<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
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, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10233
------------------
MAGNETEK, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 95-3917584
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26 CENTURY BOULEVARD
NASHVILLE, TENNESSEE 37214
(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
Preferred Stock Purchase Rights 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. / /
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 17, 1997) was $655,970,706.
The number of shares outstanding of the Registrant's Common Stock, as
of September 17, 1997, was 31,088,876 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the MagneTek, Inc. 1997 Annual Report to Shareholders for
the year ended June 30, 1997 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.
1997 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, 1997 are incorporated by reference into Part III
hereof.
<PAGE>
MAGNETEK, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997 (1)
PAGE
----
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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.. . . . . . . . . . . . . . . . . . . . . . . 9
ITEM 6. SELECTED FINANCIAL DATA.. . . . . . . . . . . . . . . . . . . . . 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.. . . . . . . . . . . . . . . . . . . . 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.. . . . . . . . . . . 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . 10
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . 10
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . 13
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
- - - --------------------------------
(1) The Company uses a 52-53 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 1997, 1996 and 1995
contained 52 weeks.
i
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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 due to intensive
capital requirements and required access to market channels. MagneTek, Inc.
("MagneTek" or the "Company") has historically pursued a growth strategy
designed to achieve the size necessary to compete with 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 the Company 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 the 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 outstanding as contemplated by the
restructuring plan.
Ronald Hoge joined the Company as President and CEO in June 1996 and
under his leadership, the Company initiated a review to reposition its
operations, reduce operating costs and improve profitability. Certain reserves
were established in connection with this review (see Note 2 to Consolidated
Financial Statements). During fiscal 1997, the Company commenced a review of
the economic benefits of vertical integration and the cost/quality comparison of
in-house capabilities versus outsourcing. The outcome of this review is
expected to result in an increase in outsourcing. The Company also analyzed
quality systems resulting in the initiation of a "Six Sigma" program to improve
quality performance throughout the Company. Information systems capabilities
were also reviewed and a comprehensive systems upgrade will begin in fiscal
1998.
The Company 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 1997, manufactures equipment in two product
groups: Motors and Generators, including fractional and integral horsepower
electric motors and medium voltage generators, and Drives and Systems,
including, electronic adjustable speed drives and drive systems. The Company's
European operations represented less than 3% of the segment's total net sales in
fiscal 1997. MagneTek has expanded its existing motor and generator operations
in Hungary and maintains a 55% ownership of a joint venture in China
1
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which produces generators for consumption in Asia. One customer, Caterpillar,
Inc., accounted for 16% of the segment's total net sales in fiscal 1997.
MOTOR AND GENERATOR PRODUCTS. During fiscal 1997, sales of Motor and
Generator products represented 83% of Motors and Controls segment revenues.
MagneTek electric motors, most of which use alternating current ("AC") power,
range in size 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-horsepower ("FHP") motors. FHP motors are
used in both residential applications, primarily in appliances, such as room air
conditioners, dehumidifiers and ventilators, as well as pool and spa pumps, and
in commercial applications such as 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,
mining, petrochemical and commercial laundry applications. MagneTek also
manufactures direct current ("DC") motors, ranging in size from 1/6 to 3
horsepower, used in variable speed applications such as conveyors, material
handling and packing equipment, exercise equipment and machine tools.
Approximately 73% 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 approximately 3,500 distributors,
primarily for the purpose of replacement.
Generators manufactured by the Company range in size from 50 kilowatts
("KW") to 2,250 KW. Over 93% of generator sales are to Caterpillar, Inc., which
manufactures and sells engine generator units for prime and standby power
applications.
DRIVES AND SYSTEMS. Sales of drives and drive systems accounted for
17% of the Motors and Controls segment's total net sales for fiscal 1997. The
Company's electronic variable speed drives and drive systems adjust and control
the speed and torque of electric motors. They are used in applications
involving HVAC, paper converting, wire drawing, extrusion elevators, machine
tools and material handling equipment. MagneTek drives and drive systems are
sold primarily to OEMs and end users through a specialized engineering oriented
sales force as well as through electrical distributors for industrial plant and
replacement purposes.
BACKLOG. The Company's backlog in the Motors and Control segment as
of June 30, 1997 was $69.6 million compared to $85.3 million at the end of
fiscal 1996. Decreased backlog was primarily a function of reduced lead times
for FHP motors with residential applications. With continued improvement in
cycle times and enhanced production capabilities, overall responsiveness has
improved and has reduced the need for customers to place orders over extended
time frames.
COMPETITION. The principal competitors of the Company in Motor and
Generator products are Emerson Electric Company, General Electric Company,
Baldor Electric Company, A.O. Smith and Onan. The principal competitors in
Drives and Systems are Emerson Electric Company, Allen Bradley and Eaton
Corporation. Certain of these competitors have substantially greater resources
than the Company. The Company competes principally on the basis of customer
service and engineering capabilities, product quality and price.
2
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LIGHTING PRODUCTS SEGMENT
GENERAL. The Lighting Products segment accounted for 40% of
MagneTek's net revenues in fiscal 1997. 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 accounted for 19% of the segment's total
net sales in fiscal 1997; and Lithonia Lighting, a domestic lighting fixture
OEM, accounted for 11% of segment sales. The Company is in the process of
relocating certain specialty lighting product lines previously manufactured in
Germany to Hungary to reduce manufacturing costs. This relocation is expected
to be complete by the end of calendar year 1997.
MAGNETIC AND HID BALLASTS. Sales of magnetic ballasts (including HID)
accounted for 50% (40% in the U.S. and 10% in Europe) of the segment's net sales
in fiscal 1997. Magnetic fluorescent ballasts are used primarily in standard
fluorescent lighting fixtures in office, commercial and residential
applications, as well as 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 65%
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 1,600 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 initial costs to consumers are higher than
magnetic ballasts, electronic fluorescent ballasts can provide greater savings
through reduced energy consumption. Sales of electronic ballasts, primarily in
the U.S., accounted for 33% of the segment's total net sales in fiscal 1997.
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. Certain of the recent
repositioning actions taken by the Company are intended to accommodate this
demand change. Electronic ballasts are sold through essentially the same
channels as magnetic ballasts.
On August 28, 1997, the Company announced an agreement with General
Electric Company ("GE") wherein GE will become the exclusive distributor in
North America of the Company's linear electronic ballasts. The product will be
co-branded with the MagneTek and GE names. The Company will continue to sell
magnetic and HID ballasts through its traditional market channels and linear
electronic ballasts directly to OEM customers. The agreement also contemplates
possible future joint product development for electronic lighting products.
BACKLOG. Lighting Products segment backlog as of June 30, l997 was
$29.0 million compared to $31.5 million at the end of fiscal 1996. The backlog
decline reflects a continued trend by customers to demand reduced lead times and
increasing customer responsiveness.
COMPETITION. MagneTek's primary competitors in the lighting ballast
business in the U.S. are Advance Transformer (a division of North American
Phillips) and Motorola, and in Europe, Schwabe, Helvar and Zumtobel. Some of
these companies have substantially
3
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greater resources than MagneTek, which competes principally on the basis of
customer service, engineering capability, product quality and price.
POWER SUPPLIES SEGMENT
GENERAL. The Power Supplies segment accounted for 14% of the
Company's net revenues in fiscal 1997. This segment manufactures electronic
power supplies and various small component and specialty transformers. European
operations accounted for 57% of the Power Supplies segment revenues in fiscal
1997. Two customers, IBM (30% of the segment's net sales in fiscal 1997) and
Siemens (14% of the segment's net sales in fiscal year 1997), are important to
the revenue base for the segment. Electronic power supplies manufactured by
MagneTek are used primarily in data processing and telecommunications equipment.
The Company also manufactures power converters for recreational vehicles and
boats, as well as component and specialty transformers incorporated in a wide
range of electronic equipment.
BACKLOG. Power Supplies segment backlog as of June 30, 1997 was $57.5
million compared to $62.2 million as of the end of fiscal 1996. The decrease in
backlog reflects reduced orders in the European operations due to shorter lead
time requirements and the sale of a domestic power distribution transformer
product line.
INTERNATIONAL OPERATIONS
MagneTek's European operations include ballast and power supply
production in Italy, Germany and Hungary and motor manufacturing in the United
Kingdom and Hungary. The Company has initiated generator production in China
and has recently organized a sales office in Hong Kong. In addition, the
Company is continuing to expand its manufacturing capabilities in Mexico.
During the second half of fiscal 1998, MagneTek expects to begin production of
ballasts and power supplies in a facility in Reynosa, Mexico. The Company's
international sales, including sales from domestic operations, during fiscal
1997 accounted for 22% of the Company's net sales.
SUPPLIERS AND RAW MATERIALS
The Company has historically manufactured many of the materials and
components used in its products, including ballast and motor laminations and
capacitors. The Company also draws its own magnet wire primarily for products
in the Ballasts and Transformers segment. As described below, based upon an
analysis of the costs and benefits of the Company's historical level of vertical
integration, the Company has begun increasingly to outsource certain component
parts that were previously produced internally.
Virtually all materials and components purchased by the Company are
available from multiple suppliers. During fiscal 1997 approximately 58% of the
Company's cost of sales was for the purchase of direct materials. Production
requirements depend heavily on steel, copper and aluminum, as well as certain
electronic components. The Company generally negotiates prices with steel
vendors on an annual basis. The Company purchases copper for the Ballasts and
Transformers segment primarily in rod form for drawing its own magnet wire and
for the Motors and Controls segment in the form of finished magnet wire. The
Company seeks to mitigate its exposure to fluctuations in copper prices through
short-term hedging programs as well as through forward-contract arrangements
with magnet wire suppliers. The Company purchases its aluminum requirements
based upon the spot prices at delivery.
4
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The Company has recently entered into agreements with third party
suppliers to provide certain component parts for its ballast products. These
arrangements are expected to allow the Company to capitalize on third party
expertise resulting in lower total costs and higher quality versus internal
product. Outsourcing will continue in those areas where the Company lacks
economics of scale or technical expertise and is expected to apply to all of the
Company's business segments. The Company expects to focus internal production
of components where the Company has competitive advantages in cost, quality and
delivery.
RESEARCH AND DEVELOPMENT
Research and development activities are conducted by the respective
operating divisions and are directed toward enhancement of the existing products
and development of new products. Advanced technologies are being developed in
four main development centers and future development is sponsored by the Company
and conducted by leading universities. Total research and development
expenditures were approximately $23.6 million, $21.5 million and $23.6 million,
respectively for the 1997, 1996 and 1995 fiscal years.
TRADEMARKS AND PATENTS
The Company holds numerous patents and believes that it holds all the
patent, trademark and other intellectual property rights necessary to conduct
its business.
EMPLOYEES
At the end of fiscal 1997, the Company had approximately 1,900
salaried employees and approximately 11,900 hourly employees, of whom
approximately 4,900 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 1997 did not entail
material expenditures, and its remediation activities for fiscal 1998 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 certain waste materials, 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 Inactive
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Hazardous Substance 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.
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 1997, and its indemnification obligations for
fiscal 1998 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.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION
This document contains "forward-looking statements" as defined on the
Private Securities Litigation Reform Act of 1995, that are subject to risks and
uncertainties which, in many cases, are beyond the control of the Company.
These include but are not limited to economic conditions in general, business
conditions in electrical and electronic equipment markets, competitive factors
such as pricing and technology, and the risk that the Company's ultimate costs
of doing business exceed present estimates. Further information on factors
which could affect MagneTek's financial results, are described in the Company's
filings with the Securities and Exchange Commission.
ITEM 2. PROPERTIES.
MagneTek'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 shown as leased.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION LEASE TERM SIZE (SQ. FT.) PRINCIPAL USE
-------- ---------- -------------- -------------
<S> <C> <C> <C>
Altavista, Virginia -- 108,000 Motor manufacturing
Bridgeport, Connecticut 1999 100,000 Capacitor manufacturing
6
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<CAPTION>
APPROXIMATE
LOCATION LEASE TERM SIZE (SQ. FT.) PRINCIPAL USE
-------- ---------- -------------- -------------
<S> <C> <C> <C>
Budapest, Hungary 2002 154,000 Motor manufacturing
Cegled, Hungary -- 152,000 Motor manufacturing
Fuzhou, People's
Republic of China 2016 100,000 Generator manufacturing
Gainsborough
Lincolnshire,
England -- 44,000 Motor manufacturing
Gallman, Mississippi 1999 plus options 130,000 Wire mill
to 2073
Goodland, Indiana -- 75,000 Component transformer
manufacturing
Gordonsville, Tennessee 2004 68,000 Motor Manufacturing
Huntington, Indiana -- 157,000 Converter and power supply
manufacturing
Huntsville, Alabama -- 75,000 Electronic ballast manufacturing
and power electronics research
and development center
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 2007 251,600 Fluorescent ballast assembly
and distribution center
Milan, Italy -- 53,000 Ballast manufacturing
Nashville, Tennessee 2005 67,000 Corporate headquarters
New Berlin, Wisconsin 2008 122,400 Drives and systems
manufacturing
7
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<CAPTION>
APPROXIMATE
LOCATION LEASE TERM SIZE (SQ. FT.) PRINCIPAL USE
-------- ---------- -------------- -------------
<S> <C> <C> <C>
Owosso, Michigan -- 198,000 Motor manufacturing
Pomaz, Hungary 2006, 2007 44,000 Power supply and ballast
manufacturing
Ripley, Tennessee -- 84,000 Motor manufacturing
St. Louis, Missouri 2000 plus option 51,000 Administration, marketing and
to 2005 accounting personnel
Valdarno, Italy -- 149,000 Power supply manufacturing
</TABLE>
The Company believes its facilities are in satisfactory condition and are
adequate for its present operations.
ITEM 3. LEGAL PROCEEDINGS.
PRODUCTS LIABILITY
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.
ASBESTOS
The Company and certain of its subsidiaries have been named as
defendants in a suit filed by Cooper Industries, Inc. ("Cooper"), alleging
breach of the 1986 agreement by which the Company acquired certain businesses
from Cooper. At issue in the litigation is the question of which party has
responsibility in connection with pending lawsuits (the "asbestos lawsuits")
involving numerous plaintiffs who allege injurious exposure to asbestos
contained in products manufactured by current or former subsidiaries and
divisions of Cooper. Cooper claims that the Company is obligated to defend and
indemnify Cooper in connection with the asbestos lawsuits. The Company has
denied that it is obligated under the agreement to defend and indemnify Cooper
in connection with the asbestos lawsuits, and has filed a counterclaim asserting
that Cooper is obligated under the agreement to defend and indemnify the Company
in connection with the asbestos lawsuits and that certain insurance coverage
available to Cooper should be applied to the asbestos lawsuits. The Company
intends to litigate its position vigorously.
In 1994, the Company sold the assets of one of its subsidiaries to
Patriot Sensors and Controls ("Patriot") pursuant to an agreement which provides
that the parties will share responsibility for most of the asbestos lawsuits
over a five year period, with Patriot bearing full responsibility for the
asbestos lawsuits thereafter. Patriot has stated that it may be financially
unable to perform its indemnification obligations with respect to the asbestos
lawsuits. The Company and Patriot are not currently in litigation.
Due to (i) the early stage of the Cooper litigation, (ii) the
potential that Patriot may or may not perform some or all of its indemnification
obligations to the Company, and
8
<PAGE>
(iii) the ongoing review of strategies and defenses available to the Company in
the asbestos lawsuits, it is difficult to predict the outcome of the foregoing
legal proceedings. However, management of the Company does not believe that the
financial impact of the foregoing legal proceedings will be material.
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 29, 1997.
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 1996 and 1997:
QUARTER ENDING HIGH LOW
----------------------------------------------------------
September 30, 1996 11-5/8 8-l/8
December 31, 1996 14-1/8 10-5/8
March 31, 1997 18-l/8 12-1/4
June 30, 1997 18-3/8 14-7/8
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
The Company's Common Stock is traded on the New York Stock Exchange
under the ticker symbol "MAG." As of September 12, 1997, there were
approximately 325 record holders of its Common Stock. No cash dividends have
been paid on the Common Stock.
MagneTek 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 1997 bank loan agreement, which provides that the Company may not
declare or pay any dividend or make any distribution with respect to its capital
stock unless (i) 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.
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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 1997 Annual Report to Stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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 64 Chairman of the Board of Directors
Ronald N. Hoge 52 President, Chief Executive Officer
and Director
Antonio Canova 55 Executive Vice President
Brian R. Dundon 51 Executive Vice President
Gerard P. Gorman 45 Executive Vice President
John E. Steiner 53 Executive Vice President
Daryl D. David 43 Senior Vice President, Human
Resources and Administration
Alexander Levran, Ph.D. 47 Senior Vice President, Technology
David P. Reiland 43 Senior Vice President and Chief
Financial Officer
James E. Schuster 44 Senior Vice President, Operations
John P. Colling, Jr. 41 Vice President and Treasurer
Nancy M. Falls 41 Vice President, Investor Relations
Thomas R. Kmak 47 Vice President and Controller
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NAME AGE POSITION
---- --- --------
Samuel A. Miley 40 Vice President, General Counsel and
Secretary
Dennis L. Hatfield 49 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 and Corporate Governance
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, 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. Gorman joined MagneTek in November 1996 from General Electric
Environmental Services, Inc. ("GEESI"), where he was President. A wholly owned
subsidiary of the General Electric Company, GEESI supplies air pollution control
equipment and services to government, utility and industrial customers
worldwide. From 1991 to 1994, Mr. Gorman was President of Woodward-Clyde
International ("WCI"), a unit of Woodward-
11
<PAGE>
Clyde Group, Inc., and prior to his association with WCI, he served in positions
of increasing responsibility with Ebasco Services, Inc. He holds a BS degree in
Industrial & Mechanical Engineering from Pratt Institute, New York, and an MBA
from New York University, and is a graduate of the International Strategic
Planning Program of the Wharton School of Business.
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 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 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.
12
<PAGE>
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.
Ms. Falls has been Vice President, Investor Relations since July 1997.
Prior to joining the Company, Ms. Falls spent 13 years with Shawmut Bank where
she served in positions of increasing responsibility, most recently as Senior
Vice President, Loan Syndications, a function which she helped to establish.
From 1981 to 1983, she was Assistant Vice President of Allied Bank
International, New York, following two years as International Credit Manager of
First Tennessee Bank.
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 from
March 1986 until January 1990 and Sidley & Austin in Chicago, Illinois from May
1982 until March 1986.
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. from February 1989 until December 1990 and Schafer Environmental
Associates, Inc. from March 1991 until July 1992. 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 1997, except for information regarding
the Executive Officers of the Company, which is provided in response to Item 10,
above.
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:
13
<PAGE>
Form 10-K Annual Report To
Page Stockholders Page
-------- -----------------
1. Consolidated Financial Statements
Consolidated Statements of Income for Years
Ended June 30, 1997, 1996, and 1995 47
Consolidated Balance Sheets at June 30, 1997
and 1996 48
Consolidated Statements of Stockholders'
Equity for Years Ended June 30, 1997, 1996
and 1995 50
Consolidated Statements of Cash Flows for
Years Ended June 30, 1997, 1996 and 1995 51
Notes to Consolidated Financial Statements 52
Report of Ernst & Young LLP, Independent
Auditors 69
2. Consolidated Financial Statement Schedule
Report of Ernst & Young LLP, Independent
Auditors S-1
Schedule 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 14
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
NUMBER 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.
14
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
4.1 (3) Indenture between the Company and Union Bank, as Trustee,
dated as of November 15, 1991 for $125,000,000 10-3/4% Senior
Subordinated Debentures Due 1998 including form of Debenture
(10-3/4% Indenture).
4.2 (4) Indenture Supplement by and between the Company and Union
Bank, as Trustee, dated June 24, 1997, amending the 10-3/4%
Indenture.
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.
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 (13) MagneTek, Inc. Deferral Investment Plan.
15
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.16 (13) MagneTek, Inc. Performance-Based Pension Restoration Plan.
10.17 (14) Form of Rights Agreement dated as of March 4, 1997 by and
between the Company and The Bank of New York, as Rights
Agent.
10.18 (15) MagneTek, Inc. Directors' Deferral Investment Plan.
10.19 (13) Employment Agreement dated as of June 1, 1996 between the
Company and Ronald N. Hoge.
10.20 (4) Unsecured Promissory Note and Loan Agreement dated July 29,
1996 of Ronald N. Hoge.
10.21 (4) Form of Unsecured Promissory Note by Ronald N. Hoge, James E.
Schuster and Daryl D. David, in the aggregate amounts of
$1,317,243, $245,000 and $175,000, respectively.
10.22 (15) Non-Qualified Stock Option Agreement between the Company and
Ronald N. Hoge.
10.23 (15) Non-Qualified Stock Option Agreement between the Company and
Brian R. Dundon.
10.24 (15) Non-Qualified Stock Option Agreement between the Company and
David P. Reiland.
10.25 (15) Non-Qualified Stock Option Agreement between the Company and
John E. Steiner.
10.26 (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.
10.27 (9) Registration Rights Agreement dated as of June 28, 1996 by
and between the Company and U.S. Trust Company of California,
N.A.
10.28 (12) Executive Management Agreement dated as of July 1, 1994, by
and between the Company and The Spectrum Group, Inc.
10.29 (16) Amendment dated as of January 25, 1995 to the Executive
Management Agreement between the Company and The Spectrum
Group, Inc.
10.30 (17) 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").
10.31 (18) First Supplemental Security Agreement dated as of August 1,
1993 by and between the Huntsville IDB and The CIT
Group/Equipment Financing, Inc. (CIT).
16
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.32 (18) Second Supplemental Security Agreement dated as of October 1,
1993 by and between the Huntsville IDB and CIT.
10.33 (17) Equipment Lease Agreement of even date with the Huntsville
Security Agreement among the parties thereto.
10.34 (18) Amendment to Equipment Lease Agreement dated as of August 1,
1993 between the Huntsville IDB and the Company.
10.35 (18) Second Amendment to Equipment Lease Agreement dated as of
October 1, 1993 between the Huntsville IDB and the Company.
10.36 (19) 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.
10.37 (20) First, Second and Third Amendments to Lease Agreement.
10.38 (21) Fourth Amendment to Lease Agreement.
10.39 (20) Bond Guaranty Agreement between the Company, as Guarantor and
First Alabama Bank dated as of February 1, 1993 relating to
the Lease Agreement.
10.40 (20) 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).
10.41 (20) First, Second and Third Supplemental Indentures to the
Indenture.
10.42 (21) Fourth Supplemental Indenture to the Indenture.
10.43 (22) Environmental Agreement among the Company, Universal
Manufacturing Corporation and Farley Northwest Industries,
Inc., as amended.
10.44 (22) Letter Agreement dated as of January 9, 1986, between the
Company and Farley Northwest Industries, Inc., pursuant to
Stock Purchase Agreement.
10.45 (22) Tax Agreement dated as of February 12, 1986, between the
Company and Farley Northwest Industries, Inc.
10.46 (22) Agreement dated as of January 9, 1986, between the Company
and Farley/Northwest Industries, Inc. relating to the Totowa
facility.
17
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.47 (4) Restated Credit Agreement dated as of June 20, 1997 between
the Company, as Borrower, NationsBank of Texas, N.A., as
Agent, CIBC Inc., The First National Bank of Chicago, The
Long-Term Credit Bank of Japan, Ltd., Bankers Trust Company,
Credit Lyonnais -- New York Branch, and Union Bank of
California, N.A., as Co-Agents, and Certain Lenders.
10.48 (4) Guaranty dated as of December 29, 1996 by MagneTek Financial
Services, Inc., as Guarantor, for the benefit of NationsBank,
in its capacity as Agent for the Lenders now or in the future
party to the Credit Agreement dated as of March 31, 1995
between the Company, certain lenders and NationsBank (the
1995 Credit Agreement).
10.49 (4) Security Agreement dated as of December 29, 1996 by the
Company and MagneTek Financial Services, Inc. for the benefit
of NationsBank, in its capacity as Agent for the Lenders now
or in the future party to the 1995 Credit Agreement.
10.50 (4) Security Agreement dated as of March 31, 1995 by the Company
and the other debtors party thereto for the benefit of
NationsBank, in its capacity as Agent for the Lenders now or
in the future party to the 1995 Credit Agreement (the 1995
Security Agreement).
10.51 (4) Supplement to Security Agreement dated as of March 31, 1995
between the Company and NationsBank, in its capacity as Agent
for the Lenders now or in the future party to the 1995 Credit
Agreement, with reference to the 1995 Security Agreement.
10.52 (23) Lease and Agreement between the City of Blytheville, Arkansas
and the Company, dated as of November 1, 1988.
10.53 (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.
10.54 (22) Lease on Bridgeport, Connecticut facility of Universal
Manufacturing.
10.55 (9) Lease Agreement dated March 18, 1996 between Fujian Fufa
Company Limited and MagneTek Fuzhou Generator Company
Limited.
10.56 (22) Lease on Gallman, Mississippi facility of Universal
Manufacturing.
10.57 (24) Lease of LaVergne, Tennessee facility.
10.58 (21) First Amendment dated August 28, 1991 and Second Amendment
dated February 5, 1993 to Lease on LaVergne, Tennessee
facility.
10.59 (25) Lease of Matamoros, Mexico fluorescent ballast manufacturing
facility dated January 1, 1988.
18
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.60 (26) Lease on McMinnville, Tennessee facility of Century Electric.
10.61 (22) Lease on Mendenhall, Mississippi facility of Universal
Manufacturing.
10.62 (2) Lease on Nashville, Tennessee headquarters facility dated as
of June 30, 1995.
10.63 (27) Lease of facility in New Berlin, Wisconsin.
10.64 (7) Third Modification of Lease dated as of December 31, 1990,
for the New Berlin, Wisconsin facility.
10.65 (21) Fourth Modification of Lease dated as of February 12, 1993
for the New Berlin, Wisconsin facility.
10.66 (26) Lease of St. Louis, Missouri administration, marketing and
engineering personnel facility dated January 1, 1988.
10.67 (28) Stock Purchase Agreement dated as of January 9, 1986, between
the Company and Farley/Northwest Industries, Inc., with list
of omitted exhibits and schedules.
10.68 (28) Stock Purchase Agreement dated as of June 20, 1986, between
the Company and Better Coil and Transformer Corporation, with
list of omitted exhibits.
10.69 (29) Purchase Agreement dated as of October 22, 1986, by and among
the Company, Century and certain Securityholders.
10.70 (30) Purchase Agreement dated as of December 15, 1986, between the
Company and all the remaining Securityholders of Century.
10.71 (30) Asset Purchase Agreement dated as of December 30, 1986,
between the Company and Universal Electric.
10.72 (30) Agreement for the Sale of Stock dated as of December 30,
1986, between the Company and Cooper.
10.73 (2) Asset Purchase Agreement dated as of May 27, 1994, between
the Company and The Louis Allis Company.
10.74 (2) Asset Purchase Agreement dated as of June 17, 1994, among the
Company, MagneTek Controls, Inc. and Controls Acquisition
Corporation.
10.75 (2) Asset Purchase Agreement dated as of October 31, 1994, among
the Company, MagneTek National Electric Coil, Inc. and Rail
Products International, Inc.
19
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.76 (2) Asset Purchase Agreement dated as of November 8, 1994,
between the Company and MAS Acquiring Corp.
10.77 (2) Purchase and Sale Agreement dated November 18, 1994, by and
among the Company, MagneTek Tempe, Inc., MagneTek Deutschland
Holding GmbH and PTS, Inc.
10.78 (2) Asset Purchase Agreement dated as of March 6, 1995, by and
between the Company and GN Acquisition Partners, L.P.
10.79 (2) Asset Purchase Agreement dated as of March 13, 1995, among
the Company, MagneTek National Electric Coil, Inc. and 800
King Avenue Acquisition Corp.
10.80 (2) Asset Purchase Agreement dated as of May 31, 1995, between
MagneTek National Electric Coil, Inc. and The Guardian Resin
Corporation.
10.81 (2) Agreement of Sale dated as of June 23, 1995, between General
Signal Corporation and the Company.
10.82 (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.
10.83 (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.
10.84 (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.
10.85 (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.
10.86 (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.
10.87 (9) Asset Purchase Agreement dated as of August 30, 1996 between
the Company and Jefferson Electric, Inc.
11 (4) Computation of Earnings Per Common Share.
13 (4) 1997 Annual Report to Stockholders (pp. 42-69).
22 (4) Subsidiaries of the Company.
20
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
23 (4) Consent of Ernst & Young LLP, independent auditors.
27 (4) 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 Amendment No. 1 to Registration Statement filed on
November 8, 1991, Commission File No. 43-43856, and incorporated herein
by this reference.
(4) Filed herewith.
(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) Previously filed with Form 10-K for Fiscal Year ended June 30, 1996 and
incorporated herein by this reference.
(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.
(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 December 31, 1996 and
incorporated herein by this reference.
(14) Previously filed with Form 8-K dated March 3, 1997 and incorporated
herein by this reference.
(15) Previously filed with Form 10-Q for quarter ended March 31, 1997 and
incorporated herein by this reference.
21
<PAGE>
(16) Previously filed with Form 10-Q for quarter ended March 31, 1995 and
incorporated herein by this reference.
(17) Previously filed with Form 10-Q for quarter ended March 31, 1993 and
incorporated herein by this reference.
(18) Previously filed with Form 10-Q for quarter ended September 30, 1993 and
incorporated herein by this reference.
(19) Previously filed with Form 8-K dated January 5, 1990 and incorporated
herein by this reference.
(20) Previously filed with Form 10-K for fiscal year ended June 27, 1993 and
incorporated herein by this reference.
(21) Previously filed with Form 10-K for Fiscal Year ended July 3, 1994 and
incorporated herein by this reference.
(22) Previously filed with Amendment No. 1 to Registration Statement filed on
February 14, 1986 and incorporated herein by this reference.
(23) Previously filed with the Registration Statement filed on April 18, 1989
and incorporated herein by this reference.
(24) Previously filed with Form 10-K for Fiscal Year ended July 2, 1989 and
incorporated herein by this reference.
(25) Previously filed with Form 10-K for Fiscal Year ended July 3, 1988 and
incorporated herein by this reference.
(26) Previously filed with Post-Effective Amendment No. 1 to Registration
Statement, filed on August 3, 1987 and incorporated herein by this
reference.
(27) Previously filed with the Registration Statement filed on May 3, 1985
and incorporated herein by this reference.
(28) Previously filed with Form 10-K for Fiscal Year ended June 30, 1986 and
incorporated herein by this reference.
(29) Previously filed with Form 10-Q for quarter ended September 30, 1986 and
incorporated herein by this reference.
(30) Previously filed with Form 8-K dated December 30, 1986 and incorporated
herein by this reference.
(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.
22
<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 29th day of September, 1997.
MagneTek, Inc.
(Registrant)
/s/ Ronald N. Hoge
---------------------------------------
Ronald N. Hoge
President and 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 of September 29, 1997
- - - ----------------------------- Directors
Andrew G. Galef
/s/ RONALD N. HOGE President, Chief Executive September 29, 1997
- - - ----------------------------- Officer and Director
Ronald N. Hoge (Principal Executive Officer)
/s/ DEWAIN K. CROSS Director September 29, 1997
- - - -----------------------------
Dewain K. Cross
/s/ PAUL J. KOFMEHL Director September 29, 1997
- - - -----------------------------
Paul J. Kofmehl
/s/ CROCKER NEVIN Director September 29, 1997
- - - -----------------------------
Crocker Nevin
/s/ MARGUERITE W. SALLEE Director September 29, 1997
- - - -----------------------------
Marguerite W. Sallee
/s/ ROBERT E. WYCOFF Director September 29, 1997
- - - -----------------------------
Robert E. Wycoff
/s/ DAVID P. REILAND Senior Vice President and September 29, 1997
- - - ----------------------------- Chief Financial Officer
David P. Reiland (Principal Financial
Officer)
/s/ THOMAS R. KMAK Vice President and September 29, 1997
- - - ----------------------------- Controller (Principal
Thomas R. Kmak Accounting Officer)
23
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of MagneTek, Inc. as of
June 30, 1997 and 1996, and for each of the three years in the period ended
June 30, 1997, and have issued our report thereon dated August 18, 1997
(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 18, 1997
S-1
<PAGE>
SCHEDULE II
MAGNETEK, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at end
June 30, 1995 of year earnings Allowance Other(a) of year
- - - ----------------- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful
receivables $4,745 $4,099 ($4,249) ($174) $4,421
June 30, 1996
- - - -----------------
Allowance for
doubtful
receivables $4,421 $5,422 ($4,450) $35 $5,428
June 30, 1997
- - - -----------------
Allowance for
doubtful
receivables $5,428 $1,102 ($1,203) ($159) $5,168
</TABLE>
(a) Represents primarily opening allowances for doubtful accounts balances of
acquired companies and Foreign Translation Adjustments.
S-2
<PAGE>
- - - --------------------------------------------------------------------------------
MAGNETEK, INC.,
Issuer
and
UNION BANK OF CALIFORNIA, N.A.
Trustee
---------------------------------------
INDENTURE SUPPLEMENT
Dated as of June 24, 1997
TO
INDENTURE
Dated as of November 15, 1991
---------------------------------------
$125,000,000
10-3/4% Senior Subordinated Debentures Due 1998
- - - --------------------------------------------------------------------------------
<PAGE>
INDENTURE SUPPLEMENT
THIS INDENTURE SUPPLEMENT (the "Indenture Supplement") to the INDENTURE
dated as of November 15, 1991 between MAGNETEK, INC. and UNION BANK, Trustee
(the "Indenture") is entered into as of June 24, 1997, by and among MAGNETEK,
INC., a Delaware corporation (the "Company") and UNION BANK OF CALIFORNIA, N.A.,
a National Banking Association (successor by merger to Union Bank), as Trustee
(the "Trustee") and will become operative immediately after the 10-3/4% Senior
Subordinated Debentures due 1998 (the "Debentures") are accepted for purchase by
the Company (the "Effective Date").
PRELIMINARY STATEMENT
Section 902 of the Indenture provides, among other things, that the
Company, when authorized by resolution of the Board of Directors and the
Trustee, and with the consent of the holders of not less than a majority in
aggregate principle amount of the outstanding securities, may amend or
supplement the Indenture. The purpose of this Indenture Supplement is to
provide for the elimination of certain of the Company's covenants contained
therein following the Company's tender offer to buy all of the Securities and
receipt by the Company of the required consents of the holders. The Board of
Directors of the Company has duly authorized this Indenture Supplement. All
terms used in this Indenture Supplement which are defined in the Indenture,
either directly or by reference therein, have the meanings assigned to them
therein, except to the extent such terms are defined in this Indenture
Supplement or the context clearly requires otherwise.
SECTION 1. AMENDMENTS TO INDENTURE.
The Indenture is hereby amended such that the UNDERLINED clauses below are
added to the Indenture and the ITALICIZED clauses below are deleted from the
Indenture.
SECTION 1009. Limitation on Additional Indebtedness and Issuances of
Disqualified Capital Stock.
INTENTIONALLY OMITTED.
(a) THE COMPANY SHALL NOT, AND SHALL NOT PERMIT ANY OF ITS
SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY, CREATE, ISSUE, INCUR, ASSUME,
GUARANTEE, BECOME LIABLE FOR, CONTINGENTLY OR OTHERWISE, EXTEND THE MATURITY OF
OR OTHERWISE BECOME RESPONSIBLE FOR THE PAYMENT OF (COLLECTIVELY "INCUR") ANY
INDEBTEDNESS (INCLUDING ANY INDEBTEDNESS OF ANY ENTITY EXISTING AT THE TIME SUCH
ENTITY IS MERGED OR OTHERWISE COMBINED WITH, OR BECOMES A SUBSIDIARY OF, THE
COMPANY OR IS ASSUMED IN CONNECTION WITH THE ACQUISITION OF ANY ASSETS) OR ISSUE
ANY DISQUALIFIED CAPITAL STOCK; PROVIDED, HOWEVER, THAT THE COMPANY MAY, AND MAY
PERMIT ITS SUBSIDIARIES TO, INCUR INDEBTEDNESS OR ISSUE DISQUALIFIED CAPITAL
STOCK IF (i) NO DEFAULT OR EVENT OF DEFAULT SHALL HAVE OCCURRED AND BE
CONTINUING AT THE TIME OR AS A CONSEQUENCE OF THE ISSUANCE OF SUCH INDEBTEDNESS
OR DISQUALIFIED CAPITAL STOCK AND (ii) ON THE DATE OF THE ISSUANCE OF SUCH
INDEBTEDNESS OR
2
<PAGE>
DISQUALIFIED CAPITAL STOCK AND IMMEDIATELY AFTER GIVING EFFECT THERETO, THE
COMPANY'S CONSOLIDATED FIXED CHARGE COVERAGE RATIO WOULD BE NOT LESS THAN 2.5 TO
1.0.
(b) THE FOREGOING LIMITATION SHALL NOT APPLY TO: (i) INDEBTEDNESS OF
THE COMPANY OR ANY SUBSIDIARY OUTSTANDING ON THE DATE OF THE INDENTURE
(EXCLUDING ANY AMOUNTS COVERED UNDER THE BANK AGREEMENT BY (iii) BELOW);
(ii) INDEBTEDNESS OF THE COMPANY PURSUANT TO THE SECURITIES; (iii) INDEBTEDNESS
OF THE COMPANY NOT IN EXCESS OF THE AGGREGATE AMOUNT, AS OF THE DATE OF THE
INDENTURE, OF THE MAXIMUM COMMITMENTS UNDER THE BANK AGREEMENT ($220 MILLION),
WHETHER OR NOT ALL OF SUCH INDEBTEDNESS IS OUTSTANDING ON THE DATE OF THE
INDENTURE, (iv) INDEBTEDNESS OF THE COMPANY OR ITS SUBSIDIARIES, AS THE CASE MAY
BE, TO THE COMPANY OR ITS SUBSIDIARIES, AS THE CASE MAY BE (INCLUDING
INDEBTEDNESS OF A SUBSIDIARY OF THE COMPANY TO ANOTHER SUBSIDIARY OF THE
COMPANY); (v) ADDITIONAL INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES OF
WHICH THE AGGREGATE PRINCIPAL AMOUNT OUTSTANDING AT ANY TIME DOES NOT EXCEED
$100 MILLION, INCLUDING, WITHOUT LIMITATION, ANY INDEBTEDNESS UNDER THE BANK
AGREEMENT IN ADDITION TO THE INDEBTEDNESS REFERRED TO IN CLAUSE (iii) ABOVE;
(vi) OBLIGATIONS OF THE COMPANY AND ITS SUBSIDIARIES REPRESENTED BY TRADE
PAYABLES INCURRED IN THE ORDINARY COURSE OF BUSINESS; (vii) INDEBTEDNESS OF THE
COMPANY REFERRED TO IN CLAUSE (ii) OF THE DEFINITION OF INDEBTEDNESS, PROVIDED
THAT THE OBLIGATION TO WHICH SUCH INDEBTEDNESS RELATES IS DEEMED TO BE
INDEBTEDNESS PERMITTED HEREUNDER; AND (viii) INDEBTEDNESS OF THE COMPANY OR ANY
SUBSIDIARY ISSUED IN EXCHANGE FOR, OR 100% OF THE PROCEEDS OF WHICH ARE USED TO
REPAY, REFUND, REFINANCE, DISCHARGE, EXTEND THE MATURITY OF OR OTHERWISE RETIRE
FOR VALUE, THE OUTSTANDING INDEBTEDNESS, OR WHICH IS A RENEWAL, EXTENSION,
MODIFICATION OR REFUNDING OF INDEBTEDNESS, WHICH WHEN INCURRED WAS PERMITTED
UNDER CLAUSES (i), (ii), (iii), OR (v) ABOVE ("REFINANCING INDEBTEDNESS");
PROVIDED, HOWEVER, THAT THE PRINCIPAL AMOUNT OF SUCH REFINANCING INDEBTEDNESS
SHALL NOT EXCEED THE LESSER OF (x) THE PRINCIPAL AMOUNT OF THE INDEBTEDNESS
BEING EXTENDED, RENEWED OR REPLACED OR (y) IF THE INDEBTEDNESS BEING EXTENDED,
RENEWED OR REPLACED WAS ISSUED AT AN ORIGINAL ISSUE DISCOUNT, THE ORIGINAL ISSUE
PRICE PLUS AMORTIZATION OF THE ORIGINAL ISSUE DISCOUNT OF SUCH INDEBTEDNESS AT
THE TIME OF THE INCURRENCE OF THE REFINANCING INDEBTEDNESS, IN ADDITION, IN EACH
CASE, TO THE AMOUNT OF FEES, EXPENSES OR SIMILAR PAYMENTS INCURRED BY THE
COMPANY IN ORDER TO ISSUE SUCH REFINANCING INDEBTEDNESS.
(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SUBSECTIONS (a) AND
(b) OF THIS SECTION 1009, IN THE EVENT THAT THE COMPANY'S CONSOLIDATED FIXED
CHARGE COVERAGE RATIO IS LESS THAN 2.5 TO 1.0 (ON THE DATE OF THE ISSUANCE OF
THE INDEBTEDNESS OR DISQUALIFIED CAPITAL STOCK DESCRIBED HEREAFTER AND
IMMEDIATELY AFTER GIVING EFFECT THERETO), THE COMPANY SHALL NOT, AND SHALL NOT
PERMIT ANY OF ITS SUBSIDIARIES TO, DIRECTLY OR INDIRECTLY, ISSUE ANY
INDEBTEDNESS OR DISQUALIFIED CAPITAL STOCK IF THE PROCEEDS THEREFROM ARE USED,
DIRECTLY OR INDIRECTLY, TO REPAY, REDEEM, DEFEASE, RETIRE OR REFINANCE ANY
OBLIGATIONS THAT ARE SUBORDINATE TO OR PARI PASSU WITH THE SECURITIES UNLESS
SUCH INDEBTEDNESS OR DISQUALIFIED CAPITAL STOCK (A) IS EXPRESSLY SUBORDINATED TO
OR PARI PASSU WITH THE DEBENTURES AT LEAST TO THE SAME EXTENT AS THE
INDEBTEDNESS SO REPAID, REDEEMED, DEFEASED, RETIRED OR REFINANCED, (B) DOES NOT
MATURE PRIOR TO THE MATURITY DATE OF THE DEBENTURES AND (C) IS NOT PARTIALLY OR
FULLY REDEEMABLE OR PUTABLE PRIOR TO THE MATURITY OF THE DEBENTURES.
3
<PAGE>
SECTION 1010. Limitation on Restricted Payments.
INTENTIONALLY OMITTED.
(a) EXCEPT FOR PAYMENTS TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
THE COMPANY SHALL NOT, AND SHALL CAUSE EACH OF ITS SUBSIDIARIES NOT TO, DIRECTLY
OR INDIRECTLY, (i) DECLARE OR PAY ANY DIVIDEND ON, OR MAKE ANY DISTRIBUTION IN
RESPECT OF, OR PURCHASE, REDEEM OR OTHERWISE ACQUIRE OR RETIRE FOR VALUE, ANY
CAPITAL STOCK OF THE COMPANY, OR ANY OF ITS SUBSIDIARIES, OR ANY WARRANTS,
OPTIONS OR RIGHTS (EXCEPT, OTHERWISE THAN AS PROVIDED IN (ii) BELOW,
EXCHANGEABLE OR CONVERTIBLE DEBT OF THE COMPANY) TO ACQUIRE ANY SUCH CAPITAL
STOCK OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, OTHER THAN THROUGH THE ISSUANCE
SOLELY OF QUALIFIED CAPITAL STOCK, OR RIGHTS THERETO, OR (ii) MAKE ANY PRINCIPAL
PAYMENT ON, OR REDEEM, REPURCHASE, EXCHANGE OR OTHERWISE ACQUIRE OR RETIRE FOR
VALUE (OTHER THAN THROUGH THE ISSUANCE OF QUALIFIED CAPITAL STOCK), PRIOR TO
SCHEDULED PRINCIPAL PAYMENT OR MATURITY, INDEBTEDNESS WHICH IS SUBORDINATED IN
RIGHT OF PAYMENT TO THE DEBENTURES UNLESS SUCH EXCHANGE, PURCHASE, REDEMPTION OR
OTHER ACQUISITION OR RETIREMENT IS MADE BY EXCHANGE FOR OR OUT OF THE PROCEEDS
OF THE SUBSTANTIALLY CONCURRENT SALE OF INDEBTEDNESS OF THE COMPANY WHICH IS
(A) EXPRESSLY SUBORDINATED TO THE SECURITIES AT LEAST TO THE SAME EXTENT AS
INDEBTEDNESS SO EXCHANGED, PURCHASED, REDEEMED OR OTHERWISE ACQUIRED OR RETIRED,
(B) DOES NOT MATURE PRIOR TO THE MATURITY DATE OF THE SECURITIES AND (C) IS NOT
PARTIALLY OR FULLY REDEEMABLE OR PUTABLE PRIOR TO THE MATURITY OF THE
SECURITIES, OR (iii) MAKE ANY LOAN TO, INCUR, CREATE, ASSUME OR GUARANTEE
INDEBTEDNESS OF, OR MAKE ANY ADVANCE TO, OR OTHER INVESTMENT IN, ANY RELATED
PERSON OF THE COMPANY (OTHER THAN ANY OF THE COMPANY'S SUBSIDIARIES, EXCEPT FOR
ANY SUBSIDIARY IN WHICH ANY EMPLOYEE, OFFICER, DIRECTOR OR ANY BENEFICIAL OWNER
OF 5% OR MORE OF THE CAPITAL STOCK OF THE COMPANY IS ALSO A SHAREHOLDER OF SUCH
SUBSIDIARY), EXCEPT FOR ANY TRANSACTION WITH AN OFFICER OR DIRECTOR OF THE
COMPANY ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS (INCLUDING COMPENSATION
OR EMPLOYEE BENEFIT ARRANGEMENTS WITH ANY OFFICER OR DIRECTOR OF THE COMPANY)
(SUCH PAYMENTS OR ANY OTHER ACTIONS DESCRIBED IN (i), (ii) AND (iii),
COLLECTIVELY, "RESTRICTED PAYMENTS") "UNLESS IN EACH CASE (1) AT THE TIME OF AND
AFTER GIVING EFFECT TO THE PROPOSED RESTRICTED PAYMENT, NO DEFAULT OR EVENT OF
DEFAULT WILL HAVE OCCURRED AND BE CONTINUING, AND (2) AT THE TIME OF AND AFTER
GIVING EFFECT TO THE PROPOSED RESTRICTED PAYMENT (THE AMOUNT OF ANY SUCH
PAYMENT, IF OTHER THAN CASH, AS DETERMINED BY THE BOARD OF DIRECTORS, WHOSE
DETERMINATION SHALL BE MADE IN GOOD FAITH AND EVIDENCED BY A BOARD RESOLUTION),
THE AGGREGATE AMOUNT OF ALL RESTRICTED PAYMENTS DECLARED OR MADE AFTER
SEPTEMBER 30, 1991 (INCLUDING THE PROPOSED RESTRICTED PAYMENT) WOULD NOT EXCEED
(A) 50% OF THE AGGREGATE CONSOLIDATED NET INCOME OF THE COMPANY EARNED
SUBSEQUENT TO SEPTEMBER 30, 1991 AND PRIOR TO THE LAST DAY OF THE COMPANY'S
FISCAL QUARTER ENDING IMMEDIATELY PRIOR TO THE DATE OF SUCH PROPOSED RESTRICTED
PAYMENT (OR IF SUCH AGGREGATE CONSOLIDATED NET INCOME IS A LOSS, MINUS 100% OF
SUCH LOSS) AND MINUS 100% OF THE AMOUNT OF ANY WRITE-DOWNS, WRITE-OFFS, OTHER
NEGATIVE EVALUATIONS AND OTHER NEGATIVE EXTRAORDINARY CHARGES NOT OTHERWISE
REFLECTED IN THE CONSOLIDATED NET INCOME DURING SUCH PERIOD, PLUS (B) THE
AGGREGATE NET PROCEEDS TO THE COMPANY FROM THE SALE OF QUALIFIED CAPITAL STOCK
(OTHER THAN BY A SUBSIDIARY) SUBSEQUENT TO SEPTEMBER 30, 1991 (EXCLUDING
QUALIFIED CAPITAL STOCK PAID AS A DIVIDEND ON, OR ISSUED UPON OR IN EXCHANGE FOR
OTHER CAPITAL STOCK OR AS PAYMENT OF INTEREST ON INDEBTEDNESS OF THE COMPANY),
PLUS (C) $25 MILLION.
4
<PAGE>
(b) NOTWITHSTANDING SUBSECTION (a) OF THIS SECTION 1010, THE COMPANY
IS PERMITTED TO PAY ANY DIVIDEND WITHIN 60 DAYS AFTER THE DATE OF ITS
DECLARATION IF AT THE DATE OF DECLARATION SUCH PAYMENT WOULD HAVE BEEN PERMITTED
BY SUCH PARAGRAPHS.
SECTION 1011. Use of Proceeds from Disposition of Assets.
INTENTIONALLY OMITTED.
SUBJECT TO SECTIONS 801 AND 1010 OF THIS INDENTURE, THE COMPANY SHALL
NOT, AND SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES TO, SELL, TRANSFER OR
OTHERWISE DISPOSE OF (COLLECTIVELY, "TRANSFER") ANY ASSETS (INCLUDING BY WAY OF
SALE-AND-LEASEBACK), OTHER THAN IN THE ORDINARY COURSE OF BUSINESS, OR ANY OF
THE CAPITAL STOCK OF ANY SUBSIDIARY DIRECTLY OR INDIRECTLY OWNED BY THE COMPANY,
UNLESS (A) IN THE EVENT THAT THE ASSETS OR CAPITAL STOCK SO TRANSFERRED, IN A
SINGLE TRANSACTION OR A SERIES OF RELATED TRANSACTIONS, HAVE A VALUE IN EXCESS
OF $10,000,000, SUCH TRANSFER IS AT FAIR MARKET VALUE AS DETERMINED BY THE BOARD
OF DIRECTORS OF THE COMPANY AND (B) TO THE EXTENT THE NET PROCEEDS FROM ALL SUCH
TRANSFERS OVER A 12-MONTH PERIOD IN THE AGGREGATE EXCEED $10,000,000, SUCH NET
PROCEEDS IN EXCESS OF $10,000,000 ARE (i) APPLIED TO THE PAYMENT OF THE
PRINCIPAL OF AND INTEREST ON SENIOR INDEBTEDNESS OR THE SECURITIES, AND/OR
(ii) REINVESTED IN THE BUSINESS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES,
INCLUDING, WITHOUT LIMITATION, (x) APPLIED TO THE ACQUISITION OF ASSETS OR
CAPITAL STOCK OF A PERSON IN A LINE OF BUSINESS REASONABLY RELATED TO THE
BUSINESSES THEN CONDUCTED BY THE COMPANY AND ITS SUBSIDIARIES, PROVIDED, THAT IF
THE COMPANY OR ANY OF ITS SUBSIDIARIES ACQUIRES CAPITAL STOCK OF A PERSON, SUCH
PERSON SHALL BECOME A SUBSIDIARY OF THE COMPANY, AND (y) THE USE OF SUCH NET
PROCEEDS TO REPAY ANY INDEBTEDNESS OF ANY SUBSIDIARY OF THE COMPANY; PROVIDED,,
THAT SUCH NET PROCEEDS ARE APPLIED IN ACCORDANCE WITH (i) OR (ii) ABOVE WITHIN
SIX MONTHS OF RECEIPT THEREOF.
SECTION 1012. Limitation on Transactions with Related Persons.
INTENTIONALLY OMITTED.
(a) THE COMPANY SHALL NOT, AND THE COMPANY SHALL NOT PERMIT ANY OF
ITS SUBSIDIARIES TO, ENTER INTO ANY TRANSACTIONS OR SERIES OF RELATED
TRANSACTIONS, DIRECTLY OR INDIRECTLY, WITH ANY RELATED PERSON OF THE COMPANY
WITH A VALUE IN EXCESS OF $1 MILLION EXCEPT FOR TRANSACTIONS (INCLUDING ANY
LOANS OR ADVANCES BY OR TO, OR GUARANTEE ON BEHALF OF, ANY SUCH RELATED PERSON
OF THE COMPANY) MADE IN GOOD FAITH AND THE TERMS OF WHICH ARE FAIR AND
REASONABLE TO THE COMPANY OR SUCH SUBSIDIARY, AS THE CASE MAY BE, AND ARE AT
LEAST AS FAVORABLE AS THE TERMS WHICH COULD BE OBTAINED BY THE COMPANY OR SUCH
SUBSIDIARY, AS THE CASE MAY BE, IN A COMPARABLE TRANSACTION MADE ON AN ARM'S
LENGTH BASIS WITH PERSONS WHO ARE NOT SUCH RELATED PERSONS OF THE COMPANY;
PROVIDED, THAT ANY SUCH TRANSACTION SHALL BE CONCLUSIVELY DEEMED TO BE ON TERMS
WHICH ARE FAIR AND REASONABLE TO THE COMPANY, OR SUCH SUBSIDIARY, AND ON TERMS
WHICH ARE AT LEAST AS FAVORABLE AS THE TERMS WHICH COULD BE OBTAINED ON AN ARM'S
LENGTH BASIS WITH PERSONS WHO ARE NOT RELATED PERSONS IF SUCH TRANSACTION (a) IS
APPROVED BY A MAJORITY OF THE COMPANY DIRECTORS, AND A MAJORITY (WHICH MAY BE
ONE) OF THE COMPANY DIRECTORS WHO ARE NEITHER OFFICERS, EMPLOYEES OR BENEFICIAL
OWNERS OF 5% OR MORE OF THE CAPITAL STOCK OF THE COMPANY NOR RELATED PERSONS
(OTHERWISE THAN DUE TO THE STATUS OF ANY SUCH PERSON AS A DIRECTOR
5
<PAGE>
OF THE COMPANY) OF THE COMPANY OR DIRECTORS, OFFICERS, EMPLOYEES OR BENEFICIAL
OWNERS OF 5% OR MORE OF THE CAPITAL STOCK OF SUCH RELATED PERSONS, OR (b) THE
COMPANY OBTAINS A WRITTEN OPINION OF AN INDEPENDENT FINANCIAL ADVISOR STATING
THAT THE TERMS OF SUCH TRANSACTION ARE FAIR TO THE COMPANY OR SUCH SUBSIDIARY,
AS THE CASE MAY BE, FROM A FINANCIAL POINT OF VIEW; PROVIDED FURTHER, HOWEVER,
THAT WITH RESPECT TO A TRANSACTION HAVING A VALUE IN EXCESS OF $5,000,000, THE
COMPANY MUST OBTAIN APPROVAL OF BOTH THE APPLICABLE BOARD OF DIRECTORS AND THE
WRITTEN OPINION OF AN INDEPENDENT FINANCIAL ADVISOR REQUIRED BY CLAUSES (a) AND
(b) TO THE EFFECT SET FORTH ABOVE.
(b) NOTWITHSTANDING THE FOREGOING PARAGRAPH, SECTION 1012(a) WILL NOT
APPLY TO (i) THE PAYMENT OF REASONABLE AND CUSTOMARY FEES TO DIRECTORS OF THE
COMPANY OR ITS SUBSIDIARIES, AS THE CASE MAY BE, OR (ii) ANY TRANSACTION BETWEEN
THE COMPANY AND ANY OF ITS SUBSIDIARIES (EXCEPT ANY SUBSIDIARY IN WHICH ANY
EMPLOYEE, OFFICER, DIRECTOR OR BENEFICIAL OWNER OF 5% OR MORE OF THE CAPITAL
STOCK OF THE COMPANY IS ALSO A SHAREHOLDER OF SUCH SUBSIDIARY) OR BETWEEN ANY
SUCH SUBSIDIARIES.
SECTION 1013. Limitation on Restrictions on Distributions from
Subsidiaries.
INTENTIONALLY OMITTED.
THE COMPANY SHALL NOT, AND SHALL NOT PERMIT ANY OF ITS SUBSIDIARIES
TO, CREATE OR ASSUME ANY CONSENSUAL ENCUMBRANCE OR RESTRICTION ON THE ABILITY OF
SUCH SUBSIDIARY TO PAY DIVIDENDS OR OTHERWISE TRANSFER ASSETS OR MAKE LOANS TO
OR ON BEHALF OF THE COMPANY.
SECTION 1014. Limitation on Issuance of Subordinated Indebtedness.
INTENTIONALLY OMITTED.
THE COMPANY SHALL NOT, DIRECTLY OR INDIRECTLY, INCUR, CREATE, OR
SUFFER TO EXIST ANY INDEBTEDNESS WHICH IS BOTH EXPRESSLY SUBORDINATE OR JUNIOR
IN RIGHT OF PAYMENT (IN WHOLE OR IN PART) TO ANY SENIOR INDEBTEDNESS AND WHICH
IS SENIOR OR SUPERIOR IN RIGHT OF PAYMENT (IN WHOLE OR IN PART) TO THE
SECURITIES.
SECTION 2. REFERENCES TO THE INDENTURE.
From and after the Effective Date, all references in the Indenture, as
supplemented by this Indenture Supplement, shall be deemed to be references to
the Indenture, as supplemented by this Indenture Supplement.
SECTION 3. GENERAL.
(a) This Indenture Supplement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly within such State, without giving effect to any
conflict of laws principles thereof.
6
<PAGE>
Notwithstanding the foregoing, the standard of performance by the Trustee of its
duties hereunder shall be governed by the laws of the State of California.
(b) This Indenture Supplement may not be amended, modified or
supplemented, except as set forth in Article Nine of the Indenture.
(c) This Indenture Supplement is hereby ratified and confirmed and shall
continue in full force and effect in accordance with its terms.
(d) The execution, delivery and effectiveness of this Indenture Supplement
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any party under, nor any provision of, the Indenture.
(e) This Indenture Supplement may be executed in any number of
counterparts (which may be by facsimile transmission) and by the different
parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
Supplement to be executed as of the day and year first above written.
MAGNETEK, INC.
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
UNION BANK OF CALIFORNIA, N.A., Trustee
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
8
<PAGE>
UNSECURED PROMISSORY NOTE
AND
LOAN AGREEMENT
JULY 29, 1996
NASHVILLE, TENNESSEE
FOR VALUE RECEIVED, subject to the terms and conditions set forth below,
RONALD N. HOGE, an individual (the "Executive"), whose address is 420 Elmington
Avenue, Nashville, Tennessee 37215, hereby promises to pay to the order of
MAGNETEK, INC. (the "Holder"), whose address is 26 Century Boulevard, Nashville,
Tennessee 37214, the principal sum of $ 1,000,000 without interest. Payment of
principal hereunder shall be made in lawful money of the United States of
America at the address of the Holder set forth above, or at such other place as
the Holder may from time to time designate in writing to the Executive.
1. PURPOSE. The Executive, and by its acceptance of this Note, the
Holder, acknowledge and agree that the purpose of all advances to the Executive
evidenced by this Note is to enable the Executive to purchase or construct a new
principal residence in Nashville, Tennessee. The indebtedness evidenced hereby
shall be a no-interest bridge loan, as described in Treas. Reg.
Section l.7872-5T(c)(l)(ii), and shall continue until such time as the
Executive shall sell his former principal residence in Rancho Palos Verdes,
California.
2. MATURITY DATE. The Executive shall repay the outstanding principal
balance of this Note by not later than the earlier of (i) 15 days following the
closing of the sale of the Executive's former principal residence identified
above, or (ii) July 28, 1998.
3 . Prepayment. The Executive may prepay all or part of the outstanding
principal balance of this Note, without premium or penalty, at any time.
4. EVENTS OF DEFAULT; ACCELERATION. The term "Event of Default" shall
mean (i) a default in payment of principal when due, (ii) the Executive's filing
of a petition for bankruptcy relief under title 11 of the United States Code and
(iii) the cessation of the provision of substantial services (including the
cessation of employment) by Executive for the Holder. Upon and after the
occurrence of any Event of Default (whether such occurrence shall be voluntary
or involuntary or come about or be effected by operation of law or otherwise)
and at any time so long as such Event of Default shall be continuing, the Holder
may, by notice to the Executive, declare this Note to be immediately due and
payable, whereupon this Note shall become and be immediately due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Executive.
<PAGE>
5. REPRESENTATIONS OF EXECUTIVE. The Executive represents and wan-ants
to the Holder that (i) he reasonably expects to be entitled to and will itemize
deductions for each year this Note shall be outstanding, and (ii) the aggregate
principal amount of this Note is not greater than the amount of equity of the
Executive and the Executive's spouse in the Executive's former principal
residence identified above.
6. CERTAIN COVENANTS OF EXECUTIVE. The Executive hereby covenants and
agrees that (i) the benefits of this Note, including the interest arrangements
hereunder, shall not be transferable by the Executive, (ii) the proceeds of this
Note shall only be utilized to purchase or construct a new principal residence
in Nashville, Tennessee, and (iii) he will not convert his former principal
residence identified above to business or investment use.
7. CANCELLATION. Upon payment in full of all principal payable
hereunder, this Note shall be surrendered to the Executive for cancellation.
8. AMENDMENT AND WAIVER. Any provision of this Note may be amended or
waived by a written instrument signed by the Executive and by the Holder, such
amendment or waiver to be effective but only in the specific instance and for
the specific purpose for which the amendment or waiver is made or given. No
delay on the part of the Holder in exercising any right thereunder shall operate
as a waiver of such right.
9. ATTORNEYS' FEES. The Executive shall reimburse Holder for any
reasonable attorneys' fees and expenses incurred by the Holder in connection
with the enforcement of its rights under this Note.
10. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed given upon personal delivery or five days after
deposit in the United States mail, by registered or certified man, postage
prepaid, addressed (i) if to the Executive at the address set forth above and
(ii) if to the Holder at such Holder's address set forth above, or at such other
address as the Executive or the Holder may designate by notice as provided
herein.
11. SEVERABILITY. If any provision of this Note shall be unenforceable,
the remaining provisions of this Note shall not in any way be affected or
impaired thereby and shall continue in full force and effect.
12. GOVERNING LAW. This Note and the obligations of the Executive
hereunder shall be governed by and construed in accordance with the laws of the
State of Tennessee.
------------------------------
RONALD N. HOGE
2
<PAGE>
UNSECURED PROMISSORY NOTE
$_________ ____________________
Nashville, Tennessee
FOR VALUE RECEIVED, subject to the terms and conditions set forth below,
__________________, an individual, (the "Executive"), whose address is
_____________________________________, hereby promises to pay to the order of
MAGNETEK, INC. (the "Holder"), whose address is 26 Century Boulevard, [Suite
600,] Nashville, Tennessee 37214, the principal sum of
____________________________ Dollars and _______ Cents ($___________), together
with interest thereon at the rate of _____% per annum or, if less, the maximum
rate allowable under applicable law, compounded [quarterly/semi-annually], and
payable in cash as set forth below. Payment of principal and interest shall be
made in lawful money of the United States of America. Payment of principal and
interest shall be made to the address of the Holder set forth above, or at such
other place as the Holder may from time to time designate in writing to the
Executive.
1. [RESTRICTED STOCK/STOCK GRANT]. The Executive and the Holder
acknowledge and agree that the purpose of the advance to the Executive evidenced
by this Note is to enable the Executive to make certain tax payments related to
the [vesting/grant], on the date hereof, of ________ shares of common stock of
Holder [previously issued to Executive] ("Common Stock").
2. MATURITY DATE. The Executive shall repay the outstanding principal
balance of this Note on the earliest of (i) the date, after the date hereof, on
which the Executive has sold more than ________ shares of Common Stock (such
amount to be adjusted in the case of any stock dividend, stock split,
recapitalization or similar event), (ii) 90 days after the date of termination
of the Executive's employment with the Holder, for any reason, and (iii) the
fifth anniversary of the date hereof (the earliest of each of the dates set
forth in subsections (i), (ii), and (iii) above is referred to as the "Maturity
Date"). Subject to the provisions of Section 3 below, all interest shall accrue
and be payable on the Maturity Date.
3. PREPAYMENT. The Executive may prepay all or part of the outstanding
principal balance of this Note, with accrued interest but without premium or
penalty, at any time.
4. EVENTS OF DEFAULT; ACCELERATION. The term "Event of Default" shall
consist of (i) a default in payment of interest or principal, when due, or (ii)
the Executive's filing of a petition for bankruptcy relief under title 11 of the
United States Code (the "Bankruptcy Code"). Upon and after the occurrence of
any Event of Default (whether such occurrence shall be voluntary or involuntary
or come about or be effected by operation of law or otherwise) and at any time
so long as such Event of Default shall be continuing, the Holder may, by notice
to the Executive, declare this Note, all interest hereon and all other amounts
payable hereunder, to be immediately due and payable, whereupon this Note, all
such interest and all such amounts shall become and be immediately due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Executive. Unpaid principal and
overdue interest on this Note shall continue to bear interest after an Event of
Default until all principal and interest due hereunder has been paid in full.
The Holder may enforce its rights hereunder by an action at law, suit in equity
or other appropriate proceeding.
5. CANCELLATION. Upon payment in full of all principal and interest
payable hereunder this Note shall be surrendered to the Executive for
cancellation.
<PAGE>
6. AMENDMENT AND WAIVER. Any provision of this Note may be amended or
waived by a written instrument signed by the Executive and by the Holder, such
amendment or waiver to be effective but only in the specific instance and for
the specific purpose for which the amendment or waiver is made or given. No
delay on the part of the Holder in exercising any right thereunder shall operate
as a waiver of such right.
7. ATTORNEYS' FEES. The Executive shall reimburse Holder for any
reasonable attorneys' fees and expenses incurred by the Holder in connection
with the enforcement of its rights under this Note.
8. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed given upon personal delivery or five days after
deposit in the United States mail, by registered or certified mail, postage
prepaid, addressed (i) if to the Executive at the address set forth above and
(ii) if to the Holder at such Holder's address set forth above, or at such other
address as the Executive or the Holder may designate by notice as provided
herein.
9. SEVERABILITY. If one or more provision of this Note shall be
unenforceable, the remaining provisions of this Note shall not in any way be
effected or impaired thereby and shall continue in full force and effect.
10. GOVERNING LAW. This Note and the obligations of the Executive
hereunder shall be governed by and construed in accordance with the laws of the
State of Tennessee.
-----------------------------
<PAGE>
RESTATED CREDIT AGREEMENT
between
MAGNETEK, INC.
BORROWER
NATIONSBANK OF TEXAS, N.A.
AGENT
CIBC INC.,
THE FIRST NATIONAL BANK OF CHICAGO,
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
BANKERS TRUST COMPANY,
CREDIT LYONNAIS - NEW YORK BRANCH, and
UNION BANK OF CALIFORNIA, N.A.
CO-AGENTS
and
CERTAIN LENDERS
LENDERS
$350,000,000
June 20, 1997
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS AND TERMS. . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Time References. . . . . . . . . . . . . . . . . . . . . . . . 13
1.3 Other References . . . . . . . . . . . . . . . . . . . . . . . 13
1.4 Accounting Principles. . . . . . . . . . . . . . . . . . . . . 13
SECTION 2 COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Revolving Facility . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Borrowing Procedure. . . . . . . . . . . . . . . . . . . . . . 14
2.3 Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Borrowing Notices and LC Requests. . . . . . . . . . . . . . . 17
2.5 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3 TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 17
3.1 Notes and Payments . . . . . . . . . . . . . . . . . . . . . . 17
3.2 Interest and Principal Payments. . . . . . . . . . . . . . . . 18
3.3 Interest Options . . . . . . . . . . . . . . . . . . . . . . . 18
3.4 Quotation of Rates . . . . . . . . . . . . . . . . . . . . . . 18
3.5 Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.6 Interest Recapture . . . . . . . . . . . . . . . . . . . . . . 18
3.7 Interest Calculations. . . . . . . . . . . . . . . . . . . . . 18
3.8 Maximum Rate . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.9 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . 19
3.10 Conversions. . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.11 Order of Application . . . . . . . . . . . . . . . . . . . . . 20
3.12 Sharing of Payments, Etc.. . . . . . . . . . . . . . . . . . . 20
3.13 Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.14 Booking Borrowings . . . . . . . . . . . . . . . . . . . . . . 20
3.15 Basis Unavailable or Inadequate for Eurodollar Rate. . . . . . 21
3.16 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . 21
3.17 Change in Laws . . . . . . . . . . . . . . . . . . . . . . . . 22
3.18 Funding Loss . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.19 Foreign Lenders, Participants, and Assignees . . . . . . . . . 22
SECTION 4 FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1 Treatment of Fees. . . . . . . . . . . . . . . . . . . . . . . 23
4.2 Fees to Agent and Affiliates . . . . . . . . . . . . . . . . . 23
4.3 LC Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.4 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5 SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.1 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.2 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3 Other Collateral . . . . . . . . . . . . . . . . . . . . . . . 24
5.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 24
5.5 Release of Collateral. . . . . . . . . . . . . . . . . . . . . 24
5.6 Existing Guaranties and Security Agreements. . . . . . . . . . 25
SECTION 6 CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 25
6.1 Conditions Precedent to Borrowings . . . . . . . . . . . . . . 25
6.2 Conditions Precedent to Availability of the Incremental
Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 7 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 26
7.1 Purpose and Regulation U . . . . . . . . . . . . . . . . . . . 26
7.2 Corporate Existence, Good Standing, and Authority. . . . . . . 26
7.3 Subsidiaries and Names . . . . . . . . . . . . . . . . . . . . 26
7.4 Authorization and Contravention. . . . . . . . . . . . . . . . 27
7.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 27
7.6 Financials and Existing Debt . . . . . . . . . . . . . . . . . 27
7.7 Projections. . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
<PAGE>
7.11 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 28
7.12 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . 28
7.13 Properties; Liens. . . . . . . . . . . . . . . . . . . . . . . 28
7.14 Government Regulations . . . . . . . . . . . . . . . . . . . . 28
7.15 Transactions with Affiliates . . . . . . . . . . . . . . . . . 28
7.16 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.17 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.18 Labor Matters. . . . . . . . . . . . . . . . . . . . . . . . . 29
7.19 Intellectual Property. . . . . . . . . . . . . . . . . . . . . 29
7.20 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 29
8.1 Certain Items Furnished. . . . . . . . . . . . . . . . . . . . 29
8.2 Use of Credit. . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Books and Records. . . . . . . . . . . . . . . . . . . . . . . 31
8.4 Inspections. . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.6 Payment of Obligation. . . . . . . . . . . . . . . . . . . . . 31
8.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.8 Maintenance of Existence, Assets, and Business . . . . . . . . 31
8.9 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.10 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 32
8.11 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.12 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 33
9.1 Payroll Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 [INTENTIONALLY BLANK]. . . . . . . . . . . . . . . . . . . . . 34
9.4 [INTENTIONALLY BLANK]. . . . . . . . . . . . . . . . . . . . . 34
9.5 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.6 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . 35
9.7 Transactions with Affiliates . . . . . . . . . . . . . . . . . 35
9.8 Compliance with Laws and Documents . . . . . . . . . . . . . . 35
9.9 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.10 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . 35
9.11 Disposition of Assets. . . . . . . . . . . . . . . . . . . . . 35
9.12 Mergers, Consolidations, and Dissolutions. . . . . . . . . . . 35
9.13 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.14 Fiscal Year; Accounting Methods. . . . . . . . . . . . . . . . 36
9.15 New Businesses . . . . . . . . . . . . . . . . . . . . . . . . 36
9.16 Government Regulations . . . . . . . . . . . . . . . . . . . . 36
9.17 Strict Compliance. . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 10 FINANCIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . 36
10.1 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.2 Debt/EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.3 Interest Coverage. . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 11 DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.1 Payment of Obligation. . . . . . . . . . . . . . . . . . . . . 37
11.2 Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.3 Debtor Relief. . . . . . . . . . . . . . . . . . . . . . . . . 38
11.4 Judgments and Attachments. . . . . . . . . . . . . . . . . . . 38
11.5 Government Action. . . . . . . . . . . . . . . . . . . . . . . 38
11.6 Misrepresentation. . . . . . . . . . . . . . . . . . . . . . . 38
11.7 Ownership of Companies . . . . . . . . . . . . . . . . . . . . 38
11.8 Change of Control of Borrower. . . . . . . . . . . . . . . . . 38
11.9 Other Funded Debt. . . . . . . . . . . . . . . . . . . . . . . 39
11.10 SEC Reporting Requirements . . . . . . . . . . . . . . . . . . 39
11.11 Validity and Enforceability. . . . . . . . . . . . . . . . . . 39
11.12 Lcs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(ii)
<PAGE>
SECTION 12 RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . 39
12.1 Remedies Upon Default. . . . . . . . . . . . . . . . . . . . . 39
12.2 Company Waivers. . . . . . . . . . . . . . . . . . . . . . . 40
12.3 Performance by Agent . . . . . . . . . . . . . . . . . . . . . 40
12.4 Not in Control . . . . . . . . . . . . . . . . . . . . . . . . 40
12.5 Course of Dealing. . . . . . . . . . . . . . . . . . . . . . . 40
12.6 Cumulative Rights. . . . . . . . . . . . . . . . . . . . . . . 40
12.7 Application of Proceeds. . . . . . . . . . . . . . . . . . . . 41
12.8 Certain Proceedings. . . . . . . . . . . . . . . . . . . . . . 41
12.9 Expenditures by Lenders. . . . . . . . . . . . . . . . . . . . 41
12.10 Diminution in Value of Collateral. . . . . . . . . . . . . . . 41
SECTION 13 AGENT AND LENDERS. . . . . . . . . . . . . . . . . . . . . . . 41
13.1 Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
13.3 Proportionate Absorption of Losses . . . . . . . . . . . . . . 43
13.4 Delegation of Duties; Reliance . . . . . . . . . . . . . . . . 43
13.5 Limitation of Agent's Liability. . . . . . . . . . . . . . . . 43
13.6 Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.7 Collateral Matters . . . . . . . . . . . . . . . . . . . . . . 44
13.8 Limitation of Liability. . . . . . . . . . . . . . . . . . . . 45
13.9 Relationship of Lenders. . . . . . . . . . . . . . . . . . . . 45
13.10 Benefits of Agreement. . . . . . . . . . . . . . . . . . . . . 45
SECTION 14 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 45
14.1 Nonbusiness Days . . . . . . . . . . . . . . . . . . . . . . . 45
14.2 Communications . . . . . . . . . . . . . . . . . . . . . . . . 45
14.3 Form and Number of Documents . . . . . . . . . . . . . . . . . 46
14.4 Exceptions to Covenants. . . . . . . . . . . . . . . . . . . . 46
14.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 46
14.7 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . 46
14.8 Amendments, Consents, Conflicts, and Waivers . . . . . . . . . 46
14.9 Multiple Counterparts. . . . . . . . . . . . . . . . . . . . . 47
14.10 Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
14.11 Venue, Service of Process, and Jury Trial. . . . . . . . . . . 49
14.12 Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
(iii)
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 2.1 - Lenders and Commitments
Schedule 2.3 - Existing LCs
Schedule 6 - Closing Documents
Schedule 7.3 - Companies and Names
Schedule 7.9 - Litigation
Schedule 7.11 - Environmental Matters
Schedule 7.12 - Employee-Plan Matters
Schedule 7.15 - Affiliate Transactions
Schedule 9.2 - Permitted Debt
Schedule 9.5 - Permitted Liens
Schedule 9.9 - Permitted Investments
Schedule 9.11 - Divestiture Assets
Exhibit A - Revolving Note
Exhibit B-1 - Borrowing Request
Exhibit B-2 - Conversion Notice
Exhibit B-3 - LC Request
Exhibit B-4 - Compliance Certificate
Exhibit C-1 - Opinion of General Counsel to Companies
Exhibit C-2 - Opinion of Gibson, Dunn & Crutcher
Exhibit C-3 - Opinion of Haynes and Boone, L.L.P.
Exhibit D - Assignment and Assumption Agreement
Exhibit E - Existing Guaranty
Exhibit F - Existing Security Agreements
(iv)
<PAGE>
RESTATED CREDIT AGREEMENT
THIS AGREEMENT is entered into as of June 20, 1997, between MAGNETEK,
INC., a Delaware corporation ("BORROWER"), Lenders (defined below), NATIONSBANK
OF TEXAS, N.A., as agent for Lenders, CIBC INC., THE FIRST NATIONAL BANK OF
CHICAGO, THE LONG-TERM CREDIT BANK OF JAPAN, BANKERS TRUST COMPANY, CREDIT
LYONNAIS - NEW YORK BRANCH, and UNION BANK OF CALIFORNIA, N.A., as Co-Agents for
Lenders.
Borrower and certain financial institutions are party to the Existing
Credit Agreement. Borrower has requested Agent, Co-Agents, and Lenders to enter
into this agreement, as a renewal, extension, and entire amendment and
restatement of the Existing Credit Agreement, to provide for a revolving credit
facility of up to $350,000,000 (the "REVOLVING FACILITY") to be funded by
Lenders from time to time in a combination of advances and letters of credit for
the purposes and upon the terms and conditions provided in this agreement.
ACCORDINGLY, for adequate and sufficient consideration, Borrower, Lenders,
Agent, and Co-Agents agree that the Existing Credit Agreement is renewed,
extended, and entirely amended and restated as follows:
SECTION 1 DEFINITIONS AND TERMS.
1.1 DEFINITIONS. As used in the Loan Documents:
AFFILIATE of a Person means any other individual or entity who directly or
indirectly controls, is controlled by, or is under common control with that
Person. For purposes of this definition (a) "CONTROL," "CONTROLLED BY," and
"UNDER COMMON CONTROL WITH" mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of voting securities or other interests, by contract, or otherwise),
and (b) the Companies are "AFFILIATES" of each other.
AGENT means, at any time, NationsBank of Texas, N.A. -- or its successor or
assigns appointed under SECTION 13 -- acting as AGENT for Lenders under the Loan
Documents.
APPLICABLE MARGIN means, for any day, the margin of interest over the Base
Rate, or the Eurodollar Rate, as the case may be, that is applicable when the
Base Rate or Eurodollar Rate, as applicable, is determined under this agreement.
(a) The Applicable Margin is subject to adjustment (upwards or
downwards, as appropriate) based on the ratio of the Companies' Funded Debt
to EBITDA as stated in the table below.
(b) From the Closing Date through the date that Agent receives the
Current Financials and Compliance Certificate for the year ending June 30,
1997, the Applicable Margin is deemed to be 0.75% for Eurodollar Rate
Borrowings and 0.00% for Base-Rate Borrowings, and the Applicable
Percentage is deemed to be 0.225%.
(c) After receipt of the Current Financials and Compliance
Certificate for the year ending June 30, 1997, the Applicable Margin and
Applicable Percentage in effect at any time
<PAGE>
(whether in the middle of an Interest Period or otherwise) are based upon
the ratio of the Companies' Funded Debt to EBITDA as determined from the
Current Financials and related Compliance Certificate then most recently
received by Agent, effective as of the date received by Agent.
(d) For purposes of the definitions of APPLICABLE MARGIN and
APPLICABLE PERCENTAGE, EBITDA is calculated for the Companies' most
recently-completed-four-fiscal quarters, and Funded Debt is determined as
of the last day of that four-fiscal-quarter period.
(e) If Borrower fails to timely furnish to Agent any Financials and
related Compliance Certificate as required by this agreement, then the
maximum Applicable Margin and Applicable Percentage apply from the date
those Financials and related Compliance Certificate are required to be
delivered and remain in effect until Borrower furnishes them to Agent.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Applicable
Margin for Applicable
Ratio of Funded Debt to EBITDA Eurodollar Margin for
Rate Base-Rate
Borrowings Borrowings
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than 3.25 to 1.00 1.25% 0.00%
-----------------------------------------------------------------------------------------------
Less than or equal to 3.25 to 1.00, but greater than 2.75 to 1.00 1.00% 0.00%
-----------------------------------------------------------------------------------------------
Less than or equal to 2.75 to 1.00, but greater than 2.25 to 1.00 0.75% 0.00%
-----------------------------------------------------------------------------------------------
Less than or equal to 2.25 to 1.00, but greater than 1.75 to 1.00 0.625% 0.00%
-----------------------------------------------------------------------------------------------
Less than or equal to 1.75 to 1.00 0.50% 0.00%
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
APPLICABLE PERCENTAGE means, for any day, a commitment-fee percentage applicable under SECTION 4.4, subject to adjustment
(upwards or downwards, as appropriate), based on the ratio of the Companies' Funded Debt to EBITDA, as follows:
<CAPTION>
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Ratio of Funded Debt to EBITDA Applicable Percentage
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
<S> <C>
Greater than 2.75 to 1.00 0.250%
--------------------------------------------------------------------------------------------
Less than or equal to 2.75 to 1.00 but greater than 2.25 to 1.00 0.225%
--------------------------------------------------------------------------------------------
Less than or equal to 2.25 to 1.00 but greater than 1.75 to 1.00 0.200%
--------------------------------------------------------------------------------------------
Less than or equal to 1.75 to 1.00 0.175%
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
The Applicable Percentage is calculated and determined as further provided in
the definition of the term APPLICABLE MARGIN.
ASSIGNEE is defined in SECTION 14.10(c).
ASSIGNMENTS is defined in SECTION 14.10(c).
2
<PAGE>
BASE RATE means, for any day, the greater of EITHER (a) the annual interest
rate most recently established by Agent as its general reference rate (which may
not necessarily represent the lowest or best rate actually charged to any
customer) in effect at its principal office in Dallas, Texas, automatically
fluctuating upward and downward without special notice to Borrower or any other
Person, OR (b) the SUM of the Federal-Funds Rate PLUS 0.5%.
BASE-RATE BORROWING means a Borrowing bearing interest at the SUM of the
Base Rate PLUS the Applicable Margin.
BORROWER is defined in the preamble to this agreement.
BORROWING means any amount disbursed under the Loan Documents by one or
more Lenders to or on behalf of Borrower under the Loan Documents, either as an
original disbursement of funds, a renewal, extension, or continuation of an
amount outstanding, or a payment under an LC.
BORROWING DATE is defined in SECTION 2.2(a).
BORROWING REQUEST means a request, subject to SECTION 2.2(A), substantially
in the form of EXHIBIT B-1.
BUSINESS DAY means (a) for purposes of any Eurodollar Rate Borrowing, a day
when commercial banks are open for international business in London, England,
and (b) for all purposes, any day OTHER THAN Saturday, Sunday, and any other day
that commercial banks are authorized by Law to be closed in New York or Texas.
CAPITAL EXPENDITURES means expenditures made for the acquisition,
construction, improvement, or replacement of land, buildings, equipment, or
other fixed or capital assets or leaseholds (excluding expenditures properly
chargeable to repairs or maintenance).
CAPITAL LEASE means any capital lease or sublease that is required by GAAP
to be capitalized on a balance sheet.
CAPITALIZATION means -- for any Person, at any time, and without
duplication -- the SUM of (a) its stockholders' equity PLUS (b) its Funded Debt.
CERCLA means the COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND
LIABILITY ACT OF 1980, 42 U.S.C. Sections 9601 ET SEQ.
CLOSING DATE means the date agreed to by Borrower and Agent for the initial
Borrowing, which must be a Business Day occurring no later than July 31, 1997.
CODE means the INTERNAL REVENUE CODE OF 1986.
COLLATERAL is defined in SECTION 5.2.
COMMITMENT means, at any time and for any Lender, the amounts (subject to
reduction or cancellation as herein provided) stated beside that Lender's name
on the most-recently amended SCHEDULE 2.1 PROVIDED THAT, for all purposes under
the Loan Documents, such amounts shall be reduced on any date of determination
by that Lender's Commitment Percentage of the Incremental Commitment, if the
conditions set forth in SECTION 6.2 have not been satisfied.
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COMMITMENT PERCENTAGE means, for any Lender, the proportion (stated as a
percentage) that its Commitment bears to the total Commitments of all Lenders.
COMMITMENT USAGE means, at any time, the SUM of (a) the Principal Debt PLUS
(b) the LC Exposure.
COMPANIES means (a) at any time, Borrower and each of its Subsidiaries, and
(b) where appropriate in respect of any period unless otherwise provided,
includes all of their operations during that period whether discontinued or not.
COMPLIANCE CERTIFICATE means a certificate substantially in the form of
EXHIBIT B-4 and signed by a Responsible Officer.
CONVERSION NOTICE means a request, subject to SECTION 3.10, substantially
in the form of EXHIBIT B-2.
CURRENT FINANCIALS, unless otherwise specified:
(a) means EITHER (i) the Companies' consolidated Financials for the
year ended June 30, 1996, TOGETHER WITH the Companies' Financials for the
nine months ended on March 31, 1997, OR (ii) at any time after annual
Financials are first delivered under SECTION 8.1, the Companies' annual
Financials then most recently delivered to Lenders under SECTION 8.1(A),
TOGETHER WITH the Companies' quarterly Financials then most recently
delivered to Lenders under SECTION 8.1(B); but
(b) does not include the results of operation and cash flows for any
Company for the time period before it becomes a member of Borrower's
consolidated group.
DEBT means -- for any person, at any time, and without duplication -- the
SUM of (a) all obligations for borrowed money, (b) all obligations evidenced by
bonds, debentures, notes, or similar instruments, (c) all obligations to pay the
deferred purchase price of property or services except trade accounts payable
arising in the ordinary course of business, (d) all obligations arising under
acceptance facilities or facilities for the discount or sale of accounts
receivable, (e) all direct or contingent obligations in respect of letters of
credit, (f) liabilities secured (or for which the holder of the Debt has an
existing Right, contingent or otherwise, to be so secured) by any Lien existing
on property owned or acquired by that Person, (g) lease obligations that have
been (or under GAAP should be) capitalized for financial reporting purposes,
PLUS (h) all guaranties, endorsements, and other contingent obligations for Debt
of others.
DEBTOR LAWS means the BANKRUPTCY CODE OF THE UNITED STATES OF AMERICA and
all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
or similar Laws affecting creditors' Rights.
DEFAULT is defined in SECTION 11.
DEFAULT RATE means, for any day, an annual interest rate equal from day to
day to the lesser of EITHER (a) the then-existing Base Rate PLUS 2% OR (b) the
Maximum Rate.
DETERMINING LENDERS means, at any time, any combination of Lenders holding
(directly or indirectly) AT LEAST EITHER (a) 51% of the total Commitments while
there is no Principal Debt or LC
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Exposure OR (b) 51% of the Principal Debt PLUS the LC Exposure while there is
any Principal Debt or LC Exposure.
DISTRIBUTION means, with respect to any shares of any capital stock or
other equity securities issued by a Person (a) the retirement, redemption,
purchase, or other acquisition for value of those securities, (b) the
declaration or payment of any dividend on or with respect to those securities,
(c) any loan or advance by that Person to, or other investment by that Person
in, the holder of any of those securities, and (d) any other payment by that
Person with respect to those securities.
DIVESTITURE ASSETS means the assets described by Company on SCHEDULE 9.11
as that schedule may be modified, dated, executed, and delivered by Borrower to
Agent from time to time and all Lenders to remove assets from it but not to add
assets to it.
DOMESTIC means, in respect of any Person, organized under the Laws of --
and domiciled in -- the United States of America or one of its states.
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.
EMPLOYEE PLAN means any employee-pension-benefit plan (a) covered by
TITLE IV of ERISA and established or maintained by Borrower or any ERISA
Affiliate (OTHER THAN a Multiemployer Plan) and (b) established or maintained by
Borrower or any ERISA Affiliate, or to which Borrower or any ERISA Affiliate
contributes, under the Laws of any foreign country.
ENVIRONMENTAL INVESTIGATION means any environmental site assessment,
investigation, audit, compliance audit, or compliance review conducted at any
time or from time to time -- whether at the request of Agent or any Lender, upon
the order or request of any Tribunal, or at the voluntary instigation of any
Company -- concerning any Real Property or the business operations or activities
of any Company, including, without limitation (a) air, soil, groundwater, or
surface-water sampling and monitoring, and (b) preparation and implementation of
any closure or remedial plans.
ENVIRONMENTAL LAW means any applicable Law that relates to protection of
the environment or to the regulation of any Hazardous Substances, including,
without limitation, CERCLA, the HAZARDOUS MATERIALS TRANSPORTATION ACT (49
U.S.C. Section 1801 ET SEQ.), the RESOURCE CONSERVATION AND RECOVERY ACT (42
U.S.C. Section 6901 ET SEQ.), the CLEAN WATER ACT (33 U.S.C. Section 1251 ET
SEQ.), the CLEAN AIR ACT (42 U.S.C. Section 7401 ET SEQ.), the TOXIC SUBSTANCES
CONTROL ACT (15 U.S.C. Section 2601 ET SEQ.), the FEDERAL INSECTICIDE,
FUNGICIDE, AND RODENTICIDE ACT (7 U.S.C. Section 136 ET SEQ.), the EMERGENCY
PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT (42 U.S.C. Section 11001 ET SEQ.), the
SAFE DRINKING WATER ACT (42 U.S.C. Section 201 AND Section 300F ET SEQ.), the
RIVERS AND HARBORS ACT (33 U.S.C. Section 401 ET SEQ.), the OIL POLLUTION ACT
(33 U.S.C. Section 2701 ET SEQ.), analogous state and local Laws, and any
analogous future enacted or adopted Law.
ENVIRONMENTAL LIABILITY means any liability, loss, fine, penalty, charge,
lien, damage, cost, or expense of any kind to the extent that it results
(a) from the violation of any Environmental Law, (b) from the Release or
threatened Release of any Hazardous Substance, or (c) from actual or threatened
damages to natural resources.
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ENVIRONMENTAL PERMIT means any permit, or license, from any Person defined
in CLAUSE (a) of the definition of Tribunal that is required under any
Environmental Law for the lawful conduct of any business, process, or other
activity.
ERISA means the EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974.
ERISA AFFILIATE means any Person that, for purposes of TITLE IV of ERISA,
is a member of Borrower's controlled group or is under common control with
Borrower within the meaning of SECTION 414 of the Code (which provisions are
deemed by this agreement to apply to Foreign Persons).
EURODOLLAR RATE means (for 1, 2, 3, and 6 month Interest Period options)
the annual interest rate (rounded upwards, if necessary, to the nearest 1/100 of
one percent) that appears on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in U.S. dollars at approximately
11:00 a.m. (London time) two Business Days before the first day of the
applicable Interest Period for a term comparable to that Interest Period. If
for any reason that rate is not available, the term Eurodollar Rate shall mean
(for 1, 2, 3, and 6 month Interest Period options) the annual interest rate
(rounded upwards, if necessary, to the nearest 1/100 of one percent) that
appears on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in U.S. dollars at approximately 11:00 a.m. (London time) two Business
Days before the first day of the applicable Interest Period for a term
comparable to that Interest Period, PROVIDED THAT, if more than one rate is
specified on Reuters Screen LIBO Page, the applicable rate shall be the
arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest
1/100 of one percent).
EURODOLLAR RATE BORROWING means a Borrowing bearing interest at the SUM of
the Eurodollar Rate PLUS the Applicable Margin.
EXISTING CREDIT AGREEMENT means the Credit Agreement dated as of March 30,
1995, as amended through the date of this agreement, between Borrower, certain
lenders (including one or more Lenders under this agreement), and, acting as
AGENT for those lenders, NationsBank of Texas, N.A., providing for extensions of
credit to Borrower of up to $170,000,000.
EXISTING GUARANTY is defined in SECTION 5.6(a) and is attached hereto as
EXHIBIT E.
EXISTING LCS means the one or more letters of credit issued by Agent, any
of Agent's Affiliates, or any "ISSUING LENDER" under the Existing Credit
Agreement for the account of Borrower before the date of this agreement and that
are described on SCHEDULE 2.3.
EXISTING-LC EXPOSURE means the total undrawn and face amount of the
Existing LCs.
EXISTING SECURITY AGREEMENTS are defined in SECTION 5.6(b) and are attached
hereto as EXHIBIT F.
FEDERAL-FUNDS RATE means, for any day, the annual rate (rounded upwards, if
necessary, to the nearest 0.01%) determined (which determination is conclusive
and binding, absent manifest error) by Agent to be equal to (a) the weighted
average of the rates on overnight federal-funds transactions with member banks
of the Federal Reserve System arranged by federal-funds brokers on that day, as
published by the Federal Reserve Bank of New York on the next Business Day, or
(b) if those rates are not published for any day, the average of the quotations
at approximately 10:00 a.m. received by Agent from three federal-funds brokers
of recognized standing selected by Agent in its sole discretion.
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FINANCIALS of a Person means balance sheets, profit and loss statements,
reconciliations of capital and surplus, and statements of cash flow prepared
(a) according to GAAP (subject to year end audit adjustments with respect to
interim Financials) and (b) except as stated in SECTION 1.4, in comparative form
to prior year-end figures or corresponding periods of the preceding fiscal year
or other relevant period, as applicable.
FOREIGN means, in respect of any Person, organized under the Laws of a
jurisdiction OTHER THAN -- or domiciled outside of -- the United States of
America or one of its states.
FUNDED DEBT means -- for any Person, at any time, and without
duplication -- the SUM of (a) the principal amount of all Debt for borrowed
money, (b) the total amount capitalized on the balance sheet of that Person with
respect to Capital Leases, PLUS (c) Debt under acceptance facilities or
facilities for the discount or sale of accounts receivable.
FUNDING LOSS means any loss, expense, or reduction in yield (but not any
Applicable Margin) that any Lender reasonably incurs because (a) Borrower fails
or refuses (for any reason whatsoever OTHER THAN a default by Agent or that
Lender claiming that loss, expense, or reduction in yield) to take any Borrowing
that it has requested under this agreement, or (b) Borrower prepays or pays any
Borrowing or converts any Borrowing to a Borrowing of another Type, in each
case, other than on the last day of the applicable Interest Period.
GAAP means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
GUARANTY means a guaranty substantially in the form of EXHIBIT B to the
Existing Credit Agreement.
HAZARDOUS SUBSTANCE means any substance that is designated, defined,
classified, or regulated as a hazardous waste, hazardous material, pollutant,
contaminant, explosive, corrosive, flammable, infectious, carcinogenic,
mutagenic, radioactive, or toxic or hazardous substance under any Environmental
Law, including, without limitation, any hazardous substance within the meaning
of Section 101(14) of CERCLA.
HEDGING AGREEMENT means, for any Person, any present or future, whether
master or single, agreement, document or instrument providing for -- or
constituting an agreement to enter into (a) commodity hedges in the normal
course of business in accordance with prior practices of that Person before the
date of this agreement for purposes of hedging material purchases, (b)
foreign-currency swaps never exceeding a total notional sum of $100,000,000, (c)
interest-rate swaps never exceeding a total notional sum of $250,000,000, and
(d) interest-rate-hedging products involving payment premium for which that
Person has no future liability.
INCREMENTAL COMMITMENT means that portion of the Commitment not available
to be borrowed and reborrowed prior to the satisfaction of the conditions set
forth in SECTION 6.2, which Incremental Commitment is equal to $30,000,000.
INTEREST EXPENSE means -- for any Person, for any period, and without
duplication -- all interest on Funded Debt allocated to continuing operations,
whether paid in cash or accrued as a liability and payable in cash during any
subsequent period (including, without limitation, the interest component of
Capital Leases), as determined by GAAP.
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INTEREST PERIOD is determined under SECTION 3.9.
INVESTMENT means, in respect of any Person, any loan, advance, extension of
credit, or capital contribution to that Person, any investment in that Person,
or any purchase or commitment to purchase any equity securities or Debt issued
by that Person or substantially all of the assets or a division or other
business unit of that Person.
ISSUING LENDER means any Lender, or any of its Affiliates, that issues an
LC under this agreement.
LAWS means all applicable statutes, laws, treaties, ordinances, rules,
regulations, orders, writs, injunctions, decrees, judgments, opinions, and
interpretations of any Tribunal.
LC means a documentary or standby letter of credit issued for the account
of Borrower by an Issuing Lender under this agreement and under an LC Agreement.
LC AGREEMENT means a letter of credit application and agreement (in form
and substance satisfactory to Agent) submitted and executed by Borrower to the
Issuing Lender for an LC for the account of Borrower.
LC EXPOSURE means, without duplication, the SUM of (a) the total face
amount of all undrawn and uncancelled LCs PLUS (b) the total unpaid
reimbursement obligations of Borrower under drawings under any LC.
LC REQUEST means a request substantially in the form of EXHIBIT B-3.
LC SUBFACILITY means a subfacility of the Revolving Facility for the
issuance of LCs, as described in SECTION 2.3, under which the LC Exposure may
never (a) EXCEED $40,000,000 and (b) together with Principal Debt, EXCEED the
total Commitments.
LENDER LIEN means any present or future Lien (subject only to any
applicable Permitted Lien) securing the Obligation and assigned, conveyed, or
granted to or created in favor of Agent for the benefit of Lenders.
LENDERS means the financial institutions -- including, without limitation,
Agent (possibly acting through one or more of its Affiliates for LCs) in respect
of its share of Borrowings and LCs -- named on SCHEDULE 2.1 or on the
most-recently-amended SCHEDULE 2.1, if any, delivered by Agent under this
agreement, and, subject to this agreement, their respective successors and
permitted assigns (but not any Participant who is not otherwise a party to this
agreement).
LIEN means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners (OTHER THAN title of the lessor
under an operating lease).
LITIGATION means any action by or before any Tribunal.
LOAN DOCUMENTS means (a) this agreement, certificates and reports delivered
under this agreement, and exhibits and schedules to this agreement, (b) all
agreements, documents, and instruments in favor of Agent or Lenders (or Agent on
behalf of Lenders) ever delivered under this agreement or otherwise delivered in
connection with all or any part of the Obligation (OTHER THAN Assignments), (c)
all LCs and
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LC Agreements, (d) the letter agreement described in SECTION 4.2, and (e) all
renewals, extensions, and restatements of, and amendments and supplements to,
any of the foregoing.
MAGNETEK EUROPE means MagneTek Europe, N.V., a Netherlands company in
liquidation that as of the date hereof, except as reflected on SCHEDULE 7.3,
directly or indirectly owns all of the issued and outstanding capital stock or
other equity securities of every Subsidiary organized under the Laws of, or
domiciled in, any European nation.
MATERIAL ADVERSE EVENT means any circumstance or event that, individually
or collectively, is reasonably expected to result (at any time before the
Commitments are fully cancelled or terminated and the Obligation is fully paid
and performed) in any (a) material impairment of (i) the ability of Borrower to
perform any of its payment or other material obligations under any Loan
Document, (ii) the Restricted Companies as a whole to perform any of their
payment or other material obligations under any Loan Document, or (iii) the
ability of Agent or any Lender to enforce any of those obligations or any of
their respective Rights under the Loan Documents, (b) material and adverse
effect on the financial condition of the Companies as a whole as represented to
Lenders in the Current Financials most recently delivered before the date of
this agreement or (c) Default or Potential Default.
MAXIMUM AMOUNT and MAXIMUM RATE respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest that,
under applicable Law, that Lender is permitted to contract for, charge, take,
reserve, or receive on the Obligation.
MULTIEMPLOYER PLAN means a multiemployer plan as defined in SECTIONS 3(37)
OR 4001(A)(3) of ERISA or SECTION 414(F) of the Code (or any similar type of
plan established or regulated under the Laws of any foreign country) to which
Borrower or any ERISA Affiliate is making, or has made, or is accruing, or has
accrued, an obligation to make contributions.
NET INCOME of any Person means that Person's profit or loss after deducting
its Tax expense.
NET WORTH means -- at any time and for any Person -- the SUM of (i) its
stockholders' equity, PLUS (ii) in the case of Borrower, amounts not EXCEEDING
$10,000,000 in the aggregate excluded from stockholders' equity under GAAP
relating to the purchase of Borrower's capital stock by or on behalf of a trust
or similar vehicle for the purpose of funding employee benefit plans of
Borrower.
NOTES means all of the Revolving Notes.
1933 ACT means the SECURITIES ACT OF 1933.
1934 ACT means the SECURITIES EXCHANGE ACT OF 1934.
OBLIGATION means all present and future (a) debts, liabilities, and
obligations of any Company to Agent, any Lender, any Issuing Lender, or
NationsBanc Capital Markets, Inc., and related to any Loan Document, whether
principal, interest, fees, costs, attorneys' fees, or otherwise, (b) Debts,
liabilities, or obligations owed by any Company to any Lender or its one or more
Affiliates under any agreement, document, or instrument described in CLAUSES (c)
or (d) of the definition of Hedging Agreement to the extent relating to interest
payable under this agreement, and (c) renewals, extensions, restatements, and
modifications of any of the foregoing.
OSHA means the OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970, 29 U.S.C.
Section 651 ET SEQ.
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PARTICIPANT is defined in SECTION 14.10(b).
PBGC means the Pension Benefit Guaranty Corporation.
PERMITTED ACQUISITION means EITHER the formation or acquisition (which,
subject to SECTION 9.12, may be by merger) by any Restricted Company of a
Subsidiary that is or is to become a Restricted Company OR the acquisition by
any Restricted Company of substantially all the assets or a division or other
business unit of another Person if in either case:
(a) no Default or Potential Default exists or would exist as a result
of that formation or acquisition;
(b) such formation or acquisition is within any of the Restricted
Companies' current lines business of -- or directly or indirectly related
to -- the manufacture, developing, marketing, or servicing of electrical
equipment products or ancillary technologies in any form;
(c) at least 15 days before such formation or acquisition, Borrower
gives to Agent and Lenders a written description of such formation or
acquisition, which includes a reasonably detailed calculation of -- and
description of the funding sources, if applicable, for -- the total
investment or purchase price involved (including, without limitation, all
Debt for which the acquired Person is to remain obligated and what portion
of it, if any, that is to be guaranteed, assumed, or paid -- through merger
or otherwise -- by any other Restricted Company);
(d) the total of all Investments and purchase price involved in all
such formations and acquisitions (other than as provided in SUBSECTION (e)
below) -- including, without limitation or duplication, any Funded Debt to
be guaranteed, assumed, or paid by any Restricted Company 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 $50,000,000;
(e) the total of all Investments and purchase price involved in all
of those formations and acquisitions paid by any Restricted Company, during
any fiscal year of Borrower, through the issuance of Borrower's equity that
is not mandatorily redeemable does not exceed $25,000,000;
(f) the board of directors of the Person to be acquired has not
notified any Company that it opposes the offer by any Company to acquire
that Person and that opposition has not been withdrawn;
(g) any new Subsidiary resulting from that formation or acquisition
complies with SECTIONS 5.1 and 5.2 and its capital stock or other equity
securities become subject to Lender Liens as required by SECTION 5.2 EXCEPT
to the extent of any exceptions in those provisions;
(h) the Companies execute and deliver such other documents and take
such action as any Lender may reasonably request in order to effect the
provisions of the Loan Documents; and
(i) concurrently with the closing of that formation or acquisition,
Borrower provides Agent and Lenders with a certificate of a Responsible
Officer certifying that all the conditions in this definition have been
fulfilled for that formation or acquisition to be -- and it is -- a
"PERMITTED ACQUISITION."
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PERMITTED DEBT means Debt described on SCHEDULE 9.2.
PERMITTED LIENS means the Liens described on SCHEDULE 9.5.
PERSON means any individual, entity, or Tribunal.
POTENTIAL DEFAULT means any event's occurrence or any circumstance's
existence that would -- upon any required notice, time lapse, or both -- become
a Default.
PREDECESSOR means any Person for whose obligations and liabilities any
Company is reasonably expected to be liable as the result of any merger, DE
FACTO merger, stock purchase, asset purchase or divestiture, combination, joint
venture, investment, reclassification, or other similar business transaction.
PRINCIPAL DEBT means, at any time, the unpaid principal balance of all
Borrowings.
PROJECTIONS means the financial projections for the Companies in the
Confidential Information Memorandum furnished to Lenders in June 1997.
PRO RATA and PRO RATA PART mean, at any time and for any Lender, the
proportion (stated as a percentage) that the Principal Debt owed to it bears to
the total Principal Debt owed to all Lenders.
REAL PROPERTY means any land, buildings, fixtures, and other improvements
to land now or in the future directly or indirectly owned by any Restricted
Company, leased to or otherwise operated by any Restricted Company, or subleased
by any Restricted Company to any other Person.
REFINANCED DEBT means Debt evidenced by or arising in connection with
Borrower's 10-3/4% Senior Subordinated Debentures Due 1998 in the outstanding
principal amount of approximately $109,225,000.
RELEASE means any "RELEASE" as defined under any Environmental Law.
RELEASE EVENT means the conversion to equity that is not mandatorily
redeemable of at least $70,000,000 of Borrower's $75,000,000 (par value), 8%
Convertible Subordinated Notes Due 2001.
RELEASE RATINGS means that Borrower's Senior Debt has received an actual or
implied rating of BOTH (a) BBB- or better by Standard & Poors Corporation AND
(b) BAA3 or better by Moody's Investor Service, Inc.
REPRESENTATIVES means representatives, officers, directors, employees,
accountants, attorneys, and agents.
RESERVE REQUIREMENT means, for any Eurodollar Rate Borrowing and for the
relevant Interest Period, the total reserve requirements (including all basic,
supplemental, emergency, special, marginal, and other reserves required by
applicable Law) actually applicable to Agent's eurocurrency fundings or
liabilities as of the first day of that Interest Period.
RESPONSIBLE OFFICER means Borrower's chairman, president, chief executive
officer, chief financial officer, or treasurer.
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RESTRICTED COMPANY means Borrower and each other Company that is not an
Unrestricted Company.
REVOLVING FACILITY is defined in the recitals to this agreement and
includes the LC Subfacility.
REVOLVING NOTE means one of the promissory notes substantially in the form
of EXHIBIT A-1, as renewed, extended, amended, or restated.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SEC means the Securities and Exchange Commission.
SECURITY AGREEMENT means a Security Agreement in substantially the form of
EXHIBIT C to the Existing Credit Agreement.
SENIOR DEBT means, at any time, the Companies' consolidated Funded Debt
OTHER THAN the Subordinated Debt.
SOLVENT means, as to any Person, that (a) the aggregate fair market value
of its assets exceeds its liabilities, (b) it has sufficient cash flow to enable
it to pay its Debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
STATED-TERMINATION DATE means June 20, 2002.
SUBORDINATED DEBT, at any time, means (a) the Refinanced Debt, (b)
Borrower's 8% Convertible Subordinated Notes Due 2001 in the principal amount of
$75,000,000 (the "EXISTING-SUBORDINATED DEBT"), (c) other than the Obligation,
any Debt, whether to repurchase or redeem any existing-Subordinated Debt, or
otherwise, SO LONG AS that Debt (i) is subject to subordination, payment
blockage, and standstill provisions at least as favorable to Lenders as those
contained in the Refinanced Debt, (ii) is subject to representations, covenants,
events of default, and other provisions no more onerous to Borrower than those
contained in this agreement, and (iii) does not have any scheduled or mandatory
principal or sinking fund payment due before August 31, 2002, and (d) Debt that
complies with CLAUSE (c)(i), above and is upon terms and conditions otherwise
reasonably acceptable to Determining Lenders.
SUBSIDIARY of any Person means any entity of which more than 50% (in number
of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person. Unless otherwise
specified or the context otherwise requires, "SUBSIDIARY" refers to a Subsidiary
of Borrower.
TAXES means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.
TERMINATION DATE means the earlier of EITHER (a) the Stated-Termination
Date OR (b) the effective date that Lenders' commitments to lend and issue LCs
under this agreement are fully cancelled or terminated.
TRIBUNAL means any (a) local, state, territorial, federal, or foreign
judicial, executive, regulatory, administrative, legislative, or governmental
agency, board, bureau, commission, department, or other instrumentality,
(b) private arbitration board or panel, or (c) central bank.
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TYPE means any type of Borrowing determined with respect to the applicable
interest option.
UNRESTRICTED COMPANY means (a) each Company that has no assets other than
its name and conducts no operations, (b) each of MagneTek Credit Corporation,
MagneTek Leasing Corporation, MagneTek National Electric Coil, Inc., MagneTek
Airport Systems, Inc., MagneTek Controls, Inc., and MagneTek Tempe, Inc., (c)
each Foreign Company OTHER THAN (i) MagneTek Europe, and (ii) from the date such
Companies become direct Subsidiaries of Borrower, each of MagneTek Service
(U.K.) Limited, MagneTek S.p.A., and MagneTek Deteiligungsgesellschaft
(Deutschland Holding) GmbH, and (d) Companies acquired by other Unrestricted
Companies.
WORKING CAPITAL means -- for any Person and at any time -- the SUM of (a)
current assets MINUS (b) current liabilities.
1.2 TIME REFERENCES. Unless otherwise specified, in the Loan Documents
(a) time references (E.G., 10:00 a.m.) are to time in Dallas, Texas, and (b) in
calculating a period from one date to another, the word "FROM" means "FROM AND
INCLUDING" and the word "TO" or "UNTIL" means "TO BUT EXCLUDING."
1.3 OTHER REFERENCES. Unless otherwise specified, in the Loan Documents
(a) where appropriate, the singular includes the plural and VICE VERSA, and
words of any gender include each other gender, (b) heading and caption
references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to "TELECOPY,"
"FACSIMILE," "FAX," or similar terms are to facsimile or telecopy transmissions,
(f) references to "INCLUDING" mean including without limiting the generality of
any description preceding that word, (g) the rule of construction that
references to general items that follow references to specific items are limited
to the same type or character of those specific items is not applicable in the
Loan Documents, (h) references to any Person include that Person's heirs,
personal representatives, successors, trustees, receivers, and permitted
assigns, (i) references to any Law include every amendment or supplement to it,
rule and regulation adopted under it, and successor or replacement for it, and
(j) references to any Loan Document or other document include every renewal and
extension of it, amendment and supplement to it, and replacement or substitution
for it.
1.4 ACCOUNTING PRINCIPLES. Unless otherwise specified, in the Loan
Documents (a) GAAP determines all accounting and financial terms, (b) GAAP in
effect on the date of this agreement determines compliance with financial
covenants, (c) otherwise, all accounting principles applied in a current period
must be comparable in all material respects to those applied during the
preceding comparable period, and (d) while Borrower has any consolidated
Subsidiaries (i) all accounting and financial terms and compliance with
reporting covenants must be on a consolidated basis, as applicable, and
(ii) compliance with financial covenants must be on a consolidated basis.
SECTION 2 COMMITMENT. Subject to the provisions in the Loan Documents, each
Lender severally but not jointly agrees to extend credit to Borrower under the
Revolving Facility in accordance with the following provisions.
2.1 REVOLVING FACILITY. Each Lender severally but not jointly agrees to
lend to Borrower that Lender's Commitment Percentage of requested or required
Borrowings under the Revolving Facility which Borrower may borrow, repay, and
reborrow under this agreement SUBJECT TO the following conditions:
(a) Each Borrowing may only occur on a Business Day on or after the
Closing Date and before the Termination Date;
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(b) Each Borrowing may only be $500,000 or a greater integral
multiple of $100,000 if a Base-Rate Borrowing or $5,000,000 or a greater
integral multiple of $1,000,000 if a Eurodollar Rate Borrowing; and
(c) The Commitment Usage MAY NEVER EXCEED the total Commitments.
The Revolving Facility is a renewal and extension of the "REVOLVING FACILITY"
under the Existing Credit Agreement.
2.2 BORROWING PROCEDURE. The following procedures apply to Borrowings:
(a) BORROWING REQUEST. Borrower may request a Borrowing by making or
delivering a Borrowing Request (that may be telephonic if confirmed in
writing within two Business Days) to Agent, which is irrevocable and
binding on Borrower, stating the Type, amount, and Interest Period (for
Eurodollar Rate Borrowing only) for each Borrowing and which must be
received by Agent no later than (i) 10:00 a.m. on the second Business Day
before the date on which funds are requested (the "BORROWING DATE") for any
Eurodollar Rate Borrowing, or (ii) 11:00 a.m. on the Borrowing Date for any
Base-Rate Borrowing. Agent shall promptly on the day received notify each
Lender of any Borrowing Request.
(b) FUNDING. Each Lender shall remit its Commitment Percentage of
each requested Borrowing to Agent's principal office in Dallas, Texas, in
funds that are available for immediate use by Agent by 2:00 p.m. on the
applicable Borrowing Date. Subject to receipt of those funds, Agent shall
(unless to its actual knowledge any of the applicable conditions precedent
have not been satisfied by Borrower or waived by the requisite Lenders
under SECTION 14.8) make those funds available to Borrower by (at
Borrower's option) (i) wiring the funds to or for the account of Borrower
at the direction of Borrower or (ii) depositing the funds in Borrower's
account with Agent.
(c) FUNDING ASSUMED. Absent contrary written notice from a Lender,
Agent may assume that each Lender has made its Commitment Percentage of the
requested Borrowing available to Agent on the applicable Borrowing Date,
and Agent may, in reliance upon such assumption (but shall not be required
to), make available to Borrower a corresponding amount. If a Lender fails
to make its Commitment Percentage of any requested Borrowing available to
Agent on the applicable Borrowing Date, Agent may recover the applicable
amount on demand, (i) from that Lender TOGETHER WITH interest, commencing
on the Borrowing Date and ending on (but excluding) the date Agent recovers
the amount from that Lender, at an annual interest rate equal to the
Federal-Funds Rate, or (ii) if that Lender fails to pay its amount upon
demand, then from Borrower. No Lender is responsible for the failure of
any other Lender to make its Commitment Percentage of any Borrowing
available as required by SECTION 2.2(B); however, failure of any Lender to
make its Commitment Percentage of any Borrowing so available does not
excuse any other Lender from making its Commitment Percentage of any
Borrowing so available.
2.3 LETTERS OF CREDIT.
(a) CONDITIONS. Subject to the terms and conditions of this
agreement and only to the extent and total amount that a Lender is willing
to issue LCs, each such Lender agrees, if requested by Borrower, to issue
LCs upon Borrower's making or delivering an LC Request and delivering an LC
Agreement, both of which must be received by Agent and the Issuing Lender
no later than the second Business Day before the Business Day on which the
requested LC is to
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be issued, SO LONG AS (i) no LC may expire after a date three Business
Days before the Stated-Termination Date, (ii) the LC Exposure does not
exceed the limitations in the definition of LC Subfacility, (iii) no
Lender's LC Exposure may exceed its Commitment, and (iv) the limitation in
SECTIONS 2.1(c) is not exceeded. The Existing LC Exposure is renewed under
this agreement and shall be included in any calculation of LC Exposure.
(b) PARTICIPATION. Immediately upon an Issuing Lender's issuance of
any LC, that Issuing Lender shall be deemed to have sold and transferred to
each other Lender, and each other Lender shall be deemed irrevocably and
unconditionally to have purchased and received from that Issuing Lender,
without recourse or warranty, an undivided interest and participation to
the extent of such Lender's Commitment Percentage in the LC and all
applicable Rights of that Issuing Lender in the LC -- OTHER THAN Rights to
receive certain fees provided in SECTION 4.3 to be for that Issuing
Lender's sole account.
(c) REIMBURSEMENT OBLIGATION. To induce each Issuing Lender to issue
and maintain LCs, and to induce Lenders to participate in issued LCs,
Borrower agrees to pay or reimburse each Issuing Lender (i) on the first
Business Day after an Issuing Lender notifies Agent and Borrower that it
has made payment under a LC, the amount paid by that Issuing Lender and
(ii) within five Business Days after demand, the amount of any additional
fees Issuing Lender customarily charges for amending LC Agreements, for
honoring drafts under LCs, and for taking similar action in connection with
letters of credit. If Borrower has not reimbursed that Issuing Lender for
any drafts paid by the date on which reimbursement is required under this
section, then Agent is irrevocably authorized to fund Borrower's
reimbursement obligations as a Base-Rate Borrowing if proceeds are
available under the Revolving Facility and if the conditions in this
agreement for such a Borrowing (OTHER THAN any notice requirements or
minimum funding amounts) have, to Agent's knowledge, been satisfied. The
proceeds of that Borrowing shall be advanced directly to that Issuing
Lender to pay Borrower's unpaid reimbursement obligations. If funds cannot
be advanced under the Revolving Facility, then Borrower's reimbursement
obligation shall constitute a demand obligation. Borrower's obligations
under this section are absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim, or defense to
payment that Borrower may have at any time against any Issuing Lender or
any other Person. From the date that an Issuing Lender pays a draft under
a LC until Borrower either reimburses or is obligated to reimburse that
Issuing Lender for that draft under this section, the amount of that draft
bears interest payable to that Issuing Lender at the rate then applicable
to Base-Rate Borrowings. From the due date of the respective amounts due
under this section, to the date paid (including any payment from proceeds
of a Base-Rate Borrowing), unpaid reimbursement amounts accrue interest
that is payable on demand at the Default Rate.
(d) GENERAL. The applicable Issuing Lender shall promptly notify
Agent and Borrower of the date and amount of any draft presented for honor
under any LC (but failure to give notice will not affect Borrower's
obligations under this agreement). That Issuing Lender shall pay the
requested amount upon presentment of a draft unless presentment on its face
does not comply with the terms of the applicable LC, regardless of whether
(i) any default or potential default that exists under any other agreement
and (ii) obligations under any other agreement that have or have not been
performed by the beneficiary or any other Person (and that Issuing Lender
is not liable for any of those obligations). Borrower's reimbursement
obligations to that Issuing Lender and Lenders, and each Lender's
obligations to that Issuing Lender, under this section are absolute and
unconditional irrespective of, and that Issuing Lender is not responsible
for, (i) the validity, enforceability, sufficiency, accuracy, or
genuineness of documents or endorsements (even if they are in any respect
invalid, unenforceable, insufficient, inaccurate, fraudulent, or forged),
(ii) any
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dispute by any Company with or any Company's claims, setoffs, defenses,
counterclaims, or other Rights against that Issuing Lender, any Lender, or
any other Person, or (iii) the occurrence of any Potential Default or
Default. However, nothing in this agreement constitutes a waiver of
Borrower's Rights to assert any claim or defense based upon the gross
negligence or willful misconduct of any Lender. The Issuing Lender shall
promptly pay to Agent for Agent to promptly distribute reimbursement
payments received from Borrower to all Lenders according to their Pro Rata
Part.
(e) OBLIGATION OF LENDERS. If Borrower fails to reimburse an Issuing
Lender as provided in SECTION 2.3(c) by the date on which reimbursement is
due under that section, and funds cannot be advanced under the Revolving
Facility to satisfy the reimbursement obligations, then Agent shall
promptly notify each Lender of Borrower's failure, of the date and amount
paid, and of each Lender's Commitment Percentage of the unreimbursed
amount. Each Lender shall promptly and unconditionally make available to
Agent in immediately available funds its Commitment Percentage of the
unpaid reimbursement obligation, subject to the limitations of SECTION
2.1(C). Funds are due and payable to Agent before the close of business on
the Business Day when Agent gives notice to each Lender of Borrower's
reimbursement failure (if notice is given before 1:00 p.m.) or on the next
succeeding Business Day (if notice is given after 1:00 p.m.). All amounts
payable by any Lender accrue interest after the due date at the
Federal-Funds Rate from the day the applicable draft or draw is paid by
Agent to (but not including) the date the amount is paid by the Lender to
Agent. Upon receipt of those funds, Agent shall make them available to the
Issuing Lender.
(f) DUTIES OF ISSUING LENDER. Each Issuing Lender agrees with each
Lender that it will exercise and give the same care and attention to each
LC as it gives to its other letters of credit. Each Lender and Borrower
agree that, in paying any draft under any LC, no Issuing Lender has any
responsibility to obtain any document (OTHER THAN any documents expressly
required by the respective LC) or to ascertain or inquire as to any
document's validity, enforceability, sufficiency, accuracy, or genuineness
or the authority of any Person delivering it. Neither any Issuing Lender
nor its Representatives will be liable to any Lender or any Company for any
LC's use or for any beneficiary's acts or omissions. Any action, inaction,
error, delay, or omission taken or suffered by any Issuing Lender or any of
its Representatives in connection with any LC, applicable drafts or
documents, or the transmission, dispatch, or delivery of any related
message or advice, if in good faith and in conformity with applicable Laws
and in accordance with the standards of care specified in the UNIFORM
CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDITS (1993 REVISION),
INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500 (as amended or
modified), is binding upon the Companies and Lenders and, except as
provided in Section 2.4(e), does not place that Issuing Lender or any of
its Representatives under any resulting liability to any Company or any
Lender. Any action taken or omitted or to be taken by Agent, any Co-Agent,
or any Issuing Lender in connection with any LC if taken or omitted in the
absence of gross negligence or willful misconduct shall not create for
Agent, any Co-Agent, or such Issuing Lender any resulting liability to any
other Lender or any Company.
(g) CASH COLLATERAL. On the Termination Date and if requested by
Determining Lenders while a Default exists, Borrower shall provide Agent,
for the benefit of Lenders, cash collateral in an amount equal to the
then-existing LC Exposure.
(h) INDEMNIFICATION. BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND
SAVE AGENT, CO-AGENTS, EACH ISSUING LENDER, AND EACH OTHER LENDER, AND
THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS,
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DEMANDS, LIABILITIES, DAMAGES, COSTS, CHARGES, AND EXPENSES (INCLUDING
REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS
A CONSEQUENCE OF THE ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE
FAILURE OF ANY ISSUING LENDER TO HONOR A DRAW REQUEST UNDER ANY LC AS A
RESULT OF ANY ACT OR OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR
FUTURE TRIBUNAL. HOWEVER, NO PERSON IS ENTITLED TO INDEMNITY UNDER THE
FOREGOING FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE
FOREGOING INDEMNITY PROVISION IS SUBJECT TO THE PROVISIONS OF SECTION 8.12
(i) LC AGREEMENTS. Although referenced in any LC, terms of any
particular agreement or other obligation to the beneficiary are not
incorporated into this agreement in any manner. The fees and other amounts
payable with respect to each LC are as provided in this agreement, drafts
under each LC are part of the Obligation, only the events specified in this
agreement as a Default shall constitute a default under any LC, and the
terms of this agreement control any conflict between the terms of this
agreement and any LC Agreement.
2.4 BORROWING NOTICES AND LC REQUESTS. Each Borrowing Request (whether
telephonic or written) and LC Request constitutes a representation and warranty
by Borrower that as of the Borrowing Date or the date of issuance of the
requested LC, as the case may be, that all of the conditions precedent in
SECTION 6 have been satisfied.
2.5 TERMINATION. Borrower may -- upon giving at least five Business
Days prior written and irrevocable notice to Agent -- terminate all or part of
the Revolving Facility. Each partial termination must be in an amount of not
less than $10,000,000 or a greater integral multiple of $1,000,000, must be
ratable in accordance with each Lender's Commitment Percentage, and the amount
of the aggregate Commitments may not be reduced below the Commitment Usage. At
the time of any termination, Borrower shall pay to Agent, for the account of
each Lender, as applicable, all accrued and unpaid fees under this agreement,
the interest attributable to the amount of that reduction, and any related
Funding Loss. Any part of the Commitments that are terminated may not be
reinstated.
SECTION 3 TERMS OF PAYMENT.
3.1 NOTES AND PAYMENTS.
(a) NOTES. Principal Debt is evidenced by the Revolving Notes, one
payable to each Lender in the stated amount of its Commitment.
(b) PAYMENT. Borrower must make each payment and prepayment on the
Obligation to Agent's principal office in Dallas, Texas in immediately
available funds by 1:00 p.m. on the day due; otherwise, but subject to
SECTION 3.8, those funds continue to accrue interest as if they were
received on the next Business Day. Agent shall promptly pay to each Lender
the part of any payment or prepayment to which that Lender is entitled
under this agreement on the same day Agent receives the funds from
Borrower.
(c) PAYMENT ASSUMED. Unless Agent has received notice from Borrower
prior to the date on which any payment is due under this agreement that
Borrower will not make that payment in full, Agent may assume that Borrower
has made the full payment due and Agent may, in reliance upon that
assumption, cause to be distributed to each Lender on that date the amount
then due to each Lender. If and to the extent Borrower does not make the
full payment due to Agent, each Lender shall repay to Agent on demand the
amount distributed to that Lender by Agent
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together with interest for each day from the date that Lender received
payment from Agent until the date that Lender repays Agent (unless such
repayment is made on the same day as such distribution), at an interest
rate equal to the Federal-Funds Rate.
3.2 INTEREST AND PRINCIPAL PAYMENTS.
(a) INTEREST. Accrued interest on each Eurodollar Rate Borrowing is
due and payable on the last day of its respective Interest Period. If any
Interest Period for a Eurodollar Rate Borrowing is greater than three
months, then accrued interest is also due and payable on the date three
months after the commencement of the Interest Period. Accrued interest on
each Base-Rate Borrowing is due and payable on the last day of each March,
June, September, and December -- commencing on September 30, 1997.
(b) PRINCIPAL. The Principal Debt is due and payable on the
Termination Date. Before that date, Borrower may at any time prepay the
Principal Debt, without penalty and in whole or in part, SO LONG AS (i)
each voluntary partial prepayment must be in a principal amount not less
than $1,000,000 or a greater integral multiple of $500,000 and (ii)
Borrower shall pay any related Funding Loss upon demand. Conversions under
SECTION 3.10 are not prepayments.
3.3 INTEREST OPTIONS. Except that the Eurodollar Rate may not be selected
when a Default or Potential Default exists and except as otherwise provided in
this agreement, Borrowings bear interest at an annual rate equal to the lesser
of EITHER (a) the Base Rate plus the Applicable Margin or the Eurodollar Rate
plus the Applicable Margin (in each case as designated or deemed designated by
Borrower), as the case may be, OR (b) the Maximum Rate. Each change in the Base
Rate and Maximum Rate is effective, without notice to Borrower or any other
Person, upon the effective date of change.
3.4 QUOTATION OF RATES. Borrower may call Agent before delivering a
Borrowing Request to receive an indication of the interest rates then in effect,
but the indicated rates do not bind Agent or Lenders or affect the interest rate
that is actually in effect when Borrower makes a Borrowing Request or on the
Borrowing Date.
3.5 DEFAULT RATE. If permitted by Law, all past-due Principal Debt,
Borrower's past-due payment and reimbursement obligations in connection with
LCs, and past-due interest accruing on any of the foregoing bears interest from
the date due (stated or by acceleration) at the Default Rate until paid,
regardless whether payment is made before or after entry of a judgment.
3.6 INTEREST RECAPTURE. If the designated interest rate applicable to any
Borrowing exceeds the Maximum Rate, the interest rate on that Borrowing is
limited to the Maximum Rate, but any subsequent reductions in the designated
rate shall not reduce the interest rate thereon below the Maximum Rate until the
total amount of accrued interest equals the amount of interest that would have
accrued if that designated rate had always been in effect. If at maturity
(stated or by acceleration), or at final payment of the Notes, the total
interest paid or accrued is less than the interest that would have accrued if
the designated rates had always been in effect, then, at that time and to the
extent permitted by Law, Borrower shall pay an amount equal to the difference
between (a) the LESSER of the amount of interest that would have accrued if the
designated rates had always been in effect AND the amount of interest that would
have accrued if the Maximum Rate had always been in effect, and (b) the amount
of interest actually paid or accrued on the Notes.
3.7 INTEREST CALCULATIONS. Interest will be calculated on the basis of
actual number of days (including the first day but excluding the last day)
elapsed but computed as if each calendar year consisted
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of 360 days (unless the calculation would result in an interest rate greater
than the Maximum Rate or in the case of interest on Base-Rate Borrowings in
which event interest will be calculated on the basis of a year of 365 or 366
days, as the case may be). All interest rate determinations and calculations by
Agent are conclusive and binding absent manifest error.
3.8 MAXIMUM RATE. Regardless of any provision contained in any Loan
Document, no Lender is entitled to contract for, charge, take, reserve, receive,
or apply, as interest on all or any part of the Obligation, any amount in excess
of the Maximum Rate, and, if Lenders ever do so, then any excess shall be
treated as a partial prepayment of principal and any remaining excess shall be
refunded to Borrower. In determining if the interest paid or payable exceeds
the Maximum Rate, Borrower and Lenders shall, to the maximum extent permitted
under applicable Law, (a) treat all Borrowings as but a single extension of
credit (and Lenders and Borrower agree that is the case and that provision in
this agreement for multiple Borrowings is for convenience only),
(b) characterize any nonprincipal payment as an expense, fee, or premium rather
than as interest, (c) exclude voluntary prepayments and their effects, and
(d) amortize, prorate, allocate, and spread the total amount of interest
throughout the entire contemplated term of the Obligation. However, if the
Obligation is paid in full before the end of their full contemplated term, and
if the interest received for its actual period of existence exceeds the Maximum
Amount, Lenders shall refund any excess (and Lenders may not, to the extent
permitted by Law, be subject to any penalties provided by any Laws for
contracting for, charging, taking, reserving, or receiving interest in excess of
the Maximum Amount). If the Laws of the State of Texas are applicable for
purposes of determining the "MAXIMUM RATE" or the "MAXIMUM AMOUNT," then those
terms mean the "INDICATED RATE CEILING" from time to time in effect under
ARTICLE 5069-1.04, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, as amended.
Borrower agrees that CHAPTER 15, SUBTITLE 79, REVISED CIVIL STATUTES OF TEXAS,
1925, as amended (which regulates certain revolving credit loan accounts and
revolving triparty accounts), does not apply to the Obligation.
3.9 INTEREST PERIODS. When Borrower requests any Eurodollar Rate
Borrowing, Borrower may elect the applicable interest period (each an "INTEREST
PERIOD"), which may be, at Borrower's option, one, two, three, or six months for
Eurodollar Rate Borrowings, subject to SECTION 14.1 and the following
conditions: (a) the initial Interest Period for a Eurodollar Rate Borrowing
commences on the applicable Borrowing Date or conversion date, and each
subsequent Interest Period applicable to any Borrowing commences on the day when
the next preceding applicable Interest Period expires; (b) if any Interest
Period for a Eurodollar Rate Borrowing begins on a day for which no numerically
corresponding Business Day in the calendar month at the end of the Interest
Period exists, then the Interest Period ends on the last Business Day of that
calendar month; (c) if Borrower is required to pay any portion of a Eurodollar
Rate Borrowing before the end of its Interest Period in order to comply with the
payment provisions of the Loan Documents, Borrower shall also pay any related
Funding Loss; and (d) no more than ten Interest Periods may be in effect at one
time.
3.10 CONVERSIONS. Subject to the dollar limits of SECTION 2.1(b) and
provided that Borrower may not convert to or select a new Interest Period for a
Eurodollar Rate Borrowing at any time when a Default or Potential Default
exists, Borrower may (a) convert a Eurodollar Rate Borrowing on the last day of
the applicable Interest Period to a Base-Rate Borrowing, (b) convert a Base-Rate
Borrowing at any time to a Eurodollar Rate Borrowing, and (c) elect a new
Interest Period for a Eurodollar Rate Borrowing. That election may be made by
telephonic request to Agent no later than 10:00 a.m. on the second Business Day
before the conversion date or the last day of the Interest Period, as the case
may be (for conversion to a Eurodollar Rate Borrowing or election of a new
Interest Period), and no later than 11:00 a.m. on the last day of the Interest
Period (for conversion to a Base-Rate Borrowing). Borrower shall provide a
Conversion Notice to Agent no later than two days after the date of the
conversion or election. Absent Borrower's telephonic request for conversion or
election of a new Interest Period or if a Default or
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Potential Default exists, then, a Eurodollar Rate Borrowing shall be deemed
converted to a Base-Rate Borrowing effective when the applicable Interest Period
expires.
3.11 ORDER OF APPLICATION.
(a) NO DEFAULT. If no Default or Potential Default exists, any
payment shall be applied to the Obligation -- EXCEPT as otherwise
specifically provided in the Loan Documents -- in the order and manner as
Borrower directs.
(b) DEFAULT. If a Default or Potential Default exists or if Borrower
fails to give direction, any payment (including proceeds from the exercise
of any Rights) shall be applied in the following order: (i) To all fees
and expenses for which Agent or Lenders have not been paid or reimbursed in
accordance with the Loan Documents (and if such payment is less than all
unpaid or unreimbursed fees and expenses, then the payment shall be paid
against unpaid and unreimbursed fees and expenses in the order of
incurrence or due date); (ii) to accrued interest on the Principal Debt;
(iii) to any LC reimbursement obligations that are due and payable and that
remain unfunded by any Borrowing; (iv) to the remaining Principal Debt in
the order as Determining Lenders may elect (but Determining Lenders agree
to apply proceeds in an order that will minimize any Funding Loss); (v) to
the remaining Obligation in the order and manner Determining Lenders deem
appropriate; and (vi) as a deposit with Agent, for the benefit of Lenders,
as security for and payment of any subsequent LC reimbursement obligations.
(c) PRO RATA. Each payment or prepayment shall be distributed to
each Lender in accordance with its Pro Rata Part of that payment or
prepayment.
3.12 SHARING OF PAYMENTS, ETC.. If any Lender obtains any payment or
prepayment with respect to the Obligation (whether voluntary, involuntary, or
otherwise, including, without limitation, as a result of exercising its Rights
under SECTION 3.13) that exceeds the part of that payment or prepayment that it
is then entitled to receive under the Loan Documents, then that Lender shall
purchase from the other Lenders participations that will cause the purchasing
Lender to share the excess payment or prepayment ratably with each other Lender.
If all or any portion of any excess payment or prepayment is subsequently
recovered from the purchasing Lender, then the purchase shall be rescinded and
the purchase price restored to the extent of the recovery. Borrower agrees that
any Lender purchasing a participation from another Lender under this
section may, to the fullest extent permitted by Law, exercise all of its Rights
of payment (including the Right of offset) with respect to that participation as
fully as if that Lender were the direct creditor of Borrower in the amount of
that participation.
3.13 OFFSET. If a Default exists, each Lender is entitled to exercise (for
the benefit of all Lenders in accordance with SECTION 3.12) the Rights of offset
and banker's Lien against each and every account and other property, or any
interest therein, that any Company may now or hereafter have with, or which is
now or hereafter in the possession of, that Lender to the extent of the full
amount of the Obligation owed (directly or participated) to it.
3.14 BOOKING BORROWINGS. To the extent permitted by Law, any Lender may
make, carry, or transfer its Borrowings at, to, or for the account of any of its
branch offices or the office or branch of any of its Affiliates. However, no
Affiliate or branch is entitled to receive any greater payment under
SECTION 3.16 than the transferor Lender would have been entitled to receive with
respect to those Borrowings, and a transfer may not be made if, as a direct
result of it, SECTION 3.15 or 3.17 would apply to any of the Obligation. If any
of the conditions of SECTIONS 3.16 or 3.17 ever apply to a Lender, that Lender
shall, to the extent possible, carry or transfer its Borrowings at, to, or for
the account of any of
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its branch offices or the office or branch of any of its Affiliates SO LONG AS
the transfer is consistent with the other provisions of this section, does not
create any burden or adverse circumstance for that Lender that would not
otherwise exist, and eliminates or ameliorates the conditions of SECTIONS 3.16
or 3.17 as applicable.
3.15 BASIS UNAVAILABLE OR INADEQUATE FOR EURODOLLAR RATE. If, on or before
any date when a Eurodollar Rate is to be determined for a Borrowing, Agent
reasonably determines that the basis for determining the applicable rate is not
available or any Lender reasonably determines that the resulting rate does not
accurately reflect the cost to that Lender of making or converting Borrowings at
that rate for the applicable Interest Period, then Agent shall promptly notify
Borrower and Lenders of that determination (which is conclusive and binding on
Borrower absent manifest error) and the applicable Borrowing shall bear interest
at the SUM of the Base Rate PLUS the Applicable Margin. Until Agent notifies
Borrower that those circumstances no longer exist, Lenders' commitments under
this agreement to make, or to convert to, Eurodollar Rate Borrowings, as the
case may be, are suspended.
3.16 ADDITIONAL COSTS. Each Lender severally and not jointly agrees to
notify Agent, the other Lenders, and Borrower within 180 days after it has
actual knowledge that any circumstances exist that would give rise to any
payment obligation by Borrower under CLAUSES (a) through (c) below. Although no
Lender shall have any liability to Agent, any other Lender, or any Company for
its failure to give that notice, Borrower is not obligated to pay any amounts
under those clauses that arise, accrue, or are imposed more than 180 days before
that notice to the extent it is applicable to those amounts. Any Lender
demanding payment of any additional costs under this section must generally be
making similar demand for similar additional costs under credit agreements to
which it is party that contain similar provisions to this section.
(a) RESERVES. With respect to any Eurodollar Rate Borrowing (i) if
any change in any present Law, any change in the interpretation or
application of any present Law, or any future Law imposes, modifies, or
deems applicable (or if compliance by any Lender with any requirement of
any Tribunal results in) any requirement that any reserves (including,
without limitation, any marginal, emergency, supplemental, or special
reserves) be maintained (OTHER THAN any reserve included in the Reserve
Requirement), and if (ii) those reserves reduce any sums receivable by that
Lender under this agreement or increase the costs incurred by that Lender
in advancing or maintaining any portion of any Eurodollar Rate Borrowing,
then (iii) that Lender (through Agent) shall deliver to Borrower a
certificate setting forth in reasonable detail the calculation of the
amount necessary to compensate it for its reduction or increase (which
certificate is conclusive and binding absent manifest error), and
(iv) Borrower shall pay that amount to that Lender within five Business
Days after demand. The provisions of and undertakings and indemnification
in this CLAUSE (a) survive the satisfaction and payment of the Obligation
and termination of this agreement.
(b) CAPITAL ADEQUACY. With respect to any Borrowing or LC if any
change in any present Law, any change in the interpretation or application
of any present Law, or any future Law regarding capital adequacy, or if
compliance by any Issuing Lender or any Lender with any request, directive,
or requirement imposed in the future by any Tribunal regarding capital
adequacy, or if any change in its written policies or in the risk category
of this transaction, in any of the foregoing events or circumstances,
reduces the rate of return on its capital as a consequence of its
obligations under this agreement to a level below that which it otherwise
could have achieved (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by it to be material (and it may, in
determining the amount, utilize reasonable assumptions and allocations of
costs and expenses and use any reasonable averaging or attribution method),
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then (unless the effect is already reflected in the rate of interest then
applicable under this agreement) Agent or that Lender (through Agent) shall
notify Borrower and deliver to Borrower a certificate setting forth in
reasonable detail the calculation of the amount necessary to compensate it
(which certificate is conclusive and binding absent manifest error), and
Borrower shall pay that amount to Agent or that Lender within five Business
Days after demand. The provisions of and undertakings and indemnification
in this CLAUSE (b) shall survive the satisfaction and payment of the
Obligation and termination of this agreement.
(c) TAXES. Subject to SECTION 3.19, any Taxes payable by Agent or
any Lender or ruled (by a Tribunal) payable by Agent or any Lender in
respect of this agreement or any other Loan Document shall, if not
prohibited by Law, be paid by Borrower, together with interest and
penalties, if any, EXCEPT for Taxes payable on or measured by the overall
net income of Agent or that Lender (or Agent or that Lender, as the case
may be, TOGETHER WITH any other Person with whom Agent or that Lender files
a consolidated, combined, unitary, or similar Tax return) and except for
interest and penalties incurred as a result of the gross negligence or
willful misconduct of Agent or any Lender. Agent or that Lender (through
Agent) shall notify Borrower and deliver to Borrower a certificate setting
forth in reasonable detail the calculation of the amount of payable Taxes,
which certificate is conclusive and binding (absent manifest error), and
Borrower shall pay that amount to Agent for its account or the account of
that Lender, as the case may be within five Business Days after demand. If
Agent or that Lender subsequently receives a refund of the Taxes paid to it
by Borrower, then the recipient shall promptly pay the refund to Borrower.
3.17 CHANGE IN LAWS. If any Law makes it unlawful for any Lender to make
or maintain Eurodollar Rate Borrowings, then that Lender shall promptly notify
Borrower and Agent, and (a) as to undisbursed funds, that requested Borrowing
shall be made as a Base-Rate Borrowing, and (b) as to any outstanding Borrowing
(i) if maintaining the Borrowing until the last day of the applicable Interest
Period is unlawful, the Borrowing shall be converted to a Base-Rate Borrowing as
of the date of notice, in which event Borrower will not be required to pay any
related Funding Loss, or (ii) if not prohibited by Law, the Borrowing shall be
converted to a Base-Rate Borrowing as of the last day of the applicable Interest
Period, or (iii) if any conversion will not resolve the unlawfulness, Borrower
shall promptly prepay the Borrowing, without penalty but with related Funding
Loss.
3.18 FUNDING LOSS. BORROWER SHALL INDEMNIFY EACH LENDER AGAINST, AND PAY
TO IT UPON DEMAND, ANY FUNDING LOSS OF THAT LENDER. WHEN ANY LENDER DEMANDS
THAT BORROWER PAY ANY FUNDING LOSS, THAT LENDER SHALL DELIVER TO BORROWER AND
AGENT A CERTIFICATE SETTING FORTH IN REASONABLE DETAIL THE BASIS FOR IMPOSING
FUNDING LOSS AND THE CALCULATION OF THE AMOUNT, WHICH CALCULATION IS CONCLUSIVE
AND BINDING ABSENT MANIFEST ERROR. THE PROVISIONS OF AND UNDERTAKINGS AND
INDEMNIFICATION IN THIS SECTION SURVIVE THE SATISFACTION AND PAYMENT OF THE
OBLIGATION AND TERMINATION OF THIS AGREEMENT.
3.19 FOREIGN LENDERS, PARTICIPANTS, AND ASSIGNEES. Each Lender,
Participant (by accepting a participation interest under this agreement), and
Assignee (by executing an Assignment) that is not organized under the Laws of
the United States of America or one of its states (a) represents to Agent and
Borrower that (i) no Taxes are required to be withheld by Agent or Borrower with
respect to any payments to be made to it in respect of the Obligation and (ii)
it has furnished to Agent and Borrower two duly completed copies of either U.S.
Internal Revenue Service FORM 4224, FORM 1001, FORM W-8, or any other form
acceptable to Agent and Borrower that entitles it to a complete exemption from
U.S. federal withholding Tax on all interest or fee payments under the Loan
Documents, and (b) covenants to (i) provide Agent and Borrower a new FORM 4224,
FORM 1001, FORM W-8, or other form acceptable to Agent
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and Borrower upon the expiration or obsolescence according to Law of any
previously delivered form, duly executed and completed by it, entitling it to
a complete exemption from U.S. federal withholding Tax on all interest and
fee payments under the Loan Documents, and (ii) comply from time to time with
all Laws with regard to the withholding Tax exemption. If any of the
foregoing is not true at any time or the applicable forms are not provided,
then Borrower and Agent (without duplication) may deduct and withhold from
interest and fee payments under the Loan Documents any Tax at the maximum
rate under the Code or other applicable Law, and amounts so deducted and
withheld shall be treated as paid to that Lender, Participant, or assignee,
as the case may be, for all purposes under the Loan Documents.
SECTION 4 FEES.
4.1 TREATMENT OF FEES. The fees described in this SECTION 4 (a) are not
compensation for the use, detention, or forbearance of money, (b) are in
addition to, and not in lieu of, interest and expenses otherwise described in
this agreement, (c) are payable in accordance with SECTION 3.1, (d) are
non-refundable, (e) to the fullest extent permitted by Law, bear interest, if
not paid when due, at the Default Rate and (f) are calculated on the basis of a
year of 365 or 366 days, as the case may be.
4.2 FEES TO AGENT AND AFFILIATES. Borrower shall pay to Agent and its
Affiliates that Agent may designate the arrangement/structuring fee and annual
administrative fee described in the letter agreement (as it may be renewed,
extended, or modified) dated as of May 14, 1997, between Borrower, Agent, and
NationsBanc Capital Markets, Inc. Those fees are solely for the account of
Agent and its Affiliates EXCEPT to the extent that Agent may unilaterally agree
in writing with any Lender in respect of the arrangement/structuring fee.
4.3 LC FEES. As an inducement for the issuance (including, without
limitation, the extension) of each LC, Borrower agrees to pay to Agent:
(a) For the account of each Lender, according to each Lender's
Commitment Percentage on the day the fee is payable, an issuance fee,
payable quarterly in arrears on the last day of each fiscal quarter of
Borrower, commencing on September 30, 1997, equal to a percentage of the
average-face amount of that LC during that quarterly period (except for the
first period, which will be for the period commencing on the Closing Date
and ending September 30, 1997), which percentage is equal to 100% for
standby LCs and 20% for documentary LCs of the Applicable Margin in effect
for Eurodollar Rate Borrowings on the first day of that quarterly period;
and
(b) For the account of the Issuing Lender, payable on the date of
issuance a fronting fee of 0.125% of the face amount of each LC.
All LC and other fees paid to Agent or any other parties before the date of this
agreement in respect of any Existing LCs are solely for the account of those
parties without any accounting for them or sharing of them with Agent or Lenders
notwithstanding any contrary provision in this agreement.
4.4 COMMITMENT FEE. From and after the Closing Date, Borrower shall pay
to Agent a commitment fee for Lenders according to each Lender's Commitment
Percentage. The fee is payable as it accrues on the last day of each March,
June, September, and December -- commencing September 30, 1997 -- and on the
Termination Date. Each payment of the fee is equal to the following, determined
for the calendar quarter (or portion of a calendar quarter commencing on the
date of this agreement or ending on the Termination Date) preceding and
including the date it is due: From the Closing Date until the Termination Date,
the PRODUCT of (i) the Applicable Percentage as of the first day of that
quarterly period,
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TIMES (ii) the amount by which the average-daily total Commitments and the
Incremental Commitment, if applicable, EXCEEDS the SUM of the average-daily
Principal Debt PLUS the average-daily LC Exposure, TIMES (iii) a fraction with
the number of days in the applicable quarter or portion of it as the numerator
and 365 or 366 days, as the case may be, as the denominator.
SECTION 5 SECURITY.
5.1 GUARANTY. Borrower has caused or shall cause all of its present and
future Subsidiaries -- whether now existing or in the future formed or acquired
as permitted by the Loan Documents -- that are Domestic-Restricted Companies to
unconditionally guarantee the full payment and performance of the Obligation by
execution of a Guaranty.
5.2 COLLATERAL. Borrower has caused or shall cause full payment and
performance of the Obligation to be secured by Lender Liens on all of the items
and types of property -- (TOGETHER WITH the additional collateral described in
SECTIONS 2.3(g) and 5.3, if any, and the cash and non-cash proceeds of all of
the foregoing, the "COLLATERAL") -- described in the present and future Loan
Documents creating Lender Liens, including, without limitation:
(a) Present and future accounts receivable and inventory of each
present and future Domestic-Restricted Company; and
(b) 100% of the present and future issued and outstanding capital
stock and other equity securities issued by all of its Domestic
Subsidiaries and 65% of the present and future issued and outstanding
capital stock and other equity securities issued by MagneTek Europe and 65%
of the issued and outstanding capital stock of any future Foreign
Restricted Subsidiary.
5.3 OTHER COLLATERAL. Upon 20 days earlier notice, Borrower shall (a)
cause the full payment and performance of the Obligation to be secured by Lender
Liens on the maximum amount (but not less than 65%) of the issued and
outstanding capital stock and other equity securities of each Foreign Restricted
Company (OTHER THAN MagneTek Europe) owned now or in the future by any present
or future Domestic-Restricted Company, and (b) cause such other documents,
agreements, or instruments reasonably requested by Agent in connection with such
security, including without limitation, opinion of local counsel in the country
in which such Foreign Restricted Company is domiciled, to be delivered to Agent.
5.4 FURTHER ASSURANCES. Borrower covenants and agrees that the Lender
Liens otherwise described in SECTION 5.2 and, when required, SECTIONS 2.3(g) and
5.3 must be created and perfected as a condition to funding any Borrowings or
issuance of any LC. Furthermore, Borrower shall -- and shall cause each other
appropriate Company to -- perform the acts, duly authorize, execute,
acknowledge, deliver, file, and record any additional writings, and pay all
filings fees and costs as Agent or Determining Lenders may reasonably deem
appropriate or necessary to perfect and maintain the Lender Liens and preserve
and protect the Rights of Agent and Lenders under any Loan Document.
5.5 RELEASE OF COLLATERAL.
(a) Whenever no Lender has any commitment to extend credit under any
Loan Document, the Obligation has been fully paid and performed, and all
uncancelled and undrawn LCs have been either fully cash secured or backed
by letters of credit acceptable in the sole discretion of the applicable
Issuing Lenders, then Agent shall, upon Borrower's written request and at
Borrower's cost and expense, cause the Lender Liens on all Collateral to be
released (OTHER THAN cash securing LCs as provided herein).
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(b) In connection with any sale or other disposition of stock or
assets permitted by SECTION 9.11 (other than SECTION 9.11(d)), SO LONG AS
no Material Adverse Event, Default, or Potential Default exists, 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 or substantially all of the assets of any
Subsidiary party to a Guaranty, release such Subsidiary from that Guaranty.
(c) Whenever the Release Event has occurred, PROVIDED THAT no Default
or Potential Default exists, Agent shall, upon Borrower's written request
and at Borrower's cost and expense, cause the Lender Liens on all
Collateral under SECTION 5.2 and 5.3 to be released.
(d) Whenever the Release Ratings have been obtained, PROVIDED THAT no
Default or Potential Default exists, Agent shall, at Borrower's cost and
expense, cause the Lender Liens on all Collateral under SECTION 5.2 and 5.3
to be released.
5.6 EXISTING GUARANTIES AND SECURITY AGREEMENTS.
(a) MagneTek Financial Services, Inc. ("FINANCIAL SERVICES") has
executed a Guaranty dated as of December 29, 1996 (the "EXISTING
GUARANTY"). Execution of this agreement and the other Loan Documents in no
way releases, diminishes, impairs, reduces, or otherwise adversely affects
any guaranties, assurances, or other obligations or undertakings of
Financial Services under the Existing Guaranty, and reference to the
"GUARANTEED DEBT" in the Existing Guaranty includes the Obligation as
defined in this agreement.
(b) Financial Services and Borrower have executed a Security
Agreement dated as of December 29, 1996, and Borrower has also executed a
Security Agreement dated as of March 31, 1995 (collectively, the "EXISTING
SECURITY AGREEMENTS"). Execution of this agreement and the other Loan
Documents in no way releases, diminishes, impairs, reduces or otherwise
adversely affects any Lender Liens, guaranties, assurances, or other
obligations or undertakings of Financial Services or Borrower under the
Existing Security Agreements, and reference to the "OBLIGATION" in each of
the Existing Security Agreements includes the Obligation as defined in this
agreement.
SECTION 6 CONDITIONS PRECEDENT.
6.1 CONDITIONS PRECEDENT TO BORROWINGS. No Lender is obligated to fund
the initial Borrowing or issue any LC unless Agent, in its reasonable
discretion, determines as of the Closing Date that no material adverse condition
exists in the financial or capital markets generally affecting the potential
syndication of the Revolving Facility and Agent has received all of the items
described in PART A on SCHEDULE 6. In addition, no Lender is obligated to fund
(as opposed to continue or convert) any Borrowing or issue any LC unless on the
applicable Borrowing Date or issue date (and after giving effect to the
requested Borrowing or LC), as the case may be: (a) Agent (and the Issuing
Lender, if applicable) timely receives a Borrowing Request or LC Request
(together with the applicable LC Agreement), as the case may be; (b) the Issuing
Lender receives any applicable LC fee then due and payable; (c) all of the
representations and warranties of the Companies in the Loan Documents are true
and correct in all material respects (unless they speak to a specific date or
are based on facts which have changed by transactions contemplated or expressly
permitted by this agreement); (d) no Material Adverse Event, Default, or
Potential Default exists; (e) none of the matters disclosed in any amendments to
SCHEDULES 7.9 or 7.11 are objected to by Determining Lenders; and (f) no
limitation in SECTION 2.1 OR 2.3 is exceeded. Each Borrowing Request and LC
Request, however delivered, constitutes Borrower's representation and warranty
that the conditions in CLAUSES (c) through (f) above are satisfied. Upon
Agent's or any Lender's
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reasonable request, Borrower shall deliver to Agent or such Lender evidence
substantiating any of the matters in the Loan Documents that are necessary to
enable Borrower to qualify for the Borrowing or LC, as the case may be. Each
condition precedent in this agreement (including, without limitation, those on
SCHEDULE 6) is material to the transactions contemplated by this agreement, and
time is of the essence with respect to each condition precedent.
6.2 CONDITIONS PRECEDENT TO AVAILABILITY OF THE INCREMENTAL COMMITMENT.
In addition to the conditions stated in SECTION 6.1, Lenders shall not be
obligated to fund any portion of the Incremental Commitment until such time as
(a) Borrower has paid, or pays substantially concurrent with such funding, in
full, all of the Refinanced Debt, or (b) Agent has received a legal opinion of
Borrower's counsel that the incurrence of the Incremental Commitment does not
violate any material agreements to which Borrower is a party, including without
limitation, the agreements relating to the Refinanced Debt.
SECTION 7 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Agent and Lenders as follows:
7.1 PURPOSE AND REGULATION U.
(a) Borrower will use LCs for general corporate purposes and the
proceeds of the Revolving Facility (OTHER THAN the LC Subfacility) for
(i) refinancing the Refinanced Debt, (ii) the Restricted Companies' working
capital and general corporate purposes, (iii) Capital Expenditures, and
(iv) investments, purchase prices, payment of Funded Debt, or any
combination of them in connection with Permitted Acquisitions.
(b) No Company is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying any "MARGIN STOCK" within the meaning of
REGULATION U of the Board of Governors of the Federal Reserve System, as
amended. No part of the proceeds of any LC draft or drawing or Borrowing
will be used, directly or indirectly, for a purpose that violates any Law,
including, without limitation, REGULATION U.
7.2 CORPORATE EXISTENCE, GOOD STANDING, AND AUTHORITY. Each Restricted
Company is duly organized, validly existing, and in good standing under the Laws
of its jurisdiction of incorporation. Except where not a Material Adverse
Event, each Restricted Company is duly qualified to transact business and is in
good standing as a foreign corporation in each jurisdiction where the nature and
extent of its business and properties require due qualification and good
standing (each of which jurisdictions is identified on SCHEDULE 6, as
supplemented from time to time by an amendment to that schedule that is dated,
executed, and delivered by Borrower to Agent and Lenders to reflect changes in
that schedule as a result of transactions permitted by the Loan Documents).
Each Restricted Company possesses all requisite authority and power to conduct
its business as is now being conducted and as proposed under the Loan Documents
to be conducted and to own and operate its assets as now owned and operated and
as proposed to be owned and operated under the Loan Documents.
7.3 SUBSIDIARIES AND NAMES. SCHEDULE 7.3 -- as supplemented from time to
time by an amendment to that schedule that is dated, executed, and delivered by
Borrower to Agent and Lenders to reflect changes in that schedule as a result of
transactions permitted by the Loan Documents -- describes (a) all of Borrower's
direct and indirect Subsidiaries, (b) all Restricted Companies, (c) every name
or trade name used by each Restricted Company during the five-year period before
the date of this agreement, and (d) every change of each Restricted Subsidiary's
name during the four-month period before the date of this agreement. All of the
outstanding shares of capital stock (or similar voting interests) of Borrower's
Restricted Subsidiaries are (a) duly authorized, validly issued, fully paid, and
nonassessable, (b) owned
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of record and beneficially as described in that schedule or those writings, free
and clear of any Liens, EXCEPT Permitted Liens, and (c) not subject to any
warrant, option, or other acquisition Right of any Person or subject to any
transfer restriction EXCEPT restrictions imposed by securities Laws and general
corporate Laws.
7.4 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by each
Restricted Company of each Loan Document to which it is a party and the
performance by it of its obligations under those Loan Documents (a) are within
its corporate power, (b) have been duly authorized by all necessary corporate
action, (c) require no action by or filing with any Tribunal (EXCEPT any action
or filing that has been taken or made on or before the Closing Date), (d) do not
violate any provision of its charter or bylaws, and (e) do not violate any
provision of Law applicable to it or any material agreement to which it is a
party EXCEPT violations that individually or collectively are not a Material
Adverse Event.
7.5 BINDING EFFECT. Upon execution and delivery by all parties to it,
each Loan Document will constitute a legal and binding obligation of each
Restricted Company party to it, enforceable against it in accordance with that
Loan Document's terms EXCEPT as that enforceability may be limited by Debtor
Laws and general principles of equity.
7.6 FINANCIALS AND EXISTING DEBT. The Current Financials were prepared in
accordance with GAAP and present fairly, in all material respects, the
Companies' consolidated financial condition, results of operations, and cash
flows as of, and for the portion of the fiscal year ending on their dates
(subject only to normal year-end adjustments for interim statements and that
quarterly Financials do not contain footnotes). Except for transactions
directly related to, specifically contemplated by, or expressly permitted by the
Loan Documents or as disclosed in the reports filed by Borrower pursuant to the
1934 Act and delivered to Agent and Lenders after the date of the Current
Financials, no material adverse changes have occurred in the Companies'
consolidated financial condition from that shown in the Current Financials.
7.7 PROJECTIONS. Although Borrower cannot assure Agent or Lenders that
the Projections will be achieved, the Projections were reasonably based upon the
assumptions contained in the Projections, which were reasonable and consistent
with each other and with all material facts then known to Borrower and which did
not fail to include any other material assumption in order for the Projections
to be reasonable.
7.8 SOLVENCY. On each Borrowing Date and the date any LC is issued, each
Restricted Company is -- and after giving effect to the requested Borrowing or
LC will be -- Solvent.
7.9 LITIGATION. Except as disclosed on SCHEDULE 7.9 -- as supplemented
from time to time, subject to SECTION 6.1(e), by an amendment to that schedule
that is dated, executed, and delivered by Borrower to Agent and Lenders to
reflect changes in that schedule -- and matters covered (subject to reasonable
and customary deductible and retention) by insurance or indemnification
agreements (a) no Restricted Company is subject to, or aware of the threat of,
any Litigation that is reasonably likely to be determined adversely to any
Restricted Company and, if so adversely determined, is a Material Adverse Event,
and (b) no outstanding and unpaid judgments against any Restricted Company exist
that would be a Material Adverse Event.
7.10 TAXES. EXCEPT where not a Material Adverse Event (a) all Tax returns
of each Restricted Company required to be filed have been filed (or extensions
have been granted) before delinquency, and (b) all Taxes imposed upon each
Restricted Company that are due and payable have been paid before delinquency
except as being contested as permitted by SECTION 8.5.
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7.11 ENVIRONMENTAL MATTERS. EXCEPT as disclosed on SCHEDULE 7.11 -- as
supplemented from time to time, subject to SECTION 6.1(e), by an amendment to
that schedule that is dated, executed, and delivered by Borrower to Agent and
Lenders to reflect changes in that schedule:
(a) No Company has received notice from any Tribunal that it has
actual or potential Environmental Liability and no Company has knowledge
that it has any Environmental Liability, which actual or potential
Environmental Liability in either case constitutes a Material
Adverse Event.
(b) No Company has received notice from any Tribunal that any Real
Property is affected by, and no Company has knowledge that any Real
Property is affected by, any Release of any Hazardous Substance which
constitutes a Material Adverse Event.
7.12 EMPLOYEE PLANS. EXCEPT as disclosed on SCHEDULE 7.12 or where not a
Material Adverse Event (a) no Employee Plan subject to ERISA has incurred an
"ACCUMULATED FUNDING DEFICIENCY" (as defined in SECTION 402 of ERISA or
SECTION 512 of the Code), (b) neither Borrower nor any ERISA Affiliate has
incurred liability -- EXCEPT for liabilities for premiums that have been paid or
that are not past due -- under ERISA to the PBGC in connection with any Employee
Plan, (c) neither Borrower nor any ERISA Affiliate has withdrawn in whole or in
part from participation in a Multiemployer Plan in a manner that has given rise
to a withdrawal liability under TITLE IV of ERISA, (d) neither Borrower nor any
ERISA Affiliate has engaged in any "PROHIBITED TRANSACTION" (as defined in
SECTION 406 of ERISA or SECTION 4975 of the Code), (e) no "REPORTABLE EVENT" (AS
DEFINED IN SECTION 4043 of ERISA) has occurred excluding events for which the
notice requirement is waived under applicable PBGC regulations or notice has
been timely given, (f) neither Borrower nor any ERISA Affiliate has any
liability (excluding any liabilities, contributions, or benefits that are not
past due), or is subject to any Lien, under ERISA or the Code to or on account
of any Employee Plan, (g) each Employee Plan subject to ERISA and the Code
complies in all material respects, both in form and operation, with ERISA and
the Code, and (h) no Multiemployer Plan subject to the Code is in reorganization
within the meaning of SECTION 418 of the Code. None of the matters disclosed on
SCHEDULE 7.12 give rise to any other "REPORTABLE EVENTS," as defined above.
7.13 PROPERTIES; LIENS. Each Restricted Company has good and marketable
title to all its property reflected on the Current Financials as being owned by
it EXCEPT for property that is obsolete or that has been disposed of in the
ordinary course of business between the date of the Current Financials and the
date of this agreement or, after the date of this agreement, as permitted by
SECTION 9.11 or SECTION 9.12. No Lien exists on any property of any Restricted
Company EXCEPT Permitted Liens. No Restricted Company is party or subject to
any agreement, instrument, or order which in any way restricts any Restricted
Company's ability to allow Liens to exist upon any of its assets EXCEPT relating
to Permitted Liens.
7.14 GOVERNMENT REGULATIONS. No Restricted Company is subject to
regulation under the INVESTMENT COMPANY ACT OF 1940, as amended, or the PUBLIC
UTILITY HOLDING COMPANY ACT OF 1935, as amended.
7.15 TRANSACTIONS WITH AFFILIATES. EXCEPT for transactions with other
Restricted Companies and as otherwise disclosed on SCHEDULE 7.15 or permitted by
SECTION 9.7, no Restricted Company is a party to a material transaction with any
of its Affiliates.
7.16 DEBT. No Company has any Debt EXCEPT Permitted Debt.
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7.17 LEASES. EXCEPT where not a Material Adverse Event (a) each Restricted
Company enjoys peaceful and undisturbed possession under all leases necessary
for the operation of its properties and assets, and (b) all material leases
under which any Restricted Company is a lessee are in full force and effect.
7.18 LABOR MATTERS. EXCEPT where not a Material Adverse Event (a) no
actual or threatened strikes, labor disputes, slow downs, walkouts, work
stoppages, or other concerted interruptions of operations that involve any
employees employed at any time in connection with the business activities or
operations at the Real Property exist, (b) hours worked by and payment made to
the employees of any Restricted Company or any Predecessor have not been in
violation of the FAIR LABOR STANDARDS ACT (with respect to Domestic Restricted
Companies only) or any other applicable Laws pertaining to labor matters, (c)
all payments due from any Restricted Company for employee health and welfare
insurance, including, without limitation, workers compensation insurance, have
been paid or accrued as a liability on its books, (d) the business activities
and operations of each Company are in compliance with OSHA and other applicable
health and safety Laws.
7.19 INTELLECTUAL PROPERTY. EXCEPT where not a Material Adverse Event (a)
each Restricted Company owns or has the right to use all material licenses,
patents, patent applications, copyrights, service marks, trademarks, trademark
applications and trade names necessary to continue to conduct its businesses as
presently conducted by it and proposed to be conducted by it immediately after
the date of this agreement, (b) each Restricted Company is conducting its
business without infringement or claim of infringement of any license, patent,
copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of others, and (c) no infringement or claim of
infringement by others of any material license, patent, copyright, service mark,
trademark, trade name, trade secret or other intellectual property of any
Restricted Company exists.
7.20 FULL DISCLOSURE. As of the date hereof, Borrower's reports filed
pursuant to the 1934 Act before the date of this agreement do not contain any
untrue statements of material fact and do not omit to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. All information
previously furnished to Agent by or at the direction of a Responsible Officer or
the General Counsel of Borrower in connection with the Loan Documents was -- and
all information furnished to Agent in the future by or at the direction of a
Responsible Officer or the General Counsel of Borrower will be -- true and
accurate in all material respects or based on reasonable estimates on the date
the information is stated or certified.
SECTION 8 AFFIRMATIVE COVENANTS. For so long as any Lender is committed to
lend or issue LCs under this agreement and until the Obligation has been fully
paid and performed, Borrower covenants and agrees with Agent and Lenders that,
without first obtaining Agent's written notice of Determining Lenders' consent
to the contrary:
8.1 CERTAIN ITEMS FURNISHED. Borrower shall furnish the following to each
Lender:
(a) ANNUAL FINANCIALS, ETC. Promptly after preparation but no later
than 90 days (subject to any extensions granted to Borrower by the SEC for
filing the related annual report under the 1933 Act and 1934 Act) after the
last day of each fiscal year of Borrower, Financials showing the Companies'
consolidated financial condition and results of operations as of, and for
the year ended on, that last day, accompanied by (i) the opinion, without
material qualification, of Ernst & Young or other firm of
nationally-recognized independent certified public accountants reasonably
acceptable to Determining Lenders, based on an audit using generally
accepted auditing standards, that the consolidated portion of those
Financials were prepared in accordance with
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GAAP and present fairly, in all material respects, the Companies'
consolidated financial condition and results of operations, and (ii) a
Compliance Certificate.
(b) QUARTERLY FINANCIALS, ETC. Promptly after preparation but no
later than 45 days (subject to any extensions granted to Borrower by the
SEC for filing the related quarterly report under the 1933 Act and 1934
Act) after the last day of each of the first three fiscal quarters of
Borrower each year, Financials showing the Companies' consolidated
financial condition and results of operations for that fiscal quarter and
for the period from the beginning of the current fiscal year to the last
day of that fiscal quarter, accompanied by (i) a Compliance Certificate and
(ii) a report of revenues, gross margins, and operating profits of the
Companies for the prior fiscal quarter on a business-segment basis.
(c) FINANCIAL PROJECTIONS. No later than 120 days after the last day
of each fiscal year of the Companies, financial projections of the
Companies for the next-succeeding-two-year period following that last day,
in the form reasonably satisfactory to Agent, setting forth management's
projections for each fiscal quarter of the next-succeeding-fiscal year and
on a yearly basis thereafter.
(d) OTHER REPORTS. Promptly after preparation and distribution,
accurate and complete copies of all reports and other material
communications about material financial matters or material corporate plans
or projections by or for any Company for distribution to any Tribunal or
any creditor (i) including, without limitation, each FORM 10-K, 10-Q, and
S-8 filed with the Securities and Exchange Commission but (ii) excluding
(A) credit, trade, and other reports prepared and distributed in the
ordinary course of business, and (B) information otherwise furnished to
Agent and Lenders under this agreement.
(e) EMPLOYEE PLANS. As soon as possible and within 30 days after
Borrower knows that any event which would constitute a reportable event
under SECTION 4043(b) of TITLE IV of ERISA with respect to any Employee
Plan subject to ERISA has occurred, or that the PBGC has instituted or will
institute proceedings under ERISA to terminate that plan, deliver a
certificate of a Responsible Officer of Borrower setting forth details as
to that reportable event and the action which Borrower or an ERISA
Affiliate, as the case may be, proposes to take with respect to it,
together with a copy of any notice of that reportable event which may be
required to be filed with the PBGC, or any notice delivered by the PBGC
evidencing its intent to institute those proceedings or any notice to the
PBGC that the plan is to be terminated, as the case may be. For all
purposes of this section, Borrower is deemed to have all knowledge of all
facts attributable to the plan administrator under ERISA.
(f) OTHER NOTICES. Notice -- promptly after Borrower knows -- of
(i) the existence and status of any Litigation that is reasonably likely to
be adversely determined and, if determined adversely to any Company, would
be a Material Adverse Event, (ii) any change in any material fact or
circumstance represented or warranted by any Company in any Loan Document,
(iii) a Default or Potential Default, specifying the nature thereof and
what action the Companies have taken, are taking, or propose to take.
(g) PART B ON SCHEDULE 6. Promptly as they become available (subject
to the other requirements of this agreement), the items, if any, described
in PART B on SCHEDULE 6.
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(h) OTHER INFORMATION. Promptly when reasonably requested by Agent
or any Lender, such information (not otherwise required to be furnished
under this agreement) about any Company's business affairs, assets, and
liabilities.
8.2 USE OF CREDIT. Borrower shall use LCs and the proceeds of Borrowings
only for the purposes represented in this agreement.
8.3 BOOKS AND RECORDS. Each Company shall maintain books, records, and
accounts necessary to prepare Financials in accordance with GAAP.
8.4 INSPECTIONS. Upon reasonable request, each Company shall allow Agent
or any Lender (or their respective Representatives) to inspect any of its
properties, to review reports, files, and other records and to make and take
away copies, to conduct tests or investigations, and to discuss any of its
affairs, conditions, and finances with its other creditors, directors, officers,
employees, or representatives from time to time, during reasonable business
hours. Any reviews and investigations shall be limited to matters relevant to
the present or future financial condition of the Companies and their compliance
with -- or ability to comply with -- the Loan Documents.
8.5 TAXES. Each Restricted Company shall promptly pay when due any and
all Taxes EXCEPT Taxes that are being contested in good faith by lawful
proceedings diligently conducted, against which reserve or other provision
required by GAAP has been made, and in respect of which levy and execution of
any Lien sufficient to be enforced has been and continues to be stayed.
8.6 PAYMENT OF OBLIGATION. Each Restricted Company shall promptly pay (or
renew and extend) all of its material obligations as they become due (unless the
obligations are being contested in good faith by appropriate proceedings).
8.7 EXPENSES. Within ten Business Days after demand accompanied by an
invoice describing the costs, fees, and expenses in reasonable detail, Borrower
shall pay (a) all costs, fees, and expenses paid or incurred by Agent incident
to any Loan Document (including, without limitation, the reasonable fees and
expenses of Agent's counsel in connection with the negotiation, preparation,
delivery, and execution of the Loan Documents and any related amendment, waiver,
or consent) and (b) all reasonable costs and expenses incurred by Agent or any
Lender in connection with the enforcement of the obligations of any Restricted
Company under the Loan Documents or the exercise of any Rights under the Loan
Documents (including, without limitation, reasonable allocated costs of in-house
counsel, other reasonable attorneys' fees, and court costs), all of which are
part of the Obligation, bearing interest, (if not paid within ten Business Days
after demand accompanied by an invoice describing the costs, fees, and expenses
in reasonable detail) at the Default Rate until paid.
8.8 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Restricted
Company shall (a) EXCEPT in connection with dispositions permitted under SECTION
9.11 and mergers, consolidations, and dissolutions permitted under SECTION 9.12,
maintain its corporate existence and good standing in its state of
incorporation, and (b) EXCEPT where not a Material Adverse Event (i) maintain
its authority to transact business and good standing in all other states, (ii)
maintain all licenses, permits, and franchises (including, without limitation,
Environmental Permits) necessary for its business, and (iii) keep all of its
material assets that are useful in and necessary to its business in good working
order and condition (ordinary wear and tear excepted) and make all necessary
repairs and replacements.
8.9 INSURANCE. In addition to any restrictions set forth in any other
Loan Document, each Restricted Company shall, at its cost and expense, maintain
with financially sound, responsible, and
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reputable insurance companies or associations -- or, as to workers' compensation
or similar insurance, with an insurance fund or by self-insurance authorized by
the jurisdictions in which it operates -- insurance concerning its properties
and businesses against casualties and contingencies and of types and in amounts
(and with co-insurance and deductibles) as is customary in the case of similar
businesses.
8.10 ENVIRONMENTAL MATTERS. Each Restricted Company shall (a) operate and
manage its businesses and otherwise conduct its affairs in compliance with all
Environmental Laws and Environmental Permits except to the extent noncompliance
does not constitute a Material Adverse Event, (b) promptly deliver to Agent a
copy of any notice received from any Tribunal alleging that any Restricted
Company is not in compliance with any Environmental Law or Environmental Permit
if the allegation constitutes a Material Adverse Event, and (c) promptly deliver
to Agent a copy of any notice received from any Tribunal alleging that any
Restricted Company has any potential Environmental Liability if the allegation
constitutes a Material Adverse Event.
8.11 SUBSIDIARIES. In respect of each present and future Subsidiary,
Borrower shall cause each of its present and future Subsidiaries (whether as a
result of acquisition, creation, or otherwise) to promptly and fully comply with
SECTIONS 5.1 and 5.2 and its capital stock or other equity securities to become
subject to Lender Liens as required by SECTION 5.2 EXCEPT to the extent that it
is subject to any exceptions in those provisions.
8.12 INDEMNIFICATION.
(a) AS USED IN THIS SECTION: (i) "INDEMNITOR" MEANS BORROWER AND
(PURSUANT TO ITS GUARANTY) EACH OTHER RESTRICTED COMPANY; (ii) "INDEMNITEE"
MEANS AGENT, EACH LENDER, EACH PRESENT AND FUTURE AFFILIATE OF AGENT, ANY
CO-AGENT, OR ANY LENDER, EACH PRESENT AND FUTURE REPRESENTATIVE OF AGENT,
EACH CO-AGENT, ANY LENDER, OR ANY OF THOSE AFFILIATES, AND EACH PRESENT AND
FUTURE SUCCESSOR AND ASSIGN OF AGENT, ANY CO-AGENT, ANY LENDER, OR ANY OF
THOSE AFFILIATES OR REPRESENTATIVES; AND (iii) "INDEMNIFIED LIABILITIES"
MEANS ALL PRESENT AND FUTURE, KNOWN AND UNKNOWN, FIXED AND CONTINGENT,
ADMINISTRATIVE, INVESTIGATIVE, JUDICIAL, AND OTHER CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, INVESTIGATIONS, SUITS, PROCEEDINGS, AMOUNTS PAID
IN SETTLEMENT, DAMAGES, JUDGMENTS, PENALTIES, COURT COSTS, LIABILITIES, AND
OBLIGATIONS -- AND ALL PRESENT AND FUTURE COSTS, EXPENSES, AND
DISBURSEMENTS (INCLUDING, WITHOUT LIMITATION, ALL REASONABLE ATTORNEYS'
FEES AND EXPENSES WHETHER OR NOT SUIT OR OTHER PROCEEDING EXISTS OR ANY
INDEMNITEE IS PARTY TO ANY SUIT OR OTHER PROCEEDING) IN ANY WAY RELATED TO
ANY OF THE FOREGOING -- THAT MAY AT ANY TIME BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST ANY INDEMNITEE AND IN ANY WAY RELATING TO OR ARISING OUT
OF ANY (A) LOAN DOCUMENT, TRANSACTION CONTEMPLATED BY ANY LOAN DOCUMENT,
COLLATERAL, OR REAL PROPERTY, (B) ENVIRONMENTAL LIABILITY IN ANY WAY
RELATED TO ANY COMPANY, PREDECESSOR, COLLATERAL, REAL PROPERTY, OR ACT,
OMISSION, STATUS, OWNERSHIP, OR OTHER RELATIONSHIP, CONDITION, OR
CIRCUMSTANCE CONTEMPLATED BY, CREATED UNDER, OR ARISING PURSUANT TO OR IN
CONNECTION WITH ANY LOAN DOCUMENT, OR (C) INDEMNITEE'S SOLE OR CONCURRENT
ORDINARY NEGLIGENCE.
(b) EACH INDEMNITOR SHALL JOINTLY AND SEVERALLY INDEMNIFY EACH
INDEMNITEE FROM AND AGAINST, PROTECT AND DEFEND EACH INDEMNITEE FROM AND
AGAINST, HOLD EACH INDEMNITEE HARMLESS FROM AND AGAINST, AND ON DEMAND PAY
OR REIMBURSE EACH INDEMNITEE FOR, ALL INDEMNIFIED LIABILITIES.
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(c) THE FOREGOING PROVISIONS (i) ARE NOT LIMITED IN AMOUNT EVEN IF
THAT AMOUNT EXCEEDS THE OBLIGATION, (ii) INCLUDE, WITHOUT LIMITATION,
REASONABLE FEES AND EXPENSES OF ATTORNEYS AND OTHER COSTS AND EXPENSES OF
LITIGATION OR PREPARING FOR LITIGATION AND DAMAGES OR INJURY TO PERSONS,
PROPERTY, OR NATURAL RESOURCES ARISING UNDER ANY STATUTORY OR COMMON LAW,
PUNITIVE DAMAGES, FINES, AND OTHER PENALTIES, AND (iii) ARE NOT AFFECTED BY
THE SOURCE OR ORIGIN OF ANY HAZARDOUS SUBSTANCE, AND (iv) ARE NOT AFFECTED
BY ANY INDEMNITEE'S INVESTIGATION, ACTUAL OR CONSTRUCTIVE KNOWLEDGE, COURSE
OF DEALING, OR WAIVER.
(d) However, no Indemnitee is entitled to be indemnified under the
Loan Documents for its own fraud, gross negligence, or wilful misconduct.
(e) Although failure to do so does not reduce or impair any
Indemnitor's obligations under this section (except to the extent that
failure prejudices Indemnitors' ability to perform their obligations under
this Section) each Indemnitee shall promptly notify Borrower of any event
about which the Indemnitee has received written notice and that is
reasonably likely to result in any Indemnified Liability. Each Indemnitor
may, at its own cost and expense, participate in the defense in any
proceeding involving any Indemnified Liability. If no Default or Potential
Default exists, Indemnitors may assume the defense in that proceeding on
behalf of the applicable Indemnitees, including the employment of counsel
if first approved (which approval may not be unreasonably withheld) by the
applicable Indemnitees. If Indemnitors assume any defense, they shall keep
the applicable Indemnitees fully advised of the status of, and shall
consult with those Indemnitees before taking any material position in
respect of, that proceeding. If Indemnitors consent or if any Indemnitee
reasonably determines that an actual conflict of interests exists between
Indemnitors and that Indemnitee with respect to the subject matter of the
proceeding or that Indemnitors are not diligently pursuing the defense,
then (i) that Indemnitee may -- at Indemnitors' joint and several expense
-- employ counsel to represent that Indemnitee that is separate from
counsel for Indemnitors or any other Person in that proceeding and (ii)
Indemnitors are no longer entitled to assume the defense on behalf of that
Indemnitee. However, Indemnitors shall not then be required to pay for
more than one counsel for all Indemnitees at any time. No Indemnitor may
agree to the settlement of any Indemnified Liability without the prior
written consent of the applicable Indemnitees unless that settlement fully
relieves those Indemnitees of any liability whatsoever for that Indemnified
Liability. If an Indemnitee agrees to the settlement of any Indemnified
Liability without the prior written consent -- which may not be
unreasonably withheld -- of Indemnitors, then Indemnitors are no longer
obligated for that Indemnified Liability in respect of that Indemnitee.
(f) THE PROVISIONS OF AND INDEMNIFICATION AND OTHER UNDERTAKINGS
UNDER THIS SECTION SURVIVE THE FORECLOSURE OF ANY LENDER LIEN OR ANY
TRANSFER IN LIEU OF THAT FORECLOSURE, THE SALE OR OTHER TRANSFER OF ANY
COLLATERAL OR REAL PROPERTY TO ANY PERSON, THE SATISFACTION OF THE
OBLIGATION, THE TERMINATION OF THE LOAN DOCUMENTS, AND THE RELEASE OF ANY
OR ALL LENDER LIENS.
SECTION 9 NEGATIVE COVENANTS. For so long as any Lender is committed to lend
or issue LCs under this agreement and until the Obligation has been fully paid
and performed, Borrower covenants and agrees with Agent and Lenders that,
without first obtaining Agent's written notice of Determining Lenders' consent
to the contrary:
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9.1 PAYROLL TAXES. No Company may use any proceeds of any Borrowing to
pay the wages of employees unless a timely payment to or deposit with the United
States of America of all amounts of Tax required to be deducted and withheld
with respect to such wages is also made.
9.2 DEBT. No Company may:
(a) Have any Debt EXCEPT Permitted Debt.
(b) Prepay or cause to be prepaid any principal of, or any interest
on, any of its Funded Debt EXCEPT (i) the Obligation, (ii) the Refinanced
Debt, (iii) any of its other Senior Debt if no Default or Potential Default
exists, (iv) conversions of Subordinated Debt to equity of Borrower that is
not mandatorily redeemable, (v) exchanges of Subordinated Debt for
Subordinated Debt, (vi) prepayment of Subordinated Debt with the proceeds
of the issuance of additional Subordinated Debt or common stock issued by
Borrower, and (vii) any of the Subordinated Debt if no Default or Potential
Default exists.
(c) Amend or modify the terms of any Subordinated Debt to any extent
that (i) any of the applicable subordination, payment blockage, or
standstill provisions are less favorable to Lenders than exist for the
Subordinated Debt on the date of this agreement, (ii) the applicable
representations, covenants, events of default, and other provisions are
significantly more onerous to Borrower than exist for the Subordinated Debt
on the date of this agreement, or (iii) scheduled or mandatory principal or
sinking fund payment obligations before August 31, 2002, are made
applicable to any Subordinated Debt.
Notwithstanding the foregoing or any other provision in this agreement,
Borrower shall be permitted to consummate each of the following transactions:
(A) Borrower may tender for and purchase all or a lesser amount,
but in no event less than a majority in outstanding principal amount,
of its outstanding Refinanced Debt in accordance with the terms of the
Tender Offer commenced on May 29, 1997, as it may be amended with the
consent of the Agent, and may enter into the "SUPPLEMENTAL INDENTURE"
described therein.
(B) Borrower may call for redemption $35,000,000 in principal
amount of its 8% Subordinated Convertible Notes due 2001 pursuant to
the Standby Purchase Agreement with Lehman Brothers Inc. dated June 3,
1997, and may perform all of its obligations pursuant thereto,
including, without limitation, the execution and performance of the
"SWAP AGREEMENT" described therein on the "REDEMPTION DATE" described
therein and, in the event the Swap Agreement is executed, may settle
its obligations thereunder, PROVIDED THAT any portion of such
settlement paid in cash MAY NOT EXCEED $25,000,000.
9.3 [INTENTIONALLY BLANK]
9.4 [INTENTIONALLY BLANK]
9.5 LIENS. No Company may (a) create, incur, or suffer or permit to be
created or incurred or to exist any Lien upon any of its assets except Permitted
Liens or (b) enter into or permit to exist any arrangement or agreement that
directly or indirectly prohibits any Company from creating or incurring any Lien
on any of its assets EXCEPT (i) the Loan Documents, (ii) any lease that places a
Lien prohibition on
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only the property subject to that lease, and (iii) arrangements and agreements
that apply only to property subject to Permitted Liens.
9.6 EMPLOYEE PLANS. EXCEPT as disclosed on SCHEDULE 7.12 or where not a
Material Adverse Event, no Restricted Company may permit any of the events or
circumstances described in SECTION 7.12 to exist or occur.
9.7 TRANSACTIONS WITH AFFILIATES. No Restricted Company may enter into
any material transaction with any of its Affiliates EXCEPT (a) those described
on SCHEDULE 7.15, (b) transactions between one or more Restricted Companies, (c)
transactions (other than Investments) between Restricted Companies and
Unrestricted Companies in the ordinary course of business and on terms
consistent with past practices, (d) transactions permitted under SECTIONS 9.2 or
9.9, (e) transactions in the ordinary course of business and upon fair and
reasonable terms not materially less favorable than it could obtain or could
become entitled to in an arm's-length transaction with a Person that was not its
Affiliate, (f) transactions specifically approved by Borrower's shareholders,
and (g) compensation arrangements in the ordinary course of business with
directors and officers of the Companies.
9.8 COMPLIANCE WITH LAWS AND DOCUMENTS. No Restricted Company may
(a) violate the provisions of any Laws (including, without limitation, OSHA and
Environmental Laws) applicable to it or of any material agreement to which it is
a party if that violation alone, or when aggregated with all other violations,
would be a Material Adverse Event, (b) violate in any material respect any
provision of its charter or bylaws, or (c) repeal, replace, or amend any
provision of its charter or bylaws if that action would be a Material Adverse
Event.
9.9 INVESTMENTS. EXCEPT those described on SCHEDULE 9.9, no Restricted
Company may make any Investments.
9.10 DISTRIBUTIONS. No Restricted Company may declare, make, or pay any
Distribution EXCEPT (i) Distributions paid in the form of additional equity that
is not mandatorily redeemable, (ii) Distributions to any other Restricted
Company, and (iii) other Distributions by Borrower SO LONG AS immediately after
giving effect to any such other Distribution, no Default or Potential Default
exists and the ratio of the Companies' Funded Debt to Capitalization is not MORE
THAN 0.55 to 1.00.
9.11 DISPOSITION OF ASSETS. No Restricted Company may sell, assign, lease,
transfer, or otherwise dispose of any of its assets (including, without
limitation, equity interests in any other Company) EXCEPT (a) sales and
dispositions in the ordinary course of business for a fair and adequate
consideration, (b) sales of assets which are obsolete or are no longer in use
and which are not significant to the continuation of that Restricted Company's
business, (c) sales of assets (i) obtained as the result of mergers and
consolidations permitted under this agreement and Permitted Acquisitions and
(ii) which are unnecessary to that Restricted Companies' business operations,
(d) sales and dispositions from any Restricted Company to any other Restricted
Company, (e) sales and dispositions of Divestiture Assets, (f) dispositions of
assets where substantially similar assets have been or are being acquired, (g)
dispositions of equity interest of any Company that is not a Restricted Company,
and (h) dispositions of assets, the net proceeds of which do not exceed (i) for
any single disposition of assets during any fiscal year, $20,000,000, and
(ii) for all dispositions of assets during any fiscal year, an aggregate amount
of $40,000,000.
9.12 MERGERS, CONSOLIDATIONS, AND DISSOLUTIONS. No Restricted Company may
merge or consolidate with any other Person or dissolve EXCEPT:
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(a) if no Default or Potential Default exists or will exist as a
result of it, any merger or consolidation (i) between Restricted Companies
(SO LONG AS, if Borrower is involved, it is the survivor), or (ii) in
connection with any Permitted Acquisition if the survivor is, or
concurrently with that Permitted Acquisition becomes, a Restricted Company;
and
(b) dissolution of any Restricted Company (OTHER THAN Borrower) if
substantially all of its assets have been conveyed to any other Restricted
Company or disposed of as permitted in SECTION 9.11.
9.13 ASSIGNMENT. No Restricted Company may assign or transfer any of its
Rights, duties, or obligations under any of the Loan Documents, EXCEPT in
connection with a merger permitted under SECTION 9.12.
9.14 FISCAL YEAR; ACCOUNTING METHODS. No Restricted Company may change its
fiscal year for accounting purposes, EXCEPT that Borrower may, one time during
the period commencing with the Closing Date and continuing through the
Stated-Termination Date, cause the fiscal years of all of the Companies to be
changed simultaneously, PROVIDED THAT during the first fiscal year after such
change, Borrower shall deliver to Agent concurrently with the delivery of the
Financials required in SECTION 8.1, the Financials of the Companies for the same
period during the immediately preceding calendar year, compiled as if the new
fiscal year of the Companies was in effect during such previous year. No
Restricted Company may change any material aspect of its method of accounting
EXCEPT to conform any new Subsidiary's accounting methods to Borrower's
accounting methods.
9.15 NEW BUSINESSES. No Restricted Company may engage in any business
EXCEPT the businesses in which it or any other Restricted Company is presently
engaged and any other reasonably related business.
9.16 GOVERNMENT REGULATIONS. No Restricted Company may conduct its
business in a way that it becomes regulated under the INVESTMENT COMPANY ACT OF
1940, as amended, or the PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, as amended.
9.17 STRICT COMPLIANCE. No Restricted Company may indirectly do anything
that it may not directly do under any covenant in any Loan Document.
SECTION 10 FINANCIAL COVENANTS. For so long as any Lender is committed to lend
or issue LCs under this agreement and until the Obligation has been fully paid
and performed, Borrower covenants and agrees with Agent and Lenders that,
without first obtaining Agent's written notice of Determining Lenders' consent
to the contrary, it may not directly or indirectly permit:
10.1 NET WORTH. The Companies' Net Worth -- determined as of the last day
of each fiscal quarter of Borrower -- to be LESS than the SUM of (a)
$50,000,000, PLUS (b) 50% of the Companies' cumulative Net Income (without
deduction for losses) after June 30, 1997, 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, PLUS (d) 100% of all amounts converted to equity
pursuant to the terms of the existing-Subordinated Debt after the date of this
agreement.
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10.2 DEBT/EBITDA.
(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, 1997) 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 (i) after the Release Event has occurred
and Agent has released the Collateral, 3.25 to 1.00 and (ii) otherwise,
3.75 to 1.00.
(b) After the Release Event has occurred and Agent has released the
Collateral, the ratio of the Companies' Senior Debt as of the last day of
each fiscal quarter of Borrower 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 2.50 to 1.00.
10.3 INTEREST COVERAGE.
(a) The ratio -- determined as of the last day of each fiscal quarter
(commencing June 30, 1997) of Borrower for the four quarters then ended --
of (i) the DIFFERENCE of the Companies' EBITDA MINUS Capital Expenditures
to (ii) Interest Expense to be LESS than:
------------------------------------------------------------------
------------------------------------------------------------------
Quarter(s) Ending Ratio
------------------------------------------------------------------
------------------------------------------------------------------
6/30/97 through 6/30/98 2.00 to 1.00
------------------------------------------------------------------
9/30/98 through 6/30/99 2.25 to 1.00
------------------------------------------------------------------
9/30/99 and each fiscal quarter after that 2.50 to 1.00
------------------------------------------------------------------
------------------------------------------------------------------
SECTION 11 DEFAULT. The term "DEFAULT" means the occurrence of any one or more
of the following:
11.1 PAYMENT OF OBLIGATION. Borrower's failure or refusal to pay
(a) principal of any Revolving Note or any LC Exposure or any part thereof on or
before the date due or (b) any other part of the Obligation on or before three
Business Days after the date due.
11.2 COVENANTS. Any Company's failure or refusal to punctually and
properly perform, observe, and comply with any covenant (OTHER THAN covenants to
pay the Obligation) applicable to it:
(a) In SECTIONS 8.2, 8.8(a), 9.1, 9.2, 9.5 through 9.7, 9.9 through
9.13, 9.16, 9.17 (to the extent related to any of the foregoing), or 10; or
(b) In SECTIONS 8.1 or 8.11, and that failure or refusal continues
for ten days after the earlier of EITHER any Company knows of it OR any
Company is notified of it by Agent or any Lender; or
(c) In any other provision of any Loan Document, and that failure or
refusal continues for 30 days after the earlier of EITHER any Company knows
of it OR any Company is notified of it by Agent or any Lender; or
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11.3 DEBTOR RELIEF. Any Restricted Company (a) is not Solvent, (b) fails
to pay its Debts generally as they become due, (c) voluntarily seeks, consents
to, or acquiesces in the benefit of any Debtor Law, or (d) becomes a party to or
is made the subject of any proceeding provided for by any Debtor Law -- EXCEPT
as a creditor or claimant -- that could suspend or otherwise adversely affect
the Rights of Agent or any Lender granted in the Loan Documents (UNLESS, if the
proceeding is involuntary, the applicable petition is dismissed within 60 days
after its filing).
11.4 JUDGMENTS AND ATTACHMENTS. Where the amounts in controversy or of any
judgments, as the case may be, exceed -- from and after the Closing Date and
individually or collectively for all of the Restricted Companies -- $5,000,000,
the Restricted Companies fail (a) to have discharged, within 60 days after its
commencement, any attachment, sequestration, or similar proceeding against any
assets of any Restricted Company or (b) to pay any money judgment against any
Restricted Company within ten days before the date on which any Restricted
Company's assets may be lawfully sold to satisfy that judgment.
11.5 GOVERNMENT ACTION. Where EITHER it is a Material Adverse Event OR the
fair value of the assets involved exceed -- from and after the Closing Date and
individually or collectively for all of the Restricted Companies -- (a)
$50,000,000 in respect of a final non-appealable order is issued by any Tribunal
(including, but not limited to, the United States Justice Department) seeking to
cause any Company to divest a significant portion of its assets under any
antitrust, restraint of trade, unfair competition, industry regulation, or
similar Laws, or (b) $5,000,000 in respect of any Tribunal condemning, seizing,
or otherwise appropriating, or taking custody or control of all or any
substantial portion of any Restricted Company's assets.
11.6 MISREPRESENTATION. Any material representation or warranty made by
any Company in any Loan Document at any time proves to have been materially
incorrect when made.
11.7 OWNERSHIP OF COMPANIES. EXCEPT as a result of transactions permitted
by this agreement and to the extent ownership by third parties is required by
applicable Law in respect of any Foreign-Restricted Company, one or more
Restricted Companies fail to own, beneficially and of record, with power to
vote, (a) 100% of the issued and outstanding shares of capital stock of each
Domestic-Restricted Company OTHER THAN Borrower, and (b) 65% of the issued and
outstanding shares of capital stock of each Foreign-Restricted Company.
11.8 CHANGE OF CONTROL OF BORROWER. The individuals who, as of the date of
this agreement, constitute the members of Borrower's board of directors (for
purposes of this SECTION 11.8, the "INCUMBENT BOARD") do not constitute or cease
for any reason to constitute at least 50% of:
(a) Borrower's board of directors; or
(b) The surviving corporation's board of directors in the event of
any merger or consolidation (if permitted by SECTION 9.12) involving
Borrower; or
(c) The controlling entity's board of directors, the comparable body
if there is no board of directors, or voting control if there is no
comparable body, in the event that the surviving corporation under CLAUSE
(b) above is directly or indirectly controlled by that entity.
For purposes of this SECTION 11.8, any individual who becomes a member of the
board of directors or comparable body or who obtains a voting interest, as
applicable under CLAUSES (a), (b), or (c) above, after the date of this
agreement and whose appointment to the board, or nomination for election, was
approved
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or ratified by a vote of the individuals comprising at least 50% of the
incumbent board shall be deemed to be a member of the incumbent board.
11.9 OTHER FUNDED DEBT. In respect of any Funded Debt (OTHER THAN the
Obligation) individually or collectively of at least $10,000,000 (a) any
Restricted Company fails to make any payment when due, or (b) any default or
other event or condition occurs or exists (OTHER THAN a mandatory prepayment as
a result of disposition of assets if permitted by the Loan Documents) beyond the
applicable grace or cure period, the effect of which is to cause or to permit
any holder of that Funded Debt to cause -- whether or not it elects to
cause -- any of that Funded Debt to become due before its stated maturity or
regularly scheduled payment dates, or (c) any of that Funded Debt is declared to
be due and payable or required to be prepaid by any Restricted Company before
its stated maturity (OTHER THAN a mandatory prepayment as a result of
disposition of assets or "CASH SWEEP" provisions to the extent, in each case,
permitted by the Loan Documents).
11.10 SEC REPORTING REQUIREMENTS. Borrower fails to comply with any
applicable reporting requirements of the 1934 ACT, as amended, for which the
failure to report would constitute a Material Adverse Event.
11.11 VALIDITY AND ENFORCEABILITY. Once executed, this agreement, any
Revolving Note, any LC Agreement, any Guaranty, or any Security Agreement ceases
to be in full force and effect in any material respect or is declared to be null
and void or its validity or enforceability is contested in writing by any
Restricted Company party to it or any Restricted Company party to it denies in
writing that it has any further liability or obligations under it EXCEPT in
accordance with that document's express provisions or as the appropriate parties
under SECTION 14.8 below may otherwise agree in writing.
11.12 LCS. Agent is served with, or becomes subject to, a court order,
injunction, or other process or decree restraining or seeking to restrain it
from paying any amount under any LC and EITHER (a) a drawing has occurred under
the LC, and Borrower has refused to reimburse the Issuing Lender for payment, OR
(b) the expiration date of the LC has occurred, but the Right of the beneficiary
to draw under the LC has been extended past the Stated-Termination Date in
connection with the pendency of the related court action or proceeding, and
Borrower has failed to deposit with Agent cash collateral in an amount equal to
the Issuing Lender's maximum exposure under the LC.
SECTION 12 RIGHTS AND REMEDIES.
12.1 REMEDIES UPON DEFAULT.
(a) DEBTOR RELIEF. If a Default exists under SECTION 11.3, the
commitment to extend credit under this agreement automatically terminates,
the entire unpaid balance of the Obligation automatically becomes due and
payable without any action of any kind whatsoever.
(b) OTHER DEFAULTS. If any Default exists, subject to the terms
of SECTION 13.5(b), Agent may (with the consent of, and must, upon the
request of, Determining Lenders), do any one or more of the following:
(i) If the maturity of the Obligation has not already been accelerated
under SECTION 12.1(a), declare the entire unpaid balance of all or any part
of the Obligation immediately due and payable, whereupon it is due and
payable; (ii) terminate the commitments of Lenders to extend credit under
this agreement; (iii) reduce any claim to judgment; (iv) demand payment of
an amount equal to the LC Exposure then existing and retain as collateral
for the LC Exposure any amounts received from any Company, from any
property of any Company, through
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offset, or otherwise; and (v) exercise any and all other legal or equitable
Rights afforded by the Loan Documents, by applicable Laws, or in equity.
(c) OFFSET. If a Default exists, to the extent permitted by
applicable Law, each Lender may exercise the Rights of offset and banker's
lien against each and every account and other property, or any interest
therein, which any Restricted Company may now or hereafter have with, or
which is now or hereafter in the possession of, that Lender to the extent
of the full amount of the Obligation owed to that Lender.
12.2 COMPANY WAIVERS. To the extent permitted by Law, Borrower and
(pursuant to its Guaranty) each other Restricted Company waives presentment and
demand for payment, protest, notice of intention to accelerate, notice of
acceleration, and notice of protest and nonpayment, and agrees that its
liability with respect to all or any part of the Obligation is not affected by
any renewal or extension in the time of payment of all or any part of the
Obligation, by any indulgence, or by any release or change in any security for
the payment of all or any part of the Obligation.
12.3 PERFORMANCE BY AGENT. If any Company's covenant, duty, or agreement
is not performed in accordance with the terms of the Loan Documents, Agent may,
while a Default exists, at its option (but subject to the approval of
Determining Lenders), perform or attempt to perform that covenant, duty, or
agreement on behalf of that Company (and any amount expended by Agent in its
performance or attempted performance is payable by the Companies, jointly and
severally, to Agent on demand, becomes part of the Obligation, and bears
interest at the Default Rate from the date of Agent's expenditure until paid).
However, Agent does not assume and shall never have, except by its express
written consent, any liability or responsibility for the performance of any
Company's covenants, duties, or agreements.
12.4 NOT IN CONTROL. Nothing in any Loan Documents gives or may be deemed
to give to Agent or any Lender the Right to exercise control over any Company's
Real Property, other assets, affairs, or management or to preclude or interfere
with any Company's compliance with any Law or require any act or omission by any
Company that may be harmful to Persons or property. Any "MATERIAL ADVERSE
EVENT" or other materiality or substantiality qualifier of any representation,
warranty, covenant, agreement, or other provision of any Loan Document is
included for credit documentation purposes only and does not imply or be deemed
to mean that Agent or any Lender acquiesces in any non-compliance by any Company
with any Law, document, or otherwise or does not expect the Companies to
promptly, diligently, and continuously carry out all appropriate removal,
remediation, compliance, closure, or other activities required or appropriate in
accordance with all Environmental Laws. Agent's and Lenders' power is limited
to the Rights provided in the Loan Documents. All of those Rights exist solely
- - - -- and may be exercised in manner calculated by Agent or Lenders in their
respective good faith business judgment -- to preserve and protect the
Collateral and to assure payment and performance of the Obligation.
12.5 COURSE OF DEALING. The acceptance by Agent or Lenders of any partial
payment on the Obligation is not a waiver of any Default then existing. No
waiver by Agent, Determining Lenders, or Lenders of any Default is a waiver of
any other then-existing or subsequent Default. No delay or omission by Agent,
Determining Lenders, or Lenders in exercising any Right under the Loan Documents
impairs that Right or is a waiver thereof or any acquiescence therein, nor will
any single or partial exercise of any Right preclude other or further exercise
thereof or the exercise of any other Right under the Loan Documents or
otherwise.
12.6 CUMULATIVE RIGHTS. All Rights available to Agent, Determining
Lenders, and Lenders under the Loan Documents are cumulative of and in addition
to all other Rights granted to Agent, Determining Lenders, and Lenders at law or
in equity, whether or not the Obligation are due and payable
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and whether or not Agent, Determining Lenders, or Lenders have instituted any
suit for collection, foreclosure, or other action in connection with the Loan
Documents.
12.7 APPLICATION OF PROCEEDS. Any and all proceeds ever received by Agent
or Lenders from the exercise of any Rights pertaining to the Obligation shall be
applied to the Obligation according to SECTION 3.
12.8 CERTAIN PROCEEDINGS. Borrower shall promptly execute and deliver, or
cause the execution and delivery of, all applications, certificates,
instruments, registration statements, and all other documents and papers Agent
or Determining Lenders reasonably request in connection with the obtaining of
any consent, approval, registration (OTHER THAN securities Law registrations),
qualification, permit, license, or authorization of any Tribunal or other Person
necessary or appropriate for the effective exercise of any Rights under the Loan
Documents. Because Borrower agrees that Agent's and Determining Lenders'
remedies at Law for failure of Borrower to comply with the provisions of this
section would be inadequate and that failure would not be adequately compensable
in damages, Borrower agrees that the covenants of this section may be
specifically enforced.
12.9 EXPENDITURES BY LENDERS. Any sums spent by Agent or any Lender in the
exercise of any Right under any Loan Document is payable by the Companies to
Agent within five Business Days after demand, becomes part of the Obligation,
and bears interest at the Default Rate from the date spent until the date
repaid.
12.10 DIMINUTION IN VALUE OF COLLATERAL. Neither Agent nor any Lender
has any liability or responsibility whatsoever for any diminution in or loss of
value of any collateral now or in the future securing payment or performance of
any of the Obligation (OTHER THAN diminution in or loss of value caused by its
own gross negligence or willful misconduct).
SECTION 13 AGENT AND LENDERS.
13.1 AGENT.
(a) APPOINTMENT. Each Lender appoints Agent (including, without
limitation, each successor Agent in accordance with this SECTION 13) as its
nominee and agent to act in its name and on its behalf (and Agent and each
such successor accepts that appointment): (i) To act as its nominee and on
its behalf in and under all Loan Documents; (ii) to arrange the means
whereby its funds are to be made available to Borrower under the Loan
Documents; (iii) to take any action that it properly requests under the
Loan Documents (subject to the concurrence of other Lenders as may be
required under the Loan Documents); (iv) to receive all documents and items
to be furnished to it under the Loan Documents; (v) to be the secured
party, mortgagee, beneficiary, recipient, and similar party in respect of
any collateral for the benefit of Lenders; (vi) to promptly distribute to
it all material information, requests, documents, and items received from
Borrower under the Loan Documents; (vii) to promptly distribute to it its
ratable part of each payment or prepayment (whether voluntary, as proceeds
of collateral upon or after foreclosure, as proceeds of insurance thereon,
or otherwise) in accordance with the terms of the Loan Documents; and
(viii) to deliver to the appropriate Persons requests, demands, approvals,
and consents received from it. However, Agent may not be required to take
any action that exposes it to personal liability or that is contrary to any
Loan Document or applicable Law.
(b) SUCCESSOR. Agent may assign all of its Rights and
obligations as Agent under the Loan Documents to any of its Affiliates,
which Affiliate shall then be the successor Agent under
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the Loan Documents. Agent may also voluntarily resign and shall resign
upon the request of Determining Lenders for cause (I.E., Agent is
continuing to fail to perform its responsibilities as Agent under the Loan
Documents). If the initial or any successor Agent ever ceases to be a
party to this agreement or if the initial or any successor Agent ever
resigns (whether voluntarily or at the request of Determining Lenders),
then Determining Lenders shall (which, if no Default or Potential Default
exists, is subject to Borrower's approval that may not be unreasonably
withheld) appoint the successor Agent from among Lenders (OTHER THAN the
resigning Agent). If Determining Lenders fail to appoint a successor Agent
within 30 days after the resigning Agent has given notice of resignation or
Determining Lenders have removed the resigning Agent, then the resigning
Agent may, on behalf of Lenders, appoint a successor Agent, which must be a
commercial bank having a combined capital and surplus of at least
$1,000,000,000 (as shown on its most recently published statement of
condition). Upon its acceptance of appointment as successor Agent, the
successor Agent succeeds to and becomes vested with all of the Rights of
the prior Agent, and the prior Agent is discharged from its duties and
obligations of Agent under the Loan Documents, and each Lender shall
execute the documents that any Lender, the resigning or removed Agent, or
the successor Agent reasonably request to reflect the change. After any
Agent's resignation or removal as Agent under the Loan Documents, the
provisions of this section inure to its benefit as to any actions taken or
not taken by it while it was Agent under the Loan Documents.
(c) RIGHTS AS LENDER. Agent, in its capacity as a Lender, has
the same Rights under the Loan Documents as any other Lender and may
exercise those Rights as if it were not acting as Agent. The term
"LENDER", unless the context otherwise indicates, includes Agent. Agent's
resignation or removal does not impair or otherwise affect any Rights that
it has or may have in its capacity as an individual Lender. Each Lender
and Borrower agree that Agent is not a fiduciary for Lenders or for
Borrower but is simply acting in the capacity described in this agreement
to alleviate administrative burdens for Borrower and Lenders, that Agent
has no duties or responsibilities to Lenders or Borrower except those
expressly set forth in the Loan Documents, and that Agent in its capacity
as a Lender has the same Rights as any other Lender.
(d) OTHER ACTIVITIES. Agent or any Lender may now or in the
future be engaged in one or more loan, letter of credit, leasing, or other
financing transactions with Borrower, act as trustee or depositary for
Borrower, or otherwise be engaged in other transactions with Borrower
(collectively, the "OTHER ACTIVITIES") not the subject of the Loan
Documents. Without limiting the Rights of Lenders specifically set forth
in the Loan Documents, neither Agent nor any Lender is responsible to
account to the other Lenders for those other activities, and no Lender
shall have any interest in any other Lender's activities, any present or
future guaranties by or for the account of Borrower that are not
contemplated by or included in the Loan Documents, any present or future
offset exercised by Agent or any Lender in respect of those other
activities, any present or future property taken as security for any of
those other activities, or any property now or hereafter in Agent's or any
other Lender's possession or control that may be or become security for the
obligations of Borrower arising under the Loan Documents by reason of the
general description of indebtedness secured or of property contained in any
other agreements, documents, or instruments related to any of those other
activities (but, if any payments in respect of those guaranties or that
property or the proceeds thereof is applied by Agent or any Lender to
reduce the Obligation, then each Lender is entitled to share ratably in the
application as provided in the Loan Documents).
13.2 EXPENSES. Each Lender shall pay its Pro Rata Part of any reasonable
expenses (including, without limitation, court costs, reasonable attorneys' fees
and other costs of collection) incurred by Agent
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or any Issuing Lender (while acting in such capacity) in connection with any of
the Loan Documents if Agent or the Issuing Lender is not reimbursed from other
sources within 30 days after incurrence. Each Lender is entitled to receive its
Pro Rata Part of any reimbursement that it makes to Agent or an Issuing Lender
if Agent or the Issuing Lender is subsequently reimbursed from other sources.
13.3 PROPORTIONATE ABSORPTION OF LOSSES. Except as otherwise provided in
the Loan Documents, nothing in the Loan Documents gives any Lender any advantage
over any other Lender insofar as the Obligation is concerned or relieves any
Lender from ratably absorbing any losses sustained with respect to the
Obligation (except to the extent unilateral actions or inactions by any Lender
result in Borrower or any other obligor on the Obligation having any credit,
allowance, setoff, defense, or counterclaim solely with respect to all or any
part of that Lender's Pro Rata Part of the Obligation).
13.4 DELEGATION OF DUTIES; RELIANCE. Lenders may perform any of their
duties or exercise any of their Rights under the Loan Documents by or through
Agent, and Lenders and Agent may perform any of their duties or exercise any of
their Rights under the Loan Documents by or through their respective
Representatives. Agent, Lenders, and their respective Representatives (a) are
entitled to rely upon (and shall be protected in relying upon) any written or
oral statement believed by it or them to be genuine and correct and to have been
signed or made by the proper Person and, with respect to legal matters, upon
opinion of counsel selected by Agent or that Lender (but nothing in this
CLAUSE (A) permits Agent to rely on (i) oral statements if a writing is required
by this agreement or (ii) any other writing if a specific writing is required by
this agreement), (b) are entitled to deem and treat each Lender as the owner and
holder of its portion of the Obligation for all purposes until, written notice
of the assignment or transfer is given to and received by Agent (and any
request, authorization, consent, or approval of any Lender is conclusive and
binding on each subsequent holder, assignee, or transferee of or Participant in
that Lender's portion of the Obligation until that notice is given and
received), (c) are not deemed to have notice of the occurrence of a Default
unless a responsible officer of Agent, who handles matters associated with the
Loan Documents and transactions thereunder, has actual knowledge or Agent has
been notified by a Lender or Borrower, and (d) are entitled to consult with
legal counsel (including counsel for Borrower), independent accountants, and
other experts selected by Agent and are not liable for any action taken or not
taken in good faith by it in accordance with the advice of counsel, accountants,
or experts.
13.5 LIMITATION OF AGENT'S LIABILITY.
(a) EXCULPATION. Neither Agent nor any of its Affiliates or
Representatives will be liable for any action taken or omitted to be taken
by it or them under the Loan Documents in good faith and believed by it or
them to be within the discretion or power conferred upon it or them by the
Loan Documents or be responsible for the consequences of any error of
judgment (except for fraud, gross negligence, or willful misconduct), and
neither Agent nor any of its Affiliates or Representatives has a fiduciary
relationship with any Lender by virtue of the Loan Documents (but nothing
in this agreement negates the obligation of Agent to account for funds
received by it for the account of any Lender).
(b) INDEMNITY. Unless indemnified to its satisfaction against
loss, cost, liability, and expense, Agent may not be compelled to do any
act under the Loan Documents or to take any action toward the execution or
enforcement of the powers thereby created or to prosecute or defend any
suit in respect of the Loan Documents. If Agent requests instructions from
Lenders, or Determining Lenders, as the case may be, with respect to any
act or action in connection with any Loan Document, Agent is entitled to
refrain (without incurring any liability to any Person by so refraining)
from that act or action unless and until it has received instructions. In
no event, however, may Agent or any of its Representatives be required to
take any action that it or they
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determine could incur for it or them criminal or onerous civil liability.
Without limiting the generality of the foregoing, no Lender has any right
of action against Agent as a result of Agent's acting or refraining from
acting under this agreement in accordance with instructions of Determining
Lenders.
(c) RELIANCE. Agent is not responsible to any Lender or any
Participant for, and each Lender represents and warrants that it has not
relied upon Agent in respect of, (i) the creditworthiness of any Company
and the risks involved to that Lender, (ii) the effectiveness,
enforceability, genuineness, validity, or the due execution of any Loan
Document (EXCEPT by Agent), (iii) any representation, warranty, document,
certificate, report, or statement made therein (EXCEPT by Agent) or
furnished thereunder or in connection therewith, (iv) the adequacy of any
collateral now or hereafter securing the Obligation or the existence,
priority, or perfection of any Lien now or hereafter granted or purported
to be granted on the collateral under any Loan Document, or (v) observation
of or compliance with any of the terms, covenants, or conditions of any
Loan Document on the part of any Company. EACH LENDER AGREES TO INDEMNIFY
AGENT, CO-AGENT AND THEIR REPRESENTATIVES AND HOLD THEM HARMLESS FROM AND
AGAINST (BUT LIMITED TO SUCH LENDER'S COMMITMENT PERCENTAGE OF) ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, REASONABLE EXPENSES, AND REASONABLE DISBURSEMENTS OF ANY KIND
OR NATURE WHATSOEVER THAT MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED
BY THEM IN ANY WAY RELATING TO OR ARISING OUT OF THE LOAN DOCUMENTS OR ANY
ACTION TAKEN OR OMITTED BY THEM UNDER THE LOAN DOCUMENTS IF AGENT, CO-AGENT
AND THEIR REPRESENTATIVES ARE NOT REIMBURSED FOR SUCH AMOUNTS BY ANY
COMPANY. ALTHOUGH AGENT, CO-AGENT AND THEIR REPRESENTATIVES HAVE THE RIGHT
TO BE INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN ORDINARY
NEGLIGENCE, AGENT, CO-AGENT AND THEIR REPRESENTATIVES DO NOT HAVE THE RIGHT
TO BE INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN FRAUD, GROSS
NEGLIGENCE, OR WILLFUL MISCONDUCT.
13.6 DEFAULT. While a Default exists, Lenders agree to promptly confer in
order that Determining Lenders or Lenders, as the case may be, may agree upon a
course of action for the enforcement of the Rights of Lenders. Agent is
entitled to act or refrain from taking any action (without incurring any
liability to any Person for so acting or refraining) unless and until it has
received instructions from Determining Lenders. In actions with respect to any
Company's property, Agent is acting for the ratable benefit of each Lender.
13.7 COLLATERAL MATTERS.
(a) Each Lender authorizes and directs Agent to enter into the Loan
Documents for the Lender Liens and agrees that any action taken by Agent
concerning any Collateral (with the consent or at the request of
Determining Lenders) in accordance with any Loan Document, that Agent's
exercise (with the consent or at the request of Determining Lenders) of
powers concerning the Collateral in any Loan Document, and that all other
reasonably incidental powers are authorized and binding upon all Lenders.
(b) Agent is authorized on behalf of all Lenders, without the
necessity of any notice to or further consent from any Lender, from time to
time before a Default or Potential Default, to take any action with respect
to any Collateral or Loan Documents related to Collateral that may be
necessary to perfect and maintain perfected the Lender Liens upon the
Collateral.
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(c) Except to use the same standard of care that it ordinarily uses
for collateral for its sole benefit, Agent has no obligation whatsoever to
any Lender or to any other Person to assure that the Collateral exists or
is owned by any Company or is cared for, protected, or insured or has been
encumbered or that the Lender Liens have been properly or sufficiently or
lawfully created, perfected, protected, or enforced or are entitled to any
particular priority.
(d) Agent shall exercise the same care and prudent judgment with
respect to the Collateral and the Loan Documents as it normally and
customarily exercises in respect of similar collateral and security
documents.
(e) Lenders irrevocably authorize Agent, at its option and in its
discretion, to release any Lender Lien upon any Collateral (i) in
accordance with SECTION 5.5, (ii) constituting property being disposed of
as permitted under any Loan Document, (iii) constituting property in which
no Company owned any interest at the time the Lender Lien was granted or at
any time after that, (iv) constituting property leased to any Company under
a lease that has expired or been terminated in a transaction permitted
under the Loan Documents or is about to expire and that has not been, and
is not intended by that Company to be, renewed, (v) consisting of an
instrument evidencing Debt pledged to Agent (for the benefit of Lenders),
if the underlying Debt has been paid in full, or (vi) if approved,
authorized, or ratified in writing by Lenders in accordance with
SECTION 14.8(b)(v). Upon request by Agent at any time, Lenders shall
confirm in writing Agent's authority to release particular types or items
of Collateral under this CLAUSE (E).
13.8 LIMITATION OF LIABILITY. No Lender or any Participant will incur any
liability to any other Lender or Participant except for acts or omissions in bad
faith, and neither Agent nor any Lender or Participant will incur any liability
to any other Person for any act or omission of any other Lender or any
Participant.
13.9 RELATIONSHIP OF LENDERS. The Loan Documents do not create a
partnership or joint venture among Agent and Lenders or among Lenders.
13.10 BENEFITS OF AGREEMENT. None of the provisions of this
section inure to the benefit of any Company or any other Person EXCEPT Agent and
Lenders. Therefore, no Company or any other Person is responsible or liable
for, entitled to rely upon, or entitled to raise as a defense -- in any manner
whatsoever -- the failure of Agent or any Lender to comply with these
provisions.
SECTION 14 MISCELLANEOUS.
14.1 NONBUSINESS DAYS. Any payment or action that is due under any Loan
Document on a non-Business Day may be delayed until the next-succeeding Business
Day (but interest shall continue to accrue on any applicable payment until
payment is in fact made) unless the payment concerns a Eurodollar Rate
Borrowing, in which case if the next-succeeding Business Day is in the next
calendar month, then such payment shall be made on the next-preceding Business
Day.
14.2 COMMUNICATIONS. Unless otherwise specifically provided, whenever any
Loan Document requires or permits any consent, approval, notice, request, or
demand from one party to another, communication must be in writing (which may be
by telex or fax) to be effective and shall be deemed to have been given (a) if
by telex, when transmitted to the appropriate telex number and the appropriate
answer back is received, (b) if by fax, when transmitted to the appropriate fax
number (and all communications sent by fax must be confirmed promptly thereafter
by telephone; but any requirement in this parenthetical shall not affect the
date when the fax shall be deemed to have been delivered), (c) if by mail, on
the third
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Business Day after it is enclosed in an envelope and properly addressed,
stamped, sealed, and deposited in the appropriate official postal service, or
(d) if by any other means, when actually delivered. Until changed by notice
pursuant to this agreement, the address (and fax number) for Borrower and Agent
is stated beside their respective signatures to this agreement and for each
Lender is stated beside its name on SCHEDULE 2.1.
14.3 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of
counterparts of each writing to be furnished under this agreement must be
satisfactory to Agent and its counsel.
14.4 EXCEPTIONS TO COVENANTS. No Company may take or fail to take any
action that is permitted as an exception to any of the covenants contained in
any Loan Document if that action or omission would result in the breach of any
other covenant contained in any Loan Document.
14.5 SURVIVAL. All covenants, agreements, undertakings, representations,
and warranties made in any of the Loan Documents survive all closings under the
Loan Documents and, except as otherwise indicated, are not affected by any
investigation made by any party.
14.6 GOVERNING LAW. Unless otherwise stated in any Loan Document, the Laws
of the State of Texas and of the United States of America govern the Rights and
duties of the parties to the Loan Documents and the validity, construction,
enforcement, and interpretation of the Loan Documents.
14.7 INVALID PROVISIONS. Any provision in any Loan Document held to be
illegal, invalid, or unenforceable is fully severable; the appropriate Loan
Document shall be construed and enforced as if that provision had never been
included; and the remaining provisions shall remain in full force and effect and
shall not be affected by the severed provision. Agent, Lenders, and each
Company party to the affected Loan Document agree to negotiate, in good faith,
the terms of a replacement provision as similar to the severed provision as may
be possible and be legal, valid, and enforceable.
14.8 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS.
(a) DETERMINING LENDERS. Unless otherwise specifically provided
(i) the provisions of this agreement may be amended, modified, or waived,
only by an instrument in writing executed by Borrower and Determining
Lenders, and, in the case of any matter affecting Agent (EXCEPT removal of
Agent as provided in SECTION 13), by Agent, and supplemented only by
documents delivered or to be delivered in accordance with the express terms
of this agreement, and (ii) the other Loan Documents may only be the
subject of an amendment, modification, or waiver that has been approved by
Determining Lenders and Borrower.
(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," "PRO RATA PART," "RELEASE RATINGS," or
"RELEASE EVENT"; (iv) increases any one or more Lenders' Commitment (except
increases effected as a result of the availability of the Incremental
Commitment upon satisfaction of the conditions of SECTION 6.2); (v) waives
compliance with, amends, or fully or partially releases -- except as
expressly provided
46
<PAGE>
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) AGENCY FEES. Any amendment or consent or waiver with respect to
fees payable solely to Agent under a separate letter agreement must be
executed in writing only by Agent and Borrower.
(d) LCS. Any LC may be renewed, extended, amended, replaced, or
cancelled consistent with the terms of this agreement by writing executed
by the Issuing Lender and Borrower that is first approved by Agent.
(e) ISSUING LENDER'S LC EXPOSURE. Any Lender may from time to time
amend the amount, if any, stated beside its name on SCHEDULE 2.1 as its
"MAXIMUM LC EXPOSURE" in respect of LCs yet to be issued by giving written
notice to Agent and Borrower. Agent shall then correct and circulate a new
copy of SCHEDULE 2.1 to Borrower and Lenders.
(f) CONFLICTS. Any conflict or ambiguity between the terms and
provisions of this agreement and terms and provisions in any other Loan
Document is controlled by the terms and provisions of this agreement.
(g) WAIVERS. No course of dealing or any failure or delay by Agent,
any Lender, or any of their respective Representatives with respect to
exercising any Right of Agent or any Lender under this agreement operates
as a waiver thereof. A waiver must be in writing and signed by Agent and
Lenders (or Determining Lenders, if permitted under this agreement) to be
effective, and a waiver will be effective only in the specific instance and
for the specific purpose for which it is given.
14.9 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in a number
of identical counterparts (including, at Agent's discretion, counterparts or
signature pages executed and transmitted by fax) 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.
14.10 PARTIES.
(a) PARTIES BOUND. Each Loan Document binds and inures to the
parties to it, any intended beneficiary of it, and each of their respective
successors and permitted assigns. No Company may assign or transfer any
Rights or obligations under any Loan Document without first obtaining all
Lenders' consent, and any purported assignment or transfer without Lenders'
consent is void. No Lender may transfer, pledge, assign, sell any
participation in, or otherwise encumber its portion of the Obligation
EXCEPT as permitted by CLAUSES (b) or (c) below.
(b) PARTICIPATIONS. Any Lender may (subject to the provisions of
this section, in accordance with applicable Law, in the ordinary course of
its business, and at any time) sell to one or more Persons (each a
"PARTICIPANT") participating interests in its portion of the Obligation.
The selling Lender remains a "LENDER" under the Loan Documents, the
Participant does not become a "LENDER" under the Loan Documents, and the
selling Lender's obligations under the Loan Documents remain unchanged.
The selling Lender remains solely responsible for the performance of its
obligations and remains the holder of its share of the Principal Debt for
all
47
<PAGE>
purposes under the Loan Documents. Borrower and Agent shall continue to
deal solely and directly with the selling Lender in connection with that
Lender's Rights and obligations under the Loan Documents, and each Lender
must retain the sole right and responsibility to enforce due obligations of
the Companies. Participants have no Rights under the Loan Documents EXCEPT
as provided below. Subject to the following, each Lender may obtain (on
behalf of its Participants) the benefits of SECTION 3 with respect to all
participations in its part of the Obligation outstanding from time to time
SO LONG AS Borrower is not obligated to pay any amount in excess of the
amount that would be due to that Lender under SECTION 3 calculated as
though no participations have been made. No Lender may sell any
participating interest under which the Participant has any Rights to
approve any amendment, modification, or waiver of any Loan Document EXCEPT
as to matters in SECTION 14.8(b)(i) and (ii).
(c) ASSIGNMENTS. Each Lender may make assignments to the Federal
Reserve Bank. Each Lender may also assign to one or more assignees (each
an "ASSIGNEE") all or any part of its Rights and obligations under the Loan
Documents SO LONG AS (i) the assignor Lender and Assignee execute and
deliver to Agent and, unless a Default has occurred and is continuing at
the time of such execution and delivery, Borrower for their consent and
acceptance (that may not be unreasonably withheld in any instance and is
not required if the Assignee is an Affiliate of the assigning Lender) an
assignment and assumption agreement in substantially the form of EXHIBIT D
(an "ASSIGNMENT") and pay to Agent a processing fee of $3,500, (ii) the
assignment must be for a minimum total Commitment of $10,000,000 and, if
the assigning Lender retains any Commitment, it must be a minimum total
Commitment of $10,000,000, and (iii) the conditions for that assignment set
forth in the applicable Assignment are satisfied. The EFFECTIVE DATE in
each Assignment must (unless a shorter period is agreeable to Borrower and
Agent) be at least five Business Days after it is executed and delivered by
the assignor Lender and the Assignee to Agent and Borrower for acceptance.
Upon execution, delivery and acceptance of such Assignment, the Assignee
shall be a party to this agreement and, to the extent of such Assignment,
have the obligations, Rights, and benefits of a Lender under the Loan
Documents, and the assigning Lender shall, to the extent of such
Assignment, relinquish its Rights and be released from its obligations
under the Loan Documents. Upon the consummation of any Assignment pursuant
to this Section, the assignor, Agent, and Borrower shall make appropriate
arrangements so that new Notes are issued to the assignor and the Assignee.
SCHEDULE 2.1 will be automatically deemed to be amended to reflect the
name, address, telecopy number, and the Commitment of the Assignee and the
remaining Commitment (if any) of the assignor Lender, and Agent shall
prepare and circulate to Borrower and Lenders an amended SCHEDULE 2.1
reflecting those changes. If the Assignee is not incorporated under the
laws of the United States of America or a state thereof, it shall deliver
to Borrower and Agent certification as to exemption from deduction or
withholding of Taxes in accordance with SECTION 3.19. In addition, Agent
shall maintain a copy of each Assignment delivered to and accepted by it
and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and Principal Debt owing to, each Lender
from time to time (the "REGISTER"). The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and
Borrower, Agent, and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
agreement. The Register shall be available for inspection by Borrower or
any Lender at any reasonable time and from time to time upon reasonable
prior notice. Upon its receipt of an Assignment executed by the parties
thereto, together with any Note subject to such assignment and payment of
the processing fee, Agent shall, if such Assignment has been completed and
is in substantially the form of EXHIBIT D hereto, (i) accept such
Assignment, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the parties thereto. The
Obligation is registered on the books of Borrower as to both principal and
any stated interest, and transfers of
48
<PAGE>
(as opposed to participations in) principal and interest of the Obligation
may only be made in accordance with this SECTION 14.10.
14.11 VENUE, SERVICE OF PROCESS, AND JURY TRIAL. BORROWER AND (PURSUANT
TO ITS GUARANTY) EACH RESTRICTED COMPANY, IN EACH CASE FOR ITSELF AND ITS
SUCCESSORS AND ASSIGNS, IRREVOCABLY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS IN TEXAS, (B) WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR IN THE FUTURE HAVE TO THE
LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH ANY LOAN
DOCUMENT AND THE OBLIGATION BROUGHT IN THE DISTRICT COURTS OF DALLAS COUNTY,
TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
TEXAS, DALLAS DIVISION, (C) WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY
OF THE FOREGOING COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) CONSENTS
TO THE SERVICE OF PROCESS OUR OF ANY OF THOSE COURTS IN ANY LITIGATION BY THE
MAILING OF COPIES OF THAT PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
POSTAGE PREPAID, BY HAND DELIVERY, OR BY DELIVERY BY A NATIONALLY-RECOGNIZED
COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL
PROCESS AT ITS ADDRESS FOR PURPOSES OF THIS AGREEMENT, (E) AGREES THAT ANY LEGAL
PROCEEDING AGAINST ANY PARTY TO ANY LOAN DOCUMENT ARISING OUT OF OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR THE OBLIGATION MAY BE BROUGHT IN ONE OF
THE FOREGOING COURTS, AND (F) WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUR OF ANY LOAN DOCUMENT. The scope of each of the foregoing waivers is
intended to be all encompassing of any and all disputes that may be filed in any
court and that relate to the subject matter of this transaction, including,
without limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims. BORROWER AND (PURSUANT TO ITS GUARANTY)
EACH OTHER RESTRICTED COMPANY ACKNOWLEDGES THAT THESE WAIVERS ARE A MATERIAL
INDUCEMENT TO AGENT'S AND EACH LENDER'S AGREEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT AGENT AND EACH LENDER HAS ALREADY RELIED ON THESE WAIVERS IN
ENTERING INTO THIS AGREEMENT, AND THAT AGENT AND EACH LENDER WILL CONTINUE TO
RELY ON EACH OF THESE WAIVERS IN RELATED FUTURE DEALINGS. BORROWER AND
(PURSUANT TO ITS GUARANTY) EACH OTHER RESTRICTED COMPANY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THESE WAIVERS WITH ITS LEGAL COUNSEL, AND THAT
IT KNOWINGLY AND VOLUNTARILY AGREES TO EACH WAIVER FOLLOWING CONSULTATION WITH
LEGAL COUNSEL. The waivers in this section are irrevocable, meaning that they
may not be modified either orally or in writing, and these waivers apply to any
future renewals, extensions, amendments, modifications, or replacements in
respect of the applicable Loan Document. In connection with any Litigation,
this agreement may be filed as a written consent to a trial by the court.
14.12 ENTIRETY. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN BORROWER, LENDERS, AND AGENT AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
49
<PAGE>
EXECUTED as of the date first stated above.
26 Century Blvd. MAGNETEK, INC., as BORROWER
Nashville, TN 37229-0159
Attn: Mr. John P. Colling, Jr.,
Vice President and Treasurer
Fax: (615) 316-5192 By
-----------------------------------
John P. Colling, Jr.,
Vice President and Treasurer
Agency Services NATIONSBANK OF TEXAS, N.A.,
901 Main Street, 13th Floor as AGENT and a LENDER
Dallas, Texas 75202
Attn: Ms. Marie Lancaster,
Agency Services Representative
Fax: (214) 508-2515 or By
(214) 508-0944 -----------------------------------
Name:
------------------------------
Title:
-----------------------------
The undersigned executes this agreement in acknowledgment, ratification,
and confirmation of SECTION 5.6 (but only to the extent SECTION 5.6 relates to
Magnetek Financial Services, Inc.).
MAGNETEK FINANCIAL SERVICES, INC.
By
-----------------------------------
John P. Colling, Jr.
Title:
-----------------------------
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOR OTHER LENDERS FOLLOW.
RESTATED CREDIT AGREEMENT SIGNATURE PAGE
PAGE 1 OF 3
<PAGE>
EXECUTED as of the date first stated above.
CIBC INC., BANKERS TRUST COMPANY,
as a CO-AGENT and a LENDER as a CO-AGENT and a LENDER
By By
----------------------------- -----------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
THE FIRST NATIONAL BANK OF CHICAGO, CREDIT LYONNAIS - NEW YORK BRANCH,
as a CO-AGENT and a LENDER as a CO-AGENT and a LENDER
By By
----------------------------- -----------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
THE LONG-TERM CREDIT BANK OF UNION BANK OF CALIFORNIA, N.A.,
JAPAN, LTD, as a CO-AGENT and as a CO-AGENT and a LENDER
a LENDER
By By
----------------------------- -----------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
RESTATED CREDIT AGREEMENT SIGNATURE PAGE
PAGE 2 OF 3
<PAGE>
ARAB BANKING CORPORATION (B.S.C.), FIRST UNION NATIONAL BANK OF TENNESSEE,
as a LENDER as a LENDER
By By
----------------------------- -----------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
BANQUE FRANCAISE DU COMMERCE FUJI BANK, LIMITED, ATLANTA AGENCY,
EXTERIEUR, as a LENDER as a LENDER
By By
----------------------------- -------------------------------
Timothy Polvado Name:
Assistant Vice President --------------------------
Title:
-------------------------
SOCIETE GENERALE, SOUTHWEST AGENCY,
as a LENDER
By
-----------------------------
Paul H. Diouri By:
Assistant Treasurer -------------------------------
Name:
--------------------------
Title:
CAISSE NATIONALE de CREDIT AGRICOLE, -------------------------
as a LENDER
By
----------------------------- THE SUMITOMO BANK, LIMITED,
Name: as a LENDER
------------------------
Title:
----------------------- By:
-------------------------------
Name:
--------------------------
CREDITANSTALT CORPORATE FINANCE, Title:
INC., as a LENDER -------------------------
THE TOKAI BANK, LTD.,
By as a LENDER
-----------------------------
Name:
------------------------ By:
Title: -------------------------------
----------------------- Name:
--------------------------
Title:
-------------------------
By
-----------------------------
Name:
------------------------
Title:
-----------------------
RESTATED CREDIT AGREEMENT SIGNATURE PAGE
PAGE 3 OF 3
<PAGE>
SCHEDULE 2.1
LENDERS AND COMMITMENTS
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
COMMITMENT FOR COMMITMENT
LENDER REVOLVING FACILITY PERCENTAGE
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
NationsBank of Texas, N.A. $35,000,000 10.00%
444 South Flower Street
Suite 4100
Los Angeles, CA 90071-2901
Attn: Charlie Lilygren
Vice President
Fax: (213) 624-5815
- - - --------------------------------------------------------------------------------
CIBC Inc. $30,000,000 8.571428571%
2727 Paces Ferry Road, Suite 1200
2 Paces West, Building 2
Atlanta, GA 30339-6160
Attn: Sheila Hogans
Fax: (770) 319-4950
- - - --------------------------------------------------------------------------------
The First National Bank of Chicago $30,000,000 8.571428571%
One First National Plaza
Mail Suite 0634, 1-10
Chicago, IL 60670-0374
Attn: Nan Wilson
Client Service Associate
Fax: (312) 732-4840
- - - --------------------------------------------------------------------------------
ORIGINAL EXECUTED DOCUMENTS TO: $30,000,000 8.571428571%
-------------------------------
The Long-Term Credit Bank of Japan, Ltd.
165 Broadway, 49th Floor
New York, NY 10006
Attn: Kathleen Dorsch-Santiago
Fax: (212) 335-4524
WITH A COPY TO:
---------------
The Long-Term Credit Bank of Japan, Ltd.
Suite 2801, Marquis One Tower
245 Peachtree Center Avenue, N.E.
Atlanta, GA 30303
Attn: Rebecca Sedlar Silbert
Vice President
Fax: (404) 658-9751
- - - --------------------------------------------------------------------------------
Bankers Trust Company $30,000,000 8.571428571%
130 Liberty Street, 14th Floor
New York, NY 10006
Attn: Greg Perry
Fax: (212) 250-7351
- - - --------------------------------------------------------------------------------
<PAGE>
- - - --------------------------------------------------------------------------------
Credit Lyonnais - New York Branch $30,000,000 8.571428571%
303 Peachtree Street, N.E., Suite 4400
Atlanta, GA 30308
Attn: Lisa Cline
Operations Assistant
Fax: (404) 584-5249
- - - --------------------------------------------------------------------------------
Union Bank of California N.A. $30,000,000 8.571428571%
400 California Street, 16th Floor
San Francisco, CA 94104
Attn: Nancy Delos Reyes
Fax: (415) 765-3146
- - - --------------------------------------------------------------------------------
Societe Generale, Southwest Agency $25,000,000 7.14285714286%
2001 Ross Avenue, Suite 4800
Dallas, TX 75201
Attn: Tequila English
Loan Specialist
Fax: (214) 754-0171
- - - --------------------------------------------------------------------------------
Arab Banking Corporation $15,000,000 4.285714286%
277 Park Avenue, 32nd Floor
New York, NY 10172-3299
Attn: Louise Bilbro
Vice President
Fax: (212) 583-0935/0921
- - - --------------------------------------------------------------------------------
Banque Francaise du Commerce Exterieur $15,000,000 4.285714286%
Southwest Representative Office
333 Clay Street, Suite 4340
Houston, TX 77002
Attn: Tanya McAllister
Administrative Assistant
Fax: (713) 759-9908
WITH A COPY TO:
---------------
Banque Francaise du Commerce Exterieur
New York Branch
645 5th Avenue, 20th Floor
New York, NY 10022-5910
Attn: Joan Rankine
Fax: (212) 872-5045
- - - --------------------------------------------------------------------------------
Creditanstalt Corporate Finance, Inc. $15,000,000 4.285714286%
Two Ravinia Drive, Suite 1680
Atlanta, GA 30346
Attn: Carla O Keefe
Fax: (770) 390-1851
- - - --------------------------------------------------------------------------------
First Union National Bank of Tennessee $15,000,000 4.285714286%
150 Fourth Avenue North, 2nd Floor
Nashville, TN 37219
Attn: Timothy B. Fouts
Vice President
Fax: (615) 251-9461
- - - --------------------------------------------------------------------------------
2
<PAGE>
- - - --------------------------------------------------------------------------------
Fuji Bank, Limited, Atlanta Agency $15,000,000 4.285714286%
245 Peachtree Center Avenue, N.E.
Marquis One Tower, Suite 2100
Atlanta, GA 30303-1208
Attn: Connie Fowle
Fax: (404) 653-2119
- - - --------------------------------------------------------------------------------
The Sumitomo Bank, Limited $15,000,000 4.285714286%
277 Park Avenue
New York, NY 10172
Attn: Jessica Cueto
Fax: (212) 224-4537
- - - --------------------------------------------------------------------------------
Caisse Nationale de Credit Agricole $10,000,000 2.857142857%
55 East Monroe, Suite 4700
Chicago, IL 60622
Attn: James Barrett
Senior Loan Administrator
Fax: (312) 372-4421
- - - --------------------------------------------------------------------------------
The Tokai Bank, Ltd., Atlanta Agency $10,000,000 2.857142857%
285 Peachtree Center Avenue
Marquis II Tower, Suite 2802
Atlanta, GA 30303
Attn: Constance Houghton
Assistant Manager
Fax: (404) 653-0737
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
TOTAL COMMITMENTS $350,000,000 100.00%
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
3
<PAGE>
GUARANTY
THIS GUARANTY is executed as of December 29, 1996, by MAGNETEK FINANCIAL
SERVICES, INC. ("GUARANTOR"), for the benefit of NATIONSBANK OF TEXAS, N.A. (in
its capacity as Agent for the Lenders now or in the future party to the Credit
Agreement described below, "AGENT").
MAGNETEK, INC., a Delaware corporation ("BORROWER"), Agent, and Lenders
have executed the Credit Agreement (as renewed, extended, amended, or restated,
the "CREDIT AGREEMENT") dated as of March 31, 1995. Borrower owns all of the
issued and outstanding capital stock of Guarantor. The execution and delivery
of this guaranty are requirements to Agent's and Lenders' continued obligations
under the Credit Agreement and other Loan Documents, are integral to the
transactions contemplated by the Loan Documents, and are conditions precedent to
Lenders' obligations to extend further credit under the Credit Agreement.
ACCORDINGLY, for adequate and sufficient consideration, Guarantor
guarantees to Agent and Lenders the prompt payment of the Guaranteed Debt
(defined below) at -- and at all times after -- its maturity (by acceleration or
otherwise) as follows:
1. DEFINITIONS. Terms defined in the Credit Agreement have the same
meanings when used -- unless otherwise defined -- in this guaranty. As used in
this guaranty:
AGENT is defined in the preamble to this guaranty and includes its
successor appointed under SECTION 13 of the Credit Agreement and acting as AGENT
for Lenders under the Loan Documents.
BORROWER is defined in the recitals to this guaranty and includes, without
limitation, Borrower, Borrower as a debtor-in-possession, and any receiver,
trustee, liquidator, conservator, custodian, or similar party appointed for
Borrower or for all or substantially all of Borrower's assets under any Debtor
Law.
CREDIT AGREEMENT is defined in the recitals to this guaranty.
GUARANTEED DEBT means the Obligation, as defined in the Credit Agreement,
and all present and future costs, attorneys' fees, and expenses reasonably
incurred by Agent or any Lender to enforce Borrower's, Guarantor's, or any other
obligor's payment of any of the Obligation, including, without limitation, all
present and future amounts that would become due but for the operation of
Sections 502 or 506 or any other provision of TITLE 11 of the UNITED STATES CODE
and all present and future accrued and unpaid interest (including, without
limitation, all post-petition interest if Borrower or Guarantor voluntarily or
involuntarily becomes subject to any Debtor Law).
GUARANTOR is defined in the preamble to this guaranty.
SUBORDINATED DEBT means all present and future obligations of Borrower to
Guarantor, whether those obligations are (a) direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several, (b)
due or to become due to Guarantor, (c) held by or are to be held by Guarantor,
(d) created directly or acquired by assignment or otherwise, or (e) evidenced in
writing.
2. GUARANTY. This is an absolute, irrevocable, and continuing guaranty,
and the circumstance that at any time or from time to time the Guaranteed Debt
may be paid in full does not affect the
<PAGE>
obligation of Guarantor with respect to the Guaranteed Debt incurred after that.
This guaranty remains in effect until the Guaranteed Debt is fully paid and
performed, each LC has expired or been cancelled, and all commitments to lend or
issue LCs under the Credit Agreement have terminated. Agent, in its own
discretion or at the direction of the Determining Lenders, shall have sole and
exclusive authority to enforce this guaranty. Guarantor may not rescind or
revoke its obligations with respect to the Guaranteed Debt. Notwithstanding any
contrary provision in this guaranty, however, Guarantor's maximum liability
under this guaranty is limited, to the extent, if any, required so that its
liability is not subject to avoidance under any Debtor Law.
3. CONSIDERATION. Guarantor represents and warrants that (a) the value
of the consideration received and to be received by it is reasonably worth at
least as much as its liability under this guaranty and (b) that liability may
reasonably be expected to directly or indirectly benefit it.
4. CUMULATIVE RIGHTS. If Guarantor becomes liable for any indebtedness
owing by Borrower to Agent or any Lender, OTHER THAN under this guaranty, that
liability may not be in any manner impaired or affected by this guaranty. The
Rights of Agent or Lenders under this guaranty are cumulative of any and all
other Rights that Agent or Lenders may ever have against Guarantor. The
exercise by Agent or Lenders of any Right under this guaranty or otherwise does
not preclude the concurrent or subsequent exercise of any other Right.
5. PAYMENT UPON DEMAND. If a Default exists, Guarantor shall -- on
demand and without further notice of dishonor and without any notice having been
given to Guarantor previous to that demand of either the acceptance by Agent or
Lenders of this guaranty or the creation or incurrence of any Guaranteed Debt --
pay the amount of the Guaranteed Debt then due and payable to Agent for Lenders.
It is not necessary for Agent or Lenders, in order to enforce that payment by
Guarantor, first or contemporaneously to institute suit or exhaust remedies
against Borrower or others liable on any Guaranteed Debt or to enforce Rights
against any collateral securing any Guaranteed Debt.
6. SUBORDINATION. The Subordinated Debt is expressly subordinated to the
full and final payment of the Guaranteed Debt. Guarantor agrees not to accept
any payment of any Subordinated Debt from Borrower if a Default or Potential
Default exists. If Guarantor receives any payment of any Subordinated Debt in
violation of the foregoing, Guarantor shall hold that payment in trust for Agent
and Lenders and promptly turn it over to Agent, in the form received (with any
necessary endorsements), to be applied to the Guaranteed Debt.
7. SUBROGATION AND CONTRIBUTION. Until no Lender is obligated to lend or
issue LCs under the Credit Agreement, all LCs have expired or been cancelled,
and the Guaranteed Debt has been fully paid and performed (the "DEFERMENT DATE")
(a) no Guarantor may assert, enforce, or otherwise exercise any Right of
subrogation to any of the Rights or Liens of Agent or Lenders or any other
beneficiary against Borrower or any other obligor on the Guaranteed Debt or any
collateral or other security or any Right of recourse, reimbursement,
subrogation, contribution, indemnification, or similar Right against Borrower or
any other obligor on any Guaranteed Debt or any guarantor of it, (b) Guarantor
defers all of the foregoing Rights (whether they arise in equity, under
contract, by statute, under common Law, or otherwise) until the Deferment Date,
and (c) Guarantor defers the benefit of, and any Right to participate in, any
collateral or other security given to Agent or Lenders or any other beneficiary
to secure payment of any Guaranteed Debt until the Deferment Date.
2
<PAGE>
8. NO RELEASE. Guarantor's obligations under this guaranty may not be
released, diminished, or affected by the occurrence of any one or more of the
following events: (a) Any taking or accepting of any other security or
assurance for any Guaranteed Debt; (b) any release, surrender, exchange,
subordination, impairment, or loss of any collateral securing any Guaranteed
Debt; (c) any full or partial release of the liability of any other obligor on
the Obligation; (d) the modification of, or waiver of compliance with, any terms
of any other Loan Document; (e) the insolvency, bankruptcy, or lack of corporate
or partnership power of any other obligor at any time liable for any Guaranteed
Debt, whether now existing or occurring in the future; (f) any renewal,
extension, or rearrangement of any Guaranteed Debt or any adjustment,
indulgence, forbearance, or compromise that may be granted or given by Agent or
any Lender to any other obligor on the Obligation; (g) any neglect, delay,
omission, failure, or refusal of Agent or any Lender to take or prosecute any
action in connection with the Guaranteed Debt; (h) any failure of Agent or any
Lender to notify Guarantor of any renewal, extension, or assignment of any
Guaranteed Debt, or the release of any security or of any other action taken or
refrained from being taken by Agent or any Lender against Borrower or any new
agreement between Agent, any Lender, and Borrower, it being understood that
neither Agent nor any Lender is required to give Guarantor any notice of any
kind under any circumstances whatsoever with respect to or in connection with
any Guaranteed Debt, OTHER THAN any notice required to be given to Guarantor by
Law or elsewhere in this guaranty; (i) the unenforceability of any Guaranteed
Debt against any other obligor because it exceeds the amount permitted by Law,
the act of creating it is ULTRA VIRES, the officers creating it exceeded their
authority or violated their fiduciary duties in connection with it, or
otherwise; or (j) any payment of the Obligation to Agent or Lenders is held to
constitute a preference under any Debtor Law or for any other reason Agent or
any Lender is required to refund that payment or make payment to someone else
(and in each such instance this guaranty will be reinstated in an amount equal
to that payment).
9. WAIVERS. Guarantor waives (a) all defenses to the enforcement of
this guaranty (and Rights which may be asserted as defenses to the enforcement
of this guaranty), other than payment, including, but not limited to, (i) any
Right to revoke this Guaranty with respect to future indebtedness; (ii) any
Right to require Agent or Lenders to do any of the following before Guarantor is
obligated to pay the Guaranteed Debt or before Agent or Lenders may proceed
against Guarantor: (A) sue or exhaust remedies against Borrower and other
guarantors or obligors, (B) sue on an accrued right of action in respect of any
of the Guaranteed Debt or bring any other action, exercise any other right, or
exhaust all other remedies, or (C) enforce rights against Borrower's assets or
the collateral pledged by Borrower to secure the Guaranteed Debt; (iii) any
right relating to the timing, manner, or conduct of Agent's or Lenders'
enforcement of rights against Borrower's assets or the collateral pledged by
Borrower to secure the Guaranteed Debt; (iv) if Guarantor and Borrower (or a
third party) have each pledged assets to secure the Guaranteed Debt, any right
to require Agent and Lenders to proceed first against the other collateral
before proceeding against collateral pledged by Guarantor; (v) notice that this
Guaranty has been accepted by Agent and Lenders and notice of any indebtedness
to which this Guaranty may apply; (vi) any right of Guarantor to receive notice
from Agent or Lenders of changes which affect the creditworthiness of Borrower,
and (vii) except as required hereby, presentation, presentment, demand for
payment, protest, notice of protest, notice of dishonor or nonpayment of any
indebtedness, notice of intent to accelerate, notice of acceleration, notice of
any suit or other action by Lender against Borrower, Guarantor or any other
Person and any notice to any party liable for the obligation which is the
subject of the suit or action, and (b) each of the foregoing rights or defenses
regardless whether they arise under (i) Section 34.01 ET SEQ. of the Texas
Business and Commerce Code, as amended, (ii) Section 17.001 of the Texas Civil
Practice and Remedies Code, as amended, (iii) Rule 31 of the Texas Rules of
Civil Procedure, as amended, or (iv) common law, in equity, under contract, by
statute, or otherwise.
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10. CREDIT AGREEMENT PROVISIONS. Guarantor acknowledges that certain (a)
representations and warranties in the Credit Agreement are applicable to it and
confirms that each such representation and warranty is true and correct, (b)
covenants, agreements, and other provisions in the Credit Agreement (INCLUDING,
WITHOUT LIMITATION, INDEMNIFICATION AND RELATED PROVISIONS IN SECTION 8.12 OF
THE CREDIT AGREEMENT) are applicable to it or are imposed upon it and agrees to
promptly and properly comply with or be bound by each of them, AND (C) IT
IRREVOCABLY CONSENTS AND APPROVES TO THE VENUE, SERVICE OF PROCESS, AND WAIVER
OF JURY TRIAL PROVISIONS OF SECTION 14.11 OF THE CREDIT AGREEMENT.
11. RELIANCE AND DUTY TO REMAIN INFORMED. Guarantor confirms that it has
executed and delivered this guaranty after reviewing the terms and conditions of
the Loan Documents and such other information as it has deemed appropriate in
order to make its own credit analysis and decision to execute and deliver this
guaranty. Guarantor confirms that it has made its own independent investigation
with respect to Borrower's creditworthiness and is not executing and delivering
this guaranty in reliance on any representation or warranty by Agent or any
Lender as to that creditworthiness. Guarantor expressly assumes all
responsibilities to remain informed of the financial condition of Borrower and
any circumstances affecting Borrower's ability to perform under the Loan
Documents to which it is a party or any collateral securing any Guaranteed Debt.
12. NO REDUCTION. The Guaranteed Debt may not be reduced, discharged, or
released because or by reason of any existing or future offset, claim, or
defense (except for the defense of complete and final payment of the Guaranteed
Debt) of Borrower or any other obligor against Agent or Lenders or against
payment of the Guaranteed Debt, whether that offset, claim, or defense arises in
connection with the Guaranteed Debt or otherwise. Those claims and defenses
include, without limitation, failure of consideration, breach of warranty,
fraud, bankruptcy, incapacity/infancy, statute of limitations, lender liability,
accord and satisfaction, usury, forged signatures, mistake, impossibility,
frustration of purpose, and unconscionability.
13. LOAN DOCUMENT. This guaranty is a Loan Document and is subject to the
applicable provisions of SECTIONS 1 and 14 of the Credit Agreement, all of which
are incorporated into this guaranty by reference the same as if set forth in
this guaranty verbatim.
14. COMMUNICATIONS. For purposes of SECTION 14.2 of the Credit Agreement,
Guarantor's address and telecopy number are the same as Borrower's.
15. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this
guaranty is valid unless it is in writing and is signed by the party against
whom it is sought to be enforced and is otherwise in conformity with the
requirements of SECTION 14.8 of the Credit Agreement.
16. ENTIRETY. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS TO WHICH
GUARANTOR IS A PARTY REPRESENT THE FINAL AGREEMENT BETWEEN GUARANTOR, AGENT, AND
LENDERS WITH RESPECT TO THE SUBJECT MATTER OF THIS GUARANTY AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
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17. AGENT AND LENDERS. Agent is the agent for each Lender under the
Credit Agreement. All Rights granted to Agent under or in connection with this
guaranty are for each Lender's ratable benefit. Agent may, without the joinder
of any Lender, exercise any Rights in Agent's or Lenders' favor under or in
connection with this guaranty. Agent's and each Lender's Rights and obligations
VIS-A-VIS each other may be subject to one or more separate agreements between
those parties. However, no Guarantor is required to inquire about any such
agreement or is subject to any terms of it. Therefore, neither Guarantor nor
its successors or assigns is entitled to any benefits or provisions of any such
separate agreement or is entitled to rely upon or raise as a defense any party's
failure or refusal to comply with the provisions of it.
18. PARTIES. This guaranty benefits Agent, Lenders, and their respective
successors and assigns and binds Guarantor and its successors and assigns. Upon
appointment of any successor Agent under the Credit Agreement, all of the Rights
of Agent under this guaranty automatically vests in that new Agent as successor
Agent on behalf of Lenders without any further act, deed, conveyance, or other
formality OTHER THAN that appointment. The Rights of Agent and Lenders under
this guaranty may be transferred with any assignment of the Guaranteed Debt.
The Credit Agreement contains provisions governing assignments of the Guaranteed
Debt and of Rights and obligations under this guaranty.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
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EXECUTED as of the date first stated above.
MAGNETEK FINANCIAL SERVICES, INC.,
AS GUARANTOR
By
--------------------------------------------
Peter E. Collins, Assistant Secretary
Agent executes this guaranty in acknowledgement of PARAGRAPH 16 above.
NATIONSBANK OF TEXAS, N.A., AS AGENT
By
--------------------------------------------
Chas A. McDonell, Vice President
GUARANTY SIGNATURE PAGE
ONE OF ONE
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SECURITY AGREEMENT
THIS AGREEMENT is executed as of December 29, 1996, by MAGNETEK, INC., a
Delaware corporation ("BORROWER/DEBTOR"), and MAGNETEK FINANCIAL SERVICES, INC.,
a Delaware corporation ("SUBSIDIARY/DEBTOR"), for the benefit of NATIONSBANK OF
TEXAS, N.A., a national banking association (in its capacity as Agent for the
Lenders now or in the future party to the Credit Agreement described below
"SECURED PARTY").
Borrower/Debtor, Secured Party, and Lenders have executed the Credit
Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT")
dated as of March 31, 1995, and certain other Loan Documents. Borrower/Debtor
owns all of the issued and outstanding capital stock of Subsidiary/Debtor. The
execution and delivery of this agreement are requirements to Secured Party's and
Lenders' continued obligations under the Credit Agreement and other Loan
Documents, are integral to the transactions contemplated by the Loan Documents,
and are conditions precedent to Lenders' obligations to extend further credit
under the Credit Agreement.
ACCORDINGLY, for adequate and sufficient consideration, Borrower/Debtor and
Subsidiary/Debtor jointly and severally agree with Secured Party for the benefit
of Lenders as follows:
1. DEFINITIONS. Terms defined in the Credit Agreement or the UCC have
the same meanings when used -- unless otherwise defined -- in this agreement.
If the definition given a term in the Credit Agreement conflicts with the
definition given that term in the UCC, then the Credit Agreement definition
controls to the extent allowed by Law. If the definition given a term in
CHAPTER 9 of the UCC conflicts with the definition given that term in any other
chapter of the UCC, then the CHAPTER 9 definition controls. Furthermore, as
used in this agreement:
ACCOUNTS means, for each Debtor, all of its present and future accounts,
instruments, receivables, accounts receivable, chattel paper, documents, and
book debts arising from its sale or lease of goods or rendition of services,
including, without limitation, all present and future (a) amounts due to it from
a factor, (b) returned, reclaimed, refused, or repossessed goods, and (c) books
and records pertaining to, and security and guaranties for, any of the
foregoing.
BORROWER/DEBTOR is defined in the preamble to this agreement and includes,
without limitation, Borrower/Debtor, Borrower/Debtor as a debtor-in-possession,
and any receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for Borrower or for all or substantially all of Borrower/Debtor's
assets under any Debtor Law.
COLLATERAL is defined in PARAGRAPH 4 below.
CREDIT AGREEMENT is defined in the recitals to this agreement.
DEBTORS means Borrower/Debtor and Subsidiary/Debtor.
FINANCING STATEMENT means a financing statement executed by each Debtor and
Secured Party for filing in the appropriate jurisdictions and in form and
substance reasonably acceptable to Secured Party.
OBLIGOR means any Person obligated with respect to any of the Collateral,
whether as a party to a contract, an account debtor, issuer of any securities,
or otherwise.
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OBLIGATION means the "OBLIGATION," as defined in the Credit Agreement,
including, without limitation, all present and future indebtedness, liabilities,
and obligations of each Debtor arising under this agreement, and all present and
future costs, attorneys' fees, and expenses reasonably incurred by Secured Party
or any Lender to enforce any Debtor's or any other Obligor's payment of any of
the Obligation, including, without limitation (to the extent lawful), all
present and future amounts that would become due but for the operation of
Sections 502 or 506 or any other provision of TITLE 11 of the UNITED STATES CODE
and all present and future accrued and unpaid interest (including, without
limitation, all post-petition interest if any Debtor voluntarily or
involuntarily becomes subject to any Debtor Law).
PLEDGED SECURITIES means, whether now owned or acquired in the future by
any Debtor, all present and future shares of capital stock issued by
Subsidiary/Debtor, including, without limitation, all present and future
increases, profits, combinations, reclassifications, dividends, and substitutes
and replacements for any of the foregoing (SO LONG AS the Pledged Securities do
not include more than the number of voting shares required to be pledged under
the Credit Agreement).
SECURED PARTY is defined in the preamble to this agreement and includes its
successor appointed under SECTION 13 of the Credit Agreement and acting as AGENT
for Lenders under the Loan Documents.
SECURITY INTEREST means the security interests granted and the transfers,
pledges, and assignments made under PARAGRAPH 2 below, which is a "LENDER LIEN,"
as defined in the Credit Agreement.
SUBSIDIARY/DEBTOR is defined in the preamble to this agreement.
UCC means the UNIFORM COMMERCIAL CODE as adopted in Texas or any other
applicable jurisdiction.
2. SECURITY INTEREST. To secure the prompt, unconditional, and complete
payment and performance of the Obligation when due, each Debtor jointly and
severally grants to Secured Party a security interest in the Collateral
identified for it in PARAGRAPH 4 below and jointly and severally pledges and
collaterally transfers and assigns that Collateral to Secured Party, all upon
and subject to the terms and conditions of this agreement. If the grant,
pledge, or collateral transfer or assignment of any specific item of the
Collateral is expressly prohibited by any contract, then the Security Interest
nonetheless remains effective to the extent allowed by UCC Section 9.318 or
other applicable Law but is otherwise limited by that prohibition.
3. NO ASSUMPTION OR MODIFICATION. The Security Interest is given as
security only in order to secure the prompt, unconditional, and complete payment
and performance of the Obligation when due. Neither Secured Party nor any Lender
assumes or may become liable for any Debtors' liabilities, duties, or
obligations under or in connection with the Collateral. Neither Secured Party's
acceptance of this agreement nor its taking any action in carrying out this
agreement, constitutes Secured Party's approval of the Collateral or Secured
Party's assumption of any obligation under or in connection with the Collateral.
This agreement does not affect or modify any Debtors' obligations with respect
to any Collateral.
4. COLLATERAL. The term "COLLATERAL" means the following items and types
of property -- wherever located and now or in the future acquired or existing:
- For Borrower/Debtor, all of its Pledged Securities;
- For Subsidiary/Debtor, its Accounts; and
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- All cash and noncash proceeds of any other Collateral, including,
without limitation, all cash, accounts, general intangibles,
documents, instruments, chattel paper, goods, and any other property
received upon the sale or disposition of any other Collateral and all
insurance proceeds of any kind paid at any time in connection with any
other Collateral.
5. FRAUDULENT CONVEYANCE. Notwithstanding any contrary provision, each
Debtor agrees that, if -- but for the application of this paragraph -- any of
the Obligation or the Security Interest would constitute a preferential transfer
under 11 U.S.C. Section 547, a fraudulent conveyance under 11 U.S.C. Section
548, or a fraudulent conveyance or transfer under any state fraudulent
conveyance, fraudulent transfer, or similar Law in effect from time to time
(each a "FRAUDULENT CONVEYANCE"), then the Obligation and Security Interest
remains enforceable to the maximum extent possible without causing any of the
Obligation or the Security Interest to be a fraudulent conveyance, and this
agreement is automatically amended to carry out the intent of this paragraph.
6. REPRESENTATIONS AND WARRANTIES. Debtors jointly and severally
represent and warrant to Secured Party on behalf of Lenders that:
(a) CREDIT AGREEMENT. Each Debtor acknowledges that certain (a)
representations and warranties in the Credit Agreement are applicable to it or
its assets or operations and confirms that each such representation and warranty
is true and correct, (b) covenants, agreements, and other provisions in the
Credit Agreement (INCLUDING, WITHOUT LIMITATION, INDEMNIFICATION AND RELATED
PROVISIONS IN SECTION 8.12 OF THE CREDIT AGREEMENT) are applicable to it or are
imposed upon it and agrees to promptly and properly comply with or be bound by
each of them, AND (C) IT IRREVOCABLY CONSENTS AND APPROVES TO THE VENUE, SERVICE
OF PROCESS, AND WAIVER OF JURY TRIAL PROVISIONS OF SECTION 14.11 OF THE CREDIT
AGREEMENT.
(b) BORROWING BASE. Any item of Collateral submitted or represented
to Secured Party as being eligible under the Credit Agreement to be included in
the Borrowing Base fully meets the requirements for eligibility provided in the
Credit Agreement.
(c) BINDING OBLIGATION. This agreement creates a legal, valid, and
binding Lender Lien in and to the Collateral (subject to delivery to Secured
Party of the stock certificates for the Pledged Securities) in favor of Secured
Party and enforceable against the Debtor owning that Collateral. For Collateral
in which the Security Interest may be perfected by the filing of Financing
Statements, once those Financing Statements have been properly filed in the
jurisdictions described on SCHEDULE 6 to the Credit Agreement, the Security
Interest in that Collateral will be fully perfected. For the Pledged
Securities, the taking by Secured Party of physical possession in Texas of the
stock certificates representing the Pledged Securities will perfect the Security
Interest in that Collateral. Once perfected, the Security Interest will
constitute a first-priority Lender Lien on the Collateral, subject only to
Permitted Liens. The creation of the Security Interest does not require the
consent of any Person that has not been obtained.
(d) LOCATIONS. The attached ANNEX 1 accurately describes (i) the
location of each Debtor's principal place of business and chief executive
office, and (ii) with respect to Subsidiary/Debtor, if different from
CLAUSE (I), the one or more locations of its books and records concerning its
Accounts.
(e) ACCOUNTS. Subsidiary/Debtor's Accounts (i) arise from its
purchase of certain Accounts from Borrower/Debtor, (ii) are due to
Subsidiary/Debtor, and (iii) are not, if represented to be eligible for
inclusion in the Borrowing Base, subject to any material setoff, counterclaim,
defense,
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allowance, adjustment (OTHER THAN discounts for prompt payment shown on the
invoice), or material dispute, objection, or complaint by any Obligor.
(f) SECURITIES. All Pledged Securities are duly authorized, validly
issued, fully paid, and non-assessable, and the transfer of them is not subject
to any restrictions OTHER THAN restrictions imposed by applicable Laws. The
Pledged Securities are approximately the maximum number of shares of
Subsidiary/Debtor that may be pledged without creating a material Tax obligation
for the Companies that would not otherwise exist.
(g) ADDITIONAL COLLATERAL. The foregoing representations and
warranties will be true and correct in all respects with respect to any
additional Collateral or additional specific descriptions of certain Collateral
delivered to Secured Party in the future by any Debtor.
The failure of any of these representations or warranties to be accurate and
complete does not impair the Security Interest in any Collateral.
7. COVENANTS. While any Lender is committed to lend or extend credit
under the Credit Agreement and until the Obligation are fully paid and
performed, each Debtor jointly and severally covenants and agrees with Secured
Party on behalf of Lenders that, without first obtaining Secured Party's written
notice of Determining Lenders' consent to the contrary:
(a) CREDIT AGREEMENT. Each Debtor shall promptly and fully comply
with and perform all covenants and agreements in the Credit Agreement that are
applicable to it or its assets or operations, each of which is ratified and
confirmed.
(b) CERTAIN RELOCATIONS AND CHANGES. Each Debtor shall give Secured
Party 30-days-written notice before any proposed (i) relocation of its principal
place of business or chief executive office, (ii) change of its name, and (iii)
relocation of the place where its books and records concerning its Accounts are
kept.
(c) OTHER NOTICES AND ACTIONS. Each Debtor shall promptly notify
Secured Party of (i) any change in any material fact or circumstance represented
or warranted by any Debtor with respect to any of the Collateral, and (ii) any
claim, action, or proceeding challenging the Security Interest or affecting
title to all or any material portion of the Collateral or the Security Interest
(and, at Secured Party's request, that Debtor shall appear in and defend any
such action or proceeding at that Debtor's expense). In case of any default or
event of default by any other party under or in connection with any material
portion (individually or collectively) of the Collateral, Debtor shall
immediately use reasonable efforts to remedy the same or immediately demand that
the same be remedied.
(d) RECORD OF COLLATERAL. Each Debtor shall maintain at its chief
executive office a current record of where all of its Collateral is located and
permit Secured Party or its representatives to inspect and make copies from
those records pursuant to the Credit Agreement and furnish to Secured Party upon
request, from time to time, such documents, lists, descriptions, certificates,
and other information necessary or helpful to keep Secured Party informed with
respect to the identity, location, status, condition, terms of, parties to, and
value of the Collateral.
(e) COLLATERAL IN TRUST. While a Default or Potential Default
exists, each Debtor shall upon request of Secured Party (unless prevented by
operation of Law from making that request, in which event each Debtor shall) (i)
hold in trust (and not commingle with its other assets) for Secured Party all of
its Collateral that is chattel paper, instruments, or documents of title at any
time received by it, (ii)
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promptly deliver that Collateral to Secured Party unless Secured Party at its
option gives Debtor written permission to retain any of it, and (iii) cause each
chattel paper, instrument, or document of title so retained to be marked to
state that it is assigned to Secured Party and each instrument to be endorsed to
the order of Secured Party (but failure to be so marked or endorsed may not
impair the Security Interest in any such Collateral).
(f) PERFORM OBLIGATION. Each Debtor shall perform all of its
material obligations under or in connection with all of its Collateral in
accordance with customary business practices.
(g) IMPAIRMENT OF COLLATERAL. No Debtor may do or permit any act
that is reasonably likely to adversely impair the value or usefulness any
material portion of any Collateral.
8. REMEDIES UPON DEFAULT. While a Default exists, Secured Party is,
subject to Credit Agreement, entitled to exercise any one or more of the
following Rights.
(a) RIGHTS. Secured Party may exercise any and all Rights available
to a secured party under the UCC, in addition to any and all other Rights
afforded by this agreement and the other Loan Documents, at law, in equity, or
otherwise, including, without limitation (i) requiring Debtors to assemble
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to the applicable Debtor and
Secured Party, (ii) applying by appropriate judicial proceedings for appointment
of a receiver for Collateral, (iii) applying to the Obligation any cash held by
Secured Party under this agreement, (iv) reducing any claim to judgment, (v)
exercising the Rights of offset or banker's Lien against the interest of each
Debtor in and to every account and other property of each Debtor in Secured
Party's possession to the extent of the full amount of the Obligation, (vi)
foreclosing the Security Interest and any other Liens Secured Party may have or
otherwise realize upon any and all of the Rights Secured Party may have in and
to Collateral, and (vii) bringing suit or other proceedings before any Tribunal
either for specific performance of any covenant or condition contained in any of
the Loan Documents or in aid of the exercise of any Right granted to Secured
Party in any Loan Document.
(b) NOTICE. If any Collateral threatens to decline speedily in value
or is of the type customarily sold on a recognized market, Secured Party may
sell or otherwise dispose of that Collateral without notification,
advertisement, or other notice of any kind. Otherwise, reasonable notice of the
time and place of any public sale of the Collateral -- or reasonable
notification of the time after which any private sale or other intended
disposition of the Collateral is to be made -- shall be sent to Debtor and to
any other Person entitled to notice under the UCC. Notice sent or given not
less than ten calendar days prior to the taking of the action to which the
notice relates is reasonable notice. It is not necessary that the Collateral be
at the location of the sale.
(c) SALES OF SECURITIES. In connection with the sale of any
Collateral that is securities, Secured Party is authorized, but not obligated,
to limit prospective purchasers to the extent deemed necessary or desirable by
Secured Party to render that sale exempt from the registration and similar
requirements under applicable Laws, and no sale so made in good faith by Secured
Party may be deemed not to be "COMMERCIALLY REASONABLE" because so made.
(d) OTHER SALES. Secured Party's sale of less than all Collateral
does not exhaust Secured Party's Rights under this agreement and Secured Party
is specifically empowered to make successive sales until all Collateral is sold.
If the proceeds of a sale of less than all Collateral is less than the
Obligation, then this agreement and the Security Interest remain in full force
and effect as to the unsold portion of the Collateral just as though no sale had
been made. In the event any sale under this
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agreement is not completed or is, in Secured Party's opinion, defective, that
sale does not exhaust Secured Party's Rights under this agreement, and Secured
Party is entitled to cause a subsequent sale or sales to be made. All
statements of fact or other recitals made in any bill of sale or assignment or
other instrument evidencing any foreclosure sale under this agreement -- whether
about nonpayment of the Obligation, the occurrence of any Default, Secured
Party's having declared all of the Obligation to be due and payable, notice of
time, place, and terms of sale and the properties to be sold having been duly
given, or any other act or thing having been duly done by Secured Party -- shall
be taken as PRIMA FACIE evidence of the truth of the facts so stated and
recited. Secured Party may appoint or delegate any one or more Persons as agent
to perform any act or acts necessary or incident to any sale held by Secured
Party, including the sending of notices and the conduct of sale, but such acts
must be done in the name and on behalf of Secured Party.
(e) OBLIGORS. While a Default exists, Secured Party may notify or
require each Obligor to make payment directly to Secured Party, and Secured
Party may take control of the proceeds paid to Secured Party. Until Secured
Party elects to exercise these Rights, each Debtor is authorized to collect and
enforce the Collateral and to retain and expend all payments made on Collateral.
While Secured Party is entitled to and elects to exercise these Rights, Secured
Party has the Right in its own name or in the name of the applicable Debtor to
(i) compromise or extend time of payment with respect to Collateral for such
amounts and upon such terms as Secured Party may reasonably determine, (ii)
demand, collect, receive, receipt for, sue for, compound, and give acquittance
for any and all amounts due or to become due with respect to Collateral, (iii)
take control of cash and other proceeds of any Collateral, (iv) endorse the
applicable Debtor's name on any notes, acceptances, checks, drafts, money
orders, or other evidences of payment on Collateral that may come into Secured
Party's possession, (v) sign the applicable Debtor's name on any invoice or bill
of lading relating to any Collateral, on any drafts against Obligors or other
Persons making payment with respect to Collateral, on assignments and
verifications of accounts or other Collateral, and on notices to Obligors making
payment with respect to Collateral, (vi) send requests for verification of
obligations to any Obligor, and (vii) do all other acts and things reasonably
necessary to carry out the intent of this agreement. If any Obligor fails to
make payment on any Collateral when due while a Default exists, Secured Party is
authorized, in its sole discretion, either in its own name or in the applicable
Debtor's name, to take such action as Secured Party reasonably shall deem
appropriate for the collection of any amounts owed with respect to Collateral or
upon which a delinquency exists. However, Secured Party is NEITHER (x) liable
for its failure to collect, or for its failure to exercise diligence in the
collection of, any amounts owed with respect to Collateral (EXCEPT for its own
fraud, gross negligence, willful misconduct, or violation of any Law), NOR (y)
under any duty whatever to anyone except the applicable Debtor and Lenders to
account for funds that it shall actually receive under this agreement. A
receipt given by Secured Party to any Obligor is a full and complete release,
discharge, and acquittance to that Obligor, to the extent of any amount so paid
to Secured Party. While a Default exists, Secured Party may apply or set off
amounts paid and the deposits against any liability of the applicable Debtor to
Secured Party. Regarding the existence of any Default for purposes of this
agreement, each Debtor agrees that the Obligors on any Collateral may rely upon
written certification from Secured Party that a Default exists.
(f) POWER-OF-ATTORNEY. Secured Party is deemed to be irrevocably
appointed as each Debtor's agent and attorney-in-fact with all Right to enforce
all of that Debtor's Rights under or in connection with the Collateral effective
and operable at all times while a Default exists. All reasonable costs,
expenses and liabilities incurred and all payments made by Secured Party as that
Debtor's agent and attorney-in-fact (including, without limitation, reasonable
attorney's fees and expenses) are considered a loan by Secured Party to that
Debtor that is repayable on demand, accrues interest at the Default Rate until
paid, and is part of the Obligation.
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(g) APPLICATION OF PROCEEDS. While a Default exists, Secured Party
shall apply the proceeds of any sale or other disposition of Collateral in the
following order: (i) Payment of all its reasonable expenses incurred in
retaking, holding, and preparing any Collateral for disposition, in arranging
for such disposition, and in actually disposing of the same (all of which are
part of the Obligation); (ii) repayment of amounts reasonably expended by
Secured Party under PARAGRAPH 9 below; (iii) payment of the balance of the
Obligation in the order and manner specified in the Credit Agreement; and (iv)
delivery EITHER (A) to Borrower/Debtor for the account of all Debtors OR (B) as
a court of competent jurisdiction may direct.
9. OTHER RIGHTS.
(a) PERFORMANCE. If any Debtor fails to preserve the priority
(subject to Permitted Liens) of the Security Interest in any Collateral or
otherwise fails to perform any of its obligations under any Loan Document with
respect to any Collateral, then Secured Party may, at its option, but without
being required to do so, after five Business Days or earlier, if Secured Party
in its reasonable judgment deems it necessary, prosecute or defend any suits in
relation to the Collateral or take any other action that such Debtor is required
- - - -- but has failed -- to take. Any amount that is reasonably expended or paid by
Secured Party in connection with the foregoing (including, without limitation,
court costs and reasonable attorneys' fees and expenses) bears interest at the
Default Rate from the date spent or incurred until repaid and is payable (with
that interest) by Debtors to Secured Party upon demand and is part of the
Obligation.
(b) COLLATERAL IN SECURED PARTY'S POSSESSION. If, while a Default
exists, any Collateral comes into Secured Party's possession, Secured Party may
use that Collateral for the purpose of preserving it or its value pursuant to
the order of a court of appropriate jurisdiction or in accordance with any other
Rights held by Secured Party in respect of that Collateral. Debtors jointly and
severally covenant to promptly reimburse and pay to Secured Party, at Secured
Party's request, the amount of all reasonable expenses, costs, Taxes, and other
charges incurred by Secured Party in connection with its custody and
preservation of that Collateral, all of which bear interest at the Default Rate
from the date spent or incurred until repaid and are (with that interest)
payable by Debtors to Secured Party upon demand and are part of the Obligation.
EXCEPT for Secured Party's own fraud, gross negligence, or willful misconduct
(i) the risk of accidental loss or damage to, or diminution in value of, any
Collateral is on Debtors, (ii) Secured Party has no liability for failure to
obtain or maintain insurance or to determine whether any insurance in effect is
adequate as to amount or risks insured, (iii) Secured Party has no duty to fix
or preserve Rights against any Obligors in respect of any Collateral and is
never liable for any failure to use diligence to collect any amount payable in
respect of any Collateral (OTHER THAN to account to Debtors and Lenders for what
Secured Party may actually collect or receive).
(c) RECORD OWNERSHIP OF SECURITIES. While a Default exists, Secured
Party may have any Collateral that is securities and that is in the possession
of Secured Party, or its nominee or nominees, registered in its name, or in the
name of its nominee or nominees, as pledgee.
(d) VOTING OF SECURITIES. As long as no Default exists, the
applicable Debtor may exercise all voting Rights pertaining to any Collateral
that is securities. While a Default exists, the Right to vote any Collateral
that is securities is vested exclusively in Secured Party. Accordingly, each
applicable Debtor irrevocably constitutes and appoints Secured Party as that
Debtor's proxy and attorney-in-fact -- effective only after notice to the
applicable Debtor while a Default exists but with full power of substitution --
to vote, and to act with respect to, any Collateral that is securities standing
in the name of that Debtor or with respect to which that Debtor is entitled to
vote and act. That proxy is coupled with an interest, is irrevocable, and
continues until the Obligation are fully paid and performed.
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(e) CERTAIN PROCEEDS. The provisions of this CLAUSE (e) are
applicable only while a Default exists. Notwithstanding any contrary provision,
all dividends or distributions of property in respect of, and all proceeds of,
any Collateral that is securities -- whether those dividends, distributions, or
proceeds result from a subdivision, combination, or reclassification of the
outstanding capital stock of any issuer or as a result of any merger,
consolidation, acquisition, or other exchange of assets to which any issuer may
be a party, or otherwise -- are part of the Collateral, shall, if received by
any Debtor, be held in trust for Secured Party's benefit, and shall immediately
be delivered to Secured Party (accompanied by proper instruments of assignment
or stock or bond powers executed by the applicable Debtor in accordance with
Secured Party's instructions) to be held subject to the terms of this agreement.
Any cash proceeds of any Collateral that come into Secured Party's possession
(including, without limitation, insurance proceeds) may, at Secured Party's
option, be applied in whole or in part to the Obligation (to the extent then
due), be fully or partially released to or under the written instructions of
that applicable Debtor for any general or specific purpose, or be fully or
partially retained by Secured Party as additional Collateral. Any cash
Collateral in Secured Party's possession may be invested by Secured Party in
certificates of deposit issued by Secured Party, any Lender, or any other state
or national bank having combined capital and surplus greater than $100,000,000
or in securities issued or guaranteed by the United States of America or any of
its agencies. Secured Party is never obligated to make any investment and never
has any liability to any Debtor or any Lender for any loss that may result from
any investment or non-investment. All interest and other amounts earned from
any investment may be dealt with by Secured Party in the same manner as other
cash Collateral.
(f) INDEMNIFICATION. DEBTORS JOINTLY AND SEVERALLY ASSUME ALL
LIABILITY FOR ALL COLLATERAL, FOR THE SECURITY INTEREST, AND FOR ANY USE,
POSSESSION, MAINTENANCE, AND MANAGEMENT OF, ALL COLLATERAL (INCLUDING, WITHOUT
LIMITATION, ANY TAXES ARISING AS A RESULT OF, OR IN CONNECTION WITH, THE
TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT) AND JOINTLY AND SEVERALLY AGREE TO
ASSUME LIABILITY FOR, AND TO INDEMNIFY AND HOLD SECURED PARTY, EACH LENDER, AND
THEIR RESPECTIVE REPRESENTATIVE (THE "INDEMNIFIED PARTIES") HARMLESS FROM AND
AGAINST, AND DEFEND EACH INDEMNIFIED PARTY AGAINST, ALL CLAIMS, CAUSES OF
ACTION, OR LIABILITY, FOR INJURIES TO OR DEATHS OF PERSONS AND DAMAGE TO
PROPERTY HOWSOEVER ARISING FROM OR INCIDENT TO SUCH USE, POSSESSION,
MAINTENANCE, AND MANAGEMENT (WHETHER SUCH PERSONS BE AGENTS OR EMPLOYEES OF
DEBTOR OR OF THIRD PARTIES, OR SUCH DAMAGE BE TO PROPERTY OF DEBTOR OR OF
OTHERS) AND ALL CLAIMS, COSTS, PENALTIES, LIABILITIES, AND EXPENSES, INCLUDING,
WITHOUT LIMITATION, COURT COSTS AND ATTORNEYS' FEES, HOWSOEVER ARISING OR
INCURRED BECAUSE OF, INCIDENT TO, OR WITH RESPECT TO COLLATERAL OR ANY USE,
POSSESSION, MAINTENANCE, OR MANAGEMENT OF IT. (THE "INDEMNIFIED LIABILITIES").
HOWEVER, NO INDEMNIFIED PARTY IS ENTITLED TO INDEMNITY UNDER THIS PARAGRAPH FOR
ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD OR FOR ANY INDEMNIFIED
LIABILITY ARISING FROM ITS ACTIONS AFTER SECURED PARTY HAS FORECLOSED THE
SECURITY INTEREST OR ACCEPTED CONVEYANCE IN LIEU OF FORECLOSURE OR (EXCEPT FOR
THE PLEDGED SECURITIES) TAKEN POSSESSION OF ANY COLLATERAL. The provisions of
this paragraph survive the payment and performance of the Obligation and the
release of the Security Interest. The foregoing indemnity shall be subject to
the provisions of SECTION 8.12 of the Credit Agreement.
10. MISCELLANEOUS.
(a) TERM. This agreement terminates when no Lender has any
commitment to lend or extend credit under the Credit Agreement and the
Obligation are fully paid and performed. No Obligor on any Collateral is
obligated to inquire about the termination of this agreement and is fully
protected in
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<PAGE>
making payments directly to Secured Party if SECTION 8(e) applies, which
payments Secured Party shall pay to Borrower/Debtor on behalf of Debtors after
termination of this agreement.
(b) NO RELEASE. Neither the Security Interest, any Debtor's
obligations, nor Secured Party's or any Lenders' Rights under this agreement are
released, diminished, impaired, or adversely affected by the occurrence of any
one or more of the following events: (i) The taking or accepting of any other
security or assurance for any Obligation; (ii) any release, surrender, exchange,
subordination, or loss of any security or assurance at any time existing in
connection with any Obligation; (iii) the modification of, amendment to, or
waiver of compliance with any terms of any other Loan Document without the
consent of Debtors EXCEPT as required in that Loan Document; (iv) any present or
future insolvency, bankruptcy, or lack of corporate or trust power of any party
at any time liable for the payment of any Obligation; (v) EXCEPT as specifically
required by any other Loan Document, any renewal, extension, or rearrangement of
the payment of any Obligation (either with or without notice to or consent of
any Debtor) or any adjustment, indulgence, forbearance, or compromise that may
be granted or given by Secured Party or any Lender to any Debtor; (vi) any
neglect, delay, omission, failure, or refusal of Secured Party or any Lender to
take or prosecute any action in connection with any agreement, document,
guaranty, or instrument evidencing, securing, or assuring the payment of any
Obligation; (vii) any failure of Secured Party or any Lender to notify any
Debtor of any renewal, extension, or assignment of any Obligation, or the
release of any security under any other document or instrument, or of any other
action taken or refrained from being taken by Secured Party or any Lender
against any Debtor, or any new agreement between Secured Party, any Lender, and
any Debtor, it being understood that, except as expressly required by the Credit
Agreement, neither Secured Party nor any Lender is required to give any Debtor
any notice of any kind under any circumstances whatsoever with respect to or in
connection with the Obligation, including, without limitation, notice of
acceptance of this agreement or any Collateral ever delivered to or for the
account of Secured Party under this agreement; (viii) the illegality,
invalidity, or unenforceability of any Obligation against any third party
obligated with respect to it by reason of the fact that the Obligation, or the
interest paid or payable with respect to any of it, exceeds the amount permitted
by Law, the act of creating any of it is ULTRA VIRES, or the officers, partners,
or trustees creating any of it acted in excess of their authority, or for any
other reason; or (ix) if any payment by any party obligated with respect to any
Obligation is held to constitute a preference under applicable Laws or for any
other reason Secured Party or any Lender is required to refund any payment on
any Obligation or pay the amount of it to someone else.
(c) WAIVERS. To the maximum extent lawful, except to the extent
expressly otherwise provided in this agreement or in any other Loan Document,
Debtors jointly and severally waive (i) any Right to require Secured Party or
any Lender to proceed against any other Person, to exhaust Rights in Collateral,
or to pursue any other Right that Secured Party or any Lender may have; (ii)
with respect to the Obligation, presentment and demand for payment, protest,
notice of protest and nonpayment, notice of acceleration, and notice of intent
to accelerate; and (iii) all Rights of marshaling in respect of any Collateral.
(d) FINANCING STATEMENT. Secured Party may at any time file this
agreement (or a carbon, photographic, or other reproduction of this agreement)
as a financing statement, but the failure of Secured Party to do so does not
impair the validity or enforceability of this agreement.
(e) INFORMATION. Except as otherwise provided by Law, Secured
Party's charge for furnishing each statement of account or each list of
Collateral is $10.00.
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(f) LOAN DOCUMENT. This agreement is a Loan Document and is subject
to the applicable provisions of SECTIONS 1 and 14 of the Credit Agreement, all
of which are incorporated in this agreement by reference the same as if set
forth in this agreement verbatim.
(g) COMMUNICATIONS. For purposes of SECTION 14.2 of the Credit
Agreement, each Debtor's address and telecopy number are the same as
Borrower/Debtor's.
(h) AMENDMENTS, ETC. No amendment, waiver, or discharge to or under
this agreement is valid unless it is in writing and is signed by the party
against whom it is sought to be enforced and is otherwise in conformity with the
requirements of SECTION 14.8 of the Credit Agreement.
(i) ENTIRETY. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH
ANY DEBTOR IS PARTY 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.
(j) SECURED PARTY AND LENDERS. Secured Party is the agent for each
Lender under the Credit Agreement. The Security Interest and all Rights granted
to Secured Party under or in connection with this agreement are for each
Lender's ratable benefit. Secured Party may, without the joinder of any Lender,
exercise any Rights in Secured Party's or Lenders' favor under or in connection
with this agreement, including, without limitation, conducting any foreclosure
sales and executing full or partial releases of, amendments or modifications to,
or consents or waivers under this agreement. Secured Party's and each Lender's
Rights and obligations VIS-A-VIS each other may be subject to one or more
separate agreements between those parties. However, no Debtor need inquire
about any such agreement or is subject to any terms of it. Therefore, neither
any Debtor nor its successors or assigns is entitled to any benefits or
provisions of any such separate agreement or is entitled to rely upon or raise
as a defense any party's failure or refusal to comply with the provisions of it.
(k) PARTIES. This agreement benefits Secured Party, Lenders, and
their respective successors and assigns and binds each Debtor and its successors
and assigns. Upon appointment of any successor AGENT under the Credit
Agreement, all of the Rights of Secured Party under this agreement automatically
vests in that new AGENT as successor Secured Party on behalf of Lenders without
any further act, deed, conveyance, or other formality OTHER THAN that
appointment. The Rights of Secured Party and Lenders under this agreement may
be transferred with any assignment of the Obligation. The Credit Agreement
contains provisions governing assignments of the Obligation and of Rights and
obligations under this agreement.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
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EXECUTED as of the date first stated above.
MAGNETEK, INC., AS BORROWER/DEBTOR
By
--------------------------------------------
David P. Reiland, Senior Vice President
MAGNETEK FINANCIAL SERVICES, INC.,
AS SUBSIDIARY/DEBTOR
By
--------------------------------------------
Peter E. Collins, Assistant Secretary
Secured Party executes this agreement in acknowledgement of PARAGRAPH 10(i)
above.
NATIONSBANK OF TEXAS, N.A., as Agent for Lenders
as SECURED PARTY
By
--------------------------------------------
Chas A. McDonell, Vice President
The undersigned agree that to the extent that any of the stock certificates
evidencing any of the capital stock that is included in the Collateral bear any
restrictive legend in respect of the transfer of those certificates, then, in
each case, the undersigned waive the requirements of those restrictive legends
in respect of the pledge of those shares of capital stock to Secured Party.
MAGNETEK FINANCIAL SERVICES, INC.,
AS SUBSIDIARY/DEBTOR
By
--------------------------------------------
Peter E. Collins, Assistant Secretary
SECURITY AGREEMENT SIGNATURE PAGE
ONE OF ONE
<PAGE>
SECURITY AGREEMENT
THIS AGREEMENT is executed as of March 31, 1995, by MAGNETEK, INC., a
Delaware corporation ("BORROWER/DEBTOR"), and the other undersigned debtors
("SUBSIDIARY/DEBTORS"), for the benefit of NATIONSBANK OF TEXAS, N.A., a
national banking association (in its capacity as Agent for the Lenders now or in
the future party to the Credit Agreement described below "SECURED PARTY").
Borrower/Debtor, Secured Party, and Lenders have executed the Credit
Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT")
dated as of March 31, 1995, and certain other Loan Documents. Borrower/Debtor
owns all of the issued and outstanding capital stock of each Subsidiary/Debtor,
except as disclosed on SCHEDULE 7.3 to the Credit Agreement. The execution and
delivery of this agreement are requirements to Secured Party's and Lenders'
execution of the Credit Agreement and other Loan Documents, are integral to the
transactions contemplated by the Loan Documents, and are conditions precedent to
Lenders' obligations to extend credit under the Credit Agreement.
ACCORDINGLY, for adequate and sufficient consideration, Borrower/Debtor and
Subsidiary/Debtors jointly and severally agree with Secured Party for the
benefit of Lenders as follows:
1. DEFINITIONS. Terms defined in the Credit Agreement or the UCC have
the same meanings when used -- unless otherwise defined -- in this agreement.
If the definition given a term in the Credit Agreement conflicts with the
definition given that term in the UCC, then the Credit Agreement definition
controls to the extent allowed by Law. If the definition given a term in
CHAPTER 9 of the UCC conflicts with the definition given that term in any other
chapter of the UCC, then the CHAPTER 9 definition controls. Furthermore, as
used in this agreement:
ACCOUNTS means, for each Debtor, all of its present and future accounts,
instruments, receivables, accounts receivable, chattel paper, documents, and
book debts arising from its sale or lease of goods or rendition of services,
including, without limitation, all present and future (a) amounts due to it from
a factor, (b) returned, reclaimed, refused, or repossessed goods, and (c) books
and records pertaining to, and security and guaranties for, any of the
foregoing.
BORROWER/DEBTOR is defined in the preamble to this agreement and includes,
without limitation, Borrower/Debtor, Borrower/Debtor as a debtor-in-possession,
and any receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for Borrower or for all or substantially all of Borrower/Debtor's
assets under any Debtor Law.
COLLATERAL is defined in PARAGRAPH 4 below.
CREDIT AGREEMENT is defined in the recitals to this agreement.
DEBTORS means Borrower/Debtor and Subsidiary/Debtors.
FINANCING STATEMENT means a financing statement executed by each Debtor and
Secured Party for filing in the jurisdictions listed in SCHEDULE 6 to the Credit
Agreement, and in substantially the form of ANNEX 2 to this agreement.
INVENTORY means, for each Debtor, all of its present and future inventory,
including, without limitation, all present and future (a) materials, goods and
work-in-process, finished goods, and other tangible property held for sale or
lease or being processed for sale or lease in its present or future business,
whether to be furnished under contracts or used or consumed in that Debtor's
business, (b) documents (including documents of title) covering any of the
foregoing, and (c) such property the sale
<PAGE>
or other disposition of which has given rise to accounts and which has not been
returned to or repossessed or stopped in transit by that Debtor.
OBLIGOR means any Person obligated with respect to any of the Collateral,
whether as a party to a contract, an account debtor, issuer of any securities,
or otherwise.
OBLIGATION means the "OBLIGATION," as defined in the Credit Agreement,
including, without limitation, all present and future indebtedness, liabilities,
and obligations of each Debtor arising under this agreement, and all present and
future costs, attorneys' fees, and expenses reasonably incurred by Secured Party
or any Lender to enforce any Debtor's or any other obligor's payment of any of
the Obligation, including, without limitation (to the extent lawful), all
present and future amounts that would become due but for the operation of
Sections 502 or 506 or any other provision of TITLE 11 of the UNITED STATES CODE
and all present and future accrued and unpaid interest (including, without
limitation, all post-petition interest if any Debtor voluntarily or
involuntarily becomes subject to any Debtor Law).
PLEDGED SECURITIES means, whether now owned or acquired in the future by
any Debtor, (a) all present and future shares of capital stock issued by any of
the following subsidiaries and (b) 65% of all present and future shares of
capital stock issued by MagneTek Europe, N.V., and in either case, including,
without limitation, all present and future increases, profits, combinations,
reclassifications, dividends, and substitutes and replacements for any of the
foregoing (SO LONG AS the Pledged Securities do not include more than the number
of voting shares required to be pledged under the Credit Agreement):
MagneTek Century Electric, Inc., MagneTek National Electric Coil,
Inc., MagneTek Ohio Transformer, Inc., MagneTek Electric, Inc.,
MagneTek Controls, Inc., MagneTek Tempe, Inc., MagneTek Credit
Corporation, MagneTek Leasing Corporation and MagneTek Airport
Systems, Inc.,
SECURED PARTY is defined in the preamble to this agreement and includes its
successor appointed under SECTION 13 of the Credit Agreement and acting as AGENT
for Lenders under the Loan Documents.
SECURITY INTEREST means the security interests granted and the transfers,
pledges, and assignments made under PARAGRAPH 2 below, which is a "LENDER LIEN,"
as defined in the Credit Agreement.
SUBSIDIARY/DEBTORS is defined in the preamble to this agreement.
UCC means the UNIFORM COMMERCIAL CODE as adopted in Texas or any other
applicable jurisdiction.
2. SECURITY INTEREST. To secure the prompt, unconditional, and complete
payment and performance of the Obligation when due, each Debtor jointly and
severally grants to Secured Party a security interest in the Collateral
identified for it in PARAGRAPH 4 below and jointly and severally pledges and
collaterally transfers and assigns that Collateral to Secured Party, all upon
and subject to the terms and conditions of this agreement. If the grant,
pledge, or collateral transfer or assignment of any specific item of the
Collateral is expressly prohibited by any contract, then the Security Interest
nonetheless remains effective to the extent allowed by UCC Section 9.318 or
other applicable Law but is otherwise limited by that prohibition.
3. NO ASSUMPTION OR MODIFICATION. The Security Interest is given as
security only in order to secure the prompt, unconditional, and complete payment
and performance of the Obligation
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<PAGE>
when due. Neither Secured Party nor any Lender assumes or may become liable for
any Debtors' liabilities, duties, or obligations under or in connection with the
Collateral. Neither Secured Party's acceptance of this agreement nor its taking
any action in carrying out this agreement, constitutes Secured Party's approval
of the Collateral or Secured Party's assumption of any obligation under or in
connection with the Collateral. This agreement does not affect or modify any
Debtors' obligations with respect to any Collateral.
4. COLLATERAL. The term "COLLATERAL" means the following items and types
of property -- wherever located and now or in the future acquired or existing:
- For each Debtor, all of its Accounts, Inventory, and Pledged
Securities; and
- All cash and noncash proceeds of any other Collateral, including,
without limitation, all cash, accounts, general intangibles,
documents, instruments, chattel paper, goods, and any other property
received upon the sale or disposition of any other Collateral and all
insurance proceeds of any kind paid at any time in connection with any
other Collateral.
5. FRAUDULENT CONVEYANCE. Notwithstanding any contrary provision, each
Debtor agrees that, if -- but for the application of this paragraph -- any of
the Obligation or the Security Interest would constitute a preferential transfer
under 11 U.S.C. Section 547, a fraudulent conveyance under 11 U.S.C. Section
548, or a fraudulent conveyance or transfer under any state fraudulent
conveyance, fraudulent transfer, or similar Law in effect from time to time
(each a "FRAUDULENT CONVEYANCE"), then the Obligation and Security Interest
remains enforceable to the maximum extent possible without causing any of the
Obligation or the Security Interest to be a fraudulent conveyance, and this
agreement is automatically amended to carry out the intent of this paragraph.
6. REPRESENTATIONS AND WARRANTIES. Debtors jointly and severally
represent and warrant to Secured Party on behalf of Lenders that:
(a) CREDIT AGREEMENT. Each Debtor acknowledges that certain (a)
representations and warranties in the Credit Agreement are applicable to it or
its assets or operations and confirms that each such representation and warranty
is true and correct, (b) covenants, agreements, and other provisions in the
Credit Agreement (INCLUDING, WITHOUT LIMITATION, INDEMNIFICATION AND RELATED
PROVISIONS IN SECTION 8.12 OF THE CREDIT AGREEMENT) are applicable to it or are
imposed upon it and agrees to promptly and properly comply with or be bound by
each of them, AND (c) IT IRREVOCABLY CONSENTS AND APPROVES TO THE VENUE, SERVICE
OF PROCESS, AND WAIVER OF JURY TRIAL PROVISIONS OF SECTION 14.11 OF THE CREDIT
AGREEMENT.
(b) BORROWING BASE. Any item of Collateral submitted or represented
to Secured Party as being eligible under the Credit Agreement to be included in
the Borrowing Base fully meets the requirements for eligibility provided in the
Credit Agreement.
(c) BINDING OBLIGATION. This agreement creates a legal, valid, and
binding Lender Lien in and to the Collateral (subject to delivery to Secured
Party of the stock certificates for the Pledged Securities) in favor of Secured
Party and enforceable against the Debtor owning that Collateral. For Collateral
in which the Security Interest may be perfected by the filing of Financing
Statements, once those Financing Statements have been property filed in the
jurisdictions described on SCHEDULE 6 to the Credit Agreement, the Security
Interest in that Collateral will be fully perfected. For the Pledged
Securities, the taking by Secured Party of physical possession in Texas of the
stock certificates representing the Pledged Securities will perfect the Security
Interest in that Collateral. Once perfected, the Security Interest will
constitute a first-priority Lender Lien on the Collateral,
3
<PAGE>
subject only to Permitted Liens. The creation of the Security Interest does not
require the consent of any Person that has not been obtained.
(d) LOCATIONS. The attached ANNEX 1 accurately describes (i) the
location of each Debtor's principal place of business and chief executive
office, (ii) if different from CLAUSE (i), the one or more locations of its
books and records concerning its Accounts, (iii) the locations where any of its
Inventory (EXCEPT when temporarily in the hands of a third-party contractor for
processing and until sold in the ordinary course of business) is currently and
will -- SUBJECT TO PARAGRAPH 7(b) below -- in the future be maintained. EXCEPT
as stated in CLAUSE (III) above, each Debtor's Inventory is currently and will
be in its possession.
(e) ACCOUNTS. Each Debtor's Accounts (i) arise from its sales or
rendition of services, (ii) are due to that Debtor, and (iii) are not, if
represented to be eligible for inclusion in the Borrowing Base, subject to any
material setoff, counterclaim, defense, allowance, adjustment (OTHER THAN
discounts for prompt payment shown on the invoice), or material dispute,
objection, or complaint by any Obligor.
(f) SECURITIES. All Pledged Securities are duly authorized, validly
issued, fully paid, and non-assessable, and the transfer of them is not subject
to any restrictions OTHER THAN restrictions imposed by applicable Laws. The
Pledged Securities are approximately the maximum number of shares of each
Subsidiary that may be pledged without creating a material Tax obligation for
the Companies that would not otherwise exist. Copies of the certificates
evidencing the Pledged Securities of MagneTek Europe are annexed to this
agreement as ANNEX 4 (however, the failure of those copies to be accurate or
complete does not affect or impair the Security Interest in them).
(g) ADDITIONAL COLLATERAL. The foregoing representations and
warranties will be true and correct in all respects with respect to any
additional Collateral or additional specific descriptions of certain Collateral
delivered to Secured Party in the future by any Debtor.
The failure of any of these representations or warranties to be accurate and
complete does not impair the Security Interest in any Collateral.
7. COVENANTS. While any Lender is committed to lend or extend credit
under the Credit Agreement and until the Obligation are fully paid and
performed, each Debtor jointly and severally covenants and agrees with Secured
Party on behalf of Lenders that, without first obtaining Secured Party's written
notice of Determining Lenders' consent to the contrary:
(a) CREDIT AGREEMENT. Each Debtor shall promptly and fully comply
with and perform all covenants and agreements in the Credit Agreement that are
applicable to it or its assets or operations, each of which is ratified and
confirmed.
(b) CERTAIN RELOCATIONS AND CHANGES. Each Debtor shall give Secured
Party 30-days-written notice before any proposed (i) relocation of its principal
place of business or chief executive office, (ii) change of its name, (iii)
relocation of the place where its books and records concerning its Accounts are
kept, and (iv) relocation of any Collateral (OTHER THAN delivery of Inventory in
the ordinary course of business to third-party contractors for processing and
sales of Inventory in the ordinary course of business or as permitted by the
Credit Agreement) to a location not described on the attached ANNEX 1.
(c) ESTOPPEL AND OTHER AGREEMENTS AND MATTERS. Each Debtor shall:
(i) Within 30 days after the date of this agreement and at all
times after that time -- with respect to any of its Inventory having a
value of at least $1,500,000 that is
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<PAGE>
from time to time delivered to any third-party contractor for processing in
the ordinary course of business -- deliver to Secured Party a bailee,
estoppel, and subordination agreement providing that such third-party
contractor holds that Inventory as Secured Party's bailee, subordinates to
the Security Interest all right, title, and interest it may have in and to
that Inventory, and covenants to keep that Inventory segregated and clearly
marked as being owned by that Debtor, which agreement must otherwise be in
form and substance reasonably acceptable to Secured Party and its special
counsel; and
(ii) EITHER (unless waived by Secured Party in its sole judgment
without requiring approval of any other Lender) (A) cause the landlord or
lessor for each location where any of its Inventory (OTHER THAN Inventory
with a fair market value not to exceed $1,500,000) is maintained to execute
and deliver to Secured Party an estoppel and subordination agreement in
substantially the form of the attached ANNEX 3 or such other form as may be
reasonably acceptable to Secured Party and its special counsel, OR (B)
deliver to Secured Party a legal opinion or other evidence (in each case
that is reasonably satisfactory to Secured Party and it special counsel)
that neither the applicable lease nor the Laws of the jurisdiction in which
that location is situated provide for contractual, common Law, or statutory
landlord's Liens that is senior to the Security Interest.
(d) OTHER NOTICES AND ACTIONS. Each Debtor shall promptly notify
Secured Party of (i) any change in any material fact or circumstance represented
or warranted by any Debtor with respect to any of the Collateral, and (ii) any
claim, action, or proceeding challenging the Security Interest or affecting
title to all or any material portion of the Collateral or the Security Interest
(and, at Secured Party's request, that Debtor shall appear in and defend any
such action or proceeding at that Debtor's expense). In case of any default or
event of default by any other party under or in connection with any material
portion (individually or collectively) of the Collateral, Debtor shall
immediately use reasonable efforts to remedy the same or immediately demand that
the same be remedied),
(e) RECORD OF COLLATERAL. Each Debtor shall maintain at its chief
executive office a current record of where all of its Collateral is located and
permit Secured Party or its representatives to inspect and make copies from
those records pursuant to the Credit Agreement and furnish to Secured Party upon
request, from time to time, such documents, lists, descriptions, certificates,
and other information necessary or helpful to keep Secured Party informed with
respect to the identity, location, status, condition, terms of, parties to, and
value of the Collateral.
(f) COLLATERAL IN TRUST. While a Default or Potential Default
exists, each Debtor shall upon request of Secured Party (unless prevented by
operation of Law from making that request, in which event each Debtor shall) (i)
hold in trust (and not commingle with its other assets) for Secured Party all of
its Collateral that is chattel paper, instruments, or documents of title at any
time received by it, (ii) promptly deliver that Collateral to Secured Party
unless Secured Party at its option gives Debtor written permission to retain any
of it, and (iii) cause each chattel paper, instrument, or document of title so
retained to be marked to state that it is assigned to Secured Party and each
instrument to be endorsed to the order of Secured Party (but failure to be so
marked or endorsed may not impair the Security Interest in any such Collateral).
(g) PERFORM OBLIGATION. Each Debtor shall perform all of its
material obligations under or in connection with all of its Collateral in
accordance with customary business practices.
(h) IMPAIRMENT OF COLLATERAL. No Debtor may do or permit any act
that is reasonably likely to adversely impair the value or usefulness any
material portion of any Collateral.
5
<PAGE>
8. REMEDIES UPON DEFAULT. While a Default exists, Secured Party is,
subject to Credit Agreement, entitled to exercise any one or more of the
following Rights.
(a) RIGHTS. Secured Party may exercise any and all Rights available
to a secured party under the UCC, in addition to any and all other Rights
afforded by this agreement and the other Loan Documents, at law, in equity, or
otherwise, including, without limitation (i) requiring Debtors to assemble
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to the applicable Debtor and
Secured Party, (ii) applying by appropriate judicial proceedings for appointment
of a receiver for Collateral, (iii) applying to the Obligation any cash held by
Secured Party under this agreement, (iv) reducing any claim to judgment, (v)
exercising the Rights of offset or banker's Lien against the interest of each
Debtor in and to every account and other property of each Debtor in Secured
Party's possession to the extent of the full amount of the Obligation, (vi)
foreclosing the Security Interest and any other Liens Secured Party may have or
otherwise realize upon any and all of the Rights Secured Party may have in and
to Collateral, and (vii) bringing suit or other proceedings before any Tribunal
either for specific performance of any covenant or condition contained in any of
the Loan Documents or in aid of the exercise of any Right granted to Secured
Party in any Loan Document.
(b) NOTICE. If any Collateral threatens to decline speedily in value
or is of the type customarily sold on a recognized market, Secured Party may
sell or otherwise dispose of that Collateral without notification,
advertisement, or other notice of any kind. Otherwise, reasonable notice of the
time and place of any public sale of the Collateral -- or reasonable
notification of the time after which any private sale or other intended
disposition of the Collateral is to be made -- shall be sent to Debtor and to
any other Person entitled to notice under the UCC. Notice sent or given not
less than ten calendar days prior to the taking of the action to which the
notice relates is reasonable notice. It is not necessary that the Collateral be
at the location of the sale.
(c) SALES OF SECURITIES. In connection with the sale of any
Collateral that is securities, Secured Party is authorized, but not obligated,
to limit prospective purchasers to the extent deemed necessary or desirable by
Secured Party to render that sale exempt from the registration and similar
requirements under applicable Laws, and no sale so made in good faith by Secured
Party may be deemed not to be "COMMERCIALLY REASONABLE" because so made.
(d) OTHER SALES. Secured Party's sale of less than all Collateral
does not exhaust Secured Party's Rights under this agreement and Secured Party
is specifically empowered to make successive sales until all Collateral is sold.
If the proceeds of a sale of less than all Collateral is less than the
Obligation, then this agreement and the Security Interest remain in full force
and effect as to the unsold portion of the Collateral just as though no sale had
been made. In the event any sale under this agreement is not completed or is,
in Secured Party's opinion, defective, that sale does not exhaust Secured
Party's Rights under this agreement, and Secured Party is entitled to cause a
subsequent sale or sales to be made. All statements of fact or other recitals
made in any bill of sale or assignment or other instrument evidencing any
foreclosure sale under this agreement -- whether about nonpayment of the
Obligation, the occurrence of any Default, Secured Party's having declared all
of the Obligation to be due and payable, notice of time, place, and terms of
sale and the properties to be sold having been duly given, or any other act or
thing having been duly done by Secured Party -- shall be taken as PRIMA FACIE
evidence of the truth of the facts so stated and recited. Secured Party may
appoint or delegate any one or more Persons as agent to perform any act or acts
necessary or incident to any sale held by Secured Party, including the sending
of notices and the conduct of sale, but such acts must be done in the name and
on behalf of Secured Party.
(e) OBLIGORS. While a Default exists, Secured Party may notify or
require each Obligor to make payment directly to Secured Party, and Secured
Party may take control of the proceeds paid to Secured Party. Until Secured
Party elects to exercise these Rights, each Debtor is
6
<PAGE>
authorized to collect and enforce the Collateral and to retain and expend all
payments made on Collateral. While Secured Party is entitled to and elects to
exercise these Rights, Secured Party has the Right in its own name or in the
name of the applicable Debtor to (i) compromise or extend time of payment with
respect to Collateral for such amounts and upon such terms as Secured Party may
reasonably determine, (ii) demand, collect, receive, receipt for, sue for,
compound, and give acquittance for any and all amounts due or to become due with
respect to Collateral, (iii) take control of cash and other proceeds of any
Collateral, (iv) endorse the applicable Debtor's name on any notes, acceptances,
checks, drafts, money orders, or other evidences of payment on Collateral that
may come into Secured Party's possession, (v) sign the applicable Debtor's name
on any invoice or bill of lading relating to any Collateral, on any drafts
against Obligors or other Persons making payment with respect to Collateral, on
assignments and verifications of accounts or other Collateral, and on notices to
Obligors making payment with respect to Collateral, (vi) send requests for
verification of obligations to any Obligor, and (vii) do all other acts and
things reasonably necessary to carry out the intent of this agreement. If any
Obligor fails to make payment on any Collateral when due while a Default exists,
Secured Party is authorized, in its sole discretion, either in its own name or
in the applicable Debtor's name, to take such action as Secured Party reasonably
shall deem appropriate for the collection of any amounts owed with respect to
Collateral or upon which a delinquency exists. However, Secured Party is
NEITHER (x) liable for its failure to collect, or for its failure to exercise
diligence in the collection of, any amounts owed with respect to Collateral
(EXCEPT for its own fraud, gross negligence, willful misconduct, or violation of
any Law), NOR (y) under any duty whatever to anyone except the applicable Debtor
and Lenders to account for funds that it shall actually receive under this
agreement. A receipt given by Secured Party to any Obligor is a full and
complete release, discharge, and acquittance to that Obligor, to the extent of
any amount so paid to Secured Party. While a Default exists, Secured Party may
apply or set off amounts paid and the deposits against any liability of the
applicable Debtor to Secured Party. Regarding the existence of any Default for
purposes of this agreement, each Debtor agrees that the Obligors on any
Collateral may rely upon written certification from Secured Party that a Default
exists.
(f) POWER-OF-ATTORNEY. Secured Party is deemed to be irrevocably
appointed as each Debtor's agent and attorney-in-fact with all Right to enforce
all of that Debtor's Rights under or in connection with the Collateral effective
and operable at all times while a Default exists. All reasonable costs,
expenses and liabilities incurred and all payments made by Secured Party as that
Debtor's agent and attorney-in-fact (including, without limitation, reasonable
attorney's fees and expenses) are considered a loan by Secured Party to that
Debtor that is repayable on demand, accrues interest at the Default Rate until
paid, and is part of the Obligation.
(g) APPLICATION OF PROCEEDS. While a Default exists, Secured Party
shall apply the proceeds of any sale or other disposition of Collateral in the
following order: (i) Payment of all its reasonable expenses incurred in
retaking, holding, and preparing any Collateral for disposition, in arranging
for such disposition, and in actually disposing of the same (all of which are
part of the Obligation); (ii) repayment of amounts reasonably expended by
Secured Party under PARAGRAPH 9 below; (iii) payment of the balance of the
Obligation in the order and manner specified in the Credit Agreement; and (iv)
delivery EITHER (A) to Borrower/Debtor for the account of all Debtors OR (B) as
a court of competent jurisdiction may direct.
9. OTHER RIGHTS.
(a) PERFORMANCE. If any Debtor fails to preserve the priority
(subject to Permitted Liens) of the Security Interest in any Collateral or
otherwise fails to perform any of its obligations under any Loan Document with
respect to any Collateral, then Secured Party may, at its option, but without
being required to do so, after five Business Days or earlier, if Secured Party
in its reasonable judgment deems it necessary, prosecute or defend any suits in
relation to the Collateral or take any other action that such Debtor is required
- - - -- but has failed -- to take. Any amount that is reasonably
7
<PAGE>
expended or paid by Secured Party in connection with the foregoing (including,
without limitation, court costs and reasonable attorneys' fees and expenses)
bears interest at the Default Rate from the date spent or incurred until repaid
and is payable (with that interest) by Debtors to Secured Party upon demand and
is part of the Obligation.
(b) COLLATERAL IN SECURED PARTY'S POSSESSION. If, while a Default
exists, any Collateral comes into Secured Party's possession, Secured Party may
use that Collateral for the purpose of preserving it or its value pursuant to
the order of a court of appropriate jurisdiction or in accordance with any other
Rights held by Secured Party in respect of that Collateral. Debtors jointly and
severally covenant to promptly reimburse and pay to Secured Party, at Secured
Party's request, the amount of all reasonable expenses, costs, Taxes, and other
charges incurred by Secured Party in connection with its custody and
preservation of that Collateral, all of which bear interest at the Default Rate
from the date spent or incurred until repaid and are (with that interest)
payable by Debtors to Secured Party upon demand and are part of the Obligation.
EXCEPT for Secured Party's own fraud, gross negligence, or willful misconduct
(i) the risk of accidental loss or damage to, or diminution in value of, any
Collateral is on Debtors, (ii) Secured Party has no liability for failure to
obtain or maintain insurance or to determine whether any insurance in effect is
adequate as to amount or risks insured, (iii) Secured Party has no duty to fix
or preserve Rights against any Obligors in respect of any Collateral and is
never liable for any failure to use diligence to collect any amount payable in
respect of any Collateral (OTHER THAN to account to Debtors and Lenders for what
Secured Party may actually collect or receive).
(c) RECORD OWNERSHIP OF SECURITIES. While a Default exists, Secured
Party may have any Collateral that is securities and that is in the possession
of Secured Party, or its nominee or nominees, registered in its name, or in the
name of its nominee or nominees, as pledgee.
(d) VOTING OF SECURITIES. As long as no Default exists, the
applicable Debtor may exercise all voting Rights pertaining to any Collateral
that is securities. While a Default exists, the Right to vote any Collateral
that is securities is vested exclusively in Secured Party. Accordingly, each
applicable Debtor irrevocably constitutes and appoints Secured Party as that
Debtor's proxy and attorney-in-fact -- effective only after notice to the
applicable Debtor while a Default exists but with full power of substitution --
to vote, and to act with respect to, any Collateral that is securities standing
in the name of that Debtor or with respect to which that Debtor is entitled to
vote and act. That proxy is coupled with an interest, is irrevocable, and
continues until the Obligation are fully paid and performed.
(e) CERTAIN PROCEEDS. The provisions of this CLAUSE (e) are
applicable only while a Default exists. Notwithstanding any contrary provision,
all dividends or distributions of property in respect of, and all proceeds of,
any Collateral that is securities -- whether those dividends, distributions, or
proceeds result from a subdivision, combination, or reclassification of the
outstanding capital stock of any issuer or as a result of any merger,
consolidation, acquisition, or other exchange of assets to which any issuer may
be a party, or otherwise -- are part of the Collateral, shall, if received by
any Debtor, be held in trust for Secured Party's benefit, and shall immediately
be delivered to Secured Party (accompanied by proper instruments of assignment
or stock or bond powers executed by the applicable Debtor in accordance with
Secured Party's instructions) to be held subject to the terms of this agreement.
Any cash proceeds of any Collateral that come into Secured Party's possession
(including, without limitation, insurance proceeds) may, at Secured Party's
option, be applied in whole or in part to the Obligation (to the extent then
due), be fully or partially released to or under the written instructions of
that applicable Debtor for any general or specific purpose, or be fully or
partially retained by Secured Party as additional Collateral. Any cash
Collateral in Secured Party's possession may be invested by Secured Party in
certificates of deposit issued by Secured Party, any Lender, or any other state
or national bank having combined capital and surplus greater than $100,000,000
or in securities issued or guaranteed by the United States of America or any of
its
8
<PAGE>
agencies. Secured Party is never obligated to make any investment and never has
any liability to any Debtor or any Lender for any loss that may result from any
investment or non-investment. All interest and other amounts earned from any
investment may be dealt with by Secured Party in the same manner as other cash
Collateral.
(f) INDEMNIFICATION. DEBTORS JOINTLY AND SEVERALLY ASSUME ALL
LIABILITY FOR ALL COLLATERAL, FOR THE SECURITY INTEREST, AND FOR ANY USE,
POSSESSION, MAINTENANCE, AND MANAGEMENT OF, ALL COLLATERAL (INCLUDING, WITHOUT
LIMITATION, ANY TAXES ARISING AS A RESULT OF, OR IN CONNECTION WITH, THE
TRANSACTIONS CONTEMPLATED IN THIS AGREEMENT) AND JOINTLY AND SEVERALLY AGREE TO
ASSUME LIABILITY FOR, AND TO INDEMNIFY AND HOLD SECURED PARTY, EACH LENDER, AND
THEIR RESPECTIVE REPRESENTATIVE (THE "INDEMNIFIED PARTIES") HARMLESS FROM AND
AGAINST, AND DEFEND EACH INDEMNIFIED PARTY AGAINST, ALL CLAIMS, CAUSES OF
ACTION, OR LIABILITY, FOR INJURIES TO OR DEATHS OF PERSONS AND DAMAGE TO
PROPERTY HOWSOEVER ARISING FROM OR INCIDENT TO SUCH USE, POSSESSION,
MAINTENANCE, AND MANAGEMENT (WHETHER SUCH PERSONS BE AGENTS OR EMPLOYEES OF
DEBTOR OR OF THIRD PARTIES, OR SUCH DAMAGE BE TO PROPERTY OF DEBTOR OR OF
OTHERS) AND ALL CLAIMS, COSTS, PENALTIES, LIABILITIES, AND EXPENSES, INCLUDING,
WITHOUT LIMITATION, COURT COSTS AND ATTORNEYS' FEES, HOWSOEVER ARISING OR
INCURRED BECAUSE OF, INCIDENT TO, OR WITH RESPECT TO COLLATERAL OR ANY USE,
POSSESSION, MAINTENANCE, OR MANAGEMENT OF IT. (THE "INDEMNIFIED LIABILITIES").
HOWEVER, NO INDEMNIFIED PARTY IS ENTITLED TO INDEMNITY UNDER THIS PARAGRAPH FOR
ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD OR FOR ANY INDEMNIFIED
LIABILITY ARISING FROM ITS ACTIONS AFTER SECURED PARTY HAS FORECLOSED THE
SECURITY INTEREST OR ACCEPTED CONVEYANCE IN LIEU OF FORECLOSURE OR (EXCEPT FOR
THE PLEDGED SECURITIES) TAKEN POSSESSION OF ANY COLLATERAL. The provisions of
this paragraph survive the payment and performance of the Obligation and the
release of the Security Interest. The foregoing indemnity shall be subject to
the provisions of SECTION 8.12 of the Credit Agreement.
10. MISCELLANEOUS.
(a) TERM. This agreement terminates when no Lender has any
commitment to lend or extend credit under the Credit Agreement and the
Obligation are fully paid and performed. No Obligor on any Collateral is
obligated to inquire about the termination of this agreement and is fully
protected in making payments directly to Secured Party if SECTION 8(e) applies,
which payments Secured Party shall pay to Borrower/Debtor on behalf of Debtors
after termination of this agreement.
(b) NO RELEASE. Neither the Security Interest, any Debtor's
obligations, nor Secured Party's or any Lenders' Rights under this agreement are
released, diminished, impaired, or adversely affected by the occurrence of any
one or more of the following events: (i) The taking or accepting of any other
security or assurance for any Obligation; (ii) any release, surrender, exchange,
subordination, or loss of any security or assurance at any time existing in
connection with any Obligation; (iii) the modification of, amendment to, or
waiver of compliance with any terms of any other Loan Document without the
consent of Debtors EXCEPT as required in that Loan Document; (iv) any present or
future insolvency, bankruptcy, or lack of corporate or trust power of any party
at any time liable for the payment of any Obligation; (v) EXCEPT as specifically
required by any other Loan Document, any renewal, extension, or rearrangement of
the payment of any Obligation (either with or without notice to or consent of
any Debtor) or any adjustment, indulgence, forbearance, or compromise that may
be granted or given by Secured Party or any Lender to any Debtor; (vi) any
neglect, delay, omission, failure, or refusal of Secured Party or any Lender to
take or prosecute any action in connection with any agreement, document,
guaranty, or instrument evidencing, securing, or assuring the payment of any
Obligation; (vii) any failure of Secured Party or any Lender to notify any
Debtor of any renewal, extension, or assignment of any Obligation, or the
release of any security under any other document or instrument, or of any other
action taken or refrained from being taken by
9
<PAGE>
Secured Party or any Lender against any Debtor, or any new agreement between
Secured Party, any Lender, and any Debtor, it being understood that, except as
expressly required by the Credit Agreement, neither Secured Party nor any Lender
is required to give any Debtor any notice of any kind under any circumstances
whatsoever with respect to or in connection with the Obligation, including,
without limitation, notice of acceptance of this agreement or any Collateral
ever delivered to or for the account of Secured Party under this agreement;
(viii) the illegality, invalidity, or unenforceability of any Obligation against
any third party obligated with respect to it by reason of the fact that the
Obligation, or the interest paid or payable with respect to any of it, exceeds
the amount permitted by Law, the act of creating any of it is ULTRA VIRES, or
the officers, partners, or trustees creating any of it acted in excess of their
authority, or for any other reason; or (ix) if any payment by any party
obligated with respect to any Obligation is held to constitute a preference
under applicable Laws or for any other reason Secured Party or any Lender is
required to refund any payment on any Obligation or pay the amount of it to
someone else.
(c) WAIVERS. To the maximum extent lawful, except to the extent
expressly otherwise provided in this agreement or in any other Loan Document,
Debtors jointly and severally waive (i) any Right to require Secured Party or
any Lender to proceed against any other Person, to exhaust Rights in Collateral,
or to pursue any other Right that Secured Party or any Lender may have; (ii)
with respect to the Obligation, presentment and demand for payment, protest,
notice of protest and nonpayment, notice of acceleration, and notice of intent
to accelerate; and (iii) all Rights of marshaling in respect of any Collateral.
(d) FINANCING STATEMENT. Secured Party may at any time file this
agreement (or a carbon, photographic, or other reproduction of this agreement)
as a financing statement, but the failure of Secured Party to do so does not
impair the validity or enforceability of this agreement.
(e) INFORMATION. Except as otherwise provided by Law, Secured
Party's charge for furnishing each statement of account or each list of
Collateral is $10.00.
(f) LOAN DOCUMENT. This agreement is a Loan Document and is subject
to the applicable provisions of SECTIONS 1 and 14 of the Credit Agreement, all
of which are incorporated in this agreement by reference the same as if set
forth in this agreement verbatim.
(g) COMMUNICATIONS. For purposes of SECTION 14.2 of the Credit
Agreement, each Debtor's address and telecopy number are the same as
Borrower/Debtor's.
(h) AMENDMENTS, ETC. No amendment, waiver, or discharge to or under
this agreement is valid unless it is in writing and is signed by the party
against whom it is sought to be enforced and is otherwise in conformity with the
requirements of SECTION 14.8 of the Credit Agreement.
(i) ENTIRETY. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH
ANY DEBTOR IS PARTY 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.
(j) SECURED PARTY AND LENDERS. Secured Party is the agent for each
Lender under the Credit Agreement. The Security Interest and all Rights granted
to Secured Party under or in connection with this agreement are for each
Lender's ratable benefit. Secured Party may, without the joinder of any Lender,
exercise any Rights in Secured Party's or Lenders' favor under or in connection
with this agreement, including, without limitation, conducting any foreclosure
sales and executing full or partial releases of, amendments or modifications to,
or consents or waivers under this agreement.
10
<PAGE>
Secured Party's and each Lender's Rights and obligations VIS-A-VIS each other
may be subject to one or more separate agreements between those parties.
However, no Debtor need inquire about any such agreement or is subject to any
terms of it. Therefore, neither any Debtor nor its successors or assigns is
entitled to any benefits or provisions of any such separate agreement or is
entitled to rely upon or raise as a defense any party's failure or refusal to
comply with the provisions of it.
(k) PARTIES. This agreement benefits Secured Party, Lenders, and
their respective successors and assigns and binds each Debtor and its successors
and assigns. Upon appointment of any successor AGENT under the Credit
Agreement, all of the Rights of Secured Party under this agreement automatically
vests in that new AGENT as successor Secured Party on behalf of Lenders without
any further act, deed, conveyance, or other formality OTHER THAN that
appointment. The Rights of Secured Party and Lenders under this agreement may
be transferred with any assignment of the Obligation. The Credit Agreement
contains provisions governing assignments of the Obligation and of Rights and
obligations under this agreement.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
11
<PAGE>
EXECUTED as of the date first stated above.
MAGNETEK, INC., AS BORROWER/DEBTOR
MAGNETEK CENTURY ELECTRIC, INC., MAGNETEK
ELECTRIC, INC.,
MAGNETEK NATIONAL ELECTRIC COIL, INC.,
MAGNETEK OHIO TRANSFORMER, INC.,
AS SUBSIDIARY/DEBTORS
By
--------------------------------------------
John Colling, Jr., Vice President and
Treasurer of all of the foregoing Companies
Secured Party executes this agreement in acknowledgement of PARAGRAPH 10(i)
above.
NATIONSBANK OF TEXAS, N.A., as Agent for Lenders
as SECURED PARTY
By
--------------------------------------------
Andrea P. Collias, Vice President
The undersigned agree that to the extent that any of the stock certificates
evidencing any of the capital stock that is included in the Collateral bear any
restrictive legend in respect of the transfer of those certificates, then, in
each case, the undersigned waive the requirements of those restrictive legends
in respect of the pledge of those shares of capital stock to Secured Party.
MAGNETEK CENTURY ELECTRIC, INC.,
MAGNETEK ELECTRIC, INC.,
MAGNETEK NATIONAL ELECTRIC COIL, INC.,
MAGNETEK OHIO TRANSFORMER, INC.,
MAGNETEK CONTROLS, INC.,
MAGNETEK TEMPE, INC.,
MAGNETEK CREDIT CORPORATION,
MAGNETEK EUROPE, N.V.,
MAGNETEK LEASING CORPORATION,
MAGNETEK AIRPORT SYSTEMS, INC.
AS SUBSIDIARY/DEBTORS
By
--------------------------------------------
John Colling, Jr., Vice President and
Treasurer of all of the foregoing Companies
12
<PAGE>
SUPPLEMENT TO SECURITY AGREEMENT
This Supplement to Security Agreement is executed as of March 31, 1995, by
MagneTek, Inc., a Delaware corporation ("Borrower/Debtor") and NationsBank of
Texas, N.A., a national banking association (in its capacity as Agent for the
Lenders now or in the future party to the Credit Agreement described below
("Secured Party")), with reference to the Security Agreement of even date
herewith among Borrower, Secured Party and the Lenders referred to therein.
Capitalized terms used without definition herein have the meanings ascribed to
them in the Security Agreement. The Borrower and Secured Party hereby agree as
follows:
1. DELIVERY OF PLEDGED SECURITIES OF MAGNETEK EUROPE, N.V. The Security
Agreement provides for the pledge of 65% of the shares of Capital Stock of
MagneTek Europe, N.V. Currently, the stock of MagneTek Europe, N.V. is in
denominations of 778,995, 1,000 and 4. On the date hereof, Borrower will
deliver to Secured Party the certificate representing 778,995 shares. Borrower
is pledging only 506,999 of such shares, however, to Secured Party. Upon tender
of a certificate representing 506,999 shares, Secured Party shall release the
certificate delivered on this date to Borrower. Secured Party hereby affirms
that at no time does its Lien extend to more than 65% of the stock of MagneTek
Europe, N.V. notwithstanding its temporary possession of a greater amount.
In witness whereof Secured Party and Borrower have executed this Supplement
to Security Agreement as of the date first above written.
MAGNETEK, INC.
By:
--------------------------------------------
John P. Colling, Jr.,
Vice President and Treasurer
NATIONSBANK OF TEXAS, N.A., as Agent for Lenders
By:
--------------------------------------------
Andrea P. Collias,
Vice President
EXHIBIT C
4<PAGE>
MagneTek, Inc.
Computation of Earnings Per Common Share
----------------------------------------
FISCAL YEAR
--------------------------------------
1997 1996 1995
(in thousands, except per share amounts)
PRIMARY:
Weighted average shares outstanding 25,741 24,698 24,453
Dilutive stock options based upon
the treasury stock method using
the average market price 637 224 300
------- ------- --------
Total 26,378 24,922 24,753
------- ------- --------
------- ------- --------
Net Earnings 24,075 94,164 $2,276
------- ------- --------
------- ------- --------
Per Share Earnings $0.91 ($3.78) $0.09
------- ------- --------
------- ------- --------
FULLY DILUTED:
Weighted average shares outstanding 28,259 24,714 24,680
Dilutive stock options based upon
the treasury stock method
using the year-end market price,
if higher than average market
price 700 224 300
Effect of Convertible debt to equity 2,474 4,688 4,688
------- ------- --------
Total 31,433 29,626 29,668
------- ------- --------
------- ------- --------
Earnings $24,075 ($94,164) $2,276
Add: Interest savings on Convertible $3,542 $3,540 $3,480
debt after tax
------- ------- --------
Net Earnings $27,617 ($90,624) $5,756
------- ------- --------
------- ------- --------
Per Share Earnings $0.88 * *
------- ------- --------
------- ------- --------
* Per share amounts on a fully diluted basis have been omitted as such
amounts are anti-dilutive in relation to primary per share amounts.
<PAGE>
Page 42
<TABLE>
<CAPTION>
Selected Financial Data
Statement of Income Data
For the years ended June 30,
(Amounts in thousands,
except per share data) 1997 1996** 1995** 1994** 1993
- - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,190,540 $1,161,625 $1,202,536 $1,133,126 $1,119,392
Income (loss):
Continuing operations 28,751 (94,164) 21,496 (16,942) 19,263
Discontinued operations - - (14,400) (28,503) 7,770
Extraordinary item (4,676) - (4,820) - -
Cumulative effect of
accounting changes - - - - (48,734)
Net income (loss) 24,075 (94,164) 2,276 (45,445) (21,701)
- - - --------------------------------------------------------------------------------------------------------------------
Per common share--primary:
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting changes $ 1.09 $ (3.78) $ 0.87 $ (0.69) $ 0.78
Net income (loss) $ 0.91 $ (3.78) $ 0.09 $ (1.84) $ (0.87)
Per common share--fully diluted:
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
accounting changes $ 1.03 $ * $ 0.84 $ * $ .73
Net income (loss) $ 0.88 $ * $ * $ * $ *
- - - --------------------------------------------------------------------------------------------------------------------
</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) 1997 1996** 1995** 1994** 1993
- - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 654,548 $ 678,774 $ 857,168 $ 931,358 $ 995,359
Long-term debt,
including current portion 243,945 322,023 448,467 523,779 523,301
Common stockholders' equity 102,223 41,558 117,278 113,082 163,029
- - - --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
During the year ended June 30, 1997, the Company's operating results and
financial condition reflected substantial improvement. Even excluding the
effects of certain repositioning and other charges recorded during fiscal 1996,
profits and margins were up significantly on a slight increase in net sales. The
improved results reflect benefits associated with a number of consolidation and
cost reduction actions initiated during fiscal 1996 and continuing into fiscal
1997, resulting in a reduction in the Company's fixed cost base, primarily in
the Lighting Products segment. The Company continues to review opportunities for
further improvements in its operating costs, product quality and manufacturing
flexibility. A number of programs have been or will be initiated which, over the
next three years, will result in i) the outsourcing of certain components and
operations which have historically been produced or performed internally; ii) a
continued reduction in factory space and fixed costs through consolidation of
manufacturing operations; iii) the establishment of Six Sigma quality objectives
throughout the Company and iv) a comprehensive upgrade in information technology
and communication systems over the next three fiscal years at a cost currently
estimated between fourteen and seventeen million dollars. The Company believes
it will realize substantial savings from these actions, however, during fiscal
1998, the costs to implement the actions will likely offset related benefits.
Subsequent to fiscal 1998, implementation costs are expected to decline as
benefits accelerate.
Solid improvement in the Company's financial condition was also achieved during
fiscal 1997. The Company's long-term debt balance declined $78.1 million during
the fiscal year, to $243.9 million from $322.0 million at the end of the prior
fiscal year. The debt reduction resulted from the return to profitabilty in
fiscal 1997, a continued reduction in working capital--most notably inventories,
and the conversion of $35.4 million (out of a total of $75.0 million) of the
Company's Convertible Notes in June, 1997 (see Note 4). Shareholders' equity
increased $60.6 million, to $102.2 million from $41.6 million, as a result of
the fiscal 1997 net income and the conversion of the Convertible Notes into
common stock. The Company also refinanced its 10 3/4% Subordinated Debentures
with lower cost borrowings under an amended Bank Loan Agreement (see Note 4).
On August 28, 1997, the Company announced an agreement with General Electric
Company ("GE") wherein GE will become the exclusive distributor in North America
of the Company's linear electronic ballasts. The product will be co-branded with
the MagneTek and GE names. The Company will continue to sell magnetic and HID
ballasts through its traditional market channels and linear electronic ballasts
directly to OEM customers. The agreement also contemplates possible future joint
product development for electronic lighting products
<PAGE>
Page 44
The Company is also actively expanding its marketing/sales presence in the Asia
Pacific region. The Company believes that growth in this area of the world
provides an opportunity to increase sales of its products.
In the fourth quarter of fiscal 1996, the Company established reserves
reflecting anticipated costs associated with operational repositioning as well
as estimated increases in warranty and other costs (see Note 2). In fiscal 1997,
charges to these reserves were consistent with the Company's original
expectation and remaining reserves appear adequate to meet the projected future
charges.
The Company currently 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 lighting ballasts; and Power Supplies,
including electronic power supplies and small transformer products.
RESULTS OF OPERATIONS
Net Sales and Gross Profit
Net sales increased 2.5% in fiscal 1997, to $1.191 billion from $1.162 billion
in fiscal 1996. The increase followed a 3.4% decline in sales in fiscal 1996
versus fiscal 1995 results. Net sales in the Motors and Generators segment
increased 3% in fiscal 1997 due primarily to commercial and residential
fractional horsepower motors and drives sales. Segment revenues increased 3% in
fiscal 1996 over fiscal 1995 due to stronger generator and drives sales. Net
sales in the Lighting Products segment increased 5% in fiscal year 1997 due to
growing compact fluorescent sales. Lighting Products segment results improved
from the 17% drop in fiscal 1996 results versus fiscal 1995 when both magnetic
and electronic ballast revenues declined. Net sales in the Power Supplies
segment declined 5% due to the sale of a transformer business. Adjusting for the
sale, Power Supplies sales were comparable to the year earlier results. Segment
revenue had increased 28% in fiscal 1996 from fiscal 1995 due to expanded sales
of electronic power supplies, primarily due to increased penetration of the
telecommunications market.
The Company's gross profit increased to $239.9 million in fiscal 1997 from
$156.6 million in fiscal 1996. While all segments participated in the
improvement, the Lighting Products segment contributed significantly due to
improved sales volume and the positive effect of increased production levels as
well as the continued transition to lower cost manufacturing locations. Gross
profit in fiscal 1996 included charges aggregating $43.3 million reflecting
costs associated with repositioning operations and estimated warranty and other
costs. Excluding those charges, gross profits in fiscal 1996 declined over 16%
from fiscal 1995 due to substantially lower gross profits in the Lighting
Products segment.
<PAGE>
Page 45
Operating Expenses
Selling, general and administrative (SG&A) expense was $159.9 million (13.4% of
net sales) in fiscal 1997 compared to $164.9 million (14.2% of net sales) in
fiscal 1996. In fiscal 1996, results included $7.2 million of repositioning
expenses (largely severance and termination benefits). Excluding these charges,
fiscal 1997 SG&A expense increased slightly from 1996 but declined when
expressed as a percent of net sales. Excluding the fiscal 1996 repositioning
charges, SG&A expense was 13.4%, 13.6% and 13.7% of net sales in fiscal 1997,
1996 and 1995 respectively. While the Company continues to review opportunities
to reduce support costs, expenses associated with upgrades in information
systems, quality programs and organizational capability will limit the ability
to reduce SG&A expense in fiscal 1998.
Interest and Other Expenses
Interest expense declined to $27.8 million in 1997 from $31.6 million in fiscal
1996 and $34.4 million in fiscal 1995. Debt levels were reduced due to
improvements in accounts receivable and inventory turnovers and efficient
management of its capital spending. The Company also converted to equity $35.4
million of its 8% Convertible Notes which will further reduce ongoing interest
expense. The Company repurchased the majority of its 10 3/4% Subordinated
Debentures using available capacity under its Bank Loan Agreement with lower
available interest rates (see Note 4). Both transactions occurred in the fourth
quarter of fiscal 1997 and will have a full effect in fiscal 1998. Other expense
in fiscal 1997 was $4.3 million as compared to $5.7 million and $4.6 million in
fiscal 1996 and 1995 respectively.
Net Income (Loss)
In fiscal 1997, the Company recorded income of $28.8 million or $1.09 per share
on a primary basis before an extraordinary charge of $4.7 million associated
with the extinguishment of the majority of its Subordinated Debentures.
Including the extraordinary charge, the Company reported net income of $24.1
million or $.91 per share on a primary basis. Comparable results on a fully
diluted basis for 1997 were $1.03 per share and $.88 per share respectively. In
fiscal 1996, the Company recorded 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. Results for the Company in fiscal 1996 were adversely
affected by charges for repositioning operations, warranty and other expenses
and asset write-downs. Exclusive of the repositioning charges in fiscal 1996, a
pre-tax profit would have been achieved. The effective tax rate for fiscal 1996
was impacted 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 to the valuation reserve for deferred taxes.
<PAGE>
Page 46
Liquidity and Capital Resources
Long term borrowings outstanding as of June 30, 1997 (including the current
portion) were $244 million, reduced from $322 million as of June 30, 1996 and
$448 million as of June 30, 1995. The reduction in fiscal 1997 resulted from
improved profitability, effective working capital management and lower
capital spending. In addition, the Company, on June 23, 1997, called $35.4
million out of $75 million of its Convertible Notes which were converted by
the holders of the Notes into equity. The Company also tendered for the
majority of its 10 3/4% Subordinated Debentures and substituted lower
interest rate debt (see Note 4). In June of fiscal 1997, the Company entered
into an amended Bank Loan Agreement which provides up to $350 million of
borrowings under a revolving loan facility versus the $170 million capacity
previously available. As of June 30, 1997, the Company had available
borrowings of $157 million under this agreement. The Bank Loan Agreement
expires in 2002 and along with internally generated cash flows, provides
adequate financing capability for shorter term debt requirements.
Cash outflow in connection with the Company's repositioning program approximated
$11 million in fiscal 1997 and is not expected to exceed $20 million in fiscal
1998. In addition, the Company may be subject to certain potential environmental
and legal liabilities (see Note 7).
<PAGE>
Page 47
<TABLE>
<CAPTION>
Consolidated Statements of Income
For the years ended June 30,
(Amounts in thousands, except per share data) 1997 1996 1995
- - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,190,540 $1,161,625 $1,202,536
Cost of sales 950,617 1,005,004 962,900
Gross profit 239,923 156,621 239,636
Selling, general and administrative expenses 159,859 164,930 164,280
Provision for impairment of long-lived assets - 29,212 -
- - - -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 80,064 (37,521) 75,356
Interest expense 27,825 31,591 34,398
Other expense, net 4,288 5,652 4,562
- - - -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before provision
for income taxes and extraordinary item 47,951 (74,764) 36,396
Provision for income taxes 19,200 19,400 14,900
- - - -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before extraordinary item 28,751 (94,164) 21,496
Loss on disposal of discontinued operations (net of tax benefit) - - (14,400)
Extraordinary item--loss on early extinguishment of debt
(net of tax benefit) (4,676) - (4,820)
- - - -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 24,075 $ (94,164) $ 2,276
- - - -----------------------------------------------------------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------------------------------------------------------
Per common share primary:
Income (loss) from continuing operations before extraordinary item
and cumulative effect of accounting changes $ 1.09 $ (3.78) $ 0.87
Loss from discontinued operations - - (0.58)
Extraordinary item (0.18) - (0.20)
- - - -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.91 $ (3.78) $ 0.09
Per common share fully diluted:
Income (loss) from continuing operations before extraordinary item $ 1.03 $ * $ 0.84
Loss from discontinued operations - - *
Extraordinary item (0.15) - *
- - - -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.88 $ * $ *
- - - -----------------------------------------------------------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------------------------------------------------------
</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.
<PAGE>
Page 48
<TABLE>
<CAPTION>
Consolidated Balance Sheets
As of June 30,
(Amounts in thousands, except share and per share data) 1997 1996
- - - --------------------------------------------------------------------------------------------------------------------
Assets
- - - --------------------------------------------------------------------------------------------------------------------
Current assets:
<S> <C> <C>
Cash $ 6,138 $ 871
Accounts receivable, less allowance for doubtful accounts of $5,168 in 1997
and $5,428 in 1996 191,011 201,814
Inventories 181,014 203,265
Deferred income taxes 12,888 12,888
Prepaids and other assets 16,088 14,014
- - - --------------------------------------------------------------------------------------------------------------------
Total current assets 407,139 432,852
- - - --------------------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land 3,139 3,267
Buildings and improvements 56,264 56,094
Machinery and equipment 348,594 324,137
- - - --------------------------------------------------------------------------------------------------------------------
Less accumulated depreciation and amortization 231,627 207,079
- - - --------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 176,370 176,419
- - - --------------------------------------------------------------------------------------------------------------------
Goodwill, less accumulated amortization of $8,952 in 1997 and $7,985 in 1996 30,741 30,668
Deferred financing costs, intangible and other assets
less accumulated amortization of $22,395 in 1997 and $19,521 in 1996 40,298 38,835
- - - --------------------------------------------------------------------------------------------------------------------
$654,548 $678,774
- - - --------------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 49
<TABLE>
<CAPTION>
Consolidated Balance Sheets
As of June 30,
(Amounts in thousands, except per share and per share data) 1997 1996
- - - --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- - - --------------------------------------------------------------------------------------------------------------------
Current liabilities:
<S> <C> <C>
Accounts payable $ 97,060 $104,273
Accrued liabilities 119,755 126,399
Current portion of long-term debt 3,109 2,895
- - - --------------------------------------------------------------------------------------------------------------------
Total current liabilities 219,924 233,567
- - - --------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion 240,836 319,128
Other long-term obligations 71,273 71,633
Deferred income taxes 20,292 12,888
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.01 par value, 100,000,000 shares authorized
28,259,000 and 25,462,000 shares issued and outstanding 282 255
Additional paid-in capital 129,151 89,609
Accumulated deficit (10,139) (34,214)
Cumulative translation adjustment (17,071) (14,092)
- - - --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 102,223 41,558
- - - --------------------------------------------------------------------------------------------------------------------
$654,548 $678,774
- - - --------------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Page 50
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
Common stock Additional Cumulative Minimum
(Amounts in thousands, ----------------------------- paid-in Accumulated translation pension
except share data) Shares Amount capital Deficit adjustment liability
<S> <C> <C> <C> <C> <C> <C>
- - - ------------------------------------------------------------------------------------------------------------------------------
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) -
- - - ------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 332,000 3 3,434 - - -
Restricted stock grants 252,000 2 634 - - -
Debt conversion 2,213,000 22 35,474 - - -
Translation adjustment - - - - (2,979) -
Net income - - - 24,075 - -
- - - ------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 28,259,000 $282 $129,151 $(10,139) $(17,071) -
- - - ------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Page 51
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the years ended June 30,
(Amounts in thousands) 1997 1996 1995
- - - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $ 28,751 $(94,164) $ 21,496
- - - --------------------------------------------------------------------------------------------------------------
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 38,431 40,041 38,680
Restructuring charges - 50,505 -
Provision for impairment of long-lived assets - 29,212 -
Changes in operating assets and liabilities of continuing operations 22,558 43,494 (50,976)
- - - --------------------------------------------------------------------------------------------------------------
Total adjustments 60,989 163,252 (12,296)
- - - --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 89,740 69,088 9,200
- - - --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of businesses and assets 2,679 92,149 105,644
Capital expenditures (33,245) (40,515) (43,895)
Other investments (2,382) 37 1,853
- - - --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (32,948) 51,671 63,602
- - - --------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings under bank and other long-term obligations 80,594 - 81,217
Proceeds from issuance of common stock 3,413 172 3,736
Repayment of bank and other long-term obligations (129,985) (126,444) (171,000)
Increase in deferred financing costs (1,323) (500) (5,446)
- - - --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (47,301) (126,772) (91,493)
- - - --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing operations 9,491 (6,013) (18,691)
- - - --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) discontinued operations (4,224) 6,573 11,989
- - - --------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 5,267 560 (6,702)
Cash at beginning of year 871 311 7,013
- - - --------------------------------------------------------------------------------------------------------------
Cash at end of year $ 6,138 $ 871 $ 311
- - - --------------------------------------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
Page 52
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. Certain reclassifications have been made to
the fiscal 1996 financial statements to conform to the current year
presentation.
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.
Revenue Recognition
The Company's policy is to record and recognize sales only upon shipment.
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 (normally five to ten years).
Accounting For Stock Options
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
to Employees" (APB25), and related interpretations, in accounting for stock
based awards to employees. Under APB 25, the Company recognizes no compensation
expense with respect to such awards. The Company has adopted the disclosure-only
option under SFAS No.123.
Research and Development
Expenditures for research and development are charged to expense as incurred and
aggregated $23,600, $21,500 and $23,600 for the years ended June 30, 1997, 1996,
and 1995, respectively.
<PAGE>
Page 53
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 $2,874, $2,351 and $2,425 for
the years ended June 30, 1997, 1996 and 1995, 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 $967, $995, and $985 for the years ended June 30, 1997, 1996, and 1995,
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.
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.
In June of 1997, holders converted $35,410 of the Convertible Notes to shares of
common stock. Had the conversion taken place at the beginning of fiscal 1997,
primary earnings per share for the year would not have been materially
different.
Fiscal Year
The Company uses a fifty-two, fifty-three week fiscal year which ends on Sunday
nearest June 30. For clarity of presentation, all periods are presented as if
the year ended on June 30. Fiscal years 1997, 1996 and 1995 contained 52 weeks.
<PAGE>
Page 54
2. REPOSITIONING COSTS AND DISCONTINUED OPERATIONS
In fiscal 1996, as a result of significant declines in sales and profit margins
in both electronic and magnetic ballasts, the Company initiated a review and
analysis of actions to reduce costs and improve future flexibility and
profitability, focused to a large extent in its lighting products business.
Subsequent to review and approval by the Company's Board of Directors, certain
reserves were established and charges recorded in the year ended June 30, 1996.
These charges were associated with a variety of repositioning actions and
included severance, termination benefits and asset write-downs related to
facility closures. Reserves were also established for estimated increases in
warranty (primarily related to the electronic ballast product line) and other
costs. Charges recorded in connection with these reserves and asset write-downs
related primarily to the Lighting Products segment and aggregated $79,717 of
which $43,337 is included in cost of goods sold and $7,168 in selling, general
and administrative expense. Asset write-downs of $29,212 are included separately
within the caption "Provision for impairment of long-lived assets" and were
determined in accordance with FASB No. 121. Of the $50,505 included in cost of
goods sold and SG&A expense, approximately $28,700 related to warranty, $17,900
to severance and termination benefits and $3,900 in other costs. In fiscal 1997,
cash outflows associated with these repositioning charges aggregated $11,000
with $4,900 related to warranty, $3,700 in severance and termination benefits
and $2,400 million in plant and other repositioning charges. The Company
estimates that cash requirements will not exceed $20,000 in fiscal 1998. At this
time the Company believes that the reserves established in 1996 are adequate to
cover the remaining liabilities anticipated from the repositioning and other
actions.
In July of 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 divesture 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. In
fiscal 1997, the Company incurred net cash outlays of $4,224 (primarily legal
and environmental costs) related to "discontinued operations." The Company
believes that future expenditures will not
be material.
During the fiscal year ended June 30, 1995, the Company provided for additional
losses on disposal of discontinued operations, 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 1997 1996 1995
- - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ - $ 92,712 $ 246,021
Income (loss) before provision for income taxes - 138 (12,369)
Provision (benefit) for income taxes - 500 (4,700)
- - - ----------------------------------------------------------------------------------------------------------
Loss of discontinued operations $ - $ (362) $ (7,669)
- - - ----------------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 55
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. 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 and $10,788 for the years ended June 30, 1996
and 1995.
3. INVENTORIES
Inventories at June 30, consists of the following:
1997 1996
- - - -------------------------------------------------------------------------------
Raw materials and stock parts $ 55,584 $ 60,018
Work-in-process 40,343 46,354
Finished goods 85,087 96,893
- - - -------------------------------------------------------------------------------
$181,014 $203,265
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
4. LONG-TERM DEBT AND BANK BORROWING ARRANGEMENTS
Long-term debt at June 30, consists of the following:
<TABLE>
<CAPTION>
1997 1996
- - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving bank loans $184,026 $103,432
10.75 percent Senior Subordinated Debentures, interest payable
semi-annually, due November 15, 1998 3,035 125,000
8 percent Convertible Subordinated Notes, interest payable semi-annually,
convertible into 2,474,375 and 4,687,500 shares of common stock,
in fiscal 1997 and 1996 respectively, due September 2001 39,590 75,000
Miscellaneous installment notes, capital leases and other obligations at rates
ranging from 6.5 percent to 10.75 percent, due through 2002 17,294 18,591
- - - ----------------------------------------------------------------------------------------------------------
243,945 322,023
Less current portion 3,109 2,895
- - - ----------------------------------------------------------------------------------------------------------
$240,836 $319,128
- - - ----------------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------------
</TABLE>
Bank Borrowing Arrangements
On June 20, 1997, the Company entered into an amended agreement with a group of
banks (Bank Loan Agreement) that have committed to lend up to $350,000 under a
revolving loan facility through June, 2002. Borrowings under the credit facility
bear interest at the bank's prime lending rate or, at the Company's option, the
London Interbank Offered Rate plus three quarters percent. These rates may be
reduced or increased based upon the level of certain debt-to-cash flow ratios.
At June 30, 1997, borrowings under the Bank Loan Agreement bore interest at a
weighted average rate of approximately 6.6%. The Company is required to pay a
commitment fee of .225 percent on unused commitments.
<PAGE>
Page 56
Borrowings under the Bank Loan Agreement are secured by domestic accounts
receivable and inventories and by the capital stock of certain of the Company's
subsidiaries. The Bank Loan Agreement contains certain provisions and convenants
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 specific levels of net worth and cash flow.
The Company's European subsidiaries have certain limited local borrowing
arrangements to finance working capital needs. Borrowings under these
arrangements are secured by accounts receivable and inventories of the
respective subsidiaries. The Company has provided parent guarantees to the local
banks which provide the related financing.
Senior Subordinated Debentures
On June 27, 1997, the Company completed a tender for its 103_4 percent Senior
Subordinated Debentures ("Debentures") leaving $3,035 of the Debentures
outstanding. The Debentures are not redeemable by the Company prior to maturity
in November, 1998 and are subordinated to borrowings under the Bank Loan
Agreement.
As a result of the tender offer, the indenture governing the remaining
Debentures was modified to eliminate substantially all restrictive covenants.
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 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 anytime prior to maturity in
September, 2001.
On June 23, 1997, holders of the Convertible Notes converted $35,410 of the
Convertible Notes to 2,213,067 shares of common stock as a result of a partial
call of the Convertible Notes by the Company.
Aggregate principal maturities on long-term debt outstanding at June 30, 1997
are as follows:
Year ended June 30
-----------------------------------------------------------------
1998 $ 3,109
1999 7,239
2000 3,387
2001 2,166
2002 225,503
Thereafter 2,541
-----------------------------------------------------------------
<PAGE>
Page 57
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts and estimated fair value of the Company's significant
financial instruments as of June 30, 1997 were as follows:
Carrying Amount Fair Value
- - - --------------------------------------------------------------------------------
8 percent Convertible Subordinated Notes $39,590 $41,965
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
Fair values of long-term debt are 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 gains on open contracts at June 30, 1997 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 gains on open forward exchange contracts were not
material to the Company's results of operations at June 30, 1997. In combination
with the amended Bank Loan Agreement (see Note 4), the Company has entered into
certain interest rate swaps in connection with the management of its exposure to
fluctuation in interest rates. Gains or losses from terminated contracts are
amortized over the period of the original contract.
6. INCOME TAXES
Income tax expense (benefit) is allocated in the financial statements as
follows:
<TABLE>
<CAPTION>
Year ended June 30 1997 1996 1995
- - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations before extraordinary item $19,200 $19,400 $14,900
Extraordinary item (3,250) - (3,200)
- - - ----------------------------------------------------------------------------------------------------------
Income tax expense attributable to continuing operations $15,950 $19,400 $11,700
Discontinued operations - - (7,200)
- - - ----------------------------------------------------------------------------------------------------------
Total $15,950 $19,400 $ 4,500
- - - ----------------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------------
The expense for income taxes applicable to continuing operations is as follows:
Year ended June 30 1997 1996 1995
- - - ----------------------------------------------------------------------------------------------------------
Current:
Federal $ 1,279 $ 899 $ 3,575
State 1,184 1,172 1,529
Foreign 6,083 3,444 1,419
Deferred:
Federal 4,786 10,358 5,603
State and Foreign 2,618 3,527 (426)
- - - ----------------------------------------------------------------------------------------------------------
$15,950 $19,400 $11,700
- - - ----------------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 58
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>
1997 1996 1995
--------------------------------------------------------------
Year ended June 30 Amount % Amount % Amount %
- - - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) computed at the statutory rate $16,783 35.0 $(26,167) (35.0) $12,739 35.0
State income taxes, net of federal benefit 1,338 2.7 1,990 2.7 1,975 5.4
Foreign tax rates in excess of federal statutory rate 4,434 9.3 4,283 5.7 108 0.3
Increase (decrease) in valuation allowance for
deferred tax assets (11,904) (24.8) 38,908 52.0 - -
Provision for additional taxes 7,933 16.5 - - - -
Other--net 616 1.3 386 0.5 78 0.2
- - - ------------------------------------------------------------------------------------------------------------------------
$19,200 40.0 $ 19,400 25.9 $14,900 40.9
- - - ------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income (loss) before provision for income taxes of the Company's foreign
subsidiaries was approximately $9,703, $50 and $(1,000) for the years ended June
30, 1997, 1996 and 1995.
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, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Year ended June 30 1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
<S> <C> <C>
Depreciation and amortization (including differences in the basis of acquired assets) $30,530 $21,453
Inventory methods and other - 2,534
- - - -------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 30,530 23,987
- - - -------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Postretirement medical benefit obligation 21,654 24,255
Warranty reserves 11,601 16,772
Inventory and other reserves (including restructuring) 16,875 21,868
- - - -------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 50,130 62,895
- - - -------------------------------------------------------------------------------------------------------------------
Less valuation allowance (27,004) (38,908)
- - - -------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 7,404 $ -
- - - -------------------------------------------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has established the above valuation allowance for deferred tax
assets based upon a review and determination that the deferred tax assets are
currently not likely to be fully realized.
<PAGE>
Page 59
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, 1997 total $41,853 and are payable
in future fiscal years as follows: $10,380 in 1998; $8,019 in 1999; $6,654 in
2000; $4,275 in 2001; $3,549 in 2002 and $8,976 thereafter.
Rent expense for the years ended June 30, 1997, 1996 and 1995, was $14,988,
$15,766 and $18,769 respectively.
Litigation--Product Liability
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 effect on the Company.
Litigation--Asbestos
The Company and certain of its subsidiaries have been named as defendants in a
suit filed by Cooper Industries, Inc. ("Cooper"), alleging breach of the 1986
agreement by which the Company acquired certain businesses from Cooper. At issue
in the litigation is the question of which party has responsibility in
connection with pending lawsuits (the "asbestos lawsuits") involving numerous
plaintiffs who allege injurious exposure to asbestos contained in products
manufactured by current or former subsidiaries and divisions of Cooper. Cooper
claims that the Company is obligated to defend and indemnify Cooper in
connection with the asbestos lawsuits. The Company has denied that it is
obligated under the agreement to defend and indemnify Cooper in connection with
the asbestos lawsuits, and has filed a counterclaim asserting that Cooper is
obligated under the agreement to defend and indemnify the Company in connection
with the asbestos lawsuits and that certain insurance coverage available to
Cooper should be applied to the asbestos lawsuits. The Company intends to
litigate its position vigorously.
In 1994, the Company sold the assets of one of its subsidiaries to Patriot
Sensors and Controls ("Patriot") pursuant to an agreement which provides that
the parties will share responsibility for most of the asbestos lawsuits over a
five year period, with Patriot bearing full responsibility for the asbestos
lawsuits thereafter. Patriot has stated that it may be financially unable to
perform its indemnification obligations with respect to the asbestos lawsuits.
The Company and Patriot are not currently in litigation.
Due to (i) the early stage of the Cooper litigation, (ii) the potential that
Patriot may or may not perform some or all of its indemnification obligations to
the Company, and (iii) the ongoing review of strategies and defenses available
to the Company in the asbestos lawsuits, it is difficult to predict the outcome
of the foregoing legal proceedings. However, management of the Company does not
believe that the financial impact of the foregoing legal proceedings will be
material.
<PAGE>
Page 60
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 1997 did not entail material expenditures, and
its remediation activities for fiscal 1998 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.
Environmental Matters--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 certain
waste materials, 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
Inactive Hazardous Substance 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.
Environmental Matters--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.
Environmental Matters--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 1997, and its indemnification
obligations for fiscal 1998 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.
<PAGE>
Page 61
Letters of Credit
The Company has approximately $11,200 of outstanding letters of credit as of
June 30, 1997.
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
5,392,887. As of June 30, 1997 and 1996 shares available for grant were
approximately 972,802 and 1,515,560 respectively. Options granted under two of
the Plans vest in three or 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 1997 1996 1995
- - - -------------------------------------------------------------------------------
Options outstanding, beginning of year 3,155,820 1,939,585 2,303,054
Options granted 1,045,810 1,498,000 357,500
Options exercised (334,770) (32,170) (454,594)
Weighted average exercise price $ 10.85 $ 5.35 $ 8.30
- - - -------------------------------------------------------------------------------
Options cancelled (216,375) (249,595) (266,375)
- - - -------------------------------------------------------------------------------
Options outstanding, end of year 3,650,485 3,155,820 1,939,585
Weighted average price $ 11.78 $ 2.16 $12.52
- - - -------------------------------------------------------------------------------
Exercisable options 1,541,135 1,463,045 1,113,116
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
The following table provides information regarding exercisable and outstanding
options as of June 30, 1997.
<TABLE>
<CAPTION>
Exercisable Outstanding
---------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise remaining
Options price Options price contractual
Range of exercise price per share exercisable per share outstanding per share life (years)
- - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $10.00 423,400 $ 7.30 1,302,775 $ 8.14 6.96
$10.00-$12.50 239,885 10.11 407,860 10.77 5.30
$12.51-$15.00 756,600 13.96 1,544,100 13,57 7.11
Over $15.00 121,250 17.56 395,750 17.77 7.82
- - - -----------------------------------------------------------------------------------------------------------------------
Total 1,541,135 $11.82 3,650,485 $11.78 6.93
- - - -----------------------------------------------------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1997. As of June 30, 1997, options for 142,835 shares with a weighted
average price per share of $4.74 were outstanding, all of which were
exercisable.
<PAGE>
Page 62
The Company has granted stock appreciation rights (SARs) to certain of its
directors under director incentive compensation plans. As of June 30, 1997 SARs
with respect to 66,000 shares, with a weighted average exercise price of $14.76
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 vesting, share amounts and exercise prices.
In April of 1997, the Board of Directors approved the conversion of SAR's with
respect to an additional 491,500 shares of common stock into stock options with
comparable vesting, share amounts and exercise prices.
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-Based Compensation," the Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) in accounting for stock-based awards to employees. Under
APB 25, the Company generally recognizes no compensation expense with respect to
such awards.
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123 for awards granted in fiscal years after December
31, 1994 as if the Company had accounted for its stock-based awards to employees
under the fair value method of SFAS 123. The fair value of the Company's
stock-based awards to employees was estimated using a Black-Scholes option
pricing model. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the Black-Scholes model requires the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of the Company's stock-based
awards to employees was estimated assuming no expected dividends and the
following assumptions:
Options
--------------
1997 1996
- - - -----------------------------------------------------------------------------
Expected life (years) 5.4 4.7
Expected stock price volatility 35% 35%
Risk-free interest rate 6.5% 6.2%
- - - -----------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized over the options' vesting period. The Company's
pro forma information follows:
(Thousands except per share amounts) 1997 1996
- - - ------------------------------------------------------------------------------
Net income (loss)--as reported $24,075 $(94,164)
Net income (loss)--pro forma $22,792 $(94,640)
Primary net income (loss) per share--as reported $ 0.91 $ (3.78)
Primary net income (loss) per share--pro forma $ 0.88 $ (3.82)
Fully diluted net income (loss) per share--as reported $ 0.88 *
Fully diluted net income (loss) per share--pro forma $ 0.85 *
- - - ------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------
*Per share amounts are omitted as such amounts are anti-dilutive in relation to
primary per share amounts.
<PAGE>
Page 63
Because SFAS 123 is applicable only to awards granted subsequent to fiscal years
beginning after December 31, 1994, its pro forma effect will not be fully
reflected until approximately 1999. A total of 1,498,000 options were granted
during fiscal year 1996 with exercise prices equal to the market price of the
stock on the grant date. The weighted-average exercise price and
weighted-average fair value of these options were $12.91 and $3.98 respectively.
A total of 1,045,810 options were granted during fiscal year 1997 with exercise
prices equal to the market price of the stock on the grant date. The weighted
average exercise price and weighted average fair value of these options were
$9.75 and $4.29 respectively.
9. EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has a defined benefit retirement plan which covers substantially all
of its non-union employees and those union employees whose collective bargaining
agreements specifically provide for coverage (the "Plan"). The Plan provides
benefits for non-union employees based upon career average pay as defined in the
Plan and for union employees as provided in the bargaining agreements.
The net pension cost for the years ended June 30, 1997, 1996 and 1995 is as
follows:
1997 1996 1995
- - - ------------------------------------------------------------------------------
Service cost--benefits earned during the period $ 4,500 $ 5,504 $ 6,935
Interest cost on projected benefit obligation 9,920 9,592 9,219
Investment return on plan assets (29,139) (13,306) (11,846)
Net amortization and deferral 17,483 3,135 2,517
- - - ------------------------------------------------------------------------------
Net periodic pension cost 2,764 4,925 6,825
- - - ------------------------------------------------------------------------------
Curtailment (gain) or loss 106 (682) 272
- - - ------------------------------------------------------------------------------
Net pension cost $ 2,870 $ 4,243 $ 7,097
- - - ------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------
The funded status of the Company's defined benefit plans at June 30, 1997 and
1996 is as follows:
1997 1996
- - - ------------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $131,452 $120,533
Non-vested benefits 6,835 5,863
Projected benefit obligation 140,065 127,864
Market value of plan assets 160,329 129,409
Plan assets greater (less) than projected benefit
obligation 20,264 1,545
Unrecognized net loss (9,426) 5,118
Unrecognized prior service income relating to
merged plans (469) (705)
Unrecognized net asset (1,612) (1,935)
Accrued (prepaid) pension cost (8,757) (4,023)
- - - ------------------------------------------------------------------------------
The projected benefit obligation was determined using an assumed discount rate
of 8.0% for the year ended June 30, 1997 and June 30, 1996 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.
<PAGE>
Page 64
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 Company's 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 $1,184, $1,427, and $1,629 during the plan
years ended March 1997, 1996, and 1995, respectively. Company contributions vest
over a five-year period.
Postretirement Medical Benefit Plans
Effective May 1, 1996, the Company announced a substantial revision to its
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 January 1, 1992, 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 the entire cost of
coverage exceeding a fixed company contribution amount. 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 accumulated postretirement benefit obligation as of June 30, 1997 and 1996
consisted of unfunded obligations related to the following:
1997 1996
- - - ------------------------------------------------------------------------------
Retirees $17,232 $20,682
Fully eligible active plan participants 2,365 2,429
Other active participants 3,009 2,810
- - - ------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 22,606 25,921
Unrecognized prior service cost 9,972 11,101
Unrecognized gain 23,089 22,276
- - - ------------------------------------------------------------------------------
Accrued postretirement benefit cost $55,667 $59,298
- - - ------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------
Net periodic postretirement benefit costs (income) for the years ended June 30,
1997, 1996 and 1995 include the following components:
<TABLE>
<CAPTION>
Years ended June 30, 1997 1996 1995
- - - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during period $ 162 $ 304 $ 405
Interest cost on accumulated postretirement benefit obligation 1,806 4,292 4,384
Amortization of prior service cost (1,129) (855) --
Amortization of (gain)/loss (1,705) -- --
- - - -----------------------------------------------------------------------------------------------
$ (866) $3,741 $4,789
- - - -----------------------------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 65
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, an 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 1997 and fiscal 1998; the rate of increase was assumed to
decrease to 5.75% by fiscal 2008 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 $1,557 and the aggregate of service and
interest cost components of the annual net periodic postretirement benefit cost
by approximately $110. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 8.0%, 8.0% and 7.75% for
the years ended June 30, 1997, 1996 and 1995 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 $907, $865 and $818 for the
years ended June 30, 1997, 1996 and 1995 respectively.
During the years ended June 30, 1997, 1996 and 1995, the Company paid
approximately $399, $952 and $948, 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 year 1995, a member of the Company's 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 period
ended June 30, 1995 were $137. Aggregate fees and expenses for the same period
were $158.
11. ACCRUED LIABILITIES
Accrued liabilities consist of the following at June 30:
1997 1996
- - - ------------------------------------------------------------------------------
Salaries, wages and related items $ 33,449 $ 27,828
Warranty 39,253 43,739
Interest 1,576 4,600
Income taxes (1,658) (862)
Repositioning reserves (see Note 2) 14,890 21,827
Other 32,245 29,267
- - - ------------------------------------------------------------------------------
$119,755 $126,399
- - - ------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------
<PAGE>
Page 66
12. SUPPLEMENTAL CASH FLOW INFORMATION
Changes in operating assets and liabilities of continuing operations follows:
<TABLE>
<CAPTION>
Year ended June 30, 1997 1996 1995
- - - -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Increase) decrease in accounts receivable $14,368 $ 33,023 $(21,166)
(Increase) decrease in inventories 23,273 21,782 (39,718)
(Increase) decrease in prepaids and other current assets (5,981) 6,335 3,758
(Increase) decrease in other operating assets (2,461) (4,942) (111)
Increase (decrease) in accounts payable (9,316) (13,729) 3,481
Increase (decrease) in accrued liabilities (3,452) 938 6,193
Increase (decrease) in deferred income taxes 7,404 70 (6,192)
Increase (decrease) in other operating liabilities (1,277) 17 2,779
- - - -------------------------------------------------------------------------------------------
$22,558 $ 43,494 $(50,976)
Cash paid for interest and income taxes follows:
Interest $28,255 $ 31,626 $ 43,388
Income taxes $ 3,463 $ 4,614 $ 10,548
- - - -------------------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------------------
</TABLE>
During the year ending June 30, 1997 an additional 2,213,067 shares of common
stock were issued upon the conversion of $35,410 of Convertible Notes.
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.
<PAGE>
Page 67
Financial information by business segment for continuing operations follow:
<TABLE>
<CAPTION>
Motors and Lighting Power
For the year ended June 30, 1997 Controls Products Supplies Total
- - - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $548,008 $477,958 $164,574 $1,190,540
Operating income 43,785 25,138 11,141 80,064
Identifiable assets 293,315 222,288 138,945 654,548
Capital expenditures 15,441 7,095 10,709 33,245
Depreciation and amortization 17,111 12,594 8,726 38,431
- - - ------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------
Motors and Lighting Power
For the year ended June 30, 1996 Controls Products Supplies Total
- - - ------------------------------------------------------------------------------------------------
Sales $530,718 $456,804 $174,103 $1,161,625
Operating income (loss) 36,794 (78,600) 4,285 (37,521)
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
- - - ------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------
Operating income (loss) for the year ended June 30, 1996, reflects pretax
charges of $2,891, $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). Asset write-downs included in
operating income are $1,333 in Motors and Controls, $24,702, in Lighting
Products and $3,177 in Power Supplies.
Motors and Lighting Power
For the year ended June 30, 1995 Controls Products Supplies Total
- - - ------------------------------------------------------------------------------------------------
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
- - - ------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------
</TABLE>
Geographic information with respect to the Company's European Subsidiaries
follows:
For the year ended June 30 1997 1996 1995
- - - -----------------------------------------------------------------------
Sales $202,124 $206,701 $175,727
Operating income 16,605 3,471 6,003
Identifiable assets 154,345 172,636 158,207
Capital expenditures 11,852 10,011 8,532
Depreciation and amortization 7,810 8,197 8,475
- - - -----------------------------------------------------------------------
- - - -----------------------------------------------------------------------
The Company's foreign operations outside of Europe are not material. Export
sales were $61,036, $61,520 and $60,204 in 1997, 1996 and 1995, respectively.
<PAGE>
Page 68
14. QUARTERLY RESULTS (UNAUDITED)
1997 quarter ended Sept. 30 Dec. 31 Mar. 31 June 30
- - - -------------------------------------------------------------------------------
Net sales $291,410 $293,707 $301,391 $304,032
Gross profit 54,842 55,540 64,672 64,869
Provision for income taxes 2,996 3,839 6,396 5,969
Income from continuing operations
before extraordinary item $ 4,315 $ 5,756 $ 9,198 $ 9,482
Net income $ 4,315 $ 5,756 $ 9,028 $ 4,976
Per common share:
Primary:
Income from continuing operations
before extraordinary item $ .17 $ .22 $ .34 $ .35
Net income $ .17 $ .22 $ .33 $ .18
Fully diluted:
Income from continuing operations
before extraordinary item $ .17 $ .22 $ .32 $ .32
Net income $ .17 $ .22 $ .31 $ .18
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
In the third and fourth quarters of 1997, the Company recorded extraordinary
charges of $170 and $4,506 respectively, associated with the extinguishment of
the majority of its 10 3/4% Subordinated Debentures. The charges (net of tax)
included the unamortized portion of original issuance costs and premium in
excess of face value.
1996 quarter ended Sept. 30 Dec. 31 Mar. 31 June 30
- - - -------------------------------------------------------------------------------
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) * * * *
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
In the fourth quarter of 1996 the Company recorded charges of $79,817, 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 closures
as well as estimated warranty 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 reflected in fourth quarter results.
<PAGE>
Page 69
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, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1997. 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, 1997 and 1996 and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1997, 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.
St. Louis, Missouri
August 18, 1997
<PAGE>
EXHIBIT 22
MAGNETEK, INC.
SUBSIDIARIES
Name State/Country of Incorporation
---- ------------------------------
MagneTek Europe N.V. Netherlands
MagneTek Financial Services, Inc. Delaware
<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, 333-15933, 333-24187, and 333-28415) 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, 333-04021,
and 333-17889) 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., the MagneTek, Inc. Non-Employee Director
Stock Option Plan, and the MagneTek, Inc. Deferral Investment Plan, of our
reports dated August 18, 1997, 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, 1997.
ERNST & YOUNG LLP
St. Louis, Missouri
September 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 6,138
<SECURITIES> 0
<RECEIVABLES> 196,179
<ALLOWANCES> 5,168
<INVENTORY> 181,014
<CURRENT-ASSETS> 407,139
<PP&E> 407,997
<DEPRECIATION> 231,627
<TOTAL-ASSETS> 654,548
<CURRENT-LIABILITIES> 219,924
<BONDS> 243,945
0
0
<COMMON> 282
<OTHER-SE> 101,941
<TOTAL-LIABILITY-AND-EQUITY> 654,548
<SALES> 1,190,540
<TOTAL-REVENUES> 1,190,540
<CGS> 950,617
<TOTAL-COSTS> 950,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,825
<INCOME-PRETAX> 47,951
<INCOME-TAX> 19,200
<INCOME-CONTINUING> 28,751
<DISCONTINUED> 0
<EXTRAORDINARY> 4,676
<CHANGES> 0
<NET-INCOME> 24,075
<EPS-PRIMARY> .91
<EPS-DILUTED> .88
</TABLE>
