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ASSET PURCHASE AGREEMENT
among
MAGNETEK, INC.,
MAGNETEK SERVICE (U.K.) LIMITED
and
A.O. SMITH CORPORATION
SALE OF MOTORS DIVISION
Dated as of June 28, 1999
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Table of Contents
Page
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ARTICLE I DEFINITIONS.........................................................1
1.1. Certain Defined Terms............................................1
1.2. Other Definitional Provisions....................................6
ARTICLE II CLOSING; PURCHASE PRICE ADJUSTMENT.................................6
2.1. Sale and Transfer of the Assets..................................6
2.2. Assets Not Transferred...........................................8
2.3. Assumed and Excluded Liabilities.................................9
2.4. Closing.........................................................11
2.5. Purchase Price Adjustment.......................................12
2.6. Tax Allocation..................................................14
2.7. Transfer Taxes..................................................14
ARTICLE III CONDITIONS TO CLOSING............................................15
3.1. Buyer's Obligation..............................................15
3.2. Sellers' Obligation.............................................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER..........................16
4.1. Authority; No Conflicts; Governmental Consents;
Corporate Matters...............................................16
4.2. Financial Statements; Absence of Changes........................18
4.3. Taxes...........................................................20
4.4. Assets Other than Real Property Interests.......................20
4.5. Real Property...................................................21
4.6. Intellectual Property...........................................21
4.7. Contracts.......................................................22
4.8. Litigation; Decrees.............................................23
4.9. Employee and Related Matters....................................23
4.10. Environmental Matters..........................................24
4.11. Employee and Labor Relations...................................24
4.12. Compliance With Law; Permits...................................25
4.13. Product Warranty and Product Liability.........................25
4.14. Assets of the Business.........................................26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER............................26
5.1. Authority; No Conflicts; Governmental Consents..................26
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5.2. Actions and Proceedings, Etc....................................27
5.3. Buyer's Acknowledgment..........................................27
5.4. Solvency........................................................27
5.5. No Knowledge of Sellers' Breach.................................28
ARTICLE VI COVENANTS OF SELLER...............................................28
6.1. Access..........................................................28
6.2. Ordinary Conduct; No Shopping...................................28
6.3. Insurance.......................................................29
6.4. Title Commitment................................................29
6.5. Accounts Receivable.............................................29
6.6. Noncompetition..................................................30
6.7. Confidential Information........................................31
6.8. Repurchase of Certain Accounts Receivable.......................31
6.9. Resolution or Remediation of Certain Environmental
Matters Identified Prior to the Closing Date....................32
ARTICLE VII COVENANTS OF BUYER...............................................35
7.1. Confidentiality.................................................35
7.2. Accounts Receivable.............................................35
7.3. Waiver of Bulk Sales Law Compliance.............................36
7.4. Excluded Assets.................................................36
7.5. Cooperation.....................................................36
7.6. Change of Company Names.........................................36
ARTICLE VIII MUTUAL COVENANTS................................................36
8.1. HSR Filings; Permits and Consents...............................36
8.2. Cooperation.....................................................38
8.3. Publicity.......................................................38
8.4. Reasonable Efforts..............................................38
8.5. Records.........................................................38
8.6. Access to Former Business Records...............................39
8.7. Use of Trademark and Trade Names................................39
8.8. Tax Returns and Payments........................................40
8.9. Cegled Facility.................................................41
ARTICLE IX EMPLOYEE BENEFIT MATTERS..........................................42
9.1. Employee Retention..............................................42
9.2. Employee Benefit Plans..........................................42
9.3. Vacation and Holiday Pay........................................43
9.4. Access to Information...........................................43
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9.5. Company Employees and Plans.....................................43
9.6. Pension Plan....................................................43
9.7. 401(k) Plan.....................................................45
9.8. Third-Party Beneficiaries.......................................45
9.9. Payroll Tax.....................................................46
ARTICLE X INDEMNIFICATION....................................................46
10.1. Indemnification by Seller......................................46
10.2. Indemnification by Buyer.......................................46
10.3. Environmental Matters..........................................47
10.4. Losses Net of Insurance, Etc...................................49
10.5. Termination of Indemnification.................................50
10.6. Procedures Relating to Indemnification
(Other than for Tax Claims)....................................50
10.7. Procedures Relating to Indemnification of Tax Claims...........51
10.8. Survival of Representations....................................52
ARTICLE XI GENERAL PROVISIONS................................................52
11.1. Assignment.....................................................52
11.2. No Third-Party Beneficiaries...................................52
11.3. Termination....................................................53
11.4. Expenses.......................................................54
11.5. Equitable Relief...............................................54
11.6. Amendments.....................................................54
11.7. Notices........................................................54
11.8. Interpretation; Exhibits and Schedules.........................55
11.9. Counterparts...................................................56
11.10. Entire Agreement..............................................56
11.11. Fees..........................................................56
11.12. Severability..................................................56
11.13. Governing Law.................................................56
EXHIBITS
Bill of Sale and Assignment and Assumption Agreement..........Exhibit A
Summary of Terms of Supply and Service Agreements.............Exhibit B
License Agreement.............................................Exhibit C
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List of Schedules
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Schedule 1.1(a) Knowledge of Seller
Schedule 1.1(b) Valdarno Development Projects
Schedule 2.1(a) Owned Property
Schedule 2.1(b) Leased Property
Schedule 2.1(e) Intellectual Property
Schedule 2.2(m) Excluded Facilities
Schedule 4.1(b) Qualification To Do Business
Schedule 4.1(c) Seller Required Consents
Schedule 4.1(e) Capitalization of the Companies
Schedule 4.2 Financial Statements
Schedule 4.2(b) Certain Changes
Schedule 4.2(c) Other Liabilities
Schedule 4.3 Taxes
Schedule 4.4(a) Liens
Schedule 4.4(b) Year 2000 Remediation Actions; Oracle Implementation
Schedule 4.6 Intellectual Property Matters
Schedule 4.7 Contracts
Schedule 4.8 Litigation
Schedule 4.9 Employee Benefits
Schedule 4.10 Environmental Matters
Schedule 4.11 Labor Matters
Schedule 4.12(a) Compliance with Law
Schedule 4.12(b) Permits
Schedule 4.13 Product Warranty and Product Liability
Schedule 4.14 Assets and Services of the Business
Schedule 5.1(b) Buyer Required Consents
Schedule 5.6 Knowledge of Buyer
Schedule 6.2 Conduct of Business
Schedule 6.6 Restricted Motors
Schedule 6.8 Certain Accounts Receivable
Schedule 6.9 Remediation of Certain Matters
Schedule 9.2(c) Cafeteria Plan
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of June 28, 1999, among MAGNETEK, INC.,
a Delaware corporation ("Seller" or "MagneTek"), MAGNETEK SERVICE (U.K.),
LIMITED, a company organized under the laws of the United Kingdom ("UK" and
together with MagneTek, "Sellers"), and A.O. SMITH CORPORATION, a Delaware
corporation ("Buyer").
MagneTek, through its Motors and Controls Division (the "Division"), has
historically engaged in the business of developing, manufacturing, selling and
distributing fractional, integral and DC electric motors (the "Business").
MagneTek conducts the Business domestically as a division (the "Domestic
Business") and internationally, through MagneTek Hungaria Kft., Igmex, S.A. de
C.V., MagneTek Universal Electric Limited, MagneTek Canada Limited, MagneTek
(SEA) PTE Ltd. and MagneTek BV, companies formed, respectively, under the laws
of Hungary, Mexico, the United Kingdom, Canada, Singapore and the Netherlands.
The parties hereto desire that MagneTek sell, transfer, convey and assign to
Buyer (i) substantially all of the assets, properties, interests in properties
and rights used in the Domestic Business, and (ii) the stock ("Stock") of
MagneTek Hungaria Kft., Igmex, S.A. de C.V. and MagneTek Universal Electric
Limited, MagneTek Canada Limited, MagneTek (SEA) PTE Ltd. and MagneTek B.V.
(collectively, the "Companies" and respectively, "Hungary," "Igmex," "UK
Limited," "Canada," "SEA" and "BV"), and that Buyer purchase and acquire the
same, subject to the assumption by Buyer of the liabilities and obligations of
Seller relating to the Business, upon the terms and subject to the conditions
hereinafter set forth.
AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate" has the meaning ascribed to such term in Rule 12b-2
promulgated under the Exchange Act by the SEC, as in effect on the date hereof.
"April Balance Sheet" means the unaudited balance sheet of the Business
as of April 25, 1999, attached hereto as part of Schedule 4.2.
"Assets" has the meaning set forth in Section 2.1.
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"Assigned Contracts" has the meaning set forth in Section 2.1(f).
"Assumed Liabilities" has the meaning set forth in Section 2.3.
"Bill of Sale, Assignment and Assumption Agreement" means a Bill of Sale,
Assignment and Assumption Agreement in substantially the form attached hereto as
Exhibit A.
"Budapest Facility" has the meaning set forth in the preamble.
"Business" has the meaning set forth in the preamble.
"Business Day" means a day other than a Saturday or a Sunday or other day
on which commercial banks in New York are authorized or required by law to
close.
"Business Employee" means any individual who, at the Closing Date, is
actively employed by MagneTek (other than individuals located at the Excluded
Facilities) working primarily for the Business, including any employee who is on
vacation leave or jury duty, or who is on other authorized leave of absence
other than short-term disability, family or workers' compensation leave,
military service or lay-off with recall rights as of the Closing Date (all such
inactive employees shall be deemed to be "Business Employees" effective as of
the date they return to active employment in the Business), but shall exclude
any other inactive or former employee including any individual who is on
long-term disability leave or unauthorized leave of absence or who has
terminated his or her employment or retired before the Closing Date.
"Business Property" has the meaning set forth in Section 4.5 hereto.
"Cegled Facility" means the facility of Hungary located in Cegled.
"Closing Date" means the day on which the Closing occurs pursuant to
Section 2.4.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Companies" has the meaning set forth in the preamble.
"Competitive Business" has the meaning set forth in Section 6.6.
"Confidential Information" has the meaning set forth in Section 6.7.
"Contract" means any contract, agreement, license, lease, sales or
purchase order or other legally binding commitment, whether written or oral.
"Contractual Obligation" means, as to any Person, any provision of any
note, bond or security issued by such Person or of any mortgage, indenture, deed
of trust, lease, license, franchise, contract, agreement, instrument or
undertaking to which such Person is a party or to which it or any of its
property or assets is subject.
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"Domestic Business" has the meaning set forth in the preamble.
"EEOC Charge" means the Equal Employment Opportunity Commission Charge
No. ###-##-#### described on Schedule 4.8.
"Effective Time" has the meaning set forth in Section 2.4.
"Employee Benefit Arrangements" means each and all pension, supplemental
pension, accidental death and dismemberment, life and health insurance and
benefits (including medical, dental, vision and hospitalization), fringe
benefit, flexible spending account programs and other employee benefit
arrangements, plans, contracts, policies or practices providing employee or
executive compensation or benefits to any Business Employee or current or former
employees of any of the Companies, other than the Employee Benefit Plans.
"Employee Benefit Plans" means each and all "employee benefit plans," as
defined in Section 3(3) of ERISA, maintained or contributed to by Seller or in
which Seller participates or participated and which provides benefits to
Business Employees, including (i) any such plans that are "employee welfare
benefit plans" as defined in Section 3(1) of ERISA and (ii) any such plans that
are "employee pension benefit plans" as defined in Section 3(2) of ERISA.
"Environmental Law" means collectively the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, and any other applicable
statutes, regulations, rules, ordinances, codes or common law which relate to
the protection of human health or the environment, as in effect on the date
hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Estimated Closing Balance Sheet" has the meaning set forth in Section
2.5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and the rules and regulations of the SEC promulgated from time to
time thereunder.
"Excluded Assets" has the meaning set forth in Section 2.2.
"Excluded Facilities" has the meaning set forth in Section 2.2.
"Excluded Liabilities" has the meaning set forth in Section 2.3.
"Facilities" has the meaning set forth in Section 10.3.
"Final Closing Balance Sheet" has the meaning set forth in Section 2.5.
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"GAAP" means generally accepted accounting principles in the United
States of America.
"Generator Agreement" means the Asset Purchase Agreement between Seller
and Emerson Electric Company dated as of April 26, 1999 for the sale of the
Generator Business.
"Generator Business" means the assets comprising the generator business
of Seller, including certain assets which have been used in other businesses of
Seller.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Material" means any substance which is defined as a hazardous
waste, hazardous substance, pollutant or contaminant under any Environmental
Law, including but not limited to, polychlorinated biphenyls ("PCBs"), petroleum
or petroleum fractions, and asbestos.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Intellectual Property" has the meaning set forth in Section 2.1(e).
"Knowledge of Seller" with reference to any of the representations and
warranties of Seller means the actual knowledge of the Persons listed on
Schedule 1.1, and does not refer to the knowledge of any other Person. In all
cases in which the Knowledge of Seller is in issue, Buyer shall bear the burden
of proof with respect thereto.
"Indemnified Person" means, with respect to any Loss, the Person seeking
indemnification hereunder.
"Indemnifying Person" means, with respect to any Loss, the Person from
whom indemnification is being sought hereunder.
"Lien" means any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other) or other security agreement of any kind
or nature whatsoever.
"Loss" means any loss, liability, claim, damage or expense (including
reasonable attorneys' fees and disbursements and the costs of investigation).
Loss recoverable hereunder is subject to the limitations set forth in Section
10.4.
"Material Adverse Effect" means any circumstance, change or effect that
is materially adverse to the business, assets, financial condition or results of
operations of the Business taken as a whole, but excluding the effects of
changes that are generally applicable to the industries and markets in which the
Business operates.
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"McMinnville Facility" means the Facility located in McMinnville,
Tennessee.
"Mexican Antitrust Law" has the meaning set forth in Section 3.1(c).
"Motor Supply Agreement" means the Integral Motor Manufacturing Services
and Facilities sharing Agreement between MagneTek and Emerson Electric Co. dated
as of April 26, 1999.
"Owned Property" has the meaning set forth in Section 2.1(a).
"Permits" has the meaning set forth in Section 4.12.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
"Products" has the meaning set forth in Section 4.13.
"Records" has the meaning set forth in Section 8.5.
"Requirement of Law" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, statute, treaty, rule, regulation, ordinance, order,
decree, consent decree or similar instrument or determination or award of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Restricted Motors" has the meaning set forth in Section 6.6.
"SEC" means the Securities and Exchange Commission.
"Seller" has the meaning set forth in the preamble hereto.
"Seller Plans" means each and all Employee Benefit Plans and Employee
Benefit Arrangements sponsored or maintained by Sellers or any of the Companies
under which Business Employees or current or former employees of the Companies
participate or are entitled to receive benefits.
"Stock" has the meaning set forth in the preamble hereto
"Supply and Service Agreements" means (i) the agreement for the supply of
wire and capacitors, to the Business between Buyer and Seller; (ii) the
agreement between Buyer and Seller in respect of sharing and provision of
certain services and facilities relating to MagneTek's logistics function; (iii)
the agreement of Seller to provide certain services to Buyer in respect of data
processing, software support and upgrade, and the remediation of "Year 2000"
matters, in each case described in clauses (i) through (iii), as outlined on
Exhibit B; (iv) the agreement of
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Seller to supply Buyer with certain products in connection with the development
projects listed on Schedule 1.1(b), such agreement to be similar to comparable
agreements for supply of custom products by MagneTek's business in Valdarno,
Italy; and (v) the license agreement pursuant to which Seller and Buyer are
cross-licensing certain intellectual property in substantially the form of
Exhibit C hereto (the "License Agreement").
"Tax" or "Taxes" means, with respect to any Person, any federal, state,
local or foreign net income, gross income, gross receipts, sales, use, ad
valorem, value-added, capital, unitary, intangible, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, transfer,
occupation, premium, property or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, addition to tax or additional amount
imposed by any jurisdiction or other taxing authority, on such Person.
"Transaction Documents" means (i) this Agreement, (ii) the Bill of Sale,
Assignment and Assumption Agreement, (iii) the deeds of conveyance of Owned
Property and (iv) the Supply and Service Agreements.
"Transactions" means the transactions contemplated by the Transaction
Documents.
"Transferred Employees" has the meaning set forth in Section 9.1.
1.2 Other Definitional Provisions.
(a) Terms defined in this Agreement in Sections other than Section 1.1
shall have the meanings as so defined when used in this Agreement.
(b) As used herein, accounting terms not defined or to the extent not
defined, shall have the respective meanings given to them under GAAP.
(c) Unless express reference is made to Business Days, references to days
shall be to calendar days.
ARTICLE II
CLOSING; PURCHASE PRICE ADJUSTMENT
2.1 Sale and Transfer of the Assets. Subject to the terms and conditions of
this Agreement, on the Closing Date Sellers will sell, convey, transfer, assign
and deliver to Buyer all of Sellers' right, title and interest in and to the
Stock and all of the business, rights, claims and assets (except the Excluded
Assets) of Seller, to the extent that they are used primarily (unless otherwise
stated) in the operations of the Domestic Business, as the same shall exist on
the Closing Date (collectively, the "Assets"). The Assets include, but are not
limited to, the following assets or rights of Seller:
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(a) the real property (including all buildings, improvements and
structures located thereon and all rights, privileges, easements and
appurtenances thereto) described on Schedule 2.1(a) hereto (the "Owned
Property");
(b) the leasehold interests used by the Business listed on Schedule
2.1(b) (the "Leased Property");
(c) all tangible personal property, including, without limitation, the
fixtures, furnishings, furniture, office supplies, vehicles, rolling stock,
tools, machinery, equipment, computer equipment (including software), located
upon or affixed to or normally located in, at or upon, even if temporarily
removed from, any of the Business Properties (collectively, the "Equipment");
(d) all inventory, including without limitation, raw materials,
work-in-process, finished goods, packaging materials, spare parts and supplies
relating primarily to the Business;
(e) all know-how, trade secrets, processes and specifications used
primarily in the Business and all trademarks, trade names, patents, service
marks, copyrights (whether registered or unregistered) and pending applications
for the foregoing listed on Schedule 2.1(e) (the "Intellectual Property");
(f) all Contracts to which Seller is a party that relate primarily to the
Domestic Business, including but not limited to all Contracts of Seller listed
on Schedule 4.7, the Motor Supply Agreement and all Contracts entered into by
Seller through the Closing Date (the "Assigned Contracts");
(g) all transferable business licenses and permits used exclusively in or
relating exclusively to the Business or the Assets (the "Permits");
(h) all books and records (other than Tax records), or portions thereof
relating to the Domestic Business, including plans and specifications, surveys
and title policies relating to the Owned Property, sales literature, product
information, employment records and files and all other information and/or data
related to or used by Seller primarily in connection with the Assets and the
operation of the Business and located at the Business Property (the "Records");
(i) all insurance proceeds paid or payable by any insurance provider,
other than Seller or any Affiliate of Seller, for any Asset that is destroyed or
damaged after the date hereof and prior to the Closing;
(j) all notes, drafts and accounts receivable, or portions thereof,
arising exclusively out of the Domestic Business;
(k) all prepaid expenses, advances and deposits (including utility
deposits), or portions thereof, arising exclusively out of the Business;
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(l) all causes of action, claims, demands, rights and privileges against
third parties that relate primarily to the Assets or the Business, including,
without limitation, all claims for past infringement of Intellectual Property
and all warranties and guaranties received from vendors, suppliers or
manufacturers with respect to the Assets or the Business;
(m) the facilities listed with an asterisk and described as logistics
facilities on Schedule 2.1(b), whether or not historically used primarily in the
Business; and
(n) all other intangible rights and assets of Seller that relate
primarily to the Business, including and without limitation, the rights to
intellectual property developed primarily for the Business at Seller's Advanced
Development Center in St. Louis, all goodwill appurtenant to the foregoing
Assets and the right to represent to third parties that Buyer is the successor
to the Business.
2.2 Assets Not Transferred. Notwithstanding anything herein to the contrary,
the following assets are not included in the Assets and shall be retained by
Seller (the "Excluded Assets"):
(a) all cash and cash equivalent items (except as described in Section
2.1(i) and (k)) including, without limitation, checking accounts, bank accounts,
lock box numbers, certificates of deposit, time deposits, securities, and the
proceeds of accounts receivable, including uncashed checks in payment thereof,
received by Seller on or prior to the Closing Date;
(b) all rights, properties, and assets which have been used or held for
use in connection with the Business and which shall have been transferred
(including transfers by way of sale) or otherwise disposed of prior to the
Closing, provided such transfers and disposals shall have been in the ordinary
course of the business of the Business as conducted at the date hereof;
(c) rights to or claims for refunds or rebates of Taxes and other
governmental charges for periods ending on or prior to the Closing Date and the
benefit of net operating loss carryforwards, carrybacks or other credits of
Seller, whether or not attributable to the Business;
(d) claims or rights against third parties not described in Section
2.1(l), except those arising with respect to events or breaches occurring after
the Closing Date under the Assigned Contracts; provided, however, that any
rights of indemnification, contribution or reimbursement that may exist under
the Assigned Contracts in respect of Excluded Assets or Excluded Liabilities
hereunder shall be Excluded Assets;
(e) all of Seller's right, title and interest in the assets sold pursuant
to the Generator Agreement;
(f) proprietary or confidential business or technical information,
records and policies that relate generally to Seller and are not used primarily
in the Business, including, without limitation, organization manuals, strategic
plans and Tax records and related information;
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(g) subject to the limited rights granted in Section 8.7, all "MagneTek"
marks, and all trademarks or service marks, trade names, slogans or other like
property relating to or including the name "MagneTek," the mark "MagneTek," or
any derivative thereof, and the "MagneTek" logo or any derivative thereof, the
name "Energy Engineered," the "Power M" design or any derivative thereof and
Seller's proprietary computer programs or other software, including but not
limited to Seller's proprietary data bases, accounting and reporting formats,
systems and procedures, but excluding any software developed primarily for the
Business;
(h) all Records relating to pending lawsuits (other than any included in
the Assumed Liabilities) to which Seller is a party and which involve the
Business;
(i) any interests in any joint venture to which any of Sellers is a
party;
(j) all notes, drafts and accounts receivable or other obligations for
the payment of money made or owed by any Affiliate of Sellers;
(k) all Seller's rights in, to and under any commodity options, puts,
calls, forwards or similar agreements with respect to commodities used by the
Business;
(l) the Cegled Facility;
(m) the logistics facilities of Seller, whether or not historically used
primarily in the Business, set forth on Schedule 2.2(m) and any facility closed
by the Business before the Closing Date (collectively with the Cegled Facility,
the "Excluded Facilities");
(n) the intellectual property that is licensed as part of the Supply and
Service Agreements; and
(o) all other assets used primarily in connection with Seller's corporate
functions (including but not limited to the corporate charter, taxpayer and
other identification numbers, seals, minute books and stock transfer books),
whether or not used for the benefit of the Business.
2.3 Assumed and Excluded Liabilities. On the Closing Date, Buyer shall
execute and deliver to Sellers the Assignment and Assumption Agreement pursuant
to which Buyer shall assume and agree to pay, perform and discharge when due,
all the liabilities and obligations of Sellers arising out of the Business, of
any kind or nature, whether absolute, contingent, accrued or otherwise, and
whether arising before or after the Closing including, without limitation, all
liabilities and obligations for (i) Taxes assumed by Buyer under Section 2.7,
(ii) under the Assigned Contracts and (iii) all liabilities and obligations of
Buyer set forth in Article IX hereof (collectively, the "Assumed Liabilities");
provided, however, that the Assumed Liabilities shall in no event include the
following liabilities (the "Excluded Liabilities"):
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(a) any liability in respect of litigation pending (including the EEOC
Charge) against any Seller or Company in respect of the Business prior to the
Closing Date and set forth on Schedule 4.8 hereto;
(b) any liability, responsibility or obligation with respect to (i) any
Seller Plan, except as provided in Article IX and, subject to clause (ii),
excluding any Assigned Contract, (ii) any payments required to be made under any
severance or change of control plan or agreement and (iii) any payroll or
payroll tax obligation;
(c) any liability for (i) warranty claims made after the Closing Date for
service, repair, replacement and similar work required under the Business'
written warranties with respect to products sold or services provided prior to
the Closing, the expenses of which in the aggregate exceed the warranty reserve
on the Final Closing Balance Sheet, (ii) claims under health insurance plans of
Seller for covered Business Employees with respect to services rendered prior to
the Closing Date, (iii) any product liability claims for injuries, property
damage or other Losses incurred prior to the third anniversary of the closing
Date in respect of any product manufactured by a Seller or a Company prior to
the Closing Date, (iv) any claims based upon an employee of the Business'
exposure to asbestos prior to the Closing Date or (v) any liability for workers'
compensation claims for injuries incurred prior to the Closing Date, but only if
written notice of such claims described in clause (i), (ii), (iv) or (v) shall
have been delivered to Seller within the two-year period following the Closing
Date;
(d) any liability for Taxes of Seller (but not of the Companies) for any
period or portion thereof ending on or prior to the Closing Date, excluding the
Taxes that are the responsibility of Buyer pursuant to Section 2.7 or those
reflected on the Final Closing Balance Sheet.
(e) any liability for any claim relating to motors manufactured by the
Business that contain or are alleged to contain asbestos;
(f) any liability attributable, based on events, facts or circumstances
existing or occurring prior to the Closing Date, to Hazardous Materials
transported offsite from a Facility for treatment, storage, disposal or
recycling prior to the Closing Date;
(g) any obligation of Seller under and pursuant to any commodity options,
puts, calls, forwards or similar agreements with respect to commodities used by
the Business;
(h) except pursuant to the Motor Supply Agreement, any liability arising
from or related to the Excluded Assets, the disposition by any of Sellers of any
business or part thereof at any time or from any facility closed by the Business
before the Closing Date;
(i) all notes, drafts and accounts payable or other obligations for the
payment of money made or owed to any Affiliate of Sellers; and
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(j) any liability covered by the insurance policies of Sellers in effect
on or prior to the Closing Date, but only to the extent a Seller receives
proceeds thereunder from a party other than a Seller or an Affiliate of a
Seller.
2.4 Closing. The closing (the "Closing") of the purchase and sale of the
Assets shall be held at the offices of Foley & Lardner, 777 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202-5367, at 9:00 a.m. on August 2, 1999, or if
the conditions to Closing set forth in Article III shall not have been satisfied
or waived by such date, subject to Section 11.3, as soon as practicable after
such conditions shall have been satisfied or waived. The date on which the
Closing shall occur is hereinafter referred to as the "Closing Date." The
Closing will be deemed effective at 12:01 a.m. on the Closing Date (the
"Effective Time"). At the Closing, Buyer shall deliver to Seller by wire
transfer (to a bank account designated at least two Business Days prior to the
Closing Date in writing by Seller) immediately available funds in an amount
equal to the sum of Two Hundred Fifty-Three Million Dollars ($253,000,000) as
adjusted based upon the estimated Closing Equity as reflected on the Estimated
Closing Balance Sheet, and such other documents as are required by this
Agreement. The purchase price (the "Purchase Price") for the Assets shall be (a)
the assumption of the Assumed Liabilities and (b) $253,000,000 minus (i) the
amount, if any, by which the Closing Equity as reflected on the Final Closing
Balance Sheet is less than the sum of (x) $161,067,000 plus (y) the face amount
of any accounts receivable described on Schedule 6.8, whether or not collected,
plus (ii) the amount, if any, by which the Closing Equity as reflected on the
Final Closing Balance Sheet exceeds the sum of (x) $161,067,000 plus (y) the
face amount of any accounts receivable described on Schedule 6.8, whether or not
collected.
At the Closing, Seller shall deliver or cause to be delivered to Buyer (a)
the Bill of Sale, Assignment and Assumption Agreement, (b) certificates
representing the Stock accompanied by stock powers, duly executed in blank, (c)
limited warranty deeds (or the equivalent thereof in any jurisdiction in which
limited warranty deeds may not be used) in recordable form for the Owned
Property being conveyed, (d) the Supply and Service Agreements and (e) such
other instruments of transfer and documents (including assignments of
Intellectual Property) as Buyer may reasonably request, and Buyer shall deliver
to Seller (a) the Assignment and Assumption Agreement (b) the Supply and Service
Agreements and (c) such other instruments of assumption and documents as Seller
may reasonably request. In addition, Seller shall deliver to Buyer at the
Closing an affidavit in form and substance reasonably satisfactory to Buyer,
duly executed and acknowledged, certifying that Seller is not a foreign person
within the meaning of Section 1445(f)(3) of the Code. Prior to the Closing,
Seller and Buyer will negotiate in good faith the terms of the definitive Supply
and Service Agreements in respect of the matters outlined on Exhibit B.
2.5 Purchase Price Adjustment.
(a) The Purchase Price shall be subject to appropriate adjustment after
the Closing Date, based upon the calculation of the Closing Equity (as
hereinafter defined) on the Closing Date. The "Closing Equity" will be the
difference between the value of the Assets and
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the Assumed Liabilities, all as shown on the Estimated Closing Balance Sheet or
the Final Closing Balance Sheet, as applicable.
(b) For purposes of determining the amount payable by Buyer at the
Closing, not less than ten (10) business days prior to the Closing Date, Seller
shall, in consultation with Buyer, prepare and deliver to Buyer an estimated
balance sheet of the Business as of the Effective Time, which shall represent
Seller's reasonable estimate of the Final Closing Balance Sheet. In the event
Buyer shall object to any of the information set forth on the Estimated Closing
Balance Sheet as presented by Seller, the parties shall negotiate in good faith
and agree on appropriate adjustments such that such balance sheet reflects a
reasonable estimate of the Final Closing Balance Sheet and the Closing Equity to
be reflected on the Final Closing Balance Sheet, but in the absence of such
agreement, the most recent month-end balance sheet of the Business shall control
(the estimated balance sheet as agreed to by the parties pursuant to this
Section 2.5(b), or in the absence of such agreement, the most recent month-end
balance sheet of the Business, is herein referred to as the "Estimated Closing
Balance Sheet"). In connection with the determination of the Estimated Closing
Balance Sheet, Seller shall provide to Buyer such information and detail as
Buyer shall reasonably request.
(c) Within 60 days after the Closing Date, Buyer shall prepare and
deliver to Seller a balance sheet of the Business as of the Effective Time
comprising the Assets and the outstanding Assumed Liabilities prepared in a
manner consistent with the April Balance Sheet and this Section 2.5 (the "Final
Closing Balance Sheet"). The balances of the following accounts on the Final
Closing Balance Sheet will be identical to the balances of such accounts on the
April Balance Sheet: (i) capitalized interest; (ii) accrued vacation and holiday
pay and (iii) FIFO reserve.
During the 30 days immediately following Seller's receipt of the
Final Closing Balance Sheet, Seller shall be entitled to review the Final
Closing Balance Sheet and Buyer's working papers relating to the Final Balance
Sheet. The Final Closing Balance Sheet shall become final and binding upon the
parties on the thirtieth day following delivery thereof unless Seller gives
written notice to Buyer of its disagreement with the method of presentation of
the Final Closing Balance Sheet (a "Notice of Disagreement") prior to such date
(the "Review Expiration Date"). Any Notice of Disagreement shall specify in
reasonable detail the nature of any disagreement so asserted and the reasons
therefor. If a timely Notice of Disagreement is received by Buyer with respect
to the Final Closing Balance Sheet, then the Final Closing Balance Sheet (as
revised in accordance with clause (x) or (y) below), shall become final and
binding upon the parties on the earlier of (x) the date the parties hereto
resolve in writing any differences they have with respect to any matter
specified in a Notice of Disagreement or (y) the date any matters properly in
dispute are finally resolved in writing by the Accounting Firm (as defined
below). During the 30 days immediately following the delivery of any Notice of
Disagreement, Seller and Buyer shall seek in good faith to resolve in writing
any differences which they may have with respect to any matter specified in such
Notice of Disagreement. During such period, Seller and Buyer shall each have
access to the other party's working papers prepared in connection with the other
party's preparation of a Notice of Disagreement. At the
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end of such 30-day period, Seller and Buyer shall submit to an independent
accounting firm (the "Accounting Firm") for review and resolution any and all
matters which remain in dispute and which were properly included in any Notice
of Disagreement, and the Accounting Firm shall reach a final, binding resolution
of all matters which remain in dispute. The Accounting Firm will be instructed
to use every reasonable effort to issue its determination within fifteen (15)
days of submission of the dispute to it, and in all events, within thirty (30)
days after such submission. The Final Closing Balance Sheet, with such
adjustments necessary to reflect the Accounting Firm's resolution of the matters
in dispute, shall become final and binding on Buyer and Seller on the date the
Accounting Firm delivers its final resolution to the parties (such date being
the "Settlement Date"). The Accounting Firm shall be Arthur Andersen LLP, or if
such firm is unable or unwilling to act, such other nationally recognized
independent public accounting firm as shall be agreed upon by the parties hereto
in writing. The fees and expenses of the Accounting Firm pursuant to this
Section 2.5 shall be borne 50% by Buyer and 50% by Seller.
(d) If the Closing Equity as reflected on the Final Closing Balance Sheet
is determined to be less than the Closing Equity as reflected on the Estimated
Closing Balance Sheet, there will be a dollar-for-dollar downward adjustment of
the Purchase Price, with Seller being obligated to pay Buyer the sum by which
the Closing Equity as reflected on the Final Closing Balance Sheet is less than
the Closing Equity as reflected on the Estimated Closing Balance Sheet. If the
Closing Equity as reflected on the Final Closing Balance Sheet is determined to
be greater than the Closing Equity as reflected on the Estimated Closing Balance
Sheet, there will be a dollar-for-dollar upward adjustment of the Purchase
Price, with Buyer being obligated to pay Seller any sum by which the Closing
Equity as reflected on the Final Closing Balance Sheet exceeds the Closing
Equity as reflected on the Estimated Closing Balance Sheet. The Purchase Price
shall also be subject to adjustment after the Closing Date on account of the
proration of water, electricity, gas, sewage and other utility charges and taxes
applicable to the Business if and only to the extent such amounts are not
reflected on the Final Closing Balance Sheet. In addition, the Purchase Price
shall be reduced (but no other change will be made to the April Balance Sheet or
the Final Closing Balance Sheet) to reflect the exclusion of any Business
Property at the Closing pursuant to Section 6.9 by multiplying the net book
value of such Business Property as reflected on the April Balance Sheet by a
fraction, the numerator of which is the Purchase Price and the denominator of
which is the net book value of the Business as reflected on the April Balance
Sheet. If the Purchase Price is subject to adjustment pursuant to this Section
2.5(d), the required adjustment, together with interest on the amount being paid
from the Closing Date to the date of payment at a rate per annum equal to the
90-day London Inter-Bank Offered Rate ("LIBOR") on the Closing Date, shall be
paid within five (5) days after the Review Expiration Date or, if a Notice of
Disagreement was delivered by Seller, the Settlement Date, and, if a Business
Property that was not transferred to Buyer at the Closing pursuant to Section
6.9 is subsequently transferred to Buyer after the Closing, the related portion
of the Purchase Price will be paid, within five (5) days after the date of the
transfer of such Business Property pursuant to Section 6.9. Either party may, in
its discretion, make a payment pursuant to this Section 2.5(d) prior to the
final determination of the Final Closing Balance Sheet for the purpose of
reducing the interest it may be obligated to pay pursuant to such provision.
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(e) The Estimated Closing Balance Sheet and the Final Closing Balance
Sheet shall be prepared in accordance with GAAP, applied in a manner consistent
with that followed in the preparation of the balance sheet described in Section
4.2(b)(iii).
(f) Buyer agrees, with respect to adjustments to the Purchase Price
pursuant to Section 2.5(d) hereof, that following the Closing, Buyer will not
take any actions with respect to the accounting books, records, policies and
procedures of the Business on which the Final Closing Balance Sheet is to be
based that are not consistent with GAAP applied in the manner consistent with
the past practices of the Business.
2.6 Tax Allocation. Within ninety (90) days following the Closing Date,
representatives of Buyer and Seller shall meet and discuss the allocation of the
amount of the Purchase Price (to the extent identifiable or reasonably estimable
and taken into account for federal tax purposes) to broad categories
constituting components of the Assets and the covenant not to compete contained
in Section 6.6 hereof that each party believes is appropriate. Within one
hundred twenty (120) days following the Closing Date, Buyer shall deliver to
Seller Buyer's reasonable determination, taking into account in good faith the
discussion between the representatives of Buyer and Seller, of such allocation,
which determination shall be subject to Seller's consent, which consent shall
not be unreasonably withheld. If Buyer and Seller are unable to agree on such
allocation, then the Accounting Firm will be retained to determine such
allocation (the cost of which shall be borne equally by Buyer and Seller). Buyer
and Seller shall report the purchase and sale of the Assets in accordance with
such allocation (as finally determined) for all Tax purposes (including the
filing of the forms prescribed under Section 1060 of the Code and the Treasury
Regulations promulgated thereunder).
2.7 Transfer Taxes. Buyer and Seller shall cooperate in preparing, executing
and filing use, sales, real estate, transfer and similar Tax returns relating
to, and at the Closing, Buyer and Seller each shall pay one-half, of any and all
sales, real estate, transfer, use and similar Taxes due with regard to, the
purchase and sale of the Assets. To the extent such Taxes are not computed at
the Closing, the parties shall each pay their respective one-half of such Taxes
when they are due. Under no circumstances shall Buyer's obligation hereunder or
the Taxes giving rise thereto be reflected as a liability on the Final Closing
Balance Sheet nor will Seller's obligation hereunder or the Taxes giving rise
thereto be considered an Assumed Liability. Such Tax returns shall be prepared
in a manner that is consistent with the allocation of the Purchase Price and
Assumed Liabilities contemplated by Section 2.6. Buyer will cooperate with
Seller in providing such resale certificates as may be requested in order to
comply with the requirements of applicable state taxation laws. Without limiting
the generality of the foregoing, if requested by Seller, Buyer agrees to enter
into a separate agreement that is entirely consistent with the terms hereof, but
evidences solely the transfer of the Stock of Igmex and the portion of the
Purchase Price allocable thereto.
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ARTICLE III
CONDITIONS TO CLOSING
3.1 Buyer's Obligation. The obligations of Buyer to purchase and pay for the
Assets are subject to the satisfaction (or waiver by Buyer) as of the Closing of
the following conditions:
(a) The representations and warranties of Seller made in this Agreement
shall be true and correct in all material respects as of the date hereof and,
except as specifically contemplated by this Agreement, on and as of the Closing,
as though made on and as of the Closing Date, and Sellers shall have performed
or complied in all material respects with all obligations and covenants required
by this Agreement to be performed or complied with by Seller by the time of the
Closing; and Seller shall have delivered to Buyer a certificate dated the
Closing Date and signed by an authorized officer of Seller confirming the
foregoing.
(b) No injunction or order shall have been granted by any court or
administrative agency or instrumentality of competent jurisdiction that would
restrain or prohibit any of the Transactions or that would impose damages as a
result thereof, and no action or proceeding shall be pending before any court or
administrative agency or instrumentality of competent jurisdiction in which any
Person seeks such a remedy (if in the opinion of counsel to Buyer there exists a
reasonable risk of a materially adverse result in such pending action or
proceeding).
(c) The waiting period under the HSR Act shall have expired or been
terminated and the parties shall have received the necessary approval under the
Mexican Federal Law of Economic Competition (the "Mexican Antitrust Law").
(d) All authorizations, approvals, notices, consents and waivers that are
required to effect the Transactions, the failure to obtain or provide,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect, shall have been obtained and copies thereof provided to
Buyer.
3.2 Seller's Obligation. The obligation of Seller to sell and deliver the
Assets to Buyer is subject to the satisfaction (or waiver by Seller) as of the
Closing of the following conditions:
(a) The representations and warranties of Buyer made in this Agreement
shall be true and correct in all material respects as of the date hereof and on
and as of the Closing, as though made on and as of the Closing Date, and Buyer
shall have performed or complied in all material respects with all obligations
and covenants required by this Agreement to be performed or complied with by
Buyer by the time of the Closing; and Buyer shall have delivered to Seller a
certificate dated the Closing Date and signed by an authorized officer of Buyer
confirming the foregoing.
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(b) No injunction or order shall have been granted by any court or
administrative agency or instrumentality of competent jurisdiction that would
restrain or prohibit the Transactions or that would impose damages as a result
thereof, and no action or proceeding shall be pending before any court or
administrative agency or instrumentality of competent jurisdiction in which any
person seeks such a remedy (if in the opinion of counsel to Seller there exists
a reasonable risk of a materially adverse result in such pending action or
proceeding).
(c) The waiting period under the HSR Act shall have expired or been
terminated and the parties shall have received the necessary approval under the
Mexican Antitrust Law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
4.1 Authority; No Conflicts; Governmental Consents; Corporate Matters.
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. UK is a company duly organized
and validly existing under the laws of the United Kingdom. Hungary is a company
duly organized, validly existing under the laws of Hungary. Canada is a company
duly organized and existing under the laws of Canada. Igmex is a company duly
organized under the laws of Mexico. SEA is a company duly organized and existing
under the laws of Singapore. BV is a company duly organized and existing under
the laws of the Netherlands. Each Seller has all requisite corporate power and
authority to enter into the Transaction Documents and to consummate the
Transactions. All corporate acts and other proceedings required to be taken by
Sellers to authorize the execution, delivery and performance of the Transaction
Documents and the consummation of the Transactions have been duly and properly
taken, including, without limitation, any shareholder approvals. This Agreement
has been, and each of the Transaction Documents, when executed, will be, duly
executed and delivered by each Seller and constitute a valid and binding
obligation of such Seller, enforceable against such Seller in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally or by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(b) Schedule 4.1(b) sets forth a true and complete list of all
jurisdictions in the United States in which MagneTek is qualified to do
business.
(c) The execution and delivery of this Agreement does not and of the
other Transaction Documents will not, and the consummation of the Transactions
and compliance with the terms of the Transaction Documents will not conflict
with, or result in any violation of or
16
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a benefit under, or result in the creation of any Lien upon any of the
properties or assets of Sellers or the Companies under, any provision of (i) the
Certificate of Incorporation or By-Laws or other organizational or governing
documents of Sellers or the Companies, (ii) subject to the matters disclosed in
Schedule 4.1(c), any Contractual Obligation of Sellers or the Companies or (iii)
any judgment, order or decree or, subject to the matters described in clauses
(A)-(D) below, Requirement of Law applicable to Sellers or the Companies or
their respective property or assets, other than, in the case of clauses (ii) and
(iii) above, any such conflicts, violations, defaults, rights or Liens that,
individually or in the aggregate, would not have a Material Adverse Effect. No
consent, approval, license, permit, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required to be
obtained or made by or with respect to Sellers in connection with the execution
and delivery of the Transaction Documents or the consummation of the
Transactions contemplated hereby, other than (A) compliance with and filings
under Section 13(a) or 15(d), as the case may be, of the Exchange Act, (B)
compliance with and filings and notifications under applicable Environmental
Laws, (C) those that may be required solely by reason of Buyer's participation
in the transactions contemplated hereby, (D) compliance with and filings under
the HSR Act and the Mexican Antitrust Law and (E) those that, if not made or
obtained, individually or in the aggregate, would not have a Material Adverse
Effect.
(d) Each of the Companies is duly incorporated and is validly subsisting
and, in jurisdictions in which the concept is recognized, is in good standing
under the laws of the jurisdiction in which it is organized, and has all
requisite corporate power and authority to own, lease and operate its properties
and to conduct its business as it is now being conducted. Each of the Companies
is duly licensed or qualified and in good standing as a foreign corporation in
each jurisdiction in which the ownership of its property or the nature of the
business conducted by it is such as to require it to be so licensed or
qualified, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on the Companies.
(e) The authorized shares of each of the Companies consists of the shares
listed on Schedule 4.1(e), all of which are issued and outstanding and
constitute the Stock. Schedule 4.1(e) sets forth the respective dates of
formation of each Company. Except as set forth on such Schedule, since the
respective dates the Companies were acquired or formed by the respective
Sellers, no other Person has merged with or into any of the Companies. All the
outstanding shares of Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, except as provided by
applicable law. The only business each of the Companies currently conducts, and
has conducted since the Company was acquired or formed by the Sellers, is the
Business. The Companies do not own or lease any real properties other than the
Business Properties.
(f) None of the Companies has granted any outstanding options, warrants,
rights or other securities convertible into or exchangeable or exercisable for
its shares or any other commitments or agreements providing for the issuance of
additional shares, the sale of treasury shares, or for the repurchase or
redemption of such Company's shares. There are no
17
agreements of any kind which obligate one of the Companies to issue, purchase,
redeem or otherwise acquire any of its shares.
(g) None of the Companies directly or indirectly owns any interest in any
other corporation, partnership, joint venture or other business association or
entity, foreign or domestic.
4.2 Financial Statements; Absence of Changes.
(a) Schedule 4.2 contains a true and complete copy of the following:
(i) the unaudited balance sheet of the Business as at June 30,
1998, and the related unaudited statements of income for the fiscal year
then ended; and
(ii) the unaudited balance sheet of the Business as of December
31, 1998, and the related statements of income for the six-month period
ended December 31, 1998; and
(iii) the unaudited balance sheet of the Business as of April 30,
1999 and the related statements of income for the ten-month period ended
April 25, 1999.
The financial statements described in the foregoing clauses (i), (ii) and (iii)
are collectively referred to herein as the "Financial Statements." Except as set
forth on Schedule 4.2(a), the Financial Statements: (A) were prepared in
accordance with the books and records of MagneTek, (B) fairly present the
financial position of the Business in each case at and as of the dates
indicated, and the results of operations, of the Business for the periods
indicated and (C) except as otherwise set forth on Schedule 4.2(a), were
prepared in accordance with GAAP consistently applied throughout the periods
covered thereby (subject to the absence of notes and to normal year-end
adjustments).
(b) Absence of Changes. Except as set forth on Schedule 4.2(b), since
December 31, 1998, the Business has been operated in the ordinary course and
consistent with past practice, and there have not been any:
(i) material adverse changes in the assets (including, without
limitation, levels of working capital and the material components
thereof), liabilities, earnings or financial condition of the Business;
(ii) occurrences resulting in the damage, destruction or loss
(whether or not covered by insurance) affecting any tangible asset or
property of the Business in excess of $500,000;
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(iii) (x) material increases in the benefits under any Seller
Plans; (y) material increases in salary payable to any employee of the
Business (other than employees described in clause (z)) other than in the
ordinary course of the business of the Business and consistent with past
practice or (z) other than any increases approved in advance by Buyer,
any increases in salary or bonus payable to any employee of the Business
who is a participant in MagneTek's Incentive Compensation Program;
(iv) to the Knowledge of Seller, material changes in the manner in
which the Business extends discounts or credits to customers or otherwise
deals with customers;
(v) changes in the accounting methods or practices followed by or
with respect to the Business, or any changes in depreciation or
amortization policies or rates theretofore adopted;
(vi) agreements or commitments to merge or consolidate with or
otherwise acquire any other Person, or any part or division thereof;
(vii) actions or efforts made by or on behalf of Sellers or the
Companies, which would, or would have the effect of, accelerating sales
of the Business or revenue recognition relating to the Business, which in
the ordinary course of business would be attributable to post-Closing
periods, to pre-Closing periods;
(viii) other material transactions relating to the Business, other
than in the ordinary course of the Business and consistent with past
practice; or
(ix) agreements or understandings, whether in writing or
otherwise, for any of Sellers or the Companies to take any of the actions
specified in items (i) through (viii) above.
(c) Absence of Undisclosed Liabilities. Except as and to the extent
specifically disclosed in the April Balance Sheet, or in Schedule 4.2(c), Seller
does not have any liabilities relating to the Business, and none of the
Companies has any liabilities, other than:
(i) liabilities and obligations incurred since the date of the
April Balance Sheet in the ordinary course of business and consistent
with past practice and which have not had or will not have a Material
Adverse Effect, or
(ii) liabilities disclosed in this Agreement or any schedule to
this Agreement, or which are of the type or kind required to be disclosed
in the schedules, but are not disclosed solely because they fall below
the minimum threshold amount, term or materiality of the disclosures
required by the terms of this Agreement to be set forth in such
schedules.
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4.3 Taxes.
(a) Except as disclosed on Schedule 4.3, (i) Seller has filed or caused
to be filed all material Tax returns of Seller which have become due (taking
into account valid extensions of time to file) prior to the date hereof, and has
paid or caused to be paid all Taxes due, in each case to the extent Buyer would
incur liability under a successor liability (or similar) statute for failure to
file such returns or pay such Taxes by reason of its acquisition of the
Business, (ii) Seller has filed or caused to be filed all material Tax returns
of the Companies which have become due (taking into account valid extensions of
time to file) prior to the date hereof, and has paid or caused to be paid all
Taxes due, (iii) there are no outstanding Tax Liens that have been filed by any
Tax authority against any property or assets of the Business and (iv) no claims
are being asserted in writing with respect to any Taxes relating to the Business
for which Buyer could be held liable under a successor liability (or similar)
statute by reason of its acquisition of the Business.
(b) The provision made for Taxes on the April Balance Sheet is sufficient
for the payment of all Taxes of the Companies due as of the date of the April
Balance Sheet. Since the date of the April Balance Sheet, the Companies have not
incurred any Taxes other than Taxes incurred in the ordinary course of business
consistent in type and amount with past practices of the Companies.
(c) Since they were acquired or incorporated by Sellers, none of the
Companies has been part of an affiliated, consolidated, combined or unitary
group other than the consolidated group of one of the Sellers.
(d) Except as set forth in Schedule 4.3, (i) none of the Assets comprises
"tax exempt use property" within the meaning of Section 168(h) of the Code and
(ii) the Assigned Contracts do not include any lease made pursuant to former
Section 168(f)(8) of the Internal Revenue Code of 1954.
(e) Seller is not a "foreign person" within the meaning of Section
1445(f)(3) of the Code.
4.4 Assets Other than Real Property Interests. Seller has good and
marketable title to all assets reflected on the Balance Sheet or thereafter
acquired, except those sold or otherwise disposed of since the date of such
Balance Sheet in the ordinary course of business consistent with past practice,
in each case free and clear of all Liens except: (a) such as are disclosed on
Schedule 4.4 and (b) mechanics', carriers', workmen's, repairmen's or other like
Liens arising or incurred in the ordinary course of business, Liens arising
under original purchase price conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business, Liens for
Taxes and other governmental charges which are not due and payable or which may
thereafter be paid without penalty, and other imperfections of title,
restrictions or encumbrances, if any, which Liens, imperfections of title,
restrictions or other encumbrances do not, individually or in the aggregate,
materially impair the continued use and
20
operation of the specific assets to which they relate (the Liens described in
the preceding clause (b) are hereinafter referred to collectively as "Permitted
Liens"). Seller has completed each of the actions described on Schedule 4.4
under the heading "Year 2000 Remediation and Oracle Implementation Actions."
This Section 4.4 does not relate to real property or interests in real
property, such items being the subject of Section 4.5.
4.5 Real Property. Schedule 2.1(a) sets forth a complete list of all Owned
Properties and Schedule 2.1(b) sets forth a complete list of all Leased
Properties and, as to Leased Property, identifies any leases relating thereto
(an Owned Property or Leased Property being sometimes referred to herein
individually as a "Business Property" and collectively as "Business
Properties"). Seller has good, marketable and insurable fee title to all Owned
Property, free and clear of all Liens, easements, covenants, rights-of-way and
other similar restrictions of any nature whatsoever, except: (i) Permitted
Liens, (ii) easements, covenants, rights-of-way and other similar restrictions
of record (or contained in the respective title deeds) and (iii) (A) zoning,
building and other similar restrictions, (B) Liens that have been placed by any
developer, landlord or other third party on property over which Seller has
easement rights or on any Leased Property and subordination or similar
agreements relating thereto and (C) unrecorded easements, covenants,
rights-of-way or other similar restrictions, none of which items set forth in
clauses (A), (B) and (C) above, individually or in the aggregate, materially
impair the continued use and operation of the property to which they relate.
4.6 Intellectual Property. Schedule 2.1(e) sets forth a list of all material
Intellectual Property (excluding know-how, trade secrets, specifications and
processes and any such Intellectual Property that is included in Excluded
Assets). MagneTek or one of the Companies is the owner of record, free and clear
of any Liens other than Permitted Liens, in the relevant Patent or Trademark
Office of all patents, trademark registrations or applications therefor on
Schedule 2.1(e). With respect to registered trademarks, Schedule 2.1(e) contains
a list of all jurisdictions in which such trademarks are registered or applied
for and all registration and application numbers. Except as disclosed on
Schedule 4.6 and except for licenses of software or firmware used in the
Business that are generally available "off-the-shelf" through commercial
software vendors, MagneTek or one of the Companies owns or has the right to use,
without payment to any other party, the Intellectual Property except where the
failure so to own or have the right to use such Intellectual Property would not
have a Material Adverse Effect. Except as disclosed on Schedule 4.6, no third
party has been licensed or permitted to use any of the Intellectual Property.
Except as set forth on Schedule 4.8, no claims are pending or, to the Knowledge
of Seller, threatened against Seller or any of the Companies by any person with
respect to the ownership, validity, enforceability or use of any Intellectual
Property, challenging or questioning the validity or effectiveness of any such
Intellectual Property or alleging that any of Seller (in respect of the
Business) or any Company is infringing upon the intellectual property rights of
others, except in each such case, such claims as would not, individually or in
the aggregate, have a Material Adverse Effect. To the Knowledge of Seller,
except as disclosed on such Schedule, none of the Companies or MagneTek (in
respect of the Business) are infringing
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on any third party's intellectual property in the operation of the Business
except for such infringement which, individually or in the aggregate, would not
have a Material Adverse Effect.
4.7 Contracts. Schedule 4.7 sets forth a list of each of the following types
of Contracts to which MagneTek is a party and which relate to the Domestic
Business or to which any Company is a party:
(a) any employment or severance agreement that has an aggregate future
liability in excess of $100,000 (including any contracts or agreements with
certain employees that relate to the transactions contemplated by this Agreement
which are not being assumed by Buyer, referred to as "Stay and Pay" Agreements);
(b) any employee collective bargaining agreement or other contract with
any labor union covering Business Employees;
(c) any Contract pursuant to which the aggregate of payments to become
due from or to Seller or a Company is equal to or exceeds $500,000, and which is
not terminable by no more than 60 days' notice or as to which the cost to
terminate such Contract equals or exceeds $500,000;
(d) (i) any distributor, dealer, sales, advertising, agency,
manufacturer's representative, franchise or similar Contract currently in
effect, regardless of the amount of commissions payable thereunder, or (ii) any
other contract requiring the payment of any commissions in excess of $500,000
per year;
(e) any option or other agreement to purchase or otherwise acquire or
sell or otherwise dispose of any interest in real property;
(f) any guaranty of the obligations of third parties;
(g) any agreement under which the Business or a Company has agreed to
indemnify any third party with respect to, or to share, the Tax liability of any
third party;
(h) any commitment to make a capital expenditure or to purchase a capital
asset in excess of $100,000 by or on behalf of Seller or the Companies in
connection with the operation of the Business;
(i) any agreement or commitment relating to the location of employees or
minimum number of employees to be employed by Seller with respect to the
Business or the Companies; or
(j) any other Contract which is material to the Business, the Assets or
Assumed Liabilities other than this Agreement and the Transaction Documents.
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Except as disclosed on Schedule 4.7, each Contract listed on Schedule 4.7
(and to the extent leases are not listed on Schedule 4.7, each lease in respect
of Leased Property) is valid, binding and in full force and effect and is
enforceable by the Seller or the Company that is party thereto in accordance
with its terms. Except as disclosed in Schedule 4.7, the Seller or the Company
that is party thereto has performed all material obligations required to be
performed by it to date under the Contracts and is not in breach or default in
any material respect thereunder and, to the Knowledge of Seller, no other party
to any of the Contracts is in breach or default in any material respect
thereunder.
The Motor Supply Agreement contains methodology for determining the
actual cost of the motors produced under such Agreement that is the same in all
material respects as the methodology historically used in the Business to
determine such costs.
4.8 Litigation; Decrees. Schedule 4.8 sets forth a list, as of the date of
this Agreement, of all pending and, to the Knowledge of Seller, threatened
lawsuits or claims with respect to which Seller or one of the Companies has been
contacted in writing by the claimant or by counsel for the claimant relating to
the Business which (a) has or can be reasonably expected to have an adverse
effect on the Business exceeding $250,000 in damages or costs of compliance with
an order or judgment, (b) seeks any injunctive relief or (c) seeks to prevent
the Transactions. Schedule 4.8 sets forth a description of Sellers' and the
Companies' product liability experience in respect of the Business for the
period beginning July 1, 1997 to the present. Neither Seller nor any Company is
in default under any judgment, order or decree of any court, administrative
agency or commission or other Governmental Authority applicable to the Business;
except where the default would not have a Material Adverse Effect.
4.9 Employee and Related Matters. Schedule 4.9 sets forth each material
Seller Plan. Each such Seller Plan has been maintained in material compliance
with all applicable laws and regulations and in accordance in all material
respects with the provisions of such Seller Plan. None of MagneTek's assets is
subject to a Lien, actual or contingent, under Section 4068 of ERISA, nor will
consummation of the Transactions give rise to liability under Sections 4062,
4063, 4064, 4069 or 4201 of ERISA. Seller has made available to Buyer true,
complete and correct copies of (i) each such Seller Plan (or, in the case of any
unwritten Seller Plans, descriptions thereof), (ii) the most recent annual
report on Form 5500 filed with the IRS with respect to each Seller Plan that is
subject to Title IV of ERISA and (iii) the most recent summary plan description
for each Seller Plan for which such a summary plan description is required.
4.10 Environmental Matters. Except as disclosed on Schedule 4.10, or in any
report prepared for Buyer reflecting results of investigations conducted in
connection with Buyer's acquisition-related due diligence ("Buyer Environmental
Reports"):
(a) (i) the Business is in compliance with all applicable Environmental
Laws, including permitting requirements, except where any instance of
non-compliance would not have a Material Adverse Effect and (ii) since January
1, 1997 Seller has not received written notice of any claim, investigation,
demand or notice by any Person alleging non-compliance with or
23
liability under any Environmental Law in respect of the Business which would,
individually or in the aggregate, have a Material Adverse Effect and, to the
Knowledge of Seller, Seller is not the subject of any such claim, investigation
or demand. To the Knowledge of Seller, there is no underground storage tank at
any Business Property, and there has not been any underground storage tank at
any Business Property of the Domestic Business.
(b) Except for the existing conditions at and around the McMinnville
Facility, there is no existing contamination by, and there has not been the
release of, any Hazardous Material on, at or under any Business Property that
has or would have a Material Adverse Effect. Except where the presence of a
Hazardous Material or the knowledge of the presence of a Hazardous Material
constitutes a failure to comply with Environmental Laws, nothing in this Section
4.10(b) pertains to any compliance or permitting matters, which are covered
solely by Section 4.10(a).
No representation or warranty is made in this Agreement as to any matters
relating to the environment, Environmental Laws or Hazardous Materials except in
this Section 4.10.
4.11 Employee and Labor Relations. Except as set forth on Schedule 4.11:
(a) there is no labor strike, dispute, or work stoppage or lockout
pending, or, to the Knowledge of Seller, threatened, involving the Business;
(b) to the Knowledge of Seller, no union organization campaign is in
progress with respect to the employees of the Business, and no question
concerning representation exists respecting such employees;
(c) there is no unfair labor practice charge or complaint against Seller
or any Company pending, or, to the Knowledge of Seller, threatened, before the
National Labor Relations Board or similar governmental agency outside of the
United States involving the Business that has or can be reasonably expected to
have a Material Adverse Effect;
(d) there is no pending, or, to the Knowledge of Seller, threatened,
grievance involving an employee of the Business that has or can be reasonably
expected to have, if adversely decided, a Material Adverse Effect; and
(e) no charges with respect to or relating to Seller or any Company in
respect of the Business are pending before the Equal Employment Opportunity
Commission or any other Governmental Authority responsible for the prevention of
unlawful employment practices that has or can be reasonably expected to have a
Material Adverse Effect.
4.12 Compliance With Law; Permits.
(a) Except as set forth in Schedule 4.12(a), none of Seller or the
Companies are in violation of any Requirement of Law applicable to the Business,
which violation has or
24
can be reasonably expected to have an adverse effect on the Business exceeding
$250,000 in damages or costs of compliance with Requirements of Law.
(b) Except as set forth in Schedule 4.12(b), (i) Seller and the Companies
have all licenses, permits, orders, approvals and other authorizations of or
from all Governmental Authorities which are necessary in the conduct of the
Business ("Permits"), (ii) such Permits are in full force and effect, and (iii)
no violations or claimed violations are pending before any Governmental
Authority with respect to such Permits except any such violation or claimed
violation as would not be required to be set forth on Schedule 4.8.
4.13 Product Warranty and Product Liability. Schedule 4.13 contains a true,
correct and complete copy of Seller's and the Companies' standard warranty or
warranties for sales of Products. Except as set forth or described on Schedule
4.13, neither Seller nor the Companies has outstanding any warranty which
differs in any material respect from such standard warranties. Except as set
forth on Schedule 4.13, MagneTek has not received notice, since July 1, 1998,
from any customer to the effect that such customer has experienced product
quality problems of such significance that it has reason to believe a concession
of over $25,000 would be required in order to resolve such customer's concerns.
Each of the Products produced or sold by Seller in connection with the Business
or by the Companies is, and at all times up to and including the sale of such
Product has been, (i) in compliance in all material respects with all
Requirements of Law, (ii) fit for the ordinary purposes for which it is intended
to be used and (iii) conforms in all material respects to any promises or
affirmations of fact made on the packaging or instructions for such product or
in connection with its sale. Except as set forth on Schedule 4.13, on the date
of this Agreement, to the extent required by law or by a customer, all Products
currently offered by the Business have been rated and approved by Underwriters
Laboratories or the analogous foreign body, as the case may be. The Business is
in compliance in all material respects with all requirements relating to such
ratings and approvals, and Seller and the Companies have not received any notice
that such ratings or approvals may be revoked or withdrawn. Schedule 4.13 sets
forth a description of all warranty claims processed since July 1, 1998 and all
customer concessions, in each case that have been recorded in amounts exceeding,
in any one such claim or concession, $50,000. The term "Products" as used in
this Section 4.13 means any and all products currently designed, manufactured,
distributed or sold by Seller or the Companies or subject to ongoing warranty.
4.14 Assets of the Business. Except for any Excluded Assets (other than
those described in Section 2.2(e) or (f)) or Assets that may not be transferred
to Buyer pursuant to Section 8.1 and except as set forth on Schedule 4.14, the
Assets, the assets of the Companies and the rights conferred by the Transaction
Documents comprise all of the properties, assets (including, without limitation,
computer software and licenses therefor) and rights of Seller and the Companies
material to the conduct of the Business as presently conducted and are adequate
to conduct the Business on a basis consistent with past practice. Schedule 4.14
lists all material services provided by employees of Seller or its Affiliates
(other than employees located at the Facilities) that relate to the Business and
all material supply arrangements between the Business and another business of
Seller or any Affiliate of Seller, in each case since July 1, 1998. EXCEPT
25
AS EXPRESSLY PROVIDED HEREIN, SELLER MAKES NO REPRESENTATION OR WARRANTY
CONCERNING THE ASSETS OR THE BUSINESS, INCLUDING AS TO THE QUALITY, CONDITION,
MERCHANTABILITY, SALABILITY, OBSOLESCENCE, WORKING ORDER OR FITNESS FOR A
PARTICULAR PURPOSE THEREOF. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE ASSETS ARE
SOLD TO BUYER "AS IS AND WHERE IS."
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
5.1 Authority; No Conflicts; Governmental Consents.
(a) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer has all requisite
corporate power and authority to enter into the Transaction Documents and to
consummate the Transactions. All corporate acts and other proceedings required
to be taken by Buyer to authorize the execution, delivery and performance of the
Transaction Documents and the Transactions have been duly and properly taken.
This Agreement has been, and the Transaction Documents, when executed, will be,
duly executed and delivered by Buyer and constitute valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally or by general principles (regardless of
whether such enforceability is considered in a proceeding in equity or law).
(b) Except as disclosed on Schedule 5.1(b), the execution and delivery of
this Agreement does not and of the other Transaction Documents will not, and the
consummation of the Transactions and compliance with the terms of the
Transaction Documents will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon any
of the properties or assets of the Buyer under, any provision of (i) the
Certificate of Incorporation or By-Laws of Buyer, (ii) any Contractual
Obligation of Buyer or (iii) any judgment, order or decree or, subject to the
matters described in clauses (A)-(D) below, statute, law, ordinance, rule or
regulation applicable to Buyer or its property or assets. No material consent,
approval, license, permit order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other Governmental Authority is required to be obtained or made by or with
respect to Buyer or its Affiliates in connection with the execution and delivery
of the Transaction Documents or the consummation by Buyer of the Transactions,
other than (A) compliance with and filings under Section 13(a) and 15(d), as the
case may be, of the Exchange Act, (B) compliance with and filings and
notifications under applicable state environmental laws, (C) compliance with and
filings under the HSR Act and the Mexican Antitrust Law and (D) those
26
that may be required solely by reason of Seller's (as opposed to any other third
party's) participation in the transactions contemplated hereby.
5.2 Actions and Proceedings, Etc. There are no: (a) outstanding judgments,
orders, writs, injunctions or decrees of any court, governmental agency or
arbitration tribunal against Buyer or (b) actions, suits, claims or legal,
administrative or arbitration proceedings or investigations pending or, to the
knowledge of Buyer, threatened against Buyer in either case that are reasonably
likely to materially and adversely affect the ability of Buyer to enter into and
perform its obligations under this Agreement.
5.3 Buyer's Acknowledgment. Buyer acknowledges and agrees that, (a) other
than the representations and warranties of Seller specifically contained in this
Agreement, there are no representations or warranties of Seller either expressed
or implied with respect to such Seller, the Business or the Transactions and (b)
it shall have a right to indemnification solely as provided in Article X hereof
and shall have no claim or right to indemnification with respect to any
information, documents or materials furnished by either Seller or any of its
officers, directors, employees, agents or advisors, or otherwise available to
Buyer.
5.4 Solvency. Immediately after giving effect to the Transactions, Buyer
will be able to pay its debts as they become due and will own property which has
a fair salable value greater than the amounts required to pay its debts
(including a reasonable estimate of the amount of all contingent liabilities).
Immediately after giving effect to the Transactions, Buyer will have adequate
capital to carry on its businesses. No transfer of property is being made and no
obligation is being incurred in connection with the transactions contemplated by
this Agreement with the intent to hinder, delay or defraud either person or
future creditors of Buyer.
5.5 No Knowledge of Seller's Breach. Buyer does not have knowledge of any
breach of any representation or warranty by Seller. If Buyer obtains knowledge
relevant to the representations and warranties of Seller under this Agreement
before the Closing Date (whether through Seller or otherwise), then for the
purposes of Seller's liability under such representations and warranties the
effect shall be as if the representations and warranties were so modified in
this Agreement, and no claim for indemnification may be made under Article X
hereof to the extent such claim would not arise under such modified
representation or warranty. For purposes of this Section 5.6, Buyer will not be
deemed to have knowledge of any breach of any representation or warranty unless
one of the individuals named in Schedule 5.6 has actual knowledge thereof, and
Seller shall bear the burden of proof with respect thereto.
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ARTICLE VI
COVENANTS OF SELLER
Seller covenants and agrees as follows:
6.1 Access. Subject to the provisions of Section 7.1 hereof, prior to the
Closing, Seller will give Buyer and its representatives, employees, counsel and
accountants reasonable access during normal business hours and upon reasonable
notice, to the personnel, properties, books and records of the Business for
purposes of investigating its assets, operations, prospects, obligations and
liabilities; provided, however, that such access does not unreasonably disrupt
the normal operations of the Business. Additionally, subject to the provisions
of Section 7.1 hereof and to prior notification and the consent (which will not
be unreasonably withheld or delayed) of Buyer, Buyer and such representatives
may contact the principal customers and suppliers of the Business for purposes
of the foregoing investigation. Without limiting Seller's obligations under this
Section 6.1, upon the Closing or sooner with the consent of Seller, which shall
not be unreasonably withheld, Buyer may arrange, at Buyer's expense, to have
such financial statements for the Business audited as Buyer is required to file
with the Securities and Exchange Commission in a Current Report on Form 8-K
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended.
6.2 Ordinary Conduct; No Shopping. Except as contemplated by this Agreement
or as set forth in Schedule 6.2, from the date hereof to the Closing, Seller
agrees to cause the business of the Business to be conducted in the ordinary
course in substantially the same manner as presently conducted and will make all
reasonable efforts, consistent with past practices, to preserve relationships
with employees, customers, suppliers and others with whom the Business deals.
Except as contemplated by this Agreement, Seller will not, without the prior
written consent of Buyer, which consent will not be unreasonably withheld or
delayed, (i) take any action which would cause the representations and
warranties of Seller herein to be untrue in any material respect or (ii)
transfer any employee of the Business to another business of MagneTek or
transfer any employee of another MagneTek business to the Business. Seller will
provide Buyer with interim monthly financial statements of the Business and
other management reports as and when they are available. Seller will not
directly or indirectly (through a representative or otherwise) solicit or
furnish any information to any prospective buyer, commence, or conduct presently
ongoing, negotiations with any other party or enter into any agreement with any
other party concerning the sale of the Business or the Assets or any part
thereof (an "Acquisition Proposal"), and Seller will immediately advise Buyer of
the receipt of any Acquisition Proposal.
6.3 Insurance. Seller shall keep, or cause to be kept, all insurance
policies presently maintained relating to the Business and its properties, or
replacements therefor, in full force and effect through the close of business on
the Closing Date. Buyer will not have any rights under any such insurance
policies from and after the Closing Date.
28
6.4 Title Commitment. Prior to Closing, Seller shall furnish to Buyer at the
parties' expense, equally shared a standard ALTA Form 1992 commitment for an
owner's policy of title insurance (the "Title Commitment"), together with a copy
of each document referenced in said commitments, issued by a title company
selected by Buyer ("Title Company") in an amount determined by Buyer prior to
the Closing and reasonably acceptable to Seller as to each Owned Property being
conveyed insuring good and marketable title thereto (expressly including all
easements and other appurtenances) and including extended coverage deleting all
of the standard exceptions, nonimputation endorsements and containing such
additional endorsements as Buyer shall reasonably request; provided that Buyer
shall bear all incremental premium expense for such endorsements to the extent
such expense exceeds ten thousand dollars ($10,000) in the aggregate. Seller
agrees to provide the Title Company with such affidavits, certificates or
indemnitees as the Title Company may reasonably require to issue the
above-referenced Title Commitment and corresponding title policy. Seller shall
also cooperate with Buyer to enable Buyer to obtain, at Buyer's expense, not
less than ten (10) Business Days prior to closing, surveys of each Owned
Property prepared in accordance with current ALTA/ASCM standards, certified to
Buyer and the Title Company each dated no more than ninety (90) days prior to
Closing and containing a detailed legal description, such ALTA/ASCM Table A
requirements as may be requested by Buyer, and a surveyor's certificate
acceptable to Buyer and the Title Company and prepared by a surveyor
satisfactory to Buyer licensed to practice in the state where the Owned Property
is located. Buyer shall have ten (10) Business Days after receipt of said Title
Commitments and surveys in which to raise title objections as to any material
matters. If such objections are raised by Buyer, then Seller shall have fifteen
(15) days from the date such objections are raised to cure the same and the
Closing Date shall be extended accordingly. If objections are not satisfied by
the extended Closing Date, this Agreement shall terminate unless Buyer elects to
waive the unsatisfied objections and consummate the Transactions.
6.5 Accounts Receivable. For a period of sixty (60) days after the Closing,
on the first business day of each week after the Closing Date, and thereafter,
promptly following receipt of proceeds from accounts receivable of the Business,
Seller agrees to promptly forward to Buyer any and all proceeds from accounts
receivable of the Business that are received by Seller after the Closing Date.
If, after the Closing Date, Seller receives any payment from any Person who at
the time of such payment has outstanding accounts payable to Seller, on the one
hand (for the purposes of this Section, "Seller Accounts Receivable"), and to
the Buyer, on the other hand (for the purposes of this Section, "Buyer Accounts
Receivable"), and the payment (a) does not indicate whether it is in respect of
Seller Accounts Receivable or Buyer Accounts Receivable or (b) indicates that it
is in payment of both Seller Accounts Receivable and Buyer Accounts Receivable
without specifying the portion to be allocated to each, then Seller and Buyer
shall consult with one another to determine the proper allocation of such
payment; and, if they are unable to reach agreement on the proper allocation,
such payment shall be applied so as to retire Seller Accounts Receivable and
Buyer Accounts Receivable in chronological order based upon the period of time
such accounts receivable have existed on the books of Seller or Buyer, as the
case may be.
29
6.6 Noncompetition.
(a) Each Seller acknowledges and recognizes that the Business has been
conducted by Sellers, and substantial sales of its products have been made,
throughout the world, and further acknowledges and recognizes the highly
competitive nature of the industry in which the Business is involved.
Accordingly, in consideration of the premises contained herein and the
consideration to be received hereunder, and in consideration and as an
inducement to Buyer to consummate the Transactions, Sellers shall not from and
after the Closing until the fifth anniversary of the Closing Date (A) directly
or indirectly engage, whether or not such engagement shall be as a partner,
stockholder, Affiliate or other participant, in any Competitive Business, or
represent in any way any Competitive Business, whether or not such engagement or
representation shall be for profit (and including the license of the MagneTek
mark in connection with a Competitive Business), or (B) induce any employee of
Buyer or the Business to terminate his employment with Buyer. As used herein,
"Competitive Business" shall mean any business involving the sale of any of the
products described in Schedule 6.6 ("Restricted Motors") in any city or county
in any state of the United States or anywhere outside the United States.
Anything in this Section 6.6 to the contrary notwithstanding, the acquisition by
any Seller of any Person, less than 10% of the gross revenues of which are
derived in a Competitive Business, shall not constitute a breach of this Section
6.6 if such Competitive Business of such Person is sold or otherwise disposed of
or discontinued within the year following such acquisition. In addition, nothing
in this Agreement shall prohibit Sellers from (i) acquiring no more than 5%, in
the case of a privately held Person, and no more than 5%, in case of a Person
whose securities are actively traded in any securities market worldwide, of the
securities of any class of a Person engaged in a Competitive Business or (ii)
selling any Restricted Motor in combination with any drive product. In addition,
the provisions of this Section 6.6 will automatically expire and become null and
void in the event of a change of control of MagneTek. For purposes of this
Section 6.6, a change of control of MagneTek will be deemed to have occurred if,
as a result of one or a series of related transactions, Persons beneficially
owning at least 51% of MagneTek's voting stock prior to the first such
transaction cease to continue to beneficially own such voting stock (directly or
through one or more holding companies), it being understood that this provision
is intended to apply to circumstances in which a third Person acquires or
succeeds to ownership or control of substantially all of the assets or business
of MagneTek as constituted immediately prior to such acquisition or succession.
In the event of a change of control, the successor to MagneTek shall be bound,
for the remainder of the term of this Section 6.6, not to use the MagneTek mark
in connection with the sale of any Restricted Motors.
(b) The prohibition in Section 6.6(a) shall apply to all political
subdivisions or regions in all states of the United States and all geographical
areas worldwide. Sellers agree that, in connection with the purchase by Buyer of
the Assets (including the goodwill) of the Business, the time and geographic
restrictions set forth above are reasonable. Sellers agree that the remedy at
law for any breach by Sellers of this Section 6.6 will be inadequate and that
Buyer shall be entitled to injunctive relief. The parties intend that the
unenforceability or invalidity of any term or provision of this Section 6.6
shall not render any other term or provision contained herein unenforceable or
invalid. If the activities described in Section 6.6(a) or the period of time or
30
the geographical area covered by this Section 6.6 should be deemed too
extensive, then the parties intend that this Section 6.6 be construed to cover
the maximum scope of business activities, period of time and geographical area
(not exceeding those specifically set forth herein) as may be permissible under
applicable law.
6.7 Confidential Information. On and after the day of the Closing, Sellers
will hold, and will use their best efforts to cause their respective officers,
directors, employees, accountants, counsel, consultants, advisors and agents
("Representatives") to hold, in confidence, unless compelled to disclose by any
Requirement of Law, all confidential documents and information concerning the
Business (including any confidential information or documents provided to it
pursuant to Section 8.6 and any trade secrets or other proprietary information
forming a part of the Intellectual Property) (the "Confidential Information"),
except to the extent that such information is (a) in the public domain through
no fault of Sellers or any of their Representatives or (b) later lawfully
acquired by Sellers on a non-confidential basis from sources other than Buyer or
any of its Affiliates. The obligation of Sellers to hold any such information in
confidence shall be satisfied if they exercise the same care with respect to
such information as they would take to preserve the confidentiality of their own
similar information. Nothing in the foregoing is intended to expand the covenant
of Seller contained in Section 6.6, it being understood, however, that this
Section 6.7 shall continue to preclude the divulgence of Confidential
Information by Sellers to third parties after the expiration of the covenant
contained in Section 6.6.
6.8 Repurchase of Certain Accounts Receivable. MagneTek agrees that it will
purchase, for the face amount thereof, any or all of the accounts receivable
described on Schedule 6.8 as to which the Buyer notifies MagneTek that it will
require such repurchase. Such notice must be given by Buyer, if at all, no
earlier than October 31, 1999 and no later than November 15, 1999.
6.9 Resolution or Remediation of Certain Environmental Matters Identified
Prior to the Closing Date.
(a) MagneTek agrees, at its own expense no later than the 90th day after
the Closing Date, to resolve or correct the matters described on Schedule 6.9 as
required under applicable Environmental Law, with the rights and duties of the
parties in respect of the conduct of such activities being subject to the
provisions of Section 10.3 hereof. In the event MagneTek fails to fulfill timely
the foregoing obligation, Buyer shall be entitled to assume the remaining work
necessary to perform such obligations, and MagneTek will indemnify Buyer for all
of its out-of-pocket expenses reasonably incurred in such performance. In all
events, MagneTek will indemnify Buyer for any Losses arising from any
non-compliance of the Business or Business Properties with applicable
Environmental Law reflected on Schedule 6.9.
(b) Buyer will provide MagneTek with the Buyer Environmental Reports
promptly as these become available. In respect of all such properties other than
the McMinnville Facility and the facility at Owosso, Michigan (the "Secondary
Properties"), MagneTek will
31
notify Buyer on or before the Closing Date as to whether it elects to retain any
such Secondary Property or to transfer it (or the related leasehold interest) to
Buyer. In the event MagneTek elects to transfer a Secondary Property, MagneTek
will thereby have agreed to perform, at its sole cost and expense, all
investigation and remediation necessary under Environmental Law in respect of
such Secondary Property, in which case the provisions of Section 10.3 shall
govern the parties' respective rights and duties. In the event MagneTek does not
so elect to transfer a Secondary Property, MagneTek will have an additional
120-day period during which to evaluate the necessary investigation and
remediation, at the end of which it will have the right to notify Buyer that it
does elect to transfer the Secondary Property, and such notification will also
evidence MagneTek's agreement to perform the required investigation and
remediation as aforesaid. MagneTek may also determine, at the end of such
120-day period, that it will not transfer the Secondary Property, in which case
such Secondary Property will be considered an Excluded Facility for all purposes
hereunder except that the employees of such facility who would not otherwise be
Business Employees will continue to be treated as Business Employees under this
Agreement. During such 120-day period, the Purchase Price will be provisionally
adjusted to reflect the exclusion of any Secondary Property not transferred,
subject to payment of the amount provisionally excluded (as adjusted to reflect
changes in the ordinary course of business in the net book value of such
Business Property from that reflected on the April Balance Sheet) in the event
MagneTek elects to transfer the Secondary Property at the end of such period.
The parties' conduct during such 120-day period will comply with the provisions
of Section 10.3. In the event MagneTek ultimately retains a Secondary Property,
MagneTek and Buyer will negotiate in good faith prior to the Closing to enter
into a lease (which will be a sublease, if permitted, in the case of a Business
Property as to which Seller holds only a leasehold interest) ending on the
second anniversary of the date on which MagneTek notifies Buyer that it will not
transfer the applicable Secondary Property, or such earlier date as Buyer shall
request, such lease to provide for payment by Buyer of (i) all expenses relating
to the ownership and operation of the Secondary Property (subject to Seller's
obligations under this Agreement, and other than certain significant repair
items to be negotiated) and (ii) market rental in the vicinity of the Secondary
Property. MagneTek will be responsible for all severance costs of employees
terminated in connection with Buyer's vacating the Secondary Property, which it
will pay to terminated employees on the same basis as it would have paid had
such employees remained in or been in MagneTek's employ through the date of
their termination assuming payment in accordance with MagneTek's severance
guidelines and policies in effect on the date hereof. In all events, MagneTek
will indemnify Buyer for any Losses it reasonably incurs under Environmental Law
as a result of the continued existence, during such 120-day period and of any
lease term, of the condition of the relevant Secondary Property on the Closing
Date. Any risk and cost of vacating the Secondary Property at the end of the
lease term will, except as aforesaid, be entirely borne by Buyer.
(c) In respect of the Owosso facility, Buyer will have the right to
notify Seller on or before the Closing Date that it elects not to accept the
transfer of such facility and Seller will have the right to notify Buyer on or
before the Closing Date that it elects not to transfer such facility. In the
absence of such notice, the Owosso facility will be treated the same as a
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Secondary Facility that is transferred to Buyer as described in subparagraph (b)
above. In the event Buyer so notifies MagneTek, or MagneTek so notifies Buyer,
both parties will have 270 days at their own respective expense to evaluate the
necessary investigation and remediation. In the event either party gives the
foregoing notice, MagneTek and Buyer will negotiate in good faith to enter into
a lease prior to the Closing upon the same terms as are set forth above, and the
employees of such facility will be treated as Business Employees. The parties'
conduct during such period shall comply with Section 10.3, except that MagneTek
will cooperate with Buyer and Buyer will be permitted (before and after the
Closing) to take such actions as are necessary to complete a "Baseline
Environmental Assessment" and file a report with respect thereto in accordance
with Michigan law, and Buyer will give MagneTek a reasonable opportunity to
comment upon materials prepared for such filings and will accept any reasonable
input from MagneTek in the process. Buyer will have the right, prior to the end
of such 270-day period or the time the Governmental Authorities exercising
jurisdiction over such remediation have approved an investigation and
remediation plan relating to the facility, whichever is later, to notify
MagneTek whether it will accept the transfer of the Owosso facility, and
MagneTek will have the right, within such 270-day period, to notify Buyer that
it elects not to transfer such facility. If neither party elects to prevent the
transfer, the Owosso facility will be transferred promptly after the expiration
or waiver of the applicable period and MagneTek will thereby have agreed to
perform, at its sole cost and expense, all investigation and remediation
necessary under Environmental Law in respect of the Owosso facility, and the
provisions of Section 10.3 will govern the parties' respective rights and
duties. If either party elects to provisionally exclude the Owosso facility from
the Transaction, the Purchase Price will be provisionally adjusted as set forth
in Section 2.5(d), subject to the payment to MagneTek in the event of the
subsequent transfer of the Owosso facility of the amount so excluded (as
adjusted to reflect changes in the ordinary course of business in the net book
value of the Owosso facility from that reflected on the April Balance Sheet). In
the event either Buyer or MagneTek elects not to transfer the Owosso facility,
the parties will extend the lease until no later than the second anniversary of
the date on which notice is given by a party that the Owosso facility will not
be transferred. In the event the exclusion of the facility occurs at MagneTek's
election, MagneTek will have the same responsibility for severance to employees
as is described under subparagraph (b) above, and in the event such exclusion is
at the election of Buyer, Buyer will have all responsibility for severance of
such employees. In each such case and except as to the employees as described in
this subparagraph (c), the Owosso facility will as a result of such exclusion be
considered an Excluded Facility for all purposes hereunder. MagneTek will
indemnify Buyer for any Losses it reasonably incurs under Environmental Law as a
result of the continued existence, during the period during which transfer of
the Owosso facility is held in abeyance and of any lease term, of the condition
of the Owosso facility on the Closing Date. Any risk and cost of vacating the
Owosso facility at the end of the lease term will, except as aforesaid, be
entirely borne by Buyer.
(d) MagneTek agrees to use commercially reasonable efforts to assign or
otherwise make available to the Buyer the benefits of its indemnification
agreement from GA-TEK, Inc. (a purported successor to Gould, Inc. hereinafter,
"Gould") pertaining to the conditions at the McMinnville Facility, in each case
without breaching any obligations or
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releasing any rights it has in respect thereto, it being the parties' intention
to respect all of the provisions of such indemnification agreement and to
cooperate with each other in respect of its enforcement. Buyer agrees, whether
or not such consent is obtained, to use commercially reasonable efforts (but
without expenditure of more than incidental monies or the obligation to
institute litigation or to materially delay) to seek performance from Gould of
such indemnification prior to pursuing MagneTek. Buyer also agrees that if
MagneTek obtains and pays all premiums for and maintains insurance in respect of
the foregoing conditions at the McMinnville Facility that is substantially
commensurate with the indemnification provided to the Buyer under Section
10.1(d) in respect of the McMinnville Facility (and retains all liability and
obligation in respect of any deductible or retention associated with such
insurance), and such insurance is reasonably acceptable to Buyer, then such
indemnification will expire automatically and MagneTek will have no liability or
obligation to Buyer thereunder except the premiums and deductibles for such
insurance. In addition, in the event MagneTek obtains the consent to assignment
from Gould as described above in form and substance reasonably acceptable to
Buyer, and Buyer obtains, and is able to substantiate to its reasonable
satisfaction, evidence that Gould is at least as fiscally viable as MagneTek as
of the Closing Date, Buyer will also release MagneTek from its indemnification
obligation in respect of the McMinnville Facility (except insofar as MagneTek
has any independent responsibility for such conditions at the McMinnville
Facility). The parties agree that to the extent MagneTek is responsible for
performing or ensuring the performance of the investigation and remediation of
the McMinnville Facility, as between the parties the provisions of Section 10.3
hereof will govern the parties' rights and duties. In addition, unless
MagneTek's indemnification liability for the McMinnville Facility has
theretofore been released under this subparagraph by virtue of MagneTek
providing insurance to Buyer, if at any time after the Closing MagneTek's net
worth shall be less than $80,000,000, MagneTek will at its expense within 30
days after receiving a request from Buyer to do so, obtain and deliver to Buyer,
and thereafter maintain, a letter of credit, suretyship bond or similar
instrument in form and substance (including the identity of the issuer)
reasonably acceptable to Buyer in favor of Buyer in respect of the remaining
estimated clean-up cost for the McMinnville Facility in respect of the
indemnification provided to Buyer under Section 10.1(d) (to be determined
without regard to any future contribution thereto by Gould), such bond or other
instrument to be progressively reduced as the clean-up progresses (and to be
cancelled at such time as the remaining exposure is less than $1,000,000). Buyer
and MagneTek will at such time negotiate in good faith as to the appropriate
amount to be secured by such instrument (or any reduction in the amount
thereof). If Buyer and MagneTek fail to agree as to the appropriate amount of
such surety (or any reduction thereof), then at any time at the request of
either party they shall select a nationally recognized environmental consultant
to resolve the dispute. Buyer and MagneTek will use commercially reasonable
efforts to ensure that the appropriate amount to be secured by such instrument
(or any reduction thereof) is determined within 30 days after the first request
by a party to determine such amount. If MagneTek (or a successor in interest to
its obligation hereunder) ceases to report financial information in publicly
available filings with the SEC, then MagneTek will, at the reasonable request of
Buyer from time to time, furnish Buyer with financial statements from which its
net worth is reasonably ascertainable.
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ARTICLE VII
COVENANTS OF BUYER
Buyer covenants and agrees as follows:
7.1 Confidentiality. Buyer acknowledges that the information being provided
to it by Seller is subject to the terms of a confidentiality agreement between
Buyer and Seller (the "Confidentiality Agreement"), the terms of which are
incorporated herein by reference. Effective upon, and only upon, the Closing,
the Confidentiality Agreement will terminate; provided, however, that Buyer
acknowledges that the Confidentiality Agreement will terminate only with respect
to information relating solely to the Business; and provided, further, however,
that Buyer acknowledges that any and all other information provided to it by
Seller or Seller's representatives concerning Seller shall remain subject to the
terms and conditions of the Confidentiality Agreement after the date of the
Closing.
7.2 Accounts Receivable. For a period of sixty (60) days after the Closing,
on the first business day of each week after the Closing Date, and thereafter,
promptly following receipt of proceeds from accounts receivable of Seller, Buyer
agrees to promptly forward or cause to be forwarded to Seller any and all
proceeds from accounts receivable of Seller that are received by Buyer after the
Closing Date. If, after the Closing Date, Buyer receives any payment from any
person who at the time of such payment has outstanding accounts payable to
Seller, on the one hand (for the purposes of this Section, "Seller Accounts
Receivable"), and to Buyer, on the other hand (for the purposes of this Section,
"Buyer Accounts Receivable"), and the payment (a) does not indicate whether it
is in respect of Seller Accounts Receivable or Buyers Accounts Receivable or (b)
indicates that it is in payment of both Seller Accounts Receivable and Buyer
Accounts Receivable without specifying the portion to be allocated to each, then
Seller and Buyer shall consult with one another to determine the proper
allocation of such payment; and, if they are unable to reach agreement on the
proper allocation, such payment shall be applied so as to retire Seller Accounts
Receivable and Buyer Accounts Receivable in chronological order based upon the
period of time such accounts receivable have existed on the books of Seller or
Buyer, as the case may be.
7.3 Waiver of Bulk Sales Law Compliance. Buyer hereby waives compliance by
Seller with the requirements, if any, of Article 6 of the Uniform Commercial
Code as in force in any state in which Assets are located and all other similar
Requirements of Law applicable to bulk sales and transfers, to the extent
applicable to the Transactions.
7.4 Excluded Assets. If, after the Closing Date, Excluded Assets shall
remain on the premises utilized or controlled by Buyer, then Buyer shall take
reasonable steps at the request and expense of Seller to deliver such Excluded
Assets to such Seller, and so long as such assets remain in Buyer's control,
shall exercise reasonable care with respect thereto, and in no event less care
than with respect to its own properties.
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7.5 Cooperation. Buyer agrees to cooperate with MagneTek in resolving any
action, suit, investigation or proceeding relating to issues raised directly or
indirectly by the EEOC Charge, which cooperation shall include, but not be
limited to, not unreasonably withholding its consent to be bound by any order or
directive issued by the EEOC. MagneTek will indemnify Buyer for any Loss it
incurs as a result of such cooperation including, but not limited to, training
costs associated with any equitable remedy imposed by any court or pursuant to
any settlement agreement.
7.6 Change of Company Names. Effective on or promptly after the Closing
Date, Buyer will take such actions as are necessary under local law to remove
the name "MagneTek" from that of any of the Companies it will operate after the
Closing.
ARTICLE VIII
MUTUAL COVENANTS
Each of Seller and Buyer covenant and agree as follows:
8.1 HSR Filings; Permits and Consents.
(a) Seller and Buyer will as promptly as practicable, but in no event
later than ten Business Days following the execution and delivery of this
Agreement, file with the United States Federal Trade Commission (the "FTC") and
the United States Department of Justice (the "DOJ") the notification and report
form, if any, required for the Transactions and any supplemental information
requested in connection therewith pursuant to the HSR Act. Any such notification
and report form and supplemental information will be in substantial compliance
with the requirements of the HSR Act. Seller and Buyer shall furnish to the
other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submission which is
necessary under the HSR Act. Seller and Buyer shall keep each other apprised of
the status of any communications with, and inquiries or requests for additional
information from, the FTC and the DOJ and shall comply promptly with any such
inquiry or request. Seller and Buyer will use all reasonable efforts to obtain
any clearance required under the HSR Act for the Transactions.
(b) As promptly as practicable after the date hereof, Buyer and Seller
shall make all other filings with governmental bodies and other regulatory
authorities, and use all reasonable efforts to obtain all permits, approvals,
authorizations and consents of all third parties, required to consummate the
Transactions. Without limiting the generality of the foregoing, Seller shall use
commercially reasonable efforts to assist Buyer in replicating all of Seller's
Underwriters Laboratories and similar product testing service association
approvals and certifications related to the Business; provided, that Buyer will
reimburse Seller for any out-of-pocket expense incurred in such activities and
Seller will not be required to provide more than incidental and de minimus
employee services in connection therewith. Buyer and Seller shall furnish
promptly to each other
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all information that is not otherwise available to the other party and that such
party may reasonably request in connection with any such filing. Buyer and
Seller shall use reasonable efforts to obtain such consents to the assignment of
the Assigned Contracts as may be required. Buyer acknowledges that consents to
the Transactions may be required from parties to the Assigned Contracts, that
such consents have not been obtained and that, notwithstanding any other
provision hereof, Seller will not assign to Buyer at the Closing any Assigned
Contract that by its terms requires, prior to such assignment, the consent of
any other contracting party thereto unless such consent has been obtained prior
to the Closing Date.
(c) Buyer agrees that Seller shall have no liability whatsoever to Buyer
arising out of or relating to the failure to obtain any consents to the
assignment of Contracts that may be required in connection with the Transactions
or because of the default, acceleration or termination of any Assigned Contract
as a result thereof. Buyer further agrees that no representation, warranty or
covenant of Seller contained herein shall be breached or deemed breached, as a
result of (i) the failure to obtain any such consent or as a result of any such
acceleration or termination or (ii) any lawsuit, action, claim, proceeding or
investigation commenced or threatened by or on behalf of any Person arising out
of or relating to the failure to obtain any such consent or any such
acceleration or termination. Seller shall cooperate with Buyer in any reasonable
manner in connection with Buyer obtaining any such consents; provided, however,
that such cooperation shall not include any requirement that Seller commence any
litigation or offer or grant any accommodation (financial or otherwise) to any
third party. The Purchase Price shall not be subject to adjustment by reason of
any such consents that are not obtained.
(d) With respect to each such Assigned Contract not assigned on the
Closing Date, after the Closing Date Seller shall continue to deal with the
other contracting party(ies) to such Assigned Contract as the prime contracting
party, and Buyer and such Seller shall continue to use reasonable efforts to
obtain the consent of all required parties to the assignment of such Assigned
Contract. Such Assigned Contract shall be promptly assigned by Seller to Buyer
after receipt of such consent after the Closing Date. Notwithstanding the
absence of any such consent, Buyer shall be entitled to the benefits of such
Assigned Contract accruing after the Closing Date to the extent that Seller may
provide Buyer with such benefits without violating the terms of such contract;
and to the extent such benefits are so provided, Buyer agrees to perform at its
sole expense all of the obligations of Seller to be performed under such
Assigned Contract after the Closing Date; provided, however, that, to the extent
such benefits are not so provided, Buyer shall have no obligation pursuant to
Section 2.3 with respect to such Contract and any such Contract shall not be
deemed to be an Asset, and the related liability shall not be deemed an Assumed
Liability. Notwithstanding anything to the contrary in this Section 8.1, Seller
shall not be relieved of its obligations under the Supply and Service
Agreements.
8.2 Cooperation. Buyer and Seller shall cooperate with each other and shall
cause their officers, employees, agents, auditors and representatives to
cooperate with each other after the Closing to ensure the orderly transition of
the Business to Buyer and to minimize any disruption to the respective
businesses of Seller or the Business that might result from the
37
Transactions. Neither party shall be required by this Section 8.2 to take any
action that would unreasonably interfere with the conduct of its business.
8.3 Publicity. Seller and Buyer agree that, from the date hereof through the
Closing Date, no public release or announcement concerning the Transactions
shall be issued without the prior consent of each party (which consent shall not
be unreasonably withheld or delayed), except as such release or announcement may
be required by any Requirement of Law, in which case the party required to make
the release or announcement shall allow the other party reasonable time to
comment on such release or announcement in advance of such issuance.
Notwithstanding the foregoing, Seller shall provide Buyer access to, and
facilitate meetings with, the employees of the Business for the purposes of
making announcements concerning, and preparing for the consummation of, the
Transactions.
8.4 Reasonable Efforts. Subject to the terms and conditions of this
Agreement (including the limitations set forth in Section 8.1), each party will
use all reasonable efforts to cause the Closing to occur. Each of Seller and
Buyer will promptly notify the other promptly after learning of the occurrence
of any event or circumstance which would reasonably be expected to cause any
condition to Closing not to be satisfied.
8.5 Records. On the Closing Date, Seller shall deliver or cause to be
delivered to Buyer all Records and materials that would be Records if located at
a Business Property which are material to and used primarily in the Business (to
the extent not then in the possession of the Business), except any Records
relating to Excluded Liabilities (including, without limitation, to Seller's Tax
liability or to any litigation or claim not assumed by Buyer hereunder). After
the Closing, upon reasonable written notice and at Buyer's sole expense, Seller
agrees to furnish or cause to be furnished to Buyer and its representatives
(including its auditors), access at reasonable times and during normal business
hours to such information relating to the Business in such Seller's possession
as is reasonably necessary for financial reporting and accounting matters, the
preparation and filing of any Tax returns, reports or forms or the defense of
any Tax Claim or assessment, and will permit Buyer or such representatives to
make abstracts from, or copies of, any of such information, or to obtain
temporary possession of any thereof as may be reasonably required by Buyer at
Buyer's sole cost and expense; provided, however, that such access does not
unreasonably disrupt the normal operations of such Seller. For a period of seven
(7) years following the Closing, MagneTek will retain all of such information
relating to the Business.
8.6 Access to Former Business Records. For a period of seven (7) years
following the Closing, Buyer will retain all Records. During such period, upon
reasonable written notice and at Seller's sole expense Buyer will afford
authorized representatives of Seller (including its auditors) access to such
Records in Buyer's possession at reasonable times and during normal business
hours at the principal business office of the Business, or at such other
location or locations at which such Records may be stored or maintained from
time to time, and will permit such representatives to make abstracts from, or
copies of, any of such Records, or to obtain temporary possession of any thereof
as may be reasonably required by Seller at such Seller's sole
38
cost and expense; provided, however, that such access does not unreasonably
disrupt the normal operations of Buyer. During such period, Buyer will, at
Seller's expense (limited, however, to Buyer's reasonable out-of-pocket
expenditures without regard to any employee cost or other overhead expenses),
cooperate with Seller in furnishing information, evidence, testimony, and other
reasonable assistance in connection with any action, proceeding, Tax audit, or
investigation to which such Seller or any of its Affiliates is subject relating
to the business of the Business prior to the Closing. Notwithstanding the
foregoing, while the existence of an adversarial proceeding between the parties
will not abrogate or suspend the provisions of this Section 8.6, as to Records
or information directly applicable pertinent to such dispute, the parties may
not utilize this Section 8.6 but rather, absent agreement, must utilize the
available rules of discovery. The term "Record" as used in this Section 8.6
shall include any data processing files or other computerized data.
8.7 Use of Trademark and Trade Names. Notwithstanding anything to the
contrary in this Agreement, Buyer may continue to use the name "MagneTek" and
related trademarks, corporate names, and trade names incorporating "MagneTek,"
and the stylized "MagneTek" logos (i) in displays, signage and postings for the
period after the Closing Date necessary to permit the removal of such names as
promptly as is reasonably feasible, and only to the extent such displays,
signage or postings exist on the Closing Date; (ii) for a period of two years,
to state the Business' former affiliation with MagneTek (e.g., "formerly a
division of MagneTek, Inc."); (iii) to the extent any such trade names,
trademarks, service marks or logos appear on stationery, packaging materials,
supplies or inventory on hand as of the Closing Date or on order at the time of
the Closing, until such is exhausted; provided, however, that in respect of all
such items other than finished goods inventory (and if such finished goods are
packaged, the packaging), such continued use will cease on the second
anniversary of the Closing Date, and in respect of finished goods inventory and
any related packaging, such continued use will cease on the fourth anniversary
of the Closing Date; (iv) as to any item of tooling in existence on the Closing
Date that bears such trade names, trademarks, service marks or logos, until it
becomes necessary for Buyer to replace such tooling in the ordinary course of
business, at which time Buyer shall replace such tooling with tooling that does
not bear such trade names, trademarks, service marks or logos; and (v) to the
extent any such trade names, trademarks, service marks or logos appear or
inventory produced after the Closing Date using tooling described in clause
(iv), until such inventory is exhausted. In addition, Buyer agrees that it will
not use the name "Universal" (alone or with the name "Electric") in connection
with any lighting product it may manufacture or sell now or in the future, and
MagneTek agrees not to use such name in connection with any Restricted Motors or
drives product it may manufacture or sell in the future or drives product.
Except for "Universal," MagneTek will not use any of the trademarks or trade
names on Schedule 2.1(e), or any trademarks or trade names confusingly similar
thereto, in connection with any products it may manufacture or sell in the
future.
8.8 Tax Returns and Payments.
(a) Seller shall prepare or cause to be prepared and shall file or cause
to be filed all Tax returns of the Companies required to be filed on or prior to
the Closing Date (taking
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into account valid extensions of time to file), and Buyer shall prepare or cause
to be prepared and file or cause to be filed all other Tax returns of the
Companies. All returns prepared by Seller and Buyer (to the extent such returns
cover periods prior to the Closing Date) shall, except as otherwise required by
law, be prepared in a manner consistent with past practice of the Companies.
(b) To the extent permitted by law, Seller and Buyer shall use their best
efforts to cause any Taxable period of the Companies to close on the Closing
Date.
(c) With the view to minimize all Taxes payable by each of the Companies
or payable as a result of the transactions contemplated by this Agreement to the
maximum extent permitted by applicable law, Seller and Buyer shall cooperate in
good faith in (i) preparing and filing all Tax returns with respect to the
Companies and the sale of the Business, (ii) maintaining and making available to
each other all records necessary in connection with Taxes relating to such
returns and (iii) resolving all disputes and audits with respect to such Taxes.
Buyer and Seller recognize that each may need access, from time to time, after
the Closing Date, to certain accounting and tax records and information held by
the other, including all computerized books and records and any such information
stored on any other form of media ("Tax Records"); therefore, Buyer and Seller
agree (x) to allow (and Buyer and Seller shall cause the Companies to allow)
each other and their agents and representatives, at times and dates mutually
acceptable to the parties, to inspect, review and make copies of such Tax
Records and to make available the appropriate personnel with knowledge of such
Tax Records to help answer questions, such activities to be conducted during
normal business hours and with the requesting party paying out of pocket
expenses only and (y) to offer the other parties such records before destroying
such records. Buyer shall, and shall cause the Companies to, provide information
to Seller necessary for the preparation of all Tax returns required to be
prepared or filed by Seller.
(d) Seller shall have the sole and exclusive authority to file amended
United States Federal Tax returns for any periods that end prior to or include
the Closing Date. Any refunds with respect to such Tax returns shall be the
property of Seller. Buyer shall have the sole and exclusive authority to file
amended Tax returns of the Companies (other than such Federal Tax returns), to
enter into any settlement with respect to any period that ends prior to or
includes the Closing Date and to receive all refunds relating thereto; provided
that Seller shall have no liability to Buyer for a breach of representation or
warranty or otherwise caused by, and Buyer shall hold Seller harmless from and
against any and all costs, expenses and liabilities (including but not limited
to Taxes) arising from, any such amendment or settlement.
(e) Buyer shall not and shall not permit its Affiliates (including the
Companies) to make any election under Section 338 of the Code (with respect to
the purchase of the Companies) or any other Tax election that could affect the
liability of Seller for Taxes.
8.9 Cegled Facility. On the Closing Date, Seller will cause Hungary to
convey the Cegled Facility to a Hungarian subsidiary of MagneTek, without any
adjustment to the Purchase Price. Hungary will enter into a lease in a form
reasonably satisfactory to Buyer with the
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transferee of the Cegled Facility expiring on the first anniversary of the
Closing Date, providing for Hungary to pay all costs and expenses (subject to
Seller's obligations under this Agreement and excluding significant repairs to
be negotiated) associated with the ownership and operation of the Cegled
Facility (but no additional rent). Buyer will be entitled at any time prior to
the first anniversary of the Closing Date to remove from the Cegled Facility all
such physical assets and fixtures as can be removed without damaging the
facility, at Buyer's sole risk and expense. On such first anniversary, Buyer
will be deemed to have executed a quitclaim in favor of the owner of the Cegled
Facility in respect of any assets left at the Cegled Facility. Upon the Closing,
the employees at the Cegled Facility will remain employees of Hungary until the
first anniversary of the Closing Date. Buyer will notify Seller on or before
such first anniversary of its desire to terminate any such Cegled employees and,
if Buyer so elects, MagneTek will pay half of the associated severance costs in
respect of any such terminated employees, provided that Buyer will not be
required to pay more than $200,000, and MagneTek will assume any remaining
severance liability. As soon as practicable after the date hereof, Seller will
deliver to Buyer all environmental reports in its possession or the possession
of its agents or consultants relating to the Cegled Facility. If the contents of
such reports are not reasonably satisfactory to Buyer, then Buyer may request
and, if so requested, the parties shall negotiate in good faith an amendment to
this Agreement to provide that instead of purchasing the Stock of Hungary at the
Closing, Buyer will acquire the assets of Hungary and assume its liabilities,
with the Cegled Facility as an Excluded Facility.
ARTICLE IX
EMPLOYEE BENEFIT MATTERS
9.1 Employee Retention. Buyer shall offer employment to commence as of the
Closing Date to all Business Employees, at salaries and wages commensurate with
the responsibilities such Business Employees will have after the Closing Date
and otherwise on terms and conditions that in the aggregate are substantially
the same as those in effect immediately prior to the Closing Date. The Business
Employees who accept and actually commence employment with Buyer are hereinafter
collectively referred to as "Transferred Employees." It is agreed and
acknowledged, subject to the foregoing, that Buyer may terminate at any time
after the Closing Date the employment of any Transferred Employee or employee of
any Company. Buyer assumes all obligations and liabilities, if any, under the
Worker Adjustment and Retraining Notification Act (the "WARN Act") and any
comparable state or foreign laws arising out of the Transactions.
9.2 Employee Benefit Plans.
(a) Effective as of the Closing Date, (i) Transferred Employees shall
cease accruing any benefits under any Seller Plan, and Seller shall take, or
cause to be taken, all such action, if any, as may be necessary to effect such
cessation of participation and (ii) Buyer shall adopt or designate employee
benefit plans providing benefits which in the aggregate are substantially the
same as the benefits provided to such Transferred Employees under Seller's
41
FlexCare Plus Retirement Savings Plan, FlexCare Plus Retirement Pension Plan,
Self-Funded Benefit Plan and Insured Benefit Plan (the "Buyer's Benefit Plans").
With respect to the Buyer's Benefit Plans, Buyer shall grant all Transferred
Employees from and after the Closing Date credit for all service with Seller and
its Affiliates and their respective predecessors prior to the Closing Date for
all purposes (other than the accrual of benefits under a defined benefit pension
plan, however, this proviso shall not preclude Buyer from granting such credit)
for which such service was recognized by Seller and its Affiliates. With respect
to Buyer's Benefit Plans that provide health benefits after the Closing Date,
such plans shall waive any exclusions or limitations with respect to
pre-existing conditions and actively-at-work exclusions, except to the same
extent the Transferred Employee is subject to a pre-existing condition or
actively-at-work exclusion on the Closing Date under any Seller Plan that
provides health benefits, and shall provide that any expenses incurred during
1999 on or before the Closing Date by a Transferred Employee or his covered
dependents shall be taken into account under such Buyer's Benefit Plans for
purposes of satisfying applicable deductible, coinsurance and maximum
out-of-pocket provisions. Buyer shall also cause its health plan(s) to be
responsible for all health benefit claims by Business Employees and their
covered dependents for services rendered after the Closing Date.
(b) Buyer shall assume liability for retiree health benefits in respect
of Transferred Employees who were employed by Seller prior to January 1, 1992
and who are or will be entitled to retiree health benefits under the terms of
Seller's Retiree Medical Plan ("Participating Transferred Employees"). Effective
as of the Closing Date, Buyer shall adopt or designate a retiree medical plan in
which all Participating Transferred Employees shall be eligible to participate,
and which shall provide retiree medical benefits that are in the aggregate
substantially similar in value to those provided under Seller's Retiree Medical
Plan.
(c) On the Closing Date, Seller shall spinoff to Buyer, and Buyer shall
become the sponsor of, that portion of the MagneTek, Inc. Cafeteria Plan that is
applicable to Transferred Employees, as provided in the spinoff/transfer of
sponsorship agreement attached as Schedule 9.2(c) hereof.
9.3 Vacation and Holiday Pay. As of the Closing Date, Buyer shall assume all
of Seller's obligations for vacation and holiday pay to all Transferred
Employees.
9.4 Access to Information. Commencing with the date hereof and continuing to
the Closing Date and thereafter, Seller shall make reasonably available to Buyer
such actuarial, financial, personnel and related information as may be
reasonably requested by Buyer with respect to any Seller Plan as it relates to a
Business Employee, including, but not limited to, compensation and employment
histories.
9.5 Company Employees and Plans. Buyer acknowledges that, by operation of
law, the Companies shall be and remain liable for all obligations under Seller
Plans pertaining to the current and former employees of the Companies.
42
9.6 Pension Plan.
(a) The Transferred Employees participate in a qualified defined benefit
plan maintained by MagneTek ("Seller's Pension Plan"). Seller represents and
warrants that Seller's Pension Plan and related trust meet the requirements for
qualification under Section 401 of the Code, and shall continue to meet such
requirements as of the date of the transfer described in subparagraph (c) below.
Seller shall provide to Buyer copies of Seller's Pension Plan and related trust
and a copy of the most recent determination letter issued by the Internal
Revenue Service with respect to Seller's Pension Plan. Seller agrees to cause
(or to amend Seller's Pension Plan to require) the administrator of Seller's
Pension Plan to credit to the Retirement Account of each Business Employee who
becomes a Transferred Employee on or within 90 days following the Closing (such
date employment with Seller ceases being the "Transfer Date"), (i) the employer
contribution credit that would have been allocated to the Retirement Account of
such Transferred Employee had such Transferred Employee remained employed by
Seller through the last day of the plan year in which the Closing occurs (but
taking into account only the compensation earned by the Transferred Employee
through his or her Transfer Date), and (ii) the interest credit that would have
been allocated to the Retirement Account of such Transferred Employee for the
plan year in which the Closing occurs, prorated based upon the ratio of number
of days in such plan year which fall on or before his or her Transfer Date to
365.
(b) Buyer shall establish or designate a qualified defined benefit plan
("Buyer's Retirement Plan") for the benefit of the Transferred Employees. Buyer
represents and warrants that Buyer's Retirement Plan and related trust shall
meet the requirements for qualification under Section 401 of the Code as of the
date of the transfer described in subparagraph (c) below. Prior to such
transfer, Buyer shall provide to Seller satisfactory evidence that Buyer's
Retirement Plan meets such qualification requirements. Buyer shall cause Buyer's
Retirement Plan: (i) to recognize the past service of the Transferred Employees
with Seller and its affiliates for participation, benefit eligibility and
vesting purposes under Buyer's Retirement Plan to the same extent as such past
service is recognized for such purposes under Seller's Pension Plan immediately
prior to the Closing Date; and (ii) to recognize the future service of the
Transferred Employees with Buyer and its affiliates on and after the Closing
Date for all purposes under Buyer's Retirement Plan.
(c) As soon as reasonably practical after, but within 120 days following,
the Closing Date, the actuary for Seller's Pension Plan shall determine, with
respect to those Business Employees who become Transferred Employees on, or
within 90 days after, the Closing Date, the amount of assets of Seller's Pension
Plan to be allocated (the "Allocated Assets") to the accrued benefits of such
Transferred Employees under Seller's Pension Plan as of the Closing Date,
excluding those benefits funded by the annuity contracts owned by Seller's
Pension Plan or Seller (the "Annuity Contracts"). With respect to those Business
Employees who become Transferred Employees after, but within 90 days following
the Closing Date for purposes of this allocation, their accrued benefits shall
include the additional benefits accrued under Seller's Pension Plan from the
Closing Date to their respective Transfer Dates. The determination of such
Allocated Assets shall be performed on a plan termination basis in accordance
with the rules and procedures described in Section 4044 of ERISA. The actuarial
assumptions used for the allocation
43
determination shall be the assumptions used by the Pension Benefit Guaranty
Corporation on the Closing Date for valuing plan benefits of trusteed plans. The
accrued benefits being spunoff to the Buyer's Retirement Plan are all benefits
accrued by the Transferred Employees under Seller's Pension Plan, other than
those benefits provided under the Annuity Contracts and the benefits of those
Business Employees who become Transferred Employees more than 90 days after the
Closing Date (the "Transferred Benefits"). As soon as reasonably practicable
after the calculation of the Allocated Assets is completed, Seller shall cause
the trustee of Seller's Pension Plan to transfer to the trustee of Buyer's
Retirement Plan cash or other assets reasonably acceptable to Buyer equal to the
amount of Allocated Assets, plus interest thereon at the applicable interest
rate used in the calculations of the Allocated Assets, from the Closing Date to
the actual date of transfer of such assets. After the Closing Date, the sole and
exclusive responsibility for providing the Transferred Benefits shall be that of
the Buyer's Retirement Plan and Buyer. As soon as reasonably practicable after,
but within 120 days following, the Closing Date, Seller shall request the
actuary for Seller's Pension Plan to determine the present value of the
Transferred Benefits (the "ABO Amount"). Such calculation shall be determined as
of the Closing Date using a 7.25% discount rate, 1983 Group Annuity Mortality
Table (applied to each Transferred Employee whose benefit is being transferred
on an age and gender-specific basis), and such other actuarial assumptions as
were used by the actuary for Seller's Pension Plan for purposes of preparing the
January 1, 1998 actuarial valuation report for purposes of determining plan
funding. Buyer's actuary shall have the opportunity to review and approve the
accuracy of the calculations. As soon as reasonably practicable after such
calculations are completed and approved by Buyer's actuary, Seller shall pay
Buyer an amount equal to the excess, if any, of the ABO Amount over the amount
of Allocated Assets, as defined in Section 9.6(c) plus interest on such excess
from the Closing Date to the date of payment at a rate per annum equal to LIBOR
on the Closing Date. However, if the amount of Allocated Assets exceeds the ABO
Amount, Buyer shall pay Seller an amount equal to such excess as soon as
reasonably practical following such determination plus interest on such excess
from the Closing Date to the date of payment at a rate per annum equal to LIBOR
on the Closing Date.
9.7 401(k) Plan.
(a) Effective on the Closing Date, Buyer shall adopt or designate a
defined contribution plan qualified under Section 401(a) and Section 401(k) of
the Code (the "Buyer 401(k) Plan") in which Transferred Employees shall be
eligible to participate on and after the Closing Date to the same extent such
Transferred Employees were eligible to participate in the MagneTek Flexcare Plus
Retirement Savings Plan ("Seller 401(k) Plan") immediately prior to the Closing
Date.
(b) Effective on the Closing Date, Seller shall spin-off to the Buyer
401(k) Plan the accounts of the Transferred Employees in the Seller 401(k) Plan
and as soon as practicable following the Closing Date, but not later than sixty
days after the Closing Date, Seller shall cause to be transferred to the Buyer
401(k) Plan the assets allocated to such accounts, including shares of MagneTek
stock held in the Company Stock Fund. Buyer agrees to cause the Buyer 401(k)
Plan to continue to maintain the spunoff Company Stock Fund for a period of not
44
less than one year from the Closing Date; provided that Buyer's 401(k) Plan is
not obligated to permit additional contributions to be made to said Company
Stock Fund. Prior to the actual transfer of such assets, the Transferred
Employees shall not be permitted to make withdrawals or loans from the spunoff
accounts and any loan repayments with respect to spunoff participant notes shall
be made to the trustee of the Buyer 401(k) Plan trust.
(c) Seller and Buyer shall cooperate with each other during the period
beginning on the date hereof and ending on the date the assets are transferred
to the trust maintained under the Buyer 401(k) Plan to ensure the ongoing
operation and administration of the Seller 401(k) Plan and the Buyer 401(k) Plan
with respect to such Transferred Employees. Following such transfer of assets,
the sole and exclusive responsibility for providing the benefits that are
attributable to plan assets transferred to Buyer's 401(k) Plan shall be that of
Buyer's 401(k) Plan and Buyer.
9.8 Third-Party Beneficiaries. No provision of this Article IX shall create
any third-party beneficiary rights in any employee of former employer of the
Business (including any beneficiary or dependent thereof), including, without
limitation, any right to continued employment or employment in any particular
position with Buyer for any specified period of time after the Closing Date.
9.9 Payroll Tax. Seller and Buyer agree that, with respect to Business
Employees who accept employment with Buyer upon the Closing, they will take the
position that they respectively meet the definitions of "predecessor" and
"successor" as defined in Revenue Procedure 96-60 and IRS Regulation Section
31.3121(a)(1)-1(b). Absent a mutual agreement to the contrary, Seller and Buyer
will use "Standard Procedure" described in Section 4 of Revenue Procedure 96-60.
Seller shall supply to Buyer, with respect to all Business Employees who accept
employment with Buyer upon the Closing, all cumulative payroll information as of
the Closing Date that Buyer shall reasonably request in order to employ IRS
Regulation Section 31.3121(a)(1)-1(b).
ARTICLE X
INDEMNIFICATION
10.1 Indemnification by Seller. Subject to the terms and conditions of this
Article X, Seller shall indemnify Buyer and each of its Affiliates, officers,
directors, employees and agents against, and hold them harmless from, any Loss
suffered or incurred by any such Indemnified Person to the extent arising from
(a) if the Closing occurs, any breach of any representation or warranty of
Seller contained in this Agreement which survives the Closing or in any
certificate, instrument or other document delivered pursuant hereto (ignoring,
for purposes of determining the existence of any such inaccuracy or breach or
the amount of Loss with respect thereto, any "materiality" or "Material Adverse
Effect" qualification set forth in such representation or warranty), (b) any
breach of any covenant of Seller contained in this Agreement, (c) if the Closing
occurs, the existence of, or the failure of Seller to pay, perform and discharge
when due,
45
any of the Excluded Liabilities, whether such Excluded Liabilities are
liabilities of Seller or of any of the Companies (including, without limitation,
any Losses as a result of the failure of Seller to comply with any Bulk Sales
Laws referred to in Section 7.3) or (d) Losses related to the existing
conditions at the McMinnville Facility (including the remediation thereof),
subject to the potential release of such indemnification pursuant to the
provisions of Section 6.9(d) hereof; provided, however, that Seller shall have
no liability under Section 10.1(a) unless the aggregate of all Losses relating
thereto for which Seller would, but for this proviso, be liable exceeds
$3,000,000 (Three Million Dollars) (and then only to the extent of any such
excess); and provided further, however, that Seller's aggregate liability under
Section 10.1(a) shall in no event exceed 25% of the Purchase Price.
10.2 Indemnification by Buyer. Subject to the terms and conditions of this
Article X, Buyer shall indemnify Seller and each of its Affiliates, officers,
directors, employees and agents against, and hold them harmless from, any Loss
suffered or incurred by any such Indemnified Person to the extent arising from
(a) if the Closing occurs, any breach of any representation or warranty of Buyer
contained in this Agreement which survives the Closing or in any certificate,
instrument or other document delivered pursuant hereto or in connection herewith
(ignoring, for purposes of determining the existence of any such inaccuracy or
breach or the amount of Loss with respect thereto, any "materiality" or
"Material Adverse Effect" qualification set forth in such representation or
warranty), (b) any breach of any covenant of Buyer contained in this Agreement
requiring performance after the Closing Date, (c) if the Closing occurs, the
existence of, or the failure of Buyer to pay, perform and discharge when due,
any of the Assumed Liabilities and (d) if the Closing occurs, any Loss caused by
the ongoing operations of Buyer and the Assets after the Closing Date provided,
however, that Buyer shall have no liability under clause 10.2(a) unless the
aggregate of all Losses relating thereto for which Buyer would, but for this
proviso, be liable exceeds on a cumulative basis $3,000,000 (Three Million
Dollars) (and then only to the extent of any such excess); and provided further,
however, that Buyer's aggregate liability under Section 10.2(a) shall in no
event exceed 25% of the Purchase Price.
10.3 Environmental Matters.
(a) With respect to any Losses relating to or arising from any
Environmental Laws for which Buyer seeks indemnity under Section 10.1
("Environmental Losses"), Buyer shall provide notice to Seller specifying in
reasonable detail, to the extent known, the nature of the Environmental Losses
and the estimated amount to remediate the condition giving rise to the
Environmental Losses, to the extent it is then quantifiable (which estimate
shall not be conclusive of the final amount of any Environmental Losses). The
obligations and restrictions of this Section 10.3(a) as to notice will not apply
to Losses relating to or arising from any Environmental Laws for which Buyer is
indemnified pursuant to Section 6.9. Notwithstanding the foregoing, the
obligations and restrictions of this Section 10.3 shall not apply to Losses
relating to or arising from any Environmental Laws for which Buyer seeks
indemnity under Section 10.1(c) as Excluded Liabilities except that the
provisions of Section 10.3(d) below will apply to such indemnity.
46
(b) Seller shall have the right to control and investigate and/or
remediate any condition giving rise to a claim or demand for indemnification by
Buyer under this Agreement with respect to any Environmental Losses; provided,
however, that in such circumstances, Seller shall (i) not unreasonably interfere
with Buyer's operations; (ii) provide Buyer with an opportunity to review and
comment in advance on all work plans, investigations and other environmental
remediation activities, and incorporate all reasonable comments of Buyer and
(iii) be permitted to place title restrictions on any affected property,
provided such restrictions do not interfere with the like industrial use thereof
or violate the terms of any Business Lease; provided, further, that if after
written notice and a reasonable opportunity to cure Seller does not exercise
such right to control, investigate or remediate within a reasonable period, or
fails to diligently continue to control, investigate and remediate, Buyer may
exercise such right and Seller will indemnify Buyer for all of its out-of-pocket
expenses reasonably incurred in doing so. Seller and its employees, contractors,
representatives and agents shall have reasonable access at reasonable times to
facilities used in connection with the Business (the "Facilities") for the
purpose of conducting any investigation and/or remediation, including any
sampling or monitoring required to be performed by Seller after the Closing
Date. Seller shall use all reasonable efforts to minimize disruption to the
Business as a result of conducting any such investigation or remediation, and
will keep Buyer generally informed as to the progress of remediation activities
and generally consult with Buyer and consider Buyer's input in respect thereof.
The parties acknowledge that Buyer will have the right to control any
environmental matter as to which the expense is not expected to exceed the
threshold for indemnification and no claim is expected to be made hereunder, but
that the provisions of this Section 10.3(b) will become applicable at such time
as Buyer desires to seek indemnification hereunder in respect of such a claim as
a result of greater than anticipated expenses or because the threshold has been
satisfied independently. "Business Lease" means any lease of a Business Property
that is in effect on the Closing Date, including any extension or renewal
thereof that does not adversely affect the duties of MagneTek under this Article
X.
(c) Buyer shall use reasonable efforts to cooperate with the Seller to
minimize costs with respect to Environmental Losses. Nothing in this Agreement
shall require Seller to perform any environmental remediation activities or
other environmental testing, sampling or monitoring activities beyond the
minimum required by applicable Environmental Laws or the terms of any Business
Lease (except that as to the McMinnville Facility, remediation will not be
deemed completed until the Governmental Authorities exercising jurisdiction over
such remediation have completed their approval process in respect thereof).
(d) Except as required by law, as contemplated by Section 6.9(c) or in
the circumstances in Section 6.9(a) and 10.3(b) where Buyer is entitled to
assume control and does so, Buyer shall not initiate or direct any
correspondence to a Governmental Authority in respect of an environmental matter
covered by the indemnification in Section 10.1 and shall give prompt written
notice to Seller of any report or other document submitted by requirement of a
Governmental Authority, to a Governmental Authority which describes any such
matter. To the extent reasonably possible in the circumstances, Buyer shall have
the right to review and comment upon any submission to a Governmental Authority
which describes or addresses any
47
environmental condition for which Buyer is claiming indemnification from Seller
hereunder (and Seller will cooperate with Buyer in responding to such requests,
including making available all relevant records in its possession or under its
control), and Seller shall revise such submission in accordance with Buyer's
reasonable comments thereon. To the extent reasonably possible in the
circumstances, Seller shall give Buyer prompt written notice of, and Buyer
and/or its representatives shall have the right to participate in, any phone
call or meeting with any Governmental Authority at which any environmental
condition for which Buyer is claiming indemnification from Seller hereunder is
to be discussed or addressed in any manner.
(e) Seller shall not have any obligation to indemnify any Buyer
Indemnified Party from and against (i) any Environmental Losses arising from or
related to any change in the use of the Business Property from industrial use;
(ii) any Environmental Losses arising from or related to any amendment to or
change in any Environmental Law from that which is in effect on the date hereof
(except that as to the McMinnville Facility, remediation will not be deemed
completed until the Governmental Authorities exercising jurisdiction over such
remediation have completed their approval process in respect thereof) or (iii)
any remediation or other liability arising as a result of the presence of
asbestos in or upon any of the improvements located on the Business Property at
any time. Notwithstanding anything to the contrary contained herein, Seller will
not have any obligation to indemnify Buyer Indemnified Parties from and against
any Environmental Losses (w) which do not relate to an environmental condition
in existence prior to the Closing, (x) arising with respect to any release of a
Hazardous Material by Buyer, (y) resulting from Buyer, its agents and
representatives, conducting invasive investigations, sampling or monitoring of
the Facilities unless (A) required to do so by Environmental Laws or a
Governmental Authority or (B) conducted in response to a material claim asserted
by a third party, in connection with Buyer's acquisition-related due diligence,
or as contemplated by Section 6.9 or (z) resulting from any act or knowing
failure to act of Buyer, its employees, contractors, representatives or agents
to further cause or exacerbate the leaking, migration or release of any
Hazardous Materials at the Facilities (but only to the extent of such further
cause or exacerbation). Seller will not have any obligation to indemnify Buyer
with respect to supervision, information or oversight costs incurred in
connection with any remediation performed by Seller for which Buyer seeks
indemnity. Buyer acknowledges that nothing contained herein absolves it of any
obligation under any Environmental Law for Environmental Losses with respect to
violations of Environmental Laws by Buyer, its employees, contractors,
representatives or agents.
10.4 Losses Net of Insurance, Etc.
(a) The amount of any Loss for which indemnification is provided under
this Article X shall be net of any amounts actually recovered or which could be
recovered, on a commercially reasonable basis, by the Indemnified Person under
insurance policies with respect to such Loss and of any related reserve in
respect thereof reflected on the Final Closing Balance Sheet; provided, however,
that the amount of such Loss will not be reduced to the extent the Indemnified
Person can demonstrate that a net increase in insurance premiums has occurred or
is reasonably likely to occur as a result of such claim (whether by
retrospective or retroactive
48
premium adjustment, and giving effect to the present value of any such premium
increase over the period for which it is reasonably anticipated to be effective)
and provided, further, that this Section 10.4(a) will not be applicable to the
extent it constitutes an improper waiver of the insurer's rights of subrogation
against the Indemnifying Person. Notwithstanding the foregoing, Buyer will not
have any obligation (i) to seek insurance recovery in respect of Losses to the
extent such recovery would be precluded or would preclude other (A) pending
claims or (B) claims reasonably likely, based upon past claims experience, to be
submitted as a result of the applicable policy coverage limit, or (ii) to
maintain insurance for the benefit or in the name of Sellers, or to make Sellers
named insureds, after the Closing.
(b) Notwithstanding anything to the contrary elsewhere in this Agreement,
no Indemnifying Person shall, in any event, be liable to the other party for any
consequential damages, including, but not limited to, loss of revenue or income,
cost of capital, diminution in value, or loss of business reputation or
opportunity relating to the breach or alleged breach of this Agreement. Each
party agrees that it will not seek punitive damages as to any matter under,
relating to or arising out of the Transactions. The foregoing shall not be
interpreted, however, to limit indemnification for Losses incurred as a result
of the assertion by a claimant (other than the parties hereto and their
successors and assigns) in a Third-Party Claim of claims for damages of the
foregoing type.
(c) Except as expressly set forth in Section 6.6(b) and Section 11.5 as
to equitable remedies, the parties hereto agree that the indemnification
provisions of this Article X are intended to provide the exclusive remedy as to
all Losses either may incur arising from or relating to the Transactions, and
each party hereby waives, to the extent they may do so, any other rights or
remedies that may arise under any applicable statute, rule or regulation.
10.5 Termination of Indemnification. The obligations to indemnify and hold
harmless a party hereto, pursuant to Sections 10.1(a) and 10.2(a), shall
terminate when the applicable representation or warranty terminates pursuant to
Section 10.8; provided, however, that such obligations to indemnify and hold
harmless shall not terminate with respect to any item as to which the person to
be indemnified shall have, before the expiration of the applicable period,
previously made a claim by delivering a notice (stating in reasonable detail the
basis of such claim) to the Indemnifying Person.
10.6 Procedures Relating to Indemnification (Other than for Tax Claims). In
order for an Indemnified Person to be entitled to any indemnification provided
for under this Agreement (other than for Tax Claims) in respect of, arising out
of or involving a claim or demand made by any Person against the Indemnified
Person (a "Third-Party Claim"), such Indemnified Person must notify the
Indemnifying Person in writing, and in reasonable detail, of the Third-Party
Claim within 10 Business Days after receipt by such Indemnified Person of
written notice of the Third-Party Claim; provided, however, that failure to give
such notification shall not affect the indemnification provided hereunder except
to the extent the Indemnifying Person shall have been actually prejudiced as a
result of such failure (except that the Indemnifying Person shall not be liable
for any Losses incurred during the period in which the Indemnified Person failed
to give
49
such notice). Thereafter, the Indemnified Person shall deliver to the
Indemnifying Person, within five Business Days after the Indemnified Person's
receipt thereof, copies of all notices and documents (including court papers)
received by the Indemnified Person relating to the Third-Party Claim.
If a Third-Party Claim is made against an Indemnified Person, the
Indemnifying Person will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
Indemnifying Person and reasonably satisfactory to the Indemnified Person.
Should the Indemnifying Person so elect to assume the defense of a Third-Party
Claim, the Indemnifying Person will not be liable to the Indemnified Person for
legal fees and expenses subsequently incurred by the Indemnified Person in
connection with the defense thereof. If the Indemnifying Person assumes such
defense, the Indemnified Person shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Person, it being understood that the
Indemnifying Person shall control such defense. The Indemnifying Person shall be
liable for the fees and expenses of counsel employed by the Indemnified Person
for any period during which the Indemnifying Person has not assumed the defense
thereof (other than during any period in which the Indemnified Person shall have
failed to give notice of the Third-Party Claim as provided above). If the
Indemnifying Person chooses to defend or prosecute any Third-Party Claim, all
the parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the Indemnifying Person's
request) the provision to the Indemnifying Person of records and information
which are reasonably relevant to such Third-Party Claim, and making employees
available on a mutually convenient basis in the manner specified in Section 8.6
hereof to provide additional information and explanation of any material
provided hereunder. Notwithstanding the foregoing, in the event a Third-Party
Claim is made against an Indemnified Person as to which such Indemnified Person
is entitled to seek indemnification hereunder and (i) such Indemnified Person
reasonably concludes that the Indemnifying Person lacks the financial and
personnel resources to vigorously defend such Indemnified Person, or that the
Indemnifying Person is not diligently defending such Indemnified Person, or (ii)
if there is a reasonable probability that a Third-Party Claim may materially and
adversely affect an Indemnified Person other than as a result of money damages
or money payments, then in each such case the Indemnified Person may elect to
retain the defense of such Third-Party Claim and will be entitled to be
reimbursed by the Indemnifying Person for its Losses incurred in such defense,
such expenditures to be reimbursed promptly after submission of invoices
therefor. Whether or not the Indemnifying Person shall have assumed the defense
of a Third-Party Claim, the Indemnified Person shall not admit any liability
with respect to, or settle, compromise or discharge, such Third-Party Claim
without the Indemnifying Person's prior written consent (which consent shall not
be unreasonably withheld or delayed). All Tax Claims (as defined in Section
10.7) shall be governed by Section 10.7.
10.7 Procedures Relating to Indemnification of Tax Claims.
(a) If notice of an audit, examination or other proceeding is received
from any Tax authority, which, if successful, might result in an indemnity
payment to any Person
50
hereunder (a "Tax Indemnitee"), the Tax Indemnitee shall promptly notify the
party against whom indemnification is sought (the "Tax Indemnitor") in writing
of such potential claim (a "Tax Claim"). If notice of a Tax Claim is not given
to the Tax Indemnitor within a sufficient period of time to allow the Tax
Indemnitor to effectively participate in such audit, examination or proceeding,
or in reasonable detail to apprise the Tax Indemnitor of the nature of the Tax
Claim, in each case taking into account the facts and circumstances with respect
to such Tax Claim, the Tax Indemnitor shall not be liable to the Tax Indemnitee
to the extent that the Tax Indemnitor's ability to effectively contest such Tax
Claim is actually prejudiced as a result thereof.
(b) With respect to any Tax Claim, the Tax Indemnitor shall control all
audits, examinations and other proceedings in connection with such Tax Claim
(including, without limitation, selection of counsel) and, without limiting the
foregoing, may in its sole discretion pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with any taxing
authority with respect thereto and may, in its sole discretion, either pay any
Tax claimed and sue for a refund where applicable law permits such refund suits
or contest the Tax Claim in any permissible manner; provided, however, that the
Tax Indemnitor shall not settle or compromise a Tax Claim without giving 15
days' prior notice to the Tax Indemnitee, and without the Tax Indemnitee's
consent, which shall not be unreasonably withheld or delayed, if such settlement
or compromise would have a material adverse effect on the Tax liabilities of the
Tax Indemnitee. The Tax Indemnitee, and each of its Affiliates, shall cooperate
with the Tax Indemnitor in contesting any Tax Claim, which cooperation shall
include, without limitation, the retention and (upon the Tax Indemnitor's
request) the provision to Tax Indemnitor of Records and information which are
reasonably relevant to such Tax Claim, and making employees available on a
mutually convenient basis to provide additional information or explanation of
any material provided hereunder or to testify at proceedings relating to such
Tax Claim.
10.8 Survival of Representations. The representations and warranties in this
Agreement and in any other document delivered in connection herewith shall
survive the Closing solely for purposes of Sections 10.1(a) and 10.2(a) and,
except as set forth in the next sentence, shall terminate at the close of
business 18 months after the Closing Date. The representations and warranties in
Sections 4.1 and 4.10(b) shall terminate on the fifth anniversary of the Closing
Date, the representations and warranties in Section 4.3 shall survive for the
applicable statute of limitations pertaining to the underlying tax liability and
the representations and warranties contained in Section 4.5 shall not survive
the Closing.
ARTICLE XI
GENERAL PROVISIONS
11.1 Assignment. This Agreement and the rights and obligations hereunder
shall not be assignable or transferable by either party other than by operation
of law or in connection with a merger or sale of substantially all the assets of
such party without the prior written
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consent of the other, which consent will not be unreasonably withheld; provided,
however, that Buyer may assign its right to purchase the Assets hereunder to an
Affiliate of Buyer without the prior written consent of MagneTek; provided
further, however, that no assignment shall limit or affect Buyer's obligations
hereunder. Notwithstanding the foregoing, it shall be deemed unreasonable for
(i) either MagneTek or Buyer to withhold their consent to an assignment of this
Agreement in whole, to an entity of the net worth of which is equal to or
exceeds that of the assignor or (ii) MagneTek to withhold its consent to an
assignment of this Agreement in part to an entity the net worth of which equals
or exceeds the prior twelve months' revenues for the portion of the Business
being sold.
11.2 No Third-Party Beneficiaries. Except as provided in Article X as to
Indemnified Persons, this Agreement is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied shall
give or be construed to give to any person or entity, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
11.3 Termination.
(a) Anything contained herein to the contrary notwithstanding, this
Agreement may be terminated (except as set forth in Section 11.3(c)) and the
Transactions abandoned at any time prior to the Closing Date:
(i) by mutual written consent of Seller and Buyer;
(ii) by Seller (x) if any of the conditions set forth in Section
3.1 shall have become incapable of fulfillment, and shall not have been
waived by Seller or (y) the condition in Section 3.1(c) shall not have
been satisfied on or before July 12, 1999;
(iii) by Buyer if any of the conditions set forth in Section 3.2
shall have become incapable of fulfillment, and shall not have been
waived by Buyer; or
(iv) by either party hereto, if the Closing does not occur on or
prior to September 30, 1999.
(b) In the event of termination by Seller or Buyer pursuant to this
Section 11.3, written notice thereof shall forthwith be given to the other party
and the Transactions shall be terminated, without further action by either
party. If the Transactions are terminated as provided herein:
(i) Buyer shall return all documents and copies and other material
received from Seller relating to the Transactions, whether so obtained
before or after the execution hereof, to Seller; and
(ii) all confidential information received by Buyer with respect
to the Business and Seller shall be treated in accordance with the
Confidentiality
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Agreement which shall remain in full force and effect notwithstanding the
termination of this Agreement.
(c) If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 11.3, this Agreement shall
become void and of no further force and effect, except for the provisions of (i)
Section 7.1 relating to the obligation of Buyer to keep confidential certain
information and data obtained by it, (ii) Section 8.3 relating to publicity,
(iii) Section 11.4 relating to certain expenses, (iv) Section 11.11 relating to
finder's fees and broker's fees and (v) this Section 11.3. Nothing in this
Section 11.3 shall be deemed to release either party from any liability for any
breach by such party of the terms and provisions of this Agreement or to impair
the right of either party to compel specific performance by the other party of
its obligations under this Agreement.
11.4 Expenses. Whether or not the transactions contemplated hereby are
consummated, and except as otherwise provided in this Section 11.4, Section 2.7
or elsewhere in this Agreement, all fees, costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees, costs or expenses.
11.5 Equitable Relief. The parties hereto agree that in the event of
Sellers' breach of its obligations to consummate the Transactions, damages may
prove insufficient and Buyer should be entitled to the remedy of specific
performance.
11.6 Amendments. No amendment to this Agreement shall be effective unless it
shall be in writing and signed by MagneTek and A.O. Smith Corporation.
11.7 Notices. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered by hand or sent
prepaid telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail, or reputable overnight courier service and shall be
deemed given when so delivered by hand, telexed, cabled or telecopied, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
(i) if to Buyer, to:
A.O. Smith Corporation
11270 West Park Place
P.O. Box 23972
Milwaukee, Wisconsin 53223-0972
Attention: Steve W. Rettler
Telephone: (414) 359-4048
Telecopier: (414) 359-4198
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with a copy to:
A.O. Smith Corporation
11270 West Park Place
P.O. Box 23972
Milwaukee, Wisconsin 53223-0972
Attention: W. David Romoser, Esq.
Telephone: (414) 359-4137
Telecopier: (414) 359-4143
and to:
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202-5367
Attention: Patrick G. Quick, Esq.
Telephone: (414) 297-5678
Telecopier: (414) 297-4900
(ii) if to Seller, to:
MagneTek, Inc.
26 Century Boulevard
Nashville, Tennessee 37214
Attention: Samuel A. Miley, Esq.
Telephone: (615) 316-5260
Telecopier: (615) 316-5192
with a copy to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Jennifer Bellah Maguire, Esq.
Telephone: (213) 229-7986
Telecopier: (213) 229-7520
11.8 Interpretation; Exhibits and Schedules. The headings contained in this
Agreement, in any Exhibit or Schedule hereto and in the table of contents to
this Agreement, are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Information set forth in each
Schedule specifically refers to the article and section of this Agreement to
which such information is responsive, and such information shall not be deemed
to have been disclosed with respect to any statement in any article and section
that is not qualified by reference to the pertinent Schedule or, except with
regard to information set forth on the face of any Schedule that makes
reasonably apparent its applicability to any other Schedule,
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with respect to any other article or section of this Agreement or for any other
purpose. The Schedules shall not vary, change or alter the language of the
representations and warranties contained in this Agreement. All Exhibits and
Schedules annexed hereto or referred to herein are hereby incorporated in and
made a part of this Agreement as if set forth in full herein. Any capitalized
terms used in any Schedule or Exhibit, but not otherwise defined therein, shall
have the meaning as defined in this Agreement.
11.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
11.10 Entire Agreement. This Agreement and the Confidentiality Agreement
contain the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior oral and written
agreements and understandings relating to such subject matter.
11.11 Fees. Each party hereto hereby represents and warrants that (a) the
only brokers or finders that have acted for such party in connection with this
Agreement or the transactions contemplated hereby or that may be entitled to any
brokerage fee, finder's fee or commission in respect thereof are Robert W. Baird
& Co. Incorporated with respect to Buyer and Goldman Sachs with respect to
Seller, and (b) each of Buyer and Seller agrees that it will pay all fees or
commissions which may be payable to such firm(s) as are describe in clause (a)
as relating to it.
11.12 Severability. If any provision of this Agreement or the application of
any such provision to any person or circumstance shall be held invalid, illegal
or unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof.
11.13 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
SELLERS:
MAGNETEK, INC.
By: /s/ David P. Reiland
Name: David P. Reiland
Title: Sr. Vice President - CFO
MAGNETEK SERVICE (U.K.) LIMITED
By: /s/ David P. Reiland
Name: David P. Reiland
Title: Authorized Signer
BUYER:
A.O. SMITH CORPORATION
By: /s/ Glen R. Bomberger
Name: Glen R. Bomberger
Title: Executive Vice President and Chief
Financial Officer
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