gong Ye
Road, Fuzhou, Fujian, PRC 350004. The designated legal representative for
Party A is :
Name: Chen Guo Xiang
Position: Chairman of the Board and General Manager
Nationality: Chinese Citizen
1.2 Party B: MAGNETEK, INC., a duly established and registered corporation
under the laws of the State of Delaware in the United States of America,
whose legal address is at 26 Century Blvd., P.O. Box 290159, Nashville,
Tennessee 37229-0159. The designated authorized representative for
Party B is:
Name: Gary R.Wolfe
Position: Vice-president of the Generator Business
Nationality: USA Citizen
1.3 The Parties reserve the right to change their respective legal or
authorized representatives from time-to-time upon prior written notice to
the other Party.
CHAPTER III ESTABLISHMENT OF THE EQUITY JOINT VENTURE COMPANY
ARTICLE 2
2.1 In accordance with "The Company Law of the People's Republic of China"
and "The Law of the People's Republic of China on Joint Ventures Using
Chinese and Foreign Investment" as well as other relevant promulgated and
publicly available Chinese laws and regulations, both Parties to this
Contract agree to establish MagneTek Fuzhou Generator Company Limited, a
Sino-American equity joint venture limited liability enterprise.
2.2 Contemporaneously with the execution of this Contract, the Parties have
approved and adopted the "Articles of Association" for the Company, which
shall come into effect together with the Contract upon the grant of
approvals by the Approving Authorities.
ARTICLE 3
3.1 The name of the Company in English is MagneTek Fuzhou Generator Company
Limited.
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3.2 The name of the Company in Chinese is "______________________________".
3.3 The name of the Company shall be used to identify the Company in
connection with any and all of its activities. The legal address of the
Company is at 223 Gong Ye Road, Fuzhou, Fujian, PRC 350004.
ARTICLE 4
4.1 The activities of the Company shall be governed, where applicable, by
this Contract and the relevant promulgated and publicly available laws,
decrees, rules and regulations of the PRC.
ARTICLE 5
5.1 The organization form of the Company is a limited liability company.
5.2 The Company shall be responsible for all its liabilities up to the
amount of its assets. Each Party's individual liability to the Company is
limited to and shall not exceed its respective capital contribution to the
Company's registered capital, such capital contribution hereinafter
sometimes being referred to as a Party's "Equity Interest" in the Company.
5.3 Neither Party A nor Party B shall be individually liable for any other
debt or obligation of any nature whatsoever of the Company, or of the other
Party, unless otherwise stated in writing and signed by a designated legal
representative (in the case of Party A) or a designated authorized
representative (in the case of Party B) of the Party to be charged with
such liability.
5.4 The Company shall not, and does not have the authority to bind or
obligate either Party A or Party B in their individual capacities, unless
otherwise provided in the Contract.
5.5 The profits of the Company shall be shared by the Parties in proportion
to their respective contributions to the registered capital of the Company.
5.6 The risks and losses of the Company shall be shared by the Parties in
proportion, but not to exceed their respective subscribed contribution to
the Company's registered capital.
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CHAPTER IV PURPOSE, SCOPE AND SCALE OF PRODUCTION AND BUSINESS
ARTICLE 6
6.1 The purpose of the Parties in entering into this Contract and
forming the Company is to enhance economic cooperation and technical
exchange, to elevate the product posture in the market, elevate the
process and management technology of the Company, improve the product
quality, develop new products, and gain and maintain a competitive
position in its world marketplace and enhance overall business
capabilities, quality, service and price, by adopting internationally
advanced and appropriate technology and scientific management methods, so
as to generate satisfactory economic returns to the Company and achieve
satisfactory economic profits for the Parties.
ARTICLE 7
7.1 The production and business scope of the Company shall include the
production of the generator products set forth in Schedule A of the
Contract, as may be amended from time-to-time by the Board of Directors,
and to include all related accessories and attachments for such generator
products (hereinafter referred to as the "Products").
7.2 The production and business scope of the Company will also include
aftermarket maintenance service and replacement parts sales for the
Products. Party A, including its direct and indirect subsidiaries and
affiliates, shall discontinue generator aftermarket maintenance service
and replacement parts sales within the PRC on a time schedule to be
agreed upon by the Company's Board of Directors, and upon authorization
by the Company, Party A may conduct replacement parts sales for the Party
A Products set forth in Section 2.1 of Schedule A sold outside the PRC,
exclusive of the Nippon Sharyo Generators, defined in Schedules A and D.
ARTICLE 8
8.1 The present estimated scale of production is approximately 7,000 units by
the end of calendar year 1998. Actual production levels are to be
determined by the Board of Directors based upon market demand and
conditions.
8.2 Within five (5) years from the Effective Date of this Contract, the
Parties shall review the production capacity and determine whether the
capacity of Products should be expanded or adjusted to match market
demand or other circumstances.
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CHAPTER V TOTAL AMOUNT OF INVESTMENT AND REGISTERED CAPITAL
ARTICLE 9
9.1 The total amount of investment of the Company will be 13,700,000.00
U.S. Dollars ("USD").
ARTICLE 10
10.1 The registered capital of the Company will be 10,548,332.00 USD.
ARTICLE 11
11.1 Each Party's cash and non-cash contribution to the registered capital of
the Company, shall be:
(a) Party A shall inject cash and non-cash contributions of 4,746,749.00
USD to the Company which shall constitute 45% of the registered
capital of the Company;
(b) Party B shall inject cash and non-cash contributions of 5,801,583.00
USD to the Company which shall constitute 55% of the registered
capital of the Company.
11.2 The Parties shall make their respective contributions to the registered
capital of the Company in the following manner:
PARTY A'S CAPITAL CONTRIBUTION
AND METHOD OF MAKING CONTRIBUTION
Party A's contribution of non-cash assets shall be in accordance with the
terms of the form of Capital Contribution Schedule set forth in Schedule
B, (hereinafter the "Contribution Schedule" or "Schedule B") and the form
of Deed of Generator Business Transfer and Technology License, a form of
which is attached hereto as Schedule D (the "Deed of Generator Business
Transfer and Technology License")
(i) Existing generator business ("Party A's Generator Business"), as
described in Schedule D
(ii) Rights to use the existing technology of Party A's Generator
Business
(iii) Rights to use the "Fufa" trademark on the Products
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<PAGE>
equivalent in value to 424,000 USD
(iv) Cash 4,322,749 USD
PARTY B'S CAPITAL CONTRIBUTION
AND METHOD OF MAKING CONTRIBUTION
(i) Rights to use generator and automatic voltage regulator technology
(ii) Rights to use the "MagneTek" trademark on the Products
equivalent in value to 1,613,000 USD
(iii) Cash 4,188,583 USD
TOTAL REGISTERED CAPITAL 10,548,332 USD
The terms and conditions in accordance with which Parties A and B shall
make their respective contributions to the Company's registered capital
are set forth in Schedule B.
11.3 Immediately after the Business License Date (as hereinafter defined),
Party A shall enter into the Generator Business Transfer and Technology
License and Party B shall enter into the Deed of Technology License in
order to effect their respective contributions to the registered capital
of the Company as provided in Articles 11.1 and 11.2 herein. For purpose
of this Contract, the Business License Date shall be the date of the
initial business license for the establishment of the Company, as issued
by the relevant government authority.
11.4 Party A may use Renminbi of the PRC (RMB) as its cash contribution. The
exchange rate of RMB for USD will be the mid-rate of exchange for buying
and selling USD quoted by the People's Bank of China for the day when the
contribution of cash is received by the Company.
ARTICLE 12
12.1 Total contribution by the Parties to the registered capital of the
Company shall be made in predetermined installments on a timely basis
in accordance with Schedule B.
12.2 As soon as each Party has contributed an installment of its subscribed
capital, a PRC registered accountancy firm appointed by the Company shall
verify the actual contribution and issue an interim investment
verification report for such
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<PAGE>
installment. A formal investment verification report shall be issued by
such registered accountancy firm when all the registered capital has been
fully paid-up. According to this investment verification report, the
Company shall issue to such relevant Party a certificate of capital
contribution which shall include the following items:
(i) name of the Company;
(ii) date of establishment of the Company;
(iii) name of the Party and total amount of registered capital subscribed
by that Party;
(iv) amount of capital contribution made by the Party to-date, and the
date of making the same;
(v) date of issuance of the certificate of capital contribution.
12.3 Within 90 days of signing the Contract by the respective, duly
authorized representatives of the Parties, Party A shall enter into the
form of Lease Contract. Pursuant to the terms of the Lease Contract,
Party A shall lease to the Company the Site and facilities (the "Site")
to be used by the Company for its manufacturing business, all as
indicated in the red line drawings and improvement descriptions contained
in the Lease Contract. At the time of the execution of the Lease
Contract, Party A shall hold a land use certificate evidencing Party A's
land use grant right in the Site being leased to the Company. Party A
shall have paid all premiums required under the land use grant between
Party A and the Fuzhou Land Administration Bureau covering the Site
thereby enabling Party A to legally lease the Site with improvements
thereon to the Company. Party A represents and warrants to Party B that
the Site is environmentally acceptable, contamination free and is in full
compliance with the relevant government authority for land
administration, environmental protection, water and soil conservation,
construction standards, fire prevention and worker safety. Party A hereby
indemnifies and holds harmless Party B and the Company for any and all
claims, demands, liabilities, damages, costs and expenses that arise out
of, or in connection with, any use of or activities on the Site, or
failure of the Site to meet compliance standards indicated in the
preceding sentence prior to the date of the Lease Contract.
12.4 Each Party shall cooperate and deal fairly and in good faith with the
other in the performance of this Contract and in the operation of the
Company.
12.5 In the event that the Company's Board of Directors approves an increase
of the registered capital of the Company, then each Party shall pay into
the Company, on such terms and at such times as shall have been approved
by the Company's Board of Directors, its respective portion of the
registered capital so increased, as
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<PAGE>
determined by its Equity Interest immediately prior to the making of the
decision by the Board of Directors for the increase of the registered
capital.
12.6 If a Party fails to pay its portion of the Company's registered capital
when due (the "Non-performing Party"), whether the initial registered
capital approved in Chapter V of this Contract or increased registered
capital approved by the Board of Directors, and if the other Party (the
"Performing Party") makes its full capital contribution within the time
limit, then, subject to the provisions of Article 38, the Performing
Party shall have the right to subscribe to the portion of the
Non-performing Party, and consequently the Performing Party's Equity
Interest shall be increased and the Non-performing Party's Equity
Interest shall be decreased to reflect their actual payment into the
Company's registered capital.
ARTICLE 13
13.1 In case a Party wishes to assign all or part of its Equity Interest to a
third party, consent to such assignment must be obtained from the other
Party and approval thereof obtained from the Board of Directors. In
addition, approval must also be granted by the original Approving
Authorities. The assignee is required to assume all the assignor's rights
and obligations under this Contract in respect to the assigned portion of
the investment.
13.2 When one Party wishes to assign all or part of its Equity Interest to a
third party, the other Party shall have a right of first refusal to
purchase that portion of that Party's Equity Interest in the Company's
registered capital which that Party wishes to assign in accordance with
the following provision:
(a) A Party who wishes to assign all or part of its Equity Interest in
the Company (the "Transferring Party") shall notify the other Party
of its desire to do so, and the other Party shall have the
preferential right within 60 days following the receipt of such
notice to agree to purchase all of the offered Equity Interest upon
the terms offered by the Transferring Party.
(b) If at the end of such 60 day period, the other Party has not agreed
to purchase all the Equity Interest offered by the Transferring
Party upon terms which the Transferring Party is willing to accept,
the Transferring Party shall be free to assign all or part of its
Equity Interest to any third party, provided that the conditions of
such sale cannot be more favorable to the third party, and provided
further that the approvals referred to in Article 13.1 herein are
granted.
13.3 Notwithstanding anything contained in Articles 13.1 and 13.2 herein to
the contrary, if one Party wishes to assign or transfer all or a part of
its Equity Interest (the "Assigning Party") to an affiliate of the
Assigning Party or, in the event of a
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sale, merger, or assignment of the generator business of the Assigning
Party, to a third party which is at least as financially viable as the
Assigning Party (such affiliate or third party referred to as the
"Permitted Assignee"), provided that the Assigning Party has entered into
all necessary instruments and agreements with the Permitted Assignee for
the transfer of the title or right to use and sublicense the respective
technology previously licensed to the Company by the Assigning Party as
part of its contribution to the Company and further provided that in the
case where Party A is the Assigning Party, such Permitted Assignee is not
a company or entity that is a competitor of Party B, the other Party does
hereby give consent to such proposed assignment or transfer and shall
cause the Directors appointed by it to approve such assignment or
transfer. Approval must also be granted by the original Approving
Authorities. Such transfer or assignment will become effective upon the
grant of approval by the original Approving Authorities. The Permitted
Assignee is required to assume the Assigning Party's rights and
obligations under this Contract arising from ownership of the portion of
the Equity Interests being transferred. In the case where Party B is the
Assigning Party, Party B shall not use the technology it has licensed to
the Company to produce separately the Products in the PRC for the term of
this Contract. For purposes of this Article 13.3, and as used elsewhere
in this Contract, "affiliate" shall mean: (i) any company or entity that
directly or indirectly holds a controlling interest of the issued and
outstanding voting shares or equity interests in the Assigning Party (a
"Parent Company"); (ii) any company or entity in which the Assigning
Party directly or indirectly holds a controlling interest of the issued
and outstanding voting shares or equity interests; or (iii) any company
or entity in which a Parent Company directly or indirectly holds a
controlling interest of the issued and outstanding voting shares.
CHAPTER VI RESPONSIBILITIES OF EACH PARTY TO THE COMPANY
ARTICLE 14
Party A and Party B shall be respectively responsible for the following matters
in addition to other obligations under this Contract:
14.1 Responsibilities of Party A:
(A) Handling of applications and obtaining approval, registration and
business license for the establishment of the Company, assisting the
Company in being designated "technologically advanced enterprise" and/or
"export-oriented enterprise", and obtaining all the tax incentives
available in connection with such designation and assisting in other
matters concerning the establishment and operation of the Company from
relevant departments in charge in the PRC;
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(B) Assisting the Company with the organization, design and construction of
the premises and other facilities of the Company;
(C) Making cash and non-cash contributions, in accordance with the
stipulations in Article 11 of this Contract, Schedule B and Schedule D;
(D) Assisting the Company to make necessary installation, start up,
calibration and final acceptance of normal operation of machinery and
equipment provided to the Company by either Party A or B or acquired by
the Company;
(E) Assisting the Company and Party B in the importation of equipment,
machinery and raw materials; in handling customs procedures and
obtaining all necessary import licenses or permits relating to the
aforesaid imports and arranging the domestic transportation of the
aforesaid imports after they are shipped to a designated port of the PRC;
(F) Assisting the Company in purchasing or leasing equipment, components,
raw materials, articles for office use, means of transportation and
communication, etc.;
(G) Assisting the Company in ensuring adequate supplies of all necessary
utilities including water, electricity, transportation, and
telecommunications;
(H) For properties leased to the Company, assisting the Company to obtain all
adequate fire protection and other insurance to protect the interests
of the Company;
(I) Assisting the Company in recruiting and employing qualified Chinese
management personnel, technical personnel, workers and other personnel
needed;
(J) Assisting foreign workers and staff in applying for entry visas and work
licenses, and in processing their traveling matters; and providing
personnel records for all former employees of Party A who become
employees of the Company ;
(K) Recommending the needed technical personnel to support and use product
process and management technologies contributed to the Company by
Party B;
(L) Recommending the necessary English speaking technical and management
personnel, to enable timely and efficient training to be contributed by
Party B to the Company;
(M) Assisting the Company in obtaining adequate housing for its expatriate
employees and otherwise obtaining other welfare and recreational
facilities for its employees;
(N) Assisting the Company in applying to authorized banks approved by the
PRC State Administration of Exchange Control for the opening of foreign
currency
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and Renminbi accounts and assisting the Company in obtaining local
financing in Renminbi when necessary;
(O) Assisting the Company with applying to the relevant exchange control
agencies for the necessary foreign exchange registration in order to
obtain foreign currency and to use foreign currency in the conduct of
the Company's business;
(P) Assisting the Company with obtaining, and providing to the Company
copies of, all PRC, provincial or local laws and regulations or similar
information enacted or occurring which affect the operation of the
Company with the English translations to the extent available;
(Q) Executing the Deed of Generator Business Transfer and Technology License
immediately after the Business License Date, executing the Lease
Contract within ninety (90) days of the Effective Date; executing a
Trademark License with the Company covering the Party A trademark (the
"Party A Trademark License"); and a technical assistance agreement, more
particularly described in Article 15.4 hereof (the "Technical Assistance
Agreement").
(R) Such other matters as may be entrusted to Party A by the Company which
Party A agrees to accept.
14.2 Responsibilities of Party B:
(A) Contributing the right to use the technologies and trademarks and
contributing cash in accordance with the stipulations in Article 11 of
this Contract, Schedule B and Schedule C;
(B) Assisting the Company in selecting and purchasing machinery and
equipment;
(C) Assisting the Company in purchasing or leasing equipment, components,
raw materials, articles for office use, means of transportation and
communication, etc.;
(D) Execute the Deed of Technology and execute a Trademark License with the
Company covering the MagneTek trademark (the Party B Deed of Trademark
License") and an engineering assistance agreement more particularly
described in Articles 15.2 and 15.3 hereof (the "Engineering Assistance
Agreement");
(E) Assisting the Company with sales of its products in the PRC and for
export of its products in accordance with Schedule A;
(F) Providing information about sales conditions and sales channels for the
Company's products in the relevant export markets;
(G) Training the Company's management staff; and
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(H) Such other matters as may be entrusted to Party B by the Company which
Party B agrees to accept.
14.3 The reasonable, documented out of pocket expenses incurred by Party A or
Party B in their performance of their responsibilities in this Article
14 shall be reimbursed by the Company provided, however, said expenses
will be approved by the general manager prior to incurrence thereof.
CHAPTER VII PROVISIONS OF TECHNOLOGY
ARTICLE 15
15.1 Party B agrees that as part of its contribution to the Company's
registered capital, it will enter into the Deed of Technology License
and the Party B Deed of Trademark License with the Company pursuant to
which it shall license the Company rights to use the advanced technology
for the manufacture and sale of the MagneTek Products (as defined in
Schedule A) as well as rights to use its trademark on the MagneTek
Products, to enhance the capability of the Company in achieving its
purpose, scope and scale of production as defined in this Contract.
Detailed terms and conditions in respect of the technology license is
set forth in Schedule C. Upon the expiration or earlier termination of
this Contract or transfer of Party A's or Party B's Equity Interest
arising under Articles 32 or 33 of this Contract, the Deed of Technology
License, Deed of Trademark License and Engineering Assistance Agreement
shall terminate and all rights of the Company to use the technology and
other proprietary information and processes set forth therein shall
immediately terminate and such rights shall revert to Party B, except,
if applicable, such limited license rights set forth in Article 35.2
herein.
15.2 Party B shall provide to the Company ongoing engineering design and
technical assistance for the Products, including new product
development, technology improvements, competitive benchmarking and cost
reductions, advanced commercially feasible process definition and
improvement, and drawing control and other engineering document
maintenance pursuant to the terms of the Engineering Assistance
Agreement to be entered into between Party B and the Company.
15.3 In consideration for Party B's ongoing engineering design and technical
assistance as set forth in the Engineering Assistance Agreement, the
Company shall pay Party B a monthly fee in USD of 2.3% of net invoice
sales (defined as gross sales less sales returns, discounts and
allowances), hereinafter referred to as "Net Sales", of the Company, of
those Party B Products defined and specifically designated in Section
2.1(b) of Schedule A. The monthly fees shall be payable for the period
starting with the date on which the Company begins the initial
production to satisfy
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customer orders (the "Production Date") of the Party B Products through
the fifth year following said Production Date; thereafter, the fee shall
be reduced to 1.5% of such Net Sales of Party B Products for the
remaining term of this Contract, all as particularly set forth in the
Engineering Assistance Agreement. The dollar value of this monthly fee
shall be computed on the average of the mid-rate of exchange for buying
and selling USD as quoted by the People's Bank of China for the 20 days
preceding the last business day of each month. The fee shall be paid to
Party B within 30 days of the end of each month in USD and shall be
remitted by wire transfer to the account designated in writing by Party
B in its bank outside the PRC. The Company's obligation to pay this
monthly fee shall remain in effect for the term of the Engineering
Assistance Agreement or its earlier termination.
15.4 Party A shall provide ongoing engineering assistance and design
capability to the Company for the Party A Products specifically defined
in Schedule A above 500KW. All technology in connection with such
engineering assistance and design shall be licensed by Party A
exclusively to the Company. In consideration for Party A's ongoing
engineering design and technical assistance, the Company shall pay Party
A a monthly fee in RMB of 2.3% of net sales from the Party A Products
above 500KW. The monthly fees shall be payable for the period starting
with the Production Date of the Products as defined in Schedule A
through the fifth year following said Production Date; thereafter, the
fee shall be reduced to 1.5% of such net sales of Party A Products for
the remaining term of this Contract, all as particularly set forth in
the Technical Assistance Agreement to be entered into between Party A
and the Company. The fee shall be paid to Party A within 30 days of the
end of each month in RMB and shall be remitted by wire transfer to the
account designated in writing by Party A in its bank. The Company's
obligation to pay this monthly fee shall remain in effect for the term
of the Technical Assistance Agreement or its earlier termination.
ARTICLE 16
16.1 Party B commits that the product designs provided by Party B to the
Company in accordance with this Contract and Schedules A, B and C shall
be complete, precise, correct, effective, applicable and reliable and
will enable the Company to produce the Products as described in Schedule
A without further enhancement, if properly employed for the uses
stipulated in this Contract and Schedule C.
16.2 Party B commits that the technologies to be licensed by Party B to the
Company pursuant to this Contract and Schedules A, B and C have been
selected on the premise that such technologies are complete, precise,
correct, effective, applicable and reliable, are truly advanced and are
the same or similar to those currently employed by Party B on its own
behalf. These technologies will enhance the Company's operation and help
the Company achieve globally competitive
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standards of product quality and production capability, if properly
employed, for the uses stipulated in this Contract.
16.3 Party B is making application in the PRC to register its trademark to be
licensed to the Company in the PRC; upon taking all steps legally
required to enable Party B to license the right to use such trademarks
to the Company, Party B shall enter into the Party B Deed of Trademark
License with the Company.
ARTICLE 17
17.1 The Deed of Technology License and the Party A Generator Business
Transfer and Technology License shall have a term of ten years as set
forth in such agreements. The Party A Deed of Trademark License and
Party B Deed of Trademark License, and the Engineering Assistance
Agreement shall have a term of same duration as the term of this
Contract, including extensions to the term of such approved deeds
approved in writing by Party A, Party B and the Company, as the case may
be, and shall terminate concurrently with the expiration or earlier
termination of this Contract or a transfer of either Party A's or Party
B's Equity Interest pursuant to Article 32 or 33 hereof.
ARTICLE 18
18.1 Information relating to this Contract, its Schedules and the Articles of
Association, the Company's business and management, technology and
manufacturing processes and licensed intangible assets, customer lists,
sales, prices, financial affairs, and product development strategies
shall be kept confidential by Party A and Party B and the Company and
their employees and shall not be disclosed to any third party (except as
required by applicable law or regulation governing the Company and the
Parties), unless such information has previously been disclosed
generally to the public or the Board has authorized the disclosure of
such information. All information provided by Party A or Party B, or
their respective affiliates, under this Contract, its Schedules, the
Articles of Association of the Company and other related agreements
shall be kept confidential and shall not be disclosed by the Company,
Party A, Party B or any of their employees to any third party without
the prior written consent of the other Party and the Company, unless
such information has previously been disclosed generally to the public.
If Party A or Party B is in breach of this confidentiality provision it
shall pay to the non-breaching Party its actual damages and commercial
losses arising directly or indirectly from such breach and shall give
rise to termination of this Contract and dissolution to the Company, if
so elected, by the non-breaching Party pursuant to Article 33. The
obligations set forth in this Article 18.1 shall survive the termination
of this Contract for a period of three years.
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18.2 With respect to proprietary information and material to be furnished by
Party B under this Contract, which includes, but is not limited to, the
technology licensed pursuant to the Deed of Technology License to be
used for the production of the Products, Party A hereby covenants and
agrees that during the term of this Contract, and for a period of three
years following earlier termination thereof commencing from the date the
Contract is terminated, it will not directly or indirectly on its own
account or through any of its affiliates or otherwise, utilize such
technology or other proprietary information to produce generator
products or automatic voltage regulator products, except where Party A
has acquired the Equity Interest of Party B pursuant to Articles 31, 32
and 33 and subject to the limitations set forth in Article 35.2.
18.3 Party B hereby covenants and agrees that during the term of this
Contract and for a period of three years following earlier termination
thereof commencing from the date the Contract is terminated, neither it,
nor any of its direct or indirect affiliates, except for the Company,
shall utilize product designs contributed by Party A to the Company, or
use such product design information to produce the Party A Products or
other equivalent products.
18.4 During the term of this Contract or the duration of the Company,
whichever is shorter, the technology to be licensed by Party B to the
Company pursuant to Schedule C shall not be licensed by Party B to any
third party with the intent to use or sublicense the technology for the
manufacture and sale of such technology within the PRC. The Parties
shall manufacture and conduct direct marketing and sales of the Products
in the PRC exclusively through the Company. Party B retains its right
to use the technology it licenses to the Company to manufacture,
distribute and sell the Products outside the PRC; provided however,
Party B shall sell such Products manufactured outside the PRC into the
PRC exclusively through the Company, except in the following situations
in which Party B shall have the right to sell such Products directly:
(i) the Company cannot meet the specific production demands as required
by the market, and through a sales agreement between the Company and
Party B to be approved by a special majority of the Board, which special
majority of the Board shall be as defined in Article 4.14 of the
Articles of Association, or (ii) to Caterpillar to meet its requirements
during the initial period of the Company. Although the Company will
strive to achieve planned production capacity within 24 months after the
Business License is issued to the Company, the initial period referred
to herein shall be approximately 36 months after the business license is
issued to the Company but before the Company has started full production
and thus cannot satisfy Caterpillar's requirements for the Products.
This provision is not intended to prohibit or limit Party B's right to
participate in other ventures or business arrangements in the PRC which
do not engage in the production or sales of generator products or
provision of services in connection with generator products which are
not the Company's Products defined in Schedule A.
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18.5 Upon contribution of Party A's Generator Business to the Company in
accordance with Article 11.2 herein and Schedule D, Party A and its
affiliates shall not manufacture any generator products during the term
of this Contract and shall not develop or manufacture any new generator
products utilizing technologies listed in this Contract and the
Schedules attached hereto during the term of this Contract. In the case
of earlier termination of this Contract, such obligations shall survive
for another three years commencing from the date the Contract is
terminated.
CHAPTER VIII SELLING OF PRODUCTS
ARTICLE 19
19.1 The Company will use reasonable, commercial efforts to achieve and
maintain foreign exchange balance.
19.2 The Company may sell the Products, materials and components to Party A
or B for their own use.
ARTICLE 20
20.1 The Products sold by the Company, shall be sold into the Chinese
domestic and export market under the sales terms and conditions, and
through direct or independent channels, as determined by the Company in
accordance with Schedule A.
20.2 For Party A Products defined as Fufa Generators in Schedule A, when
those products exceed 500KW, the said products shall be sold through
Party A in accordance with an agreement to be established between Party
A and the Company.
ARTICLE 21
21.1 Party A shall not purchase products competitive with the Products unless
the Company is unable to meet Party A's reasonable requirements for
price, quality, service and commercial terms.
ARTICLE 22
22.1 The Company may set up sales branches which may, among other things,
provide maintenance or parts service for the Products in accordance with
the terms set forth in Schedule A.
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ARTICLE 23
23.1 The use of Party B's trademark by the Company shall be in accordance
with the provisions of the Party B Deed of Trademark License, provided,
however, the Company may use other labeling or trademarks not in
violation of the provisions of this Contract or the Party B Deed of
Trademark License.
CHAPTER IX THE BOARD OF DIRECTORS
ARTICLE 24
24.1 The Company shall establish a board of directors (hereinafter referred
to as the "Board", its members being the "Directors"), which shall be
the highest governing authority of the Company. The Board shall be
established on the Business License Date and such Board shall commence
its activities as from the date of its establishment.
24.2 The Board shall decide all issues concerning the Company that are not
delegated by it to the management staff of the Company, as provided for
hereinafter. The unanimous approval of the Directors attending in
person or by proxy a Board meeting at which a quorum is present shall be
required with respect to any "Major Issues", as defined in Article 4.13
of the Articles of Association of the Company. All other matters
required to be approved by the Board, including those matters set forth
in Articles 4.14 and 4.15 of the Articles of Association, shall require
approval by a majority of the Directors attending in person or by proxy
a Board meeting at which a quorum is present.
24.3 The Board shall be composed of a total of five Directors, of which two
shall be appointed by Party A and three by Party B, such appointments to
be made by written notice to the other party and to any Directors then
in office.
Each Party may, at any time, remove any Director appointed by such Party
by giving to the Company not less than 15 days prior written notice.
If a seat on the Board is vacated by the retirement, removal,
resignation, illness, disability or death of a Director, the Party which
originally appointed such Director shall appoint a successor to serve
out the remainder of such Director's term.
24.4 The Board shall have one Chairman (the "Chairman") to be appointed by
Party B and one Vice Chairman (the "Vice Chairman") to be appointed by
Party A.
The Chairman is the legal representative of the Company, but his actions
will only bind the Company if they are taken in accordance with the
authorization given to him by the Board. Whenever the Chairman is unable
to perform his duties for any
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reason, he shall authorize in advance the Vice Chairman to act as the
legal representative of the Company.
24.5 The term of office for the Directors, Chairman and Vice Chairman, shall
be four years or until such Director's earlier death, resignation or
removal, and any person serving in any such office may serve one or more
terms, consecutively or otherwise, if appointed or reappointed to such
office or offices by the relevant Party.
24.6 Matters requiring unanimous approvals of Directors and approvals of the
majority of the Directors are set forth in the Articles of Association.
24.7 Other matters regarding the Board shall be as set forth in the Articles
of Association.
CHAPTER X BUSINESS MANAGEMENT STAFF
ARTICLE 25
25.1 The Company shall establish a management staff which shall be
responsible for the Company's daily management, to include
responsibility for such matters as manufacturing and production
planning, engineering and technology, product development, marketing,
finance, human resources, total quality management, materials purchasing
and planning, supplier management, and other administrative tasks.
25.2 The management staff shall have a general manager nominated by Party B
and deputy general manager nominated by Party A which shall be approved
by the Board. The general manager and deputy general manager may
participate as Directors of the Board during the term of their
employment as general manager or deputy general manager if so appointed
by the appointing Party. The general manager may also be appointed as
the Chairman, if Party B so desires.
25.3 The general manager shall report to and be under the leadership of the
Board. The responsibility of the general manager is to carry out all
decisions of the Board , and organize and conduct the daily management
of the Company, which shall include, but not be limited to, the
following:
(a) Manage and direct the activities of management staff and all
employees.
(b) Determine business strategies and plans relative to markets, sales
and service channels, product pricing, costs and margins, new
product development, capital expenditures, competitive market
posture, annual sales plan and proposing an annual budget to the
Board. The general manager shall use his best efforts to consider
the interests of the Company when establishing price
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agreements for Company product sales to Caterpillar, Inc. and all other
markets.
(c) Responsibility for the Company's annual profitability and cash
flows.
(d) Implementation of appropriate hiring, firing and manpower staffing
decisions.
(e) Establishing hourly and salaried pay rates and any rate changes.
(f) Formulating and implementing the rules and regulations described
in the these Articles of Association.
(g) Recommending to the Board allocations and proportions of reserve,
expansion, bonus and welfare fund payments.
In handling the issues mentioned above, the general manager shall
consult with the deputy general manager. The general manager shall
authorize the deputy general manager, in writing, to act on his behalf
in his absence pursuant to the terms of such authorization.
The deputy general manager and the Company management staff shall be
supervised by and be responsible to the general manager.
25.4 The term of office and employment agreements for the general manager,
deputy general manager, manager of finance and other expatriate
employees, shall be approved by a majority of the Board.
Party B's international service employee policies shall be taken into
consideration by the Board for determination of the general manager's
compensation and terms of employment.
25.5 The general manager or deputy general manager shall not hold posts
concurrently in other economic organizations without prior approval from
a majority of the Board.
The general manager and deputy general manager shall not, in exercising
their powers, vary the resolutions of the Board or exceed the scope of
their authorities. The Directors, general manager and deputy general
manager owe a duty in exercising their powers, to exercise honesty,
loyalty and diligence pursuant to the PRC laws and regulations and the
Company's Contract and Articles of Association
ARTICLE 26
26.1 The Company shall have a manager of finance, who shall be part of the
management staff. The manager of finance shall be nominated by Party A
and shall be appointed by the general manager.
The manager of finance shall be responsible for the financial, treasury,
audit, and accounting affairs of the Company, and shall organize the
Company's business accounting department, provide for the adoption and
implementation of accounting
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practices acceptable to the Board, and implement the necessary financial
systems and internal controls.
26.2 The Company shall establish an engineering function for the purpose of
implementing ongoing benchmarking of competitive products in the PRC and
assisting other departments with the development of new products and
product improvements suitable for the Chinese market as determined by
the Board from time to time.
CHAPTER XI PURCHASE OF EQUIPMENT
ARTICLE 27
27.1 In its purchase of required raw materials, fuel, parts, means of
transportation, and articles for office use, etc., the Company shall
purchase from the suppliers who are able to provide the greatest
commercial value to the Company in terms of quality, cost, service,
transportation, logistics expense, expediency, responsiveness,
flexibility, etc.
ARTICLE 28
28.1 Final purchase decisions will be made by the Company. In case the
Company entrusts Party A or Party B to assist with the purchase of
equipment, the entrusted party shall ensure that such purchase is
carried out on such terms and conditions and at such costs, expenses and
prices as are acceptable to the Company. If the other Party believes it
is necessary to participate in such assistance, such Party may do so at
its own expense. If Party A or Party B is requested by the Company to
participate in the purchasing assistance, related expenses of such party
shall be reimbursed by the Company.
CHAPTER XII LABOR MANAGEMENT
ARTICLE 29
29.1 A form of uniform labor contract covering recruitment, employment,
dismissal, resignation, wages, benefits, incentives, unemployment,
welfare, penalties, and other matters concerning the staff and workers
of the Company (hereinafter referred to as the "Labor Contract"), shall
be developed by the general manager in accordance with the relevant
promulgated and publicly available laws and regulations of the PRC, and
then approved by the Board for the Company, in accordance with and
pursuant to the Articles of Association.
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29.2 The Company shall give first consideration to employees of Party A and
Party B in employing its staff.
CHAPTER XIII ACCOUNTING, AUDITING AND TAXATION
ARTICLE 30 ACCOUNTING AND AUDITING
30.1 The Company's accounting and auditing systems shall be provided for in
the Articles of Association.
30.2 Taxation
30.2.1 The Company shall pay out of its taxable income the applicable
PRC state and local income taxes according to the "PRC Income
Tax Law on Enterprises with Foreign Investment and Foreign
Enterprises" promulgated on April 9, 1991 and its Implementing
Regulations (collectively, the "FIE Tax Law"), and other
applicable taxes according to the relevant promulgated and
publicly available laws and regulations of the PRC.
30.2.2 The Company shall apply to relevant tax authorities for its
entitlement to the most favorable tax treatment permitted by PRC
law which, as of the date of this Contract, permits
production-oriented foreign investment enterprises with terms of
operation of ten (10) years or more (i) an exemption from income
tax in the first and second years commencing with the first
profit-making year, and (ii) a 50% reduction from the third year
to the fifth year. With the assistance of Party A, the Company
shall make all efforts necessary or advisable to obtain all
possible PRC or local tax exemptions, preferences, or reductions
to which it may now be, or hereinafter become, entitled. All
PRC taxes, duties, late charges, penalties and related tax
liabilities of the Company shall be calculated and paid in RMB.
Party A shall assist the Company in applying for designation of
the Company, if applicable, as a "technologically advanced
enterprise" or an "export-oriented enterprise" and shall assist
the Company in applying for all appropriate tax preferences
permitted on the date of this Contract.
30.3 The employees of the Company shall pay personal income tax in accordance
with "The Individual Income Tax Law of the PRC" as amended on October 31,
1993.
30.4 The Company shall obtain, within the permission of the relevant PRC laws
and regulations existing on the date of this Contract, all PRC import
licenses and approvals for duty-free clearance from the PRC Customs for
the import of equipment, machinery and raw materials purchased by the
Company.
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CHAPTER XIV DURATION AND TERMINATION OF THE CONTRACT
ARTICLE 31
31.1 This Contract and the Company shall continue for a term of 50 years
commencing on the Business License Date, unless earlier terminated in
accordance with the provisions of this Chapter.
31.2 Notwithstanding Article 31.1, either Party to this Contract may propose
an extension to the term of the Company not later than twelve (12)
months before expiry of the Company term. If such proposal is accepted
by the other Party and approved by the Board of Directors, then an
application for approval to extend the term of the Company shall be
submitted to the Approving Authorities not later than 180 days prior to
the expiry date of the Company term. Upon such approval being granted
the Company shall proceed with registration formalities to extend the
Company term.
ARTICLE 32
32.1 This Contract and the Company may be terminated before the expiration of
the 50 year term, in the event both Party A and Party B agree that an
earlier termination of this Contract and the Company is in the best
interest of both Parties, and only upon the unanimous approval of the
Board. Notwithstanding any other provisions in this Contract, upon any
expiration or earlier termination of this Contract or transfer of Party
A's or Party B's Equity Interest to each other within five years of the
Business License Date arising under Article 32 or Article 33 hereof, the
Deed of Technology License (Schedule C), Deed of Trademark License and
the Engineering Assistance Agreement entered into between the Company
and the Parties or their affiliates and any other agreements regarding
the license of technology or intellectual property from the Parties or
their affiliates to the Company shall immediately terminate and all
rights licensed pursuant to such deeds, contracts and agreements shall
revert to the Parties or their affiliates.
32.2 After consultation between the Parties, either Party to this Contract
may instruct the Directors appointed by it to request the Chairman of
the Board to convene a board meeting for the purpose of deciding on
whether or not to terminate this Contract prior to the expiry of the
joint venture term if, subject to the relevant provisions of the PRC
laws and regulations, any of the following events occurs:
(a) The other Party becomes insolvent or bankrupt, or is the subject
of proceedings for liquidation or dissolution, or ceases to carry
on its business.
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(b) The conditions or consequences of any force majeure described in
Article 40 hereof prevail with respect to either Party, or prevail
mutatis mutandis with respect to the Company, for a period in
excess of 180 days, and the Parties are unable to agree to an
equitable solution to resolve the problem.
(c) Change in the relevant PRC policies, laws or regulations which
materially affect the economic benefits and interests of the
Company or the Parties including without limitation the duty free
treatment on the import of machinery and equipment submitted in
1995 and income tax exemptions and reductions as set forth in
Article 30.2.2 hereof, or prevent Party B from participating in
the Company in the manner defined in this Contract or the Articles
of Association.
(d) The cumulative losses of the Company exceed fifty per cent (50%)
of the Company's total assets.
(e) The Company is unable to achieve its purpose and/or scope of
operation as set forth in this Contract.
32.3 If due to happening of any of the events described in Article 32.2
above, one Party (the "First Party") requests a termination of this
Contract and the dissolution of the Company at a meeting of the
Board of Directors, and if the other Party (the "Second Party") for
whatever reason does not agree to such request, then the First
Party shall have the right to require the Second Party to acquire
the First Party's entire Equity Interest in the Company. The price
for such acquisition shall be equal to the First Party's percentage
share in the Company's paid-up registered capital multiplied by the
net asset value of the Company as determined in accordance with
Article 33.4 and the Company's balance sheet as adjusted by the
Company's independent auditor as at the end of the most recent
accounting month immediately preceding the date when the First
Party's request for termination is made.
32.4 If the Second Party agrees to the First Party's request for terminating
this Contract and dissolving the Company, then both Parties shall
instruct their Directors to pass the appropriate Board resolution for
approving the termination of this Contract and dissolution of the
Company, and to take all other necessary actions and comply with all
legal formalities for effecting the dissolution of the Company.
32.5 If the Second Party does not agree to the First Party's request for
terminating this Contract, and if the First Party then exercises its
right to require the Second Party to acquire the First Party's entire
Equity Interest in the Company pursuant to Article 32.3, the Second
Party shall purchase the entire Equity Interest of the First Party at
the price stipulated in Article 32.3, and ensure that all loans and
debts owing by the Company to the First Party are repaid, and
liabilities issued or
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incurred by the First Party on behalf of, or for the account of, the
Company are released in full.
ARTICLE 33
33.1 In the circumstances set out below, this Contract may be terminated and
the Company may be dissolved or, if elected by the non-defaulting
Party, the non-defaulting Party may acquire the entire Equity Interest
of the defaulting Party in the Company:
(a) One Party commits a material breach of this Contract (the
"defaulting Party"), and does not remedy such breach within 90
days (or within such longer period as may be agreed by the
other Party (the "non-defaulting Party") from the date of
receipt by the defaulting Party of written notice of default
issued by the non-defaulting Party, and if such breach and
failure to adopt remedial measures is admitted by the
defaulting Party, then the non-defaulting Party shall have the
option of either acquiring the defaulting Party's entire Equity
Interest in the Company at the price stipulated in Article 33.2
hereof, or dissolving the Company, in addition to its right to
claim damages for breach of contract from the defaulting Party.
The defaulting Party shall consent to the dissolution of the
Company (if the non-defaulting Party requests dissolution), or
shall sell the defaulting Party's entire Equity Interest in the
Company to the non-defaulting Party at the price stipulated in
Article 33.2 (if the non-defaulting Party chooses to purchase
the defaulting Party's entire Equity Interest in the Company),
as the case may be.
(b) If the Party alleged by the non-defaulting Party to be in
default does not admit that it has committed a material breach
of this Contract, or if a dispute arises as to whether such
breach has been remedied within 90 days (or such longer period
as may be agreed by the non-defaulting Party) from the date of
receipt by the defaulting Party of written notice of default
issued by the non-defaulting Party, then the dispute shall be
settled by arbitration in accordance with Articles 42 and 43
hereof. If the arbitrators decision confirms that a serious
breach under this Contract has in fact occurred, or that such
breach was not satisfactorily remedied by the defaulting Party,
then the non-defaulting Party shall have the option of either
acquiring the defaulting Party's entire Equity Interest in the
Company at the price stipulated in Article 33.2 hereof, or
dissolving the Company, in addition to its right to claim
damages for breach of contract from the defaulting Party. The
defaulting Party shall consent to the dissolution of the
Company (if the non-defaulting Party requests dissolution) or
shall sell the defaulting Party's entire Equity Interest in the
Company to the non-defaulting Party at the price stipulated in
Article 33.2
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hereof (if the non-defaulting Party chooses to purchase the
defaulting Party's entire Equity Interest in the Company), as
the case may be.
33.2 The price at which the non-defaulting Party shall purchase (and at
which the defaulting Party shall sell) the defaulting Party's entire
Equity Interest in the Company pursuant to Articles 33.1(a) or 33.1(b)
hereof shall be equal to the defaulting Party's percentage share in the
Company's paid up registered capital multiplied by the net asset value
of the Company. Such net asset value shall be determined in accordance
with Article 33.4 and the Company's Balance Sheet as at the end of the
calendar month immediately preceding the date of issuance of notice by
the non-defaulting Party of its option of purchase.
33.3 If the non-defaulting Party chooses to purchase the defaulting Party's
entire Equity Interest in the Company pursuant to Articles 33.1(a) or
33.1(b) hereof, then the non-defaulting Party shall ensure that all
loans and debts owing by the Company to the defaulting Party are
repaid, and further ensure that the defaulting Party be released from
all existing guarantees and liabilities issued or incurred by the
defaulting Party on behalf of or for the account of the Company.
33.4 The "net asset value" referred to in Articles 32 and 33 hereof shall
mean the value of the Company's total assets minus the Company's total
liabilities and, to the extent that this is not considered as
liabilities, also the Company's bonus and welfare fund for staff and
workers. For the purposes of this Article, the value of the Company's
total assets shall mean whichever shall be the lower of :
(i) the total assets of the Company as valued at cost, but minus
depreciation and amortization (but without giving any value to
any technology licensed to the Company by Party A or Party B,
except the unamortized value of any technology for which the
Company retains a limited license pursuant to Article 35.2) as
determined by an independent qualified appraiser appointed by
the First Party in the case of Article 32 hereof, and appointed
by the non-breaching Party in the case of Article 33 hereof.
(ii) the market value of the total assets of the Company at the
relevant time as determined by an independent qualified
appraiser appointed by the First Party in the case of Article
32 hereof, and appointed by the non-breaching Party in the case
of Article 33 hereof.
ARTICLE 34
34.1 If the Company is to be dissolved for reasons other than due to the
expiry of the Contract term, the Board of Directors shall submit to the
Approving Authorities an application for dissolution of the Company.
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34.2 Upon expiry of the Contract term, or if the Company is to be dissolved
upon early termination of this Contract, the Company shall undergo
liquidation in accordance with the pertinent laws and regulations of
the PRC.
34.3 If, at the time the Company is to be dissolved, the Company's assets
are sufficient to settle all its debts and the Board of Directors is
able to organize the liquidation, then the Company shall undergo
ordinary liquidation and a liquidation committee shall be formed
consisting of at least three members of which two shall be Directors,
each representing the interests of their respective Party A and Party B,
and the third shall be an independent member mutually acceptable to
both Party A and Party B.
34.4 If at the time the Company is to be dissolved, the Company is insolvent
or the Board of Directors is unable to organize the liquidation
committee, then the Company shall undergo special liquidation in
accordance with the relevant laws and regulations of the PRC.
ARTICLE 35
35.1 Upon expiration of the term or upon earlier termination of this
Contract and the Company, the Parties shall enjoy the rights set forth
in this Chapter XIV and in Chapter X of the Articles of Association.
35.2 Upon the expiration or early termination of this Contract, Party A
shall have no right to the technology contributed by Party B in
accordance with this Contract, except that if Party A purchases Party
B's Equity Interest in the Company, pursuant to the provisions of
Articles 32 and 33 hereof (a "Party A Purchase"), then the Company
shall retain a limited license right from Party B to use the
technologies but not the Party B trademark used by the Company up to
the time of the termination or expiration as the case may be. In the
event of a Party A Purchase, Party B will retain all rights of
ownership or otherwise to the technology licensed, except for the
limited license provided in the preceding sentence.
CHAPTER XV INSURANCE
ARTICLE 36
36.1 Insurance policies of the Company for various kinds of risks shall be
underwritten in the PRC. Types, value and duration of insurance shall
be decided by the Board of Directors in accordance with the
stipulations of the PRC.
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36.2 At the discretion of the Board, the Company shall also carry such other
insurance underwritten within or outside the PRC for coverage of
product liability claims in connection with sales of the Products.
CHAPTER XVI THE AMENDMENT OF THE CONTRACT
ARTICLE 37
37.1 The amendment of this Contract, including any of its Schedules, shall
be effected through friendly negotiations and subject to the written
unanimous approval of the Parties, as well as, approval by the
Approving Authorities or other relevant governmental agencies.
CHAPTER XVII LIABILITIES FOR BREACH OF CONTRACT
ARTICLE 38
38.1 Both Party A and Party B shall make their respective contributions on
schedule as stipulated in Schedule B of this Contract. The defaulting
party shall pay to the other Party 5% of the scheduled contribution as
a penalty for its non-performance exceeding 30 days from the scheduled
date such contribution is due and an additional 10% of the scheduled
contribution shall be paid to the other party if the non-performance
exceeds the prescribed time limits by 60 days. Such payments shall be
in USD, and shall be computed on terms consistent with the provisions
of Article 11.4 hereof. Additionally, the non-defaulting Party may
suspend its performance under this Contract until such time as the
defaulting Party has cured its breach. If the defaulting Party's
default continues for 60 days or more, the other Party may terminate
this Contract and the Company in accordance with Chapter XIV of this
Contract and relevant and promulgated PRC laws.
ARTICLE 39
39.1 Should all or part of this Contract, including its Schedules, be unable
to be fulfilled owing to the fault of one Party, the defaulting Party
shall be liable to the non-defaulting Party for all losses arising from
such breach including lost profits of the Company and shall include the
reasonable attorney's fees and expenses incurred by the non-defaulting
Party in connection with such breach; provided however, in no event
shall either party be liable to the other for any damages in excess of
such Party's actual cash contribution to the Company. Should all or
part of this Contract including its Schedules be unable to be
fulfilled owing to the fault of both Parties, they shall bear liability
in proportion to the amount of losses caused by each Party's respective
breach.
27
<PAGE>
CHAPTER XVIII FORCE MAJEURE
ARTICLE 40
40.1 Should either of the Parties be prevented from performing under this
Contract by force majeure, including earthquake, typhoon, flood, fire,
war, civil unrest, labor disturbance, strikes, disruption of
transportation, disruption of communication systems or other unforeseen
events, and their happening and consequences are unavoidable and beyond
the control of the prevented Party, such Party shall so notify the
other Party as soon as possible by the best means reasonably available,
and within 15 days thereafter provide detailed information of the
events. If requested by the other Party, the prevented Party shall also
provide verified documentary evidence explaining the reason of its
inability to execute, or of the delay in execution of its performance.
Both Parties shall, through consultations, decide whether to terminate
this Contract and dissolve the Company, or to waive partial performance
of the Contract, or to delay the execution of performance of the
Contract according to the effects of the events on the performance of
the Contract.
CHAPTER XIX APPLICABLE LAW
ARTICLE 41
41.1 The formation of this Contract, its validity, interpretation and
performance, and settlement of the disputes shall be governed by the
relevant promulgated and publicly available laws of the PRC.
CHAPTER XX SETTLEMENT OF DISPUTES
ARTICLE 42
42.1 The Parties shall initially attempt to settle any disputes arising from
the execution of, or in connection with, this Contract, through
friendly consultations between the Parties.
42.2 In case no settlement can be reached within sixty days, then disputes
shall be settled through arbitration by the arbitration tribunal of the
International Chamber of Commerce situated in Geneva, Switzerland, in
accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce. The site of such arbitration
proceedings shall be Geneva, Switzerland, or such other site as
28
<PAGE>
the Parties may mutually agree. The arbitration proceedings shall be
conducted in English. Party A and Party B agree further:
(A) Arbitration may be initiated by either Party by giving thirty
days notice in writing to the other Party.
(B) Each Party may select one arbitrator and the arbitrators so
selected shall select an additional arbitrator, to compose an
arbitration panel of three members.
(C) If the arbitrators selected by Parties A and B are unable to
select a third arbitrator, then the Chairman of the
International Chamber of Commerce will select the third
arbitrator.
(D) The third arbitrator shall have technical knowledge or
experience relevant to the subject matter of the dispute to be
arbitrated.
(E) In making their decisions, the arbitrators shall be bound by
the explicit provisions of this Contract, its Schedules and the
Articles of Association of the Company, as well as the laws and
regulations of the PRC governing Chinese-Foreign equity
ventures.
(F) Decisions of the majority of arbitrators shall be final and
binding upon the parties and judgment on the award may be
entered in any court having jurisdiction and the Parties agree
to exclude any right of application or appeal to the courts of
Geneva or elsewhere in connection with any question of law
arising in the course of the arbitration or with respect to any
award made, except for appeals involving bad faith performance
of an arbitrator.
(G) The costs of arbitration, including reasonable attorney fees,
shall be borne by the losing Party or as otherwise specified in
the ruling of the arbitration tribunal.
(H) The award is to be considered as a settlement of the dispute
between the Parties and both Parties shall accept this
settlement as the true expression of their own determination in
connection therewith.
(I) All sums ordered by the arbitrators to be paid by one Party to
the other Party shall be paid in USD within sixty (60) days of
the arbitrators final decision.
29
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ARTICLE 43
43.1 During any arbitration proceeding, the Contract shall be performed
continuously by both Parties except for matters in dispute.
CHAPTER XXI LANGUAGE
ARTICLE 44
44.1 This Contract is written in both the Chinese language and the English
language. Both language versions shall be equally authentic, valid and
binding. In no event shall this Contract be construed or interpreted
for or against the position of either Party A or Party B in reliance
upon principles of construction of agreements that would penalize the
draftsman of an agreement. In the event of any ambiguity, both Parties
hereto having negotiated the terms, having participated in the
drafting, and having had the advice of all such advisors as they may
have deemed necessary or advisable in the preparation of this Contract
and the Articles of Association.
CHAPTER XXII EFFECTIVENESS OF THE CONTRACT AND MISCELLANY
ARTICLE 45
45.1 Schedules A and B of this Contract are hereby incorporated by reference
into the Contract and are to be considered an integral part of this
Contract and shall be effective upon approval by the Approving
Authorities. Schedules C, D, and E shall respectively be effective
upon the later to occur of full execution and delivery or relevant
approval of the Approving Authorities.
ARTICLE 46
46.1 Notices required or permitted in connection with any Party's
rights and obligations under this Contract shall be in writing and may
be sent to the other Party by (a) telegram of facsimile, the receiving
day of record shall be the next business day following the sending day;
or (b) by mail, the receiving day of record for mailed notices shall be
the 12th business day after the air postage seal date.
46.2 All such notices shall be given to the respective parties as follows:
30
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(A) If to Party A: Mr. Chen Guo Xiang
Chairman of the Board and General Manager
Fufa Company Limited
223 Gong Ye Road
Fuzhou, Fujian, PRC 350004
with a copy to: Mr. Lin Zhao Ping
Chief Engineer & Vice President
Fufa Company Limited
223 Gong Ye Road
Fuzhou, Fujian, PRC 350004
(B) If to Party B: Mr. Samuel Miley
Vice President and Secretary
MagneTek,Inc
26 Century Blvd
P.O.Box 290159
Nashville, TN, USA 37229-0159
with a copy to: Mr. Kyle Hale
VP & General Manager, Motors & Generators
MagneTek, Inc.
669 Natchez Trace Drive
Lexington, TN 38351, USA
46.3 Changes in the posting address of either Party A or Party B shall be
given by written notices as specified in this Article 46.
ARTICLE 47
47.1 All provisions, clauses and covenants contained in this Contract are
severable and in the event any of them shall be held to be invalid,
illegal or unenforceable, the remainder of this Contract shall be
interpreted as if such invalid, illegal or unenforceable provisions,
clause or covenants were not contained herein.
47.2 In consideration of the mutual covenants and undertaking of the Parties
as stated herein, the Parties have caused their duly authorized
representatives to execute this Contract on this 17th day of December,
1995 in Fuzhou, Fujian Province, the PRC.
31
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Fujian Fufa Company Limited MagneTek,Inc.
------------------------ ----------------------
Chen Gou Xiang Gary Wolfe
Legal Representative Authorized Representative
32
<PAGE>
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
among
MAGNETEK NATIONAL ELECTRIC COIL, INC.
MAGNETEK, INC.
EASTERN ELECTRIC APPARATUS REPAIR COMPANY, INC.
and
GRAND EAGLE COMPANIES INC.
- -------------------------------------------------------------------------------
Dated as of February 27, 1996
- -------------------------------------------------------------------------------
Sale of Assets
of
Field Service Center and Fairfield Supply Businesses
of
MagneTek National Electric Coil, Inc.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 Certain Defined Terms................................................ 1
1.2 Other Definitional Provisions........................................ 8
ARTICLE 2
CLOSING; PURCHASE PRICE ADJUSTMENT
2.1 Purchase and Sale of the Assets...................................... 9
2.2 Limited Assumption of Liabilities.................................... 12
2.3 Closing.............................................................. 14
2.4 Purchase Price Adjustment............................................ 15
2.5 Allocation of Purchase Price......................................... 18
ARTICLE 3
CONDITIONS TO CLOSING
3.1 Buyer's Obligation................................................... 18
3.2 Seller's Obligation.................................................. 22
3.3 Certain Costs........................................................ 23
3.4 Co-operation as to Surveys........................................... 24
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER AND MAGNETEK
4.1 Authority; No Conflicts; Governmental Consents....................... 24
4.2 The Assets........................................................... 26
4.3 Organization and Standing of Canada Sub.............................. 26
4.4 Capital Stock of Canada Sub.......................................... 26
4.5 Equity Interests; Subsidiaries....................................... 27
4.6 Financial Statements................................................. 27
4.7 Absence of Changes or Events......................................... 28
4.8 Taxes................................................................ 28
4.9 Assets Other than Real Property Interests............................ 30
4.10 Real Property........................................................ 30
4.11 Intellectual Property................................................ 30
4.12 Furniture, Fixtures, Machinery and Equipment......................... 31
4.13 Contracts............................................................ 31
4.14 Litigation; Decrees.................................................. 33
4.15 Employee Benefit Plans............................................... 33
4.16 Compliance with Applicable Laws...................................... 36
4.17 Environmental Matters................................................ 36
4.18 Employee and Labor Relations......................................... 36
4.19 Corporate Names...................................................... 37
4.20 Licenses and Permits................................................. 37
4.21 Directors, Officers and Employees of the Company..................... 37
4.22 Customers............................................................ 37
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER AND GRAND EAGLE
5.1 Authority; No Conflicts; Governmental Consents....................... 38
5.2 Actions and Proceedings, etc......................................... 39
5.3 Availability of Funds................................................ 39
5.4 Buyer's and Grand Eagle's Acknowledgment............................. 39
5.5 Exon-Florio.......................................................... 40
ARTICLE 6
COVENANTS OF SELLER AND MAGNETEK
6.1 Access............................................................... 40
6.2 Ordinary Conduct..................................................... 40
6.3 Insurance............................................................ 42
6.4 Accounts Receivable.................................................. 42
6.5 Confidentiality Agreements........................................... 43
6.6 No Solicitation...................................................... 43
6.7 Lien Searches........................................................ 43
6.8 Third Party Consents................................................. 43
6.9 Environmental Matters................................................ 44
6.10 Rancho Dominguez Lease Assignment.................................... 45
6.11 Rancho Dominguez Facility Project.................................... 46
6.12 Delivery of Schedules................................................ 46
ARTICLE 7
COVENANTS OF BUYER
7.1 Confidentiality...................................................... 46
7.2 Accounts Receivable.................................................. 47
7.3 Insurance............................................................ 47
7.4 Assets Remaining on Buyer's Property................................. 47
7.5 Change of Name of Canada Sub......................................... 48
ARTICLE 8
MUTUAL COVENANTS
8.1 Cooperation.......................................................... 48
8.2 Publicity............................................................ 48
8.3 Antitrust Notification............................................... 48
8.4 Records.............................................................. 49
8.5 Consents............................................................. 50
ARTICLE 9
EMPLOYEE BENEFIT MATTERS
9.1 Employee Benefit Matters............................................. 50
ARTICLE 10
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INDEMNIFICATION
10.1 Tax Indemnification.................................................. 53
10.2 Other Indemnification by Seller...................................... 54
10.3 Other Indemnification by Buyer....................................... 55
10.4 Indemnification for Environmental Matters............................ 55
10.5 Indemnification for Canada Sub....................................... 56
10.6 Losses Net of Insurance, Etc......................................... 57
10.7 Termination of Indemnification....................................... 58
10.8 Procedures Relating to Indemnification (Other than
Under Section 10-1)................................................ 58
10.9 Procedures Relating to Indemnification of Tax Claims................. 59
10.10 Survival of Representations.......................................... 60
10.11 Mandatory Setoff of Seller Note...................................... 61
ARTICLE 11
POST CLOSING MATTERS
11.1 Tax Matters.......................................................... 61
11.2 Access to Former Business Records.................................... 62
11.3 Use of Trademark and Trade Names..................................... 63
11.4 Further Assurances................................................... 63
ARTICLE 12
GENERAL PROVISIONS
12.1 Assignment........................................................... 64
12.2 No Third-Party Beneficiaries......................................... 64
12.3 Termination.......................................................... 64
12.4 Expenses............................................................. 65
12.5 Attorneys' Fees...................................................... 65
12.6 Amendments........................................................... 66
12.7 Notices.............................................................. 66
12.8 Interpretation; Exhibits and Schedules............................... 67
12.9 Counterparts......................................................... 68
12.10 Entire Agreement..................................................... 68
12.11 Fees................................................................. 68
12.12 Severability......................................................... 68
12.13 Governing Law........................................................ 68
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LIST OF EXHIBITS
Exhibit A Financial Statements
SCHEDULES
Schedule 2.1(d) (xiii) Excluded Agreements
Schedule 2.1(d) (xiv) Excluded Claims
Schedule 3.1(b) (ii) Title Commitment Amounts
Schedule 4.3 Jurisdictions
Schedule 4.6 Historical Financials
Schedule 4.4 Capital Stock of Canada Sub
Schedule 4.7 Changes of Events Since Balance Sheet Date
Schedule 4.8 Tax Exceptions
Schedule 4.9 Liens
Schedule 4.10 Company Properties
Schedule 4.11 Intellectual Property
Schedule 4.13 Certain Contracts
Schedule 4.14 Litigation
Schedule 4.15 Exceptions re Employee Plans
Schedule 4.15(a) Employee Plans
Schedule 4.16 Compliance with Laws
Schedule 4.17 Environmental Matters
Schedule 4.18 Labor Matters
Schedule 4.19 Corporate Names
Schedule 4.20 License and Permits
Schedule 4.21 Directors and Officers
Schedule 4.22 Customers
Schedule 6.2 Exceptions to Ordinary Course
Schedule 6.8 Third Party Consents
Schedule 6.9 Environmental Matters
Schedule 6.11 Facility Project
Schedule 7.4 Certain Excluded Assets Remaining on Premises
iv
<PAGE>
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT dated as of February 27,
1996 (this "Agreement"), among MAGNETEK NATIONAL ELECTRIC COIL, INC., a
Delaware corporation ("Seller"), MAGNETEK, INC., a Delaware corporation
("MagneTek"), EASTERN ELECTRIC APPARATUS REPAIR COMPANY, INC., a Georgia
corporation ("Buyer"), and GRAND EAGLE COMPANIES INC., a Delaware corporation
("Grand Eagle").
Seller desires to sell to Buyer, and Buyer desires to purchase, all of
the Assets (as defined below).
Accordingly, the parties hereto hereby agree as follows:
Seller, MagneTek, Buyer and Grand Eagle hereby amend and restate their
agreement executed as of February 27, 1996, as set forth in this Agreement,
and supersede it entirely with this Agreement.
ARTICLE 1
DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under the Exchange Act by the SEC, as in effect on the date hereof.
"Affiliated Group" means an affiliated group as defined in Section
1504(a) of the Code (or any analogous combined, consolidated or unitary group
defined under state, local or foreign income tax law) of which Seller or any
Subsidiary is or has been a member.
"Ancillary Agreement" means the Seller Note, the Non-Competition
Agreement, and the Bill of Sale and Assignment and Assumption Agreement.
"Assets" has the meaning set forth in Section 2.1(b).
"Assumed Liabilities" has the meaning set forth in Section 2.2 (a)
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"Bill of Sale and Assignment and Assumption Agreement" means such
document in Seller's customary form and reasonably satisfactory to Buyer.
"Business" means each of (a) MagneTek's field service business conducted
through Seller at Tucson, Arizona, Orlando, Florida, Joliet, Illinois, Rancho
Dominguez, California, New Orleans, Louisiana, Akron, Ohio, Pittsburgh,
Pennsylvania, Alcoa, Tennessee, Houston, Texas, and Spokane, Washington, and
through Canada Sub at St. Jean, Quebec, and (b) MagneTek's Fairfield Supply
business conducted through Seller at Fairfield, New Jersey.
"Business Day" means a day other than a Saturday or a Sunday or other
day on which commercial banks in New York or Chicago are authorized or
required by law to close.
"Canada Sub" means MagneTek National Electric Coil Limited, an Ontario
corporation.
"Canada Sub Plan" means any Employee Plan maintained or sponsored by the
Canada Sub or any of its ERISA Affiliates or to which Canada Sub or any of
its ERISA Affiliates has an obligation to contribute immediately prior to the
Closing Date which covers employees, former employees, or the dependents or
beneficiaries thereof of the Canada Sub.
"Canada Sub Shares" means the issued and outstanding capital stock of
Canada Sub.
"Cash Purchase Price" has the meaning set forth in section 2.1(a).
"Claim" means any claim, cause of action, chose in action, right of
recovery, right of set off, or right of recoupment (including any such item
relating to the payment of Taxes).
"Closing" has the meaning set forth in Section 2.3.
"Closing Balance Sheet" has the meaning set forth in Section 2.4(a).
"Closing Date" has the meaning set forth in Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Company Employee" means any person employed by MagneTek or an Affiliate
of MagneTek's other than Canada Sub on the Closing Date whose
responsibilities relate primarily to the Business, including, without
limitation, any person on lay-off, leave of
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absence, sick or short-term disability leave, but excluding any person on
long-term disability leave.
"Company Plan" means any Employee Plan maintained or sponsored by
MagneTek or Seller or any ERISA Affiliate of either of them or to which
MagneTek, Seller or any ERISA Affiliate of either of them has an obligation
to contribute immediately prior to the Closing Date which covers any Company
Employees, former employees, or the dependents or beneficiaries thereof.
"Company Property" has the meaning set forth in Section 4.10.
"Confidentiality Agreement" has the meaning set forth in Section 7.1.
"Contract" means any contract, agreement, license, lease, sales or
purchase order or other legally binding commitment, whether written or oral,
to which Seller or MagneTek is a party and relating primarily to the
Business, or to which Canada Sub is a party.
"Contractual Obligation" means, as to any Person, any provision of any
note, bond or security issued by such Person or of any mortgage, indenture,
deed of trust, lease, license, franchise, contract, agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property or assets is subject.
"Employee Plan" means any employment, collective bargaining agreement,
consulting, severance or other similar contract, arrangement or policy and
each plan, arrangement, program, agreement or commitment providing for fringe
benefits, vacation benefits, retirement benefits, life, health, disability or
accident benefits or other welfare benefits or for deferred compensation,
profit-sharing, bonuses, stock options, restricted stock, stock appreciation
rights, stock purchases or other forms of incentive compensation.
"Environmental Laws" means all currently applicable federal, state and
local and, with respect to Canada Sub, federal and provincial Canadian, laws,
rules, regulations, orders and ordinances relating to pollution or protection
of the environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 ET SEQ., the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. Section 6901 ET SEQ., the Emergency Planning and
Community Right-to-Know Act ("Right-to Know Act"), 42 U.S.C. Section 11001 et
SEQ., the Clean Air Act ("CAA"), 42 U.S.C. Section 7401 ET seq., the Federal
Water Pollution Control Act ("Clean Water Act"), 33 U.S.C. Section 1251 ET
SEQ., the Toxic Substances Control Act ("TSCA"), 15 U.S.C. Section 2601 ET
SEQ., and
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the Safe Drinking Water Act, 42 U.S.C. Section 300f ET SEQ., each as amended,
and any regulations or rules adopted or promulgated pursuant thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means, with respect to any Person ("First Person"),
any other Person with whom the First Person constitutes all or part of a
controlled group, which would be treated with the First Person as under
common control or whose employees would be treated as employed by the First
Person, under Section 414 of the Code and any regulations, administrative
rulings and case law interpreting the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations of the SEC promulgated from
time to time thereunder.
"Estimated Adjustment" has the meaning set forth in Section 2.3.
"Excluded Assets" has the meaning set forth in Section 2.1(d).
"Excluded Liabilities" has the meaning set forth in Section 2.2(b).
"Financial Statements" has the meaning set forth in Section 4.6(a).
"GAAP" means generally accepted accounting principles in the United
States of America.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Materials" means: hazardous substances, extremely hazardous
substances, Toxic Substances, as defined in TSCA, or hazardous wastes as
defined under any Environmental Laws and, for purposes of Canada Sub,
"contaminants" as defined in currently applicable federal and provincial
Canadian law.
"Historical Financials" has the meaning set forth in Section 4.6(a).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended from time to time.
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"Indemnified Buyer Affiliates" means Buyer, Grand Eagle, Canada Sub,
each Affiliate of each of the foregoing, and each of their respective
officers, directors, stockholders, employees and agents.
"Indemnified Seller Affiliates" means Seller, MagneTek, each Affiliate
of each of them, and each of their respective officers, directors,
stockholders, employees and agents.
"Indemnified Person" means any Indemnified Buyer Affiliate and any
Indemnified Seller Affiliate.
"Indemnifying Person" means any Person from whom indemnification is
being sought hereunder.
"Intellectual Property" has the meaning set forth in Section 4.11.
"IRS" means the Internal Revenue Service.
"Knowledge" with reference to any of the representations and warranties
of Seller or MagneTek means the actual knowledge of any "officer", as such
term is defined in 17 C.F.R. Section 240.16a1(f), of Seller or MagneTek, as
the case may be, and of any other employee of Seller or MagneTek, as the case
may be, who had, on the date of this Agreement, responsibility on a
company-wide level for matters that are the subject of such representation
and warranty.
"Larsen-Hogue Plan" means the MagneTek, Inc. Utilities and Power
Products Division Larsen-Hogue Electrical Service Repair Pension Plan, a
defined benefit pension plan maintained by MagneTek pursuant to a collective
bargaining agreement for certain Company Employees.
"Leased Property" has the meaning set forth in Section 4.10.
"Lien" means any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or other security agreement of any
kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement or any financing lease having
substantially the same economic effect as any of the foregoing).
"Loss" means any loss, liability, claim, damage or expense (including
reasonable attorneys' fees and disbursements and the costs of investigation).
Loss recoverable hereunder is subject to the limitations set forth in
Section 10.6.
"Material Adverse Effect" means, with respect to either or both of
Seller and Canada Sub, a material adverse effect on either
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(i) the business, operations, property or condition (financial or other) of
the Business, taken as a whole, or (ii) the ability of Seller or MagneTek to
consummate the transactions contemplated by this Agreement.
"Material Contracts" has the meaning set forth in Section 4.13.
"Non-Competition Agreement" has the meaning set forth in Section 3.1(p).
"Ordinary Course" means the ordinary course of business substantially in
the same manner as now conducted and consistent with past custom and practice
(including with respect to quantity and frequency).
"Other Agreement" means the Asset Purchase Agreement of even date
herewith among MagneTek, Grand Eagle, MagneTek Ohio Transformer, Inc. and OT
Acquisition Corp.
"Owned Property" has the meaning set forth in Section 4.10.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Lien" has the meaning set forth in Section 4.9).
"Permitted Title Exceptions" means, with respect to each Company
Property, (i) exceptions to title disclosed in a preliminary title report
delivered to Buyer and in any such preliminary title report previously
obtained by Buyer or delivered by Seller to Buyer, (ii) all leases, occupancy
agreements and other similar agreements to which Seller or Canada Sub, as
applicable, is a party, together with all modifications, extensions and
renewals thereof and any guarantees of any of the foregoing with respect to
or demising any part of the applicable Company Property, (iii) all matters
which would be disclosed in the Surveys that are referenced in Section 3.4 of
this Agreement, (iv) any matters created by or through Buyer or Grand Eagle,
their lenders or any of the affiliates or agents of any of the foregoing, (v)
general and special property taxes and assessments not yet delinquent as of
the Closing, and (vi) all matters of record in the official records of the
county in which the Company Property is located.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Purchase Price" has the meaning set forth in Section 2.1(a).
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"Records" has the meaning set forth in Section 2.1(b)(xi).
"Requirement of Law" means, as to any Person, the Certificate or
Articles of Incorporation and By-Laws or other organization or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject, including, but not
limited to any law, treaty, rule, regulation or determination with respect to
public health and safety or worker health and safety, including, without
limitation, the Occupational Safety and Health Act, 42 U.S.C. Section 651 ET
SEQ.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations of the SEC promulgated from time to
time thereunder.
"Seller Facility" means any property owned, leased, used or occupied by
Seller or Canada Sub or any Affiliate of either of them at any time on or
before Closing.
"Seller Note" means a promissory note issued by Grand Eagle in customary
form and reasonably satisfactory to MagneTek and Grand Eagle.
"September Balance Sheet" has the meaning set forth in section 4.6(a).
"Stay and Pay Agreements" means any agreement, whether written or oral,
between MagneTek, Seller or Canada Sub, on the one hand, and any Company
Employee or employee of Canada Sub, on the other hand, to pay any amount upon
the termination of employment of the Company Employee or employee of Canada
Sub that is triggered by the transactions contemplated by this Agreement.
"Subsidiary" means, collectively, each corporation, limited liability
company, partnership, association and other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
to vote in the election of directors is at the time owned or controlled,
directly or indirectly, by Seller or one or more Subsidiaries, or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the partnership or other
similar ownership interest thereof is at the time owned or controlled (as
defined in Rule 405 under the Securities Act), directly or indirectly, by
Seller or one or more Subsidiaries or a combination thereof. For purposes
hereof, Seller or a Subsidiary shall be deemed to have a majority
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ownership interest in a limited liability company, partnership, association
or other business entity if Seller or one or more Subsidiaries or any
combination thereof shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"Tax" or "Taxes" means with respect to any Person (a) all federal,
state, local, foreign or other taxes, including net income, gross income,
unitary, gross receipts, sales, use, intangible, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
transfer, occupation, premium, property or windfall profit tax, custom, duty
or other tax, governmental fee (similar to a tax) or other like assessment or
charge of any kind whatsoever, together with any interest or penalty or
addition to tax imposed by any jurisdiction or other Governmental Authority
(federal, state, local or foreign), on such Person, and (b) any transferee or
secondary liability of such Person for a Tax and any Tax liability assumed by
agreement or arising as a result of being (or ceasing to be) a member of any
Affiliated Group, or being included or required to be included in any Tax
Return relating thereto.
"Tax Returns" means all returns or material reports or forms required to
be filed with a Governmental Authority with respect to Taxes.
"Third Party Consents" has the meaning set forth in Section 6.8.
"WARN Act" means the Worker Adjustment and Retraining Act of 1986, as
amended from time to time.
"Warranty Claims" has the meaning set forth in Section 2.2 (a)(ii).
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Terms defined in this Agreement
in Sections other than Section 1.1 shall have the meanings as so defined when
used in this Agreement.
(b) As used herein, accounting terms relating to Seller or Canada
Sub not defined or to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) Unless express reference is made to Business Days, references
to days shall be to calendar days.
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ARTICLE 2
CLOSING; PURCHASE PRICE ADJUSTMENT
2.1 PURCHASE AND SALE OF THE ASSETS. (a) On the terms and subject to
the conditions of this Agreement, Seller will sell, transfer and deliver to
Buyer free and clear of any Liens (other than Permitted Liens), and Buyer
will purchase from Seller, all of Seller's right, title and interest in the
Assets, for the aggregate consideration of (i) Twelve Million Two Hundred
Seventy-Five Thousand Dollars ($12,275,000.00) subject to adjustment as set
forth in Section 2.4 (the "Cash Purchase Price"), and (ii) a Seller Note in
the principal amount of Two Million Seventy-Five Thousand Dollars
($2,075,000.00) (collectively, the "Purchase Price").
(b) In this Agreement, "Assets" means (A) the Canada Sub Shares
and (B) the assets of Seller used primarily in or arising primarily out of
the Business, other than the Excluded Assets, wherever located and whether or
not reflected in Seller's books, records or financial statements, including,
without limitation, all of Seller's:
(i) tangible personal property (such as machinery,
equipment, inventories of raw materials and supplies, manufactured and
purchased parts, goods in process and finished goods, furniture,
automobiles, trucks, tractors, trailers, test equipment, tools, jigs, and
dies), and rights as a lessee or conditional purchaser of any of the
foregoing; and
(ii) real property, improvements, fixtures and fittings
thereon, easements, rights-of-way, and other appurtenances thereto (such
as appurtenant rights in and to public streets), and leaseholds and
subleaseholds in any of the foregoing; and
(iii) leases, subleases, and rights thereunder; and
(iv) accounts, notes, and other receivables, and
(v) rights under Contracts; and
(vi) engineering, quality control, technical, and other
data, in whatever form maintained; and
(vii) the Business's Intellectual Property, logos, trade
dress, corporate names, trade secrets and other confidential business
information, and the goodwill
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associated therewith, licenses and sublicenses granted and obtained with
respect thereto, and rights thereunder, remedies against infringement
thereof, and rights to protection of interests therein under the laws of
all jurisdictions; and
(viii) non exclusive royalty-free licenses to any MagneTek
proprietary computer programs or other software used primarily in
connection with data and records included in the Assets; and
(ix) lists and records of Seller's customers and suppliers; and
(x) engineering plans, drawings, specifications, studies and
reports; and
(xi) the Business's books and records (including copies, to
the extent segregatable from other MagneTek records, of historical
accounting and financial records and the Tax records pertaining to Canada
Sub, but not other Tax records), files, studies, reports, catalogs,
documents, correspondence and other printed or written materials, and
copies of the employment records pertaining to the employees of the
Business (all of the foregoing being "Records"); and
(xii) copies of financial books and records and other books
and records maintained by MagneTek or other Affiliates of MagneTek other
than Seller and Canada Sub that pertain to the Business and its
employees; and
(xiii) franchises, approvals, authorizations, permits, licenses,
orders, registrations, certificates, variances, and similar rights
obtained from Governmental Authorities or other Persons; and
(xiv) Claims, deposits, prepayments, refunds, and warranties;
and
(xv) the right to continued custody of all assets owned by a
customer of Seller and held by Seller on behalf of such customer; and
(xvi) any and all assets related to the Larsen-Hogue Plan.
(c) To the extent any equipment, agreements, rights, or other
personal property, tangible or intangible, owned by MagneTek or any Affiliate
of MagneTek other than Seller or Canada Sub are used primarily in or arise
primarily out of the Business, they are included within the meaning of the
term "Assets" to the
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same extent as they would have been so included had they been owned by
Seller, and MagneTek agrees to convey, and cause each such Affiliate to
convey, all of its right, title and interest in and to such assets and
property to Buyer, or to Seller for conveyance to Buyer, on or prior to the
Closing, all without separate consideration from Buyer and otherwise in
accordance with the terms of this Agreement.
(d) Notwithstanding any contrary provision of this Agreement,
"Assets" shall not include, and Buyer does not purchase from Seller, any of
the following (collectively, the "Excluded Assets"):
(i) Seller's corporate charter, qualifications to conduct
business, arrangements with registered agents relating to qualifications
to conduct business, taxpayer and other identification numbers, seals,
minute books, stock transfer books, blank stock certificates, and other
documents relating solely to the organization, maintenance and existence
of Seller as a corporation; or
(ii) any of Seller's rights under this Agreement or any
other agreement between Seller, on the one hand, and Buyer or Grand
Eagle, on the other hand, entered into on or after the date of this
Agreement; or
(iii) any of Seller's assets, including rights under
agreements with buyers of business units of Seller, primarily arising
from or relating to business units of Seller other than the Business; or
(iv) financial books and records, other than Tax records of
Canada Sub, and other books and records maintained by MagneTek or other
Affiliates of MagneTek other than Seller or Canada Sub other than those
that pertain to the Business and its employees; or
(v) any interest in any Subsidiary other than Canada Sub; or
(vi) any cash, lockbox, bank or lockbox account of Seller; or
(vii) except as expressly provided herein, any interest in
the use of the name "MagneTek", the phrase "NEC" or the phrase "National
Electric Coil" in any trademark, service mark, trade name, slogan or
corporate name; or
(viii) any interest in the use of trademarks, service marks,
trade names, slogans or other like property in general
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use among Seller and MagneTek or other Affiliates of MagneTek in
connection with businesses other than the Business; or
(ix) rights to claims for refunds or rebates of Taxes and
other governmental charges and the benefit of net operating loss
carryforwards, carrybacks or other credits of Seller, whether or not
attributable to the Business; or
(x) all insurance policies and rights thereunder, including,
but not limited to, any rights to cancellation value as of the Closing
Date; or
(xi) proprietary or confidential business or technical
information, records and policies that relate generally to MagneTek and
its Affiliates and are not used primarily in the Business, including,
without limitation, organization manuals and strategic plans; or
(xii) MagneTek's proprietary computer programs or other
software, including but not limited to MagneTek's proprietary data bases,
accounting and reporting format, systems and procedures; or
(xiii) agreements, contracts, indentures, mortgages,
instruments, security interests, or guarantees listed on
Schedule 2.1(d)(xiii) to this Agreement; or
(xiv) any of the Claims listed on Schedule 2.1(d)(xiv) to this
Agreement; or
(xv) any assets associated with, or any of Seller's rights in
connection with, any Company Plan (other than the Larsen-Hogue Plan).
2.2 LIMITED ASSUMPTION OF LIABILITIES. (a) As of the close of
business on the Closing Date, Buyer will execute and deliver the Bill of Sale
and Assignment and Assumption Agreement and thereby assume and become
responsible for, pay and discharge when due, all of the liabilities and
obligations of Seller and MagneTek arising out of the Business of any kind or
nature, whether absolute, contingent, accrued or otherwise, excluding each
Excluded Liability (collectively, the "Assumed Liabilities"), including
without limitation, all of the following:
(i) accounts payable of the Business at Closing; and
(ii) all liabilities for warranty claims, whether made before
or after the Closing Date, for service, repair, replacement or similar
work pursuant to Seller's written
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warranties with respect to products sold or services provided by Seller
on or before the Closing Date ("Warranty Claims"), excluding Warranty
Claims described in Section 2.2(b)(i) of this Agreement; and
(iii) all other accrued liabilities reflected as "other short
term liabilities" on the Closing Balance Sheet; and
(iv) all obligations of Seller and MagneTek under the
Contracts.
(b) In this Agreement, "Excluded Liabilities" means:
(i) Warranty Claims of which Buyer has given Seller written
notice within the two-year period following the Closing Date and for
which Buyer's shop-level expenses (direct materials plus labor plus
variable overhead), together with such expenses of Buyer for Warranty
Claims previously assumed by Buyer, exceed the reserve for warranty claims
reflected on the Closing Balance Sheet; and
(ii) all Claims for product liability or workers' compensation
which arose or were incurred on or before the Closing Date or which are
based on events occurring on or before the Closing Date notwithstanding
that the Claim is asserted after the Closing Date; and
(iii) all Claims for personal injury, property damage and auto
physical damage which Claims arose or were incurred on or before the
Closing Date or which are based on events occurring on or before the
Closing Date notwithstanding that the Claim is asserted after the Closing
Date to the extent such Claims are covered by MagneTek's or Seller's
insurance policies in place on or before the Closing; and
(iv) all claims under health, dental, vision and disability
plans of Seller or MagneTek (or under any theory of recovery applicable
against MagneTek or Seller) for Company Employees or other covered
individuals with respect to services rendered on or prior to the Closing
Date (but not in respect of any sick leave or short-term disability
benefits pertaining to any period after the Closing Date regardless of
when the relevant illness or condition arose); and
(v) any claims for health, dental or vision coverage arising
at any time, including after the Closing Date, for services rendered at
any time, including after the Closing Date, with respect to Persons
entitled on or before the Closing Date to COBRA benefits and coverage
from Seller or
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MagneTek or any liabilities arising from the failure of Seller or
MagneTek to comply with COBRA; and
(vi) any liability for Taxes (excluding the tax items covered
by Section 3.3) as to which indemnification is provided pursuant to
clause (i) of Section 10.1(a); and
(vii) any liability under (A) any litigation pertaining to
the Business as to which a complaint has been filed in state or federal
court, or an administrative charge or complaint has been filed with a
governmental agency, in each case prior to the Closing (including,
without limitation, all litigation set forth on Schedule 4.14), or (B) any
threatened litigation with respect to any matter or claim set forth on
Schedule 4.14 as to which a complaint is filed in state or federal court,
or an administrative charge or complaint is filed with a governmental
agency after the Closing; and
(viii) any liability of MagneTek or Seller under or arising in
connection with any Employee Plan except to the extent assumed by Buyer
pursuant to Article 9 hereunder; and
(ix) any and all other debts, liabilities and obligations of
MagneTek or any Affiliate of MagneTek, including Seller and its
Subsidiaries, with respect to any bank credit facility or letter of
credit, and all documents in connection therewith; and
(x) any and all liabilities arising from any Stay and Pay
Agreement in existence at or prior to Closing; and
(xi) any and all liabilities in connection with the Excluded
Assets or any real estate previously owned, leased, used or occupied by
MagneTek or any of its Affiliates in connection with the Business which
are not owned, leased, used or occupied by the Business at the Closing;
and
(xii) any liability arising from any business owned or operated
by Seller other than the Business.
(c) Under no circumstances herein or in any of the Ancillary
Agreements or any agreement, document, certificate or instrument being
delivered pursuant to this Agreement or any Ancillary Agreement, or any
schedule or exhibit hereto or thereto shall the term "Assumed Liabilities" be
interpreted to include any Excluded Liabilities, nor shall Buyer be deemed to
have assumed any Excluded Liabilities.
2.3 CLOSING.
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(a) The closing (the "Closing") of the transactions contemplated
by this Agreement shall be held at the offices of Sidley & Austin, One First
National Plaza, 55th Floor, Chicago, Illinois, at 10:00 a.m. on March 27,
1996, or if the conditions to Closing set forth in Article 3 shall not have
been satisfied or waived by such date, subject to Section 12.3, as soon as
practicable after such conditions shall have been satisfied or waived. The
date on which the Closing shall occur is hereinafter referred to as the
"Closing Date" and the Closing shall be deemed to have occurred at the close
of business, Central time, on the Closing Date. Events occurring after the
Closing shall be deemed to have occurred after the Closing Date.
(b) At the Closing, Buyer shall deliver to Seller (a) by wire
transfer (to a bank account designated at least two Business Days prior to
the Closing Date in writing by Seller) immediately available funds in an
amount equal to the sum of (i) the Cash Purchase Price plus or minus an
estimate, to the extent mutually agreed to by Seller and Buyer prior to the
Closing Date (the "Estimated Adjustment"), of any adjustments to the Purchase
Price under Section 2.4 and (ii) the payment in the amount of One Hundred
Fifty Thousand Dollars ($150,000.00) required under the Non-Competition
Agreement and (b) a duly executed Seller Note in the original principal
amount of Two Million Seventy-Five Thousand Dollars ($2,075,000.00).
(c) At the Closing, Seller and MagneTek shall deliver or cause to
be delivered to Buyer the executed and, as appropriate, acknowledged
assignments and other instruments of transfer referred to in Section 3.1 of
this Agreement.
2.4 PURCHASE PRICE ADJUSTMENT. (a) Within 60 days after the Closing
Date, Buyer at its own expense shall prepare and deliver to MagneTek a
consolidated pro forma balance sheet of the Business as of the close of
business on the Closing Date (the "Closing Balance Sheet"). For purposes of
preparing the Closing Balance Sheet, Buyer shall have access to Seller's and
MagneTek's Records relating to the Business or otherwise relevant to the
preparation of the Closing Balance Sheet, and Seller and MagneTek shall make
the appropriate personnel reasonably available to Buyer. During the 30 days
immediately following MagneTek's receipt of the Closing Balance Sheet, Seller
shall be entitled to review the Closing Balance Sheet and Buyer's working
papers relating to the Closing Balance Sheet, and Buyer shall provide
MagneTek access at all reasonable times to its personnel, properties and
Records to the extent comprising Assets for such purpose. The Closing
Balance Sheet shall become final and binding upon the parties on the
thirtieth day following delivery thereof unless MagneTek gives written notice
to Buyer of its disagreement with the method of
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presentation thereof or with the determination of any amount thereon (a
"Notice of Disagreement") prior to such date. Any Notice of Disagreement
shall specify in reasonable detail the nature of any disagreement so
asserted. If a timely Notice of Disagreement is received by Buyer with
respect to the Closing Balance Sheet, then such Closing Balance Sheet (as
revised in accordance with clause (x) or (y) below), shall become final and
binding upon the parties on the earlier of (x) the date the parties resolve
in writing any differences they have with respect to any matter specified in
a Notice of Disagreement or (y) the date any matters properly in dispute are
finally resolved in writing by the Accounting Firm (as defined below).
During the 30 days immediately following the delivery of any Notice of
Disagreement, MagneTek and Buyer shall seek in good faith to resolve in
writing any differences which they may have with respect to any matter
specified in such Notice of Disagreement. During such period and during any
subsequent period of arbitration by the Accounting Firm, MagneTek shall have
access to Buyer's working papers relating to the Closing Balance Sheet and to
Buyer's Records to the extent comprising Assets, and Buyer shall have access
to Seller's working papers relating to the Notice of Disagreement and to
Seller's and MagneTek's Records related to the Business or otherwise relevant
to the preparation of the Closing Balance Sheet. At the end of such 30-day
period (or such longer period on which Seller and Buyer may from time to time
agree in writing), Seller and Buyer shall submit to an independent accounting
firm (the "Accounting Firm") for review and resolution any and all matters
that remain in dispute and which were properly included in any Notice of
Disagreement, an the Accounting Firm shall reach a final, binding resolution
of all matters which remain in dispute. The Closing Balance Sheet, adjusted
in accordance with the parties' mutual written agreement, and with such
adjustments necessary to reflect the Accounting Firm's resolution of the
matters in dispute, shall become final and binding on the parties on the date
the Accounting Firm delivers its final resolution to the parties. The
Accounting Firm shall be KPMG Peat Marwick, or if such firm is unable or
unwilling to act, such other nationally recognized independent public
accounting firm as shall be mutually agreed upon by the parties hereto in
writing. The cost of any arbitration (including the fees and expenses of the
Accounting Firm) pursuant to this Section 2.4 shall be borne 50% by Buyer and
50% by MagneTek.
(b) The Purchase Price will be adjusted as follows:
(i) If:
(A) the excess of total tangible assets over the sum
of payables and other short term liabilities shown on the final and
binding Closing Balance Sheet, minus
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the Estimated Adjustment (if the Estimated Adjustment increased the
Cash Purchase Price paid at Closing) or plus the Estimated Adjustment
(if the Estimated Adjustment reduced the Cash Purchase Price paid at
Closing),
exceeds:
(B) the excess of total tangible assets over the sum
of payables and other short term liabilities shown on the September
Balance Sheet,
Buyer will pay to Seller an amount equal to such excess (plus interest
thereon from the Closing Date at a rate equal to the prime rate announced
from time to time by NationsBank, N.A. (Carolinas)) by wire transfer or
delivery of other immediately available funds within three Business Days
after the date on which the Closing Balance Sheet becomes final and
binding on the parties.
(ii) If:
(A) the excess of total tangible assets over the sum
of payables and other short term liabilities shown on the final and
binding Closing Balance Sheet, minus the Estimated Adjustment (if
the Estimated Adjustment increased the Cash Purchase Price paid at
Closing) or plus the Estimated Adjustment (if the Estimated
Adjustment reduced the Cash Purchase Price paid at Closing),
is less than:
(B) the excess of total tangible assets over the sum
of payables and other short term liabilities shown on the September
Balance Sheet,
MagneTek will pay to Buyer an amount equal to such deficiency (plus
interest thereon from the Closing Date at a rate equal to the prime rate
announced from time to time by NationsBank, N.A.(Carolinas)) by wire
transfer or delivery of other immediately available funds within three
Business Days after the date on which the Closing Balance Sheet becomes
final and binding on the parties.
(c) The Closing Balance Sheet shall be prepared in accordance with
GAAP, applied in a manner consistent with that followed in the preparation of
the Financial Statements (as defined in Section 4.6).
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(d) Notwithstanding the foregoing provisions of this Section 2.4,
no adjustment to the Purchase Price pursuant to this Section 2.4 shall be
made unless such adjustment would exceed $100,000, and if the adjustment
would exceed $100,000, then the full amount of the adjustment shall be made.
(e) Buyer agrees that it will not take any actions with respect to
its accounting books, Records, policies and procedures of the Business which
would impede the preparation of the Closing Balance Sheet on the basis
provided in this Agreement.
2.5 ALLOCATION OF PURCHASE PRICE. The parties shall endeavor to
allocate the Purchase Price, and any adjustment thereto, among the Assets in
the manner required by Section 1060 of the Code. Buyer and Seller agree to be
bound by any such agreed-upon fair market value determination and allocation
and to complete and attach Internal Revenue Service Form 8594 to their
respective tax returns accordingly. Buyer and Seller agree that in all
events Five Hundred Thousand Dollars ($500,000.00) shall be allocated to the
Canada Sub Shares.
ARTICLE 3
CONDITIONS TO CLOSING
3.1 BUYER'S OBLIGATION. The obligations of Buyer to consummate the
transactions contemplated by this Agreement are subject to the satisfaction
(or waiver by Buyer) as of the Closing of the following conditions:
(a) TRANSFER DOCUMENTS. Buyer shall have received instruments,
including the Bill of Sale and Assignment and Assumption Agreement, with
respect to Seller's ownership of Assets, assignments, endorsements and other
documents of title and other good and sufficient instruments of conveyance
and transfer, as shall be effective to vest Buyer with all of Seller's right,
title and interest in and to the Assets, in form and substance reasonably
satisfactory to Buyer.
(b) TITLE DOCUMENTS - SELLER. With respect to each Owned Property
of Seller, Buyer shall have received:
(i) An executed, acknowledged and recordable deed to such
Owned Property in form and substance reasonably satisfactory to Buyer.
(ii) A commitment for an ALTA (1970 Form B) Owner's Policy
of Title Insurance issued by First American or another title insurer
selected by Buyer and approved by Seller in an amount set forth on
Schedule 3.1(b)(ii), insuring fee simple
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title to such Owned Property to be in Buyer. Each commitment delivered
under this Section 3.1(b)(ii) shall (A) insure title to the Owned Property
and all recorded appurtenant easements benefiting such Owned Property to
be vested in Buyer subject only to (x) Permitted Title Exceptions and (y)
such other limitations and exceptions as shall not unreasonably interfere
with the use of the respective Owned Property in the Ordinary Course.
This condition shall be deemed satisfied as to each Owned Property unless
Buyer notifies Seller to the contrary within five Business Days after
Buyer shall have received a current title commitment for such Owned
Property.
(iii) All other documentation (including and trust
declarations) which Buyer may reasonably request in connection with the
transfer of title to the Owned Property.
(c) TITLE DOCUMENTS - CANADA SUB. With respect to each Owned
Property of Canada Sub, Buyer shall have received, at its expense, customary
assurances under local practice and reasonably satisfactory to Buyer that fee
title to such Owned Property is vested in Canada Sub as of the Closing Date.
(d) LEASE DOCUMENTS. With respect to each Leased Property as to
which a consent to assignment or sublease is a Third Party Consent as defined
in Section 6.8, Buyer shall have received an assignment (and novation if
feasible) of the lease, or a sublease, in either case in form and substance
reasonably satisfactory to Seller and Buyer, and in a recordable form,
together with:
(i) the written consent of the landlord to such assignment
or sublease, if required, and
(ii) an estoppel certificate from the landlord in form and
substance reasonably satisfactory to Seller and Buyer.
(e) TRADEMARK ASSIGNMENTS. Buyer shall have received trademark
assignments, in form and substance satisfactory to Buyer, conveying to the
Buyer all of Seller's right, title and interest in and to any trademarks of
Seller included among the Assets.
(f) LIEN SEARCHES. Buyer shall have received copies of the
searches required by Section 6.7 of this Agreement, in form and substance
satisfactory to Buyer.
(g) STOCK OF CANADA SUB. Buyer shall have received stock
certificates representing all of the shares of stock of
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Canada Sub, endorsed in blank or accompanied by duly executed assignment
documents.
(h) RESIGNATIONS - CANADA SUB. Buyer shall have received duly
signed resignations, effective as of the Closing, of all directors and
officers of Canada Sub, and duly signed mutual releases between Canada Sub
and its officers and directors in customary form reasonably satisfactory to
Buyer.
(i) OFFICER'S CERTIFICATES. The representations and warranties of
Seller and MagneTek made in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as specifically
contemplated by this Agreement, on and as of the Closing Date, as though made
on and as of the Closing Date, and Seller and MagneTek shall have performed
or complied in all material respects with all obligations and covenants
required by this Agreement to be performed or complied with by them by the
time of the Closing; and Seller and MagneTek shall have delivered to Buyer
and Grand Eagle a certificate dated the Closing Date and signed by an
authorized officer of each of them confirming the foregoing.
(j) OPINIONS. Buyer and Grand Eagle shall have received an
opinion dated the Closing Date of Gibson, Dunn & Crutcher, counsel to Seller,
of Samuel A. Miley, Esq., General Counsel of Seller, and of Seller's Canadian
counsel, in each case as to matters customary in transactions of this kind
and which opinions shall be reasonably satisfactory to Buyer.
(k) NO INJUNCTION. No injunction or order shall have been granted
by any Governmental Authority of competent jurisdiction that would restrain
or prohibit the purchase and sale of the Assets or that would impose damages
as a result of the purchase and sale of the Assets, and no action or
proceeding shall be pending before any Governmental Authority of competent
jurisdiction in which any Person seeks such a remedy (if in the opinion of
counsel to Buyer there exists a reasonable risk of a materially adverse
result in such pending action or proceeding).
(l) HART-SCOTT-RODINO. The waiting period under the HSR Act, if
applicable to the purchase and sale of the Assets, shall have expired or been
terminated, and all requirements of Canadian and provincial law with respect
to the transfer of the stock of Canada Sub shall have been satisfied.
(m) CERTIFICATE OF INCORPORATION. At the Closing, Seller shall
have delivered to Buyer a copy of the certificate of incorporation of Seller,
certified by the Secretary of State of Delaware as of a date not more than
five days prior to the Closing Date.
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(n) SECRETARY'S CERTIFICATES. At the Closing, Seller shall have
delivered to Buyer copies of each of the following for each of Seller and
Canada Sub, in each case certified to be in full force and effect on the date
of the Closing by the Secretary of Seller or Canada Sub, as the case may be:
(i) the by-laws, code of regulations, or similar document of such
Person; and
(ii) in the case of Seller, resolutions of the Board of Directors
and stockholders of Seller authorizing the execution and delivery of this
Agreement and any related agreements and the transactions contemplated
under this Agreement, and, in the case of Canada Sub, resolutions of the
directors and shareholder of Canada Sub approving the transfer of the
Canada Sub Shares to Buyer.
(o) GOOD STANDING CERTIFICATES. At the Closing, Seller shall have
delivered to Buyer a certificate of good standing with respect to Seller from
the Secretary of State of Delaware, and the closest equivalent document with
respect to Canada Sub from the appropriate officials of the Provinces of
Ontario and Quebec, in each case as of a date not more than five days prior
to the Closing.
(p) NON-COMPETITION AGREEMENT. Seller and MagneTek shall have
executed and delivered to Buyer a non-competition agreement in Seller's
customary form (the "Non-Competition Agreement").
(q) CONSENTS. All Third Party Consents shall have been obtained,
and Buyer shall have received copies of them.
(r) TRANSITION AGREEMENT. Buyer shall have received agreements,
reasonably satisfactory to it, permitting it to occupy at no cost to Buyer
the office space in Columbus, Ohio, used as of the date of this Agreement by
Company Employees, for a period not longer than ninety days.
(s) TAX AFFIDAVITS. Seller shall have executed and deliver to
Buyer at the Closing an affidavit in form and substance satisfactory to Buyer
certifying that Seller is not a foreign person within the meaning of Section
1445(f)(3) of the Code, and evidence of an application for a certificate
under Section 116 of the Income Tax Act (Canada) in respect of the sale of
the Canada Sub Shares containing a "certificate limit" at least equal to the
portion of the purchase price allocated to the Canada Sub Shares under
Section 2.5 of this Agreement.
(t) OTHER CLOSING. The closing shall have occurred under the
Other Agreement.
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(u) SUBORDINATION. Grand Eagle's obligations under the Seller
Note shall be subordinated to Grand Eagle's and Buyer's obligations to their
senior bank lender on customary terms reasonably satisfactory to MagneTek and
to Grand Eagle's senior bank lender.
3.2 SELLER'S OBLIGATION. The obligations of Seller to consummate the
transactions contemplated by this Agreement are subject to the satisfaction
(or waiver by Seller) as of the Closing of the following conditions:
(a) BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT. Seller
and MagneTek shall have received such instruments, including the Bill of Sale
and Assignment and Assumption Agreement, with respect to Seller's assumption
of the Assumed Liabilities and the acquisition of the Assets, as to
effectively assume such liabilities and acquire such assets, in form and
substance reasonably satisfactory to Seller and MagneTek.
(b) OFFICER'S CERTIFICATE. The representations and warranties of
Buyer and Grand Eagle made in this Agreement shall be true and correct in all
material respects as of the date hereof and on and as of the Closing Date, as
though made on and as of the Closing Date, and Buyer and Grand Eagle shall
have performed or complied in all material respects with all obligations and
covenants required by this Agreement to be performed or complied with by them
by the time of the Closing; and Buyer and Grand Eagle shall have delivered to
Seller a certificate dated the Closing Date and signed by an authorized
officer of each of them confirming the foregoing.
(c) OPINION. Seller shall have received an opinion dated the
Closing Date of Fitzpatrick Eilenberg & Zivian, counsel to Buyer, as to
matters customary in transactions of this kind and which opinion shall be
reasonably satisfactory to Seller.
(d) NO INJUNCTION. No injunction or order shall have been granted
by any Governmental Authority of competent jurisdiction that would restrain
or prohibit the purchase and sale of the Assets or that would impose damages
as a result of the purchase and sale of the Assets, and no action or
proceeding shall be pending before any Governmental Authority of competent
jurisdiction in which any Person seeks such a remedy (if in the opinion of
counsel to Seller there exists a reasonable risk of a materially adverse
result in such pending action or proceeding).
(e) HART-SCOTT-RODINO. The waiting period under the HSR Act, if
applicable to the purchase and sale of the Assets, shall have expired or been
terminated, and all requirements of
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Canadian and provincial law with respect to the transfer of the stock of
Canada Sub shall have been satisfied.
(f) CERTIFICATE OF INCORPORATION. At the Closing, Buyer shall
have delivered to Seller copies of the certificates of incorporation of Buyer
and Grand Eagle, certified by the Secretaries of State of Georgia and
Delaware, respectively, as of a date not more than five days prior to the
Closing Date.
(g) SECRETARY'S CERTIFICATES. At the Closing, Buyer shall have
delivered to Seller copies of each of the following for each of Buyer and
Grand Eagle, in each case certified to be in full force and effect on the
date of the Closing by the Secretary of Buyer or Grand Eagle, as the case may
be:
(i) the by-laws of Buyer or Grand Eagle, as the case may be; and
(ii) resolutions of the Boards of Directors of Buyer and Grand
Eagle authorizing the execution and delivery of this Agreement and any
related agreements and the transactions contemplated under this Agreement.
(h) GOOD STANDING CERTIFICATES. At the Closing, Buyer shall have
delivered to Seller certificates of good standing with respect to Buyer and
Grand Eagle from the Secretaries of State of the states of Georgia and
Delaware, respectively, as of a date not more than five days prior to the
Closing.
(i) CONSENTS. All Third Party Consents shall have been obtained.
(j) PERFORMANCE BONDS. Seller shall have been replaced or
released from any obligation or liability in respect of any performance bond,
letter of credit or similar instrument pertaining to the Business.
(k) INSURANCE CERTIFICATES. Seller shall have received insurance
certificates reflecting Buyer's compliance with Section 7.3.
3.3 CERTAIN COSTS. Seller shall pay, or reimburse Buyer for, (a)
one-half of the premium for the standard form of the title insurance policies
described in Section 3.1, (b) the cost of the searches described in Section
3.1(f), and (c) one-half the cost of any real estate transfer or sales Taxes
due in respect of the conveyance of the Assets. Buyer shall pay the
remaining one-half of such transfer Taxes, and for any additional title
insurance it elects to acquire.
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3.4 CO-OPERATION AS TO SURVEYS. Seller shall provide to Buyer and
its employees, agents and representatives access, at all reasonable times
requested by Buyer prior to the Closing, to each Company Property for
purposes of permitting Buyer to perform, at its own expense, any surveys of
such properties as it deems desirable.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER AND MAGNETEK
Each of Seller and MagneTek hereby jointly and severally represents and
warrants to each of Buyer and Grand Eagle as follows:
4.1 AUTHORITY; NO CONFLICTS; GOVERNMENTAL CONSENTS. (a) Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Seller has all requisite corporate power and
authority to enter into this Agreement and those Ancillary Agreements to
which Seller is a party and to consummate the transactions contemplated
hereby and thereby. All corporate acts and other proceedings required to be
taken by Seller to authorize the execution, delivery and performance of this
Agreement and those Ancillary Agreements to which Seller is a party and the
consummation of the transactions contemplated hereby and thereby have been
duly taken. Without limiting the generality of the foregoing, the board of
directors and the stockholder of Seller have each duly authorized the
execution, delivery and performance by Seller of this Agreement and of those
Ancillary Agreement to which Seller is a party. This Agreement has been duly
executed and delivered by Seller and constitutes, and when executed and
delivered by Seller at the Closing each of the Ancillary Agreements to which
Seller is a party will constitute, a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) MagneTek is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. MagneTek has all
requisite corporate power and authority to enter into this Agreement and
those Ancillary Agreements to which MagneTek is a party and to consummate the
transactions contemplated hereby and thereby. All corporate acts and other
proceedings required to be taken by MagneTek to
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authorize the execution, delivery and performance of this Agreement and those
Ancillary Agreements to which MagneTek is a party and the consummation of the
transactions contemplated hereby and thereby have been duly taken. This
Agreement has been duly executed and delivered by MagneTek and constitutes, and
when executed and delivered by MagneTek at the Closing each of the Ancillary
Agreements (if any) to which MagneTek is a party will constitute, a valid and
binding obligation of MagneTek, enforceable against MagneTek in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors, rights generally or by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(c) The execution and delivery of this Agreement does not, and the
execution and delivery of those Ancillary Agreements to which Seller or
MagneTek is a party will not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the terms hereof and
thereof will not conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a benefit under, or result in the creation of any Lien upon any of
the properties or assets of Seller or Canada Sub under, any provision of (i)
the Certificate of Incorporation or By-Laws or similar organizational
documents of MagneTek or Seller or Canada Sub, (ii) subject to the matters
disclosed in Schedule 6.8, any Contractual Obligation to which MagneTek or
Seller or Canada Sub is a party or by which any of their respective
properties or assets are bound or (iii) any judgment, order or decree or,
subject to the matters described in clauses (A) - (E) below, Requirement of
Law applicable to MagneTek or Seller or Canada Sub or the property or assets
of any of them, other than, in the case of clauses (ii) and (iii) above, any
such conflicts, violations, defaults, rights or Liens that, individually or
in the aggregate, would not have a Material Adverse Effect. No consent,
approval, license, permit, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required to be
obtained or made by or with respect to MagneTek, Seller or Canada Sub in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, other than (A)
compliance with and filings under the HSR Act, (B) compliance with and
filings under Section 13(a) or 15(d), as the case may be, of the Exchange
Act, (C) compliance with and filings and notifications under applicable
Environmental Laws, (D) those that may be required solely by reason of
Buyer's participation in the transactions contemplated hereby, (E) filings
and notifications required to be made by Buyer under the Investment Canada
Act, and
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(F) those that, if not made or obtained, individually or in the aggregate, would
not have a Material Adverse Effect.
4.2 THE ASSETS. Except for the Excluded Assets, the Assets constitute
all of the property and assets which are used by Seller, MagneTek and its
other Affiliates to conduct the Business as conducted on the Closing Date.
4.3 ORGANIZATION AND STANDING OF CANADA SUB. Canada Sub is a
corporation duly organized and validly existing under the laws of the
province of Ontario. Canada Sub has all requisite corporate power and
authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to carry on its business
as now conducted other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, would not have a Material Adverse Effect. Canada Sub is duly
qualified and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership, leasing or holding of its
properties makes such qualification necessary, except such jurisdictions
where the failure to be so qualified or in good standing, individually or in
the aggregate, would not have a Material Adverse Effect. All such
jurisdictions are listed on Schedule 4.3 hereto. Seller has made available to
Buyer (i) the Certificate of Incorporation or similar charter document, as
amended to date, and the By-Laws or similar document, as in effect on the
date hereof, of Canada Sub, and (ii) the share certificate and transfer books
and the minute books of Canada Sub. Immediately following the consummation
of the transactions contemplated by this Agreement, Buyer or Canada Sub will
own all of the assets used prior to the Closing in the conduct of the
Business on the Closing Date other than the Excluded Assets.
4.4 CAPITAL STOCK OF CANADA SUB. The authorized, issued and
outstanding capital stock of Canada Sub is as set forth on Schedule 4.4. The
Canada Sub Shares are duly authorized and validly issued and outstanding,
fully paid and nonassessable. MagneTek is the record owner of the Canada Sub
Shares. Except for the Canada Sub Shares, there are no shares of capital
stock or other equity securities of Canada Sub outstanding. The Canada Sub
Shares have not been issued in violation of, and none of the Canada Sub
Shares is subject to, preemptive or subscription rights. There are no
outstanding warrants, options, "phantom" stock rights, agreements,
convertible or exchangeable securities or other commitments (other than this
Agreement) pursuant to which Canada Sub is or may become obligated to issue,
sell, purchase, return or redeem any shares of capital stock or other
securities of Canada Sub, and no equity securities of Canada Sub are reserved
for issuance for any purpose. Other than this Agreement, the Canada Sub
Shares are not subject to any voting
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trust agreement or other Contractual Obligation restricting or otherwise
relating to the voting, dividend rights or disposition of the Canada Sub
Shares.
4.5 EQUITY INTERESTS; SUBSIDIARIES. Canada Sub does not own directly
or indirectly any capital stock of or other equity interests in any Person.
4.6 FINANCIAL STATEMENTS. (a) Attached to this Agreement as Exhibit A
is the unaudited Field Service & Fairfield Supply Consolidated Balance Sheet
Excluding Division Allocations of Seller as of September 30, 1995. Schedule
4.6 contains the unaudited Field Service & Fairfield Supply Consolidated
Income Statement Excluding Division Allocations of Seller for the years ended
June 30, 1993, 1994, 1995, and the three months ended September 30, 1994 and
1995 (the "Historical Financials" and, together with the September Balance
Sheet, the "Financial Statements").
(b) The Financial Statements have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby and
fairly present in all material respects, on a pro forma basis, the combined
financial condition and results of operations of Seller and Canada Sub as of
the respective dates thereof and for the respective periods covered thereby,
except for the absence of footnotes and except that:
(i) Excluded Assets and Excluded Liabilities are excluded; and
(ii) intercompany advances and receivables (other than those
resulting from the sale of products or services) are excluded from the
assets; and
(iii) intercompany liabilities (other than those resulting from
the sale of products or services) are excluded from liabilities; and
(iv) accruals for retiree health and welfare benefits are
excluded from the liabilities; and
(v) long-term liabilities, current maturities of long-term
liabilities, and accrued Taxes are excluded from the liabilities; and
(vi) the exclusion of division allocations from the Historical
Financials.
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4.7 ABSENCE OF CHANGES OR EVENTS. Except as set forth on Schedule 4.7
and the elimination of Excluded Assets, since September 30, 1995, there has
not been a material adverse change in the business, financial condition or
results of operations of Seller or Canada Sub other than changes relating to
the economy in general. Except as disclosed on Schedule 4.7 or as
contemplated by this Agreement, since September 30, 1995, Seller has
conducted the Business, and has caused Canada Sub to conduct its Business, in
the Ordinary Course, and neither Seller nor Canada Sub has taken any action
that, if taken after the date hereof, would constitute a breach of any of the
covenants set forth in Section 6.2.
4.8 TAXES. Except as set forth on Schedule 4.8:
(a) PAYMENT OF TAXES. Each of Seller and Canada Sub has filed all
material Tax Returns that it is required to have filed on or prior to the
date hereof and such Tax Returns are materially true and correct. All Tax
Returns required to be filed on or prior to the Closing Date by Seller or
Canada Sub shall be filed on or prior to Closing and such Tax Returns shall
be materially true and correct. All material amounts of Taxes imposed on
Seller or Canada Sub or for which Seller or Canada Sub is or could be liable
have been (or, as of the Closing, will be) paid or have been accrued for or
fully reserved against on the consolidated books of MagneTek.
(b) AUDIT HISTORY. To the Knowledge of each of Seller and
MagneTek, no material issues have been raised and are currently pending by
any Governmental Authority in connection with any of the Tax Returns of
Seller or Canada Sub. No currently valid waivers of statutes of limitations
with respect to the Tax Returns of Seller or Canada Sub have been given by
Seller or Canada Sub. No Tax Returns of Seller or Canada Sub are or have
been the subject of an examination for any year for which the applicable
statute of limitations with respect to Taxes remains open. All deficiencies
asserted or assessments made as a result of any such examination have been
fully paid. There are no Liens for Taxes (other than for current Taxes not
yet due and payable) on the Assets or the assets of Canada Sub.
(c) TAX-SHARING OR ALLOCATION AGREEMENTS; TAX ELECTIONS. Any
tax-indemnity, tax-sharing, tax allocation or similar agreements between
Canada Sub, on one hand, and Seller, MagneTek or their Affiliates ( on the
other hand) and any liability or obligation of Canada Sub under such
agreements will terminate as of the Closing Date and be of no further force
or effect. All tax-indemnity, tax-sharing, tax-allocation or similar
agreements to which Canada Sub is a party and which are now in effect (other
than any such agreement with a customer,
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supplier or lessor of property to Canada Sub entered into in the ordinary
Course) are listed on Schedule 4.8.
(d) SECTION 341(f) CONSENT. Canada Sub has not filed a consent
pursuant to the collapsible corporation provisions of Section 341(f) of the
Code (or any corresponding provision of any state, local or foreign income
Tax law) and has not agreed to have Section 341(f)(2) of the Code (or any
corresponding provision of any state, local or foreign income Tax law) apply
to any disposition of any asset owned by Canada Sub.
(e) SAFE HARBOR LEASE PROPERTY. None of the assets of Canada Sub
is property that Canada Sub is required to treat as being owned by any other
Person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code.
(f) TAX-EXEMPT PROVISIONS. None of the Assets or the assets of
Canada Sub (i) directly or indirectly secures any debt the interest on which
is tax-exempt under Section 103(a) of the Code or (ii) is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(g) DEEMED DIVIDEND AND CONSENT DIVIDEND ELECTIONS. Canada Sub
has not made and will not make as of the Closing a consent dividend election
under Section 565 of the Code.
(h) ADJUSTMENTS UNDER SECTION 481. Canada Sub has not agreed to
make and is not required to make any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise.
(i) MISCELLANEOUS. Canada Sub (i) has not participated in and
will not participate as of the Closing in an international boycott within the
meaning of Section 999 of the Code, (ii) is not a party to any Contractual
Obligation that has resulted or will result as of the Closing, separately or
in the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code, or (iii) except as set forth on
Schedule 4.8, is not a party to any joint venture, partnership, or other
arrangement or contract that could be treated as a partnership for federal
income tax purposes.
(j) CONSOLIDATION. Canada Sub has never been a member of an
Affiliated Group.
(k) COPIES OF TAX RETURNS. Canada Sub has true, correct and
complete copies of all income Tax Returns filed by it or any other Person on
behalf of it for the years beginning July 1, 1991, and thereafter.
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4.9 ASSETS OTHER THAN REAL PROPERTY INTERESTS. Either Seller or Canada
Sub has good and marketable title to all assets reflected on the September
Balance Sheet, except those sold or otherwise disposed of since the date of
the September Balance Sheet in the Ordinary Course, in each case free and
clear of all Liens except (a) such as are disclosed on Schedule 4.9, (b)
mechanics', carriers', workmen's, repairmen's or other like Liens arising or
incurred in the Ordinary Course, (c) Liens arising under original purchase
price conditional sales contracts and equipment leases with third parties
entered into in the Ordinary Course, (d) Liens for Taxes and other
governmental charges which are not due and payable or which may thereafter be
paid without penalty, and (e) other imperfections of title, restrictions or
encumbrances, if any, which Liens, imperfections of title, restrictions or
other encumbrances do not, individually or in the aggregate, materially
impair the continued use and operation of the specific assets to which they
relate (the Liens hereinabove described are hereinafter referred to
collectively as "Permitted Liens").
This Section 4.9 does not relate to real property or interests in real
property, such items being the subject of Section 4.10. This Section 4.9
does not relate to intellectual property, which is the subject of Section 4.11.
4.10 REAL PROPERTY. Schedule 4.10 sets forth a complete list of all
real property and interests in real property owned in fee by either Seller or
Canada Sub and in each case used primarily in the Business (individually, an
"Owned Property"), and a complete list of all real property and interests in
real property leased by either Seller or Canada Sub and in each case used
primarily in the Business (individually, a "Leased Property" and, together
with the owned Properties, individually as a "Company Property" and
collectively as "Company Properties"), and as to Leased Property, identifies
any leases relating thereto. True and complete copies of all such leases
have been made available to Buyer.
4.11 INTELLECTUAL PROPERTY. Schedule 4.11 sets forth a list of all
patents, trademarks (registered or unregistered), trade names, service marks
and copyrights and applications for any of the foregoing, other than those
relating to generally commercially available computer software (collectively,
"Intellectual Property"), owned, used, filed by or licensed to Seller or
Canada Sub. With respect to trademarks, Schedule 4.11 contains a list of all
jurisdictions in which such trademarks are registered or applied for and all
registration and application numbers. Except as disclosed on Schedule 4.11,
either Seller or Canada Sub owns or has the right to use, without payment to
any other party, the Intellectual Property listed on such Schedule 4.11, and
the consummation of the transactions contemplated
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hereby will not alter or impair any such Intellectual Property. Except as
disclosed on Schedule 4.11, neither Seller nor Canada Sub has licensed to any
third party, on an exclusive basis or otherwise, the right to use or exploit
any Intellectual Property in any jurisdiction or otherwise transferred or
assigned any Intellectual Property to any third party in any jurisdiction.
Except as set forth on Schedule 4.11, neither Seller nor MagneTek has
received written notice of any claims which are pending or, to the Knowledge
of either Seller or MagneTek, threatened against either Seller or Canada Sub
by any person with respect to the ownership, validity, enforceability or use
of any Intellectual Property listed on Schedule 4.11 or otherwise challenging
or questioning the validity or effectiveness of any such Intellectual
Property and, to the Knowledge of each of Seller and MagneTek, no basis in
fact exists to support any such claim.
4.12 FURNITURE, FIXTURES, MACHINERY AND EQUIPMENT. All material
furniture, fixtures, machinery and equipment used by Seller and Canada Sub in
their businesses is in the possession or under the control of Seller or
Canada Sub and is, with the exception of automobiles, trucks and other
highway vehicles in transit and items that are offsite for repairs, located
at one of the places of business of Seller or Canada Sub. All items of such
furniture, fixtures, machinery and equipment are in good operating condition,
subject to normal wear and tear, and adequate for the present uses thereof.
4.13 CONTRACTS. Schedule 4.13 sets forth a list of each of the
following Contracts to which either Seller or Canada Sub is a party (the
"Material Contracts"):
(a) any written employment contract that is not terminable by
notice of not more than 30 days for a cost of less than $25,000;
(b) any Stay and Pay Agreements;
(c) any employee collective bargaining agreement or other Contract
with any labor union;
(d) any Contractual Obligation that restricts the ability of
either Seller or Canada Sub to compete in any line of business in any place
in the world;
(e) any Contractual Obligation between (i) either Seller or Canada
Sub, on the one hand, and MagneTek or any Affiliate of MagneTek, on the other
hand, or (ii) Seller, Canada Sub or MagneTek and any officer or director of
Seller or Canada sub (other than agreements covered by paragraph (a) above)
involving consideration to either party with a value of at least $25,000;
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(f) any lease or similar agreement under which either Seller or
Canada Sub is a lessor or sublessor of, or makes available for use by any
third party, any real property owned or leased by Seller or Canada Sub or any
portion of premises otherwise occupied by Seller or Canada Sub;
(g) any Contractual Obligation under which either Seller or Canada
Sub has borrowed or loaned any money or issued any note, bond, indenture or
other evidence of indebtedness or directly or Indirectly guaranteed
indebtedness, liabilities or obligations of others (other than endorsements
for the purpose of collection in the Ordinary Course);
(h) any mortgage, pledge, conditional sales contract (for a value
in excess of $25,000), security agreement (with respect to property in excess
of $25,000), factoring agreement or other similar agreement with respect to
any property or assets of either Seller or Canada Sub;
(i) any Contract (other than agreements covered by paragraph (a)
above) that provides for the payment of any severance compensation to any
Company Employee or employee of Canada Sub, or for the provision, vesting
and/or acceleration of any employee benefits following a change of ownership
or control of either Seller or Canada Sub;
(j) any license, royalty, franchise, service (other than with
respect to services provided by Seller or Canada Sub in the Ordinary Course),
sales agency or representative or distribution Contractual Obligation (which
Contractual Obligation is not cancelable without penalty on not more than 30
days' notice or has an aggregate annual payment obligation of more than
$25,000);
(k) any Contract for the sale of any asset other than in the
Ordinary Course or for the grant of any right of first refusal or similar
preferential right to purchase any asset of either Seller or Canada Sub;
(l) any executory Contract or commitment for capital expenditures
over $25,000;
(m) any Contract between either Seller or Canada Sub and any
person which has previously purchased any business from Seller or Canada Sub;
or
(n) any other Contract which has an aggregate future payment
obligation in excess of $25,000 and is not terminable by notice of not more
than 60 days for a cost of less than $50,000 (other than purchase contracts
and orders for inventory in the Ordinary Course).
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Except as disclosed on Schedule 4.13, each Contract listed thereon is
valid, binding and in full force and effect and is enforceable by Seller or
Canada Sub, as the case may be, in accordance with its terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors, rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Except as
disclosed in Schedule 4.13, and with respect to the contracts listed or
described under "Intellectual Property Agreements" in Schedule 4.11, except
as disclosed on Schedule 4.11, Seller and Canada Sub have performed all
material obligations required to be performed by them to date under the
Contracts and are not (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder and,
to the Knowledge of either Seller or MagneTek, no other party to any of the
Contracts is (with or without the lapse of time or the giving of notice or
both) in breach or default in any material respect thereunder.
4.14 LITIGATION; DECREES. Schedule 4.14 sets forth a list, as of the
date of this Agreement, of all pending or, to the Knowledge of MagneTek,
threatened actions, suits, claims or legal, administrative or arbitration
proceedings or investigations with respect to which either Seller or Canada
Sub has been contacted in writing by the claimant or by counsel for the
claimant against Seller or Canada Sub or any of their respective properties,
assets, operations or businesses or against any Canada Sub Plan or any
Company Plan which (a) involves a claim by or against Seller or Canada Sub or
against any Canada Sub Plan or any Company Plan of more than $50,000, (b)
seeks any injunctive relief pertaining to the Assets or the Business or any
Canada Sub Plan or any Company Plan, or (c) relates to the transactions
contemplated by this Agreement. To the Knowledge of MagneTek's General
Counsel, Schedule 4.14 also lists all pending actions, suits, claims or legal
or administrative or arbitration proceedings to which Seller is a party in
respect of the Business, or to which Canada Sub is a party, in each case
involving claims by such Person against a third party. To the Knowledge of
either Seller or MagneTek, except as disclosed on Schedule 4.14, neither
Seller nor Canada Sub is in default under any judgment, order or decree of
any court, administrative agency or commission or other Governmental
Authority applicable to it or any of its properties, assets, operations or
businesses. This Section 4.14 does not relate to environmental matters,
which are the subject of Section 4.17.
4.15 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 4.15:
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(a) Schedule 4.15(a) contains a listing of each material Company
Plan and material Canada Sub Plan.
(b) A complete copy of each material written Canada Sub Plan and
the Larsen-Hogue Plan as amended to the Closing, together with audited
financial statements and/or actuarial reports for the three (3) most recent
plan years, if any; a copy of each trust agreement, insurance contract, if
any, or any other funding vehicle with respect to each such plan; a copy of
any and all determination letters, rulings or notices issued by any
Governmental Authority with respect to such plan; a copy of the Form 5500
Annual Report and any PBGC Form 1 for the three (3) most recent plan years or
any comparable form, if any, under Canadian or provincial law; any summary
plan description and/or summary of material modifications; and a copy of each
and any general explanation or communication which was required to be
distributed or otherwise provided to participants and which modifies or
amends any material provisions of such plan, will, within five Business Days
after the date of this Agreement, have been made available to Buyer. A
description of the material terms of any unwritten material Canada Sub Plan
and any unwritten material Company Plan will, no later than the date
schedules are required to be delivered to Buyer pursuant to Section 6.12 of
this Agreement, have been made available to Buyer and such plan will be
listed on Schedule 4.15(a).
(c) The Larsen-Hogue Plan and each Canada Sub Plan (i) has been
and currently is in material compliance in form (other than any amendments
due to changes in the Code for which the period for adopting such amendments
has not expired) and in operation in all respects with all applicable laws;
(ii) has been and is operated and administered in material compliance with
its terms (except as otherwise required by law); (iii) where applicable, has
been and is operated, administered, maintained and funded in material
compliance with the applicable requirements of the Code and ERISA (or
comparable Canadian or provincial laws) in such a manner as to qualify, where
appropriate, for both Federal and state purposes (or where applicable,
Canadian federal and provincial), for income tax exclusions to its
participants, tax-exempt income for its funding vehicle, and the allowance of
deductions and credits with respect to contributions thereto; and (iv) where
applicable, has received a favorable determination letter from the IRS.
(d) As of the Closing Date and with respect to the Larsen Hogue
Plan and each Canada Sub Plan, none of the Buyer, Seller or Canada Sub could
have any liability for: (i) any "prohibited transaction," as such terms are
defined under ERISA or the Code (or comparable Canadian or provincial laws);
(ii) any fiduciary breach; (iii) any failure to act or comply in connection
with the administration or investment of the assets of
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such plans; or (iv) a civil penalty assessed pursuant to Section 502(i) of
ERISA (or comparable Canadian or provincial laws).
(e) Each Canada Sub Plan, if any, which provides post-retirement
welfare benefits, may be terminated by Canada Sub, on and after the Closing
without further liability for benefit claims incurred after such termination.
(f) To the Knowledge of either Seller or MagneTek, no person has
made any statements, whether oral or in writing, regarding any Canada Sub
Plan or the Larsen-Hogue Plan which will result in any liability under such
Canada Sub Plan or the Larsen-Hogue Plan in excess of any current or
potential liability under such Canada Sub Plan or the Larsen-Hogue Plan
previously disclosed to Buyer pursuant to this Section 4.15.
(g) Neither Seller nor Canada Sub nor any of their ERISA
Affiliates has any liability (including any potential liability) with respect
to any "multiemployer plan" as defined in Section 4001 or Section 3(37) of
ERISA, "multiple employer plan" within the meaning of Code Section 413(c) or
"multiple employer welfare arrangement" within the meaning of Section 3(40)
of ERISA.
(h) The Larsen-Hogue Plan has not incurred any "accumulated
funding deficiency" as such term is defined in Section 302 of ERISA or
Section 412 of the Code, whether or not waived. No liability to the PBGC
(except for payment of premiums) has been incurred with respect to the
Larsen-Hogue Plan, no reportable event within the meaning of Section 4043 of
ERISA (excluding any event described in Section 4043(c)(9) thereof) has
occurred with respect to the Larsen Hogue Plan, the PBGC has not threatened
or instituted the termination of the Larsen-Hogue Plan and the Larsen-Hogue
Plan has not been completely or partially terminated.
(i) With respect to the Larsen-Hogue Plan and each Canada Sub
Plan, all material payments, premiums, contributions, reimbursements and
expenses, calculated in the ordinary Course (as determined by MagneTek's
independent actuary, where applicable), required to be paid for all periods
ending on or prior to December 31, 1995, have been paid or shall be accrued
on the Closing Balance Sheet.
(j) None of Seller, Canada Sub nor any of their ERISA Affiliates
has incurred any liability to the PBGC, the IRS, the Department of Labor (or
any comparable Canadian or provincial Governmental Authority) or otherwise
with respect to any Company Plan that has not been satisfied in full, or with
respect to which, to the Knowledge of either Seller or MagneTek, a condition
exists that presents a material risk to Buyer or Canada Sub.
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4.16 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in Schedule
4.16 attached hereto, each of Seller and Canada Sub is in compliance with all
applicable Requirements of Law, except for such incidents of noncompliance
which, individually and in the aggregate, would not have a Material Adverse
Effect. Except as set forth in Schedule 4.16 hereto, since July 1, 1994, to
the Knowledge of either Seller or MagneTek, neither Seller nor Canada Sub nor
MagneTek has received any written communication from a Governmental Authority
that alleges that either Seller or Canada Sub is not in compliance with any
Requirement of Law, except where noncompliance would not have a Material
Adverse Effect. This Section 4.16 does not relate to Environmental Laws,
which are the subject of Section 4.17, or matters with respect to Taxes, which
are the subject of Section 4.8.
4.17 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 4.17
attached hereto:
(a) Seller is in compliance with all Environmental Laws, except
any non-compliance which would not have a Material Adverse Effect on Seller.
Without limiting the generality of the preceding sentence, Seller has
obtained and is in material compliance with all of the terms and conditions
of all permits, licenses, certificates and other authorizations which are
required under all Environmental Laws.
(b) Seller has not received any written or, to the Knowledge of
Seller or MagneTek, oral notice of, any private, administrative or judicial
action, or written or, to the Knowledge of Seller or MagneTek, oral notice of
any intended private, administrative, or judicial action relating to the
presence or alleged presence of Hazardous Materials in, at, under or upon any
Company Property; and there are no pending or, to the Knowledge of Seller or
MagneTek, threatened actions or proceedings (or, to the Knowledge of Seller
or MagneTek, notices of threatened actions or proceedings) against Seller
from any Governmental Authority regarding any matter relating to any
Environmental Laws.
4.18 EMPLOYEE AND LABOR RELATIONS. Except as set forth on Schedule 4.18:
(a) there is no labor strike, dispute, or work stoppage or lockout
pending, or to the Knowledge of either Seller or MagneTek, threatened,
against Seller or Canada Sub;
(b) to the Knowledge of either Seller or MagneTek, no union
organization campaign is in progress with respect to any Company Employees or
employees of Canada Sub, and no question concerning representation exists
respecting such Company Employees or employees of Canada Sub;
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(c) there is no unfair labor practice charge or complaint against
Seller or Canada Sub pending, or to the Knowledge of either Seller or
MagneTek, threatened, before the National Labor Relations Board;
(d) there is no pending, or to the Knowledge of either Seller or
MagneTek, threatened, grievance that, if adversely decided, would have a
Material Adverse Effect; and
(e) no charges with respect to or relating to Seller or Canada Sub
are pending before the Equal Employment Opportunity Commission or any other
Governmental Authority responsible for the prevention of unlawful employment
practices as to which there is a reasonable likelihood of adverse
determination, other than those which, if so determined would not have a
Material Adverse Effect.
4.19 CORPORATE NAMES. Neither Seller nor Canada Sub has used in the
past six years or is currently using any corporate or fictitious name, other
than the names listed in Schedule 4.19.
4.20 LICENSES AND PERMITS. Attached hereto as Schedule 4.20 is a
complete and accurate list and description of all material licenses, permits
and other authorizations of governmental authorities, domestic and foreign,
and other third Persons used or required, and held by Seller or any Canada
Sub, in the conduct of its business. To the Knowledge of MagneTek, Seller,
or Canada Sub, none of Seller, Canada Sub or MagneTek has received any notice
that revocation is being considered with respect to any of such licenses,
permits or authorizations. This Section 4.20 does not relate to permits
required under any Environmental Laws which are addressed in Section 4.17.
4.21 DIRECTORS, OFFICERS AND EMPLOYEES OF THE COMPANY.
Schedule 4.21 contains a true, correct and complete list of all
directors and officers of Canada Sub showing each office held by each such
Person. Concurrently with the delivery of Schedules, Seller will deliver to
Buyer a substantially complete list of all current employees of Seller and
Canada Sub, and the salary or hourly compensation each such employee receives.
4.22 CUSTOMERS. Schedule 4.22 sets forth a complete list of Seller's
and Canada Sub's ten largest customers (measured by revenue to Seller and
Canada Sub) for the 1995 fiscal year, and for the first two fiscal quarters
of the 1996 fiscal year.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER AND GRAND EAGLE
Each of Buyer and Grand Eagle hereby jointly and severally represents
and warrants to each of Seller and MagneTek as follows:
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5.1 AUTHORITY; NO CONFLICTS; GOVERNMENTAL CONSENTS. (a) Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia. Grand Eagle is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. Each of Buyer and Grand Eagle has all requisite corporate power
and authority to enter into this Agreement and those Ancillary Agreements to
which it is a party and to consummate the transactions contemplated hereby
and thereby. All corporate acts and other proceedings required to be taken
by each of Buyer and Grand Eagle to authorize the execution, delivery and
performance of this Agreement and those Ancillary Agreements to which each of
them is a party and the consummation of the transactions contemplated hereby
and thereby have been duly taken. This Agreement has been duly executed and
delivered by Buyer and Grand Eagle and constitutes, and when executed and
delivered by Buyer or Grand Eagle, as the case may be, at the Closing each of
the Ancillary Agreements to which Buyer or Grand Eagle is a party will
constitute, a valid and binding obligation of each of Buyer and Grand Eagle,
as the case may be, enforceable against it in accordance with its terms,
except as enforceability may be limited by Bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally or by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
(b) The execution and delivery of this Agreement does not, and the
execution and delivery of those Ancillary Agreements to which Buyer or Grand
Eagle is a party will not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the terms hereof and
thereof will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Buyer or Grand Eagle under, any provision
of (i) the Certificate of Incorporation or By-laws of Buyer or Grand Eagle,
(ii) any Contractual Obligation to which Buyer or Grand Eagle is a party or
by which any of its properties or assets are bound, or (iii) any judgment,
order or decree or, subject to the matters described in clauses (A)-(D)
below, Requirement of Law applicable to Buyer or Grand Eagle or their
respective property or assets, other than, in the case of clauses (ii) and
(iii) above, any such conflicts, violations, defaults, rights or Liens that,
individually or in the aggregate, would not have a material adverse effect on
the ability of Buyer or Grand Eagle to consummate the transactions
contemplated hereby. No material
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consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with any Governmental Authority is
required to be obtained or made by or with respect to Buyer or Grand Eagle in
connection with the execution and delivery of this Agreement or the
consummation by Buyer and Grand Eagle of the transactions contemplated
hereby, other than (A) compliance with and filings under the HSR Act, (B)
compliance with and filings and notifications under applicable Environmental
Laws, (C) filings and notifications required to be made by Buyer under the
Investment Canada Act, and (D) those that may be required solely by reason of
Seller's or MagneTek's (as opposed to any other third party's) participation
in the transactions contemplated hereby.
5.2 ACTIONS AND PROCEEDINGS, ETC. There are no (a) outstanding
judgments, orders, writs, injunctions or decrees of any Governmental
Authority against Buyer or Grand Eagle which have a material adverse effect
on the ability of Buyer and Grand Eagle to consummate the transactions
contemplated hereby or (b) actions, suits, claims or legal, administrative or
arbitration proceedings or investigations pending or, to the knowledge of
Buyer or Grand Eagle, threatened against Buyer or Grand Eagle, which have or
could have a material adverse effect on the ability of Buyer and Grand Eagle
to consummate the transactions contemplated hereby.
5.3 AVAILABILITY OF FUNDS. Buyer and Grand Eagle have, or shall as of
the Closing have, all funds required to consummate the transactions
contemplated hereby and by the Other Agreement.
5.4 BUYER'S AND GRAND EAGLE'S ACKNOWLEDGMENT. Each of Buyer and Grand
Eagle acknowledges and agrees that, (a) other than the representations and
warranties of Seller and MagneTek specifically contained in this Agreement,
there are no representations or warranties of Seller or MagneTek either
expressed or implied with respect to Seller, Canada Sub, MagneTek, or the
transactions contemplated hereby and (b) it shall have a right to
indemnification solely as provided in Article 10 hereof and, except as
provided in this Agreement, it shall have no claim or right to
indemnification with respect to any information, documents or materials
furnished by or on behalf of Seller or MagneTek or any of its officers,
directors, employees, agents or advisors to Buyer or Grand Eagle, including,
without limitation, the Confidential Offering Memorandum, March 1994,
prepared by Lehman Brothers or any information, documents or material made
available to Buyer in certain "data rooms,"
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management presentations or any other form in expectation of the transactions
contemplated by this Agreement.
5.5 EXON-FLORIO. Buyer is not a "foreign person" for purposes of the
Exon-Florio Amendment to the Defense Production Act of 1950.
ARTICLE 6
COVENANTS OF SELLER AND MAGNETEK
Each of Seller and MagneTek covenants and agrees as follows:
6.1 ACCESS. Subject to the provisions of Section 7.1 hereof, prior to
the Closing, Seller and MagneTek will, and will cause Canada Sub to, give
Buyer and its representatives, employees, counsel and accountants reasonable
access, during normal business hours and upon reasonable notice, to the
personnel, customers, suppliers, properties and Records of Seller and Canada
Sub; PROVIDED, HOWEVER, that such access does not unreasonably disrupt the
normal operations of Seller and Canada Sub.
6.2 ORDINARY CONDUCT. Except as contemplated by this Agreement or as
set forth in Schedule 6.2, from the date hereof to the Closing, Seller and
MagneTek will, and will cause Canada Sub to, conduct the Business in the
Ordinary Course and will make all reasonable efforts consistent with past
practices to preserve relationships with customers, suppliers and others with
whom Seller or Canada Sub deals. Except as contemplated by this Agreement,
Seller will not, in respect of the Business, and MagneTek will not permit
Seller to, and Seller and MagneTek will not permit Canada Sub to, do any of
the following without the prior written consent of Buyer, which consent will
not be unreasonably withheld or delayed:
(a) with respect only to Canada Sub, amend its constitutive
documents;
(b) with respect only to Canada Sub, redeem or otherwise acquire any
shares of its capital stock or issue any capital stock or any option, warrant
or right relating thereto or any securities convertible into or exchangeable
for any share of capital stock;
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(c) with respect only to Canada Sub, sell or otherwise dispose of
any treasury shares;
(d) terminate, adopt or amend in any material respect any Company
Plan or Canada Sub Plan or collective bargaining agreement, except as required
by law or insofar as a collective bargaining agreement is then subject to
negotiation in advance of its expiration in the Ordinary Course;
(e) enter into or amend any Contract or Contractual Obligation with
a value or commitment exceeding $50,000;
(f) incur or assume any liabilities, obligations or indebtedness for
borrowed money or guarantee any such liabilities, obligations or indebtedness,
other than in the Ordinary Course; PROVIDED that in no event shall Seller or
Canada Sub incur, assume or guarantee any long-term indebtedness for borrowed
money;
(g) encumber any of its assets or grant any security interests or
increase or expand the collateral in connection with any of its existing
secured liabilities or obligations other than in the Ordinary Course;
(h) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP;
(i) acquire or agree to acquire by merging or consolidating with, or
by purchasing the stock of, or a substantial portion of the assets of, or by
any other manner, any Person;
(j) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets (other than the Excluded Assets),
except in the Ordinary Course and except for sales, leases or dispositions of
assets that, individually, have a value of less than $25,000 and, in the
aggregate, have a value of less than $100,000;
(k) enter into any lease of real property, except any renewals of
existing leases and a lease in respect of its Tucson facility;
(l) grant any increase in the compensation of officers or employees,
whether now or hereafter payable, including any such increase pursuant to any
bonus, pension, profit sharing,
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incentive compensation, expense reimbursement, deferred compensation,
retirement or similar plan or agreement or employ any additional executive or
management personnel or enter into or amend any severance agreement or grant
any general increase in wage or salary rates or in employee benefits (except
in the Ordinary Course or as required by existing agreements, plans or
arrangements) or enter into any employment contract which Buyer, Seller or
Canada Sub do not have the right to terminate without liability or adopt (or
amend in any manner which would increase the benefits under) any bonus, profit
sharing, compensation, employment or other employee benefit plan, agreement,
contract, commitment or arrangement for the benefit or welfare of any employee
or employees of Seller or Canada Sub;
(m) organize any Subsidiary or acquire any equity or other interest
in any Person; or
(n) agree, whether in writing or otherwise, to do any of the
foregoing.
6.3 INSURANCE. Seller shall keep, or cause to be kept, all insurance
policies presently maintained relating to Seller, Canada Sub and their
respective properties, or replacements therefor, in full force and effect
through the close of business on the Closing Date. None of Buyer, Seller or
Canada Sub will have any rights under any such insurance policies from and
after the Closing Date.
6.4 ACCOUNTS RECEIVABLE. Each of MagneTek and Seller agrees to forward
to Buyer, within three business days after receipt thereof, any and all
proceeds from accounts receivable of Seller or Canada Sub that are received by
Seller, MagneTek or any other Affiliate of MagneTek after the Closing Date.
If, after the Closing Date, Seller or MagneTek or any other Affiliate of
MagneTek receives any payment from any person who at the time of such payment
has outstanding accounts payable to MagneTek, on the one hand (for the
purposes of this Section, "MagneTek Accounts Receivable"), and to Buyer,
Seller or Canada Sub, on the other hand (for purposes of this Section, "Buyer
Accounts Receivable"), and the payment (a) does not indicate whether it is in
respect of MagneTek Accounts Receivable or Buyer Accounts Receivable or (b)
indicates that it is in payment of both MagneTek Accounts Receivable and Buyer
Accounts Receivable without specifying the portion to be allocated to each,
then MagneTek and Buyer shall consult with one another to determine the proper
allocation of such payment; and, if they are unable to reach agreement on the
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proper allocation, such payment shall be applied so as to retire MagneTek
Accounts Receivable and Buyer Accounts Receivable in chronological order based
upon the period of time such accounts receivable have existed on the books of
MagneTek, Seller, Buyer or Canada Sub, as applicable.
6.5 CONFIDENTIALITY AGREEMENTS. After the date of this Agreement, each
of Seller and MagneTek shall take all actions and do all things reasonably
necessary (but not including the commencement of litigation) to preserve and
enforce its rights under the terms of any confidentiality agreements entered
into between Seller, MagneTek and third parties who were provided information
relating to Seller and Canada Sub in connection with MagneTek's efforts to
sell the business, assets or stock of Seller or Canada Sub; PROVIDED, HOWEVER,
that upon Buyer's request and at its expense in the event of a dispute, Seller
or MagneTek will either (a) assign to Buyer its rights under any such specific
agreement or (b) serve as the named party in any legal action for Buyer's
benefit under such an agreement.
6.6 NO SOLICITATION. None of MagneTek, Seller, Canada Sub or their
respective Affiliates shall, and none of them shall permit any of their
respective directors, officers, employees, agents or representatives to,
solicit, initiate, encourage, entertain or consider any inquiries or proposals
concerning any merger, consolidation or acquisition or purchase of all or any
substantial portion of the assets or capital stock of Seller or Canada Sub
(other than the Excluded Assets), whether separately or as part of a larger
transaction, or any other transaction which could reasonably be expected to
preclude the consummation of any or all of the transactions contemplated by
this Agreement.
6.7 LIEN SEARCHES. Prior to the Closing, Seller shall obtain at its
expense and deliver to Buyer Uniform Commercial Code, tax lien and judgment
searches (or, in the case of foreign jurisdictions, comparable searches) for
Seller and Canada Sub at the state and county level (or, in the case of
foreign jurisdictions, the appropriate filing offices) for each location at
which Seller or Canada Sub presently conducts business or has conducted
business during the past five years. Such searches shall be conducted under
the present names of Seller and Canada Sub and such other names as they used
during the past five years.
6.8 THIRD PARTY CONSENTS. Prior to the Closing, Seller shall use
commercially reasonable efforts to procure all consents, approvals or
authorizations from third Persons
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necessary to consummate the transactions contemplated by this Agreement and all
consents, approvals or authorizations from third Persons required under
Contracts for any reason as a result of the transactions contemplated herein the
failure to obtain of which may reasonably expected to have a Material Adverse
Effect (all of which are referred to herein as "Third Party Consents"). Each of
Seller and MagneTek hereby represents and warrants to Buyer that Schedule 6.8 is
a true, correct and complete list of all Third Party Consents. Each of Buyer
and Seller and MagneTek shall, and Seller shall cause Canada Sub to, cooperate
with the other parties in any reasonable manner in connection with obtaining any
consents; provided, however, that such cooperation shall not include any
requirement of any party to commence any litigation or offer or grant any
accommodation (financial or otherwise) to any third party.
6.9 ENVIRONMENTAL MATTERS.
(a) As to the Seller Facilities located in Orlando, Florida, New
Orleans, Louisiana, and Houston, Texas, after the Closing Date Seller shall
conduct, at its sole cost, such response (investigation and cleanup) or
containment activities as are required by regulatory authorities pursuant to
applicable Environmental Laws concerning such soil and/or groundwater
contamination as has been determined prior to the Closing Date to exist at
such Facilities as specified on Schedule 6.9 hereto ("Existing
Contamination"), and, in the case of the Houston Facility (defined below),
such response (investigation and cleanup) and containment activities as will
be set forth as recommendations in the Houston Phase II Report. Seller's
responsibility for Existing Contamination shall be concluded with respect to a
Facility when either of the following events occurs: (i) Seller obtains from
the lead regulatory agency written confirmation that all necessary response
actions have been completed at the Facility with respect to the Existing
Contamination; or (ii) Seller demonstrates to the reasonable satisfaction of
Buyer through test data that Existing Contamination levels do not exceed
applicable state or federal standards requiring remediation.
(b) Buyer shall cooperate fully with Seller's efforts to conduct
response activities pursuant to this Agreement. Seller and its contractors
shall be afforded access to the Facilities at all reasonable times for the
purpose of conducting necessary response activities. Seller and MagneTek
shall cause their contractors to supply Buyer with certificates of insurance
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reflecting such coverage, and in such amounts, as Buyer shall reasonably
require, consistent with the customs in the industry. Seller shall be
responsible for managing all communications with Governmental Authorities
concerning response activities taken pursuant to this Section 6.9, and Buyer
shall not initiate any communications with Governmental Authorities or other
third parties concerning such response activities. Seller and MagneTek shall
inform Buyer from time to time at Buyer's request of the status of Seller's
response activities taken pursuant to this Section 6.9 and, at Buyer's
request, will supply Buyer with copies of material communications from
governmental authorities concerning response activities taken pursuant to this
Section 6.9.
(c) Contemporaneously with the completion of the tank farm
relocation project currently under way at the Seller Facility at 10010 Gulf
Freeway, Houston, Texas (the "Houston Facility"), Seller agrees to retain, at
its expense, Dames & Moore, or another reputable environmental consulting firm
selected by Seller and reasonably satisfactory to Buyer, to perform a
comprehensive Phase II environmental study of the soils and groundwater at the
Houston Facility and to obtain the resulting Phase II report (the "Houston
Phase II Report") from such consulting firm as promptly as practicable.
Seller will deliver to Buyer a copy of the Houston Phase II Report. Promptly
after it receives the Houston Phase II Report, if required to do so under
applicable law, Seller will report to the Texas Natural Resource Conservation
Commission in writing the impact to soils and groundwater reflected in the
Houston Phase II Report. Upon completion of the Houston Phase II Report,
Seller will comply with the requirements of Section 6.9(a) above as to the
Houston Facility.
(d) Seller will use reasonable efforts to obtain and deliver to
Buyer at Closing the consent of Dames & Moore (or such other consultant as
shall have prepared the Houston Phase II Report) to reliance by Buyer and
Grand Eagle upon the Phase II Report prepared in respect of the Seller
Facilities listed in Section 6.9.
6.10 RANCHO DOMINGUEZ LEASE ASSIGNMENT. In the event Seller is unable to
obtain from Westinghouse Electric Corporation either a complete novation or an
assignment of its leasehold interest (the "Westinghouse Lease") in the Company
Property at 18020 South Santa Fe Avenue, Rancho Dominguez, California, Seller
agrees to enter into a sublease or similar arrangement in which Seller will
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undertake to convey to Buyer its benefits under the environmental protections
and indemnifications Seller has under the Westinghouse Lease, provided that
Seller shall be required only to use commercially reasonable efforts to
enforce such rights on Buyer's behalf, and that all actions pertaining to such
enforcement shall be at Buyer's sole expense.
6.11 RANCHO DOMINGUEZ FACILITY PROJECT. Promptly after the date hereof,
Seller shall obtain an estimate for the work described on Schedule 6.11 hereto
and shall commence such work. If the Closing occurs, Buyer shall reimburse
Seller for one-half of the expense of such work.
6.12 DELIVERY OF SCHEDULES. Buyer shall, by March 15, 1996, deliver to
Seller Schedule 3.1 and any schedules referred to in Buyer's representations
and warranties in Article 5 hereof. By March 15, 1996, Seller and MagneTek
shall deliver to Buyer and Grand Eagle all remaining Schedules described in
this Agreement.
ARTICLE 7
COVENANTS OF BUYER
Buyer covenants and agrees as follows:
7.1 CONFIDENTIALITY. Buyer acknowledges that the information regarding
the Business heretofore and hereafter provided to it by MagneTek or Seller is
subject to the terms of a confidentiality agreement between MagneTek and an
Affiliate of Buyer dated as of March 21, 1994 (the "Confidentiality
Agreement"), the terms of which are incorporated herein by reference except
that the expiration is extended by 18 months from the date hereof. Effective
upon, and only upon, the Closing, the Confidentiality Agreement will
terminate; provided, however, that Buyer acknowledges that the Confidentiality
Agreement will terminate only with respect to information relating solely to
the Business and Canada Sub; and provided, further, however, that Buyer
acknowledges that any and all other provisions shall remain in effect, and all
information provided to it by MagneTek or its representatives concerning
MagneTek shall remain subject to the terms and conditions of the
Confidentiality Agreement after the date of the Closing.
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7.2 ACCOUNTS RECEIVABLE. Buyer agrees to forward or cause to be
forwarded to MagneTek, within three business days after the receipt thereof,
any and all proceeds from accounts receivable of MagneTek that are received by
Buyer or Canada Sub after the Closing Date. If, after the Closing Date, Buyer
or Canada Sub receives any payment from any Person who at the time of such
MagneTek Accounts Receivable and Buyer Accounts Receivable, and the payment
(a) does not indicate whether it is in respect of MagneTek Accounts Receivable
or Buyer Accounts Receivable or (b) indicates that it is in payment of both
MagneTek Accounts Receivable and Buyer Accounts Receivable without specifying
the portion to be allocated to each, then MagneTek and Buyer shall consult
with one another to determine the proper allocation of such payment; and, if
they are unable to reach agreement on the proper allocation, such payment
shall be applied so as to retire MagneTek Accounts Receivable and Buyer
Accounts Receivable in chronological order based upon the period of time such
accounts receivable have existed on the books of MagneTek, Buyer, Seller or
Canada Sub, as applicable.
7.3 INSURANCE. Buyer shall secure insurance with respect to the Assets
and shall cause Canada Sub to secure insurance with respect to its assets from
the Closing Date covering general liability and products liability in amounts
customary for the industry in which Buyer and Canada Sub operate.
7.4 ASSETS REMAINING ON BUYER'S PROPERTY. If, after the Closing Date,
the Excluded Assets listed on Schedule 7.4 remain on the premises utilized or
controlled by Buyer or Canada Sub, then Buyer shall take reasonable steps at
the expense of MagneTek to deliver such Excluded Assets to MagneTek, and so
long as such assets remain in Buyer's control, shall exercise reasonable care
with respect thereto, and in no event less care than with respect to its own
properties or than MagneTek or Seller is contractually required to exercise
(but only to the extent set forth on Schedule 7.4). MagneTek shall take
reasonable steps to remove all such assets from premises utilized or
controlled by Buyer and Canada Sub promptly after Closing, and in any case not
later than ninety days after the Closing Date. After such date, Buyer and
Canada Sub may move and store any such assets, at the expense of MagneTek, to
and at locations off the premises utilized or controlled by Buyer and Canada
Sub, and thereafter shall have no further responsibility to MagneTek with
respect to such assets.
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7.5 CHANGE OF NAME OF CANADA SUB. On the Closing Date, Buyer shall
cause the name of Canada Sub to be changed so as to eliminate the name
"MagneTek".
ARTICLE 8
MUTUAL COVENANTS
Each of Seller and MagneTek covenants and agrees with Buyer and Grand
Eagle, and each of Buyer and Grand Eagle covenants and agrees with Seller and
MagneTek as follows:
8.1 COOPERATION. MagneTek, Buyer, Seller and Grand Eagle shall
cooperate with each other and shall cause their officers, employees, agents,
auditors and representatives to cooperate with each other after the Closing to
ensure the orderly transition of the Business to Buyer and to minimize any
disruption to the respective businesses of MagneTek, Buyer and Canada Sub that
might result from the transactions contemplated hereby. No party shall be
required by this Section 8.1 to take any action that would unreasonably
interfere with the conduct of its business. Subject to the terms and
conditions of this Agreement, each party will use all reasonable efforts to
cause the Closing to occur.
8.2 PUBLICITY. MagneTek, Seller, Buyer and Grand Eagle agree that, from
the date hereof through the Closing Date, no public release or announcement
concerning the transactions contemplated hereby shall be issued by any party
without the prior consent of the other parties (which consent shall not be
unreasonably withheld or delayed), except as such release or announcement may
be required by law or the rules or regulations of any United States or foreign
securities exchange, in which case the party required to make the release or
announcement shall allow the other party reasonable time to comment on such
release or announcement in advance of such issuance.
8.3 ANTITRUST NOTIFICATION. Each of MagneTek and Grand Eagle will as
promptly as practicable, but in no event later than ten Business Days
following the execution and delivery of this Agreement, file with the United
States Federal Trade Commission (the "FTC") and the United States Department
of Justice (the "DOJ") the notification and report form, if any, required for
the transactions contemplated hereby and any supplemental information
requested in connection therewith pursuant to the HSR Act. Any such
notification and report form and supplemental information
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will be in substantial compliance with the requirements of the HSR Act. Each
of MagneTek and Grand Eagle shall furnish to the other such necessary
information and reasonable assistance as the other may request in connection
with its preparation of any filing or submission which is necessary under the
HSR Act. MagneTek and Grand Eagle shall keep each other apprised of the status
of any communication with, and inquiries or requests for additional
information from the FTC and the DOJ and shall comply promptly with any such
inquiry or request. Each of MagneTek and Grand Eagle will use its best efforts
to obtain any clearance required under the HSR Act for the purchase and sale
of the Assets.
8.4 RECORDS. (a) On the Closing Date, MagneTek and Seller shall deliver
or cause to be delivered to Buyer all Records not in the possession or control
of Canada Sub and all corporate records pertaining to the business and
operations of Canada Sub, subject to the following exceptions:
(i) Buyer recognizes that certain Records may contain incidental
information relating to Seller or Canada Sub or may relate primarily to
subsidiaries or divisions of MagneTek other than Seller or Canada Sub or
businesses of MagneTek or Seller previously sold, and that MagneTek and
Seller may retain such Records and shall provide copies of the relevant
portions thereof to Buyer;
(ii) MagneTek and Seller may retain all Records prepared in
connection with the sale of the Assets, including bids received from
other parties and analyses relating to Seller and Canada Sub;
(iii) MagneTek and Seller may retain any Tax Returns and supporting
documents and work papers, and upon reasonable request Buyer shall be
provided with copies of such Tax Returns and supporting documents and
work papers for the three Tax years prior to the Closing Date, and any
other Tax Returns and supporting documents and work papers only to the
extent that they relate (A) to Seller's or Canada Sub's separate Tax
Returns or separate Tax liability or (B) to the computation of Seller's
or Canada Sub's potential Tax liability for (I) any period ending on or
after the Closing, (II) any period for which Buyer is responsible for
filing Tax Returns, or (III) any period to which Canada Sub may
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carryback any net operating loss, capital loss or other Tax item; and
(iv) MagneTek may deliver within a reasonable time after the Closing
(in no event more than five (5) Business Days) such Records as to which
it desires to retain copies and requires additional time in which to make
such copies.
(b) After the Closing, upon reasonable written notice, MagneTek,
Buyer, Seller and Grand Eagle agree to furnish or cause to be furnished to
each other and their representatives, employees, counsel and accountants
access, during normal business hours, to such information (including Records
pertinent to Seller or Canada Sub) and assistance relating to Seller or Canada
Sub as is reasonably necessary for financial reporting and accounting matters,
the preparation and filing of any Tax Returns, reports or forms or the defense
of any Tax claim or assessment; PROVIDED, HOWEVER, that such access does not
unreasonably disrupt the normal operations of MagneTek, Seller, Buyer or
Canada Sub.
8.5 CONSENTS. With respect to each Contract not assigned on the Closing
Date, after the Closing Date Seller shall, if necessary, continue to deal with
the other contracting party as the prime contracting party, and Buyer and
Seller shall continue to use reasonable efforts to obtain the consent of the
required parties to the assignment of such Contract to Buyer. Notwithstanding
the absence of any such consent, Buyer shall be entitled to the benefits of
such Contract accruing after the Closing Date to the extent that Seller may
provide Buyer with such benefits without violating the terms of such Contract,
and to the extent benefits are so provided, Buyer agrees to perform at its
sole expense all of the obligations of Seller to be performed under such
Contract after the Closing Date, and such obligations and Contracts shall
comprise Assumed Liabilities.
ARTICLE 9
EMPLOYEE BENEFIT MATTERS
9.1 EMPLOYEE BENEFIT MATTERS.
(a) On or prior the Closing Date Buyer shall offer employment to
commence on the Closing Date to all Company Employees and shall set initial
salaries, wages and material employee benefits that, in the aggregate, are
generally
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comparable to those provided to the Company Employees by Seller immediately
prior to the Closing Date as disclosed to Buyer. Notwithstanding the
foregoing, Buyer shall not be obligated to provide to the Company Employees
benefits comparable to those provided under the MagneTek Flexcare Retirement
Pension Plan or the MagneTek Flexcare Savings (401(k)) Plan. Buyer assumes
all obligations and liabilities, if any, under the WARN Act (and any similar
state or foreign law) arising out of the transactions contemplated by this
Agreement. Buyer also agrees to comply with the terms of the WARN Act and any
comparable state laws with respect to any action that under any such laws
would require any notice or filing prior to the Closing Date, or would give
rise to any liability of Seller or MagneTek thereafter.
(b) On the Closing Date, Buyer shall establish a group health plan
for Company Employees which shall waive any exclusion or limitation with
respect to pre-existing conditions and actively-at-work exclusions and shall
provide that any out-of-pocket health expenses incurred by a Company Employee
or his covered dependents during 1996 prior to the Closing Date shall be taken
into account under Buyer's group health plan for the remainder of 1996 for
purposes of satisfying applicable deductible, coinsurance and maximum covered
health benefit claims by Company Employees and their covered dependents for
services rendered on or after the Closing Date. Neither Buyer nor its group
health plan for Company Employees shall be liable for any claims for health
benefits for services rendered on or prior to the Closing Date regardless of
when such claim is reported.
(c) As soon as practicable, but effective as of the Closing Date,
Buyer shall, or shall cause an Affiliate to, accept sponsorship of the
Larsen-Hogue Plan, and MagneTek and Seller shall take or cause to be taken all
such action as may be necessary to effect said change in sponsorship.
MagneTek will transfer to or at the direction of Buyer or such Affiliate any
related contracts, insurance policies or other agreements or documentation as
are necessary or appropriate for the customary operation of the Larsen-Hogue
Plan. As of the Closing Date, Buyer shall assume all of MagneTek's and
Seller's liability with respect to the Larsen-Hogue Plan. Neither MagneTek,
Seller nor any of their ERISA Affiliates shall have any liability with respect
to the Larsen-Hogue Plan after the Closing Date.
(d) Effective as of the Closing Date, Canada Sub shall cease to be a
participating employer under each Company Plan, the Company Employees shall
cease accruing any additional benefits
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under all Company Plans (other than the Larsen-Hogue Plan), and MagneTek and
Seller shall take or cause to be taken, all such action as may be necessary to
effect such cessation of participation. To the extent permitted by law, as of
the Closing Date MagneTek and Seller will vest the Company Employees in their
accrued benefits under all Company Plans that are qualified under Section
401(a) of the Code as if each such employee had remained employed by MagneTek
or an ERISA Affiliate of MagneTek through the vesting periods applicable to
all of such employee's benefits accrued through the Closing Date.
(e) With respect to all Company Plans other than the Larsen-Hogue
Plan and except as provided in Sections 9.1(f) and 9.1(g), MagneTek shall
remain responsible and be liable for, and none of Grand Eagle, Buyer or Canada
Sub shall assume or be responsible for, any obligations or liabilities
thereunder.
(f) VACATION, HOLIDAY, SICK, SHORT-TERM DISABILITY AND SEVERANCE
PAY. On the Closing Date, Buyer shall assume Seller's liability for vacation,
holiday, sick, short-term disability and severance pay with respect to all
Company Employees (other than any such benefits arising under any Stay and Pay
Agreements in effect at or prior to the Closing) to the extent such
obligations are reflected on the Closing Balance Sheet.
(g) With respect to the Buyer's Employee Plans, Buyer shall, and
shall cause Canada Sub to, grant all Company Employees credit, effective as of
the Closing Date, for all service with MagneTek and its ERISA Affiliates
(including Seller and Canada Sub) and their respective predecessors prior to
the Closing Date for all purposes (other than service for benefit accrual
purposes under a defined benefit pension plan; however, this shall not
preclude Buyer from granting such credit) for which such service was
recognized by MagneTek and its ERISA Affiliates (including Seller and Canada
Sub) under any corresponding Company Plan.
(h) CANADA SUB PLANS. Canada Sub shall remain responsible and be
liable for all Canada Sub Plans. Neither MagneTek nor Seller shall have any
liability with respect to a Canada Sub Plan after the Closing Date.
(i) COMPANY EMPLOYEES COVERED BY A COLLECTIVE BARGAINING AGREEMENT.
On, and effective as of, the Closing Date Buyer shall expressly recognize any
collective bargaining representative recognized by MagneTek or Seller as of
the Closing Date for any collective bargaining units that include Company
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Employees ("Bargaining Employees") and shall either (i) assume such collective
bargaining agreements existing on the Closing Date with respect to such
Bargaining Employees, or (ii) negotiate with any such collective bargaining
representative a new collective bargaining agreement covering such Bargaining
Employees; provided, however, in either case, Buyer shall assume and discharge
all of MagneTek's and Seller's obligations (except for obligations for payroll
wages earned for periods prior to the Closing Date) with respect to the
Bargaining Employees under any such collective bargaining agreement on or
after the Closing Date. Notwithstanding anything in this Section 9.1 to the
contrary, effective on the Closing Date, Buyer shall adopt or establish for
the benefit of the Bargaining Employees all such employee benefit plans,
programs and policies as are required by such collective bargaining agreements.
(j) NO THIRD-PARTY BENEFICIARIES. No provision of this Section 9.1
shall create third-party beneficiary rights in any Company Employee (or Canada
Sub employee), including, without limitation, any right to continued
employment or employment in any particular position with Buyer (or Canada Sub)
for any specified period of time after the Closing Date.
ARTICLE 10
INDEMNIFICATION
10.1 TAX INDEMNIFICATION.
(a) Subject to all of the terms and conditions of this Article 10,
Seller and MagneTek shall jointly and severally indemnify and hold harmless
each Indemnified Buyer Affiliate from (i) all liability for Taxes of Seller or
Canada Sub for Pre-Closing Tax Periods (as defined below) other than any
liability for Taxes (a) included as a payable or other short-term liability
for purposes of preparing the Closing Balance Sheet, (b) that is an Assumed
Liability, or (c) with respect only to Canada Sub, arising on, or as a result
of events occurring on, the Closing Date as a result of actions taken by or at
the direction of Buyer or any Affiliate of Buyer, and (ii) all liability for
reasonable legal fees and expenses incurred with respect to any item
indemnified pursuant to clause (i) of this Section 10.1(a) other than the cost
of preparing Tax Returns described in Section 11.1. "Pre-Closing Tax Period"
shall mean any taxable period
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ending on or before the Closing Date and the portion ending at the close of
business on the Closing Date of any taxable period that includes (but does not
end on) the closing Date.
(b) Buyer shall, and shall cause Canada Sub to, jointly and
severally indemnify and hold harmless each Indemnified Seller Affiliate from
(i) all liability for Taxes of Buyer and, with respect to Taxes attributable
to periods or portions thereof following the Pre-Closing Tax Period, Canada
Sub, (ii) all liability for Taxes that are included as a payable or other
short-term liability for purposes of preparing the Closing Balance Sheet or
that are Assumed Liabilities, (iii) all liabilities of Canada Sub arising on,
or as a result of events occurring on, the Closing Date as a result of actions
taken by or at the direction of Buyer or any Affiliate of Buyer, and (iv) all
liability for reasonable legal fees and expenses incurred with respect to any
item indemnified pursuant to clauses (i) through (iii) of this Section 10.1(b)
other than the cost of preparing Tax Returns described in Section 11.1.
10.2 OTHER INDEMNIFICATION BY SELLER. Subject to all of the terms and
conditions of this Article 10, each of Seller and MagneTek shall jointly and
severally indemnify and hold harmless each Indemnified Buyer Affiliate from
any Losses suffered or incurred by such Indemnified Buyer Affiliate (other
than any relating to (i) liabilities for Taxes, and (ii) the specified
liabilities and obligations identified and described in Sections 10.4 and
10.5) to the extent arising from, (a) if the Closing occurs, any breach of any
representation or warranty of Seller or MagneTek contained in this Agreement
which survives the Closing or in any certificate, instrument or other document
delivered pursuant hereto, (b) any breach of any covenant of Seller or
MagneTek contained in this Agreement requiring performance after the Closing
Date or (c) any Excluded Liability. Seller and MagneTek shall not have any
liability under clause 10.2(a) or 10.2(b) above unless the aggregate of all
Losses for which Seller and MagneTek would, but for this proviso, be liable
pursuant to this Section 10.2(a) and 10.2(b), together with the aggregate of
all Losses for which Seller and MagneTek are liable pursuant to Sections
10.2(a) and (b) of the Other Agreement, exceeds $220,000 on a cumulative basis
(and then only to the extent of any such excess). Seller's and MagneTek's
aggregate liability under Sections 10.2(a) and (b) of this Agreement and
Sections 10.2(a) and (b) of the Other Agreement shall in no event exceed
$5,500,000. MagneTek's liability under Section 10.2(c) is only limited as set
forth in Section 10.6. The foregoing
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provisions notwithstanding, nothing in this Agreement shall in any manner
amend, modify or limit any obligation of Seller or MagneTek existing at the
Closing Date to indemnify or hold harmless any officer, director, employee or
agent of Canada Sub.
10.3 OTHER INDEMNIFICATION BY BUYER. Subject to all of the terms and
conditions of this Article 10, Buyer shall, and shall cause Canada Sub to,
indemnify and hold harmless each Indemnified Seller Affiliate from any Losses
suffered or incurred by such Indemnified Seller Affiliate (other than any
relating to Tax matters, for which indemnification is provided in Section 10.1
or environmental matters, for which indemnification is provided in Section
10.4) to the extent arising from, (a) if the Closing occurs, any breach of any
representation or warranty of Buyer or Grand Eagle contained in this Agreement
which survives the Closing or in any certificate, instrument or other document
delivered pursuant hereto or in connection herewith, (b) any breach of any
covenant of Buyer or Grand Eagle contained in this Agreement requiring
performance after the Closing Date, (c) any Assumed Liability or (d) the
ongoing operations of Buyer and the Assets after the Closing occurs. Buyer
and Canada Sub shall not have any liability under clause (a) or (b) above
unless the aggregate liability of Buyer and Canada Sub under such clauses (a)
and (b), together with the aggregate liability of the buyer pursuant to
Section 10.3(a) and (b) of the Other Agreement, shall exceed $220,000 on a
cumulative basis (and then only to the extent of any such excess). Buyer's
and Canada Sub's aggregate liability under Section 10.3(a) and (b), together
with the aggregate liability of Buyer (as defined in the other Agreement)
under Section 10.3(a) and (b) of the Other Agreement, shall in no event exceed
$5,500,000.
10.4 INDEMNIFICATION FOR ENVIRONMENTAL MATTERS.
(a) Subject to all the terms and conditions of this Article 10.4,
Seller and MagneTek shall jointly and severally indemnify and hold harmless
each Indemnified Buyer Affiliate from and against all Losses resulting from
claims or demands by any Governmental Authority or any third party which is
unrelated to Buyer or its Affiliates arising under any Environmental Law to
the extent such claims or demands relate to:
(i) Seller's failure to perform any of its obligations as provided
in Section 6.9 herein;
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(ii) Seller's arrangement for treatment, storage, recycling or
disposal, prior to the Closing Date, of any Hazardous Materials at any
offsite disposal facility; or
(iii) conditions as of the Closing Date at any Seller Facility.
Seller and MagneTek shall not have any liability under clause (ii)
or (iii) above unless the aggregate of all Losses for which Seller and
MagneTek would, but for this proviso, be liable under such clauses (ii) and
(iii) and under Sections 10.4(a)(ii) and (iv) of the Other Agreement shall
exceed $100,000 on a cumulative basis (and then only to the extent of any such
excess). Seller's and MagneTek's aggregate liability under Sections
10.4(a)(ii)and (iii) and under Sections 10.4(a)(ii) and (iv) of the Other
Agreement shall in no event exceed $1,500,000. Such $100,000 deductible and
$1,500,000 maximum indemnification shall be unrelated to the $220,000
deductible and $5,500,000 maximum indemnification provided under Sections 10.2
of this and the Other Agreement. Except as provided in Section 10.6(f), there
shall be no limitation on the maximum amount of indemnification provided under
Section 10.4(a)(i) of this Agreement. The indemnification provided by Section
10.4(a)(ii) and Section 10.4(a)(iii) will expire on the third anniversary of
the Closing Date.
Notwithstanding anything in this Agreement to the contrary, Seller's
and MagneTek's indemnification liability hereunder shall in no event be
construed to extend to or include any remediation or other liability arising
as the result of the presence of asbestos in or upon the improvements located
on any Seller Facility at any time.
(b) Buyer shall indemnify and hold harmless each Indemnified Seller
Affiliate from and against all Losses resulting from claims or demands by any
Governmental Authority or third party arising under any Environmental Law to
the extent such Losses are attributable to Buyer's use or occupancy of any
Seller Facility after the Closing Date.
10.5 INDEMNIFICATION FOR CANADA SUB. Subject to all of the terms and
conditions of this Article 10, Seller and MagneTek shall jointly and severally
indemnify and hold harmless the Indemnified Buyer Affiliates from any Losses
suffered or incurred by any of the Indemnified Buyer Affiliates (a) to the
extent arising from any matter involving Canada Sub which would, if such
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matter involved Seller or Buyer, be an Excluded Liability, and (b) arising
from Canada Sub's status as an ERISA Affiliate of MagneTek or of any Affiliate
of MagneTek. Such indemnification is limited as provided in Section 10.6.
10.6 LOSSES NET OF INSURANCE, ETC.
(a) The amount of any Loss for which indemnification is provided
under this Article 10 shall be net of all amounts recovered by the Indemnified
Person under insurance policies with respect to such Loss and shall be net of
any reserve in respect thereof reflected on the Closing Balance Sheet.
(b) If the Indemnifying Person makes any payment under this Article
10 in respect of any Losses, the Indemnifying Person shall be subrogated, to
the extent of such payment and except to the extent that such subrogation is
not permitted by the terms of any insurance policy, to the rights of the
Indemnified Person against any insurer or third party with respect to such
Losses.
(c) Notwithstanding anything to the contrary elsewhere in this
Agreement, no party shall, in any event, be liable to any Indemnified Person
for any consequential damages, including, but not limited to, loss of revenue
or income, cost of capital, diminution in value or loss of business reputation
or opportunity relating to the breach or alleged breach of this Agreement.
Each party agrees that it will not seek punitive damages from any Indemnified
Person as to any matter under, relating to or arising out of the transactions
contemplated by this Agreement.
(d) The parties hereto agree that the indemnification provisions of
this Article 10 are intended to provide the exclusive remedy as to all Losses
each may incur arising from, or relating to the transactions contemplated
hereby and each party hereby waives, to the extent it may do so, any other
rights or remedies that may arise under any applicable statute, rule or
regulation. Notwithstanding the foregoing, (i) Buyer may exercise any rights
or remedies it may have under or with respect to the Non-Competition Agreement
and (ii) the rights of any party under this Article 10 are not exclusive with
respect to fraudulent representations, actions or omissions by another party.
(e) Any indemnification payment for Taxes required under this
Article 10 shall for purposes of federal, state and local income Taxes, be
treated as a purchase price adjustment.
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(f) The parties agree that the aggregate liability of Seller and
MagneTek under all provisions of this Agreement, including all indemnification
provisions of this Article 10, shall in no event exceed the sum of the Cash
Purchase Price and all amounts paid or otherwise due under the Seller Note (in
cash or by offset under Section 10.11) prior to the date of the claim for
indemnification hereunder.
10.7 TERMINATION OF INDEMNIFICATION. The obligations to indemnify and
hold harmless a party hereto, (w) pursuant to Sections 10.1, 10.2(c), 10.3(c)
and (d) and 10.5 shall not terminate, (x) pursuant to Sections 10.2(a) and
10.3(a), shall terminate when the applicable representation or warranty
terminates pursuant to Section 10.10, (y) pursuant to Section 10.4, shall
terminate as set forth therein and (z) pursuant to clauses 10.2(b) and
10.3(b), shall terminate on the third anniversary of the Closing Date;
PROVIDED, HOWEVER, that as to clauses (w), (x), (y) and (z) above, such
obligations to indemnify and hold harmless shall not terminate with respect to
any item as to which the Person to be indemnified shall have, before the
expiration of the applicable period, previously made a claim by delivering a
notice (stating in reasonable detail the basis of such claim) to the
Indemnifying Person.
10.8 PROCEDURES RELATING TO INDEMNIFICATION (OTHER THAN UNDER SECTION
10.1). In order for an Indemnified Person to be entitled to any
indemnification provided for under this Agreement (other than under Section
10.1) in respect of, arising out of or involving a claim or demand made by any
Person against the indemnified Person (a "Third Party Claim"), such
Indemnified Person must notify the Indemnifying Person in writing, and in
reasonable detail, of the Third Party Claim within 10 Business Days (30
calendar days in respect of claims under Section 10.4) after receipt by such
Indemnified Person of written notice of the Third Party Claim; PROVIDED,
HOWEVER, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the Indemnifying
Person shall have been actually prejudiced as a result of such failure (except
that the Indemnifying Person shall not be liable for any Losses incurred
during the period in which the Indemnified Person failed to give such notice).
Thereafter, the Indemnified Person shall deliver to the Indemnifying Person,
within five Business Days after the Indemnified Person's receipt thereof,
copies of all notices and documents (including court papers) received by the
Indemnified Person relating to the Third Party Claim.
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If a Third Party Claim is made against an Indemnified Person, the
Indemnifying Person will be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel selected by
the Indemnifying Person and reasonably satisfactory to the Indemnified Person.
Should the Indemnifying Person so elect to assume the defense of a Third
Party Claim, the Indemnifying Person will not be liable to the Indemnified
Person for legal fees and expenses subsequently incurred by the Indemnified
Person in connection with the defense thereof. If the Indemnifying Person
assumes such defense, the Indemnified Person shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Indemnifying Person, it being
understood that the Indemnifying Person shall control such defense. The
Indemnifying Person shall be liable for the fees and expenses of counsel
employed by the Indemnified Person for any period during which the
Indemnifying Person has not assumed the defense thereof (other than during any
period in which the Indemnified Person shall have failed to give notice of the
Third Party Claim as provided above). If the Indemnifying Person chooses to
defend or prosecute any Third Party Claim, all the parties hereto shall
cooperate in the defense or prosecution thereof. Such cooperation shall
include the retention and (upon the Indemnifying Person's request) the
provision to the Indemnifying Person of Records and information which are
reasonably relevant to such Third Party Claim, and employees available on
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Whether or not the Indemnifying Person shall
have assumed the defense of a Third Party Claim, the Indemnified Person shall
not admit any liability with respect to, or settle, compromise or discharge,
such Third Party Claim without the Indemnifying Person's prior written consent
(which consent shall not be unreasonably withheld or delayed). All Tax Claims
(as defined in Section 10.9) shall be governed by Section 10.9.
10.9 PROCEDURES RELATING TO INDEMNIFICATION OF TAX CLAIMS.
(a) If a claim shall be made by any Governmental Authority, which,
if successful, might result in an indemnity payment to any Person hereunder
pursuant to Section 10.1 (a "Tax Indemnitee"), the Tax Indemnitee shall
promptly notify the party against whom indemnification is sought (the "Tax
Indemnitor") in writing of such claim (a "Tax Claim"). If notice of a Tax
Claim is not given to the Tax Indemnitor within a sufficient period of time to
allow the Tax Indemnitor to effectively contest such Tax
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Claim, or in reasonable detail to apprise the Tax Indemnitor of the nature of
the Tax Claim, in each case taking into account the facts and circumstances
with respect to such Tax Claim, the Tax Indemnitor shall not be liable to the
Tax Indemnitee to the extent that the Tax Indemnitor's ability to effectively
contest such Tax Claim is actually prejudiced as a result thereof.
(b) With respect to any Tax Claim for which a Tax Indemnitee seeks
indemnification hereunder, the Tax Indemnitor shall control all proceedings
taken in connection with such Tax Claim (including, without limitation,
selection of counsel) and, without limiting the foregoing, may in its sole
discretion (and at its sole cost and expense) pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with any
Governmental Authority with respect thereto and may, in its sole discretion,
either pay the Tax claimed and sue for a refund where applicable law permits
such refund suits or contest the Tax Claim in any permissible manner;
PROVIDED, HOWEVER, that the Tax Indemnitor shall not settle or compromise a
Tax Claim without giving prior notice to the Tax Indemnitee and without the
Tax Indemnitee's consent, which shall not be unreasonably withheld or delayed,
if such settlement or compromise would have an adverse effect on the Tax
liabilities of the Tax Indemnitee, its Affiliates or any member of its
Affiliated Group. The Tax Indemnitee, and each of its Affiliates, shall
cooperate with the Tax Indemnitor in contesting any Tax Claim, which
cooperation shall include, without limitation, the retention and (upon the Tax
Indemnitor's request) the provision to the Tax Indemnitor of Records and
information which are reasonably relevant to such Tax Claim, and making
employees available on a mutually convenient basis to provide additional
information or explanation of any material provided hereunder or to testify at
proceedings relating to such Tax Claim.
(c) In no case shall Buyer or Canada Sub settle or otherwise
compromise any Tax Claim for which indemnification is sought hereunder without
MagneTek's prior written consent, which consent shall not be unreasonably
withheld.
10.10 SURVIVAL OF REPRESENTATIONS. The representations and warranties
in this Agreement and in any other document delivered in connection herewith
shall survive the Closing solely for purposes of Sections 10.2(a) and 10.3(a)
and shall terminate at the close of business three years following the Closing
Date, except that the representations and warranties in Sections 4.8, 4.15 and
4.17 shall not survive the Closing.
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10.11 MANDATORY SETOFF OF SELLER NOTE. (a) Each of the parties agrees,
on its own behalf and (with respect to MagneTek and Seller) on that of any
permitted transferee of the Seller Note, that to the extent any amount is due
in respect of indemnification to an Indemnified Buyer Affiliate under this
Agreement or the Other Agreement, such amount shall be offset against the
interest and principal due under the Seller Note and the similar note issued
under the Other Agreement, with offsets applied first to interest payments
then due in the order of their maturity and then to principal payments in the
order of their maturity, before any amount shall be payable by Seller or
MagneTek. In the event any such offset is contested by MagneTek, the matter
shall be resolved in the same fashion as any other dispute under this
Agreement.
ARTICLE 11
POST CLOSING MATTERS
11.1 TAX MATTERS.
(a) For any taxable period of Canada Sub ending after the Closing
Date, Buyer shall timely prepare and file, or cause to be timely prepared and
filed, with the appropriate Governmental Authorities all Tax Returns required
to be filed by Canada Sub and will pay all Taxes due with respect to such
Returns; PROVIDED that Seller will reimburse Buyer, within thirty (30) days of
such payment, for any amount owed by Seller pursuant to Section 10.1 with
respect to any Pre-Closing Tax Period covered by such Returns. For any
taxable period of Seller and Canada Sub that ends on or before the Closing
Date, Seller shall timely prepare and file, or cause to be timely prepared and
filed, with the appropriate Governmental Authorities all Tax Returns required
to be filed and will pay all Taxes due with respect to such Tax Returns;
provided that Buyer will reimburse Seller, within thirty (30) day's of such
payments, for any amount owed by Buyer or Canada Sub pursuant to Section 10.1.
All Tax Returns of Seller and Canada Sub prepared pursuant to this Section
11.1(a) shall be prepared accurately and in a manner consistent with such Tax
Returns for prior periods.
(b) Any refunds or credits of Taxes of Canada Sub paid with respect
to any taxable period or portion thereof ending on or before the Closing Date
shall be for the account of Seller unless such refund or credit results from a
net operating loss or
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other carryback incurred after the Closing Date. Any refunds or credits of
Taxes of Canada Sub paid with respect to any taxable period or portion thereof
beginning after the Closing Date shall be for the account of Canada Sub.
Buyer and Seller shall cooperate to effect the purposes of the foregoing
provisions. Any amounts payable to Buyer or Seller to effect the provisions of
this clause (b) shall be net of any tax cost or benefit to the payor
attributable to the receipt of such refund and/or the payment of such amounts
(for this purpose a cost shall not include the inability to carry back future
losses due to prior refunds); in no event shall such payment exceed the amount
of the refund. Notwithstanding the foregoing, the control of the prosecution
of a claim for refund of Taxes attributable to Pre-Closing Tax Periods paid
pursuant to a deficiency assessed subsequent to the Closing Date as a result
of an audit shall be governed by the provisions of Section 10.9.
(c) MagneTek shall be responsible for filing any amended
consolidated, combined or unitary Tax Returns (whether original or amended) in
which Canada Sub was included for any taxable period or portion thereof ending
on or prior to the Closing Date which are required as a result of examination
adjustments made by the IRS or by the applicable state, local or foreign
taxing authorities for such taxable years as finally determined. For those
jurisdictions in which separate Tax Returns are filed by Canada Sub, any
required amended returns resulting from such examination adjustments, as
finally determined, shall be prepared by MagneTek and furnished to Canada Sub
and Buyer for approval (which approval shall not be unreasonably withheld or
delayed), signature and filing at least 10 days prior to the due date for
filing such returns.
(d) Except as otherwise specifically provided for in this Agreement,
all other Taxes shall be payable by and be the responsibility of the party on
whom such Taxes are imposed. Seller shall pay any stock transfer taxes due as
a result of the sale of the Canada Sub Shares.
(e) Buyer shall not, and shall cause its Affiliates not to, make or
cause to be made an election pursuant to Section 338 of the Code with respect
to the purchase of the stock of Canada Sub pursuant to this Agreement.
11.2 ACCESS TO FORMER BUSINESS RECORDS. For a period of seven (7) years
following the Closing, Buyer will retain all Records of Seller and Canada Sub
existing as of the Closing and
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in its possession or control. During such period, Buyer will afford
authorized representatives of MagneTek access to all of such Records at
reasonable times and during normal business hours at the principal business
office of Buyer or Grand Eagle, as applicable, or at such other location or
locations at which such Records may be stored or maintained from time to time,
and will permit such representatives to make abstracts from, or copies of, any
of such Records, or to obtain temporary possession of any thereof as may be
reasonably required by MagneTek at MagneTek's sole cost and expense. During
such period, Buyer will, at MagneTek's expense (in respect of any
out-of-pocket expenses), cooperate with MagneTek in furnishing information,
evidence, testimony and other reasonable assistance in connection with any
action, proceeding or investigation relating to the Business or Canada Sub
prior to the Closing.
11.3 USE OF TRADEMARK AND TRADE NAMES. Notwithstanding anything to the
contrary in this Agreement, Buyer and Canada Sub may continue to use the name
"MagneTek" and related trademarks, corporate names, and tradenames
incorporating "MagneTek", and the stylized "MagneTek" logos, and (to the
extent permitted by agreements between Seller and other persons previously
delivered to Buyer) the phrases "NEC" and "National Electric Coil" and related
trademarks, corporate names, tradenames and logos (i) in displays, signage and
postings for sixty (60) days after the Closing Date to the extent such
displays, signage or postings exist on the Closing Date; (ii) for a period of
two (2) years, to state the former affiliation of Canada Sub and of the
Business as conducted by Buyer with MagneTek and Seller (e.g., formerly a
subsidiary of "MagneTek, Inc." or "formerly [name of Seller or Canada Sub]");
and (iii) to the extent the trade names, trademarks, service marks or logos of
any of Seller's affiliates or of Seller appear on the stationery, packaging
materials, supplies or inventory of Canada Sub on hand as of the Closing Date
or on order at the time of the Closing or included in the Assets, until such
is exhausted.
11.4 FURTHER ASSURANCES. If at any time after the Closing Date any
further action is reasonably necessary or desirable to carry out the purposes
of this Agreement, then promptly upon the request of the other party, Seller,
MagneTek, Buyer or Grand Eagle, as the case may be, shall take such action
(including, but not limited to, the execution of additional documents and
instruments).
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<PAGE>
ARTICLE 12
GENERAL PROVISIONS
12.1 ASSIGNMENT. This Agreement and the rights and obligations hereunder
shall not be assignable or transferable by Buyer prior to the Closing
(including by operation of law in connection with a merger, or sale of
substantially all the assets, of Buyer) without the prior written consent of
Seller; PROVIDED, HOWEVER, that Buyer may assign its right to purchase the
Assets hereunder to an Affiliate of Grand Eagle without the prior written
consent of Seller; PROVIDED FURTHER, HOWEVER, that no assignment shall limit
or affect the assignor's obligations hereunder.
12.2 NO THIRD-PARTY BENEFICIARIES. Except as provided in Article 10 as
to Indemnified Persons, this Agreement is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied
shall give or be construed to give to any person or entity, other than the
parties hereto and such assigns, any legal or equitable rights hereunder.
12.3 TERMINATION.
(a) Anything contained herein to the contrary notwithstanding, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing Date:
(i) by mutual written consent of all parties; or
(ii) by any party hereto, if the Closing does not occur on or prior
to April 5, 1996; or
(iii) by Buyer within six Business Days after Seller shall have
notified Buyer that Buyer has received all of the Schedules described in
this Agreement; provided, however, that the Buyer may only so terminate
this Agreement if the Schedules disclose a matter, not previously
disclosed to Buyer in writing by MagneTek or Seller, which has a Material
Adverse Effect. In the event Buyer exercises the right to terminate this
Agreement under this Section 12.3(a)(iii), the Other Agreement shall
automatically terminate.
(b) In the event of termination by any party pursuant to this
Section 12.3, written notice thereof shall forthwith be
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given to the other parties and the transactions contemplated by this Agreement
shall be terminated, without further action by either party. If the
transactions contemplated by this Agreement are terminated as provided herein:
(i) Buyer and Grand Eagle shall return to Seller all documents and
copies and other material received from Seller, MagneTek or Canada Sub
relating to the transactions contemplated hereby, whether so obtained
before or after the execution hereof; and
(ii) All confidential information received by Buyer or Grand Eagle
with respect to the businesses of Seller and Canada Sub shall be treated
in accordance with the Confidentiality Agreement which shall remain in
full force and effect notwithstanding the termination of this Agreement.
(c) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 12.3, this
Agreement shall become void and of no further force and effect, except for the
provisions of (i) Section 7.1 relating to the obligation of Buyer and Grand
Eagle to keep confidential certain information and data obtained by it, (ii)
Section 12.4 relating to certain expenses, (iii) Section 12.5 relating to
attorney fees and expenses, (iv) Section 8.2 relating to publicity, (v)
Section 12.11 relating to finder's fees and broker's fees and (vi) this
Section 12.3. Nothing in this Section 12.3 shall be deemed to release any
party from any liability for any breach by such party of the terms and
provisions of this Agreement or to impair the right of any party to compel
specific performance by the other parties of its obligations under this
Agreement.
12.4 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, and except as otherwise provided in this Agreement, all fees,
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
fees, costs or expenses.
12.5 ATTORNEYS' FEES. Should any litigation be commenced concerning this
Agreement or the rights and duties of any party with respect to it, the party
prevailing shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum for such party's attorney fees and expenses
determined by the
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court in such litigation or in a separate action brought for that purpose.
12.6 AMENDMENTS. No amendment to this Agreement shall be effective
unless it shall be in writing and signed by all parties hereto.
12.7 NOTICES. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or
sent, postage prepaid, by registered or certified mail, and shall be deemed
given when so delivered, as follows:
(i) if to Buyer or Grand Eagle,
Eastern Electric Apparatus
Repair Company, Inc.
OR Grand Eagle Companies Inc.
(AS THE CASE MAY BE)
130 East Randolph Drive, 29th Floor
Chicago, Illinois 60601
Attention: Jerry O. Williams, President and CEO
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<PAGE>
with a copy to:
Fitzpatrick Eilenberg & Zivian
20 North Wacker Drive, Suite 2200
Chicago, Illinois 60606
Attention: Carol Pegnato, Esq.
(ii) if to Seller or MagneTek,
MagneTek National Electric Coil, Inc.
OR MagneTek, Inc.
(AS THE CASE MAY BE)
26 Century Boulevard
P.O. Box 290159
Nashville, Tennessee 37229-0159
Attention: Samuel A. Miley, Esq., General Counsel
with a copy to:
MagneTek, Inc.
26 Century Boulevard
P.O. Box 290159
Nashville, Tennessee 37229-0159
Attention: John P. Colling, Jr., Vice President and Treasurer
and with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, California 90071
Attention: Jennifer Bellah, Esq.
12.8 INTERPRETATION; EXHIBITS AND SCHEDULES. The headings contained in
this Agreement, in any Exhibit or Schedule hereto and in the table of contents
to this Agreement, are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Any matter disclosed in
one schedule hereto shall be deemed incorporated by reference into each other
schedule hereto and disclosed in each such Schedule. All Exhibits and
Schedules annexed hereto or referred to herein are hereby incorporated in and
made a part of this Agreement as if set forth in full herein. Any capitalized
terms used in any Schedule or Exhibit, but not otherwise defined therein,
shall have the meaning as defined in this Agreement.
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12.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
12.10 ENTIRE AGREEMENT. This Agreement, the Non-Competition Agreement
and the Confidentiality Agreement, together with all Exhibits and Schedules
hereto and thereto, contain the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersede all
prior oral and written agreements and understandings relating to such subject
matter, including without limitation the letter of intent between MagneTek and
Grand Eagle dated December 13, 1995.
12.11 FEES. Each party hereto hereby represents and warrants that (a)
the only brokers or finders that have acted for such party in connection with
this Agreement or the transactions contemplated hereby or that may be entitled
to any brokerage fee, finder's fee or commission in respect thereof are Lehman
Brothers with respect to Seller and MagneTek, and PaineWebber Incorporated and
Mega Capital Corp. with respect to Buyer and Grand Eagle, and (b) such parties
will pay all fees or commissions which may be payable to the Persons so named.
12.12 SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any Person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
12.13 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Asset Purchase Agreement
to be duly executed as of the date first written above.
MAGNETEK NATIONAL ELECTRIC COIL,
INC., a Delaware corporation
By:
-----------------------------
John P. Colling, Jr.,
Vice President
MAGNETEK, INC., a Delaware
corporation
By:
-----------------------------
John P. Colling, Jr.,
Vice President
EASTERN ELECTRIC APPARATUS REPAIR
COMPANY, INC., a Georgia
corporation
By:
-----------------------------
Jerry O. Williams, President
GRAND EAGLE COMPANIES INC., a
Delaware corporation
By:
-----------------------------
Jerry O. Williams, President
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<PAGE>
STOCKPURCHASE AGREEMENT
among
MAGNETEK NATIONAL ELECTRIC COIL, INC.
GRAND EAGLE COMPANIES NORTH AMERICA, INC.
and
GRAND EAGLE COMPANIES, INC.
- ------------------------------------------------------------------------------
Dated as of June 28, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1. CERTAIN DEFINED TERMS..................................................1
1.2. OTHER DEFINITIONAL PROVISIONS..........................................7
ARTICLE 2
CLOSING; PURCHASE PRICE ADJUSTMENT
2.1. PURCHASE AND SALE OF THE SHARES........................................8
2.2. CLOSING................................................................8
2.3. PURCHASE PRICE ADJUSTMENT..............................................8
ARTICLE 3
CONDITIONS TO CLOSING
3.1. BUYER'S OBLIGATION.....................................................11
3.2. SELLER'S OBLIGATION....................................................13
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER AND MAGNETEK
4.1. AUTHORITY; NO CONFLICTS; GOVERNMENTAL CONSENTS.........................14
4.2. THE SHARES.............................................................15
4.3. ORGANIZATION OF OT.....................................................15
4.4. CAPITAL STOCK OF OT....................................................16
4.5. EQUITY INTERESTS; SUBSIDIARIES.........................................16
4.6. FINANCIAL STATEMENTS...................................................16
4.7. ABSENCE OF CHANGES OR EVENTS...........................................17
4.8. TAXES..................................................................17
4.9. ASSETS OTHER THAN REAL PROPERTY INTERESTS..............................19
4.10. PROPERTY...............................................................19
4.11. INTELLECTUAL PROPERTY..................................................19
4.12. FURNITURE, FIXTURES, MACHINERY AND EQUIPMENT...........................20
4.13. CONTRACTS..............................................................20
4.14. LITIGATION; DECREES....................................................21
4.15. EMPLOYEE BENEFIT PLANS.................................................22
4.16. COMPLIANCE WITH APPLICABLE LAWS........................................22
4.17. ENVIRONMENTAL MATTERS..................................................23
4.18. EMPLOYEE AND LABOR RELATIONS...........................................23
4.19. CORPORATE NAMES........................................................24
4.20. LICENSES AND PERMITS...................................................24
4.21. DIRECTORS, OFFICERS AND EMPLOYEES OF THE COMPANY.......................24
1
<PAGE>
4.22. CUSTOMERS..............................................................24
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER AND GRAND EAGLE
5.1. AUTHORITY; NO CONFLICTS; GOVERNMENTAL CONSENTS.........................24
5.2. INVESTMENT INTENT......................................................25
5.3. ACTIONS AND PROCEEDINGS, ETC...........................................25
5.4. AVAILABILITY OF FUNDS..................................................26
5.5. BUYER'S ACKNOWLEDGMENT.................................................26
5.6. EXON-FLORIO............................................................26
ARTICLE 6
COVENANTS OF SELLER AND MAGNETEK
6.1. ACCESS.................................................................26
6.2. ORDINARY CONDUCT.......................................................26
6.3. INSURANCE..............................................................28
6.4. ACCOUNTS RECEIVABLE....................................................28
6.5. CONFIDENTIALITY AGREEMENTS.............................................28
6.6. NO SOLICITATION........................................................29
6.7. LIEN SEARCHES..........................................................29
6.8. THIRD PARTY CONSENTS...................................................29
6.9. MAGNETEK AND SELLER ASSETS.............................................29
6.10. BUSINESS SUPPLIES......................................................30
6.11. BANK ACCOUNTS, ETC.....................................................30
ARTICLE 7
COVENANTS OF BUYER
7.1. CONFIDENTIALITY........................................................30
7.2. ACCOUNTS RECEIVABLE....................................................30
7.3. INSURANCE..............................................................31
7.4. CHANGE OF NAME OF OT...................................................31
ARTICLE 8
MUTUAL COVENANTS
8.1. COOPERATION............................................................31
8.2. PUBLICITY..............................................................31
8.3. RECORDS................................................................32
ARTICLE 9
EMPLOYEE BENEFIT MATTERS
9.1. EMPLOYEE BENEFIT MATTERS...............................................32
2
<PAGE>
ARTICLE 10
INDEMNIFICATION
10.1. TAX INDEMNIFICATION....................................................34
10.2. OTHER INDEMNIFICATION BY SELLER AND MAGNETEK...........................35
10.3. OTHER INDEMNIFICATION BY BUYER AND OT..................................35
10.4. INDEMNIFICATION FOR ENVIRONMENTAL MATTERS..............................36
10.5. LOSSES NET OF INSURANCE, ETC...........................................36
10.6. TERMINATION OF INDEMNIFICATION.........................................37
10.7. PROCEDURES RELATING TO INDEMNIFICATION (OTHER THAN UNDER SECTION 10.1).38
10.8. PROCEDURES RELATING TO INDEMNIFICATION OF TAX CLAIMS...................39
10.9. SURVIVAL OF REPRESENTATIONS............................................39
10.10. MANDATORY SETOFF OF SELLER NOTE........................................40
ARTICLE 11
POST CLOSING MATTERS
11.1. TAX MATTERS............................................................40
11.2. ACCESS TO FORMER BUSINESS RECORDS......................................41
11.3. USE OF TRADEMARK AND TRADE NAMES.......................................41
11.4. FURTHER ASSURANCES.....................................................41
ARTICLE 12
GENERAL PROVISIONS
12.1. ASSIGNMENT.............................................................42
12.2. NO THIRD-PARTY BENEFICIARIES...........................................42
12.3. TERMINATION............................................................42
12.4. EXPENSES...............................................................43
12.5. ATTORNEYS' FEES........................................................43
12.6. AMENDMENTS.............................................................43
12.7. NOTICES................................................................43
12.8. INTERPRETATION; EXHIBITS AND SCHEDULES.................................45
12.9. COUNTERPARTS...........................................................45
12.10. ENTIRE AGREEMENT.......................................................45
12.11. FEES...................................................................45
12.12. SEVERABILITY...........................................................45
12.13. GOVERNING LAW..........................................................45
3
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of June 28, 1996 (this "Agreement"),
among MAGNETEK NATIONAL ELECTRIC COIL, INC., a Delaware corporation
("Seller"), MAGNETEK, INC., a Delaware corporation ("MagneTek"), GRAND EAGLE
COMPANIES NORTH AMERICA, INC., a Delaware corporation ("Buyer") and GRAND
EAGLE COMPANIES INC., a Delaware corporation ("Grand Eagle").
Seller desires to sell to Buyer, and Buyer desires to purchase, all of
the capital stock of OT (as defined below).
Accordingly, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1. CERTAIN DEFINED TERMS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and
plural forms of the terms defined):
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated
under the Exchange Act by the SEC, as in effect on the date hereof.
"Affiliated Group" means an affiliated group as defined in Section
1504(a) of the Code (or any analogous combined, consolidated or unitary group
defined under state, local or foreign income tax law) of which OT or any
Subsidiary is or has been a member.
"Ancillary Agreement" means the Seller Note and the Non-Competition
Agreement.
"Business" means MagneTek's transformer repair business as conducted
through OT at Louisville, Ohio, and Bradenton, Florida.
"Business Day" means a day other than a Saturday or a Sunday or other
day on which commercial banks in New York or Chicago are authorized or
required by law to close.
"Cash Purchase Price" has the meaning set forth in Section 2.1.
"Claim" means any claim, cause of action, chose in action, right of
recovery, right of set off, or right of recoupment (including any such item
relating to the payment of Taxes).
"Closing" has the meaning set forth in Section 2.2.
"Closing Balance Sheet" has the meaning set forth in Section 2.3(a).
<PAGE>
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Company Employee" means any person employed by Seller or MagneTek or an
Affiliate of Seller or MagneTek other than OT on the Closing Date whose
responsibilities relate primarily to the Business, and any person employed by
OT on the Closing Date, including, without limitation, any person on lay-off,
leave of absence, sick or short-term disability leave, but excluding any
person on long-term disability leave.
"Company Plan" means any Employee Plan maintained or sponsored by
Seller, MagneTek or OT or any ERISA Affiliate of any of them or to which
MagneTek, Seller, OT or any ERISA Affiliate of any of them has an obligation
to contribute immediately prior to the Closing Date which covers any Company
Employees, former employees of OT, or the dependents or beneficiaries thereof.
"Company Property" has the meaning set forth in Section 4.10.
"Confidentiality Agreement" has the meaning set forth in Section 7.1.
"Contract" means any contract, agreement, license, lease, sales or
purchase order or other legally binding commitment, whether written or oral,
to which OT is a party or to which Seller or MagneTek is a party which
relates primarily to the Business.
"Contractual Obligation" means, as to a Person, any provision of any
note, bond or security issued by such Person or of any mortgage, indenture,
deed of trust, lease, license, franchise, contract, agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property or assets is bound.
"Employee Plan" means any employment, collective bargaining agreement,
consulting, severance or other similar contract, arrangement or policy and
each plan, arrangement, program, agreement or commitment providing for fringe
benefits, vacation benefits, retirement benefits, life, health, disability or
accident benefits or other welfare benefits or for deferred compensation,
profit-sharing, bonuses, stock options, restricted stock, stock appreciation
rights, stock purchases or other forms of incentive compensation.
"Environmental Laws" means all currently applicable federal, state and
local laws, rules, regulations, orders and ordinances relating to pollution
or protection of the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. Section 9601 ET SEQ., the Resource Conservation and
Recovery Act of 1976 ("RCRA"), 42 U.S.C. Section 6901 ET SEQ., the Emergency
Planning and Community Right-to-Know Act ("Right-to-Know Act"), 42 U.S.C.
Section 11001 ET SEQ., the Clean Air Act ("CAA"), 42 U.S.C. Section 7401 ET
SEQ., the Federal Water Pollution Control Act ("Clean Water Act"), 33 U.S.C.
Section 1251 ET SEQ., the Toxic Substances Control Act ("TSCA"), 15 U.S.C.
Section 2601 ET SEQ., and the Safe Drinking Water Act, 42 U.S.C. Section 300f
ET SEQ., each as amended, and any regulations or rules adopted or promulgated
pursuant thereto.
2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means, with respect to any Person ("First Person"),
any other Person with whom the First Person constitutes all or part of a
controlled group, which would be treated with the First Person as under
common control or whose employees would be treated as employed by the First
Person, under Section 414 of the Code and any regulations, administrative
rulings and case law interpreting the foregoing.
"Estimated Adjustment" has the meaning set forth in Section 2.2.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations of the SEC promulgated from
time to time thereunder.
"Excluded Liabilities" means:
(i) all liabilities for warranty claims, whether made before
or after the Closing Date, for service, repair, replacement or similar work
pursuant to OT's written warranties with respect to products sold or services
provided by OT on or before the Closing Date ("Warranty Claims") of which
Buyer or OT has given MagneTek written notice within the two-year period
following the Closing Date and for which OT's shop-level expenses (direct
materials plus labor plus variable overhead), together with such expenses of
OT for all other Warranty Claims made since the Closing Date, exceed the
reserve for warranty claims reflected on the Closing Balance Sheet; and
(ii) all Claims for product liability or workers' compensation
which arose or were incurred on or before the Closing Date or which are based
on events occurring on or before the Closing Date notwithstanding that the
Claim is asserted after the Closing Date; and
(iii) all Claims for personal injury, property damage and auto
physical damage which Claims arose or were incurred on or before the Closing
Date or which are based on events occurring on or before the Closing Date
notwithstanding that the Claim is asserted after the Closing Date to the
extent such Claims are covered by Seller's, MagneTek's or OT's insurance
policies in place on or before the Closing; and
(iv) all Claims under health, dental, vision and disability
plans of Seller, MagneTek or OT (or under any theory of recovery applicable
against MagneTek, OT or Seller) for Company Employees or other covered
individuals with respect to services rendered prior to the Closing (but not
in respect of any sick leave or short-term disability benefits pertaining to
any period after the Closing regardless of when the relevant illness or
condition arose); and
(v) any Claims for health, dental or vision coverage arising
at any time, including after the Closing Date, for services rendered at any
time, including after the Closing Date, with respect to Persons entitled
before the Closing to COBRA benefits and coverage from Seller, MagneTek or OT
or any liabilities arising from the failure of Seller, MagneTek or OT (prior
to the Closing) to comply with COBRA; and
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(vi) any liability under (A) any litigation pertaining to OT as
to which a complaint has been filed in state or federal court, or an
administrative charge or complaint has been filed with a governmental agency,
in each case prior to the Closing (including, without limitation, all
litigation set forth on Schedule 4.11), or (B) any threatened litigation with
respect to any matter or claim set forth on Schedule 4.11 as to which a
complaint is filed in state or federal court, or an administrative charge or
complaint is filed with a governmental agency after the Closing; and
(vii) any liability of OT (but with respect to OT, only
liabilities arising under or in connection with Employee Plans in place prior
to the Closing), MagneTek or Seller or any of their respective ERISA
Affiliates (other than OT) under or arising in connection with any Employee
Plan, except as provided in Section 9.1(e); and
(viii) any and all other debts, liabilities and obligations of
MagneTek, Seller or any Affiliate of Seller or MagneTek, including OT (prior
to the Closing), with respect to any bank credit facility or letter of
credit, and all documents in connection therewith; and
(ix) any and all liabilities arising from any Stay and Pay
Agreement in existence at or prior to Closing; and
(x) any and all liabilities in connection with any real estate
previously owned, leased, used or occupied by MagneTek or Seller or any of
their respective Affiliates (including OT) in connection with the Business
which is not owned, leased, used or occupied by OT at the Closing; and
(xi) any liability arising from any business owned or operated
by Seller, MagneTek or OT other than the Business.
"Financial Statements" has the meaning set forth in Section 4.6(a).
"GAAP" means generally accepted accounting principles in the United
States of America.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Materials" means: hazardous substances, extremely hazardous
substances, Toxic Substances, as defined in TSCA, or hazardous wastes as
defined under any Environmental Laws.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended from time to time.
"Indemnified Buyer Affiliates" means Buyer, OT, Grand Eagle, each
Affiliate of each of the foregoing, each ERISA Affiliate of each of the
foregoing, and each of their respective officers, directors, stockholders,
employees and agents.
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"Indemnified Seller Affiliates" means Seller, MagneTek, each Affiliate
of each of them (other than OT), and each of their respective officers,
directors, stockholders, employees and agents.
"Indemnified Person" means any Indemnified Buyer Affiliate and any
Indemnified Seller Affiliate.
"Indemnifying Person" means any Person from whom indemnification is
being sought hereunder.
"Intellectual Property" has the meaning set forth in Section 4.11.
"IRS" means the Internal Revenue Service.
"Knowledge" with reference to any of the representations and warranties
of Seller or MagneTek means the actual knowledge of any "officer", as such
term is defined in 17 C.F.R. Section 240.16a-l(f), of Seller or MagneTek, as
the case may be, and of any other employee of Seller or MagneTek, as the case
may be, who had, on the date of this Agreement, responsibility on a
company-wide level for matters that are the subject of such representation
and warranty.
"Leased Property" has the meaning set forth in Section 4.10.
"Lien" means any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or other security agreement of any
kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement or any financing lease having
substantially the same economic effect as any of the foregoing).
"Loss" means any loss, liability, claim, damage or expense (including
reasonable attorneys' fees and disbursements and the costs of investigation).
Loss recoverable hereunder is subject to the limitations set forth in Section
10.5.
"Louisville Facility" means the Seller Facility at 1776 Constitution
Avenue, Louisville, Ohio.
"Louisville Lease Amendment" has the meaning set forth in Section 3.1(r).
"Material Adverse Effect" means a material adverse effect on either (i)
the business, operations, property or condition (financial or other) of OT,
taken as a whole, or (ii) the ability of Seller, MagneTek or OT to consummate
the transactions contemplated by this Agreement.
"Material Contracts" has the meaning set forth in Section 4.13.
"Non-Competition Agreement" has the meaning set forth in Section 3.1(k).
"Ordinary Course" means the ordinary course of business substantially in
the same manner as now conducted and consistent with past custom and practice
(including with respect to quantity and frequency).
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"Other Agreement" means the Amended and Restated Asset Purchase
Agreement dated as of February 27, 1996 among MagneTek, Seller, Buyer, and
Eastern Electric Apparatus Repair Company, Inc., as amended from time to time.
"OT" means MagneTek Ohio Transformer, Inc., an Ohio corporation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Lien" has the meaning set forth in Section 4.9.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Purchase Price" has the meaning set forth in Section 2.1.
"Records" means the books and records of OT and otherwise relating to
the Business (including copies, to the extent segregatable from other Seller
or MagneTek records, of historical accounting and financial records other
than Tax records), files, studies, reports, catalogs, documents,
correspondence and other printed or written materials, and copies of the
employment records pertaining to the Company Employees and former employees
of OT.
"Requirement of Law" means, as to any Person, the Certificate or
Articles of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject, including, but not
limited to any law, treaty, rule, regulation or determination with respect to
public health and safety or worker health and safety, including, without
limitation, the Occupational Safety and Health Act, 42 U.S.C. Section 651 ET
SEQ.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations of the SEC promulgated from time to
time thereunder.
"Seller Facility" means any property owned, leased, used or occupied by
OT or any Affiliate of OT at any time on or before Closing.
"Seller Note" means the promissory note issued by Grand Eagle in the
form attached hereto as Exhibit B.
"September Balance Sheet" has the meaning set forth in Section 4.6(a).
"Shares" means the issued and outstanding shares of Common Stock, no par
value, of OT.
"Stay and Pay Agreements" means any agreement, whether written or oral,
between
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MagneTek, OT or Seller, on the one hand, and any Company Employee, on the other
hand, to pay any amount upon the termination of employment of the Company
Employee that is triggered by the transactions contemplated by this Agreement.
"Subsidiary" means, collectively, each corporation, limited liability
company, partnership, association and other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock entitled
to vote in the election of directors is at the time owned or controlled,
directly or indirectly, by OT or one or more Subsidiaries, or a combination
thereof, or (ii) if a limited liability company, partnership, association or
other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled (as defined in
Rule 405 under the Securities Act), directly or indirectly, by OT or one or
more Subsidiaries or a combination thereof. For purposes hereof, OT or a
Subsidiary shall be deemed to have a majority ownership interest in a limited
liability company, partnership, association or other business entity if OT or
one or more Subsidiaries or any combination thereof shall be allocated a
majority of limited liability company, partnership, association or other
business entity gains or losses or shall be or control any managing director
or general partner of such limited liability company, partnership,
association or other business entity.
"Tax" or "Taxes" means with respect to any Person (a) all federal,
state, local, foreign or other taxes, including net income, gross income,
unitary, gross receipts, sales, use, intangible, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
transfer, occupation, premium, property or windfall profit tax, custom, duty
or other tax, governmental fee (similar to a tax) or other like assessment or
charge of any kind whatsoever, together with any interest or penalty or
addition to tax imposed by any jurisdiction or other Governmental Authority
(federal, state, local or foreign), on such Person, and (b) any transferee or
secondary liability of such Person for a Tax and any Tax liability assumed by
agreement or arising as a result of being (or ceasing to be) a member of any
Affiliated Group, or being included or required to be included in any Tax
Return relating thereto.
"Tax Returns" means all returns or material reports or forms required to
be filed with a Governmental Authority with respect to Taxes.
"Third Party Consents" has the meaning set forth in Section 6.8.
"WARN Act" means the Worker Adjustment and Retraining Act of 1988, as
amended from time to time.
1.2. OTHER DEFINITIONAL PROVISIONS.
(a) Terms defined in this Agreement in Sections other than Section
1.1 shall have the meanings as so defined when used in this Agreement.
(b) As used herein, accounting terms relating to Seller, MagneTek
or OT not defined or to the extent not defined, shall have the respective
meanings given to them under GAAP.
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(c) Unless express reference is made to Business Days, references
to days shall be to calendar days.
ARTICLE 2
CLOSING; PURCHASE PRICE ADJUSTMENT
2.1. PURCHASE AND SALE OF THE SHARES.
On the terms and subject to the conditions of this Agreement, Seller
will sell, transfer and deliver to Buyer free and clear of any Liens, and
Buyer will purchase from Seller, the Shares, for the aggregate consideration
of (i) Five Million Five Hundred Fifty Thousand Dollars ($5,550,000) subject
to adjustment as set forth in Section 2.3 (the "Cash Purchase Price"), and
(ii) a Seller Note in the principal amount of One Million Eight Hundred Fifty
Thousand Dollars ($1,850,000) (collectively, the "Purchase Price").
2.2. CLOSING.
(a) The closing (the "Closing") of the transactions contemplated
by this Agreement shall be held at the offices of Sidley & Austin, One First
National Plaza, 55th Floor, Chicago, Illinois, at 10:00 a.m. on June 14,
1996, or if the conditions to Closing set forth in Article 3 shall not have
been satisfied or waived by such date, subject to Section 12.3, as soon as
practicable after such conditions shall have been satisfied or waived. The
date on which the Closing shall occur is hereinafter referred to as the
"Closing Date" and the Closing shall be deemed to have occurred at the close
of business, Central time, on the Closing Date. Events occurring after the
Closing shall be deemed to have occurred after the Closing Date.
(b) At the Closing, Buyer shall deliver to Seller (a) by wire
transfer (to a bank account designated at least two Business Days prior to
the Closing Date in writing by Seller) immediately available funds in an
amount equal to the sum of (i) the Cash Purchase Price plus or minus an
estimate, to the extent mutually agreed to by Seller and Buyer prior to the
Closing Date (the "Estimated Adjustment"), of any adjustments to the Purchase
Price under Section 2.3 and (ii) the payment in the amount of One Hundred
Thousand Dollars ($100,000.00) required under the Non-Competition Agreement
and (b) a duly executed Seller Note in the original principal amount of One
Million Eight Hundred Fifty Thousand Dollars ($1,850,000).
(c) At the Closing, Seller shall deliver or cause to be delivered
to Buyer certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank in proper form of
transfer, with appropriate transfer stamps, if any, affixed.
2.3. PURCHASE PRICE ADJUSTMENT.
(a) Within 60 days after the Closing Date, Buyer at its own
expense shall prepare and deliver to MagneTek a pro forma balance sheet of OT
as of the close of business on the Closing Date (the "Closing Balance
Sheet"). For purposes of preparing the Closing Balance Sheet, Buyer shall
have access to Seller's and MagneTek's Records relating to OT or otherwise
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relevant to the preparation of the Closing Balance Sheet, and Seller and
MagneTek shall make the appropriate personnel reasonably available to Buyer.
During the 30 days immediately following MagneTek's receipt of the Closing
Balance Sheet, Seller and MagneTek shall be entitled to review the Closing
Balance Sheet and Buyer's and OT's working papers relating to the Closing
Balance Sheet, and Buyer shall, and shall cause OT to, provide MagneTek
access at all reasonable times to its personnel, properties and Records to
the extent necessary for MagneTek's review of the Closing Balance Sheet. The
Closing Balance Sheet shall become final and binding upon the parties on the
thirtieth day following delivery thereof unless MagneTek gives written notice
to Buyer of its disagreement with the method of presentation thereof or with
the determination of any amount thereon (a "Notice of Disagreement") prior to
such date. Any Notice of Disagreement shall specify in reasonable detail the
nature of any disagreement so asserted. If a timely Notice of Disagreement
is received by Buyer with respect to the Closing Balance Sheet, then such
Closing Balance Sheet (as revised in accordance with clause (x) or (y)
below), shall become final and binding upon the parties on the earlier of (x)
the date the parties resolve in writing any differences they have with
respect to any matter specified in a Notice of Disagreement or (y) the date
any matters properly in dispute are finally resolved in writing by the
Accounting Firm (as defined below). During the 30 days immediately following
the delivery of any Notice of Disagreement, MagneTek and Buyer shall seek in
good faith to resolve in writing any differences which they may have with
respect to any matter specified in such Notice of Disagreement. During such
period and during any subsequent period of arbitration by the Accounting
Firm, MagneTek shall have access to Buyer's and OT's working papers relating
to the Closing Balance Sheet and to OT's Records, and Buyer shall have access
to Seller's and MagneTek's working papers relating to the Notice of
Disagreement and to Seller's and MagneTek's Records related to OT or
otherwise relevant to the preparation of the Closing Balance Sheet. At the
end of such 30-day period (or such longer period on which MagneTek and Buyer
may from time to time agree in writing), Seller and Buyer shall submit to an
independent accounting firm (the "Accounting Firm") for review and resolution
any and all matters that remain in dispute and which were properly included
in any Notice of Disagreement, and the Accounting Firm shall reach a final,
binding resolution of all matters which remain in dispute. The Closing
Balance Sheet, adjusted in accordance with the parties' mutual written
agreement, and with such adjustments necessary to reflect the Accounting
Firm's resolution of the matters in dispute, shall become final and binding
on the parties on the date the Accounting Firm delivers its final resolution
to the parties. The Accounting Firm shall be KPMG Peat Marwick, or if such
firm is unable or unwilling to act, such other nationally recognized
independent public accounting firm as shall be mutually agreed upon by the
parties hereto in writing. The cost of any arbitration (including the fees
and expenses of the Accounting Firm) pursuant to this Section 2.3 shall be
borne 50% by Buyer and 50% by MagneTek.
(b) The Purchase Price will be adjusted as follows:
(i) If:
(A) the excess of total tangible assets over the sum of
payables and other short term liabilities shown on the final
and binding Closing Balance Sheet, minus the Estimated
Adjustment (if the Estimated Adjustment increased the Cash
Purchase Price paid at Closing) or plus the
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Estimated Adjustment (if the Estimated Adjustment reduced the
Cash Purchase Price paid at Closing),
exceeds:
(B) the excess of total tangible assets over the sum of
payables and other short term liabilities shown on the
September Balance Sheet,
Buyer will pay to Seller an amount equal to such excess (plus
interest thereon from the Closing Date at a rate equal to the prime
rate announced from time to time by NationsBank, N.A. (Carolinas))
by wire transfer or delivery of other immediately available funds
within three Business Days after the date on which the Closing
Balance Sheet becomes final and binding on the parties.
(ii) If:
(A) the excess of total tangible assets over the sum
of payables and other short term liabilities shown on the final
and binding Closing Balance Sheet, minus the Estimated
Adjustment (if the Estimated Adjustment increased the Cash
Purchase Price paid at Closing) or plus the Estimated
Adjustment (if the Estimated Adjustment reduced the Cash
Purchase Price paid at Closing),
is less than:
(B) the excess of total tangible assets over the sum
of payables and other short term liabilities shown on the
September Balance Sheet,
MagneTek will pay to Buyer an amount equal to such deficiency
(plus interest thereon from the Closing Date at a rate equal to the
prime rate announced from time to time by NationsBank, N.A.
(Carolinas)) by wire transfer or delivery of other immediately
available funds within three Business Days after the date on
which the Closing Balance Sheet becomes final and binding on the
parties.
(c) The Closing Balance Sheet shall be prepared in accordance with
GAAP, applied in a manner consistent with that followed in the preparation
of the Financial Statements (as defined in Section 4.6).
(d) Notwithstanding the foregoing provisions of this Section 2.3,
no adjustment to the Purchase Price pursuant to this Section 2.3 shall be
made unless such adjustment would exceed $100,000, and if the adjustment
would exceed $100,000, then the full amount of the adjustment shall be made.
(e) Buyer will not, and will not permit OT to, take any actions
with respect to its accounting books, Records, policies and procedures of the
Business which would impede the preparation of the Closing Balance Sheet on
the basis provided in this Agreement.
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ARTICLE 3
CONDITIONS TO CLOSING
3.1. BUYER'S OBLIGATION.
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject to the satisfaction (or waiver by Buyer) as of the
Closing of the following conditions:
(a) STOCK CERTIFICATES. Buyer shall have received certificates
representing the Shares, duly endorsed in blank or accompanied by stock
powers duly endorsed in blank in proper form of transfer, with appropriate
transfer stamps, if any, affixed.
(b) LIEN SEARCHES. Buyer shall have received copies of the searches
required by Section 6.7 of this Agreement, in form and substance satisfactory
to Buyer.
(c) OFFICER'S CERTIFICATES. The representations and warranties of
Seller and MagneTek made in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as specifically
contemplated by this Agreement, on and as of the Closing Date, as though made
on and as of the Closing Date, and Seller, MagneTek and OT shall have
performed or complied in all material respects with all obligations and
covenants required by this Agreement to be performed or complied with by
Seller, MagneTek and OT by the time of the Closing; and Seller and MagneTek
shall have delivered to Buyer a certificate dated the Closing Date and signed
by an authorized officer of each of them confirming the foregoing.
(d) OPINIONS. Buyer shall have received an opinion dated the Closing
Date of Gibson, Dunn & Crutcher, counsel to Seller and MagneTek, and of
Samuel A. Miley, Esq., General Counsel of Seller and MagneTek, in each case
as to matters customary in transactions of this kind and which opinions shall
be reasonably satisfactory to Buyer.
(e) NO INJUNCTION. No injunction or order shall have been granted by
any Governmental Authority of competent jurisdiction that would restrain or
prohibit the purchase and sale of the Shares or that would impose damages as
a result of the purchase and sale of the Shares, and no action or proceeding
shall be pending before any Governmental Authority of competent jurisdiction
in which any Person seeks such a remedy (if in the opinion of counsel to
Buyer there exists a reasonable risk of a materially adverse result in such
pending action or proceeding).
(f) HART-SCOTT-RODINO. The waiting period under the HSR Act, if
applicable to the purchase and sale of the Shares, shall have expired or been
terminated.
(g) CERTIFICATE OF INCORPORATION. Seller shall have delivered to Buyer
a copy of the certificate of incorporation of OT, certified by the Secretary
of State of Ohio as of a date not more than five days prior to the Closing
Date.
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(h) SECRETARY'S CERTIFICATES.
(i) Seller shall have delivered to Buyer copies of each of the
following, in each case certified to be in full force and effect on
the date of the Closing by the Secretary of Seller:
(A) Seller's By-laws;
(B) Seller's Certificate of Incorporation; and
(C) all necessary corporate actions of Seller, including, but
not limited to, resolutions of the Board of Directors of Seller
authorizing the execution and delivery of this Agreement and any
related agreements and the transactions contemplated under this
Agreement.
(ii) OT shall have delivered to Buyer copies, certified to be in
full force and effect on the date of Closing, of its By-Laws and Code of
Regulations.
(i) GOOD STANDING CERTIFICATES. Seller shall have delivered to Buyer a
certificate of good standing with respect to OT from the Secretary of State
of Ohio or similar official of each jurisdiction listed on Schedule 4.3, in
each case as of a date not more than five days prior to the Closing.
(j) NON-COMPETITION AGREEMENT. Seller and MagneTek shall have executed
and delivered to Buyer the non-competition agreement in the form attached
hereto as Exhibit B (the "Non-Competition Agreement").
(k) CONSENTS. All Third Party Consents shall have been obtained, and
Buyer shall have received copies of them.
(l) SECTION 1445 AFFIDAVIT. Seller shall have executed and deliver to
Buyer at the Closing an affidavit in form and substance satisfactory to Buyer
certifying that Seller is not a foreign person within the meaning of Section
1445(f)(3) of the Code.
(m) OTHER CLOSING. All conditions to the closing of the transactions
contemplated by the Other Agreement shall have been satisfied or waived.
(n) SUBORDINATION. Grand Eagle's obligations under the Seller Note
shall be subordinated to the extent set forth in the Seller Note.
(o) RESIGNATIONS. Buyer shall have received duly signed resignations,
effective immediately after the Closing Date, of all directors and officers
of OT and duly signed mutual releases between OT and such officers and
directors in the form mutually acceptable to Seller and Buyer.
(p) CORPORATE RECORDS. Buyer shall have received all of OT's existing
seals, minute books, stock transfer books, blank stock certificates, and
other documents relating to the
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organization, maintenance and existence of OT and all Records of OT.
(q) FINANCIAL RECORDS. Buyer shall have received copies of financial
books and records, and other books and records maintained by MagneTek or
other Affiliates of MagneTek other than OT that pertain to the Business and
Company Employees and former employees of OT.
(r) LOUISVILLE FACILITY. OT, Buyer, and the landlord of the
Louisville Facility, shall have executed and delivered the Lease Amendment
and Guaranty in substantially the form attached hereto as Exhibit D (the
"Louisville Lease Amendment").
(s) RELEASE OF NATIONSBANK, N.A. LIEN. The Lien of NationsBank of
Texas, N.A. on the Shares and assets of OT shall have been released.
3.2. SELLER'S OBLIGATION.
The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject to the satisfaction (or waiver by Seller) as of
the Closing of the following conditions:
(a) OFFICER'S CERTIFICATE. The representations and warranties of
Buyer made in this Agreement shall be true and correct in all material
respects as of the date hereof and on and as of the Closing Date, as though
made on and as of the Closing Date, and Buyer shall have performed or
complied in all material respects with all obligations and covenants required
by this Agreement to be performed or complied with by Buyer by the time of
the Closing; and Buyer shall have delivered to Seller a certificate dated the
Closing Date and signed by an authorized officer of Buyer confirming the
foregoing.
(b) OPINION. Seller shall have received an opinion dated the
Closing Date of Fitzpatrick Eilenberg & Zivian, counsel to Buyer, as to
matters customary in transactions of this kind and which opinion shall be
reasonably satisfactory to Seller.
(c) NO INJUNCTION. No injunction or order shall have been granted
by any Governmental Authority of competent jurisdiction that would restrain
or prohibit the purchase and sale of the Shares or that would impose damages
as a result of the purchase and sale of the Shares, and no action or
proceeding shall be pending before any Governmental Authority of competent
jurisdiction in which any Person seeks such a remedy (if in the opinion of
counsel to Seller there exists a reasonable risk of a materially adverse
result in such pending action or proceeding).
(d) HART-SCOTT-RODINO. The waiting period under the HSR Act, if
applicable to the purchase and sale of the Shares, shall have expired or been
terminated.
(e) CERTIFICATE OF INCORPORATION. Buyer shall have delivered to
Seller a copy of the certificates of incorporation of each of Grand Eagle and
Buyer, certified by the Secretary of State of Delaware as of a date not more
than five days prior to the Closing Date.
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(f) SECRETARY'S CERTIFICATES. Buyer shall have delivered to
Seller copies of each of the following, in each case certified to be in full
force and effect on the date of the Closing by the Secretary of Buyer:
(i) Buyer's By-Laws; and
(ii) all necessary corporate actions of Buyer, including,
but not limited to, resolutions of the Boards of Directors of Buyer
authorizing the execution and delivery of this Agreement and any
related agreements and the transactions contemplated under this
Agreement.
(g) GOOD STANDING CERTIFICATES. At the Closing, Buyer shall have
delivered to Seller certificates of good standing with respect to Buyer and
Grand Eagle from the Secretary of State of Delaware as of a date not more
than five days prior to the Closing.
(h) CONSENTS. All Third Party Consents shall have been obtained.
(i) PERFORMANCE BONDS. Seller shall have been replaced or
released from any obligation or liability in respect of any performance bond,
letter of credit or similar instrument pertaining to OT.
(j) INSURANCE CERTIFICATES. Seller shall have received insurance
certificates reflecting Buyer's compliance with Section 7.3.
(k) NAME CHANGE. Buyer shall have taken all necessary steps to
change the name of OT to a name not including the word "MagneTek" to be
effective immediately after the Closing.
(l) LOUISVILLE LEASE AMENDMENT. The Louisville Lease Amendment
shall have been executed by the parties thereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER AND MAGNETEK
Each of Seller and MagneTek hereby jointly and severally represents and
warrants to Buyer and Grand Eagle as follows:
4.1. AUTHORITY; NO CONFLICTS; GOVERNMENTAL CONSENTS.
(a) Each of Seller and MagneTek is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. Each of Seller and MagneTek has all requisite corporate power and
authority to enter into this Agreement and those Ancillary Agreements to
which it is a party and to consummate the transactions contemplated hereby
and thereby. All corporate acts and other proceedings required to be taken
by each of Seller and MagneTek to authorize the execution, delivery and
performance of this Agreement and
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those Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly taken. This
Agreement has been duly executed and delivered by each of Seller and MagneTek
and constitutes, and when executed and delivered by Seller and MagneTek, as
applicable, at the Closing each of the Ancillary Agreements (if any) to which
Seller or MagneTek is a party will constitute, a valid and binding obligation
of Seller and MagneTek, as the case may be, enforceable against Seller and
MagneTek, as the case may be, in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) The execution and delivery of this Agreement does not, and the
execution and delivery of those Ancillary Agreements to which Seller or
MagneTek is a party will not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the terms hereof and
thereof will not conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a benefit under, or result in the creation of any Lien upon any of
the properties or assets of OT under, any provision of (i) the Certificate of
Incorporation or By-Laws or Code of Regulations or similar organizational
documents of MagneTek, Seller or OT, (ii) subject to the matters disclosed in
Schedule 6.8, any Contractual Obligation to which MagneTek, OT or Seller is a
party or by which any of their respective properties or assets are bound or
(iii) any judgment, order or decree or, subject to the matters described in
clauses (A) - (D) below, Requirement of Law applicable to MagneTek, OT or
Seller or the property or assets of any of them, other than, in the case of
clauses (ii) and (iii) above, any such conflicts, violations, defaults,
rights or Liens that, individually or in the aggregate, would not have a
Material Adverse Effect. No consent, approval, license, permit, order or
authorization of, or registration, declaration or filing with, any
Governmental Authority is required to be obtained or made by or with respect
to MagneTek, OT or Seller in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby,
other than (A) compliance with and filings under the HSR Act, (B) compliance
with and filings under Section 13(a) or 15(d), as the case may be, of the
Exchange Act, (C) compliance with and filings and notifications under
applicable Environmental Laws, (D) those that may be required solely by
reason of Buyer's participation in the transactions contemplated hereby, and
(E) those that, if not made or obtained, individually or in the aggregate,
would not have a Material Adverse Effect.
4.2. THE SHARES.
Seller has good and marketable title to the Shares, free and clear of
any Liens, other than the Lien in favor of NationsBank of Texas, N.A., which
Lien will be released as of the Closing. Assuming Buyer has the requisite
power and authority to be the lawful owner of the Shares, upon delivery to
Buyer at the Closing of certificates representing the Shares, duly endorsed
by Seller for transfer to Buyer, and upon receipt by Seller of the Purchase
Price, good and marketable title to the Shares will pass to Buyer, free and
clear of any Liens other than those arising from acts of Buyer or its
Affiliates.
4.3. ORGANIZATION OF OT.
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OT is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio. OT is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
respective business or the ownership, leasing or holding of its respective
properties makes such qualification necessary, except such jurisdictions
where the failure to be so qualified or in good standing, individually or in
the aggregate, would not have a Material Adverse Effect. All such
jurisdictions are listed on Schedule 4.3 hereto. OT has made available to
Buyer (i) its Certificate of Incorporation and Code of Regulations, as
amended to date and (ii) its stock certificate and transfer books.
Immediately following the consummation of the transactions contemplated by
this Agreement, OT will own all of the assets that it owned and that were
used prior to the Closing in the conduct of the Business.
4.4. CAPITAL STOCK OF OT.
The authorized, issued and outstanding capital stock of OT is as set
forth on Schedule 4.4. The Shares are duly authorized and validly issued and
outstanding, fully paid and nonassessable. Seller is the record and
beneficial owner of the Shares. Except for the Shares, there are no shares
of capital stock or other equity securities of OT outstanding. The Shares
have not been issued in violation of, and none of the Shares is subject to,
preemptive or subscription rights. There are no outstanding warrants,
options, "phantom" stock rights, agreements, convertible or exchangeable
securities or other commitments (other than this Agreement) pursuant to which
OT or Seller is or may become obligated to issue, sell, purchase, return or
redeem any shares of capital stock or other securities of OT, and no equity
securities of OT are reserved for issuance for any purpose. Other than this
Agreement, the Shares are not subject to any voting trust agreement or other
Contractual Obligation restricting or otherwise relating to the voting,
dividend rights or disposition of the Shares.
4.5. EQUITY INTERESTS; SUBSIDIARIES.
OT does not own directly or indirectly any capital stock of or other
equity interests in any Person.
4.6. FINANCIAL STATEMENTS.
(a) Attached to this Agreement as Exhibit A is the unaudited
adjusted MagneTek, Inc. Ohio Transformer Balance Sheet as of September 30,
1995 (as so adjusted, the "September Balance Sheet"). Schedule 4.6 contains
the unaudited Transformer Repair Income Statement of OT for the three months
ended September 30, 1994, and 1995 (together with the September Balance
Sheet, the "Financial Statements").
(b) The Financial Statements have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby and
fairly present in all material respects, on a pro forma basis, the combined
financial condition and results of operations of OT as of the respective
dates thereof and for the respective periods covered thereby, except for the
absence of footnotes and except that:
(i) cash and goodwill are excluded; and
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(ii) intercompany advances and receivables (other than those
resulting from the sale of products or services) are excluded from
the assets; and
(iii) intercompany-liabilities (other than those resulting
from the sale of products or services) are excluded from liabilities;
and
(iv) accruals for retiree health and welfare benefits are
excluded from the liabilities; and
(v) long-term liabilities, current maturities of long term
liabilities and accrued Taxes are excluded from the liabilities.
4.7. ABSENCE OF CHANGES OR EVENTS.
Except as set forth on Schedule 4.7, since September 30, 1995, there has
not been a material adverse change in the business, financial condition or
results of operations of OT other than changes relating to the economy in
general. Except as disclosed on Schedule 4.7 or as contemplated by this
Agreement, since September 30, 1995, OT has conducted the Business in the
Ordinary Course, and none of MagneTek, Seller or OT has taken any action
that, if taken after the date hereof, would constitute a breach of any of the
covenants set forth in Section 6.2.
4.8. TAXES.
Except as set forth on Schedule 4.8:
(a) PAYMENT OF TAXES. OT has filed all material Tax Returns that
it is required to have filed on or prior to the date hereof and such Tax
Returns are materially true and correct. All Tax Returns required to be
filed on or prior to the Closing Date by OT shall be filed on or prior to
Closing and such Tax Returns shall be materially true and correct. All
material amounts of Taxes imposed on OT or for which OT is or could be liable
have been (or, as of the Closing, will be) paid or have been accrued for or
fully reserved against on the consolidated books of MagneTek.
(b) AUDIT HISTORY. To the Knowledge of each of MagneTek and
Seller, no material issues have been raised and are currently pending by any
Governmental Authority in connection with any of the Tax Returns of, or
related to, OT. No currently valid waivers of statutes of limitations with
respect to the Tax Returns of OT have been given by OT, MagneTek or Seller.
No Tax Returns of, or related to, OT are or have been the subject of an
examination for any year for which the applicable statute of limitations with
respect to Taxes remains open. All deficiencies asserted or assessments made
as a result of any such examination have been fully paid. There are no Liens
for Taxes (other than for current Taxes not yet due and payable) on the
assets of OT.
(c) TAX-SHARING OR ALLOCATION AGREEMENTS; TAX ELECTIONS. Any
tax-indemnity, tax-sharing, tax allocation or similar agreements of OT and
any liability or obligation of OT under such agreements will terminate as of
the Closing Date and be of no further force or effect. All
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tax-indemnity, tax-sharing, tax-allocation or similar agreements to which OT is
a party and which are now in effect are listed on Schedule 4.8. All material
elections and methods of accounting with respect to Taxes affecting OT as of the
date hereof are set forth in Schedule 4.8.
(d) SECTION 341(f) CONSENT. OT has not filed a consent pursuant
to the collapsible corporation provisions of Section 341(f) of the Code (or
any corresponding provision of any state, local or foreign income Tax law) or
agreed to have Section 341(f)(2) of the Code (or any corresponding provision
of any state, local or foreign income Tax law) apply to any disposition of
any asset owned by OT.
(e) SAFE HARBOR LEASE PROPERTY. None of the assets of OT is
property that OT is required to treat as being owned by any other Person
pursuant to the "safe harbor lease" provisions of former Section 168(f)(8) of
the Code.
(f) TAX-EXEMPT PROVISIONS. None of the assets of OT (i) directly
or indirectly secures any debt the interest on which is tax-exempt under
Section 103(a) of the Code or (ii) is "tax-exempt use property" within the
meaning of Section 168(h) of the Code.
(g) DEEMED DIVIDEND AND CONSENT DIVIDEND ELECTIONS. OT has not
made nor will make as of the Closing a consent dividend election under
Section 565 of the Code.
(h) ADJUSTMENTS UNDER SECTION 481. OT has not agreed to make nor
is required to make any adjustment under Section 481(a) of the Code by reason
of a change in accounting method or otherwise.
(i) MISCELLANEOUS. OT (i) has not participated in nor will
participate as of the Closing in an international boycott within the meaning
of Section 999 of the Code, (ii) is not a party to any Contractual
Obligation that has resulted or will result as of the Closing, separately or
in the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code, (iii) has not had a permanent
establishment in any foreign country, as defined in any applicable tax treaty
or convention between the United States and such foreign country, or (iv) is
not a party to any joint venture, partnership, or other arrangement or
contract that could be treated as a partnership for federal income tax
purposes.
(j) CONSOLIDATION. OT has not been a member of an Affiliated
Group that has filed an election to discontinue filing consolidated returns
pursuant to Rev. Proc. 91-11. Except for the Affiliated Groups of which
MagneTek is a parent, OT has never been a member of an affiliated group of
corporations within the meaning of Section 1504 of the Code.
(k) COPIES OF TAX RETURNS. OT has true, correct and complete
copies of all income Tax Returns filed by OT or any other Person on behalf of
OT for the years listed on Schedule 4.8.
(l) DEFERRED INCOME. Except as set forth on Schedule 4.8, as a
result of the transactions contemplated under this Agreement, OT will not
recognize any deferred income under federal consolidated return regulations
including, but not limited to, the deferred
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intercompany transaction provisions of such federal consolidated return
regulations (or similar provisions if any, of state, local or foreign Tax
laws).
4.9. ASSETS OTHER THAN REAL PROPERTY INTERESTS.
OT has good and marketable title to all assets reflected on the
September Balance Sheet, except those sold or otherwise disposed of since the
date of the September Balance Sheet in the Ordinary Course, free and clear of
all Liens except (a) such as are disclosed on Schedule 4.9, which Liens were
incurred prior to February 27, 1996, (b) such as were incurred in the
Ordinary Course between February 27, 1996 and the Closing, (c) mechanics',
carriers', workmen's, repairmen's or other like Liens arising or incurred in
the Ordinary Course, (d) Liens arising under original purchase price
conditional sales contracts and equipment leases with third parties entered
into in the Ordinary Course, (e) Liens for Taxes and other governmental
charges which are not due and payable or which may thereafter be paid without
penalty, and (f) other imperfections of title, restrictions or encumbrances,
if any, which Liens, imperfections of title, restrictions or other
encumbrances do not, individually or in the aggregate, materially impair the
continued use and operation of the specific assets to which they relate (the
Liens hereinabove described are hereinafter referred to collectively as
"Permitted Liens").
This Section 4.9 does not relate to real property or interests in real
property, such items being the subject of Section 4.10. This Section 4.9
does not relate to intellectual property, which is the subject of
Section 4.11.
4.10. PROPERTY.
OT does not own any real property, or interest in real property, in fee.
Schedule 4.10 sets forth a complete list of all real property and interests
in real property leased by OT (individually, a "Leased Property" or a
"Company Property") and identifies any leases relating thereto. True and
complete copies of all such leases have been made available to Buyer.
4.11. INTELLECTUAL PROPERTY.
Schedule 4.11 sets forth a list of all patents, trademarks (registered
or unregistered), trade names, service marks and copyrights and applications
for any of the foregoing, other than those relating to generally commercially
available computer software (collectively, "Intellectual Property"), owned,
used, filed by or licensed to OT. With respect to trademarks, Schedule 4.11
contains a list of all jurisdictions in which such trademarks are registered
or applied for and all registration and application numbers. Except as
disclosed on Schedule 4.11, OT owns or has the right to use, without payment
to any other party, the Intellectual Property listed on such Schedule 4.11,
and the consummation of the transactions contemplated hereby will not alter
or impair any such Intellectual Property. Except as disclosed on Schedule
4.11, OT has not licensed to any third party, on an exclusive basis or
otherwise, the right to use or exploit any Intellectual Property in any
jurisdiction or otherwise transferred or assigned any Intellectual Property
to any third party in any jurisdiction. Except as set forth on Schedule 4.11,
none of Seller, MagneTek or OT has received written notice of any claims
which are pending or, to the Knowledge of any of MagneTek, Seller or OT,
threatened against OT by any person with respect to the ownership,
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validity, enforceability or use of any Intellectual Property listed on
Schedule 4.11 or otherwise challenging or questioning the validity or
effectiveness of any such Intellectual Property and, to the Knowledge of each
of MagneTek, Seller and OT, no basis in fact exists to support any such
claim.
4.12. FURNITURE, FIXTURES, MACHINERY AND EQUIPMENT.
All material furniture, fixtures, machinery and equipment used by OT is
in the possession or under the control of OT and is, with the exception of
automobiles, trucks and other highway vehicles in transit and items that are
offsite for repairs, located at one of the places of business of OT. All
items of such furniture, fixtures, machinery and equipment are in good
operating condition, subject to normal wear and tear, and adequate for the
present uses thereof.
4.13. CONTRACTS.
Schedule 4.13 sets forth a list of each of the following Contracts to
which OT is a party (the "Material Contracts"):
(a) any written employment contract that is not terminable by
notice of not more than 30 days for a cost of less than $25,000;
(b) any Stay and Pay Agreements;
(c) any employee collective bargaining agreement or other Contract
with any labor union;
(d) any Contractual Obligation that restricts the ability of OT to
compete in any line of business in any place in the world;
(e) any Contractual Obligation between (i) OT, on the one hand,
and MagneTek, Seller or any Affiliate of MagneTek or Seller, on the other
hand, or (ii) MagneTek, Seller or OT and any officer or director of OT (other
than agreements covered by paragraph (a) above) involving consideration to
either party with a value of at least $25,000;
(f) any lease or similar agreement under which OT is a lessor or
sublessor of, or makes available for use by any third party, any real
property owned or leased by OT or any portion of premises otherwise occupied
by OT;
(g) any Contractual Obligation under which OT has borrowed or
loaned any money or issued any note, bond, indenture or other evidence of
indebtedness or directly or indirectly guaranteed indebtedness, liabilities
or obligations of others (other than endorsements for the purpose of
collection in the Ordinary Course);
(h) any mortgage, pledge, conditional sales contract (for a value
in excess of $25,000), security agreement (with respect to property in excess
of $25,000), factoring agreement or other similar agreement with respect to
any property or assets of OT;
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(i) any Contract (other than agreements covered by paragraph (a)
above) that provides for the payment of any severance compensation to any
Company Employee, or for the provision, vesting and/or acceleration of any
employee benefits following a change of ownership or control of OT;
(j) any license, royalty, franchise, service (other than with
respect to services provided by OT in the Ordinary Course), sales agency or
representative or distribution Contractual Obligation (which Contractual
Obligation is not cancelable without penalty on not more than 30 days' notice
or has an aggregate annual payment obligation of more than $25,000);
(k) any Contract for the sale of any asset other than in the
Ordinary Course or for the grant of any right of first refusal or similar
preferential right to purchase any asset of OT;
(l) any executory Contract or commitment for capital expenditures
over $25,000;
(m) any Contract between OT, Seller or MagneTek and any person
which has previously purchased any business or assets from OT; or
(n) any other Contract which has an aggregate future payment
obligation in excess of $25,000 and is not terminable by notice of not more
than 60 days for a cost of less than $50,000 (other than purchase contracts
and orders for inventory in the Ordinary Course).
Except as disclosed on Schedule 4.13, each Contract listed thereon is
valid, binding and in full force and effect and is enforceable by OT in
accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). Except as disclosed in Schedule 4.13, and
with respect to the contracts listed or described under "Intellectual
Property Agreements" in Schedule 4.11, except as disclosed on Schedule 4.11,
OT has performed all material obligations required to be performed by it to
date under the Contracts and are not (with or without the lapse of time or
the giving of notice, or both) in breach or default in any material respect
thereunder and, to the Knowledge of any of MagneTek, Seller or OT, no other
party to any of the Contracts is (with or without the lapse of time or the
giving of notice or both) in breach or default in any material respect
thereunder.
4.14. LITIGATION; DECREES.
Schedule 4.14 sets forth a list, as of the date of this Agreement, of
all pending or, to the Knowledge of MagneTek or Seller, threatened actions,
suits, claims or legal, administrative or arbitration proceedings or
investigations with respect to which MagneTek, Seller or OT has been
contacted in writing by the claimant or by counsel for the claimant against
OT or any of its properties, assets, operations or businesses or against any
Company Plan which (a) involves a claim by or against OT or any Company Plan
of more than $50,000, (b) seeks any injunctive relief, or (c) relates to the
transactions contemplated by this Agreement. To the Knowledge of MagneTek's
General Counsel, Schedule 4.14 also lists all pending actions, suits, claims
or legal or
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administrative or arbitration proceedings to which OT is a party involving
claims by OT against a third party. To the Knowledge of any of MagneTek,
Seller or OT, except as disclosed on Schedule 4.14, OT is not in default
under any judgment, order or decree of any court, administrative agency or
commission or other Governmental Authority applicable to it or any of its
properties, assets, operations or businesses. This Section 4.14 does not
relate to environmental matters, which are the subject of Section 4.17.
4.15. EMPLOYEE BENEFIT PLANS.
Except as set forth on Schedule 4.15:
(a) Schedule 4.15(a) contains a listing of each material Company
Plan. A complete copy of each written Company Plan and any summary plan
description and/or summary of material modifications to such plan have been
made available to Buyer.
(b) A description of the material terms of any unwritten material
Company Plan has been made available to Buyer and such plan is listed on
Schedule 4.15(a).
(c) Each Company Plan (i) has been and currently is in material
compliance in form (other than any amendments due to changes in the Code for
which the period for adopting such amendments has not expired) and in
operation in all respects with all applicable requirements of ERISA, the Code
or any other applicable Federal or state laws; (ii) has been and is operated
and administered in material compliance with its terms (except as otherwise
required by law); (iii) has been and is operated, administered, maintained
and funded in material compliance with the applicable requirements of the
Code and ERISA in such a manner as to qualify, where appropriate, for both
Federal and state purposes, for income tax exclusions to its participants,
tax-exempt income for its funding vehicle, and the allowance of deductions
and credits with respect to contributions thereto; and (iv) where applicable,
has received a favorable determination letter from the IRS.
(d) Neither OT nor any of its ERISA Affiliates has any liability
(including any potential liability) with respect to any "multiemployer plan"
as defined in Section 4001 or Section 3(37) of ERISA, "multiple employer
plan" within the meaning of Code Section 413(c) or "multiple employer welfare
arrangement" within the meaning of Section 3(40) of ERISA.
(e) To the Knowledge of any of MagneTek, Seller or OT, no
condition exists with respect to any Company Plan that presents a material
risk to Buyer or OT.
4.16. COMPLIANCE WITH APPLICABLE LAWS.
Except as set forth in Schedule 4.16 attached hereto, OT is in compliance with
all applicable Requirements of Law, except for such incidents of noncompliance
which, individually and in the aggregate, would not have a Material Adverse
Effect. Except as set forth in Schedule 4.16 hereto, since July 1, 1994, to the
Knowledge of any of MagneTek, Seller or OT, none of MagneTek, Seller or OT has
received any written communication from a Governmental Authority that alleges
that OT is not in compliance with any Requirement of Law, except where
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noncompliance would not have a Material Adverse Effect. This Section 4.16
does not relate to Environmental Laws, which are the subject of Section 4.17,
or matters with respect to Taxes, which are the subject of Section 4.8.
4.17. ENVIRONMENTAL MATTERS.
Except as set forth in Schedule 4.17 attached hereto:
(a) OT is in compliance with all Environmental Laws, except any
non-compliance which would not have a Material Adverse Effect on OT. Without
limiting the generality of the preceding sentence, OT has obtained and is in
material compliance with all of the terms and conditions of all permits,
licenses, certificates and other authorizations which are required under all
Environmental Laws.
(b) OT has not received any written or, to the Knowledge of any of
MagneTek, Seller or OT, oral notice of, any private, administrative or
judicial action, or written or, to the Knowledge of any of MagneTek, Seller
or OT, oral notice of any intended private, administrative, or judicial
action relating to the presence or alleged presence of Hazardous Materials
in, at, under or upon any Company Property; and there are no pending or, to
the Knowledge of any of MagneTek, Seller or OT, threatened actions or
proceedings (or, to the Knowledge of any of MagneTek, Seller or OT, notices
of threatened actions or proceedings) against OT from any Governmental
Authority regarding any matter relating to any Environmental Laws.
4.18. EMPLOYEE AND LABOR RELATIONS.
Except as set forth on Schedule 4.18:
(a) there is no labor strike, dispute, or work stoppage or lockout
pending, or to the Knowledge of any of MagneTek, Seller or OT, threatened,
against OT;
(b) to the Knowledge of any of MagneTek, Seller or OT, no union
organization campaign is in progress with respect to the Company Employees,
and no question concerning representation exists respecting such Company
Employees;
(c) there is no unfair labor practice charge or complaint against
OT pending, or to the Knowledge of any of MagneTek, Seller or OT, threatened,
before the National Labor Relations Board;
(d) there is no pending, or to the Knowledge of any of MagneTek,
Seller or OT, threatened, grievance that, if adversely decided would have a
Material Adverse Effect; and
(e) no charges with respect to or relating to OT are pending
before the Equal Employment Opportunity Commission or any other Governmental
Authority responsible for the prevention of unlawful employment practices as
to which there is a reasonable likelihood of adverse determination, other
than those which, if so determined would not have a Material Adverse Effect.
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4.19. CORPORATE NAMES.
OT has not used in the past six years and is not currently using any
corporate or fictitious name other than the names listed in Schedule 4.19.
4.20. LICENSES AND PERMITS.
Attached hereto as Schedule 4.20 is a complete and accurate list and
description of all material licenses, permits and other authorizations of
governmental authorities, domestic and foreign, and other third Persons used
or required, and held by OT in the conduct of its business. To the Knowledge
of any of MagneTek, OT or Seller, none of MagneTek, Seller or OT has received
any notice that revocation is being considered with respect to any of such
licenses permits or authorizations. This Section does not relate to permits
required under any Environmental Laws, which are addressed in Section 4.17.
4.21. DIRECTORS, OFFICERS AND EMPLOYEES OF THE COMPANY.
Schedule 4.21 contains a true, correct, and complete list of all
directors and officers of OT showing each office held by each such Person.
Concurrently with the delivery of the Schedules, Seller has delivered to
Buyer a substantially complete list of all current employees of OT, and the
salary or hourly compensation each such employee receives.
4.22. CUSTOMERS.
Schedule 4.22 sets forth a complete list of OT's ten largest customers
(measured by revenue to OT) for the 1995 fiscal year, and for the first two
fiscal quarters of the 1996 fiscal year.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER AND GRAND EAGLE
Each of Buyer and Grand Eagle hereby represents and warrants to each of
Seller and MagneTek as follows:
5.1. AUTHORITY; NO CONFLICTS; GOVERNMENTAL CONSENTS.
(a) Each of Buyer and Grand Eagle is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware. Each of Buyer and Grand Eagle has all requisite corporate power
and authority to enter into this Agreement and those Ancillary Agreements to
which it is a party and to consummate the transactions contemplated hereby
and thereby. All corporate acts and other proceedings required to be taken
by each of Buyer and Grand Eagle to authorize the execution, delivery and
performance of this Agreement and those Ancillary Agreements to which it is a
party and the consummation of the transactions contemplated hereby and
thereby have been duly taken. This Agreement has been duly executed and
delivered by each of Buyer and Grand Eagle and constitutes, and when executed
and
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delivered by Buyer and Grand Eagle at the Closing, each of the Ancillary
Agreements to which Buyer or Grand Eagle is a party will constitute, a valid
and binding obligation of Buyer or Grand Eagle, as the case may be,
enforceable against it in accordance with its terms, except as enforceability
may be limited by Bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(b) The execution and delivery of this Agreement does not, and the
execution and delivery of those Ancillary Agreements to which Buyer or Grand
Eagle is a party will not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the terms hereof and
thereof will not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Buyer or Grand Eagle, as applicable,
under, any provision of (i) the Certificate of Incorporation or By-laws of
Buyer and Grand Eagle, (ii) any Contractual Obligation to which Buyer or
Grand Eagle is a party or by which any of its respective properties or assets
are bound, or (iii) any judgment, order or decree or, subject to the matters
described in clauses (A)-(C) below, Requirement of Law applicable to Buyer or
Grand Eagle or its respective property or assets, other than, in the case of
clauses (ii) and (iii) above, any such conflicts, violations, defaults,
rights or Liens that, individually or in the aggregate, would not have a
material adverse effect on the ability of Buyer and Grand Eagle to consummate
the transactions contemplated hereby. No material consent, approval,
license, permit, order or authorization of, or registration, declaration or
filing with any Governmental Authority is required to be obtained or made by
or with respect to Buyer or Grand Eagle in connection with the execution and
delivery of this Agreement or the consummation by Buyer or Grand Eagle of the
transactions contemplated hereby, other than (A) compliance with and filings
under the HSR Act, (B) compliance with and filings and notifications under
applicable Environmental Laws and (C) those that may be required solely by
reason of MagneTek's, Seller's or OT's (as opposed to any other third
party's) participation in the transactions contemplated hereby.
5.2. INVESTMENT INTENT.
The Shares purchased by Buyer pursuant to this Agreement are being
acquired for investment only and not with a view to any public distribution
thereof, and Buyer will not offer to sell or otherwise dispose of the Shares
so acquired in violation of any of the registration requirements of the
Securities Act or of any other Requirement of Law.
5.3. ACTIONS AND PROCEEDINGS, ETC.
There are no (a) outstanding judgments, orders, writs, injunctions or
decrees of any Governmental Authority against Buyer or Grand Eagle which have
a material adverse effect on the ability of Buyer or Grand Eagle to
consummate the transactions contemplated hereby or (b) actions, suits, claims
or legal, administrative or arbitration proceedings or investigations pending
or, to the knowledge of Buyer and Grand Eagle, threatened against Buyer or
Grand Eagle, which have or could have a material adverse effect on the
ability of Buyer or Grand Eagle to consummate the transactions contemplated
hereby.
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5.4. AVAILABILITY OF FUNDS.
Buyer has, or shall have as of the Closing, the ability to consummate
the transactions contemplated hereby and by the Other Agreement.
5.5. BUYER'S ACKNOWLEDGMENT.
Each of Buyer and Grand Eagle acknowledges and agrees that, (a) other
than the representations and warranties of Seller and MagneTek specifically
contained in this Agreement, there are no representations or warranties of
Seller or MagneTek either expressed or implied with respect to Seller,
MagneTek or OT, or the transactions contemplated hereby and (b) it shall have
a right to indemnification solely as provided in Article 10 hereof and,
except as provided in this Agreement, it shall have no claim or right to
indemnification with respect to any information, documents or materials
furnished by or on behalf of Seller, MagneTek or OT, or any of their
respective officers, directors, employees, agents or advisors to Buyer or
Grand Eagle, including, without limitation, the Confidential Offering
Memorandum, March 1994, prepared by Lehman Brothers or any information,
documents or material made available to Buyer in certain "data rooms,"
management presentations or any other form in expectation of the transactions
contemplated by this Agreement.
5.6. EXON-FLORIO.
Buyer is not a "foreign person" for purposes of the Exon-Florio
Amendment to the Defense Production Act of 1950.
ARTICLE 6
COVENANTS OF SELLER AND MAGNETEK
Each of Seller and MagneTek covenants and agrees as follows:
6.1. ACCESS.
Subject to the provisions of Section 7.1 hereof, prior to the Closing,
Seller and MagneTek will give, and shall cause OT to give, Buyer and its
representatives, employees, counsel and accountants reasonable access, during
normal business hours and upon reasonable notice, to the personnel,
customers, suppliers, properties and Records of OT; provided, however, that
such access does not unreasonably disrupt the normal operations of OT.
6.2. ORDINARY CONDUCT.
Except as contemplated by this Agreement or as set forth in Schedule
6.2, from the date hereof to the Closing, Seller and MagneTek will cause OT
to conduct the Business in the Ordinary Course and will make, and shall cause
OT to make, all reasonable efforts consistent with past practices to preserve
relationships with customers, suppliers and others with whom OT deals.
Except as contemplated by this Agreement, Seller and MagneTek will not (with
respect to the Business), and Seller and MagneTek will not permit OT to, do
any of the following without the
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prior written consent of Buyer, which consent will not be unreasonably withheld
or delayed:
(a) amend OT's Certificate of Incorporation or Code of Regulations
or other organizational documents;
(b) redeem or otherwise acquire any shares of OT's capital stock
or issue any capital stock or any option, warrant or right relating thereto
or any securities convertible into or exchangeable for any share of capital
stock;
(c) sell or otherwise dispose of any treasury shares;
(d) terminate, adopt or amend in any material respect any Company
Plan or collective bargaining agreement, except as required by law or insofar
as a collective bargaining agreement is then subject to negotiation in
advance of its expiration in the Ordinary Course;
(e) enter into or amend any Contract or Contractual Obligation
with a value or commitment exceeding $50,000;
(f) incur or assume any liabilities, obligations or indebtedness
for borrowed money or guarantee any such liabilities, obligations or
indebtedness, other than in the Ordinary Course; provided that in no event
shall OT incur, assume or guarantee any long-term indebtedness for borrowed
money;
(g) encumber any of OT's assets or grant any security interests or
increase or expand the collateral in connection with any of OT's existing
secured liabilities or obligations other than in the Ordinary Course;
(h) make any change in any method of accounting or accounting
practice or policy other than those required by GAAP;
(i) acquire or agree to acquire by merging or consolidating with,
or by purchasing the stock of, or a substantial portion of the assets of, or
by any other manner, any Person;
(j) sell, lease or otherwise dispose of, or agree to sell, lease
or otherwise dispose of, any of OT's assets, except in the Ordinary Course
and except for sales, leases or dispositions of assets that, individually,
have a value of less than $25,000 and, in the aggregate, have a value of less
than $100,000;
(k) enter into any lease of real property, except any renewals of
existing leases;
(l) grant any increase in the compensation by OT of officers or
employees of OT, whether now or hereafter payable, including any such
increase pursuant to any bonus, pension, profit sharing, incentive
compensation, expense reimbursement, deferred compensation, retirement or
similar plan or agreement or employ any additional executive or management
personnel or enter into or amend any severance agreement or grant any general
increase in wage or salary rates or in employee benefits (except in the
Ordinary Course or as required by existing
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agreements, plans or arrangements) or enter into any employment contract
which Buyer or OT does not have the right to terminate without liability or
adopt (or amend in any manner which would increase the benefits under) any
bonus, profit sharing, compensation, employment or other employee benefit
plan, agreement, contract, commitment or arrangement for the benefit or
welfare of any employee or employees of OT;
(m) organize any Subsidiary or acquire any equity or other
interest in any Person; or
(n) agree, whether in writing or otherwise, to do any of the
foregoing.
6.3. INSURANCE.
Seller and MagneTek shall keep, or cause to be kept, all insurance
policies presently maintained relating to OT and its properties, or
replacements therefor, in full force and effect through the close of business
on the Closing Date. Buyer will not have any rights under any such insurance
policies from and after the Closing Date.
6.4. ACCOUNTS RECEIVABLE.
Each of MagneTek and Seller agrees to forward to OT, within three
Business Days after receipt thereof, any and all proceeds from accounts
receivable of OT that are received by Seller, MagneTek or any other Affiliate
of MagneTek after the Closing Date. If, after the Closing Date, Seller or
MagneTek or any other Affiliate of MagneTek receives any payment from any
person who at the time of such payment has outstanding accounts payable to
MagneTek, on the one hand (for the purposes of this Section, "MagneTek
Accounts Receivable"), and to OT, on the other hand (for the purposes of this
Section, "Buyer Accounts Receivable"), and the payment (a) does not indicate
whether it is in respect of MagneTek Accounts Receivable or Buyer Accounts
Receivable or (b) indicates that it is in payment of both MagneTek Accounts
Receivable and Buyer Accounts Receivable without specifying the portion to be
allocated to each, then MagneTek and Buyer shall consult with one another to
determine the proper allocation of such payment; and, if they are unable to
reach agreement on the proper allocation, such payment shall be applied so as
to retire MagneTek Accounts Receivable and Buyer Accounts Receivable in
chronological order based upon the period of time such accounts receivable
have existed on the books of MagneTek, Seller or OT, as applicable.
6.5. CONFIDENTIALITY AGREEMENTS.
After the date of this Agreement, each of Seller and MagneTek shall take
all actions and do all things, and shall cause OT to take all actions and do all
things, reasonably necessary (but not including the commencement of litigation)
to preserve and enforce MagneTek's, Seller's and OT's rights under the terms of
any confidentiality agreements entered into between any of Seller, MagneTek or
OT and third parties who were provided information relating to OT in connection
with MagneTek's efforts to sell the business, assets or stock of OT; provided,
however, that upon Buyer's request and at its expense in the event of a dispute,
Seller or MagneTek will either (a) assign to Buyer or its designee its rights
under any such specific agreement or (b) serve as the
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named party in any legal action for Buyer or such designee's benefit under
such an agreement.
6.6. NO SOLICITATION.
Neither of MagneTek nor Seller shall, nor shall either of MagneTek or
Seller permit any of its Affiliates (including, but not limited to, OT),
directors, officers, employees, agents or representatives to, solicit,
initiate, encourage, entertain or consider any inquiries or proposals
concerning any merger, consolidation or acquisition or purchase of all or any
substantial portion of the assets or capital stock of OT, whether separately
or as part of a larger transaction, or any other transaction which could
reasonably be expected to preclude the consummation of any or all of the
transactions contemplated by this Agreement.
6.7. LIEN SEARCHES.
Prior to the Closing, Seller has obtained at its expense and delivered
to Buyer Uniform Commercial Code, tax lien and judgment searches (or, in the
case of foreign jurisdictions, comparable searches) for OT at the state and
county level (or, in the case of foreign jurisdictions, the appropriate
filing offices) for each location at which OT presently conducts business or
has conducted business during the past five years. Such searches were
conducted under the present name of OT and such other names as it used during
the past five years.
6.8. THIRD PARTY CONSENTS.
Prior to the Closing, Seller shall use, and shall cause OT to use,
commercially reasonable efforts to procure all consents, approvals or
authorizations from third Persons necessary to consummate the transactions
contemplated by this Agreement and all consents, approvals or authorizations
from third Persons required under Contracts for any reason as a result of the
transactions contemplated herein the failure to obtain of which may
reasonably expected to have a Material Adverse Effect (all of which are
referred to herein as "Third Party Consents"). Each of Seller and MagneTek
hereby represents and warrants to Buyer that Schedule 6.8 is a true, correct
and complete list of all Third Party Consents. Each of Buyer and Seller and
MagneTek shall, and Seller shall cause OT to, cooperate with the other
parties in any reasonable manner in connection with obtaining any consents;
provided, however, that such cooperation shall not include any requirement of
any party to commence any litigation or offer or grant any accommodation
(financial or otherwise) to any third party.
6.9. MAGNETEK AND SELLER ASSETS.
At or prior to the Closing, MagneTek and Seller shall, and shall cause
their respective Affiliates to, convey to OT all of their respective right,
title and interest in and to any equipment, agreements, rights, or other
personal property, tangible or intangible, owned by MagneTek, Seller or any
Affiliate of MagneTek or Seller other than OT which is material, individually
or in the aggregate, and is used primarily in or arises primarily out of the
Business, all without separate consideration from Buyer or OT. To the
extent such any such assets comprises a Contract, OT shall be liable for all
obligations thereunder.
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6.10. BUSINESS SUPPLIES.
Buyer and OT shall have the right for a period of twelve (12) months
after the Closing Date to exhaust the supply of product literature, order
forms, stationery, and other general supplies which have been printed for use
by OT prior to the Closing Date which bear the name "MagneTek," provided that
Buyer shall cause OT to alter or otherwise indicate on the face of such forms
that neither MagneTek nor Seller has any legal connection with or
responsibility for the operations of OT after the Closing Date. In addition,
for a period of two years following the Closing Date, OT shall be permitted
to state OT's former affiliation with MagneTek.
6.11. BANK ACCOUNTS, ETC.
As of the Closing, all bank accounts, safety deposits and other banking
items (including any lock boxes) shall be terminated by Seller and shall
cease to be assets or liabilities of OT. To the extent there are checks
outstanding on OT bank accounts prior to the Closing Date, Seller will
provide for adequate funding in the aforesaid bank accounts.
ARTICLE 7
COVENANTS OF BUYER
Buyer covenants and agrees as follows:
7.1. CONFIDENTIALITY.
Buyer acknowledges that the information regarding the Business
heretofore and hereafter provided to it by MagneTek or Seller is subject to
the terms of a confidentiality agreement between MagneTek and an Affiliate of
Buyer dated as of March 21, 1994 (the "Confidentiality Agreement"), the terms
of which are incorporated herein by reference except that the expiration is
extended by 18 months from the date hereof. Effective upon, and only upon,
the Closing, the Confidentiality Agreement will terminate; provided, however,
that Buyer acknowledges that the Confidentiality Agreement will terminate
only with respect to information relating solely to OT; and provided,
further, however, that Buyer acknowledges that any and all other provisions
shall remain in effect, and all information provided to it by MagneTek or its
representatives concerning MagneTek shall remain subject to the terms and
conditions of the Confidentiality Agreement after the date of the Closing.
7.2. ACCOUNTS RECEIVABLE.
Buyer agrees to forward or cause to be forwarded to MagneTek, within three
Business Days after the receipt thereof, any and all proceeds from accounts
receivable of MagneTek that are received by Buyer or OT after the Closing Date.
If, after the Closing Date, Buyer or OT receives any payment from any Person who
at the time of such payment has outstanding MagneTek Accounts Receivable and
Buyer Accounts Receivable, and the payment (a) does not indicate whether it is
in respect of MagneTek Accounts Receivable or Buyer Accounts Receivable or (b)
indicates that it is in payment of both MagneTek Accounts Receivable and Buyer
Accounts
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Receivable without specifying the portion to be allocated to each, then
MagneTek and Buyer shall consult with one another to determine the proper
allocation of such payment; and, if they are unable to reach agreement on the
proper allocation, such payment shall be applied so as to retire MagneTek
Accounts Receivable and Buyer Accounts Receivable in chronological order
based upon the period of time such accounts receivable have existed on the
books of MagneTek or Buyer or OT, as applicable.
7.3. INSURANCE.
Buyer shall secure, or shall cause OT to secure, insurance from the
Closing Date covering general liability and products liability in amounts
customary for the industry in which OT operates.
7.4. CHANGE OF NAME OF OT.
On the Closing Date, Buyer shall cause the name of OT to be changed so
as to eliminate the name "MagneTek".
ARTICLE 8
MUTUAL COVENANTS
Each of Seller and MagneTek covenants and agrees with each of Buyer and
Grand Eagle, and each of Buyer and Grand Eagle covenants and agrees with
Seller and MagneTek as follows:
8.1. COOPERATION.
MagneTek, Buyer, Grand Eagle and Seller shall cooperate with each other
and shall cause their respective Affiliates, officers, employees, agents,
auditors and representatives to cooperate with each other after the Closing
to ensure the orderly transition of the Business to Buyer and to minimize any
disruption to the respective businesses of MagneTek, Seller, Grand Eagle and
Buyer that might result from the transactions contemplated hereby. No party
shall be required by this Section 8.1 to take any action that would
unreasonably interfere with the conduct of its business. Subject to the
terms and conditions of this Agreement, each party will use all reasonable
efforts to cause the Closing to occur.
8.2. PUBLICITY.
MagneTek, Seller, Grand Eagle and Buyer agree that, from the date hereof
through the Closing Date, no public release or announcement concerning the
transactions contemplated hereby shall be issued by any party without the
prior consent of the other parties (which consent shall not be unreasonably
withheld or delayed), except as such release or announcement may be required
by law or the rules or regulations of any United States or foreign securities
exchange, in which case the party required to make the release or
announcement shall allow the other party reasonable time to comment on such
release or announcement in advance of such issuance.
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8.3. RECORDS.
(a) On the Closing Date, MagneTek and Seller shall deliver or
cause to be delivered to Buyer all Records, subject to the following
exceptions:
(i) Buyer recognizes that certain Records may contain
incidental information relating to Seller or may relate primarily to
subsidiaries or divisions of MagneTek other than OT or businesses of
MagneTek or Seller previously sold, and that MagneTek and Seller may
retain such Records and shall provide copies of the relevant portions
thereof to Buyer;
(ii) MagneTek and Seller may retain all Records prepared in
connection with the sale of the Business, including bids received
from other parties and analyses relating to OT;
(iii) MagneTek and Seller may retain any Tax Returns and
supporting documents and work papers, and upon reasonable request
Buyer shall be provided with copies of such Tax Returns and
supporting documents and work papers for the three Tax years prior
to the Closing Date, and any other Tax Returns and supporting
documents and work papers only to the extent that they relate (A) to
OT's separate Tax Returns or separate Tax liability or (B) to the
computation of OT's potential Tax liability for (I) any period ending
on or after the Closing, (II) any period for which Buyer is
responsible for filing Tax Returns, or (III) any period to which OT
may carryback any net operating loss, capital loss or other Tax item;
and
(iv) Seller and MagneTek may deliver within a reasonable
time after the Closing (in no event more than five (5) Business
Days) such Records as to which it desires to retain copies and
requires additional time in which to make such copies.
(b) After the Closing, upon reasonable written notice, MagneTek,
Buyer, Grand Eagle and Seller agree to furnish or cause to be furnished to
each other and their representatives, employees, counsel and accountants
access, during normal business hours, to such information (including Records
pertinent to OT) and assistance relating to OT as is reasonably necessary for
financial reporting and accounting matters, the preparation and filing of any
Tax Returns, reports or forms or the defense of any Tax claim or assessment;
provided, however, that such access does not unreasonably disrupt the normal
operations of MagneTek OT, Seller, Grand Eagle or Buyer.
ARTICLE 9
EMPLOYEE BENEFIT MATTERS
9.1. EMPLOYEE BENEFIT MATTERS.
(a) Buyer shall not be obligated to provide to the Company
Employees benefits
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comparable to those provided under the MagneTek Flexcare Retirement Pension
Plan or the MagneTek Flexcare Savings (401(k)) Plan or any other Company Plan
except as specifically set forth herein. Buyer assumes all obligations and
liabilities, if any, under the WARN Act (and any similar state law) arising
out of the transactions contemplated by this Agreement. Buyer also agrees to
comply with the terms of the WARN Act and any comparable state laws with
respect to any action that under any such laws would require any notice or
filing prior to the Closing Date, or would give rise to any liability of
Seller or MagneTek thereafter.
(b) Effective as of the Closing Date, Buyer shall, or shall cause
OT to, establish a group health plan for Company Employees which shall waive
any exclusion or limitation with respect to preexisting conditions and
actively-at-work exclusions for those Company Employees who were not subject
to such exclusions or limitations under OT's or MagneTek's group health plans
immediately prior to the Closing, and shall provide that any out-of-pocket
health expenses incurred by a Company Employee or his covered dependents
during 1996 prior to the Closing Date shall be taken into account under
Buyer's group health plan for the remainder of 1996 for purposes of
satisfying applicable deductible, coinsurance and maximum covered health
benefit claims by Company Employees and their covered dependents for services
rendered on or after the Closing Date. Neither Buyer nor its group health
plan for Company Employees shall be liable for any claims for health benefits
for services rendered on or prior to the Closing Date regardless of when such
claim is reported.
(c) Effective as of the Closing Date, the Company Employees shall
cease accruing any additional benefits under all Company Plans, and Seller or
MagneTek, as applicable, shall take or cause to be taken, all such action as
may be necessary to effect such cessation of participation by OT. To the
extent permitted by law, as of the Closing Date, Seller and MagneTek will
vest the Company Employees in their accrued benefits as of such date under
all Company Plans that are qualified under Section 401(a) of the Code as if
each such employee had remained employed by Seller or an ERISA Affiliate of
Seller through the vesting periods applicable to all of such employee's
benefits accrued through the Closing Date.
(d) MagneTek shall continue to be or shall become the sponsor of
all Company Plans and shall cause OT to cease being a sponsor or
participating employer in such plans as of the Closing Date. With respect to
all Company Plans, except as provided in Section 9.1(e), MagneTek shall
remain responsible and be liable for, and Buyer shall not assume or be
responsible for, any obligations or liabilities thereunder. MagneTek shall
also remain responsible for all reporting and disclosure obligations imposed
on the Company Plans by ERISA.
(e) Notwithstanding anything in this Agreement to the contrary, OT
shall be solely liable and responsible for all vacation, holiday, sick,
short-term disability and severance pay with respect to all Company Employees
(other than any such benefits arising under any Stay and Pay Agreements in
effect at or prior to the Closing) to the extent such obligations are
reflected on the Closing Balance Sheet. With respect to the OT's Employee
Plans in effect as of and after the Closing Date, OT shall grant all Company
Employees credit, effective as of the Closing Date, for all service with
Seller and its ERISA Affiliates (including OT) and their respective
predecessors prior to the Closing Date for all purposes (other than service
for benefit accrual purposes under a defined benefit pension plan; however,
this shall not preclude OT from granting such credit) for
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which such service was recognized by Seller and its ERISA Affiliates
(including OT) under any corresponding Company Plan.
(f) No provision of this Section 9.1 shall create third-party
beneficiary rights in any Company Employee, including, without limitation,
any right to continued employment or employment in any particular position
with Buyer for any specified period of time after the Closing Date.
ARTICLE 10
INDEMNIFICATION
10.1. TAX INDEMNIFICATION.
(a) (i) Subject to all of the terms and conditions of this
Article 10, Seller and MagneTek shall jointly and severally indemnify and
hold harmless each Indemnified Buyer Affiliate from (A) all liability for
Taxes of OT for Pre-Closing Tax Periods (as defined below) other than any
liability for Taxes included as a payable or other short-term liability for
purposes of preparing the Closing Balance Sheet and other than any
transferee or secondary liability of OT for a Tax arising prior to the
Closing and any Tax liability assumed by agreement by OT prior to the Closing
or arising as a result of being (or ceasing to be) a member or any Affiliated
Group at any time prior to the Closing or being included or being required to
be included in any Tax Return relating thereto, or (B) all liability for
reasonable legal fees and expenses incurred with respect to any item
indemnified pursuant to clause (A) of this Section 10.1(a)(i). "Pre-Closing
Tax Period" shall mean any taxable period ending on or before the Closing
Date and the portion ending at the close of business on the Closing Date of
any taxable period that includes (but does not end on) the Closing Date.
Taxes for taxable periods including but not ending on the Closing Date shall
be equitably allocated between Seller and Buyer and, where the tax is based
on gross or net income or a variation thereof, shall be allocated based on
the actual amount of taxable items accruing in the pre-Closing and
post-Closing portions of such periods.
(ii) Subject to all of the terms and conditions of this
Article 10, Seller and MagneTek shall jointly and severally indemnify and
hold harmless each Indemnified Buyer Affiliate from (A) all liability for any
transferee or secondary liability of OT for a Tax arising prior to the
Closing and any Tax liability assumed by agreement by OT prior to the Closing
or arising as a result of being (or ceasing to be) a member of any Affiliated
Group at any time prior to the Closing or being included or being required to
be included in any Tax Return relating thereto, or (B) all liability for
reasonable legal fees and expenses incurred with respect to any item
indemnified pursuant to clause (A) of this Section 10.1(a)(ii).
(b) Buyer shall indemnify and hold harmless each Indemnified
Seller Affiliate from (i) all liability for Taxes of Buyer, (ii) all
liability for Taxes that are included as a payable or other short-term
liability for purposes of preparing the Closing Balance Sheet, (iii) all
liability for Taxes arising from events occurring on the Closing Date outside
of the ordinary course of business by or at the direction of Buyer, and (iv)
all liability for reasonable legal fees and expenses incurred with respect to
any item indemnified pursuant to clauses (i) and (ii) of this
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Section 10.1(b).
10.2. OTHER INDEMNIFICATION BY SELLER AND MAGNETEK.
Subject to all of the terms and conditions of this Article 10, each of
Seller and MagneTek shall jointly and severally indemnify and hold harmless
each Indemnified Buyer Affiliate from any Losses suffered or incurred by such
Indemnified Buyer Affiliate (other than any relating to (i) liabilities for
Taxes, and (ii) the specified liabilities and obligations identified and
described in Section 10.4) to the extent arising from, (a) if the Closing
occurs, any breach of any representation or warranty of Seller or MagneTek
contained in this Agreement which survives the Closing or in any certificate,
instrument or other document delivered pursuant hereto, (b) any breach of any
covenant of Seller or MagneTek contained in this Agreement requiring
performance after the Closing Date, (c) any Excluded Liability, (d) any
liability of OT arising as a result of OT having been an ERISA Affiliate of
any Person or any Person having been an ERISA Affiliate of OT at any time
prior to the Closing, or (e) the conduct of any business unrelated to the
Business by OT at any time prior to the Closing. Seller and MagneTek shall
not have any liability under clause 10.2(a) or 10.2(b) above unless the
aggregate of all Losses for which Seller and MagneTek would, but for this
proviso, be liable pursuant to this Section 10.2(a) and 10.2(b), together
with the aggregate of all Losses for which Seller and MagneTek are liable
pursuant to Sections 10.2(a) and (b) of the Other Agreement, exceeds $220,000
on a cumulative basis (and then only to the extent of any such excess).
Seller's and MagneTek's aggregate liability under Sections 10.2(a) and (b) of
this Agreement and Sections 10.2(a) and (b) of the Other Agreement shall in
no event exceed $5,500,000. MagneTek's and Seller's liability under Sections
10.2(c), 10.2(d) and 10.2(e) is only limited as set forth in Section 10.5.
10.3. OTHER INDEMNIFICATION BY BUYER AND OT.
Subject to all of the terms and conditions of this Article 10, Buyer
shall, and shall cause OT to jointly and severally indemnify and hold
harmless each Indemnified Seller Affiliate from any Losses suffered or
incurred by such Indemnified Seller Affiliate (other than any relating to Tax
matters, for which indemnification is provided in Section 10.1 or
environmental matters, for which indemnification is provided in Section 10.4)
to the extent arising from, (a) if the Closing occurs, any breach of any
representation or warranty of Buyer contained in this Agreement which
survives the Closing or in any certificate, instrument or other document
delivered pursuant hereto or in connection herewith, (b) any breach of any
covenant of Buyer contained in this Agreement requiring performance after the
Closing Date, (c) the ongoing operations of Buyer and OT after the Closing
occurs or (d) under any Contract assigned by MagneTek or an Affiliate under
Section 6.10. Neither Buyer nor OT shall have any liability under clause (a)
or (b) above unless the aggregate liability of Buyer and Canada Sub under
such clauses (a) and (b), together with the aggregate liability of Buyer and
OT (each as defined in the Other Agreement) pursuant to Section 10.3(a) and
(b) of the Other Agreement, shall exceed $220,000 on a cumulative basis (and
then only to the extent of any such excess). Buyer's and OT's aggregate
liability under Section 10.3(a) and (b), together with the aggregate
liability of Buyer and Canada Sub (each as defined in the Other Agreement)
under Section 10.3(a) and (b) of the Other Agreement, shall in no event
exceed $5,500,000.
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10.4. INDEMNIFICATION FOR ENVIRONMENTAL MATTERS.
(a) Subject to all the terms and conditions of this Article 10,
Seller and MagneTek shall jointly and severally indemnify and hold harmless
each Indemnified Buyer Affiliate from and against all Losses resulting from
claims or demands by any Governmental Authority or any third party which is
unrelated to Buyer or its Affiliates arising under any Environmental Law to
the extent such claims or demands relate to:
(i) Seller's or MagneTek's failure to perform any of its
obligations as provided in Section 6.9 herein;
(ii) OT's arrangement for treatment, storage, recycling or
disposal, prior to the Closing Date, of any Hazardous Materials at
any offsite disposal facility;
(iii) conditions as of the Closing Date, or at any time
prior to the Closing Date, at the Louisville Facility; or
(iv) conditions as of the Closing Date, or at any time
prior to the Closing Date, at any Seller Facility other than the
Louisville Facility.
Seller and MagneTek shall not have any liability under clause
(ii) or (iv) above unless the aggregate of all Losses for which Seller and
MagneTek would, but for this proviso, be liable under such clauses (ii) and
(iv) and under Sections 10.4(a)(ii) and (iii) of the Other Agreement shall
exceed $100,000 on a cumulative basis (and then only to the extent of any
such excess). Seller's and MagneTek's aggregate liability under Sections
10.4(a)(ii) and (iv) and under Sections 10.4(a)(ii) and (iii) of the Other
Agreement shall in no event exceed $1,500,000. Such $100,000 deductible and
$1,500,000 maximum indemnification shall be unrelated to the $220,000
deductible and $5,500,000 maximum indemnification provided under Sections
10.2 of this and the Other Agreement. Except as provided in Section 10.5(f),
there shall be no limitation on the maximum amount of indemnification
provided under Section 10.4(a)(i) or 10.4(a)(iii) of this Agreement. The
indemnification provided by Section 10.4(a)(ii) and Section 10.4(a)(iv) will
expire on the third anniversary of the Closing Date.
Notwithstanding anything in this Agreement to the contrary,
Seller's and MagneTek's indemnification liability hereunder shall in no event
be construed to extend to or include any remediation or other liability
arising as the result of the presence of asbestos in or upon the improvements
located on any Seller Facility at any time.
(b) Buyer and OT shall jointly and severally indemnify and hold
harmless each Indemnified Seller Affiliate from and against all Losses
resulting from claims or demands by any Governmental Authority or third party
arising under any Environmental Law to the extent such Losses are
attributable to Buyer's use or occupancy of any Seller Facility after the
Closing Date.
10.5. LOSSES NET OF INSURANCE, ETC.
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(a) The amount of any Loss for which indemnification is provided
under this Article 10 shall be net of all amounts recovered by the Indemnified
Person under insurance policies with respect to such Loss and shall be net of
any reserve in respect thereof reflected on the Closing Balance Sheet.
(b) If the Indemnifying Person makes any payment under this
Article 10 in respect of any Losses, the Indemnifying Person shall be
subrogated, to the extent of such payment and except to the extent that such
subrogation is not permitted by the terms of any insurance policy, to the rights
of the Indemnified Person against any insurer or third party with respect to
such Losses.
(c) Notwithstanding anything to the contrary elsewhere in this
Agreement, no party shall, in any event, be liable to any Indemnified Person
for any consequential damages, including, but not limited to, loss of revenue
or income, cost of capital, diminution in value or loss of business reputation
or opportunity relating to the breach or alleged breach of this Agreement. Each
party agrees that it will not seek punitive damages from any Indemnified Person
as to any matter under, relating to or arising out of the transactions
contemplated by this Agreement.
(d) The parties hereto agree that the indemnification provisions of
this Article 10 are intended to provide the exclusive remedy as to all Losses
each may incur arising from, or relating to the transactions contemplated hereby
and each party hereby waives, to the extent it may do so, any other rights or
remedies that may arise under any applicable statute, rule or regulation.
Notwithstanding the foregoing, (i) Buyer may exercise any rights or remedies it
may have under or with respect to the Non-Competition Agreement and (ii) the
rights of any party under this Article 10 are not exclusive with respect to
fraudulent representations, actions or omissions by another party.
(e) Any indemnification payment for Taxes required under this
Article 10 shall for purposes of federal, state and local income Taxes, be
treated as a purchase price adjustment.
(f) The parties agree that the aggregate liability of Seller and
MagneTek under all provisions of this Agreement other than Sections 10.1(a)(ii),
10.2(d), 10.2(e) and 10.4(a)(iii), including all indemnification provisions of
this Article 10 other than Sections 10.1(a)(ii), 10.2(d), 10.2(e) and
10.4(a)(iii) shall in no event exceed the sum of the Cash Purchase Price under
this Agreement, plus all amounts paid or otherwise due under the Seller Note
(in cash or by offset under Section 10.10) prior to the date of the claim for
indemnification hereunder, plus the "Cash Purchase Price", as defined in the
Other Agreement, plus all amounts paid or otherwise due under the "Seller Note",
as defined in the Other Agreement (in cash or by offset under Section 10.10 of
the Other Agreement) prior to the date of the claim for indemnification
hereunder.
10.6. TERMINATION OF INDEMNIFICATION.
The obligations to indemnify and hold harmless a party hereto, (w)
pursuant to Sections 10.1, 10.2(c), 10.2(d), 10.2(e) and 10.3(c) shall not
terminate, (x) pursuant to Sections 10.2(a) and 10.3(a), shall terminate when
the applicable representation or warranty terminates pursuant to Section 10.9,
(y) pursuant to Section 10.4, shall terminate as set forth therein and (z)
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pursuant to clauses 10.2(b) and 10.3(b), shall terminate on the third
anniversary of the Closing Date; provided, however, that as to clauses (w),
(x), (y) and (z) above, such obligations to indemnify and hold harmless shall
not terminate with respect to any item as to which the Person to be indemnified
shall have, before the expiration of the applicable period, previously made a
claim by delivering a notice (stating in reasonable detail the basis of such
claim) to the Indemnifying Person. The obligations to indemnify and hold
harmless a party hereto pursuant to Section 10.4(a)(iii) shall terminate on the
second anniversary of the Closing Date if (but only if) Buyer shall occupy the
Louisville Facility for any period of time after the second anniversary of the
Closing Date (regardless of the duration of such occupancy after such second
anniversary and of whether the Buyer subsequently ceases such occupancy).
10.7. PROCEDURES RELATING TO INDEMNIFICATION (OTHER THAN UNDER SECTION 10.1).
In order for an Indemnified Person to be entitled to any indemnification
provided for under this Agreement (other than under Section 10.1) in respect of,
arising out of or involving a claim or demand made by any Person against the
Indemnified Person (a "Third Party Claim"), such Indemnified Person must notify
the Indemnifying Person in writing, and in reasonable detail, of the Third Party
Claim within 10 Business Days (30 calendar days in respect of claims under
Section 10.4) after receipt by such Indemnified Person of written notice of the
Third Party Claim; provided, however, that failure to give such notification
shall not affect the indemnification provided hereunder except to the extent the
Indemnifying Person shall have been actually prejudiced as a result of such
failure (except that the Indemnifying Person shall not be liable for any Losses
incurred during the period in which the Indemnified Person failed to give such
notice). Thereafter, the Indemnified Person shall deliver to the Indemnifying
Person, within five Business Days after the Indemnified Person's receipt
thereof, copies of all notices and documents (including court papers) received
by the Indemnified Person relating to the Third Party Claim.
If a Third Party Claim is made against an Indemnified Person, the
Indemnifying Person will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
Indemnifying Person and reasonably satisfactory to the Indemnified Person.
Should the Indemnifying Person so elect to assume the defense of a Third Party
Claim, the Indemnifying Person will not be liable to the Indemnified Person for
legal fees and expenses subsequently incurred by the Indemnified Person in
connection with the defense thereof. If the Indemnifying Person assumes such
defense, the Indemnified Person shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Person, it being understood that the
Indemnifying Person shall control such defense. The Indemnifying Person shall be
liable for the fees and expenses of counsel employed by the Indemnified Person
for any period during which the Indemnifying Person has not assumed the defense
thereof (other than during any period in which the Indemnified Person shall have
failed to give notice of the Third Party Claim as provided above). If the
Indemnifying Person chooses to defend or prosecute any Third Party Claim, all
the parties hereto shall cooperate in the defense or prosecution thereof.
Such cooperation shall include the retention and (upon the Indemnifying Person's
request) the provision to the Indemnifying Person of Records and information
which are reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional
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information and explanation of any material provided hereunder. Whether or not
the Indemnifying Person shall have assumed the defense of a Third Party Claim,
the Indemnified Person shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying
Person's prior written consent (which consent shall not be unreasonably withheld
or delayed). All Tax Claims (as defined in Section 10.8) shall be governed by
Section 10.8.
10.8. PROCEDURES RELATING TO INDEMNIFICATION OF TAX CLAIMS.
(a) If a claim shall be made by any Governmental Authority, which,
if successful, might result in an indemnity payment to any Person hereunder
pursuant to Section 10.1 (a "Tax Indemnitee"), the Tax Indemnitee shall promptly
notify the party against whom indemnification is sought (the "Tax Indemnitor")
in writing of such claim (a "Tax Claim"). If notice of a Tax Claim is not given
to the Tax Indemnitor within a sufficient period of time to allow the Tax
Indemnitor to effectively contest such Tax Claim, or in reasonable detail to
apprise the Tax Indemnitor of the nature of the Tax Claim, in each case taking
into account the facts and circumstances with respect to such Tax Claim, the Tax
Indemnitor shall not be liable to the Tax Indemnitee to the extent that the Tax
Indemnitor's ability to effectively contest such Tax Claim is actually
prejudiced as a result thereof.
(b) With respect to any Tax Claim for which a Tax Indemnitee seeks
indemnification hereunder, the Tax Indemnitor shall control all proceedings
taken in connection with such Tax Claim (including, without limitation,
selection of counsel) and, without limiting the foregoing, may in its sole
discretion (and at its sole cost and expense) pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with any
Governmental Authority with respect thereto and may, in its sole discretion,
either pay the Tax claimed and sue for a refund where applicable law permits
such refund suits or contest the Tax Claim in any permissible manner; provided,
however, that the Tax Indemnitor shall not settle or compromise a Tax Claim
without giving prior notice to the Tax Indemnitee and without the Tax
Indemnitee's consent, which shall not be unreasonably withheld or delayed, if
such settlement or compromise would have an adverse effect on the Tax
liabilities of the Tax Indemnitee, its Affiliates or any member of its
Affiliated Group, after giving effect to the rights to indemnification
hereunder. The Tax Indemnitee, and each of its Affiliates, shall cooperate with
the Tax Indemnitor in contesting any Tax Claim, which cooperation shall include,
without limitation, the retention and (upon the Tax Indemnitor's request) the
provision to the Tax Indemnitor of Records and information which are reasonably
relevant to such Tax Claim, and making employees available on a mutually
convenient basis to provide additional information or explanation of any
material provided hereunder or to testify at proceedings relating to such Tax
Claim.
(c) In no case shall Buyer settle or otherwise compromise any Tax
Claim for which indemnification is sought hereunder without MagneTek's prior
written consent, which consent shall not be unreasonably withheld.
10.9. SURVIVAL OF REPRESENTATIONS.
The representations and warranties in this Agreement and in any other
document delivered
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in connection herewith shall survive the Closing solely for purposes
of Sections 10.2(a) and 10.3(a) and shall terminate at the close of business
three years following the Closing Date, except that the representations and
warranties in Sections 4.8, 4.15 and 4.17 shall not survive the Closing.
10.10. MANDATORY SETOFF OF SELLER NOTE.
Each of the parties agrees, on its own behalf and (with respect to
MagneTek and Seller) on that of any permitted transferee of the Seller Note,
that to the extent any amount is due in respect of indemnification to an
Indemnified Buyer Affiliate under this Agreement or the Other Agreement, such
amount shall be offset against the interest and principal due under the Seller
Note and the similar note issued under the Other Agreement, with offsets applied
first to interest payments then due in the order of their maturity and then to
principal payments in the order of their maturity, before any amount shall be
payable by Seller or MagneTek. In the event any such offset is contested by
MagneTek, the matter shall be resolved in the same fashion as any other dispute
under this Agreement.
ARTICLE 11
POST CLOSING MATTERS
11.1. TAX MATTERS.
(a) MagneTek shall be responsible for filing any consolidated,
combined or unitary Tax Returns (whether original or amended) for any taxable
period of OT ending on or prior to the Closing Date, including any which are
required as a result of examination adjustments made by the IRS or by the
applicable state, local or foreign taxing authorities for such taxable years
as finally determined. For those jurisdictions in which separate Tax Returns
are filed by OT, MagneTek shall be responsible for preparing Tax Returns for any
such periods and for furnishing them to Buyer or OT, as the case may be, for
approval (which approval shall not be unreasonably withheld or delayed),
signature and filing within a reasonable time prior to the due date for filing
such returns.
(b) Any refunds or credits of Taxes of OT for any taxable period
ending on or before the Closing Date shall be for the account of MagneTek unless
such refund or credit results from a net operating loss or other carryback for a
tax period ending after the Closing Date. Any refunds or credits of Taxes of OT
for any taxable period beginning on or after the Closing Date shall be for the
account of Buyer. Any refunds or credits of Taxes of OT for any taxable period
that includes (but does not end on) the Closing Date shall be prorated between
MagneTek and Buyer based on the amount of such refund attributable to pre-
Closing and post-Closing periods. Buyer and MagneTek shall cooperate to effect
the purposes of the foregoing provisions. Any amounts payable to Buyer or
MagneTek shall be net of any tax cost or benefit to the payor attributable to
the receipt of such refund and/or the payment of such amounts; in no event shall
such payment exceed the amount of the refund. Notwithstanding the foregoing, the
control of the prosecution of a claim for refund of Taxes attributable to
Pre-Closing Tax Periods paid pursuant to a deficiency assessed subsequent to the
Closing Date as a result of an audit shall be governed
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by the provisions of Section 10.8.
(c) Except as otherwise specifically provided for in this
Agreement, all Taxes shall be payable and be the responsibility of the party on
whom such Taxes are imposed. Seller shall pay any stock transfer taxes due as a
result of the sale of the Shares.
(d) MagneTek shall cause any liability of OT under any
tax-indemnity, tax-sharing, tax allocation or similar agreements to which OT is
a party to be terminated and of no further force or effect on or before the
Closing Date.
11.2. ACCESS TO FORMER BUSINESS RECORDS.
For a period of seven (7) years following the Closing, Buyer will, or will
cause OT to, retain all Records of OT existing as of the Closing and in its
possession or control. During such period, Buyer will, or will cause OT to,
afford authorized representatives of MagneTek access to all of such Records at
reasonable times and during normal business hours at the principal business
office of Buyer or OT, as applicable, or at such other location or locations at
which such Records may be stored or maintained from time to time, and will
permit such representatives to make abstracts from, or copies of, any of such
Records, or to obtain temporary possession of any thereof as may be reasonably
required by MagneTek at MagneTek's sole cost and expense. During such period,
Buyer will, and will cause OT to, at MagneTek's expense (in respect of any out-
of-pocket expenses), cooperate with MagneTek in furnishing information,
evidence, testimony and other reasonable assistance in connection with any
action, proceeding or investigation relating to the Business prior to the
Closing.
11.3. USE OF TRADEMARK AND TRADE NAMES.
Notwithstanding anything to the contrary in this Agreement, OT may continue
to use the name "MagneTek" and related trademarks, corporate names, and
tradenames incorporating "MagneTek", and the stylized "MagneTek" logos, (i) in
displays, signage and postings for sixty (60) days after the Closing Date to
the extent such displays, signage or postings exist on the Closing Date; (ii)
for a period of two (2) years, to state the former affiliation of OT with
MagneTek and Seller (e.g., formerly a subsidiary of "MagneTek, Inc." or
"formerly MagneTek Ohio Transformer, Inc."); and (iii) to the extent the trade
names, trademarks, service marks or logos of any of MagneTek's Affiliates or of
MagneTek or Seller appear on the stationery, packaging materials, supplies or
inventory of OT, until such is exhausted.
11.4. FURTHER ASSURANCES.
If at any time after the Closing Date any further action is reasonably
necessary or desirable to carry out the purposes of this Agreement, then
promptly upon the request of the other party, Seller, MagneTek, OT, Grand Eagle
or Buyer, as the case may be, shall take such action (including, but not
limited to, the execution of additional documents and instruments).
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ARTICLE 12
GENERAL PROVISIONS
12.1. ASSIGNMENT.
This Agreement and the rights and obligations hereunder shall not be
assignable or transferable by Buyer prior to the Closing (including by operation
of law in connection with a merger, or sale of substantially all the assets,
of Buyer) without the prior written consent of MagneTek or Seller; provided,
however, that Buyer may assign its right to purchase the Shares hereunder to any
of its Affiliates without the prior written consent of MagneTek or Seller;
provided further, however, that no assignment shall limit or affect the
assignor's obligations hereunder.
12.2. NO THIRD-PARTY BENEFICIARIES.
Except as provided in Article 10 as to Indemnified Persons, this Agreement
is for the sole benefit of the parties hereto and their permitted assigns and
nothing herein expressed or implied shall give or be construed to give to any
person or entity, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
12.3. TERMINATION.
(a) Anything contained herein to the contrary notwithstanding, this
Agreement may be terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing Date:
(i) by mutual written consent of all parties; or
(ii) by any party hereto, if the Closing does not occur on or
prior to June 14, 1996.
(b) In the event of termination by any party pursuant to this
Section 12.3, written notice thereof shall forthwith be given to the other
parties and the transactions contemplated by this Agreement shall be terminated,
without further action by either party. If the transactions contemplated by
this Agreement are terminated as provided herein:
(i) Buyer shall return to Seller all documents and copies and
other material received from Seller or MagneTek relating to the
transactions contemplated hereby, whether so obtained before or
after the execution hereof; and
(ii) All confidential information received by Buyer with respect
to the businesses of Seller shall be treated in accordance with
the Confidentiality Agreement which shall remain in full force and
effect notwithstanding the termination of this Agreement.
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(c) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 12.3, this
Agreement shall become void and of no further force and effect, except
for the provisions of (i) Section 7.1 relating to the obligation of Buyer to
keep confidential certain information and data obtained by it, (ii)
Section 12.4 relating to certain expenses, (iii) Section 12.5 relating to
attorney fees and expenses, (iv) Section 8.2 relating to publicity, (v)
Section 12.11 relating to finder's fees and broker's fees and (vi) this
Section 12.3. Nothing in this Section 12.3 shall be deemed to release any
party from any liability for any breach by such party of the terms and
provisions of this Agreement or to impair the right of any party to compel
specific performance by the other parties of its obligations under this
Agreement.
12.4. EXPENSES.
Whether or not the transactions contemplated hereby are consummated, and
except as otherwise provided in this Agreement, all fees, costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees, costs or expenses,
provided that Buyer shall pay one-half of any sales taxes due upon the sale of
the Shares.
12.5. ATTORNEYS' FEES.
Should any litigation be commenced concerning this Agreement or the rights
and duties of any party with respect to it, the party prevailing shall be
entitled, in addition to such other relief as may be granted, to a reasonable
sum for such party's attorney fees and expenses determined by the court in such
litigation or in a separate action brought for that purpose.
12.6. AMENDMENTS.
No amendment to this Agreement shall be effective unless it shall be in
writing and signed by all parties hereto.
12.7. NOTICES.
All notices or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered by hand or sent, postage
prepaid, by registered or certified mail, and shall be deemed given when so
delivered, as follows:
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(i) if to Buyer or Grand Eagle,
Grand Eagle Companies Inc.
or
Grand Eagle Companies North America, Inc.
(AS THE CASE MAY BE)
130 East Randolph Drive, 29th Floor
Chicago, Illinois 60601
Attention: Jerry O. Williams
President and CEO
with a copy to:
Fitzpatrick Eilenberg & Zivian
20 North Wacker Drive, Suite 2200
Chicago, Illinois 60606
Attention:Carol Pegnato, Esq.
(ii) if to Seller or MagneTek,
MagneTek National Electric Coil, Inc.
or
MagneTek, Inc.
(AS THE CASE MAY BE)
26 Century Boulevard
P.O. Box 290159
Nashville, Tennessee 37229-0159
Attention: Samuel A. Miley, Esq.
General Counsel
with a copy to:
MagneTek, Inc.
26 Century Boulevard
P.O. Box 290159
Nashville, Tennessee 37229-0159
Attention: John P. Colling, Jr.
Vice President and Treasurer
and with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Jennifer Bellah, Esq.
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12.8. INTERPRETATION; EXHIBITS AND SCHEDULES.
The headings contained in this Agreement, in any Exhibit or Schedule hereto
and in the table of contents to this Agreement, are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
Any matter disclosed in one Schedule hereto shall be deemed incorporated by
reference into each other Schedule hereto and disclosed in each such Schedule.
All Exhibits and Schedules annexed hereto or referred to herein are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein. Any capitalized terms used in any Schedule or Exhibit, but not
otherwise defined therein, shall have the meaning as defined in this Agreement.
12.9. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become effective when
one or more such counterparts have been signed by each of the parties and
delivered to the other parties.
12.10. ENTIRE AGREEMENT.
This Agreement and the Ancillary Agreements, together with all Exhibits and
Schedules hereto and thereto, contain the entire agreement and understanding
among the parties hereto and OT with respect to the subject matter hereof and
supersede all prior oral and written agreements and understandings relating to
such subject matter, including without limitation the letter of intent between
MagneTek and Grand Eagle dated December 13, 1995 and the Amended and Restated
Asset Sale Agreement among certain of such Persons pertaining to the assets of
OT dated as of February 27, 1996.
12.11. FEES.
Each party hereto hereby represents and warrants that (a) the only brokers
or finders that have acted for such party in connection with this Agreement or
the transactions contemplated hereby or that may be entitled to any brokerage
fee, finder's fee or commission in respect thereof are Lehman Brothers with
respect to Seller and MagneTek, and PaineWebber Incorporated and Mega Capital
Corp. with respect to Buyer, and (b) such parties will pay all fees or
commissions which may be payable to the Persons so named.
12.12. SEVERABILITY.
If any provision of this Agreement or the application of any such provision
to any Person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof.
12.13. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of New York applicable to agreements made and to be
performed entirely within such
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State, without regard to the conflicts of law principles of such State.
* * * * * * *
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IN WITNESS WHEREOF, the parties have caused this Stock Purchase Agreement
to be duly executed as of the date first written above.
MAGNETEK NATIONAL ELECTRIC COIL,
INC., a Delaware corporation
By:_____________________________
John P. Colling, Jr.,
Vice President
MAGNETEK, INC., a Delaware corporation
By:______________________________
John P. Colling, Jr.,
Vice President
GRAND EAGLE COMPANIES INC., a
Delaware corporation
By:_____________________________
Jerry O. Williams, President
GRAND EAGLE COMPANIES NORTH AMERICA,
INC., a Delaware corporation
By:_____________________________
Jerry O. Williams, President
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AMENDMENT NO. 1
TO
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT
AMONG MAGNETEK NATIONAL ELECTRIC COIL, INC.,
MAGNETEK, INC., EASTERN ELECTRIC APPARATUS REPAIR
COMPANY, INC. AND GRAND EAGLE COMPANIES INC.
DATED AS OF FEBRUARY 27, 1996.
This Amendment No. 1 (the "Amendment") to the Amended and Restated Asset
Purchase Agreement (the "Agreement") among MagneTek National Electric Coil,
Inc., MagneTek, Inc., Eastern Electric Apparatus Repair Company, Inc. and
Grand Eagle Companies Inc. Dated as of February 27, 1996 is dated as of June
28, 1996 and is by and among MagneTek National Electric Coil, Inc., a
Delaware corporation ("Seller"), MagneTek, Inc., a Delaware corporation
("MagneTek"), Eastern Electric Apparatus Repair Company, Inc., a Georgia
corporation ("Buyer"), and Grand Eagle Companies Inc., a Delaware corporation
("Grand Eagle").
R E C I T A L S
WHEREAS, Seller, MagneTek, Buyer and Grand Eagle are parties to the
Agreement and desire to amend it in certain respects.
NOW, THEREFORE, in consideration of the covenants and amendments
therein, the parties agree as follows:
A G R E E M E N T
ARTICLE I
AMENDMENTS
1.1 AMENDMENTS TO ARTICLE 1. The definition of "Seller Note" is hereby
amended to read in full as follows:
"Seller Note" means the promissory note issued by Grand Eagle in
the form attached hereto as Exhibit B.
1.2 AMENDMENTS TO ARTICLE 2.
(a) SECTION 2.1. The amount of the Cash Purchase Price referred to
in Section 2.1 shall be changed to $10,200,000 (ten million two hundred thousand
dollars) and the principal amount of the Seller Note shall be changed to
$4,150,000 (four million one hundred fifty thousand dollars).
(b) SECTION 2.3. The date of the Closing referred to in Section
2.3(a) shall be changed to June 14, 1996.
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(c) SECTION 2.4. Section 2.4(b)(ii)(b) is hereby amended to read in
full as follows:
The duly executed Seller Note in the original principal
amount of $4,150,000 (four million one hundred fifty
thousand dollars).
1.3 AMENDMENTS TO ARTICLE 3.
(a) SECTION 3.1(f). Section 3.1(f) shall be amended to read in full
as follows:
[Intentionally omitted.]
(b) SECTION 3.1(p). Section 3.1(p) shall be amended to read in full
as follows:
MagneTek shall have executed and delivered to Buyer a
non-competition agreement in the form attached hereto as
Exhibit C (the "Non-Competition Agreement").
(c) SECTION 3.1(u). Section 3.1(u) shall be amended to read in full
as follows:
Grand Eagle's obligations under the Seller Note shall be
subordinated to Grand Eagle's and Buyer's obligations to the
extent set forth in the Seller Note.
(d) SECTION 3.3. The reference to Section 3.1(f) in clause (b) shall
be replaced by a reference to Section 6.7.
1.4 AMENDMENTS TO ARTICLE 4.
(a) SECTION 4.9. Clause (a) shall be amended to read in full as
follows: "such as are disclosed on Schedule 4.9, which Liens were incurred
prior to February 27, 1996." In addition, a new clause (b) shall be added which
provides: "(b) Such as were incurred in the Ordinary Course between February
27, 1996 and the Closing." The remaining clauses shall be relettered (c)
through (f).
1.5 AMENDMENTS TO ARTICLE 6.
(a) SECTION 6.7. The phrase "[p]rior to the Closing, Seller shall
obtain at its expense and deliver" in the first sentence shall be replaced by
the phrase "[p]rior to the Closing, Seller has obtained at its expense and
delivered," and the phrase "shall be" in the last sentence of such section shall
be replaced by the word "was."
(b) SECTION 6.10. Such section shall be replaced with:
[Intentionally omitted.]
(c) SECTION 6.11. Such section shall be replaced with:
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[Intentionally omitted.]
1.6 AMENDMENTS TO ARTICLE 12.
(a) SECTION 12.3.
(i) The word "or" at the end of clause (a)(i) shall be
replaced by the word "and."
(ii) The date April 5, 1996 in clause (a)(ii) shall be
replaced by the date June 28, 1996, a period shall replace the
semi-colon and the word "or," as well as all of clause (iii)
shall be deleted.
ARTICLE II
OTHER AGREEMENTS
2.1 SCHEDULES. The parties agree that the Schedules attached hereto
shall replace the applicable previously delivered Schedules, and that such
previously delivered Schedules as are not so replaced shall be deemed to be
delivered as of the date of this Amendment unless such Schedules were dated
as of a specific date, in which case they shall continue to have been
delivered as of such date.
2.2 CAPITALIZED TERMS. Capitalized terms used without definition
herein have the meanings ascribed to them in the Agreement.
2.3 EXECUTION IN COUNTERPARTS. This Amendment may be executed in
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
2.4 GOVERNING LAW. This Amendment shall be governed by and construed
in accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such state, without
regard to the conflicts of law principles of such State.
2.5 ENTIRE AGREEMENT. This Amendment, the Agreement, the
Non-Competition Agreement and the Confidentiality Agreement, together with
all Exhibits and Schedules hereto and thereto, contain the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof and supersede all prior oral and written agreements and understanding
relating to such subject matter, including, without limitation, the letter of
intent referred to in Section 12.10 of the Agreement. Except as amended
hereby, the Agreement remains in full force and effect.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
MAGNETEK NATIONAL ELECTRIC COIL,
INC., a Delaware corporation
By:
-----------------------------------------
John P. Colling, Jr.
Vice President
MAGNETEK, INC., a Delaware corporation
By:
-----------------------------------------
John P. Colling, Jr.
Vice President
EASTERN ELECTRIC APPARATUS REPAIR
COMPANY, INC., a Georgia corporation
By:
-----------------------------------------
Jerry O. Williams
President
GRAND EAGLE COMPANIES INC., a Delaware
corporation
By:
-----------------------------------------
Jerry O. Williams
President
4
<PAGE>
ASSET PURCHASE AGREEMENT
BETWEEN
MAGNETEK, INC.,
AND
JEFFERSON ELECTRIC, INC.
DATED AS OF AUGUST ____, 1996
SALE OF JEFFERSON ELECTRIC DIVISION OF MAGNETEK, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS. . . . . . . . . . . 1
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2. CLOSING; PURCHASE PRICE ADJUSTMENT . . . . . 6
2.1 Sale and Transfer of the Assets . . . . . . . . . . . . . . . . . . . 6
2.2 Assets Not Transferred. . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Assumed and Excluded Liabilities. . . . . . . . . . . . . . . . . . . 8
2.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Purchase Price Adjustment . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Tax Allocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.7 Sales and Use Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 3. CONDITIONS TO CLOSING . . . . . . . . 12
3.1 Buyer's Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Seller's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER. . . . 14
4.1 Authority; Corporate Matters; No Conflicts; Governmental Consents . . 14
4.2 Financial Statements; Absence of Changes. . . . . . . . . . . . . . . 15
4.3 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Assets Other than Real Property Interests . . . . . . . . . . . . . . 17
4.5 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.6 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 17
4.7 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.8 Litigation; Decrees . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.9 Employee and Related Matters. . . . . . . . . . . . . . . . . . . . . 19
4.10 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 19
4.11 Employee and Labor Relations. . . . . . . . . . . . . . . . . . . . . 19
4.12 Assets of the Business. . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER. . . . 20
5.1 Authority; No Conflicts; Governmental Consents. . . . . . . . . . . . 20
5.2 Actions and Proceedings, etc. . . . . . . . . . . . . . . . . . . . . 21
5.3 Buyer's Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . . 21
5.4 No Knowledge of Seller's Breach . . . . . . . . . . . . . . . . . . . 21
5.5 Exon-Florio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 6. COVENANTS OF SELLER. . . . . . . . . 22
6.1 Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2 Ordinary Conduct. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . 22
6.5 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.6 Covenant Not to Compete . . . . . . . . . . . . . . . . . . . . . . . 23
6.7 Seller Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.8 Supply Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.9 Product Support . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 7. COVENANTS OF BUYER. . . . . . . . . . 24
7.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
7.2 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3 Waiver of Bulk Sales Law Compliance . . . . . . . . . . . . . . . . . 25
7.4 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.6 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 8. MUTUAL COVENANTS. . . . . . . . . . 26
8.1 Permits and Consents. . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Reasonable Efforts; Further Assurances. . . . . . . . . . . . . . . . 27
8.5 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Access to Former Business Records . . . . . . . . . . . . . . . . . . 28
8.7 Use of Trademark and Trade Names. . . . . . . . . . . . . . . . . . . 28
8.8 Required Modifications or Replacements of Products. . . . . . . . . . 28
ARTICLE 9. EMPLOYEE BENEFIT MATTERS. . . . . . . . 29
9.1 Employee Retention. . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.2 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 Vacation, Holiday and Severance Pay . . . . . . . . . . . . . . . . . 30
9.4 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . 30
9.5 Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 10. INDEMNIFICATION. . . . . . . . . . 31
10.1 Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . 31
10.2 Indemnification by Buyer. . . . . . . . . . . . . . . . . . . . . . . 31
10.3 Indemnification for Environmental Matters . . . . . . . . . . . . . . 32
10.4 Losses Net of Insurance, etc. . . . . . . . . . . . . . . . . . . . . 32
10.5 Termination of Indemnification. . . . . . . . . . . . . . . . . . . . 33
10.6 Procedures Relating to Indemnification (Other Than for Tax Claims). . 33
10.7 Procedures Relating to Indemnification of Tax Claims. . . . . . . . . 34
10.8 Survival of Representations . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
ARTICLE 11. GENERAL PROVISIONS. . . . . . . . . 35
11.1 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 No Third-Party Beneficiaries. . . . . . . . . . . . . . . . . . . . . 35
11.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.5 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.6 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.8 Interpretation; Exhibits and Schedules. . . . . . . . . . . . . . . . 38
11.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.10 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.11 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBITS:
EXHIBIT A Bill of Sale, Assignment and Assumption Agreement. . . . A-1
EXHIBIT B Opinion of Baker, Donelson, Bearman & Caldwell . . . . . B-1
EXHIBIT C Opinion of General Counsel of Seller . . . . . . . . . . C-1
EXHIBIT D Opinion of Schober & Radtke S.C. . . . . . . . . . . . . D-1
SCHEDULES:
Schedule 2.1(b) Leased Property; Milwaukee Facility and Brownsville Facility
Schedule 2.1(e) Intellectual Property
Schedule 2.6 Tax Allocation
Schedule 4.1(b) Jurisdictions
Schedule 4.1(c) Accelerations, Default
Schedule 4.2 Financial Statements
Schedule 4.3 Taxes and Tax Exempt Use Property
Schedule 4.4 Liens on Assets
Schedule 4.5 Business Property
Schedule 4.6 Intellectual Property
Schedule 4.7 Contracts
Schedule 4.8 Litigation
Schedule 4.9 Seller Plans
Schedule 4.11 Employee and Labor Relations
Schedule 5.1(b) Buyer Conflicts
Schedule 6.2 Exceptions to Ordinary Course of Business
Schedule 9.2 Rates Applicable to Employee Benefit Plans
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of August ____, 1996 between MAGNETEK,
INC., a Delaware corporation ("Seller" or "MagneTek"), and JEFFERSON
ELECTRIC, INC., a Wisconsin corporation, ("Buyer").
Seller, through its Jefferson Electric Division (the "Division"), is
engaged in the business (the "Business") of developing, manufacturing,
selling and distributing various products, including dry type transformers.
The parties hereto desire that MagneTek sell, transfer, convey and assign to
Buyer all of the assets, properties, interests in properties and rights used
in, held for use in or otherwise relating to the Business, and that Buyer
purchase and acquire the same, subject to the assumption by Buyer of certain
liabilities and obligations of Seller relating to the Business, upon the
terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth,
the parties hereto hereby agree as follows:
ARTICLE 1. DEFINITIONS
1.1 Certain Defined Terms. As used in this Asset Purchase Agreement,
the following terms shall have the following meanings such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"Affiliate" has the meaning ascribed to such term in Rule 12b-2
promulgated under the Exchange Act by the SEC as in effect on the date hereof.
"Assets" has the meaning set forth in Section 2.1.
"Assigned Contracts" has the meaning set forth in Section 2.1(f).
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Bill of Sale, Assignment and Assumption Agreement" means a Bill of
Sale, Assignment and Assumption Agreement in substantially the form attached
hereto as Exhibit A.
"Business" has the meaning set forth in the preamble.
"Business Day" means a day other than a Saturday or a Sunday or
other day on which commercial banks in Wisconsin are authorized or required
by law to close.
"Business Employee" means any employee of Seller working
exclusively for the Business on the Closing Date, including any employee on
vacation, illness, or FMLA leave on such date.
"Business Property" has the meaning set forth in Section 4.5 hereto.
"Closing Balance Sheet" has the meaning set forth in Section 2.5.
"Closing Date" means the day on which the Closing occurs pursuant
to Section
<PAGE>
2.4.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Confidential Information" has the meaning set forth in Section 6.7.
"Contract" means any contract, agreement, license, lease, sales or
purchase order or other legally binding commitment, whether written or oral,
to which MagneTek or the Business is a party and relating exclusively to the
Business.
"Contractual Obligation" means, as to Person, any provision or any
note, bond or security issued by such Person or of any mortgage, indenture,
deed or trust, lease, license, franchise, contract, agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property or assets is subject.
"Employee Benefit Arrangements" means each and all pension,
supplemental pension, accidental death and dismemberment, life and health
insurance and benefits (including medical, dental, vision and
hospitalization), short and long-term disability, savings, bonus, deferred
compensation, incentive compensation, holiday, vacation, severance pay,
salary continuation, sick pay, sick leave, tuition refund, service award,
company car, scholarship, relocation, patent award, fringe benefit, flexible
spending account programs and other employee benefit arrangements, plans,
contracts, policies or practices providing employee or executive compensation
or benefits to Business Employees, other than the Employee Benefit Plans.
"Employee Benefit Plans" means each and all "employee benefit
plans," as defined in Section 3(3) of ERISA, maintained or contributed to by
Seller or in which Seller participates or participated and which provides
benefits to Business Employees, including (1) any such plans that are
"employee welfare benefit plans" as defined in Section 3(1) of ERISA and
(ii) any such plans that are "employee pension benefit plans" as defined in
Section 3(2) or ERISA.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource Conservation
and Recovery Act of 1976, as amended, and any other applicable statutes,
regulations, rules, ordinances or codes which relate to the protection of
human health or the environment from the effects of Hazardous Materials.
"Equipment" has the meaning set forth in Section 2.1(c).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations of the SEC
promulgated from time to time thereunder.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.3.
"GAAP" means generally accepted accounting principles in the United
States of America.
<PAGE>
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Hazardous Material" means any substance: (i) which is defined as
a hazardous waste, hazardous substance, pollutant or contaminant under any
Environmental Law; (ii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and
is regulated by any Governmental Authority; or (iii) which contains gasoline,
diesel fuel or other petroleum hydrocarbons.
"Indemnified Person" means, with respect to any Loss, the Person
seeking indemnification hereunder.
"Indemnifying Person" means, with respect to any Loss, the Person
from whom indemnification is being sought hereunder.
"Intellectual Property" has the meaning set forth in Section 2.1(e).
"Inventory" has the meaning set forth in Section 2.1(d).
"Knowledge of Seller" with reference to any of the representations
and warranties of Seller means the actual knowledge of any "officer" of
MagneTek, as such term is defined in 17 C.F.R. 240.16a-1(f), and of any
other employee of Seller who is charged with overall responsibility for a
department of MagneTek, on a company-wide level, to the extent such officer
or employee had, on the date hereof, responsibility for matters that are the
subject of such representation and warranty; provided, however, that, unless
such officer had (a) actual knowledge to the contrary or (b) direct
responsibility at the Jefferson Electric Division for the subject matter
thereof, but to exclude Mike J. Buckna and Thomas Klink and to exclude any
other officer (as defined) of Buyer, such knowledge is based solely upon
information and materials supplied to Seller by personnel of Buyer, deemed
for this purpose to include Mike J. Buckna and Thomas Klink.
"Leased Property" has the meaning set forth in Section 2.1(b).
"Lien" means any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or other security agreement of any
kind or nature whatsoever (including without limitation, any conditional sale
or other title retention agreement or any financing lease having
substantially the same economic effect as any of the foregoing).
"Loss" means any loss, liability, claim, damage or expense
(including reasonable attorneys' fees and disbursements and the costs of
investigation). Loss recoverable hereunder is subject to the limitations set
forth in Section 10.4.
"March Balance Sheet" means the unaudited balance sheet of the
Business as of March 31, 1996, attached hereto as part of Schedule 4.2.
"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, property or condition (financial or other) of the
Business, taken as a whole or (b) the ability of Seller to consummate the
Transactions.
"Permits" has the meaning set forth in Section 2.1(g).
"Person" means an individual, partnership, corporation, business
trust, joint
<PAGE>
stock company, trust, unincorporated association, joint venture, Governmental
Authority or other entity of whatever nature.
"Purchase Note" has the meaning set forth in Section 2.4.
"Purchase Price" has the meaning set forth in Section 2.4.
"Records" has the meaning set forth in Section 2.1(h).
"Required Modification" means, with respect to any product, a
modification, improvement or enhancement which is (a) required by any
Requirement of Law or (b) otherwise necessary or advisable in Seller's sole
discretion to permit Seller to meet any duty or obligation owing by Seller to
remedy defects or hazards in such products or to provide any warning with
respect to any such defects or hazards. Required Modifications may also
include, but shall not be limited to, modifications, improvements or
enhancements necessary to meet industry standards, or to implement design
improvements, or modifications of or supplements to the product's design,
quality, components, safety features, labeling, warnings or instructions.
Required Modification shall in no event mean or include any modification,
improvement or enhancement required by any written warranty covering the
relevant product.
"Requirement of Law" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"SEC" means the Securities and Exchange Commission.
"Seller" has the meaning set forth in the preamble hereto.
"Seller Plans" means each and all Employee Benefit Plans and
Employee Benefit Arrangements sponsored or maintained by Seller under which
any Business Employee participates or is entitled to receive benefits.
"Tax" or "Taxes" means, with respect to any Person, any federal,
state, local or foreign net income, gross income, gross receipts, sales, use,
ad valorem, value-added, capital, unitary, intangible, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
transfer, occupation, premium, property or windfall profit tax, custom, duty
or other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or
additional amount imposed by any jurisdiction or other taxing authority, on
such Person.
"Tax Returns" has the meaning set forth in Section 4.3.
"Transaction Documents" means (i) this Agreement and (ii) the Bill
of Sale, Assignment and Assumption Agreement.
"Transactions" means the transactions contemplated by the
Transaction Documents.
1.2 Other Definitional Provisions.
(a) Terms defined in this Agreement in Sections other than
Section 1.1
<PAGE>
shall have the meanings as so defined when used in this Agreement.
(b) As used herein, accounting terms not defined or to the extent
not defined, shall have the respective meaning given to them under GAAP.
(c) Unless express reference is made to Business Days, references
to days shall be to calendar days.
ARTICLE 2. CLOSING; PURCHASE PRICE ADJUSTMENT
2.1 Sale and Transfer of the Assets. Subject to the terms and
conditions of this Agreement, on the Closing Date Seller will sell, convey,
transfer, assign and deliver to Buyer all of Seller's right, title and
interest in and to the following assets (except the Excluded Assets) of
Seller, to the extent that they are used exclusively in the operations of the
Business, as the same shall exist on the Closing Date (collectively referred
to herein as the "Assets"):
(a) (intentionally left blank)
(b) the leasehold interest used by the Business at 427 East
Stewart Street, Milwaukee, WI 53207 (the "Milwaukee Facility") listed on
Schedule 2.1(b) and the leasehold interest used by the Business at 300 Magnetek
Drive, Brownsville, TX 78521 (the "Brownsville Facility") listed on
Schedule 2.1(b) (the Brownsville Facility, together with the Milwaukee Facility,
called the "Leased Property");
(c) all tangible personal property, including, without limitation,
the fixtures, furnishings, furniture, office supplies, vehicles, rolling
stock, tools, machinery, equipment, computer equipment (including software),
located upon or affixed to or normally located in, at or upon, even if
temporarily removed from, any of the Leased Property (collectively, including
the fixtures, the "Equipment");
(d) all inventory, wherever stored, including without limitation,
raw materials, work-in-process, finished goods, packaging materials, spare
parts and supplies (the "Inventory");
(e) all trademarks, trade names, patents, service marks,
copyrights (whether registered or unregistered) and pending applications for
the foregoing listed on Schedule 2.1(e) and attached hereto (the
"Intellectual Property");
(f) all Contracts (including but not limited to all Contracts
listed on Schedule 4.7 and all Contracts entered into by the Business through
the Closing Date) (the "Assigned Contracts");
(g) all transferable business licenses and permits used
exclusively in or relating exclusively to the Business or the Assets (the
"Permits");
(h) all books and records (other than historical accounting,
financial and Tax records) wherever stored, plans and specifications, surveys
and title policies relating to the Business Property, sales literature,
product information, employment records and files and all other information
and/or data related to or used by Seller exclusively in connection with the
Assets and the operation of the Business and located at either of the Leased
Properties (the "Records");
<PAGE>
(i) all insurance proceeds paid or payable by any insurance
provider, other than Seller or any Affiliate of Seller, for any Asset that is
destroyed or damaged after the date hereof and prior to the Closing;
(j) all accounts receivable;
(k) all prepaid expenses (other than prepaid Taxes), advances and
deposits (including utility deposits);
(l) all telephone, telex and telecopier numbers and all existing
listings in all telephone books and directories;
(m) all warranties and guaranties received from vendors, suppliers
or manufacturers with respect to the Assets or the Business; and
(n) all goodwill appurtenant to the foregoing Assets.
2.2 Assets Not Transferred. Notwithstanding anything herein to the
contrary, the following assets are not included in the Assets and shall be
retained by Seller (the "Excluded Assets"):
(a) all cash and cash equivalent items (except as described in
Section 2.1(i) and (k)) including, without limitation, checking accounts,
bank accounts, certificates of deposit, time deposits, securities, and the
proceeds of accounts receivable, including uncashed checks in payment
thereof, received by Seller on or prior to the Closing Date;
(b) all rights, properties, and assets which have been used or
held for use in connection with the Business and which shall have been
transferred (including transfers by way of sale) or otherwise disposed of
prior to the Closing, provided such transfers and disposals shall have been
in the ordinary course of the business of the Business as conducted at the
date hereof;
(c) rights to or claims for refunds or rebates of Taxes and other
governmental charges for periods ending on or prior to the Closing Date and
the benefit of net operating loss carry-forwards, carrybacks or other credits
of Seller, whether or not attributable to the Business;
(d) claims or rights against third parties not described in
Section 2.1(m), except those arising with respect to events or breaches
occurring after the Closing Date under the Assigned Contracts; provided,
however, that any rights of indemnification, contribution or reimbursement
that may exist under the Assigned Contracts in respect of Excluded Assets or
Excluded Liabilities hereunder shall be Excluded Assets;
(e) except as set forth in Section 2.1(i), all insurance policies
and rights thereunder, including but not limited to, rights to any
cancellation value as of the Closing Date;
(f) proprietary or confidential business or technical information,
records and policies that relate generally to Seller and are not used
exclusively in the Business, including, without limitation, organization
manuals and strategic plans;
(g) subject to the limited rights granted in Section 8.7, all
"MagneTek" marks, including any and all trademarks or service marks, trade
names, slogans or other like property relating to or including the name
"MagneTek," the mark MagneTek or any
<PAGE>
derivative thereof and the MagneTek logo or any derivative thereof,
proprietary computer programs or other software, including but not limited to
Seller's proprietary data bases, accounting and reporting formats, systems
and procedures;
(h) all Records relating to pending lawsuits (other than any
included in the Assumed Liabilities) to which Seller is a party and which
involve the Business; and
(i) all other assets used primarily in connection with Seller's
corporate functions (including but not limited to the corporate charter,
taxpayer and other identification numbers, seals, minute books and stock
transfer books), whether or not used for the benefit of the Business.
2.3 Assumed and Excluded Liabilities. On the Closing Date, Buyer shall
execute and deliver to Seller the Bill of Sale, Assignment and Assumption
Agreement pursuant to which Buyer shall assume and agree to pay, perform and
discharge when due, all the liabilities and obligations of Seller arising out
of the Business, of any kind or nature, whether absolute, contingent, accrued
or otherwise, and whether arising before or after the Closing including,
without limitation, (i) all liabilities for Taxes assumed by Buyer under
Section 2.7, (ii) all liabilities under the Assigned Contracts, (iii) all
liabilities and obligations of Buyer set forth in Article 9 hereof, and (iv)
all liabilities and obligations of Seller, as tenant, under the Leased
Properties (collectively, the "Assumed Liabilities"); provided, however, that
the Assumed Liabilities shall in no event include the following liabilities
(the "Excluded Liabilities"):
(a) any liability in respect of litigation pending or threatened
against Seller in respect of the Business prior to the Closing Date,
provided, that such pending or threatened liability is set forth on Schedule
4.8 hereto;
(b) any liability, responsibility or obligation with respect to
any Seller Plan, except as provided in Article 9, and excluding any Assigned
Contract;
(c) any liability for (i) warranty claims made after the Closing
Date for service, repair, replacement and similar work required under
Seller's written warranties with respect to products sold or services
provided prior to the Closing, the expenses of which, at shop level cost
(direct materials plus labor), in the aggregate exceed the warranty reserve
on the Closing Balance Sheet, (ii) claims under health insurance plans of
Seller for covered Business Employees with respect to services rendered prior
to the Closing Date or (iii) any product liability or tort claims for
injuries, property damage or other Losses, arising prior to the Closing Date
but only if written notice of such claims described in clause (i), (ii) or
(iii) shall have been delivered by Buyer to Seller within the two-year period
following the Closing Date; and
(d) any liability for Taxes for any period ending on or prior to
the Closing Date, excluding the Taxes covered by Section 2.7.
2.4 Closing. The closing (the "Closing") of the purchase and sale of
the Assets shall be held at the offices of Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, S.C., 1000 N. Water Street, Milwaukee, WI 53202 at 10:00
a.m. on August 30, 1996, or if the conditions to Closing set forth in Article
III shall not have been satisfied or waived by such date, subject to Section
11.3, as soon as practicable after such conditions shall have been satisfied
or waived. The date on which the Closing shall occur is hereinafter referred
to as the "Closing Date." At the Closing, Buyer shall deliver to Seller
Buyer's promissory note (the "Purchase Note") in form and substance
acceptable to Seller and shall deliver to Seller
<PAGE>
by wire transfer (to a bank account designated at least two Business Days
prior to the Closing Date in writing by Seller) immediately available funds
in an amount equal to the sum of $2,300,000.00 (Two Million Three Hundred
Thousand and no/100ths Dollars), plus or minus an estimate, if the parties
mutually agree prior to the Closing Date with respect thereto, of any
adjustment to the aggregate purchase price under Section 2.5 (the aggregate
purchase price plus or minus such estimate of any adjustment under Section
2.5 being hereinafter called the "Closing Date Amount," and the aggregate
purchase price, so adjusted, and the Purchase Note, being hereinafter
referred to as the "Purchase Price"), and such other documents as are
required by this Agreement.
At the Closing, Seller shall deliver or cause to be delivered to Buyer
(a) the Bill of Sale, Assignment and Assumption Agreement, (b) a Sublease
Agreement pertaining to the Brownsville Facility, and (c) such other
instruments of transfer and documents as Buyer may reasonably request, and
Buyer shall deliver to Seller (a) the Bill of Sale, Assignment and Assumption
Agreement, (b) a Sublease Agreement pertaining to the Brownsville Facility,
and (c) such other instruments of assumption and documents as Seller may
reasonably request. In addition, Seller shall deliver to Buyer at the
Closing an affidavit in form and substance reasonably satisfactory to Buyer,
duly executed and acknowledged, certifying that Seller is not a foreign
person within the meaning of Section 1445(f)(3) of the Code, and any
corresponding affidavit required for state tax purposes.
2.5 Purchase Price Adjustment.
(a) Within 60 days after the Closing Date, Buyer shall prepare and
deliver to Seller a balance sheet of the Business as of the close of business
on the Closing Date comprising the Assets and the outstanding Assumed
Liabilities (the "Closing Balance Sheet").
During the 30 days immediately following Seller's receipt of
the Closing Balance Sheet, Seller shall be entitled to review the Closing
Balance Sheet and Buyer's working papers relating to the Closing Balance
Sheet, and Buyer shall provide Seller access at all reasonable times to its
personnel, properties, books and records to the extent relevant. The Closing
Balance Sheet shall become final and binding upon the parties on the
thirtieth day following delivery thereof unless Seller gives written notice
to Buyer of its disagreement with the method of presentation of the Closing
Balance Sheet (a "Notice of Disagreement") prior to such date. Any Notice of
Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted. If a timely Notice of Disagreement is received by
Buyer with respect to the Closing Balance Sheet, then the Closing Balance
Sheet (as revised in accordance with clause (x) or (y) below), shall become
final and binding upon the parties on the earlier of (x) the date the parties
hereto resolve in writing any differences they have with respect to any
matter specified in a Notice of Disagreement or (y) the date any matters
properly in dispute are finally resolved in writing by the Accounting Firm
(as defined below). During the 30 days immediately following the delivery of
any Notice of Disagreement, Seller and Buyer shall seek in good faith to
resolve in writing any differences which they may have with respect to any
matter specified in such Notice of Disagreement. During such period, Seller
and Buyer shall each have access to the other party's working papers prepared
in connection with the other party's preparation of a Notice of Disagreement.
At the end of such 30-day period, Seller and Buyer shall submit to an
independent accounting firm (the "Accounting Firm") for review and resolution
any and all matters which remain in dispute and which were properly included
in any Notice of Disagreement, and the Accounting Firm shall reach a final,
binding resolution of all matters which remain in dispute. The Closing
Balance Sheet, with such adjustments necessary to reflect the Accounting
Firm's resolution of the matters in dispute, shall become final and binding
on Buyer and Seller on the date the Accounting Firm delivers its final
resolution to the parties. The Accounting Firm shall be Arthur Anderson LLP,
or if such firm is unable or unwilling to act, such other nationally
<PAGE>
recognized independent public accounting firm as shall be agreed upon by the
parties hereto in writing. The cost of any arbitration (including the fees
and expenses of the Accounting Firm) pursuant to this Section 2.5 shall be
borne 50% by Buyer and 50% by Seller.
(b) The Purchase Price shall be $3.5 million, based upon the March
31, 1996 Balance Sheet (unaudited). This price shall be adjusted up or down,
as set forth in paragraph (a) above, based upon the net increase or decrease
in net worth as shown on the March 31, 1996 Balance Sheet (unaudited), as
compared to the Closing Balance Sheet (unaudited), reflecting on both only
the Assets being purchased and the Assumed Liabilities (the "Purchase Price
Adjustments").
The payment thereof shall occur as follows:
(i) At Closing, $2.3 million by wire transfer, plus or
minus any estimate of any adjustment under Section 2.4 and subsection (a),
above, if such estimate is agreed to by the parties hereto, with such amount
to be adjusted and finally determined as set forth in subsection (a), above,
after the final Closing Balance Sheet has been determined and the final
amount due at Closing is determined. Interest on the principal amount of the
cash portion of the Purchase Price not paid at Closing shall be calculated
from and after the Closing Date and paid pursuant to any resolution of a
Notice of Disagreement. Interest shall be calculated at an annual rate based
upon the prime rate of interest announced by Firstar Bank Milwaukee, N.A., on
the Closing Date for the period from the Closing Date to the date of payment,
fluctuating with changes as announced in said rate, computed on the basis of
a 360-day year and actual days elapsed. Payment shall be made by the Buyer
to the Seller, or by the Seller to the Buyer, as the case may be, with
accrued interest as aforesaid, in immediately available funds, as to amounts
owing pursuant to the Purchase Price Adjustments not later than 3 Business
Days following the 30 days during which Seller may review the Closing Balance
Sheet, if no Notice of Disagreement is given by Seller to Buyer, and if a
Notice of Disagreement is given by Seller to Buyer, within 3 Business Days of
final resolution thereof.
(ii) At Closing, the Purchase Note for the balance, being in
the amount of $1,200,000.
(c) The Closing Balance Sheet shall be prepared in accordance with
GAAP, except as set forth in Schedule 4.6, and applied in a manner consistent
with that followed in the preparation of the Financial Statements (as defined
in Section 4.6).
(d) Buyer agrees, with respect to Purchase Price Adjustments, that
following the Closing, Buyer will not take any actions with respect to the
accounting books, records, policies and procedures of the Business on which
the Closing Balance Sheet is to be based that are not consistent with GAAP
applied in the manner consistent with the past practices of the Business.
(e) Notwithstanding the foregoing provisions of this Section 2.5,
no adjustment to the Purchase Price pursuant to this Section 2.5 shall be
made unless such adjustment would exceed $50,000, and if such adjustment
would exceed $50,000 than the full amount of such adjustment shall be made.
The estimated adjustment paid on the Closing Date, if any, shall be taken
into account to determine whether such threshold is met.
2.6 Tax Allocation. Buyer and Seller shall allocate the Purchase Price
plus the Assumed Liabilities (to the extent identifiable or reasonably
estimable as of the date hereof) to broad categories constituting components
of the Assets and the covenant not to compete contained in Section 6.6 hereof
in accordance with Schedule 2.6 (as the same may be
<PAGE>
updated as of the Closing to reflect changes in the Assets or Assumed
Liabilities occurring after the date thereof and prior to the Closing Date).
Buyer and Seller shall report the purchase and sale of the Assets in
accordance with the agreed upon allocation among such broad categories for
all Tax purposes (including the filing of the forms prescribed under Section
1060 of the Code and the Treasury Regulations promuLgated thereunder), but
such allocation shall not constrain reporting for other purposes.
2.7 Sales and Use Tax. Buyer and Seller shall cooperate in preparing,
executing and filing use and sales Tax returns relating to, and at the
Closing, Buyer and Seller each shall pay one-half, of any and all sales, real
estate, transfer or use Tax due with regard to, the purchase and sale of the
Assets. To the extent such Taxes cannot be accurately computed at the
Closing, the parties shall each pay their respective one-half of such Taxes
when they are due. Such Tax Returns shall be prepared in a manner that is
consistent with the allocation of the Purchase Price and Assumed Liabilities
contemplated by Section 2.6. Buyer shall also furnish Seller with a form of
resale certificate that complies with the requirements of the Wisconsin
Statutes and other applicable state taxation laws.
ARTICLE 3. CONDITIONS TO CLOSING
3.1 Buyer's Obligation. The obligations of Buyer to purchase and pay
for the Assets are subject to the satisfaction (or waiver by Buyer) as of the
Closing of the following conditions:
(a) The representations and warranties of Seller made in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as specifically contemplated by this Agreement, on and as
of the Closing, as though made on and as of the Closing Date, and Seller
shall have performed or complied in all material respects with all
obligations and covenants required by this Agreement to be performed or
complied with by Seller by the time of the Closing; and Seller shall have
delivered to Buyer a certificate dated the Closing Date and signed by an
authorized officer of Seller confirming the foregoing.
(b) Buyer shall have received an opinion dated the Closing Date of
Baker, Donelson, Bearman & Caldwell, Counsel to Seller, as to the matters set
forth in Exhibit B, and an opinion dated the Closing Date of Samuel A. Miley,
Esq., General Counsel of Seller, as to the matters set forth in Exhibit C,
which opinions shall be reasonably satisfactory in form to Buyer.
(c) No injunction or order shall have been granted by any court or
administrative agency or instrumentality of competent jurisdiction that would
restrain or prohibit any of the Transactions or that would impose damages as
a result thereof, and no action or proceeding shall be pending before any
court or administrative agency or instrumentality of competent jurisdiction
in which any Person seeks such a remedy (if in the opinion of counsel to
Buyer there exists a reasonable risk of a materially adverse result in such
pending action or proceeding).
3.2 Seller's Obligation. The obligation of Seller to sell and deliver
the Assets to Buyer is subject to the satisfaction (or waiver by Seller) as
of the Closing of the following conditions:
(a) The representations and warranties of Buyer made in this
Agreement shall be true and correct in all material respects as of the date
hereof and on and as of the Closing, as though made on and as of the Closing
Date, and Buyer shall have performed or
<PAGE>
complied in all material respects with all obligations and covenants required
by this Agreement to be performed or complied with by Buyer by the time of
the Closing; and Buyer shall have delivered to Seller a certificate dated the
Closing Date and signed by an authorized officer of Buyer confirming the
foregoing.
(b) Seller shall have received an opinion dated as of the Closing
Date of Schober & Radtke S.C., counsel to Buyer, as to the matters set forth
in Exhibit D, which opinion shall be reasonably satisfactory in form to
Seller.
(c) No injunction or order shall have been granted by any court or
administrative agency or instrumentality of competent jurisdiction that would
restrain or prohibit the Transactions or that would impose damages as a
result thereof, and no action or proceeding shall be pending before any court
or administrative agency or instrumentality of competent jurisdiction in
which any person seeks such a remedy (if in the opinion of counsel to Seller
there exists a reasonable risk of a materially adverse result in such pending
action or proceeding).
(d) Seller shall have received from Buyer insurance certificates
in compliance with Section 7.5 and evidence confirming the establishment of
Buyer's Benefit Plans in compliance with Section 9.2.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
4.1 Authority; Corporate Matters; No Conflicts; Governmental Consents.
(a) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Seller has all
requisite corporate power and authority to enter into the Transaction
Documents and to consummate the Transactions. All corporate acts and other
proceedings required to be taken by Seller to authorize the execution,
delivery and performance of the Transaction Documents and the consummation of
the Transactions have been duly and properly taken. This Agreement has been,
and the Transaction Documents, when executed, will be, duly executed and
delivered by Seller and constitutes a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) Schedule 4.1(b) sets forth a true and complete list of all
jurisdictions in which the Business engages in the regular, systematic
solicitation of orders, maintains any sales offices or sales staff or other
physical presence or derives any material revenues.
(c) The execution and delivery of this Agreement does not and of
the other Transaction Documents will not, and the consummation of the
Transactions and compliance with the terms of the Transaction Documents will
not conflict with, or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
benefit under, or result in the creation of any Lien upon any of the
properties or assets of Seller under, any provision of (i) the Certificate of
Incorporation or By-Laws of Seller, (ii) subject to the matters disclosed in
Schedule 4.1(c), any Contractual Obligation of Seller or (iii) any judgment,
order or decree or, subject to the matters described in clauses (A)-(D)
below,
<PAGE>
Requirement of Law applicable to Seller or its property or assets, other
than, in the case of clauses (ii) and (iii) above, any such conflicts,
violations, defaults, rights or Liens that, individually or in the aggregate,
would not have a Material Adverse Effect. No consent, approval, license,
permit, order or authorization of, or registration, declaration or filing
with, any Governmental Authority is required to be obtained or made by or
with respect to Seller in connection with the execution and delivery of the
Transaction Documents or the consummation of the Transactions contemplated
hereby, other than (A) compliance with and filings under Section 13(a) or
15(d), as the case may be, of the Exchange Act, (B) compliance with and
filings and notifications under applicable Environmental Laws, (C) those that
may be required solely by reason of Buyer's participation in the transactions
contemplated hereby, (D) those that, if not made or obtained, individually or
in the aggregate, would not have a Material Adverse Effect.
4.2 Financial Statements; Absence of Changes. To the Knowledge of
Seller,
(a) Schedule 4.2 contains a true and complete copy of the
unaudited balance sheet of the Business as at March 31, 1996, and the related
unaudited statements of income and retained earnings and cash flows for the
period then ended.
The financial statements described in the foregoing clause are referred
to herein as the "Financial Statements." Except as set forth on Schedule
4.2, the Financial Statements: (A) were prepared in accordance with the
books and records of the Business, (B) fairly present the financial position
of the Business in each case at and as of the dates indicated, and the
results of operations, retained earnings and cash flows of the Business for
the periods indicated and (C) except as otherwise set forth on Schedule 4.2,
were prepared in accordance with GAAP consistently applied throughout the
periods covered thereby (subject to the absence of notes and to normal
year-end adjustments).
(b) Absence of Changes. Except as set forth on Schedule 4.2,
since the March Balance Sheet Date the Business has been operated in the
ordinary course and consistent with past practice, and there have not been
any:
(i) material adverse changes in the assets (including,
without limitation, levels of working capital and the material components
thereof), liabilities, earnings or financial condition of the Business;
(ii) occurrences resulting in the damage, destruction or
loss (whether or not covered by insurance) affecting any tangible asset or
property of the Business in excess of $50,000 in the aggregate;
(iii) material increases in, or changes in the method of
computing, the compensation of Business Employees (including, without
limitation, increases pursuant to or change in method under any bonus,
pension, profit sharing, deferred compensation arrangement or other plan or
commitment), or increase in compensation payable to any officer, employee,
consultant or agent of MagneTek employed in the Business, or entering into of
any employment contract with or making of any loan to, or engagement in any
transaction with, any officer or employee of MagneTek employed in the
Business, in each case other than in the ordinary course of the business of
the Business and consistent with past practice;
(iv) material changes in the manner in which the Business
extends discounts or credits to customers or otherwise deals with customers;
(v) changes in the accounting methods or practices followed
by or
<PAGE>
with respect to the Business, or any changes in depreciation or amortization
policies or rates theretofore adopted;
(vi) agreements or commitments to merge or consolidate with
or otherwise acquire any other Person, or any part or division thereof;
(vii) cancellation or termination of any insurance policy
maintained by or with respect to the Business;
(viii) material incurrence of indebtedness for borrowed money;
(ix) other material transactions relating to the Business,
other than in the ordinary course of the Business and consistent with past
practice; or
(x) agreements or understandings, whether in writing or
otherwise, for Seller to take any of the actions specified in items (i)
through (ix) above.
4.3 Taxes.
(a) Except as disclosed on Schedule 4.3, Seller, and any
affiliated group within the meaning of Section 1504 of the Code, of which
Seller is or has been a member (the "Affiliated Group," but only for the
taxable period during which Seller has been a member thereof), have filed or
caused to be filed in a timely manner (within any applicable extension
periods) with the appropriate Governmental Authority: (i) all Tax returns,
reports and forms (collectively, "Tax Returns") required to be filed by the
Code or by applicable laws, (ii) all Taxes shown on such Tax Returns have
been timely paid in full by the due date thereof, (iii) no Tax Liens or
assessments have been filed by any Tax authority against any property or
assets of the Business and (iv) no claims are being asserted in writing with
respect to any Taxes relating to the Business.
(b) Except as set forth in Schedule 4.3, (i) none of the Assets
comprises "tax exempt use property" within the meaning of Section 168(h) of
the Code and (ii) the Assigned Contracts do not include any lease made
pursuant to former Section 168(f)(8) of the Internal Revenue Code of 1954.
(c) Seller is not a "foreign person" within the meaning of Section
1445(f)(3) of the Code.
4.4 Assets Other than Real Property Interests. Seller has good and
valid title to all assets reflected on the March Balance Sheet or thereafter
acquired, except those sold or otherwise disposed of since the date of such
March Balance Sheet in the ordinary course of business consistent with past
practice, in each case free and clear of all Liens except: (a) such as are
disclosed on Schedule 4.4 and (b) mechanics', carriers', workmen's,
repairmen's or other like Liens arising or incurred in the ordinary course of
business, Liens arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into in the
ordinary course of business, Liens for Taxes and other governmental charges
which are not due and payable or which may thereafter be paid without
penalty, and other imperfections of title, restrictions or encumbrances, if
any, which Liens, imperfections of title, restrictions or other encumbrances
do not,individually or in the aggregate, materially impair the continued use
and operation of the specific assets to which they relate (the Liens
described in the preceding clause (b) are hereinafter referred to
collectively as "Permitted Liens").
This Section 4.4 does not relate to real property or interests in real
property, such
<PAGE>
items being the subject of Section 4.5.
]XG Real Property. Schedule 4.5 sets forth a complete list of Leased
Properties and identifies any leases relating thereto (sometimes referred to
herein individually as a "Business Property").
4.6 Intellectual Property. Schedule 4.6 sets forth a list of all
Intellectual Property used in the Business (excluding any such Intellectual
Property that is included in Excluded Assets). With respect to registered
trademarks, Schedule 4.6 contains a list of all jurisdictions in which such
trademarks are registered or applied for and all registration and application
numbers. Except as disclosed on Schedule 4.6, to the Knowledge of Seller,
Seller owns or has the right to use, without payment to any other party, the
Intellectual Property listed on such Schedule 4.6. Except as set forth on
Schedule 4.8, no claims are pending or, to the Knowledge of Seller,
threatened against Seller by any person with respect to the ownership,
validity, enforceability or use of any Intellectual Property listed on
Schedule 4.6 or otherwise challenging or questioning the validity or
effectiveness of any such Intellectual Property.
4.7 Contracts. Schedule 4.7 sets forth a list of each of the following
types of Contracts to which the Business is a party or to which MagneTek is a
party and which relate primarily to the Business:
(a) any employment or severance agreement that has an aggregate
future liability in excess of $100,000 and is not terminable by notice of not
more than 60 days for a cost of less than $50,000;
(b) any employee collective bargaining agreement or other contract
with any labor union covering Business Employees;
(c) to the Knowledge of Seller, any Contract pursuant to which the
aggregate of payments to become due from or to Seller is equal to or exceeds
$20,000, and which is not terminable by no more than 60 days' notice for a
cost of less than $10,000;
(d) any lease or similar agreement under which Seller is a lessor
or sublessor of, or makes available for use by any third party (including
another division of Seller), any Business Property or premises otherwise
occupied by the Business;
(e) any distributor, dealer, sales, advertising, agency,
manufacturer's representative, franchise or similar Contract or any other
contract requiring the payment of any commissions in excess of $50,000 per
year;
(f) any indenture, mortgage, promissory note, loan agreement or
other agreement or commitment for the borrowing of money, for a line of
credit or for any leasing transaction of a type required to be capitalized in
accordance with Statement of Financial Accounting Standards No. 13 issued by
the Financial Accounting Standards Board;
(g) any option or other agreement to purchase or otherwise acquire
or sell or otherwise dispose of any interest in real property;
(h) any guaranty of the obligations of third parties;
(i) any agreement which restricts the Business from conducting its
business anywhere in the world;
<PAGE>
(j) any agreement under which it has agreed to indemnify any third
party with respect to, or to share, the Tax liability of any third party; or
(k) any other agreement or contract which is material to the
Business, the Assets or Assumed Liabilities, other than this Agreement and
the Transaction Documents.
Except as disclosed on Schedule 4.7, each Contract listed on Schedule
4.7 is valid, binding and in full force and effect and is enforceable by
Seller in accordance with its terms. Except as disclosed in Schedule 4.7, to
the Knowledge of Seller, Seller has performed all material obligations
required to be performed by it to date under the Contracts and is not (with
or without the lapse of time of the giving of notice, or both) in breach or
default in any material respect thereunder and, to the Knowledge of Seller,
no other party to any of the Contracts is (with or without the lapse of time
or the giving of notice, or both) in breach or default in any material
respect thereunder.
4.8 Litigation; Decrees. Schedule 4.8 sets forth a list, as of the
date of this Agreement, of all pending and, to the Knowledge of Seller,
threatened lawsuits or claims with respect to which Seller has contacted in
writing the defendant or been contacted in writing by the claimant or by
counsel for the claimant by or against Seller relating to the Business which
(a) involves a claim by or against Seller of more than $50,000, (b) seeks any
injunctive relief or (c) relates to the Transactions. To the Knowledge of
Seller, except as disclosed on Schedule 4.8, Seller is not in default under
any judgment, order or decree of any court, administrative agency or
commission or other Governmental Authority applicable to the Business, except
where the default would not have a Material Adverse Effect.
4.9 Employee and Related Matters. Schedule 4.9 sets forth each
material Seller Plan. Seller has made available to Buyer true, complete and
correct copies of (i) each material Seller Plan (or, in the case of any
unwritten material Seller Plans, descriptions thereof) and (ii) the most
recent summary plan description for each material Seller Plan for which such
a summary plan description is required.
4.10 Environmental Matters. Except as previously disclosed in writing
by Seller to Buyer, to the Knowledge of Seller, as to the Business and the
Business Property:
(a) Seller is not in material violation of any applicable
Environmental Law nor is Seller under investigation or review by any
Governmental Authority with respect to compliance therewith, or with respect
to the generation, use, treatment, storage or disposal, or the spillage or
other release of any Hazardous Material;
(b) There is no Hazardous Material that is likely to pose any
material risk to safety, health or the environment, and there has heretofore
been no spillage, discharge, release or disposal of any such Hazardous
Material on or under the Business Property in an amount and of a nature which
could reasonably be expected to result in material liability to the Business;
and
(c) There are no pending citations, fines, penalties or claims
have been asserted against Seller under any Environmental Law which could
reasonably be expected to have a Material Adverse Effect and which have not
been reflected in the March Balance Sheet.
4.11 Employee and Labor Relations. Except as set forth on Schedule 4.11:
(a) there is no labor strike, dispute, or work stoppage or lockout
pending, or, to the Knowledge of Seller, threatened, involving the Business;
<PAGE>
(b) to the Knowledge of Seller, no union organization campaign is
in progress with respect to the employees of the Business, and no question
concerning representation exists respecting such employees;
(c) there is no unfair labor practice charge or complaint against
Seller pending, or, to the Knowledge of Seller, threatened, before the
National Labor Relations Board involving the Business;
(d) there is no pending, or, to the Knowledge of Seller,
threatened, grievance involving an employee of the Business that, if
adversely decided, would have a Material Adverse Effect; and
(e) no charges with respect to or relating to Seller is pending
before the Equal Employment Opportunity Commission or any other Governmental
Authority responsible for the prevention of unlawful employment practices as
to which there is a reasonable likelihood of adverse determination involving
the Business, other than those which, if so determined would not have a
Material Adverse Effect.
4.12 Assets of the Business. Except for any Assets that may not be
transferred to Buyer pursuant to Section 2.2 or Section 8.1, the Assets and
the rights conferred by the Transaction Documents comprise all the properties
and assets used by Seller exclusively in the operation of the Business as
conducted on the date hereof. EXCEPT AS EXPRESSLY PROVIDED HEREIN, SELLER
MAKES NO REPRESENTATION OR WARRANTY CONCERNING THE ASSETS OR THE BUSINESS,
INCLUDING AS TO THE QUALITY, CONDITION, MERCHANTABILITY, SALABILITY,
OBSOLESCENCE, WORKING ORDER OR FITNESS FOR A PARTICULAR PURPOSE THEREOF.
EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE ASSETS ARE SOLD TO BUYER "AS IS AND
WHERE IS."
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
5.1 Authority; No Conflicts; Governmental Consents.
(a) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wisconsin. Buyer has all
requisite corporate power and authority to enter into the Transaction
Documents and to consummate the Transactions. All corporate acts and other
proceedings required to be taken by Buyer to authorize the execution,
delivery and performance of the Transaction Documents and the Transactions
have been duly and properly taken. This Agreement has been, and the
Transaction Documents, when executed, will be, duly executed and delivered by
Buyer and constitute valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or law).
(b) Except as disclosed on Schedule 5.1(b), the execution and
delivery of this Agreement does not and of the other Transaction Documents
will not, and the consummation of the Transactions and compliance with the
terms of the Transaction Documents will not, conflict with, or result in any
violation of or default (with or without
<PAGE>
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of the Buyer under, any provision of (i) the Certificate
of Incorporation or By-Laws of Buyer, (ii) any Contractual Obligation of
Buyer or (iii) any judgment, order or decree or, subject to the matters
described in clauses (A)-(D) below, statute, law, ordinance, rule or
regulation applicable to Buyer or its property or assets. No material
consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other Governmental Authority is required to be obtained or made
by or with respect to Buyer or its Affiliates in connection with the
execution and delivery of the Transaction Documents or the consummation by
Buyer of the Transactions, other than (A) compliance with and filings under
Section 13(a) and l5(d), as the case may be, of the Exchange Act, (B)
compliance with and filings and notifications under applicable state
environmental laws, and (C) those that may be required solely by reason of
Seller's (as opposed to any other third party's) participation in the
transactions contemplated hereby.
5.2 Actions and Proceedings, etc. There are no: (a) outstanding
judgments, orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against Buyer or (b) actions, suits, claims or
legal, administrative or arbitration proceedings or investigations pending
or, to the knowledge of Buyer, threatened against Buyer.
5.3 Buyer's Acknowledgment. Buyer acknowledges and agrees that, (a)
other than the representations and warranties of Seller specifically
contained in this Agreement, there are no representations or warranties of
Seller either expressed or implied with respect to such Seller, the Business
or the Transactions and (b) it shall have a right to indemnification solely
as provided in Article 10 hereof and shall have no claim or right to
indemnification with respect to any information, documents or materials
furnished by either Seller or any of its officers, directors, employees,
agents or advisors, or otherwise available to Buyer.
5.4 No Knowledge of Seller's Breach. Neither Buyer nor, to the
knowledge of Buyer, any of its Affiliates, has knowledge of any breach of any
representation or warranty by Seller or of any other condition or
circumstance that would excuse Buyer from its timely performance of its
obligations hereunder. If any information relevant to the representations
and warranties of Seller under this Agreement shall come to Buyer's attention
on or before the Closing on the Closing Date (whether through Seller or
otherwise), then for the purposes of Seller's liability under such
representations and warranties the effect shall be as if the representations
and warranties were so modified in this Agreement, and no claim for
indemnification maybe made under Article 10 hereof to the extent such claim
would not arise under such modified representation or warranty.
5.5 Exon-Florio. Buyer is not a "foreign person" for purposes of
Exon-Florio Amendment to the Defense Production Act of 1950.
ARTICLE 6. COVENANTS OF SELLER
Seller covenants and agrees as follows:
6.1 Access. Subject to the provisions of Section 7.1 hereof, prior to
the Closing, Seller will give Buyer and its representatives, employees,
counsel and accountants, together with representatives of Persons providing
financing to Buyer for the Transactions, with reasonable access, during
normal business hours and upon reasonable notice, to the personnel,
properties, books and records of the Business for purposes of investigating
its assets, operations, prospects, obligations and liabilities; provided,
however, that such access
<PAGE>
does not unreasonably disrupt the normal operations of the Business.
Additionally, subject to the provisions of Section 7.1 hereof and to prior
notification and the consent (which will not be unreasonably withheld or
delayed) of Buyer, Buyer and such representatives may contact the principal
customers and suppliers of the Business for purposes of the foregoing
investigation.
6.2 Ordinary Conduct. Except as contemplated by this Agreement or as
set forth in Schedule 6.2, from the date hereof to the Closing, Seller agrees
to cause the business of the Business to be conducted in the ordinary course
in substantially the same manner as presently conducted and will make all
reasonable efforts, consistent with past practices, to preserve relationships
with customers, suppliers and others with whom the Business deals. Except as
contemplated by this Agreement, Seller will not, without the prior written
consent of Buyer, which consent will not be unreasonably withheld or delayed,
take any action which would cause the representations and warranties of
Seller herein to be untrue in any material respect.
6.3 Insurance. Seller shall keep, or cause to be kept, all insurance
policies presently maintained relating to the Business and its properties, or
replacements therefor, in full force and effect through the close of business
on the Closing Date. Buyer will not have any rights under any such insurance
policies from and after the Closing Date, other than as afforded pursuant to
Section 2.1(i).
6.4 Acquisition Proposals. From and after the date hereof until the
termination hereof, without the written consent of Buyer, Seller shall not:
(i) solicit or initiate discussions with any Person, other than the Buyer,
its Affiliates and their respective designees and agents, relating to the
possible acquisition, whether by way of merger, reorganization, purchase of
capital stock, purchase of assets or otherwise (any such acquisition being
referred to in this section as an "Acquisition Transaction"), of any material
interest in the Business or any material Asset, (ii) provide Confidential
Information with respect to the Business or any material Asset to any Person,
other than Buyer, its Affiliates and their respective designees and agents,
in connection with a possible Acquisition Transaction or (iii) enter into a
transaction with any Person, other than Buyer, its Affiliates and their
respective designees and agents, concerning a possible Acquisition
Transaction.
6.5 Accounts Receivable. Seller agrees within 15 days of receipt of
any accounts receivable of Buyer to forward to Buyer any and all proceeds
from such accounts receivable of the Business that are received by Seller
after the Closing Date. If, after the Closing Date, Seller receives any
payment from any Person who at the time of such payment has outstanding
accounts payable to Seller, on the one hand (for the purposes of this
Section, "Seller Accounts Receivable"), and to the Buyer, on the other hand
(for the purposes of this Section, "Buyer Accounts Receivable"), and the
payment (a) does not indicate whether it is in respect of Seller Accounts
Receivable or Buyer Accounts Receivable or (b) indicates that it is in
payment of both Seller Accounts Receivable and Buyer Accounts Receivable
without specifying the portion to be allocated to each, then Seller and Buyer
shall consult with one another to determine the proper allocation of such
payment; and, if they are unable to reach agreement on the proper allocation,
such payment shall be applied so as to retire Seller Accounts Receivable and
Buyer Accounts Receivable in chronological order based upon the period of
time such accounts receivable have existed on the books of Seller or Buyer,
as the case may be.
6.6 Covenant Not to Compete.
(a) Subject to the terms, conditions and exceptions of this
Section 6.6, Seller hereby covenants and agrees that neither it nor any
Affiliate controlled by it (a "Seller
<PAGE>
Affiliate"), for a period of time ending on the earlier of (i) that day when
there is a default by Buyer under the Purchase Note; and (ii) five (5) years
from and after the Closing Date, will engage, directly or indirectly, whether
as a principal, consultant, investor, or otherwise, in a business which is
competitive with the Business as now being operated. Notwithstanding anything
to the contrary in this Section 6.6, the acquisition by Seller of (i) any
Person less than 10% of the gross revenues of which are derived from a
business competitive with the Business as presently operated (a "Competitive
Business"); or (ii) no more than 5% of any class of securities of any Person,
if such securities are traded in any public market, or 15% of any class of
privately held securities of any Person, in a Competitive Business, shall not
constitute a breach of this Section 6.6. The restrictive covenant in this
Section 6.6(a) shall apply to, and shall be limited to, the United States.
(b) Seller agrees that, in connection with the purchase by Buyer
of the Business, the time and geographic restrictions set forth above are
reasonable. Seller agrees that the remedy at law for any breach by it of this
Section 6.6 will be inadequate and the Buyer shall be entitled to injunctive
relief. The parties intend that the unenforceability or invalidity of any
term or provision of this Section 6.6 shall not render any other term or
provision contained herein unenforceable or invalid. If the activities
described in this Section 6.6 or the term of time or the geographical area
covered by this Section 6.6 should be deemed too extensive, then the parties
intend that this Section 6.6 be construed to cover the maximum scope of
business activities, period of time and geographical area (not exceeding
those specifically set forth herein) as may be permissible under applicable
law.
6.7 Seller Financing. At Closing, Seller will accept the Purchase Note
of Buyer, in form and substance acceptable to Seller, and subject to Buyer's
compliance with all other terms hereof.
6.8 Supply Contracts. Provided Buyer is not in default under the
Purchase Note, Seller shall make what it deems to be commercially reasonable
efforts to introduce Buyer's representatives to Seller's copper, aluminum,
and lamination steel vendors in an attempt to permit Buyer access to the same
material and at comparable prices as Seller. Seller's obligation pursuant to
this Section 6.8 will terminate six months from the Closing Date.
6.9 Product Support. Provided Buyer is not in default under the
Purchase Note, Seller will allow Buyer the use of Seller's "800" telephone
number for product support and will forward all inquiries to Buyer. Seller's
obligation pursuant to this Section 6.9 will terminate one year from the
Closing Date.
ARTICLE 7. COVENANTS OF BUYER
Buyer covenants and agrees as follows:
7.1 Confidentiality. Buyer acknowledges that the information being
provided to it by Seller is subject to the terms of a confidentiality
agreement between Buyer and Seller (the "Confidentiality Agreement"), the
terms of which are incorporated herein by reference. Effective upon, and only
upon, the Closing, the Confidentiality Agreement will terminate; provided,
however, that Buyer acknowledges that the Confidentiality Agreement will
terminate only with respect to information relating solely to the Business;
and provided, further, however, that Buyer acknowledges that any and all
other information provided to it by Seller or Seller's representatives
concerning Seller shall remain subject to the terms and conditions of the
Confidentiality Agreement after the date of the Closing.
7.2 Accounts Receivable. Buyer agrees within 15 days of receipt of any
accounts
<PAGE>
receivable of Seller to forward or cause to be forwarded to Seller any and
all proceeds from such accounts receivable of Seller that are received by
Buyer after the Closing Date. If, after the Closing Date, Buyer receives any
payment from any person who at the time of such payment has outstanding
accounts payable to Seller, on the one hand (for the purposes of this
Section, "Seller Accounts Receivable"), and to Buyer, on the other hand (for
the purposes of this Section, "Buyer Accounts Receivable"), and the payment
(a) does not indicate whether it is in respect of Seller Accounts Receivable
or Buyers Accounts Receivable or (b) indicates that it is in payment of both
Seller Accounts Receivable and Buyer Accounts Receivable without specifying
the portion to be allocated to each, then Seller and Buyer shall consult with
one another to determine the proper allocation of such payment; and, if they
are unable to reach agreement on the proper allocation, such payment shall be
applied so as to retire Seller Accounts Receivable and Buyer Accounts
Receivable in chronological order based upon the period of time such accounts
receivable have existed on the books of Seller or Buyer, as the case may be.
7.3 Waiver of Bulk Sales Law Compliance. Buyer hereby waives
compliance by Seller with the requirements, if any, of Article 6 of the
Uniform Commercial Code as in force in any state in which Assets are located
and all other similar Requirements of Law applicable to bulk sales and
transfers, to the extent applicable to the Transactions.
7.4 Excluded Assets. If, after the Closing Date, Excluded Assets shall
remain on the premises utilized or controlled by Buyer, then Buyer shall take
reasonable steps at the expense of Seller to deliver such Excluded Assets to
such Seller, and so long as such assets remain in Buyer's control, shall
exercise reasonable care with respect thereto, and in no event less care than
with respect to its own properties.
7.5 Insurance. Buyer shall secure insurance with respect to the
Business from the Closing Date covering general liability and products
liability in amounts customary for the industry in which the Business
operates.
7.6 Board of Directors. Buyer shall take all actions necessary to
cause the Board of Directors of Buyer to include one (1) person as a
representative of the Seller, to be designated by Seller, and approved by
Buyer, for so long as the Purchase Note is outstanding. John P. Colling has
been designated by Seller as such person and is acceptable to Buyer. Any
person other than Colling is subject to the approval of the Board of
Directors of Buyer, which approval shall not be unreasonably withheld.
Buyer, at the Closing, shall deliver agreements from each of the shareholders
of Buyer, duly executed by each such shareholder, to this effect, in form and
substance satisfactory to Seller.
ARTICLE 8. MUTUAL COVENANTS
Each of Seller and Buyer covenant and agree as follows:
8.1 Permits and Consents.
(a) As promptly as practicable after the date hereof, Buyer and
Seller shall make all filings with governmental bodies and other regulatory
authorities, if any, and use all reasonable efforts to obtain all permits,
approvals, authorizations and consents of all third parties, required to
consummate the Transactions. Buyer and Seller shall furnish promptly to each
other all information that is not otherwise available to the other party and
that such party may reasonably request in connection with any such filing.
Buyer and Seller shall use reasonable efforts to obtain such consents to the
assignment of the Assigned Contracts as may be required. Buyer acknowledges
that consents to the Transactions may be required
<PAGE>
from parties to the Assigned Contracts, that such consents have not been
obtained and that, notwithstanding any other provision hereof, Seller will
not assign to Buyer at the Closing any Assigned Contract that by its terms
requires, prior to such assignment, the consent of any other contracting
party thereto unless such consent has been obtained prior to the Closing Date.
(b) Buyer agrees that Seller shall have no liability whatsoever to
Buyer arising out of or relating to the failure to obtain any consents to the
assignment of Contracts that may be required in connection with the
Transactions or because of the default, acceleration or termination of any
Assigned Contract as a result thereof. Buyer further agrees that no
representation, warranty or covenant of Seller contained herein shall be
breached or deemed breached, and no condition shall be deemed not satisfied,
as a result of (i) the failure to obtain any such consent or as a result of
any such acceleration or termination or (ii) any lawsuit, action, claim,
proceeding or investigation commenced or threatened by or on behalf of any
Person arising out of or relating to the failure to obtain any such consent
or any such acceleration or termination. Seller shall cooperate with Buyer
in any reasonable manner in connection with Buyer obtaining any such
consents; provided, however, that such cooperation shall not include any
requirement that Seller commence any litigation or offer or grant
accommodation (financial or otherwise) to any third party. The Purchase
Price shall not be subject to adjustment by reason of any such consents that
are not obtained.
(c) With respect to each such Assigned Contract not assigned on
the Closing Date, after the Closing Date Seller shall continue to deal with
the other contracting party(ies) to such Assigned Contract as the prime
contracting party, and Buyer and such Seller shall continue to use reasonable
efforts to obtain the consent of all required parties to the assignment of
such Assigned Contract. Such Assigned Contract shall be promptly assigned by
Seller to Buyer after receipt of such consent after the Closing Date.
Notwithstanding the absence of any such consent, Buyer shall be entitled to
the benefits of such Assigned Contract accruing after the Closing Date to the
extent that Seller may provide Buyer with such benefits without violating the
terms of such contract; and to the extent such benefits are so provided,
Buyer agrees to perform at its sole expense all of the obligations of Seller
to be performed under such Assigned Contract after the Closing Date.
8.2 Cooperation. Buyer and Seller shall cooperate with each other and
shall cause their officers, employees, agents, auditors and representatives
to cooperate with each other after the Closing to ensure the orderly
transition of the Business to Buyer and to minimize any disruption to the
respective businesses of Seller or the Business that might result from the
Transactions. Neither party shall be required by this Section 8.2 to take
any action that would unreasonably interfere with the conduct of its business.
8.3 Publicity. Seller and Buyer agree that, from the date hereof
through the Closing Date and thereafter for 90 days, no public release or
announcement concerning the Transactions shall be issued without the prior
delivery of such release or announcement to the other party, including any
release or announcement which may be required by or pursuant to any
Requirement of Law. The party making the release or announcement shall allow
the other party reasonable time to comment on such release or announcement in
advance of such issuance.
8.4 Reasonable Efforts; Further Assurances. Subject to the terms and
conditions of this Agreement (including the limitations set forth in Section
8.1), each party will use all reasonable efforts to cause the Closing to
occur, and, following the Closing, each party, from time to time, shall
execute and deliver such additional instruments, documents, conveyances, or
assurances, and take such other actions as shall be necessary, or otherwise
reasonably
<PAGE>
requested by the other party, to confirm and assure the rights and
obligations provided for in this Agreement and in any other Transaction
Document and render effective the consummation of the Transactions.
8.5 Records. On the Closing Date, Seller shall deliver or cause to be
delivered to Buyer all Records and materials that would be Records if located
at a Business Property which are material to and used exclusively in the
Business (to the extent not then in the possession of the Business), except
any Records relating to Excluded Liabilities (including, without limitation,
to Seller's Tax liability or to any litigation or claim not assumed by Buyer
hereunder). After the Closing, upon reasonable written notice and at Buyer's
sole expense, Seller agrees to furnish or cause to be furnished to Buyer and
its representatives (including its auditors), access at reasonable times and
during normal business hours to such information relating to the Business in
such Seller's possession as is reasonably necessary for financial reporting
and accounting matters, the preparation and filing of any Tax Returns,
reports or forms or the defense of any Tax Claim or assessment; provided,
however, that such access does not unreasonably disrupt the normal operations
of such Seller.
8.6 Access to Former Business Records. For a period of seven (7) years
following the Closing, Buyer will retain all Records in the Buyer's
possession. During such period, Buyer will afford authorized representatives
of Seller (including its auditors) access to such Records at reasonable times
and during normal business hours at the principal business office of the
Business, or at such other location or locations at which such Records may be
stored or maintained from time to time, and will permit such representatives
to make abstracts from, or copies of, any of such Records, or to obtain
temporary possession of any thereof as may be reasonably required by Seller
at such Seller's sole cost and expense. During such period, Buyer will, at
Seller's expense (limited, however, to Buyer's reasonable out-of-pocket
expenditures without regard to any employee cost or other overhead expenses),
cooperate with Seller in furnishing information, evidence, testimony, and
other reasonable assistance in connection with any action, proceeding, Tax
audit, or investigation to which such Seller or any of its Affiliates is
subject relating to the business of the Business prior to the Closing. The
term "Record" as used in this Section 8.6 shall include any data processing
files or other computerized data.
8.7 Use of Trademark and Trade Names.
(a) Notwithstanding anything to the contrary in this Agreement,
Buyer may continue to use the name "MagneTek" and related trademarks,
corporate names, and trade names incorporating "MagneTek," and the stylized
"MagneTek" logos (i) in displays, signage and postings for the period after
the Closing Date necessary to permit the removal of such names as promptly as
is reasonably feasible, and only to the extent such displays, signage or
postings exist on the Closing Date; (ii) for a period of two years, to state
the Business' former affiliation with MagneTek (e.g., "formerly a division of
MagneTek, Inc.") and (iii) to the extent any such trade names, trademarks,
service marks or logos appear on stationery, packaging materials, supplies or
inventory on hand as of the Closing Date or on order at the time of the
Closing, until such is exhausted.
(b) Notwithstanding anything to the contrary in this Agreement,
Seller may continue to use, and Buyer grants an exclusive royalty free
worldwide license to Seller to use, the name "Jefferson" and related
trademarks and tradenames incorporating "Jefferson" and any stylized
"Jefferson" logos for a period of two (2) years from the Closing Date in
Seller's sign and neon ballast business and any other business of the Seller
which does not compete with the Business. Buyer shall have no right to use
such name, trademarks, tradenames or logos in the sign and neon ballast
business prior to the expiration of the two (2) year period from the Closing
Date.
<PAGE>
8.8 Required Modifications or Replacements of Products. The following
provisions of this Section 8.8 shall govern the responsibilities of Buyer and
Seller regarding Required Modifications:
(a) Buyer shall advise Seller promptly after becoming aware of any
Required Modifications to the products shipped by the Business prior to the
Closing Date to the extent Seller would be required to indemnify Buyer for
any claims in respect of such products.
(b) Whether or not Buyer gives the foregoing notice, Buyer shall
make any Required Modifications to products shipped by the Business prior to
the closing Date which are necessary or advisable, in the reasonable
discretion of Seller. If the cost to Seller under Section 8.8(c) of
implementing any such Required Modification exceeds the cost to Seller of
replacing such products, Buyer shall replace such products. The obligation
of Buyer hereunder shall include, but not be limited to, such actions as
Seller may reasonably request for (i) the notification of customer and other
third parties in possession of the applicable products, (ii) the shipping of
such products, if necessary, to and from Buyer's facilities for modification,
improvement, enhancement or replacement, (iii) production of replacement
products, parts or supplies necessary for the implementation of the product
modification, enhancement, improvement or placement, (iv) the installation,
modification or replacement of the product by personnel of Buyer, either at
the customer's location or at Buyer's facilities, as appropriate, and (v)
recordkeeping and reports with respect to such product modifications,
enhancements, improvements or replacements to the extent required by law or
reasonably requested by Seller.
(c) Seller shall reimburse Buyer for direct manufacturing,
installation, labor and materials costs incurred by Buyer in installing or
implementing any Required Modification under Section 8.8(b) or in producing
any replacement products, parts or supplies under Section 8.8(b), together
with all reasonable out-of-pocket shipping, postage and printing costs
incurred by Buyer in connection therewith.
ARTICLE 9. EMPLOYEE BENEFIT MATTERS
9.1 Employee Retention. Buyer shall offer employment to commence as of
the Closing Date to all Business Employees, at the same salaries and wages
(including division-level, but not MagneTek-wide bonus and incentive
programs) and on substantially the same terms and conditions as those in
effect immediately prior to the Closing Date. Buyer has no present intention
(subject to its discretion as to employee performance) to terminate the
employment of any Business Employee within the sixty (60) days following the
Closing Date, and Buyer assumes all obligations and liabilities, if any,
under the Worker Adjustment and Retraining Notification Act (the "WARN Act")
arising out of the Transactions. Buyer also agrees to comply with the terms
of the WARN Act and any similar state legislation following the Closing Date.
9.2 Employee Benefit Plans. Effective as of the Closing Date, (a)
Business Employees shall cease accruing any benefits under any Seller Plan,
and Seller shall take, or cause to be taken, all such action, if any, as may
be necessary to effect such cessation of participation and (b) to the extent
permitted by applicable law, Seller shall cause the Business Employees to be
fully vested in their accrued benefits under the FlexCare Plus Retirement
Pension Plan and the FlexCare Plus Retirement Savings Plan, including
pro-rata contributions to the pension plan based upon Business Employee
earnings to the Closing Date. On and after the Closing Date, Buyer shall
establish employee benefit plans (the
<PAGE>
"Buyer's Benefit Plans") for the Business Employees who presently have such
benefits, or as Buyer deems appropriate; provided, however, in all events, on
or before January 1, 1997, Buyer shall establish a group health (medical and
dental) plan or plans for those Business Employees who, immediately prior to
the Closing, are covered under a group health plan of Seller. Buyer shall
cause such group health plan to waive any exclusions or limitations with
respect to pre-existing conditions and actively-at-work exclusions and shall
provide that any 1996 expenses incurred by a Business Employee or his covered
dependents under a Seller Plan shall be taken into account under such Buyer's
group health plans for purposes of satisfying applicable deductible,
coinsurance and maximum out of pocket provisions.
With respect to Buyer's Benefit Plans, Buyer shall grant eligible
Business Employees from and after the Closing Date credit for all service
with Seller and its affiliates and their respective predecessors prior to the
Closing Date for all purposes (other than the accrual of benefits under a
defined benefit pension plan; however, this proviso shall not preclude Buyer
from granting such credit) for which such service was recognized by Seller
and its affiliates.
Seller shall, as required by applicable law, offer all eligible Business
Employees and their eligible dependents continued coverage under the terms of
COBRA. Buyer agrees to remit COBRA premiums on behalf of all Business
Employees who elect such coverage. COBRA premiums are listed on Schedule 9.2
as provided by the Seller on August 27, 1996. Buyer's failure to remit
required COBRA premiums on a timely basis will result in a penalty, payable
by Buyer to Seller, equal to 10% of the applicable month's total premium for
each month, or fraction of a month, premium payment is delayed. Buyer agrees
to provide all eligible Business Employees with appropriate COBRA election
forms as prepared by Seller, and to remit all properly executed forms on a
timely basis to Seller. Buyer acknowledges that only those Business
Employees currently covered under a Seller Plan are eligible for COBRA. In
no event does Seller agree to provide COBRA coverage to any Business Employee
who fails to complete and remit a properly executed COBRA election form on a
timely basis.
9.3 Vacation, Holiday and Severance Pay. As of the Closing Date, Buyer
shall assume all of Seller's obligations for vacation, holiday and severance
pay to all Business Employees.
9.4 Access to Information. Commencing with the date hereof and
continuing to the Closing Date and thereafter, Seller shall make reasonably
available to Buyer such actuarial, financial, personnel and related
information as may be reasonably requested by Buyer with respect to any
Seller Plan as it relates to a Business Employee, including, but not limited
to, compensation and employment histories.
9.5 Third-Party Beneficiaries. No provision of this Article 9 shall
create any third-party beneficiary rights in any employee of former employer
or the Business (including any beneficiary or dependent thereof), including,
without limitation, any right to continued employment or employment in any
particular position with Buyer for any specified period of time after the
Closing Date.
ARTICLE 10. INDEMNIFICATION
10.1 Indemnification by Seller. Subject to the terms and conditions of
this Article 10, Seller shall indemnify Buyer and each of its officers,
directors, employees and agents against, and hold them harmless from, any
Loss suffered or incurred by any such Indemnified Person (other than any
relating to environmental matters, for which
<PAGE>
indemnification provisions are set forth in Section 10.3) to the extent
arising from (a), if the Closing occurs, any breach of any representation or
warranty of Seller contained in this Agreement which survives the Closing or
in any certificate, instrument or other document delivered pursuant hereto,
(b) any breach of any covenant of Seller contained in this Agreement
requiring performance after the Closing Date or (c), if the Closing occurs,
the existence of, or the failure of Seller to pay, perform and discharge when
due, any of the Excluded Liabilities (including, without limitation, any
Losses as a result of the failure of Seller to comply with any Bulk Sales
Laws referred to in Section 7.3); provided, however, that Seller shall have
no liability under this Section 10.1 unless the aggregate of all Losses
relating thereto for which Seller would, but for this proviso, be liable
exceeds on a cumulative basis with Losses for which Buyer is indemnified
under Section 10.3, an amount equal to $25,000 (and then only to the extent
of any such excess); and provided further, however, that Seller's aggregate
liability under this Section 10.1 and Section 10.3 shall in no event exceed
$1,500,000; and provided further, anything to the contrary contained in this
Agreement notwithstanding, Seller shall not be liable under the
indemnification provisions of this Section 10.1 or otherwise have any
liability for any misrepresentation or breach of warranty (to include, but
not be limited to, breaches of representations and warranties regarding the
Financial Statements) or covenant under this Agreement or otherwise have any
liability in connection with the transactions described herein to the extent
that the existence of such liability, the breach of warranty or covenant or
the falsity of the representation upon which such liability would be based is
known to the Buyer or to any officer of the Buyer prior to or on the Closing
Date.
10.2 Indemnification by Buyer. Subject to the terms and conditions of
this Article 10, Buyer shall indemnify Seller and each of its officers,
directors, employees and agents against, and hold them harmless from, any
Loss suffered or incurred by any such Indemnified Person (other than any
relating to environmental matters, for which indemnification provisions are
sst forth in Section 10.3) to the extent arising from (a), if the Closing
occurs, any breach of any representation or warranty of Buyer contained in
this Agreement which survives the Closing or in any certificate, instrument
or other document delivered pursuant hereto or in connection herewith, (b)
any breach of any covenant of Buyer contained in this Agreement requiring
performance after the Closing Date, (c), if the Closing occurs, the existence
of, or the failure of Buyer to pay, perform and discharge when due, any of
the Assumed Liabilities and (d), if the Closing occurs, the ongoing
operations of Buyer and the Assets after the Closing Date; provided, however,
that Buyer shall not have any liability under this Section 10.2 unless the
aggregate of all Losses relating thereto for which Buyer would, but for this
proviso, be liable exceeds on a cumulative basis with Losses for which Seller
are indemnified under Section 10.3, an amount equal to $25,000 (and then only
to the extent of such excess); and provided further, however, that Buyer's
aggregate liability under clauses (a) and (b) of this Section 10.2 shall in
no event exceed $1,500,000.
10.3 Indemnification for Environmental Matters. Subject to the terms
and conditions of this Article 10, Seller shall indemnify and hold Buyer
harmless from and against all Losses resulting from claims or demands by any
Governmental Agency or any third party which is unrelated to Buyer or its
Affiliates arising under any Environmental Law to the extent such Losses (a)
are attributable to either Seller's use and/or occupancy of any premises
owned or used by Seller prior to the Closing Date (a "Seller Facility") or to
Hazardous Materials transported offsite from a Seller Facility for treatment,
storage or disposal prior to the Closing and (b) exceed, on a cumulative
basis with Losses for which Buyer is indemnified under Section 10.1, an
amount equal to $25,000; but only to the extent of such excess and provided,
further, that Seller's aggregate liability under this Section 10.3 and
Section 10.1 shall in no event exceed $1,500,000. Seller's indemnification
liability hereunder shall in no event be construed to extend to or include
any remediation or other liability arising as a result of the presence of
asbestos in or upon any of the improvements
<PAGE>
located in or on any Business Property at any time. Seller's obligation to
indemnify Buyer under this Section 10.3 shall expire on the first anniversary
of the Closing Date, and Buyer hereby expressly releases Seller from and
after such first anniversary from any liability in respect of the matters
covered by such indemnification, whether arising by statute or common law, or
otherwise. Seller shall have no obligation to indemnify Buyer with respect
to conditions that existed prior to Seller's use or occupancy of any Seller
Facility. Buyer shall indemnify and hold Seller harmless from and against
all Losses resulting from claims or demands by any Governmental Agency or
private party arising under any Environmental Law to the extent such Losses
are attributable to Buyer's use and/or occupancy of any Seller Facility.
10.4 Losses Net of Insurance, etc.
(a) The amount of any Loss for which indemnification is provided
under this Article 10 shall be net of any amounts recovered or recoverable by
the Indemnified Person under insurance policies with respect to such Loss and
of any reserve in respect thereof reflected on the Closing Balance Sheet.
(b) If the Indemnifying Person makes any payment under this
Article 10 in respect of any Loss, the Indemnifying Person shall be
subrogated, to the extent of such payment, to the rights of the Indemnified
Person against any insurer or third party with respect to such Losses.
(c) Notwithstanding anything to the contrary elsewhere in this
Agreement, no Indemnifying Person shall, in any event, be liable to the other
party for any consequential damages, including, but not limited to, loss of
revenue or income, cost of capital, diminution in value, or loss of business
reputation or opportunity relating to the breach or alleged breach of this
Agreement. Each party agrees that it will not seek punitive damages as to
any matter under, relating to or arising out of the Transactions.
(d) The parties hereto agree that the indemnification provisions
of this Article 10 are intended to provide the exclusive remedy as to all
Losses which may occur arising from or relating to the Transactions, and each
party hereby waives, to the extent they may do so, any other rights or
remedies that may arise under any applicable statute, rule or regulation.
10.5 Termination of Indemnification. The obligations to indemnify and
hold harmless a party hereto, (A) pursuant to Sections 10.1(a) and 10.2(a),
shall terminate when the applicable representation or warranty terminates
pursuant to Section 10.8, (B) pursuant to Section 10.3, shall terminate as
set forth therein and (C) pursuant to Sections 10.1(b) and 10.2(b), shall
terminate on the first anniversary of the Closing Date; provided, however,
that as to clauses (A), (B) and (C) above, such obligations to indemnify and
hold harmless shall not terminate with respect to any item as to which the
person to be indemnified shall have, before the expiration of the applicable
period, previously made a claim by delivering a notice (stating in reasonable
detail the basis of such claim) to the Indemnifying Person.
10.6 Procedures Relating to Indemnification (Other Than for Tax Claims).
In order for an Indemnified Person to be entitled to any indemnification
provided for under this Agreement (other than for Tax Claims) in respect of,
arising out of or involving a claim or demand made by any Person against the
Indemnified Person (a "Third Party Claim"), such Indemnified Person must
notify the Indemnifying Person in writing, and in reasonable detail, of the
Third Party Claim within 30 Business Days after receipt by such Indemnified
Person of written notice of the Third Party Claim; Provided, however, that
failure to give such notification shall not affect the indemnification
provided hereunder except to the extent the
<PAGE>
Indemnifying Person shall have been actually prejudiced as a result of such
failure (except that the Indemnifying Person shall not be liable for any
Losses incurred during the period in which the Indemnified Person failed to
give such notice). Thereafter, the Indemnified Person shall deliver to the
Indemnifying Person, within five (5) Business Days after the Indemnified
Person's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnified Person relating to the Third Party
Claim.
If a Third Party Claim is made against an Indemnified Person, the
Indemnifying Person will be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel select by
the Indemnifying Person and reasonably satisfactory to the Indemnified
Person. Should the Indemnifying Person so elect to assume the defense of a
Third Party Claim, the Indemnifying Person will not be liable to the
Indemnified Person for legal fees and expenses subsequently incurred by the
Indemnified Person in connection with the defense thereof. If the
Indemnifying Person assumes such defense, the Indemnified Person shall have
the right to participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by the Indemnifying Person,
it being understood that the Indemnifying Person shall control such defense.
The Indemnifying Person shall be liable for the fees and expenses of counsel
employed by the Indemnified Person for any period during which the
Indemnifying Person has not assumed the defense thereof (other than during
any period in which the Indemnified Person shall have failed to give notice
of the Third Party Claim as provided above). If the Indemnifying Person
chooses to defend or prosecute any Third Party Claim, all the parties hereto
shall cooperate in the defense or prosecution thereof. Such cooperation
shall include the retention and (upon the Indemnifying Person's request) the
provision to the Indemnifying Person of records and information which are
reasonably relevant to such Third Party Claim, and making employees available
on a mutually convenient basis in the manner specified in Section 8.6 hereof
to provide additional information and explanation of any material provided
hereunder. Notwithstanding the foregoing, in the event a Third Party Claim
is made against Seller as to which Seller is entitled to seek indemnification
under this Article 10 and Seller concludes, in its reasonable judgment, that
Buyer lacks the financial and personnel resources to vigorously defend Seller
from such Third Party Claim, such Seller may elect to retain the defense of
such Third Party Claim and shall be entitled to be reimbursed by Buyer for
its Losses incurred in such defense, such expenditures to be reimbursed
promptly after submission of invoices therefor. Whether or not the
Indemnifying Person shall have assumed the defense of a Third Party Claim,
the Indemnified Person shall not admit any liability with respect to, or
settle, compromise or discharge, such Third Party Claim without the
Indemnifying Person's prior written consent (which consent shall not be
unreasonably withheld or delayed). All Tax Claims (as defined in Section
10.7) shall be governed by Section 10.7.
10.7 Procedures Relating to Indemnification of Tax Claims.
(a) If a claim shall be made by any Tax authority, which, if
successful, might result in an indemnity payment to any Person hereunder (a
"Tax Indemnitee"), the Tax Indemnitee shall promptly notify the party against
whom indemnification is sought (the "Tax Indemnitor") in writing of such
claim (a "Tax Claim"). If notice of a Tax Claim is not given to the Tax
Indemnitor within a sufficient period of time to allow the Tax Indemnitor to
effectively contest such Tax Claim, or in reasonable detail to apprise the
Tax Indemnitor of the nature of the Tax Claim, in each case taking into
account the facts and circumstances with respect to such Tax Claim, the Tax
Indemnitor shall not be liable to the Tax Indemnitee to the extent that the
Tax Indemnitor's ability to effectively contest such Tax Claim is actually
prejudiced as a result thereof.
(b) With respect to any Tax Claim, the Tax Indemnitor shall
control all
<PAGE>
proceedings taken in connection with such Tax Claim (including, without
limitation, selection of counsel) and, without limiting the foregoing, may in
its sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any taxing authority with respect
thereto and may, in its sole discretion, either pay the Tax claimed and sue
for a refund where applicable law permits such refund suits or contest the
Tax Claim in any permissible manner, provided, however, that the Tax
Indemnitor shall not settle or compromise a Tax Claim without giving 30 days'
prior notice to the Tax Indemnitee, and without the Tax Indemnitee's consent,
which shall not be unreasonably withheld or delayed, if such settlement or
compromise would have a material adverse effect on the Tax liabilities of the
Tax Indemnitee, its Affiliates or any member of its affiliated group. The Tax
Indemnitee, and each of its Affiliates, shall cooperate with the Tax
Indemnitor in contesting any Tax Claim, which cooperation shall include,
without limitation, the retention and (upon the Tax Indemnitor's request) the
provision to Tax Indemnitor of Records and information which are reasonably
relevant to such Tax Claim, and making employees available on a mutually
convenient basis to provide additional information or explanation of any
material provided hereunder or to testify at proceedings relating to such Tax
Claim.
10.8 Survival of Representations. The representations and warranties in
this Agreement and in any other document delivered in connection herewith
shall survive the Closing solely for purposes of Sections 10.1(a) and 10.2(a)
and, except as set forth in the following two sentences, shall terminate at
the close of business on that day which is fifteen (15) months after the
Closing Date. The representations and warranties in Section 4.1 shall
terminate on the fifth (5th), and the representations and warranties in
Section 4.3 shall terminate on the seventh (7th), anniversary of the Closing
Date. The representations and warranties relating to environmental matters
in Section 4.10 shall not survive the Closing.
ARTICLE 11. GENERAL PROVISIONS
11.1 Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by Buyer (including by
operation of law in connection with a merger or sale of substantially all the
assets, of Buyer) without the prior written consent of Seller; provided,
however, that Buyer may assign its right to purchase the Assets hereunder to
an Affiliate of Buyer without the prior written consent of Seller; provided
further, however, that no assignment shall limit or affect Buyer's
obligations hereunder.
11.2 No Third-Party Beneficiaries. Except as provided in Article 10 as
to Indemnified Persons, this Agreement is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied
shall give or be construed to give to any person or entity, other than the
parties hereto and such assigns, any legal or equitable rights hereunder.
11.3 Termination.
(a) Anything contained herein to the contrary notwithstanding,
this Agreement may be terminated (except as set forth in Section 11.3(c)) and
the Transactions abandoned at any time prior to the Closing Date:
(i) by mutual written consent of Seller and Buyer;
(ii) by Seller if any of the conditions set forth in Section
3.l shall have become incapable of fulfillment, and shall not have been
waived by Seller;
(iii) by Buyer if any of the conditions set forth in Section
3.2 shall
<PAGE>
have become incapable of fulfillment, and shall not have been waived by
Buyer; or
(iv) by either party hereto, if the Closing does not occur
on or prior to August 31, 1996.
(b) In the event of termination by Seller or Buyer pursuant to
this Section 11.3, written notice thereof shall forthwith be given to the
other party and the Transactions shall be terminated, without further action
by either party. If the Transactions are terminated as provided herein:
(i) Buyer shall return all documents and copies and other
material received from Seller relating to the Transactions, whether so
obtained before or after the execution hereof, to Seller;
(ii) all confidential information received by Buyer with
respect to the Business and Seller shall be treated in accordance with the
Confidentiality Agreement which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(c) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 11.3, this
Agreement shall become void and of no further force and effect, except for
the provisions of (i) Section 7.1 relating to the obligation of Buyer to keep
confidential certain information and data obtained by it, (ii) Section 11.4
relating to certain expenses, (iii) Section 8.3 relating to publicity, (iv)
Section 11.5 relating to attorneys' fees and expenses, (v) Section 11.11
relating to finder's fees and broker's fees and (vi) this Section 11.3.
Nothing in this Section 11.3 shall be deemed to release either party from any
liability for any breach by such party of the terms and provisions of this
Agreement or to impair the right of either party to compel specific
performance by the other party of its obligations under this Agreement.
11.4 Expenses. Whether or not the transactions contemplated hereby are
consummated, and except as otherwise provided in this Section 11.4, Section
2.7 or elsewhere in this Agreement, all fees, costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such fees, costs or expenses.
11.5 Attorneys' Fees. Should any litigation be commenced concerning
this Agreement or the rights and duties of any party with respect to it, the
party prevailing shall be entitled, in addition to such other relief as may
be granted, to a reasonable sum for such party's attorney fees and expenses
determined by the court in such litigation or in a separate action brought
for that purpose.
11.6 Amendments. No amendment to this Agreement shall be effective
unless it shall be in writing and signed by both parties hereto.
11.7 Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or
sent prepaid telex, cable or telecopy, or sent, postage prepaid, by
registered, certified or express mail, or reputable overnight courier service
and shall be deemed given when so delivered by hand, telexed, cabled or
telecopied, or if mailed, three days after mailing (one business day in the
case of express mail or overnight courier service), as follows:
(i) if to Buyer, to:
Jefferson Electric, Inc.
<PAGE>
3621 West Maplecrest Drive
Franklin, WI 53132
with a copy to:
Schober & Radtke S.C.
15525 West National Avenue
P.O. Box 510155
New Berlin, WI 53151-0155
Attention: Thomas G. Schober, Esq.
Telephone: (414) 872-1820
Telecopier: (414) 872-1073
(ii) if to Seller, to:
MagneTek, Inc.
26 Century Boulevard,
Post Office 290159
Nashville, Tennessee 37229-0159
Attention: Samuel A. Miley, Esq.
General Counsel
Telephone: (615) 316-5260
Telecopier: (615) 316-5192
with a copy to:
Baker, Donelson, Bearman & Caldwell
511 Union Street, Suite 1700
Nashville, Tennessee 37219
Attention: James L. Beckner, Esq.
Telephone: (615) 726-5720
Telecopier: (615) 726-0464
11.8 Interpretation; Exhibits and Schedules. The headings contained in
this Agreement, in any Exhibit or Schedule hereto and in the table of
contents to this Agreement, are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Any
matter disclosed in one Schedule hereto shall be deemed incorporated by
reference into each other Schedule hereto and disclosed in each such
Schedule. All Exhibits and Schedules annexed hereto or referred to herein
are hereby incorporated in and made a part of this Agreement as if set forth
in full herein. Any capitalized terms used in any Schedule or Exhibit, but
not otherwise defined therein, shall have the meaning as defined in this
Agreement.
11.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been
signed by each of the parties and delivered to the other party.
11.10 Entire Agreement. This Agreement and the Confidentiality
Agreement contain the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersede all prior oral
and written agreements and understandings relating to such subject matter.
11.11 Fees. Each party hereto hereby represents and warrants to the
other party
<PAGE>
hereto that no brokers or finders have acted for such party in connection
with this Agreement or the Transactions contemplated hereby or otherwise may
be entitled to any brokerage fee, finder's fee or commission in respect
thereof.
11.12 Severability. If any provision of this Agreement or the
application of any such provision to any Person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not
affect any other provision hereof.
11.13 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Wisconsin applicable to
agreements made and to be performed entirely within such State, without
regard to the conflicts of law principles of such State. IN WITNESS
WHEREOF, the parties have caused this Agreement to be duly executed as of the
date first written above.
SELLER:
MAGNETEK, INC.
By:
-------------------------------
Name:
-----------------------
Title:
----------------------
BUYER:
JEFFERSON ELECTRIC, INC.
By:
-------------------------------
Name: Mike J. Buckna
Title: President
<PAGE>
FINANCIAL STATEMENTS
--------------------------------------------------------------
Selected Financial Data 13
--------------------------------------------------------------
Management's Discussion and Analysis
of Financial Condition and Results of Operations 14
--------------------------------------------------------------
Consolidated Statements of Income 17
--------------------------------------------------------------
Consolidated Balance Sheets 18
--------------------------------------------------------------
Consolidated Statements of Stockholders' Equity 20
--------------------------------------------------------------
Consolidated Statements of Cash Flows 21
--------------------------------------------------------------
Notes to Consolidated Financial Statements 22
--------------------------------------------------------------
Auditors' Letter 39
--------------------------------------------------------------
<PAGE>
MagneTek Inc.
SELECTED FINANCIAL DATA
Statement of Income Data
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30.
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA) 1996** 1995** 1994** 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . $1,161,625 $1,202,536 $1,133,126 $1,119,392 $883,466
Income (loss):
Continuing operations. . . . . . (94,164) 21,496 (16,942) 19,263 14,712
Discontinued operations. . . . . -- (14,400) (28,503) 7,770 10,331
Extraordinary item . . . . . . . -- (4,820) -- -- (2,857)
Cumulative effect of
accounting changes . . . . . . . -- -- -- (48,734) --
Net income (loss). . . . . . . . . (94,164) 2,276 (45,445) (21,701) 22,186
- --------------------------------------------------------------------------------------------------------------
Per common share-primary:
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting changes . . . . . . . $(3.78) $0.87 $(0.69) $0.78 $0.61
Net income (loss). . . . . . . . $(3.78) $0.09 $(1.84) $(0.87) $0.92
Per common share-fully diluted:
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting changes . . . . . . . * $0.84 * $0.73 $0.59
Net income (loss). . . . . . . . * * * * $0.90
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Per share amounts on a fully diluted basis are omitted as such amounts are
anti-dilutive in relation to primary per share amounts.
** Losses from continuing operations for the years ended June 30, 1996 and 1994
include pretax charges aggregating $79,717 and 33,871. Charges in fiscal 1996
reflect costs associated with repositioning operations primarily for severance,
termination benefits, warranty and asset write-downs related to facility
closures and consolidations. Also, in review of the Company's deferred tax asset
in accordance with FASB No. 109, a $14,700 charge was incurred in fiscal year
1996. Fiscal 1994 restructuring reserves related to costs related to potentially
excess or obsolete inventory, as well as severance and relocation costs related
to the Company's electronic ballast product line. In addition, those reserves
included expenses to relocate and consolidate operating and administrative
locations. Loss from discontinued operations includes after tax charges of
$14,400 and $25,041 for the years ended June 30, 1995 and 1994, respectively,
reflecting estimated losses on disposition.
<TABLE>
<CAPTION>
BALANCE SHEET DATA
AS OF JUNE 30
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets . . . . . . . . . . . $678,774 $857,168 $931,358 $995,359 $888,668
Long-term debt,
including current portion. . . . . 322,023 448,467 523,779 523,301 428,880
Common stockholders' equity. . . . 41,558 117,278 113,082 163,029 196,463
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
MagneTek Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
During the year ended June 30, 1996, the Company completed the divestiture of
its remaining discontinued operations which had been targeted for disposal under
a formal plan adopted by the Company's Board of Directors in July, 1994. The
plan was designed to focus the Company on its core product lines and to reduce
debt. Total net proceeds from the inception of the divestiture program through
June 30, 1996 aggregated over $200 million and were used to repay debt.
Operating results and net assets of the divested businesses through their
disposal date are included as "discontinued operations" in the accompanying
consolidated financial statements. Accordingly, the discussion that follows
concerns only the results of continuing operations (see Note 2 for additional
information about discontinued operations).
The Company currently operates in three business segments: Motors & Controls,
which includes fractional and integral horsepower electric motors, medium
voltage generators and electronic variable speed drives; Lighting Products,
including magnetic and electronic lighting ballasts; and Power Supplies,
including electronic power supplies and small transformer products
For the past four years, MagneTek has experienced substantial profit volatility,
primarily as a result of sales and profit swings in its lighting ballast
business. These swings were due in large part to industry-wide miscalculations
of the growth rate in end-user demand for energy-saving electronic ballasts.
This not only led electronic ballast manufacturers in general to add substantial
capacity but also attracted new competitors, resulting in severe inventory
imbalances and price erosion in the marketplace.
With a market share of over 30% for the past five years, including fiscal 1996,
MagneTek is one of the leading manufacturers of electronic ballasts in the U.S.
However, following an increase of over 40% in fiscal 1995, electronic ballast
sales fell 30% in fiscal 1996, reflecting cuts in utility rebates and federal
budgets as well as deferral of energy upgrades by MagneTek Inc. retail chain
stores. The Company's magnetic ballast sales also declined in fiscal 1996 due to
continuing displacement of magnetic ballasts by electronic ballasts and market
conditions in Europe.
Because of these declines the Company conducted an operations review and, under
its new Chief Executive Officer, identified actions that are expected to
increase future operating flexibility and profitability. Reserves were
established in the fourth quarter of fiscal 1996, reflecting anticipated costs
associated with operational repositioning as well as estimated increases in
warranty and other costs (see Note 2).
Sales of power supply products in fiscal 1996 increased by 28% from fiscal 1995.
Profit margins did not grow as rapidly due to costs associated with continued
high levels of research and development, new product introductions in Europe and
market penetration in the U.S.
A continued strong economy in the U.S. resulted in overall sales growth in the
Company's motor, generator and drive products throughout most of fiscal 1996.
Demand for fractional horsepower motor products with residential applications
slowed somewhat during the first half of the fiscal year, but rebounded during
the second half. Generator product sales grew over 20% from fiscal 1995 to
fiscal 1996, reflecting strong demand from Caterpillar. Price increases in the
Motors & Controls segment were modest and largely offset by overall cost
increases. Margin increases were largely due to continued reduction in
administrative costs and, to a lesser extent, volume-related production
efficiencies.
14
<PAGE>
MagneTek, Inc.
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFIT
Net sales declined 3.4% in fiscal 1996, to $1.162 billion from $1.203 billion in
fiscal 1995. This followed a 6% increase in fiscal 1995 net sales over fiscal
1994's $1.133 billion. Net sales in the Motors & Controls segment increased 3%
in fiscal 1996, due to increased sales of generator and drive products, which
was partially offset by lower sales of residential fractional horsepower motors.
Segment revenue increased 9% in fiscal 1995 over fiscal 1994 with sales gains in
all product lines, particularly commercial and residential fractional MagneTek
Inc. horsepower motors. Net sales in the Lighting Products segment declined 17%
in fiscal 1996 due to decreased sales of both magnetic and electronic lighting
ballasts. Segment revenue increased 15% in fiscal 1995 over 1994 due to
increased sales of electronic ballasts. Net sales in the Power Supplies segment
increased 28% in fiscal 1996 due to a 36% increase in sales of electronic power
supplies, primarily due to increased penetration of telecommunications markets.
Segment revenue decreased 24% in fiscal 1995 from fiscal 1994 due to lower sales
of transformer products in Europe, lower sales of power supplies due to softer
demand from computer manufacturers and, to a lesser extent, the effect of
currency translation.
The Company's gross profit declined to $156.6 million in fiscal year 1996 from
$239.6 million in fiscal 1995. Fiscal 1996 results include charges aggregating
$43.3 million reflecting costs associated with repositioning operations and
estimated increases in warranty and other costs (see Note 2). Excluding these
charges, gross profit declined over 16% from fiscal 1995 levels due to
substantially lower gross profits in the Lighting Products segment. Gross profit
in fiscal 1995 was $44.2 million higher than fiscal 1994 gross profit due to
increased gross profit in electronic ballasts and a $19.1 million charge
included in 1994 results reflecting inventory write-downs and other charges.
OPERATING EXPENSES
Selling, general and administrative (SG&A) expense was $164.9 million (14.2% of
net sales) in fiscal 1996 compared to $164.3 million (13.7% of net sales) in
fiscal 1995 and $185.5 million (16.4 % of net sales) in fiscal 1994. Charges
associated with repositioning and restructuring operations (largely severance
and termination benefits) aggregating $7.2 million and $14.8 million are
included in SG&A expense in fiscal years 1996 and 1994, respectively. Excluding
these charges, SG&A expense was 13.6%, 13.7% and 15.1% of net sales in fiscal
years 1996, 1995 and 1994, respectively. The Company will continue to focus on
SG&A reductions through consolidation and cost reduction programs; however,
future improvement as a percentage of sales may be less rapid.
INTEREST AND OTHER EXPENSES
Interest expense declined to $31.6 million in 1996 from $34.4 million in fiscal
1995 and $32.0 million in fiscal 1994. Borrowings were reduced through the
completion of the Company's divestiture program and the application of proceeds
to debt reduction. Additionally, stronger performance in the working capital
area, primarily in accounts receivable and inventory management, further reduced
borrowing requirements. Interest expense allocated to discontinued operations
and not reflected in the foregoing figures amounted to $3.0 million, $10.8
million and $15.8 million in 1996, 1995 and 1994 respectively (see Note 2).
Other expense in fiscal 1996 was $34.9 million as compared to $4.6 million and
$2.3 million in 1995 and 1994 respectively. Other expense in fiscal 1996
included $29.2 million associated with asset write-downs in connection with the
Company's repositioning program.
15
<PAGE>
MagneTek, Inc.
NET INCOME (LOSS)
In fiscal 1996, the Company recorded a loss from continuing operations and a net
loss of $94.2 million, or $3.78 per share, compared to income from continuing
operations of $21.5 million, or $87 per share ($84 per share, fully diluted),
and net income of $2.3 million, or $09 per share, in fiscal 1995. During 1995,
the Company recorded aggregate losses from discontinued operations of $14.4
million and losses related to early extinguishment of debt of $4.8 million. The
Company recorded a loss from continuing operations of $16.9 million, or $69 per
share in 1994 before the effect of discontinued operations. The net loss for
fiscal year 1994 was $45.4 million or $1.84 per share.
The Company's fiscal year 1996 performance was adversely affected by charges for
repositioning operations, warranty and other expenses, and asset write-downs.
Excluding the effect of these charges, a pre-tax profit would have been
achieved. The effective tax rate for fiscal 1996 was determined by a variety of
factors, including the inability to reflect tax benefits for losses incurred at
the Company's German operation and a $38.9 million increase in the valuation
reserve for deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Long-term borrowings outstanding as of June 30, 1996 (including the current
portion) totaled $322 million, down from $448 million as of June 30, 1995 and
$524 million as of June 30, 1994. The decrease in long-term borrowings in both
years resulted primarily from the use of proceeds from the divestiture of
discontinued operations, which aggregated $92.1 million in fiscal 1996 and
$105.6 million in fiscal 1995. Free cash flow from operations due to lower
working capital requirements contributed an additional $34 million to debt
reduction in fiscal 1996.
Because of charges recorded for asset write-downs determined in accordance with
FASB No.121 and the other effects of the Company's repositioning program,
MagneTek was in violation of certain covenants under its Bank Loan Agreement as
of June 30, 1996. The Company has amended its Bank Loan Agreement to adjust
covenants to reflect the impact of the charges. As a condition of the amendment,
the lending commitment under the Bank Loan Agreement was reduced to $170 million
from $200 million.
Actions associated with the repositioning of operations as well as estimated
increases in warranty costs could result in cash outflow of up to $49 million
over the respective repositioning and warranty periods. Cash outflow in
connection with these actions in fiscal 1997 is not expected to exceed $20
million.
In addition, the Company may be subject to certain potential environmental and
legal liabilities (see Note 7).
16
<PAGE>
MagneTek Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . $1,161,625 $1,202,536 $1,133,126
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . 1,005,004 962,900 937,719
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . 156,621 239,636 195,407
Selling, general and administrative expenses . . . . . . . . 164,930 164,280 185,509
Income (loss) from operations. . . . . . . . . . . . . . . . (8,309) 75,356 9,898
Interest expense . . . . . . . . . . . . . . . . . . . . . . 31,591 34,398 32,018
Other expense, net . . . . . . . . . . . . . . . . . . . . . 34,864 4,562 2,322
- ---------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before provision
(benefit) for income taxes and extraordinary item. . . . . . (74,764) 36,396 (24,442)
Provision (benefit) for income taxes . . . . . . . . . . . . 19,400 14,900 (7,500)
- ---------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
extraordinary item . . . . . . . . . . . . . . . . . . . . . (94,164) 21,496 (16,942)
Discontinued operations-
Loss from operations (net of taxes). . . . . . . . . . . . -- -- (3,462)
Loss on disposal (net of tax benefit). . . . . . . . . . . -- (14,400) (25,041)
Extraordinary item-loss on early
extinguishment of debt (net of tax benefit). . . . . . . . . -- (4,820) --
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ (94,164) $ 2,276 $ (45,445)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Per common share-primary:
Income (loss) from continuing operations before
extraordinary item and cumulative effect of
accounting changes . . . . . . . . . . . . . . . . . . . . . $ (3.78) $ 0.87 $ (0.69)
Loss from discontinued operations. . . . . . . . . . . . . . -- (0.58) (1.15)
Extraordinary item . . . . . . . . . . . . . . . . . . . . . -- (0.20) --
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ (3.78) $ 0.09 $ (1.84)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Per common share-fully diluted:
Income (loss) from continuing operations before
extraordinary item . . . . . . . . . . . . . . . . . . . . . $ * $ 0.84 $ *
Loss from discontinued operations. . . . . . . . . . . . . . -- * *
Extraordinary item . . . . . . . . . . . . . . . . . . . . . -- * --
Net Income (loss). . . . . . . . . . . . . . . . . . . . . . $ * $ * $ *
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Per share amounts on a fully diluted basis have been omitted as such amounts
are anti-dilutive in relation to primary per share amounts.
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
MagneTek Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30,
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1996 1995
- ----------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 871 $ 311
Accounts receivable, less allowance for
doubtful accounts of $5,428 in 1996 and $4,421 in 1995 . . . . . . . . 201,814 235,252
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,265 225,461
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . 12,888 25,463
Prepaids and other assets. . . . . . . . . . . . . . . . . . . . . . . 14,014 3,749
- ----------------------------------------------------------------------------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 432,852 490,236
- ----------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,267 4,089
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . 56,094 62,359
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . 324,137 335,403
- ----------------------------------------------------------------------------------------------------
383,498 401,851
Less accumulated depreciation and amortization . . . . . . . . . . . . 207,079 201,751
- ----------------------------------------------------------------------------------------------------
Net property, plant and equipment. . . . . . . . . . . . . . . . . . . 176,419 200,100
- ----------------------------------------------------------------------------------------------------
Net assets of discontinued operations. . . . . . . . . . . . . . . . . 1,174 98,118
Goodwill, less accumulated amortization of
$7,985 in 1996 and $6,990 in 1995. . . . . . . . . . . . . . . . . . . 30,668 33,134
Deferred financing costs, intangible and other assets,
less accumulated amortization of $19,521 in 1996 and $16,021 in 1995 . 37,661 35,580
- ----------------------------------------------------------------------------------------------------
$678,774 $857,168
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
MagneTek Inc.
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $104,273 $118,002
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . 126,399 79,234
Current portion of long-term debt. . . . . . . . . . . . . . . . 2,895 17,580
- -----------------------------------------------------------------------------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 233,567 214,816
- -----------------------------------------------------------------------------------------------
Long-term debt, net of current portion . . . . . . . . . . . . . 319,128 430,887
Other long-term obligations. . . . . . . . . . . . . . . . . . . 71,633 81,369
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 12,888 12,818
Commitments and contingencies
Stockholders' Equity
Common stock, $0.01 par value, 100,000,000 shares authorized
25,462,000 and 24,680,000 shares issued and outstanding. . . . 255 247
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 89,609 81,142
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . (34,214) 59,950
Cumulative translation adjustment. . . . . . . . . . . . . . . . (14,092) (15,127)
Minimum pension liability. . . . . . . . . . . . . . . . . . . . -- (8,934)
- -----------------------------------------------------------------------------------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 41,558 117,278
- -----------------------------------------------------------------------------------------------
$678,774 $857,168
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
MagneTek Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE MINIMUM
AMOUNTS IN THOUSANDS, COMMON STOCK PAID-IN RETAINED TRANSLATION PENSION
EXCEPT SHARE DATA. SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT LIABILITY
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1993 24,122,000 $241 $75,494 $103,119 $(15,825) --
Exercise of stock options 83,000 1 870 -- --
Translation adjustment -- -- -- -- (736) --
Minimum pension liability -- -- -- -- -- (4,637)
Net loss -- -- -- (45,445) -- --
- ------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1994 24,205,000 $242 $76,364 $57,674 $(16,561) $(4,637)
- ------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 455,000 5 4,778 -- -- --
Restricted stock grant 20,000 -- -- -- -- --
Translation adjustment -- -- -- -- 1,434 --
Minimum pension liability -- -- -- -- -- (4,297)
Net Income -- -- -- 2,276 -- --
- ------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995 24,680,000 $247 $81,142 $ 59,950 $(15,127) $(8,934)
- ------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 32,000 -- 172 -- -- --
Restricted stock grant -- -- 1,834 -- -- --
Pension Plan contribution 750,000 8 6,461 -- -- --
Translation adjustment -- -- -- -- 1,035 --
Minimum pension liability -- -- -- -- -- 8,934
Net loss -- -- -- (94,164) -- --
- ------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 25,462,000 $255 $89,609 $(34,214) $(14,092) --
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
MagneTek Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, AMOUNTS IN THOUSANDS 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . $ (94,164) $ 21,496 $(16,942)
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . 40,041 38,680 36,418
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (2,236)
Restructuring charges. . . . . . . . . . . . . . . . . . . . . . . . . . 50,505 -- 31,221
Asset write-downs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,212 -- --
Changes in operating assets and liabilities of
continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . 43,494 (50,976) (18,331)
- ------------------------------------------------------------------------------------------------------------------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,252 (12,296) 47,072
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . 69,088 9,200 30,130
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of businesses and assets. . . . . . . . . . . . . . . . 92,149 105,644 8,216
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,515) (43,895) (43,338)
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 1,853 3,085
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities. . . . . . . . . . . . 51,671 63,602 (32,037)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under bank and other long-term obligations. . . . . . . . . . . - 81,217 15,238
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . 172 3,736 871
Repayment of bank and other long-term obligations. . . . . . . . . . . . . (126,444) (171,000) (15,090)
Increase in deferred financing costs . . . . . . . . . . . . . . . . . . . (500) (5,446) (703)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities. . . . . . . . . . . . (126,772) (91,493) 316
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in continuing operations . . . . . . . . . . . . . . . . . . (6,013) (18,691) (1,591)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from discontinued operations:
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . -- (14,400) (28,503)
Adjustments to reconcile loss to net cash
provided by discontinued operations:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . 2,102 7,738 11,211
Loss on disposal and other noncash charges . . . . . . . . . . . . . . . -- 12,338 27,341
Changes in operating assets and liabilities of discontinued operations . 5,377 7,717 (2,994)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . (906) (1,404) (6,057)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by discontinued operations . . . . . . . . . . . . . . . 6,573 11,989 998
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . . 560 (6,702) (593)
Cash at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . 311 7,013 7,606
- ------------------------------------------------------------------------------------------------------------------------
Cash at end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 871 $ 311 $ 7,013
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
MagneTek Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in the notes to consolidated financial statements are expressed in
thousands, except share and per share data.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MagneTek, Inc. and
its subsidiaries (the Company). All significant intercompany 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 accompanying notes.
Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Additions and improvements are capitalized at cost, whereas expenditures for
maintenance and repairs are charged to expense as incurred. Depreciation is
provided over the estimated useful lives of the respective assets principally on
the straight-line method.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to expense as incurred and
aggregated $21,500, $23,600 and $17,500 for the years ended June 30, 1996, 1995
and 1994, respectively.
DEFERRED FINANCING COSTS, INTANGIBLE AND OTHER ASSETS
Costs incurred to obtain financing are deferred and amortized principally on a
debt-outstanding method over the term of financing acquired. Amortization
expense relating to deferred financing costs was $2,351, $2,425 and $2,358 for
the years ended June 30, 1996, 1995 and 1994, respectively. Goodwill is being
amortized using the straight-line method over a forty-year period. The Company
assesses the recoverability of goodwill based upon several factors, including
management's intention with respect to the operations to which the goodwill
relates and those operations' projected future income and undiscounted cash
flows. Write-downs of goodwill are recognized when it is determined that the
value of such asset has been impaired. Amortization expense relating to goodwill
was $995, $985, and $1,018 for the years ended June 30, 1996, 1995 and 1994
respectively. Amortization expense relating to deferred financing costs and
goodwill is included in the Consolidated Statements of Income as other expense.
INCOME TAXES
Income taxes are provided based upon the results of operations for financial
reporting purposes and include deferred income taxes applicable to timing
differences between financial and taxable income.
Federal income taxes are not provided currently on undistributed earnings of
foreign subsidiaries since the Company presently intends to reinvest any
earnings overseas indefinitely.
22
<PAGE>
EARNINGS PER SHARE
Primary earnings per share are computed based upon the weighted average number
of common and common equivalent (principally stock options) shares outstanding.
Fully diluted earnings per share are computed based upon the weighted average
number of common and common equivalent shares outstanding including the effect
of additional shares related to the Company's Convertible Notes as if conversion
to common shares had occurred at the beginning of the fiscal year. Earnings have
also been adjusted for interest expense on the Convertible Notes.
FISCAL YEAR
The Company uses a fifty-two, fifty-three week fiscal year which ends on the
Sunday nearest June 30. For clarity of presentation, all periods are presented
as if the year ended on June 30. Fiscal years 1996 and 1995 contained 52 weeks.
Fiscal year 1994 contained 53 weeks.
23
<PAGE>
MagneTek Inc.
2. REPOSITIONING COSTS AND DISCONTINUED OPERATIONS
During the past four fiscal years, the Company has experienced substantial
volatility in sales and profits in its lighting products business, largely
related to its domestic electronic fluorescent ballast product line. During
fiscal 1996, the Company experienced lower demand and a significant
deterioration in operating results in this product line, due largely to a
substantial reduction in utility related incentive programs and increased
competition. Additionally, sales and profits have been steadily declining in the
global magnetic fluorescent ballast product lines, due to both the emergence in
the U.S. of electronic ballasts as a viable replacement and a weakening economy
in Europe. As a result of significant declines in sales and profit margins in
both electronic and magnetic ballast product lines during fiscal 1996, the
Company conducted a review and analysis of actions required to reduce costs and
improve future flexibility and profitability, largely focused on its lighting
products business. Upon completion of the review and approval by the Company's
Board of Directors, certain reserves were established and charges recorded in
the year ended June 30, 1996 to reflect costs associated with repositioning
operations, primarily for severance, termination benefits and asset write-downs
related to facility closures and consolidations. Reserves were also established
for estimated increases in warranty (primarily related to the electronic ballast
product line) and other costs. Charges recorded in connection with these
reserves and the asset write-downs related primarily to the Lighting Products
segment aggregated $79,717, of which $43,337 is included in cost of goods sold,
$7,168 in selling, general and MagneTek Inc. administrative expense and $29,212
in other expense in the accompanying Consolidated Statement of Income for the
year ended June 30, 1996. Asset write-downs for the impairment of long lived
assets and for long lived assets to be disposed of were determined in accordance
with FASB No. 121. The Company estimates that cash outflows associated with
these charges will approximate $49,000 over the respective repositioning and
warranty periods. Cash requirements in fiscal 1997 are not expected to exceed
$20,000.
In July, 1994, the Company's Board of Directors adopted a formal plan of
disposal for certain businesses in connection with an overall restructuring
program designed to focus the Company's resources on its core product lines and
reduce debt. The operations to be disposed of comprised the Company's utility,
military, industrial controls and custom motor product lines. The businesses
identified for divestiture have been classified as discontinued operations in
the accompanying financial statements. During the year ended June 30, 1996 the
Company completed the sale of substantially all remaining discontinued
operations. Total net proceeds from the inception of the disposal program
through June 30, 1996 aggregated over $200,000 and were used to repay debt.
24
<PAGE>
During the fiscal year ended June 30, 1994, the Company provided for estimated
losses on disposal of the discontinued operations, net of tax benefit of $2,300,
in the amount of $25,041 which included a provision for anticipated operating
losses prior to disposal. During the fiscal year ended June 30, 1995, the
Company provided for additional losses on disposal, net of tax benefit of
$7,200, in the amount of $14,400. The additional provision was required
primarily due to lower than anticipated sales proceeds primarily associated with
the sale of utility segment businesses and higher than anticipated operating
losses prior to the sale of these and other discontinued operations. The tax
benefits recorded in connection with these losses are less than the benefits
computed using statutory rates due to the disallowance (for tax purposes) of a
portion of the losses on the sale of certain discontinued operations.
The operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . $92,712 $246,021 $365,609
Income (loss) before provision for income taxes. . 138 (12,369) $ (3,362)
Provision (benefit) for income taxes . . . . . . . 500 (4,700) 100
- -----------------------------------------------------------------------------------------------
Loss of discontinued operations. . . . . . . . . . $ (362) $ (7,669) $ (3,462)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
Results of discontinued operations for the years ended June 30, 1996 and 1995
were charged to reserves established in connection with the provisions for
estimated losses on disposal provided in fiscal years 1994 and 1995. Fiscal year
1994 results are reported separately as discontinued operations in the
accompanying Consolidated Statements of Income. A portion of the Company's
interest expense has been allocated to the results of discontinued operations
based upon the ratio of the net assets of discontinued operations to the total
net assets of the Company. Total interest expense allocated to discontinued
operations and included in the results above was $2,975, $10,788 and $15,806 for
the years ended June 30, 1996, 1995 and 1994.
In fiscal 1994, the Company had established restructuring reserves of $31,221 to
cover costs related to potentially obsolete or excess inventory, as well as
severance and relocation costs related to the Company's electronic ballast
product line. Additionally, those reserves included expenses to relocate and
consolidate a number of operating and administrative locations. As of June 30,
1995, the balance in that reserve was $3,611 and was fully used as of June 30,
1996. The charges to the remaining balance were entirely cash related and were
specific to relocation and warranty related matters consistent with the
Company's projections.
25
<PAGE>
MagneTek Inc.
3. INVENTORIES
Inventories at June 30, consists of the following:
1996 1995
- -------------------------------------------------------------------------------
Raw materials and stock parts . . . . . . . . . . . . $60,018 $66,507
Work-in-process . . . . . . . . . . . . . . . . . . . 46,354 45,803
Finished Goods . . . . . . . . . . . . . . . . . . . . 96,893 113,151
- -------------------------------------------------------------------------------
$203,265 $225,461
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4. LONG-TERM DEBT AND BANK BORROWING ARRANGEMENTS
Long-term debt at June 30, consists of the following:
1996 1995
- -------------------------------------------------------------------------------
Revolving bank loans . . . . . . . . . . . . . . . . . $103,432 $155,021
Term loan. . . . . . . . . . . . . . . . . . . . . . . -- 75,000
10.75 percent Senior Subordinated Debentures, interest
payable semi-annually, due November 15, 1998 . . . . 125,000 125,000
8 percent Convertible Subordinated Notes, interest payable
semi-annually, convertible into 4,687,500 shares of common
stock, due September 2001 . . . . . . . . . . . . . . 75,000 75,000
Miscellaneous installment notes, capital leases and other
obligations at rates ranging from 7.0 percent to 12.2
percent, due through 2001 . . . . . . . . . . . . . . 18,591 18,446
- -------------------------------------------------------------------------------
322,023 448,467
Less current portion . . . . . . . . . . . . . . . . . 2,895 17,580
- -------------------------------------------------------------------------------
$319,128 $430,887
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
26
<PAGE>
MagneTek Inc.
BANK BORROWING ARRANGEMENTS
At June 30, 1996, the Company had an agreement with a group of banks that have
committed to lend up to $200,000 under a revolving loan facility through
September 30, 1998. Under the agreement, as amended (the "Bank Loan Agreement"),
borrowings under the credit facility bear interest at the banks' prime lending
rate plus one percent or, at the Company's option, the London Interbank Offered
Rate plus two and one quarter percent. These rates may be reduced by up to one
and one and one-half percent, respectively, based upon the achievement of
certain debt to cash flow ratios. At June 30, 1996, borrowings under the Bank
Loan Agreement bore interest at a weighted average rate of approximately 7.8%.
The Company is required to pay a commitment fee of three-eighths of one percent
on unused commitments.
Borrowings under the Bank Loan Agreements are secured by domestic accounts
receivable and inventories and by stock of certain of the Company's
subsidiaries. The Bank Loan Agreement contains certain provisions and covenants
which, among other things, restrict the payment of cash dividends on common
stock, limit the amount of future indebtedness and require the Company to
maintain specified levels of net worth and cash flow. Effective September 16,
1996, the Company amended its Bank Loan Agreement, as a result of certain
covenant violations, to adjust covenants to reflect the impact of charges
associated with the Company's repositioning program. As a result of the
amendment, the lending commitment under the Bank Loan Agreement was reduced to
$170,000 from $200,000. All other terms and conditions remained substantially
unchanged.
The Company repaid all borrowings under a $75,000 term facility provided under
the Bank Loan Agreement with the proceeds from the sale of discontinued
operations during the year ended June 30, 1996.
The Company's European subsidiaries have certain limited arrangements locally to
finance working capital requirements. Borrowings under these arrangements are
secured by accounts receivable and inventories of the respective subsidiaries.
The Company has also provided certain parent guarantees to banks in Europe which
provide the related financing.
SENIOR SUBORDINATED DEBENTURES
The 10.75 percent Senior Subordinated Debentures ("Subordinated Debentures") are
not redeemable by the Company prior to maturity in November, 1998. The
Subordinated Debentures are subordinated to borrowings under the Bank Loan
Agreement.
The indenture related to the Subordinated Debentures contains certain covenants
which, among other things, limit the nature and amount of future indebtedness
and restrict the payment of dividends on common stock.
CONVERTIBLE SUBORDINATED NOTES
The 8 percent Convertible Subordinated Notes ("Convertible Notes") are
redeemable at the option of the Company, in whole or in part, at redemption
prices set forth in the indenture, and, at the option of the holder, are
convertible into common stock of the Company at $16.00 per share at any time
prior to maturity in September, 2001.
Aggregate principal maturities on long-term debt outstanding at June 30, 1996
are as follows:
YEAR ENDED JUNE 30, 1996
- -------------------------------------------------------------------------------
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,895
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,187
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219,089
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,249
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,010
THEREAFTER . . . . . . . . . . . . . . . . . . . . . . . . 77,593
- -------------------------------------------------------------------------------
27
<PAGE>
MagneTek Inc.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts and estimated fair value of the Company's significant
financial instruments as of June 30, 1996 were as follows:
Carrying Amount Fair Value
- -------------------------------------------------------------------------------
10.75 percent Senior Subordinated Debentures . . . . $125,000 $123,750
8 percent Convertible Subordinated Notes . . . . . . 75,000 72,000
- -------------------------------------------------------------------------------
The fair values of long-term debt were estimated based on quoted market prices
or through broker quotations. The carrying amounts of certain financial
instruments such as cash, annuity contracts and borrowings under short-term
revolving credit agreements approximate their fair values.
The Company enters into futures contracts to provide an economic hedge against
fluctuations in copper prices. Gains and losses are recorded in cost of sales as
the related purchased copper is incorporated into finished products and sold.
Unrealized losses on open contracts at June 30, 1996 were not material to the
Company's results of operations.The Company also participates in certain foreign
exchange contracts to minimize its risk of loss from fluctuation in exchange
rates. Unrealized losses on open forward exchange contracts were not material to
the Company's results of operations at June 30, 1996.
6. INCOME TAXES
Income tax expense (benefit) is allocated in the financial statements as
follows:
YEAR ENDED JUNE 30 1996 1995 1994
- --------------------------------------------------------------------------------
Income (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting changes . . . . . . . . . $19,400 $14,900) $(7,500)
Extraordinary item . . . . . . . . . . . . . . -- (3,200) --
Income tax expense (benefit) attributable
to continuing operations . . . . . . . . . . . $19,400 11,700 (7,500)
Discontinued operations . . . . . . . . . . . -- (7,200) (2,200)
- -------------------------------------------------------------------------------
Total $19,400 $4,500 $(9,700)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
28
<PAGE>
MagneTek Inc.
The expense (benefit) for income taxes applicable to continuing operations is as
follows:
YEAR ENDED JUNE 30 1996 1995 1994
- -------------------------------------------------------------------------------
Current:
Federal. . . . . . . . . . . . . . . . . . . . $899 $3,575 $(3,836)
State. . . . . . . . . . . . . . . . . . . . . 1,172 1,529 178
Foreign. . . . . . . . . . . . . . . . . . . . 3,444 1,419 942
Deferred:
Federal. . . . . . . . . . . . . . . . . . . . 10,358 5,603 (4,046)
State and Foreign. . . . . . . . . . . . . . . 3,527 (426) (738)
- -------------------------------------------------------------------------------
$19,400 $11,700 $(7,500)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A reconciliation of the Company's effective tax rate to the statutory Federal
tax rate for income from continuing operations before extraordinary items is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------------------------
YEAR ENDED JUNE 30 AMOUNT % AMOUNT % AMOUNT %
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) computed at
the statutory rate . . . . . . . . . . . . . . . . $(26,167) (35.0) $12,739 35.0 $(8,555) (35.0)
State income taxes, net of
federal benefit. . . . . . . . . . . . . . . . . . 1,990 2.7 1,975 5.4 (371) (1.5)
Foreign tax rates in excess of
federal statutory rate . . . . . . . . . . . . . . 4,283 5.7 108 3 1,213 5.0
Increase in valuation reserve for
deferred tax assets. . . . . . . . . . . . . . . . 38,908 52.0 -- -- -- --
Other. . . . . . . . . . . . . . . . . . . . . . . 386 5 78 2 213 8
- -------------------------------------------------------------------------------------------------------------------------
$19,400 25.9 $14,900 40.9 $(7,500) (30.7)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income (loss) before provision for income taxes of the Company's foreign
subsidiaries was approximately $50, $(1,000) and $1,500 for the years ended June
30, 1996, 1995 and 1994.
29
<PAGE>
MagneTek Inc.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets for continuing operations as
of June 30, 1996 and 1995 follows:
YEAR ENDED JUNE 30 1996 1995
- -------------------------------------------------------------------------------
Deferred tax liabilities:
- -------------------------------------------------------------------------------
Depreciation and amortization (including
differences in the basis of acquired assets) . . . . . . . $21,453 $32,190
Inventory methods and other. . . . . . . . . . . . . . . . 2,534 4,822
- -------------------------------------------------------------------------------
Total deferred tax liabilities . . . . . . . . . . . . . . 23,987 37,012
- -------------------------------------------------------------------------------
Deferred tax assets:
Postretirement medical benefit obligation. . . . . . . . . 24,255 24,066
Warranty reserves. . . . . . . . . . . . . . . . . . . . . 16,772 6,734
Inventory and other reserves (including Restructuring) . . 21,868 18,857
- -------------------------------------------------------------------------------
Total gross deferred tax assets. . . . . . . . . . . . . . 62,895 4,965
- -------------------------------------------------------------------------------
Less valuation allowance . . . . . . . . . . . . . . . . . (38,908) --
- -------------------------------------------------------------------------------
Net deferred tax (assets) liability. . . . . . . . . . . . -- $(12,645)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company has evaluated the need for a valuation allowance for the deferred
tax asset and believes that the deferred tax asset is not likely to be fully
realized. Accordingly, a $38,908 valuation allowance has been recorded for the
year ended June 30, 1996.
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain facilities and machinery and equipment primarily
under operating lease arrangements. Future minimum rental payments under
noncancelable operating leases as of June 30, 1996 total $45,447 and are payable
in future fiscal years as follows: $11,054 in 1997; $9,349 in 1998; $7,110 in
1999; $6,139 in 2000; $4,311 in 2001 and $7,484 thereafter.
Rent expense for the years ended June 30, 1996, 1995 and 1994 was $15,766,
$18,769 and $18,673 respectively.
LITIGATION
The Company is a party to a number of product liability lawsuits, many of which
involve fires allegedly caused by defective ballasts. All of these cases are
being defended by the Company's insurers, and management believes that its
insurers will bear all legal costs and liability, except for applicable
deductibles, and that none of these proceedings individually or in the aggregate
will have a material adverse effect on the Company. In addition, the Company is
frequently named in asbestos-related lawsuits which do not involve material
amounts individually or in the aggregate.
30
<PAGE>
MagneTek Inc.
ENVIRONMENTAL MATTERS
GENERAL
The Company has from time to time discovered contamination by hazardous
substances at certain of its facilities. In response to such a discovery, the
Company conducts remediation activities to bring the facility into compliance
with applicable laws and regulations. Except as described below, the Company's
remediation activities for fiscal 1996 did not entail material expenditures, and
its remediation activities for fiscal 1997 are not expected to entail material
expenditures. Future discoveries of contaminated areas could entail material
expenditures, depending upon the extent and nature of the contamination.
CENTURY ELECTRIC (MCMINNVILLE, TENNESSEE)
Prior to its purchase by the Company in 1986, Century Electric, Inc. ("Century
Electric") acquired a business from Gould Inc. ("Gould") in May 1983 which
included a leasehold interest in a fractional horsepower electric motor
manufacturing facility located in McMinnville, Tennessee. In connection with
this acquisition, Gould agreed to indemnify Century Electric from and against
liabilities and expenses arising out of the handling and cleanup of hazardous
waste, including but not limited to cleaning up any PCBs at the McMinnville
facility (the "1983 Indemnity"). Investigation has revealed the presence of PCBs
and other substances, including solvents, in portions of the soil and in the
groundwater underlying the facility and in certain offsite soil, sediment and
biota samples. Century Electric has kept the Tennessee Department of Environment
and Conservation, Division of the Superfund, apprised of test results from the
investigation. The McMinnville plant has been listed as a Tennessee Superfund
Site, a report on that site has been presented to the Tennessee legislature, and
community officials and plant employees have been notified of the presence of
contaminants as above described. In 1995, Gould completed an interim remedial
measure of excavating and disposing onsite soil containing PCBs. Gould also
conducted preliminary investigation and cleanup of certain onsite and offsite
contamination. The cost of any further investigation and cleanup of onsite and
offsite contamination cannot presently be determined. The Company believes that
the costs for further onsite and offsite cleanup (including ancillary costs) are
covered by the 1983 Indemnity. While the Company believes that Gould will
continue to perform under its indemnity obligations, Gould's failure to perform
such obligations could have a material adverse effect on the Company.
OFFSITE LOCATIONS
The Company has been identified by the United States Environmental Protection
Agency and certain state agencies as a potentially responsible party for cleanup
costs associated with alleged past waste disposal practices at several offsite
locations. Due, in part, to the existence of indemnification from the former
owners of certain acquired businesses for cleanup costs at certain of these
sites, and except as described below, the Company's estimated share in liability
(if any) at the offsite facilities is not expected to be material. It is
possible that the Company will be named as a potentially responsible party in
the future with respect to other sites.
CROWN INDUSTRIES SITE (PIKE COUNTY, PENNSYLVANIA)
In March 1992, the Company was informed by the Pennsylvania Department of
Environmental Resources ("DER") that its Universal Manufacturing division is one
of a number of potentially responsible parties with respect to a planned
environmental investigation and cleanup at the Crown Industries site in Pike
County, Pennsylvania. The DER provided a non-binding preliminary allocation of
liability in connection with the site that assigned the Company a 30 percent
share. The aggregate expense of cleaning up the site is not currently known, but
some preliminary indications suggested a range of $5,000 to $15,000. To date,
the
31
<PAGE>
MagneTek Inc.
DER has sought reimbursement of approximately $500 in the aggregate from the
Company and the other potentially responsible parties. In connection with the
February 1986 acquisition of Universal Manufacturing, the Company and the
seller, Farley Northwest Industries, Inc. (the predecessor to Fruit of the Loom,
Inc., hereinafter collectively with such successor referred to as "FOL")
executed an environmental agreement. The Company has informed FOL that it
believes at least 90 percent of any liability it may incur relating to the site
is covered by indemnification provisions of its environmental agreement with
FOL, and allocation negotiations between the Company and FOL are continuing. FOL
has acknowledged its indemnity and is currently defending its own and the
Company's interest in this site. FOL's failure to perform its obligations with
respect to the Crown Industries site under the environmental agreement could
have a material adverse effect on the Company.
INDEMNIFICATION OBLIGATIONS FROM RESTRUCTURING
In selling certain business operations, the Company from time to time has
agreed, subject to various conditions and limitations, to indemnify buyers with
respect to environmental liabilities associated with the acquired operations.
The Company's indemnification obligations pursuant to such agreements did not
entail material expenditures for fiscal 1996, and its indemnification
obligations for fiscal 1997 are not expected to entail material expenditures.
Future expenditures pursuant to such agreements could be material, depending
upon the nature of any future asserted claims subject to indemnification.
LETTERS OF CREDIT
The Company has approximately $13,000 of outstanding letters of credit as of
June 30, 1996.
8. STOCK OPTION AGREEMENTS
The Company has three stock option plans (the "Plans"), two of which provide for
the issuance of both incentive stock options (under Section 422A of the Internal
Revenue Code of 1986) and non-qualified stock options at exercise prices not
less than the fair market value at the date of grant, and one of which only
provides for the issuance of non-qualified stock options at exercise prices not
less than the fair market value at the date of grant. One of the Plans also
provides for the issuance of stock appreciation rights, restricted stock,
unrestricted stock, restricted stock rights and performance units. The total
number of shares of the Company's common stock authorized to be issued upon
exercise of the stock options and other stock rights under the Plans is
5,972,620. As of June 30, 1996 and 1995 shares available for grant were
approximately 1,515,560 and 1,422,000 respectively. Options granted under two of
the Plans generally vest in four equal annual installments, and options under
the third Plan vest in two equal annual installments.
A summary of certain information with respect to options under the Plans
follows:
YEAR ENDED JUNE 30 1996 1995 1994
- -------------------------------------------------------------------------------
Options outstanding, beginning of year . . . 1,939,585 2,303,054 1,983,143
Options granted. . . . . . . . . . . . . . . 1,498,000 357,500 903,000
Options exercised. . . . . . . . . . . . . . (32,170) (454,594) (83,389)
Weighted average exercise price. . . . . . . $5.35 $8.30 $7.69
- -------------------------------------------------------------------------------
Options cancelled. . . . . . . . . . . . . . (249,595) (266,375) (499,700)
- -------------------------------------------------------------------------------
Options outstanding, end of year . . . . . . 3,155,820 1,939,585 2,303,054
Weighted average price . . . . . . . . . . . $12.16 $12.52 $12.30
- -------------------------------------------------------------------------------
Exercisable options. . . . . . . . . . . . . 1,463,045 1,113,116 963,107
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
32
<PAGE>
MagneTek Inc.
The Company has also granted options in prior years under certain non-qualified
stock option agreements, terms of which are similar to the Plans. No such
options were granted, exercised or cancelled during the three years ended June
30, 1996. As of June 30, 1996, options for 142,835 shares with a weighted
average price per share of $4.74 were outstanding, all of which were
exercisable.
The Company has granted stock appreciations rights (SARs) to certain of its
directors under director incentive compensation plans. As of June 30, 1996 SARs
with respect to 322,250 shares, with a weighted average exercise price of $14.52
were outstanding under these plans. In July of 1995, the Board of Directors
approved the conversion of SAR's with respect to 265,000 shares of common stock
into stock options with comparable share amounts and exercise prices.
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has defined benefit retirement plans which, collectively, cover
substantially all of its non-union employees and those union employees whose
collective bargaining agreements specifically provide for coverage. Effective
January 1, 1988, the Company merged all of its plans covering non-union domestic
employees into a single defined benefit plan (the "Plan"). The Plan provides
benefits based upon career average pay as defined in the Plan.
The net pension cost for the years ended June 30, 1996, 1995 and 1994 is as
follows:
1996 1995 1994
- -------------------------------------------------------------------------------
Service cost-benefits earned during the
period . . . . . . . . . . . . . . . . . . . $5,504 $6,935 $8,169
Interest cost on projected benefit
obligation . . . . . . . . . . . . . . . . . 9,592 9,219 8,195
Investment return on plan assets . . . . . . (13,306) (11,846) (1,180)
Net amortization and deferral. . . . . . . . 3,135 2,789 (7,103)
- -------------------------------------------------------------------------------
Net pension cost . . . . . . . . . . . . . . $4,925 $7,097 $8,081
- -------------------------------------------------------------------------------
The Company's net pension cost includes a net curtailment and settlement gain of
$682 which results from the sale of three discontinued business units in fiscal
year 1996.
The projected benefit obligation was determined using an assumed discount rate
of 8.0% for the year ended June 30, 1996 and 7.75% for the year ended June 30,
1995 and a 6% increase in the rate of compensation in both years. The average
expected long-term rate of return on plan assets is 8.5% for both years.
The funded status of the Company's defined benefit plans at June 30, 1996 and
1995 is as follows:
1996 1995
- -------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation. . . . . . . . . . . . . . . $120,533 $116,004
Non-vested benefits. . . . . . . . . . . . . . . . . . 5,863 9,353
Projected benefit obligation . . . . . . . . . . . . . 127,864 127,949
Market value of plan assets. . . . . . . . . . . . . . 129,409 115,523
Plan assets greater (less) than projected benefit
obligation . . . . . . . . . . . . . . . . . . . . . . 1,545 (12,426)
Unrecognized net loss. . . . . . . . . . . . . . . . . 5,118 16,474
Unrecognized prior service income relating to
merged plans . . . . . . . . . . . . . . . . . . . . . (705) (2,300)
Unrecognized net asset . . . . . . . . . . . . . . . . (1,935) (2,553)
Minimum pension liability. . . . . . . . . . . . . . . -- (8,934)
Accrued (prepaid) pension cost . . . . . . . . . . . . (4,023) 9,739
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
33
<PAGE>
MagneTek Inc.
It is the Company's policy to fund pension costs annually. In 1996, the Plan was
partially funded with the issuance of 750,000 shares of common stock valued at
$8.62 per share on the date contributed. Plan assets are primarily invested in
equity and government securities. The Company also has benefit plans for certain
of its foreign subsidiaries which are not reflected above. These plans are not
material to the Company's benefit plans as a whole.
In addition to the defined benefit retirement plans, most of the Company's non-
union employees participate in a defined contribution savings plan which
provides for employee contributions up to specified percentages of compensation
as defined in the plan. The Companys' contribution is equal to 50% of the first
1% and 20% of the next 5% of the employee's contribution. Annual Company
sponsored contributions are subject to a limitation of six hundred dollars per
employee. Company contributions were $1,427, $1,629, and $936 during the plan
years ended March 31, 1996, 1995, and 1994, respectively. Company contributions
vest over a five-year period.
POSTRETIREMENT MEDICAL BENEFIT PLANS
Effective May 1, 1996, the Company announced a substantial revision to the
postretirement medical benefit plans. Under the terms of the revision all
medical benefit plans affecting the accumulated postretirement benefit
obligation ("APBO") were made uniform for all eligible participants. In
addition, the contributions required for participation in these plans were
increased as a percentage of the total value of the plan. Employees who, in
general, retired prior to December 31, 1991, will be required to pay a
contribution which is indexed by the rate of increase in plan costs each year,
while employees retiring later will be required to pay a contribution which
increases by the future trend increases in the total cost of the plan. Finally,
the revised plan was designed to prevent the payment of one hundred percent of
the eligible expenses incurred by a participant when the MagneTek plan
"coordinates" with another plan.
The plan revision was announced with an effective date of January 1, 1997. The
revision resulted in a reduction in the APBO of approximately $11,101; this
amount will be amortized over ten years. Recent improvements in medical claim
costs have resulted in an additional reduction in the APBO of approximately
$22,276; this gain exceeds the FASB No. 106 corridor of ten percent of the APBO,
and the excess will be amortized over thirteen years. The Company, based upon
advice of counsel, has concluded that the Company has adequately reserved the
right to amend these plans without offsetting adjustments in other benefits or
compensation.
The accumulated postretirement benefit obligation as of June 30, 1996 and 1995
consisted of unfunded obligations related to the following:
1996 1995
- -------------------------------------------------------------------------------
Retirees . . . . . . . . . . . . . . . . . . . . . . . $20,682 $48,066
Fully eligible active plan participants. . . . . . . . 2,429 5,450
Other active participants. . . . . . . . . . . . . . . 2,810 6,271
- -------------------------------------------------------------------------------
Accumulated postretirement benefit obligation. . . . . 25,921 59,787
Unrecognized prior service cost. . . . . . . . . . 11,101 --
Unrecognized gain. . . . . . . . . . . . . . . . . 22,276 1,333
- -------------------------------------------------------------------------------
Accrued postretirement benefit cost. . . . . . . . . . $59,298 $61,120
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
34
<PAGE>
MagneTek Inc.
Net periodic postretirement benefit costs for the years ended June 30, 1996,
1995 and 1994 include the following components:
YEARS ENDED JUNE 30 1996 1995 1994
- -------------------------------------------------------------------------------
Service cost benefits earned during period . . . . $304 $405 $515
Interest cost on accumulated postretirement benefit
obligation . . . . . . . . . . . . . . . . . . . . 4,292 4,384 4,472
Amortization of prior service cost . . . . . . . . (855) -- --
- -------------------------------------------------------------------------------
$3,741 $4,789 $4,987
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company's current policy is to fund the cost of the postretirement health
care benefits on a "pay-as-you-go" basis as in prior years.
For measurement purposes, a 9% and 8% annual rate of increase(7% annual rate of
increase for HMO plans) in the per capita cost of covered health care claims was
assumed for fiscal 1996 and fiscal 1997, respectively; the rate of increase was
assumed to decrease to 5.75% by 2009 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend by 1
percentage point in each year would increase the accumulated postretirement
benefit obligation by approximately $1,595 and the aggregate of service and
interest cost components of the annual net postretirement health care cost by
approximately $221. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8.0%, 7.75% and 8.25% for the
years ended June 30, 1996, 1995 and 1994 respectively.
10. RELATED PARTY TRANSACTIONS
The Company has an agreement with the Spectrum Group, Inc. whereby Spectrum will
provide management services to the company through fiscal 1999 at an annual fee
plus certain allocated and out of pocket expenses. The Company's chairman is
also the chairman of Spectrum. The services provided include consultation and
direct management assistance with respect to operations, strategic planning and
other aspects of the business of the Company. Fees and expenses paid to Spectrum
for these services under the agreement amounted to $865, $818 and $715 for the
years ended June 30, 1996, 1995 and 1994 respectively.
During the years ended June 30, 1996, 1995 and 1994, the Company paid
approximately $952, $948 and $914, respectively in fees to charter an aircraft
owned by a company in which the chairman is the principal shareholder. The
Company believes the fees paid were equivalent to those that would be paid under
an arm's-length transaction.
During fiscal years 1995 and 1994, a member of the Companys' Board of Directors
served as a consultant to the Company on various aspects of the Company's
business and strategic issues. Fees paid for said services by the Company during
the periods ended June 30, 1995 and 1994 were $137 and $146 respectively.
Aggregate fees and expenses for the same periods were $158 and $171.
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30:
1996 1995
- -------------------------------------------------------------------------------
Salaries, wages and related items. . . . . . . . . . . . $27,828 $29,068
Warranty . . . . . . . . . . . . . . . . . . . . . . . . 43,739 14,580
Interest . . . . . . . . . . . . . . . . . . . . . . . . 4,600 4,703
Income taxes . . . . . . . . . . . . . . . . . . . . . . (862) 2,196
Repositioning reserves (see Note 2). . . . . . . . . . . 21,827 3,611
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 29,267 25,076
- -------------------------------------------------------------------------------
$126,399 $79,234
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
35
<PAGE>
MagneTek Inc.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in operating assets and liabilities of continuing operations follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Increase) decrease in accounts receivable . . . . . . . . . . . . . . $33,023 $(21,166) $29,927
(Increase) decrease in inventories . . . . . . . . . . . . . . . . . . 21,782 (39,718) (10,640)
(Increase) decrease in prepaids and other current assets . . . . . . . 6,335 3,758 (3,258)
(Increase) decrease in other operating assets. . . . . . . . . . . . . (4,942) (111) (1)
Increase (decrease) in accounts payable. . . . . . . . . . . . . . . . (13,729) 3,481 (14,180)
Increase (decrease) in accrued liabilities . . . . . . . . . . . . . . 938 6,193 (20,858)
Increase (decrease) in deferred income taxes . . . . . . . . . . . . . 70 (6,192) (4,785)
Increase (decrease) in other operating liabilities . . . . . . . . . . 17 2,779 5,464
- ---------------------------------------------------------------------------------------------------------------
$43,494 $(50,976) $(18,331)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Cash paid for interest and income taxes follows:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $31,626 $4,338 $54,841
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,614 $10,548 $5,335
</TABLE>
13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company currently operates in three business segments: Motors and Controls;
Lighting Products; and Power Supplies.
The Motors and Controls segment designs, manufactures and markets a broad range
of high quality fractional and integral electric motors, medium output
generators and electronic adjustable speed drives and systems.
The Lighting Products segment produces magnetic and electronic ballasts for
various lighting applications.
The Power Supplies segment produces electronic power supplies primarily for
computer and telecommunications applications, as well as industrial equipment;
component transformers for a wide range of electronic equipment; and power
converters for recreational vehicles.
The Company sells its products primarily to large original equipment
manufacturers and distributors. The Company performs ongoing credit evaluations
of its customers' financial conditions and generally requires no collateral. The
Company has no significant concentration of credit risk.
36
<PAGE>
MagneTek Inc.
Financial information by business segment for continuing operations follow:
<TABLE>
<CAPTION>
MOTORS AND LIGHTING POWER
FOR THE YEAR ENDED JUNE 30, 1996 CONTROLS PRODUCTS SUPPLIES TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $530,718 $456,804 $174,103 $1,161,625
Operating income (loss). . . . . . . . . . . . . . . . . . . 38,127 (53,898) 7,462 (8,309)
Identifiable assets* . . . . . . . . . . . . . . . . . . . . 280,464 241,818 156,492 678,774
Capital expenditures . . . . . . . . . . . . . . . . . . . . 18,523 11,737 10,255 40,515
Depreciation and amortization. . . . . . . . . . . . . . . . 16,407 15,572 8,062 40,041
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Operating income (loss) for the year ended June 30, 1996, reflects pretax
charges of $2,891 and $47,131 and $483 in the Motors and Controls, Lighting
Products and Power Supplies segments, respectively, related to repositioning,
warranty, and other charges(see Note 2).
<TABLE>
<CAPTION>
MOTORS AND LIGHTING POWER
FOR THE YEAR ENDED JUNE 30, 1995 CONTROLS PRODUCTS SUPPLIES TOTAL
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $515,217 $551,500 $135,819 $1,202,536
Operating income . . . . . . . . . . . . . . . . . . . . . . 39,455 29.442 6,459 75,356
Identifiable assets* . . . . . . . . . . . . . . . . . . . . 331,623 321,663 203,882 857,168
Capital expenditures . . . . . . . . . . . . . . . . . . . . 20,839 15,176 7,880 43,895
Depreciation and amortization. . . . . . . . . . . . . . . . 14,562 17,515 6,603 38,680
- -------------------------------------------------------------------------------------------------------------------------
MOTORS AND LIGHTING POWER
FOR THE YEAR ENDED JUNE 30, 1994 CONTROLS PRODUCTS SUPPLIES TOTAL
- -------------------------------------------------------------------------------------------------------------------------
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $472,602 $480,820 $179,704 $1,133,126
Operating income (loss). . . . . . . . . . . . . . . . . . . 26,719 (17,721) 900 9,898
Identifiable assets* . . . . . . . . . . . . . . . . . . . . 421,044 332,203 178,111 931,358
Capital expenditures . . . . . . . . . . . . . . . . . . . . 14,451 21,316 7,571 43,338
Depreciation and amortization. . . . . . . . . . . . . . . . 13,577 16,892 5,949 36,418
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Operating income (loss) for the year ended June 30, 1994, reflects pretax
charges of $2,339 and $27,975 and $847 in the Motors and Controls, Lighting
Products and Power Supplies segments, respectively, related to restructuring and
other costs primarily in the electronic ballast business.
*Identifiable assets include net assets of discontinued operations of $1,174,
$98,118 and $197,217 for 1996, 1995, and 1994 respectively.
Geographic information with respect to the Company's European Subsidiaries
follows:
FOR THE YEAR ENDED JUNE 30 1996 1995 1994
- -------------------------------------------------------------------------------
Sales. . . . . . . . . . . . . . . . . . . . $206,701 $175,727 $202,593
Operating income . . . . . . . . . . . . . . 3,471 6,003 10,004
Identifiable assets. . . . . . . . . . . . . 172,636 158,207 174,736
Capital expenditures . . . . . . . . . . . . 10,011 8,532 9,723
Depreciation and amortization. . . . . . . . 8,197 8,475 8,689
The Company's foreign operations outside of Europe are not material. Export
sales were $61,520, $60,204 and $60,143 in 1996, 1995 and 1994, respectively.
37
<PAGE>
MagneTek Inc.
14. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
1996 QUARTER ENDED SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . $272,670 $282,162 $301,628 $305,165
Gross profit . . . . . . . . . . . . . . . . . . . 43,091 46,612 52,512 14,406
Provision (benefit) for income taxes . . . . . . . (884) (211) 1,668 18,827
Income (loss) from continuing operations
before extraordinary item. . . . . . . . . . . . . $(3,538) $(1,530) $1,424 $(90,520)
Net income (loss). . . . . . . . . . . . . . . . . $(3,538) $(1,530) $1,424 $(90,520)
Per common share:
Primary:
Net income (loss). . . . . . . . . . . . . . . . . $(.14) $(.06) $.06 $(3.64)
Fully diluted:
Net income (loss). . . . . . . . . . . . . . . . . * * * *
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In the fourth quarter of 1996 the Company recorded charges of $79,717, primarily
related to the Company's Lighting Products segment and its investment in its
German subsidiary, for repositioning of operations primarily for severance
costs, termination benefits and asset write-downs associated with plant moves
and closures as well as estimated warranty requirements and other costs (see
Note 2). In review of the Company's deferred tax asset in accordance with FASB
No. 109, a $14,700 charge was incurred and reflected in fourth quarter results.
<TABLE>
<CAPTION>
1996 QUARTER ENDED SEPT. 30 DEC. 31 MAR. 31 JUNE 30
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . $274,755 $290,627 $318,652 $318,502
Gross profit . . . . . . . . . . . . . . . . . . . 51,720 58,687 64,386 64,843
Provision (benefit) for income taxes . . . . . . . 1,924 3,246 4,795 4,935
Income (loss) from continuing operations
before extraordinary item. . . . . . . . . . . . . 2,658 4,480 6,901 7,457
Net income (loss). . . . . . . . . . . . . . . . . 5,758 4,480 2,081 (10,043)
Per common share:
Primary:
Income (loss) from continuing operations
before extraordinary item. . . . . . . . . . . . . $.11 $.18 $.28 $.30
Net income (loss). . . . . . . . . . . . . . . . . $.23 $.18 $.08 $(.40)
Fully diluted:
Income (loss from continuing operations
before extraordinary item. . . . . . . . . . . . . $.11 $.18 $.26 $.28
Net income (loss). . . . . . . . . . . . . . . . . $.23 $.18 * *
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In the first quarter of fiscal 1995, the Company recorded a $3,100 gain (net of
tax) associated with the sale of the controls business. The Company recorded a
third quarter extraordinary after tax loss of $4,820 associated with the write-
off of deferred financing costs and premiums paid to extinguish its 11.45
percent Senior Notes (see Note 4). Fourth quarter results included a $17,500
charge to provide for additional losses on disposal of discontinued operations
(see Note 2).
38
<PAGE>
MagneTek, Inc.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
MagneTek, Inc.
We have audited the accompanying consolidated balance sheets of MagneTek, Inc.
as of June 30, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MagneTek, Inc. at
June 30, 1996 and 1995, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for the impairment of long lived assets and for long lived
assets to be disposed of in 1996.
/s/ Ernest & Young LLP
St. Louis, Missouri
August 20, 1996, except for the second paragraph of Note 4,
as to which the date is September 16, 1996
39
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 33-31932, 33-40222, 33-41854 and 33-43856) and in the related
Prospectuses, and in the Registration Statements (Form S-8 Nos. 33-31439,
33-33887, 33-34112, 33-34834, 33-44519, 33-58929, and 333-04021) pertaining
to the 1987 Stock Option Plan of MagneTek, Inc., the MagneTek, Inc. FlexCare
Plus Retirement Savings Plan, the 1989 Incentive Stock Compensation Plan of
MagneTek, Inc., the MagneTek Unionized Employee Savings Plan, the Amended and
Restated 1989 Incentive Stock Compensation Plan of MagneTek, Inc., the Second
Amended and Restated 1989 Incentive Stock Compensation Plan of MagneTek,
Inc., and the MagneTek, Inc. Non-Employee Director Stock Option Plan, of our
reports dated August 20, 1996, except for the second paragraph of Note 4, as
to which the date is September 16, 1996, with respect to the consolidated
financial statements and schedule of MagneTek, Inc. included or incorporated
by reference in the Annual Report (Form 10-K) for the year ended June 30,
1996.
St. Louis,Missouri
September 27, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 871
<SECURITIES> 0
<RECEIVABLES> 207,242
<ALLOWANCES> 5,428
<INVENTORY> 203,265
<CURRENT-ASSETS> 432,852
<PP&E> 383,498
<DEPRECIATION> 207,079
<TOTAL-ASSETS> 678,774
<CURRENT-LIABILITIES> 233,567
<BONDS> 322,023
0
0
<COMMON> 255
<OTHER-SE> 41,303
<TOTAL-LIABILITY-AND-EQUITY> 678,774
<SALES> 1,161,625
<TOTAL-REVENUES> 1,161,625
<CGS> 1,005,004
<TOTAL-COSTS> 1,005,004
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,591
<INCOME-PRETAX> (74,764)
<INCOME-TAX> 19,400
<INCOME-CONTINUING> (94,164)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,164)
<EPS-PRIMARY> (3.78)
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>Per share amounts on a fully diluted basis have been omitted as such amounts
are anti-dilutive in relation to primary per share amounts.
</FN>
</TABLE>
